CERTAIN TRANSACTIONS
The Company and Xx. Xxxxx X. Xxxxxxx have an agreement pursuant to which
Xx. Xxxxxxx provides financial advisory services in his capacity as Chair of
the Executive Committee and advisory services in the area of acquisition and
development ("A&D"). Under this agreement, Xx. Xxxxxxx was retained at an
annual compensation rate of $90,000 through March 31, 1996, and in fiscal
1995 was awarded an option to purchase 5,000 shares of Common Stock at an
exercise price of $14.25 per share, which was the fair market value on the
grant date. The option is excercisable to the extent of 25% of the shares one
year from the grant date, an additional 25% two years from the grant date, an
additional 25% three years from the grant date and in full four years from
the grant date. Beginning in April 1996, the Company agreed to pay Xx.
Xxxxxxx an annual retainer of $50,000. The agreement also entitles Xx.
Xxxxxxx to receive contingent compensation for each A&D transaction in which
he plays an active role at the Company's request. Such additional
compensation is to be determined by mutual agreement at the outset of each
A&D project, reflecting its complexity and size. Pursuant to the agreement,
Xx. Xxxxxxx is reimbursed for out-of-pocket expenses. In connection with the
agreement, Xx. Xxxxxxx has waived his right to director's fees and future
participation in the Company's Director Stock Plan.
Waverly has entered into an agreement with Xx. Xxxx X. Xxxxx, Xx., which
replaces his prior employment agreement, pursuant to which Xx. Xxxxx will
provide consulting services to the Company. Under this agreement, Xx. Xxxxx
received $110,000 for 1995 and is entitled to receive $50,000 for each of the
years 1996 through 2000. In connection with the agreement, Xx. Xxxxx has
waived his right to director's fees and future participation in the Company's
Director Stock Plan.
The Company's subsidiary, Urban & Schwarzenberg Verlag fur Medizin GmbH,
is indebted to Xxxxxx Xxxxx, Xx. Xxxxx'x mother, for 150,000 DM
(approximately $97,410) bearing interest at 8% per annum payable on demand on
one year's notice. Loan amounts have been converted into dollars based upon
the currency exchange rate of .6494 DM per dollar in effect on December 31,
1996.
MANAGEMENT COMMITTEE REPORT
The Management Committee (the "Committee"), composed entirely of
nonemployee directors, meets periodically to formulate recommendations for
approval by the Board of Directors for executive compensation. The Committee
consisted in fiscal 1996 of Xxxxxxx Xxxxxxxx (Chair), Xxxxxxx X. Xxxxx,
Xxxxxxx X. Xxxxxxx, XX and Xxxxxx X. Xxxxxxxxx.
The Committee's compensation recommendations are designed to enable the
Company to attract and retain qualified executives, reward achievement of
corporate and personal goals and motivate officers to meet divisional and
corporate financial and strategic objectives and to contribute to increasing
the shareholder value. Executive officers receive a salary, are eligible for
a bonus under Waverly's Incentive Plan ("WIN Plan") and participate in the
Company's Defined Benefit Pension Plan and in the Company's Incentive Savings
Plan ("WISP"), a tax-qualified plan that permits employees to make
contributions, a portion of which is matched by the Company. In addition,
executive officers are eligible to receive grants of options to purchase
Company stock. The Committee emphasizes stock ownership by executives as
highly desirable in that it closely aligns the economic interests of the
executives with those of the shareholders.
Salaries for executive officers (other than for the Chief Executive
Officer and the Chairman) are reviewed each year by the Company's Chief
Executive Officer and the Committee. Salaries for the Chief Executive Officer
and the Chairman are reviewed annually by the Committee. Salaries are
assessed in light of executives' performances for the prior year and other
economic and industry-specific conditions that prevail.
9
The Company pays annual cash bonuses to executives under the WIN Plan for
achievement of corporate and/or divisional financial targets and for
achievement of individual performance objectives established as part of the
Company's long-range planning process. At the beginning of each year, the
Board meets with senior management to review the Company's long-range
strategic objectives and its annual budget. Financial and performance
targets, derived from this process, are used by the Committee to establish
objectives under the WIN Plan. In 1996, these objectives included achievement
of certain levels of earnings per share and return on equity. For each
operating division officer, 50% of bonus is based on his or her division
performance against budget and 50% is based on corporate results against
budget. For certain corporate officers (such as the Chief Executive Officer),
100% of bonus depends on overall corporate performance. Maximum bonuses for
each officer may not exceed 50% of salary. Bonuses paid for performance in
1996 are reflected in the Summary Compensation Table shown below.
