1
SCHEDULE 14A INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. ___)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [___]
Check the appropriate box:
[ X ] Preliminary Proxy Statement [___] Confidential, for Use of the
[___] Definitive Proxy Statement Commission Only (as permitted
[___] Definitive Additional Materials by Rule 14a-6(e)(2))
[___] Soliciting Material Pursuant to
Section 240.14a 11(c) or
Section 240.14a-12
TCC Industries, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[___] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------
[___] Fee paid previously with preliminary materials.
[___] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------
2
TCC INDUSTRIES, INC.
816 CONGRESS AVENUE, SUITE 1250
AUSTIN, TEXAS 78701
(512) 320-0976
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 19, 1997
To the Shareholders of TCC INDUSTRIES, INC.
A special meeting of shareholders ("Special Meeting") of TCC Industries, Inc.,
a Texas corporation ("Company"), will be held on December 19, 1997 at 1:00 p.m.
local time, in the Boardroom of Texas Commerce Bank - Austin, 3rd Floor, Texas
Commerce Bank Building, 700 Lavaca Street, Austin, Texas, for the following
purposes:
1. To consider and vote on a proposal to approve and adopt the TCC
Industries, Inc. 1997 Incentive and Performance Stock Option Plan and
the options awarded by the Compensation Committee of the Board of
Directors thereunder (collectively, the "1997 Option Plan"); and
2. To transact such other business as may properly come before the
Special Meeting or any postponements and/or adjournments thereof.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL AND ADOPTION OF THE 1997 OPTION PLAN.
The close of business on November 7, 1997 has been fixed by the Board of
Directors of the Company as the record date for determination of the
shareholders of the Company entitled to notice of, and to vote at, the Special
Meeting or any postponements and/or adjournments thereof. Whether or not you
plan to attend the Special Meeting, we urge you to complete, sign and return
the enclosed proxy card in the enclosed postage-paid envelope. You may revoke
your proxy at any time before it is voted by delivering to the Company at 816
Congress Avenue, Suite 1250, Austin, Texas 78701, Attention: Robert Thomajan,
Secretary, a written notice of such revocation or a duly executed,
subsequently-dated proxy or by attending the Special Meeting and voting in
person.
By Order of the Board of Directors
Robert Thomajan
President and Secretary
Austin, Texas
November 12, 1997
3
TCC INDUSTRIES, INC.
816 CONGRESS AVENUE, SUITE 1250
AUSTIN, TEXAS 78701
(512) 320-0976
PROXY STATEMENT
This Proxy Statement is being furnished to shareholders of TCC Industries, Inc.
a Texas corporation ("Company"), in connection with the solicitation of proxies
by the Company for use at the special meeting of shareholders of the Company to
be held on December 19, 1997, or any adjournments and/or postponements thereof
("Special Meeting"). This Proxy Statement and accompanying form of proxy are
first being mailed to the shareholders of the Company on or about November 17,
1997.
The Special Meeting has been called to consider and vote on a proposal to
approve and adopt the TCC Industries, Inc. 1997 Incentive and Performance Stock
Option Plan and the options awarded by the Compensation Committee of the Board
of Directors thereunder (collectively, the "1997 Option Plan"). See "Proposal
to Approve and Adopt the 1997 Incentive and Performance Stock Option Plan."
Approval and adoption of the 1997 Option Plan requires the approval of the
holders of a majority of the shares present and entitled to vote on the matter
at the Special Meeting, provided that the total votes cast on the matter
represent over 50% of the Common Stock entitled to vote on the matter.
The Company has been advised by Mr. Walter A. DeRoeck, Chairman and Chief
Executive Officer of the Company, and Mr. Robert Thomajan, President of the
Company, who together own beneficially approximately 16.4% of the shares of
Common Stock issued and outstanding, that they intend to vote such shares in
favor of the approval and adoption of the 1997 Option Plan. (See "Special
Meeting of Shareholders" and "Possible Conflicts of Interest.")
===============================================================================
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE, COMPLETE
AND MAIL THE ENCLOSED PROXY CARD PROMPTLY
IN THE ENCLOSED RETURN ENVELOPE.
IF YOU HAVE ANY QUESTIONS ABOUT GIVING YOUR PROXY OR
REQUIRE ASSISTANCE IN VOTING YOUR SHARES, PLEASE CALL:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
(212) 929-5500 (COLLECT)
OR
CALL TOLL FREE (800) 322-2885
===============================================================================
THE DATE OF THIS PROXY STATEMENT IS NOVEMBER 12, 1997.
1
4
TABLE OF CONTENTS
PAGE
----
PROXY STATEMENT ................................................................. 1
AVAILABLE INFORMATION ........................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ............................... 2
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION ..................... 3
SUMMARY ......................................................................... 4
The Company ............................................................ 4
Condensed History of the Company ....................................... 4
1997 Incentive and Performance Stock Option Plan ....................... 5
Recommendation of the Board of Directors ............................... 5
Dilution ............................................................... 7
Special Meeting ........................................................ 8
THE COMPANY ..................................................................... 10
General ................................................................ 10
Condensed History of the Company ....................................... 10
Allen-Lewis Manufacturing Company ...................................... 11
Paladin Financial, Inc. ................................................ 12
General ....................................................... 12
Business Strategy ............................................. 12
Loan Products ................................................. 12
Loan Production ............................................... 13
Loan and FNMA MBS Sales ....................................... 13
Loan Servicing ................................................ 14
Markets ....................................................... 14
Competition ................................................... 14
Regulation .................................................... 14
Initial FNBA MBS Transaction .................................. 15
Barton Creek Capital Corporation ....................................... 16
Texas Capital Markets, Inc. ............................................ 16
Properties ............................................................. 17
Employees .............................................................. 17
APPROVAL AND ADOPTION OF THE 1997 INCENTIVE AND PERFORMANCE STOCK OPTION PLAN ... 18
Description of the 1997 Option Plan .................................... 18
Eligibility and Option Grants .......................................... 18
Administration ......................................................... 20
Term of Plan ........................................................... 20
Stock Options .......................................................... 20
Option Price ........................................................... 20
Incentive Stock Options ................................................ 20
Nonstatutory Stock Options ............................................. 21
Vesting of Stock Options ............................................... 21
Restricted Stock ....................................................... 22
Registration Rights .................................................... 23
Shareholder Approval of Plan ........................................... 23
Conversion of Incentive Stock Option ................................... 23
Adjustments Upon Changes in Capitalization or Merger ................... 23
Performance-based Awards ............................................... 24
Tax Consequences ....................................................... 24
Amendment .............................................................. 25
RECOMMENDATION OF THE BOARD OF DIRECTORS ........................................ 25
DISCUSSION OF USE OF NET OPERATING LOSSES ....................................... 27
SPECIAL MEETING OF SHAREHOLDERS ................................................. 28
General ................................................................ 28
Solicitation, Voting and Revocability of Proxies ....................... 28
i
5
TABLE OF CONTENTS
(Continued)
PAGE
----
MARKET PRICES AND DIVIDENDS ..................................................... 29
MANAGEMENT OF THE COMPANY ....................................................... 30
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS ................................ 35
Compensation of Executive Officers ..................................... 35
Employment Agreements .................................................. 37
Severance Agreement .................................................... 38
Annual Incentive Plan .................................................. 39
Compensation of Directors .............................................. 39
Consulting and Noncompetition Agreements with Directors ................ 39
1985 Incentive Stock Option Plan ....................................... 40
1995 Non-Employee Directors Stock Option Plan .......................... 40
1997 Option Plan ....................................................... 40
POSSIBLE CONFLICTS OF INTEREST .................................................. 42
CERTAIN TRANSACTIONS ............................................................ 43
Line of Credit ......................................................... 43
End User Software License Agreement .................................... 44
CHANGE IN CONTROL ............................................................... 44
SECURITY OWNERSHIP OF THE COMPANY ............................................... 46
DILUTION ........................................................................ 50
SHAREHOLDER PROPOSALS ........................................................... 51
OTHER MATTERS ................................................................... 51
APPENDIX A -- TCC INDUSTRIES, INC. 1997 INCENTIVE AND PERFORMANCE STOCK
OPTION PLAN
APPENDIX B -- PERFORMANCE STOCK OPTION GRANT
APPENDIX C -- INCENTIVE STOCK OPTION GRANT
ii
6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission ("Commission"). The reports, proxy
statements and other information filed by the Company with the Commission may
be inspected and copied at the Commission's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the Commission's regional office located
at 1801 California Street, Suite 4800, Denver Colorado 80202. Copies of such
material may be obtained at prescribed rates by writing to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 50249.
Certain of such reports, proxy statements and other information are also
available from the Commission over the Internet at http://www.sec.gov. The
Company's Common Stock is listed on the New York Stock Exchange. The periodic
reports, proxy statements and other information filed by the Company with the
Commission may be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York , New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company are
incorporated herein by reference: (a) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 ("Form 10-K"); (b) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997; (c) the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997;
(d) the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997; (e) the Company's Current Report on Form 8-K dated July 7, 1997; (f)
the Company's Current Report on Form 8-K dated July 11, 1997; (g) the Company's
Current Report on Form 8-K dated September 3, 1997; (h) the Company's Current
Report on Form 8-K dated September 9, 1997; and (i) the Company's Current
Report on Form 8-K, dated September 19, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the time
at which the Special Meeting has been finally adjourned shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of such
filing. Any statement contained herein or in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO THE COMPANY (EXCLUDING
EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROXY STATEMENT
IS DELIVERED, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO (512) 320-0976.
THE COMPANY WILL SEND THE REQUESTED DOCUMENTS BY FIRST CLASS MAIL WITHIN ONE
BUSINESS DAY OF THE RECEIPT OF THE REQUEST. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED NO LATER THAN FIVE BUSINESS
DAYS BEFORE THE MEETING DATE. PERSONS REQUESTING COPIES OF EXHIBITS TO SUCH
DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS
WILL BE CHARGED THE COSTS OF REPRODUCTION AND MAILING.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY.
2
7
THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF THE TIME
SUBSEQUENT TO ITS DATE.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
Certain matters discussed herein are forward-looking statements that involve
risks and uncertainties. This Proxy Statement contains certain forward-looking
statements with respect to the results of operations and business of the
Company following the entry of the Company, through its subsidiaries, Barton
Creek Capital Corporation ("Barton Creek"), Paladin Financial, Inc. ("Paladin")
and Texas Capital Markets, Inc. ("Texas Capital"), into the financial services
business ("Financial Services Business") described herein, including statements
relating to: (a) the market presence and growth opportunities of the Company
expected to result from the initiation of its Financial Services Business; (b)
the earnings per share and earnings per share growth anticipated to result from
the Financial Services Business (and the possible effect such growth may have
on the market price of shares of Common Stock of the Company); and (c) the
impact on revenues of the Financial Services Business. See "The Company" and
"Recommendation of the Board of Directors."
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) necessary regulatory authorizations and/or
licenses sought by Paladin or Barton Creek from government authorities may not
be granted; (2) changes in regulatory provisions (including the elimination or
material modification of the FHA Title I program) or adverse regulatory rulings
may place additional burdens on the Company and may lead to loss of licenses or
approved status, termination or suspension of servicing contracts, demands for
indemnification or mortgage loan repurchases, class action lawsuits and
administrative actions; (3) increased entry into the market by competitors may
decrease the level of gains realized by current industry participants due to
increased loan origination competition; (4) the disposition of loans by Paladin
through securitizations could be adversely affected by a number of factors
including, but not limited to, conditions in the securities markets in general,
conditions in the asset-backed securities market, the conformity of loan pools
to rating agency requirements, the ability of Barton Creek to efficiently place
the resulting securities, and, to the extent credit enhancement insurance is
used, the requirements of such insurers; (5) the timing and level of
securitizations could cause earnings to fluctuate significantly; (6) operations
of the Company could be substantially impaired if the ability to borrow capital
on favorable terms becomes limited or difficult because of, among other things,
an increase in interest rates generally, a decrease in the perceived
attractiveness of the Company's Financial Services Business, an inability to
obtain credit enhancement insurance, and an inability by the Company to fully
implement its business strategy and achieve significant growth; (7) any change
in interest rates may affect the Company's business in a number of ways,
including, but not limited to, decreased demand for loans during periods of
higher interest rates, fluctuations in profits derived from the differential
between short-term and long-term interest rates, and increases in the
prepayment of loans during periods of lower interest rates; (8) upward trends
in FHA Title I program lending may cease or reverse and prepayments on loans
may increase as a result of obligor mobility, general and regional economic
conditions, and prevailing interest rates; and (9) the Company may become
unable to retain key personnel.
3
8
SUMMARY
The following summary of certain information contained in this Proxy Statement
is qualified in its entirety by, and reference is made to, the more detailed
information appearing elsewhere in this Proxy Statement, including the
accompanying Appendices and the documents incorporated by reference herein.
Each shareholder is urged to read this Proxy Statement and the Appendices
hereto in their entirety and with care. As used in this Proxy Statement, the
term "Company" refers to TCC Industries, Inc. and, unless the context otherwise
requires, its subsidiaries.
THE COMPANY
The Company, through its wholly-owned subsidiary, Allen-Lewis Manufacturing
Company ("Allen-Lewis"), designs and distributes an extensive line of souvenir,
novelty and gift items to theme parks, national and state parks, souvenir,
novelty, gift and airport shops, military bases, truck stops, casinos, zoos,
discount and variety stores and other distributors.
In addition, until September 19, 1997, the Company also designed and
manufactured, through its wholly-owned subsidiary, Meyer Machine Company
("Meyer Machine"), a proprietary line of specialized bulk material conveying
and processing equipment and systems for the food, pharmaceutical and chemical
industries. On September 19, 1997, the Company sold all of the assets of Meyer
Machine to Meyer Acquisition Corporation, Inc. ("Meyer Acquisition"), in
consideration of the payment of $6 million in cash and the assumption by the
purchaser of substantially all of the liabilities of Meyer Machine. Meyer
Acquisition, the principal shareholder of which is Eugene Teeter, was formed in
June 1997 for the purpose of acquiring the assets of Meyer Machine. Prior to
the closing of the sale of assets, Mr. Teeter had served as the President of
Meyer Machine. As a result of the foregoing sale, on September 19, 1997, Mr.
Teeter resigned as President of Meyer Machine and the Company discontinued
operations as a designer and manufacturer of conveying and processing equipment
and systems.
In October 1997, the Company, through its newly-formed subsidiaries, Paladin
Financial, Inc. ("Paladin"), Barton Creek Capital Corporation ("Barton Creek")
and Texas Capital Markets, Inc. ("Texas Capital"), commenced operations in the
financial services industry. Paladin is primarily engaged in the origination,
purchase and disposition of loans and the related real estate mortgages. Barton
Creek was formed for the purpose of developing an external client base for
which it will provide a broad range of merchant and investment banking
services, including private placements, mergers and acquisitions, and other
financial advisory services. It is also anticipated that Barton Creek will
assist Paladin with the disposition of securities that will result from the
securitization of Paladin's loan pools. Texas Capital was formed for the
purpose of assisting Paladin with the development and implementation of loan
products and programs, the negotiation and closing of bulk loan purchases, the
development and implementation of various loan disposition strategies and the
procurement of the various financing facilities necessary for the
implementation of the loan programs to be undertaken by Paladin. The Company
believes that the unique synergy among these subsidiaries will help provide a
competitive advantage as the Company enters a new era of operations.
CONDENSED HISTORY OF THE COMPANY
The Company commenced business in 1958 under the name Texas Capital
Corporation. Prior to 1980, the Company principally conducted business through
four subsidiaries, which engaged in motor carrier operations, wholesale
distribution, manufacturing, and venture capital services.
On December 31, 1980, the Company's largest subsidiary, Red Ball Motor Freight,
Inc., merged with Spector Industries, Inc. to form the largest trucking company
in the nation. Although the merger provided Spector Red Ball, Inc. with size
and national reach, during 1981 and 1982 industry profits were severely
impacted nationwide by high interest rates and increased competition resulting
from the enactment of the Motor Carrier Act of 1980, which
4
9
substantially deregulated the trucking industry. Consequently, on April 26,
1982, Spector Red Ball, which accounted for almost 75% of the Company's
consolidated assets and 89% of the Company's consolidated revenue at the
beginning of the year, filed for reorganization under federal bankruptcy laws.
Provision for losses on the liquidation of Spector Red Ball totaled over $50
million in the Company's 1981 and 1982 Consolidated Statements of Operations.
In 1984, the Company reached agreements with Spector Red Ball creditors. Of the
three remaining subsidiaries, Comfort Supply, Inc., which distributed a
complete line of air conditioning and heating equipment, became the largest in
terms of revenue, accounting for 84% of the Company's total consolidated
revenue in 1984. In that same year, Comfort Supply reported a 15% decline in
revenue and a 36% decline in operating income. The poor results at Comfort
Supply continued and eventually resulted in its sale in 1992 to generate cash.
In 1986, the Company discontinued its venture capital operations by shutting
down Telecom Financial Group, Inc.
Following the 1992 sale of Comfort Supply, the Company owned two principal
subsidiaries: Meyer Machine Company, which manufactured a proprietary line of
specialized bulk material conveying equipment, and Allen-Lewis Manufacturing
Company, which had been acquired in 1987 and operated as a manufacturer and
wholesale distributor of an extensive line of souvenir, novelty and gift items.
Total revenue from Allen-Lewis operations steadily decreased from $11.9 million
in 1993 to $8.4 million in 1996 (a decline of 29%); its assets have decreased
from $9.4 million in 1993 to $8.2 million in 1996 (a decline of 13%); and
income/loss from continuing Allen-Lewis operations has declined from a before
tax gain of $561,000 in 1993 to a loss of $1,006,000 in 1996. Allen-Lewis
reported an operating loss of $1,688,000 during the first nine months of 1997.
In October 1997, the Company, through its newly-formed subsidiaries, Paladin
Financial, Inc., Barton Creek Capital Corporation and Texas Capital Markets,
Inc., commenced operations in the financial services industry.
1997 INCENTIVE AND PERFORMANCE STOCK OPTION PLAN
The Board of Directors of the Company has adopted the 1997 Option Plan to
permit the grant of stock options to employees and directors of the Company and
its subsidiaries and has reserved a total of 6,000,000 shares of Common Stock
for purposes of the 1997 Option Plan. The 1997 Option Plan, including the
options awarded by the Compensation Committee of the Board of Directors
thereunder, is subject to approval and adoption by the shareholders of the
Company and will be considered by the shareholders of the Company at the
Special Meeting. See "Proposal to Approve and Adopt the 1997 Incentive and
Performance Stock Option Plan."
RECOMMENDATION OF THE BOARD OF DIRECTORS
After careful consideration, the Board of Directors has determined that the
1997 Option Plan is in the best interests of the shareholders of the Company.
Accordingly, the Board recommends approval of the 1997 Option Plan.
Prior to 1982, the Company principally conducted business through four
subsidiaries, which engaged in motor carrier operations, wholesale
distribution, manufacturing, and venture capital services. Commencing in April
1982, when the Company's largest subsidiary filed for protection under federal
bankruptcy laws, and continuing through September 1997, when the Company sold
the assets of Meyer Machine Company, the Company has experienced an irregular
but principally deteriorating financial condition. As a result, in September
1997 the Company was left with a single line of business -- the manufacturing
of a line of souvenir, novelty and gift items -- that has experienced a 29%
decrease in total revenue over the last three years and an operating loss of
$1,688,000 during the first nine months of 1997.
In September 1997, the Board of Directors of the Company authorized management
of the Company to commence operations in the financial services industry
through new subsidiaries which are expected to engage in the origination,
purchase, and disposition of loans and the offering of investment banking
services.
5
10
In the view of management of the Company, the large and highly fragmented home
remodeling and home equity lending markets provide an excellent opportunity for
the Company to expand its revenue base. According to the National Association
of Home Builders, the home remodeling industry in the United States is expected
to grow from an estimated $121 billion in 1994 to approximately $181 billion in
the year 2000.
Total home improvement loans financed under the FHA Title I program aggregated
approximately $1.5 billion in the last HUD fiscal year. Currently in excess of
80% of home purchases nationally are of existing homes. This trend, together
with the overall aging of the national housing stock, among other factors, has
contributed to substantial growth in the home improvement lending market in
recent years.
Although barriers to entry exist, the Company believes that its management team
and financial accounting and tax positions create a considerable opportunity to
prosper in this growing industry. Companies in the mortgage lending industry
that choose to dispose of loan acquisitions through "securitization" may incur
taxable income in excess of cash flow from earnings. In addition, income from
lending operations is spread over the lives of the loans acquired. Initial cash
outflows to acquire new loans, periodic, time-driven cash inflows, and the
creation of taxable income may combine to cause operating capital deficiencies.
The Company's Net Operating Loss ("NOL") carryforwards may be offset against
taxable income and thereby provide an effective means of reducing cash outflows
during the years the Company intends to expand its lending operations. The
Company's NOL carryforwards begin to expire at the end of 1999 and the new
business expansion will allow the Company to utilize the NOL carryforwards to
its competitive advantage.
The Board of Directors believes that it has retained a capable management team
to direct efforts in the Title I lending and investment banking businesses. In
addition, implementation of state of the art information and technological
resources should contribute to reduced overhead, reliable and accurate lending
operations, and positive relationships with loan originators who will play a
valuable role in the acquisition of loans. The business strategy will employ
recent financial innovations by a federally backed agency to provide an
efficient loan disposition process that, in turn, should yield greater
flexibility in lending operations and a lower cost of borrowing capital.
Crucial to the successful implementation of the Company's strategy is the
attraction and retention of the Company's management, but adequately
compensating such personnel is difficult given the Company's present financial
condition. In arriving at the proposed solution, the Company's Board of
Directors has attempted to preserve shareholder rights while offering a
sufficiently large equity stake in the Company to its new management to make
the new enterprise mutually attractive. In this regard, options granted under
the 1997 Option Plan will not become available for exercise until the Company
satisfies significant and layered earnings' requirements over the four-year
period that commenced on October 1, 1997, or until the cliff vesting provisions
discussed below take effect.
The following table may be useful in reviewing the proposed 1997 Option Plan.
The Company's Common Stock presently trades for less than $5.00 per share, and
the table depicts share price levels which, after dilution and subject to
certain assumptions, may result if earnings' targets under the 1997 Option Plan
are met. HOWEVER, THE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED AS A GUARANTY OF PERFORMANCE OR OTHER ASSURANCE REGARDING FUTURE
EARNINGS OR SHARE PRICES.
Per share prices in columns I and II are computed using the noted
price-earnings multiples on a fully diluted basis taking into consideration the
2,778,615 shares presently outstanding and additional shares which will vest
and become exercisable under the 1997 Option Plan. The table assumes that no
additional shares or options are issued other than those issued under the 1997
Option Plan. All Options which become available for exercise are assumed to
have been exercised. The table reflects aggregate cumulative earnings of $60
million spread over a four year period with increases in earnings of $2
million, $4 million, and $6 million in years two, three, and four,
respectively.
6
11
Except as noted in the discussion of "cliff-vesting" set forth below, in order
for the employees of the Company to fully earn all of the Options that have
been awarded to them under the 1997 Option Plan, the Company must achieve the
aggregate cumulative earnings targets set forth in the 1997 Option Plan and the
employees to whom the Options have been awarded must remain in the employment
of the Company for the full four-year period that commenced on October 1, 1997.
Under the provisions of the 1997 Option Plan, the Options may be earned pro
rata, after the aggregate cumulative earnings of the Company exceed the
threshold earnings target of $5 million.
In addition, during the four-year period, to the extent Options are exercised
for shares that at the end of such period, September 30, 2001, are in excess of
the shares that would then be available for exercise based on cumulative
earnings, net of losses, the Company may repurchase such excess shares. This
circumstance might occur in the event the Company has aggregate cumulative
earnings, Options are exercised and the Company then incurs net losses prior to
the end of the four year period.
The following earnings levels also assume the exclusion of extraordinary or
other non-recurring income items normally excluded when calculating a
price-earnings multiple. The price-earnings multiples utilized are subject to
change and the table assumes that the stated multiples are in effect during the
entire period covered by the table.
I II
Associated Associated
Options Share Price Share Price
Year Earnings Exercised (S&P 500) (Industry)
---- -------- --------- ----------- -----------
10/1/97 - 9/30/98 $ 10 Million 1,000,000 $ 60.79 $ 32.78
10/1/98 - 9/30/99 $ 12 Million 1,200,000 $ 69.27 $ 37.35
10/1/99 - 9/30/00 $ 16 Million 1,600,000 $ 83.89 $ 45.24
10/1/00 - 9/30/01 $ 22 Million 2,200,000 $ 101.40 $ 54.68
------------- ---------
Total $ 60 Million 6,000,000
(1) Column I uses the November 7, 1997 S&P 500 price-earnings multiple of
22.87 quoted in the Wall Street Journal on November 10, 1997.
(2) Column II uses a price-earnings multiple of 12.33 determined by averaging
the price-earnings multiples quoted in the Wall Street Journal on November
12, 1997 for Green Tree Financial Corp., Inc., FirstPlus Financial Group,
Inc., and Contifinancial Corp., Inc. Each of these three companies
conducts substantial operations in the sub-prime lending market and will
compete directly with the Company.
THE FOREGOING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. FOR INFORMATION WITH RESPECT TO THE FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS, SEE "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION."
Shareholders should note the existence of certain "cliff vesting" provisions
associated with the proposed options. Under such provisions, the options may be
exercised after September 30, 2006, irrespective of whether earnings' targets
have been met. Although the dilution that could result from exercise of the
Options through the cliff vesting provisions is detrimental to shareholders,
the Company believes that the earnings requirements set forth in the 1997
Option Plan will promote an environment that will ultimately benefit all of the
shareholders of the Company.
DILUTION
As of November 7, 1997, there were 2,778,615 shares of Common Stock issued and
outstanding, of which approximately 16.4% were owned beneficially by Mr.
DeRoeck and Mr. Thomajan, and approximately 2.9% of which were owned
beneficially by the other directors of the Company and the other executive
officers of the Company and its principal subsidiaries. See "Security Ownership
of the Company."
7
12
If the shareholders of the Company approve and adopt the 1997 Option Plan, and
if the 6,000,000 shares of Common Stock (the maximum number of shares issuable
under the 1997 Option Plan, subject to the adjustments described therein) are
issued under the 1997 Option Plan to the persons and in the amounts described
herein (excluding any other shares of Common Stock that may be issued under the
Company's other option plans or otherwise upon the determination of the Board
of Directors), 8,778,615 shares of Common Stock will then be outstanding, of
which approximately 39.3% will then be owned beneficially by Mr. DeRoeck and
Mr. Thomajan, and approximately 33.9% of which will then be owned beneficially
by the other directors of the Company and the other executive officers of the
Company and its principal subsidiaries, or their respective permitted assigns.
See "Security Ownership of the Company."
However, the Company will be required to have realized, over the four-year
period that commenced on October 1, 1997 and ends on September 30, 2001, a
minimum of $5 million in aggregate cumulative earnings in order for any shares
to vest, and in order for the full 6,000,000 shares of Common Stock to be
issued under the 1997 Option Plan, the Company will be required to have
realized, over the foregoing four-year period, at least $60 million in
aggregate cumulative earnings. In any case, all shares of Common Stock issuable
under the 1997 Option Plan will vest at the end of nine years under the cliff
vesting provisions of the plan. THE FOREGOING TABLE SET FORTH UNDER THE CAPTION
"RECOMMENDATION OF THE BOARD OF DIRECTORS" REFLECTS POSSIBLE SHARE PRICE LEVELS
THAT MAY RESULT IF THE EARNINGS TARGETS SET FORTH IN THE 1997 OPTION PLAN ARE
MET. HOWEVER, NO ASSURANCES CAN BE GIVEN THAT THE COMPANY WILL ACHIEVE SUCH
EARNINGS TARGETS OR THAT, EVEN IF THE COMPANY DOES ACHIEVE SUCH TARGETS, SHARE
PRICES SIMILAR TO THOSE SET FORTH IN THE TABLE WILL BE REALIZED. See "Approval
and Adoption of the 1997 Incentive and Performance Stock Option Plan."
The Company has reported losses from continuing operations in six of the last
ten fiscal years, including the last three years in succession, and has
continued to report losses during the first nine months of 1997. Viewed
retrospectively and using the same definition of aggregate cumulative earnings
as is employed in the 1997 Option Plan, the Company experienced an aggregate
cumulative loss of $4.4 million during the last three and three-quarter years.
The Company has not accumulated more than $60 million in aggregate cumulative
earnings since the date it commenced business in 1958. To the contrary, since
the Company commenced business it has reported a cumulative loss of over $19
million. See "The Company."
SPECIAL MEETING
The Special Meeting is scheduled to be held on December 19, 1997 at 1:00 p.m.
local time, in the Boardroom of Texas Commerce Bank - Austin, 3rd Floor, Texas
Commerce Bank Building, 700 Lavaca Street, Austin, Texas. The purpose of the
Special Meeting is (i) to consider and vote on a proposal to approve and adopt
the 1997 Option Plan, including the options awarded by the Compensation
Committee of the Board of Directors thereunder; and (ii) to transact such other
business that may properly come before the Special Meeting. The Board of
Directors of the Company is not aware of any such other business.
The record date for the Special Meeting ("Record Date") is the close of
business on November 7, 1997. As of the close of business on the Record Date,
there were 2,778,615 shares of Common Stock outstanding and entitled to vote,
held by 2,752 shareholders of record. Each holder of Common Stock on the Record
Date is entitled to one vote per share held on all matters properly presented
at the Special Meeting.
Approval and adoption of the 1997 Option Plan requires the approval of the
holders of a majority of the shares present and entitled to vote on the matter
at the Special Meeting, provided that the total votes cast on the matter
represent over 50% of the Common Stock entitled to vote on the matter.
8
13
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company for each of
the three fiscal years in the period ended December 31, 1996 have been derived
from the Company's consolidated financial statements, which have been audited
by Coopers & Lybrand, LLP, independent accountants, and are incorporated in
this Proxy Statement by reference. The selected consolidated financial data of
the Company for the nine months ended September 30, 1997 and September 30, 1996
have been derived from the unaudited financial statements of the Company that
have been incorporated in this Proxy Statement by reference and include all
adjustments consisting of normal recurring items considered necessary by the
Company's management for a fair presentation of the results for the entire
fiscal year. The data has been restated to give effect to the disposition of
Meyer Machine Company on September 19, 1997, as a discontinued operation. The
data should be read in conjunction with the Company's consolidated financial
statements, including the respective notes thereto, the unaudited pro forma
condensed financial information and management's discussion and analysis of
financial condition and results of operations incorporated by reference into
this Proxy Statement. See "Available Information" and "Incorporation of Certain
Information by Reference."
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- -------------------
1996 1995 1994 1997 1996
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Consolidated Statements of Operations Data:
Revenues 8,475 9,291 10,798 6,247 7,464
Operating loss (1,700) (892) (601) (1,921) (949)
Net income (loss):
From continuing operations (1,961) (643) (580) (2,778) (1,171)
From discontinued operations 425 553 503 525 447
Net income (loss) per share:
From continuing operations (0.71) (0.23) (0.21) (1.01) (0.42)
From discontinued operations 0.15 0.20 0.18 0.19 0.16
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------- -------------------
1996 1995 1994 1997 1996
------- ------- ------- ------- -------
(UNAUDITED)
Consolidated Balance Sheet Data:
Working capital 7,879 9,544 8,853 8,048 6,520
Total assets 17,729 19,306 19,864 13,283 17,638
Long-term obligations, less current maturities 1,979 2,713 2,442 1,032 1,630
Shareholders' equity 11,524 12,950 13,096 8,754 12,252
9
14
THE COMPANY
GENERAL
The Company, through its wholly-owned subsidiary, Allen-Lewis Manufacturing
Company, designs and distributes an extensive line of souvenir, novelty and
gift items to theme parks, national and state parks, souvenir, novelty, gift
and airport shops, military bases, truck stops, casinos, zoos, discount and
variety stores and other distributors.
In addition, until September 19, 1997, the Company also designed and
manufactured, through its wholly-owned subsidiary, Meyer Machine Company
("Meyer Machine"), a proprietary line of specialized bulk material conveying
and processing equipment and systems for the food, pharmaceutical and chemical
industries.
On September 19, 1997, the Company sold all of the assets of Meyer Machine to
Meyer Acquisition Corporation, Inc. ("Meyer Acquisition"), in consideration of
the payment of $6 million in cash and the assumption by the purchaser of
substantially all of the liabilities of Meyer Machine. Meyer Acquisition, the
principal shareholder of which is Eugene Teeter, was formed in June 1997 for
the purpose of acquiring the assets of Meyer Machine. Prior to the closing of
the sale of assets, Mr. Teeter had served as the President of Meyer Machine. As
a result of the foregoing sale, on September 19, 1997, Mr. Teeter resigned as
President of Meyer Machine and the Company discontinued operations as a
designer and manufacturer of conveying and processing equipment and systems.
In October 1997, the Company, through three newly-formed subsidiaries, Paladin
Financial, Inc. ("Paladin"), Barton Creek Capital Corporation ("Barton Creek")
and Texas Capital Markets, Inc. ("Texas Capital"), commenced operations in the
financial services industry. Paladin is primarily engaged in the origination,
purchase and disposition of loans and the related real estate mortgages. Barton
Creek was formed for the purpose of developing an external client base for
which it will provide a broad range of merchant and investment banking
services, including private placements, mergers and acquisitions, and other
financial advisory services. It is also anticipated that Barton Creek will
assist Paladin with the disposition of securities that will result from the
securitization of Paladin's loan pools. Texas Capital was formed for the
purpose of assisting Paladin with the development and implementation of loan
products and programs, the negotiation and closing of bulk loan purchases, the
development and implementation of various loan disposition strategies and the
procurement of the various financing facilities necessary for the
implementation of the loan programs to be undertaken by Paladin. The Company
believes that the unique synergy among these subsidiaries will help provide a
competitive advantage as the Company enters a new era of operations.
CONDENSED HISTORY OF THE COMPANY
The Company commenced business in 1958 under the name Texas Capital
Corporation. Prior to 1980, the Company principally conducted business through
four subsidiaries, which engaged in motor carrier operations, wholesale
distribution, manufacturing, and venture capital services.
On December 31, 1980, the Company's largest subsidiary, Red Ball Motor Freight,
Inc., merged with Spector Industries, Inc. to form the largest trucking company
in the nation. Although the merger provided Spector Red Ball, Inc. with size
and national reach, during 1981 and 1982 industry profits were severely
impacted nationwide by high interest rates and increased competition resulting
from the enactment of the Motor Carrier Act of 1980, which substantially
deregulated the trucking industry. Consequently, on April 26, 1982, Spector Red
Ball, which accounted for almost 75% of the Company's consolidated assets and
89% of the Company's consolidated revenue at the beginning of the year, filed
for reorganization under federal bankruptcy laws. Provision for losses on the
liquidation of Spector Red Ball totaled over $50 million in the Company's 1981
and 1982 Consolidated Statements of Operations.
In 1984, the Company reached agreements with Spector Red Ball creditors. Of the
three remaining subsidiaries, Comfort Supply, Inc., which distributed a
complete line of air conditioning and heating equipment, became the
10
15
largest in terms of revenue, accounting for 84% of the Company's total
consolidated revenue in 1984. In that same year, Comfort Supply reported a 15%
decline in revenue and a 36% decline in operating income. The poor results at
Comfort Supply continued and eventually resulted in its sale in 1992 to
generate cash. In 1986, the Company discontinued its venture capital operations
by shutting down Telecom Financial Group, Inc.
