SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION14(a)14 (a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT
(AMENDMENT NO. )
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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| þ | Preliminary Proxy Statement | o | CONFIDENTIAL, FOR THE USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE | |||
| o | Definitive Proxy Statement | |||||
| o | Definitive Additional Materials | |||||
| o | Soliciting Material Pursuant to Rule |
PICO HOLDINGS, INC.
(NAME
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME
(NAME OF PERSON(S)PERSON (S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
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[ ] Fee paid previously with preliminary materials.
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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: ...........................................................
================================================================================
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PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITEProspect Street, Suite 301
LA JOLLA, CALIFORNIA
La Jolla, California 92037
La Jolla, California 92037
NOTICE OF ANNUALSPECIAL MEETING OF SHAREHOLDERS
The Annual
A Special Meeting of Shareholders of PICO Holdings, Inc., a California corporation (the "Company"“Company”), will be held at the Museum of Contemporary Art, in
the Coast Room, 700 Prospect Street, La Jolla, California 92037 on Friday,
August 18, 2000Thursday, December 8, 2005 at 9:00 a.m. (PDT)(PT) for the following purposes:
1. To elect two directors, for which positions the Board of Directors has
nominated Richard D. Ruppert, M.D. and S. Walter Foulkrod, III, Esq.,
to serve for three years until the annual meeting of shareholders in
the year 2003 and until their respective successors have been duly
elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors.
3. To amend Article III of the Company's Articles of Incorporation to
eliminate the authorization of Preferred Stock.
4. To approve the Company's 2000 Nonstatutory Stock Option Plan.
5. To transact such other business as may be properly brought before the
meeting and any adjournment thereof.
| 1. | To approve the PICO Holdings, Inc. 2005 Long-Term Incentive Plan. | |
| 2. | To transact such other business as may be properly brought before the meeting and any adjournment thereof. |
Shareholders of record at the close of business on June 30, 2000October 31, 2005 will be entitled to notice of and to vote at the AnnualSpecial Meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ Ronald Langley
Ronald Langley
Chairman of the Board
Dated: July 7, 2000
| By Order of the Board of Directors | ||
| /s/ Ronald Langley | ||
| Ronald Langley | ||
| Chairman of the Board | ||
| Dated: November 8, 2005 |
TO ASSURE YOUR REPRESENTATION AT THE MEETING, WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE VOTE BY TELEPHONE OR THE INTERNET, OR FILL IN, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY BY APPROPRIATE WRITTEN NOTICE OR BY VOTING IN PERSON AT THE MEETING. PLEASE NOTE THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST BRING TO THE MEETING A LETTER FROM THE BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR BENEFICIAL OWNERSHIP OF THE SHARES AND YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME. 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITEProspect Street, Suite 301
LA JOLLA, CALIFORNIA
La Jolla, California 92037
La Jolla, California 92037
PROXY STATEMENT FOR
ANNUAL
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ONAUGUST 18, 2000
DECEMBER 8, 2005
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
The proxy accompanying this Proxy Statement is solicited by the Board of Directors of PICO Holdings, Inc., a California corporation (the "Company"“Company”), to be voted at the AnnualSpecial Meeting of Shareholders of the Company (the "Annual
Meeting"“Special Meeting”) to be held at the Museum of Contemporary Art, Coast Room, 700 Prospect Street, La Jolla, California 92037, at 9:00 a.m. (PDT)(PT) on Friday, August 18,
2000Thursday, December 8, 2005 and at any postponement or adjournment thereof. The proxy may be revoked by appropriate written notice at any time before it is exercised or by voting in person at the meeting.
GENERAL INFORMATION
A copy of the Company's Annual Report to Shareholders for 1999 accompanies this
Proxy Statement. The Annual Report and these
General Information
These proxy solicitation materials are being mailed on or about July 11, 2000November 15, 2005 to all shareholders entitled to vote at the meeting.
As of June 30, 2000,October 31, 2005, the record date for the determination of shareholders entitled to vote at the AnnualSpecial Meeting, 12,390,09613,271,440 shares of Common Stock of the Company were issued and outstanding, excluding 4,394,1273,228,300 treasury shares.shares held by the Company’s subsidiaries. Each share of Common Stock entitles the holder to one vote on all matters brought before the AnnualSpecial Meeting, except for the 4,394,1273,228,300 shares held by the Company
andCompany’s subsidiaries of the Company which may not be voted. In votingOur Bylaws provide that the presence in person or by proxy of the holders of a majority of the shares entitled to vote shall constitute a quorum for the electiontransaction of directors,business at any meeting of shareholders have cumulative voting
rights. Accordingly, each shareholder may cumulate such voting power as such
shareholder possesses and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares held by the
shareholder, or distribute such shareholder's votes on the same principle among
two or more candidates, as such shareholder sees fit. However, no shareholder is
entitled to cumulate votes (in other words, cast for any candidate a number of
votes greater than the number of shares of stock held by such shareholder)
unless at least one shareholder has given notice, at the Annual Meeting prior to
the voting, of the shareholder's intention to cumulate votes. If any shareholder
has given such notice, all shareholders may cumulate their votes for nominated
candidates.
Company.
