PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
OLD GUARD GROUP, INC.
_________________________________________________________________
(Name of Registrant as Specified in its Charter)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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14a-6(i)(4) and 0-11.
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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):
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<PAGE>
[OLD GUARD GROUP, INC. LOGO INSERTED HERE]
2929 Lititz Pike
P.O. Box 3010
Lancaster, Pennsylvania 17604-3010
Notice of Annual Meeting of Shareholders
to be held May 13, 1999
To the Shareholders of Old Guard Group, Inc.:
Notice is hereby given that the Annual Meeting (the
"Meeting") of the holders of Common Stock (the "Common Stock") of
Old Guard Group, Inc. (the "Company") will be held at the Quality
Inn & Suites, located at 2363 Oregon Pike, Lancaster,
Pennsylvania on Thursday, May 13, 1999, at 10:00 a.m., local
time:
1. To elect three Class III directors to hold office
for three years from the date of election and until their
successors shall have been elected and qualified (Matter
No. 1);
2. To ratify the appointment by the Company's Board
of Directors of PricewaterhouseCoopers L.L.P. as the
Company's independent auditors for the fiscal year ending
December 31, 1999 (Matter No. 2);
3. To act upon the Old Guard Group, Inc. Employee
Stock Purchase Plan (the "1999 Stock Purchase Plan") (Matter
No. 3);
4. Consideration of a shareholder proposal (Matter
No. 4); and
5. To transact such other business as may properly
come before the Meeting or any adjournment or adjournments
thereof.
Holders of record of issued and outstanding shares of Common
Stock at the close of business on March 15, 1999 are entitled to
notice of, and to vote at, the Meeting. Such shareholders may
vote in person or by proxy.
The Board of Directors of the Company cordially invites you
to attend the Meeting. Whether or not you are personally
present, it is important that your shares be represented at the
Meeting. Accordingly, please sign and return your proxy in the
enclosed envelope.
By Order of the Board of Directors,
\s\Steven D. Dyer
Steven D. Dyer,
Secretary
Dated: Lancaster, Pennsylvania
April 13, 1999
Shareholders are urged to sign, date and mail the enclosed
proxy promptly in the accompanying envelope. The proxy is
revocable at any time by a written instrument, including a later
dated proxy, signed in the same manner as the proxy and received
by the Secretary of the Company at or before the Meeting. If you
attend the Meeting, you may, if you wish, revoke your proxy by
voting in person.
<PAGE>
[OLD GUARD GROUP, INC. LOGO INSERTED HERE]
2929 Lititz Pike
P.O. Box 3010
Lancaster, Pennsylvania 17604-3010
_______________________
Proxy Statement
for Annual Meeting
May 13, 1999
GENERAL
Introduction
Old Guard Group, Inc. (the "Company") is a Pennsylvania
business corporation headquartered at 2929 Lititz Pike,
Lancaster, Pennsylvania 17604. The Company owns all of the
capital stock of Old Guard Insurance Company ("Old Guard"), Old
Guard Fire Insurance Company ("Old Guard Fire"), First Patriot
Insurance Company ("First Patriot"), New Castle Insurance Company
of Delaware ("New Castle" and collectively with Old Guard, Old
Guard Fire, and First Patriot, the "Insurance Companies") and 80%
of the capital stock of First Delaware Insurance Company ("First
Delaware"). The Company also owns, directly and indirectly,
interests in other insurance related entities.
Solicitation of Proxies
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of the Company
to be used at the Annual Meeting of the holders of the Common
Stock of the Company (the "Common Stock") to be held at the
Quality Inn & Suites, located at 2363 Oregon Pike, Lancaster,
Pennsylvania, at 10:00 a.m., local time, on Thursday, May 13,
1999, and at any adjournment or adjournments thereof. The
approximate date upon which this Proxy Statement and the
accompanying proxy were first sent, given or otherwise made
available to shareholders was April 13, 1999. In addition to the
use of the mails, proxies may be solicited by personal interview
and telephone by directors, officers and employees of the Company
and its subsidiaries. The Company will pay all costs of
soliciting proxies.
Voting Securities
Holders of record of the Common Stock at the close of
business on March 15, 1999 (the "Record Date") are entitled to
notice of, and to vote at, the Meeting.
At the Meeting, each shareholder is entitled to one vote for
each share of Common Stock registered in the shareholder's name
at the close of business on the Record Date. On the Record Date,
<PAGE 1> there were 4,062,465 shares of Common Stock outstanding.
Holders of Common Stock are not entitled to cumulate votes in
elections of directors.
If the enclosed form of proxy is appropriately marked,
signed and returned in time to be voted at the Meeting, the
shares represented by the proxy will be voted in accordance with
the instructions marked thereon. Signed proxies not marked to
the contrary will be voted "FOR" the election of the nominees of
the Company's Board of Directors, "FOR" the ratification of
PricewaterhouseCoopers L.L.P. as the Company's independent
auditors for 1999, FOR the approval of the 1999 Stock Purchase
Plan, and AGAINST the shareholder proposal. Signed proxies will
be voted "FOR" or "AGAINST" any other matter that properly comes
before the Meeting or any adjournment or adjournments thereof, at
the discretion of the persons named as proxyholders. As of March
30, 1999, no other matters have been proposed for consideration
at the Meeting, except as set forth above.
Right of Revocation
Any shareholder giving a proxy has the power to revoke it by
a written instrument, including a later dated proxy, signed in
the same manner as the proxy and received by the Secretary of the
Company prior to its exercise. Any shareholder attending the
Meeting may also revoke his proxy by voting in person at the
Meeting.
Quorum
Under the Company's Bylaws, the presence, in person or by
proxy, of shareholders entitled to cast at least a majority of
the votes that all shareholders are entitled to cast will
constitute a quorum for the transaction of business at the
Meeting.
Principal Shareholders
The following table sets forth information, as of the Record
Date, as to beneficial owners, either directly or indirectly, of
5% or more of the outstanding shares of Common Stock.
PAGE 2
<PAGE>
Amount and Nature
Name and Address of of Beneficial
of Beneficial Owner Ownership Class Percent
Bank of Lancaster County, 402,933(1) 9.92%
N.A., Trustee of the Old.
Guard Group, Inc. Employee
Stock Ownership Plan Trust
Under Old Guard Group, Inc.
Employee Stock Ownership
Plan Trust Agreement dated
January 1, 1997
c/o Trust Technical Services
1097 Commercial Avenue
P.O. Box 38
East Petersburg, PA 17520-0038
Peter B. Cannell & Co., Inc. 272,200(2) 6.70%
645 Madison Avenue
New York, NY 10022,
Investment Advisor
Gotham Capital V, LLC 227,300(3) 5.60%
Gotham Capital VII, LLC
Joel M. Greenblatt,
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753
____________________
(1) As of the Record Date, 402,933 shares of Common Stock were
held of record by a nominee for the Bank of Lancaster
County, N.A., trustee for the Old Guard Group, Inc.
Employee Stock Ownership Plan (the "ESOP"). Shares held by
the ESOP that are allocated to an individual participant
account for which no direction is given and unallocated
shares are voted for or against all matters in the same
proportion as allocated shares for which direction has been
received. As of December 31, 1998, 48,670 shares of Common
Stock had been allocated to the accounts of ESOP
participants.
(2) Peter B. Cannell & Co., Inc. possesses sole power to vote
and direct the disposition of the shares in its capacity as
a registered investment advisor.
(3) Joel M. Greenblatt is the manager of Gotham Capital V and
Gotham Capital VII and in his capacity as manager possesses
sole power to vote and direct the disposition of the shares.
PAGE 3
<PAGE>
Royce & Associates, Inc. 294,400(4) 7.25%
Charles M. Royce
1414 Avenue of the Americas
New York, NY 10019
Pequod Investments, L.P. 204,000(5) 5.02%
____________________
(4) Charles M. Royce is the controlling person of Royce &
Associates, Inc. and in that capacity possesses sole power
to vote and direct the disposition of the shares.
(5) Jonathan Gallen serves as investment advisor to Pequod
Investments L.P. and in that capacity possess sole power to
vote and direct the disposition of the shares.
INFORMATION CONCERNING THE BOARD OF DIRECTORS,
THE COMPANY'S GOVERNANCE PROCEDURES
AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Articles of Incorporation provide that the
number of Company directors shall consist of not less than six
nor more than twenty-five members, as fixed by the Board of
Directors from time to time. The Articles also divide the Board
into three classes, which under applicable law, must be, in terms
of the number of directors in each class, as nearly equal as
possible. The Board presently consists of nine members.
Consistent with its perception of good principles of
corporate governance, the Company historically has required that
the preponderance of its Board consist of outside, non-employee
directors, and has delegated important policy making and
oversight functions to committees which also consist
predominantly of outside directors. A description of the
committees which possess significant corporate governance
responsibilities is set forth below.
* The Company's Audit Committee consists of three directors,
all of whom are outside directors. The Company's Audit
Committee serves as the principal liaison among the Board of
Directors, the Company's independent certified public
accountants and the Company's internal audit function. It
is responsible for, among other things, reporting to the
Company's Board on the results of the annual audit. The
Committee reviews and evaluates the scope of the audit,
accounting policies and reporting practices, internal
auditing, internal controls, security procedures and other
matters considered appropriate. The Committee also reviews
the performance of the Company's independent certified
public accountants in connection with their audit of the
Company's financial statements. Importantly, from a
corporate governance perspective, the Audit Committee also
<PAGE 4> evaluates the independent certified public
accountants' independence from the Company and the Company's
management. Depending on the nature of matters under
review, the outside auditors, and such officers and other
employees, as necessary, attend all or part of the meetings
of the Committee. The Company's Audit Committee met three
(3) times during 1998.
