<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 [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
EQUITY CORPORATION INTERNATIONAL
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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:
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(4) Date Filed:
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<PAGE> 2
LOGO
EQUITY CORPORATION INTERNATIONAL
415 SOUTH FIRST STREET, SUITE 210
LUFKIN, TEXAS 75901
April 22, 1998
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Equity Corporation International, which will be held at The Museum of East
Texas, 503 North Second Street, Lufkin, Texas, on Wednesday, May 20, 1998 at
10:00 a.m., local time. A Notice of the Annual Meeting, Proxy Statement and form
of proxy are enclosed with this letter.
We encourage you to read the Notice of the Annual Meeting and Proxy
Statement so that you may be informed about the business to come before the
meeting. Your participation in the Company's business is important, regardless
of the number of shares that you hold. To ensure your representation at the
meeting, please promptly sign and return the accompanying proxy card in the
postage-paid envelope.
In addition to the formal items of business to be brought before the
meeting, there will be a report on the Company's operations during 1997,
followed by a question and answer period.
We look forward to seeing you on May 20th.
Sincerely,
/s/ JAMES P. HUNTER, III
JAMES P. HUNTER, III
Chairman, President and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
To Our Stockholders:
The 1998 Annual Meeting of Stockholders of Equity Corporation International
will be held at The Museum of East Texas, 503 North Second Street, Lufkin,
Texas, on Wednesday, May 20, 1998 at 10:00 a.m., local time, for the following
purposes:
1. To elect two Class III directors to serve until the annual stockholders'
meeting in 2001, or until their successors have been elected and
qualified;
2. To approve the appointment of Coopers & Lybrand L.L.P. as independent
accountants for the fiscal year ending December 31, 1998;
3. To approve the Equity Corporation International 1998 Long-Term Incentive
Plan; and
4. To act upon such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on March 27, 1998 will
be entitled to notice of and to vote at the meeting. A majority of the
outstanding stock entitled to vote is required for a quorum.
It is important that your shares be represented at the annual meeting
regardless of whether you plan to attend. THEREFORE, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTPAID ENVELOPE AS
PROMPTLY AS POSSIBLE. If you are present at the meeting, and wish to do so, you
may revoke the proxy and vote in person.
By Order of the Board of Directors,
/s/ J. PATRICK DOHERTY
J. PATRICK DOHERTY
Secretary
Lufkin, Texas
April 22, 1998
<PAGE> 4
EQUITY CORPORATION INTERNATIONAL
415 SOUTH FIRST STREET, SUITE 210
LUFKIN, TEXAS 75901
---------------------
PROXY STATEMENT
---------------------
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Equity
Corporation International, a Delaware corporation (the "Company"), for use at
the 1998 Annual Meeting of Stockholders (the "Meeting") to be held on May 20,
1998 and at any adjournments thereof. The Meeting will be held at 10:00 a.m.,
local time, at The Museum of East Texas, 503 North Second Street, Lufkin, Texas.
If the accompanying proxy is properly executed and returned, the shares it
represents will be voted at the Meeting in accordance with the directions noted
thereon or, if no direction is indicated, it will be voted in favor of the
proposals described in this Proxy Statement. In addition, the proxy confers
discretionary authority in the persons named in the proxy authorizing those
persons to vote, in their discretion, on any other matters properly presented at
the Meeting. The Board of Directors is not currently aware of any such other
matters. Any stockholder giving a proxy has the power to revoke it by oral or
written notice to the Secretary of the Company at any time before it is voted.
The Company will bear the cost of preparing and mailing proxy materials as
well as the cost of solicitation of proxies. The Company will reimburse banks,
brokerage firms, custodians, nominees and fiduciaries for their expenses in
sending proxy materials to the beneficial owners of the Company's shares. The
Company has retained American Stock Transfer & Trust Company ("American") to
assist in the solicitation of proxies. No additional fee beyond the $1,000
monthly fee paid to American to act as the Company's transfer agent, together
with American's out-of-pocket expenses, will be paid to American. In addition to
solicitation by mail, certain directors, officers and regular employees of the
Company and American may solicit proxies by telegram, facsimile or by hand
delivery.
The approximate date on which this Proxy Statement and the accompanying
proxy will first be sent to stockholders is April 22, 1998.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
At the close of business on March 27, 1998, the record date for the
determination of stockholders of the Company entitled to receive notice of and
to vote at the Meeting or any adjournments thereof, 21,229,405 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), were
outstanding. There are no other voting securities outstanding. Each share of
Common Stock is entitled to one vote upon each of the matters to be voted on at
the Meeting. The presence, in person or by proxy, of at least a majority of the
outstanding shares of Common Stock is required for a quorum. Directors of the
Company are elected by a plurality of the votes cast for directors. Accordingly,
shares that are withheld and broker non-votes will have no effect on the outcome
of the election of directors. Any other matters submitted to be voted upon will
be determined by a majority of the votes cast. Abstentions are counted as
"shares present" at the meeting for purposes of determining the presence of a
quorum and have the effect of a vote "against" any matter as to which they are
specified. Broker non-votes with respect to any matter are not considered
"shares present" and will not affect the outcome of the vote on such matter.
The following table sets forth, as of March 27, 1998, certain information
with respect to the shares of Common Stock beneficially owned by (i) each person
known by the Company to beneficially own more than five percent of the
outstanding Common Stock, (ii) each director of the Company, (iii) each
executive officer named in the Summary Compensation Table below and (iv) all
directors and executive officers of the
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<PAGE> 5
Company as a group. Except as described below, each of the persons listed in the
table has sole voting and investment power with respect to the shares listed:
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
BENEFICIAL COMMON STOCK
NAME OWNERSHIP OUTSTANDING
---- ---------- ------------
<S> <C> <C>
T. Rowe Price Associates, Inc.............................. 2,120,900(1) 10.0%
100 E. Pratt Street
Baltimore, Maryland 21202
AMVESCAP PLC............................................... 1,363,100(2) 6.4%
11 Devonshire Square
London EC2M 4YR
England
James P. Hunter, III....................................... 673,540(3) 3.2%
Jack D. Rottman............................................ 179,300(4) *
W. Cardon Gerner........................................... 84,466(5) *
Billy C. Wells............................................. 53,871(6) *
William C. McNamara........................................ 47,752(7) *
J. Patrick Doherty......................................... 9,507(8) *
Jack T. Hammer............................................. 56,083(9) *
Thomas R. McDade........................................... 17,583(10) *
Kenneth W. Smith........................................... 49,645(11) *
Bob Bullock................................................ --(12) --
All directors and executive officers as a group (ten
persons)................................................. 1,171,747(13) 5.5%
</TABLE>
- ---------------
* Less than 1%
(1) According to a Schedule 13G, as amended, filed with the Company on February
6, 1998, T. Rowe Price Associates, Inc. ("Price Associates"), an investment
advisor registered under Section 203 of the Investment Advisers Act of 1940
(the "1940 Act") has sole voting power with respect to 394,300 shares of
Common Stock and sole dispositive power with respect to 2,120,900 shares of
Common Stock, and T. Rowe Price New Horizons Fund, Inc., an investment
company registered under Section 8 of the 1940 Act, has sole voting power
over 1,413,500 shares of Common Stock. Price Associates disclaims
beneficial ownership of such securities.
(2) According to a Schedule 13G, as amended, filed with the Company on February
12, 1998, AMVESCAP PLC is the parent holding company of a group of
investment management companies that hold investment power and, in some
cases, voting power over the securities reported in the schedule. The
investment management companies, including INVESCO Funds Group, Inc., an
investment advisor registered under Section 203 of the 1940 Act, disclaim
beneficial ownership of such securities.
(3) Includes 195,300 shares of Common Stock issuable upon the exercise of
options outstanding under the Company's 1994 Long-Term Incentive Plan (the
"Incentive Plan") that are exercisable within 60 days after March 27, 1998.
Does not include 297,200 shares of Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are not exercisable
within 60 days after March 27, 1998.
(4) Includes 114,050 shares of Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable within 60
days after March 27, 1998. Does not include 117,200 shares of Common Stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
(5) Includes 84,201 shares of Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable within 60
days after March 27, 1998. Does not include 123,139 shares of Common Stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
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<PAGE> 6
(6) Includes 53,550 shares of Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable within 60
days after March 27, 1998. Does not include 113,200 shares of Common Stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
(7) Includes 43,750 shares of Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable within 60
days after March 27, 1998. Does not include 105,000 shares of Common Stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
(8) Includes 5,833 shares of Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are exercisable within 60 days
after March 27, 1998. Does not include 11,667 shares of common stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
(9) Includes 14,583 shares of Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable within 60
days after March 27, 1998. Does not include 10,417 shares of Common Stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
(10) Includes 14,583 shares of Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable within 60
days after March 27, 1998. Does not include 10,417 shares of Common Stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
(11) Includes 33,333 shares of Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable within 60
days after March 27, 1998. Does not include 10,417 shares of Common Stock
issuable upon the exercise of options outstanding under the Incentive Plan
that are not exercisable within 60 days after March 27, 1998.
(12) Does not include 10,000 shares of common stock issuable upon the exercise
of options outstanding under the Incentive Plan that are not exercisable
within 60 days after March 27, 1998.
(13) The shares of Common Stock shown as beneficially owned by the directors and
executive officers as a group include an aggregate of 559,183 shares of
Common Stock issuable upon the exercise of options outstanding under the
Incentive Plan that are exercisable within 60 days after March 27, 1998.
The shares of Common Stock shown as beneficially owned do not include an
aggregate of 808,657 shares of Common Stock issuable to the directors and
executive officers upon the exercise of options outstanding under the
Incentive Plan that are not exercisable within 60 days after March 27,
1998.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors has nominated and urges you to vote FOR the election
of the two nominees identified below, each of whom is a member of the Company's
present Board of Directors. Each nominee has consented to be named in this Proxy
Statement and to serve as a director, if elected. Proxies solicited hereby will
be voted for both nominees unless stockholders specify otherwise in their proxy.
The affirmative vote of holders of a plurality of the Common Stock present in
person or by proxy at the Meeting and entitled to vote is required for election
of each of the nominees.
The Company's Amended and Restated Certificate of Incorporation ("Charter")
provides that the Board of Directors shall be staggered with respect to terms of
office into three classes. Each class of directors shall consist of an equal, or
as near to equal as possible, number of directors. At each annual meeting, the
successor or successors to the class of directors whose term shall expire in
that year shall be elected to hold office for a term of three years, so that the
term of office of one class of directors shall expire in each year. At the
Meeting, the Class III directors shall be elected for a term expiring at the
2001 annual meeting or until their successors have been duly elected and
qualified.
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<PAGE> 7
The Company's Bylaws provide that the number of directors on the Board
shall be fixed from time-to-time by the Board of Directors. The Board in its
discretion and in accordance with such authority has currently fixed its size at
six members. No proxy will be voted for a greater number of persons than the
number of nominees named herein. If deemed in the best interests of the Company,
the Board of Directors may, subsequent to the Meeting, increase its size and
elect one or more additional qualified persons to fill the vacancies which then
exist pending the next annual meeting of stockholders. Any increase or decrease
in the number of directors constituting the Board of Directors shall be
apportioned among the classes so as to maintain the number of directors in each
class as near as possible to one-third the whole number of directors as so
adjusted. Any director elected or appointed to fill a vacancy shall hold office
for the remaining term of the class to which such directorship is assigned.
It is intended that the proxies solicited hereby will be voted FOR the
election of all of the nominees for director listed below, unless authority to
do so has been withheld. If, at the time of or prior to the Meeting, any of the
nominees should be unable or decline to serve, the discretionary authority
provided in the proxy may be used to vote for a substitute or substitutes
designated by the Board of Directors. The Board of Directors has no reason to
believe that any substitute nominee or nominees will be required.
DIRECTORS AND NOMINEES FOR DIRECTOR
Nominees for Director
The nominees for election as Class III directors whose terms of office, if
elected, will expire in 2001 and certain additional information with respect to
such persons are as follows:
James P. Hunter, III, 60, has been the President, Chief Executive
Officer and a director of the Company since May 1990 and Chairman of the
Board since June 1994. Prior to joining the Company, Mr. Hunter was a Vice
President of Service Corporation International ("SCI") from 1987 to 1990.
From 1988 to 1990, he was also Vice Chairman of SCI's Legislative Affairs
Committee. Prior to joining SCI, Mr. Hunter was President and Chief
Executive Officer of Oakley-Metcalf, Inc., a family-owned operator of
funeral homes in Lufkin and Nacogdoches, Texas, and was associated with
that firm for over 25 years. From 1985 to 1991, Mr. Hunter was a member of,
and during 1987 and 1988 the Chairman of, the Texas Funeral Service
Commission.
Bob Bullock, 69, was elected by the Board to the Company's Board of
Directors on December 8, 1997. Mr. Bullock has been Lieutenant Governor of
Texas and President of the Texas Senate since 1991 and has served the State
of Texas for more than 40 years in a variety of elected and appointed
positions. He is also an attorney with the law firm of Scott, Douglass &
McConnico, LLP, in Austin, Texas and serves as a director of California
Federal Bank, a major savings and loan company based in Los Angeles,
California.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF EACH OF THE ABOVE-NAMED NOMINEES, AND PROXIES EXECUTED AND RETURNED WILL BE
SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
Continuing Directors
The Company's four other directors will continue to serve in office until
the end of their respective terms or their earlier death, resignation or
removal. These four continuing directors are classified into Class I and Class
II based on their original classifications.
The Class I directors' terms of office will expire in 1999. Set forth below
is certain information concerning the Class I directors.
