NORTH EAST INSURANCE COMPANY
1997 ANNUAL MEETING OF SHAREHOLDERS
May 2, 1997
Dear Shareholder,
You are invited to attend the Annual Meeting of Shareholders of North East
Insurance Company. The meeting will be held on Tuesday, June 10, 1997, at
9:00 a.m. at the Harraseeket Inn, 162 Main Street, Freeport, Maine -
207/865-9377.
Since obtaining a quorum for Company-sponsored initiatives can be
difficult, your vote is important. IF YOU ARE UNABLE TO ATTEND THE ANNUAL
MEETING IN PERSON, I URGE YOU TO CAST YOUR VOTE BY COMPLETING AND
RETURNING THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
Thank you in advance for your participation.
Sincerely,
Robert G. Schatz
President and Chief Executive Officer
NORTH EAST INSURANCE COMPANY
1997 ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 1997 Annual Meeting of Shareholders of
North East Insurance Company will be held at at the Harraseeket Inn, Freeport,
Maine at 9:00 a.m. on Tuesday, June 10, 1997, to conduct the following
business:
1. To consider a proposed amendment to the Articles of Incorporation
which provides for a staggered Board of Directors;
2. To elect directors;
3. To ratify the appointment of Coopers & Lybrand L.L.P. as
independent accountants to the Company for the year ending December
31, 1997;
4. To consider approval of a Stock Option Plan; and
5. To conduct any other business which may lawfully come before said
meeting.
Dated at Scarborough, Maine this 2nd day of May, 1997.
NORTH EAST INSURANCE COMPANY
By: _________________________________
Robert G. Schatz, President
NORTH EAST INSURANCE COMPANY
482 Payne Road, 4th Floor
P.O. Box 1418
Scarborough, Maine 04074
PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 10, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of North East Insurance Company ("NEIC" or
the "Company") for use at the 1997 Annual Meeting of Shareholders (the
"Meeting"). The Meeting will be held at the Harraseeket Inn, Freeport, Maine at
9:00 a.m. on Tuesday, June 10, 1997.
When properly executed and returned, the enclosed proxy will be voted in
accordance with the choices marked. If no choice is specified, the proxy will
be voted as recommended by the Board of Directors. A proxy may be revoked at
any time before it is voted. Shareholders may revoke their proxies by
delivering written notice to the Clerk of the Company prior to the vote on a
given matter, by submitting a later dated proxy at or before the Meeting, or by
voting in person at the Meeting.
The record date for determining shareholders entitled to vote at the
Meeting (and any adjournment thereof) is April 18, 1997. All shareholders of
record as of the close of business on that date will be entitled to cast one
vote per share. This Proxy Statement and the accompanying form of proxy for the
Meeting are first being mailed to shareholders on or around May 2, 1997.
A description of matters to be voted upon begins at page 8 of this Proxy
Statement. Certain information concerning share ownership, management, and
compensation appears below.
OWNERSHIP OF COMMON STOCK
As of the record date noted above, a total of 3,002,375 shares of North
East Insurance Company common stock were outstanding. The common stock is
entitled to one vote per share and is the only class of NEIC stock outstanding.
Set forth below, as of the record date, is information concerning the only
persons known to the Company to beneficially own more than five percent of the
outstanding shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING
<S> <C> <C>
Ballantrae Partners, L.L.C. 810,000 (1) 27.0%
300 East 56th Street
Suite 20-A
New York, NY 10022
First National Life & Casualty 215,000 (2) 7.2%
Assurance Company, Ltd.
St. Michael, Barbados, West Indies
W.A. Financial, Inc. 155,280 (3) 5.2%
2656 S. Loop W. #103
Houston, TX 77054
<FN>
- --------------------
<F1> Information regarding the stock ownership of Ballantrae Partners, L.L.C.
is given on the basis of its latest amended Schedule 13D report, filed on
or about January 10, 1997. The members of Ballantrae are Murry N. Gunty,
Deborah L. Harmon, and Jonathan S. Kern.
<F2> NEIC has been advised that these shares are subject to claims or
obligations in favor of creditors in the an action filed in U.S. District
Court for the Eastern District of New York, in connection with the
bankruptcy proceeding of American Motor Club, Inc., and that the court
has recently ordered a public sale of such shares, with the net proceeds
of such sale to be credited against certain claims of creditors.
<F3> Information regarding W.A. Financial's beneficial ownership is given on
the basis of its Schedule 13D report dated August 4, 1995. The Company
believes that W.A. Financial is an affiliate of Michael E. Watts of Texas
Capital Securities, Inc. Texas Capital is a registered securities
broker-dealer and is one of the primary market makers for the Company's
common stock.
</FN>
</TABLE>
The following table shows, as of the record date, the number of shares of
NEIC common stock which, to the Company's knowledge, were beneficially owned by
the directors and certain executive officers of the Company, and by each other
nominee for election as a director. Except as otherwise indicated, each person
named owned less than one percent of the outstanding common stock of the
Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED OUTSTANDING
<S> <C> <C>
Robert G. Schatz (1) 76,177 2.5%
Ronald A. Libby 0
Edward B. Batal 0
David E. Chase 0
Terence P. Cummings 0
Edward L. Dilworth, Jr. (1) 12,000
Andrew Greenbaum 0
Robert A. Hancock 2,500
Wilson G. Hess 0
Joseph M. Hochadel 0
Bruce H. Suter 0
Jonathan S. Kern (2) 810,000 27.0%
Deborah L. Harmon (2) 810,000 27.0%
All directors, nominees and executive
officers as a group (1), (2) 900,677 30.0%
<FN>
- --------------------
<F1> Includes shares owned by spouses or other relatives residing in the same
household, and by entities owned or controlled by the person named.
<F2> Mr. Kern and Ms. Harmon are members of Ballantrae Partners, L.L.C., and
thereby have shared beneficial ownership of the NEIC stock owned by
Ballantrae.
</FN>
</TABLE>
THE BOARD OF DIRECTORS
The Company's bylaws currently provide that all directors of the Company
are to be elected each year at an annual meeting of shareholders. Presently
NEIC's Board of Directors consists of the following persons:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert G. Schatz 51 President, Chairman of the Board,
Chief Executive Officer and Director
Edward B. Batal 56 Director
David D. Chase 40 Director
Terence P. Cummings 42 Director
Edward L. Dilworth, Jr. 55 Director
Andrew Greenbaum 76 Director
Robert A. Hancock 44 Director
Deborah L. Harmon 38 Director
Wilson G. Hess 44 Director
Joseph M. Hochadel 49 Director
Jonathan S. Kern 35 Director
Bruce H. Suter 76 Director
</TABLE>
Robert G. Schatz was elected as a Director in December 1987. He was elected
President and Chief Executive Officer in March 1988. Mr. Schatz also serves on
the Board of Trustees of Unity College, in Unity, Maine.
Edward B. Batal is President of Batal Agency, an insurance agency and real
estate broker in Sanford, Maine. He has been President of the agency since
1964. Mr. Batal was elected a Director of NEIC in November 1995.
David D. Chase is a Tax Manager with Berry, Dunn, McNeil & Parker, an
accounting firm in Portland, Maine. Mr. Chase has been a Certified Public
Accountant in Maine since 1987. He was elected a Director of NEIC in November
1995. Mr. Chase will not be standing for reelection as a Director at the Annual
Meeting.
Terence P. Cummings is a Partner with Clausen Miller P.C., a law firm in New
York City. He has been a practicing attorney in New York since 1982, and was
affiliated with Ohrenstein & Brown from 1985 to 1997. Mr. Cummings was elected
a Director of NEIC in November 1995. Mr. Cummings also serves as a Director of
First United American Life Insurance Company, a subsidiary of Torchmark
Corporation.