The proxy, if returned properly executed and not subsequently revoked by written notice delivered to the Secretary of the Company or by the shareholder voting in person at the AnnualSpecial Meeting, will be voted in accordance with the choice made by the shareholder thereon. If a choice is not made with respect to any issue, the proxy will be voted forin favor of the items described in this Proxy Statement. If
cumulative voting is permitted in the election of directors at the Annual
Meeting, the proxy holders shall have discretion as to the manner in which votes
represented by the proxy are to be cumulated, unless the proxy indicates the
manner in which such votes shall be cumulated.
Votes cast by proxy or in person at the AnnualSpecial Meeting will be tabulated by the inspectorsinspector of election appointed for the meeting who will also determine whether or not a quorum is present. The inspectorsinspector of election will not treat abstentions, and any shares as to which a broker or nominee has indicated that it does not have discretionary authority to vote on a particular matter, as shares that are present and entitled to vote for purposes of determining the presence of a quorum atand will have no effect on the meeting, but will not be considered as present with respect to
that matter.
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outcome of the vote.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of June 30, 2000,September 29, 2005, with respect to the beneficial ownership of the Company'sCompany’s Common Stock entitled to vote by (i) each person known by the Company to be the beneficial owner of more than 5% of Common Stock, and by(ii) each director, (iii) each Named Officer (as defined below)in Executive Compensation and Other Matters), and (iv) all executive officers and directors as a group. Except as otherwise indicated, each person has sole investment and voting power, subject to community property laws. Unless otherwise indicated, the business address for each person is 875 Prospect Street, Suite 301, La Jolla, CA 92037.
| Number of Shares | Percentage | |||||||
| and Nature of | Ownership | |||||||
| Name and Address of Beneficial Owner | Beneficial Ownership(1) | of Shares | ||||||
Ronald Langley(2) | 3,348,764 | 25.2 | % | |||||
John R. Hart(3) | 3,355,703 | 25.2 | % | |||||
Carlos C. Campbell(4) | 500 | * | ||||||
S. Walter Foulkrod, III, Esq. | 2,903 | * | ||||||
Richard D. Ruppert, MD(5) | 6,298 | * | ||||||
John D. Weil(6) | 4,243,332 | 31.9 | % | |||||
Richard H. Sharpe (7) | 8,504 | * | ||||||
Maxim C. W. Webb(8) | 1,875 | * | ||||||
| W. Raymond Webb | 20 | * | ||||||
PICO Equity Investors, L.P. (9) | 3,333,333 | 25.1 | % | |||||
Dimensional Fund Advisors Inc. (10) 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401 | 717,476 | 5.4 | % | |||||
Artisan Partners Limited Partnership, Artisan Investment Corporation, Andrew A. Ziegler, and Carlene Murphy Ziegler (11) 1000 N. Water Street, Suite 1770, Milwaukee, WI 53202 | 1,759,931 | 13.2 | % | |||||
| Executive Officers and Directors as a Group (11 persons) | 4,298,311 | 32.3 | % | |||||
| * | Less than one percent (1%) | |
| (1) | Sole voting and investment power unless otherwise indicated. | |
| (2) | 15,391 of these shares are held in the Company’s 401(k) Plan. Mr. Langley owns a membership interest in PICO Equity Investors Management, LLC, which has voting control of 3,333,333 shares of the Company. | |
| (3) | 16,670 of these shares are held in the Company’s 401(k) Plan. Mr. Hart owns a membership interest in PICO Equity Investors Management, LLC, which has voting control of 3,333,333 shares of the Company. The number of shares shown above does not include 19,940 shares of the Company held in a deferred compensation plan Rabbi Trust for Mr. Hart. | |
| (4) | The number of shares shown does not include 2,644 shares held in a deferred compensation plan Rabbi Trust for Mr. Campbell. | |
| (5) | Dr. Ruppert |
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| (6) | Of these shares, 909,999 are owned by a partnership which Mr. Weil | |
| (7) | The number of shares shown includes 3,586 shares held in the Company’s 401(k) Plan. | |
| (8) | The number of shares shown includes 1,494 shares held in the Company’s 401(k) Plan. | |
| (9) | Pursuant to a rights offering conducted by the Company in March 2000, an investment partnership named PICO Equity Investors, L.P. | |
| (10) | The Company received a | |
| (11) | The Company received a Form 13-G filing from Artisan Partners Limited Partnership, Artisan Investment Corporation, Andrew A. Ziegler, and Carlene Murphy Ziegler in 2005 for calendar year 2004. |
APPROVAL OF THE PICO HOLDINGS, INC. 2005 LONG-TERM INCENTIVE PLAN
At the Special Meeting, the shareholders will be asked to approve the PICO Holdings, Inc. 2005 Long-Term Incentive Plan (the “Incentive Plan”)
- ----------
(1) Sole voting. The Company’s Compensation Committee approved the Incentive Plan on September 21, 2005, subject to approval by the shareholders, to replace the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program. On September 21, 2005, the Committee amended the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program, a cash-only stock appreciation plan, to monetize the spread value of all outstanding stock appreciation rights based on the Company’s closing share price on Nasdaq on September 21, 2005. As a result, the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program has been amended and investment power unless otherwise indicated.
(2) Of these shares, 555,863 represent beneficial ownershipmonetized and there are no outstanding stock appreciation rights.
