SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PHILADELPHIA CONSOLIDATED HOLDING CORP.
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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PHILADELPHIA CONSOLIDATED HOLDING CORP.
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PENNSYLVANIA 19004
[PHILADELPHIA CONSOLIDATED HOLDING CORP. LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To The Holders of Common Stock:
The Annual Meeting of Shareholders of Philadelphia Consolidated Holding
Corp. (the "Company") will be held on May 1, 2002 at 10:00 A.M. at the Marriott
West Hotel, 111 Crawford Avenue, Conshohocken, Pennsylvania for the following
purposes:
(1) To elect eleven Directors;
(2) To vote on the approval of the appointment of independent auditors
for the year 2002;
(3) To vote on the approval of an amendment of the Company's Articles of
Incorporation to increase its authorized shares of common stock from
50,000,000 to 100,000,000 shares;
(4) To vote on the approval and adoption of the amendment and
restatement of the Company' Employee Stock Option Plan (the "Stock
Option Plan") to increase the number of shares of the Company's
common stock for which options may be granted under the Stock Option
Plan and to make minor changes to plan administration;
(5) To vote on the approval of the continuation of the Company's Cash
Bonus Plan;
(6) To vote on the approval of the Company's Nonqualified Employee Stock
Purchase Plan; and
(7) To consider such other business as may properly come before the
meeting.
Shareholders of record at the close of business on April 4, 2002 are entitled to
notice of, and to vote at, the meeting.
By Order of the Board of Directors
Craig P. Keller
Secretary
April 9, 2002
PHILADELPHIA CONSOLIDATED HOLDING CORP.
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PENNSYLVANIA 19004
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of
Philadelphia Consolidated Holding Corp. (the "Company"), for use at the Annual
Meeting of Shareholders to be held at the Marriott West Hotel, 111 Crawford
Avenue, Conshohocken, Pennsylvania on May 1, 2002 at 10:00 A.M. This Proxy
Statement, the foregoing Notice and the enclosed Proxy are being sent to
shareholders of the Company on or about April 9, 2002.
Any Proxy may be revoked at any time before it is voted by written notice
mailed or delivered to the Secretary of the Company, by delivering a Proxy
bearing a later date or by attending the meeting and voting in person. If your
proxy card is signed and returned without specifying a vote or an abstention on
any proposal, it will be voted in accordance with the Board of Directors'
recommendations on each proposal.
The Board of Directors knows of no other matters which are likely to be
brought before the meeting other than those specified in the notice thereof. If
any other matters properly come before the meetings however, the persons named
in the enclosed proxy, or their duly constituted substitutes acting at the
meeting, will be authorized to vote or otherwise act thereon in accordance with
their judgement on such matters. If the enclosed proxy is properly executed and
returned prior to voting at the meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. In the absence of
instructions, executed proxies will be voted "FOR" the eleven nominees for the
Board of Directors; "FOR" the approval of the selection by the Board of
Directors of PricewaterhouseCoopers LLP as the Company's independent auditors
for the year 2002; "FOR" the approval of an amendment of the Company's Articles
of Incorporation to increase its authorized shares of common stock from
50,000,000 to 100,000,000; "FOR" the approval and adoption of the amendment and
restatement of the Company's Employee Stock Option Plan (the "Stock Option
Plan") to increase the number of shares of the Company's common stock for which
options may be granted under the Stock Option Plan and to make minor changes to
plan administration; "FOR" the approval of the continuation of the Company's
Cash Bonus Plan (the "Cash Bonus Plan") and "FOR" the approval of the Company's
Non-Qualified Employee Stock Purchase Plan.
Shareholders of record at the close of business on April 4, 2002 are
entitled to vote at the meeting. On March 22, 2002, the Company had outstanding
21,558,334 shares of common stock, no par value. Each outstanding share of
common stock is entitled to one vote and there is no cumulative voting. As to
each proposal, the presence, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes that all shareholders are entitled to cast
on the particular matter shall constitute a quorum for the purpose of
considering that matter. Abstentions and broker non-votes will be counted in
determining whether a quorum is present.
Directors will be elected by a plurality of the votes cast. The amendment
to the Company's Articles of Incorporation will be adopted upon receiving the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon. As to each proposal other than the election of directors and the
amendment of the Company's Articles of Incorporation, a majority of the votes
which all shareholders present are entitled to cast shall constitute approval by
the shareholders. Broker non-votes will have no effect on the voting with
respect to any proposal. Abstentions will have no effect on the proposals with
respect to the election of directors and the amendment of the Articles of
Incorporation but will have the effect of votes against each other proposal
before the shareholders.
2
The Company has retained American Stock Transfer & Trust Company to
solicit proxies by mail, courier, telephone, or facsimile and to request
brokerage houses to forward soliciting material to beneficial owners. For these
services the Company will pay a fee of approximately $11,000.
1. ELECTION OF DIRECTORS
The Board of Directors has nominated for election the eleven persons named
below, to hold office until the next Annual Meeting and until their successors
have been duly elected and qualified. The Company believes that each nominee
named below will be able to serve. However, should any such nominee be unable to
serve as a director, the persons named in the proxies have advised that they
will vote for the election of such substitute nominee as the Board of Directors
may propose.
NOMINEES FOR DIRECTOR
The names and ages of the nominees, their principal occupations, length of
service as Directors of the Company, and certain other biographical information
are set forth below:
JAMES J. MAGUIRE, age 68, has served as Chief Executive Officer and
Chairman of the Board of Directors of the Company since its formation in 1981
and its subsidiaries since their formation. Mr. Maguire previously served as
President of the Company. He has worked in the insurance industry for over 40
years with experience in insurance accounting, underwriting, sales and
marketing, claims management and administration.
JAMES J. MAGUIRE, JR., age 41, joined the Company in 1996 and has served
on the Board of Directors since 1997. He currently serves as President and Chief
Operating Officer. Prior to his appointment as President, Mr. Maguire, Jr.
served as Executive Vice President and Chief Operating Officer, and Vice
President of Underwriting for the Company. Mr. Maguire, Jr. was previously
employed as Assistant Vice President of Underwriting with American International
Group, Inc., an insurance and financial services company. Mr. Maguire, Jr. is
the son of Mr. James J. Maguire.
SEAN S. SWEENEY, CPCU, RPLU, age 44, joined the Company in 1979 and has
served on the Board of Directors of the Company since 1996. He currently serves
as Executive Vice President, Director of Marketing. Prior to his appointment as
Executive Vice President, he served as Senior Vice President, Director of
Marketing for the Company since 1987. Mr. Sweeney previously was employed by the
Company as a Regional Vice President, Regional Sales Manager, and sales
representative. His current responsibilities include management of all marketing
and sales for the Company. Mr. Sweeney is the nephew of Mr. James J. Maguire.
ELIZABETH H. GEMMILL, age 56, has served on the Board of Directors of the
Company since 2000. Ms. Gemmill is currently Chairman of the Board of
Philadelphia University and a Managing Trustee of the Warwick Foundation. Ms.
Gemmill previously served as Vice President and Secretary of the Tasty Baking
Company from 1988 to 1999. Ms. Gemmill serves as a director of American Water
Works Company, Inc., a provider of water and wastewater service, and Universal
Display Corporation, a technology research and development company.
WILLIAM J. HENRICH, JR., age 73, has served on the Board of Directors
since 1996. Mr. Henrich is a senior partner with the law firm of Dilworth Paxson
LLP.
PAUL R. HERTEL, JR., age 74, has served on the Board of Directors of the
Company since 1987. Mr. Hertel has been an insurance broker with Paul Hertel &
Company, Inc. for over 40 years and serves as Chairman of the Executive
Committee of that company.
THOMAS J. MCHUGH, age 70, has served on the Board of Directors of the
Company since 1986. Mr. McHugh has been Chairman of the Board and CEO of McHugh
Associates, Inc., a registered investment advisor, since 1986, and has served as
a director of The Rouse Company, a real estate development company, since 1980.
MICHAEL J. MORRIS, age 67, has served on the Board of Directors of the
Company since 1993. Mr. Morris served as Chairman and Chief Executive Officer of
Transport International Pool Corporation, a multinational corporation that
principally provides transport services, from 1975 to his retirement in 1992.
3
DIRK A. STUUROP, age 53, has served on the Board of Directors of the
Company since 1999. Mr. Stuurop currently is President of Stuurop & Company, a
privately owned strategic advisory firm. Mr. Stuurop previously served in
various investment banking positions with Merrill Lynch and Co. from 1982 until
his retirement in early 1999, most recently as Chairman, Global Financial
Institutions. Additionally, Mr. Stuurop serves as a director of Exodus
Communications, a provider of Internet system and network management solutions,
is a member of the Wharton Graduate Executive Board, a director of the
Netherland America Foundation, and a director of various private corporations.
J. EUSTACE WOLFINGTON, age 69, has served on the Board of Directors of the
Company since 1986. Mr. Wolfington served as President of the H.A.C. Group of
Companies, an international automobile leasing consulting firm, from 1981 until
his retirement in 2000.
JAMES L. ZECH, age 44, has served on the Board of Directors of the Company
since July 2001. Mr. Zech has served as President of High Ridge Capital LLC, the
general partner and advisor to two partnerships focused on investments in
insurance companies and related financial, healthcare and service companies
since its inception in 1995. From 1988 to 1995, Mr. Zech served in various
investment banking positions covering the insurance industry, including Managing
Director for S.G. Warburg & Co., Inc. from 1992 to 1995, and as a member of the
Insurance Group of Donaldson, Lutfkin & Jenrette Securities Corporation from
1988 to 1992. Mr. Zech also serves as a director of Max Re Capital Limited, a
reinsurance holding company, and serves as director of various private
companies.
ADDITIONAL INFORMATION REGARDING THE BOARD
MEETINGS. During 2001, the Board of Directors met four times. Each
director attended at least 75% of the total number of meetings of the Board of
Directors and any committee on which such director served, except for Messrs.
Sweeney and Zech, who each attended 67% of such meetings.
BOARD COMMITTEES. The Audit Committee met seven times in 2001. The Audit
Committee consists of Messrs. Hertel, Jr. (Chairperson), Henrich, Jr.,
Wolfington, and Morris. Among other duties, the Audit Committee recommends the
selection of the Company's independent auditors; reviews and recommends action
by the Board regarding the Company's quarterly and annual reports to the United
States Securities and Exchange Commission ("SEC"); discusses the Company's
audited financial statements with management and the independent auditors; and
reviews the scope and results of the independent audit and any internal audit.
The Compensation Committee met two times in 2001. The Compensation
Committee consists of Messrs. Wolfington (Chairperson), Hertel, Jr., and Morris.
Among other duties, the Compensation Committee evaluates the performance of
principal officers, recommends to the Board of Directors the selection and
compensation of principal officers, and administers the Company's various
compensation plans.
The Investment Committee met three times in 2001 and is responsible for
monitoring investment policy and activities of the Company. The Investment
Committee consists of Ms. Gemmill (Chairperson), and Messrs. Maguire, Maguire,
Jr., Stuurop, and Zech.
The Nominating Committee met one time in 2001 and consists of Messrs.
Henrich, Jr. (Chairperson), Maguire, Maguire, Jr., McHugh, and Sweeney. The
Nominating Committee is responsible for recommending to the Board of Directors
candidates for nomination to the Board. The Nominating Committee will consider
recommendation of candidates for nomination to the Board of Directors from
shareholders. In order for shareholder recommendations to be considered for the
2003 Annual Meeting, such recommendations must be received by the President of
the Company at One Bala Plaza, Suite 100, Bala Cynwyd, Pennsylvania 19004 no
later than March 11, 2003. Any recommendation must be accompanied by the written
consent of the individual recommended to serve as a Director.