Following the 1992 sale of Comfort Supply, the Company owned two principal
subsidiaries: Meyer Machine Company, which manufactured a proprietary line of
specialized bulk material conveying equipment, and Allen-Lewis Manufacturing
Company, which had been acquired in 1987 and operated as a manufacturer and
wholesale distributor of an extensive line of souvenir, novelty and gift items.
Total revenue from Allen-Lewis operations steadily decreased from $11.9 million
in 1993 to $8.4 million in 1996 (a decline of 29%); its assets have decreased
from $9.4 million in 1993 to $8.2 million in 1996 (a decline of 13%); and
income/loss from continuing Allen-Lewis operations has declined from a before
tax gain of $561,000 in 1993 to a loss of $1,006,000 in 1996. Allen-Lewis
reported an operating loss of $1,688,000 during the first nine months of 1997.
In October 1997, the Company commenced operations in the financial services
industry.
ALLEN-LEWIS MANUFACTURING COMPANY
A. L. Investors, Inc., doing business as Allen-Lewis Manufacturing Company
("Allen-Lewis"), designs and distributes an extensive line of souvenir, novelty
and gift items. In addition, Allen-Lewis designs and sells silk-screened soft
goods such as T-shirts, sweatshirts and caps. Allen-Lewis's product line is
sold in the continental 48 states and Alaska, on a wholesale basis, to theme
parks, national and state parks, souvenir shops, novelty shops, gift shops,
airport shops, military bases, truck stops, zoos and discount and variety
stores.
Allen-Lewis sells its products through direct efforts using the Company's field
sales personnel and in-house sales force, through independently commissioned
sales representatives who have assigned sales territories and by attendance at
trade shows. The in-house sales personnel service and cultivate relationships
with large customers and also serve the needs of customers reached by a catalog
mailed annually.
The Allen-Lewis product line consists of approximately 8,000 different items.
Product mix and product design change constantly according to market trends.
Allen-Lewis's products are geared toward the travel, tourism, leisure and
entertainment industries. Allen-Lewis's major merchandise categories are:
Souvenirs: Typically low cost/low priced items which are
imprinted or shielded with a design that has been
tailored to denote a state, city, and/or
attraction. Examples include: collectible spoons,
plates, shot glasses, playing cards, key chains
and mugs.
Gifts: Low cost/low priced impulse items sold in
conjunction with souvenirs. Examples include:
small toys, beaded belts and jewelry, pens,
pencils, jewelry, plastic and flocked animals,
and money banks.
Specialty and Novelty Low cost "gag" or joke and specialty items.
Items: Examples include: masks and jumbo cigars.
Soft Goods: Silk-screened products such as T-shirts,
sweatshirts, hats and caps that are imprinted
with an artistic or souvenir design.
Most of the souvenir, gift and novelty inventory (other than soft goods) is
purchased from suppliers in the Far East and is manufactured by companies with
which Allen-Lewis has long-standing relationships. Due to minimum order
quantity requirements of suppliers and the length of time required to receive
inventory shipped from the Far East, Allen-Lewis maintains significant levels
of certain stock inventory items. The minimum order quantity requirements
11
16
and long lead times result in low inventory turns. Recently, Allen-Lewis has
added new products to its line which are manufactured in the United States and
has begun using suppliers located in the United States for certain products
which heretofore were strictly imported. Most of Allen-Lewis's soft goods
inventory is purchased from domestic textile mills and distributors of soft
goods inventory.
Allen-Lewis experiences substantial competition in its markets. The company
competes based on price, availability of inventory, product development (which
includes development of new artwork), reliability of service, and extended
payment terms offered to certain customers.
PALADIN FINANCIAL, INC.
General
Paladin Financial, Inc. ("Paladin"), a Texas corporation, was formed in 1997 to
originate, purchase, sell and securitize loans and the related real estate
mortgages. Paladin plans to initially concentrate its operations in what is
traditionally known as the "sub-prime" lending market, later expanding to build
a national consumer finance company.
The sub-prime lending business concentrates on borrowers who, typically, are
not lending candidates for traditional "A" credit lenders such as banks.
Paladin aims to initially finance Title I home improvement and manufactured
home loans ("Title I Loans") and conventional consumer and home equity loans
that may fund a variety of borrower needs ("Conventional Loans"). Cash used by
Paladin to generate or purchase loans will be provided by lending institutions
such as banks through warehouse lines of credit, and through the securitization
and sale of loans previously made or acquired by Paladin. Title I Loans will be
sold to, or securitized through, the Federal National Mortgage Association
("FNMA"), secondary mortgage investors and other financial institutions.
Paladin plans to initially sell Conventional Loans for cash on a
servicing-released basis to secondary mortgage investors and other financial
institutions. At first, Paladin intends to originate loans primarily through a
national network of pre-qualified mortgage company correspondents
("Correspondents") and through pre-qualified home improvement and manufactured
home dealers principally located in the Southwestern and Western regions of the
United States ("Dealers").
Business Strategy
Paladin seeks to become a leading consumer finance company with particular
emphasis on the home equity and home remodeling financing markets. Paladin's
primary goal is to increase loan volume while maintaining credit quality. The
company's strategies include: (i) offering new Conventional Loan products; (ii)
expanding its network of Correspondents and Dealers; (iii) realizing
operational efficiencies through economies of scale and utilization of current
technology; and (iv) using sales to FNMA, conversion of loans by FNMA into
mortgage backed securities ("FNMA MBS") and securitization of loans and FNMA
MBS to sell higher volumes of loans on more favorable terms. Paladin also plans
to purchase significant volumes of FNMA MBS in the secondary market. Upon
attainment of a Federal Housing Authority ("FHA") Title I Contract of Insurance
and approval by FNMA, Paladin will utilize the various FNMA loan purchase
programs as a substantial part of its loan disposition strategy. Subject to the
availability of additional capital resources, Paladin may begin selling Title I
Loans, primarily manufactured home loans, through securitization by means of a
company-sponsored Real Estate Mortgage Investment Conduit ("REMIC"). However,
there is no assurance that these objectives will be achieved.
Loan Products
Paladin plans to originate and purchase Title I and Conventional Loans which
are typically secured by a second mortgage lien on a one-to-four family
residence. Paladin will occasionally originate and purchase unsecured Title I
and Conventional Loans for its most creditworthy customers. Loans under Title I
of the National Housing Act of 1934, administered by the U.S. Department of
Housing and Urban Development ("HUD"), are eligible to be insured
12
17
by the FHA for 90% of the loan principal and certain other costs. Among other
things, Title I provides a credit insurance program enabling homeowners to
borrow 100% of home improvement costs and 95% of the costs of purchase of
manufactured homes. Title I Home Improvement Loans may be originated for up to
$25,000 for a maximum term of 20 years on a single family unit. Typically,
Title I Manufactured Home Loans may be originated for up to $64,800 for a
maximum term of 20 years. In the case of Title I Home Improvement Loans the
holder of a Title I loan has the risk of potential loss of up to ten percent of
the principal balance plus certain expenses. In the case of a Title I
Manufactured Home Loan the holder has the risk of potential loss of up to ten
percent of the total loss on the loan. The FHA insures the remaining principal
balance of each Title I Loan and certain other costs, provided the loan was
originated within HUD guidelines and the holder of the loans has maintained a
loss reserve account required to be established with HUD. Paladin's borrowers
will typically be classified as "A" through "C" credits, many of whom typically
have less access to alternative forms of financing due to unfavorable credit
experience, insufficient home equity, limited credit history or high levels of
debt service. Because of the perceived additional credit risk, these loans
typically bear a higher interest rate than rates charged by financial
institutions to consumers with better credit ratings, but may have lower
monthly payments due to a longer term.
Loan Production
It is anticipated that Paladin will originate loans principally through: (i) a
network of Correspondents; (ii) wholesale purchase transactions with large
regional Correspondents; (iii) a network of Dealers; and (iv) direct mail or
telephone solicitation of individual homeowners ("Direct Loans"). The process
for loan originations through Correspondents and Dealers will follow agreed
upon procedures which are common in the industry and comply with applicable
regulatory guidelines.
In addition to origination of loans, Paladin anticipates it will initially
purchase a significant volume of FNMA MBS in the secondary market. Paladin has
entered into an agreement pursuant to which it will complete its first purchase
of $50,000,000 of FNMA MBS. Paladin has a committed, short-term bank repurchase
line of credit in place to finance this purchase. See "--Initial FNBA MBS
Transaction."
It is anticipated that an integral part of Paladin's loan production strategy
will be based on the proposed application of new computer capability and
software technology to improve response time and service for loan customers.
Paladin intends to phase out the traditional loan application and approval
process in favor of a proprietary computerized method through utilization of
the LendTech 2000TM loan approval and processing system. This method relies on
sophisticated modeling software including artificial intelligence to provide
real time credit evaluations and loan approvals through computer interfaces
which can be accessed via the Internet by Correspondents and Dealers. The
LendTech 2000TM system will provide, among other things, automated credit
report inquiries, automated credit scoring, on-line underwriting and approval
and real time access by Paladin's loan customers to the status of their loan
applications and loans in process. Paladin expects that this technology will
increase loan production efficiencies by minimizing manual processing of loan
documentation, enhancing the quality of loan processing by reducing human error
and facilitating loan administration and collections by providing easier access
to loan information. The implementation of the LendTech 2000TM system is
expected to be substantially completed prior to December 1997. (See "Certain
Transactions - End User Software License Agreement.")
Presently Paladin does not have established networks of Correspondents and
Dealers through which to originate loans. Although there can be no assurance
that the company will be successful in establishing such relationships as a
means of loan production, Paladin's staff has a number of years of experience
in both the Title I and Conventional Loan business, with greater than 1,500
previous business relationships with established Dealers and Correspondents.
Loan and FNMA MBS Sales.
Paladin anticipates, upon approval by FNMA, that it will sell the majority of
its Title I home improvement Loans either directly to FNMA or indirectly by
converting the loans to FNMA MBS and then selling or securitizing the
13
18
FNMA MBS. Under the FNMA MBS program, Title I home improvement Loans are
delivered to FNMA and, utilizing the loans as collateral, converted by FNMA
into mortgage backed securities. In return for payment of a guarantee fee, FNMA
guarantees all principal and interest payments to the holder of the FNMA MBS.
As a part of the transaction in which Title I home improvement loans are
converted to FNMA MBS, the risk of loss on the 10% portion of loans not insured
by FHA is assumed by FNMA, thereby greatly reducing Paladin's exposure to
credit risk. Although there is an established secondary cash market for the
resale of FNMA MBS, Paladin anticipates utilizing the FNMA MBS it acquires as
collateral for a re-securitization where it would sell to institutional
investors senior participation certificates in pools of FNMA MBS at par and
retain an interest-only strip in the future cash flow for the life of the
underlying FNMA MBS. Paladin anticipates that it will initially sell its
Conventional and Title I manufactured home Loans on a pre-committed,
servicing-released basis to institutional investors for cash, thereby passing
future credit risk to the purchasers of the loans.
Loan Servicing
Upon approval by FNMA as a seller/servicer of Title I home improvement Loans,
Paladin will be required to act as servicer of record for all loans sold to and
MBS created by FNMA. Paladin anticipates that it will utilize a third-party
subservicer, as allowed by FNMA, to perform the actual servicing and collection
function on loans for which it is the record servicer. As to all other types of
loans purchased or originated, Paladin anticipates that for the foreseeable
future it will sell such loans to third parties on a servicing released basis
where the obligation for loan servicing will be transferred to the purchaser of
the loans.
Markets
The principal market for Paladin is the large and highly fragmented home
remodeling and home equity lending markets. According to the National
Association of Home Builders, the home remodeling industry in the United States
is expected to grow from an estimated $121 billion is 1994 to approximately
$181 billion in the year 2000. Total loans financed under Title I aggregated
approximately $1.5 billion in the last HUD fiscal year. The number of people
choosing to purchase existing rather than new homes directly affects the home
improvement market. Currently, in excess of 80% of home purchases nationally
are of existing homes. This trend, together with the overall aging of the
national housing stock, among other factors, has contributed to substantial
growth in the home improvement lending market in recent years.
Competition
Paladin will compete with numerous well-known and established companies in the
finance markets with greater resources, more established loan production and
marketing staffs and better access to capital markets. However, by focusing
primarily on home improvement and home equity loans to individuals who cannot
qualify for traditional financing, Paladin believes it will be able to gain a
competitive position in the market place. Competition for Correspondents is
primarily a function of price, available products and service. Paladin believes
it will be able to expand its Correspondent loan business by increasing the
number of correspondent lenders through the automated loan processing,
documentation and on-line access provided by the LendTech 2000TM system.
Regulation
All aspects of the operation of Paladin are subject to government regulation,
supervision and licensing, including without limitation, loan origination,
credit activity, interest rates and finance charges, disclosure to customers,
the terms of secured transactions and the collection and handling of defaulted
loans. Paladin will apply for a contract of insurance for property improvement
and manufactured home loans issued by HUD which, if approved, will qualify it
for the origination and purchase of Title I Loans. In addition, each
Correspondent and Dealer established by Paladin must be sponsored by Paladin
and approved by HUD in connection with Title I Loans. Paladin is required to be
qualified and licensed to conduct its loan activities in each state in which
its activities are conducted. Legislation affecting Paladin's operations
includes, but is not limited to, the Truth in Lending Act, the Real Estate
14
19
Settlement Procedures Act, the Equal Credit Opportunity Act, the Home Mortgage
Disclosure Act, the Fair Credit Reporting Act and the Fair Debt Collection Act.
All of the laws and regulations applicable to Paladin are subject to frequent
amendment and change. See "Cautionary Statement Concerning Forward Looking
Information." There can be no assurance that these laws, rules and regulations
will not be amended and changed, or other laws, rules and regulations will not
be adopted in the future in a form that could make compliance much more
difficult or expensive, restrict Paladin's ability to originate, broker,
purchase or sell loans, further limit or restrict the amount of commissions,
interest or other charges earned on loans originated, brokered, purchased or
sold by Paladin, or otherwise affect the business or prospects of Paladin. In
particular, the ability of Paladin to participate in Title I Loans is dependent
on approval of Paladin by HUD and the continuation of the Title I program in
substantially its present form. Should the Title I program be suspended,
discontinued or substantially altered as a result of cost cutting or other
efforts by the Congress of the United States, the ability of Paladin to
participate in Title I Loans could be substantially and adversely affected.
Initial FNBA MBS Transaction
Paladin has agreed to purchase up to $50,000,000 face amount of FNMA MBSs from
a Houston, Texas-based bank ("Bank"). Paladin has been advised that, as of
November 10, 1997, the Bank had purchased approximately $25 million face amount
of FNMA MBSs and it is anticipated that, prior to November 30, 1997, the Bank
will have purchased an additional $25 million of FNMA MBSs from the same
source. All payments of principal and interest on the FNMA MBSs are guaranteed
by FNMA. Under its agreement with the Bank, Paladin has the obligation to
purchase from the Bank, on or before December 18, 1997, all FNMA MBSs purchased
by the Bank in this transaction, up to a maximum of $50,000,000 face amount.
When the Bank calls upon Paladin to purchase the FNMA MBSs, Paladin intends to
finance the purchase in substantial part through the creation of a grantor
trust to which Paladin will assign the right to purchase the FNMA MBSs, and
which will sell undivided interests in the trust to "qualified institutional
buyers" under Rule 144A promulgated under the Securities Act of 1933, as
amended. Following the re-securitization of the MBSs through the trust, the
proceeds from the sale of the trust interests will be used by the trust to pay
a portion of the purchase price from the Bank. The remaining financing required
to pay the Bank will come from a $5,000,000 line of credit that Paladin has
established with the Bank and which will be collateralized by Paladin's pledge
of the "interest-only strip" retained by Paladin in the re-securitization. The
Company has guaranteed the Bank against any loss on the sale of the FNMA MBSs.
As a part of the re-securitization, Paladin will retain an interest-only strip
representing the difference between the weighted average pass through interest
rate on the FNMA MBSs in the trust and the interest rate on the trust interest
sold to the "qualified institutional buyers" and expenses of the trust. This
interest-only strip entitles Paladin to receive the excess interest spread for
the life of the underlying pool of FNMA MBSs. The gain to Paladin will
generally be equal to the difference between the present fair market value of
the retained interest-only strip, less the premium above face amount paid by
the Bank for the FNMA MBSs and any costs of the re-securitization. Assuming
continuation of current financial market conditions and assuming that the
additional $25,000,000 of FNMA MBSs to be purchased by the Bank retain the same
interest pass through and maturity characteristics as the initial $25,000,000,
it is projected that Paladin will, upon re-securitization, record a gain on the
sale of at least $1,000,000 from this transaction. However, the value of and
market for the interest-only strip is dependent on a number of factors,
including general economic conditions, interest rates and various regulations.
Adverse economic conditions, including a significant increase in interest rates
above current levels, may significantly reduce the value of Paladin's retained
interest-only strip.
In the event that Paladin is unsuccessful in concluding a re-securitization
prior to December 18, 1997, Paladin anticipates negotiating, on behalf of the
Bank, a sale of the FNMA MBSs in the open market for cash. Although initial
purchases of FNMA MBSs have been at prices below current market, there can be
no assurance that adverse conditions in the future will not result in a
reduction in market prices. In the event that the FNMA MBSs are ultimately sold
by the Bank, either with or without Paladin's assistance, at an amount below
the loan amount, plus
15
20
accrued and unpaid interest, the Company and Paladin will be obligated to
reimburse the Bank for any loss on such sale.
BARTON CREEK CAPITAL CORPORATION
Barton Creek Capital Corporation ("Barton Creek"), a Texas corporation, was
formed for the purpose of developing an external client base for which it will
provide a broad range of merchant and investment banking services, including
private placements, mergers and acquisitions, and other financial advisory
services. Barton Creek will specialize in providing public, private, bridge and
mezzanine financing for emerging small-cap, growth-oriented public and private
companies in Texas and the Southwest. Such companies typically do not have
sufficient bank borrowing capacity to support attractive acquisitions and
growth opportunities, may not desire to issue common stock, and are frequently
undervalued due to a lack of broad ownership, a developed base of retail and
institutional accounts or research sponsorship.
Barton Creek will also assist Paladin with the disposition of securities which
result from securitization of Paladin's loan pools. In this regard, Barton
Creek will act as a broker in the sale of MBSs created through Paladin's
operations.
Barton Creek is currently seeking a Broker/Dealer License from the National
Association of Securities Dealers and will provide a critical resource to
Paladin by way of its registration with and authorization by regulatory bodies
which control the registration and/or sale of securities. In addition, Barton
Creek contributes essential and broad knowledge of the contemplated security
sales through an experienced group of former investment bankers, former bank
executives and certified public accountants. The company has strong ties to an
established network of financial institutions, hedge funds and high net worth
individuals, and these relationships should greatly enhance Paladin's ability
to profitably place securities created through its operations.
Barton Creek's management has established a proven record of helping both
existing and emerging public and private companies, and has worked to develop,
structure and place a variety of asset-backed securitizations and other
innovative products. The company's management has expertise in the following
areas: (i) government and agency bonds, (ii) mortgage backed securities, (iii)
collateralized mortgage operations, (iv) municipal bonds, (v) corporate bonds,
(vi) high yield corporate bonds, (vii) distressed securities/special
situations, (viii) asset-backed securities, and (ix) bank debt.
TEXAS CAPITAL MARKETS, INC.
Texas Capital Markets, Inc. ("Texas Capital"), a Texas corporation, was formed
for the purpose of assisting Paladin with the development and implementation of
loan products and programs, the negotiation and closing of bulk loan purchases,
the development and implementation of various loan disposition strategies and
the procurement of various financing facilities necessary for the
implementation of the loan programs to be undertaken by Paladin. In this
respect, Texas Capital negotiated the initial bulk purchase of FNMA MBSs on
behalf of Paladin. (See "--Initial FNBA MBS Transaction.") Moreover, it is
anticipated that Texas Capital will continue to be primarily responsible for
the negotiation and closing of most secondary market FNMA MBSs and bulk loan
purchases. Texas Capital has developed the re-securitization model to be
utilized in the disposition of FNMA MBS, and on an ongoing basis Texas Capital
will, as necessary, modify and adapt this securitization model as market
conditions change. It is anticipated that Texas Capital will develop, and
assist Paladin in the implementation of, all future loan disposition
structures, including: (i) locating and negotiating agreements with third party
purchasers of whole loans; (ii) developing the economic models and financial
structures for future loan securitizations; and (iii) negotiating with rating
agencies, insurers, investment bankers and third party investors in future loan
securitizations. Texas Capital will also provide ongoing consultation relative
to development of new loan products and long-term capital market strategy.
16
21
Texas Capital has developed a Title I manufactured home loan origination
program that will be implemented by Paladin. This program is centered around
the refinancing of loans of existing manufactured homeowners. Paladin and its
affiliates would negotiate discounts from the face amount of the homeowners'
existing loans. Paladin would then, utilizing Title I manufactured home loans,
refinance at face amount the existing homeowners' loans, thereby realizing a
cash discount from the refinance proceeds. Through this program it is
anticipated that the Company may generate cash profits to mitigate liquidity
demands resulting from FNMA MBS resecuritization.
It is also anticipated that Texas Capital will be integrally involved in the
process of locating, negotiating and closing the various financing facilities
required to implement origination and sale of Paladin's current and future loan
products. The employees of Texas Capital have experience in the financial
markets (and the Title I market in particular) in arranging financing for loan
warehouse financing, FNMA MBS repurchase financing, and financing of derivative
financial instruments such as interest-only strips.
Texas Capital anticipates the near-term development, on behalf of Paladin, of a
conduit facility, similar to a real estate mortgage investment conduit, to
facilitate the securitization of Title I home improvement loans on behalf of
third party loan originators. Under this arrangement, Paladin would purchase
Title I loans at below current market cash prices in return for allowing the
loan originators to participate in the interest-only strip ultimately created
from the securitization process. Paladin would then convert the Title I loans
to FNMA MBSs, and Texas Capital would then structure and close the
resecuritization of the FNMA MBSs. The interest-only strip created from this
transaction would then be allocated between Paladin and the loan originator on
a contractual basis negotiated between Paladin and the originator. Based on the
desire of many third party originators to increase their profit through
participation in the "back side" of loan sales, Texas Capital anticipates that
this program will provide substantial, incremental Title I loan volume, at
significantly lower cash premiums.
PROPERTIES
The Company maintains its principal executive offices in approximately 2,800
square feet of leased office space at 816 Congress Avenue, Suite 1250, Austin,
Texas 78701. This space consists of executive offices and is not suitable for
the combined business operations of the Company and its new subsidiaries.
At the present time, the business activities of Paladin, Barton Creek and Texas
Capital are conducted from two separate offices in Austin, Texas, consisting of
approximately 2,000 total square feet, which have been leased on a short-term
basis by the Company. The Company has recently leased approximately 14,000
square feet of additional space in an office building in Austin, Texas, with
initial occupancy set for December 1, 1997, in order to support the combined
business operations of the Company, Paladin, Barton Creek and Texas Capital.
Allen-Lewis owns two buildings in Denver, Colorado, aggregating 61,000 square
feet. These facilities are for general office, showroom, warehousing, and the
silk-screening operations. Both of Allen-Lewis's buildings are pledged as
collateral for notes payable. From time-to-time, Allen-Lewis also leases
temporary warehouse space in Denver, Colorado, to accommodate inventory levels
in excess of what can be stored in the company's warehouse. In addition,
Allen-Lewis leases 1,500 square feet in Orlando, Florida, that serves as both
an office and warehouse for the company's Florida sales territory.
EMPLOYEES
At October 31, 1997, the Company and its subsidiaries employed a total of
approximately 80 persons.
17
22
APPROVAL AND ADOPTION OF THE 1997
INCENTIVE AND PERFORMANCE STOCK OPTION PLAN
DESCRIPTION OF THE 1997 OPTION PLAN
The Board of Directors of the Company believes that the grant of certain stock
options is an essential factor in the Company's ability to attract and retain
experienced and competent employees and to provide an incentive for them to
exert their best efforts on behalf of the Company. The Board of Directors has
adopted and approved the TCC Industries, Inc. 1997 Incentive and Performance
Stock Option Plan, dated September 3, 1997 ("1997 Option Plan"), and reserved
6,000,000 shares of Common Stock for the grant of stock options ("Options") to
employees of the Company and its subsidiaries ("Optionees") on or after
September 3, 1997. The Compensation Committee of the Board of Directors
("Committee") has awarded all of the Options under the 1997 Option Plan,
subject to the approval and adoption of the 1997 Option Plan and the Options
awarded thereunder by the shareholders of the Company. These grants are made
under separate agreements between the Company and each Optionee ("Option
Grants"). The Company has made use of stock options and bonuses in the past as
incentives for pay-for-performance awards.
The Committee awarded a substantial portion of the Options on September 3, 1997
to officers of the Company and subsidiaries of the Company on that date. All
remaining Options were awarded by the Committee on November 11, 1997 to
Optionees who joined the Company and subsidiaries after September 3, 1997. As
described in more detail below, the exercise price of each Option will be no
less than the fair market value of the Common Stock on the date of Option
Grant.
Certain provisions of the 1997 Option Plan are summarized below. The complete
text of the 1997 Option Plan is attached as Appendix A. Representative copies
of the Performance Stock Option Grant, for use with Nonstatutory Stock Options,
and the Incentive Stock Option Grant, for use with Incentive Stock Options, are
attached as Appendices B and C, respectively.
ELIGIBILITY AND OPTION GRANTS
The Option Grants for the Optionees set out the maximum number of shares of
Common Stock which each Optionee may acquire (the "Optioned Shares"). The
following persons, who are employees and officers of the Company and its
subsidiaries, have been granted Options under the 1997 Option Plan in the
Optioned Shares as set forth below:
1997 OPTION PLAN BENEFITS
Name and Position at the Number of
Company and Subsidiaries Optioned Shares
------------------------ ---------------
Walter A. DeRoeck 1,500,000
Director, Chairman and Chief
Executive Officer, TCC Industries, Inc.;
Chairman, President and Chief Executive Officer,
Paladin Financial, Inc.
Robert Thomajan 1,500,000
Director, President and Secretary,
TCC Industries, Inc.
Richard F. Watkins 1,615,000
Chairman, President and Chief Executive Officer,
Texas Capital Markets, Inc.
18
23
Name and Position at the Number of
Company and Subsidiaries Optioned Shares
------------------------ ---------------
Robert L. Riviere 650,000
Chairman and Chief Executive Officer, Barton
Creek Capital Corporation
Gregory J. Figaro 150,000
President, Chief Operating Officer and Assistant
Secretary, Barton Creek Capital Corporation
John R. Slais 150,000
Executive Vice President, Chief Financial Officer
and Secretary, Barton Creek Capital Corporation
Jorge Sauri 100,000
Executive Vice President, Paladin Financial, Inc.
Charles R. Peissel 70,000
Executive Vice President and Chief Financial
Officer, Paladin Financial, Inc.
Patrick M. Kelly 70,000
Senior Vice President-Capital Markets,
Texas Capital Markets, Inc.
Stuart M. Thomajan 50,000
Senior Vice President, Barton Creek Capital
Corporation
Wayne A. Pike 30,000
Senior Vice President-Controller,
Paladin Financial, Inc.
Patricia Ann Dickerson 30,000
Vice President, Paladin Financial, Inc.
Rudy Cisneros 20,000
Vice President, Paladin Financial, Inc.
Kay Overcash 20,000
Vice President, Paladin Financial, Inc.
Craig Wittler 20,000
Vice President, Paladin Financial, Inc.
James M. Jorgenson 15,000
Vice President, Paladin Financial, Inc.
Mona Heckler 5,000
Assistant Vice President, Paladin Financial, Inc.
Walter Brian DeRoeck 5,000
Assistant Vice President, Texas Capital
Markets, Inc.
Total 6,000,000
19
24
ADMINISTRATION
The 1997 Option Plan will be administered by the Committee. The Committee may
promulgate rules and regulations for the operation of the 1997 Option Plan and
will generally supervise the administration of the 1997 Option Plan. Subject to
certain limitations, the Board of Directors, in its discretion, may also modify
or amend the 1997 Option Plan without shareholder approval. See "--Amendment."
TERM OF PLAN
The 1997 Option Plan will continue in effect for a term of ten years unless the
term is amended by the Board of Directors in accordance with the terms of the
1997 Option Plan.
STOCK OPTIONS
Two types of stock options have been issued under the terms of the 1997 Option
Plan. The Committee has determined that the persons to whom Options are granted
and the number of shares to be covered by each Option shall be as identified to
the Committee by the management of the Company, Barton Creek, Paladin and Texas
Capital. In adopting the 1997 Option Plan and the related Option Grants, the
Board of Directors and the Committee have set the term of each Option, the
method of determining the Option Price, the times at which Options may be
exercised and whether the Option is an Incentive Stock Option (collectively and
individually an "ISO") or a Nonstatutory Stock Option (collectively and
individually a "NSO"). The 1997 Option Plan provides that during the term of
the plan no Optionee may receive Options to acquire more than 1,800,000 shares
of Common Stock.
OPTION PRICE
For those Optionees who were officers of the Company or a subsidiary of the
Company on September 3, 1997, the price for which the Optioned Shares may be
purchased upon exercise of an Option (the "Option Price") will be equal to the
greater of the fair market value of the Common Stock on the date the 1997
Option Plan and Option Grants are approved by the shareholders of the Company,
or 130% of the fair market value of the Common Stock on the date of the Option
Grants, $3.04 per share. For those Optionees who were employed by the Company
and subsidiaries after September 3, 1997, the Option Price will be equal to the
greater of the fair market value of the Common Stock on the date the 1997
Option Plan and Option Grants are approved by the shareholders of the Company,
or the fair market value of the Common Stock on November 11, 1997, the date of
the Option Grants to these Optionees, $4.81 per share. In setting the Option
Price, the Committee will determine the fair market value of the Common Stock
based on the average value of a share of the Common Stock for the ten trading
days immediately preceding the shareholders' vote, using the reported closing
price of the Common Stock as reported by the New York Stock Exchange.
INCENTIVE STOCK OPTIONS
An ISO is intended to meet all of the requirements of an Incentive Stock Option
as defined in Section 422 of the Internal Revenue Code ("Code"). If the Option
is an ISO, the Option Price will not be less than the fair market value of the
Common Stock on the date of grant. More restrictive provisions apply to ISOs
granted to persons who at the time of the grant own Common Stock representing
more than ten percent of the combined voting power of the voting securities of
Company. Currently, no ISO will be held by any such person. The 1997 Option
Plan permits the grant of ISOs to each Optionee under the 1997 Option Plan
which will result in Common Stock having an aggregate fair market value of up
to $100,000 exercisable in any one calendar year based on the fair market value
on the grant date of the Options. The term of each ISO is ten years. In no
event will any ISO be transferable during the lifetime of the Optionee. The
Option Price for shares purchased pursuant to the exercise of ISOs must be paid
in cash or in shares of Common Stock valued at fair market value.
20
25
No ISO has been granted to an employee which, when aggregated with all other
ISOs granted to such employee, will result in shares of Common Stock having an
aggregate fair market value (determined for each share as of the date of grant
of the Option covering such shares) in excess of $100,000 becoming first
available for purchase upon exercise during any calendar year.
NONSTATUTORY STOCK OPTIONS
NSOs will be issued to employees of the Company and its subsidiaries. The
Option Price of each NSO will be determined based upon the date of Option Grant
as described above. The term of each NSO is ten years.
Options will continue in effect for the period fixed under each Option Grant.
Options will be exercisable in accordance with the terms of an Option Grant
and, with several exceptions, will not be nontransferable except on the death
of an Optionee or with the consent of the Committee. In addition to rights to
transfer the Option by will or the laws of descent and distribution at death,
the Optionee may transfer an NSO to a trust for the benefit of the Optionee and
his or her family, to a partnership established for the benefit of the Optionee
and his or her family or to a charitable foundation established by the
Optionee. No other transfers of an NSO are permitted. Options may be exercised
only while an Optionee is employed by, or providing services to, the Company or
a subsidiary or within three months following termination of employment for any
reason.
The Option Price for shares purchased pursuant to the exercise of NSOs must be
paid in cash, by cashless exercise of vested Options or in shares of Common
Stock valued at fair market value. Upon the exercise of an Option, the number
of shares subject to the Option and the number of shares available under the
1997 Option Plan will be reduced by the number of shares with respect to which
the Option is exercised, less any shares surrendered in payment.
VESTING OF STOCK OPTIONS
The Options will vest on a quarterly basis over the four-year period beginning
on October 1, 1997, vesting ratably until September 30, 2001. In the event the
Optionee's employment by the Company and subsidiaries is terminated prior to
expiration of the vesting period for any reason, the maximum number of Option
shares available to such Optionee shall be that portion of the Options equal to
the number of complete quarters of service over the four year period divided by
sixteen. In the event the employment of the Optionee is terminated for certain
causes as defined under the Optionee's Employment Agreement, no Options will
vest and any shares acquired under the Option may be reacquired by the Company
at the Option Price.
In addition to the four-year vesting period, the Option Grants require the
Company to achieve certain performance standards prior to being exercisable.
Except in the event of cliff vesting (discussed below), the Option Grants
require that the Company must have achieved certain aggregate cumulative
earnings, net of losses, if any, determined under generally accepted accounting
principals ("GAAP") as reported at the end of each calendar quarter by the
Company during the four-year period ending September 30, 2001. For purposes of
determining aggregate cumulative earnings under the Option Grants, no
compensation expense in connection with the grant or exercise of the Options
will be recognized. The total number of Optioned Shares become exercisable
ratably according to the following schedule:
- -------------------------------------------------------------------------------
Aggregate Cumulative Earnings Number of Shares Exercisable
Realized by the Company Under the Option Grants
- -------------------------------------------------------------------------------
At least $5,000,000 but less than $10,000,000 500,000 to 999,999
At least $10,000,000 but less than $15,000,000 1,000,000 to 1,499,999
At least $15,000,000 but less than $20,000,000 1,500,000 to 1,999,999
21
26
- -------------------------------------------------------------------------------
Aggregate Cumulative Earnings Number of Shares Exercisable
Realized by the Company Under the Option Grants
- -------------------------------------------------------------------------------
At least $20,000,000 but less than $25,000,000 2,000,000 to 2,499,999
At least $25,000,000 but less than $30,000,000 2,500,000 to 2,999,999
At least $30,000,000 but less than $35,000,000 3,000,000 to 3,499,999
At least $35,000,000 but less than $40,000,000 3,500,000 to 3,999,999
At least $40,000,000 but less than $45,000,000 4,000,000 to 4,499,999
At least $45,000,000 but less than $50,000,000 4,500,000 to 4,999,999
At least $50,000,000 but less than $55,000,000 5,000,000 to 5,499,999
At least $55,000,000 but less than $60,000,000 5,500,000 to 5,999,999
$60,000,000 or more 6,000,000
- -------------------------------------------------------------------------------
A determination of aggregate cumulative earnings, net of any losses, will be
made on September 30, 2001. In the event, as a result of Company losses, the
Optionee acquired shares of Common Stock under the Option in excess of the
number of shares which would then be available for exercise based upon the then
aggregate cumulative earnings, the excess shares of Common Stock (the "Earnings
Adjusted Shares") may be repurchased by the Company at the Option Price.
Earnings Adjusted Shares would result if an Optionee exercised Options based on
earnings and the Company thereafter incurred losses prior to the end of the
four-year period. In that event, the Company would have the opportunity to
reacquire the shares in excess of those exercisable on September 30, 2001.
