Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ___)
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement |_| Confidential, for use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Chancellor Corporation
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CHANCELLOR CORPORATION
745 Atlantic Avenue
Boston, Massachusetts 02111
July 30, 1997
To the Stockholders of
Chancellor Corporation:
Chancellor Corporation (the "Company") is pleased to send you the
enclosed notice of the Special Meeting in Lieu of Annual Meeting of Stockholders
(the "Meeting") to be held at 2:00 p.m. on Friday, August 29, 1997 at the
offices of Sullivan & Worcester LLP, One Post Office Square, 23rd Floor, Boston,
MA 02109.
Ordinary annual meeting business will be transacted at the Meeting,
including the election of directors. Three (3) other actions will be submitted
to the stockholders at the Meeting: (i) the approval of the Company's 1997 Stock
Option Plan; (ii) the approval of an amendment to the Company's 1994 Directors'
Stock Option Plan and (iii) the approval of an amendment to the Company's
Articles of Organization.
Please review the Company's enclosed Proxy Statement and Annual Report
on Form 10-K carefully. If you have any questions, please do not hesitate to
contact me at (617) 728-8500.
Sincerely yours,
/s/ John J. Powell
John J. Powell
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING PLEASE COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING.
<PAGE>
CHANCELLOR CORPORATION
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL
MEETING OF STOCKHOLDERS
August 29, 1997
A Special Meeting in Lieu of Annual Meeting of Stockholders (the
"Meeting") of Chancellor Corporation (the "Company") will be held on Friday,
August 29, 1997, at 2:00 p.m. at Sullivan & Worcester LLP, One Post Office
Square, 23rd Floor, Boston, MA 02109 for the following purposes:
(1) To fix the number of directors at seven for the coming year,
subject to further action by the Board of Directors as provided in the By-Laws,
and to elect four directors to hold office until their successors shall be
elected and shall have qualified (subject to the foregoing).
(2) To approve the adoption of the Company's 1997 Stock Option Plan.
(3) To approve an amendment to the Company's 1994 Directors' Stock
Option Plan.
(4) To approve an amendment to the Company's Articles of Organization
authorizing a total of 75,000,000 shares of Common Stock, $.01 par value per
share, and 20,000,000 shares of Preferred Stock, $.01 par value per share.
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on July 18,
1997, as the record date for the determination of stockholders entitled to
notice of, and to vote and act at, the Meeting and only stockholders of record
at the close of business on the date are entitled to notice of, and to vote and
act at, the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Debra E. Rich, Clerk
Debra E. Rich, Clerk
Boston, Massachusetts
July 30, 1997
<PAGE>
CHANCELLOR CORPORATION
745 Atlantic Avenue
Boston, Massachusetts 02111
(617) 728-8500
--------------------
PROXY STATEMENT
--------------------
SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF STOCKHOLDERS
to be held August 29, 1997
INTRODUCTION
The Special Meeting in Lieu of Annual Meeting
This Proxy Statement is being furnished to holders of shares of Common
Stock, $.01 par value (the "Common Stock"), of Chancellor Corporation, a
Massachusetts corporation ("Chancellor" or the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
the Annual Meeting of Stockholders (the "Meeting") to be held at the offices of
Sullivan & Worcester LLP, One Post Office Square, 23rd Floor, Boston, MA 02109,
on August 29, 1997 at 2:00 p.m., local time, and at any adjournment or
adjournments thereof.
Matters to be Considered at the Meeting
At the Meeting, Stockholders will be acting upon the following matters:
(i) election of directors, (ii) approval of adoption of the 1997 Stock Option
Plan, (iii) approval of an amendment to the 1994 Directors' Stock Option Plan,
and (iv) approval of the amendment to the Articles of Organization to authorize
75,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock. See
"ELECTION OF DIRECTORS," "APPROVAL OF 1997 STOCK OPTION PLAN," "AMENDMENT OF
1994 DIRECTORS' STOCK OPTION PLAN," and "AMENDMENT OF ARTICLES OF ORGANIZATION."
Recommendation of the Board of Directors
The Board unanimously recommends adoption of all the matters to be
submitted to the stockholders at the Meeting.
Voting of Proxies; Revocation
All shares represented by the enclosed proxy will be voted in the
manner specified therein by the stockholder. If no specification is made, the
proxy will be voted FOR the matters to be acted
<PAGE>
upon and otherwise in the discretion of the proxies. Any proxy may be revoked at
any time prior to the voting thereof by delivering to the Clerk of the Company a
written revocation of a duly executed proxy bearing a later date or by voting in
person at the Meeting. The expected date of the first mailing of this proxy
statement and the enclosed proxy is July 30, 1997.
Beneficial Ownership of Securities and Voting Rights
As of the close of business on July 18, 1997, the record date for the
Meeting, there were outstanding 20,186,391 shares of Common Stock and 8,000,000
shares of Series AA Convertible Preferred Stock ("Outstanding Series AA
Preferred") (the Common Stock and the Outstanding Series AA Preferred
collectively referred to as the "Stock"). Stockholders of the Company are
entitled to one vote for each share of Common Stock or Outstanding Series AA
Preferred held of record at the close of business on the record date. For more
information about the Company's outstanding stock, see "OTHER INFORMATION --
Principal Stockholders."
Votes Required
The affirmative vote of the holders of a majority of the shares of the
Company's Stock present or represented at the Meeting is required for the
adoption of the 1997 Stock Option Plan, amendment of the 1994 Director's Stock
Option Plan, amendment of Articles of Organization and for the ratification of
auditors. The affirmative vote of the holders of a plurality of the shares of
Company's present or represented at the Meeting is required by the election of
directors.
Shares of the Company's Common Stock represented by executed proxies
received by the Company will be counted for purposes of establishing a quorum at
the Meeting, regardless of how or whether such shares are voted on any specific
proposal. With respect to the required vote on any particular matter,
abstentions will be treated as votes cast or shares present and represented,
while votes withheld by nominee recordholders who did not receive specific
instructions from the beneficial owners of such shares will not be treated as
votes cast or as shares present or represented.
TABLE OF CONTENTS
Page No.
Introduction......................................................... 1
Table of Contents.................................................... 2
Election of Directors................................................ 3
Executive Compensation............................................... 6
Approval of 1997 Stock Option Plan. . . . . . . ..................... 14
Amendment to 1994 Directors' Stock Option Plan....................... 17
Amendment of Articles of Organization................................ 19
Other Information.................................................... 21
-2-
<PAGE>
ELECTION OF DIRECTORS
Introduction
At the Meeting, the stockholders will be asked to set the number of
directors at seven for the ensuing year. The directors are classified into three
classes of directors, each class ordinarily to serve for a three-year term.
Class I will consist of three members to serve until the Annual Meeting of
Stockholders to be held in 2000; Class II will consist of two members to serve
until the Annual Meeting of Stockholders to be held in 1999; and Class III will
consist of two members to serve until the Annual Meeting of Stockholders to be
held in 1998. The stockholders will be asked to elect Brian M. Adley and Ernest
Rolls Class I directors for three-year terms, to serve in such capacity until
the 2000 Annual Meeting and until their successors are duly elected and
qualified and Michael Marchese and Rudolph Peselman Class II directors for
two-year terms, to serve in such capacity until the 1999 Annual Meeting and
until their successors are duly elected and qualified. Currently, there are no
Class III directors and the stockholders will not be asked to elect any Class
III directors. Under the Bylaws of the Company, however, the existing members of
the Board may fill any vacancies on the Board.
It is the intention of the persons named in the enclosed proxy to vote
to elect the four nominees named above, all of whom are incumbent directors and
all of whom have consented to serve if elected. If some unexpected occurrence
should make necessary, in the discretion of the Board of Directors, the
substitution of some other person for any of the nominees, it is the intention
of the persons named in the proxy to vote for the election of such other person
as may be designated by the Board of Directors.
Nominees, Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position(s) Held
John J. Powell 55 President, Chief Executive Officer and Treasurer
Brian M. Adley* 34 Director; Chairman of the Board
Ernest Rolls* 72 Director; Vice Chairman of the Board
Rudolph Peselman* 52 Director
Michael Marchese* 49 Director
*Nominee for re-election as a director.
There are no family relationships between any director, executive
officer or person nominated or chosen to become a director or executive officer.
-3-
<PAGE>
Business Experience of Executive Officers and Directors
Mr. Powell joined the Company in December, 1996 as President and Chief
Executive Officer. Prior to joining the Company, Mr. Powell was the President
and Founder of EBEC Financial Corporation, a privately held equipment leasing
firm specializing in medium to large lease financial transactions. From
1971-1980 Mr. Powell was with ITEL Corporation (NYSE) where he became the
president of the Computer Finance Division. This division of ITEL originated
over $300 million of lease finances annually and Mr. Powell managed a sales and
support staff of 150 people responsible for origination, municipal finance and
portfolio management and remarketing. Mr. Powell began his business career in
1967 with the IBM Corporation serving in various marketing positions for the
Data Processing Division.
