SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
Filed by Registrant [ X ]
Filed by Party other than the Registration [ ]
Check the appropriate box:
[X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
THE SOMERSET GROUP, INC.
(Name of Registrant as Specified in its Charter)
THE SOMERSET GROUP, INC.
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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4) Date Filed:
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[FEBRUARY 27, 1998 DRAFT]
March __, 1998
Dear Shareholder:
The Directors and Officers of The Somerset Group, Inc. (the "Corporation")
join me in extending to you a cordial invitation to attend the annual
meeting of our shareholders. This meeting will be held on Wednesday,
April 22, 1998, at 9:00 a.m., EST, in the First Indiana Plaza Conference
Center, Ohio and Pennsylvania Streets, Seventh Floor, Indianapolis,
Indiana.
We hope you plan to attend the annual meeting where we will review our past
performance and our plans for the future.
The formal notice of the annual meeting and the proxy statement appear on
the following pages. After reading the proxy statement, please mark, sign,
and return the enclosed proxy card to assure that your votes on the
business matters of the meeting will be recorded. Returning the proxy does
not affect your right to vote in person on all matters brought before the
meeting.
Sincerely,
Robert H. McKinney
Chairman
FIRST INDIANA PLAZA
135 NORTH PENNSYLVANIA STREET
SUITE 2800
INDIANAPOLIS, IN 46204
(317) 269-1285
THE SOMERSET GROUP, INC.
135 North Pennsylvania Street
Suite 2800
Indianapolis, Indiana 46204
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Somerset Group, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders
of The Somerset Group, Inc. (the "Corporation") will be held on Wednesday,
April 22, 1998, at 9:00 a.m., EST, in the First Indiana Plaza Conference
Center, Ohio and Pennsylvania Streets, Seventh Floor, Indianapolis,
Indiana, to consider and take action on the following matters:
1. Election of Directors. The election of directors as set forth in the
Proxy Statement.
2. Amendment of Articles of Incorporation. The amendment of the
Corporation's Articles of Incorporation to increase the amount of
authorized common stock by two million shares, from four million to
six million shares.
3. 1998 Stock Incentive Plan. To approve and ratify the adoption of The
Somerset Group, Inc. 1998 Stock Incentive Plan.
4. Other Business. The transaction of such other business as properly
may come before the meeting and any adjournments thereof.
Only shareholders of record at the close of business on February 27, 1998
are entitled to vote at the meeting or any adjournment thereof.
By order of the Board of
Directors
Sharon J. Sanford
Secretary
March __, 1998
IMPORTANT
PLEASE MARK, SIGN AND RETURN THE ENCLOSED PROXY. NO POSTAGE IS NECESSARY
IF MAILED IN THE UNITED STATES.
THE SOMERSET GROUP, INC.
135 North Pennsylvania Street
Suite 2800
Indianapolis, Indiana 46204
(317) 269-1285
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of The
Somerset Group, Inc. (the "Corporation") for use at the annual meeting of
shareholders to be held on Wednesday, April 22, 1998, at 9:00 a.m., EST,
in the First Indiana Plaza Conference Center, Ohio and Pennsylvania
Streets, Seventh Floor, Indianapolis, Indiana, and any adjournments thereof
(the "Annual Meeting"). The Notice of Annual Meeting of Shareholders, this
Proxy Statement and accompanying form of proxy are first being sent or
given to shareholders on or about March __, 1998.
The election of directors will be determined by a plurality of the
shares present in person or represented by proxy. The holder of each
outstanding share of Common Stock is entitled to vote for as many persons
as there are directors to be elected. The approval and ratification of the
adoption of The Somerset Group, Inc. 1998 Stock Incentive Plan (the "1998
Plan") will be determined by a majority of the shares present in person or
represented by proxy. The proposed amendment of the Corporation's Articles
of Incorporation to increase the amount of authorized common stock to
6,000,000 shares (the "Amendment") and any other matter to come before the
Annual Meeting will be approved if the votes cast at the Annual Meeting (in
person or represented by proxy) in favor of such proposal exceed the votes
opposing such proposal. An abstention, non-vote, or broker non-vote will
not change the number of votes cast for or against the election of any
director or for or against any other matter to come before the Annual
Meeting.
A proxy in the enclosed form, if properly executed, duly returned to
the Corporation and not revoked, will be voted in accordance with the
instructions contained therein. The shares represented by executed but
unmarked proxies will be voted FOR the four persons nominated for election
as directors referred to herein and in favor of adopting and ratifying the
adoption of the 1998 Plan and the approval of the Amendment. If any other
matters are properly brought before the Annual Meeting, the persons named
in the enclosed form of proxy will vote the shares represented thereby on
such matters in accordance with their best judgment. Other than the
election of directors, the approval and ratification of the adoption of the
1998 Plan, and the approval of the Amendment, the Board of Directors has
no knowledge of any matters to be presented for action by the shareholders
at the Annual Meeting.
Execution of a proxy given in response to this solicitation will not
affect a shareholder's right to attend and to vote in person at the Annual
Meeting. Presence at the Annual Meeting of a shareholder who has signed
a proxy does not in itself revoke the proxy. Any shareholder giving a
proxy may revoke it at any time before it is voted by giving notice thereof
to the Corporation in writing or at the Annual Meeting or by providing a
proxy bearing a later date.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record as of the close of business on February
27, 1998 will be entitled to vote at the Annual Meeting. The Corporation
has only one class of stock, its common stock, of which 2,900,150 shares
were outstanding as of the close of business on February 27, 1998.
The following table shows, as of February 27, 1998, the number and
percentage of shares of common stock owned beneficially by (i) each person
who owned beneficially more than 5% of the issued and outstanding common
stock of the Corporation and (ii) executive officers and directors as a
group:
Name and Address Percent
of Beneficial Amount and Nature of of
Owner Beneficial Ownership Class
Robert H. McKinney
135 N. Pennsylvania St., Suite 2800
Indianapolis, Indiana 46204 1,210,294(1) 40.6%
Marni McKinney
135 N. Pennsylvania St., Suite 2800
Indianapolis, Indiana 46204 1,210,294(1) 40.6%
Marvin C. Schwartz
c/o Neuberger & Berman
605 Third Avenue
New York, New York 10158 186,718(2) 6.4%
All executive officers and directors
as a group (12 persons) 1,496,952(3) 49.8%
Unless otherwise noted, the above named persons have sole voting
power and sole investment power.
(1) These shares are beneficially owned by a group consisting of
Robert H. McKinney and Marni McKinney. Robert H. McKinney is
deemed to be a beneficial owner as specified in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of 556,233 shares held by a limited
partnership established by Mr. McKinney for the benefit of his
children, including Marni McKinney and Kevin K. McKinney. The
total held by the group also includes 27,549 shares owned
directly by Mr. McKinney, 28,362 shares owned of record by his
wife, and 52,658 shares subject to options granted under the
Corporation's Stock Incentive Plans. The total held by the
group also includes 477,038 shares held in two irrevocable
trusts of which Marni McKinney is the Trustee and which were
established by Mr. McKinney for the benefit of his children.
The above number also includes 36,422 shares which Ms. McKinney
owns individually and 32,032 shares subject to options granted
under the Corporation's Stock Incentive Plans.
(2) This information is taken from the Schedule 13D Report dated
February 26, 1992, and filed by the shareholder with the
Securities and Exchange Commission concerning shares held by
it. It does not reflect any changes in those shareholdings
which may have occurred since the date of such filing.
(3) Includes 104,129 shares subject to options granted under the
Corporation's Stock Incentive Plans and 29,697 shares subject
to options granted under the 1991 Director Stock Option Plan.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Four directors are to be elected. Patrick J. Early, Gary L. Light,
Robert H. McKinney and Michael L. Smith have been nominated for a term of
three years and until their successors are elected and qualified. All four
gentlemen are members of the present Board of Directors, with Mr. Early
having been elected by the Board of Directors in January, 1998 to serve
until the Annual Meeting and his election by the shareholders. The other
directors listed in the table below will continue in office until
expiration of their terms. If, at the time of the 1998 Annual Meeting any
of such nominees should be unable or decline to serve, the discretionary
authority provided in the proxy may be exercised to vote for a substitute
or substitutes. The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required.
The Board of Directors unanimously recommends the election of the
following nominees:
Name, Age, Principal Common Stock
Occupation(s) and Beneficially Percent
Business Experience Director Owned on of
During Past 5 Years Since February 27, 1998 Class
The NOMINEES for election are:
Patrick J. Early, Age 40 1998 53,764 1.9%
President of Somerset Financial
Services, a Division of the Corporation;
formerly, President of Whipple &
Company; Certified Public Accountant,
Certified Financial Planner, and Personal
Financial Specialist.
Gary L. Light, Age 60 1997 1,563(1) (2)
President, E.V.A. Investors, Inc.;
formerly Vice Chairman and Chief
Financial Officer of Sofmor Danck, Inc.
Trustee of PIMCO Mutual Fund Group.
Robert H. McKinney, Age 72 1985 1,210,294(3) 40.6%
Chairman of the Corporation; Chairman
and Chief Executive Officer of First
Indiana Corporation, a savings and loan
holding company; Chairman of First
Indiana Bank; formerly, Chief Executive
Officer of the Corporation (1984-1995);
retired Partner of Bose McKinney & Evans,
attorneys; Director of First Indiana
Corporation; Chairman, Federal Home
Loan Bank Board (1977-1979).
<PAGE>
Name, Age, Principal Common Stock
Occupation(s) and Beneficially Percent
Business Experience Director Owned on of
During Past 5 Years Since February 27, 1998 Class
Michael L. Smith, Age 49 1988 11,096(4) (2)
Chief Operating Officer and Chief Financial
Officer of American Health Network;
formerly President of Somerset Financial
Services, a division of the Corporation;
formerly Chairman, Director, President
and Chief Executive Officer, Mayflower
Group, Inc., diversified transportation
services; Director of First Indiana
Corporation and Finish Master, Inc.
