<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d) of the Securities Exchange Act of
1934 for the Quarterly Period Ended June 25, 1994
-----------------------------------------
Commission File No. 1-2300
------------------------------------------
Scott Paper Company
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1065080
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Scott Plaza, Philadelphia, Pennsylvania 19113
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 522-5000
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 2, 1994
- - --------------------------- -----------------------------
Common Shares, no par value 74,642,843 shares
1.
<PAGE>
<TABLE>
<CAPTION>
SCOTT PAPER COMPANY
INDEX
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated statement of earnings for the three month and
six month periods ended June 25, 1994 and June 26, 1993........................................ 3
Consolidated balance sheet at June 25, 1994, December 25, 1993
and June 26, 1993.............................................................................. 4
Consolidated statement of changes in common shareholders' equity for the
six month periods ended December 25, 1993 and June 25, 1994.................................... 5
Consolidated statement of cash flows (condensed) for the
six month periods ended June 25, 1994 and June 26, 1993........................................ 6
Notes to Consolidated Financial Statements..................................................... 7
Item 2. Management's Discussion and Analysis........................................................... 8
PART II. OTHER INFORMATION............................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............................................ 13
Item 5. Other Information.............................................................................. 14
Item 6. Exhibits and Reports on Form 8-K............................................................... 14
Signatures.............................................................................................. 15
Exhibit Index........................................................................................... 16
</TABLE>
2.
<PAGE>
SCOTT PAPER COMPANY
-------------------
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(Millions, Except on a Per Share Basis)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
June 25, June 26, June 25, June 26,
---------- --------- --------- ----------
1994 1993(a) 1994 1993(a)
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Sales $1,176.7 $1,203.8 $2,277.1 $2,353.7
-------- -------- -------- --------
Costs and expenses
Product costs 868.4 908.3 1,705.0 1,775.5
Marketing and distribution 146.5 157.4 279.8 302.7
Research, administration and
general 63.9 57.3 119.7 116.7
Other - 5.4 1.5 7.0
-------- -------- -------- --------
1,078.8 1,128.4 2,106.0 2,201.9
-------- -------- -------- --------
Income from operations 97.9 75.4 171.1 151.8
Interest expense 46.1 45.5 90.3 92.3
Other income and (expense) 1.7 1.2 2.3 2.2
-------- -------- -------- --------
Income before taxes 53.5 31.1 83.1 61.7
Taxes on income 19.8 13.1 31.2 23.8
-------- -------- -------- --------
Income before share of earnings of
international equity affiliates
and cumulative effect of accounting
change 33.7 18.0 51.9 37.9
Share of earnings of
international equity affiliates 6.5 5.5 13.5 9.1
-------- -------- -------- --------
Income before cumulative effect
of accounting change 40.2 23.5 65.4 47.0
Cumulative effect of change in
accounting for income taxes - - - 21.7
-------- -------- -------- --------
Net income $ 40.2 $ 23.5 $ 65.4 $ 68.7
======== ======== ======== ========
Earnings per share:
Income before cumulative
effect of accounting change $ .54 $ .32 $ .88 $ .64
Cumulative effect of change in
accounting for income taxes - - - .29
-------- -------- -------- --------
Net income $ .54 $ .32 $ .88 $ .93
======== ======== ======== ========
Dividends per share $ .20 $ .20 $ .40 $ .40
Average shares outstanding 74.4 74.0 74.3 74.0
</TABLE>
(a) Certain accounting reclassifications (not affecting net income) have been
made to present more clearly the results of operations.
The accompanying notes are an integral part of these financial statements. 3.
<PAGE>
SCOTT PAPER COMPANY
-------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Millions)
<TABLE>
<CAPTION>
June 25, 1994 December 25, 1993 June 26, 1993
-------------------- -------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Assets
- - ------
Current assets
Cash and cash equivalents $ 101.7 $ 133.6 $ 91.0
Receivables 569.4 600.3 619.9
Inventories
Finished products $ 214.5 $ 220.0 $ 250.5
Work in process 70.8 69.6 78.2
Raw materials and other 216.5 501.8 234.1 523.7 254.2 582.9
--------- --------- ---------
Deferred income taxes 243.2 277.9 173.3
Prepaid items and other 75.1 74.4 63.7
-------- -------- --------
1,491.2 1,609.9 1,530.8
Plant assets at cost 7,447.2 7,298.9 7,220.3
Accumulated depreciation (3,396.9) 4,050.3 (3,275.0) 4,023.9 (3,224.0) 3,996.3
--------- --------- ---------
Timber resources 111.7 113.0 112.9
Investments in and advances
to affiliates 307.3 307.9 339.6
Construction funds held by trustees 108.2 87.1 1.5
Notes receivable, goodwill
and other assets 495.6 483.3 489.2
-------- -------- --------
Total $6,564.3 $6,625.1 $6,470.3
======== ======== ========
Liabilities and Shareholders' Equity
- - ------------------------------------
Current liabilities
Payable to suppliers and others $ 789.9 $ 891.5 $ 866.3
Accruals for restructuring programs 487.1 639.0 194.9
Current maturities of long-term debt 107.2 180.2 237.1
Accrued taxes on income 37.8 59.1 49.9
-------- -------- --------
1,422.0 1,769.8 1,348.2
Long-term debt 2,514.1 2,366.2 2,160.7
Deferred income taxes and
other liabilities 985.9 913.4 918.1
-------- -------- --------
4,922.0 5,049.4 4,427.0
Preferred shares 7.1 7.1 7.1
Common shareholders' equity 1,635.2 1,568.6 2,036.2
-------- -------- --------
Total $6,564.3 $6,625.1 $6,470.3
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SCOTT PAPER COMPANY
-------------------
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
----------------------------------------------------------------
(Millions)
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Reinvested Common Treasury Translation
Earnings Shares Shares Adjustment Total
----------- ------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at June 26, 1993 $1,747.3 $449.6 $(12.4) $(148.3) $2,036.2
Net loss (345.7) (345.7)
Dividends
Common shares (29.6) (29.6)
Preferred shares (.2) (.2)
Shares issued for the
exercise of stock options,
stock awards, and
restricted stock grants .8 .8
Foreign currency
translation adjustment (79.2) (79.2)
Minimum pension liability charge (13.7) (13.7)
- - -------------------------------------------------------------------------------------------
Balance at December 25, 1993 1,358.1 450.4 (12.4) (227.5) 1,568.6
Net income 65.4 65.4
Dividends
Common shares (29.8) (29.8)
Preferred shares (.1) (.1)
Shares issued for the
exercise of stock options,
stock awards, and
restricted stock grants 16.4 1.4 17.8
Foreign currency
translation adjustment 13.3 13.3
- - -------------------------------------------------------------------------------------------
Balance at June 25, 1994 $1,393.6 $466.8 $(11.0) $(214.2) $1,635.2
======== ====== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SCOTT PAPER COMPANY
-------------------
CONSOLIDATED STATEMENT OF
-------------------------
CASH FLOWS (Condensed)
----------------------
(Millions)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 25, June 26,
--------- ---------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- - ------------------------------------
Net income $ 65.4 $ 68.7
Adjustments to reconcile net income to
net cash provided by operating activities:
Cumulative effect of accounting change - (21.7)
Share of earnings of affiliates, net of distributions (10.7) (4.9)
Depreciation, cost of timber harvested and
amortization 152.8 150.1
Deferred income taxes 26.5 4.7
Gains (losses) on asset sales .3 (0.4)
Postretirement benefits, deferred expenses 1.3 13.7
Net changes in current assets and current liabilities (122.6) (174.6)
------- -------
Net cash provided by operating activities 113.0 35.6
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- - ------------------------------------
Investments in plant assets, timber resources and other
assets (185.9) (177.8)
Advances to affiliates, net (0.3) (1.6)
Other investing (5.7) 1.7
------- -------
Net cash used for investing activities (191.9) (177.7)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- - ------------------------------------
Dividends paid (29.9) (29.7)
Proceeds from issuance of long-term debt, net of
issuance costs 449.8 230.4
Repayments of long-term debt (387.1) (46.4)
Net decrease in short-term borrowings (1.1) (58.9)
Other financing 12.6 (3.3)
------- -------
Net cash provided by financing activities 44.3 92.1
------- -------
Effect of exchange rate changes on cash 2.7 (0.7)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (31.9) (50.7)
Cash and cash equivalents at beginning of period 133.6 141.7
------- -------
Cash and cash equivalents at end of period $ 101.7 $ 91.0
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
1. Statement of Information Furnished
----------------------------------
The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management these consolidated financial
statements give effect to all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
Scott Paper Company and its subsidiaries as of June 25, 1994 and June 26,
1993, and the earnings and cash flows for the six month periods ended June
25, 1994 and June 26, 1993.
The Company presumes that users of this Quarterly Report on Form 10-Q have
read or have access to the audited financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 25, 1993.
Accordingly, footnote disclosures which would substantially duplicate the
disclosures contained therein have been omitted.
2. Supplemental Cash Flow Information
----------------------------------
Cash payments for interest, net of amounts capitalized, were $81.1 million
and $77.9 million during the first six months of 1994 and 1993,
respectively. Cash payments for income taxes were $25.8 million and $18.0
million during the first six months of 1994 and 1993, respectively.
3. Restructuring and Productivity Improvement
------------------------------------------
At year end 1993, the Company had accruals for restructuring programs of
$639.0 million recorded in its balance sheet including the 1993 charges for
restructuring and productivity improvement programs. During the first six
months of 1994, $151.9 million was charged to these reserves primarily for
lump sum payments related to early retirements, the reclassification to the
appropriate long-term liability accounts of special termination benefits
related to those retirements and the effects of the sale of the polystyrene
bead operations.
Based on current estimates of total cost to accomplish the broader and
accelerated restructuring plan announced on August 3, the Company estimates
that no additional reserves will be required. See Management's Discussion
and Analysis for further detail on the announcement.
4. Accounting Standards Change
---------------------------
The Company adopted Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits (FAS 112), during the first quarter
of 1994. This standard requires employers to recognize and, when necessary,
accrue for the estimated cost of benefits provided to former or inactive
employees after employment but before retirement. The effect on the Company
of adopting this statement was not material.
Beginning in 1993, the Company adopted Financial Accounting Standards No.
109, Accounting for Income Taxes (FAS 109). This standard requires that the
deferred tax liability account at the beginning of the year be adjusted to
equal the taxes that will be paid on taxable income deferred into future
years based on the tax rates in effect for the future years. The Company
reported a positive adjustment for the cumulative effect of adopting the
provisions of FAS 109 of $21.7 million, or $.29 per share, in the first
quarter of 1993.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations -
- - ---------------------
Second Quarter 1994 Compared With Second Quarter 1993
- - -----------------------------------------------------
The Company's second quarter net income increased 71% to $40.2 million from
$23.5 million for the same period in 1993. Earnings per share for the quarter
were up 69% to $.54 from $.32 in 1993. Dollar sales in the second quarter 1994
declined 2% to $1.18 billion.
The second quarter results reflect the Company's early progress in cost
reduction efforts which led to significantly higher earnings for the consumer
and away-from-home tissue operations, its core business, around the world.
These results were achieved despite lower earnings of S. D. Warren, the
Company's printing and publishing papers subsidiary. By the end of the second
quarter the Company's worldwide work force had been reduced by over 3,000 people
as part of the current cost reduction program. The quarter's earnings benefited
significantly from manufacturing cost improvements driven by expense reduction
and productivity improvement elements of the cost reduction program.
The second quarter 1994 income from operations for the consolidated global
consumer and away-from-home tissue business was up 40% from 1993 and the
operating margin increased to 12%. Earnings improved in each region, while
overall sales revenue declined 1%.
Income from operations for the U.S. tissue business was up 52% from the same
quarter last year, primarily as a result of lower manufacturing costs. Sales
revenue was up 4% while overall volume was flat.
Outside the U.S., the European region tissue business increased income from
operations by 18%. Costs were effectively controlled to more than offset a 13%
reduction in sales stemming from lower consumer volume, depressed pricing and
unfavorable foreign exchange effects. Income from operations in the Pacific
region was up over 30% on an 11% sales gain. The Company's share of earnings
from its equity affiliates also increased primarily due to cost reduction
efforts.
