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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / 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 Rule 14a-11(c) or Rule 14a-12
WESTINGHOUSE AIR BRAKE COMPANY
- --------------------------------------------------------------------------------
(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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 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:
(4) Date Filed:
* No fee required
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WESTINGHOUSE AIR BRAKE COMPANY
1001 AIR BRAKE AVENUE
WILMERDING, PENNSYLVANIA 15148
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS--MAY 26, 1998
To The Stockholders:
The Annual Meeting of Stockholders of Westinghouse Air Brake Company (the
"Company") will be held at the Sheraton Hotel at Station Square, Pittsburgh,
Pennsylvania on Tuesday, May 26, 1998 at 3:00 p.m. (local time) for the purpose
of considering and acting upon the following:
(1) The election of two persons to serve as directors;
(2) The approval of the adoption of the "1998 Employee Stock Purchase
Plan";
(3) The approval of the amendment to the 1995 Stock Incentive Plan to
increase the total number of shares of the Company's Common Stock which
may be issued thereunder from 3,100,000 to 4,700,000;
(4) The ratification of the appointment of Arthur Andersen LLP as
independent public accountants to audit the financial statements of the
Company and its subsidiaries for the 1998 fiscal year; and
(5) Such other business as may properly come before the Annual Meeting or
any adjournment thereof.
The close of business on March 31, 1998 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
receive notice of and to vote at the Annual Meeting, or any adjournments
thereof, and only stockholders of record on such date are entitled to receive
notice of and to vote at said Annual Meeting.
If you hold the Company's Common Stock directly, you will find enclosed a
proxy card which must be completed and returned in order to vote all Common
Stock which you hold. If you hold Common Stock through the Westinghouse Air
Brake Company Employee Stock Ownership Plan and Trust (the "ESOP"), you will
find enclosed a proxy card which must be completed and returned in order to vote
all Common Stock held on your behalf by the ESOP. The Company's 1997 Annual
Report to Stockholders and the Annual Report on Form 10-K for the year ended
December 31, 1997 are also enclosed.
By Order of the Board of Directors,
Robert J. Brooks
Chief Financial Officer
and Secretary
Wilmerding, Pennsylvania
April 9, 1998
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES
MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED AT THE ANNUAL MEETING. YOU ARE CORDIALLY INVITED TO ATTEND
THE ANNUAL MEETING IN PERSON. THE GIVING OF YOUR PROXY DOES NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE ANNUAL MEETING.
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APRIL 9, 1998
WESTINGHOUSE AIR BRAKE COMPANY
1001 AIR BRAKE AVENUE
WILMERDING, PENNSYLVANIA 15148
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
May 26, 1998
GENERAL
This Proxy Statement is furnished to stockholders in connection with the
solicitation by the Board of Directors of Westinghouse Air Brake Company (the
"Company") of proxies in the accompanying form for use at the 1998 Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held at the
Sheraton Hotel at Station Square, Pittsburgh, Pennsylvania on Tuesday, May 26,
1998 at 3:00 p.m. (local time) and at any adjournment thereof. If a proxy in the
accompanying form is duly executed and returned to the Company, the shares
represented will be voted at the Annual Meeting and, where a choice is
specified, will be voted in accordance with the specification made. Any
stockholder who gives a proxy has the power to revoke it at any time before it
is exercised by notice to the Secretary. A later-dated proxy will revoke an
earlier proxy, and stockholders who attend the Annual Meeting may, if they wish,
vote in person even though they have submitted a proxy, in which event the proxy
will be deemed to have been revoked.
As of the close of business on March 31, 1998, the Company had outstanding
33,748,125 shares of Common Stock, par value $.01 per share ("Common Stock").
Each stockholder is entitled to one vote for each share of Common Stock held by
such stockholder. This proxy statement and the proxy in the accompanying form
are being mailed on or about April 9, 1998 to stockholders of record as of the
close of business on March 31, 1998.
The 1997 Annual Report to Stockholders and the Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, which includes consolidated
financial statements, are enclosed with this Proxy Statement.
VOTING
Stockholders of record as of the close of business on March 31, 1998 (the
"Record Date") have the right to receive notice of and to vote at the Annual
Meeting. A majority of the shares entitled to vote, present in person or by
proxy, shall constitute a quorum. For the election of directors, a plurality of
all shares, present in person or by proxy and entitled to vote, shall be
sufficient to elect a director. In all other matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
by proxy shall be sufficient to approve such other matters which come before the
meeting unless more than a majority of the votes cast is required by statute or
by the Company's By-Laws.
Under the proxy rules of the Securities and Exchange Commission (the
"Commission"), a person who directly or indirectly has or shares voting power or
investment power with respect to a security is considered a beneficial owner of
the security. Voting power includes the power to vote or direct the voting of
shares, and investment power includes the power to dispose of or direct the
disposition of shares. Shares as to which voting power or investment power may
be acquired within 60 days are also considered as beneficially owned under the
proxy rules.
MANAGEMENT
The directors, the chief executive officer, four other most highly
compensated executive officers as of December 31, 1997, and all directors and
executive officers of the Company as a group beneficially owned as of the Record
Date the number of shares of Common Stock set forth in the table below. The
information on
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beneficial ownership in the table and related footnotes is based upon data
furnished to the Company by, or on behalf of, the persons referred to in the
table. Unless otherwise indicated in the footnotes to the table, each person
named has sole voting power and sole dispositive power with respect to the
shares included in the table. Shares which are described as being held in the
Voting Trust (see note 3 under "Other Beneficial Owners", below) have the voting
and dispositive powers described in note 3 to "Other Beneficial Owners", below.
BENEFICIAL OWNERSHIP OF COMMON STOCK
----------------------------------------
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------------ ----------------------- --------
William E. Kassling 4,730,632(1) 14.02%
Howard J. Bromberg 720,418(2) 2.13%
Robert J. Brooks 442,686(3) 1.31%
Kim G. Davis 2,404,000(4)(9) 7.12%
Emilio A. Fernandez 664,009(5) 1.97%
James C. Huntington, Jr. 11,000(9) *
James P. Kelley 2,541,048(6)(9) 7.53%
John M. Meister 476,211(7) 1.41%
James V. Napier 9,500(8)(9) *
All directors and executive officers
as a group (15 persons) 12,344,428(10) 36.58%
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* Less than 1%
(1) Includes 43,500 shares beneficially owned by William E. Kassling, of which
6,500 shares are deposited in the Voting Trust. Also includes 1,503,336
shares beneficially owned by Davideco, a Pennsylvania business trust, which
are all deposited in the Voting Trust. Also includes 500 shares
beneficially owned by the child of Mr. Kassling, beneficial ownership of
which shares is disclaimed, and 4,686,169 shares held of record by the
Voting Trust, of which Mr. Kassling, Robert J. Brooks and Kevin P. Conner,
an executive officer of the Company, are trustees, beneficial ownership of
which shares is disclaimed. See note 3 to "Other Beneficial Owners", below.
(2) Includes 418 shares beneficially owned by Howard J. Bromberg. Also includes
640,000 shares beneficially owned by E.L.H. Co., which are all deposited in
the Voting Trust. Also includes 80,000 shares beneficially owned by the
child of Mr. Bromberg, beneficial ownership of which shares is disclaimed.
(3) Includes 80,686 shares beneficially owned by Robert J. Brooks, of which
69,300 shares are deposited in the Voting Trust. Also includes 360,000
shares beneficially owned by Suebro, Inc., a Delaware holding company,
which are all deposited in the Voting Trust. Also includes 2,000 shares
beneficially owned by the child of Mr. Brooks, beneficial ownership of
which shares is disclaimed. Does not include 4,686,169 shares held of
record by the Voting Trust. Such shares are included in the reported
holdings of William E. Kassling.
(4) Includes 2,400,000 shares beneficially owned by Harvard Private Capital
Holdings, Inc., of which Kim G. Davis is a Managing Director, beneficial
ownership of which shares is disclaimed.
(5) Includes 394,413 shares beneficially owned by Emilio A. Fernandez. Also
includes 257,175 shares beneficially owned by Mr. Fernandez's wife and
12,421 shares beneficially owned by his child, beneficial ownership of
which shares is disclaimed.
(6) Includes 101,048 shares beneficially owned by James P. Kelley. Also
includes 40,000 shares beneficially owned by Vestar Capital Partners, Inc.,
of which Mr. Kelley is a Managing Director, beneficial ownership of which
shares is disclaimed. Also includes 2,400,000 shares beneficially owned by
Vestar Equity Partners, L.P., beneficial ownership of which shares is
disclaimed. Vestar Associates, L.P. is the sole general partner of Vestar
Equity Partners, L.P., and Vestar Associates Corporation is the sole
general partner of Vestar Associates, L.P. Mr. Kelley is Managing Director
of Vestar Associates Corporation.
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(7) Includes 254,211 shares beneficially owned by John M. Meister, of which
250,000 shares are deposited in the Voting Trust. Also includes 222,000
shares held in trusts for his children as to which Mr. Meister is trustee,
beneficial ownership of which shares is disclaimed.
(8) Includes 5,000 shares beneficially owned by James V. Napier and 500 shares
held in Mr. Napier's Keogh account.
(9) Includes options under the 1995 Non-Employee Directors' Fee and Stock
Option Plan that are exercisable within 60 days of the Record Date.
(10) Includes notes 1-9 and an additional 282,174 shares which are deposited in
the Voting Trust.
OTHER BENEFICIAL OWNERS
The following table sets forth information with respect to each stockholder
known to the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock as of December 31, 1997. The information on beneficial
ownership in the table and related footnotes is based upon data furnished to the
Company by, or on behalf of, the persons referred to in the table. Unless
otherwise indicated in the footnotes to the table, each person named has sole
voting power and sole dispositive power with respect to the shares included in
the table.
BENEFICIAL OWNERSHIP OF
COMMON STOCK
-----------------------------------------
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS(1)
------------------------------------ ----------------------- -----------
U.S. Trust Company of California, N.A., 9,318,341(2) 27.61
as trustee for Westinghouse Air Brake Company Employee
Stock Ownership Plan and Trust
Suite 1080 East
1300 I Street N.W.
Washington, D.C. 20005
RAC Voting Trust 4,686,169(3) 13.88
c/o Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, PA 15148
Harvard Private Capital Holdings, Inc. 2,400,000 7.11
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, MA 02210
Vestar Equity Partners, L.P. 2,400,000 7.11
c/o Vestar Capital Partners, Inc.
Seventeenth Street Plaza
1225 17th Street, Suite 1660
Denver, Colorado 80202
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(1) See note 1 to "Management" above.
(2) Under the terms of the Westinghouse Air Brake Company Employee Stock
Ownership Plan and Trust (the "ESOP"), U.S. Trust Company of California,
N.A., as sole trustee for the ESOP (the "ESOP Trustee"), is required to vote
the shares held by the ESOP in accordance with the instructions from the
ESOP participants for all shares allocated to such participants' accounts.
Shares not allocated to the account of any employee are voted by the ESOP
Trustee in the same proportion as the votes for which participant
instructions are given. Allocated shares for which the ESOP Trustee does not
receive instructions are voted in the manner directed by the ESOP Committee,
an administrative committee comprised of persons appointed by the Board of
Directors of the Company (currently Messrs. Kassling, Brooks and Kevin P.
Conner). As of the Record Date, 372,707 shares were allocated to
participants' account, and 8,938,251 shares were not allocated to
participants' accounts.
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(3) Pursuant to the Second Amended WABCO Voting Trust/Disposition Agreement
dated as of December 13, 1995 (the "Amended Voting Trust Agreement"),
certain employees of the Company have delivered their shares of Common Stock
of the Company to the trustees of the Voting Trust. The current trustees are
Messrs. Kassling, Brooks and Conner, each of whom may be contacted at 1001
Air Brake Avenue, Wilmerding, Pennsylvania 15148. The trustees of the Voting
Trust have sole voting power with respect to all shares reported as
beneficially owned by the Voting Trust. All shares deposited in the Voting
Trust are subject to certain restrictions on disposition as described in the
Amended Voting Trust Agreement. The Amended Voting Trust Agreement expires
January 1, 2000 and can be terminated by an affirmative vote of two-thirds
of the shares held by the Voting Trust or by the unanimous vote of the
trustees.
PROXY PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
Two directors will be elected at the Annual Meeting to serve until the
annual meeting of stockholders in 2001 and until their successors are elected
and qualified or until their earlier resignation or removal. The Nominating
Committee of the Board of Directors has nominated, and the Board has approved
the nominations of, James P. Kelley and James C. Huntington, Jr. and recommends
a vote for their election. Each of the nominees has consented to be named as a
nominee and to serve if elected.
The members of the Nominating Committee are William E. Kassling, Robert J.
Brooks and James P. Kelley. The Nominating Committee has exclusive authority to
nominate persons to be elected to the Board.
Unless authority to so vote is withheld, it is intended that the proxies
solicited by the Board of Directors will be voted FOR the election of the two
nominees. In the event that at the date of the Annual Meeting either of the
nominees should for any reason not be available for election, the proxies
solicited by the Board will be voted for the election of the other nominee and
such substitute nominee as shall be designated by the Board.
Information with respect to the two nominees, each of whom is presently a
member of the Board of Directors, and the continuing directors is set forth in
the table below. The nominees and continuing directors have held the positions
shown for more than five years unless otherwise indicated.
DIRECTOR PRINCIPAL OCCUPATION OR
NAME SINCE EMPLOYMENT; DIRECTORSHIPS; AGE
---- ----- ------------------------------
Nominees for a term expiring in 1998:
James P. Kelley 1990 Managing Director of Vestar Capital Partners, Inc.
(private equity investment firm) since prior to 1993;
Director of LaPetite Academy, Inc. and Celestial
Seasonings, Inc.; Age 43
James C. Huntington, Jr. 1995 Independent businessman since prior to 1993; Director of
Cyprus Amax Minerals Company, Alumax, Inc. and Dravo
Corporation; Age 70
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DIRECTOR PRINCIPAL OCCUPATION OR
NAME SINCE EMPLOYMENT; DIRECTORSHIPS; AGE
---- ----- ------------------------------
Continuing Directors with a term expiring in 1999:
William E. Kassling 1990 President, Chairman and Chief Executive Officer of the
Company; Director of Dravo Corp.; Scientific Atlanta,
Inc. and Commercial Intertech, Inc.; Age 54
Emilio A. Fernandez 1995 Vice Chairman of the Company since February 1998;
Executive Vice President of the Company from January 1995
to February 1998; President of Pulse Electronics, Inc.
from prior to 1993 to January 1995; Director of Pulse
Medical Instruments, Inc.; Age 53
James V. Napier 1995 Chairman of Scientific Atlanta, Inc. since July 1994;
Chairman and interim Chief Executive Officer of
Scientific Atlanta, Inc. from November 1993 to July 1994;
Chairman and Chief Executive Officer of Commercial Tel.
Group from prior to 1993 to November 1993; Director of
Engelhard Corporation, Vulcan Materials Company, HBO and
Company, Personnel Group of America, Inc. and Intelligent
Systems, Inc.; Age 61
Continuing Directors with a term expiring in 2000:
Robert J. Brooks 1990 Chief Financial Officer of the Company since prior to
1993; Director of Crucible Materials Corporation; Age 53
Kim G. Davis 1997 Managing Director of Harvard Private Capital Group, Inc.
since 1998; Private Investor from 1994 to 1998; General
Partner of Kohlberg & Co. from prior to 1993 until 1994;
Age 44
VOTE REQUIRED
Only affirmative votes are counted in the election of directors. The two
nominees for election as directors at the Annual Meeting who receive the highest
number of votes cast for the election of directors by the holders of the
Company's Common Stock present in person or voting by proxy, a quorum being
present, will be elected as directors.
COMMITTEES OF BOARD OF DIRECTORS
In addition to the Nominating Committee, the principal committees of the
Board of Directors are the Audit Committee and the Compensation Committee.
The members of the Audit Committee are James V. Napier, Kim G. Davis, James
C. Huntington, Jr. and James P. Kelley. The Audit Committee may (i) make
recommendations to the Board regarding the engagement of the Company's
independent accountants, (ii) review the plan, scope and results of the annual
audit, the independent accountants' letter of comments and management's response
thereto and the scope of any non-audit services which may be performed by the
independent accountants, (iii) manage the Company's policies and procedures with
respect to internal accounting and financial controls and (iv) review any
changes in accounting policy. The Audit Committee may also review any possible
violations of the Company's business ethics and conflicts of interest policies.
The members of the Compensation Committee are Messrs. Napier, Davis,
Huntington and Kelley. The Compensation Committee may establish compensation
levels for officers of the Company, review management organization and
development, review significant employee benefit programs and establish and
administer executive compensation programs and the Company's 1995 Stock
Incentive Plan.
The Board of Directors met six times in 1997. The Nominating Committee met
one time during 1997; the Audit Committee met three times during 1997, and the
Compensation Committee met four times in 1997. All of
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the directors attended at least 75% of the aggregate of all meetings of the
Board of Directors and the Committees on which they served during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Napier, Davis, Huntington
and Kelley. William E. Kassling, the President, Chairman and Chief Executive
Officer of the Company, served on the Board of Directors of Scientific Atlanta,
Inc. James V. Napier, a director of the Company, is the Chairman of Scientific
Atlanta, Inc. No executive officer served on a compensation committee (or other
board committee performing equivalent functions) or board of directors of any
entity related to any member of the Board of Directors.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive a retainer or
fees for attending meetings of the Board of Directors or meetings of Committees
of the Board. Directors who are not employees of the Company each receive a
$10,000 annual retainer, $1,000 for each meeting they attend, $750 ($1,000 for
the Committee chairperson) for each Committee meeting they attend that is not
held on the same day as a Board meeting and $500 for each Board or Committee
meeting in which they participate by conference telephone. Directors are also
reimbursed for travel expenses to and from Board and Committee meetings.
In addition, non-employee directors participate in the 1995 Non-Employee
Directors' Fee and Stock Option Plan (the "Directors' Plan") whereby each
receives annually 1,000 shares of Common Stock of the Company and a nonstatutory
option to purchase 5,000 additional shares upon initial election to the Board
and thereafter upon any subsequent re-election. The exercise price per share of
Common Stock of each option granted is 100% of the fair market value per share
of the Common Stock on the date of grant, except that for any stock option
granted on or prior to October 31, 1998, the exercise price will be the greater
of fair market value or $14 per share. The term of each option commences on the
date of grant and, unless earlier terminated in accordance with the Directors'
Plan, expires ten years after such date. If a recipient is removed from the
Board for cause, such recipient's options terminate on the earlier to occur of
the expiration date of the options or 90 days following the date of such
removal.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers and persons who own more
than ten percent of a registered class of the Company's equity securities to
file with the Commission reports of ownership and reports of changes in
ownership of the Common Stock and other equity securities of the Company. These
persons are required to furnish the Company with copies of all Section 16(a)
reports they file.
The Company believes that all such filing requirements applicable to its
directors and executive officers were complied with in 1997. In making this
representation, the Company has relied solely on the representations of its
directors and executive officers and copies of the reports that they have filed
with the Commission and provided to the Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation paid
for services rendered in all capacities to the Company for the last three fiscal
years to those persons who were, as of December 31, 1997, the Chief Executive
Officer of the Company and the other four most highly compensated executive
officers of the Company.
