<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant [x]
Filed by the Party other than the Registrant [ ]
<TABLE>
<S> <C>
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
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REPUBLIC GROUP INCORPORATED
(Name of Registrant as Specified in its Charter)
------------------------------------
(Name of Person(s) filing Consent Solicitation Statement, if other than
Registrant)
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Payment of Filing fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 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.
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(1) Title of each class of securities to which transaction applies:
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(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:
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(4) Proposed maximum aggregate value of transaction:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
REPUBLIC GROUP INCORPORATED
P.O. BOX 1307
HUTCHINSON, KANSAS 67504-1307
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 24, 1996
The Annual Meeting of Stockholders of Republic Group Incorporated (the
"Company") will be held on the 24th day of October, 1996, at 11:00 a.m.,
Central Daylight Savings Time, at the Hotel Crescent Court, 400 Crescent Court,
Dallas, Texas for the following purposes:
(1) Election of 9 directors to serve on the Board of
Directors of the Company until the next Annual Meeting of Stockholders
and until their respective successors are elected and qualified;
(2) Approval of an amendment to the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation") to
add a "fair price" provision requiring that certain transactions with
interested 15% stockholders of the Company (or certain related
parties) be approved by the vote of the holders of not less than
66-2/3% of the total voting power of all outstanding shares of voting
stock (excluding shares held by such interested stockholders and
certain related parties) unless the transaction is approved by a
majority of the Continuing Directors (as defined in such amendment) or
certain procedural and fair price requirements are satisfied;
(3) Approval of an amendment to the Company's Certificate
of Incorporation to add a requirement that action by stockholders only
be taken at an annual or special meeting of stockholders and not by
written consent;
(4) Approval of an amendment to the Company's Certificate
of Incorporation to add a requirement that adoption, amendment,
alteration or repeal of the Amended and Restated Bylaws of the Company
(the "Bylaws") by the stockholders requires the vote of the holders of
not less than 66-2/3% of the total voting power of all outstanding
shares of voting stock, and, if such action has been proposed by an
interested 15% stockholder (or certain related parties), the
additional vote of the holders of not less than 66-2/3% of the total
voting power of all outstanding shares of voting stock not
beneficially owned by such interested stockholder or such related
parties;
(5) Approval of an amendment to the Company's Certificate
of Incorporation to add a requirement that amendment, alteration or
repeal of the foregoing amendments to the Certificate of Incorporation
that are approved, as well as the amendment to be added by this
proposal, requires the vote of the holders of not less than 66-2/3% of
the total voting power of all outstanding shares of voting stock, and,
if such action has been proposed by an interested 15% stockholder (or
certain related parties), the additional vote of the holders of not
less than 66-2/3% of
<PAGE> 3
the total voting power of all outstanding shares of voting stock not
beneficially owned by such interested stockholder or such related
parties;
(6) Approval of an amendment to the Company's Certificate
of Incorporation to increase the total number of shares of Common
Stock that the Company shall have the authority to issue from
25,000,000 to 35,000,000;
(7) Approval of certain amendments to the Company's 1989
Long-Term Incentive Plan;
(8) Approval of an amendment to the Company's
Non-Employee Director Stock Option Plan; and
(9) Transacting such other business as may properly be
brought before the meeting or any adjournment thereof.
Information regarding the matters to be acted upon at the meeting is
contained in the Proxy Statement attached to this Notice.
Only stockholders of record at the close of business on the 30th day
of August, 1996, will be entitled to notice of or to vote at the meeting or any
adjournment thereof. A complete list of the stockholders entitled to vote at
the meeting will be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours at the offices of Locke
Purnell Rain Harrell, counsel to the Company, 2200 Ross Avenue, Suite 2300,
Dallas, Texas 75243 for a period of 10 days preceding the meeting.
By Order of the Board of Directors
Janey S. Rife
Treasurer and Secretary
Hutchinson, Kansas
September 19, 1996
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<PAGE> 4
REPUBLIC GROUP INCORPORATED
P.O. BOX 1307
HUTCHINSON, KANSAS 67504-1307
SEPTEMBER 19, 1996
PROXY STATEMENT FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER 24, 1996
The accompanying proxy is solicited by the Board of Directors of
Republic Group Incorporated (the "Company") for use at the Annual Meeting of
Stockholders to be held at the Hotel Crescent Court, 400 Crescent Court,
Dallas, Texas, on Thursday, October 24, 1996, at 11:00 a.m., Central Daylight
Savings Time (the "Annual Meeting") and at any adjournment thereof. The
Company will bear the cost of solicitation. Solicitation of proxies may be
made by personal interview, mail, telephone or telegram by directors, officers
and regular employees. The Company also may request banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of common stock, par value
$1.00 per share ("Common Stock"), of the Company held of record by such
persons. The Company will reimburse the forwarding expenses.
All shares represented by a valid proxy will be voted. The giving of
a proxy does not preclude the right to vote in person should the person giving
the proxy so desire. The person giving the proxy has the right to revoke the
same at any time before it has been exercised by giving written notice to that
effect to the Secretary of the Company.
ANNUAL REPORT
The Company's Annual Report to Stockholders, covering the fiscal year
ended June 30, 1996, including audited financial statements is enclosed
herewith, but neither the report nor the financial statements are incorporated
in this proxy statement or are deemed to be a part of the material for the
solicitation of proxies.
OUTSTANDING STOCK
At the close of business on the 30th day of August, 1996, the record
date for determination of stockholders entitled to notice of and to vote at the
Annual Meeting, there were outstanding and entitled to be voted 10,615,064
shares of Common Stock.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock entitled to be voted is necessary to
constitute a quorum at the Annual Meeting. If a quorum is not present or
represented at the Annual Meeting, the
<PAGE> 5
stockholders entitled to vote thereat may adjourn the Annual Meeting from time
to time for a period not to exceed 30 days, without notice, until a quorum is
present or represented.
The number of directors comprising the Company's board is fixed at 9.
Cumulative voting for directors is not permitted. Consequently, the 9 persons
receiving the greatest number of votes at the Annual Meeting will be elected as
the directors of the Company. The approval of each of the proposed Amendments
to the Company's Certificate of Incorporation (Proposals 2 through 6) requires
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. The approval of the amendments to the Company's 1989 Long-Term
Incentive Plan and Non-Employee Director Stock Option Plan (Proposals 7 and 8)
each requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock present or represented by proxy at the
meeting.
Holders of Common Stock will be entitled to 1 vote for each share of
such stock owned of record at the close of business on August 30, 1996, with
respect to each matter submitted to a vote at the Annual Meeting. Abstentions
and broker non-votes are each included in the determination of the number of
shares present at the Annual Meeting for purposes of determining a quorum.
Abstentions and broker non-votes have no effect on the election of directors
except to the extent that they affect the total votes received by any
particular candidate. For Proposals 2 through 6, relating to the proposed
Amendments to the Company's Certificate of Incorporation, abstentions and
broker non-votes will both have the effect of negative votes. For Proposals 7
and 8, relating to the approval of the amendments to the Company's 1989
Long-Term Incentive Plan and Non-Employee Director Stock Option Plan, as well
as other matters requiring approval of a quorum, abstentions will have the
effect of negative votes, but broker non-votes will have no effect since they
are not treated as shares entitled to vote on such matters.
SECURITY OWNERSHIP
The following table sets forth information with respect to the
beneficial ownership of equity securities of the Company as of August 30, 1996,
by (i) each person known to management to be the beneficial owner of more than
5% of any class of the Company's voting securities (ii) each director and each
nominee for election as a director of the Company, (iii) each named executive
officer for which compensation information is provided in this proxy statement
and (iv) all directors and executive officers as a group:
-2-
<PAGE> 6
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial of Beneficial Percent
Title of Class Owner (1) Ownership (2) of Class
---------------- --------- ------------- --------
<S> <C> <C> <C>
Common Stock Todd T. Brown 25,276 *
$1.00 par Geary D. Cribbs 33,903 *
value (3) Stephen L. Gagnon 58,112 *
Larry N. Montague 15,555 *
Bert A. Nelson 12,848 *
Talbot Rain 1,050 *
Gerald L. Ray 270,221(4) 2.52%
Robert F. Sexton 11,500 *
David P. Simpson 132,630(5) 1.24%
Phil Simpson (6) 2,042,685(7)(8) 19.03%
L. L. Wallace 18,177(9) *
David B. Yarbrough 25,897 *
All Directors and Executive
Officers as a Group (16)
persons) 2,704,108 25.19%
</TABLE>
* The percentage of shares beneficially owned is less than 1% of issued
and outstanding shares of Common Stock.
(1) Messrs. Brown, Cribbs and Montague are executive officers of the
Company; Mr. Gagnon is an executive officer and director of the
Company; Mr. Phil Simpson is an executive officer and director of the
Company and beneficial owner of more than 5% of the Company's Common
Stock; and Messrs. Nelson, Rain, Ray, Sexton, David P. Simpson,
Wallace and Yarbrough are directors of the Company. Mr. Montague
resigned from the Company effective August 10, 1996.
(2) Includes shares with respect to which executive officers and directors
have the right to acquire beneficial ownership pursuant to the
exercise of stock options exercisable at, or within 60 days after,
August 30, 1996, as follows: Brown - 6,750, Cribbs - 3,750, Gagnon -
45,900, Montague - 0, Nelson - 10,500, Rain - 0, Ray - 10,500, Sexton
-10,500, Phil Simpson - 7,500, Wallace - 5,000, Yarbrough - 0 and all
Directors and Executive Officers as a Group - 120,185. Also includes
shares in the accounts established under the Company's Employee Stock
Ownership Plan for persons who are salaried employees of the Company,
with respect to which each executive officer named in the Summary
Compensation Table has voting power, as follows: Brown - 13,191,
Cribbs - 17,999, Gagnon - 6,612, Montague - 8,805, Phil Simpson -
82,045, and all Directors & Executive Officers as a Group - 153,066.
Unless otherwise indicated, all other shares are owned directly and
the owner has sole voting and investment power.
(3) A Common Stock Purchase Right ("Purchase Right") is attached to each
outstanding share of the Common Stock entitling the holder to buy 1
share of Common Stock for
-3-
<PAGE> 7
$45 under certain circumstances. A Purchase Right is not exercisable
or transferable apart from the Common Stock until 10 days after a
person (other than certain exempt persons) acquires 15% or more of the
Common Stock or 10 business days after the commencement or
announcement of a tender offer, which, if consummated, would result in
ownership by a person or group of 15% or more of the Common Stock.
Exempt persons include Phil Simpson, his wife, their descendants and
their descendants' spouses, trusts or estates for any of their benefit
and partnerships, corporations or other entities 80%-owned by any of
them. See "Existing Protective Measures -- Rights Plan."
(4) Includes 179,965 shares owned by Gerald L. Ray & Associates, Inc. of
which Mr. Ray is the principal owner, 19,000 shares owned by Gerald L.
Ray IRA R/O DBP, of which Mr. Ray is trustee, and 60,756 shares in the
Gerald L. Ray IRA, of which Mr. Ray is trustee.
(5) Includes 892 shares owned by David P. Simpson's spouse with respect to
which he shares voting and investment power. Also includes 391 shares
of Common Stock received by David P. Simpson upon becoming a general
partner of A. M. Rhyne & Co. Limited.
(6) Phil Simpson's address is P.O. Box 750, Dallas, Texas 75221.
(7) On July 9, 1996, the Simpson Family Trust (the "Trust") of which Phil
Simpson was the Trustee with investment control and the settlor with
power to revoke the Trust, and which owned 1,939,740 shares of Common
Stock, transferred its holdings of Common Stock to A.M. Rhyne & Co.
Limited, a limited partnership of which Phil Simpson is managing
general partner, and his spouse, Lorraine, and their son, David P.
Simpson are general partners. In addition, 8,400 shares of Common
Stock owned by Lorraine Simpson were transferred to A.M. Rhyne & Co.
Limited. Shares beneficially owned by Mr. Simpson includes the
1,953,140 shares owned by A.M. Rhyne & Co. Limited.
(8) Shares beneficially owned by Mr. Simpson includes 391 shares of Common
Stock received by David P. Simpson, a director, upon being a general
partner of A.M. Rhyne & Co. Limited. Mr. Simpson disclaims beneficial
ownership with respect to such shares. Shares beneficially owned by
Mr. Simpson excludes 313,799 shares of Common Stock held by Mr.
Simpson's two daughters, who are not members of Mr. Simpson's
household, and 131,957 shares of Common Stock owned by David P.
Simpson. Mr. Simpson disclaims beneficial ownership of such shares.
Shares beneficially owned by Mr. Simpson also excludes 186,792 shares
owned by other relatives who are not members of Mr. Simpson's
household, as to which he disclaims beneficial ownership.
(9) Includes 6,997 shares owned by Mr. Wallace's spouse with respect to
which he shares voting and investment power.
-4-
<PAGE> 8
ACTION TO BE TAKEN UNDER THE PROXY
All proxies duly signed, dated and returned will be voted as specified
therein, but unless otherwise specified, will be deemed to grant authority to
vote (i) "FOR" the election of the 9 nominees for directors named in this proxy
statement, unless the giver withholds authority to vote for any one or more or
all of such persons (ii) "FOR" adoption of each of Proposals 2 through 8; and
(iii) in the transaction of such other business as may properly come before the
Annual Meeting or any adjournment thereof. As to any other matter or business
which may be brought before the Annual Meeting, a vote may be cast pursuant to
the accompanying proxy in accordance with the judgment of the person or persons
voting the same. Management does not know of any such other matter or
business. Should any nominee named herein for the office of director become
unable or be unwilling to accept nomination for or election to such position,
the persons acting under the proxy will vote for the election in his stead of
such other persons as management may recommend. Management has no reason to
believe that any of the nominees will be unable to serve if elected to office.
ELECTION OF DIRECTORS
The 9 persons named below are management's nominees for election as
directors of the Company to serve until the next Annual Meeting of Stockholders
and until their respective successors are elected and qualified. Each of the
nominees has served as a director of the Company since the date of his first
election or appointment to the Board of Directors of the Company.
<TABLE>
<CAPTION>
Principal Occupation First
During last 5 years Became
and Directorships of a
Name Age Public Companies Director
---- --- ---------------- --------
<S> <C> <C> <C>
Stephen L. Gagnon 43 Executive Vice President since September 1992
1992, Senior Vice President from January 1992
to August 1992 and prior thereto a Vice
President of the Company
Bert A. Nelson(a) 64 Personal Investments; director of Riverside 1990
National Bank
Talbot Rain(a) 76 Locke Purnell Rain Harrell (attorneys) 1967
(retired, of Counsel) (b)
Gerald L. Ray(a) 63 President, Gerald L. Ray & Associates, Inc. 1969
(investment advisor)
</TABLE>
-5-
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
Robert F. Sexton(a) 62 President of Bakery Associates, Inc. (food 1990
industry supplier); director of Ultrak, Inc.
Phil Simpson 61 Chairman of the Board President and Chief 1961
Executive Officer of the Company; past
director of Elcor Corporation
David P. Simpson(c) 35 General Manager Avinger Timber Company 1994
(timberland and related investments in East
Texas) since June 1992. President, Simpson
Publishing Company since 1988. Mayor of the
City of Avinger, Texas since September 1993
L. L. Wallace(a) 82 Retired since January 1980 and prior thereto 1980
Vice President of Packaging Corporation of
America (paper product manufacturer)
David B. Yarbrough(a) 77 Retired since January 1987 and prior thereto 1973
President and major stockholder of Yarbrough
Construction Co., Inc.
</TABLE>
(a) Messrs. Ray (chairman), Nelson, and Rain are members of the Audit
Committee which held 2 meetings during the last fiscal year. The
Audit Committee meets with the independent accounting firm serving as
auditors of the Company to review financial reports, to discuss their
procedures and findings and to hear their recommendations with respect
to financial accounting matters.
Messrs. Yarbrough (chairman), Sexton and Wallace are members of the
Compensation Committee, which held 4 meetings during the last fiscal
year. The Compensation Committee reviews the performance of officers
and employees and makes recommendations to the Board of Directors
concerning officers' salaries, bonuses for officers and employees,
contributions to the Company's Profit Sharing Plan, 401(k) Plan and
Employee Stock Ownership Plan, stock option, stock appreciation right,
restricted stock, and performance unit awards, proposed benefit plans
and other compensation related matters.
(b) The Company was represented by Locke Purnell Rain Harrell, from which
Mr. Rain retired in 1989, with respect to various legal matters during
the fiscal year ended June 30, 1996.
(c) David P. Simpson is the son of the Chairman of the Board, President
and Chief Executive Officer, Phil Simpson.
-6-
<PAGE> 10
The Board of Directors held 9 meetings during the last fiscal year.
Each director attended at least 75% of the aggregate of (i) the total number of
meetings held by the Board and (ii) the total number of meetings held by all
committees of the Board on which he served, during the periods that he served.
The Board does not have a standing nominating committee or any
standing committee performing similar functions.
COMPENSATION OF DIRECTORS
DIRECTORS' FEES
The Company currently has a policy of paying directors who are not
salaried officers of the Company on the following basis: $1,500 per month for
service on the Board of Directors and $2,000 per year for service on each
committee of the Board on which such person served, plus expenses.
DIRECTOR STOCK OPTION PLAN
The Republic Gypsum Company Non-Employee Director Stock Option Plan
(the "Director Plan") was adopted in 1989. Each non-employee member of the
Board of Directors at the time of adoption, was granted an option to purchase
10,500 shares of the Company's Common Stock at an option exercise price of
$5.11 per share, the fair market value of the Company's Common Stock on the
date of grant. Messrs. Nelson and Sexton were granted options to purchase
10,500 shares of the Common Stock at an option exercise price of $3.75 per
share, and David P. Simpson was granted an option to purchase 10,500 shares of
the Common Stock at an option exercise price of $13.875, on the dates of their
respective appointments to the Board. In each case, the exercise price was the
fair market value of the Company's Common Stock on such dates, and the options
become exercisable after the non-employee director has completed 3 calendar
years of service on the Board of Directors, including service prior to the
adoption of the Director Plan. The maximum aggregate number of shares of
Common Stock with respect to which options may be granted pursuant to the
Director Plan as originally adopted was 105,000. As of August 30, 1996,
options to purchase 73,500 shares of Common Stock had been granted.
The options under the Director Plan do not have a fixed term. Each
option will automatically terminate 12 months after the director ceases to be a
director by reason of his death or permanent disability or 6 months after he
ceases to be a director for any other reason. The exercise price will be paid
to the Company in full at the time of exercise in cash or, in whole or in
combination with cash, in shares of Company Common Stock previously issued to
the optionee.
As described more fully below, the Board of Directors of the Company
has unanimously approved, subject to stockholder approval, an amendment to the
Director Plan, that would, if approved, be effective as of August 16, 1996,
replacing the provision for
-7-
<PAGE> 11
one-time grants of options with a provision for annual grants of options to
purchase 2,000 shares of Common Stock to each non-employee member of the Board
of Directors. Such annual option grants would be exercisable at an option
price equal to the fair market value of the Common Stock on the date of such
grant. Subject to stockholder approval, the Director Plan, as amended,
provides for two initial grants of options to purchase 2,000 shares of Common
Stock to each of Messrs. Nelson, Rain, Ray, Sexton, Wallace and Yarbrough, and
David P. Simpson. The first grant, intended to cover service during the year
ending with the 1996 Annual Meeting, would be effective as of August 16, 1996.
The second grant, intended to cover the following year, would be effective on
October 24, 1996.
In addition to the amendment described above, the Board of Directors
of the Company approved additional amendments to the Director Plan that do not
require stockholder approval and, consequently, became effective August 16,
1996. Options under the Director Plan, as amended, will become exercisable in
full 1 year following the date of grant, provided that the non-employee
director serves as a director throughout such 1-year period. As permitted by
Rule 16b-3, the Director Plan was amended to provide for administration by the
Board of Directors as a whole (rather than a committee composed of employee
directors). In addition, the Director Plan was amended, as permitted by Rule
16b-3, to delete the provision setting forth a maximum number of shares of
Common Stock for which options may be granted thereunder, and to permit limited
transferability (to immediate family members) of the options. By resolution of
the Board of Directors adopted on August 5, 1996, 94,500 shares of Common Stock
were reserved for issuance upon the exercise of options granted under the
Director Plan. Consequently, when added together with the remaining 31,500
shares of Common Stock previously reserved for issuance under the Director
Plan, there will be 126,000 shares of Common Stock available for issuance in
connection with options granted under the Director Plan. Finally, the Director
Plan was amended to permit option holders to elect to pay the option exercise
price through the constructive delivery of shares of Common Stock already owned
by the option holder, and to permit option holders to pay the option exercise
price through the Company's withholding of shares of Common Stock otherwise
issuable upon exercise of such option.
The Director Plan contains customary provisions for the adjustment of
options granted or to be granted under the Director Plan, and for the
adjustment of option exercise prices, in the event of stock dividends and
splits, mergers and other such events.
DIRECTOR RETIREMENT COMPENSATION ARRANGEMENT
The Company has adopted an arrangement whereby non-employee directors
of the Company who have served on the Board of Directors for 3 or more years
will be paid a lump sum retirement payment 180 days after their service on the
Board of Directors terminates. The amount of the retirement payment will be
the sum of (i) the amount then being paid annually to non-employee directors
for service on the Board and on each committee on which the retiring director
was serving at the time of his termination, (ii) $500 for each year or part
thereof between 1967 and 1985, inclusive, during which he was a director, and
(iii) $1,000 for each year or part thereof beginning in 1986 and thereafter
during which he was a director. The retirement payment is not payable if the
director is removed or is requested (by resolution of the Board of Directors)
to resign from the Board
-8-
<PAGE> 12
of Directors due to his serious neglect or misconduct in the discharge of his
duties and responsibilities as a director of the Company or his commission of
any criminal act or act of dishonesty (of which the Board of Directors shall be
the sole judge), if the director directly or indirectly competes with the
Company within 1 year after his service on the Board of Directors terminates or
if the director discloses non-public, confidential or proprietary information
about the Company.
EXECUTIVE COMPENSATION
1989 LONG-TERM INCENTIVE PLAN
GENERAL. The Republic Group Incorporated 1989 Long-Term Incentive Plan
(the "1989 Plan") was adopted in 1989. The 1989 Plan authorizes the granting
of incentive stock options and non-qualified stock options to purchase Common
Stock, stock appreciation rights with respect to such stock options, restricted
stock and performance units to key executives and managerial employees of the
Company (approximately 27 persons), including officers and directors of the
Company and its subsidiaries. This summary of the material features of the
1989 Plan describes the terms of the 1989 Plan and the effect of recent
amendments to the 1989 Plan unanimously approved by the Company's Board of
Directors. Certain of such amendments do not require stockholder approval and,
consequently, became effective August 16, 1996. The remaining amendments,
which are described in detail under Proposal 7 and which are being submitted
for stockholder approval would become effective as of August 16, 1996, if
approved.
The 1989 Plan currently authorizes the award of 420,000 shares of
Common Stock to be used for stock options, stock appreciation rights,
restricted stock, and performance unit awards paid in Common Stock. One of the
proposed amendments to the 1989 Plan, which is subject to stockholder approval,
would increase the number of shares of Common Stock reserved for issuance under
the 1989 Plan from 420,000 to 1,150,000 shares. The 1989 Plan also authorizes
the award of 5% of any issuances of Common Stock after the date of adoption
(other than issuances under the 1989 Plan) for awards paid in Common Stock
(other than incentive stock options) under the 1989 Plan. If an award made
under the 1989 Plan expires, terminates or is forfeited, cancelled or settled
in cash, without issuance of shares of Common Stock covered by the award, those
shares will be available for future awards under the 1989 Plan. The 1989 Plan
is unlimited in duration and, unless it is modified or terminated, will remain
in effect as long as any options, restricted stock awards, or performance unit
awards remain outstanding.
ADMINISTRATION. The 1989 Plan is administered by the Board of
Directors of the Company. Subject to the provisions of the 1989 Plan, the
Board of Directors has authority to select employees to receive awards, to
determine the time or times of receipt, to determine the types of awards and
the number of shares covered by the awards, to establish the terms, conditions
and provisions of such awards, to determine the value of performance units, and
to cancel or suspend awards. In making such award determinations, the Board of
Directors may take into account the nature of services rendered by the
employee, his or her present and potential contribution to the Company's
success and such other factors as
-9-
<PAGE> 13
the Board of Directors deems relevant. The Board of Directors is authorized to
interpret the 1989 Plan, to establish, amend, and rescind any rules and
regulations relating to the 1989 Plan, to determine the terms and provisions of
any agreements made pursuant to the 1989 Plan and to make all other
determinations that may be necessary or advisable for the administration of the
1989 Plan. The Board of Directors may delegate its authority under the 1989
Plan to the Compensation Committee.
Each stock option, stock appreciation right, restricted stock award or
performance unit award will be evidenced by an agreement containing such
provisions not inconsistent with the 1989 Plan that the Board of Directors
shall approve. The 1989 Plan has been amended so that in the event of a change
in control, all stock options, stock appreciation rights, and restricted stock
will automatically become fully exercisable and/or vested, and performance
units may be paid out in such manner and amounts as determined by the Board of
Directors. (Prior to such amendment, only stock options that had been
outstanding for at least 6 months became fully vested upon a change in
control.) A change of control is defined to include the acquisition by any
person of 35% or more of the Company's Common Stock; a tender offer not
approved by the Board during which the offeror is or becomes the owner of 35%
or more of the Company's Common Stock, or as a result of which the offeror
could become the owner of 35% or more of the Company's Common Stock unless the
offer is withdrawn by 3 business days prior to its scheduled termination, or a
change in the majority of the Board of Directors as a result of an election
contest.
