<PAGE>
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:
/ / Confidential, for Use of
the Commission Only (as
/ / Preliminary Proxy Statement permitted by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-12
United Industrial 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
UNITED INDUSTRIAL CORPORATION
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MAY 11, 1999
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
UNITED INDUSTRIAL CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of United
Industrial Corporation will be held at the Park Lane Hotel (Ballroom Suite, 2nd
floor) located at 36 Central Park South, New York, New York on the 11th day of
May, 1999, at 10:00 A.M., for the following purposes:
1. To elect two (2) directors to serve until the Annual Meeting of
Shareholders in 2002.
2. To consider and act upon a proposal to approve the Company's 1994
Stock Option Plan, as amended.
3. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company for 1999.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record on the books of the Company at the close of
business on March 25, 1999 will be entitled to notice of, and to vote at, the
meeting. The stock transfer books will not be closed. See the "Miscellaneous"
section of the accompanying Proxy Statement as to the place where the list of
shareholders may be examined.
Shareholders are cordially invited to attend the meeting in person. Whether
or not you plan to be present at the Annual Meeting, please sign, date and
return the enclosed Proxy to ensure that your shares are voted. A return
envelope which requires no postage if mailed in the United States, is enclosed
for your convenience.
By Order of the Board of Directors
Susan Fein Zawel
Secretary
March 25, 1999
PLEASE MAIL YOUR PROXY . . . NOW!
IMPORTANT
WE HOPE THAT YOU CAN ATTEND THIS MEETING IN PERSON,
BUT IF YOU CANNOT DO SO PLEASE MARK, DATE, SIGN
AND RETURN THE ENCLOSED PROXY.
<PAGE>
UNITED INDUSTRIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 11, 1999
This statement is furnished to shareholders of United Industrial
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company to be voted at the Annual Meeting of
Shareholders of the Company to be held at the Park Lane Hotel (Ballroom Suite,
2nd floor) located at 36 Central Park South, New York, New York on May 11, 1999,
at 10:00 A.M. Shareholders of record at the close of business on March 25, 1999
will be entitled to notice of and to vote at such meeting and at all
adjournments thereof.
Shareholders who execute proxies may revoke them at any time before they
are voted by giving written notice of such revocation to the Secretary of the
Company. When a proxy is received, properly executed, prior to the meeting, the
shares represented thereby will be voted at the meeting in accordance with the
terms thereof.
The complete mailing address of the Company's principal executive offices
is 570 Lexington Avenue, New York, New York 10022. The approximate date on which
this Proxy Statement and the form of Proxy were first sent or given to the
shareholders of the Company was March 31, 1999. The Annual Report of the Company
for the year ended December 31, 1998, including audited financial statements,
has been sent to each shareholder.
VOTING RIGHTS
On March 25, 1999, there were outstanding and entitled to vote 12,237,756
shares of Common Stock. Shareholders are entitled to one vote, exercisable in
person or by proxy, for each share of Common Stock held on the record date of
March 25, 1999. The holders of a majority of the outstanding shares of Common
Stock entitled to vote at the meeting shall constitute a quorum.
At the record date, more than 5% of the Company's outstanding voting
securities was beneficially owned by each of the persons named in the following
table, except that the information as to Kennedy Capital Management, Inc. and
Dimensional Fund Advisors Inc. is as of December 31, 1998 and is based upon
information furnished to the Company by such entities in Schedules 13G.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- --------------------- --------------------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock Bernard Fein 1,209,647(1) 9.86%
570 Lexington Avenue
New York, New York 10022
Common Stock Kennedy Capital Management, Inc. 1,066,600(2) 8.7%
10829 Olive Boulevard
St. Louis, Missouri 63141
Common Stock Dimensional Fund Advisors Inc. 878,134(3) 7.15%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
- ------------------
(1) Includes 1,108,451 shares of Common Stock owned directly and 101,196 shares
owned by The Fein Foundation, of which Mr. Fein's spouse is a trustee.
(2) As of December 31, 1998, Kennedy Capital Management, Inc., a registered
investment advisor, has sole voting power as to 1,002,750 shares of Common
Stock and sole dispositive power as to 1,066,600 shares.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940, is
deemed to have beneficial ownership of 878,134 shares of Common Stock as of
December 31, 1998. Dimensional furnishes investment advice to four
investment companies
1
<PAGE>
registered under the Investment Company Act of 1940, and serves as
investment manager to certain other investment vehicles, including
commingled group trusts (collectively, the "Portfolios"). In its role as
investment advisor and investment manager, Dimensional possesses both voting
and investment power over the securities of the Company that are owned by
the Portfolios. Dimensional disclaims beneficial ownership of all such
shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 1, 1999, the number of shares
of Common Stock of the Company beneficially owned by each director of the
Company, each nominee for director, each executive officer named in the Summary
Compensation Table below, and by all directors and executive officers of the
Company as a group. Except as otherwise indicated all shares are owned directly.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT
NAME OR GROUP OWNERSHIP(1) OF CLASS
- ------------- -------------------- --------
<S> <C> <C>
Edward C. Aldridge, Jr......................................... 20,000(3) (2)
Richard R. Erkeneff............................................ 443,836(3) 3.53%
Harold S. Gelb................................................. 20,000(3) (2)
James H. Perry................................................. 28,420(3) (2)
Joseph S. Schneider............................................ 10,000(3) (2)
E. Donald Shapiro.............................................. 30,000(3) (2)
Robert W. Worthing............................................. 40,504(3)(4) (2)
Susan Fein Zawel............................................... 351,107(3)(5) 2.86%
All directors and executive officers as a group
consisting of 8 persons...................................... 943,767(3) 7.44%
</TABLE>
- ------------------
(1) The information as to securities owned by directors, nominees and executive
officers was furnished to the Company by such directors, nominees and
executive officers.
(2) Less than 1%.
(3) Includes shares which the following persons have the right to acquire within
60 days through the exercise of stock options: Mr. Aldridge, 15,000 shares;
Mr. Erkeneff, 301,667 shares; Mr. Gelb, 15,000 shares; Mr. Perry,
22,000 shares; Mr. Schneider, 5,000 shares; Mr. Shapiro, 15,000 shares;
Mr. Worthing, 25,000 shares; Ms. Fein Zawel, 21,000 shares; and all
directors and executive officers as a group, 419,667 shares.
(4) Does not include 500 shares of Common Stock owned by Mr. Worthing's spouse,
as to which he disclaims beneficial ownership.
(5) Includes 328,237 shares of Common Stock owned by Ms. Fein Zawel, her spouse
and minor children.
2
<PAGE>
I. ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting to hold office until
the Annual Meeting in 2002 and until their successors are elected and qualified.
The nominees recommended by the Board of Directors of the Company are
Richard R. Erkeneff and E. Donald Shapiro. Should the nominees become unable to
serve or otherwise be unavailable for election, it is intended that persons
named in the Proxy will vote for the election of such persons as the Board of
Directors may recommend in the place of such nominee. The Board of Directors
knows of no reason why the nominees might be unable to serve or otherwise be
unavailable for election. Messrs. Erkeneff and Shapiro are presently members of
the Board of Directors.
Directors are elected by a plurality of the shares present in person or
represented by proxy at the Annual Meeting. Shareholders have cumulative voting
rights with respect to the election of directors. Under cumulative voting, each
shareholder is entitled to the same number of votes per share as the number of
directors to be elected (or, for purposes of this election, two votes per
share). A shareholder may cast all of such votes for a single nominee or
distribute them between the nominees, as he or she wishes, either by so marking
the ballot at the meeting or by specific voting instructions sent to the Company
with a signed Proxy. Unless authority to vote for the nominees for director is
withheld, it is the intention of the persons named in the accompanying Proxy to
vote the Proxies in such manner as will elect as directors the persons who have
been nominated by the Board of Directors.
The following table sets forth certain information with respect to the
nominees and each director whose term does not expire in 1999. Except as
otherwise indicated, each nominee and director has held his or her present
principal occupation for the past five years.
<TABLE>
<CAPTION>
AGE (AT BECAME
NAME DECEMBER 31, 1998) PRINCIPAL OCCUPATION DIRECTOR
---- ------------------ -------------------- --------
NOMINEES FOR ELECTION TO SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2002
<S> <C> <C> <C>
Richard R. Erkeneff.................... 63 President of the Company (since October 1995
1995) and AAI Corporation, a subsidiary of
the Company ("AAI") (since November 1993);
Senior Vice President of the Aerospace
Group at McDonnell Douglas Corporation, an
aerospace firm (January to November 1993);
and President (March 1992 to October 1992)
and Executive Vice President (1988 to
1992) of McDonnell Douglas Electronics
Systems Company.
E. Donald Shapiro...................... 67 The Joseph Solomon Distinguished Professor 1996
of Law (since 1983) and Dean/Professor of
Law (1973-1983) of New York Law School.
Mr. Shapiro is a director of Loral Space
and Communications, Ltd., Vasomedical,
Inc., Vion, Inc., Kranzco Realty Trust and
Frequency Electronics, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AGE (AT BECAME
NAME DECEMBER 31, 1998) PRINCIPAL OCCUPATION DIRECTOR
---- ------------------ -------------------- --------
INCUMBENT DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 2000
<S> <C> <C> <C>
Harold S. Gelb......................... 78 Chairman of the Board of the Company 1995
(since November 1995); private investor
(since 1985); and retired senior partner
of Ernst & Young LLP, an accounting firm.
Susan Fein Zawel....................... 44 Vice President Corporate Communications 1995
and Associate General Counsel (since June
1995), Secretary (since May 1994) and
Counsel (1992 to 1995) of the Company.
<CAPTION>
INCUMBENT DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 2001
Edward C. Aldridge, Jr................. 60 President and Chief Executive Officer of 1995
the Aerospace Corporation, a non-profit
federally funded research and development
center that provides technical support for
the U.S. national security launch and
space systems (since 1992); President of
McDonnell Douglas Electronic Systems
Company (1988 to 1992); and served as both
Secretary and Under Secretary of the Air
Force (1981 to 1988).
