<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 (S)240.14a-11(c) or (S)240.14a-12
THE UNION CORPORATION
-----------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X] No fee required.
[ ] 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:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(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):
N/A
<PAGE>
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[ ] 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:
N/A
(2) Form, Schedule or Registration Statement No.:
N/A
(3) Filing Party:
N/A
(4) Date Filed:
N/A
<PAGE>
T H E U N I O N C O R P O R A T I O N
211 KING STREET
SUITE 100
CHARLESTON, SOUTH CAROLINA 29401
-----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 19, 1997
-----------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
The Union Corporation (the "Company") will be held on November 19, 1997 at 10:00
a.m. Eastern Standard Time at Charleston Place, 130 Market Street, Charleston,
South Carolina 29401 for the following purposes:
1. To elect five members to the Board of Directors to serve until
the expiration of their respective terms of office and until their successors
are duly elected and qualified;
2. To approve the adoption of the Company's 1997 Non-Employee
Directors' Stock Option Plan, which provides for the issuance of options to
purchase in the aggregate up to 100,000 shares of the Company's common stock,
par value $.50 per share (the "Common Stock"), to certain non-employee directors
of the Company;
3. To approve the adoption of an amendment to the Company's 1994
Incentive Stock Plan to increase by 250,000 the number of shares of the Common
Stock available for issuance thereunder; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed September 23, 1997 as the record date
for the determination of the stockholders entitled to notice of and to vote at
such meeting or any adjournment thereof, and only stockholders of record at the
close of business on that date are entitled to notice of and to vote at such
meeting.
A COPY OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE
30, 1997 IS ENCLOSED HEREWITH.
You are cordially invited to attend the meeting. Whether or not you
plan to attend, you are urged to complete, date and sign the enclosed proxy and
return it promptly. If you receive more than one form of proxy, it is an
indication that your shares are registered in more than one account, and each
such proxy must be completed and returned if you wish to vote all of your shares
eligible to be voted at the meeting.
By Order of the Board of Directors,
Nicholas P. Gill, Secretary
Dated: Charleston, South Carolina
October 10, 1997
YOUR VOTE IS IMPORTANT.
TO ENSURE A QUORUM, PLEASE COMPLETE AND RETURN THE PROXY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, YOUR PROXY WILL BE RETURNED TO YOU UPON REQUEST TO THE SECRETARY OF
THE MEETING.
<PAGE>
T H E U N I O N C O R P O R A T I O N
211 KING STREET
SUITE 100
CHARLESTON, SOUTH CAROLINA 29401
-----------------------------
P R O X Y S T A T E M E N T
-----------------------------
The enclosed proxy is solicited on behalf of the Board of Directors of
The Union Corporation (the "Company") pursuant to this proxy statement for use
at the annual meeting of Stockholders to be held at the time and place shown in
the attached notice of annual meeting (the "Annual Meeting"). This proxy
statement and related form of proxy are expected to be first mailed to the
Company's stockholders on or about October 10, 1997. Shares represented by
properly executed proxies, if returned in time, will be voted at the meeting as
specified or, if not otherwise specified, in favor of (i) the election of the
nominees named herein as directors, (ii) the adoption of the Company's 1997 Non-
Employee Directors' Stock Option Plan and (iii) the adoption of an amendment to
the Company's 1994 Incentive Stock Plan as set forth herein. A person giving
the enclosed proxy has the power to revoke it at any time before it is exercised
by (i) attending the Annual Meeting and voting in person, (ii) duly executing
and delivering a proxy bearing a later date, or (iii) sending a written notice
of revocation to the Company's Secretary.
RECORD DATE
The record date for the determination of holders of common stock, par
value $.50 per share, of the Company ("Common Stock") who are entitled to notice
of and to vote at the annual meeting is September 23, 1997 (the "Record Date").
VOTING SECURITIES
As of the Record Date, 5,796,944 shares of Common Stock of the Company
were outstanding. Holders of record of Common Stock as of such date will be
entitled to one vote for each share held. A majority of all shares of Common
Stock issued, outstanding and entitled to vote at the meeting, present in person
or represented by proxy, shall constitute a quorum. Brokers which are members
of the New York Stock Exchange are permitted to vote their clients' proxies in
their own discretion as to the election of directors if the clients have not
furnished voting instructions within ten days of the meeting. Abstentions and
broker non-votes are considered present for purposes of determining whether the
quorum requirement is met. A broker non-vote occurs when a nominee holds shares
for a beneficial owner but cannot vote on a proposal because the nominee does
not have discretionary voting power and has not received instructions from the
beneficial owner as to how to vote the shares.
The election of directors shall be determined by a plurality of the
voting power present in person or represented by proxy at the Annual Meeting and
entitled to vote thereon. Only shares that are voted in favor of a particular
nominee will be counted towards such nominee's achievement of a plurality.
Shares present at the meeting that are not voted for a particular nominee and
shares present by proxy where the shareholder properly withholds authority to
vote for such nominee will not be counted towards such nominee's achievement of
a
<PAGE>
plurality. Broker non-votes are not considered "shares present" for voting
purposes and have no impact on the outcome of the proposal.
The affirmative vote of a majority of shares of Common Stock present
in person or represented by proxy at the Annual Meeting and entitled to vote
thereon is required for approval of each of the adoption of the Company's 1997
Non-Employee Directors' Stock Option Plan and the adoption of the amendment to
the Company's 1994 Incentive Stock Plan to increase the number of shares of
Common Stock available for issuance thereunder as provided herein. Abstention
from voting will have the practical effect of voting against these two proposals
since such shares are present at the meeting and entitled to vote, but are not
voting in favor of these proposals. Broker non-votes will have no effect on the
outcome of these two proposals, since they are not considered shares entitled to
vote on such proposals.
To the knowledge of the Board of Directors, the only persons who
beneficially owned more than 5% of the voting securities of the Company, as of
the Record Date, are named below:
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF
SHARES BENEFICIALLY OWNED
-------------------------------
PERCENT
NAME OF BENEFICIAL OWNER COMMON STOCK OF CLASS(1)
- ------------------------- -------------- -------------
<S> <C> <C>
Southeastern Asset Management, Inc. 1,201,200(2) 20.7%
6075 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
Schwerin Boyle Capital Management, Inc. 948,460(3) 16.4%
1391 Main Street
Springfield, Massachusetts 01103
Quest Advisory Corp. 396,800(4) 6.8%
1414 Avenue of the Americas
New York, New York 10019
John D. Weil 360,000(5) 6.2%
200 N. Broadway, Suite 825
St. Louis, Missouri 63102
Dimensional Fund Advisors Inc. 297,900(6) 5.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
</TABLE>
- ----------------------
(1) Based on 5,796,944 shares issued and outstanding on the Record Date.
(2) According to Amendment No. 8 to Schedule 13G, dated January 31, 1997, filed
with the Securities and Exchange Commission ("SEC") by Southeastern Asset
Management, Inc. ("Southeastern"), O. Mason Hawkins, the Chairman of the
Board and Chief Executive Officer of Southeastern, Longleaf Partners Fund
("Longleaf Fund") and Longleaf Partners Small-Cap Fund ("Longleaf Small-Cap
Fund"), (i) Southeastern has sole power to vote and dispose of 619,000
shares, shares power to vote and dispose of 579,200 shares and possesses no
power to vote or dispose of 3,000 shares, (ii) Longleaf Fund shares power
to vote and dispose of 279,200 shares but does not have the sole power to
vote or dispose of any shares and (iii) Longleaf Small-Cap Fund shares
power to vote and dispose of 300,000 shares but does not have the sole
power to vote or dispose of any shares. The Amendment further states that,
with respect to shares as to which Southeastern shares voting and
dispositive powers, certain of such shares are
-2-
<PAGE>
owned by Longleaf Fund and certain of such shares are owned by Longleaf
Small-Cap Fund, each of which is a series of Longleaf Partners Fund Trust,
an open-end management investment company. Mr. Hawkins, as Chairman of the
Board and Chief Executive Officer of Southeastern, may be deemed to have
the ability to exert control over Southeastern. Mr. Hawkins disclaims
beneficial ownership of the Company's shares held by Southeastern.
(3) According to Amendment No. 4 to Schedule 13G, dated March 28, 1997, filed
with the SEC by Schwerin Boyle Capital Management, Inc. ("Schwerin Boyle"),
Schwerin Boyle has sole power to dispose of 948,460 shares and the sole
power to vote 75,000 shares.
(4) According to Amendment No. 2 to Schedule 13G, dated February 14, 1996,
filed with the SEC by Quest Advisory Corp. ("Quest") and Charles M. Royce,
as a group, Quest has sole power to vote and dispose of 396,800 shares. The
Schedule also reports that Charles M. Royce may be deemed to be the
controlling person of Quest and, as such, may be deemed to beneficially own
the 396,800 shares beneficially owned by Quest.
(5) According to Amendment No. 2 to Schedule 13D, dated July 15, 1997, filed
with the SEC, all 360,000 shares of Common Stock of the Company are owned
by Woodbourne Partners, L.P. ("Woodbourne"). On November 1, 1996, all of
the shares previously reported as beneficially owned by Mr. Weil, members
of his family, family trusts or the partnership controlled by Mr. Weil were
transferred to Woodbourne. The Schedule 13D further states that Mr. Weil
has sole power to vote or dispose of all of the shares of the Company's
Common Stock which are held by Woodbourne since he is the sole shareholder
of the corporate general partner of Woodbourne.
(6) According to Amendment No. 2 to Schedule 13G, dated February 5, 1997, filed
with the SEC by Dimensional Fund Advisors Inc. ("Dimensional"), Dimensional
has sole power to vote 238,100 shares and sole power to dispose of 297,900
shares. Dimensional disclaims beneficial ownership of such shares. The
Schedule 13G further states that individuals who are officers of
Dimensional also serve as officers of DFA Investment Dimensions Group Inc.
(the "DFA Fund") and The DFA Investment Trust Company (the "DFA Trust"),
each an open-end management investment company, and in their capacities as
officers of the DFA Fund and the DFA Trust, such individuals have the power
to vote 20,700 additional shares owned by the DFA Fund and 39,100 shares
owned by the DFA Trust.
The following chart sets forth the number of shares of Common Stock of
the Company beneficially owned, as of the Record Date, by each director of
the Company, by each executive officer of the Company listed in the Summary
Compensation Table (see "Election of Directors") and by all directors and
executive officers of the Company as a group, which amount includes the
number of shares which each such person may have the right to acquire
within sixty days after such date upon exercise of stock options:
-3-
<PAGE>
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF
SHARES BENEFICIALLY OWNED(1)
-------------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT OF CLASS
- ------------------------ ------------ -----------------
<S> <C> <C>
John E. Angle 19,746(2) *
Melvin L. Cooper 165,276(3) 2.7%
Herbert A. Denton -0- *
Gordon S. Dunn 110,000 1.8%
Nicholas P. Gill 51,500 *
William B. Hewitt 167,492 2.7%
Robert A. Kerr 26,330(4) *
George M. Macaulay 48,384(5) *
Robert A. Marshall -0- *
James M. McCormick -0- *
James C. Miller III 16,200(6) *
Herbert R. Silver 24,000(7) *
All directors and executive 654,428 10.5%
officers, as a group (14 persons)
</TABLE>
- ------------------
(*) Less than 1%
(1) Unless otherwise indicated, the person named in each case has sole
investment and voting power over the shares. The percentage of class is
based on 5,796,944 shares issued and outstanding on the Record Date plus the
following number of shares which the individual or the group may have the
right to acquire within sixty days of the Record Date upon exercise of stock
options: Mr. Angle -- 10,500; Mr. Cooper -- 50,000; Mr. Dunn-- 100,000; Mr.
Gill --49,000; Mr. Hewitt -- 107,492; Mr. Kerr --10,500; Mr. Macaulay --
44,334; Mr. Miller -- 10,500; Mr. Silver-- 10,000; and all directors and
executive officers as a group --409,326.
(2) Includes 2,215 shares held by the trustees of a revocable trust of which Mr.
Angle is co-trustee with power of revocation.
(3) Includes (i) 5,800 shares held in Mr. Cooper's profit sharing plan and (ii)
109,476 shares held by the trustees of a revocable trust of which Mr. Cooper
is the sole beneficiary and a co-trustee.
(4) Includes 2,000 shares owned by Mr. Kerr's wife and 1,000 shares held
in Mr. Kerr's HR-10 Plan.
(5) Includes 2,400 shares owned jointly by Mr. Macaulay and his wife and
1,650 shares held in Mr. Macaulay's account in the profit sharing plan of
a wholly-owned subsidiary of the Company.
(6) Includes 5,700 shares owned jointly by Mr. Miller and his wife.
(7) Includes 1,000 shares owned by Mr. Silver's wife.
-4-
<PAGE>
PROPOSALS TO BE ACTED UPON AT THE ANNUAL MEETING
PROPOSAL NO. 1
ELECTION OF DIRECTORS
---------------------
The certificate of incorporation of the Company divides the Board of
Directors into three classes, with the directors of each class to be
elected at every third annual meeting of stockholders. The certificate
further provides that the number of directors which shall constitute the
full Board of Directors may be fixed by the Board of Directors from time to
time and that vacancies occurring between annual meetings may be filled
only by the Board of Directors, with the directors so chosen to serve until
the next annual meeting. At the meeting of the Board of Directors held in
June 1997, the directors increased the current number of members of the
Board of Directors to eleven and elected Herbert A. Denton, Robert A.
Marshall and James M. McCormick to fill these newly created vacancies and
to serve as directors of the Company until the Annual Meeting of the
Stockholders to which this proxy relates.
The Board of Directors has nominated William B. Hewitt, Robert A. Kerr
and Herbert A. Denton for the three-year term in the class whose term
expires in 2000. In addition, the Board of Directors has nominated Robert
A. Marshall and James M. McCormick to serve as directors for the three-year
term in the class whose terms expire in 1999 and 1998, respectively.
Messrs. Hewitt, Kerr, Denton, Marshall and McCormick are presently serving
as directors of the Company and have expressed their willingness to
continue to serve as such. If, for any reason not presently known, any of
said nominees is not available for election, the proxies will be voted for
substitute nominees, if any.
John E. Angle, a member of the Board since 1983, has tendered his
resignation from the Board to be effective November 19, 1997. Stuart J.
Northrop, a member of the class whose term expires in 1997, recently passed
away. The remaining members of the Board and management of the Company
would like to acknowledge the significant contributions and guidance that
their colleagues and friends, Messrs. Angle and Northrop, provided to the
Company during their many years of service on the Board. As a result of
Mr. Angle's resignation and the death of Mr. Northrop, the Board at a
meeting to be held immediately following the Annual Meeting, expects to
reduce the size of the Board from 11 to 9.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR election as directors for
the three-year term in the class whose term expires in 2000 Messrs. Hewitt,
Kerr and Denton, and recommends a vote FOR election as directors for the
three-year term in the class whose terms expire in 1999 and 1998,
respectively, Messrs. Marshall and McCormick.
-5-
<PAGE>
INFORMATION REGARDING DIRECTORS
Information regarding each of the nominees is set forth below:
<TABLE>
<CAPTION>
YEAR OF ANNUAL
MEETING AT
DIRECTOR WHICH TERM
NAME PRINCIPAL OCCUPATION AGE SINCE WILL EXPIRE
- ---- -------------------- --- ----- --------------
<S> <C> <C> <C> <C>
William B. President and Chief 59 1991 2000
Hewitt Executive Officer of the
Company; Chairman and
Chief Executive Officer of
Capital Credit
Corporation, Interactive
Performance, Inc. and
High Performance
Services, Inc. (each a
subsidiary of the
Company)
Robert A. Kerr Retired; formerly 77 1984 2000
Chairman and Chief
Executive Officer of Banc
One, Dayton, Ohio
Herbert A. President of Providence 50 June 1997 2000
Denton Capital, Inc.
Robert A. Consultant; formerly 56 June 1997 1999
Marshall Executive Vice President
of Advanta Corp. and
President of Credit Card
Division of Advanta Corp.
James M. President of First 49 June 1997 1998
McCormick Manhattan Consulting
Group, Inc.
The following persons will continue to serve as directors after the meeting:
Melvin L. Chairman of the Board of 70 1984 1999
Cooper the Company
Gordon S. Chairman of Transworld 67 1991 1999
Dunn Systems Inc. (a subsidiary
of the Company)
James C. Counselor, Citizens for a 55 1991 1998
Miller III Sound Economy (a not-
for-profit corporation);
formerly Director of the
Federal Office of
Management and Budget
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
YEAR OF ANNUAL
MEETING AT
DIRECTOR WHICH TERM
NAME PRINCIPAL OCCUPATION AGE SINCE WILL EXPIRE
- ---- -------------------- --- ----- --------------
<S> <C> <C> <C> <C>
Herbert R. Co-Chairman of Allied 61 1992 1998
Silver Bond & Collection
Agency, Inc. (a subsidiary
of the Company)
</TABLE>
Directors. Messrs. Cooper, Kerr and Miller have each been engaged in
the principal occupation identified above for more than the past five
years. Mr. Cooper is also a director of Golden Cycle Gold Corporation.
Mr. Kerr is also a director of First Bank, N.A. ("First Bank") of Beaufort,
South Carolina and of First Bank Corporation, the parent of First Bank.
Mr. Miller is also a director of Atlantic Coast Airlines, Inc. and
Washington Mutual Investors, Inc.
Mr. Silver served as Co-Chairman and Co-Chief Executive Officer of
Allied Bond & Collection Agency, Inc. ("Allied Bond"), a subsidiary of the
Company, from December 1992, when the Company acquired substantially all of
the assets and assumed certain liabilities of Allied Bond & Collection
Agency, a Pennsylvania general partnership (the "Partnership"), until June
30, 1997. Mr. Silver continues to serve as Co-Chairman of Allied Bond.
For more than five years prior to December 1992, he and his brother,
Bernard Silver, served as general partners of the Partnership, which they
founded in 1958. Pursuant to the terms of the purchase agreement, Herbert
R. Silver was elected to the Board of Directors of the Company, and the
Company agreed that, for so long as either Herbert R. Silver or Bernard
Silver is employed by Allied Bond under their respective employment
agreements, the Company will include one of them as a nominee for election
to the Board of Directors and will solicit proxies in favor of such
nominee's election.
Mr. Dunn has served as Chairman of Transworld Systems Inc. ("TSI"), a
subsidiary of the Company, since July 1, 1994. Prior to becoming Chairman,
Mr. Dunn served as President and Chief Executive Officer of TSI since 1978.
Mr. Hewitt became Chairman and Chief Executive Officer of Capital
Credit Corporation ("CCC"), a subsidiary of the Company, in September
1991, Chairman and Chief Executive Officer of Interactive Performance, Inc.
("IPI"), a subsidiary of the Company, in November 1995 and Chairman and
Chief Executive Officer of High Performance Services, Inc. ("HPSI"), a
subsidiary of the Company, in May 1996. Effective July 1, 1997, Mr. Hewitt
was appointed President and Chief Executive Officer of the Company and
prior to that he served as President and Chief Operating Officer of the
Company since May 1995. From 1980 until joining CCC, Mr. Hewitt was
Executive Vice President of First Manhattan Consulting Group, Inc.
("FMCG"), a management consulting firm.
Mr. Denton has been the President of Providence Capital, Inc., an
independent National Association of Securities Dealers' registered broker,
for at least the last five years. He is also a director of Capsure
Holdings Corp.
Mr. Marshall currently serves as a consultant to the banking industry.
For at least the last five years he served as Executive Vice President of
Advanta Corp. ("Advanta") and as President of Advanta's Credit Card
division. Mr. Marshall also serves as a director of Arcadia Financial,
Inc.
Mr. McCormick has been President and a member of FMCG's Board of
Directors for at least the last five years.
-7-
<PAGE>
EXECUTIVE OFFICERS. Messrs. Cooper, Dunn, Hewitt, Nicholas P. Gill
(Executive Vice President, Chief Financial Officer, Treasurer and Secretary
of the Company), George M. Macaulay (President and Chief Executive Officer
of TSI), Herbert R. Silver, Bernard Silver (Co-Chairman of Allied Bond and
President of IPI) and Sheldon Zucker (President and Chief Executive Officer
of Allied Bond) are members of the Company's Executive Management Group and
currently constitute all of the executive officers of the Company. Mr.
Gill, age 42, became Executive Vice President of the Company effective July
1, 1997 and has served as Vice President of the Company since January 1995,
as Chief Financial Officer of the Company since February 1991 and as
Treasurer and Secretary since 1989, and served as Controller from 1986
through 1990. Mr. Macaulay, age 57, was appointed President and Chief
Executive Officer of TSI in November 1996 and, prior thereto, he had been
President of TSI since July 1, 1994. He was Vice President of TSI from
1989 to June 30, 1994, President of the Credit Management Services division
of TSI since 1988 and Vice President of such division prior thereto.
Bernard Silver, age 59, currently Co-Chairman of Allied Bond, served as Co-
Chairman and Co-Chief Executive Officer and Secretary of Allied Bond from
December 1992 until June 30, 1997 and President of IPI since November 1995.
Prior to December 1992, he was a general partner of the Partnership. Mr.