PARTICIPATION. Key executives and managerial employees of the Company
and its subsidiaries may be selected by the Board of Directors to receive
awards under the 1989 Plan. In the discretion of the Board of Directors, an
eligible employee may be a participant in the stock option, stock appreciation
right, restricted stock award or performance unit award portion of the 1989
Plan or any combination thereof, and more than 1 award may be granted to an
eligible employee. The second proposed amendment that is subject to
stockholder approval would restrict the maximum number of shares of Common
Stock with respect to which options or rights may be granted each calendar year
to each employee to 500,000.
STOCK OPTIONS. A Stock Option is an award that entitles the employee
to purchase shares of Common Stock at a price fixed at the time the option is
awarded. Stock options may be awarded under the 1989 Plan with an exercise
price to be established by the Board of Directors at not less than 50% of the
market value of the Common Stock on the date of the award or, if greater, the
par value of the Common Stock. The 1989 Plan authorizes the award of both
nonqualified stock options ("NQOs") and incentive stock options ("ISOs").
Under the 1989 Plan, an option may be exercised at any time during the exercise
period established by the Board of Directors, except that (i) (except in the
event of a change in control) no option may be exercised prior to the date an
employee completes 6 continuous months of employment with the Company and its
affiliated companies after the award is made; (ii) no NQO may be exercised more
than 3 years after employment with the Company and its affiliated companies
terminates by reason of death or retirement; and (iii) no ISO may be exercised
more than 3 months after employment with the Company and its affiliated
companies terminates by reason of death or retirement, or more than 1 year
after termination by reason of disability. No option may be exercised after
employment with
-10-
<PAGE> 14
the Company and its affiliated companies terminates for any reason other than
the foregoing. The aggregate value (determined at the time of the award) of
the Common Stock with respect to which ISOs are exercisable for the first time
(determined according to the vesting schedule for such ISOs) by any employee
during any calendar year may not exceed $100,000. The term of ISOs cannot
exceed 10 years, and the exercise price for ISOs cannot be less than the market
value of the Common Stock on the date of the grant. The exercise price of
options may be paid in cash, or by any other consideration as the Board of
Directors may permit, including Common Stock. Grants of options do not award
any optionee any rights as a stockholder, and such rights will accrue only as
to shares actually purchased through the exercise of an option. As amended by
the Board of Directors effective August 16, 1996, and pursuant to changes under
Rule 16b-3 of the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
the 1989 Plan permits limited transferability of NQOs, generally restricted to
immediate family members of the employee.
STOCK APPRECIATION RIGHTS. Stock appreciation rights ("SARs") are
awards that may be granted in tandem with NQOs or ISOs and entitle the holder
to receive an amount equal to the difference between the fair market value of a
share of Common Stock at the time of exercise of the SAR and the option price,
subject to the applicable terms and conditions of the tandem options. An SAR
may be exercised at any time when the option to which it relates may be
exercised and will terminate no later than the date on which the right to
exercise the tandem option terminates. The Board of Directors has discretion
to determine whether the exercise of an SAR will be settled in cash, in Common
Stock (valued at its fair market value at the time of exercise), or in a
combination of the two. The exercise of an SAR requires the surrender of the
tandem option, and the exercise of a stock option requires the surrender of any
tandem SAR.
RESTRICTED STOCK. Restricted stock awards are grants of Common Stock
made to employees subject to a required period of employment following the
award (the "Restricted Period") and any other conditions established by the
Board of Directors. An employee will become the holder of shares of restricted
stock free of all restrictions if he or she completes the Restricted Period and
satisfies any other conditions; otherwise, the shares will be forfeited. Under
the 1989 Plan, the Restricted Period may not be less than 1 year nor more than
5 years. The employee will have the right to vote the shares of restricted
stock and, unless the Board of Directors determines otherwise, the right to
receive dividends on the shares. The employee may not sell or otherwise
dispose of restricted stock until the conditions imposed by the Board of
Directors have been satisfied. The Board of Directors may, in its discretion,
substitute cash equal to the fair market value of Common Stock, determined as
of the date of distribution, for some or all Common Stock otherwise required to
be distributed to an employee.
PERFORMANCE UNITS. Performance units are awards granted to employees
who may receive a value for the units at the end of a performance period
established by the Board of Directors if performance measures established by
the Board of Directors at the beginning of the performance period are met.
Under the 1989 Plan, a number of performance units will initially be assigned
by the Board of Directors, and the number of units actually earned will be
contingent on future performance of the Company or the holder's subsidiary,
division or department over the performance period in relation to the
established performance
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<PAGE> 15
measures. Although the performance measures and performance period will be
determined by the Board of Directors at the time of the award of performance
units, they may be subject to such later revision as the Board of Directors
deems appropriate to reflect significant events or changes. The Board of
Directors may state the value of performance units when awarded in Common Stock
or in cash and in either case may pay awards when earned wholly in shares of
Common Stock, wholly in cash, or in a combination of the two. The Board of
Directors may make such performance unit adjustments as it deems appropriate
with respect to an employee whose employment terminates prior to the end of a
performance period.
ADJUSTMENTS. In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend, split, spin-off,
recapitalization, merger, consolidation, combination, exchange of shares or
other similar change, the aggregate number of shares with respect to which
awards may be made under the 1989 Plan, and the terms and the number of shares
of any outstanding option, SAR, performance unit, or restricted stock, may be
equitably adjusted by the Board of Directors in its sole discretion.
AMENDMENT. The 1989 Plan may be suspended, terminated, or amended in
any way by the Board, provided that, in the absence of shareholder approval, no
amendment of the 1989 Plan or action of the Board of Directors may increase the
total number of shares of Common Stock with respect to which awards may be made
under the 1989 Plan (except as discussed in "Adjustments" above). No
amendment, suspension or termination of the 1989 Plan may alter or impair any
option, SAR, share of restricted stock or performance unit previously awarded
under the 1989 Plan without the consent of the holder thereof.
FEDERAL INCOME TAX CONSEQUENCES. Under present federal income tax
laws, awards granted under the 1989 Plan will have the following tax
consequences:
The grant of an NQO, ISO, SAR, restricted stock, or performance unit
award will generally not result in taxable income to the employee at the time
of the grant, and the Company will not be entitled to a deduction at that time.
An employee generally will realize taxable ordinary income, at the
time of exercise of an NQO, in an amount equal to the excess of the fair market
value of the shares acquired over the exercise price for those shares, and the
Company will be entitled to a corresponding deduction.
The exercise of an ISO generally will not result in taxable income to
the employee, nor will the Company be entitled to a deduction at that time.
Generally, if the employee does not dispose of the stock during the applicable
holding period, then, upon disposition of such shares, any amount realized in
excess of the exercise price will be taxed to the employee as capital gain, and
the Company will not be entitled to any deduction for federal income tax
purposes. If the holding period requirements are not met, the employee will
generally realize taxable ordinary income, and a corresponding deduction will
be allowed to the Company, at the time of the disposition of the shares, in an
amount equal to the lesser of (i) the excess of the fair market value of the
shares on the date of exercise over the
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<PAGE> 16
exercise price, or (ii) the excess, if any, of the amount realized upon
disposition of the shares over the exercise price.
Upon exercise of an SAR, the amount of cash or the fair market value
of shares received will be taxable to the employee as ordinary income, and the
Company will be entitled to a corresponding deduction.
The fair market value of restricted stock generally will be taxable to
the employee as ordinary income at the time the restrictions lapse, and the
Company will be entitled to a corresponding deduction. Dividends received by
an employee during the restricted period will be taxable to the employee as
ordinary income and will be deductible by the Company.
The amount of cash or the fair market value of shares received in
payment of performance units will be taxable to the employee as ordinary income
at the time of payment, and the Company will be entitled to a corresponding
deduction.
Any payment, or acceleration of the payment, of awards under the 1989
Plan because of a change in control may cause part or all of the amount paid to
be treated as a "parachute payment" under the Internal Revenue Code, which may
subject the employee to a 20% excise tax and which may not be deductible by the
Company.
All taxable income recognized by an employee under the 1989 Plan is
subject to applicable tax withholding which may be satisfied, with the consent
of the Board of Directors, through the surrender of shares of Common Stock that
the employee already owns, or to which the employee is otherwise entitled under
the 1989 Plan. In addition, under the 1989 Plan, as amended, the Company has
the right to deduct from all amounts paid in cash upon the exercise of a stock
option or SAR or in connection with an award of restricted stock or performance
units under the 1989 Plan any taxes required by law to be withheld with respect
to such cash payments. If an optionee is entitled to receive shares of Common
Stock pursuant to the exercise of a stock option or an SAR or with respect to
an award of performance units pursuant to the 1989 Plan, the Company has the
right to require the optionee to pay to the Company the amount of any taxes
that the Company is required to withhold with respect to such shares, or, in
lieu thereof, to retain, or sell without notice, a sufficient number of such
shares to cover the amount required to be withheld.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation programs are designed to help attract and
retain qualified and motivated executive officers who will provide the
leadership required to achieve the Company's strategic goals. One of those
goals is sustaining long-term value growth for stockholders.
Executive officers of the Company are compensated primarily through
base salaries, annual bonuses and long- term, equity-based incentives.
Compensation derived from the last two categories is directly tied to corporate
performance. It is the Committee's philosophy that a significant percentage of
total executive compensation be provided through performance-based bonuses and
long-term incentives. It is the intention of the Committee
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<PAGE> 17
that executive compensation not exceed the annual deduction limitation imposed
on compensation to certain executive officers by Section 162(m) of the Internal
Revenue Code. Executive compensation by the Company historically has not
approached the $1,000,000 limitation.
Salaries for executive officers are reviewed by the Committee
annually. Increases are based on evaluations of the officers' past and
projected contributions to the Company and changes in competitive pay levels.
It is the Company's policy to target the median salary levels of comparable
companies, after taking into consideration the relative scope of responsibility
and experience of each executive officer. Typically, several sources of
information regarding prevailing salary levels in the paper and gypsum
industries are considered. Peer companies are selected on the basis of
similarities in lines of business and size. Some peer companies, because they
are privately owned, are not included in the industry index shown in the stock
price performance graph that appears later in this proxy statement.
During the fiscal year ended June 30, 1996, the Board of Directors of
the Company approved a one year extension of the Amended and Restated Target
Bonus Plan, which is subject to annual approval and extension by the Board.
Under the plan, executive officers and other key salaried employees may be
eligible for bonuses. Each individual participant's eligibility for a bonus is
based upon actual performance against a budgetary target approved by the Board.
If actual results are 100% of the budgetary target, the participant is entitled
to a standard bonus, which equals a standard bonus percentage preset for that
individual by the Board multiplied by his base salary. If actual results
exceed 80% of the budgetary target, but are less than 100% of the budgetary
target, the participant is entitled to a fraction of his standard bonus. The
numerator of the fraction is the number of percentage points that the
percentage of actual performance to budgetary target exceeds 80% and the
denominator is 20. If actual results exceed 100% of the budgetary target, the
participant is entitled to a bonus equal to his standard bonus multiplied by
the percentage of actual performance to budgetary target, up to a preset
maximum formula bonus. The Committee may recommend and the Board may approve
discretionary increases to bonuses as well as bonuses in excess of the maximum
formula bonus amount, under the plan.
For the fiscal year ended June 30, 1996, the budgetary target for
participants with corporate-wide responsibility was budgeted earnings per share
for the Company. The budgetary targets for other participants were budgeted
divisional or facility operating profits, depending on the scope of the
participant's responsibility. The standard bonus percentages during fiscal
year 1996 ranged from 15% to 50% for executive officers and from 10% to 20% for
other key employees. The maximum formula bonus for each participant was fixed
at 130% of his standard bonus. With respect to fiscal 1996, the committee and
the Board exercised their discretionary authority to increase the bonuses
granted to certain Participants in the plan, including certain executive
officers. In some cases, bonuses were increased in excess of the maximum
formula bonus amount. Such increased bonuses were approved in certain
situations where actual performance exceeded 130% of the budgetary target or
where other accomplishments achieved by the affected participants justified
such approval.
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<PAGE> 18
Under the Company's 1989 Long-Term Incentive Plan, annual grants of
stock options are made to executive officers and other key salaried employees
to retain such persons and to motivate them to sustain and improve long-term
stock market performance. Stock options are granted at the prevailing market
value and have value to the holders only if the Company's stock price
increases. Typically, grants become exercisable in four equal annual
increments. Although no specific targets have been set, the Company encourages
its executives to acquire, through stock options granted over a period of
several years, holdings in the Company that are significant in relation to
their base salaries. The number of options granted to key salaried employees
and to executives at a given level of responsibility are the same, with
executives at higher levels of responsibility receiving larger grants. In
fiscal 1996, the Chief Executive Officer and the Executive Vice President were
granted options to purchase 10,000 shares, each Vice President was granted an
option to purchase 4,000 shares and the Controller was granted an option to
purchase 3,000 shares.
With respect to the fiscal year ended June 30, 1996, Mr. Simpson,
Chief Executive Officer of the Company, was paid a base salary of $245,673 and
a formula bonus of $175,000, or 71% of his base salary. The bonus paid to Mr.
Simpson reflects the level of profitability of the Company during the fiscal
year. Actual earnings per share for fiscal year 1996 ($1.40) were 140% of the
budgetary target approved by the Board of Directors for Mr. Simpson and a new
record for annual earnings per share for the Company. Mr. Simpson's base
salary for the fiscal year included an 11% increase over the previous fiscal
year. The Committee approved this increase, primarily due to the extraordinary
improvements in the Company's operating results from 1992 through 1995. Based
on the information available to it, the Committee also believed that Mr.
Simpson's base salary was consistent with salaries being paid to chief
executive officers of comparable companies. During fiscal year 1996, Mr.
Simpson was granted an option to purchase 10,000 shares of the Company's Common
Stock at $12.00 per share, the closing market price on the date of grant, under
the Company's 1989 Long-Term Incentive Plan.
COMPENSATION COMMITTEE
David B. Yarbrough, Chairman
Robert F. Sexton
L. L. Wallace
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Company's
Board of Directors during the year ended June 30, 1996 (i) was an officer or
employee of the Company or any of its subsidiaries, (ii) was formerly an
officer of the Company or any of its subsidiaries or (iii) had any relationship
requiring disclosure by the Company under any paragraph of Item 404 of
Securities and Exchange Commission Regulation S-K. During the year ended June
30, 1996, there existed no interlocking relationships involving the executive
officers, directors or Compensation Committee members of the Company and the
executive officers, directors or compensation committee members of any other
entity.
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<PAGE> 19
SUMMARY COMPENSATION TABLE
The following table provides a summary of the compensation provided to
the named executive officers of the Company for the three fiscal years ended
June 30, 1996.
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------
Annual Compensation Awards Payouts
--------------------------------------------- ---------------- -------
Other Securities All Other
Name and Annual Restricted Underlying Compensa-
Principal Bonus Compen- Stock Options LTIP tion
Position Year Salary (1) sation(2) Award (3) Payouts (4)
-------- ---- ------ ------- --------- ----- ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Phil Simpson 1996 $245,673 $175,000 $ - $ - 10,000 $ - $ 24,481
Chairman, President 1995 $224,976 $123,750 $ - $ - 10,000 $ - $ 15,183
and Chief Executive 1994 $200,581 $ 96,270 $ - $ - 10,000 $ - $ 23,972
Officer
Stephen L. Gagnon 1996 $137,404 $ 98,000 $ - $ - 10,000 $ - $ 21,701
Executive Vice 1995 $126,521 $ 80,000 $ - $ - 10,000 $ - $ 16,465
President 1994 $123,915 $ 60,000 $ - $ - 58,000 $ - $ 17,699
Todd T. Brown 1996 $113,308 $ 53,420 $ - $ - 4,000 $ - $ 18,973
Vice President 1995 $110,324 $ 30,875 $ - $ - 4,000 $ - $ 14,043
Paperboard Operations 1994 $ 99,248 $ 26,930 $ - $ - 4,000 $ - $ 12,581
Geary D. Cribbs Vice 1996 $ 94,135 $ 47,025 $ - $ - 4,000 $ - $ 18,284
President Gypsum 1995 $ 90,637 $ 58,125 $ - $ - 4,000 $ - $ 13,498
Operations 1994 $ 80,781 $ 50,000 $ - $ - 4,000 $ - $ 10,141
Larry N. Montague(5) 1996 $113,308 $ 44,392 $ - $ - 4,000 $ - $ 15,313
Vice President 1995 $110,308 $ 38,375 $ - $ - 4,000 $ - $ 14,794
Paperboard Sales 1994 $ 98,581 $ 31,669 $ - $ - 4,000 $ - $ 11,997
</TABLE>
(1) Bonuses earned with respect to a fiscal year are shown for that year,
even if they were not paid until after the end of the fiscal year.
(2) In each case, perquisites and other personal benefits were less than
10% of the total of annual salary and bonus reported.
(3) Represents stock covered by stock options granted to the named persons
pursuant to the Company's 1989 Long-Term Incentive Plan. No tandem or
freestanding stock appreciation rights were granted.
(4) During 1996, the components of "All Other Compensation" were as
follows: (a) employer contributions to the Company's Employee Stock
Ownership Plan, Mr. Simpson - $11,116, Mr. Gagnon - $11,131, Mr. Brown
-$10,848, Mr. Cribbs - $11,116 and Mr. Montague - $11,131; (b)
employer contributions to the Company's 401(k) Plan, Mr. Simpson -
$13,365, Mr. Gagnon - $9,690, Mr. Brown - $8,125, Mr.
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<PAGE> 20
Cribbs - $7,168 and Mr. Montague - $4,182; and (c) that portion of
employer payment of premiums for term life insurance for the benefit
of executive officers, Mr. Gagnon - $880.
(5) Mr. Montague resigned from the Company effective August 10, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides a summary of individual grants of stock
options under the Company's 1989 Long-Term Incentive Plan made during the year
ended June 30, 1996 to each of the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation
Individual Grants for Option Term
------------------------------------------------------------------------------------- -------------------------
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise or
Granted Employees in Base Price Expiration
(1) Fiscal Year ($/Sh) Date 5% (3) 10% (4)
------- ----------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Phil Simpson 10,000 (2) 13% $12.00 10-26-00 $33,200 $ 73,300
Stephen L. Gagnon 10,000 (2) 13% $12.00 10-26-00 $33,200 $ 73,300
Todd T. Brown 4,000 (2) 5% $12.00 10-26-00 $13,288 $ 29,320
Geary Cribbs 4,000 (2) 5% $12.00 10-26-00 $13,280 $ 29,320
Larry N. Montague(5) 4,000 (2) 5% $12.00 10-26-00 $13,280 $ 29,320
</TABLE>
(1) No tandem or freestanding stock appreciation rights were granted.
(2) Incentive stock options, which become cumulatively exercisable in
equal annual installments of 25% on the first, second, third and
fourth anniversaries of the grant date.
(3) Based on an assumed stock price of $15.32 per share on October 26,
2000, which date is the expiration date for the options granted during
fiscal year 1996.
(4) Based on an assumed stock price of $19.33 per share on October 26,
2000, which date is the expiration date for the options granted during
fiscal year 1996.
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<PAGE> 21
(5) Mr. Montague resigned from the Company effective August 10, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table provides a summary of exercises of stock options
during the fiscal year ended June 30, 1996 by each of the named executive
officers and the fiscal year-end value of unexercised stock options held by
such persons.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
June 30, 1996 (1) June 30, 1996
--------------------------- -------------------------
Shares
Acquired
on Value Unexer- Unexer-
Name Exercise Realized Exercisable cisable Exercisable cisable
---- -------- -------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Phil Simpson 5,000 $15,313 0 22,500 $ 0 $ 86,250
Stephen L. Gagnon 2,250 $16,594 31,000 52,750 $175,406 $245,656
Todd T. Brown 4,250 $41,094 3,000 9,750 $ 15,500 $ 40,969
Geary D. Cribbs 8,563 $72,122 0 9,750 $ 0 $ 40,969
Larry N. Montague(5) 799 $ 7,766 6,148 9,750 $ 43,213 $ 40,969
</TABLE>
(1) No tandem or freestanding stock appreciation rights were outstanding
at June 30, 1996.
(5) Mr. Montague resigned from the Company effective August 10, 1996.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
None of the executives named in the Summary Compensation Table has an
employment contract with the Company. The Company has established the Key
Employee Continuation Plan (the "Continuation Plan") to encourage the continued
retention and dedication of key employees. Each of the Company's executive
officers is a participant. The Continuation Plan provides for a severance
payment by the Company to a participant in the event of a change in control of
the Company followed by his termination within 1 year thereafter (other than
for cause, disability, death, retirement or voluntary resignation). The
payment will equal the employee's average annual cash compensation for the 5
years (or portions thereof that he was employed by the Company) preceding the
change in control multiplied by 150% in the case of Mr. Simpson and Mr. Gagnon
and 100% in the case of each other executive.
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<PAGE> 22
OTHER EXECUTIVE COMPENSATION MATTERS
During the year ended June 30, 1996, the Company made no performance
unit or other awards to the executives named in the Summary Compensation Table
under any plan or arrangement providing for compensation intended to serve as
incentive for performance to occur over a period longer than one fiscal year,
except the stock options described above, and no such other awards were
outstanding as of June 30, 1996.
The Company does not maintain a defined benefit or actuarial plan in
which its executive officers participate.
During the year ended June 30, 1996 the Company did not adjust or
amend the exercise price of stock options or stock appreciation rights
previously awarded to any of the executives named in the Summary Compensation
Table.
PERFORMANCE GRAPH
The following line graph compares the five-year cumulative total
stockholder return, assuming reinvestment of dividends, on the Company's Common
Stock with the cumulative total return of (i) Standard & Poor's 500 Stock Index
and (ii) the Dow Jones Paper Products Index, for the period from June 30, 1991
through June 30, 1996, assuming an investment of $100 in the Company's Common
Stock and each such index as of June 30, 1991.
[GRAPH SHOWING COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL RETURN]
<TABLE>
<CAPTION>
TABLE SHOWING TABLULAR PRESENTATION OF GRAPH
Cumulative Total Return
--------------------------------------
6/91 6/92 6/93 6/94 6/95 6/96
<S> <C> <C> <C> <C> <C> <C> <C>
REPUBLIC GROUP INC RGC 100 154 226 275 308 450
S & P 500 I500 100 113 129 131 165 208
DOW JONES PAPER PRODUCTS IPAP 100 102 105 106 152 140
</TABLE>
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<PAGE> 23
PROPOSED AMENDMENTS TO
RESTATED CERTIFICATE OF INCORPORATION
GENERAL
In January 1996, the Board of Directors of the Company appointed a
Stockholder Protection Committee to study and evaluate the potential
vulnerability of the Company's stockholders to the threat of unfair or coercive
takeover tactics, to evaluate the range of possible responses to any such
threat, and to recommend to the Board of Directors such measures, if any,
believed by the Stockholder Protection Committee to be a reasonable response to
any such threat. The Stockholder Protection Committee recommended to the Board
of Directors, and the Board of Directors unanimously approved and recommends to
the Company's stockholders for their approval, the amendments to the Company's
Certificate of Incorporation described in Proposals 2 through 5 set forth
below.
Proposals 2 through 5 involve related amendments to the Company's
Certificate of Incorporation designed to assist the Company's stockholders in
obtaining fair and equitable treatment in the event of a takeover of the
Company. These Proposals include (i) the addition of a "fair price" provision
to the Company's Certificate of Incorporation that regulates business
combinations with any person or group beneficially owning 15% or more of the
Company's Common Stock, including a voting requirement of 66-2/3% of the total
voting power of all outstanding voting shares of the Company (excluding shares
held by such 15% stockholder or group of stockholders) for a business
combination, unless the business combination is approved by a majority of the
Company's Continuing Directors (as defined below) or satisfies certain minimum
price and procedural requirements; (ii) the addition to the Certificate of
Incorporation of a provision requiring that stockholder action be taken at
annual or special meetings of stockholders and not by written consent; (iii)
the addition of a 66-2/3% voting requirement (as described below) to amend,
alter or repeal the Company's Bylaws through stockholder action; and (iv) a
66-2/3% voting requirement (as described below) in order to amend, alter or
repeal the proposed amendments to the Certificate of Incorporation that are
adopted, as well as the amendment adopted pursuant to this Proposal.
Proposal 6 relates to an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
25,000,000 to 35,000,000. The purpose of Proposal 6 is to ensure the
availability of Common Stock for possible issuance in the future pursuant to
the Company's Rights Plan dated May 1, 1996 (the "Rights Plan"), in connection
with the Company's employee benefit plans and for other purposes. The Board of
Directors unanimously approved and recommends to the Company's stockholders for
their approval the amendment described in Proposal 6.
