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): Not applicable.
[ ] $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 18, 1998
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, 1998, will be held at the Club Hotel by Doubletree, 9100 Basil Court,
Landover, Maryland, on Friday, December 18, 1998, at 10:00 a.m. local time, for
the following purposes:
1. Proposal 1: To elect directors of the Company;
2. Proposal 2: To vote on a stockholder proposal to liquidate the
Company;
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 22,
1998, 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, 1998, 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 9, 1998
<PAGE>
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
Annual Meeting of Stockholders to be Held
December 18, 1998
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 18, 1998, 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 22, 1998, 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; AGAINST approval of the
Stockholder Proposal as described in "Proposal No. 2 Liquidation of the Company"
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 9, 1998.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of the Record Date, there were outstanding 1,482,956 shares,
comprised of 1,186,976 shares of Common Stock, $.10 par value (the "Common
Stock"), and 295,980 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 395,659 of such
shares, and one-third (1/3) of the outstanding shares of Class B Common Stock,
or 98,660 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.
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
Schaenen Fox Capital Management, LLC Common Stock 167,600 3/ 14.1%
200 Park Avenue, Suite 3900
New York, NY
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/ 5,000 5.4%
Class B Common Stock 131,750 1/ 0 44.5%
George Wm. Erikson Common Stock 59,602 2/ 5,000 5.4%
Class B Common Stock 115,814 2/ 0 39.1%
Webb C. Hayes, IV Common Stock 4,500 5,000 0.8%
Paul C. Kincheloe, Jr. Common Stock 7,500 5,000 1.0%
All Directors and Officers
as a Group (5 persons Common Stock 132,302 20,000 12.6%
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, 1999 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>
Robert W. Erikson, Age 53 2/ 3/ 4/ 1974 1/ Class B Common Stock
President 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 56 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 50 4/ 1991 Class B Common Stock
Director and Vice Chairman of United Bank since June 1997; Director
and Executive Vice President of George Mason Bankshares, Inc. and
Chairman, President and CEO of The George Mason Bank, N.A., from
1996 to 1997; 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 57 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, 1998, the Board of Directors of
the Company held five 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, 1998.
PROPOSAL NO. 2 - LIQUIDATION OF THE COMPANY
Mr. James W. Bien, 5669 Kugler Mill Road, Cincinnati, Ohio 45236, owner of
16,000 shares of Common Stock has given notice that he is presenting for action
at the annual meeting the following resolution:
"STOCKHOLDER PROPOSAL
"It is proposed that CERBCO, with the help of an outside investment banker,
liquidate the company and distribute the proceeds to shareholders.
"SUPPORTING STATEMENT
"It appears to me, based on the balance sheet of 6-30-97, plus subsequent income
statements and press releases, that each shareholder should receive $11+ per
share in cash when it is approved by the board of directors. The additional
assets, that is, Insituform East and other miscellaneous holdings can be
liquidated at an opportune time or spun off.
"The book value, as of 6-20-97, is shown as $15.25 a share. Most of this is in
cash.
"The present course has no direction. The company continues to lose money over
the past two years on its Insituform East operation. The investment income on
CERBCO's cash has been eroded by Insituform East operations.
"We will also have the possible advantage with proper tax advice, of receiving
back our money on a capital gains basis. This would mean lower taxes, more than
likely, for shareholders than the present course of paying cash dividends, as
was done in 1997. This was all taxed at ordinary income tax rates.
"My plan of action could result in reducing taxes substantially for many of the
shareholders. I emphasize that we must research this point to see if we would
qualify for capital gains treatment with my plan. I have experienced this
happening with another company I was involved with in the past.
"All of this must be verified by proper financial professionals. If it holds to
be true, then we should proceed with the plan.
"Finally, the vote should be determined by stockholders, that does not include
the Eriksons' (sic) holdings. This was the way the vote was determined when we
sold Capital Copy."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS PROPOSAL
FOR THE FOLLOWING REASONS:
At a regular meeting of the Board of Directors on September 15, 1998 and again
at a special meeting of the Board of Directors on October 2, 1998, the Board of
Directors duly considered the proposal to liquidate the Company and determined
that such a proposal would be contrary to the Company's business strategy, would
not enhance long-term stockholder value, and, as such, would not be in the best
interests of the Company's stockholders.