Mr. Adley has been Chairman and Chief Executive Officer of Vestex
Corporation, a private financial services firm, since its inception in 1994. Mr.
Adley was elected a director of the Company on July 25, 1995 and was elected
Chairman of the Board of Directors in December, 1996. Mr. Adley previously
served as Treasurer, Chief Financial Officer and a director of Sanborn, Inc., a
publicly held company involved in the manufacturing of environmental separation
systems recycling oils and coolants, from 1990 through 1993, having previously
been acting Chief Financial Officer of that company since 1989. Sanborn filed
for protection from creditors under U.S. bankruptcy laws in January 1994. From
1985 to 1989, Mr. Adley was a Senior Consultant at Price Waterhouse. Mr. Adley
has several undergraduate degrees in accountancy and management, a Masters of
Business Administration and a Juris Doctorate.
Mr. Rolls was elected a director in December 1996. Since 1973 he has
been President and Director of Asset Funding Group, Inc., a company that invests
and directs joint ventures with national corporations. From 1960 to 1973, Mr.
Rolls was President of Diamond Lighting and was Founder and Chairman of the
Board of Wright Airlines from 1966 to 1968.
Mr. Peselman was elected a director in December 1996. He has been
President and Director of Kent International, an international business
development and consulting company since 1989. Mr. Peselman was Vice President
of Eric Management, a real estate development and management company, from 1976
to 1989 and had served as a director of Engineering Firm, a firm which managed
technical reconstruction of a furniture manufacturing facility in the Ukraine,
from 1970 to 1988. Mr. Peselman was also a nominee for the Ernst & Young 1992
Entrepreneur of the Year Award.
Mr. Marchese was elected a director in December 1996. He has extensive
domestic and international leasing and bank experience. In 1996, he founded and
is the President of Long River Capital; from 1993 to 1996 he was the Principal
for the consulting firm of Marchese & Company; from 1979 to 1993 he was with
SNET Credit, Inc. in a variety of analyst and management positions; and prior to
1979 he served in a variety of staff and management positions with various
trust, leasing and bank companies. Mr. Marchese has an undergraduate degree from
Providence College.
-4-
<PAGE>
Certain Transactions
The above-named nominees have indicated that neither they nor any of
their respective affiliates has any relationship with the Company that is
required to be disclosed pursuant to Item 404 of Regulation S-K promulgated
under the Securities Exchange Act of 1934 except for the transactions referred
to under "Compensation Committee Interlocks and Insider Participation".
Committees; Attendance
The Audit Committee of the Board was formed in 1983 and is currently
composed of Messrs. Adley, Rolls and Marchese. Mr. Rolls is Chairman of the
Audit Committee. The functions of the Audit Committee include recommending to
the Board of Directors the appointment of the independent auditors, reviewing
the independence of the auditors, meeting with the auditors to review the scope
and result of the annual audit, reviewing the Company's accounting procedures,
internal controls, and proposed changes in financial and accounting standards
and principles, and reviewing the scope of other services provided by the
auditors.
Messrs. Adley, Marchese and Peselman are the current members of the
Company's Resource and Compensation Committee. Mr. Peselman is Chairman of the
Resource and Compensation Committee. The Resource and Compensation Committee was
formed in 1983. Its functions include reviewing the total compensation paid to
the Company's directors and officers and the granting of stock options. Since
March 24, 1992, a special Option Compensation Committee, consisting of at least
two directors who are "disinterested persons" for Federal securities law
purposes, has administered stock option plans in connection with the granting of
stock options to persons who are executive officers. Messrs. Adley, Marchese and
Peselman currently comprise the Option Compensation Committee.
The Mergers and Acquisitions Committee was formed in February 1996 and
is currently composed of Messrs. Adley, Rolls, and Peselman. Mr. Adley is
Chairman of this committee.
The Investment Committee was formed in December 1996 and is currently
composed of Messrs. Adley, Marchese and Peselman. Mr. Marchese is Chairman of
the Investment Committee. The functions of this committee are to review
investment vehicles which will maximize returns on excess cash and ensure that
current policies and procedures surrounding investment decisions are adhered to.
The Transaction Review Committee was formed in December 1996 and is
currently composed of Messrs. Powell, Marchese and Peselman. Mr. Marchese is
Chairman of the Transaction Review Committee. The functions of this committee
are to review transactions over certain dollar amounts that could be deemed
financially constraining on the Company or potential credit-risks.
Attendance. During the year ended December 31, 1996, the Board of
Directors held 20 meetings, the Audit Committee had 5 meetings and the Special
Committee (which Committee has
-5-
<PAGE>
since been discontinued) had 1 meeting. Each director attended more than 75% of
the meetings of the Board and of the committees of which he was a member.
Directors' Compensation and Indemnification
Directors' fees in the aggregate amount of $18,750 were paid to or
accrued for the old directors with respect to services rendered during the year
ended December 31, 1996, excluding $4,250 of directors' fees accrued with
respect to prior fiscal periods that were paid during the year ended December
31, 1996. Directors no longer receive any cash fees with respect to services
rendered. The only compensation that directors of the Company currently receive
is the grant of stock options pursuant to the Company's 1994 Director's Stock
Option Plan. Under that plan, as amended, non-employee directors elected prior
to December 31, 2004 may be granted options at the discretion of the Option
Compensation Committee subject to the availability of an adequate number of
shares of Common Stock reserved for issuance under the Plan. There are currently
235,500 shares of Common Stock available for issuance (this number will increase
to 1,670,500 shares if the Directors' Option Plan amendment is approved).
EXECUTIVE COMPENSATION
The annual and long-term remuneration paid to or accrued for the Chief
Executive Officer and each of the other five most highly compensated executive
officers of the Company for services rendered during the year ended December 31,
1996, and the annual and long-term remuneration paid to or accrued for the
benefit of the same individuals, for services as executive officers of the
Company during the years ended December 31, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Securities
Annual Compensation Underlying All Other
Name and Principal Salary Bonus(1) Options Compensation
Position Year $ $ (#) ($)
- ------------------ ---- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John J. Powell (2) (10) 1996 15,000 - - 500 (3)
Chief Executive Officer 1995 - - - -
1994 - - - -
Stephen G. Morison (4) (10) 1996 423,275 - - 1,100 (5)
Chief Executive Officer 1995 225,000 32,250 435,500 1,036 (-) (5)
1994 225,000 14,900 - 1,419 (3) (5)
Michael DeSantis, Jr. (6) 1996 174,772 30,744 - 1,165 (3) (5)
Senior Vice President (10) 1995 130,000 43,389 175,000 1,108 (3) (5)
1994 130,000 44,209 - 1,042 (3) (5)
-6-
<PAGE>
William J. Guthlein (7) (10) 1996 134,152 - - 1,155 (3) (5)
Vice President 1995 125,660 9,300 110,000 1,076 (3) (5)
1994 125,660 7,540 - 996 (3) (5)
David W. Parr (8) (10) 1996 99,300 - - 1,108 (3) (5)
Vice President 1995 111,300 9,350 110,000 1,262 (3) (5)
1994 111,300 6,678 - 1,198 (3) (5)
Gregory S. Harper (6) 1996 132,287 14,173 - 1,133(3)(5)
Vice President (10) 1995 90,000 24,490 110,000 1,053(3)(5)
1994 90,000 10,385 - 965(3)(5)
Kevin Kristick (9) 1996 173,889 32,111 - 500(3)
Vice President (10) 1995 86,154 93,758 15,000 500(3)
1994 36,615 29,605 * 500(3)
<FN>
- ------------------------
(1) Includes commissions paid under the Company's incentive program for sales personnel.
(2) Employment commenced November 22, 1996.
(3) Includes $500 paid by the Company during the fiscal year with respect to the Company's 401-K plan.
(4) Employee resigned effective December 3, 1996.
(5) Except as otherwise indicated for those individuals covered by note (3), this amount is the dollar value of insurance
premiums paid by the Company during the fiscal year with respect to term life insurance for the benefit of the named
executive officer. This amount excludes amounts paid by the Company with respect to group life policies.
(6) Employment contract expired January 24, 1997 and not renewed.
(7) Employment terminated January 10, 1997.
(8) Employee resigned September 13, 1996.
(9) Employment contract expired December 31, 1996 and not renewed.
(10) Represents the amount paid as salary in 1996 as reflected on the individual's 1996 W-2 statement filed with the Department
of the Treasury-IRS.
