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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14A-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Additional Materials Commission Only (as permitted)
[ ] Soliciting Material Pursuant to by Rule 14a-6(e)(2)
Rule 14a-11(c) or Rule 14a-12
HOMEFED CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[x] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not applicable
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(2) Aggregate number of securities to which transaction applies: Not
applicable.
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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): Not
applicable.
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(4) Proposed maximum aggregate value of transaction: Not applicable.
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(5) Total Fee Paid: Not applicable.
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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: Not applicable.
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(2) Form, Schedule or Registration Statement No.: Not applicable.
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(3) Filing Party: Not applicable.
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(4) Date Filed: Not applicable.
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November 18, 1999
76830.0194
HOMEFED CORPORATION
1903 WRIGHT PLACE
SUITE 220
CARLSBAD, CALIFORNIA 92008
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 14, 1999
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November 22, 1999
To Our Common Stockholders:
You are cordially invited to attend the Annual Meeting of
Stockholders (the "Meeting") of HomeFed Corporation (the "Company") to be held
on December 14, 1999, at 2:00 p.m., at Grand Pacific Palisades Resort and Hotel,
5805 Armada Drive, Carlsbad, California 92008, Ballroom A:
1. To elect six Directors.
2. To consider and vote upon a proposal to approve the Company's 1999
Stock Incentive Plan.
3. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors to audit the Consolidated Financial Statements of the
Company and its subsidiaries for the year ended December 31, 1999.
4. To transact such other business as may properly come before the
Meeting or any adjournments of the Meeting.
We will be giving a tour of our San Elijo Hills project for
interested Stockholders. The tour will begin at 11:00 a.m. on the morning of the
Annual Meeting and will last approximately two hours. If you would like to take
this tour, please call Hale Yahyapour at (760) 602-3787, before December 6, 1999
to reserve a place on the tour for you and one invited guest. The tour will
depart from the Grand Pacific Palisades Resort and Hotel. For directions to the
hotel, please call Hale Yahyapour at (760) 602-3787.
Only holders of record of the Company's common stock at the close of
business on November 17, 1999 will be entitled to notice of and to vote at the
Meeting. Please sign, date and mail the enclosed proxy so that your shares may
be represented at the Meeting if you are unable to attend and vote in person.
By Order of the Board of Directors.
CORINNE A. MAKI
Secretary
HOMEFED CORPORATION
1903 WRIGHT PLACE
SUITE 220
CARLSBAD, CALIFORNIA 92008
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
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November 22, 1999
This Proxy Statement is being furnished to the Stockholders (the
"Stockholders") of HomeFed Corporation, a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of Directors for use
at the Annual Meeting of Stockholders (the "Meeting") of the Company to be held
on December 14, 1999 and at any adjournments thereof.
At the Meeting, Stockholders will be asked:
1. To elect six Directors.
2. To consider and vote upon a proposal to approve the Company's 1999
Stock Incentive Plan.
3. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors to audit the Consolidated Financial Statements of the
Company and its subsidiaries for the year ended December 31, 1999.
4. To transact such other business as may properly come before the
Meeting or any adjournments of the Meeting.
The Board of Directors has fixed the close of business on November
17, 1999 as the record date (the "Record Date") for the determination of the
holders of the Company's common stock, par value $.01 per share (the "Common
Stock") entitled to notice of and to vote at the Meeting. Each such Stockholder
will be entitled to one vote for each share of Common Stock held on all matters
to come before the Meeting and may vote in person or by proxy authorized in
writing. At the close of business on November 17, 1999, there were 56,557,826
shares of Common Stock entitled to vote.
This Proxy Statement and the accompanying form of proxy are first
being sent to holders of the Common Stock on or about November 22, 1999.
THE MEETING
DATE, TIME AND PLACE
The Meeting will be held on December 14, 1999, at 2:00 p.m., local
time, at Grand Pacific Palisades Resort and Hotel, 5805 Armada Drive, Carlsbad,
California 92008, Ballroom A.
MATTERS TO BE CONSIDERED
At the Meeting, Stockholders will be asked to consider and vote to
elect six Directors, to approve the 1999 Stock Incentive Plan and to ratify the
selection of independent auditors. See "ELECTION OF DIRECTORS," "PROPOSED 1999
STOCK OPTION PLAN" and "RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS." The
Board of Directors knows of no matters that are to be brought before the Meeting
other than as set forth in the Notice of Meeting. If any other matters properly
come before the Meeting, the persons named in the enclosed form of proxy or
their substitutes will vote in accordance with their best judgment on such
matters.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
Stockholders as of the Record Date (i.e., the close of business on
November 17, 1999) are entitled to notice of and to vote at the Meeting. As of
the Record Date, there were 56,557,826 shares of the Common Stock outstanding
and entitled to vote, with each share entitled to one vote.
REQUIRED VOTES
Election of Directors. Under Delaware law, the affirmative vote of
the holders of a plurality of the Common Stock present and entitled to vote on
the election of Directors at the Meeting is required to elect each Director.
Consequently, only shares that are voted in favor of a particular nominee will
be counted toward such nominee's achievement of a plurality. For purposes of the
election of Directors, abstentions will not be counted as votes cast and will
have no effect on the result of the vote, although they will be counted toward
the presence of a quorum.
1999 Stock Incentive Plan. Under Delaware law, the affirmative vote
of the holders of a majority of the Common Stock present and entitled to vote on
the matter is required to approve the 1999 Stock Incentive Plan. Broker
non-votes (which occur when brokers submit proxies that do not indicate votes
for proposals because they lack discretionary authority and have not received
voting instructions) are not counted in determining the stock entitled to vote
on the matter in connection with the approval of the 1999 Stock Incentive Plan,
but do have the effect of reducing the number of affirmative votes required to
achieve a majority for such matter by reducing the total number of shares in
respect of which the majority is calculated. Abstentions are counted as shares
"entitled to vote" at the Meeting in determining both the presence of a quorum
and the existence of a majority and, consequently, have the effect of a vote
"against" any matter as to which they are specified.
Other Matters. The ratification of the selection of
PricewaterhouseCoopers LLP as independent auditors is being submitted to
Stockholders because the Board of Directors believes that such action follows
sound corporate practice and is in the best interests of the Stockholders. If
the Stockholders do not ratify the selection by the affirmative vote of the
holders of a majority of the Common Stock present and entitled to vote on the
matter, the selection of independent auditors will be reconsidered by the Board.
If the Stockholders ratify the selection, the Board, in its discretion, may
still direct the appointment of new independent auditors at any time during the
year if the Board believes that such a change would be in the best interests of
the Company and its Stockholders. Broker non-votes are not counted in
determining the stock entitled to vote on the matter in connection with the
ratification of auditors, but do have the effect of reducing the number of
affirmative votes required to achieve a majority for such matter by reducing the
total number of shares from which the majority is calculated. Abstentions are
counted as shares "entitled to
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vote" at the Meeting in determination of the presence of a quorum and have the
effect of a vote "against" any matter as to which they are specified.
Ian M. Cumming, a Director, beneficially owns 7,837,609 or
approximately 13.9% of the Common Stock outstanding at the Record Date; Joseph
S. Steinberg, a Director, beneficially owns 7,189,280 or approximately 12.7% of
the Common Stock outstanding at the Record Date; and two trusts for the benefit
of Mr. Steinberg's children (the "Steinberg Children Trusts") beneficially own
893,258 or approximately 1.6% of the Common Stock outstanding at the Record
Date. Mr. Steinberg disclaims beneficial ownership of the Common Stock held by
the Steinberg Children Trusts. The Cumming Foundation and the Joseph S. and
Diane H. Steinberg 1992 Charitable Trust, private charitable foundations
independently established by Messrs. Cumming and Steinberg, respectively,
beneficially own 73,297 or approximately 0.1% and 23,815 (less than 0.1%) of the
Common Stock outstanding at the Record Date, respectively. Mr. Cumming and Mr.
Steinberg each disclaims beneficial ownership of the Common Stock held by their
respective private charitable foundations. Messrs. Cumming and Steinberg have
advised the Company that they intend to cause all Common Stock that they
beneficially own and all Common Stock beneficially owned by their charitable
foundations to be voted in favor of each nominee named herein, in favor of
approval of the 1999 Stock Incentive Plan and in favor of ratification of the
selection of independent auditors. In addition to Messrs. Cumming and Steinberg,
all other Directors and officers of the Company beneficially own less then 0.1%
of the Common Stock outstanding at the Record Date.
VOTING AND REVOCATION OF PROXIES
Stockholders are requested to complete, date, sign and promptly
return the accompanying form of proxy in the enclosed envelope. Common Stock
represented by properly executed proxies received by the Company and not revoked
will be voted at the Meeting in accordance with the instructions contained
therein. If instructions are not given, proxies will be voted FOR election of
each nominee for Director named herein, FOR approval of the 1999 Stock Incentive
Plan and FOR ratification of the selection of independent auditors.
Any proxy signed and returned by a Stockholder may be revoked at any
time before it is voted by filing with the Secretary of the Company, at the
address of the Company set forth herein, written notice of such revocation or a
duly executed proxy bearing a later date or by attending the Meeting and voting
in person. Attendance at the Meeting will not in and of itself constitute
revocation of a proxy.
PROXY SOLICITATION
The Company will bear the costs of solicitation of proxies for the
Meeting. In addition to solicitation by mail, Directors, officers and regular
employees of the Company may solicit proxies from Stockholders by telephone,
telegram, personal interview or otherwise. Such Directors, officers and
employees will not receive additional compensation, but may be reimbursed for
out-of-pocket expenses in connection with such solicitation. In addition, the
Company has engaged Innisfree M&A Incorporated as solicitation agent for the
Meeting. The Company has agreed to pay $5,000 plus expenses for these services.
Brokers, nominees, fiduciaries and other custodians have been requested to
forward soliciting material to the beneficial owners of Common Stock held of
record by them, and such custodians will be reimbursed for their reasonable
expenses.
INDEPENDENT AUDITORS
The Company has been advised that representatives of
PricewaterhouseCoopers LLP, the Company's independent auditors for 1998, will
attend the Meeting, will have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
3
ELECTION OF DIRECTORS
At the Meeting, six Directors are to be elected to serve until the
next Meeting or until their successors are elected and qualified. The persons
named in the enclosed form of proxy have advised that, unless contrary
instructions are received, they intend to vote FOR the six nominees named by the
Board of Directors and listed on the following table. The Board of Directors
does not expect that any of the nominees will be unavailable for election as a
Director. However, if by reason of an unexpected occurrence one or more of the
nominees is not available for election, the persons named in the form of proxy
have advised that they will vote for such substitute nominees as the Board of
Directors of the Company may propose. The following information is as of
November 17, 1999.
Age, period served as Director, other business
Name and present position experience during the last five years and
if any with the Company family relationships
- ------------------------ ----------------------------------------------
Paul J. Borden,
President................................. Mr. Borden, 50, has served as a Director and President of the Company since May
1998. Mr. Borden has been a Vice President of Leucadia National Corporation, a
diversified financial services holding company ("Leucadia") since August 1988,
responsible for overseeing many of Leucadia's real estate investments.
Mr. Borden has also served as a Vice President of Leucadia Financial Corporation
("Leucadia Financial"), a subsidiary of Leucadia.
Patrick D. Bienvenue......................... Mr. Bienvenue, 44, has served as a Director of the Company since 1998 and has
been President of Leucadia Financial since June 1998. Since January 1996,
Mr. Bienvenue has been President of Rosemary Beach Land Company, a subsidiary of
Leucadia and, from 1992 until December 1995, he was President and Chief Executive
Officer of Torwest Inc., a property development and investment company.
Timothy M. Considine......................... Mr. Considine, 58, has served as Chairman of the Board and a Director of the
Company since 1992 and has been Managing Partner of Considine and Considine, an
accounting firm in San Diego, California, since 1969.
Ian M. Cumming............................... Mr. Cumming, 59, has served as a Director of the Company since May 1999 and has
been a Director and Chairman of the Board of Leucadia since June 1978. He is
also Director of Allcity Insurance Company, a property and casualty insurance
company that is approximately 90% owned by Leucadia, MK Gold, a precious metals
mining company that is approximately 72% owned by Leucadia and Skywest, Inc., a
Utah-based regional air carrier.
Michael A. Lobatz............................ Dr. Lobatz, 50, has served as a Director of the Company since February 1995 and
has been a practicing physician in San Diego, California since 1981.
Joseph S. Steinberg.......................... Mr. Steinberg, 55, has served as a Director of the Company since August 1998.
Mr. Steinberg has been President of Leucadia since December 1978 and a Director
of Leucadia since January 1979. He is also Director of Allcity Insurance
Company, MK Gold and Jordan Industries, Inc., a company that owns and manages
manufacturing companies, and is approximately 10% owned by Leucadia.
The Board of Directors recommends a vote FOR the above-named nominees.
4
INFORMATION CONCERNING
THE BOARD OF DIRECTORS AND BOARD COMMITTEES
MEETINGS AND COMMITTEES
During 1998, the Board of Directors held ten meetings and took action
on one other occasion. There are no standing committees of the Board.
All Directors attended at least 75% of the meetings of the Board and
committees of the Board on which they served, except for Messrs. Bienvenue and
Steinberg, who were each unable to attend one of three meetings subsequent to
his appointment as a Director.
PRESENT BENEFICIAL OWNERSHIP OF COMMON SHARES
Set forth below is certain information as of November 17, 1999 with
respect to the beneficial ownership of Common Stock by (i) each person who, to
the knowledge of the Company, is the beneficial owner of more than 5% of the
outstanding Common Stock (the Company's only class of voting securities), (ii)
each Director and nominee for Director, (iii) the current executive officer
named in the Summary Compensation Table under "Executive Compensation," (iv) the
Steinberg Children Trusts and private charitable foundations established by Mr.
