SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange of 1934
Filed by Registrant [ X ]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec.240.14a-11(c) or 240.14a-12
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14-6(e)(2)
CERBCO, INC.
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing by registration for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, DECEMBER 20, 1996
To the Stockholders of CERBCO, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
CERBCO, Inc., a Delaware corporation (the "Company"), for the fiscal year ended
June 30, 1996, will be held at the Holiday Inn/US Air Arena, 9100 Basil Court,
Landover, Maryland, on Friday, December 20, 1996, at 10:00 a.m. local time, for
the following purposes:
1. To elect directors of the Company; and
2. To transact such other business as may properly come
before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on October 24,
1996, as the record date for determining stockholders entitled to notice of, and
to vote at, the Annual Meeting.
A copy of the Company's Annual Report for the fiscal year ended June
30, 1996, a Proxy, and a Proxy Statement accompany this Notice.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN,
DATE AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES. A PROMPT RESPONSE WILL ASSURE YOUR
PARTICIPATION IN THE MEETING AND REDUCE THE COMPANY'S EXPENSE IN SOLICITING
PROXIES. IF YOU ARE PRESENT AT THE MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR
PROXY AND VOTE YOUR SHARES PERSONALLY.
By Order of the Board of Directors,
/s/
Robert F. Hartman
Secretary
Landover, Maryland
November 8, 1996
<PAGE>
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
Annual Meeting of Stockholders to be Held
December 20, 1996
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of CERBCO, Inc., a Delaware corporation
("CERBCO" or the "Company"), for use at the Annual Meeting of Stockholders to be
held at the Holiday Inn/US Air Arena, 9100 Basil Court, Landover, Maryland, on
Friday, December 20, 1996, at 10:00 a.m. local time, and at any adjournments
thereof (the "Meeting").
The Board of Directors (the "Board") has fixed the close of business on
October 24, 1996, as the record date (the "Record Date") for the determination
of stockholders who are entitled to notice of, and to vote at, the Meeting.
Stockholders are requested to complete, sign and date the accompanying
proxy and return it promptly to the Company in the enclosed envelope. If the
enclosed proxy is executed and returned, it may be revoked at any time before it
is voted at the Meeting by a written notice of revocation to the Secretary of
the Company, or by executing a proxy bearing a later date, or by voting at the
Meeting.
Shares of Common Stock and shares of Class B Common Stock represented
by valid proxies received in time for the Meeting, and not revoked, will be
voted as specified therein. If no instructions are given, the respective shares
of common stock will be voted FOR the election as director of the Company that
nominee for director designated for election by the holders of Common Stock and
listed under the caption "Proposal No. 1 - Election of Directors" herein; FOR
the election as directors of the Company those nominees for director designated
for election by the holders of Class B Common Stock and listed under the caption
"Proposal No. 1 - Election of Directors" herein; and, if authority is given to
them, at the discretion of the proxy holders, on any other matters that may
properly come before the Meeting.
The cost of solicitation will be borne by the Company. Additional
solicitations may be made by mail, telephone, telegraph, personal contact or
other means by the Company or by its directors or regular employees. The Company
may make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy statements to the beneficial owners of
shares of the Company's common stock and to reimburse them for their reasonable
expenses in so doing.
This Proxy Statement and the accompanying Notice of Annual Meeting,
Proxy and Annual Report are first being mailed to the Company's stockholders of
record on or about November 15, 1996.
OUTSTANDING SHARES AND VOTING RIGHTS
As of the Record Date, there were outstanding 1,467,956 shares,
comprised of 1,157,226 shares of Common Stock, $.10 par value (the "Common
Stock"), and 310,730 shares of Class B Common Stock, $.10 par value (the "Class
B Common Stock"), which are the only classes of stock of the Company
outstanding. A quorum shall be constituted by the presence at the Meeting of
one-third (1/3) of the outstanding shares of Common Stock, or 385,742 of such
shares, and one-third (1/3) of the outstanding shares of Class B Common Stock,
or 103,577 of such shares.
Each share of Common Stock is entitled to one vote, and each share of
Class B Common Stock is entitled to ten votes, except with respect to the
election of directors and any other matter requiring the vote of Common Stock or
Class B Common Stock separately as a class. The holders of Common Stock, voting
as a separate class, are entitled to elect that number of directors which
constitutes 25% of the authorized number of members of the Board of Directors
and, if such 25% is not a whole number, then the holders of Common Stock are
entitled to elect the nearest higher whole number of directors that is at least
25% of such membership. The holders of Class B Common Stock, also voting as a
separate class, are entitled to elect the remaining directors. The affirmative
vote of the holders of a majority of each class of common stock present in
person or represented by proxy, provided a quorum of that class is present, is
necessary for the election of directors by the class. The present authorized
number of directorships of the Board of Directors is four. For purposes of
determining whether a proposal has received a majority vote, abstentions will be
included in the vote totals with the result that an abstention will have the
same effect as a negative vote. Where authority to vote shares is withheld,
including instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy (so-called "broker
non-votes"), those shares will not be included in the vote totals and,
therefore, will have no effect on the vote.
SECURITY OWNERSHIP
The following information is furnished with respect to each person or
entity who is known to the Company to be a beneficial owner of more than five
percent of any class of the Company's voting securities as of the Record Date:
<TABLE>
<CAPTION>
Amount and Nature of
Name & Address of Beneficial Owner Title of Class Beneficial Ownership Percent of Class
- ---------------------------------- -------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Robert W. Erikson Common Stock 57,700 1/ 5.0%
3421 Pennsy Drive Class B Common Stock 131,750 2/ 4/ 42.4%
Landover, MD
George Wm. Erikson Common Stock 56,602 3/ 4.9%
3421 Pennsy Drive Class B Common Stock 115,814 3/ 4/ 37.3%
Landover, MD
Koonce Securities, Inc. Common Stock 164,916 5/ 14.3%
6550 Rock Spring Drive
Bethesda, MD
Kennedy Capital Management, Inc. Common Stock 53,995 6/ 4.7%
425 N. New Ballas Road
St. Louis, MO
1/ Record and beneficial ownership, sole voting and sole investment power.
2/ Record and beneficial ownership, sole voting and sole investment power.
3/ Record and beneficial ownership. Includes 2,246 shares of each class of
stock owned jointly with Mr. Erikson's spouse, as to which there is shared
voting and investment power.
4/ See sections entitled "Voting Securities and Principal Holders Thereof" and
"Legal Proceedings."
5/ Beneficial ownership, sole voting and sole investment power as publicly
disclosed in current Schedule 13G Beneficial Ownership Report, reporting
securities acquired by such financial institution in the ordinary course of
its business.
6/ Beneficial ownership, shared voting and shared investment power as publicly
disclosed in current Schedule 13G Beneficial Ownership Report, reporting
securities acquired by such financial institution in the ordinary course of
its business.
</TABLE>
The following information is furnished with respect to all directors of
CERBCO who were the beneficial owners of any shares of Common Stock and/or Class
B Common Stock as of the Record Date, and with respect to all directors and
officers of CERBCO as a group:
<TABLE>
<CAPTION>
Amount & Nature of Beneficial Ownership
Name of Beneficial Owner Title of Class Owned Outright Exercisable Options Percent of Class
- ------------------------ -------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert W. Erikson Common Stock 57,700 1/ 3,000 5.2%
Class B Common Stock 131,750 2/ 4/ 0 42.4%
George Wm. Erikson Common Stock 56,602 3/ 3,000 5.1%
Class B Common Stock 115,814 3/ 4/ 0 37.3%
Webb C. Hayes, IV Common Stock 3,000 4,500 0.6%
Paul C. Kincheloe, Jr. Common Stock 3,000 4,500 0.6%
All Directors and Officers
as a Group (6 persons Common Stock 120,302 15,000 11.5%
including those named Class B Common Stock 247,564 0 79.6%
above) 5/ 6/
1/ Record and beneficial ownership, sole voting and sole investment power.
2/ Record and beneficial ownership, sole voting and sole investment power.
3/ Record and beneficial ownership. Includes 2,246 shares of each class of
stock owned jointly with Mr. Erikson's spouse, as to which there is shared
voting and investment power.
4/ See sections entitled "Voting Securities and Principal Holders Thereof" and
"Legal Proceedings."
5/ Mr. George Erikson also is the beneficial owner of 16,500 shares of Common
Stock (less than 1% of such class) of Insituform East, Incorporated, a
subsidiary of the Company. In addition, Messrs. George Erikson and Robert
Erikson each are the beneficial owners of exercisable options on 75,000
shares of the Common Stock (approximately 1.8% of such class) of Insituform
East, Incorporated, pursuant to the Insituform East 1989 and 1994 Board of
Directors' Stock Option Plans.
6/ Mr. Armen Manoogian, President and Director of Capitol Copy Products, Inc.
("CCP"), a subsidiary of the Company, is the beneficial owner of 400
shares (33 1/3%) of the Class B Stock of CCP.
</TABLE>
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The authorized number of directorships of the Board of Directors is
four. Four directors are presently serving. Accordingly, in accordance with the
Company's Certificate of Incorporation and By-laws, the Board has nominated one
director to be elected by the holders of shares of Common Stock and three
directors to be elected by holders of shares of Class B Common Stock. The terms
of all presently serving directors expire upon the election and qualification of
the directors to be elected at the Meeting, and the four persons presently
serving as directors are all nominees to be elected at the Meeting. The
directors elected will serve subject to the Company's By-laws until the next
Annual Meeting of Stockholders for the fiscal year ending June 30, 1997 and
until their respective successors shall have been duly elected and qualified.
It is intended that the individuals named in the enclosed form of proxy
will vote their proxies in favor of the election of the persons listed below as
the Board's nominees for the Company's directors, unless otherwise directed. The
Board has no reason to believe that any of the nominees for the office of
director will not be available for election as director. However, should any of
them become unwilling to be elected or unable to serve, it is intended that the
individuals named in the enclosed proxy may vote for the election of such other
person as the Board may recommend.