RELATED PARTY TRANSACTIONS. The Company utilized investment advisory
services from McHugh Associates Inc. of which a board member, Thomas J. McHugh,
is a shareholder and serves as Chairman of the Board and CEO. The fee for these
services was $107,000 for 2001.
4
MANAGEMENT - DIRECTORS AND EXECUTIVE OFFICERS
Directors hold office until the next annual meeting of the shareholders,
or until their successors are duly elected and qualified. Officers are elected
by and serve at the discretion of the Board of Directors. The Directors and
Executive Officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
James J. Maguire 68 Chairman of the Board of Directors and Chief Executive Officer
James J. Maguire, Jr. 41 Director, President and Chief Operating Officer
Sean S. Sweeney 44 Director, Executive Vice President
Elizabeth H. Gemmill 56 Director
William J. Henrich, Jr. 73 Director
Paul R. Hertel, Jr. 74 Director
Thomas J. McHugh 70 Director
Michael J. Morris 67 Director
Dirk A. Stuurop 53 Director
J. Eustace Wolfington 69 Director
James L. Zech 44 Director
Craig P. Keller 51 Senior Vice President, Secretary, Treasurer, and Chief Financial Officer
See "Nominees for Director" for the biographies of the Directors.
CRAIG P. KELLER, age 51, joined the Company as Vice President and Chief
Financial Officer in December 1992 and was appointed Secretary in 1993,
Treasurer in 1997 and Senior Vice President in 1999. Mr. Keller was previously
employed by Reliance Insurance Group, Inc., a subsidiary of Reliance Group
Holdings, where he served in various financial capacities from 1985 through
1992, including Assistant Vice President from June 1991 to December 1992. Mr.
Keller, formerly with Coopers & Lybrand, is a Certified Public Accountant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's common stock as of March 31, 2002 by: (i) each person known to
the Company to own beneficially more than 5% of the outstanding common stock;
(ii) each of the Company's nominees for directors and persons referred to in the
Summary Compensation Table; and (iii) all of the directors and executive
officers as a group. As used in this table, "beneficially owned" means the sole
or shared power to vote or dispose of, or to direct the voting or disposition
of, the shares, or the right to acquire such power within 60 days after March
31, 2002 with respect to any shares.
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME (1) OWNED (2) OWNED
-------- --------- -----
James J. Maguire ............................................. 3,584,781(3) 16.6%
Elizabeth H. Gemmill ......................................... 950 *
William J. Henrich, Jr ....................................... 6,000 *
Paul R. Hertel, Jr ........................................... 18,000(4) *
Thomas J. McHugh ............................................. 8,000 *
James J. Maguire, Jr ......................................... 663,215(5) 3.1%
Michael J. Morris ............................................ 5,000 *
Sean S. Sweeney .............................................. 104,873(6) *
Dirk A. Stuurop .............................................. 12,163 *
J. Eustace Wolfington ........................................ 350,930 1.6%
James L. Zech ................................................ 10,000 *
Craig P. Keller .............................................. 3,258 *
Thomas G. Maguire ............................................ 817,628(7) 3.8%
5
The Federated Kaufmann Fund .................................. 1,455,000(8) 6.7%
Capital Group International, Inc. and Capital Guardian
Trust Company ............................................. 1,227,800(9) 5.7%
FMR Corp. .................................................... 2,001,407(10) 9.3%
All Directors and Executive Officers as a Group (12 persons) . 4,767,170 21.9%
- ----------
* Less than 1%
(1) The named shareholders' business address is One Bala Plaza, Suite 100,
Bala Cynwyd, PA 19004, except that, the business address of: The Federated
Kaufmann Fund is 140 E. 45th Street, 43rd Floor, New York, NY 10017;
Capital Group International, Inc. and Capital Guardian Trust Company is
11100 Santa Monica Blvd., Los Angeles, CA 90025; and FMR Corp. is 82
Devonshire Street, Boston, MA 02109.
(2) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them, unless otherwise noted in the
footnotes to this table and except for shares referred to in the following
sentence.
(3) Of these shares, 1,750,500 are owned jointly by Mr. Maguire and his wife
Frances Maguire, as to which Mr. Maguire shares the voting and investment
power with his wife; 254,266 shares are owned by The Maguire Foundation of
which Mr. Maguire is co-director with his wife; and 200,000 are owned of
record by his wife. Mr. Maguire disclaims beneficial ownership of the
200,000 shares owned of record by his wife.
(4) Record owner is P&E Limited Partnership, a family limited partnership of
which Mr. Hertel and his wife are general partners. Mr. Hertel has shared
voting and investment power with his wife with respect to these shares.
(5) Of these shares, 110,816 shares are owned by a trust for the benefit of
Mr. James J. Maguire, Jr.; 408,364 shares are in trusts for the other
children of Mr. James J. Maguire, of which Mr. James J. Maguire, Jr. is
deemed to be beneficial owner of such shares because he has shared voting
and investment power of such shares as co-trustee of these trusts; and
136,250 shares are subject to currently outstanding options exercisable on
or before 60 days from March 31, 2002.
(6) Shares beneficially owned include 24,500 shares subject to currently
outstanding options exercisable on or before 60 days from March 31, 2002.
(7) These shares are owned by trusts for the children of Mr. James J. Maguire
and Mr. Thomas G. Maguire is deemed to be beneficial owner of such shares
because he has shared voting and investment power of such shares as
co-trustee of these trusts.
(8) According to the Schedule 13G filed with the Company by The Federated
Kaufmann Fund, these shares were acquired in the ordinary course of
business, were not acquired for the purpose of and do not have the effect
of changing or influencing the control of the issuer of such securities
and were not acquired in connection with, or as a participant in, any
transaction having such purposes or effect.
(9) According to the Schedule 13G filed with the Company, Capital Group
International, Inc. is the parent holding company of a group of investment
management companies. The investment management companies, which include a
"bank" (Capital Guardian Trust Company) as defined in Section 3(a)(6) of
the Securities and Exchange Act of 1934 and several investment advisors
registered under Section 203 of the Investment Advisors Act of 1940,
provide investment advisory and management services for their respective
clients which include registered investment companies and institutional
accounts. Capital Group International, Inc. does not have investment power
or voting power over the 1,227,800 shares. Capital Guardian Trust Company
serving as the investment manager of various institutional accounts has
sole voting power for 936,700 shares and sole dispositive power for
1,227,800 shares. Capital Group International, Inc. and Capital Guardian
Trust Company disclaim beneficial ownership pursuant to Rule 13d-4 under
the Securities and Exchange Act of 1934.
(10) According to the Schedule 13G filed with the Company by FMR Corp., these
shares were acquired in the ordinary course of business, were not acquired
for the purpose of and do not have the effect of changing or influencing
the control of the issuer of such securities and were not acquired in
connection with, or as a participant in, any transaction having such
purposes or effect. The number of shares shown as beneficially
6
owned is based upon information obtained by the Company from FMR Corp.
subsequent to the filing in February 2002 of the last amendment to its
Schedule 13G.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, file reports of ownership
and changes in ownership with the SEC. Officers, directors, and greater than ten
percent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, for
the period January 1, 2001 through December 31, 2001, or its knowledge that no
Forms 5 were required for certain reporting persons, the Company believes that
all filing requirements applicable to its officers and directors were complied
with, except for one late filing of a Form 4 in connection with one transaction
for Mr. Sweeney, one late filing of a Form 4 in connection with two transactions
for Mr. Maguire, Jr. in his capacity as co-trustee, two late filings of Forms 4
totaling two transactions for Mr. Wolfington and one late filing of a Form 3 for
Mr. Zech.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid or accrued by the Company during each of the last three years
to the Company's Chief Executive Officer, and each of the Company's other
executive officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL NO. OF SHARES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR COMPENSATION UNDERLYING COMPENSATION ($)
- --------------------------- ---- ------------------------ ----------- ----------------
SALARY($) BONUS($)(1) OPTIONS (#)
--------- -------- -----------
James J. Maguire, Chief Executive 2001 600,000 -- -- 144,969(2)(4)
Officer and Chairman of the 2000 813,750 -- -- 179,442(2)(4)
Board 1999 845,048 -- -- 165,000(2)(4)
James J. Maguire, Jr., Director, 2001 275,000 100,000 50,000 5,049(2)(3)
President and Chief Operating 2000 250,000 65,000 5,000 637(2)
Officer 1999 238,462 -- 100,000 6,135(2)(3)
Sean S. Sweeney, Director and 2001 230,000 100,000 100,000 12,699(2)(3)
Executive Vice President 2000 220,000 32,500 40,000 8,287(2)
1999 218,077 30,000 -- 9,986(2)(3)
Craig P. Keller, Senior Vice 2001 215,000 50,000 37,500 13,888(2)(3)
President, Secretary, Treasurer, 2000 210,000 32,500 5,000 8,758(2)
and Chief Financial Officer 1999 193,678 -- -- 10,349(2)(3)
(1) Such bonus amounts were earned in the year indicated and paid in the
subsequent year.
(2) Includes both matching and profit sharing contributions by the Company
under its defined contribution plan, as well as premiums paid on term life
insurance policies.
(3) Includes the discount from the fair market value of the Company's common
stock purchased pursuant to the Company's Employee Stock Purchase Plan.
(4) Pursuant to an agreement between the Company and a trust created by Mr.
James J. Maguire and his wife, Frances M. Maguire, the trust has purchased
a split-dollar life insurance policy on the joint lives of Mr. Maguire and
his wife. Under
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the agreement, the Company pays the premium on the policy and the trust is
the beneficiary of the insurance policy. However, the Company has been
granted a security interest in the death benefit of the policy equal to
the sum of all premium payments made by the Company. The arrangement is
designed so that if the assumptions made as to mortality experience,
policy dividends and other factors are realized, the Company, upon the
death of the survivor of Mr. Maguire and his wife or the surrender of the
policy, will recover all of its insurance premium payments which do not
include certain amounts paid to Mr. Maguire, as described below. The
premium paid by the Company in 2001, 2000 and 1999 pursuant to this
arrangement was $338,174 each year. The amount in this column does not
include such premium payment. However, the amount in this column includes
the sum of each future years' present value of the imputed interest on
such premium payment (adjusted for the cost of term insurance based upon
the joint lives of Mr. Maguire and his wife). The interest amount
calculated for 2001, 2000 and 1999 is $129,572, $163,041 and $148,065,
respectively. Pursuant to the split dollar arrangement described above,
Mr. Maguire receives each year an amount equal to the portion of the
annual premium due and payable on the life insurance policy which is not
paid by the Company pursuant to the above described formula, but paid by
Mr. Maguire. The amount reported in this column included said amount
totaling $7,747, $7,756 and $7,181 in 2001, 2000 and 1999, respectively.
STOCK OPTION GRANTS
The following table contains information concerning the grant of stock
options during 2001 to the Company's Chief Executive Officer and each of the
Company's other executive officers. There were no stock appreciation rights
("SARs") granted in 2001 to the named persons.
OPTION GRANTS IN 2001
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
NO. OF SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM ($)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED (1) 2001 ($/SHARE) DATE 5% 10%
- ---- ----------- ---- --------- ---- -- ---
James J. Maguire -- -- -- -- -- --
James J. Maguire, Jr 50,000 8.7% $ 26.00 1/09/11 817,600 2,071,900
Sean S. Sweeney 35,000 6.1% $ 26.00 1/09/11 572,300 1,450,300
65,000 11.4% $ 29.80 8/31/11 1,218,200 3,087,100
Craig P. Keller 25,000 4.4% $ 26.00 1/09/11 408,800 1,035,900
12,500 2.2% $ 29.80 8/31/11 234,300 593,700
(1) Options with expiration date of 1/09/11 are exercisable after the fifth
anniversary from date of grant; options with expiration date of 8/31/11
vest one-fifth on the first, second, third, fourth, and fifth
anniversaries of the grant date.