Notwithstanding the performance standards described above, all Options will
vest and become exercisable in full nine years after the grant of the Options,
or September 30, 2006.
For the Options granted on September 3, 1997, the Option Price shall be equal
to the greater of 130% of the fair market value of the Common Stock on the date
of the Option Grants, $3.04 per share, or the fair market value of the Common
Stock on the date of the shareholders' vote on the 1997 Option Plan based upon
the average value of a share of the Common Stock for the ten trading days
immediately preceding the shareholders' vote and based upon the reported
closing price of the Common Stock as reported by the New York Stock Exchange.
For the Options granted on November 11, 1997, the Option Price shall be equal
to the greater of the fair market value of the Common Stock on that date,
$4.81, or the fair market value of the Common Stock on the date of the
shareholders' vote, determined in the manner described above. Except with
regard to the cashless exercise of Options and the use of Common Stock at fair
market value described below, consideration for Options shall be paid in cash.
In addition, to the extent an Option exercise results in taxable income to the
Optionee and the Optionee is an employee of the Company, the Company will
require that the Optionee pay an amount to the Company necessary to satisfy the
Company's withholding obligations under applicable federal and state tax laws.
RESTRICTED STOCK
The Options become exercisable upon the achievement of certain performance
standards stated in terms of the Company's aggregate cumulative earnings.
Notwithstanding an Optionee's ability to exercise some or all of the Options on
that basis, the Option Grants require the Optionee to continue service as an
employee for a period of four years beginning October 1, 1997. In the event the
Optionee's employment is terminated prior to October 1, 2001, or the Company
losses result in Earnings Adjusted Shares, the shares acquired prior to that
time are subject to
22
27
divestiture at the option of the Company. The Company at its option may acquire
the unvested portion of the shares from the Optionee at the Option Price paid
in exercising the Option. The restrictions on these shares lapse at the rate of
25% per year during the four year vesting period. These restrictions will be
removed and no longer apply to any shares of Common Stock which are registered
by the Optionee under the Registration Rights provisions in the Option Grants
described below.
REGISTRATION RIGHTS
Under the Option Grants, the Optionees are granted certain registration rights
commonly referred to as "piggyback rights." These provisions allow the Optionee
to register the Common Stock acquired at the exercise of the Option under
certain circumstances for offer and sale in accordance with applicable federal
and state securities laws. In general, the Company must offer to the Optionee
which has acquired shares under the exercise of the Option the right to
register those shares in the event the Company files a registration statement
with the Securities and Exchange Commission for the registration of Common
Stock during the term of the Option. The Company's obligation under such
circumstances is generally limited to using its best efforts for such
registration and the rights of the Optionee under such circumstances are
subject to terms and conditions ordinarily found in such arrangements.
SHAREHOLDER APPROVAL OF PLAN
The 1997 Option Plan and the Options awarded thereunder are subject to approval
and adoption by the shareholders of the Company. See "Special Meeting of
Shareholders."
CONVERSION OF INCENTIVE STOCK OPTION
In the event for any reason an ISO is not qualified as such under the Code, the
ISO will be converted to a NSO and as such will be subject to the provisions of
the 1997 Option Plan applicable to NSOs. Moreover, the Board of Directors, in
its discretion, may amend or modify the terms of any Option Grant necessary to
treat such an Option as a NSO.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER
The number of shares of Common Stock covered by each outstanding Option, the
number of shares of Common Stock which have been authorized for issuance under
the 1997 Option Plan but as to which no Options have been granted, and the
Option Price will be proportionately adjusted for any increase or decrease in
the number of issued shares of Common stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company.
CASHLESS EXERCISE AND PAYMENT WITH SHARES
At the option of the Optionee, as consideration for the payment for an NSO, the
Optionee may from time to time convert a portion of the Option which is vested
and exercisable as consideration for Options which are then vested and
exercisable. The Optionee may cancel a portion of the Option for a value equal
to the amount by which the fair market value of the shares exceed the shares'
Option Price ("Option Value"). This Option Value may be employed as payment
under the Option Grant. This cashless exercise right may result in the issuance
of additional shares of Common Stock without the receipt of cash from the
Optionee with the cancellation of Optioned Shares forfeited as payment for the
shares issued.
In addition, Option Grants for ISOs and NSOs provide that the Optionee may pay
for the exercise of the Option with the transfer by the Optionee of Common
Stock. The fair market value of the Common Stock so transferred will be treated
as consideration paid for the Optioned Shares being acquired. These cashless
exercise rights may be
23
28
denied by the Company if it determines that the exercise of the rights would
have a material adverse effect on the Company's financial condition or
financial statements.
PERFORMANCE-BASED AWARDS
The 1997 Option Plan provides that the Option Grants are designed to qualify
under Section 162(m) of the Code as performance-based compensation. The
Committee has designated the Option Grants as performance-based awards. The
awards will be earned if the performance goals established by the Committee and
set out in the Option Grants for the period covered by the award are met and
the employee satisfies any other requirements and restrictions established by
the Committee. The performance goals are expressed in the Option Grants as a
targeted level of performance with respect to the objective measure of
accumulated net income of the Company.
TAX CONSEQUENCES
Certain Options authorized to be granted under the Plan to employees of the
Company and its subsidiaries are intended to qualify as ISOs for federal income
tax purposes. Under federal income tax law currently in effect, the Optionee
will recognize no income upon grant or exercise of the ISO. If an employee
exercises an ISO and does not dispose of any of the Optioned Shares within two
years following the date of grant and within one year following the date of
exercise, then the gain will be realized upon subsequent disposition of the
shares. If an employee disposes of shares acquired upon exercise of an ISO
before the expiration of either the one-year holding period or the two-year
waiting period, any amount realized will be taxable for federal income tax
purposes in the year of such disqualifying disposition to the extent that the
lesser of the fair market value of the shares on the exercise date or the fair
market value of the shares on the date of disposition exceeds the exercise
price. The Company will not be allowed any deduction for federal income tax
purposes at either the time of the grant or exercise of an ISO. Subject to
Section 162(m) of the Code (as described below), upon any disqualifying
disposition by an employee, the Company will be entitled to a deduction to the
extent the employee realizes income.
The maximum aggregate fair market value of ISO stock available for exercise in
any year by any Optionee is $100,000, determined on the date the Option is
granted. Because the Options granted under the 1997 Option Plan have been
granted in 1997, each Optionee will receive a maximum number of ISOs equal to
$100,000 divided by the Option Price of the Options. As a result of this
limitation, many of the Optionees will receive a small number of ISOs and a
larger proportion of NSOs.
Certain Options authorized to be granted under the 1997 Option Plan will be
treated as NSOs for federal income tax purposes. Under federal income tax law
presently in effect, no income is realized by the grantee of an NSO pursuant to
the 1997 Option Plan until the Option is exercised. At the time of exercise of
an NSO, the Optionee will realize income, and, subject to Section 162(m) of the
Code, the Company will be entitled to a deduction, in the amount by which the
market value of the shares subject to the Option at the time of exercise
exceeds the Option Price. Upon the sale of shares acquired upon exercise of an
NSO, the excess of the amount realized from the sale over the market value of
the shares on the date of exercise will be taxable.
A participant who receives stock in connection with the performance of services
through the exercise of an Option or otherwise will generally realize taxable
income at the time of receipt unless the shares are substantially nonvested for
purposes of Section 83 of the Code. Absent an election under Section 83(b), an
employee who receives substantially nonvested stock in connection with
performance of services will realize taxable income in each year in which a
portion of the shares substantially vest. This may occur in the event an
Optionee exercises an Option prior to the Option fully vesting based on the
Optionee's employment. In that event, the Optionee would hold Common Stock
which would be substantially nonvested. The Company will be entitled to a tax
deduction in the amount includable as income by the participant at the same
time or times as the employee recognizes income with respect to the shares.
24
29
Section 162(m) of the Code generally disallows a federal income tax deduction
to any publicly held corporation for compensation paid in excess of $1,000,000
in any taxable year to the chief executive officer or any of the four other
most highly compensated executive officers who are employed by the corporation
on the last day of the taxable year, but does allow a deduction for
"performance-based compensation" the material terms of which are disclosed to
and approved by shareholders. The Company has structured and intends to
implement the 1997 Option Plan so that compensation resulting therefrom would
be qualified "performance-based compensation." To allow the Company to qualify
such compensation, the Company is seeking shareholder approval of the 1997
Option Plan and the material terms of the grants under the 1997 Option Plan.
AMENDMENT
The 1997 Option Plan may be amended by the Board of Directors of the Company at
any time, except that no amendment affecting ISOs may be made without the
approval of the holders of a majority of the shares of Common Stock issued and
outstanding if it materially increases the benefits accruing to optionees,
increases the number of shares which may be issued thereunder, or changes the
requirements as to eligibility for ISOs.
RECOMMENDATION OF THE BOARD OF DIRECTORS
After careful consideration, the Board of Directors has determined that the
1997 Option Plan is in the best interests of the shareholders of the Company.
Accordingly, the Board recommends approval of the 1997 Option Plan.
Prior to 1982, the Company principally conducted business through four
subsidiaries, which engaged in motor carrier operations, wholesale
distribution, manufacturing, and venture capital services. Commencing in April
1982, when the Company's largest subsidiary filed for protection under federal
bankruptcy laws, and continuing through September 1997, when the Company sold
the assets of Meyer Machine Company, the Company has experienced an irregular
but principally deteriorating financial condition. As a result, in September
1997 the Company was left with a single line of business -- the manufacturing
of a line of souvenir, novelty and gift items - that has experienced a 29%
decrease in total revenue over the last three years and an operating loss of
$1,688,000 during the first nine months of 1997.
In September 1997, the Board of Directors of the Company authorized management
of the Company to commence operations in the financial services industry
through new subsidiaries which are expected to engage in the origination,
purchase, and disposition of loans and the offering of investment banking
services.
In the view of management of the Company, the large and highly fragmented home
remodeling and home equity lending markets provide an excellent opportunity for
the Company to expand its revenue base. According to the National Association
of Home Builders, the home remodeling industry in the United States is expected
to grow from an estimated $121 billion in 1994 to approximately $181 billion in
the year 2000.
Total home improvement loans financed under the FHA Title I program aggregated
approximately $1.5 billion in the last HUD fiscal year. Currently in excess of
80% of home purchases nationally are of existing homes. This trend, together
with the overall aging of the national housing stock, among other factors, has
contributed to substantial growth in the home improvement lending market in
recent years.
Although barriers to entry exist, the Company believes that its management team
and financial accounting and tax positions create a considerable opportunity to
prosper in this growing industry. Companies in the mortgage lending industry
that choose to dispose of loan acquisitions through "securitization" may incur
taxable income in excess of cash flow from earnings. In addition, income from
lending operations is spread over the life of the loans acquired. Initial cash
outflows to acquire new loans, periodic, time-driven cash inflows, and the
creation of taxable income may combine to cause operating capital deficiencies.
The Company's Net Operating Loss ("NOL") carryforwards may be offset against
taxable income and thereby provide an effective means of reducing cash outflows
during the years the Company intends to expand its lending operations. The
Company's NOL carryforwards begin to expire at
25
30
the end of 1999 and the new business expansion will allow the Company to
utilize the NOL carryforwards to its competitive advantage.
The Board of Directors believes that it has retained a capable management team
to direct efforts in the Title I lending and investment banking businesses. In
addition, implementation of state of the art information and technological
resources should contribute to reduced overhead, reliable and accurate lending
operations, and positive relationships with loan originators who will play a
valuable role in the acquisition of loans. The business strategy will employ
recent financial innovations by a federally backed agency to provide an
efficient loan disposition process that, in turn, should yield greater
flexibility in lending operations and a lower cost of borrowing capital.
Crucial to the successful implementation of the Company's strategy is the
attraction and retention of the Company's management, but adequately
compensating such personnel is difficult given the Company's present financial
condition. In arriving at the proposed solution, the Company's Board of
Directors has attempted to preserve shareholder rights while offering a
sufficiently large equity stake in the Company to its management to make the
new enterprise mutually attractive. In this regard, options granted under the
1997 Option Plan will not become available for exercise until the Company
satisfies significant and layered earnings' requirements over the four-year
period that commenced on October 1, 1997, or until the cliff vesting provisions
discussed below take effect.
The following table may be useful in reviewing the proposed 1997 Option Plan.
The Company's Common Stock presently trades for less than $5.00 per share, and
the table depicts share price levels which, after dilution and subject to
certain assumptions, may result if earnings' targets under the 1997 Option Plan
are met. HOWEVER, THE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED AS A GUARANTY OF PERFORMANCE OR OTHER ASSURANCE REGARDING FUTURE
EARNINGS OR SHARE PRICES.
Per share prices in columns I and II are computed using the noted
price-earnings multiples on a fully diluted basis taking into consideration the
2,778,615 shares presently outstanding and additional shares which will vest
and become exercisable under the 1997 Option Plan. The table assumes that no
additional shares or options are issued other than those issued under the 1997
Option Plan. All Options which become available for exercise are assumed to
have been exercised. The table reflects aggregate cumulative earnings of $60
million spread over a four-year period with increases in earnings of $2
million, $4 million, and $6 million in years two, three, and four,
respectively.
Except as noted in the discussion of "cliff-vesting" set forth below, in order
for the employees of the Company to fully earn all of the Options that have
been awarded to them under the 1997 Option Plan, the Company must achieve the
aggregate cumulative earnings targets set forth in the 1997 Option Plan and the
employees to whom the Options have been awarded must remain in the employment
of the Company for the full four-year period that commenced on October 1, 1997.
Under the provisions of the 1997 Option Plan, the Options may be earned pro
rata, after the aggregate cumulative earnings of the Company exceed the
threshold earnings target of $5 million.
In addition, to the extent Options are exercised prior to the end of the
four-year period for shares in excess of the shares available for exercise on
that date, the Company may repurchase such excess shares. This circumstance
might occur in the event the Company has aggregate cumulative earnings, Options
are exercised and the Company then incurs net losses prior to the end of the
four-year period.
The following earnings levels also assume the exclusion of extraordinary or
other non-recurring income items normally excluded when calculating a
price-earnings multiple. The price-earnings multiples utilized are subject to
change and the table assumes that the stated multiples are in effect during the
entire period covered by the table.
26
31
I II
Associated Associated
Exercised Share Price Share Price
Year Earnings Options (S&P 500) (Industry)
---- ------------ --------- ----------- -----------
10/1/97 - 9/30/98 $ 10 Million 1,000,000 $ 60.79 $32.78
10/1/98 - 9/30/99 $ 12 Million 1,200,000 $ 69.27 $37.35
10/1/99 - 9/30/00 $ 16 Million 1,600,000 $ 83.89 $45.24
10/1/00 - 9/30/01 $ 22 Million 2,200,000 $101.40 $54.68
------------ ---------
Total $ 60 Million 6,000,000
(1) Column I uses the November 7, 1997 S&P 500 price-earnings multiple of
22.87 quoted in the Wall Street Journal on November 10, 1997.
(2) Column II uses a price-earnings multiple of 12.33 determined by averaging
the price-earnings multiples quoted in the Wall Street Journal on November
12, 1997 for Green Tree Financial Corp., Inc., FirstPlus Financial Group,
Inc., and Contifinancial Corp., Inc. Each of these three companies
conducts substantial operations in the sub-prime lending market and will
compete directly with the Company.
THE FOREGOING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. FOR INFORMATION WITH RESPECT TO THE FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS, SEE "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION."
Shareholders should carefully note the existence of certain "cliff vesting"
provisions associated with the proposed Options. Under such provisions, the
Options may be exercised after September 30, 2006, irrespective of whether
earnings' targets have been met. Although the dilution that could result from
exercise of the Options through the cliff vesting provisions is detrimental to
shareholders, the Company believes that the earnings requirements set forth in
the 1997 Option Plan will promote an environment that will ultimately benefit
all of the shareholders of the Company.
DISCUSSION OF USE OF NET OPERATING LOSSES
Federal income tax law permits the deduction from taxable income of certain net
operating losses ("NOL"), subject to certain limitations. These NOLs may
generally be carried forward and used for a period of fifteen years following
the tax year in which the NOL was incurred. The Company has, for several years,
incurred net operating losses and presently has consolidated NOL carryforwards
for federal income tax purposes of approximately $30 million. Because of the
fifteen year NOL carryforward limitation and the fact that a large amount of
the Company's losses were incurred more than ten years ago, a significant
portion of the NOLs will expire over the next several years. After December 31,
1999, approximately $18,000,000 of the Company's NOL carryforwards will expire.
While there is no assurance that the activities of the new subsidiaries of the
Company will be profitable, in the event the Company, on a consolidated basis,
has taxable income for federal income tax purposes, and subject to the limit of
the NOL carryforwards and certain limits on their use, such income may be
earned without incurring federal income tax liability. The Company is hopeful
that the activities of its new subsidiaries will generate significant income
over a relatively short period of time. If that is the case, the Company will
be able to reduce the federal taxable income resulting from such operations to
the extent of the NOL carryforwards.
The Code provides that, under certain circumstances, a "change of control" as
defined under Section 382 of the Code may result in a significant reduction in
a company's ability to use NOL carryforwards. The Company believes that a
change of control within the meaning of the Code has not occurred and believes
that the adoption of the 1997 Option Plan and its implementation with the
Option Grants under the plan will not cause a change of control to occur until
such time as the Option Grants are exercised. There can be no assurance that
the Company's
27
32
conclusions in this regard are correct or that the Internal Revenue Service
will not assert a position contrary to that taken by the Company. In addition,
at the time Options for a sufficient number of shares have been exercised, a
change of control will occur for purposes of Section 382 and the Company will
thereafter be subject to significant limits in the use of any remaining NOL
carryforwards.
SPECIAL MEETING OF SHAREHOLDERS
GENERAL
This Proxy Statement is being furnished to shareholders of the Company as part
of the solicitation of proxies by the Company for use at the Special Meeting to
be held on December 19, 1997 at 1:00 p.m. local time, in the Boardroom of Texas
Commerce Bank - Austin, 3rd Floor, Texas Commerce Bank Building, 700 Lavaca
Street, Austin, Texas. This Proxy Statement and the enclosed form of proxy are
first being mailed to shareholders of the Company on or about November 17,
1997.
The purpose of the Special Meeting is: (a) to consider and vote on a proposal
to approve and adopt the 1997 Option Plan, including the options awarded by the
Compensation Committee of the Board of Directors thereunder; and (b) to
transact such other business that may properly come before the Special Meeting.
Each copy of this Proxy Statement mailed to holders of Common Stock is
accompanied by a form of proxy for use at the Special Meeting.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Record Date is the close of business on November 7, 1997. Shareholders of
the Company as of the Record Date are entitled to notice of, and to vote at the
Special Meeting. Accordingly, only holders of record of shares of Common Stock
at the close of business on such date will be entitled to vote at the Special
Meeting. Each holder of the Common Stock on the Record Date is entitled to one
vote per share held on all matters properly presented at the Special Meeting.
As of the close of business on the Record Date, there were 2,778,615 shares of
Common Stock outstanding and entitled to vote, held by 2,752 holders of record.
The presence in person or by proxy at the Special Meeting of the holders of at
least a majority of the votes entitled to be cast at the Special Meeting is
necessary to constitute a quorum for the transaction of business.
Approval and adoption of the 1997 Option Plan requires the approval of the
holders of a majority of the shares present and entitled to vote on the matter
at the Special Meeting, provided that the total votes cast on the matter
represent over 50% of the Common Stock entitled to vote on the matter.
The Company has been advised by Mr. DeRoeck and Mr. Thomajan, who together own
beneficially approximately 16.4% of the shares of Common Stock issued and
outstanding, that they intend to vote such shares in favor of the approval and
adoption of the 1997 Option Plan. (See "Possible Conflicts of Interest.")
With respect to the adoption and approval of the 1997 Option Plan, abstentions
will be counted as votes cast for purposes of determining whether the votes
cast represent over 50% of the Common Stock entitled to vote, but because an
affirmative vote of a majority of the shares present and entitled to vote is
required, abstentions have the same effect as votes cast against approval and
adoption of the 1997 Option Plan, including the Options awarded by the Board of
Directors thereunder. Broker non-votes will not be counted as votes cast for
purposes of determining whether a majority of shares entitled to vote has been
cast with respect to approval and adoption of the 1997 Option Plan and will be
disregarded in determining the outcome of the vote on approval and adoption of
the 1997 Option Plan.
If the enclosed proxy card is properly executed and returned to the Company in
time to be voted at the Special Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. EXECUTED BUT UNMARKED
PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE 1997 OPTION PLAN. The
Company does not know of any matters other than those described in the notice
of the
28
33
Special Meeting that are to come before the Special Meeting. If any other
business is properly brought before the Special Meeting, including, among other
things, a motion to adjourn or postpone the Special Meeting to another time
and/or place for the purpose of soliciting additional proxies in favor of the
proposal to approve and adopt the 1997 Option Plan or to permit dissemination
of information regarding material developments otherwise germane to the Special
Meeting, one or more of the persons named in the proxy card will vote the
shares represented by such proxy upon such matters as determined in their
discretion.
If the Special Meeting is adjourned for any reason, the approval of the 1997
Option Plan will be considered and voted upon by shareholders at the subsequent
reconvened meeting, if any.
The presence of a shareholder at the Special Meeting will not automatically
revoke such shareholder's proxy. Any proxy given pursuant to this solicitation
may be revoked by the person giving it by giving written notice of such
revocation to the Secretary of the Company at any time before it is voted, by
delivering a duly executed, subsequently-dated proxy or by attending the
Special Meeting and voting in person. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
to TCC Industries, Inc., 816 Congress Avenue, Suite 1250, Austin, Texas 78701,
Attention: Robert Thomajan, Secretary.
The cost of soliciting proxies for the Special Meeting will be borne by the
Company. In addition to use of the mails, proxies may be solicited personally
or by telephone, telegraph, facsimile or other means of communication by
directors, officers and employees of the Company, who will not be specifically
compensated for such activities, but who may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. The Company will
also request persons, firms and companies holding shares in their names or in
the name of their nominees, which are beneficially owned by other persons, to
send proxy materials to and obtain proxies from such beneficial owners. The
Company will reimburse such persons for their reasonable expenses incurred in
connection therewith. The Company has retained MacKenzie Partners to assist in
the solicitation of proxies by the Company for a fee (estimated to be
approximately $5,000), plus reasonable out-of-pocket expenses.
MARKET PRICES AND DIVIDENDS
The Common Stock is listed on the New York Stock Exchange under the ticker
symbol TEL.
The table below sets forth, for the calendar quarters indicated, the reported
high and low sale prices of the Common Stock as reported by the New York Stock
Exchange.
Common Stock
Market Price
----------------------
High Low
------ ------
1995
First Quarter.............. $3 $2
Second Quarter............. $2 3/8 $1 3/4
Third Quarter.............. $2 3/4 $1 7/8
Fourth Quarter............. $2 5/8 $2
1996
First Quarter.............. $2 3/4 $2
Second Quarter............. $2 5/8 $2
Third Quarter.............. $2 1/2 $1 5/8
Fourth Quarter............. $2 $1 1/2
29
34
Common Stock
Market Price
----------------------
High Low
------ ------
1997
First Quarter.............. $2 1/8 $1 1/2
Second Quarter............. $2 1/2 $1 1/2
Third Quarter.............. $5 7/8 $2 1/16
Fourth Quarter............. $5 $4 1/4
(through 11/11/97)
On July 7, 1997, the date on which the Company issued a public announcement
concerning the election of Mr. DeRoeck as Chairman and Chief Executive Officer
of the Company, and the contemporaneous resignation of Mr. Schumann as Chairman
of the Board and Chief Executive Officer of the Company, the closing price on
the New York Stock Exchange was $2 1/4 per share of Common Stock.
On September 3, 1997, the date on which the Company issued a public
announcement concerning its plans to engage in a broad range of merchant and
investment banking services and to build a national consumer finance
organization, the closing price on the New York Stock Exchange was $21/2 per
share of Common Stock.
On November 11, 1997, the most recent practicable date prior to the date of
this Proxy Statement, the closing price on the New York Stock Exchange was
$411/16 per share of Common Stock.
The Company expects to use all available cash flow for reinvestment in its
businesses and does not expect to declare or pay dividends in the foreseeable
future.
MANAGEMENT OF THE COMPANY
The following table contains information relating to the directors and
executive officers of the Company and the executive officers of each of its
principal subsidiaries.
Name; Position with the Company or Present Term Year First
its Subsidiaries; Principal Occupation (1) Age Expires Elected
------------------------------------------ --- ------------ ----------
Walter A. DeRoeck (2) 55 1998 1997
Director, Chairman of the Board and Chief Executive Officer of
the Company; Chairman, President and Chief Executive
Officer of Paladin Financial, Inc.
Robert Thomajan (3) 56 1998 1997
Director, President and Secretary of the Company
Richard B. Curran (4) 61 1999 1997
Director and Assistant Secretary of the Company;
Investor - Consultant
Lawrence E. Tilton (5) 62 1998 1997
Director of the Company;
Personal Investments and Consulting
30
35
Name; Position with the Company or Present Term Year First
its Subsidiaries; Principal Occupation (1) Age Expires Elected
------------------------------------------ --- ------------ ----------
Alan M. Sager (6) 56 1998 1997
Director of the Company;
President and Chief Executive Officer of
The Great Superclips, Inc.
Robert D. Starnes (7) 47 1998 1997
Director of the Company;
President and Chief Executive Officer of The Ontra
Companies, Inc.
Larry T. Marek (8) 42 N/A N/A
President, Allen-Lewis Manufacturing Company
Richard F. Watkins (9) 49 N/A N/A
Chairman, President and Chief Executive Officer, Texas Capital
Markets, Inc.
Robert L. Riviere (10) 45 N/A N/A
Chairman and Chief Executive Officer, Barton Creek Capital
Corporation
Gregory J. Figaro (11) 49 N/A N/A
President and Chief Operating Officer, Barton Creek Capital
Corporation
John R. Slais (12) 43 N/A N/A
Executive Vice President and Chief Financial Officer, Barton
Creek Capital Corporation
Jorge Sauri (13) 40 N/A N/A
Executive Vice President, Paladin Financial, Inc.
Charles R. Peissel (14) 48 N/A N/A
Executive Vice President and Chief Financial Officer, Paladin
Financial, Inc.
Patrick M. Kelly (15) 45 N/A N/A
Senior Vice President - Capital Markets, Texas Capital
Markets, Inc.
Stuart M. Thomajan (16) 29 N/A N/A
Senior Vice President, Barton Creek Capital Corporation
Wayne A. Pike (17) 48 N/A N/A
Senior Vice President-Controller, Paladin Financial, Inc.
- ------------------
(1) None of the positions described in the foregoing schedule have been held
for over five years.
31
36
(2) Walter A. DeRoeck has served as a director of the Company since May 23,
1997, has served as Chairman of the Board and Chief Executive Officer of
the Company since July 2, 1997 and has served as Chairman, President and
Chief Executive Officer of Paladin Financial, Inc., a wholly-owned
subsidiary of the Company, since October 6, 1997. Since 1993, Mr. DeRoeck
has also served as the President and Chief Executive Officer of DBJ
Interests, Inc., a private investment business. In addition, since May
1996, he has served as a principal in Westlake Capital Group, L.P., a
limited partnership focusing on acquisitions and private placements in
mid-market companies. His private investment interests are in real estate,
manufacturing, and support of entrepreneurial ventures. A 1965 graduate of
the University of Arkansas with a Bachelor of Science degree in economics,
Mr. DeRoeck has spent most of his adult life in the banking industry. In
1984, he graduated from the Advanced Management Program at Harvard
University. He served as Chairman and Chief Executive Officer of Union
National Bank in Texas from 1989 until 1993, when it was purchased by
Worthen Banking Corporation. Since January 1997, he has also served as a
director of a privately owned, fixed income advisory fund that manages
over $150 million in assets on behalf of individuals, labor unions,
pension funds and other institutional investors. Mr. DeRoeck is the former
chief executive officer of Susan Crane, Inc., a Dallas based manufacturing
company that he acquired in February 1993 and sold in April 1995.
(3) Robert Thomajan has served as a director of the Company since May 23,
1997, and has served as President of the Company since August 14, 1997.
From 1994 until August 31, 1997, Mr. Thomajan also served as the principal
investment advisor to The Versailles Fund, an offshore open-end mutual
fund engaged in the purchase and sale of securities, bonds, commodities
and currencies on behalf of non-U.S. investors. In addition, from October
1996 to August 31, 1997, Mr. Thomajan was a member of Quadrangle Partners,
L.L.C., a hedge fund and trading advisor located in Greenwich,
Connecticut. On August 31, 1997, he resigned from his position as an
advisor to The Versailles Fund and with Quadrangle Partners, L.L.C. in
order to devote his full time to the business of the Company. From 1990 to
1993, Mr. Thomajan served as Executive Director of and legal counsel to
Richco Holdings, Ltd., a holding company with controlling interests in
manufacturing, shipping, trading, hotels and financial enterprises. Mr.
Thomajan is a 1962 graduate of New York University, School of Business and
Finance, and a 1965 graduate of St. John's University, School of Law.
(4) Richard B. Curran has served on the Board of Directors of the Company
since July 11, 1997, and has served as Assistant Secretary of the Company
since August 14, 1997. Mr. Curran has also served as Chairman of the
Company's Audit Committee since September 3, 1997. Mr. Curran is a member
of the Board of Directors of Intellicall, Inc., the securities of which
are traded on the New York Stock Exchange. Intellicall, Inc. is a provider
of equipment and software to the public access telecommunications
industry. In addition, Mr. Curran serves as Vice President - Finance of
EarthSat Corporation, a privately-held company involved in the remote
sensing business. Mr. Curran received a B.A. from Yale University in 1957,
an M.A. from Trinity College (Connecticut) in 1959 and an L.L.B. from Yale
Law School in 1963.
(5) Lawrence E. Tilton has served as a member of the Board of Directors of the
Company since July 11, 1997, and has served as Chairman of the Company's
Compensation Committee since September 3, 1997. He currently is engaged in
directing his personal investments and also engages in business as a
business consultant. Previously, from November 1993 until December 1994,
Mr. Tilton served as President of Lederle Laboratories, and from October
1990 until November 1993 served as President of Lederle Consumer Products,
both of which are divisions of American Cyanamid Company, the securities
of which were previously traded on the New York Stock Exchange. Mr. Tilton
also serves on the Board of Directors of Serologicals, Inc., a health care
company engaged in the production of specialty blood products. Mr. Tilton
is a 1957 graduate of Southwest Texas State University, with a Bachelor of
Science degree in education and science.
32
37
(6) Alan M. Sager has served as a member of the Board of Directors of the
Company since July 11, 1997, and has served as Chairman of the Company's
Nominating Committee since September 3, 1997. Since 1982, Mr. Sager has
served as the President and Chief Executive Officer of The Great
Superclips, Inc., which operates 13 hair salons in the New Orleans,
Louisiana area. In addition, Mr. Sager serves as a General Partner in
Rainbow Group Limited which, together with its related companies, operates
37 hair salons in Texas, Illinois, Mississippi, and Louisiana. He holds a
Bachelor of Science degree in Chemical Engineering from Tufts University,
a Juris Doctor degree from the University of Michigan and M.A. and Ph.D.
degrees in Political Science from Northwestern University.
(7) Robert D. Starnes has served as a member of the Board of Directors of the
Company since September 3, 1997. He is currently President and Chief
Executive Officer of The Ontra Companies, Inc., which is a financial and
real estate services holding company and which, through its subsidiaries,
has managed over $2 billion in assets. He is a 1972 graduate of Texas A &
M University with a Bachelor of Science degree and was awarded a Masters
in Business Administration degree by Texas A & M University in 1982.
(8) Larry T. Marek has been employed by the Company or its subsidiaries since
November 1980. Mr. Marek was elected Treasurer in April 1984, Secretary in
May 1988 and Executive Vice President in February 1991. He served as a
director of the Company from 1988 until March 16, 1993. He relinquished
his offices with the Company effective August 1996 in connection with
assuming the position of President of the Company's wholly-owned
subsidiary, Allen-Lewis Manufacturing Company. Mr. Marek holds a Bachelor
of Business Administration degree in accounting from the University of
Texas at Austin.
(9) Richard F. Watkins has served as Chairman and Chief Executive Officer of
Texas Capital Markets, Inc., a wholly-owned subsidiary of the Company,
since September 8, 1997. Previously, Mr. Watkins served as Vice President
and Director of Englewood Properties, Inc., a real estate investment
company, from July 1992 through April, 1997, and served as President of
United Realty Group, Inc., from April 1991 until October 1994. United
Realty Group, Inc. was the sole general partner of United Realty Group,
L.P., the securities of which were previously traded on the Pacific Stock
Exchange and the NASDAQ Small Cap Market. From August 1994 until October
1994, Mr. Watkins also served as Chairman of HomeCapital Investment Corp.
("HomeCapital"), a publicly-traded holding company, the securities of
which are traded on the NASDAQ Small-Cap Market and the Pacific Stock
Exchange, and from May 1993 until June 1997 served as a Financial
Consultant with Homeowners Mortgage & Equity, Inc., a subsidiary of
HomeCapital and an FHA Title I mortgage company. Mr. Watkins is a 1971
graduate of the University of Texas at Austin with a Bachelor of Business
Administration degree in accounting, and was awarded a Masters in Business
Administration degree in finance by the University of Texas at Austin in
1975. Mr. Watkins is presently the subject of a criminal proceeding
initiated by the United States government in connection with the failure
and liquidation of First Federal Savings and Loan Association of Laredo
("First Federal Laredo"), which was a financial institution located in
Laredo, Texas, the deposits of which were insured by agencies of the
United States. In connection with that proceeding, in January, 1996, a
Grand Jury convened under the authority of the United States District
Court, Southern District of Texas, Laredo Division ("District Court"),
issued an indictment against Mr. Watkins in which it was alleged that in
1986 Mr. Watkins had engaged in a conspiracy, had misapplied funds, and
had defrauded First Federal Laredo of approximately $100,000 in connection
with a loan made by First Federal Laredo, all in alleged violation of the
laws of the United States. Moreover, in June, 1996, a Grand Jury convened
under the authority of the District Court issued an indictment against Mr.
Watkins in which it was alleged that in 1988 Mr. Watkins had engaged in a
conspiracy, had misapplied funds, had wrongfully participated and shared
in money and other benefits, and had defrauded First Federal Laredo of
approximately $130,000 in connection with a loan made by First Federal
Laredo, all in alleged violation of the laws of the United States.
(10) Robert L. Riviere has served as Chairman and Chief Executive Officer of
Barton Creek Capital Corporation, a wholly-owned subsidiary of the
Company, since September 3, 1997. Previously, from
33
38
September 1979 until August 1993, Mr. Riviere served as President and
Chief Executive Officer of Capitol Securities Group, Inc. ("Capitol
Securities"), a registered broker-dealer and investment banking firm, and
from August 1993 to December 1993 he served as Managing Director of Morgan
Keegan & Co., an investment banking and financial advisory firm. Mr.
Riviere also served, from January 1994 until July 1997, as Chairman and
Chief Executive Officer of Tejas Securities Group, Inc. ("Tejas
Securities"), a registered broker-dealer and investment banking firm. In
1975, he graduated from the University of Texas at Austin with a Bachelor
of Business Administration degree in finance.
(11) Gregory J. Figaro has served as President and Chief Operating Officer of
Barton Creek since September 17, 1997. From April 1995 until July 1997,
Mr. Figaro served as Executive Vice President of Tejas Securities.