The Company's present significant cash position results from the sale on June
30, 1997, of its two-thirds stake in Capitol Office Solutions, Inc. ("COS"),
held through the Company's wholly-owned subsidiary CERBERONICS, Inc., pursuant
to the Investment, Redemption and Stock Purchase Agreement dated March 7, 1997.
The proceeds from the sale consisted of approximately $22,000,000 before taxes
and transaction expenses.
When the Company was formed the Board of Directors contemplated a business
strategy that, as a parent holding company, CERBCO would acquire and sell
operating businesses as it appeared advantageous to do so. The investment in
1987 in COS was in keeping with such business strategy, as was the sale of such
investment in 1997.
The Company's stockholders approved the sale of COS at a special meeting of
stockholders on June 27, 1997. In connection with the special meeting, the
Company distributed to its stockholders a proxy statement, dated May 27, 1997,
explaining that the proceeds of the sale would be used for acquisitions of
businesses, technologies and products, in addition to general corporate
purposes. Although the Company did not then have any understandings, commitments
or agreements in respect of such transactions, the Board of Directors has since
that time continued to explore possible acquisitions.
At the time of the sale of COS, stock prices were high and many businesses,
including COS, were selling at high premiums over book value. While these
conditions made the sale of CERBCO's interest in COS attractive, for the same
reasons they did not favor the immediate reinvestment of the sale proceeds in
another business. The Board of Directors believed, however, that future economic
conditions would again present favorable opportunities for cash-based
acquisitions. In light of unfolding economic difficulties worldwide, recent
declines in historic stock indices and indications of the beginning of a
downward phase in the business cycle, the Board of Directors believes an
increased potential for a more favorable environment to effect cash-based
acquisitions is developing and has recently determined to retain an investment
bank or similar professional advisor to enhance the Company's survey and review
of potential acquisitions. The Board of Directors further believes that the
Company's continuing business strategy and present courses of action provide a
better opportunity over the Stockholder Proposal to enhance stockholder value
over the long term.
Finally, the Board of Directors notes that the rights and eligibility of holders
of the Company's stock to vote on stockholder proposals are governed by The
Delaware General Corporation Law and the Company's Certificate of Incorporation.
Accordingly, the Board of Directors believes that, consistent with such laws and
the Company's certificate, all of the holders of each of the shares of the
Company's Common and Class B Common Stock are eligible to vote on Proposal No.
2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS STOCKHOLDER PROPOSAL,
PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE.
EXECUTIVE COMPENSATION
COMPENSATION REPORT BY THE BOARD OF DIRECTORS
GENERAL
CERBCO, Inc. ("CERBCO" or the "Company") is a parent holding company
which, through its wholly-owned subsidiary, CERBERONICS, Inc. ("CERBERONICS"),
holds controlling interests in Insituform East, Incorporated ("Insituform East")
[excavationless sewer and pipeline rehabilitation] and, until June 30, 1997,
Capitol Office Solutions, Inc. [copier and facsimile ("fax") equipment sales,
service and supplies].
The Company does not have a compensation committee. The Corporate
Executive Committee (the "CEC")[NOTE: 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], 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.
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 after June 30, 1997 includes compensation received from
CERBCO, Insituform East and CERBERONICS, 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 SERP") covering
the Company's officers. However, each CERBCO officer additionally has employment
responsibilities and serves as an officer with the Company's subsidiaries and
receives most of their compensation, including base salary, compensation
pursuant to plans and incentive bonuses, from 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 1997, 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, 1997. In
addition, the Board concurred with the decision of the Insituform East Board of
Directors, to increase by 3% effective October 1, 1997 the base salary of its
officers.
(b) Compensation Pursuant to Plans. The officers of CERBCO are eligible
to receive plan compensation through the CERBCO SERP. In addition, the officers
of CERBCO, including members of the CEC, are employees of the Company's
principal operating subsidiary, Insituform East, are eligible to receive plan
compensation through the Insituform East Employee Advantage Plan. Participation
in, and benefits acquired under this plan are on a nondiscretionary formula
basis applicable to all Insituform East employees (see "Compensation Pursuant to
Plans - Insituform East, Incorporated Plans").