Joseph S. Schneider.................... 48 President of JSA Partners, Inc., a 1998
consulting firm in the aerospace and
defense industry (since September 1997);
Consultant with A.T. Kearney, a subsidiary
of Electronic Data Systems Corporation
(September 1995 to March 1997); President
of EDS/JSA International, Inc., a
management consulting firm (August 1994 to
September 1995) and successor company to
JSA International, Inc. of which he was
President (1981-1994); Chairman and
Co-founder of JSA Research, Inc., an
independent aerospace and defense research
firm serving institutional investors
(since 1993). Mr. Schneider is a director
of Signal Technology Corporation.
</TABLE>
- ------------------
None of the directors or nominees is a director of any other company with a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940, except as set forth above.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1998, 1997 and 1996 of the chief executive officer and each
of the other executive officers of the Company whose annual compensation
exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1) OPTIONS COMPENSATION ($)(3)
--------------------------- ---- ---------- --------- ------------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Richard R. Erkeneff (2) ....... 1998 440,000 220,000 57,181 -- 73,035
President and Chief Executive 1997 440,000 200,000 175,000 35,738
Officer of the Company and 1996 440,000 100,000 250,000 9,112
AAI
James H. Perry ................ 1998 155,938 45,238 -- 18,000 12,862
Vice President, Chief 1997 148,500 74,863 60,061 15,000 83,772
Financial Officer and 1996 135,000 32,052 12,000 7,624
Treasurer of the Company
Robert W. Worthing ............ 1998 192,483 63,422 12,000 17,696
Vice President and General 1997 188,700 113,201 12,000 30,607
Counsel of the Company and 1996 185,016 56,707 9,000 9,802
AAI
Susan Fein Zawel .............. 1998 151,410 42,991 12,000 13,233
Vice President Corporate 1997 144,200 70,763 12,000 10,954
Communications, Secretary and 1996 140,000 34,517 9,000 8,315
Associate General Counsel of
the Company
</TABLE>
- ------------------
(1) The aggregate amount of other compensation represents perquisites that
exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer, including $57,181 for Mr. Erkeneff in
1998 and $60,061 in 1997 for Mr. Perry for reimbursement of taxes related to
relocation expenses.
(2) Mr. Erkeneff was elected President and Chief Executive Officer of the
Company on January 17, 1996 and remains President of AAI.
(3) All amounts under this heading represent employer match contributions made
to the Company's 401(k) plans, contributions to the Company's Retirement
Plan and reimbursement of $57,181 of relocation expenses for Mr. Erkeneff in
1998 and $73,755 for Mr. Perry in 1997.
5
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted during 1998 to the named executives.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE --------------------
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10% ($)
- ---- ---------- ------------ ----------- ----------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard R. Erkeneff............. 100,000 19.12% 12.25 March 6, 2008(1) 770,525 1,952,650
75,000 14.34% 13.00 March 26, 2008(2) 613,275 1,554,150
James H. Perry.................. 15,000 2.87% 12.25 March 6, 2008(3) 115,579 292,898
Robert W. Worthing.............. 12,000 2.29% 12.25 March 6, 2008(3) 92,463 234,318
Susan Fein Zawel................ 12,000 2.29% 12.25 March 6, 2008(3) 92,463 234,318
</TABLE>
- ------------------
(1) All shares are exercisable from the date of grant, which was March 6, 1998.
(2) One-third of the options are exercisable upon the first anniversary of the
date of grant, which was March 26, 1998, an additional one-third of the
options are exercisable upon the second anniversary of the date of grant and
the balance of the options are exercisable upon the third anniversary of the
date of grant.
(3) One-third of the options are exercisable upon the first anniversary of the
date of grant, which was March 6, 1998, an additional one-third of the
options are exercisable upon the second anniversary of the date of grant and
the balance of the options are exercisable upon the third anniversary of the
date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL YEAR-END OPTIONS AT
SHARES FISCAL YEAR-END ($)
ACQUIRED ON VALUE EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE # REALIZED ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
- ---- ----------- ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Richard R. Erkeneff......................... 60,000 438,750 68,333(E) 191,771(E)
341,667(U) 520,417(U)
James H. Perry ............................ 0 0 13,000(E) 51,063(E)
23,000(U) 18,500(U)
Robert W. Worthing ........................ 0 0 18,000(E) 76,126(E)
18,000(U) 13,875(U)
Susan Fein Zawel ........................... 0 0 14,000(E) 58,126(E)
18,000(U) 13,875(U)
</TABLE>
EMPLOYMENT AGREEMENTS AND RELATED TRANSACTIONS
Mr. Erkeneff is employed as President and Chief Executive Officer of the
Company and AAI pursuant to an employment agreement dated December 8, 1998 that
provides he be paid a salary at the annual rate of $440,000 and participate in
all life insurance, medical, retirement, pension or profit sharing, disability
or other employee benefit plans generally made available to other executive
officers of the Company or AAI. The employment agreement terminates on June 30,
2001, unless Mr. Erkeneff's employment is terminated prior thereto by the
Company for cause. Pursuant to the employment agreement, Mr. Erkeneff is
eligible to receive annual cash bonuses pursuant to the Company's Performance
Sharing Plan ("PSP"), plus a discretionary amount of up to forty percent (40%)
of the PSP formula as may be granted by the Company's Board of Directors, not to
exceed three hundred thirty thousand dollars ($330,000) per annum. On
January 4, 1999, in accordance with his employment agreement, Mr. Erkeneff also
received an option to acquire 100,000 shares of the Company's common stock
pursuant to the terms of the Company's 1994 Stock Option Plan, at $9 13/16 per
share, an exercise price equal to the fair market value of the common stock as
of the grant date. The option vests in three equal annual installments
commencing one year after the grant date and terminates on June 30, 2003. Of the
total 100,000 shares subject to this option, 50,000 shares may be purchased when
the fair market value of Common Stock is, for a period of not less than sixty
(60) consecutive days, not less than $16.00; and an additional 50,000 shares may
be purchased when the fair market value of Common Stock is, for a period of not
less than sixty (60) consecutive days, not less than $18.00. The employment
agreement also provides for Mr. Erkeneff to designate a beneficiary for $200,000
of a key man life insurance policy.
6
<PAGE>
AAI Corporation ("AAI"), a subsidiary of the Company, made an interest free
loan of $80,000 to Mr. Erkeneff on December 1, 1993, which was repaid on
December 10, 1998. The loan was made in connection with Mr. Erkeneff's
commencement of employment at AAI.
Ms. Fein Zawel is employed by the Company pursuant to an employment
agreement, as amended, that provides she be paid a salary at the annual rate of
$151,410 and participate in all life insurance, medical, retirement, pension or
profit sharing, disability or other employee benefit plans generally made
available to other executive officers of the Company. The employment agreement,
as amended, terminates on June 30, 2001, unless Ms. Fein Zawel's employment is
terminated prior thereto by the Company for cause. Pursuant to the employment
agreement, Ms. Fein Zawel is eligible to receive annual discretionary salary
increases and cash bonuses as may be granted by the Company's Board of
Directors.
James H. Perry is the Vice President, Chief Financial Officer and Treasurer
of the Company. Mr. Perry is employed by the Company pursuant to an employment
agreement that provides he be paid a salary at the annual rate of $125,000 and
participate in all life insurance, medical, retirement, pension or profit
sharing, disability or other employee benefit plans generally made available to
other executive officers of the Company. The employment agreement terminates on
November 30, 1999, unless Mr. Perry's employment is terminated prior thereto by
the Company for cause. Pursuant to the employment agreement, Mr. Perry is
eligible to receive annual discretionary salary increases and cash bonuses as
may be granted by the Company's Board of Directors. In addition, Mr. Perry's
employment agreement provides for the limited reimbursement of any loss on the
sale of Mr. Perry's residence if the Company terminates his employment for
reasons other than for cause or disability prior to the termination date of the
agreement.
RETIREMENT BENEFITS
All employees of the Company and its subsidiaries are eligible to
participate in the UIC Retirement Plan, a cash balance plan (the "Retirement
Plan") upon commencement of employment. In accordance with the Retirement Plan,
a participant's accrued benefit includes the actuarial equivalent of the
participant's accrued benefit under the applicable predecessor defined benefit
plan as of December 31, 1994 plus annual allocations based upon a percentage of
salary and interest earned on such participant's account thereafter. The
Retirement Plan also has options for early retirement and alternative forms of
payment, including lump sum benefits and benefits for surviving spouses. The
estimated annual benefit to be provided by the UIC Retirement Plan and payable
to Messrs. Erkeneff, Perry and Worthing and Ms. Fein Zawel, commencing at normal
retirement age, are $7,705, $7,427, $13,030 and $8,176 respectively.
UNITED INDUSTRIAL CORPORATION HEALTH-CARE PLAN FOR RETIRED DIRECTORS.
The Company has implemented the United Industrial Corporation Health-Care
Plan for Retired Directors (the "Plan"), which was adopted by the Company's
Board of Directors on December 18, 1995. The Board may, in its sole discretion,
amend, suspend or terminate the Plan, at any time, with or without prior notice.
A director of the Company is eligible to participate in the Plan if he or she:
(i) ceases to be a member of the Board; (ii) has served as a member of the Board
for 15 full years; (iii) has attained the age of 65; (iv) is eligible for
Medicare Part A; and (v) has enrolled in both Medicare Part A and Medicare Part
B and any other available supplemental medical or hospitalization coverage by
reason of entitlement under any government entitlement, including, without
limitation, that provided under Title XVIII of the Social Security Act. A
director who participates in the Plan is entitled to coverage under the group
medical plan available to the executive officers of the Company on the same
terms and conditions as such coverage is available to such executive officers
and their spouses and dependents. If a director who participates in the Plan
resides outside the service area of the Company's group medical plan, such
director and his or her spouse and dependents will receive medical benefit
coverage under a medical plan or health insurance policy which provides benefits
that are reasonably comparable to the benefits under the Company's group medical
plan; however, if no such coverage is reasonably available (whether due to
geography or the physical condition of the director or his or her spouse or
dependents), then the Company will reimburse such director for any reasonable
expense that would have been covered under the Company's group medical plan.
Benefits provided under the Plan will be secondary to any benefits under any
other hospitalization or major medical plan or arrangement provided to such
director under government entitlements or provided to such director (either
directly or indirectly through such director's spouse) by any other personal or
employer-provided health-care plan or health insurance policy.
7
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for establishing and reviewing
the salaries, compensation plans and other remuneration of the officers of the
Company. The programs adopted by the Committee link compensation to the
Company's financial performance and to growth in shareholder value.