Previously, from January 1994 until April 1995, he served as Senior Vice
President of APS Financial, Inc., a registered broker-dealer. Mr. Figaro
is a 1970 graduate of St. Joseph's College with a Bachelor of Science
degree in accounting, and a 1974 graduate of Monmouth University with a
Masters in Business Administration degree. Mr. Figaro is a Certified
Public Accountant.
(12) John R. Slais has served as Executive Vice President and Chief Financial
Officer of Barton Creek since September 3, 1997. Prior to that date, Mr.
Slais served as Chief Financial Officer of Tejas Securities and, from
February 1986 until December 1993, served as Chief Financial Officer of
Capitol Securities. Mr. Slais holds a Bachelor of Arts degree in
accounting from Harding University. He is also a Certified Public
Accountant.
(13) Jorge Sauri has served as Executive Vice President of Paladin since
September 3, 1997. Mr. Sauri served from January 1997 through August 1997
as Regional Director for Mego Mortgage Company, a home equity lender, and
from June 1994 through December 1996, served as Vice President of Business
Development of Home, Inc., which was also a home equity lending company.
Previously, from October 1990 until May 1994, he served as Vice President
of First Fidelity Funding, Inc., a mortgage banking firm.
(14) Charles R. Peissel has served as Executive Vice President and Chief
Financial Officer of Paladin since September 3, 1997. Previously, from May
1996 until August 1997, Mr. Peissel served as Managing Partner of the law
firm of Peissel & Garwood, L.L.P., and from November 1991 until April 1996
he served as Managing Partner of the law firm of Fortney, Peissel &
Garwood, L.L.P. Mr. Peissel is a 1970 graduate of Stanford University with
a Bachelor of Arts degree in political science. In addition, Mr. Peissel
holds a Masters in Business Administration degree awarded by the
University of Texas at Austin in 1972, and a Juris Doctor degree awarded
by the University of Houston in 1976. Mr. Peissel is a member of the State
Bar of Texas.
(15) Patrick M. Kelly has served as Senior Vice President-Capital Markets of
Texas Capital since September 8, 1997. Previously, from June 1982 until
August 1997, Mr. Kelly was a shareholder in the law firm of Spivey, Grigg,
Kelly and Knisely. Mr. Kelly is a 1974 graduate of the University of Texas
at Austin with a Bachelor of Business Administration degree with high
honors in accounting. Mr. Kelly was awarded a Juris Doctor degree from the
University of Texas in 1977. Mr. Kelly is a member of the State Bar of
Texas.
(16) Stuart M. Thomajan has served as Senior Vice President of Barton Creek
Capital Corporation since November 5, 1997. Mr. Thomajan served from July
1997 through October 1997 as Vice President of Tejas Securities.
Previously, from 1991 until July 1997, he was employed as a commodities
trader and in various other capacities by Glencore Ltd., a Stamford,
Connecticut-based commodities trading company. Mr. Thomajan is a 1990
graduate of the University of Texas at Austin with a Bachelor of Science
Degree in advertising and marketing. Stuart Thomajan is the son of Robert
Thomajan, President of the Company.
(17) Wayne A. Pike has served as Senior Vice President - Controller of Paladin
since October 6, 1997. From March 1995 through September 1997, Mr. Pike
served as President of Pike Mortgage Company, an
34
39
independent residential mortgage broker, and LegalBooks, Inc., a service
company providing accounting and time management systems to law firms.
From July 1994 to March 1995, Mr. Pike served as a mortgage banker with
Victoria Mortgage Corp. and, from January 1992 to July 1994, he served as
a mortgage banker with ICM Mortgage Corp. Mr. Pike is a 1971 graduate of
Loyola University with a Bachelor of Arts degree in accounting and
economics.
For information relating to the beneficial ownership of shares of Common Stock
by each member of the Board of Directors of the Company and each executive
officer of the Company and its principal subsidiaries, and all directors and
executive officers as a group, both as of November 7, 1997, and pro forma -
after giving effect to the issuance of 6,000,000 shares of Common Stock upon
the exercise of Options granted under the 1997 Option Plan, see "Security
Ownership of the Company."
The Company's Board of Directors has standing committees for consideration of
matters relating to audit, compensation and the nomination of directors.
The Audit Committee functions primarily to review questions, if any, raised by
the independent accountants who audit the accounts of the Company and to
suggest to the Board, as well as to help implement, any changes required in
internal accounting controls. The members of the Audit Committee are Richard B.
Curran, Alan M. Sager and Robert D. Starnes.
The Compensation Committee functions primarily to review and recommend
compensation arrangements for directors, officers and employees of the Company.
The members of the Compensation Committee are Lawrence E. Tilton, Alan M. Sager
and Richard B. Curran.
The Nominating Committee makes recommendations to the Board of Directors with
respect to the election of directors. The members of the Nominating Committee
are Alan M. Sager, Lawrence E. Tilton and Robert D. Starnes.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF EXECUTIVE OFFICERS
With the exception of Larry T. Marek, who is the President of Allen-Lewis
Manufacturing Company, a wholly-owned subsidiary of the Company, none of the
current executive officers of the Company or its principal subsidiaries was
employed by the Company prior to July 1997. The following table sets forth the
names of the executive officers of the Company and its principal subsidiaries
and their respective positions with the Company and such subsidiaries, together
with the total compensation paid or accrued for services rendered by each of
such persons during the ten-month period ended October 31, 1997, and the annual
compensation payable to such persons under the pertinent provisions of their
respective Employment Agreements with the Company.
Name and Position 1997 Compensation Annual Salary
----------------- ----------------- -------------
Walter A. DeRoeck (1) $ 0 $ 0
Chairman of the Board and Chief Executive
Officer, TCC Industries, Inc.; Chairman,
President and Chief Executive Officer, Paladin
Financial, Inc.
Robert Thomajan (2) $ 0 $ 0
President and Secretary, TCC Industries, Inc.
35
40
Name and Position 1997 Compensation Annual Salary
----------------- ----------------- -------------
Richard F. Watkins (3) $ 0 $ 0
Chairman, President and Chief Executive Officer,
Texas Capital Markets, Inc.
Robert L. Riviere (4) $ 41,667 $250,000
Chairman and Chief Executive Officer, Barton
Creek Capital Corporation
Jorge Sauri (4) $ 10,883 $130,000
Executive Vice President, Paladin Financial, Inc.
Larry T. Marek (5) $101,667 $122,000
President, Allen-Lewis Manufacturing Company
Gregory J. Figaro (4) $ 20,000 $120,000
President and Chief Operating Officer, Barton
Creek Capital Corporation
John R. Slais (4) $ 20,000 $120,000
Executive Vice President and Chief Financial
Officer, Barton Creek Capital Corporation
Stuart M. Thomajan (4)(6) $ 0 $120,000
Senior Vice President, Barton Creek Capital
Corporation
Charles R. Peissel (4) $ 9,167 $110,000
Executive Vice President and Chief Financial
Officer, Paladin Financial, Inc.
Patrick M. Kelly (4) $ 8,654 $108,000
Senior Vice President - Capital Markets, Texas
Capital Markets, Inc.
Wayne A. Pike (4) $ 5,795 $ 80,000
Senior Vice President - Controller, Paladin
Financial, Inc.
- --------------------
(1) At Mr. DeRoeck's request, the Company is currently not paying Mr. DeRoeck
any salary or other compensation in connection with his services to the
Company. (See "Security Ownership of the Company" and "Approval and
Adoption of the 1997 Incentive and Performance Stock Option Plan" for
information respecting Options held by Mr. DeRoeck.)
(2) At Mr. Thomajan's request, the Company is currently not paying Mr.
Thomajan any salary or other compensation in connection with his services
to the Company. (See "Security Ownership of the Company" and "Approval and
Adoption of the 1997 Incentive and Performance Stock Option Plan" for
information respecting Options held by Mr. Thomajan.)
36
41
(3) At Mr. Watkins' request, the Company is currently not paying Mr. Watkins
any salary or other compensation in connection with his services to the
Company. (See "Security Ownership of the Company" and "Approval and
Adoption of the 1997 Incentive and Performance Stock Option Plan" for
information respecting Options held by Mr. Watkins.)
(4) See "Security Ownership of the Company" and "Approval and Adoption of the
1997 Incentive and Performance Stock Option Plan" for information
respecting Options held by the named executive officers.
(5) Mr. Marek also received total compensation during 1995 and 1996 of
$120,296 and $121,870, respectively, in consideration of his services as
Executive Vice President, Treasurer and Secretary of the Company. Mr.
Marek relinquished these positions in August 1996 in conjunction with
assuming the position of President of Allen-Lewis. Accordingly, Mr.
Marek's compensation in 1996 includes amounts paid by Allen-Lewis after
August 1996. Mr. Marek holds options awarded under the Company's 1985
Option Plan covering 30,000 shares of Common Stock, of which options
covering 20,000 shares of Common Stock are exercisable at $3.20 per share.
See "--1985 Incentive Stock Option Plan."
(6) Stuart Thomajan commenced employment with Barton Creek Capital Corporation
on November 3, 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Walter A. DeRoeck,
Robert Thomajan, Richard F. Watkins, Robert L. Riviere, Jorge Sauri, Gregory J.
Figaro, John R. Slais, Charles R. Peissel, Patrick M. Kelly, Stuart M. Thomajan
and Wayne A. Pike. (The foregoing persons are hereinafter referred to
individually as the "Executive" and collectively as the "Executives", and the
foregoing employment agreements are hereinafter referred to individually as the
"Employment Agreement" and collectively as the "Employment Agreements.)
Each of the Employment Agreements provides for a fixed term of employment,
which expires on September 30, 2001 ("Employment Period"). The Employment
Period will terminate prior to the expiration thereof upon the death or
disability of the Executive. In addition, the Executive's employment may be
terminated by the Company for cause or by the Executive for good reason. As
defined in the Employment Agreement, the term "for cause" means any material
breach of the Employment Agreement by the Executive, the Executive's failure to
adhere to any material written policy of the Company, the appropriation (or
attempted appropriation) of a material business opportunity of the Company, the
misappropriation (or attempted misappropriation) of any of the Company's funds
or properties, or the conviction of, or the entering of a guilty plea or plea
of no contest with respect to, a felony involving moral turpitude, fraud or
dishonesty, or the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment. The phrase "for good reason", as it is
used in the Employment Agreement, means the Company's material breach of the
Employment Agreement, the assignment of the Executive, without his consent, to
a position, responsibilities or duties of a materially lessor status or degree
of responsibility, the relocation of the Company's principal executive offices
outside the metropolitan Austin, Texas, area, or the requirement by the Company
that the Executive be based anywhere other than the Company's principal
executive offices.
In addition, each Executive may terminate his employment with the Company in
the event that the shareholders of the Company do not approve and adopt the
1997 Option Plan prior to March 31, 1998.
If the Company terminates the Employment Agreement for cause, as that term is
defined therein, the Executive will be entitled to receive his salary through
the date on which such termination is effective. If the Executive terminates
the Employment Agreement for good reason, as that term is defined therein, the
Company will be obligated to pay the Executive his salary and benefits through
the remainder of the calendar month during which the termination is effective
and for three calendar months thereafter, except where the termination results
from the failure of the shareholders to approve and adopt the 1997 Option Plan
prior to March 31, 1998, in which case the Company will
37
42
be obligated to pay the Executive his salary only through the remainder of the
calendar month during which the termination is effective.
If the Executive or the Company terminates the Employment Agreement as a result
of the Executive's disability, the Company will be obligated to pay the
Executive his salary through the remainder of the calendar month during which
the termination is effective, and for the lesser of: (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits commence
under the disability insurance coverage, if any, furnished by the Company to
the Executive. If the Employment Agreement is terminated because of the
Executive's death, the legal representatives of the Executive will be entitled
to receive his salary through the end of the calendar month in which his death
occurs.
Each of the Employment Agreements includes customary provisions relating to the
protection of the confidential information and trade secrets of the Company and
protection with respect to the ownership by the Company of any ideas and
techniques created, conceived or developed by the Executive during the
Employment Period, that relate in any way to the business conducted or proposed
to be conducted by the Company. In addition, each of the Employment Agreements
provides that, during the Employment Period, the executive will not, except in
the course of his employment with the Company, engage or invest in or otherwise
conduct a business, the products or activities of which compete with the
business of the Company within the United States. In addition, the Employment
Agreements provide that the Executive will not, at any time during the
Employment Period and during the one-year period that shall begin on the
termination of the Executive's employment with the Company ("Post-Employment
Period"), solicit business of the same or similar type as the business being
carried on by the Company from any person known by the Executive to be a
customer of the Company, or solicit, employ or otherwise engage as an employee,
independent contractor or otherwise any person who is or was an employee of the
Company at any time during the Employment Period. See "Compensation of
Directors and Executive Officers" for information respecting the compensation
paid to the Executives.
SEVERANCE AGREEMENT
In March 1993, the Company entered into an agreement with Larry T. Marek,
pursuant to which he is entitled to certain benefits if his employment is
terminated by the Company or if he voluntarily terminates his employment. The
agreement, which was amended in January 1997, now provides that if Mr. Marek
voluntarily terminates his employment with the Company following a change in
control of the Company, the Company ceases to do business or certain changes in
his circumstances (such as a material change in duties), then he will be
entitled to receive an amount equal to one month's base salary for each full
year of employment with the Company; bonuses accrued but unpaid during the
twelve-month period preceding termination; and any other compensation owed by
the Company as of the date of termination, all payable within 15 days after
such termination. Mr. Marek will also be entitled to the sums described above
in the event his employment is terminated by the Company for any reason other
than for "cause" (such as fraud or dishonesty, excessive absenteeism other than
for major illness and inattention to duties after prior warning by the
Company). In the event of termination by the Company (other than for "cause")
or voluntary termination by Mr. Marek, he will also be entitled to one year's
benefits (such as life and health insurance and car allowance). If the
executive's employment is voluntarily terminated following insolvency of the
Company, all payments and benefits are reduced by one-half.
In the view of the Board of Directors, a change in control of the Company has
occurred. The agreement with Mr. Marek was approved by the management of the
Company prior to that change in control. Consequently, should Mr. Marek
voluntarily terminate his employment with the Company (or should Mr. Marek's
employment with the Company be terminated for any reason other than for
"cause"), as of September 30, 1997, the aggregate amount that would be payable
to Mr. Marek under the foregoing agreement was approximately $162,300
(excluding benefits and except that such amount would be reduced by one-half in
the event of voluntary termination following insolvency). (See "Change in
Control.")
38
43
ANNUAL INCENTIVE PLAN
The Company has an Annual Incentive Plan ("AIP") which provides for annual
incentive payments to key employees of the Company and its subsidiaries. Each
year the President of the Company determines which key employees will be
participants in the AIP, subject to approval by the Compensation Committee of
the Board of Directors, which administers the AIP.
Awards under the AIP are based upon the actual performance of the Company and
its subsidiaries in a fiscal year, as measured by gross revenues and pretax
income excluding all extraordinary items and the amount recorded during the
plan year in the incentive compensation accrual account (at the subsidiary
level, interest income and inter-company management fees are also excluded), in
relation to budgeted performance.
Management of the Company has suspended the payment of any additional amounts
under the Annual Incentive Plan.
COMPENSATION OF DIRECTORS
Prior to July 2, 1997, it was the practice of the Company to pay the directors
of the Company, other than Mr. Schumann, $1,000 for every Board or Committee
meeting, regular or special, which they attended, and to pay all directors,
other than Mr. Schumann, $833.00 per month as a retainer. On July 2, 1997, the
Board of Directors voted to suspend the foregoing payments to directors until
such time as the Board determines that the resumption of the payment of some
type of compensation to outside directors is appropriate.
Directors are reimbursed for reasonable out-of-pocket expenses incurred to
attend meetings. It is contemplated that this policy will continue during 1997.
However, no current director of the Company has requested or received
reimbursement of any such expenses.
CONSULTING AND NONCOMPETITION AGREEMENTS WITH DIRECTORS
Prior to July 2, 1997, it was the practice of the Company to enter into a
Consulting and Noncompetition Agreement with each of the directors of the
Company. Each agreement provided that, upon resignation or removal from the
Board, the former director would be available, from time to time, to provide
consulting services to the Company for a period ending on the earlier of the
expiration of three years or the death of the former director. The former
director could not be required to provide services in excess of five hours per
month. In consideration of the consulting services to be provided, the Company
agreed to pay each such former director an annual consulting fee equal to
one-third of the annual retainer paid by the Company to members of the Board as
of the date of such former director's resignation or removal, multiplied by the
number of calendar months (not to exceed 36 months) during which he has served
as a member of the Board, divided by twelve, to be paid in quarterly
installments.
On July 2, 1997, the Board of Directors moved to amend the form of Consulting
and Noncompetition Agreement (before such amendment, the "Original Consulting
Agreement" and, as so amended, the "Revised Consulting Agreement") that then
existed between the Company and each director, so as to provide that each
director would be entitled to receive, following the date of such director's
resignation or removal, a nominal consulting fee of $1.00. Each of the current
directors has entered into or has agreed to enter into a Revised Consulting
Agreement and has accepted or has agreed to accept the foregoing nominal
consulting fee in consideration of his obligations thereunder.
Each Revised Consulting Agreement contains an agreement by the director to
maintain the confidentiality of the methods by which the business of the
Company and its subsidiaries are conducted and of the proprietary or
confidential information of the Company and its subsidiaries. Each Revised
Consulting Agreement further provides that during the consulting term the
former director will not directly or indirectly own, manage, operate, control,
be employed by, advise or be connected in any manner with any person or entity
which directly or indirectly is competitive with the businesses of the Company
or its subsidiaries. In addition, each Revised Consulting Agreement
39
44
provides that during the consulting term, the former director will not directly
or indirectly hire or solicit the employment of any employee of the Company or
one of its subsidiaries or induce any such employee to leave or decline
employment with the Company or any such subsidiary. It is the present intention
of the Board of Directors of the Company to require any other person who
becomes a member of the Board in the future to enter into an agreement
substantially similar to the Revised Consulting Agreements described above.
1985 INCENTIVE STOCK OPTION PLAN
The Company's 1985 Incentive Stock Option Plan ("1985 Option Plan") expired in
July 1995. Options granted under the 1985 Option Plan are exercisable at a
price not lower than 100% of the fair market value of the stock on the date of
the grant. All outstanding options have the same vesting schedule pursuant to
which they become exercisable in five equal installments commencing one year
after the date of grant. The aggregate fair market value, measured as of the
date of grant, of stock covered by options granted under the 1985 Option Plan
to any employee may not exceed $100,000 in the year in which such options first
become exercisable. As of November 7, 1997, Options for the purchase of 42,000
shares of Common Stock were outstanding under the 1985 Option Plan.
1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Company's 1995 Non-Employee Directors Stock Option Plan ("NEDSOP") provides
that non-employee directors are entitled to receive one option to purchase
4,000 shares of Company Common Stock upon becoming a director. Each such
director also receives an option to purchase 2,000 shares on the second
anniversary of becoming a director and an additional option to purchase 2,000
shares on the fourth anniversary of becoming a director.
A non-employee director may not receive any other or further option under the
NEDSOP, regardless of whether such director shall exercise any portion of the
option or options awarded him thereunder, except that if an option granted
expires unexercised prior to August 2, 2005 and had an exercise price higher
than the fair market value of the Company Common Stock on the date of
expiration, the optionee will automatically receive a new option for the same
number of shares as were covered by the expired option but at an exercise price
equal to the fair market value for such stock on the date of expiration of the
old option. Although administered by a committee appointed by the Board, all
options awarded to a director under the NEDSOP are granted automatically and
without the exercise of discretion on the part of any person. A maximum of
75,000 shares may be covered by options granted pursuant to the NEDSOP. The
NEDSOP will expire on August 2, 2005. The NEDSOP may be amended by the Board of
Directors at any time, except that no such amendment may be made without the
approval of the holders of a majority of the outstanding shares of Company
Common Stock if it materially increases the benefits accruing to optionees,
materially increases the number of shares which may be issued thereunder, or
materially modifies the requirements as to eligibility for participation in the
NEDSOP. In addition, provisions relating to the amount and price of shares to
be issued under the NEDSOP may not be amended more than once every six months,
other than to comply with changes to the Internal Revenue Code of 1986, as
amended, the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.
The options are exercisable at a price not lower than 100% of the fair market
value of the Company's shares on the date of the grant. The options are
exercisable during a period of not more than ten years from the date of grant.
The options vest and become exercisable in five equal annual installments, with
the first installment vesting one year after the date of grant. No current
director has completed one year of service as a director of the Company.
Consequently, no current director has any vested options under the NEDSOP.
1997 OPTION PLAN
The following table sets forth the names of each of the Optionees who have been
granted Options under the provisions of the 1997 Option Plan, the number of
shares of Common stock that may be purchased upon the exercise of each of such
Options, the percentage that each of the Option Grants represents of the total
Option Grants awarded under the 1997 Option Plan, and the expiration date of
each of such Options.
40
45
With respect to the Options granted on September 3, 1997, the table reflects
the potential realizable value of each Option Grant, assuming an exercise price
of $4.69 per share, and assuming that the market price of the Common Stock
appreciates in value from $2.50 per share (the market price of the Common Stock
on the date on which such Options were granted) to the end of the option term
at annualized rates of 5% and 10%, respectively.
With respect to the Options granted on November 11, 1997, the table reflects
the potential realizable value of each Option Grant, assuming an exercise price
of $4.69 per share, and assuming that the market price of the Common Stock
appreciates in value from $4.81 per share (the market price of the Common Stock
on the date on which such Options were granted) to the end of the option term
at annualized rates of 5% and 10% respectively.
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Option Grants for Option Term
- ------------------------------------------------------------------------------------ ----------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Shares of Options
Common Granted to
Stock Employees
Underlying Under the Exercise
Options 1997 Price
Name Granted (#) Option Plan ($/Sh)(1) Expiration Date 5% ($)(2)(3) 10% ($)(2)(3)
---- ----------- ----------- --------- ------------------ ------------ -------------
Richard F. Watkins 1,615,000 26.92% $4.69 September 30, 2007 $0 $2,975,351
Walter A. DeRoeck 1,500,000 25.00% $4.69 September 30, 2007 $0 $2,763,484
Robert Thomajan 1,500,000 25.00% $4.69 September 30, 2007 $0 $2,763,484
Robert L. Riviere 650,000 10.83% $4.69 September 30, 2007 $0 $1,197,510
Gregory J. Figaro 150,000 2.50% $4.69 September 30, 2007 $0 $276,348
John R. Slais 150,000 2.50% $4.69 September 30, 2007 $0 $276,348
Jorge Sauri 100,000 1.67% $4.69 September 30, 2007 $0 $184,232
Charles R. Peissel 70,000 * $4.69 September 30, 2007 $0 $128,963
Patrick M. Kelly(4) 70,000 * $4.69 September 30, 2007 $217,215 $536,095
Stuart M. Thomajan(4) 50,000 * $4.69 September 30, 2007 $155,154 $382,925
Wayne A. Pike(4) 30,000 * $4.69 September 30, 2007 $93,092 $229,755
Patricia A. Dickerson 30,000 * $4.69 September 30, 2007 $0 $55,270
Rudy Cisneros(4) 20,000 * $4.69 September 30, 2007 $62,061 $153,170
Kay Overcash(4) 20,000 * $4.69 September 30, 2007 $62,061 $153,170
Craig Wittler 20,000 * $4.69 September 30, 2007 $0 $36,846
James M. Jorgenson 15,000 * $4.69 September 30, 2007 $0 $27,635
Mona Heckler 5,000 * $4.69 September 30, 2007 $0 $9,212
Walter Brian DeRoeck(4) 5,000 * $4.69 September 30, 2007 $15,515 $38,293
- --------------------
* Less than 1%
(1) The exercise price of the Options will be equal to the greater of the fair
market value of the Common Stock on the date on which the 1997 Option Plan
and Option Grants are approved by the shareholders of the Company, or (i)
for Options granted on September 3, 1997, 130% of the fair market value of
the Common Stock on that date, $3.04 per share, and (ii) for Options
granted on November 11, 1997, the fair market value of the Common Stock on
that date, $4.81 per share. In setting the exercise price, the
Compensation Committee will determine the fair market value of the Common
Stock based on the value of a share of Common Stock for the ten trading
days immediately preceding the date on which the 1997 Option Plan and
Option Grants are approved by the shareholders, using the reported closing
price of the Common Stock as reported by the New York Stock Exchange.
Consequently, the exercise price for the Options cannot
41
46
presently be determined. The exercise price used in the foregoing table is
the closing price for the Common Stock on the New York Stock Exchange on
November 11, 1997, the most recent practicable date prior to the date of
this Proxy Statement. The actual exercise price may be greater or lesser
than the exercise price set forth in the table.
(2) These amounts represent hypothetical gains that could be achieved for the
respective Options if exercised at the end of the ten-year option term.
These gains are based on assumed rates of share appreciation of 5% and 10%
compounded annually from the date the respective Options were granted to
their expiration date. The assumed annual rates of share appreciation are
specified by the Securities and Exchange Commission and are not intended
to forecast possible future appreciation of the Company's share price. The
actual value, if any, the executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised, so there is no assurance that the actual value realized will be
at or near the potential realizable value as calculated above. Options
will have no actual value unless, and then only to the extent that, the
market price of the Common Stock appreciates from the grant date to the
exercise date.
(3) The provisions of the Option Grants specify several conditions to the
exercise of Options granted thereunder, including, among others: (i) such
Options become available for exercise (on a ratable basis) only after the
Company satisfies significant aggregate earnings' requirements over the
four-year period that commenced on October 1, 1997, or after certain
"cliff vesting" provisions take effect (see "Approval and Adoption of the
1997 Incentive and Performance Stock Option Plan"); (ii) in the event the
Optionee's employment by the Company and subsidiaries is terminated prior
to expiration of the four-year vesting period, only that portion of the
Options equal to the number of complete quarters of service over the four
year period divided by sixteen shall be vested; and (iii) a "negative
earnings provision" under the 1997 Option Plan will allow the Company to
repurchase shares of stock acquired through the exercise of Options in the
event that aggregate earnings of the Company fall below designated levels
after Options are exercised.
(4) The noted Optionees were granted Options on November 11, 1997, and the
other Optionees were granted Options on September 3, 1997.
POSSIBLE CONFLICTS OF INTEREST
The Board of Directors of the Company recommends that shareholders vote for the
approval and adoption of the 1997 Option Plan.
The Board of Directors approved the 1997 Option Plan, subject to shareholder
approval and adoption, on September 3, 1997. In view of the fact that they
would receive options under the 1997 Option Plan, both Mr. DeRoeck and Mr.
Thomajan abstained from voting as directors on the approval of the plan. With
Messrs. DeRoeck and Thomajan abstaining, the 1997 Option Plan was unanimously
approved by the other members of the Board of Directors, none of whom is
employed by the Company or any of its subsidiaries.
The Compensation Committee, which is composed of Messrs. Lawrence E. Tilton,
Alan M. Sager and Richard B. Curran, none of whom is employed by the Company or
any of its subsidiaries, also approved the 1997 Option Plan and awarded the
Option Grants described in this Proxy Statement by unanimous vote.
In considering the recommendations of the Board of Directors, shareholders of
the Company should be aware that certain members of management of the Company
and its subsidiaries, including Mr. DeRoeck, Chairman and Chief Executive
Officer of the Company, and Mr. Thomajan, President and Secretary of the
Company, have interests in the 1997 Option Plan that are different from, or in
addition to, the interests of the shareholders of the Company generally. The
Board of Directors of the Company was aware of these interests and considered
them, among other matters, in approving the 1997 Option Plan.
42
47
Approval and adoption of the 1997 Option Plan requires the approval of the
holders of a majority of the shares present and entitled to vote on the matter
at the Special Meeting, provided that the total votes cast on the matter
represent over 50% of the Common Stock entitled to vote on the matter.
CERTAIN TRANSACTIONS
LINE OF CREDIT
On September 15, 1997, NationsBank of Texas, N.A. ("Bank"), agreed to extend to
the Company a $5,000,000 line of credit ("Line of Credit") for the Company's
use in financing, to the extent the Company's funds are not sufficient, the
initial operations of Paladin, Barton Creek and Texas Capital, including the
financing of a pending transaction ("Pending Transaction"), in which Barton
Creek would be a participant, that is currently under review by management of
the Company. More particularly, in light of the Company's poor economic
performance over the years and the relatively small size and illiquidity of the
Company's assets, the Company was requested by the other party to the Pending
Transaction to demonstrate that the Company had immediate access to at least $5
million that could be committed by the Company, should the Company elect to
proceed with the business arrangements contemplated by the Pending Transaction.
In order for the Company to obtain the Line of Credit (and secure the favorable
interest rate in conjunction therewith described below), Walter A. DeRoeck,
Chairman and Chief Executive Officer of the Company, and Robert Thomajan,
President of the Company, have each personally guaranteed the performance of
the Company's obligations to the Bank under the Line of Credit.
The Line of Credit, which matures on September 15, 1998, calls for quarterly
interest payments to be made by the Company at the Bank's prime rate of
interest, less .5%, per annum. The Company's other bank debt, which is secured
by the receivables and inventory of Allen-Lewis Manufacturing Company, is
financed at an annual interest rate of 12%, which is 4% over the annual rate of
interest secured by the Company on the Line of Credit as a result of the
personal guaranties provided by Messrs. DeRoeck and Thomajan. As of November
12, 1997, the Company had not drawn down any funds under the Line of Credit.
Because of the guaranties provided by Messrs. DeRoeck and Thomajan, the Company
was not required to secure the performance of its obligations under the Line of
Credit by pledging as collateral any of its assets or other properties.
Under the terms of their respective guaranties, both Mr. DeRoeck and Mr.
Thomajan have agreed that, following the request of the Bank, they will not
demand or receive from the Company payment of any debt, now or at any time
hereafter owing by the Company to them, unless and until all of the Company's
obligations under the Line of Credit have been fully paid and performed.
In the event that either Mr. DeRoeck or Mr. Thomajan is required to make
payment to the Bank under the terms of their respective guaranties in
satisfaction of the Company's obligations under the Line of Credit, he would
have a right or cause of action against the Company for reimbursement of any
such amounts paid to the Bank. However, under the terms of their respective
guaranties, Mr. DeRoeck and Mr. Thomajan have waived any such right of
reimbursement from the Company until such time as all of the Company's
obligations to the Bank under the terms of the Line of Credit have been fully
paid and performed.
With the exception of the Options that have been awarded, subject to the
approval of the shareholders, to them under the 1997 Option Plan, neither Mr.
DeRoeck nor Mr. Thomajan has requested, nor has the Company agreed to the
payment of, any compensation or other remuneration to Mr. DeRoeck or Mr.
Thomajan in consideration of their agreement to guarantee the obligations of
the Company under the Line of Credit.
43
48
Mr. DeRoeck and Mr. Thomajan have advised the Company that, in the event the
shareholders of the Company do not approve and adopt the 1997 Option Plan prior
to March 31, 1998, they will reserve the right to withdraw their personal
guaranties. Should that occur, it is likely that the Bank would require
immediate payment of any amount that was then payable under the Line of Credit.
Alternatively, if the Company had not drawn down any funds under the Line of
Credit prior to the time at which Messrs. DeRoeck and Thomajan elected to
withdraw their guaranties, it is likely that the Bank would withdraw its
commitment to the Company to fund the Line of Credit.
END USER SOFTWARE LICENSE AGREEMENT
Paladin has entered into an End User Software License Agreement ("License
Agreement") with Lending Technologies, Inc. ("Lending Technologies"), pursuant
to which Lending Technologies has granted Paladin a nonexclusive, worldwide
license to use certain proprietary computer software, which is currently
identified as LendTech 2000TM ("LT2KTM"). The LT2KTM software, upon completion
of final testing and development, will be used by Paladin to automate and
streamline the loan origination process, from application entry to the closing
of the loan, by integrating state-of-the-art technologies in application
processing and distributed communications. The terms of the License Agreement
require Paladin to pay a monthly royalty fee to Lending Technologies equal to
0.5% of the original principal balance of all loans closed and funded by
Paladin through the use of the LT2KTM software.
Richard F. Watkins, Chairman, President and Chief Executive Officer of Texas
Capital Markets, Inc., and Jorge Sauri, Executive Vice President of Paladin
Financial, Inc., collectively own 49% of the outstanding shares of capital
stock of Lending Technologies. As a result of their ownership interest in
Lending Technologies, Messrs. Watkins and Sauri will indirectly benefit from
the royalty fees paid to Lending Technologies by Paladin.
Although Lending Technologies is bound by the License Agreement, except as
noted below, for a period of four years, Paladin may terminate the License
Agreement at any time during its term, at no additional cost to Paladin.
Lending Technologies has reserved the right to terminate the License Agreement
if the shareholders of the Company do not approve and adopt the 1997 Option
Plan on or before March 31, 1998.
CHANGE IN CONTROL
On April 19, 1997, Mr. DeRoeck and Mr. Thomajan commenced the solicitation of
proxies ("Proxy Solicitation") with the view to collecting the necessary number
of votes to elect themselves to the Board of Directors of the Company in
opposition to the election of the incumbent directors, Ed R.L. Wroe, Jr., age
72, and William E. Callahan, age 79, nominated by management of the Company.
Previously, in November 1996, Mr. DeRoeck: (i) advised the Company that he was
nominating himself and Mr. Thomajan for election to the Board of Directors;
(ii) proposed a resolution ("Proposal") for presentation at the 1997 Annual
Meeting of Shareholders of the Company, which resolution, if adopted by the
shareholders, would have resulted in the amendment and restatement of Section
3.02 of the bylaws of the Company, with the effect of eliminating staggered
terms for directors elected after its approval; (iii) advised the Company that
Mr. DeRoeck intended to appear at the Annual Meeting of Shareholders in person
or by proxy to submit the Proposal to the shareholders; and (iv) notified the
Company that he intended to engage in a Proxy Solicitation in support of his
nominees for election to the Board of Directors and the adoption of the
Proposal.
The Company sought to omit the Proposal from its proxy materials on various,
primarily technical, grounds and requested that the staff of the Securities and
Exchange Commission recommend to the Commission that no enforcement action be
taken against the Company if the Proposal was so omitted. Mr. DeRoeck filed a
response urging that the Commission deny the Company's request if the Proposal
were omitted from the Company's proxy statement. Following an exchange of
correspondence, the staff of the Commission notified the Company that the
44
49
Commission did not believe that the Proposal, as modified by Mr. DeRoeck, could
be omitted from the Company's proxy materials.
Mr. DeRoeck was then advised by the Company that the Board of Directors had
approved an amendment to the Company's bylaws, the effect of which was to
eliminate staggered terms for directors who are elected or appointed at or
after the Annual Meeting.
The 1997 Annual Meeting of Shareholders of the Company was held on May 7, 1997,
for the purpose of electing two members of the Board of Directors of the
Company and approving the appointment of Coopers & Lybrand L.L.P. as
independent auditors for TCC. The Annual Meeting was adjourned to May 23, 1997,
in order to allow the independent inspector of election appointed by the
Company an opportunity to tabulate votes cast at the Annual Meeting.
On May 23, 1997, at the reconvened Annual Meeting of Shareholders, management
of the Company reported the final tabulation of the independent inspector of
election and announced the election of Messrs. DeRoeck and Thomajan to the
Board of Directors and the appointment of Coopers & Lybrand L.L.P. as
independent auditors.
At the first meeting of the Board of Directors of the Company held subsequent
to the Annual Meeting of Shareholders, which was held on July 2, 1997, Mr.