</FN>
</TABLE>
In January 1995, the shareholders, at a special meeting, approved the
adoption of an 18 month severance policy for key employees. The Company's prior
management and the previous board further extended this policy to January 1,
1997.
Effective January 1, 1997, the Company's severance benefit policy covering
the Company's executive officers and other employees was terminated. Employment
agreements between the Company and Messrs. Morison, DeSantis and Harper which
were entered into in connection with the July 1995 Vestex transaction expired on
January 24, 1997 and none of the agreements were renewed.
-7-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Table not included because no options were granted during 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-OPTION VALUES
Number Value of
Of Securities Unexercised
Underlying Unex- in-the-Money
Shares Exercised Options Options
Acquired At FY-End (1) At FY-End ($)
on Value Exer- Unexer- Exer- Unexer-
Name (#) ($) cisable cisable cisable cisable
---- --- --- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John J.
Powell 0 0 - - - -
Stephen G.
Morison 0 0 435,500 - - -
Michael
DeSantis, Jr. 0 0 175,000 - - -
William J.
Guthlein 0 0 55,319 54,681 - -
David W.
Parr 0 0 - - - -
Gregory S.
Harper 0 0 110,000 - - -
Kevin
Kristick 0 0 7,543 - - -
<FN>
- ---------------
(1) Adjusted to reflect the inclusion of a dividend declared on December 17, 1994 on the Company's outstanding Common Stock
payable on shares held of record on January 6, 1995 in the form of shares of such Common Stock at the rate of 0.475 new
shares for each outstanding share.
</FN>
</TABLE>
Compensation Committee Interlocks and Insider Participation
None of the members of the Company's Resource and Compensation
Committee (which at the time of certain of its 1996 deliberations consisted of
Messrs. Dayton, Adley and Killilea, and at the time of its report contained
herein consists of Messrs. Adley, Marchese and Peselman) has ever
-8-
<PAGE>
been an officer or employee of the Company or any of its subsidiaries or has any
relationship with the Company that is required to be disclosed pursuant to Item
404 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as
amended except as described in this paragraph. In April 1996, the Company issued
all 5,000,000 shares of outstanding Series AA Preferred to Vestex Capital
Corporation ("Vestex") for $1,350,000 in cash (less reimbursement of $312,500 of
due diligence and other transactional costs by the Company). In connection with
the 1995 Common Stock Transactions, the Company and Vestex entered into a
consulting agreement which provides for the payment of fees to Vestex under
certain circumstances in exchange for Vestex's assistance in analyzing the
Company's financial alternatives and in structuring and negotiating certain
equity or debt transactions. Under the agreement, if the Company raises at least
$2.5 million of debt or equity capital prior to July 25, 1997, Vestex will
receive a fee equal to 1.5% of new debt capital raised (inclusive of any
third-party brokerage or similar fees) and 7.5% of new equity capital raised
(which shall be reduced to 2.5% if any third-party brokerage or similar fees are
payable in connection with the transaction). In December 1996, the Board of
Directors approved an increase in fees payable to Vestex to 3% of any fees for
new debt capital raised by Vestex. This note has been previously approved by the
stockholders in January 1995 and was then reduced by mutual agreement of the
Company and Vestex. In 1995, the Company paid Vestex $5,000 under a provision of
the agreement which was deleted from the agreement pursuant to an April 1996
amendment. In December 1996, Vestex provided to the Company a $500,000 loan for
one year at 2% above prime rate. In February 1997, Vestex provided to the
Company a $140,000 loan for one year at 2% above prime rate. In March 1997,
Vestex provided to the Company loans of $110,000 one year at 2% above prime
rate. No executive officer of the Company has served as a director or member of
the Resource and Compensation Committee (or other committee serving an
equivalent function) or any other entity any of whose executive officers served
as a director of the Company or member of the Company's Resource and
Compensation Committee.
Report of the Resource and Compensation Committee
The Committee and the Company's Process for Determining Executive
Compensation is as follows:
At the date of this report, the Company's Resource and Compensation
Committee (the "Committee") consists of three directors (Messrs. Adley, Marchese
and Peselman) who are not officers or employees of the Company. The Committee
met in December 1996 to review the Company's overall compensation structure,
assess the performance of key executives, and determine year-end bonuses and
1997 salary adjustments. For the first time in approximately 9 years, the
Committee declined approval of any merit bonuses as a result of consistent poor
operating performance. All of the Committee's recommendations were subsequently
adopted by the Board of Directors.
The Committee solicits the views of the Company's CEO, Mr. Powell, in
regard to the performance of other executive officers and their compensation but
Mr. Powell takes no part in the Committee's deliberations or decisions.
The Company's Option Compensation Committee consists of Messrs. Adley,
Marchese and Peselman. Messrs. Adley, Marchese and Peselman and their successors
are eligible to receive stock
-9-
<PAGE>
option awards only as provided in the formulas approved by the stockholders in
January 1995 and as such formulas may be amended with stockholder approval at
the Meeting or thereafter. This committee met in December 1996 to decide upon
the option grants that would be made after the requisite stockholder approval
was obtained. In accordance with applicable regulations under the Securities
Exchange Act of 1934, as amended, the Option Compensation Committee's awards are
not subject to review by the Board of Directors.
The Company's Executive Officers and Their Mission. As a result of the
financial difficulties experienced by the Company through 1996, the Company's
recently appointed executives have been charged by the Board with the task of
stabilizing the Company in a difficult economic environment. This has included
supervising the downsizing of the Company's assets and personnel, improving its
operations, negotiating appropriate agreements with the Company's lender group,
participating in the Company's search for additional equity capital and
generally preserving or augmenting shareholder values. In connection with these
efforts, members of the former management were terminated, resigned, or
employment contracts expired without renewal. Mr. Powell was appointed CEO and
President in December 1996.
Compensation Elements and Executive Incentives. The executive officers'
overall compensation package is designed both (1) to reflect the Committee's
assessment of the officers' efforts to date to carry out the stated policy of
stabilizing the Company, and (2) to offer incentives to the officers to succeed
in maximizing shareholder value. This involved a combination of base salary
(reviewed and adjusted annually), year-end cash bonuses, and, at times, stock
options. The executive officer's original base salaries were negotiated at arm's
length when each officer joined the Company. The Committee believes the
executive officers' current total compensation to be generally within the middle
range of salaries prevailing within the industry according to the most recent
wage and compensation survey published by the Equipment Leasing Association of
America. While it is the Committee's general policy to maintain the Company's
position within this middle range, unusually good or bad performance by officers
could lead the Committee in its discretion on an annual basis in light of the
Committee's assessment of the officers' efforts as well as other factors. Stock
options and stock awards offer a longer-term incentive and are granted as
described below. As optionholders and stockholders, the Company's executive
officers have a personal financial interest in maximizing shareholder values.
This tends to align management's interests with those of other shareholders,
which the Committee believes is particularly important in a financial
turn-around situation such as the Company's.
Criteria for Making Compensation Decisions. The Committee bases its
annual compensation decisions on a number of factors. These include the
Committee's assessment of the quantity and quality of each executive officer's
efforts towards achieving the Company's mission of stabilizing its financial
situation and preserving shareholder value; the Company's overall performance in
that regard; and general economic trends, such as the current low rate of
inflation. These factors are not assigned by any pre-determined weightings, and
the Committee is free to use its discretion in each year in assessing such
factors. As a result of the restructuring efforts, there were no salary
increases in 1996.
-10-
<PAGE>
CEO Compensation. As CEO and President, Mr. Powell has overall
authority over all areas of the Company's operations, unlike the other executive
officers, who are primarily responsible for specific line or staff functions. As
a result, the Committee accords greater weight in Mr. Powell's case to the
Company's overall achievement of its mission including its overall financial
results.
The Committee does not base Mr. Powell's bonus on the attainment of
predetermined financial results or other quantitative benchmarks, but on its
assessment of year-end results in light of year-end economic conditions, and
such other important factors including its assessment of Mr. Powell's judgment,
initiative and ability to manage and inspire and to negotiate and close
transactions. That the Company has survived, transformed its operations and
achieved considerable efficiency in difficult times is, the Committee believes,
largely a result of the restructuring of the Company and the Company-wide
rededication of efforts that Mr. Powell has led.
Stock Option Awards, Stock Awards and Employee Stock Purchase Plan. The
Option Compensation Committee has discretion as to when to award options or
stock, which executives to include in the awards, and how many options or shares
of stock to award.
