<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
DELPHI FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
-------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------
<PAGE> 2
[DELPHI FINANCIAL LOGO]
April 11, 1997
Dear Stockholder,
It is a pleasure to invite you to Delphi Financial Group, Inc.'s 1997 Annual
Meeting of Stockholders, to be held on May 13, 1997 at the Metropolitan Club,
One East 60th Street, New York, New York, commencing at 10:00 a.m., Eastern
Daylight Time. We hope that you will be able to attend and review the year with
us.
Whether or not you plan to attend the meeting, please exercise your right to
vote as an owner of Delphi Financial Group, Inc. Review the proxy materials and
then mark your votes on the enclosed proxy card and return it in the envelope
provided as soon as possible.
At the meeting the stockholders will be electing directors and considering and
voting upon a proposed amendment to the Restated Certificate of Incorporation of
the Company, the adoptions of the Second Amended and Restated Employee Stock
Option Plan and the Amended and Restated Directors Stock Option Plan and the
establishment of the Long-Term Performance-Based Incentive Plan, each as
described in the formal Notice of Annual Meeting of Stockholders and Proxy
Statement enclosed herewith. We will also report on the progress of Delphi
Financial Group, Inc. and respond to questions posed by stockholders.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Robert Rosenkranz
Chairman of the Board
<PAGE> 3
DELPHI FINANCIAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
To the Stockholders of Delphi Financial Group, Inc.:
Notice is hereby given that the 1997 Annual Meeting of Stockholders of Delphi
Financial Group, Inc. will be held at the Metropolitan Club, One East 60th
Street, New York, New York on May 13, 1997, commencing at 10:00 a.m., Eastern
Daylight Time, for the following purposes:
1. To elect eight directors to serve for a term of one year, one of whom
shall be elected by the holders of the Class A Common Stock, voting as a
separate class.
2. To consider and vote upon a proposed amendment to the Restated
Certificate of Incorporation of the Company to limit the voting rights of
the Class B Common Stock as described herein and permit the issuance of
additional shares of Class B Common Stock pursuant to the Long-Term
Performance-Based Incentive Plan as described herein.
3. To consider and vote upon the adoption of the Second Amended and Restated
Employee Stock Option Plan as described herein.
4. To consider and vote upon the adoption of the Amended and Restated
Directors Stock Option Plan as described herein.
5. To consider and vote upon the establishment of the Long-Term
Performance-Based Incentive Plan as described herein.
6. To transact such other business that properly comes before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on March 20, 1997 as the
record date for stockholders entitled to notice of and to vote at the meeting or
any adjournment of the meeting. The list of stockholders entitled to vote at the
meeting shall be available at the offices of Delphi Capital Management, Inc.,
650 Madison Avenue, Suite 2600, New York, New York for a period of ten days
prior to the meeting date.
A copy of Delphi Financial Group, Inc.'s 1996 Annual Report, including its
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, has
previously been mailed to stockholders receiving this notice.
Your attendance at this meeting is very much desired. However, whether or not
you plan to attend the meeting, please sign the enclosed Proxy and return it in
the enclosed envelope. If you attend the meeting, you may revoke the Proxy and
vote in person.
By Order of the Board of Directors,
Robert Rosenkranz
Chairman of the Board
<PAGE> 4
DELPHI FINANCIAL GROUP, INC.
1105 NORTH MARKET STREET, SUITE 1230
WILMINGTON, DE 19899
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished for the solicitation by the Board of Directors
(the "Board of Directors" or the "Board") of Proxies for the Annual Meeting of
Stockholders of Delphi Financial Group, Inc., a Delaware corporation (the
"Company"), scheduled to be held on May 13, 1997 at the Metropolitan Club, One
East 60th Street, New York, New York commencing at 10 a.m., Eastern Daylight
Time. The submission of a signed Proxy will not affect the stockholder's right
to attend the meeting and vote in person. Any person giving a Proxy may revoke
it at any time before it is exercised by the delivery of a later dated signed
Proxy or written revocation sent to the Investor Relations Department of the
Company, or by attending the Annual Meeting and voting in person.
Other than the matters set forth herein, management of the Company is not aware
of any matters that may come before the meeting. If any other business should
properly come before the meeting, the persons named in the enclosed Proxy will
have discretionary authority to vote the shares represented by the effective
Proxies and intend to vote them in accordance with their best judgment in the
interests of the Company. Management of the Company will consider any requests
from stockholders which are submitted in advance to the Investor Relations
Department.
The Company's 1996 Annual Report, including its Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, has previously been mailed to each
stockholder of record as of the close of business on March 20, 1997.
MAILING AND VOTING OF PROXIES
This Proxy Statement and the enclosed Proxy were first mailed to stockholders on
or about April 11, 1997. Properly executed Proxies, timely returned, will be
voted and, where the person solicited specifies by means of a ballot a choice
with respect to the election of the nominees chosen by the Board, the shares
will be voted as indicated by the stockholder. Each share of the Company's Class
A Common Stock, par value $.01 per share (the "Class A Common Stock"), entitles
the holder thereof to one vote and each share of the Company's Class B Common
Stock, par value $.01 per share (the "Class B Common Stock" and, together with
the Class A Common Stock, the "Common Stock"), entitles the holder thereof to
ten votes. Proposals submitted to a vote of stockholders will be voted on by
holders of Class A Common Stock and Class B Common Stock voting together as a
single class, except that holders of Class A Common Stock will vote as a
separate class to elect one director (the "Class A Director") and that the
holders of the Class A Common Stock and the holders of the Class B Common Stock,
respectively, will each be entitled to vote as a separate class with respect to
the proposed amendment to the Company's Restated Certificate of Incorporation.
If the person solicited does not specify a choice with respect to the election
of any nominee for director, the shares will be voted "for" such nominee.
As of March 20, 1997, Rosenkranz & Company, through ownership of shares of the
Company's Class B Common Stock, has a 29% equity interest in the Company, which
represents 70% of the combined voting power of the Company's Common Stock. In
addition, Mr. Robert Rosenkranz, the beneficial owner of the corporate general
partner of Rosenkranz & Company, holds an irrevocable proxy to vote or has
direct or beneficial ownership of additional shares of Class B Common Stock
representing a 14% voting interest in the Company as
<PAGE> 5
of March 20, 1997. Rosenkranz & Company and Mr. Rosenkranz have informed the
Company that they intend to vote in favor of the election of all nominated
directors for which they are entitled to vote, but have agreed to limit their
vote for the election of directors as if the proposed amendment to the Company's
Restated Certificate of Incorporation had been adopted, i.e., to 49.9% of the
combined voting power of the Company's stockholders. In addition, Rosenkranz &
Company and Mr. Rosenkranz have informed the Company that they intend to vote in
favor of the adoptions of the Second Amended and Restated Employee Stock Option
Plan (the "Restated Employee Plan") and the Amended and Restated Directors Stock
Option Plan (the "Restated Directors Plan") and the establishment of the
Long-Term Performance-Based Incentive Plan (the "Incentive Plan"). Accordingly,
the adoptions of the Restated Employee Plan and the Restated Directors Plan and
the establishment of the Incentive Plan will be approved at the Annual Meeting.
Rosenkranz & Company and Mr. Rosenkranz have also informed the Company that they
currently intend to vote in favor of the proposal to amend the Company's
Restated Certificate of Incorporation to limit the voting rights of the Class B
Common Stock as described herein and permit the issuance of additional shares of
Class B Common Stock pursuant to the Incentive Plan, but reserve the right to
vote otherwise.
Proxies marked as abstaining (including proxies containing broker non-votes) on
any matter to be acted upon by stockholders will be treated as present at the
meeting for purposes of determining a quorum but will not be counted as votes
cast on such matters.
SOLICITATION OF PROXIES
The cost of soliciting Proxies will be borne by the Company. It is expected that
the solicitation of Proxies will be primarily by mail. Proxies may also be
solicited by officers and employees of the Company, at no additional cost to the
Company, in person or by telephone, telegram or other means of communication.
Upon written request, the Company will reimburse custodians, nominees and
fiduciaries holding the Company's Common Stock for their reasonable expenses in
sending proxy materials to beneficial owners and obtaining their Proxies.
STOCKHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
Holders of record of Common Stock at the close of business on March 20, 1997
will be eligible to vote at the meeting. The Company's stock transfer books will
not be closed. As of the close of business on March 20, 1997, the Company had
outstanding 11,884,020 shares of Class A Common Stock and 6,258,944 shares of
Class B Common Stock.
2
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock by each of the Company's directors and
executive officers, each person known by the Company to own beneficially more
than five percent of the Company's Common Stock and all directors and officers
of the Company as a group as of March 20, 1997. The information shown assumes
the exercise by each person (or all directors and officers as a group) of the
stock options owned by such person and the exercise by no other person (or
group) of stock options. Unless otherwise indicated, each beneficial owner
listed below is believed by the Company to own the indicated shares directly and
have sole voting and dispositive power with respect thereto.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
---------------------------------------------------------------- ---------- --------
<S> <C> <C>
Class B Common Stock --
Five or greater percent owner:
Rosenkranz & Company........................................ 5,202,944 (1) 82.2%
Directors and Executive Officers:
Robert Rosenkranz........................................... 6,330,944 (1) 100.0%
Christopher A. Fazzini...................................... -- --
Edward A. Fox............................................... -- --
Charles P. O'Brien.......................................... -- --
Lewis S. Ranieri............................................ -- --
Thomas L. Rhodes............................................ -- --
Robert M. Smith, Jr. ....................................... -- --
Thomas A. Sullivan.......................................... -- --
B.K. Werner................................................. -- --
Directors and officers as a group (13 persons).............. 6,330,944 100.0%
Class A Common Stock --
Five or greater percent owners................................ -- --
Directors and Executive Officers:
B.K. Werner................................................. 698,496 (2) 5.6%
Charles P. O'Brien.......................................... 268,084 (3) 2.1%
Robert Rosenkranz........................................... 217,000 (1) 1.7%
Thomas A. Sullivan.......................................... 46,334 (4) *
Robert M. Smith, Jr......................................... 42,288 (5) *
Edward A. Fox............................................... 22,920 (6) *
Christopher A. Fazzini...................................... 4,464 (4) *
Lewis S. Ranieri............................................ 4,200 (7) *
Thomas L. Rhodes............................................ 1,560 (7) *
Directors and officers as a group (13 persons).............. 1,459,457 (8) 11.6%
</TABLE>
- ---------------
* Amount is less than 1% of Class.
(1) Mr. Rosenkranz, as the beneficial owner of the corporate general partner of
Rosenkranz & Company, has the power to vote the shares of Class B Common
Stock held by Rosenkranz & Company. Accordingly, Mr. Rosenkranz may be
deemed to be the beneficial owner of all of the shares of the Company owned
by Rosenkranz & Company. In addition, Mr. Rosenkranz holds an irrevocable
proxy to vote or has direct or beneficial ownership of 1,056,000 additional
shares of Class B Common Stock and 1,000 shares of Class A Common Stock. The
remaining indicated shares of Class A Common Stock and Class B Common Stock,
respectively, represent the 1996 award under the Incentive Plan (which award
is
3
<PAGE> 7
subject to the approval by the stockholders of the Company of such plan),
consisting of 216,000 shares of Class A Common Stock which may be acquired
pursuant to stock options and 72,000 deferred shares of Class B Common
Stock. However, if the Amendment (as defined below) is not approved by the
stockholders of the Company as proposed herein, the deferred share portion
of such award will instead relate to Class A Common Stock. The address of
Rosenkranz & Company and Mr. Rosenkranz is 650 Madison Avenue, Suite 2600,
New York, NY 10022.
(2) Each of Mr. Werner and The Werner Partnership, LP, of which Mr. Werner is
the general partner, may be deemed to beneficially own the indicated shares
and have shared voting and dispositive power with respect to such shares.
Mr. Werner's address is c/o Safety National Casualty Corporation, 2043
Woodland Parkway, St. Louis, MO 63146.
(3) Of the indicated shares of Class A Common Stock, 2,400 shares are presently
owned by Mr. O'Brien. The remaining shares indicated may be acquired
pursuant to currently exercisable stock options. The address of Mr. O'Brien
is c/o Reliance Standard Life Insurance Company, 2501 Parkway, Philadelphia,
PA 19130.
(4) All of the indicated shares of Class A Common Stock are presently owned. The
address of Mr. Sullivan is c/o Delphi Capital Management, Inc., 650 Madison
Avenue, Suite 2600, New York, NY 10022. The address of Mr. Fazzini is c/o
Reliance Standard Life Insurance Company, 2501 Parkway, Philadelphia, PA
19130.
(5) Of the indicated shares of Class A Common Stock, 1,600 shares are presently
owned by Mr. Smith. The remaining shares indicated may be acquired pursuant
to stock options within 60 days. Mr. Smith's address is c/o Delphi Capital
Management, Inc., 650 Madison Avenue, Suite 2600, New York, NY 10022.
(6) Of the indicated shares of Class A Common Stock, 18,000 shares are presently
owned by Mr. Fox. The remaining shares indicated may be acquired pursuant to
stock options within 60 days. Mr. Fox's address is R.R. 67-15, Harborside,
ME 04642.
(7) None of the indicated shares of Class A Common Stock are presently owned,
but they may be acquired pursuant to stock options within 60 days. Mr.
Ranieri's address is c/o Ranieri & Co., Inc., 50 Charles Lindbergh Blvd.,
Suite 500, Uniondale, NY 11553. Mr. Rhodes' address is c/o National Review,
150 East 35th Street, New York, NY 10016.
(8) Includes 684,679 shares of Class A Common Stock which may be acquired
pursuant to stock options within 60 days.
ELECTION OF DIRECTORS
The Board of Directors consists of eight members, each of whom are elected
annually to serve until their successors have been elected and qualified, or
they have resigned or been removed from office. The Company's Restated
Certificate of Incorporation provides that the holders of Class A Common Stock
are entitled to vote as a separate class to elect the Class A Director so long
as the outstanding shares of Class A Common Stock represent at least 10% of the
aggregate number of outstanding shares of the Company's Class A and Class B
Common Stock. As of the date of this Proxy Statement, this condition continues
to be satisfied. Mr. Rhodes was elected by the holders of the Class A Common
Stock in 1996 as the Class A Director, and the Board of Directors has
unanimously recommended Mr. Rhodes for reelection as the Class A Director.
It is intended that the shares of Common Stock represented by Proxies will be
voted "for" the election of all such nominees unless a contrary direction is
indicated on the Proxy. While it is not expected that any of the nominees will
be unable to qualify for or accept office, if for any reason any nominee shall
be unable to do so, Proxies that would otherwise have been voted "for" such
nominee will instead be voted "for" a substitute nominee selected by the Board.
Nominees for Director
The following sets forth information as to each nominee for election at the 1997
Annual Meeting, including his age, positions with the Company, length of service
as a director of the Company, other directorships currently held, if any,
principal occupations and employment during the past five years and other
business experience.
ROBERT ROSENKRANZ, 54, has served as the President and Chief Executive Officer
of the Company since May 1987 and has served as Chairman of the Board of
Directors of the Company since April 1989. He is also Chairman of the Board of
Reliance Standard Life Insurance Company ("RSLIC"), First Reliance Standard
4
<PAGE> 8
Life Insurance Company ("FRSLIC") and Reliance Standard Life Insurance Company
of Texas ("RSLIC-Texas") and serves on the Board of Directors of Safety National
Casualty Corporation ("SNCC"). Mr. Rosenkranz has served since October 1978 as
either sole or managing general partner of Rosenkranz & Company or as beneficial
owner of its corporate general partner.
ROBERT M. SMITH, JR., 45, commenced employment with the Company in March 1994
and has served as Vice President of the Company since July 1994 and as a
director of the Company since January 1995. Mr. Smith has also served as Vice
President of Delphi Capital Management, Inc. ("DCM") and as a director of RSLIC,
FRSLIC and RSLIC-Texas since July 1994 and as a director of SNCC since March
1996. Prior to March 1994, Mr. Smith was Director, Investment Banking for
Merrill Lynch & Company in New York, NY.