Zucker, age 49, became President and Chief Executive Officer of Allied Bond
effective July 1, 1997, and he has held the positions of Executive Vice
President and Chief Operating Officer of Allied Bond since December 1992.
For more than five years prior thereto, he was the Chief Operating Officer
of the Partnership.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee, Employee
Compensation and Benefit Committee, Stock Option Committee and Executive
Committee. None of the directors who serve on either the Audit Committee,
Employee Benefit and Compensation Committee or the Stock Option Committee
is an employee of the Company or any of its subsidiaries. The Board of
Directors has no nominating committee; the full Board of Directors performs
such function.
The Audit Committee reviews the preparations for and scope of the
audit of the Company's annual financial statements, reviews drafts of such
statements, makes recommendations as to the engagement and fees of the
independent auditors and monitors the functioning of the Company's
accounting and internal control systems by meeting with the representatives
of management, the independent auditors and the Company's internal auditor.
The Committee has direct access to the independent auditors, the internal
auditor, counsel to the Company and the Chief Financial Officers of the
respective subsidiaries of the Company, and it performs such other duties
relating to the maintenance of proper books of account and records of the
Company and its subsidiaries and other matters as the Board of Directors
may assign from time to time. The Audit Committee met twice during fiscal
1997. Messrs. Angle, Kerr, Miller and Northrop were members of the Audit
Committee during all of fiscal 1997. Mr. Angle has tendered his
resignation from the Board of Directors, effective November 19, 1997, and
Mr. Northrop recently passed away. Messrs. Kerr and Miller, along with
Messrs. Denton and Marshall, who were appointed to the Audit Committee on
June 10, 1997, are expected to continue to serve on the Audit Committee
after the Annual Meeting. Mr. Angle will serve as Chairman of the Audit
Committee until his resignation becomes effective, at which time Mr. Kerr
will become the Chairman of the Audit Committee.
The Employee Compensation and Benefit Committee supervises and makes
recommendations with respect to compensation levels of key employees and
all benefit plans involving employees of the Company and its subsidiaries.
It also approves, upon the recommendation of the President or other
appropriate officer, the terms of employment of all officers of the Company
(except the Chairman of the Board and the President) and recommends the
terms of employment of the Chairman of the Board and the President to the
Board of Directors for approval. The Employee Compensation and Benefit
Committee met four times during fiscal 1997, with two of those meetings
being held jointly with the Stock Option Committee. Messrs. Angle, Kerr,
Miller and Northrop were members of the Employee Compensation and Benefit
Committee during all of fiscal 1997.
-8-
<PAGE>
Mr. Angle has tendered his resignation from the Board of Directors,
effective November 19, 1997, and Mr. Northrop recently passed away.
Messrs. Kerr and Miller, along with Messrs. Denton, Marshall and McCormick,
who were appointed to the Employee Compensation and Benefit Committee on
June 10, 1997, are expected to continue to serve on the Employee
Compensation and Benefit Committee after the Annual Meeting. Mr. Kerr
serves as Chairman of the Employee Compensation and Benefit Committee.
The Stock Option Committee administers the Company's stock option
plans, including the grant of options thereunder. The Stock Option
Committee met twice during fiscal 1997, with both of these meetings being
held jointly with the Employee Compensation and Benefit Committee. Messrs.
Angle, Kerr, Miller and Northrop were members of the Stock Option Committee
during all of fiscal 1997. Mr. Angle has tendered his resignation from the
Board of Directors, effective November 19, 1997, and Mr. Northrop recently
passed away. Messrs. Kerr and Miller, along with Messrs. Denton, Marshall
and McCormick, who were appointed to the Stock Option Committee on June 10,
1997, are expected to continue to serve on such committee after the Annual
Meeting. Mr. Kerr serves as Chairman of the Stock Option Committee.
The Executive Committee has all the powers of the Board of Directors
in the management of the business and affairs of the Company, except as
such powers are limited by Delaware General Corporation Law. The Executive
Committee met once during fiscal 1997. Messrs. Cooper, Hewitt, Kerr and
Northrop were members of the Executive Committee during all of fiscal 1997.
Mr. Cooper serves as Chairman of the Executive Committee.
The Board of Directors met six times in fiscal 1997. No director
attended fewer than 75% of the total number of meetings of the Board of
Directors and all committees thereof which he was eligible to attend.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons
who own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership of such
securities with the SEC and to furnish the Company with copies of such
reports.
Based solely on its review of the copies of such forms furnished to
the Company by such reporting persons during the fiscal year ended June 30,
1997, or on written representations that no reports were required for those
persons with respect to such period, the Company believes that during the
fiscal year ended June 30, 1997 all filing requirements applicable to its
directors, officers and greater than ten percent beneficial owners were
complied with.
DIRECTORS' COMPENSATION
Pending the approval at the Annual Meeting of the Company's 1997 Non-
Employee Directors' Stock Option Plan (the "1997 Directors' Stock Option
Plan"), directors of the Company who are not employees of the Company or
any of its subsidiaries (each a "Non-Employee Director") are eligible to
receive an annual retainer of $20,000 (the "Annual Retainer"), paid on a
quarterly basis. In addition, each Non-Employee Director who was a member
of the Board of Directors on June 9, 1997 (a "Non-Employee Incumbent
Director") is entitled to receive a lump sum payment, payable upon
retirement from the Board, equal to the discounted present value of a
specified percentage of the Annual Retainer (the "Deferred Annual Retainer"
discussed below).
Subject to the approval at the Annual Meeting of the 1997 Directors'
Stock Option Plan, (i) each Non-Employee Incumbent Director who elects to
participate in the 1997 Directors' Stock Option Plan and (ii) all Non-
Employee Directors who were, or in the future are, first elected to the
Board on or after June 10, 1997, shall, in lieu of the Annual Retainer, be
granted, effective on the
-9-
<PAGE>
date of each annual meeting of the stockholders of the Company, a stock
option to purchase 5,000 shares of the Common Stock of the Company (the
"Annual Grant"). The per share exercise price for each Annual Grant shall
be $5.00 below the fair market value of a share of Common Stock on the date
of grant and each grant shall vest, subject to acceleration in the event of
a change in control of the Company (as defined in the plan), as to 50% of
the underlying shares on the first anniversary of the date of grant and
shall become fully vested on the second anniversary of the date of grant.
See Proposal No. 2 herein for a detailed description of the 1997 Directors'
Stock Option Plan.
Each Non-Employee Incumbent Director, until such time as he elects to
participate in the 1997 Directors' Stock Option Plan, shall remain eligible
to receive the Annual Retainer and shall not be entitled to any grants
under the 1997 Directors' Stock Option Plan.
Each Non-Employee Incumbent Director who has served as a director for
more than five years prior to his retirement from the Board or the
effective date of his election to participate in the 1997 Directors' Stock
Option Plan is, and will remain, entitled to receive the Deferred Annual
Retainer. The Deferred Annual Retainer is a lump sum payment, payable to
each such Non-Employee Incumbent Director (or his estate) upon his
retirement from the Board, equal to the discounted net present value of a
specified percentage of the Annual Retainer based upon the number of years
such director has served on the Board prior to his retirement from the
Board or the effective date of his election to participate in the 1997
Directors' Stock Option Plan. If a Non-Employee Incumbent Director has
served on the Board more than five years, but less than six years, prior to
such retirement or election, such director (or his estate) shall be
entitled to receive, in a lump sum payment, an amount equal to the
discounted net present value of 50% of the Annual Retainer over a period of
ten years. The percentage of the Annual Retainer to be paid to such a
director (or his estate) shall increase for each year of service thereafter
by 10% until such director has served more than ten years, at which time he
(or his estate) shall, upon retirement, be entitled to receive, in a lump
sum payment, an amount equal to the discounted net present value of 100% of
the Annual Retainer for a period of ten years. Upon the election by a Non-
Employee Incumbent Director to participate in the 1997 Directors' Stock
Option Plan, such director shall thereafter no longer be eligible for the
Annual Retainer (other than payment of the Annual Retainer in respect of
the quarter in which such election is made) and his right to the Deferred
Annual Retainer will be fixed based upon the number of years the director
has served on the Board to the effective date of such election.
In addition to the foregoing, each director of the Company who is
neither an employee of the Company nor any of its subsidiaries is entitled
to receive $500 for each Board and/or committee meeting attended during the
fiscal year and each such non-employee director who serves as chairman of a
committee of the Board is also paid a quarterly fee of $250 for each such
position.
Under the Company's 1991 Non-Employee Directors' Stock Option Plan
(the "1991 Directors' Plan"), which expired on December 31, 1995, each non-
employee director who served in such capacity for at least one full year
automatically received an option to purchase 3,500 shares of the Company's
Common Stock on November 19th of each year, until the director received
options to purchase a total of 10,500 shares. Options were granted at an
exercise price equal to the fair market value of a share of such Common
Stock on the date of such grant. Prior to the expiration of the 1991
Directors' Plan, all eligible directors had received options to purchase
10,500 shares, the maximum permitted under that plan. The exercise price
of options granted under the 1991 Directors' Plan may be paid in cash or,
subject to certain restrictions, with shares of Common Stock with a fair
market value equal to the exercise price on the date of exercise. Options
may be exercised within the period commencing six months after the date of
grant and ending on the earlier to occur of the tenth anniversary of the
date of grant or the first anniversary of the director's death or
disability. The expiration of the 1991 Directors' Plan does not affect
rights under outstanding options which were not exercised prior thereto.
-10-
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain
information regarding compensation earned in each of the last three fiscal
years by Mr. Cooper, the Chairman of the Board and Chief Executive Officer
of the Company through fiscal 1997, and by each of the four most highly
compensated executive officers of the Company other than Mr. Cooper who
were serving as executive officers of the Company at the end of fiscal 1997
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------------------- COMPENSATION
NAME AND FISCAL OTHER ANNUAL AWARD ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- ----------------------------------- ------ -------- -------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Melvin L. Cooper 1997 $344,818 $344,818 -- 50,000 $ 44,110
Chairman of the Board of the 1996 335,323 335,323 -- -- 55,817
Company(3) 1995 326,243 326,243 -- -- 127,494
Gordon S. Dunn 1997 200,000 250,000 -- -- 91,300
Chairman of TSI, a subsidiary of 1996 200,000 225,000 -- -- 91,300
the Company 1995 150,000 100,000 -- -- 103,174
Nicholas P. Gill 1997 185,000 125,000 -- 15,000 4,750
Executive Vice President, Chief 1996 175,000 75,000 -- -- 6,820
Financial Officer, Treasurer and 1995 166,250 50,000 -- -- 4,800
Secretary of the Company
William B. Hewitt 1997 300,000 435,500 -- 62,477(4) 17,805
President and Chief Executive 1996 296,117 337,500 -- 40,000(5) 10,994
Officer of the Company and 1995 296,117 249,569 -- 7,523(6) 9,793
Chairman and Chief Executive
Officer of CCC, IPI and HPSI,
each a subsidiary of the
Company(3)
George M. Macaulay 1997 300,000 450,000 -- 25,000 58,459
President and Chief Executive 1996 300,000 400,000 -- -- 58,459
Officer of TSI, a subsidiary of 1995 300,000 400,000 -- -- 58,459
the Company
</TABLE>
(1) The dollar value of perquisites and other personal benefits for each
of the Named Executive Officers did not exceed, in each case, the
lesser of either $50,000 or 10% of the total of annual salary and
bonus for such Named Executive Officer.
(2) The amounts listed under All Other Compensation for Messrs. Cooper,
Dunn, Hewitt and Macaulay for fiscal 1997 include $44,110, $46,300,
$12,105, and $28,459, respectively, which represent premiums paid by
the Company or a subsidiary of the Company for disability and/or life
insurance policies for the benefit of the respective executive
officer. The amounts listed under All Other Compensation for Messrs.
Dunn, Gill, Hewitt and Macaulay for fiscal 1997 include $15,000,
$4,750, $5,700 and $15,000, respectively, which represent amounts
contributed by the Company or a subsidiary of the Company to defined
contribution plans for the benefit of the respective executive
officer. The amounts listed under All Other Compensation for Messrs.
Dunn and Macaulay also include $30,000 and $15,000, respectively,
accrued by a subsidiary of the Company for non-qualified retirement
benefits.
-11-
<PAGE>
(3) Mr. Hewitt succeeded Mr. Cooper as the Chief Executive Officer of the
Company effective July 1, 1997.
(4) Consists of (i) 30,000 shares under option that were granted to Mr.
Hewitt in September 1997 based on the consolidated financial results
of the Company for fiscal 1997 and (ii) 32,477 shares under option
that were granted to Mr. Hewitt in August 1996 that became exercisable
upon his appointment as Chief Executive Officer of the Company in July
1997, each such grant being issued pursuant to the terms of Mr.
Hewitt's employment agreement. See also "Employment Agreements and
Change in Control Arrangements - Employment Agreement with Mr. Hewitt"
below.
(5) Represents options granted to Mr. Hewitt in August 1996 based on the
combined financial results of CCC, IPI and HPSI for fiscal 1996 and
issued pursuant to the terms of Mr. Hewitt's employment agreement.
(6) Represents options granted to Mr. Hewitt in August 1995 based on the
financial results of CCC for fiscal 1995 and issued pursuant to the
terms of Mr. Hewitt's employment agreement.
STOCK OPTION PLANS
As of June 30, 1997, the Company had outstanding options to purchase
Common Stock under two stock option plans for the benefit of employees --
the 1994 Incentive Stock Plan (the "1994 Plan") and the 1984 Stock Option
Plan (the "1984 Plan"). The 1994 Plan and the 1984 Plan are interpreted
and administered by the Stock Option Committee of the Board of Directors.
THE 1994 PLAN. The 1994 Plan, as amended, authorizes the grant of
stock options, restricted stock, deferred stock, bonus shares, performance
awards, dividend equivalent rights, limited stock appreciation rights and
other stock-based awards, or any combination thereof, to executives,
directors who are also employees of the Company or any of its subsidiaries
and other key employees of the Company and its subsidiaries. During any
calendar year, no person may be granted under the 1994 Plan awards
aggregating more than 150,000 shares of Common Stock (which number is
subject to adjustment to prevent dilution in the event of stock splits,
stock dividends or other changes in the capitalization of the Company).
Unless terminated earlier by action of the Board of Directors, no awards
may be granted under the 1994 Plan after August 24, 2004. As of the date
hereof, the only awards granted under the 1994 Plan have been stock
options.
Options granted under the 1994 Plan may be "incentive stock options"
("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or stock options which are
not incentive stock options ("Non-Incentive Options" and, collectively with
the Incentive Options, hereinafter referred to as "Options"). The Stock
Option Committee determines the persons to whom Options will be granted,
the number of shares subject to each Option granted, the prices at which
Options may be exercised (which shall not be less than the Fair Market
Value (as defined in the 1994 Plan) of shares of Common Stock on the date
of grant), whether an Option will be an Incentive Option or a Non-Incentive
Option, the time or times and the extent to which Options may be exercised
and all other terms and conditions of Options.
The exercise price of the shares to be purchased pursuant to each
Option shall be paid (i) in full in cash, (ii) by delivery (i.e.,
surrender) of shares of Common Stock owned by the optionee at the time of
the exercise of the Option, (iii) by directing that the Company withhold a
portion of the shares of Common Stock which would otherwise be issuable
upon exercise of the Option, (iv) in installments, payable in cash, if
permitted by the Stock Option Committee or (v) any combination of the
foregoing.
-12-
<PAGE>
Under the 1994 Plan, the Stock Option Committee is authorized to
specify that the exercisability or settlement of an award (other than an
Option granted with an exercise price equal to 100% of the Fair Market
Value (as defined in the 1994 Plan) of a share of Common Stock at the time
of grant) may be conditioned upon the achievement of certain specified
performance goals, if the award is granted to an executive officer of the
Company whose compensation, at the time of grant, is subject to the limit
on deductible compensation under Section 162(m) of the Code.
The 1994 Plan further provides that, in the event the Company or any
of its subsidiaries incurs any tax withholding obligations in connection
with the exercise of an award by a participant under the plan, the Stock
Option Committee is authorized, either on a mandatory basis or at the
election of such participant, to satisfy the tax obligations by (i)
withholding stock receivable upon exercise of such award, (ii) receiving
shares of Common Stock previously acquired by such participant, (iii)
receiving cash from the participant or (iv) by a combination thereof.
Upon a Change in Control of the Company (as defined in the 1994 Plan),
any award carrying a right to exercise that was not previously exercisable
and vested shall become fully exercisable and vested; the restrictions,
deferral limitations and forfeiture conditions applicable to any other
award granted shall lapse and any performance conditions imposed with
respect to awards shall be deemed to be fully achieved (except in certain
circumstances involving performance goals for executive officers whose
compensation exceeds $1,000,000, in which case the performance goal shall
be deemed achieved to the extent of actual achievement on the date of the
Change in Control). A copy of the 1994 Plan, together with a copy of an
amendment thereto adopted and effective as of August 27, 1996 and a
proposed amendment thereto are attached hereto as Annex B.
-------
THE 1984 PLAN. The 1984 Plan authorized the grant of stock options
(both "incentive stock options" within the meaning of Section 422 of the
Code and non-incentive stock options) and stock appreciation rights to
employees of the Company or any of its subsidiaries, including employees
who were also directors of the Company, who shared primary responsibility
for the management, growth or protection of the business of the Company or
any of its subsidiaries. Under the 1984 Plan, stock appreciation rights
could have been granted in tandem with either type of option, and generally
permitted the holder to receive Common Stock or cash (at the option of the
Stock Option Committee) equal to a certain percentage (not to exceed 100%)
of the excess of the fair market value of the stock subject to the related
option over the exercise price of the option. The exercise price of all
options granted under the 1984 Plan was equal to 100% of the fair market
value of the Common Stock on the applicable date of grant. Under the 1984
Plan, in the event of a Change of Control (as defined in the 1984 Plan),
outstanding stock options shall, subject to certain exceptions, become
immediately and fully exercisable. The 1984 Plan expired on September 17,
1994, and no options were permitted to be issued under the 1984 Plan after
that date. The expiration of the 1984 Plan does not affect rights under
outstanding options and stock appreciation rights which were not exercised
prior thereto. As of the date hereof, there are no stock appreciation
rights outstanding under the 1984 Plan.
Effective February 1, 1992, the 1984 Plan was amended to add a tax
withholding feature allowing optionees under the plan to satisfy certain
tax withholding obligations by electing to have the Company withhold stock
receivable upon exercise of an option or by surrendering previously
acquired Common Stock to the Company. Effective January 1, 1996, the 1984
Plan was further amended to allow optionees under the plan, in lieu of
paying cash in satisfaction of the exercise price of an option, to exercise
an option by (i) delivering to the Company previously acquired shares of
Common Stock having a fair market value on the date of exercise equal to
the aggregate exercise
-13-
<PAGE>
price, (ii) directing the Company to withhold from the aggregate number of
shares issuable upon exercise of the option a number of shares having a
fair market value on the date of exercise equal to the aggregate exercise
price or (iii) a combination of any of the foregoing (including the payment
of cash).
OPTION GRANTS DURING FISCAL 1997
The following table provides information related to options
granted to the Named Executive Officers during fiscal 1997.
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF
SECURITIES TO EXERCISE STOCK
UNDERLYING EMPLOYEES OR BASE PRICE APPRECIATION
OPTIONS IN FISCAL PRICE EXPIRATION FOR OPTION TERM (1)
NAME GRANTED YEAR ($/SH) DATE 5% 10%
---- -------- ----------- -------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Melvin L. Cooper 50,000 16.0% $ 22.50 12/09/07 $753,300 $1,938,850
Gordon S. Dunn - - - - - -
Nicholas P. Gill 15,000 4.8% $ 22.50 12/09/07 $225,990 $ 581,655
William B. Hewitt(2) 32,477 10.4% $ 26.375 08/26/06 $573,576 $1,476,242
40,000 12.8% $22.9375 08/26/06 $614,380 $1,581,260
George M. Macaulay 25,000 8.0% $ 22.50 12/09/07 $376,650 $ 969,425
</TABLE>
- --------------------
(1) The values set forth in these columns represent the gain which would
be realized by each Named Executive Officer assuming (i) the option
granted in fiscal 1997 is exercised at the end of its term and (ii)
the value of a share of the Company's Common Stock has increased
annually by a rate of 5% and 10%, respectively, during the term of the
option. These growth rates are prescribed by the SEC and are not
intended to forecast possible future appreciation of the Company's
Common Stock or to establish a present value of options. In addition,
no gain to the optionees will be realized unless there is an increase
in the Company's stock price, which will benefit all stockholders
commensurately.
(2) The number of securities underlying options granted to Mr. Hewitt
does not include 30,000 shares of Common Stock underlying an option
granted to Mr. Hewitt pursuant to the terms of his employment
agreement in September 1997 based on the fiscal 1997 consolidated
financial results of the Company.