DeRoeck was elected Chairman and Chief Executive Officer of the Company,
replacing Lawrence W. Schumann, who had resigned from those positions. In
addition, Mr. Thomajan was elected to office as Secretary of the Company, to
replace Frank W. Denius, who had resigned from that office. The Board of
Directors also approved a resolution to expand the size of the Board of
Directors by two seats and to add an advisory director to the Board.
Additionally, the Board of Directors agreed to waive provisions of the
Company's Shareholders Rights Plan to allow for Mr. DeRoeck and Mr. Thomajan
and their affiliates to acquire up to 20% of the outstanding shares of Common
Stock of the Company.
On July 11, 1997, Mr. DeRoeck acquired 71,000 shares of Common Stock, and
Chamois Family Partnership, Ltd. ("Chamois"), a family limited partnership of
which Mr. Thomajan is the sole general partner, acquired 71,000 shares of
Common Stock, from Mr. Schumann. Mr. DeRoeck and Chamois paid $2.26 per share
for such shares, which equaled the average closing price for the Common Stock
for the 15-day trading period immediately preceding. The aggregate of 142,000
shares of Common Stock acquired from Mr. Schumann represented all of the shares
of Common Stock of the Company deemed to be beneficially owned by Mr. Schumann,
after giving effect to the cancellation of employee stock options previously
granted to Mr. Schumann by the Company.
Mr. Schumann resigned, effective July 11, 1997, as a director and as the
President of the Company, as well as the positions held by him with the
Company's subsidiaries. The Company paid Mr. Schumann the sum of $288,481.92 in
satisfaction of the Company's obligations under Mr. Schumann's severance
agreement with the Company, and agreed to cause the ownership of the Company's
term life insurance policy on the life of Mr. Schumann to be transferred to
him. As part of the foregoing severance arrangements, Mr. Schumann was retained
as a consultant with the Company to perform certain transition services in
consideration of the payment to Mr. Schumann of $10,000 per month. The
Company's consulting arrangements with Mr. Schumann terminated on September 3,
1997.
In addition, on July 11, 1997, Lawrence E. Tilton, Alan M. Sager and Richard B.
Curran were elected to the Board of Directors of the Company to fill the
vacancies created by the increase in the number of directors from six to eight
directors, and to fill the vacancy created by the resignation of Mr. Schumann
as a director of the Company. The three new directors were recommended for
election to the board by a special Nominating Committee composed of Mr.
DeRoeck, Mr. Thomajan and Mr. Denius. Mr. Curran was elected to fill Mr.
Schumann's vacancy and, as a result, his term will not expire until the Annual
Meeting of Shareholders to be held in 1999. The other two directors, who were
elected to fill the vacancies created by the increase in the number of
directors, will serve until the Annual Meeting of Shareholders to be held in
1998.
45
50
On August 25, 1997, Chamois purchased an additional 41,500 shares of Common
Stock in a privately negotiated transaction for $2.25 per share.
On September 3, 1997, the Board of Directors announced the earlier resignations
of W. Grogan Lord, age 82, Frank W. Denius, age 72, and J. Patrick Kaine, age
71, as members of the Board of Directors of the Company.
Robert D. Starnes, who had previously been named as an advisory director, was
elected to the Board of Directors of the Company to fill the vacancy created by
the resignation of Mr. Lord. Mr. Starnes' term of office will expire at the
time of the Annual Meeting of Shareholders to be held in 1998. Mr. Starnes was
recommended for election to the Board of Directors by Mr. DeRoeck and Mr.
Thomajan.
As a result of the acquisition by Mr. DeRoeck and Chamois of the 142,000 shares
of Common Stock from Mr. Schumann, and the subsequent purchase of 41,500 shares
of Common Stock by Chamois (thereby increasing their combined ownership of the
Company's Common Stock, when taken together with the shares of Common Stock
owned individually by Mr. Thomajan, to approximately 16.4% of the shares of
Common Stock issued and outstanding), the election of Mr. DeRoeck as Chairman
and Chief Executive Officer of the Company, the election of Mr. Thomajan as
President of the Company, the resignation of Messrs. Schumann, Lord, Denius and
Kaine as directors of the Company, and the election of four new directors
recommended by Messrs. DeRoeck and Thomajan, Messrs. DeRoeck and Thomajan may
be deemed to have acquired control of the Company.
SECURITY OWNERSHIP OF THE COMPANY
The following table sets forth information believed by the Company to be
accurate as of November 7, 1997 (except as noted below), respecting the
beneficial ownership of Common Stock of (a) each beneficial owner of more than
5% of the outstanding shares of Common Stock, (b) each director of the Company,
(c) each executive officer of the Company and its principal subsidiaries, and
(d) all directors of the Company and all executive officers of the Company and
its principal subsidiaries, as a group. The following table also sets forth
information respecting the anticipated beneficial ownership of Common Stock of
each of such persons and such group, pro forma - after giving effect to the
issuance of 6,000,000 shares of Common Stock upon the exercise of all of the
Options granted under the 1997 Option Plan.
Pro Forma - After Giving Effect to
Issuance of 6,000,000 Shares of
Common Stock Upon
Exercise of the Options Granted
Under the 1997 Option Plan
----------------------------------
Number of Approximate Number of Approximate
Name and Address of Beneficial Owner Shares Percent of Class Shares Percent of Class
- ------------------------------------ --------- ---------------- ---------- ------------------
Walter A. DeRoeck (1)(2) 254,900 9.17% 1,754,900 19.99%
816 Congress Avenue, Suite 1250
Austin, Texas 78701
Robert Thomajan (1)(3) 200,800 7.23% 1,700,800 19.37%
816 Congress Avenue, Suite 1250
Austin, Texas 78701
Dimensional Fund Advisors Inc.(4) 159,300 5.73% 159,300 1.81%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Richard B. Curran (5) 816 Congress Avenue 38,000 1.37% 38,000 *
Suite 1100 Austin, Texas 78701
46
51
Pro Forma - After Giving Effect to
Issuance of 6,000,000 Shares of
Common Stock Upon
Exercise of the Options Granted
Under the 1997 Option Plan
----------------------------------
Number of Approximate Number of Approximate
Name and Address of Beneficial Owner Shares Percent of Class Shares Percent of Class
- ------------------------------------ --------- ---------------- ---------- ------------------
Lawrence E. Tilton (6) 5,000 * 5,000 *
3103 Above Stratford Place
Austin, Texas 78746
Alan M. Sager (7) 11,000 * 11,000 *
7801 North Lamar Boulevard
Austin, Texas 78752
Robert D. Starnes (8) 816 Congress Avenue, -- -- -- --
Suite 1400 Austin, Texas 78701
Larry T. Marek (9) 25,000 * 25,000 *
5601 Logan Street
Denver, Colorado 80216
Richard F. Watkins (10) -- -- 1,615,000 18.40%
1714 Fortview Road, Suite 103
Austin, Texas 78704
Robert L. Riviere (11) -- -- 650,000 7.40%
1301 Capital of Texas
Highway South, Suite B125
Austin, Texas 78746
Gregory J. Figaro (12) -- -- 150,000 1.71%
1301 Capital of Texas
Highway South, Suite B125
Austin, Texas 78746
John R. Slais (13) -- -- 150,000 1.71%
1301 Capital of Texas
Highway South, Suite B125
Austin, Texas 78746
Jorge Sauri (14) -- -- 100,000 1.14%
1714 Fortview Road, Suite 103
Austin, Texas 78704
Charles R. Peissel (15) 500 * 70,000 *
1714 Fortview Road, Suite 103
Austin, Texas 78746
Patrick M. Kelly (16) -- -- 70,000 *
1714 Fortview Road, Suite 103
Austin, Texas 78704
Stuart M. Thomajan (17) -- -- 50,000 *
1301 Capital of Texas Highway South,
Suite B125
Austin, Texas 78746
47
52
Pro Forma - After Giving Effect to
Issuance of 6,000,000 Shares of
Common Stock Upon
Exercise of the Options Granted
Under the 1997 Option Plan
----------------------------------
Number of Approximate Number of Approximate
Name and Address of Beneficial Owner Shares Percent of Class Shares Percent of Class
- ------------------------------------ --------- ---------------- ---------- ------------------
Wayne A. Pike (18) -- -- 30,000 *
1714 Fortview Road, Suite 103
Austin, Texas 78704
All Directors and Executive Officers as a 535,200 19.26% 6,419,700 73.13%
Group (19) (16 persons)
- ------------------------
* Less than 1%
(1) Mr. DeRoeck, Mr. Thomajan and Chamois Family Partnership, Ltd. ("Chamois")
have jointly filed a Schedule 13D with the Securities and Exchange
Commission, wherein they stated that they had formed a group for the
purpose of acquiring shares of the Common Stock of the Company. As a
group, Mr. DeRoeck, Mr. Thomajan and Chamois own beneficially a total of
455,700 shares of Common Stock, representing approximately 16.4% of the
shares of Common Stock issued and outstanding. However: (a) Mr. DeRoeck
disclaims any beneficial ownership in the shares of Common Stock owned by
Mr. Thomajan and Chamois; (b) Mr. Thomajan and Chamois disclaim any
beneficial ownership in the shares of Common Stock owned by Mr. DeRoeck;
and (c) Chamois disclaims any beneficial ownership in the shares of Common
Stock owned by Mr. Thomajan.
(2) Mr. DeRoeck also has an option to acquire 4,000 shares of Common Stock
under the Company's 1995 Non-Employee Directors Stock Option Plan and,
subject to shareholder approval, an option to acquire an additional
1,500,000 shares of Common Stock under the Company's 1997 Option Plan. The
options issued under the 1995 Non-Employee Directors Stock Option Plan and
1997 Option Plan have not vested and are subject to forfeiture in
accordance with the respective terms of such plans.
(3) Of the shares of Common Stock indicated opposite Mr. Thomajan's name,
88,300 shares are held of record and owned beneficially by Mr. Thomajan,
and 112,500 shares are held of record by Chamois Family Partnership, Ltd.,
which is a Texas limited partnership formed for the purpose of acquiring
and holding assets for the benefit of Mr. Thomajan and members of Mr.
Thomajan's family. Mr. Thomajan serves as the sole general partner of
Chamois. While Chamois holds the shares of Common Stock indicated for the
benefit of both Mr. Thomajan and members of his family, Mr. Thomajan, as
the sole general partner of Chamois, has the sole power to vote or to
direct the vote of and the sole power to dispose or direct the disposition
of such shares of Common Stock. Consequently, Mr. Thomajan may be deemed
to be the beneficial owner of all of the shares of Common Stock held by
Chamois. Mr. Thomajan also has an option to acquire 4,000 shares of Common
Stock under the Company's 1995 Non-Employee Directors Stock Option Plan
and, subject to shareholder approval, an option to acquire an additional
1,500,000 shares of Common Stock under the Company's 1997 Option Plan. The
options issued under the 1995 Non-Employee Directors Stock Option Plan and
the 1997 Option Plan have not vested and are subject to forfeiture in
accordance with the respective terms of such plans.
(4) Dimensional Fund Advisors Inc., a registered investment advisor
("Dimensional"), has advised the Company that Dimensional is deemed to
have beneficial ownership of 159,300 shares of Common Stock as of
September 30, 1997, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment
company, or in series of The DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participating Group Trust,
investment vehicles for qualified employee benefit plans, for all of which
Dimensional serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
48
53
(5) Mr. Curran also has an option to acquire 4,000 shares of Common Stock
under the Company's 1995 Non-Employee Directors Stock Option Plan, which
option has not vested and is subject to forfeiture under the provisions of
such plan.
(6) Mr. Tilton also has an option to acquire 4,000 shares of Common Stock
under the Company's 1995 Non-Employee Directors Stock Option Plan, which
option has not vested and is subject to forfeiture under the provisions of
such plan.
(7) Of the shares of Common Stock indicated opposite Mr. Sager's name, 7,000
shares are held of record by The Alan Sager Consulting Pension Trust, the
investments of which are directed by Mr. Sager, and 4,000 shares are held
of record by the Sager Family Limited Partnership, with respect to which
Mr. Sager serves as one of the general partners. Mr. Sager also has an
option to acquire 4,000 shares of Common Stock under the Company's 1995
Non-Employee Directors Stock Option Plan, which option has not vested and
is subject to forfeiture under the provisions of such plan.
(8) Mr. Starnes has an option to acquire 4,000 shares of Common Stock under
the Company's 1995 Non-Employee Directors Stock Option Plan, which option
has not vested and is subject to forfeiture under the provisions of such
plan.
(9) Mr. Marek also has an option to acquire 30,000 shares of Common Stock
under the Company's 1985 Option Plan, 20,000 shares of which are vested
and subject to exercise.
(10) Mr. Watkins has an option, subject to shareholder approval, to acquire
1,615,000 shares of Common Stock under the Company's 1997 Option Plan. The
options issued under the 1997 Option Plan have not vested and are subject
to forfeiture in accordance with the terms of such plan.
(11) Mr. Riviere has an option, subject to shareholder approval, to acquire
650,000 shares of Common Stock under the 1997 Option Plan, which option
has not vested and is subject to forfeiture under the provisions of such
plan.
(12) Mr. Figaro has an option, subject to shareholder approval, to acquire
150,000 shares of Common Stock under the 1997 Option Plan, which option
has not vested and is subject to forfeiture under the provisions of such
plan.
(13) Mr. Slais has an option, subject to shareholder approval, to acquire
150,000 shares of Common Stock under the 1997 Option Plan, which option
has not vested and is subject to forfeiture under the provisions of such
plan.
(14) Mr. Sauri has an option, subject to shareholder approval, to acquire
100,000 shares of Common Stock under the 1997 Option Plan, which option
has not vested and is subject to forfeiture under the provisions of such
plan.
(15) Mr. Peissel also has an option, subject to shareholder approval, to
acquire 70,000 shares of Common Stock under the 1997 Option Plan, which
option has not vested and is subject to forfeiture under the provisions of
such plan.
(16) Mr. Kelly has an option to acquire 70,000 shares of Common Stock under the
1997 Option Plan, which option has not vested and is subject to forfeiture
under the provisions of such plan.
(17) As a limited partner in Chamois Family Partnership, Ltd., Stuart Thomajan
may be entitled to receive certain shares of Common Stock held of record
by Chamois upon the distribution of such shares by Chamois to its general
and limited partners. However, because he does not have any power to vote
or to
49
54
direct the vote of and no power to dispose or direct the disposition of
such shares of Common Stock, Stuart Thomajan is not treated as a
beneficial owner of such shares for the purpose of the foregoing table.
Mr. Thomajan has an option to acquire 50,000 shares of Common Stock under
the 1997 Option Plan, which option has not vested and is subject to
forfeiture under the provisions of such plan.
(18) Mr. Pike has an option to acquire 30,000 shares of Common Stock under the
1997 Option Plan, which option has not vested and is subject to forfeiture
under the provisions of such plan.
(19) The number of shares of Common Stock indicated as held by all directors
and executive officers as a group includes the shares of Common Stock held
of record by Chamois Family Partnership, Ltd.
In addition to the options described in the foregoing table and the footnotes
thereto, Options covering an additional 115,000 shares of Common Stock have
been issued, subject to the approval and adoption of the 1997 Option Plan by
the shareholders of the Company, to various other employees of Paladin, Barton
Creek and Texas Capital under the terms of such plan. Included among such
Options is an Option covering 5,000 shares of Common Stock that has been issued
to Walter Brian DeRoeck. Mr. DeRoeck is an Assistant Vice President of Texas
Capital Markets, Inc. and the son of Walter A. DeRoeck, Chairman and Chief
Executive Officer of the Company.
DILUTION
As of November 7, 1997, there were 2,778,615 shares of Common Stock issued and
outstanding, of which approximately 16.4% were owned beneficially by Mr.
DeRoeck and Mr. Thomajan, and approximately 2.9% of which were owned
beneficially by the other directors of the Company and the other executive
officers of the Company and its principal subsidiaries. See "Security Ownership
of the Company."
If the shareholders of the Company approve and adopt the 1997 Option Plan, and
if the 6,000,000 shares of Common Stock (the maximum number of shares issuable
under the 1997 Option Plan, subject to the adjustments described therein) are
issued under the 1997 Option Plan to the persons and in the amounts described
herein (excluding any other shares of Common Stock that may be issued under the
Company's other option plans or otherwise upon the determination of the Board
of Directors), 8,778,615 shares of Common Stock will then be outstanding, of
which approximately 39.3% will then be owned beneficially by Mr. DeRoeck and
Mr. Thomajan, and approximately 33.9% of which will then be owned beneficially
by the other directors of the Company and the other executive officers of the
Company and its principal subsidiaries, or their respective permitted assigns.
See "Security Ownership of the Company."
However, in order for any shares of Common Stock to be issued under the 1997
Option Plan, the Company will be required to realize, over the four-year period
that commenced on October 1, 1997 and ends on September 30, 2001, at least $5
million in aggregate cumulative earnings. Moreover, in order for the full
6,000,000 shares of Common Stock to be issued under the 1997 Option Plan, the
Company will be required to realize, over the foregoing four-year period, at
least $60 million in aggregate cumulative earnings. In any case, all shares of
Common Stock issuable under the 1997 Option Plan will vest at the end of nine
years under the cliff vesting provisions of the plan. See "Approval and
Adoption of the 1997 Incentive and Performance Stock Option Plan."
The Company has reported losses from continuing operations in six of the last
ten fiscal years, including the last three years in succession, and has
continued to report losses during the first nine months of 1997. Viewed
retrospectively and using the same definition of aggregate cumulative earnings
as is employed in the 1997 Option Plan, the Company experienced an aggregate
cumulative loss of $4.4 million during the last three and three-quarter years.
The Company has not accumulated more than $60 million in aggregate cumulative
earnings since the date it commenced business in 1958. To the contrary, since
the Company commenced business it has reported a cumulative loss of over $19
million. See "The Company."
50
55
SHAREHOLDER PROPOSALS
Any shareholder proposals to be considered for inclusion in proxy materials for
the 1998 Annual Meeting of Shareholders of the Company must be received at the
principal executive offices of the Company no later than November 23, 1997.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no matters that
will be presented for consideration at the Special Meeting other than as
described in this Proxy Statement. If any other matters shall properly come
before the meeting or any adjournments or postponements thereof and be voted
upon, the enclosed proxies will be deemed to confer discretionary authority on
the individuals named as proxies therein to vote the shares represented by such
proxies as to any such matters. The persons named as proxies intend to vote or
not to vote in accordance with the recommendation of the management of the
Company.
51
56
APPENDIX A
TCC INDUSTRIES, INC.
1997 INCENTIVE AND PERFORMANCE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Incentive
and Performance Stock Option Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to the Employees of the Company and to promote the success of the
Company's business. Options granted hereunder may be either "incentive stock
options", as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, or "non-statutory stock options", at the discretion of the Board and
as reflected in the terms of the written option agreement.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(b) "Common Stock" shall mean the $1.00 Par Value Common
Stock of the Company.
(c) "Company" shall mean TCC Industries, Inc., a Texas
corporation and its affiliates.
(d) "Committee" shall mean the Compensation Committee of
the Company appointed by the Board of Directors in accordance with
paragraph (a) of Section 4 of the Plan.
(e) "Continuous Status as an Employee" shall mean the
absence of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted
in the case of sick leave, military leave, any other leave of absence
approved by the Board, or if such leave is for a period of not more
than 90 days or if reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(f) "Employee" shall mean any person, including officers
and directors, employed by the Company or any Parent or Subsidiary of
the Company. The payment of a director's fee by the Company shall not
be sufficient to constitute "employment" by the Company.
(g) "Incentive Stock Option" shall mean an Option
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code.
57
(h) "Non-statutory Stock Option" shall mean an Option
that is not intended to qualify as an Incentive Stock Option.
(i) "Option" shall mean a stock option granted pursuant
to the Plan.
(j) "Option Grant" shall mean the Performance Stock
Option Agreement, Incentive Stock Option Agreement or other agreement
entered into by the Company and the Optionee specifying the terms of
the Option.
(k) "Option Price" shall mean the price for which the
Optioned Stock may be purchased upon the exercise of an Option.
(l) "Optioned Stock" shall mean the Common Stock subject
to an Option.
(m) "Optionee" shall mean an Employee who receives an
Option.
(n) "Parent" shall mean a "parent corporation", whether
now or hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" shall mean this 1997 Incentive and Performance
Stock Option Plan.
(p) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 12 hereof.
(q) "Subsidiary" shall mean a subsidiary corporation,
whether now or hereafter existing, as defined in Section 424(f) of the
Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 6,000,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares which were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the
Committee which is appointed by the Board of Directors of the Company.
The Committee consists of not less than two members of the Board of
Directors who are not also employees or officers of the Company or a
Subsidiary to administer the Plan on behalf of the Board of Directors,
subject to such terms and conditions as the Board of Directors may
prescribe. The Committee shall continue to serve until otherwise
directed by the Board of Directors. From time to time the Board of
Directors may increase the size of the Committee and appoint
additional members therefor, remove members (with or without cause)
and
58
appoint new members in substitution thereof, fill vacancies however
caused, or remove all members of the Committee and thereafter directly
administer the Plan. Members of the Committee who are either eligible
for Options or have been granted Options may vote on any matters
affecting the administration of the Plan or the grant of any Options
pursuant to the Plan, except that no such member shall act upon the
granting of an Option to himself, but any such member may be counted
in determining the existence of a quorum at any meeting of the
Committee during which action is taken with respect to the granting of
Options to him.
(b) Powers of the Committee. Subject to the provisions of
the Plan, the Committee shall have the authority, in its discretion:
(i) to grant Incentive Stock Options, in accordance with Section 422
of the Code, or Non-statutory Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(b)
hereof, the fair market value of the Common Stock; (iii) to determine
the exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 8(a) hereof; (iv)
to determine the Employees to whom, and the time or times at which,
Options shall be granted and the number of shares to be represented by
each Option; (v) to interpret the Plan; (vi) to prescribe, amend and
rescind rules and regulations relating to the Plan; (vii) to determine
the terms and provisions of each Option granted; (viii) to accelerate
or defer (with the consent of the Optionee) the exercise date of any
Option, consistent with the provisions of Section 5 hereof; (ix) to
authorize any person to execute on behalf of the Company the Option
Grant and any instrument required to effectuate the grant of an Option
previously granted by the Board; and (x) to make all other
determinations deemed necessary or advisable for the administration of
the Plan.
(c) Effect of the Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
binding on all Optionees and any other holders of any Options granted
under the Plan.
5. Eligibility.
(a) Options may be granted only to Employees. An Employee
who has been granted an Option may, if he is otherwise eligible, be
granted an additional Option or Options.
(b) No Employee may be granted Options to acquire more
than 1,800,000 shares of Common Stock during the term of the Plan;
provided, that adjustments in the number of shares covered by Options
may be made under Section 12 of the Plan or under any similar
provision set forth in an applicable Option Grant.
(c) No Incentive Stock Option may be granted to an
Employee which, when aggregated with all other Incentive Stock Options
granted to such Employee, would result
3
59
in shares of Common Stock having an aggregate fair market value
(determined for each Share as of the date of grant of the Option
covering such Share) in excess of $100,000 becoming first available
for purchase upon exercise during any calendar year.
(d) Section 5(b) shall apply only to an Incentive Stock
Option evidenced by an "Incentive Stock Option Agreement" which sets
forth the intention of the Company and the Optionee that such Option
shall qualify as an Incentive Stock Option. Section 5(b) shall not
apply to any Option evidenced by a "Non-statutory Stock Option
Agreement" which sets forth the intention of the Company and the
Optionee that such Option shall be a Non-statutory Stock Option.
(e) The Plan and the Option Grant shall not confer upon
any Optionee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate his
or her employment or consulting relationship at any time.
6. Term of Plan. The Plan shall become effective upon the
adoption by the Board of Directors, subject to approval by the shareholders of
the Company as described in Section 19. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 15; provided, however,
any Option Grant made during the term of the Plan may continue in full force
and effect after the date of such termination.
7. Term of Option. The term of each Incentive Stock Option shall
be ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option Grant. The term of each Non-statutory Stock Option
shall be ten (10) years from the date of grant thereof or such shorter term as
may be provided in the Option Grant. However, in the case of an Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than Ten Percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, if the Option is an Incentive Stock
Option, the term of the Option shall be five (5) years from the date of grant
thereof or such shorter time as may be provided in the Option Grant.
8. Exercise Price and Consideration.
(a) The Option Price per Share for Shares to be issued
pursuant to the exercise of an Option shall be such price as is
determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at
the time of the grant of such Incentive Stock
Option, owns stock representing more than Ten
Percent (10%) of the voting power of all
classes of stock of the Company or any Parent
or Subsidiary, the per Share
4
60
exercise price shall be no less than One
Hundred Ten Percent (110%) of the fair market
value per Share on the date of grant; and
(B) granted to any Employee, the
per Share exercise price shall be no less
than One Hundred Percent (100%) of the fair
market value per Share on the date of grant.
(ii) In the case of a Non-statutory Stock Option
granted to any person, the per Share exercise
price shall be not less than One Hundred
Percent (100%) of the fair market value per
Share on the date of the grant.
(b) The fair market value of a Share shall be determined
by the Board in its discretion; provided, however, that where there is
a public market for the Common Stock, the fair market value per Share
shall be no less than the closing price of the Common Stock on the
date of grant, as reported in the New York Stock Exchange Composite
Transactions Reporting System as reported in The Wall Street Journal
(or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation System) or, in
the event the Common Stock is listed on a stock exchange other than
the New York Stock Exchange, the fair market value per Share shall be
no less than the closing price on such exchange on the date of grant
of the Option, as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of cash,
check, promissory note, Shares of Common Stock or Options having a
fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be
exercised, or any combination of such methods of payment, or such
other consideration and method of payment for the issuance of Shares
to the extent permitted under relevant portions of Delaware law, if
applicable.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Committee, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan. Except with regard to
those specific provisions herein applicable to Incentive Stock
Options, the provisions set forth herein may be modified under the
terms of any specific Option Grants.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Option by the person
5
61
entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c).
Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of
the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(b) Termination of Status as an Employee. Except as
otherwise provided herein or as may be provided in an Option Grant, in
the event an Optionee ceases to serve as an Employee for any reason
Optionee may (unless its Option shall have previously expired pursuant
to the provisions hereof) exercise its Option at any time before the
first to occur of (i) the expiration of the original Option period, or
(ii) three (3) months, to the extent of the number of Shares subject
to such Option which are purchasable by Optionee on the date of
termination of employment. Any Options not exercised before such time
shall terminate.
(c) Disability of Optionee. Notwithstanding the
provisions of Section 9(b) above, in the event an Employee is unable
to continue his or her employment or consulting relationship (as the
case may be) with the Company as a result of his or her permanent and
total disability (as defined in Section 22(e)(3) of the Code or in any
applicable Employment Agreement), he or she may, but only within six
(6) months (or such other period of time not exceeding twelve (12)
months as is determined by the Board at the time of grant of the
Option) from the date of termination of employment, exercise his or
her Option to the extent he or she was entitled to exercise it at the
date of such termination. To the extent that he or she was not
entitled to exercise the Option at the date of termination of
employment, or if he or she does not exercise such Option (which he or
she was entitled to exercise) within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee during the term of the Option who is at the time of death an
Employee of the Company and who shall have been in Continuous Status
as an Employee since the date of grant of the Option, the Option may
be exercised, at any time within fifteen (15) months following the
date of death, by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that had accrued at the date of
death.
6
62
10. Transferability of Stock Options. No Incentive Stock Option
may be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution and may
be exercised, during the lifetime of the Optionee, only by the Optionee.
Non-statutory Stock Options may be transferred, subject to restrictions on
transferability, if any, set forth in applicable Option Grants.
11. Limitations on Grants to Ten Percent (10%) Shareholders. An
Incentive Stock Option may be granted under the Plan to an Employee possessing
more than Ten Percent (10%) of the total combined voting power of all classes
of stock of the Company or of any parent or Subsidiary of the Company only if
the exercise price is at least One Hundred Ten Percent (110%) of the fair
market value of the Common Stock subject to the Option on the date it is
granted.
12. Adjustments Upon Changes in Capitalization or Merger. Subject
to any required action by the shareholders of the Company and the terms of any
Option Grant, the number of shares of Common Stock covered by each outstanding
Option, and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company.
13. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Employee to whom an Option is so granted within a reasonable time after
the date of such grant.
14. Performance-based Plan. The purpose of the Plan is to
provide compensation in the form of Options to the officers and Employees of
the Company and the Subsidiaries based upon certain specific performance goals
established by the Committee and relating to performance objectives of the
Company. This performance-based compensation is intended to be treated as such
under Section 162(m) of the Code and the Regulations thereunder.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may
deem advisable; provided that, with respect to Incentive Stock
Options, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section
19 hereof:
7
63
(i) any increase in the number of Shares subject
to the Plan, other than in connection with an adjustment under
Section 12 of the Plan;
(ii) any change in the designation of the class of
employees eligible to be granted Incentive Stock Options; or
(iii) if the Company has a class of equity security
registered under Section 12 of the Exchange Act at the time of
such revision or amendment, any material increase in the
benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 15(a) is made subsequent to the
first registration of any class of equity security by the Company
under Section 12 of the Exchange Act, such shareholder approval shall
be solicited as described in Section 19.
(c) Other Options; Effect of Amendment or Termination.
Provisions of the Plan applicable to Non- statutory Stock Options may
be amended by the Board, subject to limitations and requirements of
applicable law. Any amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full
force and effect as if this Plan had not be amended or terminated,
unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares may not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased for investment and without
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any provision of
law.
17. Reservation of Shares. The Company, during the term of this
Plan, shall at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect
8
64
of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Option Grants. Options shall be evidenced by Option Grants
and other written option agreements in such form as the Board shall approve.
19. Shareholder Approval of the Plan. Continuance of the Plan
shall be subject to approval by the shareholders of the Company within twelve
(12) months after the date the Plan is adopted. If such shareholder approval
is obtained at a duly held shareholders' meeting, it may be obtained by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company, such holders being present or represented and entitled to vote
thereon. The approval of such shareholders of the Company shall be (a)
solicited substantially in accordance with Section 14(a) of the Exchange Act
and the rules and regulations promulgated thereunder, or (b) solicited after
the Company has furnished in writing to the holders entitled to vote
substantially the same information concerning the Plan as that which would be
required by the rules and regulations in effect under Section 14(a) of the
Exchange Act at the time such information is furnished. In the event, for any
reason, shareholder approval is not obtained within the twelve (12) month
period, the Company shall be relieved of any liability in respect of the
failure to issue Shares or otherwise honor the terms of the Stock Grants.
20. Conversion of Incentive Stock Options. In the event for any
reason any Incentive Stock Option does not qualify for treatment as such under
the Code for any reason (a) all such Incentive Stock Options issued under the
Plan shall be converted to Non-statutory Stock Options and as such shall be
subject to the provisions of the Plan applicable to Non-statutory Stock Options
and (b) the Board may amend or modify the terms of any Option Grant necessary
to treat such Options as Non-statutory Stock Options.
21. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is
limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
9
65
APPENDIX B
PERFORMANCE STOCK OPTION GRANT
THIS PERFORMANCE STOCK OPTION GRANT (the "Agreement") is made and
entered into on September 3, 1997 effective as of October 1, 1997 (the
"Effective Date"), by and between TCC Industries, Inc. a Texas corporation (the
"Company"), and ____________________ (the "Optionee").
R E C I T A L S:
A. The Company considers it desirable to motivate, reward and retain
officers and key employees of the Company and its direct or indirect
Subsidiaries.
B. The Company has adopted that certain 1997 Incentive and
Performance Stock Option Plan (the "1997 Option Plan") pursuant to which this
Agreement is entered into.
C. The Company considers it desirable to give the Optionee an added
incentive to advance the Company's and its Subsidiaries' interests.
D. The Company has determined to grant the Optionee the right to
purchase certain stock of the Company pursuant to the terms and conditions of
this Agreement.
E. Concurrently with the grant to the Optionee hereunder, the
Company is granting to other employees of the Company and Subsidiaries
(individually, the "Other Optionee" and, collectively, the "Other Optionees")
options containing similar terms and conditions (collectively, the "Other
Performance Options").
A G R E E M E N T:
NOW, THEREFORE, in consideration of the covenants hereinafter set forth,
the parties hereto agree as follows:
1. Option; Maximum Number of Shares; Price. In accordance with the terms
and subject to the conditions set forth herein, the Company hereby grants to
the Optionee the right (the "Option") to purchase up to a maximum of [________]
shares (the "Shares") of the common stock, $1.00 par value per share (the
"Common Stock"), of the Company at a purchase price (the "Option Price") equal
to the greater of (a) $3.04 per share or (b) the per share fair market value of
the Common Stock on the date of the meeting of the shareholders of the Company
to approve the 1997 Option Plan based on the average value of a share of Common
Stock for the ten (10) trading days immediately prior to such meeting, using
the reported closing price of the Common Stock as reported in the New York
Stock Exchange Composite Transactions Reporting System, to be paid in
accordance with Section 13 or 14 hereof. It is intended that the Option will
not qualify for treatment as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Vesting and Exercisability. The Option shall vest and become
exercisable for that number of Shares determined pursuant to the following
provisions:
(a) Vesting. In the event of the termination of the Optionee's
employment with the Company (or a Subsidiary of the Company) pursuant to
that certain Employment Agreement dated October 1, 1997 between the
Company and the Optionee (the "Employment Agreement") due to voluntary
termination by the Optionee, the Optionee's death, disability,
termination for good reason, or termination for cause under Section 6.3
(a), (b) or (c) of the Employment Agreement, the Option shall vest for
the number of Shares determined by multiplying the number of Shares, if
any, that have become exercisable pursuant to the
B-1
66
provisions of clause (b) below as of the date of the Optionee's
termination of employment as specified herein, by a fraction (not to be
more than one), the numerator of which shall be the total number of
quarterly periods, each consisting of three (3) complete calendar
months, commencing on the Effective Date that the Optionee shall have
been employed with the Company (or a Subsidiary of the Company) prior to
the termination of employment and the denominator of which shall be
sixteen (16) subject, however to the provisions regarding restricted
stock, repurchase, redemption and for forfeiture contained herein.
(b) Exercisability. Except as provided in clause (c) below, the
Option shall be exercisable only for the number of Shares set forth in
this clause (b). Within forty-five (45) days following each Measurement
Date the Company shall determine the Aggregate Cumulative Earnings that
shall have been realized by the Company from the commencement of the
Measurement Period through such Measurement Date. From and after the
Measurement Date on which the Company shall have realized Aggregate
Cumulative Earnings during the Measurement Period equal to or exceeding
Five Million Dollars ($5,000,000), the Option shall become exercisable
ratably for the number of Shares determined as follows:
If the Aggregate Cumulative Earnings Realized by Then the Number of Shares that shall Vest and
the Company During the Measurement Period Is: Become Exercisable Ratably Under the Option Is:
------------------------------------------------ -----------------------------------------------
At least $5,000,000 but less than $10,000,000 [8.33% to 16.67%]
At least $10,000,000 but less than $15,000,000 [16.67% to 26.67%]
At least $15,000,000 but less than $20,000,000 [26.67% to 33.33%]
At least $20,000,000 but less than $25,000,000 [33.33% to 41.67%]
At least $25,000,000 but less than $30,000,000 [41.67% to 50.00%]
At least $30,000,000 but less than $35,000,000 [50.00% to 58.33%]
At least $35,000,000 but less than $40,000,000 [58.33% to 66.67%]
At least $40,000,000 but less than $45,000,000 [66.67% to 75.00%]
At least $45,000,000 but less than $50,000,000 [75.00% to 83.33%]
At least $50,000,000 but less than $55,000,000 [83.33% to 91.67%]
At least $55,000,000 but less than $60,000,000 [91.67% to 100.00%]
$60,000,000 or more [100.00%]
If, as of September 30, 2001, any Optionee has exercised an Option for
shares of Common Stock in excess of the number of shares of Common Stock
which could be acquired by the Optionee pursuant to the above table (as
a result of losses incurred by the Company following periods of earnings
and the exercise of Options thereupon), such shares in excess of those
subject to exercise on such date (the "Earnings Adjustment Shares") may
be repurchased from the Optionee by the Company. The Earnings Adjustment
Shares shall be purchased by the Company at the Option Price to the
extent the market value of such shares is greater than the Option Price.
