<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
------------------------------------------------------------------------
<PAGE>
(CONTROL DATA LOGO)
NOTICE OF 1996 ANNUAL MEETING
AND
PROXY STATEMENT
CONTROL DATA SYSTEMS, INC.
4201 LEXINGTON AVENUE NORTH
ARDEN HILLS, MINNESOTA 55126-6198
<PAGE>
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
WEDNESDAY, MAY 15, 1996
To Our Stockholders:
The 1995 Annual Meeting of Stockholders of Control Data Systems, Inc., will
be held on Wednesday, May 15 , 1996, at the Minnesota History Center, 345
Kellogg Boulevard West, St. Paul, MN, at 10:00 a.m. Central Daylight Time, for
the following purposes:
1. Elect six Directors.
2. Approve appointment of KPMG Peat Marwick LLP as Company's independent
auditors.
3. Approve adoption of amendments to the 1992 Equity Incentive Plan to
increase the total number of shares available for grant under the Plan
from 2,900,000 to 3,200,000, authorizing additional payment methods upon
the exercise of stock options, and clarifying provisions protecting
participants in the event of certain corporate transactions.
These items are more fully described in the following pages of the Proxy
Statement.
Stockholders of record at the close of business on March 18, 1996, will be
entitled to vote at the Meeting and any adjournments of the Meeting.
By Order of the Board of Directors,
/s/ Ralph W. Beha
Ralph W. Beha
GENERAL COUNSEL AND SECRETARY
Dated: March 27, 1996
YOUR VOTE IS IMPORTANT.
PLEASE DATE AND SIGN ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
(CONTROL DATA LOGO)
Control Data Systems, Inc.
4201 Lexington Avenue North
Arden Hills, MN 55126-6198
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 1996
------------------------
BACKGROUND. Control Data Systems, Inc. ("Control Data" or "the Company")
was established through the transfer by Ceridian Corporation of its Computer
Products business to the Company and Ceridian's subsequent immediate spin-off,
in July of 1992, of the Company to Ceridian's stockholders as a stock dividend.
Since August, 1992 the Common Stock of the Company has been traded on the Nasdaq
Stock Market. This Proxy Statement is being furnished in connection with the
fourth annual meeting of the Company's stockholders since the spin-off.
SOLICITING OF PROXY. The Company's Board of Directors is soliciting the
accompanying Proxy for use at the Annual Meeting of Stockholders of Control Data
to be held on May 15, 1996, and at any adjournments thereof. This Proxy
Statement and the related Proxy and Notice of Annual Meeting are being mailed to
stockholders beginning on or about April 3, 1996.
PROXY VOTING PROCEDURES. A Proxy Card is enclosed. In order to register
your vote, please complete, date and sign the Proxy Card and return it in the
envelope supplied. A Proxy may be revoked at any time before it is exercised by
filing a written revocation with the Company's Secretary, by delivering to the
Company's Secretary a new written proxy, or by attending the Meeting and voting
in person.
When stock is registered in the name of more than one person, EACH such
person must sign the Proxy. If the stockholder is a corporation, the Proxy must
be signed in its corporate name by an executive or other authorized officer. If
signed as attorney, executor, administrator, trustee, guardian, custodian or in
any other representative capacity, the signer's full title must be given.
Shares represented by a properly executed Proxy received by Control Data
prior to the Meeting and not revoked will be voted in accordance with the
instructions of the stockholder; if no instructions are indicated, such shares
will, subject to the following, be voted in accordance with the recommendations
of the Board of Directors. If a stockholder abstains from voting as to any item,
then the shares held by such stockholder shall be deemed present at the Meeting
for purposes of determining a quorum and for purposes of calculating the vote
with respect to such item, but such shares shall not be deemed to have been
voted in favor of such item. Therefore, abstentions as to an item will have the
same effect as votes against such item. If a broker returns any "nonvotes,"
indicating a lack of voting instruction by the beneficial holder of the shares
and a lack of discretionary authority on the part of the broker to vote on such
item, then the shares covered by such nonvotes shall be deemed present at the
meeting for purposes of determining a quorum but shall not be deemed to be
represented at the Meeting for purposes of calculating the vote required for
approval of such item.
<PAGE>
RECORD DATE AND QUORUM. Stockholders are entitled to one vote for each
share of Control Data Common Stock, $.01 par value, they hold of record as of
the close of business on March 18, 1996. Holders are not entitled to cumulative
voting rights in the election of directors. On the March 18, 1996 record date,
14,324,007 shares of Control Data Common Stock were outstanding. A quorum (a
majority of the outstanding shares) must be represented at the Meeting in person
or by Proxy to transact business.
STOCKHOLDINGS OF CERTAIN OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS. To the best of Control Data's knowledge, no
person or group was the beneficial owner of more than 5% of Control Data Common
Stock as of March 18, 1996.
MANAGEMENT STOCKHOLDINGS. The following table shows the Control Data Common
Stock beneficially owned by each Control Data director, each executive officer
named in the Summary Compensation Table and by all directors and executive
officers (including the named individuals) as a group as of March 18, 1996.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- -------------------------------------------------- ---------------------- -------------
<S> <C> <C>
W. Donald Bell.................................... 28,332 0.2%
Grant A. Dove..................................... 28,332 0.2%
Marcelo A. Gumucio................................ 28,332 0.2%
W. Douglas Hajjar................................. 53,332 0.4%
Keith A. Libbey................................... 28,582 0.2%
James E. Ousley................................... 401,906 2.8%
Joseph F. Killoran................................ 95,875 0.7%
Dieter Porzel..................................... 75,000 0.5%
Ruth A. Rich...................................... 97,606 0.7%
All directors and executive officers as a group
(13 persons).................................... 888,097 6.2%
</TABLE>
- ------------------------
(1) Except as otherwise noted, each person or group named in the table has sole
power to vote and dispose of all shares listed for such person or group. Of
the total number of Mr. Ousley's shares, 33,334 are shares over which Mr.
Ousley has sole voting power but which are subject to restrictions on
disposition. Shares not currently outstanding but deemed beneficially owned
by virtue of the right of the person to acquire them as of March 18, 1996,
or within 60 days of such date (on or before May 17, 1996), are treated as
also outstanding only when determining the amount and percent owned by such
person or by the group. Such additional shares so considered outstanding are
as follows: Mr. Bell, 28,332 shares; Mr. Dove, 28,332 shares; Mr. Gumucio,
28,332 shares; Mr. Hajjar, 28,332 shares, Mr. Libbey, 28,332 shares; Mr.
Ousley, 351,677 shares; Mr. Killoran, 94,066 shares; Mr. Porzel, 75,000
shares; Ms. Rich, 96,563 shares; all directors and executive officers as a
group, 829,188 shares.
2
<PAGE>
ITEM NUMBER 1
ELECTION OF DIRECTORS
GENERAL INFORMATION
In accordance with the Company's Bylaws, the Board of Directors has set the
number of directors at six. The Board has nominated the six current members as
the slate recommended for election at the 1996 Annual Meeting. THE BOARD
RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE NOMINEES LISTED BELOW. The election of
directors is decided by a plurality of the votes cast.
Directors elected at the 1996 Meeting will hold office until the next Annual
Meeting and until their successors are duly chosen and qualify, or until their
earlier resignations or removal. The Board of Directors has inquired of each
nominee and has ascertained that each will serve if elected. In the event that
any of these nominees should become unavailable for election, the Board of
Directors may designate substitute nominees, in which event the shares
represented by the Proxy Cards returned will be voted for such substitute
nominees unless an indication to the contrary is noted on the Proxy Card.
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- ----------------------- ----------------------------------------------------------------------- --- ---------
<S> <C> <C> <C>
W. DONALD BELL W. Donald Bell is the founder, President and Chief Executive Officer of 58 August
Bell Microproducts, Inc., a distribution company specializing in 1992
semiconductors, computer products, and manufacturing services. Mr.
Bell founded Bell Microproducts, Inc. in 1988.
GRANT A. DOVE Grant A. Dove is a Managing Partner of Technology Strategies & 67 August
Alliances, a strategic planning and investment banking firm. Mr. Dove 1992
joined TS&A in 1991. From 1987-1992, Mr. Dove served as Chairman of
the Board and Chief Executive Officer of Microelectronics and Computer
Technology Corporation (MCC). He is Chairman of the Board and a direc-
tor of OPTEK Technology, Inc. Mr. Dove is also a director of US West,
Inc., Cooper Cameron Corporation, Intervoice, Inc., The Fore Front
Group, Inc., and MCC.
MARCELO A. GUMUCIO Marcelo A. Gumucio is the President, Chairman and Chief Executive 58 August
Officer of Memorex Telex, N.V., an international organization engaged 1992
in the development and distribution of computer networks, storage
products and related support services as part of integrated solutions.
Mr. Gumucio joined Memorex Telex, N.V. in 1992. Prior to joining
Memorex Telex, N.V., Mr. Gumucio was President of Gumucio, Burke &
Associates, a private investment firm he founded in 1990. Mr. Gumucio
was President, Chief Operating Officer and member of the Board of
Directors of Cray Research, Inc. from March 1988 to July 1990. Mr.
Gumucio is also a director of Memorex Telex, N.V.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- ----------------------- ----------------------------------------------------------------------- --- ---------
<S> <C> <C> <C>
W. DOUGLAS HAJJAR W. Douglas Hajjar is Chairman of Control Data Systems, Inc. He was Vice 48 August
Chairman of Cadence Design Systems, Inc., an electronic design 1992
automation vendor, from December 1991, when Cadence Design Systems,
Inc. completed its merger with Valid Logic Systems Inc., to May 1994.
From September 1987 through December 1991, Mr. Hajjar was Chairman and
Chief Executive Officer of Valid Logic Systems, Inc.
KEITH A. LIBBEY Keith A. Libbey is a member and Chairman of the Board of Fredrikson & 58 August
Bryon, P.A., a law firm with principal offices in Minneapolis, 1992
Minnesota.
JAMES E. OUSLEY James E. Ousley has been President and Chief Executive Officer of the 50 August
Company since the establishment of the Company as an independent 1992
public company through the transfer of Ceridian Corporation's Computer
Products business to the Company and subsequent immediate spin-off of
the Company from Ceridian effective July 31, 1992. Mr. Ousley was
President of Ceridian's Computer Products business since April 1989
and was Executive Vice President of Ceridian from February 1990 until
the spin-off of the Company. From January 1989 to April 1989, Mr.
Ousley was Vice President, Marketing and Sales for Ceridian's Computer
Products business and prior thereto he held various positions with
Ceridian. Mr. Ousley is also a director of Memorex-Telex N.V.
</TABLE>
Any stockholder who intends to make a nomination at an annual meeting must
deliver, not less than 50 nor more than 75 days prior to the particular annual
meeting, a notice to Control Data's Corporate Secretary setting forth: the name
and address of the stockholder who intends to make the nomination; the class and
number of shares of stock of the Company which are beneficially owned by the
stockholder; the name, age, business address and residence address of each
nominee being proposed by the stockholder; the principal occupation or
employment of each nominee; the class and number of shares of stock of the
Company which are beneficially owned by each nominee; such other information
concerning each nominee that would be required, under the rules of the
Securities and Exchange Commission, in a proxy statement soliciting proxies for
the election of such nominee; and a signed consent of each nominee to serve as a
director of the Company if so elected. The Company may require any proposed
nominee to furnish such other information as may reasonably be required by the
Company to determine the eligibility of such proposed nominee to serve as a
director of the Company.
BOARD AND BOARD COMMITTEE MEETINGS
The Company's Board of Directors held five Board meetings in fiscal year
1995. The standing committees of the Board of Directors include the Audit
Committee and the Compensation Committee. No director missed a meeting of the
Board of Directors or a meeting of any Board committee on which the director
served. The Board does not have a standing nominating or similar committee.
AUDIT COMMITTEE. The Audit Committee held two meetings in fiscal year 1995.
Committee members are Mr. Libbey (Chair) and Mr. Dove. The Committee reviews
Control Data's annual
4
<PAGE>
financial statements; makes recommendations regarding Control Data's independent
auditors and scope of auditor services; reviews the adequacy of accounting and
audit policies, compliance assurance procedures and internal controls; reviews
nonaudit services performed by auditors to maintain auditors' independence; and
reports to the Board of Directors on disclosure adequacy and adherence to
accounting principles. The Audit Committee also appoints the Company's
Retirement Committee which is responsible for administering the Company's
qualified U.S. retirement plans.
COMPENSATION COMMITTEE. The Compensation Committee held two meetings in
fiscal year 1995. Committee members are Mr. Hajjar (Chair) and Mr. Bell. The
Committee reviews compensation philosophy and major compensation and benefits
programs for executives; administers certain stock plans; and approves executive
officers' and directors' compensation.
DIRECTOR COMPENSATION
Officers of the Company do not receive any additional compensation for
serving as members of the Board of Directors or any of its committees. Directors
who are not employees of the Company receive an annual retainer fee of $16,000
($17,000 if chairman of a Board committee) and $1,000 for each Board or Board
committee meeting attended. The Chairman of the Company receives $25,000 per
calendar quarter, with no additional fees for Board or Board committee meetings
attended. If there is a "change of control" of the Company as defined in the
Company's 1992 Equity Incentive Plan, then the Chairman shall, upon a "change of
control termination" as defined in such Plan, be paid an amount equal to three
times the Chairman's annual fee.
