<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Tucker Anthony Sutro
(Name of Registrant as Specified In Its Charter)
Tucker Anthony Sutro
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Tucker Anthony Sutro LOGO
April 21, 2000
Dear Stockholders:
On behalf of the Board of Directors and employees of Tucker Anthony Sutro,
I cordially invite you to attend the 2000 Annual Meeting of Tucker Anthony
Sutro's stockholders. We will be holding the Annual Meeting on Thursday, May 18,
2000 at 10:00 a.m. eastern time at the Omni Parker House Hotel, located at 60
School Street, Boston, Massachusetts.
Enclosed with this letter are a Notice of Annual Meeting, a Proxy
Statement, a proxy card and a return envelope. Both the Notice of Annual Meeting
and the Proxy Statement provide details of the business that we will conduct at
the Annual Meeting and other information about Tucker Anthony Sutro.
Whether or not you plan to attend the Annual Meeting, please sign, date and
promptly return the proxy card in the enclosed prepaid return envelope, or vote
your proxy via the Internet or by telephone as described on page 2 of the Proxy
Statement. Your shares will be voted at the Annual Meeting in accordance with
your proxy instructions. Of course, if you attend the Annual Meeting you may
vote in person. If you plan to attend the meeting, please mark the appropriate
box on the enclosed proxy card.
Sincerely,
[/s/ John H. Goldsmith]
John H. Goldsmith
Chairman of the Board
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YOUR VOTE IS IMPORTANT
Please Sign, Date and Return Your Proxy Card Before the Annual Meeting
TUCKER ANTHONY SUTRO
INFORMATION REGARDING ANNUAL MEETING OF STOCKHOLDERS
Date: Thursday, May 18, 2000
Time: 10:00 a.m.
Place: Omni Parker House Hotel
60 School Street
Boston, Massachusetts
<PAGE> 4
TUCKER ANTHONY SUTRO
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2000
Notice is hereby given that the Annual Meeting of Tucker Anthony Sutro will
be held at the Omni Parker House Hotel, 60 School Street, Boston, Massachusetts
on Thursday, May 18, 2000 at 10:00 a.m. eastern time for the following purposes:
- To elect eleven directors;
- To ratify the selection of Ernst & Young, LLP as our independent
accountants for the fiscal year ending December 31, 2000;
- To approve proposed amendments to our 1998 Employee Stock Purchase Plan;
- To approve proposed amendments to our 1998 Long-Term Incentive Plan; and
- To transact any other business that is properly presented at the Annual
Meeting.
You will be able to vote your shares at the Annual Meeting if you were a
stockholder of record at the close of business on April 14, 2000.
By Order of the Board of Directors:
[/s/ Kevin J. McKay]
Kevin J. McKay
Secretary
April 21, 2000
YOUR VOTE AT THE ANNUAL MEETING IS IMPORTANT.
PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE OR VOTE YOUR PROXY VIA THE INTERNET OR BY TELEPHONE AS SOON AS
POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE MEETING.
IF YOU ATTEND THE MEETING, YOU WILL BE ABLE TO REVOKE YOUR PROXY AND VOTE IN
PERSON.
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TUCKER ANTHONY SUTRO
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
April 21, 2000
PROXY STATEMENT FOR ANNUAL MEETING
This Proxy Statement provides information that you should read before you
vote on the proposals that will be presented to you at the 2000 Annual Meeting
of the stockholders of Tucker Anthony Sutro (the "Company"). The 2000 Annual
Meeting will be held on Thursday, May 18, 2000 at 10:00 a.m. eastern time at the
Omni Parker House Hotel, 60 School Street, Boston, Massachusetts.
This Proxy Statement provides detailed information about the Annual
Meeting, the proposals you will be asked to vote on at the Annual Meeting and
other relevant information.
On or about April 21, 2000 we began mailing this Proxy Statement to persons
who, according to our records, owned shares of our common stock at the close of
business on April 14, 2000.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Information About the 2000 Annual Meeting and Voting........ 2
Proposals to be Presented at the Annual Meeting............. 5
1. Election of Directors
2. Ratification of Ernst & Young, LLP as Independent
Accountants
3. Approval of Proposed Amendments to 1998 Employee Stock
Purchase Plan
4. Approval of Proposed Amendments to 1998 Long-Term
Incentive Plan
Share Ownership............................................. 15
The Board of Directors...................................... 17
Executive Compensation...................................... 20
Compensation Committee Report on Executive Compensation..... 24
Certain Relationships and Related Transactions.............. 26
Other Information........................................... 28
</TABLE>
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INFORMATION ABOUT THE 2000 ANNUAL MEETING AND VOTING
THE ANNUAL MEETING
The Annual Meeting will be held on Thursday, May 18, 2000 at 10:00 a.m.
eastern time at the Omni Parker House Hotel, 60 School Street, Boston,
Massachusetts. On or about April 21, 2000 we began mailing this Proxy Statement
to persons who, according to our records, owned shares of our common stock at
the close of business on April 14, 2000.
THIS PROXY SOLICITATION
We are sending you this Proxy Statement because our Board of Directors is
seeking a proxy to vote your shares at the Annual Meeting. This Proxy Statement
is intended to assist you in deciding how to vote your shares.
The Company is paying the cost of requesting these proxies. Our directors,
officers and employees may request proxies in person or by telephone, mail, or
telecopy. Such persons will receive no additional compensation for such
services, but we will reimburse them for their reasonable out-of-pocket
expenses. We will also provide copies of proxy materials to fiduciaries,
custodians, nominees and brokerage houses for forwarding to beneficial owners of
our common stock, and we will reimburse them as well for their reasonable
out-of-pocket expenses.
In addition, a number of brokers and banks are participating in a program
provided through ADP Investor Communication Services that offers Internet voting
options. If your shares are held in an account with a broker or bank
participating in the ADP Investor Communication Services program, you may vote
those shares via the Internet at ADP Investor Communication Services' voting web
site as specified in your voting materials. Registered stockholders may vote
electronically through the Internet by following the instructions included with
their proxy cards.
Votes submitted via the Internet or by calling the toll-free number
attached to the proxy card must be received by 12:00 midnight, Eastern Daylight
Time, on May 17, 2000. Submitting your proxy via the Internet or by telephone
will not affect your right to vote in person should you decide to attend the
Annual Meeting. The Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. Stockholders voting via the Internet should understand that there may
be costs associated with electronic access, such as usage charges from Internet
access providers and telephone companies, that must be borne by the stockholder.
If you vote via the Internet or by telephone, please do not return a signed
proxy card.
RECORD DATE AND QUORUM
The record date for the Annual Meeting was April 14, 2000. If you held
shares of our common stock as of the record date, you may attend and vote at the
Annual Meeting. On the record date, 22,444,345 shares of the Company's common
stock were issued and outstanding. Each share of our common stock is entitled to
one vote at the Annual Meeting.
A "quorum" must be present at the Annual Meeting in order to transact
business. A quorum will be present if 11,222,173 shares of the Company's common
stock are represented at the Annual Meeting, either in person (by the
stockholders) or by proxy. If a quorum is not present, a vote cannot occur.
Except as to Proposal 1, if you indicate on a proxy or ballot that you abstain
from voting or that your shares are not to be voted on a particular proposal, it
has the same effect as if you voted against the proposal and those shares will
be counted as in attendance at the Annual Meeting for purposes of determining a
quorum as to all proposals.
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VOTING YOUR SHARES
You have one vote for each share of the Company's common stock that you
owned of record at the close of business on April 14, 2000. The number of shares
you own (and may vote at the Annual Meeting) is listed on the enclosed proxy
card. You may not cumulate your votes in voting for directors.
You may vote your shares at the Annual Meeting either in person or by
proxy. To vote in person, you must attend the Annual Meeting and obtain and
submit a ballot. Ballots for voting in person will be available at the Annual
Meeting. To vote by proxy, you must complete and return the enclosed proxy card
or vote your proxy via the Internet or by telephone as described above. By
completing and returning the proxy card, you will be directing the persons
designated on the proxy card to vote your shares at the Annual Meeting in
accordance with the instructions you give on the proxy card.
If you decide to vote by proxy, your proxy card will be valid only if you
sign, date and return it before the Annual Meeting. IF YOU COMPLETE THE PROXY
CARD EXCEPT FOR THE VOTING INSTRUCTIONS, THEN YOUR SHARES WILL BE VOTED FOR THE
PROPOSED ELECTION OF DIRECTORS, FOR RATIFICATION OF THE SELECTION OF ERNST &
YOUNG, LLP AS THE INDEPENDENT ACCOUNTANTS OF THE COMPANY FOR THE 2000 FISCAL
YEAR, FOR APPROVAL OF PROPOSED AMENDMENTS TO OUR 1998 EMPLOYEE STOCK PURCHASE
PLAN, AND FOR APPROVAL OF PROPOSED AMENDMENTS TO OUR 1998 LONG-TERM INCENTIVE
PLAN.
REVOKING YOUR PROXY
If you decide to change your vote, you may revoke your proxy at any time
before it is voted. You may revoke your proxy in any one of three ways:
- You may notify the Secretary of the Company in writing that you wish to
revoke your proxy.
- You may submit a proxy dated later than your original proxy.
- You may attend the Annual Meeting and vote. Merely attending the Annual
Meeting will not by itself revoke a proxy; you must obtain a ballot and
vote your shares to revoke the proxy.
VOTE REQUIRED FOR APPROVAL
Proposal 1: Election of The eleven nominees for director who receive
Eleven Directors the most votes will be elected. If you indicate
"withhold authority to vote" for a particular
nominee on your proxy card, your vote will not
count either for or against the nominee.
Proposal 2: Ratification of Ratification of the selection of our
Selection of Independent independent accountants requires the
Accountants affirmative vote of the holders of a majority
of shares of our common stock having voting
power present in person or represented by proxy
at the meeting.
Proposal 3: Approval of Approval of the proposed amendments to the 1998
Amendments to 1998 Employee Employee Stock Purchase Plan requires the
Stock Purchase Plan affirmative vote of the holders of a majority
of shares of our common stock having voting
power present in person or represented by proxy
at the meeting.
Proposal 4: Approval of Approval of the proposed amendments to the 1998
Amendments to 1998 Long-Term Long-Term Incentive Plan requires the
Incentive Plan affirmative vote of the holders of a majority
of shares of our common stock having voting
power present in person or represented by proxy
at the meeting.