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information relating to the exercise of
stock options and the number and value of options and SARs held at December 31,
2001 by the Company's Chief Executive Officer and by each of the Company's other
executive officers.
8
AGGREGATED OPTION/SAR EXERCISES IN 2001 AND
OPTION VALUES AT DECEMBER 31, 2001 (1)
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS AT
SHARES VALUE FISCAL YEAR END (#) FISCAL YEAR END ($)
ACQUIRED ON REALIZED ------------------------------- -------------------------------
EXERCISE (#) ($) (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
James J. Maguire -- -- -- -- -- --
James J. Maguire, Jr (3) 63,750 1,604,100 136,250 157,900 3,869,200 3,128,200
Sean S. Sweeney (4) 136,667 2,322,855 24,500 140,000 724,800 1,815,200
Craig P. Keller (5) 11,875 220,281 -- 67,500 -- 896,400
(1) All share and per share amounts granted prior to November 1997 were
restated to reflect a two-for-one split of the Company's common stock
distributed in November 1997.
(2) An individual, upon exercise of an option, does not receive cash equal to
the amount contained in the Value Realized column of this table. Instead,
the amount contained in the Value Realized column reflects the increase in
the price of the Company's common stock from the option grant date to the
option exercise date. No cash is realized until the shares received upon
exercise of an option are sold.
(3) Exercise price of: $9.313 for 136,250 options; $8.500 for 2,900 options;
$13.875 for 100,000 options; $22.813 for 5,000 options; and $26.000 for
50,000 options.
(4) Exercise price of: $8.125 for 24,500 options; $14.375 for 35,000 options;
$22.813 for 5,000 options; $26.000 for 35,000 options; and $29.800 for
65,000 options.
(5) Exercise price of $20.500 for 25,000 options; $22.813 for 5,000 options;
$26.00 for 25,000 options; and $29.800 for 12,500 options.
DIRECTORS COMPENSATION
Non-employee directors receive annual compensation of $21,000, plus $1,500
for each Board meeting attended and $700 for each Committee meeting attended.
Non-employee directors may designate a portion of their fees to be used for the
purchase of shares of the Company's common stock under the terms of the
Directors Stock Purchase Plan. Directors who are employees of the Company do not
receive any additional compensation for serving as Directors or attending Board
or Committee meetings.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Compensation Committee") of the Board of
Directors is responsible for administering the compensation program for the
Company's executives, including the executive officers named in the Summary
Compensation Table. The Compensation Committee is composed exclusively of
independent, non-employee directors who are not eligible to participate in any
of the Company's executive compensation programs. All decisions by the
Compensation Committee relating to the compensation of the Company's executive
officers are reviewed by the Board of Directors.
COMPENSATION PHILOSOPHY. The Company's executive compensation program is
based upon a pay-for-performance philosophy. The Company is committed to a
strong link between its business and strategic goals and its compensation
program. The financial goals for certain elements of the compensation program
are reviewed and approved by the Board in conjunction with its approval of the
Company's strategic and operating plans.
BASE SALARY. An executive's base salary is determined by an assessment of
his or her sustained performance, experience, scope and job demands, as well as
current salary levels at peer companies. While some of these companies are in
the Nasdaq Insurance Stocks Index and some are not, they were generally selected
for the peer group because they were considered comparable to the Company,
either in terms of market capitalization or because they compete with, or are in
lines of business related to, the Company's business.
9
ANNUAL INCENTIVES. The Company utilizes cash bonuses as a principal method
of tying compensation to performance. The cash bonus for the CEO, if any, is
calculated based on an earnings per share formula. Other executive's cash
bonuses also are based upon an earnings per share formula and, with respect to
marketing executives, upon production and profitability goals. The Company
believes that the cash bonus creates a direct link between the Company's
profitability and the compensation of executives. Incentive compensation is also
provided by the Stock Option Plan and the awarding of Stock Appreciation Rights.
RATIONALE FOR CHIEF EXECUTIVE OFFICER COMPENSATION. In setting Mr.
Maguire's 2001 base salary and bonus, the Compensation Committee considered,
among other factors, compensation levels for chief executive officers of other
peer specialty property and casualty insurance companies, Mr. Maguire's
experience and knowledge of the industry and the favorable developments achieved
by the Company in 2000 under Mr. Maguire's leadership. These developments
included $23.1 million of net operating income, the reaffirmation of the A+
(Superior) rating from A.M. Best Company for the Company's insurance
subsidiaries, the successful integration and expansion of the personal lines
business subsequent to the acquisition of Liberty American Insurance Group,
Inc., the continued expansion of the Company's marketing efforts, and the
continued development of the Preferred Agent program.
POLICY ON DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal
Revenue Code ("Section 162(m)") limits to $1.0 million the annual tax deduction
for compensation paid to the Chief Executive Officer and any of the four highest
paid other executive officers, unless certain requirements for performance-based
compensation are met. The Compensation Committee considered these requirements
and designed the Cash Bonus Plan of the Chief Executive Officer and the Stock
Option Plan, accordingly. The Compensation Committee currently intends to
continue to comply with the requirements of Section 162(m) but reserves the
right to alter the Cash Bonus Plan and the Stock Option Plan if it believes that
doing so would be in the best interests of the Company and its shareholders.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
J. EUSTACE WOLFINGTON, CHAIRMAN
PAUL R. HERTEL, JR.
MICHAEL J. MORRIS
The graph below compares the cumulative total shareholder return on the
Company's common stock with the cumulative total return of the NASDAQ Stock
Market (U.S.) ("NASDAQ - US") Index and the NASDAQ Insurance Stocks Index (SIC
Codes 631 and 633) ("NASDAQ - INS"). The comparison assumes $100 was invested on
December 31, 1996 in the Company's common stock and in each of the foregoing
indices and assumes reinvestment of dividends monthly.
STOCK PERFORMANCE GRAPH
<Table>
<Caption>
Company Stock Index Industry Group Index
1996 100.00 100.00 100.00
1997 152.69 122.48 146.73
1998 194.62 172.68 130.73
1999 124.73 320.83 101.41
2000 265.59 192.98 127.35
2001 324.39 153.12 136.51
</Table>
10
INDEPENDENT AUDITORS FEES
In addition to retaining PricewaterhouseCoopers LLP ("PWC") to audit the
consolidated financial statements for 2001, the Company retained PWC to provide
various other services in 2001, and expects to continue to do so in the future.
The aggregate fees billed for professional services by PWC in 2001 for these
various services were:
- - Audit Fees: $114,145 for services rendered for the annual audit of the
Company's consolidated financial statements for 2001 and the quarterly
reviews of the financial statements included in the Company's Forms 10-Q.
- - Financial Information Systems Design and Implementation Fees: None.
- - All Other Fees: $99,014, which consists primarily of fees for services
rendered with respect to the Company's November 2001 public offering and
the Company's insurance subsidiaries actuarial certifications.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the "Audit Committee") is
comprised of the four directors named below. Each member of the Audit Committee
is an independent director under the rules of the National Association of
Securities Dealers, Inc. through its Nasdaq Stock Market Inc. subsidiary. The
Audit Committee has adopted a written charter which has been approved by the
Board of Directors. The Audit Committee has reviewed and discussed the Company's
audited financial statements with management, which has primary responsibility
for the financial statements. PricewaterhouseCoopers LLP, the Company's
independent auditors for 2001, are responsible for expressing an opinion on the
conformity of the Company's audited financial statements with generally accepted
accounting principles. The Audit Committee has discussed with
PricewaterhouseCoopers LLP the matters that are required to be discussed by
Statement on Auditing Standards No. 61 (Communication With Audit Committees).
PricewaterhouseCoopers LLP has provided to the Audit Committee the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and the Audit Committee
discussed independence matters with PricewaterhouseCoopers LLP. The Audit
Committee also considered whether PricewaterhouseCoopers LLP's provisions of
non-audit services is compatible with PricewaterhouseCoopers LLP's independence.
Based on the considerations referred to above, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-K for 2001. The foregoing report is
provided by the following independent directors, who constitute the Audit
Committee:
Paul R. Hertel, Jr. (Chairman)
William J. Henrich, Jr.
J. Eustace Wolfington
Michael J. Morris
2. APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
Subject to the shareholders' approval, the Board of Directors has
appointed the firm of PricewaterhouseCoopers LLP, which served as the Company's
independent auditors for the year 2001, to serve as the Company's independent
auditors for the year 2002. If the shareholders do not approve this appointment
by the affirmative vote of a majority of shares present in person or represented
by proxy at the meeting, other independent auditors will be considered by the
Board.
A representative of PricewaterhouseCoopers LLP is expected to be present
at the meeting and will have the opportunity to make a statement if the
representative desires to do so. The representative is also expected to be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
11
3. APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED
COMMON SHARES
The Company's Articles of Incorporation, as amended (the "Articles"),
currently authorize the issuance by the Company of 50,000,000 shares of common
stock. As of March 22, 2002, the Company had outstanding approximately
21,558,334 shares of common stock and options to purchase an additional
1,478,575 shares of common stock. Upon review of the Company's current capital
structure, the Board of Directors adopted an amendment to the Articles to
increase the authorized number of shares of common stock to 100,000,000 shares
and has directed that the proposed amendment be submitted to a vote of the
Shareholders. Under this amendment, the first section of Article 5 of the
Articles would be amended and restated in its entirety to read as follows:
"5. The aggregate number of shares which the Corporation shall have
authority to issue is 100,000,000 shares of common stock, no par value, and
10,000,000 shares of Preferred Stock with a par value of $.01 per share."
While there are no current plans to issue additional shares of common
stock beyond the limits currently authorized by the Articles, this proposal
would permit the Company to maintain the flexibility of having sufficient
authorized capital for possible stock splits, stock dividends, stock and
convertible debt or equity offerings, acquisitions and other corporate purposes.
Based on the foregoing, the Board has approved this proposal and hereby submits
it to the shareholders of the Company for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
4. APPROVAL AND ADOPTION OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S
EMPLOYEE STOCK OPTION PLAN
Effective March 25, 2002, the Board of Directors, at the recommendation of
the Compensation Committee, approved the amendment and restatement of the
Company's Stock Option Plan, subject to the approval of the shareholders of the
Company, in order to increase the aggregate maximum number of shares of the
Company's common stock as to which options may be granted under the Stock Option
Plan from 2,475,000 to 3,500,000 and to make minor changes to plan
administration. The number of shares of common stock for which options may be
granted under the Stock Option Plan was originally 1,237,500 and was increased
to 2,475,000 by operation of the provisions of the Stock Option Plan in
connection with a two-for-one stock split of the Company's common stock that was
distributed to shareholders in November 1997. As of March 22, 2002, options for
the purchase of 2,460,275 shares of common stock have been exercised or remain
outstanding.
The Stock Option Plan, as amended and restated, is intended to secure for
the Company the benefits of the additional incentive inherent in the ownership
of its common stock by selected employees of the Company and its subsidiaries,
and to help the Company and its subsidiaries secure and retain the services of
those employees.
On March 21, 2002, the closing price of the Company's common stock on the
NASDAQ National Market System was $39.11 per share.
The key provisions of the Stock Option Plan, as amended and restated, are
as follows:
NUMBER OF SHARES
The number of shares of common stock available for grants of options under
the Stock Option Plan is increased to 3,500,000, subject to adjustment in the
event there is a stock split, stock dividend, reclassification or
recapitalization which changes the character or amount of the Company's
outstanding common stock (each a "Capitalization Change"). If any options
granted under the Stock Option Plan terminate or expire without being exercised,
the shares of common stock allocated to those options will become available for
subsequent grants under the terms of the Stock Option Plan. The Company may use
shares of common stock it has purchased, authorized and unissued shares, or
shares held in the Company's treasury (or any combination of such shares) for
the Stock Option Plan. There shall be reserved at all times for issuance under
the Stock Option Plan a number of shares of common stock (either authorized and
unissued shares or shares held in the Company's treasury, or both) equal to the
maximum number of shares which may be distributed under the Stock Option Plan.