Under the Company's 1992 Equity Incentive Plan, directors who are not
employees of the Company are also eligible for stock options. As specified in
the Plan, an option for 25,000 shares of the Company's Common Stock is granted
to each non-employee director when such director first assumes office as a
director. The Plan also provides for the annual grant of an option for 5,000
shares to each non-employee director upon the director's reelection to the
Board. The exercise price for an option granted to a non-employee director is
the fair market value of a share of the Common Stock as of the date the option
is granted. Each option is a nonqualified stock option, expires ten years after
the date it is granted and becomes exercisable as to one-third of the shares
subject to the option on each of the succeeding three anniversaries of the
option grant. If a non-employee director ceases to be a director of the Company
for reasons other than death or disability, any portion of an option not yet
exercisable at such time will be forfeited, and the portion of the option then
exercisable will remain exercisable for 90 days.
In November 1994, Mr. Hajjar entered into a consulting agreement with the
Company pursuant to which he could be called upon, at mutually agreed times, to
advise the Company on various matters related to the Company's business plans
and restructuring plans. Mr. Hajjar performed no services under this agreement
during 1995. Following his appointment as Chairman in August 1995, the
consulting agreement was terminated by mutual agreement.
CERTAIN BUSINESS RELATIONSHIPS
Mr. Libbey is a member and Chairman of the Board of Fredrikson & Byron, P.A.
Fredrikson & Byron, P.A. is regularly retained to provide legal services to the
Company.
5
<PAGE>
ITEM NUMBER 2
APPROVAL OF SELECTION OF AUDITORS
Upon recommendation of its Audit Committee, the Company's Board has selected
KPMG Peat Marwick LLP, certified public accountants, as independent auditors for
the Company for the current fiscal year ending December 31, 1996. That firm has
acted as independent auditors for the Company and its former parent company,
Ceridian Corporation, for more than 30 years, and the Board considers it highly
qualified. Although it is not required to do so, the Board of Directors wishes
to submit the selection of KPMG Peat Marwick LLP for shareholders' approval at
the 1996 Annual Meeting. If the stockholders do not give approval, the Board
will reconsider its selection.
Representatives of KPMG Peat Marwick LLP will be present at the 1996 Annual
Meeting, will have the opportunity to make a statement if they desire and will
be available to respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THIS APPOINTMENT.
ITEM NUMBER 3
APPROVAL OF AMENDMENT TO THE 1992 EQUITY INCENTIVE PLAN
In 1996, the Board of Directors approved changes to the 1992 Equity
Incentive Plan (the "Plan"), subject to stockholder approval. The Board believes
that the Plan has been, and will continue to be, important for attracting,
retaining and providing incentives for those officers, employees and non-
employee directors ("participants") who can have a significant effect on the
success of the Company. Specifically, the Board approved amendments increasing
the number of shares of the Company's Common Stock for issuance pursuant to
awards under the Plan from 2,900,000 shares to 3,200,000 shares, authorizing
additional payment methods upon the exercise of stock options, and clarifying
provisions protecting participants in the event of certain corporate
transactions.
The affirmative vote of a majority of the shares of the Company's Common
Stock represented and voting on this proposal at the 1996 Annual Meeting of
Stockholders is required for approval of the above amendments.
DESCRIPTION OF 1992 EQUITY INCENTIVE PLAN
A general description of the material features of the 1992 Equity Incentive
Plan, as amended, follows, but this description is qualified in its entirety by
reference to the full text of the Plan, a copy of which may be obtained without
charge upon written request to the Secretary of the Company:
GENERAL. In July, 1992, the Company adopted the 1992 Equity Incentive Plan
(the "Plan"). Under the Plan, the Compensation Committee may award nonqualified
or incentive stock options, restricted stock and performance units to those
officers and employees of the Company (including its subsidiaries and
affiliates) whose performance, in the judgment of the Compensation Committee,
can have a significant effect on the success of the Company. In addition, as
described below, non-employee directors are also eligible for the grant of
nonqualified stock options.
SHARES AVAILABLE. Assuming the stockholders approve the proposed
amendments, a total of 3,200,000 shares of the Company's Common Stock will have
been made available for issuance pursuant to prior and future options,
restricted stock awards and performance units under the Plan. Under
6
<PAGE>
the terms of the Plan, any one employee may not, in any calendar year, receive
stock options which, in the aggregate, would permit the employee to purchase
more than 300,000 shares of the Company's Common Stock. If any options granted
under the Plan expire or terminate prior to exercise, the shares subject to the
portion of the option not exercised are available for subsequent option grants.
The total number of shares and the exercise price per share of Common Stock
that may be issued pursuant to outstanding stock options, restricted stock
awards or performance units are subject to adjustment by the Board of Directors
upon the occurrence of stock dividends, stock splits or other recapitalizations,
or because of mergers, consolidations, reorganizations, or similar transactions
in which the Company receives no consideration. The Board may also provide for
the protection of optionees or recipients of restricted stock awards and
performance units in the event of a merger, liquidation, reorganization,
divestiture (including a spin-off) or similar transaction.
ADMINISTRATION AND TYPES OF AWARDS. With the exception of the non-employee
director stock options, the features of which are established by the director
option provisions specified in the Plan, the Plan is administered by the
Compensation Committee of the Board of Directors, which consists of at least two
disinterested directors who are not employees of the Company, and which must
approve options and awards granted under the Plan. The Committee has broad
powers to administer and interpret the Plan, including the authority: (i) to
establish rules for the administration of the Plan; (ii) to select the
participants in the Plan; (iii) to determine the types of awards to be granted
and the number of shares covered by such awards; and (iv) to set the terms and
conditions of such awards. All determinations and interpretations of the
Committee are binding on all interested parties.
OPTIONS. Options granted under the Plan may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code
("I.R.C."), or "nonqualified" stock options that do not qualify for special tax
treatment under Section 422 or similar provisions of the I.R.C. No incentive
stock option may be granted with a per share exercise price less than the fair
market value of a share of the underlying Common Stock on the date the incentive
stock option is granted. The exercise price for nonqualified stock options
granted under the Plan also will not generally be less than the fair market
value of a share of the Company's Common Stock on the date the nonqualified
stock option is granted. The fair market value of the Company's Common Stock was
$18.50 on March 26 , 1996. The exercise price generally must be paid in cash
unless the Compensation Committee permits payment in shares of Company stock.
The Compensation Committee may also authorize the payment of the exercise price
in installments or through a promissory note.
An option will generally expire ten years after the date it is granted, and
will ordinarily become exercisable as to one-third of the shares subject to the
option on each of the three succeeding anniversaries of the date of grant. The
Compensation Committee may modify the exercisability of an option in its
discretion. Following a "change of control termination," as described below, all
options granted under the Plan will become immediately exercisable. In certain
circumstances, nonqualified stock options may be transferred to a member of the
optionee's immediate family, a trust for the benefit of such immediate family
members or a partnership in which such family members are the only partners.
Except for the annual grants of nonqualified stock options to non-employee
directors described below, the grants of stock options under the Plan are
subject to the Compensation Committee's discretion. Consequently, future grants
to eligible optionees cannot be determined at this time.
Directors who are not employees of the Company are also eligible for
nonqualified stock options. As specified in the Plan, a stock option for 25,000
shares of the Company's Common Stock is granted
7
<PAGE>
to each non-employee director when such director is first elected to the Board
of Directors. In addition, each non-employee director is granted a stock option
to purchase 5,000 shares of the Company's Common Stock each year upon his or her
reelection to the Board. The exercise price for an option granted to a
non-employee director equals the fair market value of a share of the Common
Stock as of the date the option is granted. Each option is a nonqualified stock
option, expires ten years after the date it is granted and becomes exercisable
as to one-third of the shares subject to the option on each of the succeeding
three anniversaries of the option grant. If a non-employee director ceases to be
a director to the Company for reasons other than death or disability, any
portion of the option not yet exercisable at such time will be forfeited, and
the portion of the option then exercisable will remain exercisable for 90 days.
RESTRICTED STOCK AWARDS AND PERFORMANCE UNITS. The Plan also provides for
shares of the Company's Common Stock to be issued in the form of restricted
stock awards, and for performance units. Restricted stock awards and performance
units cannot be transferred and may be subject to risk of forfeiture. The
Compensation Committee determines the times and extent to which the restrictions
on transferability of the shares and the risk of forfeiture will lapse. Because
future grants of restricted stock awards and performance units are subject to
the discretion of the Compensation Committee, future awards to eligible
participants cannot be determined at this time.
CHANGE OF CONTROL PROVISIONS. Following a "change of control termination,"
generally all options granted under the Plan will become immediately exercisable
and all restrictions on restricted stock awards, if any, under the Plan will
immediately lapse. Within 30 days following a change of control termination, a
participant in the Plan may require the Company to purchase any shares of stock
awarded to the participant under the Plan as to which the restrictions on
transfer lapsed because of the change of control termination. The purchase price
will equal the fair market value of the shares on the day prior to the "change
of control." These provisions also provide that all change of control
compensation to a participant must be less than the amount which would be
considered a "parachute payment" under Section 280G of the I.R.C. To the extent
that change of control compensation would exceed this amount with respect to a
participant, the participant must designate which payments would be reduced or
eliminated so as to avoid receipt of a parachute payment.
For purposes of these provisions, a "change of control termination" refers
to either of the following if it occurs within two years after a "change of
control" of the Company: (i) termination of the individual's employment by the
Company for reasons other than a willful failure to perform his or her
employment duties or conduct constituting a felony involving moral turpitude,
(ii) the individual terminates employment with the Company for "good reason," or
(iii) for non-employee directors, the termination of the individual's status as
a director. "Good reason" is generally defined as an adverse change in the
individual's responsibilities, authority, compensation or working conditions, or
a material breach of an employment agreement by the Company. "Change of control"
is defined as: (i) a merger or consolidation involving the Company if less than
50% of the Company's voting stock after the business combination is held by
persons who were stockholders before the business combination; (ii) a sale of
the assets of the Company substantially as an entirety; (iii) ownership by a
person or group of at least 20% of the Company's voting securities; (iv)
approval by the stockholders of a plan for the liquidation of the Company; and
(v) certain changes in the composition of the Company's Board of Directors.
AMENDMENT. Except for the provisions of the Plan relating to the grant of
nonqualified stock options to non-employee directors, the Board of Directors or
the Compensation Committee may
8
<PAGE>
terminate or amend the Plan at any time prior to a "change of control," except
that the terms of option or award agreements then outstanding may not be
adversely affected without the consent of the individual. The provisions
relating to the nonqualified stock options granted to the non-employee directors
may not be amended more frequently than once every six months, unless the
amendment is required to comply with changes in the Employee Retirement Income
Security Act of 1974 ("ERISA") or the I.R.C. After a change of control, neither
the Board of Directors nor the Compensation Committee may terminate or amend the
Plan to deny participants the change of control benefits stated in the Plan.
Neither the Board nor the Compensation Committee may amend the Plan without the
approval of the Company's stockholders if the amendment would materially
increase the total number of shares of Common Stock available for issuance under
the Plan, materially increase the benefits accruing to any individual or
materially modify the requirements as to eligibility for participation in the
Plan.
FEDERAL INCOME TAX MATTERS. "Nonqualified" stock options granted under the
Plan are not intended to and do not qualify for the favorable tax treatment
available to "incentive" stock options under I.R.C. Section 422. Generally, no
income is taxable to the optionee (and the Company is not entitled to any
deduction) upon the grant of a nonqualified stock option. When a nonqualified
stock option is exercised, the optionee generally must recognize compensation
taxable as ordinary income equal to the difference between the option price and
the fair market value of the shares on the date of exercise. The Company
normally will receive a deduction equal to the amount of compensation the
optionee is required to recognize as ordinary income and must comply with
applicable federal withholding requirements.
"Incentive" stock options granted under the Plan are intended to qualify for
favorable tax treatment under I.R.C. Section 422. Under Section 422, an optionee
realizes no taxable income when an incentive stock option is granted. Further,
the optionee generally will not realize any taxable income when the incentive
stock option is exercised if he or she has at all times from the date of the
option's grant until three months before the date of exercise been an employee
of the Company. The Company ordinarily is not entitled to any deduction upon the
grant or exercise of an incentive stock option. Certain other favorable tax
consequences may be available to the optionee if he or she does not dispose of
the shares acquired upon the exercise of an incentive stock option for a period
of two years from the granting of the option and one year from the receipt of
the shares.
9
<PAGE>
NEW PLAN BENEFITS. Control Data's management and the Board of Directors
believe that adoption of the proposed amendments will enable the Company to
continue to attract and retain a strong management and employee base, and will
further underpin the philosophy that key employees should be linked to, incented
by, and rewarded as a result of increasing shareholder value. The table below
shows the total number of stock options that have been received by the following
individuals and groups under the Plan:
1992 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
TOTAL NUMBER OF
NAMES AND POSITION/GROUP OPTIONS RECEIVED (1)
- --------------------------------------------------------------------------------
<S> <C>
JAMES E. OUSLEY ............................................ 376,677
President and Chief Executive Officer
DIETER PORZEL .............................................. 112,608
Vice President, Europe/Middle East and Africa
JOSEPH F. KILLORAN ......................................... 118,682
Vice President and Chief Financial Officer
RUTH A. RICH ............................................... 103,230
Vice President, Human Resources and Administration
CURRENT EXECUTIVE GROUP .................................... 885,617
(8 persons)
CURRENT NON-EXECUTIVE DIRECTOR GROUP ....................... 175,000
(5 persons)
CURRENT NON-EXECUTIVE OFFICER EMPLOYEE GROUP ............... 1,246,567
(132 persons)
</TABLE>
- ------------------------
(1) This table reflects the total number of stock options granted in prior
fiscal years and to date in the current 1996 fiscal year.