Directors whose terms expire
in 1999:
H. J. Baker, Age 70 1986 12,893(4) (2)
Chairman Emeritus, BMW
Constructors, Inc., industrial
mechanical contractors; Director
of First Indiana Corporation.
William L. Elder, Age 75 1986 133,250(5) 4.4%
Formerly Chairman of Southern
Indiana Commerce Corporation;
formerly President of Southern
Indiana Railway, Inc.; formerly
Director of Merchants National
Corporation, a bank holding company,
and Merchants National Bank and
Trust Company.
Marni McKinney, Age 41 1987 1,210,294(6) 40.6%
President and Chief Executive Officer
of the Corporation; Vice Chairman and
Director of First Indiana Corporation and
First Indiana Bank; formerly President and
Chief Operating Officer of the Corporation
(1993-1995) and Executive Vice President
of the Corporation (1987-1992); Vice
Chairman of, and formerly Vice President
and Director of Strategic Planning of, First
Indiana Bank; formerly Vice President of
First Indiana Corporation.
Name, Age, Principal Common Stock
Occupation(s) and Beneficially Percent
Business Experience Director Owned on of
During Past 5 Years Since February 27, 1998 Class
Directors whose terms expire
in 2000:
Douglas W. Huemme, Age 56 1990 10,940(4) (2)
Chairman, President and Chief
Executive Officer, Lilly Industries,
Inc., industrial coatings; Director
of First Indiana Corporation;
formerly Vice President and Group
Executive - Chemicals Group,
Whittaker Corporation.
Malcolm Archibald Leslie, Age 48 1997 1,563(1) (2)
Private investor; formerly General
Partner of CID Equity Partners, private
venture capital firm; formerly Director -
International Treasury, Cummins Engine
Company, Inc., manufacturer of
diesel engines.
Kevin K. McKinney, Age 40 1990 22,727(7) (2)
Vice President of the Corporation;
Publisher of NUVO Newsweekly
and Chairman and President of
NUVO, Inc.; formerly President,
Mid America Media; formerly
Chairman, Indianapolis Extra, Ltd.
____________
(1) Includes 1,563 shares subject to options granted under the 1991
Director Stock Option Plan.
(2) The number of shares represents less than 1% of the outstanding
shares of the Corporation.
(3) See note (1) to the table under heading "Voting Securities and
Principal Holders Thereof" above.
(4) Includes 7,815 shares subject to options granted under the 1991
Director Stock Option Plan.
(5) Includes 130,124 shares which Mr. Elder owns individually and
3,126 shares subject to options granted under the 1991 Director
Stock Option Plan.
(6) See note (1) to the table under heading "Voting Securities and
Principal Holders Thereof" above. Ms. McKinney is a daughter
of Robert H. McKinney and a sister of Kevin K. McKinney.
(7) Includes 17,038 shares owned directly and 5,689 shares subject
to options granted under the Corporation's Stock Incentive
Plans. Mr. McKinney is a son of Robert H. McKinney and a
brother of Marni McKinney.
The Board of Directors met five times during the Corporation's last
fiscal year. All directors attended in excess of 75% of the aggregate of
(1) the total number of meetings of the Board of Directors and (2) the
total number of meetings held by all committees on which he or she served.
Nominees for election as a director of the Corporation are selected
by the Board of Directors.
Certain Committees of the Board of Directors
Among other committees, the Board of Directors has an Audit
Committee, a Compensation and Policy Committee, a Management Advisory
Committee and a Stock Administration Committee.
The functions of the Audit Committee are: (1) to review audits of
the accounting records of the Corporation and its financial statements
performed by independent auditors, (2) to confer with the independent
auditors and officers of the Corporation regarding accounting and financial
statements and internal controls, (3) to recommend to the Board the
engagement or discharge of the independent auditors and (4) to perform such
other functions as the Committee deems necessary or desirable. The members
of the Audit Committee are: H. J. Baker (Chairperson), William L. Elder and
Gary L. Light. The Committee met twice during the last fiscal year of the
Corporation.
The functions of the Compensation and Policy Committee are to review
and make recommendations to the Board of Directors with respect to the
compensation of the officers and key employees of the Corporation and its
subsidiaries and review other policy matters. The members of the
Compensation and Policy Committee are: William L. Elder (Chairperson),
Douglas W. Huemme and Michael L. Smith. The Committee met three times
during the last fiscal year of the Corporation.
The functions of the Management Advisory Committee are to review and
develop business strategies, review marketing plans and their
effectiveness, and develop strategic growth plans for the Somerset Wealth
Management Division. The members of the Management Advisory Committee are:
Marni McKinney (Chairperson), Patrick J. Early, Malcolm Archibald Leslie,
Gary L. Light, Kevin K. McKinney, Robert H. McKinney and Michael L. Smith.
The Committee met five times during the last fiscal year of the
Corporation.
The functions of the Stock Administration Committee are to administer
and grant stock options, stock appreciation rights and performance shares
under the Corporation's 1986 and 1991 Stock Incentive Plans (and under the
1998 Plan, if approved and ratified by the shareholders). Members of the
Stock Administration Committee are: Michael L. Smith (Chairperson),
Douglas W. Huemme and Malcolm Archibald Leslie. The Committee met once
during the last fiscal year of the Corporation.
Certain Transactions
Until May 22, 1997 a promissory note payable to the Corporation by
NUVO, Inc. was outstanding. The promissory note resulted from the sale of
assets by the Corporation to Nuvo, Inc. in 1990. Robert H. McKinney, Marni
McKinney, and Kevin K. McKinney are shareholders and directors of NUVO,
Inc., and Kevin K. McKinney is the Chairman and President of NUVO, Inc.
The principal amount of the promissory note was approximately $79,000, and
the promissory note bore interest at the rate of eight and one-quarter
percent (8.25%) per annum. The promissory note was secured by a security
interest in substantially all of the assets of NUVO, Inc., and the note was
paid in full on May 22, 1997.
In 1996, the Corporation purchased from First Indiana Bank (the
"Bank") all of the outstanding capital stock of One Investment Corporation
("One Investment"), a wholly owned subsidiary of the Bank that owned all of
the outstanding capital stock of One Insurance Agency, Inc. ("One
Insurance"). As a result of this transaction, and through a multi-year
operating agreement that the Corporation entered into with First Indiana
Corporation and the Bank, the Corporation is providing non-FDIC-insured
investment and insurance products and services to the Bank's customers, and
the Bank is focusing its efforts on delivering traditional banking
services. During the year ended December 31, 1997, the Bank paid to the
Corporation $219,424 in accordance with the terms of the purchase agreement
and the operating agreement. Robert H. McKinney and Marni McKinney are
officers, directors and shareholders of First Indiana Corporation and/or
the Bank, the Corporation is a substantial shareholder of First Indiana
Corporation, and H.J. Baker, Douglas W. Huemme and Michael L. Smith are
directors of First Indiana Corporation and the Bank. The transaction,
including entering into the operating agreement, was approved by a
committee of the Board of Directors of the Corporation that consisted
solely of directors who were not employees, officers, directors, or
significant shareholders of First Indiana Corporation or the Bank. This
independent committee determined that the transaction was in the best
interests of the Corporation, and negotiated the transaction with a joint
committee of the Board of Directors of First Indiana Corporation and the
Bank that consisted of directors of those entities that were not employees,
officers, directors or substantial shareholders of the Corporation. Prior
to the consummation of the transaction, the committee received an opinion
from an independent appraiser that the transaction was fair to the
shareholders of the Corporation.
COMPENSATION OF DIRECTORS
AND EXECUTIVE COMPENSATION
(a) Summary Compensation Table.
The following table sets forth the compensation awarded to, earned
by, or paid by the Corporation during the last three fiscal years to Ms.
McKinney as President and Chief Executive Officer of the Corporation during
that period, and to the two executive officers whose cash compensation in
1997 exceeded $100,000.
Long Term
Compensation
Annual Compensation Awards
Other Securities All
Name and Annual Underlying Other
Principal Salary Bonus Compen- Options Compensation
Position Year ($) ($) sation ($) (#) ($)
Marni McKinney 1997 $80,000 $20,000 $158,288 6,250 $4,800(1)
President & Chief 1996 $80,000 -- -- 9,375 $2,963
Executive Officer 1995 $50,000 -- -- 5,468 $ 441
Joseph M. Richter 1997 $97,846 $6,000 -- 4,375 $7,512(1)
Exec. Vice Pres. 1996 $97,000 $5,256 -- 6,250 $4,374
and C.F.O. 1995 $95,300 $16,256 -- 3,906 $ 810
Robert W. Kaspar(2)1997$109,560 $10,000 -- 3,125 $7,096(1)
President of Somerset Wealth
Management Division
___________________
(1) Consists of premiums during 1997 for term life insurance policies for
Mr. Richter and Mr. Kaspar in the amounts of $979, and $1,225,
respectively, and the Corporation's contributions to the Corporation's
retirement plan during 1997 for the accounts of Ms. McKinney, Mr.
Richter, and Mr. Kaspar in the amounts of $4,800, $6,533 and $5,871,
respectively.
(2) Mr. Kaspar was employed by the Corporation beginning on February 1,
1997. Accordingly, no compensation information is given for Mr.
Kaspar as to 1996 and 1995.
(b) Options Tables.
The following table sets forth the grants of stock options made during
fiscal year 1997 to Ms. McKinney, Mr. Richter and Mr. Kaspar.