PRESENT DIRECTORS WHO ARE NOMINATED FOR RE-ELECTION
One of the four nominees for election to the Board of Directors
identified below has been designated for election by the holders of shares of
Common Stock, and only the holders of such shares may vote with respect to such
nominee. The remaining three nominees have been designated for election by the
holders of shares of Class B Common Stock, and only the holders of such shares
may vote with respect to such nominees. Accordingly, the following list contains
a designation as to that nominee to be elected by holders of shares of Common
Stock and those nominees to be elected by holders of shares of Class B Common
Stock:
<TABLE>
<CAPTION>
First Became Class of Common Stock
Name, Age, Principal Occupation, Business Experience and Directorships A Director 1/ for Which Nominated
<S> <C> <C>
Robert W. Erikson, Age 51 2/ 3/ 4/ 1974 Class B Common Stock
President, Treasurer and a Director of CERBCO since 1988; Insituform East, Inc.
- - Vice Chairman since 1986 and President since 1991, a Director since 1985 and
Vice Chairman of the Board of Directors from 1985 to 1986; Capitol Copy
Products, Inc. - Vice Chairman and a Director since 1987; CERBERONICS, Inc. - a
Director since 1974, Chairman since 1988, and President from 1977 to 1988; a
Director of Palmer National Bancorp, Inc. and The Palmer National Bank from 1983
to 1996, and a Director of The Palmer National Bank's successor, The George
Mason Bank, N.A., since 1996.
George Wm. Erikson, Age 54 2/ 3/ 1975 Class B Common Stock
Chairman, General Counsel and a Director of CERBCO since 1988; Insituform
East, Inc. - Chairman and General Counsel since 1986, a Director since 1984 and
Chairman of the Board of Directors from 1985 to 1986; Capitol Copy Products,
Inc. - Chairman, General Counsel and a Director since 1987; CERBERONICS, Inc. -
a Director since 1975, General Counsel since 1976, Chairman from 1979 to 1988,
and Vice Chairman since 1988.
Webb C. Hayes, IV, Age 48 4/ 5/ 1991 Class B Common Stock
Director and Executive Vice President of George Mason Bankshares, Inc. and
Chairman, President and CEO of The George Mason Bank, N.A., since 1996; Chairman
of the Board of Palmer National Bancorp, Inc. and The Palmer National Bank from
1985 to 1996, President and Chief Executive Officer from 1983 to 1996; Capitol
Copy Products, Inc. - a Director since 1992; Insituform East, Inc. - a Director
since 1994; a Director of the Federal Reserve Bank of Richmond from 1992 to
1995.
Paul C. Kincheloe, Jr., Age 54 4/ 5/ 1991 Common Stock
Practicing attorney and real estate investor since 1967; Partner in the law firm
of Kincheloe and Schneiderman since 1983; Director of Herndon Federal Savings &
Loan from 1970 to 1983; Director of First Federal Savings & Loan of Alexandria
from 1983 to 1989; Capitol Copy Products, Inc. - a Director since 1992;
Insituform East, Inc. - a Director since 1994.
1/ Includes service as a director of CERBERONICS, Inc., now a wholly-owned
subsidiary of the Company. The Company discontinued the operations of
CERBERONICS in March 1991.
2/ Member of the Corporate Executive Committee of the Company, and the Chief
Executive Officer Committees of Insituform East, Incorporated and Capitol
Copy Products, Inc., which committees perform the functions of the Chief
Executive Officer of each of the respective companies.
3/ Messrs. Robert Erikson and George Erikson are brothers.
4/ Member of the Audit Committee.
5/ Member of the Stock Option Committee.
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
AND MEETING ATTENDANCE
The Board of Directors has an Audit Committee, a majority of the
members of which are outside directors, and a Stock Option Committee. The Board
of Directors does not have standing nominating or compensation committees, or
committees performing similar functions.
The Audit Committee, among its functions, reviews the Company's
financial policies and accounting systems and controls, reviews the scope of the
independent public accountants' audit and approves the duties and compensation
of the independent public accountants, both with respect to audit and any
non-audit services. The non-management members of the Audit Committee consult
with the independent public accountants outside the presence of corporate
management or other employees to discuss matters of concern, receive
recommendations or suggestions for change and have a free exchange of views and
information.
The Stock Option Committee administered the 1986 Employee Stock Option
Plan. This plan automatically terminated on June 28, 1996. No options under this
plan are currently outstanding.
During the fiscal year ended June 30, 1996, the Board of Directors of
the Company held five meetings, the Audit Committee held one meeting, and the
Stock Option Committee did not meet. Each of the Company's directors attended
75% or more of the total of (1) the number of meetings of the Board of Directors
and (2) the number of meetings held by all committees of the Board on which such
Director served during the fiscal year ended June 30, 1996.
EXECUTIVE COMPENSATION
JOINT COMPENSATION REPORT BY:
THE BOARD OF DIRECTORS AND THE STOCK OPTION COMMITTEE
GENERAL
CERBCO, Inc. ("CERBCO" or the "Company") is a parent holding company
with controlling interests in Insituform East, Incorporated ("Insituform East")
[excavationless sewer and pipeline rehabilitation], and Capitol Copy Products,
Inc. ("Capitol Copy") [copier and facsimile ("fax") equipment sales, service and
supplies].
The Company does not have a compensation committee. The Corporate
Executive Committee (the "CEC") 1/, with the annual review and oversight of the
Board, determines the base salary for all officers of the Company except the
members of the CEC. The Board, as a whole, considers compensation arrangements
proposed by and for members of the CEC and, pursuant to the By-laws, is the
ultimate determiner of compensation arrangements for members of the CEC. In
addition, the Company's Stock Option Committee determines whether options should
be awarded to the Company's employees (including the members of the CEC) under
the Company's 1986 Employee Stock Option Plan (the "Stock Option Plan"). When
considering CEC compensation arrangements, a portion of Board review may be
conducted in camera, excluding CEC members, and resolutions of the Board
determining CEC compensation arrangements typically are voted upon twice, once
with CEC members abstaining.
1/ Pursuant to the Company's By-laws, the CEC performs the functions of the
Chief Executive Officer of the Company. The CEC presently has two members,
Messrs. George Wm. Erikson, Chairman and Robert W. Erikson, President.
PHILOSOPHY
The executive compensation philosophy of the Company (which is intended
to apply to all of the executive officers of the Company, including members of
the CEC) is aimed at: (i) attracting and retaining qualified management to
implement the Company's business plan; (ii) establishing a direct link between
management compensation and the achievement of the Company's annual and
long-term performance goals; and (iii) recognizing and rewarding individual
initiative and achievement. The Board believes management compensation should be
set at levels competitive with compensation arrangements provided by other
companies with which the Company competes for executive talent, and by other
companies of similar size, business or location. It is also the Board's view
that the compensation of management should have a component contingent upon the
Company's level of performance. By aligning the financial interests of the
Company's executive officers and those of its shareholders, the Company
encourages executive officers to enhance the profitability of the Company and
thus increase shareholders' value. Since CERBCO officers devote a predominate
portion of their time to the affairs of the operating subsidiaries, the Board
reviews and considers the compensation decisions of such subsidiaries when
determining the compensation arrangements of its officers. The Board and the CEC
review the compensation arrangements of the Company's executive officers on a
continuing basis to ensure that such arrangements are consistent with this
executive compensation philosophy.
COMPONENTS OF COMPENSATION
The compensation program for the Company's officers (including members
of the CEC) consisting of compensation received both from CERBCO and/or from one
or more of its operating subsidiaries, consists of: (a) base salary; (b)
compensation pursuant to plans; and (c) incentive cash bonuses. The CEC and the
Board determine the base salary of CERBCO officers; the Board administers the
Company's Supplemental Executive Retirement Plan (the "CERBCO Supplemental
Retirement Plan") covering the Company's officers; and the members of the CERBCO
Stock Option Committee make decisions with respect to awarding stock options
under the CERBCO Stock Option Plan to all CERBCO employees. However, each CERBCO
officer additionally serves as an officer with one or more of the Company's
operating subsidiaries and receives significant compensation, including base
salary, compensation pursuant to plans and incentive bonuses, from each of the
relevant subsidiaries. Accordingly, the Company's officers receive most of their
total annual compensation from one or more of the subsidiaries for employment
responsibilities with such subsidiaries. The CERBCO Board carefully reviews the
compensation decisions of the subsidiaries as they relate to the officers of
CERBCO.
Commencing in 1994, a publicly held corporation may not, subject to
limited exceptions, deduct for federal income tax purposes certain compensation
paid to certain executives in excess of $1 million in any taxable year (the
"Deduction Limitation"). While the Company's compensation programs generally are
not intended to qualify for any of the exceptions to the applicability of the
Deduction Limitation, it is not expected that compensation to executives of the
Company will exceed the Deduction Limitation in the foreseeable future.
(a) Base Salary. The base salary level for each executive officer
(including members of the CEC) is considered annually in September, and yearly
adjustments, if any, are made effective on or about October 1st of each year.
The timing of such yearly reviews permits consideration of information which is
developed each year for the Company's annual report, including audited financial
statements for the fiscal year then ended June 30th. The CEC is empowered to
adjust the annual base salary level of executive officers (other than members of
the CEC) at other times during the year should it deem any such adjustments
appropriate. Such adjustments are included in the annual officer compensation
review and approvals conducted by the Board each September.
The annual September review of base salary levels is subjective. No
specific factors, targets or criteria, such as the market value of the Company's
stock, are employed in any formula or other quantitative prescription to
determine base compensation. However, consistent with the Company's compensation
philosophy, consideration is given to individual initiative, individual
achievement and the Company's performance, as well as information on salaries
and other remuneration at other companies of similar size, business or location.
Since the officers of CERBCO are employed by and receive most of their salary
from one or more of the Company's subsidiaries, the CERBCO Board reviews and
considers the base salary received from such subsidiaries and determines whether
the aggregate base compensation received by each officer is commensurate with
the time and effort devoted to the activities of the Company and each
subsidiary.
Applying the Company's compensation philosophy during the annual
review in September 1995, it was the judgment of the CEC and the Board that the
base salary level of each executive officer of the Company (including members of
the CEC) should be increased 5% effective October 1, 1995. In addition, the
Board concurred with the decision of (a) the Insituform East Board of Directors,
to increase by 5% effective October 1, 1995 the base salary of its officers, and
(b) the Capitol Copy Board of Directors to increase by approximately 5%
effective October 1, 1995 the base salary of its three senior officers who
together function as the Chief Executive Officer Committee of that subsidiary.
