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):
[ ] $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 19, 1997
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, 1997, will be held at the Club Hotel by Doubletree, 9100 Basil Court,
Landover, Maryland, on Friday, December 19, 1997, at 10:00 a.m. local time, for
the following purposes:
1. To elect directors of the Company;
2. To approve the Company's 1997 Board of Directors' Stock Option Plan;
and
3. 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 23,
1997, 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, 1997, 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
Robert F. Hartman
Secretary
Landover, Maryland
November 10, 1997
<PAGE>
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
Annual Meeting of Stockholders to be Held
December 19, 1997
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 Club Hotel by Doubletree, 9100 Basil Court, Landover, Maryland, on
Friday, December 19, 1997, 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 23, 1997, 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; FOR approval of the 1997 Board of
Directors' Stock Option Plan as described in "Proposal No. 2 - Approval of the
1997 Board of Directors' Stock Option Plan" 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 10, 1997.
OUTSTANDING SHARES AND VOTING RIGHTS
As of the Record Date, there were outstanding 1,482,956 shares,
comprised of 1,186,726 shares of Common Stock, $.10 par value (the "Common
Stock"), and 296,230 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 395,576 of such
shares, and one-third (1/3) of the outstanding shares of Class B Common Stock,
or 98,744 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. 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 60,700 1/ 5.1%
3421 Pennsy Drive Class B Common Stock 131,750 1/ 44.5%
Landover, MD
George Wm. Erikson Common Stock 59,602 2/ 5.0%
3421 Pennsy Drive Class B Common Stock 115,814 2/ 39.1%
Landover, MD
Koonce Securities, Inc. Common Stock 230,588 3/ 19.4%
6550 Rock Spring Drive
Bethesda, MD
1/ Record and beneficial ownership, sole voting and sole investment power.
2/ 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.
3/ 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.
</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 60,700 1/ 0 5.1%
Class B Common Stock 131,750 1/ 0 44.5%
George Wm. Erikson Common Stock 59,602 2/ 0 5.0%
Class B Common Stock 115,814 2/ 0 39.1%
Webb C. Hayes, IV Common Stock 4,500 0 0.4%
Paul C. Kincheloe, Jr. Common Stock 7,500 0 0.6%
All Directors and Officers
as a Group (5 persons Common Stock 132,302 0 11.1%
including those named Class B Common Stock 247,564 0 83.6%
above) 3/
1/ Record and beneficial ownership, sole voting and sole investment power.
2/ 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.
3/ 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 1.7% of such class) of Insituform
East, Incorporated, pursuant to the Insituform East 1989 and 1994 Board of
Directors' Stock Option Plans.
</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, 1998 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 for Which Nominated
<S> <C> <C> <C> <C>
Robert W. Erikson, Age 52 2/ 3/ 4/ 1974 1/ 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; 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; Capitol
Office Solutions, Inc. - Vice Chairman and a Director from 1987 to
June 30, 1997.
George Wm. Erikson, Age 55 2/ 3/ 1975 1/ 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; CERBERONICS, Inc. - a Director since 1975, General
Counsel since 1976, Chairman from 1979 to 1988, and Vice Chairman
since 1988; Capitol Office Solutions, Inc.-Chairman, General Counsel
and a Director from 1987 to June 30, 1997.
Webb C. Hayes, IV, Age 49 4/ 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; Insituform East, Inc. -
a Director since 1994; Capitol Office Solutions, Inc. - a Director
from 1992 to June 30, 1997; a Director of the Federal Reserve Bank
of Richmond from 1992 to 1995.
Paul C. Kincheloe, Jr., Age 56 4/ 1991 Common Stock
Practicing attorney and real estate investor since 1967; Partner in
the law firm of Kincheloe and Schneiderman since 1983; Insituform
East, Inc. - a Director since 1994; Capitol Office Solutions, Inc.
- a Director from 1992 to June 30, 1997; Director of Herndon
Federal Savings & Loan from 1970 to 1983; Director of First Federal
Savings & Loan of Alexandria from 1983 to 1989.
1/ Includes service as a director of CERBERONICS, Inc., now a wholly-owned subsidiary of the Company.
2/ Member of the Corporate Executive Committee of the Company, and the Chief Executive Officer
Committee of Insituform East, Incorporated 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.
</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. The names of the committee's members are
indicated in the table above. 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.
During the fiscal year ended June 30, 1997, the Board of Directors of
the Company held sixteen meetings and the Audit Committee held two meetings.
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, 1997.