Because future grants and awards under the Plan are subject to the
Compensation Committee's discretion or the non-employee director's reelection to
the Board, the future benefits or amounts that may be received by these
individuals or groups, under the Plan as amended, cannot be determined at this
time.
10
<PAGE>
VOTE REQUIRED
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE AMENDMENTS TO THE 1992 EQUITY INCENTIVE PLAN. The affirmative vote of a
majority of the shares represented in person or by proxy on this item of
business at the 1996 Annual Meeting is required for approval of the proposed
amendments to the Plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the fiscal year 1995 annual and long-term
compensation for the Company's Chief Executive Officer and the other three
executive officers, as well as the total compensation paid to each individual
during fiscal years 1993 and 1994:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
---------------------- ------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) (1) ($) ($) ($) (2) (#) ($) ($) (3)
- ------------------------- --------- ---------- -------- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JAMES E. OUSLEY 1995 385,000 383,000 0 321,875 0 0 3,750
President and Chief 1994 380,944 77,000 0 0 0 0 0
Executive Officer 1993 331,538 70,000 0 0 0 0 0
DIETER PORZEL (4) 1995 262,458 67,160 0 0 0 0 0
Vice President, 1994 239,432 29,929 0 0 25,000 0 0
Europe/Middle East 1993 218,246 17,308 0 0 25,000 0 0
and Africa
JOSEPH F. KILLORAN 1995 175,000 137,500 0 0 0 0 3,750
Vice President and 1994 173,269 21,875 0 0 25,000 0 0
Chief Financial 1993 144,615 20,000 0 0 0 0 0
Officer
RUTH A. RICH 1995 120,000 60,000 0 0 0 0 3,750
Vice President, 1994 120,000 15,000 0 0 10,000 0 0
Human Resources and 1993 120,000 15,000 0 0 0 0 0
Administration
</TABLE>
- ------------------------------
(1) The amounts reflected in "Salary" include the named executive's salary
deferral contributions to the Company's Personal Investment Plan, which is a
savings plan qualified under Section 401(a) and 401(k) of the Internal
Revenue Code, for the period indicated.
(2) The value of Mr. Ousley's restricted stock holdings at the end of the 1995
fiscal year was $981,250. Of the 50,000 shares granted, restrictions on
16,666 shares lapsed on July 5, 1995, restrictions on 16,666 additional
shares will lapse on January 4, 1997, and restrictions on the remaining
shares will lapse on January 4, 1998. Any dividends declared by the Company
on its common stock would be payable to Mr. Ousley on his restricted shares.
(3) "All Other Compensation" reflects, in each instance, a discretionary profit
sharing contribution made by the Company on behalf of the named executive
under the Company's Personal Investment Plan for the 1995 fiscal year. For
fiscal year 1995, each U.S. employee received, upon the Company's attainment
of certain financial objectives determined by the Board of Directors, an
amount equal to two and one-half percent (2 1/2%) of annual compensation up
to $150,000, or a maximum contribution of $3,750. Contributions for future
fiscal years and any related financial objectives will be determined by the
Board of Directors.
(4) All amounts for Mr. Porzel were paid in Deutsche Marks and converted to U.S.
dollar equivalents at the exchange rates prevailing on the last day of the
applicable fiscal year. Amounts paid in 1995 were converted at the rate
prevailing on December 29, 1995 (0.6961).
11
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
No options or SARs were granted to the named executives during 1995.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
The following table summarizes the options and SARs exercised during 1995
and presents the value of unexercised options and SARs held by the named
executives at December 31, 1995:
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
FISCAL YEAR-END (1) OPTIONS/SARS AT
(#) FY-END (2) ($)
SHARES ACQUIRED
ON EXERCISE VALUE REALIZED EXERCISABLE (E) EXERCISABLE (E)
NAME (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
- --------------------- --------------------- ------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
JAMES E. OUSLEY 0 0 351,677(E) $4,180,320(E)
0(U) 0(U)
DIETER PORZEL 0 0 79,933(E) 898,482(E)
25,001(U) 278,135(U)
JOSEPH F. KILLORAN 0 0 90,733(E) 1,056,261(E)
16,667(U) 185,837(U)
RUTH A. RICH 0 0 96,563(E) 1,163,730(E)
6,667(U) 80,004(U)
</TABLE>
- ------------------------
(1) All are options to purchase Common Stock. No SARs were exercised or are
outstanding, whether free standing or in tandem with the options. The number
of unexercised options includes shares that may be issued upon the exercise
of replacement options which were provided to the optionee pursuant to the
provisions of the spin-off of the Company from Ceridian Corporation to
replace Ceridian stock options held by such optionee at the time of the
spin-off. The number of shares subject to the optionee's replacement option
and the exercise price were calculated to preserve the economic value of the
optionee's Ceridian stock option. In addition, the replacement option
contains the same terms and conditions as the Ceridian option, and the
replacement option's duration and exercisability is measured according to
the date that the Ceridian option was granted.
(2) Based on the difference between $19.625 (the closing price of the Company's
Common Stock on December 29, 1995 as reported by the Nasdaq Stock Market)
and the option's exercise price.
PENSION PLAN AND BENEFIT EQUALIZATION PLAN
The Company maintains a defined benefit pension plan (the "Retirement Plan")
for its U.S. employees (including executive officers and employees of U.S.
subsidiaries), which is funded by employee salary reductions and after-tax
contributions and Company contributions. However, effective December 20, 1992,
benefits under the Retirement Plan were frozen, meaning that no employees may
become participants in the plan after that date, that pension benefits for all
employees currently participating in the Retirement Plan will be computed only
on the basis of compensation paid and years of service completed to that date,
and that no future contributions will be made to the Retirement Plan except to
the extent required by the funding standards of ERISA and the I.R.C. All current
Retirement Plan participants also acquired a fully vested interest in their
pension benefits.
12
<PAGE>
Generally, the amount of the annual pension benefit under the Retirement
Plan equals an annual base pension of 1.2% of the participant's average annual
compensation during the participant's highest consecutive five-year earnings
period ending on or before December 20, 1992, multiplied by the participant's
credited years of service as of such date. In addition, the participant is
entitled to an annual excess pension benefit of 0.4% of such average annual
compensation in excess of the participant's "break point" multiplied by the
participant's years of credited service as of December 20, 1992, or 30 years,
whichever is less. A participant's "annual compensation" generally consists of
salary and any annual bonus paid under the Executive Incentive Plan. The
participant's "break point" amount essentially represents an average of the
social security wage bases to which a participant has been subject over his or
her career, and has been frozen at the amount determined for the participant as
of December 20, 1992.
The Company also maintains a Benefit Equalization Plan, under which benefits
were also frozen on December 20, 1992. In 1992, the Internal Revenue Code
limited the annual benefits payable from the Retirement Plan at $112,221 and
provided that compensation in excess of $228,860 per year could not be used in
calculating benefits under the Company's Retirement Plan described above. The
Benefit Equalization Plan provides employees (including certain named executive
officers) with supplemental pension benefits so that they will receive, in the
aggregate, the benefits that they would have been entitled to receive under the
frozen Retirement Plan had these limits not been imposed. The Benefit
Equalization Plan is an unfunded plan, and any amounts payable remain subject to
the claims of the Company's creditors. Any benefits payable to a participant
under the Benefit Equalization Plan commence at the same time as the pension
benefits payable under the Retirement Plan.
The estimated annual benefits payable under the Retirement Plan and benefit
equalization plan upon retirement at age 65 (expressed in the form of a
single-life annuity) for each of the named executive officers are as follows:
Mr. Ousley, $75,009; and Ms. Rich, $45,728. The years of service this
calculation represents at the time the plan was frozen in 1992 was 24.5 years
and 25.9 years, respectively.
Neither Mr. Killoran nor Mr. Porzel participated in the Retirement Plan. Mr.
Killoran had participated in a pension plan sponsored by Ceridian Corporation
for employees of a company acquired by Ceridian and received a distribution from
Ceridian under that plan. The German subsidiary of the Company maintains a
defined benefit plan for its employees, including Mr. Porzel. Generally, the
amount of the benefit is 0.5% of eligible earnings up to the German social
security wage base for each year of credited service, plus 2.0% of eligible
earnings above the social security wage base for each year of credited service.
Based upon present earnings, the estimated annual benefit payable to Mr. Porzel
under the German retirement plan at age 65 is an amount of Deutsche Marks
equivalent to $80,828, calculated at the exchange rate prevailing on December
29, 1995. Future increases in Mr. Porzel's compensation, if any, will not affect
these amounts.
EMPLOYMENT AGREEMENTS
The Company has severance agreements, expiring January 4 , 1998, with
Messrs. Ousley and Killoran under which the executive will receive certain
severance payments and benefits in the event of a "change of control
termination." Such term has the same definition as is used for acceleration of
the Company's outstanding stock options described in Item 3 above, except the
severance agreements require that the executive's termination of employment must
be within one year of the change of control event in order to entitle him to the
severance pay and benefits provided by his severance
13
<PAGE>
agreement. If a change of control termination occurs under his severance
agreement, Mr. Ousley is entitled to receive within five days of such
termination a severance payment equal to approximately three times his average
annual taxable compensation for the five tax years preceding the year in which
the change of control event occured. Mr. Killoran's severance payment is
approximately one and one-half times his average annual taxable compensation
over the five-year period. In the event of a change of control termination, the
Company is also required to continue for thirty-six months the executive's life,
health, dental and disability benefits at a level comparable to the benefits he
was receiving before the change of control termination. The severance agreements
also provide that all change of control compensation pertaining to the executive
must be less than the amount which would be considered a "parachute payment"
under Section 280G of the Internal Revenue Code. To the extent that the
severance payment to which the executive is entitled under his severance
agreement, together with any other change of control compensation payable to
him, would exceed this amount, the executive must designate which payments or
change of control compensation should be reduced or eliminated so as to avoid
receipt of a parachute payment.
The German subsidiary of the Company, Control Data GmbH, has an employment
agreement with Mr. Porzel which is terminable by Control Data GmbH upon 36
months' notice or upon Mr. Porzel reaching age 65, and by Mr. Porzel upon 6
months' notice. Under this agreement, Mr. Porzel is required to devote full time
to serve as the "Vorsitzender der Geschaeftsfuehrung" (chief executive officer)
of Control Data GmbH. As such, he is prohibited from disclosing confidential
information about the Company during and after the term of employment and he is
required to disclose and assign to Control Data GmbH, in accordance with
applicable German law, any intellectual property created during his employment.
The agreement also provides for remuneration at levels determined in accordance
with the compensation policies of the Company, and prescribes certain acts which
require the prior approval of the Company. Upon any termination of his
employment, Mr. Porzel will be entitled to receive remuneration at then-curent
levels for the balance of his notice period.
COMPENSATION COMMITTEE REPORT
Decisions on compensation of the Company's executive officers generally are
made by the Compensation Committee of the Board of Directors. The two members of
the Compensation Committee are non-employee directors. Decisions by the
Compensation Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board, except for decisions about awards under
the Company's 1992 Equity Incentive Plan which must be made solely by the
Committee in order for the grants under such Plan to satisfy Rule 16b-3 of the
Securities and Exchange Commission ("SEC").
COMPENSATION PHILOSOPHY AND RELATIONSHIP OF PERFORMANCE. This report
reflects the Compensation Committee's executive officer compensation philosophy
as endorsed by the Board of Directors. The resulting actions taken by the
Company are shown in the compensation tables supporting this report. The
Compensation Committee either approves or recommends to the Board of Directors
compensation levels and compensation components for the executive officers. All
of the non-employee members of the Board of Directors review compensation
actions affecting the Chief Executive Officer. This report reflects the
compensation philosophy for fiscal year 1995.
The Compensation Committee's executive compensation policies are designed to
enhance the financial performance of the Company, and thus stockholder value, by
significantly aligning the financial interests of the key executives with those
of stockholders.
14
<PAGE>
The executive compensation program is viewed in total considering all of the
component parts: base salary, annual performance incentives, benefits, and
long-term incentive opportunity in the form of stock options and restricted
stock grants. The annual compensation components consist generally of lower base
salaries than those of comparable companies combined with higher incentive plans
based on the Company's financial performance and performance against its
strategic initiatives. Long-term incentive is based on stock performance through
stock options and restricted stock grants. The Compensation Committee's position
is that stock ownership by management is beneficial in aligning management's and
stockholders' interests in the enhancement of stockholder value. Overall, the
intent is to have more significant emphasis on variable compensation components
and less on fixed cost components. The Committee believes this philosophy and
structure are in the best interests of the stockholders.