COMPENSATION PHILOSOPHY: The Company's compensation program applicable to
all of the executive officers is based on three primary elements:
o Base salary compensation
o Annual cash incentive compensation
o Long-term incentive compensation
The Company's executives receive no other form of compensation other than
customary benefits.
BASE SALARY COMPENSATION: The base salaries for the executive officers are
determined based upon the responsibilities of the position, the experience level
of the individual and the competitive conditions within the industry. The
Company and the Committee consider the compensation paid to executive employees
of other companies in the defense industry and related industries. These
companies are broader than the peer group of publicly-traded defense companies
used for comparison of five-year cumulative return in this Proxy Statement. When
adjusting base salaries for individual executive officers in 1998, the Committee
considered the financial performance of the Company in 1997, the performance of
the individual executive officer, any changed duties and responsibilities and
the base salaries paid to individuals in comparable positions in other
companies.
ANNUAL INCENTIVE COMPENSATION: In fiscal 1996, the Committee approved the
Performance Sharing Plan ("PSP") which provides annual incentive awards to
executive officers and other key employees. The PSP provides a bonus pool based
on Company and/or subsidiary performance against performance measures set for
each respective unit. These measures include, but are not limited to, profit,
return on net assets, cash flow and quality improvement. Awards for individuals
are based on a combination of business unit and individual performance.
Participants are assigned a target award percentage (stated as a percentage of
base salary) reflecting his or her level of responsibility.
LONG-TERM INCENTIVE COMPENSATION: Both the Company's management and the
Compensation Committee believe that significant stock ownership in the Company
links the economic interests of shareholders and management and therefore is a
major incentive for management. The Company's long-term incentive plan is
designed to provide the recipient with a proprietary interest in the growth and
performance of the Company and the value of its shares.
The Compensation Committee recommends grants of stock options to executive
officers and other key employees under the Company's 1994 Stock Option Plan. All
options are granted at fair market value and generally become exercisable in
three equal portions at one, two and three years following the date of grant,
with the exception of options granted to Mr. Erkeneff pursuant to his employment
agreement.
The Compensation Committee determines the size of any option grant under
the Plan based upon the Committee's perceived value of the grant to motivate and
retain the individual executive, the level of long-term incentive practices
within comparable companies and the individual executive's responsibilities and
overall performance. Although the Committee supports and encourages stock
ownership in the Company by its executive officers, it has not promulgated any
standards regarding levels of ownership by executive officers.
CEO COMPENSATION: Mr. Erkeneff was elected President and Chief Executive of
the Company in January 1996. Pursuant to his employment agreement, his salary
was set at $440,000. The Compensation Committee believes that this rate of
annual salary reflects the prevailing competitive marketplace for similar
companies, as confirmed in an opinion provided by an independent outside
compensation consultant.
Mr. Erkeneff was eligible for an annual cash incentive award of up to 50%
of his annual base salary. For 1998, the Compensation Committee reviewed the
performance of the Company and Mr. Erkeneff relative to financial and strategic
goals established for the year, and awarded him a bonus of $220,000 for 1998 at
its meeting in March 1999.
The Committee believes strongly that stock option awards emphasize the
importance of increasing shareholder value. Mr. Erkeneff's employment agreement
provides for an option grant of 100,000 shares, of which 50,000 shares may be
purchased when the fair market value of Common Stock is, for a period of not
less than sixty (60) consecutive days, not less than $16.00; and the remaining
50,000 shares may be purchased when the fair market value of Common Stock is,
for a period of not less than sixty (60) consecutive days, not less than $18.00.
* * *
8
<PAGE>
Section 162(m) of the Internal Revenue Code of 1986 limits a publicly-held
corporation's deduction for compensation paid to certain executive officers in
excess of $1 million per executive per taxable year, unless the compensation
qualifies as "performance based" compensation. Stock options currently granted
under the 1994 Stock Option Plan (as amended) will not qualify for this
exception. As of today, annual cash compensation for any executive officer has
been far below the $1 million threshold. The Compensation Committee will address
the deductibility at an appropriate time in the future.
COMPENSATION COMMITTEE
HAROLD S. GELB
EDWARD C. ALDRIDGE, JR.
JOSEPH S. SCHNEIDER
E. DONALD SHAPIRO
9
<PAGE>
PERFORMANCE GRAPH
The graph below compares the total returns which an investor would have
earned assuming the investment of $100 on December 31, 1993 in the Common Stock,
the Standard & Poor's 500 Composite Stock Index ("S&P 500"), the Russell 2000
Value Index ("Russell 2000"), a constructed peer group index used by the Company
in the last fiscal year ("Old Peer Group"), and a new constructed peer group
index ("New Peer Group"). The Old Peer Group consisted of the Watkins Johnson
Company, EDO Corporation, Whitehall Corporation, Tech Sym Corporation, Sparton
Corporation and Moog Incorporated. The New Peer Group consists of Cubic
Corporation, EDO Corporation, Comptek Research Inc., Sparton Corporation,
Stanford Telecommunications and Tech-Sym Corporation. Given recent industry
changes and following an evaluation of the members of the Old Peer Group, the
Company eliminated Watkins Johnson Company, Whitehall Corporation and Moog
Incorporated, and replaced them with Cubic Corporation, Comptek Research Inc.
and Stanford Telecommunications, corporations whose lines of business are more
closely aligned with those of the Company. In addition, the Company replaced the
S&P 500 with the Russell 2000 because it believes that the Russell 2000 is more
representative of the Company's size than the S&P 500. The performance of both
the Old Peer Group and the S&P 500 are displayed in the graph for comparative
purposes as required by the Securities and Exchange Commission regulations but
will not be provided in the future.
TOTAL SHAREHOLDER RETURN
1993
1994
1995
1996
1997
1998
[LINE GRAPH]
OTHER COMPENSATION
Directors' Fees. Between January 1 and May 12, 1998, directors who were not
employees received compensation of $2,000 per meeting, and a fee of $500 for
each committee meeting attended. Subsequent to May 12, 1998 directors received
$20,000 per year and $1,000 for each meeting attended, and a fee of $500 for
each committee meeting attended. In lieu of such fees, Mr. Gelb, Chairman of the
Board, received $6,000 per month. In addition, Messrs. Aldridge and Schneider
also served as directors of AAI, for which they received compensation of $2,000
per meeting.
All current directors are eligible to participate in the medical plan
available to the executive officers of the Company. The Company also has a
medical plan for retired directors as described above. Nonemployee directors
also participate in the Company's 1996 Stock Option Plan for Nonemployee
Directors (the "1996 Plan"). Pursuant to the 1996 Plan, each Eligible Director
(as defined in the 1996 Plan) is granted an option to purchase
10
<PAGE>
15,000 shares of Common Stock upon their initial appointment to the Board of
Directors, exercisable at the market price of the Company's Common Stock on the
date of grant. The options granted under the 1996 Plan expire ten years after
the date of grant and become exercisable (i) as to one-third of the total number
of shares subject to the grant on the date of grant (the "First Vesting Date"),
(ii) as to an additional one-third of the total number of shares subject to the
grant on the date of the next annual shareholders' meeting after the First
Vesting date (the "Second Vesting Date"), and (iii) as to the remaining
one-third of the total number of shares subject to the grant on the date of the
next annual shareholders' meeting after the Second Vesting Date (the "Final
Vesting Date"). On the date of the annual shareholders' meeting which takes
place during the calendar year in which the first anniversary of the Final
Vesting Date occurs, each Eligible Director shall automatically be granted an
option to purchase 15,000 shares of Common Stock, provided such grantee is an
Eligible Director in office immediately following such annual meeting.
ADDITIONAL INFORMATION
The Board of Directors of the Company had a total of ten meetings during
1998.
Among its standing committees, the Company has an Audit Committee, a
Nominating Committee and a Compensation Committee. The Audit Committee
recommends to the Board the engagement and discharge of the independent auditors
for the Company, analyzes the reports of such auditors, and makes such
recommendations to the Board with respect thereto as such committee may deem
advisable. There were three Audit Committee meetings held in 1998. The members
are E. Donald Shapiro, Edward C. Aldridge, Jr. and Joseph S. Schneider.
The Nominating Committee acts primarily as a selection committee to
recommend candidates for election to the Board of Directors. The committee met
once in 1998. The members consist of all of the current directors.
The Nominating Committee will consider nominees for directors recommended
by shareholders. Any shareholder may make such a recommendation by writing to:
Secretary, United Industrial Corporation, 570 Lexington Avenue, New York, New
York 10022.
The Compensation Committee makes recommendations to the Board of Directors
regarding the compensation structure of the Company as applied to executive
personnel. There were two Compensation Committee meetings held in 1998. The
members are Harold S. Gelb, Edward C. Aldridge, Jr., Joseph S. Schneider and E.
Donald Shapiro.
There are no family relationships between any nominee, director or
executive officer of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and any persons who own more than ten percent of the
Company's Common Stock to file reports of initial ownership of the Company's
Common Stock and subsequent changes in that ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Such persons are also
required to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no Form
5's were required, the Company believes that during 1998 all Section 16(a)
filing requirements were complied with.
II. PROPOSAL TO APPROVE THE 1994 STOCK OPTION PLAN, AS AMENDED
PROPOSED AMENDMENTS
On March 18, 1999, the Company's Board of Directors adopted, subject to
shareholder approval, amendments to the Company's 1994 Stock Option Plan, as
amended, (the "Plan") to increase the number of shares of the Company's Common
Stock available for issuance pursuant to awards thereunder from 1,800,000 to
2,400,000.
The purpose of the Plan is to provide certain key employees of the Company
and its subsidiaries an opportunity to acquire an ownership interest in the
Company and thereby create in such employees an increased interest in and
greater concern for the welfare of the Company, to retain their continued
employment, and to secure and retain the services of persons capable of filling
key positions with the Company and its subsidiaries.
11
<PAGE>
Pursuant to the Plan, the Company may grant options with respect to an aggregate
of up to 1,800,000 shares of Common Stock, with no individual optionee to
receive in excess of 750,000 shares of Common Stock upon exercise of options
granted under the Plan. Options granted pursuant to the Plan may be either
incentive stock options ("ISOs") or non-qualified stock options ("NQSOs").