EXECUTIVE COMPENSATION
JOINT COMPENSATION REPORT BY THE BOARD OF DIRECTORS
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, until June 30, 1997,
Capitol Office Solutions, Inc. ("Capitol") [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. 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) which includes compensation received 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 and the Board administers the
Company's Supplemental Executive Retirement Plan (the "CERBCO Supplemental
Retirement Plan") covering the Company's officers. 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 1996, 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 3% effective October 1, 1996. In
addition, the Board concurred with the decision of (a) the Insituform East Board
of Directors, to increase by 3% effective October 1, 1996 the base salary of its
officers, and (b) the Capitol Board of Directors to increase by approximately 5%
effective October 1, 1996 the base salary of its three senior officers who
together function as the Chief Executive Officer Committee ("CEOC") of that
subsidiary.
(b) Compensation Pursuant to Plans. The officers of CERBCO are eligible
to receive plan compensation through the CERBCO Supplemental Retirement 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 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.
(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 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 CEOC of
Capitol were eligible to receive an ROE bonus from Capitol. 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, a similar ROE formula equity factor was used. 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,
1997, due to negative net earnings, no incentive cash bonuses were awarded to
Insituform East officers. At Capitol, where the annual shareholder ROE
percentage for the fiscal year ended June 30, 1997 was approximately 39%, the
Capitol Board awarded the CEOC members both a regular ROE bonus at the capped
rate of 30% and a discretionary, supplemental bonus of an additional 5%. The
Company's Board concurred with the incentive bonus decisions made by Insituform
East and Capitol for fiscal year 1997.
COMPENSATION OF MEMBERS OF THE CEC
On September 17, 1996, the CERBCO Board approved an increase in base
salary from $10,816 to $11,140 per year, effective October 1, 1996, 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. 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 $210,298 per year, effective October 1,
1996, from the base salary rate of $204,173 per year. Due to the negative
earnings results obtained by Insituform East for fiscal year 1997, no incentive
cash bonus was earned by either Mr. George Erikson or Mr. Robert Erikson.
As to Capitol, the base salary received by Messrs. George Erikson and
Robert Erikson increased to a rate of $66,150 per year, effective October 1,
1996, from the base salary rate of $63,000 per year. Moreover, due to the
positive earnings results obtained by Capitol for fiscal year 1997, an earned
incentive cash bonus of 30%, based upon the ROE formula previously discussed,
and a discretionary, supplemental bonus of 5%, in the total amount of $23,095
was earned by both Mr. George Erikson and Mr. Robert Erikson.
As previously discussed, in approving the compensation package for the
CEC members, the Board considered that Messrs. George Erikson and Robert Erikson
devote a predominate portion of their time and effort directly to the activities
of CERBCO's operating subsidiaries, and that their work for CERBCO requires a
smaller portion of their time and effort. The Board concurred in the
compensation paid to the members of the CEC by each such subsidiary and believes
the components of the aggregate compensation paid to Messrs. George Erikson and
Robert Erikson by the Company and its subsidiaries provide a compensation
package that fairly reflects the time and effort devoted by such officers to the
Company and each of its subsidiaries.
The Board of Directors
Robert W. Erikson
George Wm. Erikson
Webb C. Hayes, IV
Paul C. Kincheloe, Jr.
SUMMARY COMPENSATION
CERBCO is a parent holding company with controlling interests in two principal
subsidiaries, Insituform East ("IEI") and, until June 30, 1997, Capitol Office
Solutions ("COS" or "Capitol"). CERBCO officers participate also in the
management of these subsidiaries. The following table sets forth information
concerning the compensation paid to each of the named executive officers of the
Company and/or its subsidiaries for the fiscal years ended June 30, 1997, 1996
and 1995:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------------- --------------------- -----------
Name Other Total Restricted
and Annual Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compensation Compensation Awards SARs Payouts Compensation
Position Year ($) ($) ($) 4/ ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Erikson 1997 CERBCO $11,053 $ 0 $0 $11,053 $0 0 $0 $0
Director, President IEI 208,649 0 0 208,649 0 15,000 0 11,247 5/
& Treasurer 1/ COS 65,924 23,095 0 89,019 0 0 0 0
--------- -------- ---- ---------- ---- ------ ---- --------
$285,626 $23,095 $0 $308,721 $0 15,000 $0 $11,247
========= ========= ==== ========== ==== ====== ==== ========
1996 CERBCO $10,677 $0 $0 $10,677 $0 0 $0 $0
IEI 201,555 22,393 0 223,948 0 15,000 0 9,014
COS 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
COS 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
