ASCENT ASSURANCE, INC.
(FORMERLY, WESTBRIDGE CAPITAL CORP.)
110 WEST SEVENTH STREET
FORT WORTH, TEXAS 76102
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
WEDNESDAY, JUNE 16, 1999
To the Holders of Common Stock of Ascent Assurance, Inc.:
The Annual Meeting of Stockholders of Ascent Assurance, Inc. (the
"Company") will be held on Wednesday, June 16, 1999 at 10:00 A.M., New York
time, at the offices of Milbank, Tweed, Hadley and McCloy LLP, 1 Chase Manhattan
Plaza, 54th Floor Conference Center, New York, New York, for the following
purposes:
(1) To elect two (2) directors of the Company, each to serve for a
term of three (3) years.
(2) To ratify the selection by the Board of Directors, of
PricewaterhouseCoopers LLP as independent accountants.
(3) To act upon the proposal to approve the 1999 Stock Option Plan.
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only holders of Common Stock of record at the close of business on May
14, 1999 are entitled to notice of and to vote at the meeting. A list of such
stockholders may be examined at the offices of the Company during regular
business hours for ten full days prior to the meeting as well as at the meeting.
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
YOU HAVE THE POWER TO REVOKE SUCH PROXY AT ANY TIME BEFORE IT IS VOTED, AND THE
GIVING OF ANY SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU
ATTEND THE MEETING. ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING
IN PERSON.
By Order of the Board of Directors,
/S/ PATRICK J. MITCHELL
Patrick J. Mitchell
Chairman of the Board and
Chief Executive Officer
Fort Worth, Texas
April 30, 1999
<PAGE>
ASCENT ASSURANCE, INC.
(FORMERLY, WESTBRIDGE CAPITAL CORP.)
PROXY STATEMENT
GENERAL INFORMATION.
This Proxy Statement is being furnished to the stockholders of Ascent
Assurance, Inc., a Delaware corporation ("Ascent" or the "Company"), in
connection with the solicitation by the Board of Directors of the Company (the
"Board") of proxies for use at the Annual Meeting of Stockholders of the Company
to be held on Wednesday, June 16, 1999 at 10:00 A.M., New York time, at the
offices of Milbank, Tweed, Hadley and McCloy LLP, 1 Chase Manhattan Plaza, 54th
Floor Conference Center, New York, New York, or any postponements or
adjournments thereof (the "Meeting"). The mailing address of the Company is 110
West Seventh Street, Suite 300, Fort Worth, Texas 76102 and its telephone number
is (817) 878-3300.
At the Meeting, the stockholders of the Company will be asked (i) to
elect two (2) directors of the Company, each to serve for a term of three years,
(ii) to ratify the selection by the Board of PricewaterhouseCoopers LLP to serve
as the Company's independent accountants for 1999, and (iii) to approve the 1999
Stock Option Plan.
This Proxy Statement and the enclosed form of proxy are expected to be
mailed on or about May 19, 1999. The cost of solicitation of proxies will be
borne by the Company. The Company will reimburse its transfer agent, LaSalle
National Bank, for the reasonable expenses incurred by it in mailing the
material for the solicitation of proxies to stockholders of record, and will
reimburse nominees for the reasonable expenses incurred by them in mailing the
material for the solicitation of proxies to each of their customers who are the
beneficial holders of the Company's Common Stock registered in the names of such
nominees. In addition to solicitation by mail, officers and employees of the
Company may solicit proxies by telephone, facsimile, or in person. Proxies in
the form enclosed, properly executed by stockholders and returned to the Company
and not revoked, will be voted at the Meeting. The proxy may be revoked at any
time before it is exercised by giving notice of revocation to the Secretary of
the Company, by executing a later-dated proxy or by attending and voting in
person at the Meeting.
VOTING, RECORD DATE AND QUORUM.
Proxies will be voted as specified or, if no direction is indicated on
the proxy, it will be voted "FOR" the election of the two (2) nominees named
under the caption "Election of Directors"; "FOR" the ratification of the
selection of PricewaterhouseCoopers LLP as independent accountants for 1999 and
"FOR" the approval of the 1999 Stock Option Plan. As to any other matter or
business which may be brought before the Meeting, a vote may be cast pursuant to
the proxy in accordance with the judgment of the person or persons voting the
same, but the Board does not know of any such other matter or business.
The close of business on May 14, 1999 has been fixed as the record date
for the determination of stockholders entitled to vote at the Meeting. As of
April 23, 1999, 6,500,000 shares of Common Stock were outstanding and will be
entitled to be voted at the Meeting together with any shares issued from April
24, 1999 through the record date. Each stockholder will be entitled to cast one
vote, in person or by proxy, for each share of Common Stock held. The presence,
in person or by proxy, of the holders of at least a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum at the Meeting. The
affirmative vote of the holders of a plurality of the shares of Common Stock
represented at the Meeting (not including abstentions and broker non-votes) is
required for the election of directors, and the affirmative vote of the holders
of a majority of the shares of Common Stock represented at the meeting
(including abstentions but not including broker non-votes) is required for the
ratification of PricewaterhouseCoopers LLP as the Company's independent
accountants and the approval of the 1999 Stock Option Plan. The Board recommends
the election of the two (2) nominees named under "Election of Directors", the
ratification of the selection of PricewaterhouseCoopers LLP as independent
accountants and the approval of the 1999 Stock Option Plan.
PRINCIPAL STOCKHOLDERS.
The following table sets forth, as of April 23, 1999, the name and
address of each person known by the Company to own beneficially, directly or
indirectly, more than five percent of the outstanding shares of Common Stock
(its only class of voting securities):
NUMBER
NAME AND ADDRESS OF SHARES PERCENT
Credit Suisse First Boston (1).......... 7,859,164 56.6
11 Madison Avenue
New York, New York 10010-3629
.........
(1) Based on information included in the Schedule 13D filed by Credit Suisse
First Boston ("CSFB") dated April 5, 1999. Includes 3,093,999 shares
outstanding and 4,765,165 shares beneficially owned (through ownership of
23,257 shares of Convertible Preferred Stock) by Special Situations
Holdings, Inc. - Westbridge, a wholly-owned subsidiary of CSFB. The
Convertible Preferred Stock may be converted at any time at a conversion
price of $4.88 per share. All shares were received by CSFB pursuant to
Westbridge's Plan of Reorganization (as defined herein) and issued in
exchange for consideration consisting of a combination of cash and the
cancellation of certain securities of Westbridge beneficially owned by
CSFB. This issuance resulted in a change in control of the Company.
ELECTION OF DIRECTORS.
The Company's Amended and Restated Certificate of Incorporation and
Bylaws provide that the members of the Board shall be divided into three classes
with approximately one-third of the directors to stand for election each year
for three-year terms. The total number of directors comprising the Company's
Board is currently set by the Board pursuant to the Company's Bylaws at seven
(7). Of this number, two (2) members of the Board have terms expiring and are
nominees for election at the 1999 Annual Meeting of Stockholders, two (2)
members of the Board have terms expiring at the 2000 Annual Meeting of
Stockholders, and two (2) members of the Board have terms expiring at the 2001
Annual Meeting of Stockholders. One board position is currently vacant. Holders
of the Company's Convertible Preferred Stock have the right to nominate a
director to fill this vacancy until June 24, 1999.
If the enclosed proxy card is duly executed and received in time for
the Meeting, and if no contrary specification is made as provided therein, it
will be voted in favor of the election as directors of the two (2) nominees
named below. Should any nominee for director become unable or unwilling to
accept election, proxies will be voted for a nominee selected by the Board, or
the size of the Board may be reduced accordingly. The Board has no reason to
believe that any of the nominees will be unable or unwilling to serve if elected
to office and, to the knowledge of the Board, such nominees intend to serve the
entire term for which election is sought. Any vacancy occurring during the term
of office of any director may be filled by the remaining directors for the
balance of such unexpired term. All the nominees for directors are presently
directors of the Company.
The Board recommends that the stockholders vote "FOR" the two (2)
nominees named below. The following information concerning each of the two (2)
nominees as director, and each current director in the classes continuing in
office, is provided as of April 30, 1999:
NOMINEES FOR THREE-YEAR TERMS EXPIRING IN 2002
JOHN H. GUTFREUND, age 69, has been a director of Ascent since 1999. Mr.
Gutfreund is President of Gutfreund & Company, Inc., a New York based financial
consulting firm which specializes in advising select corporations and financial
institutions in the United States, Europe and Asia. Mr. Gutfreund was the former
Chairman and Chief Executive Officer of Salomon Brothers from 1981 to 1991. He
also currently serves as a director of Aqua Penn Spring Water Company, Inc.,
Baldwin Piano & Organ Company, Foamex International Inc., LCA-Vision, Inc., The
Universal Bond Fund and Montetiore Medical Center, New York City.
MICHAEL A. KRAMER, age 30, has been a director of Ascent since 1999. Mr. Kramer
is a Managing Director in Houlihan, Lokey, Howard & Zukin's New York office
where he has led many of the Firm's largest restructuring and M&A engagements.
Mr. Kramer joined Houlihan, Lokey, Howard & Zukin in 1989 after earning his B.S.
in Business Administration from California State University at Northridge.
DIRECTORS CONTINUING IN OFFICE UNTIL 2000
RICHARD H. HERSHMAN, age 49, has been a director of Ascent since 1999. Mr.
Hershman has been Executive Vice President and Chief Financial Officer of
Decision Strategies/Fairfax International, LLC since 1999. Prior to that, Mr.
Hershman was Executive Vice President and Chief Financial Officer of Risk
Enterprise Management Limited from 1995-1998. From 1993-1994, Mr. Hershman was
the Executive Vice President and Chief Financial Officer of The Fairfax Group.
ROBERT A. PEISER, age 50, has been a director of Ascent since 1999. Mr. Peiser
has been the Chairman of CVSI, Inc. since 1998. Mr. Peiser served as President
and Chief Executive Officer of Western Pacific Airlines from 1996 to 1998. Mr.
Peiser served as Vice Chairman and Chief Executive Officer of FoxMeyer Drug
Company from August 1996 through November 1996. In addition, Mr. Peiser was
Executive Vice President - Finance and Chief Financial Officer of Trans World
Airlines, Inc. ("TWA") from August 1994 through August 1996. Prior to his
employment with TWA, Mr. Peiser was a consultant with BBK, Ltd., a turnaround
consulting firm based in Southfield, Michigan, from November 1992 through July
1994.
DIRECTORS CONTINUING IN OFFICE UNTIL 2001
PATRICK J. MITCHELL, age 40, has been a director of Ascent since 1997. Mr.
Mitchell has served as Chairman of the Board and Chief Executive Officer since
September 1998 and has also been serving as President, Chief Operating Officer,
Chief Financial Officer and Treasurer since October 1997. Mr. Mitchell had
served as Executive Vice President, Chief Financial Officer and Treasurer since
May 1996 and joined the company in August 1995 as Vice President, Chief
Financial Officer and Treasurer. Prior to joining the Company, he served as Vice
President, Finance for Bankers Life and Casualty Company.