Cumming and Mr. Steinberg and (v) all executive officers and Directors of the
Company as a group.
Number of Shares
Name and Address and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------
Patrick D. Bienvenue.................................. - -
Paul J. Borden........................................ 5,783 *
Timothy M. Considine.................................. 4,859 (a) *
Ian M. Cumming........................................ 7,837,609 (b)(c) 13.9%
Michael A. Lobatz..................................... - -
Curt R. Noland........................................ - -
Joseph S. Steinberg................................... 7,189,280 (c)(d) 12.7%
Corinne A. Maki....................................... - -
The Steinberg Children Trusts......................... 893,258 (e) 1.6%
Cumming Foundation.................................... 73,297 (f) 0.1%
The Joseph S. and Diane H. Steinberg
1992 Charitable Trust............................ 23,815 (g) *
All Directors and executive officers
as a group (8 persons)............................. 15,037,531 26.6%
- -------------------
* Less than 0.1%.
(a) Includes 4,859 shares held by the Considine and Considine Retirement
Plan. Mr. Considine is the Managing Partner of Considine and
Considine, an accounting firm in San Diego, California.
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(b) Includes 211,319 shares of Common Stock (0.4%) beneficially owned by
Mr. Cumming's wife (directly and through trusts for the benefit of
Mr. Cumming's children of which Mr. Cumming's wife is trustee) as to
which Mr. Cumming may be deemed to be the beneficial owner.
(c) Messrs. Cumming and Steinberg have an oral agreement pursuant to
which they will consult with each other as to the election of a
mutually acceptable Board of Directors of the Company.
The business address for Messrs. Cumming and Steinberg is c/o
Leucadia National Corporation, 315 Park Avenue South, New York, New
York 10010.
(d) Includes 36,761 shares of Common Stock (less than 0.1%) beneficially
owned by his wife and daughter as to which Mr. Steinberg may be
deemed to be the beneficial owner.
(e) Mr. Steinberg disclaims beneficial ownership of the Common Stock held
by the Steinberg Children Trusts.
(f) Mr. Cumming is a trustee and President of the foundation and
disclaims beneficial ownership of the Common Stock held by the
foundation.
(g) Mr. Steinberg and his wife are trustees of the trust. Mr. Steinberg
disclaims beneficial ownership of the Common Stock held by the trust.
As of November 17, 1999, Cede & Co. held of record 44,491,683 shares
of Common Stock (approximately 78.7% of the total Common Stock outstanding).
Cede & Co. held such shares as a nominee for broker-dealer members of The
Depository Trust Company, which conducts clearing and settlement operations for
securities transactions involving its members.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Set forth below is certain information with respect to the cash
compensation paid by the Company to Patricia A. Wood, its former President and
chief executive officer, who resigned effective May 18, 1998, for services in
all capacities to the Company and its subsidiaries during the years ended 1998,
1997 and 1996. The services of the Company's current President and chief
executive officer, Paul J. Borden, are provided to the Company pursuant to an
Administrative Services Agreement with Leucadia Financial. As a result, Mr.
Borden receives compensation from Leucadia and does not receive any compensation
from the Company. See "Certain Relationships and Related Transactions." No other
officer or employee of the Company received a total annual salary and bonus in
excess of $100,000 during these periods.
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Name and Year Salary Bonus
Principal Position ($) ($)
- -------------------------------------------------------------------------------
Paul J. Borden, 1998 - -
President (1)
Patricia A. Wood, 1998 11,500 -
President 1997 26,000 780
1996 24,000 780
(1) Mr. Borden is a Vice President of Leucadia and receives compensation
from Leucadia.
6
COMPENSATION OF DIRECTORS
In 1998, Directors who are also employees of the Company or Leucadia
received no remuneration for services as a member of the Board or any committee
of the Board. In 1998, each Director who was not an employee of the Company or
Leucadia was paid $9,000 for attendance at regular meetings of the Board of
Directors. Mr. Considine and Dr. Lobatz also served on a special committee of
Directors unaffiliated with Leucadia (the "Special Committee") that was formed
to consider the San Elijo Hills development management agreement referred to
under "--Certain Relationships and Related Transactions." For their services on
this committee, Mr. Considine and Dr. Lobatz each received additional fees of
$20,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From the time of the Company's emergence from chapter 11 bankruptcy
protection in July 1995 through August 25, 1998, Leucadia owned approximately
41.2% of the outstanding Common Stock. On August 25, 1998, a trust was formed
for the benefit of Leucadia shareholders on August 25, 1998 to hold this 41.2%
interest. Under the terms of the trust agreement, Mr. Joseph S. Steinberg, a
Director of the Company, as well as a Director and President of Leucadia, and
Mr. Ian M. Cumming, a Director of the Company, as well as Chairman of the Board
of Leucadia, jointly had the right to vote any shares of the Common Stock held
by the trust. On July 8, 1999, the trust increased its interest in the Common
Stock to 89.6% as described below. On October 8, 1999, the trust distributed all
of the Common Stock that it held to its beneficiaries.
Set forth below is information concerning agreements or relationships
between the Company and Leucadia and its subsidiaries.
DEVELOPMENT AGREEMENT
In March 1998, the Special Committee considered a proposal from
Leucadia that the Company enter into an agreement to become development manager
of San Elijo Hills, which will be a master planned community in San Diego
County, California, of approximately 3,400 homes and apartments as well as
commercial properties. The proposal included Leucadia's agreement to make equity
financing available to the Company and to restructure the terms of the Company's
outstanding $20,000,000 convertible collateralized note issued to Leucadia
Financial. This committee, consisting of Mr. Considine and Dr. Lobatz, engaged
consultants to evaluate the development proposal, performed substantial due
diligence with respect to the proposal, negotiated the structure of the
development proposal with Leucadia and recommended that the Board of Directors
approve the development management agreement.
In August 1998, upon approval of the Board of Directors, with Mr.
Borden, a Leucadia Vice President as well as a Director of the Company, not
voting, the Company entered into a development management agreement with a
subsidiary of Leucadia. Under this development agreement, the Company became the
development manager of San Elijo Hills. As development manager, the Company is
responsible for the overall management of the project, including arranging
financing, coordinating marketing and sales activity, and acting as construction
manager. The development agreement provides that the Company will receive
certain fees in connection with the project. These fees consist of marketing,
field overhead and management service fees, which are based on a fixed
percentage of gross revenues received by the project. The marketing and
management service fees are expected to cover the Company's cost of providing
these services. In addition, the development agreement provides for payment of a
success fee to the Company in some instances, based on the net cash flow from
the project, as determined in the development agreement, subject to a maximum
success fee. Whether a success fee, if it is earned, will be paid to the Company
prior to the conclusion of the project will be at the discretion of the project
owner. To date, no money is payable to the Company under the development
agreement.
7
AMENDED LOAN AGREEMENT
The Company's chapter 11 plan of reorganization was funded
principally by the issuance of a $20,000,000 convertible note to Leucadia
Financial. As of August 14, 1998, in connection with the development agreement,
the Company and Leucadia Financial entered into an Amended and Restated Loan
Agreement, pursuant to which the original convertible note and the related loan
agreement were restructured. The restructured note, dated August 14, 1998, is in
the principal amount of approximately $26,500,000 including the principal amount
of the original note and additions to principal resulting from accrued and
unpaid interest, as allowed under the terms of the original note. The
restructured note extends the maturity date from July 3, 2003 to December 31,
2004, reduces the interest rate from 12% to 6% and eliminates the convertibility
feature of the original note. Interest only on the restructured note is paid
quarterly and all unpaid principal is due on the date of maturity. From January
1, 1998 through September 30, 1999, the Company has paid approximately
$3,349,000 in interest on the original note and the restructured note.
STOCK PURCHASE AGREEMENTS
In August and October 1998, the Company entered into two stock
purchase agreements with Leucadia. Under these agreements the Company agreed to
sell a total of 46,557,826 additional shares of Common Stock to Leucadia for a
total purchase price of $8,380,400 of which Leucadia advanced $6,710,300. In
1998, Leucadia assigned the stock purchase agreements to a trust formed for the
benefit of its shareholders. On July 8, 1999, the trust purchased the 46,557,826
additional shares of Common Stock pursuant to the stock purchase agreements and,
as a result, the trust owned 89.6% of the outstanding Common Stock. The
5,882,014 shares of Common Stock held by stockholders other than the trust prior
to the distributions by the trust of Common Stock represent approximately 10.4%
of the outstanding Common Stock. Under the terms of the trust agreement, the
trust was required to distribute all of the Common Stock that it owned to its
beneficiaries as promptly as possible following the stock purchases under the
stock purchase agreements and the effectiveness of the related registration
statement. Upon the distribution of Common Stock by the trust on October 8,
1999, Mr. Joseph S. Steinberg beneficially owned approximately 12.7%, and Mr.
Ian M. Cumming beneficially owned approximately 13.9%, of the outstanding Common
Stock.
OTAY LAND COMPANY, LLC
In October 1998, the Company and Leucadia formed Otay Land Company,
LLC ("Otay Land Company"). Through September 30, 1999, the Company invested
$10,975,000 as capital and Leucadia invested $10,000,000 as a preferred capital
interest. The Company is the manager of Otay Land Company. In 1998, Otay Land
Company purchased approximately 4,800 acres of land that is part of a
22,900-acre project located south of San Diego, California, known as Otay Ranch,
for approximately $19,500,000. Net income, if any, from this investment first
will be paid to Leucadia until it has received an annual cumulative preferred
return of 12% on, and repayment of, its preferred investment. Any remaining
funds are to be paid to the Company. No amounts have been paid to Leucadia under
this agreement.
ADMINISTRATIVE SERVICES AGREEMENT
Since emerging from bankruptcy in 1995, administrative services and
managerial support have been provided to the Company by Leucadia Financial.
Under the current administrative services agreement, which extends through
February 28, 2002, Leucadia Financial provides the services of Mr. Paul J.
Borden, the Company's President, and Ms. Corinne A. Maki, the Company's
Treasurer and Secretary. Mr. Borden and Ms. Maki each are officers of Leucadia
Financial and Leucadia. The Company pays Leucadia an annual fee under this
agreement of $296,101, payable in monthly installments, through February 29,
2000. A portion of this fee is allocable to Leucadia's cost of providing the
services of Mr. Borden. No specific allocation has been made for providing the
services of Ms. Maki. Future fees will be negotiated after that date. During
1998, the Company paid Leucadia Financial $58,000 for the provision
8
of administrative services, and accrued $80,000 attributable to Leucadia's cost
of providing Mr. Borden's services which was paid to Leucadia Financial during
the first quarter of 1999. The Company has paid Leucadia Financial a total of
$302,000 in administrative fees, including the 1998 accruals, for the nine-month
period ended September 30, 1999, of which $180,000 is attributable to Leucadia's
cost of providing Mr. Borden's services in 1999.
SILVERWOOD
On February 27, 1998, the Company purchased 19 lots at the Silverwood
project from Leucadia Financial for a purchase price of $500,000. On July 31,
1998, the Company sold its entire 97 lot interest in the Silverwood project for
$3,033,000, less closing costs.
OFFICE SPACE
The Company rents office space and furnishings from a subsidiary of
Leucadia for a monthly amount equal to its share of the Leucadia subsidiary's
cost for the space and furnishings. The agreement pursuant to which the space
and furnishings are provided extends for a 6-year period, which coincides with
the Leucadia subsidiary's occupancy of the space, and provides for a monthly
rental of $15,400. Since January 1, 1998, the Company has accrued $153,000 in
rental to the Leucadia subsidiary, of which $149,000 was paid through September
30, 1999.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS*
The Board of Directors does not have a compensation committee and the
Board of Directors as a whole determines the compensation to be paid to the
executive officers of the Company who are Company employees. The Board of
Directors considers a number of factors in establishing compensation for
executive officers, including whether such executive officers receive
compensation from any company engaged by the Company to perform administrative
services for the Company. Other than Curt Noland, who joined the Company as a
Vice President in October 1998, all of the executive officers of the Company are
officers of Leucadia Financial, which provides administrative services for the
Company pursuant to the Administrative Services Agreement referred to under
"--Certain Relationship and Related Transactions" above. Mr. Borden, the
President of the Company, did not receive any direct compensation from the
Company. Ms. Wood, the former President of the Company who resigned effective
May 18, 1998, was paid $11,500 from the Company in addition to compensation
received from Leucadia Financial in her capacity as an employee of Leucadia
Financial. In determining Ms. Wood's compensation, the Board of Directors
considered her responsibilities as an officer and Director of the Company and
the services she rendered to the Company.
The foregoing report is submitted by Paul J. Borden, Patrick D.
Bienvenue, Timothy M. Considine, Ian M. Cumming, Michael A. Lobatz and Joseph S.
Steinberg.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and Directors, and persons who beneficially own
more than ten percent of a registered class of the
- ----------
* The disclosure contained in this section of this Proxy Statement is
not incorporated by reference into any filings by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that incorporate
filings or portions thereof (including this Proxy Statement or the "Executive
Compensation" section of this Proxy Statement) without specific reference to the
incorporation of this section of this Proxy Statement.
9
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely upon a
review of the copies of such forms furnished to the Company and written
representations from the Company's executive officers, Directors and greater
than 10% beneficial shareholders, the Company believes that during the year
ended December 31, 1998, all persons subject to the reporting requirements of
Section 16(a) filed the required reports on a timely basis.
10
STOCKHOLDER RETURN PERFORMANCE GRAPH**
Set forth below is a graph comparing the cumulative total stockholder
return on Common Stock against cumulative total return of the Standard & Poor's
500 Stock Index (the "S&P 500 Index") and the Standard & Poor's Homebuilding
Index (the "S&P Homebuilding Index") for the period commencing July 27, 1995 to
December 31, 1998. Index data was furnished by Standard & Poor's Compustat
Services, Inc. From October 1992 to July 1995, the Company was in bankruptcy and
no information is available concerning the market price of the Common Stock
during such period prior to July 1998.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN OF THE COMPANY, S&P 500 INDEX
AND S&P INSURANCE INDEX
The following graph assumes that $100 was invested on July 27, 1995
in each of the Common Stock, the S&P 500 Index and the S&P Homebuilding Index
and that all dividends were reinvested.