-14-
<PAGE>
OPTION EXERCISES DURING FISCAL 1997 AND YEAR END OPTION/SAR VALUES
The following table provides information related to options exercised
by the Named Executive Officers during fiscal 1997 and the number and value
of options and stock appreciation rights held at fiscal year-end. No stock
appreciation rights were granted or exercised during fiscal 1997 and no
SARs are currently outstanding.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS/SARS AT FY-END(#) AT FY-END ($)(1)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Melvin L. Cooper 131,000 $1,883,125(2) 50,000 -0- $ 187,500 -0-
Gordon S. Dunn - - 100,000 -0- $1,262,500 -0-
Nicholas P. Gill - - 49,000 -0- $ 470,935 -0-
William B. Hewitt - - 42,507 37,493 $ 161,331 $57,684
George M. Macaulay - - 44,334 25,000 $ 505,262 $93,750
</TABLE>
(1) The values of Unexercised In-the-Money Options represent the
aggregate amount of the excess of $26.25, the closing price for a
share of Common Stock on June 30, 1997, over the relevant exercise
prices of all "in-the-money" options.
(2) The value realized upon the exercise of such options represents the
aggregate amount of the excess of the fair market value for a share of
Common Stock on the date of such exercise ($25.125 per share) over the
exercise price of such options ($10.75 per share).
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENT WITH MR. COOPER. The Company and Mr. Cooper
entered into an employment agreement, dated as of January 1, 1986, which
agreement was amended on September 30, 1986, amended and restated as of
November 10, 1988 and was further amended as of September 13, 1990, as of
September 1, 1992, as of March 15, 1995 and as of July 1, 1997. As of July
1, 1997, Mr. Cooper relinquished the title of Chief Executive Officer. The
agreement expires on December 31, 1998, subject to earlier termination upon
certain conditions, including without limitation a Change in Control Event
(as defined in the agreement) of the Company. Under the employment
agreement, Mr. Cooper is entitled to receive an annual salary of not less
than $225,000, subject to adjustment for increases in the Consumer Price
Index. The annual salary under the agreement is currently $349,260. He is
also entitled to an annual bonus each fiscal year in which he is employed,
which bonus shall not exceed 100% of the salary earned in such fiscal year,
equal to 10% of the amount by which the Company's pre-tax income, as
adjusted for discontinued operations and certain unusual, nonrecurring
items, in such fiscal year exceeds the product of the Company's net worth
at the beginning of such fiscal year times the average coupon equivalent
rate during such fiscal year for thirteen-week treasury bills. Mr. Cooper
is also entitled to amounts, not to exceed 10% of his salary in each year,
for legal and accounting services rendered to him, and the Company is
required to provide disability insurance, $1,000,000 of life insurance and
$1,000,000 of travel and accident insurance on Mr. Cooper's life, payable
to his designated beneficiary.
-15-
<PAGE>
Under the agreement, Mr. Cooper is entitled to receive upon his
termination of employment a lump sum payment equal to the salary plus pro
rata bonus to which he was entitled at the time of such termination for the
year in which such termination occurs. Mr. Cooper is also entitled to
receive upon the termination of his employment, including his voluntary
retirement prior to the expiration of his employment agreement, a lump sum
payment equal to the discounted present value of (i) the annual payments
for his remaining life expectancy, as calculated in accordance with
specified actuarial assumptions, equal to 50% of the highest aggregate
annual compensation (salary plus bonus) paid to him during the last three
years of his employment, plus (ii) the premiums payable on the insurance
policies described above. If Mr. Cooper dies during the term of his
employment agreement, his designated beneficiary shall receive the lump sum
amount payable pursuant to clause (i) above, except that such payment shall
be based on a period of ten years. The employment agreement further
provides that if Mr. Cooper dies during the term of his employment
agreement, his designated beneficiary will also be entitled to a lump sum
payment equal to the discounted present value of one year's compensation.
Upon the termination of Mr. Cooper's employment, the Company shall continue
to include Mr. Cooper and his spouse in its medical and hospitalization
plan for the life of Mr. Cooper and his spouse. Mr. Cooper will also be
retained as a consultant for the remainder of his life (which consulting
period, prior to the July 1997 amendment to Mr. Cooper's employment
agreement, was to have continued for the ten-year period following the
termination of his employment). For such consulting services, Mr. Cooper
shall be paid a monthly consulting fee equal to one-half of the highest
average aggregate monthly compensation (including base salary and bonus)
paid to him by the Company in any 12 months during the last three years of
his employment. Pursuant to the employment agreement, the Company is
required to deposit into a trust at the time of Mr. Cooper's termination or
retirement an amount equal to the discounted present value of the aggregate
consulting fees to be paid by the Company to Mr. Cooper during such
consulting period.
EMPLOYMENT AGREEMENT WITH MR. HEWITT. Pursuant to an employment
agreement between Mr. Hewitt, the Company and CCC which became effective on
July 1, 1995 and amended as of July 1, 1997, Mr. Hewitt is employed as
President and Chief Executive Officer of the Company and as Chairman and
Chief Executive Officer of CCC. The agreement expires on June 30, 2000,
subject to earlier termination upon certain conditions, including without
limitation the occurrence of certain Events (as defined in the agreement)
relating to the Company (including, without limitation, a "change in
control" of the Company). Under this agreement, Mr. Hewitt is currently
entitled to a base salary of $300,000 per annum and is also entitled to a
bonus for each fiscal year during the term of the agreement, which bonus
shall include (i) a pre-tax income component (not to exceed $225,000 in any
year) based on the extent to which the pre-tax income of the Company for
such fiscal year exceeds the highest pre-tax income of the Company for any
prior fiscal year commencing with the 1995 fiscal year (except that, for
the 1996 fiscal year, the pre-tax income component was based on the extent
to which the combined pre-tax income for CCC, IPI and HPSI exceeded the
pre-tax income of CCC for fiscal 1995); (ii) a pre-tax margin component
(not to exceed $112,500 in any year) based on the extent to which the
Company's pre-tax margin for such fiscal year exceeds 9.0% (except that,
for the 1996 fiscal year, the pre-tax margin component was based on the
extent to which the combined pre-tax income of CCC, IPI and HPSI exceeded
9.0% of the combined revenues for CCC, IPI and HPSI for fiscal 1996); and
(iii) a discretionary component (not to exceed $112,500 in any year) based
on whether certain objectives established by the Board of Directors have
been met. Mr. Hewitt is also entitled during the term of the agreement to
amounts, not exceeding 10% of his base salary in each year, for legal,
accounting and tax advisory services rendered to him, and other
miscellaneous expenses, and the Company is required to provide $1,000,000
of life insurance on Mr. Hewitt's life, as well as a disability income
insurance policy which provides Mr. Hewitt with a $1,000,000 benefit. Upon
the termination of Mr. Hewitt's employment, the Company shall continue to
include Mr. Hewitt and his spouse in its medical and hospitalization plan
for the life of Mr. Hewitt and his spouse. Mr. Hewitt will also be
retained as
-16-
<PAGE>
a consultant for a ten-year period following the termination of his
employment. For such consulting services, Mr. Hewitt shall be paid a
consulting fee equal to one-half of the highest average aggregate monthly
compensation (including base salary and bonus) paid to him by the Company
in any 12 months during the last three years of his employment.
In addition, pursuant to this employment agreement, the Company has
granted Mr. Hewitt an option to purchase up to 40,000 shares of Common
Stock based on the extent to which the combined pre-tax income of CCC, IPI
and HPSI during the fiscal year ended June 30, 1996 exceeded the pre-tax
income of CCC in fiscal year 1995 (see footnote 5 to Summary Compensation
Table above), and an option to purchase up to 30,000 shares of Common Stock
based on the extent to which the pre-tax income of the Company during the
fiscal year ending June 30, 1997 exceeded the pre-tax income of the Company
in fiscal year 1995 or fiscal year 1996, whichever is higher (see footnote
4 to Summary Compensation Table above). In addition, the Company has
agreed to provide Mr. Hewitt with an option to purchase up to 30,000 shares
of Common Stock based on the extent to which the pre-tax income of the
Company during the fiscal year ending June 30, 1998 exceeds the pre-tax
income of the Company in fiscal year 1995, 1996 or 1997, whichever is
highest.
Pursuant to the employment agreement, the Company also granted to Mr.
Hewitt on August 27, 1996 an option to purchase 32,477 shares of Common
Stock at an initial exercise price of $22.9375 (see footnote 4 to Summary
Compensation Table above). Such option, which was granted under the 1994
Plan, was exercisable at that price only if there was a "change in control"
of the Company prior to the time Mr. Hewitt was appointed as Chief
Executive Officer of the Company. As a result of Mr. Hewitt's appointment
as Chief Executive Officer, effective July 1, 1997, the exercise price of
the option was adjusted to $26.375, the fair market value of the Common
Stock on the effective date of such appointment.
EMPLOYMENT AGREEMENT WITH MR. GILL. Pursuant to an employment
agreement effective January 1, 1995 between Mr. Gill and the Company, which
agreement was amended effective August 27, 1996 and further amended in
February 1997 and as of July 1, 1997, Mr. Gill is employed as Executive
Vice President, Chief Financial Officer, Secretary and Treasurer of the
Company. The agreement expires on June 30, 2000, subject to earlier
termination upon the occurrence of one or more events, including without
limitation, Mr. Gill's election to treat a change in control of the Company
as a material breach of the agreement.
Under the employment agreement, Mr. Gill is currently entitled to a
base salary of not less than $200,000 per annum and may also receive a
discretionary bonus as determined by the Employee Compensation and Benefit
Committee or the Board of Directors. The employment agreement also
provides that the Company is required to provide Mr. Gill with $500,000 in
disability benefits and $500,000 in life insurance benefits.
EMPLOYMENT AGREEMENT WITH MR. DUNN. Pursuant to an employment
agreement effective July 1, 1995 and amended as of November 14, 1996
between Mr. Dunn, the Company and TSI, Mr. Dunn is employed as Chairman of
the Board of TSI. Under the employment agreement, Mr. Dunn is required to
devote not less than 75% of his business time and efforts to his employment
as Chairman of the Board of TSI. The agreement expires on June 30, 1998,
subject to earlier termination upon the occurrence of one or more events,
including, without limitation, Mr. Dunn's election to terminate the
agreement in the event of a change in control of the Company.
-17-
<PAGE>
Pursuant to his employment agreement, Mr. Dunn is entitled to a base
salary of $200,000 per annum. He is also entitled to a bonus during each
year of the agreement based on the adjusted pre-tax earnings of TSI, which
bonus shall not exceed $250,000 in any such year. If Mr. Dunn's employment
is terminated for any reason during the term of the agreement, other than
for cause, the amount of such bonus shall be prorated to reflect the
portion of the year in which Mr. Dunn was employed. In accordance with Mr.
Dunn's employment agreement, TSI deposited approximately $1,500,000 into a
trust during fiscal 1996, which amount represented the deferred bonuses,
and related interest, previously earned by Mr. Dunn. In accordance with
the agreement, Mr. Dunn withdrew $250,000 in January 1996 and may withdraw
$250,000 in each January thereafter until the entire amount deposited in
the trust, including all earnings and accretions (or losses) thereon, has
been paid. Upon the termination of Mr. Dunn's employment with TSI, the
balance in the trust, together with any earnings or net of any losses
thereon, shall be paid to Mr. Dunn (or to his designated beneficiary in the
event of his death), at his option, either in a lump sum payment or in
equal monthly installments over a period not to exceed 120 months. During
the term of Mr. Dunn's employment agreement, the Company will also be
required to contribute $30,000 per year to a non-qualified retirement plan
established for him.
Pursuant to Mr. Dunn's employment agreement, TSI is required to
maintain a total of $2,000,000 face amount of life insurance on the life of
Mr. Dunn. In November 1995, the Employee Compensation and Benefit
Committee, with Mr. Dunn's consent, approved an amendment to Mr. Dunn's
employment agreement pursuant to which, effective at such time, TSI
substituted a $2,000,000 universal second-to-die life insurance policy,
payable to a beneficiary designated by Mr. Dunn. The premiums for such
insurance are paid by TSI. TSI has agreed to transfer to Mr. Dunn, upon
termination of his employment at the end of the term of the employment
agreement or earlier under certain circumstances, the $2,000,000 policy.
TSI has the right to receive the return of the premiums that TSI has paid
on the policy, from the proceeds of the policy when such proceeds are paid.
In addition, if Mr. Dunn retires from regular employment with TSI, he shall
be entitled to continued medical insurance coverage paid by TSI.
The employment agreement also provides that, upon the termination of
the agreement in accordance with its terms on June 30, 1998, or in the
event Mr. Dunn voluntarily terminates his employment prior to such date,
TSI may, at its option, elect to continue his employment through June 30,
2001 or such earlier date as TSI may choose in order to continue various
requirements of the agreement. In the event of any such extension of the
term of his employment, the only compensation to which Mr. Dunn shall be
entitled is the sum of $50,000 per annum for each year of such extension
period, and TSI shall not be obligated to make the $30,000 per annum
contribution to the non-qualified retirement plan established for him or to
maintain the life insurance policies described above. The agreement
further provides that, during any such extension period, Mr. Dunn shall not
be required to devote any specified amount of his business time and efforts
to the business of the Company.
EMPLOYMENT AGREEMENT WITH MR. MACAULAY. Pursuant to an employment
agreement effective July 1, 1995 and amended as of November 14, 1996
between Mr. Macaulay and TSI, Mr. Macaulay is employed as the President and
Chief Executive Officer of TSI. The agreement expires on June 30, 1999,
subject to earlier termination upon the occurrence of one or more events,
including without limitation, Mr. Macaulay's election to treat certain
events which may involve a change in control of the Company as a material
breach of the agreement.
Under the employment agreement, Mr. Macaulay is entitled to a base
salary of $300,000 per annum and is also entitled to receive a bonus during
each fiscal year during the term of the employment agreement, which shall
not exceed $600,000 in any such fiscal year, based on the Adjusted Pre-tax
Income (as defined) of TSI. During the term of Mr. Macaulay's employment
-18-
<PAGE>
agreement, TSI will be required to contribute $15,000 per annum to a non-
qualified retirement plan established for him ($30,000 beginning with
fiscal 1998). The employment agreement also provides that TSI will provide
Mr. Macaulay with $1,000,000 in disability insurance benefits and
$1,000,000 in life insurance benefits. In addition, if Mr. Macaulay
retires from regular employment with TSI, he shall be entitled to continued
medical insurance coverage paid by TSI.
The employment agreement also provides that, upon the termination of
the agreement in accordance with its terms on June 30, 1999, or in the
event Mr. Macaulay voluntarily terminates his employment prior to such
date, TSI may, at its option, elect to continue his employment through June
30, 2001 or such earlier date as TSI may choose in order to continue
various requirements of the agreement. In the event of any such extension
of the term of his employment, the only compensation to which Mr. Macaulay
shall be entitled is the sum of $50,000 per annum for each year of such
extension period, and TSI shall not be obligated to make the $30,000 per
annum contribution to the non-qualified retirement plan established for him
or to provide the disability and life insurance benefits described above.
The agreement further provides that Mr. Macaulay shall not be required to
devote any specified amount of his business time and efforts to the
business of the Company during any such extension period.
EMPLOYMENT AGREEMENTS WITH MR. HERBERT R. SILVER AND MR. BERNARD
SILVER. Pursuant to identical employment agreements, dated as of December
1, 1992 and amended as of November 11, 1996, between each of Mr. Herbert R.
Silver and Mr. Bernard Silver and the Company and Allied Bond, Herbert R.
Silver and Bernard Silver are employed as Co-Chairmen of Allied Bond. Each
agreement expires on June 30, 1998, subject to earlier termination upon the
occurrence of one or more events including, without limitation, the
executive's election to treat certain events which may involve a change in
control of the Company as a material breach of the agreement. Each
executive may also elect to terminate his employment in the event that the
Co-Chairmen and/or their nominees no longer constitute a majority of the
members of the Board of Directors of Allied Bond. In such event, Allied
Bond would continue to pay base salary due through the remaining term of
the agreement plus the pro-rated share of any bonus due through the date of
termination.
Under these employment agreements, each executive is entitled to an
initial base salary of $125,000 per annum, subject to adjustment annually
for increases in the Consumer Price Index. The employment agreement
provides for the payment of bonuses equal to a specified percentage of base
salary paid during the fiscal year if the Adjusted Pre-tax Income (as
defined therein) of Allied Bond for the fiscal year exceeds the highest
Adjusted Pre-tax Income for any of the fiscal years during the period of
employment under the employment agreement. The employment agreement also
provides that Allied Bond is required to provide each executive with
$1,000,000 in disability insurance benefits and $1,000,000 in life
insurance benefits.
EMPLOYMENT AGREEMENT WITH MR. ZUCKER. Pursuant to an employment
agreement, dated as of December 1, 1992, between Mr. Zucker and Allied
Bond, Mr. Zucker was employed as Executive Vice President and Chief
Operating Officer of Allied Bond and, effective July 1, 1997, President and
Chief Executive Officer of Allied Bond. The agreement expires on December
31, 1997, subject to earlier termination at Mr. Zucker's election if both
Co-Chairmen of Allied Bond elect to terminate their employment as a result
of one or more events which may involve a change in control of the Company.
-19-
<PAGE>
Under the employment agreement, Mr. Zucker is entitled to an initial
base salary of $200,000 per annum, subject to adjustment annually by an
amount equal to the greater of 5% or the annual increase in the Consumer
Price Index. The annual salary under the agreement is currently
approximately $243,000. The employment agreement provides for the payment
of a performance-related bonus equal to a specified percentage of base
salary paid during the fiscal year if the Adjusted Pre-tax Income (as
defined therein) of Allied Bond for the fiscal year exceeds the Adjusted
Pre-tax Income of the Partnership for the calendar year ending December 31,
1992. At the discretion of the Board of Directors of Allied Bond, Mr.
Zucker may also receive a discretionary bonus of up to 25% of annual base
salary, provided, however, that the sum of the performance related bonus
and the discretionary bonus for any fiscal year may not exceed 150% of
annual base salary for such fiscal year. The employment agreement also
requires Allied Bond to provide Mr. Zucker with disability income insurance
which will provide a monthly benefit of $7,500 per month and $500,000 in
life insurance benefits. If Mr. Zucker's employment is terminated other
than for "cause" or as a result of Mr. Zucker's disability or a change in
control, Mr. Zucker shall be entitled to severance equal to the greater of
one year of his annual base salary or 62.5% of the base salary that would
have been paid to him from the date of termination to the expiration date
of the agreement. In such event, he shall also be entitled to the pro-
rated share of any bonus due for such year in which his employment is so
terminated.
CHANGE IN CONTROL ARRANGEMENTS. Each of the employment agreements
with Messrs. Cooper, Hewitt, Gill, Dunn, Macaulay, H. Silver, B. Silver and
Zucker contains provisions providing for payments in the event of a change
in control of the Company (as described in the respective agreements). In
the case of Messrs. Macaulay, H. Silver, B. Silver and Zucker, such
payments are only required to be made if such change in control occurs
without the approval of the Board of Directors of the Company. The
agreements entered into with Messrs. Macaulay, H. Silver and B. Silver
generally provide that if the employee elects to terminate his employment
following a change in control, he will be entitled to receive 299% of his
"base amount" (as defined under the Code) within a specified period
following such termination. The agreements with Messrs. Cooper (as
described below), Hewitt and Gill generally provide for payments of similar
amounts upon a change in control regardless of whether such employee elects
to terminate his employment with the Company. In addition, in the event of
a change in control of the Company which has not been approved by the Board
of Directors, Herbert R. Silver and Bernard Silver shall also be entitled
to receive (i) up to an aggregate of $6.9 million, which represents amounts
they would have been eligible to receive based on the financial performance
of Allied Bond, as provided in the purchase agreement, as amended, pursuant
to which the Company acquired substantially all of the assets of the
Partnership, and (ii) certain other amounts payable to them under such
agreement. If Herbert R. Silver and Bernard Silver have both terminated
their employment with Allied Bond following a change in control of the
Company which has not been approved by the Board of Directors of the
Company, Mr. Zucker's agreement also provides that he may elect to
terminate his employment and receive within a specified period following
such termination 299% of his "base amount". Mr. Dunn's agreement specifies
that, in the event of a change in control of the Company (as defined in the
agreement), he will receive the lesser of $1,500,000 or 299% of his "base
amount" and will be entitled to the insurance policies described above.
The "base amount", as defined under the Code, is the average annual
compensation paid for the five taxable years (or such shorter period during
which services are performed on behalf of the Company) prior to a change in
control of the Company.
Mr. Cooper's agreement provides that if there is a change in control
of the Company (as defined therein), he will receive an amount equal to the
discounted present value of the sum of (i) unpaid salary and bonus to which
he would have been entitled under the agreement through December 31, 1998
(assuming a 5% yearly increase in the annual salary and a bonus in each
year equal to the amount of the annual salary paid during such year), (ii)
the pension that would have
-20-
<PAGE>
been payable to Mr. Cooper starting in 1999 based on his life expectancy at
the time of termination of his employment agreement assuming that his
employment had continued with the Company until December 31, 1998, (iii)
the amount that would be payable to Mr. Cooper as a consultant for the
remainder of his life, (iv) 10% of Mr. Cooper's annual salary for each
remaining year of the agreement for legal and accounting services to which
Mr. Cooper was entitled under the agreement and (iv) the premiums payable
on (x) medical and hospitalization coverage for Mr. Cooper and his spouse
based upon their life expectancies at such time and (y) the life insurance,
disability, and travel and accident policies then maintained by the Company
for Mr. Cooper's benefit based on his life expectancy at that time. The
foregoing amounts shall be limited to the extent the aggregate payments
exceed 299% of Mr. Cooper's "base amount" (as defined under the Code).