The Company awards stock options to its executives from time to time to
provide additional financial incentives and reward superior performance. The
Committee grants options to individual officers based on its evaluation of a
number of factors, including level of base salary, level of responsibility,
expected level of contribution to the Company, prior individual performance
and prior stock option grants. The largest grants are awarded to the most
senior employees who, in the view of the Management Committee, have the
greatest potential impact on the Company's profitability and growth. Options
under the plan may be either incentive stock options or nonqualified stock
options at the discretion of the Management Committee. The exercise price of
these options will be at least equal to the fair market value of the Common
Stock on the date of grant. In 1996, the Committee granted stock options
exercisable at fair market value to certain key employees, including the
Company's officers. Stock option awards to the executive officers named in
the Summary Compensation Table are disclosed in that table.
Xx. Xxxxxx, the Company's Chief Executive Officer, received compensation
in 1996 in accordance with the guidelines referred to above. Xx. Xxxxxx'x
base salary effective February 1996 was $350,000, reflecting the Committee's
conclusion that the performance of the Company in 1995 warranted a 4.5%
increase in 1996. The Committee had established budget, earnings per share
and return on equity targets for Xx. Xxxxxx under the WIN Plan for 1996 based
on the long-range strategic business plan. The Company met its budget and
performance targets in 1996 and, in light of this performance, Xx. Xxxxxx was
awarded a bonus of $61,250 and an option to purchase 20,000 shares of Common
Stock at an exercise price of $21.50 per share, which was equal to the fair
market value on the grant date (2/14/97). The Company also pays 100% of the
premium on a $2,000,000 term-life insurance policy for Xx. Xxxxxx.
Rules proposed pursuant to Section 162(m) of the Internal Revenue Code
limit the allowable deduction for certain covered compensation paid to the
Company's officers to $1 million per year per executive. The rules provide
that certain qualifying, performance-based compensation will not be subject
to the deduction limit. The Company has structured its Employee Stock Option
Plan to cause option awards issuable under the Plan to comply with these
rules. In view of the current levels of other compensation paid to its
executives, the Company expects that its compensation will fall well within
the limits imposed by the Code and that Section 162(m) will not limit the
deductibility of its compensation to officers.
Xxxxxxx Xxxxxxxx, Chair
Xxxxxxx X. Xxxxx, M.D.
Xxxxxxx X. Xxxxxxx, XX
Xxxxxx X. Xxxxxxxxx
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid by the Company in the last three fiscal years to the Chief Executive
Officer of the Company and the four next most highly compensated executive
officers:
Summary Compensation Table
Long-Term
Annual Compensation (1) Compensation All Other
Name and Awards Compensation
Principal Position Year Salary ($)(2) Bonus ($)(3) Options (#) ($)(4)
------------------ ---- --------- --------- ------------- ---
Xxxxxxx X. Xxxxxxx, Xx. 1996 325,000 56,875 0 9,260
Chairman of the Board 1995 300,000 71,800 0 8,610
1994 300,000 75,000 0 8,610
Xxxxxx X. Xxxxxx, Xx. 1996 350,000 61,250 17,000 10,693
President and CEO 1995 335,000 80,200 15,000 12,952
1994 310,000 77,500 15,000 7,000
Xxxxxxx Xxxxx 1996 302,000 67,000 0 0
President and CEO, Urban 1995 313,000 52,500 0 540
& Schwarzenberg Verlag 1994 263,000 47,700 5,000 2,899
fur Medizin GmbH (5)
Xxxxxx X. Xxxxxx 1996 205,000 35,875 9,000 2,960
Executive Vice President 1995 194,000 46,500 9,000 2,811
1994 183,500 45,875 9,000 2,908
Xxxx X. Xxxxx 1996 135,000 45,900 6,000 1,836
President, Periodical Publishing 1995 130,000 20,300 6,000 2,018
1994 121,500 26,669 6,000 2,087
----------
(1) Does not include perquisites and other personal benefits where the
aggregate value of such compensation to the executive officer is less than
10% of annual salary and bonus.
(2) Includes salary deferrals under the WISP.
(3) Comprises bonuses under the WIN Plan, which were accrued during the
fiscal year indicated but were paid in the following fiscal year.
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(4) Includes life insurance premiums paid by the Company and Company
matching contributions under the WISP. Under the WISP, the Company makes
matching contributions of 25% of each participant's contribution subject to a
maximum of 1.5% of an employee's compensation up to $9,240. The amounts for
1996 are as follows:
WISP Insurance
---- ---------
Xxxxxxx, W. $ 2,375 $ 6,885
Xxxxxx $ 2,375 $ 8,318
Urban $ 0 $ 0
Xxxxxx $ 2,375 $ 585
Xxxxx $ 1,446 $ 390
(5) Dr. Urban's compensation has been converted into dollars based upon
the currency exchange rate of .6494 DM per dollar as of December 31, 1996,
.6961 DM per dollar in effect on December 29, 1995, and .6453 DM per dollar
in effect December 30, 1994.