Shares of Common Stock subject to options may be either authorized and unissued
shares, or previously issued shares acquired or to be acquired by the Company
and held in its treasury.
The Board of Directors believes that stock options have been, and will
continue to be, an important compensation element in attracting and retaining
key employees. As of March 4, 1999 no shares of Common Stock remained available
for future grants of stock options under the Plan. The Board of Directors
believes that the increase in authorized shares is necessary because of the need
to continue to make awards under the Plan to attract and retain key employees.
If the Plan, as amended, is approved by the Company's shareholders, it will
be effective on the date of the meeting. If the Plan, as amended, is not
approved, the amendment adopted by the Board will not take effect.
The Board of Directors recommends that the accompanying Proxy be voted in
favor of the adoption of the Plan, as amended. A favorable vote of a majority of
the shares present at the meeting in person or by proxy is required for
approval.
SUMMARY OF THE PLAN
Administration. The Plan is administered by an option committee of the
Board of Directors of the Company, which is comprised of "Non-Employee
Directors" within the meaning of Rule 16b-3 under Section 16(b) of the Exchange
Act (the "Option Committee"). The members of the Option Committee are Edward C.
Aldridge, Jr., Harold S. Gelb and E. Donald Shapiro. Any or all powers and
functions of the Option Committee may be exercised at any time and from time to
time by the Board of Directors or an executive committee of the Board of
Directors (the "Executive Committee"), provided all of the members of the Board
or the Executive Committee are "Non-Employee Directors" within the meaning of
Rule 16b-3. (References in this discussion to the "Committee" include the Option
Committee, the Board of Directors and the Executive Committee to the extent any
of the foregoing administers the Plan.) The authority of the Committee includes,
among other things, determining the persons to whom options are granted, the
timing of any grants, the number of shares subject to each option, the period of
exercisability, the designation of options as ISOs or NQSOs and the other terms
and provisions thereof.
Officers subject to Section 16(a) of the Exchange Act may not, and the
Committee also has the authority to require, as a condition to any grant, that
any other grantee also may not, sell or otherwise dispose of shares acquired
pursuant to the exercise of an option within six months of the date an option is
granted.
Eligibility. Options may be granted only to salaried key employees of the
Company or any subsidiary or parent corporation of the Company now existing or
subsequently formed or acquired.
Grant, Terms and Conditions of Options. The Company will not receive any
monetary consideration for granting options.
The exercise price for each share subject to an option will be an amount
that the Committee determines, in its good faith judgment, to be not less than
100% of the fair market value of the Common Stock on the date the Option is
granted. In the case of ISOs, however, the exercise price per share of ISOs
granted to any holder of capital stock of the Company (or any subsidiary or
parent corporation) representing 10% or more of the voting power of the Company
(or any subsidiary or parent corporation) will be in an amount that the
Committee determines, in its good faith judgment, to be not less than 110% of
the fair market value of the Common Stock on the date the ISO is granted.
Under the Plan, fair market value per share means:
(1) if the shares are listed on a national securities exchange or
reported on the NASDAQ Stock Market-National Market System ("NASDAQ-NMS"),
the last reported sale price per share on such exchange or such system on
the date the option is granted or, if the shares are not traded or reported
on such date, then on the closest preceding date on which such shares were
traded or reported; or
12
<PAGE>
(2) if the shares are not listed on a national securities exchange or
reported on NASDAQ-NMS but are quoted in the over-the-counter market, the
average of the closing bid and ask quotations in such market for such
shares on the date the option is granted or, if there are no such
quotations on such date, then on the closest preceding date on which such
quotations are available; provided, however, that if, in the judgment of
the Committee, there is not a regular, active public market for the shares,
fair market value per share shall be determined by the Committee in its
good faith judgment. The determination by the Committee of fair market
value will be conclusive and binding.
Payment for shares purchased upon the exercise of options may be in cash
or, if the terms of an option so provide, with other shares of Common Stock or
an executed promissory note on such terms and conditions as the Committee shall
determine.
Options granted under the Plan are exercisable at such times, in such
amounts and during such period or periods as the Committee may determine at the
date the option is granted. ISOs, however, are not exercisable after ten years
from the date of grant and, in the case of a person who at the date of grant
owns capital stock of the Company (or any subsidiary or parent corporation)
representing 10% or more of the voting power of the Company (or any subsidiary
or parent corporation), are not exercisable after five years from the date of
grant. Except as otherwise provided under the Internal Revenue Code of 1986, as
amended (the "Code"), if the aggregate fair market value of shares subject to
ISOs (under any plan of the Company or any subsidiary or parent corporation of
the Company) exercisable for the first time in any calendar year exceeds
$100,000, such options will be treated as NQSOs.
In addition, the Committee has the right to accelerate, in whole or in
part, from time to time, conditionally or unconditionally, the right to exercise
any option granted under the Plan.
In the event of retirement, termination by the Company of employment with
or without cause, termination of employment by an optionee with or without good
reason or upon death or disability, special rules will apply regarding the
exercisability of options.
Options may not be transferred except by will or the laws of descent or
distribution. Options are only exercisable during the lifetime of a holder by
such holder.
In the event of a "change in control" of the Company, all then outstanding
options shall immediately become exercisable. The Committee, in its sole
discretion, may determine that, upon the occurrence of a "change in control,"
each option outstanding under the Plan shall terminate within a specified number
of days after notice to the holder, and such holder shall receive, with respect
to each share subject to such option, an amount in cash or other property, or
any combination thereof, equal to the excess of the aggregate fair market value
at the time of such transaction of the shares subject to such option over the
aggregate exercise price therefor. The foregoing provision does not apply to
options granted to officers subject to Section 16(a) of the Exchange Act within
six months prior to a change-in-control, unless an exemption from liability
under Section 16(b) of the Exchange Act is otherwise available.
Effect of Change in Common Stock. In the event of any change in the Common
Stock through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares, or other like change in capital structure of the Company, an
adjustment will be made to each outstanding option so that such option
thereafter is exercisable for such securities, cash and/or property as would
have been received had such option been exercised in full immediately prior to
such transaction and been exchanged in such transaction. An adjustment will be
made successively each time any such change occurs.
Amendment or Termination. The Board of Directors of the Company may at any
time amend or terminate the Plan, provided that no such action affects or
impairs the rights of an optionee under any previously granted option.
Notwithstanding the foregoing, without the approval of the Company's
shareholders, no amendment or change may be made (a) increasing the total number
of shares of Common Stock reserved for options under the plan (other than an
increase resulting from an adjustment), (b) reducing the exercise price of any
ISO, (c) modifying the provisions of the plan relating to eligibility or
(d) materially increasing the benefits accruing to participants under the plan.
13
<PAGE>
The Board of Directors recommends that the accompanying Proxy be voted in
favor of the adoption of the Plan, as amended. A favorable vote of a majority of
the shares present at the meeting in person or by proxy is required for
approval.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The statements in the following paragraphs are based on federal income tax
law and interpretational authorities as of the date of this Proxy Statement,
which are subject to change at any time. The law is technical and complex and
the statements represent only a general summary of some of the applicable
provisions.
Incentive Stock Options
ISOs granted under the Plan are intended to meet the definitional
requirements of Section 422(b) of the Code for "incentive stock options."
Under the Code, the grantee of an ISO generally is not subject to federal
income tax upon the grant of such ISO. Similarly, the exercise of an ISO
generally does not give rise to federal income tax to the employee, provided
that (i) the federal "alternative minimum tax", which depends on the employee's
particular tax situation, does not apply and (ii) the employee is employed by
the Company or any subsidiary or parent corporation of the Company from the date
of grant of the option until three months prior to the exercise thereof, except
where such employment terminates by reason of disability (where the three month
period is extended to one year) or death (where this requirement does not
apply). If an employee exercises an ISO after the requisite periods referred to
in clause (ii) above, the ISO will be treated as a NQSO and will be subject to
the rules set forth below under the caption "Non-Qualified Options." Further, if
after exercising an ISO, an employee disposes of the shares of Common Stock so
acquired after the longer of two years from the date of grant or one year from
the date of transfer of shares of Common Stock pursuant to the exercise of such
ISO (the "applicable holding period"), the employee will normally recognize a
capital gain or loss equal to the difference, if any, between the amount
received for the shares of Common Stock over the exercise price. The capital
gain or loss will be long-term or short-term depending on the employee's holding
period. If, however, an employee does not hold the shares of Common Stock so
acquired for the applicable holding period, thereby making a "disqualifying
disposition," the employee would recognize ordinary income in the year of the
disqualifying disposition equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price and the
balance, if any, will be long-term or short-term capital gain depending on the
employee's holding period. If the disqualifying disposition is a sale or
exchange that would permit a loss to be recognized under the Code (were a loss
in fact to be realized), and the sales proceeds are less than the fair market
value of the shares on the date of exercise, the employee's ordinary income
therefrom would be limited to the gain (if any) realized on the sale.
An employee who exercises an ISO by delivering shares previously acquired
pursuant to the exercise of an ISO is treated as making a "disqualifying
disposition" of such shares if the employee delivers such shares before the
expiration of the applicable holding period with respect to such shares. Upon
the exercise of an ISO with previously acquired shares as to which no
disqualifying disposition occurs, the employee would not recognize gain or loss
with respect to such previously acquired shares.
A deduction will not be allowed to the Company for federal income tax
purposes with respect to the grant or exercise of an ISO or the disposition,
after the applicable holding period, of the shares of Common Stock acquired upon
exercise of an ISO. In the event of a disqualifying disposition, a federal
income tax deduction will be allowed to the Company in an amount equal to the
amount included in ordinary income by the employee, provided that such amount
constitutes an ordinary and necessary business expense to the Company, is
reasonable and the limitations of Sections 280G and 162(m) of the Code (as
described below) do not apply.
Non-Qualified Options
A NQSO is an option that does not qualify as an "incentive stock option"
under Section 422(b) of the Code. An individual who receives a NQSO will not
recognize any taxable income upon the grant of such NQSO. Generally, upon
exercise of a NQSO, an individual will be treated as having received ordinary
income in an amount equal to the excess of the fair market value of the shares
of Common Stock at the time of exercise over the exercise price.