Number
of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price
Name (#) Year 1997 $/Share) Expiration Date
Marni McKinney 6,250 18.8% $17.38 February 18, 2002
Joseph M. Richter 4,375 13.2% $15.80 February 18, 2002
Robert W. Kaspar 3,125 9.4% $15.80 February 18, 2002
The following table sets forth on an aggregate basis each exercise
of stock options during fiscal year 1997
byMs. McKinney,Mr.Richter,andMr.Kaspar, and the December 31, 1997 value of
The unexercised options of each such executive officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired On Value December 31, December 31, 1997
Name Exercise Realized Exercisable Unexer. Exerc. Unexercisible
Marni McKinney 4,687 $ 54,07 25,782 6,250 $296,490 $18,719
Joseph M. Richter 15,625 $135,296 -- 10,625 -- $77,359
Robert W. Kaspar -- -- -- 3,125 -- $14,358
(c) Compensation of Directors.
During the Corporation's last fiscal year, directors who are not
salaried officers received a quarterly fee of $1,250 per quarter, a fee of
$600 for each Board meeting attended, and a fee of $300 for each Board
committee meeting attended.
The Corporation's 1991 Director Stock Option Plan provides for the
issuance of non-qualified options to purchase 1,563 shares to each outside
director of the Corporation on August 14, 1991 and thereafter on the date
of each annual meeting of shareholders. No option is exercisable during
the period of one year following the date of grant of such option, and
options granted under the plan must specify an exercise price of not less
than 100% of the market price of the shares at the date of grant.
PROPOSAL NO. 2: AMENDMENT OF THE CORPORATION'S ARTICLES OF
INCORPORATION TO INCREASE THE AMOUNT OF AUTHORIZED COMMON STOCK TO
6,000,000
The Board of Directors of the Corporation has proposed an increase in
the number of authorized shares of the Corporation's common stock to
6,000,000 shares from 4,000,000 shares. The proposed increase would result
in 6,000,000 total authorized shares of Corporation stock, consisting
solely of 6,000,000 shares of common stock, without par value.
The terms of the additional authorized shares will be the same as those
that apply to the Corporation's currently authorized common stock. There
are 2,900,150 shares of common stock outstanding as of the date of this
Proxy Statement. The increase in the authorized number of shares of common
stock will provide flexibility for corporate planning and result in shares
being available for future equity financing through issuances to the
general public, future acquisitions (such as mergers), stock option grants,
stock dividends or splits, and for other corporate purposes for which the
issuance of common stock may be advisable. The Corporation has no current
plans to undertake any of these issuances, but the Board of Directors
believes it is appropriate to provide the Corporation with this flexibility
at this time.
Shareholders have no preemptive rights with respect to the issuance of
additional shares of common stock. Accordingly, any issuance of authorized
but unissued shares of common stock (which will not require shareholder
approval) could have the effect of diluting the earnings per share and book
value per share of currently outstanding shares of common stock. However,
the Corporation has no current plans to issue any shares of its common
stock in a transaction which is expected to have such a dilutive effect.
As stated above, the Corporation has no immediate plans, arrangements,
commitments, or understandings with respect to the issuance of any
additional shares of common stock which would be authorized by the proposed
amendment. However, increased authorized shares could be used to make a
takeover attempt more difficult such as by using the shares to make a
counter-offer for the shares of the bidder or by selling shares to dilute
the voting power of the bidder. As of this date, the Board of Directors
in unaware of any efforts to accumulate the Corporation's shares or to
obtain control of the Corporation by means of a merger, tender offer,
solicitation in opposition of management or otherwise.
The current Articles of Incorporation contain other provisions that may
be viewed as having possible anti-takeover effects. For instance, the
Corporation's Board of Directors is divided into three classes, with
approximately one-third of the members of the Board nominated each year.
Thus, two annual meetings are necessary for a majority shareholder to
replace a majority of incumbent directors. In addition, directors may be
removed only for cause and only upon the affirmative vote of the holders
of two-thirds of the outstanding voting power of the Corporation. The
current Articles of Incorporation further provide that, in certain
circumstances, the affirmative vote of the holders of two-thirds of the
Corporation's outstanding voting power is required to approve certain
business transactions (such as mergers or sales of assets involving another
entity that beneficially owns ten percent or more of the voting power of
the Corporation). The current Articles of Incorporation also provide that
the Board of Directors, when evaluating such transactions shall, in
connection with the exercise of its judgment in determining what is in the
best interests of the Corporation and its shareholders, give due
consideration to all relative factors including its social and economic
effects on employees, customers, and other constituents of the Corporation
and on the communities in which the Corporation conducts business.
The Board of Directors unanimously recommends that shareholders vote in
favor of this Proposal.
PROPOSAL NO. 3: APPROVAL OF THE 1998 STOCK INCENTIVE PLAN
There will be presented to the 1998 Annual Meeting a proposal to approve
the 1998 Plan. The 1998 Plan was adopted by the Board of Directors on
February 18, 1998, subject to shareholder approval. The purpose of the
1998 Plan is to attract and retain qualified persons as directors,
employees and members of management to the Corporation so as to maintain
and enhance the Corporation's long-term performance.
The Corporation currently maintains two stock option plans: the 1991
Stock Incentive Plan (the "1991 Plan") and the 1991 Directors Stock Option
Plan (the "Directors' Plan"). In addition, options are outstanding under
a third plan, the 1986 Stock Incentive Plan, which terminated in 1996. As
of February 27, 1998, grants for 179,264 options were outstanding under
these three plans. This includes grants for 63,063 options that were made
on February 18, 1998. Grants will continue to be made under the Directors'
Plan and the 1991 Plan until their expiration in 2001. As of February 27,
1998, 2,310 options remained available for grants under the 1991 Plan, and
a maximum of 15,625 options per year may be granted under the Directors'
Plan.
General
The 1998 Plan provides for the issuance of a total of up to 145,000
shares of Common Stock, which may be authorized and unissued shares,
treasury shares or reacquired shares. This is equivalent to slightly less
than five percent (5%) of the shares of Common Stock outstanding as of
February 27, 1998.
Awards under the 1998 Plan may be made in the form of (i) incentive
stock options, (ii) non-qualified stock options, (iii) stock appreciation
rights, (iv) dividend equivalent rights, (v) restricted stock, and
(vi) other stock-based awards. Awards may be made to any director, officer
or employee of the Corporation and its subsidiaries, and to such
consultants to the Corporation as the Stock Administration Committee may
select.
Awards with respect to no more than 25,000 shares of common stock may
be granted to any one eligible person during any one-year period. In the
event of a stock dividend, stock split, recapitalization or similar event,
the Stock Administration Committee will equitably adjust the aggregate
number of shares subject to the 1998 Plan, the number of shares subject to
each outstanding award, the exercise price of each outstanding option and
any other per share limits under the 1998 Plan.
The 1998 Plan will be administered by the Stock Administration
Committee, composed of not less than two directors. To the extent required
for compliance with Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), all actions relating to awards
to persons subject to Section 16 of the Exchange Act will be taken by the
Board of Directors unless each person who serves on the Stock
Administration Committee is a "non-employee director" within the meaning
of Rule 16b-3 promulgated under the Exchange Act. To the extent required
for compensation realized from awards under the 1998 Plan to be deductible
by the Corporation pursuant to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), the members of the Stock Administration
Committee will be "outside directors" within the meaning of Section 162(m)
of the Code. The Stock Administration Committee is authorized to construe,
interpret and implement the 1998 Plan, to select the eligible persons to
whom awards will be granted, to determine the terms and provisions of such
awards, and to amend outstanding awards. The determinations of the Stock
Administration Committee are made in its sole discretion and are
conclusive. The Stock Administration Committee presently consists of
Douglas W. Huemme, Malcolm Archibald Leslie and Michael L. Smith, all of
whom are "non-employee" and "outside" directors.
Grants under the 1998 Plan
Stock Options. Each stock option granted under the 1998 Plan will be
exercisable during the period fixed by the Stock Administration Committee;
however, no incentive stock option will be exercisable more than ten years
after the date of grant. The purchase price per share payable upon the
exercise of an option (the "option purchase price") will be established by
the Stock Administration Committee, provided that the option exercise price
of an incentive stock option will not be less than 100% of the fair market
value of a share of the common stock on the date of grant (110% in the case
of an individual who owns more than 10% of the voting power of the
Corporation's outstanding capital stock). The option exercise price is
payable in cash, or by surrender of shares of common stock acquired at
least one year prior to the option exercise date and having a fair market
value on the date of the exercise equal to part or all of the option
exercise price, or by such other payment method as the Stock Administration
Committee may prescribe.
Stock Appreciation Rights. Stock appreciation rights may be granted in
connection with all or any part of, or independently of, any option granted
under the 1998 Plan. Generally, no stock appreciation right will be
exercisable at a time when any option to which it relates is not
exercisable. The grantee of a stock appreciation right has the right to
surrender the stock appreciation right and to receive from the Corporation
an amount equal to the aggregate appreciation (over the exercise price of
such right, or over the option exercise price if the stock appreciation
right is granted in connection with an option) in such stock appreciation
right. Payment due upon exercise of a stock appreciation right may be in
cash, in common stock, or partly in each, as determined by the Stock
Administration Committee in its discretion.
Dividend Equivalent Rights. The Stock Administration Committee may
include in any award a dividend equivalent right entitling the grantee to
receive amounts equal to the ordinary dividends that would be paid, during
the time such award is outstanding and unexercised, on the shares of common
stock covered by such award if the such shares were then outstanding. The
Stock Administration Committee will determine whether such payments may be
made in cash, in shares of common stock or in another form, whether they
will be conditioned upon the exercise of the award to which they relate,
and such other terms and conditions as the Stock Administration Committee
deems appropriate.
Restricted Stock. The Stock Administration Committee may grant
restricted shares of common stock to such eligible persons, in such
amounts, and subject to such terms and conditions (which may depend upon
or be related to performance goals and other conditions) as the Stock
Administration Committee determines in its discretion. Certificates for
the shares of common stock covered by a restricted stock award will remain
in the possession of the Corporation until such shares are free of
restrictions. Subject to the applicable restrictions, the grantee has the
rights of a shareholder with respect to the restricted stock.