(c) Cliff Vesting. Provided the Optionee is at the time an employee
of the Company (or a Subsidiary of the Company), the Option shall become
exercisable for the full number of Shares issuable thereunder on
September 30, 2006.
(d) Restricted Stock. For the period prior to October 1, 2001 and
provided that the Optionee is an employee of the Company (or a
Subsidiary of the Company) at the time the Option becomes exercisable
B-2
67
under clause (b) above, the Option may be exercised to the extent
permitted under clause (b) above, provided that any Shares acquired at
such exercise shall be subject to forfeiture as provided herein and in
Section 3 below.
(e) Termination for Cause. Notwithstanding any of the foregoing in
the event the Optionee is terminated by the Company (or a Subsidiary of
the Company) for cause, as defined in Section 6.3 (d), (e) or (f) of the
Employment Agreement, at any time before October 1, 2001, no portion of
the Option shall be vested and all Shares acquired by such Optionee
under clause (b) above shall be subject to forfeiture as if the
Employment Termination occurred within the first twelve (12) month
period following the Effective Date, as provided in Section 3 below.
3. Forfeiture of Shares; Restricted Stock. In the event the Optionee
terminates employment with the Company (or any Subsidiary of the Company) prior
to the expiration of the four-year period ("Stock Restriction Period") that
shall commence on the Effective Date (the "Employment Termination"), then all
or some of the Shares acquired under the Option will be forfeited as follows:
(a) if the Employment Termination occurs at any time within the first
twelve-month period following the Effective Date, any shares of Common
Stock that shall have been purchased under the Option prior to the
expiration of the Stock Restriction Period may be redeemed, at the
option of the Company, in accordance with the provisions of this
Section;
(b) if the Employment Termination occurs at any time within the
second twelve-month period following the Effective Date, Seventy-five
Percent (75%) of the shares of Common Stock that shall have been
purchased under the Option prior to the expiration of the Stock
Restriction Period may be redeemed, at the option of the Company, in
accordance with the provisions of this Section;
(c) if the Employment Termination occurs at any time within the third
twelve-month period following the Effective Date, Fifty Percent (50%) of
the shares of Common Stock that shall have been purchased under the
Option prior to the expiration of the Stock Restriction Period may be
redeemed, at the option of the Company, in accordance with the
provisions of this Section; and
(d) if the Employment Termination occurs at any time within the
fourth twelve-month period following the Effective Date, 25% of the
shares of Common Stock that shall have been purchased under the Option
prior to the expiration of the Stock Restriction Period may be redeemed,
at the option of the Company, in accordance with the provisions of this
Section.
In the event that the Company elects to redeem any shares of Common Stock
pursuant to the provisions hereof, the Company shall give written notice of its
election to the Optionee within thirty (30) days after the Employment
Termination. Any shares of Common Stock purchased by the Company pursuant to
the provisions of this Section shall be purchased by the Company for an amount
equal to the Option Price that shall have been paid therefor by the Optionee.
Any purchase and sale of shares of Common Stock pursuant to this Section shall
be concluded at the principal executive offices of the Company at such time and
on such date as shall be reasonably selected by the Company and communicated in
writing to the Optionee, at which time the Company shall deliver, by wire
transfer of immediately available funds, to the Optionee or his designee the
total purchase price for said shares of Common Stock, against delivery by the
Optionee of certificates representing said shares of Common Stock, duly
endorsed by the Optionee and in proper form for transfer. During the Stock
Restriction Period, the Company shall cause any certificates evidencing the
shares of Common Stock issued upon the exercise of the Option to reflect a
restrictive legend describing the redemption provisions set forth in this
Section and shall cause the Company's registrar and stock transfer agent to
impose and enforce stop transfer instructions relative to the sale or transfer
of said shares of Common Stock consistent with the requirements of this
Section.
B-3
68
4. Expiration of Option; Termination of Agreement. The Option set forth
herein shall expire and, except as set forth in Section 11(j), below, this
Agreement shall terminate at 5:00 p.m., Austin, Texas time on September 30,
2007.
5. Adjustment of Option Price and Shares of Common Stock Issuable Upon
Exercise of Option. The Option Price and shares of Common Stock issuable upon
exercise of the Option shall be subject to adjustment from time to time as
follows:
(a) Common Stock Dividends, Subdivisions and Combinations. In case
at any time after the date of this Agreement the Company shall (i) pay a
dividend, or make a distribution, on the outstanding shares of Common
Stock in shares of Common Stock (other than a dividend or distribution
upon a merger or consolidation to which Section 6 applies), (ii) effect
a subdivision of its outstanding shares of Common Stock into a larger
number of shares of Common Stock (other than a subdivision upon a merger
or consolidation to which Section 6 applies), or (iii) effect a
combination of its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, then, and in each such case (other
than a combination upon a merger or consolidation to which Section 6
applies), (A) in the case of any such dividend or distribution,
immediately after the opening of business on the day after the date for
the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (B) in the case of any such
subdivision or combination, immediately after the opening of business on
the day after the day upon which such subdivision or combination becomes
effective, the number of shares of Common Stock covered by the Option
shall be adjusted so that the Optionee shall be entitled to receive,
upon the exercise thereof, the number of shares of Common Stock
determined by (y) in the case of any such dividend or distribution,
multiplying the number of shares of Common Stock covered by the Option
at the opening of business on the day after such date for determination
by a fraction (not to be less than one), (i) the numerator of which
shall be equal to the sum of the number of shares of Common Stock
outstanding at the close of business on such date for determination and
the total number of shares constituting such dividend or distribution
and (ii) the denominator of which shall be equal to the number of shares
of Common Stock outstanding at the close of business on such date for
determination, or (z) in the case of any such combination, by
proportionately reducing, or, in the case of any such subdivision, by
proportionately increasing, the number of shares of Common Stock covered
by the Option at the opening of business on the day after the date upon
which such subdivision or combination becomes effective.
(b) Issuance of Common Stock, Rights, Options or Warrants. In case
at any time after the date of this Agreement the Company shall issue
rights, options or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a price per
share less than the Current Market Price per share of Common Stock on
the date for the determination of holders of shares of Common Stock
entitled to receive such rights, options or warrants (other than an
issuance of such rights, options or warrants upon a merger or
consolidation to which Section 6 applies), then, and in each such case,
immediately prior to the opening of business on the day after such date
for determination, the number of shares of Common Stock covered by the
Option shall be adjusted so that the Optionee shall be entitled to
receive, upon the exercise of the Option, the number of shares of Common
Stock determined by multiplying the number of shares of Common Stock
covered by the Option at the opening of business on the day after such
date for determination by a fraction (not to be less than one), (i) the
numerator of which shall be equal to the sum of (A) the number of shares
of Common Stock outstanding at the close of business on such date for
determination and (B) the number of shares of Common Stock so offered
for subscription or purchase and (ii) the denominator of which shall be
equal to the sum of (A) the number of shares of Common Stock outstanding
at the close of business on such date for determination and (B) the
number of shares of Common Stock that the aggregate of the offering
price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such Current Market Price.
(c) Non-Cash Distribution. In case at any time after the date of this
Agreement the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares
B-4
69
of any class of capital stock, cash or assets (including securities, but
excluding (i) any dividend or distribution upon a merger or
consolidation to which Section 6 applies or referred to in Section 5(a),
(ii) any rights, warrants or options referred to in Section 5(b) and
(iii) any dividend or distribution paid exclusively in cash), then, and
each such case, immediately after the close of business on the date for
the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, the number of shares of Common
Stock covered by the Option shall be adjusted so that the Optionee shall
be entitled to receive, upon the exercise of the Option, the number of
shares of Common Stock determined by multiplying the number of shares of
Common Stock covered by the Option immediately prior to the close of
business on such date for determination by a fraction (not to be less
than one), (y) the numerator of which shall be equal to the Current
Market Price per share of Common Stock on such date for determination
and (z) the denominator of which shall be equal to such Current Market
Price per share of Common Stock less the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a board resolution) on such date for
determination of the portion of the evidences of its indebtedness,
shares of any class of capital stock, cash and assets so distributed
applicable to one share of Common Stock.
(d) Cash Dividend. In case at any time after the date of this
Agreement the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any cash that is distributed
upon a merger or consolidation to which Section 6 applies or as part of
a distribution referred to in Section 5(c) or any Received Cash
Dividend) in an aggregate amount that, combined together with (i) the
aggregate amount of any other distributions to all holders of its Common
Stock made exclusively in cash (other than any Received Cash Dividend)
within the twelve (12) months preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to this
Section 5(d) has been made, and (ii) the aggregate of any cash plus the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a board resolution)
of any other consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common
Stock concluded within the twelve (12) months preceding the date of
payment of such distribution and in respect of which no adjustment
pursuant to Section 5(e) has been made, exceeds 12.5% of the product of
the Current Market Price per share of the Common Stock on the date for
the determination of holders of shares of Common Stock entitled to
receive such distribution times the number of shares of Common Stock
outstanding on such date, then, and in each such case, immediately after
the close of business on such date for determination, the number of
shares of Common Stock covered by the Option shall be adjusted so that
the Optionee shall be entitled to purchase, upon the exercise of the
Option, the number of shares of Common Stock determined by multiplying
the number of shares of Common Stock covered by the Option immediately
prior to the close of business on such date for determination by a
fraction (not to be less than one), (I) the numerator of which shall be
equal to the Current Market Price per share of the Common Stock on such
date for determination, and (II) the denominator of which shall be equal
to the Current Market Price per share of the Common Stock on such date
for determination less an amount equal to the quotient obtained by
dividing (y) the excess of such combined amount over such 12.5%, by (z)
the number of shares of Common Stock outstanding on such date for
determination. Any provision contained in this Section 5(d) to the
contrary notwithstanding, any Shares that shall have vested and shall
have become exercisable immediately prior to the close of business on
the date for determination of holders of shares of Common Stock entitled
to receive the cash distribution described herein, and as to which
Shares a Received Cash Dividend shall have been paid pursuant to the
provisions of Section 16 hereof, shall be excluded from the calculations
that shall give rise to the adjustments described herein.
(e) Self-Tender Offer. In case at any time after the date of this
Agreement a tender offer made by the Company or any of its Subsidiaries
for all or any portion of the Common Stock shall expire and such tender
offer (as amended upon the expiration thereof) shall require the payment
to holders (based on the acceptance (up to any maximum specified in the
term of the tender offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and
described in a board resolution) that, combined together with
B-5
70
(i) the aggregate of the cash plus the fair market value (as determined
by the Board of Directors, whose determination shall be conclusive and
described in a board resolution), as of the expiration of such tender
offer, of consideration payable in respect of any other tender offer by
the Company or any of its Subsidiaries for all or any portion of the
Common Stock expiring within the 12 months preceding the expiration of
such tender offer and in respect of which no adjustment pursuant to this
Section 5(e) has been made and (ii) the aggregate amount of any
distributions to all holders of the Company's Common Stock made
exclusively in cash (other than any Received Cash Dividend) within 12
months preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to Section 5(d) has been made, exceed 12.5%
of the product of the Current Market Price per share of the Common Stock
on the last time ("Expiration Time") tenders could have been made
pursuant to such tender offer (as it may be amended) times the number of
shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time, then, and in each such case, immediately prior to
the opening of business on the day after the date of the Expiration
Time, the number of shares of Common Stock covered by the Option shall
be adjusted so that the Optionee shall be entitled to purchase, upon the
exercise of the Option, the number of shares of Common Stock determined
by multiplying the number of shares of Common Stock covered by the
Option immediately prior to close of business on the date of the
Expiration Time by a fraction (not to be less than one), (y) the
numerator of which shall be equal to the product of (A) the Current
Market Price per share of the Common Stock on the date of the Expiration
Time and (B) the number of shares of Common Stock outstanding (including
any tendered shares) on the Expiration Time less the number of all
shares validly tendered and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as
the "Purchased Shares") and (z) the denominator of which shall be equal
to (A) the product of (I) the Current Market Price per share of the
Common Stock on the date of the Expiration Time and (II) the number of
shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time less (B) the fair market value (determined as
aforesaid) of the aggregate consideration payable to shareholders based
on the acceptance (up to any maximum specified in the terms of the
tender offer) of Purchased Shares.
(f) Reclassifications. The reclassification of Common Stock into
securities other than Common Stock (other than any reclassification upon
a consolidation or merger to which Section 6 applies) shall be deemed to
involve (i) a distribution of such securities other than Common Stock to
all holders of Common Stock (and the effective date of such
reclassification shall be deemed to be "the date for the determination
of holders of shares of Common Stock entitled to receive such dividend
or distribution" and "such date for determination" within the meaning of
Section 5(c)), and (ii) a subdivision or combination, as the case may
be, of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number of shares of Common Stock
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such
subdivision or combination becomes effective" within the meaning of
Section 5(a)).
(g) Fractional Interests. In computing adjustments under this Section
5, fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share, rounding up to such fractional
interest.
(h) Tax Adjustment. The Company may at its option, at any time during
the term of this Agreement, increase the number of shares of Common
Stock into which the Option is exercisable, in addition to those
required by paragraphs (a), (b), (c), (d) and (e) of this Section, as
deemed advisable by the Board of Directors of the Company, in order that
any event treated for Federal income tax purposes as a dividend of stock
or stock rights shall not be taxable to the Optionee.
(i) Option Deemed Exercisable. For purposes solely of this Section 5,
the number of shares of Common Stock which the Optionee would have been
entitled to receive had the Option been exercised in full at any time
shall be determined assuming the Option was exercisable in full at such
time, although the Option may not be exercisable in full at such time
pursuant to the provisions of Section 2.
B-6
71
(j) Option Price Adjustment. Whenever the number of shares of Common
Stock receivable upon exercise of the Option is adjusted as provided in
this Section 5, the Option Price payable upon exercise of the Option
shall be adjusted by multiplying such Option Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the
number of shares of Common Stock covered by the Option immediately prior
to such adjustment, and the denominator of which shall be the number of
shares of Common Stock covered by the Option immediately thereafter.
6. Exchange Combination.
(a) Substitution of Property. In case of any Exchange Combination
the Company shall (or, in the case of any Non-Surviving Exchange
Combination, the Company shall cause the Acquirer to) execute and
deliver to the Optionee a written instrument providing that:
(i) the Option shall thereafter, during the period the Option
is exercisable as specified in Section 2, be exercisable, on such
terms and subject to such conditions as shall be as nearly
equivalent as may be practicable to the provisions set forth in
this Agreement, only into the kind and amount of securities, cash
and other property ("Substituted Property") that would have been
receivable upon such Exchange Combination by a holder of the
maximum number of shares of Common Stock that would have been
issued upon exercise of the Option if the Option had been
exercised in full immediately prior to such Exchange Combination,
assuming such holder of Common Stock (A) is not a Person with
which the Company consolidated or into which the Company merged
or which merged into the Company or to which such sale or
transfer was made, as the case may be ("Constituent Person"), or
an Affiliate of a Constituent Person, and (B) failed to exercise
his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such Exchange
Combination (provided that if the kind or amount of securities,
cash and other property receivable upon such Exchange Combination
is not the same for each share of Common Stock held immediately
prior to such Exchange Combination by other than a Constituent
Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised ("non-electing
share"), then, for the purposes of this Section 6, the kind and
amount of securities, cash and other property receivable upon
such Exchange Combination by the holders of a plurality of the
non-electing shares shall be the kind and amount of securities,
cash and other property issuable to the Optionee under the
Option), and assuming that the Option was exercisable at the time
of such Exchange Combination into the maximum number of shares of
Common Stock into which the Option is exercisable as specified in
Section 2, as adjusted from the date of this Agreement to such
time pursuant to Sections 5(a), 5(b), 5(c), 5(d) and 5(e); and
(ii) the rights and obligations of the Optionee in respect of
Substituted Property shall be as nearly equivalent as may be
practicable to the rights and obligations of the Company and
holders in respect of the shares of Common Stock into which the
Option is exercisable hereunder as set forth in Section 2 hereof
and elsewhere herein.
Such written instrument shall also set forth such financial goals or
targets, the satisfaction of which shall cause the Option to vest and
become exercisable, as shall be as nearly equivalent as may be
practicable to the target Aggregate Cumulative Earnings amounts set
forth in clause (d) of Section 2, above. Such written instrument shall
also provide for adjustments which, for events subsequent to the
effective date of such written instrument, shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Agreement.
The above provisions of this Section 6 shall similarly apply to
successive Exchange Combinations.
B-7
72
(b) Compliance. Compliance with this Section 6 shall be a condition
to the consummation of any Exchange Combination referred to above, and
the Company shall comply with and cause any other person that is a party
to such Exchange Combination to comply with this Section 6.
7. Certain Definitions. For all purposes of this Agreement, the following
terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person other than the Company,
any of the Company's Subsidiaries, any employee benefit plan of the
Company or of a Subsidiary or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a
Subsidiary.
(b) "Aggregate Cumulative Earnings" shall mean, with respect to or as
of a particular Measurement Date, the aggregate Earnings recorded by the
Company for each of the Measurement Quarters ending on and preceding
such Measurement Date.
(c) "Closing Price" on any Trading Day means the last reported sales
price regular way or, in case no such reported sale takes place on such
Trading Day, the average of the reported closing bid and asked prices
regular way, in either case on the New York Stock Exchange or, if the
Common Stock is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, on The Nasdaq National Market or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on The Nasdaq National Market, the average
of the closing bid and asked prices in the over-the-counter market in
the United States as furnished by any New York Stock Exchange member
firm that is selected from time to time by the Company for that purpose
and is reasonably acceptable to the Optionee.
(d) "Common Stock" shall include any stock of any class of the
Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which is not subject to
redemption (other than pursuant to the provisions of Section 3 of this
Agreement and the Other Performance Options) by the Company. However,
subject to the provisions of Sections 5 and 6, above, shares purchasable
on exercise of the Option shall include only shares of the class
designated as Common Stock, par value $1.00 per share, of the Company at
the date of this Agreement or shares of any class or classes resulting
from any reclassification or reclassifications thereof and which have no
preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption (other than pursuant
to the provisions of Section 3 of this Agreement and the Other
Performance Options) by the Company.
(e) "Current Market Price" per share of Common Stock on any date
means:
(i) if on such date the Common Stock is listed or admitted to
trading on any national securities exchange or quoted on The
Nasdaq National Market or otherwise traded in the over-the-
counter market in the United States:
(A) for the purpose of any computation under this
Agreement (except under Section 5(e)), the average of the
daily Closing Prices for the five (5) consecutive Trading
Days selected by the Company commencing not more than
Twenty (20) Trading Days before, and ending not later
than, the earlier of (y) the date in question and (z) the
day before the "ex" date for the issuance or distribution
requiring such computation; provided, however, that if the
"ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an
adjustment pursuant to Section 5(a), 5(b), 5(c), 5(d) or
5(e) occurs on or after the 20th Trading Day prior to the
day in question and prior to the "ex"
B-8
73
date for the issuance or distribution requiring such
computation, the Closing Price for each Trading Day prior
to the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the same fraction by
which the Option Price is required to be adjusted pursuant
to Section 5(j) as a result of such other event; or
(B) for the purpose of any computation under Section
5(e), the average of the daily Closing Prices for the five
consecutive Trading Days selected by the Company
commencing on or after the latest ("Commencement Date") of
(i) the date 20 Trading Days before the date in question,
(ii) the date of commencement of the tender offer
requiring such computation and (iii) the date of the last
amendment, if any, of such tender offer involving a change
in the maximum number of shares for which tenders are
sought or a change in the consideration offered, and
ending not later than the Expiration Time of such tender
offer; provided, however, that if the "ex" date for any
event (other than the tender offer requiring such
computation) that requires an adjustment pursuant to
Section 5(a), 5(b), 5(c), 5(d) or 5(e) occurs on or after
the Commencement Date and prior to the Expiration Time for
the tender offer requiring such computation, the Closing
Price for each Trading Day prior to the "ex" date for such
other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the Option Price is
required to be adjusted pursuant to Section 5(j) as a
result of such other event; or
(ii) if the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted on The Nasdaq
National Market or otherwise traded in the over-the-counter
market in the United States, the amount which a willing buyer
would pay a willing seller in an arm's length transaction on such
date (neither being under any compulsion to buy or sell) for one
share of Common Stock as determined as of such date, as set forth
in a value report (the "Current Market Price Report") by an
Independent Financial Expert (as defined below) selected by the
Company for such purpose in accordance with Section 10, below,
and using one or more valuation methods that such Independent
Financial Expert, in its best professional judgment, determines
to be most appropriate without giving effect to any discount for
any lack of liquidity of the Common Stock or to the fact that the
Company may have no class of equity securities registered under
the Exchange Act.
(f) "Earnings" shall mean the earnings of the Company and its
Subsidiaries, net of losses, if any, recorded on an after-tax,
consolidated basis as determined in accordance with generally accepted
accounting principles, consistently applied, all as reflected on the
Company's financial statements for the applicable Measurement Quarter;
provided, however, that in the event the Company records any
compensation expense in connection with the grant or exercise of the
Option, such expense shall not be deducted in calculating Earnings.
(g) "'ex' date" means (i) when used with respect to any issuance or
distribution, the first date on which the Common Stock trades regular
way on the relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such issuance or
distribution, (ii) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(iii) when used with respect to any tender offer, means the first date
on which the Common Stock trades regular way on such exchange or in such
market after the Expiration Time of such tender offer.
(h) "Exchange Combination" means any Surviving Exchange Combination
or Non-Surviving Exchange Combination.
B-9
74
(i) "Independent Financial Expert" shall mean such financial or
investment advisory firm or investment banking firm as shall be selected
by the Company that does not (and the directors, officers, employees,
affiliates or stockholders of which do not) have a material direct or
indirect interest in the Company or any of its Subsidiaries or
affiliates, and which, as determined by the Board of Directors of the
Company in its reasonable good faith judgment, (i) has not been within
the last three years, and, at the time it is called upon to give
independent financial advice to the Company, is not (and none of the
directors, officers, employees, affiliates or stockholders of which is)
a promoter, director or officer of the Company or any of its
Subsidiaries or affiliates and (ii) does not provide any advice or
opinions to the Company, except as an independent financial or
investment expert or as an independent investment bank (in any case, for
which it may be compensated without compromising its independence).
(j) "Measurement Date" shall mean March 31, June 30, September 30 and
December 31 of each year within the Measurement Period; provided,
however, that the first Measurement Date shall be December 31,1997.
(k) "Measurement Period" shall mean the period that shall commence on
October 1, 1997, and shall end on September 30, 2001.
(l) "Measurement Quarter" shall mean the fiscal quarter of the
Company; provided, however, that the first Measurement Quarter shall be
the fiscal quarter ending December 31, 1997.
(m) "Non-Surviving Exchange Combination" means any consolidation of
the Company with, or merger of the Company into, or sale or transfer of
all or substantially all of the assets of the Company to, any other
person (the "Acquirer").
(n) "Option Term" shall mean the period that shall commence on the
date of this Agreement and shall end on September 30, 2007, except as
provided in Section 4 hereof.
(o) "Person" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a trust or other entity. A Person, together
with that Person's Affiliates and Associates (as those terms are defined
in Rule 12b-2 under the Exchange Act), and any Persons acting as a
partnership, limited partnership, joint venture, association, syndicate
or other group (whether or not formally organized), or otherwise acting
jointly or in concert or in a coordinated or consciously parallel manner
(whether or not pursuant to any express agreement), for the purpose of
acquiring, holding, voting or disposing of Voting Securities of the
Company with such Person, shall be deemed a single "Person."
(p) "Subsidiary" shall mean any corporation or other entity of which
a majority of the voting power of the voting equity securities or equity
interests is owned, directly or indirectly, by the Company.
(q) "Surviving Exchange Combination" means any merger of another
person into the Company which results in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common
Stock.
(r) "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the
applicable securities exchange or in the applicable securities market.
(s) "Voting Securities" shall mean any securities that vote generally
in the election of directors or in the selection of any other similar
governing body.
B-10
75
8. Notice of Adjustment. Whenever the Option Price or the number of shares
of Common Stock issuable upon exercise of the Option is adjusted as herein
provided, the Company shall deliver to the Optionee a copy of a certificate
signed by an officer of the Company and certified by an independent nationally
recognized public accounting firm selected by the Board of Directors of the
Company (who may be the regular accountants employed by the Company) setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis
on which the Board of Directors of the Company determined any Current Market
Price of the Common Stock or the fair market value of any evidences of
indebtedness, shares of capital stock, or assets), and specifying the Option
Price and the number of shares of Common Stock issuable upon exercise of the
Option after giving effect to such adjustment. The Company shall promptly mail
a copy of such certificate to the Optionee.
9. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or
(ii) exclusively in cash in an amount that would require an adjustment
pursuant to Section 5(d);
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock of any classes or of any other rights (excluding
employee stock options);
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding shares of Common
Stock), or of any Exchange Combination;
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer for
all or a portion of the Company's outstanding shares of Common Stock (or
shall amend any such tender offer);
then the Company shall give the Optionee at least 20 days (or 10 days in any
case specified in clause (a), (b) or (e) above) prior to the applicable record,
effective or date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution or
granting of rights or warrants, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, (y) the date on which
such reclassification, Exchange Combination, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, Exchange Combination, dissolution, liquidation or
winding up, or (z) the date on which such tender offer commenced, the date on
which such tender offer is scheduled to expire unless extended, the
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto).
10. Current Market Price Report Procedures. If any event occurs which
requires an adjustment pursuant to Section 5(b), 5(c), 5(d) or 5(e) and the
determination in connection therewith of the Current Market Price per share of
Common Stock on any date pursuant to clause (ii) of Section 7(e), above, the
Company shall select an Independent Financial Expert for such purpose and
shall, subject to such confidentiality arrangements as are reasonably
satisfactory to the Company, provide to such Independent Financial Expert
information and data reasonably required for purposes of the valuation, and the
Company shall have the opportunity to comment on the proposed Current Market
Value and form of the Current Market Price Report. The Company may require the
Independent Financial Expert to submit a draft version of its Current Market
Price Report before the final such Current Market Price Report is delivered to
the Company, and the Company may provide comments on such draft to such
Independent Financial Expert for possible consideration in preparing the final
Current Market Price Report. If the Independent Financial Expert becomes aware
of any material changes after the valuation date, after
B-11
76
reasonable inquiry with respect thereto, in the business, financial condition
or prospects of the Company and its Subsidiaries, such Independent Financial
Expert shall specify such material changes in the Current Market Price Report;
provided, that, such changes shall not be taken into account in determining the
Current Market Price. As a result of any adjustment made pursuant to this
Section 10, the Current Market Price Report shall be deemed final unless
revised prior to the sixth day after the delivery of the Current Market Price
Report to the Company.
11. Registration Rights.
(a) Piggyback Registration Rights. If the Company at any time
proposes to register any of its Common Stock under the Securities Act of
1933, as amended ("Securities Act"), for sale to the public, whether for
its own account or for the account of other security holders or both
(except with respect to registration statements on Forms S-4 or S-8 or
another form not available for registering the Common Stock for sale to
the public or in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock options or other employee benefit
plans of the Company), it will give written notice to the Optionee of
its intention so to do, which notice shall include a list of the
jurisdictions in which the Company intends to attempt to qualify the
Common Stock under the applicable state securities laws. Upon the
written request of the Optionee, given within ten (10) days after
receipt of any such notice, to register any shares of Common Stock which
the Optionee has the right to acquire upon the exercise of the Option at
the time such notice was received, the Company will, subject to the
limitations and conditions contained herein, use its best efforts to
cause the Common Stock as to which registration shall have been so
requested (pro rata between the Optionee and the Other Optionees in a
ratio equal to the respective number of shares of Common Stock which
they have the right to acquire upon the exercise of the Option and the
Other Performance Options and which they have requested to be
registered, unless otherwise agreed) (which shall also be referred to in
this Section 11 as the "Covered Shares") to be included in the
securities to be covered by the registration statement proposed to be
filed by the Company, all to the extent requisite to permit the sale or
other disposition of said Covered Shares by the Optionee; provided,
however, that:
(i) the Optionees shall each have the right to request
inclusion of his Common Stock (and have such Common Stock
included) in two registration statements that are declared
effective by the Securities and Exchange Commission
("Commission");
(ii) if, at any time after giving such written notice of its
intention to register any securities and prior to the effective
date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such securities, the Company may, at its election, give
written notice of such determination to the Optionee and
thereupon the Company shall be relieved of its obligation to
register any Common Stock in connection with such registration;
and
(iii) if such registration involves an underwritten offering,
the Optionee must sell his Common Stock to the underwriters
selected by the Company on the same terms and conditions as apply
to the Company (except as otherwise set forth herein).
In the event Common Stock acquired through the exercise of the Option is
registered under this Section 11, such registered Common Stock shall be
released from all of the restrictions and other provisions of this
Agreement.
The number of Covered Shares to be included in such an offering may be
reduced if and to the extent that the managing underwriter, if any,
shall be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein (pro rata
between the Optionee and the Other Optionees in a ratio equal to the
respective amounts of Covered Shares held by each.) Notwithstanding
anything to the contrary contained in this Section 11, in the event that
there is an underwritten public offering of securities of the Company
pursuant to a registration covering Common Stock and the Optionee
B-12
77
does not elect to sell his Common Stock to the underwriters of the
Company's securities in connection with such offering, the Optionee
shall refrain from selling such Common Stock during the period of
distribution of the Company's securities by such underwriters, the
period in which the underwriting syndicate participates in the after
market and during any lock-up period requested by such underwriters;
provided, however, that the Optionee shall, in any event, be entitled to
sell his Common Stock commencing on the 180th day after the effective
date of such registration statement.
(b) Registration Procedures. If and whenever the Company is required
by the provisions of Section 11(a), above, to effect the registration of
any of the Covered Shares under the Securities Act, the Company will, as
expeditiously as possible:
(i) prepare and file with the Commission a registration
statement (which, in the case of an underwritten public offering
pursuant to Section 11(a), above, shall be on Form S-1 or other
form of general applicability satisfactory to the managing
underwriter) with respect to such securities and use its best
efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby
(determined as hereinafter provided);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
filed in connection therewith as may be necessary to keep such
registration statement effective for the period of distribution
and as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Common
Stock covered by such registration statement in accordance with
the sellers' intended method of disposition set forth in such
registration statement for such period;
(iii) furnish to the Optionee and each underwriter such number
of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as they
may reasonably request in order to facilitate the public sale or
other disposition of the Covered Shares covered by such
registration statement;
(iv) use its best efforts to register or qualify the Covered
Shares covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Optionee
or, in the case of an underwritten public offering, the managing
underwriter, shall reasonably request (provided that the Company
will not be required to (1) qualify generally to do business in
any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (2) subject itself to taxation
in any such jurisdiction or (3) consent to general service of
process in any such jurisdiction);
(v) promptly notify the Optionee and each underwriter, at any
time when a prospectus relating thereto is required to be
delivered under the Securities Act when it becomes aware of the
happening of any event as a result of which the prospectus
contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to
make the statements contained therein not misleading in light of
the circumstances then existing;
(vi) use its best efforts (if the offering is underwritten) to
furnish, at the request of the Optionee on the date that the
Covered Shares are delivered to the underwriters for sale
pursuant to such registration: (A) an opinion of counsel dated
such date representing the Company for the purposes of such
registration, addressed to the underwriters and in customary form
and covering such matters as are customarily covered by opinions
of counsel in similar registrations and as may be required in the
underwriting agreement relating thereto, as may reasonably be
requested by the underwriters or by the Optionee; and (B) a
comfort letter dated such date from the independent public
accountants retained by the Company, addressed to the
underwriters, in customary form
B-13
78
and covering such matters as are customarily covered by such
comfort letters in similar registrations and as may be required
in the underwriting agreement relating thereto, as such
underwriters or the Optionee may reasonably request; and
(vii) make available for inspection by the Optionee, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant, or other
agent retained by the Optionee or underwriter, all financial and
other records, pertinent corporate documents, and properties of
the Company, and cause the Company's officers, directors, and
employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant, or agent in
connection with such registration statement.
For purposes of paragraphs (i) and (ii) above, the period of
distribution of Covered Shares in an underwritten public offering shall
be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of
distribution of Covered Shares in any other registration shall be deemed
to extend until the earlier of the sale of all Covered Shares or 180
days after the effective date thereof.
In connection with each registration hereunder, the Optionee will
furnish to the Company in writing such information with respect to the
Optionee and the proposed distribution by him as shall be requested by
the Company in order to assure compliance with federal and applicable
state securities laws.
In connection with each registration covering an underwritten public
offering, the Company agrees to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form
and containing such provisions as are customary in the securities
business for such an arrangement between major underwriters and
companies of the Company's size and investment stature; provided that
such agreement shall not contain any such provision applicable to the
Company that is inconsistent with the provisions hereof and, further,
provided that the time and place of the closing under such agreement
shall be as mutually agreed upon between the Company and such managing
underwriter.
The Company will not be obligated to include any shares of Common Stock
owned by the Optionee if the Company delivers to the Optionee the
opinion of the Company's counsel to the effect that the requested
registration is not required to permit the proposed disposition or any
resale of such Common Stock without restrictions on transfer under the
Securities Act, which opinion may be furnished to and relied upon by any
broker through which the Optionee intends to sell shares of Common
Stock.
(c) Conditions to Obligation to Register Shares. The Company's
obligations under this Section 11 shall be subject to the following
limitations and conditions:
(i) Information. The Company shall have received from the
Optionee all such information as the Company may reasonably
request from the Optionee concerning the Optionee and his methods
of distribution of the shares of Common Stock to enable the
Company to include in the registration statement all material
facts required to be disclosed therein.
(ii) Notice Requirements. Any request by the Optionee pursuant
to this Agreement for registration of the offering, sale and
delivery of shares of Common Stock shall provide that the
Optionee (A) has a present intention to sell such shares; (B)
agrees to execute all consents, powers of attorneys and other
documents required in order to cause such registration statement
to become effective; (C) agrees, if the offering is at the
market, to give the Company written notice of the first bona fide
offering of such shares and to use the prospectus forming a part
of such registration statement only for a period of 90 days after
the effective date of the registration statement unless the
offering is pursuant to a continuous registration pursuant to
Rule 415 promulgated under the Securities Act; (D) subject to
adverse events regarding the selling price of the shares, agrees
to
B-14
79
utilize the proposed method of distribution of the shares; and
(E) agrees to promptly notify the Company and each underwriter,
if any, with regard to any registration statement, at any time
when it becomes aware of the happening of any event as a result
of which any prospectus contained in such registration statement
that has been provided to the Optionee includes an untrue
statement of a material fact regarding the Optionee or omits to
state a material fact regarding the Optionee required to be
stated therein or necessary to make the statements contained
therein regarding the Optionee not misleading in light of the
circumstances then existing.