14
<PAGE>
Any optionee who is an officer of the Company or a beneficial owner of more
than ten percent (10%) of any class of registered equity securities of the
Company should consult with his or her tax advisor as to whether, as a result of
Section 16(b) of the Exchange Act and the rules and regulations thereunder that
are related thereto, the timing of income recognition is deferred for any period
following the exercise of a NQSO (i.e., the "Deferral Period"). If there is a
Deferral Period, absent a written election (pursuant to Section 83(b) of the
Code) filed with the Internal Revenue Service within 30 days after the date of
transfer of the shares of Common Stock pursuant to the exercise of the option to
include in income, as of the transfer date, the excess (on such date) of the
fair market value of such shares of Common Stock over their exercise price,
recognition of income by the individual will be deferred until the expiration of
the Deferral Period.
The ordinary income recognized with respect to the transfer of shares of
Common Stock upon exercise of a NQSO under the Plan will be subject to both wage
withholding and employment taxes. In addition to the customary methods of
satisfying the withholding tax liabilities that arise upon the exercise of a
NQSO, an individual may satisfy the liability in whole or in part by directing
its employer corporation to withhold shares of Common Stock from those that
would otherwise be issuable to the individual or by tendering other shares of
Common Stock owned by the individual. The withheld shares of Common Stock and
other tendered shares will be valued at their fair market value as of the date
that the tax obligation arises. Individuals who, by virtue of their positions
with the Company, are subject to Section 16(b) of the Exchange Act may elect
this method of satisfying the withholding obligation only during certain
restricted periods.
An individual's tax basis in the shares of Common Stock received on
exercise of a NQSO will be equal to the exercise price, plus the amount of
ordinary income recognized by such individual as a result of the receipt of such
shares of Common Stock. The holding period for such shares would begin just
after the transfer of shares of Common Stock or, in the case of an officer or
beneficial owner of more than 10% of any class of registered equity securities
of the Company who does not elect to be taxed as of the exercise date, just
after the expiration of the Deferral Period, if any. A deduction for federal
income tax purposes generally will be allowed to the Company in an amount equal
to the amount included in ordinary income by the individual, provided that such
amount constitutes an ordinary and necessary business expense, is reasonable and
the limitations of Sections 28OG and 162(m) of the Code do not apply.
If an individual exercises a NQSO by delivering shares to the Company,
other than shares previously acquired pursuant to the exercise of an ISO which
is treated as a "disqualifying disposition" as described above, the individual
will not recognize gain or loss with respect to the exchange of such shares,
even if their then fair market value is different from the individual's tax
basis. The individual, however, will be taxed as described above with respect to
the exercise of the NQSO as if he or she had paid the exercise price in cash,
and the Company likewise generally will be entitled to an equivalent tax
deduction. So long as the individual receives a separate identifiable stock
certificate therefor, the tax basis and the holding period for that number of
shares of Common Stock received on such exercise that is equal to the number of
shares surrendered on such exercise will be equal to the tax basis and include
the holding period of those shares surrendered. The individual's tax basis and
holding period for the additional shares received on exercise of a NQSO paid
for, in whole or in part, with shares will be the same as if the individual had
exercised the NQSO solely for cash.
Change in Control
As described above, upon a "change in control" of the Company, all the then
outstanding options shall immediately become exercisable. In general, if the
total amount of payments to optionees that are contingent upon a "change of
control" of the Company (as defined in Section 28OG of the Code), including
payments under the Plan that vest upon a "change in control," equals or exceeds
three times the recipient's "base amount" (generally, such recipient's average
annual compensation for the five years preceding the change in control), then,
subject to certain exceptions, the payments may be treated as "parachute
payments" under the Code, in which case a portion of such payments would be
non-deductible to the Company and the recipient would be subject to a 20% excise
tax on such portion of the payments.
CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
With certain exceptions, Section 162(m) of the Code limits the Company's
deduction for compensation paid to certain executive officers in excess of $1
million per executive per taxable year (including any deduction with respect to
the exercise of a NQSO or the disqualifying disposition of stock purchased
pursuant to an ISO). One
15
<PAGE>
such exception applies to certain performance based compensation, provided that
such compensation has been approved by shareholders in a separate vote and
certain other requirements are met. If approved by the shareholders, the Company
believes that options granted under the Plan, as amended, at a time when the
Option Committee consists solely of two or more outside directors (within the
meaning of Section 162(m) of the Code) should qualify for this exception.
III. APPOINTMENT OF AUDITORS
It is proposed that the shareholders ratify the appointment of Ernst &
Young LLP as independent auditors of the Company for the year ending
December 31, 1999. Ernst & Young LLP have been the independent auditors of the
Company since 1962. It is expected that a representative of Ernst & Young LLP
will be present at the Annual Meeting with the opportunity to make a statement
if he desires to do so and will be available to respond to appropriate
questions.
The Board of Directors recommends that the accompanying Proxy be voted in
favor of such appointment. A favorable vote of a majority of the shares present
at the meeting in person or by proxy is required for approval.
IV. MISCELLANEOUS
The Board of Directors knows of no business to come before the meeting
other than as stated in the Notice of Annual Meeting of Shareholders. Should any
business other than that set forth in said Notice properly come before the
meeting, it is the intention of the persons named in the accompanying Proxy to
vote said Proxy in accordance with their judgment on such matters.
A list of the Company's shareholders as of the record date for the meeting
will be available for examination by any shareholder, for purposes germane to
the meeting, during ordinary business hours, for ten days prior to the date of
the meeting at the offices of the Company.
All shares represented by the accompanying Proxy given prior to the meeting
will be voted in the manner specified therein. Proxy cards returned without
specification will be voted in accordance with the recommendation of the Board
of Directors. The shares of shareholders who have properly withheld authority to
vote for the nominees proposed by the Board of Directors (including broker
non-votes) will not be counted toward achieving a plurality. As to any matters
which may come before the meeting other than those specified above, the Proxy
holders will be entitled to exercise discretionary authority. The holders of a
majority of the outstanding shares of Common Stock present in person or
represented by proxy will constitute a quorum at the Annual Meeting.
For purposes of this meeting, except for the election of directors, which
requires a plurality vote, the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting for a particular matter
is required for the matter to be deemed an act of the shareholders. With respect
to abstentions, the shares are considered present at the meeting for the
particular matter, but since they are not affirmative votes for the matter, they
will have the same effect as votes against the matter. With respect to broker
non-votes, the shares are not considered present at the meeting for the
particular matter as to which the broker withheld its vote. Consequently, broker
non-votes are not counted in respect of the matter, but they do have the
practical effect of reducing the number of affirmative votes required to achieve
a majority for such matter by reducing the total number of shares from which the
majority is calculated.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the next Annual
Meeting of Shareholders must be received by the Company no later than
November 24, 1999 to be considered for inclusion in the Company's Proxy
Statement and form of Proxy relating to that meeting. Such proposals should be
addressed to Susan Fein Zawel, Secretary, United Industrial Corporation,
570 Lexington Avenue, New York, New York 10022.
The Company's by-laws provide that any shareholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by mail to the Secretary of
the Company (i) with respect to an election to be held at an annual meeting of
shareholders, not less than 60 days nor more than 90 days prior
16
<PAGE>
to the first anniversary of the preceding year's annual meeting of shareholders;
and (ii) with respect to an election to be held at a special meeting of
shareholders for the election of directors, not earlier than the 90th day prior
to such special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board to be selected at such meeting. Similar
notice provisions apply with respect to any other proposal which a shareholder
intends to bring before a meeting of shareholders. A copy of the pertinent
by-law provision, which sets forth additional requirements with respect to such
notice, is available on request to the Secretary of the Company at the address
set forth above.
EXPENSES OF SOLICITATION
The Company will bear the cost of the solicitation of Proxies. In addition
to the use of the mails, proxies may be solicited by the executive employees and
directors of the Company personally, by telephone or by telecopy. The Company
has retained Innisfree M&A Incorporated to assist in the solicitation of proxies
for a fee of $6,000, plus reimbursement of out-of-pocket expenses. Brokers,
nominees, fiduciaries and other custodians will be requested to forward
soliciting material to the beneficial owners of shares and will be reimbursed
for their expenses.
UNITED INDUSTRIAL CORPORATION WILL FURNISH A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, WITHOUT EXHIBITS, WITHOUT CHARGE
TO EACH PERSON WHO FORWARDS A WRITTEN REQUEST THEREFOR, INCLUDING A
REPRESENTATION THAT SUCH PERSON WAS A BENEFICIAL HOLDER OF COMMON STOCK OF
UNITED INDUSTRIAL CORPORATION ON MARCH 25, 1999, TO SUSAN FEIN ZAWEL, SECRETARY,
UNITED INDUSTRIAL CORPORATION, 570 LEXINGTON AVENUE, NEW YORK, NEW YORK 10022.
Dated March 25, 1999 By Order of the Board of
Directors
Susan Fein Zawel
Secretary
17
<PAGE>
UNITED INDUSTRIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS MAY 11, 1999
The undersigned hereby appoints Harold S. Gelb, Edward C. Aldridge, Jr. and
Joseph S. Schneider or any of them, attorneys and proxies with full power of
substitution in each of them, in the name, place and stead of the undersigned to
vote as proxy all the stock of the undersigned in United Industrial Corporation.
The shares represented by this proxy will be voted for proposals 1 through
3 and in accordance with item 4 if no instruction to the contrary is indicated,
or if no instruction is given.
(continued and to be signed on reverse side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
UNITED INDUSTRIAL CORPORATION
May 11, 1999
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A /X/ Please mark your
votes as in this
example.
FOR WITHHOLD
l. Election of / / / /
directors.
FOR, except vote withheld from the following
nominees:
- -------------------------------------------------
Nominees: Richard R. Erkeneff
E. Donald Shapiro
FOR AGAINST ABSTAIN
2. To consider and act upon a proposal to / / / / / /
approve the Company's 1994 Stock Option Plan,
as amended.
3. To consider and act upon a proposal to ratify / / / / / /
the appointment of Ernst & Young LLP as
independent auditors of the Company for 1999.
4. In their discretion, to act upon such other / / / / / /
matters as may properly come before the meeting
or any adjournment thereof.
SIGNATURE(S) (if held jointly)_______________________________ DATE: _____, 1999
Note: Please sign exactly as your name appears hereon. Executors,
Administrators, Trustees, etc. should so indicate when signing, giving
full title as such. If signer is a corporation, execute in full corporate
name by authorized officer. If shares are held in the names of two or more
persons, all should sign.