EDWARD A. FOX, 60, has served as a director of the Company since March 1990.
From May 1990 until September 1994, Mr. Fox was the Dean of the Amos Tuck School
of Business Administration at Dartmouth College. From April 1973 until May 1990,
Mr. Fox was President and Chief Executive Officer of the Student Loan Marketing
Association.
CHARLES P. O'BRIEN, 60, has served as a director of the Company since November
1987. Since August 1976, Mr. O'Brien has served as President, Chief Executive
Officer and a director of RSLIC. Mr. O'Brien also serves as President and Chief
Executive Officer and a director of FRSLIC and RSLIC-Texas and as a director of
SNCC.
LEWIS S. RANIERI, 50, has served as a director of the Company since July 1992.
Mr. Ranieri is currently Chairman and Chief Executive Officer of Ranieri & Co.,
Inc. and oversees Hyperion Partners L.P. and Hyperion Partners II L.P.
(collectively "Hyperion"), funds created to invest in the financial services,
housing and real estate industries. As part of his responsibilities with
Hyperion, Mr. Ranieri serves as Chairman of Hyperion Capital Management, a New
York-based money management firm specializing in mortgage-backed securities, as
Chairman, Director and/or Trustee of several investment companies advised by
Hyperion Capital Management, Inc., and as Chairman and a director of Bank United
Corp. and a director of Bank United, a Houston-based savings and loan
institution. Mr. Ranieri also serves on the compensation committee for both Bank
United entities.
THOMAS A. SULLIVAN, 56, has served as a director of the Company since July 1991.
He became President of DCM and a limited partner in Rosenkranz & Company in July
1991. Prior to that, he served as Chief Investment Officer of DCM from January
1990 to July 1991, and in that capacity with the Company from November 1987 to
December 1989.
B.K. WERNER, 63, was elected as a director of the Company upon the merger with
SIG Holdings, Inc. in March 1996. He has served as Chairman of the Board of SNCC
since June 1987 and as Chief Executive Officer of SNCC since June 1990. Mr.
Werner has served as a director of and has been employed in various capacities
by SNCC since 1959.
Nominee for Class A Director
THOMAS L. RHODES, 57, has served as a director of the Company since May 1995. He
has been President of National Review since November 1992, where he has also
served as a director since 1988. From 1987 to November 1992, Mr. Rhodes was a
Partner of Goldman, Sachs & Co., New York, NY. Mr. Rhodes is Co-Chairman,
Co-Chief Executive Officer and Co-Manager of Financial Asset Management LLC,
Co-Chairman and Co-Chief Executive Officer of Asset Investors Corporation and
Co-Chairman and Co-Chief Executive Officer of Commercial Assets, Inc. Mr. Rhodes
also serves as a director of Apartment Investment and
5
<PAGE> 9
Management Company, director of The Lynde and Harry Bradley Foundation, trustee
of The Heritage Foundation and trustee of Reserve Special Portfolio Trusts.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee is responsible for reviewing the activities of the Company's
independent accountants and internal audit department. The committee, whose
membership consists of Messrs. Fox and Rhodes, held four meetings during 1996.
The Board of Directors does not have a nominating committee.
The Stock Option and Compensation Committee (the "Committee") is responsible for
reviewing and approving all grants of stock options to employees and reviewing
and approving compensation arrangements for certain employees of the Company and
its subsidiaries. The Committee's membership consists of Messrs. Fox and Rhodes.
DIRECTORS' ATTENDANCE
The Board of Directors held five meetings during 1996. Each incumbent director
attended at least 75% of the aggregate of (i) the total number of meetings held
during the period for which such incumbent was a director, and (ii) the total
number of meetings held by all committees of the Board of Directors on which
such incumbent served, with the exception of Mr. Ranieri who attended 71% of the
meetings.
DIRECTOR COMPENSATION
The Company paid its directors who are not officers or employees of Rosenkranz &
Company, the Company, or any of the Company's affiliates (each, an "outside
director") annual compensation of $20,000 (the "Annual Retainer") and a fee of
$750 plus expenses for each Board of Directors or committee meeting attended in
1996.
In addition, under the Company's Directors Stock Option Plan, as more fully
described under "Proposal to Adopt the Amended and Restated Directors Stock
Option Plan," options to purchase a total of 11,400 shares of the Company's
Class A Common Stock were granted to the outside directors subsequent to the
1996 Annual Meeting of Stockholders at an exercise price of $23.96. At the 1997
Annual Meeting, stockholders will consider and vote upon the Restated Directors
Plan, which, in addition to the option grants presently made annually under the
existing plan, will also provide for an annual option grant to each outside
director in lieu of the Annual Retainer unless an election to the contrary is
made by the director. See "Proposal to Adopt the Amended and Restated Directors
Stock Option Plan."
PROPOSAL TO AUTHORIZE AN AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION TO LIMIT THE
VOTING RIGHTS OF THE CLASS B COMMON STOCK
The Company's Restated Certificate of Incorporation currently provides that
every holder of Class B Common Stock is entitled to 10 votes for each share of
Class B Common Stock owned of record by such holder on all matters subject to
vote at any meeting of stockholders (other than the election of the Class A
Director), and every holder of Class A Common Stock is entitled to one vote for
each share of Class A Common Stock owned of record by such holder on all such
matters. The Restated Certificate of Incorporation also currently provides that
no additional shares of Class B Common Stock may be issued except (i) in payment
of stock dividends on outstanding shares of Class B Common Stock, (ii) in
connection with a stock split or reclassification of outstanding shares of Class
B Common Stock or (iii) upon exercise of certain options outstanding immediately
6
<PAGE> 10
prior to the reclassification of the Company's common stock in 1990 into the
Class A Common Stock and the Class B Common Stock.
The Company has been advised by its independent auditors that, under generally
accepted accounting principles ("GAAP"), because Rosenkranz & Company has more
than 50% of the voting power of the Common Stock, the Company may not be
considered to be autonomous for purposes of the requirements relating to
"pooling of interests" accounting, and therefore may not be able to account for
any business combination in this manner. Further, the Company has been advised
that, under these requirements, when a corporation (such as the Company) that
has two classes of common stock with different voting rights issues shares of
its common stock as consideration in a business combination, the shares issued
must be of the same class as the class of shares representing the majority of
the combined voting power of both classes of the corporation's common stock in
order for the business combination to be treated as a "pooling of interests"
under GAAP. Consequently, so long as the outstanding shares of Class B Common
Stock represent a majority of the combined voting power of the Company's
stockholders, in the event the Company were to issue Common Stock as
consideration in any business combination, the Company would be required to
issue shares of Class B Common Stock in order to account for such business
combination as a pooling of interests under GAAP. The Company currently would
not be able to issue Class A Common Stock in a business combination and account
for such business combination as a pooling of interests.
The Company believes that it would be in the best interests of its stockholders
for the Company to have the ability, where appropriate, to account for future
business combinations under the pooling of interests method. In contrast to
purchase accounting, the pooling of interests method generally does not result
in the creation of intangible assets such as goodwill, the amortization of which
is typically dilutive to reported earnings. Although the Company from time to
time considers business combination opportunities, as of the date of this Proxy
Statement it has no plans or commitments relating to any transactions for which
it would seek pooling of interests accounting.
In order to enhance the Company's ability to utilize the pooling of interests
accounting method for a business combination where deemed appropriate, and to
permit the issuance of shares of Class A Common Stock as consideration in such a
business combination, the Board of Directors has approved an amendment (the
"Amendment") to the Company's Restated Certificate of Incorporation to limit the
number of votes per share of Class B Common Stock to such number of votes as
would give the aggregate of all outstanding shares of Class B Common Stock 49.9%
of the combined voting power of the Common Stock and to permit additional shares
of Class B Common Stock to be issued from time to time pursuant to the Incentive
Plan. The initial effect of the Amendment would be to reduce the voting power of
the Class B Common Stock from 10 votes per share to approximately 1.89 votes per
share (calculated based on shares outstanding as of the record date),
representing 49.9% of the combined voting power of the Company's stockholders
and to permit shares of Class B Common Stock to be issued pursuant to the
Incentive Plan.
In conjunction with the Amendment, Robert Rosenkranz has informed the Company
that, if the Amendment is adopted, he will enter into an agreement with the
Company not to vote or cause to be voted any shares of Class A Common Stock (i)
which are issued upon exercise of the options granted pursuant to the 1996 award
under the Incentive Plan (assuming such plan is approved as proposed herein), or
(ii) which are issued upon the conversion of any shares of Class B Common Stock
as to which he directly or indirectly possesses voting power (including shares
owned by Rosenkranz & Company), if and to the extent that, in either case, the
issuance of such shares would cause him and Rosenkranz & Company, collectively,
to have more than 49.9% of the combined voting power of the Company's
stockholders.
7
<PAGE> 11
DESCRIPTION OF THE AMENDMENT
If the Amendment is approved by the Company's stockholders and is filed with the
Secretary of State of the State of Delaware, the Company's Restated Certificate
of Incorporation would provide that (A) a holder of record of Class B Common
Stock will be entitled to a number of votes per share equal to the lesser of (1)
the number of votes (with each share of Class B Common Stock having the same
number of votes as each other share of Class B Common Stock) such that the
aggregate of all outstanding shares of Class B Common Stock will be entitled to
cast 49.9% of all of the votes represented by the aggregate of all outstanding
shares of Class A Common Stock and Class B Common Stock or (2) 10 votes (except
that, if there is no Class A Common Stock outstanding, clause (1) above will not
apply) and (B) additional shares of Class B Common Stock may be issued from time
to time pursuant to the Incentive Plan, as it may be amended from time to time
in accordance with its terms. All other provisions of the Company's Restated
Certificate of Incorporation will remain unchanged, including the provision that
a holder of Class A Common Stock is entitled to one vote for each share of Class
A Common Stock owned of record.
The initial effect of the Amendment would be to reduce the voting power of the
Class B Common Stock from 10 votes per share to approximately 1.89 votes per
share (calculated based on shares outstanding as of the record date),
representing 49.9% of the combined voting power of the Company's stockholders
and to permit shares of Class B Common Stock to be issued pursuant to the
Incentive Plan.
STOCKHOLDER VOTE REQUIRED
The authorization of the Amendment requires each of (1) the affirmative vote of
the holders of a majority of the voting power of the Company's Class A Common
Stock and Class B Common Stock present in person or represented by proxy and
entitled to vote, voting together as a single class, with the holders of Class A
Common Stock having one vote per share and the holders of Class B Common Stock
having ten votes per share, (2) the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Class A Common Stock present
in person or represented by proxy and entitled to vote, voting as a class, and
(3) the affirmative vote of the holders of a majority of the outstanding shares
of the Company's Class B Common Stock present in person or represented by proxy
and entitled to vote, voting as a class.
It is intended that the shares of Common Stock represented by Proxies will be
voted "for" the resolution authorizing the Amendment unless a contrary direction
is indicated on the Proxy.
EFFECTIVENESS OF THE AMENDMENT
The Amendment will become effective upon filing with the Secretary of State of
the State of Delaware. Stockholders should be aware that, notwithstanding the
authorization of the proposed Amendment by them, the Board of Directors may
abandon the proposed Amendment without further action by the stockholders of the
Company at any time prior to the filing of the proposed Amendment with the
Secretary of State and may do so, among other reasons, depending on the outcome
of certain discussions currently under way between the Company and its
independent auditors regarding the accounting treatment of business combinations
such as those described above.
8
<PAGE> 12
PROPOSAL TO ADOPT THE SECOND AMENDED AND RESTATED
EMPLOYEE OPTION PLAN
The Amended and Restated Option Plan (the "Option Plan") is administered by the
Committee and provides for the granting of nonqualified stock options to key
employees of the Company and its subsidiaries. As the authority to grant awards
under the Option Plan expires in 1997 and the Company intends to continue its
practice of granting stock options to key employees as a means of incentive
compensation, it is necessary to amend and readopt the Option Plan pursuant to
the Restated Employee Plan, which shall have a term of ten years. The Company
therefore intends to bring this matter to a vote of stockholders at the Annual
Meeting. See "Executive Compensation -- Other Compensation Plans" for a further
description of the Option Plan.
The terms of the Restated Employee Plan are substantially similar to those of
the Option Plan; however, the Restated Employee Plan contains certain revisions
which are intended primarily to enhance flexibility in the administration of the
plan and the terms and conditions of the options awarded thereunder, and thus to
make the plan a more effective means for incentive compensation. Such revisions,
among other things, authorize the granting of options thereunder that qualify as
incentive stock options under Section 422 of the Internal Revenue Code (the
"Code"); make eligible as optionees non-employees who, in the Committee's
judgment, can make significant contributions to the Company's long-term
profitability and value; grant authority to the Committee to extend the periods
following termination of employment during which options may be exercised;
provide for the transferability of options to certain family members and family
entities in cases where the Committee so provides; provide that option exercise
prices may be paid in cash, in Company stock or other acceptable consideration;
limit the requirement of stockholder approval of amendments to the Restated
Employee Plan to circumstances where such approval is required by law or by the
rules of the New York Stock Exchange or other applicable exchange; and add the
term "Change of Ownership" (as defined therein) to define those circumstances
under which outstanding options may become exercisable in full due to
significant corporate transactions such as mergers and consolidations in
replacement of the existing provision of the Option Plan which is applicable
under such circumstances.
In addition, the Restated Employee Plan incorporates amendments made to the
Option Plan during 1996, including the incorporation of a limit on the number of
shares of Class A Common Stock as to which options can be granted thereunder in
any one calendar year to 500,000 (in order to satisfy one of the requirements of
Section 162(m) of the Code, which Code section is described in the Report on
Executive Compensation) and the reduction of the required number of members of
the committee administering the plan from three to two. Also, the Restated
Employee Plan reflects the adjustment of the number of shares of Class A Common
Stock available under the Option Plan from 1,650,000 to 1,980,000 that occurred
pursuant to such plan's terms as a result of the 20% stock dividend distributed
by the Company in September 1996 (the "Stock Dividend").
The full text of the Restated Employee Plan is attached hereto as Exhibit A, to
which the foregoing description is qualified by reference.
FEDERAL INCOME TAX CONSEQUENCES
Nonqualified Stock Options. No taxable income will be recognized by the
optionee upon the grant of nonqualified stock options. In general, the optionee
will recognize ordinary income in the year in which the options are exercised
equal to the excess of the fair market value of the shares received at the date
of exercise over the exercise price. The Company will generally be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee in
connection with the exercise of the options. This deduction will in general be
allowed for the taxable year of the Company in which such ordinary income is
recognized by the optionee.
9
<PAGE> 13
Incentive Stock Options. No taxable income will be recognized by the optionee
upon the grant of incentive stock options. When an optionee exercises an
incentive stock option while employed by the Company or, to the extent permitted
by the Code, within the period after termination of employment, no ordinary
income will be recognized by the optionee at that time, but the excess, if any,
of the fair market value of the shares acquired upon such exercise over the
option price will be an adjustment to taxable income for purposes of the federal
alternative minimum tax applicable to individuals. If the shares acquired upon
exercise by an optionee are not disposed of prior to the expiration of one year
after the date of transfer and two years after the date of grant of the option,
the excess, if any, of the sales proceeds over the aggregate option price of
such shares will treated as a long-term capital gain by the optionee. The
Company will not be entitled to any tax deduction with respect to such gain. If
the shares are disposed of by the optionee prior to the expiration of such
periods (a "disqualifying disposition"), the excess of the fair market value of
such shares at the time of exercise over the aggregate option price (but not
more than the gain on the disposition if the disposition is a transaction on
which a loss, if realized, would be recognized) will be ordinary income to the
optionee at the time of such disqualifying disposition and the Company will be
entitled to a tax deduction in a like amount. If an incentive stock option is
exercised by the optionee more than three months after termination of employment
(one year for disability), the tax consequences are the same as described above
for a nonqualified stock option.