A portion of any payments which may be made to employees upon a change
in control of the Company may be deemed an "excess parachute payment"
within the meaning of the Code, in which event such portion will not be a
tax-deductible expense for the Company.
SHAREHOLDER RIGHTS PLAN. On February 17, 1988, the Board of Directors
of the Company declared a dividend distribution of one common stock
purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was payable to holders of record of Common Stock at the close of
business on March 14, 1988 (the "Rights Record Date").
The Rights were issued pursuant to a Rights Agreement dated as of
March 14, 1988 between the Company and Registrar and Transfer Company, as
Rights Agent (the "Rights Agreement"), which Rights Agreement has been
amended effective as of May 23, 1990 and as of September 16, 1992.
Pursuant to an agreement dated as of August 22, 1994, The First National
Bank of Boston was substituted as the Rights Agent under the Rights
Agreement. The Rights will not be exercisable until the Distribution Date
(as defined below) and will expire at the close of business on December 31,
1998, unless earlier redeemed by the Company as described below. Each
Right entitles the registered holder to purchase from the Company one-half
of one share of Common Stock at an exercise price of $30 per whole share
(the "Exercise Price"), subject to adjustment. The Exercise Price may be
paid, at the option of the holder, in cash or shares of Common Stock having
a market value at the time of exercise equal to the Exercise Price.
Until the earlier to occur of (i) 30 days following a public
announcement that a person or group of affiliated or associated persons
("Acquiring Person"), other than certain Exempted Persons and Schedule 13G
Filers, as defined in the Rights Agreement, have acquired, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding
shares of Common Stock, and (ii) the tenth business day following the
commencement, or announcement, of a tender offer or exchange offer, the
consummation of which would result in a person or group (other than
Exempted Persons) beneficially owning 30% or more of such outstanding
shares of Common Stock (the earlier of such dates is hereafter referred to
as a "Distribution Date"), the Rights will be evidenced by Common Stock
certificates and will be transferred with and only with such Common Stock
certificates. The transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificate. Common Stock
certificates issued after the Rights Record Date contain a notation
incorporating the Rights Agreement by reference. Under the Rights
Agreement, "Exempted Persons" are defined to include American Diversified
Enterprises, Inc. and its subsidiaries, affiliates and associates, and
"Schedule 13G Filers" are defined as certain persons or entities who have
filed and remain eligible to file a Schedule 13G under Regulations 13d-1(b)
and 13d-2(b) promulgated under the Exchange Act.
-21-
<PAGE>
In the event that (i) the Company is the surviving corporation in a
merger or other business combination with an Acquiring Person and the
Company's Common Stock remains outstanding and unchanged, (ii) after the
Distribution Date a person becomes the beneficial owner of 40% or more of
the then outstanding shares of Common Stock except pursuant to an offer for
all outstanding shares of Common Stock at a price at least equal to or
greater than $30 per share cash net to seller (the "Minimum Cash Amount"),
(iii) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, or (iv) during such time
as there is an Acquiring Person, an event occurs which results in such
Acquiring Person's ownership interest being increased by more than 1%
(e.g., a reverse stock split), the number of shares of Common Stock to be
acquired upon exercise of a Right shall be adjusted so that each holder of
record of a Right, other than Rights that are beneficially owned by the
Acquiring Person or certain transferees of the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive, upon
exercise of each Right, that number of shares of Common Stock having a
market value equal to two times the Exercise Price of the Right, provided,
however, that such adjustment shall not be applicable if the stockholders
of the Company have previously approved any such transaction in accordance
with the provisions of the Company's Certificate of Incorporation. For
example, if the Exercise Price were $30 and the current market price were
$20, each Right not owned by an Acquiring Person (or certain transferees)
following an event set forth in the preceding paragraph would entitle its
holder to purchase three shares of Common Stock for $30 (payable in cash or
shares of Common Stock).
In the event there is insufficient Common Stock authorized to satisfy
the exercise of all Rights outstanding, the Company may suspend the
exercise of Rights for a period of 90 days to obtain stockholder approval
for authorization of a sufficient number of shares of Common Stock, and if
such approval is not obtained, the Rights Agreement provides for the
payment in cash to each holder of record of a Right in an amount equal to
two times the Exercise Price, subject to the limitations of any applicable
loan or other restrictive agreements.
In the event that, at any time after there exists an Acquiring Person
and a public announcement to that effect has been made, (i) the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation or in which its Common Stock is
changed or exchanged, or (ii) 50% or more of the Company's assets or
earning power is sold or transferred, each holder of a Right (except Rights
held by an Acquiring Person, or certain transferees of an Acquiring Person)
thereafter will have the right to receive, upon exercise of each Right,
that number of shares of common stock of the acquiring company having a
fair market value equal to two times the Exercise Price of the Right,
unless the stockholders of the Company have approved any such transaction
in accordance with the provisions of the Certificate of Incorporation.
The Exercise Price payable and the number of shares of Common Stock or
other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on or a subdivision, combination or
reclassification of the Common Stock, (ii) if holders of the Common Stock
are granted certain rights or warrants to subscribe for Common Stock or
securities convertible into Common Stock at less than the current market
price of the Common Stock, or (iii) upon the distribution to holders of the
Common Stock of evidences of indebtedness or assets (excluding cash
dividends out of earnings or retained earnings at a rate not in excess of
$1.00 per annum) or of subscription rights or warrants (other than those
referred to above). The Minimum Cash Amount is also subject to similar
adjustment. With certain exceptions, no adjustment in the Exercise Price
will be required until cumulative adjustments amount to at least 1% of the
Exercise Price. No fractional shares or Rights will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of
the Common Stock on the last trading date prior to the date of exercise.
-22-
<PAGE>
At any time until 30 days following the date on which a person becomes
an Acquiring Person, the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right. After the redemption period has
expired, the Company's right of redemption may be reinstated if no
triggering event (as defined in the Rights Agreement) has occurred and an
Acquiring Person reduces its beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of
transactions not involving the Company at a time when there exists no other
Acquiring Person. Immediately upon the action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and the
holders of Rights only will be entitled to receive the $.01 per Right
redemption price.
Any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After
the Distribution Date, the provisions of the Rights Agreement may be
amended by the Board of Directors in order to cure any ambiguity, to make
changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or to shorten or
lengthen any time period under the Rights Agreement; provided, however,
that no amendment to lengthen the time period governing redemption shall be
made at such time as the Rights are not redeemable.
INDEMNIFICATION AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
The Company has entered into indemnification agreements with each of
its directors and executive officers. Under those agreements, the Company
has agreed to indemnify such directors and executive officers against
certain liabilities arising out of their service as a director or officer
of the Company and/or any subsidiary of the Company. The indemnification
agreements provide, as a contract right, substantially the same protection
as is currently provided by the Company's Certificate of Incorporation and
By-Laws and also provide a clear procedure for pursuit of a claim to
indemnification. In addition, the agreements provide for the creation and
funding of a trust to satisfy indemnification claims in the event of the
occurrence of a Potential Change in Control (as defined in such
indemnification agreements). The indemnification agreements are applicable
to claims asserted after their respective effective dates arising from acts
or omissions occurring before or after their effective dates.
In a lawsuit brought in 1993 in the United States District Court for
the Northern District of California against TSI and certain directors and
officers of TSI, three individuals engaged by TSI as independent
contractors alleged that TSI improperly treated them as independent
contractors rather than employees. In 1996, all of the asserted claims
were dismissed by the court with prejudice. In 1993, some of the same
individuals who initiated the preceding lawsuit, together with certain
other individuals, brought an action in California State Court against TSI
and certain directors and officers of TSI alleging breach of contract and
mental distress as a result of TSI's failure to supply them with certain
business information including copies of a monthly publication distributed
by TSI. Several of the plaintiffs in the foregoing action also brought
suit alleging wrongful termination. TSI prevailed in a jury trial in 1997
and all of these claims have been dismissed.
-23-
<PAGE>
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Employee Compensation and Benefit Committee currently consists of
John E. Angle, Herbert A. Denton, Robert A. Kerr, Robert A. Marshall, James
M. McCormick and James C. Miller III, each of whom is a non-employee member
of the Board of Directors. The same directors comprise the Stock Option
Committee, and the committees met jointly on two occasions in fiscal 1997
to afford the members the opportunity to consider at the same time all
compensation related matters. The Employee Compensation and Benefit
Committee also met separately on two occasions in fiscal 1997. Mr. Angle,
who has tendered his resignation from the Board effective November 19,
1997, will no longer serve on the Board or such committees following the
Annual Meeting. For purposes hereof, the Compensation and Benefit
Committee and the Stock Option Committee will be referred to herein as the
"Committee".
GENERAL. The Company's executive compensation policies are intended
to provide competitive levels of compensation in order to attract and
retain qualified executives and to provide incentives to its senior
management to enhance profitability and stockholder returns. The Committee
believes such objectives are best achieved by having a substantial portion
of an executive officer's cash compensation tied to annual earnings of the
Company or the relevant business unit and by providing long-term incentives
through the use of stock options. The Committee also believes in rewarding
exceptional performance and contributions to the development of the
Company's business.
To achieve these objectives and to retain the services of senior
management for an extended period, the Company has entered into employment
agreements with each of its executive officers. The terms of each
employment agreement are more particularly described under the heading
"Employment Agreements and Change in Control Arrangements." These
agreements (other than in the case of Mr. Gill) generally provide for a
competitive base salary plus a cash bonus which is based on the annual
financial performance of the Company, in the case of Mr. Cooper and, for
fiscal years 1997 through 2000, Mr. Hewitt, and, in the case of executives
with responsibility for specific business units, on the annual financial
performance of the business unit for which the executive has overall
responsibility. In the case of Mr. Gill, his employment agreement with the
Company provides for a competitive base salary plus a discretionary bonus
to be determined by the Board of Directors or the Committee. By
calculating a major component of the executive's cash compensation on the
basis of annual financial performance, the Committee seeks to encourage the
senior executive to achieve maximum profitability. The Committee also
reviews the performance of each executive officer on an annual basis and
may approve additional compensation or waive requirements of the
executive's employment contract to reward an exceptional individual effort
or performance.
The Committee believes that stock-based compensation arrangements are
beneficial in aligning the interests of management and the Company's
stockholders over the long-term. Since 1994, the principal vehicle for
awarding stock-based compensation has been the 1994 Plan. Under the 1994
Plan, which was approved and adopted by the Company's stockholders on
November 17, 1994, the Committee is authorized to grant to key employees
stock options as well as other stock-based awards, including but not
limited to restricted stock grants, deferred stock and performance-based
stock awards. A total of 500,000 shares have been reserved for issuance
under the 1994 Plan, which number shall be increased to 750,000 if Proposal
No. 3 hereto is approved. It is contemplated that the principal form of
awards under the 1994 Plan will be stock options. The number of options
granted to each executive officer under the 1994 Plan generally depends on
the executive's performance, the performance of the Company or the
executive's business unit, the level of his responsibility, the extent of
other forms of compensation payable to him, the terms of his employment
agreement, if applicable, and the number of options previously granted to
him. In
-24-
<PAGE>
fiscal 1997, the Committee awarded options under the 1994 Plan to purchase
an aggregate of 313,427 shares of the Company's Common Stock. Under the
terms of such plan, all grants of stock options were made at no less than
market value, so that the person receiving options will benefit from
appreciation of the price of the stock to the same extent as other
stockholders.
COMPENSATION OF THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER.
During fiscal 1997, the compensation paid to Melvin L. Cooper, the Chairman
of the Board and Chief Executive Officer during such fiscal year, was
governed by the terms of his employment agreement described above. The
Board of Directors approved an amendment to Mr. Cooper's employment
agreement, which provided, among other things, that he would relinquish the
title of Chief Executive Officer effective July 1, 1997 and extend the term
of his active employment by one year through December 31, 1998.
COMPENSATION DEDUCTION LIMITATION. Section 162(m) of the Code limits
to $1 million per year the federal income tax deduction available to public
companies for compensation paid to its chief executive officer and its four
other highest paid executive officers, unless that compensation qualifies
for certain "performance-based" exceptions provided for in that section of
the Code. The Committee will consider ways to maximize the deductibility
of executive compensation, while retaining the discretion the Committee
deems necessary to compensate executive officers in a manner commensurate
with performance and the competitive environment for executive talent.
Under present employment arrangements, it is not anticipated that any
officer will receive compensation subject to this limitation during the
fiscal year ending June 30, 1998.
Submitted by the Employee Benefit and Compensation Committee and the
Stock Option Committee of the Board of Directors: John E. Angle, Herbert A.
Denton, Robert A. Kerr, Robert A. Marshall, James M. McCormick and James C.
Miller III.
-25-
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph charts, on an annual basis, the total
stockholders' return over a five-year period commencing on June 30, 1992,
with respect to an investment in the Company's Common Stock as compared to
the S&P 500 and a peer group selected by the Company for purposes of
comparison (the "Peer Group"). The Peer Group consists of NCO Group, Inc.*
and FCA International Limited. With respect to companies in the Peer
Group, dividend reinvestment has been assumed and the returns of each such
company have been weighted to reflect stock market capitalization. The
Company has paid no dividends with respect to its Common Stock during the
five-year period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN**
AMONG THE UNION CORPORATION, THE S&P 500 AND A PEER GROUP
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED LINE GRAPH]
<TABLE>
<CAPTION>
06/30/92 FYE 06/30/93 FYE 06/30/94 FYE 06/30/95 FYE 06/30/96 FYE 06/30/97
-------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
The Union Corporation $100 $ 62 $ 49 $ 82 $103 $136
Peer Group $100 $ 44 $ 53 $ 43 $ 32 $ 32
S&P 500 $100 $114 $115 $145 $183 $247
</TABLE>
* In prior years, the Peer Group included Payco American Corporation
which company has since been acquired by another entity and has ceased to
be a separate reporting company. The Company has replaced Payco American
Corporation with NCO Group, Inc. ("NCO"). The returns of each component
issuer of the peer group has been weighted according to the respective
issuer's stock market capitalization at the beginning of each period for
which a return is indicated as required by applicable regulations of the
SEC. As NCO has been a reporting company under the Exchange Act only since
November 1996, it's inclusion in the foregoing calculation has necessarily
been limited only to after such date.
** Assumes $100 invested on June 30, 1992 in stock or index, with
reinvestment of all dividends.
-26-
<PAGE>
CERTAIN TRANSACTIONS
In December 1992, Allied Bond, a subsidiary of the Company, acquired
substantially all of the assets and assumed certain liabilities of Allied
Bond & Collection Agency, a Pennsylvania general partnership (the
"Partnership"), for an initial purchase price of $40,300,000, which
included acquisition related costs. Contingent payments not to exceed
approximately $8,300,000 may be payable by the Company if the earnings of
Allied Bond exceed certain levels over the five and one-half year period
ending June 30, 1998. During the fiscal year ended June 30, 1997, the
Company made contingent payments of approximately $227,000 to the
Partnership. Herbert R. Silver, a director and executive officer of the
Company, and Bernard Silver, an executive officer of the Company, were the
general partners of the Partnership.
Allied Bond leases its main facility from a partnership of which
Herbert R. Silver and Bernard Silver are general partners pursuant to a
lease agreement that expires in July 2002. The Company believes the terms
of the lease are comparable to those that would have been obtained under
arrangements with unrelated third parties. During the fiscal year ended
June 30, 1997, Allied Bond paid approximately $566,000 to the partnership
pursuant to such lease.
PROPOSAL NO. 2
ADOPTION OF THE 1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
--------------------------------------------------------------
On June 10, 1997, the Board of Directors of the Company, subject to
approval of the Company's stockholders, adopted The Union Corporation 1997
Non-Employee Directors' Stock Option Plan (hereinafter called the "1997
Directors' Stock Option Plan"). The purpose of the 1997 Directors' Stock
Option Plan is to enable members of the Board of Directors of the Company
who are not employees of the Company or its subsidiaries to acquire or
increase their ownership interest in the Company, thereby allowing such
directors to share in the Company's future growth and success, and replaces
the former method of compensating non-employee directors through an annual
retainer and deferred annual retainer (see "Directors' Compensation"
above). The Board of Directors also believes that the 1997 Directors'
Stock Option Plan will provide an incentive and reward for those non-
employee directors of the Company who are in a position to contribute
substantially to the progress and success of the Company and its
subsidiaries, as well as retain the services of such directors and attract
new directors. A copy of the 1997 Directors' Stock Option Plan is attached
as Annex A to this Proxy Statement and the description of the plan set
forth below is qualified in its entirety by reference to the full text of
the plan.
DESCRIPTION OF THE 1997 DIRECTORS' STOCK OPTION PLAN
The maximum number of shares of Common Stock with respect to which
awards may be granted pursuant to the 1997 Directors' Stock Option Plan is
100,000 shares. If any outstanding option granted under the 1997
Directors' Stock Option Plan is terminated for any reason, the shares of
Common Stock subject to the unexercised portion of such option shall
thereafter be available for options to be issued under the plan.
The 1997 Directors' Stock Option Plan shall be administered by the
Board of Directors of the Company. Options shall be automatically granted
to eligible participants in accordance with the terms and conditions
thereof; accordingly, the persons to whom options shall be granted, the
number of shares subject thereto and the material terms and conditions
governing such options will
-27-
<PAGE>
not be subject to the discretion of the Board of Directors. However, any
questions regarding the interpretation of the 1997 Directors' Stock Option
Plan or any options granted thereunder shall be resolved by the Board of
Directors; such determinations shall be final and binding upon all persons
having an interest in the plan.
Transactions under the 1997 Directors' Stock Option Plan are intended
to comply with all applicable requirements of Rule 16b-3 promulgated under
the Exchange Act, or its successors under the Exchange Act.
AWARDS UNDER THE 1997 DIRECTORS' STOCK OPTION PLAN. Options granted
under the 1997 Directors' Stock Option Plan will be stock options which are
not incentive stock options within the meaning of Section 422 of the Code
(hereinafter referred to as "Options"). Options to purchase up to 5,000
shares of Common Stock of the Company shall be granted under the 1997
Directors' Stock Option Plan on the day of each annual meeting of the
stockholders of the Company, starting with the Annual Meeting to which this
Proxy Statement relates, to (i) each member of the Board of Directors of
the Company who is not an employee of the Company or any of its
subsidiaries (each a "Non-Employee Director") and whose initial election or
appointment to the Board occurred or occurs on or after June 10, 1997 (the
"Adoption Date") and (ii) each Non-Employee Director who was a member of
the Board of Directors of the Company on June 9, 1997 (a "Non-Employee
Incumbent Director" ) and who has elected to participate in the 1997
Directors' Stock Option Plan.
Herbert A. Denton, Robert A. Marshall and James M. McCormick,
individuals who were first elected as directors of the Company on the
Adoption Date, and each Non-Employee Incumbent Director who elects to
participate in the 1997 Directors' Stock Option Plan prior to or on the
Annual Meeting will be granted Options covering 5,000 shares of Common
Stock of the Company on November 19, 1997, which date shall be deemed the
date of grant for such Options. The exercise price of all Options granted
under the 1997 Directors' Stock Option Plan shall be fixed at a price which
shall be $5.00 below the Fair Market Value (as defined in the plan) of the
shares subject to such Option on the date of grant.
Each Option granted under the 1997 Directors' Stock Option Plan shall,
subject to acceleration in the event of a change in control of the Company,
vest 50% on the first anniversary of the date of grant and shall become
fully vested on the second anniversary of the date of grant. In addition,
each Option shall terminate on the earlier of the tenth anniversary of the
date of grant and certain specified early termination events.
The exercise price of the shares to be purchased pursuant to each
Option shall be paid (i) in full in cash or by check, (ii) by delivery
(i.e., surrender) of shares of the Company's Common Stock owned by the
optionee at the time of the exercise of the Option with a "fair market
value" at the time of the exercise of the Option equal to the exercise
price or (iii) by a combination of the foregoing. If permitted by law, the
optionee may direct the Company to deliver the shares subject to exercise
to a broker who shall pay the exercise price to the Company in full by cash
or check.
ADJUSTMENT OF NUMBER OF SHARES. If the outstanding shares of Common
Stock are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock split or other
similar event, an appropriate and proportionate adjustment shall be made in
the number and kind of shares as to which Options may be granted. A
corresponding adjustment changing the number or kind of shares allocated to
unexercised Options or portions thereof, which shall have been granted
prior to any such change, shall likewise be made. Any such adjustment,
however, in the outstanding Options shall be made without change in the
total price applicable to all shares covered by such Options.
-28-
<PAGE>
TRANSFERS. Awards under the 1997 Directors' Stock Option Plan may not
be transferred, pledged, mortgaged, hypothecated or otherwise encumbered
other than by (i) will, by the laws of descent and distribution or pursuant
to a qualified domestic relations order or (ii) to certain immediate family
members (as defined in the 1997 Directors' Stock Option Plan).