As part of the original terms of the original Recapitalization
Agreement, Vestex insisted that substantially all outstanding employee stock
options (most of which had exercise prices of $1.25 per share) be canceled and
new options granted under a new stock option plan (the "1994 Stock Option
Plan"). After negotiations between Vestex and Chancellor, it was agreed that a
total of 1,207,000 options would be made available to employees under the 1994
Stock Option Plan. It was also agreed that all 1,207,000 options would be
granted to employees by the Option Compensation Committee, at exercise prices
which approximated the current trading price range of the Company's Common Stock
at the time of the grant, after the 1994 Stock Option Plan was approved by the
Stockholders in January 1995, with no remaining options to be reserved for
future grants to employees except to the extent that some of the 1,207,000
options may subsequently lapse unexercised.
At the suggestion of Vestex, the Committee also considered in 1994 the
benefits of an employee stock purchase plan (the "1994 Employee Stock Purchase
Plan") that would entitle all employees of the Company to purchase Common Stock
at a discount from prevailing trading prices. The 1994 Employee Stock Purchase
Plan permits participation on the part of all employees, not merely key
executives, and was approved by stockholders in January 1995, although no
options to purchase Common Stock under the 1994 Employee Stock Purchase Plan
have to date been granted.
Later in 1995, at Vestex's suggestion, the Committee considered the
benefits of awarding to employees, as a further equity incentive, instead of
transferring to Vestex, 1,023,739 of the 3,870,315 shares formerly held by
Bruncor. The Committee approved these awards in July 1995.
In connection with the Company's restructuring plan, a 1997 Stock
Option Plan has been proposed and was approved by the Board of the Company on
March 20, 1997. The 1997 Stock Option Plan provides for the additional
authorization of 2,500,000 shares of the Company's Common Stock and is subject
to approval by the stockholders at the Meeting.
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<PAGE>
Other Compensation Elements. The Company has chosen to make provisions
for its employees' retirements through a voluntary contributory 401(k) plan, in
which employees decide individually whether and how much of their compensation
to invest in a variety of professionally managed tax-deferred investment
portfolios selected by the plan trustees. The Company matches each employee's
contributions up to a maximum of $500 per year for each individual. The
Committee believes that such a voluntary employee savings plan addresses the
varying needs of its employees better than a mandatory company-funded plan or a
plan whose future benefits are determined in advance rather than determined by
investment performance.
The Company's former severance policy was developed primarily to
provide Company employees with a measure of financial benefits in the event they
were displaced by the industry-wide down-sizing trend in which the Company has
been a participant. In the case of executive officers, the Committee believes
that the severance policy also made it possible for the Company to attract and
hire qualified personnel on a termination-at-will basis. The ability to make
immediate personnel changes (including changes in executives) was important to
the Company, in the Committee's estimation, in order to address the challenges
that confront the Company's operations. After discussions with Vestex, the
Committee concluded that it was appropriate to eliminate the Company's severance
benefits, effective for terminations occurring on or after January 1, 1997. It
was pointed out that, when coupled with the adoption of the 1994 Stock Option
Plan, the 1994 Employee Stock Purchase Plan and the 1995 stock awards, the
elimination of the severance policy would lessen the "downside" protection of
employees at a time when their "upside" equity incentives were being increased
in a company which was about to experience a substantial capital infusion.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction
to public companies for compensation over $1 million paid to the corporation's
Chief Executive Officer or any of its four other most highly compensated
executive officers. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. This new
limitation is unlikely to affect the Company because none of its executive
officers currently receives cash compensation over $300,000 and none holds or
expects to receive stock options except options which meet the requirements of
Section 162(m). The Company's 1997 Stock Option Plan and 1994 Stock Option Plan
are intended to comply generally with Section 162(m), but there can be no
assurance that every future option grant under such plans will have no potential
for disallowance of deductibility inasmuch as the Plan grants the Committee
discretion to make grants with exercise prices that are less than fair market
value.
Respectfully Submitted
Brian M. Adley
Michael Marchese
Rudolph Peselman
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<PAGE>
Stock Performance Graph
The chart which appears below sets forth the percentage change, on an
annual basis, in the cumulative total return on the Company's Common Stock since
December 31, 1991 (the last trading day of 1991) through December 31, 1996 (the
last trading day of 1996). For comparative purposes, changes in the cumulative
total return on three indices of publicly traded stocks (the "Indices") are also
set forth on the chart. The CRSP Total Return Index for the NASDAQ National
Market (U.S. Companies) reflects the total return of approximately 4,000 stocks
in all industries which are traded on the NASDAQ National Market ("NNM"). The
Company's Common Stock is traded on the Electronic Bulletin Board at present.
Stocks on the Electronic Bulletin Board have lower average capitalization than
stocks on the NNM. The other two Indices are described in note (1) below.
The chart begins with an equal base value of $100 for the Company's
stock and for each of the Indices on December 31, 1991, and reflects year-end
trading prices and dividends paid. The chart assumes full reinvestment of
dividends. Information about the Indices has been obtained from sources believed
to be reliable, but neither the accuracy nor the completeness of such
information is guaranteed by the Company.
Comparison of Five Year Cumulative Total Return* Among Chancellor Corporation,
CRSP Total Return Index for the NASDAQ National Market (U.S. Companies), NASDAQ
Financial Stocks and NASDAQ Trucking & Transportation Stocks**(1)
Assumes $100 invested on December 31, 1991 in
each of the listed indices.
Total Return Assumes Reinvestment of Dividends
**Fiscal Year Ending December 31
(graph with legend)
Chancellor Total U.S. Finance Cos. Trucking & Trans
1991 100.00 100.00 100.00 100.00
1992 290.90 116.37 143.02 122.375
1993 181.81 133.59 166.22 148.676
1994 27.27 130.58 166.62 134.816
1995 107.27 184.67 242.61 157.209
1996 25.74 227.14 311.08 173.659
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(1) Chancellor's business has similarities with both the non-bank finance
industry and the trucking and transportation industry. As a leasing company with
a portfolio of leased assets and an underwriting and syndication function,
Chancellor is comparable with other finance companies. Chancellor's performance
is also substantially influenced by the trucking and transportation industry
since the Company's primary focus is leasing transportation equipment. Strong
demand for trucking and transportation equipment will increase the Company's
opportunities for new business syndication. Furthermore, strong demand for new
vehicles will tend to bolster used equipment
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<PAGE>
prices which improves the Company's revenues for off lease equipment.
Consequently, both a Finance Company index and a Trucking and Transportation
index are provided for comparison purposes.
APPROVAL OF 1997 STOCK OPTION PLAN
Introduction
In the opinion of the Board of Directors, the future success of the
Company depends, in large part, on its ability to attract, retain and motivate
key officers, directors and employees and to provide value for the Company's
stock. This will be particularly true in the Company's turn-around situation.
Accordingly, on March 20, 1997 the Board of Directors adopted, subject to
stockholder approval, the Company's 1997 Stock Option Plan (the "Plan"). A total
of 2,500,000 shares will be available for grant to employees. In connection with
the approval of the proposed Plan, Brian M. Adley, Chairman of the Board and
majority stockholder, will contribute to the Company 500,000 shares of
beneficially owned Common Stock of the Company which can be used for grant in
connection with the Plan. There will not be any other authorized options
available for future grant to employees, except that options which lapse
unexercised may be regranted.
Description of the Plan
The Plan covers a total of 2,500,000 shares of Common Stock. Options on
the entirety may be awarded under the Plan to employees of the Company
(including employees who are directors), consultants who are not employees and
other affiliates of the Company as defined below. Not more than 2,500,000 shares
may be issued to any individual pursuant to the exercise of options granted
under the Plan, during the ten-year life of the Plan. The Plan provides for the
grant of options intended to qualify as incentive stock options under Section
422A of the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive
Stock Options"), and options which are not Incentive Stock Options
("Non-Statutory Stock Options").
Only employees of the Company or its subsidiaries (approximately 30
persons) may be granted Incentive Stock Options. Affiliates of the Company,
defined as employees of the Company, members of the Company's Board of
Directors, or persons associated with the Company in such other capacity or
relationship as may be permitted by the Board of Directors, may be granted Non-
Statutory Stock Options. Except as provided below, no person may be granted any
option under the Plan who, at the time such option is granted, owns Common Stock
of the Company possessing more than 10% of the combined voting power of all
classes of stock of the Company.
The Option Compensation Committee of the Board of Directors, consisting
of at least two directors who are "disinterested persons" for federal securities
laws purposes and "outside directors" for purposes of Section 162(m) of the
Code, will administer the Plan, select the persons to whom options are granted
and fix the terms of such options. In order to comply with certain rules under
Section 16(b) of the Securities Exchange Act of 1934, option grants are not
subject to approval by the full Board of Directors.
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<PAGE>
The exercise date of an option granted under the Plan will be fixed by
the Committee, but may not be later than ten years from the date of grant.