========== ========= ==== ========== ==== ====== ==== ========
George Wm. Erikson 1997 CERBCO $11,053 $ 0 $0 $11,053 $0 0 $0 $0
Director, Chairman IEI 208,649 0 0 208,649 0 15,000 0 11,613 5/
& General Counsel 1/ COS 65,924 23,095 0 89,019 0 0 0 0
--------- -------- ---- ---------- ---- ------ ---- --------
$285,626 $23,095 $0 $308,721 $0 15,000 $0 $11,613
========== ========= ==== ========== ==== ====== ==== ========
1996 CERBCO $ 10,677 $0 $0 $10,677 $0 0 $0 $0
IEI 201,555 22,393 0 223,948 0 15,000 0 11,264
COS 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
COS 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
========== ========= ===== ========== ==== ====== ==== ========
Robert F. Hartman 1997 CERBCO $11,053 $0 0 $11,053 $0 0 $0 $0
Vice President, IEI 88,808 0 0 88,808 0 0 0 8,010 5/
Secretary & --------- ----- ---- --------- ---- ------ ---- -------
Controller 2/ $99,861 $ 0 $0 $99,861 $0 0 $0 $8,010
========= ===== ==== ========= ==== ====== ==== =======
1996 CERBCO $10,677 $0 $0 $10,677 $0 0 $0 $0
IEI 85,891 9,542 0 95,433 0 0 0 6,666
--------- -------- ---- ---------- ---- ------ ---- --------
$96,568 $9,542 $0 $106,110 $0 0 $0 $6,666
======== ======== ==== ========== ==== ====== ==== =======
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
========= ========= ==== ========== ==== ====== ==== =======
Armen A. Manoogian 1997 COS $247,444 $86,605 $9,173 343,222 $0 0 $0 $7,500 6/
[Subsidiary ========= ========= ======= ======= ==== ====== ==== ======
President, COS] 3/
1996 COS $235,660 $85,545 $8,736 $329,941 $0 0 $0 $7,500
========= ========= ======= ======== ==== ====== ==== ======
1995 COS $224,955 $105,962 $8,400 $339,317 $0 0 $0 $6,129
========= ========== ======= ======== ==== ====== ==== ======
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 50, 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's Chief Executive Officer Committee (the "CEOC"), consisting of the
Chairman, the Vice Chairman and the President, exercised the duties and
responsibilities of the Chief Executive Officer of Capitol. Mr. Armen Manoogian,
age 54, was President and a member of the CEOC of Capitol from October 1987 to
June 30, 1997. Prior to joining Capitol, 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.
6/ Capitol contributions to the COS Profit Sharing Plan.
</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 under a split-dollar insurance
arrangement. The executive's beneficiary will receive a one-time lump sum
payment in the amount of $1,400,000 (in the case of Messrs. Robert Erikson or
George Erikson) or $700,000 (in the case of Mr. Robert Hartman). If the
executive dies after commencement of the payment of retirement benefits, but
before receiving 180 monthly payments, the executive's beneficiary will continue
to 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.
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)
(Final) Years of Service (Under Plan)
-----------------------------
<CAPTION>
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<S> <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)
(Final) Years of Service (Under Plan)
-----------------------------
<CAPTION>
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<S> <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, 1997 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 Service Service Under Plan Covered Compensation Percentage Annual Benefit
- ---- ---------------- ------------------ -------------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Robert W. Erikson 24 5 $ 270,608 27.78% $ 37,584
George Wm. Erikson 21 5 $ 270,608 33.33% $ 45,101
Robert F. Hartman 16 5 $ 97,419 25.00% $ 6,089
</TABLE>
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. Messrs. Kincheloe
and Hayes each received options for a total of 7,500 shares over a five-year
period, from 1992 through 1996 and thus, 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 9,000 shares available under this plan were
exercised by directors of the Company during fiscal year 1997.
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 1997, 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 1997 1/ as of 10/23/97
- ----------------------------- ------------------- --------------
<S> <C> <C>
George Wm. Erikson, Chairman $11,247 100%
Robert W. Erikson, President $11,247 100%
Robert F. Hartman, Vice
President - Administration & Secretary $ 6,351 80%
Executive Officers of Insituform East as a Group,
(6 persons, including those named above) $57,128 N/A
1/ Total contributions to employees of $276,123 include Insituform East's
contribution of $212,409 and reallocated amounts totaling $63,714 forfeited
by former participants who terminated employment with Insituform East
during fiscal year 1997.
</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 1997, 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 1997 as of 10/23/97
- ---------------------------- ---------------- --------------
<S> <C> <C>
George Wm. Erikson, Chairman $ 366 100%
Robert W. Erikson, President $ 0 100%
Robert F. Hartman, Vice
President - Administration & Secretary $1,659 100%
Executive Officers of Insituform East as a Group,
(6 persons, including those named above) $6,350 N/A
</TABLE>
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 13, 1996, 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 $2.625. No options available
under this plan were exercised by directors of Insituform East during fiscal
year 1997.