Other Stock-Based Awards. The Board may authorize other types of
stock-based awards, which the Stock Administration Committee may grant to
such eligible persons, in such amounts and subject to such terms and
conditions as the Stock Administration Committee determines in its sole
discretion.
Except as otherwise specified in the applicable grant agreement, no
award or right granted to any person under the 1998 Plan will be assignable
or transferable other than by will or by laws of descent and distribution.
Other Features of the 1998 Plan
Unless sooner terminated by the Board of Directors, the provisions of
the 1998 Plan with respect to the grant of incentive stock options will
terminate on February 18, 2008. All awards made under the 1998 Plan prior
to its termination will remain in effect until they are satisfied or
terminated. The Board of Directors may, without shareholder approval,
suspend, discontinue, revise or amend the 1998 Plan at any time or from
time to time; provided, however, that shareholder approval will be obtained
for any amendment for which such approval is required by Section 422 of the
Code or under other applicable law.
In the event of a merger or consolidation of the Corporation with or
into any other corporation or entity, any previously granted option or
stock appreciation right will continue in effect or be replaced by an
equivalent substituted option or right relating to the stock of the
successor entity or its parent. Similarly, any previously granted award
of restricted stock will continue in effect or, if there is a successor
employer, be replaced with an equivalent award of restricted stock of such
successor or its parent.
Federal Income Tax Consequences of the 1998 Plan
The description of Federal tax consequences set forth below is
necessarily general in nature and does not purport to be complete.
There are generally no Federal tax consequences either to the optionee
or the Corporation upon the grant of a stock option. On exercise of an
incentive stock option, the optionee will not recognize any income, and the
Corporation will not be entitled to a deduction for tax purposes, although
such exercise may give rise to liability for the optionee under the
alternative minimum tax provisions of the Code. However, if the optionee
disposes of shares acquired upon exercise of an incentive stock option
within two years of the date of grant or one year of the date of exercise,
the optionee will recognize compensation income, and the Corporation will
be entitled to a deduction for tax purposes in the same amount, equal to
the excess of the fair market value of the shares of common stock on the
date of exercise over the option exercise price (or the gain on sale, if
less); the remainder of the gain to the optionee will be treated as capital
gain. Otherwise, the Corporation will not be entitled to any deduction
for tax purposes upon disposition of such shares, and the entire gain for
the optionee will be treated as a capital gain. On the exercise of a
non-qualified stock option, the amount by which the fair market value of
the common stock on the date of exercise exceeds the option exercise price
will generally be taxable to the optionee as compensation income, and will
generally be deductible for tax purposes by the Corporation. The
disposition of shares of common stock acquired upon exercise of a
non-qualified stock option will generally result in a capital gain or loss
for the optionee, but will have no tax consequences for the Corporation.
The grant of a stock appreciation right, a dividend equivalent right or
restricted stock generally will not result in income for the grantee or in
a tax deduction for the Corporation. Upon the settlement of such a right
and upon the vesting of restricted stock, the grantee will recognize
ordinary income equal to the fair market value of any shares of common
stock and/or any cash received, and the Corporation will be entitled to a
tax deduction in the same amount. With respect to an award of restricted
stock the grantee may elect to recognize ordinary income equal to the fair
market value of the shares less any amount paid for them at the time of
grant, and the Corporation will be entitled to a tax deduction in the same
amount. Dividends paid on forfeitable restricted shares are treated as
compensation for Federal tax purposes. A grant of unrestricted shares of
common stock will result in income for the grantee, and a tax deduction for
the Corporation, generally equal to the fair market value of such shares
less any amount paid for them.
The benefits and amounts that may be received or allocated in the future
under the 1998 Plan are not generally determinable because they are within
the discretion of the Stock Administration Committee. To date, no grants
have been made under the 1998 Plan other than stock options representing,
in the aggregate, the right to obtain 20,500 shares of the Corporation's
Common Stock, subject to shareholder approval of the 1998 Plan, granted to
the following persons and groups of persons:
Number of
Shares
Underlying Exercise
Options or Base
Granted Price
Name (#) ($/Share) Expiration Date
Marni McKinney 4,000 $23.625 February 18,2008
Robert W. Kaspar 2,500 $23.625 February 18,2008
All executive officers
as a group 13,000 $23.625 February 18,2008
Non-executive director group(1) -- --
Non-executive officer
employee group(2) 7,500 $23.625 February 18,2008
______________
(1) All current directors who are not executive officers.
(2) All employees, including all current officers who are not
executive officers, as a group.
Any shareholder may request and receive a copy of the 1998 Plan from
the Corporation's Secretary, 2800 First Indiana Plaza, 135 North
Pennsylvania Street, Indianapolis, Indiana 46204.
The Board of Directors unanimously recommends that shareholders vote in
favor of this Proposal.
SHAREHOLDER PROPOSALS
Proposals of Shareholders intended to be presented at the next annual
meeting must be received by the Corporation for inclusion in the proxy
statement and form of proxy relating to that meeting no later than
November 19, 1998. Any such proposals should be sent to the attention of
the Secretary of the Corporation. Shareholder proposals not included in
the Corporation's 1999 proxy solicitation materials must, in order to be
considered at the 1999 Annual Meeting, be submitted in writing to the
Secretary of the Corporation at least sixty days before the date of the
1999 Annual Meeting, or, if the 1999 Annual Meeting is held prior to
March 22, 1999, within ten days after notice of the Annual Meeting is
mailed to shareholders. The Board of Directors of the Corporation will
review any shareholder proposals that are filed as required, and will
determine whether such proposals meet applicable criteria for inclusion in
its 1999 proxy solicitation materials or consideration at the 1999 Annual
Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires certain of the Corporation's officers, and its directors and
persons who own more than 10% of the Corporation's Common Stock, to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission. Such officers, directors and greater than 10%
shareholders are required by Securities and Exchange Commission regulations
to furnish the Corporation with copies of all Section 16(a) forms they
file.
Based solely on review of the copies of such forms furnished to the
Corporation, the Corporation believes that during 1997, all Section 16(a)
filing requirements applicable to its officers, directors and greater than
10% beneficial owners were met.
FINANCIAL STATEMENTS AND OTHER INFORMATION
The Corporation's financial statements for the fiscal year ended
December 31, 1997, were audited by KPMG Peat Marwick LLP ("Peat Marwick").
Representatives of Peat Marwick are expected to attend the Annual Meeting,
with the opportunity to make a statement if they desire to do so, and will
be available to respond to appropriate questions.
The Annual Report of the Corporation for the year ended December 31,
1997, including audited financial statements, has been mailed to the
shareholders. The Annual Report is not to be considered as proxy
solicitation material.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
this Annual Meeting. However, if other matters should come before the
meeting, it is the intention of each person named in the proxy to vote such
proxy in accordance with his or her judgment on such matters.
EXPENSES OF SOLICITATION
The entire expense of preparing, assembling, printing and mailing the
proxy form and material used in the solicitation of proxies will be paid
by the Corporation. The solicitation will not be made by specially engaged
employees or paid solicitors. In addition to the use of the mails,
solicitation may be made by employees of the Corporation by telephone,
telegraph, cable or personal interview.
<PAGE>
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. Therefore,
shareholders who do not expect to attend in person are urged to execute
and return the proxy.
For the Board of Directors
Sharon J. Sanford
Secretary
March __, 1998
<PAGE>
[FRONT]
THE SOMERSET GROUP, INC. This proxy is solicited on behalf of the Board of
Directors of the
2800 First Indiana Plaza Corporation
135 North Pennsylvania Street
Indianapolis, Indiana 46204 The undersigned hereby appoints Marni McKinney
and Sharon J. Sanford, and each of them,
attorneys-in-fact and proxies, with full power
of substitution, to vote as designated below
all shares of The Somerset Group, Inc. (the
"Corporation") which the undersigned would be
entitled to vote if personally present at the
Annual Meeting of Shareholders to be held on
April 22, 1998, at 9:00 a.m., EST, and at any
adjournment thereof.
1. ELECTION OF DIRECTORS
__ FOR all nominees listed below
except as marked to the contrary below)
__ WITHHOLD AUTHORITY
to vote for all nominees
Nominees for a term of three years:
Patrick J. Early, Gary L. Light, Robert H. McKinney and Michael L. Smith
(Instruction:To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
______________________________________________________________________________
2. In their discretion, the Proxies are authorized to vote such other business
as may properly come before the meeting.
(Continue and to be signed on the other side.)
<PAGE>
[BACK]
This proxy when properly executed will be voted in the manner directed herein by
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR Proposal 1.
The undersigned acknowledges receipt from The Somerset Group, Inc., prior
to the execution of this proxy, of notice of the meeting, a proxy
statement, and an Annual Report to Shareholders.
Please sign exactly as name appears below. When shares are held as joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature
(Signature if held jointly)
Dated: , 1998
REVOCABLE PROXY
THE SOMERSET GROUP, INC.