Summary of options
exercisable within the next 60 days. 2,375 sharesIncentive Plan
The following summary of the Incentive Plan is qualified in its entirety by the specific language of the Incentive Plan, a copy of which is attached as Appendix I.
General
The Compensation Committee retained an independent compensation expert who recommended amending the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program and instituting the proposed Incentive Plan. The PICO Holdings, Inc. 2003 Stock Appreciation Rights Program was amended on September 21, 2005 by the Compensation Committee. Pursuant to the Compensation Committee’s action on September 21, 2005, all outstanding stock appreciation rights were monetized to stop future appreciation; as a result, there are heldno outstanding stock appreciation rights under the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program. The proposed Incentive Plan will permit awards to be made by the Compensation Committee to participants in various forms, including stock-based stock appreciation rights. The Compensation Committee and the Board of Directors believe that the proposed Incentive Plan will continue to closely align the interests of management with shareholders by incentivizing management to increase shareholders’ equity and book value per share. The Company believes that the proposed Incentive Plan will result in less volatility in the Company's 401(k) Plan. Mr. Langley ownsCompany’s financial statements than the former PICO Holdings, Inc. 2003 Stock Appreciation Rights Program when new pronouncements concerning the accounting for
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stock-based compensation take affect, due to the effects of new financial accounting pronouncements on awards such as cash-settled stock appreciation rights. In addition, the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program was impacted by recent U.S. income tax legislation effective in 2005.
The purpose of the Incentive Plan is to advance the interests of the Company and its shareholders by providing a membership interestvariety of incentives for employees, officers, consultants, and non-employee Directors to increase shareholders’ equity and provide a mechanism whereby the participants in PICO
Equity Investors Management, LLC which has voting controlthe Incentive Plan will be able to participate in an increase in share price. The Incentive Plan seeks to achieve this by providing for grants in the form of 3,333,333stock options, stock-based stock appreciation rights, restricted stock, performance shares, performance units, restricted stock units, deferred compensation awards, and other forms of stock-based awards, although it is not anticipated that all these forms of awards will be granted simultaneously.
Shares Subject to Incentive Plan
The maximum aggregate number of shares of the Company.
(3) Of these shares, 613,170 represent beneficial ownershipCompany’s stock that may be issued under the Incentive Plan is 2,654,000 and shall consist of options
exercisable withinauthorized but unissued shares. Appropriate adjustments will be made to the next 60 days. Mr. Hart owns a membership
interest in PICO Equity Investors Management, LLC which has voting
control of 3,333,333 shares of the Company. The number of shares shown
above doesthat may be issued under the Incentive Plan, and to any outstanding awards, in the event of a stock split, reverse stock split, stock dividend, recapitalization, or similar change in the Company’s capital structure. If an outstanding award for any reason expires or is canceled or terminated without having been exercised or settled in full, the shares of stock allocable to the expired, canceled, or terminated award shall again be available for issuance under the Incentive Plan.
Administration
The Incentive Plan will be administered by the Compensation Committee of the Board of Directors. Subject to the provisions of the Incentive Plan, the Committee will determine in its discretion the persons to whom and the times at which awards under the Incentive Plan will be granted, the number of any awards, and all of the terms and conditions of any awards. The Committee will have the authority to interpret the Incentive Plan and any such interpretation by the Committee will be binding.
Features of Incentive Plan
| (1) | The Incentive Plan shall continue in effect until the earlier of: (i) its termination by the Board of Directors; or (ii) the date on which all shares of stock available for issuance under the Incentive Plan have been issued and all restrictions on such shares under the grant of any awards have lapsed. However, all awards must be granted, if at all, within ten (10) years from the date of shareholder approval of the Plan. In addition, Incentive Stock Options cannot be granted later than ten (10) years from the date of shareholder approval of the Plan. | |
| (2) | The Board may amend or terminate the Plan at any time. However, without the approval of the Company’s shareholders there can be: (i) no increase in the maximum aggregate number of shares that may be issued under the Plan (except for adjustments for stock splits, recapitalizations, etc.); and (ii) no other amendment of the Incentive Plan that would require approval of the Company’s shareholders under any applicable law or regulation. | |
| (3) | The vesting of all awards granted by the Committee shall be determined at the time of grant by the Committee. However, Deferred Compensation Awards are not subject to a vesting schedule. |
Form of Awards
The Committee has not include 19,940reached a determination on allocating any awards under the Incentive Plan, if said Incentive Plan is approved by the Company’s shareholders.