(d) Distribution Arrangements. The Optionee agrees that, in
disposing of the Covered Shares in the registered public offering, he
will comply with Rules 10b-2, 10b-6 and 10b-7 and any other applicable
rules promulgated by the Commission under the Exchange Act.
(e) Expenses. All expenses incurred by the Company in complying with
a registration covering Common Stock, including, without limitation, all
registration, qualification, and filing fees, blue sky fees and
expenses, printing expenses, fees and disbursements of legal counsel and
independent public accountants for the Company, the reasonable fees and
expenses of one law firm serving as legal counsel for the Optionee and
the Other Optionees, fees of the National Association of Securities
Dealers, Inc., transfer taxes, escrow fees, fees of transfer agents and
registrars, and costs of insurance, but excluding any Selling Expenses,
are herein called "Registration Expenses." All underwriting discounts
and selling commissions applicable to the sale of Covered Shares are
herein called "Selling Expenses." The Company shall pay all
Registration Expenses in connection with any registration statement
filed pursuant to this Section 11. All Selling Expenses in connection
with any registration statement filed pursuant to this Section 11 shall
be borne by the Optionee and the Other Optionees in proportion to the
number of shares sold by each, or by such persons other than the Company
(except to the extent the Company shall be a seller), as they may agree.
(f) Registration Rights are Exclusive. The Optionee understands that
he has certain registration rights pursuant to this Agreement with
respect to shares of Common Stock covered by the Option, but other than
as specifically set forth in this Agreement, the Company has not
covenanted and is not obligated to furnish a registration statement
under the Securities Act covering any shares of Common Stock, to file a
notification under Regulation A promulgated under the Securities Act
with respect to shares of Common Stock, or to take any other action that
would make available an exemption from registration.
(g) No Requirement. In no event shall the Company be required to
amend any registration statement filed pursuant to this Agreement after
it has become effective or to amend or supplement any prospectus to
permit the continued disposition of shares of Common Stock registered
under any registration statement in either case beyond the period
initially contemplated therein.
(h) Indemnification. In the event of a registration of any of the
Covered Shares under the Securities Act, the Company shall indemnify and
hold harmless the Optionee thereunder and each underwriter and each
associate, if any, of the Optionee or underwriter, against any losses,
claims, damages, or liabilities, joint or several, to which the Optionee
or underwriter or associate thereof may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Covered
Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
any violation by the Company of any rule or regulation promulgated under
the Securities Act applicable to the Company and relating to action or
inaction by the Company in connection with any such registration, and
shall reimburse the Optionee, each underwriter and/or associate thereof
for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
B-15
80
liability, or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
conformity with information furnished by the Optionee, each underwriter
and/or associate thereof in writing specifically for use in such
registration statement or prospectus.
In the event of a registration of any of the Covered Shares under the
Securities Act, the Optionee will indemnify and hold harmless the
Company and its affiliates, if any, and each underwriter and each
associate of any underwriter against all losses, claims, damages or
liabilities, joint or several, to which the Company or such underwriter
or associate may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement under which such Covered Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, each
underwriter and/or associate thereof for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Optionee will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to the Optionee as such,
furnished in writing to the Company by the Optionee specifically for use
in such registration statement or prospectus; and provided further,
however, that the liability of the Optionee hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense
that is equal to the proportion that the public offering price of shares
sold by the Optionee under such registration statement bears to the
total public offering price of all securities sold thereunder, but not
to exceed the proceeds received by the Optionee from the sale of Common
Stock covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from
any liability it may have to any indemnified party other than under this
Section 11(h). In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake
the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11(h) for any legal expenses subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with
counsel so elected; provided, however that, if the defendants in any
such action include both the indemnified party and the indemnifying
party and if the interests of the indemnified party reasonably may be
deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select separate counsel and to
assume its defense and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the
indemnifying party as incurred. The indemnifying party will not be
subject to any settlement made without its consent, which consent shall
not be unreasonably withheld. The indemnifying party will pay to the
indemnified party all sums due hereunder within ten (10) days of a final
non-appealable judgment or pursuant to the terms of a settlement
agreement.
(i) Limitation on Subsequent Registration Rights. From and after the
date of this Agreement, without the prior written consent of holders of
a majority of the votes evidenced by the then outstanding voting
B-16
81
capital stock of the Company, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the
Company (nor shall the Company, in the absence of any such prior
agreement, permit any such holder or prospective holder) to include such
securities in any registration contemplated by this Agreement, other
than piggyback registration rights with terms which are less favorable
than those granted in this Agreement.
(j) Notwithstanding the provisions of Section 4, above, the
provisions of this Section 11 shall survive the termination of this
Agreement and shall continue until September 30, 2009, on which date
such provisions shall also terminate; provided, however, that if the
Company shall have registered any shares of Common Stock for the benefit
of the Optionee pursuant to the provisions of this Section 11, the
provisions of Section 11(h), above, shall survive any such termination
for the maximum period of time permitted by law.
12. Assignment. Neither this Agreement nor the Option set forth herein (nor
the rights or obligations of the Optionee hereunder or thereunder) may be sold,
pledged, assigned, hypothecated, transferred or otherwise disposed of by the
Optionee without the prior written approval of the Company, except: (a) by
will or the laws of descent or distribution; (b) by inter vivos transfer to a
trust established for the benefit of the Optionee or for the benefit of the
Optionee and his spouse or issue, with respect to which the Optionee shall
serve as the initial trustee; (c) by inter vivos transfer to a limited
partnership established for the benefit of the Optionee or for the benefit of
the Optionee and his spouse or issue, with respect to which the Optionee shall
serve as the initial general partner; or (d) by inter vivos transfer to a
foundation established by the Optionee for charitable purposes consistent with
the requirements of Section 501(c)(3) of the Code; provided, however, that in
the event of disability (within the meaning of Section 22(e)(3) of the Code) of
the Optionee, a designee of the Optionee may exercise the Option on behalf of
the Optionee (to the extent the Option would have been exercisable by the
Optionee). Any attempt to sell, pledge, assign, hypothecate, transfer or
otherwise dispose of the Option in contravention of this Agreement shall be
void and shall have no effect. If the Optionee should die prior to the
termination of this Agreement, the Optionee's legal representative, the
Optionee's legatee, the successor trustee of the Optionee's inter vivos trust,
the successor general partner of the Optionee's inter vivos limited partnership
or the trustee or president of the Optionee's inter vivos foundation, or any
other person who acquired the right to exercise the Option by reason of the
death or disability of the Optionee (individually, a "Successor") shall succeed
to the Optionee's rights under this Agreement. After the death of the Optionee,
only a Successor may exercise the Option. Any assignment or transfer of the
Option pursuant to the terms of the first sentence of this Section 12 is
referred to herein as a "Permitted Transfer." In the event of the death or
disability of the Optionee, the Optionee's successor or legal representative
may exercise the Option only to the extent permitted under Section 2(a) hereof.
Any Option to be transferred pursuant to a Permitted Transfer shall not be
effected unless the transferee executes a valid undertaking to the Company to
the effect that the Option so transferred shall thereafter remain subject to
all the provisions of this Agreement as though the transferee were a party to
this Agreement, bound in every respect in the same way as the Optionee.
13. Exercise of Option. Subject to the provisions of Sections 2 and 3,
above, and until expiration of the Option in accordance with Section 4 hereof,
the Option may be exercised, in whole or in part, by the Optionee (or such
other person specified in Section 12 hereof), upon delivery of the following to
the Company at its principal executive offices at any time prior to thirty (30)
days after termination of employment of the Optionee at the Company (or a
Subsidiary of the Company):
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares (which may not be less than 5,000, or all of
the Shares if less than 5,000 Shares then remain covered by the Option)
then being purchased;
(b) a check or cash in the amount of the Option Price;
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the taxable income,
B-17
82
if any, recognized by the Optionee in connection with the exercise, in
whole or in part, of the Option (unless the Company and the Optionee
shall have made other arrangements for deductions or withholding from
the Optionee's wages, bonus or other income paid to the Optionee by the
Company or any Subsidiary, provided such arrangements satisfy the
requirements of applicable tax laws); and
(d) a certificate, if requested by the Company pursuant to the third
sentence of Section 15 hereof, in such form and substance as the Company
may require, setting forth the investment intent of the Optionee, or a
Successor, as the case may be, and such other agreements and
representations as reasonably required by the Company.
Notwithstanding the foregoing, in the event the employment of the
Optionee is terminated by death or disability, as those terms are defined under
the Employment Agreement, the Company shall provide written notice to the
Optionee or to the representative of the Optionee's estate, as the case may be,
of its right to exercise the Option and the Optionee, or the estate of the
Optionee, shall have a period of twelve (12) months from the date of such
Option to deliver the items set forth in this Section 13.
14. Cashless Exercise. At the option of the Optionee, as consideration for
the payment specified in Section 13(b) above and subject to the limitations set
forth in this Section, the Optionee may from time-to-time convert the Option in
whole or in part into Shares that are then vested and have become exercisable
(and that shall not have been forfeited) by canceling all or a portion of the
Option, to the extent then vested, exercisable and not forfeited, which will
result in Option Value to apply as payment under Section 13(b) above. The
"Option Value" shall be equal to the aggregate Current Market Value of such
Shares minus the aggregate Exercise Price of such Shares. Upon exercise of this
cashless exercise right and cancellation of the Option Shares so converted, the
Option Value shall be applied against the Option Price. At the Option of the
Optionee, as consideration for the payment specified in Section 13(b) above and
subject to the limitations set forth in this Section, the Optionee may transfer
to the Company previously acquired Shares of Common Stock and shall be credited
as paying as consideration therefor an amount equal to the per Share fair
market value multiplied by the number of Shares so transferred. Notwithstanding
the foregoing, in the event the exercise of the cashless exercise right
pursuant to this Section has a material adverse effect on the Company's
financial condition or financial statements then such method of exercise shall
not be permitted.
15. Representations and Warranties of the Optionee. The Optionee represents
and warrants that the Option is being acquired by the Optionee in good faith
for the Optionee's personal account, for investment purposes only, and not with
a view to the distribution, resale or other disposition thereof. The Optionee
acknowledges that the Company may issue Shares upon the exercise of the Option
without registering such Common Stock under the Act, on the basis of certain
exemptions from such registration requirement. Accordingly, the Optionee agrees
that the Optionee's exercise of the Option may be expressly conditioned upon
the Optionee's delivery to the Company of an investment certificate including
such representations and undertakings as the Company may reasonably require in
order to assure the availability of such exemptions, including a representation
that the Optionee is acquiring the Shares for investment and not with a present
intention of selling or otherwise disposing of such Shares. The Optionee
acknowledges that, because Shares received upon exercise of an Option may be
unregistered, the Optionee may be required to hold the Shares indefinitely
unless they are subsequently registered for resale under the Act or an
exemption from such registration is available. The Optionee acknowledges
receipt of this Agreement granting the Option and understands that all rights
and liabilities connected with the Option are set forth herein.
16. No Rights as Shareholder. The Optionee shall have no rights as a
shareholder of any shares of Common Stock covered by the Option until the date
an entry evidencing such ownership is made in the stock transfer books of the
Company. Except as may be provided under Section 5 hereof, the Company will
make no adjustment for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to such date.
B-18
83
17. Restrictive Legends. The Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which the Optionee
resides may require the placement of certain restrictive legends upon the
Shares issued upon exercise of the Option, and the Optionee hereby consents to
the placing of any such legends upon certificates evidencing the Shares as the
Company, or its counsel, may reasonably deem necessary; provided, however, that
any such legend shall be removed when no longer applicable.
18. Notices. All notices, requests and other communications hereunder shall
be in writing, and shall be sent by certified mail, postage prepaid, return
receipt requested, or by generally recognized prepaid overnight or next
business day air courier service, addressed as follows, or sent by facsimile
transmission to the facsimile transmission numbers as follows:
If to the Company:
TCC Industries, Inc.
816 Congress Avenue
Suite 1250
Austin, Texas 78701
Attention: President
Facsimile No.:
--------------
If to the Optionee:
-------------------------
-------------------------
-------------------------
-------------------------
Facsimile No.:
--------------
Any notice, request or other communication given hereunder shall be deemed to
have been duly given (a) on the date sent by facsimile transmission (followed
by hard copy in accordance with clause (b) or (c) below); (b) on the next
business day following confirmed delivery to the courier if sent by overnight
or next business day courier service; and (c) two business days following
delivery to the post office if sent by certified mail. Any party may change
the address to which notices, requests or other communications given hereunder
are to be delivered by giving the other party written notice in the manner
herein set forth.
19. Not an Employment Agreement. Nothing contained in this Agreement shall
confer, intend to confer or imply any rights to employment or rights to
continued employment by the Company and/or any Subsidiary in favor of the
Optionee or limit the ability of the Company and/or any Subsidiary to
terminate, with or without cause, in its sole and absolute discretion, the
employment of the Optionee, subject to the terms of the Employment Agreement or
any written agreement to which the Optionee is a party.
20. Governing Law. This Agreement shall be construed under and governed by
the laws of the State of Texas without regard to the conflict of law provisions
thereof.
21. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which together shall be deemed
one Agreement.
22. Effect of the 1997 Option Plan; Shareholder Approval. This Agreement is
entered into pursuant to and subject to the terms of the 1997 Option Plan
adopted by, and subject to amendment by, the Company. The Option granted
hereunder shall be subject to, and governed under the terms of, the 1997 Option
Plan. The 1997 Option Plan and this Agreement are to be submitted to the
shareholders of the Company at a special meeting of the shareholders called for
the purpose of approving and adopting the 1997 Option Plan and grants
thereunder. In the event, for any
B-19
84
reason, the shareholders do not approve and adopt the 1997 Option Plan and
grants thereunder in accordance with the 1997 Option Plan, this Agreement shall
be terminated, and the Option hereunder shall be canceled.
23. Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, whether oral or
written, between the parties with respect to such subject matter.
24. Amendments. This Agreement cannot be amended, changed or modified or
any performance, term or condition waived in whole or in part except by a
writing executed by the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute a waiver of, any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.
25. Arbitration. In the event that any dispute, disagreement or controversy
(collectively, a "Dispute") arises with respect to the interpretation,
performance, non-performance or termination of this Agreement, the parties
shall first attempt to settle such Dispute by good faith negotiations between
the parties. If the Dispute is not resolved within 30 days of the date one
party sends a notice to the other party describing the Dispute and requesting
good faith negotiations to resolve the Dispute under this Section 25, the
Dispute shall be resolved by binding arbitration carried out in Austin, Texas
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association as then in effect. The party which intends to initiate an
arbitration proceeding hereunder shall notify the other party of such intention
in writing, describing the Dispute. Notwithstanding the above, in any Dispute
arbitrated hereunder, the fees and expenses of the arbitrator(s) and attorneys'
fees and costs of the party ultimately prevailing in such Dispute shall be
borne by the other party.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date first above written.
TCC INDUSTRIES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
-----------------------------------
[Name]
B-20
85
APPENDIX C
INCENTIVE STOCK OPTION GRANT
THIS INCENTIVE STOCK OPTION GRANT (the "Agreement") is made and
entered into on September 3, 1997 effective as of October 1, 1997 (the
"Effective Date"), by and between TCC Industries, Inc. a Texas corporation (the
"Company"), and ____________________ (the "Optionee").
R E C I T A L S:
A. The Company considers it desirable to motivate, reward and
retain officers and key employees of the Company and its direct or indirect
Subsidiaries.
B. The Company has adopted that certain 1997 Incentive and
Performance Stock Option Plan (the "1997 Option Plan") pursuant to which this
Agreement is entered into.
C. The Company considers it desirable to give the Optionee an
added incentive to advance the Company's and its Subsidiaries' interests.
D. The Company has determined to grant the Optionee the right to
purchase certain stock of the Company pursuant to the terms and conditions of
this Agreement.
E. Concurrently with the grant to the Optionee hereunder, the
Company is granting to other employees of the Company and Subsidiaries
(individually, the "Other Optionee" and, collectively, the "Other Optionees")
options containing similar terms and conditions (collectively, the "Other
Performance Options").
A G R E E M E N T:
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, the parties hereto agree as follows:
1. Option; Maximum Number of Shares; Price. In accordance with the terms
and subject to the conditions set forth herein, the Company hereby grants to
the Optionee the right (the "Option") to purchase up to a maximum of [____]
shares (the "Shares") of the common stock, $1.00 par value per share (the
"Common Stock"), of the Company at a purchase price (the "Option Price") equal
to the greater of (a) $3.04 per share or (b) the per share fair market value of
the Common Stock on the date of the meeting of the shareholders of the Company
to approve the 1997 Option Plan based on the average value of a share of Common
Stock for the ten (10) trading days immediately prior to such meeting, using
the reported closing price of the Common Stock as reported in the New York
Stock Exchange Composite Transactions Reporting System, to be paid in
accordance with Section 13 or 14 hereof. It is intended that the Option will
qualify for treatment as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Vesting and Exercisability. The Option shall vest and become
exercisable for that number of Shares determined pursuant to the following
provisions:
(a)Vesting. In the event of the termination of the Optionee's
employment with the Company (or a Subsidiary of the Company) pursuant
to that certain Employment Agreement dated October 1, 1997 between the
Company and the Optionee (the "Employment Agreement") due to voluntary
termination by the Optionee, the Optionee's death, disability,
termination for good reason, or termination for cause under Section
6.3 (a), (b) or (c) of the Employment Agreement, the Option shall vest
for the number of Shares determined by multiplying the number of
Shares, if any, that have become exercisable pursuant to the
C-1
86
provisions of clause (b) below as of the date of the Optionee's
termination of employment as specified herein, by a fraction (not to
be more than one), the numerator of which shall be the total number of
quarterly periods, each consisting of three (3) complete calendar
months, commencing on the Effective Date that the Optionee shall have
been employed with the Company (or a Subsidiary of the Company) prior
to the termination of employment and the denominator of which shall be
sixteen (16) subject, however, to the provisions regarding restricted
stock, repurchase, redemption and forfeiture contained herein.
(b)Exercisability. Except as provided in clause (c) below, the Option
shall be exercisable only for the number of Shares set forth in this
clause (b). Within forty-five (45) days following each Measurement
Date the Company shall determine the Aggregate Cumulative Earnings
that shall have been realized by the Company from the commencement of
the Measurement Period through such Measurement Date. From and after
the Measurement Date on which the Company shall have realized
Aggregate Cumulative Earnings during the Measurement Period equal to
or exceeding Five Million Dollars ($5,000,000), the Option shall
become exercisable ratably for the number of Shares determined as
follows:
If the Aggregate Cumulative Earnings Realized by Then the Number of Shares that shall Vest and
the Company During the Measurement Period Is: Become Exercisable Ratably Under the Option Is:
------------------------------------------------ -----------------------------------------------
At least $5,000,000 but less than $10,000,000 [8.33% to 16.67%]
At least $10,000,000 but less than $15,000,000 [16.67% to 26.67%]
At least $15,000,000 but less than $20,000,000 [26.67% to 33.33%]
At least $20,000,000 but less than $25,000,000 [33.33% to 41.67%]
At least $25,000,000 but less than $30,000,000 [41.67% to 50.00%]
At least $30,000,000 but less than $35,000,000 [50.00% to 58.33%]
At least $35,000,000 but less than $40,000,000 [58.33% to 66.67%]
At least $40,000,000 but less than $45,000,000 [66.67% to 75.00%]
At least $45,000,000 but less than $50,000,000 [75.00% to 83.33%]
At least $50,000,000 but less than $55,000,000 [83.33% to 91.67%]
At least $55,000,000 but less than $60,000,000 [91.67% to 100.00%]
$60,000,000 or more [100.00%]
If, as of September 30, 2001, any Optionee has exercised an Option for
shares of Common Stock in excess of the number of shares of Common
Stock which could be acquired by the Optionee pursuant to the above
table (as a result of losses incurred by the Company following periods
of earnings and the exercise of Options thereupon), such shares in
excess of those subject to exercise on such date (the "Earnings
Adjustment Shares") may be repurchased from the Optionee by the
Company. The Earnings Adjustment Shares shall be purchased by the
Company at the Option Price to the extent the market value of such
shares is greater than the Option Price.
(c) Cliff Vesting. Provided the Optionee is at the time an
employee of the Company (or a Subsidiary of the Company), the Option
shall become exercisable for the full number of Shares issuable
thereunder on September 30, 2006.
(d) Restricted Stock. For the period prior to October 1, 2001 and
provided that the Optionee is an employee of the Company (or a
Subsidiary of the Company) at the time the Option becomes exercisable
under clause (b) above, the Option may be exercised to the extent
permitted under clause (b) above,
C-2
87
provided that any Shares acquired at such exercise shall be subject to
forfeiture as provided herein and in Section 3 below.
(e) Termination for Cause. Notwithstanding any of the foregoing
in the event the Optionee is terminated by the Company (or a
Subsidiary of the Company) for cause, as defined in Section 6.3 (d),
(e) or (f) of the Employment Agreement, at any time before October 1,
2001, no portion of the Option shall be vested and all Shares acquired
by such Optionee under clause (b) above shall be subject to forfeiture
as if the Employment Termination occurred within the first twelve (12)
month period following the Effective Date, as provided in Section 3
below.
3. Forfeiture of Shares; Restricted Stock. In the event the Optionee
terminates employment with the Company (or any Subsidiary of the Company) prior
to the expiration of the four-year period ("Stock Restriction Period") that
shall commence on the Effective Date (the "Employment Termination"), then all
or some of the Shares acquired under the Option will be forfeited as follows:
(a) if the Employment Termination occurs at any time within the
first twelve-month period following the Effective Date, any shares of
Common Stock that shall have been purchased under the Option prior to
the expiration of the Stock Restriction Period may be redeemed, at the
option of the Company, in accordance with the provisions of this
Section;
(b) if the Employment Termination occurs at any time within the
second twelve-month period following the Effective Date, Seventy-five
percent (75%) of the shares of Common Stock that shall have been
purchased under the Option prior to the expiration of the Stock
Restriction Period may be redeemed, at the option of the Company, in
accordance with the provisions of this Section;
(c) if the Employment Termination occurs at any time within the
third twelve-month period following the Effective Date, Fifty percent
(50%) of the shares of Common Stock that shall have been purchased
under the Option prior to the expiration of the Stock Restriction
Period may be redeemed, at the option of the Company, in accordance
with the provisions of this Section; and
(d) if the Employment Termination occurs at any time within the
fourth twelve-month period following the Effective Date, Twenty-five
percent (25%) of the shares of Common Stock that shall have been
purchased under the Option prior to the expiration of the Stock
Restriction Period may be redeemed, at the option of the Company, in
accordance with the provisions of this Section.
In the event that the Company elects to redeem any shares of Common Stock
pursuant to the provisions hereof, the Company shall give written notice of its
election to the Optionee within thirty (30) days after the Employment
Termination. Any shares of Common Stock purchased by the Company pursuant to
the provisions of this Section shall be purchased by the Company for an amount
equal to the Option Price that shall have been paid therefor by the Optionee.
Any purchase and sale of shares of Common Stock pursuant to this Section shall
be concluded at the principal executive offices of the Company at such time and
on such date as shall be reasonably selected by the Company and communicated in
writing to the Optionee, at which time the Company shall deliver, by wire
transfer of immediately available funds, to the Optionee or his designee the
total purchase price for said shares of Common Stock, against delivery by the
Optionee of certificates representing said shares of Common Stock, duly
endorsed by the Optionee and in proper form for transfer. During the Stock
Restriction Period, the Company shall cause any certificates evidencing the
shares of Common Stock issued upon the exercise of the Option to reflect a
restrictive legend describing the redemption provisions set forth in this
Section and shall cause the Company's registrar and stock transfer agent to
impose and enforce stop transfer instructions relative to the sale or transfer
of said shares of Common Stock consistent with the requirements of this
Section.
C-3
88
4. Expiration of Option; Termination of Agreement. The Option set forth
herein shall expire and, except as set forth in Section 11(j), below, this
Agreement shall terminate at 5:00 p.m., Austin, Texas time on September 30,
2007.
5. Adjustment of Option Price and Shares of Common Stock Issuable Upon
Exercise of Option. The Option Price and shares of Common Stock issuable upon
exercise of the Option shall be subject to adjustment from time to time as
follows:
(a) Common Stock Dividends, Subdivisions and Combinations. In
case at any time after the date of this Agreement the Company shall
(i) pay a dividend, or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock (other than a dividend or
distribution upon a merger or consolidation to which Section 6
applies), (ii) effect a subdivision of its outstanding shares of
Common Stock into a larger number of shares of Common Stock (other
than a subdivision upon a merger or consolidation to which Section 6
applies), or (iii) effect a combination of its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then,
and in each such case (other than a combination upon a merger or
consolidation to which Section 6 applies), (A) in the case of any such
dividend or distribution, immediately after the opening of business on
the day after the date for the determination of holders of shares of
Common Stock entitled to receive such dividend or distribution, or (B)
in the case of any such subdivision or combination, immediately after
the opening of business on the day after the day upon which such
subdivision or combination becomes effective, the number of shares of
Common Stock covered by the Option shall be adjusted so that the
Optionee shall be entitled to receive, upon the exercise thereof, the
number of shares of Common Stock determined by (y) in the case of any
such dividend or distribution, multiplying the number of shares of
Common Stock covered by the Option at the opening of business on the
day after such date for determination by a fraction (not to be less
than one), (i) the numerator of which shall be equal to the sum of the
number of shares of Common Stock outstanding at the close of business
on such date for determination and the total number of shares
constituting such dividend or distribution and (ii) the denominator of
which shall be equal to the number of shares of Common Stock
outstanding at the close of business on such date for determination,
or (z) in the case of any such combination, by proportionately
reducing, or, in the case of any such subdivision, by proportionately
increasing, the number of shares of Common Stock covered by the Option
at the opening of business on the day after the date upon which such
subdivision or combination becomes effective.
(b) Issuance of Common Stock, Rights, Options or Warrants. In
case at any time after the date of this Agreement the Company shall
issue rights, options or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock at
a price per share less than the Current Market Price per share of
Common Stock on the date for the determination of holders of shares of
Common Stock entitled to receive such rights, options or warrants
(other than an issuance of such rights, options or warrants upon a
merger or consolidation to which Section 6 applies), then, and in each
such case, immediately prior to the opening of business on the day
after such date for determination, the number of shares of Common
Stock covered by the Option shall be adjusted so that the Optionee
shall be entitled to receive, upon the exercise of the Option, the
number of shares of Common Stock determined by multiplying the number
of shares of Common Stock covered by the Option at the opening of
business on the day after such date for determination by a fraction
(not to be less than one), (i) the numerator of which shall be equal
to the sum of (A) the number of shares of Common Stock outstanding at
the close of business on such date for determination and (B) the
number of shares of Common Stock so offered for subscription or
purchase and (ii) the denominator of which shall be equal to the sum
of (A) the number of shares of Common Stock outstanding at the close
of business on such date for determination and (B) the number of
shares of Common Stock that the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription or
purchase would purchase at such Current Market Price.
(c) Non-Cash Distribution. In case at any time after the date of
this Agreement the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock evidences of its indebtedness,
shares
C-4
89
of any class of capital stock, cash or assets (including securities,
but excluding (i) any dividend or distribution upon a merger or
consolidation to which Section 6 applies or referred to in Section
5(a), (ii) any rights, warrants or options referred to in Section 5(b)
and (iii) any dividend or distribution paid exclusively in cash),
then, and each such case, immediately after the close of business on
the date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, the number of
shares of Common Stock covered by the Option shall be adjusted so that
the Optionee shall be entitled to receive, upon the exercise of the
Option, the number of shares of Common Stock determined by multiplying
the number of shares of Common Stock covered by the Option immediately
prior to the close of business on such date for determination by a
fraction (not to be less than one), (y) the numerator of which shall
be equal to the Current Market Price per share of Common Stock on such
date for determination and (z) the denominator of which shall be equal
to such Current Market Price per share of Common Stock less the fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a board resolution)
on such date for determination of the portion of the evidences of its
indebtedness, shares of any class of capital stock, cash and assets so
distributed applicable to one share of Common Stock.
(d) Cash Dividend. In case at any time after the date of this
Agreement the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is
distributed upon a merger or consolidation to which Section 6 applies
or as part of a distribution referred to in Section 5(c) or any
Received Cash Dividend) in an aggregate amount that, combined together
with (i) the aggregate amount of any other distributions to all
holders of its Common Stock made exclusively in cash (other than any
Received Cash Dividend) within the twelve (12) months preceding the
date of payment of such distribution and in respect of which no
adjustment pursuant to this Section 5(d) has been made, and (ii) the
aggregate of any cash plus the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and
described in a board resolution) of any other consideration payable in
respect of any tender offer by the Company or any of its Subsidiaries
for all or any portion of the Common Stock concluded within the twelve
(12) months preceding the date of payment of such distribution and in
respect of which no adjustment pursuant to Section 5(e) has been made,
exceeds 12.5% of the product of the Current Market Price per share of
the Common Stock on the date for the determination of holders of
shares of Common Stock entitled to receive such distribution times the
number of shares of Common Stock outstanding on such date, then, and
in each such case, immediately after the close of business on such
date for determination, the number of shares of Common Stock covered
by the Option shall be adjusted so that the Optionee shall be entitled
to purchase, upon the exercise of the Option, the number of shares of
Common Stock determined by multiplying the number of shares of Common
Stock covered by the Option immediately prior to the close of business
on such date for determination by a fraction (not to be less than
one), (I) the numerator of which shall be equal to the Current Market
Price per share of the Common Stock on such date for determination,
and (II) the denominator of which shall be equal to the Current Market
Price per share of the Common Stock on such date for determination
less an amount equal to the quotient obtained by dividing (y) the
excess of such combined amount over such 12.5%, by (z) the number of
shares of Common Stock outstanding on such date for determination.
Any provision contained in this Section 5(d) to the contrary
notwithstanding, any Shares that shall have vested and shall have
become exercisable immediately prior to the close of business on the
date for determination of holders of shares of Common Stock entitled
to receive the cash distribution described herein, and as to which
Shares a Received Cash Dividend shall have been paid pursuant to the
provisions of Section 16 hereof, shall be excluded from the
calculations that shall give rise to the adjustments described herein.
(e) Self-Tender Offer. In case at any time after the date of this
Agreement a tender offer made by the Company or any of its
Subsidiaries for all or any portion of the Common Stock shall expire
and such tender offer (as amended upon the expiration thereof) shall
require the payment to holders (based on the acceptance (up to any
maximum specified in the term of the tender offer) of Purchased Shares
(as defined below)) of an aggregate consideration having a fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a board resolution) that,
combined together with
C-5
90
(i) the aggregate of the cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a board resolution), as of the expiration
of such tender offer, of consideration payable in respect of any other
tender offer by the Company or any of its Subsidiaries for all or any
portion of the Common Stock expiring within the 12 months preceding
the expiration of such tender offer and in respect of which no
adjustment pursuant to this Section 5(e) has been made and (ii) the
aggregate amount of any distributions to all holders of the Company's
Common Stock made exclusively in cash (other than any Received Cash
Dividend) within 12 months preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to Section 5(d)
has been made, exceed 12.5% of the product of the Current Market Price
per share of the Common Stock on the last time ("Expiration Time")
tenders could have been made pursuant to such tender offer (as it may
be amended) times the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, then, and in
each such case, immediately prior to the opening of business on the
day after the date of the Expiration Time, the number of shares of
Common Stock covered by the Option shall be adjusted so that the
Optionee shall be entitled to purchase, upon the exercise of the
Option, the number of shares of Common Stock determined by multiplying
the number of shares of Common Stock covered by the Option immediately
prior to close of business on the date of the Expiration Time by a
fraction (not to be less than one), (y) the numerator of which shall
be equal to the product of (A) the Current Market Price per share of
the Common Stock on the date of the Expiration Time and (B) the number
of shares of Common Stock outstanding (including any tendered shares)
on the Expiration Time less the number of all shares validly tendered
and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (z) the denominator of which shall be equal to (A) the
product of (I) the Current Market Price per share of the Common Stock
on the date of the Expiration Time and (II) the number of shares of
Common Stock outstanding (including any tendered shares) on the
Expiration Time less (B) the fair market value (determined as
aforesaid) of the aggregate consideration payable to shareholders
based on the acceptance (up to any maximum specified in the terms of
the tender offer) of Purchased Shares.
(f) Reclassifications. The reclassification of Common Stock into
securities other than Common Stock (other than any reclassification
upon a consolidation or merger to which Section 6 applies) shall be
deemed to involve (i) a distribution of such securities other than
Common Stock to all holders of Common Stock (and the effective date of
such reclassification shall be deemed to be "the date for the
determination of holders of shares of Common Stock entitled to receive
such dividend or distribution" and "such date for determination"
within the meaning of Section 5(c)), and (ii) a subdivision or
combination, as the case may be, of the number of shares of Common
Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter
(and the effective date of such reclassification shall be deemed to be
"the day upon which such subdivision or combination becomes effective"
within the meaning of Section 5(a)).
(g) Fractional Interests. In computing adjustments under this
Section 5, fractional interests in Common Stock shall be taken into
account to the nearest one-hundredth of a share, rounding up to such
fractional interest.
(h) Tax Adjustment. The Company may at its option, at any time
during the term of this Agreement, increase the number of shares of
Common Stock into which the Option is exercisable, in addition to
those required by paragraphs (a), (b), (c), (d) and (e) of this
Section, as deemed advisable by the Board of Directors of the Company,
in order that any event treated for Federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the
Optionee.
(i) Option Deemed Exercisable. For purposes solely of this Section
5, the number of shares of Common Stock which the Optionee would have
been entitled to receive had the Option been exercised in full at any
time shall be determined assuming the Option was exercisable in full
at such time, although the Option may not be exercisable in full at
such time pursuant to the provisions of Section 2.
C-6
91
(j) Option Price Adjustment. Whenever the number of shares of
Common Stock receivable upon exercise of the Option is adjusted as
provided in this Section 5, the Option Price payable upon exercise of
the Option shall be adjusted by multiplying such Option Price
immediately prior to such adjustment by a fraction, the numerator of
which shall be the number of shares of Common Stock covered by the
Option immediately prior to such adjustment, and the denominator of
which shall be the number of shares of Common Stock covered by the
Option immediately thereafter.
6. Exchange Combination.
(a) Substitution of Property. In case of any Exchange Combination
the Company shall (or, in the case of any Non-Surviving Exchange
Combination, the Company shall cause the Acquirer to) execute and
deliver to the Optionee a written instrument providing that:
(i) the Option shall thereafter, during the period the
Option is exercisable as specified in Section 2, be
exercisable, on such terms and subject to such conditions as
shall be as nearly equivalent as may be practicable to the
provisions set forth in this Agreement, only into the kind and
amount of securities, cash and other property ("Substituted
Property") that would have been receivable upon such Exchange
Combination by a holder of the maximum number of shares of
Common Stock that would have been issued upon exercise of the
Option if the Option had been exercised in full immediately
prior to such Exchange Combination, assuming such holder of
Common Stock (A) is not a Person with which the Company
consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made,
as the case may be ("Constituent Person"), or an Affiliate of
a Constituent Person, and (B) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash
and other property receivable upon such Exchange Combination
(provided that if the kind or amount of securities, cash and
other property receivable upon such Exchange Combination is
not the same for each share of Common Stock held immediately
prior to such Exchange Combination by other than a Constituent
Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised
("non-electing share"), then, for the purposes of this Section
6, the kind and amount of securities, cash and other property
receivable upon such Exchange Combination by the holders of a
plurality of the non-electing shares shall be the kind and
amount of securities, cash and other property issuable to the
Optionee under the Option), and assuming that the Option was
exercisable at the time of such Exchange Combination into the
maximum number of shares of Common Stock into which the Option
is exercisable as specified in Section 2, as adjusted from the
date of this Agreement to such time pursuant to Sections 5(a),
5(b), 5(c), 5(d) and 5(e); and
(ii) the rights and obligations of the Optionee in respect
of Substituted Property shall be as nearly equivalent as may
be practicable to the rights and obligations of the Company
and holders in respect of the shares of Common Stock into
which the Option is exercisable hereunder as set forth in
Section 2 hereof and elsewhere herein.