* The Company's Nominating Committee consists of three
directors, all of whom are outside directors. The Company's
Bylaws provide for both shareholder and Board nomination of
director candidates. The Committee has the important task
of taking the first step toward assuring good corporate
governance by identifying, reviewing and recommending, to
the full Board, potential nominees for submission to the
Company's shareholders for election as directors of the
Company or for election to fill vacancies on the Board. The
Committee strives to identify, review and recommend only
those nominees who appear to possess (i) the highest
personal and professional ethics, integrity and values;
(ii) sufficient education and breadth of experience to
understand, evaluate and suggest solutions to the many
problems facing insurance companies in an increasingly
competitive environment; (iii) a reasoned and balanced
commitment to the Company's social responsibilities; (iv) an
interest in and the availability of time to be involved in
the Company's affairs over a sustained period; (v) the
reputation and stature required to represent the Company in
the communities the Company serves, as well as before the
Company's shareholders and other stakeholders; (vi) a
willingness to objectively appraise management performance
in the interest of the Company and its stakeholders;
(vii) an open mind on all policy issues affecting the
overall interests of the Company and its stakeholders; and
(viii) involvement only in other activities or interests
which do not create a conflict, or the appearance of a
conflict, with the director's responsibilities to the
Company and its stakeholders. The Committee's review of
candidates is performed without regard to gender, race or
religious affiliation. One of the objectives of this review
is to have a Board that consists of members with diverse
backgrounds, skills, experiences and personalities which
will foster, not only good decision making, but also the
chemistry to create an environment encouraging active,
constructive, and informed participation among Board
members. The Committee met one (1) time during 1998.
* The Company's Compensation Committee consists of three
directors, all of whom are outside directors. This
Committee is responsible for the important task of studying
and making recommendations to the Board on compensating and
providing incentive to executive management, principally the
Company's Chief Executive Officer. Among other
responsibilities, the Committee makes appraisals of the
performance of the Chief Executive Officer. In addition,
<PAGE 5> the Committee reviews the Company's executive
compensation structure in an effort to insure that executive
compensation (i) is competitive and (ii) is closely linked
to the Company's financial performance. The Committee also
attempts to assure, through programs which are substantially
weighted in favor of the use of Company stock as a
compensation medium, that the interests of executive
management are aligned, to the extent practicable, with the
interests of the Company's shareholders. This Committee met
seven (7) times during 1998.
Also consistent with its perception of good corporate
governance, the Company's Board, working with management, has
established a series of practices and procedures to assure a flow
of information about the Company's business to its directors in
an effort to maximize continued active interest, involvement and
participation by Board members, as well as diligent and effective
Board decision making.
New Company directors receive information on the Company's
vision, mission, values and style, as well as copies of the
Company's bylaws, policies, procedures and guidelines. They are
also provided with an opportunity to meet with the Company's
management and visit the Company's facilities.
Pre-meeting materials are routinely distributed to Board
members in advance of meetings. These materials include reports
for the Company's major business units, consisting not only of
financial data, but also production, sales and marketing data and
information on market and industry trends, as well. These
materials also include background and write-ups on items coming
before the Board.
Senior and executive officers routinely attend at least a
portion of every Board meeting and they, and other members of
management, frequently brief and seek advice from the Board, not
only on items coming before the Board, but also on new products,
marketing strategies and human resource initiatives. The Board
periodically invites professionals and representatives of
securities firms to make presentations to the Board in order to
make the Board more aware, among other things, of investor
perceptions of the Company. Board members take these and other
opportunities to actively discuss Company-specific and industry-
specific information and trends with these officers and other
visitors.
The Company's Board of Directors has adopted a policy that
requires the Board to meet annually for the sole purpose of
reviewing the Company's business plans and corporate strategy and
to evaluate the Company's strengths, weaknesses, opportunities
and threats in a changing marketplace. Specifically, the Board
will meet with senior management and review the Company's
progress against Board established strategy and goals. In
connection with this review, the Company will extensively study
its strategic alternatives, including continuing its current
<PAGE 6> strategy, engaging in a merger of equals or sale. As
part of the review process, the Company expects that the Board
will periodically seek the advice of investment banking firms and
industry consultants to assess the Company's competitive
position, the viability of its corporate strategy and the
execution of this strategy.
In addition, the Company's Board has identified the
following areas of Board and Board Committee involvement and
responsibility as its principal areas of focus in its effort to
achieve good corporate governance and to represent the Company's
stakeholders effectively:
* Ongoing active and participatory review of the
Company's strategic plan and its long range goals
and of the Company's performance against such plan
and goals, and the evaluation of the desirability,
as appropriate, of modifications to such plans and
goals;
* Monitoring of the Company's activities that may
pose significant risks to the Company and of the
Company's programs to respond to and contain such
risks;
* Periodic, independent and objective review of the
performance and development of the Chief Executive
Officer and other members of executive management
and their compensation relative to such
performance;
* Periodic study, using outside resources, of the
Company's strategic alternatives, including
continuing its current strategy, engaging in a
merger of equals or sale;
* Review of the selection process for nominees for
election to the Company's Board and the overall
quality, interest, diligence, participation and
contribution of its members; and
* The availability, dissemination and explanation of
the information which the Board and management
believe is needed for the Board to perform its
duties diligently and effectively in the interest
of the Company's stakeholders.
The Board met thirteen (13) times during 1998. Each
director attended at least 75% of the total number of meetings of
the Board and its Committees on which the director served during
1998.
Directors of the Company are paid an annual retainer which
consists of $6,000 and 250 shares of Common Stock. Directors
also receive up to $250 for each committee meeting attended. The
<PAGE 7> directors of Old Guard, Old Guard Fire, and First
Patriot receive no compensation. The directors of New Castle
receive $750 per quarter as a retainer. No Board fees are paid
to directors of First Delaware. Directors of the Company, the
Insurance Companies or First Delaware who receive a salary from
the Insurance Companies or their affiliates are not entitled to
receive an annual retainer or other additional compensation for
services rendered as directors or committee members.
MATTER NO. 1
ELECTION OF DIRECTORS
General
The Articles of Incorporation of the Company provide that
the Company's business shall be managed by a Board of Directors
of not less than 6 and not more than 25 persons. The Company's
Board, as provided in the Articles of Incorporation, is divided
into three classes: Class I, Class II and Class III, each class
being as nearly equal in number as possible. Under the Company's
Bylaws, a person elected to fill a vacancy on the Board of
Directors serves as a director for the remaining term of office
of the Class to which he or she was elected. The directors in
each Class serve terms of three years each and until their
successors are elected and qualified.
The Board of Directors has fixed the number of directors in
Class III at three, and the Board of Directors has nominated the
three nominees listed below for election as Class III directors.
One of the Board nominees for election as Class III director,
David E. Hosler, is presently a director of the Company.
The Bylaws of the Company permit nominations for election to
the Board of Directors to be made by the Board of Directors or by
any shareholder entitled to vote for the election of directors.
All nominations are referred to the Nominating Committee of the
Board of Directors for consideration. Nominations for director
to be made at the Meeting by shareholders entitled to vote for
the election of directors must be preceded by notice in writing,
delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the Company not less than 90 days
prior to the Meeting, which notice must contain certain
information specified in the Bylaws. No notice of nomination for
election as a director has been received from a shareholder as of
the date of this Proxy Statement. If a nomination is attempted
at the Meeting that does not comply with the procedures required
by the Bylaws or if any votes are cast at the Meeting for any
candidate not duly nominated, then such nomination and/or such
votes will be disregarded.
The three nominees who receive the highest number of votes
cast at the Meeting for Class III directors will be elected as
Class III directors. Abstentions and broker non-votes will not
constitute or be counted as "votes" cast for purposes of the
Meeting. Shares represented by properly executed proxies will be
voted for the three Class III nominees listed below unless
<PAGE 8> otherwise specified on a shareholder's proxy card. Any
shareholder who wishes to withhold authority from the
proxyholders to vote for the election of directors, or to
withhold authority to vote for any individual nominee, may do so
by marking the proxy to that effect. No proxy may be voted for a
greater number of persons than the number of nominees named.
If any of the nominees listed below become unable to accept
nomination or election, the proxyholders may exercise their
voting power in favor of such other person or persons as the
Board of Directors may recommend. The Company, however, at
present has no reason to believe that any nominee listed below
will be unable to serve as a director, if elected.
The name and principal occupation for the last five years of
each nominee for director and each continuing director, together
with certain other relevant information, is set forth below.
NOMINEES AS CLASS III DIRECTORS TO SERVE UNTIL 2002
Business Experience
Director for the Last Five Years;
Name Age Since(1) Other Directorships
Jay S. Sidhu 47 ---- Director, President and
Chief Executive Officer
of Sovereign Bancorp,
Inc.; President and Chief
Executive Officer of
Sovereign Bank
David E. Hosler 48 1985 Chairman, President,
Chief Executive Officer
and Director, the Company
and the Insurance
Companies; Director,
First Delaware
E. Matthew Brown 47 ---- Investment Manager,
Wilmington Trust Company
1996-Present; Investment
Manager, PNC Bank 1993-
1996.