JAMES K. STEEN, age 58, has been a director of Ascent since 1999. Mr. Steen has
served as President of Stony Creek Enterprises, Inc. since 1992. Stony Creek
Enterprises, Inc. is a private financial advisory firm specializing in insurance
company financings and acquisitions. From 1988 through 1992, Mr. Steen was a
managing director with John Head & Partners L.P., a private merchant banking
firm in New York City, specializing in financial advisory services to insurance
businesses and insurance company financings and acquisitions.
BOARD COMMITTEES
The Compensation Committee is composed of Mr. Kramer (Chairman), Mr.
Gutfreund and Mr. Peiser. The Compensation Committee has responsibility for
reviewing and approving salaries, bonuses and other compensation and benefits of
executive officers, and advising management regarding benefits and other terms
and conditions of compensation for executive officers.
The Audit Committee of the Board is composed of Mr. Hershman (Chairman),
Mr. Steen and Mr. Peiser. The Audit Committee recommends to the Board the firm
to be employed as the Company's independent accountants, reviews details of each
audit engagement and audit reports, including all management reports by the
independent accountants regarding internal controls, and reviews resolution of
any material matters with respect to appropriate accounting principles and
practices to be used in preparation of the Company's financial statements.
The Board does not have an Executive or Nominating Committee.
EXECUTIVE COMPENSATION AND OTHER INFORMATION.
SUMMARY OF COMPENSATION
The following table sets forth information on cash and other compensation paid
or accrued for each of the fiscal years ended December 31, 1998, 1997 and 1996
to each person who served as Chief Executive Officer of the Company during 1998
and to each other named executive officer of the Company, for services in all
capacities to the Company and its subsidiaries.
<TABLE>
<CAPTION>
Long-Term
Compensation
Restricted Stock
Name and Annual Compensation Awards (5)/Securities All Other
Principal Position Year Salary Bonus Underlying Options # Compensation (1)
- -------------------------- -- ------- ----------- ----------- ----------------------- --------------------
<S> <C> <C> <C> <C> <C>
Martin E. Kantor (2) 1998 $ 348,500 $ 0 0 $ 0
former Chairman of 1997 $ 492,500 $ 0 60,000 $ 0
the Board and Chief 1996 $ 477,462 $ 0 0 $ 2,850
Executive Officer
Patrick J. Mitchell (3) 1998 $ 400,575 $ 296,000 0 $ 2,400
Chairman of the Board and 1997 $ 279,958 $ 0 45,000 $ 3,225
Chief Executive Officer 1996 $ 204,519 $ 0 0 $ 1,425
Patrick H. O'Neill (4) 1998 $ 275,500 $ 204,000 0 $ 1,382
Executive Vice 1997 $ 72,890 $ 0 30,000 $ 0
President, General
Counsel and Secretary
</TABLE>
(1) Amounts shown represent matching contributions of the Company credited to
the named executive officers under the Company's 401(k) plan.
(2) Effective September 15, 1998, Martin Kantor ceased serving as Chairman of
the Board and Chief Executive Officer.
(3) Effective September 15, 1998, Patrick Mitchell was named Chairman of the
Board and Chief Executive Officer. The 1998 bonus was accrued and earned in
1998. $148,000 of the 1998 bonus was paid on March 24, 1999. The remaining
$148,000 will be paid on March 24, 2000.
(4) Patrick H. O'Neill joined the Company in September 1997. The 1998 bonus was
accrued and earned in 1998. $102,000 of the 1998 bonus was paid on March
24, 1999. The remaining $102,000 will be paid on March 24, 2000.
(5) On January 1, 1997, Messrs. Kantor and Mitchell received restricted stock
grants of 60,000 and 45,000 shares, respectively. In September 1997, Mr.
O'Neill received a restricted stock grant of 30,000 shares. All outstanding
grants of restricted stock were canceled pursuant to Westbridge's Plan of
Reorganization, which became effective on March 24, 1999.
EMPLOYMENT AGREEMENTS
The Company and its wholly-owned subsidiary, Ascent Management, Inc.
(formerly, Westbridge Management Corp.) (collectively, the "Company"), have
entered into a separate employment agreement with each of Patrick J. Mitchell
and Patrick H. O'Neill (each, an "Employee" and collectively, the "Employees"),
pursuant to which Mr. Mitchell is employed as the Chairman of the Board,
President and Chief Executive Officer of the Company and Mr. O'Neill is employed
as Executive Vice President, General Counsel, and Secretary of the Company (the
"Employment Agreements"). The Company has agreed to employ each of the Employees
for a period of two years commencing on September 15, 1998. Each Employee's
employment period may be extended for one year thereafter unless an Employee
gives notice to the contrary or unless the Company fails to give notice of its
desire to extend the Employment Agreements.
Mr. Mitchell and Mr. O'Neill have base salaries of $400,000 and
$275,000, respectively, and such base salaries will be reviewed annually for
increase at the sole discretion of the Board or the Compensation Committee
thereof. In addition to base salary, each employee is entitled to receive an
annual cash bonus, determined by the Board of Directors of the Company or
Compensation Committee thereof, payable at such time as similar bonuses are
payable to senior management of the Company and its subsidiaries. The Employees
are also entitled to participate in and receive all benefits under any other
short-term or long-term incentive program ("LTIP"), savings and retirement
plans, and welfare benefit plans, practices, policies and programs maintained or
provided by the Company and/or its subsidiaries for the benefit of senior
executives.
In recognition of and as compensation for the Employees' job
performance from November 17, 1997 through the date of execution of the
Employment Agreement, the Employees have earned and shall receive a one-time
bonus (the "Retention Bonus") paid by the Company as follows: (1) for Mr.
Mitchell, a cash payment of $296,000 and for Mr. O'Neill a cash payment of
$204,000, 50% of which was paid on March 24, 1999 and the remaining 50% will be
paid on March 24, 2000, and (2) issuance on March 24, 1999 of 0.29% (18,850
shares) to Mr. Mitchell and 0.21% (13,650 shares) to Mr. O'Neill of the new
Common Stock of Ascent Assurance, Inc. In recognition of the federal income tax
consequences of the equity consideration of this part of the Retention Bonus,
the Company shall use its best efforts to make such equity consideration federal
income tax neutral to the Employees.
If an Employee's employment is terminated by reason of death, or
"disability" (as defined in the Employment Agreements), such Employee, his
estate or legal representative will receive (a) a lump sum payment equal to any
accrued but unpaid Base Salary, (b) a lump sum payment of any incentive bonus,
annual bonus, LTIP award awarded but not yet paid as of the termination date,
(c) a lump sum payment of the unpaid cash portion of the Retention Bonus,
together with the immediate performance of the Retention Bonus obligation as set
forth in the Employment Agreement, (d) immediate vesting of all stock options
previously awarded to the Employee by the Company, (e) in the case of death, any
other compensation and benefits as may be provided in accordance with the terms
and provisions of any applicable plans and programs of the Company, except any
other severance benefit of the Company, and (f) in the case of disability, (x)
continuation of the Employee's health and welfare benefits at the level in
effect on the termination date through the end of the one-year period following
the termination of the Employee's employment due to disability (or the Company
shall provide the economic equivalent thereof), and (y) any other compensation
and benefits as may be provided in accordance with the terms and provisions of
any applicable plans and programs of the Company, except any other severance
benefit of the Company.
If an Employee's employment is terminated by the Company for "cause"
(as defined in the Employment Agreements), such Employee will be entitled to,
among other things, (a) a lump sum payment equal to any accrued but unpaid base
salary, (b) a lump sum payment of any incentive bonus, annual bonus, LTIP award
awarded but not yet paid as of the termination date, (c) a pro rata lump sum
payment of the unpaid cash portion of the Retention Bonus, together with the
immediate performance of the Retention Bonus obligation as set forth in the
Employment Agreement, (d) any other compensation and benefits as may be provided
in accordance with the terms and provisions of any applicable plans and programs
of the Company, except any other severance benefit of the Company.
If an Employee's employment is terminated by the Company "without
cause" or for "good reason" (as defined in the Employment Agreements), such
Employee will be entitled to, among other things, (a) a lump sum payment equal
in amount to 117% of the sum of (i) the Employee's Base Salary and (ii) the
highest of either the incentive bonus or annual bonus awarded to the Employee
within five (5) years prior to the termination date, (b) a lump sum payment of
any Base Salary accrued, incentive bonus or LTIP award awarded but not yet paid
as of the termination date, (c) a lump sum payment of the unpaid cash portion of
the retention bonus, together with the immediate performance of the retention
bonus obligation as set forth in the Employment Agreement, (d) immediate vesting
of all stock options previously awarded to the Employee by the Company, and (e)
any other compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs of the Company, except
any other severance benefit of the Company.
If an Employee's employment is terminated "voluntarily" by the Employee
(as defined in the Employment Agreements), such Employee will be entitled to,
among other things, (a) a lump sum payment equal to any accrued but unpaid base
salary, (b) a lump sum payment of any annual bonus, incentive bonus, and LTIP
award awarded but not yet paid as of the termination date, and (c) any other
compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs of the Company, except any other
severance benefit of the Company.
If the Employment Agreement is allowed to "expire" (as defined in the
Employment Agreements), such Employee will be entitled to, among other things,
(a) a lump sum payment equal in amount to 117% of the sum of (i) the Employee's
Base Salary and (ii) the highest of either the incentive bonus or annual bonus
awarded to the Employee within five (5) years prior to the expiration date, (b)
a lump sum payment of any Base Salary accrued, incentive bonus or LTIP award
awarded but not yet paid as of the termination date, (c) immediate vesting of
all stock options previously awarded to the Employee by the Company, and (d) any
other compensation and benefits as may be provided in accordance with the terms
and provisions of any applicable plans and programs of the Company, except any
other severance benefit of the Company.
If any payment or distribution to the Employee by the Company or any
subsidiary or affiliate would be subject to any "golden parachute payment"
excise tax or similar tax, and if, and only if, such payments less the excise
tax or similar tax is less than the maximum amount of payments which could be
payable to the Employee without the imposition of the excise tax or similar tax
and after taking into account any reduction in the total payments provided by
reason of Section 280G of the Internal Revenue Code, (a) any cash payments under
the Employment Agreement shall first be reduced (if necessary, to zero), and (b)
all other non-cash payments shall next be reduced.
If an Employee's employment is terminated by the Company for cause or
voluntarily by an Employee, for a period of twelve months from the termination
date, such Employee shall not (i) directly or indirectly divert, solicit or take
away the patronage of (a) any customers or agents of the Company or any
affiliate as of the relevant termination date, or (b) any prospective customers
or agents of the Company or any affiliate whose business the Company was
actively soliciting on the relevant termination date, and with which the
Employee had business contact while employed by the Company, or (ii) directly or
indirectly induce or solicit any employees or agents of the Company or any
affiliate to leave or terminate their employment or agency relationship with the
Company.