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SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- ------ ----- ------- ---------------
William E. Kassling 1997 $387,872 $259,700 -- $55,091
Chief Executive Officer 1996 350,000 114,000 146,250 41,924
1995 350,000 157,000 -- 33,440
Emilio A. Fernandez 1997 $211,482 $208,592 -- $23,021
Vice Chairman 1996 195,348 147,000 99,206 10,000
1995 185,000 75,000 -- --
Howard J. Bromberg 1997 $186,811 $148,665 -- $29,245
Vice President; General Manager, 1996 165,000 74,000 73,125 25,946
Locomotive and Molded Products 1995 145,000 20,000 -- 24,072
John M. Meister 1997 $179,199 $125,187 -- $28,468
Executive Vice President; 1996 159,509 72,000 73,125 23,906
Transit Products Group 1995 150,000 25,000 -- 24,687
Robert J. Brooks 1997 $173,467 $114,271 -- $28,626
Chief Financial Officer 1996 154,004 50,000 73,125 23,540
1995 140,000 50,000 -- 23,008
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(1) Includes split dollar life insurance premiums paid by the Company on behalf
of the named executive and other cash benefit perquisites. Also includes the
fair market value, at the time of the award, of shares awarded pursuant to
the 1997 Executive Retirement Plan, which permits certain eligible
employees, including each of the above listed executives, who do not fully
participate in the ESOP to receive stock bonuses granted by the Company
based on the "Covered Compensation", as defined in the ESOP. For Mr.
Fernandez, also includes amounts contributed by the Company to the ESOP for
his account.
OPTION GRANTS IN 1997
None of the Chief Executive Officer of the Company or the other four most
highly compensated executive officers of the Company were granted options under
the 1995 Stock Incentive Plan in 1997.
The following table sets forth as to the persons named in the Summary
Compensation Table information with respect to (i) the stock options exercised
during 1997, (ii) the net value realized upon such exercises, (iii) the number
of shares covered by unexercised stock options held at December 31, 1997 and
(iv) the value of such unexercised options at December 31, 1997.
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AGGREGATED OPTION EXERCISES IN 1997 AND DECEMBER 31, 1997 OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1997 DECEMBER 31, 1997(1)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
William E. Kassling 0 $0 0/146,250 $0/1,531,055
Chief Executive Officer
Howard J. Bromberg 0 $0 0/73,125 $ 0/765,527
Vice President; General
Manager, Locomotive and Molded
Products
Robert J. Brooks 0 $0 0/73,125 $ 0/765,527
Chief Financial Officer
Emilio A. Fernandez 0 $0 0/99,206 $0/1,038,563
Vice Chairman
John M. Meister 0 $0 0/73,125 $ 0/765,527
Executive Vice President;
Transit Products Group
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(1) The exercise price of the options is $14.00 per share. As of December 31,
1997, the fair market value of the Company's Common Stock was $24.46875 per
share. Consequently, the options are considered "in-the-money" for purposes
of this chart.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement in whole or in part, the following report and the
Stock Performance Graph on page 10 shall not be incorporated by reference into
any such filings.
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee is comprised entirely of non-employee members of
the Board of Directors. The Compensation Committee's principal responsibility is
to review, recommend and approve changes to the Company's compensation policies
and programs. The Compensation Committee is also responsible for reviewing and
approving all compensation actions for the Chief Executive Officer and the other
executive officers.
The Company's compensation plan has three components: base salaries and
bonuses, benefit plans and long-term incentives.
Base Salaries and Bonuses. The base salaries and bonuses of the executive
officers are established each year by the Board of Directors upon the
Committee's recommendations. Base salaries are determined at the commencement of
each fiscal year, and bonuses are awarded after the Company's financial results
for the fiscal year have become available.
Executive officers' base salaries depend primarily upon their offices and
responsibilities and are reviewed annually. William E. Kassling is the only
executive officer who has an employment agreement with the Company. That
agreement entitles Mr. Kassling to a base salary and an incentive bonus of up to
100% of his base salary based upon the Company's achievement of certain targeted
consolidated net income levels. Mr. Kassling is also eligible for additional
incentive bonuses attributable to superior performance at the discretion of the
Board of Directors. The Compensation Committee, however, reviews and approves
Mr. Kassling's salary annually.
The Committee's philosophy with respect to bonuses is that executive
officers should have a meaningful portion of their total compensation tied to
the Company's profitability. Financial results for the Company and related
divisions for the fiscal year in question are the primary consideration. There
are guidelines as to the payment of bonuses if certain criteria are met,
although the Committee may exercise its discretion with respect to such
guidelines. Executive officers with the greatest opportunity to impact the
Company's profits typically receive bonuses which are a higher percentage of
base salary than the other executive officers.
On October 22, 1997, the Board of Directors adopted the 1997 Executive
Retirement Plan to permit the award of stock bonuses by the Company to certain
eligible employees including certain executives who do not participate fully in
the ESOP. The stock bonuses granted under the 1997 Executive Retirement Plan are
issued from the Company's treasury shares. The amount awarded monthly is based
on the "Covered Compensation" of each eligible employee, as such term is defined
in the ESOP. The Compensation Committee believes it is appropriate to allow
executives to participate in benefits similar to those provided to other
employees under the ESOP.
The Board of Directors adopted, subject to stockholder approval, the 1998
Employee Stock Purchase Plan (the "Plan") to permit employees of the Company to
purchase shares of the Company's Common Stock. Under the terms of the Plan,
employees of the Company will be eligible to periodically purchase shares of the
Company's Common Stock, and to finance such purchases through periodic payroll
deductions. The Committee believes that the Plan will promote the continued
success of the Company by encouraging its employees to have increased awareness
of and commitment to the Company's corporate-wide goals and objectives. The
terms of the Plan are described more fully below on pages 12 through 17.
Long-Term Incentives. Under the 1995 Stock Incentive Plan, the
Compensation Committee may grant long term incentives to employees by granting
stock options and making restricted share awards. The Committee views stock
options and restricted share awards as beneficial incentives to hire and retain
executives and to provide executives with greater incentive to increase their
efforts to make the Company and its subsidiaries more successful. The Committee
believes stock options and restricted share awards are particularly useful
long-term incentives because such options and awards connect the interests of
employees to those of the Company's stockholders through common ownership of the
Company's Common Stock. The decision to grant incentive stock options and make
restricted share awards is based upon an individual's job level.
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the 1995 Stock Incentive Plan to increase the shares that may be
issued thereunder from 3,100,000 to 4,700,000 shares. The
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Committee believes that these additional shares will provide a valuable
incentive to employees' performance and will ensure that the Company has
adequate shares available to award long-term incentives to its employees.
Other. The executive officers may participate in the Company's Section
401(k) Plan. The Company provides certain perquisites and other personal
benefits to certain of its employees, including its executive officers, which in
the aggregate are not significant.
Respectfully submitted,
/s/ Kim G. Davis
/s/ James C. Huntington, Jr.
/s/ James P. Kelley
/s/ James V. Napier
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following line graph compares the cumulative total stockholder return
among the Company's Common Stock, the Standard & Poor's 500 Stock Index (the
"S&P Stock Index") and a peer group of manufacturing companies selected by the
Company. The Company believes that the business and operations of the peer group
members closely resemble those of the Company. The graph assumes a $100
investment as of June 16, 1995 in the Company's Common Stock, the S&P Stock
Index and the peer group and assumes the reinvestment of dividends. Returns for
the month of June 1995 have been prorated.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, S&P 500 STOCK INDEX AND PEER GROUP INDEX
WESTINGHOUSE
MEASUREMENT PERIOD AIR BRAKE
(FISCAL YEAR COVERED) COMPANY ("WABCO") S&P 500 PEER GROUP
6/16/95 100.00 100.00 100.00
1995 75.97 117.10 78.51
1996 90.58 143.99 87.18
1997 184.28 192.03 146.39
The peer group includes publicly traded manufacturing companies engaged in
similar lines of business of the Company. The peer group consists of the
following companies: ABC Rail Products Corp., Atchison Casting Corp., The
Greenbrier Companies, Harmon Industries, Ltd., Johnstown America Corp.,
MotivePower Industries (formerly MK Rail Corp.), Portec Inc., and Varlen
Corporation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PULSE NOTES
In payment for the acquisition of substantially all of the assets and
related liabilities of Pulse Electronics, Inc. and Pulse Embedded Computer
Systems, Inc. (collectively, "Old Pulse") in January 1995 (the "Pulse
Acquisition"), the Company issued a subordinated promissory note in the amount
of $17 million in favor of certain former shareholders of Old Pulse including
Emilio A. Fernandez, a director and executive officer of the Company, and
members of his immediate family (the "Pulse Note"). The Pulse Note matures on
January 31, 2004. Interest thereon is payable semiannually. Interest accrued
until January 31, 1998 at the per annum rate of 9.5%. Interest will accrue from
February 1, 1998 until January 31, 2001 at the prime rate charged by The Chase
Manhattan Bank (successor in interest to Chemical Bank) on December 31, 1997
plus 1%, and from February 1, 2001 until January 31, 2004, at the prime rate
charged by The Chase Manhattan Bank (successor in interest to Chemical Bank) on
December 31, 2000 plus 1% (with a maximum adjustment rate on each date of 2% and
an absolute maximum interest rate of 13% per annum).
PULSE LEASE
In connection with the Pulse Acquisition, the Company assumed a lease
agreement between Old Pulse and Jollo Associates Limited Partnership ("Jollo")
covering a 37,000 square foot building. Jollo is a Maryland limited partnership
in which Mr. Fernandez, his wife and certain other former shareholders of Old
Pulse are the sole partners. The lease expires December 31, 2002. Total rent
paid under the lease in 1997 was $374,460.
EMPLOYMENT AGREEMENT
The Company and Mr. Kassling have entered into an employment agreement
pursuant to which Mr. Kassling received a base salary of $387,872 in 1997. Mr.
Kassling is also entitled to an incentive bonus payment and certain other
perquisites and benefits.
SIH STOCK REPURCHASE
In March 1997, the Company repurchased 4 million shares of its Common Stock
held by Scandinavian Incentive Holdings, B.V. ("SIH") for a purchase price of
$11 per share for a total purchase price of $44 million. In conjunction with
this transaction, SIH sold its remaining 6 million shares of the Company's
Common Stock to a group of investors consisting of Vestar Equity Partners, L.P.
("Vestar"), Harvard Private Capital Holdings, Inc. ("Harvard"), American
Industrial Partners Capital Fund II, L.P. ("AIP") and certain members of senior
management.
STOCKHOLDERS AND VOTING TRUST AGREEMENTS
As of December 31, 1997, the approximate ownership interests in the
Company's Common Stock were held by management and the ESOP (45%), Vestar (7%),
Harvard (7%), AIP (2%), and all others including public shareholders (39%). A
Stockholders Agreement exists among certain members of management, Vestar,
Harvard, AIP, and the Company that provides for, among other things, the
composition of the Board of Directors as long as certain minimum stock
percentages are maintained.
The Company has also entered in a Registration Rights Agreement with
Harvard, AIP, the Voting Trust, Vestar, and certain individual shareholders
(collectively, the "Holders"). This agreement provides that each of Harvard, the
Voting Trust and Vestar may make demands at various times for registration of
their respective shares so as to permit the sale of the shares in the public
market. All Holders also have incidental or "piggyback" rights to request
registration of their respective shares if the Company is registering shares for
sale for the Company's account.
Those shareholders comprised of the active original management owners have
entered into the Amended Voting Trust Agreement. The Voting Trust provides for,
among other matters, the stock to be voted as one block and restrictions on the
sale or transfer of such stock. The Amended Voting Trust Agreement expires on
January 1, 2000 and can be terminated by an affirmative vote of two-thirds of
the stock shares held by the trust. In
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connection with the Voting Trust, the Company has entered into an
Indemnification Agreement with the trustees, which is covered by the Company's
directors and officers liability insurance.
The shares held by the ESOP (established January 31, 1995) are subject to
the terms of the related ESOP Loan Agreement, Employee Stock Ownership Trust
Agreement, Employee Stock Ownership Plan and the Pledge Agreement.
The Company believes that each of the transactions above contains terms no
less favorable to the Company than could be obtained from unaffiliated third
parties on an arms' length basis.
PROXY PROPOSAL NO. 2
APPROVAL OF 1998 EMPLOYEE STOCK PURCHASE PLAN
The Board has adopted, subject to stockholder approval, the 1998 Employee
Stock Purchase Plan (the "Plan"). The adoption of a 1998 Employee Stock Purchase
Plan (the "Plan") was approved by the Company's Board of Directors on October
22, 1997. The Directors hold to the view that ownership of Company Common Stock
by the Company's employee team fosters increased awareness of and commitment to
corporate-wide goals and objectives. A principal goal of the Plan is to broaden
beyond upper management the base of employees who have an ownership interest in
Company shares. Consequently, the Plan is deliberately structured to attract
investment from all levels of the Company and it contains limitations on
participation by the Company's most highly compensated employees. THE BOARD OF
DIRECTORS STRONGLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF
ADOPTION OF THE 1998 EMPLOYEE STOCK PURCHASE PLAN.
The principal features of the Plan are summarized below. Copies of the
entire text of the Plan are available to Stockholders upon written request to
the Company's Secretary, 1001 Air Brake Avenue, Wilmerding, Pennsylvania 15148.
GENERAL
The purpose of the Plan is to promote the continued success of the Company
by encouraging eligible employees of the Company and its subsidiaries to
purchase shares of Common Stock of the Company and by facilitating those
purchases through quarterly sales of Company Common Stock directly to employees
financed by payroll deductions.
The aggregate number of shares which may be issued and sold under the Plan
is 500,000 shares of Common Stock, subject to proportionate adjustment in the
event of stock splits and similar events. The shares which may be issued under
the Plan will be treasury shares. The Company may repurchase shares of Common
Stock in the open market to cover the number of shares issued under the Plan to
avoid a dilution in the value of the Company's Common Stock.
Under current accounting rules, there will be no charges or credits to the
Company's reported earnings in connection with the issuance and sale of shares
under the Plan (except as may be required in a footnote to the Company's
financials by FAS 123). The Financial Accounting Standards Board (the "FASB") is
considering requiring a charge to earnings for all or a portion of the
difference between an employee's purchase price and the fair market value of a
company's stock at the date of purchase, especially in a plan which has a
"look-back" feature (providing that the purchase price is based upon the lesser
of fair market value of stock at the beginning and at the end of a particular
purchase period) like the Plan. If the FASB requires a charge to earnings, the
Company may reconsider whether to continue the Plan, but may choose to continue
the Plan notwithstanding such charge to earnings.
ADMINISTRATION
The Plan is administered by a committee of directors (the "Committee")
appointed by the Board and authorized to interpret the Plan and to prescribe
rules, regulations and procedures governing its operation. Certain of the
administrative functions of the Plan will be performed at the outset by
ChaseMellon Shareholder Services, L.L.C. (the "Agent").
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ELIGIBILITY OF EMPLOYEES
All employees of the Company and of any subsidiary designated by the
Committee are eligible to participate in the Plan. A full-time employee of the
Company or one of its subsidiaries is an employee who has been employed by the
Company or one of its subsidiaries on a full-time basis for at least one year,
and a regular part-time employee of the Company or one of its subsidiaries is
one who has been employed by the Company or one of its subsidiaries for at least
one year and whose customary employment is 20 or more hours per week during the
period of employment by the Company or one of its subsidiaries. Employees of the
Company or one of its subsidiaries who are citizens of countries or
jurisdictions the laws of which make participation illegal will not be permitted
to participate. As of March 31, 1998, an estimated 2,800 employees of the
Company and its Canadian subsidiaries which will participate were eligible for
participation.
No employee will be eligible to participate in the Plan during a Purchase
Period (as described below) if such employee immediately after the option to
purchase shares under the Plan is granted owns shares including outstanding
stock options which would exceed 5% of the voting power or value of the
Company's outstanding Common Stock.
PURCHASE PERIODS AND PAYROLL DEDUCTIONS
It is anticipated that there will be twenty quarterly Purchase Periods for
the purchase of Common Stock under the Plan. The first such period will extend
from July 1, 1998 through September 30, 1998. All remaining purchase periods are
expected to begin on the first day of a calendar quarter and end on the last day
of such calendar quarter. The Committee has the authority to change the number
or duration of the Purchase Periods at its discretion, but no Purchase Period
may extend beyond 27 months in duration, and no Common Stock may be sold under
the Plan after June 30, 2003. The Committee may also establish special Purchase
Periods to permit participation by employees of companies acquired by the
Company after the start of a regular Purchase Period.
Eligible employees may participate in the Plan during any Purchase Period
by enrolling and authorizing payroll deductions from his or her compensation
using the telephone authorization system which will be provided by the Agent by
the enrollment deadline established for the Purchase Period (unless otherwise
modified by the Committee, the enrollment deadline for any Purchase Period is
five days prior to the beginning of such period). Participants may authorize
payroll deductions of between 2% and 20%, in whole percentages, of basic
compensation (including overtime, vacation pay and holiday pay, but excluding
bonuses, incentive compensation, other fringe benefits or contributions under
any employee benefit plans) for each pay period ending during the Purchase
Period. The deduction will be credited to a contribution account to be applied
at the end of the Purchase Period to the purchase of Common Stock. No interest
will be credited on payroll deductions unless otherwise determined by the
Committee. Employees may increase, decrease or suspend payroll deductions only
once during a Purchase Period unless otherwise determined by the Committee.
At any time prior to five days before the last day of a Purchase Period, an
employee may disenroll and withdraw from the Plan and receive the balance in his
or her contribution account. Upon such disenrollment and withdrawal, payroll
deductions are terminated and the employee may not purchase Common Stock under
the Plan until he or she reenrolls for a subsequent Purchase Period. Such
employee's Common Stock account will also be terminated as described below under
"Common Stock Accounts." Partial withdrawals are not permitted.
PURCHASE OF COMMON STOCK
The purchase price of shares of Common Stock purchased under the Plan will
be the lower of (a) 85% of the fair market value of the Common Stock as of the
first day of the Purchase Period or (b) 85% of the fair market value of the
Common Stock as of the last day of the Purchase Period. Fair market value will
generally be interpreted as the mean between the publicly reported high and low
sales prices per share of the Common Stock for the date for which the fair
market value is to be determined. As of March 31, 1998, the fair market value of
a share of the Company's Common Stock, as so computed, was $29.125.
Effective as of the closing day of a Purchase Period, the balance in each
participating employee's contribution account will automatically be applied to
the purchase of a number of shares of Common Stock equal
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to the balance in the account divided by the purchase price. Fractional shares
shall be purchased and credited to an employee's Common Stock account with the
Agent as described below. As soon as practicable after each Purchase Period, the
Company will (through the Agent) issue or deliver shares of Common Stock from
the treasury of the Company into each purchasing employee's respective Common
Stock account maintained by the Agent for such employee. Any remaining account
balance will be paid to the employee as soon as practicable.
Each employee with respect to a Common Stock account acquires full
ownership of all shares and of any fractional interest in a share issued or
delivered to a Common Stock account. All shares in such Common Stock accounts
are registered in the name of the Agent or another nominee or custodian for the
benefit of the employees under the Plan. Although an employee may not assign or
hypothecate an interest in the Plan as such, upon crediting of shares under the
Plan such shares may be sold pursuant to the procedures described below or,
following distribution of such shares to the employee, may, subject to the Plan,
be sold, assigned, hypothecated or otherwise dealt with by the employee, subject
to the Plan, as is the case with respect to any other shares of Common Stock the
employee may own.