CLASS I DIRECTORS SERVING UNTIL 2000
Business Experience
Director for the Last Five Years;
Name Age Since(1) Other Directorships
Karen M. Balaban 45 1998 Director, the Company and
the Insurance Companies;
Balaban & Lucas (law
<PAGE 9> firm) 1999 to
present; Saul Ewing
Remick and Saul (law
firm) 1997 to 1999; prior
thereto Schnader Harrison
Segal and Lewis (law
firm)
Noah W. Kreider, Jr. 66 1987 Director, the Company and
the Insurance Companies;
Owner/operator, Kreider
Farms
Luther R. Campbell, Jr. 70 1992 Director, the Company and
the Insurance Companies;
Partner, Campbell
Rappold & Yurasits LLP
(C.P.A. firm); Director,
Piel & Egan P.C. (law
firm); Member, First
Union North Advisory
Board and First Union
Lehigh Valley Advisory
Board; prior thereto,
Director, First Fidelity
Bancorporation
Robert L. Wechter 70 1956 Director, the Company and
the Insurance Companies;
Owner, Robert L. Wechter
Insurance Agency; prior
thereto, Vice-President,
Claims Department, Old
Guard
CLASS II DIRECTORS TO SERVE UNTIL 2001
Business Experience
Director for the Last Five Years;
Name Age Since(1) Other Directorships
James W. Appel 54 1980 Director, the Company and
the Insurance Companies;
Director, First Delaware;
Partner, Appel & Yost LLP
(law firm); Vice
President, Aardvark
Abstracting, Inc. (title
insurance agency)
M. Scott Clemens 51 1994 Director, the Company and
the Insurance Companies;
President/Owner, John T.
Fretz Insurance Agency,
<PAGE 10> Inc.; prior
thereto, Insurance Agent,
P/C Insurance Agency
G. Arthur Weaver 64 1966 Director, the Company and
the Insurance Companies;
Insurance and Real Estate
Agent, George A. Weaver,
Inc.; Director, Sovereign
Bancorp, Inc. and
Sovereign Bank
_____________________
(1) Indicates year first elected as a director of the Company or
one or more of the Insurance Companies.
Security Ownership of Management
The following table sets forth information concerning the
number of shares of Common Stock held as of the Record Date by
each nominee for director, each present director and each named
executive officer set forth in the compensation table herein (the
"Named Executive Officers").
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
Sole Shared
Total Voting or Voting or
Beneficial Dispositive Dispositive Percent of
Name of Beneficial Owner Ownership Power Power Class(1)
<S> <C> <C> <C> <C>
Directors
James W. Appel(2) 13,493 13,493 0 *
Karen M. Balaban 250 250 0 *
Luther R. Campbell, Jr.(3) 15,393 15,393 0 *
M. Scott Clemens(4) 20,093 18,593 1,500 *
David E. Hosler(5)(6) 136,218 101,218 35,000 3.30%
Noah W. Kreider, Jr.(7) 12,637 12,637 0 *
G. Arthur Weaver(8) 15,093 13,093 2,000 *
Robert L. Wechter(9) 12,093 12,093 0 *
Jay S. Sidhu(5) 1,000 1,000 0 *
E. Matthew Brown(5) 0 0 0 *
Other Named
Executive Officers
Scott A. Orndorff(10) 51,984 51,984 0 1.27%
Steven D. Dyer(11) 47,840 46,815 1,025 1.17%
Henry J. Straub(12) 5,000 5,000 0 *
All directors and named
executive officers as a
group (13 persons)(13) 331,094 291,569 39,525 7.84%
_______________________
</TABLE> <PAGE 11>
(1) Unless otherwise indicated, amount owned does not exceed 1%
of the total number of shares of Common Stock outstanding on
the Record Date.
(2) Includes (i) 2,946 restricted shares awarded under the
Company's Management Recognition Plan (the "MRP") that vest
ratably over a five-year period over which Mr. Appel has
voting control and (ii) 7,910 shares that may be acquired
upon the exercise of outstanding stock options.
(3) Includes (i) 2,946 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Campbell
has voting control and (ii) 7,910 shares that may be
acquired upon the exercise of outstanding stock options.
(4) Includes (i) 2,946 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Clemens has
voting control and (ii) 7,910 shares that may be acquired
upon the exercise of outstanding stock options.
(5) Indicates a nominee for election as a Class III director at
the Meeting.
(6) Includes (i) 28,474 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Hosler has
voting control and (ii) 59,321 shares that may be acquired
upon the exercise of outstanding stock options, and
(iii) 1,304 shares allocated to the account of Mr. Hosler
under the ESOP.
(7) Includes (i) 2,946 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Kreider has
voting control and (ii) 3,954 shares that may be acquired
upon the exercise of outstanding stock options.
(8) Includes (i) 2,946 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Weaver has
voting control and (ii) 7,910 shares that may be acquired
upon the exercise of outstanding stock options.
(9) Includes (i) 2,946 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Wechter has
voting control and (ii) 7,910 shares that may be acquired
upon the exercise of outstanding stock options.
(10) Includes (i) 11,276 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Orndorff
has voting control, (ii) 26,695 shares that may be acquired
upon the exercise of outstanding stock options, and
(iii) 1,194 shares allocated to the account of Mr. Orndorff
under the ESOP.
(11) Includes (i) 11,276 restricted shares awarded under the MRP
that vest ratably over five years over which Mr. Dyer has
voting control, (ii) 26,695 shares that may be acquired upon
<PAGE 12> the exercise of outstanding stock options, and
(iii) 1,025 shares allocated to the account of Mr. Dyer
under the ESOP.
(12) Includes (i) 1,000 restricted shares awarded under the
MRP, (ii) 4,000 shares that may be acquired upon the
exercise of outstanding stock options, and (iii) 266 shares
allocated to the account of Mr. Straub under the ESOP.
(13) Includes (i) 69,702 restricted shares awarded under the MRP,
(ii) 160,215 shares that may be acquired upon the exercise
of outstanding stock options, and (iii) 3,789 shares
allocated to the account of participants under the ESOP.
EXECUTIVE COMPENSATION
Report of the Compensation Committee on Executive Compensation
The Compensation Committee is charged with the review and
implementation of the compensation for the Company's executive
officers, each of whom is an employee of Old Guard Insurance
Management Co. ("OGIMC"), a Pennsylvania corporation that is a
subsidiary of the Company and operates for the purpose of
employing and paying the senior management of the Insurance
Companies. The Compensation Committee also oversees the
Company's management development and succession programs (the
Compensation Committee shall be referred to herein as the
"Committee").
The Committee bases its compensation recommendations on
information derived from multiple sources, including the
Company's Human Resources Department, industry surveys, and
recommendations of management. The Committee believes that
consideration of these diverse sources of information helps to
create a balanced and appropriate compensation program.
The Committee has considered factors such as the following
in establishing executive compensation:
- the personal performance of the executive officer;
- the achievement of annual corporate goals;
- the achievement of an acceptable return on equity; and
- the need of the Company to attract, retain and motivate
superior management.
The consideration of these different factors permits the
encouragement of corporate goals including but not limited to
sustained and consistent management; enhancement of shareholder
value; and the completion of strategic initiatives. Reflecting
these different factors, the compensation program for executive
officers to date contains several components;
<PAGE 13>
1. Base Salary - Base salary is based upon a general
competitive review and a review of industry-specific
data based on a peer group. The peer group is
determined primarily by size of company and geographic
locale. Base salary is discretionary on the part of
the Committee and reflects corporate performance as
well as an evaluation of the executive officer's
performance of his or her duties. The Company
generally sets its competitive salary midpoint for an
executive officer position at the median level compared
to those companies which it surveys. A salary range
based on this midpoint is then developed. With respect
to 1999, salaries were compared to a national peer
group that has resulted in increases in base
compensation for 1999.
2. Senior Management Incentive Bonus Plan - This plan is
discretionary on the part of the Committee and is
designed to direct executive officer attention to the
attainment of corporate performance. OGIMC is a party
to a management agreement with each of the Insurance
Companies. Bonuses to executive officers are only
available to be paid from the profits of OGIMC, which
can be attained from two sources: (1) operations,
which includes fees payable under the management
agreements and interest earned, or (2) profit sharing
earned pursuant to a formula in the management
agreements. In awarding bonus compensation to the
executive officers, the Committee considers all factors
surrounding the executive's performance.
3. Stock-based Compensation - On August 19, 1997,
shareholders of the Company approved the Company's
Stock Compensation Plan (the "Plan") and the MRP. The
Committee believes that the Plan and MRP constitute an
important part of the Company's compensation programs
designed to encourage directors and employees of the
Company, the Insurance Companies and First Delaware to
increase their stake in the Company and to more
significantly align their interests with those of the
Company's shareholders. The Committee believes
adoption and implementation of the Plan and the MRP has
advanced the interests of the Company and its
shareholders by giving participants a proprietary and
vested interest in the Company and an increased
incentive to contribute to the success of the Company.
The Committee also believes that the implementation of
the Plan and the MRP will continue to aid the Company
in attracting, retaining, and encouraging competent and
dedicated management level employees.
<PAGE 14>
Compensation of Executive Officers
The base salary of chief executive officer, David E. Hosler,
was increased to approximate the mean of the base salary paid to
the chief executive officer of peer group companies evaluated by
the Committee. The base salaries of the other executive officers
were adjusted by the Committee in December 1998. The total
compensation of executive officers, composed of base salary and
Senior Management Incentive Bonus Plan award, was compared with
compensation packages of similar officers within the insurance
industry.
The limits on full deductibility of compensation for the
Company permitted by Internal Revenue Code Section 162(m) are not
currently an issue for the Company inasmuch as compensation
levels for Mr. Hosler and the Named Executive Officers do not
exceed the $1,000,000 threshold figure. The Company will, of
course, continue to monitor this issue and will take appropriate
action to respond to developments and growth in compensation.
COMPENSATION COMMITTEE
James W. Appel, Chairperson
Luther R. Campbell, Jr.
Richard B. Neiley, Jr.
Karen M. Balaban
Compensation Paid to Executive Officers
The following table sets forth information regarding the
compensation of the Chief Executive Officer, the Executive Vice
President, the Secretary and General Counsel, and the Chief
Financial Officer and Treasurer of the Company for each of the
years ended December 31, 1996, 1997 and 1998. The amounts below
represent the aggregate compensation paid to such executive
officers by OGIMC pursuant to OGIMC's management agreements with
the Insurance Companies. No other executive officer of the
Company received compensation in excess of $100,000 for the year
ended December 31, 1998.