12
ADMINISTRATION
The Stock Option Plan will be administered by the Compensation Committee,
and/or by any other committee or committees designated by the Board of
Directors, or by the Board of Directors itself (the administrative committee for
the Stock Option Plan is referred to in this section as the "Committee"). To the
extent possible, and at the discretion of the Board of Directors, the Stock
Option Plan will be administered by a committee consisting of two or more
members of the Board of Directors who qualify both as "non-employee" directors
(as that term is used in Rule 16b-3 under the Securities Exchange Act of 1934,
as amended) and as "outside" directors (as that term is defined for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")).
ELIGIBILITY
All employees, including employees who are members of the Board of
Directors, are eligible to receive options under the Stock Option Plan. As of
the date of this proxy statement there were approximately 600 employees eligible
to receive options under the Stock Option Plan.
TERM OF STOCK OPTION PLAN
The Stock Option Plan will continue in effect until it is terminated,
which may be done at any time by action of the Board of Directors.
NUMBER OF OPTION GRANTS
The Committee has the authority to determine which employees will be
granted options under the Stock Option Plan and the number of options to be
granted; provided, however, that no employee may be granted options to acquire
more than 100,000 shares (subject to adjustment in the event of a Capitalization
Change) of the Company's common stock during any calendar year. In determining
the employees to whom options are to be granted and the number of shares of
common stock to be subject to those options, the Committee will take into
consideration the employee's present and potential contribution to the success
of the Company and its subsidiaries and any other factors the Committee
determines proper and relevant. Officers and directors of the Company or its
subsidiaries who are also employees are eligible to receive options, but no
members of the Committee will be eligible to receive options under the Stock
Option Plan.
TERMS AND CONDITIONS OF OPTIONS
The Committee has authority to set such terms and conditions on grants of
options as it deems appropriate, provided the terms and conditions are
consistent with the express provisions of the Stock Option Plan. The terms of an
option may not be modified after the date of grant except to the extent the
modification is consistent with the provisions of the Stock Option Plan
(including modifications or adjustments in connection with a Capitalization
Change). The time and/or conditions under which an option becomes exercisable,
and the time and/or conditions under which an option terminates, may be
established with respect to each option at the discretion of the Committee,
provided the terms are not inconsistent with applicable provisions of the Stock
Option Plan. Whenever any of the following events occur, the unexercised portion
of any option automatically is forfeited:
- the tenth anniversary of the date the option was granted;
- the expiration of 30 days from the date of the employee's
termination of employment with the Company (other than a termination
for cause), unless the employee dies during that 30-day period, in
which case the unexercised portion of the option is forfeited in
accordance with the immediately following paragraph;
- the expiration of six months following the issuance of letters
testamentary or letters of administration to the executor or
administrator of a deceased employee, if the optionee's death occurs
either during the optionee's employment with the Company or during
the 30-day period following the date of a not-for-cause termination
of such employment, but not later than one year after the optionee's
death;
13
- the termination of the optionee's employment with the Company for
cause, including breach by the optionee of an employment agreement
with the Company or any of its subsidiaries or the optionee's
commission of a felony or misdemeanor, whether or not prosecuted,
against the Company or any of its subsidiaries;
- the expiration of such period of time or the occurrence of such
event as the Committee in its discretion may provide upon the
granting of the option.
Options granted under the Stock Option Plan may, up to the extent they are
exercisable under the terms of the option, be exercised in whole or in part. The
optionee must give notice of the exercise, indicating the number of shares of
common stock to be purchased and the business day (no more than 15 days
following the date notice is given) for the purchase. The optionee must provide
for payment of the option exercise price specified in the option document. At
the Committee's discretion, an optionee may be required to provide up to five
business days notice of the optionee's intent to exercise an option. The
optionee's exercise notice constitutes an irrevocable election to exercise in
accordance with the terms of the notice, which may be specifically enforced by
the Company. The Committee may, at its discretion, provide in option documents
for alternative means of option exercise, including, but not limited to
"cashless" exercise methods and provision for retention by the Company of shares
of common stock in satisfaction of tax withholding obligations.
OPTION EXERCISE PRICE
The option exercise price of all options must be equal to the fair market
value of a share of the Company's common stock at the time the option is
granted. The determination of fair market value is made by the Committee by
reference to the closing price of the Company's common stock on the day of grant
as reported on the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System, or as reported on such
other stock exchange as the common stock may be listed, on such date as reported
in the Wall Street Journal, or if there is no closing price reported, by
reference to the average between the closing bid and asked prices for the common
stock on such date as reported, or by such other method as the Committee may
determine is appropriate.
RESTRICTION ON TRANSFERABILITY
Options granted under the Stock Option Plan shall be transferable only to:
- the optionee's executors or administrators by will or the laws of
descent and distribution;
- pursuant to the terms of a "qualified domestic relations order,"
within the meaning of Sections 401(a)(13) and 414(p) of the Code ;
- to the extent specifically permitted in the option document, at the
discretion of the Committee, to certain family members of the
optionee or to trusts for the benefit of those family members or to
partnerships in which those family members are the only partners,
provided that there is no consideration for the transfer and that
the transferred options are subject to the same terms and conditions
that were applicable prior to the transfer.
AMENDMENTS TO THE STOCK OPTION PLAN
The Stock Option Plan may be amended at any time by the Board of
Directors, except with respect to any options outstanding under the Stock Option
Plan; provided, however, that any amendment which would materially increase the
benefits accruing to participants under the Stock Option Plan, increase the
number of shares of common stock which may be issued under the Stock Option
Plan, or materially modify the eligibility requirements for participation in the
Stock Option Plan will not be effective without shareholder approval.
14
TAX ASPECTS OF THE STOCK OPTION PLAN
The following discussion is intended to summarize briefly the general
principles of federal income tax law applicable to options granted under the
Stock Option Plan as of the date of this proxy statement.
Taxation of Stock Options. A recipient of an option under the Stock Option
Plan will not recognize taxable income at the time of grant, and the Company
will not be allowed a deduction by reason of the grant. The optionee will,
however, recognize ordinary income in the taxable year in which the optionee
exercises the stock option in an amount equal to the excess of the fair market
value of the shares of common stock received upon exercise at the time of
exercise of the options over the exercise price of the options (the "spread").
The Company generally will be allowed a deduction in the same amount. Upon
disposition of the shares of common stock received upon exercise of the option,
an optionee will recognize long-term or short-term capital gain or loss,
depending upon the length of time the shares of common stock were held before
disposition, equal to the difference between the amount realized on disposition
and the optionee's basis in the shares, which ordinarily would be the fair
market value of the shares on the date the option was exercised.
Withholding. Whenever the Company would otherwise transfer a share of
common stock under the terms of the Stock Option Plan, the Company has the right
to require the recipient to make available sufficient funds to satisfy all
applicable federal, state and local withholding tax requirements as a condition
to the transfer, or to take whatever other action the Company deems necessary
with respect to its tax liabilities.
Deductibility of Executive Compensation under the Million Dollar Cap
Provisions of the Internal Revenue Code. Section 162(m) of the Code sets limits
on the deductibility of compensation in excess of $1,000,000 paid by publicly
held companies to certain employees (the "Million Dollar Cap"). The IRS also has
issued Treasury Regulations which provide rules for the application of the
Million Dollar Cap deduction limitations. Any income recognized as ordinary
compensation income on the exercise of a non-qualified stock option should be
treated as "performance-based" compensation that is exempt from the deduction
limitations under the Million Dollar Cap if both the plan under which the option
is granted and the option grant itself comply with certain rules. The Stock
Option Plan complies with these applicable rules in form. It is the Company's
intention to administer the Stock Option Plan in accordance with all applicable
requirements under the Million Dollar Cap rules for performance based
compensation plans, including having the Stock Option Plan administered by a
committee of two or more "outside" directors (as that term is used in the
applicable IRS regulations). Under these circumstances, a grant of an option
with an exercise price at least equal to the fair market value of the shares of
common stock subject to that option on the date of grant should, on exercise,
result in compensation income that is treated as "performance-based"
compensation under the Million Dollar Cap rules. It is expected, therefore, that
any compensation expense recognized for tax purposes on the exercise of such an
option will be exempt from the Million Dollar Cap.
As of March 22, 2002, the following persons have received or been
allocated options for the following number of shares of common stock under the
Stock Option Plan, adjusted for the two-for-one stock split discussed above:
James J. Maguire, Chief Executive Officer and Chairman of the Board of
Directors, none; James J. Maguire, Jr., Director, President and Chief Operating
Officer, 357,900; Sean S. Sweeney, Director and Executive Vice President,
300,000; Craig P. Keller, Senior Vice President, Secretary, Treasurer and Chief
Financial Officer, 80,000; current executive officers, as a group, 737,900;
current directors who are not executive officers, as a group, none; employees,
including officers who are not executive officers, as a group, 1,722,375;
Christopher J. Maguire, Senior Vice President, and Timothy J. Maguire, Vice
President, both of whom are officers of the Company and family members of James
J. Maguire and James J. Maguire, Jr., 175,000 and 50,000, respectively.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
5. APPROVAL OF THE CONTINUATION OF THE COMPANY' CASH BONUS PLAN
The Cash Bonus Plan was originally adopted by the Company, subject to the
approval of the Company's shareholders, effective as of January 1, 1996. The
Cash Bonus Plan, which was approved by the Company's shareholders in May 1996,
is a performance-based compensation plan and is a part of the Company's
integrated compensation program intended to assist the Company in motivating and
retaining employees of superior ability, industry and loyalty. Performance-based
bonus compensation is generally paid to certain key employees and
15
officers of the Company on the basis of a formula based on the performance of
the Company. The Cash Bonus Plan sets forth the performance-based bonus
compensation program with respect to James J. Maguire, the Company's Chairman of
the Board and Chief Executive Officer, and subjects the bonus compensation
payable to him to certain rules and requirements applicable to
"performance-based" compensation as that term is used for purposes of Section
162(m) of the Code. These rules limit the deductibility of compensation in
excess of the Million Dollar Cap. In the event it is anticipated that other
employees will become subject to the limitations imposed by the Million Dollar
Cap, the Cash Bonus Plan may be amended in the future to subject the bonus
compensation for those employees to these same requirements.
Under applicable Treasury Regulations, bonuses paid under this type of
performance-based plan may not be treated as qualified performance-based
compensation after five years unless the material terms of the Cash Bonus Plan
are again disclosed to the Company's shareholders and the shareholders approve
the continuation of the Cash Bonus Plan. The Company's Board of Directors has,
therefore, suspended the operation of the Cash Bonus Plan until such time as the
material terms of the Cash Bonus Plan are disclosed to the Company's
shareholders and shareholder approval of the continuation of the Cash Bonus Plan
is obtained.
The provisions of the Cash Bonus Plan are generally described below.
ELIGIBILITY
James J. Maguire is the sole participant in the Cash Bonus Plan.
SHAREHOLDER APPROVAL AND TERM OF CASH BONUS PLAN
The Cash Bonus Plan has been in effect since January 1, 1996 and will, if
its continuation is approved by the Company's shareholders, continue until it is
terminated by the Board of Directors.
BONUS ENTITLEMENT
The participant will be paid a bonus for each year provided the
performance goals established by the Cash Bonus Plan administrative committee
(referred to in this section as the "Committee") for that year are met. The
bonus payment for each year will be paid on or about January 15 of the next year
unless the participant elects to defer all or a part of the bonus under the
terms of the Company's deferred compensation plan. No bonus will be paid unless
the Committee certifies that the performance goal for the year has been met.