Jack T. Hammer, 56, has been a director of the Company since December
1994. Mr. Hammer has been the Chairman, President and Chief Executive
Officer of Housing Systems, Incorporated, a company that owns and operates
conventional, low income and cooperative housing, since he organized that
company in 1970. Prior to 1992, he was active in the ownership and
management of Arlington Corp., a
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<PAGE> 8
privately held death care company that was subsequently acquired by SCI.
Since January 1993, Mr. Hammer has also been the President of Cemetery
Management Consultants, a privately held company that primarily invests in
death care businesses.
Thomas R. McDade, 65, has been a director of the Company since
December 1994. He is a licensed attorney and has been a partner in the law
firm of McDade & Fogler, L.L.P., Houston, Texas since 1992. From 1971
through 1991, Mr. McDade was a partner in the law firm of Fulbright &
Jaworski, L.L.P., Houston, Texas. Mr. McDade is also a director of The
Coastal Corporation, a publicly held energy conglomerate.
The Class II directors' terms of office will expire in 2000. Set forth
below is certain information concerning the Class II directors.
Kenneth W. Smith, 61, has been a director of the Company since May
1990. He is a certified public accountant and has been in private practice
in Lufkin, Texas for the past 35 years. Prior to such time, he was a senior
accountant of the international accounting firm of Arthur Andersen & Co.
J. Patrick Doherty, 43, was elected by the Board as a director
effective February 3, 1997. Mr. Doherty is a licensed attorney and is
currently a partner in the law firm of Doherty, Doherty & Adams L.L.P. Mr.
Doherty was previously a partner in the law firm of Cochran, Rooke & Craft,
L.L.P.
BOARD COMMITTEES
The Company's Board of Directors has established an Executive Committee, an
Audit Committee and a Compensation Committee. The Board of Directors does not
have a standing nominating committee. The Executive Committee has the authority
to exercise many of the powers of the Board during periods between regular
meetings of the Board. The current members of the Executive Committee are
Messrs. Hunter, Smith and Doherty. The Audit Committee's functions include
recommending to the Board of Directors the engagement of the Company's
independent public accountants, reviewing with such accountants the plans for
and the results and scope of their auditing engagement and certain other
matters, including the independence of such accountants. The current members of
the Audit Committee are Messrs. Hammer, Smith, McDade and Bullock. The
Compensation Committee reviews compensation of directors, executive officers and
key employees, makes recommendations to the Board of Directors with respect to
compensation matters and administers the Incentive Plan. The current members of
the Compensation Committee are Messrs. Hammer, McDade and Smith.
During 1997, the Board of Directors held 6 meetings. The Executive
Committee, the Audit Committee and the Compensation Committee held 1, 2 and 3
meetings, respectively, during 1997. Although only one formal meeting of the
Executive Committee was held during 1997, such committee and its members
reviewed all acquisitions by the Company during 1997 and approved such
acquisitions by unanimous written consents. During such fiscal year, each member
of the Board of Directors attended 75% or more of the aggregate of the total
number of meetings of the Board of Directors and the total number of meetings
held by all committees of the Board of Directors on which such director served.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company or subsidiary (an
"outside director") is paid a quarterly retainer of $2,500 and an additional
quarterly retainer of $1,000 for directors who also chair a committee, fees of
$1,000 for each meeting of the Board of Directors that they attend and $1,000
for each meeting of a committee of the Board of Directors that they attend
(other than any committee meeting held in conjunction with a meeting of the
Board of Directors), and is reimbursed for all out-of-pocket expenses incurred
in attending such meetings. In addition, each outside director who serves as a
member of the Executive Committee of the Board of Directors is paid $10,000
annually.
Each outside director receives an automatic grant of options to acquire
10,000 shares of Common Stock under the Incentive Plan upon election to the
Board. In addition, each outside director receives an annual
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<PAGE> 9
automatic grant of options to acquire 5,000 shares of Common Stock under the
Incentive Plan. The Company maintains directors' and officers' liability
insurance and its Charter and Bylaws provide for mandatory indemnification of
directors to the fullest extent permitted by Delaware law. The Company has
entered into indemnification agreements with all of its directors. In addition,
the Charter limits the liability of directors of the Company to the Company or
its stockholders for breaches of the directors' fiduciary duties to the fullest
extent permitted by Delaware law.
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company, including the business experience of each during the past five
years:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
James P. Hunter, III.............. 60 Chairman of the Board of Directors, President
and Chief Executive Officer
W. Cardon Gerner.................. 43 Senior Vice President -- Chief Financial
Officer
William C. McNamara............... 50 Senior Vice President -- Cemetery Operations
Jack D. Rottman................... 50 Senior Vice President -- Corporate Development
Billy C. Wells.................... 47 Senior Vice President -- Funeral Operations
</TABLE>
Certain biographical information concerning Mr. Hunter is set forth under
"Election of Directors -- Directors and Nominees for Director -- Continuing
Directors."
W. Cardon Gerner has been Senior Vice President -- Chief Financial
Officer since March 1995. For 17 years prior to joining the Company, Mr.
Gerner held various positions with the international accounting firm of
Ernst & Young LLP, including being a partner in such firm from October 1990
until March 1995.
William C. McNamara has been Senior Vice President -- Cemetery
Operations since April 1996. Prior to joining the Company, Mr. McNamara had
been employed in various capacities by subsidiaries of SCI since 1981, most
recently as Vice President of Preneed Funeral and Preneed Cemetery Sales
and Administration of SCI's Eastern Division, which included over 300
funeral home and cemetery operations.
Jack D. Rottman has been Senior Vice President -- Corporate
Development of the Company since March 1994. Prior to joining the Company,
Mr. Rottman held various positions at SCI, including Vice President of
Funeral Service Operations from 1991 to 1993 and Vice President of
Corporate Development from 1987 to 1989. He was also Senior Vice President
and a loan officer of Provident Services, Inc., a wholly owned subsidiary
of SCI, from 1989 to 1991.
Billy C. Wells has been Senior Vice President -- Funeral Operations of
the Company since May 1990. Prior to joining the Company, Mr. Wells held
various management positions within SCI's funeral home operations, most
recently as Vice President of SCI's Regional Partner Division from January
1990 to May 1990.
The Company's officers are elected annually by, and serve at the pleasure
of, the Board of Directors, subject to the terms of any employment agreements.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is a committee of
outside directors that is responsible for administering the executive
compensation programs of the Company including awards under the Incentive Plan.
Pursuant to the authorization of the Board of Directors, the Compensation
Committee
6
<PAGE> 10
fixes the compensation of the Chief Executive Officer and the other officers of
the Company and is responsible for administering the Incentive Plan.
Compensation Philosophy
The Company's executive compensation policies are designed to provide a
direct link between the interests of management and those of the Company's
stockholders, to provide competitive levels of compensation that integrate pay
with the Company's annual and long-term performance goals, to attract and retain
individuals with the leadership and technical skills to ensure the Company's
success with a view to increasing stockholder value, and to reward both
corporate and individual performance. To further those policies, the Company's
executive compensation programs include base salaries, annual performance-based
incentives and long-term incentive opportunities.
In 1997, the Compensation Committee engaged a compensation consultant to
review the compensation practices and policies of the Company. Based on
recommendations of the consultant, the Compensation Committee amended the
Company's executive compensation philosophy to place greater emphasis on stock-
based compensation under the Incentive Plan for the Company's executive officers
and senior managers. The objective is to make the relationship stronger and more
direct between increases in stockholder value and increases in the value of
officers' and managers' compensation. (See "Long-Term Incentive Compensation"
below).
Base Salaries
The base salaries paid to each of the officers of the Company are
established by employment agreements entered into between the Company and those
individuals. The Compensation Committee annually reviews the salaries to be paid
to its officers during each fiscal year. The base salaries called for in the
officer employment agreements were determined in part upon the advice of
independent consultants regarding the design of an overall executive
compensation program that would implement the Company's executive compensation
philosophy. In setting base salaries with respect to each officer, the
Compensation Committee takes into account the factors it deems relevant
(generally including the duties and levels of responsibility in each position,
individual job performance, experience, pay position within a range and market
comparisons) and exercises its discretion after assigning relative weight to
each such factor.
Annual Incentive Compensation
The annual incentive compensation program adopted by the Company is
designed so that a major portion of the total compensation of the Company's
officers comes in the form of incentive bonuses. These bonuses are generally
linked to the achievement of Company performance goals during the year which
tend to increase stockholder value. The employment agreement of each of the
Chief Executive Officer, the Senior Vice President -- Cemetery Operations and
the Senior Vice President -- Chief Financial Officer of the Company provides for
an annual incentive bonus equal to 50% of base salary if the Company attains
certain levels of performance, including net income, established in the
Company's budget approved by the Board of Directors. The employment agreement of
the Senior Vice President -- Corporate Development provides for an annual
incentive bonus equal to 1% of the annual historical revenues of businesses
acquired by the Company during the year subject to an annual maximum of $75,000.
In addition, pursuant to their respective employment agreements, each Company
officer may also earn an annual incentive bonus, which is generally a specified
percentage of his base salary, at the discretion of the Compensation Committee,
taking into account the executive compensation philosophy of the Company.
During fiscal year 1997, the Company's attainment of performance goals
required the payment of a bonus to Mr. Rottman. In addition, the Compensation
Committee granted discretionary incentive bonuses to each of Messrs. Hunter,
Gerner, McNamara, Rottman and Wells.
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<PAGE> 11
Long-Term Incentive Compensation
The Committee believes that stock-based long-term incentive compensation
opportunities should constitute an integral part of the Company's executive
compensation program. By offering the Company's key employees a stake in the
Company's long-term success, such programs provide an incentive for the
enhancement of stockholder value. To accomplish this objective, the Company may
from time to time provide designated employees with stock options and/or
restricted stock and other stock based awards pursuant to its Incentive Plan.
Stock option grants and restricted stock awards are intended to align management
and stockholders' interests and ensure the retention of key selected employees
by providing those individuals with the opportunity to receive stock ownership
in the Company.
The Committee intends to grant stock options as the principal form of
stock-based awards under the Incentive Plan. Executives and employees holding
stock options derive value only if the Company's stock price increases from the
date of grant, thus closely linking the interest of the Company's stockholders
and its executives and employees granted stock options. The Committee intends to
award restricted stock only under special circumstances.
An award of stock options and/or restricted stock to a particular employee
is based on the employee's past performance and expectations of the employee's
future contributions to the Company. In determining whether and to what extent
to make such an award, the Compensation Committee considers management's
recommendation and advice from independent consultants.
Based on recommendations of the compensation consultant conducting a review
of the compensation practices and policies of the Company on behalf of the
Compensation Committee, the Compensation Committee granted on August 14, 1997
performance accelerated vesting stock options to the Company's executive
officers listed in the Summary Compensation Table. In addition, the Company
continued to implement its practices of granting stock options to directors and
selected key employees. The stock options granted to the executive officers
include a stock price based performance accelerated vesting. The objective of
these stock option grants is to more closely link the interests of stockholders
and the Company's executive officers by basing the vesting of these stock
options, in substantial part, on achieving aggressive annual stock price
increases in the 4-year period beginning August 14, 1997 and ending on August
13, 2001. If not met, the stock options vest on the ninth anniversary of the
date of grant (the sixth anniversary for Mr. Hunter) only if the option holder
is continuously employed by the Company through that date. If these conditions
are not met, the stock options will not vest. A special pro-rated vesting
schedule is provided for executive officers whose employment is terminated only
during the third or fourth year of the performance schedule due to death,
disability, retirement or termination other than "for cause." No pro-rated
vesting schedule applies for individuals terminating employment with nonvested
stock options after August 14, 2001.
The following table sets forth the annual "milestone" average per share
stock price target and the 4-year average per share stock price target for
vesting the stock options. If the stock price target is achieved on August 14,
1998, August 14, 1999 and/or August 14, 2000, a portion of unvested stock
options will vest on that date (i.e., 25% of total unvested options for August
14, 1998, 33% of total unvested options for August 14, 1999, and 50% of total
unvested stock options for August 14, 2000). If the stock price target is met on
August 14, 2001, 100% of outstanding stock options will vest.
<TABLE>
<CAPTION>
PER SHARE LENGTH OF PERFORMANCE PERIOD
MILESTONE STOCK PRICE* PERFORMANCE PERIOD ENDING DATE
--------- ------------ ------------------ ------------------
<S> <C> <C> <C>
1st year..................... $29.50 1 Year August 14, 1998
2nd year..................... $37.00 1 Year August 14, 1999
3rd year..................... $46.50 1 Year August 14, 2000
4 year Target................ $58.50 4 Years August 14, 2001
</TABLE>
- ---------------
* For comparison purposes, the closing stock price of ECI common stock on August
14, 1997 was $22.25 and the 15-day average closing per share stock price was
$23.43. The 4-year target stock price is approximately 2.5 times $23.43.
8
<PAGE> 12
These stock price milestones are based on the continuation of favorable
general stock market conditions through the performance period. If such
conditions do not continue during the performance period, the stock option
agreements provide that the stock options will vest on August 14, 2001 if the
total stockholder return percentage for the Company's stockholders during the 4
year performance period exceeds the 4 year total stockholder return percentage
for a peer group in the Company's industry. This special provision does not
apply for milestone vesting in the 3 preceding years.
In summary, during fiscal year 1997, the Compensation Committee awarded
options representing an aggregate of 580,722 shares of Common Stock to employees
and directors of the Company and its subsidiaries, of which 480,000 were granted
to the Company's executive officers listed in the Summary Compensation Table and
31,972 were granted to 46 other employees. In addition, options representing
68,750 shares of Common Stock were granted to the Company's current non-employee
directors under the Incentive Plan.