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If you hold your shares with a broker and you do not tell your broker how
to vote, your broker has the authority to vote on all of the proposals scheduled
to be presented at the Annual Meeting, other than Item 4. If a broker returns a
"non-vote" proxy, which indicates a lack of authority to vote on a given matter,
then the shares covered by the non-vote shall be treated as present at the
meeting for purposes of determining a quorum, but will not be treated as
represented at the meeting for purposes of calculating the vote with respect to
that matter.
ADDITIONAL INFORMATION ABOUT THE COMPANY
Our Annual Report to Stockholders for the fiscal year ended December 31,
1999, including consolidated financial statements, is being mailed to all
stockholders entitled to vote at the Annual Meeting together with this Proxy
Statement. The Annual Report does not constitute a part of the proxy
solicitation material. The Annual Report tells you how to get additional
information about the Company.
4
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PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING
We will present the following four proposals at the Annual Meeting. We do
not expect anyone to present any other proposals. If anyone validly presents any
other proposal, we will use your proxy to vote on those proposals as we believe
is appropriate.
ITEM 1: ELECTION OF DIRECTORS
Holders of proxies solicited by this proxy statement will vote the proxies
received by them as directed on the proxy card or, if there is no direction on
the proxy card, for the Board of Director nominees listed below. Nominees for
election to our Board of Directors are:
<TABLE>
<S> <C>
John H. Goldsmith C. Hunter Boll
John F. Luikart Winston J. Churchill
David P. Prokupek Thomas M. Hagerty
Mark T. Whaley David V. Harkins
Robert H. Yevich Hugh R. Harris
Seth W. Lawry
</TABLE>
Each director will be elected to serve for a one-year term, or thereafter
until his replacement is elected and qualified or until his earlier resignation
or removal. Each of the eleven nominees is presently a member of the Board of
Directors and has consented to serve as a director if re-elected. More detailed
information about each of the nominees is available in the section of this
booklet titled "The Board of Directors," which begins on page 15.
If any of the nominees cannot serve for any reason (which we do not
anticipate), our Board of Directors may designate a substitute nominee or
nominees. If a substitute is nominated, we will vote all valid proxies for the
election of the substitute nominee or nominees. Our Board of Directors may also
decide to leave the seat or seats open until a suitable candidate or candidates
are located, or it may decide to reduce the size of the Board of Directors.
Proxies for the Annual Meeting may not be voted for more than eleven nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THESE
DIRECTORS.
ITEM 2: RATIFICATION OF ERNST & YOUNG, LLP
AS INDEPENDENT ACCOUNTANTS
We are requesting that you ratify our Board's selection of Ernst & Young,
LLP as our independent accountants for 2000. Ernst & Young, LLP have been our
independent accountants since the Company's inception in 1996 and were the
independent accountants for Freedom Securities Holding Corporation (the
"Predecessor Company" to the Company). The Audit Committee and the Board believe
that Ernst & Young's experience with and knowledge of the Company and the
Predecessor Company are important and we would like to continue this
relationship.
Although the selection of independent accountants does not require
ratification, we are submitting this proposal to you because we believe this
matter is significant enough to warrant your participation. If you do not ratify
the appointment of Ernst & Young, LLP, our Board of Directors, after review by
the Audit Committee, will consider the appointment of other independent
accountants. Representatives from Ernst & Young will be available at the Annual
Meeting to answer your questions and make a statement if they desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.
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ITEM 3: APPROVAL OF AMENDMENTS TO
1998 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Employee Stock Purchase Plan (the "ESPP") was implemented in March 1998
to provide eligible employees of the Company and any participating subsidiaries
the opportunity to purchase common stock of the Company through after-tax
payroll deductions. The purpose of the ESPP is to provide incentives for our
employees to promote the best interests of the Company by allowing eligible
employees the opportunity to participate in the Company's economic growth. We
believe our employees view the ESPP as a valuable benefit. As of the record
date, approximately 20 percent of eligible employees are participating in the
ESPP.
THE CURRENT ESPP
The Board's Compensation Committee currently administers the ESPP. As the
administrator of the ESPP, the Compensation Committee has full authority to
make, administer, and interpret equitable rules regarding the ESPP.
Our Board may, without the consent of the participants, amend the ESPP at
any time, provided that the amendment does not adversely affect options
previously granted under the ESPP. Our Board must obtain the approval of our
stockholders, however, to (a) increase the total number of shares of common
stock available for purchase under the ESPP, (b) change the class of employees
eligible to receive options under the ESPP, or (c) change the ESPP in any way
that would require shareholder approval under applicable law or regulations.
All of our employees whose customary employment is 20 hours or more per
week and five months or more per year and who have been employed by the Company
for at least six months before a Purchase Period (as defined below) begins are
eligible to participate voluntarily in the ESPP. Employees who own 5% or more of
our stock and non-employee directors cannot participate. In addition, under the
ESPP's current terms, persons subject to the reporting requirements of Section
16(a) of the Securities Exchange Act cannot participate in the ESPP.
To participate in the ESPP, an employee must authorize the Company in
writing to deduct an amount (not less than 1% nor more than 10% of a
participant's base compensation and not more than $25,000 in any year) from his
or her pay commencing on January 1, April 1, July 1 and October 1 of each year
(each a "Purchase Period"). On the first day of each Purchase Period, the
Company grants to each participating employee an option (expiring at the end of
the Purchase Period) to purchase up to that number of shares of common stock
they are entitled to purchase under the ESPP. The exercise price for the option
for each Purchase Period is 85% of the fair market value of the common stock.
The fair market value will be the average of the closing selling price of the
common stock on the NYSE for the last five days of any Purchase Period. The
exercise price for the Purchase Period that ended March 31, 2000 was $13.02625.
If an employee is not a participant on the last day of a Purchase Period, the
employee is not entitled to exercise his or her outstanding option, and the
amount of his or her accumulated payroll deduction will be refunded to the
employee. If the participant remains in the plan as of the end of the Purchase
Period, his or her accumulated payroll deductions will automatically be used to
purchase shares of common stock at the exercise price described above. A
participant must then hold the purchased shares in a designated account for six
months after purchase.
A participant in the ESPP may elect to cancel his or her participation in
the ESPP by submitting written notice of cancellation. In the event of
cancellation, the participant will receive in cash, as soon as practicable after
delivery of the notice of cancellation, the amount of accumulated payroll
deductions in the participant's
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account. Cancellation of an employee's participation does not prevent the
employee from electing to participate in the ESPP during any subsequent Purchase
Period. In addition, an employee's rights under the ESPP end upon termination of
his or her employment, at which time the amount of accumulated payroll
deductions in the participant's account would be refunded to the participant.
Common stock for the ESPP is made available either from authorized but
unissued shares of common stock or from shares of common stock reacquired by the
Company, including shares repurchased in the open market.
PROPOSED AMENDMENTS
Our ESPP currently authorizes the issuance of a maximum of 500,000 shares
of common stock to participating employees. As of the record date, 79,209 shares
remain available for purchase under the ESPP. Our Board of Directors believes
this number is insufficient to meet anticipated demand for participation in the
ESPP over the next few years and is seeking approval to increase the number of
shares issuable under the ESPP. The Board believes this increase will allow us
to meet projected demand under our ESPP over the next few years, subject to
unexpected changes in participation levels. In addition, our Board believes it
is in the best interests of the Company to expand the class of eligible
employees to include persons who are subject to the reporting requirements of
Section 16(a) of the Exchange Act. The proposed increase in the number of shares
issuable under the ESPP would also assist in meeting the expected increased
demand for participation resulting from the expansion of eligible employees. The
specific language of the amendments to the ESPP is set forth in Exhibit A.
On April 10, 2000, the Board adopted amendments to the ESPP to increase the
number of shares subject to issuance under the ESPP and to expand the class of
eligible employees under the ESPP, as set forth in the following proposal. We
are now seeking stockholder approval of this proposal. Our proposal is to:
1. increase the number of shares reserved for issuance under the ESPP from
500,000 to 1,750,000 by replacing the first sentence of Section 4 of the
ESPP with the following:
"There shall be 1,750,000 shares of Common Stock reserved for issuance
to and purchase by Participants under the Plan, subject to adjustment as
herein provided."
and
2. add as eligible employees persons subject to the reporting requirements
of Section 16(a) of the Exchange Act by deleting Section 2(j)(4) of the
ESPP.
FEDERAL INCOME TAX CONSEQUENCES OF ESPP
The following summarizes certain federal income tax consequences of
participation in the ESPP. It does not cover employment taxes except as
specified, nor does it cover other federal, state, local, or foreign tax
consequences, if any.
Rights granted under the ESPP are intended to qualify for the favorable
federal income tax treatment provided by an employee stock purchase plan that
qualifies under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
A participant's withheld compensation will be post-tax. In other words, the
participant will be taxed on amounts withheld for the purchase of shares of our
common stock as if he or she had instead received his or her full salary or
wages. Other than this, no income will be taxable to a participant until
disposition of the shares acquired, and the method of taxation will depend upon
how long the shares were held before disposition.
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If the purchased shares of common stock are disposed of more than two years
after the beginning of the applicable Purchase Period and more than one year
after the exercise date or if the participant dies at any time while holding the
stock, then the lesser of (a) the excess of the fair market value of the stock
at the time of such disposition or death over the purchase price or (b) 15% of
the fair market value of the stock as of the beginning of the applicable
Purchase Period will be treated as ordinary income. Any further gain or any loss
will be taxed as a long-term capital gain or loss. Net long-term capital gains
for individuals are currently subject to a maximum marginal federal income tax
rate that is less than the maximum marginal rate for ordinary income.
If the participant sells or disposes of the stock before the expiration of
either of the holding periods described above (a "disqualifying disposition"),
then the excess of the fair market value of the stock on the exercise date over
the exercise price will be treated as ordinary income at the time of such
disposition. We may, in the future, be required to withhold income taxes
relating to such ordinary income from other payments made to the participant.
The balance of any gain on a sale will be treated as capital gain. Even if the
stock is sold for less than its fair market value on the exercise date, the same
amount of ordinary income is attributed to the participant, and a capital loss
is recognized equal to the difference between the sales price and the fair
market value of the stock on the exercise date. Any capital gain or loss will be
long- or short-term depending on whether the stock has been held for more than
one year.
There are no federal income tax consequences to us by reason of the grant
or exercise of rights under the ESPP. We will, in general, be entitled to a
deduction to the extent amounts are taxed as ordinary income to a participant by
reason of a disqualifying disposition of the purchased shares of stock, but will
not be entitled to a deduction in respect of the ordinary income realized by a
participant upon a later disposition, or realized upon death. Our deduction may
be limited under Code Section 162(m) and may be subject to disallowance for
failure to report the optionee's income (which could arise if an optionee does
not notify us of the sale of stock in a disqualifying disposition).
