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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934
(AMENDMENT NO.)
Filed by the registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SCOTT PAPER COMPANY
(Name of Registrant as Specified In Its Charter)
SCOTT PAPER COMPANY
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(l), or
14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11*
(4) Proposed maximum aggregate value of transaction:
--------
*Set forth the amount on which the filing is calculated and state how
it was determined.
[_] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
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[LOGO OF SCOTT PAPER COMPANY APPEARS HERE]
SCOTT PAPER COMPANY SCOTT PLAZA, PHILADELPHIA PA 19113
March 11, 1994
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, APRIL 19, 1994
----------------
The Annual Meeting of Shareholders of Scott Paper Company, a Pennsylvania
corporation, will be held at 10:00 A.M. on Tuesday, April 19, 1994, at The
Radisson Hotel-Philadelphia Airport, 500 Stevens Drive, Philadelphia,
Pennsylvania, for the following purposes:
1. To elect thirteen Directors.
2. To act on proposals to approve the adoption of the portions of the
1994 Long-Term Incentive Plan relating to:
(a) stock options;
(b) restricted stock; and
(c) performance shares.
3. To act on a proposal to approve the appointment of auditors.
4. To transact such other business as may properly come before the
meeting.
Only holders of Common Shares of record at the close of business on February
18, 1994 will be entitled to vote at the meeting. In the absence of a quorum,
the meeting will be adjourned until a time announced at the meeting at which
adjourned meeting the shareholders in attendance, although less than a quorum,
shall nevertheless constitute a quorum to elect Directors and, if the meeting
has been adjourned for at least fifteen days, to act on all other matters
included in this notice.
Please sign, date and return, in the envelope provided, the enclosed proxy
which is being solicited on behalf of the Company's Board of Directors. The
proxy shows the form in which your Common Shares are registered. Your signature
should be in the same form.
If you need directions to the meeting, please call the undersigned at 610-
522-5816.
Stephen D. Ford
Secretary
<PAGE>
SCOTT PAPER COMPANY
March 11, 1994
PROXY STATEMENT
PURPOSES OF THE MEETING
This Proxy Statement is being mailed on or about March 11, 1994, and is
furnished for the solicitation of proxies for use at the Annual Meeting of
Shareholders of Scott Paper Company to be held on April 19, 1994, and at any
adjournments thereof. Action will be taken at the meeting upon the election of
Directors, three proposals to approve separate portions of the 1994 Long-Term
Incentive Plan and a proposal to approve the appointment of auditors.
VOTING AT THE MEETING
Only the holders of Common Shares ("shares") of record at the close of
business on February 18, 1994, are entitled to vote at the Meeting. As of that
time there were 74,229,280 shares outstanding and entitled to be voted at the
Meeting. Each holder of shares entitled to vote has the right to one vote for
each share standing in his or her name on the books of the Company. However, in
the election of Directors, voting may be cumulative so that each share has as
many votes as there are Directors to be elected, and those votes may be
distributed among the nominees in any way the shareholder desires. To vote
cumulatively, the shareholder must write the words "cumulate for" followed by
the name of the nominee or nominees selected on the line provided under Item 1
of the proxy.
The shares represented by each properly executed proxy will be voted in the
manner specified by the shareholder. If instructions to the contrary are not
given, the shares will be voted in the election of Directors as specified
below, for approval of each of the proposals relating to the 1994 Long-Term
Incentive Plan and for approval of the appointment of auditors. The proxies
being solicited may be voted cumulatively and the vote distributed among all or
less than all of the nominees for election as Directors, if the proxy holders,
in the exercise of their discretion, deem it desirable. Execution of the
accompanying proxy will not affect a shareholder's right to attend the meeting
and vote in person. Any shareholder giving a proxy has the right to revoke it
by giving written notice of revocation to the Secretary of the Company at any
time before the proxy is voted.
CONFIDENTIAL VOTING POLICY
It is the policy of the Company that each shareholder's proxy relating to
this Meeting is to be confidential, if the shareholder so requests on the
proxy.
If the shareholder requests confidentiality, the proxy will not, prior to the
tabulation of the final vote at the Meeting, be available for examination by,
nor will the vote of the shareholder be disclosed to, any person (other than
the independent tabulator and judge of election) except (i) where disclosure is
necessary to meet applicable legal requirements or (ii) in the event of a
contested proxy solicitation. Subject to the foregoing, in cases where the
shareholder requesting confidentiality is also a Director or employee of the
Company (including through shares held in employee benefit plans), any
requested and granted confidentiality would be maintained permanently. The
Company has retained an independent
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tabulator and judge of election to receive, inspect, tabulate and certify proxy
votes. The independent tabulator and judge may inform the Company at any time
of vote tallies and whether a particular shareholder has voted.
In accordance with this policy, a space is provided on the proxy for the
shareholder to elect to have the proxy treated confidentially. If the
shareholder makes this election, the proxy may still be used to communicate
directly with the Company by writing comments on it, but any comment will be
transcribed separately and given to the Company. Except for a Director or
employee, the name of the shareholder making a comment will be disclosed.
OWNERSHIP OF SHARES
According to a Schedule 13G received by the Company, Capital Guardian Trust
Company and Capital Research and Management Company, operating subsidiaries of
The Capital Group, Inc., all of which are located at 333 South Hope Street, Los
Angeles, California 90071, beneficially owned a combined total of 3,727,010
shares, or approximately 5.0% of those outstanding, on December 31, 1993. Of
these shares, Capital Guardian Trust Company had sole voting power with respect
to 1,579,710 shares and had sole dispositive power with respect to 2,075,710
shares, and Capital Research and Management Company had sole dispositive power
with respect to 1,651,300 shares.
BOARD OF DIRECTORS
The Board of Directors currently consists of thirteen members, each of whom
is required to be a shareholder of the Company. Each non-employee Director
serves on a minimum of two of the Board's five standing committees (the Audit,
Board Policy and Nominating, Employee Retirement Benefits, Finance and
Management Development and Executive Compensation Committees). The overall
attendance at the 12 Board and 24 committee meetings during 1993 was 96%.
No Director who is an employee receives any additional compensation for
service on the Board or its committees. Each non-employee Director is entitled
to an annual retainer of $20,000, a fee of $1,000 for each Board and committee
meeting attended, and a travel expense allowance based on the distance between
his or her usual place of departure and the meeting site. The chairperson of
each committee receives an additional retainer of $2,500 per year. Under the
Directors' Deferred Compensation Plan, a Director may defer the receipt of all
or part of his or her retainer and meeting fees until the termination of his or
her service as a Director in the form of an unfunded deferred cash account, an
unfunded deferred shares account or a combination of both. On a regular
periodic basis, interest at a market rate or dividends are credited to these
accounts. The number of shares in unfunded deferred shares accounts are
reported in footnote 5 to the "Ownership of Shares" table on page 7. All
payments from these accounts are made in cash. The 1989 Stock Option and
Restricted Stock Plan provides for an automatic annual grant to each non-
employee Director of a nonqualified option to purchase 1,000 shares and stock
appreciation rights in connection with them. Under the Directors' Retirement
Benefit Plan, each non-employee Director with at least five years of service is
entitled to an annual benefit, payable monthly, equal to his or her annual
retainer at the time of retirement, to be paid over a period equal to the
shorter of fifteen years or his or her years of service. If the Director dies
before these payments have been completed, the remaining benefits will be paid
to his or her designated beneficiary.
The Audit Committee consists of Chairman Pierre J. Everaert, John F. Fort,
III, William H. Gray, III, Peter Harf, Richard K. Lochridge and Paula Stern. It
met five times during 1993, in the discharge of its responsibilities to review
and examine public financial reports, the audit plan, practices and procedures
of the Company's independent accountants and internal audit staff, the scope of
their audit activities, the Company's accounting policies, practices and
controls, and the Company's policies and practices in reporting to shareholders
and the public, and to monitor compliance with the Company's Code of
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Business Conduct and other policies and programs. As part of its activities,
the committee meets with representatives of the Company's management, internal
audit staff and independent accountants, meets privately with the independent
accountants and internal auditors, and meets in executive session. The
committee makes a recommendation each year to the full Board concerning the
choice of the Company's independent accountants.
The Board Policy and Nominating Committee, whose members are Chairman Gary L.
Roubos, Jack J. Crocker, William H. Gray, III, Peter Harf, Bruce K. MacLaury,
Claudine B. Malone and Paula Stern, met three times during the year and has the
responsibility of evaluating the Board's structure, personnel, policies and
processes, including recommending candidates for election as Directors. In the
latter connection, it will consider suggestions from shareholders who should
submit them to the Secretary of the Company. See "Shareholder Proposals and
Nominations" on page 27.
The Employee Retirement Benefits Committee is composed of Chairwoman Paula
Stern, William A. Andres, Jack J. Crocker, John F. Fort, III, William H. Gray,
III, Richard K. Lochridge and Bruce K. MacLaury. It met three times during 1993
and is responsible for adopting pension fund investment policies, investment
guidelines and other policies, including actuarial methods and assumptions. The
committee also appoints, reviews and removes investment managers, trustees and
a voting fiduciary, and reviews and examines the administration and control of
the pension plans.
The Finance Committee, whose members are Chairman Peter Harf, William A.
Andres, Pierre J. Everaert, John F. Fort, III, Claudine B. Malone and Gary L.
Roubos met three times during the year. This committee reviews, among other
things, the Company's financial condition, results and goals, its
capitalization, dividend and financial policies, its financing plans, including
acquisition financings and capital allocation and the performance results
associated with prior capital expenditures. Subject to certain conditions, the
committee also approves certain capital expenditures.