Chief Executive Officer Compensation
Mr. Hunter has served as the Chief Executive Officer of the Company since
its formation. Mr. Hunter's base salary in fiscal year 1997 was $250,000, as set
forth in his employment agreement with the Company.
For fiscal year 1997, Mr. Hunter was awarded a discretionary incentive
bonus of $100,000. On August 14, 1997, Mr. Hunter also received 200,000
nonqualified stock options. The terms of the nonqualified stock options are
described above in "Long-Term Incentive Compensation."
In evaluating Mr. Hunter's discretionary incentive bonus for 1997, the
Compensation Committee took into consideration the Company's increased earnings
in fiscal year 1997, the successful acquisition program of the Company, Mr.
Hunter's increased responsibilities due to the growth in the size of the
Company, the Company's future earnings prospects, Mr. Hunter's leadership and
management skills and competitive practices within the industry.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), disallows a corporation's deduction for remuneration paid to its chief
executive officer and its four other highest compensated officers in excess of
$1 million per person. As neither the Company's Chief Executive Officer nor any
of its four other highest compensated officers has received remuneration in
excess of such limitation in 1997 or is anticipated to receive remuneration in
excess of such limitation in 1998, the Compensation Committee has deferred
making any recommendation to the Company's Board of Directors as to what policy
the Company should adopt with respect to remuneration of the executive officers
of the Company in excess of such limitation, until such time as it appears
reasonably foreseeable that such limitation may be exceeded. However, the
proposed Equity Corporation International 1998 Long-Term Incentive Plan (see
Proposal 3) has been designed to comply with the terms of an exemption from Code
Section 162(m) applicable to compensation realized with respect to stock
options. Accordingly, the Company believes that any remuneration realized by the
executive officers of the Company from stock options granted under the proposed
Plan, if any, will be exempt from such limitation and will be disregarded in
determining whether such limitation applies to other remuneration payable to an
executive officer of the Company in future years.
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
Compensation Committee: Thomas R. McDade, Chairman
Kenneth W. Smith
Jack T. Hammer
9
<PAGE> 13
SUMMARY COMPENSATION TABLE
The following table reflects all forms of compensation for the years ended
December 31, 1997, 1996 and 1995 to the Chief Executive Officer and the four
other most highly compensated executive officers of the Company based on 1997
salaries and bonuses (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
- ---------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James P. Hunter, III 1997 $249,038 $100,000 $ -- (1) 200,000 $2,725(2)
Chairman, President and 1996 $224,039 $225,000 $ -- (1) 75,000 $2,655(2)
Chief Executive Officer 1995 $200,000 $ 58,500 $ -- (1) 75,000 $2,575(2)
W. Cardon Gerner 1997 $152,692 $ 50,000 $ -- (1) 70,000 $ 331(6)
Senior Vice President -- 1996 $142,692 $145,000 $ -- (1) 52,500 $ 321(6)
Chief Financial Officer 1995(4) $109,038 $ 35,000 $46,428(3) 84,840 $ 223(6)
William C. McNamara 1997 $144,846 $ 39,500 $32,927(5) 70,000 $ 333(6)
Senior Vice President -- 1996(4) $100,977 $105,000 $ -- (1) 78,750 $ 55(6)
Cemetery Operations 1995 $ -- $ -- $ -- -- $ --
Jack D. Rottman 1997 $155,769 $100,000 $54,664(7) 70,000 $ 352(6)
Senior Vice President -- 1996 $147,692 $150,000 $70,531(7) 26,250 $ 281(6)
Corporate Development 1995 $137,025 $ 75,000 $49,254(7) 22,500 $ 315(6)
Billy C. Wells 1997 $ 97,692 $ 39,500 $ -- (1) 70,000 $ 221(6)
Senior Vice President -- 1996 $ 88,846 $ 90,000 $ -- (1) 26,250 $ 200(6)
Funeral Operations 1995 $ 81,054 $ 20,000 $ -- (1) 10,500 $ 351(6)
</TABLE>
- ---------------
(1) Excludes certain perquisites and other personal benefits the amount of which
did not exceed the lesser of either $50,000 or 10% of the employee's total
annual salary and bonus.
(2) Represents compensation consisting of $375 from insurance premiums paid by
the Company with respect to term life insurance in each of 1997, 1996 and
1995 and $2,350, $2,280, $2,200 attributable to the Company's payment of
split-dollar life insurance premiums in 1997, 1996 and 1995, respectively.
(3) Includes $31,851 reimbursed to the employee for closing costs in connection
with the sale of the employee's primary residence.
(4) Mr. Gerner became employed by the Company in March 1995 and Mr. McNamara
became employed by the Company in April 1996.
(5) Includes $17,696 reimbursed to the employee for closing costs in connection
with the sale of the employee's primary residence.
(6) Dollar value of insurance premiums paid by the Company with respect to term
life insurance for the benefit of the named executive officer.
(7) Includes $33,764, $50,721 and $35,310 reimbursed to the employee in 1997,
1996 and 1995, respectively, for interest on amounts borrowed by the
employee to finance shares purchased by him in June 1994.
EMPLOYMENT ARRANGEMENTS; COVENANTS-NOT-TO-COMPETE; CHANGE-IN-CONTROL EXECUTIVE
SEVERANCE
AGREEMENTS
Each of the Company's executive officers has entered into an employment
agreement with the Company. Mr. Hunter's base salary for 1998 is $300,000, and
his employment agreement provides for a bonus of up to 50% of his annual base
salary if certain performance goals are achieved and an additional bonus of up
to 50% of his annual base salary payable in the discretion of the Board of
Directors. Mr. Rottman's base salary for 1998 is $162,500 and his employment
agreement provides for such incentive compensation as may be determined in the
discretion of the Board of Directors. In addition, under his employment
agreement, Mr. Rottman is entitled to an additional bonus of up to $75,000 per
year based upon the historical revenues of businesses acquired during such year.
The Company has also agreed to reimburse Mr. Rottman for the
10
<PAGE> 14
interest on amounts borrowed by Mr. Rottman to finance the shares purchased by
him in June 1994. Mr. Gerner's base salary for 1998 is $160,000, and his
employment agreement provides for an annual bonus of up to 50% of his annual
base salary if certain performance goals are achieved and an additional bonus of
up to 50% of his annual base salary payable in the discretion of the Board of
Directors. Mr. McNamara's base salary for 1998 is $152,000, and his employment
agreement provides for a contractual incentive bonus of up to 50% of his annual
base salary if certain performance goals are achieved and an annual bonus of up
to 50% of his annual base salary as may be determined by the Board of Directors.
Mr. Wells' base salary for 1998 is $135,000, and his employment agreement
provides for an annual bonus as may be determined in the discretion of the Board
of Directors. The base salary for each of the above-named officers was increased
from the minimum base salary levels provided in their respective employment
agreements and their base salaries in 1997 due to market comparisons and
competitive practices in the industry.
The employment agreement with Mr. Hunter has an initial term of five years
commencing February 1994 and may be terminated by Mr. Hunter at any time upon 30
days' prior written notice to the Company. In addition, the agreement contains a
covenant prohibiting Mr. Hunter from competing with the Company for a period of
12 months following the date of termination, provided that (i) the Company gives
written notice within 30 days of the date of termination that it intends to
enforce such provision and (ii) during such 12-month period the Company
continues payment of the salary to which Mr. Hunter was entitled immediately
prior to such termination.
Mr. Gerner's employment agreement had an initial term of two years
commencing March 1995. Mr. McNamara's employment agreement has an initial term
of two years commencing April 1996. Mr. Rottman's employment agreement had an
initial term of two years commencing March 1994. Mr. Wells' employment agreement
had an initial term of two years commencing July 1994. Each of the employment
agreements with Messrs. Gerner, McNamara, Rottman and Wells may be terminated by
either party upon two weeks' prior written notice. Unless terminated, the
employment agreements of Messrs. Gerner, McNamara, Rottman and Wells are
extended automatically for successive 12-month periods, and the agreements for
Messrs. Gerner, Rottman and Wells have been extended for such periods. Each
employment agreement also contains a covenant-not-to-compete with the Company
for a period of 12 months following the scheduled date of termination. During
the 12-month period following termination of Mr. Gerner, Mr. McNamara, Mr.
Rottman or Mr. Wells, the Company is required to continue payment of the annual
salary to which the employee was entitled at the date of termination. Under
certain circumstances, the Company may elect to cancel any of Mr. Gerner's, Mr.
McNamara's, Mr. Rottman's or Mr. Wells' post-employment non-competition
obligations and the Company's corresponding payment obligations.
Effective August 14, 1997, the Company adopted "Executive Severance
Agreements" covering the five executive officers of the Company providing that
certain remuneration would be payable if a covered executive's employment were
terminated in a "qualifying termination" upon certain conditions in connection
with a change-in-control of the Company (a "Change-in-Control Severance
Agreement"). The initial term of each Change-in-Control Severance Agreement is
eighteen months, and the Agreements will thereafter be extended for consecutive
one-year terms unless the Company terminates the Agreement covering an executive
officer at the end of the initial or an extended term with three months advance
notice.
A "qualifying termination" occurs only if a change-in-control of the
Company (as defined in such Agreements) occurs and the covered executive's
employment is actually or constructively terminated within eighteen months
thereafter, other than for cause. In such event, the terminated executive would
receive (i) an amount equal to approximately three times the executive's base
salary, (ii) an amount equal to the executive's target bonus for the year (or,
if greater, the executive's highest bonus actually paid in the three prior
years), and (iii) continuation of health benefits for eighteen months at the
same cost to the executive as charged prior to such change-in-control. If such
severance payments (together with any other payments from the Company) payable
to the executive would constitute an "excess parachute payment" under Code
Section 280G, then the value of such total payments shall be reduced so that no
such payments would be subject to the excise tax on "excess parachute payments"
under Code Section 4999, unless the executive would receive greater net benefits
taking into consideration the executive's payment of such excise tax.
11
<PAGE> 15
The Company maintains directors' and officers' liability insurance and its
Charter and Bylaws provide for mandatory indemnification of officers to the
fullest extent permitted by Delaware law. The Company has entered into
indemnification agreements with each of its executive officers.
OPTION GRANTS TABLE
The following table reflects certain information regarding stock options
granted to the Named Executive Officers during fiscal 1997:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME GRANTED(1) FISCAL 1997 SHARE DATE VALUE(2)
---- ---------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
James P. Hunter, III...... 200,000 34.4% $22.25 8/14/07 $1,640,160
W. Cardon Gerner.......... 70,000 12.1 22.25 8/14/07 741,447
William C. McNamara....... 70,000 12.1 22.25 8/14/07 741,447
Jack D. Rottman........... 70,000 12.1 22.25 8/14/07 741,447
Billy C. Wells............ 70,000 12.1 22.25 8/14/07 741,447
</TABLE>
- ------------------
(1) A total of 580,722 options were granted to employees and directors of the
Company and its subsidiaries in 1997. A total of 480,000 options were
granted to the executive officers, 31,972 options were granted to 46 other
employees and 68,750 options were granted to 5 of the Company's non-employee
directors. All options granted to the executive officers in 1997 are
non-qualified stock options ("NSOs"). The options granted to the executive
officers become exercisable upon the earlier of August 14, 2006 (August 14,
2003 with respect to options granted to Mr. Hunter) or the attainment of
certain target stock prices of $29.50, $37.00, $46.50 and $58.50 on each of
August 14, 1998, 1999, 2000 and 2001, respectively, at which time the
specified percentages of 25%, 33%, 50% and 100%, respectively, of the then
nonvested options become exercisable. These options may also become
exercisable on August 14, 2001 based upon a stock price performance formula
comparing peer group performance. All options expire on the earlier of ten
years from the date of grant or within specified time periods following
termination of employment. No stock appreciation rights ("SARs") or other
instruments were granted in tandem with the options reflected in this table.
(2) To calculate the present value of option grants in 1997, the Company has
used the Black-Scholes option pricing model. The actual value, if any, an
executive may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised, so there is no assurance
the value realized by an executive will be at or near the value estimated by
the Black-Scholes model. The estimated values under that model are based on
assumptions that include (i) a stock price volatility of 21.85%, (ii) risk
free interest rates of 6.27% (6.21% with respect to options granted to Mr.
Hunter), (iii) a dividend yield of 0.0%, and (iv) an expected life of nine
years (six years with respect to options granted to Mr. Hunter). The
Securities and Exchange Commission (the "Commission") requires disclosure of
the potential realizable value or present value of each grant. The Company's
use of the Black-Scholes model to indicate the present value of each grant
is not an endorsement of this valuation, which is based on certain
assumptions, as described above.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND DECEMBER 31, 1997 OPTION VALUES
The following table reflects certain information regarding the number of
unexercised options and the value of unexercised options outstanding at December
31, 1997. No SARs or other instruments were granted
12
<PAGE> 16
in tandem with the options reflected in this table. No options were exercised by
the Named Executive Officers during fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James P. Hunter, III.............. 195,300 297,200 $2,270,290 $913,460
W. Cardon Gerner.................. 56,134 151,206 579,303 811,412
William C. McNamara............... 26,250 122,500 106,400 263,200
Jack D. Rottman................... 114,050 117,200 1,462,190 515,260
Billy C. Wells.................... 53,550 113,200 642,320 480,700
</TABLE>
- ---------------
(1) Value determined by subtracting the exercise price from the market value of
the Common Stock on December 31, 1997, which was $22.97 per share based on
the average of the high and low sale prices on December 31, 1997, multiplied
by the number of shares underlying the options.