CERTAIN TRANSACTIONS
On September 15, 1998, the Company executed a Settlement Agreement and
Mutual Release (the "Agreement") by and among Martin E. Kantor, Westbridge
Capital Corp. ("Westbridge") and National Foundation Life Insurance Company
("NFL"). Pursuant to an Employment Agreement dated as of April 1, 1996 (the
"Employment Agreement"), by and among Mr. Kantor, Westbridge and NFL, Mr. Kantor
was employed as the Chairman of the Board and Chief Executive Officer of
Westbridge and NFL, and was retained as a director of Westbridge and NFL. Mr.
Kantor also owned directly or through trusts for the benefit of family members'
equity in the Old Common Stock of Westbridge.
The Agreement provided for the following: (a) payment of all of Mr.
Kantor's accrued and unpaid compensation, benefits and expenses due under the
Employment Agreement as of such date and payment of a cash settlement of
$100,000, (b) continuation of Mr. Kantor's health benefits provided under the
Employment Agreement through and including December 31, 1998, (c) grant of an
Allowed General Unsecured Claim (Group 8-A)(as defined in Westbridge's Plan of
Reorganization (the "Plan of Reorganization")) in an amount equal to $875,000,
(d) all Old Common Stock Interests and Old Restricted Common Stock Interests
(each, as defined in the Plan of Reorganization) owned by Mr. Kantor personally
or in trust for one or more of his family members shall be treated as Allowed
Class 10 Interests under the Plan of Reorganization, which Interests shall be
entitled to receive distributions pursuant to, and in accordance with, the terms
and provisions of the Plan of Reorganization, (e) the benefit of all releases,
escrowed funds for the defense of litigation against officers and directors,
indemnity and directors' and officers' insurance coverage provided under the
Plan of Reorganization to all other officers and directors who continue to serve
as officers and directors of Westbridge on and after the effective date of the
Plan of Reorganization, and (f) all rights, title and interest in and to the
automobile used by Mr. Kantor under the terms of the Employment Agreement.
On September 15, 1998, the Employment Agreement was terminated in all
respects and Mr. Kantor resigned as an officer and director of Westbridge and
NFL, respectively, and no longer served as an officer, director or employee of
any of their direct or indirect subsidiaries.
DIRECTOR'S COMPENSATION
The old Westbridge Board of Directors met 13 times in 1998 for which
each director was compensated approximately $10,000. Each member of the new
Board of Directors of Ascent will receive a $15,000 annual retainer fee, board
meeting fees of $2,000 and reimbursement of all reasonable out-of-pocket
expenses. In addition, committee meeting fees of $1,000 per committee member and
chairman of committee fees of $1,500 will be paid as applicable.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.
Ascent's Compensation Committee (the "Committee") is composed entirely
of independent non-employee directors. The Committee is responsible for
supervising the Company's compensation policies, approving executive officers'
salaries and bonuses and reviewing the salaries and bonuses of other senior
management. The following report on compensation policies applicable to the
Company's executive officers with respect to compensation reported for the year
ended December 31, 1998 was prepared by the Committee after its initial meeting
on April 14, 1999:
EXECUTIVE COMPENSATION PHILOSOPHY AND POLICIES
The overriding objective of the Committee's executive compensation
policies is to attract and retain superior executives. The policies are also
designed to: (1) align the interests of executive officers and stockholders by
encouraging stock ownership by executive officers and by making a significant
portion of executive compensation dependent upon the Company's financial
performance; (2) reward individual results by recognizing performance through
salary, annual cash incentives and long-term incentives; and (3) manage
compensation based on the level of skill, knowledge, effort and responsibility
needed to perform the job successfully. For 1998, executive compensation
consisted of the following components:
BASE SALARY - The minimum salary to which each executive officer is
entitled is specified in his employment agreement and is subject to annual
review and increase when deemed appropriate by the Committee. It is the
Committee's and management's view that executive officer salaries should not be
regularly adjusted on an annual basis to reflect cost-of-living or other similar
increases. Salary increases, if any, are made, with Committee involvement, on an
individual basis to reflect promotions or to maintain the competitiveness of an
executive's salary or to recognize an executive's increased responsibilities.
INCENTIVE BONUS - The employment agreement of each current executive
officer provides for an annual cash bonus to be awarded at the determination of
the Committee. No incentive bonuses were awarded during 1998.
RETENTION BONUS - The non-recurring retention bonus to which each
current executive officer is entitled is specified in his employment agreement.
This bonus was intended to retain and motivate executive officers to
successfully reorganize the Company and was partially paid on March 24, 1999,
the effective date of the Company's reorganization.
STOCK OPTIONS - The executive officers were eligible to receive
periodic grants of non-qualified stock options under the Westbridge 1992 Stock
Option Plan (the "1992 Plan"), as amended. During 1998, no stock options were
granted. The 1992 Plan was terminated on March 24, 1999, the effective date of
the Company's reorganization. On March 24, 1999, the Company's Board of
Directors adopted the Ascent Assurance, Inc. 1999 Stock Option Plan. Stock
option awards are intended to retain and motivate executive officers to achieve
superior market performance of the Company's stock.
RESTRICTED STOCK - The executive officers were eligible to receive
periodic grants of restricted common stock under the Westbridge Capital Corp.
1996 Restricted Stock Plan (the "1996 Plan"). During 1998, no restricted common
stock awards were granted. The 1996 Plan was terminated on March 24, 1999, the
effective date of the Company's reorganization.
SECTION 162(M) OF THE INTERNAL REVENUE CODE - Section 162(m) of the
Internal Revenue Code (the "Code"), prevents publicly traded companies from
receiving a tax deduction for compensation paid to proxy-named executive
officers in excess of $1 million in any taxable year. The Company has not
awarded any compensation that is non-deductible under Section 162(m) of the Code
and does not anticipate doing so in the foreseeable future. In the event that
the Company determines to award compensation in an amount in excess of the
amount which may be deducted under Section 162(m), the Company will determine
whether it will conform its compensation to qualify for exceptions available
under Section 162(m).
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Mitchell's employment with the Company is governed by an employment
agreement entered into in September 1998 (see "Executive Compensation and Other
Information - Employment Agreements"). The minimum salary to which Mr. Mitchell
is entitled is specified in such employment agreement and is subject to annual
review and increase when deemed appropriate by the Committee. In addition, the
annual incentive bonus provided for under Mr. Mitchell's agreement is determined
by the Committee.
SUBMITTED BY THE COMPENSATION COMMITTEE
Michael A. Kramer John H. Gutfreund Robert A. Peiser
<PAGE>
PERFORMANCE GRAPH.
The following line graph demonstrates the performance of the cumulative
total return to the holders of the old common stock of Westbridge during the
previous five years in comparison to the cumulative total return on the Russell
2000 Index and with the SNL <$250M Insurance Asset-Size Index of the Company.
COMPARATIVE FIVE-YEAR TOTAL RETURNS*
WESTBRIDGE (NOW, ASCENT ASSURANCE, INC.), RUSSELL 2000,
SNL >$250M INSURANCE ASSET-SIZE INDEX
(PERFORMANCE RESULTS THROUGH 12/31/98)
(Graph included in printed proxy)
<TABLE>
PERIOD ENDING DECEMBER 31,
---------------------------------------------------------------------------
INDEX 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Westbridge (now, Ascent
Assurance, Inc.) 100.00 111.32 100.00 147.17 6.13 3.93
Russell 2000 100.00 98.19 126.11 146.91 179.76 175.19
SNL <$250M Insurance 100.00 86.44 111.34 131.82 166.28 126.56
Asset-Size Index
</TABLE>
Assumes $100 invested at the close of trading on the last trading day preceding
the first day of the fifth preceding fiscal year in old Westbridge common stock,
Russell 2000 Index and SNL <$250M Insurance Asset-Size Index.
*Cumulative total return assumes reinvestment of dividends.
Source: SNL Securities L.C.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of April 23, 1999 (except for shares
owned by Messrs. Mitchell and O'Neill and all executive officers through
participation in the Company's 401(k) Plan, which are as of March 31, 1999), the
number and percentage of shares of Common Stock owned by the directors of the
Company and all nominees as directors, each of the executive officers named in
the table under "Summary of Compensation" and all executive officers and
directors as a group. To the Company's knowledge, the persons listed below each
have sole voting and investment power as to all shares indicated as owned by
them.
NUMBER OF
NAME SHARES OWNED (1) PERCENT
Patrick J. Mitchell ................... 18,942 *
Patrick H. O'Neill..................... 13,650 *
John H. Gutfreund...................... - -
Richard H. Hershman.................... - -
Michael A. Kramer...................... - -
Robert A. Peiser....................... - -
James K. Steen......................... - -
All executive officers and directors as a group.. 32,611 *
.........
(1) Includes shares held through the Company's 401(k) plan as follows: Mr.
Mitchell, 92 shares and all executive officers and directors as a
group, 111 shares.
*Less than 1%
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Common Stock, to file with the Securities and Exchange
Commission (the "SEC") reports of ownership and changes in ownership of the
Common Stock. Directors, executive officers and greater-than-10% stock-holders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file. Based solely on review of the copies of such
reports furnished to the Company or written representations that no other
reports were required, the Company believes that, during 1998, all other filing
requirements applicable to its directors, executive officers and
greater-than-10% stockholders were complied with.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS.
The Board has selected the firm of PricewaterhouseCoopers LLP as the
independent accountants of the Company for the fiscal year ending December 31,
1999. PricewaterhouseCoopers LLP has acted for the Company in such capacity
since 1982. The Board proposes that the stockholders ratify such selection at
the Meeting.
If the stockholders do not ratify the selection of
PricewaterhouseCoopers LLP by the affirmative vote of a majority of the votes
cast at the Meeting on this proposal, the selection of independent accountants
will be reconsidered by the Board.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Meeting and will be afforded the opportunity to make a statement
if they so desire and to respond to appropriate questions.
The Board recommends that the stockholders vote "FOR" the ratification
of the Company's selection of independent accountants.
PROPOSAL TO APPROVE THE 1999 STOCK OPTION PLAN.
On March 24, 1999, the effective date of the Plan of Reorganization,
Ascent's Board of Directors adopted the 1999 Stock Option Plan (the "1999
Plan"), which is in substantially the same form as the draft plan which was a
supplement to the Plan of Reorganization confirmed by the United States
Bankruptcy Court for the District of Delaware. The 1999 Plan was adopted in
order to further and promote the interest of the Company, its subsidiaries and
its shareholders by enabling the Company and its subsidiaries to attract, retain
and motivate employees, non-employee directors and consultants (including
marketing agents) or those who will become employees, non-employee directors and
consultants (including marketing agents), and to align the interests of those
individuals and the Company's shareholders. To do this, the 1999 Plan offers
equity-based opportunities providing such employees and consultants (including
marketing agents) with a proprietary interest in maximizing the growth,
profitability and overall success of the Company and its subsidiaries.