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS of
UNITED INDUSTRIAL CORPORATION
May 11, 1999
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
- ---------------
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
- --------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
- -------------------
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS ______________________
A /X/ Please mark your
votes as in this
example.
FOR WITHHOLD
l. Election of / / / /
directors.
FOR, except vote withheld from the following
nominees:
- -------------------------------------------------
Nominees: Richard R. Erkeneff
E. Donald Shapiro
FOR AGAINST ABSTAIN
2. To consider and act upon a proposal to / / / / / /
approve the Company's 1994 Stock Option Plan,
as amended.
3. To consider and act upon a proposal to ratify / / / / / /
the appointment of Ernst & Young LLP as
independent auditors of the Company for 1999.
4. In their discretion, to act upon such other / / / / / /
matters as may properly come before the meeting
or any adjournment thereof.
SIGNATURE(S) (if held jointly)_______________________________ DATE: _____, 1999
Note: Please sign exactly as your name appears hereon. Executors,
Administrators, Trustees, etc. should so indicate when signing, giving
full title as such. If signer is a corporation, execute in full corporate
name by authorized officer. If shares are held in the names of two or more
persons, all should sign.
<PAGE>
UNITED INDUSTRIAL CORPORATION
1994 STOCK OPTION PLAN, AS AMENDED
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purposes................................................................1
2. Stock Subject to the Plan...............................................1
3. Administration..........................................................2
4. Eligibility.............................................................3
5. Option Price and Payment................................................3
6. Terms of Options and Limitations on the Right of Exercise...............5
7. Termination of Employmenty..............................................6
8. Exercise of Options.....................................................8
9. Use of Proceeds.........................................................8
10. Non-Transferability of Options..........................................8
11. Adjustment of Shares; Effect of Certain Transactions....................8
12. Right to Terminate Employment...........................................9
13. Purchase for Investment................................................10
14. Issuance of Stock Certificates; Legends; Payment of Expenses...........10
15. Withholding Taxes......................................................11
16. Listing of Shares and Related Matters..................................12
17. Amendment of the Plan..................................................12
18. Termination or Suspension of the Plan..................................12
19. Savings Provision......................................................13
20. Governing Law..........................................................13
21. Partial Invalidity.....................................................13
22. Effective Date.........................................................13
<PAGE>
UNITED INDUSTRIAL CORPORATION
1994 STOCK OPTION PLAN, AS AMENDED
1. Purposes
United Industrial Corporation, a Delaware corporation (the
"Company"), wishes to provide certain of its key employees and certain key
employees of any subsidiary corporation or parent corporation of the Company now
existing or hereafter formed or acquired who are responsible for the continued
growth of the Company an opportunity to acquire a proprietary interest in the
Company, and thereby create in such key employees an increased interest in and a
greater concern for the welfare of the Company and its subsidiaries.
The Company, by means of the Plan, seeks to retain the
services of persons now holding key positions and also to secure and retain the
services of persons capable of filling such positions.
The stock options ("Options") offered pursuant to this 1994
Stock Option Plan (the "Plan") are a matter of separate inducement and are not
in lieu of any salary or other compensation for the services of any key
employee.
The Options granted under the Plan are intended to be either
incentive stock options ("Incentive Options") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or options that
do not meet the require
ments for Incentive Options ("Non-Qualified Options"). The Company makes no
warranty, however, as to the qualification of any Option as an Incentive Option.
2. Stock Subject to the Plan
Options granted under the Plan shall be exercisable for shares
of common stock, $1.00 par value per share, of the Company ("Common Stock"). The
total number of shares of Common Stock of the Company authorized for issuance
upon the exercise of Options under the Plan (the "Shares") shall not exceed, in
the aggregate, 1,800,000 Shares, with no individual optionee to receive in
excess of 750,000 Shares upon exercise of Options granted under the Plan,
subject to adjustment in accordance with Section 11 of the Plan.
Shares available for issuance under the Plan may be either
authorized but unissued Shares, Shares of issued stock held in the Company's
treasury, or both, at the discretion of the Company. If and to the extent that
Options granted under the Plan expire or terminate without having been
exercised, the Shares covered by such expired or terminated Options may again be
subject to an Option under the Plan.
Except as provided in Sections 18 and 22 hereof, the Company
may, from time to time during the period beginning on March 10, 1994 (the
"Effective Date")
<PAGE>
and ending on March 10, 2004 (the "Termination Date"), grant to certain key
employees of the Company, or certain key employees of any subsidiary corporation
or parent corporation of the Company, Incentive Options and/or Non-Qualified
Options under the terms hereinafter set forth.
As used in the Plan, the term "parent corporation" and
"subsidiary corporation" shall mean a corporation within the definitions of such
terms contained in Sections 424(e) and 424(f) of the Code, respectively.
3. Administration
The board of directors of the Company (the "Board of
Directors") shall designate from among its members an option committee, which
may also be any other committee of the Board of Directors (the "Committee"), to
administer the Plan. The Committee shall consist of no fewer than two (2)
members of the Board of Directors, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3 (or any successor rule or regulation)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). A majority of the members of the Committee shall constitute a quorum and
the act of a majority of the members of the Committee shall be the act of the
Committee. Any member of the Committee may be removed at any time either with or
without cause by resolution adopted by the Board of Directors and any vacancy on
the Committee at any time may be filled by resolution adopted by the Board of
Directors.
Any and all powers and functions of the Committee may be
exercised at any time and from time to time by the Board of Directors or an
executive committee of the Board of Directors (the "Executive Committee";
references below to the Committee shall be deemed to include references to the
Board of Directors and the Executive Committee, except as the context otherwise
requires); provided, however, that all of the members of the Board of Directors
or the Executive Committee, as the case may be, shall be "disinterested persons"
within the meaning of Rule 16b-3 (or any successor rule or regulation)
promulgated under the Exchange Act.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, to determine the key employees
to whom Options shall be granted, the time when such persons shall be granted
Options, the number of Shares which shall be subject to each Option, the
purchase price of each Share which shall be subject to each Option, the
period(s) during which such Options shall be exercisable (whether in whole or
part), and the other terms and provisions thereof (which need not be identical).
In determining the key employees to whom Options shall be granted and the number
of Shares for which Options are to be granted to each key employee, the
Committee shall give due consideration to the length of service, performance,
the amount of earnings and the responsibilities and duties of such person.
Subject to the express provisions of the Plan, the Committee
also shall have the authority to construe the Plan and the Options granted
hereunder, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and
2
<PAGE>
provisions of the Options (which need not be identical) and to make all other
determinations necessary or advisable for administering the Plan. The Committee
also shall have the authority to require, in its discretion, as a condition of
the granting of any such Option, that the employee agree (a) not to sell or
otherwise dispose of Shares acquired pursuant to the exercise of such Option for
a period of six (6) months following the date of the acquisition of such Option
and (b) that in the event of termination of employment of such employee, other
than as a result of dismissal without cause or Termination For Good Reason (as
defined in Section 7 herein), such employee will not, for a period to be fixed
at the time of the grant of the Option, enter into any other employment or
participate directly or indirectly in any other business or enterprise which is
competitive with the business of the Company or any subsidiary corporation or
parent corporation of the Company, or enter into any employment in which such
employee will be called upon to utilize special knowledge obtained through
employment with the Company or any subsidiary corporation or parent corporation
thereof. Any officer of the Company or any subsidiary corporation or parent
corporation who is subject to the reporting requirements of Section 16(a) of the
Exchange Act (or any successor provision) shall not be entitled to sell or
otherwise dispose of any Shares acquired upon the exercise of any Option for a
period of six (6) months from the date such Option was granted.
Any determination of the Committee on the matters referred to
in this Section 3 shall be conclusive.
The Committee may employ such legal or other counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion or computation received from any such
counsel, consultant or agent. Expenses incurred by the Committee in the
engagement of such counsel, consultant or agent shall be paid by the Company or
such subsidiary corporation or parent corporation of the Company whose employees
have benefitted from the Plan, as determined by the Committee. No member or
former member of the Board of Directors, the Executive Committee or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Options granted hereunder.
4. Eligibility
Options may be granted only to salaried key employees of the
Company or any subsidiary corporation or parent corporation of the Company now
existing or hereafter formed or acquired, except Bernard Fein and members of the
Committee.
The Plan does not create a right in any person to participate
in, or be granted options under, the Plan.
5. Option Price and Payment
The price for each Share purchasable under any Option granted
hereunder shall be determined by the Committee in its good faith judgment, but
shall not be less than one hundred percent (100%) of the "fair market value" (as
defined below) per Share at the date the Option is granted; provided, however,
that in the case of an Incentive
3
<PAGE>
Option granted to a key employee who, at the time such Option is granted, owns
shares of the Company or any subsidiary corporation or parent corporation
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any subsidiary corporation or parent
corporation, the purchase price for each Share shall be not less than one
hundred ten percent (110%) of the fair market value per Share at the date the
Option is granted. In determining the stock ownership of a key employee for any
purpose under the Plan, the rules of Section 424(d) of the Code shall be
applied, and the Committee may rely on representations of fact made to it by the
key employee and believed by it to be true.
For purposes of the Plan, "fair market value," with respect to
any date of determination, means:
(i) if the Shares are listed or admitted to trading on a
national securities exchange in the United States or reported through
the National Association of Securities Dealers Automated Quotation
System -- National Market System ("NASDAQ-NMS"), then the closing sale
price on such exchange or NASDAQ-NMS on such date or, if no trading
occurred or quotations were available on such date, then on the closest
preceding date on which the Shares were traded or quoted; or
(ii) if not so listed or reported but a regular, active public
market for the Shares exists (as determined in the sole discretion of
the Committee, whose decision shall be conclusive and binding), then
the average of the closing bid and ask quotations per Share in the
over-the-counter market for such Shares in the United States on such
date or, if no such quotations are available on such date, then on the
closest date preceding such date. For purposes of the foregoing, a
market in which trading is sporadic and the ask quotations generally
exceed the bid quotations by more than 15% shall not be deemed to be a
"regular, active public market."
If the Committee determines that a regular, active public
market does not exist for the Shares, the Committee shall determine the fair
market value of the Shares in its good faith judgment based on the total number
of shares of Common Stock then outstanding, taking into account all outstanding
options, warrants, rights or other securities exercisable or exchangeable for,
or convertible into, shares of Common Stock.