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 120,000 shares of Insituform East
Common Stock remain reserved for the directors of Insituform East.
OPTION/SAR GRANTS
No option or Stock Appreciation Right grants were made to any of the named
executive officers during fiscal year 1997 under the CERBCO Directors' Plan or
the IEI 1989 Directors' Plan. The following table sets forth information
concerning options granted to each of the named executive officers during fiscal
year 1997 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> <C>
IEI 1994 Directors' Plan 15,000 14% $2.625 12/13/01 $10,875 $24,045
George Wm. Erikson
IEI 1994 Directors' Plan 15,000 14% $2.625 12/13/01 $10,875 $24,045
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
No option or Stock Appreciation Right grants made under the IEI 1989 or
1994 Directors' Plans to any of the named executive officers were exercised
during fiscal year 1997. During fiscal year 1997, Messrs. Robert Erikson and
George Erikson each exercised options to purchase 3,000 shares of CERBCO Common
Stock granted under the CERBCO Directors' Plan. The following table sets forth
information concerning option or Stock Appreciation Right grants held by each of
the named executive officers under all plans as of June 30, 1997:
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<CAPTION>
Value of
Number of Unexercised Unexercised in the Money
Shares Options/SARs at FY-End(#) Options/SARs at FY-End($)
Acquired on Value
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
Robert W. Erikson
<S> <C> <C> <C> <C> <C> <C>
CERBCO Directors' Plan 3,000 $ 12,563 0 0 $ 0 $0
IEI 1994 Directors' Plan 0 $ 0 45,000 0 $ 0 $0
IEI 1989 Directors' Plan 0 $ 0 30,000 0 $ 938 $0
George Wm. Erikson
CERBCO Directors' Plan 3,000 $ 12,563 0 0 $ 0 $0
IEI 1994 Directors' Plan 0 $ 0 45,000 0 $ 0 $0
IEI 1989 Directors' Plan 0 $ 0 30,000 0 $ 938 $0
</TABLE>
REPRICING OF OPTIONS/SARs
Neither the Company nor its subsidiaries adjusted or amended the
exercise price of stock options or SARs previously awarded to any of the named
executive officers during fiscal year 1997.
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
Until December 31, 1996, each non-officer director of the Company was
paid an annual fee of $3,000 and an attendance fee of $500 for Board of
Directors meetings where he attended in person and $100 if he participated by
telephone. The annual fee was increased to $5,000, and attendance fees to $1,000
and $200, respectively, effective as of January 1, 1997. 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, participated during
fiscal year 1997 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, until June 30, 1997,
were both members of the Board of Directors and executive officers of Capitol
Office Solutions. In their capacities as directors of these subsidiary
companies, they participated in deliberations of the respective subsidiaries'
Boards of Directors concerning executive officer compensation.
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
<S> <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>
PROPOSAL NO. 2 - APPROVAL OF THE 1997 BOARD OF DIRECTORS
STOCK OPTION PLAN
The CERBCO, Inc. 1997 Board of Directors' Stock Option Plan (the "1997
Directors' Plan") was adopted by the Board of Directors on September 16, 1997,
subject to approval by the stockholders. The purpose of the 1997 Directors' Plan
is to promote the growth and general prosperity of the Company by permitting the
Company, through the granting of options to purchase shares of its Common Stock,
to attract and retain the best available persons as members of the Company's
Board of Directors with an additional incentive for such persons to contribute
to the success of the Company. The plan is non-qualified for federal income tax
purposes and only members of the Board of Directors would be entitled to grants
of options thereunder. The Board is submitting the plan for approval by the
stockholders at the Meeting. It is intended that the individuals named in the
enclosed form of Proxy will vote their proxies to approve the plan, unless
otherwise directed. A majority of the votes cast by both Common stockholders and
Class B Common stockholders, voting together, will be required for the approval
of the plan.
The following is a summary of the 1997 Directors' Plan, and reference
should be made to the full text of the plan contained in Appendix A.