1998 STOCK INCENTIVE PLAN
Table of Contents
Page
ARTICLE I GENERAL
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration . . . . . . . . . . . . . . . . . . 1
1.3 Persons Eligible for Awards. . . . . . . . . . . . 3
1.4 Types of Awards Under Plan . . . . . . . . . . . . 3
1.5 Shares Available for Awards. . . . . . . . . . . . 3
ARTICLE II AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards . . . . . . . . . . . 5
2.2 No Rights as a Shareholder . . . . . . . . . . . . 5
2.3 Grant of Stock Options, Stock Appreciation Rights and
Dividend Equivalent Rights. . . . . . . . . . . . 5
2.4 Exercise of Options and Stock Appreciation Rights. 7
2.5 Termination of Continuous Status . . . . . . . . . 8
2.6 Grant of Restricted Stock. . . . . . . . . . . . . 10
2.7 Other Stock-Based Awards . . . . . . . . . . . . . 11
2.8 Grant of Dividend Equivalent Rights. . . . . . . . 11
2.9 Deferral . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards. . . 12
3.2 Tax Withholding. . . . . . . . . . . . . . . . . . 12
3.3 Nonassignability . . . . . . . . . . . . . . . . . 13
3.4 Requirement of Notification of Election Under Section
83(b) of the Code . . . . .. . . . . . . . . . . . 13
3.5 Requirement of Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code . . . 13
3.6 Right of Discharge Reserved. . . . . . . . . . . . 13
3.7 Nature of Payments . . . . . . . . . . . . . . . . 14
3.8 Non-Uniform Determinations . . . . . . . . . . . . 14
3.9 Other Payments or Awards . . . . . . . . . . . . . 14
3.10 Dissolution, Liquidation, Merger . . . . . . . . . 14
3.11 Section 162(m) . . . . . . . . . . . . . . . . . . 15
3.12 Successors and Assigns . . . . . . . . . . . . . . 16
3.13 Designation of Beneficiary . . . . . . . . . . . . 16
3.14 Settlement by Subsidiaries . . . . . . . . . . . . 16
3.15 Expenses . . . . . . . . . . . . . . . . . . . . . 16
3.16 Sections Headings. . . . . . . . . . . . . . . . . 16
3.17 Effective Date and Term of Plan. . . . . . . . . . 16
3.18 Governing Law. . . . . . . . . . . . . . . . . . . 17
ARTICLE IV DEFINITIONS
4.1 "Award". . . . . . . . . . . . . . . . . . . . . . 17
4.2 "Board". . . . . . . . . . . . . . . . . . . . . . 17
4.3 "Cause". . . . . . . . . . . . . . . . . . . . . . 17
4.4 "Committee" . . . . . . . . . . . . . . . . . . . 17
4.5 "Consultant" . . . . . . . . . . . . . . . . . . . 18
4.6 "Continuous Status". . . . . . . . . . . . . . . . 18
4.7 "Disability" . . . . . . . . . . . . . . . . . . . 18
4.8 "Fair Market Value". . . . . . . . . . . . . . . . 18
4.9 "Incentive Stock Option" . . . . . . . . . . . . . 19
4.10 "Non-Qualified Stock Option". . . . . . . . . . . 19
4.11 "Subsidiary". . . . . . . . . . . . . . . . . . . 19
<PAGE>
THE SOMERSET GROUP, INC.
1998 STOCK INCENTIVE PLAN
The Board of Directors of The Somerset Group, Inc. (the "Company") has
established the following Stock Incentive Plan (the "Plan") for employees and
directors of the Company and its Subsidiaries. All capitalized terms used in
the Plan have the meanings given them in Article IV.
ARTICLE I
General
1.1 Purpose
The purpose of The Somerset Group, Inc. 1998 Stock Incentive Plan (the
"Plan") is to provide for officers, other employees and directors of, and
Consultants to, the Company and its Subsidiaries (collectively, the
"Employers") an incentive (a) to enter into and remain in the service of the
Employers, (b) to enhance the long-term performance of the Employers, and (c)
to acquire a proprietary interest in the Company.
1.2 Administration
1.2.1 This Plan shall be administered by a Committee consisting of two
or more members of the Board. To the extent required for transactions under
the Plan to qualify for the exemptions available under Rule 16b-3 ("Rule
16b-3") promulgated under the Securities Exchange Act of 1934 (the "1934
Act"), all actions relating to Awards to persons subject to Section 16 of the
1934 Act shall be taken by the Board unless each person who serves on the
Committee is a "non-employee director" within the meaning of Rule 16b-3 or
such actions are taken by another committee of the Board comprised solely of
"non-employee directors." To the extent required for compensation realized
from Awards under the Plan to be deductible by the Employers pursuant to
Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), the members
of the Committee shall be "outside directors" within the meaning of Section
162(m).
1.2.2 Subject to the provisions of the Plan and directions from the
Board, the Committee is authorized to:
(a) determine the persons to whom Awards are to be granted;
(b) determine the type of Award to be granted, the number of
shares of Common Stock to be covered by the Award, the pricing of the Award,
the time or times when the Award shall be granted and may be exercised, any
restrictions on the exercise of the Award, and any restrictions upon shares of
Common Stock acquired pursuant to the exercise of any Award;
(c) provide for the extension of the exercisability of an Award,
accelerate the vesting or exercisability of an Award, eliminate or make less
restrictive any restrictions contained in an Award, waive any restriction or
other provisions of the Plan or in any Award, and to amend or modify any Award
provided such amendment or modification either is not adverse to or is
consented to by the grantee thereof;
(d) conclusively interpret the provisions of the Plan and any Plan
Agreement executed pursuant to Section 2.1;
(e) prescribe, amend and rescind rules and regulations relating to
the Plan (including rules governing its own operations) or make individual
decisions as questions arise, or both;
(f) correct any defect, supply any omission or reconcile any
inconsistency in the Plan;
(g) amend the Plan to reflect changes in applicable law;
(h) delegate to one or more officers of the Company or a
Subsidiary some or all of its authority under the Plan;
(i) employ such legal counsel, independent auditors and
consultants as it deems desirable for the administration of the Plan and rely
upon any opinion or computation received therefrom;
(j) make all other determinations and take all other actions
necessary or advisable for the administration of the Plan.
1.2.3 The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be final, binding and conclusive.
1.2.4 No member of the Committee shall be liable for any action or
determination made in good faith, and the members of such Committee shall be
entitled to indemnification and reimbursement in the manner provided in the
Company's articles of incorporation and bylaws as amended from time to time.
In the performance of its responsibilities with respect to the Plan, such
Committee shall be entitled to rely upon information and advice furnished by
the Company's officers, the Company's accountants, the Company's counsel and
any other party such Committee deems necessary, and no member of such
Committee shall be liable for any action taken or not taken in reliance upon
any such advice.
1.3 Persons Eligible for Awards
Awards under the Plan may be made to such directors, officers and other
employees of the Employers (including prospective employees conditioned on
their becoming employees) and to such Consultants to the Employers
(collectively, "eligible persons") as the Committee in its discretion shall
select.
1.4 Types of Awards Under Plan
Awards may be made under the Plan in the form of (a) Incentive Stock
Options (within the meaning of Section 422 of the Code), (b) Non-Qualified
Stock Options, (c) stock appreciation rights, (d) dividend equivalent rights,
(e) restricted stock, and (f) other stock-based compensation, all as more
fully set forth in Article II. No Incentive Stock Option may be granted to a
person who is not an employee of an Employer on the date of grant.
1.5 Shares Available for Awards
1.5.1 The maximum number of shares of Common Stock that may be issued
pursuant to this Plan is 145,000, subject to adjustment in accordance with
Section 1.5.3. Shares issued pursuant the Plan may be authorized but unissued
shares or reacquired shares, including shares purchased on the open market.
If any Award is canceled or forfeited, or terminates for any other reason
without all of the shares covered thereby being issued or settled in cash,
then the shares as to which the Award is canceled or forfeited or so
terminates may again be awarded pursuant to the Plan. Restricted shares
issued under this Plan that are repurchased by the Company, pursuant to an
exercise of its repurchase rights under the applicable Plan Agreement, for the
same price for which they were sold to the grantee, shall be deemed forfeited
for purposes of the foregoing and be available for reissuance pursuant to
subsequent Awards. If previously acquired shares of Common Stock are
delivered to the Company in full or partial payment of the exercise price for
the exercise of an option granted under this Plan, the number of shares
available for future Awards under this Plan shall be reduced only by the net
number of shares issued upon the exercise of the option. Awards that may be
satisfied either by the issuance of shares or by cash or other consideration
shall be counted against the maximum number of shares that may be issued under
this Plan, even though the Award ultimately is satisfied by the payment of
consideration other than shares, as, for example, when an option is granted in
tandem with a stock appreciation right that is settled by a cash payment of
the stock appreciation. However, Awards will not reduce the number of shares
that may be issued pursuant to this Plan if the settlement of the Award will
not require the issuance of shares, as, for example, a stock appreciation
right that may be satisfied only by the payment of cash. Shares of Common
Stock issued in settlement, assumption or substitution of outstanding awards
(or obligations to grant future awards) under the plans or arrangements of an
unrelated entity shall not reduce the maximum number of shares available for
issuance under this Plan, to the extent such settlement, assumption or
substitution is made in connection with an Employer's acquisition of such
unrelated entity or an interest in such unrelated entity.
1.5.2 In no event may any eligible person be granted Awards in any
calendar year with respect to more than 25,000 shares of Common Stock, subject
to adjustment from time to time in accordance with Section 1.5.3. The number
of shares relating to an Award that is granted in a calendar year to an
eligible person and that subsequently is forfeited, canceled or otherwise
terminated shall continue to count toward such limitation in such calendar
year.
1.5.3 Subject to any required action by the shareholders of the Company,
the number of shares of Common Stock covered by each outstanding Award, the
number of shares available for Awards, the number of shares that may be
subject to Awards to any one eligible person, and the price per share of
Common Stock covered by each such outstanding Award shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company. Such adjustment shall be made in a
manner which shall preclude the enlargement or dilution of rights and benefits
under such options. Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Award. After any
adjustment made pursuant to this Section 1.5.3, the number of shares subject
to each outstanding Award shall be rounded to the nearest whole number.
1.5.4 Except as provided in this Section 1.5 and in Section 2.3.7, there
shall be no limit on the number or the value of the shares of Common Stock
that may be subject to Awards to any individual under the Plan.
ARTICLE II
Awards under the Plan
2.1 Agreements Evidencing Awards
Each Award granted under the Plan (except an Award of unrestricted
stock) shall be evidenced by a written agreement ("Plan Agreement") which
shall contain such provisions as the Committee in its discretion deems
necessary or desirable. By accepting an Award pursuant to the Plan, a grantee
thereby agrees that the Award shall be subject to all of the terms and
provisions of the Plan and the applicable Plan Agreement.