Edward L. Dilworth has served as a Director of NEIC since 1990, and previously
had served as a Director from 1982 to 1985. He is Division President of Oxford
Bank & Trust, a division of Peoples Heritage Bank. Mr. Dilworth has been
employed by Oxford Bank & Trust since 1972. Mr. Dilworth will not be standing
for reelection as a Director at the Annual Meeting.
Andrew Greenbaum was first elected as a Director of the Company in 1987.
Currently retired, he was formerly the President of Pearland Transfer Corp., an
insurance brokerage firm, from 1984 until 1990. He became a licensed insurance
broker in 1962. Mr Greenbaum will not be standing for reelection as a Director
at the Annual Meeting.
Robert A. Hancock is a Principal of Mann, Frankfort, Stein & Lipp, an
accounting firm in Houston, Texas. Mr. Hancock was an auditor with Ernst &
Ernst in Houston from 1975 to 1978, and was President of Hancock, Carameros &
Rawls, P.C. from 1978 to 1996. Mr. Hancock was elected a Director of NEIC in
November 1995.
Deborah L. Harmon was first elected as a Director in February 1997. Ms. Harmon
is an Executive Vice President at the J.E. Robert Companies (JER). JER is a
nationally prominent real estate firm that specializes in the investment,
management, and capital recovery of troubled real estate properties and
under-performing real estate loans. Ms. Harmon is one of three members of
Ballantrae Partners, L.L.C., formed in 1996 to invest in NEIC stock. In January
1997, Ballantrae consummated its purchase of 810,000 shares of NEIC stock
formerly held by Bernard D. Gershuny. In August 1996, Ballantrae and NEIC
entered into a Standstill Agreement, described below at page 7 below.
Wilson G. Hess has served as President of Unity College in Unity, Maine since
1990. After starting as a professor at the college in 1977, he later became
Department Chairman (1985-88) and then Dean of Academic Affairs (1988-89). From
1989 to 1990 he served as Dean of Sterling College in Craftsbury, Vermont. Mr.
Hess was elected a Director of NEIC in November 1995.
Joseph M. Hochadel has served as a Director since 1990, and previously had
served as a Director from 1981 to 1986. Since 1981 he has been a Partner with
Monaghan, Leahy, Hochadel & Libby, a Portland, Maine law firm.
Jonathan S. Kern was first elected as a Director in February 1997. Mr. Kern is
Executive Vice President and Chairman of the Operating Committee at the J.E.
Robert Companies, described above. Mr. Kern is one of three members of
Ballantrae Partners, L.L.C.
Bruce H. Suter was first elected as a Director of NEIC in 1990. Mr. Suter was a
Vice President of Stone & Webster Management Consultants, a management
consulting firm, from 1985 until his retirement in December 1993. Prior to
joining Stone & Webster, Mr. Suter was President and Chief Executive Officer of
Ebasco Risk Management Consultants, Inc. and Associated Consulting Management
of Ebasco, Ltd.
Directors who are not employees of the Company receive directors' fees at
the rate of $3,000 per annum, plus $250 for each Board meeting attended.
Directors also receive $100 for each Committee meeting attended, except that
the Committee chairman receives $150 for each such meeting. The Company is
reexamining its compensation policies with regard to directors. Set forth on
pages 10-11 below is a description of a Stock Option Plan under which NEIC
would be authorized to use stock options in compensating directors.
The Company has an Audit Committee, a Finance and Investment Committee,
an Underwriting Committee, a Claims Committee, and an Executive Committee.
The Audit Committee presently consists of Messrs. Dilworth (chairman),
Batal, Chase, and Cummings. Its function is to oversee the work of the
Company's chief financial officer and external accountants and to assure the
existence of an effective accounting and internal control system. The Committee
held four meetings during 1996.
The Finance and Investment Committee presently consists of Messrs. Suter
(chairman), Dilworth, Hancock, Hess, and Hochadel, with Mr. Schatz serving as
an ex-officio member. This Committee oversees the investment of the Company's
securities portfolio and other investment-related actions of the Company. The
Committee held two meetings during 1996.
The Underwriting Committee presently consists of Messrs. Dilworth,
Greenbaum, and Hochadel. It oversees underwriting activities of the Company and
reviews and monitors relationships with agents. The Committee held no meetings
during 1996.
The Claims Committee presently consists of Messrs. Batal, Cummings, and
Suter. It reviews and monitors actuarial certifications of loss and loss
adjustment reserves, and monitors the handling of insureds' claims. The
Committee held no meetings during 1996.
The Executive Committee presently consists of Messrs. Hochadel
(chairman), Hess, Kern, Schatz, and Suter. Its primary function is to act on
behalf of the Board at times when it is impractical to call a special meeting
of the entire board. The powers of the Executive Committee are limited by the
Bylaws of the Company. For example, the Committee has no power to approve
amendments to the Articles of Incorporation or Bylaws of the Company. The
Committee held two meetings during 1996.
The Board also maintains various ad hoc committees, whose function it is
to study specific issues and make recommendations to the full Board.
The Board of Directors held a total of seven meetings in 1996. Except for
Messrs. Greenbaum and Hochadel, each of the Directors was present at 75% or
more of the total number of Board and Committee meetings he was eligible to
attend in each year.
EXECUTIVE COMPENSATION AND
RELATED MATTERS
Set forth below is certain information concerning the compensation of
Robert G. Schatz, the President and Chief Executive Officer of the Company, and
each other executive officer of the Company who received more than $100,000 of
salary and bonus compensation for the prior fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND ANNUAL COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
<S> <C> <C> <C> <C>
Robert G. Schatz 1996 $155,289 $96,216 $69,590
President and Chief 1995 $150,000 $30,000 $ -0-
Executive Officer 1994 $150,000 $ -0- $ -0-
Ronald A. Libby 1996 $101,173 $36,707 $ 7,740
Chief Operating 1995 $ 90,346 $ -0- $ 3,557
Officer 1994 $ 6,923 $ -0- $ -0-
Samuel M. Koren 1996 $ 82,351 $22,361 $ 5,845
Senior Vice President 1995 $ 82,351 $ -0- $ 2,833
and Secretary 1994 $ 82,351 $ -0- $ -0-
Graham S. Payne 1996 $ 82,351 $21,500 $ 4,258
Treasurer and Chief 1995 $ 82,351 $ -0- $ 1,828
Financial Officer 1994 $ 82,351 $ -0- $ -0-
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN OR BASE EXPIRATION
GRANTED FISCAL YEAR PRICE($/SH) DATE
<S> <C> <C> <C> <C>
Robert G. Schatz 200,000 100% $1.625 10/28/07
Ronald A. Libby 0 0% -- --
Samuel M. Koren 0 0% -- --
Graham S. Payne 0 0% -- --
</TABLE>
The Company is a party to an Employment Agreement with Mr. Schatz, dated
March 26, 1991. The Agreement is scheduled to expire on February 28, 1998
unless further extended prior to such date. The Agreement provides for (i) a
base salary of $175,000 per annum commencing in 1991 (subject to annual
adjustments based on increases in the Consumer Price Index) and (ii) a profit
sharing bonus calculated on a sliding scale between 4% and 6% of net after-tax
profits of the Company before extraordinary items. Profit sharing bonuses are
paid through a combination of Common Stock and cash. In the event that the
Company terminates Mr. Schatz's employment without cause, the Agreement
provides for severance compensation to him in the amount of one year's salary
and up to one year of related insurance benefits. Furthermore, under certain
conditions following a change in control of the Company, Mr. Schatz may be
entitled to a lump sum cash payment equal to 200% of his average annual
compensation with the Company for the most recent five full years. Between
February 17, 1992 and October 28, 1996, Mr. Schatz on his own initiative
reduced his compensation to $150,000 per annum.