AMOUNT OF BONUS AND ESTABLISHMENT OF PERFORMANCE GOALS
In general, if the Company achieves a specified level of earnings per
share of its common stock, determined without taking into account capital gains
or losses of the Company, the participant will receive a bonus under the Cash
Bonus Plan. Depending on the level of earnings achieved, the amount of the bonus
will vary. In no event will the bonus for a single year be in excess of
$500,000.
The performance goals described above and the percentages applicable for
the determination of the bonus payable for any year will be established by the
Committee no later than 90 days after the beginning of the year. In no case will
the performance goal be established at a time when the achievement of the goal
is not substantially uncertain. If the Committee does not establish a
performance goal for a year, the goal in effect for the prior year will be
continued in effect.
If the participant is not employed on the last day of the year, the
participant's bonus will be prorated based on the portion of the year the
participant was employed.
ADMINISTRATION OF THE CASH BONUS PLAN
The Cash Bonus Plan is administered by a committee of the Board of
Directors consisting of two or more "outside directors" (as that term is defined
for purposes of Code Section 162(m)). The resolution of any questions
16
with respect to payments and entitlements pursuant to the provisions of the Cash
Bonus Plan shall be determined by the Committee, and all such determinations
shall be final and conclusive.
AMENDMENT AND TERMINATION OF THE CASH BONUS PLAN
The Company, acting through its Board of Directors, may terminate the Cash
Bonus Plan at any time. In addition, the Cash Bonus Plan may be amended by the
Company, acting through its Board of Directors, from time to time. No actions by
the Company can be taken with respect to the Cash Bonus Plan that would reduce
the amount of a bonus payment that is due but has not yet been paid. Further, no
amendment that would increase the amount of the bonus under the Cash Bonus Plan
will be effective unless it is approved by the Committee and disclosed to and
approved by the shareholders of the Company.
FEDERAL TAX ISSUES
The Million Dollar Cap (as established under Code Section 162(m) and
related Treasury Regulations) limits the deductibility of compensation in excess
of $1,000,000 to certain employees of publicly held companies unless the
compensation comes within certain exceptions. One exception to the Million
Dollar Cap is available for "performance-based" compensation. In order for a
bonus payment to be within this exception to the Million Dollar Cap, a number of
requirements must be satisfied, including the establishment of performance goals
by a committee of two or more "outside" members of the Company's Board of
Directors (a "compensation committee"), disclosure to the shareholders of the
material terms of the cash bonus plan under which such a bonus is to be paid,
and approval by the shareholders of the cash bonus plan. Additional rules apply
to the ongoing administration of the cash bonus plan. Any cash bonus plan paying
performance-based compensation based on discretionary performance goals set by a
compensation committee is also required to be disclosed to and reapproved by
shareholders at certain intervals.
The Cash Bonus Plan is intended to pay compensation only on the attainment
of the performance goals established by the Committee. If the Cash Bonus Plan is
put into effect in accordance with its terms, the bonuses paid under the Cash
Bonus Plan should constitute "performance based" compensation that is exempt
from the Million Dollar Cap provided the continuation of the Cash Bonus Plan is
approved by the Company's shareholders, and provided further that the Cash Bonus
Plan is administered in accordance with the provisions set forth in the Cash
Bonus Plan. No bonuses are payable under the Cash Bonus Plan unless and until
the Cash Bonus Plan is reapproved by the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
6. APPROVAL OF THE PHILADELPHIA INSURANCE COMPANIES' NONQUALIFIED EMPLOYEE STOCK
PURCHASE PLAN
In March 2002, the Philadelphia Insurance Companies Nonqualified Employee
Stock Purchase Plan (the "Nonqualified Stock Purchase Plan") was adopted by the
Board of Directors, subject to the approval of the Company's shareholders. The
Nonqualified Stock Purchase Plan is an employee stock purchase plan that is not
intended to comply with the requirements of Section 423 of the Code.
Under the Nonqualified Stock Purchase Plan, subject to the approval of the
Nonqualified Stock Purchase Plan by the shareholders of the Company, shares of
the Company's common stock, no par value (the "Shares"), will be offered for
sale to employees. The purpose of the Stock Purchase Plan is to assist the
Company and its Subsidiaries in recruiting and retaining the employment of
employees by offering them a greater stake in the Company's success and a closer
identity with it, and to aid in obtaining the services of individuals whose
employment would be helpful to the Company and would contribute to its success
through a continuing opportunity to purchase shares of the Company's common
stock in periodic offerings.
The maximum number of shares available for purchase under the Nonqualified
Stock Purchase Plan is one million (1,000,000), subject to adjustment in the
event of certain events affecting the common stock of the Company, such as a
stock split or stock dividend. The provisions of the Nonqualified Stock Purchase
Plan are generally described below.
17
ELIGIBILITY
All employees of the Company and of the Company's subsidiaries which are
designated, at the discretion of the administrative committee for the
Nonqualified Stock Purchase Plan (referred to herein as the "Committee"), as
participating in the Nonqualified Stock Purchase Plan are eligible to
participate in the Nonqualified Stock Purchase Plan except employees who are
customarily employed for 20 hours per week or less, or who are customarily
employed five months per calendar year or less. Approximately six hundred (600)
employees, including the Company's executive officers, will be eligible to
participate in the Nonqualified Stock Purchase Plan.
PARTICIPATION, PAYROLL DEDUCTIONS AND PURCHASES
Employees who are eligible to participate in the Nonqualified Stock
Purchase Plan may elect to purchase Shares during one-month "offering periods"
established from time to time by the Committee. An employee elects to
participate by delivering to the Committee a subscription agreement specifying
the number of Shares to be purchased for an offering period. The purchase of the
Shares will generally occur on the last day of the offering period, and the
price for the Shares purchased is the lesser of 85% of the fair market value of
the Shares on the first business day of the offering period or the date the
Shares are purchased. Under the Nonqualified Stock Purchase Plan, fair market
value is generally determined by reference to reported prices of the Shares when
they are publicly traded, and is determined by the Committee if the Shares are
not publicly traded.
Each employee purchasing Shares under the Nonqualified Stock Purchase Plan
will be required to execute a note evidencing his or her unconditional
obligation to pay the purchase price to the Company or to any subsequent holder
of the note. Under the terms of the note, the purchase price for the Shares will
be paid by means of equal, regular payroll deductions over a period of 108
months. In the event the employee's compensation drops below the amount required
to make such payments through withholding (as a result of a leave of absence or
any other reason) the employee will be personally obligated to make the payments
required during that 108-month period. The payment of the purchase price under
the note will be without interest. If an employee ceases to be employed by the
Company or any subsidiary, the outstanding principal balance payable under his
or her note, if any, is payable in full within 30 days of terminating
employment. The Shares purchased will be held in an account and pledged as
collateral to secure repayment of the employee's note until the note is paid in
full. There is no provision for changing the manner in which payments for the
Shares are to be made, except that an employee may pay the outstanding balance
due with respect to his or her Shares at any time.
LIMITS ON PURCHASE OF SHARES
In addition to the aggregate limitation on the number of Shares available
for purchase under the Nonqualified Stock Purchase Plan, no employee shall be
permitted to purchase Shares in excess of the limitation or limitations as may
be imposed by the Committee from time to time. These limitations may be
established on an offering period basis, or on such other basis as the Committee
determines to be appropriate.
SHAREHOLDER APPROVAL AND TERM OF NONQUALIFIED STOCK PURCHASE PLAN
The adoption of the Nonqualified Stock Purchase Plan is subject to
approval by the shareholders of the Company. If the Nonqualified Stock Purchase
Plan is not approved, it will be null and void. The Nonqualified Stock Purchase
Plan shall become effective as of May 1, 2002 if approved at by the Company's
shareholders at the annual meeting scheduled for that date, and shall continue
in effect until the Nonqualified Stock Purchase Plan is terminated by action of
the Board of Directors, or as of such date as there are no additional Shares
available for purchase and no Shares previously purchased that remains subject
to the provisions of the Nonqualified Stock Purchase Plan, whichever occurs
first.
RESALE RESTRICTIONS
Any Shares purchased under the Nonqualified Stock Purchase Plan are
restricted, and may not be sold, transferred, made subject to any lien or
otherwise disposed of for a period of five years (measured from the first day of
the applicable offering period). An attempt to sell, transfer, make subject to
any lien or otherwise dispose of
18
Shares during the restricted period results in forfeiture to the Company on
payment by the Company of the lesser of the fair market value of the Shares or
the purchase price paid for the Shares. To the extent the Shares are collateral
security for any unpaid purchase price, the Shares may also be taken back by the
Company in satisfaction of the unpaid purchase price if there is an attempted
sale during the restricted period.
TERMINATION OF EMPLOYMENT
If an employee ceases to be employed by the Company or any of its
subsidiaries on account of the employee's retirement, death or disability, the
employee (or, in the case of the employee's death, the employee's beneficiary if
one has been designated or the employee's estate otherwise) will be entitled to
the Shares held in the employee's investment account maintained under the
Nonqualified Stock Purchase Plan for these purposes, provided the Participant's
payment obligation with respect to such Shares is satisfied. The Company's right
to repurchase during the five-year "restricted period" for the lesser of the
purchase price or current fair market value will lapse with respect to such an
employee's Shares. If an employee ceases to be employed by the Company or any of
its subsidiaries for any reason other than retirement, disability or death, any
Shares purchased under the Nonqualified Stock Purchase Plan which have not been
held beyond the five-year "restricted period" may be repurchased by the Company
for the lesser of the fair market value of the Shares or the purchase price paid
for the Shares. A certificate or certificates for those of the employee's Shares
which are not repurchased by the Company under the terms of the Nonqualified
Stock Purchase Plan will be issued as soon as practicable after the employee's
payment obligation is satisfied. In all events, the Shares are also collateral
security for the employee's payment obligation with respect to the purchase and
may be taken by the Company in satisfaction of that obligation following any
termination of employment if the payment obligation is not otherwise satisfied.
ADMINISTRATION OF THE NONQUALIFIED STOCK PURCHASE PLAN
The Nonqualified Stock Purchase Plan is administered by the Committee. The
Committee will be the compensation committee of the Board of Directors of the
Company, unless the Board of Directors determines to appoint a different
committee to administer the Nonqualified Stock Purchase Plan or determines to
administer the Nonqualified Stock Purchase Plan itself. The Committee has
discretionary authority to interpret the Nonqualified Stock Purchase Plan, to
issue rules for administering the Nonqualified Stock Purchase Plan, to change,
alter, amend or rescind such rules, and to make all other determinations
necessary or appropriate for the administration of the Nonqualified Stock
Purchase Plan. The Committee's determinations, interpretations and constructions
are final and conclusive. If the Committee is a committee appointed by the Board
of Directors, its members will serve at the discretion of the Board of
Directors.
AMENDMENT AND TERMINATION OF THE NONQUALIFIED STOCK PURCHASE PLAN
The Board of Directors of the Company may amend the Nonqualified Stock
Purchase Plan at its discretion except that an amendment which increases the
maximum number of shares available for purchase under the Nonqualified Stock
Purchase Plan, which materially increases the benefits accruing to employees
under the Nonqualified Stock Purchase Plan, or which expands the classes of
individuals who are eligible to participate in the Nonqualified Stock Purchase
Plan, can only be made with shareholder approval. The Board of Directors of the
Company has the right to terminate the Nonqualified Stock Purchase Plan at any
time. On termination of the Nonqualified Stock Purchase Plan, Shares held for
employees will be transferred to a successor stock purchase plan, if there is
one, or will be issued to the employees on satisfaction of all payment
obligations for the Shares.
ADJUSTMENT IN CASE OF CHANGES AFFECTING SHARES
If there is a subdivision or split of outstanding Shares, payment of a
stock dividend, or similar change affecting the Shares, the Share limits
applicable under the Plan, including the limitation on the aggregate number of
Shares available for purchases, will be adjusted appropriately, as may be deemed
equitable by the Committee.