The following form of awards may be made to officers, employees, consultants, and non-employee Directors by the Committee:
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| (1) | Stock Options. Stock options are the right to purchase shares of the Company at a stated price for a specified period of time. The Committee may grant awards in the form of Incentive Stock Options or Nonstatutory Stock Options. The exercise price for all Stock Options shall be established in the discretion of the Committee. However, the exercise price per share cannot be lower than the fair market value of the Company’s stock on the date the award is made. In the case of an award of Incentive Stock Options to a participant who owns 10% or more of the Company’s stock, the exercise price per share cannot be less than 110% of the Company’s fair market value of the Company’s stock on the date the award is made. Within those limitations, the Committee, in its discretion, will establish the terms and conditions for Stock Options awarded as to exercise price per share, number, and term. Incentive Stock Options awarded to a 10% owner of the Company’s shares expire not later than five years after the award is effective. | |
| (2) | Stock-Based Stock Appreciation Rights. The Committee may award stock appreciation rights, which may be granted in tandem with a stock option or may be granted independently of an option. Upon receiving an award, the participant will have the right to receive payment in shares of the Company’s stock in an amount equal to the excess of the fair market value of the Company’s stock on the date of exercise over the exercise price. | |
| (3) | Restricted Stock. A Restricted Stock award is the right to receive a share of the Company’s stock on a date determined by the Committee, subject to performance goals established by the Committee in its discretion. | |
| (4) | Performance Awards. The Committee in its discretion may grant Performance Awards, which represent the right to receive a cash payment. The initial value of a performance award shall be equal to the fair market value of the Company’s stock on the date the award is made. The final value shall be determined based on the performance award formula established by the Committee. | |
| (5) | Deferred Compensation Awards. These can be awarded to participants by the Committee in the form of Restricted Stock Units. Before awards can be granted, the Committee must establish a program for highly compensated employees selected in the Committee’s discretion, whereby these employees will receive Restricted Stock Units in lieu of cash compensation, stock otherwise issuable to the employee upon exercise of a Stock Option or the exercise of a SAR, or cash or shares of stock otherwise issuable to the employee when a Performance Award is settled. | |
| (6) | Other Stock-Based Awards. In addition, the Committee, in its sole discretion, may carry out the purpose of this Incentive Plan by granting Stock-Based Awards as it determines to be in the best interests of the Company and subject to terms and conditions the Committee considers necessary and appropriate. |
Vote Required and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a majority of the shares voted at the Special Meeting, either in person or by proxy. Abstentions and broker non-votes will not be counted as present for purposes of determining the presence of a quorum and will have no effect on the outcome of the vote.
The Board of Directors believes that adoption of the proposed PICO Holdings, Inc. 2005 Long-Term Incentive Plan is in the best interests of the Company and its shareholders for the reasons stated above. THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE PICO HOLDINGS, INC. 2005 LONG-TERM INCENTIVE PLAN.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation for the fiscal years ended December 31, 2004, 2003, and 2002 of the (i) Chief Executive Officer of the Company and (ii) the four other most highly compensated executive officers of the Company as of December 31, 2004, whose salary and bonus exceeded $100,000. (Messrs. Langley, Hart, Sharpe, Maxim C. W. Webb, and W. Raymond Webb are sometimes hereinafter referred to as “Named Officers”.) Amounts under the caption “Bonus” are amounts earned for performance during the fiscal year indicated including amounts paid after the end of the year.
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Summary Compensation Table
| Long-Term | ||||||||||||||||||
| Annual Compensation | Compensation | |||||||||||||||||
| Securities Underlying | All Other | |||||||||||||||||
| Name and Principal Position | Salary | Bonus | Options/SARs | Compensation | ||||||||||||||
| Chief Executive Officer: | ||||||||||||||||||
John R. Hart(1) (2) | 2004 | $ | 908,460 | $ | 619,094 | -0- | $ | 29,250 | (7) | |||||||||
| President and Chief | 2003 | $ | 882,000 | $ | 467,435 | 838,356(8) | $ | 28,000 | (7) | |||||||||
| Executive Officer | 2002 | $ | 840,000 | $ | 730,934 | -0- | $ | 22,421 | (7) | |||||||||
| Executive Officers: | ||||||||||||||||||
Ronald Langley(2) (3) | 2004 | $ | 908,460 | $ | 619,094 | -0- | $ | 29,250 | (7) | |||||||||
| Chairman of the | 2003 | $ | 882,000 | $ | 467,435 | 752,395(8) | $ | 28,000 | (7) | |||||||||
| Board of Directors | 2002 | $ | 840,000 | $ | 730,934 | -0- | $ | 22,421 | (7) | |||||||||
Richard H. Sharpe(4) | 2004 | $ | 283,909 | $ | 193,477 | -0- | $ | 26,603 | (7) | |||||||||
| Chief Operating Officer | 2003 | $ | 275,640 | $ | 146,081 | 135,268(8) | $ | 25,539 | (7) | |||||||||
| 2002 | $ | 262,512 | $ | 228,427 | -0- | $ | 20,077 | (7) | ||||||||||
Maxim C. W. Webb(5) | 2004 | $ | 196,730 | $ | 134,066 | -0- | $ | 25,948 | (7) | |||||||||
| Chief Financial Officer | 2003 | $ | 190,999 | $ | 101,224 | 71,137(8) | $ | 24,580 | (7) | |||||||||
| and Treasurer | 2002 | $ | 178,500 | $ | 155,323 | -0- | $ | 19,602 | (7) | |||||||||
W. Raymond Webb(6) | 2004 | $ | 154,500 | $ | 52,644 | -0- | $ | 20,378 | (7) | |||||||||
| Vice President, Investments | 2003 | $ | 150,000 | $ | 39,748 | 40,000(8) | $ | 19,044 | (7) | |||||||||
| (1) | Mr. Hart became President and CEO of the Company on November 20, 1996. He became President and CEO of Physicians Insurance Company of Ohio on July 15, 1995. | |
| (2) | On January 1, 2002, Mr. Langley and Mr. Hart each signed employment agreements with the Company. Each employment agreement provides for annual compensation of $800,000, subject to annual adjustment in January of each year in the same percentage applicable to the Company’s other staff members in an amount deemed adequate to provide for inflation, cost of living, and merit increases based on the Consumer Price Index and major compensation studies; see Report of the Compensation Committee. | |
