<PAGE> 1
QUAKER STATE CORPORATION
255 Elm Street
Oil City, Pennsylvania 16301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS--MAY 12, 1994
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Quaker State Corporation will be held
at the Colonel Drake Theatre, 327 Seneca Street, Oil City, Venango County,
Pennsylvania, on Thursday, May 12, 1994 at 1:00 P.M. E.D.S.T., for the purpose
of considering and acting upon the following:
1. The election of a Board of Directors;
2. The approval of the adoption of the Corporation's 1994 Stock
Incentive Plan;
3. The approval of the adoption of the Corporation's 1994 Non-Employee
Directors' Stock Option Plan;
4. The ratification of the appointment of Coopers & Lybrand as
independent auditors to audit the financial statements of the Corporation
and its subsidiaries for the year 1994; and
5. Such other business as may properly come before the Annual Meeting
or any adjournment thereof.
A complete list of the stockholders entitled to vote at the Annual Meeting
will be open to the examination of any stockholder during ordinary business
hours at the address of the Corporation set forth above for a period of at least
ten days prior to the Annual Meeting.
By Order of the Board of Directors,
Gerald W. Callahan,
Vice President, General
Counsel and Secretary
Oil City, Pennsylvania
March 28, 1994
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES
MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED AT THE ANNUAL MEETING. THE GIVING OF YOUR PROXY DOES NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE MEETING.
<PAGE> 2
March 28, 1994
QUAKER STATE CORPORATION
255 ELM STREET
OIL CITY, PENNSYLVANIA 16301
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1994
This Proxy Statement is furnished to stockholders in connection with the
solicitation by the Board of Directors of Quaker State Corporation (the
"Corporation") of proxies in the accompanying form for use at the Annual Meeting
of Stockholders of the Corporation to be held on May 12, 1994 and at any
adjournment thereof. If a proxy in the accompanying form is duly executed and
returned, the shares represented will be voted at the Annual Meeting and, where
a choice is specified, will be voted in accordance with the specification made.
Any stockholder who gives a proxy has the power to revoke it by notice to the
Secretary at any time before it is exercised. A later dated proxy will revoke an
earlier proxy, and stockholders who attend the Annual Meeting may, if they wish,
vote in person even though they have submitted a proxy, in which event the proxy
will be deemed to have been revoked.
The Corporation has only one class of Capital Stock (the "Capital Stock")
of which 27,244,224 shares were issued and outstanding as of the close of
business on March 15, 1994. Stockholders of record as of the close of business
on March 15, 1994 have the right to receive notice of and to vote at the Annual
Meeting. Stockholders are entitled to one vote for each share held on all
matters to be considered and acted upon at the Meeting and do not have
cumulative voting rights in the election of directors.
Under the terms and conditions of the Corporation's Automatic Dividend
Reinvestment Plan, the administering bank will vote the full shares of the
Capital Stock that it holds for a participant's account under this Plan at the
Annual Meeting in accordance with (i) the proxy returned by the participant to
the Corporation with respect to the shares which the participant holds of
record, (ii) the participant's vote in person at the Annual Meeting with respect
to such shares or (iii) written instructions received directly by the bank from
the participant. The bank will vote fractional shares credited to the accounts
of participants under this Plan by aggregating all the fractional shares to be
voted in the same manner.
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
Under the proxy rules of the Securities and Exchange Commission (the
"SEC"), a person who directly or indirectly has or shares voting power and/or
investment power with respect to a security is considered as a beneficial owner
of the security. Voting power includes the power to vote or direct the voting of
shares, and investment power includes the power to dispose of or direct the
disposition of shares.
The directors, present executive officers named in the Summary Compensation
Table and all directors and executive officers of the Corporation as a group
beneficially owned as of March 15, 1994 the number of shares of the Capital
Stock set forth in the table below. The information in the table and related
footnotes is based upon data furnished to the Corporation by, or on behalf of,
the persons referred to in the table. Unless otherwise indicated, each director
and executive officer has sole voting power and sole investment power with
respect to the shares shown. The number of shares column includes full shares
held under the Corporation's Automatic Dividend Reinvestment Plan and includes
shares as to which voting power and/or investment
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power may be acquired within 60 days (such as upon exercise of outstanding stock
options) because such shares are deemed to be beneficially owned under the proxy
rules.
<TABLE>
<CAPTION>
NAME OR GROUP NUMBER OF SHARES(1)
- ------------------------- -----------------------
<S> <C>
Herbert M. Baum 113,304
Leonard M. Carroll 1,500
Conrad A. Conrad 67,500(2)(3)(4)
Laurel Cutler 0
Homer M. Ellenburg 43,165(2)(3)
C. Frederick Fetterolf 2,000
Thomas A. Gardner 4,827
H. Bryce Jordan 1,176(4)
W. Craig McClelland 1,100(4)
Delbert J. McQuaide 1,995(5)
Raymond A. Ross, Jr. 2,100
Gerald W. Callahan 43,335(2)(3)
R. Scott Keefer 31,477(2)(3)(4)
All directors and
executive officers as a
group (27 persons) 471,892(2)(3)(4)(5)
</TABLE>
- ---------
(1) As of March 15, 1994, no director or executive officer beneficially
owned more than .41% of the Capital Stock, and all directors and
executive officers as a group owned an aggregate of approximately 1.72%
of the Capital Stock. The percentage is determined by dividing the
number of shares shown by the aggregate of the number of shares
outstanding and the number of shares which may be acquired within 60
days.
(2) Includes full shares credited to, or represented by units credited to,
the accounts of the following persons under the Corporation's Thrift
and Stock Purchase Plan and/or Employee Stock Ownership Plan as to
which voting power is shared in each case with the Plan trustee:
Mr. Conrad, 10,326 shares; Mr. Ellenburg, 9,775 shares; Mr. Callahan,
8,284 shares; Mr. Keefer, 4,910 shares; and all directors and
executive officers as a group, 78,966 shares. These shares are voted
by the Plan trustees in accordance with directions received from the
Plan participants and may only be voted by the Plan trustees if voting
instructions are not received from the participants.
(3) Includes shares which may be acquired upon the exercise of outstanding
stock options: Mr. Conrad, 51,600 shares; Mr. Ellenburg, 33,390 shares;
Mr. Callahan, 25,051 shares; Mr. Keefer, 24,400 shares; and all
directors and executive officers as a group, 230,334 shares.
(4) Includes shares as to which voting power and investment power are
shared: Mr. Conrad, 5,574 shares; Dr. Jordan, 1,176 shares; Mr.
McClelland, 1,000 shares; Mr. Keefer, 2,167 shares; and all directors
and executive officers as a group, 20,688 shares.
(5) Mr. McQuaide shares voting power and has sole investment power with
respect to these shares, which are held in a pension trust.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and persons who own more than
ten percent of the Capital Stock, to file reports of beneficial ownership of the
Capital Stock with the SEC on SEC Forms 3, 4 and 5. During 1993, William C.
Helsley resigned as an executive officer of the Corporation and failed to report
on a timely basis two sales of shares of the Capital Stock made after his
termination of employment. The sales were reported on two late reports on Form
4. Also, Donald E. Smith became an executive officer of the Corporation during
1993 and failed to include shares he had recently acquired under the
Corporation's Automatic Dividend Reinvestment Plan
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when he filed his initial report of beneficial ownership on Form 3. The
ownership of these shares was reported in an amendment to the Form 3.
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Corporation provide that the number of directors is
eleven, and the Board of Directors has nominated the eleven persons who are
named below for election as directors at the Annual Meeting. The Board of
Directors recommends that the stockholders vote "FOR" the eleven nominees.
Unless authority to vote for one or more of the nominees is withheld, it is
intended that proxies solicited hereby will be voted for the election of the
eleven nominees. All the nominees are currently directors of the Corporation.
In the event that at the date of the Annual Meeting any of the nominees
should for any reason not be available for election, the proxies received will
be voted for the election of the other nominees and such substitute nominees as
shall be designated by the Board of Directors unless the Bylaws of the
Corporation have been amended to reduce the number of directors to the number of
named nominees then available for election. In this event, the proxies would be
voted for the reduced number of directors. Those elected will serve until the
next Annual Meeting of Stockholders and until their successors are elected and
qualify.
The nominees have held the positions shown for more than five years unless
otherwise indicated.
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION OR
NOMINEE SINCE EMPLOYMENT; DIRECTORSHIPS; AGE
- --------------------- -------- ------------------------------
<S> <C> <C>
Herbert M. Baum 1993 Chairman and Chief Executive Officer of the Corporation
since June 1993; Executive Vice President of Campbell
Soup Company (manufacturer of food products) from
November 1989 to June 1993; also, President, Campbell
North and South America, Campbell's largest operating
division, from January 1992 to June 1993; Senior Vice
President of Campbell from prior to 1989 to November
1989; Age 57
Leonard M. Carroll 1993 President and Chief Operating Officer of Integra
Financial Corporation since January 1991; Executive Vice
President of Integra from January 1989 to January 1991;
Age 51
Conrad A. Conrad 1988 President and Chief Operating Officer of the Corporation
since February 1990; Vice President, Finance and Chief
Financial Officer of the Corporation from prior to 1989
to February 1990; Age 48
Laurel Cutler 1993 Vice Chairman of Foote Cone Belding/Leber Katz Partners
(advertising agency); also Vice President of Chrysler
Corporation from prior to 1989 to December 1990; Director
of Foote Cone Belding Communications; Age 67
Homer M. Ellenburg 1990 Executive Vice President of the Corporation since August
1993; Vice President of the Corporation from prior to
1989 to August 1993; also President and Chief Operating
Officer of the Motor Oil Division of the Corporation
since February 1990; Age 51
C. Frederick 1993 Retired since August 1991; President and Chief Operating
Fetterolf Officer and a director of Aluminum Company of America
from prior to 1989 to August 1991; Director of Allegheny
Ludlum Corporation, Mellon Bank Corporation, Praxair,
Inc. and Union Carbide Corporation; Age 65
</TABLE>
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<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION OR
NOMINEE SINCE EMPLOYMENT; DIRECTORSHIPS; AGE
- --------------------- -------- ------------------------------
<S> <C> <C>
Thomas A. Gardner 1979 Personal investments; Physician and former Director of
Radiology of Northwest Medical Center; Director of
Integra Trust Company, National Association, a subsidiary
of Integra Financial Corporation; Age 66
H. Bryce Jordan 1987 President Emeritus of The Pennsylvania State University
since August 1990; President of The Pennsylvania State
University from prior to 1989 to August 1990; Director of
Harleysville Group, Inc.; Age 69
W. Craig McClelland 1984 President and Chief Operating Officer of Union Camp
Corporation (manufacturer of paper products) since
November 1989; Executive Vice President of Union Camp
from prior to 1989 to November 1989; Director of Union
Camp, Allegheny Ludlum Corporation and PNC Bank Corp.;
Age 59
Delbert J. McQuaide 1981 Partner of McQuaide, Blasko, Schwartz, Fleming &
Faulkner, Inc. (law firm); Director, Mid-State Bank and
Trust Company; Age 57
Raymond A. Ross, Jr. 1991 President and sole owner of Ross Management, an
unincorporated real estate investment and development
firm; Age 58
</TABLE>
- ---------
Herbert M. Baum became the Chairman and Chief Executive Officer of the
Corporation effective June 9, 1993. He was recommended to succeed Jack W. Corn
by a special committee of the Board of Directors which was formed for this
purpose. The special committee was formed after Mr. Corn announced in August
1992 that he intended to retire as an officer no later than October 1993.
During 1993, there were nine meetings of the Board of Directors. All the
meetings were attended by all the directors.
VOTE REQUIRED
The eleven nominees for election as directors at the Annual Meeting who
receive the greatest number of votes cast for the election of directors by the
holders of the Capital Stock present in person or represented by proxy and
entitled to vote at the meeting, a quorum being present, will be elected as
directors.
BOARD COMMITTEES
The principal committees of the Board of Directors are the Executive
Committee, the Audit Committee and the Organization and Compensation Committee.
The Executive Committee consists of Dr. Jordan (Chairman) and Messrs. Baum,
McQuaide and McClelland. The Executive Committee is authorized to exercise all
the powers of the Board of Directors in the conduct of the business of the
Corporation during the time when the Board of Directors is not in session. The
Executive Committee acts as a Nominating Committee and makes recommendations to
the Board of candidates for Board membership. The Executive Committee will
consider nominees for Board membership recommended by stockholders and is
empowered to determine the supporting data required to be submitted with any
nomination. The Executive Committee held five meetings in 1993.
The Audit Committee consists of Messrs. Carroll (Chairman) and Ross and Dr.
Jordan. The responsibilities of the Audit Committee include, but are not limited
to, reviewing the scope of the internal and external audit programs to assure
that audit coverage and internal controls are satisfactory, reviewing the annual
financial statements of the Corporation and its subsidiaries with the
independent auditors and management of the Corporation, verifying the
independence of the independent auditors, recommending to the Board of Directors
the retention or selection of the independent auditors, reviewing the
independent
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auditors' evaluation of the compliance of the financial statements of the
Corporation and its subsidiaries with applicable requirements and reviewing the
adequacy of management disclosure of information to the Board of Directors. The
Audit Committee held four meetings in 1993.
The Organization and Compensation Committee consists of Dr. Gardner
(Chairman) and Messrs. Fetterolf, McClelland and McQuaide. The Committee
establishes policy regarding executive compensation and performs the functions
with respect to executive compensation set forth in the Organization and
Compensation Committee Report on Executive Compensation included in this Proxy
Statement. In addition, the Organization and Compensation Committee acts as
administrator for the Corporation's Stock Option Plans and has the
responsibility for the interpretation and general supervision of the
Corporation's Thrift and Stock Purchase Plan and Employee Stock Ownership Plan.
It reviews prior to implementation any major organization changes that the Chief
Executive Officer recommends. The Organization and Compensation Committee held
seven meetings in 1993.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation receive a retainer and
fees for each Board and Board Committee meeting they attend. Effective January
1, 1994, the annual retainer was increased from $14,000 to $21,000. Chairmen of
Board Committees receive an additional $3,000 per annum. The fee for attending
Board and Board Committee meetings is $1,000 per meeting. During 1993, Dr.
Gardner, Mr. Ross and Mr. McQuaide each also received $1,500 in fees for their
services as directors of a subsidiary of the Corporation.
During 1993, certain of the non-employee directors received per diem fees
for their service on or advice to the special committee of the Board of
Directors formed to recommend a successor to Jack W. Corn which in the aggregate
were as follows: Mr. Carroll, $1,000; Mr. Fetterolf, $1,000, Dr. Gardner,
$3,000; Dr. Jordan, $3,000; Mr. McClelland, $1,500; Mr. McQuaide, $2,000; and
Mr. Ross, $2,000.
Any non-employee director who serves on the Board of Directors for ten
years or longer, or who began serving as a director at age 60 or older and
serves for at least five years, will be entitled to an annual retirement benefit
for so long as he or she remains available to the Corporation for consultation.
The annual retirement benefit is the amount of the annual retainer paid to the
non-employee director at the time he or she ceases serving as a director. Any
non-employee director who was under age 60 when he or she began serving as a
director and has served for at least five but less than ten years when Board
service terminates will be entitled to a pro rata share of the retirement
benefit based upon the relationship of years served to ten. Payment of the
annual retirement benefit is made in May of each year and commences upon
termination of service as a director, except that in the case of any director
who satisfies the above requirements, but whose service as a director began
after November 29, 1990, payment of the annual retirement benefit will not
commence until after the director attains age 65.
In the event of a change of control of the Corporation, a non-employee
director will be entitled to the full retirement benefit when the director's
Board service terminates (with payment commencing upon termination of service or
after age 65 as the case may be) if at that time the director has served a
minimum of five years. For the purposes of the director's retirement benefit, a
change of control means the occurrence of any of the following: (i) the
ownership by any person and affiliates of that person of more than 30% of the
voting power of the voting securities of the Corporation unless such ownership
is approved by a two-thirds vote of the Corporation's "Continuing Directors" (as
defined below); (ii) the commencement of a public tender offer for shares of the
Capital Stock unless such offer is approved by a two-thirds vote of the
Continuing Directors; or (iii) less than 51% of the members of the Board of
Directors of the Corporation are Continuing Directors. The term "Continuing
Director" means a director of the Corporation who either (i) was a director of
the Corporation on November 29, 1990 or (ii) is an individual whose election or
nomination for election as a director was approved by a vote of at least
two-thirds of the directors of the Corporation then in office who were
Continuing Directors. All the current directors of the Corporation are
Continuing Directors.
Under a group term life insurance plan, all the directors who are not
present employees of the Corporation or any of its subsidiaries are provided a
life insurance benefit of $25,000. The benefit is reduced by
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50% when the director ceases to serve if the director has served for five
consecutive years, and the benefit terminates when the director ceases to serve
if the director has not served for five consecutive years.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation paid
for services rendered in all capacities to the Corporation and its subsidiaries
for the last three calendar years to the following persons: (i) Herbert M. Baum,
(ii) Jack W. Corn and (iii) the Corporation's four most highly compensated
executive officers other than Mr. Baum who were serving as executive officers on
December 31, 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ ------------------------------------
AWARDS
OTHER ------------------------
ANNUAL RESTRICTED PAYOUTS ALL OTHER
COMPEN- STOCK OPTIONS LTIP COMPEN-
SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (SHARES)(5) ($)(6) ($)(7)
--------------------------- ----- -------- ----- ------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HERBERT M. BAUM 1993 $252,273 $-0- $728,750 270,000 $ -0- $1,371,817
Chairman and Chief
Executive Officer
JACK W. CORN 1993 262,503 -0- -0- -0- -0- 14,256
Former Chairman 1992 350,004 -0- -0- 15,000 -0- 18,510
and Chief Executive Officer 1991 350,004 -0- -0- 15,000 -0- NR
CONRAD A. CONRAD 1993 161,674 -0- -0- 15,000 -0- 5,813
President and 1992 147,177 -0- -0- 13,000 -0- 5,785
Chief Operating Officer 1991 138,000 -0- -0- 10,000 -0- NR
HOMER M. ELLENBURG 1993 146,172 -0- -0- 6,000 -0- 7,018
Executive Vice President 1992 141,912 -0- -0- 10,000 -0- 7,248
and President and Chief 1991 134,508 -0- -0- 10,000 14,467 NR
Operating Officer of the
Motor Oil Division
GERALD W. CALLAHAN 1993 113,966 -0- -0- 5,000 -0- 6,897
Vice President, 1992 108,015 -0- -0- 4,800 -0- 4,952
General Counsel and 1991 105,160 -0- -0- 4,000 -0- NR
Secretary
R. SCOTT KEEFER 1993 100,008 -0- -0- 4,000 -0- 2,500
Vice President, Finance 1992 93,934 -0- -0- 4,000 -0- 2,782
and Chief Financial Officer 1991 89,040 -0- -0- 4,000 -0- NR
</TABLE>
- ---------
(1) This column represents base salary and includes any tax deferred Section
401(k) contributions under the Corporation's Thrift and Stock Purchase
Plan. The salary for Mr. Baum is for the period from June 9, 1993 through
the end of the year. The salary for Mr. Corn is for the period from the
beginning of the year through September 1993.
(2) The Corporation had a one-year bonus plan for 1991 which was replaced in
1992 by a short-term incentive plan under which bonus awards may be earned
each year by key management employees of the Corporation and its
subsidiaries, including executive officers, if certain performance goals
are achieved. For 1993, target bonus awards of 40% of base salary were made
in the case of Messrs. Conrad and Ellenburg and of 35% of base salary were
made in the case of Messrs. Callahan and Keefer. Awards equal to 50% and
150% of the target bonus awards were provided for if threshold and best
efforts goals less and greater than the target goals, respectively, would
be achieved. (See "Employment Agreement" and "Organization and Compensation
Committee Report on Executive Compensation--New CEO Compensation Package"
below for information with respect to Mr. Baum's bonus award.) Since none
of the performance goals were achieved, no bonus awards were earned by any
of the executive officers for 1993.
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<PAGE> 8
Because of his announced retirement, Mr. Corn was not designated as a
participant in the short-term bonus plan for 1993.
(3) The dollar value of perquisites and other personal benefits is required to
be disclosed under this column for any person if the amount for such person
equals or exceeds the lesser of $50,000 or 10% of the total of salary and
bonus. The dollar value of perquisites and other personal benefits did not
exceed the threshold amount for any of the persons named for any of the
years covered in the table.
(4) Mr. Baum was awarded 55,000 shares of Capital Stock as restricted stock
under his Employment Agreement. The shares are valued in the table at the
closing market price ($13.25) on August 13, 1993 when the shares were
awarded. The restrictions lapsed as to 20,000 shares on January 1, 1994.
The remaining shares will be held in escrow by the Corporation until the
restrictions lapse as to these shares. The restriction period lapses as to
20,000 shares on January 1, 1995 and as to the remaining 15,000 shares the
restriction periods lapse as to 3,000 shares on each of the first through
the fifth anniversaries of the date of the awards. The restrictions will
also lapse as to the remaining shares (i) upon the death of Mr. Baum, (ii)
in the event he is discharged without cause, (iii) in the event he resigns
after being notified that the term of his employment will not be extended
or in certain other circumstances or (iv) upon the occurrence of a change
of control (as defined in the Employment Agreement). Dividends have been
and will be paid to Mr. Baum on the shares during the restriction periods.
Mr. Baum will forfeit the shares if during the restriction period he is
discharged by the Corporation for cause or he resigns from employment with
the Corporation without good reason. The aggregate value of the 55,000
shares of restricted stock on December 31, 1993 was $735,625.