TERMINATION OF EMPLOYMENT
Participation in the Plan will conclude as of the date of an employee's
termination of employment, whether by death, retirement, disability or other
cause. Should termination of employment occur on or before five days prior to
the last day of a Purchase Period, payroll deductions will cease, no shares will
be purchased and the balance in the employee's contribution account will be
refunded as soon as practicable. In the event that death is the cause of
termination, the refund will be made to the employee's estate.
COMMON STOCK ACCOUNTS
Using the telephone authorization system of the Agent, an employee may
direct at any time that any or all of the shares credited to the Common Stock
account relating to the employee be sold. Upon such sale, a check for the
proceeds, less any brokerage commissions and other charges applicable to the
sale and less any amount required to be deducted as backup withholding, will be
delivered to the employee. The employee may also request at any time that a
certificate or certificates representing any or all of the full shares credited
to the Common Stock account relating to the employee be delivered to the
employee.
Using the telephone authorization system of the Agent, the employee may
direct within 30 days of disenrollment from the Plan or termination of
employment, as the case may be, that all shares credited to the Common Stock
account of such employee be sold and the net proceeds delivered to the employee,
or the employee may request within 30 days of such disenrollment or termination
of employment that a certificate or certificates representing all full shares
credited to the account be delivered to the employee. Any brokerage commissions
and other charges applicable to sales and any amount required to be withheld as
backup withholding are payable by the employee and will be deducted in
determining the net proceeds. If no direction is received within 30 days of such
disenrollment or termination of employment, a certificate or certificates
representing all full shares credited to the account will be delivered to the
employee.
Upon termination of a Common Stock account, any fractional interest in a
share credited to the Common Stock account may be sold and the net proceeds
delivered to the employee or the value of the fractional interest may be
determined by reference to the current fair market value of the Common Stock and
paid to the employee in cash.
All cash dividends and other cash distributions, if any, paid in respect of
the shares credited to a Common Stock account, less any amount the Company is
required to deduct as backup withholding in respect of the dividend or
distribution received, or considered to be received, will be paid directly to an
employee.
LIMITATION ON NUMBER OF SHARES PURCHASED BY INDIVIDUAL EMPLOYEES
The maximum number of shares which may be purchased by any employee for any
Purchase Period is limited to the lesser of (a) an aggregate total of $25,000
worth of shares which may be purchased (based upon the fair market value of the
Common Stock on the first day of the Purchase Period) during a calendar year, or
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(b) 20% of the employee's basic compensation for the last calendar quarter in
the calendar year immediately preceding the first day of the Purchase Period
divided by 85% of the fair market value of a share of Common Stock on the first
day of the Purchase Period. Any amount remaining in the employee's contribution
account because of these limitations will be refunded.
INFORMATION FOR ELIGIBLE EMPLOYEES; VOTING RIGHTS
Each participating employee will receive at least quarterly each year a
statement of all transactions affecting the Common Stock account relating to the
employee and the number of shares (including any fractional interests in a
share) of the Common Stock credited to the Common Stock account. Each employee
will also receive copies of all reports, proxy statements and other
communications distributed by the Company to its stockholders generally at the
time and in the manner such material is sent to such stockholders.
Participating employees with Common Stock in a Common Stock account will
receive proxy soliciting material in connection with each meeting of
stockholders of the Company. Shares can be voted only by the holder of record.
The shares of the Common Stock credited to each Common Stock account (including
any fractional interests in a share) will be voted by the holder of record only
in accordance with the employee's signed proxy instructions duly delivered to
the holder of record.
EXPENSES OF THE PLAN
The Company will pay all expenses incident to the operation of the Plan,
including the costs of record keeping, accounting fees, legal fees, the costs of
delivery of stock certificates to employees and the costs of delivery of
shareholder communications. The Company will not pay any expenses, broker's or
other commissions or taxes incurred in connection with the sale of shares of the
Common Stock credited to a Common Stock account at the direction of the
employee. Expenses in connection with any such sale will be deducted from the
proceeds of sale prior to any remittance to the employee.
AMENDMENT AND TERMINATION
The Board of Directors may amend or terminate the Plan at any time. Without
stockholder approval, however, no amendment may (a) increase the total number of
shares which may be issued and sold under the Plan, (b) lower the minimum
purchase price of shares under the Plan or (c) permit Plan shares to be
purchased by individuals other than employees of the Company and its
subsidiaries.
Unless previously terminated by the Board, the Plan will terminate on the
earlier of (a) June 30, 2003 or (b) the last day of the Purchase Period that
participating employees become entitled to purchase a number of shares equal to
or greater than those remaining available for purchase under the Plan.
If on the last day of a Purchase Period the number of shares eligible for
purchases by employees is greater than the number of shares remaining available,
the Committee will allocate the available shares among the participating
employees in such manner as it deems fair and which complies with the
requirements of Section 423 of the Internal Revenue Code. If during a Purchase
Period it appears that, at the end of the Purchase Period, the shares eligible
for purchase through authorized payroll deductions may exceed the shares
remaining available, the Committee may reduce the payroll deductions authorized
by participating employees. Following any termination of the Plan, any balances
in employees' contribution accounts not applied to the purchase of shares will
be refunded.
EFFECT ON OTHER PLANS
No income, if any, received by an employee due to the discount in the
Purchase Price from the fair market value of the Common Stock provided by the
Company under the Plan shall be considered compensation for purposes of any
pension or retirement plan, insurance plan or any other employee benefit plan of
the Company or a subsidiary (notwithstanding the definition of compensation
provided in such plans).
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FEDERAL INCOME TAX CONSEQUENCES
The principal Federal income tax consequences under present law to
participating employees who are residents or citizens of the United States of
America of the purchase of shares of Common Stock under the Plan, participation
in the Plan and certain dispositions of shares of Common Stock acquired under
the Plan are summarized below. The Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Internal Revenue
Code of 1986, as amended.
Amounts representing payroll deductions from a participating employee's
compensation under the Plan continue to be taxable income to the employee in the
year such amounts are earned for Federal, state and local income tax purposes.
Cash dividends and other cash distributions, if any, paid in respect of shares
credited to a Common Stock account generally constitute taxable dividend income
on the date on which the dividends or distributions are received by the
participating employee. Interest, if any, credited to an employee's contribution
account under the Plan will be taxable income to the employees, and the Company
will be entitled to a corresponding deduction.
For Federal income tax purposes, employees participating in the Plan are
viewed as having been granted a qualified stock option on the first day of the
Purchase Period and as having exercised the stock option by the automatic
purchase of shares on the last day of the Purchase Period. A participating
employee will not recognize taxable income with respect to the stock option at
the time of grant of the option, on the date the shares are purchased under the
Plan and credited to a Common Stock account or when the employee receives
certificates representing full shares of Common Stock withdrawn from the
employee's Common Stock account. Instead, a participating employee will
generally recognize taxable income only upon disposition of the Common Stock
acquired under the Plan or upon death while owning such Common Stock.
If an employee disposes of shares of Common Stock purchased under the Plan
more than two years after the first day of the Purchase Period during which such
shares were purchased and more than one year after the date of the transfer of
such shares to the employee's Common Stock account or an employee dies at any
time while owning Common Stock that was acquired under the Plan, the employee
generally will be required to include in ordinary income, as compensation for
the year in which such disposition or death occurs, an amount equal to the
lesser of (i) the excess, if any, of the fair market value of such shares at the
time of disposition or death over the purchase price paid for such shares, or
(ii) an amount equal to 15% of the fair market value of the shares as of the
first day of the Purchase Period during which such shares were purchased. The
remainder of the gain recognized upon disposition that is not taxable as
compensation income will be long-term capital gain. If the fair market value of
the shares on the date of disposition is less than the purchase price, no
compensation income will be recognized and any loss recognized will be a
long-term capital loss. In the event of a disposition after the two-year or
one-year periods described above or death, the Company or its Subsidiary by
which the employee is employed will not be entitled to any tax deduction for
amounts attributable to such disposition or death.
If an employee disposes of the shares of Common Stock purchased under the
Plan within the two-year or one-year periods described in the preceding
paragraph, the employee generally will be required to include in ordinary
income, as compensation for the year in which such disposition occurs, an amount
equal to the excess of the fair market value of such shares on the date of
purchase over the purchase price. In addition, the employee will recognize a
capital gain or loss in an amount equal to the difference between the amount
realized upon the disposition and the basis of the shares (generally the
purchase price plus the amount taxed as compensation income). In the event of a
disposition within the two-year or one-year periods, the Company or the
Subsidiary by which the employee is employed will be entitled to a tax deduction
equal to the amount the employee is required to include in income as
compensation as a result of the disposition.
The holding period for shares acquired under the Plan will begin on the
date on which the shares are purchased and shares held for more than one year
will qualify for long-term capital gain or loss treatment. The Taxpayer Relief
Act of 1997 made certain changes to the rules governing capital gain or loss.
Favorable capital gain rates may apply to long-term capital gain and, under the
new law, even more favorable capital gain rates may apply if the shares are held
for more than 18 months.
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An employee who is not a resident or a citizen of the United States will
generally not be subject to the United States federal income tax rules described
above with respect to the shares of Common Stock purchased under the Plan. The
applicable rules for such employees may vary depending on the tax laws of the
country to which the employee is subject.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote on the proposal is required for approval of adoption of the
Plan. Since the aggregate number of shares voted "For," "Against" or "Abstain"
is counted in determining the minimum number of affirmative votes required for
approval, an abstention has the same legal effect as a vote "Against" the
proposal. If a broker or similar nominee limits on the proxy card the number of
shares voted on the proposal or indicates that the shares represented by a proxy
card are not voted on the proposal, such "broker non-votes" will not be voted on
the proposal and will not be counted in determining the number of affirmative
votes required for approval.
PROXY PROPOSAL NO. 3
AMENDMENT OF 1995 STOCK INCENTIVE PLAN
On May 26, 1995, prior to the Company's initial public offering of the
Common Stock of the Company (the "Public Offering"), the Board and the
stockholders unanimously adopted the 1995 Stock Incentive Plan (the "Incentive
Plan"). Since such date, the Board has made minor amendments to the Incentive
Plan.
The Board has adopted, subject to stockholder approval, an amendment of the
Incentive Plan to increase the total number of shares of the Company's Common
Stock which may be issued under the Incentive Plan by an additional 1,600,000
shares, from 3,100,000 to 4,700,000 shares.
Of the 3,100,000 shares currently authorized under the Incentive Plan, as
of March 31, 1998 awards for 2,921,581 shares have already been granted leaving
total remaining shares available for awards of only 178,419. The Board believes
that the awards under the Incentive Plan (including options) have been an
important component of the Company's performance and success since the Public
Offering by contributing to the motivation of the Company's employees. The Board
further believes that additional awards (including option grants) in the future
to motivate and reward new and existing employees of the Company and its
subsidiaries are in the best interests of the Company and will further enhance
the Company's long-term performance. The remaining shares available under the
Incentive Plan are not sufficient to meet these objectives.
In determining whether to approve and recommend to the stockholders an
increase in the number of shares available for awards (including option grants)
under the Incentive Plan, the Board has reviewed data with respect to a group of
peer companies which indicates that such companies have stock option plans which
comprise approximately 10% to 23% of their common shares. Currently the existing
3,100,000 common shares authorized under the Incentive Plan constitute
approximately 9.2% of the Company's total common shares. The total common shares
authorized under the Incentive Plan after giving effect to the proposed increase
would constitute approximately 14% of the Company's total common shares, which
percentage is still well within the range of the Company's peer group.
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The amendment is required to be approved by an affirmative vote of a
majority of the votes present at the Annual Meeting (in person or by proxy). THE
BOARD OF DIRECTORS STRONGLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF ADOPTION OF THE AMENDMENT OF THE 1995 STOCK INCENTIVE PLAN. The proxies
solicited on behalf of the Board of Directors will be voted for the adoption of
the amendment to the Incentive Plan unless otherwise specified.
The principal features of the Incentive Plan are summarized below. Copies
of the entire text of the Incentive Plan are available to stockholders upon
written request to the Company's Secretary, 1001 Air Brake Avenue, Wilmerding,
Pennsylvania 15148.
GENERAL
The purposes of the 1995 Stock Incentive Plan are to encourage eligible
employees of the Company and its subsidiaries to increase their efforts to make
the Company and its subsidiaries more successful, to provide an additional
inducement for such employees to remain with the Company or one of its
subsidiaries, to reward such employees by providing an opportunity to acquire
shares of the Company's Common Stock on favorable terms and to provide a means
through which the Company may attract able persons to enter the employ of the
Company or one of its subsidiaries.
The Incentive Plan provides for the grant of "incentive stock options"
pursuant to Section 422 of the Code, the grant of "nonstatutory stock options"
(i.e., stock options which do not qualify under Sections 422 or 423 of the Code)
or the grant of both types of stock options (but not in tandem). It also
provides for the grant of cash payment rights in conjunction with nonstatutory
stock options (but not incentive stock options), and for the award of restricted
shares and performance units. No stock options or cash payment rights may be
granted and no restricted shares may be awarded after May 26, 2005.
ADMINISTRATION
The Incentive Plan is administered by the Compensation Committee, the
members of which are not eligible to participate in the Incentive Plan.
The Compensation Committee has full authority, in its discretion, to grant
options under the Incentive Plan to grant cash payment rights, to make
restricted share awards, to make performance unit awards and to determine the
employees to whom grants and awards will be made and the number of shares
covered thereby. In determining grants or awards, the Compensation Committee
will consider the position and the responsibilities of the employee being
considered, the nature and value of the employee to the Company or the
subsidiary of his or her services, his or her present and/or potential
contribution to the success of the Company or a subsidiary and such other
factors as the Compensation Committee may deem relevant.
The Compensation Committee has the power to interpret the Incentive Plan
and prescribe such rules, regulations and procedures in connection with the
operation of the Incentive Plan as it deems necessary and advisable for the
administration of the Incentive Plan.
STOCK OPTIONS
The option price for each option may not be less than one hundred percent
(100%) of the fair market value per share of the Common Stock covered by the
stock option on the date of grant, except that (a) in the case of an incentive
stock option granted to an employee who, immediately prior to such grant, owns
stock possessing more than (10%) of the total combined voting power of all
classes of stock of the Company or any subsidiary (a "Ten Percent Employee"),
the option price will be one hundred ten percent (110%) of such fair market
value on the date of grant or (b) in the case of a nonstatutory stock option
granted to an employee who becomes an employee of the Company or any subsidiary
as a result of the acquisition by the Company or any subsidiary of the stock or
assets of another entity or business and is not a reporting person under Section
16(a) of the Exchange Act and the grant is made within twelve (12) months of
such acquisition, the option price may be less than the fair market value on the
date of the grant. Fair market value for all purposes under the Incentive Plan
is the average of the high and low sales prices of the Common Stock as quoted in
the NYSE-Composite Transactions listing for such
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date as quoted in The Wall Street Journal (or in such other reliable publication
as the Committee, in its discretion, may determine to rely upon).
The option price for each stock option is payable in full in cash; however,
in lieu of cash an optionee may (if authorized by the Compensation Committee at
the time of grant in the case of an incentive stock option, or at any time in
the case of a nonstatutory stock option) pay the option price in whole or in
part by delivering to the Company shares of the Common Stock having a fair
market value on the date of exercise of the stock option equal to the option
price for the shares being purchased, except that (i) any portion of the option
price representing a fraction of a share will in any event be paid in cash and
(ii) no shares of the Common Stock which have been held for less than six months
may be delivered in payment of the option price of a stock option.
The aggregate fair market value of the shares with respect to which
incentive stock options are exercisable for the first time by an optionee during
any calendar year may not exceed $100,000. Any amount that is in excess of
$100,000 during such calendar year will be converted to nonstatutory stock
options (as more fully described below). If the date on which one or more of
such incentive stock options could first be exercised would be accelerated
pursuant to any provision of the Incentive Plan or any stock option agreement,
and the acceleration of such exercise date would result in a violation of the
$100,000 limitation, then, notwithstanding any such provision, the exercise
dates of such incentive stock options will be accelerated only to the date or
dates, if any, that do not result in a violation of such limitation and, in such
event, the exercise dates of the incentive stock options with the lowest option
prices will be accelerated to the earliest such dates. The Committee may,
however, in its discretion, authorize the acceleration of the exercise date of
one or more incentive stock options even if such acceleration would violate the
$100,000 limitation and even if such incentive stock options are thereby
converted in whole or in part to nonstatutory stock options.
Unless the Compensation Committee determines otherwise at the time of the
grant of a stock option, in the event of termination of employment of an
optionee, the following rules will apply. If an optionee who is not a Disabled
Grantee (as defined in the Incentive Plan) is voluntarily terminated or retires
under any retirement plan of the Company or a subsidiary, (i) any then
outstanding incentive stock option held by such optionee will be exercisable by
the optionee (but only to the extent exercisable by the optionee immediately
prior to the termination of employment) at any time prior to the expiration date
of such incentive stock option or within three months after the date of
termination of employment, whichever is the shorter period and (ii) any then
outstanding nonstatutory stock option held by such optionee will be exercisable
by the optionee (but only to the extent exercisable by the optionee immediately
prior to the termination of employment) at any time prior to the expiration date
of such nonstatutory stock option or within one year after the date of
termination of employment, whichever is the shorter period. If an optionee who
is a Disabled Grantee is voluntarily terminated with the consent of the Company
or a subsidiary, any then outstanding stock option held by such optionee will be
exercisable by the optionee in full (whether or not so exercisable by the
optionee immediately prior to the termination of employment) by the optionee at
any time prior to the expiration date of such stock option or within one year
after the date of termination of employment, whichever is the shorter period. In
the event of death of an optionee during employment, any outstanding stock
option held by the optionee at the time of death will be exercisable in full
(whether or not so exercisable by the optionee immediately prior to the death of
the optionee) by the person entitled to do so under the optionee's will, or, if
the optionee dies intestate, by the legal representative of the optionee at any
time prior to the expiration date of such stock option or within one year after
the date of death of the optionee, whichever is the shorter period. In the event
of death of an optionee after termination of employment during a period when a
stock option is exercisable, the stock option will be exercisable by such person
entitled to do so under the will of the optionee or by such legal representative
(but only to the extent the stock option was exercisable by the optionee
immediately prior to the death of the optionee) at any time prior to the
expiration date of such stock option or within one year after the date of death,
whichever is the shorter period. If the employment of an optionee terminates for
any other reason, all outstanding stock options held by the optionee at the time
of such termination of employment will automatically terminate.
No stock option is transferable other than by will, or if the optionee dies
intestate, by the laws of descent and distribution, and all stock options may be
exercised during an optionee's life only by the optionee.
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CASH PAYMENT RIGHTS
Cash payment rights may be granted in conjunction with a nonstatutory stock
option and entitle the awardee entitled to exercise the stock option, upon
exercise of the stock option or any portion thereof, to receive cash from the
Company (in addition to the shares to be received upon exercise of the stock
option) equal to such percentage as the Compensation Committee, in its
discretion, may determine not greater than one hundred percent (100%) of the
excess of the fair market value of a share of the Common Stock on the date of
exercise of the stock option over the option price per share of the stock option
times the number of shares covered by the stock option, or portion thereof,
which is exercised. Payment of the cash will be made by the Company as soon as
practicable after the time the amount payable is determined.
Each grant of stock options and cash payment rights will be confirmed by an
agreement between the Company and the optionee which sets forth the terms of the
grant or award.