Proposals 2 through 6 (the "Amendments") are not in response to any
effort, of which the Company is aware, to accumulate the Company's Common Stock
or to obtain control of the Company. The Board of Directors has observed the
relatively common use of certain coercive takeover tactics in recent years,
including the accumulation of substantial common stock positions as a prelude
to a threatened takeover or corporate restructuring, proxy fights, and partial
tender offers and the related use of "two-tiered" pricing. The Board of
Directors
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<PAGE> 24
believes that the use of these tactics can place undue pressure on a
corporation's board of directors and stockholders to act hastily and on
incomplete information and, therefore, can be highly disruptive to a
corporation as well as result in unfair differences in treatment of
stockholders who act immediately in response to announcement of takeover
activity and those who choose to act later, if at all.
Presently, a high proportion of publicly-traded corporations have in
place stockholder rights plans and other defensive measures designed to reduce
the vulnerability of the corporation to an unsolicited proposal for a takeover
that does not contemplate the acquisition of all outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of the
corporation. While the Board of Directors of the Company recently adopted the
Rights Plan designed to act as a first line of defense against abusive and
coercive takeover tactics and added to the Company's Bylaws an advance notice
requirement for stockholder action and director nominations, the Board does not
believe that these measures and applicable statutory provisions under Delaware
law will necessarily provide adequate protection for minority stockholders
without adoption of the Amendments. While the validity of stockholder rights
plans have generally been upheld by the Delaware courts and the Company's
Rights Plan is typical of rights plans commonly in use, it is possible that a
court could rule the Rights Plan invalid or order the redemption of the rights
thereunder or that the Board of Directors might elect to redeem the rights
under certain circumstances. In those situations, an acquiror could acquire a
majority of the outstanding shares of the Company and then attempt to engage in
actions or transactions that might be detrimental to the interests of minority
stockholders. The Rights Plan, and as discussed below, Delaware statutory
provisions, may not offer adequate protection against stockholders' receiving
inadequate consideration in a second-stage transaction effected by a person who
has gained control of the Company, against stockholders' being coerced into
selling their shares to avoid being left as minority stockholders, or against
changes in the Board of Directors, Certificate of Incorporation or Bylaws being
effected by a person who has acquired a majority of the outstanding shares
without a meeting of all the stockholders being held.
While the Amendments, individually and collectively, particularly when
taken together with the Company's Rights Plan and the advance notice provisions
recently added to the Company's Bylaws, give added protection to the Company's
stockholders, they may also have the effect of making more difficult and
discouraging a merger, tender offer or proxy fight, even if such transaction or
occurrence may be favorable to the interests of some or all of the Company's
stockholders. The Amendments also may delay the assumption of control by a
holder of a large block of the Company's Common Stock and the removal of
incumbent management, even if such removal might be beneficial to some or all
of the stockholders. Furthermore, the Amendments may have the effects of
deterring or could be utilized to frustrate certain types of future takeover
attempts that are not approved by the incumbent Board of Directors, but that
the holders of a majority of the Company's shares of Common Stock may deem to
be in their best interests or in which some or all of the stockholders may
receive a substantial premium over prevailing market prices for their stock.
By having the effect of discouraging takeover attempts, the Amendments also
could have the incidental effect of inhibiting certain changes in management
(some or all of the members of which might be replaced in the course of a
change of control) and also the temporary fluctuations
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in the market price of the Company's Common Stock that often result from actual
or rumored takeover attempts.
The Board of Directors recognizes that a takeover might in some
circumstances be beneficial to some or all of the Company's stockholders but,
nevertheless, believes that the stockholders as a whole will benefit from the
adoption of Proposals 2 through 6. The Board of Directors further believes
that it is preferable to act on the proposed Amendments when they can be
considered carefully rather than during an unsolicited bid for control.
Under Delaware law, each of the proposed Amendments to the Company's
Certificate of Incorporation described in Proposals 2 through 6 requires the
affirmative vote of the holders of a majority of the Company's outstanding
shares of Common Stock entitled to vote at the Annual Meeting. All of the
proposals are permitted by law and are consistent with the rules of the New
York Stock Exchange (the "NYSE") on which the Company's shares of Common Stock
are listed. If stockholders approve any or all of the Amendments, the Company
will file an amendment to the Certificate of Incorporation of the Company that
reflects the amendments which have been approved with the Secretary of State of
the State of Delaware. Each of the Amendments adopted would be expected to
become effective on or about October 25, 1996. Each of the Amendments adopted
by the Company's stockholders will become effective regardless of whether any
of the other Amendments to be acted upon at the meeting is adopted.
The full text of each Amendment for which approval is sought in
Proposals 2 through 6 is set forth in EXHIBIT A to this Proxy Statement, and
the following summaries of such Amendments are qualified in their entirety by
reference to EXHIBIT A. Stockholders are urged to read carefully the following
description and discussion of the proposed Amendments and EXHIBIT A to this
Proxy Statement before voting on the Amendments.
EXISTING PROTECTIVE MEASURES
In addition to the proposed Amendments to the Certificate of
Incorporation, the Company's Rights Plan and existing provisions of the
Company's Certificate of Incorporation, Bylaws and Delaware law may have the
effect of making more difficult and discouraging, to varying degrees and in
various circumstances, an attempt to acquire control of the Company without
approval by the Board of Directors, even if such transaction or occurrence may
be favorable to the interests of some or all of the Company's stockholders.
RIGHTS PLAN
In general, the Rights Plan is designed to deter tender offers and
other takeover bids that employ abusive and coercive tactics or that are
otherwise not in the best interests of stockholders by subjecting the acquiring
person to an unacceptable level of dilution of its stock ownership interest if
such ownership exceeds a certain level (15% in the case of the Company's Rights
Plan). The effect of the Rights Plan is to encourage prospective purchasers to
bring their proposals to the Board of Directors so that those proposals may be
evaluated and, if appropriate, negotiated by the Board of Directors, which must
exercise
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its judgment in this area subject to the fiduciary standards imposed by
Delaware law in such situations. The Board may allow a proposal to proceed by
redeeming the rights.
On April 30, 1996, the Board of Directors of the Company declared a
dividend distribution of one common stock purchase right ( a "Right") for each
outstanding share of Common Stock of the Company. The distribution was paid on
May 16, 1996 to the Stockholders of record at the close of business on such
date. Each Right entitles the holder to purchase from the Company one share of
Common Stock at a price of $45 per share of Common Stock (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement") between the Company
and UMB Bank, N.A., as Rights Agent (the "Rights Agent"). A copy of the Rights
Agreement has been filed with the Securities and Exchange Commission as an
Exhibit to the Company's Form 8-K dated May 21, 1996. A copy is also available
from the Rights Agent.
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (other
than the Company, any wholly-owned subsidiary of the Company, any employee
benefit plan of the Company or any such subsidiary, any entity holding shares
of Common Stock for or pursuant to the terms of any such plan or any Exempt
Person (as described below) (an "Acquiring Person") have acquired beneficial
ownership of 15% or more of the outstanding Common Stock, or (ii) 10 business
days (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person)
following the commencement or announcement of an intention to make a tender or
exchange offer the consummation of which would result in any person becoming an
Acquiring Person (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced, with respect to any of the Common Stock
certificates outstanding as of May 16, 1996, by such Common Stock certificates
with a copy of this Summary of Rights attached thereto. (An Exempt Person
includes any of Phil or Lorraine Simpson, their descendants and their
descendants' spouses, trusts or estates for any of their benefits,
partnerships, corporations or other entities 80%-owned by any of them.)
The Rights are not exercisable until the Distribution Date. Prior to
the Distribution Date, the Rights will be transferred with and only with the
Common Stock. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of shares of Common Stock as of the close of business on the
Distribution Date, and such separate Right Certificates alone will evidence the
Rights. The Rights will expire on May 16, 2006, unless the final Expiration
Date is extended or unless the Rights are earlier redeemed or exchanged by the
Company as described below.
Subject to certain exchange rights that may be exercised by the Board
of Directors, in the event that any person or group of affiliated or associated
persons becomes an Acquiring Person (a "Triggering Event"), each holder of a
Right (other than Rights held by the Acquiring Person (which become void)
thereafter has the right to purchase that number of shares of Common Stock
(valued at fair market value on the date of purchase) equivalent to two times
the Purchase Price. If, upon the occurrence of a Triggering Event, the Company
does not have sufficient Common Stock available under its Certificate of
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<PAGE> 27
Incorporation to issue such shares, the Company would satisfy its obligations,
in whole or in part, through the issuance of fractional shares of Preferred
Stock having the same economic value and voting rights as shares of Common
Stock. In the event that the Company were acquired in a merger or other
business combination transaction, or more than 50% of its consolidated assets
or earning power were sold after a person or group has become an Acquiring
Person, each holder of a Right thereafter would have the right to receive, upon
the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the Acquiring Person having a market value
of two times the exercise price of the Right.
At any time prior to such time as any person or group becomes an
Acquiring Person, the Board of Directors of the Company may redeem the Rights
in whole, but, not in part, at a price of $.01 per Right (the "Redemption
Price"). Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the right to exercise the Rights terminates, and the
holders of the Rights receive the Redemption Price.
At any time after any person or group becomes an Acquiring Person, the
Board of Directors may exchange all or part of the outstanding and exercisable
Rights (other than Rights held by an Acquiring Person), for Common Stock at an
exchange ratio of one share of Common Stock per Right, as may be adjusted from
time to time to reflect any stock split, stock dividend or similar transaction
(the "Exchange Right"). Notwithstanding the above, the Board of Directors may
not exercise the Exchange Right after any person, together with any associate
or affiliate of such person, has become the beneficial owner of 50% or more of
the voting power of the shares of Common Stock. Immediately upon the action of
the Board of Directors ordering the exchange of the Rights, the right to
exercise the Rights terminates and the holders of Rights receive that number of
shares of Common Stock equal to the number of Rights held by such holders
multiplied by the exchange ratio.
Until a Right is exercised, the holder thereof has no rights as a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 prohibits certain "Business Combination" (as defined in
Section 203) transactions between a publicly-held Delaware corporation, such as
the Company, and any "Interested Stockholder" (as defined in Section 203) for a
period of three years after the date the Interested Stockholder became an
Interested Stockholder, unless (a) prior to the Interested Stockholder becoming
an Interested Stockholder, either the proposed Business Combination or the
proposed acquisition of stock which would make such Interested Stockholder an
Interested Stockholder was approved by that corporation's board of directors;
(b) in the same transaction in which the Interested Stockholder becomes an
Interested Stockholder, the Interested Stockholder acquires at least 85% of the
voting stock of that corporation (excluding shares owned by directors who are
also officers and certain shares held in employee stock plans); or (c) the
Interested Stockholder obtains approval of the business combination by the
corporation's board of directors and the holders of 66-2/3% of the
corporation's outstanding voting stock other than any shares of voting stock
held by the Interested Stockholder.
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For purposes of Section 203, an "Interested Stockholder" is any person
that (a) beneficially owns 15% or more of the outstanding voting stock of the
Company or (b) is an affiliate or associate of the Company and at any time
within the preceding three-year period was the beneficial owner of 15% or more
of the outstanding voting stock of the Company, together, in each case, with
the affiliates and associates of such person. Phil Simpson is not an
Interested Stockholder under Section 203 because his shares were owned prior to
the effective date of Section 203 and he has continued to own in excess of 15%
of the outstanding shares since that date.
It should also be noted that Phil Simpson, who currently beneficially
owns 19.3% of the Company's outstanding Common Stock, is both a director and
officer of the Company and, accordingly, his shares would be excluded from the
test in determining whether an Interested Stockholder had acquired 85% of the
voting stock of the Company for purposes of the exclusion from Section 203.
However, there can be no assurance that Mr. Simpson would remain as both a
director and officer, and, if he did not hold both such positions, his
ownership position would be sufficient to prevent an Interested Stockholder
from availing itself of the exclusion relating to acquisition of 85% of the
voting stock of the Company.
The "Business Combination" transactions to which Section 203 applies
include: (a) any merger or consolidation of the Company or any of its
majority-owned subsidiaries with an Interested Stockholder or any other
corporation if the merger or consolidation is caused by the Interested
Stockholder; (b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions), except
proportionately as a stockholder of the Company, to the Interested Stockholder,
of assets of the Company or any of its majority-owned subsidiaries having an
aggregate market value equal to 10% or more of either the aggregate market
value of all the assets of the Company and its subsidiaries or of all the
outstanding stock of the Company; (c) any issuance or transfer of stock of the
Company or any of its majority-owned subsidiaries to the Interested Stockholder
except (i) pursuant to the exercise, exchange or conversion of securities
exercisable for, exchangeable for or convertible into stock of the Company or
any of its majority-owned subsidiaries, which securities were outstanding prior
to the time that the Interested Stockholder became an Interested Stockholder;
(ii) pursuant to a dividend or distribution paid or made, for the exercise,
exchange or conversion of securities exercisable for, exchangeable for or
convertible into stock of the Company or its majority- owned subsidiaries,
which security is distributed pro rata to all holders of a class or series of
stock of such Company subsequent to the time the Interested Stockholder became
an Interested Stockholder; (iii) pursuant to an exchange offer by the Company
to purchase stock made on the same terms to all holders of such stock; or (iv)
any other issuance or transfer of stock by the Company; provided however, that
in no case under (ii) to (iv) above may there be an increase in the Interested
Stockholder's proportionate share of the Company's outstanding capital stock;
(d) any transaction involving the Company or any of its majority-owned
subsidiaries that has the effect of increasing the Interested Stockholder's
percentage ownership interest in the Company's capital stock, except as a
result of immaterial changes due to fractional share adjustments or as a result
of any purchase or redemption of any shares of stock not caused by the
Interested Stockholder; and (e) any loan or other financial benefit provided by
or through the Company or any of its majority-owned subsidiaries to the
Interested Stockholder, except proportionately as a stockholder of such
Company.
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The terms "beneficially own," "affiliate" and "associate" have
substantially the same meanings under Section 203 as under the Fair Price
Amendment, which is discussed in detail below.
As is the case with the Rights Plan, Section 203 encourages persons
interested in acquiring the Company to negotiate in advance with the Board of
Directors because the special stockholder voting requirement imposed by Section
203 can be avoided if such person, prior to acquiring 15% of the Company's
voting stock, obtains the approval of the Board of Directors for such stock
acquisition or for the proposed business combination transaction. In addition,
Section 203 assists in preventing certain of the potential inequities inherent
in "two-tier" business combination transactions. Under Section 203, any
merger, consolidation or similar transaction following a partial tender offer
that has not been approved by a majority of the Board of Directors requires
approval by the holders of at least 66-2/3% of the remaining shares of stock
(unless the acquiror obtains 85% or more of the Company's voting stock (other
than excepted shares as discussed above) in such partial tender offer).
Furthermore, Section 203 tends to discourage the accumulation of large blocks
of stock by third parties, which the Board believes can be disruptive to the
stability of the Company's relationships with its employees, customers and
major lenders, because the acquiror would run the risk of being required to
wait three years to eliminate the Company's remaining public stockholders if it
could not obtain the special two-thirds stockholder vote.
PREFERRED STOCK
The Company's Certificate of Incorporation has since 1978 authorized
the Board of Directors to issue shares of Preferred Stock having such rights,
preferences and privileges as designated by the Board of Directors without
stockholder approval. There are currently 487,410 authorized but unissued
shares of Preferred Stock. Such authorized and unissued Preferred Stock could
be used by the Board of Directors for defensive purposes, including the
issuance of shares having special privileges or rights to third parties, which
may have the effect of delaying or discouraging an attempt to acquire control
of the Company. The Company has filed a certificate of designation that
designates 94,500 of such shares of Preferred Stock for issuance under the
Company's Rights Plan in the event that upon the occurrence of a Triggering
Event (as defined above under the caption "Rights Plan"), the Company has
insufficient shares of Common Stock available to satisfy its obligations under
the Rights Plan.
STOCKHOLDER NOTICE PROVISIONS
In connection with the Board of Directors' approval and submission to
the stockholders of the stockholder meeting provisions described in Proposal 3
below , the Board of Directors amended the Company's Bylaws to require no less
than 60 and no more than 120 days' advance notice to the Company (referred to
herein as the "Notice" provisions) with respect to the nomination, other than
by or at the direction of the Board or by any nominating committee or person
appointed by the Board, of candidates for election as directors. The Notice
provisions also require similar advance notice with respect to actions proposed
by a stockholder of the Company to be effected at an annual or special meeting
of stockholders. These Notice provisions were unanimously approved by the
Board of
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<PAGE> 30
Directors of the Company and are contained in the Company's Bylaws. Such
provisions do not require stockholder approval and, consequently, are presently
in effect.
The Notice provisions require that stockholders proposing to nominate
one or more persons for election as directors or proposing other stockholder
actions at a stockholder meeting (whether annual or special) provide the
Company with advance written notice at least 60 and no more than 120 days prior
to the scheduled stockholder meeting. The written notice must contain certain
information regarding (a) the stockholder, including the stockholder's name and
address as well as the class and number of shares of capital stock of the
Company that are beneficially owned by the stockholder; (b) if applicable, the
director nominee, including the name, age, business and residence address of
the director nominee, the principal occupation or employment of the director
nominee and the class and number of shares of capital stock of the Company that
are beneficially owned by the nominee; (c) if applicable, the stockholder
proposal, including a reasonably detailed description of the business desired
to be brought before the meeting and the reasons for conducting such business
at the meeting; and (d) such other information relating to the stockholder, the
director nominee and/or the proposed business to be brought before the meeting
that would be required in a proxy statement filed under the proxy rules of the
Securities and Exchange Commission.
Because the Notice provisions require a bidder to provide advance
notice of measures intended to further a hostile takeover attempt, the bidder
may lose an element of surprise with respect to such measures. Consequently,
the Board of Directors would have a greater opportunity to devise and employ
methods to respond to such an attempt, should it determine that the bid is not
in the best interest of the Company and its stockholders. Therefore, the
notice provisions could have the effect of tending to make more difficult or
discouraging persons from initiating hostile takeover attempts against the
Company.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has since July 1, 1979 maintained an Employee Stock
Ownership Plan (the "ESOP") for salaried employees under which contributions
are made by the Company and its subsidiaries in the amounts determined annually
by the Board of Directors and the boards of directors of its subsidiaries. The
purpose of the ESOP is to attract and retain qualified personnel and motivate
such personnel to achieve long-range goals. At August 30, 1996, approximately
160 salaried employees participated in the ESOP, and the ESOP held
approximately 3.6% of the Company's outstanding Common Stock. The ESOP trustee
is Texas Commerce Bank, N.A. (the "Trustee").
Company contributions under the ESOP may be made in cash, shares of
Common Stock or other property. Company contributions are allocated among the
participants' "Company Stock Accounts" based upon their compensation. All
contributions are invested in Common Stock of the Company.
Although the Company is not aware of any plans to do so, the Company's
ESOP could become highly leveraged because it is permitted to borrow up to 100%
of the cost of acquiring the Company's securities. Currently, there is no
outstanding ESOP debt. The
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ESOP could borrow such funds directly from a lender, usually with the Company
guaranteeing the loan, or the Company could borrow the funds from a lender and,
in turn, loan the funds to the ESOP. The Company is permitted to make annual
tax-deductible contributions to the ESOP, which are used by the ESOP to repay
the loan, up to a maximum amount of 25% of the compensation of the ESOP
participants, plus all interest due on the ESOP loan. Dividends paid on Common
Stock also may be used to repay the loan.
Loan proceeds could be used by the ESOP to acquire a large block of
Common Stock that would be held by the ESOP and allocated to participants'
Company Stock Accounts during the period in which the loan is repaid. The
Trustee of the ESOP has voting power over unallocated shares of Common Stock.
Shares of Common Stock could be purchased in the open market or directly from
the Company. Newly issued shares would dilute the voting and economic rights
of the Company's other stockholders. In addition, subject to fiduciary
considerations applicable to the ESOP, shares held by the ESOP might be voted
in favor of management or against a proposal sponsored by a person seeking to
take control of the Company or might not be tendered pursuant to a hostile
tender offer in the event of a hostile takeover attempt of the Company. Thus,
under certain circumstances, the ESOP has the potential effect of making more
difficult or deterring a third party attempt to acquire control of the Company.
PROPOSAL NUMBER 2
FAIR PRICE AMENDMENT
Proposal 2 of the Amendments provides for the addition to the
Company's Restated Certificate of Incorporation of a "fair price" provision
(the "Fair Price Amendment"). The Fair Price Amendment would require the
satisfaction of certain minimum price and procedural requirements by any party
who, together with its Affiliates or Associates (as defined below), acquires
more than 15% of the Company's Common Stock, (as further defined below, an
"Interested Stockholder"), and then seeks to effectuate a merger or other
business combination or other transaction that would eliminate or could
significantly change the interests of the remaining stockholders, unless such
business combination or other transaction were approved by a majority of the
Company's Continuing Directors (as defined below) or by the vote of the holders
of not less than 66-2/3% of the total voting power of the outstanding shares of
the Company (excluding shares owned by such Interested Stockholder and any of
its Affiliates or Associates).
The Board of Directors has observed that it has become relatively
common in corporate takeover transactions for a third party to pay cash to
acquire a substantial or controlling equity interest in a corporation and then
offer to purchase the remaining equity interest from the balance of the
stockholders at a price per share that is lower than the price paid to acquire
the controlling interest and/or is in a less desirable form of consideration,
such as securities of the acquiring party that do not have an established
trading market at the time of issuance.
In these two-tier acquisitions, arbitrageurs and professional
investors may be in a better position to take advantage of a more lucrative
first-step offer to purchase their shares
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than many long-term stockholders, who may have to accept a lower price in the
second step. Moreover, in two-tier transactions, even stockholders who tender
their shares in response to a higher first-step cash tender offer may not be
assured that all of their shares will be accepted, because such offers often
include proration provisions limiting the number of shares that the acquiring
party is obligated to accept at the higher price. Consequently, many
stockholders may receive only the average price per share offered by the
acquiring party for all of the shares of the corporation. In addition, while
federal securities laws and regulations applicable to business combinations
govern the disclosure required in a tender offer transaction, such laws do not
assure stockholders that the terms of the business combination will be fair
from a financial point of view. Furthermore, such laws do not assure that
minority stockholders effectively can prevent the consummation of a business
combination that is opposed by the corporation's board of directors.
The Board of Directors generally believes that such two-tier pricing
tactics would be unfair to the Company's stockholders. Such coercive tactics
often, by design, cause stockholders to act promptly out of fear of being
forced to accept a lower price for all of their shares, or being relegated to
the status of a minority stockholder in a controlled corporation. Being in a
minority position following a successful tender offer likely would
substantially reduce the market value of a stockholder's investment. A
minority stockholder also may be subject to actions the acquiror may take with
respect to the Company to pay off the cost of the tender offer, such as sales
of assets or abandonment of capital spending programs. Thus, such two-tier
tactics may pressure stockholders into selling as many of their shares as
possible either to the acquiring party or in the open market without having the
opportunity to make a considered investment choice between remaining a
stockholder of the Company or liquidating their investment. Moreover, the sale
of such shares might facilitate an acquiring party's acquisition of a
controlling interest, at which point the acquiring party may be able to force
the exchange of the remaining shares in a business combination for a lower
price.
Merely by being launched, a tender offer also could put the Company
"in play," so that a large amount of its stock ownership may find its way into
the hands of arbitrageurs and others whose outlook is solely toward short-term
gain. If the stockholder base does not perceive that the Company has
sufficient defensive measures to enable the Company to remain independent, to
sell to a competing bidder at a higher price or successfully negotiate a better
price with the existing bidder or to ensure that remaining minority
stockholders will receive an adequate price in a second-step transaction, such
stockholders may be induced to sell to arbitrageurs in market transactions in
order to lock in most of the then current tender offer price in case the bidder
decides to withdraw the offer. The stockholders thus may be deprived of a
potentially higher price from another bidder. Furthermore, if the Company is
unable to remain independent, it will not be able to pursue its long-term
strategy, and stockholders would be deprived of the opportunity to increase
their investment as a result of the Company's execution of its strategic plans.
The Fair Price Amendment, the Rights Plan, Delaware Section 203 and the other
measures in place or proposed in the Amendments, are designed to comprise a
package of measures that stockholders will regard as affording them adequate
protection against unfair and abusive takeover measures and, thus, reduce or
eliminate the high pressure to sell generated by takeover bids.
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<PAGE> 33
The Fair Price Amendment is designed to assure minority stockholders
that they will receive a fair price for their shares in a second step if a
transaction utilizing two-tier pricing or similar inequitable tactics is
attempted by a person seeking to take over the Company. The Amendment,
however, is not designed to prevent or deter all tender offers for shares of
the Company. The Amendment should not significantly affect an offer for all
shares of the Company's Common Stock at the same price or preclude offers at
different prices. Nor does the Amendment preclude an acquiring party from
making a tender offer for some of the Company's shares without subsequently
proposing a business combination. Except for the restrictions on second-step
business combinations, the Fair Price Amendment will not prevent a holder of a
controlling interest in the Company's Common Stock from exercising control over
or increasing its interest in the Company.
While the Fair Price Amendment is designed to help assure fair
treatment of all stockholders in the event of a takeover attempt, the Board of
Directors does not believe that the adoption of the Fair Price Amendment would
preclude the Board from opposing any future takeover proposal that it believes
not to be in the best interests of the Company and its stockholders, whether or
not such a proposal satisfies the minimum price criteria and procedural
requirements of the Amendments.