General. A maximum of 125,000 shares of Common Stock may be made
subject to options under the plan, subject to adjustments upon changes in
capital structure of the Company. Options may only be granted to directors of
the Company. Each option granted under the plan will entitle each director to
whom such option is granted the right to purchase 5,000 shares of the Company's
Common Stock (subject to adjustment upon changes in capital structure of the
Company) at a designated option price (the "Option Price"), at any time and from
time to time, within five years from the date of grant; provided that the
director serves continually as a director of the Company for at least six months
following the date the option was granted. If the four nominees named under
Proposal No. 1 of this Proxy statement are elected as directors, they would be
eligible, in consideration for serving as directors of the Company, to receive
in 1997 grants of options entitling each such director to purchase at any time
until December 19, 2002 up to 5,000 shares of the Company's Common Stock
(subject to adjustment for any change in capital structure of the Company) at
the Option Price determined on December 19, 1997. Two of such nominees, George
Wm. Erikson and Robert W. Erikson, are current executive officers, and Messrs.
Hayes and Kincheloe are current directors who are not executive officers; thus,
if all nominees are elected, options for a total of 10,000 shares of Common
Stock would be granted to current executive officers as a group and options for
a total of 10,000 shares of Common Stock would be granted to the two current
directors who are not executive officers.
Administration. The Board of Directors shall administer the 1997
Directors' Plan and shall have exclusive authority to interpret, construe and
implement the provisions of the plan, except as may be delegated in whole or in
part by the Board to a committee of the Board (the "Committee") which shall
consist of two or more members of the Board. Each determination, interpretation
or other action that may be taken pursuant to the plan by the Board or Committee
shall be final and shall be binding and conclusive for all purposes and upon all
persons. The Board from time to time may amend the plan as it deems necessary to
carry out the purposes thereof, provided, however, that no change shall be made
that increases the total number of shares reserved for issuance or materially
modifies the provisions of the plan with respect to eligibility for
participation unless such change is authorized by the stockholders.
Terms and Conditions of Options. Each director granted an option under
the 1997 Directors' Plan shall enter into a separate written agreement (the
"Option Agreement") with the Company covering each such option granted, in such
form and containing such terms and conditions as are not inconsistent with the
plan, as the Board or the Committee shall from time to time determine. Each
option granted under the plan and pursuant to each Option Agreement will entitle
each director to whom such option is granted the right to purchase 5,000 shares
of the Company's Common Stock (subject to adjustment upon changes in capital
structure of the Company) at the Option Price, any time and from time to time,
within five (5) years from the date of grant; provided that the director serves
continually as a director of the Company for at least six months following the
date the option was granted. Options will be granted under the plan each year to
each member of the Board of Directors of the Company serving as such on the date
of grant. To the extent the 1997 Directors' Plan is approved by the stockholders
at the Annual Meeting of Stockholders on December 19, 1997, the first option
grant will be made on the date of such annual meeting and the Option Price with
respect to such option shall be as of the date of such annual meeting. Each of
the succeeding grants will be made by the Board on the date of each succeeding
Annual Meeting of Stockholders and the Option Price shall be determined in
accordance with the plan's provisions by the Board as of each respective date. A
director may exercise an option only if he has served continually as a director
of the Company or its successor company for at least six months following the
date of the grant.
Federal Income Tax Consequences. The options granted under the plan are
not eligible for the special tax treatment afforded incentive stock options
under the Internal Revenue Code. Under existing federal income tax law and
regulations, an optionee will not recognize taxable income, and the Company will
not be entitled to a deduction, upon the grant of a non-statutory stock option.
Upon exercise of such an option, an optionee will recognize ordinary income in
an amount equal to the amount by which the fair market value of each share on
the date of exercise exceeds the Option Price. The amount so recognized as
income by the optionee generally will be deductible by the Company.
The foregoing summary of the principal federal income tax
considerations applicable to non-statutory stock options does not include all
aspects of federal income tax law which may be relevant to a particular
director. The federal income tax laws, the regulations or interpretations by the
Internal Revenue Service or the courts could be changed after the date of this
Proxy Statement. The effect might be to change some or all of the federal income
tax consequences pertaining to the plan described in this Proxy Statement. In
addition, the receipt of a grant under the plan, the exercise of a grant or the
sale of stock acquired upon exercise may create tax liabilities for the optionee
under the laws of any state or other taxing jurisdiction. No attempt is made in
this Proxy Statement to summarize these tax consequences.
TRANSACTIONS WITH MANAGEMENT
Pursuant to authorizations by the Board of Directors, 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).
As of November 10, 1997, pursuant to such Board authorizations, the
Company has advanced and expensed in total $592,854 to Mr. George Erikson and
has advanced and expensed in total $592,854 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, 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 a trial, 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."
The Court 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 appealed to the Delaware Supreme Court. On April 10,
1996, the Supreme 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 the Supreme Court denied.