2.2 No Rights as a Shareholder
No grantee of an option or stock appreciation right (or other person
having the right to exercise such Award) shall have any of the rights of a
shareholder of the Company with respect to shares subject to such Award until
the issuance of a stock certificate to such person for such shares. Except as
otherwise provided in Section 1.5.3, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary,
and whether in cash, securities or other property) for which the record date
is prior to the date such stock certificate is issued.
2.3 Grant of Stock Options, Stock Appreciation Rights and Dividend
Equivalent Rights
2.3.1 The Committee may grant Incentive Stock Options and Non-Qualified
Stock Options (collectively, "options") to purchase shares of Common Stock
from the Company, to such eligible persons, in such amounts and subject to
such terms and conditions, as the Committee shall determine in its discretion,
subject to the provisions of the Plan. The grantee and the Company shall
enter into separate Plan Agreements for Incentive Stock Options and Non-
Qualified Stock Options. At any time and from time to time, the grantee and
the Company may agree to modify a Plan Agreement in order that an Incentive
Stock Option may be converted to a Non-Qualified Stock Option.
2.3.2 The Committee may grant stock appreciation rights to such eligible
persons, in such amounts and subject to such terms and conditions, as the
Committee shall determine in its discretion, subject to the provisions of the
Plan. Stock appreciation rights may be granted in connection with all or any
part of, or independently of, any option granted under the Plan. A stock
appreciation right granted in connection with a Non-Qualified Stock Option may
be granted at or after the time of grant of such option. A stock appreciation
right granted in connection with an Incentive Stock Option may be granted only
at the time of grant of such option.
2.3.3 The grantee of a stock appreciation right shall have the right,
subject to the terms of the Plan and the applicable Plan Agreement, to receive
from the Company an amount equal to (a) the excess of the Fair Market Value of
a share of Common Stock on the date of exercise of the stock appreciation
right over (b) the exercise price of such right as set forth in the Plan
Agreement (or over the option exercise price if the stock appreciation right
is granted in connection with an option), multiplied by (c) the number of
shares with respect to which the stock appreciation right is exercised.
Except as otherwise provided in the applicable Plan Agreement, payment upon
exercise of a stock appreciation right shall be in cash or in shares of Common
Stock (valued at their Fair Market Value on the date of exercise of the stock
appreciation right) or both, as the Committee shall determine in its
discretion. Upon the exercise of a stock appreciation right granted in
connection with an option, the number of shares subject to the option shall be
reduced by the number of shares with respect to which the stock appreciation
right is exercised. Upon the exercise of an option in connection with which a
stock appreciation right has been granted, the number of shares subject to the
stock appreciation right shall be reduced by the number of shares with respect
to which the option is exercised.
2.3.4 Each Plan Agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company
upon exercise of the option evidenced thereby. The option exercise price per
share shall be determined by the Committee in its discretion; provided,
however, that the exercise price of any option shall be at least 100% of the
Fair Market Value of a share of Common Stock on the date the option is
granted.
2.3.5 Each Plan Agreement with respect to an option or stock
appreciation right shall set forth the periods during which the Award
evidenced thereby shall be exercisable, whether in whole or in part. Such
periods shall be determined by the Committee in its discretion; provided,
however, that no Incentive Stock Option (or a stock appreciation right granted
in connection with an Incentive Stock Option) shall be exercisable more than
10 years after the date of grant.
2.3.6 If the aggregate Fair Market Value (determined as of the time the
options are granted) of the stock with respect to which Incentive Stock
Options granted under this Plan and all other plans of the Employers are first
exercisable by any employee during any calendar year shall exceed the maximum
limit (currently, $100,000), if any, imposed from time to time under Section
422 of the Code, the options creating such excess (in reverse chronological
order, starting with the options having the latest date of grant) shall be
treated as Non-Qualified Stock Options..
2.3.7 Notwithstanding the provisions of Sections 2.3.4 and 2.3.5, to the
extent required under Section 422 of the Code, an Incentive Stock Option may
not be granted under the Plan to an individual who, at the time the option is
granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of his or her Employer or of its parent or
subsidiary corporations (as such ownership may be determined for purposes of
Section 422(b)(6) of the Code) unless (a) at the time such Incentive Stock
Option is granted the option exercise price is at least 110% of the Fair
Market Value of the shares subject thereto and (b) the Incentive Stock Option
by its terms is not exercisable after the expiration of five years from the
date it is granted.
2.3.8 The Committee, in its sole discretion, may include a provision in
the Plan Agreement for any Non-Qualified Stock Option that provides for a cash
payment, by the Company or employing Subsidiary to the grantee, as soon as
practicable after the exercise thereof, of an amount equal to all or a portion
of the tax benefit to be received by the Company or its Subsidiaries
attributable to the federal income tax deduction resulting from the exercise
of such Non-Qualified Stock Option.
2.4 Exercise of Options and Stock Appreciation Rights
2.4.1 Subject to the provisions of this Article II, each option or stock
appreciation right granted under the Plan shall be exercisable as follows:
2.4.2 An Award of options or stock appreciation rights or both may be
exercised by the grantee at such time or times within the applicable exercise
period as the grantee chooses, except that no such Award may be exercised in
more than two installments or otherwise than for whole shares. After an Award
has been exercised twice as to less than all of the options and stock
appreciation rights included therein, the Award shall terminate as to the
remainder of such options and rights, and such remaining options and rights no
longer shall be exercisable. A stock appreciation right granted in
connection with an option may be exercised at any time when, and to the same
extent that, the related option may be exercised. An option or stock
appreciation right shall be exercised by the filing of a written notice with
the Company, on such form and in such manner as the Committee shall prescribe.
2.4.3 Any written notice of exercise of an option shall be accompanied
by payment for the shares being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent thereof acceptable to the
Company) for the full option exercise price; or (b) unless the applicable Plan
Agreement provides otherwise, by delivery of shares of Common Stock acquired
at least one year prior to the option exercise date and having a Fair Market
Value (determined as of the exercise date) equal to all or part of the option
exercise price and a certified or official bank check (or the equivalent
thereof acceptable to the Company) for any remaining portion of the full
option exercise price; or (c) at the discretion of the Committee and to the
extent permitted by law, by such other provision as the Committee may from
time to time prescribe.
2.4.4 Promptly after receiving payment of the full option exercise
price, or after receiving notice of the exercise of a stock appreciation right
for which payment will be made partly or entirely in shares, the Company
shall, subject to the provisions of Section 3.2 (relating to certain tax
withholding requirements), deliver to the grantee or to such other person as
may then have the right to exercise the Award, a certificate or certificates
for the shares of Common Stock for which the Award has been exercised. If the
method of payment employed upon option exercise so requires, and if applicable
law permits, an optionee may direct the Company to deliver the certificate(s)
to the optionee's stockbroker.
2.5 Termination of Continuous Status
2.5.1 Upon termination of the grantee's Continuous Status other than for
Cause, and other than by reason of the grantee's death or Disability, the
grantee of an option or stock appreciation right may exercise the same within
such period of time as is specified in the applicable Plan Agreement to the
extent that he or she is entitled to exercise it on the date of such
termination (but in no event later than the expiration of the term of such
option or stock appreciation right as set forth in such Plan Agreement). In
the absence of a specified time in the Plan Agreement, such option or stock
appreciation right shall remain exercisable for three months following such
termination. If, on the date of termination, the grantee is not entitled to
exercise such option or stock appreciation right in full, the shares subject
to the unexercisable portion thereof shall revert to the Plan. If, after
termination, the grantee does not exercise such option or stock appreciation
right within the applicable time period or such longer period as the Committee
may allow, such option or stock appreciation right shall terminate, and the
shares covered thereby shall revert to the Plan. Notwithstanding the above,
in the event the Company is involved in a merger as a result of which grantees
are precluded from selling shares of the acquiring or successor company until
the publication of financial results covering post-merger combined operations
("Pooling Restrictions"), options held by grantees subject to such Pooling
Restrictions shall remain exercisable until five business days after the
expiration of such Pooling Restrictions (but not beyond the original term of
the option), notwithstanding an earlier termination of such grantee's
Continuous Status.
2.5.2 Notwithstanding the above, in the event of a grantee's change in
status from one relationship with the Employers to another, the grantee's
Continuous Status shall not automatically terminate solely as a result of such
change in status. In the event a grantee ceases to be an employee but retains
Continuous Status, an Incentive Stock Option held by that grantee shall cease
to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Non-Qualified Stock Option three months and one day following
such termination of employment.
2.5.3 Upon termination of a grantee's Continuous Status as a result of
the grantee's Disability, the grantee of an option or stock appreciation right
may exercise the same at any time within twelve months from the date of
termination (or within such longer or shorter period of time as the applicable
Plan Agreement may specify or such longer period of time as the Committee may
allow), but only to the extent that the grantee is entitled to exercise it on
the date of termination (and in no event later than the expiration of the term
of the option or stock appreciation right as set forth in the applicable Plan
Agreement). If, on the date of termination, the grantee is not entitled to
exercise such option or stock appreciation right in full, the shares subject
to the unexercisable portion thereof shall revert to the Plan. If, after
termination, the grantee does not exercise such option or stock appreciation
right within the applicable time period or such longer period as the Committee
may allow, such option or stock appreciation right shall terminate, and the
shares covered thereby shall revert to the Plan.
2.5.4 In the event of the grantee's death, an option or stock
appreciation right may be exercised at any time within twelve months following
the date of death (or within such longer or shorter period of time as the
applicable Plan Agreement may specify or such longer period of time as the
Committee may allow), but only to the extent that the grantee was entitled to
exercise the same on the date of his or her death, and in no event later than
the expiration of the term of the option or stock appreciation right as set
forth in the applicable Plan Agreement. If, at the time of death, the grantee
was not entitled to exercise such option or stock appreciation right in full,
the shares subject to the unexercisable portion thereof shall immediately
revert to the Plan. If, after death, such option or stock appreciation right
is not exercised within the applicable time period or such longer period as
the Committee may allow, such option or stock appreciation right shall
terminate, and the shares covered thereby shall revert to the Plan. If the
grantee's estate or a person who acquired the right to exercise the option by
bequest or inheritance does not exercise the option with the time specified
herein, the option shall terminate, and the Shares covered by such option
shall revert to the Plan.