NEW PLAN BENEFITS
Benefits to be awarded under the ESPP to employees vary depending upon the
elections of the participants as to their level of participation. No additional
benefits have been granted under the ESPP that are conditioned upon approval of
the proposed amendments.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.
ITEM 4: APPROVAL OF AMENDMENTS TO
1998 LONG-TERM INCENTIVE PLAN
GENERAL
Our 1998 Long-Term Incentive Plan (the "1998 Plan") was instituted in 1998
to enable employees of the Company to participate in the shareholder value
created in the Company and to attract, retain and motivate key employees. The
1998 Plan provides for the granting of stock options, stock appreciation rights
("SARs"), restricted stock and long-term performance awards, in each case on the
terms and to the officers and other key employees that the administrators of the
1998 Plan select.
THE CURRENT 1998 PLAN
Administration and Amendments. A committee (the "Committee") of the Board
of Directors administers the 1998 Plan. The Committee is comprised of directors
who qualify as "non-employee directors" and
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"outside directors," for purposes of assisting in complying with tax and
securities laws. The Committee may amend, alter, or discontinue the 1998 Plan at
any time but cannot alter or discontinue the 1998 Plan in a way that would
impair the rights of an optionee or participant with respect to an outstanding
award without the optionee or participant's consent. In addition, without the
approval of our stockholders, the Committee may not make any such amendment that
would, except in connection with stock splits, dividends, or similar
recapitalizations of the Company, increase the total number of shares reserved
for purposes of the 1998 Plan, change the employees or class of employees
eligible to participate in the 1998 Plan, or extend the maximum option period
applicable to incentive stock options ("ISOs") granted under the 1998 Plan.
Share Limits. Currently, the maximum number of shares of common stock that
can be issued under the 1998 Plan is 2,288,911. Counted against that number are
all outstanding awards, all exercised awards, and any other shares issued under
the 1998 Plan. Added to that limit are any shares of stock delivered or withheld
in payment of the exercise price, purchase price or tax withholding requirements
of an award granted under the 1998 Plan. The maximum number of shares covered by
stock options, SARs or shares of restricted stock that can be granted to any one
participant in any one plan year is 250,000.
Options. Stock options awarded under the 1998 Plan may either be
"incentive stock options" as defined in Section 422 of the Code, or nonqualified
stock options ("NQSOs"). The Committee sets the term of each stock option, but
no incentive stock option shall be exercisable for a period of more than ten
years from the date the option is granted. Any option granted to any optionee
who, at the time the option is granted, owns (or is treated as owning) more than
10% of the voting power of all classes of capital stock of the Company or of a
subsidiary may not have a term of more than five years from the date of grant.
Option exercise prices must be at least 85% of fair market value (as determined
under the 1998 Plan) for NQSOs and 100% for ISOs. As of April 14, 2000, the fair
market value of a share of common stock was $14.75.
Upon receipt of written notice to exercise a stock option, the Company may,
in the Committee's sole discretion, elect to cash out all or part of the option
to be exercised by paying the optionee an amount, in cash or common stock, equal
to the excess of the fair market value of the common stock over the exercise
price on the effective date of such cashout or may issue restricted stock.
Options will be exercisable after termination of employment for limited periods
of time, not to exceed two years, depending upon the reason for the termination.
Unless the Committee specifically consents, participants may not deliver shares
or cause them to be withheld by us in payment of the exercise price, purchase
price, or tax withholding requirements of an award granted under the 1998 Plan
if such payment would result in a charge to earnings for financial accounting
purposes.
Stock Appreciation Rights. The 1998 Plan also authorizes the Committee to
grant stock appreciation rights or SARs. An SAR entitles the recipient to
receive upon exercise the excess of (a) the fair market value of a specified
number of shares of the Company's common stock at the time of exercise over (b)
a price specified by the administrator. The Company may pay such amount to the
holder in the form of the Company's common stock (valued at its fair market
value on the date of exercise), cash or a combination thereof, as determined by
the Committee. SARs may be either unrelated to any option or an alternative to a
previously or contemporaneously granted option. SARs granted as an alternative
to a previously or contemporaneously granted option will entitle the optionee,
in lieu of exercising the option, to receive the excess of the fair market value
of a share of the Company's common stock on the date of exercise over the option
price multiplied by the number of shares as to which such optionee is exercising
the appreciation right. If an appreciation right is an alternative to an option,
such option shall be deemed canceled to the extent that the appreciation right
is exercised and the alternative appreciation right shall be deemed canceled to
the extent that such option is exercised. The Committee may also grant limited
SARs that allow payments only in certain circumstances related to change in
control.
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Long-Term Performance Awards. The 1998 Plan authorizes the Committee to
grant performance awards to employees. Performance awards are earned over a
performance period (which shall not be less than two years) determined by the
Committee at the time of the award. There may be more than one performance award
in existence at any one time, and the performance periods may differ or overlap.
The Committee will determine the portion of the performance award earned by
the participant, based on the degree to which the performance goals are
achieved. No performance awards will be earned by the participant unless the
minimum performance goals are met. When earned, performance awards will be paid
in a lump sum or installments in cash, common stock or a combination thereof as
the Committee may determine.
If a participant ceases to be an employee of the Company during the
performance period due to death, disability, or retirement, each performance
award will continue to be subject to the performance goals for the performance
period or the Committee may authorize payment of all or a portion of the amount
the participant would have been paid if such participant had continued as an
employee to the end of the performance period. In all other cases, all unearned
performance awards will be forfeited, unless the Committee determines otherwise.
Restricted Stock or Restricted Stock Units. The 1998 Plan authorizes the
Committee to grant restricted common stock of the Company or restricted stock
units to employees with such restriction periods and price goals as the
Committee may designate at the time of the award. Restricted stock under the
1998 Plan shall be awarded for nominal or no consideration on behalf of the
recipient. Each restricted stock unit would represent the right to receive an
amount determined by the Committee at the time of the award, which value may be
equal to the full monetary value of one share of common stock. If a holder of
restricted stock or restricted stock equivalents ceases to be employed by the
Company other than because of termination for cause, the Committee may waive all
or a portion of the restrictions on a number of shares or share units. In all
other cases, all restricted shares or restricted stock equivalents will be
forfeited to the Company upon termination while the shares or units are still
restricted.
Special Deduction Limit Rules. The 1998 Plan contains provisions intended
to comply with a special tax deduction limit on compensation for the top five
officers of public companies (Section 162(m) of the Code). During such time as
Section 162(m) of the Code or any successor provision is in effect, the
Committee may specify that certain participants are subject to additional
limitations on payments. Under these limits, the maximum value such participants
may receive in any calendar year under the 1998 Plan (other than as provided
below) will be $2 million multiplied by the number of years in the relevant
measuring period, but in no event more than $5 million, and the maximum annual
amount that may be paid to such a participant under the 1998 Plan is 110% of
such maximum amount for the preceding year. In any event, the maximum annual
amount determined under this provision shall be determined without regard to the
value of any stock options granted to a participant under the 1998 Plan, because
those limits are already provided by the limitation of 250,000 shares per person
per year. The Committee may establish performance goals to assist in compliance
with Section 162(m) from among any of the following factors, or any combination
of the following, as the Committee deems appropriate: (a) future economic value
per share; (b) earnings per share for the Company or its affiliates; (c) return
on average common equity; (d) pre-tax income; (e) pre-tax operating income; (f)
net revenue; (g) net income, (h) profits before taxes, (i) book value per share,
(j) stock price, and/or (k) earnings available to common stockholders. The
Committee may reduce awards to reflect any additional factors it considers
appropriate. The 1998 Plan also authorizes the Committee to reduce grants or
adjust performance goals in the event of certain acquisitions or dispositions of
assets or securities by the Company, subject to the restrictions of Section
162(m) of the Code. The rules described in this paragraph will cease to apply if
Section 162(m) is repealed (other than the 250,000 share limit).
10
<PAGE> 16
Change in Control Rules. If we have a change of control, awards previously
granted under the 1998 Plan but not yet vested at the time of the change of
control will accelerate and become exercisable, except where the Committee
determines otherwise. In general, we will have a change of control at any time
that:
- anyone acquires at least 20% or more of the combined voting power of our
outstanding securities without our Board's consent;
- any transaction or event occurs that would be required to be described as
a change of control event in a proxy statement of the Company;
- there are specified changes in our Board of Directors during any two-year
period as a result of adding new directors not approved by the existing
directors; or
- we are acquired by a third party in a transaction that requires
stockholder approval.
Upon a change of control event, awards will generally become exercisable as
follows: (a) SARs and stock options would become generally fully vested and
exercisable; (b) restrictions applicable to any restricted stock awards would
lapse and the stock would be deemed fully vested; and (c) any outstanding
long-term performance awards would vest and be paid out based on pro rated
target results for the performance period relating to such awards. The value of
outstanding SARs, stock options and restricted stock awards would, unless
otherwise determined by the Committee at or after grant, be cashed out on the
basis of the Change in Control Price. The "Change in Control Price" is the
highest sales price per share of common stock paid or offered in any bonafide
transaction relating to a Change in Control of the Company, as determined by the
Committee. The 1998 Plan provides that no payment shall be made in connection
with a Change in Control that, when aggregated with other payments made to the
employee would, result in "excess parachute payment" for which the Company would
not receive a federal income tax deduction under the Code.
PROPOSED AMENDMENTS
The Board of Directors is seeking stockholder approval to increase the
number of shares of our common stock reserved for issuance under the 1998 Plan
to provide additional shares for incentive purposes, to allow more explicitly
the use of the 1998 Plan's shares to pay our obligations under deferred
compensation arrangements that we may develop, to specifically authorize the
Committee to authorize loans under the 1998 Plan, and to reapprove certain award
limits and approve a new performance goal for tax deduction purposes as
described below. The specific language of the amendments to the 1998 Plan is set
forth in Exhibit A.