S. D. Warren's income from operations declined from the second quarter of 1993,
as selling prices continued to be depressed. Sales revenue and unit volume were
down 5% and 1%, respectively. During the quarter, coated paper markets
continued to be over-supplied by excess industry capacity and imported paper.
However, as the quarter ended, S. D. Warren's order levels and backlogs were
increasing.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations -
- - ---------------------
Six Months 1994 Compared With Six Months 1993
- - ---------------------------------------------
For the first six months of 1994, net income was $65.4 million and earnings per
share were $.88. In the first half of 1993, net income was $68.7 million and
earnings per share were $.93, including a one-time positive adjustment of $21.7
million or $.29 per share for the cumulative effect of the required adoption of
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes. Excluding this positive adjustment, net income and earnings per share
for the first six months were, respectively, 39% and 38% ahead of last year.
Dollar sales for the first six months of 1994 declined 3% to $2.28 billion.
Results for the first half of 1994 reflect the Company's progress in cost
reduction efforts which led to significantly higher earnings for the consumer
and away-from-home tissue operations, its core business around the world. These
results were achieved despite lower earnings of S. D. Warren, the Company's
printing and publishing papers subsidiary. By the end of the second quarter,
the Company's worldwide work force had been reduced by over 3,000 people as part
of the current cost reduction program. Earnings for the first half of 1994
benefited significantly from manufacturing cost improvements driven by expense
reduction and productivity improvement elements of the cost reduction program.
Income from operations for the consolidated global consumer and away-from-home
tissue business was up 29% in the first six months of 1994 and the operating
margin increased to 10%. Earnings improved in each region, while overall sales
revenue declined 3%.
Income from operations for the U.S. tissue business was up 36% from the same
six-month period last year, primarily as a result of lower manufacturing costs.
Sales revenue was up 2% while overall sales volume decreased 2%.
Outside the U.S., the European region tissue business increased income from
operations by 12% in the first half of 1994. Costs were effectively controlled
to more than offset a 14% reduction in sales revenue stemming from lower
consumer volume, depressed pricing and unfavorable foreign exchange effects.
Income from operations in the Pacific region was up 36% for the six-month period
and sales revenue was 7% higher than in 1993. The Company's share of earnings
from its equity affiliates also increased primarily due to cost reduction
efforts.
S. D. Warren's income from operations declined during the first half of 1994, as
selling prices continued to be depressed. Sales revenue and unit volume were
down 4% and 1%, respectively. Throughout the six-month period, coated paper
markets continued to be over-supplied by excess industry capacity and imported
paper. However, as the first half of the year ended, S. D. Warren's order
levels and backlogs were increasing.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Accelerated Restructuring Plan - Announced August 3, 1994
- - ---------------------------------------------------------
The Company announced an acceleration of the major restructuring plan that was
initiated in late 1993 that was to be completed over a three-year period. The
Company will now complete the broader restructuring, which includes 2,200
additional work force reductions, by the end of 1994 and following successful
implementation expects to realize annual pretax benefits in excess of $400
million.
Key elements of the expanded restructuring include:
. Reduction in work force of 10,500 - up 2,200 from the previously announced
reduction of 8,300 over a three-year period. The current and prior plans both
include a work force reduction of 1,200 employees at S. D. Warren, the Company's
printing and publishing papers subsidiary. However, the Company had announced
in May it would explore the sale of, or other strategic alternatives for, S. D.
Warren. These actions will reduce the work force of the Company and its equity
affiliates to approximately 24,000 by the end of this year (approximately 20,000
excluding S. D. Warren).
. Significant decreases in controllable expenses. Examples of areas to be
reduced include consulting, travel expenses, office and warehouse space, and
other administrative expenses. As part of these reductions, the number of
warehouses used in the U.S. tissue business will be scaled back from 60 to 19,
memberships in virtually all outside organizations will be eliminated, and
fees for many services are being renegotiated.
. Closing and reducing capacity at certain older, high-cost production
facilities, including more than 100,000 tons, or more than 5 percent, of
tissue manufacturing capacity in the United States and Europe, and the
printing and writing paper production operations in the Company's Mexican
affiliate. Production facilities will also be streamlined where appropriate
to improve efficiency.
The acceleration of the restructuring caused modification of several elements of
the previously announced plan. As a result of these modifications, management
estimates that no additional special charges are required to accomplish the
expanded program. Management does not underestimate the challenges it faces in
accomplishing a restructuring of this magnitude.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition -
- - -------------------
Liquidity and Capital Resources
- - -------------------------------
Cash provided by operations during the first six months of 1994 and 1993 was
$113.0 million and $35.6 million, respectively. The net amount of cash provided
by operations for these periods was adversely affected by increases in working
capital. The increase in working capital for the six months ended June 25, 1994
was primarily due to a decrease in payable to suppliers and others.
Capital expenditures were $185.9 million during the first six months of 1994
compared with $177.8 million during the same period in 1993. During 1994 and
1995, the Company plans to invest between $800 and $900 million in capital
projects. The projects include: $200 million of spending related to the
productivity improvement program; the modernization of the pulp mill in Mobile,
Alabama; capacity expansion for the wet wipes business in Dover, Delaware; a
sheeting facility for S. D. Warren in Allentown, Pennsylvania; construction of a
state-of-the-art tissue mill in Owensboro, Kentucky; and other projects designed
to sustain existing operations and reduce costs. The Company expects to finance
this spending from internally-generated funds and previously issued tax-exempt
financings.
Total debt at June 25, 1994 was $2,621.3 million compared with $2,397.8 million
at June 26, 1993 and $2,546.4 million at December 25, 1993. During the first
six months of 1994, the Company's financing activities included the issuance of
$45 million of tax-exempt bonds, which will be used to finance a portion of the
Owensboro tissue mill construction. The Company retired $85.4 million of
debentures primarily through the issuance of commercial paper. The Company also
amended a loan agreement to extend maturities of $75.3 million of notes which
were transferred from current maturities of long-term debt to long-term debt.
To maintain financing flexibility, the Company maintains two long-term revolving
credit agreements totaling $775 million, all unused at June 25, 1994.
The Company's debt to equity ratios at June 25, 1994, December 25, 1993 and June
26, 1993 are set forth below:
June 25, 1994 December 25, 1993 June 26, 1993
------------- ----------------- -------------
Debt to equity 160% 162% 117%
June 25, 1994 Compared With June 26, 1993
- - -----------------------------------------
Total assets of $6,564.3 million at June 25, 1994 increased $94.0 million or
1.5% compared with total assets of $6,470.3 million at June 26, 1993. The
increase was primarily due to an increase in construction funds held by trustees
of $106.7 million.
Total liabilities of $4,922.0 million at June 25, 1994 increased $495 million or
11.2% compared with total liabilities of $4,427.0 million of June 26, 1993. The
increase was primarily due to an increase in the accruals for restructuring
programs of $292.2 million and an increase in total debt of $223.5 million.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition -
- - -------------------
June 25, 1994 Compared With June 26, 1993 (Continued)
- - -----------------------------------------------------
Common shareholders' equity at June 25, 1994 of $1,635.2 million decreased
$401.0 million compared with the June 26, 1993 balance of $2,036.2 million due
primarily to a net loss resulting from restructuring charges during 1993 as well
as foreign currency translation adjustments and dividends paid.
June 25, 1994 Compared With December 25, 1993
- - ---------------------------------------------
Total assets at June 25, 1994 of $6,564.3 million decreased $60.8 million or .9%
compared with total assets of $6,625.1 million at December 25, 1993. This was
primarily due to a decrease in current assets of $118.7 million.
Total liabilities of $4,922.0 million at June 25, 1994 decreased $127.4 million
or 2.5% compared with total liabilities of $5,049.4 million of December 25,
1993. The decrease was primarily due to a decrease in payable to suppliers and
others of $101.6 million.
Common shareholders' equity at June 25, 1994 of $1,635.2 million was $66.6
million greater than the balance at December 25, 1993 of $1,568.6 million due
primarily to reinvested earnings, shares issued for the exercise of stock
options, awards and grants, net of dividends paid.
12
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the adjourned Annual Meeting of the Company's Shareholders held on June
3, 1994, the following persons were duly nominated and elected to serve as
Directors on the Company's Board of Directors. Pierre J. Everaert, who had been
nominated in the Company's proxy materials, did not stand for election at the
meeting. The numbers of votes for and withheld for each individual Director are
set forth opposite his or her name:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
William A. Andres 52,924,409 297,460
Jack J. Crocker 52,919,406 302,463
Albert J. Dunlap 52,925,318 296,551
John F. Fort, III 52,856,157 365,712
William H. Gray, III 52,927,051 294,818
Peter Harf 52,948,317 273,552
J. Richard Leaman, Jr. 52,920,724 301,145
Richard K. Lochridge 52,924,582 297,287
Bruce K. MacLaury 52,893,415 328,454
Claudine B. Malone 52,820,515 401,354
Gary L. Roubos 52,931,130 290,739
Paula Stern 52,921,533 300,336
</TABLE>
A proposal to approve the adoption of the stock option and bonus provisions
of the Employment Agreement between the Company and Albert J. Dunlap was adopted
with 44,467,777 votes in favor, 4,601,657 votes against, 471,597 votes
abstaining and 3,680,838 broker nonvotes.
A proposal to approve the adoption of the portion of the 1994 Long-Term
Incentive Plan relating to stock options was adopted with 46,371,458 votes in
favor, 10,216,933 votes against, 479,210 votes abstaining and 4,958,386 broker
nonvotes.
A proposal to approve the adoption of the portion of the 1994 Long-Term
Incentive Plan relating to restricted stock was adopted with 45,707,938 votes in
favor, 10,817,409 votes against, 542,262 votes abstaining and 4,958,386 broker
nonvotes.
A proposal to approve the adoption of the portion of the 1994 Long-Term
Incentive Plan relating to performance shares was adopted with 47,493,363 votes
in favor, 9,057,337 votes against, 516,901 votes abstaining and 4,958,386 broker
nonvotes.
A proposal to approve the action of the Board of Directors in appointing
Price Waterhouse, independent accountants, to be the Company's auditors for the
year 1994 was adopted with 61,648,717 votes in favor, 220,524 votes opposed and
156,746 votes abstaining.
13
<PAGE>
Item 5. Other Information
-----------------
On June 20, 1994, William H. Gray, III resigned as a Director of the
Company.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Number Description
- - ------ -----------
10(a) Employment Agreement dated April 19, 1994 between the Company and
Albert J. Dunlap
10(b) 1994 Long-Term Incentive Plan
(b) Reports on Form 8-K:
Forms 8-K were filed April 19, 1994 and June 1, 1994, in each case
reporting information under Item 5.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
Scott Paper Company
--------------------------------
(Registrant)
DATE: August 8, 1994 /s/ Edward B. Betz
-------------- --------------------------------
Edward B. Betz
Vice President & Controller
(Authorized Signer and
Chief Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Number Description Page
- - ------ ----------- ----
10(a) Employment Agreement dated April 19, 17
1994 between the Company and
Albert J. Dunlap
10(b) 1994 Long-Term Incentive Plan 42
16
<PAGE>
EXHIBIT 10(a)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 19th day of April 1994, between SCOTT PAPER
COMPANY, a Pennsylvania corporation (the "Company"), and ALBERT J. DUNLAP (the
"Executive").
WHEREAS, the Company desires to employ the Executive as a director,
Chairman of the Board and Chief Executive Officer of the Company; and
WHEREAS, the Company and the Executive desire to enter into an
agreement providing for the terms and conditions of such employment;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements herein contained, the parties hereto agree
as follows:
1. Employment
----------
(a) The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to serve the Company, on the terms and conditions set
forth herein.
(b) The employment of the Executive by the Company, unless earlier
terminated pursuant to Section 8 below, shall be (i) for an initial
period of five years commencing April 19, 1994 (the "Commencement
Date") and expiring April 18, 1999 (the "Employment Period"), and (ii)
for successive one year periods ending on April 18 of each such year
(individually, a "Renewal Period"), unless notice of termination shall
have been given by either party hereto to the other not later than
October 18 of the preceding calendar year. Unless the context suggests
otherwise, the Employment Period hereunder shall for all purposes of
this Agreement be deemed to include any Renewal Period.