On March 24, 1999, the Plan of Reorganization effective date, the
Company granted stock options to acquire 1,031,750 shares of Common Stock to
certain officers and directors of the Company and its subsidiaries. Stock
options to acquire 112,500 shares of Common Stock were granted to non-employee
directors. Each non-employee director's stock option grant has an exercise price
of $3.00, a term of three years, and vests 50% after one year of service and
100% after two years of service; provided, however, if a non-employee director
stands for re-election to the staggered board prior to the expiration of three
years of service and such director is not re-elected, then all unvested options
held by such director immediately vest. In addition, stock options to acquire
919,250 shares of Common Stock were granted to employees of the Company and its
subsidiaries. Employee stock options were granted as follows: Mr. Mitchell,
200,000 shares; Mr. O'Neill, 160,000 shares; all other executive officers of the
Company, 310,000 shares; and all employees of the Company's subsidiaries,
249,250 shares. Each employee's stock option grant is comprised of three
separate grants. Grants A and B cover approximately 37.5% each of total options
granted to each employee while Grant C covers the remaining 25%. Grant A options
have an exercise price of $.01 per share, a term of 10 years, and vest 100%
after three years, provided the grantee is then employed by the Company and/or
one of its subsidiaries. Grant B options have an exercise price of $4.39 per
share, a term of 10 years, and vest 100% after four years, provided the grantee
is then employed by the Company and/or one of its subsidiaries. Grant C options
have an exercise price of $4.39 per share, a term of 10 years and vest 100%
after five years, provided the grantee is then employed by the Company and/or
one of its subsidiaries.
A general description of the basic features of the 1999 Plan is set
forth below. Such description is qualified in its entirety by reference to the
full text of the 1999 Plan, as set forth in Annex A to this proxy statement.
The 1999 Plan became effective on March 24, 1999, subject to the
approval of the Company's stockholders, and will remain in effect until December
31, 2008, unless terminated or suspended by the Board of Directors prior to such
time. After such date no further awards shall be granted under the 1999 Plan.
The 1999 Plan will be administered by the Committee. The Committee will
be appointed from time to time by the Board of Directors and will be comprised
of not less than three of the then members of the Board of Directors who are
Non-Employee Directors (within the meaning of SEC Rule 16b-3(b)(3)) of the
Company and "outside directors" (within the meaning of Section 162(m) of the
Internal Revenue Code (the "Code")). Subject to the terms and conditions of the
1999 Plan, the Committee will make all determinations necessary or advisable for
the implementation, administration and maintenance of the 1999 Plan including,
without limitation, (a) selecting the 1999 Plan's participants, (b) making
awards in such amounts and form as the Committee determines, (c) imposing such
restrictions, terms and conditions upon such awards as the Committee deems
appropriate, and (d) correcting any technical defect(s) or technical
omission(s), or reconciling any technical inconsistency(ies), in the 1999 Plan
and/or any award agreement. The Company will effect the granting of awards under
the 1999 Plan, in accordance with the determinations made by the Committee, by
execution of written agreements and/or other instruments in the form as is
approved by the Committee.
Individuals eligible for awards under the Plan of Reorganization shall
consist of all salaried employees, non-employee directors and consultants
(including marketing agents), or those who will become such employees,
non-employee directors and consultants (including marketing agents) of the
Company and/or its Subsidiaries who are responsible for the management, growth
and protection of the business of the Company and/or its subsidiaries or whose
performance or contribution, in the sole discretion of the Committee benefits or
will benefit the Company.
The maximum number of shares of Common Stock in respect of which awards
may be granted under the 1999 Plan to employees and non-employee directors, in
the aggregate, subject to adjustment as provided in the 1999 Plan, shall not
exceed 1,251,685 shares. The maximum number of shares of Common Stock in respect
of which awards may be granted under the 1999 Plan to consultants (including
marketing agents), subject to adjustment as provided in the 1999 Plan, shall not
exceed 387,119 shares. If any awards expire unexercised or are forfeited,
surrendered, cancelled, terminated or settled in cash in lieu of Common Stock,
the shares of Common Stock which were theretofore subject (or potentially
subject) to such awards shall again be available for awards under the 1999 Plan
to the extent of such expiration, forfeiture, surrender, cancellation,
termination or settlement of such awards.
Stock options granted under the 1999 Plan shall be in respect of Common
Stock and may be in the form of either Incentive Stock Options or Non-Qualified
Stock Options (sometimes referred to collectively herein as the "Stock
Option(s))". However, in no event may a non-employee director or a consultant
(including a marketing agent) receive a grant of Incentive Stock Options under
the 1999 Plan. Stock Options shall be subject to the terms and conditions set
forth in the 1999 Plan and any additional terms and conditions, not inconsistent
with the express terms and provisions of the 1999 Plan, as the Committee shall
set forth in the relevant Award Agreement (as that term is defined in the 1999
Plan). Special provisions shall apply to Incentive Stock Options granted to any
employee who owns (within the meaning of Section 422(b)(6) of the Internal
Revenue Code (the "Code")) more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or its parent corporation or
any subsidiary of the Company, within the meaning of Sections 424(e) and (f) of
the Code (a "10% Shareholder").
The exercise price per share of Common Stock subject to a Stock Option
shall be determined by the Committee, including, without limitation, a
determination based on a formula determined by the Committee; PROVIDED, HOWEVER,
that, except with respect to stock options which, in accordance with the
Company's First Amended Plan of Reorganization, are being granted with an
exercise price of $.01 per share and Non-Employee Director Stock Options which
are being granted with an exercise price of $3.00 per share of Common Stock, in
no event shall any stock option granted pursuant to the 1999 Plan have an
exercise price of less than $4.39 per share; PROVIDED FURTHER HOWEVER, that the
exercise price of an Incentive Stock Option shall not be less than one hundred
percent (100%) of the Fair Market Value of the Common Stock on the date of the
grant of such Incentive Stock Option.
The term of each Stock Option shall be such period of time as is fixed
by the Committee; PROVIDED, HOWEVER, that the term of any Stock Option shall not
exceed ten (10) years after the date immediately preceding the date on which the
Stock Option is granted.
In respect of any Stock Option granted under the 1999 Plan, unless
otherwise (a) determined by the Committee (in its sole discretion) at any time
and from time to time in respect of any such Stock Option, or (b) provided in
the Award Agreement or in the Participant's employment agreement in respect of
any such Stock Option, such Stock Option shall become exercisable as to the
aggregate number of shares of Common Stock underlying such Stock Option, as
determined on the date of grant, as follows:
* 33 1/3%, on the first anniversary of the date of grant of
the Stock Option, provided the Participant is then
employed by or providing services to the Company and/or
one of its Subsidiaries;
* 66 2/3%, on the second anniversary of the date of grant
of the Stock Option, provided the Participant is then
employed by or providing services to the Company and/or
one of its Subsidiaries; and
* 100%, on the third anniversary of the date of grant of
the Stock Option, provided the Participant is then
employed by or providing services to the Company and/or
one of its Subsidiaries.
Notwithstanding anything to the contrary, such Stock Option shall
become one hundred percent (100%) exercisable as to the aggregate number of
shares of Common Stock underlying such Stock Option upon the death, Disability
or Retirement of the Participant or upon a Change in Control (as those terms are
defined in the 1999 Plan).
All participants (as that term is defined in the 1999 Plan) in the
aggregate may not receive in any calendar year awards of Options, exceeding
1,638,804 underlying shares of Common Stock. Each individual participant may not
receive in any calendar year awards of Options exceeding 819,402 underlying
shares of Common Stock. The maximum annual Common Stock amounts are subject to
adjustment and are subject to the 1999 Plan maximum.
Except as is otherwise provided (a) in the relevant award agreement as
determined by the Committee (in its sole discretion), or (b) in the
participant's then effective employment agreement, if any, if a participant's
employment with or provision of services to the Company and its Subsidiaries
terminates for any reason any then unexercisable Stock Options shall be
forfeited and cancelled by the Company. Except as otherwise provided in the 1999
Plan, if a participant's employment with or provision of services to the Company
and its Subsidiaries terminates for any reason, such participant's rights, if
any, to exercise any then exercisable Stock Options shall terminate ninety days
after the date of such termination (but not beyond the stated term of any such
Stock Option as determined under the 1999 Plan) and thereafter, such Stock
Options shall be forfeited and cancelled by the Company. The Committee, in its
sole discretion, may determine that any such participant's Stock Options to the
extent exercisable immediately prior to any termination of employment with or
provision of services to the Company, (other than a termination due to death,
Retirement or Disability) may remain exercisable for an additional specified
time period after such ninety day period expires (subject to any other
applicable terms and provisions of the 1999 Plan and the relevant award
agreement), but not beyond the stated term of any such Stock Option. If any
termination of employment with or provision of services to the Company is due to
death, Retirement or Disability, a participant (and such participant's estate,
designated beneficiary or other legal representative, as the case may be and as
determined by the Committee) shall have the right to exercise such Stock Options
at any time within the one year period following such termination due to death,
Retirement or Disability (but not beyond the term of any such Stock Option as
determined under the 1999 Plan).
In the event of any change in capitalization affecting the Common Stock
of the Company, the Board of Directors shall authorize and make such
proportionate adjustments, if any, as the Board of Directors deems appropriate
to reflect such change, including, without limitation, with respect to the
aggregate number of shares of the Common Stock for which awards in respect
thereof may be granted under the 1999 Plan, the maximum number of shares of the
Common Stock which may be granted or awarded to any participant, the number of
shares of the Common Stock covered by each outstanding award, and the exercise
price per share of Common Stock in respect of outstanding awards.
The Board of Directors may suspend or terminate the 1999 Plan (or any
portion thereof) at any time and may amend the 1999 Plan at any time. No such
amendment, suspension or termination shall (x) materially adversely effect the
rights of any participant under any outstanding Stock Options, without the
consent of such participant, or (y) make any change that would disqualify the
1999 Plan, or any other plan of the Company or any subsidiary intended to be so
qualified, from the benefits provided under Section 422 of the Code, or any
successor provisions thereto.
The Committee may (in its sole discretion) amend or modify at any time
and from time to time the terms and provisions of any outstanding Stock Options,
in any manner to the extent that the Committee under the 1999 Plan or any award
agreement could have initially determined the restrictions, terms and provisions
of such Stock Options. No such amendment or modification shall, however,
materially adversely affect the rights of any participant under any such award
without the consent of such participant.
Each participant receiving an award under the 1999 Plan shall enter
into an award agreement with the Company in a form specified by the Committee.
Each such participant shall agree to the restrictions, terms and conditions of
the award set forth therein and in the 1999 Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief and general summary of certain United States
federal income tax consequences applicable to the 1999 Plan. The summary does
not reflect any provisions of the income tax laws of any state, local or foreign
taxing jurisdiction.
A. STOCK OPTIONS
1. INCENTIVE STOCK OPTIONS
Upon the grant of an Incentive Stock Option, an optionee will not
realize any income. No income will be realized by an optionee upon the exercise
of an Incentive Stock Option if the requirements of the 1999 Plan and the Code
are met, including the requirement that the optionee remain an employee of the
Company (or a subsidiary thereof) during the period beginning on the date of the
grant of the Option and ending on the day three months (one year if the optionee
becomes disabled) before the date the Option is exercised.