2.5.5 Any exercise of an option or stock appreciation right following
the grantee's death shall be made only by the grantee's beneficiary, or by the
legatee thereof under the grantee's last will if no validly designated
beneficiary survives the grantee and such will specifically disposes of such
Award, or by the grantee's personal representative if no validly designated
beneficiary and no such specific legatee survives the grantee. If a grantee's
beneficiary, specific legatee or personal representative shall be entitled to
exercise any option or stock appreciation right pursuant to the preceding
sentence, such beneficiary, specific legatee or personal representative shall
be bound by all the terms and conditions of the Plan and the applicable Plan
Agreement which would have applied to the grantee.
2.5.6 Anything herein to the contrary notwithstanding, no option or
stock appreciation right may be exercised after the grantee's Continuous
Status is terminated or deemed to have been terminated for Cause as provided
in Section 4.3.
2.6 Grant of Restricted Stock
2.6.1 The Committee may grant restricted shares of Common Stock to
such eligible persons, in such amounts, and subject to such terms and
conditions as the Committee shall determine in its discretion, subject to the
provisions of the Plan. Awards of restricted stock may be made independently
of or in connection with any other Award under the Plan. In addition, such
Awards may be made in combination with awards under other incentive plans of
the Company, and any performance goals and standards adopted for purposes of
such other plans may be incorporated and applied for purposes of the Award as
conditions which must satisfied in order for the shares covered by the Award
to become nonforfeitable and transferable. The grantee of a restricted stock
Award shall have no rights with respect to such Award unless such grantee (i)
accepts the Award within such period as the Committee shall specify by
executing a Plan Agreement in such form as the Committee shall determine and
(ii) makes payment to the Company by certified or official bank check (or the
equivalent thereof acceptable to the Company) of the purchase price, if any,
for the shares covered by the Award in such amount as the Committee may
determine.
2.6.2 Promptly after a grantee accepts a restricted stock Award, the
Company shall issue in the grantee's name a certificate or certificates for
the shares of Common Stock covered by the Award. Upon the issuance of such
certificate(s), the grantee shall have the rights of a shareholder with
respect to the restricted stock, subject to the nontransferability
restrictions and Company repurchase rights described in Sections 2.6.4 and
2.6.5 and to such other restrictions and conditions as the Committee in its
discretion may include in the applicable Plan Agreement.
2.6.3 Unless the Committee shall otherwise determine, any certificate
issued evidencing shares of restricted stock shall remain in the possession of
the Company until such shares are free of any restrictions specified in the
applicable Plan Agreement.
2.6.4 Shares of restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of, except as specifically
provided in this Plan or the applicable Plan Agreement. The Committee shall
specify in the applicable Plan Agreement the date or dates and the conditions
(which may depend upon or be related to the attainment of performance goals,
maintaining Continuous Status and other conditions) on which the foregoing
transfer restrictions shall lapse and the restricted stock shall vest. Unless
the applicable Plan Agreement provides otherwise, additional shares of Common
Stock or other property distributed to the grantee in respect of shares of
restricted stock, as dividends or otherwise, shall be subject to the same
restrictions applicable to such restricted stock.
2.6.5 Except as otherwise specified in the applicable Plan Agreement,
shares covered by an Award of restricted stock shall be forfeited if and when,
during the restricted period as to such shares, and prior to the vesting of
such shares, the grantee's Continuous Status terminates or any condition to
which the vesting of such shares is subject can no longer be satisfied. It is
contemplated that a Plan Agreement may provide for the grantee to vest as to a
pro rata portion of an Award of restricted stock if the termination of his or
her Continuous Status is due to death, Disability or retirement after age 62
and completing five years of service. In all events, however, shares covered
by an Award of restricted stock shall be forfeited if, during the restricted
period as to such shares, the grantee's Continuous Status is terminated for
Cause.
2.6.6 If and when shares covered by an Award of restricted stock are
forfeited, the grantee shall be deemed to have resold such shares to the
Company at the lesser of the purchase price paid by the grantee (such purchase
price shall be deemed to be zero dollars if no purchase price was paid) or the
Fair Market Value of such shares on the date of such forfeiture. The Company
shall pay such amount to the grantee as soon as is administratively practical.
Such shares shall cease to be outstanding, and shall no longer confer on the
grantee any rights as a stockholder of the Company, from and after the date of
such forfeiture.
2.6.7 Except as otherwise provided in the applicable Plan Agreement or
an agreement entered into pursuant to Section 2.9, at the end of the period
during which shares covered by an Award of restricted stock are subject to
forfeiture or restrictions on transfer, any of such shares that have not been
forfeited shall become nonforfeitable and fully transferable.
2.7 Other Stock-Based Awards
The Board may authorize other types of stock-based Awards (including the
grant of unrestricted shares), which the Committee may grant to such eligible
persons, and in such amounts and subject to such terms and conditions, as the
Committee shall in its discretion determine, subject to the provisions of the
Plan. Such Awards may entail the transfer of actual shares of Common Stock to
grantees, or payment in cash or otherwise of amounts based on the value of
shares of Common Stock.
2.8 Grant of Dividend Equivalent Rights
The Committee may in its discretion include in the Plan Agreement with
respect to any Award a dividend equivalent right entitling the grantee to
receive amounts equal to the ordinary dividends that would be paid on the
shares of Common Stock covered by such Award, during the time such Award is
outstanding and unexercised, if such shares were then outstanding. In the
event such a provision is included in a Plan Agreement, the Committee shall
determine whether such payments shall be made in cash, in shares of Common
Stock or in another form, whether they shall be conditioned upon the exercise
or vesting of the Award to which they relate, the time or times at which they
shall be made, and such other terms and conditions as the Committee shall deem
appropriate.
2.9 Deferral
If permitted by the Committee, a grantee may elect to enter into a
written agreement with his or her Employer providing for the deferral of any
form of payment hereunder (whether in the form of cash or Common Stock),
subject to such terms and conditions as the Committee may deem appropriate.
ARTICLE III
Miscellaneous
3.1 Amendment of the Plan; Modification of Awards
3.1.1 The Board may from time to time suspend, discontinue, revise or
amend the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
Award theretofore made under the Plan without the consent of the grantee (or,
after the grantee's death, the person having the right to exercise the Award).
For purposes of this Section 3.1, any action of the Board or the Committee
that alters or affects the tax treatment of any Award shall not be considered
to materially impair any rights of any grantee.
3.1.2 Shareholder approval of any amendment shall be obtained to the
extent necessary to comply with Section 422 of the Code (relating to Incentive
Stock Options) or other applicable law or regulation.
3.1.3 The Committee may amend any outstanding Plan Agreement (including,
without limitation, an amendment which would accelerate the time or times at
which the Award becomes unrestricted or may be exercised) or may waive or
amend any goals, restrictions or conditions set forth in the Plan Agreement.
However, any such amendment (other than an amendment pursuant to Section
3.10, relating to dissolution, liquidation or merger of the Company) that
materially impairs the rights or materially increases the obligations of a
grantee under an outstanding Award shall be made only with the consent of the
grantee (or, upon the grantee's death, the person having the right to exercise
the Award).
3.2 Tax Withholding
3.2.1 As a condition to the receipt of any shares of Common Stock
pursuant to any Award or the lifting of restrictions on any Award, or in
connection with any other event that gives rise to a federal or other
governmental tax withholding obligation on the part of the Employers relating
to an Award (including, without limitation, FICA tax), the Employers shall be
entitled to require that the grantee remit to the Employers an amount
sufficient in the opinion of the Employers to satisfy such withholding
obligation.
3.2.2 If the event giving rise to the withholding obligation is a
transfer of shares of Common Stock, then, unless otherwise specified in the
applicable Plan Agreement, the grantee may satisfy the withholding obligation
imposed under Section 3.2.1 by electing to have the Employers withhold shares
of Common Stock having a Fair Market Value equal to the amount of tax to be
withheld. For this purpose, Fair Market Value shall be determined as of the
date on which the amount of tax to be withheld is determined (and any
fractional share amount shall be settled in cash).
3.3 Nonassignability
Except to the extent otherwise provided in the applicable Plan
Agreement, no Award or right granted to any person under the Plan shall be
assignable or transferable other than by will or by the laws of descent and
distribution, and all such Awards and rights shall be exercisable during the
life of the grantee only by the grantee or the grantee's legal representative.
3.4 Requirement of Notification of Election Under Section 83(b) of the Code
If any grantee shall, in connection with the acquisition of shares of
Common Stock under the Plan, make the election permitted under Section 83(b)
of the Code (that is, an election to include in gross income in the year of
transfer the amounts specified in Section 83(b)), such grantee shall notify
the Company of such election within 10 days of filing notice of the election
with the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code Section
83(b).
3.5 Requirement of Notification Upon Disqualifying Disposition Under Section
421(b) of the Code
If any grantee shall make any disposition of shares of Common Stock
issued pursuant to the exercise of an Incentive Stock Option under the
circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions), such grantee shall notify the Company of such
disposition within 10 days thereof.
3.6 Right of Discharge Reserved
Nothing in the Plan shall confer upon any employee of the Company or
any Subsidiary any right to continued employment with the Company or such
Subsidiary or interfere in any way with the right of the Company or such
Subsidiary to terminate the employment of any of its employees at any time,
with or without cause, in accordance with applicable laws and any applicable
employment agreement.
3.7 Nature of Payments
3.7.1 Any and all grants of Awards and issuances of shares of Common
Stock under the Plan shall be in consideration of services performed for the
Employers by the grantee.