17
<PAGE>
2. Position and Duties
-------------------
The Executive shall serve as Chairman of the Board and Chief
Executive Officer and as a director of the Company, reporting to the
Board of Directors of the Company. The Executive shall have the
powers and duties of the Chairman of the Board and Chief Executive
Officer of the Company, which powers shall in all cases include,
without limitation, the power of supervision and control over and
responsibility for the general management and operation of the
Company, and the Executive shall have such other powers and duties as
may from time to time be prescribed by the Board of Directors of the
Company, provided that such duties are consistent with the
Executive's position as the chief executive officer in charge of the
general management of the Company. The Executive shall devote
substantially all his working time and efforts to the business and
affairs of the Company. It shall not be a violation of this Agreement
for the Executive to (i) serve on corporate, civic or charitable
boards or committees, and (ii) manage his personal investments, so
long as such activities do not unreasonably interfere with the
performance of the Executive's responsibilities as an officer of the
Company in accordance with this Agreement. Unless the context
suggests otherwise, all references to the "Company" in this Agreement
shall be deemed to include any corporation of which the Company owns,
directly or indirectly, more than 50% of the voting stock
("Subsidiary") and each Subsidiary that may hereafter be acquired,
directly or indirectly, by it.
3. Place of Performance
--------------------
(a) The Executive's services shall be performed at the Company's
principal executive office in Philadelphia, Pennsylvania, or at such
other place as the parties hereto may mutually agree.
(b) The Company shall promptly pay, or reimburse the Executive for, all
reasonable expenses incurred by the Executive relating to the change
of the Executive's residence from Boca Raton, Florida, in connection
with his employment hereun-
18
<PAGE>
der, including, without limitation, reasonable expenses for himself
and his family of travel, moving, storage and suitable lodging and
maintenance in the Philadelphia area for a period not to exceed six
months from and after the Commencement Date. The Company shall
reimburse the Executive on a grossed up basis in the event that any
taxation is assessed upon him in relation to any such expenses.
(c) The Company shall purchase from the Executive within 30 days after
the Commencement Date his home located in Boca Raton, Florida, at a
price equal to (i) the cost thereof as shown on the closing statement
for the purchase of the premises, dated July 27, 1993, and (ii) the
Executive's cost of improvements thereto and shall pay or reimburse
the Executive for all reasonable costs associated with the transaction.
(d) The Company shall pay or reimburse the Executive for all reasonable
costs and expenses of residential relocation for each and every
change, if any, in the location of the principal executive office of
the Company. The Executive shall be reimbursed by the Company on a
grossed up basis in the event that any taxation is assessed upon him
in relation to any such costs or expenses.
4. Compensation
------------
(a) Base Salary
-----------
The Executive shall receive a salary, payable in equal bi-weekly
installments, which shall be at the annual rate of $1,000,000 (the
"Base Salary"), except that during the 1994 calendar year the total
of the Base Salary and the Special Bonus payable pursuant to Section
4(b) hereof shall not exceed $1,000,000. Commencing in the 1995
calendar year, the Base Salary may be increased from time to time at
the discretion of the Company's Management Development and Executive
Compensation Committee or any successor thereof (the "Committee" and
the Board. Base salary shall not be reduced after any increase
thereof. Any increase in Base Salary shall not serve to limit any
other obligation of the Company under this Agreement.
19
<PAGE>
(b) Special Bonus
-------------
The Executive shall receive a special cash bonus in the amount of
$333,333 with respect to his employment during 1994 (the "Special
Bonus"). The Special Bonus shall be paid not later than 30 days after
the Commencement Date.
(c) Annual Incentive Bonus
----------------------
In lieu of participation in any Annual Incentive Plan of the Company
(other than any Long Term Incentive Plan) and commencing after the
last day of the Company's 1994 fiscal year, for each full fiscal year
of his employment hereunder, the Executive shall receive in cash an
incentive bonus equal to 1.25% of the Company's Net Income in excess
of 10.0% of the average of the beginning and ending Shareholders'
Equity of the Company for such fiscal year (the "Incentive Bonus").
The Net Income and Shareholders' Equity shall be determined in
accordance with Generally Accepted Accounting Principles consistently
applied as shown in the Company's audited annual consolidated
financial statements filed on Form 10-K with the Securities and
Exchange Commission. Subject to the provisions of Section 8 hereof,
in the event that the Executive's employment under this Agreement
terminates on a date other than the last day of a fiscal year that
commences after the close of the 1994 fiscal year, in lieu of the
Incentive Bonus that would have been payable for such fiscal year but
for such termination, the Executive shall receive a cash bonus (the
"Termination Bonus") in an amount to be determined by the Committee,
but in any event not less than an amount determined by multiplying the
preceding fiscal year's Incentive Bonus by a fraction the numerator
of which is the number of days the Executive was employed during the
fiscal year for which the Termination Bonus is to be paid and the
denominator of which is 365. The Incentive Bonus shall be paid to the
Executive no later than the date on which the Company pays annual
incentive awards under its other programs, but in any event no later
than March 31 of the year following the year for which the awards are
made. The Termination Bonus shall be paid to the Executive within 60
days of the termination of his employment with the Company
20
<PAGE>
hereunder. In the event that the Incentive Bonus or the Termination
Bonus is not timely paid by the Company as hereinabove provided, the
Executive shall be paid interest at the prime rate published from
time to time by Morgan Guaranty Trust Co. of New York on the unpaid
principal amount of such Bonus until such time as such Bonus is paid
in full. Payment of the Incentive Bonus and the Termination Bonus is
subject to the approval of the shareholders at the 1994 Annual
Meeting of Shareholders; provided that, if the shareholders fail to
approve both such Bonuses at such meeting, the Company and the
Executive shall negotiate in good faith a mutually acceptable
alternative compensation arrangement. The payment to the Executive of
Incentive Bonus and Termination Bonus hereunder shall not constitute,
or in any way diminish the obligation of the Company to pay, any Base
Salary or any other compensation payable hereunder. The terms and
provisions of the Incentive Bonus and Termination Bonus shall not be
subject to change except with the express written consent of the
Executive.
(d) Expenses
--------
During the term of his employment hereunder, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures
established by the Board of Directors for the Company's senior
executive officers) in connection with his services hereunder,
including, without limitation, travel, lodging and other expenses
incurred by him in reasonable travel between Boca Raton, Florida, and
the principal executive office of the Company until such time as he
shall have accomplished the relocation of his residence, not to
exceed six months after the commencement of his employment hereunder.
The Executive shall account to the Company for such expenses in
accordance with Company policy.
(e) Fringe Benefits
---------------
The Executive shall be eligible to participate in the Company's long-
term incentive plans and its 401(k) and savings plans. The Executive
shall be eligible to partici-
21
<PAGE>
pate, at no cost or expense to him, in the Company's welfare plans,
practices, policies and programs, including death benefit plans,
disability benefit plans, and medical, dental and health and welfare
plans (the "Benefit Plans") applicable generally to employees and/or
other senior executives of the Company. However, the Company's Annual
Incentive Plans, Retirement Plans and Termination Pay Plans are
excluded. The Company will waive, or obtain the waiver of, any
waiting periods for eligibility under the Benefit Plans.
(f) Vacation and Other Absences
---------------------------
The Executive shall be entitled to paid vacation and such other paid
absences whether for holidays, illness, personal time or any similar
purposes, in accordance with the plans, policies, programs and
practices of the Company in effect from time to time, at least
comparable to those received by other senior executives of the
Company; provided, however, that the Executive shall always be
entitled to at least six weeks of paid vacation in each calendar year
and pro rata for part of a year.
(g) Automobile
----------
The Company shall purchase from the Executive at his cost, and
provide to him for his exclusive use, the automobile recently
purchased and currently owned by him and shall provide to the
Executive, every two years thereafter, for the exclusive use by the
Executive, a new automobile comparable in type and style. The Company
will also reimburse the Executive for all reasonable expenses
incurred in the use and maintenance of such automobile, and will also
provide the Executive with a driver on a full-time basis for security
and safety reasons. The Company shall reimburse the Executive on a
grossed up basis in the event that any taxation is assessed upon him
in relation to such driver.
22
<PAGE>
(h) Club Membership
---------------
The Company shall pay any and all initiation fees, monthly
membership dues, and company-related expenses in connection with the
membership of the Executive in one country club.
(i) Financial Planning
------------------
The Company shall provide the Executive with financial consulting
services, including tax-related advice and services, without cost or
expense to him. The Company shall reimburse the Executive on a
grossed up basis in the event that any taxation is assessed upon
him in relation to such services if and to the extent that any other
senior executive of the Company is currently reimbursed for such
taxation.
(j) Legal and Consulting
--------------------
The Company shall pay the reasonable fees and disbursements of legal,
accounting and tax advisors incurred by the Executive in connection
with the negotiation, preparation and implementation of this
Agreement and any additional instruments and agreements related
hereto, and any transactions contemplated hereby. The Company shall
reimburse the Executive on a grossed up basis in the event that any
taxation is assessed upon him in relation to any such fees and
disbursements.
5. Special Equity Grant
--------------------
(a) Purchased Shares
----------------
Effective as of the close of business on the Commencement Date, the
Executive shall purchase from the Company for his own account, and
the Company shall sell to the Executive, for the sum of $1,000,000
that number of shares of the Company's Common Stock determined by
dividing $1,000,000 by $38.00. Such shares
23
<PAGE>
shall be the sole property of the Executive, shall be unrestricted
and shall be freely tradeable by the Executive, subject to applicable
legal restrictions. Within six (6) months after the Commencement
Date, the Company shall cause the shares to be registered or
qualified for resale under the Securities Act of 1933 and applicable
state laws. The Executive shall purchase a fraction of a share at the
rate of $38.00 per share, with the result that the Executive will
have purchased a total of 26,316 shares for an aggregate price of
$1,000,008.
(b) Stock Option
------------
The Executive is hereby granted 10-year options to purchase 750,000
shares of the Company's Common Stock, effective as of the close of
business on the Commencement Date, on the terms that would apply if
the options were granted under the 1994 Long-Term Incentive Plan,
except to the extent specifically modified by this Agreement, but
only if such grant is approved by the shareholders at the 1994 Annual
Meeting of Shareholders. The options shall provide (i) for an option
price equal to $38.00 per share and (ii) for the vesting of the
Executive's stock options at the rate of 20% on each of the first,
second, third, fourth and fifth anniversaries of the Commencement
Date. The Company shall cause the shares to be issued upon exercise
of the options to be registered or qualified for resale under the
Securities Act of 1933 and applicable state laws. In the event that
the shareholders fail to approve the grant of the stock options at
the 1994 meeting as hereinabove provided, the Company and the
Executive shall negotiate in good faith a mutually acceptable
alternative compensation arrangement. The Company and the Executive,
by mutual agreement, may substitute stock appreciation rights, in
whole or in part, for the options granted hereunder.
6. Unauthorized Disclosure
-----------------------
(a) The Executive shall not, without the written consent of the Board of
Directors or a person authorized thereby, use other than for Company
purposes or disclose to any person other than as required by law or
court order or to a person to whom
24
<PAGE>
disclosure is necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the
Company, including, without limitation, disclosure to the Company's
outside accountants or bankers of financial data requested by such
persons in connection with their services to the Company, any
confidential information material in nature obtained by him while in
the employ of the Company, including such information with respect to
any products, improvements, formulae, designs or styles, processes,
services, customers, suppliers, marketing techniques, methods, future
plans or operating practices ("Confidential Information"); provided,
however, that Confidential Information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any specific information
or type of information generally not considered confidential by
persons engaged in the same business as the Company, or information
disclosed by the Company by any member of its Board of Directors or
any other officer thereof to a third party without restrictions on
the disclosure of such information.
(b) The Executive agrees that all documents, records, files, letters,
memoranda, reports, data, sketches, drawings, laboratory notebooks,
program listings or other written, photographic, or other tangible
material ("Tangible Property") containing Confidential Information,
whether created by the Executive or others, which shall come into his
custody or possession, shall be and are the exclusive property of the
Company to be used by the Executive only in the performance of his
duties for the Company and the Subsidiaries. The Executive agrees
that upon the earlier of (i) a request by the Company or (ii) the
termination or cessation of his employment with the Company for any
reason, he shall promptly deliver to the Company all Tangible
Property in his possession or under his control which contain
Confidential Information or pertain to the Company, any of its
activities or any of the Executive's activities in the course of his
employment. The Executive shall not retain or deliver to any third
person copies of such Tangible Property.