Prior to voting on this Proposal, stockholders should read carefully
the following description of the proposed Fair Price Amendment, its purpose and
effects, and EXHIBIT A hereto, Article THIRTEENTH of which sets forth the full
text of the Fair Price Amendment.
DESCRIPTION OF FAIR PRICE AMENDMENT
SPECIAL VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. Under
current Delaware law, most business combinations as well as a reclassification
of securities, a recapitalization of the Company involving amendments to the
Certificate of Incorporation or a plan for the dissolution of the Company,
generally require approval by a majority of the Company's Board of Directors
and the holders of a majority of the outstanding shares entitled to vote
thereon. Section 203 of the Delaware General Corporation law, however, as
discussed above in more detail, generally requires approval by holders of
66-2/3% of the Company's outstanding voting stock (other than shares held by an
Interested Stockholder (as defined in Section 203) and its Affiliates and
Associates), for various Business Combinations (as defined in Section 203)
between the Company and an Interested Stockholder unless certain other
requirements are met, such as prior approval of the business combination by the
Company's Board of Directors. Under the rules of the NYSE, an acquisition
transaction between the Company and an affiliate of the Company or the issuance
of Common Stock of the Company representing in the aggregate up to 20% or more
of (i) the voting power outstanding or (ii) the number of shares of Common
Stock outstanding at the time of such issuance requires approval by the holders
of a majority of the shares voting thereon. Under the NYSE rules, other
transactions generally do not require stockholder approval.
If adopted, the Fair Price Amendment would require the affirmative
vote of the holders of at least 66-2/3% of the voting power of all outstanding
shares of the Company's voting stock (excluding shares owned by the Interested
Stockholder and its Affiliates and
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Associates) to approve any Business Combination (as such term is defined in the
Fair Price Amendment) unless the Interested Stockholder (i) satisfied certain
minimum price criteria and procedural requirements or (ii) obtained approval of
the transaction by a majority of the Continuing Directors. If the price
criteria and procedural requirements were met or the requisite approval of the
Company's Board were obtained with respect to a particular Business
Combination, the normal requirements of Delaware law would apply. Thus,
depending upon the circumstances, the Business Combination may require the
foregoing disinterested 66-2/3% stockholder vote pursuant to the Fair Price
Amendment, the foregoing disinterested 66-2/3% vote pursuant to Section 203, or
a majority vote or no vote pursuant to other provisions of Delaware law or the
rules of the NYSE.
At August 30, 1996, Phil Simpson beneficially owned 19.3% of the
Company's Common Stock. If another person through a tender offer or otherwise
acquired 51% of the outstanding Common Stock of the Company and attempted to
effect a Business Combination and Mr. Simpson had retained all such shares,
then Mr. Simpson would beneficially own 39.4% of the shares not held by the
acquiring person (19.3% / 49%) and would be in position to block such a
second-step transaction unless the acquiring person paid the required minimum
price and observed the required procedural safeguards or unless the Continuing
Directors approved the Business Combination as discussed below. Mr. Simpson
would have essentially the same power under the terms of the voting provision
of Section 203.
DEFINITION OF KEY TERMS. "Interested Stockholder" is defined in the
Fair Price Amendment as any person (other than the Company or any Subsidiary,
which for purposes of the definition of "Interested Stockholder," means a
company of which a majority of any class of equity security is owned directly
or indirectly by the Company), who together with its Affiliates or Associates
(i) is the beneficial owner, directly or indirectly, of fifteen percent (15%)
or more of the total voting power of the outstanding capital stock of the
Company with respect to the election of directors of the Company; or (ii) is an
Affiliate or Associate (as defined in the Fair Price Amendment) of the Company
or any Subsidiary and who, at any time within the two-year period immediately
prior to the date in question, was the beneficial owner, directly or
indirectly, of fifteen percent (15%) or more of the total voting power of the
outstanding capital stock of the Company with respect to the election of
directors of the Company; or (iii) is an assignee of or has otherwise succeeded
to any shares of capital stock that were at any time within the two-year period
immediately prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession occurred in the course of a
transaction or series of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended. At present, Phil
Simpson, the Company's President and Chairman of the Board is an Interested
Stockholder for purpose of the Fair Price Amendment. Other than Mr. Simpson
the Company is not aware of the existence of any stockholder or group of
stockholders that would be an Interested Stockholder.
A person is deemed a "beneficial owner" of any capital stock of the
Company (i) that such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly, within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as in effect on September 1, 1996;
(ii) that such person or any of its Affiliates or Associates has (a) the
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right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding (excluding shares held by such Affiliate or
Associate solely by reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public solicitation of proxies for such
meeting, and with respect to which shares neither such person nor any such
Affiliate or Associate is otherwise deemed to beneficially own); or (iii) that
are beneficially owned, directly or indirectly, within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as in effect on September 1,
1996, by any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (other than solely by reason of a revocable proxy as
described above) or disposing of any shares of capital stock; provided,
however, that in the case of any employee stock ownership or similar plan of
the Company or of any Subsidiary in which the beneficiaries thereof possess the
right to vote any shares of capital stock held by such plan, no such plan nor
any trustee with respect thereto (nor any Affiliate or Associate of such
trustee), solely by reason of such capacity of such trustee, shall be deemed
for any purposes hereof, to beneficially own any shares of capital stock held
under any such plan.
An "Affiliate" of a specified person is a person that directly, or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, the person specified. The term "Associate"
used to indicate a relationship with any person, means (a) any company (other
than the Company or any Subsidiary) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities, (b) any trust or other estate
in which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity, and (c) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a director or officer of the Company or of
any parent or Subsidiary of the Company.
A "Business Combination" includes the following transactions:
(i) any merger or consolidation of the Company or any Subsidiary
(which for purposes of the definition of "Business
Combination" means any company of which a majority of any
class of equity security is beneficially owned by the Company)
with or into any Interested Stockholder or any other company
(whether or not itself an Interested Stockholder) which is, or
after such merger or consolidation would be, an Affiliate or
Associate of an Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder of any
assets of the Company or any Subsidiary having an aggregate
Fair Market Value in excess of $1,000,000 or more;
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(iii) the issuance or transfer by the Company or any Subsidiary (in
one transaction or a series of transactions) of any securities
of the Company or any Subsidiary to any Interested Stockholder
or any Affiliate or Associate or any Interested Stockholder in
exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of
$1 million or more;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Company, or any
merger or consolidation of the Company with any Subsidiary of
the Company, or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder) that has
the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Company or any
Subsidiary that is beneficially owned by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder.
Notwithstanding any of the foregoing, the term Business Combination does not
include any transaction between the Company or any Subsidiary and another
company fifty percent (50%) or more of the voting stock of which is owned by
the Company or any Subsidiary and none of which is owned by an Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder if each
holder of common stock of the Company or any Subsidiary receives the same type
of consideration in proportion to his holdings.
A "Continuing Director" is any member of the Board of Directors who is
unaffiliated with the Interested Stockholder, and was either a member of the
Board on the effective date of the Amendments or prior to the time that the
Interested Stockholder in question became an Interested Stockholder, and any
director who is thereafter chosen to fill any vacancy on the Board of Directors
or who is elected and who, in either event, is unaffiliated with the Interested
Stockholder and in connection with his or her initial assumption of office is
recommended for appointment or election by a majority of Continuing Directors.
The term "Fair Market Value" means (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for NYSE-listed
stock, or if such stock is not quoted on the Composite Tape on the NYSE or, if
such stock is not listed on such exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934, as
amended, on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation during the 30-day period
immediately preceding the date in question in the over-the-counter market, as
reported by the Nasdaq National Market or such other system then in use, or, if
no such quotations are available, the fair market value on the date in question
as determined in good faith by a majority of the Continuing Directors and (ii)
in the case of property other than cash or stock, the fair
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market value of such property on the date in question as determined in good
faith by a majority of the Continuing Directors.
EXCEPTIONS TO SPECIAL VOTE REQUIREMENTS. The special stockholder vote
described above would not be required (1) if the transaction has been approved
by a majority of the Continuing Directors provided that there are at least
three Continuing Directors; or (2) if all of the minimum price criteria and
procedural requirements described in paragraphs (a) and (b) below are
satisfied.
(A) MINIMUM PRICE CRITERIA. In general, in a Business Combination
involving cash or other consideration being paid to holders of outstanding
Common Stock, the Fair Market Value of such consideration as of the date of the
consummation of the Business Combination (the "Consummation Date") would be
required to meet certain minimum price criteria described below.
In the case of payments to holders of the Company's Common Stock, the
aggregate amount of the cash and the Fair Market Value as of the Consummation
Date of consideration other than cash per share to be received by such holders
would have to be at least equal to the highest of:
(i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder or any of its Affiliates or Associates for any
shares of Common Stock acquired by it or them;
(ii) the higher of: (I) the highest Fair Market Value per
share of Common Stock during the three- month period ending on the day
after the date of the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (II) (if applicable)
the Fair Market Value per share of Common Stock on the date on which
the Interested Stockholder became an Interested Stockholder (the
"Determination Date"), provided that the Determination Date is not
more than two years prior to the Announcement Date;
(iii) (if applicable) the price per share equal to the Fair
Market Value during the period specified in clause (I) of paragraph
(ii) above, multiplied by the ratio of (I) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder or any of its
Affiliates or Associates for any shares of Common Stock acquired by it
or them within the two-year period immediately prior to the
Announcement Date to (II) the Fair Market Value per share of Common
Stock on the first day in such two-year period on which the Interested
Stockholder or any of its Affiliates or Associates acquired any shares
of Common Stock; and
(iv) the earnings per share of Common Stock for the four
full consecutive fiscal quarters immediately preceding the record date
for determining the holders of record of Common Stock entitled to vote
on the Business Combination (or if no such record date is set, then
the Announcement Date), multiplied by the then price/earnings multiple
(if any) of such Interested Stockholder as customarily
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computed and reported in the financial community; provided, however
that if the common stock of the Interested Stockholder is not at such
time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Securities Exchange
Act of 1934, as amended (or an comparable provision of any superseding
statute), and such Interested Stockholder is a direct or indirect
subsidiary of another person the common stock of which is and has been
so registered, the price/earnings shall be that of such other person.
The following example (which uses hypothetical amounts) illustrates
the operation of the minimum price mechanism with respect to a Business
Combination with an Interested Stockholder acting alone where (i) the
Interested Stockholder acquired in the open market, during the two-year period
prior to the Announcement Date, 4.9% of the outstanding Common Stock, with the
first purchase at $15 per share and with its highest price equal to $17 per
share, (ii) the Interested Stockholder became an Interested Stockholder by
purchasing 45.2% of the outstanding Common Stock in a cash tender offer at $20
per share, (iii) the Interested Stockholder than announced a proposed Business
Combination with a value of $16 per share at a time when the Common Stock had,
during the preceding three months, been trading at $16, the earnings of the
Company were $2 per share and the price/earnings ratio of the Interested
Stockholder was 12 to 1.
THE PER SHARE PRICES USED IN THIS EXAMPLE WERE SELECTED FOR
ILLUSTRATIVE PURPOSES ONLY AND ARE NOT INTENDED, AND SHOULD NOT BE TREATED, AS
ESTIMATES OF FUTURE PRICES OF THE COMPANY'S COMMON STOCK. SUCH PRICES WILL BE
DETERMINED IN THE MARKETPLACE AND CANNOT BE PREDICTED.
Under the Fair Price Amendment, the price required to be paid to the
stockholders other than the Interested Stockholder would be equal to the
highest of the following prices:
(i) the highest per share price paid by the Interested
Stockholder or any of its Affiliates or Associates for any shares of
Common Stock acquired by it or them: $20.
(This provision is intended to allow remaining
stockholders to receive the maximum price paid by the
Interested Stockholder in acquiring its shares.)
(ii) the Fair Market Value during the three month period
ending on the day after the Announcement Date ($16) or on the
Determination Date ($20) whichever is higher: $20.
(This provision is intended to allow the remaining
stockholders to receive a price equal to the market
price of the stock on the date the Interested
Stockholder first acquired at least a 15% interest or,
if higher, the market price during the period shortly
preceding the Announcement Date in order to offer
protection in a situation where the market price of the
Common Stock increased due to the Company's performance
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after the tender offer but then declined as a result of
the announcement of the Business Combination.
(iii) the Fair Market Value on the Announcement Date ($16)
multiplied by the ratio of the highest per share price for any shares
of Common Stock acquired within the two-year period immediately prior
to the Announcement Date ($20) to the Fair Market Value per share on
the first day in such two-year period on which the Interested
Stockholder acquired any shares of Common Stock ($15): $21.33.
(This provision is designed to simulate and provide to
the remaining stockholders, a percentage control
premium similar to that paid by the Interested
Stockholder in acquiring its shares as applied to the
current market price. This is intended to give the
remaining stockholders protection in a situation where
time has elapsed between the accumulation of the bulk
of the Interested Stockholder's shares and the proposed
Business Combination during which period the Company's
performance has increased and such increased
performance has been recognized in its current stock
price. Without this provision, the control premium
might be subsumed in the general increase in market
price. For example, if the stock were trading at $21
per share at the time the Business Combination was
announced, this element of the fair price provision
would result in a price of $28.)
(iv) the earnings per share of Common Stock for the four
full consecutive fiscal quarters immediately preceding the record date
for determining the holders of record of Common Stock entitled to vote
on the Business Combination (or if no such record date is set, then
the Announcement Date) ($2), multiplied by the then price/earnings
multiple (if any) of such Interested Stockholder as customarily
computed and reported in the financial community (12/1): $24.
(This provision is intended to protect the Company's
stockholders in the event that an Interested
Stockholder's price/earnings ratio is artificially
raised through the actions of the Interested
Stockholder or does not accurately reflect the value of
the Interested Stockholder's holdings in a proposed
Business Combination that involves payment in stock of
the Interested Stockholder.)
In this example, in order to comply with the minimum price criteria of
the Fair Price Amendment, the Interested Stockholder would be required to pay
to holders of shares of Common Stock in the Business Combination at least
$24.00 per share (the highest of the four alternatives above).
If, in the example in paragraph (iv) above, the price/earnings
multiple of the Interested Stockholder were twenty to one, compliance with the
minimum price criteria of the Fair Price Amendment would require the Interested
Stockholder to pay the Company's stockholders $40.00 per share. Accordingly,
the provisions of paragraph (iv) could have the effect of thwarting a bidder
for the Company because, depending upon the circumstances,
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it could require an Interested Stockholder with a high price/earnings ratio to
pay a higher minimum price in a Business Combination than a bidder with a lower
price earnings ratio to avoid being subject to the special stockholder vote.
However, this alternative is designed to be non-dilutive to the offeror since
the offeror would not be paying more than its own price/earnings ratio to
acquire the balance of the Company's earnings (and to the extent it had
acquired shares below this price, the entire transaction should be
anti-dilutive). This provision is not designed to discourage fair bids for the
Company, but it could thwart a proposed Business Combination that involves the
payment of cash by an Interested Stockholder with a high price/earnings ratio
by making the transaction prohibitively expensive, while providing no
additional protection to the Company's stockholders. The Board of Directors
does not believe that this provision should discourage fair bids for the
Company since the special stockholder vote will not be required if a majority
of the Continuing Directors approve the transaction.
In the case of payments to holders of any class of shares of Preferred
Stock, the Fair Market Value per share of such payments would have to be at
least equal to the higher of (a) the highest per share price determined with
respect to such class or series in the same manner as described in clauses (i),
(ii) and (iii) of the preceding paragraphs and (b) the highest preferential
amount per share to which the holders of such Preferred Stock are entitled in
the event of any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company. Currently, there are no shares of Preferred
Stock outstanding.
(B) PROCEDURAL REQUIREMENTS. Unless the Business Combination is
approved by a majority of the Continuing Directors, in order to avoid the
special stockholder vote requirement, an Interested Stockholder would have to
comply with all of the procedural requirements described below, in addition to
the minimum price criteria.
(i) If the Interested Stockholder or any of its
Affiliates or Associates paid for shares of any class or series of
capital stock of the Company with varying forms of consideration, the
form of consideration to be received per share by holders of shares of
that class or series of capital stock is required to be either cash or
the form that was used to acquire the largest number of shares of such
class or series of capital stock previously acquired by the Interested
Stockholder (or any of its Affiliates or Associates). In addition,
the price determined in accordance with paragraphs (i) through (iv)
above would be subject to appropriate adjustment in the event of any
stock dividend, stock split, combination of shares or similar event.
(This provision restricts the Interested Stockholders
from using a form of consideration in a Business
Combination that differs from that used to acquire the
largest number of shares acquired by it unless the
other consideration is cash. This would protect the
remaining stockholders from a Business Combination in
which a security with undesirable characteristics, such
as a highly subordinated debt security of the
Interested Stockholder for which there was no active
trading market, was used.)
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(ii) After becoming an Interested Stockholder and prior to
the consummation of the Business Combination (a) such Interested
Stockholder (or any of its Affiliates or Associates) may not have
acquired any newly-issued shares of Capital Stock, directly or
indirectly, from the Company or any Subsidiary (except upon conversion
of convertible securities acquired by it prior to becoming an
Interested Stockholder, upon compliance with the provisions of the
Fair Price Amendment or as a result of a pro rata stock dividend or
stock split); (b) except as approved by a majority of the Continuing
Directors, there must have been (A) no failure to declare and pay at
the regular date thereof any full quarterly or semi-annual dividends
(whether or not cumulative) on the outstanding preferred stock, and
(B) no reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any subdivision of the Common
Stock), and (C) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding shares of
Common Stock; and (c) such Interested Stockholder (or any of its
Affiliates or Associates) may not have received the benefit, directly
or indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by the Company or any
Subsidiary, or made any major changes in the Company's or any
Subsidiary's business or equity capital structure.
(This provision is designed to protect the remaining
stockholders whose interests would be affected by a
Business Combination from various actions an interested
Stockholder who controlled a majority of the Board of
Directors (other than Continuing Directors) might cause
the Company to take that could benefit the Interested
Stockholder disproportionately and/or adversely affect
the market price of the Company's shares and thereby
potentially reduce the consideration required to be
paid pursuant to the minimum price provisions of the
Fair Price Amendment.)
(iii) A proxy statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations), whether or not the Company is then subject to such
requirements, must be mailed to the stockholders of the Company at
least thirty (30) days prior to the consummation of such Business
Combination for the purpose of soliciting stockholder approval of such
Business Combination. The proxy statement must contain on the first
page thereof, in a prominent place, any recommendation as to the
advisability (or inadvisability) of the Business Combination that any
of the Continuing Directors choose to state and, if deemed advisable
by a majority of the Continuing Directors, the opinion of an
investment banking firm selected by a majority of the Continuing
Directors as to the fairness (or not) of the terms of the Business
Combination, from a financial point of view to the holders of the
outstanding shares of capital stock of the Company other than the
Interested Stockholder (and its Affiliates or Associates).
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(This provision is intended to provide the remaining
stockholders with the same information they would have
received in a proxy statement filed under such Act even
if the Company should at the time of the Business
Combination no longer be subject to the SEC's proxy
rules and to provide them with an independent
assessment of the fairness of the proposed Business
Combination from a financial point of view.)
It should be noted that none of the minimum price criteria and
procedural requirements described above would apply in the case of a Business
Combination approved by a majority of the Continuing Directors and that, in the
absence of such approval, all of such requirements would have to be satisfied
to avoid the special stockholder vote requirement.
OTHER APPLICABLE STOCKHOLDER VOTING REQUIREMENTS
GENERAL. As stated above, if the approval of a majority of the
Continuing Directors is obtained or all of the foregoing minimum price and
procedural conditions are satisfied, the Business Combination would be subject
only to the applicable voting requirements, if any, specified under Delaware
law and the rules of the NYSE.
RELATIONSHIP OF THE FAIR PRICE AMENDMENT TO SECTION 203 OF THE
DELAWARE LAW. In situations in which the provisions of both the Fair Price
Amendment and Section 203 apply, the protection provided to the Company's
remaining stockholders by Section 203 may be viewed as stronger than the
protection provided by the Fair Price Amendment. Under Section 203, unless the
acquiror obtains the requisite Board or stockholder approval, or at least 85%
of the Company's voting stock (other than excepted shares as discussed above)
in the transaction in which it became an Interested Stockholder, Section 203
prohibits for a period of three years any merger, consolidation or other
specified business combination between the Company and the Interested
Stockholder, the use of the Company's assets to finance the acquiror's
acquisition and other potential abuses of the acquiror's equity position. On
the other hand, the Fair Price Amendment would permit the business combination
so long as the specified minimum price and procedural conditions were
satisfied. Nevertheless, the Company has proposed the addition of the Fair
Price Amendment to its Certificate of Incorporation for the following reasons.
First, under Section 203, if a bidder obtains 85% of the Company's outstanding
stock in the initial transaction, it could then squeeze out the remaining
stockholders or effect other transactions that may be needed to access the
assets or cash flow of the Company's business to secure or repay acquisition
debt. While the Fair Price Amendment does not prohibit such transactions, it
imposes certain minimum pricing criteria and procedural safeguards designed to
ensure fair treatment to the remaining stockholders. Second, under Section
203, a bidder could accomplish a "two-tier, front end loaded" tender offer if
it were prepared to wait three years before effecting the second step. Again,
the Fair Price Amendment does not prohibit such a transaction, but it does
ensure that the price per share paid to the remaining stockholders in the
second step of the transaction is no less than the price per share paid in the
first step.
Neither the Fair Price Amendment nor Section 203 will prevent a
hostile takeover of the Company. They may, however, make more difficult or
discourage a takeover of the
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Company or the acquisition of control of the Company by an Interested
Stockholder and, therefore, increase the difficulty of removing incumbent
management. Such effect will be enhanced by the fact that the Company has a
Rights Plan. Some stockholders may find the deterrent disadvantageous in that
they may not be afforded the opportunity to participate in takeovers that are
not approved by the Continuing Directors but in which they might receive, for
at least some of their shares, a substantial premium above the market price at
the time of a tender offer or other acquisition transaction. The Board of
Directors believes, however, that the Fair Price Amendment should not prevent
or discourage transactions in which the acquiring person is willing to
negotiate in good faith with the Company's Board and is prepared to pay the
same price to all of the Company's stockholders.
CONSIDERATIONS IN SUPPORT OF THE FAIR PRICE AMENDMENT
As previously discussed, a number of publicly-held corporations have
in recent years been the target of tender offers for, or other acquisitions of,
substantial positions in their shares. In many cases, such transactions have
been followed by proposed business combinations in which the tender offeror or
other purchaser has paid or proposed to pay a lower price or less desirable
form of consideration for the remaining outstanding shares than the price it
paid in acquiring its original interest. Federal securities laws and
regulations govern the disclosure required to be made to minority stockholders
in such transactions, but do not assure that the terms of a business
combination are fair to stockholders from a financial point of view. Moreover,
while remaining stockholders of the Company may have a statutory right to
dissent in connection with certain business combinations, stockholders have no
assurance that "fair value" as determined under this standard would be
equivalent to the minimum price as determined pursuant to the Fair Price
Amendment. Furthermore, in the case of many business combinations, including
sales of all or substantially all assets and reclassification or
recapitalization of the outstanding shares of any class of a corporation's
stock, the statutory right to dissent may not be available at all.
The Fair Price Amendment is intended, in part, to supplement the gaps
in protection afforded by federal and Delaware law and to prevent certain of
the potential inequities of business combinations that involve two or more
steps by requiring (i) satisfaction of the minimum price criteria and
procedural requirements, (ii) approval of the Business Combination by a vote of
holders of 66-2/3% of the voting power of the Company's outstanding capital
stock (other than the Interested Stockholder and its Affiliates and Associates)
or (iii) approval of the Business Combination by the majority of the Continuing
Directors. The Fair Price Amendment also is designed to protect stockholders
who do not sell their shares in the first step of a two-tiered acquisition by
requiring that such stockholders receive at least the same price and form of
consideration as were paid to stockholders in the initial step of the
acquisition. In the absence of these changes, an Interested Stockholder who
acquires control of the Company could, by virtue of such control, subsequently
force minority stockholders to sell or exchange their shares at a price that
may not reflect a premium that the Interested Stockholder otherwise may have
paid in order to acquire its interest. Such a price could be lower than the
price paid by the Interested Stockholder in acquiring control and also could be
in a less desirable form of consideration (e.g., equity or debt securities of
the Interested Stockholder instead of cash).
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The threat of receiving inadequate consideration in a second-step
transaction creates a powerful incentive for stockholders to tender shares into
a first-step tender offer, where such stockholders might otherwise receive a
larger amount in a negotiated transaction or achieve greater long-term value by
retaining their shares. The Fair Price Amendment, as well as the Rights
Agreement and Section 203, should give stockholders more confidence to continue
to hold their shares in the face of such a tender offer, while still enabling
them to tender or sell into the market if they so elect.