It is intended that the shares of Common Stock represented by Proxies will be
voted "for" the proposed adoption of the Restated Employee Plan unless a
contrary direction is indicated on the Proxy.
PROPOSAL TO ADOPT THE AMENDED AND RESTATED
DIRECTORS STOCK OPTION PLAN
Under the Directors Stock Option Plan (the "Directors Plan"), which was adopted
in 1994, on the day following the Company's Annual Meeting of Stockholders for
each year that the Directors Plan is in effect, each outside director then in
office is granted an option to purchase a number of shares of Class A Common
Stock determined pursuant to the following formula: number of option shares =
2,000 multiplied by [1+(.125 multiplied by the number of calendar years of
continuous service of such outside director to that point, including any portion
of a calendar year of service as a full year)]. Options granted become
exercisable in five equal annual installments, commencing on the first
anniversary of the date of the grant. The maximum term of an option granted
under the Directors Plan is ten years. The price per share upon the exercise of
an option is 100% of the fair market value of the Class A Common Stock on the
date of the grant. For this purpose, the fair market value on any such date is
the closing price per share of the Class A Common Stock, as reported through the
New York Stock Exchange for such date.
The Restated Directors Plan continues to provide for annual option grants on
these same terms. In addition, under such plan, an option will be granted to
each outside director to receive options to purchase Class A Common Stock in
lieu of the Annual Retainer for the period from the director's date of election
or reelection to the Board of Directors to the Company's next Annual Meeting of
Stockholders, unless such director elects in advance to receive the Annual
Retainer in cash for such period. Such options will be granted on the first
business day following the date on which such director is elected or reelected.
The number of shares of Class A Common Stock to which each such option will
relate will be equal to (a) three times the director's Annual Retainer for the
applicable period divided by (b) the fair market value of a share of Class A
Common Stock of the Company on the date of grant, and the exercise price will be
100% of such fair market value on the date of grant. The options will become
exercisable in four equal 90-day installments and will expire ten years from the
date of grant. The number of options that an outside director may receive in
lieu of the Annual Retainer is dependent upon the time
10
<PAGE> 14
at which such director is elected and the fair market value of the Class A
Common Stock at the date of grant and, as such, is not determinable.
The Directors Plan currently permits options to purchase up to 60,000 shares of
Class A Common Stock to be granted under the Directors Plan (taking into account
the adjustment that occurred in 1996 pursuant to such plan's terms as a result
of the Stock Dividend), of which options to purchase 28,800 shares have been
previously granted. In order to provide for a sufficient number of shares of
Class A Common Stock to be available for options under the two types of option
grants for which the Restated Directors Plan provides, and thus to continue to
enhance the Company's ability to attract and retain experienced and
knowledgeable individuals to serve as outside directors, it is desirable to
increase the number of shares available for such option grants to 120,000, as
provided in the Restated Directors Plan.
The other terms of the Restated Directors Plan are substantially similar to
those of the Directors Plan; however, the Restated Directors Plan contains
certain revisions which are intended primarily to enhance flexibility in the
administration of the plan and the terms and conditions of the options awarded
thereunder, and thus to make the plan a more effective means for incentive
compensation. Such revisions, among other things, provide for the
transferability of options to certain family members and family entities;
provide that option exercise prices may be paid in cash, Company stock or other
acceptable consideration; limit the requirement of stockholder approval of
amendments to the Restated Directors Plan to circumstances where such approval
is required by law or by the rules of the New York Stock Exchange or other
applicable exchange; and add the term "Change of Ownership" (as defined therein)
to define those circumstances under which outstanding options may become
exercisable in full due to significant corporate transactions such as mergers
and consolidations in replacement of the existing provisions of the Directors
Plan applicable to such circumstances.
The full text of the Restated Directors Plan is attached hereto as Exhibit B, to
which the foregoing description is qualified by reference.
FEDERAL INCOME TAX CONSEQUENCES
As in the case of the annual option grants under the existing Directors Plan,
options to purchase Class A Common Stock granted in lieu of the Annual Retainer
will be treated as nonqualified stock options for federal income tax purposes.
See "Proposal to Adopt the Second Amended and Restated Employee Option Plan --
Federal Income Tax Consequences" for a description of the federal income tax
treatment of nonqualified stock options.
It is intended that the shares of Common Stock represented by Proxies will be
voted "for" the proposed adoption of the Restated Directors Plan unless a
contrary direction is indicated on the Proxy.
PROPOSAL TO ESTABLISH THE LONG-TERM PERFORMANCE-BASED
INCENTIVE PLAN
In 1996, the Committee adopted the Incentive Plan for Robert Rosenkranz, the
Chairman, President and Chief Executive Officer of the Company. The Incentive
Plan's purpose is to provide Mr. Rosenkranz with a compensation arrangement that
rewards him for significant gains in shareholders' wealth as measured by the
annual performance of the Company's Class A Common Stock, so long as such
performance surpasses that of the Standard & Poor's Corporation Insurance
Composite Index Total Return to Shareholders (the "S&P Insurance Index Total
Return").
11
<PAGE> 15
Awards under the Incentive Plan are made and will continue to be made promptly
following the end of each Performance Period (as defined below) under the
Incentive Plan if and only if the Ending Stock Value (as defined below) of the
Company's Class A Common Stock exceeds the Beginning Stock Price (as defined
below) by an amount greater than the S&P Insurance Index Total Return over the
comparable period. The award is then determined as 2.5% of the amount by which
the Ending Market Value (as defined below) exceeds the Beginning Market Value
(as defined below). Expressed as a formula, the "Award Amount" = (Ending Market
Value minus Beginning Market Value) multiplied by .025. The "Performance Period"
is the calendar year, except that if an award is not made under the plan for any
calendar year, the next Performance Period will include all calendar years
following the last calendar year for which an award was so made.
The Incentive Plan provides that 50% of the Award Amount, if earned, will be
paid in the form of restricted or deferred shares of Class B Common Stock, with
the number of such shares determined by dividing 50% of the Award Amount by the
average closing price of the Class A Common Stock during the twenty trading days
commencing nine trading days prior to the last trading day of the relevant
period (the "Ending Stock Price"). The remainder of the award will be paid in
options to purchase shares of Class B Common Stock (Class A Common Stock in the
case of the 1996 award) having an exercise price equal to 100% of the fair
market value (as defined in the plan) of a share of such stock on the date of
grant. Such options become exercisable in full thirty days following the date of
the grant and have a ten-year term. The number of shares subject to such options
is determined by dividing 50% of the Award Amount by the Ending Stock Price and
multiplying that amount by three. This formula reflects a general standard of
valuation indicating that, across a broad number of companies, stock options
with a 10-year term are worth approximately one-third of the market value of the
underlying stock on the date of grant. However, regardless of the Award Amount
for any Performance Period, the Incentive Plan limits, as to any calendar year,
the number of restricted or deferred shares of Common Stock which may be awarded
to 72,000, and limits the number of shares of Common Stock as to which options
may be granted to 216,000, plus the "Carryover Amount." The "Carryover Amount"
consists of the cumulative amounts of such restricted or deferred shares and
options which, in each year since the inception of the Incentive Plan, would
have been eligible for award in conformity with such limits, but were not
awarded. Any Award Amounts which do not result in awards of restricted or
deferred shares or options due to the aforementioned limits may be applied to
increase the Award Amount in any subsequent Performance Period in which the
Ending Stock Value exceeds the Beginning Stock Price by an amount greater than
the S&P Insurance Index Total Return for such Performance Period (subject, in
all events, to the per-year share and option award limits referenced above).
"Beginning Market Value" for a Performance Period means the average closing
price of the Company's Class A Common Stock for each of the twenty trading days
commencing ten trading days prior to the first trading day of such period (the
"Beginning Stock Price") multiplied by the number of shares of Common Stock
outstanding on the first day of such period, including for such purpose shares
of Class A Common Stock subject to acquisition under the options assumed by the
Company in connection with the merger with SIG Holdings, Inc. in March 1996 (the
"SIG Option Shares").
"Ending Market Value" for a Performance Period means the Ending Stock Price
multiplied by the number of shares of Common Stock outstanding on the last day
of the Performance Period, including for such purpose the SIG Option Shares. The
Ending Market Value also includes an adjustment for any cash dividends paid
during such period, assuming such dividends have been reinvested in Common Stock
on the date paid to shareholders using the methodology consistent with the
determination of the S&P Insurance Index Total Return.
The first award under the Incentive Plan relates to calendar year 1996.
Thereafter, awards earned under the terms of the plan, if any, will be made for
each subsequent Performance Period until the Incentive Plan terminates on
December 31, 2007. Under the Incentive Plan, upon approval of such plan by the
stockholders of
12
<PAGE> 16
the Company, the awards to Mr. Rosenkranz of the maximum amounts of 72,000
deferred shares of Class B Common Stock and options to acquire 216,000 shares of
Class A Common Stock at an exercise price of $31.125 per share for calendar year
1996 will become effective. In addition, because, under the aforementioned
limits on awards of restricted or deferred shares and options in any one year, a
portion of the 1996 Award Amount equal to approximately $3.4 million was not
included in such awards, such amount will be applied to increase Award Amounts
earned in future Performance Periods, if any, in the manner described above.
Since it is not known if the performance of the Class A Common Stock as measured
under the Incentive Plan will exceed that of the S&P Insurance Index Total
Return in any Performance Period under the Incentive Plan, the actual number of
shares and options to acquire shares to be issued under the Incentive Plan in
any future Performance Period is not yet determinable.
If Mr. Rosenkranz's employment terminates during a Performance Period, he will
be entitled to an award under the Incentive Plan based on the performance of the
Company's Class A Common Stock if it surpasses the S&P Insurance Index Total
Return through such date, unless his employment was terminated by the Company
for "Cause" or by Mr. Rosenkranz without "Good Reason," as such terms are
defined in the Incentive Plan.
The Incentive Plan and awards of restricted or deferred shares and options
thereunder may be amended by the Committee at any time, subject to Mr.
Rosenkranz's consent if such amendment would adversely affect his rights under
the Incentive Plan or any such award.
Restricted or deferred shares of Class B Common Stock awarded under the
Incentive Plan vest upon the termination of Mr. Rosenkranz's employment due to
death, disability or normal retirement or by the Company other than for Cause or
upon a "Change in Ownership," as such term is defined in the Incentive Plan. If
Mr. Rosenkranz's employment is terminated by himself for other than Good Reason
or by the Company for Cause, such restricted or deferred shares are forfeited to
the Company.
Because the Incentive Plan provides for accelerated vesting of restricted or
deferred shares of Class B Common Stock awarded under the Plan upon a Change in
Ownership, it is possible that a twenty percent "golden parachute" excise tax
could be imposed upon Mr. Rosenkranz under the Code if such vesting were to
occur in such an event. In order to preserve the benefits intended to be
provided under the Incentive Plan, the plan contains a provision under which
payments would be made by the Company to Mr. Rosenkranz in order to adjust, on
an after-tax basis, for the amount of any such tax.
The Incentive Plan provides that if the Amendment is not approved as proposed
herein, any awards of restricted or deferred shares and options under the plan
will instead involve shares of Class A Common Stock; in such case, all of the
terms of the plan described above would apply with equal force to such
restricted or deferred shares and options.
The Incentive Plan will be in lieu of future grants of stock options, restricted
stock or other long-term incentive compensation to Mr. Rosenkranz, so long as
the Incentive Plan is in effect, except that Mr. Rosenkranz will continue to
receive his present salary, any annual bonus awarded by the Committee, and
executive perquisites. If the annual increase in the market value of the
Company's stock exceeds the S&P Insurance Index Total Return for the applicable
Performance Period, the awards under the Incentive Plan, made in the form of
restricted or deferred shares and stock options granted at the then market
value, may be significant. The options will be valuable to Mr. Rosenkranz,
however, only if the stock price appreciates after the options are granted.
The full text of the Incentive Plan is attached hereto as Exhibit C, to which
the foregoing description is qualified by reference.
13
<PAGE> 17
FEDERAL INCOME TAX CONSEQUENCES
Share Awards. In the absence of an election by Mr. Rosenkranz, as explained
below, the grant of restricted or deferred shares pursuant to an award under the
Incentive Plan will not result in taxable income to him or a deduction to the
Company in the year of grant. The value of the shares will be taxable to Mr.
Rosenkranz as ordinary income in the year in which the restrictions lapse or the
shares represented by the deferred shares are actually received. Alternatively,
Mr. Rosenkranz may elect to treat as income in the year of grant the fair market
value of the shares on the date of grant. If such election were made, Mr.
Rosenkranz would not be allowed to deduct at a later date the amount included as
taxable income if the shares were ultimately forfeited to the Company. The
amount of ordinary income recognized by Mr. Rosenkranz is generally deductible
by the Company in the year the ordinary income is recognized. Prior to the lapse
of restrictions, any dividends paid on the restricted shares (and any dividend
equivalents with respect to the deferred shares) will be taxable to Mr.
Rosenkranz in the year received and the Company will generally be allowed a
corresponding deduction.
Stock Option Awards. Stock options granted under the Incentive Plan will be
treated as nonqualified stock options for federal income tax purposes. See
"Proposal to Adopt the Second Amended and Restated Employee Option
Plan -- Federal Income Tax Consequences" for a description of the federal income
tax treatment of nonqualified stock options.
It is intended that the shares of Common Stock represented by Proxies will be
voted "for" the proposed adoption of the Incentive Plan unless a contrary
direction is indicated on the Proxy.
EXECUTIVE COMPENSATION
The following table sets forth aggregate compensation paid by the Company and
its subsidiaries for services rendered in all capacities to the Company and its
subsidiaries during the fiscal years ended December 31, 1996, 1995 and 1994 to
or for the benefit of each of the five most highly compensated executive
officers of the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------------
-------------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK OPTIONS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)(1) AWARD ($) ($)(2) ($)(3)
- -------------------------- ----- ---------- --------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Rosenkranz,........ 1996 $549,978 $550,000 $ -- $2,174,177(4) 216,000(4) $ --
President & Chief 1995 400,006 400,000 -- -- -- --
Executive Officer of 1994 174,996 -- -- -- -- --
the Company
Christopher A. Fazzini.... 1996 101,745 279,420 -- -- -- 4,750(5)
Vice President, Sales and 1995 89,565 226,171 -- -- -- 4,620(5)
Marketing of RSLIC 1994 89,565 226,746 -- -- -- 4,620(5)
Charles P. O'Brien,....... 1996 279,994 202,226 -- -- -- 4,750(5)
President & Chief 1995 279,994 148,260 -- -- -- 4,620(5)
Executive Officer of 1994 288,383 192,260 -- -- -- 4,620(5)
RSLIC
Robert M. Smith, Jr.,..... 1996 264,992 200,000 -- -- 35,000 3,000(5)
Vice President of the 1995 250,000 150,000 -- -- 36,000 2,500(5)
Company 1994 197,115(6) 75,000 (3) -- -- 55,814 --
Thomas A. Sullivan,....... 1996 425,022 150,000 -- -- -- --(5)
President of DCM 1995 425,022 75,000 -- -- -- 3,000(5)
1994 425,022 -- -- -- -- 4,620(5)
</TABLE>
- ---------------
(1) Personal benefits, which are non-cash compensation, were not disclosed in
the "Other Annual Compensation" column since they did not exceed the lesser
of either $50,000 or 10% of the total of annual salary and bonus for the
named executive officer.
14
<PAGE> 18
(2) Other than the granting of stock options listed below, no other long-term
compensation was provided to the named executive officers.