(c) The Executive agrees that his obligation not to disclose or use
information, knowhow, records and tangible property of the types set
forth in paragraphs (a) and (b)
25
<PAGE>
above, also extends to such types of information, know-how, records
and tangible property of customers of the Company or any of the
Subsidiaries or suppliers to the Company or any of the Subsidiaries
or other third parties who may have disclosed or entrusted the same
to the Company or any of the Subsidiaries or to the Executive in the
course of the Company's business.
(d) If any of the Executive's heirs, successors or legal representatives
were to obtain any Confidential Information, the foregoing provisions
of this Section 6 shall be binding upon such heirs, successors and
legal representatives.
7. Non-Competition
---------------
(a) For the period of time during which the Executive is employed hereunder
and for a period of two (2) years thereafter, the Executive shall
not, directly or indirectly, (i) own, manage, operate, control or
participate in the ownership, management, operation or control of, or
be connected as an officer, employee, partner, director or otherwise
with, or have any financial interest in, or aid or assist anyone else
in the conduct of, any business (a "Competitive Operation") which
competes with any business conducted by the Company, or by any group,
division or subsidiary of the Company, or any pulp, paper or health
care business conducted by any corporation in which the Company has a
direct or indirect investment, in any area where such business is
being conducted, or (ii) solicit, divert or take away, or attempt to
divert or to take away, the business or patronage of any of the
customers or accounts, or prospective customers or accounts, of the
Company or any of the Subsidiaries, which were contacted, solicited
or served by the Executive while employed by the Company. It is
understood and agreed that, for the purposes of the foregoing
provisions of this Section 7, a Competitive Operation within the
meaning of this Section shall include any pulp, paper or health care
business conducted by the Company that is sold or discontinued by the
Company, but shall not include any business that is acquired by the
Company after the termination of the Executive's employment with the
Company. During the Executive's employment hereunder, ownership by
the Executive of not to exceed two percent (2%) of the publicly
26
<PAGE>
traded securities of any Competitive Operation shall not constitute a
violation thereof. Following the termination of his employment here-
under, ownership by the Executive of not to exceed five percent (5%)
of any Competitive Operation shall not constitute a violation hereof.
(b) In the event the restrictions against engaging in a competitive
activity contained in this Section 7 shall be determined by any court
of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over the
maximum period of time for which it may be enforceable, and over the
maximum geographical area as to which it may be enforceable and to
the maximum extent in all other respects as to which it may be
enforceable, all as determined by such court in such action.
(c) The Executive acknowledges that a breach of the restrictions con-
tained in Sections 6 or 7 shall cause irreparable damage to the
Company, the exact amount of which shall be difficult to ascertain,
and that the remedies at law for any such breach shall be inadequate.
Accordingly, the Executive agrees that, if the Executive breaches the
restrictions contained in Sections 6 or 7, then the Company shall be
entitled to injunctive relief, without posting bond or other
security. Sections 6 and 7 shall survive the termination of the
Executive's employment under this Agreement.
8. Termination
-----------
(a) Death
-----
The Executive's employment hereunder shall terminate upon his death.
27
<PAGE>
(b) Disability
----------
If, as a result of the Executive's ill health, whether physical or
mental, accident or other incapacity, the Executive shall have failed
to perform his duties hereunder for one hundred and twenty (120)
consecutive days ("Disability"), the Company may terminate the
Executive's employment hereunder. If the Company determines in good
faith that Disability of the Executive has occurred during the
Employment Period, it may give the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment shall terminate effective on the 30th day
after receipt of such notice by the Executive, provided that within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of his duties.
(c) Cause
-----
The Company may terminate the Executive's employment hereunder for
"Cause". For purposes of this Agreement, "Cause" is defined as (i)
the willful failure by the Executive substantially to perform his
duties hereunder other than any such failure resulting from the
Executive's incapacity due to Disability, or (ii) the conviction of
the Executive for a felony (or a plea of guilty or nolo contendere
thereto). For purposes of this Section 8(c), no act, or failure to
act, on the Executive's part shall be considered "willful", unless
done, or omitted to be done, by him not in good faith or without
reasonable belief that his action or omission was in the best
interest of the Company or contrary to a formal resolution of the
Board of Directors. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for Cause under clause
(i) of this Section 8(c) unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by
the affirmative vote of not less than a majority of the entire
membership of the Board of Directors of the Company, at a meeting of
the Board of Directors called and held for the purpose (after ten
days' prior notice to the Executive of such meeting and the purpose
thereof and an opportunity for him, together with his counsel, to be
heard before the Board of Directors at such
28
<PAGE>
meeting), finding that in the good faith opinion of the Board of
Directors, the Executive was guilty of conduct set forth above in
clause (i) of this Section 8(c) and specifying the particulars
thereof in detail.
(d) Other Termination by the Company
--------------------------------
Notwithstanding the foregoing provisions, the Company may terminate
the Executive's employment hereunder at any time, subject to the
provisions of Section 9(d) hereof.
(e) Termination for Good Reason
---------------------------
The Executive may terminate his employment hereunder at any time for
Good Reason; provided, however, that the Executive shall have delivered
-------- -------
a notice of termination to the Company within ninety (90) days after
the occurrence of the event of Good Reason giving rise to such
termination. For purposes of this Agreement, "Good Reason" shall mean
the occurrence of any of the following circumstances without the
Executive's express written consent which are not remedied by the
Company within 30 days of receipt of the Executive's notice of
termination:
(i) an assignment to the Executive of any duties materially
inconsistent with his positions, duties, responsibilities and
status with the Company or any material limitation of the
powers of the Executive not consistent with the powers of the
Executive contemplated by Section 2 hereof;
(ii) any removal of the Executive from, or any failure to re-elect
the Executive to, the positions specified in Section 2 of this
Agreement;
(iii) the change of the Executive's title as specified by Section 2
of this Agreement;
29
<PAGE>
(iv) the Company's requiring the Executive without his consent to
be based at any office or location other than as described in
Section 3 of this Agreement;
(v) a reduction in the Executive's Base Salary as in effect from
time to time;
(vi) the failure by the Employer to continue in effect any fringe
benefit plan or arrangement that was in effect on the date
hereof or provide the Executive with equivalent benefits;
(vii) the failure of the Company, within not more than 90 days after
the Commencement Date, to have the Executive duly elected as a
member of its Board of Directors and to maintain the Executive
in such position at all times thereafter for so long as he
shall serve as Chief Executive Officer of the Company;
(viii) a Change in Control. A "Change in Control" shall mean the
occurrence of any one of the following events:
(A) any "person" as such term is used in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, as amended,
becomes a "beneficial owner," as such term is used in
Rule 13d-3 promulgated under that act, of 20% or more of
the Voting Stock of the Company;
(B) the majority of the Board consists of individuals other
than Incumbent Directors, which term means the members of
the Board on the date of this Agreement; provided that
any person becoming a director subsequent to such date
whose election or nomination for election was supported
by two-thirds of the directors who then comprised the
Incumbent Directors shall be considered to be an
Incumbent Director;
30
<PAGE>
(C) the Company, without the Executive's consent, adopts any
plan of liquidation providing for the distribution of all
or substantially all of its assets; or
(D) all or substantially all of the assets or business of the
Company are disposed of pursuant to a merger, consolidation
or other transaction (unless the shareholders of the
Company immediately prior to such merger, consolidation
or other transaction beneficially own, directly or
indirectly, in substantially the same proportion as they
owned the voting stock of the Company, all of the voting
stock or other ownership interests of the entity or
entities, if any, that succeed to the business of the
Company); or
(ix) any other material breach by the Company of any provisions of
this Agreement.
(f) Other Termination by the Executive
----------------------------------
Notwithstanding the foregoing provisions, the Executive may terminate
his employment hereunder at any time with the express written consent
of the Company.
(g) Notice of Termination
---------------------
Any termination by the Company or the Employer pursuant to paragraphs
(b), (c) or (d) above or by the Executive pursuant to paragraph (e)
or (f) above shall be communicated by a written Notice of Termination
to the other party hereto; provided, however, that, in the case of
-------- -------
termination for Cause, there shall also have been delivered to the
Executive the other documents required to be delivered by Section
8(c) hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employ-
31
<PAGE>
ment under the provision so indicated. If any dispute concerning a
Notice of Termination of the Executive's employment under Sections
8(b),8(c) or 8(e) hereof results in a determination that a proper
basis for such termination did not exist under such section, the
Executive's employment under this Agreement shall be treated, with
respect to a Notice of Termination pursuant to Section 8(b) or 8(c)
hereof, as having been terminated pursuant to Section 8(d) hereof or,
with respect to a Notice of Termination pursuant to Section 8(e)
hereof, as having not been terminated.
(h) Date of Termination
-------------------
"Date of Termination" shall mean (i) if the Executive's employment is
terminated as a result of the Executive's Disability, thirty (30)
days after Notice of Termination is duly given (provided that the
Executive shall not have returned to the performance of his duties on
a full-time basis during such thirty (30) day period), (ii) if the
Executive's employment is terminated by his death, the date of his
death, (iii) if the Executive's employment is terminated pursuant to
subsection (c) above, the date that the Notice of Termination is
communicated to the Executive, (iv) if the Executive's employment is
terminated pursuant to subsection (e) above, thirty (30) days after
the Notice of Termination is given if the circumstances causing the
Good Reason have not been cured by such date, and (v) if the
Executive's employment is terminated pursuant to subsections (d) or
(f) above the date on which a Notice of Termination is given.
9. Compensation Upon Termination or During Disability
--------------------------------------------------
(a) If the Executive's employment shall be terminated due to death, the
Executive's estate or other legal representative shall be entitled to
receive any Base Salary installments and any accrued reimbursable
expenses (to the extent provided in Section 4(d) hereof) due in the
month of death, together with the Incentive Bonus under Section 4(c)
for the preceding calendar year or years to the extent not theretofore
paid and the Termination Bonus under Section 4(c) hereof. In the
32
<PAGE>
event of the Executive's death, rights and benefits of the Executive
under employee benefit and fringe benefit plans and programs of the
Company shall be determined in accordance with the terms and
provisions of such plans and programs. The Executive's estate or
other legal representative shall also be entitled to exercise, within
one (1) year after the date of the Executive's death, any rights
provided to the Executive under Section 5 hereof with respect to any
options that are then exercisable or that would have become
exercisable during the 12 months after the Executive's death occurs
in accordance with Section 5 hereof. All outstanding options at the end
of such 12-month period that are not then exercisable shall be
completely terminated.
(b) During any period that the Executive fails to perform his duties
hereunder due to Disability, the Executive shall continue to receive
from the Employer his full Base Salary until the Executive's
employment is terminated pursuant to Section 8(b) hereof. In the
event of the Executive's Disability as determined above, rights and
benefits of the Executive under employee benefit and fringe benefit
plans and programs of the Company shall be determined in accordance
with the terms and provisions of such plans and programs. After
termination due to Disability, the Executive or his estate or other
legal representative shall be entitled to receive any accrued
reimbursable expenses (to the extent provided in Section 4(d) hereof)
through the Date of Termination and shall also be entitled to receive
the Incentive Bonus under Section 4(c) for the preceding calendar
year or years to the extent not theretofore paid and the Termination
Bonus under Section 4(c) hereof and to exercise, within three (3)
years after the Date of Termination, any right provided to the
Executive under Section 5 hereof with respect to any options that are
then exercisable or that would have become exercisable within the 12
months after the Date of Termination in accordance with Section 5
hereof. All outstanding options at the end of such 12-month period
that are not then exercisable shall be completely terminated.