The plaintiffs filed a motion for post-remand relief in the Court of
Chancery, seeking (i) a "disgorgement of benefits" allegedly received by the
Eriksons in the aggregate amount of $451,000; (ii) "damages attributable to the
Eriksons' breach of fiduciary duty" in an aggregate amount of almost $1.4
million; and (iii) certain injunctive relief against the Eriksons with respect
to "any further negotiations with ITI respecting ITI's interest in obtaining
control of [Insituform East]."
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. On October 2, 1996, the
plaintiffs filed a petition seeking attorneys' fees and expenses totaling
$1,663,266. On February 6, 1997, the Court of Chancery entered a final order and
judgment (revised on February 14, 1997) encompassing the above rulings and
awarding the plaintiffs attorneys' fees of $143,364.23 to be paid by CERBCO and
court costs of $9,359.20 to be paid by the Eriksons. The plaintiffs, the
Eriksons, and CERBCO have each appealed to the Delaware Supreme Court where the
appeals were briefed and, subsequently, oral arguments were presented on
September 9, 1997. The Delaware Supreme Court currently has the appeals under
consideration.
(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.
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. Plaintiffs agreed to a stay in the Superior Court action pending the
outcome of the appeal to the Delaware Supreme Court and, subsequently, the stay
was continued at least until such time as the Delaware Court of Chancery ruled
upon the plaintiffs' pending motion for post-remand relief. As of this date, the
District of Columbia action remains stayed.
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, 1997. 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, 1998. 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, 1998.
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, 1997, 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 1998 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, 1998 must be
received no later than June 30, 1998, 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
Robert F. Hartman
Secretary
Landover, Maryland
November 10, 1997
<PAGE>
APPENDIX A
CERBCO, INC.
1997 BOARD OF DIRECTORS'
STOCK OPTION PLAN
1. Purpose.
The purpose of the CERBCO, Inc. 1997 Board of Directors Stock Option
Plan (the "Plan") is to promote the growth and general prosperity of CERBCO,
Inc. (the "Company") by permitting the Company, through the granting of Options
to purchase shares of its Common Stock, par value $.10 per share (the "Common
Stock"), to attract and retain the best available persons as members of the
Company's Board of Directors with an additional incentive for such persons to
contribute to the success of the Company.
2. Administration.
The Board of Directors shall administer the Plan and shall have
exclusive authority to interpret, construe and implement the provisions of the
Plan, except as may be delegated in whole or in part by the Board to a committee
of the Board (the "Committee") which shall consist of two or more members of the
Board. Each determination, interpretation or other action that may be taken
pursuant to the Plan by the Board or the Committee shall be final and shall be
binding and conclusive for all purposes and upon all persons.
3. Eligibility.
All members of the Board of Directors shall receive Options pursuant to
the terms of the Plan, as set forth herein.
4. Shares of Common Stock Subject to Options.
Subject to the provisions of Sections 10 and 11 hereof, the maximum
number of shares of Common Stock which may be optioned and sold under the Plan
is 125,000 shares of authorized but unissued, or reacquired, shares of Common
Stock of the Company. In the event any shares of Common Stock subject to an
Option are not issued for any reason at the expiration or termination of such
Option, such shares may again be subject to an Option under the Plan.
5. The Options.
Each Director granted an Option under this Plan shall enter into a
separate written Option Agreement with the Company covering each such Option
granted, in such form containing such terms and conditions as are not
inconsistent with the Plan, as the Board or the Committee shall from time to
time determine. Except as provided in this Section, each Option granted
hereunder and pursuant to each such agreement will entitle each Director to whom
such Option is granted the right to purchase 5,000 shares of the Company's
Common Stock at the Option Price, at any time and from time to time, up to five
(5) years from the date of grant. Options will be granted hereunder each year to
each member of the Board of Directors of the Company serving as such on the date
of grant. The first Option grant will be made on December 19, 1997, and the
Option Price with respect to such Option shall be determined as of such date,
subject to approval of the Plan by the Company's Stockholders at the Annual
Meeting of Stockholders to be held on December 19, 1997. Each of the succeeding
grants will be made on the date of each succeeding Board of Directors meeting,
which follows each succeeding Annual Meeting of Stockholders, and the Option
Price shall be determined as of each such respective date.