Compensation reflected in the previous tables paid to the Company's
executive officers is from January 1, 1993 to December 31, 1995, consisting of
the following elements: base salary, performance incentives and deferred profit
sharing paid for such period, and stock options and restricted stock granted
under the Company's 1992 Equity Incentive Plan.
Recent tax law changes, effective for fiscal year 1994 and future years, may
disallow deductions for compensation paid by the Company to each of the
Company's named executive officers if the officer's compensation exceeds
$1,000,000. Special rules apply for "performance-based" compensation, including
compensation resulting from stock options. The 1992 Equity Incentive Plan
includes a per-employee limit on the options that can be granted to salaried
employees, including the named executive officers, during any calendar year. For
other performance-based compensation plans, including the Executive Incentive
Plan described below, the Company intends to take whatever steps are necessary
to comply with the deduction limits imposed by the new tax provisions.
ANNUAL INCENTIVE ARRANGEMENTS. The Company has adopted an Executive
Incentive Plan which provides annual incentive compensation to key employees,
including named executive officers, who by the nature of their positions, are
deemed sufficiently accountable to impact directly the strategic objectives and
financial results of the Company. The Plan is approved by the Compensation
Committee, whose members are not eligible to participate in the Plan.
The Committee believes that key executives should have a significant
proportion of total cash compensation subject to specific strategic and
financial measurements. At the beginning of each fiscal year, or upon an
individual being appointed an executive officer, the Committee sets a target
bonus amount for each executive officer expressed as a percentage of the
executive's base salary. Performance goals for purposes of determining annual
incentive compensation are established which include net earnings and other
strategic and financial measurements. Generally, the target level of net
earnings is assigned a significantly greater weight than the aggregate weight
assigned to all remaining factors. Senior management, including the named
executives, have the potential to earn significantly higher levels of incentive
compensation if the Company exceeds its targets. The target incentive
compensation levels established by the Compensation Committee for 1995 for
Messrs. Porzel and Killoran and for Ms. Rich were 50% of salary.
The performance goals established at the beginning of 1995 were based on
several strategic and financial measurements, including a target level of net
earnings and restructure management. As noted above, the target level of net
earnings was assigned a significantly greater weight than the weight assigned to
restructure management or other factors. Mr. Porzel was assigned geographically
15
<PAGE>
specific financial measurements as well. Based on the evaluation of the above
criteria, the Compensation Committee awarded incentive payments for fiscal 1995
at 50% of the target incentive compensation level for Mr. Porzel and 100% of the
target incentive compensation level for Mr. Killoran and Ms. Rich. In addition,
the Compensation Committee awarded a bonus of $50,000 to Mr. Killoran for his
contributions in successfully achieving the Company's strategic restructuring
objectives.
1992 EQUITY INCENTIVE PLAN. The Compensation Committee of the Board of
Directors determines stock option grants to eligible employees including the
named executives. The Committee believes that options granted to management
reinforce the Committee's philosophy that management compensation should be
closely linked with shareholder value. The 1992 Equity Incentive Plan is more
fully described in the section of this Proxy Statement soliciting approval of
certain amendments to that plan. Stock options have been granted to
approximately 65% of the Company's management worldwide.
OTHER COMPENSATION PLANS. Control Data has adopted certain broad-based
employee benefit plans in which all U.S. employees, including Messrs. Ousley and
Killoran and Ms. Rich, are permitted to participate on the same terms and
conditions relating to eligibility and generally subject to the same limitations
on the amounts that may be contributed or the benefits payable under those
plans. Under the Company's Personal Investment Plan, which is a defined
contribution plan qualified under I.R.C. Sections 401(a) and 401(k),
participants, including the aforementioned executives, can contribute a
percentage of their annual compensation. Beginning in 1993, the Company did not
make a matching contribution for participants, but the Company established a
discretionary profit sharing contribution contingent upon the Company reaching a
target level of net earnings. The Company made a profit sharing contribution for
the 1995 fiscal year to all eligible U.S. employees in the form of Company
common stock equal in value to 2.5% of pay, to a maximum pay level of $150,000
per year. Each of the U.S. named executives as of December 31, 1995 received a
contribution of 213.444 shares to their Personal Investment Plan accounts. The
Company permits participants to invest their salary deferral contributions and
any Company matching or profit sharing contributions in a Company Common Stock
Fund in order to align the employees' and the stockholders' interests in the
enhancement of stockholder value. To further align these interests, the Company
has adopted an Employee Stock Purchase Plan, approved by the stockholders in
1993, through which employees may purchase shares of the Company's Common Stock.
Other than these purchases of or investments in Common Stock and the Company's
discretionary profit sharing contribution, benefits under the Company's broad-
based benefit plans are not tied to Company performance.
MR. OUSLEY'S 1995 COMPENSATION. Compensation for the CEO aligns with the
philosophies and practices discussed above for executive officers in general.
All compensation determinations and stock option grants to the CEO are reviewed
by the Committee with the Board of Directors.
At the beginning of each fiscal year, the Committee reviews the compensation
level of the CEO. The Committee considers data on compensation history and
competitive practices in determining the CEO's total compensation, and reviews
the data in light of the Company's philosophy that the compensation of the CEO
should be influenced primarily by the financial performance of the Company. This
places a meaningful portion of the CEO's compensation at risk along with the
stockholders, as well as offering significant, market-competitive upside
opportunities based on the Company's performance. The objective is to motivate
and incent the CEO to achieve a level of Company performance consistent with the
Company's strategic business objectives.
16
<PAGE>
The base annual salary level established for Mr. Ousley for 1995 was
$385,000, the same level as 1994. The target incentive compensation level
established for Mr. Ousley for 1995, expressed as a percentage of salary, was
80%, also the same level as 1994, with opportunity for incentive plan earnings
above that level for superior performance.
For 1995, the CEO's performance goals were established based on strategic
and financial measurements, including a target level of net earnings and
restructure management. The target level of net earnings was assigned a
significantly greater weight than the weight assigned to restructure management
or other factors. In evaluating Mr. Ousley's performance for the purpose of
determining his incentive compensation for such period, the Committee considered
the Company's performance against its financial, major refocusing and
restructuring objectives, implementation of the Company's continuing strategy
shift, business growth, and his demonstrated leadership. Based on the
evaluation, the Compensation Committee awarded incentive payments of 124% of Mr.
Ousley's target incentive compensation level.
Under the 1992 Equity Incentive Plan, the Committee decided to award 50,000
shares of restricted stock to Mr. Ousley in January 1995. Restrictions lapsed as
to one third of this grant in July 1995. Restrictions will lapse on another
one-third in January 1997, and on the final third in January 1998. The Committee
firmly believes that this grant further aligns the CEO's interests with those of
the stockholders, and provides a significant retention vehicle because of the
restrictions resulting in forfeiture of shares on which restrictions have not
yet lapsed if the recipient voluntarily leaves the employ of the Company.
The Compensation Committee is satisfied that the cash compensation and
long-term incentive plans in the form of stock option and restricted stock
awards provided to the CEO and to the executive officers of the Company are
structured and operated to create a high degree of linkage to increased
profitability and shareholder value.
W. Douglas Hajjar W. Donald Bell
17
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the cumulative stockholder return
on Control Data's Common Stock with the S&P 500 Composite Stock Index and the
Nasdaq Computer and Data Processing Stock Index. The comparison assumes $100 was
invested as of August 1, 1992 (the date of the spin-off of the Company from
Ceridian Corporation) in Common Stock of the Company and in each of the
foregoing indices and assumes reinvestment of dividends. The Nasdaq Computer and
Data Processing Stock Index was chosen for comparison purposes because it
encompasses over 200 companies with many of the companies of a comparable size
and because the Company's stock trades on the Nasdaq National Market.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
COMPANY, S&P 500 AND PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONTROL DATA S&P 500 NASDAQ COMPUTER &
SYSTEMS, INC. COMPOSITE STOCK INDEX DATA PROCESSING STOCK INDEX
<S> <C> <C> <C>
Aug 1992 100.00 100.00 100.00
Dec 1992 110.61 104.00 117.64
Mar 1993 163.64 108.42 123.28
Jun 1993 150.00 108.92 123.35
Sep 1993 150.00 111.59 123.89
Dec 1993 122.73 114.15 124.52
Mar 1994 103.03 109.82 126.24
Jun 1994 110.61 110.25 123.53
Sep 1994 81.06 115.71 137.54
Dec 1994 83.33 115.70 151.17
Mar 1995 84.85 126.99 170.18
Jun 1995 109.09 139.21 201.71
Sep 1995 146.97 150.35 220.34
Dec 1995 237.88 159.24 230.60
</TABLE>
18
<PAGE>
GENERAL
COSTS AND PROXY SOLICITATION. The costs of soliciting proxies will be borne
by Control Data including the reimbursement to record holders of their expenses
in forwarding proxy materials to beneficial owners. Directors, officers and
regular employees of Control Data, without extra compensation, may solicit
proxies personally or by mail, telephone, fax, telex, telegraph or special
letter.
Control Data has retained Georgeson & Co., a firm that provides professional
proxy soliciting services, to aid in the solicitation of proxies for a fee up to
$6,000 and reimbursement of certain out-of-pocket expenses.
STOCKHOLDER PROPOSALS FOR 1997 MEETING. Any stockholder proposals for the
Company's 1997 Annual Meeting of Stockholders (anticipated date May 15, 1997)
must be received by the Company by January 1, 1997 in order to be included in
the Company's Proxy Statement. The proposals also must comply with all
applicable statutes and regulations.
REPORTS TO STOCKHOLDERS. Control Data's 1995 Annual Stockholders' Report,
including financial statements, is being sent to stockholders of record on March
18, 1996, together with this Proxy Statement. CONTROL DATA WILL FURNISH TO
STOCKHOLDERS WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, UPON RECEIPT OF WRITTEN REQUEST ADDRESSED TO: INVESTOR RELATIONS
DEPARTMENT, CONTROL DATA SYSTEMS, INC., 4201 LEXINGTON AVENUE NORTH, ARDEN
HILLS, MINNESOTA 55126.
OTHER BUSINESS. The Board of Directors know of no other matters to be
presented at the 1996 Annual Meeting. If any other business properly comes
before the 1996 Annual Meeting or any adjournment thereof, the appointees named
in the Proxies will vote on the Proxies on that business in accordance with
their best judgment.
By Order of the Board of Directors,
/s/ Ralph W. Beha
Ralph W. Beha
GENERAL COUNSEL AND SECRETARY
19
<PAGE>
(CONTROL DATA LOGO)
4201 LEXINGTON AVENUE NORTH
ARDEN HILLS, MINNESOTA 55126
<PAGE>
APPENDIX
CONTROL DATA SYSTEMS, INC.
1992 EQUITY INCENTIVE PLAN
(AS AMENDED THROUGH MAY 15, 1996)
ARTICLE I - INTRODUCTION
1.01 PURPOSE. The purpose of the 1992 Equity Incentive Plan (the Plan) is
to advance the interests of Control Data Systems, Inc. and its
stockholders by affording officers and other key employees of the
Corporation and its Subsidiaries, upon whose judgment, initiative and
efforts the Corporation and its Subsidiaries largely depend for the
successful conduct of their business, a proprietary interest in the
growth and performance of the Corporation.
ARTICLE II - DEFINITIONS
2.01 "AFFILIATE" means a Parent or Subsidiary of the Corporation.
2.02 "AWARD" means the grant of any form of Incentive Stock Option,
Nonqualified Stock Option, Restricted Stock Award, or any number of
Performance Units, whether granted singly, in combination or in
tandem, to a Plan Participant pursuant to the Plan on such terms,
conditions and limitations as the Committee may establish in order to
fulfill the objectives of the Plan.
2.03 "AWARD AGREEMENT" means the agreement executed by the Corporation or
its Subsidiary and a Participant that sets forth the terms, conditions
and limitations applicable to the Award.
2.04 "BOARD" means, at any particular time, the then duly elected and
acting directors of the Corporation.
2.05 "COMMITTEE" means the Compensation Committee of the Board (or any
successor to such Committee), which shall consist solely of two or
more directors who shall be appointed by and serve at the pleasure of
the Board. Each of the members of the Committee shall be a
"disinterested person" as defined in Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended. As of the
Effective Date of the Plan, a "disinterested person" under Rule 16b-3
generally means a director who, among other things, has not been, at
any time within one year prior to his or her appointment to the
Committee (or, if shorter, during the period beginning with the
initial registration of the
- 1 -
<PAGE>
Corporation's equity securities under Section 12 of the Securities
Exchange Act of 1934, as amended, and ending with the director's
appointment to the Committee), and who will not be, while serving on
such Committee, granted or awarded options under the Plan or under any
other plan of the Corporation or any of its Affiliates which entitle
participants to acquire stock, stock options, stock appreciation
rights or similar rights that have an exercise or conversion privilege
or a value derived from equity securities issued by the Corporation or
the Affiliate, except to the extent permitted by Rule 16b-3, and
except for the Nonqualified Stock Options granted to Outside Directors
pursuant to Article VIII.
Notwithstanding anything in this Section 2.05 to the contrary, until
such date as the Board elects to comply with the Section 16(b) rules
issued by the Securities and Exchange Commission on February 8, 1991,
the Committee shall consist of at least three directors who have not
been and shall not be eligible to receive options under the Plan or
any other plan of the Corporation or its Affiliates as required by
former Rule 16b-3, except to the extent permitted by such former Rule
16b-3 and except for the Nonqualified Stock Options granted to Outside
Directors pursuant to Article VIII.