AMENDMENTS AND TERMINATIONS. The Board of Directors has the power to
terminate or to amend the 1997 Directors' Stock Option Plan from time to
time in such respects as it deems advisable, except that no such
termination or amendment shall materially adversely affect or impair any
outstanding Options without the consent of the option holder, and it may
not, without the approval of the stockholders (i) increase the maximum
number of shares subject to the plan; (ii) increase the maximum number of
shares issuable to any participant under the plan; (iii) change the timing
of the grant of Options or the exercise price for shares issuable under the
plan; or (iv) change the designation of the participants eligible to
receive Options under the plan. The 1997 Directors' Stock Option Plan may
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the
rules thereunder. Unless terminated earlier by action of the Board of
Directors, the 1997 Directors' Stock Option Plan will terminate on June 10,
2007.
TAX CONSEQUENCES OF THE 1997 DIRECTORS' STOCK OPTION PLAN. The
following summary generally describes the principal federal (and not state
and local) income tax consequences of the 1997 Directors' Stock Option
Plan. The summary is general in nature and is not intended to cover all
tax consequences that may apply to a particular individual or to the
Company. The provisions of the Code and the regulations thereunder
relating to these matters are complicated and their impact in any one case
may depend upon the particular circumstances.
The Company believes that under present Federal tax laws the grant of
an Option will generally create no tax consequences for an option holder or
the Company. Upon exercise of an Option, the holder generally will be
required to recognize ordinary income in an amount equal to the excess of
the fair market value of the Common Stock on the date of the exercise over
the exercise price. The Company will generally be entitled to a deduction
for the same amount. Option holders who utilize shares in payment of the
exercise price of an Option will generally not recognize gain or loss to
the extent that on the date of payment the fair market value of the shares
received is equal to the fair market value of the shares surrendered.
Because the exercise price of the Options is less than the fair market
value of the underlying shares, it could be determined in certain
circumstances that the grant of an Option is in substance a grant of the
underlying stock, in which case the Option holder would be taxable on grant
and the Company would receive a deduction on grant.
Upon disposition of shares of Common Stock acquired upon exercise of
an Option, the optionee will ordinarily recognize capital gain or loss
equal to the amount received over the sum of the amount paid for such
shares plus any amount recognized as ordinary income upon exercise of the
Option. Such gain will be short-term or long-term depending upon the
length of time the stock was held from the date of exercise. Generally,
there will be no tax consequence to the Company in connection with a
disposition of shares acquired under an Option.
OTHER INFORMATION
The closing sale price of the Common Stock on the New York Stock
Exchange on October 6, 1997 was $26.00. It is currently estimated that up
to a maximum of five persons will be eligible to participate in the 1997
Directors' Stock Option Plan. No Options or other awards will be granted
under the 1997 Directors' Stock Option Plan unless and until the plan is
approved by stockholders at the Annual Meeting.
-29-
<PAGE>
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the adoption of the 1997
Non-Employee Directors' Stock Option Plan. The affirmative vote of a
majority of shares of Common Stock present in person or represented by
proxy at the Annual Meeting and entitled to vote thereon is required for
approval of Proposal No. 2.
PROPOSAL NO. 3
AMENDMENT TO THE 1994 INCENTIVE STOCK OPTION PLAN
-------------------------------------------------
On September 10, 1997, the Board of Directors of the Company, upon
recommendation of the Stock Option Committee and subject to approval of the
Company's stockholders, adopted an amendment to The Union Corporation 1994
Incentive Stock Plan (hereinafter called the "1994 Plan") to increase by
250,000 shares the number of shares of Common Stock available for issuance
under that plan. In 1994, the 1994 Plan was adopted by the Board of
Directors and approved by the Company's stockholders. The purpose of the
1994 Plan is to provide an incentive and reward for those executive
officers and other key employees in a position to contribute substantially
to the progress and success of the Company and its subsidiaries, to closely
align the interests of such employees with the interests of stockholders of
the Company by linking benefits to stock performance and to retain the
services of such employees, as well as to attract new key employees. In
furtherance of that purpose, the 1994 Plan authorizes the grant of stock
options, restricted stock, deferred stock, bonus shares, performance
awards, dividend equivalent rights, limited stock appreciation rights and
other stock-based awards, or any combination thereof, to executives and
other key employees of the Company and its subsidiaries. The 1994 Plan is
expected to provide flexibility to the Company's compensation methods,
after giving due consideration to competitive conditions and the impact of
federal tax laws. A copy of the 1994 Plan is attached as Annex B to this
Proxy Statement and the description of the 1994 Plan set forth below is
qualified in its entirety by reference to the full text of the 1994 Plan.
DESCRIPTION OF THE 1994 PLAN
The 1994 Plan, as originally adopted, provided that 500,000 shares
were the maximum number of shares of Common Stock with respect to which
awards could be granted pursuant to the plan. As of October 6, 1997,
options to purchase approximately 450,000 shares of Common Stock were
outstanding under the 1994 Plan. As amended, the 1994 Plan would provide
that the maximum number of shares of Common Stock with respect to which
awards could be granted pursuant to the plan would be 750,000. In
addition, if in connection with the exercise of any award under the 1994
Plan, shares of Common Stock subject to such award are surrendered in
payment of any exercise or purchase price or withheld in payment of taxes
relating to any such award, an equal number of shares shall be available
for further awards other than Incentive Options (as defined below) under
the 1994 Plan.
Shares issuable under the 1994 Plan may be either treasury shares or
authorized but unissued shares. The number of shares available for
issuance will be subject to adjustment to prevent dilution in the event of
stock splits, stock dividends or other changes in the capitalization of the
Company.
-30-
<PAGE>
The 1994 Plan is currently administered by a committee consisting of
not less than three (3) members of the Board of Directors who are
"disinterested" within the meaning of Rule 16b-3 promulgated under the
Exchange Act and "outside directors" within the meaning of Section 162(m)
of the Code (including persons who may be deemed outside directors by
virtue of certain transitional rules adopted by the Internal Revenue
Service implementing such Section). The Board of Directors has designated
the Stock Option Committee (the "Committee") as administrator of the 1994
Plan. The Stock Option Committee has and is expected to continue to
determine the persons to whom awards will be granted under the 1994 Plan,
the type of award and, if applicable, the number of shares to be covered by
any such award. During any fiscal year, no person may be granted under the
1994 Plan awards aggregating more than 150,000 shares (which number shall
be subject to adjustment to prevent dilution in the event of stock splits,
stock dividends or other changes in capitalization of the Company).
TYPES OF AWARDS:
STOCK OPTIONS. Options granted under the 1994 Plan may be "incentive
stock options" within the meaning of Section 422 of the Code ("Incentive
Options") or stock options which are not incentive stock options ("Non-
Incentive Options" and, collectively with Incentive Options, hereinafter
referred to as "Employee Options"). The Committee will determine the
persons to whom Employee Options will be granted, the number of shares
subject to each Employee Option granted, the prices at which Employee
Options may be exercised (which shall not be less than the Fair Market
Value, as defined in the 1994 Plan, of shares of Common Stock on the date
of grant), whether an Employee Option will be an Incentive Option or a Non-
Incentive Option, the time or times and the extent to which Employee
Options may be exercised and all other terms and conditions of Employee
Options.
Each Incentive Option shall terminate no later than ten years from the
date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined). No Employee Option
may be granted at any time after August 24, 2004. The exercise price at
which the shares may be purchased may not be less than the Fair Market
Value of shares of Common Stock at the time the Employee Option is granted,
except as provided below with respect to Incentive Options granted to 10%
Stockholders. Employee Options granted to executive officers may not be
exercised at any time prior to six months after the date of grant.
The Code requires that the exercise price of an Incentive Option
granted to a person possessing more than 10% of the total combined voting
power of all shares of stock of the Company or a subsidiary of the Company
("10% Stockholder") shall in no event be less than 110% of the Fair Market
Value of the shares of the Common Stock at the time the Incentive Option is
granted and that the term of an Incentive Option granted to a 10%
Stockholder shall not exceed five years from the date of grant.
The exercise price of the shares to be purchased pursuant to each
Employee Option shall be paid (i) in full in cash, (ii) by delivery (i.e.,
surrender) of shares of the Company's Common Stock owned by the optionee at
the time of the exercise of the Employee Option, (iii) by directing the
Company to withhold a portion of the shares which would otherwise be
issuable upon exercise of the Employee Option, (iv) in installments,
payable in cash, if permitted by the Committee or (v) any combination of
the foregoing. The stock-for-stock payment method permits an optionee to
deliver one or more shares of Common Stock of the Company in satisfaction
of the exercise price of subsequent Employee Options. The optionee may use
the shares obtained on each exercise to purchase a larger number of shares
on the next exercise. (The foregoing assumes an appreciation
-31-
<PAGE>
in value of previously acquired shares). The result of the stock-for-stock
payment method is that the optionee can generally avoid immediate tax
liability with respect to any appreciation in the value of the stock
utilized to exercise the Employee Option.
LIMITED STOCK APPRECIATION RIGHTS. The Committee is authorized, in
connection with any Employee Option granted under the 1994 Plan, to grant
the holder of such Employee Option a limited stock appreciation right
("LSAR"), entitling the holder to receive, within 60 days following a
Change in Control (as defined in the 1994 Plan) of the Company, an amount
in cash equal to the difference between the exercise price of the Employee
Option and the market value of the Common Stock on the effective date of
the Change in Control. The LSAR may be granted in tandem with an Employee
Option or subsequent to the grant of the Employee Option. The LSAR will
only be exercisable to the extent the related Employee Option is
exercisable and will terminate if and when the Employee Option is exercised
or terminated.
RESTRICTED AND DEFERRED STOCK. An award of restricted stock or
deferred stock may be granted under the 1994 Plan. Restricted stock is
subject to restrictions on transferability and other restrictions as may
be imposed by the Committee at the time of grant. In the event the holder
of restricted stock ceases to be employed by the Company during the
applicable restrictive period, restricted stock that is at the time subject
to restrictions shall be forfeited and reacquired by the Company. Except
as otherwise provided by the Committee at the time of grant, a holder of
restricted stock shall have all the rights of a stockholder including,
without limitation, the right to vote restricted stock and the right to
receive dividends thereon. An award of deferred stock is an award that
provides for the issuance of stock upon expiration of a deferral period
established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award
during the applicable deferral period, all stock that is at the time
subject to deferral shall be forfeited. Until such time as the stock which
is the subject of the award is issued, the recipient of the award has no
rights as a stockholder.
DIVIDEND EQUIVALENT RIGHTS. A dividend equivalent right gives the
recipient the right to receive cash or other property equal in value to the
dividends that would be paid if the recipient held a specified number of
shares of Common Stock. A dividend equivalent right may be granted as a
component of another award or as a free standing award.
BONUS SHARES AND OTHER SHARE-BASED AWARDS. The 1994 Plan authorizes
the Committee to grant shares as a bonus, or to grant shares or other
awards in lieu of obligations of the Company to pay cash under other plans
or compensatory arrangements, upon such terms as shall be determined by the
Committee. The 1994 Plan also authorizes the Committee to grant other
forms of awards based upon, payable in or otherwise related in whole or in
part to Common Stock of the Company, including, without limitation,
convertible or exchangeable debentures or other debt securities, other
rights convertible or exchangeable into shares, purchase rights for shares,
awards contingent upon performance of the Company, and awards valued by
reference to the book value of shares of Common Stock or awards determined
by reference to the value of securities of, or the performance of,
specified subsidiaries.
PERFORMANCE-BASED AWARDS TO CERTAIN EXECUTIVE OFFICERS. The 1994 Plan
permits the Committee to specify that the exercisability or settlement of
awards (other than an Employee Option granted with an exercise price equal
to 100% of the fair market value of a share of Common Stock at the time of
grant) may be conditioned upon the achievement of objective performance
goals, if the award is granted to an executive officer of the Company whose
compensation, at the time of grant, is subject to the limit on deductible
compensation under Section 162(m) of the Code. The
-32-
<PAGE>
1994 Plan contemplates that the following performance goals may be selected
by the Committee: (1) pre-tax income from continuing operations of either
the Company or a subsidiary or business unit of the Company, (2)
consolidated net income of the Company, (3) revenues of either the Company
or a subsidiary or business unit of the Company, (4) annual earnings per
common share or (5) annual return on common equity. The Committee is
authorized to make adjustments in the terms and conditions of, and the
criteria included in, awards in recognition of unusual or nonrecurring
events, extraordinary items or discontinued operations affecting the
Company or a subsidiary of the Company or the financial statements of the
Company or a subsidiary of the Company, or in response to changes in
applicable laws, regulations or accounting principles, or tax rates and
regulations or business conditions to the extent permitted under Section
162(m) of the Code. Achievement of the goals will be measured over a
performance period that may extend for up to four years, as specified by
the Committee. The 1994 Plan contemplates that the Committee will, prior
to the performance period, establish the targets applicable to the
performance goals for each performance period. The 1994 Plan permits the
Committee to provide that awards will be payable upon achievement of any
one of the performance goals or upon achievement of two or more goals
applicable to the performance period. The 1994 Plan permits the Committee
to exercise discretion to reduce the amount of any award payable upon
achievement of the performance goals.
OTHER PROVISIONS:
PAYMENT FOR AWARDS. Awards may be issued at no cost to the recipient
or for such cost as maybe required by law. Upon grant or exercise of an
award, the Committee may, in its discretion, permit the payment of any
exercise or purchase price or other consideration required to be delivered
to the Company in connection thereto, in whole or in part, in installments.
Each such installment payment arrangement will be evidenced by a promissory
note, the terms and conditions of which shall be determined by the
Committee subject to the following: (a) the maximum term of any note shall
be ten years from the date of the note, (b) the minimum interest rate with
respect to amounts borrowed shall in no event be less than the rate
required to avoid imputation of interest under the provisions of the Code
and (c) unless the Committee determines otherwise, the unpaid principal
amount of any note will become due and payable upon the sale of any of the
shares so purchased, but in no event later than 30 days after an optionee's
employment with the Company terminates.
CHANGE IN CONTROL. Upon a Change in Control of the Company, any award
carrying a right to exercise that was not previously exercisable shall
become fully exercisable, the restrictions, deferral limitations and
forfeiture conditions applicable to any other award granted shall lapse and
any performance conditions imposed with respect to awards shall be deemed
to be fully achieved (except in certain circumstances involving performance
goals for executive officers whose compensation exceeds $1,000,000, in
which case the performance goal shall be deemed achieved to the extent of
actual achievement on the date of the Change in Control).
TRANSFERS. Awards under the 1994 Plan (other than Incentive Options)
may not be transferred, pledged, mortgaged, hypothecated or otherwise
encumbered other than by will or under the laws of descent and
distribution, except that the Committee may permit transfers of awards for
estate planning purposes if, and to the extent, such transfers do not cause
a participant who is then subject to Section 16 of the Exchange Act to lose
the benefit of the exemption under Rule 16b-3 for such transactions.
AMENDMENTS AND TERMINATIONS. The Board of Directors may further
amend, alter, suspend, discontinue or terminate the 1994 Plan at any time,
except that any such action shall be subject to
-33-
<PAGE>
stockholder approval at the annual meeting next following such Board of
Directors action if such stockholder approval is required by federal or
state law or regulation or the rules of any exchange or automated quotation
system on which the Common Stock may then be listed or quoted, or if the
Board of Directors otherwise determines to submit such action for
stockholder approval. In addition, no amendment, modification, suspension,
discontinuation or termination to the 1994 Plan may materially impair the
rights of any participant with respect to any award without such
participant's consent. Unless terminated earlier by action of the Board of
Directors, the 1994 Plan will terminate on August 24, 2004.
TAX CONSEQUENCES OF THE 1994 PLAN
GENERAL
The following discussion of tax consequences of various awards under
the 1994 Plan is subject to the limitations imposed by Section 162(m) of
the Code on the deductibility of compensation to certain executive officers
of the Company in excess of $1,000,000 in certain circumstances. See
"Application of Section 162(m) of the Code" below for a more complete
discussion of those limitations.
EMPLOYEE OPTIONS. The Company believes that under present Federal tax
laws the grant of an Employee Option will create no taxable income
consequences for an optionee or deduction for the Company. The optionee
will generally have no taxable income upon exercising an Incentive Option
(except that the alternative minimum tax may apply), and the Company will
receive no deduction when an Incentive Option is exercised. The optionee
must recognize a specified amount of ordinary income with respect to the
exercise of a Non-Incentive Option, and the Company (or its subsidiary)
will generally be entitled to a deduction for the same amount. The tax
treatment to an optionee of a disposition of shares acquired under the 1994
Plan depends on how long the shares have been held and on whether such
shares were acquired by exercising an Incentive Option or a Non-Incentive
Option. Generally, there will be no tax consequence to the Company in
connection with a disposition of shares acquired under an Employee Option,
except that the Company (or its subsidiary) will generally be entitled to a
deduction in the case of a disposition of shares acquired under an
Incentive Option before the applicable Incentive Option holding period has
been satisfied.
LSARS. The grant of an LSAR in connection with an Employee Option
does not create taxable income to the holder of the Employee Option. Upon
exercise of an LSAR, the holder will realize compensation income to the
extent of the cash paid and the Company will generally be entitled to a
deduction for such amount.
RESTRICTED STOCK. With respect to restricted stock, the recipient
will realize compensation income, in an amount equal to the fair market
value of such stock less any amount paid for such stock, at the earlier of
the time when the employee's rights with respect to such stock are no
longer subject to a substantial risk of forfeiture and the time when such
stock is transferable, unless the recipient elects to be taxed at the time
of the receipt of the award (as if the restrictions did not exist). The
Company will generally be entitled to a deduction under the Code at the
time and equal to the amount that compensation income is realized by the
recipient of the restricted stock.
DEFERRED STOCK; BONUS STOCK. The recipient of deferred stock or bonus
stock will realize compensation income in an amount equal to the fair
market value of such stock as and when the same becomes payable to the
recipient, less any amount paid for such stock. The Company
-34-
<PAGE>
generally will be entitled to a deduction under the Code at the time and
equal to the compensation income realized by the recipient.
DIVIDEND EQUIVALENT RIGHTS. The recipient of a dividend equivalent
right will realize compensation income equal to the cash (or fair market
value of the shares, if payment is made in such form) as and when the same
becomes payable to the recipient, with the Company generally entitled to a
simultaneous deduction equal to the amount of the compensation realized.
APPLICATION OF SECTION 162(m) OF THE CODE
As discussed previously, Section 162(m) of the Code limits to $1
million per year the federal income tax deduction available to public
companies for compensation paid to its chief executive officer and its four
other highest paid executive officers. However, Section 162(m) provides an
exception to this limitation for certain "performance-based" compensation
if various requirements are satisfied. The 1994 Plan is designed to
satisfy the exception for stock options issued thereunder. Therefore, the
Company anticipates being entitled to deduct an amount equal to the taxable
income reportable by an Employee Option recipient upon exercise of a Non-
Incentive Option. In addition, the 1994 Plan is structured in a manner so
that the Company may, if it elects to issue restricted stock, deferred
stock or other stock awards under the 1994 Plan, also satisfy the exception
by utilizing the "performance based" award criteria identified under the
subheading "Performance-Based Awards to Certain Executive Officers" set
forth above. At this time, however, the Company does not intend to grant
any of such awards in the foreseeable future under the 1994 Plan.
OTHER INFORMATION
It is currently estimated that approximately 75 persons, including
executive officers and other key employees of the Corporation, are eligible
to participate in the 1994 Plan. No Employee Options or other awards in
excess of the amount currently permitted under the 1994 Plan will be
granted thereunder unless and until the amendment to the 1994 Plan
submitted for approval herein is approved by stockholders at the Annual
Meeting.
RECOMMENDATION OF BOARD OF DIRECTORS
The Company's Board of Directors recommends a vote FOR the amendment
to the 1994 Plan as provided herein. The affirmative vote of a majority of
shares of Common Stock present in person or by proxy at the Annual Meeting
and entitled to vote is required for approval of Proposal No. 3.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the next annual
meeting of stockholders, to be held in 1998, must be received by the
Company at 211 King Street, Suite 100, Charleston, South Carolina 29401 by
June 12, 1998 to be included in the proxy statement and form of proxy
relating to that meeting.
-35-
<PAGE>
AUDITORS
Representatives of Ernst & Young LLP are expected to attend the annual
meeting and, while they are not expected to make a statement, they will
have an opportunity to do so if they desire. They will also be available
to answer appropriate questions.
OTHER INFORMATION
The cost of soliciting proxies will be borne by the Company.
Following the original mailing of proxy soliciting material, regular
employees of the Company may solicit proxies by mail, telephone, telegraph
and personal interview. Arrangements have been made with brokerage houses
and other custodians, nominees and fiduciaries which are record holders of
the Company's stock to forward proxy soliciting material and annual reports
to the beneficial owners of such stock, and the Company will reimburse such
record holders for their reasonable expenses incurred in providing such
services. As of the date of this Proxy Statement, the Company has not
retained the services of a proxy solicitor to assist in the solicitation of
proxies; however, the Company may determine prior to the date of the annual
meeting to which this proxy statement relates to retain a proxy solicitor,
in which case the Company anticipates that the cost of doing so will not
exceed $5,000.
A copy of the Company's annual report for the fiscal year ended June
30, 1997 is enclosed.