[GRAPHIC OMITTED]
INDEXED RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY / INDEX 27-JUL-95 1995 1996 1997 1998
- -------------------------------------------------------------------------------
THE COMPANY 100 200.00 100.00 50.00 100.00
S&P HOMEBUILDING INDEX 100 119.32 108.81 174.10 212.43
S&P 500 INDEX 100 110.15 135.44 180.63 232.25
- ----------
** The disclosure contained in this section of the Proxy Statement is
not incorporated by reference into any prior filings by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that incorporated
future filings or portions thereof (including this Proxy Statement or the
"Executive Compensation" section of this Proxy Statement).
11
PROPOSED 1999 STOCK INCENTIVE PLAN
The Board of Directors recommends that the Stockholders approve the
1999 Stock Incentive Plan that was adopted by the Board of Directors on October
25, 1999. The 1999 Stock Incentive Plan is intended to afford Directors of the
Company and certain officers and key employees of the Company, as well as
certain officers and key employees of any subsidiary, parent, or affiliated
corporation of the Company who are responsible for the continued growth of the
Company (collectively, "Eligible Persons"), an opportunity to acquire a
proprietary interest in the Company, thereby creating in such persons an
increased interest in and a greater concern for the welfare of the Company.
Under the 1999 Stock Incentive Plan, an affiliated corporation includes any
entity providing managerial, administrative, consulting or advisory services to
the Company, or any parent corporation or subsidiary corporation of such entity.
Only those employees of an affiliated corporation who provide or have provided
services to the Company will be considered eligible to receive grants under the
1999 Stock Incentive Plan.
The Company, by means of the 1999 Stock Incentive Plan, seeks to
retain the services of persons now holding Directorships and other key positions
and to secure the services of persons capable of filling such positions. Two
types of options ("Options") may be granted pursuant to the 1999 Stock Incentive
Plan: those intended to qualify as incentive stock options ("Incentive Options")
within the meaning of Section 422(a) of the Internal Revenue Code of 1986, as
amended (the "Code") and those not intended to satisfy the requirements for
Incentive Options ("Non-Qualified Options"). See "Federal Income Tax
Consequences" below. Stock appreciation rights ("Rights") may be granted alone
or in conjunction with or in the alternative to Options. In addition, the 1999
Stock Incentive Plan provides that up to 250,000 shares of Common Stock may be
awarded as "Restricted Stock" to Directors of the Company and other Eligible
Persons to reward such individuals for their past service to the Company during
the period from the Company's chapter 11 bankruptcy reorganization to the date
of grant, and as an incentive to future service to the Company.
The following summary of the 1999 Stock Incentive Plan is not
intended to be complete and is qualified in its entirety by reference to the
1999 Stock Incentive Plan, a copy of which is attached as Annex A to this Proxy
Statement.
The 1999 Stock Incentive Plan covers an aggregate of 1,000,000 shares
of Common Stock. It provides for the granting of Options or Rights to purchase
or acquire in the aggregate, up to 750,000 shares of Common Stock, and for the
granting of up to 250,000 shares of Restricted Stock (subject in each case to
adjustment in the event of stock dividends, stock splits and other
contingencies) (collectively, the "Shares"). Options may be granted, subject to
the approval of the 1999 Stock Incentive Plan by the Stockholders (as described
below), during the period from October 25, 1999 through October 24, 2009.
Restricted Stock may only be awarded in 2000. The Shares with respect to which
Options, Rights or Restricted Stock may be granted may be made available from
either authorized and unissued shares or treasury shares. The 1999 Stock
Incentive Plan will become effective only upon the affirmative vote of the
holders of a majority of the outstanding Common Stock. Assuming such approval is
received, the effective date of the 1999 Stock Incentive Plan will be October
25, 1999. Messrs. Cumming and Steinberg have indicated that they intend to vote
all of the Common Stock beneficially owned by them in favor of approval of the
1999 Stock Incentive Plan.
The 1999 Stock Incentive Plan will be administered by the Board of
Directors or a committee of the Board (the "Committee") which has the authority,
in its discretion and subject to the express provisions of the 1999 Stock
Incentive Plan (including the provisions regarding automatic grants of Options
to Directors of the Company), to determine, among other things, the persons to
receive Options, Rights or Restricted Stock, the date of grant of such Options,
Rights or Restricted Stock, the number of Shares covered by each grant, the
purchase price of each Share subject to any Options or Rights, and the terms and
provisions of the respective Options, Rights or Restricted Stock (which need not
be identical). In determining the persons to whom Options, Rights or Restricted
Stock are to be granted under the 1999 Stock Incentive Plan, the Committee will
consider the grantee's length of service, the amount of such grantee's earnings
and such
12
grantee's responsibilities and duties. The Company will receive no monetary
consideration for the granting of Options, Rights or Restricted Stock under the
1999 Stock Incentive Plan.
Incentive Options may be granted only to salaried key employees of
the Company or any subsidiary or parent corporation thereof now existing or
hereafter formed or acquired. Non-Qualified Options, Rights and Restricted Stock
may be granted to officers and key employees of the Company, as well as officers
and key employees of any subsidiary, parent or affiliated corporation of the
Company. Non-Qualified Options and Restricted Stock may be granted to the
Directors of the Company. The aggregate number of Shares with respect to which
Options, Rights and/or Restricted Stock may be granted under the 1999 Stock
Incentive Plan to any one grantee in any one taxable year is 300,000. As
described below, the 1999 Stock Incentive Plan provides for an automatic annual
grant of Non-Qualified Options covering 1,000 Shares to Directors beginning on
the date of the Annual Meeting of Stockholders of the Company to be held in
2000. In addition, each Director may be granted up to 10,000 Shares of
Restricted Stock. Directors are also eligible to receive additional grants of
Option, Rights, and/or Restricted Stock under the 1999 Stock Incentive Plan if
they provide services to the Company in addition to their service as a member of
the Board of Directors.
Any Option granted under the 1999 Stock Incentive Plan may be
exercised upon such terms and conditions as may be determined by the Committee,
except that (i) no Incentive Option may be exercisable more than ten years after
the date on which it is granted, and (ii) at the time of grant, the purchase
price of Shares issuable upon exercise of an Incentive Option granted pursuant
to the 1999 Stock Incentive Plan may not be less than 100% of the fair market
value of such Shares on the date the Incentive Option is granted, as determined
by the Committee in accordance with the 1999 Stock Incentive Plan. The Committee
may set the purchase price of Shares issuable upon exercise of a Non-Qualified
Option (or a Right issued in conjunction or in the alternative to such Option)
at any price including a price that is less than the fair market value of such
Shares on the date of grant of such Non-Qualified Option or Right. The Committee
has the right to accelerate, in whole or in part, rights to exercise any Option
granted under the 1999 Stock Incentive Plan. In the discretion of the Committee,
a Right may be granted (i) alone, (ii) simultaneously with the grant of an
Option (either Incentive or Non-Qualified) and in conjunction therewith or (iii)
subsequent to the grant of a Non-Qualified Option and in conjunction therewith
or in the alternative thereto. The Committee may prescribe additional terms and
conditions to Options and/or Rights, subject to the provisions and limitations
contained in the 1999 Stock Incentive Plan.
Commencing with the Annual Meeting of Stockholders of the Company to
be held in 2000, each Director of the Company automatically will be granted a
Non-Qualified Option to purchase 1,000 Shares in such person's capacity as a
Director (a "Director Participant") each year on the date on which the Annual
Meeting of Stockholders of the Company is held (taking account of any
adjournments thereof). The purchase price of the Shares covered by the
Non-Qualified Options issued to Director Participants shall be the fair market
value of the Shares at the date of the grant. Non-Qualified Options granted to
Director Participants may not be exercised for the twelve-month period
immediately following the grant of such Non-Qualified Option. Thereafter, such
Non-Qualified Option will be exercisable for a period ending five years from the
date of grant of such Non-Qualified Option, subject to limitations or
restrictions pursuant to the terms of the 1999 Stock Incentive Plan.
The 1999 Stock Incentive Plan permits, in certain circumstances, the
exercise of Options and Rights for a limited period following termination of
employment due to death, retirement, disability or dismissal other than for
cause.
Options or Rights granted under the 1999 Stock Incentive Plan are
non-transferable, except by will or the laws of descent and distribution.
Notwithstanding the foregoing, at the discretion of the Committee, an award of
an Option (other than an Incentive Option) and/or a Right may permit the
transferability of such Option and/or Right by a participant solely to the
participant's spouse, siblings, parents, children, grandchildren, or trusts for
the benefit of such persons or partnerships, corporations, limited liability
13
companies or other entities owned solely by such persons, including trusts for
such persons, subject to any restriction included in the award of the Option
and/or Right.
The Committee has full discretion and authority to grant up to
250,000 Shares as Restricted Stock, subject to the provisions of the 1999 Stock
Incentive Plan. Restricted Stock may not be awarded prior to January 1, 2000 or
after December 31, 2000. The entire amount of Restricted Stock awarded to any
grantee shall be issued on the date of award to that grantee. The aggregate
number of Shares with respect to which Restricted Stock may be awarded under the
1999 Stock Incentive Plan to any Director Participant is 10,000 Shares.
Shares of Restricted Stock will be subject to forfeiture upon the
termination of the grantee's service to the Company for any reason other than
death or disability, according to the following schedule:
Termination Prior To Percentage Forfeited
-------------------- --------------------
First anniversary of award date 100%
Second anniversary of award date 50%
Third anniversary of award date 25%
The Committee will have the ability to waive such forfeiture in its
discretion. During the period when Restricted Stock is subject to forfeiture
(the "Restricted Period"), the grantee will not be permitted to sell, transfer,
pledge or assign the Restricted Stock. Stock certificates for Restricted Stock
shall be issued upon the grant of the Restricted Stock and registered under the
name of the grantee, but will be appropriately legended and returned to the
Company by the grantee pending termination of the Restricted Period, together
with a stock power executed in blank. The grantee will be entitled to vote
shares of Restricted Stock and will be entitled to all dividends paid on such
shares of Restricted Stock. However, any dividends paid in Common Stock will be
subject to the restrictions applicable to the relevant Restricted Stock.
Restricted Stock will also be subject to such other restrictions as
the Committee shall determine at the time of grant.
It is intended that the cash proceeds to be received by the Company
from the exercise of an Option pursuant to the 1999 Stock Incentive Plan will be
used by the Company for general corporate purposes.
The 1999 Stock Incentive Plan may be amended from time to time by the
Board of Directors, provided that no amendment will be made without the approval
of the Stockholders that will increase the total number of Shares reserved for
Options, Rights and Restricted Stock under the 1999 Stock Incentive Plan or the
maximum number of Shares with respect to which Options, Rights and/or Restricted
Stock may be granted under the 1999 Stock Incentive Plan to any one employee in
any one taxable year (other than an increase resulting from an adjustment for
changes in capitalization such as a stock dividend or stock split), or alter the
class of eligible participants. The Board of Directors may at any time suspend
or terminate the 1999 Stock Incentive Plan, provided that rights and obligations
under any Option, Right or Restricted Stock granted while the 1999 Stock
Incentive Plan is in effect may not be altered or impaired by suspension,
termination or amendment of the 1999 Stock Incentive Plan, except upon the
consent of the person to whom the Option, Right or Restricted Stock was granted.
In the event of any change in the outstanding Common Stock through
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, reverse stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution to the Stockholders of the Company (other than normal
cash dividends), in order to prevent dilution or enlargement of participants'
rights under the 1999 Stock Incentive Plan, the Committee shall adjust, in an
equitable manner, the number and kind of Shares that may be issued under the
1999 Stock Incentive Plan, the number and kind of Shares subject to outstanding
Options and Rights, the consideration
14
to be received upon exercise of Options or in respect of Rights, the exercise
price applicable to outstanding Options and Rights, and/or the fair market value
of the Common Shares and other value determinations applicable to outstanding
Options and Rights.
In the event of an "Extraordinary Event" with respect to the Company
(including a change in control of the Company, a sale of all or substantially
all of the assets of the Company, certain mergers or like business combinations,
and any other extraordinary transaction that is determined by the Board of
Directors to be appropriate and in the best interests of the Company and which
by its terms precludes the existence of securities convertible into Shares), as
described in the 1999 Stock Incentive Plan, all then outstanding Options and
Rights that have not vested or become exercisable at the time of the
Extraordinary Event will immediately become exercisable and all shares of
Restricted Stock still subject to forfeiture will become free of such
restrictions. The Committee, in its sole discretion, may determine that, upon
the occurrence of an Extraordinary Event, each Option or Right then outstanding
will terminate within a specified number of days after notice to the holder, and
such holder will receive, with respect to each Share subject to such Option or
Right, cash (or other property) in an amount not less than the excess of the
fair market value of such Share (as determined in accordance with the 1999 Stock
Incentive Plan) over the exercise price per Share of such Option or Right. The
provisions contained in the preceding sentence will be inapplicable to an Option
or Right granted within six (6) months before the occurrence of an Extraordinary
Event if the holder of such Option or Right is subject to the reporting
requirements of Section 16(a) of the Exchange Act and no exception from
liability under Section 16(b) of the Exchange Act is otherwise available to such
holder. Notwithstanding the foregoing, any of the events described above that
the Board of Directors determines not to be an Extraordinary Event with respect
to the Company shall not constitute an Extraordinary Event with respect to the
Company.