The federal income tax consequences of a subsequent disposition of
shares of Common Stock acquired upon the exercise of an Incentive Stock Option
will depend upon when the disposition occurs and the type of disposition.
If the shares are disposed of by the optionee more than two years after
the date of grant of the Incentive Stock Option, and more than one year after
such shares are transferred to the optionee, any gain or loss realized upon such
disposition will be a long-term capital gain or loss, and the Company (or a
subsidiary) will not be entitled to any income tax deduction in respect of the
Option or its exercise.
If the shares are disposed of by the optionee within two years after
the date of grant of the Incentive Stock Option, or within one year after such
shares are transferred to the optionee (a "disqualifying disposition") and the
disqualifying disposition is a taxable disposition, the excess, if any, of the
amount realized (up to the fair market value of such shares on the exercise
date) over the option price will be compensation taxable to the optionee as
ordinary income, and the Company (or a subsidiary) will be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
below under Additional Information) equal to the amount of ordinary income
realized by the optionee. If the amount realized by the optionee upon the
disqualifying disposition exceeds the fair market value of the shares on the
exercise date, the excess will be a short-term capital gain. If the option price
exceeds the amount realized upon such disqualifying disposition, the difference
will be a short-term capital loss.
If the disqualifying disposition is a non-taxable disposition (for
example, a gift or a sale to a related person), the excess, if any, of the fair
market value of the shares on the exercise date over the option price will be
compensation taxable as ordinary income, and the Company (or a subsidiary) will
be entitled to a deduction equal to the amount of ordinary income realized by
the optionee.
If an optionee has not remained an employee of the Company (or a
subsidiary) during the period beginning on the date of the grant of an Incentive
Stock Option and ending on the day three months (one year if the optionee
becomes disabled) before the date the Option is exercised, the exercise of the
Option will be treated as the exercise of a Non-Qualified Stock Option with the
tax consequences described below.
2. NON-QUALIFIED STOCK OPTIONS
Upon the grant of a Non-Qualified Stock Option, an optionee will not
realize any income. At the time a Non-Qualified Stock Option is exercised, the
optionee will realize compensation taxable as ordinary income, and the Company
(or a subsidiary) will be entitled to a deduction in an amount equal to the
difference between the fair market value on the exercise date of the shares of
Common Stock acquired pursuant to such exercise and the option price. Upon a
subsequent disposition of the shares, the optionee will realize long-term or
short-term capital gain or loss, depending upon the holding period of the
shares. For purposes of determining the amount of the gain or loss, the
optionee's tax basis in the shares will (if the option is exercised
in-the-money) equal the fair market value of the shares on the exercise date. In
order for any such gain or loss to qualify as long-term capital gain or loss,
the shares must be held for more than one year measured from the exercise date.
Notwithstanding the above, in the case of a Non-Qualified Stock Option
having an exercise price per share significantly lower than the Fair Market
Value per share of Common Stock on the date of grant, the IRS may assert that
such an option is tantamount to a transfer by the Company to the participant of
the shares of Common Stock subject to the Stock Option. Accordingly, the
participant may be treated by the IRS as realizing taxable income upon the grant
of the Stock Option equal to the Fair Market Value of the Common Stock subject
to the Stock Option on the date of grant less the exercise price of the Stock
Option.
3. EFFECT OF SHARE FOR SHARE EXERCISE
If an optionee elects to tender shares of Common Stock in partial or
full payment of the option price for shares to be acquired upon the exercise of
a Non-Qualified Stock Option, the optionee will not recognize any gain or loss
on such tendered shares. The number of shares of Common Stock received by the
optionee upon any such exercise that are equal in number to the number of
tendered shares would retain the tax basis and the holding period of the
tendered shares for capital gain purposes. The optionee will realize
compensation taxable as ordinary income, and the Company (or a subsidiary) will
be entitled to a deduction (subject to the provisions of Section 162(m) of the
Code discussed below under Additional Information) in an amount equal to the
fair market value of the number of shares received by the optionee upon such
exercise that is in excess of the number of tendered shares, less any cash paid
by the optionee. The fair market value of such excess number of shares would
then become the tax basis for those shares and the holding period of such shares
for capital gain purposes will begin on the exercise date. If the tendered
shares were previously acquired upon the exercise of an Incentive Stock Option,
the shares of Common Stock received by the optionee upon the exercise of the
Non-Qualified Stock Option that are equal in number to the number of tendered
shares will be treated as shares of Common Stock acquired upon the exercise of
an Incentive Stock Option.
Except as discussed in the following paragraph, if an optionee elects
to tender shares of Common Stock in partial or full payment of the option price
for shares to be acquired upon the exercise of an Incentive Stock Option, the
optionee will not recognize any gain or loss on the tendered shares. No income
will be realized by the optionee in respect of the shares received by the
optionee upon the exercise of the Incentive Stock Option if, as previously
stated, the requirements of the 1999 Plan and the Code are met. The Internal
Revenue Service has not yet issued final regulations with respect to the
determination of the basis and the holding period of the shares acquired upon
such an exercise. Regulations proposed by the Internal Revenue Service provide
that for all shares of Common Stock acquired upon such an exercise the requisite
two year and one year holding periods for stock acquired upon exercise of an
incentive stock option (described above) must be satisfied, regardless of the
holding period applicable to the tendered shares. However, the tax basis (and
holding period for all other federal income tax purposes) of the tendered shares
will carry over to the same number of shares acquired upon the exercise. The
number of shares acquired which is in excess of the number of tendered shares
will have a tax basis of zero and a holding period for all purposes beginning on
the date of exercise. Any subsequent disqualifying disposition will be deemed
first to have been a disposition of the shares with a tax basis of zero, and
then to have been a disposition of the shares with a carry over tax basis. For
purposes of determining the amount of compensation taxable to the optionee upon
a subsequent disqualifying disposition, the option price of the shares with a
tax basis of zero will be deemed to be zero, and the option price of the shares
with a carry over basis will be deemed to be the fair market value of the shares
on the exercise date.
If an optionee elects to tender shares of Common Stock that were
previously acquired upon the exercise of an Incentive Stock Option in partial or
full payment of the option price for shares to be acquired upon the exercise of
another Incentive Stock Option, and such exercise occurs within two years of the
date of grant of such Incentive Stock Option, or within one year after such
tendered shares were transferred to the optionee, the tender of the shares will
be a taxable, disqualifying disposition with the tax consequences described
above regarding the disposition within two years of the date of grant of an
Incentive Stock Option, or within one year after shares were acquired upon the
exercise of Incentive Stock Options. The shares of Common Stock acquired upon
such exercise will be treated as shares of Common Stock acquired upon the
exercise of an Incentive Stock Option and the holding period of the shares for
capital gain purposes will begin on the exercise date.
ADDITIONAL INFORMATION
1. ALTERNATIVE MINIMUM TAX
Section 55 of the Code imposes an alternative minimum tax if a
taxpayer's "tentative minimum tax" exceeds his or her regular tax for the
taxable year in question. Such "tentative minimum tax" is equal to 26% of the
first $175,000 ($87,500 for married individuals filing a separate return) of
"taxable excess" and 28% of the "taxable excess" exceeding $175,000 ($87,500 for
married individuals filing a separate return). Taxable excess equals the amount
by which a person's "alternative minimum taxable income" exceeds his or her
"exemption amount". The exemption amount ranges from $22,500 to $45,000
(depending on the person's filing status) and is reduced by $.25 for each $1.00
that the person's alternative minimum taxable income exceeds an amount which
ranges from $75,000 to $150,000 (depending, again, on filing status). A person's
alternative minimum taxable income under Section 55 of the Code consists of his
or her regular taxable income (with certain adjustments described in Sections 56
and 58 of the Code) increased by the tax preference items described in Section
57 of the Code. In the case of a person who is married and who files a separate
return, the person's alternative minimum taxable income is increased by the
lesser of (1) 25% of the excess of the alternative minimum taxable income
(determined without this adjustment) over $165,000 or (2) $22,500.
Upon the exercise of an Incentive Stock Option, one of the adjustments
described in Section 56 is to include in a person's alternative minimum taxable
income for any year an amount equal to the amount of income the person would
have realized if the option had not been an incentive stock option, with such
inclusion occurring in the year in which such income would have been realized.
As a result, unless the shares of Common Stock acquired upon the exercise of an
Incentive Stock Option are disposed of in a taxable disposition in the same year
in which the above described adjustment to the optionee's alternative minimum
taxable income is made, an optionee may incur alternative minimum tax as a
result of the exercise of an Incentive Stock Option under the 1999 Plan.
If an optionee incurs alternative minimum tax attributable to certain
items of tax preference or certain adjustments (including the adjustment
described above resulting from the exercise of an Incentive Stock Option), the
optionee will receive a credit for such tax against the optionee's regular tax
liability (but not any alternative minimum tax liability) in future years. In
addition, in the year in which the shares acquired as a result of the exercise
of an Incentive Stock Option are disposed of in a taxable disposition, the basis
of those shares for purposes of determining whether the optionee is subject to
alternative minimum tax in such year will include the amount of the adjustment
described above resulting from the exercise of the Incentive Stock Option.
2. WITHHOLDING
The realization by an employee of compensation income with respect to a
grant or an award under the 1999 Plan will be subject to withholding for federal
income and employment tax purposes. If an employee, to the extent permitted by
the terms of a grant or award and the 1999 Plan, uses shares of Common Stock to
satisfy the federal income and employment tax withholding obligation, and any
similar withholding obligation for state and local tax obligations, the employee
will realize a capital gain or loss, short-term or long-term, depending on the
tax basis and holding period for the shares of Common Stock.
3. "GOLDEN PARACHUTE" PAYMENTS
If the provisions of he Plan relating to a Change in Control become
applicable, certain compensation payments or other benefits received by
"disqualified individuals", as defined in Section 280G(c) of the Code, under the
1999 Plan or otherwise may cause or result in "excess parachute payments", as
defined in Section 280G(b)(1) of the Code. Section 4999 of the Code generally
imposes a 20% excise tax on the amount of any such "excess parachute payment"
received by such a "disqualified individual" and such "excess parachute
payments" will not be deductible by the Company (or a subsidiary).
4. CODE SECTION 162(M)
Under Section 162(m) of the Code, the amount of compensation paid to
the chief executive officer and the four other most highly paid executive
officers of the Company in the year for which a deduction is claimed by the
Company (including its subsidiaries) is limited to $1,000,000 per person, except
that compensation which is performance-based will be excluded for purposes of
calculating the amount of compensation subject to this $1,000,000 limitation.
The ability of the Company to claim a deduction for compensation paid to any
other executive officer or employee of the Company (including its subsidiaries)
is not affected by this provision.
The Company has structured the 1999 Plan so that any compensation for
which the Company may claim a deduction in connection with the exercise of
Non-Qualified Stock Options and the disposition by an optionee of shares of
Common Stock acquired upon exercise of Incentive Stock Options will be
performance-based within the meaning of Section 162(m) of the Code.