(5) Mr. Baum was granted stock options for 270,000 shares of Capital Stock under
his Employment Agreement, of which a stock option for 50,000 shares was
granted under the Corporation's 1986 Stock Option Plan. The stock options
granted to the other executive officers were also granted under this plan.
Alternative stock appreciation rights were granted in conjunction with the
stock options granted in 1991 but not in conjunction with the stock options
granted in 1992 and 1993.
(6) The amount in this column represents an award earned under the Corporation's
1986 Incentive Performance Plan. No further awards may be earned under this
plan which was replaced in 1992 by a new long-term incentive plan (see
"Long-Term Incentive Plan" below). Awards were granted under this plan in
1992 for a three-year award cycle 1992-1994 and in 1993 for a three-year
award cycle 1993-1995.
(7) For 1993, this column includes for Mr. Baum (i) a special bonus of $850,000
paid under his Employment Agreement, (ii) $463,750 representing the value
of 35,000 shares of Capital Stock awarded without restrictions on August
13, 1993 at $13.25 per share under the Employment Agreement and (iii)
certain costs amounting in the aggregate to $58,067 which the Corporation
paid to or reimbursed Mr. Baum for in connection with the Employment
Agreement and his relocation. For 1993, this column also includes the
following employer contributions and allocations for the accounts of the
persons named in the table under the Corporation's Thrift and Stock
Purchase Plan: Mr. Baum, none; Mr. Corn, $7,036; Mr. Conrad, $4,747; Mr.
Ellenburg, $4,385; Mr. Callahan $5,158; and Mr. Keefer, $2,500 and the
following premiums paid by the Corporation for the accounts of the persons
named in the table under the Corporation's Split Dollar Life Insurance
Plan: Mr. Baum, none; Mr. Corn, $7,220; Mr. Conrad, $1,066; Mr. Ellenburg,
$2,633; Mr. Callahan $1,739; and Mr. Keefer, none. There were no employer
contributions under the Corporation's Employee Stock Ownership Plan for
1993. Information is not required under this column for 1991.
Option Grants. The table below sets forth as to the persons named in the
Summary Compensation Table additional information with respect to the stock
options granted during 1993, including the potential realizable value from the
stock options assuming they are exercised at the end of the option term and
assuming 5% and
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10% annual rates of stock price appreciation (compounded annually) during the
option term. No alternative stock appreciation rights were granted in 1993.
OPTION GRANTS IN 1993
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES AT ASSUMED ANNUAL RATES OF
UNDERLYING % OF TOTAL STOCK PRICE APPRECIATION FOR
OPTIONS OPTIONS GRANTED EXERCISE OPTION TERM(3)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME OR GROUP (SHARES) 1933 ($/SH) DATE 5% 10%
- ---------------------- --------- --------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Herbert M. Baum(1) 50,000 13.2% $ 11.625 6/8/03 $ 366,188 $ 924,188
50,000 13.2% 13.625 12/8/03 456,511 1,174,948
50,000 13.2% 14.625 6/8/05 581,970 1,563,726
60,000 15.9% 11.9375 6/23/03 451,237 1,138,837
30,000 7.9% 14.9375 6/23/03 135,618 479,418
30,000 7.9% 17.9375 6/23/03 45,618 389,418
Conrad A. Conrad(2) 15,000 4.0% 12.625 12/15/03 119,306 189,375
Homer M. Ellenburg(2) 6,000 1.6% 12.625 12/15/03 47,723 120,443
Gerald W. Callahan(2) 5,000 1.3% 12.625 12/15/03 39,769 100,369
R. Scott Keefer(2) 4,000 1.1% 12.625 12/15/03 31,815 80,295
All stockholders of
the Corporation N/A N/A N/A N/A 216,746,194(4) 547,026,107(4)
</TABLE>
- ---------
(1) The stock option expiring on June 8, 2003 was granted effective June 9, 1993
and becomes exercisable in four equal annual installments on the first
through the fourth anniversaries of the date of grant. The stock option
expiring on December 8, 2003 was granted effective June 9, 1993 and becomes
exercisable in four equal annual installments on the second through the
fifth anniversaries of the date of grant. The stock option expiring on June
8, 2005 was granted effective June 9, 1993 and becomes exercisable in four
equal annual installments on the third through the sixth anniversaries of
the date of grant. The stock options expiring on June 23, 2003 were granted
effective June 24, 1993 and become exercisable in five equal annual
installments on the first through the fifth anniversaries of the date of
grant. Notwithstanding these terms, all the stock options granted to Mr.
Baum will vest and become exercisable in their entirety upon the occurrence
of a change of control (as defined in the Employment Agreement). The stock
options may be exercised following termination of employment under certain
circumstances, and the exercise price of the stock options may be paid in
cash, in shares of Capital Stock which have been held for at least six
months or in any combination of cash and shares.
(2) These stock options were granted on December 16, 1993 and become exercisable
on June 16, 1994. The grants were contingent upon each executive officer
executing an Employee Non-Competition, Confidential Information and
Non-Solicitation Agreement between the Corporation and the executive
officer. The stock options may be exercised following termination of
employment under certain circumstances, and the exercise price of the stock
options may be paid in cash, in shares of Capital Stock which have been
held for at least six months or in any combination of cash and shares.
(3) The assumed 5% and 10% annual rates of stock price appreciation do not
reflect recent annual rates of appreciation of the Capital Stock and are
not intended to forecast possible future stock price appreciation, if any.
(4) These amounts were determined using the total shares of Capital Stock
outstanding on December 16, 1993 of 27,250,818 and the option exercise
price of $12.625 for the stock options granted on December 16, 1993. At the
5% and 10% assumed annual rates of stock price appreciation for a ten-year
period, the total potential realizable value (without dividends) amounts to
63% and 159% of the total value of the outstanding shares on December 16,
1993.
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<PAGE> 10
Option/SAR Values. The table below sets forth as to the persons named in
the Summary Compensation Table information with respect to all their outstanding
stock options and alternative stock appreciation rights on December 31, 1993.
None of the persons named in the Summary Compensation Table exercised any stock
options or alternative stock appreciation rights during 1993.
1993 YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS/SARS VALUE OF UNEXERCISED
AT 1993 YEAR END IN-THE-MONEY OPTIONS/SARS
(SHARES)(1)(2) AT 1993 YEAR END($)(3)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Herbert M. Baum -0- 270,000 $ -0- $ 160,000
Jack W. Corn 66,800 -0- 58,125 -0-
Conrad A. Conrad 51,600 15,000 41,188 9,375
Homer M. Ellenburg 33,390 6,000 8,125 3,750
Gerald W. Callahan 25,051 5,000 3,250 3,125
R. Scott Keefer 24,400 4,000 9,375 2,500
</TABLE>
- ---------
(1) Only the stock options granted in 1993 were not exercisable at December 31,
1993. Alternative stock appreciation rights were granted in conjunction
with all stock options granted prior to 1992 and, accordingly, the named
persons hold alternative stock appreciation rights granted in conjunction
with stock options for the following number of shares: Mr. Baum, none; Mr.
Corn, 51,800 shares; Mr. Conrad, 38,600 shares; Mr. Ellenburg, 23,390
shares; Mr. Callahan, 21,051 shares and Mr. Keefer, 20,400 shares.
(2) With the approval of the Compensation Committee, the post-termination
exercise period for Mr. Corn's outstanding stock options was extended
through September 30, 1996.
(3) Represents the amount by which the fair market value of the shares covered
by in-the-money stock options at December 31, 1993 ($13.25) exceeded the
exercise price of such stock options. Certain of the stock options granted
to Mr. Baum during 1993 were not in-the-money as of December 31, 1993.
Long-Term Incentive Plan. The following table sets forth as to the persons
named in the Summary Compensation Table information with respect to the awards
granted during 1993 under the Corporation's long-term-incentive plan:
LONG-TERM INCENTIVE PLANS-AWARDS IN 1993
<TABLE>
<CAPTION>
ESTIMATED FUTURE
PAYOUTS UNDER
PERFORMANCE OR NON-STOCK PRICE-BASED
OTHER PERIOD PLANS
UNTIL MATURATION ---------------------
NAME OR PAYOUT THRESHOLD TARGET
- -------------------- ----------------- --------- -------
<S> <C> <C> <C>
Conrad A. Conrad 1993 through 1995 $27,720 $69,300
Homer M. Ellenburg 1993 through 1995 23,400 58,500
Gerald W. Callahan 1993 through 1995 15,360 38,400
R. Scott Keefer 1993 through 1995 14,000 35,000
</TABLE>
The awards were granted for a three-year cycle 1993-1995. Target awards
equal to the following percentages of base salary in effect on January 1 of the
last year of the award cycle (i.e., January 1, 1995) were designated for the
named persons as follows: Mr. Conrad, 40%; Mr. Ellenburg, 40%; Mr. Callahan,
35%; and Mr. Keefer, 35%. The target awards shown are based on the base salaries
in effect on January 1, 1994 and will change depending on the base salaries in
effect on January 1, 1995. The target awards are earned if the earnings per
share of Capital Stock equal a certain amount for 1995 or average a lesser
amount over the three-
10
<PAGE> 11
year period (Goal 1) and if the return on average stockholders' equity of the
Corporation equals a certain percentage for 1995 or averages a lesser percentage
over the three-year period (Goal 2). Seventy-five percent of the target award
may be earned if 90% of both Goals is achieved, 50% of the target award may be
earned if one Goal is achieved and the other is not and 40% of the target award
may be earned if 90% of one Goal is achieved. No award may be earned over and
above the target award, and the threshold amount is the least amount which may
be earned. Awards are paid at the end of each award cycle. Mr. Corn was not
designated as a participant for the three-year cycle 1993-1995, and Mr. Baum was
not eligible to be added as a participant under the terms of his Employment
Agreement (see below).
Awards were also granted in 1992 under the long-term incentive plan to
Messrs. Conrad, Ellenburg, Callahan and Keefer for a three-year award cycle
1992-1994. These executive officers are included among the executive officers
who have been designated to receive restricted performance shares for the
1994-1996 performance cycle under the Corporation's 1994 Stock Incentive Plan
which is being submitted to the Corporation's stockholders for their approval
(see "Approval of Adoption of 1994 Stock Incentive Plan--Restricted
Shares--Restricted Performance Shares" below). Messrs. Conrad, Ellenburg,
Callahan and Keefer have agreed that their contingent awards for the 1992-1994
and 1993-1995 award cycles under the long-term incentive plan will terminate
unearned if stockholder approval of the 1994 Stock Incentive Plan is obtained
and the restricted performance shares are awarded.
EMPLOYMENT AGREEMENT
Mr. Baum is employed by the Corporation under an Employment Agreement,
dated as of June 9, 1993. The Employment Agreement provides for the employment
of Mr. Baum as Chairman and Chief Executive Officer through June 8, 1996 at a
base salary of not less than $450,000 per annum. The term of the Employment
Agreement will be extended automatically for one additional year as of June 9,
1996 and each annual anniversary date thereafter unless, no later than 90 days
prior to any renewal date, either the Board of Directors of the Corporation or
Mr. Baum gives written notice to the other that the Employment Agreement is not
to be extended. The base salary may be increased during the term of the
Employment Agreement.
Mr. Baum is also entitled to an annual bonus for each calendar year of
employment (prorated for any partial year) upon the Corporation's achievement of
operating and/or financial goals established for the calendar year. He is
entitled to 50% of his base salary in effect at the end of the calendar year
upon attainment of targeted performance and to 100% of such base salary upon
attainment of maximum performance. This annual bonus is in lieu of his
participation in any other cash bonus or incentive plan or arrangement of the
Corporation, except that he may participate in any equity or equity-based
compensation program of the Corporation and that the bonus arrangement may be
replaced with a different program approved by the Board of Directors with Mr.
Baum's consent.
For information with respect to stock options and share awards granted to
Mr. Baum under the Employment Agreement, to a special bonus paid to Mr. Baum
under the Employment Agreement and to certain costs which the Corporation paid
to or reimbursed Mr. Baum for in connection with the Employment Agreement and
his relocation, see "Compensation of Executive Officers" above and "Organization
and Compensation Committee Report on Executive Compensation--New CEO
Compensation Package" below. The Employment Agreement also provides that Mr.
Baum will participate in the Corporation's various retirement, welfare, fringe
benefit and executive perquisite plans, programs and arrangements to the extent
he is eligible to do so. Mr. Baum needs one year of continuous service to become
a participant in Quaker State's Thrift and Stock Purchase Plan, Employee Stock
Ownership Plan, Salaried Pension Plan and Supplemental Excess Retirement Plan.
Additional transactions that occurred during 1993 under the Employment
Agreement were as follows: (i) Mr. Baum purchased 30,000 shares of the Capital
Stock on the open market at prices of $11.75 and $11.88 per share, (ii) the
Corporation extended a line of credit to Mr. Baum in the amount of $400,000 with
interest at 3.59% per annum which was available to be drawn upon until he sold
his personal residence in New Jersey (the full amount was borrowed and repaid,
including accrued interest) and (iii) because Mr. Baum was
11
<PAGE> 12
unable to sell such residence within 90 days, the Corporation purchased the
residence from Mr. Baum for an appraised price of $350,000. Subsequently, the
Corporation sold the residence at the same price.
The Employment Agreement provides that it will terminate in the event of:
(i) Mr. Baum's death, (ii) his discharge for cause, (iii) his disability, (iv)
his discharge without cause or (v) his resignation. In the event the Employment
Agreement terminates by reason of Mr. Baum's disability, discharge without cause
or resignation, the Corporation is required to pay to Mr. Baum a
Severance/Retirement Amount which is an amount, calculated as of the date of
termination, which is the monthly equivalent of a $141,000 annual benefit
reduced by the actuarial equivalent of (a) Mr. Baum's projected primary Social
Security amount and (b) the benefits payable to Mr. Baum under all tax qualified
retirement plans maintained by the Corporation. The payment of the
Severance/Retirement Amount would be suspended during any period during which
Mr. Baum would be an employee or independent contractor of another company with
a rate of compensation equal to or in excess of $12,000 per month, and in the
event of Mr. Baum's disability, the payment would be reduced dollar for dollar
by the amount of any disability benefits paid to Mr. Baum in accordance with the
Corporation's disability program.
In the event Mr. Baum is discharged without cause or resigns with good
reason at any time within two years following the date a change of control
occurs, he will also be entitled to receive from the Corporation for a period of
three years from the date of termination of employment an amount equal to the
aggregate of his base salary and his target bonus for the calendar year in which
the date of termination occurs.
For purposes of the Employment Agreement, "change of control" means (i) the
acquisition (other than from the Corporation) by any person (other than the
Corporation, its subsidiaries, any employee benefit plan or related trust
sponsored or maintained by the Corporation or any of its subsidiaries and
certain other specified persons) of the beneficial ownership of 30% or more of
the voting power of the voting securities of the Corporation, (ii) individuals
who on the date of the Employment Agreement constitute the Board of Directors
(the "Incumbent Board") cease to constitute at least a majority of the Board,
provided that any subsequent Board member whose election or nomination for
election was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board will be considered as though such individual were
a member of the Incumbent Board, but excluding, for this purpose, any individual
whose initial assumption of office as a director is in connection with an actual
or threatened election contest relating to the election of directors, (iii) the
stockholders of the Corporation approve a reorganization, merger or
consolidation (a "Business Consolidation"), with respect to which the beneficial
owners of the voting securities of the Corporation immediately prior to the
Business Combination do not following the Business Combination beneficially own,
directly or indirectly, more than 60% of the voting power of the voting
securities of the corporation resulting from the Business Combination in
substantially the same proportion as their ownership of the voting power of the
voting securities of the Corporation prior to the Business Combination or (iv) a
complete liquidation or dissolution of the Corporation or the sale or other
disposition of all or substantially all the assets of the Corporation to another
person (with in the case of the sale or disposition of assets certain
exceptions).
The Employment Agreement also contains a non-competition and
non-solicitation agreement on the part of Mr. Baum which covers the period of
his employment under the Employment Agreement and the three years after any
termination of employment.
PENSION BENEFITS
The Salaried Pension Plan (the "Pension Plan") of the Corporation covers
substantially all its salaried employees. The Pension Plan is a
non-contributory, defined benefit plan providing for pensions based upon years
of credited service and average annual base salary for the thirty-six
consecutive months of highest earnings in the last ten years of service. Pension
benefits become vested after five years of vesting service.
The Pension Plan has been amended to establish a new benefit formula. The
benefit formula for participants with five or more years of vesting service as
of March 1, 1993 ("Class I Participants") was not changed. A new benefit formula
was established for employees who become participants on or after March 1,
12
<PAGE> 13
1993 and participants who did not have five years of vesting service as of March
1, 1993 ("Class II Participants").
Pension Plan Tables I and II below present the estimated annual retirement
benefits under the Pension Plan under both formulas for the average annual base
salary and years of credited service indicated on the assumptions that full
retirement benefits are payable and that the benefits will be paid in the form
of a straight life annuity.
Pension Plan Table I provides information for Class I Participants who
receive up to 30 years of credited service. The pension for these participants
is reduced by up to 66% of the employee's primary social security amount, but
the retirement benefits shown do not reflect the deduction. Messrs. Corn,
Conrad, Ellenburg, Callahan and Keefer are Class I Participants.
Pension Plan Table II provides information for Class II Participants who
receive up to 35 years of credited service. The retirement benefit of these
participants is equal to a percentage of average annual base salary plus an
additional percentage of the amount by which average annual base salary exceeds
average annual social security covered compensation for the year of the
employee's termination of employment or retirement, whichever is earlier, and
the preceding 34 years. The retirement benefits shown in the table are based on
average annual social security covered compensation for the 35-year period
through and including 1993. Mr. Baum will be a Class II Participant.
PENSION PLAN TABLE I
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF CREDITED SERVICE
AVERAGE INDICATED
ANNUAL --------------------------------------------------------------------------
BASE SALARY 10 YR. 15 YR. 20 YR. 25 YR. 30 YR.
- ----------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
100,000....... 27,500 41,250 55,000 60,000 65,000
150,000....... 41,250 61,875 82,500 90,000 97,500
200,000....... 55,000 82,500 110,000 120,000 130,000
250,000....... 68,750 103,125 137,500 150,000 162,500
300,000....... 82,500 123,750 165,000 180,000 195,000
350,000....... 96,250 144,375 192,500 210,000 227,500
</TABLE>
PENSION PLAN TABLE II
<TABLE>
<CAPTION>
AVERAGE ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF CREDITED SERVICE INDICATED
ANNUAL ------------------------------------------------------------------------------
BASE SALARY 5 YR. 10 YR. 15 YR. 20 YR. 25 YR. 30 YR. 35 YR.
- ----------- ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
100,000...... 7,180 14,360 21,540 28,720 35,900 43,080 50,260
150,000...... 11,055 22,110 33,165 44,220 55,275 66,330 77,385
200,000...... 14,930 29,860 44,790 59,720 74,650 89,580 104,510
250,000...... 18,805 37,610 56,415 75,220 94,025 112,830 131,635
450,000...... 34,305 68,610 102,915 137,220 171,525 205,830 240,135
550,000...... 42,055 84,110 126,165 168,220 210,275 252,330 299,385
</TABLE>
Base salary is the only compensation taken into account for the purpose of
determining the benefits under the Pension Plan. The salaries reflected in the
Summary Compensation Table for Messrs. Conrad, Ellenburg, Callahan and Keefer
for the last three years are the salaries which would have been taken into
account had their service terminated on December 31, 1993. As of that date,
Messrs. Conrad, Ellenburg, Callahan and Keefer had 18, 18, 19 and 18 years of
credited service, respectively. Mr. Corn retired with an average annual base
salary of $350,004 and 18 years of credited service for purposes of the Pension
Plan.
Sections 401(a)(17) and 415 of the Internal Revenue Code limit,
respectively, the amount of compensation which may be used in calculating
pension benefits, and the maximum amount of annual benefits
13
<PAGE> 14
which may be paid, under tax-qualified retirement plans such as the Pension
Plan. The Corporation has a Supplemental Excess Retirement Plan which authorizes
the payment from general funds of the Corporation of any benefits calculated
under the provisions of the Pension Plan which may be above the limits under
these Sections.
The Pension Plan provides that if the Pension Plan is terminated within
three years following a change of control and if upon such termination there
exist excess Pension Plan assets, then all active participants in the Pension
Plan who are not otherwise vested will become fully vested, and any excess
assets will be allocated among all (i) active participants, (ii) retirees who
began receiving benefits under the Pension Plan at the time of termination of
their employment and (iii) beneficiaries of the foregoing proportionately on the
basis of their respective benefits payable under the Pension Plan as of its
termination date. A change of control is deemed to have occurred under the same
circumstances that a change of control is deemed to have occurred under the
Corporation's Severance Plan described below. This provision of the Pension Plan
may not be amended for three years following a change of control.
Mr. Baum is entitled to a Severance/Retirement Amount under certain
circumstances as provided under "Employment Agreement" above. The
Severance/Retirement Amount is subject to reduction in the event Mr. Baum
becomes entitled to pension benefits under the Pension Plan.
SEVERANCE BENEFITS
The Corporation has a severance plan (the "Severance Plan") under which
eligible employees are entitled to a severance allowance in the event of
termination of employment following a change of control (the "Severance Plan").