2.06 "CORPORATION" means Control Data Systems, Inc., a Delaware
corporation, and any successor in interest by way of consolidation,
operation of law, merger or otherwise.
2.07 "DATE OF GRANT" means the date an Award is approved by resolution of
the Committee, or such later date as may be specified in such
resolution; provided, however, that for Nonqualified Stock Options
granted to Outside Directors pursuant to Article VIII, the "Date of
Grant" shall be the date specified in Section 8.01.
2.08 "EFFECTIVE DATE" means the date the Plan is adopted by the Board under
Section 14.01 of Article 14 of the Plan.
2.09 "ELIGIBLE EMPLOYEE" means those key employees and officers of the
Corporation or a Subsidiary upon whose judgment, initiative and
efforts the Corporation and its Subsidiaries largely depend for the
successful conduct of their business.
2.10 "FAIR MARKET VALUE" means, with respect to shares of Stock on any
applicable date:
(a) If the Stock is reported in the national market system or is
listed upon an established exchange or exchanges, the
closing price of such Stock in such national market system
or on such stock
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exchange or exchanges on the applicable date or, if no sale
of such Stock shall have occurred on that date, the next
preceding date on which there was such a reported sale; or
(b) If the Stock is not so reported in the national market
system or listed upon an exchange, the mean between the
"bid" and "asked" prices quoted by a recognized specialist
in the Stock on the applicable date or, if there are no
quoted "bid" and "asked" prices on such date, on the next
preceding date for which there are such quotes; or
(c) If the Stock is not publicly traded as of the applicable
date, the Fair Market Value of the Stock on the applicable
date as determined by the Committee by applying principals
of valuation, and the Committee shall have full authority
and discretion in establishing the Fair Market Value.
2.11 "INCENTIVE STOCK OPTION" means an option to purchase Stock awarded to
a Participant under Article VI of this Plan that qualifies as an
Incentive Stock Option within the meaning of Internal Revenue Code
Section 422.
2.12 "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations thereunder.
2.13 "NONQUALIFIED STOCK OPTION" means an option to purchase Stock awarded
to a Participant under Article VII or to an Outside Director under
Article VIII of this Plan but which does not qualify as an Incentive
Stock Option.
2.14 "OUTSIDE DIRECTOR" means a member of the Board who is not an employee
of the Corporation or any of its Affiliates.
2.15 "PARENT" means a corporation as defined in Internal Revenue Code
Section 424(e) applying such Section 424(e) by treating the
Corporation as the employer corporation.
2.16 "PARTICIPANT" means an Eligible Employee to whom an Award has been
made under the Plan.
2.17 "PERFORMANCE GOAL" means with respect to a Performance Unit Award, a
specified initial or cumulative business objective not related to any
equity security of the Corporation, the satisfaction of which shall be
a condition precedent to the vesting of all or a portion of that
Performance Unit Award.
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2.18 "PERFORMANCE PERIOD" means with respect to a Performance Unit Award,
the designated period set forth in an Award Agreement over which the
Performance Units may vest.
2.19 "PERFORMANCE UNIT" means a unit having a cash equivalent value
determined by the Committee on the basis of achievement by the
Corporation, by a specified Subsidiary, or by a specified operating
unit within the Corporation or Subsidiary of business objectives which
shall be set forth in the terms of an Award Agreement and which shall
not be related to any equity security of the Corporation.
2.20 "PLAN" means the Control Data Systems, Inc. 1992 Equity Incentive
Plan, as set forth herein, as the same may be from time to time
amended.
2.21 "REPLACEMENT OPTION" means a Nonqualified Stock Option or an Incentive
Stock Option granted under this Plan to replace a nonqualified stock
option or an incentive stock option that had been previously granted
under the Control Data Corporation 1980 Stock Option Plan or the
Control Data Corporation 1990 Long-Term Incentive Plan.
2.22 "RESTRICTED STOCK AWARD" means shares of Stock awarded to a
Participant under Article IX of this Plan.
2.23 "SECTION 16(b) PARTICIPANT" means a Participant who is subject to the
provisions of Section 16(b), or any successor provision, of the
Securities Exchange Act of 1934, as amended (the "1934 Act").
2.24 "STOCK" means the Corporation's Common Stock, par value $0.01 per
share.
2.25 "SUBSIDIARY" means a corporation as defined in Internal Revenue Code
Section 424(f) applying such Section 424(f) by treating the
Corporation as the employer corporation.
2.26 "TRANSACTION DATE" means, for purposes of Section 8.01, the Effective
Date defined in the Transfer Agreement entered into by the Corporation
and Ceridian Corporation (formerly Control Data Corporation)
("Ceridian") pursuant to which Ceridian will transfer and assign to
the Corporation certain assets and properties in exchange for the
Corporation's assumption of certain liabilities and obligations of
Ceridian and the Corporation's issuance of shares of its Stock to
Ceridian.
2.27 "YEAR" means a calendar year.
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ARTICLE III - ADMINISTRATION
3.01 ADMINISTRATION. Except for those matters expressly reserved to the
Board pursuant to any provisions of the Plan, and except for all
matters relating to the grant of Nonqualified Stock Options to Outside
Directors pursuant to Article VIII, the Committee shall have full
responsibility for administration of the Plan, which responsibility
shall include, but shall not be limited to, the following:
(a) The Committee shall review and approve any and all Awards to
be made to Eligible Employees recommended by the management
of the Corporation or its Subsidiaries in accordance with
and subject to the provisions of the Plan;
(b) The Committee shall, subject to the provisions of the Plan,
establish, adopt and revise such rules and procedures for
administering the Plan, shall prescribe the form of the
Award Agreements (which may vary from Participant to
Participant) evidencing each Award, and shall make all other
determinations as it may deem necessary or advisable for the
administration of the Plan;
(c) With the exception of the Nonqualified Stock Options granted
to Outside Directors pursuant to Article VIII, the Committee
shall, subject to the provisions of the Plan, determine the
number and type of Awards and all terms and conditions that
shall apply to such Awards, including, but not limited to,
the Performance Goals, the Performance Period and the
formula for the valuation of Performance Units in connection
with the Performance Unit Awards. The Committee may, in its
discretion, consider the recommendations of the management
of the Corporation or its Subsidiaries when determining such
terms and conditions for such Awards.
(d) The Committee shall have the exclusive authority to
interpret the provisions of the Plan, and each such
interpretation or determination shall be conclusive and
binding for all purposes and on all persons, including, but
not limited to, the Corporation and its Subsidiaries, the
stockholders of the Corporation and its Subsidiaries, the
Committee and each of its members thereof, the directors,
officers and employees of the Corporation and its
Subsidiaries, and the Participants and the respective
successors-in-interest of all of the foregoing;
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(e) The Committee shall keep minutes of its meetings regarding
the Plan and shall provide copies to the Board.
(f) With respect to the Replacement Options, the Committee
shall exercise its discretion to provide that the terms
and conditions of such Replacement Options are the same
as under the Control Data Corporation 1980 Stock Option
Plan or the Control Data Corporation 1990 Long-Term
Incentive Plan to the extent required by the Personnel
Agreement entered into by Ceridian Corporation
(formerly Control Data Corporation) and the Corporation
in connection with the transaction described in Section 2.26.
3.02 OPTIONS GRANTED TO OUTSIDE DIRECTORS. The Board shall have full
responsibility for administering all matters relating to the grant of
Nonqualified Stock Options to Outside Directors pursuant to Article
VIII of this Plan. No person who is not a "disinterested person" as
defined in Rule 16b-3, or any successor provision, as then in effect,
of the General Rules and Regulations under the Securities Exchange Act
of 1934, as amended, shall have any discretion over decisions relating
to Article VIII of the Plan that would cause the Plan to fail the
requirements of Section 16(b), or any successor provision, of the
Securities Exchange Act of 1934, as amended.
ARTICLE IV - STOCK SUBJECT TO PLAN
4.01 NUMBER. The total number of shares of Stock available for grants to
Participants directly or indirectly under all forms of Awards under
the Plan shall not exceed Three Million Two Hundred Thousand
(3,200,000) shares, except to the extent adjustments are made pursuant
to Section 4.03 of the Plan. Shares of Stock to be awarded may be
either treasury or authorized but unissued shares. During any Year,
no Participant shall be granted Incentive or Nonqualified Stock
Options for the purchase of more than 300,000 shares of Stock.
4.02 UNUSED SHARES. In the event a Restricted Stock Award, an Incentive
Stock Option Award or a Nonqualified Stock Option Award granted under
the Plan for any reason expires or is terminated prior to the exercise
thereof, the shares of Stock allocable to the unexercised portion of
such Restricted Stock Award, Incentive Stock Option or Nonqualified
Stock Option shall continue to become available for grants of
Restricted Stock Awards, Incentive Stock Options or Nonqualified Stock
Options under the Plan.
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4.03 CAPITAL ADJUSTMENTS. In the event of an increase or decrease in the
number of shares of Stock or in the event the Stock is changed into or
exchanged for a different number or kind of shares of stock or other
securities of the Corporation or of another corporation by reason of a
reorganization, merger, consolidation, divestiture (including a spin-
off), liquidation, recapitalization, reclassification, stock dividend,
stock split, combination of shares, rights offering or any other
change in the corporate structure or shares of the Corporation, the
Board (or, if the Corporation is not the surviving corporation in any
such transaction, the board of directors of the surviving
corporation), in its sole discretion, shall adjust the number and kind
of securities subject to and reserved under the Plan and, to prevent
the dilution or enlargement of rights of Participants and Outside
Directors, shall adjust the number and kind of securities subject to
outstanding Awards and, where applicable, the option price per share
for such securities. Additional shares which may be credited to such
outstanding Awards shall be subject to the same restrictions that
apply to the securities with respect to which the adjustment relates.
Notwithstanding the foregoing or any other provision in this Plan to
the contrary, and subject to Section 11.04 of Article XI, in the event
of a sale by the Corporation of substantially all of its assets and
the consequent discontinuance of its business or in the event of a
merger, consolidation, exchange, reorganization, reclassification,
extraordinary dividend, divestiture (including a spin-off) or
liquidation of the Corporation (collectively referred to as a
"transaction"), the Board may, in its sole discretion, provide for
none, one or more of the following, or may take such other action as
it deems appropriate:
(a) That all outstanding Incentive Stock Options and Nonqualified
Stock Options shall become exercisable in full;
(b) That this Plan shall terminate and that all outstanding Incentive
Stock Options and Nonqualified Stock Options not exercised prior
to a date specified by the Board (which date shall give
Participants a reasonable period of time in which to exercise
such Options prior to the effectiveness of such transaction)
shall be cancelled;
(c) That this Plan shall continue with respect to the exercise of
Incentive Stock Options and Nonqualified Stock Options which were
outstanding as of the date of Board's adoption of the plan for
such transaction and, if applicable, provide Participants and
Outside Directors the right to exercise their respective Options
as to an equivalent number of shares of stock of any corporation
succeeding the Corporation by reason of such transaction;
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(d) That Participants and Outside Directors holding outstanding
Incentive Stock Options and Nonqualified Stock Options shall
receive, with respect to each share of Stock subject to such
Options, as of the effective date of any such transaction, cash
in an amount equal to the excess of the Fair Market Value of such
Stock on the date immediately preceding the effective date of
such transaction over the option price per share of such Options;
provided that the Board may, in lieu of such cash payment,
distribute to such Participants and Outside Directors shares of
Stock of the Corporation or shares of stock of any corporation
succeeding the Corporation by reason of such transaction, such
shares having a value equal to the cash payment provided by this
Section 4.03(d);
(e) That all restrictions on the transferability of shares subject to
Restricted Stock Awards shall lapse;
(f) That, to the extent Performance Units granted under Article X
have vested prior to the effective date of the transaction as the
Committee, in its sole discretion, shall determine, Participants
shall receive payment for the value of such Performance Units as
provided in Sections 10.03 and 10.04;
provided, however, that the Board may restrict the rights of, or the
applicability of this Section 4.03 to, Section 16(b) Participants or
Outside Directors to the extent necessary to comply with the
requirements of Section 16(b) of the Securities Exchange Act of 1934,
or any successor provision. The grant of an Award pursuant to the Plan
shall not limit in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations or changes in its
capital or business structure or to merge, exchange or consolidate or
to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
ARTICLE V - PARTICIPATION
5.01 PARTICIPANTS. Participants in the Plan shall be those Eligible
Employees who, in the judgment of the Committee, following
recommendation by management of the Corporation or its Subsidiaries,
have performed, are performing or during the period of their Award
will perform, vital services in the management, operation and
development of the Corporation or its Subsidiaries, and have
significantly contributed, are significantly contributing or are
expected to significantly contribute to the achievement of long-term
corporate objectives. Participants may be granted from time to time
one or more
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Restricted Stock Awards, Performance Units, Incentive Stock Options,
or Nonqualified Stock Options; provided, however, that the grant of
each Award shall be separately approved by the Committee; and,
provided further, that the receipt of one such Award shall not result
in the automatic receipt of any other Award. Upon determination by
the Committee that an Award is to be granted to a participant, an
Award Agreement shall be executed by the Corporation and by such
Participant, specifying the terms, conditions, rights and duties
related thereto.