In many situations, the minimum price criteria and procedural
requirements would require an Interested Stockholder to pay stockholders a
higher price per share and/or structure the transaction differently than it
would have in the absence of the Fair Price Amendment. Accordingly, the Board
of Directors believes that, to the extent a Business Combination were a
component of a plan to acquire control of the Company, adoption of the Fair
Price Amendment would increase the likelihood that an Interested Stockholder
would negotiate directly with the Board. The Board believes that, in general,
it is in a better position than individual stockholders of the Company to
negotiate effectively on behalf of all stockholders because the Board likely is
more knowledgeable than most individual stockholders in assessing the business
and prospects of the Company. Therefore, the Board believes that negotiations
between the Board and an Interested Stockholder would increase the likelihood
that all stockholders receive a higher price for their shares than might be
obtained if such stockholders acted individually.
Although not all acquisitions of a corporation's shares are made with
the objective of effecting a subsequent business combination the Company
believes that, in many cases third parties acquiring control want the option to
consummate such a business combination. In such instances, the Fair Price
Amendment would tend to deter a potential purchaser seeking to gain control of
the Company at relatively cheap price, since acquiring the remaining equity
interest would not be assured unless the minimum price criteria and procedural
requirements were satisfied or unless a majority of Continuing Directors were
to approve the transaction. Adoption of the Fair Price Amendment may also
deter the accumulation of large blocks of the Company's shares, which the Board
believes to be potentially disruptive to the stability of the Company's
relationships with its customers, employees and lenders, and which could
precipitate a change of control of the Company on terms unfavorable to the
Company's other stockholders.
CONSIDERATIONS AGAINST THE FAIR PRICE AMENDMENT
Tender offers or other non-open market acquisitions of stock are
usually made at prices above the prevailing market price of a company's stock.
In addition, acquisitions of stock in the open market by persons attempting to
acquire control may cause the market price of the stock to reach levels that
are higher than might otherwise be the case. Approval of the Fair Price
Amendment may deter such purchases, particularly purchases for less than all of
the Company's shares, and, therefore may deprive holders of the Company's
Common Stock of an opportunity to sell their shares at a temporarily higher
market price. Because of the special requirements for stockholder approval of
any subsequent Business Combination and the possibility of having to pay a
higher price to other stockholders in such a Business Combination, the Fair
Price Amendment likely would make it more costly for a
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third party to acquire control of the Company. Thus, the Fair Price Amendment
may decrease the likelihood of a tender offer for less than all of the
Company's Common Stock, which may adversely affect stockholders who desire to
participate in such a tender offer. It should be noted, however, that the
provisions of the Fair Price Amendment should not deter a third party who
acquired control of the Company through a substantial portion of the Company's
Common Stock with no intention of acquiring the remaining shares.
In certain cases, the Fair Price Amendment's minimum price provisions,
while providing objective pricing criteria, could be arbitrary and not
indicative of value. In addition, an Interested Stockholder may be unable, as
a practical matter, to comply with all of the procedural requirements. In
these circumstances, unless an Interested Stockholder were able to obtain
special stockholder approval of a proposed Business Combination, it would be
forced either to negotiate with the Board of Directors on terms acceptable to
the Board or to abandon the proposed Business Combination.
The Fair Price Amendment also would give veto power to minority
stockholders with respect to a proposed Business Combination that is opposed by
a majority of Continuing Directors but that is desired by a majority of the
Company's stockholders unless the minimum pricing and procedural requirements
were met or the Continuing Directors approved the transaction. If Phil Simpson
maintained his current stock ownership, then he would have the ability to block
the requisite vote. That would not, however, preclude a Business Combination
approved by Continuing Directors or in which the minimum price and procedural
safeguards were observed by the Interested Stockholder. In addition, the Fair
Price Amendment may tend to insulate incumbent directors against the
possibility of removal in the event of a takeover attempt because only the
Continuing Directors would have the authority to reduce to a simple majority or
eliminate the special stockholder vote required for a particular Business
Combination. In addition, if an Interested Stockholder replaced all of the
directors who were in office on the date it became an Interested Stockholder
with nominees of its choice, there would be no Continuing Directors.
Consequently, the special stockholder vote requirement would apply to any
Business Combination consummated subsequent to such replacement that did not
satisfy all of the minimum price criteria and procedural requirements of the
Fair Price Amendment.
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE OUTSTANDING SHARES OF THE
COMPANY'S COMMON STOCK IS REQUIRED TO APPROVE THE FAIR PRICE AMENDMENT.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ADOPTION OF THE FAIR PRICE AMENDMENT.
PROPOSAL NUMBER 3
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT
The Company's Board of Directors recently approved two measures that
affect the ability of the Company's stockholders to approve corporate action.
One of the measures, which is being submitted for approval by the Company's
stockholders at the Annual Meeting, would require that stockholder action be
effected only at a duly called meeting of
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stockholders, rather than by written consent of the stockholders (referred to
herein as the "Stockholder Meeting" provisions). The second measure, the
Notice provisions, which are described in more detail above under the caption
"Existing Protective Measures -- Stockholder Notice Provisions," require at
least 60 and no more than 120 days' day advance notice to the Company of
stockholder nominations for the election of directors and of business proposed
by a stockholder for any stockholder meeting. Because the Stockholder Meeting
provisions and Notice provisions are related, the proposal to adopt the
Stockholder Meeting provisions should be considered in light of the Notice
provisions that are currently in place. A copy of the Notice provisions, which
appear in Article II, Section 2 and Section 4 of the Company's Bylaws, is
attached hereto as EXHIBIT B. Article TWELFTH of EXHIBIT A sets forth the full
text of the proposed Stockholder Meeting provision. Stockholders should read
carefully the following description of the Stockholder Meeting provision and
Article TWELFTH of EXHIBIT A prior to voting on this Proposal.
STOCKHOLDER MEETING PROVISIONS
Under current Delaware corporate law, any action required or permitted
to be taken by a corporation's stockholders may be taken, unless the
corporation's certificate of incorporation provides otherwise, without a
meeting and without a stockholder vote if a written consent setting forth the
action to be taken is signed by the holders of shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action if it were taken at a meeting of stockholders. Under the Company's
current Certificate of Incorporation, stockholder action by written consent is
not restricted. The Company's Bylaws also do not restrict stockholder action
by written consent.
The Company's Bylaws were recently amended to increase the stockholder
vote required to call a special meeting of stockholders from a majority of the
voting power of the outstanding capital stock to 60% of the outstanding Common
Stock entitled to vote. The Stockholder Meeting provisions that are being
submitted to the Company's stockholders at the 1996 Annual Meeting would
require that stockholder action be taken only at an annual or special meeting
of stockholders and would prohibit stockholder action by written consent.
PURPOSE OF STOCKHOLDER MEETING AND NOTICE PROVISIONS
Proposals for stockholder action typically involve important issues
relating to the Company and its future. Consequently, the Board of Directors
believes that such proposals should be considered at a special or annual
meeting of stockholders in order to permit discussion of the issues, following
notice to all of the Company's stockholders. The Stockholder Meeting
provisions are designed to achieve this result by forcing an acquiring party
seeking to gain control of the corporate machinery or make fundamental changes
to the Company's Certificate of Incorporation to do so at special or annual
meetings of stockholders. The Notice provisions provide the Board with the
opportunity to inform stockholders of the proposed action, together with
Board's recommendation or position with respect to proposed stockholder action,
thereby enabling stockholders to better determine whether they desire to attend
the stockholder meeting or grant a proxy to the Board of Directors in
connection with the disposition of any such business. The Notice provisions
also afford the Board a meaningful opportunity to consider the qualifications
of proposed
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director nominees, and, to the extent deemed necessary by the Board, to inform
stockholders about such qualifications. Therefore, the Board adopted the
Notice provisions, and is recommending the adoption of the Stockholder Meeting
provisions, to increase the likelihood that the Company and all of its
stockholders are given an opportunity to carefully consider and respond to
important stockholder proposals.
POTENTIAL ANTI-TAKEOVER IMPACT
Stockholders should bear in mind that the Stockholder Meeting and
Notice provisions could have the effect of tending to discourage persons from
initiating hostile takeover attempts against the Company. The Stockholder
Meeting provisions protect the Company from the use of a written consent by a
person who has accumulated a majority of the Company's shares and who seeks to
affect the makeup of the Board of Directors or who seeks to pass resolutions
that might be counter to the interests of the remaining stockholders of the
Company. The Stockholder Meeting provisions may have the effect of delaying or
deterring any such takeover attempt as well as delaying the removal of members
from the Company's Board of Directors. Furthermore, by changing the
stockholder vote required to call a special meeting from a majority vote to
60%, the Board of Directors has prevented a stockholder that commands a simple
majority of the outstanding shares from calling a special meeting. Because the
Notice provisions require a bidder to provide advance notice of measures
intended to further a hostile takeover attempt, the bidder may lose an element
of surprise with respect to such measures. Consequently, the Board of
Directors would have a greater opportunity to devise and employ methods to
respond to such an attempt, should it determine that the bid is not in the best
interest of the Company and its stockholders. While both of these provisions
do not ultimately prevent an insurgent stockholder from effecting such
measures, they do ensure that they will not occur without advance notice or
without a regular or special meeting of stockholders.
Taking all these factors into consideration, however, the Board of
Directors believes that these measures should increase the likelihood that all
Company stockholders will be treated equally and fairly once stockholder action
is taken, and should enhance the ability of the Company and its stockholders to
carefully consider stockholder proposals. The Board of Directors believes that
it is important that it be able to give advance notice of and consideration to
all proposed stockholder action and that stockholders be able to discuss at a
meeting matters that may affect their rights.
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF THE COMPANY'S
OUTSTANDING COMMON STOCK IS REQUIRED TO APPROVE THE STOCKHOLDER MEETING
PROVISIONS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE STOCKHOLDER MEETING PROVISIONS.
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PROPOSAL NUMBER 4
INCREASED STOCKHOLDER VOTE FOR
AMENDMENT OR REPEAL OF THE COMPANY'S BYLAWS
Under Delaware law and the Company's current Certificate of
Incorporation and Bylaws, the Company's Bylaws can be amended by the Board of
Directors or by the holders of a majority of the Company's outstanding voting
stock present, in person or by proxy, at any regular or special meeting of
stockholders. Proposal 4 of the Amendments provides that the Company's Bylaws
may not be altered, repealed or amended except by a majority of the whole Board
of Directors (which is defined as the total number of directors that the
Company would have if there were no vacancies on the Board) or the holders of
at least 66-2/3% of the voting power of the Company's outstanding voting stock.
Furthermore, if the Bylaw amendment has been proposed, directly or indirectly,
by or on behalf of an Interested Stockholder (as defined under the Fair Price
Amendment), it must be approved by at least 66-2/3% of the voting power of the
Company's outstanding voting stock, excluding shares held by the Interested
Stockholder or its Affiliates or Associates.
The requirement of an increased stockholder vote to alter, amend or
repeal the Company's Bylaws is designed to prevent a stockholder of the Company
with a majority of the voting power of the Company from avoiding the Notice
provisions or other provisions contained in the Bylaws simply by amending the
Bylaws to delete such provisions. Such increased stockholder vote may have the
effect of tending to discourage persons from initiating hostile takeover
attempts against the Company, whether through a proxy contest or otherwise even
where such takeover attempt may be considered desirable by a majority of the
Company's stockholders.
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF THE COMPANY'S
OUTSTANDING COMMON STOCK IS REQUIRED TO APPROVE THE SUPERMAJORITY VOTE
REQUIREMENT TO AMEND THE COMPANY'S BYLAWS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE SUPERMAJORITY VOTE REQUIREMENT TO AMEND THE COMPANY'S BYLAWS.
PROPOSAL NUMBER 5
INCREASED STOCKHOLDER VOTE FOR
AMENDMENT OR REPEAL OF THE
PROPOSED AMENDMENTS
Under Delaware law and the Company's Certificate of Incorporation, the
Company's Certificate of Incorporation can be amended by the holders of a
majority of the Company's outstanding voting stock. Proposal 5 of the
Amendments provides that, if adopted, the Fair Price Amendment, the Stockholder
Meeting provisions, the supermajority vote requirement to amend the Company's
Bylaws and the Amendment to be added by Proposal 5 itself may not be altered,
amended or repealed except by the affirmative vote of not less than 66-2/3% of
the total voting power of all outstanding voting stock of the Company voting
together as
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a single class; provided, however, that if the change is proposed, directly or
indirectly, by or on behalf of any Interested Stockholder, such change also
must be approved by the affirmative vote of not less than 66-2/3% of the total
voting power of all outstanding voting stock of the Company that is not
beneficially owned by such Interested Stockholder or its Affiliates or
Associates.
The requirement of an increased stockholder vote to alter, amend or
repeal the Fair Price Amendment, the Stockholder Meeting provisions, the
supermajority vote requirement to amend the Company's Bylaws and the Amendment
to be added by this Proposal is designed to prevent a stockholder of the
Company with a majority of the voting power of the Company from avoiding the
requirements of the Amendments simply by amending the Company's Certificate of
Incorporation to delete such provisions. Such increased stockholder vote may
have the effect of tending to discourage persons from initiating hostile
takeover attempts against the Company, whether through a tender offer, proxy
contest or otherwise even where such takeover attempt may be considered
desirable by a majority of the Company's stockholders.
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF THE COMPANY'S
OUTSTANDING COMMON STOCK IS REQUIRED TO APPROVE THE SUPERMAJORITY VOTE
REQUIREMENT TO AMEND THE PROPOSED AMENDMENTS TO THE COMPANY'S CERTIFICATE OF
INCORPORATION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE SUPERMAJORITY VOTE REQUIREMENT TO AMEND THE PROPOSED AMENDMENTS TO THE
COMPANY'S CERTIFICATE OF INCORPORATION.
PROPOSAL NUMBER 6
INCREASE IN AUTHORIZED CAPITAL STOCK OF THE COMPANY
On June 18, 1996, the Company's Board of Directors unanimously
approved and recommended for stockholder approval an amendment to the Company's
Certificate of Incorporation to increase the total number of shares of Common
Stock that the Company has the authority to issue from 25,000,000 shares of
Common Stock to 35,000,000 shares (the "Increased Capital Amendment"). As of
August 30, 1996, there remained available for issuance 14,384,936 shares of
Common Stock.
The Board of Directors believes that the proposed increase in the
number of shares of Common Stock that the Company is authorized to issue is
desirable in order to ensure that the Company will have a sufficient number of
authorized shares available in the future to enable the Company to meet the
requirements and contingencies under the Company's Rights Plan and to provide
new equity capital that will permit the Company to avail itself of
opportunities that may arise. If the Increased Capital Amendment is approved,
in addition to providing shares needed to satisfy the Company's obligations
under the Rights Plan and also to issue the shares necessary if the Company's
Board of Directors exercised the "Exchange Right" available under the Rights
Plan (as discussed above under "Existing Protective Measures -- Rights Plan"),
the additional shares would be available for the
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following purposes: to raise additional capital; for use in connection with
acquisitions if the Company should desire to expand or diversify its business;
for stock dividends, stock splits and other stock distributions to holders; for
employee benefit plans; and for possible future transactions of a currently
undetermined nature.
If the proposed amendment is adopted, the Company would be permitted
to issue the authorized shares without further stockholder approval, except to
the extent otherwise required by law, any securities exchange on which the
Common Stock is listed at the time, or the Certificate of Incorporation. The
Company's Common Stock is currently listed on the NYSE, which requires
stockholder approval as a prerequisite to listing shares in certain instances,
including the issuance of Common Stock of the Company representing in the
aggregate up to 20% or more of (i) the voting power outstanding or (ii) the
number of shares of Common Stock outstanding at the time of such issuance. In
addition, no public sale of Common Stock of the Company could take place unless
the Company received approval of the Securities and Exchange Commission under
the Securities Act of 1933.
POTENTIAL ANTI-TAKEOVER IMPACT
Depending upon the nature and terms thereof, the issuance of
additional shares of Common Stock, pursuant to the exercise of Rights under the
Rights Plan (as described above under the caption "Existing Protective Measures
- -- Rights Plan") or under certain other circumstances, could render more
difficult or discourage an attempt to obtain control of the Company, whether
through a tender offer or otherwise, even where such takeover attempt may be
considered desirable by certain of the Company's stockholders. Tender offers
or other non-open market acquisitions of stock are usually made at prices above
the prevailing market price of a corporation's stock. In addition,
acquisitions of stock in the open market by persons attempting to acquire
control may cause the market price of the stock to reach levels that are higher
than might otherwise be the case. The deterrence of such purchase, therefore,
may deprive holders of the Company's Common Stock of an opportunity to sell
their shares at a temporarily higher market price.
THE NEED FOR THE COMMON STOCK AMENDMENT
As of August 30, 1996, 10,615,064 shares of the Company's Common Stock
were issued and outstanding. Assuming that Proposals 7 and 8 are adopted
(relating to the Company's 1989 Long-Term Incentive Plan and Non-Employee
Director Plan) the Company will have 1,266,941 shares of Common Stock reserved
for issuance pursuant to such plans. Therefore, the Company will have
approximately 13,117,995 remaining authorized and unissued shares of Common
Stock that have not been reserved for any specific purpose. A Common Stock
Purchase Right is attached to each outstanding share of Common Stock that
entitles the holder thereof to purchase from the Company one share of Common
Stock at $45 per share upon the commencement or announcement of an intention to
make a tender offer that would result in the acquisition by a person or group
of affiliated or associated persons of 15% of the Company's Common Stock.
Therefore, the Company requires one authorized but unissued share of Common
Stock for each outstanding Right in order to satisfy such obligation
(approximately 10,615,064 shares). While the Company currently has sufficient
authorized but unissued shares of Common Stock to satisfy this obligation under
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the Rights Plan, the issuance of additional shares of Common Stock in the
future for purposes other than the Rights Plan could decrease such available
shares below the requirements of the Rights Plan.
In the event a person or group of affiliated or associated persons
acquires 15% of the Company, each Right holder would have the right to purchase
that number of shares of Common Stock (value at fair market value on the date
of purchase) equal to two times the purchase price. This event would require
the Company to issue significant additional shares of Common Stock in an amount
that is dependent upon the fair market value of the Common Stock at such date
and that may exceed the number of authorized but unissued shares even if the
increase in the number of authorized shares of Common Stock is approved. If,
upon the occurrence of such an event, the Company does not have sufficient
Common Stock available under its Certificate of Incorporation to issue such
shares, the Company would satisfy its obligations, in whole or in part, through
the issuance of fractional shares of Preferred Stock having the same economic
value and voting rights as shares of Common Stock.
Based on the foregoing, an increase in the authorized but unissued
shares of Common Stock of the Company by an additional 10,000,000 unissued
shares would provide approximately 5,000,000 additional shares of Common Stock
for all corporate purposes (because each newly issued share carries a Right to
purchase an additional share of Common Stock). Such purposes include raising
additional capital; issuing stock in connection with acquisitions; stock
dividends, stock splits and other stock distributions to holders; employee
benefit plans; and other possible future transactions of a currently
undetermined nature.
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF THE COMPANY'S
OUTSTANDING COMMON STOCK IS REQUIRED TO AUTHORIZE THE INCREASED CAPITAL
AMENDMENT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED CAPITAL STOCK OF THE COMPANY.
PROPOSAL NUMBER 7
AMENDMENT OF 1989 LONG-TERM INCENTIVE PLAN
In 1989, the Company adopted the 1989 Long-Term Incentive Plan (the
"1989 Plan") under which incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock and performance units may be
granted to key executives and managerial employees of the Company and its
subsidiaries. The maximum aggregate number of shares of Common Stock with
respect to which options, restricted shares and rights granted without
accompanying options may be granted pursuant to the 1989 Plan is 420,000.
On June 18, 1996, the Board of Directors of the Company unanimously
adopted and recommended for stockholder approval the following amendments to
the 1989 Plan, which
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are described in more detail below: (i) an amendment that increases the
aggregate number of shares of Common Stock reserved for issuance under the 1989
Plan from 420,000 to 1,150,000; (ii) an amendment that restricts the maximum
number of shares with respect to which options or rights may be granted each
calendar year to each employee to 500,000; and (iii) amendments designed to
enhance the administration of the 1989 Plan as well as the procedures available
to option holders to exercise outstanding options.
The Board of Directors approved various other amendments to the 1989
Plan that do not require stockholder approval and that are described above
under the caption "1989 Long-Term Incentive Plan." Such amendments are
generally designed to conform various provisions of the 1989 Plan to current
requirements under the Internal Revenue Code of 1986, as amended (the "Code"),
as well as recent changes to Rule 16b-3 of the Securities and Exchange Act of
1934, as amended.
INCREASE OF AUTHORIZED SHARES UNDER THE PLAN
This amendment to the 1989 Plan would increase the number of shares of
Common Stock reserved for issuance under such plan from 420,000 to 1,150,000.
At August 30, 1996, 266,059 shares of Common Stock had been allocated for
options previously issued under the 1989 Plan, and 153,941 shares of Common
Stock remained available for future grant.
As a result of the Company's acquisition of the Halltown Paperboard
facility in June of 1995, the Company added 4 new participants to the 1989 Plan
in 1995. The Company desires to be able to make shares of Common Stock
available under the 1989 Plan for awards to key executives and managerial
employees of the Company as it is presently comprised for a period of
approximately ten years.
The Board of Directors believes that the use of long-term incentives
based on the value of the Company's Common Stock is necessary to attract and
retain qualified executive and managerial personnel, motivate such personnel to
achieve long-range goals and provide compensation opportunities that are
competitive with those offered by other corporations. The recommended increase
in the number of shares reserved for issuance under the 1989 Plan has been
proposed in order to enable the Company to continue to provide stock-based
incentives to executive and managerial personnel of the Company as it now
exists following the Halltown acquisition for the next ten years.
RESTRICTION OF MAXIMUM NUMBER OF SHARES WITH RESPECT TO WHICH OPTIONS OR RIGHTS
MAY BE GRANTED
In order that grants of options under the 1989 Plan will qualify for
an exemption from Section 162(m) of the Code, which limits the amount of
compensation expenses that may be deducted by the Company, the Company must
establish a maximum number of shares under the 1989 Plan with respect to which
options or rights may be granted to an employee of the Company within a
calendar year. The Board of Directors has established, subject to stockholder
approval, a limit of 500,000 shares of Common Stock. Although all options
granted under the 1989 Plan prior to the Company's 1997 Annual Meeting of
Stockholders should qualify for an exemption from the limits imposed by section
162(m), options granted
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after the date of the 1997 Annual Meeting will not be subject to such exemption
unless the Company's stockholders approve the limitation on the maximum number
of shares. Therefore, stockholder approval of the amendment is sought to
qualify the 1989 Plan under Section 162(m) of the Code, and thereby permit the
Company to deduct for federal income tax purposes compensation paid to
executives under the 1989 Plan.
ENHANCEMENT OF ADMINISTRATION AND OPTION EXERCISE PROCEDURES UNDER THE 1989
PLAN
This proposed amendment authorizes the Company to require the option
holder to pay the Company any required tax withholding arising in connection
with the exercise of an option, or to retain and sell without notice a
sufficient number of shares to satisfy applicable tax withholding requirements.
The purpose of this amendment is to assist the Company's satisfaction of its
tax withholding obligations under the Code.
The Board of Directors has also approved two related amendments
designed to make it easier for option holders to exercise options for shares of
Common Stock without having to pay cash to satisfy the option exercise price.
The first proposal would permit option holders to elect to pay the option
exercise price through the constructive delivery of shares of Common Stock
already owned by the option holder with a fair market value equivalent to the
purchase price of such option. This amendment would dispense with the need for
an option holder to arrange for the delivery of actual stock certificates when
surrendering shares already owned in satisfaction of the option exercise price.
The second proposal would permit option holders to elect to pay the option
exercise price through the Company's withholding of shares of Common Stock
otherwise issuable upon exercise of such option with a fair market value
equivalent to the purchase price of such options. This amendment simply
permits option holders to pay the option exercise price out of a portion of the
shares of Common Stock such person is entitled to receive upon exercise of the
option. The Board of Directors believes that the flexibility added by these
amendments will enhance the purpose of the 1989 Plan of attracting and
retaining qualified executive and managerial personnel, motivating such
personnel to achieve long-range goals and providing competitive compensation
opportunities to such personnel.
The options granted to the Company's executive officers during the
year ended June 30, 1996 would not have been affected if the foregoing
amendments to the 1989 Plan had been in effect during such period. For
information with respect to such option grants, see "Executive Compensation --
Option Grants in Last Fiscal Year."
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF THE COMPANY'S
OUTSTANDING COMMON STOCK PRESENT OR REPRESENTED BY PROXY AT THE ANNUAL MEETING
IS REQUIRED TO APPROVE THE FOREGOING AMENDMENTS TO THE 1989 PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE FOREGOING AMENDMENTS TO THE 1989 PLAN.
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PROPOSAL NUMBER 8
AMENDMENT OF NONEMPLOYEE DIRECTOR PLAN
In 1989, the Board of Directors adopted the Company's Non-Employee
Director Stock Option Plan (the "Director Plan"). The Director Plan provided a
one-time grant to each non-employee member of the Board of Directors on the
date the plan was adopted of an option to purchase 10,500 shares of the
Company's Common Stock at an option exercise price equal to the fair market
value of the Common Stock on the date of such grant. The Director Plan also
provides for a one-time grant of an option to purchase 10,500 shares of the
Common Stock at an option exercise price equal to the fair market value of the
Common Stock on the date of such grant to each new non-employee member of the
Board of Directors upon such director's election or appointment to the Board.
The maximum aggregate number of shares of Common Stock with respect to which
options may be granted pursuant to the Director Plan is 105,000. As of August
30, 1996, options to purchase 73,500 shares of Common Stock had been granted.