As of the record date, a total of 2,288,911 shares of the common stock were
reserved for issuance under the 1998 Plan and a total of 257,084 shares of the
common stock remain available to be granted as stock options, SARs, restricted
stock and long-term performance awards under the 1998 Plan. Our Board of
Directors believes that this number is insufficient to meet anticipated demand
under the 1998 Plan over the next few years for current and new employees and to
provide shares for any deferred compensation arrangements we may establish that
permit our employees to defer bonuses into stock. The Board believes an increase
in the number of shares reserved for issuance will allow us to meet projected
demand under our 1998 Plan and any deferred compensation arrangements over the
next few years, subject to unexpected changes in participation levels. In
addition, the Board recommends that the terms of the 1998 Plan be amended as set
forth below to clarify and expand its ability to grant different forms of awards
under the 1998 Plan. As a result, the Board of Directors has approved and
recommends that the stockholders of the Company approve the proposal to amend
the 1998 Plan to:
1. increase the number of shares of common stock reserved for issuance
under the 1998 Plan by 3,525,893 shares (and provide that the increase
can, but need not be, used for incentive stock options);
11
<PAGE> 17
2. clarify that restricted stock or other awards may be distributed under
the 1998 Plan as bonuses or deferred compensation or in lieu of our
obligations under such arrangements and that the Committee may sell or
award restricted or unrestricted shares for compensatory purposes on the
terms it considers appropriate; and
3. specifically authorize the Committee to loan participants funds to
purchase shares under the 1998 Plan on terms and conditions to be
determined in the Committee's sole discretion (loans the Committee may
forgive in whole or in part).
If the stockholders approve the increase in shares described above, the
Board will amend our 1996 Stock Option Plan to eliminate its ability to issue
the 325,893 shares currently available under that plan.
The Board of Directors further asks the stockholders to reapprove the limit
of 250,000 shares of common stock per plan year within the 1998 Plan with
respect to awards to any individual, to reapprove the limit on payments
described above under Special Deduction Limit Rules, and to add to the list of
performance goals described under that section "Total Shareholder Return (stock
price plus reinvested dividends)." Approvals of the proposals set forth in this
paragraph would assist us in deducting amounts received by senior executives
under Section 162(m) of the Code.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK, AND PERFORMANCE AWARDS
The following briefly summarizes the federal income tax consequences of the
issuance and exercise of stock options and stock appreciation rights under the
1998 Plan. The following discussion does not purport to be complete and does not
cover, among other things, the state, local, and foreign tax treatment
associated with the grant and exercise of options.
Nonqualified Stock Options. An optionee will not be taxed when he or she
("he") receives a nonqualified stock option ("NQSO"). When he exercises an NQSO,
he will generally owe taxes on ordinary income on the difference between the
value of the shares he receives and the price he pays, with the "spread" treated
like additional salary for an employee. He may then owe taxes again if and when
he sells the shares. That tax would be on the difference between the price he
received for the share and his "basis," which is the sum of the price he
originally paid plus the value of the shares on which he originally paid income
taxes. Depending upon how long he held the shares before selling, he may be
eligible for favorable tax rates for certain kinds of capital gains. In
addition, we will receive an income tax deduction for any amounts of "ordinary
income" to him or her.
Incentive Stock Options. An optionee will not be taxed when he receives an
ISO and will not be taxed when he exercises the ISO, unless he is subject to the
alternative minimum tax ("AMT"). If he holds the shares purchased upon exercise
of the ISO ("ISO Shares") for more than one year after the date he exercised the
option and for more than two years after the option grant date, he generally
will realize long-term capital gain or loss (rather than ordinary income or
loss) when he sells or otherwise disposes of the ISO Shares. This gain or loss
will equal the difference between the amount realized upon such disposition and
the amount paid for the ISO Shares.
If the optionee sells the ISO Shares in a "disqualifying disposition" (that
is, within one year from the date he exercises the ISO or within two years from
the date of the ISO grant), he generally will recognize ordinary compensation
income equal to the lesser of (1) the fair market value of the shares on the
date of exercise minus the price he paid or (2) the amount he realized on the
sale. For a gift or another disqualifying disposition where a loss, if
sustained, would not usually be recognized, he will recognize ordinary income
equal to the fair market value of the shares on the date of exercise minus the
price he paid. Any amount realized on
12
<PAGE> 18
a disqualifying disposition that exceeds the amount treated as ordinary
compensation income (or any loss realized) will be a long-term or a short-term
capital gain (or loss), depending, under current law, on whether he held the
shares for at least 12 months. We can generally take a tax deduction on a
disqualifying disposition corresponding to the ordinary compensation income he
recognizes but cannot deduct the amount of the capital gains.
Alternative Minimum Tax. The difference between the exercise price and the
fair market value of the ISO Shares on the date of exercise is an adjustment to
income for purposes of the AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is a certain percentage of an individual taxpayer's
alternative minimum taxable income that is lower than the regular tax rates but
covers more income. Taxpayers determine their alternative minimum taxable income
by adjusting regular taxable income for certain items, increasing that income by
certain tax preference items, and reducing this amount by the applicable
exemption amount. If a disqualifying disposition of the ISO Shares occurs in the
same calendar year as exercise of the ISO, there is no AMT adjustment with
respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced when he
sells by the excess of the fair market value of the ISO Shares at exercise over
the amount paid for the ISO Shares.
Exercise by Delivery of Previously Acquired Shares. Generally, an optionee
will not recognize gain or loss upon the transfer to the Company of previously
acquired shares of common stock (the "Old Shares") in payment of all or a
portion of the exercise price of shares of common stock (the "New Shares")
acquired through the exercise of an option. The optionee's basis and holding
period in the Old Shares are transferred to that number of New Shares that
equals the number of Old Shares tendered in payment of the exercise price.
Additional New Shares have a basis equal to any income recognized by the
optionee on exercise plus any cash paid in payment of the exercise price.
However, if Old Shares are used to exercise an ISO, the disposition of the Old
Shares will be taxable generally in accordance with the rules discussed above if
the Old Shares were acquired by exercising an ISO and have not been held for the
requisite holding period.
Stock Appreciation Rights. The recipient will not recognize income at the
time of grant of an SAR. Upon exercising the SAR, the recipient must treat the
cash and the fair market value of any stock received upon such exercise as
ordinary income. We will generally be entitled to a deduction equal to such
amount.
Restricted Stock and Performance Awards. With respect to awards granted
under the 1998 Plan that result in the payment or issuance of cash or shares or
other property that is either not restricted as to transferability or not
subject to a substantial risk of forfeiture, the participant generally must
recognize ordinary income equal to the cash or the fair market value of shares
or other property received. We generally will be entitled to a deduction in an
amount equal to the ordinary income recognized by the participant.
With respect to awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture (e.g., restricted stock in some circumstances), the participant
generally must recognize ordinary income equal to the fair market value of the
shares or other property at the first time the shares or other property becomes
transferable or is not subject to a substantial risk of forfeiture, whichever
occurs earlier. The participant may be able to accelerate the taxation by filing
a notice with the Internal Revenue Service to treat the property as taxable even
though subject to restrictions. We generally will be entitled to a deduction in
an amount equal to the ordinary income recognized by the participant, either
eventually or by this acceleration election.
Tax Withholding Under the Code. We will be required to withhold taxes in
some circumstances associated with the participants' receiving compensation.
Under the 1998 Plan, we may permit the optionee to have us withhold all or a
portion of the shares of the Company that the optionee acquires upon the
exercise of an option to satisfy estimated or actual federal, state or local
income taxes. We may also permit the optionee
13
<PAGE> 19
to deliver other previously acquired shares (other than restricted stock) for
the purpose of tax withholding. The election to withhold must be made prior to
or on the date on which the tax obligation arises.
Potential Limitation on Company Deductions. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation it pays to certain
employees in a taxable year to the extent that compensation exceeds $1 million
for a covered employee. The tax rules disregard certain kinds of compensation,
including qualified "performance-based compensation," for purposes of the
deduction limitation. The Company intends and expects the compensation received
under the 1998 Plan to be exempt from Section 162(m) as performance-based and is
seeking stockholder approval to assist in that deduction.
This is a summary of the general principles of current federal income tax
law applicable to the purchase of shares under the amended plan. While we
believe that the description accurately summarizes existing provisions of the
Code, and its legislative history and regulations, and the applicable
administrative and judicial interpretations, these statements are only
summaries, and the rules in question are quite detailed and complicated.
Moreover, legislative, administrative, regulatory or judicial changes or
interpretations may occur that would modify such statements. Individual
financial situations may vary, and state and local tax consequences may be
significant. Therefore, no one should act based on this description without
consulting his own tax advisors concerning the tax consequences of purchasing
shares under the Plan and the disposing of those shares. In addition, different
rules may apply if the optionee is subject to foreign tax laws or pays the
exercise price using shares he already owns.
NEW PLAN BENEFITS
The Committee grants awards under the 1998 Plan in its discretion.
Consequently, we cannot fully determine the amount or dollar value at this time,
other than to note that the Committee has not granted options contingent on
approval of the amendments to the 1998 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.
14
<PAGE> 20
SHARE OWNERSHIP
There were 22,444,345 shares of the Company's common stock issued and
outstanding on April 14, 2000. The following table sets forth information
regarding the beneficial ownership of the Company's common stock as of April 14,
2000 by (1) each person known to us as beneficially owning more than 5% of the
Company's common stock, (2) each of our directors and nominees, (3) each officer
listed in the Summary Compensation Table (we will refer to these officers as the
"Named Executive Officers") and (4) all directors and executive officers as a
group. Except as noted in the footnotes to this table, to our knowledge each
person listed below has sole voting and investment power with respect to all
shares of Company common stock beneficially owned by him.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
BENEFICIALLY COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) STOCK
- --------------------------------------- ------------ ----------
<S> <C> <C>
Thomas H. Lee Equity Fund III, L.P.(3)...................... 4,305,212 19.18%
Thomas H. Lee Equity Advisors III, Limited Partnership(3)... 4,571,606 20.37%
Thomas H. Lee Equity Trust III(3)........................... 4,571,606 20.37%
John H. Goldsmith(4)........................................ 157,249 *
John F. Luikart(5).......................................... 127,889 *
Kevin J. McKay(6)........................................... 87,050 *
David P. Prokupek(7)........................................ 143,666 *
Mark T. Whaley.............................................. 184,124 *
Robert H. Yevich(8)......................................... 136,228 *
C. Hunter Boll(9)........................................... 5,018,197 22.36%
Winston J. Churchill........................................ -- *
Thomas M. Hagerty(10)....................................... 5,018,197 22.36%
David V. Harkins(11)........................................ 5,018,197 22.36%
Hugh R. Harris.............................................. -- *
Seth W. Lawry(12)........................................... 5,018,197 22.36%
All directors and executive officers as a group (13
persons)(13).............................................. 5,899,600 26.29%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the directors and named
executive officers is c/o the Company, One Beacon Street, Boston, MA 02108.