5.02 OUTSIDE DIRECTORS. Outside Directors shall be eligible to participate
in the Plan only to the extent provided in Article VIII, and the
Committee shall not exercise any discretion with respect to such
eligibility.
ARTICLE VI - INCENTIVE STOCK OPTIONS
6.01 GRANT OF INCENTIVE STOCK OPTIONS. In accordance with the provisions
of the Plan, the Committee shall approve, following recommendation by
management of the Corporation or its Subsidiaries, the Eligible
Employees to whom Incentive Stock Options shall be granted. The
Committee shall determine the number of shares to be subject to each
Incentive Stock Option, the time at which such Option shall be
granted, whether such Option shall be granted in exchange for the
cancellation and termination of a previously granted Incentive Stock
Option under the Plan or otherwise, the extent to which an Incentive
Stock Option may be exercisable upon the Participant's termination of
employment, which may differ depending upon the reason for such
termination, the manner in which an Incentive Stock Option may be
exercised and the form of the Award Agreement that shall evidence each
Incentive Stock Option. Except as otherwise provided in this Article
VI, the Committee shall determine the terms, conditions and other
provisions of each Award Agreement, which may vary from Participant to
Participant and which may contain such limitations and restrictions as
shall be necessary to ensure that such Option will be considered an
Incentive Stock Option as defined in Internal Revenue Code Section 422
or to conform to any change therein. Each Participant shall enter
into an Award Agreement with the Corporation with respect to the grant
of each Incentive Stock Option.
6.02 OPTION PRICE. To the extent required to qualify the Option as an
Incentive Stock Option under Internal Revenue Code Section 422, the
option price per share shall not be less than one hundred percent
(100%) of the Fair Market Value of one share of Stock as of the Date
of Grant except that, if a Participant owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation or its
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Affiliate, the option price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value of one share of
Stock as of the Date of Grant.
6.03 DURATION AND EXERCISE OF OPTIONS.
(a) DURATION OF INCENTIVE STOCK OPTIONS. The period during
which an Incentive Stock Option granted under the Plan may
be exercised shall be established by the Committee, and
shall be set forth in the Award Agreement, but in no event
shall any Incentive Stock Option be exercisable during a
term of more than ten (10) years after the Date of Grant;
provided, however, that if a Participant owns stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation or
its Affiliate, the Incentive Stock Option shall be
exercisable during a period of not more than five (5) years
after the Date of Grant.
(b) EXERCISABILITY OF INCENTIVE STOCK OPTIONS.
(1) The Committee shall have discretion to determine when
an Incentive Stock Option becomes exercisable and may
provide that the Incentive Stock Option shall become
exercisable in installments. If the Participant does
not purchase in any year the full number of shares
which the Participant is entitled to purchase in that
year, the Participant may, if provided in the Award
Agreement, purchase in any subsequent year such
previously unpurchased shares in addition to those that
the Participant is otherwise entitled to purchase.
(2) In the event an Incentive Stock Option is immediately
exercisable at the Date of Grant, the manner of
exercising such Option in the event it is not exercised
in full immediately shall be specified in the Award
Agreement.
(3) The Committee may accelerate the exercise date of any
Incentive Stock Option which is not immediately
exercisable at the Date of Grant as the Committee, in
its discretion, deems advisable.
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(4) The Award Agreement shall set forth all provisions
relating to the exercisability of Incentive Stock
Options.
6.04 PAYMENT OF OPTION PRICE. Upon the exercise of any Incentive Stock
Option granted pursuant to this Plan, the purchase price for such
shares of Stock subject to such Option shall be paid in cash unless
the Committee, in its sole discretion and subject to any applicable
rules or regulations it may adopt, allows such payment to be made, in
whole or in part, by the transfer from the Participant to the
Corporation of previously acquired shares of Stock. Any Stock so
transferred shall be valued at Fair Market Value on the day
immediately preceding the effective exercise of the Incentive Stock
Option. For purposes of this Section 6.04, "previously acquired
shares of Stock" shall include shares of Stock that are already owned
by the Participant at the time of exercise.
In addition to the foregoing, with respect to Incentive Stock Options
granted pursuant to this Plan after January 31, 1996, the Committee
may, in its sole discretion and subject to any applicable rules or
regulations it may adopt, allow such payment to be made, in whole or
in part, in installments or by having the Participant execute a
promissory note containing such terms as the Committee may deem
appropriate.
6.05 RIGHTS AS A SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Stock subject to an
Incentive Stock Option until the Participant becomes the holder of
record of such shares. Except as provided in Section 4.03, no
adjustments shall be made for dividends or other cash distributions or
for other rights that have a record date preceding the date the
Participant becomes the holder of record of such shares of Stock.
ARTICLE VII - NONQUALIFIED STOCK OPTIONS
7.01 GRANT OF NONQUALIFIED STOCK OPTIONS. In accordance with the
provisions of the Plan, the Committee shall approve, following
recommendation by management of the Corporation or its Subsidiaries,
the Eligible Employees to whom Nonqualified Stock Options shall be
granted under this Article VII. The Committee shall determine the
number of shares to be subject to each Nonqualified Stock Option, the
time at which such Option shall be granted, whether such Option shall
be granted in exchange for the cancellation and termination of a
previously granted Nonqualified Stock Option under the Plan or
otherwise, the extent to which a Nonqualified Stock Option may be
exercisable upon the Participant's termination of employment, which
may
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differ depending upon the reason for such termination, the manner in
which a Nonqualified Stock Option may be exercised and the form of the
Award Agreement that shall evidence each Nonqualified Stock Option.
Except as otherwise provided in this Article VII, the Committee shall
determine the terms, conditions and other provisions of each Award
Agreement, which may vary from Participant to Participant. Each
Participant shall enter into an Award Agreement with the Corporation
with respect to the grant of each Nonqualified Stock Option.
7.02 OPTION PRICE. Unless otherwise determined by the Committee, the
option price per share shall not be less than one hundred percent
(100%) of the Fair Market Value of one share of Stock as of the Date
of Grant.
7.03 DURATION AND EXERCISE OF OPTIONS.
(a) DURATION OF NONQUALIFIED STOCK OPTIONS. The period during
which a Nonqualified Stock Option granted under the Plan may be
exercised shall be established by the Committee, and shall be set
forth in the Award Agreement, but in no event shall any
Nonqualified Stock Option be exercisable during a term of more
than ten (10) years after the Date of Grant.
(b) EXERCISABILITY OF NONQUALIFIED STOCK OPTIONS.
(1) The Committee shall have discretion to determine when a
Nonqualified Stock Option becomes exercisable and may
provide that the Nonqualified Stock Option shall become
exercisable in installments. If the Participant does
not purchase in any year the full number of shares
which the Participant is entitled to purchase in that
year, the Participant may, if provided in the Award
Agreement, purchase in any subsequent year such
previously unpurchased shares in addition to those that
the Participant is otherwise entitled to purchase.
(2) In the event an Nonqualified Stock Option is
immediately exercisable at the Date of Grant, the
manner of exercising such Option in the event it is not
exercised in full immediately shall be specified in the
Award Agreement.
(3) The Committee may accelerate the exercise date of any
Nonqualified Stock Option which is not immediately
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exercisable at the Date of Grant as the Committee, in
its discretion, deems advisable.
(4) The Award Agreement shall set forth all provisions
relating to the exercisability of Nonqualified Stock
Options.
7.04 PAYMENT OF OPTION PRICE. Upon the exercise of any Nonqualified Stock
Option granted pursuant to this Plan, the purchase price for such
shares of Stock subject to such Option shall be paid in cash unless
the Committee, in its sole discretion and subject to any applicable
rules or regulations it may adopt, allows such payment to be made, in
whole or in part, by the transfer from the Participant to the
Corporation of previously acquired shares of Stock. Any Stock so
transferred shall be valued at Fair Market Value on the day
immediately preceding the effective exercise of the Nonqualified Stock
Option. For purposes of this Section 7.04, "previously acquired
shares of Stock" shall include shares of Stock that are already owned
by the Participant at the time of exercise.
In addition to the foregoing, for any Nonqualified Stock Option
granted pursuant to this Plan, the Committee may, in its sole
discretion and subject to any applicable rules or regulations it may
adopt, allow such payment to be made, in whole or in part, in
installments or by having the Participant execute a promissory note
containing such terms as the Committee may deem appropriate.
7.05 RIGHTS AS A SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Stock subject to a
Nonqualified Option until the Participant becomes the holder of record
of such shares. Except as provided in Section 4.03, no adjustments
shall be made for dividends or other cash distributions or for other
rights that have a record date preceding the date the Participant
becomes the holder of record of such shares of Stock.
ARTICLE VIII - NONQUALIFIED STOCK OPTIONS
FOR OUTSIDE DIRECTORS
8.01 GRANT OF NONQUALIFIED STOCK OPTIONS. All grants of Nonqualified Stock
Options to Outside Directors under this Article VIII shall be
automatic and nondiscretionary and shall be made strictly in
accordance with the following provisions:
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(a) No person shall have any discretion to select the Outside
Directors that shall be eligible for Nonqualified Stock
Options or to determine the number of shares of Stock to be
subject to such Options, the option price per share or the
Date of Grant.
(b) Each Outside Director shall be granted a Nonqualified Stock
Option to purchase twenty-five thousand (25,000) shares of
Stock on the Date of Grant. For purposes of this Section
8.01(b), the Date of Grant shall be the later of (i) the
date that is thirty (30) days after the Transaction Date,
and (ii) the date that the Outside Director first becomes
elected to the Board.
(c) Beginning with the 1994 annual stockholders' meeting and
each annual stockholders' meeting thereafter, each Outside
Director shall, upon his or her reelection to the Board,
receive a Nonqualified Stock Option to purchase five
thousand (5,000) shares of Stock on the Date of Grant. For
purposes of this Section 8.01(c), the Date of Grant shall be
the date of the annual stockholders' meeting.
8.02 OPTION PRICE. The option price per share shall be one hundred percent
(100%) of the Fair Market Value of one share of Stock as of the Date
of Grant.
8.03 DURATION AND EXERCISE OF OPTIONS.
(a) DURATION OF OPTIONS. Except as otherwise provide in this
Plan, the period during which a Nonqualified Stock Option
granted to Outside Directors under this Article VIII may be
exercised shall be ten (10) years after the Date of Grant.
(b) EXERCISABILITY OF NONQUALIFIED STOCK OPTIONS. All
Nonqualified Stock Options granted to Outside Directors
shall become exercisable with respect to one-third of the
shares subject to the Nonqualified Stock Options on each of
the three succeeding anniversaries of the Date of Grant. If
the Outside Director does not purchase in any year the full
number of shares which the Outside Director is entitled to
purchase in that year, the Outside Director shall be
entitled to purchase in any subsequent year such previously
unpurchased shares in addition to those shares the Outside
Director is otherwise entitled to purchase.
8.04 MANNER OF OPTION EXERCISE. A Nonqualified Stock Option may be
exercised by an Outside Director in whole or in part, subject to the
conditions of this
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Plan and subject to such other administrative rules as the Board may
deem advisable, by delivering to the office of the Treasurer of the
Corporation written notice of the number of whole shares with respect
to which the Nonqualified Stock Option is being exercised and by
paying the purchase price for such shares in full. The exercise of
the Nonqualified Stock Option shall be deemed effective upon receipt
of such notice by the Corporation's Treasurer (or such individual as
the Treasurer shall designate in writing) and upon payment that
complies with the terms of this Plan. As soon as practicable after
the effective exercise of the Nonqualified Stock Option, the Outside
Director shall be recorded on the stock transfer books of the
Corporation as the owner of the shares purchased and the Corporation
shall deliver to the Outside Director one or more duly issued stock
certificates evidencing such ownership.
8.05 PAYMENT OF OPTION PRICE. Upon the exercise of any Nonqualified Stock
Option granted to an Outside Director pursuant to this Article VIII,
the purchase price for such shares of Stock subject to such Option
shall be paid in cash unless the Board, in its sole discretion and
subject to any applicable rules or regulations it may adopt, allows
such payment to be made, in whole or in part, by the transfer from the
Outside Director to the Corporation of previously acquired shares of
Stock. Any Stock so transferred shall be valued at Fair Market Value
on the day immediately preceding the effective exercise of the
Nonqualified Stock Option. For purposes of this Section 8.05,
"previously acquired shares of Stock" shall include shares of Stock
that are already owned by the Outside Director at the time of
exercise.
In addition to the foregoing, for any Nonqualified Stock Option
granted pursuant to this Article VIII, the Board may, in its sole
discretion and subject to any applicable rules or regulations it may
adopt, allow such payment to be made, in whole or in part, in
installments or by having the Participant execute a promissory note
containing such terms as the Board may deem appropriate.
8.06 RIGHTS AS A SHAREHOLDER. The Outside Director shall have no rights as
a shareholder with respect to any shares of Stock subject to a
Nonqualified Stock Option until the Outside Director becomes the
holder of record of such shares. Except as provided in Section 4.03,
no adjustments shall be made for dividends or other cash distributions
or for other rights that have a record date preceding the date the
Outside Director becomes the holder of record of such shares of Stock.