(3) The Company and its subsidiaries paid certain amounts in 1996, 1995, and
1994 to Rosenkranz, Inc., a wholly-owned subsidiary of Rosenkranz & Company,
pursuant to two investment consulting agreements. Portions of these amounts
were in turn earned by Mr. Rosenkranz (and, in 1994, by Mr. Smith) in
addition to the amounts set forth above. See "Certain Relationships and
Related Transactions."
(4) Under the Incentive Plan, subject to approval of such plan by the
stockholders of the Company, Mr. Rosenkranz was awarded 72,000 deferred
shares of Class A Common Stock and options to acquire 216,000 shares of
Class A Common Stock.
(5) These amounts represent the Company's annual contribution on behalf of the
employee to the Reliance Standard Life Insurance Company Retirement Savings
Plan and the Reliance Standard Life Insurance Company Nonqualified Deferred
Compensation Plan.
(6) Represents compensation for the period March 21, 1994 through December 31,
1994.
Employee Stock Option Plan. In 1987, the Company established, and in 1994
amended and restated, the Option Plan for key employees of the Company and its
subsidiaries. Under the Option Plan, a total of 1,980,000 shares of Class A
Common Stock have been reserved for issuance upon exercise of options granted
thereunder. Through March 20, 1997, options for 1,354,967 shares of Class A
Common Stock have been granted to a total of 21 optionees. As of March 20, 1997,
options covering 667,242 shares of Class A Common Stock have been exercised by a
total of 9 optionees. These exercises reduced the total number of outstanding
options exercisable for Class A Common Stock to 687,725 shares, of which options
for 544,837 shares of Class A Common Stock were vested as of March 20, 1997.
Options currently outstanding under the Option Plan expire between November 6,
1997 and December 13, 2006. Options granted under the Option Plan have a maximum
term of 10 years and become exercisable at such times and in such amounts as are
determined by the Committee at the time of grant. The price per share upon the
exercise of an option is 100% of the fair market value of the Class A Common
Stock on the date of the grant. For this purpose, the fair market value on any
such date is the closing price per share of the Class A Common Stock, as
reported through the New York Stock Exchange for such date.
OPTION GRANTS IN LAST FISCAL YEAR
Summarized below in tabular format are options granted to the named executive
officers during 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM
OPTIONS IN LAST PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- ---------------------------- ---------- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert Rosenkranz........... 216,000(1) 82% $ 31.125 01/15/07 $4,228,059 $10,714,731
Christopher A. Fazzini...... -- -- -- -- -- --
Charles P. O'Brien.......... -- -- -- -- -- --
Robert M. Smith, Jr. ....... 35,000(2) 13% 28.500 12/13/06 627,322 1,589,758
Thomas A. Sullivan.......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options indicated are subject to the approval by the stockholders of the
Company of the Incentive Plan and, upon such approval, will become
exercisable immediately. All are non-qualified options and become
exercisable for Class A Common Stock.
(2) The options indicated are subject to the approval by the stockholders of the
Company of the Restated Employee Plan and, upon such approval, will become
exercisable in 5 equal annual installments beginning with the first such
installment occurring on December 13, 1997. All are non-qualified options
and become exercisable for Class A Common Stock.
15
<PAGE> 19
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Summarized below in tabular format are options exercised by the named executive
officers during the fiscal year ended December 31, 1996 and options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Rosenkranz.......... -- -- 216,000 -- -- --
Christopher A. Fazzini..... -- -- -- -- -- --
Charles P. O'Brien......... -- -- 265,684 -- $ 7,237,232 --
Robert M. Smith, Jr. ...... -- -- 40,688 86,126 624,804 $ 799,546
Thomas A. Sullivan......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Based on a closing price of $29.50 for the Company's Class A Common Stock on
December 31, 1996.
Pension Plans. The Reliance Standard Life Insurance Company Pension Plan (the
"Pension Plan") is a noncontributory, qualified defined benefit pension plan
that provides retirement and, in certain instances, death benefits to employees
of RSLIC, FRSLIC, DCM and other subsidiaries of the Company. Benefits under the
Pension Plan at the employee's normal retirement age, which is 65, are
calculated as the sum of (i) 0.85% of the employee's average compensation for
the five consecutive calendar years in the last ten years of participation prior
to retirement during which the employee was most highly paid ("Average
Compensation") up to and including their Social Security covered compensation
level plus (ii) 1.5% of the employee's Average Compensation in excess of their
Social Security covered compensation level, multiplied by the employee's years
of service up to 35 years; plus 1% of the employee's Average Compensation
multiplied by the employee's years of service in excess of 35. Average
Compensation is subject to the statutory limitation pursuant to the Code of
$160,000 for 1997 (or any limits as set down by the Code in the future).
Benefits payable under the Pension Plan are offset by any benefits payable under
the Dresser Industries Inc. Pension Plan, which covered RSLIC and FRSLIC
employees prior to November 6, 1987 (the "Dresser Pension Plan Offset").
Employees are eligible to participate in the Pension Plan following the
completion of one year of service and the attainment of age 21 and continue to
accrue benefits generally until termination of employment, death or retirement.
Benefits vest after five years of service with RSLIC, FRSLIC and/or DCM.
Supplemental Executive Retirement Plan. Effective January 1, 1994, the Company
established the Reliance Standard Life Insurance Company Supplemental Executive
Retirement Plan (the "RSL SERP"). The plan provides certain key employees
(excluding Mr. Rosenkranz) with the opportunity for additional postemployment
income which would otherwise have been limited under the Pension Plan due to the
reduction of the statutory limit on employee's compensation as calculated under
the Pension Plan pursuant to the Code. The RSL SERP is a nonqualified deferred
retirement plan and is unfunded. Retirement benefits under the RSL SERP are
calculated in a similar manner as those under the Pension Plan, except that
Average Compensation is limited under the plan to $255,215 for 1996 (adjusted
annually by the Social Security Cost of Living Adjustment). Any benefits payable
under the Pension Plan are deducted from the benefit calculated under the RSL
SERP. All other terms and conditions of the RSL SERP are substantially identical
to those contained in the Pension Plan.
DCM Pension Plan. The Delphi Capital Management, Inc. Pension Plan for Robert
Rosenkranz (the "DCM Pension Plan") is a nonqualified, noncontributory defined
benefit pension plan that provides retirement benefits to Robert Rosenkranz and,
in certain instances, death benefits to his beneficiary. Benefits under the DCM
16
<PAGE> 20
Pension Plan at Mr. Rosenkranz's normal retirement age, which is 65, are
calculated in the same manner as benefits under the Pension Plan. Benefits are
reduced should Mr. Rosenkranz elect an early retirement date. The DCM Pension
Plan is unfunded and assets held by DCM shall not be deemed to be held in trust
for the payment of the pension obligation. The payment is, however,
unconditionally guaranteed by the Company under a guarantee agreement between
the Company and Robert Rosenkranz, and should DCM default, the Company will
discharge the obligation. Mr. Rosenkranz does not participate in either the
Pension Plan or the RSL SERP.
The estimated annual benefits payable at the normal retirement age of 65 are set
forth in the table below for the indicated compensation and years of service
classifications in the form of a straight life annuity. The benefits
calculations show estimated annual payments excluding the effect of any Dresser
Pension Plan Offset and are based upon the Social Security Act in effect for an
employee retiring in 1997.
<TABLE>
<CAPTION>
YEARS OF SERVICE AS
RETIREMENT PLAN PARTICIPATION AND ESTIMATED AMOUNT OF BENEFITS
AVERAGE ------------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
-------------------------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$100,000.................. $13,095 $19,642 $ 26,190 $ 32,738 $ 39,285 $ 45,833
$125,000................. $16,845 $25,267 $ 33,690 $ 42,113 $ 50,535 $ 58,958
$150,000................. $20,595 $30,892 $ 41,190 $ 51,488 $ 61,785 $ 72,083
$175,000................. $24,345 $36,517 $ 48,690 $ 60,863 $ 73,035 $ 85,208
$200,000................. $28,095 $42,142 $ 56,190 $ 70,238 $ 84,285 $ 98,333
$225,000................. $31,845 $47,767 $ 63,690 $ 79,613 $ 95,535 $111,458
$250,000................. $35,595 $53,392 $ 71,190 $ 88,988 $106,785 $124,583
$275,000................. $39,345 $59,017 $ 78,690 $ 98,363 $118,035 $137,708
$300,000................. $43,095 $64,642 $ 86,190 $107,738 $129,285 $150,833
$350,000................. $50,595 $75,892 $101,190 $126,488 $151,785 $177,083
</TABLE>
The following executives named in the Summary Compensation Table shown under
"Executive Compensation" are covered by the Pension Plan, the RSL SERP and/or
the DCM Pension Plan:
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
NAME AS OF DECEMBER 31, 1996
---------------------------------------------------------------- -------------------------
<S> <C>
Robert Rosenkranz............................................... 19.0
Christopher A. Fazzini.......................................... 13.0
Charles P. O'Brien.............................................. 20.4
Robert M. Smith, Jr. ........................................... 3.0
Thomas A. Sullivan.............................................. 9.0
</TABLE>
Employment Contract. The Company has entered into an agreement with Mr. Smith
which provides that if he is terminated without good and reasonable cause he
will be entitled to a severance payment up to a maximum of twelve months of base
salary, plus health benefits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Fox, Ranieri and Rhodes, the members of the Stock Option and
Compensation Committee during 1996, are not "insiders" within the meaning of the
Securities Act and there were no "interlocks" within the meaning of the
Securities Act.
17
<PAGE> 21
PERFORMANCE GRAPH
In order to further assist stockholders in analyzing disclosure on compensation,
a graph comparing the total return on the Company's Class A Common Stock to the
total return on the common stock of the companies included in the Standard &
Poor's 500 Index ("S&P 500 Index") and the Standard & Poor's Insurance Composite
Index ("S&P Insurance Index") has been provided. Due to the diversification of
the composition of the Company's insurance products as a result of the merger
with SIG Holdings, Inc. in March 1996, the Company selected the S&P Insurance
Index for comparative purposes in the performance graph to replace the Media
General Financial Services Life Insurance Industry Index, Group 261 -- Life,
Accident and Health Insurance Companies (the "MGFS Index"), which was used in
prior years. The Company believes that, as a result of such merger, the
companies that comprise the S&P Insurance Index are more representative of the
Company's industry peers. The MGFS Index has been provided in the performance
graph for information purposes only. The performance graph should be analyzed in
connection with the tables on the preceding pages detailing the payment of
compensation and the granting of employee stock options. The graph assumes $100
was invested in the Company's Class A Common Stock and the indices noted above
on December 31, 1990, and reflects the value of that investment on various dates
through December 31, 1996.
COMPARISON OF TOTAL RETURN AMONG DELPHI,
S&P 500 INDEX, S&P INSURANCE INDEX AND MGFS INDEX
[CHART]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Delphi 100 223 381 285 327 545
- --------------------------------------------------------------------
S&P 500 Index 100 108 118 120 165 203
- --------------------------------------------------------------------
S&P Insurance Index 100 118 125 125 178 220
- --------------------------------------------------------------------
MGFS Index 100 128 147 135 193 247
- --------------------------------------------------------------------
</TABLE>
18
<PAGE> 22
REPORT ON EXECUTIVE COMPENSATION
Compensation of the Company's executive officers (including the named executive
officers) is supervised by the Stock Option and Compensation Committee of the
Board of Directors. The objective of the Company's compensation program is to
provide a total compensation package that will enable the Company to attract,
motivate and retain outstanding individuals and to reward such individuals for
increasing levels of profit and stockholder value.
In conformance with the above compensation philosophy, the total annual
compensation for senior officers of the Company and its subsidiaries is
determined by one base element, salary, and two incentive elements, annual bonus
and grants of stock options under the Company's Option Plan.
Salary for executive officers of the Company and its subsidiaries is determined
by analysis of three factors, consisting of (1) salary levels for executive
officers at other companies with comparable responsibilities; (2) evaluation of
the individual executive officer's performance; and (3) the Company's ability to
pay. While the three factors are not formally weighted, the Company's ability to
pay is a threshold consideration.
The level of base salary paid to an executive officer is determined on the basis
of the individual's overall performance and compensation level at the Company
during the prior year and such other factors as may be appropriately considered
by the Stock Option and Compensation Committee and by management in making its
proposals to such Committee.
For executive officers employed in the insurance operations at RSLIC, the level
of cash bonus paid is determined under the Senior Management Incentive Plan
administered by the Compensation Committee of RSLIC's Board of Directors. The
performance criteria used to determine the level of bonus under this plan
include, among others, earnings per share, underwriting results, production of
insurance premiums, deposits on sales of annuities and the maintenance of
expenses of the insurance subsidiaries relative to pre-determined targets. Bonus
as a percentage of base salary generally increases with the level of
responsibility of the executive officer; for example, RSLIC's Chief Executive
Officer's potential bonus is 43% of total compensation, with other executives'
respective potential bonuses reduced as their level of responsibility decreases.
Total cash compensation for such executive officers is reviewed for
comparability with the compensation levels of similarly situated officers of
insurance companies of similar size, including certain of those companies
included in the S&P Insurance Index.
The principal method for long-term incentive compensation is the Option Plan
described above under "Other Compensation Plans -- Stock Option Plan" and
compensation thereunder takes the form of nonqualified stock option grants.
Those grants are designed to promote the identity of long-term interests between
key employees of the Company and its subsidiaries and the Company's
stockholders, since the value of options granted will increase or decrease with
the value of the Company's common stock. In this manner, key individuals are
rewarded in a manner that is commensurate with increases in stockholder value.
The size of a particular option grant is determined based on the individual's
position with and contributions to the Company (or, in the case of new hires,
the individual's current position and anticipated contributions). These grants
also typically include three to five year vesting periods to encourage continued
employment.
Mr. Rosenkranz's compensation for 1996 was determined after considering the
general factors described above. Mr. Rosenkranz's base salary was set at a level
designed to approximate amounts received by him in past years as consulting
fees.
In addition, under the Incentive Plan for the Chairman, President and Chief
Executive Officer being proposed for stockholder approval, Mr. Rosenkranz will
be rewarded for the Company's achieving gains in stockholder wealth that surpass
the S&P Insurance Index Total Return, which the Committee believes to be a
representative
19
<PAGE> 23
index reflecting the stock performance of the Company's peer group. The ultimate
value of awards under the Incentive Plan will depend on the Company's
stockholder returns, since such awards will consist of restricted or deferred
shares, the value of which will be subject to market risk so long as Mr.
Rosenkranz remains employed with the Company (and which are forfeitable if such
employment terminates under certain circumstances). In addition, the options
will have value to Mr. Rosenkranz only to the extent that the Company's stock
price appreciates following the grant date.
Section 162(m) of the Code limits deductibility of certain compensation for the
Chief Executive Officer and the additional four highest paid executive officers
in excess of $1 million per year. The Committee intends to establish and
maintain executive compensation levels and programs that will be competitive
within the industry and will attract and retain highly talented individuals.
Executive compensation will be structured to avoid limitations on deductibility
where this result can be achieved consistent with the Company's compensation
goals.
STOCK OPTION AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Edward A. Fox Thomas A. Rhodes
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to two investment consulting agreements entered into in November 1987
and November 1988, respectively, RSLIC and the Company pay to Rosenkranz, Inc.,
a wholly owned subsidiary of Rosenkranz & Company, certain fees associated with
the formulation of the business and investment strategies of the Company and its
subsidiaries. These fees amounted to $2.3 million for the year ended December
31, 1996. These fees generally increase at an annual rate of 10.0% and are
expected to be $2.5 million for calendar year 1997. Of the aggregate amounts
paid to Rosenkranz, Inc. for services rendered during the year ended December
31, 1996 pursuant to these investment consulting agreements, $430,848 was earned
by Mr. Rosenkranz due to his indirect and direct financial interests in
Rosenkranz & Company. Management believes that the fees charged by Rosenkranz,
Inc., are comparable to fees charged by unaffiliated third parties for
investment consulting services of considerably narrower scope than the services
provided by Rosenkranz, Inc.