The 1991 Employment Agreement provided for the grant to Mr. Schatz of a
stock option for 200,000 shares of Common Stock, at the then prevailing market
price per share, subject to shareholder approval of a contemplated stock option
plan. The Company sought but did not receive shareholder approval, due to the
non-voting status of a large block of stock owned by Mr. Gershuny and the
Company's inability to obtain sufficient attendance of voting shareholders at
subsequent meetings. The Agreement stated that in the event Mr. Schatz's stock
option were not approved, the Company would "put in place a substitute
arrangement designed to give [him] a comparable opportunity." On October 28,
1996 the Board approved the grant of another option to Mr. Schatz for 200,000
shares at the market price per share on that date, together with a special cash
bonus of $60,000 in 1996 and $34,000 per year for the next ten years, subject
to his continued employment with the Company. This option grant and bonus were
intended to serve as a settlement of claims asserted by Mr. Schatz that he was
contractually entitled under the 1991 Employment Agreement to a compensatory
arrangement providing him with "a comparable opportunity" for the 1991 options
that had not been approved by the shareholders. Under a letter agreement
between Mr. Schatz and the Company, if this option does not receive shareholder
approval at the 1997 Annual Meeting, then the Company may withdraw the option
and the remaining bonus arrangements, and Mr. Schatz may renew his claims
against the Company under the 1991 Employment Agreement.
In October 1996 the Board approved Employment Continuity Agreements with
Mr. Libby and one other executive officer. Under these Agreements, if the
executive's employment is terminated within twelve months after the occurrence
of a Change in Control Event (as defined), then the Company agrees to provide
the executive with special severance compensation equal to 200% of the sum of
his current annual base salary plus any profit sharing award for the prior
year, provided that the payment will be reduced if and to the extent necessary
to keep the payment from becoming non-deductible under Section 280G of the
Internal Revenue Code. This same benefit accrues if the executive terminates
his employment for "good reason," which is defined to include a reduction in
his responsibilities or certain other events. The Employment Continuity
Agreement also provides for a stay-on bonus equal to 100% of his annual base
salary if the executive remains employed for six months after the Change in
Control Event, subject to the condition that he not compete with the Company
for the following six months. These special severance benefits do not apply if
the Company terminates the executive's employment for "good cause," including a
substantial neglect of duties after written notice and an opportunity to
correct.
In October 1996 the Board also approved an Employment Continuity
Agreement with Mr. Schatz. This Agreement becomes effective only once the 1991
Employment Agreement (which contains Change of Control provisions, as described
above) is no longer in effect. The Employment Continuity Agreement with Mr.
Schatz has terms equivalent to those for Mr. Libby and the other executive
officer, except that his special severance compensation equals 300% of the sum
of his current annual base salary plus any profit sharing award for the prior
year (subject, however, to the Section 280G limitation).
OTHER MATTERS RELATING TO
THE COMPANY'S DIRECTORS AND OFFICERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, certain
persons associated with the Company (directors, executive officers and
beneficial owners of more than 10% of the outstanding Common Stock) are
required to file with the Securities and Exchange Commission and the Company
various reports disclosing their ownership of Company securities and changes in
such ownership. To the Company's knowledge, all requisite reports for 1996 were
filed in a timely manner except that Mr. Schatz was late in filing two
Form 4 reports on the acquisition of 15,061 shares of bonus stock by him during
1996. The acquisition of these shares has since been reported.
AGREEMENT WITH BALLANTRAE
In May 1996, Ballantrae Partners, L.L.C. entered into a contract to
purchase 810,00 shares of NEIC Common Stock beneficially owned by Bernard D.
Gershuny. That stock represents approximately 27% of the total outstanding
stock of NEIC. The contract was subject to a number of conditions, including
requirements to obtain necessary regulatory approvals from the Maine Bureau of
Insurance and the New York Insurance Department. Following extensive
discussions, the Company and Ballantrae in August 1996 entered into an
agreement (the "Standstill Agreement") governing certain matters relating to
control of NEIC. On the basis of this Agreement and other factors, the Board of
Directors voted to endorse Ballantrae's applications for regulatory approval.
Ballantrae ultimately succeeded in obtaining regulatory approval in Maine and
New York, and consummated its purchase of Mr. Gershuny's shares in January
1997. The following is a summary of selected provisions of the Standstill
Agreement.
Under the Standstill Agreement, the Company has agreed to limit the size
of its Board and to allow Ballantrae to nominate three of the Directors.
Presently, two Ballantrae nominees (Ms. Harmon and Mr. Kern) serve as
Directors. The Company expects that a third Ballantrae nominee (as yet
undetermined) will be added to the Board following the 1997 Annual Meeting of
Shareholders.
The Standstill Agreement contemplates that at the 1997 Annual Meeting of
Shareholders the Company will seek shareholder approval of a change in the
Board of Directors, whereby the Directors will be divided into three classes to
be elected in staggered three-year terms. The Ballantrae nominees are to be
divided among those three classes. In general, Ballantrae has agreed not to
initiate, participate in, or assist any proxy solicitation over election of a
competing slate of Directors or over shareholder approval of other significant
matters. These restrictions will not be applicable in certain cases, such as if
the Company seeks to enter into a major restructuring transaction opposed by
Ballantrae. These restrictions will also not prevent Ballantrae from voting its
Common Stock as it sees fit. The Company has agreed not to make any changes in
its Articles of Incorporation or Bylaws during the term of the Standstill
Agreement (other than to implement a staggered Board of Directors, as noted
above), and has also agreed not to adopt certain antitakeover defenses for
specified periods following termination of the Agreement.
Ballantrae has agreed to limit its maximum ownership percentage of NEIC
stock as follows: 32.5% starting January 1, 1997; 35% starting July 1, 1997;
37.5% starting January 1, 1998; and 40% from July 1, 1998 through the
termination date of the Standstill Agreement. (These limitations are subject to
certain exceptions that could allow Ballantrae to purchase a certain block of
stock which currently represents 5.2% of the outstanding shares.) Ballantrae
must provide prior notice of its intended purchases or sales of Common Stock.
Large purchases or dispositions of NEIC stock by Ballantrae may involve other
substantive or procedural restrictions. The Company has agreed that, upon any
future issuance of Common Stock during the term of the Standstill Agreement
(other than pursuant to employee/director compensation plans), NEIC will offer
Ballantrae sufficient shares to protect against dilution in Ballantrae's then
existing percentage ownership. Any such sale to Ballantrae would be on terms
equivalent to the sale to third parties. The Company has also agreed to grant
Ballantrae certain rights to require NEIC to register future resales of Common
Stock by Ballantrae. These registration rights would facilitate large
dispositions of Common Stock by Ballantrae, and expire ten years after the date
of the Agreement.
The Standstill Agreement will expire on or around May 30, 1999. The
Agreement may be terminated at any time by either party upon the occurrence of
certain specified events, including for example a third party's commencement of
a tender offer for the outstanding NEIC stock.
OTHER RELATED PARTY TRANSACTIONS
The firm of Monaghan, Leahy, Hochadel & Libby provides legal services to
the Company. Mr. Hochadel, a Director of NEIC, is a partner in that firm. Fees
paid to that firm in 1995 and 1996 were approximately $170,000 and $165,000,
respectively.