Options may be granted under the Plan until March 20, 2007. Options may be
exercised in such installments as are fixed by the Committee.
Options under the Plan will not be transferable by the optionee other
than by will or the laws of descent and distribution, although they may be
exercised during the optionee's lifetime by his/her legal representative if
he/she becomes incapacitated. All options must be exercised within three months
after termination of the optionee's affiliation with the Company, except that
options shall remain outstanding for their entire term following termination due
to death or for one year following termination due to permanent disability.
The exercise price of Incentive Stock Options granted under the Plan
must be at least equal to the fair market value of the Common Stock, as
determined by the Board of Directors, on the date of grant. Non-Statutory Stock
Options may be granted at exercise prices not less than 100% of the fair market
value of the Common Stock on the date of the grant or less than 110% of such
fair market value in the case of options granted to an employee who at the time
of grant possess more than 10% of the total combined voting power of all classes
of stock of the Company. The Option Compensation Committee is authorized to
determine, in its discretion, the exercise price of other options, including any
options that may be regranted to employees after their original grant has lapsed
unexercised.
The Plan provides for automatic adjustment to the number of shares of
Common Stock issuable upon exercise of options granted under the Plan to reflect
stock dividends, stock splits, reorganizations, mergers and various other
transactions occurring after the date of grant. Payment for shares purchased
upon exercise of an option must be made in cash or, at the Committee's
discretion, by delivery of shares of Common Stock of the Company, or by a
combination of such methods.
The Company's Board of Directors may at any time amend or revise the
terms of the Plan, except that no such amendment or revision may be made without
the approval of the holders of a majority of the Company's outstanding capital
stock, voting together as a single class, if such amendment or revision would
(a) materially increase the number of shares which may be issued under the Plan
(other than changes in capitalization), (b) increase the maximum term of
options, (c) decrease the minimum option price, (d) permit the granting of
options to anyone not included within the Plan's eligible categories, (e) extend
the term of the Plan or (f) materially increase the benefits accruing to
eligible individuals under the Plan. Vestex Capital Corporation has ultimate
power to determine any amendments or revisions to the Plan since it holds more
than a majority of the Company's outstanding stock entitled to vote on such
amendments or revisions as well as the power to designate a majority of the
Company's directors.
The Plan contains the following terms and conditions required in order
to permit treatment of the options granted thereunder as "incentive stock
options:" (i) all incentive stock options must be expressly designated as such
at the time of grant and (ii) if any person to whom an incentive stock option is
granted owns, at the time of the grant of such option, Common Stock possessing
more than 10% of the combined voting power of all classes of the Company, then
(a) the purchase price per share of the Common Stock subject to such option
shall not be less than 110% of the fair market
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<PAGE>
value of one share of Common Stock at the time of grant and (b) the exercise
period shall not exceed five years from the date of grant.
Federal Income Tax Consequences
Options granted under the 1997 Stock Option Plan may be either
"Incentive Stock Options," as defined in Section 422 of the Code, or
Non-Statutory Stock Options.
Incentive Stock Options. If an option granted under the 1997 Stock
Option Plan is an Incentive Stock Option, the optionee will recognize no income
upon grant of the Incentive Stock Option and incur no tax liability due to the
exercise unless the optionee is subject to the alternative minimum tax. The
Company will not be allowed a deduction for federal income tax purposes as a
result of the exercise of an Incentive Stock Option regardless of the
applicability of the alternative minimum tax. The net federal income tax effect
on the holder of Incentive Stock Options is to defer, until the stock is sold,
taxation of any increase in the stock's value from the time of grant to the time
of exercise. Upon the sale or exchange of the shares at least two years after
grant of the option and one year after receipt of the shares by the optionee any
gain will be treated as long-term capital gain. If these holding periods are not
satisfied, the optionee will recognize ordinary income equal to the difference
between the exercise price and the lower of the fair market value of the stock
at the date of the option exercise or the sale price of the stock. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is also an officer, director, or 10% stockholder of the Company.
The Company will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Any gain recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as capital gain.
For purposes of the "alternative minimum tax" applicable to individuals
an Incentive Stock Option is treated the same as a Non-Statutory Stock Option.
Thus, in the year of option exercise an optionee must generally include in his
alternative minimum taxable income the difference between the exercise price and
the fair market value of the stock on the date of exercise. The alternative
minimum tax is imposed upon an individual's alternative minimum taxable income
at a rate of 26% to 28%, but only to the extent that such tax exceeds the
taxpayer's regular income tax liability for the taxable year.
Non-Statutory Stock Options. All other options which do not qualify as
Incentive Stock Options are referred to as Non-Statutory Stock Options. An
optionee will not recognize any taxable income at the time he is granted a
Non-Statutory Stock Option. However, upon its exercise, the optionee will
recognize ordinary income for tax purposes measured by the excess of the then
fair market value of the shares over the option price. In certain circumstances,
where the shares are subject to a substantial risk of forfeiture when acquired
or where the optionee is an officer, director or 10% stockholder of the Company,
the date of taxation may be deferred unless the optionee files an election
within 30 days of exercising the option with the Internal Revenue Service under
Section 83(b) of the Code. The income recognized by an optionee who is also an
employee of the Company will be subject to tax withholding by the Company by
payment in cash, or by means of withholding shares which would otherwise be
received by the optionee or out of the current earnings paid to the
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<PAGE>
optionee. Upon resale of such shares by the optionee, any difference between the
sales price and the exercise price increased by amounts recognized as ordinary
income as provided above, will be treated as capital gain or loss.
The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the optionee with respect to shares acquired
upon exercise of a Non-Statutory Stock Option.
The foregoing is only a summary of the effect of federal income tax
upon the optionee and the Company with respect to the grant and exercise of
options under the Plan, does not purport to be complete, and does not discuss
the income tax laws of any municipality, state or foreign country in which an
optionee may reside.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS BELIEVES THE ADOPTION OF THE PROPOSED 1997 STOCK
OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
THEREFORE RECOMMENDS A VOTE FOR THE PROPOSAL. THE PLAN WILL NOT BECOME EFFECTIVE
UNLESS IT IS APPROVED BY THE STOCKHOLDERS AT THE MEETING.
AMENDMENT TO 1994 DIRECTORS' STOCK OPTION PLAN
Introduction
On January 20, 1995, the Company's stockholders approved the 1994
Directors' Stock Option Plan (the "Directors' Option Plan") which had previously
been adopted, subject to stockholder approval, by the Board of Directors on
August 12, 1994. Options to purchase a total of 565,000 shares of Common Stock
may be granted under the Directors' Option Plan to directors who are not
employees. The stockholders approved an Amendment to the Directors' Option Plan
as set forth in the Proxy Statement for the Company's June 6, 1996 Annual
Meeting for determining the number of options to be granted to each director
individually (depending on the mix of such director's overall compensation
between options and cash fees) and the per share exercise prices of such
options. In light of the resignation of certain directors in December 1996 and
the proposed elimination of cash fees to directors, the Board is proposing an
amendment to the Directors' Option Plan revising the number of options available
for grant in the aggregate and individually to each director.
Proposed Amendment
On December 30, 1996, the Company's Board of Directors adopted an
amendment (the "Amendment") to the Directors' Option Plan, subject to
stockholder approval at the Company's August 29, 1997 Annual Meeting. The
Amendment provides for increasing the number of shares of Common Stock available
for grant pursuant to the Directors' Option Plan from 565,000 shares to
2,000,000 shares. Additionally, the Amendment provides that the maximum number
of shares
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<PAGE>
of Common Stock which may be granted to any individual director is increased
from 150,000 shares to 200,000 shares.
Description of the Directors' Option Plan
Options on 565,000 shares may be awarded under the Directors' Option
Plan to directors who are not employees (this number will increase to 2,000,000
if the Amendment is approved). Not more than 150,000 shares may currently be
issued to any individual under the Directors' Option Plan during the life of the
Directors' Option Plan (this number will increase to 200,000 if the Amendment is
approved). The Directors' Option Plan provides for the grant of options which
are not Incentive Stock Options under Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code") ("Non-Statutory Stock Options"). Members of the
Company's Board of Directors may be granted Non-Statutory Stock Options.
The Option Compensation Committee of the Board of Directors, consisting
of at least two directors who are "outside directors" for purposes of Section
162(m) of the Code, will administer the Director's Option Plan, select the
persons to whom options are granted and fix the terms of such options.
The exercise date of an option granted under the Directors' Option Plan
will be fixed by the Committee, but may not be later than ten years from the
date of grant. Options may be granted under the Directors' Option Plan through
December 31, 2004. Options may be exercised in such installments as are fixed by
the Committee.