The Management Development and Executive Compensation Committee is composed
of Chairman William A. Andres, Jack J. Crocker, Pierre J. Everaert, Richard K.
Lochridge, Claudine B. Malone and Gary L. Roubos. This committee examines and
reviews the Company's policies and practices in the identification and
development of management personnel, ensures that management succession plans
are in place, evaluates the performance of key executives, reviews the
qualifications of persons proposed for election as corporate officers and
annually approves the compensation (including awards under the Performance
Plan) to be paid to senior management personnel. This committee also
administers the Company's stock option plans. In the discharge of its duties,
this committee or its subcommittees met ten times during 1993.
ELECTION OF DIRECTORS
Thirteen Directors are to be elected, each to hold office until the next
succeeding Annual Meeting of Shareholders and until his or her successor has
been duly elected and qualified. Of the twelve Directors elected at the 1993
Annual Meeting of Shareholders, all are again standing for election to the
Board of Directors this year. Dr. MacLaury, having been elected to the Board as
of September 1, 1993, is standing for election for the first time this year.
On November 29, 1993, Philip E. Lippincott announced his plan to retire as
the Company's Chairman and Chief Executive Officer and as a Director on April
1, 1994. Upon the request of the Board, Mr. Lippincott has agreed to stand for
election as a Director and to serve as a Director and as Chairman and Chief
Executive Officer until his successor has been duly elected and qualified. If a
successor is identified by the Board before the Meeting, a supplemental
solicitation of proxies will be made for the election of Directors and, if
necessary to give the Company's shareholders sufficient time to vote, the
election of Directors may be conducted at an adjournment of the Meeting. If a
successor to Mr. Lippincott is not identified by the Board until after the
Meeting, the Board will elect his successor as a Director and as Chairman and
Chief Executive Officer, effective upon Mr. Lippincott's retirement from those
positions. The
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Company and Mr. Lippincott have entered into an agreement governing his status
after his retirement from those positions, the material terms of which are
described under "Agreements with Executives" on page 17.
All nominees have consented to be named and to serve if elected. The Company
does not presently know of anything that would preclude any nominee other than
Mr. Lippincott from serving if elected. If any nominee other than Mr.
Lippincott for any reason should become unable or unwilling to stand for
election as a Director, either the shares represented by all proxies
authorizing votes for that nominee will be voted for the election of such
other person as the Board may recommend, or the number of Directors to be
elected at the meeting will be reduced accordingly. Each nominee will be
elected if he or she receives the affirmative vote of a plurality of the votes
cast by holders of shares at the Meeting. Abstentions and broker non-votes
will not be counted as votes cast.
The following information is submitted concerning the nominees for election
to the Board.
(PHOTO OF WILLIAM A. ANDRES, 67, Former Chairman and Chief Executive
WILLIAM A. Officer of Dayton Hudson Corporation, a non-food retailing
ANDRES company, having served as its Chairman of the Board from 1976
APPEARS HERE) until 1984.
Director of Hannaford Bros. Co. (food retailer),
International Multifoods, Inc., Jostens, Inc. (education,
business and athletic products) and Lowe's Companies, Inc.
(building materials).
(Company Director since 1984, Chairman of the Management
Development and Executive Compensation Committee and member
of the Employee Retirement Benefits and Finance Committees)
(PHOTO OF JACK J. CROCKER, 69, Former Chairman and Chief Executive
JACK J. Officer of SuperValu, Inc., a food wholesaling and retailing
CROCKER company, having served as its Chairman of the Board from 1976
APPEARS HERE) until 1982 and as its Chief Executive Officer from 1973 to
1981.
(Company Director since 1982 and member of the Board Policy
and Nominating, Employee Retirement Benefits and Management
Development and Executive Compensation Committees)
(PHOTO OF PIERRE J. EVERAERT, 54, Executive Vice President and member
PIERRE J. of the Board of Management of Philips Electronics, N.V. since
EVERAERT March 1993. Formerly President and Chief Executive Officer
APPEARS HERE) since 1989 of Koninklijke Ahold, N.V. (an international food
retailing company) after having served as President-elect
from 1988 to 1989.
Director of Paribas, N.V. (banking).
(Company Director since 1989, Chairman of the Audit
Committee and member of the Finance and Management
Development and Executive Compensation Committees)
4
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(PHOTO OF JOHN F. FORT, III, 52, Former Chairman, President and Chief
JOHN F. Executive Officer of Tyco International, Inc., a diversified
FORT, III manufacturing company, having served as its Chairman from
APPEARS HERE) 1983 to January 1993, its President from 1982 to 1989 and its
Chief Executive Officer from 1982 to 1992.
Director of Tyco International, Inc. and Dover Corporation
(diversified manufacturing).
(Company Director since 1993 and member of the Audit,
Employee Retirement Benefits and Finance Committees.)
(PHOTO OF WILLIAM H. GRAY, III, 52, President of the United Negro
WILLIAM H. College Fund, Inc. since 1991 and former U.S. Congressman
GRAY, III from Pennsylvania from 1979 to 1991.
APPEARS HERE)
Director of The Chase Manhattan Corporation (financial
services), Lotus Development Corp. (software and support
services), MBIA, Inc. (insurance), Prudential Insurance
Company of America, Union Pacific Corporation (transportation),
Warner-Lambert Company (pharmaceuticals)and Westinghouse
Electric Corporation.
(Company Director since 1991 and member of the Audit, Board
Policy and Nominating and Employee Retirement Benefits
Committees)
(PHOTO OF PETER HARF, 47, Chairman and Chief Executive Officer since
PETER HARF 1988 of Joh. A. Benckiser GmbH, an international consumer
APPEARS HERE) products company.
Director of Joh. A. Benckiser GmbH.
(Company Director since 1990, Chairman of the Finance
Committee and member of the Audit and Board Policy and
Nominating Committees)
(PHOTO OF J. RICHARD LEAMAN, JR., 59, Vice Chairman of the Company
J. RICHARD and President of its subsidiary, S.D. Warren Company, since
LEAMAN 1991, having previously been President of Scott Worldwide,
APPEARS HERE) the Company's worldwide personal care and cleaning business,
since 1986.
Director of Church & Dwight Co., Inc. (consumer products
and chemicals) and The Pep Boys (automotive products).
(Company Director since 1986)
5
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(PHOTO OF PHILIP E. LIPPINCOTT, 58, Chairman of the Board of the
PHILIP E. Company since 1983 and its Chief Executive Officer since
LIPPINCOTT 1982.
APPEARS HERE)
Director of Campbell Soup Company and Exxon Corporation
(petroleum and chemical products); and a Trustee of The Penn
Mutual Life Insurance Company.
(Company Director since 1978)
(PHOTO OF RICHARD K. LOCHRIDGE, 50, President and Chief Executive
RICHARD K. Officer of Lochridge & Company, Incorporated, a management
LOCHRIDGE consulting company which he founded in 1986.
APPEARS HERE)
Director of Dynatech Corporation (communication equipment)
and Hannaford Bros. Co. (food retailer).
(Company Director since 1986 and member of the Audit,
Employee Retirement Benefits and Management Development and
Executive Compensation Committees)
(PHOTO OF BRUCE K. MACLAURY, 62, President of The Brookings
BRUCE K. Institution, a public policy and research organization, since
MACLAURY 1977.
APPEARS HERE)
Director of American Express Bank, Ltd.; The St. Paul
Companies, Inc. (insurance and related services); and The
Vanguard Group, Inc. (investments and related services).
(Company Director since September 1, 1993 and member of the
Board Policy and Nominating and Employee Retirement Benefits
Committees)
(PHOTO OF CLAUDINE B. MALONE, 57, President of Financial & Management
CLAUDINE B. Consulting, Inc., a business consulting firm.
MALONE
APPEARS HERE) Director of Dell Computer Corporation; Hannaford Bros. Co.
(food retailer); Hasbro, Inc. (games and toys); Houghton
Mifflin Company (book publishing); IMCERA Group, Inc. (health
care products & specialty chemicals); Limited, Inc. (women's
apparel); and Union Pacific Corporation (transportation); and
a Trustee of The Penn Mutual Life Insurance Company.
(Company Director since 1977 and member of the Board Policy
and Nominating, Finance and Management Development and
Executive Compensation Committees)
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(PHOTO OF GARY L. ROUBOS, 57, Chairman and Chief Executive Officer
GARY L. since 1989 of Dover Corporation (diversified manufacturing),
ROUBOS having served as Chief Executive Officer since 1981.
APPEARS HERE)
Director of Dover Corporation, The Treasurers Fund
(financial services), and Omnicom Group, Inc. (advertising).
(Company Director since 1987, Chairman of the Board Policy
and Nominating Committee and member of the Finance and
Management Development and Executive Compensation Committees)
(PHOTO OF PAULA STERN, 49, President of The Stern Group, Inc. (an
PAULA STERN economic analysis and trade advisory firm) and since October
APPEARS HERE) 1993, Senior Fellow of the Progressive Policy Institute,
having served as a Commissioner of the U.S. International
Trade Commission from 1978 to 1987 and as Chairwoman from
1984 to 1986.
Director of Dynatech Corporation (communication equipment),
Harcourt General, Inc. (publishing and specialty retailing)
and Westinghouse Electric Corporation.
(Company Director since 1987, Chairwoman of the Employee
Retirement Benefits Committee and member of the Audit and
Board Policy and Nominating Committees)
OWNERSHIP OF SHARES
The following table contains information as of January 14, 1994 relating to
the ownership of shares by (i) each Director and nominee for election to the
Board of Directors and each executive officer named in the summary compensation
table on page 14, and (ii) all Directors, nominees and executive officers as a
group. None of these individuals owns shares of any class of equity securities
of the Company other than Common Shares. Information as to the number of shares
owned and the nature of ownership has been provided by these individuals and is
not within the direct knowledge of the Company.