Upon the exercise of an Option granted hereunder, the Company
shall cause the purchased Shares to be issued only when it shall have received
the full purchase price therefor in cash; provided, however, that in lieu of
cash, the holder of an Option may, if the terms of such Option so provide and to
the extent permitted by applicable law, exercise an Option (a) in whole or in
part, by delivering to the Company shares of Common Stock of the Company (in
proper form for transfer and accompanied by all requisite stock transfer tax
stamps or cash in lieu thereof) owned by such holder having a fair market value
equal to the cash exercise price applicable to that portion of the Option being
exercised, the fair market value of the shares of Common Stock so delivered to
be determined as of the date immediately preceding the date of exercise, or as
otherwise
4
<PAGE>
may be required to comply with or conform to the requirements of any applicable
law or regulations, or (b) in part, by delivering to the Company an executed
promissory note on such terms and conditions as the Committee shall determine at
the time of grant, in its sole discretion; provided, however, that the principal
amount of such note shall not exceed ninety percent (90%) (or such lesser
percentage as would be permitted by applicable margin regulations) of the
aggregate purchase price of the Shares then being purchased pursuant to the
exercise of such Option.
6. Terms of Options and Limitations on the Right of Exercise
Any Option granted hereunder shall be exercisable at such
times, in such amounts and during such period or periods as the Committee shall
determine at the date of the grant of such Option; provided, however, that an
Incentive Option shall not be exercisable after the expiration of ten (10) years
from the date such Option is granted; provided, further, that in the case of an
Incentive Option granted to a person who, at the time such Incentive Option is
granted, owns stock of the Company or any subsidiary corporation or parent
corporation of the Company representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any
subsidiary corporation or parent corporation of the Company, such Incentive
Option shall not be exercisable after the expiration of five (5) years from the
date such Incentive Option is granted.
The Committee shall have the right to accelerate, in whole or
in part, from time to time, conditionally or unconditionally, rights to exercise
any Option granted hereunder. To the extent that an Option is not exercised
within the period of exercisability specified therein, it shall expire as to the
then unexercised part.
Except as otherwise provided under the Code, to the extent
that the aggregate fair market value of stock for which Incentive Options (under
all stock option plans of the Company and of any parent corporation or
subsidiary corporation of the Company) are exercisable for the first time by an
employee during any calendar year exceeds one hundred thousand dollars
($100,000), such Options shall be treated as Non-Qualified Options. For purposes
of this limitation, (a) the fair market value of stock is determined as of the
time the Option is granted, (b) the limitation will be applied by taking into
account Options in the order in which they were granted, and (c) Incentive
Options granted before 1987 shall not be taken into account.
In no event shall an Option granted hereunder be exercised for
a fraction of a Share or for less than one hundred (100) Shares (unless the
number purchased is the total balance for which the Option is then exercisable).
A person entitled to receive Shares upon the exercise of an
Option shall not have the rights of a stockholder with respect to such Shares
until the date of issuance of a stock certificate to him or her for such Shares;
provided, however, that until such stock certificate is issued, any holder of an
Option using previously acquired shares of Common Stock in payment of an option
exercise price shall continue to have the rights of a stockholder with respect
to such previously acquired shares of Common Stock.
5
<PAGE>
7. Termination of Employmenty
Upon termination of employment of any key employee with the
Company and all subsidiary corporations and parent corporations of the Company,
any Option previously granted to such employee, unless otherwise specified by
the Committee in the Option shall, to the extent not theretofore exercised,
terminate and become null and void; provided, however, that:
A. if any key employee shall die while in the employ of such
corporation or during either the one (1) year or three (3) month period,
whichever is applicable, specified in clauses (B), (C) and (D) below, any Option
granted hereunder, unless otherwise specified by the Committee in the Option,
shall be exercisable for any or all of such number of Shares that such employee
is entitled to exercise at the time of death, by the legal representative of
such employee or such person who acquired such Option by bequest or inheritance
or by reason of the death of such employee, at any time up to and including one
(1) year after the date of death;
B. if the employment of any key employee shall terminate by
reason of such employee's disability (as described in Section 22(e)(3) of the
Code), any Option granted hereunder, unless otherwise specified by the Committee
in the Option, shall be exercisable for any or all of such number of Shares that
such employee is entitled to exercise at the effective date of termination of
employment by reason of disability, at any time up to and including one (1) year
after the effective date of such termination of employment;
C. if the employment of any key employee shall terminate (i)
by reason of the employee's retirement (at such age or upon such conditions as
shall be specified by the Committee), (ii) by the key employee for "good reason"
(only if such employee is party to a written employment agreement with the
Company or any subsidiary corporation or parent corporation which expressly
provides for termination by the key employee for "good reason," and such
employee validly terminates his or her employment for "good reason," as such
term is defined in the agreement ("Termination For Good Reason")), or (iii) by
the employer other than for cause (as defined below), such Option, unless
otherwise specified by the Committee in the Option, shall be exercisable for any
or all of such number of Shares that such employee is entitled to exercise at
the effective date of termination of employment, at any time up to and including
three (3) months after the effective date of such termination of employment; and
D. if the employment of any employee shall terminate by any
reason other than that provided for in clauses (A), (B) or (C) above, such
Option, unless otherwise specified by the Committee in such Option shall, to the
extent not theretofore exercised, become null and void.
None of the events described above shall extend the period of
exercisability of the Option beyond the expiration date thereof. If an Option
granted hereunder shall be exercised by the legal representative of a deceased
grantee or by a
6
<PAGE>
person who acquired an Option granted hereunder by bequest or inheritance or by
reason of the death of any employee or former employee, written notice of such
exercise shall be accompanied by a certified copy of letters testamentary or
equivalent proof of the right of such legal representative or other person to
exercise such Option.
For purposes of the Plan, the term "for cause" shall mean (a)
with respect to an employee who is a party to a written employment agreement
with, or, alternatively, participates in a compensation or benefit plan (other
than the Plan) of, the Company or a subsidiary corporation or parent corporation
of the Company, which agreement or plan contains a definition of "for cause" or
"cause" (or words of like import) for purposes of termination of employment or
services thereunder by the Company or such subsidiary corporation or parent
corporation of the Company, "for cause" or "cause" as defined therein (if an
employee is both party to an employment agreement and participates in such a
plan, the definition contained in such employment agreement shall control); or
(b) in all other cases, as determined by the Committee or the Board of
Directors, in its sole discretion, (i) the willful commission by an employee of
an act that causes or may cause substantial damage to the Company or a
subsidiary corporation or parent corporation of the Company; (ii) the commission
by an employee of an act of fraud in the performance of such employee's duties
on behalf of the Company or a subsidiary corporation or parent corporation of
the Company; (iii) conviction of the employee for commission of a felony in
connection with the performance of his duties on behalf of the Company or a
subsidiary corporation or parent corporation of the Company; or (iv) the
continuing failure of an employee to perform the duties of such employee to the
Company or a subsidiary corporation or parent corporation of the Company that
has not been cured within 15 days after written notice thereof has been given to
the employee by the Committee.
For purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of
determination, the individual was an "employee" of such corporation for purposes
of Section 422(a) of the Code. If an individual is on leave of absence taken
with the consent of the corporation by which such individual was employed, or is
on active military service, and is determined to be an "employee" for purposes
of the exercise of an Option, such individual shall not be entitled to exercise
such Option during such period and while the employment is treated as continuing
intact unless such individual shall have obtained the prior written consent of
such corporation, which consent shall be signed by the chairman of the board of
directors, the president, a senior vice-president or other duly authorized
officer of such corporation.
A termination of employment shall not be deemed to occur by
reason of (i) the transfer of an employee from employment by the Company to
employment by a subsidiary corporation or a parent corporation of the Company or
(ii) the transfer of an employee from employment by a subsidiary corporation or
a parent corporation of the Company to employment by the Company or by another
subsidiary corporation or parent corporation of the Company.
7
<PAGE>
8. Exercise of Options
Subject to the limitations on exercise referred to in Sections
6 and 7 hereof, Options granted under the Plan shall be exercised by the
optionee as to all or part of the Shares covered thereby by giving written
notice of exercise to the Corporate Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and specifying a business day not more than ten (10) days from the date such
notice is given for the payment of the purchase price against delivery of the
Shares being purchased. Subject to the terms of Sections 13, 14 and 15 hereof,
the Company shall cause certificates for the Shares so purchased to be delivered
at the principal business office of the Company, against payment of the full
purchase price, on the date specified in the notice of exercise.
9. Use of Proceeds
The cash proceeds of the sale of Shares subject to the Options
granted hereunder are to be added to the general funds of the Company and used
for its general corporate purposes as the Board of Directors shall determine.
10. Non-Transferability of Options
An Option granted hereunder shall not be transferable, whether
by operation of law or otherwise, other than by will or the laws of descent and
distribution, and any Option granted hereunder shall be exercisable, during the
lifetime of the holder, only by such holder. Except to the extent provided
above, Options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.
11. Adjustment of Shares; Effect of Certain Transactions
Notwithstanding any other provision contained herein, in the
event of any change in the Shares subject to the Plan or to any Option granted
under the Plan (through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares, or other like change in the capital structure of the
Company), an adjustment shall be made to each outstanding Option such that each
such Option shall thereafter be exercisable for such securities, cash and/or
other property as would have been received in respect of the Shares subject to
such Option had such Option been exercised in full immediately prior to such
change, and such an adjustment shall be made successively each time any such
change shall occur. The term "Shares" after any such change shall refer to the
securities, cash and/or property then receivable upon exercise of an Option. In
addition, in the event of any such change, the Committee shall make any further
adjustment to the maximum number of Shares which may be acquired under the Plan
pursuant to the exercise of Options, the maximum number of Shares for which
Options may be granted to any one employee and the number of Shares and price
per Share subject to outstanding Options as shall be equitable to prevent
dilution or enlargement of rights under such Options, and the
8
<PAGE>
determination of the Committee as to these matters shall be conclusive and
binding on the optionee; provided, however, that (a) each such adjustment with
respect to an Incentive Option shall comply with the rules of Section 424(a) of
the Code (or any successor provision) and (b) in no event shall any adjustment
be made which would render any Incentive Option granted hereunder other than an
"incentive stock option" as defined in Section 422 of the Code.