The Board of Directors is aware of no matters, other than those
specified herein, that are to be presented to stockholders for formal
action at the meeting. If, however, any other matters properly come before
the meeting or any adjournment thereof, it is the intention of the persons
named in the enclosed form of proxy to vote such proxy in accordance with
their judgment on such matters.
By Order of the Board of Directors.
Nicholas P. Gill
Secretary
Dated: Charleston, South Carolina
October 10, 1997
-36-
<PAGE>
[FRONT]
PROXY THE UNION CORPORATION
PROXY SOLICITED BY
THE BOARD OF DIRECTORS OF THE UNION CORPORATION
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- NOVEMBER 19, 1997
The undersigned hereby appoints WILLIAM B. HEWITT and NICHOLAS P.
GILL, and each of them, with power of substitution to each, as the proxies
and attorneys of the undersigned to vote, as designated below, all shares
of common stock of The Union Corporation which the undersigned would be
entitled to vote if personally present at the Annual Meeting of
Stockholders of The Union Corporation to be held at Charleston Place, 130
Market Street, Charleston, South Carolina 29401 at 10:00 a.m. Eastern
Standard Time on November 19, 1997.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
(to be valid, this proxy must be signed and dated on the reverse side)
<PAGE>
[BACK]
If no direction is given, this proxy will be voted FOR the election of the
nominees set forth in Proposal No. 1
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Election of Directors.
Nominees: William B. Hewitt, Robert A. Kerr, Herbert A.
Denton, Robert A. Marshall and James M.
McCormick
[_] FOR [_] WITHHOLD
[_]___________________________________
For all nominees except as noted above
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
2. Approval of the adoption of the Company's 1997 Non-Employee Directors'
Stock Option Plan. This proposal was proposed by the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
3. Approval of the adoption of the amendment to the Company's 1994
Incentive Stock Plan to increase by 250,000 the number of shares of
Common Stock available for issuance thereunder. This proposal was
proposed by the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
Mark Here [_]
For Address
Change and
Note at Left
Please mark, date and sign as your name appears above and return in the
enclosed envelope. If acting as executor, administrator, trustee,
guardian, etc. you should so indicate when signing. If the signer is a
corporation, please sign the full corporate name, by a duly authorized
officer. If shares are held jointly, each stockholder named should sign.
Date: _______________________________________
Signature: __________________________________
Signature: __________________________________
<PAGE>
ANNEX A
-------
THE UNION CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT. There is hereby established The Union
Corporation 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") pursuant to which certain directors of The Union Corporation (the
"Company") may be granted options to purchase shares of common stock, par value
$.50 per share ("Common Stock"), and thereby share in the future growth of the
business. The purpose of the Directors' Plan is to promote continuity of
management and identity of interest between directors and stockholders of the
Company.
SECTION 2. STATUS OF OPTIONS. The options to be issued pursuant to this
Directors' Plan ("Options") shall not constitute incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
SECTION 3. ELIGIBILITY. The following persons shall be eligible to be
granted Options to purchase shares of the Company's Common Stock under this
Directors' Plan (each a "Participant"): (i) each person whose initial election
or appointment as a director of the Company occurred or occurs on or after June
10, 1997 (the "Adoption Date") and who is not an employee of the Company or any
of its subsidiaries (each a "New Director"), and (ii) each member of the Board
of Directors on June 9, 1997 who is not an employee of the Company or any of its
subsidiaries (each such incumbent director being referred to herein sometimes as
a "Non-Employee Incumbent Director") and who elects to participate in this
Directors' Plan in accordance with Section 11 hereof; provided, that, in the
-------- ----
event any Participant becomes an employee of the Company or any of its
subsidiaries or ceases to be a director of the Company such person shall
thereafter no longer be a Participant hereunder and shall no longer be eligible
to be granted Options hereunder.
SECTION 4. NUMBER OF SHARES COVERED BY OPTIONS; NO PREEMPTIVE RIGHTS.
The total number of shares which may be issued and sold pursuant to Options
granted under this Directors' Plan shall be 100,000 shares of Common Stock (or
the number and kind of shares of stock or other securities which, in accordance
with Section 8 of this Directors' Plan, shall be substituted for such shares of
Common Stock or to which said shares shall be adjusted; all references to shares
of Common Stock are deemed to be references to said shares or shares so
adjusted). The issuance of shares upon exercise of an Option shall be free from
any preemptive or preferential right of subscription or purchase on the part of
any stockholder. If any outstanding Option granted under this Directors' Plan
is terminated for any reason, the shares of Common Stock subject to the
unexercised portion of the Option will again be available for Options to be
issued under this Directors' Plan.
-1-
<PAGE>
SECTION 5. ADMINISTRATION.
(a) The Directors' Plan shall be administered by the Board of
Directors. A majority of the members of the Board shall constitute a quorum
(provided such quorum includes a majority of the members of the Board of
Directors who are not Participants), and all determinations of the Board shall
be made by a majority of such quorum. Any decision or determination of the
Board reduced to writing and signed by all of the members of the Board shall be
fully as effective as if it had been made at a meeting duly called and held.
(b) Options shall be automatically granted to Participants in
accordance with Section 6 hereof and shall be issued upon the terms and
conditions set forth in Section 7 hereof. Accordingly, the persons to whom
Options shall be granted, the number of shares subject thereto and the material
terms and conditions governing the Options, will not be subject to the
discretion of the Board of Directors. However, if any questions of
interpretation of this Directors' Plan or of any Options issued hereunder shall
arise, they shall be determined by the Board of Directors and such determination
shall be final and binding upon all persons having an interest in the Directors'
Plan.
SECTION 6. NON-DISCRETIONARY GRANTS. Subject to approval of the
Directors' Plan by the stockholders of the Company, during the term of this
Directors' Plan, Options shall be automatically granted to Participants as
follows:
(a) effective immediately following the Annual Meeting of the
stockholders of the Company at which this Directors' Plan is approved by the
stockholders of the Company (the "Stockholder Approval Date"), an Option to
purchase 5,000 shares of Common Stock will be granted to (i) each New Director,
and (ii) each Participant who is a Non-Employee Incumbent Director (as defined
above) and who on or prior to the Stockholder Approval Date has elected to
become a Participant in this Directors' Plan in accordance with Section 11
hereof (the Stockholder Approval Date being deemed to be the "Date of Grant" of
such Options); and
(b) annually on the date of each Annual Meeting of the stockholders of
the Company, commencing in 1998 (each such date, a "Date of Grant"), an
additional Option to purchase 5,000 shares of Common Stock will be granted to
each Participant (which shall include (i) any Non-Employee Incumbent Director
(as defined above) who prior to such Date of Grant has elected in accordance
with Section 11 hereof to become a Participant in this Directors' Plan and (ii)
all New Directors).
If the number of shares remaining in the Directors' Plan on any such Date of
Grant is insufficient to grant each Participant an Option to purchase 5,000
shares of Common Stock, each Participant will automatically receive an Option to
purchase the number of shares of Common Stock to be determined by dividing the
total number of shares remaining in the Directors' Plan by the total number of
Participants at that time and, if necessary, rounding down to the nearest whole
number of shares.
-2-
<PAGE>
SECTION 7. TERMS AND CONDITIONS OF OPTIONS; STOCK OPTION AGREEMENTS. Each
Option granted pursuant to this Directors' Plan shall be evidenced by a written
agreement between the Participant and the Company which shall contain the
following terms:
(a) OPTION PRICE. The per share exercise price of each Option shall
be five dollars ($5.00) below the Fair Market Value of a share of Common Stock
on the Date of Grant (such $5.00 reduction to be adjusted upon any stock split,
stock dividend or similar event in a manner consistent with Section 8 hereof).
For purposes hereof, "Fair Market Value" of a share shall be the mean of the
highest and lowest quoted sales prices of a share of the Company's Common Stock
on the composite tape for New York Stock Exchange-listed securities (or, if the
Common Stock is not listed for trading on the New York Stock Exchange, such
other principal exchange or the NASDAQ National Market System on which such
shares are then listed or quoted) on the Date of Grant, or the last preceding
date on which such prices were reported; or if such shares are not then listed
on any exchange or quoted in the NASDAQ National Market System, then the Fair
Market Value of such shares shall be the mean of the high bid and low asked
prices of the shares in the over-the-counter market on the Date of Grant or the
last preceding date on which such bid and asked prices were quoted; or if no
such prices are available, the Fair Market Value shall be determined by the
Board of Directors in its discretion pursuant to any reasonable method.
(b) MEDIUM AND TIME OF PAYMENT. The exercise price of the shares to
be purchased pursuant to an Option shall be paid (i) in full in cash or by
check, (ii) by delivery of shares of Common Stock of the Company then owned by
the Participant with a Fair Market Value at the time of the exercise of the
Option equal to the exercise price, or (iii) by a combination of (i) and (ii).
If Regulation T of the Securities Exchange Act of 1934, as amended, or any
successor federal law thereto ("Regulation T"), is applicable to the exercise of
an Option and such regulation so permits, the person entitled to exercise such
Option may direct the Company to deliver all or any part of the number of shares
or other securities to which he is entitled upon such exercise directly to a
broker specified by such person. In such event, the Company shall accept
payment of the exercise price in cash or by check from such broker on behalf of
the person entitled to exercise the Option and shall take all action necessary
to effect the prompt delivery of such shares or other securities to such broker
in accordance with the provisions of Regulation T (or such successor provision)
and in accordance with such additional rules and regulations as may be specified
by such broker. Notwithstanding the foregoing, the Company shall not be
required to comply with the foregoing provisions if, as a result of a change in
the accounting rules and regulations applicable to the Company, or the
interpretation thereof, compliance with the foregoing provisions will result in
the imposition of substantial adverse financial reporting requirements on the
Company.
(c) TERM AND EXERCISE OF OPTIONS. (i) The term of each Option shall
commence on the Date of Grant and, unless sooner terminated as set forth herein,
shall expire ten (10) years after the Date of Grant (the "Option Period").
Subject to acceleration in the event of a
-3-
<PAGE>
Change in Control (as defined below), each Option shall be exercisable in
accordance with the following schedule:
Percent of Shares Subject
Date to Option Purchasable
------------- -------------------------
From the first anniversary of the
Date of Grant to the second
anniversary of the Date of Grant 50%
From the second anniversary of the
Date of Grant to the tenth
anniversary of the date of Grant: 100%
Except as provided below, the Option may be exercised from time to time during
the Option Period as to the total number of shares allowable under this Section
7(c), or any lesser amount thereof.
(ii) In the event a Participant shall cease to be a Participant for
any reason other than (i) death or disability, or (ii) as a result of becoming
an employee of the Company or any of its subsidiaries, all Options granted
hereunder to such Participant shall terminate on the earlier to occur of (x)
unless extended by the Board of Directors in its discretion, the later of ninety
(90) days after the date of such cessation or six months and ten days after such
Participant's last purchase or sale of shares of Common Stock prior to such
cessation, or (y) the expiration of the Option Period. If a Participant shall
die or become disabled (within the meaning of Section 22(e)(3) of the Code)
while serving as a director, all Options granted hereunder to such Participant
shall terminate on the earlier to occur of the first anniversary of such
Participant's death or disability, as the case may be, or the expiration of the
Option Period relating to such Options. In the event of the Participant's death
or disability, all Options granted hereunder to such Participant may be
exercised to the extent that shares of Common Stock underlying such Option have
vested by the person or persons to whom the deceased Participant's rights pass
by will (a "legatee") or if the Participant shall die intestate, by the laws of
descent and distribution of the state of his domicile at the time of his death
or by the legal representative of the disabled Participant, as the case may be.
(iii) If a Participant becomes an employee of the Company or any of
its subsidiaries, all unexercised Options held by such Participant (or any
transferee pursuant to subsection (d) of this Section) shall continue to be
exercisable by such holder (but only in respect of shares which such holder was
entitled to purchase under such Options at the date such Participant became an
employee of the Company or any of its subsidiaries) until the earlier of (i) the
expiration of the Option Period relating to such Options and (ii) the date that
the
-4-
<PAGE>
Participant is no longer either a director of the Company or an employee of the
Company or any of its subsidiaries.
(iv) (A) In the event of a Change in Control (as defined below), all
outstanding Options that were not previously fully vested shall become fully
vested. For purposes of this Directors' Plan, a Change in Control shall have
occurred if at any time prior to the expiration or termination of the last
Option granted under this plan:
(w) The stockholders of the Company approve a merger or consolidation
of which the Company is not the surviving corporation, or a sale
or disposition of all or substantially all of the Company's
assets or a plan of complete liquidation of the Company;
(x) A tender offer or exchange offer for securities of the Company is
made by any person (as such term is used in Section 13(d) and
14(d)(3) of the Securities Exchange Act of 1934, as amended),
other than any person who is a member of the Existing Board of
Directors of the Company, with the intent to take over and
control the Company;
(y) Any person, other than (A) any person who is a member of the
Existing Board of Directors or (B) any Exempt Person or Schedule
13G Filer (as such terms are defined in the Rights Agreement
dated as of March 14, 1988 between the Company and the Rights
Agent thereunder, as amended), is or becomes the beneficial owner
(as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of shares of Common Stock
representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(z) The persons constituting the Existing Board of Directors cease
for any reason whatsoever to constitute at least a majority of
the Company's Board of Directors;
provided, however, that no Change in Control shall be deemed to have
-----------------
occurred with respect to any Option if the Board shall determine, prior to
the occurrence of the event specified in Section 7(c)(iv)(w) through (z)
hereof, that such event shall not constitute a Change in Control for
purposes of the Plan; and provided further, that a Change in Control shall
----------------
not include increases in the percentage of voting power of persons who
beneficially own or control shares of Common Stock or other outstanding
securities of the Company which occur solely as a result of a reduction in
the amount of shares of Common Stock or other securities outstanding or as
a result of the exercise of Options or vesting of Options granted
hereunder.
(B) For purposes of the Plan, the term "Existing Board of
Directors" shall mean the persons constituting the Board of Directors of
the Company on Adoption
-5-
<PAGE>
Date, together with each new director whose election, or nomination for
election by the Company's stockholders, is approved by a vote of the
majority of the members of the Existing Board of Directors who are in
office immediately prior to the election or nomination of such director.
(d) TRANSFERABILITY. Each Option shall be non-transferable by the
Participant except by will, by the laws of descent and distribution, or pursuant
to a qualified domestic relations order and shall be exercisable during the
Participant's lifetime only by him. Notwithstanding the foregoing, Options
granted hereunder shall be transferable by a Participant to (i) such
Participant's spouse, children or grandchildren ("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Participant or
Immediate Family Members, or (iii) a partnership in which such Participant or
Immediate Family Members are the only partners, provided that there may be no
consideration for any such transfer. Following any such transfer, such Options
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to such transfer, provided that the term "Participant" shall
be deemed to refer to the transferee, except that the provisions of this
Directors' Plan relating to vesting or termination of Options based upon status
as a director or employee of the Company or any of its subsidiaries shall
continue to be applied hereunder to such Options as if no such transfer occurred
and the Options so transferred shall be exercisable by the transferee only to
the extent, and for such periods, as specified herein after taking into account
such vesting and termination provisions.
(e) INVESTMENT PURPOSE. Each Participant shall represent and warrant
that he is acquiring each Option and, in the event any Option is exercised, the
shares of Common Stock issuable thereunder, for investment purposes only, for
his own account and not with a view to the distribution thereof, and that he
will not offer or sell any Option or any underlying shares unless a registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
and any applicable state securities laws is in effect, or unless counsel
satisfactory to the Company renders a reasoned opinion that the proposed sale is
exempt from the registration requirements of the Securities Act and such state
securities laws. The Company shall not be obligated to issue or deliver any
shares upon exercise of any Option if to do so would violate the Securities Act
or any state securities law, and the Company shall have no obligation to file
any registration statement or to take any other action required or permitted by
any such law. The Company shall give the Participant and his counsel access to
such information as may reasonably be requested to enable such counsel to
express an opinion as to the availability of an exemption from such registration
requirements.
(f) ADDITIONAL PROVISIONS. The granting of an Option pursuant to the
Directors' Plan shall not confer upon the Participant any right to be continued
as a director of the Company or any of its subsidiaries. In addition, the
granting of an Option pursuant to this Directors' Plan shall not confer upon the
Participant any rights of a stockholder of the Company with respect to any
shares issuable upon exercise of an Option unless and until a certificate for
such shares has been issued and delivered to him or her.
-6-
<PAGE>
SECTION 8. ADJUSTMENT OF NUMBER OF SHARES.
(a) In the event a dividend or other distribution shall be declared
upon the shares of Common Stock payable in shares of Common Stock, the number of
shares of Common Stock then subject to any Option granted hereunder, and the
number of shares reserved for issuance pursuant to this Directors' Plan but not
yet covered by an Option, shall be adjusted by adding to each of such shares the
number of shares which would be distributable thereon if such shares had been
outstanding on the date fixed for determining the stockholders entitled to
receive such stock dividend. If the outstanding shares of Common Stock shall be
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation, whether through
reorganization, reclassification, recapitalization, stock split, reverse stock
split, combination of shares, merger or consolidation, then there shall be
substituted for each share of Common Stock then subject to any such Option and
for each share of Common Stock reserved for issuance pursuant to this Directors'
Plan but not yet covered by an Option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged. In the case of any
such substitution or adjustment as provided for in this Section 8(a), the option
price in each stock option agreement for each share covered thereby prior to
such substitution or adjustment will be the total option price for all shares of
stock or other securities (including any fraction) which shall have been
substituted for each such share or to which such share shall have been adjusted
pursuant to this Section 8(a). No adjustment or substitution provided for in
this Section 8(a) shall require the Company, in any stock option agreement, to
sell a fractional share, and the total substitution or adjustment with respect
to each stock option agreement shall be limited accordingly.
(b) In the event that the Company shall effect a distribution, other
than a normal and customary cash dividend, upon shares of Common Stock, the
Board of Directors may, in order to prevent significant diminution in the value
of Options as a result of any such distribution, take such measures as they deem
fair and equitable, including, without limitation, the adjustment of the option
price per share for shares not issued or sold prior to the record date for such
distribution.
SECTION 9. EFFECTIVE DATE AND TERM OF PLAN. Subject to approval of this
Directors' Plan by the stockholders of the Company at the first Annual Meeting
of Stockholders following the Adoption Date, this Directors' Plan shall become
effective as of the Adoption Date. Except to the extent necessary to govern
outstanding Options issued, this Directors' Plan shall terminate on, and no
additional Options shall be granted after the tenth anniversary of the Adoption
Date unless earlier terminated by the Board of Directors in accordance with
Section 10 hereof.
SECTION 10. AMENDMENT OF THE PLAN. This Directors' Plan may be terminated
or amended from time to time by vote of the Board of Directors; provided,
however, that no such termination or amendment shall materially adversely affect
or impair any then outstanding Option without the written consent of the
adversely affected Participant. In addition, this Directors' Plan may not be
amended more than once every six (6) months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act, or the rules
-7-
<PAGE>
promulgated thereunder, and the approval of the Company's stockholders shall be
required in respect of any amendment which would (i) increase the maximum number
of shares subject to this Directors' Plan; (ii) increase the maximum number of
shares issuable to any Participant under this Directors' Plan; (iii) change the
timing of the grant of Options or the exercise price for shares issuable
hereunder; or (iv) change the designation of the Participants eligible to
receive Options under this Directors' Plan.
SECTION 11. ELECTION TO PARTICIPATE IN THE PLAN. A Non-Employee Incumbent
Director may elect to become a Participant in this Directors' Plan by giving
written notice to that effect, at any time prior to, or on the date of, any
Annual Meeting of the stockholders of the Company, to the Company's Secretary.
Following such election, the electing Non-Employee Incumbent Director shall
become a Participant hereunder effective as of the first Annual Meeting of the
stockholders of the Company immediately following such election (or, if such
election is made on the date of an Annual Meeting of the stockholders, then
effective as of that date) and, beginning with the quarter following the
effective date of such election, such electing Non-Employee Incumbent Director
shall no longer be eligible to receive the annual retainer (which is paid
quarterly) paid by the Company to the Non-Employee Incumbent Directors.
However, all such electing Non-Employee Incumbent Directors shall remain
eligible to receive the deferred annual retainer currently available to Non-
Employee Incumbent Directors based upon the number of years such director has
served on the Board of Directors through the effective date of such election
(with any partial year of service being counted as a full year).
SECTION 12. NOTICE. Any notice required or permitted hereunder shall be
given in writing. Notices may be sent by personal delivery, by facsimile
transmission, by registered or certified mail, postage prepaid and return
receipt requested, or through a nationally recognized overnight courier service
and, if to the Company, shall be addressed to the Company's principal executive
office, attention: Secretary. All notices shall be deemed to have been
delivered (i) on the date of their delivery if personally delivered or if
transmitted by facsimile (provided receipt thereof is confirmed by return
telecopy or if a confirming copy is sent within one business day thereafter by
any of the other methods of delivery provided in this Section 12), (ii) on the
first business day after deposit with any such overnight courier service, if
delivered by overnight courier or on the third business day after deposit in the
United States mail, if sent by mail as provided above.