The Board recommends that the stockholders vote "FOR" the approval
of the Ascent Assurance, Inc. 1999 Stock Option Plan.
PROPOSALS OF STOCKHOLDERS.
Proposals that stockholders wish to include in the Company's proxy
materials relating to the 2000 Annual Meeting of Stockholders of the Company
must be received by the Company no later than January 1, 2000.
OTHER MATTERS.
The Board does not intend to present any matter for action at the
Meeting other than the matters referred to in the accompanying Notice, and knows
of no other matter to be presented that is a proper subject for action by the
stockholders at the Meeting. However, if any other matter should properly come
before the Meeting, it is intended that votes will be cast pursuant to the
authority granted by the enclosed proxy, in accordance with the best judgment of
the person acting under the proxy.
A form of proxy is enclosed for your use. Please date, sign, and return
the proxy at your earliest convenience. A prompt return of your proxy will be
appreciated.
By Order of the Board of Directors,
/S/ PATRICK H. O'NEILL
Patrick H. O'Neill
Executive Vice President,
General Counsel and Secretary
<PAGE>
ANNEX A
ASCENT ASSURANCE, INC.
1999 STOCK OPTION PLAN
* * * * *
1. PURPOSE. The purpose of the 1999 Stock Option Plan (the "Plan") is
to further and promote the interests of Ascent Assurance, Inc., its Subsidiaries
and its shareholders by enabling the Company and its Subsidiaries to attract,
retain and motivate employees, non-employee directors and consultants (including
marketing agents) or those who will become employees, non-employee directors or
consultants (including marketing agents), and to align the interests of those
individuals and the Company's shareholders. To do this, the Plan offers
equity-based opportunities providing such employees and consultants with a
proprietary interest in maximizing the growth, profitability and overall success
of the Company and its Subsidiaries.
2. DEFINITIONS. For purposes of the Plan, the following terms shall
have the meanings set forth below:
2.1 "AWARD" means an award or grant made to a Participant under
Section 6 of the Plan.
2.2 "AWARD AGREEMENT" means the agreement executed by the Company and
a Participant pursuant to Sections 3.2 and 12.7 of the Plan in connection
with the granting of an Award.
2.3 "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
2.4 "CODE" means the Internal Revenue Code of 1986, as in effect and
as amended from time to time, or any successor statute thereto, together
with any rules, regulations and interpretations promulgated thereunder or
with respect thereto.
2.5 "COMMITTEE" means the committee of the Board established to
administer the Plan, as described in Section 3 of the Plan.
2.6 "COMMON STOCK" means the Common Stock, par value $.01 per share,
of the Company or any security of the Company issued by the Company in
substitution or exchange therefor.
2.7 "COMPANY" means Ascent Assurance, Inc., a Delaware corporation, or
any successor corporation to Ascent Assurance, Inc..
2.8 "DISABILITY" means disability as defined in the Participant's then
effective employment agreement, or if the participant is not then a party
to an effective employment agreement with the Company which defines
disability, "Disability" means disability as determined by the Committee in
accordance with standards and procedures similar to those under the
Company's long-term disability plan, if any. Subject to the first sentence
of this Section 2.8, at any time that the Company does not maintain a
long-term disability plan, "Disability" shall mean any physical or mental
disability which is determined to be total and permanent by a physician
selected in good faith by the Company.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as in
effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated
thereunder or with respect thereto.
2.10 "FAIR MARKET VALUE" means on, or with respect to, any given
date(s), the last reported sale price or, in case no such sale takes place
on such day, the average of the closing bid and asked prices of the Common
Stock, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last quoted
sale price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System or such
other system then in use, or, if on any such date the Common Stock is not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company. If at any
time the Common Stock is not so traded, the Fair Market Value of a share of
the Common Stock shall be determined in good faith by the Board.
2.11 "INCENTIVE STOCK OPTION" means any stock option granted pursuant
to the provisions of Section 6 of the Plan (and the relevant Award
Agreement) that is intended to be (and is specifically designated as) an
"incentive stock option" within the meaning of Section 422 of the Code.
2.12 "NON-QUALIFIED STOCK OPTION" means any stock option granted
pursuant to the provisions of Section 6 of the Plan (and the relevant Award
Agreement) that is not (and is specifically designated as not being) an
Incentive Stock Option.
2.13 "PARTICIPANT" means any individual who is selected from time to
time under Section 5 to receive an Award under the Plan.
2.14 "PLAN" means Ascent Assurance, Inc. 1999 Stock Option Plan, as
set forth herein and as in effect and as amended from time to time
(together with any rules and regulations promulgated by the Committee with
respect thereto).
2.15 "RETIREMENT" means the voluntary retirement by the Participant
from active employment with the Company and its Subsidiaries on or after
the attainment of (i) age 65, or (ii) 60, with the consent of the Board.
2.16 "SUBSIDIARY(IES)" means any corporation (other than the Company)
or other entity of which a majority of the outstanding capital stock or
other equity interests having ordinary voting power in the election of
directors or similar officials is owned, directly or indirectly through one
or more corporations or other entities, by the Company.
3. ADMINISTRATION.
3.1 THE COMMITTEE. The Plan shall be administered by the Committee.
The Committee shall be appointed from time to time by the Board and shall
be comprised of not less than three (3) of the then members of the Board
who are Non-Employee Directors (within the meaning of SEC Rule 16b-3(b)(3))
of the Company and "outside directors" (within the meaning of Section
162(m) of the Code). Consistent with the Bylaws of the Company, members of
the Committee shall serve at the pleasure of the Board and the Board,
subject to the immediately preceding sentence, may at any time and from
time to time remove members from, or add members to, the Committee.
3.2 PLAN ADMINISTRATION AND PLAN RULES. The Committee is authorized to
construe and interpret the Plan and to promulgate, amend and rescind rules
and regulations relating to the implementation, administration and
maintenance of the Plan. Subject to the terms and conditions of the Plan,
the Committee shall make all determinations necessary or advisable for the
implementation, administration and maintenance of the Plan including,
without limitation, (a) selecting the Plan's Participants, (b) making
Awards in such amounts and form as the Committee shall determine, (c)
imposing such restrictions, terms and conditions upon such Awards as the
Committee shall deem appropriate, and (d) correcting any technical
defect(s) or technical omission(s), or reconciling any technical
inconsistency(ies), in the Plan and/or any Award Agreement. The Committee
may designate persons other than members of the Committee to carry out the
day-to-day ministerial administration of the Plan under such conditions and
limitations as it may prescribe, except that the Committee shall not
delegate its authority with regard to the selection for participation in
the Plan and/or the granting of any Awards to Participants. The Committee's
determinations under the Plan need not be uniform and may be made
selectively among Participants, whether or not such Participants are
similarly situated. Any determination, decision or action of the Committee
in connection with the construction, interpretation, administration,
implementation or maintenance of the Plan shall be final, conclusive and
binding upon all Participants and any person(s) claiming under or through
any Participants. The Company shall effect the granting of Awards under the
Plan, in accordance with the determinations made by the Committee, by
execution of written agreements and/or other instruments in such form as is
approved by the Committee.
3.3 LIABILITY LIMITATION. Neither the Board nor the Committee, nor any
member of either, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with the
Plan (or any Award Agreement), and the members of the Board and the
Committee shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including,
without limitation, attorneys' fees) arising or resulting therefrom to the
fullest extent permitted by law and/or under any directors and officers
liability insurance coverage which may be in effect from time to time.
4. TERM OF PLAN/COMMON STOCK SUBJECT TO PLAN.
4.1 TERM. The Plan shall terminate on December 31, 2008, except with
respect to Awards then outstanding. After such date no further Awards shall
be granted under the Plan.
4.2 COMMON STOCK. The maximum number of shares of Common Stock in
respect of which Awards may be granted under the Plan to employees and
non-employee directors, in the aggregate, subject to adjustment as provided
in Section 10.2 of the Plan, shall not exceed 1,251,685 shares. The maximum
number of shares of Common Stock in respect of which Awards may be granted
under the Plan to consultants (including marketing agents), subject to
adjustment as provided in Section 10.2 of the Plan, shall not exceed
387,119 shares. In the event of a change in the Common Stock of the Company
that is limited to a change in the designation thereof to "Capital Stock"
or other similar designation, or to a change in the par value thereof, or
from par value to no par value, without increase or decrease in the number
of issued shares, the shares resulting from any such change shall be deemed
to be the Common Stock for purposes of the Plan. Common Stock which may be
issued under the Plan may be either authorized and unissued shares or
issued shares which have been reacquired by the Company (in the open-market
or in private transactions) and which are being held as treasury shares. No
fractional shares of Common Stock shall be issued under the Plan.
4.3 COMPUTATION OF AVAILABLE SHARES. If any Awards expire unexercised
or are forfeited, surrendered, cancelled, terminated or settled in cash in
lieu of Common Stock, the shares of Common Stock which were theretofore
subject (or potentially subject) to such Awards shall again be available
for Awards under the Plan to the extent of such expiration, forfeiture,
surrender, cancellation, termination or settlement of such Awards.
5. ELIGIBILITY. Individuals eligible for Awards under the Plan shall
consist of all salaried employees, non-employee directors and consultants
(including marketing agents), or those who will become such employees,
non-employee directors and consultants (including marketing agents) of the
Company and/or its Subsidiaries who are responsible for the management, growth
and protection of the business of the Company and/or its Subsidiaries or whose
performance or contribution, in the sole discretion of the Committee, benefits
or will benefit the Company.
6. STOCK OPTIONS.
6.1 TERMS AND CONDITIONS. Stock options granted under the Plan shall
be in respect of Common Stock and may be in the form of either Incentive
Stock Options or Non-Qualified Stock Options (sometimes referred to
collectively herein as the "Stock Option(s))". However, in no event may a
non-employee director or a consultant (including a marketing agent) receive
a grant of Incentive Stock Options under the Plan. Stock Options shall be
subject to the terms and conditions set forth in this Section 6 and any
additional terms and conditions, not inconsistent with the express terms
and provisions of the Plan, as the Committee shall set forth in the
relevant Award Agreement.
6.2 GRANT. Stock Options may be granted under the Plan in such form as
the Committee may from time to time approve. Special provisions shall apply
to Incentive Stock Options granted to any employee who owns (within the
meaning of Section 422(b)(6) of the Code) more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or
its parent corporation or any subsidiary of the Company, within the meaning
of Sections 424(e) and (f) of the Code (a "10% Shareholder").