Option Grants in Last Fiscal Year
The following table sets forth information concerning the grant and
exercise of options in the last fiscal year under the Waverly, Inc. 1996
Employee Stock Option Plan to the persons named in the Summary Compensation
Table:
Individual Grants Potential Realizable
Value at Assumed
Number Annual Rates of
of Securities % Of Total Stock Price
Underlying Options Granted Exercise Appreciation for
Options to Employees in Price Expiration Option Term (2)
Name Granted(1) Fiscal Year ($/Sh) Date 0% 5% 10%
-----------------------------------------------------------------------------------------------------------------
Xxxxxxx, W. 0 0.0% $ 0.00 N/A $0 $ 0 $ 0
Xxxxxx 17,000 15.1% $21.125 2/9/06 $0 $225,852 $572,353
Urban 0 0.0% $ 0.00 N/A $0 $ 0 $ 0
Xxxxxx 9,000 8.0% $21.125 2/9/06 $0 $119,569 $303,010
Xxxxx 6,000 5.3% $21.125 2/9/06 $0 $ 79,712 $202,007
----------
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(1) All options were granted with an exercise price equal to the fair
market value of the Common Stock underlying the option on the date of the
grant. The options are exercisable to the extent of 25% of the shares one
year from the grant date, an additional 25% two years from the grant date, an
additional 25% three years from the grant date, and in full four years from
the grant date, subject to such limitations as are imposed by Section 162(m)
of the Internal Revenue Code on qualified options, unless accelerated upon a
change in control, retirement, death or disability. These options have a term
of ten years, unless terminated sooner in connection with death, disability,
retirement or termination.
(2) Amounts are based on the 0%, 5% and 10% annual compounded rates of
appreciation of the Common Stock price, prescribed by the Securities and
Exchange Commission, and are not intended to forecast future appreciation of
the Company's Common Stock. The prices of the Common Stock, assuming such
annual compounded rates of appreciation, would be $21.125, $34.41 and $54.79,
respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table provides information with respect to the stock
options exercised during fiscal year ended December 31, 1996 and the value as
of December 31, 1996 of unexercised in-the-money options held by the named
executive officers. The value realized on the exercise of options is
calculated using the difference between the per share option exercise price
and the market value of a share on the date of the exercise. The value of
unexercised in-the-money options at fiscal year end is calculated using the
difference between the per share option exercise price and the market value
of $23.75 per share at fiscal year end, December 31, 1996.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FY-END OPTIONS AT FY-END
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Xxxxxxx, W. 9,600 $158,400 110,400 5,000 $1,600,100 $ 61,250
Xxxxxx 0 0 208,644 53,356 2,914,639 482,486
Urban 5,000 $ 53,125 0 2,500 0 36,250
Xxxxxx 0 0 50,000 18,000 692,125 120,375
Xxxxx 0 $ 0 41,100 12,000 578,213 80,250
----------
DEFINED BENEFIT PENSION PLAN
The Company has a trusteed, noncontributory, defined benefit pension plan
in which all U.S. employees are eligible to participate. The plan provides
for an annual retirement benefit payable monthly based on the sum of (i)
amounts accrued to date under various career average pay formulae and (ii)
amounts accruing beginning for 1989 based on the following formula: 1.5% of
participant's compensation plus .65% of earnings in excess of the Social
Security Covered Compensation (the average of Social Security Taxable Wage
Basis for a specified 35-year period) for each year of credited service.
Earnings for purposes of the pension plan include base salary and commissions
but not overtime or bonuses. Benefits are payable upon retirement, death or
disability or upon termination of employment after five years of service.
Benefits are not subject to reduction for Social Security benefits. At their
normal retirement at age 65, the estimated annual retirement payments (based
on compensation for 1996 and subject to the limitations imposed by IRS
regulations) would be as follows: Xx. Xxxxxx, $72,767; Mr.
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Xxxxxx, $70,113; and Xx. Xxxxx, $63,513. Xx. Xxxxxxx Xxxxxxx, Xx.'s annual
retirement payments, assuming retirement at age 70, would be $103,282.
The Company's subsidiary, Urban & Schwarzenberg, has agreed to provide
supplementary retirement benefits to two current and thirteen former
employees, including Dr. Urban. Monthly benefits are payable upon retirement
based upon 50% of the retiree's highest achieved salary level. Upon the
retiree's death, his or her spouse and/or other specified beneficiaries are
generally entitled to receive a benefit payment. At his normal retirement at
age 65, the estimated annual retirement payment to Dr. Urban under this plan
(based on compensation for 1996) would be 232,500 DM (approximately $150,985).
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