(2) We determine beneficial ownership according to the rules of the Securities
and Exchange Commission ("SEC"). In determining the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person are deemed
outstanding if those options are currently exercisable or are exercisable
within 60 days after April 14, 2000. Such shares, however, are not deemed
outstanding for purposes of determining the percentage ownership of each
other person.
(3) Such information as to beneficial ownership is derived from Reports on
Schedule 13G. Thomas H. Lee Equity Trust III ("Trust") is the general
partner of Thomas H. Lee Equity Advisors III, Limited Partnership
("Advisors"), and Advisors is the general partner of each of Thomas H. Lee
Equity Fund III, L.P. ("Fund") and Thomas H. Lee Foreign Fund III, L.P.
("Foreign Fund"). Therefore, Trust and Advisors may each be deemed
beneficial owners of shares held by Fund and Foreign Fund, although each
disclaims beneficial ownership of such shares except to the extent it has a
pecuniary
15
<PAGE> 21
interest in such shares. Fund directly owns 4,305,212 shares, and Foreign
Fund directly owns 266,394 shares. Neither Trust nor Advisors owns any
shares directly. Each of Trust, Advisors and Fund maintain its principal
business address c/o Thomas H. Lee Partners, L.P., 75 State Street, Boston,
MA 02109.
(4) Includes 25,780 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 2000. Also includes
8,981 shares of common stock held in a retirement account for the benefit
of Mr. Goldsmith. Does not include 100 shares of common stock owned by Mr.
Goldsmith's wife with respect to which he disclaims beneficial ownership.
(5) Includes 21,053 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 2000. Also includes
9,436 shares of common stock held in a retirement account for the benefit
of Mr. Luikart and 93,900 shares of common stock owned by Mr. Luikart and
his wife as joint tenants or held in a trust in which Mr. Luikart and his
wife share voting and investment power. Does not include 14,000 shares of
common stock owned by Mr. Luikart's wife with respect to which he disclaims
beneficial ownership.
(6) Includes 13,749 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 2000. Also includes 581
shares of common stock held in a retirement account for the benefit of Mr.
McKay.
(7) Includes 4,510 shares of common stock held in a retirement account for the
benefit of Mr. Prokupek and 8,000 shares of common stock owned by Mr.
Prokupek and his wife as joint tenants.
(8) Includes 21,053 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 2000. Also includes
2,867 shares of common stock held in a retirement account for the benefit
of Mr. Yevich. Does not include 1,000 shares of common stock owned by Mr.
Yevich's wife as custodian for their children with respect to which he
disclaims beneficial ownership.
(9) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, L.P. ("THL-CCI"), which Mr. Boll may be deemed to beneficially own
by virtue of his position as an officer of each of the Trust and THL
Investment Management Corp. ("THL Investment"), the general partner of
THL-CCI. Mr. Boll disclaims beneficial ownership of such shares. Mr. Boll
maintains his principal business address c/o Thomas H. Lee Partners, L.P.,
75 State Street, Boston, MA 02109.
(10) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, which Mr. Hagerty may be deemed to beneficially own by virtue of
his position as an officer of each of the Trust and THL Investment. Mr.
Hagerty disclaims beneficial ownership of such shares. Mr. Hagerty
maintains his principal business address c/o Thomas H. Lee Partners, L.P.,
75 State Street, Boston, MA 02109.
(11) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, which Mr. Harkins may be deemed to beneficially own by virtue of
his position as a Trustee of the Trust and officer of THL Investment. Mr.
Harkins disclaims beneficial ownership of such shares. Mr. Harkins
maintains his principal business address c/o Thomas H. Lee Partners, L.P.,
75 State Street, Boston, MA 02109.
(12) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, which Mr. Lawry may be deemed to beneficially own by virtue of his
position as an officer of each of the Trust and THL Investment. Mr. Lawry
disclaims beneficial ownership of such shares. Mr. Lawry maintains his
principal business address c/o Thomas H. Lee Partners, L.P., 75 State
Street, Boston, MA 02109.
(13) Includes 81,635 shares as to which the owners have the right to acquire
beneficial ownership within 60 days after April 14, 2000. Also includes
101,900 shares as to which voting and investment power are shared.
16
<PAGE> 22
THE BOARD OF DIRECTORS
The following table and biographical descriptions set forth the name, age,
and principal occupation during the past five years for each Board of Directors
nominee, and the positions they currently hold with the Company. The information
is as of April 14, 2000 unless otherwise indicated. If you elect them, they will
hold office until our next annual meeting or until their successors have been
elected. As of the date of this Proxy Statement, we are not aware that any
nominee for our Board of Directors would be unable to or would decline to serve
if elected.
<TABLE>
<CAPTION>
DIRECTOR OF THE
COMPANY OR THE
PREDECESSOR
NAME AGE POSITION COMPANY SINCE
- ---- --- -------- ----------------
<S> <C> <C> <C>
John H. Goldsmith.................... 58 Chairman of the Board of Directors and 1988
Chief Executive Officer of the Company, and
Chief Executive Officer of Tucker Anthony
Incorporated
John F. Luikart...................... 51 Director of the Company and Chairman and 1995
Chief Executive Officer of Sutro & Co.
Incorporated
David P. Prokupek.................... 38 Director of the Company, and President of 1998
Tucker Anthony Cleary Gull, the Capital
Markets division of Tucker Anthony
Incorporated
Mark T. Whaley....................... 45 Director of the Company and President of 1999
Gibraltar Securities Co., a division of
Tucker Anthony Incorporated.
Robert H. Yevich..................... 51 Director of the Company and President of 1995
Tucker Anthony Incorporated
C. Hunter Boll....................... 44 Director 1996
Winston J. Churchill(1)(2)........... 59 Director 1996
Thomas M. Hagerty(2)................. 37 Director 1996
David V. Harkins(2).................. 59 Director 1996
Hugh R. Harris(1)(2)................. 48 Director 1998
Seth W. Lawry........................ 35 Director 1996
</TABLE>
- ---------------
(1) Members of the Audit Committee
(2) Members of the Compensation Committee
JOHN H. GOLDSMITH. Mr. Goldsmith joined the Predecessor Company in 1988
and has served as Chairman, Director and Chief Executive Officer of the
Predecessor Company or the Company as well as Chief Executive Officer of Tucker
Anthony since that time. Prior to joining the Predecessor Company, Mr. Goldsmith
served in various capacities at Prescott, Ball & Turben in Cleveland, Ohio,
including as Managing Partner and Chief Executive Officer from 1978 to 1982 and
as President and Chief Executive Officer from 1982 to 1988. Mr. Goldsmith worked
in the institutional sales department of L.F. Rothschild from 1963 to 1971.
JOHN F. LUIKART. Mr. Luikart joined Sutro in 1988 as Executive Vice
President and was responsible for directing the firm's capital markets
activities. Mr. Luikart became President of Sutro in 1990. Mr. Luikart was
subsequently appointed Chief Executive Officer of Sutro in October 1995. Mr.
Luikart became Chairman of Sutro in October 1998 and has served as a Director of
the Predecessor Company or the Company since 1995.
17
<PAGE> 23
Prior to joining Sutro, Mr. Luikart served as General Partner and Executive Vice
President at Prescott, Ball & Turben in Cleveland, Ohio. Mr. Luikart is a former
Chairman of the NASD District Business Conduct Committee and is a former member
of the New York Stock Exchange Regional Firm Advisory Committee.
DAVID P. PROKUPEK. Mr. Prokupek was appointed to the Company's Board of
Directors in May 1998, following the acquisition of Cleary Gull Reiland &
McDevitt Inc. He joined Cleary Gull as Managing Director of the Investment
Banking Department in 1992, was elected a director in 1994, was named Chief
Executive Officer in 1996 and currently serves as President of Tucker Anthony
Cleary Gull, and is a director of Cleary Gull Investment Management Services,
Inc. Prior to joining Cleary Gull, Mr. Prokupek was a Managing Director of
American Asset Management, a New York-based investment counselor and merchant
bank, and from 1987 to 1989 he was a member of Bankers Trust Company's Merchant
Banking Group.
MARK T. WHALEY. Mr. Whaley was elected to the Company's Board of Directors
in September 1999, following the acquisition of Gibraltar. Mr. Whaley joined
Gibraltar in 1982, was elected Executive Vice President in 1996 and was promoted
to President of Gibraltar in 1999. Mr. Whaley has more than 18 years of
experience in the brokerage industry as a stockbroker, training manager and
director of sales.
ROBERT H. YEVICH. Mr. Yevich joined Tucker Anthony in 1985 and became
National Sales Manager in 1988. Mr. Yevich was elected to the Board of Directors
of the Company and promoted to President of Tucker Anthony in 1995. Mr. Yevich
has more than 25 years of experience in the retail brokerage business as a
stockbroker, branch manager and research associate. Prior to joining Tucker
Anthony, Mr. Yevich served as a branch manager with PaineWebber Inc. Mr. Yevich
is a director of Net Technologies Inc.
C. HUNTER BOLL. Mr. Boll was elected to the Company's Board of Directors
in 1996. He joined Thomas H. Lee Company, the predecessor to Thomas H. Lee
Partners, L.P. (collectively "THL"), in 1986. Affiliates of THL provided equity
financing for the Company's Acquisition in 1996. From 1984 through 1986, Mr.
Boll was with The Boston Consulting Group. From 1977 through 1982, he served as
an Assistant Vice President, Energy and Minerals Division of Chemical Bank. Mr.
Boll is a director of Big V Supermarkets, Inc., Cott Corp., Metris Companies,
Inc., New York Restaurant Group, TransWestern Publishing, L.P. and United
Industries Corporation. Mr. Boll is a Principal Managing Director of THL and
holds various positions with affiliates of THL.
WINSTON J. CHURCHILL. Mr. Churchill was elected to the Company's Board of
Directors in 1996. Mr. Churchill joined SCP Private Equity Partners, L.P.
("SCP") at its founding in 1996 as a Managing General Partner. SCP provided
equity financing for the Company's Acquisition in 1996. Prior to joining SCP,
Mr. Churchill formed CIP Capital, Inc., in 1990 and Churchill Investment
Partners, Inc., in 1989. Mr. Churchill is a director of Cinema Star Luxury
Theaters, Inc., Integrated Computing Engines, Amkor Technology, Inc., Forte
Systems, Propaganda Films, TMG Health, Inc. and Griffin Land and Nurseries, Inc.