<TABLE>
<CAPTION>
NAME OF SHARES NAME OF SHARES
INDIVIDUAL OWNED(/1/)(/2/) INDIVIDUAL OWNED(/1/)(/2/)
---------- ----------------- ---------- ---------------
<S> <C> <C> <C>
William A. Andres 7,000 Philip E. Lippincott 306,905(/3/)(/6/)(/8/)
Ashok N. Bakhru 130,601(/3/) Richard K. Lochridge 5,400(/5/)
John J. Butler 127,779(/3/) Bruce K. MacLaury 200
Jack J. Crocker 5,400(/4/)(/5/) Claudine B. Malone 6,098(/6/)
Pierre J. Everaert 5,250 Gary L. Roubos 6,000
John F. Fort, III 8,000(/5/) Paul N. Schregel 121,561(/3/)(/6/)(/7/)
William H. Gray, III 2,010(/5/) Paula Stern 5,500(/5/)
Peter Harf 3,318 P. Newton White 103,835(/3/)(/6/)(/7/)
J. Richard Leaman, Jr. 201,175(/3/)(/6/)(/7/)
All Directors, nominees and executive officers as a group (24 persons) 1,396,423(/3/)(/6/)(/7/)
</TABLE>
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(/1/)Nature of ownership consists of sole voting power and sole investment
power unless otherwise indicated. There were 74,055,557 shares outstanding
on January 14, 1994, of which all Directors, nominees and executive
officers as a group owned 1.9%.
(/2/)The numbers shown include shares which the individual or members of the
group have the right to acquire upon exercise of stock options under the
Company's stock option plans, as follows: Mr. Bakhru, 118,000 shares; Mr.
Butler, 121,400 shares; Mr. Leaman, 186,000 shares; Mr. Lippincott, 275,000
shares; Mr. Schregel, 115,000 shares; Mr. White, 70,000 shares; each non-
employee Director, 5,000 shares, except Dr. Harf, 3,000 shares, Mr. Gray,
2,000 shares, Mr. Fort, 1,000 shares, and Dr. MacLaury, no shares; and all
Directors, nominees and executive officers as a group, 1,206,400 shares. Of
these, the following numbers of shares may be acquired within sixty days:
Mr. Bakhru, 109,000 shares; Mr. Butler, 112,400 shares; Mr. Leaman, 173,500
shares; Mr. Lippincott, 255,000 shares; Mr. Schregel, 106,000 shares; Mr.
White, 61,000 shares; each non-employee Director, 3,500 shares, except Dr.
Harf, 1,500 shares, Mr. Gray, 500 shares, and Mr. Fort, no shares; and all
Directors, nominees and executive officers as a group, 1,089,150 shares.
(/3/)The numbers shown include shares held for the account of the individual
or members of the group under the Salaried Investment Plan, as follows: Mr.
Bakhru, 1,601 shares; Mr. Butler, 1,377 shares; Mr. Leaman, 49 shares; Mr.
Lippincott, 9,143 shares; Mr. Schregel, 1,553 shares; Mr. White, 1,233
shares; and all Directors, nominees and executive officers as a group,
22,211 shares. The Directors, nominees and executive officers have sole
voting power with respect to shares held for their account in the plan, but
their power to obtain and dispose of such shares is limited by the terms of
the plan.
(/4/)Four hundred of these shares are held by Mr. Crocker and his wife as co-
trustees of a revocable trust for members of their family.
(/5/)The numbers shown exclude the unfunded deferred shares accounts of the
following Directors under the Company's Directors' Deferred Compensation
Plan: Mr. Crocker, 10,707 shares; Mr. Fort, 670 shares; Mr. Gray, 964
shares; Mr. Lochridge, 5,521 shares; and Dr. Stern, 1,263 shares.
(/6/)Includes the following shares owned jointly with others: Mr. Leaman, 126
shares; Mr. Lippincott, 1,782 shares; Ms. Malone, 292 shares; Mr. Schregel,
4 shares; Mr. White, 2 shares; and executive officers who are not named in
this table, 11,358 shares.
(/7/)The numbers shown include restricted shares held as shown on page 15. All
Directors, nominees and executive officers as a group held 50,500
restricted shares.
(/8/)Does not include 400 shares owned by Mr. Lippincott's wife.
EXECUTIVE COMPENSATION
REPORT OF THE MANAGEMENT DEVELOPMENT AND EXECUTIVE COMPENSATION COMMITTEE
During its regular February meeting each year the Committee assesses the
performance of the Company's Chief Executive Officer and each of the
approximately forty most senior executives, taking into consideration
performance relative to their individual responsibilities, as well as the
financial performance of the Company relative to its goals and to the financial
performance of its key competitors. The Chief Executive Officer assists the
Committee in assessing the performance of the most senior executives, but the
Committee meets without the Chief Executive Officer being present when
assessing his own performance.
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Based on this assessment, the Committee authorizes the amounts, if any, of
base salary increases for the current year, variable pay awards for the prior
year, and grants of stock options and restricted stock for the current year to
the individuals whose performance it has assessed, except for the Chief
Executive Officer, in whose case the Committee meets without his being present
to develop recommended amounts, if any, of base salary, variable pay, stock
options and restricted stock, which are then submitted to the Board of
Directors for approval. In addition, the Committee reviews the annual base
salary increase program proposed by the Company for its other salaried
employees, authorizes the total amount of variable pay awards proposed by the
Company, and makes all individual grants of stock options and restricted stock.
In making its executive compensation determinations, the Committee considers
the competitiveness of both the entire executive compensation package and each
of its individual components. In addition, the Committee is mindful of the
Company's belief that the total compensation programs of its Chief Executive
Officer and other executives should be essentially the same as those of its
other salaried employees, except that (i) executives should have a greater
portion of their compensation at risk than other employees, (ii) executive
compensation should be tied directly to the performance of the business, as
well as to performance of individual responsibilities, and (iii) executives
should have a large stake in the risks and rewards of ownership of the Company.
The Committee has considered the probable effects of Section 162(m) of the
Internal Revenue Code (the "Code"), which was added by the Omnibus Budget
Reconciliation Act of 1993. This section disallows a publicly held company's
tax deductions for employee remuneration exceeding $1,000,000 per year for
certain executives, but contains an exception for qualified "performance-based
compensation." The Committee has been advised that (i) income received upon the
exercise of stock options granted under existing stock option plans will
constitute qualified "performance-based compensation"; (ii) income received
upon the vesting of restricted shares under existing plans will not qualify as
"performance-based compensation"; (iii) variable pay received under the
Performance Plan, as presently constituted, will not qualify as "performance-
based compensation"; and (iv) base salary will not qualify as "performance-
based compensation." In light of the constraints which Section 162(m) of the
Code is likely to impose upon the Committee's determination of variable pay
amounts, as well as the fact that it is expected that there will be a limited
number of situations where the combination of variable pay and base salary will
significantly exceed $1,000,000 for a Company executive, the Committee supports
the Company's determination not to take steps at this time to qualify variable
pay as "performance-based compensation."
Following is a discussion of the compensation actions taken by the Committee
in 1993. This discussion focuses separately on base salary, variable pay, stock
options, and restricted stock. For each of these components of compensation,
the discussion outlines guiding principles used by the Committee and describes
actions taken.
Base Salary
Guiding Principles
Base salaries for executives and all other salaried employees are paid within
salary ranges established for each position. Salary ranges are determined
through annual competitive salary surveys. The Company's practice is to place
the midpoints of the salary ranges at the average of those of leading
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companies with sales volumes comparable to the Company's. The Company believes
that it competes for executives in a multi-industry market and, in particular,
those portions of the market which include paper companies and consumer
packaged goods companies. As a result, the Company uses a multi-industry survey
of over 150 companies with sales exceeding $1 billion as the primary reference
for setting its base salary ranges. The comparisons are made with the base
salaries these companies (substantially all of which are U.S.-based) pay to
their executives located in the United States. Several of the companies
included in the much smaller Standard & Poor's Paper and Forest Products Index
are included in the comparison group. In addition, the Company compares the
multi-industry survey group data with surveys of paper companies and consumer
packaged goods companies to ascertain whether there are significant variations
between the two survey groups. Significant variations could suggest a need to
adjust the Company's salary range midpoints to be more reflective of consumer
packaged goods and paper companies rather than the multi-industry survey. To
date, there have not been significant variations, and therefore no adjustments
have been made to the multi-industry survey results. Each employee's salary is
based on this annual assessment of competitive pay and his or her contribution
to business results.
Actions for 1993
In determining base salary increases to become effective in 1993 for the
Company's executives the Committee considered the following:
. In 1992, the Company improved its earnings and reduced its debt despite
a difficult economic and competitive environment.
. In February 1992, the Committee had noted that the Company's midpoints
had become somewhat lower than indicated by the above principles, but
supported the Company's determination not to make an adjustment in 1992.
In 1993, competitive data showed that the Company's midpoints continued
to be low.
. No salary increases were awarded to Company executives in 1992, except
as a consequence of promotion.
The combined effect of the last two considerations caused the base salaries
of many Company executives to be significantly below competitive levels.
Consequently, the Committee authorized salary increases that included
additional adjustments of up to 8%, and an adjustment of midpoints to return
them to the intended position.
As noted in the Committee's report in the Company's 1993 Proxy Statement, the
Chief Executive Officer had not received a salary increase during 1991 and
1992. In view of this, the Committee concluded that it would be more
appropriate to increase his salary for 1993 by $100,000 and to decrease his
variable pay for 1992 by the same amount.