-8-
<PAGE>
ANNEX B
-------
THE UNION CORPORATION
1994 INCENTIVE STOCK PLAN
1. Purposes. The 1994 Incentive Stock Plan (the "Plan") is intended
--------
to promote the interests of The Union Corporation (the "Company") and its
stockholders and the security of its employees and the employees of its
subsidiaries by providing an incentive and reward for those executive officers
and other key employees who are in a position to contribute substantially to the
progress and success of the Company and its subsidiaries and thereby encourage
such employees to seek such results; to closely align the interests of such
employees with the interests of stockholders of the Company by linking rewards
hereunder to stock performance; to retain in the Company and its subsidiaries
the benefits of the services of such employees; and to attract to the service of
the Company and its subsidiaries new key employees of high quality.
2. Definitions. In addition to terms defined in Sections 1 and 8 of
-----------
the Plan, the following terms used in the Plan shall have the meanings set forth
below:
(a) "Award" shall mean any Option, LSAR, Restricted Stock, Deferred
Stock, Shares granted as a bonus or in lieu of other awards, Dividend
Equivalent Right, or Other Share-Based Award, or any other right or
interest granted to a Participant under the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. References to any provision of the Code shall be deemed
to include regulations and proposed regulations thereunder and successor
provisions and regulations thereto.
(c) "Committee" shall mean the Stock Option Committee of the Board of
Directors, or such other Committee as may be designated by the Board of
Directors, subject to the requirements of Section 3.
(d) "Covered Employee" shall mean a person who is an executive
officer deemed by the Committee, prior to commencement of any fiscal year,
as reasonably likely to be a "named executive officer" in the Summary
Compensation Table of the Company's proxy statement reporting compensation
paid to such person for such fiscal year and whose compensation over $1
million would not be deductible under Section 162(m) of the Code, but for
the provisions of the Plan and any other "qualified performance-based
compensation" plan (as defined under Section 162(m) of the Code) of the
Company; provided, however, that the Committee may determine that a
-------- -------
Participant has ceased to be a Covered Employee prior to payout of any
Award.
(e) "Deferred Stock" shall mean a right, granted to a Participant
under Section 6(e), to receive Shares at the end of a specified deferral
period.
B-1
<PAGE>
(f) "Directors," "Board of Directors" and "Board" shall mean the Board
of Directors of the Company as constituted from time to time.
(g) "Dividend Equivalent Right" shall mean a right, granted to a
Participant under Section 6(g), to receive cash, Shares, other Awards, or
other property equal in value to dividends paid with respect to a specified
number of Shares, or other periodic payments. Dividend Equivalent Right
may be awarded on a free-standing basis or in connection with another
Award, and may be paid currently or on a deferred basis.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include the rules and regulations thereunder and
successor provisions and rules and regulations thereto.
(i) "Fair Market Value" of a Share shall be the mean of the highest
and lowest quoted sales prices of a Share on the composite tape for New
York Stock Exchange-listed securities (or, if the Common Stock is not
listed for trading on the New York Stock Exchange, such other principal
exchange or the NASDAQ National Market System on which such Shares are then
listed or quoted) on a specified date, or the last preceding date on which
such prices were reported; or if such Shares are not then listed on any
exchange or quoted in the NASDAQ National Market System, then the Fair
Market Value of such Shares shall be the mean of the high bid and low asked
prices of the Shares in the over-the-counter market on the specified date
or the last preceding date on which such bid and asked prices were quoted;
or if no such prices are available, the Fair Market Value shall be
determined by the Committee in its discretion using any reasonable method.
(j) "Incentive Stock Option" or "ISO" shall mean an incentive stock
option within the meaning of Section 422 of the Code.
(k) "LSAR" or "Limited Stock Appreciation Right" shall mean the right
granted to a Participant under Section 6(c) to be paid an amount, in the
event of a Change in Control, measured by the appreciation in the Fair
Market Value of a Share from the date of grant to the effective date of the
Change in Control, with payment to be made in cash, Shares, or other Awards
as specified in the Award or determined by the Committee.
(l) "Non-Incentive Stock Option" shall mean an Option which is not an
ISO.
(m) "Option" shall mean an option for the purchase of Shares granted
under Section 6(b) of the Plan, which will be either an ISO or Non-
Incentive Stock Option.
(n) "Other Share-Based Award" shall mean a right, granted to
Participant under Section 6(h), that relates to or is valued by reference
to Shares, other Awards relating to Shares, or other property.
B-2
<PAGE>
(o) "Participant" shall mean a person who, as an executive officer or
other key employee of the Company or a Subsidiary, is selected by the
Committee to receive an Award under the Plan.
(p) "Restricted Stock" shall mean an award of Shares to a Participant
under Section 6(d) that may be subject to certain restrictions and to a
risk of forfeiture.
(q) "Rights Agreement" shall mean the Rights Agreement dated as of
March 14, 1988 between the Company and Registrar and Transfer Company, as
Rights Agent, as amended effective as of May 23, 1990 and as of September
16, 1992, and as supplemented by an agreement dated as of August 22, 1994
pursuant to which The First National Bank of Boston was substituted as the
Rights Agent under the Rights Agreement.
(r) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect
and applicable to the Plan and Participants, promulgated by the Securities
and Exchange Commission under Section 16 of the Exchange Act.
(s) "Share" shall mean a share of Common Stock, par value $.50 per
share, of the Company, and such other securities as may be substituted or
resubstituted for Shares pursuant to Section 9.
(t) "Subsidiary" shall mean any subsidiary of the Company within the
meaning of Section 424 of the Code.
3. Administration.
--------------
(a) Authority of the Committee. The Plan shall be administered by the
--------------------------
Committee, which shall consist of not less than three Directors designated
by the Board of Directors. Directors who serve on the Committee shall be
"disinterested persons" within the meaning of Rule 16b-3 and, unless the
Board of Directors otherwise determines, shall be "outside directors"
within the meaning of Section 162(m) of the Code (including persons deemed
to be outside directors pursuant to any transitional rules adopted by the
Internal Revenue Service). The Board of Directors may fill any vacancy in
the Committee. The Secretary of the Company shall be ex officio the
Secretary of the Committee. Subject to the terms of the Plan, the
Committee shall have full authority in its sole discretion to administer
the Plan, including, but without limiting the generality of the foregoing,
determining the persons to whom Awards shall be granted; the type of Award
and the number of Shares to which each Award shall relate; the time of such
grants; the terms of payment, if any, relating to any Award; the dates on
which Awards may be exercised or the risk of forfeiture or deferral period
relating to Awards shall lapse or terminate, and the acceleration of any
such dates; the expiration date of Awards; whether, to what extent, and
under what circumstances an Award may be settled, or whether the exercise
price of an Award may be paid, in cash, Shares, other Awards, or other
property; and all other terms and conditions of Awards. The Committee
shall also have full power, in its sole discretion, to interpret the Plan,
and to prescribe, amend, and rescind rules and regulations relating thereto
and agreements relating to Awards, and to make all other determinations
under the Plan, subject to the
B-3
<PAGE>
terms of the Plan. Decisions of the Committee with respect to the
administration and interpretation of the Plan shall be final, conclusive,
and binding upon all persons interested in the Plan.
(b) Manner of Exercise of Committee Authority. Unless authority is
-----------------------------------------
specifically reserved to the Board of Directors under the terms of the
Plan, the Company's Certificate of Incorporation or Bylaws, or applicable
law, the Committee shall have sole discretion in exercising authority under
the Plan. The Committee shall select one of its members as its chairman
and shall hold meetings at such times and places as it shall deem
advisable. Any action of the Committee shall be taken with the approval of
a majority of its members present and voting at a meeting duly called and
held at which a quorum is present. A majority of the Committee's members
shall constitute a quorum. Any action may be taken by a written instrument
signed by all members of the Committee and such action shall be fully as
effective as if taken by a majority of the members at a meeting duly called
and held. The Committee may delegate to officers or managers of the
Company or any Subsidiary of the Company the authority, subject to such
terms as the Committee shall determine, to perform administrative functions
and, with respect to Participants not subject to Section 16 of the Exchange
Act, to perform such other functions as the Committee may determine, to the
extent permitted under Rule 16b-3 and applicable law. Notwithstanding the
foregoing, the Committee may not delegate any responsibility under the Plan
as it relates to Covered Employees.
(c) Limitation of Liability. Each member of the Committee shall be
-----------------------
entitled to rely or act in good faith upon any report or other information
furnished to him by any officer or other employee of the Company or any
Subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel or other professional
retained by the Company to assist in the administration of the Plan. No
member of the Committee, nor any officer or employee of the Company or a
Subsidiary acting on behalf of the Committee, shall be personally liable
for any action, determination, or interpretation taken or omitted to be
taken or made in good faith with respect to the Plan, and such persons
shall, to the extent permitted by law, be fully indemnified and protected
by the Company with respect to any such action, determination, or
interpretation.
4. Shares Subject to the Plan.
--------------------------
(a) Subject to adjustment as provided in Section 9 hereof, the total
number of Shares reserved for delivery to Participants in connection with
Awards under the Plan shall be 500,000. If any Shares subject to an Award
at or after the effective date of the Plan are forfeited or such Award is
settled in cash or otherwise terminates or is settled without delivery of
Shares to the Participant, such number of Shares shall be available for new
Awards under the Plan. In addition, Shares withheld in payment of taxes
relating to any such Award, and a number of Shares subject to such Award
equal to the number surrendered in payment of any exercise or purchase
price or in payment of taxes relating to any such Award, shall likewise be
deemed to constitute Shares not delivered to the Participant and shall be
deemed to be available for new Awards other than ISOs under the Plan.
B-4
<PAGE>
(b) No Award (including an Award that may only be settled in cash) may
be granted if the number of Shares to which such Award relates, when added
to the number of Shares previously delivered under the Plan and the number
of Shares to which other then-outstanding Awards relate, exceeds the number
of Shares deemed available under this Section 4. The Committee may adopt
procedures for the counting of Shares under this Section 4 to ensure
appropriate counting, avoid double counting (in the case of tandem or
substitute Awards), and provide for adjustments in any case in which the
number of Shares actually delivered differs from the number of Shares
previously counted in connection with an Award. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares.
5. Persons Eligible; Annual Limitations. Persons eligible to receive
------------------------------------
Awards shall be the executive officers and other key employees of the Company
and/or any of its Subsidiaries (including officers or other key employees who
may be members of the Board of Directors). During any fiscal year ended June 30
("fiscal year"), no Participant may be granted, under the Plan, Options or other
Awards under Section 6(b), 6(c), 6(d), 6(e), 6(f), 6(g) or 6(h) relating to more
than 150,000 Shares, subject to adjustment in accordance with Section 9 hereof.
With respect to any Award that may be settled in cash, no Participant may be
paid in respect of any fiscal year an amount that exceeds the greater of the
Fair Market Value of the number of Shares set forth in the preceding sentence at
the date of grant or the date of settlement of the Award (this limitation is
separate and not affected by the number of Awards granted during such fiscal
year subject to the limitation in the preceding sentence).
6. Specific Terms of Awards.
------------------------
(a) General. Awards may be granted on the terms and conditions set
-------
forth in this Section 6 and otherwise in accordance with the Plan. In
addition, the Committee may impose on any Award or the exercise thereof, at
the date of grant or thereafter (subject to Section 10(e)), such additional
terms and conditions, not inconsistent with the provisions of the Plan, as
the Committee shall determine, including but not limited to terms requiring
forfeiture of Awards in the event of termination of employment by the
Participant. Except as provided in Sections 6(f), 6(h), 7(a), or 7(b), or
to the extent necessary to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Shares, only services
may be required as consideration for the grant (but not the exercise) of
any Award.
(b) Options. The Committee is authorized to grant Options to
-------
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per Share purchasable under
--------------
an Option shall be determined by the Committee; provided,
---------
however, that, except as provided in Section 7(a), such exercise
price shall be not less than the Fair Market Value of a Share on
the date of grant of such Option and, in all cases, shall be not
less than par value of a Share.
(ii) Time and Method of Exercise. The Committee shall determine the
---------------------------
time or times at which an Option will vest, the time or times at
which an Option may be exercised in whole or in part, the methods
by which such
B-5
<PAGE>
exercise price may be paid or deemed to be paid, the form of such
payment, including, without limitation, cash, Shares, other
Awards or awards granted under other Company plans, or other
property (including notes or other contractual obligations of
Participants to make payment on a deferred basis, such as through
"cashless exercise" arrangements, to the extent permitted by
applicable law), and the methods by which Shares will be
delivered or deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
----
in all respects with the provisions of Section 422 of the Code,
including but not limited to the requirement that no ISO shall be
granted more than ten years after approval of the Plan. Anything
in the Plan to the contrary notwithstanding, no provision of the
Plan relating to ISOs shall be interpreted, amended, or altered,
nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any ISO under
Section 422 of the Code.
(c) Limited Stock Appreciation Rights. The Committee is authorized
---------------------------------
to grant LSARs to Participants on the following terms and conditions:
(i) Grant. The Committee, in connection with any Option, either at
-----
the time the Option is granted or any other time thereafter while
the Option is outstanding, may grant to any optionee an LSAR
entitling the holder, in the event of a Change in Control of the
Company, to receive from the Company at any time during the 60-
day period following such Change in Control, in lieu of
exercising such Option, an amount of cash equal to the excess of
(x) the Fair Market Value of the number of shares as to which the
LSAR is exercised (determined as of the effective date of the
Change in Control) over (y) the exercise price, times the number
of shares as to which such LSAR is exercised.
(ii) Payment. An optionee who exercises an LSAR will receive payment
-------
of the amount of cash due within 20 business days after such
exercise.
(iii) Conditions to Exercise. An LSAR will be exercisable only when
----------------------
the underlying Option is otherwise exercisable and will be
transferable only when the Option is otherwise transferable. In
the event of the death of an optionee, an LSAR may be exercised
following a Change in Control only to the extent the related
Option may be exercised by such person's executor or legal
representative. In addition, in the case of an ISO, any exercise
of an LSAR can only be made when the Fair Market Value of the
Shares subject to the ISO exceeds the exercise price of such
Option.
(iv) Termination. Upon the exercise of an Option pursuant to the
-----------
Plan, the LSAR relating to the Shares covered by such Option
shall terminate. Upon the exercise of an LSAR, the related
Option, to the extent the number of Shares with respect to which
such LSAR was exercised, shall
B-6
<PAGE>
terminate. If any Option shall expire or terminate for any
reason without having been exercised in full, the LSAR with
respect thereto shall terminate.
(d) Restricted Stock. The Committee is authorized to grant Restricted
----------------
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
----------------------
such restrictions on transferability and other restrictions, if
any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such
circumstances, in such installments, or otherwise, as the
Committee may determine. Except to the extent restricted under
the terms of the Plan and any Award agreement relating to the
Restricted Stock, a Participant granted Restricted Stock shall
have all of the rights of a stockholder including, without
limitation, the right to vote Restricted Stock and the right to
receive dividends, if any, thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee,
----------
upon termination of employment during the applicable restriction
period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company;
provided, however, that the Committee may provide, by rule or
-----------------
regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Restricted Stock will be waived in whole or in part
in the event of terminations resulting from specified causes.
(iii) Certificates for Shares. Restricted Stock granted under the
-----------------------
Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, such certificates
shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock,
the Company shall retain physical possession of the certificate,
and the Participant shall have delivered a stock power to the
Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends. Dividends, if any, paid on Restricted Stock shall be
---------
either paid at the dividend payment date in cash or in
unrestricted Shares having a Fair Market Value equal to the
amount of such dividends, or the payment of such dividends shall
be deferred and/or the amount or value thereof automatically
reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit
the Participant to elect. Shares distributed in connection with
a stock split or stock dividend, and other property distributed
as a dividend, other than cash, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted
Stock with respect to which such Shares or other property has
been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred
--------------
Stock to Participants, subject to the following terms and conditions:
B-7
<PAGE>
(i) Award and Restrictions. Delivery of Shares will occur upon
----------------------
expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred
Stock shall be subject to such restrictions as the Committee may
impose, if any, which restrictions may lapse at the expiration of
the deferral period or at earlier specified times, separately or
in combination, in installments, or otherwise, as the Committee
may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
----------
upon termination of employment (as determined under criteria
established by the Committee) during the applicable deferral
period or portion thereof to which forfeiture conditions apply
(as provided in the Award agreement evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to
deferral (other than a deferral at the election of the
Participant) shall be forfeited; provided, however, that the
-----------------
Committee may provide, by rule or regulation or in any Award
agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock
will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Deferred Stock.
(f) Bonus Shares and Awards in Lieu of Cash Obligations. The
---------------------------------------------------
Committee is authorized to grant Shares as a bonus, or to grant Shares or
other Awards in lieu of Company obligations to pay cash under other plans
or compensatory arrangements; provided, however, that, in the case of
-----------------
Participants subject to Section 16 of the Exchange Act and unless otherwise
determined by the Board of Directors, a grant of Shares or other Awards in
lieu of Company obligations to pay cash under other plans or arrangements
shall only be permitted if such cash amounts are determined under such
other plans in a manner that complies with applicable requirements of Rule
16b-3 so that the acquisition of Shares or Awards hereunder shall be exempt
from liability under Section 16(b) of the Exchange Act. Shares or Awards
granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
(g) Dividend Equivalent Rights. The Committee is authorized to grant
--------------------------
Dividend Equivalent Rights to Participants. The Committee may provide that
Dividend Equivalent Rights shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Shares, Awards, or
other investment vehicles as the Committee may specify.
(h) Other Share-Based Awards. The Committee is authorized, subject to
------------------------
limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by
the Committee to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debentures or other debt
securities, other rights convertible or exchangeable into Shares, purchase
rights for Shares, Awards with value and payment contingent upon
performance of the Company or any other factors designated by the
Committee, and Awards valued
B-8
<PAGE>
by reference to the book value of Shares or the value of securities of or
the performance of specified Subsidiaries. The Committee shall determine
the terms and conditions of such Awards. Awards for which Participants are
required to pay consideration, and Shares delivered pursuant to an Award in
the nature of a purchase right granted under this Section 6(h), shall be
purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Shares, other
Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, shall
also be authorized pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
---------------------------------------
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
------------------------------------------------------
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other
plan of the Company ("Other Plan Awards"), any Subsidiary, or any business
entity to be acquired by the Company or a Subsidiary, or any other right of
a Participant to receive payment from the Company or any Subsidiary.
Awards granted in addition to or in tandem with other Awards or Other Plan
Awards may be granted either as of the same time as or a different time
from the grant of such other Awards or Other Plan Awards. The per share
exercise price of any Option or purchase price of any other Award
conferring a right to purchase Shares:
(i) Granted in substitution for an outstanding Award or Other Plan
Award shall be not less than the lesser of the Fair Market Value
of a Share at the date such substitute Award is granted or such
Fair Market Value at that date reduced to reflect the Fair Market
Value at that date of the Award or Other Plan Award required to
be surrendered by the Participant as a condition to receipt of
the substitute Award; or
(ii) Retroactively granted in tandem with an outstanding Award or
Other Plan Award shall be not less than the lesser of the Fair
Market Value of a Share at the date of grant of the later Award
or at the date of grant of the earlier Award or Other Plan
Award.
(b) Exchange or Buyout Provisions. The Committee may at any time
-----------------------------
offer to exchange or buy out any previously granted Award for a payment in
cash, Shares, other Awards (subject to Section 7(a)) or other property
based on such terms and conditions as the Committee shall determine and
communicate to the Participant at the time that such offer is made.
(c) Term of Awards. The term of each Award shall be for such period
--------------
as may be determined by the Committee; provided, however, that in no event
-----------------
shall the term of any ISO or an LSAR granted in tandem therewith exceed a
period of ten years from the date of its grant (or such shorter period as
may be applicable under Section 422 of the Code).
B-9
<PAGE>
(d) Form of Payment Under Awards. Subject to the terms of the Plan
----------------------------
and any applicable Award agreement, payments to be made by the Company or a
Subsidiary upon the grant or exercise of an Award may be made in such forms
as the Committee shall determine, including, without limitation, cash,
Shares, other Awards, or other property, and may be made in a single
payment or transfer, in installments, or on a deferred basis. Such
payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalent Rights in respect of installment
or deferred payments denominated in Shares.
(e) Rule 16b-3 Compliance
---------------------
.
(i) Six-Month Holding Period. Unless a Participant could otherwise
------------------------
exercise a derivative security or dispose of Shares delivered
upon exercise of a derivative security granted under the Plan
without incurring liability under Section 16(b) of the Exchange
Act, (i) Shares delivered under the Plan other than upon exercise
or conversion of a derivative security granted under the Plan
shall be held for at least six months from the date of
acquisition, and (ii), with respect to a derivative security
granted under the Plan, at least six months shall elapse from the
date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise
or conversion) or its underlying equity security.
(ii) Reformation To Comply with Exchange Act Rules. It is the intent
---------------------------------------------
of the Company that this Plan comply in all respects with
applicable provisions of Rule 16b-3 or Rule 16a-1(c)(3) under the
Exchange Act in connection with any grant of Awards to or other
transaction by a Participant who is subject to Section 16 of the
Exchange Act (except for transactions exempted under alternative
Exchange Act Rules or acknowledged in writing to be non-exempt by
such Participant). Accordingly, if any provision of this Plan or
any Award agreement relating to an Award does not comply with the
requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then applicable
to any such transaction, such provision will be construed or
deemed amended to the extent necessary to conform to the
applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that
such Participant shall avoid liability under Section 16(b).