(c) If the Executive's employment shall be terminated for Cause, the
Company shall pay the Executive his full Base Salary and any accrued
reimbursable expenses (to
33
<PAGE>
the extent provided in Section 4(d) hereof) only through the Date of
Termination, together with the Incentive Bonus under Section 4(c) for
the preceding calendar year or years to the extent not theretofore
paid. All unvested options shall be completely terminated on the Date
of Termination, and the Company shall have no further obligations to
the Executive under this Agreement, except that the Executive shall
be entitled to exercise, within sixty (60) days after the Date of
Termination, any rights provided to the Executive under Section 5
hereof with respect to any options that are exercisable on the Date of
Termination. Any rights and benefits the Executive may have under
employee benefit and fringe benefit plans and programs of the Company
shall be determined in accordance with the terms of such plans and
programs. Anything herein to the contrary notwithstanding, if
following a termination of the Executive's employment by the Company
for Cause based upon the conviction of the Executive for a felony,
such conviction is overturned in a final determination on appeal, the
Executive shall be entitled to the payments and the economic
equivalent of the benefits the Executive would have received if his
employment had been terminated by the Company without Cause.
(d) If the Executive's employment shall be terminated pursuant to Section
8(d) hereof, or if the Executive shall terminate his employment
pursuant to Section 8(e) hereof, then (i) the Company shall pay to
the Executive his full Base Salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus
the unpaid reimbursable expenses of the Executive through the Date of
Termination, the Incentive Bonus under Section 4(c) for the preceding
calendar year or years to the extent not theretofore paid and the
Termination Bonus under Section 4(c) hereof; (ii) in lieu of any
further salary payments to the Executive for periods subsequent to
the Date of Termination, the Company shall pay as liquidated damages,
and not as a penalty, to the Executive within thirty (30) days
following the Date of Termination, a lump sum amount equal to the
aggregate amount of Base Salary that would have been payable to the
Executive pursuant to Section 4(a), calculated on the basis of the Base
Salary that from time to time would have been in effect as specified in
said Section, through-
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out the period commencing on the date immediately succeeding the Date
of Termination and extending through the fifth anniversary of the
Commencement Date hereunder or, if applicable, the expiration of a
Renewal Period; and (iii) all outstanding options that are then
exercisable and that would have been exercisable within the 12 months
after the Date of Termination shall immediately become exercisable
and may be exercised by the Executive at any time thereafter, in
whole or in part, for three years after the Date of Termination (the
"Additional Period"). All outstanding options at the end of such 12-
month period that are not then exercisable shall be completely
terminated. The Company shall maintain in full force and effect, for
the continued benefit of the Executive for the full term of the
Additional Period, all employee benefit plans and programs in which
the Executive was entitled to participate immediately prior to the
Date of Termination. If the Executive shall be ineligible to
participate in any of the Company's fringe benefit plans or
arrangements as a result of his ceasing to be an employee of the
Company, then the Company shall arrange to provide the Executive with
substantially equivalent benefits as if he remained employed by the
Company throughout the Additional Period or provide their economic
equivalent.
(e) If the Executive's employment shall be terminated pursuant to Section
8(f) hereof, the Company shall pay the Executive his full Base Salary
and any accrued reimbursable expenses (to the extent provided in
Section 4(d) hereof) only through the Date of Termination, together
with the Incentive Bonus under Section 4(c) for the preceding
calendar year or years to the extent not theretofore paid. Any rights
and benefits the Executive may have under employee benefit and fringe
benefit plans and programs of the Company shall be determined in
accordance with the terms of such plans and programs. All outstanding
options that are not exercisable on the Date of Termination shall be
completely terminated as of said Date, unless otherwise agreed by the
Company. The Executive shall be entitled to exercise, within one (1)
year after the Date of Termination, any rights provided to the
Executive under Section 5 hereof with respect to any options that are
exercisable on the Date of Termination.
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10. No Mitigation; No Offset
------------------------
In the event of any termination of employment under Section 8, the
Executive shall be under no obligation to seek other employment, and
there shall be no offset against amounts due the Executive under this
Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain.
11. Nature of Payments
------------------
Any amounts due under Section 9 are in the nature of severance
payments considered to be reasonable by the Company and are not in
the nature of a penalty. Other than as set forth in Section 9, upon
termination of the Executive's employment hereunder, the Company
shall have no further obligations to the Executive.
12. Indemnification
---------------
(a) The Company's Standard Indemnification Agreement for Directors and
Officers, approved by the shareholders in April 1987, and attached to
this Agreement, is incorporated herein by reference.
(b) The Company agrees to continue to maintain directors' and officers'
liability insurance policies covering the Executive at least to the
extent that the Company provides such coverage of its other directors
and senior officers.
13. Effect of Agreement on Other Benefits
-------------------------------------
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's
entitlement to full participation in the employee benefit and other
plans or programs in which senior officers of the Company are
eligible to participate, including but not limited to the proposed
1994 Long-Term Incentive Plan, except that, notwithstanding anything
in this Agree-
36
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ment to the contrary, the Executive shall not be eligible to
participate in the Company's Annual Incentive Plans, Retirement Plans
and Termination Pay Plans.
14. Binding Agreement
-----------------
(a) Neither party hereto may assign this Agreement or any part hereof
without the prior written consent of the other party hereto, except
that, subject to the provisions of Section 8(e) hereof, the rights
and obligations of the Company may be assigned or transferred
pursuant to a merger, consolidation or sale of all or substantially
all of the assets of the Company, provided that the assignee or
transferee assumes the liabilities, obligations and duties of the
Company either by contract or by operation of law.
(b) This Agreement shall be binding upon the Company, its successors and
assigns, and all rights of the Executive hereunder shall inure to the
benefit of, and be enforceable by, the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die, any
amount payable to him hereunder, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such
person as the Executive shall have designated in a notice given to
the Company in accordance with the provisions of Section 15 or, if
there be no such designee, to the Executive's estate.
15. Notice
------
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United
States registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
37
<PAGE>
If to the Company:
Scott Paper Company
Scott Plaza
Philadelphia, PA 19113
Attention: Chairman of the Management Development
and Executive Compensation Committee
In Care of Stephen D. Ford, Corporate Secretary
(with a copy to:
Norman M. Heisman, Esq.
Counsel to the Board of Directors
912 Bridle Lane
West Chester, PA 19382)
If to the Executive:
Albert J. Dunlap
c/o Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
(with a copy to:
Reboul MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attn: Howard G. Kristol, Esq.)
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
16. Miscellaneous
-------------
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and such officer or director as may be
specifically designated by the Board. No waiver by either party
hereto at any time of any breach by the other party hereto
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<PAGE>
of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of any
similar or dissimilar provision or condition at the same or at any
prior or subsequent time. Any party's failure, at any time or times,
to require strict performance by the other party of any provision of
this Agreement shall not waive, affect or diminish any right of the
first party thereafter to demand strict compliance and conformance
therewith.
17. Validity
--------
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force
and effect.
18. Counterparts
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
19. Arbitration
-----------
Any disputes arising out of or relating to this Agreement, or any
breach hereof, shall be resolved by binding arbitration, to be held
in Philadelphia, Pennsylvania, or at such other place as may be
agreed upon at the time by the parties thereto, in accordance with
the rules and procedures of the American Arbitration Association
("AAA"), provided, however, that the Company shall be entitled to
seek relief in a court of competent jurisdiction with respect to any
violation of Section 6 or 7 hereof. Judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction
thereof. The board of arbitrators shall consist of one arbitrator to
be appointed by the Company, one by the Executive, and one by the two
arbitrators so chosen. The cost of arbitration shall be borne among
the parties to the arbitration as determined by the arbitrators;
provided, however, that if the
-------- -------
39
<PAGE>
Company's position is not substantially upheld, as determined by the
arbitrators, the expenses of the Executive (including, without
limitation, fees and expenses payable to the AAA and the arbitrators,
fees and expenses payable to witnesses, including expert witnesses,
fees and expenses payable to attorneys and other professionals,
expenses of the Executive in attending the hearings, costs in
connection with obtaining and presenting evidence and costs of
transcription of the proceedings), as determined by the arbitrators,
shall be reimbursed to him by the Company.
20. Withholding
-----------
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the
Executive or his estate or beneficiaries shall be subject to the
withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable
law or regulation. In lieu of withholding such amounts, in whole or
in part, the Company may, in its sole discretion, accept other
provisions for payment of taxes and withholdings as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withhold have been satisfied.
21. Law Governing
-------------
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Pennsylvania without
reference to principles of conflict laws.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date and year first above written.
SCOTT PAPER COMPANY
By: /s/ W.A. Andres
----------------------------------
Name: W.A. Andres
Title: Chairman of the Management
Development and Executive
Compensation Committee
/s/ Albert J. Dunlap
----------------------------------
Albert J. Dunlap
41
<PAGE>
Exhibit 10(b)
SCOTT PAPER COMPANY
1994 LONG-TERM INCENTIVE PLAN
I. GENERAL
A. PURPOSE
The purpose of the 1994 Long-Term Incentive Plan (the "Plan") is to promote
the interests of Scott Paper Company (the "Company") and its shareholders by
attracting and retaining salaried employees and Directors capable of furthering
the future success of the Company and by aligning their economic interests with
those of the Company's shareholders.
B. DEFINITIONS
"Base Period" for a Performance Cycle means the period of twenty consecutive
Business Days ending on the last Business Day before the commencement of the
Performance Cycle.
"Base Price" for a Performance Cycle means the average of the daily Fair
Market Values of a Share during the Base Period for the Performance Cycle.
"Beneficiary" means the person or persons to whom an Optionee's, Grantee's or
Participant's rights pass upon death by will or by the applicable laws of
descent and distribution.
"Board of Directors" means the Board of Directors of the Company and
"Director" means a member of the Board of Directors.
"Business Day" means any day other than a Saturday, Sunday, legal holiday or
a day on which the New York Stock Exchange, or any successor national
securities exchange which constitutes the principal trading market for the
Shares, is closed.
"Cause" means (i) an act or acts of personal dishonesty of an employee
intended to result in substantial personal enrichment at the expense of the
Company or a Subsidiary, (ii) repeated violations of an employee's
responsibilities which are demonstrably willful and deliberate, or (iii) an
employee's conviction for a felony involving moral turpitude.
"Change of Control" means the first to occur of the following events:
(a) Any person within the meaning of Section 13(d) or 14(d) of the 1934
Act, other than the Company or any entity controlled by the Company
(including an employee plan established primarily for the benefit of
Company employees or employees of any entity controlled by the Company),
acquires beneficial ownership of, or, acting alone or in concert with
others, acquires voting power over voting shares of the Company that would
entitle the holders thereof to cast at least 20% of the votes that all
shareholders would be entitled to cast in an election of Directors; or
(b) At any time within any period of two consecutive years, persons who
(i) at the beginning of the period constitute the Board of Directors or
(ii) become Directors after the beginning of the period and whose election
or nomination for election by the shareholders of the Company was approved
by a vote of at least two-thirds of the persons who were Directors at the
beginning of the period, cease for any reason to constitute at least a
majority of the Board of Directors; provided that any
42
<PAGE>
person who ceases to be a Director by reason of death or disability shall
be excluded from the numerator and the denominator in all calculations
hereunder.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. References to any provision of the Code or regulations
thereunder shall be deemed to include any amended or successor provision or
regulation.
"Committee" means the committee appointed by the Board of Directors to
administer the Plan. The Committee shall consist of not less than three
Directors, all of whom shall be members of the Management Development and
Executive Compensation Committee of the Board of Directors and shall meet the
requirements set forth in Section I.D.
"Company Annual Rate of Shareholder Return," for each Business Day during a
Performance Cycle, means the compound annual rate of return from investing in
Shares during that Performance Cycle from price changes, dividends and other
distributions, if any, provided to shareholders of the Company from the first
day of that Performance Cycle through the same Business Day. The Company Annual
Rate of Shareholder Return shall be calculated by (i) assuming that one Share
is purchased on the first day of the Performance Cycle at a price equal to the
Base Price for the Performance Cycle, (ii) assuming that additional Shares (or
portions of Shares) are purchased with any dividends and other distributions on
the initial Share and on Shares accumulated through the assumed reinvestment of
dividends and other distributions, with such purchases being made on the ex-
dividend date for each dividend or other distribution at a price equal to the
Fair Market Value of a Share on that date, (iii) calculating the number of
Shares that would be accumulated under clauses (i) and (ii) from the first day
of such Performance Cycle through the Business Day of reference, adjusting, as
necessary, for any events specified in Section I.F, (iv) multiplying the number
calculated in clause (iii) by the Fair Market Value of a Share on the Business
Day of reference, and (v) determining the compound annual rate of return
represented by the difference between the aforesaid Base Price and the amount
determined in clause (iv) for the period from the first day of the Performance
Cycle through the Business Day of reference.