19
CERTAIN FEDERAL INCOME TAX EFFECTS OF NONQUALIFIED STOCK PURCHASE PLAN
PARTICIPATION
The following discussion summarizes general principles of federal income tax law
applicable to the Nonqualified Stock Purchase Plan and the shares of common
stock acquired under the Nonqualified Stock Purchase Plan as of the date hereof,
The Nonqualified Stock Purchase Plan is not intended to qualify as a
"stock purchase plan" under the applicable provisions of the Internal Revenue
Code of 1986, as amended (the "Code"). As a consequence, employees will
recognize income with respect to a purchase of Shares pursuant to the
Nonqualified Stock Purchase Plan to the extent that the fair market value of the
shares acquired exceeds the price paid for the shares. Because of the
restrictions on the employees' ability to sell the shares acquired, and the
Company's right to repurchase the shares if the employee's service with the
Company terminates prior to the end of the [required holding period], the
determination of the income required to be recognized by a participant in the
Nonqualified Stock Purchase Plan is generally not made until the lapse of those
restrictions. Alternatively, if the participant files properly an election under
Section 83(b) of the Code to include in income the value of the shares over the
price paid for them as of the date of the purchase, the determination of the
amount of income will be made immediately on the date of purchase and will be
required to be included in the participant's taxable year within which the
purchase occurs.
On a sale of shares acquired under the Nonqualified Stock Purchase Plan,
the employee will recognize a long or short term capital gain or loss. The
holding period for these purposes commences as of the date the employee is
required to treat the receipt of the shares as triggering income (either the
date of purchase if the employee timely files and election under Section 83(b)
of the Code, or the date the restrictions on the shares lapse, if no such
election is filed). The amount of the gain or loss is measured by reference to
the adjusted basis of the shares, which will generally be the fair market value
of the shares as of the date the employee is required to treat their receipt as
triggering income.
The purchase of Shares under the Nonqualified Stock Purchase Plan may also
result in continuing income recognition by participating employees attributable
to the interest free payment obligation. Specifically, to the extent a loan from
the Company to an employee is subject to certain below market loan provisions of
the Code, the employee will be deemed to have compensation income equal to the
amount of the interest that is foregone (using certain statutory presumptions
concerning the appropriate interest rate) and a corresponding deduction for
compensation expense that will be recognized by the employer.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSALS OF SHAREHOLDERS
It is currently contemplated that the Company's 2003 Annual Meeting of
Shareholders will be held on May 1, 2003. Proposals of shareholders intended to
be presented at the Annual Meeting of Shareholders in 2003 must be received by
December 10, 2002 in order to be considered for inclusion in the Company's proxy
statement and form of proxy related to that meeting. Shareholder proposals
should be directed to the President of the Company at the address of the Company
set forth on the first page of this proxy statement. A proposal that does not
comply with the applicable requirements of Rule 14a-8 under the 1934 Act will
not be included in the Company's proxy soliciting material for the 2003 Annual
Meeting of Shareholders.
A shareholder of the Company may wish to have a proposal presented at the
2003 Annual Meeting of Shareholders but not to have the proposal included in the
Company's proxy statement and form of proxy relating to that meeting. If notice
of any such proposal (addressed to the President of the Company at the address
of the Company set forth on the first page of this proxy statement) is not
received by the Company by February 24, 2003, then such proposal shall be deemed
"untimely" for purposes of Rule 14a-4(c) promulgated under the 1934 Act and,
therefore, the individuals named in the proxies solicited on behalf of the Board
of Directors of the Company for use at the Company's 2003 Annual Meeting of
Shareholders will have the right to exercise discretionary voting authority as
to that proposal.
20
APPENDIX TO 2002 PROXY STATEMENT
PHILADELPHIA CONSOLIDATED HOLDING CORP.
EMPLOYEE'S STOCK OPTION PLAN
(Amended and Restated effective March 24, 2002)
Philadelphia Consolidated Holding Corp., a Pennsylvania corporation
(referred to herein, along with its subsidiaries, as appropriate, as the
"Company"), hereby amends and restates its Employees' Stock Option Plan
(formerly, the Philadelphia Consolidated Holding Corp. Key Employee's Stock
Option Plan, referred to herein as the "Plan") to read in its entirety as
follows:
1. Purpose. The purpose of the Plan is to secure for the Company the
benefits of the additional incentive inherent in the ownership of its Common
Stock by selected employees of the Company and its subsidiaries, and to help the
Company and its subsidiaries secure and retain the services of such employees.
2. Stock Option Committee. The Plan shall be administered by the Company's
Compensation Committee, and/or by another committee or committees as may be
designated by the Company's Board of Directors, or by the Company's Board of
Directors itself (any such committee or committees and the Board of Directors in
its capacity as administrative committee for the Plan are referred to herein as
the "Committee"). The Committee shall, to the extent possible and to the extent
the Board of Directors determines it to be appropriate, consist of two or more
members of the Board of Directors who qualify as "Non-employee Directors." For
these purposes, the term "Non-employee Director" means a member of the Company's
Board of Directors who qualifies both as a "non-employee" director as that term
is defined in paragraph (b)(3) of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, and as an "outside" director as that term is defined in
Treasury Regulation Section 1.162-27.
3. Employee Options. The Committee shall have the authority and
responsibility, within the limitations of the Plan, to determine the employees
to whom stock options ("Employee Options") are to be granted pursuant to this
paragraph 3, the number of shares that may be purchased under each Employee
Option, and the exercise price of the Option (the "Option Price").
Notwithstanding anything contained herein to the contrary, no employee shall be
granted Employee Options to acquire more than one hundred thousand (100,000)
shares (subject to adjustment consistent with paragraph 12, below) of Company
Common Stock during any calendar year.
In determining the employees to whom Options shall be granted and number of
shares to be covered by each such Employee Option, the Committee shall take into
consideration the employee's present and potential contribution to the success
of the Company and its subsidiaries and such other factors as the Committee may
deem proper and relevant. Employees who are also officers or directors of the
Company or its subsidiaries shall not by reason of such offices be ineligible to
receive Employee Options under the Plan; members of the Committee shall,
however, be ineligible to receive Employee Options under this Plan.
An employee receiving any Employee Option is hereafter referred to as an
"Employee Optionee". Any reference herein to the employment of an Employee
Optionee with the Company shall include his employment with the Company or any
of its subsidiaries.
APPENDIX TO 2002 PROXY STATEMENT
4. Stock Subject to Options. Subject to adjustment in accordance with
paragraph 12, options to purchase a total of 3,500,000 shares of Common Stock
(taking into account options previously granted under this Plan prior to this
amendment and restatement) are authorized for issuance under this Plan. If, and
to the extent that, stock options granted under this Plan ("Options") terminate
or expire without the Options being exercised, new options may be granted with
respect to the shares covered by such terminated or expired Options provided
that the granting and terms of such new Options shall in all respects comply
with the provision of this Plan.
Shares distributed under this Plan may be shares of Common Stock purchased by
the Company for use with respect to the Plan or otherwise, shares of the
Company's authorized and unissued Common Stock, shares of the Company's issued
Common Stock held in the Company's treasury, or any combination of such shares.
There shall be reserved at all times for issuance under this Plan a number of
shares of Common Stock (either authorized and unissued shares or shares held in
the Company's treasury, or both) equal to the maximum number of shares which may
be distributed under this Plan.
5. Option Price of Each Employee Option. The Option Price of each Option
shall be the fair market value of a share of the Company's Common Stock at the
time the Option is granted, as determined by the Committee. For these purposes,
the fair market value of the Common Stock shall be equal to the closing price of
the Common Stock on the day of grant as reported on the National Market System
of the National Association of Securities Dealers, Inc. Automated Quotation
System, or as reported on such other stock exchange, wherever the Common Stock
may be listed, on such date as reported in the Wall Street Journal, or if there
is no closing price reported, then fair market value of the Common Stock shall
mean the average between the closing bid and asked prices for the Common Stock
on such date as reported. If there are no sales reports or bid or asked
quotations, as the case may be, for a given date, the closest preceding date on
which there were sales reports or bid or asked quotations shall be used, as
applicable and as the Committee may determine.
6. Expiration and Termination of the Plan. Options may be granted under
this Plan at any time and from time to time, and such Options shall remain in
effect until they have been exercised or have terminated pursuant to paragraph 8
below. This Plan may be terminated or modified at any time by the Company's
Board of Directors except with respect to any Options then outstanding under the
Plan; provided that the approval of the Company's shareholders shall be required
for each amendment that would materially increase the benefits accruing to
participants under this plan, increase the number of shares which may be issued
under this Plan, or materially modify the requirements as to eligibility for
participation in this Plan.
No modification, extension, renewal or other change in any Option granted under
this Plan shall be made after the grant of such Option, unless the same is
consistent with the provisions of this Plan.
-2-
APPENDIX TO 2002 PROXY STATEMENT
7. Exercisability and Duration of Options.
(a) An Employee Option granted under this Plan shall become
exercisable in accordance with such schedule or terms as may
be determined at the discretion of the Committee and as set
forth in the documentation provided to the Employee at the
time an Employee Option is granted.
(b) The unexercised portion of any Employee Option granted under
this Plan shall automatically and without notice terminate and
become null and void at the time of the earliest to occur of
the following:
(1) the expiration of ten years from the date on which such
option was granted;
(2) the expiration of 30 days from the date of not-for-cause
termination of the Optionee's employment with the
Company; provided that if the Optionee shall die during
such 30 day period the provisions of sub-paragraph (3)
below shall apply;
(3) the expiration of six months following the issuance of
letters testamentary or letters of administration to the
executor or administrator of a deceased Optionee, if the
Optionee's death occurs either during his employment
with the Company or during the 30 day period following
the date of a not-for-cause termination of such
employment, but not later than one year after the
Optionee's death;
(4) the termination of the Optionee's employment with the
Company for cause, including breach by the Optionee of
an employment agreement with the Company or any of its
subsidiaries or the Optionee's commission of a felony or
misdemeanor (whether or not prosecuted) against the
Company or any of its subsidiaries;
(5) the expiration of such period of time or the occurrence
of such event as the Committee in its discretion may
provide upon the granting thereof.
(c) Notwithstanding any other provision of this Plan to the
contrary, Employee Options, whenever granted, that became
immediately exercisable upon the Company's consummation of its
initial public offering shall not by reason thereof be deemed
to conflict with the provisions of this Plan; and Employee
Options granted prior to the effective date of the
registration statement under the Securities Exchange Act of
1934 with respect to the Company's Common Stock pursuant to a
delegation of authority from the Committee shall not be deemed
to conflict with the provisions of this Plan by reason of such
delegation.
-3-
APPENDIX TO 2002 PROXY STATEMENT
8. Exercise of Options. Options granted under this Plan shall be exercised
by the Optionee (or by his executors and administrators, as provided in
paragraph 9) as to all or part of the shares covered thereby, by the giving of
notice of the exercise thereof to the Company at its principal business office,
specifying the number of shares to be purchased and specifying a business day
not more than 15 days from the date such notice is given, for the payment of the
purchase price, by certified or cashier's check or wire transfer, against
delivery of the shares being purchased. At the discretion of the Committee, an
Optionee can be required to provide up to five business days notice of his or
her intention to exercise an Option; provided, however, that if notice is given
prior to the termination date of an Option, the Option shall not terminate
merely by reason of the subsequent occurrence of the termination date during the
five day notice period. The giving of such notice to the Company shall
constitute an irrevocable election to purchase the number of shares specified in
the notice, which may be specifically enforced by the Company.
The Company shall cause certificates for the shares so purchased to be delivered
to the Optionee or his executors or administrators at its principal business
office, against payment of the purchase price, on the date specified in the
notice of exercise, subject to an amount equal to the income taxes required to
be withheld by the Company from the Optionee with respect to such purchase being
paid to the Company on such date.