| (3) | Mr. Langley became Chairman of the Board of Directors of Physicians Insurance Company of Ohio on July 15, 1995. He became Chairman of the Board of Directors of the Company on November 20, 1996. | |
| (4) | Mr. Sharpe became Chief Operating Officer of Physicians Insurance Company of Ohio on June 3, 1994. He became Chief Operating Officer of the Company on November 20, 1996. | |
| (5) | Mr. Maxim C. W. Webb became Chief Financial Officer and Treasurer on May 14, 2001. Prior to that, he was Vice President, Investments of the Company. | |
| (6) | Mr. W. Raymond Webb became Vice President, Investments of the Company on April 18, 2003. Prior to that, he was Chief Investment Analyst. |
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| (7) | This represents amounts contributed by the Company to the PICO Holdings, Inc. Employees 401(k) Retirement Plan and Trust. This retirement plan conforms to the requirements of the Employee Retirement Income Security Act. | |
| (8) | This represents stock appreciation rights granted on July 17, 2003 pursuant to the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program (the “SAR Program”), a cash-only stock appreciation rights plan, as approved by the Company’s shareholders on July 17, 2003. |
Directors’ Compensation
Directors who are not officers or employees of the Company or its subsidiaries receive an annual retainer of $30,000. For calendar year 2004, each Director who was not an officer or employee of the Company or its subsidiaries received a $2,000 fee for each Board and Committee meeting attended in person or by telephone. There is a limit of $4,000 per day in Board and Committee fees to any one Director. Any Director attending an educational activity or seminar on behalf of the Company receives a fee of $1,000 per day plus expenses.
At its March 14, 2005 meeting, the Board of Directors increased Board and Committee compensation as follows, retroactive to January 1, 2005. Directors who are not officers or employees of the Company or its subsidiaries receive an annual retainer of $35,000. The Chairman of the Audit Committee receives an additional annual retainer of $10,000, and the other members of the Audit Committee each receive an additional annual retainer of $5,000. Each Director who is not an officer or employee of the Company or its subsidiaries also receives a $2,000 fee for each Board and Committee meeting attended in person or by telephone. There is a limit of $4,000 per day in Board and Committee fees to any one Director. Any non-employee Director attending an educational activity or seminar on behalf of the Company receives a fee of $1,000 per day plus expenses.
Option Grants/Stock Appreciation Rights (“SAR”) Grants in Last Fiscal Year
None of the Named Officers received or was granted stock options or stock appreciation rights in the year ended December 31, 2004.
Option and SAR Exercises and Fiscal 2004 Year-End Value
The following table provides information concerning stock appreciation rights held during December 31, 2004 by the Named Officers. The Company had no outstanding stock options at any time during 2004.
Aggregate Option/SAR Exercises in a deferred
compensation plan Rabbi Trust for Mr. Hart.
(4) Last Fiscal Year and Fiscal Year-End SAR Values
| Number of SARs | Number of Securities | Value of Unexercised | ||||||||||||||||||||||
| Exercised | Underlying Unexercised | In-the-Money SARs | ||||||||||||||||||||||
| In 2004 | SARs At 12/31/04(1) | At 12/31/04(1) (2)(3) | ||||||||||||||||||||||
| Value | ||||||||||||||||||||||||
| Name | Exercised | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Ronald Langley(1) | -0- | -0- | -0- | -0- | $ | 6,250,237 | -0- | |||||||||||||||||
John R. Hart(1) | -0- | -0- | -0- | -0- | $ | 7,405,926 | -0- | |||||||||||||||||
Richard H. Sharpe(1) | -0- | -0- | -0- | -0- | $ | 873,680 | -0- | |||||||||||||||||
Maxim C. W. Webb(1) | -0- | -0- | -0- | -0- | $ | 429,123 | -0- | |||||||||||||||||
W. Raymond Webb(1) | 8,000 | $ | 32,000 | $ | 32,000 | -0- | $ | 184,640 | -0- | |||||||||||||||
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| (1) | This applies to stock appreciation rights in the SAR Program approved by the Company’s shareholders on July 17, 2003 and granted by the Company on that date. No stock options or call options were outstanding after July 17, 2003. | |
| (2) | Based on the closing price of the Company’s Common Stock on December 31, 2004 on the Nasdaq National Market of $20.77 per share. | |
| (3) | On September 21, 2005, the Compensation Committee decided that amending the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program was in the best interests of the Company and its shareholders, due to the effect of new financial accounting pronouncements on liability awards such as cash-settled stock appreciation rights. In addition, the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program was impacted by recent U.S. income tax legislation effective in 2005. Under the terms of the September 21, 2005 amendment to the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program, each holder of stock appreciation rights monetized the difference between his or her exercise prices for the stock appreciation rights and the September 21, 2005 closing price for the Company’s stock on Nasdaq. Prior to the Compensation Committee’s September 21, 2005 action to amend the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program, all the stock appreciation rights were fully vested. |
Employment Contracts, Termination of Employment, and Change in Control Arrangements
Mr. Langley and Mr. Hart formerly had stock options, granted in 1995,
to purchase shares of Global Equity Corporation; these shares were
converted on December 17, 1998entered into economically equivalent stock
options to purchase shares of the Company. Mr. Langley and Mr. Hart
each had 1993 call optionnew employment agreements effective January 1, 2002 with Guinness Peat Group plc in
August 1998, the Company assumed Guinness Peat Group's obligations with
respectfor an additional four years for a base salary of $800,000 each annually, subject to these 412,846 options. Mr. Langley exercised 57,307adjustment in January of his
call options ineach year. This cash compensation was based on an amount approximately equal to 80% of peer group salary levels. The current employment agreements provide that if the employee is terminated without cause on or after January 1, 2003 and prior to December 1998 and has 149,116 call options remaining.