"Employee Participant" means each Participant who is not a non-employee
Director.
"Fair Market Value" of a Share means the mean between the highest and the
lowest sales prices thereof on the date of reference, as reported in The Wall
Street Journal, New York Stock Exchange Transactions--Composite Transactions,
or as reported in any successor quotation system adopted prospectively for this
purpose by the Committee; provided that the determination of Fair Market Value
for ISOs shall comply with regulations issued by the Secretary of the Treasury
for the purposes of determining fair market value of securities subject to an
ISO plan under Section 422 of the Code.
"Grantee" means any person who is granted Restricted Shares under Section
III.
"ISO" means an Option intended to be an incentive stock option, as defined in
Section 422 of the Code.
"Key Employee" means an employee of the Company or a Subsidiary whose
designated job title is at least "operating director" or whose points under the
Hay Associates Job Evaluation System equal at least 1200, or, in the event
those designations of titles or points are not used, an employee whose
43
<PAGE>
responsibilities are equivalent to those of employees who, on the effective
date of the Plan, meet the above requirements.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder. References to any provision of the 1934 Act
or rules or regulations thereunder shall be deemed to include any amended or
successor provision or rule or regulation.
"Option" means an option to purchase Shares granted under Section II, subject
to the terms and conditions set forth in the Plan.
"Optionee" means any person who is granted an Option under Section II.
"Payment Obligation" with respect to the exercise of a Performance Share
Right is defined in Section IV.B.
"Participant" means any person who is granted a Performance Share Right under
Section IV.
"Performance Cycle" means a four-year period commencing on September 1, 1994,
March 1, 1995, March 1, 1996, March 1, 1997 or March 1, 1998, and ending on the
day before the fourth anniversary of that date.
"Performance Goal" for a Performance Cycle means the performance goal
described in Section IV.E.
"Performance Share" means the right to receive one Share if the Performance
Goal is attained for the Performance Cycle with respect to which the
Performance Share is purchased, subject to the terms and conditions set forth
in the Plan.
"Performance Share Right" means the right to purchase the number of
Performance Shares specified in Section IV.B for a Performance Cycle, subject
to the terms and conditions set forth in the Plan.
"Restricted Period" is defined in Section III.B.
"Restricted Share" means a Share which is subject to applicable
Transferability Restrictions and Vesting Restrictions granted under Section
III, subject to the terms and conditions set forth in the Plan.
"SAR" means a stock appreciation right granted under Section II, subject to
the terms and conditions set forth in the Plan.
"Section 16 Insider" means a Director or an officer, as defined in Rule 16a-
1(f) under the 1934 Act, of the Company.
"Share" means a Common Share of the Company and any other securities as may
be substituted for a Share or such other securities pursuant to the adjustment
provisions of Section I.F.
"S&P Base Price" for a Performance Cycle means the average of the daily
closing values of the Standard & Poor's 500 Composite Index during the Base
Period for the Performance Cycle.
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<PAGE>
"S&P Annual Rate of Shareholder Return," for each Business Day during a
Performance Cycle, means the compound annual rate of return from the S&P Base
Price for that Performance Cycle from the first day of that Performance Cycle
through the same Business Day, obtained by the Committee from Standard & Poor's
Corporation on the basis of its compound total return calculation for the
Standard & Poor's 500 Composite Index.
"Subsidiary" means any corporation (other than the Company) now existing or
hereafter organized or acquired in an unbroken chain of corporations beginning
with the Company if each of the corporations (including the Company) other than
the last corporation in the unbroken chain owns stock possessing 40% or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain; provided that, for all purposes in connection with
the grant or exercise of ISOs and SARs in tandem therewith, "50%" shall be
substituted for "40%" in the above definition.
"Transferability Restrictions" means the restrictions on transferability of
Restricted Shares imposed by Section III.C.
"Vesting Restrictions" means the restrictions on vesting of Restricted Shares
imposed by Section III.D.
C. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective only if one or more of Sections II, III and
IV are approved by the affirmative vote of the holders of a majority of the
Shares present or represented and entitled to vote at the 1994 annual meeting
of shareholders of the Company and, if so approved, shall be effective from the
date of approval. If such approval is not obtained separately for any of
Section II, III or IV, the Section which is not approved shall not become a
part of the Plan, and the provisions of Section I applicable thereto shall be
deemed deleted or modified appropriately to reflect the deletion of that
Section from the Plan.
The term during which Options, SARs, Restricted Shares and Performance Share
Rights may be granted under the Plan shall expire on April 25, 1999.
D. ADMINISTRATION
The Plan shall be administered by the Committee. Each member of the Committee
shall at all times be a "disinterested person" within the meaning of Rule 16b-3
under the 1934 Act as then applicable to the Company. Subject to the terms and
conditions set forth in the Plan, the Committee shall have sole discretion and
authority (i) to grant Options under Section II, to determine the number of
Shares for which each Option shall be granted and the option price or prices
and other terms and conditions thereof, and to grant SARs in tandem with any
Option either at the time of the Option grant or thereafter, (ii) to grant
Restricted Shares under Section III, to determine the number of Restricted
Shares to be granted, and to establish the restrictions and other terms and
conditions to which any Restricted Shares shall be subject, and (iii) to grant
Performance Share Rights under Section IV and to establish the terms and
conditions applicable to them. The Committee shall have sole discretion and
authority to construe and interpret the Plan, to make factual determinations
and to establish and amend rules for the administration of the Plan. The
Committee shall have no obligation to treat persons uniformly, except to the
extent otherwise specifically provided in the Plan. All actions by the
Committee may be taken in its sole discretion and
45
<PAGE>
shall be conclusive and binding on all parties. No member of the Committee
shall participate in any action of the Committee on any claim or dispute
involving that member.
E. SHARES SUBJECT TO THE PLAN
The Shares to be transferred or sold under the Plan shall be authorized
Shares. Subject to adjustment as provided in Section I.F, (i) the total number
of Shares which may be issued under the Plan shall not exceed (A) 2,850,000
pursuant to the grant of Options (with or without tandem SARs), or (B) 400,000
pursuant to the grant of Restricted Shares, (ii) the total number of
Performance Shares (and thus Shares) which may be purchased upon exercise of
Performance Share Rights shall not exceed 1,200,000, (iii) the number of
Shares with respect to which Options (with or without tandem SARs) may be
granted to any one person shall not exceed 500,000, (iv) the number of
Restricted Shares which may be granted to any one person shall not exceed
50,000, and (v) the number of Performance Shares (and thus Shares) with
respect to which Performance Share Rights may be granted to any one person
shall not exceed 100,000 during the term of the Plan or 60,000 for any one
Performance Cycle.
If, during the term of the Plan, an Option expires or terminates prior to
the exercise in full of the Option or of any tandem SARs or Restricted Shares
are forfeited, the number of Shares previously subject to but not delivered
under the Option, SARs or grant of Restricted Shares shall be available for
grants, subject to the above limits on the issuance of Shares. If Performance
Share Rights are not exercised or Performance Shares are forfeited during the
term of the Plan, the number of Performance Shares covered by the unexercised
Performance Share Rights or the number of Performance Shares forfeited shall
be available for grants, subject to the above limits on the purchase of
Performance Shares. If any Shares or Performance Shares which become available
hereunder as a result of expirations, terminations or forfeitures could not
again be available for grants to a Section 16 Insider under applicable share
counting requirements of Rule 16b-3 under the 1934 Act, such Shares or
Performance Shares shall be available exclusively for grants to persons other
than Section 16 Insiders. An Option that terminates in whole or in part upon
the exercise of tandem SARs shall be deemed to have been exercised at the time
and to the extent of the exercise of the SARs, and the Shares subject to the
Option, to the extent of the SAR exercise, shall not be available for further
grants.
F. ADJUSTMENTS
The number and kind of Shares which may be issued and with respect to which
grants may or must be made under each Section of the Plan, both in the
aggregate and to any one person, the number of Shares subject to each
outstanding grant of Options, SARs or Restricted Shares, the number of
Performance Shares covered by each Performance Share Right and held by each
Participant, option prices per Share, the Base Price with respect to a
Performance Cycle and the calculation of the Company Annual Rate of
Shareholder Return, shall be subject to appropriate adjustment by the
Committee to prevent dilution or enlargement of the rights of Optionees,
Grantees and Participants for any changes in the number or kind of outstanding
Shares resulting from a merger, recapitalization, stock exchange, stock split,
stock dividend, other extraordinary dividend or distribution, corporate
division or other change in the Company's corporate or capital structure.
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<PAGE>
G. LIMITATIONS ON RIGHTS OF OPTIONEES, GRANTEES AND PARTICIPANTS
Nothing in the Plan, or in any grant under the Plan, shall confer on any
person any right to continue in the employ of the Company or any of its
Subsidiaries, nor in any way interfere with the right of the Company or any of
its Subsidiaries to terminate the person's employment at any time.
No Optionee shall have any of the rights of a shareholder with respect to any
Shares unless and until he or she has exercised his or her Option (or tandem
SARs) with respect to the Shares and has paid the full purchase price for them.
Except for the Transferability Restrictions and Vesting Restrictions, a Grantee
holding Restricted Shares shall have all the rights of a holder of the Shares,
including the right to receive dividends paid on those Shares and the right to
vote them at meetings of shareholders of the Company. No Participant holding
Performance Shares shall be considered to be a holder of Shares for any
purpose.
No Option, SAR, Restricted Share, Performance Share Right or Performance
Share granted or held under the Plan shall be assignable or otherwise
transferable by the Optionee, Grantee or Participant, either voluntarily or
involuntarily, except by will or the laws of descent and distribution.
The obligation of the Company to deliver Shares upon the exercise of an
Option or SAR, the termination of the Restricted Period for Restricted Shares
or the earnout of Performance Shares shall be subject to all applicable laws,
rules and regulations, and to any approvals by governmental agencies as may be
deemed appropriate by the Committee, including, among others, those steps
counsel for the Company shall deem necessary or appropriate to comply with
requirements of relevant securities laws. This obligation shall also be subject
to the condition that the Shares reserved for issuance under the Plan shall
have been duly listed on any national securities exchange which then
constitutes the principal trading market for the Shares.
H. TAX WITHHOLDING
Notwithstanding any other provision of the Plan, the number of Shares or the
amount of cash to be delivered to each Section 16 Insider shall be net of the
number of Shares or the amount of cash required to be withheld to meet all
applicable tax withholding requirements. Except as set forth in Section IV.F,
each other person receiving Shares or cash shall have the obligation to provide
the Company amounts sufficient to satisfy applicable tax withholding
requirements and shall have the right to meet this obligation by electing to
receive Shares or cash net of withholding or by paying the withholding amount
to the Company not later than the time required by applicable law.
I. AMENDMENT AND DISCONTINUANCE
The Board of Directors may amend, suspend or discontinue the Plan but, except
as provided in Section I.F, may not, without the affirmative vote of the
holders of a majority of the Shares present or represented and entitled to vote
at a meeting of the holders of the Shares, make any amendment to the Plan (a)
which operates (i) to increase the limits set forth in Section I.E, (ii) to
extend the term of the Plan or the maximum option period provided under Section
II.F, (iii) to decrease the minimum option price provided in Section II.E, (iv)
to change the duration of any Performance Cycle, (v) to change the Performance
Goal, (vi) to lower the Base Price used in determining whether the Performance
Goal is attained, or (vii) to materially increase the benefits of Optionees,
Grantees or Participants or modify the Plan's eligibility requirements in a
manner which would require shareholder approval under Rule 16b-3
47
<PAGE>
under the 1934 Act ("Rule 16b-3"), or (b) which causes the Plan not to meet the
requirements of Rule 16b-3 in any other respect. In no event may the Board of
Directors amend any provision of the Plan that constitutes a "plan provision"
referred to in Rule 16b-3(c)(2)(ii)(B) more frequently than once every six
months (other than to comport with changes in the Code).
In addition, subject to the limits in the preceding paragraph, the Committee
may amend the Plan as it applies to employees of any non-United States
Subsidiary or adopt a subplan for those employees, in either case to the extent
deemed necessary or appropriate to comply with legal requirements or to
minimize taxes or regulatory burdens imposed by any jurisdiction outside the
United States.