8.07 COMPLIANCE WITH RULE 16b-3. All Nonqualified Stock Options granted to
Outside Directors must comply with the applicable provisions of Rule
16b-3, or any successor provision, as then in effect, of the General
Rules and
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Regulations of the Securities Exchange Act of 1934, as amended from
time to time.
8.08 TERMINATION OF STATUS AS A DIRECTOR. In the event that an Outside
Director's membership on the Board terminates, the following
provisions shall apply:
(a) If the Outside Director's membership on the Board terminates
because of death, any Nonqualified Stock Option granted to
such Outside Director shall become immediately exercisable
in full and may be exercised by the Outside Director's
estate or by a person who acquired the right to exercise
such Option by bequest or inheritance for the duration of
such Option.
(b) If the Outside Director's membership on the Board terminates
because of disability, the Outside Director shall be
entitled to exercise any Nonqualified Stock Option to the
extent such Option was exercisable as of the date such
Outside Director's membership on the Board is terminated by
reason of disability for a period of twelve (12) months
following the date of such termination unless such Option,
by its terms, expires before the end of such twelve-month
period. To the extent that such Option was not exercisable
as of the date the Outside Director's membership on the
Board terminates because of disability, or if the Outside
Director does not exercise the Nonqualified Stock Option
within the twelve-month period specified in this Section
8.08(b), all rights of the Outside Director under such
Option shall be forfeited. For purposes of this Section
8.08(b), "disability" shall mean a mental or physical
condition of the Outside Director, resulting from illness,
injury or disease which, as determined by the Board, causes
the Outside Director to resign from the Board and is
reasonably expected to be of long and indefinite duration or
result in death.
(c) If the Outside Director's membership on the Board terminates
for any reason other than the Outside Director's death or
disability, the Outside Director shall be entitled to
exercise any Nonqualified Stock Option to the extent such
Option was exercisable as of the date of such termination
for a period of ninety (90) days following the date of such
termination unless such Option, by its terms, expires before
the end of such ninety-day period. To the extent that the
Nonqualified Stock Option is not exercisable as of the date
the Outside Director's membership on the Board terminates
for any reason other than death or disability, or if the
Outside Director does not exercise such
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Option within the time specified in this Section 8.08(c),
all rights of the Outside Director under such Option shall
be forfeited.
8.09 INVESTMENT PURPOSE. The Corporation shall require, as a condition to
the grant and exercise of any Nonqualified Stock Option pursuant to
this Article VIII, that any Stock acquired pursuant to such
Nonqualified Stock Option shall be acquired only for investment if, in
the opinion of counsel for the Corporation, such condition is required
or deemed advisable under securities laws or any other applicable law,
regulation or rule of any government or governmental agency. In this
regard, if requested by the Corporation, the Outside Director, prior
to the acquisition of any shares of Stock pursuant to any Nonqualified
Stock Option, shall execute an investment letter to the effect that
the Outside Director is acquiring shares of Stock pursuant to such
Option for investment purposes only and not with the intention of
making any distribution of such shares and will not dispose of the
shares in violation of the applicable federal and state securities
laws.
ARTICLE IX - RESTRICTED STOCK AWARDS
9.01 GRANT OF RESTRICTED STOCK AWARDS. In accordance with the provisions of
the Plan, the Committee shall approve, following recommendation by
management of the Corporation or its Subsidiaries, the Eligible
Employees to whom Restricted Stock Awards shall be granted, shall
determine the number of shares to be subject to each Restricted Stock
Award, the time at which the Restricted Stock Award is to be granted,
the manner in which restrictions on the transferability of shares of
Stock represented by the Restricted Stock Award will lapse including
the extent to which such restrictions may lapse upon the Participant's
termination of employment, which may differ depending upon the reason
for such termination, subject to the provisions of Section 9.03, and
such other provisions of the Restricted Stock Award as the Committee
may deem necessary or desirable. The Committee shall determine the
form of Award Agreement that shall evidence each Restricted Stock
Award and shall determine the terms, conditions and other provisions
of each Award Agreement, which may vary from Participant to
Participant. Each participant shall enter into an Award Agreement
with the Corporation with respect to the grant of each Restricted
Stock Award.
9.02 RESTRICTIONS ON TRANSFER. The shares of Stock awarded pursuant to a
Restricted Stock Award shall be subject to the following restrictions:
(a) No such share of Stock may be sold, transferred, assigned,
pledged, encumbered or otherwise alienated or hypothecated
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unless and only to the extent that restrictions shall have
lapsed in accordance with the Plan and the Award Agreement.
(b) Upon the grant of a Restricted Stock Award, the Corporation
shall cause to be issued stock certificates representing the
shares subject to such Restricted Stock Award in the
Participant's name. The Corporation shall hold such stock
certificates until the restrictions set forth in Sections
9.02(a) and 9.02(b) lapse in accordance with the Plan and
the Award Agreement. Once the restrictions have lapsed with
respect to all or part of the shares subject to the
Restricted Stock Award, such stock certificates shall be
distributed to the Participant.
(c) Notwithstanding the provisions of Section 9.02(c), and
subject to any terms, conditions or other restrictions set
forth in the Award Agreement, a Participant receiving a
Restricted Stock Award shall, as of the Date of Grant, have
the right to vote such shares of Stock and to receive
dividends and other distributions made with respect to such
shares, but the Participant shall not, unless otherwise
determined by the Committee, have any other rights as a
shareholder. The terms, conditions and restrictions set
forth in the Award Agreement shall also apply to any
additional shares of Stock received by a Participant as the
result of any dividend paid on the shares of Stock subject
to the Restricted Stock Award or as the result of any stock
split, stock distribution or combination of shares that
affects the shares of Stock subject to the Restricted Stock
Award.
9.03 LAPSING OF RESTRICTIONS. The Committee shall have the discretion to
determine the times and extent to which restrictions on the
transferability of shares under each Restricted Stock Award shall
lapse, and the Award Agreement shall set forth all provisions relating
to the lapsing of such restrictions.
9.04 MODIFICATION OF LAPSING SCHEDULE. The Committee may, in its sole
discretion, modify the rate at which restrictions on transferability
of shares under a Restricted Stock Award shall lapse. Any such
modification shall apply only to those shares of Stock which are
restricted as of the effective date of the modification, and shall be
reflected in a resolution adopted by the Committee and, if deemed
appropriate by the Committee, in an amendment to any Award Agreement
with respect to which it applies.
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ARTICLE X - PERFORMANCE UNITS
10.01 GRANT OF PERFORMANCE UNITS. In accordance with the provisions of the
Plan, the Committee shall approve, following recommendation by the
management of the Corporation or its Subsidiary, the Eligible
Employees to whom Performance Unit Awards shall be granted, and shall
determine the number of Performance Units to be subject to each
Performance Unit Award, the time at which such Performance Unit Award
shall be granted, the extent to which Performance Units may vest upon
the Participant's termination of employment, which may differ
depending upon the reason for such termination, and such other
provisions of the Performance Unit Award as the Committee may deem
necessary or desirable. The Committee shall determine the form of
Award Agreement that shall evidence each Performance Unit Award and
shall determine the terms, conditions and other provisions of each
Award Agreement, which may vary from Participant to Participant. Each
Participant shall enter into an Award Agreement with the Corporation
with respect to the grant of each Performance Unit Award.
10.02 VESTING OF PERFORMANCE UNITS. Each Performance Unit Award Agreement
shall set forth:
(a) The Performance Period over which Performance Units may
vest;
(b) The initial and cumulative Performance Goals which must be
satisfied prior to vesting of any portion of the Performance
Units represented by the Performance Unit Award. Unless
otherwise determined by the Committee, such Performance Unit
goals shall, for purposes of valuing each Performance Unit
under Section 10.03, include threshold, target, superior and
exceptional levels.
(c) The vesting schedule with respect to the Performance Units,
which, unless otherwise determined by the Committee, shall
be as follows:
(i) Upon the completion of the first full calendar year of
the Performance Period and the attainment of the
initial threshold Performance Goal, twenty-five percent
(25%) of the total number of Performance Units
comprising the Participant's Performance Unit Award
shall vest and become immediately payable to the
Participant in accordance with Sections 10.03 and
10.04. In the event
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such initial Performance Goal is not satisfied, such
percentage of the Performance Units awarded to the
Participant shall be immediately forfeited and shall no
longer be eligible for vesting and payment to the
Participant.
(ii) Upon completion of the second full calendar year of the
Performance Period and the attainment of the cumulative
threshold Performance Goal for that two-year period,
twenty-five percent (25%) of the total number of
Performance Units comprising the Participant's
Performance Unit Award shall vest and become
immediately payable to the Participant in accordance
with Sections 10.03 and 10.04. In the event such
cumulative Performance Goal is not satisfied, such
percentage of Performance Units awarded to the
Participant shall be immediately forfeited and shall no
longer be eligible for vesting and payment to the
Participant.
(iii) Upon completion of the third full calendar year of the
Performance Period and the attainment of the cumulative
threshold Performance Goal for that three-year period,
fifty percent (50%) of the total number of Performance
Units comprising the Participant's Performance Unit
Award shall vest and become immediately payable to the
Participant in accordance with Sections 10.03 and
10.04. In the event such cumulative Performance Goal is
not satisfied, such percentage of Performance Units
awarded to the Participant shall be immediately
forfeited and no longer be eligible for vesting and
payment to the Participant.
10.03 VALUATION OF PERFORMANCE UNITS. The dollar value of each Performance
Unit that becomes vested and payable to a Participant pursuant to
Section 10.02(c) shall be determined on the basis of a graduated
valuation scale set forth in the Award Agreement in accordance with
the corresponding Performance Goals.
10.04 PAYMENT OF PERFORMANCE UNIT AWARDS. The value of Performance Units
that have vested shall be paid to the Participant within sixty (60)
calendar days after the Committee determines whether the applicable
Performance Goal has been attained. Such payment may, at the
discretion of the Committee, be made in cash, shares of Stock or a
combination thereof. Any payment to be made to a Participant shall be
subject to the applicable withholding requirements described in
Section 15.06.
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ARTICLE XI - CHANGE OF CONTROL
11.01 DEFINITIONS. For purposes of this Article XI, the following
definitions shall apply:
(a) "CHANGE OF CONTROL" shall mean any of the following events:
(1) A merger or consolidation to which the Corporation is a
party if the individuals and entities who were
shareholders of the Corporation immediately prior to
the effective date of such merger or consolidation
have, immediately following the effective date of such
merger or consolidation, beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of less than fifty percent (50%) of the total
combined voting power of all classes of securities
issued by the surviving corporation for the election of
directors of the surviving corporation;
(2) The direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of
1934) of securities of the Corporation representing, in
the aggregate, twenty percent (20%) or more of the
total combined voting power of all classes of the
Corporation's then issued and outstanding securities by
any person or entity or by a group of associated
persons or entities acting in concert;
(3) The sale of the properties and assets of the
Corporation substantially as an entirety, to any person
or entity which is not a wholly-owned subsidiary of the
Corporation;
(4) The shareholders of the Corporation approve any plan or
proposal for the liquidation of the Corporation; or
(5) A change in the composition of the Board at any time
during any consecutive twenty-four (24) month period
such that the "Continuity Directors" cease for any
reason to constitute at least a seventy percent (70%)
majority of the Board. For purposes of this event,
"Continuity Directors" means those members of the Board
who either:
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(i) were directors at the beginning of such
consecutive twenty-four (24) month period; or
(ii) were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board of Directors.
(b) "CHANGE OF CONTROL ACTION" shall mean any payment (including
any benefit or transfer of property) in the nature of
compensation to or for the benefit of a Participant or
Outside Director under any arrangement which is considered
to be contingent on a Change of Control for purposes of
Internal Revenue Code Section 280G. As used in this
definition, the term "arrangement" means any agreement
between a Participant or Outside Director and the
Corporation or its Subsidiary and shall include, without
limitation, any and all of the Corporation or Subsidiary's
salary, bonus, incentive, restricted stock, stock option,
compensation or benefit plans, programs or arrangements and
this Plan.
(c) "CHANGE OF CONTROL TERMINATION" shall mean, with respect to
a Participant, any of the following events occurring within
two (2) years after a Change of Control:
(1) The termination of the Participant's employment by the
Corporation or its Subsidiary for any reason, with or
without cause, except for conduct by the Participant
constituting (i) a felony involving moral turpitude
under either federal law or the law of the state of the
Corporation's incorporation or (ii) the Participant's
willful failure to fulfill his employment duties with
the Corporation or its Subsidiary; provided, however,
that for purposes of this clause (ii), an act or
failure to act by the Participant shall not be
"willful" unless it is done, or omitted to be done, in
bad faith and without any reasonable belief that the
Participant's action or omission was in the best
interests of the Corporation or its Subsidiary; or
(2) The termination of employment with the Corporation or
its Subsidiary by the Participant for Good Reason.