<TABLE>
<CAPTION>
Other Securities All Other
Name and Annual Restricted Underlying Compen-
Principal Compen- Stock Options/ LTIP sation
Position Year Salary(1) Bonus sation(2) Awards SARs Payouts (3)(4)
----------------------------- ------ ---------- --------- --------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David E. Hosler, 1998 $213,336 $55,092 $ -- $ -- -- $ -- $13,487(6)
Chairman, President 1997 180,000 41,913 -- 658,471(5) 59,321 -- 10,600(6)
and Chief Executive Officer 1996 179,423 27,851 -- -- -- -- 16,322(6)
Scott A. Orndorff, 1998 141,282 20,000 -- -- -- -- 6,400
Executive Vice 1997 123,808 11,280 -- 260,758(5) 26,695 -- 5,520
President 1996 98,144 10,368 -- -- -- -- 8,494
Steven D. Dyer, 1998 119,267 16,917 -- -- -- -- 5,560
Secretary & 1997 94,700 19,998 19,262(7) 260,758(5) 26,695 -- 4,696
General Counsel 1996 86,369 7,856 -- -- -- -- 7,736
<PAGE 15>
Henry J. Staub, 1998 108,355 4,000 -- 19,625(8) 2,000 -- 3,406
Chief Financial Officer 1997 60,481 -- -- -- 2,000 -- --
and Treasurer 1996 -- -- -- -- -- -- --
_______________
</TABLE>
(1) Includes amounts which were deferred pursuant to Old Guard's
401(k) plan. Under the 401(k) plan, employees who elect to
participate may elect to have earnings reduced and to cause
the amount of such reduction to be contributed to the 401(k)
plan's related trust in an amount up to 12% of earnings.
Any employee who has completed 1 year of service and has
worked 1,000 hours in a plan year is eligible to participate
in the 401(k) plan.
(2) OGIMC provided other benefits to the executive officers in
connection with their employment. Except with respect to
Mr. Dyer, the value of such personal benefits, which is not
directly related to job performance, is not included in the
table above because the value of such benefits does not
exceed the lesser of $50,000 or 10% of the salary and bonus
paid to any executive officer.
(3) Includes amounts contributed by the Company under the 401(k)
plan for the benefit of the executive officer. The Company
will make a matching contribution equal to 100% of the
employee's salary reduction up to a maximum of 3% of the
employee's salary.
(4) Includes amounts contributed under a Profit Sharing Plan for
the benefit of the executive officer.
(5) Equals the dollar value of restricted stock awards
determined by multiplying the closing market price of $18.50
on August 19, 1997, the date of the awards, by the number of
shares awarded.
(6) Includes the amount of insurance premiums paid by the
Insurance Companies with respect to a split dollar term life
insurance policy.
(7) Includes income resulting from the forgiveness of a loan
previously made by the Company to Mr. Dyer to finance his
legal education.
(8) Equals the dollar value of restricted stock awards
determined by multiplying the closing market price of $19.62
on June 9, 1998, the date of the award, by the number of
shares awarded.
The following table sets forth information concerning grants
of stock options for the fiscal year ended December 31, 1998 to
the Named Executive Officers.
<PAGE 16>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Number of
Securities % of Total
Underlying Options/SARs
Option/ Granted Exercise Potential Realizable Value at
SARs in Fiscal or Base Expiration Assumed Annual Rates of
Granted(1) Year Price Date Price Appreciation for Option Term
0% 5%(2) 10%(2)
<S> <C> <C> <C> <C> <C> <C> <C>
David E. Hosler.................... 0/0 0 0 N/A N/A
Scott A. Orndorff.................. 0/0 0 0 N/A N/A
Steven D. Dyer..................... 0/0 0 0 N/A N/A
Henry J. Straub.................... 2000/0 100% 19.62 06/09/2008 $0.00(1) $23,269 $58,968
<FN>
(1) On the date of the option grant, the option exercise price was equal to the fair market value of the Common Stock.
(2) The dollar amounts set forth under these columns are the result of calculations assuming 5% and 10% price appreciation rates as
required by the Securities and Exchange Commission regulations and are not intended to indicate future price appreciation, if any,
of the Common Stock.
_______________
</TABLE>
The following table sets forth information concerning the
exercise of options to purchase shares of Common Stock by the
Named Executive Officers during the fiscal year ended
December 31, 1998, as well as the number of securities underlying
unexercised options and potential value of unexercised options
(both options which are presently exercisable and options which
are not presently exercisable) as of December 31, 1998.
PAGE 17
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE(1)
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs Options/SARs
at Fiscal Year at Fiscal Year
Value End (#) End($)(2)
Shares Acquired Realized Exercisable/ Exercisable/
on Exercise(#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
David E. Hosler 0 0 59,321/0 $259,529/$0
Scott A. Orndorff 0 0 26,695/0 116,790/ 0
Steven D. Dyer 0 0 26,695/0 116,790/ 0
Henry J. Straub 0 0 2,000/2000 0/ 0
_______________
</TABLE>
(1) All amounts represent stock options. No SARs or SARs
granted in tandem with stock options were either exercised
during 1998 or outstanding at fiscal year end 1998.
(2) "In-the-money options" are stock options with respect to
which the fair market value of the underlying shares of
Common Stock exceeds the exercise price for such options. On
December 31, 1998, the fair market value was $14.375 per
share.
Employment Agreements.
Chief Executive Officer and Chief Financial Officer.
David E. Hosler and Henry J. Straub have entered into an
Employment Agreement with the Company and OGIMC. The Employment
Agreements have an initial three-year term and provides for
automatic annual one-year extensions on the anniversary date
thereafter unless the Company or the Executive Officer gives
prior written notice of nonrenewal. Under the Employment
Agreements, the Executive Officer is entitled to receive an
annual base salary of not less than $180,000 and $118,175,
respectively. In addition, they are entitled to participate in
any other incentive compensation and employee benefit plans that
the Company maintains.
In the event the Company terminates their employment for
"Cause" as defined in the Employment Agreement, they would be
entitled to receive their accrued but unpaid base salary and an
amount for all accumulated but unused leave time. In the event
the Company terminates their employment without Cause, they would
be entitled to receive an annual amount equal to the greater of
(i) his highest base salary received during one of the two years
immediately preceding the year in which he is terminated, or
(ii) his base salary in effect immediately prior to his
termination for the remainder of the term of the Employment
<PAGE 18> Agreement. In addition, they would be entitled to
continuation annually during the remaining term of the Employment
Agreement, of (i) an amount equal to the higher of the aggregate
bonuses paid to him in one of the two years immediately preceding
the year in which he is terminated and (ii) an amount equal to
the sum of the highest annual contribution made on his behalf
(other than his own salary reduction contributions) to each of
the Company's tax qualified and nonqualified defined contribution
plans (as such term is defined in Section 3(35) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) in
the year in which he is terminated or in one of the two years
immediately preceding such year. The Executive Officers would
also be entitled to certain retirement, health and welfare
benefits.
In the event either Executive Officer terminates his
employment with the Company for "Good Reason," as defined in the
Employment Agreement, he would be entitled to receive the same
amounts and benefits he would receive if terminated without
Cause. In the event either Executive Officer terminates his
employment with the Company without Good Reason, he would be
entitled to receive his accrued but unpaid base salary until the
date of termination and an amount for all accumulated but unused
leave time.
In the event of the Executive Officer's death or disability
during the term of his Employment, the Executive Officer and his
eligible dependents or his spouse and her eligible dependents, as
the case may be, would be entitled to receive certain cash
amounts and certain health and welfare benefits.
In the event that the Executive Officer is required to pay
any excise tax imposed under Section 4999 of the Code (or any
similar tax imposed under federal, state or local law) as a
result of any compensation and benefits received under the
Employment Agreement in connection with a change in control, the
Company will pay to the Executive Officer an additional amount
such that the net amount retained by him, after the payment of
such excise taxes (and any additional income tax resulting from
such payment by the Company), equals the amount he would have
received but for the imposition of such taxes.
The Employment Agreement further provides that in the event
either Executive Officer's employment is terminated for Cause or
without Good Reason prior to a "Change in Control," as defined in
the Employment Agreement, the Executive Officer may not, for a
period of twelve months after the date of termination, without
the prior written consent of the Company's Board of Directors,
become an officer, director, shareholder or equity owner of 4.9%
or more of any entity engaged in the property and casualty
insurance business with its corporate headquarters located within
fifty miles of Lancaster, Pennsylvania. In addition, during
either Executive Officer's employment and for a period of 12
months following the termination of his employment, except
following a Change in Control, the Executive Officer may not
<PAGE 19> solicit, endeavor to entice away from the Company, its
subsidiaries or affiliates, or otherwise interfere with the
relationship of the Company or its subsidiaries or affiliates
with any person who is, or was within the then most recent
12-month period, an employee or associate of the Company or any
of its subsidiaries or affiliates.
Other Named Executive Officers. Messrs. Scott A. Orndorff,
and Steven D. Dyer each have entered into Employment Agreements
with the Company and OGIMC. The Employment Agreements have an
initial three-year term and provide for automatic annual one-year
extensions on the anniversary date. Under the Employment
Agreements, Messrs. Orndorff and Dyer are entitled to receive
annual base salaries of not less than $94,000 and $87,200
respectively.
In the event the Company terminates an Executive Officer's
employment for "Cause," as defined in the Employment Agreement,
the executive would be entitled to receive his accrued but unpaid
base salary and an amount for all accumulated but unused leave
time.