J. COMPLIANCE WITH RULE 16B-3
The Company intends that the Plan comply in all respects with Rule 16b-3 in
connection with any grant to or other transaction of a Section 16 Insider, and
that any non-employee Director who receives an automatic grant of an Option or
a Performance Share Right shall not in connection therewith lose his or her
status as a "disinterested person" as defined in Rule 16b-3. Accordingly, if
any provision of this Plan or of any agreement hereunder (a) does not comply
with the requirements of Rule 16b-3 as then applicable or (b) would cause a
non-employee Director not to be a "disinterested person," that provision shall
be construed or deemed amended to the extent necessary to conform to those
requirements or preserve such non-employee Director's status as a
"disinterested person."
K. CHANGE OF CONTROL
In the event of a Change of Control, the Company shall pay all of the legal
fees and expenses reasonably incurred by an Optionee, Grantee or Participant,
or his or her estate or Beneficiary (or by any legal defense trust created by
the Company) to enforce his or her rights under the Plan, as in effect
immediately before the Change of Control. The Company shall pay those fees and
expenses promptly after bills for them are submitted from time to time by
attorneys representing the claimant. However, the Company shall not be
obligated to pay those fees and expenses if it proves in a court of law that
the claimant's claim is not well grounded in fact and warranted by existing law
or a good faith argument for the extension, modification or reversal of
existing law. In any such proceeding, the burden of proof shall be on the
Company. Notwithstanding anything else contained in the Plan, the rights of
Optionees, Grantees, Participants and their estates and Beneficiaries under
this Section shall survive amendment of this Section, as well as termination of
the Plan, after a Change of Control, regardless of whether those rights arise
before or after the date of amendment or termination.
L. GOVERNING LAW
The Plan shall be applied and construed in accordance with and governed by
the law of the Commonwealth of Pennsylvania and applicable Federal law.
II. OPTIONS AND SARS
A. ELIGIBILITY
Options, with or without tandem SARs, may be granted from time to time to
salaried employees (including officers) of the Company or any consolidated
United States Subsidiary, and Key Employees of any other Subsidiary, and
Options without tandem SARs shall be granted automatically to non-employee
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Directors as provided in Section II.I. From time to time, the Committee shall
designate from among eligible employees those who will be granted Options or
SARs and the number of Shares to be covered by each grant.
B. CHARACTER OF OPTIONS
It is the intent of the Plan that Options shall be ISOs to the extent, and
only to the extent, that they are so identified in writing in the option
agreement relating to them. All Options not identified as ISOs at the time of
grant are intended to be "nonqualified" or "nonstatutory" Options which are not
ISOs.
C. OPTION AGREEMENT
Each Option granted under the Plan, with or without tandem SARs, shall be
evidenced by an option agreement, which shall be executed by the Company by
manual or facsimile signature and by the Optionee and which shall identify as
an ISO any Option intended to be such. The agreement shall contain such terms
and conditions, not inconsistent with the Plan, as shall be determined by the
Committee.
D. LIMITATION ON ISO GRANTS
The aggregate Fair Market Value (determined on the date the ISO is granted)
of the Shares with respect to which ISOs are exercisable for the first time by
an Optionee during any calendar year shall not exceed $100,000; provided that,
if any portion of an Option originally intended to be an ISO should fail to
satisfy this requirement as a result of an acceleration of the exercisability
of the Option pursuant to Section II.G, that portion shall be exercisable as a
"nonqualified" or "nonstatutory" Option which is not an ISO.
E. OPTION PRICE
The price per Share to be paid by the Optionee on the date an Option is
exercised shall be not less than the Fair Market Value of one Share on the date
the Option is granted; provided that if the Option granted is an ISO and if the
Optionee, on the date of the grant, owns (within the meaning of Section 424(d)
of the Code) stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or Subsidiary, the price
per Share to be paid by the Optionee at the time an Option is exercised shall
be not less than 110% of the Fair Market Value of one Share on the date the
Option is granted.
F. OPTION TERM
The period during which each Option may be exercised shall be determined by
the Committee, but may not exceed ten years from the date the Option is
granted, subject to the second paragraph of Section II.G in the case of an
Option other than an ISO; provided that, in the case of any ISO granted to any
Optionee who, on the date of the grant, owns (within the meaning of Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or Subsidiary, the
maximum exercise period shall be five years.
G. EXERCISE OF OPTIONS AND SARS
The time or times during which Options and tandem SARs may be exercised and
any conditions pertaining to exercise or the vesting in the Optionee of the
right to exercise Options and tandem SARs
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shall be determined by the Committee at the time of grant; provided that,
except as provided below, no Option or tandem SAR shall be exercisable until
the Optionee shall have completed one year as a Director or an employee with
the Company or its Subsidiaries after the date the Option was granted.
An Option and tandem SARs shall be exercisable during the Optionee's lifetime
only by the Optionee. Following the termination of an Optionee's service as a
Director or active employment with the Company or any Subsidiary other than by
death, the Optionee may exercise his or her Options or SARs, to the extent they
were exercisable by the Optionee on the date of such termination (unless the
Committee accelerates exercisability other than for a non-employee Director),
within (i) the period of (A) three months thereafter if such termination is for
Cause or at the Optionee's election (other than at retirement), (B) five years
thereafter if such termination is due to the Optionee's retirement, or (C)
three years thereafter if such termination is for any other reason, or (ii)
such longer period as the Committee determines in connection with such
termination, other than for a non-employee Director. If an Optionee dies,
Options and tandem SARs exercisable by the Optionee at the time of his or her
death (unless the Committee accelerates exercisibility other than for a non-
employee Director) may be exercised within one year thereafter by the
Optionee's estate or Beneficiary. However, in no event may any Option or SAR be
exercised by anyone after the later of (i) the final date upon which the
Optionee could have exercised it had the Optionee's service as a Director or
active employment continued to that date, or (ii), except in the case of an
ISO, one year after the Optionee's death.
An Option may be exercised only by a notice in writing complying in all
respects with the applicable option agreement. The notice may instruct the
Company to deliver Shares due upon the exercise of the Option to any registered
broker or dealer approved by the Company (an "approved broker") in lieu of
delivery to the Optionee and in that case shall designate the account into
which the Shares are to be deposited. The Optionee may tender such notice,
properly executed by the Optionee, together with the aforementioned delivery
instructions, through an approved broker. The purchase price of the Shares for
which an Option is exercised shall be paid in cash or by check, except that for
Optionees other than non-employee Directors the Committee may allow such
payment to be by surrender of unrestricted Shares (valued at their Fair Market
Value on the date of exercise) or by a combination of cash, check and
unrestricted Shares.
H. STOCK APPRECIATION RIGHTS
The Committee may grant SARs only in tandem with an Option, either when the
Option is granted or at any time thereafter while the Option remains
outstanding, to any person who at that time is eligible to be granted an
Option. The number of SARs granted to a person which shall be exercisable
during any given period shall not exceed the number of Shares which he or she
may purchase upon the exercise of the tandem Option during such period of time.
Upon the exercise of an Option, the tandem SARs relating to the Shares covered
by the exercise shall terminate. Upon the exercise of SARs, the tandem Option
to the extent of an equal number of Shares shall terminate.
Upon an Optionee's exercise of some or all of his or her SARs, the Optionee
shall receive in settlement of the SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash, Shares or
a combination thereof. The stock appreciation for an SAR is the difference
between (i) the Fair Market Value of the underlying Share on the date of the
exercise of the SAR and (ii) the option price specified for the tandem Option
or, if higher, the Fair Market Value of a Share as of the date of grant of the
SAR, but only where the SAR is granted after the tandem Option and
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use of the original option price for the tandem Option would result in the
disallowance of the Company's expense deduction pursuant to Section 162(m) of
the Code. At the time of exercise of SARS, the Optionee shall have the right to
elect the portion of the amount to be received that shall consist of cash and
the portion that shall consist of Shares which, for purposes of calculating the
number of Shares to be received, shall be valued at their Fair Market Value on
the date of exercise. The Committee may disapprove an Optionee's election to
receive cash in full or partial settlement of the SARs exercised, and to
require that Shares be delivered in lieu of cash. If Shares are to be received,
cash shall be delivered in lieu of any fractional Share.
SARs are exercisable only during the period when the tandem Option is also
exercisable. However, in no event shall SARs be exercisable during the first
six months after being granted, except that SARs shall be exercisable at the
time of death or total and permanent disability of the Optionee if the tandem
Option is then exercisable. No SARs may be exercised for cash, in whole or in
part, except during the period beginning on the third Business Day following
the date of release of the Company's quarterly and annual summary statements of
sales and earnings and ending on the twelfth Business Day following the date of
that release.
I. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS
Notwithstanding any other provision of the Plan, each non-employee Director
shall automatically be granted, on April 24 (or the preceding Business Day, if
such date is not a Business Day) of each year after 1994 during the term of the
Plan, a nonqualified Option, without tandem SARs, to purchase 1,000 Shares.
Each such Option shall have a term of ten years, subject to the second
paragraph of Section II.G. Each such Option shall become exercisable to the
extent of one-half thereof on each of the two immediately succeeding
anniversaries of the date of grant, but only to the extent the Optionee is a
Director on that anniversary. The option price for such an Option shall equal
the Fair Market Value of one Share on the date the Option is granted.
III. RESTRICTED SHARES
A. ELIGIBILITY
Restricted Shares may be granted from time to time to salaried employees of
the Company or any consolidated United States Subsidiary, and to Key Employees
of any other Subsidiary.
B. GRANT OF RESTRICTED SHARES
The Committee may grant Restricted Shares to eligible persons at any time.
The Committee shall determine the number of Restricted Shares to be included in
the grant and the period or periods during which the Transferability
Restrictions applicable to the Restricted Shares will be in force (the
"Restricted Period"); provided that the Restricted Period shall not be less
than six months. The Restricted Period may be the same for all Restricted
Shares granted at a particular time or to any one Grantee or may be different
with respect to different Grantees or with respect to various of the Restricted
Shares granted to the same Grantee, all as determined by the Committee at the
time of grant.
Each grant of Restricted Shares under the Plan shall be evidenced by an
agreement which shall be executed by the Company and the Grantee. The agreement
shall contain such terms and conditions, not inconsistent with the Plan, as
shall be determined by the Committee.
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C. TRANSFERABILITY RESTRICTIONS
During the Restricted Period, Restricted Shares may not be sold, assigned,
transferred or otherwise disposed of, or mortgaged, pledged or otherwise
encumbered. Furthermore, a Grantee's right, if any, to receive Shares upon
termination of the Restricted Period may not be assigned or transferred except
by will or by the laws of descent and distribution.
D. VESTING RESTRICTIONS
With respect to each grant of Restricted Shares, the Committee shall
determine the Vesting Restrictions which will apply to the Restricted Shares
for all or part of the Restricted Period. By way of illustration but not by way
of limitation, the Committee may provide (i) that the Grantee will not be
entitled to receive any Shares unless he or she is still employed by the
Company or its Subsidiaries at the end of the Restricted Period, or (ii) that
the Grantee will become vested in Restricted Shares (A) according to a schedule
determined by the Committee, (B) at the end of or during the Restricted Period
based upon the achievement (in such manner as the Committee may determine) of
performance goals determined by the Committee, or (C) in any combination of the
foregoing or under other terms and conditions determined by the Committee, and
(iii) how any Vesting Restrictions will be applied, modified or accelerated in
the case of the Grantee's death, total and permanent disability or retirement.
The performance goals, if any, set by the Committee for any Grantee may be
(i) individual performance goals applicable to the Grantee, (ii) performance
goals for the Company or the division, business unit, staff organization or
Subsidiary by which the Grantee is employed, (iii) performance goals set for
the Grantee under any other plan providing for incentive compensation for the
Grantee, or (iv) any combination of such goals. Performance goals set at the
time of the grant of any Restricted Shares may be revised at any time prior to
the beginning of the last year of the Restricted Period, but only to take into
account significant changes in circumstances as determined by the Committee. If
the Committee deems the Vesting Restrictions inappropriate for any Grantee, it
may approve the award and delivery to the Grantee of all or any portion of the
Restricted Shares then held in escrow pursuant to Section III.E.