Pursuant to a cost-sharing arrangement, a subsidiary of the Company received
reimbursements from Rosenkranz, Inc. and Acorn Partners, a limited partnership
in which Mr. Rosenkranz has an indirect beneficial interest, for expenses
associated with the sharing of office space and office personnel. The total
amount of these reimbursements during 1996 was $0.9 million.
Pursuant to an investment advisory agreement, a subsidiary of the Company paid
fees to an investment advisor, Hyperion Capital Management, Inc., of which Mr.
Ranieri is the Chairman. Management believes that the fees charged by the
investment advisor under the agreement are comparable to the fees charged by
other unaffiliated investment advisors for investment advisory services. In
addition, at the time that such investment advisory agreement was entered into,
Mr. Ranieri was not a member of the Company's Board of Directors, nor was the
agreement entered into in contemplation of his becoming a Board member. The
Company's subsidiary paid $305,500 under such agreement during 1996.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as the Company's independent auditors for
1996 and is expected to so serve in 1997. A representative of Ernst & Young LLP
is expected to be present at the Annual Meeting to respond to appropriate
questions and to make a statement if such representative desires.
20
<PAGE> 24
FINANCIAL STATEMENTS AVAILABLE
Consolidated financial statements for Delphi Financial Group, Inc. are included
in the Company's 1996 Annual Report on Form 10-K for the year ended December 31,
1996, which was previously mailed to stockholders receiving this Proxy
Statement. Additional copies of the Form 10-K and the Annual Report to
Stockholders may be obtained without charge by submitting a written request to
the Investor Relations Department, Delphi Financial Group, Inc., 1105 North
Market Street, Suite 1230, Wilmington, Delaware 19899.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, based solely on its review of Forms 3, 4 and 5 and
amendments thereto furnished to the Company pursuant to Section 16 of the
Securities Exchange Act of 1934 and written representations that no other
reports were required for such persons, all persons subject to these reporting
requirements filed the required reports on a timely basis, except that Mr. Smith
was late in filing one report.
SUBMISSION OF 1998 STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual Meeting of
Stockholders must be received by the Company at 1105 North Market Street, Suite
1230, Wilmington, Delaware 19899, by December 1, 1997.
By Order of the Board of
Directors,
Robert Rosenkranz
Chairman of the Board
21
<PAGE> 25
EXHIBIT A
DELPHI FINANCIAL GROUP, INC.
SECOND AMENDED AND RESTATED EMPLOYEE STOCK OPTION PLAN
INTRODUCTION
Delphi Financial Group, Inc. (the "Company") adopted the Delphi Financial Group,
Inc. Employee Nonqualified Stock Option Plan effective November 6, 1987, and
amended and restated such plan effective January 1, 1994. Because, under the
terms of such plan, options could only be granted thereunder within a period of
ten years from when the plan was originally approved by the Company's
stockholders, the plan was, effective as of March 20, 1997 (subject to the
approval of the stockholders of the Company), further amended and restated to
readopt such plan, as well as to consolidate prior plan amendments and
adjustments, including, among other things, the adjustment to the number of
shares available for issuance thereunder that resulted from the twenty percent
(20%) stock dividend distributed by the Company on September 30, 1996, and to
effect certain further amendments. Such plan, as so amended and restated, is as
follows:
1. PURPOSE
This Second Amended and Restated Employee Stock Option Plan (the "Plan") is
intended to be an incentive for employees of Delphi Financial Group, Inc. (the
"Company") or any of its subsidiary corporations (the "Subsidiaries") as that
term is defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code"), and other Optionees (as herein defined)
to share in future appreciation in the value of the stock of the Company, and to
encourage stock ownership by such individuals in the Company, so that such
individuals may acquire or increase a proprietary interest in the success of the
Company and its Subsidiaries, and so that they may be encouraged to continue to
provide services to the Company and its Subsidiaries. The Plan provides for the
issuance of nonqualified and incentive stock options within the meaning of
Section 422 of the Code (each, an "Option").
2. ADMINISTRATION
The Plan shall be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee shall select one of its members as Chairman
and shall hold meetings at such times and places as it may determine. A majority
of the members of the Committee then constituting the entire Committee shall
constitute a quorum. Acts by a majority of the Committee at a meeting at which a
quorum is present, or acts reduced to or approved in writing by a majority of
the members of the Committee, shall be valid acts of the Committee. The
Committee shall from time to time in its discretion determine the individuals
who shall be granted Options and the number of Shares (as hereinafter defined)
to be subject thereto.
3. ELIGIBILITY
The persons who shall be eligible to receive Options (the "Optionees") shall be
the key employees (including officers whether or not they are directors) of the
Company or its Subsidiaries and other individuals who, in the
A-1
<PAGE> 26
Committee's judgment, can make substantial contributions to the Company's
long-term profitability and value. An Optionee may be granted Options on more
than one occasion.
4. STOCK
The stock subject to the Options shall be shares (the "Shares") of the Company's
authorized but unissued or reacquired Class A common stock, par value $.01 per
share. The aggregate number of Shares as to which Options may be granted shall
not exceed 1,980,000. The aggregate number of Shares as to which Options may be
granted to any person in any one calendar year shall not exceed 500,000. The
limitations established by the two immediately preceding sentences shall be
subject to adjustment as provided in Article 5(l) of the Plan. In the event that
any outstanding Option under the Plan for any reason expires, terminates or is
canceled, the Shares allocable to the unexercised portion of such Option will
again be subject to Options thereafter awarded under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
When the Committee grants Options to an Optionee, a Notice of Grant of Stock
Option (an "Option Notice") shall be given to such Optionee, which notice shall
comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Option Notice shall state the number of
Shares to which the Options pertain.
(b) Incentive Stock Options. The Option Notice for an Option that is
intended to qualify as an incentive stock option under Section 422 of the
Code shall state that the Option is intended to so qualify, and shall
contain such provisions as may be necessary for such Option to so qualify.
(c) Option Price. Each Option Notice shall state the Option price per
Share, which shall be 100% of the Fair Market Value of a Share on the date
of the grant of the Option (the "Option Price"). For purposes hereof, "Fair
Market Value" shall be the closing price on the applicable date of a Share,
as reported on the New York Stock Exchange (the "NYSE"), or, if the Shares
are not then listed for trading on the NYSE, the closing price of the Shares
as reported on another recognized securities exchange or on the NASDAQ
National Market System if the Shares shall then be listed on such exchange
or system. If the Shares did not trade on the award date on the NYSE or such
other applicable exchange or system, the Fair Market Value for purposes
hereof shall be the reported closing price on the last business day on which
the Shares were traded preceding the award date.
(d) Option Price. The Option Notice may provide that the Optionee may
make payment of the Option Price in cash, Shares or such other consideration
as may be specified therein or as may be acceptable to the Committee, or any
combination thereof, in an amount or having an aggregate value, as the case
may be, equal to the total Option Price. Such payment shall be made upon
exercise of the Option.
(e) Term, Transferability And Exercisability Of Options.
(i) Each Option Notice shall state the date on which the Option shall
expire (the "Expiration Date"), which shall not be later than ten years
following the date on which the Option is granted. Options are not
transferable by an Optionee other than by will or the laws of descent and
distribution, except that in the case of nonqualified stock options, if
provided in the applicable Option Notice (at the time of grant or as
amended at any time thereafter), an Option granted hereunder may be
transferred for no consideration by the Optionee to members of his or her
immediate family, to a trust or trusts
A-2
<PAGE> 27
established for the exclusive benefit only of one or more members of his
or her immediate family or to a partnership in which his or her immediate
family members are the only partners. Any Option held by such a
transferee will continue to be subject to the same terms and conditions
that were applicable to the Option immediately prior to the transfer,
except that the Option will be transferable by the transferee only by
will or the laws of descent and distribution. For purposes hereof,
"immediate family" means the Optionee's children, stepchildren,
grandchildren, parents, stepparents, grandparents, spouse, siblings
(including half brothers and sisters), in-laws, and relationships arising
because of legal adoption. Subject to Article 5(j) hereof, Options may be
exercised by an Optionee only for so long as such person is employed by
the Company or a Subsidiary except as otherwise provided in Articles 5(f)
through (i) of the Plan.
(ii) The Option Notice may, but need not, provide that the Option
shall become exercisable in installments rather than being exercisable
immediately in full. In such case, the Committee shall determine (A) the
amount and terms of such installments, which need not be equal, (B) the
timing of such installments, which need not be annual or consecutive, and
(C) whether such installments shall be cumulative. The Committee at any
time may provide, in the case of an Option which is to become exercisable
in installments, for the acceleration of the times at which the Option
may become exercisable. The Committee's determination shall be specified
in the Option Notice.
(iii) Upon or in connection with a Change of Ownership, each Optionee
shall have the right, immediately prior to such Change of Ownership, to
exercise his or her Option without regard to any installment provisions
as to exercisability contained in such Optionee's Option Notice. For
purposes of this Plan, a "Change of Ownership" shall be deemed to have
occurred (1) if individuals who, as of the effective date of this Plan,
constitute the Board of Directors of the Company (the "Board of
Directors" generally and as of the date hereof the "Incumbent Board")
cease for any reason to constitute at least a majority of the directors
constituting the Board of Directors, provided that any person becoming a
director subsequent to the effective date of this Plan whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least three-quarters ( 3/4) of the then directors who are
members of the Incumbent Board (other than an election or nomination of
an individual whose initial assumption of office is (A) in connection
with the acquisition by a third person, including a "group" as such term
is used in Section 13(d)(3) of the Securities and Exchange Act of 1934,
as amended (the "1934 Act"), of beneficial ownership, directly or
indirectly, of 20% or more of the combined voting securities ordinarily
having the right to vote for the election of directors of the Company
(unless such acquisition of beneficial ownership was approved by a
majority of the Board of Directors who are members of the Incumbent
Board), or (B) in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
1934 Act) shall be, for purposes of this Plan, considered as though such
person were a member of the Incumbent Board; or (2) if the stockholders
of the Company approve a merger, consolidation, recapitalization or
reorganization of the Company, reverse split of any class of voting
securities of the Company, or an acquisition of securities or assets by
the Company, or the sale or disposition by the Company of all or
substantially all of the Company's assets, or if any such transaction is
consummated without stockholder approval, other than any such transaction
in which the holders of outstanding Company voting securities immediately
prior to the transaction receive, with respect to such Company voting
securities, voting securities of the surviving or transferee entity
representing more than 60 percent of the total voting power outstanding
immediately after such transaction, with the voting power of each such
continuing holder relative to
A-3
<PAGE> 28
other such continuing holders not substantially altered in the
transaction; or (3) if the stockholders of the Company approve a plan of
complete liquidation of the Company.
(iv) At any time and from time to time when any Option or portion
thereof is exercisable, such Option or portion thereof may be exercised
in whole or in part, as applicable; provided, however, that the Company
shall not be required to issue fractional Shares.
(f) Termination of Employment Except by Death, Disability or Discharge
for Cause. Unless otherwise specified in an Option Notice, in the event
that the employment of an Optionee by the Company or its Subsidiaries shall
terminate for any reason other than death, disability, or discharge for
cause, Options may be exercised only within three (3) months after such
termination of employment or such longer period as may be established by the
Committee at the time of grant or thereafter, but only to the extent such
Option was exercisable on the last day of employment, and in no event may an
Option be exercised after its Expiration Date. Any portion of the Option
which was not exercisable on such last day shall expire immediately. Whether
authorized leave or absence or absence for military or governmental service
shall constitute termination of employment for the purposes of the Plan
shall be determined by the Committee, which determination shall be final and
conclusive.
(g) Death or Disability of Optionee. Unless otherwise specified in an
Option Notice, in the event an Optionee shall die or become disabled while
in the employ of the Company or a Subsidiary, Options may be exercised at
any time within one (1) year after the Optionee's death or disability or
such longer period as may be established by the Committee at the time of
grant or thereafter, but only to the extent that such Option was exercisable
on the last day of employment, and in no event may an Option be exercised
after its Expiration Date. During such one-year period, the Option may be
exercised by the Optionee or a representative, or in the case of death, by
the executors or administrators of the Optionee or by any person or persons
who shall have acquired the Option directly from the Optionee by bequest or
inheritance. Whether an Optionee shall have become disabled for the purposes
of the Plan shall be determined by the Committee, which determination shall
be final and conclusive.
(h) Discharge for Cause. If an Optionee is discharged for cause, all
unexercised Options shall terminate as of the date of his discharge. Whether
an Optionee is discharged for cause for purposes of the Plan shall be
determined by the Committee, which determination shall be final and
conclusive.
(i) Retirement. Notwithstanding the provisions of Article 5(f) hereof,
the Committee may, at the time of grant of an Option or thereafter, permit
the Optionee to exercise Options (but only to the extent the Option was
exercisable on the last date of employment) up to one (1) year following the
Optionee's retirement under the Company's or its Subsidiary's, as
applicable, retirement policy or such longer period as may be established by
the Committee at the time of grant or thereafter; provided that in no event
may an Option be exercised after its Expiration Date.
(j) Non-Employee Optionees. Neither the last sentence of Article
5(e)(i) nor any of Articles 5(f) through 5(i) hereof shall apply with
respect to Options having been granted to an Optionee who is not an employee
of the Company or its Subsidiaries (a "Non-Employee Optionee"). In the case
of any such Options, the Option Notice shall set forth the applicable
limitations on the exercisability thereof, and the effect on such
exercisability of death, disability and any other events provided for
therein, at the time of grant or thereafter.
(k) Right of Company. In the case of a termination of an Optionee's
employment by reason of death, disability, retirement or discharge other
than for cause (or, in the case of a Non-Employee Optionee, to the extent
provided in the Option Notice at the time of grant or thereafter) the
Company may, but is not
A-4
<PAGE> 29
obligated to, purchase unexercised Options held by such Optionee and pay
such person the amount of cash equal to (i) the aggregate Fair Market Value
of Shares underlying such Option (to the extent that such Options would have
been exercisable by the Optionee upon termination of employment) as of the
date of termination of employment (or, in the case of a Non-Employee
Optionee, the date provided in the Option Notice at the time of grant or
thereafter), less (ii) the aggregate Option Price for such Shares.
(l) Recapitalization, Reorganization, Etc., of Company.
(i) Subject to any required action by the stockholders, the number of
Shares covered by each outstanding Option, and the price per Share so
covered shall automatically be proportionately adjusted for any increase
or decrease in the number of issued shares of Class A Common Stock of the
Company resulting from a subdivision or consolidation of Shares or the
payment of a stock dividend or any other increase or decrease in the
number of such shares effected without receipt of consideration by the
Company.
(ii) If, pursuant to any reorganization, recapitalization, sale or
exchange of assets, consolidation or merger, outstanding Class A Common
Stock of the Company is or would be exchanged for other securities of the
Company or of another corporation which is a party to such transaction,
or for property, whether or not any such transaction gives rise to a
Change of Ownership, any Options under the Plan theretofore granted shall
apply to the securities or property into which the Class A Common Stock
covered thereby shall be so changed or for which such Class A Common
Stock shall be exchanged. In any of such events, the total number and
class of Shares then remaining available for issuance under the Plan
(including Shares reserved for outstanding Options and Shares available
for future grant of Options under the Plan) shall likewise be adjusted so
that the Plan shall thereafter cover the number and class of shares
equivalent to the Shares covered by the Plan immediately prior to such
event.
(iii) In the event of a change in the Class A Common Stock of the
Company as presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of shares with
a different par value or without par value, the shares resulting from any
such change shall be deemed to be the Class A Common Stock within the
meaning of the Plan.
(iv) Adjustments pursuant to Article 5(l)(ii) hereof shall be made by
the Committee, whose determination as to which shall be final, binding
and conclusive.