Pursuant to the CERBCO SERP, 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
subsidiaries. The other executive covered by the CERBCO SERP will receive a
monthly retirement benefit for life equivalent to 25% of the final aggregate
monthly salary such executive received from the Company and its subsidiaries
(see "Compensation Pursuant to Plans - CERBCO, Inc. Plans").
The terms of the CERBCO SERP 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 SERP as providing important
benefits to the covered executives after their retirement. Further, the Board
believes that the adoption of the CERBCO SERP 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 the Company's principal
operating subsidiary, Insituform East, which does offer incentive cash bonuses.
Insituform East employs an annual return-on-equity ("ROE") incentive cash bonus
which is tied to its earnings. 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. The maximum annual
individual bonus available to any officer 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, 1998, due to negative net earnings,
no incentive cash bonuses were awarded to Insituform East officers. The
Company's Board concurred with the incentive bonus decisions made by Insituform
East for fiscal year 1998.
COMPENSATION OF MEMBERS OF THE CEC
On September 16, 1997, the CERBCO Board approved an increase in base
salary from $11,140 to $11,475 per year, effective October 1, 1997, 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 Insituform East and CERBERONICS 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 $216,607 per year, effective October 1,
1997, from the base salary rate of $210,298 per year. Due to the negative
earnings results obtained by Insituform East for fiscal year 1998, no incentive
cash bonus was earned by either Mr. George Erikson or Mr. Robert Erikson.
At CERBERONICS, the base salary received by Messrs. George Erikson and
Robert Erikson increased to a rate of $90,640 per year, effective October 1,
1997, from the base salary rate of $88,000 per year.
As previously discussed, in approving the compensation package for the
CEC members, the Board considered that Messrs. George Erikson and Robert Erikson
devote a predominate portion of their time and effort directly to the activities
of CERBCO's subsidiaries, and that their work for CERBCO requires a smaller
portion of their time and effort. The Board concurred in the compensation paid
to the members of the CEC by each such subsidiary and believes the components of
the aggregate compensation paid to Messrs. George Erikson and Robert Erikson by
the Company and its subsidiaries provide a compensation package that fairly
reflects the time and effort devoted by such officers to the Company and each of
its subsidiaries.
THE ABOVE COMPENSATION REPORT IS MADE OVER THE NAME OF EACH MEMBER OF THE BOARD
OF DIRECTORS.
Robert W. Erikson George Wm. Erikson Webb C. Hayes, IV Paul C. Kincheloe, Jr.
SUMMARY COMPENSATION
As of July 1, 1997, CERBCO is a parent holding company with a
controlling interest, through its wholly-owned subsidiary, CERBERONICS, in
Insituform East ("IEI"). Prior to June 30, 1997, CERBCO also had a controlling
interest in Capitol Office Solutions, Inc. ("COS"). CERBCO officers also
participate, or participated in the case of COS prior to June 30, 1997, in the
management of one or more of these subsidiaries. The following table sets forth
information concerning the compensation paid to each of the named executive
officers of the Company and its subsidiaries for the fiscal years ended June 30,
1998, 1997 and 1996:
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
----------------------------
Annual Compensation Awards Payouts
------------------------------------------------ ------------------- -------
Name Other Total Restricted
and Annual Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compensation Compensation Awards SARs Payouts Compensation
Position Year ($) ($) ($) 3/ ($) ($) (#) ($) ($) 4/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Erikson 1998 CERBCO $11,480 $0 $0 $11,480 $0 5,000 $0 $0
Director & IEI 215,030 0 0 215,030 0 15,000 0 2,345
President 1/ CERBERONICS 90,339 0 0 90,339 0 0 0 0
-------- -- -- -------- -- ------ -- ------
$316,849 $0 $0 $316,849 $0 20,000 $0 $2,345
======== == == ======== == ====== == ======
1997 CERBCO $11,053 $ 0 $0 $11,053 $0 0 $0 $0
IEI 208,649 0 0 208,649 0 15,000 0 11,247