Mr. Churchill also serves as a director of Fordham University, Georgetown
University and several other institutions.
THOMAS M. HAGERTY. Mr. Hagerty was elected to the Company's Board of
Directors in 1996. He joined THL in 1988. Prior to joining THL, Mr. Hagerty was
in the Mergers and Acquisitions Department of Morgan Stanley & Co. Incorporated.
Mr. Hagerty is a director of ARC Holdings, LLC, Cott Corp. and Syratech
Corporation. Mr. Hagerty is a Principal Managing Director of THL and holds
various positions with affiliates of THL.
DAVID V. HARKINS. Mr. Harkins was elected to the Company's Board of
Directors in 1996. He has been affiliated with THL since its founding in 1974
and joined THL as a full time employee in 1986. Mr. Harkins is a director of
Conseco Inc., Cott Corp., First Security Services, Inc., Fisher Scientific
International, Inc.,
18
<PAGE> 24
National Dentex Corporation, Stanley Furniture Company, Inc. and Syratech
Corporation. Mr. Harkins is a Principal Managing Director of THL and holds
various positions with affiliates of THL.
HUGH R. HARRIS. Mr. Harris was elected to the Company's Board of Directors
in June 1998. From 1988 until 1997, Mr. Harris was the President and Chief
Operating Officer of BancBoston Mortgage Corporation, until it was sold to
HomeSide Lending, Inc. HomeSide Lending, Inc. was sold to National Australia
Bank in February 1998 and is now a wholly-owned subsidiary thereof. Mr. Harris
remained as the President and Chief Operating Officer of HomeSide Lending, Inc.
until April 1999 at which time he became Chief Executive Officer.
SETH W. LAWRY. Mr. Lawry was elected to the Company's Board of Directors
in 1996. He worked at THL from 1989 to 1990 and rejoined in 1994. From 1987 to
1989 and 1992 to 1994, Mr. Lawry worked at Morgan Stanley & Co. Incorporated in
the Mergers and Acquisitions, Corporate Finance and Equity Capital Markets
Departments. Mr. Lawry is a director of Safelite Glass Corp. and Syratech
Corporation. Mr. Lawry is a Principal Managing Director of THL and holds various
positions with affiliates of THL.
BOARD ORGANIZATION AND MEETINGS
Board of Directors. An eleven-member Board of Directors manages the
Company. The Board of Directors met four times during 1999. Each of the current
directors attended (either in person or by telephone) at least 75% of the
aggregate number of (1) meetings of the Board of Directors and (2) meetings of
the committees of the Board of Directors on which such director served, except
that Mr. Churchill did not attend 75% of the meetings of the Board of Directors
and the Audit Committee.
Audit Committee. The Board of Directors has established an Audit
Committee. The Audit Committee makes recommendations concerning the engagement
of independent accountants, reviews with the independent accountants the plans
and results of the audit engagement, approves professional services provided by
the independent accountants, reviews the independence of the independent
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls. The Audit Committee met
two times in 1999. Messrs. Churchill and Harris are members of the Audit
Committee.
Compensation Committee. The Board of Directors of the Company has
established a Compensation Committee. The Compensation Committee determines the
Company's compensation programs for executive officers. The Board of Directors
makes recommendations, or accepts recommendations from the Chairman and Chief
Executive Officer, and forwards them to the Compensation Committee for
consideration. The Compensation Committee independently determines the executive
compensation (including any bonus or incentive compensation) to be paid to each
executive officer. The Compensation Committee met telephonically in 2000 to
review 1999 executive officer performance. Messrs. Churchill, Hagerty, Harkins
and Harris are members of the Compensation Committee.
COMPENSATION OF DIRECTORS
During 1999, the Company's directors (other than Messrs. Churchill and
Harris) received no compensation for service as directors, other than
reimbursement for expenses of attending meetings of the Board of Directors.
During 1999, Mr. Churchill and Mr. Harris each received $1,000 per board
meeting, $750 per committee meeting and a quarterly retainer at an annual rate
of $15,000.
19
<PAGE> 25
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, for the periods indicated, cash and non-cash
compensation paid during the last three fiscal years to our Chief Executive
Officer and each of our four other most highly compensated executive officers
(referred to as the "Named Executive Officers") who were serving as executive
officers on December 31, 1999 and whose salary plus bonus exceeded $100,000 for
the fiscal year then ended.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- ------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John H. Goldsmith................. 1999 400,000 860,000 -- -- 43,830(3)
Chairman, Director and Chief 1998 400,000 1,200,000 -- -- 44,519(3)
Executive Officer of the Company 1997 400,000 850,000 (2) 54,540 48,158(3)
John F. Luikart................... 1999 250,000 670,000 (2) -- 3,000(3)
Director of the Company and 1998 250,000 900,000 (2) -- 3,000(3)
Chairman and Chief Executive 1997 250,000 800,000 (2) 44,541 4,194(3)
Officer of Sutro
Kevin J. McKay.................... 1999 300,000 480,000 -- -- 4,700(3)
General Counsel and Secretary 1998 300,000 550,000 -- -- 5,764(3)
of the Company 1997 300,000 400,000 (2) 29,088 9,763(3)
David P. Prokupek................. 1999 350,000(4) 1,401,439(4) -- -- 8,554(3)
Director of the Company, and 1998 233,333(4) 1,757,812(4) -- 45,450(5) 717(3)
President of Tucker Anthony
Cleary 1997 -- -- -- -- --
Gull
Robert H. Yevich.................. 1999 300,000 720,000 -- -- 4,700(3)
Director of the Company and 1998 300,000 900,000 -- -- 5,764(3)
President of Tucker Anthony 1997 300,000 700,000 (2) 44,541 9,763(3)
</TABLE>
- ---------------
(1) Amounts shown reflect compensation earned in the period presented, although
payments earned in prior periods may have been paid in the period presented
and compensation earned in the period presented may have been paid in a
subsequent period.
(2) The amount does not exceed the lesser of $50,000 or 10% of compensation.
(3) Represents contributions in cash or stock to 401(k) and profit sharing plans
and, in the case of Mr. Goldsmith, payment of insurance premiums in the
amounts of $39,130, $38,755 and $38,395 in 1999, 1998 and 1997,
respectively.
(4) Mr. Prokupek's employment with the Company began May 1, 1998, when the
acquisition of Cleary Gull was completed, at an effective annual base salary
rate of $350,000. In addition to his role as an executive officer of the
Company, Mr. Prokupek is a Managing Director of investment banking at Tucker
Anthony Cleary Gull, the Capital Markets division of Tucker Anthony. A
significant portion of Mr. Prokupek's bonus is his share of the Tucker
Anthony Cleary Gull investment banking bonus pool. Mr. Prokupek also
received fees from Cleary Gull IMS.
(5) Option grants were made in connection with the acquisition of Cleary Gull.
The table does not include options for 45,450 shares that were canceled in
1998 and repriced. The table also does not include options for 60,319 shares
which were granted to replace options previously awarded by Cleary Gull to
acquire its stock. Mr. Prokupek exercised these options during 1998.
20
<PAGE> 26
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any options or issue any stock appreciation
rights or restricted stock to the Named Executive Officers in the fiscal year
ended December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END STOCK OPTION
VALUES
The following table sets forth for each of the Named Executive Officers
certain information concerning options exercised during the fiscal year ended
December 31, 1999 and the number of shares subject to both exercisable and
unexercisable stock options as of that date. The table also shows values for
"in-the-money" options. These values represent the positive spread between the
respective exercise prices of outstanding options and the fair market value of
the Company's common stock as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1999 DECEMBER 31, 1999
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(#) ($)(1) (#)(2) ($)(3)
----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John H. Goldsmith.......... -- -- 25,780/28,760 148,235/165,370
John F. Luikart............ -- -- 21,053/23,488 121,055/135,056
Kevin J. McKay............. -- -- 13,749/15,339 79,057/88,199
David P. Prokupek.......... -- -- --/45,450 --/--
Robert H. Yevich........... -- -- 21,053/23,488 121,055/135,056
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's common stock on the exercise
date (the closing price) minus the exercise price and multiplied by the
number of shares acquired.
(2) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with exercise prices below the market price of the
Company's common stock on December 31, 1999.
(3) Based on the closing price of the Company's common stock on December 31,
1999 ($11.25) minus the exercise price.
EMPLOYMENT AGREEMENTS
We employ Mr. Goldsmith pursuant to a three-year employment agreement with
an initial term expiring on December 31, 1999. The agreement renews annually
unless notice is given four months prior to end of the year and was renewed on
this basis on December 31, 1999. Mr. Goldsmith is entitled to receive such
annual base salary and bonus compensation as we agree to with Mr. Goldsmith from
time to time, but his cash compensation in any calendar year must be at least
$750,000. Mr. Goldsmith is also entitled to participate in the employee benefit
and incentive compensation plans that we make available to our key executives.
If we terminate Mr. Goldsmith's employment without cause or if he resigns for
certain enumerated reasons, such as a reduction in executive duties, a decrease
in his compensation or benefits or a default by us ("Good Reason"), Mr.
Goldsmith is entitled to receive cash compensation at his then-current rate of
pay and benefits through the end of the twenty-four months following such date
of termination. In such an event, we must pay him a lump sum equal to $500,000
at the time of termination with the remaining amounts paid in equal monthly
installments, plus interest. In addition, in the event of any such termination,
any unexercisable stock options granted to Mr. Goldsmith will become fully
exercisable. If we terminate Mr. Goldsmith's employment for cause or if he
resigns other than for Good Reason, he is only entitled to receive compensation
accrued through the date of termination. Mr. Goldsmith's employment agreement
prohibits him from soliciting any of our clients, officers, senior managers or
senior investment executives for a period of two years following our
21
<PAGE> 27
termination without cause or Mr. Goldsmith's termination for Good Reason, or for
a period of six months following termination by Mr. Goldsmith for any other
reason.