In the event the Company terminates an Executive Officer's
employment without Cause, the Executive Officer would be entitled
to receive an amount equal to the greater of (i) his highest base
salary received during one of the two years immediately preceding
the year in which he is terminated, or (ii) his base salary in
effect immediately prior to his termination for the two-year
period, beginning with the date of termination. In addition, the
Executive Officer would be entitled to continuation, for two
years, of (i) an amount equal to the higher of the aggregate
bonuses paid to him in one of the two years immediately preceding
the year in which he is terminated and (ii) an amount equal to
the sum of the highest annual contribution made on his behalf
(other than his own salary reduction contributions) to each of
the Company's tax qualified and non-qualified defined
contribution plans (as such term is defined in Section 3(35) of
ERISA), in the year in which he is terminated or in one of the
two years immediately preceding such year. The Executive Officer
would also be entitled to certain retirement, health and welfare
benefits.
In the event the Executive Officer terminates his employment
with the Company for "Good Reason," as defined in the Employment
Agreement, the Executive Officer would be entitled to receive the
same amounts and benefits he would receive if terminated without
Cause. In the event the Executive Officer terminates his
employment with the Company without Good Reason, the Executive
Officer would be entitled to receive his accrued but unpaid base
salary and an amount for all accumulated but unused leave time.
In the event of the Executive Officer's death or disability
during the term of the Employment Agreement, the Executive
Officer and his eligible dependents or his spouse and her
eligible dependents, as the case may be, would be entitled to
<PAGE 20> receive certain cash amounts and certain health and
welfare benefits.
In the event that the Executive Officer is required to pay
any excise tax imposed under Section 4999 of the Code (or any
similar tax imposed under federal, state or local law) as a
result of any compensation and benefits received under his
Employment Agreement in connection with a change in control, the
Company will pay to the Executive Officer an additional amount
such that the net amount retained by him, after the payment of
such excise taxes (and any additional tax resulting from such
payment by the Company), equals the amount he would have received
but for the imposition of such taxes.
The Employment Agreement for each Executive Officer further
provides that in the event the Executive Officer's employment is
terminated for Cause or he voluntarily terminates his employment
prior to a "Change in Control," as defined in the Employment
Agreement, the Executive Officer may not for a period of twelve
months after the date of termination, without the prior written
consent of the Company's Board of Directors, become an officer,
director, shareholder or equity owner of 4.9% or more of any
entity engaged in the property and casualty insurance business
with its corporate headquarters located within fifty miles of
Lancaster, Pennsylvania. In addition, during the Executive
Officer's employment and for a period of 12 months following the
termination of his employment, except following a Change in
Control, the Executive Officer may not solicit, endeavor to
entice away from the Company, its subsidiaries or affiliates, or
otherwise interfere with the relationship of the Company or its
subsidiaries or affiliates with any person who is, or was within
the most recent 12-month period, an employee or associate of the
Company or any of its subsidiaries or affiliates.
PAGE 21
<PAGE>
Performance Graph
Set forth below is a graph comparing the percentage change
in the cumulative total shareholder return on the Common Stock
against the cumulative total return on the Nasdaq Composite Index
and the Nasdaq Insurance Index since February 18, 1997, the date
on which the Common Stock commenced trading on the Nasdaq/
National Market System. The graph assumes an initial investment
of $100.00 with dividends if any, reinvested over the periods
indicated.
[GRAPH TO BE INSERTED HERE]
<TABLE>
<CAPTION>
02/18/97 12/31/97 12/31/98
<S> <C> <C> <C>
OGGI 100.00 139.46 105.17
CCMP 100.00 128.54 179.48
CINS 100.00 126.22 126.13
<FN>
OGGI = Old Guard Group, Inc., CCMP = NASDAQ Composite Index, CINS = NASDAQ Insurance Index.
</TABLE>
PAGE 22
<PAGE>
Additional Information Regarding Directors and Officers.
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's officers and
directors, and any persons owning ten percent or more of the
Company's Common Stock, to file in their personal capacities
initial statements of beneficial ownership, statements of changes
in beneficial ownership and annual statements of beneficial
ownership with the Securities and Exchange Commission (the
"SEC"). Persons filing such beneficial ownership statements are
required by SEC regulation to furnish the Company with copies of
all such statements filed with the SEC. The rules of the SEC
regarding the filing of such statements require that "late
filings" of such statements be disclosed in the Company's proxy
statement. The Company is aware of the following late filings
based upon information provided by the officers and directors of
the Company. On May 10, 1998, James W.. Appel, Karen M. Balaban,
John E. Barry, Luther R. Campbell, Jr., M. Scott Clemens, Noah W.
Kreider, Jr., Richard B. Neiley, Jr., G. Arthur Weaver, and
Robert L. Wechter each received 250 shares of Company stock as
partial compensation for their services as directors. In
accordance with the rules of the SEC these transactions should
have been reported by June 10, 1998; however, they were not
reported until September 8, 1998. Based solely on the Company's
review of any copies of the statements received by it, or written
representations from directors and officers there are no annual
statements of beneficial ownership, or additional transactions
that were required to be filed by such persons.
MATTER NO. 2
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors of the Company, in accordance with
the recommendation made by the Company's Audit Committee, has
appointed the firm of PricewaterhouseCoopers L.L.P., independent
auditors, to provide certain accounting services for the Company
and its subsidiaries during fiscal year 1999. Such appointment
is being submitted to shareholders for ratification.
PricewaterhouseCoopers L.L.P. has audited the books of
account and financial statements of the Insurance Companies or
certain of their affiliates since 1990. The Company has been
advised that neither PricewaterhouseCoopers L.L.P. nor any of its
partners possesses any other material direct or indirect
relationship with the Company, its subsidiaries or its officers
or directors, in their capacities as such. Representatives of
PricewaterhouseCoopers L.L.P. are expected to attend the Meeting,
will be afforded an opportunity to make a statement if they
desire to do so and will be available to respond to questions
from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS L.L.P.
AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE 1999 FISCAL YEAR.
<PAGE 23> The affirmative vote of a majority of all votes cast at
the Meeting is required to ratify the appointment. Abstentions
and broker non-votes will not constitute or be counted as "votes"
cast for purposes of the Meeting. All proxies will be voted
"FOR" ratification of the appointment unless a shareholder
specifies to the contrary on such shareholder's proxy card.
MATTER NO. 3
PROPOSAL TO APPROVE THE
OLD GUARD GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN
General
On February 9, 1999, the Board of Directors of Old Guard
Group, Inc. adopted the 1999 Old Guard Group, Inc. Employee Stock
Purchase Plan (the "1999 Stock Purchase Plan"), attached hereto
as Exhibit A.
The total number of shares of Common Stock to be reserved
under the 1999 Stock Purchase Plan is 250,000 shares (subject to
adjustment as described below).
Purpose
The purpose of the 1999 Stock Purchase Plan is to encourage
and enable employees of the Company, or any subsidiary of the
Company, to acquire a proprietary interest in Old Guard through
the ownership of shares of Common Stock. The Company believes
that employees who participate in the 1999 Stock Purchase Plan
will have a closer identification with the Company by virtue of
their ability, as shareholders, to participate in the Company's
growth and earnings. Shares of Common Stock will be purchased in
the open market or directly from the Company from authorized but
previously unissued shares or shares held in the treasury.
Proceeds from the sale of the Common Stock from the Company
pursuant to the 1999 Stock Purchase Plan will be used by the
Company for general corporate purposes. It is the intention of
the Company that the 1999 Stock Purchase Plan qualify as an
"employee stock purchase plan" under Section 423 of the Code.
Administration
The 1999 Stock Purchase Plan will be administered by a
committee (the "Committee"), none of whom may be full time
employees of the Company or of any subsidiary. The Committee
will be appointed by, and serve at the pleasure of, the Company's
Board of Directors. The Company's Board of Directors has
appointed the members of its Compensation Committee as the
Committee members. The Committee will have the authority to
determine all questions of interpretation and operation of the
1999 Stock Purchase Plan, which determination will be final and
binding on all plan participants.
<PAGE 24>
Eligibility
Any employee, including any officer, who has worked for the
Company and/or a subsidiary (as defined in the plan) of the
Company for a continuous period of at least three (3) months and
who customarily works more than five (5) months per year is
eligible to participate in the 1999 Stock Purchase Plan.
Eligible employees who desire to participate in the 1999 Stock
Purchase Plan must complete and return the required forms to the
Company. As of the Record Date, there were approximately 225
employees eligible to participate in the 1999 Stock Purchase
Plan.
Operation of the Plan
The total number of shares of Common Stock to be reserved
under the 1999 Stock Purchase Plan is 250,000 shares. If
adjustments are made in the number of outstanding shares of
Common Stock by reason of a stock dividend, stock split-up, or
similar change in capitalization, subsequent to January 1, 1999,
the Company's Board of Directors will, in its discretion, make
appropriate adjustments in the number of shares that may be
reserved for purchase under the 1999 Stock Purchase Plan and the
purchase price (as defined below) therefor.
The 1999 Stock Purchase Plan will be implemented in four
3-month periods (the "Option Periods") per year, commencing
January 1, April 1, July 1, and October 1 during which
participants may contribute to the 1999 Stock Purchase Plan
through payroll deductions. The 1999 Stock Purchase Plan will
continue until substantially all of the shares reserved under the
plan are sold, or until its termination, which the Company's
Board of Directors may effect at any time. On each pay date (the
"Exercise Date"), each participant will acquire shares of Common
Stock under the 1999 Stock Purchase Plan. The number of shares
will be based on the dollar amount accumulated in the
participant's stock purchase account at the end of the applicable
option Period.
The purchase price (the "Option Price") for each share of
Common Stock to be sold under the 1999 Stock Purchase Plan will
be an amount not less than 85% and not more than 100% (such
percentage to be fixed by the Committee prior to the first day of
each Option Period) of the closing sale price of one share of
Common Stock as reported on the NASDAQ National Market System on
the Exercise Date. If no sales of Common Stock are reported on
an Exercise Date, the market price for the relevant date will be
the closing sale price of one share as reported for the last
preceding trading date. If the Company's Board of Directors
determines that there are unusual circumstances or occurrences
under which such prices do not reflect the fair value of such
shares, then the Company's Board of Directors may determine such
fair market value based upon such prices or market quotations as
it shall deem appropriate.