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
======== ======= == ======== == ====== == ======
George Wm. Erikson 1998 CERBCO $11,480 $0 $0 $11,480 $0 5,000 $0 $0
Director, Chairman IEI 215,030 0 0 215,030 0 15,000 0 4,745
& General Counsel 1/ CERBERONICS 90,339 0 0 90,339 0 0 0 0
-------- -- -- -------- -- ------ -- ------
$316,849 $0 $0 $316,849 $0 20,000 $0 $4,745
======== == == ======== == ====== == ======
1997 CERBCO $11,053 $ 0 $0 $11,053 $0 0 $0 $0
IEI 208,649 0 0 208,649 0 15,000 0 11,613
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
======== ======= == ======== == ====== == =======
Robert F. Hartman 1998 CERBCO $9,207 $0 $0 $9,207 $0 0 $0 $0
Vice President, IEI 91,524 2,000 0 93,524 0 0 0 2,874
Secretary & CERBERONICS 2,273 0 0 2,273 0 0 0 0
Treasurer 2/ -------- ------ -- -------- -- - -- ------
$103,004 $2,000 $0 $105,004 $0 0 $0 $2,874
======== ====== == ======== == = == ======
1997 CERBCO $11,053 $0 0 $11,053 $0 0 $0 $0
IEI 88,808 0 0 88,808 0 0 0 8,010
------- -- -- ------- -- - -- ------
$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
======= ======= == ======== == = == ======
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 51, has been Vice President and Controller of CERBCO
since February 1988, Secretary since June 1991, Treasurer and Chief
Financial Officer since December 1997. 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/ 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.
4/ Insituform East contributions to the IEI Advantage 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
SERP"). 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 SERP 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 SERP 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 SERP to various rules under the Employee
Retirement Income Security Act of 1974, CERBCO has established an irrevocable
trust called the CERBCO, Inc. Supplemental Executive Retirement Trust. 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 SERP at various compensation levels after the
specified years of service:
<TABLE>
Pension Plan Table Where Formula Provides 50% of Compensation 1/
<CAPTION>
(Final) Years of Service (Under Plan)
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<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/
<CAPTION>
(Final) Years of Service (Under Plan)
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 SERP 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, 1998 for the executives listed in the Summary
Compensation Table covered by the CERBCO SERP:
<TABLE>
<CAPTION>
Years of Credited Current Annual Vested Vested
Name Service Under Plan Covered Compensation Percentage Annual Benefit
<S> <C> <C> <C> <C>
Robert W. Erikson 6 $ 276,020 33.33% $ 48,003
George Wm. Erikson 6 $ 276,020 40.00% $ 55,204
Robert F. Hartman 6 $ 99,367 30.00% $ 7,453
</TABLE>
CERBCO 1997 Directors' Stock Option Plan
CERBCO adopted, with stockholder approval at the 1997 Annual Meeting of
Stockholders, the CERBCO, Inc. 1997 Board of Directors' Stock Option Plan (the
"CERBCO 1997 Directors' Plan"). The purpose of the CERBCO 1997 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 125,000 shares of Common Stock may
be made subject to options under the CERBCO 1997 Directors' Plan. Options shall
be granted to all directors of CERBCO pursuant to the terms of the plan. 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 five years
from the date of grant, provided the director has served continually for at
least six months following the date of the grant.
The CERBCO Board of Directors administers the CERBCO 1997 Directors' Plan
and has 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 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 1997
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 plan as
it deems necessary to carry out the purposes thereof.
The terms of the CERBCO 1997 Directors' Plan contemplated that each
director of the Company be granted an option to purchase 5,000 shares of the
Company's Common Stock each year for five years, for a total of 25,000 shares of
Common Stock per director, beginning in fiscal year 1997. On December 19, 1997,
options on a total of 20,000 shares of Common Stock were granted to directors of
the Company (options on 5,000 shares to each of four directors) at a per share
price of $9.40625. No options available under the plan were exercised by
directors of the Company during fiscal year 1998.