(v) Except as hereinbefore expressly provided in this Article 5(l),
an Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of
stock of any class or by reason of any dissolution, liquidation, merger
or consolidation or spin-off of assets or stock of another corporation,
and any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Class A Common
Stock subject to the Option.
(vi) The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, mergers, reorganizations or changes of its capital or
business structure, to merge or to consolidate, to dissolve or liquidate
or to sell or transfer all or any part of its business or assets.
(m) Rights as a Stockholder. No person shall have any rights as a
stockholder with respect to any Shares covered by an Option until the date
of the issuance of the Shares to such person. No adjustments
A-5
<PAGE> 30
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights, except as
provided in Article 5(l) hereof.
(n) Modification, Extension and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Committee
may modify, extend or renew outstanding Options granted under the Plan, or
accept the surrender of outstanding Options (to the extent not theretofore
exercised). Notwithstanding the foregoing, however, no modification of an
Option shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Option theretofore granted under the Plan.
(o) Investment Purpose. Each Option under the Plan shall be granted on
the condition that the purchases of Shares hereunder shall be for investment
purposes and not with a view to resale or distribution, except that in the
event the Shares subject to such Option are registered under the Securities
Act of 1933, as amended (the "Act"), or in the event a resale of such Shares
without such registration would otherwise be permissible, such condition
shall be inoperative if, in the opinion of counsel for the Company, such
condition is not required under the Act, or any other applicable law,
regulation or rule of any governmental agency.
(p) Other Provisions. The Option Notice shall contain such other
provisions, including, without limitation, restrictions upon exercise of the
Option or the transfer of the Shares received upon an exercise, as the
Committee shall deem advisable.
6. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time within a period of
ten years from the earlier of the date of adoption of the Plan or the date on
which the Plan is approved by the stockholders of the Company.
7. PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
(a) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
officers and directors of the Company shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and
all interpretations and determinations made by the Committee shall be final
and binding upon all Optionees, the Company and all other interested
persons. No member of the Committee shall be personally liable for any
action, determination or interpretation made with respect to the Plan or the
Options and all members of the Committee shall be fully protected by the
Company in respect to any such action, determination or interpretation.
(b) In addition to such other rights of indemnification as they may have
as directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection
with the defense of any action, suit or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by reason of
any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding except in relation to
matters to which it shall be adjudged in such action, suit or proceeding
that such Committee member is liable for negligence or misconduct in the
performance of his duties; provided that within 60 days after institution of
any such action, suit or proceeding the Committee member shall in writing
offer the Company the opportunity, at its own expense, to handle and defend
the same.
A-6
<PAGE> 31
8. AMENDMENT OF THE PLAN
The Board of Directors of the Company or the Committee may, insofar as permitted
by law, from time to time, with respect to any Shares not then subject to
Options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever, subject to the approval of the stockholders of the Company where
such approval is required by law or regulation or pursuant to the rules of the
NYSE or, if the Shares are not listed on the NYSE, the rules of any other
exchange or market on which the Shares may be traded.
9. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Shares pursuant to Options
will be used for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
11. APPROVAL OF STOCKHOLDERS
This Plan shall be effective upon its approval by the stockholders of the
Company.
12. NO EFFECT ON EMPLOYMENT
The grant of an Option pursuant to the Plan shall not be construed to imply or
to constitute evidence of any agreement, express or implied, on the part of the
Company or any Subsidiary to employ or continue to employ any individual or
which relates in any way to the responsibilities, duties or authority of any
employee or individual.
13. EFFECT OF PLAN UPON OTHER OPTIONS AND COMPENSATION PLANS
The adoption of this Plan shall not affect any other compensation or incentive
plans in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company or any Subsidiary to (a) establish
any other forms of incentives or compensation for employees or directors of or
persons associated with the Company or any Subsidiary, or (b) grant or assume
options otherwise than under this Plan in connection with any proper corporate
purpose, including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
firm or association.
A-7
<PAGE> 32
EXHIBIT B
DELPHI FINANCIAL GROUP, INC.
AMENDED AND RESTATED DIRECTORS STOCK OPTION PLAN
INTRODUCTION
Delphi Financial Group, Inc. (the "Company") adopted the Delphi Financial Group,
Inc. 1994 Directors Stock Option Plan effective April 12, 1994. Effective as of
March 20, 1997, the Company amended and restated such plan (subject to the
approval of the stockholders of the Company) to incorporate provisions whereby
the eligible members of its Board of Directors may receive stock options in lieu
of their annual cash retainers, to increase the number of shares subject to
nonqualified stock options available for issuance under such plan, and to effect
certain further amendments. Such plan, as so amended and restated, is as
follows:
1. PURPOSE
This Amended and Restated Directors Stock Option Plan (the "Plan") is intended
to increase the proprietary interest in Delphi Financial Group, Inc. (the
"Company") of outside directors of the Company, i.e., directors who are not
officers or employees of the Company or its subsidiaries, whose continued
services are important to the continued success of the Company, thereby
providing them with additional incentive to continue to serve as directors. The
Plan provides for the issuance of nonqualified stock options ("Options"). The
Plan shall be effective upon its approval by the stockholders of the Company (as
provided in Section 10 below).
2. ADMINISTRATION
The Plan shall be substantially self-executing. To the extent, however, that any
administrative determinations regarding the Plan are required to be made, they
shall be made pursuant to the affirmative vote of a majority of the members of a
committee consisting of the members of the Company's Board of Directors (the
"Committee"). All ministerial matters relating to the Plan shall be performed by
or at the direction of the Committee.
3. ELIGIBILITY
The persons who shall receive Options (the "Optionees") shall be members of the
Company's Board of Directors who are not officers or employees of the Company or
any of its subsidiaries ("Subsidiaries"), as that term is defined by Section
424(f) of the Internal Revenue Code of 1986, as amended from time to time (the
"Code"). Persons eligible to be Optionees are sometimes referred to herein as
"Outside Directors."
4. STOCK
The stock subject to the Options shall be shares (the "Shares") of the Company's
authorized but unissued or reacquired Class A common stock, par value $.01 per
share). The aggregate number of Shares as to which Options may be granted shall
not exceed 120,000. The limitation established by the preceding sentence shall
be subject to adjustment as provided in Section 5(B)(ix) of the Plan. In the
event that any outstanding Option under the Plan for any reason expires,
terminates or is canceled, the Shares allocable to the unexercised portion of
such Option will again be subject to Options thereafter awarded under the Plan.
B-1
<PAGE> 33
5. TERMS AND CONDITIONS OF OPTIONS
A. Options shall automatically be granted under the Plan as follows:
(i) On the day immediately following the date on which the Plan is
approved by the stockholders of the Company (as provided in Section 10
below), and thereafter on the first business day immediately following the
each date on which the Company holds its annual meeting of stockholders
(commencing with the 1997 meeting), each Outside Director then in office
will automatically be awarded as of such date Options exercisable for a
number of Shares determined pursuant to the following formula: Number of
Option Shares = 2,000 multiplied by [1 + (.125 multiplied by the number of
years of continuous service of such Outside Director to that point,
including any portion of a year of service, which shall be treated as a full
year)].
(ii) Each Outside Director shall, on the first business day following
each date on which such director is elected, re-elected or appointed, as
applicable, to the Company's Board of Directors (the "Election Date"),
commencing with the elections to occur at the 1997 annual meeting of
stockholders, be awarded Options in lieu of the cash amount (the "Retainer
Amount") that such director would be entitled to receive for serving as such
in the period from the Election Date up to the date of the Company's next
following annual meeting of stockholders, exclusive of meeting fees, fees
for serving on any committee of the Board, or fees associated with any other
services provided to the Company or its Subsidiaries. Such Options will be
exercisable for the nearest number of whole Shares determined pursuant to
the following formula: Number of Option Shares = (Retainer Amount multiplied
by 3), divided by (Fair Market Value, as that term is defined in Section
5(B) (ii) hereof, as of the award date). Notwithstanding the foregoing,
Options will not be awarded pursuant to this Section 5(A)(ii) if the Outside
Director files with the Secretary of the Company, on or prior to the
commencement of the calendar year in which the applicable Election Date is
to occur, a written election not to receive Options in lieu of the Retainer
Amount (other than the Election Date on which such director is first elected
or appointed, in which case such election may be made at any time prior to
such Election Date).
B. Promptly after each award pursuant to Section 5(A), a Notice of Award of
Stock Option (an "Option Notice") shall be given to each Optionee, which notice
shall comply with and be subject to the following terms and conditions:
(i) Number of Shares. Each Option Notice shall state the number of
Shares to which it pertains.
(ii) Option Price. Each Option Notice shall state the Option price per
Share, which shall be 100% of the Fair Market Value of a Share on the date
of the grant of the Option (the "Option Price"). For purposes hereof, "Fair
Market Value" shall be the closing price on the applicable date of a Share,
as reported on the New York Stock Exchange (the "NYSE"), or, if the Shares
are not then listed for trading on the NYSE, the closing price of the Shares
as reported on another recognized securities exchange or on the NASDAQ
National Market System if the Shares shall then be listed on such exchange
or system. If the Shares did not trade on the award date on the NYSE or such
other applicable exchange or system, the Fair Market Value for purposes
hereof shall be the reported closing price on the last business day on which
the Shares were traded preceding the award date.
(iii) Option Price. The Option Notice may provide that the Optionee may
make payment of the Option Price in cash, Shares or such other consideration
as may be specified therein or as may be acceptable to the Committee, or any
combination thereof, in an amount or having an aggregate value, as the case
may be, equal to the total Option Price. Such payment shall be made upon
exercise of the Option.
B-2
<PAGE> 34
(iv) Term, Transferability and Exercisability of Options.
(a) Each Option Notice shall state the date on which the Option shall
expire (the "Expiration Date"), which shall be ten years from the date on
which the Option is awarded. Options are not assignable or transferable
by an Optionee other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order as
defined by the Code or by Title I of the Employee Retirement Income
Security Act, or the rules thereunder. Notwithstanding the foregoing, if
provided in the applicable Option Notice (at the time of grant or at any
time thereafter), an Option granted hereunder may be transferred for no
consideration by the Optionee to members of his or her immediate family,
to a trust or trusts established for the exclusive benefit only of one or
more members of his or her immediate family or to a partnership in which
his or her immediate family members are the only partners. Any Option
held by the transferee will continue to be subject to the same terms and
conditions that were applicable to the Option immediately prior to the
transfer, except that the Option will be transferable by the transferee
only by will or the laws of descent and distribution. For purposes
hereof, "immediate family" means the Optionee's children, stepchildren,
grandchildren, parents, stepparents, grandparents, spouse, siblings
(including half brothers and sisters), in-laws, and relationships arising
because of legal adoption.
(b) Options granted pursuant to Section 5(A)(i) hereof shall become
exercisable in five equal annual installments of twenty percent (20%) per
year. Options granted pursuant to Section 5(A)(ii) hereof shall become
exercisable in four substantially equal installments (without taking into
account any fractional share) on the dates which follow the date of the
grant by 90, 180, 270 and 360 days, respectively. Once Options with
respect to Shares become exercisable as aforesaid, they may be exercised
in whole or in part from time to time through the applicable Expiration
Date, subject to the terms and conditions hereof. Upon or in connection
with a Change of Ownership, each Optionee shall have the right,
immediately prior to such Change of Ownership, to exercise his or her
Options without regard to the foregoing installment provisions as to
exercisability. For purposes of this Plan, a "Change of Ownership" shall
be deemed to have occurred (1) if individuals who, as of the effective
date of this Plan, constitute the Board of Directors of the Company (the
"Board of Directors" generally and as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the
directors constituting the Board of Directors, provided that any person
becoming a director subsequent to the effective date of this Plan whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least three-quarters (3/4) of the then directors
who are members of the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is (A) in
connection with the acquisition by a third person, including a "group" as
such term is used in Section 13(d)(3) of the Securities and Exchange Act
of 1934, as amended (the "1934 Act"), of beneficial ownership, directly
or indirectly, of 20% or more of the combined voting securities
ordinarily having the right to vote for the election of directors of the
Company (unless such acquisition of beneficial ownership was approved by
a majority of the Board of Directors who are members of the Incumbent
Board), or (B) in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
1934 Act) shall be, for purposes of this Plan, considered as though such
person were a member of the Incumbent Board; or (2) if the stockholders
of the Company approve a merger, consolidation, recapitalization or
reorganization of the Company, reverse split of any class of voting
securities of the Company, or an acquisition of securities or assets by
the Company, or the sale or disposition by the Company of all or
substantially all of the Company's assets, or if any such transaction is
consummated without stockholder approval, other than any such transaction
in which the
B-3
<PAGE> 35
holders of outstanding Company voting securities immediately prior to the
transaction receive, with respect to such Company voting securities,
voting securities of the surviving or transferee entity representing more
than 60 percent of the total voting power outstanding immediately after
such transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction; or (3) if the stockholders of the Company approve a plan
of complete liquidation of the Company.
(c) At any time and from time to time when any Option or portion
thereof is exercisable, such Option or portion thereof may be exercised
in whole or in part, as applicable; provided, however, that the Company
shall not be required to issue fractional Shares.
(v) Termination of Service Except by Death, Disability, Retirement or
Removal for Cause. In the event that the Optionee shall cease to be an
Outside Director for any reason other than death, disability, retirement or
removal for cause as further provided herein, Options may be exercised only
within three (3) months after such termination of service or such longer
period as may be established by the Committee at the time of grant or
thereafter, but only to the extent such Option was exercisable on the last
day on which the Optionee was an Outside Director, and in no event may an
Option be exercised after its Expiration Date. Any portion of the Option
which was not exercisable on such last day shall expire immediately.
(vi) Death or Disability of Optionee. In the event an Optionee shall
die or become disabled while a director of the Company, Options may be
exercised at any time within one (1) year after the Optionee's death or
disability or such longer period as may be established by the Committee at
the time of grant or thereafter, but only to the extent that such Option was
exercisable by the Optionee on the last day on which the Optionee was an
Outside Director, and in no event may an Option be exercised after its
Expiration Date. During such one-year period, the Option may be exercised by
the Optionee or a representative, or in the case of death, by the executors
or administrators of the Optionee or by any person or persons who shall have
acquired the Option directly from the Optionee by bequest or inheritance.
Whether an Optionee shall have become disabled for the purposes of the Plan
shall be determined by the Committee, which determination shall be final and
conclusive.
(vii) Removal for Cause. If an Optionee is removed as a director of the
Company on account of any act of (a) fraud or intentional misrepresentation
or (b) embezzlement, misappropriation or conversion of assets or
opportunities of the Company, or any unauthorized disclosure or confidential
information or trade secrets of the Company, all unexercised Options shall
terminate as of the date of such Optionee's removal.
(viii) Retirement. To the extent an Option was exercisable on the last
date of service as a director of the Company, such Option may be exercised
up to one (1) year following the Optionee's retirement at or after age 75 or
such longer period as may be established by the Committee at the time of
grant or thereafter, but in no event may an Option be exercised after its
Expiration Date.
(ix) Recapitalization, Reorganization, Etc., of Company.
(a) Subject to any required action by the stockholders, the number of
Shares covered by each outstanding Option, and the price per Share so
covered, shall automatically be proportionately adjusted for any increase
or decrease in the number of issued shares of Class A Common Stock of the
Company resulting from a subdivision or consolidation of Shares or the
payment of a stock dividend or any other increase or decrease in the
number of such shares effected without receipt of consideration by the
Company.