(d) "GOOD REASON" shall mean a good faith determination by the
Participant, in the Participant's sole and absolute
judgment, that
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<PAGE>
any one or more of the following events has occurred without
the Participant's express written consent after a Change of
Control:
(1) A change in the Participant's reporting
responsibilities, titles or offices as in effect
immediately prior to the Change of Control, or any
removal of the Participant from or any failure to re-
elect the Participant to any of such positions, which
has the effect of diminishing the Participant's
responsibility or authority;
(2) A reduction by the Corporation or its Subsidiary in the
Participant's base salary as in effect immediately
prior to the Change of Control or as the same may be
increased from time to time thereafter;
(3) A requirement imposed by the Corporation or its
Subsidiary on the Participant that results in the
Participant being based at a location that is outside
of a twenty-five (25) radius mile of the Participant's
job location at the time of the Change of Control;
(4) Without the adoption of a replacement plan, program or
arrangement that provides benefits to the Participant
that are equal to or greater than those benefits that
are discontinued or adversely affected:
(a) The failure by the Corporation or Subsidiary to
continue in effect, within its maximum stated
term, any pension, bonus, incentive, stock
ownership, purchase, option, life insurance,
health, accident, disability, or any other
employee compensation or benefit plan, program or
arrangement, in which the Participant is
participating immediately prior to a Change of
Control; or
(b) The taking of any action by the Corporation or
its Subsidiary that would adversely affect the
Participant's participation or materially reduce
the Participant's benefits under any of such
plans, programs or arrangements; or
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<PAGE>
(5) Any action by the Corporation or its Subsidiary that
would materially adversely affect the physical
conditions existing at the time of the Change of
Control in or under which the Participant performs his
or her employment duties; or
(6) If the Participant's primary employment duties are with
a Subsidiary of the Corporation, the sale, merger,
contribution, transfer or any other transaction
relating to the Corporation's ownership interest in
such Subsidiary and which decreases such ownership
interest below the level specified in Section 2.25; or
(7) Any material breach by the Corporation or its
Subsidiary of any employment agreement between the
Participant and the Corporation or its Subsidiary.
"Good Reason" shall not include the Participant's death or a
termination for any reason other than the events specified
in clauses (1) through (7) above.
With respect to an Outside Director, "Change of Control
Termination" shall mean the termination of the Outside
Director's status as a member of the Board for any reason
within two (2) years after a Change of Control.
11.02 ACCELERATION OF VESTING/PUT OPTION. Subject to the "Limitation on
Change of Control Compensation" contained in Section 11.03, in the
event of a Change of Control Termination of a Participant or Outside
Director, and without further action of the Board, the Committee or
otherwise:
(a) Each Incentive Stock Option or Nonqualified Stock Option
granted to such Participant or Outside Director pursuant to
this Plan shall become immediately exercisable in full and
shall remain exercisable until the expiration of such Option
according to its terms;
(b) All restrictions on the transferability of shares of Stock
subject to each Restricted Stock Award granted to such
Participant shall immediately lapse and be of no further
force or effect;
(c) Within thirty (30) days following the Change of Control
Termination, the Participant may, by written election
delivered to an officer of the Corporation, require the
Corporation to
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<PAGE>
purchase, within five (5) days following delivery of the
election, the shares of the Participant's Stock with respect
to which restrictions have lapsed in accordance with Section
11.02(b), at a price equal to the Fair Market Value of such
shares of Stock on the day prior to the Change of Control;
provided, however, that if a Participant is a Section 16(b)
Participant and if the Change of Control Termination occurs
within the six (6) month period following the later of the
Participant's most recent purchase of Stock which is subject
to Section 16(b) of the 1934 Act or the grant of the
applicable Restricted Stock Award, then the Participant
shall be entitled to deliver the written election specified
herein within thirty (30) days following the expiration of
such six-month period, and the thirty-five (35) day period
referenced in clause Section 11.02(d) shall commence upon
the expiration of such six-month period. For purposes of
this Section 11.02(c), a "purchase of Stock which is subject
to Section 16(b) of the 1934 Act" shall, to the extent
provided by Section 16(b), or any successor provision, of
the Securities Exchange Act of 1934 and the General Rules
and Regulations issued thereunder, include the establishment
of or increase in a call equivalent position or the
liquidation of or decrease in a put equivalent position with
respect to such Stock.
(d) To the extent a Participant has not sold shares of Stock to
the Corporation pursuant to Section 11.02(c), certificates
for such shares of Stock, with no restrictive language,
shall be delivered to the Participant within thirty-five
(35) days following the Change of Control Termination.
11.03 LIMITATION ON CHANGE OF CONTROL COMPENSATION. A Participant or
Outside Director shall not be entitled to receive any Change of
Control Action which would, with respect to the Participant or Outside
Director, constitute a "parachute payment" for purposes of Internal
Revenue Code Section 280G. In the event any Change of Control Action
would, with respect to the Participant or Outside Director, constitute
a "parachute payment," the Participant or Outside Director shall have
the right to designate those Change of Control Action(s) which would
be reduced or eliminated so that the Participant or Outside Director
will not receive a "parachute payment."
11.04 LIMITATIONS ON COMMITTEE'S AND BOARD'S ACTIONS. Prior to a Change of
Control, Participants and Outside Directors shall have no rights under
this Article XI, and the Board shall have the power and right, within
its sole discretion, by a resolution adopted by a two-thirds (2/3)
majority to rescind, modify or amend this Article XI without the
consent of any Participant or
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<PAGE>
Outside Director. In all other cases, and notwithstanding the
authority granted to the Committee or Board to exercise discretion in
interpreting, administering, amending or terminating this Plan,
neither the Committee nor the Board shall, following a Change of
Control, have the power to exercise such authority or otherwise take
any action which is inconsistent with the provisions of this Article
XI.
Notwithstanding anything in this Article XI to the contrary, the Board
may restrict the rights of, or the applicability of this Article XI
to, Section 16(b) Participants or Outside Directors to the extent
necessary to comply with the requirements of Section 16(b) of the
Securities Exchange Act of 1934, or any successor provision.
ARTICLE XII - RIGHTS OF ELIGIBLE EMPLOYEES AND PARTICIPANTS
12.01 RELATIONSHIP TO EMPLOYMENT. Nothing contained in the Plan, nor in any
Award granted pursuant to the Plan, shall confer upon any Participant
any right with respect to continuance of employment by the Corporation
or its Subsidiaries, nor interfere in any way with the right of the
Corporation or its Subsidiaries to terminate the Participant's
employment at any time.
12.02 NONTRANSFERABILITY OF AWARD. No Incentive Stock Options, Restricted
Stock Awards or Performance Units shall be transferable, in whole or
in part, by the Participant, either voluntarily or involuntarily,
except by will or the laws of descent or distribution. If the
Participant attempts to transfer an Incentive Stock Option, Restricted
Stock Award or Performance Unit, or any portion of such Option, Award
or Unit, such transfer shall be void and the Incentive Stock Option,
Restricted Stock Award or Performance Unit shall terminate. An
Incentive Stock Option shall be exercisable during the Participant's
lifetime only by the Participant or by such Participant's guardian or
other legal representative.
Subject to the approval of the Committee, or, in the case of Outside
Directors, subject to the approval of the Board, Nonqualified Stock
Options granted under the Plan may be transferred, for no
consideration, by the Participant or the Outside Director to a member
of the Participant's or the Outside Director's immediate family, to a
trust for the benefit of such family members or to a partnership in
which such family members are the only partners. The family member to
whom, or the trust or partnership to which, a Nonqualified Stock
Option has been transferred shall not be permitted to subsequently
transfer the Option, either voluntarily or involuntarily, unless such
transfer is to another family member, trust or partnership which meets
the requirements of this
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<PAGE>
Section 12.02. No other transfers of Nonqualified Stock Options, in
whole or in part, by the Participant or the Outside Director shall be
permitted, voluntarily or involuntarily, except by will or the laws of
descent and distribution. If the Participant or Outside Director
attempts to transfer a Nonqualified Stock Option, or any portion of
such Option, in a manner not permitted by this Section 12.02, such
transfer shall be void and the Nonqualified Stock Option shall
terminate.
Notwithstanding anything in this Section 12.02 to the contrary, the
Board may prohibit Outside Directors from transferring Nonqualified
Stock Options granted under the Plan to the family members, trusts or
partnerships described above if the Board determines that prohibiting
such transfers is necessary for the Outside Director to be a
"disinterested person" as defined in Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, or to otherwise
comply with the requirements of Section 16(b), or any successor
provision of the Securities Exchange Act of 1934, as amended.
ARTICLE XIII - AMENDMENT OR MODIFICATION
13.01 AUTHORITY TO AMEND AND PROCEDURE. Subject to the provisions of
Article XI and Section 13.02, the Board or the Committee may, at any
time and without further action on the part of the shareholders of the
Corporation, terminate this Plan or make such amendments thereto as it
deems advisable and in the best interests of the Corporation or its
Subsidiaries; provided, however, that no such termination or amendment
shall, without the consent of a Participant, materially adversely
affect or impair the right of a Participant with respect to an Award
already granted; and provided, further, that unless the shareholders
of the Corporation shall have approved the same, no amendment shall,
either directly or indirectly:
(a) Materially increase the total number of shares of Stock that
may be awarded under this Plan to all Participants and
Outside Directors, except for adjustments described in
Section 4.03 of this Plan;
(b) Materially increase the benefits accruing to Participants
and Outside Directors under the Plan; or
(c) Materially modify the requirements as to eligibility for
participation in the Plan.
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13.02 LIMITATIONS. In no event shall the Board or the Committee, either
directly or indirectly, amend the provisions of Article VIII relating
to Nonqualified Stock Options that are granted to Outside Directors
more frequently than once every six (6) months, unless such amendment
is required to comply with changes in the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, or
the Internal Revenue Code and the regulations thereunder.
ARTICLE XIV - EFFECTIVE DATE AND DURATION OF PLAN
14.01 EFFECTIVE DATE OF PLAN. The Plan shall be deemed effective upon its
adoption by the Board. Incentive Stock Options, Nonqualified Stock,
Restricted Stock Awards and Performance Unit Awards may be granted
under the Plan immediately upon adoption of the Plan by the Board.
14.02 DURATION OF THE PLAN. The Plan shall terminate at midnight on July 9,
2002, except as to Awards previously granted and outstanding under the
Plan at that date, and no further Awards shall be granted thereafter.
The Plan may be abandoned or terminated at any earlier time by the
Board or the Committee, except with respect to any Awards then
outstanding under the Plan.
ARTICLE XV - GENERAL PROVISIONS
15.01 CONSTRUCTION AND HEADINGS. The headings of the Articles, Sections and
their subparts within the Plan are for convenience only and are not
meant to be of substantive significance, and such headings shall not
add to or detract from the meaning of such Article, Section or
subpart.
15.02 GOVERNING LAW. The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the laws of the
State of Minnesota, without regard to the conflict of laws provisions
of any jurisdiction.
15.03 SUCCESSOR AND ASSIGNS. This Plan shall be binding upon and inure to
the benefit of the successors and assigns of the Corporation and its
Subsidiaries, including, without limitation, whether by way of merger,
consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the
Corporation or any of its Subsidiaries, and any and all such
successors and assigns shall absolutely and unconditionally assume all
of the Corporation's or the Subsidiary's obligations hereunder;
provided,
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however, that this Section 15.03 shall not apply with respect to the
successors or assigns of a Subsidiary in the event that, prior to a
Change of Control, the Subsidiary is sold, merged, contributed or in
any other manner transferred or for any other reason ceases to be a
Subsidiary of the Corporation.
15.04 SURVIVAL OF PROVISIONS. The rights, remedies, agreements, obligations
and covenants of the parties contained in or made pursuant to the
Plan, any Award Agreement and any other notices or agreements in
connection therewith, including, without limitation, any notice of
exercise of an Incentive Stock Option or a Nonqualified Stock Option,
shall survive the execution and delivery of such notices and
agreements and shall survive the exercise of any Incentive Stock
Option or Nonqualified Stock Option, the payment of such Option's
exercise price and the delivery and receipt of the shares of Stock
subject to such Option, and shall remain in full force and effect.
15.05 ABSENCE OF LIABILITY OF DIRECTORS AND COMMITTEE MEMBERS. No member of
the Board or of the Committee shall be liable, with respect to this
Plan, for any act, whether by commission or omission, taken by any
other member of the Board or the Committee, or by any officer, agent,
or employee of the Corporation or its Subsidiaries, nor shall any
member of the Board or the Committee be liable, except in
circumstances involving such member's own bad faith, for anything done
or omitted to be done by any person in connection with this Plan.
15.06 WITHHOLDING TAXES. The Corporation or its Subsidiaries is entitled
to:
(a) Withhold and deduct from future wages of a Participant (or
from other amounts which may be due and owing from a
Participant to the Corporation or the Subsidiary), or make
other arrangements for the collection of, all legally
required amounts necessary to satisfy any and all federal,
state and local withholding and employment-related tax
requirements attributable to the Participant's exercise of a
Nonqualified Stock Option or attributable to the lapse of
restrictions on a Restricted Stock Award or otherwise
incurred with respect to any other provisions of the Plan;
or
(b) Require the Participant promptly to remit the amount of such
tax requirements to the Corporation or the Subsidiary before
acting on the Participant's notice of exercise of a
Nonqualified Stock Option or before taking any further
action with respect to the Nonqualified Stock Option or the
issuance of any certificate with respect to any shares of
stock awarded under a Restricted Stock Award or a
Nonqualified Stock Option.
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