E. MANNER OF HOLDING AND DELIVERING RESTRICTED SHARES
Each certificate issued for Restricted Shares shall be registered in the name
of the Grantee and deposited with the Company or its designee in an escrow
account, accompanied by a stock power executed in blank by the Grantee covering
the Restricted Shares. These certificates shall remain in escrow until the end
of the applicable Restricted Period or, if the Committee has provided for
earlier termination of the Transferability Restrictions following a Grantee's
death, total and permanent disability, retirement or earlier vesting of the
Shares, such earlier termination of the Transferability Restrictions. At
whichever time is applicable, certificates representing the number of Shares to
which the Grantee is then entitled shall be released from escrow and delivered
to the Grantee free and clear of the Transferability Restrictions; provided
that in the case of a Grantee who is not entitled to receive the full number of
Shares evidenced by the certificates then being released from escrow because of
the application of the Vesting Restrictions, those certificates shall be
returned to the Company and cancelled and a new certificate representing the
Shares, if any, to which the Grantee is entitled pursuant to the Vesting
Restrictions shall be issued and delivered to the Grantee, free and clear of
the Transferability Restrictions.
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F. TRANSFER IN THE EVENT OF DEATH, DISABILITY OR RETIREMENT
Notwithstanding a Grantee's death, total and permanent disability or
retirement, the certificates for his or her Restricted Shares shall remain in
escrow and the Transferability Restrictions shall continue to apply to those
Restricted Shares unless the Committee determines otherwise. Upon the
termination of the Transferability Restrictions, either upon the Committee's
determination or at the end of the Restricted Period, as the case may be, the
portion of the Grantee's Restricted Shares to which he or she is entitled,
determined pursuant to his or her applicable Vesting Restrictions, shall be
awarded and delivered to the Grantee or to the Grantee's estate or Beneficiary,
as the case may be. However, the Committee may award and deliver all or any
greater portion of the Restricted Shares to the Grantee or to such person or
persons.
IV. PERFORMANCE SHARES
A. ELIGIBILITY AND PARTICIPATION
Each person who is a non-employee Director or a Key Employee on the first day
of any Performance Cycle shall be eligible to become a Participant with respect
to Performance Shares for that Performance Cycle by electing, in the manner
prescribed by the Committee, to become a Participant no later than fifteen days
after the first day of the Performance Cycle. Once a person becomes a
Participant, he or she shall automatically be a Participant for each subsequent
Performance Cycle on the first day of which he or she meets the above criteria.
Notwithstanding the foregoing, each non-employee Director and each corporate
officer of the Company shall automatically be a Participant for each
Performance Cycle on the first day of which he or she serves as such.
B. PERFORMANCE SHARE RIGHTS
Each Performance Share Right granted shall consist of the right to purchase
the number of Performance Shares specified below, upon undertaking the
obligation to pay the Company, in the manner specified in Section IV.D, the
amount specified below (the "Payment Obligation"). For each Participant who is
a non-employee Director on the first day of a Performance Cycle, the Payment
Obligation shall equal 20% of the then applicable annual retainer for service
on the Board of Directors. For each Participant who is a corporate officer on
the first day of a Performance Cycle, the Payment Obligation shall equal 5% of
his or her then applicable annual rate of base salary. For each other Employee
Participant, the Payment Obligation shall equal 2.5% of his or her then
applicable annual rate of base salary. The number of Performance Shares to be
purchased shall equal the number of whole Shares which could be purchased
(without payment of commission) with an amount equal to seven times the Payment
Obligation at a price equal to the Base Price for the Performance Cycle. The
number of whole Shares which could be purchased based on a Payment Obligation
payable in a currency other than the U.S. Dollar shall be the U.S. Dollar
equivalent of such Payment Obligation, calculated based on the closing exchange
rate between such currency and the U.S. Dollar for the last Business Day
preceding the Performance Cycle.
C. GRANT AND EXERCISE OF PERFORMANCE SHARE RIGHTS
Each non-employee Director shall automatically be granted, and shall be
required to exercise, one Performance Share Right with respect to each
Performance Cycle for which he or she is a Participant. Each Employee
Participant shall be granted six Performance Share Rights for each Performance
Cycle
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for which he or she is a Participant; provided that, during the term of the
Plan, (i) no Employee Participant who first becomes a Participant for the first
or second Performance Cycle shall be entitled to exercise more than a total of
ten Performance Share Rights, (ii) no Employee Participant who first becomes a
Participant for the third or fourth Performance Cycle shall be entitled to
exercise more than a total of eight Performance Share Rights, and (iii) no
Employee Participant who first becomes a Participant for the fifth Performance
Cycle shall be entitled to exercise more than a total of six Performance Share
Rights.
Each Employee Participant shall be required to exercise one Performance Share
Right for the first Performance Cycle for which he or she is a Participant and
a total of six Performance Share Rights (four if the Participant first becomes
eligible to be a Participant for the fourth Performance Cycle and two if the
Participant first becomes eligible to be a Participant for the fifth
Performance Cycle) during the term of the Plan; provided that this requirement
shall cease with respect to all Performance Cycles commencing after the
termination of the Employee Participant's eligibility to participate or a
Change of Control.
Each Participant shall be deemed to have exercised the number of Performance
Share Rights which he or she is required to exercise, without further action by
the Participant, on the fifteenth day after the first day of the applicable
Performance Cycle. In order to exercise any additional Performance Share
Rights, an Employee Participant shall do so, in the manner prescribed by the
Committee, no later than fifteen days after the first day of the applicable
Performance Cycle.
Each Performance Share Right granted under the Plan shall be evidenced by an
agreement, which shall be executed by the Company by manual or facsimile
signature and by the Participant. The agreement shall contain such terms and
conditions, not inconsistent with the Plan, as shall be determined by the
Committee.
If the grant or exercise of Performance Share Rights for any Performance
Cycle would cause any aggregate limit set forth in Section I.E for Performance
Shares to be exceeded, the number of Performance Shares purchasable upon
exercise of each Performance Share Right shall be reduced proportionately to
the extent necessary to comply with that limit. If the grant or exercise of
Performance Share Rights for any Performance Cycle to or by any Participant
would cause any individual limit set forth in Section I.E for Performance
Shares to be exceeded, the number of Performance Shares purchasable upon
exercise of his or her Performance Share Rights shall be reduced
proportionately to the extent necessary to comply with that limit. In each
case, the corresponding Payment Obligation shall be reduced in the same
proportion as the number of Performance Shares.
D. PAYMENT FOR PERFORMANCE SHARES
Each Participant shall pay the Payment Obligation in respect of each
Performance Share Right exercised through approximately equal payroll
deductions from each periodic payment of salary (or, in the case of a non-
employee Director, deductions from each installment of his or her annual
retainer) during the one-year period (the six-month period, in the case of the
Performance Cycle beginning September 1, 1994) starting promptly after the
applicable deadline for exercise of Performance Share Rights. The Payment
Obligation shall be paid in the same currency in which the Participant's salary
is paid, and no adjustments shall be made to the amounts paid by Participants
in a currency other than the U.S. Dollar as a result of currency fluctuations.
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The Committee may allow any Participant or Participants to satisfy their
Payment Obligations, in whole or in part, by deeming amounts previously
deferred or being deferred from salary, bonuses or compensation under other
Company or Subsidiary benefit plans which are not tax qualified to be invested
in the purchase of Performance Shares; provided that (i) such elections are
consistent with the terms of such plans and (ii) the deemed investment occurs
at substantially the same times and in the same amounts as if made through
payroll deductions.
If a Participant who is satisfying his or her Payment Obligation through
payroll deduction ceases receiving salary (or, in the case of a non-employee
Director, an annual retainer) from the Company while any part of a Payment
Obligation remains outstanding and has not been relieved of the remainder of
such Payment Obligation under Section IV.G, the Participant shall be required
to make payments to the Company at substantially the same times and in the same
amounts as if they were made through payroll deductions and may be charged
interest for late payments at a rate determined by the Committee.
In order to minimize taxes or regulatory burdens imposed by jurisdictions
outside the United States, the Committee may at any time require or allow
employees of any non-United States Subsidiary, to make payments directly rather
than through payroll deductions, or from specified sources or categories of
income, and in such installments as the Committee shall determine, so long as
the amount paid is substantially identical to the amount that would have been
paid in the absence of such taxes or regulatory burdens.
E. PERFORMANCE GOAL
The Performance Goal for a Performance Cycle shall be attained if the
Committee certifies in writing that, on each of any fifteen Business Days
during any period of twenty consecutive Business Days between the third
anniversary of the first day of the Performance Cycle and the end of the
Performance Cycle, the Company Annual Rate of Shareholder Return from the first
day of the Performance Cycle exceeded the S&P Annual Rate of Shareholder Return
from the same date by at least one percentage point.
F. EARNOUT OR FORFEITURE OF PERFORMANCE SHARES
If the Performance Goal is attained for a Performance Cycle, each Participant
who has purchased Performance Shares for such Performance Cycle shall receive
the number of whole Shares equal to the number of Performance Shares purchased,
less the number of whole Shares required to be withheld to meet all applicable
tax withholding requirements. The distribution of Shares in accordance with the
preceding sentence shall be made with reasonable promptness after the Committee
has certified that the Performance Goal has been attained.
If the Performance Goal is not attained for a Performance Cycle, the
Performance Shares purchased for such Performance Cycle shall be forfeited on
the last day thereof and shall not give rise to a distribution of Shares, nor
shall there be any return of the purchase price paid for them by any
Participant.
In order to minimize taxes or regulatory burdens imposed by jurisdictions
outside the United States, the Committee may elect at any time (i) to pay all
employees of any non-United States Subsidiary in cash, based on the value of
Shares on the date Shares would otherwise be distributed to those employees, or
(ii) to allow those employees to elect to receive Shares, cash or a combination
thereof.
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The Committee may reduce the number of Shares and the amount of cash to be
distributed for a Performance Cycle to all employees of any non-United States
Subsidiary whose Payment Obligation was paid in a currency other than the U.S.
Dollar to the extent necessary to protect the Company from depreciation of that
currency; provided that (i) the proportion of the reduction shall be uniform
among all those employees, and (ii) the value of the Shares and cash
distributed shall be at least 120% of the amount that would have otherwise been
distributed, multiplied by a fraction, the numerator of which is the U.S.
Dollar value of one unit of that currency, based on the closing exchange rate
between that currency and the U.S. Dollar for the fifth Business Day preceding
the distribution, and the denominator of which is the U.S. Dollar value of one
unit of that currency determined in Section IV.B.
G. INTERVENING EVENTS
If a Participant's service as a Director is terminated for any reason, or if
an Employee Participant's active employment with the Company or any Subsidiary
is terminated (i) due to death, total and permanent disability, retirement, or
total or partial disposition or shutdown of his or her division, business unit,
staff organization or Subsidiary or (ii) after a Change of Control, the
Participant (or the Participant's estate or Beneficiary) will continue to own
all Performance Shares previously purchased; provided that, if the Participant
has not completed paying his or her Payment Obligation in respect of any
Performance Shares purchased, the number of Performance Shares shall be reduced
in proportion to the unpaid portion of the Payment Obligation, and the
Performance Shares for which no payment is made shall be forfeited and the
Participant or his or her estate or Beneficiary shall not be liable for the
unpaid portion of the Payment Obligation, unless the Participant (or the
Participant's estate or Beneficiary) elects within sixty days after the
Participant's termination to continue paying the entire remainder of the
Payment Obligation in accordance with Section IV.D.
If an Employee Participant's active employment is terminated for Cause or at
his or her election (other than at retirement), he or she shall forfeit all
Performance Shares purchased (other than those for which the Performance Goal
was attained prior to such termination) and all amounts paid on any Payment
Obligation, but shall not be liable for the unpaid portion of any Payment
Obligation.
If an Employee Participant's active employment is terminated for any reason
not described above, he or she shall forfeit all Performance Shares purchased
(other than those for which the Performance Goal was attained prior to such
termination), but shall be entitled to the return of all amounts paid on his or
her Payment Obligations with respect to those Performance Shares, with interest
at a rate determined by the Committee, and shall not be liable for the unpaid
portion of any Payment Obligation.
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