Options under the Directors' Option Plan will not be transferable by
the optionee other than by will or the laws of descent and distribution,
although they may be exercised during the optionee's lifetime by his legal
representative if he becomes incapacitated. All options must be exercised within
three months after termination of the optionee's affiliation with the Company,
except that options shall remain outstanding for their entire term following
termination due to death or for one year following termination due to permanent
disability.
The Directors' Option Plan provides for automatic adjustment to the
number of shares of Common Stock issuable upon exercise of options granted under
the Directors' Option Plan to reflect stock dividends, stock splits,
reorganizations, mergers and various other transactions occurring after the date
of grant. Payment for shares purchased upon exercise of an option must be made
in cash or, at the Committee's discretion, by delivery of shares of Common Stock
of the Company, or by a combination of such methods.
The Company's Board of Directors may at any time amend or revise the
terms of the Directors' Option Plan, except that no such amendment or revision
may be made without the approval of the holders of a majority of the Company's
outstanding capital stock, voting together as a single class, if such amendment
or revision would (a) materially increase the number of shares which may be
issued under the Directors' Option Plan (other than changes due to changes in
capitalization), (b) increase the maximum term of options, (c) decrease the
minimum option price, (d) permit the granting of options to anyone not included
within the Plan's eligible categories, (e)
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<PAGE>
extend the term of the Plan or (f) materially increase the benefits accruing to
eligible individuals under the Plan.
Federal Income Tax Consequences
Non-Statutory options granted under the 1994 Stock Option Plan will not
qualify as "Incentive Stock Options," as defined in Section 422 of the Code.
An optionee will not recognize any taxable income at the time he is
granted a Non-Statutory Option. However, upon its exercise, the optionee will
recognize ordinary income for tax purposes measured by the excess of the then
fair market value of the shares over the option price. In certain circumstances,
where the shares are subject to a substantial risk of forfeiture when acquired
or when the optionee is an officer, director or 10% stockholder of the Company,
the date of taxation may be deferred unless the optionee files an election
within 30 days of exercising the option with the Internal Revenue Service under
Section 83(b) of the Code. The income recognized by an optionee who is also an
employee of the Company will be subject to tax withholding by the Company by the
payment in case, or by means of withholding shares which would otherwise be
received by the optionee or out of the current earnings paid to the optionee.
Upon resale of such shares by the optionee, any difference between the sales
price and the exercise price increased by amounts recognized as ordinary income
as provided above, will be treated as capital gain or loss.
The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the optionee with respect to shares acquired
upon exercise of a Non-Statutory Option.
The foregoing is only a summary of the effect of federal income tax
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Option Plan, does not purport to be complete, and
does not discuss the income tax laws of any municipality, state or foreign
country in which an optionee may reside.
Recommendation of the Board of Directors
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR THE AMENDMENT.
AMENDMENT OF ARTICLES OF ORGANIZATION
The Board of Directors has resolved to recommend to the stockholders
that the Company amend the Company's Articles of Organization to increase the
number of authorized shares of Common Stock from 30,000,000 to 75,000,000 shares
and of Preferred Stock from 10,000,000 to 20,000,000 shares. Shares of the
Company's Common Stock and Preferred Stock, including the additional shares
proposed for authorization, do not have preemptive or similar rights.
If this proposal is approved and after giving effect to shares reserved
for issuance under the Company's stock plans, and shares reserved for issuance
upon the exercise of outstanding warrants, options and other commitments, the
Board of Directors will have the authority to issue approximately an additional
62,899 (as of July 30, 1997) shares of Common Stock (assuming the
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<PAGE>
outstanding Series AA Preferred are not converted) and 2,000,000 shares of
Preferred Stock without further stockholder approval. The Board of Directors of
the Company believes that the increase in the number of authorized shares of
Common Stock and Preferred Stock is in the best interests of the Company and its
stockholders. The Board of Directors believes that the authorized Common Stock
and Preferred Stock should be increased to provide sufficient shares for such
corporate purposes as may be determined by the Board of Directors to be
necessary or desirable. These purposes may include facilitating broader
ownership of the Company's Common Stock and Preferred Stock by effecting a stock
split or issuing a stock dividend, raising capital or acquiring technology
rights through the sale of stock, or attracting or retaining valuable employees
by the issuance of stock options, although the Company at present has no
commitments, agreements or undertakings obligating the Company to issue any such
additional shares. The Board of Directors, however, considers the authorization
of additional shares of Common Stock and Preferred Stock advisable to ensure
prompt availability of shares for issuance should the occasion arise.
Under the Massachusetts Business Corporation Law, the Board of
Directors generally may issue authorized but unissued shares of Common Stock and
Preferred Stock without further stockholder approval. The Board of Directors
does not currently intend to seek stockholder approval prior to any future
issuance of additional shares of Common Stock and Preferred Stock, unless
stockholder action is required in a specific case by applicable law, the rules
of any exchange or market on which the Company's securities may then be listed,
or the Charter or By-Laws of the Company then in effect. Frequently,
opportunities arise that require prompt action, and the Company believes that
delay necessitated for stockholder approval of a specific issuance could be to
the detriment of the Company and its stockholders.
The Board of Directors believes that the increase in the number of
authorized shares of undesignated Common Stock and Preferred Stock is in the
best interests of the Company and its stockholders, since the complexity of
modern business financing requires greater flexibility in the Company's capital
structure than now exists. The additional Common Stock and Preferred Stock to be
authorized would be available for issuance from time to time for any proper
corporate purpose, including public or private sale for cash as a means of
obtaining capital for the use in the Company's business or for the acquisition
by the Company of other businesses or assets. The Board of Directors believes
that having additional shares of Common Stock and Preferred Stock will provide
the flexibility and facility for finding financing sources quickly consummating
any such transaction. Additionally, from time to time, the Company is involved
in various discussions with other companies relating to the acquisition of
complementary products or services, or other forms of business combinations
involving the Company. However, the Company has no present commitments or
agreements relating to any potential acquisitions or financing. The Board of
Directors, however, consider the authorization of such additional shares
advisable to ensure prompt availability of shares for issuance should the
occasion arise.
The additional shares of Common Stock and Preferred Stock authorized
for issuance pursuant to this proposal will have the rights and privileges which
the presently outstanding shares of Common Stock and Preferred Stock possess
under the Company's Charter. The increase in authorized shares would not affect
the terms or rights of holders of existing shares of Common Stock and Preferred
Stock. The rights of the holders of Common Stock and Preferred Stock, however,
are subordinate to the rights of the holders of the Preferred Stock in certain
instances. All outstanding
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<PAGE>
shares of Common Stock and Preferred Stock would continue to have one vote per
share on all matters to be voted on by the stockholders, including the election
of directors.
The issuance of any additional shares of Common Stock and Preferred
Stock by the Company may, depending on the circumstances under which those
shares are issued, reduce stockholders' equity per share and may reduce the
percentage ownership of Common Stock and Preferred Stock of existing
stockholders. The Company expects, however, to receive consideration for any
additional shares of Common Stock and Preferred Stock issued, thereby reducing
or eliminating the economic effect to each stockholder of such dilution.
The authorized but unissued shares of Common Stock and Preferred Stock
could be used to make more difficult a change in control of the Company. For
example, such shares could be sold to purchasers who might side with the Board
of Directors in opposing a takeover bid that the Board determines not to be in
the best interests of the Company and its stockholders. Such a sale could have
the effect of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of shares of the Company's Common Stock and
Preferred Stock, to acquire control of the Company, since the issuance of new
shares could be used to dilute the stock ownership of the acquirer. Neither the
Charter nor By-Laws of the Company now contain any provisions that are generally
considered to have an anti-takeover effect, and the Board of Directors does not
now plan to propose any anti-takeover measures in future proxy solicitations.
The Company is not aware of any pending or threatened efforts to obtain control
of the Company, and the Board of Directors has no current intention to use the
additional shares of Common Stock and Preferred Stock to impede a takeover
attempt.
Approval of the amendment to increase the number of authorized shares
of Common Stock and Preferred Stock will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock and Preferred
Stock of the Company represented in person or by proxy and entitled to vote at
the Meeting. Abstentions will have the same effect as a vote against the
proposal; broker non-votes will have no outcome on the vote.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S CHARTER TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK FROM 30,000,000 TO 75,000,000 SHARES AND PREFERRED STOCK FROM
10,000,000 TO 20,000,000 SHARES.
OTHER INFORMATION
Proxy Solicitation
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, the officers and regular employees of the
Company may solicit proxies personally or by telephone.
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Other Business
The Board of Directors knows of no other matter to be presented at the
meeting. If any additional matter should properly come before the meeting, it is
the intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their judgment on any such matters.