All non-represented full-time salaried employees and all non-represented
full-time hourly employees of the Corporation and its domestic subsidiaries are
entitled to participate. Under the Severance Plan, an eligible employee whose
employment is terminated by employer action other than for cause following a
change of control (with a few exceptions) or who resigns under certain
circumstances following a change of control is entitled to a severance
allowance, equal to two weeks' earnings for each full year the employee has been
employed plus earned but unused vacation pay. For purposes of determining the
severance allowance, an employee's earnings include his or her regular rate of
salary for the calendar year in which the change of control occurs plus bonuses
earned for the preceding calendar year, reduced to a weekly average; provided,
however, that if such earnings for the calendar year in which the termination
occurs are higher, the higher earnings are used. The severance allowance is
payable semi-monthly over the number of weeks of earnings to be paid, but
payments cease upon the death of the former employee. Participation in any
pension or medical plan in which the employee participated at the time of
termination of employment also continues during the severance allowance payment
period. The Severance Plan may not be amended or terminated for three years
following a change of control.
For purposes of the Severance Plan, a change of control is deemed to have
occurred if (i) any person acquires the beneficial ownership of 30% or more of
the voting power of the voting securities of the Corporation or after acquiring
such voting power acquires an additional 5% or more of the voting power, unless
two-thirds of the Corporation's "Continuing Directors" (as defined below)
approve the acquisition in advance; (ii) a "Tender Offer" (as defined below) is
commenced or announced, unless acceptance of the Tender Offer is recommended by
two-thirds of the Continuing Directors or unless the Tender Offer is withdrawn
or otherwise terminated without the acquisition of 30% or more of the voting
power of the voting securities of the Corporation; (iii) less than 51% of the
members of the Board of Directors of the Corporation are Continuing Directors;
or (iv) the stockholders of the Corporation approve (a) a transaction providing
for the merger or consolidation of the Corporation with another corporation, (b)
a transaction providing for all or substantially all the assets of the
Corporation to be acquired by or leased to another person or (c) the liquidation
of the Corporation, unless the transaction or the liquidation has been approved
by two-thirds of the Continuing Directors.
As used in the Severance Plan, "Tender Offer" means an offer to acquire
securities of the Corporation which after the completion of the offer may result
in a person becoming the beneficial owner of 30% or more of the voting power of
the voting securities of the Corporation or a beneficial owner of 30% or more of
such voting
14
<PAGE> 15
power acquiring an additional 5% or more of the voting power; and "Continuing
Director" means a director of the Corporation who either (i) was a director of
the Corporation on March 31, 1988 or (ii) is an individual whose election or
nomination for election as a director of the Corporation was approved by at
least two-thirds of the directors then in office who were Continuing Directors,
other than an individual whose initial assumption of office as a director is in
connection with an actual or threatened election contest relating to the
election of directors.
The Corporation also has a Severance Pay Plan for Salaried and Hourly
Non-Union Employees which covers substantially all its salaried employees and
which provides for severance benefits in the event the Corporation reduces the
workforce, eliminates the covered employee's position or closes or sells the
facility at which the covered employee is employed. The payments under this plan
are one week of base salary multiplied by years of service. None of the persons
named in the Summary Compensation Table above could receive severance payments
in excess of $100,000 under this plan and payments under this plan are not made
if payments are made under the Severance Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has a $45,000,000 revolving credit facility with a group of
banks, including Integra Bank/North, which participates in such facility to the
extent of $5,000,000. Integra Bank/North is a wholly owned subsidiary of Integra
Financial Corporation, of which Mr. Carroll is President and Chief Operating
Officer. The Corporation is entitled to make borrowings under this facility at
current interest rates the Corporation may select from several interest rate
options. As of December 31, 1992, $14,000,000 was borrowed under the revolving
credit facility. No additional amounts were borrowed by the Corporation during
1993 and the full amount of the borrowings was repaid during 1993 so there were
no outstanding borrowings under the revolving credit agreement as of December
31, 1993.
The Corporation and a trust for the benefit of the three children of Mr.
Ross are parties to a lease pursuant to which the Corporation leases a warehouse
and office space in Miami, Florida at an annual rental of $84,000 plus taxes.
The lease expires on December 31, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At the beginning of 1993, the members of the Compensation Committee were
Kenton E. McElhattan (Chairman), Dr. Gardner and Messrs. McClelland, William J.
McFate and Quentin E. Wood. In February 1993, Dr. Gardner replaced Mr.
McElhattan as Chairman and Mr. Fetterolf was elected a member of the Committee.
Messrs. McElhattan, McFate and Wood did not stand for reelection as directors at
the 1993 Annual Meeting and Mr. McQuaide was added to the Committee in May 1993.
Mr. Wood was Chief Executive Officer of the Corporation from 1976 to July 1988.
Mr. McFate was General Counsel of the Corporation from 1963 through May 1993.
During 1993, there were, and there presently are, no interlocking
relationships, as defined in regulations of the Securities and Exchange
Commission, involving members of the Compensation Committee.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee is comprised of four
independent directors. During 1993, the Committee worked extensively with a
compensation consultant. The Committee (i) establishes policy regarding
executive compensation, (ii) recommends to the Board of Directors salary and
cash incentive compensation for the Chief Executive Officer, (iii) reviews and
approves salaries and cash compensation for the Corporation's other executive
officers and other senior executives, (iv) makes all stock option grants and
share awards to executive officers under stockholder approved stock incentive
plans and (v) supervises the administration of the Corporation's executive
compensation program. A major emphasis of the Committee is to relate executive
compensation to corporate performance and stockholder value.
An Unusual Year. This year's Committee report describes an unusual year.
During 1992, the Corporation's Chief Executive Officer, Jack W. Corn, announced
his intention to retire as an officer no later than
15
<PAGE> 16
October 1993. A new CEO, Herbert M. Baum, was employed in June 1993. He had been
a top executive with Campbell Soup Company. A special committee of Board members
worked with an executive search firm and the same compensation consultant that
has been retained by the Committee in developing the compensation package for
Mr. Baum. The Committee as well as the full Board of Directors approved the
compensation arrangements which became the basis for a reevaluation and change
in the Corporation's executive compensation program effective at the beginning
of 1994.
The remainder of this report describes the compensation program as it
existed for 1993, describes the new CEO's compensation package and provides
information with respect to the Corporation's executive compensation program for
1994 and subsequent years.
1993 Compensation Program. Because he had announced his intention to
retire during 1993, the Committee did not adjust Mr. Corn's base salary for 1993
and he did not receive in 1993 a contingent award under either the Corporation's
short or long-term incentive plans. Mr. Corn also was not granted a stock option
during 1993 although upon retirement the period during which he could exercise
his outstanding stock options following termination of employment was extended.
In recent years, annual compensation for the executive officers has
included a base salary which was reviewed by the Committee on an annual basis
and a cash bonus, if earned, under a short-term incentive plan. Long-term
compensation has been provided under a long-term cash incentive plan and by
stock options.
The salaries of the executive officers have been primarily based on the
experience of each executive officer in his or her position with the Corporation
and on individual performance. For 1993, the executive officers, exclusive of
Mr. Corn as provided above, in general received lower than usual salary
increases because of the Corporation's unsatisfactory 1992 financial results.
One executive officer received a greater than usual salary increase for 1993 to
bring his salary in line with his duties and during 1993 two of the executive
officers received additional salary increases to reflect the responsibilities of
their positions.
For 1993, in the case of executive officers with corporate-wide
responsibility the performance goals under the short-term incentive plan were
tied to specific corporate earnings per share ("EPS") and return on average
equity ("ROE") targets. These goals were given substantially equal weight. For
executive officers with operating units, bonuses could be earned in part (up to
30%) based on the same performance goals but primarily on specific operating
profit and return on capital targets at the operating unit level. These goals
were also given substantially equal weight. The performance measures and targets
were established by the Committee in February 1993 based on the Corporation's
operating plan for 1993 as approved by the Board of Directors. The targets for
the executive officers named in the Summary Compensation Table (other than
Messrs. Baum and Corn) were either 35% or 40% of base salary but threshold and
best efforts amounts equal to 50% and 150% of the target awards were provided
for as well. No bonuses were, however, earned by any of the Corporation's
executive officers for 1993 under the short-term incentive plan.
The Committee, through the compensation consultant and other sources, has
had access to information with respect to the salaries and bonuses by position
of executives at companies with comparable sales. In the past and for 1993 this
information has been taken into account but has not been given significant
weight by the Committee in part because of the Corporation's disappointing
financial performance. Annual salaries and related bonus targets have been below
and in some cases well below the 50th percentile of general industry executive
pay for comparably-sized companies. No particular attention has been paid to the
compensation paid by the companies in the peer group for which information is
provided in the stockholder return performance graph. In December 1993, the
Committee decided on an executive compensation philosophy for future years of
providing 50th percentile competitive compensation.
Under the Corporation's long-term incentive plan which was adopted in 1992,
contingent cash payments were provided in 1992 and then again in 1993. The
payments are earned at the end of a three-year period only if performance goals
tied to specific EPS and ROE targets for the three-year period are achieved. The
contingent cash payments have been provided only to those executive officers who
have been responsible for setting long-term business strategy. The contingent
cash payments for 1993 were provided by the Committee in February 1993 for the
1993-1995 award cycle only to the persons named in the Summary Compensation
16
<PAGE> 17
Table (other than Messrs. Baum and Corn) and one other executive officer who
retired in August 1993. As with the short-term plans, the targets for the
executive officers were either 35% or 40% of base salary. Although the EPS and
ROE performance measures under the long-term plan are the same as the measures
for all or part of the awards under the short-term plan, the goals under the
long-term plan are more difficult to achieve. Part of the target contingent cash
payments may be earned if one goal is achieved but the other is not or 90% of
either goal or both goals is achieved. The long-term incentive plan is described
in more detail in this Proxy Statement under the caption "Compensation of
Executive Officers-Long Term Incentive Plan."
Stock options have traditionally been granted annually by the Committee in
the third calendar quarter. As a result of the reevaluation of the executive
compensation program, action on 1993 stock options, except for Mr. Baum (see
below) and one other new executive officer, was postponed. In December 1993,
stock options were granted under the Corporation's 1986 Stock Option Plan to 24
persons, including all the Corporation's executive officers except Mr. Baum. The
number of stock options granted to each person was based upon responsibilities,
past performance and potential future contributions and not on the number of
stock options previously received. The terms of the stock options were
substantially the same as in prior years except that the period during which
stock options may be exercised following termination of employment was generally
extended to three years. The 1993 grant to each executive officer was, however,
contingent upon his or her executing an Employee Non-Competition, Confidential
Information and Non-Solicitation Agreement between the Corporation and the
executive officer.
New CEO Compensation Package. Mr. Baum's compensation package was developed
to provide a strong performance incentive to improve the Corporation's financial
and stock performance and to create a fair transition for Mr. Baum from his
previous compensation arrangement.
Mr. Baum's annualized base salary was established at $450,000, which is
approximately the 50th percentile of general industry executive pay for
comparably-sized companies. His target annual bonus incentive is 50% of base
salary, which is also competitive for the CEO position within general industry,
and he may earn an annual bonus of 100% of base salary upon attainment of a
maximum performance objective. For 1993, at Mr. Baum's suggestion his targeted
and maximum performance goals were established to be the same as the target and
best efforts goals established under the Corporation's short-term incentive plan
for executive officers with corporate-wide responsibility prior to the time Mr.
Baum was employed. As stated above, none of the executive officers earned a
bonus under the short-term plan for 1993 so Mr. Baum also did not earn a bonus.
If earned, his 1993 bonus would have been prorated based on time employed. Mr.
Baum's bonus arrangement is in lieu of his participation in any other cash bonus
or cash incentive plan arrangement of the Corporation.
In addition to the base salary and bonus, as an inducement to enter into an
Employment Agreement with the Corporation, Mr. Baum received a special bonus of
$850,000 and the Corporation agreed to award Mr. Baum 60,000 shares of the
Corporation's Capital Stock, of which 40,000 shares would be subject to
restrictions. Twenty thousand of the restricted shares vested on January 1, 1994
and 20,000 shares vest on January 1, 1995. Mr. Baum also received nonstatutory
stock options for 150,000 shares of the Corporation's Capital Stock at the time
he entered into the Employment Agreement.
Mr. Baum agreed to purchase 30,000 shares of the Corporation's Capital
Stock to establish a substantial share ownership interest. The shares were
purchased in the open market at share prices of $11.75 and $11.88. In turn, the
Corporation agreed upon consummation of the purchase to grant Mr. Baum
nonstatutory stock options for an additional 120,000 shares of the Corporation's
Capital Stock and to award Mr. Baum 30,000 additional shares of Capital Stock,
of which 15,000 shares would be subject to restrictions. Three thousand of the
restricted shares vest each August from 1994 through 1998.
Of the stock options, options for 110,000 shares were granted at the fair
market value of the Corporation's Capital Stock on the date of grant. The
remaining stock options were granted at exercise prices ranging from $2 to $6
per share in excess of fair market value on the date of grant.
In recommending approval of the Employment Agreement, the Committee stated
that even though the compensation package offered would not reimburse Mr. Baum
for all the compensation he could have received
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from his prior employer, it considered the compensation package as adequate in
view of the offer of the top executive position and the challenge to turn the
Corporation around. The Committee also noted that the compensation package was
weighted towards compensation reflecting increased stockholder value. Additional
information regarding the share awards, the stock options and other provisions
of the Employment Agreement between the Corporation and Mr. Baum is set forth
above in other portions of this Proxy Statement.
New Executive Compensation Program. The executive compensation program
approved by the Committee for 1994 and subsequent years is as follows: (i) Base
salary increases will be made to bring the salaries of the executive officers
more in line with the Corporation's 50th percentile philosophy, (ii) the annual
bonus plan has been revised to include new performance measures designed to
better relate to the individual executive's annual performance, (iii) a new
long-term incentive compensation program has been implemented which provides for
the grant of stock options and the award of restricted performance shares,
subject to stockholder approval of the Corporation's 1994 Stock Incentive Plan
and (iv) share ownership goals for corporate executives have been established,
which are ownership of corporate stock having a fair market value equivalent to
two-times annual base salary for the Chief Executive Officer and the President
and Chief Operating Officer and one-times annual base salary for all other
executive officers. The long-term incentive plan adopted in 1992 has been
discontinued and the executive officers who received contingent awards under
this plan and have also been designated to receive restricted performance shares
for the 1994-1996 performance cycle under the 1994 Stock Incentive Plan have
agreed that their contingent awards under the 1992 plan will be terminated
unearned if the stockholder approval is obtained and their restricted
performance shares are awarded. The compensation consultant was very much
involved with the development of the new program.
The Committee intends to structure the Corporation's executive compensation
so that the annual bonus program and the long-term compensation will be tied to
objective performance standards. If stockholder approval of the 1994 Stock
Incentive Plan is obtained, awards of restricted performance shares as well as
grants of stock options under this Plan will not be subject to the deductibility
limitation of Section 162(m) of the Internal Revenue Code.
<TABLE>
<S> <C>
Thomas A. Gardner, Chairman W. Craig McClelland
C. Frederick Fetterolf Delbert J. McQuaide
</TABLE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following line graph compares the cumulative total stockholder return
on the Corporation's Capital Stock over the years 1989-1993 against the
cumulative total return of the Standard and Poor's 500 Stock Index and the
cumulative total return of peer issuers selected by the Corporation over the
same period. The graph assumes a $100 investment on December 31, 1988 in the
Corporation's Capital Stock, the Index and the peer group, and the cumulative
total return assumes the reinvestment of dividends.
The peer group selected by the Corporation includes the Corporation and the
following petroleum refiners and marketers: Ashland Oil, Inc., Diamond Shamrock,
Inc., Getty Petroleum Corp., Holly Corporation, Pennzoil Company, Sun Company,
Inc., Tesoro Petroleum Corporation, Tosco Corp., Total Petroleum, N.A., Ultramar
Corp. and Valero Energy Corporation. The peer group was selected from a group of
refiners and marketers included in a Standard & Poors Research Report prepared
for the Corporation.
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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE CORPORATION, S&P 500 STOCK INDEX AND PEER GROUP
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Quaker State 100.00 89.32 71.75 92.46 86.88 106.06
S&P 500 100.00 131.69 127.60 166.47 179.15 197.21
Peer Group 100.00 130.44 97.97 109.53 101.77 122.70
</TABLE>
APPROVAL OF ADOPTION OF
1994 STOCK INCENTIVE PLAN
The 1994 Stock Incentive Plan (the "Plan") was adopted by the Corporation's
Board of Directors on December 16, 1993 but has since been amended to include
provisions deemed necessary or advisable as a result of new Section 162(m) of
the Internal Revenue Code of 1986 (the "Code") relating to the deductibility of
executive compensation for Federal income tax purposes. If stockholder approval
of the Plan is obtained, the effective date of the Plan will be December 16,
1993.
The Board of Directors recommends that the stockholders vote "FOR" approval
of adoption of the Plan. Unless otherwise directed therein, the proxies
solicited hereby will be voted for approval of adoption of the Plan.
The principal features of the Plan are summarized below, but the summary is
qualified in its entirety by the full text of the Plan, which is set forth as
Exhibit A to this Proxy Statement.
GENERAL
The purposes of the Plan are to encourage eligible employees of the
Corporation and its subsidiaries to increase their efforts to make the
Corporation and each subsidiary more successful, to provide an additional
inducement for such employees to remain with the Corporation or a subsidiary, to
reward such employees by providing an opportunity to acquire shares of the
Corporation's Capital Stock on favorable terms and to provide a means through
which the Corporation may attract able persons to enter the employ of the
Corporation or one of its subsidiaries. Those key employees of the Corporation
or any subsidiary (including, but not limited to, covered employees as defined
in Section 162(m)(3) of the Code) who share responsibility for the management,
growth or protection of the business of the Corporation or any subsidiary are
eligible to be granted stock options and other awards under the Plan.
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<PAGE> 20
The aggregate number of shares of the Corporation's Capital Stock which may
be issued under the Plan is 1,250,000 shares, subject to proportionate
adjustment in the event of stock splits and similar events. The maximum number
of shares as to which stock options may be granted and as to which shares may be
awarded under the Plan to any one employee during any calendar year is 200,000
shares, subject to adjustment and substitution as set forth in Section 7. No
stock options or other awards may be granted under the Plan subsequent to
December 15, 2003.
If any stock option granted under the Plan is cancelled by mutual consent
or terminates or expires for any reason without having been exercised in full,
the number of shares subject to the stock option will again be available for
purposes of the Plan, except that to the extent that alternative stock
appreciation rights granted in conjunction with a stock option under the Plan
are exercised and the related stock option surrendered the number of shares
available for purposes of the Plan will be reduced by the number of shares of
Capital Stock issued upon exercise of the alternative stock appreciation rights.
If shares of Capital Stock are forfeited to the Corporation pursuant to the
restrictions applicable to restricted shares awarded under the Plan, the shares
forfeited will not again be available for purposes of the Plan unless during the
period the shares were outstanding the grantee received no dividends or other
benefits of ownership from the shares. For the purpose of applying this
standard, no benefit is deemed to be derived from voting rights or where
dividends accumulate but due to forfeiture are never realized. To the extent
performance shares are not earned, the number of shares is again available for
purposes of the Plan.
The shares of the Corporation's Capital Stock which may be issued under the
Plan may be either authorized but unissued shares or treasury shares or partly
each.
ADMINISTRATION
The Plan is required to be administered by a Committee appointed by the
Board of Directors and consisting of not less than two members of the Board,
none of whom is eligible to participate in the Plan. The Board has appointed the
Organization and Compensation Committee of the Board (the "Committee") as the
Committee to administer the Plan.
The Committee has the power to interpret the Plan and to prescribe rules,
regulations and procedures in connection with the operation of the Plan. All
questions of interpretation and application of the Plan, or as to grants or
awards under the Plan, are subject to the determination of the Committee, which
will be final and binding.
The Committee has full authority, in its discretion, to grant awards under
the Plan and to determine the employees to whom awards will be granted and the
number of shares to be covered by each award. In determining the eligibility of
any employee, as well as in determining the number of shares to be covered by an
award and the type or types of awards to be made, the Committee will consider
the position and the responsibilities of the employee being considered, the
nature and value to the Corporation or a subsidiary of the employee's services,
the employee's present and/or potential contribution to the success of the
Corporation or a subsidiary and such other factors as the Committee may deem
relevant.
STOCK OPTIONS
The Committee has authority, in its discretion, to grant incentive stock
options (stock options qualifying under Section 422 of the Code), nonstatutory
stock options (stock options not qualifying under Section 422 or 423 of the
Code) or both types of stock options (but not in tandem). The Committee may
grant alternative stock appreciation rights in conjunction with incentive stock
options or nonstatutory stock options and may grant cash payment rights in
conjunction with nonstatutory stock options.
The option price for each stock option will be such price as the Committee,
in its discretion, determines but will not be less than 100% of the fair market
value of the Capital Stock on the date of grant of the stock option, except that
in the case of an incentive stock option granted to an employee who owns more
than 10% of the outstanding shares of the Corporation's Capital Stock (a "Ten
Percent Employee"), the option price will not be less than 110% of such fair
market value. Fair market value for all purposes under the Plan is the mean
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<PAGE> 21
between the highest and lowest sales prices per share of the Corporation's
Capital Stock as quoted in the NYSE-Composite Transactions listing in The Wall
Street Journal for the date as of which fair market value is determined. On
March 15, 1994, the fair market value of a share of the Corporation's Capital
Stock, as so computed, was $13 7/8.
Each stock option will be exercisable at such time or times as the
Committee, in its discretion, determines, except that no stock option will be
exercisable after the expiration of ten years (five years in the case of an
incentive stock option granted to a Ten Percent Employee) from the date of
grant. A stock option to the extent exercisable at any time may be exercised in
whole or in part.