6.3 EXERCISE PRICE. The exercise price per share of Common Stock
subject to a Stock Option shall be determined by the Committee, including,
without limitation, a determination based on a formula determined by the
Committee; PROVIDED, HOWEVER, that, except with respect to the Stock
Options which, in accordance with the Company's First Amended Plan of
Reorganization under Chapter 11 of the Bankruptcy Code, are being granted
with an exercise price of $.01 per share of Common Stock and Non-Employee
Director Stock Options which are being granted with an exercise price of
$3.00 per share of Common Stock, in no event shall any Stock Option granted
pursuant to this Plan have an exercise price of less than $4.39 per share
of Common Stock; provided, FURTHER, HOWEVER, that the exercise price of an
Incentive Stock Option shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock on the date of the grant of such
Incentive Stock Option; PROVIDED, FURTHER, HOWEVER, that, in the case of a
10% Shareholder, the exercise price of an Incentive Stock Option shall not
be less than one hundred ten percent (110%) of the Fair Market Value of the
Common Stock on the date of grant.
6.4 TERM. The term of each Stock Option shall be such period of time
as is fixed by the Committee; PROVIDED, HOWEVER, that the term of any Stock
Option shall not exceed ten (10) years (five (5) years, in the case of an
Incentive Stock Option granted to a 10% Shareholder) after the date
immediately preceding the date on which the Stock Option is granted.
6.5 METHOD OF EXERCISE. A Stock Option may be exercised, in whole or
in part, by giving written notice of exercise to the Secretary of the
Company, or the Secretary's designee, specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the
exercise price in cash, by certified check, bank draft or money order
payable to the order of the Company or, if permitted by the Committee (in
its sole discretion) and applicable law, by delivery of, alone or in
conjunction with a partial cash or instrument payment, (a) a fully-secured
promissory note or notes, (b) shares of Common Stock already owned by the
Participant for at least six (6) months, or (c) some other form of payment
acceptable to the Committee. The Committee may also permit Participants
(either on a selective or group basis) to simultaneously exercise Stock
Options and sell the shares of Common Stock thereby acquired, pursuant to a
"cashless exercise" arrangement or program, selected by and approved of in
all respects in advance by the Committee. Payment instruments shall be
received by the Company subject to collection. The proceeds received by the
Company upon exercise of any Stock Option may be used by the Company for
general corporate purposes. Any portion of a Stock Option that is exercised
may not be exercised again.
6.6 EXERCISABILITY. In respect of any Stock Option granted under the
Plan, unless otherwise (a) determined by the Committee (in its sole
discretion) at any time and from time to time in respect of any such Stock
Option, or (b) provided in the Award Agreement or in the Participant's
employment agreement in respect of any such Stock Option, such Stock Option
shall become exercisable as to the aggregate number of shares of Common
Stock underlying such Stock Option, as determined on the date of grant, as
follows:
* 33 1/3 %, on the first anniversary of the date of
grant of the Stock Option, provided the Participant
is then employed by or providing services to the
Company and/or one of its Subsidiaries;
* 66 2/3 %, on the second anniversary of the date of
grant of the Stock Option, provided the Participant
is then employed by or providing services to the
Company and/or one of its Subsidiaries; and
* 100%, on the third anniversary of the date of grant
of the Stock Option, provided the Participant is then
employed by or providing services to the Company
and/or one of its Subsidiaries.
Notwithstanding anything to the contrary contained in this Section 6.6, such
Stock Option shall become one hundred percent (100%) exercisable as to the
aggregate number of shares of Common Stock underlying such Stock Option upon the
death, Disability or Retirement of the Participant or upon a Change in Control.
For the purpose of this Plan, "Change in Control" shall mean:
6.6.1 The acquisition, after the effective date of the Plan, by an
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 34% or more of either
(a) the outstanding shares of the Common Stock (excluding any acquisition
by Credit Suisse First Boston Corporation ("CSFB") or any Permitted
Subsidiary (as defined below) of 34% or more of the Common Stock upon
conversion of the shares of Series A Convertible Preferred Stock received
by CSFB or CSFB's wholly-owned subsidiary, Special Situations Holdings,
Inc.- Westbridge, pursuant to the effectiveness of the Company's First
Amended Plan of Reorganization under Chapter 11 of the Bankruptcy Code
dated October 30, 1998, as modified), or (b) the combined voting power of
the voting securities of the Company entitled to vote generally in the
election of directors (the "Voting Securities"); PROVIDED, HOWEVER, that
the following acquisitions shall not constitute a Change in Control: (x)
any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any person or entity controlling,
controlled by or under common control with the Company (an "Affiliate"), or
(y) any acquisition by any corporation if, immediately following such
acquisition, more than 66% of the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding
voting securities of such corporation (entitled to vote generally in the
election of directors), is beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who, immediately
prior to such acquisition, were the beneficial owners of the Common Stock
and the Voting Securities in substantially the same proportions,
respectively, as their ownership, immediately prior to such acquisition, of
the Common Stock and Voting Securities; or
6.6.2 Individuals who, on the 30th day after the effective date of the
Plan, constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; PROVIDED, HOWEVER, that any
individual becoming a director subsequent to the effective date of the Plan
whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then serving
and comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents; or
6.6.3 Approval by the shareholders of the Company of a reorganization,
merger or consolidation, other than a reorganization, merger or
consolidation with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, immediately prior
to such reorganization, merger or consolidation, of the Common Stock and
Voting Securities beneficially own, directly or indirectly, immediately
after such reorganization, merger or consolidation, more than 66% of the
then outstanding common stock and voting securities (entitled to vote
generally in the election of directors) of the corporation resulting from
such reorganization, merger or consolidation in substantially the same
proportions as their respective ownership, immediately prior to such
reorganization, merger or consolidation, of the Common Stock and the Voting
Securities; or
6.6.4 Approval by the shareholders of the Company of (a) a complete
liquidation or dissolution of the Company, or (b) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a Subsidiary, wholly-owned, directly or indirectly, by the Company.
For purposes of Section 6.6.1, a "Permitted Subsidiary" shall mean Special
Situations Holdings, Inc.- Westbridge and any other directly or indirectly
wholly-owned subsidiary of Credit Suisse Group, a corporation organized and
existing under the laws of Switzerland, to which shares of Series A Convertible
Preferred Stock are transferred for tax, regulatory or other general corporate
purposes, but excluding any subsidiary which either (i) is or intends to be
engaged in any line of business in which the Company is engaged as of the date
of such conversion, (ii) becomes a subsidiary after the Effective Date through
any acquisition, merger or similar transaction, or (iii) intends to become, or
becomes, engaged in the day to day management of the Company's business to such
an extent that it alters the control of the Company's operations.
7. MAXIMUM YEARLY AWARDS. All Participants in the aggregate may not
receive in any calendar year Awards of Options, exceeding 1,638,804 underlying
shares of Common Stock. Each individual Participant may not receive in any
calendar year Awards of Options exceeding 819,402 underlying shares of Common
Stock. The maximum annual Common Stock amounts in this Section 7 are subject to
adjustment under Section 10.2 and are subject to the Plan maximum under Section
4.2.
8. TERMINATION OF EMPLOYMENT.
8.1 GENERAL. Except as is otherwise provided (a) in the relevant Award
Agreement as determined by the Committee (in its sole discretion), or (b)
in the Participant's then effective employment agreement, if any, the
following terms and conditions shall apply as appropriate and as not
inconsistent with the terms and conditions, if any, contained in such Award
Agreement and/or such employment agreement:
8.1.1 OPTIONS. Subject to any determination of the Committee pursuant
to Section 6.6 of the Plan, if a Participant's employment with or provision
of services to the Company and its Subsidiaries terminates for any reason
any then unexercisable Stock Options shall be forfeited and cancelled by
the Company. Except as otherwise provided in this Section 8.1.1, if a
Participant's employment with or provision of services to the Company and
its Subsidiaries terminates for any reason, such Participant's rights, if
any, to exercise any then exercisable Stock Options shall terminate ninety
(90) days after the date of such termination (but not beyond the stated
term of any such Stock Option as determined under Section 6.4) and
thereafter such Stock Options shall be forfeited and cancelled by the
Company. The Committee, in its sole discretion, may determine that any such
Participant's Stock Options to the extent exercisable immediately prior to
any termination of employment with or provision of services to the Company,
(other than a termination due to death, Retirement or Disability) may
remain exercisable for an additional specified time period after such
ninety (90) day period expires (subject to any other applicable terms and
provisions of the Plan and the relevant Award Agreement), but not beyond
the stated term of any such Stock Option. If any termination of employment
with or provision of services to the Company is due to death, Retirement or
Disability, a Participant (and such Participant's estate, designated
beneficiary or other legal representative, as the case may be and as
determined by the Committee) shall have the right to exercise such Stock
Options, at any time within the one (1) year period following such
termination due to death, Retirement or Disability (but not beyond the term
of any such Stock Option as determined under Section 6.4).
9. NON-TRANSFERABILITY OF AWARDS. Unless otherwise provided in the
Award Agreement, no Award under the Plan or any Award Agreement, and no rights
or interests herein or therein, shall or may be assigned, transferred, sold,
exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a
Participant or any beneficiary(ies) of any Participant, except by testamentary
disposition by the Participant or the laws of intestate succession. No such
interest shall be subject to execution, attachment or similar legal process,
including, without limitation, seizure for the payment of the Participant's
debts, judgements, alimony, or separate maintenance. Unless otherwise provided
in the Award Agreement, during the lifetime of a Participant, Stock Options are
exercisable only by the Participant.
10. CHANGES IN CAPITALIZATION AND OTHER MATTERS.
10.1 NO CORPORATE ACTION RESTRICTION. The existence of the Plan, any
Award Agreement and/or the Awards granted hereunder shall not limit, affect
or restrict in any way the right or power of the Board or the shareholders
of the Company to make or authorize (a) any adjustment, recapitalization,
reorganization or other change in the Company's or any Subsidiary's capital
structure or its business, (b) any merger, consolidation or change in the
ownership of the Company or any Subsidiary, (c) any issue of bonds,
debentures, capital, preferred or prior preference stocks ahead of or
affecting the Company's or any Subsidiary's capital stock or the rights
thereof, (d) any dissolution or liquidation of the Company or any
Subsidiary, (e) any sale or transfer of all or any part of the Company's or
any Subsidiary's assets or business, or (f) any other corporate act or
proceeding by the Company or any Subsidiary. No Participant, beneficiary or
any other person shall have any claim against any member of the Board or
the Committee, the Company or any Subsidiary, or any employees, officers or
agents of the Company or any subsidiary, as a result of any such action.
10.2 RECAPITALIZATION ADJUSTMENTS. In the event of any change in
capitalization affecting the Common Stock of the Company, including,
without limitation, a stock dividend or other non-cash distribution, stock
split, reverse stock split, recapitalization, consolidation, subdivision,
split-up, spin-off, split-off, combination or exchange of shares or other
form of reorganization or recapitalization, or any other change affecting
the Common Stock, the Board shall authorize and make such proportionate
adjustments, if any, as the Board deems appropriate to reflect such change,
including, without limitation, with respect to the aggregate number of
shares of the Common Stock for which Awards in respect thereof may be
granted under the Plan, the maximum number of shares of the Common Stock
which may be granted or awarded to any Participant, the number of shares of
the Common Stock covered by each outstanding Award, and the exercise price
per share of Common Stock in respect of outstanding Awards.