<PAGE 25>
Purchases of Common Stock will be made by means of payroll
deductions during each Option Period. The deductions may not
exceed the maximum percentage established by the Committee of a
participant's regular base salary or hourly base rate of pay, but
may not be less than $10.00 per pay period. To date, the
Committee has not set the applicable maximum percentage for
payroll deduction. A participant's regular base salary or hourly
base rate of pay will not include overtime pay, bonuses,
commissions, and any other payment in excess of normal salary or
hourly pay. Subject to the above limitations, the amount of the
payroll deduction is discretionary with each participant, but may
not be changed by a participant during an Option Period.
However, a participant may withdraw from the 1999 Stock Purchase
Plan at any time. (See "Withdrawal from the Plan" herein.)
Contributions made through payroll deductions may be used by the
Company for any corporate purpose and could be subject to the
claims of the Company's creditors.
On each Exercise Date, the Committee will use the payroll
deduction of a participant to purchase for him or her the maximum
number of shares of Common Stock permitted by the 1999 Stock
Purchase Plan. The following are the limitations on the number
of shares of Common Stock that may be purchased by each
participant in an offering under the 1999 Stock Purchase Plan:
(a) No Common Stock may be purchased by any
participant if, by reason of such purchase, such participant
would own 5% or more of the total combined voting power or
value of all classes of stock of the Company or one of its
subsidiaries. For purposes of this limitation, an
individual will be considered as owning stock owned by
certain of his or her relatives and a percentage of stock
owned by any corporation, partnership, estate or trust in
which he or she has an interest; and stock which a
participant may purchase under outstanding options issued
under the Company's Stock Compensation Plan or otherwise
shall be treated as stock owned by the participant.
(b) No participant will be granted an option which
permits his or her rights to purchase Common Stock under the
1999 Stock Purchase Plan and all other Code Section 423
plans of the Company or a subsidiary to accrue at a rate
which exceeds $25,000 of fair market value of such Common
Stock (determined at the time the option is granted) for
each calendar year.
(c) If the aggregate funds available for the purchase
of Common Stock on any Exercise Date would cause the
issuance of shares in excess of the number of shares of
Common Stock available under the 1999 Stock Purchase Plan,
the Committee will proportionately reduce the number of such
shares purchased by each participant to eliminate such
excess and the 1999 Stock Purchase Plan shall automatically
terminate immediately after such Exercise Date.
<PAGE 26>
All shares purchased shall be credited to a participant's
account, but shall initially be registered in the name of the
Company's nominee, as agent for the participant, and held until
such time as his or her participation in the 1999 Stock Purchase
Plan terminates or he or she files a written request to have a
stock certificate or certificates issued to him or her. A
participating employee will have all of the rights of a
shareholder with respect to shares purchased under the 1999 Stock
Purchase Plan, whether or not certificates have been issued.
Withdrawal From the Plan
A participant may withdraw from the 1999 Stock Purchase Plan
at any time by giving written notice to the Committee. Upon
withdrawal any Common Stock purchased under the 1999 Stock
Purchase Plan by the withdrawing participant (and then credited
to his or her plan account) will be promptly distributed to such
person.
Termination of a participant's employment for any reason,
including retirement or death, will result in the immediate
termination of his or her participation in the 1999 Stock
Purchase Plan. Any Common Stock purchased under the 1999 Stock
Purchase Plan by such person (and then credited to his or her
plan account) will be promptly distributed.
Nontransferability
Rights to purchase Common Stock under the 1999 Stock
Purchase Plan will be exercisable only by the participant, will
not be transferable, and will expire upon a participant's death.
Term and Amendment
Although the Company intends to maintain the 1999 Stock
Purchase Plan in effect until all shares of Common Stock reserved
thereunder have been purchased, the Board of Directors may at any
time amend or terminate the 1999 Stock Purchase Plan, except that
no amendment to the 1999 Stock Purchase Plan may be made without
prior shareholder approval, if such amendment would (i) provide
for the sale of more than the number of shares to be authorized
hereby, (ii) materially change the benefits provided under the
plan or the eligibility requirements for participation in the
plan, or (iii) change the definition of a "subsidiary" as set
forth therein.
Federal Income Tax Consequences
The following is a summary of the federal income tax
consequences pertaining to participation in the 1999 Stock
Purchase Plan. It is not intended to constitute a detailed
analysis of such consequences, nor does it discuss the state,
local or other consequences applicable to plan participation.
<PAGE 27>
A participating employee will not recognize income on the
first day of an Option Period or on an Exercise Date. If
acquired shares are disposed of within two years after the first
day of the applicable Option Period, then an individual will
recognize as ordinary income, in the taxable year of the
disposition, an amount equal to the excess of the fair market
value of the shares at the time of purchase (i.e., the Exercise
Date) over the Option Price therefor. If acquired shares are
disposed of more than two years after the first day of the
applicable Option Period, then an individual will recognize as
ordinary income, in the taxable year of the disposition, an
amount equal to the lesser of (i) the excess of the fair market
value of the shares on the first day of the Option Period in
which they were purchased over the Option Price therefor
(determined as if the shares were purchased on that date), or
(ii) the excess of the fair market value of the shares at the
time of the disposition over the amount paid for such shares.
An individual's tax basis for Common Stock purchased under
the 1999 Stock Purchase Plan will be equal to the Option Price of
the shares plus any ordinary income recognized as described
above. Any recognizable gain in excess of ordinary income
recognized upon disposition of the Common Stock will be capital
gain and any loss will be capital loss. Whether any such capital
gain or loss is short-term or long-term will depend on how long
the shares were held.
If an individual dies while owning Common Stock purchased
under the 1999 Stock Purchase Plan, there will be included in the
individual's ordinary income, for the taxable year closing with
the individual's death, an amount equal to the lesser of (i) the
excess of the fair market value of the shares on the first day of
the Option Period in which they were purchased over the Option
Price therefor (determined as if the shares were purchased on
that date), or (ii) the excess of the fair market value of the
shares at the time of death over the amount paid for such shares.
If an individual recognizes ordinary income as a result of
the disposition of Common Stock within two years of the first day
of an applicable Option Period, then the Company will be entitled
to a deduction equal to the ordinary income recognized. The
Company will not be entitled to a deduction under any other
circumstances.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE 1999 STOCK PURCHASE PLAN. THE BOARD BELIEVES
THAT THE EXISTENCE OF THE PLAN WILL ASSIST IN ATTRACTING AND
RETAINING QUALIFIED EMPLOYEES OF THE COMPANY AND WILL HAVE THE
EFFECT OF MORE SIGNIFICANTLY ALIGNING THE INTERESTS OF THESE
EMPLOYEES WITH THOSE OF THE COMPANY'S SHAREHOLDERS. The
affirmative vote of a majority of all votes cast at the Meeting
is required to approve the adoption of the 1999 Stock Purchase
Plan. Abstentions and broker non-votes will not constitute or be
<PAGE 28> counted as "votes" cast for purposes of the Meeting.
All proxies will be voted "FOR" adoption of the 1999 Stock
Purchase Plan unless a shareholder specifies to the contrary on
such shareholder's proxy card.
MATTER NO. 4
SHAREHOLDER PROPOSAL
Proposal
Old Guard Group, Inc. received the following proposal from
Mr. Maurice Cohen, 300 Southeast Fifth Avenue, Mizner Tower,
Suite 8090, Boca Raton, Florida 33432. Mr. Cohen is the
beneficial owner of 5,250 shares of common stock of Old Guard
Group, Inc.
"RESOLVED: That the Board of Directors of Old Guard Group,
Inc. promptly take the necessary steps to achieve a sale or
merger of Old Guard Group, Inc. on terms that will maximize
shareholder value.
Supporting Statement of Mr. Cohen
I own beneficially or of record, 5,250 shares of common
stock of Old Guard Group, Inc. I believe that the current stock
price of OGGI does not fully reflect the value of the company.
If the Board of Directors were to take the necessary steps to
achieve a sale or merger, I believe the OGGI could be sold at a
substantial premium to its current market price of $14.13 as of
December 15, 1998.
By using a book value methodology to ascertain OGGI's
potential value, one can conclude that there is a substantial
premium that is not presently reflected in OGGI's current stock
price. Based upon OGGI's book value of $19.17 per share as of
September 30, 1998, the current price/book ratio of OGGI is
73.71%. However, the median price/book ratio for publicly traded
property and casualty insurance companies as of December 14, 1998
is 118%. Moreover, the median price/book ratio for property and
casualty insurance companies that have announced a sale of the
company during the calendar year 1998 is 158.37%. If these two
sets of median price/book ratios were applied to OGGI, the
potential price per share of OGGI would be $22.62 and $30.36,
respectively.
It is my opinion that the potential stock price of OGGI may
be valued in the range of $22.62 to $30.36 per share. Although
the valuation methodology used in this proposal is not the only
way to predict stock price, I believe this valuation model
provides a reasonable basis for estimating a potential stock
price well in excess of the current stock price.
I urge you to join me in voting YES on this proposal.
<PAGE 29>
Opposing Statement of the Board of Directors
The Board of Directors is aware of the rapid consolidation
in the insurance industry and is also cognizant of the Company's
relatively small size in comparison to the property and casualty
insurance industry as a whole. To that end, the Board of
Directors has adopted a policy that requires the Board to
formally review the Company's strategic alternatives including
the implementation of its business plan, a merger of equals or a
sale. The next strategic review will occur in the second quarter
of 1999.
However, the preliminary view of the Board of Directors is
that it may be premature to consider a sale of the Company for a
number of reasons. First, the Company believes that it has a
sound strategy that will create value for shareholders over the
next three year period. The Board believes that realization of a
fair price upon sale is dependent upon creation of this value.