Unless the Committee, in its discretion, otherwise determines, the
following provisions in this paragraph will apply in the event of the
termination of employment of the optionee. If the employment of the optionee is
voluntarily terminated with the consent of the Corporation or a subsidiary, the
optionee becomes entitled to a severance benefit under the Corporation's
Severance Pay Plan for Salaried and Hourly Non-Union Employees (the "Severance
Pay Plan") or the optionee retires under any retirement plan of the Corporation
or a subsidiary, all outstanding stock options held by the optionee will be
exercisable by the optionee (but only to the extent exercisable immediately
prior to the termination of employment) at any time prior to the expiration date
of the stock option or within three years after the date of termination of
employment, whichever is the shorter period, and to the extent not exercisable
will terminate. Following the death of an optionee during employment, all
outstanding stock options held by the optionee at the time of death will be
exercisable in full (whether or not so exercisable immediately prior to the
death of the optionee) by the person entitled to do so under the Will of the
optionee, or, if the optionee shall fail to make testamentary disposition of the
stock option or shall die intestate, by the legal representative of the
optionee, at any time prior to the expiration date of the stock option or within
three years after the date of death of the optionee, whichever is the shorter
period. Unless the expiration date of a stock option is extended following a
termination of employment after the occurrence of certain events (see
"Additional Rights in Certain Events" below), if the employment of the optionee
terminates for any reason other than voluntary termination with the consent of
the Corporation or a subsidiary, severance under the Severance Pay Plan,
retirement under any retirement plan of the Corporation or a subsidiary or
death, all outstanding stock options held by the optionee at the time of the
termination of employment will terminate.
Unless the Committee, in its discretion, otherwise determines, the option
price for each stock option will be payable in full in cash at the time of
exercise; however, in lieu of cash the person exercising the stock option may
pay the option price in whole or in part by delivering to the Corporation
previously owned shares of the Corporation's Capital Stock having a fair market
value on the date of exercise of the stock option equal to the option price for
the shares being purchased, except that any portion of the option price
representing a fraction of a share must be paid in cash and no shares of Capital
Stock which have been held less than six months may be delivered in payment of
the option price of a stock option. The Corporation will cooperate with any
person exercising a stock option who participates in a cashless exercise program
of a broker or other agent under which all or part of the shares received upon
exercise of the stock option are sold through the broker or other agent or under
which the broker or other agent makes a loan to such person.
For incentive stock options, the aggregate fair market value (determined on
the date of grant) of the shares with respect to which incentive stock options
are exercisable for the first time by an employee during any calendar year under
all plans of the corporation employing the employee, any parent or subsidiary
corporation of such corporation and any predecessor corporation of any such
corporation may not exceed $100,000. If the exercise date of incentive stock
options is accelerated pursuant to any provision of the Plan or any stock option
agreement (see "Additional Rights in Certain Events" below) and the acceleration
would result in the violation of this limitation, then, subject to the
provisions of the next sentence, the exercise dates of such incentive stock
options will be accelerated only to the extent, if any, that does not result in
a violation of the limitation and, in any such event, the exercise dates of the
incentive stock options with the lowest option prices will be accelerated first.
The Committee may, in its discretion, authorize the acceleration of the exercise
date of one or more incentive stock options even if such acceleration would
violate the $100,000 limitation and even if such incentive stock options would
as a result be converted in whole or in part into nonstatutory stock options.
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<PAGE> 22
Unless the Committee, in its discretion, otherwise determines, (i) no stock
option granted under the Plan will be transferable other than by Will or by the
laws of descent and distribution and (ii) a stock option may be exercised during
an optionee's lifetime only by the optionee.
Alternative stock appreciation rights. Alternative stock appreciation
rights granted in conjunction with an incentive stock option may only be granted
at the time of the stock option grant. Alternative stock appreciation rights
granted in conjunction with a nonstatutory stock option may be granted either at
the time the stock option is granted or at any time during the term of the stock
option.
Alternative stock appreciation rights are exercisable to the extent that
the related stock option is exercisable and only by the same person who is
entitled to exercise the related stock option. An alternative stock appreciation
right entitles the optionee to surrender the related stock option or any portion
thereof without exercising the stock option and to receive from the Corporation
that number of shares of the Corporation's Capital Stock having an aggregate
fair market value on the date of exercise of the alternative stock appreciation
right equal to the excess of the fair market value of one share of the
Corporation's Capital Stock on such date over the option price per share times
the number of shares covered by the stock option or portion thereof which is
surrendered. Alternative stock appreciation rights granted under the Plan may
not be settled in cash.
Cash payment rights. Cash payment rights granted in conjunction with a
nonstatutory stock option entitle the person who is entitled to exercise the
stock option, upon exercise of the stock option, or any portion thereof, to
receive cash from the Corporation (in addition to the shares of the
Corporation's Capital Stock to be received upon exercise of the stock option)
equal to a percentage (not greater than 100%) determined by the Committee of the
excess of the fair market value of a share of the Corporation's Capital Stock on
the date of exercise over the option price per share, multiplied by the number
of shares covered by the stock option, or portion thereof, which is exercised.
Cash payment rights may be used by the Committee to provide funds to the option
holder to pay the income taxes payable upon exercise of a nonstatutory stock
option. (see "Federal Income Taxes--Nonstatutory Stock Options" below).
Subject to the foregoing and the other provisions of the Plan, stock
options granted under the Plan may be, exercised at such times and in such
amounts and be subject to such restrictions and other terms and conditions, if
any, as are determined, in its discretion, by the Committee. The grant of each
stock option, setting forth the terms and conditions of each stock option grant,
will be set forth in a stock option agreement between the Corporation and the
optionee.
RESTRICTED SHARES
Restricted shares of the Corporation's Capital Stock may be awarded by the
Committee which will be subject to such restrictions (which may include
restrictions on the right to transfer or encumber the shares while subject to
restriction) as the Committee may impose thereon and be subject to forfeiture if
certain events (which may, in the discretion of the Committee, include
termination of employment and/or performance-based events) specified by the
Committee occur prior to the lapse of the restrictions. The number of restricted
shares awarded to the grantee, the restrictions imposed thereon, the duration of
the restrictions, the events the occurrence of which would cause a forfeiture of
the restricted shares and such other terms and conditions as the Committee, in
its discretion, deems appropriate will be set forth in a restricted share
agreement between the Corporation and the grantee.
Following a restricted share award and prior to the lapse or termination of
the applicable restrictions, share certificates for the restricted shares will
be held by the Corporation in escrow. The Committee, in its discretion, may
determine that dividends and other distributions on the shares held in escrow
will not be paid to the grantee until the lapse or termination of the applicable
restrictions. Upon the lapse or termination of the restrictions (and not
before), the share certificates will be delivered to the grantee. From the date
a restricted share award is effective, however, the grantee will be a
stockholder with respect to the restricted shares and will have all the rights
of a stockholder with respect to the shares, including the right to vote the
shares and to receive all dividends and other distributions paid with respect to
the shares, subject only to the preceding provisions of this paragraph and the
other restrictions imposed by the Committee.
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Restricted Performance Shares. Under the Corporation's new executive
compensation program applicable to 1994 and future years (see "Organization and
Compensation Report on Executive Compensation--New Executive Compensation
Program" included elsewhere in this Proxy Statement), it is contemplated that
the Committee will award restricted performance shares with three-year
performance cycles. The number of shares awarded will be subject to forfeiture
if three-year average return on average equity ("Average ROE") and three-year
cumulative earnings per share ("Cumulative EPS") goals established by the
Committee are not achieved. The Average ROE percentage and the Cumulative EPS
figure will be calculated from the consolidated financial statements of the
Corporation and its subsidiaries, excluding (1) the effect of changes in Federal
income tax rates, (ii) the effect of unusual and extraordinary items as defined
by Generally Accepted Accounting Principles ("GAAP") and (iii) the cumulative
effect of changes in accounting principles in accordance with GAAP. The
Cumulative EPS figure will also be calculated using primary net income per
share, excluding the effect of share distributions for which under GAAP net
income per share is adjusted.
The restricted performance shares for a particular three-year performance
cycle and the performance goals to apply to these shares will be established by
the Committee in the year prior to the first year of the three-year performance
cycle except that the employees designated to receive restricted performance
shares for the three-year performance cycle 1994-1996 and the performance goals
to apply to these shares was determined by the Committee at meetings some of
which were held in 1994 prior to the mailing of this Proxy Statement. The award
of restricted performance shares for the three-year performance cycle 1994-1996
to the designated employees is, however, contingent on and will be effective
only upon the approval of adoption of the Plan by the Corporation's stockholders
at the Annual Meeting. The restricted performance shares will not be issued
until stockholder approval is obtained. No restricted performance shares will be
deemed to have vested unless the Committee certifies in writing that the
performance goals and the other material terms of the award have been satisfied.
The Committee has designated 22 employees, including all the Corporation's
executive officers except Mr. Baum, to receive restricted performance shares for
the 1994-1996 performance cycle. The number of shares to be awarded to the
present executive officers named in the Summary Compensation Table, to all
executive offficers of the Corporation as a group and to all employees of the
Corporation and its subsidiaries as a group is as follows: Mr. Baum, none; Mr.
Conrad, 11,700 shares; Mr. Ellenburg, 5,500 shares; Mr. Callahan, 2,900 shares;
Mr. Keefer; 5, 500 shares, all executive officers as a group, including those
named, 51,800 shares; and all employees as a group, including those named,
63,400 shares.
PERFORMANCE SHARES
The Committee may award performance shares which will entitle the grantee
to receive up to the number of shares of the Corporation's Capital Stock covered
by the award at the end of or at a specified time or times during a specified
award period contingent upon the extent to which one or more predetermined
performance targets are satisfied during the award period. The performance
target or targets may be expressed in terms of earnings per share, return on
stockholder equity, operating profit, return on capital employed or such other
measures of accomplishment by the Corporation or a subsidiary, or any branch,
department or other portion thereof, or the grantee individually, as may be
established, in its discretion, by the Committee. The performance target or
targets may vary for different award periods and need not be the same for each
grantee receiving an award for an award period. The performance target or
targets and such other terms and conditions of the award of the performance
shares as the Committee, in its discretion, deems appropriate will be set forth
in a performance share agreement between the Corporation and the grantee.
At any time prior to the end of an award period, the Committee may adjust
downward (but not upward) the performance target or targets as a result of major
events unforeseen at the time of the award, such as changes in the economy, in
the industry or laws affecting the operations of the Corporation or a
subsidiary, or any branch, department or other portion thereof, or any other
event the Committee determines would have a significant impact upon the
probability of attaining the previously established performance target or
targets. The Committee, in its discretion, may determine that grantees are
entitled to any dividends or other
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distributions that would have been paid on earned performance shares had the
shares been outstanding during the period from the award to the payment of the
performance shares.
If prior to the close of an award period the employment of a grantee of
performance shares is voluntarily terminated with the consent of the Corporation
or a subsidiary, the grantee becomes entitled to a severance benefit under the
Severance Pay Plan, the grantee retires under any retirement plan of the
Corporation or a subsidiary or the grantee dies, the Committee, in its
discretion, may determine to pay to the grantee all or part of the performance
shares based upon the extent to which the Committee determines the performance
target or targets have been achieved and such other factors the Committee may
deem relevant. Unless performance shares are deemed to have been fully earned as
a result of the occurrence of certain events (see "Additional Rights in Certain
Events" below), if the employment of a grantee of an award of performance shares
terminates prior to the time the performance shares have been earned for any
other reason, the unearned performance shares will be deemed not to have been
earned.
OTHER SHARES
The Committee, in its discretion, may from time to time make other awards
of shares of the Corporation's Capital Stock under the Plan as an inducement to
the grantee to enter the employment of the Corporation or a subsidiary, in
recognition of the contribution of the grantee to the performance of the
Corporation or a subsidiary, or any branch, department or other portion thereof,
in recognition of the grantee's individual performance or on the basis of such
other factors as the Committee may deem relevant.
ADDITIONAL RIGHTS IN CERTAIN EVENTS
The Plan provides for certain additional rights upon the occurrence of one
or more events described in Section 8 of the Plan ("Section 8 Events"). A
Section 8 Event is deemed to have occurred, with certain exceptions, when
(i) the Corporation acquires actual knowledge that any person (other
than the Corporation, a subsidiary or any employee benefit plan sponsored
by the Corporation) has acquired beneficial ownership, directly or
indirectly, of securities representing 30% or more of the voting power of
the Corporation,
(ii) a tender offer is made to acquire securities of the Corporation
entitling the holders thereof to 30% or more of the voting power of the
Corporation,
(iii) a solicitation subject to Rule 14a-11 under the Securities
Exchange Act of 1934 (the "1934 Act") (or any successor Rule) relating to
the election or removal of 50% or more of the Board or any class of the
Board is made by any person other than the Corporation or less than 51% of
the members of the Board are Continuing Directors (as defined below) or
(iv) the stockholders of the Corporation approve a merger,
consolidation, share exchange, division or sale or other disposition of
assets of the Corporation as a result of which the stockholders of the
Corporation immediately prior to the transaction will not hold, directly or
indirectly, immediately following the transaction a majority of the voting
power of (1) in the case of a merger or consolidation, the surviving or
resulting corporation, (2) in the case of a share exchange, the acquiring
corporation or (3) in the case of a division or sale or other disposition
of assets, each surviving, resulting or acquiring corporation which,
immediately following the transaction, holds more than 10% of the
consolidated assets of the Corporation immediately prior to the
transaction.
A "Continuing Director" means a director of the Corporation who either (i)
was a director of the Corporation on the effective date of the Plan or (ii) is
an individual whose election, or nomination for election, as a director of the
Corporation was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Corporation which
would be subject to Rule 14a-11 under the 1934 Act (or any successor Rule)).
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<PAGE> 25
Subject to the provisions of Section 4 of the Plan limiting such rights in
the case of incentive stock options, unless the agreement between the
Corporation and the optionee or grantee otherwise provides, if any Section 8
Event occurs (i) all outstanding stock options will become immediately and fully
exercisable, (ii) all stock options held by an optionee whose employment with
the Corporation or a subsidiary terminates within one year of any Section 8
Event for any reason other than voluntary termination with the consent of the
Corporation or a subsidiary, severance under the Severance Pay Plan, retirement
under any retirement plan of the Corporation or a subsidiary or death will be
exercisable for a period of three years from the date of such termination of
employment, but in no event after the expiration date of the stock option, (iii)
all restrictions applicable to restricted shares awarded under the Plan will
lapse and (iv) all performance shares awarded under the Plan will be deemed to
have been fully earned as of the date of the Section 8 Event, regardless of the
attainment or nonattainment of any performance target.
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the Plan providing for the acceleration of the exercise
date of stock options, the lapse of restrictions applicable to restricted shares
and the deemed earnout of performance shares upon the occurrence of a Section 8
Event, and for the extension of the period during which stock options may be
exercised upon termination of employment following a Section 8 Event, may be
considered as having an anti-takeover effect.
MISCELLANEOUS
The Board of Directors may amend or terminate the Plan at any time,
provided that without stockholder approval no amendment of the Plan may (i)
increase the total number of shares which may be issued under the Plan, (ii)
increase the maximum number of shares as to which stock options may be granted
and as to which shares may be awarded under the Plan to any one employee during
any calendar year, (iii) materially increase the benefits accruing under the
Plan to persons subject to the provisions of Section 16(b) of the 1934 Act, (iv)
materially modify the requirements as to eligibility for participation in the
Plan by persons subject to the provisions of Section 16(b), (v) make any changes
in the class of employees eligible to receive incentive stock options or (vi)
extend the duration of the Plan. No amendment or termination of the Plan may,
without the written consent of the holder of an outstanding grant or award under
the Plan, adversely affect the rights of such holder with respect thereto.
If an optionee or grantee of restricted shares or performance shares (i)
engages in the operation or management of a business which is in competition
with the Corporation or any of its subsidiaries (ii) induces or attempts to
induce any person having a business relationship with the Corporation or any of
its subsidiaries to cease doing business with the Corporation or any of its
subsidiaries or in any way interferes with any such business relationship or
(iii) solicits any employee of the Corporation or any of its subsidiaries to
leave the employment thereof or in any way interferes with such employment
relationship, the Committee, in its discretion, may terminate all outstanding
options held by the optionee, immediately declare forfeited all restricted
shares held by the grantee as to which the restrictions have not yet lapsed or
cancel the performance share award made to the grantee. Clause (i) of this
paragraph does not apply, however, if there has been an extension of the
expiration date of the stock options, the restrictions on the restricted shares
have lapsed or the performance shares are deemed to have been fully earned as a
result of the occurrence of a Section 8 Event.
The Committee may accept the cancellation of outstanding stock options or
the contribution or surrender of restricted shares in return for the grant of
new stock options for the same or a different number of shares and at the same
or a different option price or for restricted shares with different
restrictions.
SECTION 16(B) UNDER 1934 ACT
Executive officers of the Corporation are subject to Section 16(b) of the
1934 Act. Under Release 34-28869, Rule 16b-6 and Rule 16b-3 of the Securities
and Exchange Commission presently applicable to the Plan,
(i) the grant of a stock option or alternative stock appreciation
rights to an executive officer under the Plan is not considered a purchase
of the Corporation's Capital Stock for Section 16(b) purposes;
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(ii) the delivery to the Corporation of shares of previously owned
Capital Stock by an executive officer in payment of the option price upon
exercise of a stock option granted under the Plan is not considered a sale
of the shares delivered for Section 16(b) purposes; and
(iii) the acquisition of shares of the Corporation's Capital Stock by
an executive officer upon the exercise of a stock option or alternative
stock appreciation rights granted under the Plan, and the acquisition of
restricted shares and performance shares under the Plan are not considered
purchases for Section 16(b) purposes, unless the shares acquired are
disposed of within six months of the date of grant of the stock option, the
date of award of the restricted shares or the date performance shares are
earned, as the case may be; except that a purchase for Section 16(b)
purposes is considered to be involved upon exercise of a stock option
granted under the Plan if on the date of exercise the fair market value of
the shares acquired is less than the option price paid for the shares.
WITHHOLDING
Income or employment taxes may be required to be withheld by the
Corporation or a subsidiary in connection with the exercise of a nonstatutory
stock option or alternative stock appreciation rights, at the time restricted
shares are awarded or vest or performance shares are earned or upon the receipt
by the optionee or grantee of cash in payment of cash payment rights or
dividends on restricted shares which have not vested. The optionee or grantee
will be required to pay the Corporation or subsidiary the amount required to be
withheld in cash, except that the optionee or grantee may elect to have shares
of the Corporation's Capital Stock which would otherwise be received withheld,
or may elect to deliver previously owned shares of the Corporation's Capital
Stock to the Corporation or subsidiary, to satisfy the withholding obligation.
Special rules for making the election to have shares withheld apply to optionees
or grantees who are subject to the provisions of Section 16(b) of the 1934 Act.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of stock options and other awards under
present law.
Incentive Stock Options. An optionee does not recognize any taxable income
for Federal income tax purposes upon receipt of an incentive stock option or,
generally, upon the exercise of an incentive stock option, whether the option
price is paid in whole or in part in cash or shares of the Corporation's Capital
Stock. The exercise of an incentive stock option generally will result in an
increase in an optionee's taxable income for alternative minimum tax purposes.
If an optionee exercises an incentive stock option and does not dispose of
the shares received in a subsequent "disqualifying disposition" (generally, a
sale, gift or other disposition within two years after the date of grant of the
incentive stock option or within one year after the shares are transferred to
the optionee), upon disposition of the shares any amount realized in excess of
the optionee's tax basis in the shares disposed of is treated as a long-term
capital gain, and any loss is treated as a long-term capital loss. In the event
of a "disqualifying disposition," the difference between the fair market value
of the shares received on the date of exercise and the option price (limited, in
the case of a taxable sale or exchange, to the excess of the amount realized
upon disposition over the optionee's tax basis in the shares) is treated as
compensation received by the optionee and is taxable in the year of disposition.
Any additional gain is taxable as a capital gain and any loss as a capital loss,
which is long-term or short-term depending on whether the shares were held for
more than one year. Under proposed regulations, special rules apply in
determining the compensation income recognized upon a "disqualifying
disposition" if the option price of the incentive stock option is paid in shares
of the Corporation's Capital Stock or, in certain limited circumstances, if the
optionee is subject to Section 16(b) of the 1934 Act. If shares of Capital Stock
received upon the prior exercise of an incentive stock option are transferred to
the Corporation in payment of the option price of an incentive stock option
within either of the periods referred to above, the transfer is considered a
"disqualifying disposition" of the shares transferred, but, under proposed
regulations, only compensation income determined as stated above, and no capital
gain or loss, is recognized.
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If the employment of an optionee terminates, any incentive stock option
held by the optionee that is not terminated will be converted into a
nonstatutory stock option, with the tax consequences described below, if it is
not exercised within three months from the date of termination (or one year from
the date of termination if the optionee is disabled).
Neither the Corporation nor any of its subsidiaries is entitled to a
deduction for compensation paid with respect to shares received by an optionee
upon exercise of an incentive stock option and not disposed of in a
"disqualifying disposition." If an amount is treated as compensation received by
an optionee because of a "disqualifying disposition," the Corporation or one of
its subsidiaries generally is entitled to a corresponding deduction in the same
amount for compensation paid.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income for Federal income tax purposes upon receipt of a nonstatutory stock
option.
Upon the exercise of a nonstatutory stock option with cash, the amount by
which the fair market value of the shares received, determined as of the date of
exercise, exceeds the option price is generally treated as compensation received
in the year of exercise.