RESTRICTED SHARES
The Compensation Committee may award restricted shares subject to such
restrictions, forfeitures or events as the Committee may determine in its
discretion. Each restricted share award will be confirmed by an agreement
between the Company and the awardee setting forth the number of shares of Common
Stock awarded, the restrictions imposed thereon, the duration of such
restrictions and such other conditions as shall be determined by the
Compensation Committee.
Following the award of restricted shares and prior to the lapse or
termination of the applicable restrictions, share certificates for the
restricted shares will be issued in the name of the awardee and deposited with
the Company in escrow. Upon the lapse or termination of the applicable
restrictions (and not before such time), the awardee will receive the share
certificates for the restricted shares and unpaid dividends, if any, if such
dividends were not payable during the period of the restrictions. From the date
the award of restricted shares is effective, the awardee will be a stockholder
with respect to all the shares represented by the share certificates and will
have all the rights of a stockholder with respect to all the restricted shares,
including the right to vote such shares and to receive all dividends and other
distributions paid with respect to such shares, subject only to the preceding
provisions of this paragraph and the other restrictions imposed by the
Committee.
PERFORMANCE UNITS
The Committee may award performance units based on the level of performance
over a specified period of time by the Company or a subsidiary, as determined by
the Committee. Performance units may be granted in either cash or shares of
Common Stock. Cash awards may be established as fixed dollar amounts, a
percentage of salary or a percentage of a pool based on earnings of the Company
or any of its subsidiaries.
ADDITIONAL RIGHTS IN CERTAIN EVENTS
The Incentive Plan provides for certain additional rights upon the
occurrence of one or more of the following events: (i) the Company acquires
actual knowledge that any person (other than certain designated persons) has
acquired beneficial ownership, directly or indirectly, of securities of the
Company representing 30% or more of the voting power of the Company, (ii) a
tender offer is made to acquire securities of the Company representing 30% or
more of the voting power of the Company, (iii) a person other than the Company
solicits proxies relating to the election or removal of 50% or more of any class
of the Board of Directors or (iv) the stockholders of the Company approve a
merger, consolidation, share exchange, division or sale or other disposition of
assets of the Company as a result of which the shareholders of the Company
immediately prior to the transaction will not own a majority of the voting power
of the surviving or resulting Company or any company which acquires the stock of
the Company or more than 30% of its consolidated assets ("Section 8 Events").
Subject to the terms of the Incentive Plan and unless the agreement between
the Company and the employee otherwise provides, if any Section 8 Event occurs
(i) all outstanding stock options will become immediately and fully exercisable,
(ii) all stock options held by an optionee whose employment with the Company or
a subsidiary terminates within one year of any Section 8 Event for any reason
other than voluntary termination with the
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consent of the Company or a subsidiary, retirement under any retirement plan of
the Company or subsidiary or death will be exercisable for a period of one year
(or three years if the awardee has retired) from the date of such termination of
employment, but in no event after the expiration date of the stock option, (iii)
all restrictions applicable to restricted shares will lapse, and (iv) all
performance units will be deemed to have been earned and will be paid to the
awardee.
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the Incentive Plan providing for the acceleration of the
exercise date of stock options upon the occurrence of a Section 8 Event and for
the extension of the period during which stock options may be exercised upon
termination of employment following a Section 8 Event may be considered as
having an anti-takeover effect.
MISCELLANEOUS
The Board of Directors may amend or terminate the Incentive Plan at any
time, except that the Incentive Plan may not be altered or amended, without
stockholder approval, (i) to increase the number of shares which may be issued
under the Incentive Plan, (ii) to increase the maximum number of shares as to
which stock options may be granted and as to which shares may be awarded under
the Incentive Plan to any one employee, (iii) to make any changes in the class
of employees eligible to receive options or awards under the Incentive Plan or
(iv) if stockholder approval of the amendment is at the time required for grants
or awards under the Incentive Plan to qualify for the exemption from Section
16(b) of the Exchange Act provided by Rule 16b-3 or by the rules of the New York
Stock Exchange. No amendment or termination of the Incentive Plan shall, without
the written consent of the holder of an outstanding grant or award under the
Incentive Plan that would adversely affect the rights of such holder with
respect to such outstanding grant or award.
If the outstanding shares of Common Stock are changed in value by reason of
a spin-off, split-off, split-up, dividend in partial liquidation or dividend in
property other than cash or extraordinary distribution to shareholders, then the
Compensation Committee shall make any adjustments to any outstanding stock
options under the Incentive Plan which it determines are equitably required to
prevent dilution or enlargement of the rights of optionees.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of stock options and other awards under
present law.
Incentive Stock Options. An optionee does not recognize any taxable income
for Federal income tax purposes upon receipt of an incentive stock option or,
generally, upon the exercise of an incentive stock option, whether the option
price is paid in whole or in part in cash or shares of the Company's Common
Stock. The exercise of an incentive stock option generally will result in an
increase in an optionee's taxable income for alternative minimum tax purposes.
If an optionee exercises an incentive stock option and does not dispose of
the shares received in a subsequent "disqualifying disposition" (generally, a
sale, gift or other disposition within two years after the date of grant of the
incentive stock option or within one year after the shares are transferred to
the optionee), upon disposition of the shares any amount realized in excess of
the optionee's tax basis in the shares disposed of is treated as a long-term
capital gain, and any loss is treated as a long-term capital loss. In the event
of a "disqualifying disposition," the difference between the fair market value
of the shares received on the date of exercise and the option price (limited, in
the case of a sale or exchange in which a loss, if sustained, would be
recognized, to the excess of the amount realized upon disposition over the
optionee's tax basis in the shares) is treated as compensation received by the
optionee and is taxable in the year of disposition. Any additional gain is
taxable as a capital gain and any loss as a capital loss, which may be long-term
or short-term depending upon the holding period of the shares disposed of. The
Taxpayer Relief Act of 1997 made certain changes to the rules governing capital
gain or loss. Shares held for more than one year will qualify for long-term
capital gain or loss treatment. Favorable capital gain rates may apply to
long-term capital gain and, under the new tax law, even more favorable
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capital gain rates may apply if the shares are held for more than 18 months.
Under proposed regulations, special rules apply in determining the compensation
income recognized upon a "disqualifying disposition" if the option price of the
incentive stock option is paid in shares of Common Stock. If shares of Common
Stock received upon the prior exercise of an incentive stock option are
transferred to the Company in payment of the option price of an incentive stock
option within either of the two-year or one-year periods referred to above, the
transfer is considered a "disqualifying disposition" of the shares transferred,
but, under proposed regulations, only compensation income determined as stated
above, and no capital gain or loss, is recognized.
Neither the Company nor any of its subsidiaries is entitled to a deduction
for compensation paid with respect to shares received by an optionee upon
exercise of an incentive stock option and not disposed of in a "disqualifying
disposition." If an amount is treated as compensation received by an optionee
because of a "disqualifying disposition," the Company or one of its subsidiaries
generally is entitled to a corresponding deduction in the same amount for
compensation paid.
Nonstatutory Stock Options. Generally, an optionee does not recognize any
taxable income for Federal income tax purposes upon receipt of a nonstatutory
stock option provided that the option price is not nominal. Upon the exercise of
a nonstatutory stock option with cash, the amount by which the fair market value
of the shares received, determined as of the date of exercise, exceeds the
option price is generally treated as compensation received in the year of
exercise. If the option price of a nonstatutory stock option is paid in whole or
in part in shares of the Company's Common Stock, no income, gain or loss is
recognized on the receipt of shares equal in value on the date of exercise to
the shares delivered in payment of the option price. The fair market value of
the remainder of the shares received upon exercise of the nonstatutory stock
option, determined as of the date of exercise, less the amount of cash, if any,
paid upon exercise, is generally treated as compensation income received on the
date of exercise.
If an optionee sells the shares received upon exercise of a nonstatutory
stock option, the difference between the amount realized on the sale and the
optionee's tax basis in the shares sold is taxed as a capital gain or a capital
loss, which will be long-term or short-term depending upon the holding period of
the shares sold.
In each instance that an amount is treated as compensation received, the
Company or one of its subsidiaries generally is entitled to a corresponding
deduction in the same amount for compensation paid.
Cash Payment Rights. An optionee does not recognize any taxable income for
Federal income tax purposes upon receipt of cash payment rights. Any cash
received in payment of cash payment rights is treated as compensation received
in the year in which the optionee becomes entitled to receive the cash payment
upon exercise of the related stock option. In each instance that an amount is
treated as compensation received, the Company or one of its subsidiaries
generally is entitled to a corresponding deduction in the same amount for
compensation paid.
Restricted Shares. An awardee of restricted shares does not recognize any
taxable income for Federal income tax purposes in the year of the award,
provided the shares are subject to restrictions (that is, they are
nontransferable and subject to a substantial risk of forfeiture). However, an
awardee may elect under Section 83(b) of the Code to recognize compensation
income in the year of the award in an amount equal to the fair market value of
the shares on the date of the award, determined without regard to the
restrictions. If the awardee does not make a Section 83(b) election, the fair
market value of the shares on the date the restrictions lapse is treated as
compensation income to the awardee and is taxable in the year the restrictions
lapse. In each instance that an amount is treated as compensation received, the
Company or one of its subsidiaries generally is entitled to a corresponding
deduction in the same amount for compensation paid.
In general, if the awardee subsequently sells the shares, the difference
between the amount realized on the sale and the sum of the amount treated as
compensation either at the time the restrictions lapse or pursuant to the
Section 83(b) election, and the amount paid, if any is taxed as a capital gain
or a capital loss, which will be long-term or short-term depending upon the
holding period of the shares sold.
Performance Units. An awardee of performance units does not recognize any
taxable income for Federal income tax purposes upon receipt of the award. Any
cash or shares of Common Stock received pursuant to the award are treated as
compensation received by the awardee generally in the year in which the awardee
becomes
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entitled to receive such cash or shares of Common Stock. The amount of
compensation income will equal the amount of cash and the fair market value of
the shares of Common Stock on the date compensation income is recognized. In
each instance that an amount is treated as compensation received, the Company or
one of its subsidiaries generally is entitled to a corresponding deduction in
the same amount for compensation paid.
In general, if the awardee subsequently sells the shares, the difference
between the amount realized on the sale and the amount treated as compensation
is taxed as a capital gain or a capital loss, which will be long-term or
short-term depending upon the holding period of the shares sold.
Other Tax Matters. The acceleration of the right to exercise a stock
option or the exercise of a stock option, the lapse of restrictions on
restricted shares or the vesting of unearned performance units following the
occurrence of a Section 8 Event, in certain circumstances, may result in (i) a
20% Federal excise tax (in addition to Federal income tax) to the optionee or
awardee on certain amounts associated with the stock option and certain payments
of the Company's Common Stock resulting from such lapse of restrictions on
restricted shares or vesting of performance units and (ii) the loss of a
compensation deduction which would otherwise be allowable to the Company or one
of its subsidiaries.
Under Section 162(m) of the Code, the Company or one of its subsidiaries
may not be able to deduct compensation, which would otherwise be deductible,
paid to a "covered employee" (including compensation resulting from certain
grants or awards under the plan) that is in excess of $1,000,000 in any taxable
year. A "covered employee" is any employee if, as of the close of the tax year,
the employee is the chief executive officer of the Company or is among the four
highest compensated officers for that tax year (other than the chief executive
officer) for whom total compensation is required to be reported to stockholders
under the Exchange Act.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote on the proposal is required for approval of adoption of the
Incentive Plan. Since the aggregate number of shares voted "For," "Against" or
"Abstain" is counted in determining the minimum number of affirmative votes
required for approval, an abstention has the same legal effect as a vote
"Against" the proposal. If a broker or similar nominee limits on the proxy card
the number of shares voted on the proposal or indicates that the shares
represented by a proxy card are not voted on the proposal, such "broker
non-votes" will not be voted on the proposal and will not be counted in
determining the number of affirmative votes required for approval.
PROXY PROPOSAL NO. 4
RATIFICATION OF APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
On February 26, 1998, the Board of Directors appointed Arthur Andersen LLP
as independent public accountants to audit the books and records of the Company
and its subsidiaries for the year ending December 31, 1998. Arthur Andersen LLP
served as the Company's independent public accountants for the year ended
December 31, 1997. Although the appointment of independent public accountants is
not required to be approved by stockholders, the Board of Directors believes
that stockholders should participate in such selection through ratification. If
the stockholders fail to ratify Arthur Andersen LLP as the independent public
accountants, the Board of Directors will reconsider its selection.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and, while they are not expected to make a statement, they will
have the opportunity to do so if they desire. They will also be available to
respond to appropriate questions.
VOTE REQUIRED
Adoption of the proposal requires the approval of a majority of the votes
cast. An abstention from voting by a stockholder present in person or
represented by proxy and entitled to vote is not a vote cast "for" or "against"
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the proposal and is therefore not counted in determining whether the required
vote for ratification has been obtained.
It is intended that the proxies solicited by the Board of Directors will be
voted FOR ratification of the appointment of Arthur Andersen LLP.
OTHER MATTERS
No business other than that set forth above is expected to come before the
Annual Meeting or any adjournment thereof. Should other business properly come
before the Annual Meeting or any adjournment thereof, the proxy holders will
vote upon the same according to their discretion and best judgment.
EXPENSES OF SOLICITATION
The cost of solicitation of proxies for the Annual Meeting will be paid by
the Company. In addition to the solicitation of proxies by mail, the officers
and regular employees of the Company may solicit proxies in person or by
telephone or telegraph. ChaseMellon Shareholder Services, L.L.C. will forward
proxy soliciting material and the Company's 1997 Annual Report to Stockholders
to the beneficial owners of the shares of the Company's Common Stock held of
record by them at an approximate cost of $12,000. In addition, other nominees,
custodians or fiduciaries will forward proxy soliciting material and the
Company's 1997 Annual Report to Stockholders to the beneficial owners of the
shares of the Company's Common Stock held of record by them, and the Company
will reimburse these record holders for their reasonable out-of-pocket expenses
incurred in doing so.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
A proposal submitted by a stockholder for the regular annual meeting of
stockholders to be held in 1999 must be received by the Secretary, Westinghouse
Air Brake Company, 1001 Air Brake Avenue, Wilmerding, Pennsylvania 15148 on or
prior to December 9, 1998 in order to be eligible for inclusion in the Company's
Proxy Statement for that annual meeting.
By Order of the Board of Directors,
Robert J. Brooks
Chief Financial Officer
and Secretary
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APPENDIX A
WESTINGHOUSE AIR BRAKE COMPANY
1998 EMPLOYEE STOCK PURCHASE PLAN
The purposes of the 1998 Employee Stock Purchase Plan (the "Plan") are to
provide eligible employees of Westinghouse Air Brake Company (the "Company") and
its Subsidiaries a convenient opportunity to purchase shares of the Common
Stock, par value $.01 per share, of the Company (the "Common Stock") through
quarterly offerings financed by payroll deductions and to provide a stock
ownership incentive for such employees to promote the continued success of the
Company. For the purposes of the Plan, the term "Subsidiary" means any
corporation in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing at least fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain. The Plan is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code of 1986 (the "Code"). The
provisions of the Plan shall accordingly be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423 of the
Code and the regulations thereunder. For the purposes of the Plan, the term
"Agent" shall mean Mellon Bank, N.A. or Chase Mellon Shareholder Services L.L.C.
or such successor agent as the Company may employ. The Company reserves the
right to change the Agent without notice.
PARTICIPATION IN THE PLAN IS VOLUNTARY, AND NO RECOMMENDATION IS MADE TO
EMPLOYEES AS TO WHETHER THEY SHOULD OR SHOULD NOT PARTICIPATE IN THE PLAN. THERE
IS NO GUARANTEE UNDER THE PLAN AGAINST LOSS BECAUSE OF FLUCTUATIONS IN THE
MARKET PRICE OF THE COMMON STOCK AND, IN THE CASE OF NON-UNITED STATES
EMPLOYEES, BECAUSE OF FLUCTUATIONS IN THE U.S. DOLLAR EXCHANGE RATE. IN SEEKING
THE BENEFITS OR SHARE OWNERSHIP, EACH EMPLOYEE MUST ALSO ACCEPT THE RISKS
ATTENDANT TO SUCH OWNERSHIP.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors of the Company (the "Board") and consisting of not
less than two members of the Board.
The Committee shall keep records of action taken at its meetings. A
majority of the Committee shall constitute a quorum at any meeting, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts unanimously approved in writing by the Committee, shall be the
acts of the Committee.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan shall be subject to the determination of the Committee,
which shall be final and binding. Neither the Company nor the Committee is
liable for any act done in good faith or for any good faith omission to act,
including, without limitation, any claim of liability with respect to the prices
or times at which shares of Common Stock are issued or delivered or sold, or
with respect to any fluctuation in market value before or after any issuance or
delivery or sale of shares.
The day-to-day administrative and procedural matters associated with the
Plan shall be the responsibility of an on-site Plan administrator (the
"Administrator") who shall be under the direction of the Committee and whose
duties shall include, without limitation, communication with employees, periodic
reporting to the Committee and decision-making with respect to certain matters
under the Plan; provided, however, that any decisions made by the Administrator
may be subject to the Committee's ratification or reversal in its discretion.
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SECTION 2
ELIGIBILITY
Any person who as of the first day of a Purchase Period (as defined in
Section 4) is a full-time or a regular part-time employee of the Company or a
full-time or a regular part-time employee of a Subsidiary authorized by the
Committee to participate in the Plan shall be eligible to participate in the
Plan during such Purchase Period. A full-time employee of the Company or one of
its Subsidiaries is an employee who has been employed by the Company or one of
its Subsidiaries on a full-time basis for at least one year, and a regular
part-time employee of the Company or one of its Subsidiaries is one who has been
employed by the Company or one of its Subsidiaries for at least one year and
whose customary employment is 20 or more hours per week during the period of
employment by the Company or one of its Subsidiaries. Employees of the Company
or one of its Subsidiaries who are citizens of countries or jurisdictions the
laws of which make participation illegal will not be permitted to participate.
Notwithstanding any other provision of the Plan, no employee shall be
granted an option under the Plan if such employee, immediately after the option
is granted, owns stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Subsidiary. For purposes of the preceding sentence, the rules of Section 424(d)
of the Code shall apply in determining the stock ownership of an employee, and
stock which the employee may purchase under outstanding options shall be treated
as stock owned by the employee.
SECTION 3
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares of the Common Stock which may be issued
under the Plan is 500,000 shares, subject to adjustment and substitution as set
forth in Section 11. The shares which may be issued under the Plan shall be
reacquired (treasury) shares.
SECTION 4
PURCHASE PERIODS; GRANT OF STOCK OPTIONS
Unless otherwise determined by the Committee, (a) there shall be twenty
quarterly Purchase Periods under the Plan, (b) each such Purchase Period shall
be equivalent to a calendar quarter, beginning on the first day of a calendar
quarter and ending on the last day of a calendar quarter and (c) the first
Purchase Period under the Plan shall commence on July 1, 1998 and shall end on
September 30, 1998. In no event shall the duration of any Purchase Period exceed
twenty-seven (27) months.