(b) Compensation Pursuant to Plans. The officers of CERBCO are eligible
to receive plan compensation through the CERBCO Supplemental Retirement Plan and
until June 28, 1996 when it automatically terminated, the Company's Employee
Stock Option Plan. In addition, the officers of CERBCO, including members of the
CEC, are eligible to participate in compensation pursuant to plans offered to
the employees of any subsidiary with which such officer may also be employed.
Participation in, and benefits acquired under, such plans (other than stock
option plans) are on a nondiscretionary formula basis applicable to all
employees (see "Compensation Pursuant to Plans").
Pursuant to the CERBCO Supplemental Retirement Plan, the members of
the CEC will receive a monthly retirement benefit for life equivalent to 50% of
the final aggregate monthly salary such executives received from the Company and
its operating subsidiaries. The other executives covered by the CERBCO
Supplemental Retirement Plan will receive a monthly retirement benefit for life
equivalent to 25% of the final aggregate monthly salary such executives received
from the Company and its operating subsidiaries. See "Compensation Pursuant to
Plans - Supplemental Executive Retirement Plan."
The terms of the CERBCO Supplemental Retirement Plan require the
Company to establish a trust to facilitate the Company's satisfaction of its
obligations thereunder to pay supplemental retirement benefits to the Company's
executive officers. The Company has established such a trust, which has been
funded by life insurance policies.
The Board views the CERBCO Supplemental Retirement Plan as
providing important benefits to the covered executives after their retirement.
Further, the Board believes that the adoption of the CERBCO Supplemental
Retirement Plan is fully consistent with CERBCO's compensation philosophy and is
a customary form of supplemental executive retirement similar to that adopted by
comparable companies.
Pursuant to the Company's Stock Option Plan, stock option awards to
any employee, including any officer, are discretionary and determined by the
Company's Stock Option Committee, which in fiscal year 1996 consisted of Messrs.
Kincheloe and Hayes. The Stock Option Committee must consider the following
factors, articulated in the Stock Option Plan and consistent with the Company's
compensation philosophy: (i) the duties and responsibilities of eligible
employees; (ii) their past and prospective contributions to the success of the
Company; and (iii) the extent to which they are performing, and will continue to
perform, outstanding service for the benefit of the Company. No stock options
were granted under this plan to, and no options available under this plan were
exercised by, any officer of the Company during fiscal year 1996 (see
"Compensation Pursuant to Plans - 1986 Employee Stock Option Plan," "Option/SAR
Grants in Last Fiscal Year" and "Aggregated Option/SAR Exercises and Fiscal
Year-End Option/SAR Values"). The plan automatically terminated on June 28,
1996.
The Company's officers are eligible to participate in retirement
plans offered, and may also be eligible to receive stock options under one or
more of the stock option plans offered, by any subsidiary with which they may
additionally be employed. No options available under the Insituform East
Employee Stock Option Plan were granted to any officers of Insituform East and
that plan automatically terminated on February 17, 1996. With respect to Capitol
Copy officers, no options were granted under the Capitol Copy Incentive Stock
Option Plan. The CERBCO Board concurred with the granting of no stock options by
such subsidiaries in fiscal year 1996.
(c) Incentive Cash Bonuses. CERBCO has deferred the direct employ of an
incentive cash bonus as part of the compensation package of its officers.
However, the Company believes that the compensation of its officers is typically
more directly linked to the overall profitability of the Company's operations as
a whole because each of the officers is employed by one or more subsidiary which
offers cash incentive bonuses. Insituform East and Capitol Copy both employ an
annual return-on-equity ("ROE") incentive cash bonus which is tied to the
respective subsidiaries' earnings. While all officers of Insituform East are
eligible to receive an ROE bonus, only the three senior officers comprising the
Chief Executive Officer Committee ("CEOC") of Capitol Copy are eligible to
receive an ROE bonus from Capitol Copy. The Insituform East ROE incentive bonus
amount is calculated by multiplying Insituform East's annual ROE percentage (net
earnings divided by weighted average equity less current earnings) by the base
compensation paid to the officer over the fiscal year. In the case of Capitol
Copy, a similar ROE formula equity factor is adjusted to account for any
purchase debt balances. The maximum annual individual bonus available to any
officer in either subsidiary is normally limited to an upper cap of 30% of the
officer's base compensation used in the respective ROE formula. For the most
recent fiscal year ended June 30, 1996, the ROE bonus rate was 11.1% for
Insituform East officers. At Capitol Copy, where the annual shareholder ROE
percentage for the fiscal year ended June 30, 1996 was 43.4%, the Capitol Copy
Board awarded the CEOC members both a regular ROE bonus at the capped rate of
30% and a discretionary, supplemental bonus of an additional 6.3%. The Company's
Board concurred with the incentive bonus decisions made by Insituform East and
Capitol Copy for fiscal year 1996.
COMPENSATION OF MEMBERS OF THE CEC
On September 12, 1995, the CERBCO Board approved an increase in base
salary from $10,300 to $10,816 per year, effective October 1, 1995, for each
current member of the CEC, namely, Messrs. George Erikson and Robert Erikson.
The decision made by the CERBCO Board was subjective, taking into account the
philosophical aim of setting executive compensation and was not based on any
particular performance criteria. The Stock Option Committee did not award either
member of the CEC stock options pursuant to the CERBCO Employee Stock Option
Plan. As part of its analysis when it determined the compensation packages for
Messrs. George Erikson and Robert Erikson, the Board reviewed the compensation
they received from both subsidiaries in order to ensure that their aggregate
compensation was reasonably apportioned in relation to the time, duties and
responsibilities among each of the three companies.
At Insituform East, the base salary of Messrs. George Erikson and
Robert Erikson increased to a rate of $204,173 per year, effective October 1,
1995, from the base salary rate of $194,450 per year. Moreover, due to the
positive earnings results obtained by Insituform East for fiscal year 1996, an
incentive cash bonus of 11.1% based upon the ROE formula previously discussed,
in the amount of $22,393 was earned by both Messrs. George Erikson and Robert
Erikson. No Insituform East stock options pursuant to the Insituform East
Employee Stock Option Plan were granted to either Mr. George Erikson or to Mr.
Robert Erikson.
As to Capitol Copy, the base salary received by Messrs. George Erikson
and Robert Erikson increased to a rate of $63,000 per year, effective October 1,
1995, from the base salary rate of $60,570 per year. Moreover, due to the
positive earnings results obtained by Capitol Copy for fiscal year 1996, an
earned incentive cash bonus of 30%, based upon the ROE formula previously
discussed, and a discretionary, supplemental bonus of 6.3%, in the total amount
of $22,812 was earned by both Mr. George Erikson and Mr. Robert Erikson. Messrs.
George Erikson and Robert Erikson are not eligible to receive stock options
under the Capitol Copy Stock Option Plan.
As previously discussed, in approving the compensation package for the
CEC members, the Board considered that Messrs. George Erikson and Robert Erikson
devote a predominate portion of their time and effort directly to the activities
of CERBCO's operating subsidiaries, and that their work for CERBCO requires a
smaller portion of their time and effort. The Board concurred in the
compensation paid to the members of the CEC by each such subsidiary and believes
the components of the aggregate compensation paid to Messrs. George Erikson and
Robert Erikson by the Company and its subsidiaries provide a compensation
package that fairly reflects the time and effort devoted by such officers to the
Company and each of its subsidiaries.
The Board of Directors The Stock Option Committee
Robert W. Erikson Webb C. Hayes, IV
George Wm. Erikson Paul C. Kincheloe, Jr.
Webb C. Hayes, IV
Paul C. Kincheloe, Jr.
SUMMARY COMPENSATION
CERBCO is a parent holding company with controlling interests in two principal
subsidiaries, Insituform East ("IEI") and Capitol Copy Products ("CCP"). CERBCO
officers participate also in the management of these subsidiaries. The following
table sets forth information concerning the compensation paid to each of the
named executive officers of the Company and/or its subsidiaries for the fiscal
years ended June 30, 1996, 1995 and 1994:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Name Other Total Restricted
and Annual Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compensation Compensation Awards SARs Payouts Compensation
Position Year ($) ($) ($) 4/ ($) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Erikson 1996 CERBCO $10,677 $0 $0 $10,677 $0 0 $0 $0
Director, President IEI 201,555 22,393 0 223,948 0 15,000 0 9,014 5/
& Treasurer 1/ CCP 62,784 22,812 0 85,596 0 0 0 0
-------- ------- --- -------- --- ------ --- ------
$275,016 $45,205 $0 $320,221 $0 15,000 $0 $9,014
======== ======= == ======== == ====== == ======
1995 CERBCO $10,412 $0 $0 $10,412 $0 1,500 $0 $0
IEI 196,555 31,457 0 228,012 0 15,000 0 10,118
CCP 61,063 28,267 0 89,330 0 0 0 1,549
-------- ------- --- -------- --- ------ --- -------
$268,030 $59,724 $0 $327,754 $0 16,500 $0 $11,667
======== ======= == ======== == ====== == =======
1994 CERBCO $10,000 $0 $0 $10,000 $0 1,500 $0 $0
IEI 188,559 2,086 0 190,645 0 15,000 0 18,322
CCP 57,432 17,262 0 74,694 0 0 0 1,501
-------- ------- --- -------- --- ------ --- -------
$255,991 $19,348 $0 $275,339 $0 16,500 $0 $19,823
======== ======= == ======== == ====== == =======
George Wm. Erikson 1996 CERBCO $10,677 $0 $0 $10,677 $0 0 $0 $0
Director, Chairman IEI 201,555 22,393 0 223,948 0 15,000 0 11,264 5/
& General Counsel 1/ CCP 62,784 22,812 0 85,596 0 0 0 0
-------- ------- --- -------- --- ------ --- --------
$275,016 $45,205 $0 $320,221 $0 15,000 $0 $11,264
======== ======= == ======== == ====== == =======
1995 CERBCO $10,412 $0 $0 $10,412 $0 1,500 $0 $0
IEI 196,555 31,457 0 228,012 0 15,000 0 12,033
CCP 61,063 28,267 0 89,330 0 0 0 1,549
-------- ------- --- -------- --- ------ --- -------
$268,030 $59,724 $0 $327,754 $0 16,500 $0 $13,582
======== ======= == ======== == ====== == =======
1994 CERBCO $10,000 $0 $0 $10,000 $0 1,500 $0 $0
IEI 188,559 2,086 0 190,645 0 15,000 0 19,683
CCP 57,432 17,262 0 74,694 0 0 0 1,501
-------- ------- --- -------- --- ------ --- -------
$255,991 $19,348 $0 $275,339 $0 16,500 $0 $21,184
======== ======= == ======== == ====== == =======
Robert F. Hartman 1996 CERBCO $10,677 $0 $0 $10,677 $0 0 $0 $0
Vice President, IEI 85,891 9,542 0 95,433 0 0 0 6,666 5/
Secretary & -------- ------ --- -------- --- --- --- ------
Secretary & $96,568 $9,542 $0 $106,110 $0 0 $0 $6,666
Controller 2/ ======= ====== == ======== == === == ======
1995 CERBCO $10,412 $0 $0 $10,412 $0 0 $0 $0
IEI 83,664 13,390 0 97,054 0 0 0 5,754
-------- ------- --- -------- --- --- --- -------
$94,076 $13,390 $0 $107,466 $0 0 $0 $5,754
======= ======= == ======== == === == ======
1994 CERBCO $10,000 $0 $0 $10,000 $0 0 $0 $0
IEI 80,254 888 0 81,142 0 0 0 6,632
-------- ----- --- -------- --- --- --- -------
$90,254 $888 $0 $91,142 $0 0 $0 $6,632
======= ==== == ======= == === == ======
Armen A. Manoogian 1996 CCP $235,660 $85,545 $8,736 $329,941 $0 0 $0 $7,500 6/
[Subsidiary ======== ======= ====== ======== == === == ======
President, CCP] 3/ 1995 CCP $224,955 $105,962 $8,400 $339,317 $0 0 $0 $6,129
======== ======== ====== ======== == === == ======
1994 CCP $215,775 $69,283 $7,996 $293,054 $0 0 $0 $5,898
======== ======= ====== ======== == === == ======
1/ The Company's Corporate Executive Committee, consisting of the Chairman and
the President, exercises the duties and responsibilities of the Chief
Executive Officer of the Company. Information concerning Messrs. George
Erikson and Robert Erikson is provided under the section entitled,
"Proposal No. 1 - Election of Directors."