If the option price of a nonstatutory stock option is paid in whole or in
part in shares of the Corporation's Capital Stock, no income, gain or loss is
recognized on the receipt of shares equal in value on the date of exercise to
the shares delivered in payment of the option price. The fair market value of
the remainder of the shares received upon exercise of the nonstatutory stock
option, determined as of the date of exercise, less the amount of cash, if any,
paid upon exercise is generally treated as compensation income received on the
date of exercise.
Optionees who are subject to Section 16(b) of the 1934 Act are subject to a
special Federal income tax rule upon the exercise of a nonstatutory stock option
(i) if the exercise is within six months of the date of grant or (ii) in the
event the fair market value of the shares acquired is less than the option price
on the date of exercise. In these situations, unless an election provided for in
Section 83(b) of the Code is made to be taxed as of the date of exercise, the
amount taxable as provided above is determined instead as of the date of
expiration of the period following exercise during which the sale of the shares
received could subject the optionee to liability under Section 16(b) (the
"Section 16(b) restriction period"). The "fair market value" of shares, as used
in this discussion of Federal income tax consequences, is determined without
regard to the fact that the optionee is a person subject to Section 16(b).
In each instance that an amount is treated as compensation received, the
Corporation or one of its subsidiaries generally is entitled to a corresponding
deduction in the same amount for compensation paid.
Alternative stock appreciation rights. An optionee does not recognize any
taxable income for Federal income tax purposes upon receipt of alternative stock
appreciation rights. Upon the exercise of alternative stock appreciation rights,
the fair market value of the shares received, determined as of the date of
exercise, and any cash received in lieu of a fraction of a share, is generally
treated as compensation received in the year of exercise. Optionees who are
subject to Section 16(b) of the 1934 Act are subject to a special Federal income
tax rule if the exercise of alternative stock appreciation rights is within six
months of the date of grant. In this situation, unless an election provided for
in Section 83(b) of the Code is made to be taxed as of the date of exercise, the
amount taxable as provided above is determined instead as of the date of
expiration of the Section 16(b) restriction period. In each instance that an
amount is treated as compensation received, the Corporation or one of its
subsidiaries generally is entitled to a corresponding deduction in the same
amount for compensation paid.
Cash Payment Rights. An optionee does not recognize any taxable income for
Federal income tax purposes upon receipt of cash payment rights. Any cash
received in payment of cash payment rights is treated as compensation received
in the year in which the related stock option is exercised. In each instance
that an amount is treated as compensation received, the Corporation or one of
its subsidiaries generally is entitled to a corresponding deduction in the same
amount for compensation paid.
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Restricted Shares. A grantee of restricted shares, including restricted
performance shares, does not recognize any taxable income for Federal income tax
purposes in the year of the award, provided the shares are subject to
restrictions (that is, they are nontransferable and subject to a substantial
risk of forfeiture). If a grantee is subject to Section 16(b) of the 1934 Act on
the date of the award, the shares generally are deemed to be subject to
restrictions (in addition to the restrictions imposed by the award) for at least
six months following the date of the award. However, a grantee may elect under
Section 83(b) of the Code to recognize compensation income in the year of the
award in an amount equal to the fair market value of the shares on the date of
the award, determined without regard to the restrictions. If the grantee does
not make a Section 83(b) election, the fair market value of the shares on the
date the restrictions lapse is treated as compensation income to the grantee and
is taxable in the year the restrictions lapse. In each instance that an amount
is treated as compensation received, the Corporation or one of its subsidiaries
generally is entitled to a corresponding deduction in the same amount for
compensation paid.
Performance Shares. A grantee of performance shares does not recognize any
taxable income for Federal income tax purposes upon receipt of the award. Any
shares of the Corporation's Capital Stock received pursuant to the award are
treated as compensation income received generally in the year in which the
shares are received. If the grantee is subject to Section 16(b) of the 1934 Act
on the date of receipt, the grantee generally will not recognize compensation
income until the expiration of six months from the date of receipt, unless the
grantee makes an election under Section 83(b) of the Code to recognize
compensation income on the date of receipt. In each case, the amount of
compensation income is the fair market value of the shares on the date
compensation income is recognized. In each instance that the amount is treated
as compensation received, the Corporation or one of its subsidiaries generally
is entitled to a corresponding deduction in the same amount for compensation
paid.
Other Shares. Any shares of the Corporation's Capital Stock received
pursuant to an award of shares is treated as compensation income received by the
grantee generally in the year in which the grantee receives the shares. If the
grantee is subject to Section 16(b) of the 1934 Act on the date of receipt of
the shares, the grantee generally does not recognize compensation income until
the expiration of six months from the date of receipt, unless the grantee makes
an election under Section 83(b) of the Code to recognize compensation income on
the date of receipt. In each case, the amount of compensation income is the fair
market value of the shares on the date compensation income is recognized. In
each instance that the amount is treated as compensation received, the
Corporation or one of its subsidiaries generally is entitled to a corresponding
deduction in the same amount for compensation paid.
Other Tax Matters. The acceleration of the exercise date of a stock option
or the exercise of a stock option, the lapse of restrictions on restricted
shares or the deemed earnout of performance shares following the occurrence of a
Section 8 Event, in certain circumstances, may result in (i) a 20% Federal
excise tax (in addition to Federal income tax) to the optionee or grantee on
certain amounts associated with the stock option and certain payments of the
Corporation's Capital Stock resulting from such lapse of restrictions on
restricted shares or deemed earnout of performance shares and (ii) the loss of a
compensation deduction which would otherwise be allowable to the Corporation or
one of its subsidiaries.
Under Section 162(m) of the Code, the Corporation or one of its
subsidiaries may lose a compensation deduction, which would otherwise be
allowable, for all or a part of the compensation paid in the form of (i)
restricted shares other than restricted performance shares, (ii) performance
shares or (iii) other share awards, to any employee if, as of the close of the
tax year, the employee is the Chief Executive Officer of the Corporation or is
among the four highest compensated officers for that tax year (other than the
Chief Executive Officer) for whom total compensation is required to be reported
to stockholders under the 1934 Act, if the total compensation paid to such
employee exceeds $1,000,000. The provisions of the Plan were drafted so that the
Section 162(m) deduction limitation should not apply to compensation resulting
from the exercise of nonstatutory stock options granted, or the vesting of
restricted performance shares awarded, under the Plan.
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VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of
the shares of the Corporation's Capital Stock present in person or represented
by proxy and entitled to vote at the Annual Meeting, a quorum being present, is
necessary for the approval of the adoption of the Plan. The aggregate number of
shares for which a vote "For," "Against" or "Abstain" is made is counted for the
purpose of determining the minimum number of affirmative votes required for
approval, and the total number of votes cast "For" approval is counted for the
purpose of determining whether sufficient votes are received. An abstention from
voting on a matter by a stockholder present in person or represented by proxy
and entitled to vote has the same legal effect as a vote "Against" the matter.
APPROVAL OF ADOPTION OF
1994 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
The 1994 Non-Employee Directors' Stock Option Plan (the "Plan") was adopted
by the Corporation's Board of Directors on December 16, 1993, subject to
approval by the Corporation's stockholders. If stockholder approval is obtained,
the Plan will become effective on the date of the Annual Meeting.
The Board of Directors recommends that the stockholders vote "FOR" approval
of adoption of the Plan. Unless otherwise directed therein, the proxies
solicited hereby will be voted for approval of adoption of the Plan.
The principal features of the Plan are summarized below. The summary is
qualified in its entirety by the full text of the Plan, which is set forth as
Exhibit B to this Proxy Statement.
GENERAL
The purposes of the Plan are to promote the long-term success of the
Corporation by creating a long-term mutuality of interests between the
non-employee directors and the stockholders of the Corporation, to provide an
additional inducement for the non-employee directors to remain with the
Corporation and to provide a means through which the Corporation may attract
able persons to serve as directors of the Corporation.
The aggregate number of shares which may be issued, and as to which stock
options may be granted, under the Plan is 100,000 shares of the Corporation's
Capital Stock, subject to proportionate adjustment in the event of stock splits
and similar events. If any stock option granted under the Plan is canceled by
mutual consent or terminates or expires for any reason without having been
exercised in full, the number of shares subject to the stock option will again
be available for purposes of the Plan.
The shares of the Corporation's Capital Stock which may be issued under the
Plan may be either authorized but unissued shares or treasury shares or partly
each.
ADMINISTRATION
The Plan is required to be administered by a Committee appointed by the
Board of Directors and consisting of not less than two members of the Board. The
Board has appointed the Organization and Compensation Committee of the Board
(the "Committee") as the Committee to administer the Plan.
The Committee has the power to interpret the Plan and to prescribe rules,
regulations and procedures in connection with the operation of the Plan. All
questions of interpretation and application of the Plan, or as to stock options
granted under the Plan, are subject to the determination of the Committee, which
will be final and binding.
Notwithstanding the discretion to administer the Plan granted to the
Committee, the selection of the directors to whom stock options are to be
granted, the timing of stock option grants, the number of shares subject to any
stock option, the exercise price of any stock option, the periods during which
any stock option
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may be exercised and the term of any stock option are as set forth in the Plan.
The Committee has no discretion as to these matters.
The grant of each stock option will be confirmed by a stock option
agreement between the Corporation and the grantee.
STOCK OPTIONS
On the third business day following the day of each Annual Meeting of
Stockholders in the years 1994 through 2003, each person who is then a member of
the Board of Directors of the Corporation and who is not then an employee of the
Corporation or any of its subsidiaries will be granted a "nonstatutory stock
option" to purchase 1,000 shares of the Corporation's Capital Stock. A
nonstatutory stock option is a stock option which does not qualify under Section
422 or 423 of the Internal Revenue Code of 1986 (the "Code"). If the number of
shares remaining available for the grant of stock options under the Plan on one
of such days is not sufficient for each non-employee director to be granted an
option for 1,000 shares, then each non-employee director will be granted an
option for a number of whole shares equal to the number of shares then remaining
available under the Plan divided by the number of non-employee directors,
disregarding any fraction of a share.
The option price for each stock option will be the fair market value of the
Corporation's Capital Stock on the date the stock option is granted. Fair market
value, for this purpose, will generally be the mean between the highest and
lowest sale prices per share of the Capital Stock as quoted in the
NYSE-Composite Transactions listing in The Wall Street Journal on the date of
grant. On March 15, 1994, the fair market value of a share of the Corporation's
Capital Stock, as so computed, was $13 7/8.
No stock option may be exercised during the first six months of its term
except in the event of the death of the optionee or unless the exercise date of
the stock option has been accelerated upon the occurrence of one or more of the
events described under "Acceleration of Options in Certain Events" below. No
stock option may be exercised after the expiration of ten years from the date of
grant. A stock option to the extent exercisable at any time may be exercised in
whole or in part.
If an optionee's service as a director terminates for any reason other than
resignation, removal for cause or death, any outstanding stock option will be
exercisable (but only if exercisable by the director immediately prior to
ceasing to be a director) at any time prior to the expiration date of the stock
option or within three years after the optionee ceases to be a director,
whichever is the shorter period. If a director resigns or is removed from office
for cause, any outstanding stock option which is not yet exercisable will
terminate and any outstanding stock option which is exercisable must be
exercised prior to the expiration date of the stock option or within three
months after the optionee ceases to be a director, whichever is the shorter
period. Following the death of an optionee during service as a director, any
outstanding stock option held by the optionee at the time of death (whether or
not exercisable by the optionee immediately prior to death) will be exercisable
by the person entitled to do so under the Will of the optionee, or, if the
optionee shall fail to make testamentary disposition of the stock option or
shall die intestate, by the legal representative of the optionee, at any time
prior to the expiration date of the stock option or within three years after the
date of death of the optionee, whichever is the shorter period.
The option price for each stock option will be payable in full in cash at
the time of exercise; however, in lieu of cash the person exercising the stock
option may pay the option price in whole or in part by delivering to the
Corporation previously owned shares of the Corporation's Capital Stock having a
fair market value on the date of exercise of the stock option equal to the
option price for the shares being purchased, except that any portion of the
option price representing a fraction of a share must be paid in cash and no
shares of Capital Stock which have been held less than six months may be
delivered in payment of the option price. The Corporation will cooperate with
any person exercising a stock option who participates in a cashless exercise
program of a broker or other agent under which all or part of the shares
received upon exercise of the stock option are sold through the broker or other
agent or under which the broker or other agent makes a loan to such person.
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No stock option granted under the Plan is transferable other than by Will
or by the laws of descent and distribution, and a stock option may be exercised
during an optionee's lifetime only by the optionee or the optionee's guardian or
legal representative. These restrictions on transferability will not, however,
apply to the extent the restrictions are not at any time required for the grant
of stock options under the Plan to qualify for the exemption under Rule 16b-3
under the Securities Exchange Act of 1934 (the "1934 Act").
Subject to the foregoing and the other provisions of the Plan, any stock
options granted under the Plan may be subject to such restrictions and other
terms and conditions, if any, as shall be determined, in its discretion, by the
Committee and set forth in the stock option agreement.
ACCELERATION OF OPTIONS IN CERTAIN EVENTS
The Plan provides that all outstanding stock options granted under the Plan
will become immediately and fully exercisable upon the occurrence of one or more
events described in Section 6 of the Plan ("Section 6 Events"). A Section 6
Event is deemed to have occurred, with certain exceptions, when
(i) the Corporation acquires actual knowledge that any person (other
than the Corporation, a subsidiary or any employee benefit plan sponsored
by the Corporation) has acquired beneficial ownership, directly or
indirectly, of securities representing 30% or more of the voting power of
the Corporation,
(ii) a tender offer is made to acquire securities of the Corporation
entitling the holders thereof to 30% or more of the voting power of the
Corporation,
(iii) a solicitation subject to Rule 14a-11 under the 1934 Act (or any
successor Rule) relating to the election or removal of 50% or more of the
Board or any class of the Board is made by any person other than the
Corporation or less than 51% of the members of the Board are Continuing
Directors (as defined below) or
(iv) the stockholders of the Corporation shall approve a merger,
consolidation, share exchange, division or sale or other disposition of
assets of the Corporation as a result of which the stockholders of the
Corporation immediately prior to the transaction will not hold, directly or
indirectly, immediately following the transaction a majority of the voting
power of (1) in the case of a merger or consolidation, the surviving or
resulting corporation, (2) in the case of a share exchange, the acquiring
corporation or (3) in the case of a division or sale or other disposition
of assets, each surviving, resulting or acquiring corporation which,
immediately following the transaction, holds more than 10% of the
consolidated assets of the Corporation immediately prior to the
transaction.
A "Continuing Director" means a director of the Corporation who either (i)
was a director of the Corporation on the effective date of the Plan or (ii) is
an individual whose election, or nomination for election, as a director of the
Corporation was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Corporation which
would be subject to Rule 14a-11 under the 1934 Act (or any successor Rule)).
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the Plan providing for the acceleration of the exercise
date of stock options upon the occurrence of a Section 6 Event may be considered
as having an anti-takeover effect.
MISCELLANEOUS
The Board of Directors may amend or terminate the Plan at any time,
provided that no such termination will terminate any outstanding stock option
and provided further that no amendment of the Plan may (i) be made without
stockholder approval if stockholder approval of the amendment is at the time
required under Rule 16b-3 (or any successor Rule) or by the rules of any stock
exchange on which the Corporation's Capital Stock may then be listed, (ii) amend
more than once every six months the provisions of the Plan relating to the
selection of the directors to whom stock options are to be granted, the timing
of stock option grants, the
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number of shares subject to any stock option, the exercise price of any stock
option, the periods during which any stock option may be exercised and the term
of any stock option other than to comport with changes in the Code or the rules
and regulations thereunder or (iii) otherwise amend the Plan in any manner that
would cause stock options under the Plan not to qualify for the exemption
provided by Rule 16b-3 (or any successor Rule). No amendment or termination of
the Plan may, without the written consent of the holder of a stock option
theretofore granted under the Plan, adversely affect the rights of the holder
with respect to the stock option.
Notwithstanding the preceding paragraph, the Board of Directors has the
power to amend the Plan in any manner deemed necessary or advisable for stock
options granted under the Plan to qualify for the exemption provided by Rule
16b-3 (or any successor Rule), and any such amendment will, to the extent deemed
necessary or advisable by the Board, be applicable to any outstanding stock
options theretofore granted under the Plan.
SECTION 16(B) UNDER 1934 ACT
Directors of the Corporation are subject to Section 16(b) of the 1934 Act.
Under Release 34-28869, Rule 16b-6 and Rule 16b-3 of the Securities and Exchange
Commission presently applicable to the Plan,
(i) the grant of a stock option to a director under the Plan is not
considered a purchase of the Corporation's Capital Stock for Section 16(b)
purposes,
(ii) the delivery to the Corporation of shares of previously owned
Capital Stock by a director in payment of the option price upon exercise of
a stock option granted under the Plan is not considered a sale of the
shares delivered for Section 16(b) purposes, and
(iii) the acquisition of shares of the Corporation's Capital Stock by
a director upon exercise of a stock option granted under the Plan is not
considered a purchase for Section 16(b) purposes unless the shares acquired
upon exercise are disposed of within six months of the date of grant;
except that a purchase for Section 16(b) purposes is considered to be
involved upon exercise of a stock option granted under the Plan if on the
date of exercise the fair market value of the shares acquired is less than
the option price paid for the shares.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of nonstatutory stock options under
present law.
A director does not recognize any taxable income for Federal income tax
purposes upon receipt of a nonstatutory stock option.
Upon the exercise of a nonstatutory stock option with cash, the amount by
which the fair market value of the shares received, determined as of the date of
exercise, exceeds the option price is generally treated as compensation received
in the year of exercise.
If the option price is paid in whole or in part in shares of the
Corporation's Capital Stock, no income, gain or loss is recognized on the
receipt of shares equal in value on the date of exercise to the shares delivered
in payment of the option price. The fair market value of the remainder of the
shares received upon exercise, determined as of the date of exercise, less the
amount of cash, if any, paid upon exercise, is generally treated as compensation
received on the date of exercise.
Directors are subject to a special Federal income tax rule upon the
exercise of a nonstatutory stock option (i) if the exercise is within six months
of the date of grant or (ii) in the event the fair market value of the shares
acquired is less than the option price on the date of exercise. In these
situations, unless an election provided for in Section 83(b) of the Code is made
to be taxed as of the date of exercise, the amount taxable as provided above is
determined instead as of the date of expiration of the period following exercise
during which the sale of the shares received could subject the director to
liability under Section 16(b) of the 1934 Act. The
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"fair market value" of shares, as used in this discussion of Federal income tax
consequences, is determined without regard to the fact that the director is a
person subject to Section 16(b).
In each instance that an amount is treated as compensation received, the
Corporation generally is entitled to a corresponding deduction in the same
amount for compensation paid.
The acceleration of the exercise date of a stock option or the exercise of
a stock option following the occurrence of a Section 6 Event, in certain
circumstances, may result in (i) a 20% Federal excise tax (in addition to
Federal income tax) to the optionee on certain amounts associated with the stock
option and (ii) the loss of the compensation deduction which would otherwise be
allowable to the Corporation.
VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of
the shares of the Corporation's Capital Stock present in person or represented
by proxy and entitled to vote at the Annual Meeting, a quorum being present, is
necessary for the approval of the adoption of the Plan. The aggregate number of
shares for which a vote "For," "Against" or "Abstain" is made is counted for the
purpose of determining the minimum number of affirmative votes required for
approval, and the total number of votes cast "For" approval is counted for the
purpose of determining whether sufficient votes are received. An abstention from
voting on a matter by a stockholder present in person or represented by proxy
and entitled to vote has the same legal effect as a vote "Against" the matter.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Coopers & Lybrand as independent
auditors to audit the financial statements of the Corporation and its
subsidiaries for the year 1994. Coopers & Lybrand has audited the financial
statements of the Corporation and its subsidiaries since the Corporation was
organized in 1931. Representatives of Coopers & Lybrand are expected to be
present at the Annual Meeting. The representatives will have the opportunity to
make a statement if they choose to do so and will be available to respond to
appropriate questions.
The Board of Directors recommends that the stockholders vote "FOR" the
ratification of the appointment of Coopers & Lybrand. Unless otherwise directed
therein, the proxies solicited hereby will be voted for the ratification of the
appointment of Coopers & Lybrand. In the event the stockholders fail to ratify
the appointment, the Board will consider such vote as a direction to appoint
other independent auditors for the year 1995. Coopers & Lybrand has advised the
Corporation that no member of its firm has any direct or material indirect
financial interest in the Corporation or any of its subsidiaries.
VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of
the shares of the Capital Stock present in person or represented by proxy and
entitled to vote at the Annual Meeting, a quorum being present, is necessary for
the ratification of the appointment of Coopers & Lybrand. The aggregate number
of shares for which a vote "For," "Against" or "Abstain" is made is counted for
the purpose of determining the minimum number of affirmative votes required for
ratification, and the total number of votes cast "For" ratification is counted
for the purpose of determining whether sufficient votes are received. An
abstention from voting on a matter by a stockholder present in person or
represented by proxy and entitled to vote has the same legal effect as a vote
"Against" the matter.
OTHER MATTERS
No business other than that set forth above is expected to come before the
Annual Meeting or any adjournment thereof. Should other business properly come
before the Meeting or any adjournment thereof, the proxy holders will vote upon
the same according to their discretion and best judgment.