Variable Pay
Guiding Principles
The Company pioneered a now growing practice when, in 1988, it extended to
all salaried employees in the United States an annual variable pay opportunity
tied directly to business results. The Company believes that the Performance
Plan and similar incentive plans focus the attention of all salaried
10
<PAGE>
employees on improving business results and serve to align the interests of
employees with those of the Company's shareholders.
The size of the annual variable pay opportunity is determined by using a
total pay version (base salary plus annual bonus) of the same multi-industry
survey used to determine base salary range midpoints. The Company's variable
pay opportunity is sized so that nominal target performance by the Company will
produce variable pay amounts that, in combination with midpoint base salaries,
will produce total pay for employees generally between the 60th and 70th
percentiles in the survey. Company performance at lower and higher levels can
produce variable pay amounts ranging from zero for weak performance to amounts
that will produce total pay above the 90th percentile for outstanding
performance. It is the Company's practice to self-fund the cost of variable
pay, in that the Company's financial performance on which the variable pay is
based has already recognized the cost of the variable pay.
Performance Plan variable pay is based on overall Company results, business
unit results or a proportionate combination thereof. Near the beginning of each
year, the Committee approves a formula tying proposed variable pay levels to
varying levels of Company or business unit results. Each employee's variable
pay is based on his or her bonus points, which in turn are based on his or her
likely impact on the business, multiplied by the dollars per point determined
by the formula. A portion, not to exceed 30%, of the aggregate awards for a
business unit may be reallocated among employees in that unit based on their
individual or small team performance. Notwithstanding the above, the Committee
has full discretion with respect to the amount of each variable pay award to
the approximately forty most senior executives of the Company and the total
amount of variable pay.
Actions for 1993
At the beginning of 1993, the Committee approved the Company's use of
economic value added ("EVA") as the financial measure on which future Company
and business unit Performance Plan variable pay would be based. EVA is a
measure of the extent to which net operating profit after tax exceeds, or falls
short of, the total cost of the Company's, or business unit's, capital.
Variable pay is based on year-to-year improvements in EVA.
Separate EVA measurements are maintained for the Company as a whole and for
each of its nine major operating units. Variable pay for the Chief Executive
Officer, the other members of the Company's executive committee (including all
those listed in the summary compensation table on page 14), and all corporate
staff employees is based on total Company EVA. Variable pay for all other
employees is based on their respective business unit EVA. In cases where
employees serve combinations of business units, or certain business units and
the total Company, their variable pay is determined in a way that reflects the
combination.
For 1993, improvement in EVA for the total Company fell short of minimum
levels needed to produce variable pay awards. Consequently, at its February
1994 meeting, the Committee, consistent with the formula it had approved for
1993, did not approve 1993 variable pay awards for the Chief Executive Officer
or any other individual named in the summary compensation table on page 14. The
Committee, however, did approve 1993 variable pay awards for the executives and
salaried employees in those Company operating units that produced changes in
EVA sufficient to warrant variable pay awards under the Plan's formula.
11
<PAGE>
Stock Options
Guiding Principles
The Company views stock options as a competitively appropriate component of
total compensation which provides long-term incentive, firmly linking the
interests of executives with those of the Company's shareholders. Because of
their long-term nature and the linkage of executive and shareholder interests,
stock options have been the Company's only long-term incentive compensation
program and will remain the foundation of this program under the proposed 1994
Long-Term Incentive Plan discussed beginning on page 20. The Company believes
that those employees in positions requiring them to take actions with long-term
implications are the most appropriate candidates for stock option grants.
Grants are based on this factor, as well as each employee's level in the
Company and his or her performance. The level of stock option grants is
periodically compared with those of similar companies to ensure their continued
appropriateness. It is the Company's intent to maintain the value of stock
option grants at roughly the 75th percentile value of long-term incentive plans
in a total compensation survey conducted by a leading consulting firm that
covers sixteen companies from six industries including the paper and consumer
products industries. When making a grant to an executive officer, the Committee
reviews a five year history of option grants to that officer.
Actions for 1993
Stock options were granted to executive officers in February 1993 based on
the guidelines described above.
As a part of its review of the Company's proposed 1994 Long-Term Incentive
Plan, the Committee considered competitive long-term incentive values reflected
in a survey conducted by another leading consulting firm and specifically
focused on a group of ten paper companies and twelve consumer products
companies. This comparison, which the Committee believes is more appropriate in
view of the Company's business environment, showed the Company's guideline
long-term incentive values to be considerably below average for this group of
companies. This information was a consideration in developing the 1994 Long-
Term Incentive Plan, but had no effect on 1993 stock option grants.
Restricted Stock
Guiding Principles
The Company occasionally makes limited grants of restricted stock to
individual employees to recognize their contributions to the business and to
clearly signal the Company's interest in retaining them as employees. By
limiting the number of restricted shares that may be granted in a given year to
10% of the number of stock options granted in the same year, and by granting
restricted stock on a very selective basis, the Company believes that it is
making competitively conservative use of restricted stock.
Actions for 1993
Restricted stock was granted to eight individuals during the course of 1993,
one of whom is Mr. White, who is named in the summary compensation table on
page 14. Mr. White's grant was based on the above principles.
12
<PAGE>
Other Components of Compensation
Deferral of Bonuses and Salary
Company executives have had an opportunity, under unfunded plans which are
not qualified under the Code, to defer receipt of their annual bonuses and part
of their base salaries until specified future dates. Federal law effectively
prevents extending this opportunity to a wider group of employees. These
programs have been reinstated for 1994, after having been suspended for awards
and compensation earned in 1992 and 1993 as part of the Company's cost
reduction efforts.
Benefit Plans
The pension and welfare benefits provided to executives are equivalent to
those provided to all other salaried employees, except as described under
"Agreements With Executives" on page 17.
Financial Counselling
The Company pays for personal financial counselling for approximately forty
senior executives. As required by the Code, a portion of the amount paid is
reported as taxable income for the executive. Financial counselling is also
offered to other employees through a limited number of seminars conducted at
various locations each year. The Company believes that financial counselling is
important in helping employees to make the best use of the opportunities
offered under its total compensation program.
Other Benefits
Other than as described above, the Company generally does not provide non-
business related personal benefits to its executives.
MANAGEMENT DEVELOPMENT AND EXECUTIVE COMPENSATION
COMMITTEE
W.A. Andres, Chairman
J.J. Crocker
P.J. Everaert
R.K. Lochridge
C.B. Malone
G.L. Roubos
13
<PAGE>
EXECUTIVE COMPENSATION FOR LAST THREE FISCAL YEARS
The following table shows the compensation paid by the Company and its
subsidiaries to its Chief Executive Officer and its five other most highly
compensated executive officers for service in all capacities during each of the
past three years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------ --------------------------
OTHER RESTRICTED OPTIONS
NAME AND FISCAL ANNUAL STOCK (NUMBER ALL OTHER
PRINCIPAL POSITION YEAR SALARY(/1/) BONUS (/2/) COMPENSATION (/3/) AWARDS (/6/) OF SHARES) COMPENSATION(/3/)(/1//0/)
------------------ ------ ----------- ----------- ------------------ ------------ ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Philip E. Lippin- 1993 $617,918 $ 0 $ 0 0 40,000 $ 7,044
cott............... 1992 554,055 341,741 0 0 50,000 6,505
Chairman of the 1991 533,534 50,000 0 80,000
Board and Chief
Executive Officer
J. Richard Leaman, Jr. . 1993 441,096 0 11,312(/4/) 0 25,000 24,303
Vice Chairman, and 1992 414,247 281,381 10,815(/4/) 0 25,000 21,847
President of S.D. 1991 389,162 110,285 $790,000(/7/) 50,000
Warren Company
Ashok N. Bakhru..... 1993 276,932 0 0 0 18,000 7,044
Senior Vice 1992 274,438 150,150 0 0 20,000 6,505
President 1991 261,397 58,850 0 40,000
John J. Butler...... 1993 276,165 0 56,843 (/5/) 0 18,000 7,044
Senior Vice 1992 269,260 157,057 (2,403)(/5/) 0 18,000 16,478
President and Chief 1991 233,052 120,933 0 36,000
Administrative Of-
ficer
Paul N. Schregel.... 1993 295,342 0 0 0 18,000 6,805
Senior Vice 1992 284,795 175,525 0 0 20,000 6,748
President 1991 261,685 82,192 395,000(/8/) 36,000
P. Newton White..... 1993 291,507 0 (42,360)(/5/) 192,813(/9/) 18,000 16,394
Senior Vice 1992 258,904 170,056 81,836 (/5/) 0 18,000 15,940
President 1991 200,219 107,732 383,750(/9/) 20,000
</TABLE>
- --------
(/1/)The number of bi-weekly paychecks for salaried employees was 26 in each of
1991 and 1993, and 27 in 1992.
(/2/)The bonus shown for each year is the amount of variable pay earned in that
year and paid in the first quarter of the following year.
(/3/)Information for years before 1992 is not required to be disclosed.
(/4/)These amounts consist of reimbursements for the increase in Mr. Leaman's
state personal income tax liability resulting from his employment in
Massachusetts upon becoming President of S.D. Warren Company in 1991. See
"Agreements with Executives" on page 17.
(/5/)These amounts consist of tax payments made pursuant to the Company's tax
equalization policy of offsetting higher personal income taxes occasioned by
an employee's service outside his home country.