13
<PAGE> 17
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return (change in year-end stock price plus
reinvested dividends) on the Company's Common Stock against the cumulative total
return of The S&P 500 Index and a Company-determined Composite Peer Group index
for the period commencing October 19, 1994 (the date trading in the Company's
Common Stock on The Nasdaq National Market commenced) and ended December 31,
1997. The Company's Common Stock was listed on The Nasdaq National Market prior
to June 6, 1997 and by the New York Stock Exchange thereafter. The Company's
Composite Peer Group for 1996 (Peer Group I) was comprised of the Loewen Group,
Inc., Stewart Enterprises, Inc. and SCI. Carriage Services, Inc. was not
included in this Composite Peer Group due to its limited trading history since
August 1996. The Company's Composite Peer Group for 1997 (Peer Group II) is
comprised of the Loewen Group, Inc., Stewart Enterprises, Inc., SCI and Carriage
Services, Inc. Both Peer Groups are shown in the graph below for comparative
purposes. The graph assumes that $100 was invested prior to the commencement of
trading of the Company's Common Stock on October 19, 1994, in the Company's
Common Stock, The S&P 500 Index and each Composite Peer Group, weighted on the
basis of market capitalization.
<TABLE>
<CAPTION>
Equity
Measurement Period Corporation S&P 500 Peer Group
(Fiscal Year Covered) International Index Peer Group I II
<S> <C> <C> <C> <C>
Oct. 19, 1994 100 100 100 100
Dec. 31, 1994 102 103 112 110
Dec. 31, 1995 183 141 152 158
Dec. 31, 1996 231 174 203 212
Dec. 31, 1997 267 232 241 249
</TABLE>
- ---------------
The data source for the above graph is Standard & Poor's Compustat Database.
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates this graph by
reference, and shall not otherwise be deemed filed under such Acts.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than ten percent of the Common Stock, to file
reports of ownership and changes in ownership with the Commission and The New
York Stock Exchange. Based on the Company's review of the copies of such
14
<PAGE> 18
reports received by the Company and on written representations received by the
Company, the Company believes that no director, officer or holder of more than
ten percent of the Common Stock failed to file on a timely basis the reports
required by Section 16(a) of the Exchange Act during fiscal 1997, except that a
Form 3 Statement of Beneficial Ownership for Bob Bullock showing ownership of no
shares was filed 27 days late.
CERTAIN TRANSACTIONS
The executive officers of the Company will be eligible to participate in
the proposed Equity Corporation International 1998 Long-Term Incentive Plan, if
approved.
The Company has engaged Mr. Doherty and the law firm of which Mr. Doherty
has been a partner, Cochran, Rooke & Craft, L.L.P., in connection with
acquisitions, securities offerings and other general corporate matters. During
1997, the Company paid an aggregate of $687,890 in fees to Cochran, Rooke &
Craft, L.L.P. in connection with services for such matters.
The Company intends that any transactions between the Company and its
officers, directors, principal stockholders, affiliates or advisors will be on
terms no less favorable to the Company than those reasonably obtainable from
third parties and will be approved or ratified by a majority of the Company's
independent directors.
PROPOSAL 2:
APPROVAL OF INDEPENDENT ACCOUNTANTS
GENERAL
The Board of Directors has appointed the firm of Coopers & Lybrand L.L.P.,
independent accountants, as the Company's independent public accountants for the
fiscal year ending December 31, 1998, subject to ratification by the Company's
stockholders. Representatives of Coopers & Lybrand L.L.P. are expected to be
present at the Meeting and will have an opportunity to make a statement, if they
so desire, and to respond to appropriate questions from those attending the
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF COOPERS & LYBRAND L.L.P.'S APPOINTMENT, AND PROXIES EXECUTED AND RETURNED
WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
PROPOSAL 3:
APPROVAL OF THE
EQUITY CORPORATION INTERNATIONAL 1998 LONG-TERM INCENTIVE PLAN
THE PROPOSAL AND REASONS FOR IT
On April 16, 1998, the Board of Directors of the Company adopted the Equity
Corporation International 1998 Long-Term Incentive Plan (the "1998 Plan"),
subject to approval by the Company's stockholders. The summary description that
follows is qualified by reference to the 1998 Plan, a copy of which is attached
hereto as Exhibit A. Capitalized terms used but not defined herein have the
meanings assigned to them in the 1998 Plan. In the event that stockholder
approval is not received, the 1998 Plan will be terminated.
The purpose of this 1998 Plan is to provide employees, directors,
consultants and other individuals rendering services to or on behalf of the
Company and/or one or more of its subsidiaries an opportunity to acquire an
equity interest in the Company. The Company intends to use the Plan to link the
long-term interests of stockholders of the Company and participants in the 1998
Plan, attract and retain participants' services, motivate participants to
increase the Company's value and create flexibility in compensating
participants.
The 1998 Plan is administered by a committee (the "Plan Committee")
appointed by the Board of Directors and is currently administered by the
Compensation Committee of the Board of Directors.
15
<PAGE> 19
The 1998 Plan provides for the grant of incentive and nonqualified stock
options, stock appreciation rights, restricted stock, performance shares and
performance units (individually an "Award" or collectively, "Awards"). All
employees, directors and consultants of the Company or its subsidiaries will be
eligible to receive Awards under the 1998 Plan (currently approximately 1,500
individuals). The Plan Committee has the discretion to select the individuals to
whom the Awards will be granted, to determine the type, size and terms and
conditions applicable to each Award and the authority to interpret, construe and
implement the provisions of the 1998 Plan. The Plan Committee's decisions will
be binding.
The total number of shares of Common Stock that may be subject to Awards
under the 1998 Plan is 1,000,000 shares (subject to adjustment as provided in
the 1998 Plan). Awards of stock options and stock appreciation rights during the
term of the 1988 Plan to any one participant to whom Section 162(m) applies
cannot exceed 40% of the shares subject to Awards under the 1988 Plan. In
addition, no more than 50,000 shares authorized under the Plan may be issued as
restricted stock. Any shares of Common Stock subject to an Award which expires,
is canceled, is forfeited or terminated for any reason other than being settled
in shares of Common Stock shall again be available for issuance under the Plan.
The Company has not granted any Awards under the 1998 Plan to date. The
Company intends to grant Awards in the future to the Named Executive Officers
and other selected participants in the future, but no determination is
contemplated or has been made regarding the number or terms of such Awards.
The Compensation Committee intends to grant Awards under the 1998 Plan
which will strongly link the interests of stockholders and Award recipients.
Accordingly, the Compensation Committee intends to grant primarily nondiscounted
stock options under the 1998 Plan to eligible individuals who have demonstrated
successful performance in their respective positions with the Company. Further,
the Compensation Committee intends to integrate such Awards with the stock
options granted during 1997 to the Named Executive Officers which include a
performance-based vesting schedule related to significant stock price increases
over the 4-year period from the date of grant. The Compensation Committee
believes that granting such performance-based accelerated vesting stock options
to selected high-performing eligible individuals will substantially promote the
best interests of the Company and its stockholders.
Set forth below is a brief description of the Awards that may be granted
under the 1998 Plan.
Stock Options. Options (each an "Option") to purchase shares of Common
Stock, which may be incentive or nonqualified stock options, may be granted
under the 1998 Plan at an exercise price (the "Option Price") determined by the
Plan Committee in its discretion, provided that the Option Price may be no less
than the trading price of the Common Stock on the date of grant. Each Option
represents the right to purchase one share of Common Stock at the specified
Option Price.
Options will expire no later than 10 years after the date on which they are
granted and will become exercisable at such times and in such installments as
determined by the Plan Committee. Payment of the Option Price must be made in
full at the time of exercise in cash, certified or bank check, or by tendering
to the Company shares of Common Stock having a fair market value equal to the
Option Price.
Options may become vested and exercisable based upon satisfaction of
certain specified criteria. Such criteria may be time-based vesting based on
continuous employment or rendering services to the Company over a specified
period of time from the date of grant. In addition, the Options may become
vested, or the vesting of such Options may be accelerated, based on achieving
certain performance criteria (e.g., stock price growth rates over a specified
period of time) or other terms and conditions as the Plan Committee deems
appropriate. Performance objectives will be established before, or as soon as
practicable after, the commencement of the performance period during which
performance will be measured.
Stock Appreciation Rights. An Award of a stock appreciation right ("SAR")
may be granted under the 1998 Plan with respect to shares of Common Stock.
Generally, one SAR is granted with respect to one share of Common Stock. The SAR
entitles the participant, upon the exercise of the SAR, to receive an amount
equal to the appreciation in the underlying share of Common Stock. The
appreciation is equal to the difference between (i) the "base value" of the SAR
(which is the trading price of the Common Stock on the New York Stock Exchange
on the date the SAR is granted), and (ii) the closing trading price of the
16
<PAGE> 20
Common Stock on the New York Stock Exchange on the date preceding the date the
SAR is exercised. Upon the exercise of a vested SAR, the exercising participant
will be entitled to receive the appreciation in the value of one share of Common
Stock as so determined, payable at the discretion of the Plan Committee in cash
or in shares of Common Stock.
SARs will expire no later than 10 years after the date on which they are
granted. SARs become exercisable at such times and in such installments as
determined by the Plan Committee.
Tandem Option/SARs. An Option and an SAR may be granted "in tandem" with
each other (a "Tandem Option/SAR"). An Option and an SAR are considered to be in
tandem with each other because the exercise of the Option aspect of the tandem
unit automatically cancels the right to exercise the SAR aspect of the tandem
unit, and vice versa. The Option may be an incentive stock option or a
nonqualified stock option, and the Option may be coupled with one SAR, more than
one SAR or a fractional SAR in any proportionate relationship selected by the
Plan Committee. Descriptions of the terms of the Option and the SAR aspects of a
Tandem Option/SAR are provided above.
Restricted Stock. An Award of restricted stock ("Restricted Stock") is an
Award of Common Stock that is subject to such restrictions, if any, as the Plan
Committee deems appropriate, including forfeiture conditions and restrictions
against transfer for a period specified by the Plan Committee. Restricted Stock
Awards may be granted under the 1998 Plan for services and/or payment of cash.
Restrictions, if any, on Restricted Stock may lapse in installments based on
factors selected by the Plan Committee. Prior to the expiration of the
restricted period, except as and only if provided by the Plan Committee, a
grantee who has received a Restricted Stock Award generally has the rights of a
stockholder of the Company, including the right to vote and to receive cash
dividends on the shares subject to the Award. Stock dividends issued with
respect to a Restricted Stock Award may be treated as additional shares under
such Award and may be subject to the same restrictions and other terms and
conditions that apply to the shares with respect to which such dividends are
issued.
Performance Shares and Performance Units. A performance share Award (a
"Performance Share") and/or a performance unit Award (a "Performance Unit") may
be granted under the 1998 Plan. Each Performance Unit will have an initial value
that is established by the Plan Committee at the time of grant. Each Performance
Share will have an initial value equal to the trading price of one share of
Common Stock on the date of grant. Such Awards may be earned based upon
satisfaction of certain specified performance criteria, subject to such other
terms and conditions as the Plan Committee deems appropriate. Performance
objectives will be established before, or as soon as practicable after, the
commencement of the performance period during which performance will be measured
(the "Performance Period"). Prior to the end of a Performance Period, the Plan
Committee, in its discretion, may adjust the performance objectives to reflect
an event that may materially affect the performance of the Company, including,
but not limited to, market conditions or a significant acquisition or
disposition of the assets or other property by the Company. The extent to which
a grantee is entitled to payment in settlement of such an Award at the end of
the Performance Period will be determined by the Plan Committee, in its sole
discretion, based on whether the performance criteria have been met and payment
will be made in cash or in shares of Common Stock in accordance with the terms
of the applicable Award Agreements.
Additional Information.
Under the 1998 Plan, if there is any change in the capitalization of the
Company, a corporate transaction, a reorganization or a liquidation of the
Company, such proportionate adjustments as may be necessary (in the form
determined by the Plan Committee) to reflect such change will be made to prevent
dilution or enlargement of the rights with respect to the aggregate number of
shares of Common Stock for which Awards in respect thereof may be granted under
the 1998 Plan, the number of shares of Common Stock covered by each outstanding
Award and the price per share in respect thereof. Unless otherwise provided in
an Award Agreement, an individual's rights under the 1998 Plan may not be
assigned or transferred (except in the event of death).
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<PAGE> 21
In the event of a change-in-control of the Company, it is contemplated that
the Award Agreements will provide that: (i) all options, SARs and Tandem
Options/SARs then outstanding may become fully exercisable as of the date of the
change-in-control, whether or not then exercisable; (ii) all restrictions and
conditions of all Restricted Stock Awards then outstanding may lapse as of the
date of the change-in-control; and (iii) all performance Share/Unit Awards may
be deemed to have been fully earned at target levels as of the date of the
change-in-control. For a description of change-in-control, see "-- Employment
Arrangements; Covenants-Not-To-Compete; Change-in-Control Executive Severance
Agreements".
The 1998 Plan will remain in effect until terminated by the Board of
Directors and thereafter until all Awards granted thereunder are satisfied by
the issuance of shares of Common Stock or the payment of cash or the 1998 Plan
is otherwise terminated pursuant to the terms of the 1998 Plan or under any
Award Agreements. Notwithstanding the foregoing, no Awards may be granted under
the 1998 Plan after the tenth anniversary of the effective date of the 1998
Plan. The Board of Directors may at any time terminate, modify or amend the 1998
Plan, however, no such amendment, modification or termination may materially
adversely affect an optionee's or grantee's rights under any Award theretofore
granted under the 1998 Plan, except with the consent of such optionee or
grantee, and no such amendment or modification will be effective unless and
until the same is approved by the stockholders of the Company when such
stockholder approval is required to comply with applicable law, regulation or
stock exchange rule. New York Stock Exchange rules currently require stockholder
approval if the amendment would, among other things, materially increase the
benefits accruing to optionees or grantees under the 1998 Plan.