The firm of Ohrenstein & Brown provided legal services to the Company in
1996. Mr. Cummings, a Director of NEIC, was a Partner in that firm until
recently. Fees paid to such firm by the Company did not exceed $60,000 in
either 1995 or 1996.
During each of the past two years, Batal Agency has been an independent
insurance agent for NEIC. Mr. Batal, a Director of NEIC, is President of that
agency. Commissions paid to the agency were based on NEIC's standard rates and
did not exceed $60,000 in either 1995 or 1996.
SUMMARY OF ACTIONS TO BE TAKEN
AMENDMENT TO AUTHORIZE STAGGERED BOARD
The Board of Directors has approved a prepared amendment of the Articles
of Incorporation (the "Amendment") to divide the Board into three classes,
with each class to be elected to staggered terms of office. Class I Directors
would be elected initially to a one-year term, expiring at the Annual Meeting
of Shareholders in 1998; thereafter the Class I Directors would be elected to
three-year terms. Class II Directors would be elected initially to a two-year
term, expiring at the Annual Meeting of Shareholders in 1999; thereafter the
Class II Directors would be elected to three-year terms. Class III Directors
would be elected to three-year terms, the first expiring at the Annual Meeting
of Shareholders in 2000. The Amendment also would require a two-thirds vote in
order for the shareholders to further amend this provision of the Articles of
Incorporation or to approve other changes to the Articles or Bylaws affecting
the size of the Board or the election of Directors. A copy of the proposed
Amendment appears as Exhibit A to this Proxy Statement.
The principal purpose of a staggered board is to provide for greater
continuity of membership on the board. With staggered three-year terms for
board members, only about a third of the directors are elected in any given
year. Thus a proxy contest in a single year will generally not be sufficient to
change a majority of the directors, unless the proponents can garner sufficient
votes to remove other directors from office.
Staggered boards of directors are quite common among publicly-held
companies, in which the stock ownership is subject to significant change from
year to year through open-market transactions. Having a staggered board may
encourage persons seeking to acquire control of a company to engage in good
faith, arms-length negotiations with the board concerning their proposal,
rather than waging a hostile proxy contest, and may permit the board to engage
in such negotiations from a stronger position. On the other hand, having a
staggered board could have the effect of deterring third parties from
initiating proxy contests or from acquiring substantial blocks of a company's
shares. Such proxy contests and acquisitions of substantial blocks of shares
tend, at least temporarily, to increase market prices for a company's stock.
The NEIC Board of Directors believes that promoting greater continuity of
board composition is in the best interests of the Company and its shareholders.
NEIC's insurance business is dependent on developing and maintaining long-term
relationships with its independent agents. Over the past several years, NEIC
has experienced a number of attempted changes in control, as different groups
sought to acquire a large block of stock owned by Bernard D. Gershuny. The
Company believes that uncertainties over future control made it more difficult
for NEIC to build relationships with agents and made it more difficult for NEIC
to obtain an upgrade in its Best's rating. Recently, Ballantrae Partners,
L.L.C. has acquired Mr. Gershuny's shares. In connection with Ballantrae's
purchase of these shares, the Company has taken a number of steps to reassure
existing officers, employees, and agents as to continuity of management. As
contemplated by the Standstill Agreement, a majority of the Directors have
voted to recommend that the shareholders amend the Articles of Incorporation
to implement a staggered board.
Presently, the Company's Articles of Incorporation provide that all
Director terms expire at each Annual Meeting of Shareholders. The proposed
Amendment divides Directors into classes whose terms expire over a three-year
period. As is presently the case, however, a vote of two-thirds of the
outstanding shares can remove an NEIC Director prior to expiration of his or
her term of office. Thus a two-thirds vote would in any event be sufficient to
change the entire Board of Directors of the Company at any meeting of
shareholders.
The proposed Amendment provides that the shareholders may amend
board-related provisions of the Articles of Incorporation or Bylaws only by a
two-thirds vote of the outstanding shares -- the same vote required to remove
Directors from office. In the absence of such a provision, a simple majority
vote could be sufficient to circumvent the staggered Board provisions and allow
election of a majority of Directors at a single meeting.
Approval of this proposed Amendment to the Articles of Incorporation will
require the affirmative vote of a majority of the outstanding shares of Common
Stock of the Company. For these purposes, abstentions and broker non-votes will
have the same effect as a vote against the proposal. (A broker non-vote occurs
when a broker, or other fiduciary, votes on at least one matter but lacks
authority to vote on another matter.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSED
AMENDMENT TO THE ARTICLES OF INCORPORATION.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide for a Board of Directors
of not fewer than 7 nor more than 21 members, as from time to time determined
by resolution of the Board of Directors or by the shareholders. Directors are
elected at each Annual Meeting of Shareholders for one-year terms. If the
shareholders approve the above-described amendment to the Articles of
Incorporation, then the Directors will be divided into three classes (as close
in number as is practicable) and elected to staggered terms as described above.
A resolution will be offered at the Meeting to establish the number of
Directors at nine and to elect the following nine persons as Directors in the
classes stated:
CLASS I (to serve until the 1998 Annual Meeting of Shareholders): Edward
B. Batal, Wilson G. Hess, and Robert G. Schatz
CLASS II (to serve until the 1999 Annual Meeting of Shareholders): Robert
A. Hancock, Deborah L. Harmon, and Bruce H. Suter
CLASS III (to serve until the 2000 Annual Meeting of Shareholders):
Terence P. Cummings, Joseph M. Hochadel, and Jonathan S. Kern
If the above-described amendment to the Articles of Incorporation is not
approved, then each Director will be elected to a one-year term, expiring at
the 1998 Annual Meeting of Shareholders.
The foregoing individuals have each consented to be named as nominees and
to serve as Directors if elected. Biographical information concerning the
nominees appears at pages 3-4 above.
Each director position will be filled by plurality vote. Abstentions and
broker non-votes will not affect the tally of votes cast in the election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE.
RATIFICATION OF ACCOUNTANTS
The shareholders will be asked to ratify the appointment of Coopers &
Lybrand L.L.P. as the Company's independent accountants for the fiscal year
ending December 31, 1997. Coopers & Lybrand has served as the Company's
independent accountants since 1981. One or more representatives of Coopers &
Lybrand will be present at the Meeting, will have an opportunity to make a
statement to the Meeting if they desire to do so, and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND.
APPROVAL OF NEIC STOCK OPTION PLAN
Subject to shareholder approval, the Board of Directors of the Company
has adopted the North East Insurance Company Stock Option Plan. The purpose of
the Plan is to provide outside directors and key employees of the Company with
additional incentives to contribute to the success of the Company and to assist
the Company in attracting and retaining qualified directors and employees. If
approved by shareholders at the Meeting, the Plan is to become effective as of
October 1, 1996.
The Plan provides for awards of Incentive Stock Options (ISOs),
Nonqualified Stock Options (NSOs), and Stock Appreciation Rights (SARs). ISOs
and NSOs represent the right to purchase NEIC common stock at a designated
option price per share. (These two types of options have different tax
consequences, as described below.) SARs represent the right to receive a future
payment in an amount which is determined by reference to the value of a share
of common stock.
NEIC common stock issuable under the Plan is limited to 400,000 shares in
the aggregate. (As of the record date for this Meeting, there were 3,002,375
shares outstanding.) In the event that a participant surrenders previously
owned NEIC common stock in full or partial payment of the exercise price of an
option under the Plan, only the net number of shares issued upon exercise will
be counted toward this limitation. In the event of a stock split or other pro
rata change in the number of shares owned by shareholders, the limitation on
shares issuable under the Plan will be adjusted proportionately.