2/ Mr. Robert Hartman, age 49, has been Vice President and Controller of
CERBCO since February 1988 and Secretary since June 1991. He has also been
Vice President - Administration and Secretary of Insituform East,
Incorporated since June 1991. From October 1985 to February 1988, Mr.
Hartman was Controller of Dynamac International, Inc. From August 1979 to
September 1985, Mr. Hartman served in various capacities with CERBERONICS,
Inc. including Vice President and Treasurer.
3/ Capitol Copy's Chief Executive Officer Committee (the "CEOC"), consisting
of the Chairman, the Vice Chairman and the President, exercises the duties
and responsibilities of the Chief Executive Officer of Capitol Copy. Mr.
Armen Manoogian, age 53, has been President and a member of the CEOC of
Capitol Copy since October 1987. Prior to joining Capitol Copy, he served
as President of a publicly-traded East Coast computer retailing
organization. Mr. Manoogian served on the Company's Board of Directors from
October 1990 to April 1993.
4/ None of the named executive officers received perquisites or other personal
benefits in excess of the lesser of $50,000 or 10% of his total salary and
bonus. The amounts reported represent payment for hours of leave in lieu
of time off.
5/ Insituform East contributions to the IEI Advantage Plan, as described
on pages 13 and 14. 6/ Capitol Copy contributions to the CCP 401(k) Profit
Sharing Plan, as described on page 15.
6/ Capitol Copy contributions to the CCP 401(k) Profit Sharing Plan, as
described on page 15.
</TABLE>
COMPENSATION PURSUANT TO PLANS
CERBCO, Inc. Plans
CERBCO Supplemental Executive Retirement Plan
During fiscal year 1994, CERBCO entered into Supplemental Executive
Retirement Agreements with Messrs. Robert Erikson, George Erikson and Robert
Hartman pursuant to a Supplemental Executive Retirement Plan (the "CERBCO
Supplemental Retirement Plan"). The agreements provide for monthly retirement
benefits of 50% of the executive's final aggregate monthly salary from CERBCO
and its subsidiaries as defined in and limited by the executives' agreement, for
Messrs. Robert Erikson and George Erikson. In the case of Mr. Robert Hartman,
the agreement provides for 25% of the executive's final aggregate monthly salary
from CERBCO and its subsidiaries as defined in and limited by the executive's
agreement. Each covered executive's benefit under the Plan is payable in equal
monthly amounts for the remainder of the covered executive's life beginning as
of any date on or after his 62nd birthday (at the covered executive's election)
but not before his termination of service. Payments under the CERBCO
Supplemental Retirement Plan are not subject to any reduction for Social
Security or any other offset amounts but are subject to Social Security and
other applicable tax withholding.
To compute the monthly retirement benefits, the percentage of final
monthly salary is multiplied by a ratio (not to exceed 1) of:
the completed years of employment by CERBCO after 1992
to
the total number of years of employment after 1992 that the executive
would have completed if he had continued in employment to age 65.
If the executive dies prior to retirement, the executive's beneficiary
will receive a pre-retirement death benefit of a percentage (50% in the case of
Messrs. Robert Erikson and George Erikson; 25% in the case of Mr. Robert
Hartman) of the executive's final monthly salary for 180 months. If the
executive dies after commencement of the payment of benefits, but before
receiving 180 monthly payments, the executive's beneficiary will receive
payments until the total payments received by the executive and/or his
beneficiary equal 180.
The CERBCO Supplemental Retirement Plan is technically unfunded, except
as described below. CERBCO will pay all benefits from its general revenues and
assets. To facilitate the payment of benefits and provide the executives with a
measure of benefit security without subjecting the CERBCO Supplemental
Retirement Plan to various rules under the Employee Retirement Income Security
Act of 1974, CERBCO has established an irrevocable trust (the "CERBCO, Inc.
Supplemental Executive Retirement Trust Agreement"). This trust is subject to
the claims of CERBCO's creditors in the event of bankruptcy or insolvency. The
trust has purchased life insurance on the lives of the executive officers
covered by the Supplemental Executive Retirement Agreements to provide for
CERBCO's financial obligations under the Plan. Assets in the trust consist of
the cash surrender values of the executive life insurance policies and are
carried on CERBCO's balance sheet as assets. The trust will not terminate until
participants and beneficiaries are no longer entitled to benefits under the
plan. Upon termination, all assets remaining in the trust will be returned to
CERBCO. For additional information on the CERBCO Supplemental Retirement Plan,
see "Defined Benefit or Actuarial Plans."
The following tables set forth the annual retirement benefits that would be
received under the CERBCO Supplemental Retirement Plan at various compensation
levels after the specified years of service:
<TABLE>
Pension Plan Table Where Formula Provides 50% of Compensation (1)
<CAPTION>
(Final) Years of Service (Under Plan)
-----------------------------
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<C> <C> <C> <C> <C> <C>
$ 125,000 $ 58,594 $ 62,500 $ 62,500 $ 62,500 $ 62,500
$ 150,000 $ 70,313 $ 75,000 $ 75,000 $ 75,000 $ 75,000
$ 175,000 $ 82,031 $ 87,500 $ 87,500 $ 87,500 $ 87,500
$ 200,000 $ 93,750 $ 100,000 $ 100,000 $ 100,000 $ 100,000
$ 225,000 $ 105,469 $ 112,500 $ 112,500 $ 112,500 $ 112,500
$ 250,000 $ 117,188 $ 125,000 $ 125,000 $ 125,000 $ 125,000
$ 300,000 $ 140,625 $ 150,000 $ 150,000 $ 150,000 $ 150,000
$ 350,000 $ 154,627 $ 175,000 $ 175,000 $ 175,000 $ 175,000
$ 400,000 $ 154,627 $ 182,101 $ 200,000 $ 200,000 $ 200,000
$ 450,000 $ 154,627 $ 182,101 $ 201,055 $ 221,961 $ 225,000
$ 500,000 $ 154,627 $ 182,101 $ 201,055 $ 221,961 $ 245,085
(1) Assumes at the time the Plan was established (i) the individual is age 50,
(ii) maximum covered compensation is $250,000 and is increased 2% (compounded
annually) each year of service after 1992, and (iii) retirement is effective at
the beginning of the year.
</TABLE>
<TABLE>
Pension Plan Table Where Formula Provides 25% of Compensation (2)
<CAPTION>
(Final) Years of Service (Under Plan)
-----------------------------
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<C> <C> <C> <C> <C> <C>
$ 50,000 $ 8,929 $ 11,905 $ 12,500 $ 12,500 $ 12,500
$ 75,000 $ 13,393 $ 17,858 $ 18,750 $ 18,750 $ 18,750
$ 100,000 $ 17,858 $ 23,810 $ 25,000 $ 25,000 $ 25,000
$ 200,000 $ 21,206 $ 31,218 $ 36,190 $ 39,957 $ 44,115
$ 300,000 $ 21,206 $ 31,218 $ 36,190 $ 39,957 $ 44,115
$ 400,000 $ 21,206 $ 31,218 $ 36,190 $ 39,957 $ 44,115
$ 500,000 $ 21,206 $ 31,218 $ 36,190 $ 39,957 $ 44,115
(2) Assumes at the time the Plan was established (i) the individual is age 45,
(ii) maximum covered compensation is $90,000 and is increased 2% (compounded
annually) each year of service after 1992, and (iii) retirement is effective at
the beginning of the year.
</TABLE>
Each executive's covered compensation under the CERBCO Supplemental
Retirement Plan is equal to his final base salary. The maximum covered
compensation for Messrs. Robert Erikson and George Erikson is limited to
$250,000 annually ($20,834 per month), increased 2% annually beginning in 1993.
The maximum covered compensation for Mr. Robert Hartman is limited to $90,000
annually ($7,500 per month), increased 2% annually beginning in 1993.