Mr. Hart has not exercised any call options and has 206,423 call
options remaining.
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(5) Dr. Ruppert shares voting and investment power with his wife.
(6) Of these shares, 660,558 are owned by31, 2005, the employee shall be paid a partnership which Mr. Weil
controls. Mr. Weil owns a membership interest in PICO Equity Investors
Management, LLC which has voting controllump sum of 3,333,333 shares$2.4 million minus the amount paid to the employee as base salary after January 1, 2003 to the date of the
Company.
(7) Of these shares, 60,119 represent beneficial ownership of options
exercisable within the next 60 days.termination. In addition, 3,447 shares are heldthe employee shall be paid the pro rata portion of any annual incentive award payable to the employee for the year in which the employee was terminated.
These employment agreements also include a change in control clause providing that if there was a change in control before January 1, 2004, the Company was required to immediately pay each employee a total lump sum of $2.4 million and an amount equal to three times the highest annual bonus paid to the employee in the Company's 401(k) Plan.
(8) Of these shares, 42,083 represent beneficial ownership of options
exercisable within the next 60 days. In addition, 994 shares are heldlast three years. These change in the Company's 401(k) Plan.
(9) Of these shares, 42,083 represent beneficial ownership of options
exercisable within the next 60 days. In addition, 2,371 shares are held
in the Company's 401(k) Plan.
(10) control clauses expired on January 1, 2004.
Certain Relationships and Related Transactions
Pursuant to a rights offering conducted by the Company in March 2000, an investment partnership named PICO Equity Investors, L.P. acquired on March 28, 2000, 3,333,333 newly issued shares which were not subscribed for in the rights offering. PICO Equity Investors, L.P. is managed by PICO Equity Investors Management, LLC. PICO Equity Investors Management, LLC is owned by Mr. Langley, Mr. Hart and Mr. Weil. PICO Equity Investors Management, LLC will exercise all voting and investment decisions with respect to these 3,333,333 shares for up to ten years. The interest of PICO Investors Management, LLC in any profits and losses earned on this investment will be proportional to the capital contributions made to PICO Equity Investors, L.P. by the partners, i.e., 1,000/50,001,000. There are no other fees or other management compensation of any kind payable to Mr. Langley, Mr. Hart, and Mr. Weil.
1. ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Board of Directors is divided into three classes, with the terms of office
of each class ending in successive years. Two directors of the Company are to be
elected for terms ending at the Annual Meeting of Shareholders in the year 2003
or until their respective successors have been duly elected and qualified.
Unless otherwise instructed, the proxy holders named on the enclosed form of
proxy intend to distribute the votes represented by proxies in such proportions
as they deem desirable to elect the two nominees named below or their
substitutes. Although it is not contemplated that any nominee will decline or be
unable to serve, if either occurs prior to the Annual Meeting, a substitute
nominee will be selected by the Board of Directors. See "Stock Ownership of
Certain Beneficial Owners and Management" for the number of shares of Common
Stock beneficially owned by these nominees.
The following table sets forth information regarding the nominees for election
as directors and the other directors whose terms of office as directors will
continue after the Annual Meeting, including their ages, a brief description of
their business experience, certain directorships held by each of them and the
year in which each became a director of the Company.
The nominees for election as directors receiving the highest numbers of votes
shall be elected. THE COMPANY'S BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE NOMINEES FOR ELECTION LISTED BELOW.
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2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company's Board of Directors is seeking shareholder ratification of its
selection of Deloitte & Touche LLP to serve as the Company's auditors for the
fiscal years ending December 31, 1999 and December 31, 2000. Deloitte & Touche
LLP has previously served as the auditors of the Company since July 1997. It is
anticipated that representatives of Deloitte & Touche LLP will attend the Annual
Meeting, will have the opportunity to make any statements they may desire, and
will be available to respond to appropriate questions from PICO shareholders.
Approval of this proposal requires the affirmative vote of the holders of a
majority of the shares represented and voting at the Annual Meeting. THE
COMPANY'S BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
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3. AMENDMENT OF ARTICLE III OF THE COMPANY'S ARTICLES OF
INCORPORATION TO ELIMINATE THE PREFERRED STOCK
Article III of the Company's Articles of Incorporation presently authorizes two
classes of stock: one hundred million shares of Common Stock and two million
shares of Preferred Stock.