14
<PAGE>
(/6/) The number and value (based on $39.63, the closing price of the Company's
shares on December 23, 1993) of the aggregate restricted stock holdings
at the end of the Company's 1993 fiscal year was as follows for each
named executive officer:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER RESTRICTED SHARES HELD VALUE
--------- ---------------------- -------
<S> <C> <C>
P.E. Lippincott 0 $ 0
J.R. Leaman, Jr. 10,000 396,250
A.N. Bakhru 0 0
J.J. Butler 0 0
P.N. Schregel 5,000 198,125
P.N. White 9,000 356,625
</TABLE>
Dividends on restricted shares are paid to the grantee.
(/7/) On April 9, 1991, Mr. Leaman received a grant of 20,000 restricted
shares, of which 10,000 vested on October 9, 1992 and 10,000 are
scheduled to vest on April 9, 1994.
(/8/) On April 9, 1991, Mr. Schregel received a grant of 10,000 restricted
shares, of which 5,000 vested on October 9, 1992 and 5,000 are scheduled
to vest on April 9, 1994.
(/9/) On November 5, 1991, Mr. White received a grant of 10,000 restricted
shares, of which 3,000 vested on November 5, 1992, 3,000 vested on
November 5, 1993 and 4,000 are scheduled to vest on November 5, 1994.
On February 16, 1993, Mr. White received a grant of 5,000 restricted
shares, all of which will vest on February 16, 1996.
(/10/) The amounts shown under "all other compensation" consist of matching
employer contributions under the Salaried Investment Plan, plus payments
made upon withdrawal of vacation banked in prior years consisting of
$15,342 in 1992 and $17,260 in 1993 for Mr. Leaman, $9,973 in 1992 for
Mr. Butler, and $9,589 in each of 1992 and 1993 for Mr. White.
STOCK OPTIONS
The following table provides information on stock options granted in 1993 to
the persons named in the summary compensation table on page 14. No stock
appreciation rights were granted in 1993. The columns relating to potential
realizable value show the gain each person would receive if he exercised all of
these options on their expiration date, February 16, 2003, and if the price of
the Company's shares were to increase by 0%, 5% and 10% annually to that date,
resulting in prices of $38.56, $62.81 and $100.02, respectively. The row
entitled "All Shareholders" shows the gain or loss all shareholders as a group
would receive if the price of the Company's shares were to reach each of these
levels on February 16, 2003, calculated from $44.875 per share, the closing
price of the Company's shares on February 18, 1994, based on the number of
outstanding shares on that date. Regardless of the hypothetical rates of
appreciation in the price of the Company's shares, the ultimate value of these
options will depend on the actual value of the Company's shares in the future,
and that value will depend in part on the efforts of the Company's executives
to foster the future success of the Company.
15
<PAGE>
OPTION GRANTS IN FISCAL 1993
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE APPRECIATION FOR OPTION TERM
------------------------------------------------ -----------------------------------------------
NUMBER OF % OF
SHARES OPTIONS 0% 5% 10%
UNDERLYING GRANTED TO EXERCISE APPRECIATION APPRECIATION APPRECIATION
OPTIONS EMPLOYEES PRICE EXPIRATION ($38.56 ($62.81 ($100.02
NAME GRANTED(/1/) IN FISCAL 1993 ($/SHARE) DATE PER SHARE)(/2/) PER SHARE)(/2/) PER SHARE)(/2/)
---- ------------ -------------- --------- ---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Philip E. Lippincott.... 40,000 5.9% $38.56 2/16/03 $ 0 $ 970,069 $ 2,458,347
J. Richard Leaman, Jr... 25,000 3.7% 38.56 2/16/03 0 606,293 1,536,467
Ashok N. Bakhru......... 18,000 2.7% 38.56 2/16/03 0 436,531 1,106,256
John J. Butler.......... 18,000 2.7% 38.56 2/16/03 0 436,531 1,106,256
Paul N. Schregel........ 18,000 2.7% 38.56 2/16/03 0 436,531 1,106,256
P. Newton White......... 18,000 2.7% 38.56 2/16/03 0 436,531 1,106,256
All Shareholders........ (/2/) -- -- -- (468,757,900) 1,331,302,100 4,093,373,600
</TABLE>
- --------
(/1/) All options granted in 1993 became 50% exercisable on February 16, 1994
and become fully exercisable on February 16, 1995.
(/2/) 74,229,280 shares were outstanding at the close of business on February
18, 1994.
The following table provides information on stock option exercises during
1993 by each person named in the summary compensation table on page 14, and
provides information on the number and value (based on $39.63, the closing
price of the Company's shares on December 23, 1993) of stock options, both
exercisable and unexercisable, held by each such person at the end of the
Company's 1993 fiscal year.
AGGREGATED OPTION EXERCISES IN FISCAL 1993 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL- OPTIONS AT
YEAR END FISCAL-YEAR END
NUMBER OF
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Philip E. Lippincott.... 0 $ -- 210,000/65,000 $110,938/$42,500
J. Richard Leaman, Jr. . 0 -- 148,500/37,500 115,375/26,563
Ashok N. Bakhru......... 0 -- 90,000/28,000 0/19,125
John J. Butler.......... 0 -- 94,400/27,000 137,750/19,125
Paul N. Schregel........ 0 -- 87,000/28,000 44,375/19,125
P. Newton White......... 0 -- 43,000/27,000 8,875/19,125
</TABLE>
16
<PAGE>
RETIREMENT BENEFITS
The following table shows the annual single life annuity retirement benefit
that a member of the Retirement Plan for Salaried Employees (the "Salaried
Retirement Plan") and the Supplemental Executive Retirement Plan (the
"Supplemental Plan") (including all persons named in the summary compensation
table on page 14) would receive if he or she had retired effective January 1,
1994 at the normal retirement age of 65. The amounts shown reflect the
indicated assumptions as to compensation and years of employment, but do not
reflect the deduction, applicable to years of employment after 1978, of an
amount not in excess of one-half of the employee's annual Social Security
benefit.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFITS
AVERAGE YEARS OF EMPLOYMENT(/2/)
FINAL -----------------------------------------------------
COMPENSATION(/1/) 15 20 25 30 35 40
----------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 200,000............ $ 45,000 $ 60,000 $ 75,000 $ 90,000 $105,000 $120,000
300,000............ 67,500 90,000 112,500 135,000 157,500 180,000
400,000............ 90,000 120,000 150,000 180,000 210,000 240,000
500,000............ 112,500 150,000 187,500 225,000 262,500 300,000
600,000............ 135,000 180,000 225,000 270,000 315,000 360,000
700,000............ 157,500 210,000 262,500 315,000 367,500 420,000
800,000............ 180,000 240,000 300,000 360,000 420,000 480,000
900,000............ 202,500 270,000 337,500 405,000 472,500 540,000
1,000,000............ 225,000 300,000 375,000 450,000 525,000 600,000
1,100,000............ 247,500 330,000 412,500 495,000 577,500 660,000
1,200,000............ 270,000 360,000 450,000 540,000 630,000 720,000
</TABLE>
- --------
(/1/) "Average final compensation" under the Salaried Retirement Plan and the
Supplemental Plan is the average of the employee's annual compensation
in the four calendar years (whether or not consecutive), out of the
last ten years of his or her employment, in which his or her annual
compensation was highest. "Annual compensation" includes salary and
bonuses paid in such year. The 1993 annual compensation of each person
named in the summary compensation table was as follows: $959,659 for
Mr. Lippincott, $722,477 for Mr. Leaman, $427,082 for Mr. Bakhru,
$433,221 for Mr. Butler, $470,868 for Mr. Schregel and $461,563 for Mr.
White. These amounts differ from the salary and bonus amounts shown in
the summary compensation table because 1993 annual compensation
includes bonuses earned in 1992 and paid in 1993, while the summary
compensation table includes bonuses earned in 1993 and payable in 1994.
(/2/) At the end of 1993, the individuals named in the summary compensation
table had the following years of credited employment under the Salaried
Retirement Plan: Mr. Lippincott, 34; Mr. Leaman, 34; Mr. Bakhru, 24;
Mr. Butler, 19; Mr. Schregel, 30; and Mr. White, 27.
AGREEMENTS WITH EXECUTIVES
As noted on page 3, Mr. Lippincott will retire as Chairman and Chief
Executive Officer and as a Director of the Company on April 1, 1994 or as soon
thereafter as his successor has been duly elected and qualified. The Company
and Mr. Lippincott have entered into an agreement under which he will serve as
a part-time employee until March 31, 1996 unless he elects to terminate the
agreement effective November 30, 1995. During this period, Mr. Lippincott will
provide consulting services to the Company. Among other things, the agreement
provides that (i) Mr. Lippincott will continue to receive his base salary at
its current annual rate of $635,000, (ii) the Company will reimburse him for
expenses incurred in his work for the Company, with a limit of $50,000 for
those expenses relating to office facilities, equipment
17
<PAGE>
and secretarial assistance, (iii) notwithstanding his continued status as an
employee after April 1, 1994, his Performance Plan bonus, if any, for 1994 will
be based solely on the period before April 1, 1994 and, after that date, he
will receive no further grants of stock options or restricted stock and no
grants of performance share rights, and he will make no further contributions
(and receive no further Company matching contributions) under the Salaried
Investment Plan, (iv) upon his retirement, the Company will pay him a
supplemental retirement benefit outside the Salaried Retirement Plan sufficient
to eliminate the normal actuarial reduction for retirements before age 62, (v)
the Company will provide him financial counselling services during the
remainder of his life, and (vi) he will receive the same group insurance
benefits that are available to other salaried employees and retirees. The
agreement also provides that, if Mr. Lippincott elects to retire November 30,
1995, the Company will make a payment to him so that its cost will be
equivalent to the cost it would have incurred if he had retired March 31, 1996.
Finally, the agreement terminates the agreement described below between the
Company and Mr. Lippincott.