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EXPENSES OF SOLICITATION
The cost of the solicitation of proxies for the Annual Meeting will be paid
by the Corporation. In addition to solicitation of proxies by mail, the officers
and regular employees of the Corporation may solicit proxies in person or by
telegraph or telephone. Brokers, banks and their nominees will be requested by
the Corporation to forward proxy soliciting material and the Annual Report to
Stockholders to beneficial owners of shares held of record by them, and the
Corporation will reimburse them for reasonable out-of-pocket expenses incurred
in doing so.
The Corporation has also engaged Morrow & Co., Inc. ("Morrow") to aid in
the solicitation of proxies. Morrow has advised the Corporation that its
services will include contacting brokers, banks, nominees and individual holders
of record owning a large number of shares. It is anticipated that the
Corporation will pay Morrow $6,500 for its services, plus expenses.
1995 STOCKHOLDER PROPOSALS
A proposal submitted by a stockholder for the regular Annual Meeting to be
held in 1995 must be received by the Secretary, Quaker State Corporation, 255
Elm Street, Oil City, Pennsylvania 16301 on or prior to December 5, 1994 in
order to be eligible to be included in the Corporation's Proxy Statement for
that Meeting.
By Order of the Board of Directors,
Gerald W. Callahan,
Vice President, General Counsel
and Secretary
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EXHIBIT A
QUAKER STATE CORPORATION
1994 STOCK INCENTIVE PLAN
The purposes of the 1994 Stock Incentive Plan (the "Plan") are to encourage
eligible employees of Quaker State Corporation (the "Corporation") and its
Subsidiaries to increase their efforts to make the Corporation and each
Subsidiary more successful, to provide an additional inducement for such
employees to remain with the Corporation or a Subsidiary, to reward such
employees by providing an opportunity to acquire shares of the Capital Stock,
par value $1.00 per share, of the Corporation (the "Capital Stock") on favorable
terms and to provide a means through which the Corporation may attract able
persons to enter the employ of the Corporation or one of its Subsidiaries. For
the purposes of the Plan, the term "Subsidiary" means any corporation in an
unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing at least fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors of the Corporation (the "Board") and consisting of not
less than two members of the Board, each of whom at the time of appointment to
the Committee and at all times during service as a member of the Committee shall
be (i) a "disinterested person" as then defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor
Rule and (ii) an "outside director" under Section 162(m)(4)(C) of the Internal
Revenue Code of 1986 (the "Code"), or any successor provision.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to grants or awards under the Plan, shall be
subject to the determination of the Committee, which shall be final and binding.
The Committee shall keep records of action taken. A majority of the
Committee shall constitute a quorum at any meeting, and the acts of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by all the members of the Committee, shall be the acts of
the Committee.
SECTION 2
ELIGIBILITY
Those key employees of the Corporation or any Subsidiary (including, but
not limited to, covered employees as defined in Section 162(m)(3) of the Code,
or any successor provision) who share responsibility for the management, growth
or protection of the business of the Corporation or any Subsidiary shall be
eligible to be granted stock options (with or without alternative stock
appreciation rights and/or cash payment rights) and to receive awards of
restricted, performance and other shares as described herein.
Subject to the provisions of the Plan, the Committee shall have full and
final authority, in its discretion, to grant stock options (with or without
alternative stock appreciation rights and/or cash payment rights) and to award
restricted, performance and other shares as described herein and to determine
the employees to whom any such grant or award shall be made and the number of
shares to be covered thereby. In determining the eligibility of any employee, as
well as in determining the number of shares covered by each grant or award and
whether alternative stock appreciation rights and/or cash payment rights shall
be granted in conjunction with a stock option, the Committee shall consider the
position and the responsibilities of the employee being
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considered, the nature and value to the Corporation or a Subsidiary of his or
her services, his or her present and/or potential contribution to the success of
the Corporation or a Subsidiary and such other factors as the Committee may deem
relevant.
SECTION 3
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares of the Capital Stock that may be issued and
as to which grants or awards may be made under the Plan is 1,250,000 shares,
subject to adjustment and substitution as set forth in Section 7. If any stock
option granted under the Plan is cancelled by mutual consent or terminates or
expires for any reason without having been exercised in full, the number of
shares subject thereto shall again be available for purposes of the Plan, except
that to the extent that alternative stock appreciation rights granted in
conjunction with a stock option under the Plan are exercised and the related
stock option surrendered the number of shares available for purposes of the Plan
shall be reduced by the number of shares of Capital Stock issued upon exercise
of such alternative stock appreciation rights. If shares of Capital Stock are
forfeited to the Corporation pursuant to the restrictions applicable to
restricted shares awarded under the Plan, the shares so forfeited shall not
again be available for purposes of the Plan unless during the period such shares
were outstanding the grantee received no dividends or other benefits of
ownership from such shares. For the purpose of applying this standard, no
benefit is deemed to be derived by a grantee from voting rights or where
dividends accumulate but due to forfeiture are never realized. To the extent any
performance shares are not earned, the number of shares shall again be available
for purposes of the Plan.
The shares which may be issued under the Plan may be either authorized but
unissued shares or treasury shares or partly each.
SECTION 4
GRANT OF STOCK OPTIONS, ALTERNATIVE
STOCK APPRECIATION RIGHTS AND CASH
PAYMENT RIGHTS AND AWARD OF RESTRICTED,
PERFORMANCE AND OTHER SHARES
The Committee shall have authority, in its discretion, (i) to grant
"incentive stock options" pursuant to Section 422 of the Code, to grant
"nonstatutory stock options" (i.e., stock options which do not qualify under
Sections 422 or 423 of the Code) or to grant both types of stock options (but
not in tandem), (ii) to award restricted shares, (iii) to award performance
shares and (iv) to make other share awards, all as provided herein. The
Committee also shall have the authority, in its discretion, to grant alternative
stock appreciation rights in conjunction with incentive stock options or
nonstatutory stock options with the effect provided in Section 5(D) and to grant
cash payment rights in conjunction with nonstatutory stock options with the
effect provided in Section 5(E). Alternative stock appreciation rights granted
in conjunction with an incentive stock option may only be granted at the time
the incentive stock option is granted. Cash payment rights may not be granted in
conjunction with incentive stock options. Alternative stock appreciation rights
and/or cash payment rights granted in conjunction with a nonstatutory stock
option may be granted either at the time the stock option is granted or at any
time thereafter during the term of the stock option.
During the duration of the Plan, the maximum number of shares as to which
stock options may be granted and as to which shares may be awarded under the
Plan to any one employee during any calendar year is 200,000 shares, subject to
adjustment and substitution as set forth in Section 7. For the purposes of this
limitation, any adjustment or substitution made pursuant to Section 7 with
respect to the maximum number of shares set forth in the preceding sentence
shall also be made with respect to any shares subject to stock options or share
awards previously granted under the Plan to such employee during the same
calendar year.
Notwithstanding any other provision contained in the Plan or in any
agreement referred to in Section 5(I), but subject to the possible exercise of
the Committee's discretion contemplated in the last
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sentence of this paragraph, the aggregate fair market value, determined as
provided in Section 5(J) on the date of grant, of the shares with respect to
which incentive stock options are exercisable for the first time by an employee
during any calendar year under all plans of the corporation employing such
employee, any parent or subsidiary corporation of such corporation and any
predecessor corporation of any such corporation shall not exceed $100,000. If
the date on which one or more of such incentive stock options could first be
exercised would be accelerated pursuant to any provision of the Plan or any
stock option agreement, and the acceleration of such exercise date would result
in a violation of the limitation set forth in the preceding sentence, then,
notwithstanding any such provision, but subject to the provisions of the next
succeeding sentence, the exercise dates of such incentive stock options shall be
accelerated only to the date or dates, if any, that do not result in a violation
of such limitation and, in such event, the exercise dates of the incentive stock
options with the lowest option prices shall be accelerated to the earliest such
dates. The Committee may, in its discretion, authorize the acceleration of the
exercise date of one or more incentive stock options even if such acceleration
would violate the $100,000 limitation set forth in the first sentence of this
paragraph and even if such incentive stock options are thereby converted in
whole or in part to nonstatutory stock options.
The Committee may accept the cancellation of outstanding stock options or
the contribution or surrender of restricted shares in return for the grant of
new stock options for the same or a different number of shares and at the same
or a different option price or for restricted shares with different
restrictions.
SECTION 5
STOCK OPTIONS, ALTERNATIVE STOCK APPRECIATION
RIGHTS AND CASH PAYMENT RIGHTS
Stock options, alternative stock appreciation rights and cash payment
rights granted under the Plan shall be subject to the following terms and
conditions:
(A) The purchase price at which each stock option may be exercised
(the "option price") shall be such price as the Committee, in its
discretion, shall determine but shall not be less than one hundred percent
(100%) of the fair market value per share of the Capital Stock covered by
the stock option on the date of grant, except that in the case of an
incentive stock option granted to an employee who, immediately prior to
such grant, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or any
Subsidiary (a "Ten Percent Employee"), the option price shall not be less
than one hundred ten percent (110%) of such fair market value on the date
of grant. For purposes of this Section 5(A), the fair market value of the
Capital Stock shall be determined as provided in Section 5(J). For purposes
of this Section 5(A), an individual (i) shall be considered as owning not
only shares of stock owned individually but also all shares of stock that
are at the time owned, directly or indirectly, by or for the spouse,
ancestors, lineal descendants and brothers and sisters (whether by the
whole or half blood) of such individual and (ii) shall be considered as
owning proportionately any shares owned, directly or indirectly, by or for
any corporation, partnership, estate or trust in which such individual is a
stockholder, partner or beneficiary.
(B) The option price for each stock option shall be payable in cash in
United States dollars (including check, bank draft or money order);
provided, however, that in lieu of cash the person exercising the stock
option may (if authorized by the Committee at the time of grant in the case
of an incentive stock option, or at any time in the case of a nonstatutory
stock option) pay the option price in whole or in part by delivering to the
Corporation shares of the Capital Stock having a fair market value on the
date of exercise of the stock option, determined as provided in Section
5(J), equal to the option price for the shares being purchased, except that
(i) any portion of the option price representing a fraction of a share
shall in any event be paid in cash and (ii) no shares of the Capital Stock
which have been held for less than six months may be delivered in payment
of the option price of a stock option. Delivery of shares, if authorized,
may also be accomplished through the effective transfer to the Corporation
of shares held by a broker or other agent. The Corporation will also
cooperate with any person exercising a stock option who participates in a
cashless exercise program of a broker or other agent under which all or
part of the shares received upon exercise of the stock option are sold
through the broker or other agent or under
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which the broker or other agent makes a loan to such person.
Notwithstanding the foregoing, unless the Committee, in its discretion,
shall otherwise determine at the time of grant in the case of an incentive
stock option, or at any time in the case of a nonstatutory stock option,
the exercise of the stock option shall not be deemed to occur and no shares
of Capital Stock will be issued by the Corporation upon exercise of the
stock option until the Corporation has received payment of the option price
in full. The date of exercise of a stock option shall be determined under
procedures established by the Committee, and as of the date of exercise the
person exercising the stock option shall be considered for all purposes to
be the owner of the shares with respect to which the stock option has been
exercised. Payment of the option price with shares shall not increase the
number of shares of the Capital Stock which may be issued under the Plan as
provided in Section 3.
(C) Each stock option shall be exercisable at such time or times as
the Committee, in its discretion, shall determine, except that no stock
option shall be exercisable after the expiration of ten years (five years
in the case of an incentive stock option granted to a Ten Percent Employee)
from the date of grant. A stock option to the extent exercisable at any
time may be exercised in whole or in part.
(D) Alternative stock appreciation rights granted in conjunction with
a stock option shall entitle the person exercising the alternative stock
appreciation rights to surrender the related stock option, or any portion
thereof, and to receive from the Corporation in exchange therefor that
number of shares of the Capital Stock having an aggregate fair market value
on the date of exercise of the alternative stock appreciation rights equal
to the excess of the fair market value of one share of the Capital Stock on
such date of exercise over the option price per share times the number of
shares covered by the related stock option, or portion thereof, which is
surrendered. Alternative stock appreciation rights shall be exercisable to
the extent that the related stock option is exercisable and only by the
same person who is entitled to exercise the related stock option; provided,
however, that alternative stock appreciation rights granted in conjunction
with an incentive stock option shall not be exercisable unless the then
fair market value of the Capital Stock exceeds the option price of the
shares subject to the incentive stock option. Cash shall be paid in lieu of
any fractional shares. The date of exercise of alternative stock
appreciation rights shall be determined under procedures established by the
Committee, and as of the date of exercise the person exercising the
alternative stock appreciation rights shall be considered for all purposes
to be the owner of the shares to be received. To the extent that a stock
option as to which alternative stock appreciation rights have been granted
is exercised, cancelled, terminates or expires, the alternative stock
appreciation rights shall be cancelled. For the purposes of this Section
5(D), the fair market value of the Capital Stock shall be determined as
provided in Section 5(J).
(E) Cash payment rights granted in conjunction with a nonstatutory
stock option shall entitle the person who is entitled to exercise the stock
option, upon exercise of the stock option or any portion thereof, to
receive cash from the Corporation (in addition to the shares to be received
upon exercise of the stock option) equal to such percentage as the
Committee, in its discretion, shall determine not greater than one hundred
percent (100%) of the excess of the fair market value of a share of the
Capital Stock on the date of exercise of the stock option over the option
price per share of the stock option times the number of shares covered by
the stock option, or portion thereof, which is exercised. Payment of the
cash provided for in this Section 5(E) shall be made by the Corporation as
soon as practicable after the time the amount payable is determined. For
purposes of this Section 5(E), the fair market value of the Capital Stock
shall be determined as provided in Section 5(J).
(F) Unless the Committee, in its discretion, shall otherwise
determine, (i) no stock option shall be transferable by the grantee
otherwise than by Will, or if the grantee dies intestate, by the laws of
descent and distribution of the state of domicile of the grantee at the
time of death and (ii) all stock options shall be exercisable during the
lifetime of the grantee only by the grantee.
(G) Subject to the provisions of Section 4 in the case of incentive
stock options, unless the Committee, in its discretion, shall otherwise
determine:
(i) If the employment of a grantee is voluntarily terminated with
the consent of the Corporation or a Subsidiary, the grantee becomes
entitled to a severance benefit under the
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Corporation's Severance Pay Plan for Salaried and Hourly Non-Union
Employees (the "Severance Plan") or a grantee retires under any
retirement plan of the Corporation or a Subsidiary, any outstanding
stock option held by such grantee shall be exercisable by the grantee
(but only to the extent exercisable by the grantee immediately prior to
the termination of employment) at any time prior to the expiration date
of such stock option or within three years after the date of termination
of employment of the grantee, whichever is the shorter period, and to
the extent not exercisable shall terminate;
(ii) Following the death of a grantee during employment, any
outstanding stock option held by the grantee at the time of death shall
be exercisable in full (whether or not so exercisable by the grantee
immediately prior to the death of the grantee) by the person entitled to
do so under the Will of the grantee, or, if the grantee shall fail to
make testamentary disposition of the stock option or shall die
intestate, by the legal representative of the grantee at any time prior
to the expiration date of such stock option or within three years after
the date of death of the grantee, whichever is the shorter period;
(iii) Following the death of a grantee after termination of
employment during a period when a stock option is exercisable, the stock
option shall be exercisable by such person entitled to do so under the
Will of the grantee or by such legal representative during the shorter
of the following two periods: (i) until the expiration date of the stock
option or (ii) within three years after the termination of employment of
the grantee or one year after the date of death of the grantee
(whichever is longer).
(iv) Unless Section 8(C) applies following termination of
employment, if the employment of a grantee terminates for any reason
other than voluntary termination with the consent of the Corporation or
a Subsidiary, severance under the Severance Plan, retirement under any
retirement plan of the Corporation or a Subsidiary or death, all
outstanding stock options held by the grantee at the time of such
termination of employment shall automatically terminate.
Whether termination of employment is a voluntary termination with the
consent of the Corporation or a Subsidiary shall be determined, in its
discretion, by the Committee and any such determination by the Committee
shall be final and binding.
(H) If a grantee of a stock option (i) engages in the operation or
management of a business (whether as owner, partner, officer, director,
employee or otherwise and whether during or after termination of
employment) which is in competition with the Corporation or any of its
Subsidiaries (provided, however, that this clause shall not apply if
Section 8(C) applies following termination of employment), (ii) induces or
attempts to induce any customer, supplier, licensee or other individual,
corporation or other business organization having a business relationship
with the Corporation or any of its Subsidiaries to cease doing business
with the Corporation or any of its Subsidiaries or in any way interferes
with the relationship between any such customer, supplier, licensee or
other person and the Corporation or any of its Subsidiaries or (iii)
solicits any employee of the Corporation or any of its Subsidiaries to
leave the employment thereof or in any way interferes with the relationship
of such employee with the Corporation or any of its Subsidiaries, the
Committee, in its discretion, may immediately terminate all outstanding
stock options held by the grantee. Whether a grantee has engaged in any of
the activities referred to the preceding sentence which would cause the
outstanding stock options to be terminated shall be determined, in its
discretion, by the Committee, and any such determination by the Committee
shall be final and binding.
(I) All stock options, alternative stock appreciation rights and cash
payment rights shall be confirmed by an agreement which shall be executed
on behalf of the Corporation by the Chief Executive Officer (if other than
the President), the President or any Vice President and by the grantee. The
agreement confirming a stock option shall specify whether the stock option
is an incentive stock option or a nonstatutory stock option. The provisions
of such agreements need not be identical.
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(J) Fair market value of the Capital Stock shall be the mean between
the following prices, as applicable, for the date as of which fair market
value is to be determined as quoted in The Wall Street Journal (or in such
other reliable publication as the Committee, in its discretion, may
determine to rely upon): (i) if the Capital Stock is listed on the New York
Stock Exchange, the highest and lowest sales prices per share of the
Capital Stock as quoted in the NYSE-Composite Transactions listing for such
date, (ii) if the Capital Stock is not listed on such exchange, the highest
and lowest sales prices per share of Capital Stock for such date on (or on
any composite index including) the principal United States securities
exchange registered under the 1934 Act on which the Capital Stock is listed
or (iii) if the Capital Stock is not listed on any such exchange, the
highest and lowest sales prices per share of the Capital Stock for such
date on the National Association of Securities Dealers Automated Quotations
System or any successor system then in use ("NASDAQ"). If there are no such
sale price quotations for the date as of which fair market value is to be
determined but there are such sale price quotations within a reasonable
period both before and after such date, then fair market value shall be
determined by taking a weighted average of the means between the highest
and lowest sales prices per share of the Capital Stock as so quoted on the
nearest date before and the nearest date after the date as of which fair
market value is to be determined. The average should be weighted inversely
by the respective numbers of trading days between the selling dates and the
date as of which fair market value is to be determined. If there are no
such sale price quotations on or within a reasonable period both before and
after the date as of which fair market value is to be determined, then fair
market value of the Capital Stock shall be the mean between the bona fide
bid and asked prices per share of Capital Stock as so quoted for such date
on NASDAQ, or if none, the weighted average of the means between such bona
fide bid and asked prices on the nearest trading date before and the
nearest trading date after the date as of which fair market value is to be
determined, if both such dates are within a reasonable period. The average
is to be determined in the manner described above in this Section 5(J). If
the fair market value of the Capital Stock cannot be determined on any
basis previously set forth in this Section 5(J) for the date as of which
fair market value is to be determined, the Committee shall in good faith
determine the fair market value of the Capital Stock on such date. Fair
market value shall be determined without regard to any restriction other
than a restriction which, by its terms, will never lapse.
(K) The obligation of the Corporation to issue shares of the Capital
Stock under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such shares, if deemed necessary or appropriate by counsel for
the Corporation, (ii) the condition that the shares shall have been listed
(or authorized for listing upon official notice of issuance) upon each
stock exchange, if any, on which the Capital Stock may then be listed and
(iii) all other applicable laws, regulations, rules and orders which may
then be in effect.
Subject to the foregoing provisions of this Section 5 and the other
provisions of the Plan, stock options, alternative stock appreciation rights and
cash payment rights granted under the Plan shall be subject to such restrictions
and other terms and conditions, if any, as shall be determined, in its
discretion, by the Committee and set forth in the agreement referred to in
Section 5(I).
SECTION 6
RESTRICTED SHARES, PERFORMANCE SHARES AND
OTHER SHARE AWARDS
(A) RESTRICTED SHARES
Awards of restricted shares shall be confirmed by an agreement which shall
set forth the number of shares of the Capital Stock awarded, the restrictions
imposed thereon (including, without limitation, restrictions on the right of the
grantee to sell, assign, transfer or encumber such shares (except as provided
below) while such shares are subject to other restrictions imposed under this
Section 6(A)), the duration of such restrictions, events (which may, in the
discretion of the Committee, include termination of employment and/or
performance-based events) the occurrence of which would cause a forfeiture of
the restricted shares
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and such other terms and conditions as shall be determined, in its discretion,
by the Committee. The agreement shall be executed on behalf of the Corporation
by the Chief Executive Officer (if other than the President), the President or
any Vice President and by the grantee. The provisions of such agreements need
not be identical. Awards of restricted shares shall be effective on the date
determined, in its discretion, by the Committee.
Following the award of restricted shares and prior to the lapse or
termination of the applicable restrictions, share certificates for the
restricted shares shall be issued in the name of the grantee and deposited with
the Corporation in escrow together with related stock powers signed by the
grantee. Except as provided in Section 7, the Committee, in its discretion, may
determine that dividends and other distributions on the shares held in escrow
shall not be paid to the grantee until the lapse or termination of the
applicable restrictions. Unless otherwise provided, in its discretion, by the
Committee, any such dividends or other distributions shall not bear interest.