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. No contribution was
authorized for the fiscal year ended June 30, 1998.
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. 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. During the fiscal year ended June
30, 1998, Insituform East made the following contributions for the Company's
officers:
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1998 1/ as of 10/22/98
<S> <C> <C>
George Wm. Erikson, Chairman $ 4,745 100%
Robert W. Erikson, President $ 2,345 100%
Robert F. Hartman, Vice
President - Administration & Secretary $ 2,874 100%
Executive Officers of Insituform East as a Group,
(6 persons, including those named above) $19,912
1/ Total contributions to employees of $101,791 include Insituform East's
matching contribution of $48,575 and reallocated amounts totaling $53,216
forfeited by former participants who terminated employment with Insituform
East during fiscal year 1998.
</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 12, 1997, 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 $2.46875. No options available
under this plan were exercised by directors of Insituform East during fiscal
year 1998.
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
1998. Under the terms of this plan, up to 60,000 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 1998 under the IEI 1989 Directors' Plan.
The following table sets forth information concerning options granted to each of
the named executive officers during fiscal year 1998 under the CERBCO 1997
Directors' Plan or 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
CERBCO 1997
<S> <C> <C> <C> <C> <C> <C>
Directors' Plan 5,000 25% $9.40625 12/19/02 $12,994 $28,713
IEI 1994 Directors' Plan 15,000 14% $2.46875 12/12/02 $10,231 $22,608
George Wm. Erikson
CERBCO 1997
Directors' Plan 5,000 25% $9.40625 12/19/02 $12,994 $28,713
IEI 1994 Directors' Plan 15,000 14% $2.46875 12/12/02 $10,231 $22,608
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
No option or Stock Appreciation Right grants made under the CERBCO 1997
Directors' Plan, or the IEI 1989 or 1994 Directors' Plans, to any of the named
executive officers were exercised during fiscal year 1998. The following table
sets forth information concerning option or Stock Appreciation Right grants held
by each of the named executive officers under all plans as of June 30, 1998:
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<CAPTION>
Value of
Number of Unexercised Unexercised in the Money
Shares Options/SARs at FY-End(#) Options/SARs at FY-End($)
Acquired on Value
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
Robert W. Erikson
CERBCO 1997
<S> <C> <C> <C> <C> <C> <C>
Directors' Plan 0 $0 5,000 0 $0 $0
IEI 1994 Directors' Plan 0 $0 60,000 0 $0 $0
IEI 1989 Directors' Plan 0 $0 15,000 0 $0 $0
George Wm. Erikson
CERBCO 1997
Directors' Plan 0 $0 5,000 0 $0 $0
IEI 1994 Directors' Plan 0 $0 60,000 0 $0 $0
IEI 1989 Directors' Plan 0 $0 15,000 0 $0 $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 1998.
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 Executive Retirement Plan to provide annual retirement benefits to
covered executives. See "Compensation Pursuant to Plans - CERBCO, Inc.