In 1984, the Company entered into agreements with certain executives,
including Messrs. Lippincott, Leaman and Bakhru, which require the Company to
employ such executives, and require each such executive to serve full-time, for
a period of three years should there be a change of control of the Company. In
accordance with the terms of these agreements, the Company has given notice of
termination, effective October 31, 1994, of its agreements with Messrs. Leaman
and Bakhru and, as described in the preceding paragraph, the Company and Mr.
Lippincott have terminated their agreement. These agreements provide that (i)
the executive's responsibilities, compensation and other benefits are to be
substantially the same as those in effect before the change of control, (ii)
the executive's compensation and other benefits are to be continued after the
change of control for the remainder of the three year term if he is terminated
other than for cause or resigns upon the failure of the Company to comply with
the contract, (iii) any stock options which are not yet exercisable are to
become exercisable at the time of such termination or resignation, and (iv) no
compensation or other benefits are payable under the agreement if the executive
resigns from the Company for other reasons.
In connection with Mr. Leaman's appointment as Vice Chairman of the Company
and President of S.D. Warren Company in April 1991, the Company agreed, in
addition to providing him the compensation described above, to (i) provide him
an apartment in Boston and reimburse him for any resulting income tax
liability, and (ii) make payments outside the Salaried Retirement Plan if he
retires at the end of his assignment, sufficient to eliminate the normal
actuarial reduction for retirements before age 62.
If any corporate officer dies while still employed but prior to the
attainment of age 55 and completion of 15 years of service when his or her
surviving spouse or, if the officer is unmarried, his or her surviving
dependent or dependents, would otherwise become entitled to an early retirement
death benefit under the Salaried Retirement Plan, the Company will make
payments outside the Salaried Retirement Plan as an operating expense to the
officer's spouse or dependents in an amount equal to 20% of the officer's
annual rate of base salary at the time of death until the earlier of the
spouse's or dependent's death or the expiration of 20 years. These payments
will be reduced by the amount of any pre-retirement survivor annuity payable
under the Salaried Retirement Plan and the Supplemental Plan.
18
<PAGE>
COMPARATIVE SHAREHOLDER RETURN
The following graphs compare the cumulative total return on the Company's
shares over the past five and ten calendar years with the cumulative total
return on shares of companies in the Standard & Poor's 500 Composite Index and
the Standard & Poor's Paper and Forest Products Index. Cumulative total return
is measured assuming an initial investment of $100 and the reinvestment of
dividends.
(PERFORMANCE GRAPHS APPEAR HERE)
19
<PAGE>
APPROVAL OF THE 1994 LONG-TERM INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE THREE PROPOSALS RELATING TO THE PLAN
On February 15, 1994, the Board of Directors and its Management Development
and Executive Compensation Committee approved the Scott Paper Company 1994
Long-Term Incentive Plan (the "Plan"), subject to approval by the Company's
shareholders. The complete text of the Plan is set forth in Exhibit A. Adoption
of the Plan is being proposed at this time because no grants of stock options
and restricted shares may be made under the Company's 1989 Stock Option and
Restricted Stock Plan after April 25, 1994 and in order to include, as a
significant new feature, provisions for the mandatory purchase of performance
shares by Directors and corporate officers, and for the voluntary purchase of
performance shares by other key employees, in order to more closely align their
interests with those of the Company's shareholders.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the shares present or
represented and entitled to vote at the Meeting is required to approve adoption
of the Plan. Since abstentions are counted as shares present or represented,
they will have the legal effect of "no" votes. However, broker non-votes will
not have any effect.
The Board of Directors is requesting separate shareholder approval of each of
the three types of benefits under the Plan: stock options (with or without
tandem stock appreciation rights ("SARs")), restricted shares and performance
shares. The Plan will become effective only if one or more of those types of
benefits is approved by the shareholders. If the shareholders do not approve
one or more of those types of benefits, the proposed Plan sections providing
for those benefits will not become a part of the Plan and related Plan
provisions will be deleted or modified appropriately.
Each of the three parts of the Plan for which separate approval is being
sought is described below in "Stock Options and SARs," "Restricted Shares" and
"Performance Shares."
DESCRIPTION OF THE PLAN
GENERAL PROVISIONS
Purpose
The purpose of the Plan is to promote the interests of 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.
Effective Date and Term
If approved by the shareholders, the Plan would become effective when
approved. The term during which grants may be made would expire on April 25,
1999.
Administration
The Plan would be administered by a committee (the "Committee") consisting of
not less than three non-employee Directors, all of whom must be members of the
Management Development and Executive Compensation Committee of the Board of
Directors. Each member of the Committee must at all times be a "disinterested
person" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934
20
<PAGE>
("Rule 16b-3"), as then applicable to the Company. Subject to the terms and
conditions of the Plan, the Committee would have sole discretion and authority
to grant options (with or without tandem SARs), restricted shares and
performance share rights, to determine the terms and conditions of these
grants, to interpret the Plan and to establish rules for its administration.
Shares Subject to the Plan; Adjustments
The number of shares which may be issued under the Plan would not exceed
3,600,000 pursuant to the grant of options (with or without tandem SARs) or
400,000 pursuant to the grant of restricted shares. The number of shares with
respect to which options (with or without tandem SARs) could be granted to any
one person would not exceed 500,000, and the number of restricted shares which
could be granted to any one person would not exceed 50,000. The total number of
performance shares which could be purchased upon exercise of performance share
rights would not exceed 1,200,000, and the number of performance shares with
respect to which performance shares rights could be granted to any one person
would not exceed 100,000 during the term of the Plan or 60,000 for any one
performance cycle. To the extent an option or performance share right expires
or terminates unexercised or to the extent restricted shares or performance
shares are forfeited, the shares covered by them would become available for
additional grants, subject to the above limits.
The number and kind of shares which could be issued and with respect to which
grants could be made or would be required to be made, both in the aggregate and
to any one person, as well as the number of shares subject to each outstanding
grant, the number of performance shares covered by each performance share right
and held by each participant, option prices, base prices and the calculation of
the Company annual rate of shareholder return, would be subject to adjustment
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.
Amendment of the Plan
The Board of Directors would be permitted to amend, suspend or discontinue
the Plan, but could not, without the affirmative vote of the holders of a
majority of shares present or represented and entitled to vote at a shareholder
meeting, increase the limits described above in "Shares Subject to the Plan,"
extend the term of the Plan or the maximum option period, decrease the minimum
option price, change the duration of any performance cycle, change the
performance goal for a performance cycle, lower the base price used in
determining whether the performance goal is attained, materially increase
benefits or modify the Plan's eligibility requirements in a manner which would
require shareholder approval under Rule 16b-3, or cause the Plan not to meet
the requirements of Rule 16b-3 in any other respect.
STOCK OPTIONS AND SARS (ITEM 2A ON THE PROXY)
Eligibility
All of the approximately 6,300 salaried employees of the Company and its
consolidated U.S. subsidiaries, and all key employees of the Company's other
subsidiaries, totalling approximately 100 persons, would be eligible for grants
of options, with or without tandem SARs. "Key employee" means an employee 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
21
<PAGE>
points are not used, an employee whose responsibilities are equivalent to those
of employees who, on the effective date of the Plan, meet the above
requirements. Eligible employees would include the Company's thirteen executive
officers. Directors who are not employees would receive automatic grants of
options, without tandem SARs, as described in "Automatic Grants to Non-Employee
Directors" below.
Options
The Committee would be permitted to grant nonqualified options and incentive
stock options ("ISOs"), as defined in Section 422 of the Code. The price per
share to be paid upon the exercise of an option would be not less than the fair
market value of a share on the date of grant. The optionee would pay the
purchase price in cash or, if permitted by the Committee, by surrendering
unrestricted shares valued at their fair market value on the date of exercise.
The term of an option could not exceed ten years from the date of grant, and no
option could be exercised unless the optionee remains an employee for at least
one year after the date of grant and meets any additional vesting requirements
of the grant (unless exercisability is accelerated by the Committee for
employees whose employment is terminated). Each option would be exercisable
during the optionee's lifetime only by the optionee, and would not be
transferable except upon the optionee's death by will or the laws of descent
and distribution. The term of an exercisable option would be decreased as
provided in the Plan if the optionee's active employment or service as a
Director is terminated, except that, if the optionee dies, the option would
remain exercisable for at least one year after death.
Stock Appreciation Rights
The Committee would be permitted to grant SARs, but only in tandem with an
option, either when the option is granted or during its term. If an optionee
exercises SARs, he or she would receive an amount equal to the excess of the
fair market value of the shares with respect to which the SARs are being
exercised over the option price of the shares (or, if higher, the fair market
value of a share on the date the SARs are granted, if necessary to prevent
disallowance of the Company's expense deduction under Section 162(m) of the
Code). The optionee may elect to have that amount paid in cash, shares or a
combination of both, but the Committee may disapprove that election and require
that shares be delivered in lieu of cash. The number of shares covered by the
tandem option would be reduced by the number of SARs exercised, and the number
of tandem SARs would be reduced by the number of shares acquired upon exercise
of an option.
Automatic Grants to Non-Employee Directors
Each non-employee Director would receive 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, nonqualified options, without tandem SARs, to
purchase 1,000 shares. Each option would have a term of ten years, subject to
adjustment upon termination of service as a Director as described in "Options"
above, and would 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
would be payable only in cash.