The Plan contemplates that it will be administered by a Committee of two
or more non-employee directors appointed by the Board of Directors. The
Committee will have full authority to interpret the Plan and to establish rules
and regulations governing the administration of the Plan. In its discretion,
the Board may exercise any of the duties and authority of the Committee.
AWARDS UNDER THE PLAN. Employees of the Company may receive Incentive
Stock Options, Nonqualified Stock Options, or Stock Appreciation Rights under
the Plan, or a combination thereof. The Committee has discretion to determine
which employees of the Company shall be granted awards under the Plan, the time
or times at which awards shall be granted, and the terms, conditions, and
restrictions of each award. Presently, the Company has approximately 42
employees who would be eligible to receive awards under the Plan.
Employees may be awarded either Incentive Stock Options or Nonqualified
Stock Options, in each case carrying an option price of not less than 100% of
the fair market value per share on the date of grant. The term of each option
shall be set forth in an option agreement. No ISO may be exercised more than
ten years after the date of grant, and no ISO may be granted to any employee
who, at the time of grant, owns more than 10% of the outstanding voting stock
of the Company.
Employees may also be awarded Stock Appreciation Rights entitling the
holder to receive payment of an amount equal to the excess of (i) the fair
market value per share of NEIC common stock on the date of exercise over (ii)
the grant price of the right (which price may not less be than 100% of the fair
market value of the common stock on the date of grant). The terms of such an
award shall be set forth in an SAR agreement. The Committee has discretion to
determine the grant price and term within which, and conditions upon which, the
right may be exercised.
The Committee may also grant Nonqualified Stock Options or Stock
Appreciation Rights to non-employee directors of the Company. Such awards are
subject to the same limitations under the Plan as grants of Nonqualified Stock
Options or Stock Appreciation Rights. Non-employee directors are not eligible
for Incentive Stock Options.
Payment to the Company for exercise of an ISO or NSO may be made in cash,
Company stock, or a combination thereof, or in such other manner as the
Committee may approve. Payment upon exercise of a SAR is to be made in cash,
stock, or a combination thereof, as specified in the SAR agreement.
EFFECT OF TERMINATION OF EMPLOYMENT. Termination of an
employee-participant's employment may affect the exercisability of an
outstanding option or SAR. The Plan does not require employment-related
limitations on exercise, but generally provides that termination of employment
will accelerate the expiration date of an option unless the option agreement
otherwise provides. If an employee ceases to be employed by the Company, any
outstanding Incentive Stock Option will lose its favorable tax status unless
exercised within a specified time thereafter (or, in the case of death or
disability, one year thereafter).
In the case of awards to non-employee directors, termination of the
participant's status as a director will not affect the exercisability of the
award, unless the option agreement or SAR agreement otherwise provides.
EFFECT OF A CHANGE IN CONTROL. The Plan provides that upon a Change in
Control Event (as defined), and except as the terms of the option agreement or
SAR agreement otherwise provide and except for formula awards to non-employee
directors, all outstanding options and rights not previously exercisable shall
become immediately exercisable by the holder. These provisions are generally
triggered by a merger or other reorganization in which the Company is not the
surviving or continuing corporation (except for certain transactions involving
the formation of a holding company for NEIC) or by substantial changes in the
composition of the Board which have not been approved in advance by independent
directors of the Company. In view of the limited number of shares available for
issuance under the Plan, acceleration of the exercisability of awards is not
expected to have a material effect on any proposed change in control.
TAX CONSEQUENCES OF AN AWARD. For federal tax purposes, a participant
generally will not realize income at the time a Nonqualified Stock Option or
Stock Appreciation Right is granted. When the participant exercises the option
or right, however, he or she will realize ordinary income in the amount of the
difference between option or grant price and the fair market value of the stock
or payment received by him or her. The Company may take a business deduction at
the time the option or right is exercised, in the amount includable as ordinary
income by the participant.
Under the Internal Revenue Code, Incentive Stock Options are accorded
different tax treatment. An option holder generally will not realize income at
the time of grant or exercise of an Incentive Stock Option. Upon sale of the
underlying shares, if the sale occurs at least two years after the option was
granted and at least one year after the date the shares were transferred to the
employee, the gain realized on such sale will be treated as long-term gain. The
Company may not take a business deduction with respect to shares transferred
under Incentive Stock Options if the sale occurs in accordance with these time
requirements. However, if the employee fails to meet either of the time
requirements described above, the excess of the fair market value of the shares
at the time of exercise of the Incentive Stock Option over the option price
will generally be treated as ordinary income in the year of sale and the
Company will be entitled to a corresponding deduction.
FURTHER AMENDMENTS; TERMINATION. The Committee or the Board of Directors
may amend the Plan at any time, without shareholder approval, unless the
amendment would increase the maximum number of shares for which awards may be
granted under the Plan, or would modify the class of employees eligible to
participate in the Plan.
NEW PLAN BENEFITS. The Board of Directors on October 28, 1996 granted
Robert G. Schatz a Nonstatutory Stock Option for 200,000 shares of common
stock, at an exercise price of $1.625 per share (equal to the closing price of
the stock on that date). The option will expire if not exercised within ten
years after the date of grant; exercisability is not contingent on continued
employment. The option is subject to shareholder approval of the Plan, and is
not exercisable unless and until such approval is received. Further information
regarding this award to Mr. Schatz appears at pages 5-6 above. Other than this
award to Mr. Schatz, no other awards have been approved by the Board, and the
benefits to be received under the plan by executive officers, other employees,
and non-employee directors cannot be determined at this time.
The foregoing summary is qualified in its entirety by reference to the
Plan, a copy of which is attached as Exhibit B to this Proxy Statement. The
affirmative vote of a majority of the outstanding shares of NEIC common stock
is needed to approve the Plan. For these purposes, abstentions and broker
non-votes will have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE NEIC STOCK OPTION PLAN.
OTHER MATTERS
All expenses of this solicitation will be borne by the Company. No person
will receive any additional compensation for soliciting proxies from any
shareholder. In addition to use of the mails, proxies may be solicited
directly, or by telephone or other means, by Company employees. The Company
will reimburse brokerage firms, custodians, nominees, and fiduciaries for the
reasonable expenses of forwarding proxy materials to beneficial owners.
At the date of this Proxy Statement, Management knows of no other matters
that are to be brought before the Meeting. However, if any matters other than
those set forth in the accompanying Notice should properly come before the
Meeting, the persons named in the enclosed proxy will vote the proxies on such
matters in their discretion.
Shareholder Proposals for 1997 Meeting. The Company will consider for
inclusion in its proxy materials for the 1998 Annual Meeting any shareholder
proposal received by the Company in proper written form by January 2, 1998.
Any such proposals should be addressed to the Company as follows: North East
Insurance Company, 482 Payne Road, P.O. Box 1418, Scarborough, ME 04074, Attn:
Chairman of the Board of Directors.
By Order of the Board of Directors
SAMUEL M. KOREN, Clerk
Exhibit A
PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION
The Articles of Incorporation (formerly Certificate of Organization) of
the Company are hereby amended such that Article Fourth shall read in its
entirety as follows:
FOURTH: The Board of Directors shall consist of not less than seven nor more
than twenty-one directors, the number of Directors to be fixed from time to
time by vote of the Directors or by the affirmative vote of at least two-thirds
of the outstanding shares of the Company entitled to vote for the election of
Directors.