The 1999 Stock Incentive Plan contains provisions to protect the
Company's significant tax loss carryforwards and to prevent the imposition and
limitations on the Company's ability to use such losses under Section 382 of the
Code. If, as a result of the grant of an Option or Right, the grantee (or any
person) would become an owner (taking into account the attribution and indirect
ownership rules under Section 382 of the Code) of 5% or more of the Company's
"stock" (a "Five Percent Stockholder"), such grant shall only be effective to
acquire the number of Shares (or, in the case of a Right, Shares and/or cash) of
the Company as could be acquired without causing such person to become a Five
Percent Stockholder. If the exercise of an Option or Right would cause the
grantee (or any person) to become a Five Percent Stockholder as a result of the
exercise of such Option or Right, such exercise shall be effective only for the
number of Shares (or, in the case of a Right, Shares and/or cash) that such
grantee could acquire without causing such person to become a Five Percent
Stockholder, and the issuance of any Shares (or, in the case of a Right, any
Shares and/or cash) in excess of such amount shall be null and void. Also, if
the grant and/or vesting (whether by lapse or termination of the Restricted
Period or the filing of an election under Section 83(b) of the Code (as
discussed below)) of Restricted Stock would cause any person (whether the
grantee or any other person) to become a Five Percent Stockholder, such grant
shall only be effective for the number of shares of Restricted Stock that such
grantee can acquire without causing such person to become a Five Percent
Stockholder, and any grant in excess of such amount shall be void. The above
limitations do not prevent the grant, exercise and/or vesting of an Option,
Right or Share of Restricted Stock to or by any person that is a Five Percent
Stockholder, such as Messrs. Cumming and Steinberg, prior to the time of such
grant, exercise and/or vesting.
Also, in order to protect the Company's significant tax loss
carryforwards, the Shares issuable upon exercise of an Option or Right and
Restricted Stock granted under the 1999 Stock Incentive Plan will be subject to
certain transfer restrictions contained in the Company's Restated Certificate of
Incorporation designed to regulate transfers to a person or group or persons who
are or would become as a result of such transfer a Five Percent Stockholder.
Transfers of Common Stock or other securities of the Company would generally be
subject to such restrictions and may be restricted if, as a result of the
transfer, any person or group of persons would become a Five Percent Stockholder
or the ownership interest of any Five Percent Stockholder would be increased.
The Board of Directors has the authority to exempt transfers from the operation
of this restriction.
15
FEDERAL INCOME TAX CONSEQUENCES
Incentive Options. Incentive Options granted under the 1999 Stock
Incentive Plan are intended to meet the definitional requirements of Section
422(b) of the Code for "incentive stock options."
Under the Code, the grantee of an Incentive Option generally is not
required to recognize income for purposes of the regular income tax, upon the
receipt or exercise of the Incentive Option. For purposes of computing any
alternative minimum tax liability, an employee who exercises an Incentive Option
generally would be required to increase his or her "alternative minimum taxable
income" by an amount equal to the excess of the fair market value of a Share at
the time the Option is exercised over the exercise price, and, for alternative
minimum tax purposes, must compute his or her tax basis in the acquired Share as
if such Share had been acquired through the exercise of a Non-Qualified Option
(as described below). The amount of any minimum tax liability attributable to
the exercise of an Incentive Option generally will be allowed as a credit
offsetting regular tax liability in subsequent years.
If, subsequent to the exercise of an Incentive Option (whether paid
for in cash or in shares), the optionee holds the Shares received upon exercise
for a period that exceeds the longer of two years from the date of grant or one
year from the date of transfer pursuant to the exercise of such Option (the
"applicable holding period"), the difference (if any) between the amount
realized from the sale of such Shares and the holder's tax basis in the Shares
will be taxed as long-term capital gain or loss (provided that such Shares were
held by the optionee as a capital asset). If the holder is subject to the
alternative minimum tax in the year of disposition, his or her tax basis in the
Shares will be determined, for alternative minimum tax purposes, as described in
the preceding paragraph. If, however, an optionee does not hold the Shares so
acquired for the applicable holding period, thereby making a "disqualifying
disposition," the optionee would realize ordinary income in the year of the
disqualifying disposition equal to the excess of the fair market value of the
Shares at the date the Incentive Option was exercised over the exercise price,
and the balance, if any, of income would be long-term capital gain, provided the
holding period for the Shares exceeded one year and the optionee held the Shares
as a capital asset at such time. If the disqualifying disposition is a sale or
exchange that would permit loss to be recognized under the Code (were a loss in
fact to be realized), and the sale proceeds are less than the fair market value
of the Shares on the date of exercise, the employee's ordinary income therefrom
would be limited to the gain (if any) realized on the sale.
A deduction will not be allowed to the Company (or any parent or
subsidiary corporation of the Company) for federal income tax purposes with
respect to the grant or exercise of an Incentive Option, or with respect to the
disposition (assuming satisfaction of the applicable holding period) of Shares
acquired upon exercise of an Incentive Option. In the event of a disqualifying
disposition, a federal income tax deduction will be allowed to the Company (or
its parent or subsidiary corporation if such corporation is the employer of the
individual) in an amount equal to the ordinary income included by the optionee,
provided that such amount constitutes an ordinary and necessary business expense
to such corporation and is reasonable, and provided that the limitations of
Sections 162(m) (as described below) and 280G of the Code (as described below)
do not apply.
Special rules apply to an employee who exercises an Incentive Option
by delivering other shares of Common Stock owned by the individual, including
Shares previously acquired pursuant to the exercise of an Incentive Option or a
Non-Qualified Option.
Non-Qualified Options and Stock Appreciation Rights. A Non-Qualified
Option granted under the 1999 Incentive Stock Plan is one that is not intended
to qualify as an incentive stock option under Section 422(b) of the Code. An
individual who receives a Non-Qualified Option generally will not recognize any
taxable income upon the grant of such Non-Qualified Option. In general, upon
exercise of a Non-Qualified Option, an individual will be treated as having
received ordinary income in an amount equal to the excess
16
of (i) the fair market value of the Shares acquired pursuant to such exercise,
determined at the time of exercise, over (ii) the exercise price for such
Shares.
An individual who receives a Right generally will not recognize any
taxable income upon the grant of such Right. Generally, upon the receipt of cash
or the transfer of Shares pursuant to the exercise of a Right, an individual
will recognize ordinary income in an amount equal to the sum of the cash and the
fair market value of the Shares received. In certain cases, a Right may be
deemed for federal income tax purposes to have been exercised prior to actual
exercise.
As a result of Section 16(b) of the Exchange Act, the timing of
income recognition for a holder upon exercise of a Non-Qualified Option or Right
may be deferred in the case of any optionee who is an officer or director of the
Company or a beneficial owner of more than ten percent (10%) of any class of
equity securities of the Company following the exercise of a Non-Qualified
Option or Right. Absent a properly filed election pursuant to Section 83(b) of
the Code (a "Section 83(b) election"), recognition of income by the individual
will be deferred (the "Deferral Period") until the expiration of the period, if
any, during which such individual would be subject to suit under Section 16(b)
with respect to the sale of the Shares acquired upon such exercise, in which
case the individual's income will equal the excess of the fair market value of
the Shares at such time over the exercise price.
The ordinary income recognized in the case of an employee (as opposed
to an independent contractor or consultant) as a result of the exercise of a
Non-Qualified Option or Right under the 1999 Stock Incentive Plan will be
subject to both wage withholding and employment taxes. Among the methods
provided in the 1999 Stock Incentive Plan to enable the Company (its parent or
subsidiary) to satisfy its withholding tax obligation, the Company may permit
the employee to (i) direct the Company (or its parent or subsidiary) to satisfy
all or a portion of the withholding obligation through the withholding of Shares
from those that would otherwise be issuable to the individual, or (ii) tender to
the Company (or its parent or subsidiary) other shares of Common Stock owned by
the individual, valued at their fair market value as of the date that the tax
withholding obligation arises, with which to satisfy the withholding obligation.
A deduction for federal income tax purposes will be allowed to the Company (or
its parent or subsidiary if the services were provided to such corporation) in
an amount equal to the ordinary income included by the individual, provided that
such amount constitutes an ordinary and necessary business expense to such
corporation, and the limitations of Sections 162(m) and 280G of the Code do not
apply.
Special rules apply to an individual who exercises a Non-Qualified
Option or Right by delivering other shares of Common Stock owned by the
individual, including Shares previously acquired pursuant to the exercise of an
Incentive Option or a Non-Qualified Option. Additionally, this discussion
assumes that (i) the exercise price with respect to a Non-Qualified Option or
Right does not represent a substantial discount from the fair market value, as
of the date of grant, of the Shares subject to such Option or Right and (ii)
that, except for those restrictions arising as a result of Section 16(b) of the
Exchange Act, any Shares issued under the Option or Right are unrestricted.
Restricted Stock. Assuming that a grant of Restricted Stock is
subject only to those restrictions discussed above, absent a Section 83(b)
election, an individual will recognize ordinary income for federal income tax
purposes (and the Company, or its parent or subsidiary, will take any
corresponding deduction to which it may be entitled) at the end of the
Restricted Period for such shares (or, if later, at the end of the Deferral
Period) in an amount equal to fair market value of the Restricted Stock (on such
date). Alternatively, an individual may make a Section 83(b) election to
recognize ordinary income at the time the Restricted Stock is transferred to the
individual pursuant to the grant equal to the fair market value (determined
without regard to the transferability and forfeiture restrictions) of the
Restricted Stock as of the date of transfer.
The ordinary income recognized by an employee with respect to the
receipt of Restricted Stock will be subject to both wage withholding and other
employment taxes. Among the methods provided in the 1999 Stock Incentive Plan to
enable the Company (its parent or subsidiary) to satisfy its withholding tax
17
obligation, the Company may permit the employee to tender to the Company (or its
parent or subsidiary) other shares of Common Stock owned by the individual,
valued at their fair market value as of the date that the tax withholding
obligation arises, with which to satisfy the withholding obligation.
The Company (or its parent or subsidiary if the services were
provided to such corporation) will receive a federal income tax deduction in an
amount equal to the ordinary income included by the individual, provided that
such amount constitutes an ordinary and necessary business expense and is
reasonable, and provided that the limitations of Sections 162(m) and 280G of the
Code do not apply.
The tax treatment of distributions, if any, received by an individual
with respect to Restricted Stock prior to expiration of the Restricted Period
will vary depending upon several factors including whether a Section 83(b)
election is made and the form of the distribution. Depending upon the
circumstances, the tax consequences of distributions received with respect to
Restricted Stock will vary from being treated as taxable as ordinary income, a
return of capital or a tax-free stock dividend. Whether, and when, the Company
(or its parent or subsidiary) is entitled to a deduction with respect to any
distributions paid with respect to Restricted Stock will depend upon the
required tax treatment of the distribution by the recipient thereof.
Gift Tax. If the Committee permits an individual to transfer a
Non-Qualified Option to a member or members of the individual's immediate family
or to a trust for the benefit of these persons or other entity owned by these
persons and the individual makes such transfer and the transfer constitutes a
completed gift for gift tax purposes (which determination may depend on a
variety of factors including whether the Non-Qualified Option or a portion
thereof has vested) then such transfer will be subject to federal gift tax
except, generally, to the extent protected by the individual's $10,000 per donee
annual exclusion, by his or her lifetime unified credit or by the marital
deduction. The amount of the individual's gift is the value of the Non-Qualified
Option at the time of the gift. If the transfer of the Non-Qualified Option
constitutes a completed gift and the individual retains no interest or power
over the Non-Qualified Option after the transfer, the Non-Qualified Option
generally will not be included in his or her gross estate for federal income tax
purposes. The transfer of the Non-Qualified Option will not cause the transferee
to recognize taxable income at the time of the transfer. If the transferee
exercises the Non-Qualified Option while the transferor is alive, the transferor
will recognize ordinary income as described above as if the transferor had
exercised the Non-Qualified Option. If the transferee exercises the
Non-Qualified Option after the death of the transferor, it is uncertain whether
the transferor's estate or the transferee will recognize ordinary income for
federal income tax purposes.
Change in Control. As described above, upon an "Extraordinary Event"
affecting the Company (as defined in the 1999 Stock Incentive Plan), all the
then outstanding Options and Rights shall immediately become exercisable and all
Shares of Restricted Stock still subject to restrictions will become free of the
restrictions. In general, if the total amount of payments to certain individuals
in the nature of compensation that are contingent upon a "change in control" of
the Company (as defined in Section 280G of the Code) equals or exceeds three
times the recipient's "base amount" (which is generally defined to mean the
recipient's average annual compensation for the five years preceding the change
in control), then, subject to certain exceptions, the payments may be treated as
"parachute payments" under the Code, in which case a portion of such payments
would be nondeductible to the Company (or its parent or subsidiary) and the
recipient would be subject to a 20% excise tax on such portion of the payments.
Certain Limitations on Deductibility of Executive Compensation. With
certain exceptions, Section 162(m) of the Code denies a deduction to publicly
held corporations for compensation paid to certain executive officers in excess
of $1 million per executive per taxable year (including any deduction with
respect to the exercise of an Option or Right or grant of Restricted Stock). One
of these exceptions applies to certain performance-based compensation that has,
among other things, been approved by stockholders in a separate vote. If the
Company were to form a Committee that satisfies the requirements of Section
162(m) of the Code and Treasury Regulation 1.162-27(e)(3) to administer the 1999
Stock Incentive Plan,
18
certain awards of Options and Rights under the 1999 Stock Incentive Plan may
qualify for the performance-based compensation exception to Section 162(m) of
the Code.
REGULATION
The 1999 Stock Incentive Plan is neither qualified under the
provisions of Section 401(a) of the Code, nor subject to any of the provisions
of ERISA.
The Board of Directors recommends a vote FOR this proposal.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors recommends that the Stockholders ratify the
selection of PricewaterhouseCoopers LLP, certified public accountants, as
independent auditors to audit the accounts of the Company and its subsidiaries
for 1999. PricewaterhouseCoopers LLP are currently independent auditors for the
Company.