The following table sets forth information concerning vested annual
benefits as of June 30, 1996 for the executives listed in the Summary
Compensation Table covered by the CERBCO Supplemental Retirement Plan:
<TABLE>
<CAPTION>
Years of Credited Current Annual Vested Vested
Name Years of ServiceService Under Plan Covered Compensation Percentage Annual Benefit
- ---- ---------------------------------- -------------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Robert W. Erikson 23 4 $ 265,302 22.22% $ 29,478
George Wm. Erikson 20 4 $ 265,302 26.67% $ 35,374
Robert F. Hartman 15 4 $ 95,509 20.00% $ 4,775
</TABLE>
1988 Plan of Reorganization and Merger
Pursuant to the Plan of Reorganization and Merger, approved by
CERBERONICS stockholder vote on February 26, 1988, CERBCO became a successor to
the CERBERONICS, Inc. 1986 Employee Stock Option Plan and the 1986 Board of
Directors' Stock Option Plan (now collectively the "CERBCO Plans") described
below. The CERBCO Plans are now deemed to relate to stock options to purchase
shares of CERBCO Common Stock. Each CERBERONICS stock option previously
outstanding was converted into an option to purchase, upon the same terms,
shares of CERBCO Common Stock in the same numbers as were provided by the option
with respect to Class A Common Stock of CERBERONICS. The CERBCO Plans do not
relate to shares of CERBCO Class B Common Stock. In all other respects, the
terms of the CERBCO Plans and the options outstanding, or which may become
outstanding, remain unchanged.
CERBCO 1986 Employee Stock Option Plan
CERBERONICS adopted, with stockholder approval at the 1986 Annual
Meeting of Stockholders, the CERBERONICS, Inc. 1986 Employee Stock Option Plan
(now called the "CERBCO Employee Plan"). This plan automatically terminated on
June 28, 1996. The purpose of the CERBCO Employee Plan was to promote the growth
and general prosperity of the Company by permitting key management employees to
purchase shares, through the grant and exercise of options, of CERBCO's Common
Stock. Under the terms of the CERBCO Employee Plan, which was administered by
the Stock Option Committee appointed by and comprised of members of the Board of
Directors, both incentive and nonstatutory stock options may be granted to
eligible employees. Under the CERBCO Employee Plan, 75,000 shares of Common
Stock were reserved for issuance upon the exercise of stock options granted.
The Stock Option Committee, in its sole discretion, has full power and
authority to designate eligible employees to whom an incentive stock option or a
nonstatutory stock option shall be granted, determine the number of shares to be
made available under any option granted, determine the periods in which a
participant may exercise his option (provided, however, no incentive stock
option may be exercised more than ten years after the date of its grant),
determine the option price and determine the date on which the option shall
expire. The grant of a stock option under the CERBCO Employee Plan was
contingent on the participant's continued services on behalf of CERBCO for a
period of not less than 24 months from the date of grant of the option.
During fiscal year 1996, no options were granted to executive officers
of CERBCO. All options granted under this plan in past years have expired.
CERBCO 1986 Directors' Stock Option Plan
CERBERONICS adopted, with stockholder approval at the 1986 Annual
Meeting of Stockholders, the CERBERONICS, Inc. 1986 Board of Directors' Stock
Option Plan (now called the "CERBCO Directors' Plan"). The purpose of the CERBCO
Directors' Plan is to promote the growth and general prosperity of CERBCO by
permitting the Company, through the granting of options to purchase shares of
CERBCO's Common Stock, to attract and retain the best available persons as
members of CERBCO's Board of Directors with an additional incentive for such
persons to contribute to the success of the Company. A maximum of 75,000 shares
of Common Stock may be made subject to options under the CERBCO Directors' Plan.
Options may be granted to directors of CERBCO or any of its subsidiaries. Each
option granted under the CERBCO Directors' Plan entitles each director to whom
such option is granted the right to purchase shares of CERBCO's Common Stock at
a designated option price, any time and from time to time, within three years
from the date of grant.
The CERBCO Board of Directors administers the CERBCO Directors' Plan
and has exclusive authority to interpret, construe and implement the provisions
of the CERBCO Directors' Plan, except as may be delegated in whole or in part by
the Board to a committee of the Board which may consist of three or more members
of the Board. No such delegation of authority has been made. Each determination,
interpretation or other action that may be taken pursuant to the CERBCO
Directors' Plan by the Board is final and binding and conclusive for all
purposes and upon all persons. The Board from time to time may amend the CERBCO
Directors' Plan as it deems necessary to carry out the purposes thereof.
The terms of the CERBCO Directors' Plan contemplated that each director
of the Company be granted an option to purchase 1,500 shares of the Company's
Common Stock each year for five years, for a total of 7,500 shares of Common
Stock per director, beginning in fiscal year 1986. On June 28, 1986, options on
1,500 shares of Common Stock were granted to each of the six CERBERONICS
directors then in office. No additional options were granted until December 19,
1991. On December 19, 1991, the CERBCO Directors' Plan was amended by the CERBCO
Board of Directors to ensure its original purpose by granting options to
purchase 1,500 shares of Common Stock to CERBCO directors in fiscal 1992 and
subsequent years, so that each director serving on the date of grant will
receive options for a total amount of 7,500 shares over a five year period.
Messrs. Robert Erikson and George Erikson, being the only current directors
having received options in 1986, each received options for a total amount of
6,000 shares over a four year period, from 1992 through 1995.
On December 15, 1995, options on 1,500 shares of Common Stock each were
granted to Messrs. Kincheloe and Hayes at a per share option price of $6.375.
With this grant, each current director has received options for a total of 7,500
shares. No further grants are anticipated under this plan. Options on a total of
6,000 shares available under this plan were exercised by directors of the
Company during fiscal year 1996.
Insituform East, Incorporated Plans
Insituform East Employee Advantage Plan
As executive officers of Insituform East, Messrs. Robert Erikson,
George Erikson and Robert Hartman participate in the Insituform East,
Incorporated Employee Advantage Plan (the "IEI Advantage Plan"). The IEI
Advantage Plan is a noncontributory profit sharing (retirement) plan in which
all employees not covered by a collective bargaining agreement and employed with
Insituform East for at least one year are eligible to participate. No employee
is covered by a collective bargaining agreement. The IEI Advantage Plan is
administered by the Insituform East Board of Directors which determines, at its
discretion, the amount of Insituform East's annual contribution. The Insituform
East Board of Directors can authorize a contribution, on behalf of Insituform
East, of up to 15% of the compensation paid to participating employees during
the year. The plan is integrated with Social Security. Each participating
employee is allocated a portion of Insituform East's contribution based on the
amount of that employee's compensation plus compensation above FICA limits
relative to the total compensation paid to all participating employees plus
total compensation above FICA limits. Amounts allocated under the IEI Advantage
Plan begin to vest after three years of service (at which time 20% of the
contribution paid vests) and are fully vested after seven years of service.
During fiscal year 1996, Insituform East contributed an amount equal to
4.0% of the total compensation paid to all participating employees.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1996 1/ as of 10/24/96
<S> <C> <C>
George Wm. Erikson, Chairman $9,014 100%
Robert W. Erikson, President $9,014 100%
Robert F. Hartman, Vice
President - Administration & Secretary $5,177 60%
Executive Officers of Insituform East as a Group,
(6 persons, including those named above) $45,714 N/A
1/ Total contributions to employees of $211,541 include Insituform East's
contribution of $198,844 and reallocated amounts totaling $12,697 forfeited
by former participants who terminated employment with Insituform East
during fiscal year 1996.
</TABLE>
The IEI Advantage Plan also includes a salary reduction profit sharing
feature under Section 401(k) of the Internal Revenue Code. Each participant may
elect to defer a portion of his compensation by any whole percentage from 2% to
16% subject to certain limitations. During fiscal year 1996, as mandated by the
plan, Insituform East contributed an employer matching contribution equal to 25%
of the participant's deferred compensation up to a maximum of 1.5% of the
participant's total paid compensation for the fiscal year. Participants are 100%
vested at all times in their deferral and employer matching accounts.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1996 as of 10/24/96
- ---------------------------- ---------------- --------------
<S> <C> <C>
George Wm. Erikson, Chairman $2,250 100%
Robert W. Erikson, President $ 0 100%
Robert F. Hartman, Vice
President - Administration & Secretary $1,488 100%
Executive Officers of Insituform East as a Group,
(6 persons, including those named above) $7,963 N/A
</TABLE>
Insituform East 1985 Employee Stock Option Plan
Insituform East adopted, with stockholder approval at the 1985 Annual
Meeting of Stockholders, the Insituform East, Incorporated 1985 Employee Stock
Option Plan (the "IEI Employee Plan"). The purpose of the plan was to advance
the growth and development of Insituform East by affording an opportunity to
employees of Insituform East to purchase shares of Insituform East's Common
Stock and to provide incentives for them to put forth maximum efforts for the
success of Insituform East's business. Any employee of Insituform East who was
employed on a full-time basis is eligible for participation. The IEI Employee
Plan was administered by Insituform East's Stock Option Committee.
During fiscal year 1996, no options were granted to executive officers
of Insituform East. All options granted under this plan in past years expired
prior to fiscal year 1996. This plan automatically terminated on February 17,
1996.
Insituform East 1994 Board of Directors' Stock Option Plan
Insituform East adopted, with stockholder approval at the 1994 Annual
Meeting of Stockholders, the Insituform East, Incorporated 1994 Board of
Directors' Stock Option Plan (the "IEI 1994 Directors' Plan"). The purpose of
this plan is to promote the growth and general prosperity of Insituform East by
permitting Insituform East, through the granting of options to purchase shares
of its Common Stock, to attract and retain the best available persons as members
of Insituform East's Board of Directors with an additional incentive for such
persons to contribute to the success of Insituform East. The IEI 1994 Directors'
Plan is administered and options are granted by the Insituform East Board of
Directors. As directors of Insituform East, Messrs. Robert Erikson and George
Erikson participate in this plan.
Each grant of options under the IEI 1994 Directors' Plan will entitle
each Insituform East director to whom such options are granted the right to
purchase 15,000 shares of Insituform East's Common Stock at a designated option
price, any time and from time to time, within five years from the date of grant.
Options are granted under the IEI Directors' Plan each year for five years to
each member of the Board of Directors of Insituform East serving as such on the
date of grant, i.e., for each director serving for five years, a total of five
options covering in the aggregate 75,000 shares of Common Stock (subject to
adjustments upon changes in the capital structure of Insituform East) over a
five year period. Under the terms of this plan, up to 525,000 shares of
Insituform East's Common Stock have been reserved for the directors of
Insituform East.
On December 8, 1995, options on a total of 105,000 shares of Insituform
East's Common Stock were granted to directors of Insituform East (options on
15,000 shares to each of seven directors, including Messrs. Robert Erikson and
George Erikson) at a per share option price of $4.2188. No options available
under this plan were exercised by directors of Insituform East during fiscal
year 1996.