At the 1997 Annual Meeting of Shareholders, the Directors shall be divided into
three classes, as nearly equal in number as possible, with the term of office
of Class I to expire at the 1998 Annual Meeting of Shareholders, the term of
office of Class II to expire at the 1999 Annual Meeting of Shareholders, and
the term of office of Class III to expire at the 2000 Annual Meeting of
Shareholders, with the Directors in each class to hold office until their
respective successors are duly elected and qualified. At each Annual Meeting of
Shareholders after 1997, Directors elected to succeed those Directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Shareholders after their election.
In addition to any vote required by law or by any other provision of these
Articles of Incorporation, the affirmative vote of at least two-thirds of the
outstanding shares of the Company entitled to vote for the election of
Directors shall be required for any action by the shareholders to amend or
repeal this Article Fourth or to adopt, amend, or repeal any other provisions
of the Articles of Incorporation or Bylaws of the Company governing the size of
the Board, the number of Directors in each class of Directors, the quorum or
vote required to elect or remove Directors, or the procedures for nominating
Directors or filling any vacancy in the Board.
Exhibit B
NORTH EAST INSURANCE COMPANY
STOCK OPTION PLAN
1. Purpose. The purpose of this Plan is to promote the profitability of
North East Insurance Company and its Subsidiaries by providing Directors and
selected employees and with additional incentives to contribute to the success
of the Company and by helping the Company to attract and retain qualified
employees and Directors.
2. Definitions. As used in this Plan, the following words and phrases
wherever capitalized shall have the following meanings, unless the context
clearly indicates that a different meaning is intended:
(a) "Award" shall mean any Option or Stock Appreciation Right granted
pursuant to the Plan.
(b) "Award Agreement" shall mean a written instrument that specifies the
terms, conditions and restrictions of an Award and incorporates the applicable
provisions of the Plan and such additional provisions not inconsistent
therewith as the Committee shall determine.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as from time to
time amended.
(e) "Committee" shall mean a committee appointed by the Board of
Directors with authority to administer the Plan and consisting solely of
Non-Employee Directors. In its discretion, the Board may, from time to time,
perform any duty of the Committee or exercise any power of the Committee.
(f) "Common Stock" shall mean common stock, par value $1.00 per share, of
the Company.
(g) "Company" shall mean North East Insurance Company.
(h) "Director" shall mean any member of the Board of Directors of the
Company, whether or not an Employee. "Non-Employee Director" shall mean a
Director who is a Non-Employee Director within the meaning of Rule 16b-3 or who
meets such other criteria as the Committee may establish from time to time.
(i) "Disability" shall mean a participant's inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or that has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months. A participant shall not be considered disabled unless he or she
furnishes proof of the existence of such Disability in such form and manner,
and at such times, as the Committee may require.
(j) "Employee" shall mean any person who is employed by the Company or
any Parent or Subsidiary.
(k) "Fair Market Value" per Share as of a given date shall mean the
average of the closing bid and asked prices of the Common Stock as quoted on
NASDAQ, or such other determination of fair market value as the Committee may
designate. If there are no sales of Common Stock reported for the day on which
Fair Market Value is to be determined, then Fair Market Value shall be
determined as of the last previous day on which sales were reported. Provided,
however, that the Fair Market Value of Shares to be issued under any Incentive
Stock Option shall in all events be determined in a manner that meets the
applicable requirements of subsections 422(b)(5) and (c)(7) of the Code and the
regulations issued thereunder.
(l) "Incentive Stock Option" shall mean an option granted to an
individual for any reason connected with his or her employment by a
corporation, if granted by the employer corporation or its parent or subsidiary
corporation, to purchase stock of any of such corporations, but only if such
option meets the requirements of Section 422 of the Code.
(m) "Nonqualified Stock Option" shall mean an Option granted under the
Plan which is not an Incentive Stock Option.
(n) "Option" shall mean a right granted under the Plan to purchase
Shares.
(o) "Optionee" shall mean an Employee or Director who is granted an
Option.
(p) "Parent" shall mean a parent corporation within the meaning of
subsections 424(e) and (g) of the Code.
(q) "Participant" shall mean a person who is eligible to receive Awards
under this Plan or who holds one or more outstanding Awards under this Plan.
(r) "Plan" shall mean this North East Insurance Company Stock Option
Plan.
(s) "Rule 16b-3" shall mean Rule 16b-3 of the Securities and Exchange
Commission, as from time to time amended, and any successor regulation thereto.
(t) "Share" shall mean a share of Common Stock of the Company, as
adjusted in accordance with subsection 4(b) below.
(u) "Stock Appreciation Right" shall mean a right granted under Section 8
to receive a payment, the amount of which shall be determined by reference to
the value of a Share.
(v) "Subsidiary" shall mean, for purposes of the Incentive Stock Option
provisions of the Plan, a subsidiary corporation within the meaning of
subsections 424(f) and (g) of the Code, and for all other purposes of the Plan,
a corporation of which North East Insurance Company owns directly or indirectly
at least fifty percent (50%) of the total combined voting power of all classes
of stock entitled to vote.
3. Administration.
(a) Committee. The Plan shall be administered by the Committee (subject,
however, to the discretion of the Board under Section 2(e) above). A majority
of the members of the Committee shall constitute a quorum, and the action of a
majority of the members present at any meeting at which a quorum is present
shall be deemed the action of the Committee. Any member may participate in a
meeting of the Committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Further, any action of the Committee may be taken
without a meeting if all of the members of the Committee sign written consents,
setting forth the action taken or to be taken, at any time before or after the
intended effective date of such action.
(b) Powers. Except as otherwise provided by the Plan, the Committee shall
have authority to administer all aspects of the Plan, including the power:
(i) to determine the persons eligible for Awards under the Plan;
(ii) to determine the time or times at which Awards shall be
granted;
(iii) to determine the type or types of Awards to be granted;
(iv) to determine the terms, conditions and restrictions of each
Award;
(v) to make adjustments in accordance with subsection 4(b) below;
(vi) to prescribe, amend and rescind rules and regulations relating
to the Plan; and
(vii) to interpret the Plan and make all other determinations
deemed necessary or advisable for the administration of the Plan.
Decisions of the Committee on all matters relating to the Plan shall be in the
Committee's sole discretion and shall be conclusive and binding on all parties
(including the Company), and their heirs, assigns and beneficiaries.
(c) Signatures. The Committee may authorize any member thereof to execute
all instruments required in the administration of the Plan, and such
instruments may be executed by facsimile signature.
4. Stock Subject to the Plan.
(a) Limitations. Subject to the provisions of subsection (b) below, the
maximum number of Shares available for issuance under the Plan, and the
aggregate number of Shares which may be issued pursuant to Incentive Stock
Options, shall be four hundred thousand (400,000) Shares.
In the event that any Award granted under the Plan expires, is forfeited,
or otherwise terminates without the issuance of Shares or payment of other
consideration in lieu of such Shares, the unissued Shares subject to such Award
shall, unless the Plan has been terminated, become available for other Awards.
In the event that a Participant transfers stock issued by the Company in
full or partial payment of the option price of an Option granted under the
Plan, only the difference between (i) the number of Shares issued upon exercise
of the Option and (ii) the number of Shares transferred in payment of the
option price shall be counted for purposes of the foregoing limitation on the
maximum number of Shares available for grant under the Plan. Notwithstanding
the foregoing, the total number of Shares issued pursuant to the exercise of an
Incentive Stock Option shall be counted for purposes of the foregoing special
limitation on Shares issued pursuant to Incentive Stock Options.