The Board of Directors recommends a vote FOR this proposal.
ANNUAL REPORT
A copy of the Company's 1998 Annual Report to Stockholders on Form
10-K, as amended (the "Annual Report"), is being furnished to Stockholders
concurrently herewith. Exhibits to the Annual Report will be furnished to
Stockholders upon payment of photocopying charges.
PROPOSALS BY STOCKHOLDERS
Proposals that Stockholders wish to include in the Company's Proxy
Statement and form of proxy for presentation at the Company's 2000 Annual
Meeting of Stockholders must be received by the Company at 1903 Wright Place,
Suite 200, Carlsbad, California 92008, Attention of Corinne A. Maki, Secretary,
no later than July 22, 2000. Any such proposal must be in accordance with the
rules and regulations of the Securities and Exchange Commission. With respect to
proposals submitted by a Stockholder other than for inclusion in the Company's
2000 Proxy Statement and related form of proxy, timely notice of any such
proposal must be received by the Company in accordance with the By-Laws and the
rules and regulations of the Company no later than July 22, 2000. Any proxies
solicited by the Board of Directors for the 2000 Annual Meeting may confer
discretionary authority to vote on any proposals notice of which is not timely
received.
By Order of the Board of Directors.
CORINNE A. MAKI
Secretary
19
ANNEX A
HOMEFED CORPORATION
1999 STOCK INCENTIVE PLAN
OCTOBER 25, 1999
HOMEFED CORPORATION
1999 STOCK INCENTIVE PLAN
I. Purposes...................................................................A-1
II. Amount of Stock Subject to the Plan........................................A-1
III. Administration.............................................................A-2
IV. Eligibility................................................................A-3
V. Option Price and Payment...................................................A-4
VI. Terms of Options and Limitations on the Right of Exercise..................A-4
VII. Stock Appreciation Rights..................................................A-5
VIII. Termination of Employment..................................................A-6
IX. Exercise of Options........................................................A-8
X. Stock Option Grants to Director Participants...............................A-8
XI. Director Participant's Exercise of Options.................................A-8
XII. Director Participant's Termination.........................................A-8
XIII. Director Participant's Eligibility for Other Grants........................A-9
XIV. Termination of Service to the Company of an Affiliated Participant.........A-9
XV. Restricted Stock..........................................................A-10
XVI. Use of Proceeds...........................................................A-11
XVII. Non-Transferability of Options and Stock Appreciation Rights..............A-11
XVIII. Adjustment Provisions; Effect of Certain Transactions.....................A-12
XIX. Right to Terminate Employment.............................................A-13
XX. Purchase for Investment...................................................A-13
XXI. Issuance of Stock Certificates; Legends; Payment of Expenses..............A-13
XXII. Withholding Taxes.........................................................A-14
XXIII. Listing of Shares and Related Matters.....................................A-15
XXIV. Foreign Laws..............................................................A-15
XXV. Amendment of the Plan.....................................................A-15
XXVI. Duration; Termination or Suspension of the Plan...........................A-15
XXVII. Savings Provision.........................................................A-16
XXVIII. Governing Law.............................................................A-16
XXIX. Partial Invalidity........................................................A-16
XXX. Effective Date............................................................A-16
A-i
HOMEFED CORPORATION
1999 STOCK INCENTIVE PLAN
I. PURPOSES
HomeFed Corporation (the "Company") desires to afford its directors and certain
of its officers, key employees and certain officers and key employees of any
subsidiary corporation, parent corporation or affiliated corporation of the
Company now existing or hereafter formed or acquired who are responsible for the
continued growth of the Company (collectively, "Eligible Persons") an
opportunity to acquire a proprietary interest in the Company, and thus to create
in such persons an increased interest in and a greater concern for the welfare
of the Company and its subsidiaries.
The stock options ("Options"), stock appreciation rights ("Rights") and shares
of the Company's stock ("Restricted Stock") offered pursuant to this 1999 Stock
Incentive Plan (the "Plan") are a matter of separate inducement and are not in
lieu of any salary or other compensation for the services of such persons. The
Company will receive no monetary consideration for the grant of any Options
and/or Rights or the issuance of any Restricted Stock.
The Company, by means of the Plan, seeks to retain the services of persons now
holding directorships and key positions and to secure and retain the services of
persons capable of filling such positions. In addition, with respect to the
grant of Restricted Stock only, the Company intends to reward Eligible Persons
for their past service to the Company during the period from the Company's
chapter 11 bankruptcy reorganization to the date of grant.
The Options granted under the Plan are intended to be either incentive stock
options ("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not meet the
requirements for Incentive Options ("Non-Qualified Options"), but the Company
makes no warranty as to the qualification of any Option as an Incentive Option.
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
The total number of shares of Common Stock, par value $.01 per share (the
"Shares"), of the Company that may be purchased pursuant to the exercise of
Options granted under the Plan, acquired pursuant to the exercise of Rights
granted under the Plan or issued as Restricted Stock under the Plan shall not
exceed, in the aggregate, One Million (1,000,000) Shares. The total number of
Shares that may be issued pursuant to Options and/or Rights shall not exceed
Seven Hundred Fifty Thousand (750,000), such number to be subject to adjustment
in accordance with Article XVIII of the Plan. The total number of Shares that
may be awarded as Restricted Stock under the Plan shall not exceed, in the
aggregate, Two Hundred Fifty Thousand (250,000), such number to be subject to
adjustment in accordance with Article XVIII. Shares that are the subject of
Rights and/or related Options shall be counted only once in determining whether
the maximum number of Shares that may be purchased or awarded under the Plan has
been exceeded.
Shares which may be acquired under the Plan may be either authorized but
unissued Shares, Shares of issued stock held in the Company's treasury, or both,
at the discretion of the Company. If and to the extent that Options and/or
Rights granted under the Plan expire or terminate without having been exercised
or shares of Restricted Stock awarded under the Plan are forfeited, the Shares
covered by such expired or terminated Options or Rights or such forfeited shares
of Restricted Stock may again be subject to an Option, Right or share of
Restricted Stock under the Plan.
Except as provided in Articles IV, X through XIII, XXVI, and XXX hereof, the
Committee (as defined in Article III) may, from time to time beginning on
October 25, 1999 (the "Effective Date"), grant to certain officers and key
employees and directors of the Company, or certain officers, key employees of
any
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subsidiary corporation, parent corporation or affiliated corporation of the
Company now existing or hereafter formed or acquired, Incentive Options,
Non-Qualified Options, Rights and/or shares of Restricted Stock under the terms
hereinafter set forth.
Provisions of the Plan that pertain to Options, Rights or Restricted Stock
granted to an Eligible Person shall apply to Options, Rights, Restricted Stock
or any combination thereof.
As used in the Plan, the term "parent corporation" and "subsidiary corporation"
shall mean a corporation coming within the definition of such terms contained in
Sections 424(e) and 424(f) of the Code, respectively. As used in this Plan, the
term "affiliated corporation" shall mean any entity providing managerial,
administrative, consulting or advisory services to the Company, or any parent
corporation or subsidiary corporation of such affiliated corporation.
III. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company or by a
committee (the "Committee") appointed by the Board of Directors of the Company
from among its members that is comprised, unless otherwise determined by the
Board of Directors, solely of not less than two members who shall be
"Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) (or any
successor rule) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). If the Board of Directors of the Company
administers the Plan rather than a committee of the Board of Directors, then all
references to "Committee" in the Plan shall be deemed to mean a reference to the
Board of Directors of the Company.
The Committee is authorized, subject to the provisions of the Plan, to establish
such rules and regulations as it deems necessary for the proper administration
of the Plan and to make such determinations and interpretations and to take such
action in connection with the Plan and any benefits granted hereunder as it
deems necessary or advisable. Subject to the express provisions of the Plan,
including, without limitation, Articles X through XIII hereof, the Committee
also shall have authority to construe the Plan and the Options, Rights or
Restricted Stock granted thereunder, to amend the Options, Rights or Restricted
Stock granted hereunder, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of the Options,
Rights and Restricted Stock (none of which need be identical) and to make all
other determinations necessary or advisable for administering the Plan.
The Committee also shall have the authority to require, in its discretion, as a
condition of the granting of any such Option or Right, that the employee agree
(a) not to sell or otherwise dispose of Shares acquired pursuant to the exercise
of such Option or Right for a period of six (6) months following the date of the
acquisition of such Option or Right and (b) that in the event of termination of
employment of such employee, other than as a result of dismissal without cause,
such employee will not, for a period to be fixed at the time of the grant of the
Option or Right, enter into any other employment or participate directly or
indirectly in any other business or enterprise which is competitive with the
business of the Company or any subsidiary corporation or parent corporation of
the Company, or enter into any employment in which such employee will be called
upon to utilize special knowledge obtained through employment with the Company
or any subsidiary corporation or parent corporation thereof.
All determinations and interpretations made by the Committee shall be binding
and conclusive on all participants and their legal representatives. No member of
the Committee and no employee of the Company shall be liable for any act or
failure to act hereunder, except in circumstances involving his or her bad
faith, gross negligence or willful misconduct, or for any act or failure to act
hereunder by any other member or employee or by any agent to whom duties in
connection with the administration of this Plan have been delegated. The Company
shall indemnify members of the Committee and any agent of the Committee who is
an employee of the Company, a subsidiary or an affiliate against any and all
liabilities or expenses to which they may be subjected by reason of any act or
failure to act with respect to their duties
A-2
on behalf of the Plan, except in circumstances involving such person's bad
faith, gross negligence or willful misconduct.
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee,
or any person to whom it has delegated duties as aforesaid, may employ one or
more persons to render advice with respect to any responsibility the Committee
or such person may have under the Plan. The Committee may employ such legal or
other counsel, consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion or computation received
from any such counsel, consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company, or the subsidiary or affiliate whose employees have benefited from the
Plan, as determined by the Committee.
IV. ELIGIBILITY
Incentive Options may be granted only to salaried key employees of the Company
or any subsidiary corporation or parent corporation of the Company now existing
or hereafter formed or acquired, except as hereinafter provided. Non-Qualified
Options and Rights may be granted to officers or key employees of the Company or
any subsidiary corporation, parent corporation or affiliated corporation;
provided, however, that only those employees of an affiliated corporation who
provide or have provided service to the Company and who are responsible for the
continued growth of the Company are eligible to receive grants of Options or
Rights under the Plan. Non-Qualified Options may be granted to directors of the
Company (including former officers or key employees), solely in their capacity
as directors ("Director Participants"), but only pursuant to and in accordance
with the provisions of Articles X through XIII hereof. Restricted Stock may be
awarded to persons now serving as directors of the Company or employed as
officers or key employees of the Company or any subsidiary corporation, parent
corporation or affiliated corporation; provided, however, that only those
employees of an affiliated corporation who provide or have provided service to
the Company and who are responsible for the continued growth of the Company are
eligible to receive grants of Restricted Stock under the Plan.
The Plan does not create a right in any person to participate in the Plan, nor
does it create a right in any person to have any Options, Rights or Restricted
Stock granted to him or her.
The aggregate number of Shares with respect to which Options, Rights or shares
of Restricted Stock may be granted under the Plan to any grantee in any one
taxable year is 300,000.
Notwithstanding any other provision of this Plan, if the grant of an Option or
Right would cause any person (whether the grantee or any other person) to become
a "5 percent stockholder" of the Company within the meaning of Section 382 of
the Code and the regulations promulgated thereunder as a result of the grant of
the Option or Right to the grantee, such grant shall only be effective to
acquire the number of Shares (or, in the case of a Right, Shares and/or cash) of
the Company as could be acquired without causing such person to become a "5
percent stockholder," and if the exercise of an Option or Right would cause any
person (whether the grantee or any other person) to become a "5 percent
stockholder" of the Company as a result of the exercise of such Option or Right,
such exercise shall be effective only for the number of Shares (or, in the case
of a Right, Shares and/or cash) that such grantee can acquire without causing
such person to become a "5 percent stockholder" and the issuance of any Shares
(or, in the case of a Right, any Shares and/or cash) in excess of such amount
shall be null and void. Furthermore, notwithstanding any other provision of this
Plan, if the grant of (i) Restricted Stock, (ii) the lapse or termination of the
Restricted Period and/or (iii) the filing by a grantee of an election under
Section 83(b) of the Code with respect to such Restricted Stock (hereinafter
(ii) and (iii) are referred to collectively, as "vesting") would cause any
person (whether the grantee or any other person) to become a "5 percent
stockholder" of the Company within the meaning of Section 382 of the Code and
the regulations promulgated thereunder as a result of such grant and/or vesting
of the Restricted Stock, such grant of Restricted Stock shall only be effective
as to the number of shares of the Company as could be acquired without causing
such person to become a "5 percent stockholder." Upon the (i) grant or exercise
of an Option or Right or (ii) upon the grant or vesting
A-3
of Restricted Stock, the Committee may, at the Committee's discretion, request
that the grantee submit any appropriate certifications or affidavits to satisfy
the Committee that such grant, exercise, and/or vesting will not cause any
person to become a "5 percent stockholder" of the Company as a result of such
grant, exercise, and/or vesting.
V. OPTION PRICE AND PAYMENT
The price for each Share purchasable under any Option granted hereunder shall be
such amount as the Committee may determine; provided, however, that the exercise
price of an Incentive Option shall not be less than one hundred percent (100%)
of the Fair Market Value (as defined below) of the Shares on the date the Option
is granted; provided, further, that in the case of an Incentive Option granted
to a person who, at the time such Option is granted, owns shares of the Company
or any subsidiary corporation or parent corporation of the Company possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of any subsidiary corporation or parent corporation of
the Company, the purchase price for each Share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per Share at the date the
Option is granted. In determining the stock ownership of an employee for any
purpose under the Plan, the rules of Section 424(d) of the Code shall be
applied, and the Committee may rely on representations of fact made to it by the
employee and believed by it to be true.