6. Option Price.
The Option Price for each share of the Common Stock to be issued upon
exercise of Options under the Plan shall be determined on the date of grant in
the following manner: (i) if the trading prices for the Common Stock are
reported on the consolidated transaction reporting system (the "consolidated
system") operated by the Consolidated Tape Association, whether or not the
Common Stock is traded on an exchange, the average of the high and low prices at
which the Common Stock is reported in the consolidated system to have been
traded on such date; (ii) if the principal market for the Common Stock is an
exchange and if the trading prices for the Common Stock are not reported in the
consolidated system, the average of the high and low prices at which the Common
Stock is reported to have traded on such exchange on such date; (iii) if the
principal market for the Common Stock is otherwise than on an exchange, trading
prices for the Common Stock are not reported on the consolidated system, and
bids and offers for such security are reported in the automated quotation system
operated by the National Association of Securities Dealers, Inc. ("NASDAQ"), the
mean between the highest current independent bid price and the lowest current
independent asked price reported on "level 2" of the NASDAQ on such date; (iv)
if the principal market for the Common Stock is otherwise than on an exchange,
trading prices for the Common Stock are not reported on the consolidated system,
and bids and offers for the Common Stock are not reported in NASDAQ, the mean
between the highest current independent bid and the lowest current independent
asked price on such date, determined on the basis of reasonable inquiry; or (v)
if there is no market for the Common Stock, such price as the Board in its
discretion, acting in good faith, shall determine, but not less than the price
of any contemporaneous sales of the Common Stock. If there is a market for the
Common Stock and if, on the pertinent date, no transactions or bid and asked
prices, as the case may be, are reported for the Common Stock under the relevant
clause above, the Option Price of the Common Stock shall be determined on the
next day on which transactions or bid and asked prices, as the case may be, are
reported for the Common Stock under such clause. The Option Price shall be
subject to adjustment as set forth in Section 10 hereof.
7. Exercise of Option.
(a) An Option may be exercised at any time and from time to time within
a period of five (5) years from the date of grant of such Option with respect to
all or part of the shares covered thereby, subject however, to the further
restrictions contained in this Section 7.
In the event the Company or the Stockholders of the Company
enter into an agreement to dispose of all or substantially all of the assets or
stock of the Company by means of a sale, a reorganization, a liquidation or
otherwise, each outstanding Option shall be exercisable with respect to the full
number of shares subject to that Option, notwithstanding the preceding paragraph
of this Section 7(a), only during the period commencing as of the date of such
agreement and ending when the disposition of assets or stock contemplated by the
Agreement is consummated.
(b) An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company at its principal business office by
the person entitled to exercise the Option and full payment for the shares with
respect to which the Option is exercised has been received by the Secretary of
the Company. As soon as practicable after the date an Option is exercised, the
Company shall deliver to the Director a certificate or certificates for the
number of shares of Common Stock acquired upon such exercise, registered in the
name of the Director or the name of any other person entitled to such shares as
contemplated by Section 7(c).
(c) An Option may be exercised by the optionee only (i) if the optionee
has served continually as a Director of the Company or its Successor Company for
at least six months following the date of grant and (ii) (x) while he is, and
has continually been since the date of the grant of the Option, a Director of
the Company or its Successor Company, or (y) for a period ending six (6) months
after the Director has terminated his services in all of such capacities; except
that if a Director's continuous service terminates by reason of his death, such
Option may be exercised within six (6) months after the death of such Director,
but in no event later than five (5) years after the date of grant of such
Option, by (and only by) the person or persons to whom his right under such
Option shall have passed by will or by laws of descent and distribution.
(d) An Option may be exercised in accordance with this Section 7 as to
all or any portion of the shares subject to the Option from time to time, but
shall not be exercisable with respect to fractions of a share.
8. Options not Transferable.
Options under the Plan may not be sold, pledged, assigned or
transferred in any manner otherwise than by will or the laws of descent or
distribution, and may be exercised during the lifetime of an optionee only by
such optionee.
9. Amendment or Termination of the Plan.
(a) The Board of Directors may amend the Plan in such respects as it
shall deem advisable; provided that, no change shall be made that increases the
total number of shares of Common Stock reserved for issuance under the Plan
(except pursuant to Section 11), or materially modifies the requirements as to
eligibility for participation in the Plan, unless such change is authorized by
the Stockholders of the Company. An amendment of the Plan shall not, without the
consent of the Director, adversely affect a Director's rights under an Option
previously granted to him or her.
(b) The Board of Directors may at any time terminate the Plan. Any such
terminations of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
terminated.
10. Adjustments Upon Changes in Capitalization.
If all or any portion of the Option is exercised subsequent to any
stock dividend, split-up, recapitalization, combination or exchange of shares,
merger, consolidation, acquisition of property or stock, reorganization, or
other similar change or transaction of or by the Company, as a result of which
shares of any class shall be issued in respect of outstanding shares of the
class covered by the Option, or shares of the class covered by the Option shall
be changed into the same or different number of shares of the same or another
class or classes, the person or persons so exercising such an Option shall
receive, for the aggregate option price payable upon such exercise of the
Option, an aggregate number and class of shares equal to the number and class of
shares he would have had on the date of exercise had the shares been purchased
for the same aggregate price at the date the Option was granted and not been
disposed of, taking into consideration any such stock dividend, split-up,
recapitalization, combination or exchange of shares, merger, consolidated,
acquisition of property or stock, separation, reorganization or other similar
change or transaction; provided, however, that no fractional shares shall be
issued upon any such exercise, and the aggregate price paid shall be
approximately reduced on account of any fractional shares not issued.