Insituform East 1989 Board of Directors' Stock Option Plan
Insituform East adopted, with stockholder approval at the 1989 Annual
Meeting of Stockholders, the Insituform East, Incorporated 1989 Board of
Directors Stock Option Plan (the "IEI 1989 Directors' Plan"). The purpose of
this plan is the same as the IEI 1994 Directors' Plan. The term of the plan is
for ten years, unless terminated sooner by the Board of Directors. Options were
first granted to directors on December 1, 1989 and each of the four succeeding
Board of Directors meetings following the Annual Meetings of Stockholders in
1990, 1991, 1992 and 1993. Each grant of options under the plan entitles each
director to whom such options were granted the right to purchase 15,000 shares
of Insituform East's Common Stock at a designated option price, any time and
from time to time, within five years from the date of grant. Although no further
options are anticipated to be granted under this plan, options previously
granted, and which have not already been exercised or expired, will remain in
effect until exercise or expiration, whichever comes first. No options available
under the plan were exercised by directors of Insituform East during fiscal year
1996. Under the terms of this plan, up to 180,000 shares of Insituform East
Common Stock remain reserved for the directors of Insituform East.
Capitol Copy Products, Inc. Plans
Capitol Copy 401(k) Profit Sharing Plan
As executive officers of Capitol Copy, Messrs. Robert Erikson, George
Erikson and Armen Manoogian participate in the Capitol Copy Products, Inc.
401(k) Profit Sharing Plan (the "CCP Profit Sharing Plan"). All employees not
covered by a collective bargaining agreement and employed with Capitol Copy for
at least one year are eligible to participate in this salary reduction profit
sharing plan. No employee is covered by a collective bargaining agreement. Each
participant may elect to defer a portion of his compensation and receive an
employer matching contribution as determined by the Board of Directors, at its
discretion. In addition to, or in place of, the matching contribution, employees
may receive a non-elective contribution at the discretion of the Board of
Directors. Each participating employee is allocated a portion of the
contribution based on the amount of that employee's compensation relative to the
total compensation paid to all participating employees. The combined
contribution by the participant and Capitol Copy may not exceed the lesser of
$30,000 or 25% of the participant's compensation paid during the year. All
amounts allocated under the CCP Profit Sharing Plan begin to vest after two
years of service (at which time 20% of the contribution paid vests) and are
fully vested after six years of service.
During fiscal year 1996, Capitol Copy contributed an employer matching
contribution equal to 100% of the participant's deferred compensation up to a
maximum of 5% of the participant's total paid compensation for the year. The
Company made no additional non-elective contributions.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1996 as of 10/24/96
- ---------------------------- ---------------- --------------
<S> <C> <C>
George Wm. Erikson, Chairman $ 0 100%
Robert W. Erikson, Vice Chairman $ 0 100%
Armen A. Manoogian, President $ 7,500 100%
Executive Officers of Capitol Copy as a Group,
(6 persons, including those named above) $ 19,770 N/A
</TABLE>
Capitol Copy 1987 Incentive Stock Option Plan
Capitol Copy adopted, with stockholder approval on October 1, 1987, the
Capitol Copy Products, Inc. 1987 Incentive Stock Option Plan (the "CCP Incentive
Plan"). The purpose of this plan is to advance the interests of Capitol Copy by
providing key employees with additional incentive for them to promote the
success of Capitol Copy, to increase their proprietary interest in Capitol Copy
and to remain in its employ. The term "key employee" means those employees
(including officers and directors who are also employees, but not including
Messrs. George Erikson and Robert Erikson) who, in the judgment of the Capitol
Copy Board of Directors, are important to the future of Capitol Copy. The CCP
Incentive Plan is administered and options are granted by the Capitol Copy Board
of Directors.
Each grant of options under the CCP Incentive Plan will entitle the
Capitol Copy key employee to whom such options are granted the right to purchase
a designated number of shares of Class B Stock at a designated price for a
designated option period. No part of any grant of options may be exercised until
the optionee has remained in the employ of Capitol Copy for a period of time as
specified by the Board of Directors in the option agreement.
No options were granted under this plan to executive officers of
Capitol Copy during fiscal year 1996. All options granted under this plan in
past years were exercised prior to fiscal year 1996. This plan will
automatically terminate in 1997, unless terminated sooner by the Board of
Directors.
OPTION/SAR GRANTS
No option or Stock Appreciation Right grants were made to any of the
named executive officers during fiscal year 1996 under the CERBCO Employee Plan,
the CERBCO Directors' Plan, the IEI Employee Plan, the IEI 1989 Directors' Plan
or the CCP Incentive Plan. The following table sets forth information concerning
options granted to each of the named executive officers during fiscal year 1996,
under the IEI 1994 Directors' Plan:
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realized Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
% of Total
Options/
Option/ SARs Granted Exercise
SARs to Employees or Base Expiration
Name Granted(#) in Fiscal Year ($/Share) Date 5% ($) 10%($)
- ---- ---------- -------------- --------- ---- ------ ------
Robert W. Erikson
<S> <C> <C> <C> <C> <C> <C>
IEI 1994 Directors' Plan 15,000 14% $4.2188 12/8/00 $17,484 $38,634
George Wm. Erikson
IEI 1994 Directors' Plan 15,000 14% $4.2188 12/8/00 $17,484 $38,634
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
No option or Stock Appreciation Right grants made under the CERBCO
Employee Plan, or the IEI 1989 or 1994 Directors' Plans to any of the named
executive officers were exercised during fiscal year 1996. During fiscal year
1996, Messrs. Robert Erikson and George Erikson each exercised options to
purchase 1,500 shares of CERBCO Common Stock granted under the CERBCO Directors'
Plan. The following table sets forth information concerning option or Stock
Appreciation Right grants held by each of the named executive officers under all
plans as of June 30, 1996:
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<CAPTION>
Value of
Number of Unexercised Unexercised in the Money
Shares Options/SARs at FY-End(#) Options/SARs at FY-End($)
Acquired on Value
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
Robert W. Erikson
<S> <C> <C> <C> <C> <C> <C>
CERBCO Directors' Plan 1,500 $ 4,688 3,000 0 $ 8,063 $0
IEI 1994 Directors' Plan 0 $ 0 30,000 0 $ 7,500 $0
IEI 1989 Directors' Plan 0 $ 0 45,000 0 $ 10,313 $0
George Wm. Erikson
CERBCO Directors' Plan 1,500 $ 4,688 3,000 0 $ 8,063 $0
IEI 1994 Directors' Plan 0 $ 0 30,000 0 $ 7,500 $0
IEI 1989 Directors' Plan 0 $ 0 45,000 0 $ 10,313 $0
</TABLE>
REPRICING OF OPTIONS/SARs
Neither the Company nor its subsidiaries have adjusted or amended the
exercise price of stock options or SARs previously awarded to any of the named
executive officers during fiscal year 1996.
LONG-TERM INCENTIVE PLAN AWARDS
Neither the Company nor its subsidiaries have a long-term incentive
plan.
DEFINED BENEFIT OR ACTUARIAL PLANS
The Company maintains a defined benefit plan called the CERBCO
Supplemental Retirement Plan to provide annual retirement benefits to covered
executives. See "Compensation Pursuant to Plans - CERBCO, Inc. Plans,
Supplemental Executive Retirement Plan" as to the basis upon which benefits
under the Plan are computed.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment contracts between the Company or its
subsidiaries and any named executive officer. There are no arrangements between
the Company or its subsidiaries and any named executive officer, or payments
made to an executive officer, that resulted, or will result, from the
resignation, retirement or other termination of employment with the Company or
its subsidiaries, in an amount that exceeds $100,000.
COMPENSATION OF DIRECTORS
Each non-officer director of the Company is paid an annual fee of
$3,000 and an attendance fee of $500 for Board of Directors meetings where he
attends in person. The attendance fee is $100 if he participates by telephone.
Directors who are also officers of the Company do not receive separate fees for
service as directors, but are eligible with all other directors to participate
in the CERBCO Directors' Stock Option Plan, as described under the section
entitled, "Compensation Pursuant to Plans." All directors of the Company are
reimbursed for Company travel-related expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not have a compensation
committee; the Board of Directors as a whole serves in that equivalent capacity.
Messrs. George Erikson and Robert Erikson, both members of the Board of
Directors and executive officers of the Company, holding the offices of Chairman
& General Counsel and President & Treasurer, respectively, participate in, and
during fiscal year 1996 participated in, deliberations of the Board of Directors
concerning executive officer compensation.
Messrs. George Erikson and Robert Erikson are both members of the Board
of Directors and executive officers of Insituform East and Capitol Copy. In
their capacities as directors of these subsidiary companies, they participate
in, and during fiscal 1996 participated in, deliberations of the respective
subsidiaries' Boards of Directors concerning executive officer compensation.
Mr. Robert Erikson served during fiscal year 1996 as a member of the
Compensation Committee of the Board of Directors of Palmer National Bancorp,
Inc. and The Palmer National Bank. Mr. Webb C. Hayes, IV, a director of the
Company and a director of Insituform East and Capitol Copy who participates in,
and during fiscal year 1996 participated in, deliberations of the CERBCO Board
of Directors and the Boards of Directors of its subsidiaries concerning
executive officer compensation for CERBCO and its subsidiaries, respectively,
was Chairman of the Board and an executive officer of Palmer National Bancorp,
Inc. and The Palmer National Bank. Palmer National Bancorp, Inc., parent of The
Palmer National Bank, was acquired by George Mason Bankshares, Inc. in May 1996.
The Palmer National Bank was subsequently renamed The George Mason Bank, N.A.
Since May 1996, Mr. Erikson no longer participates in compensation matters
affecting Mr. Hayes.
PERFORMANCE GRAPH
The following graph compares the total stockholder return on the
Company's Common Stock to the Total Return Index for the NASDAQ Stock Market
(U.S. Companies) and to a Peer Group Index based on NASDAQ Stocks SIC Code 162,
"Heavy Construction, Except Highway," and SIC Code 504, "Professional and
Commercial Equipment," for the last five fiscal years.