Upon the lapse or termination of the applicable restrictions (and not before
such time), the grantee shall receive the share certificates for the restricted
shares (subject to the provisions of Section 10) and unpaid dividends, if any.
From the date the award of restricted shares is effective, the grantee shall be
a stockholder with respect to all the shares represented by the share
certificates and shall have all the rights of a stockholder with respect to all
the restricted shares, including the right to vote such shares and to receive
all dividends and other distributions paid with respect to such shares, subject
only to the preceding provisions of this paragraph and the other restrictions
imposed by the Committee.
If a grantee of restricted shares (i) engages in the operation or
management of a business (whether as owner, partner, officer, director, employee
or otherwise and whether during or after termination of employment) which is in
competition with the Corporation or any of its Subsidiaries (provided, however,
that this clause shall not apply if Section 8(D) applies), (ii) induces or
attempts to induce any customer, supplier, licensee or other individual,
corporation or other business organization having a business relationship with
the Corporation or any of its Subsidiaries to cease doing business with the
Corporation or any of its Subsidiaries or in any way interferes with the
relationship between any such customer, supplier, licensee or other person and
the Corporation or any of its Subsidiaries or (iii) solicits any employee of the
Corporation or any of its Subsidiaries to leave the employment thereof or in any
way interferes with the relationship of such employee with the Corporation or
any of its Subsidiaries, the Committee may immediately declare forfeited all
restricted shares held by the grantee as to which the restrictions have not yet
lapsed. Whether a grantee has engaged in any of the activities referred to in
the preceding sentence which would cause the restricted shares to be forfeited
shall be determined, in its discretion, by the Committee, and any such
determination by the Committee shall be final and binding.
Neither this Section 6(A) nor any other provision of the Plan shall
preclude a grantee from transferring or assigning restricted shares to (i) the
trustee of a trust that is revocable by such grantee alone, both at the time of
the transfer or assignment and at all times thereafter prior to such grantee's
death or (ii) the trustee of any other trust to the extent approved in advance
by the Committee in writing. A transfer or assignment of restricted shares from
such trustee to any person other than such grantee shall be permitted only to
the extent approved in advance by the Committee in writing, and restricted
shares held by such trustee shall be subject to all of the conditions and
restrictions set forth in the Plan and in the applicable agreement as if such
trustee were a party to such agreement.
Restricted Performance Shares. Specifically, the Committee, in its
discretion, may award restricted performance shares with three-year performance
cycles which will vest if three-year average return on average equity ("Average
ROE") and three-year cumulative earnings per share ('Cumulative EPS") goals
established by the Committee are achieved. The Average ROE percentage and the
Cumulative EPS figure will be calculated from the consolidated financial
statements of the Corporation and its Subsidiaries, excluding (i) the effect of
changes in Federal income tax rates, (ii) the effect of unusual and
extraordinary items as defined by Generally Accepted Accounting Principles
("GAAP") and (iii) the cumulative effect of changes in accounting principles in
accordance with GAAP. The Cumulative EPS figure will also be calculated using
primary net income per share, excluding the effect of share distributions for
which under GAAP net income per share is adjusted.
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The restricted performance shares for a particular three-year performance
cycle and the performance goals to apply to these shares must be established in
the year prior to the first year of the three-year period, except that the key
employees designated to receive restricted performance shares for the three-year
period 1994-1996 and the performance goals to apply to these shares were
determined by the Committee on or prior to March 23, 1994. Restricted
performance shares as to which the restrictions do not lapse will be forfeited.
Awards of restricted performance shares need not be made every year.
Dividends and other distributions (except dividends or other distributions
payable in shares of the Corporation's Capital Stock) on the restricted
performance shares held in escrow shall be paid by the Corporation to the
grantees of the restricted performance shares at the time such dividends or
other distributions would be payable to stockholders, unless the Committee, in
its discretion, determines otherwise. It is intended that any compensation
received by grantees of restricted performance shares will qualify as
performance-based compensation under Section 162(m) of the Code and this portion
of Section 6(A) shall be interpreted consistently with that intention.
(B) PERFORMANCE SHARES
An award of performance shares shall entitle the grantee to receive up to
the number of shares of Capital Stock covered by the award at the end of or at a
specified time or times during a specified award period contingent upon the
extent to which one or more predetermined performance targets have been met
during the award period. All the terms and conditions of an award of performance
shares shall be determined, in its discretion, by the Committee and shall be
confirmed by an agreement which shall be executed on behalf of the Corporation
by the Chief Executive Officer (if other than the President), the President or
any Vice President and by the grantee.
The performance target or targets may be expressed in terms of earnings per
share, return on stockholder equity, operating profit, return on capital
employed or such other measures of accomplishment by the Corporation or a
Subsidiary, or any branch, department or other portion thereof, or the grantee
individually, as may be established, in its discretion, by the Committee. The
performance target or targets may vary for different award periods and need not
be the same for each grantee receiving an award for an award period.
At any time prior to the end of an award period, the Committee may adjust
downward (but not upward) the performance target or targets as a result of major
events unforeseen at the time of the award, such as changes in the economy, in
the industry or laws affecting the operations of the Corporation or a
Subsidiary, or any branch, department or other portion thereof, or any other
event the Committee determines would have a significant impact upon the
probability of attaining the previously established performance target or
targets.
Payment of earned performance shares shall be made to grantees as soon as
practicable after the shares have been earned. The Committee, in its discretion,
may determine that grantees shall also be entitled to any dividends or other
distributions that would have been paid on earned performance shares had the
shares been outstanding during the period from the award to the payment of the
performance shares. Unless otherwise provided, in its discretion, by the
Committee, any such dividends or other distributions shall not bear interest.
Unless otherwise provided in the agreement confirming the award of the
performance shares, if prior to the close of an award period, the employment of
a grantee of performance shares is voluntarily terminated with the consent of
the Corporation or a Subsidiary, the grantee becomes entitled to a severance
benefit under the Severance Plan, the grantee retires under any retirement plan
of the Corporation or a Subsidiary or the grantee dies during employment, the
Committee in its discretion, may determine to pay to the grantee all or part of
the performance shares based upon the extent to which the Committee determines
the performance target or targets have been achieved as of the date of
termination of employment, retirement or death, the period of time remaining
until the end of the award period and/or such other factors as the Committee may
deem relevant. If the Committee, in its discretion, determines that all or any
part of the performance shares shall be paid, payment shall be made to the
grantee or the estate of the grantee as promptly as practicable following such
determination.
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Except as otherwise provided in Section 8(E), if the employment of a
grantee of an award of performance shares terminates prior to the time the
performance shares have been earned for any reason other than voluntary
termination with the consent of the Corporation or a Subsidiary, severance under
the Severance Plan, retirement under any retirement plan of the Corporation or a
Subsidiary or death, the unearned performance shares shall be deemed not to have
been earned and such shares shall not be paid to the grantee.
Whether termination of employment is a voluntary termination with the
consent of the Corporation or a Subsidiary shall be determined, in its
discretion, by the Committee and any such determination by the Committee shall
be final and binding.
If a grantee of performance shares (i) engages in the operation or
management of a business (whether as owner, partner, officer, director, employee
or otherwise and whether during or after termination of employment) which is in
competition with the Corporation or any of its Subsidiaries (provided, however,
that this clause shall not apply if Section 8(E) applies), (ii) induces or
attempts to induce any customer, supplier, licensee or other individual,
corporation or other business organization having a business relationship with
the Corporation or any of its Subsidiaries to cease doing business with the
Corporation or any of its Subsidiaries or in any way interferes with the
relationship between any such customer, supplier, licensee or other person and
the Corporation or any of its Subsidiaries or (iii) solicits any employee of the
Corporation or any of its Subsidiaries to leave the employment thereof or in any
way interferes with the relationship of such employee with the Corporation or
any of its Subsidiaries, the Committee may immediately cancel the award. Whether
a grantee has engaged in any of the activities referred to the preceding
sentence which would cause the award of performance shares to be cancelled shall
be determined, in its discretion, by the Committee, and any such determination
by the Committee shall be final and binding.
(C) OTHER SHARE AWARDS
The Committee, in its discretion, may from time to time make other awards
of shares of Capital Stock under the Plan as an inducement to the grantee to
enter the employment of the Corporation or a Subsidiary, in recognition of the
contribution of the grantee to the performance of the Corporation or a
Subsidiary, or any branch, department or other portion thereof, in recognition
of the grantee's individual performance or on the basis of such other factors as
the Committee may deem relevant. Capital Stock issued as a bonus pursuant to
this Section 6(C) shall be issued for such consideration as the Committee shall
determine in its sole discretion.
SECTION 7
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Capital
Stock payable in shares of the Capital Stock, the number of shares of the
Capital Stock subject to any outstanding stock options or performance share
awards, the number of shares of the Capital Stock which may be issued under the
Plan but are not subject to outstanding stock options or performance share
awards and the maximum number of shares as to which stock options may be granted
and as to which shares may be awarded under the Plan to any employee during any
calendar year under Section 4 on the date fixed for determining the stockholders
entitled to receive such stock dividend or distribution shall be adjusted by
adding thereto the number of shares of the Capital Stock which would have been
distributable thereon if such shares had been outstanding on such date. Shares
of Capital Stock so distributed with respect to any restricted shares held in
escrow shall also be held by the Corporation in escrow and shall be subject to
the same restrictions as are applicable to the restricted shares on which they
were distributed.
If the outstanding shares of the Capital Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Capital Stock subject to any then
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outstanding stock option or performance share award, and for each share of the
Capital Stock which may be issued under the Plan but which is not then subject
to any outstanding stock option or performance share award, the number and kind
of shares of stock or other securities into which each outstanding share of the
Capital Stock shall be so changed or for which each such share shall be
exchangeable. Unless otherwise determined by the Committee, in its discretion,
any such stock or securities, as well as any cash or other property, into or for
which any restricted shares held in escrow shall be changed or exchangeable in
any such transaction shall also be held by the Corporation in escrow and shall
be subject to the same restrictions as are applicable to the restricted shares
in respect of which such stock, securities, cash or other property was issued or
distributed.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 7, the aggregate option price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate option price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new option price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
If the outstanding shares of the Capital Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Capital Stock, (i) the Committee shall make any adjustments to
any then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of grantees which would otherwise
result from any such transaction, and (ii) unless otherwise determined by the
Committee, in its discretion, any stock, securities, cash or other property
distributed with respect to any restricted shares held in escrow or for which
any restricted shares held in escrow shall be exchanged in any such transaction
shall also be held by the Corporation in escrow and shall be subject to the same
restrictions as are applicable to the restricted shares in respect of which such
stock, securities, cash or other property was distributed or exchanged.
No adjustment or substitution provided for in this Section 7 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution. Owners of restricted shares held in
escrow shall be treated in the same manner as owners of Capital Stock not held
in escrow with respect to fractional shares created by an adjustment or
substitution of shares, except that, unless otherwise determined by the
Committee, in its discretion, any cash or other property paid in lieu of a
fractional share shall be subject to restrictions similar to those applicable to
the restricted shares exchanged therefor.
If any adjustment or substitution provided for in this Section 7 requires
the approval of stockholders in order to enable the Corporation to grant
incentive stock options, then no such adjustment or substitution shall be made
without the required stockholder approval. Notwithstanding the foregoing, in the
case of incentive stock options, if the effect of any such adjustment or
substitution would be to cause the stock option to fail to continue to qualify
as an incentive stock option or to cause a modification, extension or renewal of
such stock option within the meaning of Section 424 of the Code, the Committee
may elect that such adjustment or substitution not be made but rather shall use
reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Committee, in its discretion, shall deem equitable and which
will not result in any disqualification, modification, extension or renewal
(within the meaning of Section 424 of the Code) of the incentive stock option.
Except as provided in this Section 7, a grantee shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
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SECTION 8
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) Definitions.
For purposes of this Section 8, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Sections
13(d) and 14(d) of the 1934 Act as in effect on the effective date of the
Plan.
(2) "Beneficial Ownership" shall be determined as provided in Rule
13d-3 under the 1934 Act as in effect on the effective date of the Plan.
(3) A specified percentage of "Voting Power" of a company shall mean
such number of the Voting Shares as shall enable the holders thereof to
cast such percentage of all the votes which could be cast in an annual
election of directors (without consideration of the rights of any class of
stock other than the common stock of the company to elect directors by a
separate class vote); and "Voting Shares" shall mean all securities of a
company entitling the holders thereof to vote in an annual election of
directors (without consideration of the rights of any class of stock other
than the common stock of the company to elect directors by a separate class
vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to
acquire securities of the Corporation (other than such an offer made by the
Corporation or any Subsidiary), whether or not such offer is approved or
opposed by the Board.
(5) "Continuing Directors" shall mean a director of the Corporation
who either (a) was a director of the Corporation on the effective date of
the Plan or (b) is an individual whose election, or nomination for
election, as a director of the Corporation was approved by a vote of at
least two-thirds of the directors then still in office who were Continuing
Directors (other than an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of directors of the Corporation which would be subject to Rule
14a-11 under the 1934 Act, or any successor Rule).
(6) "Section 8 Event" shall mean the date upon which any of the
following events occurs:
(a) The Corporation acquires actual knowledge that any Person other
than the Corporation, a Subsidiary or any employee benefit plan(s)
sponsored by the Corporation or a Subsidiary has acquired the Beneficial
Ownership, directly or indirectly, of securities of the Corporation
entitling such Person to 30% or more of the Voting Power of the
Corporation;
(b) A Tender Offer is made to acquire securities of the Corporation
entitling the holders thereof to 30% or more of the Voting Power of the
Corporation; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or
any successor Rule) relating to the election or removal of 50% or more
of the members of the Board or any class of the Board shall be made by
any person other than the Corporation or less than 51% of the members of
the Board shall be Continuing Directors; or
(d) The stockholders of the Corporation shall approve a merger,
consolidation, share exchange, division or sale or other disposition of
assets of the Corporation as a result of which the stockholders of the
Corporation immediately prior to such transaction shall not hold,
directly or indirectly, immediately following such transaction a
majority of the Voting Power of (i) in the case of a merger or
consolidation, the surviving or resulting corporation, (ii) in the case
of a share exchange, the acquiring corporation or (iii) in the case of a
division or a sale or other disposition of assets, each surviving,
resulting or acquiring corporation which, immediately following the
transaction, holds more than 10% of the consolidated assets of the
Corporation immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee
are included in determining the Beneficial Ownership of a Person referred
to in paragraph 6(a), (ii) a grantee is required to be named pursuant to
Item 2 of the Schedule 14D-1 (or any similar successor filing requirement)
required to be
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filed by the bidder making a Tender Offer referred to in paragraph 6(b) or
(iii) if a grantee is a "participant" as defined in Instruction 3 to Item 4
of Schedule 14A under the 1934 Act (or any successor Rule) in a
solicitation (other than a solicitation by the Corporation) referred to in
paragraph 6(c), then no Section 8 Event with respect to such grantee shall
be deemed to have occurred by reason of such event.
(B) Acceleration of the Exercise Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(I) shall otherwise
provide, notwithstanding any other provision contained in the Plan, in case any
"Section 8 Event" occurs all outstanding stock options (other than those held by
a person referred to in the proviso to Section 8(A)(6)) shall become immediately
and fully exercisable whether or not otherwise exercisable by their terms.
(C) Extension of the Expiration Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(I) shall otherwise
provide, notwithstanding any other provision contained in the Plan, all
outstanding stock options held by a grantee (other than a grantee referred to in
the proviso to Section 8(A)(6)) whose employment with the Corporation or a
Subsidiary terminates within one year of any Section 8 Event for any reason
other than voluntary termination with the consent of the Corporation or a
Subsidiary, severance under the Severance Plan, retirement under any retirement
plan of the Corporation or a Subsidiary or death which are exercisable shall
continue to be exercisable for a period of three years from the date of such
termination of employment, but in no event after the expiration date of the
stock option.
(D) Lapse of Restrictions on Restricted Share Awards.
Unless the agreement referred to in Section 6(A) shall otherwise provide,
notwithstanding any other provision contained in the Plan, if any "Section 8
Event" occurs prior to the scheduled lapse of all restrictions applicable to
restricted share awards under the Plan (other than those held by a person
referred to in the proviso to Section 8(A)(6)), all such restrictions shall
lapse upon the occurrence of any such "Section 8 Event" regardless of the
scheduled lapse of such restrictions.
(E) Payment of Performance Shares
Unless the agreement referred to in Section 6(B) shall otherwise provide,
notwithstanding any other provision contained in the Plan, if any "Section 8
Event" occurs prior to the end of an award period with respect to an award of
performance shares to a grantee, the performance shares (unless the grantee is a
person referred to in the proviso to Section 8(A)(6)) shall be deemed to have
been fully earned as of the date of the Section 8 Event, regardless of the
attainment or nonattainment of any performance target and shall be paid to the
grantee as promptly as practicable after the Section 8 Event.
SECTION 9
EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER
Neither the adoption of the Plan nor any action of the Board or the
Committee pursuant to the Plan shall be deemed to give any employee any right to
be granted a stock option (with or without alternative stock appreciation rights
and/or cash payment rights) or an award under the Plan. Nothing in the Plan, in
any stock option, alternative stock appreciation rights or cash payment rights
granted under the Plan or in any award under the Plan or in any agreement
providing for any of the foregoing shall confer any right on any employee to
continue in the employ of the Corporation or any Subsidiary or interfere in any
way with the rights of the Corporation or any Subsidiary to terminate the
employment of any employee at any time.
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SECTION 10
WITHHOLDING
Income or employment taxes may be required to be withheld by the
Corporation or a Subsidiary in connection with the exercise of a stock option or
alternative stock appreciation rights, upon a "disqualifying disposition" of the
shares acquired upon exercise of an incentive stock option, at the time
restricted shares are granted or vest or performance shares are earned or upon
the receipt by the grantee of cash in payment of cash payment rights or
dividends on restricted stock which has not vested. Except as provided below,
the grantee shall pay the Corporation in cash the amount required to be
withheld.
A grantee may elect to have any withholding obligation at the time of the
exercise of a nonstatutory stock option or alternative stock appreciation rights
or at the time restricted shares vest or performance shares are earned satisfied
by the Corporation withholding from the shares of Capital Stock the grantee
would otherwise receive full shares of Capital Stock having a fair market value,
determined as provided in Section 5(J), on the date that the amount of tax to be
withheld is determined (the "Tax Date") equal to, or as nearly equal as possible
to but less than, the amount required to be withheld. The Corporation will
request that the grantee pay any additional amount required to be withheld
directly to the Corporation in cash. Any income or employment taxes required to
be withheld by the Corporation or any of its Subsidiaries upon the receipt by
the grantee of cash in payment of cash payment rights or dividends will be
satisfied by the Corporation by withholding the taxes required to be withheld
from the cash the grantee would otherwise receive.
If the grantee is a person who is subject to the provisions of Section 16
of the 1934 Act on the Tax Date, the election referred to in the preceding
paragraph must be made at least six months prior to the Tax Date and must be
irrevocable when made (except that a revocation of such an election may be made
if it is to become effective six months after the date of the revocation and is
also irrevocable) or in the alternative, if the election is in connection with
the exercise of a nonstatutory stock option or alternative stock appreciation
rights, the election must be made during a period beginning on the third and
ending on the twelfth business day following the date of release for publication
of the quarterly or annual summary statements of sales and earnings of the
Corporation (provided in this case the nonstatutory stock option or alternative
stock appreciation rights to which the election applies is/are also exercised
during the same ten-day period). Any election during one of the ten-day periods
is subject to the approval of the Committee, and if the Committee, in its
discretion, would not approve the election, the election would not be effective.
A grantee may also elect to have any withholding obligation in connection
with the exercise of a nonstatutory stock option or alternative stock
appreciation rights, upon a "disqualifying disposition" of the shares acquired
upon the exercise of an incentive stock option or at the time restricted shares
are granted or vest or performance shares are earned satisfied in whole or in
part by the grantee tendering to the Corporation a number of previously owned
shares of Capital Stock having a fair market value, determined as provided in
Section 5(J), on the Tax Date equal to or less than the amount required to be
withheld.
If a grantee does not pay any income or employment taxes required to be
withheld by the Corporation or any of its Subsidiaries within ten days after a
request for the payment of such taxes, the Corporation or such Subsidiary may
withhold such taxes from any other compensation to which the grantee is entitled
from the Corporation or any of its Subsidiaries.
SECTION 11
AMENDMENT
The right to alter and amend the Plan at any time and from time to time and
the right to revoke or terminate the Plan are hereby specifically reserved to
the Board; provided that no such alteration or amendment of the Plan shall,
without stockholder approval, (i) increase the number of shares which may be
issued under the Plan as set forth in Section 3, (ii) increase the maximum
number of shares as to which stock options may be granted and as to which shares
may be awarded under the Plan to any one employee during any one calendar year
as set forth in Section 4, (iii) materially increase the benefits accruing under
the Plan to
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persons subject to the provisions of Section 16(b) of the 1934 Act, (iv)
materially modify the requirements as to eligibility for participation in the
Plan by persons subject to the provisions of Section 16(b) of the 1934 Act, (v)
make any changes in the class of employees eligible to receive incentive stock
options under the Plan or (vi) extend the duration of the Plan. No alteration,
amendment, revocation or termination of the Plan shall, without the written
consent of the holder of an outstanding grant or award under the Plan, adversely
affect the rights of such holder with respect to such outstanding grant or
award.