22
<PAGE>
RESTRICTED SHARES (ITEM 2B ON THE PROXY)
The same persons, other than non-employee Directors, who would be eligible
to receive options would be eligible for grants of restricted shares. The
Committee would be permitted to grant restricted shares subject to (i)
restrictions on transferability for a specified period (which may vary among
grants or grantees, but may not be less than six months) and (ii) vesting
restrictions, such as a requirement that the grantee remain in the employ of
the Company or a subsidiary for a specified period or that the grantee, his or
her division, business unit or subsidiary, or the Company meet certain
performance goals. The Committee would have discretion to revise such
performance goals in certain situations or to waive the transferability and
vesting restrictions. While the transferability restrictions are in effect,
the restricted shares of a grantee would be held in escrow. However, the
grantee would be entitled to vote the shares and to receive dividends on them.
PERFORMANCE SHARES (ITEM 2C ON THE PROXY)
Performance Cycles
There would be five four-year performance cycles under the Plan. The first
performance cycle would begin September 1, 1994. The next four performance
cycles would begin on March 1 of 1995, 1996, 1997 and 1998 to correspond more
closely with the timing of the Company's other annual actions with respect to
compensation.
Eligibility and Participation
Each person who is a non-employee Director or a key employee at the
beginning of any performance cycle would be eligible to become a participant
in the performance share feature of the Plan for that performance cycle by
electing to participate at the beginning of the performance cycle. There are
currently approximately 350 key employees. Once a person becomes a
participant, he or she would automatically be a participant for each
subsequent performance cycle at the beginning of which he or she meets the
above criteria. However, each non-employee Director and each corporate officer
(currently 21 persons, including all executive officers) would automatically
be a participant for each performance cycle.
Performance Share Rights
Each performance share right granted would consist of the right to purchase
the number of performance shares specified below, upon undertaking the
obligation to pay the Company the amount specified below (the "payment
obligation") through payroll deductions or other methods specified in the Plan
over a one-year period (a six-month period, in the case of the performance
cycle beginning September 1, 1994). The payment obligation of each non-
employee Director would equal 20% of the Directors' annual retainer. The
payment obligation of each employee would equal 2.5% (5% for corporate
officers) of his or her annual rate of base salary. Each participant's status
and rate of pay would be determined at the beginning of each performance
cycle. The number of performance shares to be purchased upon exercise of a
performance share right would equal the number of shares which could be
purchased with seven times the payment obligation at a price equal to the base
price for the performance cycle. The base price for a performance cycle would
be the average of the daily means between the highest and lowest sales prices
of the shares during the twenty consecutive business days immediately before
the beginning of the performance cycle.
23
<PAGE>
Examples: (1) At the start of the first performance cycle, A is an
employee participant but not a corporate officer, A's base salary rate
is $110,000 and the base price of shares for the performance cycle is
$40.00. A's payment obligation upon exercise of one performance share
right would be $2,750, for which A would be entitled to purchase 481
performance shares.
(2) At the start of the second performance cycle, A has become a
corporate officer, A's base salary rate is $150,000 and the base price
of shares for the performance cycle is $44.00. A's payment obligation
would be $7,500, for which A would be entitled to purchase 1,193
performance shares.
Grant and Exercise of Performance Share Rights
Each non-employee Director would automatically be granted and be required to
exercise one performance share right with respect to each performance cycle for
which he or she is a participant. With certain exceptions provided in the Plan,
each employee participant would be granted six performance share rights for
each performance cycle and would be required to exercise one performance share
right in the first performance cycle and a total of six during the term of the
Plan, but could not exercise more than a total of ten during the term of the
Plan. Each participant would be deemed to have exercised the number of
performance share rights which he or she is required to exercise. In order to
exercise any additional performance share rights, an employee participant must
do so within fifteen days after the first day of the applicable performance
cycle. The purchase of performance shares would not make a participant a
shareholder of the Company. A participant would not be entitled to vote as a
shareholder or receive dividends unless shares are issued to him or her if the
performance goal is attained.
The Performance Goal
The performance goal for a performance cycle would be attained if the
Committee certifies in writing that, on each of fifteen business days during
any twenty consecutive business days between the third anniversary of the
beginning of the performance cycle and the end of the performance cycle, the
Company's annual rate of shareholder return from the first day of the
performance cycle to that day exceeded the annual rate of shareholder return on
the Standard & Poor's 500 Composite Index (the "S&P 500") for the same period
by at least one percentage point. The Company's annual rate of shareholder
return means the compound annual rate of return from investing in shares at the
base price for the performance cycle resulting from price changes, dividends
and other distributions, and the assumed reinvestment of dividends and other
distributions in shares on the ex-dividend date. The S&P 500's annual rate of
return means the compound annual rate of return from the S&P base price for the
performance cycle, based on the compound annual return calculation of Standard
& Poors' Corporation for the S&P 500. The S&P base price means the average of
the daily closing values for the S&P 500 during the twenty consecutive business
days immediately before the beginning of the performance cycle.
Example: On a business day during the fourth year of a performance
cycle, the S&P 500's annual rate of shareholder return from the start
of the cycle is 10%. If the Company's annual rate of shareholder return
for the same period exceeds 11%, that day would count as one of the
fifteen business days (out of twenty consecutive business days)
necessary to meet the requirement to enable attainment of the
performance goal.
Earnout or Forfeiture of Performance Shares
If the performance goal is attained for a performance cycle, each participant
who owns performance shares for that cycle would receive shares equal to the
number of performance shares owned, less
24
<PAGE>
shares withheld to meet tax withholding requirements. If the performance goal
is not attained, the performance shares would be forfeited and the
participant's purchase price would not be returned.
Intervening Events
If an employee participant's active employment is terminated due to death,
disability, retirement or total or partial disposition or shutdown of his or
her business unit, or after a change of control of the Company, or if a non-
employee Director's service is terminated, the participant would continue to
own all performance shares already purchased. If such a participant had not
completed paying for his or her performance shares, the number of performance
shares would be reduced pro rata unless the participant undertakes to pay the
rest of his or her payment obligation. If an employee participant's active
employment is terminated for cause or at his or her election (other than at
retirement), he or she would forfeit all performance shares purchased and
amounts already paid, but would not be liable for the unpaid portion of any
payment obligation. If an employee participant's active employment is
terminated for any other reason, the participant would forfeit all performance
shares purchased and his or her payment obligation would be refunded with
interest.
PLAN BENEFITS
If the Plan had been in effect beginning in 1987 with performance cycles
ending on August 31 of 1991 or February 28 of 1992 or 1993, the years for which
compensation is reported in the summary compensation table on page 14, the
performance goal would not have been attained for any such performance cycle.
In addition, if the Plan had been in effect with a performance cycle ending on
February 28, 1994, the performance goal for that performance cycle would not
have been attained. As a result, all participants' performance shares, as well
as the payments made for them, would have been forfeited.
The following table shows, for the persons and groups shown, the payment
obligation and the number of performance shares that would be purchased upon
exercise of one performance share right per person, as well as the current
gross value of shares which may eventually be earned if the applicable
performance goal is attained, assuming the continuation of current annual rates
of base salary and Directors' annual retainer and a share price of $44.875 (the
closing price of shares on February 18, 1994). The Company cannot determine the
dollar value of the shares which would be earned if the performance goal is
attained because it cannot predict the price of shares in the last year of any
future performance cycle. If the performance goal is not attained, all
participants' performance shares and payments for them would be forfeited.
<TABLE>
<CAPTION>
PERFORMANCE SHARES PURCHASED
---------------------------------
CURRENT GROSS VALUE
(ASSUMING PERFOR-
PAYMENT MANCE GOAL IS
NAME OR GROUP OBLIGATION NUMBER ATTAINED)
- ------------- ---------- ------------ --------------------
<S> <C> <C> <C>
P.E. Lippincott(1)................ $ 0 0 $ 0
J.R. Leaman, Jr................... 22,500 3,509 157,466
A.N. Bakhru....................... 14,000 2,183 97,962
J.J. Butler....................... 14,000 2,183 97,962
P.N. Schregel..................... 15,000 2,339 104,963
P.N. White........................ 15,000 2,339 104,963
All current executive officers as
a group (12 persons)(1).......... 150,477 23,472 1,053,306
All current non-employee Directors
as a group(11 persons)........... 44,000 6,863 307,977
All current key employees, other
than executive officers, as a
group (342 persons).............. 916,926 143,030 6,418,471
</TABLE>
- --------
(1) Under the agreement between the Company and Mr. Lippincott discussed under
"Agreements with Executives" on page 17, Mr. Lippincott will receive no
performance share rights under the Plan.
25
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Tax Deductibility Under Code Section 162(m)
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code. Effective January 1, 1994, this provision disallows a public company's
deductions for employee remuneration exceeding $1,000,000 per year for certain
executives, but contains an exception for qualified "performance-based
compensation." In December 1993, the Internal Revenue Service issued proposed
regulations interpreting this provision. The Company has been advised that,
under Section 162(m) and the proposed regulations, restricted shares granted
under the Plan would not be qualified "performance-based compensation." The
Plan has been drafted and is intended to be administered to enable stock
options, SARs and performance shares to qualify as "performance-based
compensation," and the discussion below assumes that they will. However, until
these regulations are finalized, there can be no assurance that all of their
requirements will be met.
Tax Treatment of Options
No income would result to an optionee upon the granting of any options or
SARs under the Plan. Upon the exercise of a nonqualified stock option, the
amount by which the fair market value of the shares on the date of exercise
exceeds the option price would be taxed to the optionee as ordinary
compensation income. The Company would be entitled to a deduction in the same
amount. Upon a subsequent sale of any of those shares, the optionee would
realize capital gain or loss (long-term or short-term, depending on whether the
shares were held for more than twelve months before sale) in an amount equal to
the difference between his or her tax basis in the shares and the selling
price.