<TABLE>
<CAPTION>
Date Company Market Market Peer Peer
Index Index Count Index Count
<C> <C> <C> <C> <C> <C>
06/28/91 100.000 100.000 3893 100.000 31
07/31/91 118.182 105.920 3891 110.508 32
08/30/91 103.030 111.187 3904 117.158 32
09/30/91 133.333 111.595 3908 131.148 33
10/31/91 109.091 115.284 3920 145.376 32
11/29/91 118.182 111.414 3932 138.274 30
12/31/91 127.273 125.025 3940 147.043 28
01/31/92 127.273 132.336 3953 160.022 28
02/28/92 127.273 135.334 3957 179.452 27
03/31/92 112.121 128.947 3969 166.811 27
04/30/92 96.970 123.417 3968 153.858 28
05/29/92 103.030 125.019 3956 157.514 28
06/30/92 96.970 120.132 3936 148.406 28
07/31/92 100.000 124.388 3900 142.795 28
08/31/92 112.121 120.585 3881 131.351 30
09/30/92 112.121 125.067 3879 141.032 31
10/30/92 112.121 129.994 3891 150.020 31
11/30/92 169.697 140.337 3907 169.868 32
12/31/92 151.515 145.503 3931 174.855 35
01/29/93 145.455 149.644 3919 183.012 36
02/26/93 151.515 144.062 3950 177.163 37
03/31/93 142.424 148.232 3974 172.210 36
04/30/93 130.303 141.905 4008 161.049 36
05/28/93 96.970 150.382 4036 167.519 37
06/30/93 93.939 151.077 4072 162.609 39
07/30/93 84.848 151.256 4104 166.370 42
08/31/93 106.061 159.074 4139 174.493 43
09/30/93 100.000 163.811 4174 177.879 44
10/29/93 103.030 167.493 4222 186.006 43
11/30/93 175.758 162.497 4305 179.273 43
12/31/93 193.939 167.027 4377 185.669 43
01/31/94 157.576 172.097 4401 187.706 44
02/28/94 184.849 170.488 4440 194.448 44
03/31/94 200.000 160.002 4492 176.502 46
04/29/94 181.818 157.926 4521 171.278 46
05/31/94 166.667 158.312 4563 173.216 47
06/30/94 154.545 152.522 4576 151.159 47
07/29/94 148.485 155.650 4594 153.526 47
08/31/94 136.364 165.573 4612 157.341 50
09/30/94 169.697 165.150 4615 155.890 49
10/31/94 172.727 168.396 4637 157.472 51
11/30/94 218.182 162.810 4653 152.418 51
12/30/94 236.364 163.267 4658 151.755 52
01/31/95 209.091 164.183 4648 158.010 57
02/28/95 239.394 172.865 4650 157.114 57
03/31/95 218.182 177.987 4644 166.048 57
04/28/95 206.061 183.591 4655 169.223 55
05/31/95 230.303 188.329 4653 173.284 54
06/30/95 236.364 203.589 4670 183.618 54
07/31/95 266.667 218.551 4689 195.815 53
08/31/95 309.091 222.974 4712 201.497 51
09/29/95 345.455 228.103 4708 210.043 49
10/31/95 321.212 226.800 4745 197.433 50
11/30/95 351.515 232.119 4777 200.858 49
12/29/95 327.273 230.876 4817 214.164 48
01/31/96 327.273 232.006 4807 210.218 48
02/29/96 306.061 240.850 4837 221.914 48
03/29/96 303.030 241.646 4876 219.403 50
04/30/96 303.030 261.688 4920 253.453 50
05/31/96 375.758 273.746 4976 273.604 54
06/28/96 341.955 261.403 5029 226.874 54
</TABLE>
TRANSACTIONS WITH MANAGEMENT
Pursuant to authorizations by the Board of Directors on the dates
indicated below, the Company has made certain advancements to Mr. George
Erikson, Director, Chairman & General Counsel, and certain advancements to Mr.
Robert Erikson, Director, President & Treasurer (together the "Eriksons") for
their respective legal fees and expenses which each has incurred, and may incur
in the future, for personal legal representation in connection with the
stockholder lawsuit filed in August 1990 challenging a proposed but
unconsummated transaction between each of the Eriksons and Insituform
Technologies, Inc. (see sections entitled, "Voting Securities and Principal
Holders Thereof" and "Legal Proceedings" below).
<TABLE>
<CAPTION>
Board Authorizations for Advancements Board Authorizations for Advancements
to Mr. George Wm. Erikson to Mr. Robert W. Erikson
Date Amount Authorized Date Amount Authorized
<S> <C> <C> <C> <C>
April 12, 1991 $ 12,500 April 12, 1991 $ 12,500
December 19, 1991 12,500 December 19, 1991 12,500
March 17, 1992 12,500 March 17, 1992 12,500
September 15, 1992 25,000 September 15, 1992 25,000
December 18, 1992 50,000 December 18, 1992 50,000
March 16, 1993 50,000 March 16, 1993 50,000
December 17, 1993 12,500 December 17, 1993 12,500
June 7, 1994 50,000 June 7, 1994 50,000
September 13, 1994 75,000 September 13, 1994 75,000
December 16, 1994 100,000 December 16, 1994 100,000
March 7, 1995 75,000 March 7, 1995 75,000
September 12, 1995 25,000 September 12, 1995 25,000
December 15, 1995 25,000 December 15, 1995 25,000
October 15, 1996 25,751 October 15, 1996 25,751
-------- --------
$550,751 $550,751
======== ========
</TABLE>
As of October 15, 1996, pursuant to such Board authorizations, the
Company has advanced and expensed in total $550,751 to Mr. George Erikson and
has advanced and expensed in total $550,751 to Mr. Robert Erikson.
Pending a final outcome of these legal proceedings, the Board of
Directors has deferred consideration or ultimate determination of entitlement of
Mr. George Erikson and/or Mr. Robert Erikson to indemnification by the Company
for their legal fees and expenses. If it is ultimately determined by the Board
of Directors or otherwise in accordance with Section 145 of Delaware Corporation
Law that Mr. George Erikson and/or Mr. Robert Erikson are not entitled to
indemnification for any such legal fees and expenses under Section 145 of
Delaware Corporation Law, such advances shall be reimbursed by Mr. George
Erikson and/or Mr. Robert Erikson to the Company pursuant to an agreement with
the Company executed by each of the Eriksons and delivered to the Board of
Directors.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As previously reported by the Company, on March 12, 1990, the
controlling stockholders of the Company, Messrs. George Erikson and Robert
Erikson (together, the "Eriksons"), executed a letter of intent and subsequently
executed four amendments thereto (collectively referred to herein as the "Letter
of Intent") with Insituform Technologies, Inc. ("ITI") (formerly Insituform of
North America, Inc. or "INA") to effect a sale of their controlling interest in
the Company to ITI for $6,000,000 (the "Proposed Transaction"). The Proposed
Transaction, had it been consummated, would have had the effect of making ITI
the controlling stockholder of the Company and, indirectly, of each of the
Company's three direct subsidiaries at the time, Insituform East, Capitol Copy
and CERBERONICS. On September 19, 1990, however, the Company issued a press
release announcing that the Eriksons had informed the Company that the Letter of
Intent had expired without consummation of any transaction, that it would not be
further extended, that negotiations had ceased and that the Eriksons had no
further intention at the time of pursuing the proposed sale of their controlling
interest in the Company to ITI.
LEGAL PROCEEDINGS
The only material pending legal proceedings to which the Company
is a party or any such legal proceedings contemplated of which the Company is
aware are (a) a previously disclosed lawsuit in the Court of Chancery of the
State of Delaware currently on appeal, and (b) a previously disclosed lawsuit
pending in the Superior Court of the District of Columbia.
(a) As previously reported by the Company, in March 1990, the
controlling stockholders of the Company, Messrs. George Wm. Erikson and Robert
W. Erikson (together, the "Eriksons"), executed a letter of intent and
subsequently executed four amendments thereto (collectively referred to herein
as the "Letter of Intent") with Insituform Technologies, Inc. ("ITI") to effect
a sale of their controlling interest in the Company to ITI for $6,000,000 (the
"Proposed Transaction"). The Proposed Transaction, if consummated, would have
had the effect of making ITI the controlling stockholder of the Company, and,
indirectly, of each of the Company's three direct subsidiaries at the time,
Insituform East, Capitol Copy, and CERBERONICS. In September 1990, the Eriksons
informed the Company that the Letter of Intent had expired without consummation
of any transaction, that it would not be further extended, that negotiations had
ceased, and that the Eriksons had no further intention at the time of pursuing
the proposed sale of their controlling interest in the Company to ITI.
In August 1990, a complaint against the Company and the Eriksons
was filed in the Delaware Court of Chancery (the "Delaware Complaint") by two
stockholders of the Company, on their own behalf and derivatively on behalf of
the Company, which sought (i) damages against the individual defendants for
alleged breach of fiduciary duties in an amount not less than $6,000,000,
together with interest thereon from March 12, 1990; (ii) to permanently enjoin
the Eriksons from completing any transaction with ITI similar in substance to
the Proposed Transaction; (iii) a declaration of the invalidity of the 1982
authorization for and issuance of the Company's Class B Common Stock, and,
therefore, of the entitlement of holders of Class B Common Stock to elect any
members of the Company's Board; (iv) a declaration of the invalidity of the 1990
election of the Company's directors and the issuance of new proxy materials that
fully and fairly disclose all facts which plaintiffs claim are material to the
election of such directors; (v) an award to the plaintiffs of their costs of
bringing the action, including reasonable attorneys' fees; and (vi) an award to
plaintiffs of such further relief as the Court of Chancery deemed appropriate.
In addition, the Complaint asserted a claim against the individual defendants
alleging that the Company had forgone a corporate opportunity by the continued
failure to pursue a transaction with ITI.
All but one of the plaintiffs' claims subsequently were dismissed.
The claim remaining in the litigation was plaintiffs' allegation that the
Proposed Transaction was an opportunity belonging to the Company and that the
Eriksons breached their duty to the Company by precluding the Company from
taking advantage of that opportunity so that the Eriksons might have a chance to
do so. Trial in this matter was held beginning February 21, 1995.
Following post-trial briefing and argument, Chancellor Allen
issued an opinion on August 9, 1995, in which he ruled in favor of the Eriksons.
The court determined that, while the Eriksons failed in certain limited respects
to meet the standards of loyalty required of them under Delaware corporate law,
that "deviation from proper corporate practice" neither caused injury to CERBCO
nor resulted in any substantial gain to the Eriksons. The Court also found that
the Eriksons met their burden of showing that their conduct was "wholly fair to
the corporation." With the decision, all of the plaintiffs' claims have been
resolved in favor of CERBCO and/or the Eriksons.