Second, the current price of the stock as of March 30, 1999
is $12 1/2 per share. The price of the Common Stock has been as
high as $21 per share. Management does not believe the current
stock price is reflective of the present or future value of the
Company and we agree that the Company's true value is at least as
high as the valuation range suggested by the proponent. In the
current market environment, the Board believes that it may be
difficult to obtain a sale price for the Company that is as high
as the valuation suggested by the proponent. Therefore, the
Board believes that now may not be an appropriate time to sell
the Company.
Finally, the Company believes that its stock price is
adversely affected by the existence of class action litigation
that challenges the constitutionality of the law pursuant to
which the Company's subsidiaries converted from mutual to stock
form. The Company won a motion to dismiss and partial summary
judgement in its favor with respect to certain claims, but other
claims remain. The Company remains hopeful that a favorable
result will be obtained in this litigation in 1999. The Board
also believes, however, with respect to the remaining claims,
that until the uncertainty created by the litigation is removed,
it will continue to have an adverse effect upon the current stock
price of the Company and the sale value of the Company.
For all of the foregoing reasons, the Board of Directors
does not believe that now is the appropriate time to sell the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE
PROPOSAL.
<PAGE 30>
SHAREHOLDER PROPOSALS FOR 2000
The Company's Annual Meeting of Shareholders for 2000 will
be held on or about May 11, 2000. Any shareholder desiring to
submit a proposal to be considered for inclusion in the Company's
2000 proxy materials must submit such proposal or proposals in
writing, addressed to Old Guard Group, Inc., 2929 Lititz Pike,
P.O. Box 3010, Lancaster, Pennsylvania 17604-3010, Attention:
Corporate Secretary, proposals must be received by the Company on
or before December 14, 1999. In addition, management
proxyholders will have discretionary authority to vote on any
proposal submitted by a shareholder to the Company for
consideration at the Company's 2000 Annual Meeting if such
proposal is received after February 28, 2000.
OTHER MATTERS
The Board of Directors does not intend to bring any other
matter before the Meeting and is not presently informed of any
other business which others may bring before the Meeting. If any
other matters should properly come before the Meeting, or any
adjournment or adjournments thereof, however, it is the intention
of the persons named in the accompanying proxy to vote on such
matters as they, in their discretion, may determine.
A copy of the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1998, including the financial
statements and the schedules thereto, required to be filed with
the Securities and Exchange Commission may be obtained, without
charge, from Old Guard Group, Inc., 2929 Lititz Pike,
P.O. Box 3010, Lancaster, Pennsylvania 17604-3010, Attention:
Investor Relations.
BY ORDER OF THE BOARD OF DIRECTORS
\s\Steven D. Dyer
Steven D. Dyer,
Secretary
April 13, 1999
PLEASE SIGN, DATE AND MAIL YOUR PROXY NOW.
PAGE 31
<PAGE>
EXHIBIT A
OLD GUARD GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Effective January 1, 1999)
<PAGE>
ARTICLE I
PURPOSE AND SCOPE OF THE PLAN
Section 1.1 PURPOSE.
The Old Guard Group, Inc. Employee Stock Purchase Plan
is intended to encourage employee participation in the ownership
and economic progress of the Company.
Section 1.2 DEFINITIONS.
Unless the context clearly indicates otherwise, the
following terms have the meaning set forth below:
"Board of Directors" means the Board of Directors of
the Company.
"Code" means the Internal Revenue Code of 1986, as
amended, and as the same may be further amended from time to
time, and the Treasury Regulations promulgated thereunder.
"Committee" means the Company's Compensation Committee
which shall administer the Plan as provided in Section 1.3.
"Common Stock" means the common stock of the Company.
"Company" means Old Guard Group, Inc., a Pennsylvania
corporation.
"Compensation" means an Employee's total salary or
hourly pay, as the case may be, including bonuses, commissions
and any other payment in excess of normal salary or hourly pay.
"Continuous Service" means the period of time,
uninterrupted by a termination of employment, that an Employee
has been employed by the Company or a Subsidiary, or both,
immediately preceding an Offering Date. Such period of time
shall include any leave of absence permitted or required to be
taken into account by applicable Treasury Regulations.
"Effective Date" means the date specified in
Section 1.4 on which the provisions of the plan become effective.
"Employee" means any common law employee of the Company
or a Subsidiary.
"Exercise Date" means March 31, June 30, September 30
and December 31 of each Plan Year.
"Fair Market Value" of a share of Common Stock on any
given date means the closing sale price for such shares on that
date as reported by the National Association of Securities
Dealers Automated Quotations or the Bloomberg Financial Markets
<PAGE A-1> System. If a closing sale price for the Common Stock
for the given date is not reported, or if there is none, the Fair
Market Value will be equal to the closing sale price on the
nearest trading day preceding such date. Notwithstanding the
foregoing, if, in the Board of Directors' judgment, there are
unusual circumstances or occurrences under which the otherwise
determined Fair Market Value of the Common Stock does not
represent the actual fair value thereof, then the Fair Market
Value of such Common Stock shall be determined by the Board of
Directors on the basis of such prices or market quotations as it
shall deem appropriate and fairly reflective of the then fair
value of such Common Stock.
"Leave of Absence" means, for purposes of participation
in the Plan, a person who is on leave of absence who shall be
deemed to be an employee for the first ninety (90) days of such
leave of absence and such Employee's employment shall be deemed
to have terminated at the close of business on the ninetieth
(90th) day of such leave of absence unless such Employee shall
have returned to regular employment prior to the close of
business on such ninetieth (90th) day. Termination by the
Company of any Employee's leave of absence, other than
termination of such leave of absence on return to employment,
shall terminate an Employee's employment for all purposes under
the Plan and shall terminate such Employee's participation in the
Plan and the right to purchase Common Stock hereunder.
"Offering Date" means January 1, April 1, July 1 and
October 1 of each Plan Year.
"Option Period" or "period" means the period beginning
on an Offering Date and ending on the next succeeding Exercise
Date.
"Option Price" means the purchase price of a share of
Common Stock hereunder as provided in Section 3.1.
"Participant" means any Employee who (i) is eligible to
participate in the Plan under Section 2.1, and (ii) elects to
participate.
"Plan" means the Old Guard Group, Inc. Employee Stock
Purchase Plan, as the same may be amended from time to time.
"Plan Year" means the 12-consecutive-month period
beginning on January 1 and ending on the following December 31.
"Stock Purchase Account" or "Account" means an account
established and maintained in the name of each Participant to
record the dollar amounts and shares of Common Stock accumulated
on his behalf from time to time.
"Stock Purchase Agreement" means the form prescribed by
the Committee which must be executed by an Employee who elects to
participate in the Plan. The proper execution and filing of such
<PAGE A-2> form shall constitute the grant of an option from time
to time to the Employee in accordance with the terms of this Plan
document and the terms of such form.
"Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if, at the beginning of an Option Period, each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
Section 1.3 ADMINISTRATION OF PLAN.
The Plan shall be administered by the Committee.
Subject to direction by the Board of Directors and the express
provisions of this Plan document, the Committee shall be
authorized to prescribe, amend and rescind rules and regulations
relating to the Plan and the Committee's administration thereof;
to interpret the Plan; to fix the terms of an offering under the
Plan; to fix the rate of interest to be paid on balances in Stock
Purchase Accounts, if applicable; to prescribe the maximum
percentage of payroll deductions permitted for an Option Period;
to restrict participation in the Plan consistent with any
requirement of law or regulation; and to make all other
determinations necessary to the administration of the Plan,
including appointment of individuals to facilitate the day-to-day
operation thereof. The Committee's determinations as to the
interpretation and operation of the Plan shall be final and
conclusive.
Section 1.4 EFFECTIVE DATE OF PLAN.
The Effective Date of the Plan is January 1, 1999.
Section 1.5 TERMINATION OF PLAN.
The Board of Directors shall have the right to
terminate the Plan at any time. Upon any such termination, the
dollar amount and shares of Common Stock, if any, in each
Participant's Account shall be distributed.
ARTICLE II
PARTICIPATION
Section 2.1 ELIGIBILITY.
Each Employee, who on an Offering Date (i) will have at
least three (3) months of continuous service with the Company
and/or a Subsidiary, and (ii) will be an Employee whose customary
employment is more than five (5) months in a calendar year, may
become a Participant by executing and filing with the Committee a
Stock Purchase Agreement prior to the earlier of such Offering
Date or five business days prior to the first pay day in the
applicable Option Period. An election to participate shall
<PAGE A-3> continue in effect until termination of participation
occurs in accordance with Article V.
Section 2.2 PAYROLL DEDUCTIONS.
Payment for shares of Common Stock purchased under the
Plan shall be made solely by authorized payroll deduction from
each payment of Compensation in accordance with instructions
received from a Participant. Deductions from payroll shall be
expressed as a whole percentage of Compensation (determined on
the first day of each Option Period) no greater than the
percentage set by the Committee, or as a fixed dollar amount (as
determined by the Committee), but shall not be less than $10.00
per pay period. The Committee may fix a maximum percentage. A
Participant may not increase or decrease the percentage or dollar
amount of deduction during an Option Period. However, a
Participant may change the percentage or dollar amount of
deduction for any subsequent Option Period by filing notice
thereof with the Committee prior to the date described in
Section 2.1 for filing a Stock Purchase Agreement. Amounts
deducted from a Participant's Compensation pursuant to this
section shall be credited to such Participant's Account.
Section 2.3 TRANSFER OF PAYROLL DEDUCTIONS.
All payroll deductions withheld by a Subsidiary under
the Plan shall be immediately transferred to the Company.
Section 2.4 LEAVE OF ABSENCE.