(b) Adjustments. If the number of Shares outstanding changes as a result
of a stock split or stock dividend, the Committee shall proportionately adjust:
(i) the maximum number of Shares available for grant and the maximum aggregate
number of shares which may be issued under Incentive Stock Options; (ii) the
number of Shares to be issued under Awards; (iii) the option price with respect
to Options; and (iv) the grant price with respect to Stock Appreciation Rights.
In the event of a merger or consolidation in which the Company is the
surviving corporation, or the acquisition by the Company of property or stock
of another corporation, or any reorganization of the Company, the Committee
shall appropriately adjust: (i) the number and class of Shares to be issued
under Awards; (ii) the option price of Shares subject to Options; and (iii) the
grant price with respect to Stock Appreciation Rights. Any adjustments under
this subsection (b) affecting Incentive Stock Options shall be made so as to
comply with the applicable provisions of Sections 422 and 424 of the Code.
Upon the occurrence of a merger or consolidation in which the Company is
not the surviving company, all Awards shall become exercisable to the extent
provided in Section 10 below.
Any Shares issued hereunder may consist, in whole or in part, of
authorized and unissued Shares or treasury Shares, and upon issuance shall be
deemed fully paid and nonassessable.
5. Eligibility.
(a) Awards to Employees. The Committee may, from time to time, grant
Options or Stock Appreciation Rights to any Employee. The Committee may, from
time to time, limit the class of Employees eligible to receive Awards under the
Plan.
(b) Awards to Directors. The Committee may, from time to time, grant
Nonqualified Stock Options or Stock Appreciation Rights to any Non-Employee
Director. The Committee may, from time to time, limit the class of Non-Employee
Directors eligible to receive Awards under the Plan.
(c) Eligibility for Incentive Stock Options. Employees who own ten
percent (10%) or more of the total combined voting power of all classes of
stock of the Company or its Parent or Subsidiary are ineligible to receive
Incentive Stock Options under the Plan. Non-Employee Directors are ineligible
to receive Incentive Stock Options.
6. Granting of Awards.
(a) Discretionary Awards. The Committee may grant more than one Award and
more than one type of Award to any eligible Participant. A person who has been
granted an Award may, if he or she is otherwise eligible, be granted additional
Awards before exercising such prior Award.
The Committee may condition a Participant's receipt of an Award and his
or her exercise of an Option or Stock Appreciation Right on the attainment of
performance goals. Performance goals may be expressed in terms of earnings per
Share, stock price, total shareholder return, return on equity, or any similar
quantifiable measures.
(b) Formula Awards. The Committee shall have authority to grant Awards at
designated intervals on predetermined terms. The terms on which such formula
awards are to be granted may be changed by the Committee from time to time,
provided that (i) no such change shall affect the terms of Awards previously
granted and (ii) no such change may be made in a manner that would contravene
any conditions of Rule 16b-3 that are specific to formula awards.
7. Options.
(a) Option Agreement. Each Option granted under the Plan shall be
evidenced by an Award Agreement ("Option Agreement"), specifying the option
price, the number of Shares subject to the Option and such other terms,
conditions and restrictions as the Committee shall determine. In addition, each
Option shall be clearly identified as either an Incentive Stock Option or a
Nonqualified Stock Option.
(b) Term of Option. The term of each Option shall be set forth in the
Option Agreement, but in no event shall an Incentive Stock Option be
exercisable after the expiration of ten (10) years from the date such Option is
granted.
(c) Option Price. The option price at which Shares may be purchased under
the Option shall not be less than one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
(d) Nontransferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner, other than by
will or by the laws of descent and distribution, and may be exercised during
the lifetime of the Optionee only by such Optionee. Notwithstanding the
preceding sentence, the transfer of Nonqualified Stock Options to family
members or family trusts (and exercise by the transferee) shall be permissible
if and to the extent permitted under Rule 16b-3.
(e) Manner of Exercise. An Option granted under the Plan shall be
exercisable at such times and under such circumstances as shall be permissible
under the terms of the Plan and the Option Agreement. An Option shall be deemed
to be exercised when the Optionee gives written notice of such exercise to the
Company in accordance with the terms of the Option Agreement and the Company
receives full payment of the exercise price for the Shares with respect to
which the Option is exercised. Except as the Option Agreement otherwise
provides, payment shall be made in cash or by delivery of Company stock owned
by the Optionee, in a form suitable for transfer, or a combination thereof, as
the Optionee may elect. Stock transferred to the Company in full or partial
payment of the exercise price shall be valued at Fair Market Value on the date
of exercise of the Option. Where permitted by the Option Agreement or the
Committee as a means of payment of the exercise price, the forfeiture of an
otherwise exercisable Option (or any portion thereof) shall be valued at the
excess of (i) the Fair Market Value of the underlying Shares over (ii) the
exercise price of the forfeited Option (or portion thereof).
8. Stock Appreciation Rights.
(a) SAR Agreement. Any Stock Appreciation Rights granted under the Plan
shall be evidenced by an Award Agreement ("SAR Agreement"), specifying the
grant price, the number of such rights, and such other terms, conditions and
restrictions as the Committee shall determine.
(b) Amount of Payment. A participant to whom a Stock Appreciation Right
has been granted shall be entitled to receive payment of an amount equal to the
excess of (i) the Fair Market Value of one (1) Share on the date of exercise of
such right over (ii) the grant price of the right; provided that, if so
specified in the SAR Agreement, the Fair Market Value of a Share with respect
to a Stock Appreciation Right that is not related to an Incentive Stock Option
may be determined as of any given date prior to the date of exercise.
(c) Grant Price. The grant price of a Stock Appreciation Right shall not
be less than one hundred percent (100%) of the Fair Market Value of a Share on
the date the Stock Appreciation Right is granted.
(d) Nontransferability of Rights. Stock Appreciation Rights may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner, other than by will or by the laws of descent and distribution, and may
be exercised during the lifetime of the recipient. Notwithstanding the
preceding sentence, the transfer of Stock Appreciation Rights to family members
or family trusts (and exercise by the transferee) shall be permissible if and
to the extent permitted under Rule 16b-3.
(e) Manner of Exercise. A Stock Appreciation Right granted under the Plan
shall be exercisable at such times and under such circumstances as shall be
permissible under the terms of the Plan and of the SAR Agreement. A Stock
Appreciation Right shall be deemed exercised when the recipient gives written
notice of such exercise to the Company in accordance with the terms of the SAR
Agreement.
(f) Form of Payment. Payment with respect to the exercise of a Stock
Appreciation Right may be made in cash, Shares or a combination thereof, as the
Committee shall determine. To the extent that such payment is made in Shares,
the Shares shall be valued at Fair Market Value on the date of payment.
(g) Related Options. A Stock Appreciation Right may, but need not, relate
to an Option granted under the Plan. A Stock Appreciation Right related to a
Nonqualified Stock Option may be granted simultaneously with the granting of
such Option or at any time thereafter before the exercise or termination of
such Option. A Stock Appreciation Right related to an Incentive Stock Option
must be granted at the same time such Option is granted.
A Stock Appreciation Right related to the full number of Shares subject
to an Option shall terminate upon exercise or termination of the Option to the
extent such Option is exercised or terminated. A Stock Appreciation Right
related to less than the full number of Shares subject to an Option shall not
be affected by the exercise or termination of the Option until such exercise or
termination exceeds the number of Shares not related to the Stock Appreciation
Right; thereafter such right shall terminate to the extent such Option is
further exercised or terminated.
To the extent that a Stock Appreciation Right related to an Option has
been exercised, such Option shall no longer be exercisable.