Certain Federal Income Tax Consequences of Awards.
An employee to whom an Option which is an incentive stock option ("ISO")
that qualifies under Section 422 of the Internal Revenue Code is granted will
not recognize income at the time of grant or exercise of such option. No federal
income tax deduction will be allowable to the Company upon the grant or exercise
of such ISO. However, upon the exercise of an ISO, any excess in the fair market
price of the Common Stock over the Option Price constitutes an item of
adjustment that may have alternative minimum tax consequences for the employee.
When the employee sells such shares more than one year after the date of
transfer of such shares and more than two years after the date of grant of such
ISO (the "ISO Holding Period"), the employee will generally recognize either a
long-term or mid-term capital gain or loss equal to the difference, if any,
between the sale prices and the aggregate Option Price and the Company will not
be entitled to a federal income tax deduction with respect to the exercise of
the ISO or the sale of such shares. The shares must be held for more than 18
months to qualify for long-term capital gains. If the employee does not hold
such shares for the required ISO Holding Period, when the employee sells such
shares the employee will recognize ordinary compensation income and possibly
short-term capital gain or loss in such amounts as are prescribed by the
Internal Revenue Code and the regulations thereunder and the Company will
generally be entitled to a federal income tax deduction.
A participant to whom a nonqualified stock option ("NSO") or SAR is granted
will not recognize income at the time of grant of such Option or SAR. When the
participant exercises such NSO or SAR, the participant will recognize ordinary
compensation income equal to the difference, if any, between the exercise price
paid and the fair market value, as of the date of exercise of such Option or
SAR, of the shares of Common Stock the participant receives. The tax basis of
such shares to such participant will be equal to the exercise price paid plus
the amount includible in the participant's gross income, and the participant's
holding period for such shares will commence on the date of exercise. Subject to
the applicable provisions of the Internal Revenue Code and regulation
thereunder, the Company will generally be entitled to a federal income tax
deduction in respect of an NSO or SAR in an amount equal to the ordinary
compensation income recognized by the employee upon the exercise of the NSO or
SAR. No income generally will be recognized upon the grant of performance shares
or performance units. Upon payment in respect of performance shares or earned
performance units, the recipient generally will be required to include as
taxable ordinary income in the year of receipt an amount equal to the amount of
cash received and the fair market value of any nonrestricted shares of Common
Stock received less any amount paid for such award at the time of payment or
transfer pursuant to the fulfillment of the specified conditions or the
achievement of the performance goals.
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<PAGE> 22
The recipient of Restricted Stock generally will be subject to tax at
ordinary income rates on the fair market value of the shares of Common Stock on
the first date that such shares either are transferable by the recipient or
cease to be subject to forfeiture, and the capital gain or loss holding period
for such shares will also commence on that date.
REQUIRED AFFIRMATIVE VOTE
The affirmative vote of holders of a majority of the shares of Common Stock
entitled to vote in person or by proxy at the 1998 Annual Meeting of
Stockholders is required to approve the Equity Corporation International 1998
Long-Term Incentive Plan. If not approved, the 1998 Plan will not become
effective.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE EQUITY CORPORATION INTERNATIONAL 1998 LONG-TERM INCENTIVE PLAN, AND PROXIES
EXECUTED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE
INDICATED THEREON.
PROPOSALS OF STOCKHOLDERS
Any proposal of stockholders intended to be presented at the next annual
meeting must be received at the Company's principal executive offices no later
than December 23, 1998, and must otherwise comply with the requirements of the
Company's Bylaws and Rule 14a-8 under the Exchange Act, if the proposal is to be
considered for inclusion in the Company's proxy statement relating to such
meeting.
ANNUAL REPORT AND INFORMATION
FOR STOCKHOLDERS
A copy of the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1997, including any financial statements and schedules thereto, is
included in the Company's 1997 Annual Report provided to the Company's
stockholders along with this Proxy Statement and also may be obtained without
charge by written request to Investor Relations, Equity Corporation
International, 415 South First Street, Suite 210, Lufkin, Texas 75901. Upon
payment of the Company's reasonable expense of furnishing the exhibits
requested, the Company will furnish any exhibit to the Form 10-K to any person
whose vote is solicited by this Proxy Statement.
OTHER BUSINESS
The Board of Directors of the Company is not aware of other matters to be
presented for action at the Meeting; however, if any such matters are presented
for action, it is the intention of the persons named in the accompanying proxy
to vote in accordance with their judgment.
By Order of the Board of Directors,
/s/ JAMES P. HUNTER, III
JAMES P. HUNTER, III
Chairman, President and Chief
Executive Officer
Lufkin, Texas
April 22, 1998
19
<PAGE> 23
EXHIBIT A
EQUITY CORPORATION INTERNATIONAL 1998
LONG-TERM INCENTIVE PLAN
<PAGE> 24
EQUITY CORPORATION INTERNATIONAL
1998 LONG-TERM INCENTIVE PLAN
1. PURPOSE.
This Plan is intended to provide employees, directors, consultants and
other individuals (individually, a "Participant" and, collectively, the
"Participants") rendering services to or on behalf of Equity Corporation
International (the "Corporation") and/or one or more of its subsidiaries
(individually, a "Subsidiary" and, collectively, the "Subsidiaries") an
opportunity to acquire an equity interest in the Corporation. The Corporation
intends to use the Plan to link the long-term interests of stockholders of the
Corporation and Plan Participants, attract and retain Participants' services,
motivate Participants to increase the Corporation's value, and create
flexibility in compensating Participants.
The Plan allows the Corporation to reward Participants with (i) incentive
stock options and/or non-qualified stock options to purchase shares of common
stock of the Corporation, (ii) stock appreciation rights with respect to shares
of common stock of the Corporation, (iii) shares of common stock of the
Corporation, (iv) performance share awards which are designated as a specified
number of shares of common stock of the Corporation and earned based on
performance, and (v) performance unit awards which are designated as having a
certain value per unit and earned based on performance (individually an "Award"
and collectively the "Awards").
The Corporation has reserved the number of shares of common stock of the
Corporation specified in Section 6(a) for purposes of the Plan.
2. DEFINITIONS.
(a) "Award" shall mean any award granted under the Plan.
(b) "Award Agreement" shall mean, with respect to each Award, the signed
written agreement between the Corporation and the Participant receiving the
Award setting forth the terms and conditions of the Award. The general terms and
conditions described in this Plan with respect to such type of Award shall be
incorporated by reference into the Award Agreement and shall apply to such
Award, except to the extent specifically provided otherwise in the Award
Agreement. In the event of a conflict between the terms of the Plan and an Award
Agreement, the terms of the Plan shall govern.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Change-in-Control" of the Corporation shall mean the first to occur of
the following events occurring on or following the Effective Date of the Plan:
(i) Any Person (other than those Persons in control of the Corporation
on the Effective Date of the Plan, a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation, or a
corporation owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of
stock of the Corporation) becomes the beneficial owner, directly or
indirectly, of securities of the Corporation representing twenty percent
(20%) or more of the combined voting power of the Corporation's then
outstanding securities; or
(ii) During any period of two (2) consecutive years (not including any
period prior to the Effective Date of the Plan), individuals who at the
beginning of such period constitute the Board (and any new Director whose
election by the Corporation's stockholders was approved by a vote of at
least two-thirds ( 2/3) of the Directors then still in office who either
were Directors at the beginning of the period or whose election or
nomination for election was so approved) cease for any reason to constitute
a majority thereof;
(iii) The stockholders of the Corporation approve (A) a plan of
complete liquidation of the Corporation, (B) an agreement for the sale or
disposition of all or substantially all the Corporation's assets, or (C) a
merger, consolidation, or reorganization of the Corporation with or
involving any other entity, other than a merger, consolidation, or
reorganization that would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining
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outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined voting power of the
securities of the Corporation (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization.
However, in no event shall a Change-in-Control be deemed to have occurred
with respect to a Participant, if the Participant is part of a purchasing group
which consummates the Change-in-Control transaction. The Participant shall be
deemed "part of a purchasing group" for purposes of the preceding sentence if
the Participant is an equity participant in the purchasing group (except for (i)
passive ownership of less than three percent (3%) of the stock of the purchasing
group, or (ii) ownership of equity participation in the purchasing group which
is otherwise not significant, as determined prior to the Change-in-Control by
the Committee).
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Compensation Committee or any special
committee appointed by the Board in accordance with Section 4 to administer the
Plan, unless the Board, itself, administers the Plan.
(g) "Common Stock" shall mean the voting common stock of the Corporation,
as constituted on the Effective Date of the Plan, or any shares or securities
into which the Common Stock may be changed, reclassified, subdivided,
consolidated or converted thereafter.
(h) "Compensation Committee" shall mean the compensation committee of the
Board.
(i) "Consultant" shall mean any individual who is not an Employee or
Director and who has or will render services to or on behalf of the Corporation
or a Subsidiary.
(j) "Corporation" shall mean Equity Corporation International, a
corporation organized under the laws of Delaware, and any successor or
continuing corporation resulting from the amalgamation of the Corporation and
any other corporation or resulting from any other form of corporate
reorganization of the Corporation.
(k) "Director" shall mean a member of the Board.
(l) "Effective Date" shall mean April 16, 1998.
(m) "Employee" shall mean any individual, including an officer, who is a
common law employee of the Corporation or a Subsidiary.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(o) "Exercise Price" shall mean:
(i) With respect to an Option, the price per Share at which the Option
may be exercised, as determined by the Committee and as specified in the
Participant's Award Agreement; or
(ii) With respect to a Stock Appreciation Right, the price per Share
which is the base price for determining the future value of the Stock
Appreciation Right, as determined by the Committee and as specified in the
Participant's Award Agreement.
(p) "Fair Market Value" shall mean the value of one Share determined as of
any specified date, and such value shall be equal to the per share closing price
of the Common Stock (on the principal exchange on which Shares are traded) on
the business day immediately preceding the date as of which such determination
is to be made.
(q) "For Cause" shall mean the termination of a Participant's status as an
Employee or a Consultant (as applicable) for any of the following reasons, as
determined by the Committee:
(i) A Participant who is an Employee and who willfully fails to
substantially perform the Participant's duties (other than any such failure
resulting from the Participant's Total and Permanent Disability) after a
written demand for substantial performance has been delivered by the
Committee to the Participant that specifically identifies the manner in
which the Committee believes that the
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<PAGE> 26
Participant has not substantially performed the Participant's duties, and
the Participant fails to remedy such failure within thirty (30) calendar
days after receiving such notice;
(ii) A Participant who is a Consultant and who commits a material
breach of any consulting, confidentiality or similar agreement with the
Corporation or a Subsidiary, as determined under such agreement;
(iii) A Participant who is an Employee or a Consultant and who is
convicted (including a trial, plea of guilty or plea of nolo contendere)
for committing an act of fraud, embezzlement, theft, or other act
constituting a felony; or
(iv) A Participant who is an Employee or a Consultant and who
willfully engages in gross misconduct or willfully violates a Corporation
or a Subsidiary policy which is materially and demonstrably injurious to
the Corporation and/or a Subsidiary after a written demand to cease such
misconduct or violation has been delivered by the Committee to the
Participant that specifically identifies the manner in which the Committee
believes that the Participant has violated this Paragraph (iv), and the
Participant fails to cease such misconduct or violation and remedy any
injury suffered by the Corporation or the Subsidiary as a result thereof
within thirty (30) calendar days after receiving such notice. However, no
act or failure to act, on the Participant's part shall be considered
"willful" unless done, or omitted to be done, by the Participant not in
good faith and without reasonable belief that the Participant's action or
omission was in the best interest of the Corporation or the Subsidiary; or
(v) A Participant who is an Employee and who commits a material breach
of any noncompetition, confidentiality or similar agreement with the
Corporation or a Subsidiary, as determined under such agreement.
(r) "Incentive Stock Option" shall mean an Option of the type which is
described in Section 422(b) of the Code.
(s) "Non-Employee Director" shall mean a member of the Board who is not an
Employee.
(t) "Non-qualified Stock Option" shall mean an Option which is not of the
type described in Section 422(b) of the Code.
(u) "Option" shall mean any Option which is granted pursuant to the Plan to
purchase one or more Shares of Common Stock, whether granted as an Incentive
Stock Option or as a Non-qualified Stock Option.
(v) "Participant" shall mean any individual to whom an Award has been
granted under the Plan, and such term shall include, where appropriate, the duly
appointed conservator or other legal representative of a mentally incompetent
Participant and the allowable transferee of a deceased Participant, as provided
in the Plan.
(w) "Performance Share" shall mean an Award designated as a specified
number of Shares which may, in whole or in part, be earned by and paid to a
Participant at the end of a performance period based on performance during that
period in achieving the performance objectives specified in the Participant's
Award Agreement. A Performance Share may be settled in cash or Shares, as
provided in the Participant's Award Agreement.
(x) "Performance Unit" shall mean an Award designated as a specified dollar
value which may, in whole or in part, be earned by and paid to the Participant
at the end of a performance period based on performance during that period in
achieving the performance objectives specified in the Participant's Award
Agreement. A Performance Unit may be settled in cash or Shares, as provided in
the Participant's Award Agreement.
(y) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Section 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(z) "Plan" shall mean this Equity Corporation International 1998 Long-Term
Incentive Plan, as amended.