Notwithstanding anything contained herein to the contrary, the Committee may
provide in the option documents provided with respect to any Option granted
under the Plan for alternative means whereby the Option may be exercised,
including, but not limited to withholding a number of shares otherwise
transferable to the Optionee for the purpose of satisfying any applicable
withholding obligations or for payment of the Option Price and permitting any
other method of "cashless" exercise, such provisions to be included and/or
limited at the sole discretion of the Committee.
9. Nontransferability of Option. No Option granted under this Plan shall
be transferable by the Optionee other than to the Optionee's executors or
administrators by will or the laws of descent and distribution. Notwithstanding
the foregoing, any Option may be transferred (i) pursuant to the terms of a
"qualified domestic relations order," within the meaning of Sections 401(a)(13)
and 414(p) of the Code or within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, as amended, or (ii), to the extent
provided for in the option documents provided with respect to any Option granted
under the Plan, at the discretion of the Committee, by the Optionee to his or
her children, grandchildren or spouse or to one or more trusts for the benefit
of such family members or to partnerships in which such family members are the
only partners, provided that the Optionee receives no consideration for a Family
Transfer and provided further that any Options so transferred continue to be
subject to the same terms and conditions that were applicable to such Options
immediately prior to the transfer.
In the event of the Optionee's death during his employment with the Company, his
Option shall, unless previously transferred as specifically permitted under this
Paragraph 9, be exercisable thereafter in accordance with the terms and
conditions of the Option only by his or her executors or administrators.
-4-
APPENDIX TO 2002 PROXY STATEMENT
10. Rights of Optionee. Neither the Optionee nor his executors or
administrators shall have any of the rights of a stockholder of the Company with
respect to the shares subject to any Option until certificates for such shares
shall have been issued and distributed.
11. Right to Terminate. Nothing in this Plan shall confer upon any
Optionee the right to continue as an employee or director of the Company or
affect the right of the Company or any of its subsidiaries to terminate the
Optionee's employment or directorship at any time, subject, however, to
applicable law and the provisions of any agreement of employment between the
Company or any of its subsidiaries and the Optionee.
12. Adjustment Upon Changes in Capitalization, etc.. In the event of any
stock split, stock dividend, reclassification or recapitalization which changes
the character or amount of the Company's outstanding Common Stock while any
portion of any Option theretofore granted under this Plan is outstanding but
unexercised, the Committee shall make such adjustments in the character and
number of shares subject to the Option and in the Option Price as shall be
equitable and appropriate in order to make the Option as nearly as may be
practicable equivalent to such Option immediately prior to such change; provided
that no such adjustment shall give the Optionee any additional benefits under
his Option.
If the Company participates in any transaction resulting in a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board of Directors of the Company or any surviving or acquiring
corporation shall take such action as is equitable and appropriate to substitute
a new stock option for the old one, or to assume the old option, in order to
make the new option, as nearly as may be practicable, equivalent to the old
option.
If any such change or transaction shall occur, the number and kind of shares for
which stock options may thereafter be granted under the Plan shall be adjusted
to give effect thereto.
13. Form of Agreements with Optionee. Each Option granted under this Plan
shall be substantially in a form to be drafted by the Committee consistent with
the provisions of this Plan.
14. Purchase for Investment and Legality. The Optionee, by his acceptance
of an Option granted under this Plan, shall represent and warrant to the Company
that his purchase and receipt of shares of Common Stock thereunder shall be for
investment and not with a view to distribution, provided that such
representation and warranty shall be inoperative if, in the opinion of counsel
to the Company, a proposed sale or distribution of such shares is pursuant to an
applicable effective registration statement under the Securities Act of 1933 or
is exempt from registration under such Act.
The obligation of the Company to issue shares upon the exercise of an Option
shall also be subject as conditions precedent to compliance with applicable
provisions of the Securities Act of 1933, the Securities Exchange Act of 1934,
state securities laws, rules and regulations under any of the foregoing and
applicable requirements of any securities exchange or market upon which the
Company's securities shall be listed.
The Company may endorse an appropriate legend referring to the foregoing
restrictions upon the certificate or certificates representing any shares issued
or transferred to the Optionee upon the exercise of any Option granted under
this Plan.
-5-
APPENDIX TO 2002 PROXY STATEMENT
15. Withholding. The Company may make such provisions as it may deem
appropriate for the withholding of any taxes or payment of any taxes which it
determines it may be required to withhold or pay in connection with any Shares.
The obligation of the Company to deliver certificates under this Plan is
conditioned upon the satisfaction of the provisions set forth in the preceding
sentence.
16. Effective Date of Plan. This amended and restated Plan shall become
effective upon its adoption by the Board of Directors of the Company, subject
however to its approval by the Company's stockholders after the date of such
adoption.
-6-
APPENDIX TO 2002 PROXY STATEMENT
PHILADELPHIA INSURANCE COMPANIES
NONQUALIFIED EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
(a) The purpose of the Philadelphia Insurance Companies Nonqualified
Employee Stock Purchase Plan (the "Plan") is to assist the Philadelphia
Consolidated Holding Corp., a Pennsylvania corporation (the "Company"), and its
Subsidiaries in recruiting and retaining the employment of employees by offering
them a greater stake in the Company's success and a closer identity with it, and
to aid in obtaining the services of individuals whose employment would be
helpful to the Company and would contribute to its success by providing
employees a continuing opportunity to purchase Shares (as hereinafter defined)
from the Company through periodic offerings.
(b) The Plan is not intended to comply with the provisions of
Section 423 of the Code (as hereinafter defined).
2. Definitions. For purposes of the Plan:
(a) "Agent" means the person or persons appointed by the Board in
accordance with Section 3(d).
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee described in Section 3.
(e) "Disability" means a condition such that an Eligible Employee
retires from employment with the Company or its Subsidiaries and qualifies for
disability benefits on account of "total disability" under the applicable
provisions of the Company's long term disability plan then in effect, or, if no
such plan is then in effect, "Disability" means a condition such that an
Eligible Employee is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
(f) "Eligible Employee" means an employee of the Company or
Subsidiary who is described in Section 4.
(g) "Employer" means the Company or Subsidiary for whom an Eligible
Employee is performing services at the time the Eligible Employee becomes a
Participant.
(h) "Fair Market Value" on any date means the closing price for
Shares as reported on the NASDAQ National Market, or as reported on such other
stock exchange, wherever the Shares may be listed, on such date as reported in
the Wall Street Journal, or if there is no closing price reported, then Fair
Market Value of a Share shall mean the average between the closing bid and asked
prices for Shares on such date as reported. If there are no sales reports
APPENDIX TO 2002 PROXY STATEMENT
or bid or asked quotations, as the case may be, for a given date, the closest
preceding date on which there were sales reports or bid or asked quotations
shall be used. If the Committee determines, in its discretion, that such
valuation does not accurately reflect the value of the Shares or if Shares are
not publicly traded, the Fair Market Value of a Share shall be determined by the
Committee.
(i) "Investment Account" means the account established for a
Participant pursuant to Section 8(b) to hold Shares acquired for a Participant
pursuant to the Plan.
(j) "NASDAQ" means the National Association of Security Dealers,
Inc. Automated Quotations System.
(k) "Offering Period" means each one month period designated at the
discretion of the Committee as an Offering Period.
(l) "Participant" means an Eligible Employee who makes an election
to participate in the Plan in accordance with Section 5 as well as any former
employee to the extent such former employee has any Shares held for his or her
benefit in an Investment Account.
(m) "Plan Year" means the 12 month period commencing each January 1
and ending on the subsequent December 31. Notwithstanding the foregoing, the
first Plan Year shall be the period from May 1, 2002 and ending on December 31,
2002.
(n) "Purchase Date" means the last business day of each Offering
Period.
(o) "Purchase Price" means the lesser of 85% of the Fair Market
Value of a Share on (i) the first business day of the Offering Period or (ii)
the Purchase Date.
(p) "Restricted Period" means the five year period described in
Section 6(e).
(q) "Share" or "Shares" means a share or shares of Common Stock, no
par value, of the Company.
(r) "Subscription Agreement" means the agreement, in a form
established by the Committee, between the Participant and the Employer pursuant
to which the Participant agrees to purchase Shares pursuant to the Plan.
(s) "Subsidiary" means any corporation that, at the time in
question, is a subsidiary corporation of the Company, within the meaning of
Section 424(f) of the Code.
3. Administration of the Plan. The Plan shall be administered by the
Company's compensation committee, or by such other committee or committees as
may be designated by the Board, or by the Board itself, as determined from time
to time at the discretion of the Board. The compensation committee of the
Company or any other committee designated to administer the Plan by the Board,
or the Board in its capacity as administrator of the Plan are all referred to
herein as the "Committee." Subject to the express provisions of the Plan, the
Committee shall have full discretionary authority to interpret the Plan, to
issue rules for administering the Plan, to change, alter, amend or rescind such
rules, and to make all other determinations necessary or
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APPENDIX TO 2002 PROXY STATEMENT
appropriate for the administration of the Plan. All determinations,
interpretations and constructions made by the Committee with respect to the Plan
shall be final and conclusive.
(a) Meetings. The Committee shall hold meetings at such times and
places as it may determine, shall keep minutes of its meetings, and shall adopt,
amend and revoke such rules or procedures as it may deem proper; provided,
however, that it may take action only upon the agreement of a majority of the
whole Committee. Any action which the Committee shall take through a written
instrument signed by a majority of its members shall be as effective as though
it had been taken at a meeting duly called and held. The Committee shall report
all actions taken by it to the Board of Directors.
(b) Exculpation. No member of the Committee shall be personally
liable for monetary damages as such for any action taken or any failure to take
any action in connection with the administration of the Plan unless (i) the
member of the Committee has breached or failed to perform the duties of his
office under Subchapter B of Chapter 17 of the Pennsylvania Business Corporation
Law of 1988, as amended, and (ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness; provided, however, that the
provisions of this Section 3(b) shall not apply to the responsibility or
liability of a member of the Committee pursuant to any criminal statute or to
the liability of a member of the Committee for the payment of taxes pursuant to
local, state or federal law.
(c) Indemnification. Service on the Committee shall constitute, for
purposes of rights to indemnification from the Company, service as a member of
the Board of Directors of the Company. Each member of the Committee shall be
entitled, without further act on his part, to indemnity from the Company and
limitation of liability to the fullest extent provided by applicable law and by
the Company's Articles of Incorporation and/or bylaws in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan in which he or she may be involved by reason of his or her being or
having been a member of the Committee, whether or not he or she continues to be
such member of the Committee at the time of the action, suit or proceeding.
(d) Agent. The Committee may engage an Agent to purchase Shares on
each Purchase Date and to perform custodial and recordkeeping functions for the
Plan, such as holding record title to the Participants' Share certificates,
maintaining an individual Investment Account for each such Participant and
providing periodic status reports to such Participants.
(e) Delegation. The Committee shall have full discretionary
authority to delegate ministerial functions to management of the Company.
4. Eligibility. All employees of the Company, and of such of its
Subsidiaries as may be designated for such purpose from time to time by the
Committee, shall be eligible to participate in the Plan as of the first day of
an Offering Period, provided each of such employees:
(a) is customarily employed for more than 20 hours per week; and
(b) is customarily employed more than five months per calendar year.
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APPENDIX TO 2002 PROXY STATEMENT
5. Election to Participate.
(a) Initial Subscription Agreements. Each Eligible Employee may
become a Participant by filing with the Committee a Subscription Agreement
specifying the number of Shares to be purchased during an Offering Period.
(b) Subsequent Subscription Agreements. In order to participate in
the Plan for any subsequent Offering Period, an Eligible Employee must file with
the Committee a new Subscription Agreement specifying the number of Shares to be
purchased during such Offering Period.