On the first day of each Purchase Period, each employee participating in
the Plan on such date shall be granted an option to purchase a number of shares
of Common Stock (subject to adjustment as provided in Section 11 determined by
dividing (a) twenty percent (20%) of the employee's Basic Compensation, as
defined in Section 5, for the last three calendar months of the immediately
preceding calendar year, by (b) eighty-five percent (85%) of the fair market
value of a share of Common Stock on the first day of such Purchase Period,
determined as provided in Section 7. To the extent an option to purchase shares
of Common Stock is not exercised at the end of the Purchase Period as provided
for in Section 6, the option shall terminate.
If as a result of a merger, acquisition or similar transaction occurring
after the first day of the then current Purchase Period a corporation or other
entity becomes a Subsidiary authorized to participate in the Plan, the Committee
may in its sole discretion authorize a special Purchase Period to accommodate
the employees of such Subsidiary, provided that such special Purchase Period is
consistent with the requirements of Section 423 of the Code and the regulations
thereunder.
Notwithstanding any other provision of the Plan, no employee participating
in the Plan shall be granted an option which permits the employee's rights to
purchase stock under all employee stock purchase plans under Section 423 of the
Code of the Company or any Subsidiary to accrue at a rate which exceeds $25,000
of the fair market value of the Common Stock, determined at the time such option
is granted, or such other maximum as
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may be prescribed for qualifying employee stock purchase plans under Section 423
of the Code, for each calendar year in which such option is outstanding at any
time.
SECTION 5
PAYROLL DEDUCTIONS
An eligible employee may become a participant in the Plan for a Purchase
Period by enrolling and authorizing payroll deductions from his or her
compensation using the telephone authorization system which will be provided by
the Agent (details concerning the use of the system will be provided separately
to employees) by the enrollment deadline established for the Purchase Period.
Unless otherwise determined by the Committee, the enrollment deadline for each
Purchase Period shall be five days prior to the first day of such Purchase
Period. Any enrollment completed after such deadline shall be effective only for
the beginning of the next succeeding Purchase Period. An eligible employee who
was a participant in the Plan at the close of the preceding Purchase Period
shall automatically be enrolled as a participant in the Plan for the succeeding
Purchase Period, if any, unless the employee's notice of disenrollment and
withdrawal as described below in this Section 5 is received via the telephone
authorization system of the Agent prior to the enrollment deadline established
for the Purchase Period.
At the time an employee enrolls and authorizes payroll deductions via the
telephone authorization system of the Agent, the employee shall elect to have
deductions made from the employee's pay for each pay period ending during the
Purchase Period at a rate of not less than two percent (2%) and not more than
twenty percent (20%), in whole percentages, of the employee's Basic Compensation
for such pay periods. Unless the employee changes his or her prior payroll
deduction amount via the telephone authorization system of the Agent prior to
the enrollment deadline for a Purchase Period, an employee who is automatically
re-enrolled in the Plan for a Purchase Period by virtue of having been a
participant for the preceding Purchase Period shall be deemed to have elected
the same level of payroll deductions for the new Purchase Period as was in
effect for the participant as of the close of the preceding Purchase Period. For
this purpose and the purposes of Section 4, Basic Compensation shall mean the
sum of (a) base salary or base wages paid to an employee, including overtime,
vacation pay and holiday pay but excluding the items set forth in the next
succeeding sentence to the extent they are included in such definition of base
salary or base wages, and (b) salary reduction contributions to a cafeteria plan
or cash or deferred Section 401(k) plan sponsored by the Company or a Subsidiary
(exclusive of any employer's matching contribution). Basic Compensation shall
exclude (a) bonuses or other incentive compensation (including compensation from
the exercise of stock options or similar incentive compensation), (b) any fringe
benefits (including any benefits required to be provided by any governmental
authority), and (c) contributions or benefits (except as specifically listed in
the preceding sentence) under any employee benefit plans maintained by the
Company or a subsidiary. Notwithstanding the foregoing, no payroll deduction
shall be made pursuant to a payroll deduction authorization form filed by any
employee who has made a hardship withdrawal from the Westinghouse Air Brake
Company Savings Plan for a period of 12 months from the date of such hardship
withdrawal if the hardship withdrawal has been made in reliance on Treasury
Regulation ss. 1.401(k)-1(d)(2)(iv)(B) or any successor regulation.
Payroll deductions made under the Plan need not be set aside or segregated
from other corporate funds of the Company or any Subsidiary and may be used for
any corporate purpose. With respect to such payroll deductions, the rights of
participants shall be those of an unsecured general creditor.
An employee contribution account will be established by the Company for
each employee participating in the Plan, and payroll deductions made pursuant to
this Section 5 shall be credited to the individual employee's contribution
account. Unless otherwise determined by the Committee in its discretion, no
interest shall be credited or paid on such account.
Subject to such rules, regulations or procedures as may be adopted by the
Committee, an employee may at any time increase, decrease or suspend the
employee's payroll deduction by using the telephone authorization system of the
Agent. The change shall be effective as soon as practicable but in no event
shall it become effective earlier than the first pay period ending after the
employee makes such change via the telephone authorization system of the Agent.
Unless otherwise provided in rules, regulations or procedures established by the
Committee,
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a payroll deduction may be changed only once during a Purchase Period. In
addition, all payroll deductions for an employee will be automatically suspended
for a period of 12 months from the date of a hardship withdrawal by the employee
from the Westinghouse Air Brake Company Savings Plan if the hardship withdrawal
has been made in reliance on Treasury Regulation ss. 1.401(k)-1(d)(2)(iv)(B) or
any successor regulation.
An employee may at any time prior to five days before the last day of a
Purchase Period and for any reason disenroll and permanently withdraw the
balance accumulated in the employee's contribution account, and thereby withdraw
from participation in the Plan. An employee electing to do the same must use the
telephone authorization system of the Agent to provide notice of disenrollment
and withdrawal, and the disenrollment and withdrawal shall be effective as soon
as practicable after the employee makes such election via the telephone
authorization system of the Agent. Payroll deductions shall cease and the
amounts credited to the employee's contribution account shall be paid to the
employee by the Company as soon as practicable after receipt of the notice of
disenrollment and withdrawal. Further, such employee's Common Stock account
shall be terminated in accordance with Section 10. The employee may thereafter
elect to re-enroll and participate in the Plan for a subsequent Purchase Period
but may not again elect participation for the Purchase Period including the date
of disenrollment and withdrawal. Partial withdrawals shall not be permitted.
SECTION 6
PURCHASE OF SHARES
Subject to Section 10, and unless a notice of withdrawal has been received
prior to such date as provided in Section 5, an employee having a balance in the
employee's contribution account on the last day of the Purchase Period shall
automatically exercise the employee's option to purchase shares of Common Stock
under the Plan. The number of shares purchased by each participating employee
shall be determined by dividing (a) the balance in the employee's contribution
account by (b) the Purchase Price for such Purchase Period, provided that the
number of shares purchased shall not exceed the maximum number of shares subject
to the option granted to the employee as provided in Section 4. Fractional
shares shall be purchased and credited to an employee's Common Stock account
with the Agent as set forth below. Any balance in an employee's contribution
account after the exercise of the option and purchase of shares shall be paid to
the employee as soon as practicable.
As soon as practicable after each Purchase Period, the Company shall
(through the Agent) issue or deliver shares of Common Stock from the treasury of
the Company into each purchasing employee's respective Common Stock account
maintained by the Agent for such employee. Notwithstanding the foregoing, as of
the date of exercise, the purchasing employee shall be considered for all
purposes to be the owner of the shares with respect to which the stock options
have been exercised.
Each employee with respect to a Common Stock account shall acquire full
ownership of all shares and of any fractional interest in a share issued or
delivered to a Common Stock account. All shares in such Common Stock accounts
shall be registered in the name of the Agent or another nominee or custodian for
the benefit of the employees under the Plan. Although an employee may not assign
or hypothecate an interest in the Plan as such, upon crediting of shares under
the Plan such shares may be sold pursuant to the procedures set forth in
Sections 9 and 10 below or, following distribution of such shares to the
employee, may be sold, assigned, hypothecated or otherwise dealt with by the
employee, subject to Section 12 hereof, as is the case with respect to any other
shares of Common Stock the employee may own.
SECTION 7
PURCHASE PRICE
The Purchase Price of shares of Common Stock under the Plan for each
Purchase Period shall be the lesser of (a) an amount equal to eight-five percent
(85%) of the fair market value of the Common Stock as of the first day of such
Purchase Period, the day the options are granted under the Plan, or (b) an
amount equal to eighty-five percent (85%) of the fair market value of the Common
Stock as of the last day of the Purchase Period, the day the options may be
exercised under the Plan.
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Fair market value of the Common Stock shall be the mean between the
following prices, as applicable, for the date as of which fair market value is
to be determined as quoted in The Wall Street Journal (or in such other reliable
publication as the Committee, in its discretion, may determine to rely upon):
(a) if the Common Stock is listed on the New York Stock Exchange, the highest
and lowest sales prices per share of the Common Stock as quoted in the
NYSE-Composite Transactions listing for such date, (b) if the Common Stock is
not listed on such exchange, the highest and lowest sales prices per share of
the Common Stock for such date on (or on any composite index including) the
principal United States securities exchange registered under the 1934 Act on
which the Common Stock is listed, or (c) if the Common Stock is not listed on
any such exchange, the highest and lowest sales prices per share of the Common
Stock for such date on the National Association of Securities Dealers Automated
Quotations System or any successor system then in use ("NASDAQ"). If there are
no such sale price quotations for the date as of which fair market value is to
be determined but there are such sale price quotations within a reasonable
period both before and after such date, then fair market value shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices per share of the Common Stock as so quoted on the nearest
date before and the nearest date after the date as of which fair market value is
to be determined. The average should be weighted inversely by the respective
numbers of trading days between the selling dates and the date as of which fair
market value is to be determined. If there are no such sale price quotations on
or within a reasonable period both before and after the date as of which fair
market value is to be determined, then fair market value of the Common Stock
shall be the mean between the bona fide bid and asked prices per share of the
Common Stock as so quoted for such date on NASDAQ, or if none, the weighted
average of the means between such bona fide bid and asked prices on the nearest
trading date before and the nearest trading date after the date as of which fair
market value is to be determined, if both such dates are within a reasonable
period. The average is to be determined in the manner described above in this
Section 7. If the fair market value of the Common Stock cannot be determined on
the basis previously set forth in this Section 7 for the date as of which fair
market value is to be determined, the Committee shall in good faith determine
the fair market value of the Common Stock on such date.
SECTION 8
DIVIDENDS AND OTHER DISTRIBUTION
Except as provided below, all cash dividends and other cash distributions,
if any, paid in respect of the shares credited to a Common Stock account, less
any amount the Company is required to deduct as backup withholding in respect of
the dividend or distribution received, or considered to be received, shall be
paid directly to an employee.
Any stock dividends or stock splits in respect of shares of the Common
Stock credited to a Common Stock account shall be reflected in the account
without charge. Any distributions of other securities or rights to subscribe for
additional shares in respect of shares of the Common Stock credited to a Common
Stock account relating to a employee shall be made directly to the employee.
SECTION 9
VOLUNTARY SALE OR WITHDRAWAL OF SHARES
An employee may direct at any time that any or all of the shares credited
to the Common Stock account relating to the employee be sold. Upon such sale, a
check for the proceeds, less any brokerage commissions and other charges
applicable to the sale and less any amount required to be deducted as backup
withholding, shall be delivered to the employee. The employee may also request
at any time that a certificate or certificates representing any or all of the
full shares credited to the Common Stock account relating to the employee be
delivered to the employee.
Unless the employee directs that all shares credited to the Common Stock
account relating to the employee be sold and the net proceeds delivered to the
employee or requests that a certificate or certificates representing all full
shares credited to the Common Stock account relating to the employee be
delivered to the employee and the employee has also disenrolled from the Plan in
accordance with Section 5, the Common Stock account shall remain in effect even
if all shares in the account have been sold.
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Unless the Committee otherwise directs, each direction or request referred
to in this Section 9 shall be made by the employee by using the telephone
authorization system of the Agent.
SECTION 10
TERMINATION OF EMPLOYMENT; TERMINATION OF
COMMON STOCK ACCOUNT; TRANSFERABILITY
Participation in the Plan shall terminate as of the date of termination of
employment of a participating employee (whether by death, retirement, disability
or otherwise) and the employee's Common Stock account shall be terminated
thereafter as set forth in this Section 10. In the event of a participating
employee's termination of employment on or before five days prior to the last
day of a Purchase Period, payroll deductions shall be terminated as soon as
practicable, no shares shall be purchased for such employee under Section 6 and
the balance in the employee's contribution account shall be paid as soon as
practicable to the employee, or in the event of the employee's death, to the
employee's estate. The Committee shall have the power to determine the date of
an employee's retirement or other termination of employment, and any such
determination by the Committee shall be final and binding. The Company shall
have no liability to any person in the event shares are purchased for a deceased
employee under Section 6 prior to receipt by the Agent through the telephone
authorization system of the Agent of notice of the death of the participating
employee.
The employee may direct within 30 days of notice of disenrollment and
withdrawal described in Section 5 or termination of employment, as the case may
be, that all shares credited to the Common Stock account be sold and the net
proceeds delivered to the employee, or the employee may request within 30 days
of such notice or termination of employment that a certificate or certificates
representing all full shares credited to the account be delivered to the
employee. Any brokerage commissions and other charges applicable to sales and
any amount required to be withheld as backup withholding are payable by the
employee and will be deducted in determining the net proceeds. If no direction
is received within 30 days of such notice or termination of employment, a
certificate or certificates representing all full shares credited to the account
will be delivered to the employee.
Unless the Committee otherwise directs, each direction or request referred
to in the prior paragraph shall be made by the employee by using the telephone
authorization system of the Agent. Upon termination of a Common Stock account,
any fractional interest in a share credited to the Common Stock account may be
sold and the net proceeds delivered to the employee or the value of the
fractional interest may be determined by reference to the current fair market
value (determined as set forth in Section 7 above) of the Common Stock and paid
to the employee in cash.
Rights granted under the Plan may not be assigned, transferred, pledged or
otherwise disposed of in any way by a participating employee, other than on
death as described above. Any other attempt to assign, transfer, pledge or
otherwise dispose of rights under the Plan shall be without effect, except that
the Company may treat such act as a notice of disenrollment and withdrawal from
participation in the Plan in accordance with Section 5. Stock options granted
under the Plan are not transferable by the participating employee otherwise than
by Will or the laws of descent and distribution, and are exercisable during the
employee's lifetime only by the employee.
SECTION 11
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
then subject to any outstanding stock options and the number of shares of the
Common Stock which may be issued under the Plan but are not then subject to
outstanding stock options shall be adjusted by adding thereto the number of
shares of the Common Stock which would have been distributable thereon if such
shares had been outstanding on the date fixed for determining the shareholders
entitled to receive such stock dividend or distribution.
Subject to the Board's ability to terminate the Plan pursuant to Section
16, if the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
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securities of the Company or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option and for
each share of the Common Stock which may be issued under the Plan but which is
not then subject to any outstanding stock option, the number and kind of shares
of stock or other securities into which each outstanding share of the Common
Stock shall be so changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in this Section
11, the Committee shall equitably adjust the formula for determining the
Purchase Price of outstanding stock options in accordance with the requirements
of Sections 423 and 424 of the Code.
If the outstanding shares of the Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Common Stock, the Committee shall make any adjustments to any
then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of participating employees which
would otherwise result from any such transaction.
If any adjustment or substitution provided for in this Section 11 requires
the approval of stockholders in order to enable the Company to grant stock
options under the Plan, then no such adjustment or substitution shall be made
without the required stockholder approval. Notwithstanding the foregoing, if the
effect of any such adjustment or substitution would be to cause any outstanding
option granted under the Plan to fail to continue to qualify as an option
subject to Sections 421 and 423 of the Code or to cause a modification,
extension or renewal of such option within the meaning of Section 424 of the
Code, the Committee may elect that such adjustment or substitution not be made
but rather shall use reasonable efforts to effect such other adjustment of each
then outstanding stock option as the Committee, in its discretion, shall deem
equitable and which will not result in any disqualification, modification,
extension or renewal (within the meaning of Section 424 of the Code) of such
outstanding stock option.
SECTION 12
CERTAIN TERMS AND CONDITIONS OF PLAN
The obligation of the Company to issue or deliver shares of the Common
Stock under the Plan, or to permit the resale of such shares from an employee's
Common Stock account, shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such shares, if deemed necessary or appropriate by counsel for the
Company, (ii) the condition that the shares shall have been listed (or
authorized for listing upon official notice of issuance) upon each stock
exchange, if any, on which the Common Stock may then be listed and (iii)
compliance with all other applicable laws, regulations, rules and orders which
may then be in effect.
The Plan is intended to enable employees to obtain the Company's Common
Stock for investment and not for resale. The Company does not, however, intend
to restrict or influence any employee in the conduct of his or her own affairs.
An employee may, therefore, sell the Common Stock received under the Plan at any
time he or she chooses; provided, however, the sale of such Common Stock must be
made in accordance with the Company's policy against insider trading (a copy of
which will be delivered by the applicable Human Resources Department or Payroll
Location to each employee upon entering the Plan) and in conformance with U.S.
federal and state securities laws, Canadian provincial securities laws and
securities laws of other countries, as applicable. The employee assumes the risk
of any market fluctuations in the price of such Common Stock.
SECTION 13
EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER
Nothing in the Plan or any stock option under the Plan shall confer any
right to any employee to continue in the employ of the Company or any Subsidiary
or interfere in any way with the rights of the Company or any Subsidiary to
terminate the employment of any employee at any time.
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SECTION 14
INFORMATION FOR ELIGIBLE EMPLOYEES; VOTING RIGHTS
Each participating employee shall receive at least quarterly each year a
statement of all transactions affecting the Common Stock account relating to the
employee and the number of shares (including any fractional interests in a
share) of the Common Stock credited to the Common Stock account. Each employee
shall also receive copies of all reports, proxy statements and other
communications distributed by the Company to its stockholders generally at the
time and in the manner such material is sent to such stockholders.
Participating employees with Common Stock in a Common Stock account shall
receive proxy soliciting material in connection with each meeting of
stockholders of the Company. Shares can be voted only by the holder of record.
The shares of the Common Stock credited to each Common Stock account (including
any fractional interests in a share) shall be voted by the holder of record only
in accordance with the employee's signed proxy instructions duly delivered to
the holder of record.
SECTION 15
EXPENSES OF THE PLAN
The Company will pay all expenses incident to the operation of the Plan,
including the costs of record keeping, accounting fees, legal fees, the costs of
delivery of stock certificates to employees and the costs of delivery of
shareholder communications. The Company will not pay any expenses, broker's or
other commissions or taxes incurred in connection with the sale of shares of the
Common Stock credited to a Common Stock account at the direction of the
employee. Expenses in connection with any such sale will be deducted from the
proceeds of sale prior to any remittance to the employee.
SECTION 16
AMENDMENT AND TERMINATION
The right to amend the Plan at any time and from time to time and the right
to terminate the Plan at any time are hereby specifically reserved to the Board,
provided that no amendment of the Plan shall, without stockholder approval, (a)
increase the total number of shares which may be issued under the Plan, except
as provided in Section 11, (b) amend the first paragraph of Section 7 to lower
the minimum Purchase Price or (c) make any changes in the class of corporations
whose employees may be offered options under the Plan.