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(aa) "Pyramiding" shall mean a Participant's payment, in whole or in part,
of the Exercise Price of an Option made by exchanging a Share(s) that the
Participant had acquired pursuant to the exercise of another option during the
preceding six (6) months (under this Plan or any other plan or program of the
Corporation or a Subsidiary) or had otherwise acquired from the Corporation or a
Subsidiary during the preceding six (6) months without paying full consideration
for such Share(s).
(bb) "Reload" shall mean the grant of new Options to a Participant who pays
all or a portion of the Exercise Price of an Option with previously acquired
Shares, with the number of new Options being equal to the number of Shares
submitted by the Participant.
(cc) "Restricted Stock" shall mean a Share(s) of Common Stock issued to a
Participant which will Vest in accordance with the conditions, if any, specified
in the Participant's Award Agreement.
(dd) "Retirement" shall mean, except as otherwise specifically provided in
an Award Agreement:
(i) A Participant's voluntary termination of employment with the
Corporation and its Subsidiaries at or following "normal retirement age"
(as defined in the Corporation's or the Subsidiary's qualified 401(k)
retirement plan covering the Participant), or
(ii) If there is no such plan, the Participant's voluntary termination
of employment with the Corporation and, if applicable, all Subsidiaries at
or following age 65.
(ee) "Share" shall mean one authorized share of Common Stock.
(ff) "Stock Appreciation Right" or "SAR" shall mean a right issued to a
Participant to receive all or any portion of the future appreciation in the Fair
Market Value of one Share over the Exercise Price of such Right. A Stock
Appreciation Right may be settled in cash or Shares, as provided in the
Participant's Award Agreement.
(gg) "Subsidiary" shall mean:
(i) For purposes of granting Incentive Stock Options, any corporation
(other than the Corporation) in an unbroken chain of corporations beginning
with the Corporation if, at the time of granting an Award, each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the voting power in one of the other
corporations in such chain; and
(ii) For all other purposes of the Plan, any business entity (other
than the Corporation) in which the Corporation has an equity interest.
(hh) "Tandem Option/Stock Appreciation Right" shall mean an Option to
purchase a specified number of Share(s) and a Stock Appreciation Right granted
with respect to a specified number of Share(s) which are granted together and
designated as a "Tandem Option/SAR" in the Participant's Award Agreement,
whereby the exercise of either the Option or the SAR cancels the other granted
in tandem with it.
(ii) "Ten Percent Stockholder" shall, for purposes of granting Incentive
Stock Options, have the meaning ascribed to such term in Code Section 422(b)(6)
or in any successor provision of the Code.
(jj) "Total and Permanent Disability" shall mean with respect to a
Participant:
(i) The mental or physical disability, either occupational or
non-occupational in cause, which satisfies the definition of "total
disability" in the principal long-term disability policy or plan provided
by the Corporation or a Subsidiary covering the Participant; or
(ii) If no such policy is then covering the Participant, a physical or
mental infirmity which, as determined by the Committee, upon receipt of and
in reliance on sufficient competent medical advice from one or more
individuals, selected by the Committee, who are qualified to give
professional medical advice, impairs the Participant's ability to
substantially perform the Participant's duties for a period of at least one
hundred eighty (180) consecutive days.
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<PAGE> 28
(kk) "Vest" or "Vesting" shall mean the date on which an Award becomes
exercisable, payable and/or nonforfeitable, as applicable.
(ll) "Voting Power" shall mean the total combined rights to cast votes at
and election for members of the Board.
3. EFFECTIVE DATE.
The Plan was adopted by the Board on the Effective Date, subject to the
approval of the Corporation's stockholders in accordance with Section 18.
4. ADMINISTRATION.
(a) Administration by the Board or the Committee.
(i) The Plan shall be administered by the Board, unless the Board
appoints the Compensation Committee or another Committee to administer the
Plan. The Compensation Committee or any other Committee administering the
Plan may, but is not required to, satisfy the criteria set forth in Section
4(a)(ii). With respect to any period during which the Board administers the
Plan, the term "Committee" as used in the Plan and any Award Agreement
shall mean the Board.
(ii) For purposes of Section 4(a)(i), the Committee may consist of not
less than two members, each of whom shall be a "non-employee director"
within the meaning of Rule 16b-3(b)(iii) promulgated by the Securities and
Exchange Commission under the Exchange Act, and an "outside director"
within the meaning of Section 162(m)(4)(C)(i) of the Code and the
regulations issued thereunder.
(b) Actions of the Committee.
(i) The Committee shall hold meetings at such times and places as it
may determine. For a Committee meeting, if the Committee has two members,
both members must be present to constitute a quorum, and if the Committee
has three or more members, a majority of the Committee shall constitute a
quorum. Acts by a majority of the members present at a meeting at which a
quorum is present and acts approved in writing by all the members of the
Committee shall constitute valid acts of the Committee.
(ii) Members of the Committee may vote on any matters affecting the
administration of the Plan or the grant of any Award pursuant to the Plan,
subject to the remainder of this Section 4(b)(ii). No member shall act upon
the granting of an Award to himself or herself.
(c) Powers of the Committee.
On behalf of the Corporation and subject to the provisions of the Plan and
Rule 16b-3 of the Exchange Act, the Committee shall have the authority and
complete discretion to:
(i) Prescribe, amend and rescind rules and regulations relating to the
Plan, and, if desired, delegate authority to take actions under the Plan to
the President or other appropriate officer(s) of the Corporation within the
limits determined by the Committee;
(ii) Select Participants to receive Awards;
(iii) Determine the form and terms of Awards;
(iv) Determine the number of Shares or other consideration subject to
Awards;
(v) Determine whether Awards will be granted singly, in combination or
in tandem with, in replacement of, or as alternatives to, other Awards
under the Plan or any other incentive or compensation plan of the
Corporation or any Subsidiary;
(vi) Construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
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<PAGE> 29
(vii) Correct any defect or omission, or reconcile any inconsistency
in the Plan, any Award or any Award Agreement;
(viii) Determine whether an Award has been earned and/or Vested;
(ix) Determine whether a Participant has incurred a Total and
Permanent Disability;
(x) Accelerate or, with the consent of the Participant, defer the
Vesting of any Award and/or the exercise date of any Award;
(xi) Determine whether a Participant's status with the Corporation or
any Subsidiary has been terminated For Cause;
(xii) Authorize any person to execute on behalf of the Corporation or
any Subsidiary any instrument required to effectuate the grant of an Award;
(xiii) With the consent of the Participant, reprice, cancel and
reissue, or otherwise adjust the terms of an Award previously issued to the
Participant;
(xiv) Determine when an Employee's period of employment is deemed to
be continued during an approved leave of absence;
(xv) Determine when a Consultant's period of rendering service is
deemed to be continuous notwithstanding a period of interrupted service and
when a Consultant's period of rendering services has ended;
(xvi) Determine, upon review of relevant information, the Fair Market
Value of the Common Stock; and
(xvii) Make all other determinations deemed necessary or advisable for
the administration of the Plan.
(d) Committee's Interpretation of the Plan.
The Committee's interpretation and construction of any provision of the
Plan, of any Award granted under the Plan, or of any Award Agreement shall be
final and binding on all persons claiming an interest in an Award granted or
issued under the Plan. Neither the Committee, a member of the Committee nor any
Director shall be liable for any action or determination made in good faith with
respect to the Plan. The Corporation, in accordance with its bylaws, shall
indemnify and defend such parties to the fullest extent provided by law and such
bylaws.
5. PARTICIPATION.
(a) Eligibility for Participation.
Subject to the conditions of Section 5(b), all Employees, Directors and
Consultants rendering services to the Corporation and/or any Subsidiary are
eligible to be selected as Participants by the Committee. The Committee's
determination of an individual's eligibility for participation shall be final.
(b) Eligibility for Awards.
The Committee has the authority to grant Award(s) to Participants. A
Participant may be granted more than one Award under the Plan.
(c) Automatic Grants of Non-Qualified Stock Options to Non-Employee
Directors.
This Section applies only to a Director who, as of the date of grant of an
Option described in this Section 5(c), is a Non-Employee Director. Each
Non-Employee Director shall be granted (i) on the date of initial election or
appointment to the Board, a Non-qualified Stock Option to purchase 10,000 Shares
of Common Stock, and (ii) after the adjournment of each annual meeting of the
stockholders (other than an annual stockholder meeting with respect to which the
Non-Employee Director received a grant under
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Section 5(c)), a Non-qualified Stock Option to purchase 5,000 Shares of Common
Stock. Each Non-qualified Stock Option shall have a ten-year term, Vest 33.3% on
each anniversary of the date of grant if the individual is a Director on such
anniversary date, shall Vest 100% on the death or Total and Permanent Disability
of the Director or upon a Change-in-Control, shall expire on the third
anniversary of the date the individual's status as a Director terminates (but no
later than the date the term of the option would otherwise expire), and shall
have an Exercise Price equal to 100% of the Fair Market Value of the Shares
determined as of the date the Option is granted.
In the event that the number of shares of Common Stock available for grants
under this Plan is insufficient to make all automatic grants provided for in
this Section 5(c) on the applicable date, then all Directors who are entitled to
a grant on such date shall share ratably in the number of shares then available
for grant under this Plan, and shall have no right to receive a grant with
respect to the deficiencies in the number of available shares and all future
grants under this Section 5(c) shall terminate.
6. SHARES OF STOCK OF THE CORPORATION.
(a) Shares Subject to the Plan.
Awards granted under the Plan shall be with respect to One Million
(1,000,000) authorized but unissued or reacquired Shares of Common Stock. The
aggregate number of Shares granted as Options and/or Stock Appreciation Rights
to a Participant during the Term of the Plan shall not exceed 40% of the total
authorized Shares under the Plan, including any additional Shares which may be
authorized under the Plan in the future.
(b) Allocation of Shares Which May be Granted as Restricted Stock.
Of the Shares authorized under Section 6(a), only Fifty Thousand (50,000)
Shares may be issued as Restricted Stock.
(c) Adjustment of Shares.
In the event of an adjustment described in Section 13, then (i) the number
of Shares reserved for issuance under the Plan, (ii) the Exercise Price of and
number of Shares subject to outstanding Options, (iii) the Exercise Price of and
number of Shares with respect to which there are outstanding Stock Appreciation
Rights, and (iv) any other factor pertaining to outstanding Awards shall be duly
and proportionately adjusted, subject to any required action by the Board or the
stockholders of the Corporation and compliance with applicable securities laws;
provided, however, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee.
(d) Awards Not to Exceed Shares Available.
The number of Shares subject to Awards which have been granted under the
Plan at any time during the Plan's term shall not, in the aggregate at any time,
exceed the number of Shares authorized for issuance under the Plan. The number
of Shares subject to an Award which expires, is canceled, is forfeited or is
terminated for any reason other than, and to the extent, being settled in Shares
shall again be available for issuance under the Plan.
7. GENERAL TERMS AND CONDITIONS OF AWARDS.
(a) Award Agreements.
Each Award shall be evidenced by a written Award Agreement which shall set
forth the terms and conditions pertaining to such Award. Each Award Agreement
shall specify the manner and procedure for exercising an Award, if relevant for
the Award, and specify the effective date of such exercise.
(b) Number of Shares Covered by an Award.
Each Award Agreement shall state the number of Shares subject to the Award,
subject to adjustment of such Shares pursuant to Section 13.
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(c) Other Provisions.
An Award Agreement may contain such other provisions as the Committee in
its discretion deems advisable, including but not limited to:
(i) Restrictions on the exercise of the Award;
(ii) Submission by the Participant of such forms and documents as the
Committee may require; and/or
(iii) Procedures to facilitate the payment of the Exercise Price of an
Option under any method allowable under Section 16.
(d) Vesting of Awards.
Each Award Agreement shall include a Vesting schedule describing the date,
event or act upon which an Award shall Vest, in whole or in part, with respect
to all or a specified portion of the Shares covered by such Award. The condition
shall not impose upon the Corporation or any Subsidiary any obligation to retain
the Participant in its employ for any period as an Employee, Director and/or
Consultant.
(e) Effect of Termination of Employment, Directorship or Consultancy on
Nonvested and Vested Awards.
(i) For purposes of the Plan, a Participant's status as an Employee, a
Director or a Consultant shall be determined by the Committee and will be
treated as continuing intact while the Participant is on military leave,
sick leave or other bona fide leave of absence, as determined by the
Committee.
(ii) If a Participant ceases to be an Employee, a Director and/or a
Consultant for any reason (A) the Participant's Award(s) which are not
Vested at the time that the Participant ceases to be an Employee, a
Director or a Consultant (as applicable) shall be forfeited, and (B) the
Participant's Award(s) which are Vested at the time the Participant ceases
to be an Employee, a Director or a Consultant (as applicable) shall be
forfeited and/or expire on the terms specified in Sections 8 through 11, as
applicable.
(f) Nontransferability of Awards.
An Award granted to a Participant shall, during the lifetime of the
Participant, be exercisable only by the Participant and shall not, except to the
extent specifically provided otherwise in the Participant's Award Agreement, be
assignable or transferable. In the event of the Participant's death, an Award is
transferable by the Participant only by will or the laws of descent and
distribution. Any attempted assignment, transfer or attachment by any creditor
in violation of this Section 7(f) shall be null and void.
(g) Modification, Extension or Renewal of Awards.
Within the limitations of the Plan, the Committee may, in its discretion,
modify, extend or renew any outstanding Award or accept the cancellation of
outstanding Award(s) for the granting of a new Award(s) in substitution
therefor. Notwithstanding the preceding sentence, no modification of an Award
shall:
(i) Without the consent of the Participant, alter or impair any rights
or obligations under any Award previously granted;
(ii) Without the consent of the Participant, cause an Incentive Stock
Option previously granted to fail to satisfy all the conditions required to
qualify as an Incentive Stock Option; or
(iii) Exceed or otherwise violate any limitation set forth in the
Plan.