We employ Mr. McKay pursuant to an employment agreement expiring on
September 15, 2000. The agreement is terminable by either party at any time upon
at least 30 days' prior written notice. Mr. McKay is entitled to receive such
annual base salary and bonus compensation as we agree to with Mr. McKay from
time to time, but his cash compensation in any calendar year must be at least
$650,000. Mr. McKay is also entitled to participate in the employee benefit and
incentive compensation plans that we make available to our key executives. If we
terminate Mr. McKay's employment without cause or if he resigns for Good Reason,
Mr. McKay is entitled to receive cash compensation at his then-current rate of
pay (which shall not be less than the amount of compensation he earned for the
year ended immediately prior to the date of termination) and benefits through
the end of the twenty-four months following such date of termination. In such an
event, we must pay him a lump sum equal to $500,000 at the time of termination
with the remaining amounts paid in equal monthly installments, plus interest. In
addition, in the event of any such termination, any unexercisable stock options
granted to Mr. McKay will become fully exercisable. If we terminate Mr. McKay's
employment for cause (which includes his material default under the employment
agreement or indictment or conviction for certain crimes) he is only entitled to
receive compensation accrued through the date of termination at an annual rate
of $650,000. If Mr. McKay resigns other than for Good Reason, he is only
entitled to receive compensation accrued through the date of termination at his
then-rate of compensation (which shall not be less than the amount of
compensation he earned for the year ended immediately prior to the date of
termination and must be at least $650,000). Mr. McKay's employment agreement
prohibits him from soliciting any of our clients, officers, senior managers or
senior brokers for a period of two years following our termination without cause
or Mr. McKay's termination for Good Reason, or for a period of six months
following termination by Mr. McKay for any other reason.
We employ Mr. Prokupek pursuant to a three-year employment agreement
expiring on May 1, 2001. The agreement is terminable by either party at any time
upon at least 30 days' prior written notice. Mr. Prokupek is entitled to receive
such annual base salary and bonus compensation as we agree to with Mr. Prokupek
from time to time, but his cash compensation in any calendar year must be at
least $700,000. Mr. Prokupek is also entitled to participate in certain bonus
and benefit plans relating to Tucker Anthony Cleary Gull and in all other
employee benefit and incentive compensation plans that we or Tucker Anthony
Cleary Gull make available to our key executives. If we terminate Mr. Prokupek's
employment without cause or if he resigns for Good Reason (which in Mr.
Prokupek's case also includes relocation of his principal place of business),
Mr. Prokupek is entitled to receive cash compensation equal to the average of
his total cash compensation from the Company for the previous three years (or,
if less, the number of full calendar years the executive has been employed by
us) in equal monthly installments through the end of the twelve-month period
following such termination. If we terminate Mr. Prokupek's employment for cause
(which includes his material default under the employment agreement or
indictment or conviction for certain crimes) or if he resigns other than for
Good Reason, he is only entitled to receive compensation accrued through the
date of termination. Mr. Prokupek's employment agreement prohibits him from
soliciting any of our clients, officers, senior managers or senior brokers prior
to March 9, 2001. Although not part of his employment agreement, Mr. Prokupek
also receives compensation from the Tucker Anthony Cleary Gull investment
banking pool for his role as a Managing Director of investment banking at Tucker
Anthony Cleary Gull and fees from Cleary Gull IMS. See "Summary Compensation
Table" on page 20.
We employ Mr. Luikart pursuant to an employment agreement expiring on
September 15, 2000. The agreement is terminable by either party at any time upon
at least 30 days' prior written notice. Mr. Luikart is entitled to receive such
annual base salary and bonus compensation as we agree to with Mr. Luikart from
time to time, but his cash compensation in any calendar year must be at least
$700,000. Mr. Luikart is also entitled
22
<PAGE> 28
to participate in the employee benefit and incentive compensation plans that we
make available to our key executives. If we terminate Mr. Luikart's employment
without cause or if he resigns for Good Reason, Mr. Luikart is entitled to
receive cash compensation at his then-current rate of pay (which shall not be
less than the amount of compensation he earned for the year ended immediately
prior to the date of termination) and benefits through the end of the
twenty-four months following such date of termination. In such an event, we must
pay him a lump sum equal to $500,000 at the time of termination with the
remaining amounts paid in equal monthly installments, plus interest. In
addition, in the event of any such termination, any unexercisable stock options
granted to Mr. Luikart will become fully exercisable. If we terminate Mr.
Luikart's employment for cause (which includes his material default under the
employment agreement or indictment or conviction for certain crimes) he is only
entitled to receive compensation accrued through the date of termination at an
annual rate of $700,000. If Mr. Luikart resigns other than for Good Reason, he
is only entitled to receive compensation accrued through the date of termination
at his then-rate of compensation (which shall not be less than the amount of
compensation he earned for the year ended immediately prior to the date of
termination and must be at least $700,000). Mr. Luikart's employment agreement
prohibits him from soliciting any of our clients, officers, senior managers or
senior brokers for a period of two years following our termination without cause
or Mr. Luikart's termination for Good Reason, or for a period of six months
following termination by Mr. Luikart for any other reason.
LIMITATION OF LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
As the Delaware General Corporation Law permits, we have included in our
certificate of incorporation a provision to eliminate the personal liability of
our directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, our
bylaws provide that we must indemnify our officers and directors under certain
circumstances, including those circumstances in which indemnification would be
discretionary under applicable law. We are also required to advance expenses to
our officers and directors as incurred in connection with proceedings against
them for which they may be indemnified. We have also agreed to indemnify our
directors and officers to the maximum extent permitted by Delaware law pursuant
to agreements with such officers and directors. At present, we are not aware of
any pending or threatened litigation or proceeding involving any of our
directors, officers, employees or agents in which we would be required or
permitted to indemnify them. We believe that these charter provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
23
<PAGE> 29
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee"), which is composed entirely of non-employee directors, establishes
the compensation philosophy of Tucker Anthony Sutro on behalf of the Board of
Directors, determines the compensation of the Company's Chief Executive Officer
(the "CEO") and approves the compensation of the Company's executive officers.
The Company seeks to attract, motivate and retain highly qualified
employees, which is critical to both the short-term and long-term success of the
Company. To accomplish this, the Compensation Committee has developed a
compensation philosophy which seeks to reward outstanding performance and align
the compensation of executive officers with the interests of stockholders.
Specifically, the Compensation Committee seeks to achieve the following
objectives:
- to provide highly competitive compensation that rewards outstanding
Company, business unit and individual results.
- to encourage executive officers to purchase and hold significant amounts
of the Company's stock.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
Compensation of executive officers consists of base salaries, bonuses and
long-term incentive compensation.
Base Salaries
The first component of the Company's executive officer compensation program
is cash compensation in the form of base salaries. Base salaries are determined
by individual and Company performance as well as relevant labor market factors.
There were no increases in base salaries for any executive officers in 1999.
Bonuses
The second component of the Company's executive officer compensation
program consists of annual performance-based bonuses. In order to align
executive officer compensation with the financial results of the Company,
bonuses to executive officers have been awarded under the 1998 Executive
Performance Bonus Plan (the "Bonus Plan") which was established at the time of
the Company's initial public offering. Under the Bonus Plan, the amount included
in the bonus pool is equal to a percentage of pre-tax operating income of the
Company (as defined) before provision for incentive compensation and
extraordinary items. The percentage used for this bonus pool may not exceed 15%
as established by the Bonus Plan. The Bonus Plan further establishes that the
maximum award to any one participant is 50% of the bonus pool. Bonuses to
individual executive officers are awarded based on Company, business unit and
individual performance. The Compensation Committee has the discretion to reduce
or eliminate award pools.
Long-Term Incentive Compensation
The third component of the Company's executive officer compensation program
is the granting of awards pursuant to the Company's 1996 Stock Option Plan and
1998 Long-Term Incentive Plan. Under these plans, executive officers and other
key employees may be granted stock options, stock appreciation rights,
restricted stock and long-term performance awards. Both the 1996 Stock Option
Plan and the 1998 Long-Term Incentive Plan are administered by the Compensation
Committee. During 1999, no executive officer received awards, but the
Compensation Committee plans to increase the equity component of executive
compensation in future years to be more competitive with its peer group of
regional brokerage firms.
24
<PAGE> 30
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee considered a number of factors in determining
Mr. Goldsmith's 1999 bonus under the Bonus Plan. First, the Committee considered
the Company's financial performance on an absolute level and compared to its
budgeted expectations including its significant revenue growth, record net
income and earnings per share. Second, the Compensation Committee believed that
Mr. Goldsmith's leadership was critical to the acquisitions made in 1999 which,
in the Committee's view, have established a solid foundation for future growth.
Third, the Committee reviewed performance and compensation data from a peer
group of regional brokerage firms in order to determine Mr. Goldsmith's 1999
bonus. The peer group used consisted of substantially the same firms as are
included in the Regional Sub-Index of the Financial Service Analytics Stock
Price Index referred to in the Stock Performance graph on page 28.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code establishes a limit on
corporate income tax deductions of $1 million per year paid to any Named
Executive Officer. In designing compensation plans to meet the compensation
objectives described above, the Company reserves the right to establish plans
which may result in the Company's inability to deduct compensation under Section
162(m).
SUMMARY
The Committee believes that the compensation plans for the Company's
executive officers are designed to be performance-based and align the executive
officers' interests with those of the Company. The Committee will continue to
evaluate compensation of executive officers to ensure that it is consistent with
the compensation philosophy described above and that it is in the best interests
of the stockholders.
Winston J. Churchill David V. Harkins
Thomas M. Hagerty Hugh R. Harris
MEMBERS OF THE COMPENSATION COMMITTEE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the following persons served on our Compensation Committee:
Mr. Churchill, Mr. Hagerty, Mr. Harkins and Mr. Harris. None of these persons is
or has been an officer or employee of the Company or its subsidiaries. Mr.
Hagerty and Mr. Harkins are employed by THL, and Mr. Churchill is employed by
SCP. Each of THL and SCP has been involved in transactions with the Company. See
the following section for a description of those transactions.
25
<PAGE> 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE ACQUISITION
Pursuant to a Contribution Agreement dated October 4, 1996 (the
"Contribution Agreement"), on November 29, 1996, THL, SCP and approximately 350
employees of Freedom Securities Holding Corporation paid Hancock approximately
$180,000,000 in cash in exchange for shares representing approximately 95% of
the then-outstanding shares of the company.
Pursuant to an Additional Share Agreement which we entered into with John
Hancock Mutual Life Insurance Company ("Hancock") in connection with the
Acquisition, we issued to Hancock in 1999, for no additional consideration,
20,251 shares of our common stock.