10.3 CERTAIN MERGERS.
10.3.1 If the Company enters into or is involved in any merger,
reorganization or other business combination with any person or entity
(such merger, reorganization or other business combination to be
referred to herein as a "Merger Event") and as a result of any such
Merger Event the Company will be or is the surviving corporation, a
Participant shall be entitled, as of the date of the execution of the
agreement evidencing the Merger Event (the "Execution Date") and with
respect to both exercisable and unexercisable Stock Options (but only
to the extent not previously exercised), to receive substitute stock
options in respect of the shares of the surviving corporation on such
terms and conditions, as to the number of shares, pricing and
otherwise, which shall substantially preserve the value, rights and
benefits of any affected Stock Options granted hereunder as of the
date of the consummation of the Merger Event. Notwithstanding anything
to the contrary in this Section 10.3, if any Merger Event occurs, the
Company shall have the right, but not the obligation, to pay to each
affected Participant an amount in cash or certified check equal to the
excess of the Fair Market Value of the Common Stock underlying any
affected unexercised Stock Options as of the Execution Date (whether
then exercisable or not) over the aggregate exercise price of such
unexercised Stock Options.
10.3.2 If, in the case of a Merger Event in which the Company
will not be, or is not, the surviving corporation and the Company
determines not to make the cash or certified check payment described
in Section 10.3.1 of the Plan, the Company shall compel and obligate,
as a condition of the consummation of the Merger Event, the surviving
or resulting corporation and/or the other party to the Merger Event,
as necessary, or any parent, subsidiary or acquiring corporation
thereof, to grant, with respect to both exercisable and unexercisable
Stock Options (but only to the extent not previously exercised),
substitute stock options in respect of the shares of common or other
capital stock of such surviving or resulting corporation on such terms
and conditions, as to the number of shares, pricing and otherwise,
which shall substantially preserve the value, rights and benefits of
any affected Stock Options previously granted hereunder as of the date
of the consummation of the Merger Event.
10.3.3 Upon receipt by any affected Participant of any such cash,
certified check, or substitute stock options as a result of any such
Merger Event, such Participant's affected Stock Options for which such
cash, certified check or substitute awards was received shall be
thereupon cancelled without the need for obtaining the consent of any
such affected Participant.
10.3.4 The foregoing adjustments and the manner of application of
the foregoing provisions, including, without limitation, the issuance
of any substitute stock options shall be determined in good faith by
the Committee in its sole discretion. Any such adjustment may provide
for the elimination of fractional shares.
11. AMENDMENT, SUSPENSION AND TERMINATION.
11.1 IN GENERAL. The Board may suspend or terminate the Plan (or any
portion thereof) at any time and may amend the Plan at any time and from
time to time in such respects as the Board may deem advisable to insure
that any and all Awards conform to or otherwise reflect any change in
applicable laws or regulations, or to permit the Company or the
Participants to benefit from any change in applicable laws or regulations,
or in any other respect the Board may deem to be in the best interests of
the Company or any Subsidiary. No such amendment, suspension or termination
shall (x) materially adversely effect the rights of any Participant under
any outstanding Stock Options, without the consent of such Participant, or
(y) make any change that would disqualify the Plan, or any other plan of
the Company or any Subsidiary intended to be so qualified, from the
benefits provided under Section 422 of the Code, or any successor
provisions thereto.
11.2 AWARD AGREEMENT MODIFICATIONS. The Committee may (in its sole
discretion) amend or modify at any time and from time to time the terms and
provisions of any outstanding Stock Options, in any manner to the extent
that the Committee under the Plan or any Award Agreement could have
initially determined the restrictions, terms and provisions of such Stock
Options, including, without limitation, changing or accelerating the date
or dates as of which such Stock Options shall become exercisable. No such
amendment or modification shall, however, materially adversely affect the
rights of any Participant under any such Award without the consent of such
Participant.
12. MISCELLANEOUS.
12.1 TAX WITHHOLDING. The Company shall have the right to deduct from
any payment or settlement under the Plan, including, without limitation,
the exercise of any Stock Option, or the delivery, transfer or vesting of
any Common Stock, any federal, state, local or other taxes of any kind
which the Committee, in its sole discretion, deems necessary to be withheld
to comply with the Code and/or any other applicable law, rule or
regulation. If the Committee, in its sole discretion, permits shares of
Common Stock to be used to satisfy any such tax withholding, such Common
Stock shall be valued based on the Fair Market Value of such stock as of
the date the tax withholding is required to be made, such date to be
determined by the Committee. The Committee may establish rules limiting the
use of Common Stock to meet withholding requirements by Participants who
are subject to Section 16 of the Exchange Act.
12.2 NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan, the
granting of any Award, nor the execution of any Award Agreement, shall
confer upon any employee of the Company or any Subsidiary any right to
continued employment with the Company or any Subsidiary, as the case may
be, nor shall it interfere in any way with the right, if any, of the
Company or any Subsidiary to terminate the employment of any employee at
any time for any reason.
12.3 UNFUNDED PLAN. The Plan shall be unfunded and the Company shall
not be required to segregate any assets in connection with any Awards under
the Plan. Any liability of the Company to any person with respect to any
Award under the Plan or any Award Agreement shall be based solely upon the
contractual obligations that may be created as a result of the Plan or any
such award or agreement. No such obligation of the Company shall be deemed
to be secured by any pledge of, encumbrance on, or other interest in, any
property or asset of the Company or any Subsidiary. Nothing contained in
the Plan or any Award Agreement shall be construed as creating in respect
of any Participant (or beneficiary thereof or any other person) any equity
or other interest of any kind in any assets of the Company or any
Subsidiary or creating a trust of any kind or a fiduciary relationship of
any kind between the Company, any Subsidiary and/or any such Participant,
any beneficiary thereof or any other person.
12.4 PAYMENTS TO A TRUST. The Committee is authorized to cause to be
established a trust agreement or several trust agreements or similar
arrangements from which the Committee may make payments of amounts due or
to become due to any Participants under the Plan.
12.5 OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Payments and
other benefits received by a Participant under an Award made pursuant to
the Plan shall not be deemed a part of a Participant's compensation for
purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Company or any
Subsidiary unless expressly provided in such other plans or arrangements,
or except where the Board expressly determines in writing that inclusion of
an Award or portion of an Award should be included to accurately reflect
competitive compensation practices or to recognize that an Award has been
made in lieu of a portion of competitive annual base salary or other cash
compensation. Awards under the Plan may be made in addition to, in
combination with, or as alternatives to, grants, awards or payments under
any other plans or arrangements of the Company or its Subsidiaries. The
existence of the Plan notwithstanding, the Company or any Subsidiary may
adopt such other compensation plans or programs and additional compensation
arrangements as it deems necessary to attract, retain and motivate
employees.
12.6 LISTING, REGISTRATION AND OTHER LEGAL COMPLIANCE. No Awards or
shares of the Common Stock shall be required to be granted or issued under
the Plan unless legal counsel for the Company shall be satisfied that such
grant or issuance will be in compliance with all applicable federal and
state securities laws and regulations and any other applicable laws or
regulations. The Committee may require, as a condition of any payment or
share issuance, that certain agreements, undertakings, representations,
certificates, and/or information, as the Committee may deem necessary or
advisable, be executed or provided to the Company to assure compliance with
all such applicable laws or regulations. Certificates for shares of Common
Stock delivered under the Plan may be subject to such stock-transfer orders
and such other restrictions as the Committee may deem advisable under the
rules, regulations, or other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then listed,
and any applicable federal or state securities law. In addition, if, at any
time specified herein (or in any Award Agreement or otherwise) for (a) the
making of any Award, or the making of any determination, (b) the issuance
or other distribution of Common Stock, or (c) the payment of amounts to or
through a Participant with respect to any Award, any law, rule, regulation
or other requirement of any governmental authority or agency shall require
either the Company, any Subsidiary or any Participant (or any estate,
designated beneficiary or other legal representative thereof) to take any
action in connection with any such determination, any such shares to be
issued or distributed, any such payment, or the making of any such
determination, as the case may be, shall be deferred until such required
action is taken. With respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of SEC Rule 16b-3. To the extent any provision of the
Plan or any action by the administrators of the Plan fails to so comply
with such rule, it shall be deemed null and void, to the extent permitted
by law and deemed advisable by the Committee.
12.7 AWARD AGREEMENTS. Each Participant receiving an Award under the
Plan shall enter into an Award Agreement with the Company in a form
specified by the Committee. Each such Participant shall agree to the
restrictions, terms and conditions of the Award set forth therein and in
the Plan.
12.8 DESIGNATION OF BENEFICIARY. Each Participant to whom an Award has
been made under the Plan may designate a beneficiary or beneficiaries to
exercise any option or to receive any payment which under the terms of the
Plan and the relevant Award Agreement may become exercisable or payable on
or after the Participant's death. At any time, and from time to time, any
such designation may be changed or cancelled by the Participant without the
consent of any such beneficiary. Any such designation, change or
cancellation must be on a form provided for that purpose by the Committee
and shall not be effective until received by the Committee. If no
beneficiary has been designated by a deceased Participant, or if the
designated beneficiaries have predeceased the Participant, the beneficiary
shall be the Participant's estate. If the Participant designates more than
one beneficiary, any payments under the Plan to such beneficiaries shall be
made in equal shares unless the Participant has expressly designated
otherwise, in which case the payments shall be made in the shares
designated by the Participant.
12.9 LEAVES OF ABSENCE/TRANSFERS. The Committee shall have the power
to promulgate rules and regulations and to make determinations, as it deems
appropriate, under the Plan in respect of any leave of absence from the
Company or any Subsidiary granted to a Participant. Without limiting the
generality of the foregoing, the Committee may determine whether any such
leave of absence shall be treated as if the Participant has terminated
employment with the Company or any such Subsidiary. If a Participant
transfers within the Company, or to or from any Subsidiary, such
Participant shall not be deemed to have terminated employment as a result
of such transfers.
12.10 LOANS. Subject to applicable law, the Committee may provide,
pursuant to Plan rules, for the Company or any Subsidiary to make loans to
Participants to finance the exercise price of any Stock Options, as well as
the withholding obligation under Section 12.1 of the Plan and/or the
estimated or actual taxes payable by the Participant as a result of the
exercise of such Stock Option and the Committee may prescribe the terms and
conditions of any such loan.
12.11 GOVERNING LAW. The Plan and all actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
Delaware, without reference to the principles of conflict of laws thereof.
Any titles and headings herein are for reference purposes only, and shall
in no way limit, define or otherwise affect the meaning, construction or
interpretation of any provisions of the Plan.
12.12 EFFECTIVE DATE. The Plan shall be effective upon its approval by
the Board and adoption by the Company, subject to the approval of the Plan
by the Company's shareholders in accordance with Sections 162(m) and 422 of
the Code.
<PAGE>
IN WITNESS WHEREOF, this Plan is adopted by the Company on
this 24th day of March, 1999.
ASCENT ASSURANCE, INC.
By: /S/ PATRICK J. MITCHELL
Name: Patrick J. Mitchell
Title: Chairman and CEO