(h) Rights as a Stockholder.
A Participant shall have no rights as a stockholder of the Corporation with
respect to any Shares subject to Award until the date a stock certificate for
such Shares is issued to the Participant. No adjustment shall be
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made for dividends (ordinary or extraordinary or whether in currency, securities
or other property), distributions, or other rights for which the record date is
prior to the date such stock certificate is issued.
8. SPECIFIC TERMS AND CONDITIONS OF OPTIONS.
(a) Eligibility for Incentive Stock Options.
Incentive Stock Options may be granted only to a Participant who is an
Employee. Any Incentive Stock Option granted to a Participant who is also a Ten
Percent Stockholder shall be subject to the following additional limitations:
(i) the Exercise Price of each Share subject to such Incentive Stock Option,
when granted, is equal to or exceeds 110% of the Fair Market Value of a Share,
and (ii) the term of the Incentive Stock Option does not exceed five (5) years.
(b) Exercise Price.
Each Award Agreement shall state the Exercise Price for the Shares to which
the Option pertains, provided that the Exercise Price of an Option (whether
granted as an Incentive Stock Option or a Nonqualified Stock Option) shall not
be less than 100% of the Fair Market Value of the Shares determined as of the
date the Option is granted (substituting "110%" for "100%" for any Incentive
Stock Option granted to a Ten Percent Stockholder).
(c) Exercise of Options, Payment of Exercise Price, and Stock Settlement of
Options.
(i) A Participant may exercise an Option only on or after the date on
which the Option Vests and only on or before the date on which the term of
the Option expires.
(ii) Subject to Section 8(c)(iii) below, a Participant exercising an
Option shall pay the Exercise Price for the Shares to which such exercise
pertains in full in cash (in U.S. dollars) as a condition of such exercise,
unless the Committee, in its discretion, allows the Participant to pay the
Exercise Price in a manner allowed under Section 16, so long as the sum of
cash so paid and such other consideration equals the Exercise Price. The
Committee may, in its discretion, permit the sequential exercise of an
Option through Pyramiding and/or permit the grant of Reload Options.
(iii) The Committee may, in its discretion, permit a Participant to
exercise an Option without paying the Exercise Price for the Shares to
which such exercise pertains, in which event the Option so exercised shall
be settled in a specific number of whole Shares having an aggregate Fair
Market Value equal to (A) the excess of the Fair Market Value, determined
as of the date of exercise, of one Share over the Exercise Price of such
Option, multiplied by (B) the number of Shares to which such exercise
pertains.
(d) Term and Expiration of Options.
Subject to Section 8(i), except as otherwise specifically provided in a
Participant's Award Agreement, the term of an Option shall expire on the first
to occur of the following events:
(i) The tenth (10th) anniversary of the date the Option was granted
(for an Incentive Stock Option granted to any Participant who is a Ten
Percent Stockholder, "fifth anniversary" shall be substituted for "tenth
anniversary");
(ii) The date determined under Section 8(e) for a Participant who
ceases to be an Employee, Director or Consultant by reason of voluntary
termination or involuntary termination by the Corporation For Cause;
(iii) The date determined under Section 8(f) for a Participant who
ceases to be an Employee, Director or Consultant by reason of the
Participant's death;
(iv) The date determined under Section 8(g) for a Participant who
ceases to be an Employee, Director, or Consultant by reason of the
Participant's Total and Permanent Disability;
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(v) The date determined under Section 8(h) for a Participant who
ceases to be an Employee, Director or Consultant by reason of involuntary
termination by the Corporation not For Cause;
(vi) On the effective date of a transaction described in Section
13(b); or
(vii) The expiration date specified in the Award Agreement pertaining
to the Option.
(e) Voluntary Termination and Involuntary Termination For Cause.
If a Participant ceases to be an Employee, Director or Consultant by
resigning or by being terminated For Cause, then the Participant's Options which
are Vested at the time the Participant ceases to be an Employee, Director or
Consultant shall expire immediately.
(f) Death of Participant.
If a Participant dies while an Employee, Director or Consultant, any Option
granted to the Participant may be exercised, to the extent it was Vested on the
date of the Participant's death or became Vested as a result of the
Participant's death, at any time within one (1) year after the Participant's
death (but not beyond the date that the term of the Option would earlier have
expired pursuant to Section 8(d) had the Participant's death not occurred).
(g) Total and Permanent Disability of Participant.
If a Participant ceases to be an Employee, Director or Consultant as a
consequence of Total and Permanent Disability, any Option granted to the
Participant may be exercised, to the extent it was Vested on the date that the
Participant ceased to be an Employee, Director or Consultant or became Vested as
a result of Participant's Total and Permanent Disability, at any time within one
(1) year after such date (but not beyond the date that the term of the Option
would earlier have expired pursuant to 8(d) had the Participant's Total and
Permanent Disability not occurred).
(h) Involuntary Termination Not For Cause.
If a Participant ceases to be an Employee, Director or Consultant by being
terminated not For Cause, the Participant's Options which are Vested at the time
the Participant ceases to be an Employee, Director or Consultant may be
exercised at any time within three (3) months after such date (but not beyond
the date that the term of the Option would earlier have expired pursuant to
8(d)).
(i) No Disqualification of Incentive Stock Options.
Notwithstanding any other provision of the Plan, the Plan shall not be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the Participant affected, disqualify any
Incentive Stock Option under Section 422 of the Code (except as provided in
Section 8(j)).
(j) Limitation on Incentive Stock Options.
The aggregate Fair Market Value (determined with respect to each Incentive
Stock Option as of the date of grant of such Incentive Stock Option) of all
Shares with respect to which a Participant's Incentive Stock Options first
become Vested during any calendar year (under the Plan and under other incentive
stock option plans, if any, of the Corporation and its Subsidiaries) shall not
exceed US $100,000. Any purported Incentive Stock Options in excess of such
limitation shall be recharacterized as Non-qualified Stock Options.
9. SPECIFIC TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
(a) Exercise Price.
(i) Each Stock Appreciation Right Award Agreement shall state the
number of Shares to which it pertains and the Exercise Price which is the
basis for determining future appreciation, subject to adjustment pursuant
to Section 13, provided that the Exercise Price of a Stock Appreciation
Right shall
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not be less than 100% of the Fair Market Value of a Share determined as of
the date the Stock Appreciation Right is granted.
(ii) A Stock Appreciation Right shall be issued to and exercised by a
Participant without payment by the Participant of any consideration.
(b) Exercise and Settlement of Stock Appreciation Rights.
(i) A Participant may exercise a Stock Appreciation Right only on or
after the date on which the Stock Appreciation Right Vests and only on or
before the date on which the Stock Appreciation Right expires.
(ii) A Participant's properly exercised Stock Appreciation Right may
be settled in the form of cash (either in a lump sum payment or in
installments), whole Shares or a combination thereof, as the Award
Agreement prescribes.
(c) Term and Expiration of Stock Appreciation Rights.
Except as otherwise specifically provided in a Participant's Award
Agreement, the term of a Stock Appreciation Right shall expire on the first to
occur of the following events:
(i) The tenth (10th) anniversary of the date the Right was granted;
(ii) The date determined under Section 9(d) for a Participant who
ceases to be an Employee, Director or Consultant by reason of voluntary
termination or involuntary termination For Cause;
(iii) The date determined under Section 9(e) for a Participant who
ceases to be an Employee, Director or Consultant by reason of the
Participant's death;
(iv) the date determined under Section 9(f) for a Participant who
ceases to be an Employee, Director or Consultant by reason of the
Participant's Total and Permanent Disability;
(v) The date determined under Section 9(g) for a Participant who
ceases to be an Employee, Director or Consultant by reason of involuntary
termination not For Cause;
(vi) On the effective date of a transaction described in Section
13(b); or
(vii) The expiration date specified in the Award Agreement pertaining
to the Stock Appreciation Right.
(d) Voluntary Termination and Involuntary Termination For Cause.
If a Participant ceases to be an Employee, Director or Consultant by
resigning or by being terminated For Cause, the Participant's Stock Appreciation
Rights which are Vested at the time the Participant ceases to be an Employee,
Director or Consultant shall expire immediately.
(e) Death of Participant.
If a Participant dies while an Employee, Director or Consultant, any Stock
Appreciation Right granted to the Participant may be exercised, to the extent it
was Vested on the date of the Participant's death or became Vested as a
consequence of the Participant's death, at any time within one (1) year after
the Participant's death (but not beyond the date that the term of the Stock
Appreciation Right would earlier have expired pursuant to Section 9(c) had the
Participant's death not occurred).
(f) Total and Permanent Disability of Participant.
If a Participant ceases to be an Employee, Director or Consultant as a
consequence of Total and Permanent Disability, any Stock Appreciation Right
granted to the Participant may be exercised, to the extent it was Vested on the
date that the Participant ceased to be an Employee or became Vested as a
consequence of the Participant's Total and Permanent Disability, at any time
within one (1) year after such date (but not
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beyond the date that the term of the Stock Appreciation Right would earlier have
expired pursuant to 9(c) had the Participant's Total and Permanent Disability
not occurred).
(g) Involuntary Termination Not For Cause.
If a Participant ceases to be an Employee, Director or Consultant by being
terminated not For Cause, the Participant's Stock Appreciation Rights which are
Vested at the time the Participant ceases to be an Employee, Director or
Consultant may be exercised at any time within three (3) months after such date
(but not beyond the date that the term of the Stock Appreciation Rights would
earlier have expired pursuant to 9(c)).
10. SPECIFIC TERMS AND CONDITIONS OF RESTRICTED STOCK.
(a) Purchase Price.
(i) Each Award Agreement shall state the number of Shares to which it
pertains and the purchase price per Share, if any, that the Participant
paid for such Shares, subject to adjustment pursuant to Section 13.
(ii) A Share of Restricted Stock may be issued to a Participant with
or without payment by the Participant of any consideration (other than
services), unless the Participant is required to pay a minimum purchase
price, such as par value, for such Shares.
(b) Forfeiture of Restricted Stock.
If a Participant's status as an Employee, Director or Consultant terminates
for any reason, any Share of Restricted Stock which was not Vested or did not
become Vested as the result of the Participant's termination shall be forfeited
immediately.
(c) Certificates Representing Non-Vested Shares of Restricted Stock.
As a condition to receiving an Award of Shares of Restricted Stock which
are not Vested, the Participant shall duly execute a "power of attorney" or a
form of "stock power" provided by the Corporation with respect to such Shares
authorizing the re-transfer, without any further action by the Participant, to
the Corporation of any Shares which may be forfeited by the Participant. The
Corporation shall retain the stock certificate evidencing such Shares until the
Shares are Vested. If, in the opinion of the Corporation and its counsel, the
retention of the stock certificate representing such Restricted Shares is no
longer required, the Corporation shall deliver to the Participant a stock
certificate representing such Shares, bearing such restrictive legends as are
required or may be deemed advisable under the Plan or the provisions of any
applicable law.
(d) Legends.
Stock certificates evidencing Restricted Shares shall bear a restrictive
legend noting the forfeiture provisions attached to such Shares and such other
restrictive legends as are required or may be deemed advisable under the Plan or
the provisions of any applicable law.
(e) Exchange of Certificates.
If, in the opinion of the Corporation and its counsel, any legend placed on
a stock certificate representing Restricted Shares issued pursuant to the Plan
is no longer required, the Participant or the holder of such certificate shall
be entitled to exchange such certificate for a certificate representing the same
number of Shares but lacking such legend.
11. PERFORMANCE SHARES AND PERFORMANCE UNITS.
(a) Number of Shares Covered by a Performance Share Award.
Each Performance Share Award Agreement shall state the number of Shares to
which it pertains, subject to adjustment pursuant to Section 13.
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(b) Value of a Performance Unit Award.
Each Performance Unit Award Agreement shall state the value of such Award
(in U.S. dollars).
(c) Purchase Price.
A Performance Share and a Performance Unit shall be issued to a Participant
without payment by the Participant of any consideration (other than services).
(d) Settlement of a Performance Share and a Performance Unit.
Following the end of the performance period applicable to a Performance
Share or a Performance Unit and the Committee's determination of the extent to
which the Award Vests, the Award shall be settled in the form of cash (either in
a lump sum payment or in installments), whole Shares or a combination thereof,
as the Award Agreement prescribes.
(e) Term and Expiration of Performance Shares and Performance Units.
Except as otherwise specifically provided in a Participant's Award
Agreement, the term of a Performance Share and Performance Unit shall expire on
the first to occur of the following events:
(i) The date determined under Section 11(f) for a Participant who
ceases to be an Employee, Director or Consultant for any reason;
(ii) On the effective date of a transaction described in Section
13(b); or
(iii) The expiration date specified in the Award Agreement pertaining
to the Performance Share or the Performance Unit.
(f) Forfeiture of Performance Shares and Performance Units.
If a Participant status as an Employee, Director or Consultant terminates
for any reason, any Performance Share and Performance Unit which was not Vested
or did not become Vested as the result of the Participant's termination shall be
forfeited immediately.
12. TERM OF PLAN.
Awards may be granted pursuant to the Plan through the period commencing on
the Effective Date and ending on April 16, 2008. All Awards which are
outstanding on such date shall remain in effect until they are exercised or
expire by their terms. The Plan shall expire for all purposes on April 16, 2018.
The Board is authorized to extend the Plan for an additional term at any time;
however, no Incentive Stock Options may be granted under the Plan on or after
the tenth (10th) anniversary of the Effective Date of the Plan unless an
extension is approved by the stockholders of the Corporation within one (1) year
of such extension.