Principal Stockholders
As of the close of business on July 18, 1997, the record date for the
meeting, there were 20,186,391 shares of Common Stock outstanding and 8,000,000
shares of Series AA Convertible Preferred Stock outstanding. Stockholders of the
Company are entitled to one vote for each share held of record at the close of
business on the record date.
The number of shares of Common Stock beneficially owned by the persons
or entities known by management to be the beneficial owners of more than 5% of
the outstanding shares, the number of shares beneficially owned by each
director, each nominee for election or re-election as a director and each
executive officer, the number of shares beneficially owned by all directors and
officers as a group, as of the record date, as "beneficial ownership" has been
defined under rules promulgated by the Securities and Exchange Commission, and
the actual sole or shared voting power of such persons, as of the record date,
are set forth in the following table.
<TABLE>
<CAPTION>
Name and Common Stock Percentage
Address of Beneficially of Shares Voting Power (1)
Beneficial Owner Owned Outstanding Shares Percentage
---------------- ------------ ----------- ------ ----------
<S> <C> <C> <C> <C>
Vestex Capital
Corporation (2) (10) 24,650,000 (3) 87.5 24,650,000 (3) 87.5
Brian M. Adley (2) 24,725,000 (3)(4)(5) 87.7 24,650,000 (3) (4) 87.5
John J. Powell (6) 0 * 0 *
Rudolph Peselman (7) 37,500 (5) * 0 *
Michael Marchese (8) 37,500 (5) * 0 *
Ernest Rolls (9) (10) 37,500 (5) * 0 *
Directors and
Executive Officers as
a Group (5 persons) 24,837,500 (3)(4)(5) 88.1 24,650,000 (3) (4) 87.5
<FN>
- ---------------
-22-
<PAGE>
*Less than one percent (1.0%)
(1) Number of votes of which each person is entitled to cast expressed as a number and as a percentage of all votes which all
stockholders are entitled to cast at the Meeting; assumes no exercise of stock options.
(2) This stockholder's address is 12 Waltham Street, Lexington, MA 02173.
(3) Assumes conversion of 8,000,000 shares of Outstanding Series AA Preferred into a like number of shares of Common Stock.
(4) Includes all shares owned by Vestex Capital Corporation reported above. Mr. Adley has sole or shared voting power as to all
such shares.
(5) Includes 75,000, 37,500, 37,500 and 37,500 shares which Mr. Adley, Mr. Peselman, Mr. Marchese, and Mr. Rolls, respectively,
are entitled to acquire through the exercise of outstanding stock options prior to December 1997.
(6) This person maintains a business address c/o the Company.
(7) This person maintains an address at 745 Atlantic Avenue, Boston, MA 02111
(8) This person maintains an address at 745 Atlantic Avenue, Boston, MA 02111
(9) This person maintains an address at 5760 NW 22nd Avenue, Boca Raton, FL 33496.
(10) Approximately 3,500,000 shares are subject to an agreement pursuant to which the shares may be transferred to a company
controlled by Ernest L. Rolls, Vice Chairman of the Company.
</FN>
</TABLE>
Certain Exchange Act Reporting Matters
Vestex Corporation filed a Form 4 on August 19, 1996 disclosing an
inter-company transfer of 1,600,000 shares of the Company's common stock. Vestex
Capital Corporation filed a Form 3 on August 19, 1996 disclosing the acquisition
of 1,600,000 shares of the Company's common stock and 5,000,000 shares of the
Company's Series AA Convertible Preferred Stock. Brian M. Adley filed a Form 4
on August 19, 1996 disclosing that he is the controlling stockholder of Vestex
Capital Corporation, the direct beneficial owner of 1,600,000 shares of the
Company's common stock and 5,000,000 shares of the Company's Series AA
Convertible Preferred Stock. John J. Powell filed a Form 3 that he had become an
executive officer of the Company on November 22, 1996. Rudolph Peselman and
Michael Marchese each filed a Form 3 on May 22, 1997 disclosing that they are
directors of the Company.
Deadline for Submission of Stockholder Proposals
Stockholders may present proposals for inclusion in the 1998 Proxy
Statement provided that such proposals are received by the Clerk of the Company
no later than January 30, 1998 and are otherwise in compliance with applicable
Securities and Exchange Commission regulations.
-23-
<PAGE>
Additional Information; Incorporation by Reference
Accompanying this Proxy Statement is a copy of the Company's Annual
Report on Form 10- K for the year ended December 31, 1996. The Annual Report on
Form 10-K constitutes the Company's Annual Report to its Stockholders for
purposes of Rule 14a-3 under the Securities Exchange Act of 1934.
The following sections of the Company's Annual Report on Form 10-K are
hereby specifically incorporated by reference into this Proxy Statement: Item 5,
Market for the Company's Common Equity and Related Stockholders' Matters; Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations; and Item 14, Financial Statements.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549 at the following regional offices of the Commission:
500 West Madison, 14th Floor, Chicago, Illinois 60661-2511 and 7 World Trade
Center, New York, New York 10048. Copies of such material may be obtained upon
payment of the Commission's customary charges by writing to the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549.
Stockholders who have questions in regard to any aspect of the matters
discussed in this Proxy Statement should contact John J. Powell of the Company
at (617) 728-8500.
-24-
<PAGE>
CHANCELLOR CORPORATION
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are discussed
in detail in the proxy materials that have been sent to stockholders.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Special Meeting in Lieu of Annual
Meeting of Shareholders, on August 29, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Chancellor Corporation
<PAGE>
CHANCELLOR CORPORATION
745 Atlantic Avenue, Boston, MA 02111
Special Meeting in Lieu of Annual Meeting of Stockholders, on August 29, 1997
The undersigned hereby appoints John J. Powell and Brian M. Adley, and each or
either of them, with full power of substitution, as proxies and attorneys in
fact, to vote and act at the Special Meeting in lieu of the Annual Meeting (the
"Meeting") of Stockholders of Chancellor Corporation (the "Company"), to be held
August 29, 1997, at the offices of Sullivan & Worcester LLP, One Post Office
Square, 23rd Floor, Boston, Massachusetts and at any adjournment thereof, in
respect of all shares of common stock, par value $.01 per share, of the Company
with respect to which the undersigned would be entitled to vote and act if
personally present.
The undersigned hereby acknowledges receipt of the Notice of the Meeting and the
accompanying Proxy Statement and hereby directs said proxies, or their
substitutes, to vote and act on the following matters set forth in such Notice
and Proxy Statement as specified by the undersigned. You may revoke this Proxy
by submitting a proxy bearing a latter date or by voting in person if you attend
the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CHANCELLOR CORPORATION AND
WILL BE VOTED AS DIRECTED, IF NO CHOICE IS INDICATED, IT WILL BE VOTED "FOR" ALL
ITEMS AND IN THE DISCRETION OF THE PROXIES AS TO ANY OTHER MATTER WHICH MAY
PROPERLY COME BEFORE THIS MEETING.
- ----------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED
<PAGE>
Please sign this proxy exactly as your name appears on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- ----------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
<PAGE>
<TABLE>
<CAPTION>
PROXY CARD
X PLEASE MARK VOTES
AS IN THIS EXAMPLE
<S> <C> <C> <C> <C>
For Withhold
1. Fixing the number of directors at seven and
electing the two Class I nominees and two Class II
nominees listed below. ________ ________
Brian M. Adley ________ ________
Ernest Rolls ________ ________
Michael Marchese ________ ________
Rudolph Peselman ________ ________
2. Approve the adoption of the For Against Abstain
Company's 1997 Stock Option
Plan. ________ ________ ________
3. Approval of an amendment to For Against Abstain
the Company's 1994 Director
Stock Option Plan. ________ ________ ________
4. Approval of amendment to the
Company's charter authorizing
a total of 75,000,000 shares of For Against Abstain
Common Stock and 20,000,000
shares of Preferred Stock. ________ ________ ________
5. In their discretion, such other
matters as may properly come For Against Abstain
before the meeting or any
adjournment thereof. ________ ________ ________
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date
Shareholder sign here_________________________ Co-owner sign here_________________________
Mark box at right if comments or address
change have been noted on the reverse of
this card. __________
</TABLE>
<PAGE>
CHANCELLOR CORPORATION
1997 STOCK OPTION PLAN
April __,1997
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Chancellor Corporation
(the "Company") and its shareholders the benefits arising from capital stock
ownership by employees, officers and directors of, and consultants or advisors
to, the Company and its parent and subsidiary corporations who are expected to
contribute to the Company's future growth and success. Except where the context
otherwise requires, the term "Company" shall include the parent and all present
and future-subsidiaries of the Company as defined in Sections 424(e) and 424(f)
of the Internal Revenue Code of 1986, as amended or replaced from time to time
(the "Code"). Those provisions of the Plan which make express reference to
Section 422 shall apply only to incentive Stock Options (as that term is defined
in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan may be
either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code or Non-Statutory Options which are not
intended to meet the requirements of Section 422 of the Code ("Non-Statutory
Options").