9. Termination of Employment. In the event that an Employee ceases to be
employed by the Company or any Parent or Subsidiary and is no longer employed
by any of them, for any reason other than death or Disability, and except as
the Award Agreement otherwise expressly provides, each outstanding Award to the
Employee will expire unless duly exercised within three (3) months after the
date employment ceases or, if earlier, the original expiration date of the
Award). Except as the Award Agreement otherwise expressly provides, termination
of a Non-Employee Director's status as a Director shall not affect the term of
any Award granted to him or her.
In the event that, by reason of his or her death or Disability, an
Employee ceases to be employed by the Company or any Parent or Subsidiary, and
is no longer employed by any of them, then except as the Award Agreement
otherwise expressly provides, each outstanding Award to the Employee will
expire unless duly exercised within one (1) year after the date employment
ceases or, if earlier, the original expiration date of the Award.
10. Change in Control. Upon the occurrence of a Change in Control Event of
the Company, and except as the Award Agreement otherwise expressly provides,
all then outstanding Options and Stock Appreciation Rights not previously
exercisable shall be become exercisable. For purposes of this Section, each of
the following events shall constitute a Change in Control Event:
(a) The Company's shareholders approve:
(i) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which all or a
portion of the shares of Common Stock would be converted into cash, securities
or other property; or
(ii) any sale, lease, exchange, liquidation or other transfer (in
one transaction or a series of transactions) of all or substantially all of the
assets of the Company.
Notwithstanding subparagraphs (i) and (ii) above, the term "Change in Control
Event" shall not include a consolidation, merger or other reorganization if
upon consummation of such transaction (x) all of the outstanding voting stock
of the Company is owned, directly or indirectly, by a holding company, (y) the
holders of Common Stock immediately prior to the transaction have substantially
the same proportionate ownership and voting control of the holding company and
(z) the holding company agrees to assume the Company's obligations under all
outstanding Awards and to issue, upon exercise of any Award payable in Shares,
holding company securities which the Committee determines to be equivalent in
value and voting power to the consideration that the holder of a like number of
Shares would receive pursuant to the reorganization.
(b) Within any twenty-five (25) month period, individuals who were
Independent Directors at the beginning of such period, together with any other
Independent Directors first elected as directors of the Company pursuant to
nominations approved or ratified by at least two-thirds (2/3) of the
Independent Directors in office immediately prior to such respective elections,
cease to constitute a majority of the Board.
For purposes of the Plan, an "Independent Director" as of a given date
shall mean a member of the Board who has been a director of the Company
throughout the six (6) months prior to such date, has not been an employee of
the Company at any time during such six (6) month period, has not at any time
during such six (6) month period beneficially owned more than ten percent (10%)
of the outstanding Shares, and none of whose affiliates or associates has at
any time during such six (6) month period beneficially owned more than ten
percent (10%) of the outstanding Shares. For purposes of this paragraph, the
terms "affiliate" and "associate" shall have the meanings ascribed to them by
regulations promulgated under Section 12(b) of the Securities Exchange Act of
1934, as amended, and the term "beneficial ownership" shall have the meaning
ascribed to it by regulations promulgated under Section 13(d) of that Act.
11. Amendment and Termination.
(a) Amendment. The Board of Directors or the Committee, without further
approval of the shareholders of the Company, may amend the Plan from time to
time in such respects as the Board or the Committee may deem advisable,
provided that no amendment shall become effective prior to approval of the
shareholders of the Company if such amendment:
(i) increases the maximum number of Shares for which Awards may be
granted; or
(ii) modifies the class of persons eligible to participate in the
Plan.
Notwithstanding the foregoing, the provisions of the Plan under which formula
awards are to be made to Directors may be amended only by the Board, subject to
shareholder approval if required. The terms under which formula awards are to
be made shall not be changed except as permitted by subsection 6(b) above or
except as the shareholders may otherwise approve.
(b) Termination. The Board or the Committee, without further approval of
the shareholders of the Company, may at any time terminate the Plan.
(c) Effect of Amendment or Termination. No amendment or termination of
the Plan shall adversely affect Awards already granted to an Employee or
Director, without such person's prior written consent, and such Awards shall
remain in full force and effect as if the Plan had not been amended or
terminated.
12. Effective Date of Plan. The Plan shall be effective as of October 1,
1996, if approved by the shareholders of the Company within one (1) year of
such date.
13. Term of Plan. No Award shall be granted pursuant to the Plan after ten
(10) years from the effective date of the Plan. Awards granted prior to the end
of such period may extend beyond such period, except as otherwise provided
herein or in the Award Agreement.
14. Miscellaneous.
(a) Award Agreement. Upon executing an Award Agreement, an Employee or
Director shall be bound by such Agreement and by the applicable provisions of
the Plan.
(b) Employment. The granting of an Award to an Employee shall not give
the Employee any right to be retained in the employ of the Company or any
Parent or Subsidiary.
(c) Tax Withholding. The Company shall be authorized to withhold from any
Award granted, or payment due, under the Plan the amount of any taxes required
by law to be withheld because of such Award or payment, and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
(d) Headings. Paragraph headings are included solely for convenience and
shall in no event affect, or be used in connection with, the interpretation of
the Plan.
(e) Construction. The validity, construction and effect of the Plan and
regulations relating to the Plan shall be determined in accordance with the
laws of the State of Maine and applicable Federal law.
NORTH EAST INSURANCE COMPANY
PROXY
(SOLICITED BY THE BOARD OF DIRECTORS)
The undersigned appoints Robert G. Schatz and Samuel M. Koren, or either of
them, proxies with full power of substitution, to represent and vote all shares
of Common Stock of North East Insurance Company held by the undersigned, at the
Annual Meeting of Shareholders to be held June 10, 1997, or any adjournment
thereof.
1. TO APPROVE THE PROPOSED STAGGERED BOARD AMENDMENT TO THE ARTICLES
OF INCORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. TO FIX THE NUMBER OF DIRECTORS AT NINE AND TO ELECT THE FOLLOWING
NOMINEES TO THE BOARD OF DIRECTORS FOR THE TERMS STATED
Class I (term expiring at 1998 Annual Meeting of Shareholders):
Edward B. Batal, Wilson G. Hess, and Robert G. Schatz
Class II (term expiring at 1999 Annual Meeting of Shareholders):
Robert A. Hancock, Deborah L. Harmon, and Bruce H. Suter
Class III (term expiring at 2000 Annual Meeting of Shareholders):
Terence P. Cummings, Joseph M. Hochadel, and Jonathan S. Kern
(To withhold authority to vote for any individual nominee, strike a
line through the nominee's name)
NOTE: If Proposal 1 is not adopted by the shareholders, then each
of the nominees named above will be elected to a one-year term.
3. TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND AS AUDITORS FOR THE
CURRENT YEAR
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. TO APPROVE THE NEIC STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, upon such other matters as may properly come
before the Meeting.
This proxy, when properly executed, will be voted in the manner directed hereby
by the undersigned shareholder. Where no direction is made, this proxy will be
voted FOR the nominated directors and FOR Proposals 1, 3, and 4. The
undersigned hereby revokes any proxy previously given and acknowledges receipt
of the Notice of, and Proxy Statement for, the aforesaid Meeting.
Dated: ________________________, 1997
_____________________________________
Signature
_____________________________________
Signature
NOTE: Personal representatives, custodians, trustees, partners, corporate
officers, and attorneys-in-fact should add their titles as such.
PLEASE VOTE AND DATE THIS PROXY, SIGNING IT AS YOUR NAME APPEARS ON YOUR STOCK
CERTIFICATES AND RETURN THE PROXY IN THE ENVELOPE PROVIDED.