13. RECAPITALIZATION, DISSOLUTION AND CHANGE OF CONTROL.
(a) Recapitalization.
Notwithstanding any other provision of the Plan to the contrary, but
subject to any required action by the stockholders of the Corporation and
compliance with any applicable securities laws, the Committee shall make any
adjustments to the class and/or number of Shares covered by the Plan, the number
of Shares for which each outstanding Award pertains, the Exercise Price of an
Option, the Exercise Price of a Stock Appreciation Right, and/or any other
aspect of this Plan to prevent the dilution or enlargement of the rights of
Participants under this Plan in connection with any increase or decrease in the
number of issued Shares resulting from the payment of a Common Stock dividend,
stock split, reverse stock split, recapitalization, combination, or
reclassification or any other event which results in an increase or decrease in
the number of issued Shares without receipt of adequate consideration by the
Corporation (as determined by the Committee).
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(b) Dissolution, Merger, Consolidation, or Sale or Lease of Assets.
In connection with a Change-in-Control of the Corporation described in
Section 2(d)(iii), each Award shall expire as of the effective time of such
transaction, provided that the Committee shall, to the extent possible
considering the timing of the transaction, give at least thirty (30) days' prior
written notice of such event to any Participant who shall then have the right to
exercise his or her Vested Awards (as an Award Agreement may provide) prior to
the effective time of such transaction, subject to earlier expiration pursuant
to Sections 8 through 11, as applicable. The preceding sentence shall not apply
if the Change-in-Control of the Corporation is described in Section 2(d)(iii)(C)
and the surviving entity agrees to assume outstanding Awards.
(c) Determination by the Committee.
All adjustments described in this Section 13 shall be made by the Committee
and shall be conclusive and binding on all persons.
(d) Limitation on Rights of Participants.
Except as expressly provided in this Section 13, no Participant shall have
any rights by reason of any reorganization, dissolution, Change-in-Control,
merger or acquisition. Any issuance by the Corporation or any Subsidiary of
Awards shall not affect, and no adjustment by reason thereof shall be made with
respect to, any Awards previously issued under the Plan.
(e) No Limitation on Rights of Corporation.
The grant of an Award pursuant to the Plan shall not affect in any way the
right or power of the Corporation or any Subsidiary to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
14. SECURITIES LAW REQUIREMENTS.
(a) Legality of Issuance.
No Share shall be issued upon the exercise of any Award unless and until
the Committee has determined that:
(i) The Corporation, its Subsidiaries and the Participant have taken
all actions required to register the Shares under the Securities Act of
1933, as amended (the "Act"), or to perfect an exemption from registration
requirements of the Act, or to determine that the registration requirements
of the Act do not apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange on which
the Share is listed has been satisfied; and
(iii) Any other applicable provision of state, federal or foreign law
has been satisfied.
(b) Restrictions on Transfer; Representations of Participant; Legends.
Regardless of whether the offering and sale of Shares under the Plan have
been registered under the Act or have been registered or qualified under the
securities laws of any state, the Corporation may impose restrictions upon the
sale, pledge or other transfer of such Shares (including the placement of
appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable to
achieve compliance with the provisions of the Act, the securities laws of any
state, or any other law. If the offering and/or sale of Shares under the Plan is
not registered under the Act and the Corporation determines that the
registration requirements of the Act apply but an exemption is available which
requires an investment representation or other representation, the Participant
shall be required, as a condition to acquiring such Shares, to represent that
such Shares are being acquired for investment, and not with a view to the sale
or distribution thereof, except in compliance with the Act, and to make such
other
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representations as are deemed necessary or appropriate by the Corporation and
its counsel. Stock certificates evidencing Shares acquired pursuant to an
unregistered transaction to which the Act applies shall bear a restrictive
legend substantially in the following form and such other restrictive legends as
are required or deemed advisable under the Plan or the provisions of any
applicable law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
("ACT"). THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN
THE OPINION OF COUNSEL FOR THE ISSUER EITHER SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR THE
REGISTRATION PROVISIONS OF THE ACT DO NOT APPLY TO SUCH PROPOSED TRANSFER.
Any determination by the Corporation, its Subsidiaries and its counsel in
connection with any of the matters set forth in this Section 14 shall be
conclusive and binding on all persons.
(c) Registration or Qualification of Securities.
The Corporation and/or its Subsidiaries may, but shall not be obligated to,
register or qualify the offering or sale of Shares under the Act or any other
applicable law.
(d) Exchange of Certificates.
If, in the opinion of the Corporation, its Subsidiaries and its counsel,
any legend placed on a stock certificate representing Shares issued pursuant to
the Plan is no longer required, the Participant or the holder of such
certificate shall be entitled to exchange such certificate for a certificate
representing the same number of Shares but lacking such legend.
15. AMENDMENT OF THE PLAN.
The Committee may, from time to time, terminate, suspend or discontinue the
Plan, in whole or in part, or revise or amend it in any respect whatsoever
including, but not limited to, the adoption of any amendment deemed necessary or
advisable to qualify the Awards under rules and regulations promulgated by the
Securities and Exchange Commission with respect to Participants who are subject
to the provisions of Section 16 of the Exchange Act, or to correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any Award
granted under the Plan, with or without approval of the stockholders of the
Corporation, but if any such action is taken without the approval of the
Corporation's stockholders, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan, other than any
increase pursuant to Section 13;
(b) Change the designation of the class of persons eligible to receive
Awards; or
(c) Amend this Section 15 to defeat its purpose.
No amendment, termination or modification of the Plan shall, without the
consent of a Participant, adversely affect the Participant with respect to any
Award previously granted to the Participant.
16. PAYMENT FOR SHARE PURCHASES.
Payment of the Exercise Price for any Shares purchased pursuant to the Plan
may be made in cash (in U.S. dollars) or, where expressly approved for the
Participant by the Committee, in its discretion, and where permitted by law:
(a) By check;
(b) By cancellation of indebtedness of the Corporation or a Subsidiary to
the Participant;
(c) By surrender of Shares that either: (A) have been owned by Participant
for more than six months (unless the Committee permits a Participant to exercise
an Option by Pyramiding, in which event the six
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months holding period shall not apply) and have been "paid for" within the
meaning of SEC Rule 144 (and, if such shares were purchased from the Corporation
or a Subsidiary by use of a promissory note, such note has been fully paid with
respect to such Shares); or (B) were obtained by Participant in the public
market;
(d) By waiver of compensation due or accrued to Participant for services
rendered;
(e) With respect only to purchases upon exercise of an Option, and provided
that a public market for the Corporation's stock exists:
(i) Through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased to pay
for the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price and any
applicable withholding taxes directly to the Corporation; or
(ii) Through a "margin" commitment from the Participant and an NASD
Dealer whereby the Participant irrevocably elects to exercise the Option
and to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price and any applicable
withholding taxes directly to the Corporation; or
(iii) By any combination of the foregoing and/or by any other method
approved by the Committee.
17. APPLICATION OF FUNDS.
The proceeds received by the Corporation and its Subsidiaries from the sale
of Common Stock pursuant to the exercise of an Option or in any other manner
with respect to any Award shall be used for general corporate purposes.
18. APPROVAL OF STOCKHOLDERS.
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of the outstanding shares present and entitled to vote at
the first annual meeting of stockholders of the Corporation following the
adoption of the Plan by the Board, and in no event later than June 30, 1998.
Prior to such approval, Awards may be granted but may not be exercised or
settled. Pursuant to Section 15, certain amendments shall also be subject to
approval by the Corporation's stockholders.
19. WITHHOLDING OF TAXES.
(a) General.
Whenever Shares are to be issued under the Plan, the Corporation or a
Subsidiary may require, as a condition to such issuance of Shares, the
Participant to remit to the Corporation or such Subsidiary, from any source, an
amount sufficient to satisfy foreign, federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be
made in cash, such payment shall be net of an amount sufficient to satisfy
foreign, federal, state, and local withholding tax requirements.
(b) Stock Withholding.
When, under applicable tax laws, a Participant incurs a tax liability in
connection with the issuance of Shares under the Plan and the Participant is
obligated to pay the Corporation or such Subsidiary the amount required to be
withheld, the Participant may, if subject to Section 16(b) of the Exchange Act,
elect to satisfy the minimum withholding tax obligation by electing to have the
Corporation or such Subsidiary withhold from the Shares to be issued the
specific number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose shall be made in writing in a form acceptable to the
Committee.
A-16
<PAGE> 40
20. RIGHTS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT.
The Plan shall not be construed to give any individual the right to remain
in the employ of the Corporation (or a Subsidiary) or to affect the right of the
Corporation (or such Subsidiary) to terminate such individual's status as an
Employee, Director or Consultant at any time, with or without cause. The grant
of an Award shall not entitle the Participant to, or disqualify the Participant
from, participation in the grant of any other Award under the Plan or
participation in any other plan maintained by the Corporation or any Subsidiary.
21. NOTICES.
Any notice to be provided by one party to the other party under this Plan
shall be deemed to have been duly delivered to the other party (i) on the date
such notice is delivered at the address provided in a Participant's Award
Agreement or at such other address as the party may notify the other party in
writing at any time, or (ii) on the date such notice is deposited in the United
States mail as first class mail, postage prepaid if addressed to the party at
the address provided in a Participant's Award Agreement or at such other address
as the party may notify the other party in writing at any time. For the purposes
of clause (i), the term "delivered" shall include hand delivery, delivery by
facsimile, and delivery by electronic mail.
22. MISCELLANEOUS.
(a) Unfunded Plan.
The Plan shall be unfunded and the Corporation and its Subsidiaries shall
not be required to establish any special account or fund or to otherwise
segregate or encumber assets to ensure payment of any Award.
(b) No Restrictions on Other Programs.
Nothing contained in the Plan shall prevent the Corporation or any
Subsidiary from adopting other or additional compensation arrangements or plans,
subject to stockholder approval if such approval is required, and such
arrangements or plan may be either generally applicable or applicable only to
specific classes.
(c) Governing Laws.
The Plan and each Award Agreement shall be governed by the laws of the
State of Texas, excluding any conflicts or choice of law rule or principle that
might otherwise refer construction or interpretation of the Plan or Award
Agreement to the substantive law of another jurisdiction. Unless otherwise
provided in the Award Agreement, recipients of an Award are deemed to submit to
the exclusive jurisdiction and venue of the federal or state courts of Texas, in
the County of the principal offices of the Corporation, to resolve any and all
issues that may arise out of or relate to the Plan and any related Award
Agreement.
(d) Attorney Fees.
In the event that a Participant or the Corporation or any Subsidiary brings
an action to enforce the terms of the Plan or any Award Agreement and the
Corporation or such Subsidiary prevails, the Participant shall pay all costs and
expenses incurred by the Corporation and such Subsidiary in connection with that
action, including reasonable attorney's fees, and all further costs and fees,
including reasonable attorney's fees, incurred by the Corporation and such
Subsidiary in connection with collection.
(e) Invalidity or Unenforceability of Any Provision.
If any provision of the Plan is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any Award
under any law deemed applicable by the Committee, such provisions shall be
construed or deemed amended or limited in scope to conform to applicable laws
or, in the discretion of the Committee, it shall be stricken and the remainder
of the Plan shall remain in effect.
A-17
<PAGE> 41
PROXY
EQUITY CORPORATION INTERNATIONAL
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
Annual Meeting May 20, 1998
The undersigned having received the notice and accompanying Proxy Statement
for said meeting hereby constitutes and appoints JAMES P. HUNTER, III,
J. PATRICK DOHERTY and W. CARDON GERNER (the "Proxy Committee"), and each of
them, his true and lawful agents and proxies with power of substitution in each,
to represent and vote at the Annual Meeting to be held on May 20, 1998, or at
any adjournment thereof on all matters coming before said meeting, all shares of
EQUITY CORPORATION INTERNATIONAL which the undersigned may be entitled to vote.
The above proxies are hereby instructed to vote as shown on the reverse side of
this card.
(Continued on Reverse Side)
<PAGE> 42
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
EQUITY CORPORATION INTERNATIONAL
MAY 20, 1998
Please Detach and Mail in the Envelope Provided
<TABLE>
<S> <C> <C> <C>
[X] PLEASE MARK YOUR |
VOTES AS IN THIS |
EXAMPLE. |_____
FOR all nominees WITHHOLD
(except as marked AUTHORITY to vote
below) for all nominees FOR AGAINST ABSTAIN
1. ELECTION CLASS III NOMINEES: 2. Approval of Independent
OF [ ] [ ] James P. Hunter, III Accountants [ ] [ ] [ ]
DIRECTORS Bob Bullock
For, except vote withheld from the following nominee(s): 3. Approval of the Equity
Corporation International 1998 [ ] [ ] [ ]
Long-Term Incentive Plan.
_______________________________________________________
4. In the discretion of the Proxy Please mark this
Committee, upon other matters box if you will [ ]
as may properly come before personally be
the meeting. attending the
meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
(1), (2) AND (3). THE PROXY COMMITTEE IS AUTHORIZED TO VOTE
IN THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING.
YOU ARE ENCOURAGED TO SPECIFY YOUR SHARES BY MARKING THE
APPROPRIATE BOXES ABOVE, BUT YOU NEED NOT MARK ANY BOXES IF
YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS. THE PROXY COMMITTEE CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN AND RETURN THIS CARD.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE
ENCLOSED ENVELOPE.
SIGNATURE(S)_____________________________________________________________________________________ DATE ____________________________
NOTE: EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC., PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE
NAME BY DULY AUTHORIZED OFFICER. JOINT OWNERS SHOULD EACH SIGN PERSONALLY.
</TABLE>