B-4
<PAGE> 36
(b) If, pursuant to any reorganization, recapitalization, sale or
exchange of assets, consolidation or merger, outstanding Class A Common
Stock of the Company is or would be exchanged for other securities of the
Company or of another corporation which is a party to such transaction,
or for property, whether or not any such transaction gives rise to a
Change of Ownership, any Options under the Plan theretofore granted shall
apply to the securities or property into which the Class A Common Stock
covered thereby shall be so changed or for which such Class A Common
Stock shall be exchanged. In any of such events, the total number and
class of Shares then remaining available for issuance under the Plan
(including Shares reserved for outstanding Options and Shares available
for future grant of Options under the Plan) shall likewise be adjusted so
that the Plan shall thereafter cover the number and class of shares
equivalent to the Shares covered by the Plan immediately prior to such
event.
(c) In the event of a change in the Class A Common Stock of the
Company as presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of shares with
a different par value or without par value, the shares resulting from any
such change shall be deemed to be the Class A Common Stock within the
meaning of the Plan.
(d) Adjustments pursuant to Section 5(B)(ix)(b) hereof shall be made
by the Committee, whose determination as to which shall be final, binding
and conclusive.
(e) Except as hereinbefore expressly provided in this Section
5(B)(ix), an Optionee shall have no rights by reason of any subdivision
or consolidation of shares of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of shares
of stock of any class or by reason of any dissolution, liquidation,
merger or consolidation or spin-off of assets or stock of another
corporation, and any class, or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Class A
Common Stock subject to the Option.
(f) The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, mergers, reorganizations or changes of its capital or
business structure, to merge or to consolidate, to dissolve or liquidate
or to sell or transfer all or any part of its business or assets.
(x) Rights as a Stockholder. No person shall have any rights as a
stockholder with respect to any Shares covered by an Option until the date
of the issuance of the Shares to such person. No adjustments shall be made
to outstanding Options for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights, except
as provided in Section 5(B)(ix) hereof.
(xi) Modification, Extension and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Committee
may modify, extend or renew outstanding Options granted under the Plan, or
accept the surrender of outstanding Options (to the extent not theretofore
exercised). Notwithstanding the foregoing, however, no modification of an
Option shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Option theretofore granted under the Plan.
(xii) Investment Purpose. Each Option under the Plan shall be granted
on the condition that the purchases of Shares hereunder shall be for
investment purposes and not with a view to resale or distribution, except
that in the event the Shares subject to such Option are registered under the
Securities Act of 1933, as amended (the "Act"), or in the event a resale of
such Shares without such registration would otherwise be permissible, such
condition shall be inoperative if, in the opinion of counsel for the
Company, such
B-5
<PAGE> 37
condition is not required under the Act, or any other applicable law,
regulation or rule of any governmental agency.
(xiii) Other Provisions. The Option Notice shall comply with and be
subject to the terms and conditions of the Plan, and shall contain such
other terms, conditions and provisions as the Committee shall deem
advisable.
6. TERM OF PLAN
Options shall be granted pursuant to the Plan from time to time within the
period of ten years from the earlier of the date of adoption of the Plan and the
date on which the Plan is approved by the stockholders of the Company.
7. AMENDMENT OF THE PLAN
The Board of Directors may, insofar as permitted by law, from time to time, with
respect to any Shares not then subject to Options, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever, subject to the approval of
the stockholders of the Company where such approval is required by law or
regulation or pursuant to the rules of the NYSE or, if the Shares are not listed
on the NYSE, the rules of any other exchange or market on which the Shares may
be traded.
8. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of shares pursuant to Options
will be used for general corporate purposes.
9. NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
10. APPROVAL OF STOCKHOLDERS
This Plan shall be effective upon its approval by the stockholders of the
Company.
11. NO RIGHT TO NOMINATION
Neither the Plan nor any action taken hereunder shall be construed as giving any
director any right to be nominated for reelection to the Company's Board of
Directors.
12. EFFECT OF PLAN UPON OTHER OPTIONS AND COMPENSATION PLANS
The adoption of this Plan shall not affect any other compensation or incentive
plans in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company or any Subsidiary to (a) establish
any other forms of incentives or compensation for employees or directors of or
persons associated with the Company or any Subsidiary, or (b) grant or assume
options otherwise than under this Plan in connection with any proper corporate
purpose, including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
firm or association.
B-6
<PAGE> 38
EXHIBIT C
DELPHI FINANCIAL GROUP, INC.
LONG-TERM PERFORMANCE-BASED INCENTIVE PLAN
1. PURPOSE
The purpose of this Long-Term Performance-Based Incentive Plan (the "Plan") is
to advance the interests of Delphi Financial Group, Inc. (the "Company") by
providing Mr. Robert Rosenkranz, Chairman, President and Chief Executive Officer
of the Company, with a compensation arrangement that rewards him for significant
gains in shareholder wealth as measured by the performance of the Company's
Class A Common Stock ("Stock") against the S&P Insurance Composite Index Total
Return to Shareholders, as defined in Section 5.2(d).
The Plan is intended to accomplish these goals by enabling the Company to grant
Awards in the form of Options and Restricted Stock or Deferred Shares, all as
more fully described below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan will be administered by a Committee of the Board designated
for such purpose (the "Committee"). The Committee shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. So long as the Stock is registered under the Securities
Exchange Act of 1934 (the "1934 Act"), all members of the Committee shall be
Non-Employee Directors within the meaning of Rule 16b-3 under the 1934 Act and
outside directors within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Committee will have authority, not
inconsistent with the express provisions of the Plan and in addition to other
authority granted under the Plan, to (a) grant Awards at such time or times as
they are earned in accordance with the Plan; (b) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any required written notices and elections, and change such forms from time to
time; (c) adopt, amend and rescind rules and regulations for the administration
of the Plan; and (d) interpret the Plan and decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations and actions of the Committee, and all other determinations and
actions of the Committee made or taken under authority granted by any provision
of the Plan, will be conclusive and will bind all parties. Nothing in this
paragraph shall be construed as limiting the power of the Committee to make
adjustments under Section 8.6.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be subject to approval by the stockholders of the Company, and
Awards granted prior to such approval shall also be subject to such approval.
The Plan will terminate on December 31, 2007.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate number
of shares of Company common stock subject to Award during any calendar year of
the Plan shall not exceed 240,000, consisting of 60,000 shares of restricted or
deferred shares of Company common stock and options to purchase 180,000 shares
of Company common stock, plus the Carryover Amount. The "Carryover Amount" is
240,000 shares, consisting
C-1
<PAGE> 39
of 60,000 shares of restricted or deferred shares of Company common stock and
options to purchase 180,000 shares of Company common stock for each calendar
year of the Plan commencing on or after January 1, 1996 and ending prior to the
year for which the Award is being made, reduced by the number of shares of
Company common stock for which Awards have been made during any calendar year.
The foregoing share amounts do not reflect the stock dividend paid on September
30, 1996, which stock dividend will result in adjustments of such share amounts
under Section 8.6 hereof.
No fractional shares of Company common stock will be delivered under the Plan.
5. PARTICIPATION AND AWARDS
5.1 PARTICIPATION
Mr. Robert Rosenkranz, Chairman, President and Chief Executive Officer
of the Company, is the sole participant in the Plan. Mr. Rosenkranz will
receive an Award under the Plan following the end of each Performance Period
(as defined below), beginning with the year ending December 31, 1996, when
and only if the Ending Stock Value (as defined below) exceeds the Beginning
Stock Price (as defined below) by an amount greater than the S&P Insurance
Composite Index Total Return to Shareholders over the comparable period. The
first Award under the Plan will be based on a Beginning Stock Price as of
January 1, 1996 and an Ending Stock Value as of December 31, 1996.
Thereafter, Awards will be based on the Beginning Stock Price and the Ending
Stock Value for each Performance Period.
5.2 DETERMINATION OF AWARDS
(a) Award. Promptly following the end of each Performance Period of the
Plan, the Committee shall determine whether Ending Stock Value exceeds
Beginning Stock Price for such period. If Ending Stock Value is less than or
equal to Beginning Stock Price, no Award will be made. If Ending Stock Value
exceeds Beginning Stock Price, the Committee shall then determine the "S&P
Return Value" for such period in the manner described below. If the Ending
Stock Value exceeds the S&P Return Value, Mr. Rosenkranz will be entitled to
receive an Award, as specified below, valued at two and a half percent
(2.5%) of the excess of Ending Market Value over Beginning Market Value (the
"Award Amount"). If the Ending Stock Value for a Performance Period exceeds
the Beginning Stock Price for the period by an amount greater than the S&P
Insurance Composite Index Total Return to Shareholders over the comparable
period, the Award Amount for the Performance Period will be increased by the
portion of the Award Amount from previous Performance Periods which did not
result in Awards due to the limitation of Section 4 hereof; provided,
however, that the total Awards in any calendar year shall not exceed the
maximum for the year set forth in Section 4. To the extent required under
the Code, the Committee shall certify the achievement of the performance
goals.
(b) Beginning Stock Price. For purposes of this Plan, "Beginning Stock
Price" means the average closing price of the Stock for each of the 20
trading days commencing 10 trading days prior to the first trading day of
the relevant Performance Period; except that the Beginning Stock Price for a
particular Performance Period shall never be less than the Ending Stock
Price (as defined below) for any previously elapsed Performance Period with
respect to which an Award was made under the Plan.
(c) Ending Stock Value. For purposes of this Plan, "Ending Stock Value"
means the average closing price of the Stock for each of the 20 trading days
commencing 9 trading days prior to the last trading day of the relevant
Performance Period (the "Ending Stock Price") adjusted for the payment of
cash dividends during the period, assuming such dividends had been
reinvested in Company common stock on the date
C-2
<PAGE> 40
paid to stockholders using the methodology consistent with the determination
of the S&P Insurance Composite Index Total Return to Shareholders.
(d) S&P Insurance Composite Index Total Return to Shareholders. For
purposes of this Plan, "S&P Insurance Composite Index Total Return to
Shareholders" for a particular period shall mean the Standard & Poor's
Insurance Composite Index Total Return to Shareholders as determined by
Standard & Poor's Compustat, measured from the first day of the period in
question to the last day.
(e) S&P Return Value. For purposes of this Plan, "S&P Return Value"
means Beginning Stock Price multiplied by the sum of one (1) plus the S&P
Insurance Composite Index Total Return to Shareholders, provided that the
S&P Return Value for a Performance Period under the Plan may never be less
than the Beginning Stock Price for such period.
(f) Performance Period. For purposes of this Plan, "Performance Period"
means the calendar year (beginning with calendar year 1996); provided,
however, that if an Award is not made for a calendar year, the next
succeeding Performance Period shall include all calendar years following the
last calendar year for which an Award was made.
(g) Beginning Market Value. For purposes of this Plan, "Beginning
Market Value" means the Beginning Stock Price multiplied by the number of
shares of common stock of the Company outstanding on the first day of the
Performance Period (for this purpose treating shares of Company stock that
are subject to acquisition as of such day (without regard to applicable
vesting periods) under the options to purchase the common stock of SIG
Holdings, Inc. ("SIG") assumed by the Company pursuant to the Agreement and
Plan of Merger dated as of October 5, 1995 among SIG, the Company and SIG
Holdings Acquisition Corp. (the "SIG Option Shares") as outstanding Company
common stock).
(h) Ending Market Value. For purposes of this Plan, "Ending Market
Value" means the Ending Stock Price for the Performance Period multiplied by
the number of shares of common stock of the Company outstanding on the last
day of the Performance Period (for this purpose treating the SIG Option
Shares as outstanding Company common stock). Ending Market Value shall be
adjusted for the payment of cash dividends during the period, assuming such
dividends had been reinvested in Company common stock on the date paid to
stockholders using the methodology consistent with the determination of the
S&P Insurance Composite Index Total Return to Shareholders.
5.3 PAYMENT OF AWARDS
The Award to be made following any Performance Period shall consist of:
(a) that number of shares of restricted Company Class B Common Stock
("Restricted Stock") as are determined by dividing fifty percent (50%) of
the Award Amount by the Ending Stock Price for the period; and
(b) Options covering a number of shares of Company Class B Common Stock
equal to three times the number of shares of Restricted Stock determined
above, except that Options awarded for the Performance Period ending
December 31, 1996 shall be options to purchase such number of shares of
Stock.
The Restricted Stock and Options shall be granted upon the terms and conditions
set forth below.
C-3
<PAGE> 41
5.4 DEFERRED SHARES
(a) Awards in Lieu of Restricted Stock. If the Committee determines
that the payment of an Award, in whole or in part, in shares of Restricted
Stock may result in the Company not being able to take a tax deduction under
Section 162(m) of the Code upon the vesting of such Restricted Stock or
otherwise would not be in the best interests of the Company, or if the
Committee determines that the Plan objective of deferral of taxation may not
be met by issuance of Restricted Stock, it may elect instead to pay the
Restricted Stock portion of the Award in an equivalent number of Deferred
Shares. Deferred Shares represent the right to receive the stated number of
shares of Company Class B Common Stock upon the same events described in
Section 6.2(c) hereof for the vesting of Restricted Stock. In the event that
any Deferred Shares are awarded pursuant to this Section 5.4(a), all
references to Restricted Stock in this Plan (including the forfeiture
provision in Section 6.2(c) hereof) shall be deemed to apply, insofar as
they are applicable, to the Deferred Shares.
(b) Dividend Equivalents. In the event that a dividend is paid or
property is distributed (including, without limitation, shares of Stock)
with respect to a share of Company Class B Common Stock while a Deferred
Share is outstanding, Mr. Rosenkranz shall receive with respect to each
Deferred Share then outstanding:
(i) in the case of a cash dividend, or a distribution of property
other than stock, dividend equivalents in cash or such property which
shall be paid concurrently with the payment of the dividend on the stock;
and
(ii) in the case of stock dividends, a number of additional Deferred
Shares equal to the number of whole or fractional shares of stock that
would have been paid if the Deferred Shares had been stock outstanding on
the date of distribution.
Any additional Deferred Shares issued under this Section 5.4(b) shall be subject
to the same terms and conditions, including with respect to vesting, forfeiture
and distribution, as apply to the Deferred Shares in respect of which they are
issued.
5.5 AWARDS FOR PARTIAL YEARS
If Mr. Rosenkranz's employment terminates during any Performance Period of the
Plan other than by the Company for Cause or by Mr. Rosenkranz without Good
Reason, Mr. Rosenkranz will be entitled to receive an Award based on the
performance of the Stock versus the S&P Insurance Composite Index through the
date of termination. In addition, on the day prior to the consummation of any
transaction described in Section 6.2(f)(1) or (2), Mr. Rosenkranz will be
entitled to receive an Award based on the performance of the Stock versus the
S&P Insurance Composite Index through such date. The portion of any such Award
that would have been paid in Restricted Stock will be satisfied by an equivalent
number of shares of Company Class B Common Stock free of any restrictions.
6. TYPES OF AWARDS
6.1 OPTIONS
(a) Nature of Options; Grant Date. An Option will entitle Mr.
Rosenkranz to purchase Company Class B Common Stock (Stock in the case of
Options granted for the Performance Period ending December 31, 1996) at a
specified exercise price. The grant date for each Option shall be the last
trading day used to determine the Ending Stock Price used in calculating the
Award.
C-4
<PAGE> 42
(b) Exercise Price. The exercise price per share of an Option will be
the Fair Market Value per share of the stock subject to the Option,
determined as of the grant date. In no case may the exercise price paid for
stock which is part of an original issue of authorized stock be less than
the par value per share of the stock. For purposes hereof, "Fair Market
Value" shall be the closing price per share of Stock, as reported on the New
York Stock Exchange ("NYSE") on the grant date, or if the Stock is not
listed for trading on the NYSE, the closing price of Stock as reported on
another recognized securities exchange or on the NASDAQ National Market
System if the stock shall then be listed on such exchange or system. If the
stock did not trade on the grant date on the NYSE or such other applicable
exchange or system, the Fair Market Value for purposes hereof shall be the
reported closing price on the last business day on which the Stock was
traded preceding the grant date.
(c) Duration of Options. The latest date on which an option may be
exercised will be the tenth anniversary of the day immediately preceding the
date the Option was granted.