On June 18, 1996, the Board of Directors of the Company unanimously
adopted, and recommended for stockholder approval, an amendment to the Director
Plan that replaces the one-time grant provision in the plan with an annual
grant of an option to purchase 2,000 shares of Common Stock to each
non-employee member of the Board of Directors at an option exercise price equal
to the fair market value of the Common Stock on the date of such grant. The
amendment provides for an initial grant of an option to purchase 2,000 shares
of Common Stock on August 16, 1996, the effective date of the amendment
intended to cover service during the year ending with the 1996 annual meeting,
and an additional grant on October 24, 1996 following the Annual Meeting of
stockholders intended to cover the next year. Thereafter, grants will be made
once annually to non-employee directors following the Company's Annual Meeting.
The Board of Directors adopted the amendment because it believes that annual
grants of long-term incentives based on the value of the Company's Common Stock
will assist the Company in attracting and retaining qualified members of the
Board of Directors. The Board of Directors also believes that such
equity-based incentives will promote the long-term financial interests of the
Company by motivating these members of the Board to achieve long range goals.
The Board of Directors approved various other amendments to the
Director Plan that do not require stockholder approval and that are described
above under the caption "Amended and Restated Non-Employee Director Plan."
Such amendments are generally designed to conform the provisions of the
Director Plan to recent changes to Rule 16b-3 of the Securities and Exchange
Act of 1934, as amended, as well as enhance the procedures available to option
holders to exercise outstanding options. One of such amendments deleted, as
permitted by Rule 16b-3, the provision in the Director Plan setting forth a
maximum number of shares of Common Stock for which options may be granted
thereunder. By resolution of the Board of Directors adopted on August 5, 1996,
94,500 shares of Common Stock were reserved for issuance upon the exercise of
options granted under the Director Plan. Consequently, when added together
with the remaining 31,500 shares of Common Stock previously reserved for
issuance under the Director Plan, there will be 126,000 shares of Common Stock
available for issuance in connection with options granted under the Director
Plan.
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The table below indicates grants of stock options that have been
granted under the Director Plan, effective August 16, 1996, subject to
stockholder approval of the proposed amendments to such plan. The Board of
Directors approved an additional grant of 2,000 options to be effective as of
October 24, 1996 to each of the 7 non-employee directors of the Company,
subject to stockholder approval of the proposed amendments to the Director
Plan. The dollar value of such options, as well as future awards under the
Director Plan, are not determinable.
NEW PLAN BENEFITS GRANTED TO DATE
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<TABLE>
<CAPTION>
RECIPIENTS DOLLAR VALUE NUMBER OF
SHARES
<S> <C> <C>
Non-Executive Directors as a Group $ 197,736 14,000
</TABLE>
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF THE COMPANY'S
OUTSTANDING COMMON STOCK PRESENT OR REPRESENTED BY PROXY AT THE ANNUAL MEETING
IS REQUIRED TO APPROVE THE FOREGOING AMENDMENT TO THE DIRECTOR PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE FOREGOING AMENDMENT TO THE DIRECTOR PLAN.
INDEPENDENT PUBLIC ACCOUNTANT
The Company has selected Arthur Andersen LLP to be its independent
public accountant for the fiscal year ending June 30, 1996. Representatives of
Arthur Andersen LLP are expected to be present at the Annual Meeting with the
opportunity to make a statement if they desire to do so, and such
representatives are expected to be available to respond to appropriate
questions raised at the Meeting.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and Executive Officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Executive Officers, Directors and
greater than ten percent stockholders are required by the SEC regulations to
furnish the Company with copies of all Section 16(a) Forms 3, 4, and 5 which
they file.
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Based solely on its review of the copies of such forms received by the
Company and written representations from certain reporting persons for the
fiscal year ended June 30, 1996, the Company believes that all filing
requirements applicable to its Executive Officers, Directors and greater than
ten percent beneficial owners were met.
STOCKHOLDERS' PROPOSALS
Any stockholder submitting a proposal to be acted upon by the next
Annual Meeting of Stockholders is required to make such submission to the
executive offices of the Company not less than 120 days in advance of the
mailing date of proxy material to stockholders. Based upon the mailing date of
proxy material for the 1996 Annual Meeting, any such proposal should be
submitted to, and received by, the Company prior to May 23, 1997.
SIGNATURES OF PROXIES IN CERTAIN CASES
If a stockholder is a corporation, the accompanying proxy should be
signed in its corporate name by an authorized officer, and his or her title
should be indicated. If stock is registered in the name of a decedent, the
proxy should be signed by an executor or an administrator. The executor or
administrator should attach to the proxy appropriate instruments showing his
qualifications and authority. Proxies signed by a person as agent, attorney,
administrator, executor, guardian or trustee should indicate his title
following his signature.
By Order of the Board of Directors
Janey S. Rife
September 19, 1996
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EXHIBIT A
THE FOLLOWING SETS FORTH THE TEXT OF EACH OF THE PROPOSED AMENDMENTS
TO THE COMPANY'S CERTIFICATE OF INCORPORATION THAT CORRESPONDS TO PROPOSALS 2
THROUGH 6. IN THE EVENT THAT SOME, BUT NOT ALL, OF PROPOSALS 2 THROUGH 6 ARE
APPROVED BY THE COMPANY'S STOCKHOLDERS, THE PROPOSED AMENDMENTS THAT WERE
ADOPTED WOULD BE RENUMBERED ACCORDINGLY.
PROPOSAL NUMBER 2
FAIR PRICE AMENDMENT
The following shall be added as a new Article THIRTEENTH:
THIRTEENTH. A. (1) In addition to any affirmative vote required by
law, by this Certificate of Incorporation or by any Preferred Stock
Designation, and except as otherwise expressly provided in Section B of this
Article THIRTEENTH:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter defined) with or
into (a) any Interested Stockholder (as hereinafter defined)
or (b) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate (as such
terms are hereinafter defined) of an Interested Stockholder;
or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series
of transactions) to or with any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an
aggregate Fair Market Value (as hereinafter defined) of $1
million or more; or
(iii) the issuance or transfer by the Corporation
or any Subsidiary (in one transaction or a series of
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having
an aggregate Fair Market Value of $1 million or more; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or
on behalf of any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or
(v) any reclassification of securities (including
any reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation
with any of its Subsidiaries or any other transaction (whether
or not with or into or otherwise involving any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the
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outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is
"beneficially owned" (as hereinafter defined) by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder;
shall require the affirmative vote of not less than two-thirds
(66-2/3%) of the total voting power of all outstanding Voting
Shares that are not beneficially owned by the Interested
Stockholder referred to in clauses (i) through (v) above or
the Affiliates or Associates of such Interested Stockholder
voting together as a single class. Such affirmative vote
shall be required notwithstanding any other provisions of this
Certificate of Incorporation or any provision of law or of any
agreement with any national securities exchange or otherwise
which might otherwise permit a lesser vote or no vote.
(2) The term "Business Combination" as used in this
Article THIRTEENTH shall mean any transaction which is referred to in
any one or more of subparagraphs (i) through (v) of paragraph (1) of
this Section A. Notwithstanding any of the foregoing, the term
Business Combination shall not include any transaction between the
Corporation or any Subsidiary and another corporation fifty percent
(50%) or more of the voting stock of which is owned by the Corporation
or any Subsidiary and none of which is owned by an Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder if each holder of common stock of the Corporation or any
Subsidiary receives the same type of consideration in proportion to
his holdings.
B. The provisions of Section A of this Article
THIRTEENTH shall not be applicable to any particular Business
Combination in which a particular Interested Stockholder or any
Affiliate or Associate of such Interested Stockholder has an interest
of the type contemplated by Section A(1) of this Article THIRTEENTH,
and such Business Combination shall require only such affirmative vote
as is required by law, any other provision of this Certificate of
Incorporation and any Preferred Stock Designation, if, in the case of
a Business Combination that does not involve any cash or other
consideration being received by the stockholders of the Corporation,
solely in their respective capacities as stockholders of the
Corporation, the condition specified in the following paragraph (1) is
met, or, in the case of any other Business Combination, the conditions
specified in either of the following paragraph (1) or paragraph (2)
are met:
(1) The Business Combination shall have been approved by
a majority of the Continuing Directors (as hereinafter defined);
provided however, that this condition shall not be capable of
satisfaction unless there are at least three Continuing Directors.
(2) All of the following conditions shall have been met:
(i) The aggregate amount of (x) cash and (y) Fair Market
Value as of the date of the consummation of the Business Combination
of consideration other than
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cash to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the highest amount
determined under subparagraphs (a), (b), (c) and (d) below:
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Stockholder or any of its Affiliates or
Associates for any share of Common Stock acquired by it or them;
(b) the higher of: (I) the highest Fair Market
Value per share of Common Stock during the three-month period ending
on the day after the date of the first public announcement of the
proposal of the Business Combination (the "Announcement Date") or (II)
(if applicable) the Fair Market Value per share of Common Stock on the
date on which the Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this Article
THIRTEENTH as the "Determination Date"), provided that the
Determination Date is not more than two years prior to the
Announcement Date;
(c) (if applicable) the price per share equal to
the Fair Market Value per share of Common Stock determined pursuant to
subparagraph B(i)(b)(I) above, multiplied by the ratio of (I) the
highest per share price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the Interested Stockholder
or any of its Affiliates or Associates for any shares of Common Stock
acquired by it or them within the two-year period immediately prior to
the Announcement Date to (II) the Fair Market Value per share of
Common Stock on the first day in such two-year period on which the
Interested Stockholder or any of its Affiliates or Associates acquired
any shares of Common Stock; and
(d) the earnings per share of Common Stock for
the four full consecutive fiscal quarters immediately preceding the
record date for determining the holders of record of Common Stock
entitled to vote on the Business Combination (or if no such record
date is set, then the Announcement Date), multiplied by the then
price/earnings multiple (if any) of such Interested Stockholder as
customarily computed and reported in the financial community;
provided, however that if the common stock of the Interested Person is
not at such time and has not been continuously over the preceding
twelve (12) month period registered under Section 12 of the Securities
Exchange Act of 1934, as amended (or any comparable provision of any
superseding statute), and such Interested Stockholder is a direct or
indirect subsidiary of another person the common stock of which is and
has been so registered, the price/earnings multiple shall be that of
such other person.
(ii) The aggregate amount of (x) cash and (y) Fair Market
Value as of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by holders
of shares of any class of outstanding Preferred Stock shall be at
least equal to the highest amount determined under subparagraphs (a),
(b), (c) and (d) below:
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(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Stockholder or any of its Affiliates or
Associates for any shares of such class of Preferred Stock acquired by
it or them;
(b) the highest preferential amount per share to
which the holders of shares of such class of Preferred Stock would be
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation,
regardless of whether the Business Combination to be consummated
constitutes such an event;
(c) the higher of: (I) the highest Fair Market
Value per share of Preferred Stock during the three-month period
ending on the day after the Announcement Date, or (II) (if applicable)
the Fair Market Value per share of such class of Preferred Stock on
the Determination Date, provided the Determination Date is not more
than two years prior to the Announcement Date; and
(d) (if applicable) the price per share equal to
the Fair Market Value per share of such Class of Preferred Stock
determined pursuant to subparagraph (B)(ii)(c)(I) above, multiplied by
the ratio of (I) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder or any of its Affiliates or Associates for any
shares of such class of Preferred Stock acquired by it or them within
the two-year period immediately prior to the Announcement Date to (II)
the Fair Market Value per share of such class of Preferred Stock on
the first day in such two-year period upon which the Interested
Stockholder or any of its Affiliates or Associates acquired any shares
of such class of Preferred Stock.
The provisions of this subparagraph (B)(2)(ii) shall be
required to be met with respect to every class of outstanding
Preferred Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of Preferred
Stock.
(iii) If the Interested Stockholder or any of its
Affiliates or Associates have paid for shares of any class or series
of Capital Stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of that
class or series of Capital Stock shall be either cash or the form used
to acquire the largest number of shares of such class or series of
Capital Stock previously acquired by the Interested Stockholder or any
of its Affiliates or Associates. The price determined in accordance
with subparagraphs B(2)(i) and (ii) of this Article THIRTEENTH shall
be subject to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar event.
(iv) After becoming an Interested Stockholder and prior to
the consummation of such Business Combination (a) such Interested
Stockholder or any of its Affiliates or Associates shall not have
acquired any newly issued shares of Capital Stock, directly or
indirectly, from the Corporation or any Subsidiary (except
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upon conversion of convertible securities acquired by it prior to
becoming an Interested Stockholder or upon compliance with the
provisions of this Article THIRTEENTH or as a result of a pro rata
stock dividend or stock split); (b) except as approved by a majority
of the Continuing Directors, there shall have been (I) no failure to
declare and pay at the regular date thereof any full quarterly or
semi-annual dividends (whether or not cumulative) on the outstanding
Preferred Stock, (II) no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), and (III) an increase in such annual
rate of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization, reorganization
or any similar transaction which has the effect of reducing the number
of outstanding shares of Common Stock; and (c) such Interested
Stockholder or any of its Affiliates or Associates shall not have
received the benefit, directly or indirectly (except proportionately
as a stockholder), of any loans, advances, guarantees, pledges or
other financial assistance or tax credits or other tax advantages
provided by the Corporation or any Subsidiary, or made any major
changes in the Corporation's or any Subsidiary's business or equity
capital structure; and
(v) A proxy statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations), whether or not the Corporation is then subject to such
requirements, shall be mailed to the stockholders of the Corporation
at least thirty (30) days prior to the consummation of such Business
Combination for the purpose of soliciting stockholder approval of such
Business Combination. The proxy statement shall contain on the first
page thereof, in a prominent place, any recommendation as to the
advisability (or inadvisability) of the Business Combination that the
Continuing Directors, or any of them, may choose to state and, if
deemed advisable by a majority of the Continuing Directors, the
opinion of an investment banking firm selected by a majority of the
Continuing Directors, as to the fairness (or not) of the terms of the
Business Combination, from a financial point of view to the holders of
the outstanding shares of capital stock of the Corporation other than
the Interested Stockholder and its Affiliates or Associates (such
investment banking firm to be paid a reasonable fee for its services
by the Corporation).
C. For the purposes of this Article THIRTEENTH:
(1) A "person" means any individual, limited partnership,
limited liability partnership, general partnership, corporation,
limited liability company, business trust or other firm or entity.
(2) "Interested Stockholder" means any person (other than
the Corporation or any Subsidiary), who or which together with their
Affiliates or Associates:
(i) is the beneficial owner, directly or
indirectly, of fifteen percent (15%) or more of the total
voting power of the outstanding Capital Stock with respect to
the election of directors of the Corporation; or
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(ii) is an Affiliate or an Associate of the
Corporation or any Subsidiary and at any time within the
two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of fifteen
percent (15%) or more of the total voting power of the then
outstanding Capital Stock with respect to the election of
directors of the Corporation; or
(iii) is an assignee of or has otherwise succeeded
to any shares of Capital Stock which were at any time within
the two-year period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, as
amended.
(3) A person shall be a "beneficial owner" of, or shall
"beneficially own", any Capital Stock:
(i) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly within
the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as in effect on September 1, 1996; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding (but
neither such person nor any such Affiliate or Associate shall
be deemed to be the beneficial owner of any shares of Capital
Stock solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to
which shares neither such person nor any such Affiliate or
Associate is otherwise deemed to beneficially own); or
(iii) which are beneficially owned, directly or
indirectly, within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as in effect on September 1,
1996, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting
(other than solely by reason of a revocable proxy as described
in subparagraph (ii) of this paragraph (3)) or disposing of
any shares of Capital Stock;
provided, however, that in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Capital
Stock held by such plan, no such plan nor any trustee with respect
thereto (nor any Affiliate or Associate of such trustee), solely by
reason of such capacity of such trustee, shall be deemed for any
purposes hereof, to beneficially own any shares of Capital Stock held
under any such plan.
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(4) For the purposes of determining whether a person is
an Interested Stockholder pursuant to paragraph (2) of this Section C,
the number of shares of Capital Stock deemed to be outstanding shall
include shares deemed owned through application of paragraph (3) of
this Section C but shall not include any other unissued shares of
Capital Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective
meaning ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
September 1, 1996.
(6) "Subsidiary" means a corporation of which a majority
of any class of equity securities is owned directly or indirectly, by
the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph (2) of
this Section C, the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned directly or
indirectly by the Corporation.
(7) "Continuing Director" means (i) any member of the
Board of Directors of the Corporation who is unaffiliated with the
Interested Stockholder and was either a member of the Board of
Directors on the effective date of this Article THIRTEENTH or a member
of the Board of Directors prior to the time that the Interested
Stockholder in question became an Interested Stockholder, and (ii) any
director who is thereafter chosen to fill any vacancy on the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment or
election by a majority of Continuing Directors.
(8) "Fair Market Value" means (i) in the case of stock,
the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange-Listed Stock, or if such
stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation during the 30-day period immediately
preceding the date in question in the over-the-counter market, as
reported by the NASDAQ National Market or such other system then in
use, or, if no such quotations are available, the fair market value on
the date in question as determined in good faith by a majority of the
Continuing Directors and (ii) in the case of property other than cash
or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Continuing
Directors.
(9) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in subparagraphs B(2)(i) and B(2)(ii) of this
Article THIRTEENTH shall include the
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shares of Common Stock and/or the shares of any other class (or
series) of outstanding capital stock retained by the holders of such
shares.
(10) "Whole Board" means the total number of directors
which this Corporation would have if there were no vacancies.
(11) "Voting Shares" shall mean (i) the Common Stock of
the Corporation and (ii) any shares of Preferred Stock of the
Corporation that (a) by the terms of this Certificate of Incorporation
or any Preferred Stock Designation are entitled to vote on matters
presented to a vote of stockholders under this Article THIRTEENTH (or,
if applicable, Article FOURTEENTH), and (b) were issued by the
Corporation prior to the date any Person who is at the time of the
vote an Interested Stockholder became an Interested Stockholder or, if
issued thereafter, the issuance thereof was approved by a majority of
the Continuing Directors; provided, however, that this condition shall
not be capable of satisfaction unless there are at least three
Continuing Directors.
(12) "Preferred Stock Designation" shall mean a
certificate filed with the Secretary of State of the State of Delaware
to evidence the designation of any series of the Preferred Stock of
the Corporation established by resolution of the Board of Directors
pursuant to authority granted in this Certificate of Incorporation.
D. A majority of the Whole Board, but only if a majority
of the Whole Board shall then consist of Continuing Directors or, if a
majority of the Whole Board shall not then consist of Continuing
Directors, a majority of the then Continuing Directors, shall have the
power and duty to determine, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance
with this Article THIRTEENTH, including, without limitation, (1)
whether a person is an Interested Stockholder, (2) the number of
shares of Capital Stock beneficially owned by any person, and whether
any shares are "Voting Shares" under paragraph (11) of Section C of
this Article THIRTEENTH, (3) whether a person is an Affiliate or
Associate of another, (4) whether the applicable conditions set forth
in paragraph (2) of Section B have been met with respect to any
Business Combination, (5) the Fair Market Value of stock or other
property in accordance with paragraph (8) of Section C of this Article
THIRTEENTH, and (6) whether the assets which are the subject of any
Business Combination referred to in paragraph (1)(ii) of Section A
have, or the consideration to be received for the issuance or transfer
of securities by the Corporation or any Subsidiary in any Business
Combination referred to in paragraph (1)(iii) of Section A has, an
aggregate Fair Market Value of $1 million or more. A majority of the
Whole Board, but only if a majority of the Whole Board shall then
consist of Continuing Directors, or, if a majority of the Whole Board
shall not then consist of Continuing Directors, a majority of the then
Continuing Directors shall have the further power to interpret all of
the terms and provisions of this Article THIRTEENTH.
E. A majority of the Whole Board shall have the right to
demand, but only if a majority of the Whole Board shall then consist
of Continuing Directors, or, if a
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majority of the Whole Board shall not then consist of Continuing
Directors, a majority of the then Continuing Directors shall have the
right to demand that any person who it is reasonably believed is an
Interested Stockholder or Affiliate or Associate thereof (or holds of
record shares of Capital Stock Beneficially Owned by any Interested
Stockholder or Affiliate or Associate thereof) supply the Corporation
with complete information as to (1) the record owner(s) of all shares
Beneficially Owned by such person who it is reasonably believed is an
Interested Stockholder or Affiliate or Associate thereof, (2) the
number of, and class or series of, shares Beneficially Owned by such
person who it is reasonably believed is an Interested Stockholder or
Affiliate or Associate thereof and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such
shares, and (3) any other factual matter relating to the applicability
or effect of this Article THIRTEENTH, as may be reasonably requested
of such person, and such person shall furnish such information within
10 days after receipt of such demand.
F. Nothing contained in this Article THIRTEENTH shall be
construed to relieve any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder from any fiduciary obligation
imposed by law.
PROPOSAL NUMBER 3
ELIMINATION OF STOCKHOLDER ACTION BY
WRITTEN CONSENT
Article TWELFTH of the Certificate of Incorporation shall be
renumbered Article SIXTEENTH, and the following shall be substituted as the new
Article TWELFTH:
TWELFTH. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by
any consent in writing by such holders. At any annual meeting or
special meeting of stockholders of the Corporation, only such business
shall be conducted as shall have been brought before such meeting in
the manner provided by the Bylaws of the Corporation.
PROPOSAL NUMBER 4
INCREASED STOCKHOLDER VOTE FOR
AMENDMENT OR REPEAL OF THE COMPANY'S BYLAWS
The following shall be added as a new Article FOURTEENTH:
FOURTEENTH: The Board of Directors may adopt, repeal, alter
or amend the Bylaws of the Corporation by the vote of a majority of
the Whole Board (as defined in Subparagraph C(10) of Article
THIRTEENTH). Notwithstanding any other provisions of this Certificate
of Incorporation or any Preferred Stock Designation or any provision
of law, which might otherwise permit a lesser vote or no vote, but in
addition to any requirements of law and any other provisions of this
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Certificate of Incorporation or any Preferred Stock Designation (as
defined in Subparagraph C(12) of Article THIRTEENTH, the stockholders
may not adopt, amend, alter or repeal any provision of the Bylaws of
the Corporation, except by the affirmative vote of (i) the holders of
at least two-thirds (66-2/3%) of the voting power of the then
outstanding Voting Shares (as defined in Subparagraph C(11) of Article
THIRTEENTH) voting together as a single class, and (ii) if such
amendment has been proposed, directly or indirectly, by or on behalf
of any Interested Stockholder (as defined in Subparagraph C(2) of
Article THIRTEENTH), it must also be approved by the affirmative vote
of not less than two-thirds (66-2/3%) of the total voting power of all
outstanding Voting Shares that are not beneficially owned by such
Interested Stockholder or the Affiliates or Associates (as defined in
Subparagraph C(5) of Article THIRTEENTH) of such Interested
Stockholder, voting together as a single class.
PROPOSAL NUMBER 5
INCREASED STOCKHOLDER VOTE FOR
AMENDMENT OR REPEAL OF THE
PROPOSED AMENDMENTS
The following shall be added as a new Article FIFTEENTH:
FIFTEENTH. Notwithstanding any other provisions of this
Certificate of Incorporation, any Preferred Stock Designation (as
defined in subparagraph C(12) of Article THIRTEENTH), or any provision
of law, which might otherwise permit a lesser vote or no vote, but in
addition to any requirements of law, any other provisions of this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of not less than two-thirds (66-2/3%) of the total
voting power of all outstanding Voting Shares (as defined in
subparagraph C(11) of Article THIRTEENTH) voting together as a single
class, shall be required to alter, amend or repeal Article TWELFTH,
Article THIRTEENTH, Article FOURTEENTH or this Article FIFTEENTH;
provided, however, that if such action has been proposed, directly or
indirectly, by or on behalf of any Interested Stockholder (as defined
in subparagraph C(2) of Article THIRTEENTH), it must also be approved
by the affirmative vote of not less than two-thirds (66-2/3%) of the
total voting power of all outstanding Voting Shares (as defined in
subparagraph C(11) of Article THIRTEENTH) that are not beneficially
owned by such Interested Stockholder or the Affiliates or Associates
(as defined in subparagraph C(5) of Article THIRTEENTH) of such
Interested Stockholder, voting together as a single class.
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PROPOSAL NUMBER 6
INCREASE IN AUTHORIZED CAPITAL
STOCK OF THE COMPANY
The first paragraph of Article FOURTH of the Certificate of
Incorporation is hereby deleted and the following shall be substituted in lieu
thereof:
FOURTH. The total number of shares of Capital Stock which the
Corporation shall have authority to issue is Thirty-Five Million Four
Hundred Eighty-Seven Thousand Four Hundred Ten (35,487,410) shares,
divided into Four Hundred Eighty-Seven Thousand Four Hundred Ten
(487,410) shares of Preferred Stock, without par value, issuable in
series, hereinafter called "Preferred Stock Issuable in Series," and
Thirty-Five Million (35,000,000) shares of Common Stock of the par
value of $1.00 each.
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EXHIBIT B
The following sets forth the advance notice requirements for director
nominations and stockholder proposals contained in the Company's Bylaws.
Section 2. Advance Notice Requirements for Director Nominations.