No Preferred shares are issued or outstanding and management and the Board of
Directors have no plans to issue any Preferred shares. The Board of Directors is
of the opinion that the existence of the Preferred shares, although none have
been issued, may possibly constitute an impediment to realizing the Company's
value. Therefore, the Board of Directors has recommended that ARTICLE III of the
Company's Articles of Incorporation be amended to eliminate the Preferred
shares. If the shareholders approve the amendment of ARTICLE III to eliminate
the Preferred shares, ARTICLE III would read as follows:
ARTICLE III
This corporation is authorized to issue one (1) class of shares,
designated as "Common Stock." The number of shares of Common Stock
authorized to be issued is one hundred million (100,000,000). The par
value of each share is one tenth of one cent (0.001).
The proposed amendment of ARTICLE III requires the affirmative vote of the
holders of a majority of the outstanding shares of the Company entitled to vote
at the meeting. THE COMPANY'S BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
4. APPROVAL OF THE COMPANY'S 2000 NONSTATUTORY STOCK OPTION PLAN
At the Annual Meeting, the shareholders will be asked to approve the
PICO Holdings, Inc. 2000 Nonstatutury Stock Option Plan (the "2000 Plan"). On
April 7, 2000 (the "Effective Date"), the Company's Board of Directors adopted
the 2000 Plan, subject to its approval by the shareholders, in order to augment
the Physicians Insurance Company of Ohio 1995 Nonstatutory Stock Option Plan
(the "Physicians Plan").
The Board of Directors believes that in order to successfully attract
and retain the best possible candidates for positions of responsibility the
Company must continue to offer a competitive equity incentive program. As of
June 30, 2000, only 5,000 shares remained available for future stock option
grants under the Physicians Plan. The proposed 2000 Plan is intended to ensure
that the Company will continue to have available a reasonable number of shares
for its stock option program. It authorizes an additional 1,200,000 shares of
the Company's common stock to be made available for stock option grants. The
2000 Plan also provides for the periodic grant of stock options to the
nonemployee members of the Board of Directors in amounts determined by a formula
described below.
The 2000 Plan also provides for the periodic grant of stock options to
the nonemployee members of the Board of Directors in amounts determined by a
formula as described below. The
Compensation Committee reviewed director
compensation,Interlocks and recommended to the Board of Directors,Insider Participation in line with a recent
study performed by William M. Mercer, Incorporated, that the Company's
compensation for nonemployee directors was below that of director's compensation
for peer companies. To bring the Company's nonemployee director compensation up
to a level competitive with that of companies of comparable size and to enable
the Company to continue to attract and retain qualified directors, William M.
Mercer, Incorporated recommended that the Company's compensation for nonemployee
directors include an element consisting of stock options to bring total
nonemployee director's compensation up to competitive levels and to align
nonemployee director's compensation with the long term interests of the
Company's shareholders.
SUMMARY OF THE 2000 PLAN
The following summary of the 2000 Plan is qualified in its entirety by
the specific language of the 2000 Plan, a copy of which is available to any
shareholder upon request.
GENERAL. The purpose of the 2000 Plan is to advance the interests of
the Company and its shareholders by providing an incentive to attract, retain
and reward the Company's employees, directors and consultants and by motivating
them to contribute to the Company's goals. The 2000 Plan provides for the grant
of nonstatutory stock options, that is, options not intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code.
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SHARES SUBJECT TO 2000 PLAN. A maximum of 1,200,000 of the authorized
but unissued or reacquired shares of the Company's common stock may be issued
under the 2000 Plan. Appropriate adjustments will be made to the shares subject
to the 2000 Plan and the "Grant Limit" described below and to outstanding
options upon any merger, consolidation, reorganization, reincorporation,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, split-up, split-off, spin-off, combination of shares, exchange of shares
or similar change in the capital structure of the Company. If any outstanding
option expires, terminates or is canceled, or if shares acquired pursuant to an
option are repurchased by the Company at their original exercise price, the
expired or repurchased shares are returned to the 2000 Plan and again become
available for grant.
To enable the Company to deduct in full for federal income tax purposes
the compensation recognized by certain executive officers in connection with
options that may be granted under the 2000 Plan, the plan is designed to qualify
such compensation as "performance-based compensation" under Section 162(m) of
the Internal Revenue Code. To comply with Section 162(m), the 2000 Plan limits
the number of shares for which options may be granted to any employee. Under
this limitation, no employee (or prospective employee) may be granted options
for more than 500,000 shares in any fiscal year (the "Grant Limit"). The Grant
Limit is subject to appropriate adjustment in the event of certain changes in
the Company's capital structure, as previously described. No option granted
under the 2000 Plan may become exercisable unless and until the Plan is approved
by the Company's shareholders.
ADMINISTRATION. The 2000 Plan will be administered by the Board of
Directors or a duly appointed committee of the board, which, in the case of
options intended to qualify for the performance-based compensation exemption
under Section 162(m) of the Internal Revenue Code, must be comprised solely of
two or more "outside directors" within the meaning of Section 162(m). (For the
purposes of this discussion, the term "board" refers to either the Board of
Directors or a committee of the board.) Subject to the provisions of the 2000
Plan and with the exception of options granted automatically to nonemployee
directors as described below, the board determines the persons to whom options
are to be granted, the number of shares to be covered by each option, the timing
and terms of exercisability and vesting of each option, the purchase price and
the type of consideration to be paid to the Company upon the exercise of each
option, the time of expiration of each option, and all other terms and
conditions of the options. The board may amend, modify, extend, cancel or renew
any option, waive any restrictions or conditions applicable to any option, and
accelerate, continue, extend or defer the exercisability or vesting of any
option. The 2000 Plan provides, subject to certain limitations, for
indemnification by the Company of any director, officer or employee against all
reasonable expenses, including attorneys' fees, incurred in connection with any
legal action arising from the person's action or failure to act in administering
the 2000 Plan. The board will interpret the 2000 Plan and options granted under
it, and all determinations of the board will be final and binding on all persons
having an interest in the 2000 Plan or any option.