(d) Exercise of Options. Options granted under any Award will be
exercisable 30 days following such grant, subject to approval of the Plan by
shareholders of the Company. Any exercise of an Option must be in writing,
delivered or mailed to the Company, accompanied by (1) any documents
required by the Committee and (2) payment in full in accordance with
paragraph (e) below for the number of shares for which the Option is
exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or
money order payable to the order of the Company or (2) (i) through the
delivery of shares of Company common stock which have been outstanding for
at least six months and which have a fair market value on the last business
day preceding the date of exercise equal to the exercise price, or (ii) by
delivery of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the exercise price,
or (iii) by any combination of the permissible forms of payment.
6.2 RESTRICTED STOCK
(a) Nature of Restricted Stock Award. The portion of the Award paid in
Restricted Stock entitles Mr. Rosenkranz to receive shares of Company Class
B Common Stock subject to the restrictions described in paragraph (c) below.
(b) Rights as a Stockholder. Mr. Rosenkranz will have all the rights of
a stockholder with respect to the Company Class B Common Stock granted in
connection with an Award, including voting and dividend rights, subject to
the restrictions described in paragraph (c) below, and subject to approval
of the Plan by shareholders of the Company. Certificates evidencing shares
of Restricted Stock will remain in the possession of the Company until such
shares are free of such restrictions, at which time such certificates will
be delivered to Mr. Rosenkranz.
(c) Restrictions. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of until the
earliest of (i) Mr. Rosenkranz's termination of employment (A) by reason of
death, Disability or normal retirement in accordance with the policies set
by the Board of Directors, (B) by the Company other than for Cause or (C) by
Mr. Rosenkranz for Good Reason (each a "Qualifying Termination") and (ii) a
Change of Ownership of the Company. If the Company terminates Mr.
Rosenkranz's employment for Cause or if Mr. Rosenkranz terminates his
employment other than for Good Reason or in connection with an event
described in clause (A) above, any shares of Restricted Stock that he then
holds subject to restrictions will be forfeited to the Company.
C-5
<PAGE> 43
(d) Cause. For purposes of this Plan, "Cause" means (i) conviction of a
felony or other crime involving fraud, dishonesty or moral turpitude, (ii)
fraud with respect to the business of the Company, or (iii) gross neglect of
duties of the office specified in writing by the Board. For purposes of this
Plan, Mr. Rosenkranz shall not be deemed to have been terminated for Cause
until the later to occur of (i) the 30th day after notice of termination is
given and (ii) the delivery to him of a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the Company's directors
at a meeting called and held for that purpose, and at which Mr. Rosenkranz
together with his counsel was given an opportunity to be heard, finding that
Mr. Rosenkranz was guilty of conduct described in the definition of "Cause"
above, and specifying the particulars thereof in detail.
(e) Good Reason. For purposes of this Plan, "Good Reason" means the
voluntary termination by Mr. Rosenkranz of his employment (1) to enter
public service or (2) within 120 days after the occurrence without his
express written consent of any of the following events, provided that Mr.
Rosenkranz gives notice to the Company at least 30 days in advance
requesting that the situation be remedied, and the situation remains
unremedied upon expiration of such 30-day period:
(i) Mr. Rosenkranz's removal from, or any failure to reelect him to,
the positions of Chairman of the Board, President or Chief Executive
officer, except in connection with his termination for Cause or
Disability or termination by him other than for Good Reason; or
(ii) reduction in Mr. Rosenkranz's rate of Base Salary for any fiscal
year to less than 100 percent of the rate of Base Salary paid to him in
fiscal 1996; or
(iii) failure of the Company to continue in effect any retirement,
life insurance, medical insurance or disability plan in which Mr.
Rosenkranz was participating on the date of Board adoption of this Plan
unless the Company provides Mr. Rosenkranz with a plan or plans that
provide substantially comparable benefits; or
(iv) a Change of Ownership; or
(v) any purported termination by the Company of Mr. Rosenkranz's
employment for Cause that is not effected in compliance with paragraph
(d) of this Section 6.2.
(f) Change of Ownership. For purposes of this Plan, a "Change of
Ownership" shall be deemed to have occurred (1) if individuals who, as of
the effective date of this Plan, constitute the Board of Directors of the
Company (the "Board of Directors" generally and as of the date hereof the
"Incumbent Board") cease for any reason to constitute at least a majority of
the directors constituting the Board of Directors, provided that any person
becoming a director subsequent to the effective date of this Plan whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least three-quarters ( 3/4) of the then directors
who are members of the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is (A) in connection
with the acquisition by a third person, including a "group" as such term is
used in Section 13(d)(3) of the 1934 Act, of beneficial ownership, directly
or indirectly, of 20% or more of the combined voting securities ordinarily
having the right to vote for the election of directors of the Company
(unless such acquisition of beneficial ownership was approved by a majority
of the Board of Directors who are members of the Incumbent Board), or (B) in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the 1934 Act) shall be, for
purposes of this Plan, considered as though such person were a member of the
Incumbent Board; or (2) if the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, reverse
split of any class of voting securities of the Company, or an acquisition of
securities
C-6
<PAGE> 44
or assets by the Company, or the sale or disposition by the Company of all
or substantially all of the Company's assets, or if any such transaction is
consummated without stockholder approval, other than any such transaction in
which the holders of outstanding Company voting securities immediately prior
to the transaction receive, with respect to such Company voting securities,
voting securities of the surviving or transferee entity representing more
than 60 percent of the total voting power outstanding immediately after such
transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the
transaction; or (3) if the stockholders of the Company approve a plan of
complete liquidation of the Company.
(g) Disability. For purposes of this Plan, "Disability" means an
illness, injury, accident or condition of either a physical or psychological
nature as a result of which Mr. Rosenkranz is unable to perform
substantially the duties and responsibilities of his position for 180 days
during a period of 365 consecutive calendar days.
(h) Notice of Election. If Mr. Rosenkranz makes an election under
Section 83(b) of the Code with respect to Restricted Stock, he must provide
a copy thereof to the Company within 10 days of the filing of such election
with the Internal Revenue Service.
7. EVENTS AFFECTING OUTSTANDING OPTIONS
7.1 QUALIFYING TERMINATION
If Mr. Rosenkranz's employment with the Company terminates in connection with a
Qualifying Termination, he (or his executor or administrator or the person or
persons to whom the Option is transferred by will or the applicable laws of
descent and distribution) may exercise all or any Options he then holds at any
time prior to the expiration of their respective terms.
7.2 TERMINATION OF EMPLOYMENT (OTHER THAN A QUALIFYING TERMINATION)
If Mr. Rosenkranz's employment with the Company terminates other than in
connection with a Qualifying Termination, all Options will continue to be
exercisable for a period of ninety days following the termination and shall
thereupon terminate, unless the termination was by the Company for Cause, in
which case all such Options shall immediately terminate. In no event, however,
shall an Option remain exercisable beyond the latest date on which it could have
been exercised without regard to this Section 7.
8. GENERAL PROVISIONS
8.1 DOCUMENTATION OF AWARDS
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time.
8.2 RIGHTS AS A STOCKHOLDER
Except as specifically provided by the Plan, the receipt of an Award will not
give Mr. Rosenkranz rights as a stockholder. He will obtain such rights, subject
to any limitations imposed by the Plan or the instrument evidencing the Award,
upon actual receipt of Company common stock.
C-7
<PAGE> 45
8.3 CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Company common stock
pursuant to the Plan or to remove restrictions from shares previously delivered
under the Plan (a) until all conditions of the Award have been satisfied or
removed, (b) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, (c) if the
outstanding Company common stock is at the time listed on any stock exchange,
until the shares to be delivered have been listed or authorized to be listed on
such exchange upon official notice of issuance, and (d) until all other legal
matters in connection with the issuance and delivery of such shares have been
approved by the Company's counsel. If the sale of Company common stock has not
been registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
stock bear an appropriate legend restricting transfer.
8.4 TAX WITHHOLDING
Upon the lapse of restrictions on the Restricted Stock, the delivery of any
Deferred Shares and the exercise of any Options, the Committee will have the
right to require that Mr. Rosenkranz or his representative remit to the Company
an amount sufficient to satisfy the withholding requirements, or make other
arrangements satisfactory to the Committee with regard to such requirements,
prior to the delivery of any Company common stock. If and to the extent that
such withholding is required, the Committee may permit Mr. Rosenkranz or such
other person to elect at such time and in such manner as the Committee provides
to have the Company hold back from the shares to be delivered, or to deliver to
the Company, Company common stock having a value calculated to satisfy the
withholding requirement.
8.5 NONTRANSFERABILITY OF AWARDS
Except as set forth below and in Section 6.2(c), Awards granted hereunder may
not be sold, assigned, transferred, pledged or otherwise encumbered or disposed
of other than by will or the laws of descent and distribution. Notwithstanding
the foregoing, if the Committee expressly so provides in the applicable Award
agreement (at the time of grant or at any time thereafter), an Option granted
hereunder may be transferred for no consideration by Mr. Rosenkranz to members
of his "immediate family", to a trust or trusts established for the exclusive
benefit of solely one or more members of his "immediate family" or to a
partnership in which his "immediate family" members are the only partners. Any
Option held by the transferee will continue to be subject to the same terms and
conditions that were applicable to the Option immediately prior to the transfer,
except that the Option will be transferable by the transferee only by will or
the laws of descent and distribution. For purposes hereof, "immediate family"
means Mr. Rosenkranz's children, stepchildren, grandchildren, parents,
stepparents, grandparents, spouse, siblings (including half brothers and
sisters), in-laws, and relationships arising because of legal adoption.
8.6 ADJUSTMENTS
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to common stockholders other than normal cash dividends,
after the effective date of the Plan, the Committee will make any
appropriate adjustments to the maximum number of shares that may be
delivered under the Plan under Section 4 above.
C-8
<PAGE> 46
(b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares of stock
or securities subject to Awards then outstanding or subsequently granted,
any exercise prices relating to Awards and any other provision included in
or relating to the calculation of Awards (including the Beginning Stock
Price determined in accordance with Section 5.2(b)) affected by such change.
The Committee may also make appropriate adjustments to take into account,
mergers, consolidations, acquisitions, dispositions or similar corporate
transactions if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan and to preserve
(but not enhance) the benefits under the Plan.
8.7 STOCKHOLDER APPROVAL OF CHARTER AMENDMENT
Notwithstanding any provision of the Plan to the contrary, if the proposal to
amend the Company's restated certificate of incorporation to limit the voting
rights of the Company Class B common stock as described in the Company's proxy
statement for its 1997 annual meeting of stockholders is not approved by the
stockholders of the Company at the 1997 annual meeting of stockholders, only
shares of Stock shall be subject to any Award made hereunder and all references
in the Plan to shares of Company Class B common stock shall instead be
references to Stock.
8.8 EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer upon Mr.
Rosenkranz any right to continued retention by the Company as an employee or
otherwise, or affect in any way the right of the Company to terminate an
employment relationship at any time.
8.9 DEFERRAL OF PAYMENTS
The Committee may agree at any time, upon Mr. Rosenkranz's request but subject
to its discretion, to defer the date on which any payment under an Award will be
made.
8.10 EXCISE TAX GROSS-UP
In the event it shall be determined that any payment or distribution made, or
benefit provided (including, without limitation, the acceleration of any
payment, distribution or benefit and the acceleration of vesting of any
restricted stock or deferred stock), by the Company to or for the benefit of Mr.
Rosenkranz (whether paid or payable or distributed or distributable pursuant to
the terms of this Plan or otherwise, but determined without regard to any
additional payments required under this Section 8.9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code (or any similar
excise tax) or any interest or penalties are incurred by Mr. Rosenkranz with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Mr. Rosenkranz shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Mr. Rosenkranz of all taxes
(including any Excise Tax, income tax or payroll tax) imposed upon the Gross-Up
Payment and any interest or penalties imposed with respect to such taxes, Mr.
Rosenkranz retains from the Gross-Up Payment an amount equal to the Excise Tax
imposed upon the Payments.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
The Committee may at any time or times amend the Plan or any outstanding Award
for any purpose which may at the time be permitted by law, provided that (except
to the extent expressly required or permitted by the Plan) no such amendment
will without Mr. Rosenkranz's consent, amend the Plan or any outstanding Award
so as to adversely affect his rights under the Plan or any outstanding Award.
C-9
<PAGE> 47
DELPHI FINANCIAL GROUP, INC.
This proxy is solicited on behalf of the Board of Directors of Delphi
Financial Group, Inc.
The undersigned stockholder hereby appoints Robert Rosenkranz and Robert M.
Smith, Jr. or either of them as attorneys or proxies, each with full power of
substitution, and hereby authorizes each of them to represent and vote in the
manner designated on the reverse side of this card (or, if no designation is
made, as provided below), all of the shares of Common Stock of Delphi Financial
Group, Inc. (the "Company") held of record by the undersigned at the close of
business on March 20, 1997 at the Company's Annual Meeting of Stockholders
scheduled to be held on May 13, 1997 at 10:00 AM, E.D.T., or any adjournments
or postponements thereof.
The undersigned acknowledges receipt of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, Notice of Annual Meeting of
Stockholders and Proxy Statement dated April 11, 1997, and grants authority to
each of said proxies or their substitutes, and ratifies and confirms all that
said proxies may lawfully do in the undersigned's name, place, and stead.
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" PROPOSAL 1, PROPOSAL 2, PROPOSAL 3, PROPOSAL 4, PROPOSAL 5, AND
PROPOSAL 6.
PLEASE VOTE, DATE, AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
Please sign this proxy exactly as your name appears on the books of the
Company. Joint Owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more
than one name appears, a majority must sign. If a corporation, this signature
should be that of an authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
-------------------------- -------------------------
-------------------------- -------------------------
-------------------------- -------------------------
- ------------------------------------------------------------------------------
<PAGE> 48
[ ] PLEASE MARK VOTES AS IN THIS EXAMPLE
- ----------------------------
DELPHI FINANCIAL GROUP, INC.
- ----------------------------
PROXY SOLICITED FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON MAY 13, 1997
1. Election of Directors.
Class A Director:
Thomas L. Rhodes
Directors:
Robert Rosenkranz Lewis S. Ranieri
Robert M. Smith, Jr. Thomas A. Sullivan
Edward A. Fox B.K. Werner
Charles P. O'Brien
For [ ] Withhold [ ] For All Except [ ]
Note: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the nominee's(s')
name(s). Your shares will be voted for the remaining nominee(s).
2. Approval of an amendment to the Restated Certificate of Incorporation of
the Company to limit the voting rights of the Class B Common Stock and
permit the issuance of additional shares of Class B Common Stock pursuant to
the Long-Term Performance-Based Incentive Plan.
For [ ] Against [ ] Abstain [ ]
3. Approval of the Second Amended and Restated Employee Stock Option Plan.
For [ ] Against [ ] Abstain [ ]
4. Approval of the Amended and Restated Directors Stock Option Plan.
For [ ] Against [ ] Abstain [ ]
5. Approval of the Long-Term Performance-Based Incentive Plan.
For [ ] Against [ ] Abstain [ ]
6. To transact such other business that properly comes before the meeting or
any adjournment thereof.
For [ ] Against [ ] Abstain [ ]
Mark box at right if an address change or comment has been noted on the
reverse side of this card. [ ]
Please be sure to sign and date this Proxy. Date
-----------------------------
- ------------------------------------- ---------------------------------------
Stockholder sign here Co-owner sign here
<PAGE> 49
- --------------------------------------------------------------------------------
DETACH CARD DETACH CARD
DELPHI FINANCIAL GROUP, INC.
Dear Stockholder,
Please take note of the important information enclosed with this Proxy. There
are five matters related to the management and operation of your company that
require your prompt attention. These matters are discussed in the enclosed
proxy materials.
You vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
scheduled to be held on May 13, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Delphi Financial Group, Inc.