If a Participant goes on a Leave of Absence, such
Participant shall have the right to elect (i) to withdraw the
balance in his Stock Purchase Account, (ii) discontinue
contributions to the Plan but remain a Participant in the Plan,
or (iii) remain a Participant in the Plan during such Leave of
Absence, authorizing deductions to be made from payments by the
Company to the Participant during such Leave of Absence and
undertaking to make cash payments to the Plan at the end of each
Payroll Period to the extent that amounts payable by the Company
to such Participant are insufficient to meet such Participant's
authorized Plan deductions.
ARTICLE III
PURCHASE OF SHARES
Section 3.1 OPTION PRICE.
The Option Price per share of the Common Stock sold to
Participants hereunder shall be set by the Committee prior to the
Offering Date. Under the Code, the Option Price shall not be
less than 85%, nor more than 100%, of the Fair Market Value of
such share on each Exercise Date of an Option Period. The
Committee may, in its discretion, provide for the Option Price on
the Effective Date to be 90% of the Fair Market Value of the
Common Stock on an Exercise Date. <PAGE A-4>
Section 3.2 PURCHASE OF SHARES.
On each Exercise Date, the amount in a Participant's
Account shall be charged with the aggregate Option Price of the
number of whole and fractional (to three decimal places) shares
of Common Stock which can be purchased with such amount.
Section 3.3 LIMITATIONS ON PURCHASE AND GRANT.
No Participant shall purchase Common Stock hereunder in
any calendar year having a Fair Market Value of more than
$25,000, provided that any such purchase shall not exceed the
limitations imposed by Code Section 423(b)(8). Further, no
Participant shall be granted the right to purchase Common Stock
hereunder if, by reason of such grant, such Participant would be
deemed to possess five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or a
Subsidiary. For purposes of the preceding sentence, the rules of
Code Section 424(d) shall apply and Common Stock which a
Participant may purchase under outstanding options shall be
treated as stock owned by the Participant.
Section 3.4 RESTRICTION ON TRANSFERABILITY.
Rights to purchase shares hereunder shall be
exercisable only by the Participant. Such rights shall not be
transferable and shall expire upon a Participant's death.
Section 3.5 DIVIDEND REINVESTMENT.
The Committee may, in its discretion, provide
Participants with the opportunity to have dividends on shares
held in their Accounts reinvested through (i) any dividend
reinvestment plan that the Company may maintain from time to
time, or (ii) any other program or arrangement (including the
treatment of dividends as additional Participant contributions)
that is permissible under applicable law.
ARTICLE IV
PROVISIONS RELATING TO COMMON STOCK
Section 4.1 COMMON STOCK RESERVED.
Except as provided in Section 4.2, no more than 250,000
shares of the Company's Common Stock may be sold pursuant to
options granted under the Plan. The Common Stock to be issued
under the Plan shall be made available at the discretion of the
Board of Directors, either from authorized but unissued Common
Stock or from Common Stock acquired by the Company, including
shares purchased in the open market.
<PAGE A-5>
Section 4.2 ADJUSTMENT FOR CHANGES IN COMMON STOCK.
(i) In the event that the shares of Common Stock of
the Company as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation
(whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise)
or if the number of such shares of stock shall be increased
through the payment of a stock dividend, then subject to the
provisions of subsection (iii) below, a majority of the
disinterested members of the Board of Directors may substitute
for or add to each share of stock of the Company which was
theretofore appropriated, or which thereafter may become subject
to an offering under the Plan, the number and kind of shares of
stock or other securities into which each outstanding share of
the stock of the Company shall be so changed or for which each
such share shall be exchanged or to which such share shall be
entitled, as the case may be. Outstanding Stock Purchase
Agreements shall also be deemed appropriately amended as to price
and other terms, as may be necessary to reflect the foregoing
events.
(ii) If there shall be any other change in the number
or kind of the outstanding shares of Common Stock of the Company,
or of any stock or other securities in which such stock shall
have been changed or for which it shall have been exchanged, and
if a majority of the disinterested members of the Board of
Directors shall, in its sole discretion, determine that such
change equitably requires an adjustment in any offering which was
theretofore made or which may thereafter be made under the Plan,
that such adjustment shall be made in accordance with such
determination.
(iii) An offering pursuant to the Plan shall not
affect in any way the right or power of the Company to make
adjustments or reclassifications, reorganizations or changes in
its capital or business structure, to merge, to consolidate, to
dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
Section 4.3 INSUFFICIENT SHARES.
If the aggregate funds available for the purchase of
Common Stock on any Exercise Date would cause an issuance of
shares in excess of the number provided for in Section 4.1 (as
the same may be adjusted as provided in Section 4.2), (i) the
Committee shall proportionately reduce the number of shares which
would otherwise be purchased by each Participant in order to
eliminate such excess, and (ii) the Plan shall automatically
terminate immediately after such Exercise Date.
<PAGE A-6>
Section 4.4 CONFIRMATION OF PURCHASES; REGISTRATION OF SHARES.
Purchases of Common Stock hereunder shall be confirmed
in writing to Plan Participants. All shares purchased shall be
credited to his Account, but shall initially be registered in the
name of the Company's nominee or the nominee name of American
Stock Transfer & Trust Company as recordkeeper for the Plan, or
any successor appointed by the Company, as agent for Plan
Participants. Such nominee will hold a Participant's share
certificates until such time as his participation in the Plan
terminates or he files a written request with the Committee to
have a certificate or certificates issued in his name. Except in
the case of death, any certificate issued to a Participant must
initially be issued in his name alone. Registration of any
shares following the death of a Participant will be subject to
the same rules as are then applicable to decedent shareholders
generally.
Section 4.5 RIGHTS AS SHAREHOLDERS.
The shares of Common Stock purchased by a Participant
on an Exercise Date shall, for all purposes, be deemed to have
been issued and sold at the close of business on such Exercise
Date. Participants for whom shares have been purchased shall be
entitled to all rights of a shareholder with respect to such
shares, including the right to receive dividends and the right to
vote. The Company will take such steps as may be necessary to
ensure that such rights are enjoyed by each Participant whose
shares are held in nominee name.
Section 4.6 CORPORATE REORGANIZATIONS, LIQUIDATIONS, ETC.
In the event of any corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation, provision may be made for the substitution of a new
option for an old option, or an assumption of an old option, by
an employer corporation or a corporation related to such
corporation. Any provision for such substitution or assumption
shall be subject to the limitations and provisions of Code
Section 424.
ARTICLE V
TERMINATION OF PARTICIPATION
Section 5.1 VOLUNTARY WITHDRAWAL.
A Participant may withdraw from the Plan at any time by
filing notice of withdrawal with the Committee prior to an
Exercise Date. Upon withdrawal, the dollar amount and shares, if
any, credited to his Stock Purchase Account shall be distributed
to him and no shares will be purchased on his behalf for the
applicable Option Period. Any Participant who withdraws from the
Plan may again become a Participant in accordance with
Section 2.1.
<PAGE A-7>
Section 5.2 TERMINATION OF ELIGIBILITY.
If a Participant ceases to be employed by the Company
or a Subsidiary during an Option Period, his participation in the
Plan shall thereupon terminate. In such event, the dollar amount
and shares, if any, in his Stock Purchase Account shall be
distributed to him (or in the case of death, to his designated
beneficiary(ies)) and no further shares will be purchased on his
behalf. For purposes of this section, an Employee's
participation in the Plan will not automatically terminate if he
becomes an individual on a leave of absence permitted or required
to be taken into account by applicable Treasury Regulations.
Section 5.3 NO INTEREST ON ACCOUNT BALANCES.
Unless otherwise provided by the Company's Board of
Directors, no interest shall be paid on the cash balance in a
Participant's Stock Purchase Account pending its investment.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1 TAX WITHHOLDING; INFORMATION RETURNS.
Each Employee who elects to participate in the Plan
shall be deemed to have consented to any income tax withholding
that may hereafter be required by reason of his participation in
the Plan or the disposition of, or payment of any dividends on,
shares acquired by him under the Plan. The proper officers of
the Company and each Subsidiary shall prepare (or cause to be
prepared) and, where required, timely file (or cause to be filed)
such tax information returns and other notices as may be required
by law from time to time.
Section 6.2 NOTICES.
Any notice which a Participant files pursuant to the
Plan shall be made on forms prescribed by the Committee and shall
be effective when received by the Committee.
Section 6.3 CONDITION OF EMPLOYMENT.
Neither the creation of the Plan, nor participation
therein, shall be deemed to create any right of continued
employment or in any way affect the right of the Company or a
Subsidiary to terminate an Employee.
Section 6.4 AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time
to time, amend the Plan in any respect, except, that without
approval of the Company's shareholders, no amendment may
(i) increase the aggregate number of shares permitted to be
reserved by the Board of Directors under the Plan other than as
provided in Section 4.2, (ii) materially change the Plan benefits
<PAGE A-8> provided for herein, (iii) change the definition of a
Subsidiary, or (iv) materially change the eligibility
requirements for Employees. Any amendment of the Plan must be
made in accordance with applicable provisions of the Code.
Section 6.5 APPLICATION OF FUNDS.
All funds received by the Company by reason of a
purchase of shares hereunder may be used for any corporate
purpose.
Section 6.6 LEGAL RESTRICTIONS.
The Company shall not be obligated to sell shares of
Common Stock hereunder if counsel to the Company determines that
such sale would violate any applicable law or regulation.
Section 6.7 GENDER.
Whenever used herein, use of any gender shall be
applicable to all genders.
Section 6.8 NUMBER.
Whenever used herein, singular words shall include the
plural, and vice versa, as the context requires.
Section 6.9 GOVERNING LAW.
Except to the extent preempted by Federal law, the Plan
and all rights and obligations thereunder shall be construed and
enforced in accordance with the domestic internal law of the
Commonwealth of Pennsylvania. <PAGE A-9>