(b) Administration.
(i) The Plan will be administered by the Board of Directors of
the Company, whose construction and interpretation of the terms and provisions
of the Plan shall be final and conclusive. The Board of Directors may in its
sole discretion grant options to purchase shares of the Company's Common Stock
("Common Stock") and issue shares upon exercise of such options as provided in
the Plan. The Board shall have authority, subject to the express provisions of
the Plan, to construe the respective option agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective option agreements, which
need not be identical, and to make all other determinations which are, in the
judgment of the Board of Directors, necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or in any option
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency. No
director or person acting pursuant to authority delegated by the Board of
Directors shall be liable for any action or determination under the Plan made in
good faith.
<PAGE>
(ii) The Board of Directors may, to the full extent permitted
by or consistent with applicable laws or regulations and Section 3(b) of this
Plan delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act""), or any successor rule ("Rule 16b-3"), or
which are required in order for certain option transactions to qualify for
exemption under Rule 16b-3, shall apply only to such persons as are required to
file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers (or directors of, or consultants or advisors to, the
Company); provided, that the class of employees to whom Incentive Stock Options
may be granted shall be limited to all employees of the Company. A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine. Subject to
adjustment as provided in Section 15 below, the maximum number of shares with
respect to which options may be granted to any employee under the Plan shall not
exceed 2,500,000 shares of common stock during the ten-year term of the Plan.
For the purpose of calculating such maximum number, (a) an option shall continue
to be treated as outstanding notwithstanding its repricing, cancellation or
expiration and (b) the repricing of an outstanding option or the issuance of a
new option in substitution for a canceled option shall be deemed to constitute
the grant of a new additional option separate from the original grant of the
option that is repriced or canceled.
(b) Grant of Options to Directors and Officers. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either (i) by the Board of Directors,
of which all members shall be "disinterested persons" (as hereinafter defined),
or (ii) by two or more directors having full authority to act in the matter,
each of whom shall be a "disinterested person." For the purposes of the Plan, a
director shall be deemed to be a "disinterested person" only if such person
qualifies as a "disinterested person" within the meaning of Rule 16b-3, as such
term is interpreted from time to time.
-2-
<PAGE>
4. Stock Subject to Plan.
Subject to adjustment as provided in Section 15 below, the maximum number of
shares of Common Stock which may be issued and sold under the Plan is 2,500,000
shares. If an option granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan. If shares issued upon exercise of an option under the Plan are tendered to
the Company in payment of the exercise price of an option granted under the
Plan, such tendered shares shall again be available for subsequent option grants
under the Plan; provided, that in no event shall such shares be made available
for issuance to Reporting Persons or pursuant to exercise of Incentive Stock
Options.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of an
option shall execute an option agreement in such form not inconsistent with the
Plan as may be approved by the Board of Directors. Such option agreements may
differ among recipients.
6. Purchase Price.
(a) General. Subject to Section 3(b), the purchase price per share of
stock deliverable upon the exercise of an option shall be determined by the
Board of Directors, provided, however, that in the case of an Incentive Stock
Option, the exercise price shall not be less than 100% of the fair market value
of such stock, as determined by the Board of Directors, at the time of grant of
such option, or less than 110% of such fair market value in the case of options
described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company already owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised or (ii) by any other means (including, without
limitation, by delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Regulation T
promulgated by the Federal Reserve Board). The fair market value of any shares
of the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
-3-
<PAGE>
7. Option Period.
Each option and all rights thereunder shall expire on such date as shall be set
forth in the applicable option agreement, except that, in the case of an
Incentive Stock Option, such date shall not be later than ten years after the
date on which the option is granted and, in all cases, options shall be subject
to earlier termination as provided in the Plan.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or in
installments at such time or times and during such period as shall be set forth
in the agreement evidencing such option, subject to the provisions of the Plan.
9. Nontransferability of Options.
Options shall not be assignable or transferable by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the optionee, shall be
exercisable only by the optionee; provided, however, that Non-Statutory Options
may be transferred pursuant to a qualified domestic relations order (as defined
in Rule 16b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock Options, and
subject to the provisions of the Plan, the Board of Directors shall determine
the period of time during which an optionee may exercise an option following (i)
the termination of the optionee's employment or other relationship with the
Company or (ii) the death or disability of the optionee. Such periods shall be
set forth in the agreement evidencing such option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock Options
shall be subject to the following additional tests and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing
-4-
<PAGE>
more than 10% of the total combined voting power of all classes of stock of the
Company (after taking into account the attribution of stock ownership rules of
Section 424(d) of the Code), then the following special provisions shall be
applicable to the Incentive Stock Option granted to such individual:
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than
110% of the fair market value of one share of Common Stock at
the time of grant; and
(ii) the option exercise period shall not exceed five
years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, that the
agreement with respect to such option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable option agreement);
and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any
-5-
<PAGE>
successor regulations). Notwithstanding the foregoing provisions, no Incentive
Stock Option may be exercised after its expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors; provided that such additional provisions shall not be inconsistent
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised.
13. General Restrictions.
(a) Investment Representations. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
-6-
<PAGE>
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with respect to
any shares covered by the option (including, without limitation, any rights to
receive dividends or non-cash distributions with respect to such shares) until
the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15 if such adjustment would cause the Plan to
fail to comply with Section 422 of the Code.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. in the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock options
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period
-7-
<PAGE>
following the date of such notice, (iii) in the event of a merger under the
terms of which holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in the merger
(the "Merger Price"), make or provide for a cash payment to the optionees equal
to the difference between (A) the Merger Price times the number of shares of
Common Stock subject to such outstanding options (to the extent then exercisable
at prices not in excess of the Merger Price) and (B) the aggregate exercise
price of all such outstanding options in exchange for the termination of such
options, and (iv) provide that all or any outstanding options shall become
exercisable in full immediately prior to such event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any optionee
any right with respect to the continuation of his or her employment by the
Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as compensation,
the amount of any compensation deemed to be received by an employee as a result
of the exercise of an option or the sale of shares received upon such exercise
will not constitute compensation with respect to which any other employee
benefits of such employee are determined, including, without limitation,
benefits under any bonus, pension, profit-sharing, life insurance or salary
continuation plan, except as otherwise specifically determined by the Board of
Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the shareholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
-8-
<PAGE>
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3 (unless it is intended that the transaction not qualify for exemption
under Rule 16b-3).
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and from
time to time, with the consent of the affected optionees, (i) the cancellation
of any or all outstanding options under the Plan and the grant in substitution
therefor of new options under the Plan covering the same or different numbers of
shares of Common Stock and having an option exercise price per share which may
be lower or higher than the exercise price per share of the cancelled options or
(ii) the amendment of the terms of any and all outstanding options under the
Plan to provide an option exercise price per share which is higher or lower than
the then current exercise price per share of such outstanding options.
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<PAGE>
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, options previously granted
under the Plan shall not vest and shall terminate and no options shall be
granted thereafter. Amendments to the Plan not requiring shareholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring shareholder approval (as provided in Section 19) shall become
effective when adopted by the Board of Directors, but no option granted after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Company to grant such option to
a particular person) unless and until such amendment shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any options granted on
or after the date of such amendment shall terminate to the extent that such
amendment was required to enable the Company to grant such option to a
particular optionee. Subject to this limitation, options may be granted under
the Plan at any time after the effective date and before the date fixed for
termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section
16, the Plan shall terminate upon the close of business on the day next
preceding the tenth anniversary of the date of its adoption by the Board of
Directors. Options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
Adopted by the Board of Directors on
April _, 1997.
Adopted by the Stockholders on
August 29, 1997.
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<PAGE>
CHANCELLOR CORPORATION
Amendment to 1994 Directors Stock Option Plan
EFFECTIVE December 30, 1996, subject to requisite stockholder approval,
the 1994 Directors' Stock Option Plan (the "Plan") of Chancellor Corporation, a
Massachusetts corporation(the "Company"), is hereby amended as follows:
1. The word "200,000" is hereby substituted for the word "150,000" in
the sixth line of Section 3(a).
2. The word "2,000,000" is hereby substituted for the word "565,000" in
the third line of Section 4.
3. In all other respects the Plan, as heretofore in effect, is
approved, ratified and confirmed.
Adopted by Board of Directors on December 30, 1996
Adopted by Stockholders on ____________, 1997