The Plan and all rights of employees under the Plan shall terminate on the
earlier of:
(a) June 30, 2003
(b) the date the Plan is terminated by the Board, in its discretion; or
(c) the last day of the Purchase Period that participating employees become
entitled to purchase a number of shares equal to or greater than the number of
shares remaining available for purchase under the Plan. If the number of shares
so purchasable is greater than the shares remaining available, the available
shares shall be allocated by the Committee among the participating employees in
such manner as it deems fair and which complies with the requirements under
Section 423 of the Code for employee stock purchase plans. In the event at any
time during a Purchase Period it appears that the shares purchasable with
authorized payroll deductions may exceed the number of shares remaining
available for purchase under the Plan, the Committee shall have discretion to
reduce the payroll deductions authorized by participating employees in such
manner as it deems fair and which complies with the requirements under Section
423 of the Code for employee stock purchase plans. The Company shall provide
written notice to each affected employee of any such reduction.
As soon as practicable following termination of the Plan, all amounts
credited to the contribution accounts of participating employees shall, to the
extent not applied to the purchase of shares as provided in subparagraph (c)
above, be refunded to the participating employees.
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SECTION 17
GOVERNING LAW; CONSTRUCTION; INTEGRATION
The validity and construction of the Plan shall be governed by the laws of
the Commonwealth of Pennsylvania. In construing the Plan, the singular shall
include the plural and the masculine gender shall include the feminine, unless
the context requires otherwise. The Plan contains all of the understandings and
representations between the Company and its Subsidiaries and their employees and
supersedes any prior understandings and agreements entered into between them
regarding the subject matter of the Plan. There are no representations,
agreements, arrangements or understandings, oral or written, between the Company
and its Subsidiaries and their employees relating to the subject matter of the
Plan which are not fully expressed in the Plan.
SECTION 18
WITHHOLDING
Income, excise, employment, social insurance or other taxes may be required
to be withheld by the Corporation or a Subsidiary in connection with the grant
or exercise of a stock option or upon a disposition of the shares acquired upon
the exercise of a stock option. Any taxes required to be withheld by the Company
or any of its Subsidiaries, if not withheld from other compensation due to an
employee, shall be paid by such employee in cash upon the request of the
Company, whether or not such employee is still employed by the Company. If an
employee or former employee does not pay any taxes required to be withheld by
the Company or any of its Subsidiaries within ten days after a request for the
payment of such taxes, in addition to other remedies, the Company or such
Subsidiary may withhold such taxes from any compensation to which an employee is
entitled and may cause the Agent to withhold the delivery or sale of shares
until such taxes are paid. The employee shall hold the Corporation and its
Subsidiaries harmless in acting to satisfy the withholding obligation in this
manner if it becomes necessary to do so.
SECTION 19
EFFECT ON OTHER PLANS
No income, if any, received by an employee due to the discount in the
Purchase Price from the fair market value of the Common Stock provided by the
Company under the Plan shall be considered compensation for purposes of any
pension or retirement plan, insurance plan or any other employee benefit plan of
the Company or a Subsidiary (notwithstanding the definition of compensation
provided in such plans), including but not limited to the Westinghouse Air Brake
Company Retirement Plan for Non-Bargaining Employees and the Westinghouse Air
Brake Company Savings Plan.
SECTION 20
EFFECTIVE DATE OF PLAN
The effective date and date of adoption of the Plan shall be October 22
1997, the date adoption of the Plan was approved by the Board, provided that on
or prior to October 21, 1998 such adoption of the Plan by the Board is approved
by the affirmative vote of the holders of at least a majority of the shares of
Common Stock represented in person or by proxy and entitled to vote at a duly
called and convened meeting of such holders. Notwithstanding any other provision
contained in the Plan, no stock option granted under the Plan may be exercised
until after such stockholder approval. In the event stockholder approval of the
Plan is not obtained on or before October 21, 1998, all amounts credited to the
contribution accounts of participating employees, if any, shall be refunded to
the participating employees.
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APPENDIX B
WESTINGHOUSE AIR BRAKE COMPANY
1995 STOCK INCENTIVE PLAN
(AS AMENDED THROUGH JULY 29, 1997)
The purposes of the 1995 Stock Incentive Plan (as amended, the "Plan") are
to encourage eligible employees of Westinghouse Air Brake Company (the
"Corporation") and its Subsidiaries to increase their efforts to make the
Corporation and each Subsidiary more successful, to provide an additional
inducement for such employees to remain with the Corporation or a Subsidiary, to
reward such employees by providing an opportunity to acquire shares of the
Common Stock, par value $0.01 per share, of the Corporation (the "Common Stock")
on favorable terms and to provide a means through which the Corporation may
attract able persons to enter the employ of the Corporation or one of its
Subsidiaries. For the purposes of the Plan, the term "Subsidiary" means any
corporation in an unbroken chain of corporations beginning with the Corporation,
if each of the corporations other than the last corporation in the unbroken
chain owns stock possessing at least fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in the chain.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors of the Corporation (the "Board") and consisting of not
less than two members of the Board, each of whom at the time of appointment to
the Committee and at all times during service as a member of the Committee shall
be (i) "Non-Employee Directors" as then defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor
Rule and (ii) if so determined by the Board, an "outside director" under Section
162(m)(4)(C) of the Internal Revenue Code of 1986 (the "Code"), or any successor
provision.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operation of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to grants or awards under the Plan, shall be
subject to the determination of the Committee which shall be final and binding.
The Committee shall keep records of action taken. A majority of the
Committee shall constitute a quorum at any meeting, and the acts of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by all the members of the Committee, shall be the acts of
the Committee.
SECTION 2
ELIGIBILITY
Those key employees of the Corporation or any Subsidiary (including, but
not limited to, covered employees as defined in Section 162(m)(3) of the Code,
or any successor provision) who share responsibility for the management, growth
or protection of the business of the Corporation or any Subsidiary shall be
eligible to be granted stock options (with or without cash payment rights) and
to receive awards of restricted shares and performance units as described
herein.
Subject to the provisions of the Plan, the Committee shall have full and
final authority, in its discretion, to grant stock options (with or without cash
payment rights) and to award restricted shares and performance units as
described herein and to determine the employees to whom any such grant or award
shall be made and the number of shares to be covered thereby. In determining the
eligibility of any employee, as well as in determining the number of shares or
units covered by each grant or award and whether cash payment rights shall be
granted in conjunction with a stock option, the Committee shall consider the
position and the responsibilities of the employee being considered, the nature
and value to the Corporation or a Subsidiary of his or her services, his or her
present and/or potential contribution to the success of the Corporation or a
Subsidiary and such other factors as the Committee may deem relevant.
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SECTION 3
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares of the Common Stock that may be issued and
as to which grants or awards may be made under the Plan is 4,700,000 shares,
subject to adjustment and substitution as set forth in Section 7. If any stock
option granted under the Plan is canceled by mutual consent or terminates or
expires for any reason without having been exercised in full, the number of
shares subject thereto shall again be available for purposes of the Plan. If
shares of Common Stock are forfeited to the Corporation pursuant to the
restrictions applicable to restricted shares awarded under the Plan, the shares
so forfeited shall again be available for purposes of the Plan. To the extent
any award of performance units is not earned or is paid in cash rather than
shares, the number of shares covered thereby shall again be available for
purposes of the Plan.
The shares which may be issued under the Plan may be either authorized but
unissued shares or treasury shares or partly each, as shall be determined from
time to time by the Board.
SECTION 4
GRANT OF STOCK OPTIONS
AND CASH PAYMENT RIGHTS AND AWARD OF
RESTRICTED SHARES AND PERFORMANCE UNITS
The Committee shall have authority, in its discretion, (i) to grant
"incentive stock options" pursuant to Section 422 of the Code, to grant
"nonstatutory stock options" (i.e., stock options which do not qualify under
Sections 422 or 423 of the Code) or to grant both types of stock options (but
not in tandem), (ii) to award restricted shares and (iii) to award performance
units, all as provided herein. The Committee also shall have the authority, in
its discretion, to grant cash payment rights in conjunction with nonstatutory
stock options with the effect provided in Section 5(D). Cash payment rights may
not be granted in conjunction with incentive stock options. Cash payment rights
granted in conjunction with a nonstatutory stock option may be granted either at
the time the stock option is granted or at any time thereafter during the term
of the stock option.
During the duration of the Plan, the maximum number of shares as to which
stock options may be granted and as to which shares may be awarded under the
Plan to any one employee is 800,000 shares, subject to adjustment and
substitution as set forth in Section 7. For the purposes of this limitation, any
adjustment or substitution made pursuant to Section 7 with respect to the
maximum number of shares set forth in the preceding sentence shall also be made
with respect to any shares subject to stock options or share awards previously
granted under the Plan to such employee.
Notwithstanding any other provision contained in the Plan or in any
agreement referred to in Section 5(H), but subject to the possible exercise of
the Committee's discretion contemplated in the last sentence of this paragraph,
the aggregate fair market value, determined as provided in Section 5(I) on the
date of grant, of the shares with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar year under all
plans of the corporation employing such employee, any parent or subsidiary
corporation of such corporation and any predecessor corporation of any such
corporation shall not exceed $100,000. If the date on which one or more of such
incentive stock options could first be exercised would be accelerated pursuant
to any provision of the Plan or any stock option agreement, and the acceleration
of such exercise date would result in a violation of the limitation set forth in
the preceding sentence, then, notwithstanding any such provision, but subject to
the provisions of the next succeeding sentence, the exercise dates of such
incentive stock options shall be accelerated only to the date or dates, if any,
that do not result in a violation of such limitation and, in such event, the
exercise dates of the incentive stock options with the lowest option prices
shall be accelerated to the earliest such dates. The Committee may, in its
discretion, authorize the acceleration of the exercise date of one or more
incentive stock options even if such acceleration would violate the $100,000
limitation set forth in the first sentence of this paragraph and even if such
incentive stock options are thereby converted in whole or in part to
nonstatutory stock options.
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SECTION 5
TERMS AND CONDITIONS OF
STOCK OPTIONS AND CASH PAYMENT RIGHTS
Stock options and cash payment rights granted under the Plan shall be
subject to the following terms and conditions:
(A) The purchase price at which each stock option may be exercised (the
"option price") shall be such price as the Committee, in its discretion, shall
determine, but shall not be less than one hundred percent (100%) of the fair
market value per share of the Common Stock covered by the stock option on the
date of grant, except that in the case of an incentive stock option granted to
an employee who, immediately prior to such grant, owns stock possessing more
than (10%) of the total combined voting power of all classes of stock of the
Corporation or any Subsidiary (a "Ten Percent Employee"), the option price shall
be one hundred ten percent (110%) of such fair market value on the date of
grant; provided, however, that with respect to employees who become employees of
the Corporation or any Subsidiary as a result of the acquisition by the
Corporation or any Subsidiary of the stock or assets of another entity or
business (an "Acquisition"), and who are not deemed to be reporting persons of
the Corporation or any Subsidiary for purposes of Section 16(b) of the 1934 Act,
the option price with respect to nonstatutory stock options granted to such
persons within 12 months of such Acquisition shall be such price as the
Committee, in its discretion, shall determine, which may be less than the fair
market value per share of the Common Stock on the date of grant. For purposes of
this Section 5(A), the fair market value of the Common Stock shall be determined
as provided in Section 5(I); provided, however, that notwithstanding any other
provision of the Plan, if the IPO (as defined in Section 5(I) does not occur on
or before December 31, 1995, the fair market value of the Common Stock for
purposes of any nonstatutory stock options granted under the Plan in calendar
year 1995 shall be $15.00 per share. For purposes of this Section 5(A), an
individual (i) shall be considered as owning not only shares of stock owned
individually but also all shares of stock that are at the time owned, directly
or indirectly, by or for the spouse, ancestors, lineal descendants and brothers
and sisters (whether by the whole or half blood) of such individual and (ii)
shall be considered as owning proportionately any shares owned, directly or
indirectly, by or for any corporation, partnership, estate or trust in which
such individual is a stockholder, partner or beneficiary.
(B) The option price for each stock option shall be payable in cash in
United States dollars (including check, bank draft or money order); provided,
however, that in lieu of cash the person exercising the stock option may (if
authorized by the Committee at the time of grant in the case of an incentive
stock option, or at any time in the case of a nonstatutory stock option) pay the
option price in whole or in part by delivering to the Corporation shares of the
Common Stock having a fair market value on the date of exercise of the stock
option, determined as provided in Section 5(I), equal to the option price for
the shares being purchased, except that (i) any portion of the option price
representing a fraction of a share shall in any event be paid in cash and (ii)
no shares of the Common Stock which have been held for less than six months may
be delivered in payment of the option price of a stock option. Delivery of
shares, if authorized, may also be accomplished through the effective transfer
to the Corporation of shares held by a broker or other agent. The Corporation
will also cooperate with any person exercising a stock option who participates
in a cashless exercise program of a broker or other agent under which all or
part of the shares received upon exercise of the stock option are sold through
the broker or other agent or under which the broker or other agent makes a loan
to such person. Notwithstanding the foregoing, unless the Committee, in its
discretion, shall otherwise determine at the time of grant in the case of an
incentive stock option, or at any time in the case of a nonstatutory stock
option, the exercise of the stock option shall not be deemed to occur and no
shares of Common Stock will be issued by the Corporation upon exercise of the
stock option until the Corporation has received payment of the option price in
full. The date of exercise of a stock option shall be determined under
procedures established by the Committee, and as of the date of exercise the
person exercising the stock option shall be considered for all purposes to be
the owner of the shares with respect to which the stock option has been
exercised. Payment of the option price with shares shall not increase the number
of shares of the Common Stock which may be issued under the Plan as provided in
Section 3.
(C) Unless the Committee, in its discretion, shall otherwise determine,
stock options shall be exercisable by a grantee during employment commencing on
the date of grant. No stock option shall be exercisable after the expiration of
ten years (five years in the case of an incentive stock option granted to a Ten
Percent Employee)
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from the date of grant. Unless the Committee, in its discretion, shall otherwise
determine, a stock option to the extent exercisable at any time may be exercised
in whole or in part.
(D) Cash payment rights granted in conjunction with a nonstatutory stock
option shall entitle the person who is entitled to exercise the stock option,
upon exercise of the stock option or any portion thereof, to receive cash from
the Corporation (in addition to the shares to be received upon exercise of the
stock option) equal to such percentage as the Committee, in its discretion,
shall determine not greater than one hundred percent (100%) of the excess of the
fair market value of a share of the Common Stock on the date of exercise of the
stock option over the option price per share of the stock option times the
number of shares covered by the stock option, or portion thereof, which is
exercised. Payment of the cash provided for in this Section 5(D) shall be made
by the Corporation as soon as practicable after the time the amount payable is
determined. For purposes of this Section 5(D), the fair market value of the
Common Stock shall be determined as provided in Section 5(I).
(E) (i) No stock option shall be transferable by the grantee otherwise than
by Will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death and
(ii) all stock options shall be exercisable during the lifetime of the grantee
only by the grantee.
(F) Subject to the provisions of Section 4 in the case of incentive stock
options, unless the Committee, in its discretion, shall otherwise determine:
(i) If the employment of a grantee who is not disabled within the
meaning of Section 422(c)(6) of the Code (a "Disabled Grantee") is
voluntarily terminated with the consent of the Corporation or a Subsidiary
or a grantee retires under any retirement plan of the Corporation or a
Subsidiary, any then outstanding incentive stock option held by such
grantee shall be exercisable by the grantee (but only to the extent
exercisable by the grantee immediately prior to the termination of
employment) at any time prior to the expiration date of such incentive
stock option or within three months after the date of termination of
employment, whichever is the shorter period;
(ii) If the employment of a grantee who is not a Disabled Grantee is
voluntarily terminated with the consent of the Corporation or a Subsidiary
or a grantee retires under any retirement plan of the Corporation or a
Subsidiary, any then outstanding nonstatutory stock option held by such
grantee shall be exercisable by the grantee (but only to the extent
exercisable by the grantee immediately prior to the termination of
employment) at any time prior to the expiration date of such nonstatutory
stock option or within one year after the date of termination of
employment, whichever is the shorter period;
(iii) If the employment of a grantee who is a Disabled Grantee is
voluntarily terminated with the consent of the Corporation or a Subsidiary,
any then outstanding stock option held by such grantee shall be exercisable
by the grantee in full (whether or not so exercisable by the grantee
immediately prior to the termination of employment) by the grantee at any
time prior to the expiration date of such stock option or within one year
after the date of termination of employment, whichever is the shorter
period;
(iv) Following the death of a grantee during employment, any
outstanding stock option held by the grantee at the time of death shall be
exercisable in full (whether or not so exercisable by the grantee
immediately prior to the death of the grantee) by the person entitled to do
so under the Will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate, by the
legal representative of the grantee at any time prior to the expiration
date of such stock option or within one year after the date of death of the
grantee, whichever is the shorter period;
(v) Following the death of a grantee after termination of employment
during a period when a stock option is exercisable, the stock option shall
be exercisable by such person entitled to do so under the Will of the
grantee or by such legal representative (but only to the extent the stock
option was exercisable by the grantee immediately prior to the death of the
grantee) at any time prior to the expiration date of such stock option or
within one year after the date of death, whichever is the shorter period;
(vi) Unless the exercise period of a stock option following
termination of employment has been extended as provided in Section 8(C), if
the employment of a grantee terminates for any reason other than voluntary
termination with the consent of the Corporation or a Subsidiary, retirement
under any retirement
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plan of the Corporation or a Subsidiary or death, all outstanding stock
options held by the grantee at the time of such termination of employment
shall automatically terminate.
Whether termination of employment is a voluntary termination with the consent of
the Corporation or a Subsidiary shall be determined, in its discretion, by the
Committee and any such determination by the Committee shall be final and
binding.
(G) If a grantee of a stock option (i) engages in the operation or
management of a business (whether as owner, partner, officer, director, employee
or otherwise and whether during or after termination of employment) which is in
competition with the Corporation or any of its Subsidiaries (provided, however,
that this clause shall not apply if Section 8(C) applies following termination
of employment), (ii) induces or attempts to induce any customer, supplier,
licensee or other individual, corporation or other business organization having
a business relationship with the Corporation or any of its Subsidiaries to cease
doing business with the Corporation or any of its Subsidiaries or in any way
interferes with the relationship between any such customer, supplier, licensee
or other person and the Corporation or any of its Subsidiaries or (iii) solicits
any employee of the Corporation or any of its Subsidiaries to leave the
employment thereof or in any way interferes with the relationship of such
employee with the Corporation or any of its Subsidiaries, the Committee, in its
discretion, may immediately terminate all outstanding stock options held by the
grantee. Whether a grantee has engaged in any of the activities referred to in
the preceding sentence which would cause the outstanding stock options to be
terminated shall be determined, in its discretion, by the Committee, and any
such determination by the Committee shall be final and binding.
(H) All stock options and cash payment rights shall be confirmed by an
agreement which shall be executed on behalf of the Corporation by the Chief
Executive Officer (if other than the President), the President or any Vice
President and by the grantee. The agreement confirming a stock option shall
specify whether the stock option is an incentive stock option or a nonstatutory
stock option. The provisions of such agreements need not be identical.