SECTION 12
EFFECTIVE DATE AND DURATION OF PLAN
The effective date and date of adoption of the Plan shall be December 16,
1993, the date of adoption of the Plan by the Board, provided that such adoption
of the Plan by the Board is approved by the affirmative votes of the holders of
a majority of the Capital Stock present in person or by proxy and entitled to
vote at a meeting of stockholders duly called and held on or prior to December
15, 1994. No stock option or alternative stock appreciation rights granted under
the Plan may be exercised and no restricted shares may be awarded until after
such approval. No stock option, alternative stock appreciation rights or cash
payment rights may be granted and no awards may be made under the Plan
subsequent to December 15, 2003.
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EXHIBIT B
QUAKER STATE CORPORATION
1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purposes of the 1994 Non-Employee Directors' Stock Option Plan (the
"Plan") are to promote the long-term success of Quaker State Corporation (the
"Corporation") by creating a long-term mutuality of interests between the
non-employee Directors and stockholders of the Corporation, to provide an
additional inducement for such Directors to remain with the Corporation and to
provide a means through which the Corporation may attract able persons to serve
as Directors of the Corporation.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors of the Corporation (the "Board") and consisting of not
less than two members of the Board. The Committee shall keep records of action
taken at its meetings. A majority of the Committee shall constitute a quorum at
any meeting, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by all the members of the
Committee, shall be the acts of the Committee.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the Plan, shall be
subject to the determination of the Committee, which shall be final and binding.
Notwithstanding the above, the selection of the Directors to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
shall be as hereinafter provided, and the Committee shall have no discretion as
to such matters.
SECTION 2
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares which may be issued and as to which grants
of stock options may be made under the Plan is 100,000 shares of the Capital
Stock, par value $1.00 per share, of the Corporation (the "Capital Stock"),
subject to adjustment and substitution as set forth in Section 5. If any stock
option granted under the Plan is cancelled by mutual consent or terminates or
expires for any reason without having been exercised in full, the number of
shares subject thereto shall again be available for purposes of the Plan. The
shares which may be issued under the Plan may be either authorized but unissued
shares or treasury shares or partly each.
SECTION 3
GRANT OF STOCK OPTIONS
On the third business day following the day of each annual meeting of the
stockholders of the Corporation, each person who is then a member of the Board
and who is not then an employee of the Corporation or any of its subsidiaries (a
"non-employee Director") shall automatically and without further action by the
Board or the Committee be granted a "nonstatutory stock option" (i.e., a stock
option which does not qualify under Sections 422 or 423 of the Internal Revenue
Code of 1986 (the "Code")) to purchase 1,000 shares of Capital Stock, subject to
adjustment and substitution as set forth in Section 5. If the number of shares
then remaining available for the grant of stock options under the Plan is not
sufficient for each non-
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employee Director to be granted an option for 1,000 shares (or the number of
adjusted or substituted shares pursuant to Section 5), then each non-employee
Director shall be granted an option for a number of whole shares equal to the
number of shares then remaining available divided by the number of non-employee
Directors, disregarding any fractions of a share.
SECTION 4
TERMS AND CONDITIONS OF STOCK OPTIONS
Stock options granted under the Plan shall be subject to the following
terms and conditions:
(A) The purchase price at which each stock option may be exercised
(the "option price") shall be one hundred percent (100%) of the fair market
value per share of the Capital Stock covered by the stock option on the
date of grant, determined as provided in Section 4(G).
(B) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (including
check, bank draft or money order); provided, however, that in lieu of such
cash the person exercising the stock option may pay the option price in
whole or in part by delivering to the Corporation shares of the Capital
Stock having a fair market value on the date of exercise of the stock
option, determined as provided in Section 4(G), equal to the option price
for the shares being purchased; except that (i) any portion of the option
price representing a fraction of a share shall in any event be paid in cash
and (ii) no shares of the Capital Stock which have been held for less than
six months may be delivered in payment of the option price of a stock
option. Delivery of shares may also be accomplished through the effective
transfer to the Corporation of shares held by a broker or other agent. The
Corporation will also cooperate with any person exercising a stock option
who participates in a cashless exercise program of a broker or other agent
under which all or part of the shares received upon exercise of the stock
option are sold through the broker or other agent or under which the broker
or other agent makes a loan to such person. Notwithstanding the foregoing,
the exercise of the stock option shall not be deemed to occur and no shares
of Capital Stock will be issued by the Corporation upon exercise of the
stock option until the Corporation has received payment of the option price
in full. The date of exercise of a stock option shall be determined under
procedures established by the Committee, and as of the date of exercise the
person exercising the stock option shall be considered for all purposes to
be the owner of the shares with respect to which the stock option has been
exercised. Payment of the option price with shares shall not increase the
number of shares of the Capital Stock which may be issued under the Plan as
provided in Section 2.
(C) No stock option shall be exercisable during the first six months
of its term except in case of death as provided in Section 4(E) or in case
of a Section 6 Event as provided in Section 6. Subject to the preceding
sentence and subject to Section 4(E) which provides for earlier termination
of a stock option under certain circumstances, each stock option shall be
exercisable for ten years from the date of grant and not thereafter. A
stock option to the extent exercisable at any time may be exercised in
whole or in part.
(D) No stock option shall be transferable by the grantee otherwise
than by Will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death.
All stock options shall be exercisable during the lifetime of the grantee
only by the grantee or the grantee's guardian or legal representative.
These restrictions on transferability shall not apply to the extent such
restrictions are not at the time required for the Plan to continue to meet
the requirements of Rule 16b-3 under the Securities Exchange Act of 1934
(the "1934 Act"), or any successor Rule.
(E) If a grantee ceases to be a Director of the Corporation for any
reason, any outstanding stock options held by the grantee shall be
exercisable according to the following provisions:
(i) If a grantee ceases to be a Director of the Corporation for any
reason other than resignation, removal for cause or death, any
outstanding stock option held by such grantee shall be exercisable by
the grantee (but only if exercisable by the grantee immediately prior to
ceasing to be a Director) at
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any time prior to the expiration date of such stock option or within
three years after the date the grantee ceases to be a Director,
whichever is the shorter period;
(ii) If during his term of office as a Director a grantee resigns
from the Board or is removed from office for cause, any outstanding
stock option held by the grantee which is not exercisable by the grantee
immediately prior to resignation or removal shall terminate as of the
date of resignation or removal, and any outstanding stock option held by
the grantee which is exercisable by the grantee immediately prior to
resignation or removal shall be exercisable by the grantee at any time
prior to the expiration date of such stock option or within three months
after the date of resignation or removal of the grantee, whichever is
the shorter period;
(iii) Following the death of a grantee during service as a Director
of the Corporation, any outstanding stock option held by the grantee at
the time of death (whether or not exercisable by the grantee immediately
prior to death) shall be exercisable by the person entitled to do so
under the Will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate, by
the legal representative of the grantee at any time prior to the
expiration date of such stock option or within three years after the
date of death of the grantee, whichever is the shorter period;
(iv) Following the death of a grantee after ceasing to be a
Director and during a period when a stock option is exercisable under
clause (ii) above, the stock option shall be exercisable by such person
entitled to do so under the Will of the grantee or by such legal
representative at any time prior to the expiration date of the stock
option or within one year after the date of death, whichever is the
shorter period; and
(v) Following the death of a grantee after ceasing to be a Director
and during a period when a stock option is exercisable under clause
(iii) above, the stock option shall be exercisable by such person
entitled to do so under the Will of the grantee or by such legal
representative at any time during the shorter of the following two
periods: (i) until the expiration date of the stock option or (ii) until
three years after the grantee ceased being a Director or one year after
the date of death of the grantee (whichever is longer).
A stock option held by a grantee who has ceased to be a Director of
the Corporation shall terminate upon the expiration of the applicable
exercise period, if any, specified in this Section 4(E).
(F) All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the Corporation by
the Chief Executive Officer (if other than the President), the President or
any Vice President and by the grantee.
(G) Fair market value of the Capital Stock shall be the mean between
the following prices, as applicable, for the date as of which fair market
value is to be determined as quoted in The Wall Street Journal (or in such
other reliable publication as the Committee, in its discretion, may
determine to rely upon): (i) if the Capital Stock is listed on the New York
Stock Exchange, the highest and lowest sales prices per share of the
Capital Stock as quoted in the NYSE-Composite Transactions listing for such
date, (ii) if the Capital Stock is not listed on such exchange, the highest
and lowest sales prices per share of Capital Stock for such date on (or on
any composite index including) the principal United States securities
exchange registered under the 1934 Act on which the Capital Stock is
listed, or (iii) if the Capital Stock is not listed on any such exchange,
the highest and lowest sales prices per share of the Capital Stock for such
date on the National Association of Securities Dealers Automated Quotations
System or any successor system then in use ("NASDAQ"). If there are no such
sale price quotations for the date as of which fair market value is to be
determined but there are such sale price quotations within a reasonable
period both before and after such date, then fair market value shall be
determined by taking a weighted average of the means between the highest
and lowest sales prices per share of the Capital Stock as so quoted on the
nearest date before and the nearest date after the date as of which fair
market value is to be determined. The average should be weighted inversely
by the respective numbers of trading days between the selling dates and the
date as of which fair market value is to be determined. If there are
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<PAGE> 52
no such sale price quotations on or within a reasonable period both before
and after the date as of which fair market value is to be determined, then
fair market value of the Capital Stock shall be the mean between the bona
fide bid and asked prices per share of Capital Stock as so quoted for such
date on NASDAQ, or if none, the weighted average of the means between such
bona fide bid and asked prices on the nearest trading date before and the
nearest trading date after the date as of which fair market value is to be
determined, if both such dates are within a reasonable period. The average
is to be determined in the manner described above in this Section 4(G). If
the fair market value of the Capital Stock cannot be determined on the
basis previously set forth in this Section 4(G) for the date as of which
fair market value is to be determined, the Committee shall in good faith
determine the fair market value of the Capital Stock on such date. Fair
market value shall be determined without regard to any restriction other
than a restriction which, by its terms, will never lapse.
(H) The obligation of the Corporation to issue shares of the Capital
Stock under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such shares, if deemed necessary or appropriate by counsel for
the Corporation, (ii) the condition that the shares shall have been listed
(or authorized for listing upon official notice of issuance) upon each
stock exchange, if any, on which the Capital Stock may then be listed and
(iii) all other applicable laws, regulations, rules and orders which may
then be in effect.
Subject to the foregoing provisions of this Section 4 and the other
provisions of the Plan, any stock option granted under the Plan shall be subject
to such restrictions and other terms and conditions, if any, as shall be
determined, in its discretion, by the Committee and set forth in the agreement
referred to in Section 4(F), or an amendment thereto; except that in no event
shall the Committee or the Board have any power or authority which would cause
the Plan to fail to be a plan described in Rule 16b-3(c)(2)(ii), or any
successor Rule.
SECTION 5
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Capital
Stock payable in shares of the Capital Stock, the number of shares of the
Capital Stock set forth in Section 3, the number of shares of the Capital Stock
then subject to any outstanding stock options and the number of shares of the
Capital Stock which may be issued under the Plan but are not then subject to
outstanding stock options on the date fixed for determining the stockholders
entitled to receive such stock dividend or distribution shall be adjusted by
adding thereto the number of shares of the Capital Stock which would have been
distributable thereon if such shares had been outstanding on such date.
If the outstanding shares of the Capital Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Capital Stock set forth in Section 3, for each share of the Capital
Stock subject to any then outstanding stock option and for each share of the
Capital Stock which may be issued under the Plan but which is not then subject
to any outstanding stock option, the number and kind of shares of stock or other
securities into which each outstanding share of the Capital Stock shall be so
changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 5, the aggregate option price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate option price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new option price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
If the outstanding shares of the Capital Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Capital Stock, the Committee shall make any adjustments to any
then outstanding stock
B-4
<PAGE> 53
option which it determines are equitably required to prevent dilution or
enlargement of the rights of grantees which would otherwise result from any such
transaction.
No adjustment or substitution provided for in this Section 5 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
Except as provided in this Section 5, a grantee shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
SECTION 6
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) DEFINITIONS.
For purposes of this Section 6, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Sections
13(d) and 14(d) of the 1934 Act as in effect on the effective date of the
Plan.
(2) "Beneficial Ownership" shall be determined as provided in Rule
13d-3 under the 1934 Act as in effect on the effective date of the Plan.
(3) A specified percentage of "Voting Power" of a company shall mean
such number of the Voting Shares as shall enable the holders thereof to
cast such percentage of all the votes which could be cast in an annual
election of directors (without consideration of the rights of any class of
stock other than the common stock of the company to elect directors by a
separate class vote); and "Voting Shares" shall mean all securities of a
company entitling the holders thereof to vote in an annual election of
directors (without consideration of the rights of any class of stock other
than the common stock of the company to elect directors by a separate class
vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to
acquire securities of the Corporation (other than such an offer made by the
Corporation or any Subsidiary), whether or not such offer is approved or
opposed by the Board.
(5) "Continuing Directors" shall mean a director of the Corporation
who either (a) was a director of the Corporation on the effective date of
the Plan or (b) is an individual whose election, or nomination for
election, as a director of the Corporation was approved by a vote of at
least two-thirds of the directors then still in office who were Continuing
Directors (other than an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of directors of the Corporation which would be subject to Rule
14a-11 under the 1934 Act, or any successor Rule).
(6) "Section 6 Event" shall mean the date upon which any of the
following events occurs:
(a) The Corporation acquires actual knowledge that any Person other
than the Corporation, a Subsidiary or any employee benefit plan(s)
sponsored by the Corporation or a Subsidiary has acquired the Beneficial
Ownership, directly or indirectly, of securities of the Corporation
entitling such Person to 30% or more of the Voting Power of the
Corporation;
(b) A Tender Offer is made to acquire securities of the Corporation
entitling the holders thereof to 30% or more of the Voting Power of the
Corporation; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or
any successor Rule) relating to the election or removal of 50% or more
of the members of the Board or any class of the Board
B-5
<PAGE> 54
shall be made by any person other than the Corporation or less than 51%
of the members of the Board shall be Continuing Directors; or
(d) The stockholders of the Corporation shall approve a merger,
consolidation, share exchange, division or sale or other disposition of
assets of the Corporation as a result of which the stockholders of the
Corporation immediately prior to such transaction shall not hold,
directly or indirectly, immediately following such transaction a
majority of the Voting Power of (i) in the case of a merger or
consolidation, the surviving or resulting corporation, (ii) in the case
of a share exchange, the acquiring corporation or (iii) in the case of a
division or a sale or other disposition of assets, each surviving,
resulting or acquiring corporation which, immediately following the
transaction, holds more than 10% of the consolidated assets of the
Corporation immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee
are included in determining the Beneficial Ownership of a Person referred
to in paragraph 6(a), (ii) a grantee is required to be named pursuant to
Item 2 of the Schedule 14D-1 (or any similar successor filing requirement)
required to be filed by the bidder making a Tender Offer referred to in
paragraph 6(b) or (iii) if a grantee is a "participant" as defined in
Instruction 3 to Item 4 of Schedule 14A under the 1934 Act (or any
successor Rule) in a solicitation (other than a solicitation by the
Corporation) referred to in paragraph 6(c), then no Section 6 Event with
respect to such grantee shall be deemed to have occurred by reason of such
event.
(B) ACCELERATION OF THE EXERCISE DATE OF STOCK OPTIONS.
Notwithstanding any other provision contained in the Plan, in case any
"Section 6 Event" occurs all outstanding stock options (other than those held by
a person referred to in the proviso to Section 6(A)(6)) shall become immediately
and fully exercisable whether or not otherwise exercisable by their terms.
SECTION 7
EFFECT OF THE PLAN ON THE RIGHTS OF CORPORATION AND STOCKHOLDERS
Nothing in the Plan, in any stock option granted under the Plan, or in any
stock option agreement shall confer any right to any person to continue as a
Director of the Corporation or interfere in any way with the rights of the
stockholders of the Corporation or the Board of Directors to elect and remove
Directors.
SECTION 8
AMENDMENT AND TERMINATION
The right to amend the Plan at any time and from time to time and the right
to terminate the Plan at any time are hereby specifically reserved to the Board;
provided always that no such termination shall terminate any outstanding stock
options granted under the Plan; and provided further that no amendment of the
Plan shall (i) be made without stockholder approval if stockholder approval of
the amendment is at the time required for stock options under the Plan to
qualify for the exemption from Section 16(b) of the 1934 Act provided by Rule
16b-3, or any successor Rule, or by the rules of any stock exchange on which the
Capital Stock may then be listed, (ii) amend more than once every six months the
provisions of the Plan relating to the selection of the Directors to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
other than to comport with changes in the Code or the rules and regulations
thereunder or (iii) otherwise amend the Plan in any manner that would cause
stock options under the Plan not to qualify for the exemption provided by Rule
16b-3, or any successor Rule. No amendment or termination of the Plan shall,
without the written consent of the holder of a stock option theretofore awarded
under the Plan, adversely affect the rights of such holder with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any other
provision of the Plan or any stock option agreement, the Board shall have the
power to amend the Plan in any manner deemed necessary or
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<PAGE> 55
advisable for stock options granted under the Plan to qualify for the exemption
provided by Rule 16b-3 (or any successor rule relating to exemption from Section
16(b) of the 1934 Act), and any such amendment shall, to the extent deemed
necessary or advisable by the Board, be applicable to any outstanding stock
options theretofore granted under the Plan notwithstanding any contrary
provisions contained in any stock option agreement. In the event of any such
amendment to the Plan, the holder of any stock option outstanding under the Plan
shall, upon request of the Committee and as a condition to the exercisability of
such option, execute a conforming amendment in the form prescribed by the
Committee to the stock option agreement referred to in Section 4(F) within such
reasonable time as the Committee shall specify in such request.
SECTION 9
EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon approval by the affirmative vote of
the holders of a majority of the Capital Stock present in person or by proxy and
entitled to vote at a duly called and convened meeting of such holders. If such
approval is obtained at the Annual Meeting of Stockholders in 1994, the Plan
shall be effective on the date of such meeting, the first stock options shall be
granted on the third business day thereafter and the last stock options granted
under the Plan shall be granted on the third business day after the Annual
Meeting of Stockholders in 2003.
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<PAGE> 56
QUAKER STATE CORPORATION PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
COLONEL DRAKE THEATRE, OIL CITY, PENNSYLVANIA
THURSDAY, MAY 12, 1994--1:00 P.M., E.D.S.T.
The undersigned stockholder of Quaker State Corporation (the "Corporation")
does hereby appoint Herbert M. Baum and Conrad A. Conrad, or each of them acting
individually, as proxies of the undersigned to vote at the Annual Meeting of
Stockholders of the Corporation to be held May 12, 1994 (the "Annual Meeting"),
and at all adjournments thereof, all the shares of Capital Stock of the
Corporation which the undersigned may be entitled to vote, on the matters set
out on the reverse side of this card described in the Proxy Statement and, at
their discretion, on any other business which may properly come before the
Annual Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" ITEMS 1,
2, 3, AND 4.
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
<PAGE> 57
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, AND 4.
<TABLE>
<C> <C> <S> <C>
Item 1--The election of the following eleven Directors:
Item 2 -- The approval of the
Herbert M. Baum, Leonard M. Carroll, Conrad A. Conrad, adoption of the Corporation's
Laurel Cutler, Homer M. Ellenburg, C. Frederick Fetterolf, 1994 Stock Incentive Plan.
FOR ALL WITHHOLD Thomas A. Gardner, H. Bryce Jordan, W. Craig McClelland,
NOMINEES AUTHORITY Delbert J. McQuaide and Raymond A. Ross, Jr. FOR AGAINST ABSTAIN
(EXCEPT AS TO VOTE FOR 0 0 0
SHOWN BELOW) ALL NOMINEES (To withhold authority to vote for any individual nominee,
print that nominee's name on the line below.)
0 0 ------------------------------------------------------------
3. The approval of the adop- 4. The ratification of the ap-
tion of the Corporation's pointment of Coopers &
1994 Non-Employee Direc- Lybrand as independent
tors' Stock Option Plan. auditors for 1994.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
0 0 0 0 0 0
</TABLE>
PLEASE DATE AND SIGN exactly as your name appears hereon and
return in the enclosed envelope. If acting as attorney, executor,
administrator, guardian or trustee, please so indicate with your
full title when signing. If a Corporation, please sign in full
corporate name, by duly authorized officer. IF SHARES ARE HELD
JOINTLY, EACH STOCKHOLDER NAMED SHOULD SIGN.
Date ____________________________________ 1994
_____________________________________________
_____________________________________________
THE SIGNER HEREBY REVOKES ALL PREVIOUS PROXIES FOR THE ANNUAL
MEETING, ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND PROXY STATEMENT BOTH DATED MARCH 28, 1994, AND OF
THE ANNUAL REPORT TO STOCKHOLDERS FOR 1993 AND HEREBY RATIFIES ALL
THAT THE SAID PROXIES MAY DO BY VIRTUE HEREOF.
<PAGE> 58
<TABLE>
<S> <C>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
-------------------
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BUSINESS REPLY MAIL -------------------
FIRST CLASS MAIL PERMIT NO. 3940 NEW YORK, NY -------------------
-------------------
POSTAGE WILL BE PAID BY ADDRESSEE -------------------
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-------------------
-------------------
-------------------
</TABLE>
QUAKER STATE CORPORATION
ATTN: JOYCE A. McFADDEN
P.O. BOX 989
OIL CITY, PA 16301-0989
QUAKER STATE CORPORATION IS INTERESTED IN
HEARING FROM ITS STOCKHOLDERS.
PLEASE NOTE YOUR COMMENTS BELOW.
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