(a) Subject to Article III, Section 2 of these Bylaws,
[relating to the authority of the Board of Directors to fill vacancies
on the board by a majority vote of the directors then in office] only
persons who are nominated in accordance with the procedures set forth
in these Bylaws shall be eligible to serve as directors. Nominations
of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders (1) by or at the direction of
the Board of Directors or by any nominating committee or person
appointed by the Board of Directors and (2) by any stockholder of the
corporation entitled to vote for the election of directors at the
meeting, who is a stockholder of record at the time of giving the
notice provided for in these Bylaws and who complies with the notice
procedures set forth in these Bylaws.
(b) In addition to any other applicable requirements, and
subject to any limitations on business which may be proposed or
transacted at such meeting, including, without limitation, Article II,
Section 5 of these Bylaws, [relating to special meetings of
stockholders] nominations for directors, other than nominations made
by or at the direction of the Board of Directors or by any nominating
committee or person appointed by the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the
corporation. To be timely with respect to an annual meeting of
stockholders, a stockholder's notice must be received at the principal
executive offices of the corporation not less than sixty (60) days nor
more than one hundred twenty days (120) prior to the date of the
annual meeting of stockholders; provided, however, that in the event
that the first public disclosure (whether by mailing of a notice to
stockholders or the exchange on which the common stock of the
corporation is listed or to the Nasdaq National Market, by press
release or otherwise) of the date of the annual meeting of the
stockholders is made less than sixty-five (65) days prior to the date
of such meeting, notice by a stockholder will be timely if received at
the principal executive offices of the corporation not later than the
close of business on the tenth (10) day following the day on which
such public disclosure is first made. To be timely with respect to a
special meeting of stockholders at which directors are to be elected,
a stockholder's notice must be received at the principal executive
offices of the corporation not later than the close of business on the
tenth (10th) day following the day on which the first public
disclosure (whether by mailing of a notice to stockholders or the
exchange on which the common stock of the corporation is listed or to
the Nasdaq National Market, by press release or otherwise) of the date
of the special meeting is made.
(c) A stockholder's notice of a director nominee shall
set forth (1) as to each person whom the stockholder proposes to
nominate for election or re-election
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<PAGE> 69
as a director, (a) the name, age, business address and residence
address of the person; (b) the principal occupation or employment of
the person; (c) the class and number of shares of capital stock of the
corporation which are beneficially owned by the person; and (d) such
other information relating to the person, as would be required under
the rules of the Securities and Exchange Commission in a proxy
statement soliciting proxies for the election of such person whether
or not such proxies are in fact solicited for the election of such
person; and (2) as to the stockholder giving the notice (a) the name
and address, as they appear on the corporation's stock register, of
the stockholder; (b) the class and number of shares of capital stock
of the corporation which are beneficially owned by the stockholder;
and (c) such other information relating to the stockholder or the
nomination as is required to be disclosed under the rules of the
Securities and Exchange Commission governing the solicitation of
proxies whether or not such proxies are in fact solicited by the
stockholder. Such notice must also include a signed consent of each
such nominee to serve as a director of the corporation, if elected or
re-elected. The corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the
corporation to determine the eligibility for election of such nominee
as a director of the corporation. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a
director nomination was not made in accordance with the foregoing
procedure, and if he should so determine, the defective nomination
shall be disregarded.
(d) Notwithstanding the foregoing provisions of these
Bylaws, a stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set
forth in this Article II, Section 2.
Section 4. Advance Notice Requirements for Business Conducted at
Stockholder Meetings.
(a) At an annual or special meeting of the stockholders,
only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual
or special meeting of stockholders, business must be (1) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (2) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or
(3) otherwise properly brought before the meeting by any stockholder
of the corporation who is entitled to vote at such meeting, who is a
stockholder of record at the time of giving of the notice provided for
in these Bylaws and who complies with the notice procedures set forth
in these Bylaws.
(b) In addition to any other applicable requirements, and
subject to any limitations on business which may be proposed or
transacted at such meeting, including, without limitation, Article II,
Section 5 of these Bylaws [relating to special meetings of
stockholders], for business to be properly brought before an annual or
special meeting by a stockholder pursuant to clause (3) of paragraph
(a) above, the stockholder must have given timely notice thereof in
writing to the Secretary of the
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<PAGE> 70
corporation. To be timely with respect to an annual meeting of
stockholders, a stockholder's notice must be received at the principal
executive offices of the corporation not less than sixty (60) days nor
more than one hundred twenty days (120) prior to the date of the
annual meeting; provided, however, that in the event that the first
public disclosure (whether by mailing of a notice to stockholders or
the exchange on which the common stock of the corporation is listed or
to the Nasdaq National Market, by press release or otherwise) of the
date of the annual meeting is made less than sixty-five (65) days
prior to the date of the meeting, notice by a stockholder will be
timely if received not later than the close of business on the tenth
(10) day following the day on which such public disclosure is first
made. To be timely with respect to a special meeting of stockholders,
a stockholder's notice must be received at the principal executive
offices of the corporation not later than the close of business on the
tenth (10th) day following the day on which the first public
disclosure (whether by mailing of a notice to stockholders or the
exchange on which the stock of the corporation is listed or to the
Nasdaq National Market, by press release or otherwise), of the date of
the special meeting is made.
(c) A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the
meeting (1) a reasonably detailed description of the business desired
to be brought before the meeting and the reasons for conducting such
business at the meeting, (2) the name and address, as they appear on
the corporation's books, of the stockholder proposing such business,
and the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, (3) the class and number of shares of the
corporation which are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any, on whose
behalf the proposal is made, (4) any material interest of such
stockholder of record and the beneficial owner, if any, on whose
behalf the proposal is made in such business, and (5) such other
information relating to the stockholder or the business proposed to be
brought before the meeting as is required to be disclosed under the
rules of the Securities and Exchange Commission governing the
solicitation of proxies whether or not such proxies are in fact
solicited by the stockholder. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at an annual or
special meeting of stockholders except in accordance with the
procedures set forth in this Article II, Section 4 (or to the extent
applicable, Article II, Section 2); provided, however, that nothing in
this Article II, Section 4 shall be deemed to preclude discussion by
any stockholder of any business properly bought before the annual or
special meeting of stockholders in accordance with said procedures.
(d) The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of these Bylaws, a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and
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<PAGE> 71
regulations thereunder with respect to the matters set forth in this
Article II, Section 4.
(e) Notwithstanding anything in this Section 4, or these
Bylaws, should an annual or special meeting be convened and
subsequently adjourned, no business may be brought before any
reconvened annual or special meeting that was not, pursuant to these
Bylaws, properly brought before the annual or special meeting that was
previously adjourned.
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<PAGE> 72
PROXY REPUBLIC GROUP INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 24, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of
Annual Meeting of Stockholders of Republic Group Incorporated (the "Company")
to be held on October 24, 1996 and the Proxy Statement in connection therewith,
and (2) constitutes and appoints Talbot Rain, Phil Simpson, Gerald L. Ray and
each of them (acting by majority, or if only one be present, then by that one
alone), his attorneys and proxies, with full power of substitution and
revocation to each, for and in the name, place and stead of the undersigned, to
vote, and act with respect to, all of the shares of Common Stock, par value
$1.00 per share (the "Common Stock"), of the Company standing in the name of
the undersigned or with respect to which the undersigned is entitled to vote
and act, at said meeting and at any adjournment(s) thereof, and especially to
vote as designated below.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below
(except as marked to the contrary
below)
[ ] WITHHOLD AUTHORITY
to vote for all nominees listed
below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Stephen L. Gagnon, Bert A. Nelson, Talbot Rain, Gerald L. Ray, Robert F.
Sexton, David P. Simpson, Phil Simpson, L.L. Wallace, David B. Yarbrough
2. Approval of an amendment to the Company's Restated Certificate of
Incorporation to add a "fair price" provision requiring that certain
transactions with interested 15% stockholders of the Company (or
certain related parties) be approved by the vote of the holders of not
less than 66-2/3% of the total voting power of all outstanding shares
of voting stock of the Company (excluding shares held by such
interested stockholders and certain related parties) unless the
transaction is approved by a majority of the Continuing Directors (as
defined in such amendment) or certain procedural and fair price
requirements are satisfied.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment to the Company's Restated Certificate of
Incorporation to add a requirement that action by stockholders only be
taken at an annual or special meeting of stockholders and not by
written consent.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of an amendment to the Company's Restated Certificate of
Incorporation to add a requirement that adoption, amendment,
alteration or repeal of the Amended and Restated Bylaws of the Company
by the stockholders requires the vote of the holders of not less than
662/3% of the total voting power of all outstanding shares of voting
stock of the Company, and, if such action has been proposed by an
interested 15% stockholder (or certain related parties), the
additional vote of the holders of not less than 66-2/3% of the total
voting power of all outstanding shares of voting stock not
beneficially owned by such interested stockholder or such related
parties.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 73
5. Approval of an amendment to the Company's Restated Certificate of
Incorporation to add a requirement that amendment, alteration or
repeal of the foregoing amendments to the Restated Certificate of
Incorporation that are approved, as well as the amendment that would
be added by this proposal itself, requires the vote of the holders of
not less than 66-2/3% of the total voting power of all outstanding
shares of voting stock, and, if such action has been proposed by an
interested 15% stockholder (or certain related parties), the
additional vote of the holders of not less than 66-2/3% of the total
voting power of all outstanding shares of voting stock not
beneficially owned by such interested stockholder or such related
parties.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Approval of an amendment to the Company's Restated Certificate of
Incorporation to increase the total number of shares of Common Stock
that the Company shall have the authority to issue from 25,000,000 to
35,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. Approval of certain amendments to the Company's 1989 Long-Term
Incentive Plan (as more particularly described in the attached Proxy
Statement).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. Approval of an amendment to the Company's Non-Employee Director Stock
Option Plan (as more particularly described in the attached Proxy
Statement).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
9. In their discretion on any other matters as may properly come before
the meeting or any adjournment(s) thereof.
(Continued on other side)
<PAGE> 74
(Continued from reverse side)
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted FOR all nominees listed in Proposal 1 and FOR Proposals 2 through 8.
DATED , 1996
----------------------------
PLEASE SIGN HERE
------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Please sign exactly as your name
appears. If shares are held by joint
tenants, both must sign. If signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
an authorized officer. If a
partnership, please sign in partnership
name by authorized person.
<PAGE> 75
APPENDIX A
REPUBLIC GROUP INCORPORATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AS AMENDED AND RESTATED
EFFECTIVE AUGUST 16, 1996
<PAGE> 76
REPUBLIC GROUP INCORPORATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AS AMENDED EFFECTIVE AUGUST 16, 1996
This is a plan pursuant to which options to purchase the Common Stock,
par value $1.00 per share (the "Common Stock"), of Republic Group Incorporated,
a Delaware corporation formerly known as Republic Gypsum Company (the
"Corporation"), are granted to non-employee directors of the Corporation. This
plan is known as the Non-Employee Director Stock Option Plan (the "Plan"), and
was originally effective August 7, 1989. The purpose of the Plan is to obtain
and retain the services of qualified persons who are not full-time employees of
the Corporation to serve as directors of the Corporation, and to demonstrate
the Corporation's appreciation for their service upon its Board of Directors.
Section 1. Administration. The Plan shall be administered by
the Board of Directors of the Corporation (the "Board of Directors"). The
Board of Directors, in its discretion, may delegate any or all of its
authority, powers and discretion under the Plan to a committee (the
"Committee") of the Board of Directors; and the Board of Directors in its
discretion may revest any or all such authority, powers and discretion in
itself at any time. The Board of Directors, subject to the provisions of the
Plan and Sections 2 and 4 in particular, shall have the power to construe the
Plan, to determine all questions thereunder, and to adopt and amend such rules
and regulations for the administration of the Plan as it may deem desirable.
Section 2. Eligibility and Grants of Options. Each member of
the Board of Directors serving on the effective date of the restated and
amended Plan, who is not a full-time employee of the Corporation ("non-employee
director"), shall be granted without further action by the Board of Directors
or the Committee an option to purchase 1,500 shares of the Corporation's Common
Stock on the effective date of the restated and amended Plan. Thereafter, on
the first business day following each annual meeting of stockholders of the
Corporation, each non-employee director shall be granted without further action
by the Board of Directors or the Committee an option to purchase 1,500 shares
of the Corporation's Common Stock. As soon as practicable after the grant of
an option under the Plan, the Corporation and the non-employee director shall
enter into a Stock Option Agreement evidencing the option so granted. Such
agreement shall be in such form, consistent with the Plan, as the Board of
Directors shall deem appropriate.
Section 3. Adjustment of Number of Shares. In the event that a
dividend or stock split hereinafter shall be declared upon the Common Stock of
the Corporation payable in shares of Common Stock of the Corporation, the
number of shares of Common Stock then subject to any outstanding option under
the Plan and the number of shares as to which an option is to be granted to any
non-employee director under Section 2 of the Plan shall be adjusted by adding
to each such share the number of shares which would be distributable thereon if
such share had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend or stock split. In the
event that the outstanding shares of the Common Stock of the Corporation shall
be changed into or exchanged for a different number or kind of shares of stock
or other securities of the Corporation whether through reorganization,
recapitalization or reclassification, then there shall be substituted for each
share of Common Stock subject to or to be subject to any such
<PAGE> 77
option under Section 2, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged.
In the event there shall be any change, other than as specified above
in this Section 3, in the number or kind of outstanding shares of Common Stock
of the Corporation or of any stock or other securities into which such Common
Stock shall have been changed or for which it shall have been exchanged, then
the Board of Directors shall make such adjustment, if any, as it deems
equitable in the number and/or kind of shares or other securities subject to
outstanding options or subject to options to be granted under Section 2 hereof.
In the case of any such substitution or adjustment as provided for in this
Section, the option price for each share covered thereby prior to such
substitution or adjustment shall be the option price for all shares of stock or
other securities which shall have been substituted for such share or to which
such share shall have been adjusted pursuant to this Section. No adjustment or
substitution provided for in this Section 3 shall require the Corporation to
sell a fractional share, and the total substitution or adjustment with respect
to each option shall be limited accordingly.
Section 4. Exercise and Termination of Options.
(a) Subject to the provisions of Section 6 hereof, each
option granted under the Plan shall be exercisable in full one (1)
year following the grant of such option; provided, that the
non-employee director has served as a non-employee director throughout
such one-year period. If the non-employee director should cease to
serve as a director during the one-year period by reason of death or
permanent disability (of which the Board of Directors shall be the
sole judge), each option granted under the Plan shall be exercisable
in full on or after the date that the non-employee director ceases to
serve as a director.
(b) The option price per share of the shares of Common
Stock subject to an option granted under the Plan shall be 100% of the
fair market value of a share of the Common Stock on the day the option
is granted. The option price per share will be subject to adjustment
in accordance with the provisions of Section 3 of the Plan. Any
adjustment or determination made by the Board of Directors shall be
conclusive. For purposes of the Plan, if the Common Stock is listed
on a national securities exchange, the fair market value of a share of
the Common Stock on any date shall be the closing sale price of such a
share on such date on such exchange, or, if there is no closing sale
price on such date, the closing sale price of such a share on such
exchange on the last preceding date on which there was such a closing
sale price.
(c) Each option shall automatically terminate upon the
occurrence of the following events: (i) twelve months after the
non-employee director ceases to be a director of the Corporation by
reason of the non- employee director's death or permanent disability
(of which the Board of Directors shall be the sole judge); or (ii) six
months after the non-employee director ceases to be a director of the
Corporation for any reason, other than as set forth in (i) above.
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<PAGE> 78
(d) Options granted under the Plan shall not be
transferable by the nonemployee director other than to Permitted
Transferees, as defined herein, or other than by will or, if he dies
intestate, by the laws of descent and distribution of the state of
domicile at the time of his death, and such options shall be
exercisable during his lifetime only by such non-employee director, a
Permitted Transferee, or by his guardian or legal representative.
"Permitted Transferee" means a member of the non-employee director's
immediate family, trusts for the benefit of such immediate family
members, and partnerships in which the non-employee director and/or
such immediate family members are the only partners, provided that no
consideration is provided for the transfer.
Section 5. Manner of Exercise of Option. Options granted
hereunder shall be exercised by delivering to the Secretary of the Corporation,
from time to time within the time limits specified in Section 4 hereof, a
written notice specifying the number of shares the option holder then desires
to purchase together with (a) a check payable in United States currency to the
order of the Corporation for an amount equal to the option price for such
number of shares, or (b) shares of Common Stock owned by the option holder duly
endorsed to the order of the Corporation, with a fair market value equal to the
option price for such number of shares, as of the close of business on the
immediately preceding business day (determined in accordance with Section 4
hereof), or (c) any combination of the foregoing, and such other instruments or
agreements duly signed by the option holder as in the opinion of counsel for
the Corporation may be necessary or advisable in order that the issuance of
such number of shares comply with the applicable rules and regulations under
the Securities Act of 1933, any appropriate state securities laws or any
requirement of any national securities exchange on which such stock may be
traded. As soon as practical after any such exercise of an option in whole or
in part, the Corporation will deliver to the option holder at the principal
executive offices of the Corporation, a certificate for the number of shares
with respect to which the option shall have been so exercised, issued in the
option holder's name. Such stock certificate shall carry such appropriate
legends, and such written instructions shall be given to the Corporation's
transfer agent, as may be deemed necessary or advisable by counsel to the
Corporation in order to comply with the requirements of the Securities Act of
1933 or any state securities laws. In addition, unless restricted by the Board
of Directors, option holders may elect to pay the purchase price of shares of
Common Stock purchased upon the exercise of Options in cash or through the
constructive delivery at the time of such exercise of shares of Common Stock
(valued at fair market value as of the date of exercise) already owned by the
option holders, or any combination thereof, equivalent to the purchase price of
such Options, and, as soon as practicable thereafter, a certificate
representing the net number of shares so purchased shall be delivered to the
person entitled thereto. Option holders also may elect to pay, unless
restricted by the Board of Directors, the purchase price, in whole or in part,
of shares of Common Stock purchased upon the exercise of Options through the
Company's withholding of shares of Common Stock (valued at fair market value as
of the date of exercise) that would otherwise be issuable upon exercise of such
options equivalent to the purchase price of such Options and, as soon as
practicable thereafter, a certificate representing the net number of shares so
purchased shall be delivered to the person entitled thereto.
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<PAGE> 79
Section 6. Change in Control. Notwithstanding any other
provision of the Plan, in the event of a change in control, all outstanding
stock options will automatically become fully exercisable. For purposes of
this paragraph 6, the term "change in control" means a change in the beneficial
ownership of the Company's voting stock or a change in the composition of the
Board which occurs as follows:
(a) any "person" (as such term is used in Section 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934),
other than the Company, a wholly-owned subsidiary of
the Company, any employee benefit plan of the Company
or of a Subsidiary or any trustee of such a plan, is
or becomes a beneficial owner, directly or
indirectly, of stock of the Company representing 35
percent or more of the total voting power of the
Company's then outstanding voting stock.
(b) a tender offer (for which a filing has been made with
the Securities Exchange Commission ("SEC") which
purports to comply with the requirements of Section
14(d) of the Securities Exchange Act of 1934 and the
corresponding SEC rules) is made for the stock of the
Company, which has not been negotiated and approved
by the Board, provided that in case of a tender offer
described in this paragraph (b), the change in
control will be deemed to have occurred upon the
first to occur of (i) any time during the offer when
the person (using the definition in (a) above) making
the offer owns or has accepted for payment stock of
the Company with 35 percent of the total voting power
of the Company's stock or (ii) three business days
before the offer is to terminate unless the offer is
withdrawn first, if the person making the offer could
own, by the terms of the offer plus any shares owned
by this person, stock with 35 percent or more of the
total voting power of the Company's stock when the
offer terminates; or
(c) individuals who were the Board's nominees for
election as directors of the Company immediately
prior to a meeting of the stockholders of the Company
involving a contest for the election of directors
shall not constitute a majority of the Board
following the election.
For purposes hereof, a person will be deemed to be the beneficial owner of any
voting securities of the Company which it would be considered to beneficially
own under Securities and Exchange Commission Rule 13d-3 (or any similar or
superseding statute or rule) from time to time in effect.
Section 7. Effective Date of Restated Plan. The effective date
of the restated and amended Plan shall be August 16, 1996. It is the intent of
the Company that the restated and amended Plan comply with new Rule 16b-3,
issued by the Securities and Exchange Commission on May 31, 1996.
Section 8. Amendment of the Plan. The Board of Directors shall
have the right to amend, suspend or terminate this Plan at any time, and make
modifications or
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<PAGE> 80
amendments to such Plan; provided, however, that the approval by the
affirmative vote of holders of a majority of the shares of Common Stock present
or represented by proxy at a meeting of stockholders of the Corporation shall
be required for any amendment if such approval is a condition of Securities and
Exchange Commission Rule 16b-3 as it is applicable to the Plan at the time such
amendment becomes effective. Termination or any modification or amendment of
the Plan shall not, without the consent of a non-employee director, affect his
rights under an option previously granted to him.
Section 9. Limitation of Rights.
(a) Neither the Plan, nor the granting of an option nor
any other action taken pursuant to the Plan shall constitute or be
evidence of any agreement or understanding, expressed or implied, that
the Corporation will retain a director for any period of time.
(b) An option holder shall have no rights as a
stockholder with respect to the shares covered by his option until the
date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
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<PAGE> 81
APPENDIX B
REPUBLIC GROUP INCORPORATED
1989 LONG-TERM INCENTIVE PLAN
(As Restated and Amended Effective August 16, 1996)
I. GENERAL
1. Purpose. The REPUBLIC GROUP INCORPORATED 1989 Long-Term
Incentive Plan (the "1989 Plan") has been established by REPUBLIC GROUP
INCORPORATED (the "Company") to:
(a) attract and retain key executive and managerial
employees;
(b) motivate participating employees, by means of
appropriate incentive, to achieve long-range goals;
(c) provide incentive compensation opportunities which
are competitive with those of other major
corporations; and
(d) further identify Participants' interests with those
of the Company's other shareholders through
compensation alternatives based on the Company's
common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. Effective Date. Subject to the approval of the holders of a
majority of the Stock of the Company present, or represented, and entitled to
vote at the Company's 1989 annual meeting of its stockholders, the 1989 Plan
shall be effective as of July 1, 1989, provided, however, that awards made
under the 1989 Plan prior to such approval of the 1989 Plan by stockholders of
the Company are contingent on such approval of the 1989 Plan by the
stockholders of the Company and shall be null and void if such approval of the
stockholders of the Company is withheld. The 1989 Plan shall be unlimited in
duration and, in the event of plan termination, shall remain in effect as long
as any awards under it are outstanding. Effective August 16, 1996, it is the
intent of the Company for the Plan to comply with new Rule 16b-3, issued by the
Securities and Exchange Commission on May 31, 1996.
3. Definitions. The following definitions are applicable to the
1989 Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
<PAGE> 82
"Disabled" means the inability of a Participant, by reason of a
physical or mental impairment, to engage in any substantial gainful activity,
of which the Board shall be the sole judge.
"Fair Market Value" of any Stock means, as of any date, the closing
market composite price for such Stock as reported for the New York Stock
Exchange-Composite Transactions on the date or, if Stock is not traded on that
date, on the next preceding date on which Stock was traded.
"Option Date" means, with respect to any Stock Option, the date on
which the Stock Option is awarded under the 1989 Plan.
"Participant" means any employee of the Company or any Subsidiary who
is selected by the Board to participate in the 1989 Plan.
"Performance Unit" shall have the meaning ascribed to it in Part VI.
"Permitted Transferees" means a member of an optionee's immediate
family, trusts for the benefit of such immediate family members, and
partnerships in which such immediate family members are the only partners,
provided that no consideration is provided for the transfer.
"Related Company" means any corporation during any period in which it
is a Subsidiary, or during any period in which it directly or indirectly owns
50% or more of the total combined voting power of all classes of stock of the
Company that are entitled to vote.
"Restricted Period" has the meaning ascribed to it in Part V.
"Restricted Stock" has the meaning ascribed to it in Part V.
"Retirement" means (i) termination of employment in accordance with
the retirement procedures set by the Company from time to time; (ii)
termination of employment because a participant becomes Disabled; or (iii)
termination of employment voluntarily with the consent of the Company (of which
the Board shall be the sole judge).
"Stock" means REPUBLIC GROUP INCORPORATED common stock.
"Stock Appreciation Right" means the right of a holder of a Stock
Option to receive Stock or cash as described in Part IV.
"Stock Option" means the right of a Participant to purchase Stock
pursuant to an Incentive Stock Option or Non- Qualified Option awarded pursuant
to the provisions of the 1989 Plan.
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"Subsidiary" means any corporation during any period of which 50% or
more of the total combined voting power of all classes of stock entitled to
vote is owned, directly or indirectly, by the Company.
4. Administration. The authority to manage and control the
operation and administration of the 1989 Plan shall be vested in the Board.