(I) Fair market value of the Common Stock shall be the mean between the
following prices, as applicable, for the date as of which fair market value is
to be determined as quoted in The Wall Street Journal (or in such other reliable
publication as the Committee, in its discretion, may determine to rely upon):
(i) if the Common Stock is listed on the New York Stock Exchange, the highest
and lowest sales prices per share of the Common Stock as quoted in the
NYSE-Composite Transactions listing for such date, (ii) if the Common Stock is
not listed on such exchange the highest and lowest sales prices per share of
Common Stock for such date on (or on any composite index including) the
principal United States securities exchange registered under the 1934 Act on
which the Common Stock is listed or (iii) if the Common Stock is not listed on
any such exchange, the highest and lowest sales prices per share of the Common
Stock for such date on the National Association of Securities Dealers Automated
Quotations System or any successor system then in use ("NASDAQ"); provided,
however, the fair market value of the Common Stock for the date of the initial
public offering of the Common Stock (the "IPO") shall be the IPO price of the
Common Stock. If there are no such sale price quotations for the date as of
which fair market value is to be determined but there are such sale price
quotations within a reasonable period both before and after such date, then fair
market value shall be determined by taking a weighted average of the means
between the highest and lowest sales prices per share of the Common Stock as so
quoted on the nearest date before and the nearest date after the date as of
which fair market value is to be determined. The average should be weighted
inversely by the respective numbers of trading days between the selling dates
and the date as of which fair market value is to be determined. If there are no
such sale price quotations on or within a reasonable period both before and
after the date as of which fair market value is to be determined, then fair
market value of the Common Stock shall be the mean between the bona fide bid and
asked prices per share of Common Stock as so quoted for such date on NASDAQ, or
if none, the weighted average of the means between such bona fide bid and asked
prices on the nearest trading date before and the nearest trading date after the
date as of which fair market value is to be determined, if both such dates are
within a reasonable period. The average is to be determined in the manner
described above in this Section 5(I). If the fair market value of the Common
Stock cannot be determined on any basis previously set forth in this Section
5(I) for the date as of which fair market value is to be determined, the
Committee shall in good faith determine the fair market value of the Common
Stock on such date. Fair market value shall be determined without regard to any
restriction other than a restriction which, by its terms, will never lapse.
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(J) The obligation of the Corporation to issue shares of the Common Stock
under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to such
shares, if deemed necessary or appropriate by counsel for the Corporation, (ii)
the condition that the shares shall have been listed (or authorized for listing
upon official notice of issuance) upon each stock exchange, if any, on which the
Common Stock may then be listed and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect.
Subject to the foregoing provisions of this Section 5 and the other
provisions of the Plan, stock options and cash payment rights granted under the
Plan shall be subject to such restrictions and other terms and conditions, if
any, as shall be determined, in its discretion, by the Committee and set forth
in the agreement referred to in Section 5(H), or an amendment thereto.
SECTION 6
RESTRICTED SHARES AND PERFORMANCE UNITS
(A) RESTRICTED SHARES
Awards of restricted shares shall be confirmed by a written agreement in
the form prescribed by the Committee in its discretion, which shall set forth
the number of shares of the Common Stock awarded, restrictions imposed thereon
(including, without limitation, restrictions on the right of the grantee to
sell, assign, transfer or encumber such shares (except as provided below) while
such shares are subject to other restrictions imposed under this Section 6(A)),
the duration of such restrictions, events (which may, in the discretion of the
Committee, include termination of employment and/or performance-based events)
the occurrence of which would cause a forfeiture of the restricted shares and
such other terms and conditions as shall be determined, in its discretion, by
the Committee. The agreement shall be executed on behalf of the Corporation by
the Chief Executive Officer (if other than the President), the President or any
Vice President and by the grantee. The provisions of such agreements need not be
identical. Awards of restricted shares shall be effective on the date
determined, in its discretion, by the Committee.
Following the award of restricted shares and prior to the lapse or
termination of the applicable restrictions, share certificates for the
restricted shares shall be issued in the name of the grantee and deposited with
the Corporation in escrow together with related stock powers signed by the
grantee. Except as provided in Section 7, the Committee, in its discretion, may
determine that dividends and other distributions on the shares held in escrow
shall not be paid to the grantee until the lapse or termination of the
applicable restrictions. Unless otherwise provided, in its discretion, by the
Committee, any such dividends or other distributions shall not bear interest.
Upon the lapse or termination of the applicable restrictions (and not before
such time), the grantee shall receive the share certificates for the restricted
shares (subject to the provisions of Section 10) and unpaid dividends, if any.
From the date the award of restricted shares is effective, the grantee shall be
a stockholder with respect to all the shares represented by the share
certificates and shall have all the rights of a stockholder with respect to all
the restricted shares, including the right to vote such shares and to receive
all dividends and other distributions paid with respect to such shares, subject
only to the preceding provisions of this paragraph and the other restrictions
imposed by the Committee. If a grantee of restricted shares (i) engages in the
operation or management of a business (whether as owner, partner, officer,
director, employee or otherwise and whether during or after termination of
employment) which is in competition with the Corporation or any of its
Subsidiaries (provided, however, that this clause shall not apply if Section
8(D) applies), (ii) induces or attempts to induce any customer, supplier,
licensee or other individual, corporation or other business organization having
a business relationship with the Corporation or any of its Subsidiaries to cease
doing business with the Corporation or any of its Subsidiaries or in any way
interferes with the relationship between any such customer, supplier, licensee
or other person and the Corporation or any of its Subsidiaries or (iii) solicits
any employee of the Corporation or any of its Subsidiaries to leave the
employment thereof or in any way interferes with the relationship of such
employee with the Corporation or any of its Subsidiaries, the Committee may
immediately declare forfeited all restricted shares held by the grantee as to
which the restrictions have not yet lapsed. Whether a grantee has engaged in any
of the activities referred to in the preceding sentence which would cause the
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restricted shares to be forfeited shall be determined, in its discretion, by the
Committee, and any such determination by the Committee shall be final and
binding.
Neither this Section 6(A) nor any other provision of the Plan shall
preclude a grantee from transferring or assigning restricted shares to (i) the
trustee of a trust that is revocable by such grantee alone, both at the time of
the transfer or assignment and at all times thereafter prior to such grantee's
death or (ii) the trustee of any other trust to the extent approved in advance
by the Committee in writing. A transfer or assignment of restricted shares from
such trustee to any person other than such grantee shall be permitted only to
the extent approved in advance by the Committee in writing, and restricted
shares held by such trustee shall be subject to all of the conditions and
restrictions set forth in the Plan and in the applicable agreement as if such
trustee were a party to such agreement.
(B) PERFORMANCE UNITS
The Committee may award performance units which shall be earned by an
awardee based on the level of performance over a specified period of time by the
Corporation, a Subsidiary or Subsidiaries, any branch, department or other
portion thereof or the awardee individually, as determined by the Committee. For
the purposes of the grant of performance units, the following definitions shall
apply:
(i) "Performance unit" shall mean an award, expressed in dollars or
shares of Common Stock, granted to an awardee with respect to a Performance
Period. Awards expressed in dollars may be established as fixed dollar
amounts, as a percentage of salary, as a percentage of a pool based on
earnings of the Corporation, a Subsidiary or Subsidiaries or any branch,
department or other portion thereof or in any other manner determined by
the Committee in its discretion, provided that the amount thereof shall be
capable of being determined as a fixed dollar amount as of the close of the
Performance Period.
(ii) "Performance Period" shall mean an accounting period of the
Corporation or a Subsidiary of not less than one year, as determined by the
Committee in its discretion.
(iii) "Performance Target" shall mean that level of performance
established by the Committee which must be met in order for the performance
unit to be fully earned. The Performance Target may be expressed in terms
of earnings per share, return on assets, asset growth, ratio of capital to
assets or such other level or levels of accomplishment by the Corporation,
a Subsidiary or Subsidiaries, any division, branch, department or other
portion thereof or the awardee individually as may be established or
revised from time to time by the Committee.
(iv) "Minimum Target" shall mean a minimal level of performance
established by the Committee which must be met before any part of the
performance unit is earned. The Minimum Target may be the same as or less
than the Performance Target in the discretion of the Committee.
(v) "Performance shares" shall mean shares of Common Stock issued in
payment of earned performance units.
An awardee shall earn the performance unit in full by meeting the
Performance Target for the Performance Period. If the Minimum Target has not
been attained at the end of the Performance Period, no part of the performance
unit shall have been earned by the awardee. If the Minimum Target is attained
but the Performance Target is not attained, the portion of the performance unit
earned by the awardee shall be determined on the basis of a formula established
by the Committee.
At any time prior to the end of a Performance Period, the Committee may
adjust downward (but not upward) the Performance Target and/or Minimum Target as
a result of major events unforeseen at the time of the award, such as changes in
the economy, in the industry or laws affecting the operations of the Corporation
or a Subsidiary, or any division, branch, department or other portion thereof,
or any other event the Committee determines would have a significant impact upon
the probability of attaining the previously established Performance Target.
Payment of earned performance units shall be made to awardees following the
close of the Performance Period as soon as practicable after the time the amount
payable is determined by the Committee. Payment in respect of earned performance
units, whether expressed in dollars or shares, may be made in cash, in shares of
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Common Stock, or partly in cash and partly in shares of Common Stock, as
determined by the Committee at the time of payment. For this purpose,
performance units expressed in dollars shall be converted to shares, and
performance units expressed in shares shall be converted to dollars, based on
the fair market value of the Common Stock, determined as provided in Section
5(I), as of the date the amount payable is determined by the Committee. The
Committee, in its discretion, may determine that awardees shall also be entitled
to any dividends or other distributions that would have been paid on earned
performance shares had the shares been outstanding during the period from the
award to the payment of the performance shares. Unless otherwise provided, in
its discretion, by the Committee, any such dividends or other distributions
shall not bear interest.
Unless otherwise provided in the agreement confirming the award of the
performance units, if prior to the close of a Performance Period, the employment
of an awardee of performance units is voluntarily terminated with the consent of
the Corporation or a Subsidiary, the grantee retires under any retirement plan
of the Corporation or a Subsidiary or the grantee dies during employment, the
Committee in its discretion may determine to pay to the grantee all or part of
the performance unit based upon the extent to which the Committee determines the
Performance Target or Minimum Target has been achieved as of the date of
termination of employment, retirement or death, the period of time remaining
until the end of the Performance Period and/or such other factors as the
Committee may deem relevant. If the Committee, in its discretion, determines
that all or any part of the performance unit shall be paid, payment shall be
made to the awardee or the estate of the awardee as promptly as practicable
following such determination and may be made in cash, in shares of Common Stock,
or partly in cash and partly in shares of Common Stock, as determined by the
Committee at the time of payment. For this purpose, performance units expressed
in dollars shall be converted to shares, and performance units expressed in
shares shall be converted to dollars, based on the fair market value of the
Common Stock, determined as provided in Section 5(I), as of the date the amount
payable is determined by the Committee.
Except as otherwise provided in Section 8(E), if the employment of a
grantee of an award of performance units terminates prior to the close of the
Performance Period for any reason other than voluntary termination with the
consent of the Corporation or a Subsidiary, retirement under any retirement plan
of the Corporation or a Subsidiary or death, the unearned performance units
shall be deemed not to have been earned and such unearned units shall not be
paid.
Whether termination of employment is a voluntary termination with the
consent of the Corporation or a Subsidiary shall be determined, in its
discretion, by the Committee and any such determination by the Committee shall
be final and binding.
If an awardee of performance units (i) engages in the operation or
management of a business (whether as owner, partner, officer, director, employee
or otherwise and whether during or after termination of employment) which is in
competition with the Corporation or any of its Subsidiaries (provided, however,
that this clause shall not apply if Section 8(E) applies), (ii) induces or
attempts to induce any customer, supplier, licensee or other individual,
corporation or other business organization having a business relationship with
the Corporation or any of its Subsidiaries to cease doing business with the
Corporation or any of its Subsidiaries or in any way interferes with the
relationship between any such customer, supplier, licensee or other person and
the Corporation or any of its Subsidiaries or (iii) solicits any employee of the
Corporation or any of its Subsidiaries to leave the employment thereof or in any
way interferes with the relationship of such employee with the Corporation or
any of its Subsidiaries, the Committee may immediately cancel the award. Whether
an awardee has engaged in any of the activities referred to the preceding
sentence which would cause the award of performance units to be canceled shall
be determined, in its discretion, by the Committee, and any such determination
by the Committee shall be final and binding.
Performance unit awards shall be evidenced by a written agreement in the
form prescribed by the Committee which shall set forth the amount or manner of
determining the amount of the performance unit, the Performance Period, the
Performance Target and any Minimum Target and such other terms and conditions as
the Committee in its discretion deems appropriate. Performance unit awards shall
be effective only upon execution of the applicable performance unit agreement on
behalf of the Corporation by the Chief Executive Officer (if other than the
President), the President or any Vice President, and by the awardee.
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SECTION 7
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, (i) the number of shares of the Common
Stock subject to any outstanding stock options or performance unit awards, (ii)
the number of shares of the Common Stock which may be issued under the Plan but
are not subject to outstanding stock options or performance unit awards and
(iii) the maximum number of shares as to which stock options may be granted and
as to which shares may be awarded under the Plan to any employee under Section 4
on the date fixed for determining the stockholders entitled to receive such
stock dividend or distribution shall be adjusted by adding thereto the number of
shares of the Common Stock which would have been distributable thereon if such
shares had been outstanding on such date. Shares of Common Stock so distributed
with respect to any restricted shares held in escrow shall also be held by the
Corporation in escrow and shall be subject to the same restrictions as are
applicable to the restricted shares on which they were distributed.
If the outstanding shares of Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option or
performance unit award, for each share of the Common Stock which may be issued
under the Plan but which is not then subject to any outstanding stock option or
performance unit award and for the maximum number of shares as to which stock
options may be granted and as to which shares may be awarded under the Plan to
any employee under Section 4, the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchangeable. Unless otherwise
determined by the Committee, in its discretion, any such stock or securities, as
well as any cash or other property, into or for which any restricted shares held
in escrow shall be changed or exchangeable in any such transaction shall also be
held by the Corporation in escrow and shall be subject to the same restrictions
as are applicable to the restricted shares in respect of which such stock,
securities, cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 7, the aggregate option price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate option price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares.
Any new option price per share shall be carried to at least three decimal
places with the last decimal place rounded upwards to the nearest whole number.
If the outstanding shares of the Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Common Stock, (i) the Committee shall make any adjustments to
any then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of grantees which would otherwise
result from any such transaction, and (ii) unless otherwise determined by the
Committee, in its discretion, any stock, securities, cash or other property
distributed with respect to any restricted shares held in escrow or for which
any restricted shares held in escrow shall be exchanged in any such transaction
shall also be held by the Corporation in escrow and shall be subject to the same
restrictions as are applicable to the restricted shares in respect of which such
stock, securities, cash or other property was distributed or exchanged.
No adjustment or substitution provided for in this Section 7 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution. Owners of restricted shares held in
escrow shall be treated in the same manner as owners of Common Stock not held in
escrow with respect to fractional shares created by an adjustment or
substitution of shares, except that, unless otherwise determined by the
Committee, in its discretion, any cash or other property paid in lieu of a
fractional share shall be subject to restrictions similar to those applicable to
the restricted shares exchanged therefor.
B-9
45
If any adjustment or substitution provided for in this Section 7 requires
the approval of stockholders in order to enable the Corporation to grant
incentive stock options or to comply with Section 162(m) of the Code, then no
such adjustment or substitution shall be made without the required stockholder
approval. Notwithstanding the foregoing, in the case of incentive stock options,
if the effect of any such adjustment or substitution would be to cause the stock
option to fail to continue to qualify as an incentive stock option or to cause a
modification, extension or renewal of such stock option within the meaning of
Section 424 of the Code, the Committee may elect that such adjustment or
substitution not be made but rather shall use reasonable efforts to effect such
other adjustment of each then outstanding stock option as the Committee, in its
discretion, shall deem equitable and which will not result in any
disqualification, modification, extension or renewal (within the meaning of
Section 424 of the Code) of the incentive stock option.
Except as provided in this Section 7, a grantee shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
SECTION 8
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) DEFINITIONS
For purposes of this Section 8, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Sections 13(d)
and 14(d) of the 1934 Act as in effect on the effective date of the Plan.
(2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3
under the 1934 Act as in effect on the effective date of the Plan.
(3) A specified percentage of "Voting Power" of a company shall mean such
number of the Voting Shares as shall enable the holders thereof to cast such
percentage of all the votes which could be cast in an annual election of
directors (without consideration of the rights of any class of stock other than
the common stock of the company to elect directors by a separate class vote);
and "Voting Shares" shall mean all securities of a company entitling the holders
thereof to vote in an annual election of directors (without consideration of the
rights of any class of stock other than the common stock of the company to elect
directors by a separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to acquire
securities of the Corporation (other than such an offer made by the Corporation
or any Subsidiary), whether or not such offer is approved or opposed by the
Board.
(5) "Continuing Directors" shall mean a director of the Corporation who
either (a) was a director of the Corporation on the effective date of the Plan
or (b) is an individual whose election, or nomination for election, as a
director of the Corporation was approved by a vote of at least two-thirds of the
directors then still in office who were Continuing Directors (other than an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of directors of the
Corporation which would be subject to Rule 14a-11 under the 1934 Act, or any
successor Rule).
(6) "Initial Public Offering" shall mean the first public offering of
Common Stock consummated after the effective date of the Plan (whether or not
registered under the Securities Act of 1933, as amended).
(7) "Designated Person" shall mean (a) the Westinghouse Air Brake Company
Employee Stock Ownership Plan and the Westinghouse Air Brake Company Employee
Stock Ownership Trust (collectively, the "ESOP"), (b) the RAC Voting Trust (the
"Voting Trust") and (c) any Person serving on the Committee administering the
ESOP or as Trustee of the Voting Trust, to the extent that such Person is deemed
to have Beneficial Ownership of shares of Common Stock held by the ESOP or the
Voting Trust.
B-10
46
(8) "SIH" shall mean Incentive AB or Scandinavian Incentive Holding B.V. or
any of their respective subsidiaries.
(9) "Section 8 Event" shall mean the date upon which any of the following
events occurs:
(a) The Corporation acquires actual knowledge that (i) any Person,
other than the Corporation, a Subsidiary, any employee benefit plan(s)
sponsored by the Corporation or a Subsidiary, any Designated Person or SIH,
has acquired the Beneficial Ownership, directly or indirectly, of
securities of the Corporation entitling such Person to 30% or more of the
Voting Power of the Corporation, or (ii) SIH has acquired Beneficial
ownership, directly or indirectly, of securities of the Corporation
entitling SIH to 40% or more of the Voting Power of the Corporation (30% if
the Initial Public Offering has been consummated and the Common Stock is
registered pursuant to Section 12(b) or 12(g) of the 1934 Act); or (iii)
SIH and any Person or Persons who agree to act together for the purpose of
acquiring, holding, voting or disposing of securities of the Corporation or
who act in concert or otherwise with the purpose or effect of changing or
influencing control of the Corporation, or in connection with or as a
participant in any transaction having such purpose or effect, have acquired
the Beneficial Ownership, directly or indirectly, of securities of the
Corporation entitling SIH and such Person(s) to 40% or more of the Voting
Power of the Corporation (30% if the Initial Public Offering has been
consummated and the Common Stock is registered pursuant to Section 12 (b)
or 12 (g) of the 1934 Act);
(b) A Tender Offer is made to acquire securities of the Corporation
entitling the holders thereof to 30% or more of the Voting Power of the
Corporation; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any
successor Rule) relating to the election or removal of 50% or more of the
members of the Board or any class of the Board shall be made by any person
other than the Corporation or less than 51% of the members of the Board
(excluding vacant seats) shall be Continuing Directors; or
(d) The stockholders of the Corporation shall approve a merger,
consolidation, share exchange, division or sale or other disposition of
assets of the Corporation as a result of which the stockholders of the
Corporation immediately prior to such transaction shall not hold, directly
or indirectly, immediately following such transaction a majority of the
Voting Power of (i) in the case of a merger or consolidation, the surviving
or resulting corporation, (ii) in the case of a share exchange, the
acquiring corporation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than 30% of the
consolidated assets of the Corporation immediately prior to the
transaction;
provided, however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred to in
paragraph 9(a)(i) above, (ii) a grantee is required to be named pursuant to Item
2 of the Schedule 14D-1 (or any similar successor filing requirement) required
to be filed by the bidder making a Tender Offer referred to in paragraph
9(a)(ii) above or (iii) if a grantee is a "participant" as defined in
Instruction 3 to Item 4 of Schedule 14A under the 1934 Act (or any successor
Rule) in a solicitation (other than a solicitation by the Corporation) referred
to in paragraph 9(a)(iii) above, then no Section 8 Event with respect to such
grantee shall be deemed to have occurred by reason of such event. Neither SIH
nor any other Person shall be deemed to have agreed to act together or to be
acting in concert or otherwise for purposes of paragraph 9(a)(iii) above to the
extent that they are acting pursuant to and in accordance with the terms of the
Voting Trust Agreement creating the Voting Trust or the Stockholders Agreement
dated as of January 31, 1995 among the Corporation, SIH and the Voting Trust.