Except as set forth in Article XVIII, for purposes of this Plan and any Options,
Rights and/or Restricted Stock awarded hereunder, Fair Market Value shall be the
closing price of the Shares on the date of calculation (or on the last preceding
trading date if Shares were not traded on such date) if the Shares are readily
tradable on a national securities exchange or other market system, and if the
Shares are not readily tradable, Fair Market Value shall mean the amount
determined in good faith by the Committee as the fair market value of the Shares
of the Company.
Upon the exercise of an Option granted hereunder, the Company shall cause the
purchased Shares to be issued only when it shall have received the full purchase
price for the Shares in cash; provided, however, that in lieu of cash, the
holder of an Option may, if the terms of such Option so provide and to the
extent permitted by applicable law, exercise an Option (a) in whole or in part,
by delivering to the Company Shares (in proper form for transfer and accompanied
by all requisite stock transfer tax stamps or cash in lieu thereof) owned by
such holder having a Fair Market Value equal to the cash exercise price
applicable to that portion of the Option being exercised by the delivery of such
Shares, the Fair Market Value of the Shares so delivered to be determined as of
the date immediately preceding the date on which the Option is exercised, or as
may be required in order to comply with or to conform to the requirements of any
applicable laws or regulations, or (b) in part, by delivering to the Company an
executed promissory note on such terms and conditions as the Committee shall
determine, at the time of grant, in its sole discretion; provided, however, that
(i) the principal amount of such note shall not exceed ninety percent (90%) (or
such lesser percentage as would be permitted by applicable margin regulations)
of the aggregate purchase price of the Shares then being purchased pursuant to
the exercise of such Option and (ii) payment for Shares with a promissory note
is permissible under applicable law. The Committee may prescribe any other
method of paying the exercise price that it determines to be consistent with
applicable law and the purpose of the Plan.
VI. TERMS OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Any Option granted hereunder shall be exercisable at such times, in such amounts
and during such period or periods as the Committee shall determine at the date
of the grant of such Option; provided, however, that an Incentive Option shall
not be exercisable after the expiration of ten (10) years from the date such
Option is granted; provided, further, that in the case of an Incentive Option
granted to a person who, at the time such Incentive Option is granted, owns
stock of the Company or any subsidiary corporation or parent corporation of the
Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any subsidiary corporation or
parent corporation of the Company, such Incentive Option shall not be
exercisable after the expiration of five (5) years from the date such
A-4
Incentive Option is granted. Notwithstanding anything herein to the contrary,
Options may not be granted on or after the tenth anniversary of the Effective
Date.
Each Option shall be subject to such additional terms and conditions as may from
time to time be prescribed by the Committee (which terms and conditions may be
subsequently waived by the Committee), subject to the limitations contained in
the Plan. The Committee shall have the right to accelerate, in whole or in part,
from time to time, conditionally or unconditionally, rights to exercise any
Option granted hereunder.
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part.
Except to the extent otherwise provided under the Code, to the extent that the
aggregate Fair Market Value of stock for which Incentive Options (under all
stock option plans of the Company and of any parent corporation or subsidiary
corporation of the Company) are exercisable for the first time by an employee
during any calendar year exceeds one hundred thousand dollars ($100,000), such
Options shall be treated as Non-Qualified Options. For purposes of this
limitation, (a) the Fair Market Value of stock is determined as of the time the
Option is granted and (b) the limitation will be applied by taking into account
Options in the order in which they were granted.
In no event shall an Option granted hereunder be exercised for a fraction of a
Share.
A person entitled to receive Shares upon the exercise of an Option shall not
have the rights of a stockholder with respect to such Shares until the date of
issuance of a stock certificate to him for such Shares; provided, however, that
until such stock certificate is issued, any holder of an Option using previously
acquired Shares in payment of an option exercise price shall continue to have
the rights of a stockholder with respect to such previously acquired Shares.
VII. STOCK APPRECIATION RIGHTS
In the discretion of the Committee, a Right may be granted (a) alone, (b)
simultaneously with the grant of an Option (either Incentive or Non-Qualified)
and in conjunction therewith or in the alternative thereto or (c) subsequent to
the grant of a Non-Qualified Option and in conjunction therewith or in the
alternative thereto.
The exercise price of a Right granted alone shall be determined by the Committee
but shall not be less than one hundred percent (100%) of the Fair Market Value
of one Share on the date of grant of such Right. A Right granted simultaneously
with or subsequent to the grant of an Option and in conjunction therewith or in
the alternative thereto shall have the same exercise price as the related
Option, shall be transferable only upon the same terms and conditions as the
related Option, and shall be exercisable only to the same extent as the related
Option; provided, however, that a Right, by its terms, shall be exercisable only
when the Fair Market Value of the Shares subject to the Right and related Option
exceeds the exercise price thereof.
Upon exercise of a Right granted simultaneously with or subsequent to an Option
and in the alternative thereto, the number of Shares for which the related
Option shall be exercisable shall be reduced by the number of Shares for which
the Right shall have been exercised. The number of Shares for which a Right
shall be exercisable shall be reduced upon any exercise of a related Option by
the number of Shares for which such Option shall have been exercised.
Any Right shall be exercisable upon such additional terms and conditions as may
from time to time be prescribed by the Committee.
A Right shall entitle the holder upon exercise thereof to receive from the
Company, upon a written request filed with the Secretary of the Company at its
principal offices (the "Request"), a number of Shares (with or
A-5
without restrictions as to substantial risk of forfeiture and transferability,
as determined by the Committee in its sole discretion), an amount of cash, or
any combination of Shares and cash, as specified in the Request (but subject to
the approval of the Committee, in its sole discretion, at any time up to and
including the time of payment, as to the making of any cash payment), having an
aggregate Fair Market Value equal to the product of (a) the excess of the Fair
Market Value, on the day of such Request, of one Share over the exercise price
per Share specified in such Right or its related Option, multiplied by (b) the
number of Shares for which such Right shall be exercised; provided, however,
that the Committee, in its discretion, may impose a maximum limitation on the
amount of cash, the Fair Market Value of Shares, or a combination thereof, which
may be received by a holder upon exercise of a Right.
Any election by a holder of a Right to receive cash in full or partial
settlement of such Right, and any exercise of such Right for cash, may be made
only by a Request filed with the Corporate Secretary of the Company during the
period beginning on the third business day following the date of release for
publication by the Company of quarterly or annual summary statements of earnings
and ending on the twelfth business day following such date. Within thirty (30)
days after the receipt by the Company of a Request to receive cash in full or
partial settlement of a Right or to exercise such Right for cash, the Committee
shall, in its sole discretion, either consent to or disapprove, in whole or in
part, such Request.
If the Committee disapproves in whole or in part any election by a holder to
receive cash in full or partial settlement of a Right or to exercise such Right
for cash, such disapproval shall not affect such holder's right to exercise such
Right at a later date, to the extent that such Right shall be otherwise
exercisable, or to elect the form of payment at a later date, provided that an
election to receive cash upon such later exercise shall be subject to the
approval of the Committee. Additionally, such disapproval shall not affect such
holder's right to exercise any related Option or Options granted to such holder
under the Plan.
A holder of a Right shall not be entitled to request or receive cash in full or
partial payment of such Right during the first six (6) months of its term;
provided, however, that such prohibition shall not apply if the holder of such
Right is not subject to the reporting requirements of Section 16(a) of the
Exchange Act.
For all purposes of this Article VII, the fair market value of Shares shall be
determined in accordance with the principles set forth in Article V hereof.
VIII. TERMINATION OF EMPLOYMENT
Upon termination of employment of any employee with the Company and all
subsidiary corporations and parent corporations of the Company, any Option or
Right previously granted to the employee, unless otherwise specified by the
Committee in the Option or Right, shall, to the extent not theretofore
exercised, terminate and become null and void; provided, however, that:
(a) if the employee shall die while in the employ of such corporation or during
either the three (3) month or one (1) year period, whichever is applicable,
specified in clause (b) below and at a time when such employee was entitled to
exercise an Option or Right as herein provided, the legal representative of such
employee, or such person who acquired such Option or Right by bequest or
inheritance or by reason of the death of the employee, may, not later than one
(1) year from the date of death, exercise such Option or Right, to the extent
not theretofore exercised, in respect of any or all of such number of Shares as
specified by the Committee in such Option or Right; and
(b) if the employment of any employee to whom such Option or Right shall have
been granted shall terminate by reason of the employee's retirement (at such age
or upon such conditions as shall be specified by the Committee), disability (as
described in Section 22(e)(3) of the Code) or dismissal by the employer other
than for cause (as defined below), and while such employee is entitled to
exercise such Option or Right as herein provided, such employee shall have the
right to exercise such Option or Right so granted in respect of any or all of
such number of Shares as specified by the Committee in such Option or Right, at
any time up to and including (i) three (3) months after the date of such
termination of employment in the
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case of termination by reason of retirement or dismissal other than for cause,
and (ii) one (1) year after the date of termination of employment in the case of
termination by reason of disability.
In no event, however, shall any person be entitled to exercise any Option or
Right after the expiration of the period of exercisability of such Option or
Right, as specified therein.
If an employee voluntarily terminates his or her employment, or is discharged
for cause, any Option or Right granted hereunder shall, unless otherwise
specified by the Committee, forthwith terminate with respect to any unexercised
portion thereof.
If an Option or Right granted hereunder shall be exercised by the legal
representative of a deceased grantee or by a person who acquired an Option or
Right granted hereunder by bequest or inheritance or by reason of the death of
any employee or former employee, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof of
the right of such legal representative or other person to exercise such Option
or Right.
For the purposes of the Plan, the term "for cause" shall mean (a) with respect
to an employee who is a party to a written employment agreement with, or,
alternatively, participates in a compensation or benefit plan of the Company or
a subsidiary corporation or parent corporation of the Company, which agreement
or plan contains a definition of "for cause" or "cause" (or words of like
import) for purposes of termination of employment thereunder by the Company or
such subsidiary corporation or parent corporation of the Company, "for cause" or
"cause" as defined therein; or (b) in all other cases, as determined by the
Committee or the Board of Directors, in its sole discretion, (i) the willful
commission by an employee of an act that causes or may cause substantial damage
to the Company or a subsidiary corporation or parent corporation of the Company;
(ii) the commission by an employee of an act of fraud in the performance of such
employee's duties on behalf of the Company or a subsidiary corporation or parent
corporation of the Company; (iii) conviction of the employee for commission of a
felony in connection with the performance of his duties on behalf of the Company
or a subsidiary corporation or parent corporation of the Company, or (iv) the
continuing failure of an employee to perform the duties of such employee to the
Company or a subsidiary corporation or parent corporation of the Company after
written notice thereof and a reasonable opportunity to be heard and cure such
failure are given to the employee by the Committee.
For the purposes of the Plan, an employment relationship shall be deemed to
exist between an individual and a corporation if, at the time of the
determination, the individual was an "employee" of such corporation for purposes
of Section 422(a) of the Code. If an individual is on leave of absence taken
with the consent of the corporation by which such individual was employed, or is
on active military service, and is determined to be an "employee" for purposes
of the exercise of an Option or Right, such individual shall not be entitled to
exercise such Option or Right during such period and while the employment is
treated as continuing intact unless (a) such individual shall have obtained the
prior written consent of such corporation, which consent shall be signed by the
chairman of the board of directors, the president, a senior vice-president or
other duly authorized officer of such corporation or (b) such exercise is
otherwise authorized by the Committee. .
A termination of employment shall not be deemed to occur by reason of (i) the
transfer of an employee from employment by the Company to employment by a
subsidiary corporation or a parent corporation of the Company, (ii) the transfer
of an employee from employment by a subsidiary corporation or a parent
corporation of the Company to employment by the Company or by another subsidiary
corporation or parent corporation of the Company, or (iii) the transfer of an
employee from employment by the Company or any subsidiary corporation or parent
corporation of the Company to employment by any affiliated corporation, provided
that such employee continues to provide services to the Company.
In the event of the complete liquidation or dissolution of a subsidiary
corporation, or if ownership of 50% or more of such corporation ceases to be
held by the Company or another subsidiary corporation, any unexercised Options
or Rights theretofore granted to any person employed by such subsidiary
corporation
A-7
will be deemed cancelled unless such person is employed by the Company or by any
parent corporation or another subsidiary corporation after the occurrence of
such event. If an Option or Right is to be cancelled pursuant to the provisions
of the previous sentence, notice of such cancellation will be given to each
employee holding unexercised Options, and, subject to Article IV, such holder
will have the right to exercise such Options or Rights in full (without regard
to any limitation set forth or imposed pursuant to Article VI) during the thirty
(30) day period following notice of such cancellation.
IX. EXERCISE OF OPTIONS
Options granted under the Plan shall be exercised by the optionee as to all or
part of the Shares covered thereby by the giving of written notice of the
exercise thereof to the Corporate Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and accompanied by payment of the purchase price. Subject to the terms of
Articles XX through XXIII hereof, the Company shall cause certificates for the
Shares so purchased to be delivered at the principal business office of the
Company, against payment of the full purchase price, on the date specified in
the notice of exercise.
X. STOCK OPTION GRANTS TO DIRECTOR PARTICIPANTS
Subject to the terms and conditions of Articles X through XIII hereof,
commencing with the Annual Meeting of Stockholders of the Company to be held in
2000, each Director Participant shall automatically be granted a grant of
Non-Qualified Option to purchase 1,000 Shares on the date on which the Annual
Meeting of Stockholders of the Company (including any adjournments thereof) is
held in each year. The purchase price of the Shares covered by the Non-Qualified
Options granted pursuant to this Article X shall be the Fair Market Value of
such Shares on the date of grant.