Subject to the provisions of the 1989 Plan, the Board will have authority to
select employees to receive awards of Stock Options with or without tandem
Stock Appreciation Rights, Restricted Stock and/or Performance Units, to
determine the time or times of receipt, to determine the types of awards and
the number of shares covered by the awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such awards, to
determine the number and value of Performance Units awarded and earned, and to
cancel or suspend awards. In making such award determinations, the Board may
take into account the nature of services rendered by the respective employee,
his or her present and potential contribution to the Company's success and such
other factors as the Board deems relevant. The Board is authorized to
interpret the 1989 Plan, to establish, amend, and rescind any rules and
regulations relating to the 1989 Plan, to determine the terms and provisions of
any agreements made pursuant to the 1989 Plan, and to make all other
determinations that may be necessary or advisable for the administration of the
1989 Plan.
The Board, in its discretion, may delegate any or all of its
authority, powers and discretion under this Plan to the Committee, which shall
consist of two or more "outside directors," as such term is defined under the
Treasury Regulations under Code section 162(m), each of whom shall serve at the
pleasure of the Board; and the Board in its discretion may revest any or all
such authority, powers and discretion in itself at any time. If appointed, the
Committee shall function as follows: A majority of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all
members of the Committee, shall be the acts of the Committee, unless provisions
to the contrary are embodied in the Company's Bylaws or resolutions duly
adopted by the Board. All actions taken and decisions and determinations made
by the Board or the Committee pursuant to the Plan shall be binding and
conclusive on all persons interested in the Plan. No member of the Board or
the Committee shall be liable for any action or determination taken or made in
good faith with respect to the Plan.
5. Participation. Subject to the terms and conditions of the
1989 Plan, the Board shall determine and designate, from time to time, the key
executives and managerial employees of the Company and/or its Subsidiaries who
will participate in the 1989 Plan. In the discretion of the Board, an eligible
employee may be awarded Stock Options with or without tandem Stock Appreciation
Rights, Restricted Stock or Performance Units or any combination thereof, and
more than one award may be granted to a Participant. Except as otherwise
agreed to by the Company and the Participant, any award under the 1989 Plan
shall not affect any previous award to the Participant under the 1989 Plan or
any other plan maintained by the Company or its Subsidiaries.
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6. Shares Subject to the 1989 Plan. The shares of Stock with
respect to which awards may be made under the 1989 Plan shall be either
authorized and unissued shares or issued and outstanding shares (including, in
the discretion of the Board, shares purchased in the market). Subject to the
provisions of paragraph I.10, the number of shares of Stock available under the
1989 Plan for the grant of Stock Options with or without tandem Stock
Appreciation Rights, Performance Units and Restricted Stock shall not exceed
1,150,000 shares in the aggregate. Subject to the provisions of paragraph
I.10, the number of shares of Stock which may be available for grant with
respect to Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock or Performance Units under the 1989 Plan shall be increased, as of the
first day of each subsequent fiscal year for which the 1989 Plan is in effect,
by five percent (5%) of the number of shares of Stock issued by the Company
during the preceding fiscal year (exclusive of shares of Stock issued pursuant
to awards made under the 1989 Plan and reissuances of treasury stock by the
Company). If, for any reason, any award under the 1989 Plan otherwise
distributable in shares of Stock, or any portion of the award, shall expire,
terminate or be forfeited or cancelled, or be settled in cash pursuant to the
terms of the 1989 Plan and, therefore, any such shares are no longer
distributable under the award, such shares of Stock shall again be available
for award under the 1989 Plan. The maximum number of shares of Stock with
respect to which options or rights may be granted each calendar year to each
employee shall be 50,000.
7. Compliance With Applicable Laws and Withholding of Taxes.
Notwithstanding any other provision of the 1989 Plan, the Company shall have no
liability to issue any shares of Stock under the 1989 Plan unless such issuance
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity. Prior to the issuance of any shares of
Stock under the 1989 Plan, the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the purpose or
with the intention of distributing the shares. All awards and payments under
the 1989 Plan are subject to withholding of all applicable taxes, which
withholding obligations may be satisfied, with the consent of the Board,
through the surrender of shares of Stock which the Participant already owns, or
to which a Participant is otherwise entitled under the 1989 Plan. The Company
shall have the right to deduct from all amounts paid in cash in consequence of
the exercise of a Stock Option or Stock Appreciation Right or in connection
with an award of Restricted Stock or Performance Units under the 1989 Plan any
taxes required by law to be withheld with respect to such cash payments. Where
an employee or other person is entitled to receive shares of Stock pursuant to
the exercise of a Stock Option or a Stock Appreciation Right or with respect to
an award of Performance Units pursuant to the 1989 Plan, the Company shall have
the right to require the employee or such other person to pay to the Company
the amount of any taxes that the Company is required to withhold with respect
to such shares, or, in lieu thereof, to retain, or sell without notice, a
sufficient number of such shares to cover the amount required to be withheld.
Upon the disposition (within the meaning of Code Section 424(c)) of shares of
Stock acquired pursuant to the exercise of an Incentive Stock Option prior to
the expiration of the holding period requirements of Code Section 422(a)(1),
the employee shall be required to give notice to the Company of such
disposition and the Company shall have the right to require the employee to pay
to the Company the amount of any taxes that are required by law to be withheld
with respect to such disposition. Upon termination of the Restricted Period
with
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respect to an award of Restricted Stock (or such earlier time, if any, as an
election is made by the employee under Code Section 83(b), or any successor
provisions thereto, to include the value of such shares in taxable income), the
Company shall have the right to require the employee or other person receiving
shares of Stock in respect of such Restricted Stock award to pay to the Company
the amount of taxes that the Company is required to withhold with respect to
such shares of Stock or, in lieu thereof, to retain or sell without notice a
sufficient number of shares of Stock held by it to cover the amount required to
be withheld. The Company shall have the right to deduct from all dividends paid
with respect to Restricted Stock the amount of taxes that the Company is
required to withhold with respect to such dividend payments.
8. Transferability. Incentive Stock Options with or without
tandem Stock Appreciation Rights, Performance Units, and, during the period of
restriction, Restricted Stock awarded under the 1989 Plan are not transferable
except as designated by the Participant by will or by the laws of descent and
distribution. Incentive Stock Options with or without tandem Stock
Appreciation Rights may be exercised during the lifetime of the Participant
only by the Participant or his guardian or legal representative. Non-Qualified
Stock Options with or without tandem Stock Appreciation Rights may be
transferred to Permitted Transferees, and may be exercised either by the
Participant, his guardian or legal representative, or by a Permitted
Transferee.
9. Employment and Stockholder Status. The 1989 Plan does not
constitute a contract of employment, and selection as a Participant will not
give any employee the right to be retained in the employ of the Company or any
Subsidiary. Subject to the provisions of paragraph V.3(a), no award under the
1989 Plan shall confer upon the holder thereof any right as a stockholder of
the Company prior to the date on which he fulfills all service requirements and
other conditions for receipt of shares of Stock. If the redistribution of
shares is restricted pursuant to paragraph 1.7, certificates representing such
shares may bear a legend referring to such restrictions.
10. Adjustments to Number of Shares Subject to the 1989 Plan.
Subject to the following provisions of this paragraph 10 in the event of any
change in the outstanding shares of Stock of the Company by reason of any stock
dividend, split, spinoff, recapitalization, merger, consolidation, combination,
exchange of shares or other similar change, the aggregate number of shares of
Stock with respect to which awards may be made under the 1989 Plan, the terms
and the number of shares of any outstanding Stock Options, Stock Appreciation
Rights, Performance Units, or Restricted Stock, and the purchase price of a
share of Stock under Stock Options, may be equitably adjusted by the Board in
its sole discretion.
11. Change in Control. Notwithstanding any other provision of the
1989 Plan, in the event of a change in control, (i) all outstanding Stock
Options which have been outstanding for at least six months, with or without
tandem Stock Appreciation Rights, and Restricted Stock, and (ii) effective for
all awards made under the 1989 Plan on or after August 16, 1996, all
outstanding Stock Options, with or without tandem Stock Appreciation Rights,
and Restricted Stock, will automatically become fully exercisable and/or
vested, and
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Performance Units may be paid out in such manner and amounts as determined by
the Board. For purposes of this paragraph 11, the term "change in control"
means a change in the beneficial ownership of the Company's voting stock or a
change in the composition of the Board which occurs as follows:
(a) any "person" (as such term is used in Section 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934),
other than the Company, a wholly-owned subsidiary of
the Company, any employee benefit plan of the Company
or of a Subsidiary or any trustee of such a plan, is
or becomes a beneficial owner, directly or
indirectly, of stock of the Company representing 35
percent or more of the total voting power of the
Company's then outstanding voting stock.
(b) a tender offer (for which a filing has been made with
the Securities Exchange Commission ("SEC") which
purports to comply with the requirements of Section
14(d) of the Securities Exchange Act of 1934 and the
corresponding SEC rules) is made for the stock of the
Company, which has not been negotiated and approved
by the Board, provided that in case of a tender offer
described in this paragraph (b), the change in
control will be deemed to have occurred upon the
first to occur of (i) any time during the offer when
the person (using the definition in (a) above) making
the offer owns or has accepted for payment stock of
the Company with 35 percent of the total voting power
of the Company's stock or (ii) three business days
before the offer is to terminate unless the offer is
withdrawn first, if the person making the offer could
own, by the terms of the offer plus any shares owned
by this person, stock with 35 percent or more of the
total voting power of the Company's stock when the
offer terminates; or
(c) individuals who were the Board's nominees for
election as directors of the Company immediately
prior to a meeting of the stockholders of the Company
involving a contest for the election of directors
shall not constitute a majority of the Board
following the election.
For purposes hereof, a person will be deemed to be the beneficial owner of any
voting securities of the Company which it would be considered to beneficially
own under Securities and Exchange Commission Rule 13d-3 (or any similar or
superseding statute or rule) from time to time in effect.
12. Agreement With Company. At the time of any awards under the
1989 Plan, the Board will require a Participant to enter into an agreement with
the Company in a form specified by the Board, agreeing to the terms and
conditions of the 1989 Plan and to such additional terms and conditions, not
inconsistent with the 1989 Plan, as the Board may, in its sole discretion,
prescribe.
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13. Amendment and Termination of 1989 Plan. Subject to the
following provisions of this paragraph 13, the Board may at any time and in any
way amend, suspend or terminate the 1989 Plan. No amendment of the 1989 Plan
and, except as provided in paragraph 10, no action by the Board shall, without
further approval of the stockholders of the Company, increase the total number
of shares of Stock with respect to which awards may be made under the 1989
Plan, materially increase the benefits accruing to Participants under the 1989
Plan or materially modify the requirements as to eligibility for participation
in the 1989 Plan, if stockholder approval of such amendment is a condition of
Securities and Exchange Commission Rule 16b-3 or the Code at the time such
amendment is adopted. No amendment, suspension or termination of the 1989 Plan
shall alter or impair any Stock Option with or without tandem Stock
Appreciation Right, share of Restricted Stock or Performance Unit previously
awarded under the 1989 Plan without the consent of the holder thereof.
II. INCENTIVE STOCK OPTIONS
1. Definition. The award of an Incentive Stock Option under the
1989 Plan entitles the Participant to purchase shares of Stock at a price fixed
at the time the option is awarded, subject to the following terms of this Part
II.
2. Eligibility. The Board shall designate the Participants to
whom Incentive Stock Options, as described in section 422A(b) of the Code or
any successor section thereto, are to be awarded under the 1989 Plan and shall
determine the number of option shares to be offered to each of them. In no
event shall the aggregate Fair Market Value (determined at the time the option
is awarded) of Stock with respect to which Incentive Stock Options are
exercisable for the first time by an individual during any calendar year (under
all plans of the Company and all Related Companies) exceed $100,000.
3. Price. The purchase price of a share of Stock under each
Incentive Stock Option shall be determined by the Board, provided, however,
that in no event shall such price be less than the greater of (a) 100% of the
Fair Market Value of a share of Stock as of the Option Date (or 110% of such
Fair Market Value if the holder of the option owns stock possessing more than
10% of the combined voting power of all classes of stock of the Company or any
Subsidiary) or (b) the par value of a share of Stock on such date. To the
extent provided by the Board, the full purchase price of each share of Stock
purchased upon the exercise of any Incentive Stock Option shall be paid in cash
or in shares of Stock (valued at Fair Market Value as of the day of exercise),
or in any combination thereof, at the time of such exercise and, as soon as
practicable thereafter, a certificate representing the shares so purchased
shall be delivered to the person entitled thereto.
4. Exercise. No Incentive Stock Option may be exercised by a
Participant (a) prior to the date on which he completes six continuous months
of employment with the Company or any Related Company after the date of the
award thereof, or (b) after the Expiration Date applicable to that option.
Provided, however, that the six-month requirement shall not apply if the
Participant's employment terminates by reason of death
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or because the Participant becomes Disabled. Each Option shall become and be
exercisable at such time or times and during such period or periods, in full or
in such installments as may be determined by the Board at the Option Date. The
exercise of an Incentive Stock Option will result in the surrender of the
related Stock Appreciation Right, if any. Effective for all awards of
Incentive Stock Options under the 1989 Plan on or after August 16, 1996, unless
restricted by the Board, Participants may elect to pay the purchase price of
shares of Stock purchased upon the exercise of Incentive Stock Options in cash
or through the constructive delivery at the time of such exercise of shares of
Stock (valued at Fair Market Value as of the day of exercise) already owned by
the Participant, or any combination thereof, equivalent to the purchase price
of such Incentive Stock Options, and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto. Participants also may elect to pay,
unless restricted by the Board, the purchase price, in whole or in part, of
shares of Stock purchased upon the exercise of Incentive Stock Options through
the Company's withholding of shares of Stock (valued at Fair Market Value as of
the day of exercise) that would otherwise be issuable upon exercise of such
options equivalent to the purchase price of such Incentive Stock Options and,
as soon as practicable thereafter, a certificate representing the net number of
shares so purchased shall be delivered to the person entitled thereto. A
Participant's payment of the purchase price in connection with the exercise of
an Incentive Stock Option through the Company's withholding of shares of Stock
that would otherwise be issuable under such Incentive Stock Option may
constitute a disposition of the withheld Stock within the meaning of Code
Section 424(c), resulting in the disqualification of the withheld Stock from
treatment as an incentive stock option under Code Section 422 and the
Participant's recognition of ordinary income in the year of the disposition.
Furthermore, a Participant's payment of the purchase price in connection with
the exercise of an Incentive Stock Option through actual or constructive
delivery of shares of Stock (the "ISO Stock") that were acquired through the
exercise of an Incentive Stock Option and that have not been held for more than
one year will be considered a disposition (within the meaning of Code Section
424(c)) of the ISO Stock, resulting in the disqualification of the ISO Stock
from treatment as an incentive stock option under Code Section 422, and the
Participant's recognition of ordinary income. Participants should consult with
their tax advisors prior to electing to exercise an Incentive Stock Option by
either of these methods.
5. Option Expiration Date. The "Expiration Date" with respect to
an Incentive Stock Option or any portion thereof awarded to a Participant under
the 1989 Plan means the earliest of:
(a) the date that is 10 years after the date on
which the Incentive Stock Option is awarded
(or, if the Participant owns stock possessing
more than 10% of the combined voting power of
all classes of stock of the Company or any
Subsidiary, the date that is 5 years after
the date on which the Incentive Stock Option
is awarded);
(b) the date established by the Board at the time
of the award;
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(c) the date that is one year after the
Participant's employment with the Company and
all Related Companies is terminated by reason
of the Participant becoming Disabled or by
reason of the Participant's death.
(d) the date the Participant's employment with
the Company and all Related Companies is
terminated for reasons other than Retirement
or death; or
(e) the date that is three months after the date
the Participant's employment with the Company
and all Related Companies is terminated by
reason of Retirement.
All rights to purchase shares of Stock pursuant to an
Incentive Stock Option shall cease as of such option's
Expiration Date.
III. NON-QUALIFIED STOCK OPTIONS
1. Definition. The award of a Non-Qualified Stock Option under
the 1989 Plan entitles the Participant to purchase shares of Stock at a price
fixed at the time the option is awarded, subject to the following terms of this
Part III.
2. Eligibility. The Board shall designate the Participants to
whom Non-Qualified Stock Options are to be awarded under the 1989 Plan and
shall determine the number of option shares to be offered to each of them.
3. Price. The purchase price of a share of Stock under each
Non-Qualified Stock Option shall be determined by the Board; provided, however,
that in no event shall such price be less than the greater of (a) fifty percent
(50%) of the Fair Market Value of a share of Stock as of the Option Date or (b)
the par value of a share of such Stock on such date. To the extent provided by
the Board, the full purchase price of each share of Stock purchased upon the
exercise of any Non-Qualified Stock Option shall be paid in cash or in shares
of Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto. In addition, unless restricted by
the Board, Participants may elect to pay the purchase price of shares of Stock
purchased upon the exercise of Non-Qualified Stock Options in cash or through
the constructive delivery at the time of such exercise of shares of Stock
(valued at Fair Market Value as of the day of exercise) already owned by the
Participant, or any combination thereof, equivalent to the purchase price of
such Non-Qualified Stock Options, and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto. Participants also may elect to pay,
unless restricted by the Board, the purchase price, in whole or in part, of
shares of Stock purchased upon the exercise of Non-Qualified Options through
the Company's withholding of shares of Stock (valued at Fair Market Value as of
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the day of exercise) that would otherwise by issuable upon exercise of such
options equivalent to the purchase price of such Non-Qualified Stock Options
and, as soon as practicable thereafter, a certificate representing the net
number of shares so purchased shall be delivered to the person entitled
thereto.
4. Exercise. No Non-Qualified Stock Option may be exercised by a
participant: (a) prior to the date on which the Participant completes six
continuous months of employment with the Company or any Related Company after
the date of the award thereof; or (b) after the Expiration Date applicable to
that option. Provided, however, that the six-month requirement shall not apply
if the Participant's employment terminates by reason of death or because the
Participant becomes Disabled. Each Option shall become and be exercisable at
such time or times and during such period or periods, in full or in such
installments as may be determined by the Board at the Option Date. The
exercise of a Non-Qualified Stock Option will result in the surrender of the
related Stock Appreciation Right, if any.
5. Option Expiration Date. The "Expiration Date" with respect to
a Non-Qualified Stock Option or any portion thereof awarded to a Participant
under the 1989 Plan means the earliest of:
(a) the date established by the Board at the time of the
award;
(b) the date the Participant's employment with the
Company and all Related Companies is terminated for
reasons other than Retirement or death; or
(c) the date that is three years after the date the
Participant's employment with the Company and all
Related Companies is terminated by reason of
Retirement or death.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
IV. STOCK APPRECIATION RIGHTS
1. Definition. A Stock Appreciation Right is an award that may
be granted in tandem with a Non-Qualified Stock Option or Incentive Stock
Option, and entitles the holder to receive an amount equal to the difference
between the Fair Market Value of the shares of option Stock at the time of
exercise of the Stock Appreciation Right and the option price, subject to the
applicable terms and conditions of the tandem options and the following
provisions of this Part IV.
2. Eligibility. The Board may, in its discretion, award the
holders of any Incentive Stock Options or Non-Qualified Stock Options awarded
under the 1989 Plan a Stock
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Appreciation Right under this Part IV concurrent with, or subsequent to, the
award of the option.
3. Exercise. A Stock Appreciation Right may be exercised under
the applicable terms and conditions of the Incentive Stock Option or
Non-Qualified Stock Option with respect to which the Stock Appreciation Right
is awarded. A Stock Appreciation Right shall entitle the holder of a Stock
Option to receive, upon the exercise of the Stock Appreciation Right, shares of
Stock (valued at their Fair Market Value at the time of exercise), cash or a
combination thereof, in the discretion of the Board, in an amount equal in
value to the excess of the Fair Market Value of the shares of Stock subject to
the Stock Appreciation Right as of the date of such exercise over the purchase
price of the Stock Option. The exercise of a Stock Appreciation Right will
result in the surrender of the related Incentive Stock Option or Non-Qualified
Stock Option.
4. Expiration Date. The "Expiration Date" with respect to a
Stock Appreciation Right shall be determined by the Board, and shall be not
later than the Expiration Date for the related Stock Option.
V. RESTRICTED STOCK
1. Definition. Restricted Stock awards are grants of Stock to
Participants, the vesting of which is subject to a required period of
employment and any other conditions established by the Board.
2. Eligibility. The Board shall designate the Participants to
whom Restricted Stock is to be awarded and the number of shares of Stock that
are subject to the award.
3. Terms and Conditions of Awards. All shares of Restricted
Stock awarded to Participants under the 1989 Plan shall be subject to the
following terms and conditions and to such other terms and conditions, not
inconsistent with the 1989 Plan, as shall be prescribed by the Board in its
sole discretion and as shall be contained in the Agreement referred to in Part
I, paragraph 12.
(a) Restricted Stock awarded to Participants may not be
sold, assigned, transferred, pledged or otherwise
encumbered, except as hereinafter provided, for a
period of five years or such shorter period as the
Board may determine, but not less than one year,
after the time of the award of such stock (the
"Restricted Period"). Except for such restrictions,
the Participant as owner of such shares shall have
all the rights of a shareholder, including but not
limited to the right to vote such shares and, except
as otherwise provided by the Board, the right to
receive all dividends paid on such shares.
(b) The Board may in its discretion, at any time after
the date of the award of Restricted Stock, adjust the
length of the Restricted Period
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to account for individual circumstances of a
Participant or group of Participants, but in no case
shall the length of the Restricted Period be less
than one year.
(c) Except as otherwise determined by the Board in its
sole discretion, a Participant whose employment with
the Company and all Related Companies terminates
prior to the end of the Restricted Period for any
reason shall forfeit all shares of Restricted Stock
remaining subject to any outstanding Restricted Stock
Award.
(d) Each certificate issued in respect of shares of
Restricted Stock awarded under the 1989 Plan shall be
registered in the name of the Participant and, at the
discretion of the Board, each such certificate may be
deposited in a bank designated by the Board. Each
such certificate shall bear the following (or a
similar) legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the
terms and conditions (including forfeiture) contained
in the REPUBLIC GROUP INCORPORATED 1989 Long-Term
Incentive Plan and an agreement entered into between
the registered owner and REPUBLIC GROUP INCORPORATED.
A copy of such plan and agreement is on file in the
office of the Secretary of REPUBLIC GROUP
INCORPORATED, 3625 Miller Park Drive, Garland, Texas
75042-7522."
(e) At the end of the Restricted Period for Restricted
Stock, such Restricted Stock will be transferred free
of all restrictions to a Participant (or his or her
legal representative, beneficiary or heir).
4. Substitution of Cash. The Board may, in its discretion,
substitute cash equal to the Fair Market Value (determined as of the date of
distribution) of Stock otherwise required to be distributed to a Participant in
accordance with Part V, paragraph 3.
VI. PERFORMANCE UNITS
1. Definition. Performance Units are awards to Participants who
may receive value for the units at the end of a Performance Period. The number
of units earned, and value received for them, will be contingent on the degree
to which the performance measures established at the time of the initial award
are met.
2. Eligibility. The Board shall designate the Participants to
whom Performance Units are to be awarded, and the number of units to be the
subject of such awards.
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3. Terms and Conditions of Awards. For each Participant, the
Board will determine the timing of awards; the number of units awarded; the
value of units, which may be stated either in cash or in shares of Stock; the
performance measures used for determining whether the Performance Units are
earned; the performance period during which the performance measures will
apply; the relationship between the level of achievement of the performance
measures and the degree to which Performance Units are earned; whether, during
or after the performance period, any revision to the performance measures or
performance period should be made to reflect significant events or changes that
occur during the performance period; and the number of earned Performance Units
that will be paid in cash and/or shares of Stock.
4. Payment. The Board will compare the actual performance to the
performance measures established for the performance period and determine the
number of units to be paid and their value. Payment for units earned shall be
wholly in cash, wholly in Stock or in a combination of the two, in a lump sum
or installments, and subject to vesting requirements and such other conditions
as the Board shall provide. The Board will determine the number of earned
units to be paid in cash and the number to be paid in Stock. For Performance
Units valued when awarded in shares of Stock, one share of Stock will be paid
for each unit earned, or cash will be paid for each unit earned equal to either
(a) the Fair Market Value of a share of Stock at the end of the Performance
Period or (b) the Fair Market Value of the Stock averaged for a number of days
determined by the Board. For Performance Units valued when awarded in cash,
the value of each unit earned will be paid in its initial cash value, or shares
of Stock will be distributed based on the cash value of the units earned
divided by (a) the Fair Market Value of a share of Stock at the end of the
Performance Period or (b) the Fair Market Value of a share of Stock averaged
for a number of days determined by the Board.
5. Retirement, Death or Termination. A Participant whose
employment with the Company and Related Companies terminates during a
performance period because of Retirement or death shall be entitled to the
prorated value of earned Performance Units, issued with respect to that
performance period, at the conclusion of the performance period based on the
ratio of the months employed during the period to the total months of the
performance period. If the Participant's employment with the Company and
Related Companies terminates during a performance period for any reason other
than Retirement or death, the Performance Units issued with respect to that
performance period will be forfeited on the date his employment with the
Company and Related Companies terminates. Notwithstanding the foregoing
provisions of this Part VI, if a Participant's employment with the Company and
Related Companies terminates before the end of the Performance Period with
respect to any Performance Units awarded to him, the Board may determine that
the Participant will be entitled to receive all or any portion of the units
that he or she would otherwise receive, and may accelerate the determination
and payment of the value of such units or make such other adjustments as the
Board, in its sole discretion, deems desirable.
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