(f) Installment Payment Arrangements. Upon grant or exercise of an
--------------------------------
Award, the Committee may, in its discretion, permit the payment of any
exercise or purchase price or other consideration, in whole or in part, in
installments, subject to the terms of this Section 7(f). Each such
installment payment arrangement will be evidenced by a promissory note, the
terms and conditions of which shall be determined by the Committee subject
to the following: (a) the maximum term of any note shall be 10 years from
the date of the original payment obligation, (b) the minimum interest rate
with respect to amounts loaned hereunder shall be such rate as may be
determined by the Committee from time to time, but in no event shall such
rate be less than the rate required to avoid imputation of interest (or
original issue discount) under Section 483 or any similar provision of the
Code, (c) the note shall be secured as and to the extent
B-10
<PAGE>
determined by the Committee, but the employee shall be personally liable
despite any security pledged, (d) the note may be prepaid in full or in
part at any time without penalty, and (e) the unpaid principal and interest
of any note will become due and payable upon the sale of any Shares in
connection with which the payment obligation was incurred, but in no event
later than 30 days after the Participant's employment with the Company
terminates (unless the Committee, in its discretion, extends the note for
an additional period). In addition, the Committee may authorize the
Company to make, guarantee or arrange for a loan or loans to a Participant
to enable the Participant to pay any federal, state or local income or
other taxes due in connection with an Award. The Committee shall have the
authority to forgive repayment of, or waive rights relating to, any note or
loan authorized hereunder, including interest thereon. Any arrangement
under this Section 7(f) entered into to permit a Participant to purchase or
carry securities shall comply with the applicable provisions of Regulation
G promulgated by the Federal Reserve Board, and arrangements shall be
entered into and continue only to the extent that such arrangements
otherwise shall comply with all applicable laws, regulations, and
contractual obligations of the Company.
(g) Performance-Based Awards to Covered Employees. The provisions of
---------------------------------------------
the Plan other than Section 9 hereof notwithstanding, and unless otherwise
determined by the Committee prior to the grant of an Award, the provisions
of this Section 7(g) shall apply to any Award the exercisability or
settlement of which is subject to the achievement of performance conditions
(other than an Option granted with an exercise price at least equal to 100%
of Fair Market Value of Shares on the date of grant) if such Award is
granted to a person who, at the time of grant, is a Covered Employee. The
terms used in this Section 7(g) shall be interpreted in a manner consistent
with Section 162(m) of the Code and regulations thereunder (including
Proposed Regulation 1.162-27). The performance objectives for an Award
subject to this Section 7(g) shall consist of one or more business criteria
and a targeted level or levels of performance with respect to such
criteria, as specified by the Committee but subject to this Section 7(g).
Performance objectives shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code and regulations thereunder
(including Proposed Regulation 1.162-27(e)(2)). The following business
criteria shall be used by the Committee in connection with a performance
objective:
(1) Consolidated net income;
(2) Pre-tax earnings from continuing operations of the Company, a
Subsidiary or business unit;
(3) Revenues of the Company, a Subsidiary or a business unit;
(4) Earnings per common share; and/or
(5) Return on common equity.
Achievement of performance objectives shall be measured over a period of
one, two, three or four years, as specified by the Committee. No business
criteria other than those named above may be used in establishing the
performance objective for an Award to a Covered Employee under this Section
7(g). For each such Award relating to a Covered Employee, the Committee
shall establish the targeted level or levels of performance for each
business criteria. Performance objectives may differ for Awards under this
Section 7(g) to different Covered Employees and from year to year. The
Committee may
B-11
<PAGE>
determine that an Award under this Section 7(g) shall be payable upon
achievement of any one of the performance objectives or may require that
two or more of the performance objectives must be achieved in order for an
Award to be payable. The Committee may, in its discretion, reduce the
amount of a payout otherwise to be made in connection with an Award under
this Section 7(g), but may not exercise discretion to increase such amount,
and the Committee may consider other performance criteria in exercising
such discretion. All determinations by the Committee as to the achievement
of performance objectives shall be made in writing. The Committee may not
delegate any responsibility under this Section 7(g).
8. Change in Control Provisions.
----------------------------
(a) Acceleration Provisions. In the event of a "Change in Control,"
-----------------------
as defined in this Section 8, the following acceleration provisions shall
apply:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested,
subject only to the restrictions set forth in Sections 7(e)(i),
10(a) and 10(m); and
(ii) The restrictions, deferral limitations and forfeiture conditions
applicable to any other Award granted under the Plan shall lapse
and such Awards shall be deemed fully vested, and any performance
conditions imposed with respect to Awards shall be deemed to be
fully achieved (or in the case of an Award subject to Section
7(g), achieved to the extent of the actual achievement to the
date of the Change in Control), subject to the restrictions on
dispositions of equity securities set forth in Sections 7(e)(i),
10(a) and 10(m).
(b) Definition of "Change in Control." For purposes of the Plan, a
----------------------------------
"Change in Control" shall have occurred if at any time prior to the
expiration or termination of the last Award granted under the Plan:
(i) The stockholders of the Company approve a merger or consolidation
of which the Company is not the surviving corporation, or a sale
or disposition of all or substantially all of the Company's
assets or a plan of complete liquidation of the Company other
than a merger, consolidation or sale recommended by the Existing
Board of Directors of the Company, as hereafter defined;
(ii) A tender offer or exchange offer for securities of the Company is
made by any person (as such term is used in Section 13(d) and
14(d)(3) of the Exchange Act), other than any person who is a
member of the Existing Board of Directors of the Company, with
the intent to take over and control the Company, other than a
tender offer or exchange offer recommended by the Existing Board
of Directors of the Company;
(iii) Any person, other than (A) any person who is a member of the
Existing Board of Directors or (B) any Exempt Person or Schedule
13G Filer (as
B-12
<PAGE>
such terms are defined in the Rights Agreement), is or becomes
the beneficial owner (as such term is defined in Rule 13d-3 under
the Exchange Act) of Shares representing 30% or more of the
combined voting power of the Company's then outstanding
securities; or
(iv) The persons constituting the Existing Board of Directors cease
for any reason whatsoever to constitute at least a majority of
the Company's Board of Directors;
provided, however, that no Change in Control shall be deemed to have
-----------------
occurred with respect to any Award (other than an ISO or an LSAR in tandem
with an ISO if the exercise of discretion under this provision would cause
such ISO to lose its status as an incentive stock option) if the Board
shall determine, prior to the occurrence of the event specified in Section
8(b)(i) through (iv) hereof, that such event shall not constitute a Change
in Control for purposes of the Plan; and provided further, that a Change in
----------------
Control shall not include increases in the percentage of voting power of
persons who beneficially own or control Shares or other outstanding
securities of the Company which occur solely as a result of a reduction in
the amount of Shares or other securities outstanding or as a result of the
exercise of Options or vesting of Awards granted hereunder.
(c) Definition of "Existing Board of Directors." For purposes of the
--------------------------------------------
Plan, the term "Existing Board of Directors" shall mean the persons
constituting the Board of Directors of the Company on the date of adoption
of the Plan, together with each new Director whose election, or nomination
for election by the Company's stockholders, is approved by a vote of the
majority of the members of the Existing Board of Directors who are in
office immediately prior to the election or nomination of such Director.
9. Adjustments. In the event that the Committee shall determine that any
-----------
dividend or other distribution (whether in the form of cash, Shares, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Shares such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and kind of Shares
which may thereafter be delivered in connection with Awards, (ii) the number and
kind of Shares that may be delivered or deliverable in respect of outstanding
Awards, (iii) the number of shares with respect to which Awards may be granted
to a given Participant in the specified period as set forth in Section 5, and
(iv) the exercise price, grant price, or purchase price relating to any Award
or, if deemed appropriate, make provision for a cash payment with respect to any
outstanding Award; provided, however, that, with respect to ISOs, no such
-----------------
adjustment shall be authorized to the extent that such authority would cause the
Plan to violate Section 422(b)(1) of the Code or previously issued ISOs to lose
their status as such. In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence), extraordinary items or discontinued
operations affecting the Company or any Subsidiary or the financial statements
of the Company or any Subsidiary, or in response to changes in applicable laws,
regulations, or accounting principles, or tax rates and regulations or business
conditions.
B-13
<PAGE>
The foregoing adjustments are intended to be objectively determinable and
nondiscretionary and, as such, consistent with the qualification of Awards as
"performance-based compensation" under Section 162(m) of the Code, and shall be
construed accordingly. To the extent it shall be determined, based on an
opinion of counsel, that any such adjustment would likely cause compensation
relating to an Award to a Covered Employee to fail to be deductible under
Section 162(m) of the Code, such adjustment shall not be authorized or made.
10. General Provisions.
------------------
(a) Compliance With Legal and Exchange Requirements. The Company
-----------------------------------------------
shall not be obligated to deliver Shares upon the exercise or settlement of
any Award or take other actions under the Plan until the Company shall have
determined that applicable federal and state laws, rules, and regulations
have been complied with and such approvals of any regulatory or
governmental agency have been obtained and contractual obligations to which
the Award may be subject have been satisfied. The Company, in its
discretion, may postpone the issuance or delivery of Shares under any Award
until completion of such stock exchange listing or registration or
qualification of such Shares or other required action under any federal or
state law, rule, or regulation as the Company may consider appropriate, and
may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance
or delivery of Shares under the Plan.
(b) Nontransferability. A Participant's rights under the Plan
------------------
(including any right that may constitute a "derivative security" under the
general definition of Rule 16a-1(c)(3)) may not be transferred, pledged,
mortgaged, hypothecated, or otherwise encumbered, and shall not be subject
to claims of the Participant's creditors; provided, however, that the
------------------
Committee may permit transfers of Awards (other than ISOs) for estate
planning purposes if and to the extent such transfers do not cause a
Participant who is then subject to Section 16 of the Exchange Act who then
or thereafter has transactions with respect to such Award to lose the
benefit of the exemption under Rule 16b-3 for such transactions (unless the
Participant acknowledges in writing that such transfer is non-exempt), or
violate other rules or regulations of the Securities and Exchange
Commission or the Internal Revenue Service or materially increase the cost
of the Company's compliance with such rules or regulations.
(c) No Right to Continued Employment. Neither the Plan nor any action
--------------------------------
taken hereunder shall be construed as creating any contract of employment
between the Company or any of its Subsidiaries and any employee or
otherwise giving any employee the right to be retained in the employ of the
Company or any of its Subsidiaries, nor shall it interfere in any way with
the right of the Company or any of its Subsidiaries to terminate any
employee's employment at any time.
(d) Taxes. In the event that the Company or any of its Subsidiaries
-----
shall be required to withhold any amounts by reason of any federal, state,
or local tax law, rule, or regulation or by reason of the grant or exercise
of any Award, the Company or its Subsidiaries shall be entitled to deduct
and withhold such amounts from any other cash payment or payments to be
made by the Company or its Subsidiaries (including from payroll) to such
person. In any such event, the Participant shall make available to the
B-14
<PAGE>
Company or its Subsidiaries, promptly when required, sufficient funds to
meet the Company's or Subsidiary's requirement of such withholding; and the
Company shall be entitled to take such steps as the Committee may deem
advisable in order to have such funds available to the Company or its
Subsidiary at the required time or times. This Committee authority shall
include authority to withhold or receive Shares or other property, on a
mandatory basis or at the election of the Participant, and to make cash
payments in respect thereof in satisfaction of a Participant's tax
obligations (which may include mandatory withholding obligations and
obligations of the Participant in excess of such mandatory obligations
relating to an Award).
(e) Changes to the Plan and Awards. The Board may amend, alter,
------------------------------
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or
Participants, except that any such action shall be subject to the approval
of the Company's stockholders at or before the next annual meeting of
stockholders for which the record date is after such Board action if such
stockholder approval is required by any federal or state law or regulation
or the rules of any stock exchange or automated quotation system on which
the Shares may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to the Plan to
stockholders for approval; provided, however, that, without the consent of
-----------------
an affected Participant, no amendment, alteration, suspension,
discontinuation, or termination of the Plan may materially impair the
rights of such Participant under any Award theretofore granted to him. The
Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any
Award agreement relating thereto; provided, however, that, without the
-----------------
consent of an affected Participant, no such amendment, alteration,
suspension, discontinuation, or termination of any Award may materially
impair the rights of such Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. Nothing contained in
------------------------------------------
the Plan shall be deemed to give any person eligible to receive an Award
hereunder, or any heir, distributee, executor, administrator or personal
representative of any such person, any interest or title to any specific
property of the Company, or any of its Subsidiaries, or any other right
against the Company or any of its Subsidiaries other than as set forth in
the Plan. Neither the establishment of the Plan nor any other action taken
now or at any time with regard thereto shall be construed as giving any
person whatsoever any legal or equitable right against the Company unless
such right shall be specifically provided for in the Plan. There is no
obligation for uniformity of treatment of Participants and employees under
the Plan. Except as provided in Section 6(d) with respect to Restricted
Stock, no Award shall confer on any Participant any of the rights of a
stock holder of the Company unless and until Shares are duly issued or
transferred and delivered to the Participant in accordance with the terms
of the Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
---------------------------------------------
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give
any such Participant any rights that are greater than those of a general
creditor of the Company; provided, however, that the Committee may
-----------------
authorize the creation of trusts or make other arrangements to meet the
Company's
B-15
<PAGE>
obligations under the Plan to deliver cash, Shares, other Awards, or other
property pursuant to any Award, which trusts or other arrangements shall be
consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant. If and
to the extent authorized by the Committee, the Company may deposit into
such a trust Shares for delivery to the Participant in satisfaction of the
Company's obligations under any Award. If so provided by the Committee,
upon such a deposit of Shares or other assets for the benefit of a
Participant, there shall be substituted for the rights of the Participant
to receive delivery of Shares and other payments under this Agreement a
right to receive the assets of the trust (to the extent that the deposited
Shares or other assets represented the full amount of the Company's
obligation under the Award at the date of deposit). The trustee of the
trust may be authorized to dispose of trust assets and reinvest the
proceeds in alternative investments, subject to such terms and conditions
as the Committee may specify and in accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
--------------------------
the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
(i) Binding Effect. The provisions of the Plan shall be binding upon
--------------
the heirs, distributees, executors, administrators and personal
representatives of any person participating under the Plan. A person
claiming any rights under the Plan as a beneficiary or otherwise through a
Participant shall be subject to all of the terms and conditions of the Plan
and any additional terms and conditions as may be imposed by the Committee.
(j) No Fractional Shares. No fractional Shares shall be issued or
--------------------
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in
lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(k) Compliance with Code Section 162(m). It is the intent of the
-----------------------------------
Company that, unless otherwise determined by the Committee prior to the
grant of an Award, Options and other Awards subject to the performance
objectives specified under Section 7(g) granted under the Plan to persons
who are Covered Employees within the meaning of Code Section 162(m) and
regulations thereunder (including Proposed Regulation 1.162-27(c)(2)) shall
constitute "qualified performance-based compensation" within the meaning of
Code Section 162(m) and regulations thereunder (including Proposed
Regulation 1.162-27(e), and subject to the transition rules under Proposed
Regulation 1.162-27(h)(2)). Accordingly, unless otherwise determined by
the Committee, if any provision of the Plan or any Award agreement relating
to such an Award granted to a Covered Employee does not comply or is
inconsistent with the requirements of Code Section 162(m) or regulations
thereunder, such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements, and no provision shall
B-16
<PAGE>
be deemed to confer upon the Committee or any other person discretion to
increase the amount of compensation otherwise payable to a Covered Employee
in connection with any such Award upon attainment of the performance
objectives.
(l) Governing Law. The Plan and all related documents shall be
-------------
governed by, and construed in accordance with, the laws of the State of
Delaware (except to the extent provisions of federal law may be
applicable). If any provision hereof shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of
the Plan shall continue to be fully effective.
(m) Effective Date; Plan Termination. The Plan shall become effective
--------------------------------
as of November 17, 1994; provided, however, that the Plan shall have been
-----------------
approved by the affirmative votes of the holders of a majority of voting
securities present in person or represented by proxy, and entitled to vote
at the November 17, 1994 annual meeting of Company stockholders, or any
adjournment thereof, in accordance with applicable provisions of the
Delaware General Corporation Law. Any Awards granted under the Plan prior
to such approval of stockholders shall not be effective unless and until
stockholder approval is obtained, and, if stockholders fail to approve the
Plan as specified hereunder, any previously granted Award shall be
forfeited and cancelled, and Participants shall repay to the Company any
payments received pursuant to Dividend Equivalent Rights or dividend
payments on Restricted Stock. Unless earlier terminated under Section
10(e) hereto, the Plan shall terminate on and no further Awards may be
granted under the Plan after August 24, 2004.
B-17
<PAGE>
AMENDMENT TO THE UNION CORPORATION
1994 INCENTIVE STOCK PLAN
-------------------------
Effective on and after August 27, 1996, the 1994 Incentive Stock Plan (the
"Plan") of The Union Corporation is hereby amended, pursuant to Section 10(e)
thereof, in the following respects:
1. Section 6(b)(ii) of the Plan shall be amended to read in its entirety
as follows:
"(ii) Time and Method of Exercise. The Committee shall determine
---------------------------
the time or times at which an Option will vest, the time or
times at which an Option may be exercised in whole or in part and
the methods by which Shares will be delivered or deemed to be
delivered to Participants. The exercise price is to be paid in
full in cash upon the exercise of an Option; provided, however,
that in lieu of cash a Participant may exercise an Option, in
whole or in part, by tendering to the Company Shares owned by the
individual, or by directing that the Company withhold a portion
of the Shares which would otherwise be issuable upon exercise of
the Option, provided that the combination of cash and Shares
tendered to the Company and/or withheld upon exercise of the
Option (which Shares tendered or withheld shall be valued at Fair
Market Value on the date of exercise) shall be equal to the total
exercise price of the Option being exercised.
2. Sections 8(b)(i) and 8(b)(ii) of the Plan shall be amended to read in
their entirety as follows:
"(i) The stockholders of the Company approve a merger or consolidation
of which the Company is not the surviving corporation, or a sale
or disposition of all or substantially all of the Company's
assets or a plan of complete liquidation of the Company.
(ii) A tender offer or exchange offer for securities of the Company is
made by any person (as such term is used in Section 13(d) and
14(d)(3) of the Exchange Act), other than any person who is a
member of the Existing Board of Directors of the Company, with
the intent to take over and control the Company."
B-18
<PAGE>
3. Section 10(d) of the Plan shall be amended by adding the following at
the end thereof:
" If, in connection with the grant or exercise of any Award hereunder
by a Participant, the Company is required to withhold any tax for
Federal Insurance Contribution Act purposes and/or any federal, state
or local income tax or taxes, the Committee may permit the
Participant, subject to the restrictions herein contained, to satisfy,
in whole or part, the Participant's obligation to pay to the Company
the amount of such tax or taxes by electing (i) to have the Company
withhold a portion of the Shares which would otherwise be issuable to
such Participant upon exercise or grant of an Award, or (ii) to
deliver and transfer to the Company Shares previously acquired by the
Participant, or (iii) by a combination of the means specified in
clauses (i) and (ii) above; provided, however, that the amount of
-------- -------
federal, state and local income taxes that may be paid by delivery or
withholding of Shares shall not exceed the applicable maximum marginal
rate. The amount of any withholding tax not paid by delivery or
withholding of Shares shall be paid by the Participant to the Company
in cash. Shares delivered or withheld shall have a Fair Market Value
equal to the amount of tax required to be withheld, or such part of
such tax that the Participant elects to pay with Shares. The fair
market value of the Shares delivered to or withheld by the Company
shall be determined as of the date the amount of tax to be withheld is
determined (the "Tax Date") or if Shares did not trade on the New York
Stock Exchange on the Tax Date, as of the last previous date Shares
did so trade. An election by a Participant to deliver Shares or to
have Shares withheld to satisfy tax withholding requirements shall be
subject to the following restrictions: (a) the election shall be in
writing, shall be delivered to the Secretary of the Company and shall
not be effective until so delivered; and (b) the election shall be
made on or prior to the Tax Date."
4. Except as amended hereby, the Plan shall remain in full force and
effect, without change or modification.
BY ORDER OF THE BOARD OF
DIRECTORS OF THE UNION
CORPORATION
B-19
<PAGE>
AMENDMENT NO. 2 TO THE UNION CORPORATION
1994 INCENTIVE STOCK PLAN
-------------------------
Subject to approval of this amendment by the stockholders of the company,
effective on and after September 10, 1997 the 1994 Incentive Stock Plan (the
"1994 Plan") of The Union Corporation is hereby amended, pursuant to Section
10(e) thereof, in the following respects:
1. Section 4(a) of the Plan shall be amended by deleting the number
"500,000" in the first sentence thereof and inserting in lieu thereof the number
"750,000".
2. Except as amended hereby (and previously amended pursuant to an
amendment effective August 27, 1996), the Plan shall remain in full force and
effect, without change or modification.
BY ORDER OF THE BOARD OF
DIRECTORS OF THE UNION
CORPORATION
B-20