On August 25, 1995, the Court of Chancery issued its Memorandum
and Order on Final Judgment and a corresponding Final Order and Judgment, which
latter document formally entered judgment in favor of the Eriksons and denied in
toto the plaintiffs' request for legal fees and expenses totaling $1,513,499.
The Court concluded that the litigation conferred no substantial benefit on
CERBCO, so that it would be inappropriate to require CERBCO and its stockholders
to share the costs that plaintiffs incurred.
The plaintiffs filed a Notice of Appeal with the Delaware Supreme
Court on August 30, 1995. Briefing was completed on December 6, 1995. Oral
argument was held on January 18, 1996. On April 10, 1996, the Delaware Supreme
Court issued its decision. The Court ruled that "[t]he Eriksons were entitled to
profit from their control premium and to that end compete with CERBCO but only
after informing CERBCO of the opportunity" for a transaction with ITI. Although
the Eriksons were deemed to have breached their duty of loyalty, the Supreme
Court affirmed the finding of the Court of Chancery that there was no viable
transaction that could take place between CERBCO and ITI, given the Eriksons'
ability to veto such a transaction as controlling shareholders of CERBCO.
Therefore, no damages could be awarded for the loss of a transaction that had a
"zero probability of occurring due to the lawful exercise of statutory rights."
The Supreme Court did rule, however, that the Eriksons were liable to CERBCO for
$75,000 they received from ITI for extending the Letter of Intent (the
"Extension Fee"), and had to reimburse the expenses, if any, that CERBCO
"incurred to accommodate the Eriksons' pursuit of their own interests" prior to
the abandonment of the proposed transaction with ITI. The Supreme Court
concluded that the Chancery Court's opinion was therefore "affirmed in part and
reversed in part, and this matter is remanded to the Court of Chancery for
further determination of damages. Once those damages are fixed, the [Chancery]
court should proceed to examine anew any petition for counsel fees on behalf of
the plaintiffs." The Eriksons filed motions for reargument and for rehearing en
banc, which motions the Supreme Court denied, and on May 15, 1996, the case was
remanded to the Court of Chancery.
On May 20, 1996, the plaintiffs filed a motion for post-remand
relief in the Court of Chancery, seeking (a) a "disgorgement of benefits"
allegedly received by the Eriksons in the aggregate amount of $451,000; (b)
"damages attributable to the Eriksons' breach of fiduciary duty" in an aggregate
amount of almost $1.4 million; and (c) certain injunctive relief against the
Eriksons with respect to "any further negotiations with ITI respecting ITI's
interest in obtaining control of [Insituform East]." The Eriksons and the
plaintiffs filed briefs in connection with the plaintiffs' motion. Oral argument
on the motion was presented to the Court of Chancery on July 15, 1996.
On September 13, 1996, the Court of Chancery issued its decision
on remand. The Court ruled that the Eriksons were obligated to pay CERBCO the
principal amount of $188,200, plus interest, representing legal fees paid to the
law firm of Morgan, Lewis & Bockius as counsel for the special committee of the
CERBCO Board of Directors that was appointed in 1990 in connection with the
Proposed Transaction. The Court of Chancery also ruled that the Eriksons were
obligated to pay CERBCO interest on the $75,000 Extension Fee the Supreme Court
had ordered the Eriksons to pay to CERBCO. All of the plaintiffs' other claims
were rejected, except that the Court ruled it was premature to determine
plaintiffs' claim that the Eriksons were obligated to reimburse CERBCO for
advances to them of the defense costs of the litigation. The order and judgment
embodying the Court's rulings have not yet been entered and, accordingly, the
time for filing any appeals from the Court of Chancery's decision on remand has
not yet commenced. The Eriksons have advised the Company they are likely to
appeal the judgment. On October 2, 1996, the plaintiffs filed a petition seeking
legal fees and expenses totaling $1,663,265.59. Both CERBCO and the Eriksons
filed objections, and the Court of Chancery is expected to rule on the petition
shortly.
(b) As previously reported by the Company, in January 1993, a
separate lawsuit against the partners in the law firm of Rogers & Wells and the
Company, arising out of the subject matter of the Delaware litigation, was filed
in the Superior Court of the District of Columbia (the "D.C. Complaint"). The
plaintiffs are the same two stockholders, and a former director of the Company,
and have alleged that Rogers & Wells breached its duty of loyalty and care to
the Company by representing allegedly conflicting interests of the Eriksons in
the Proposed Transaction with ITI. The plaintiffs also claim that Rogers & Wells
committed malpractice by allegedly making misrepresentations to the Company's
Board and allegedly failing to properly inform the Company's Board. The
plaintiffs claim that the conduct of Rogers & Wells caused the Company to lose
an opportunity to sell its control of Insituform East to ITI, caused the Company
to incur substantial expense, and unjustly enriched Rogers & Wells. The D.C.
complaint seeks to recover from Rogers & Wells (i) damages in an amount equal to
all fees paid to Rogers & Wells, (ii) damages in an amount not less than
$6,000,000 for the loss of the opportunity for the Company to sell its control
of Insituform East to ITI, and (iii) punitive damages. Although the complaint
states that it was filed on behalf of the Company, management does not believe
that Rogers & Wells should be sued on any of the claims set forth in the
complaint.
Motions to dismiss this case by the Company and Rogers & Wells
were denied, but a stay in the proceedings was granted until after the Delaware
trial. After the Court of Chancery's August 9, 1995 opinion was rendered, the
parties to the Superior Court action filed status reports. On November 13, 1995,
plaintiffs agreed to a stay in the Superior Court action pending the outcome of
the appeal to the Delaware Supreme Court. In accordance with a status report
filed by the parties with the Superior Court on or about June 28, 1996, the stay
of the District of Columbia action was continued at least until such time as the
Delaware Court of Chancery ruled upon the plaintiffs' pending motion for post-
remand relief.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche was engaged to audit the financial
statements of the Company for the fiscal year ended June 30, 1996. A
representative of Deloitte & Touche will be at the Meeting and will have an
opportunity to make a statement if he or she desires to do so. The
representative will also be available to respond to appropriate questions from
any stockholders present at the Meeting.
The Audit Committee of the Board of Directors has not yet
recommended, and the Board has not yet approved, the appointment of independent
public accountants to audit the financial statements of the Company for the
fiscal year ending June 30, 1997. It is anticipated that the Audit Committee
will make its recommendation to the Board and that the appointment of
independent public accountants will be made by the Board prior to June 30, 1997.
OTHER MATTERS
The Board of Directors is not aware of any other matters which are
likely to be brought before the Meeting. However, if any other matters are
properly brought before the Meeting, it is the intention of the individuals
named in the enclosed form of Proxy to vote the proxy in accordance with their
judgment on such matters.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Financial statements of the Company are contained in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996, a copy of
which is enclosed herewith.
DEADLINE FOR SUBMITTING STOCKHOLDER PROPOSALS
FOR INCLUSION IN THE BOARD'S PROXY STATEMENT IN CONNECTION
WITH THE FISCAL YEAR 1997 ANNUAL MEETING
A proposal submitted by a stockholder for action at the Company's
Annual Meeting of Stockholders for the fiscal year ending June 30, 1997 must be
received no later than June 30, 1997, in order to be included in the Company's
Proxy Statement for that meeting. It is suggested that proponents submit their
proposals by certified mail-return receipt requested.
A proponent of a proposal must be a record or beneficial owner
entitled to vote at the next Annual Meeting on the proposal and must continue to
be entitled to vote through the date on which the meeting is held.
By Order of the Board of Directors,
/s/
Robert F. Hartman
Secretary
Landover, Maryland
November 8, 1996
APPENDIX A
TEXT OF COMMON STOCK PROXY CARD:
COMMON STOCK
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
(301) 773-1784
ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 20, 1996
PROXY - COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R.W. Erikson and G.Wm. Erikson, and
each of them, with full power of substitution, the Proxies of the undersigned to
represent and to vote, as designated on the reverse side of this proxy card, all
the shares of Common Stock of CERBCO, Inc. held of record by the undersigned on
October 24, 1996, at the Annual Meeting of Stockholders to be held on December
20, 1996 or any adjournments thereof.
(TO BE SIGNED ON REVERSE SIDE)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
[ X ] Please mark your votes as in this example.
FOR, the nominee WITHHOLD Nominee: P.C. Kincheloe, Jr.
listed at right authority to vote
for the nominee
listed at right
1. Proposal -
Election of [ ] [ ]
Director.
(INSTRUCTION: To vote against the nominee, write the nominee's name on the line
provided below.)
2. In their own discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE SIGNATURE (IF HELD JOINTLY) Dated: , 1996
NOTE: Signature(s) should be exactly as name(s) appearing on your
certificate. If stock is held jointly, each holder should sign. If
signing is by attorney, executor, administrator, trustee, guardian or
corporate officer, etc., please give your full title as such.
<PAGE>
TEXT OF CLASS B COMMON STOCK PROXY CARD:
CLASS B COMMON STOCK
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
(301) 773-1784
ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 20, 1996
PROXY - CLASS B COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R.W. Erikson and G. Wm. Erikson, and
each of them, with full power of substitution, the Proxies of the undersigned to
represent and to vote, as designated on the reverse side of this proxy card, all
the shares of Class B Common Stock of CERBCO, Inc. held of record by the
undersigned on October 24, 1996, at the Annual Meeting of Stockholders to be
held on December 20, 1996 or any adjournments thereof.
(TO BE SIGNED ON REVERSE SIDE)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
[ X ] Please mark your votes as in this example.
FOR, all nominees WITHHOLD Nominees: R.W. Erikson
listed at right authority to vote G.Wm. Erikson
for all nominees W.C. Hayes, IV
listed at right
1. Proposal -
Election of [ ] [ ]
Directors.
(INSTRUCTION: To vote against one or more individual nominee, write the
nominee's name(s) on the line provided below.)
2. In their own discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE SIGNATURE (IF HELD JOINTLY) Dated: , 1996
NOTE: Signature(s) should be exactly as name(s) appearing on your
certificate. If stock is held jointly, each holder should sign. If
signing is by attorney, executor, administrator, trustee, guardian or
corporate officer, etc., please give your full title as such.