(B) ACCELERATION OF THE EXERCISE DATE OF STOCK OPTIONS
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(H), or an amendment
thereto, shall otherwise provide, notwithstanding any other provision contained
in the Plan, in case any "Section 8 Event" occurs all outstanding stock options
(other than those held by a person referred to in the proviso to Section
8(A)(9)) shall become immediately and fully exercisable whether or not otherwise
exercisable by their terms.
B-11
47
(C) EXTENSION OF THE EXPIRATION DATE OF STOCK OPTIONS
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(H), or an amendment
thereto, shall otherwise provide, notwithstanding any other provision contained
in the Plan, all outstanding stock options held by a grantee (other than a
grantee referred to in the proviso to Section 8(A)(9)) whose employment with the
Corporation or a Subsidiary terminates within one year of any Section 8 Event
for any reason other than voluntary termination with the consent of the
Corporation or a Subsidiary, retirement under any retirement plan of the
Corporation or a Subsidiary or death which are exercisable shall continue to be
exercisable for a period of three years from the date of such termination of
employment, but in no event after the expiration date of the stock option.
(D) LAPSE OF RESTRICTIONS ON RESTRICTED SHARE AWARDS
Unless the agreement referred to in Section 6(A), or an amendment thereto,
shall otherwise provide, notwithstanding any other provision contained in the
Plan, if any "Section 8 Event" occurs prior to the scheduled lapse of all
restrictions applicable to restricted share awards under the Plan (other than
those held by a person referred to in the proviso to Section 8(A)(9)), all such
restrictions shall lapse upon the occurrence of any such "Section 8 Event"
regardless of the scheduled lapse of such restrictions.
(E) PAYMENT OF PERFORMANCE UNITS
Unless the agreement referred to in Section 6(B), or an amendment thereto,
shall otherwise provide, notwithstanding any other provision contained in the
Plan, if any "Section 8 Event" occurs prior to the end of any Performance
Period, all performance units (unless the awardee is a person referred to in the
proviso to Section 8(A)(9)) shall be deemed to have been fully earned as of the
date of the Section 8 Event, regardless of the attainment or nonattainment of
any Performance Target or any Minimum Target and shall be paid to the awardee
thereof as promptly as practicable after the Section 8 Event. If the performance
unit is not expressed as a fixed amount in dollars or shares, the Committee may
provide in the performance unit agreement for the amount to be paid in the case
of Section 8 Event.
(F) TAX-RELATED CASH PAYMENTS
Unless the agreements referred to in Sections 5(H), 6(A) or 6(B), or an
amendment thereto, shall otherwise provide, if the independent auditors most
recently selected by the Board determine that (i) any grant, payment or transfer
to or for the benefit of a grantee or awardee under the Plan (whether granted,
paid or payable or transferred or transferable pursuant to the Plan or
otherwise) (a "Payment") would be deemed to be an "excess parachute payment" for
Federal income tax purposes because of Section 280G of the Code, or any
successor provision ("Section 280G"), and (ii) any grant, payment or transfer
under the Plan to or for the benefit of a grantee or awardee within one year of
or following the occurrence of a Section 8 Event constitutes in whole or in part
a "parachute payment" under Section 280G (without regard to Section 280G(b)(4))
used in calculating such "excess parachute payment," the Payment will be grossed
up through the payment by the Corporation to the grantee or awardee in cash of
the amount of any excise tax under Section 4999 of the Code, or any successor
provision ("Section 4999"), on the "excess parachute payment" and the amount of
any excise tax under Section 4999 and applicable income tax on the total amount
of such gross up payment, so that the grantee or awardee will receive the full
amount of the Payment after the grantee or awardee has paid any excise tax under
Section 4999 of the Code on the "excess parachute payment" and any excise tax
under Section 4999 and applicable income tax on the amount of such gross up
payment. On the later of the date an "excess parachute payment" is paid to or
for the benefit of the grantee or awardee or the date on which it can be first
determined that a Payment would be deemed to be an "excess parachute payment,"
the Corporation shall pay or distribute to or for the benefit of the grantee or
awardee the gross up payment due to the grantee or awardee under this Section
8(F).
B-12
48
SECTION 9
EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER
Neither the adoption of the Plan nor any action of the Board or the
Committee pursuant to the Plan shall be deemed to give any employee any right to
be granted a stock option (with or without cash payment rights) or to be awarded
restricted shares or performance units under the Plan. Nothing in the Plan, in
any stock option or cash payment rights granted under the Plan or in any award
of restricted shares or performance units under the Plan or in any agreement
providing for any of the foregoing shall confer any right on any employee to
continue in the employ of the Corporation or any Subsidiary or interfere in any
way with the rights of the Corporation or any Subsidiary to terminate the
employment of any employee at any time.
SECTION 10
WITHHOLDING
Income, excise or employment taxes may be required to be withheld by the
Corporation or a Subsidiary in connection with the grant or exercise of a stock
option, upon a "disqualifying disposition" of the shares acquired upon exercise
of an incentive stock option, at the time restricted shares are granted or vest
or performance units are earned or upon the receipt by the grantee of cash in
payment of cash payment rights or dividends on restricted stock which has not
vested. Any taxes required to be withheld by the Corporation or any of its
Subsidiaries upon the receipt by the grantee of cash in payment of cash payment
rights or dividends will be satisfied by the Corporation by withholding the
taxes required to be withheld from the cash the grantee would otherwise receive.
The Corporation will request that the grantee pay any additional amount required
to be withheld directly to the Corporation in cash. If a grantee does not pay
any taxes required to be withheld by the Corporation or any of its Subsidiaries
within ten days after a request for the payment of such taxes, the Corporation
or such Subsidiary may withhold such taxes from any compensation to which the
grantee is entitled.
SECTION 11
AMENDMENT
The right to alter and amend the Plan at any time to time and the right to
revoke or terminate the Plan are hereby specifically reserved to the Board;
provided that no such alteration or amendment of the Plan shall, without
stockholder approval, (i) increase the number of shares which may be issued
under the Plan as set forth in Section 3, (ii) increase the maximum number of
shares as to which stock options may be granted and as to which shares may be
awarded under the Plan to any one employee as set forth in Section 4, (iii) make
any changes in the class of employees eligible to receive options or awards
under the Plan or (iv) be made if stockholder approval of the amendment is at
the time required for grants or awards under the Plan to qualify for the
exemption from Section 16(b) of the 1934 Act provided by Rule 16b-3 or by the
rules of the New York Stock Exchange or any other stock exchange on which the
Common Stock may then be listed. No alteration, amendment, revocation or
termination of the Plan shall, without the written consent of the holder of an
outstanding grant or award under the Plan, adversely affect the rights of such
holder with respect to such outstanding grant or award.
SECTION 12
EFFECTIVE DATE AND DURATION OF PLAN
The effective date and date of adoption of the Plan shall be May 26, 1995,
the date of adoption of the Plan by the Board, and the effective date of the
amendments to the Plan adopted by the Board on July 29, 1997 shall be July 29,
1997. No stock option or cash payment rights may be granted and no restricted
shares or performance units payable in performance shares may be awarded under
the Plan subsequent to May 26, 2005.
B-13
49
WESTINGHOUSE AIR BRAKE COMPANY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
SHERATON AT STATION SQUARE, PITTSBURGH, PENNSYLVANIA
TUESDAY, MAY 26, 1998 -- 3:00 P.M. (LOCAL TIME)
The undersigned stockholder of WESTINGHOUSE AIR BRAKE COMPANY (the
"Company") does hereby appoint WILLIAM E. KASSLING and ROBERT J. BROOKS, and
each of them acting individually, with full power of substitution, as proxies
of the undersigned to vote at the Annual Meeting of Stockholders of the
Company, to be held May 26, 1998 (the "Annual Meeting"), and at all
adjournments thereof, all the shares of Common Stock of the Company which the
undersigned may be entitled to vote, on the matters set out on the reverse side
of this proxy card and described in the Proxy Statement and, in their
discretion, on any other business which may properly come before the Annual
Meeting.
The undersigned stockholder hereby revokes all previous proxies for the
Annual Meeting, acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement both dated April 9, 1998, and of the Annual
Report to Stockholders for 1997.
You are urged to return promptly this proxy card in the enclosed envelope
whether or not you expect to attend the Annual Meeting in person so that your
shares may be voted in accordance with your wishes and in order that the
presence of a quorum may be assured at the Meeting.
The shares represented by this proxy card will be voted as directed by the
stockholder. If this proxy card is executed but no direction is given, such
shares will be voted "FOR" items 1, 2, 3 and 4.
(Continued and to be signed on the reverse side)
FOLD AND DETACH HERE
50
PLEASE MARK
YOUR VOTE AS [X]
INDICATED IN
THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
ITEM (1) -- Election of the following two Directors for a term expiring in 2001:
James P. Kelley and James C. Huntington, Jr.
FOR a Nominee WITHHOLD AUTHORITY
(except as shown to Vote for All
to the right) Nominees
[ ] [ ]
A vote FOR includes discretionary authority to vote for a substituted nominee
if any of the nominees listed becomes unable to serve or for good cause will
not serve.
(To withhold authority to vote for one or more such nominees, write such
nominees' name(s) on the line below.)
_______________________________________________________________________________
ITEM (2) -- The approval of the adoption of the "1998 Employee Stock Purchase
Plan".
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM (3) -- The approval of the amendment to the 1995 Stock Incentive Plan to
increase the total number of shares of the Company's Common Stock
which may be issued thereunder from 3,100,000 to 4,700,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM (4) -- Ratification of the appointment of Arthur Andersen LLP as
independent public accountants of the Company for the 1998 fiscal
year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as attorney, executor, administrator, guardian or
trustee, please so indicate with your full title when signing. If a
corporation, please sign in full corporate name, by duly authorized officer. If
shares are held jointly, each stockholder named should sign.
SIGNATURE(S)___________________ SIGNATURE(S)___________________ DATE___________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
FOLD AND DETACH HERE
51
WESTINGHOUSE AIR BRAKE COMPANY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE ESOP TRUSTEE
SHERATON AT STATION SQUARE, PITTSBURGH, PENNSYLVANIA
TUESDAY, MAY 26, 1998 -- 3:00 P.M. (LOCAL TIME)
The undersigned participant in the WESTINGHOUSE AIR BRAKE COMPANY EMPLOYEE
STOCK OWNERSHIP PLAN (the "ESOP") does hereby instruct the Trustee to vote at
the Annual Meeting of Stockholders of Westinghouse Air Brake Company (the
"Company"), to be held May 26, 1998 (the "Annual Meeting"), and at all
adjournments thereof, all the shares of Common Stock of the Company which the
undersigned may be entitled to provide instructions, on the matters set out on
the reverse side of this card and described in the Proxy Statement and, in its
discretion, on any other business which may properly come before the Annual
Meeting.
The undersigned participant hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement both dated April 9, 1998,
and of the Annual Report to Stockholders for 1997.
The shares represented by this card will be voted as directed by the
participant. If this card is executed but no direction is given or if such
direction is not received by the ESOP Trustee on or before May 21, 1998, such
shares will be voted in accordance with the Westinghouse Air Brake Company
Employee Stock Ownership Plan and trust.
(Continued and to be signed on the reverse side)
FOLD AND DETACH HERE
52
PLEASE MARK
YOUR VOTE AS [X]
INDICATED IN
THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
ITEM (1) -- Election of the following two Directors for a term expiring in 2001:
James P. Kelley and James C. Huntington, Jr.
FOR a Nominee WITHHOLD AUTHORITY
(except as shown to Vote for All
to the right) Nominees
[ ] [ ]
A vote FOR includes discretionary authority to vote for a substituted nominee
if any of the nominees listed becomes unable to serve or for good cause will
not serve.
(To withhold authority to vote for one or more such nominees, write such
nominees' name(s) on the line below.)
_______________________________________________________________________________
ITEM (2) -- The approval of the adoption of the "1998 Employee Stock Purchase
Plan".
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM (3) -- The approval of the amendment to the 1995 Stock Incentive Plan to
increase the total number of shares of the Company's Common Stock
which may be issued thereunder from 3,100,000 to 4,700,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM (4) -- Ratification of the appointment of Arthur Andersen LLP as
independent public accountants of the Company for the 1998 fiscal
year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as attorney, executor, administrator, guardian or
trustee, please so indicate with your full title when signing. If a
corporation, please sign in full corporate name, by duly authorized officer. If
shares are held jointly, each stockholder named should sign.
SIGNATURE(S)___________________ SIGNATURE(S)___________________ DATE___________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
FOLD AND DETACH HERE
53
NOTICE TO PARTICIPANTS
IN THE
WESTINGHOUSE AIR BRAKE COMPANY
RAC VOTING TRUST
Dear Voting Trust Participant:
Enclosed with this notice is Westinghouse Air Brake Company's Proxy
Statement and its 1997 Annual Report to Stockholders. These materials refer to
the Annual Meeting of Stockholders which will be held on May 26, 1998. The
Annual Meeting is being called for the purpose of (i) electing two nominees for
the Board of Directors, (ii) approving the "1998 Employee Stock Purchase Plan,"
(iii) approving an amendment to the Company's 1995 Stock Incentive Plan to
increase the total number of shares of the Company's Common Stock which may be
issued thereunder from 3,100,000 to 4,700,000 shares, and (iv) ratifying the
appointment of Arthur Andersen LLP as independent public accountants for the
1998 fiscal year, as well as considering any other matters that may properly
come before the Meeting.
As a Voting Trust Participant and stockholder you are cordially invited to
attend the Annual Meeting. As you know, by the terms of the Second Amended WABCO
Voting Trust/Disposition Agreement dated as of December 13, 1995 by which we
deposited our shares in the Voting Trust, we agreed that the Trustees of the
Voting Trust will be responsible for voting the shares we have delivered to the
Trust. Accordingly, a proxy card has not been included with the enclosed
materials.
Thank you for your continued cooperation and for faith in the success of
our joint efforts.
Sincerely,
William E. Kassling
Chairman and
Chief Executive Officer
54
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
NOTICE TO PARTICIPANTS
IN THE
WESTINGHOUSE AIR BRAKE COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
Dear ESOP Participant:
Enclosed with this notice is a Proxy Statement with respect to the Annual
Meeting of Stockholders of Westinghouse Air Brake Company (the "Company") to be
held on May 26, 1998 (the "Annual Meeting"), along with the Company's 1997
Annual Report to Stockholders. The Annual Meeting will be for the purpose of (i)
electing two nominees for the Board of Directors, (ii) approving the "1998
Employee Stock Purchase Plan," (iii) approving an amendment to the Company's
1995 Stock Incentive Plan to increase the total number of shares of the
Company's Common Stock which may be issued thereunder from 3,100,000 to
4,700,000 shares, and (iv) ratifying the appointment of Arthur Andersen LLP as
independent public accountants for the 1998 fiscal year. The Proxy Statement has
been prepared by the Board of Directors of the Company in connection with the
business to be transacted at the Annual Meeting. THE ITEMS TO BE PRESENTED AT
THE ANNUAL MEETING ARE IMPORTANT AND ARE DESCRIBED IN THE PROXY MATERIALS BEING
ENCLOSED WITH THIS NOTICE.
DIRECTIONS TO THE TRUSTEE
Only U.S. Trust Company of California, N.A., as trustee (the "Trustee") of
the Westinghouse Air Brake Company Employee Stock Ownership Plan (the "ESOP"),
can vote the shares of the Company's stock (the "Shares") held by the ESOP.
However, under the terms of the Westinghouse Air Brake Company Employee Stock
Ownership Plan and Trust, you, as a participant in the ESOP, are entitled to
instruct the Trustee how to vote.
Enclosed with this notice is a confidential voting instruction card which
is provided to you for the purpose of instructing the Trustee how to vote the
Shares concerning the above matters, which are described in the enclosed Proxy
Statement. Your interest in these matters is important. Please take the time to
complete the voting instruction card and return it to the Trustee. You may
instruct the Trustee to vote for, against, or to abstain from approval of such
matters. If you do not provide instructions to the Trustee, your Shares will be
voted in accordance with the Westinghouse Air Brake Company Employee Stock
Ownership Plan and Trust.
The Trustee will vote all shares of the ESOP in accordance with the
instructions set forth on the voting instruction cards which are received by the
Trustee on or before May 21, 1998, unless the Trustee determines such
instructions are contrary to the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
CONFIDENTIALITY
How you vote will not be revealed, directly or indirectly, to any officer,
any other employee or any director of the Company or to anyone else, except as
otherwise required by law. You should, therefore, instruct the Trustee to vote
the Shares in the manner you think best.
55
VOTING DEADLINE
Because of the time required to tabulate voting instructions from
participants before the Annual Meeting, the Trustee must establish a cut-off
date for receiving your instruction card. The cut-off date established by the
Trustee is 5:00 P.M. Eastern Time on May 21, 1998. The Trustee cannot insure
that instruction cards received after the cut-off date will be tabulated.
Therefore, it is important that you act promptly and return your instruction
card on or before May 21, 1998, in the envelope provided for your convenience.
If the Trustee does not receive timely instructions from you with respect to
your Shares, the Trustee will vote such Shares in the manner directed by the
ESOP Committee, which is currently comprised of William E. Kassling, Robert J.
Brooks, and Kevin P. Conner.
If you also hold shares of Common Stock of the Company directly and not
through the ESOP, you will receive, under separate cover, proxy solicitation
materials including a proxy card. That card should be used to vote the shares
you hold directly and CANNOT be used to direct the voting of shares held by the
ESOP.
FURTHER INFORMATION
If you have questions regarding this information provided to you, you may
contact the Trustee at (800) 535-3093 between 11:30 A.M. and 8:00 P.M. Eastern
Time, Monday through Friday.
Your ability to instruct the Trustee how to vote your Shares is an
important part of your rights as an ESOP participant. Please consider the
enclosed material carefully and then furnish your voting instructions promptly.
Dated April 9, 1998
U.S. Trust Company of California, N.A.,
as Trustee of
WESTINGHOUSE AIR BRAKE COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