11. Changes in Capital Structure of Company.
In the event of a change in the capital structure of the Company, the
number of shares specified in Section 5 of the Plan, the number of shares
covered by each outstanding Option and the price per share shall be adjusted
proportionately for any increase or decrease in the number of issued shares of
Common Stock resulting from the splitting or consolidation of shares, or the
payment of a stock dividend or effected in any other manner without receipt of
additional or further consideration by the Company.
12. Agreement and Representations of Director.
As a condition to the exercise of any portion of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
under the Securities Act of 1933, as amended, or any other applicable law, rule
or regulation.
13. Reservation of Shares of Common Stock.
The Company, during the term of this Plan, will at all times reserve
and keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority in order to issue and sell, such number of
shares of its Common Stock as shall be sufficient to satisfy the requirements of
the Plan. Inability of the Company to obtain from any regulatory body having
jurisdictional authority deemed by the Company's counsel to be necessary to the
lawful issuance and sale of shares of Common Stock under the Plan shall not
result in any liability of the Company in respect of the nonissuance or sale of
such stock as to which such requisite authority shall not have been obtained.
14. Term.
The Plan shall be effective upon its adoption by the Board of Directors
and approval by the Company's Stockholders. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 9.
15. Definitions.
As used herein, the following definitions shall apply:
(a) "Common Stock" shall mean Common Stock, par value $.10 per share,
of the Company.
(b) "Continuous Service" shall mean service as a member of the
Board of Directors, without interruption, of the Company or
its Successor Company.
(c) "Option" shall mean a stock option granted pursuant to the Plan.
(d) "Option Price" means the purchase price, as determined in
accordance with Section 6 of the Plan, for each share of the
Common Stock issued upon the exercise of Options.
(e) "Plan" shall mean the Company's Board of Directors' 1997
Stock Option Plan.
(f) "Stockholders" shall mean the holders of outstanding shares of
the Company's Common Stock and Class B Common Stock.
(g) "Successor Company" means any company which acquires all or
substantially all of the stock or assets of the Company.
Dated: September 16, 1997
<PAGE>
APPENDIX B
TEXT OF COMMON STOCK PROXY CARD
- --------------------------------------------------------------------------------
COMMON STOCK
- --------------------------------------------------------------------------------
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
(301) 773-1784
ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 19, 1997
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 23, 1997, at the Annual Meeting of Stockholders to be held on December
19, 1997 or any adjournments thereof.
(TO BE SIGNED ON REVERSE SIDE)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
X Please mark your
votes as in this
example.
1. Proposal - Election of Director.
FOR, the nominee WITHHOLD
listed at right (except authority to vote Nominee: P.C. Kincheloe, Jr.
as noted to the for the nominee
contrary below) listed at right
[ ] [ ]
(INSTRUCTION: To indicate that you do not wish to
have your shares voted for the nominee, print the
name of such nominee on the line provided below.)
- -------------------------------------------------
2. Proposal - Approval of the Corporation's 1997 Directors' Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. 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 PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
- ----------------------- -------------------------- Dated:---------------, 1997
SIGNATURE SIGNATURE (IF HELD JOINTLY)
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>
APPENDIX C
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 19, 1997
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 23, 1997, at the Annual Meeting of Stockholders to be
held on December 19, 1997 or any adjournments thereof.
(TO BE SIGNED ON REVERSE SIDE)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
X Please mark your
votes as in this
example.
1. Proposal - Election of Director.
FOR, all nominees WITHHOLD
listed at right (except authority to vote Nominee: R.W. Erikson
as noted to the for all nominees G.Wm. Erikson
contrary below) listed at right W.C. Hayes, IV
[ ] [ ]
(INSTRUCTION: To indicate that you do not wish to have your shares voted for one
or more individual nominee(s), check the FOR box and print the name(s) of such
nominee(s) on the lines provided below.)
- -------------------------------------------------
- -------------------------------------------------
2. Proposal - Approval of the Corporation's 1997 Directors' Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. 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 PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
- ----------------------- -------------------------- Dated:---------------, 1997
SIGNATURE SIGNATURE (IF HELD JOINTLY)
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.