XI. DIRECTOR PARTICIPANT'S EXERCISE OF OPTIONS
A Non-Qualified Option granted to any Director Participant of the Company shall
not be exercisable for the twelve-month period immediately following the grant
of such Non-Qualified Option. Thereafter, the Non-Qualified Option shall be
exercisable for the period ending five years from the date of grant of such
Non-Qualified Option, except to the extent such exercise is further limited or
restricted pursuant to the provisions hereof.
If, in any year of the Non-Qualified Option, such Non-Qualified Option shall not
be exercised for the total number of Shares available for purchase during that
year, the Non-Qualified Option shall not thereby terminate as to such
unexercised portion, but shall be cumulative. As used herein, the term "year of
the Non-Qualified Option" shall mean a one (1) year period commencing with the
date of, or the anniversary of the date of, the granting of such Non-Qualified
Option.
XII. DIRECTOR PARTICIPANT'S TERMINATION
If a Director Participant's service as a director of the Company is terminated,
any Non-Qualified Option previously granted to such Director Participant shall,
to the extent not theretofore exercised, terminate and become null and void;
provided, however, that:
(a) if a Director Participant holding an outstanding Non-Qualified Option dies,
such Non-Qualified Option shall, to the extent not theretofore exercised, remain
exercisable for one (1) year after such Director Participant's death, by such
Director Participant's legatee, distributee, guardian or legal or personal
representative; and
(b) if the service of a Director Participant to whom such Non-Qualified Option
shall have been granted shall terminate by reason of (i) such Director
Participant's disability (as described in Section 22(e)(3) of the Code), (ii)
voluntary retirement from service as a director of the Company, or (iii) failure
of the Company
A-8
to retain or nominate for re-election such Director Participant who is otherwise
eligible, unless due to any act of (A) fraud or intentional misrepresentation,
or (B) embezzlement, misappropriation or conversion of assets or opportunities
of the Company or any direct or indirect subsidiary of the Company, while such
Director Participant is entitled to exercise such Non-Qualified Option as herein
provided, such Director Participant shall have the right to exercise such
Non-Qualified Option so granted in respect of any or all of such number of
Shares subject to such Non-Qualified Option at any time up to and including (X)
three (3) months after the date of such termination of service in the case of
termination by reason of voluntary retirement or failure of the Company to
retain or nominate for re-election such Director Participant who is otherwise
eligible, unless due to any act of (1) fraud or intentional misrepresentation,
or (2) embezzlement, misappropriation or conversion of assets or opportunities
of the Company or any direct or indirect subsidiary of the Company, and (Y) one
(1) year after the date of termination of service in the case of termination by
reason of disability; and
(c) if the Director Participant shall die during either the three (3) month or
one (1) year period, whichever is applicable, specified in clause (b) above and
at a time when such Director Participant was entitled to exercise a
Non-Qualified Option as herein provided, the legal representative of such
Director Participant, or such person who acquired such Non-Qualified Option by
bequest or inheritance or by reason of the death of the Director Participant
may, not later than one (1) year from the date of death, exercise such
Non-Qualified Option, to the extent not theretofore exercised, in respect of any
or all of such number of Shares subject to such Non-Qualified Option.
In no event, however, shall a Director Participant be entitled to exercise any
Option after the expiration of the period of exercisability of such Option, as
specified therein.
XIII. DIRECTOR PARTICIPANT'S ELIGIBILITY FOR OTHER GRANTS
Any Director Participant eligible to receive an Option pursuant to Article X
hereof shall also be eligible to receive any other grant or award under any
other Article of this Plan.
XIV. TERMINATION OF SERVICE TO THE COMPANY OF AN AFFILIATED PARTICIPANT
If an Affiliated Participant's service to the Company is terminated, any
Non-Qualified Option and/or Right previously granted to such Affiliated
Participant, unless otherwise specified by the Committee, shall, to the extent
not theretofore exercised, terminate and become null and void; provided, however
that:
(a) if the Affiliated Participant shall die while in the service of the Company,
any parent corporation, subsidiary corporation or affiliated corporation or
during either the three (3) month or one (1) year period, whichever is
applicable, specified in clause (b) below and at a time when such Affiliated
Participant was entitled to exercise an Option or Right as herein provided, the
legal representative of such Affiliated Participant, or such person who acquired
such Option or Right by bequest or inheritance or by reason of the death of the
Affiliated Participant, may, not later than one (1) year from the date of death,
exercise such Option or Right, to the extent not theretofore exercised, in
respect of any or all of such number of Shares as specified by the Committee in
such Option or Right; and
(b) if the service of any Affiliated Participant to whom such Option or Right
shall have been granted shall terminate by reason of the Affiliated
Participant's retirement (at such age or upon such conditions as shall be
specified by his or her Committee), disability (as described in Section 22(e)(3)
of the Code) or dismissal by the employer other than for cause (as defined
below), and while such Affiliated Participant is entitled to exercise such
Option or Right as herein provided, such Affiliated Participant shall have the
right to exercise such Option or Right so granted in respect of any or all of
such number of Shares as specified by the Committee in such Option or Right, at
any time up to and including (i) three (3) months after the date of such
termination of employment in the case of termination by reason of retirement or
dismissal other than for cause, and (ii) one (1) year after the date of
termination of employment in the case of termination by reason of disability.
A-9
In no event, however, shall any person be entitled to exercise any Option or
Right after the expiration of the period of exercisability of such Option or
Right, as specified therein.
If an Affiliated Participant voluntarily terminates his or her service to the
Company and all parent corporations, subsidiary corporations and affiliated
corporations or such service is terminated for cause, any Option or Right
granted hereunder shall, unless otherwise specified by the Committee, forthwith
terminate with respect to any unexercised portion thereof.
If an Option or Right granted hereunder shall be exercised by the legal
representative of a deceased grantee or by a person who acquired an Option or
Right granted hereunder by bequest or inheritance or by reason of the death of
any Affiliated Participant or former Affiliated Participant, written notice of
such exercise shall be accompanied by a certified copy of letters testamentary
or equivalent proof of the right of such legal representative or other person to
exercise such Option or Right.
For the purposes of the Plan, the term "for cause" shall mean (a) with respect
to an employee who is a party to a written employment agreement with, or,
alternatively, participates in a compensation or benefit plan of an affiliated
corporation of the Company, which agreement or plan contains a definition of
"for cause" or "cause" (or words of like import) for purposes of termination of
employment thereunder by such an affiliated corporation of the Company, "for
cause" or "cause" as defined therein; or (b) in all other cases, as determined
by the Committee or the Board of Directors, in its sole discretion, (i) the
willful commission by an Affiliated Participant of an act that causes or may
cause substantial damage to the Company or a subsidiary corporation, parent
corporation or affiliated corporation of the Company; (ii) the commission by an
Affiliated Participant of an act of fraud in the performance of such Affiliated
Participant's duties on behalf of the Company or a subsidiary corporation,
parent corporation or affiliated corporation of the Company; (iii) conviction of
the Affiliated Participant for commission of a felony in connection with the
performance of his duties on behalf of the Company or a subsidiary corporation,
parent corporation or affiliated corporation of the Company, or (iv) the
continuing failure of an Affiliated Participant to perform the duties of such
Affiliated Participant to the Company or a subsidiary corporation, parent
corporation or affiliated corporation of the Company after written notice
thereof and a reasonable opportunity to be heard and cure such failure are given
to the Affiliated Participant by the Committee.
For purposes of the Plan, an "Affiliated Participant" is a grantee who is
neither an "employee" of the Company or any subsidiary corporation or parent
corporation of the Company for purposes of the Plan nor a director of the
Company.
A termination of services shall not be deemed to have occurred by reason of the
transfer of an Affiliated Person from employment by an affiliated company to
employment by the Company or any subsidiary or parent corporation of the
Company.
XV. RESTRICTED STOCK
Subject to the express provisions of the Plan, the Committee shall determine to
whom Restricted Stock shall be granted, the number of Shares subject to each
grant of Restricted Stock and the date of any grant of Restricted Stock. All
awards of Restricted Stock shall be made between January 1, 2000 and December
31, 2000. Upon the grant of Restricted Stock, the entire amount of Restricted
Stock granted to an Eligible Person shall be issued on the date of grant.
Notwithstanding any other provision of the Plan, the aggregate number of Shares
with respect to which Restricted Stock may be granted under the Plan to any
Director Participant of the Company shall not exceed Ten Thousand (10,000).
Shares of Restricted Stock shall be forfeited and revert to the Company upon the
grantee's termination of service to the Company determined in accordance with
the provisions of Articles VIII, XII, and XIV of the Plan shall for any reason
other than death or permanent disability, according to the following schedule:
Termination Prior To Percentage Forfeited
-------------------- --------------------
First anniversary of award date 100%
Second anniversary of award date 50%
Third anniversary of award date 25%
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Shares of Restricted Stock shall not be forfeited as a result of the grantee's
death or his or her termination of service to the Company by reason of permanent
disability, as determined by the Committee. The Committee may require medical
evidence of permanent disability, including medical examinations by physicians
selected by it. The Committee shall have the authority to waive forfeiture for
any other reason in its discretion.
The period during which any Restricted Stock is subject to forfeiture is the
"Restricted Period" with respect to such shares of Restricted Stock. During the
Restricted Period, the grantee shall not be permitted to sell, transfer, pledge
or assign the shares of Restricted Stock. Stock certificates for Restricted
Stock shall be issued upon grant of the Restricted Stock and registered in the
name of the grantee, but shall be appropriately legended and returned to the
Company by the grantee, together with a stock power, endorsed in blank by the
grantee. The grantee shall be entitled to vote shares of Restricted Stock and
shall be entitled to all dividends paid thereon, except that dividends paid in
the Company's stock shall also be subject to the same restrictions.
Restricted Stock shall become free of the foregoing restrictions upon the
expiration of the Restricted Period (or otherwise in accordance with the terms
of the Plan) and the Company shall deliver new certificates with the restrictive
legend deleted evidencing such stock.
Restricted Stock will also be subject to such other restrictions as the
Committee shall determine at the time of the grant.
XVI. USE OF PROCEEDS
The cash proceeds of the sale of Shares subject to the Options granted hereunder
are to be added to the general funds of the Company and used for its general
corporate purposes as the Board of Directors shall determine.
XVII. NON-TRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
Neither an Option nor a Right granted hereunder shall be transferable, whether
by operation of law or otherwise, other than by will or the laws of descent and
distribution, and any Option or Right granted hereunder shall be exercisable,
during the lifetime of the holder, only by such holder. Except to the extent
provided above, Options and Rights may not be assigned, transferred, pledged,
hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Notwithstanding the foregoing, at the discretion of the Committee, an award of
an Option (other than an Incentive Option) and/or a Right may permit the
transferability of such Option and/or Right by a participant solely to the
participant's spouse, siblings, parents, children and grandchildren or trusts
for the benefit of such persons or partnerships, corporations, limited liability
companies or other entities owned solely by such persons, including trusts for
such persons, subject to any restriction included in the award of the Option
and/or Right.
A-11
XVIII. ADJUSTMENT PROVISIONS; EFFECT OF CERTAIN TRANSACTIONS
(a) If there shall be any change in the Shares of the Company, through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
reverse stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares, dividend in kind or other like change in capital structure
or distribution to Stockholders of the Company (other than normal cash
dividends), in order to prevent dilution or enlargement of participants' rights
under the Plan, the Committee shall adjust, in an equitable manner, the number
and kind of shares that may be issued under the Plan, the number and kind of
shares subject to outstanding Options and Rights, the consideration to be
received upon exercise of Options or in respect of Rights, the exercise price
applicable to outstanding Options and Rights, and/or the fair market value of
the Shares and other value determinations applicable to outstanding Options and
Rights. Appropriate adjustments may also be made by the Committee in the terms
of any Options and Rights under the Plan to reflect such changes or
distributions and to modify any other terms of outstanding Options and Rights on
an equitable basis. In addition, the Committee is authorized to make adjustments
to the terms and conditions of, and the criteria included in, Options and Rights
in recognition of unusual or nonrecurring events affecting the Company or the
financial statements of the Company, or in response to changes in applicable
laws, regulations, or accounting principles.
(b) Subject to the provisions of Article IV, but notwithstanding any other
provision of this Plan, if there is an Extraordinary Event with respect to the
Company, all then outstanding Options and Rights that have not vested or become
exercisable at the time of such Extraordinary Event shall immediately vest and
become exercisable and all restrictions on outstanding Restricted Stock shall
immediately terminate. For purposes of this Article XVIII(b), an "Extraordinary
Event" with respect to the Company shall be deemed to have occurred upon any of
the following events:
(i) A change in control of the direction and administration of the
Company's business of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A (or any successor rule or regulation) of Regulation
14A promulgated under the Exchange Act whether or not the Company is then
subject to such reporting requirement; or
(ii) The Company's Board of Directors shall approve a sale of all or
substantially all of the assets of the Company, a partial liquidation of the
Company under Section 302(b)(4) of the Code or other extraordinary corporate
contraction or distribution or other extraordinary transaction that is
determined by the Board of Directors to be appropriate and in the best interests
of the Company and which by its terms precludes the existence of Company
securities convertible into Shares; or
(iii) The Company's Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of the Company,
the consummation of which would result in the occurrence of any event described
in Article XVIII(b)(i) or (ii) above.
Notwithstanding the foregoing, (A) any spin-off of a division or subsidiary of
the Company to its stockholders and (B) any event listed in (i) through (iii)
above that the Board of Directors determines not to be an Extraordinary Event
with respect to the Company, shall not constitute an Extraordinary Event with
respect to the Company.
The Committee, in its discretion, may determine that, upon the occurrence of an
Extraordinary Event with respect to the Company, each Option and Right
outstanding hereunder shall terminate within a specified number of days after
notice to the holder, and, subject to the provisions of Article IV, such holder
shall receive with respect to each Share that is subject to an Option or a Right
(assuming no exercise) an amount equal to the excess of the "fair market value"
of such Share over the exercise price per share of such Option or Right (as the
case may be); such amount to be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction, if any) or
in a combination thereof, as the Committee, in its discretion, shall determine.