Plans" 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
Non-officer directors of the Company are paid an annual fee of $5,000
and an attendance fee of $1,000 for each meeting of the Board of Directors, and
each committee meeting, attended in person. Meetings attended by telephone are
compensated at the rate of $200. 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 1997 Directors' Stock Option Plan,
as described under the section entitled, "Compensation Pursuant to Plans -
CERBCO, Inc. 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, respectively, participated during fiscal year
1998 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. In their capacities as
directors of this subsidiary company, they participated in deliberations of its
Board 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," 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>
06/30/1993 100.000 100.000 4072 100.000 11
07/30/1993 90.323 100.118 4104 97.672 12
08/31/1993 112.903 105.291 4139 103.531 12
09/30/1993 106.452 108.428 4174 102.083 12
10/29/1993 109.677 110.865 4221 110.008 12
11/30/1993 187.097 107.561 4304 104.138 12
12/31/1993 206.452 110.560 4376 94.283 12
01/31/1994 167.742 113.916 4400 101.120 12
02/28/1994 196.774 112.852 4439 106.489 12
03/31/1994 212.903 105.914 4491 105.742 12
04/29/1994 193.548 104.538 4520 104.761 12
05/31/1994 177.419 104.794 4562 104.356 12
06/30/1994 164.516 100.962 4576 100.716 12
07/29/1994 158.064 103.034 4594 97.618 12
08/31/1994 145.161 109.604 4612 100.914 13
09/30/1994 180.645 109.323 4615 100.979 13
10/31/1994 183.871 111.471 4637 103.847 13
11/30/1994 232.258 107.773 4653 97.266 13
12/30/1994 251.613 108.075 4658 101.040 13
01/31/1995 222.581 108.691 4648 108.451 13
02/28/1995 254.839 114.440 4650 111.453 13
03/31/1995 232.258 117.834 4644 106.580 13
04/28/1995 219.355 121.546 4655 109.508 12
05/31/1995 245.161 124.681 4654 115.738 12
06/30/1995 251.613 134.785 4671 116.071 12
07/31/1995 283.871 144.694 4690 114.933 12
08/31/1995 329.032 147.626 4713 125.013 12
09/29/1995 367.742 151.020 4709 123.163 12
10/31/1995 341.935 150.148 4747 118.244 12
11/30/1995 374.193 153.674 4779 114.231 12
12/29/1995 348.387 152.856 4819 121.247 12
01/31/1996 348.387 153.608 4809 113.003 12
02/29/1996 325.806 159.454 4839 115.820 12
03/29/1996 322.581 159.979 4878 126.956 12
04/30/1996 322.581 173.248 4923 156.573 12
05/31/1996 400.000 181.203 4981 187.141 12
06/28/1996 364.017 173.035 5034 166.936 12
07/31/1996 312.015 157.604 5066 162.566 12
08/30/1996 331.515 166.434 5090 168.209 12
09/30/1996 338.016 179.164 5096 189.797 12
10/31/1996 312.014 177.185 5138 218.883 12
11/29/1996 331.515 188.138 5180 215.839 12
12/31/1996 325.015 187.969 5176 230.410 12
01/31/1997 377.018 201.328 5161 258.768 12
02/28/1997 360.767 190.192 5170 245.377 11
03/31/1997 396.518 177.773 5168 272.063 11
04/30/1997 487.523 183.331 5155 263.870 11
05/30/1997 481.835 204.107 5148 275.838 11
06/30/1997 627.000 210.358 5132 290.748 10
07/31/1997 592.409 232.561 5127 341.614 10
08/29/1997 539.917 232.207 5116 423.926 10
09/30/1997 629.903 245.930 5106 459.611 10
10/31/1997 607.407 233.192 5114 472.069 10
11/28/1997 577.411 234.361 5130 391.023 10
12/31/1997 839.871 230.617 5081 400.010 10
01/30/1998 607.407 237.850 5052 363.608 10
02/27/1998 554.915 260.182 5031 408.351 10
03/31/1998 588.660 269.776 4993 475.144 10
04/30/1998 562.414 274.347 4972 516.320 10
05/29/1998 558.664 259.291 4964 502.960 10
06/30/1998 542.767 277.559 4942 423.381 10
</TABLE>
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 and President
(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 October 22, 1998, pursuant to such Board authorizations, the
Company has advanced and expensed in total $600,482 to Mr. George Erikson and
has advanced and expensed in total $600,482 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.
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
is a previously disclosed lawsuit pending in the Superior Court of the District
of Columbia.
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.
As previously reported by the Company, two stockholders commenced a
derivative lawsuit in the Delaware Court of Chancery against the Eriksons in
August, 1990, making certain claims with respect to the Proposed Transaction
(the "Delaware Action"). The Delaware Action finally was concluded on December
3, 1997, when the Delaware Supreme Court issued its order affirming the findings
of the Court of Chancery with respect to (a) the trial court's assessment of
certain damages against the Eriksons on remand from a previous appeal and (b)
the renewed petition of plaintiffs' attorneys for an award of attorneys' fees
and expenses. Those findings by the Court of Chancery had been made on remand
from the same Delaware Supreme Court after a 1996 ruling in which the Supreme
Court affirmed the Court of Chancery's holding that CERBCO had not suffered any
transactional damages with respect to the Proposed Transaction.