STOCKHOLDERS AGREEMENT
We entered into a Stockholders Agreement with certain of our stockholders
(the "Stockholders Agreement"). Under the agreement, THL can require us to
register their shares of common stock for sale to the public on two occasions,
subject to certain limitations. SCP could also require us to register their
shares on one occasion (although SCP no longer holds shares of our common
stock). After the second offering of shares of our common stock to the public,
the other stockholders party to the Stockholders Agreement as a group can cause
us to register their shares on two occasions. In addition, if we decide to
register shares of our common stock for sale to the public, for our own account
or someone else's, we must notify each of the parties to the Stockholders
Agreement and they have a right to include their shares in such registration,
subject to certain limitations. We must pay all of the fees and expenses (other
than underwriting discounts and attorneys' fees) of any registration conducted
pursuant to the Stockholders Agreement. The Stockholders Agreement also grants
certain "tag-along" rights to the parties in the event THL enters into an
agreement to sell more than 50% of the stock it acquired when the Company was
acquired from Hancock.
Four of our directors, Messrs. Boll, Hagerty, Harkins and Lawry, are
affiliated with THL. In addition, Mr. Churchill is affiliated with SCP. As of
April 14, 2000, THL and its affiliates owned 22.36% of our common stock. In
January 1999, we purchased 494,748 shares from SCP, one of the original
investors in the Company, at $15.56 per share. The purchase was funded from
operations. SCP no longer holds any of our common stock.
TRANSACTIONS WITH AFFILIATED PARTIES
In August, 1999, ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition
Fund (Retirement Accounts) II, L.P. which are entities affiliated with Thomas H.
Lee Equity Fund III, L.P. and Thomas H. Lee Foreign Fund III, L.P., paid Tucker
Anthony a broker's fee of $476,000 in connection with the sale of one of its
portfolio companies, Fitz and Floyd, Inc.
A partnership in which the CEO has a controlling interest makes available
to the Company an airplane for business purposes. During 1999, the Company paid
$288,000 for use of the plane.
MARGIN LOANS
Certain of our executive officers and directors borrow from time to time
under margin accounts maintained at Wexford Clearing Services Corporation, the
Company's principal clearing firm. All such borrowings on margin are made in the
ordinary course of business and on substantially the same terms (including
interest rates and collateral requirements) as those prevailing for transactions
with unaffiliated
26
<PAGE> 32
persons at the same time. Such borrowings by our executive officers and
directors do not entail more than normal collectibility and other risks.
INVESTMENT PARTNERSHIPS
Certain of our executive officers and other employees are limited or
general partners in investment vehicles (we will refer to these as the "Employee
Investment Vehicles"), through which they invest in funds sponsored by third
parties, some of whom are clients of ours. These Employee Investment Vehicles
also co-invest in transactions with certain of our clients. In certain
instances, we lend to employees, including these executive officers, the amounts
they use to purchase their partnership interests. The interest rate charged on
such loans is a floating rate equal to our broker call rate, which is the
interest rate charged by our brokerage subsidiaries to their margin customers.
The Employee Investment Vehicles in their discretion may redeem the interest of
these executive officers and other employees if they terminate their employment
with us during a specified period following their initial investment in such
vehicle. Upon such redemption, the executive officers and other employees would
receive the lesser of (1) their paid-in capital contribution less interim
distributions, or (2) the value of their partnership interest at that time. We
may also call any outstanding loans to such limited partners when they terminate
employment with us.
The table below shows the amounts contributed by our executive officers to
the Employee Investment Vehicles, and the distributions made to them, in 1999.
The table also shows the outstanding balances of loans we have made to these
executive officers as of March 15, 2000 and the largest amount outstanding under
such loans at any time since January 1, 1999.
<TABLE>
<CAPTION>
AMOUNTS DISTRIBUTIONS LOAN BALANCE LARGEST LOAN
CONTRIBUTED MADE AS OF BALANCE SINCE
IN 1999 IN 1999 MARCH 15, 2000(1) JANUARY 1, 1999(1)
----------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C>
John H. Goldsmith................. $ -- $19,405 $13,570 $ 20,424
John F. Luikart................... 53,000 69,296 37,640 106,780
Kevin J. McKay.................... -- 61,917 28,165 85,229
David P. Prokupek................. 418,707 82,035 -- --
Robert H. Yevich.................. 36,500 14,816 13,570 20,424
</TABLE>
- ---------------
(1) Includes loans previously made in connection with Employee Investment
Vehicles into which no new amounts were contributed in 1999.
27
<PAGE> 33
OTHER INFORMATION
STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Company's common stock for the period of April 2, 1998 (the date of the
Company's initial public offering) to December 31, 1999 with the cumulative
total return of Standard & Poor's 500 Stock Index and the Regional Sub-Index of
the Financial Service Analytics Stock Price Index ("FSA Regional") over the same
period. The graph assumes a $100 investment made on April 2, 1998 and the
reinvestment of all dividends. The FSA Regional Index is comprised of 10
publicly traded regional securities firms, including the Company.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
FSA REGIONAL BROKERAGE
TUCKER ANTHONY SUTRO INDEX S&P 500 INDEX
-------------------- ---------------------- -------------
<S> <C> <C> <C>
4/2/98 100.00 100.00 100.00
6/30/98 84.00 102.00 102.00
9/30/98 62.00 75.00 92.00
12/31/98 71.00 80.00 111.00
3/31/99 75.00 82.00 117.00
6/30/99 80.00 107.00 125.00
9/30/99 64.00 91.00 117.00
12/31/99 53.00 85.00 134.00
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors and executive officers, and persons who own more than ten percent
(10%) of the Company's common stock, file with the SEC initial reports of
ownership and reports of changes in ownership of the Company's common stock. Our
officers, directors and greater-than-ten-percent stockholders of the Company are
required to furnish us with copies of all Section 16(a) reports they file.
28
<PAGE> 34
Based solely on our review of the Section 16(a) reports furnished to us and
written representations that no other reports were required, we believe that our
directors, officers and greater-than-ten-percent stockholders reported all
transactions in the Company's common stock and options on a timely basis during
the fiscal year ended December 31, 1999 except for Mr. Whaley, a director and an
executive officer, who was late in filing a Form 3.
PROPOSALS FOR THE 2001 ANNUAL MEETING
If you want to include a proposal in the Proxy Statement for the Company's
2001 Annual Meeting, please send the proposal to us at One Beacon Street,
Boston, Massachusetts 02108, Attn: Secretary. Proposals submitted pursuant to
SEC Rule 14a-8 must be received on or before December 22, 2000 to be included in
next year's Proxy Statement. Under SEC Rule 14a-4, we will be able to use
proxies given to us for the 2001 Annual Meeting to vote for or against any
stockholder proposal submitted other than pursuant to Rule 14a-8 at our
discretion unless the proposal is submitted to us on or before 60 days before
next year's Annual Meeting. If the proposal is submitted before that deadline,
we will retain our discretion to vote proxies we receive as long as we include
in our Proxy Statement information on the nature of the proposal and how we
intend to exercise our voting discretion and the proponent does not issue a
proxy statement.
By Order of the Board of Directors
/s/ John H. Goldsmith
John H. Goldsmith
Chairman of the Board and
Chief Executive Officer
April 21, 2000
29
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EXHIBIT A
PROPOSED AMENDMENTS
AMENDMENT 1
To increase the shares reserved for issuance under the ESPP:
Replace the first sentence of Section 4 of the ESPP with the following:
"There shall be 1,750,000 shares of Common Stock reserved for issuance to
and purchase by Participants under the Plan, subject to adjustment as herein
provided."
AMENDMENT 2
To expand the class of eligible employees under the ESPP:
Delete Section 2(j)(4) of the ESPP.
AMENDMENT 3
To increase the shares reserved for issuance under the 1998 Plan:
Replace Section 3(a)(i) with the following:
"5,814,804 shares, any or all of which may be granted as Incentive Stock
Options;"
AMENDMENT 4
To clarify that restricted stock or other awards may be distributed under
the 1998 Plan as bonuses or deferred compensation:
Add a new Section 7(d) to the 1998 Plan that reads as follows:
"The Committee is authorized to grant Restricted Stock (with any or no
restrictions) as a bonus or to grant such stock or other Awards in lieu of
Company obligations to pay cash under other plans or compensatory arrangements,
including deferred compensation plans. When or after making such grants, the
Committee may waive any or all conditions under this Section 7 otherwise
applicable to Restricted Stock."
AMENDMENT 5
To specifically authorize the Committee to loan participants money to
purchase shares under the 1998 Plan, and to forgive such loans:
Insert after the third paragraph under Section 5(d):
"The Committee, in its sole discretion, may at the time of grant or such
later time as it determines, permit payment of any option exercise or stock
purchase price in excess of the par value of any such awarded or sold by means
of a full recourse or non-recourse promissory note containing such terms and
conditions as the Committee deems advisable. The terms or conditions of the note
need not require payment of interest, or may defer all interest payments until
the maturity date of the note, and the note may be forgiven in the sole
discretion of the Committee, including without limitation upon satisfaction of
terms and conditions (which may but need not include continued employment with
the Company) as the Committee deems advisable."
A-1
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PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
WITHHOLD
FOR all nominees AUTHORITY to vote
(except as indicated for the nominees
to the contrary listed at right
1. ELECTION OF DIRECTORS: [ ] [ ]
NOMINEES: John H. Goldsmith, John F. Luikart, David P. Prokupek, Mark T. Whaley,
Robert H. Yevich, C. Hunter Boll, Winston J. Churchill, Thomas M.
Hagerty, David V. Harkins, Hugh R. Harris, Seth W. Lawry
(INSTRUCTIONS: To withhold authority to vote for any nominee, write that
nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of the appointment of the accounting [ ] [ ] [ ]
firm of Ernst & Young, LLP to serve as independent
accountants for the Company for the fiscal year
ending December 31, 2000.
3. To approve proposed amendments to our 1998 [ ] [ ] [ ]
Employee Stock Purchase Plan.
4. To approve proposed amendments to our 1998 [ ] [ ] [ ]
Long-Term Incentive Plan.
5. The proxies are authorized to vote in their [ ] [ ] [ ]
discretion upon such other business as may
properly come before the meeting to the
extent permitted by law.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED.
IN THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR EACH NOMINEE
NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, AND 4, AND IN ACCORDANCE WITH
THE PROXIES' DISCRETION ON SUCH OTHER BUSINESS THAT MAY PROPERLY COME BEFORE
THE MEETING TO THE EXTENT PERMITTED BY LAW.
I PLAN TO ATTEND THE MEETING [ ]
SIGNATURE _____________________ SIGNATURE ____________________ DATE _____, 2000
SIGNATURE IF
HELD JOINTLY
NOTE: (Please date this proxy and sign exactly as your name appears hereon.
When signing as attorney, executor, administrator, trustee or guardian, please
give your full title. If there is more than one trustee, all should sign. All
joint owners should sign.)