6. Conditions and Terms of Purchases of Shares.
(a) The number of Shares that are to be purchased under a
Subscription Agreement shall not exceed the limitations established pursuant to
Section 7.
(b) Except as otherwise provided in the Plan, any Eligible Employee
purchasing Shares under the Plan shall, at the time of such purchase, sign a
note to the order of the Company in such form as the Committee may approve, for
the Purchase Price of such Shares. The terms of the note shall provide for
payment of the Purchase Price by means of equal, regular payroll deductions over
a period of 108 months (without interest), commencing as of the first day of the
month following the end of the Offering Period; provided however that, in the
event the Eligible Employee terminates his or her employment with the Company or
a Subsidiary at any time prior to the payment in full of the Purchase Price, the
entire remaining amount payable under such note shall become payable in full
within 30 days of the date of such termination of employment. In the event such
remaining amount is not paid in full within 30 days of such termination of
employment, the remaining amount payable shall accrue interest at the lesser of
three (3) percentage points over the Prime Rate as quoted in the Money Rates
section of the Wall Street Journal, or the highest rate permitted by law. A
Participant may pay the outstanding balance due under his or her note with
respect to the Purchase Price of Shares under the Plan at any time. If, at any
time, an Eligible Employee's compensation drops below the amount required to
make any payments required under the note, or under any subsequent extension of
the note, through regular payroll deductions (as a result of a leave of absence
or any other reason), such Eligible Employee shall be be personally obligated to
make the monthly payments required under the note.
(c) Until such time as the Purchase Price is paid in full, the
Shares purchased under the Plan may not be sold, transferred or otherwise
disposed of and shall be pledged by the Eligible Employee and held by the
Company as collateral securing such payment obligation. In the event an Eligible
Employee fails to comply with the terms for payment of the Purchase Price set
forth above, the Company shall have the right to take that number of Shares as
is required to satisfy the outstanding balance due with respect to the Purchase
Price (such number of Shares being determined by reference to the Fair Market
Value as of such date), and the Eligible Employee shall have no further rights
with respect to such Shares.
(d) In the alternative, on a termination of employment by an
Eligible Employee who has a remaining balance payable with respect to any note
for Shares purchased
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APPENDIX TO 2002 PROXY STATEMENT
under the Plan, the Company shall have the right to repurchase any Shares that
are held in an Investment Account for such Eligible Employee as follows: The
Company shall repurchase Shares which have not been held beyond the Restricted
Period applicable to such Shares, paying the lesser of Fair Market Value or the
Purchase Price of such Shares. The amount payable by the Company pursuant such
repurchase shall be retained as an offset against amounts owed to the Company
under the terms of Eligible Employee's note. If, after the repurchase of such
Shares, any amounts are still owed to the Company under the terms of such note,
the Company shall have the further right to repurchase at Fair Market Value
Shares which have been held beyond the Restricted Period applicable to such
Shares. The amounts payable by the Company pursuant to such repurchase of
additional Shares shall also be retained by the Company as an offset against the
Eligible Employee's obligations under the note. Once the Eligible Employee's
payment obligation under the note has been satisfied through such set-offs as
described above, certificates for the Shares remaining in such Eligible
Employee's Investment Account, if any, shall be distributed to such Eligible
Employee.
(e) Any Shares purchased pursuant to the Plan shall be restricted
for a period of five years, measured from the first day of the relevant Offering
Period (the "Restricted Period"). Any attempt to sell, transfer, make subject to
any lien, or otherwise dispose of such Shares prior to the end of the Restricted
Period shall be null and void, and such Eligible Employee shall forfeit all
rights to such Shares on receipt of payment from the Company of the lesser of
Fair Market Value or the Purchase Price of such Shares. All certificates for
Shares shall be legended so as to indicate the restrictions on sales of such
Shares under the Plan in the manner and to the extent required by law.
7. Limit on Purchase of Shares. The Committee may set such limitations on
the number of Shares available for purchase during any one Offering Period as it
determines to be appropriate from time to time, at its sole discretion.
8. Method of Purchase and Investment Accounts.
(a) Exercise of Option for Shares. Except as otherwise provided in
the Plan, each Participant having elected to participate in the Plan pursuant to
a properly filed Subscription Agreement consistent with the provisions of
Section 5 shall be deemed, without any further action, to have exercised on the
Purchase Date applicable to such Subscription Agreement, the option to purchase
the number of Shares specified in the Subscription Agreement consistent with the
terms for such purchase set forth in the Plan.
(b) All Shares so purchased shall, until both the Restricted Period
applicable to such Shares has passed and the Participant's payment obligation
for such Shares is satisfied, be held in a separate Investment Account
established for each Participant. All Shares held in such Investment Accounts
shall be security with respect to the Participant's payment obligation for such
Shares under the terms of such Participant's Subscription Agreement until
payment in full of such obligation.
(c) Dividends or Other Distributions on Shares Held in Investment
Accounts. All cash dividends or other distributions paid with respect to Shares
at any time the Participant has an unpaid payment obligation for such Shares
shall be retained by the Company and treated
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APPENDIX TO 2002 PROXY STATEMENT
as additional amounts paid with respect to such payment obligation. Cash
dividends or other distributions paid with respect to Shares after the payment
obligation for such Shares has been satisfied shall be paid to the Participant.
(d) Adjustment of Shares on Application of Share Limits. If the
total number of Shares that would be purchased pursuant to properly filed
Subscription Agreements for a particular Offering Period exceeds the number of
Shares then available for purchase under the Plan, either as to that Offering
Period, or by reason of the limitation on the aggregate number of Shares
available under the Plan, then the number of available Shares shall be allocated
among the Participants filing Subscription Agreements for such Offering Period
pro-rata on the basis of the number of Shares set forth in each such
Subscription Agreement. The payment obligation for each such Subscription
Agreement shall be deemed modified to take into account the purchase of a number
of Shares that is less than the number specified in the Subscription Agreement.
9. Shares Subject to Plan. The aggregate maximum number of Shares that may
be issued pursuant to the Plan is one million (1,000,000), subject to adjustment
as provided in Section 17 of the Plan. The Shares delivered pursuant to the Plan
may, at the option of the Company, be Shares purchased specifically for purposes
of the Plan, shares otherwise held in treasury or Shares originally issued by
the Company for such purpose.
10. Distribution of Certificates. Each Participant shall receive a
certificate or certificates for those Shares held in an Investment Account for
the benefit of such Participant as soon as practicable following the end of the
Restricted Period applicable to such Shares, provided the payment obligation
with respect to such Shares has been fully satisfied.
11. Registration of Certificates. Each certificate withdrawn by a
Participant may be registered only in the name of the Participant, or, if the
Participant so indicated on the Participant's Subscription Agreement, in the
Participant's name jointly with a member of the Participant's family, with right
of survivorship. A Participant who is a resident of a jurisdiction which does
not recognize such a joint tenancy may have certificates registered in the
Participant's name as tenant in common or as community property with a member of
the Participant's family without right of survivorship.
12. Voting. The Agent shall vote all Shares held in an Investment Account
in accordance with the Participant's instructions.
13. Retirement, Death or Other Termination of Employment.
(a) In the event of a Participant's termination on account of
retirement, death or Disability, the Participant, or the Participant's
beneficiary, if one has been designated, or the Participant's estate, as the
case may be, shall be entitled to the Shares held in the Participant's
Investment Account provided the Participant's payment obligation with respect to
such Shares is satisfied. The Restricted Period shall cease to be applicable to
the Shares of a Participant whose termination of employment is described in this
Section 13(a). The Participant, or the Participant's beneficiary or estate, as
the case may be, shall be issued a certificate or certificates for such Shares
as soon as practicable after the payment obligation is satisfied.
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APPENDIX TO 2002 PROXY STATEMENT
(b) In the event of a Participant's termination of employment for
any reason other than a termination of employment described in Section 13(a),
the Participant shall be entitled to the Shares which have been held beyond the
Restricted Period applicable to such Shares, provided the Participant's payment
obligation with respect to such Shares is satisfied. With respect to those
Shares for which the Restricted Period has not passed, the Company shall have
the right, but not the obligation, to repurchase any such Shares for the lesser
of Fair Market Value or the Purchase Price of such Shares. If the Company does
not so elect to repurchase such Shares, the Participant shall be entitled to
such Shares provided the Participant's payment obligation with respect to such
Shares is satisfied. The Participant shall be issued a certificate or
certificates for any Shares to which the Participant is entitled as soon as
practicable after the payment obligation is satisfied.
(c) In the event the Participant, or the Participant's beneficiary
or estate, as the case may be, fails to satisfy the remaining payment obligation
with respect to any Shares, such payment obligation shall be satisfied by the
Company by means of the repurchase of Shares held in the Participant's
Investment Account consistent with the provisions for repurchase of Shares set
forth in Section 6(c) above, provided, however, that in the case of a repurchase
of Shares following the retirement, death or Disability of a Participant, all
such repurchases shall be at Fair Market Value.
14. Rights Not Transferable. Except as permitted under Section 13, rights
under the Plan are not transferable by a Participant and are exercisable during
the Participant's lifetime only by the Participant.
15. No Right to Continued Employment. Neither the Plan nor any right
granted under the Plan shall confer upon any Participant any right to
continuance of employment with the Company or any Subsidiary, or interfere in
any way with the right of the Company or Subsidiary to terminate the employment
of such Participant.
16. Application of Funds. All funds received or held by the Company under
this Plan may be used for any corporate purpose.
17. Adjustments in Case of Changes Affecting Shares. In the event of a
subdivision or split of outstanding Shares, or the payment of a stock dividend,
the Share limit set forth in Section 9 shall be adjusted proportionately, and
such other adjustments (including adjustments to the determination of the
purchase price) shall be made as may be deemed equitable by the Committee.
18. Amendment of the Plan. The Board of Directors of the Company may at
any time, or from time to time, amend the Plan in such manner as it may deem
advisable; provided, however, that any amendment which increases the maximum
number of shares available for purchase under the Plan, which materially
increases the benefits accruing to employees under the Plan, or which expands
the classes of individuals who are eligible to participate in the Plan, shall
not be effective except on the approval of the Company's shareholders.
19. Termination of the Plan. The Plan and all rights of Eligible Employees
under any offering hereunder shall terminate at such time as the Board of
Directors, at its discretion,
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APPENDIX TO 2002 PROXY STATEMENT
determines to terminate the Plan. Upon termination of this Plan, any Shares held
in Investment Accounts for Participants shall be carried forward into the
Participant's Investment Account under a successor plan, if any, or, if there is
no successor plan, certificates for such Shares shall be forwarded to the
Participant upon satisfaction of all payment obligations for such Shares.
20. Governmental Regulations.
(a) Anything contained in this Plan to the contrary notwithstanding,
the Company shall not be obligated to sell or deliver any Shares certificates
under this Plan unless and until the Company is satisfied that such sale or
delivery complies with (i) all applicable requirements of the governing body of
the principal market in which such Shares are traded, (ii) all applicable
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder and (iii) all other laws or regulations by which the
Company is bound or to which the Company is subject.
(b) The Company (or a Subsidiary) may make such provisions as it may
deem appropriate for the withholding of any taxes or payment of any taxes which
it determines it may be required to withhold or pay in connection with any
Shares. The obligation of the Company to deliver certificates under this Plan is
conditioned upon the satisfaction of the provisions set forth in the preceding
sentence.
21. Section 16 Restrictions for Officers and Directors. Notwithstanding
any other provision of the Plan, each officer (for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), and director
of the Company shall be subject to such restrictions as are required so that
transactions under the Plan by such officer or director shall be exempt from
Section 16(b) of the Exchange Act.
22. Repurchase of Shares. The Company shall not be required to repurchase
from any Participant any Shares which such Participant acquires under the Plan.
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