In the event of a "change in control" of the Company, all then
outstanding Options shall immediately become exercisable. For purposes of the
Plan, a "change in control" of the Company shall occur if (a) any person or
other entity (other than any of the Company's subsidiaries), including any
person as defined in Section 13(d)(3) of the Exchange Act, becomes the
beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of more than fifty percent (50%) of the total combined voting power
of all classes of capital stock of the Company normally entitled to vote for the
election of directors of the Company (the "Voting Stock"), (b) the Board of
Directors approves the sale of all or substantially all of the property or
assets of the Company, (c) the Board of Directors approves a consolidation or
merger of the Company with another corporation (other than with any of the
Company's subsidiaries), the consummation of which would result in the
stockholders of the Company immediately before the occurrence of the
consolidation or merger owning, in the aggregate, less than 50% of the Voting
Stock of the surviving entity, or (d) a change in the Board of Directors occurs
with the result that the members of the Board of Directors on the date hereof
(the "Incumbent Directors") no longer constitute a majority of such Board of
Directors, provided that any person becoming a director whose election or
nomination for election was supported by a majority of the Incumbent Directors
shall be considered an Incumbent Director for purposes hereof.
The Committee, in its sole discretion, may determine that,
upon the occurrence of a transaction described in the preceding paragraph, each
Option outstanding hereunder shall terminate within a specified number of days
after notice to the holder, and such holder shall receive, with respect to each
Share subject to such Option, an amount equal to the excess of the fair market
value of such Shares immediately prior to the occurrence of such transaction
over the exercise price per Share of such Option; such amount shall be payable
in cash, in one or more of the kinds of property payable in such transaction, or
in a combination thereof, as the Committee in its discretion shall determine.
The provisions contained in the preceding sentence shall be inapplicable to an
Option granted within six (6) months before the occurrence of a change in
control if the holder of such Option is subject to the reporting requirements of
Section 16(a) of the Exchange Act and no exemption from liability under Section
16(b) is otherwise available to such holder.
12. Right to Terminate Employment
The Plan shall not impose any obligation on the Company or on
any subsidiary corporation or parent corporation thereof to continue the
employment of any holder of an Option and it shall not impose any obligation on
the part of any holder of an
9
<PAGE>
Option to remain in the employ of the Company or of any subsidiary corporation
or parent corporation thereof.
13. Purchase for Investment
Except as hereinafter provided, the Committee may require the
holder of an Option granted hereunder, as a condition of exercise of such Option
in the event the Shares subject to such Option are not registered pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws, to execute and
deliver to the Company a written statement, in form satisfactory to the
Committee, in which such holder (1) represents and warrants that such holder is
purchasing or acquiring the Shares acquired thereunder for such holder's own
account, for investment only and not with a view to the resale or distribution
thereof in violation of any federal or state securities laws, and (2) agrees
that any subsequent resale or distribution of any of such Shares shall be made
only pursuant to either (i) an effective registration statement under the
Securities Act covering such Shares and under applicable state securities laws
or (ii) specific exemptions from the registration requirements of the Securities
Act and any applicable state securities laws, based on a written opinion of
counsel, in form and substance satisfactory to counsel for the Company, as to
the application thereto of any such exemptions.
Nothing herein shall be construed as requiring the Company to
register Shares subject to any Option under the Securities Act or any state
securities law and, to the extent deemed necessary by the Company, Shares issued
upon exercise of an Option may contain a legend to the effect that registration
rights had not been granted with respect to such Shares.
14. Issuance of Stock Certificates; Legends; Payment of Expenses
Upon any exercise of an Option granted hereunder and payment
of the purchase price therefor, a certificate or certificates representing the
Shares shall be issued by the Company in the name of the person exercising the
Option and shall be delivered to or upon the order of such person.
The Company may endorse such legend or legends upon the
certificates for Shares issued pursuant to the Plan and may issue such "stop
transfer" instructions to its transfer agent in respect of such Shares as the
Committee, in its sole discretion, determines to be necessary or appropriate to
(a) prevent a violation of, or to comply with the procedures for an exemption
from, the registration requirements of the Securities Act, (b) implement the
provisions of the Plan and any agreement between the Company and the optionee or
grantee with respect to such Shares or (c) permit the Company to determine the
occurrence of a disqualifying disposition, as described in Section 421(b) of the
Code, of Shares transferred upon exercise of an Incentive Option granted under
the Plan.
The Company shall pay all issue or transfer taxes with respect
to the issuance or transfer of Shares, as well as all fees and expenses
necessarily incurred by the
10
<PAGE>
Company in connection with such issuance or transfer, except fees and expenses
which may be necessitated by the filing or amending of a registration statement
under the Securities Act, which fees and expenses shall be borne by the
recipient of the Shares unless such registration statement has been filed by the
Company for its own corporate purposes (and the Company so states) in which
event the recipient of the Shares shall bear only such fees and expenses as are
attributable solely to the inclusion of the Shares an optionee receives in the
registration statement.
All Shares issued as provided herein shall be fully paid and
nonassessable to the extent permitted by law.
15. Withholding Taxes
The Company may require an employee exercising a Non-Qualified
Option granted hereunder, or disposing of Shares acquired pursuant to the
exercise of an Incentive Option in a disqualifying disposition (within the
meaning of Section 421(b) of the Code), to reimburse the corporation which
employs such employee for any taxes required by any governmental regulatory
authority to be withheld or otherwise deducted and paid by such corporation in
respect of the issuance or disposition of such Shares. In lieu thereof, the
corporation which employs such employee shall have the right to withhold the
amount of such taxes from any other sums due or to become due from such
corporation to the employee upon such terms and conditions as the Committee
shall prescribe. The corporation that employs such employee may, in its
discretion, hold the stock certificate to which such employee is entitled upon
the exercise of an Option as security for the payment of such withholding tax
liability, until cash sufficient to pay that liability has been accumulated. In
addition, at any time that the Company becomes subject to a withholding
obligation under applicable law with respect to the exercise of a Non-Qualified
Option (the "Tax Date"), except as set forth below, a holder of a Non-Qualified
Option may elect to satisfy, in whole or in part, the holder's related personal
tax liabilities (an "Election") by (a) directing the Company to withhold from
Shares issuable in the related exercise either a specified number of Shares or
Shares having a specified value (in each case not in excess of the related
personal tax liabilities), (b) tendering Shares previously issued pursuant to
the exercise of an Option or other shares of the Company's Common Stock owned by
the holder or (c) combining any or all of the foregoing Elections in any
fashion. An Election shall be irrevocable. The withheld Shares and other shares
of Common Stock tendered in payment shall be valued at their fair market value
(as determined under Section 5) on the Tax Date. The Committee may disapprove of
any Election, suspend or terminate the right to make Elections or provide that
the right to make Elections shall not apply to particular Shares or exercises.
The Committee may impose any additional conditions or restrictions on the right
to make an Election as it shall deem appropriate. In addition, the Company shall
be authorized, without the prior written consent of the employee, to effect any
such withholding upon exercise of a Non-Qualified Option by retention of Shares
issuable upon such exercise having a fair market value at the date of exercise
(as determined under Section 5) which is equal to the amount to be withheld;
provided, however, that the Company shall not be authorized to effect such
withholding without the prior written consent of the employee if such
withholding would subject such employee to liability
11
<PAGE>
under Section 16(b) of the Exchange Act. The Committee may prescribe such rules
as it determines with respect to employees subject to the reporting requirements
of Section 16(a) of the Exchange Act to effect such tax withholding in
compliance with the Rules established by the Securities and Exchange Commission
(the "Commission") under Section 16 of the Exchange Act and the positions of the
staff of the Commission thereunder expressed in no-action letters exempting such
tax withholding from liability under Section 16(b) of the Exchange Act.
16. Listing of Shares and Related Matters
If at any time the Committee shall determine that the listing,
registration or qualification of the Shares subject to such Option on any
securities exchange or under any applicable law, or the consent or approval of
any governmental regulatory authority, is necessary or desirable as a condition
of, or in connection with, the granting of an Option, or the issuance of Shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
17. Amendment of the Plan
The Board of Directors may, from time to time, amend the Plan,
provided that no amendment shall be made, without the approval of the
stockholders of the Company, that will (a) increase the total number of Shares
reserved for Options under the Plan (other than an increase resulting from an
adjustment provided for in Section 11 hereof), (b) reduce the exercise price of
any Incentive Option granted hereunder, (c) modify the provisions of the Plan
relating to eligibility, or (d) materially increase the benefits accruing to
participants under the Plan. The Committee shall be authorized to amend the Plan
and the Options granted thereunder to permit the Incentive Options granted
thereunder to qualify as "incentive stock options" within the meaning of Section
422 of the Code and the Treasury Regulations promulgated thereunder. The rights
and obligations under any Option granted before amendment of the Plan or any
unexercised portion of such Option shall not be adversely affected by amendment
of the Plan or the Option without the consent of the holder of such Option.
18. Termination or Suspension of the Plan
The Board of Directors may at any time suspend or terminate
the Plan. The Plan, unless sooner terminated under Section 22 or by action of
the Board of Directors, shall terminate at the close of business on the
Termination Date. Options may not be granted while the Plan is suspended or
after it is terminated. Rights and obligations under any Option granted while
the Plan is in effect shall not be altered or impaired by suspension or
termination of the Plan, except upon the consent of the person to whom the
Option was granted. The power of the Committee to construe and administer any
Options under Section 3 that are granted prior to the termination or suspension
of the Plan shall continue after such termination or during such suspension.
12
<PAGE>
19. Savings Provision
With respect to persons subject to Section 16 of the Exchange
Act, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 (or any successor provision) under the Exchange Act. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void to the extent permitted by law and
deemed advisable by the Committee.
20. Governing Law
The Plan, the Options granted hereunder and all related
matters shall be governed by, and construed and enforced in accordance with, the
laws of the State of New York from time to time obtaining.
21. Partial Invalidity
The invalidity or illegality of any provision herein shall not
be deemed to affect the validity of any other provision.
22. Effective Date
The Plan shall become effective at 5:00 P.M., New York City
time, on the Effective Date; provided, however, that if the Plan is not approved
by a vote of the stockholders of the Company at an annual meeting or any special
meeting within twelve (12) months after the Effective Date, the Plan and any
Options granted thereunder shall terminate.
