are cancelled pro rata upon any exercise of the option. No such stock option may be for a number of shares greater than three times the number of the participation units in conjunction with which it is granted. Subject to adjustment in certain specified events, the maximum number of shares of the common stock of the company as to which stock options may be exercised by all participants under the Management Incentive Plan is 200,000, of which 153,029 shares were available as of January 31, 1964, for the granting of additional options.
The amount available with respect to any year for the granting of bonus awards under the Management Incentive Plan is stated in the plan to be the same amount as is credited to the Class B Bonus Fund for that year under the Bonus Plan. If the stockholders should vote to continue the Management Incentive Plan but not the Bonus Plan, the board of directors would amend the Management Incentive Plan by deleting that reference to the Bonus Plan and by substituting a formula pursuant to which the amounts thereafter available under the Management Incentive Plan would be determined on the same basis as that heretofore used to determine the amounts credited to the Class B Bonus Fund.
Of the total amount available for any year under the Management Incentive Plan, a portion specified by the board of directors is divided by the mean price of one share of the common stock of the company on the New York Stock Exchange on the last trading day of the year to determine the number of participation units awardable for such year, and the remainder of said amount is credited to a Management Incentive Account from which cash awards are made. Any amount credited to the Management Incentive Account for a particular year but not used for cash awards for that year may be carried forward and used for subsequent cash awards, but unawarded participation units may not be carried forward.
As explained at page 11 above, no amount was credited to the Class B Bonus Fund for 1963, and, therefore, no amount became available with respect to that year for awards under the Management Incentive Plan. The amount which became available for 1962 was $145,204, of which 50% was specified by the board of directors as the amount determinative of the number of participation units awardable for that year, and the balance of $72,602 (plus $479 carried forward from a prior year) was distributed in the form of cash awards. As described at pages 9-10 above, stock options were granted early in 1963 to accompany participation units awarded for 1962.
A salary and bonus committee, appointed by the board of directors and composed of directors not eligible to receive awards, determines which persons are to be granted bonus awards under the Management Incentive Plan and the type and amount of each such award. Said committee also determines, subject to the provisions of the plan and of rules and regulations prescribed by the board of directors, the terms and conditions applicable to such awards.
Final decisions with respect to questions arising under the Management Incentive Plan are made by the board of directors or the salary and bonus committee. The board of directors has the right to modify or repeal the plan subject to limitations stated therein.
If the Management Incentive Plan and the Bonus Plan are continued in effect, it is expected that, as in recent years, the number of annual participants under the Management Incentive Plan will be substantially the same as the number of annual participants under the Bonus Plan.