For purposes of this provision, the "fair market value" of the Shares shall be
determined by the Board of Directors in good faith and shall be not less than
the Fair
A-12
Market Value determined in accordance with Article V as of the date of the
occurrence of the Extraordinary Event. The provisions contained in the preceding
sentence shall be inapplicable to an Option or Right granted within six (6)
months before the occurrence of an Extraordinary Event if the holder of such
Option or Right is subject to the reporting requirements of Section 16(a) of the
Exchange Act and no exception from liability under Section 16(b) of the Exchange
Act is otherwise available to such holder.
XIX. RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the Company or on any subsidiary
corporation or parent corporation or affiliated corporation thereof to continue
the employment or directorship of any holder of an Option, Right or Restricted
Stock and it shall not impose any obligation on the part of any holder of an
Option, Right or Restricted Stock to remain in the employ of the Company or of
any subsidiary corporation or parent corporation or affiliated corporation
thereof. Termination of service of a Director Participant shall be governed by
the provisions of Article XII hereof and termination of service of an Affiliated
Participant shall be governed by the provisions of Article XIV hereof.
XX. PURCHASE FOR INVESTMENT
Except as hereinafter provided, the Committee may require the holder of any
Option, Right or Restricted Stock granted hereunder, as a condition of exercise
of such Option or Right or grant of Restricted Stock, to execute and deliver to
the Company a written statement, in form satisfactory to the Committee, in which
such holder represents and warrants that such holder is acquiring the shares of
Restricted Stock or purchasing or acquiring the Shares pursuant to any Option or
Right for such holder's own account, for investment only and not with a view to
the resale or distribution thereof, and agrees that any subsequent resale or
distribution of any Shares acquired under the Plan shall be made only pursuant
to either (i) a Registration Statement on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), which Registration
Statement has become effective and is current with regard to the Shares being
sold, or (ii) a specific exemption from the registration requirements of the
Securities Act, but in claiming such exemption the holder shall, prior to any
offer of sale or sale of such Shares, obtain a prior favorable written opinion
of counsel, in form and substance satisfactory to counsel for the Company, as to
the application of such exemption thereto. The foregoing restriction shall not
apply to (x) issuances by the Company so long as the Shares being issued are
registered under the Securities Act and a prospectus in respect thereof is
current or (y) reofferings of Shares by affiliates of the Company (as defined in
Rule 405 or any successor rule or regulation promulgated under the Securities
Act) if the Shares being reoffered are registered under the Securities Act and a
prospectus in respect thereof is current.
Nothing herein shall be construed as requiring the Company to register Shares
subject to any Option, Right or Restricted Stock under the Securities Act. In
addition, if at any time the Committee shall determine that the listing or
qualification of the Shares subject to such Option, Right or Restricted Stock on
any securities exchange or under any applicable law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as a condition
of, or in connection with, the granting of an Option or Right, or the issuance
of Shares thereunder, such Option or Right may not be exercised in whole or in
part unless such listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
XXI. ISSUANCE OF STOCK CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
Upon any exercise of an Option or Right which may be granted hereunder and, in
the case of an Option, payment of the purchase price, a certificate or
certificates for the Shares shall be issued by the Company in the name of the
person exercising the Option or Right and shall be delivered to or upon the
order of such person. Any shares of Restricted Stock shall be issued in the name
of the grantee and shall bear a legend indicating that it is subject to the
restrictions contained in the Plan, in addition to any other legends or
instructions that the Committee shall deem appropriate.
A-13
The Company may endorse such legend or legends upon the certificates for Shares
issued pursuant to the Plan and may issue such "stop transfer" instructions to
its transfer agent in respect of such Shares as the Committee, in its
discretion, determines to be necessary or appropriate to (a) prevent a violation
of, or to perfect an exemption from, the registration requirements of the
Securities Act, (b) implement the provisions of the Plan and any agreement
between the Company and the optionee or grantee with respect to such Shares, or
(c) permit the Company to determine the occurrence of a disqualifying
disposition, as described in Section 421(b) of the Code, of Shares transferred
upon exercise of an Incentive Option granted under the Plan.
The Company shall pay all issue or transfer taxes with respect to the issuance
or transfer of Shares to the grantee, as well as all fees and expenses
necessarily incurred by the Company in connection with such issuance or
transfer, except fees and expenses which may be necessitated by the filing or
amending of a Registration Statement under the Securities Act, which fees and
expenses shall be borne by the recipient of the Shares unless such Registration
Statement has been filed by the Company for its own corporate purposes (and the
Company so states) in which event the recipient of the Shares shall bear only
such fees and expenses as are attributable solely to the inclusion of the Shares
he or she receives in the Registration Statement.
All Shares issued as provided herein shall be fully paid and nonassessable to
the extent permitted by law.
XXII. WITHHOLDING TAXES
All benefits granted pursuant to this Stock Incentive Plan shall be net of any
amounts required to be withheld pursuant to any government withholding
requirements. The Company may require a holder of a Right or Non-Qualified
Option granted hereunder who exercises the Right or Non-Qualified Option, or a
holder of an Incentive Option who disposes of Shares acquired pursuant to the
exercise of the Incentive Option in a disqualifying disposition (within the
meaning of Section 421(b) of the Code), to reimburse the Company (or its parent
or subsidiary) for any taxes required by any government to be withheld or
otherwise deducted and paid by such corporation in respect of the issuance or
disposition of such Shares. The Company may require an individual receiving a
grant of Restricted Stock to reimburse the Company (or its parent or subsidiary)
for any taxes required by any government to be withheld or otherwise deducted
and paid by such corporation in respect of the grant or vesting of such
Restricted Stock. In lieu any of the above, the Company (or its parent or
subsidiary) shall have the right to withhold the amount of such taxes from any
other sums due or to become due from such corporation upon such terms and
conditions as the Committee shall prescribe. The Company may, in its discretion,
hold the stock certificate to which such individual is entitled upon the
exercise of an Option or the grant or vesting of Restricted Stock as security
for the payment of such withholding tax liability, until cash sufficient to pay
that liability has been accumulated. In addition, at any time that the Company
(or its parent or subsidiary) becomes subject to a withholding obligation under
applicable law with respect to the exercise of a Right or Non-Qualified Option
or the grant or vesting of Restricted Stock (the "Tax Date"), except as set
forth below, a holder of a Right, Non-Qualified Option or of Restricted Stock
may elect to satisfy, in whole or in part, the holder's related personal tax
liabilities (an "Election") by (a) directing the Company (or its parent or
subsidiary), in the case of a Right or Non-Qualified Option, to withhold from
Shares issuable in the related exercise either a specified number of Shares or
Shares having a specified value (in each case not in excess of the related
personal tax liabilities), (b) tendering, in the case of a Right, Non-Qualified
Option or Restricted Stock, Shares previously issued pursuant to the exercise of
an Option or Right or other Shares owned by the holder or (c) combining, in the
case of a Right or Non-Qualified Option, any or all of the foregoing options in
any fashion. Once made, an Election shall be irrevocable. The withheld Shares
and other Shares tendered in payment should be valued at their Fair Market Value
on the Tax Date. The Committee may disapprove of any Election, suspend or
terminate the right to make Elections or provide that the right to make
Elections shall not apply to particular Shares or exercises. The Committee may
impose any additional conditions or restrictions on the right to make an
Election as it shall deem appropriate. In addition, the Company shall be
authorized to effect any such withholding upon exercise of a Non-Qualified
Option or Right by retention of Shares issuable upon such exercise having a Fair
Market Value at the date
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of exercise which is equal to the amount to be withheld; provided, however, that
the Company shall not be authorized to effect such withholding without the prior
written consent of the employee if such withholding would subject such employee
to liability under Section 16(b) of the Exchange Act. The Committee may
prescribe such rules as it determines with respect to employees subject to the
reporting requirements of Section 16(a) of the Exchange Act to effect such tax
withholding in compliance with the Rules established by the Securities and
Exchange Commission (the "Commission") under Section 16 of the Exchange Act and
the positions of the staff of the Commission thereunder expressed in no-action
letters exempting such tax withholding from liability under Section 16(b) of the
Exchange Act.
XXIII. LISTING OF SHARES AND RELATED MATTERS
The Board of Directors may delay any issuance or delivery of Shares if it
determines that listing, registration or qualification of Shares covered by the
Plan upon any national securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
Shares under the Plan, until such listing, registration, qualification, consent
or approval shall have been effected or obtained, or otherwise provided for,
free of any conditions not acceptable to the Board of Directors.
XXIV. FOREIGN LAWS
The Committee may grant Options, Rights and Restricted Stock to individual
participants who are subject to the tax laws of nations other than the United
States, which Options, Rights and Restricted Stock may have terms and conditions
as determined by the Committee as necessary to comply with applicable foreign
laws. The Committee may take any action which it deems advisable to obtain
approval of such Options, Rights and Restricted Stock by the appropriate foreign
governmental entity; provided, however, that no such Options, Rights or
Restricted Stock may be granted pursuant to this Article XXIV and no action may
be taken which would result in a violation of the Exchange Act, the Code or any
other applicable law.
XXV. AMENDMENT OF THE PLAN
The Board of Directors may, from time to time, amend the Plan, provided that no
amendment shall be made, without the approval of the stockholders of the
Company, that will increase the total number of Shares reserved for Options,
Rights and Restricted Stock under the Plan or the maximum number of Shares with
respect to which Options, Rights and/or Restricted Stock may be granted under
the Plan to any one employee in any one taxable year (other than an increase
resulting from an adjustment provided for in Article XVIII hereof) or to alter
the class of eligible participants in the Plan. The Committee shall be
authorized to amend the Plan and the Options granted hereunder to permit the
Incentive Options granted hereunder to continue to qualify as incentive stock
options within the meaning of Section 422 of the Code and the Treasury
Regulations promulgated thereunder. Except to the extent and in the
circumstances expressly permitted under Article XVIII, the rights and
obligations under any Option, Right or Restricted Stock granted before amendment
of the Plan or any unexercised portion of such Option, Right or Restricted Stock
shall not be adversely affected by amendment of the Plan or the Option, Right or
terms of Restricted Stock without the consent of the holder of such Option,
Right or Restricted Stock.
XXVI. DURATION; TERMINATION OR SUSPENSION OF THE PLAN
The Plan shall continue indefinitely until terminated by the Board of Directors
or terminated pursuant to Article XXX. The Board of Directors may at any time
suspend or terminate the Plan. Options, Rights and Restricted Stock may not be
granted while the Plan is suspended or after it is terminated. Rights and
obligations under any Option, Right or Restricted Stock granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except upon the consent of the person to whom the Option, Right or
Restricted was granted. The power of the Committee to construe and administer
any Options, Rights or Restricted Stock granted prior to the termination or
suspension of the Plan under Article III nevertheless shall continue after such
termination or during such suspension.
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XXVII. SAVINGS PROVISION
With respect to persons subject to Section 16 of the Exchange Act, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
XXVIII. GOVERNING LAW
The Plan, such Options, Rights and Restricted Stock as may be granted hereunder
and all related matters shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware.
XXIX. PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be deemed to
affect the validity of any other provision.
XXX. EFFECTIVE DATE
The Plan shall become effective at 9:00 a.m., New York City time, on the
Effective Date; provided, however, that if the Plan is not approved by a vote of
the Stockholders of the Company at an Annual Meeting or any special meeting or
by unanimous written consent within twelve (12) months after the Effective Date,
the Plan and any Options, Rights or Restricted Stock granted thereunder shall
terminate.
A-16
PROXY
HOMEFED CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL
MEETING OF STOCKHOLDERS, DECEMBER 14, 1999 AT 2:00 P.M.
The undersigned stockholder of HomeFed Corporation (the "Company")
hereby appoints Paul J. Borden and Erin Ruhe and each of them, as attorneys and
proxies (the "Proxies"), each with power of substitution and revocation, to
represent the undersigned at the Annual Meeting of Stockholders of the Company
to be held at Grand Pacific Palisades Resort and Hotel, 5805 Armada Drive,
Carlsbad, California 92008, Ballroom A, on December 14, 1999 at 2:00 p.m., and
at any adjournment or postponement thereof, with authority to vote all shares
held or owned by the undersigned in accordance with the directions indicated
herein.
Receipt of the Notice of Annual Meeting of Stockholders, dated
November 19, 1999, the Proxy Statement furnished therewith, and a copy of the
Annual Report to Stockholders for the year ended December 31, 1998 is hereby
acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2 AND 3 AND PURSUANT TO ITEM 4.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
ITEM 1. Election of Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
NOMINEES LISTED BELOW.
FOR all nominees listed WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary hereon). nominees listed.
[ ] [ ]
NOMINEES: PATRICK D. BIENVENUE, PAUL
J. BORDEN, TIMOTHY CONSIDINE, IAN M.
CUMMING, MICHAEL A. LOBATZ AND
JOSEPH S. STEINBERG. (Instructions:
To withhold authority to vote for
any individual nominee write that
nominee's name in the space provided
below.)
- ------------------------------
ITEM 2. Approval of the 1999 Stock Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPROVAL.
ITEM 3. Ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors of the Company for 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH RATIFICATION.
ITEM 4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly be presented to the meeting or any adjournment thereof.
P
DATED: , 1999
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R
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O (SIGNATURE)
X -----------------------------------
(SIGNATURE IF HELD JOINTLY)
Y
THE SIGNATURE SHOULD AGREE WITH THE
NAME ON YOUR STOCK CERTIFICATE. IF
ACTING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN,
ETC., YOU SHOULD SO INDICATE WHEN
SIGNING. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME BY DULY AUTHORIZED
OFFICER. IF SHARES ARE HELD JOINTLY,
EACH STOCKHOLDER SHOULD SIGN.
2