3.7.2 All such grants and issuances shall constitute a special incentive
payment to the grantee and shall not be taken into account in computing the
amount of salary or compensation of the grantee for the purpose of determining
any benefits under any pension, retirement, profit-sharing, bonus, life
insurance or other benefit plan of the Employers or under any agreement
between an Employer and the grantee, unless such plan or agreement
specifically provides otherwise.
3.8 Non-Uniform Determinations
The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee
shall be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan Agreements,
as to (a) the persons to receive Awards under the Plan, (b) the terms and
provisions of Awards under the Plan, and (c) the treatment of leaves of
absence pursuant to Section 4.6 .
3.9 Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Employers from making any Award or payment to any person under
any other plan, arrangement or understanding, whether now existing or
hereafter in effect.
3.10 Dissolution, Liquidation, Merger
3.10.1 In the event of the proposed dissolution or liquidation of
the Company, all outstanding awards will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee, in the exercise of its sole discretion in such
instances, may accelerate the date on which any Award becomes exercisable or
fully vested or may declare that any Award shall terminate as of a specified
date.
3.10.2 In the event of a merger or consolidation ("Merger") of the
Company with or into any other corporation or entity ("Corporation"),
outstanding Awards shall be assumed or an equivalent option or right shall be
substituted by such successor Corporation or a parent or subsidiary of such
successor Corporation, unless the Committee determines, in the exercise of its
sole discretion, to accelerate the date on which an Award becomes exercisable
or fully vested. In the absence of an assumption or substitution, Awards
shall, to the extent not exercised, terminate as of the date of the closing of
the Merger. For the purposes of this Section 3.10.2, an Award shall be
considered assumed if, for every share of Common Stock subject thereto
immediately prior to the Merger, the grantee has the right, following the
Merger, to acquire the consideration received in the Merger transaction by
holders of shares of Common Stock (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares); provided, however, that if such consideration
received in the Merger was not solely common stock of the successor
Corporation or its parent, the Committee may, with the consent of the
successor Corporation and the grantee, provide for the consideration to be
acquired pursuant to the Award, for each share of Common Stock subject
thereto, to be solely common stock of the successor Corporation or its parent
equal in fair market value to the per share consideration received by holders
of Common Stock in the Merger. For purposes hereof, the term "Merger" shall
include any transaction in which another corporation acquires all of the
issued and outstanding Common Stock of the Company.
3.10.3 Nothing contained in the Plan shall be construed to give a
grantee the right to enjoin the Company or any Subsidiary from taking any
corporate action which is deemed by it to be appropriate or in its best
interest, whether or not such action would have an adverse effect on Awards
made under the Plan. Any right of a grantee, beneficiary or other person
respecting such a corporate action shall be limited to a claim for actual
damages and attorneys fees.
3.11 Section 162(m)
If this Plan is subject to Section 162(m) of the Internal Revenue Code,
it is intended that the Plan meet all of the requirements of such section so
that options and stock appreciation rights granted hereunder and, if
determined by the Committee, restricted stock granted hereunder shall
constitute "performance-based" compensation within the meaning of such
section. If any provision of the Plan would disqualify the Plan or would not
permit the Plan to comply with such section, such provision shall be construed
or deemed amended to conform to the requirements of such section; provided
that no such construction or amendment shall have an adverse impact on the
economic value to the grantee of any Award previously granted hereunder.
3.12 Successors and Assigns
Awards under the Plan shall be binding upon and inure to the benefit of
the successors and assigns of the Company and its Subsidiaries. In the event
of a sale of substantially all of the assets of the Company or a Subsidiary,
or a merger, consolidation or share exchange involving the Company, all
obligations of the Company or such Subsidiary under the Plan with respect to
Awards granted hereunder shall be binding on the successor to the transaction.
Employment of a grantee with such successor shall be considered employment
with the Company or such Subsidiary for purposes of the Plan.
3.13 Designation of Beneficiary
A grantee may designate a beneficiary or beneficiaries to receive any
payments which may be made following the grantee's death. Such designation may
be changed or canceled at any time without the consent of such beneficiary.
Any such designation, change or cancellation must be made in a form approved
by the Committee and shall not be effective until received by the Committee.
If a grantee does not designate a beneficiary, or if the designated
beneficiary or beneficiaries predecease the grantee, any payments which may be
made following the grantee's death shall be made to the grantee's estate.
3.14 Settlement by Subsidiaries
Settlement of Awards held by employees of a Subsidiary shall be made by
and at the expense of the Subsidiary.
3.15 Expenses
The costs and expenses of administering the Plan shall be borne by the
Company.
3.16 Section Headings
The section headings contained herein are for the purpose of convenience
only and are not intended to define or limit the contents of the sections.
3.17 Effective Date and Term of Plan
3.17.1 The Plan was adopted by the Board on February 18, 1998,
subject to approval by the Company's shareholders. The Plan shall become
effective on the day following its approval by the stockholders (the
"Effective Date").
3.17.2 Unless sooner terminated by the Board, the provisions of the
Plan respecting the grant of Incentive Stock Options shall terminate on the
day before the tenth anniversary of the adoption of the Plan by the Board, and
no Incentive Stock Option Awards shall thereafter be made under the Plan. All
Awards made under the Plan prior to its termination shall remain in effect
until such Awards have been satisfied or terminated in accordance with the
terms and provisions of the Plan and the applicable Plan Agreements.
3.18 Governing Law
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Indiana, without
giving effect to principles of conflict of laws.
ARTICLE IV
Definitions
4.1 "Award" means a grant made under this Plan of Incentive Stock
Options, Non-Qualified Stock Options, stock appreciation rights, dividend
equivalent rights, restricted stock, or other stock-based compensation.
4.2 "Board" means the Board of Directors of the Company.
4.3 "Cause," when used in connection with termination of a grantee's
employment or Continuous Status, shall have the meaning set forth in any
then-effective employment agreement between the grantee and his or her
Employer. In the absence of such an employment agreement provision, "Cause"
means: (a) conviction of any crime (whether or not involving an Employer)
constituting a felony in the jurisdiction involved; (b) engaging in any
substantiated act involving moral turpitude; (c) engaging in any act which, in
each case, subjects, or if generally known would subject, an Employer to
public ridicule or embarrassment; (d) material violation of his or her
Employer's policies, including, without limitation, those relating to sexual
harassment or the disclosure or misuse of confidential information; (e)
serious neglect or misconduct in the performance of the grantee's duties for
his or her Employer or willful or repeated failure or refusal to perform such
duties. The Committee shall have the right to determine whether the
termination of a grantee's employment or Continuous Status is a dismissal for
Cause and the date of termination in such a case, which date the Committee may
deem to be the date of the action that is Cause for dismissal. Such
determinations of the Committee shall be final, binding and conclusive.
4.4 "Committee" means the Stock Administration Committee of the Board,
or its successor.
4.5 "Consultant" means any person, including an advisor, who is
engaged by an Employer to render services on a regular or periodic basis and
who is compensated for such services.
4.6 "Continuous Status" means that the Grantee's relationship with the
Employers as a director, officer, employee or Consultant, is not interrupted
or terminated. Continuous Status shall not be considered interrupted in the
case of transfers between locations of an Employer, or between Employers, or
from an Employer to any successor. The Committee in its discretion may
determine (a) whether any leave of absence constitutes a termination of
Continuous Status for purposes of the Plan, (b) the impact, if any, of any
such leave of absence on Awards theretofore made under the Plan, and (c) when
a change in a Consultant's association with the Employers constitutes a
termination of Continuous Status for purposes of the Plan. For purposes of
Incentive Stock Options, no leave of absence may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence is not so
guaranteed, then on the 181st day of such leave any Incentive Stock Option
held by the grantee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Non-Qualified Stock Option.
4.7 "Disability" means, with respect to any termination of Continuous
Status, any physical or mental impairment of a grantee which (i) prevents the
grantee from doing any substantial gainful activity for which he or she is
fitted by education, training or experience, and (ii) is expected to last at
least 12 months from the date of such termination of Continuous Service or to
result in death within such period of 12 months.
4.8 "Fair Market Value" means, with reference to a share of Common
Stock and a given day, the per share value of Common Stock on such day,
determined as follows:
(a) If the principal market for the Common Stock (the "Market") is
a national securities exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market, the last sale
price of Common Stock on such day or, if no reported sale takes place on such
day, the average of the high bid and low asked price of Common Stock as
reported on such Market for such day ("average price") or, if no such average
price can be determined for such day, the most recent reported sale price of
Common Stock within the preceding ten business days, or if no such sale shall
have occurred, the average price for the most recent business day preceding
such day for which an average price can be determined, provided an average
price can be determined for any of the ten business days preceding such day;
(b) If the Market is the NASDAQ National List, the NASDAQ
Supplemental List or another market, the average of the high bid and low asked
price for Common Stock on such day (the "average price"), or, if no such
average price can be determined for such day, the most recent reported sale
price within the preceding ten business days, or, if no such sale shall have
occurred, the average price for the most recent business day preceding such
day for which an average price can be determined, provided an average price
can be determined for any of the ten business days preceding such day; or,
(c) In the event that neither paragraph (a) nor (b) shall apply,
the Fair Market Value of a share of Common Stock on any day shall be
determined in good faith by the Committee.
4.9 "Incentive Stock Option" means an option that is intended to
qualify for special federal income tax treatment pursuant to Sections 421 and
422 of the Code, as now constituted or subsequently amended, or pursuant to a
successor provision of the Code, and which is so designated in the applicable
Plan Agreement. Any option that is not specifically designated as an
Incentive Stock Option shall under no circumstances be considered an Incentive
Stock Option.
4.10 "Non-Qualified Stock Option" means any option that is not an
Incentive Stock Option.
4.11 "Subsidiary" means any corporation, partnership or other entity in
which the Company, directly or indirectly, owns a fifty percent (50%) or
greater interest.
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