In January 1993, a derivative lawsuit against the partners in the law
firm of Rogers & Wells and the Company, arising out of the subject matter of the
Delaware Action, was filed in the Superior Court of the District of Columbia
(the "D.C. Complaint"). Plaintiffs were the same two stockholders who were
plaintiffs in the Delaware litigation, and a former director of the Company, and
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. Plaintiffs also claimed that Rogers & Wells committed
malpractice by allegedly making misrepresentations to the Company's Board and
allegedly failing to properly inform the Company's Board. Plaintiffs claimed
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
sought to recover from Rogers & Wells (i) damages in an amount equal to all fees
paid to Rogers & Wells, (ii) damages in an amount not less than $6,000,000 for
the loss of the opportunity for the Company to sell its control of Insituform
East to ITI, and (iii) punitive damages. Although the D.C. Complaint stated that
it was filed on behalf of the Company, management does not believe that Rogers &
Wells should be sued on any of the claims set forth therein.
Motions to dismiss this case by the Company and Rogers & Wells were
denied, but a stay of 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 of the outcome of the Delaware Action to the Delaware
Supreme Court and, subsequently, the stay was continued at least until such time
as the Delaware Court of Chancery ruled upon plaintiffs' pending motion for
post-remand relief. After the Delaware Supreme Court's most recent ruling on
December 3, 1997, finally affirming the Delaware Court of Chancery with respect
to such post-remand relief and a renewed petition for counsel fees and expenses,
the stay of the District of Columbia action was lifted, and plaintiffs filed an
amended D.C. Complaint. In the amended D.C. Complaint, plaintiffs assert
essentially the same conflicts of interest charges against Rogers & Wells but
shift their focus from the value of the alleged lost opportunity to the
litigation expenses incurred by the Company in the Delaware Action. Plaintiffs
now seek to recover from Rogers & Wells (i) damages in an amount equal to all
fees paid to Rogers & Wells, (ii) damages for more than $2 million in attorneys'
fees and expenses incurred by CERBCO in the Delaware Action and other
unspecified compensatory damages, and (iii) punitive damages. On March 27, 1998,
the Company filed its answer to the amended D.C. Complaint, in which it denied
all liability and asserted certain affirmative defenses. On the same day, it
filed its motion for summary judgment, together with a supporting memorandum of
law, on the grounds of collateral estoppel and res judicata. Rogers & Wells
likewise answered the amended D.C. Complaint, denying liability, and filed a
motion for summary judgment on collateral estoppel grounds. On May 7, 1998, the
Company filed its reply memorandum of points and authorities in support of its
motion for summary judgment. A decision from the D.C. Court is expected later
this year.
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, 1998. 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, 1999. 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, 1999.
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, 1998, 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 1999 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, 1999 must be
received no later than June 30, 1999, 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 9, 1998
<PAGE>
APPENDIX A
TEXT OF COMMON STOCK PROXY CARD
- --------------------------------------------------------------------------------
COMMON STOCK
- --------------------------------------------------------------------------------
CERBCO, Inc.
3421 Pennsy Drive
Landover, Maryland 20785
(301) 773-1784
ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 18, 1998
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 22, 1998, at the Annual Meeting of Stockholders to be held on December
18, 1998 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 - Liquidation of the Company.
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 PROPOSAL 1 AND AGAINST PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
- ------------------------------------------------ Dated:------------------, 1998
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 B
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 18, 1998
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 22, 1998, at the Annual Meeting of Stockholders to be
held on December 18, 1998 or any adjournments thereof.
(TO BE SIGNED ON REVERSE SIDE)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
X Please mark your votes as in this example.
1. Proposal - Election of Directors.
FOR, the nominee WITHHOLD
listed at right (except authority to vote Nominee: R.W. Erikson
as noted to the for the nominee 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 above and print the name(s) of
such nominee(s) on the lines provided below.)
- -------------------------------------------------
- -------------------------------------------------
2. Proposal - Liquidation of the Company.
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 PROPOSAL 1 AND AGAINST PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
- ------------------------------------------------ Dated:------------------, 1998
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.