Such written instrument shall also set forth such financial goals or
targets, the satisfaction of which shall cause the Option to vest and
become exercisable, as shall be as nearly equivalent as may be
practicable to the target Aggregate Cumulative Earnings amounts set
forth in clause (d) of Section 2, above. Such written instrument
shall also provide for adjustments which, for events subsequent to the
effective date of such written instrument, shall be as nearly
equivalent as may be practicable to the adjustments provided for in
this Agreement. The above provisions of this Section 6 shall similarly
apply to successive Exchange Combinations.
C-7
92
(b) Compliance. Compliance with this Section 6 shall be a
condition to the consummation of any Exchange Combination referred to
above, and the Company shall comply with and cause any other person
that is a party to such Exchange Combination to comply with this
Section 6.
7. Certain Definitions. For all purposes of this Agreement, the
following terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person other than the
Company, any of the Company's Subsidiaries, any employee benefit plan
of the Company or of a Subsidiary or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or of
a Subsidiary.
(b) "Aggregate Cumulative Earnings" shall mean, with respect to or
as of a particular Measurement Date, the aggregate Earnings recorded
by the Company for each of the Measurement Quarters ending on and
preceding such Measurement Date.
(c) "Closing Price" on any Trading Day means the last reported
sales price regular way or, in case no such reported sale takes place
on such Trading Day, the average of the reported closing bid and asked
prices regular way, in either case on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on such
exchange, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on The Nasdaq
National Market or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on The Nasdaq
National Market, the average of the closing bid and asked prices in
the over-the-counter market in the United States as furnished by any
New York Stock Exchange member firm that is selected from time to time
by the Company for that purpose and is reasonably acceptable to the
Optionee.
(d) "Common Stock" shall include any stock of any class of the
Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which is not subject to
redemption (other than pursuant to the provisions of Section 3 of this
Agreement and the Other Performance Options) by the Company. However,
subject to the provisions of Sections 5 and 6, above, shares
purchasable on exercise of the Option shall include only shares of the
class designated as Common Stock, par value $1.00 per share, of the
Company at the date of this Agreement or shares of any class or
classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and which are
not subject to redemption (other than pursuant to the provisions of
Section 3 of this Agreement and the Other Performance Options) by the
Company.
(e) "Current Market Price" per share of Common Stock on any date
means:
(i) if on such date the Common Stock is listed or
admitted to trading on any national securities exchange or
quoted on The Nasdaq National Market or otherwise traded in
the over-the-counter market in the United States:
(A) for the purpose of any computation under this
Agreement (except under Section 5(e)), the average of
the daily Closing Prices for the five (5) consecutive
Trading Days selected by the Company commencing not
more than twenty (20) Trading Days before, and ending
not later than, the earlier of (y) the date in
question and (z) the day before the "ex" date for the
issuance or distribution requiring such computation;
provided, however, that if the "ex" date for any
event (other than the issuance or distribution
requiring such computation) that requires an
adjustment pursuant to Section 5(a), 5(b), 5(c),
5(d) or 5(e) occurs on or after the 20th Trading Day
prior to the day in question and prior to the "ex"
C-8
93
date for the issuance or distribution requiring such
computation, the Closing Price for each Trading Day
prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the
same fraction by which the Option Price is required
to be adjusted pursuant to Section 5(j) as a result
of such other event; or
(B) for the purpose of any computation under
Section 5(e), the average of the daily Closing Prices
for the five consecutive Trading Days selected by the
Company commencing on or after the latest
("Commencement Date") of (i) the date twenty (20)
Trading Days before the date in question, (ii) the
date of commencement of the tender offer requiring
such computation and (iii) the date of the last
amendment, if any, of such tender offer involving a
change in the maximum number of shares for which
tenders are sought or a change in the consideration
offered, and ending not later than the Expiration
Time of such tender offer; provided, however, that if
the "ex" date for any event (other than the tender
offer requiring such computation) that requires an
adjustment pursuant to Section 5(a), 5(b), 5(c), 5(d)
or 5(e) occurs on or after the Commencement Date and
prior to the Expiration Time for the tender offer
requiring such computation, the Closing Price for
each Trading Day prior to the "ex" date for such
other event shall be adjusted by multiplying such
Closing Price by the same fraction by which the
Option Price is required to be adjusted pursuant to
Section 5(j) as a result of such other event; or
(ii) if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on The
Nasdaq National Market or otherwise traded in the
over-the-counter market in the United States, the amount which
a willing buyer would pay a willing seller in an arm's length
transaction on such date (neither being under any compulsion
to buy or sell) for one share of Common Stock as determined as
of such date, as set forth in a value report (the "Current
Market Price Report") by an Independent Financial Expert (as
defined below) selected by the Company for such purpose in
accordance with Section 10, below, and using one or more
valuation methods that such Independent Financial Expert, in
its best professional judgment, determines to be most
appropriate without giving effect to any discount for any lack
of liquidity of the Common Stock or to the fact that the
Company may have no class of equity securities registered
under the Exchange Act.
(f) "Earnings" shall mean the earnings of the Company and its
Subsidiaries, net of losses, if any, recorded on an after-tax,
consolidated basis as determined in accordance with generally accepted
accounting principles, consistently applied, all as reflected on the
Company's financial statements for the applicable Measurement Quarter;
provided, however, that in the event the Company records any
compensation expense in connection with the grant or exercise of the
Option, such expense shall not be deducted in calculating Earnings.
(g) "'ex' date" means (i) when used with respect to any issuance
or distribution, the first date on which the Common Stock trades
regular way on the relevant exchange or in the relevant market from
which the Closing Price was obtained without the right to receive such
issuance or distribution, (ii) when used with respect to any
subdivision or combination of shares of Common Stock, means the first
date on which the Common Stock trades regular way on such exchange or
in such market after the time at which such subdivision or combination
becomes effective, and (iii) when used with respect to any tender
offer, means the first date on which the Common Stock trades regular
way on such exchange or in such market after the Expiration Time of
such tender offer.
(h) "Exchange Combination" means any Surviving Exchange
Combination or Non-Surviving Exchange Combination.
C-9
94
(i) "Independent Financial Expert" shall mean such financial or
investment advisory firm or investment banking firm as shall be
selected by the Company that does not (and the directors, officers,
employees, affiliates or stockholders of which do not) have a material
direct or indirect interest in the Company or any of its Subsidiaries
or affiliates, and which, as determined by the Board of Directors of
the Company in its reasonable good faith judgment, (i) has not been
within the last three years, and, at the time it is called upon to
give independent financial advice to the Company, is not (and none of
the directors, officers, employees, affiliates or stockholders of
which is) a promoter, director or officer of the Company or any of its
Subsidiaries or affiliates and (ii) does not provide any advice or
opinions to the Company, except as an independent financial or
investment expert or as an independent investment bank (in any case,
for which it may be compensated without compromising its
independence).
(j) "Measurement Date" shall mean March 31, June 30, September 30
and December 31 of each year within the Measurement Period; provided,
however, that the first Measurement Date shall be December 31,1997.
(k) "Measurement Period" shall mean the period that shall commence
on October 1, 1997, and shall end on September 30, 2001.
(l) "Measurement Quarter" shall mean the fiscal quarter of the
Company; provided, however, that the first Measurement Quarter shall
be the fiscal quarter ending December 31, 1997.
(m) "Non-Surviving Exchange Combination" means any consolidation
of the Company with, or merger of the Company into, or sale or
transfer of all or substantially all of the assets of the Company to,
any other person (the "Acquirer").
(n) "Option Term" shall mean the period that shall commence on the
date of this Agreement and shall end on September 30, 2007, except as
provided in Section 4 hereof.
(o) "Person" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a trust or other entity. A Person,
together with that Person's Affiliates and Associates (as those terms
are defined in Rule 12b-2 under the Exchange Act), and any Persons
acting as a partnership, limited partnership, joint venture,
association, syndicate or other group (whether or not formally
organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to
any express agreement), for the purpose of acquiring, holding, voting
or disposing of Voting Securities of the Company with such Person,
shall be deemed a single "Person."
(p) "Subsidiary" shall mean any corporation or other entity of
which a majority of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by the Company.
(q) "Surviving Exchange Combination" means any merger of another
person into the Company which results in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common
Stock.
(r) "Trading Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday, other than any day on which securities are not traded on
the applicable securities exchange or in the applicable securities
market.
(s) "Voting Securities" shall mean any securities that vote
generally in the election of directors or in the selection of any
other similar governing body.
C-10
95
8. Notice of Adjustment. Whenever the Option Price or the number of
shares of Common Stock issuable upon exercise of the Option is adjusted as
herein provided, the Company shall deliver to the Optionee a copy of a
certificate signed by an officer of the Company and certified by an independent
nationally recognized public accounting firm selected by the Board of Directors
of the Company (who may be the regular accountants employed by the Company)
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Company determined any Current
Market Price of the Common Stock or the fair market value of any evidences of
indebtedness, shares of capital stock, or assets), and specifying the Option
Price and the number of shares of Common Stock issuable upon exercise of the
Option after giving effect to such adjustment. The Company shall promptly mail
a copy of such certificate to the Optionee.
9. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that
would require an adjustment pursuant to Section 5(d);
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock of any classes or of any other rights
(excluding employee stock options);
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of
Common Stock), or of any Exchange Combination;
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the Company's outstanding shares of Common
Stock (or shall amend any such tender offer);
then the Company shall give the Optionee at least twenty (20) days (or ten (10)
days in any case specified in clause (a), (b) or (e) above) prior to the
applicable record, effective or date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined, (y) the date on which such reclassification, Exchange Combination,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, Exchange Combination,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of any amendment thereto).
10. Current Market Price Report Procedures. If any event occurs which
requires an adjustment pursuant to Section 5(b), 5(c), 5(d) or 5(e) and the
determination in connection therewith of the Current Market Price per share of
Common Stock on any date pursuant to clause (ii) of Section 7(e), above, the
Company shall select an Independent Financial Expert for such purpose and
shall, subject to such confidentiality arrangements as are reasonably
satisfactory to the Company, provide to such Independent Financial Expert
information and data reasonably required for purposes of the valuation, and the
Company shall have the opportunity to comment on the proposed Current Market
Value and form of the Current Market Price Report. The Company may require the
Independent Financial Expert to submit a draft version of its Current Market
Price Report before the final such Current Market Price Report is delivered to
the Company, and the Company may provide comments on such draft to such
Independent Financial Expert for possible consideration in preparing the final
Current Market Price Report. If the Independent Financial Expert becomes aware
of any material changes after the valuation date, after
C-11
96
reasonable inquiry with respect thereto, in the business, financial condition
or prospects of the Company and its Subsidiaries, such Independent Financial
Expert shall specify such material changes in the Current Market Price Report;
provided, that, such changes shall not be taken into account in determining the
Current Market Price. As a result of any adjustment made pursuant to this
Section 10, the Current Market Price Report shall be deemed final unless
revised prior to the sixth day after the delivery of the Current Market Price
Report to the Company.
11. Registration Rights.
(a) Piggyback Registration Rights. If the Company at any time
proposes to register any of its Common Stock under the Securities Act
of 1933, as amended ("Securities Act"), for sale to the public,
whether for its own account or for the account of other security
holders or both (except with respect to registration statements on
Forms S-4 or S-8 or another form not available for registering the
Common Stock for sale to the public or in connection with mergers,
acquisitions, exchange offers, dividend reinvestment plans or stock
options or other employee benefit plans of the Company), it will give
written notice to the Optionee of its intention so to do, which notice
shall include a list of the jurisdictions in which the Company intends
to attempt to qualify the Common Stock under the applicable state
securities laws. Upon the written request of the Optionee, given
within ten (10) days after receipt of any such notice, to register any
shares of Common Stock which the Optionee has the right to acquire
upon the exercise of the Option at the time such notice was received,
the Company will, subject to the limitations and conditions contained
herein, use its best efforts to cause the Common Stock as to which
registration shall have been so requested (pro rata between the
Optionee and the Other Optionees in a ratio equal to the respective
number of shares of Common Stock which they have the right to acquire
upon the exercise of the Option and the Other Performance Options and
which they have requested to be registered, unless otherwise agreed)
(which shall also be referred to in this Section 11 as the "Covered
Shares") to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the
extent requisite to permit the sale or other disposition of said
Covered Shares by the Optionee; provided, however, that:
(i) the Optionees shall each have the right to request
inclusion of his Common Stock (and have such Common Stock
included) in two registration statements that are declared
effective by the Securities and Exchange Commission
("Commission");
(ii) if, at any time after giving such written notice of
its intention to register any securities and prior to the
effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such securities, the Company
may, at its election, give written notice of such
determination to the Optionee and thereupon the Company shall
be relieved of its obligation to register any Common Stock in
connection with such registration; and
(iii) if such registration involves an underwritten
offering, the Optionee must sell his Common Stock to the
underwriters selected by the Company on the same terms and
conditions as apply to the Company (except as otherwise set
forth herein).
In the event Common Stock acquired through the exercise of the Option
is registered under this Section 11, such registered Common Stock
shall be released from all of the restrictions and other provisions of
this Grant.
The number of Covered Shares to be included in such an offering may be
reduced if and to the extent that the managing underwriter, if any,
shall be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein (pro
rata between the Optionee and the Other Optionees in a ratio equal to
the respective amounts of Covered Shares held by each.)
Notwithstanding anything to the contrary contained in this Section 11,
in the event that there is an underwritten public offering of
securities of the Company pursuant to a registration covering Common
Stock and the Optionee
C-12
97
does not elect to sell his Common Stock to the underwriters of the
Company's securities in connection with such offering, the Optionee
shall refrain from selling such Common Stock during the period of
distribution of the Company's securities by such underwriters, the
period in which the underwriting syndicate participates in the after
market and during any lock-up period requested by such underwriters;
provided, however, that the Optionee shall, in any event, be entitled
to sell his Common Stock commencing on the 180th day after the
effective date of such registration statement.
(b) Registration Procedures. If and whenever the Company is
required by the provisions of Section 11(a), above, to effect the
registration of any of the Covered Shares under the Securities Act,
the Company will, as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement (which, in the case of an underwritten public
offering pursuant to Section 11(a), above, shall be on Form
S-1 or other form of general applicability satisfactory to the
managing underwriter) with respect to such securities and use
its best efforts to cause such registration statement to
become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the
prospectus filed in connection therewith as may be necessary
to keep such registration statement effective for the period
of distribution and as may be necessary to comply with the
provisions of the Securities Act with respect to the
disposition of all Common Stock covered by such registration
statement in accordance with the sellers' intended method of
disposition set forth in such registration statement for such
period;
(iii) furnish to the Optionee and each underwriter such
number of copies of the registration statement and the
prospectus included therein (including each preliminary
prospectus) as they may reasonably request in order to
facilitate the public sale or other disposition of the Covered
Shares covered by such registration statement;
(iv) use its best efforts to register or qualify the
Covered Shares covered by such registration statement under
the securities or blue sky laws of such jurisdictions as the
Optionee or, in the case of an underwritten public offering,
the managing underwriter, shall reasonably request (provided
that the Company will not be required to (1) qualify generally
to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection, (2)
subject itself to taxation in any such jurisdiction or (3)
consent to general service of process in any such
jurisdiction);
(v) promptly notify the Optionee and each underwriter, at
any time when a prospectus relating thereto is required to be
delivered under the Securities Act when it becomes aware of
the happening of any event as a result of which the prospectus
contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements contained therein not
misleading in light of the circumstances then existing;
(vi) use its best efforts (if the offering is
underwritten) to furnish, at the request of the Optionee on
the date that the Covered Shares are delivered to the
underwriters for sale pursuant to such registration: (A) an
opinion of counsel dated such date representing the Company
for the purposes of such registration, addressed to the
underwriters and in customary form and covering such matters
as are customarily covered by opinions of counsel in similar
registrations and as may be required in the underwriting
agreement relating thereto, as may reasonably be requested by
the underwriters or by the Optionee; and (B) a comfort letter
dated such date from the independent public accountants
retained by the Company, addressed to the underwriters, in
customary form
C-13
98
and covering such matters as are customarily covered by such
comfort letters in similar registrations and as may be
required in the underwriting agreement relating thereto, as
such underwriters or the Optionee may reasonably request; and
(vii) make available for inspection by the Optionee, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant, or other
agent retained by the Optionee or underwriter, all financial
and other records, pertinent corporate documents, and
properties of the Company, and cause the Company's officers,
directors, and employees to supply all information reasonably
requested by any such seller, underwriter, attorney,
accountant, or agent in connection with such registration
statement.
For purposes of paragraphs (i) and (ii) above, the period of
distribution of Covered Shares in an underwritten public offering
shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of
distribution of Covered Shares in any other registration shall be
deemed to extend until the earlier of the sale of all Covered Shares
or 180 days after the effective date thereof.
In connection with each registration hereunder, the Optionee will
furnish to the Company in writing such information with respect to the
Optionee and the proposed distribution by him as shall be requested by
the Company in order to assure compliance with federal and applicable
state securities laws.
In connection with each registration covering an underwritten public
offering, the Company agrees to enter into a written agreement with
the managing underwriter selected in the manner herein provided in
such form and containing such provisions as are customary in the
securities business for such an arrangement between major underwriters
and companies of the Company's size and investment stature; provided
that such agreement shall not contain any such provision applicable to
the Company that is inconsistent with the provisions hereof and,
further, provided that the time and place of the closing under such
agreement shall be as mutually agreed upon between the Company and
such managing underwriter.
The Company will not be obligated to include any shares of Common
Stock owned by the Optionee if the Company delivers to the Optionee
the opinion of the Company's counsel to the effect that the requested
registration is not required to permit the proposed disposition or any
resale of such Common Stock without restrictions on transfer under the
Securities Act, which opinion may be furnished to and relied upon by
any broker through which the Optionee intends to sell shares of Common
Stock.
(c) Conditions to Obligation to Register Shares. The Company's
obligations under this Section 11 shall be subject to the following
limitations and conditions:
(i) Information. The Company shall have received from
the Optionee all such information as the Company may
reasonably request from the Optionee concerning the Optionee
and his methods of distribution of the shares of Common Stock
to enable the Company to include in the registration statement
all material facts required to be disclosed therein.
(ii) Notice Requirements. Any request by the Optionee
pursuant to this Agreement for registration of the offering,
sale and delivery of shares of Common Stock shall provide that
the Optionee (A) has a present intention to sell such shares;
(B) agrees to execute all consents, powers of attorneys and
other documents required in order to cause such registration
statement to become effective; (C) agrees, if the offering is
at the market, to give the Company written notice of the first
bona fide offering of such shares and to use the prospectus
forming a part of such registration statement only for a
period of 90 days after the effective date of the registration
statement unless the offering is pursuant to a continuous
registration pursuant to Rule 415 promulgated under the
Securities Act; (D) subject to adverse events regarding the
selling price of the shares, agrees to
C-14
99
utilize the proposed method of distribution of the shares; and
(E) agrees to promptly notify the Company and each
underwriter, if any, with regard to any registration
statement, at any time when it becomes aware of the happening
of any event as a result of which any prospectus contained in
such registration statement that has been provided to the
Optionee includes an untrue statement of a material fact
regarding the Optionee or omits to state a material fact
regarding the Optionee required to be stated therein or
necessary to make the statements contained therein regarding
the Optionee not misleading in light of the circumstances then
existing.
(d) Distribution Arrangements. The Optionee agrees that, in
disposing of the Covered Shares in the registered public offering, he
will comply with Rules 10b-2, 10b-6 and 10b-7 and any other applicable
rules promulgated by the Commission under the Exchange Act.
(e) Expenses. All expenses incurred by the Company in complying
with a registration covering Common Stock, including, without
limitation, all registration, qualification, and filing fees, blue sky
fees and expenses, printing expenses, fees and disbursements of legal
counsel and independent public accountants for the Company, the
reasonable fees and expenses of one law firm serving as legal counsel
for the Optionee and the Other Optionees, fees of the National
Association of Securities Dealers, Inc., transfer taxes, escrow fees,
fees of transfer agents and registrars, and costs of insurance, but
excluding any Selling Expenses, are herein called "Registration
Expenses." All underwriting discounts and selling commissions
applicable to the sale of Covered Shares are herein called "Selling
Expenses." The Company shall pay all Registration Expenses in
connection with any registration statement filed pursuant to this
Section 11. All Selling Expenses in connection with any registration
statement filed pursuant to this Section 11 shall be borne by the
Optionee and the Other Optionees in proportion to the number of shares
sold by each, or by such persons other than the Company (except to the
extent the Company shall be a seller), as they may agree.
(f) Registration Rights are Exclusive. The Optionee understands
that he has certain registration rights pursuant to this Agreement
with respect to shares of Common Stock covered by the Option, but
other than as specifically set forth in this Agreement, the Company
has not covenanted and is not obligated to furnish a registration
statement under the Securities Act covering any shares of Common
Stock, to file a notification under Regulation A promulgated under the
Securities Act with respect to shares of Common Stock, or to take any
other action that would make available an exemption from registration.
(g) No Requirement. In no event shall the Company be required to
amend any registration statement filed pursuant to this Agreement
after it has become effective or to amend or supplement any prospectus
to permit the continued disposition of shares of Common Stock
registered under any registration statement in either case beyond the
period initially contemplated therein.
(h) Indemnification. In the event of a registration of any of the
Covered Shares under the Securities Act, the Company shall indemnify
and hold harmless the Optionee thereunder and each underwriter and
each associate, if any, of the Optionee or underwriter, against any
losses, claims, damages, or liabilities, joint or several, to which
the Optionee or underwriter or associate thereof may become subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which
such Covered Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and
relating to action or inaction by the Company in connection with any
such registration, and shall reimburse the Optionee, each underwriter
and/or associate thereof for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any
such loss, claim, damage,
C-15
100
liability, or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss,
claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in conformity with information furnished by the Optionee, each
underwriter and/or associate thereof in writing specifically for use
in such registration statement or prospectus.
In the event of a registration of any of the Covered Shares under the
Securities Act, the Optionee will indemnify and hold harmless the
Company and its affiliates, if any, and each underwriter and each
associate of any underwriter against all losses, claims, damages or
liabilities, joint or several, to which the Company or such
underwriter or associate may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Covered
Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, each underwriter and/or
associate thereof for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the
Optionee will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with information pertaining to the Optionee as such, furnished in
writing to the Company by the Optionee specifically for use in such
registration statement or prospectus; and provided further, however,
that the liability of the Optionee hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense that
is equal to the proportion that the public offering price of shares
sold by the Optionee under such registration statement bears to the
total public offering price of all securities sold thereunder, but not
to exceed the proceeds received by the Optionee from the sale of
Common Stock covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from
any liability it may have to any indemnified party other than under
this Section 11(h). In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to
such indemnified party, and, after notice from the indemnifying party
to such indemnified party of its election so to assume and undertake
the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11(h) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of
liaison with counsel so elected; provided, however that, if the
defendants in any such action include both the indemnified party and
the indemnifying party and if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to
select separate counsel and to assume its defense and otherwise to
participate in the defense of such action, with the expenses and fees
of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
The indemnifying party will not be subject to any settlement made
without its consent, which consent shall not be unreasonably withheld.
The indemnifying party will pay to the indemnified party all sums due
hereunder within 10 days of a final non-appealable judgment or
pursuant to the terms of a settlement agreement.
(i) Limitation on Subsequent Registration Rights. From and after
the date of this Agreement, without the prior written consent of
holders of a majority of the votes evidenced by the then outstanding
voting
C-16
101
capital stock of the Company, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of
the Company (nor shall the Company, in the absence of any such prior
agreement, permit any such holder or prospective holder) to include
such securities in any registration contemplated by this Agreement,
other than piggyback registration rights with terms which are less
favorable than those granted in this Agreement.
(j) Notwithstanding the provisions of Section 5, above, the
provisions of this Section 11 shall survive the termination of this
Agreement and shall continue until September 30, 2009, on which date
such provisions shall also terminate; provided, however, that if the
Company shall have registered any shares of Common Stock for the
benefit of the Optionee pursuant to the provisions of this Section 11,
the provisions of Section 11(h), above, shall survive any such
termination for the maximum period of time permitted by law.
12. Assignment. Neither this Agreement nor the Option set forth herein
(nor the rights or obligations of the Optionee hereunder or thereunder) may be
sold, pledged, assigned, hypothecated, transferred or otherwise disposed of by
the Optionee, except by will or the laws of descent or distribution; provided,
however, that in the event of disability (within the meaning of Section
22(e)(3) of the Code) of the Optionee, a designee of the Optionee may exercise
the Option on behalf of the Optionee (to the extent the Option would have been
exercisable by the Optionee). Any attempt to sell, pledge, assign,
hypothecate, transfer or otherwise dispose of the Option in contravention of
this Agreement shall be void and shall have no effect. If the Optionee should
die prior to the termination of this Agreement, the Optionee's legal
representative, the Optionee's legatee or any other person who acquired the
right to exercise the Option by reason of the death or disability of the
Optionee (individually, a "Successor") shall succeed to the Optionee's rights
under this Agreement. After the death of the Optionee, only a Successor may
exercise the Option. In the event of the death or disability of the Optionee,
the Optionee's successor or legal representative may exercise the Option only
to the extent permitted under Section 2(a) hereof.
13. Exercise of Option. Subject to the provisions of Sections 2 and 3,
above, and until expiration of the Option in accordance with Section 4 hereof,
the Option may be exercised, in whole or in part, by the Optionee (or such
other person specified in Section 12 hereof), upon delivery of the following to
the Company at its principal executive offices at any time prior to thirty (30)
days after termination of employment of the Optionee at the Company (or a
Subsidiary of the Company):
(a) a written notice of exercise which identifies this Agreement
and states the number of Shares (which may not be less than 5,000, or
all of the Shares if less than 5,000 Shares then remain covered by the
Option) then being purchased;
(b) a check or cash in the amount of the Option Price;
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under
federal, state or other applicable tax laws with respect to the
taxable income, if any, recognized by the Optionee in connection with
the exercise, in whole or in part, of the Option (unless the Company
and the Optionee shall have made other arrangements for deductions or
withholding from the Optionee's wages, bonus or other income paid to
the Optionee by the Company or any Subsidiary, provided such
arrangements satisfy the requirements of applicable tax laws); and
(d) a certificate, if requested by the Company pursuant to the
third sentence of Section 15 hereof, in such form and substance as the
Company may require, setting forth the investment intent of the
Optionee, or a Successor, as the case may be, and such other
agreements and representations as reasonably required by the Company.
Notwithstanding the foregoing, in the event the employment of the
Optionee is terminated by disability, as that term is defined under the 1997
Option Plan, the Company shall provide written notice to the Optionee or to the
C-17
102
representative of the Optionee, as the case may be, of its right to exercise
the Option and the Optionee, or a representative of the Optionee, shall have a
period of nine (9) months from the date of such Option to deliver the items set
forth in this Section 13; provided, however, exercise of the Option must take
place no later than twelve (12) months after such termination of employment.
14. Cashless Exercise. At the Option of the Optionee, as consideration for
the payment specified in Section 13(b) above and subject to the limitations set
forth in this Section, the Optionee may transfer to the Company previously
acquired Shares of Common Stock and shall be credited as paying as
consideration therefor an amount equal to the per Share fair market value
multiplied by the number of Shares so transferred. Notwithstanding the
foregoing, in the event the exercise of the cashless exercise right pursuant to
this Section has a material adverse effect on the Company's financial condition
or financial statements then such method of exercise shall not be permitted.
15. Representations and Warranties of the Optionee. The Optionee
represents and warrants that the Option is being acquired by the Optionee in
good faith for the Optionee's personal account, for investment purposes only,
and not with a view to the distribution, resale or other disposition thereof.
The Optionee acknowledges that the Company may issue Shares upon the exercise
of the Option without registering such Common Stock under the Act, on the basis
of certain exemptions from such registration requirement. Accordingly, the
Optionee agrees that the Optionee's exercise of the Option may be expressly
conditioned upon the Optionee's delivery to the Company of an investment
certificate including such representations and undertakings as the Company may
reasonably require in order to assure the availability of such exemptions,
including a representation that the Optionee is acquiring the Shares for
investment and not with a present intention of selling or otherwise disposing
of such Shares. The Optionee acknowledges that, because Shares received upon
exercise of an Option may be unregistered, the Optionee may be required to hold
the Shares indefinitely unless they are subsequently registered for resale
under the Act or an exemption from such registration is available. The
Optionee acknowledges receipt of this Agreement granting the Option and
understands that all rights and liabilities connected with the Option are set
forth herein.
16. No Rights as Shareholder. The Optionee shall have no rights as a
shareholder of any shares of Common Stock covered by the Option until the date
an entry evidencing such ownership is made in the stock transfer books of the
Company. Except as may be provided under Section 5 hereof, the Company will
make no adjustment for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to such date.
17. Restrictive Legends. The Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which the Optionee
resides may require the placement of certain restrictive legends upon the
Shares issued upon exercise of the Option, and the Optionee hereby consents to
the placing of any such legends upon certificates evidencing the Shares as the
Company, or its counsel, may reasonably deem necessary; provided, however, that
any such legend shall be removed when no longer applicable.
18. Notices. All notices, requests and other communications hereunder
shall be in writing, and shall be sent by certified mail, postage prepaid,
return receipt requested, or by generally recognized prepaid overnight or next
business day air courier service, addressed as follows, or sent by facsimile
transmission to the facsimile transmission numbers as follows:
C-18
103
If to the Company:
TCC Industries, Inc.
816 Congress Avenue
Suite 1250
Austin, Texas 78701
Attention: President
Facsimile No.:
---------------------
If to the Optionee:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Facsimile No.:
--------------------
Any notice, request or other communication given hereunder shall be deemed to
have been duly given (a) on the date sent by facsimile transmission (followed
by hard copy in accordance with clause (b) or (c) below); (b) on the next
business day following confirmed delivery to the courier if sent by overnight
or next business day courier service; and (c) two business days following
delivery to the post office if sent by certified mail. Any party may change
the address to which notices, requests or other communications given hereunder
are to be delivered by giving the other party written notice in the manner
herein set forth.
19. Not an Employment Agreement. Nothing contained in this Agreement
shall confer, intend to confer or imply any rights to employment or rights to
continued employment by the Company and/or any Subsidiary in favor of the
Optionee or limit the ability of the Company and/or any Subsidiary to
terminate, with or without cause, in its sole and absolute discretion, the
employment of the Optionee, subject to the terms of the Employment Agreement or
any written agreement to which the Optionee is a party.
20. Governing Law. This Agreement shall be construed under and governed
by the laws of the State of Texas without regard to the conflict of law
provisions thereof.
21. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which together shall be deemed
one Agreement.
22. Effect of the 1997 Option Plan; Shareholder Approval. This Agreement
is entered into pursuant to and subject to the terms of the 1997 Option Plan
adopted by, and subject to amendment by, the Company. The Option granted
hereunder shall be subject to, and governed under the terms of, the 1997 Option
Plan. The 1997 Option Plan and this Agreement are to be submitted to the
shareholders of the Company at a special meeting of the shareholders called for
the purpose of approving and adopting the 1997 Option Plan and grants
thereunder. In the event, for any reason, the shareholders do not approve and
adopt the 1997 Option Plan and grants thereunder in accordance with the 1997
Option Plan, this Agreement shall be terminated, and the Option hereunder shall
be canceled.
23. Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, whether oral or
written, between the parties with respect to such subject matter.
24. Amendments. This Agreement cannot be amended, changed or modified or
any performance, term or condition waived in whole or in part except by a
writing executed by the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute a waiver of, any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.
C-19
104
25. Arbitration. In the event that any dispute, disagreement or
controversy (collectively, a "Dispute") arises with respect to the
interpretation, performance, non-performance or termination of this Agreement,
the parties shall first attempt to settle such Dispute by good faith
negotiations between the parties. If the Dispute is not resolved within 30 days
of the date one party sends a notice to the other party describing the Dispute
and requesting good faith negotiations to resolve the Dispute under this
Section 25, the Dispute shall be resolved by binding arbitration carried out in
Austin, Texas in accordance with the Commercial Arbitration Rules of the
American Arbitration Association as then in effect. The party which intends to
initiate an arbitration proceeding hereunder shall notify the other party of
such intention in writing, describing the Dispute. Notwithstanding the above,
in any Dispute arbitrated hereunder, the fees and expenses of the arbitrator(s)
and attorneys' fees and costs of the party ultimately prevailing in such
Dispute shall be borne by the other party.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date first above written.
TCC INDUSTRIES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
---------------------------------------
[Name]
C-20
105
PRELIMINARY COPY
PROXY
TCC INDUSTRIES, INC.
SPECIAL MEETING OF SHAREHOLDERS, DECEMBER 19, 1997
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Walter A. DeRoeck and Robert Thomajan, and each
of them, proxies with power of substitution to vote on behalf of the
undersigned all shares that the undersigned may be entitled to vote at the
Special Meeting of Shareholders of TCC Industries, Inc. ("Company") on December
19, 1997 and any adjournments thereof, with all powers that the undersigned
would possess if personally present, with respect to the following:
1. A proposal by the Company to approve and adopt the TCC Industries, Inc.
1997 Incentive and Performance Stock Option Plan and the options awarded by
the Compensation Committee of the Board of Directors of the Company
thereunder, as the same are described in the accompanying Proxy Statement,
dated November 12, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Transaction of any business that properly comes before the meeting or any
adjournments thereof. Either of the proxies or substitutes at the meeting
may exercise all the powers granted hereby.
(Continued and to be signed on the other side.)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE
HEREOF, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE
APPROVAL AND ADOPTION OF THE TCC INDUSTRIES, INC. 1997 INCENTIVE AND
PERFORMANCE STOCK OPTION PLAN AND THE OPTIONS AWARDED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY THEREUNDER, AS THE SAME ARE
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT, DATED NOVEMBER 12, 1997. THE
PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS THAT MAY COME BEFORE
THIS MEETING.
Shares:
Date:
------------------------------------------
P
-------------------------------------------------
R Signature or Signatures
-------------------------------------------------
O Title
Please date and sign as name is imprinted hereon,
X including designation as executor, trustee, etc.,
if applicable. A corporation must sign its name
by the president or other authorized officer.
Y
The Special Meeting of Shareholders of TCC
Industries, Inc. will be held on December 19,
1997 at 1:00 p.m. local time, in the Boardroom
of Texas Commerce Bank - Austin, 3rd Floor,
Texas Commerce Bank Building, 700 Lavaca
Street, Austin, Texas.
Please Note: Any shares of stock of the Company held in the name of
fiduciaries, custodians or brokerage houses for the benefit of their clients may
only be voted by the fiduciary, custodian or brokerage house itself - the
beneficial owner may not directly vote or appoint a proxy to vote the shares and
must instruct the person or entity in whose name the shares are held how to vote
the shares held for the beneficial owner. Therefore, if any shares of stock of
the Company are held in "street name" by a brokerage house, only the brokerage
house, at the instruction of its client, may vote or appoint a proxy to vote the
shares.