The holder of an ISO would not be subject to federal income tax upon the
exercise of the ISO, and the Company would not be entitled to a tax deduction
by reason of the exercise. A sale of the shares received upon the exercise of
an ISO which occurs both more than one year after the exercise of the ISO and
more than two years after the grant of the ISO would result in the realization
of long-term capital gain or loss in the amount of the difference between the
amount realized on the sale and the option price for the shares. Generally,
upon a prior disposition of the shares, the optionee would recognize ordinary
compensation income equal to the lesser of (i) the excess of the fair market
value of the shares on the date of transfer to the optionee over the option
price or (ii) the excess of the amount realized on the disposition over the
option price for the shares. The excess of the fair market value of the shares
at the time of the exercise of an ISO over the option price is an item of tax
preference subject to the alternative minimum tax, unless a subsequent
disqualifying disposition occurs.
Upon the exercise of SARs, the optionee would realize ordinary compensation
income in the amount of both the cash and the fair market value of the shares
received upon exercise, and the Company would be entitled to a corresponding
deduction. If the optionee receives shares upon exercise of SARs, the shares
would have a tax basis of their fair market value on the date of exercise, and
the holding period of the shares would commence on the day following that date.
A subsequent sale of those shares would have the same tax consequence as the
sale of shares acquired pursuant to a nonqualified stock option.
The preceding discussion is based upon the Code as presently in effect, which
is subject to change, and does not purport to be a complete description of the
federal income tax aspects of options and SARs under the Plan.
26
<PAGE>
MARKET PRICE OF COMMON SHARES
The last sales price of the Company's shares, as reported in The Wall Street
Journal, New York Stock Exchange--Composite Transactions, for February 18,
1994, was $44.875.
APPROVAL OF APPOINTMENT OF AUDITORS
ITEM 3 ON THE PROXY
The Board of Directors has appointed Price Waterhouse, independent
accountants, to be the Company's auditors for the year 1994. Although not
required to do so, the Board has determined that it would be desirable to
request approval of this appointment by the shareholders of the Company. If
approval is not received, the Board will reconsider the appointment.
Representatives of Price Waterhouse are expected to be present at the meeting
to make a statement if they desire to do so and to respond to appropriate
questions.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters to be presented for action at the meeting. However, if any
further business should properly come before the meeting, the persons named as
proxies in the accompanying form will vote on that business in accordance with
their best judgment.
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors. The
cost of soliciting proxies will be paid by the Company. Following the original
mailing of the proxies, several Company employees may solicit proxies
personally, or by mail, telephone or telecopy. In addition, the Company has
retained D. F. King & Co. to aid in the solicitation of proxies from brokers
and nominees for a fee of $12,500. The Company will reimburse banks, brokerage
firms, voting trustees and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy material to beneficial
owners of shares.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Proposals which shareholders intend to present at the next Annual Meeting of
Shareholders must be received by the Secretary of the Company at its executive
offices (Scott Plaza, Philadelphia, PA 19113) no later than November 11, 1994.
A nomination for election of a Director may be made by any shareholder only
if written notice of the shareholder's intent to nominate a Director is given
by the shareholder not less than (1) 60 days prior to the Annual Meeting of
Shareholders or (2) seven days following the day notice of any other meeting at
which Directors will be elected is mailed to the shareholders. The process to
be followed and the requirements for the shareholder's notice are stated in the
Company's bylaws, a copy of which may be obtained from the Secretary.
27
<PAGE>
ADDITIONAL INFORMATION
WHEN IT BECOMES AVAILABLE, THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY
PERSON FROM WHOM A PROXY IS SOLICITED BY THE BOARD OF DIRECTORS, UPON WRITTEN
REQUEST, A COPY OF THE COMPANY'S 1993 ANNUAL REPORT ON FORM 10-K, INCLUDING ITS
FINANCIAL STATEMENTS AND SCHEDULES (AS WELL AS EXHIBITS, IF SPECIFICALLY
REQUESTED), REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 13A-1 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
WRITTEN REQUESTS SHOULD BE DIRECTED TO MICHAEL D. MASSETH, DIRECTOR--INVESTOR
RELATIONS, AT THE COMPANY'S EXECUTIVE OFFICES.
28
<PAGE>
EXHIBIT A
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
<PAGE>
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 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
2
<PAGE>
least 1200, or, in the event those designations of titles or points are not
used, an employee whose 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.
3
<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
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specifically provided in the Plan. All actions by the Committee may be taken
in its sole discretion and 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) 3,600,000
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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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
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Plan's eligibility requirements in a manner which would require shareholder
approval under Rule 16b-3 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.
14
<PAGE>
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.
15
<PAGE>
APPENDIX ON GRAPHIC AND IMAGE MATERIAL
The foregoing proxy statement contains the following graphic and image
material:
Page 4: Pictures of William A. Andres, Jack J. Crocker and Pierre J. Everaert
to the immediate left of their respective names
Page 5: Pictures of John F. Fort, III, William H. Gray, III, Peter Harf, and
J. Richard Leaman, Jr. to the immediate left of their respective
names
Page 6: Pictures of Philip E. Lippincott, Richard K. Lochridge, Bruce K.
MacLaury, and Claudine B. Malone to the immediate left of their
respective names
Page 7: Pictures of Gary L. Roubos and Paula Stern to the immediate left of
their respective names
Page 19: two performance graphs, as follows:
(1) graph entitled "Comparison of Five-Year Total Return Among Scott,
S&P 500 and S&P Paper/Forest Products", with the vertical axis
starting at zero dollars and increasing in 20 dollar increments to
220 dollars and the horizontal axis starting at (calendar year
ended) 1988 and ending at (calendar year ended) 1993, with the
following data points for each year:
<TABLE>
<CAPTION>
Scott S&P 500 S&P P/F
------ ------- -------
<S> <C> <C> <C>
1988 100.00 100.00 100.00
1989 124.73 131.69 121.28
1990 100.05 127.60 109.57
1991 93.98 166.47 138.98
1992 98.32 179.15 158.91
1993 115.61 197.21 175.13
</TABLE>
and with the following information appearing in a box within the
graph:
<TABLE>
<CAPTION>
Average Annual Return
---------------------
<S> <C>
Scott 2.94%
S&P 500 14.55%
S&P P/F 11.86%
</TABLE>
<PAGE>
(2) graph entitled "Comparison of Ten-Year Total Return Among Scott, S&P
500 and S&P Paper/Forest Products", with the vertical axis starting at
zero dollars and increasing in 50 dollar increments to 450 dollars and
the horizontal axis starting at (calendar year ended) 1983 and ending
at (calendar year ended) 1993, with the following data points for each
year:
<TABLE>
<CAPTION>
Scott S&P 500 S&P P/F
----- ------- -------
<S> <C> <C> <C>
1983 100.00 100.00 100.00
1984 113.74 106.22 105.67
1985 171.32 139.83 134.66
1986 216.80 165.86 172.96
1987 248.34 174.45 187.91
1988 282.23 203.43 206.41
1989 352.02 267.88 250.34
1990 282.37 259.57 226.16
1991 265.23 338.65 286.88
1992 277.50 364.45 328.01
1993 326.29 401.18 361.50
</TABLE>
and with the following information appearing in a box within the graph:
<TABLE>
<CAPTION>
Average Annual Return
- ---------------------
<S> <C>
Scott 12.55%
S&P 500 14.90%
S&P P/F 13.71%
</TABLE>
<PAGE>
P R O X Y
SCOTT PAPER COMPANY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF SHAREHOLDERS, APRIL 19, 1994
The undersigned holder of Common Shares of Scott Paper Company hereby
appoints JOHN J. BUTLER, ELLIS A. HORWITZ and STEPHEN D. FORD, and each or
any of them, with power of substitution, as proxies to vote, and at their
discretion in the election of Directors to cumulate the vote of, all shares
of the undersigned at the Annual Meeting of Shareholders to be held at 10:00
a.m. on April 19, 1994 at The Radisson Hotel--Philadelphia Airport, 500
Stevens Drive, Philadelphia, Pennsylvania and at any adjournment thereof.
ELECTION OF DIRECTORS. Nominees
W.A. Andres, J.J. Crocker, P.J. Everaert, J.F. Fort, III, W.H. Gray,
III, P. Harf, J.R. Leaman, Jr., P.E. Lippincott, R.K. Lochridge,
B.K. MacLaury, C.B. Malone, G.L. Roubos, P. Stern
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
(CONTINUED, AND TO BE MARKED AND SIGNED, ON THE OTHER SIDE)
--------------
SEE REVERSE
SIDE
--------------
<PAGE>
[X] PLEASE MARK YOUR 1008
VOTES AS IN THIS
EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2A, 2B, 2C AND 3.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2A, 2B, 2C AND 3.
- --------------------------------------------------------------------------------
1.Election of Directors (see reverse)
FOR AGAINST ABSTAIN
[_] [_] [_]
For, except vote withheld from the following nominee(s):
- -----------------------------------------------------
2. Approval of 1994 Long-Term Incentive Plan, for
a. stock options (page 21)
FOR AGAINST ABSTAIN
[_] [_] [_]
b. restricted stock (page 23)
FOR AGAINST ABSTAIN
[_] [_] [_]
c. performance shares (page 23)
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of Auditors (page 27)
FOR AGAINST ABSTAIN
[_] [_] [_]
4. In their discretion upon such other matters as may properly come before the
meeting
TREAT AS CONFIDENTIAL IN ACCORDANCE WITH COMPANY POLICY (page 1) [_]
I PLAN TO ATTEND THE MEETING [_]
SIGNATURE DATE
---------------------------------------------- -----------
NOTE: Please sign exactly as name(s) appears hereon. Joint owners should each
sign. Executors, administrators, trustees, etc., should give full title
as such. If the signer is a corporation, please sign full corporate name
by duly authorized officer.