ELIGIBILITY. Options may be granted under the 2000 Plan to employees ,
directors and consultants of the Company or of any present or future parent or
subsidiary corporations of the Company. In addition, options may be granted to
prospective service providers in connection with written offers of employment or
other service relationship, provided that no shares may be purchased prior to
such person's commencement of service. As of June 30, 2000, the Company and its
subsidiaries had approximately 148 employees, including 15 executive officers
and 6 directors and consultants who would be eligible under the 2000 Plan.
TERMS AND CONDITIONS OF OPTIONS. Each option granted under the 2000
Plan will be evidenced by a written agreement between the Company and the
optionee specifying the number of shares subject to the option and the other
terms and conditions of the option, consistent with the requirements of the 2000
Plan. All options must have an exercise price equal to at least 85% of the fair
market value of a share of the Company's common stock on the date of grant,
except for any options granted in substitution for options in certain corporate
reorganizations in a manner that would qualify under Section 424(a) of the
Internal Revenue Code. As of June 16, 2000, the closing price of the Company's
common stock, as reported on the Nasdaq National Market, was $13.0625 per share.
The 2000 Plan provides that the option exercise price may be paid in
cash, by check or cash equivalent; by the assignment of the proceeds of a sale
or loan with respect to some or all of the shares being acquired upon the
exercise of the option; to the extent legally permitted, by surrender to the
Company of shares of its common stock owned by the optionee having a fair market
value not less than the exercise price or by means of a promissory note if the
optionee is an employee; by such other lawful consideration as approved by the
board; or by any combination of these. Nevertheless, the board may restrict the
forms of payment permitted in connection with any option grant. No option may be
exercised unless the optionee has made adequate provision for federal, state,
local and foreign taxes, if any, relating to the exercise of the option.
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9
Options will become vested and exercisable at such times or upon such
events and subject to such terms, conditions, performance criteria or
restrictions as specified by the board. The maximum term of any option granted
under the 2000 Plan is 20 years, provided that an option granted to a
nonemployee member of the board will have a term of ten years. An option
generally will remain exercisable for six months following the optionee's
termination of service. However, if such termination results from the optionee's
death or disability, the option generally will remain exercisable for 12 months.
In any event, the option must be exercised no later than its expiration date.
Options granted under the 2000 Plan are generally nontransferable by
the optionee other than by will or by the laws of descent and distribution, and
are exercisable during the optionee's lifetime only by the optionee except to
the extent permitted by the board and set forth in the option agreement.
AUTOMATIC GRANT OF NONEMPLOYEE DIRECTOR OPTIONS. In addition to
authorizing the board to grant options to employees, directors and consultants
on a discretionary basis, the 2000 Plan provides for the nondiscretionary,
automatic grant of options to nonemployee directors, that is, members of the
board who, at the time of grant, are not employees of the Company or of any
parent or subsidiary of the Company. On the Effective Date, each nonemployee
director then in office was granted an option (an "Effective Date Option") to
purchase 1,500 shares of the Company's common stock provided that the option
will not be exercisable prior to approval of the 2000 Plan by the Company's
shareholders and will terminate if such approval is not received at an exercise
price of $15.00 per share. In addition, on the dates of the 2001 annual meeting
of the shareholders and each subsequent Annual Meeting during the term of the
2000 Plan, each nonemployee director remaining in office after the Annual
Meeting will be granted automatically an option (an "Annual Option") to purchase
a number of shares of common stock determined by dividing $15,000 by the
Black-Scholes value per share subject to the option, as determined by the
Company's independent auditors on the same basis as would apply to such options
for the purposes of disclosure in the Company's financial statements. The
exercise price per share under each Effective Date Option is $15.00. The closing
price of the Company's common stock on the Effective Date as reported on the
Nasdaq National Market was $11.1875. The exercise price per share under each
Annual Option will equal the fair market value of a share of the Company's
common stock on the date of grant, generally the closing price reported on the
Nasdaq National Market. Unless earlier terminated under the terms of the 2000
Plan, each nonemployee director option will expire ten years after grant. With
the exception of the Effective Date Options, nonemployee director options will
be exercisable in full on and after their date of grant. Nonemployee director
options will remain exercisable for six months following the director's
termination of service unless such termination results from the director's
death, disability or a Change in Control as described below, in which case the
option will remain exercisable for 12 months, provided that in no event may the
option be exercised after its expiration date.
CHANGE IN CONTROL. The 2000 Plan defines a "Change in Control" of the
Company as any of the following events upon which the shareholders of the
Company immediately before the event do not retain immediately after the event,
in substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before the event, direct or indirect
beneficial ownership of more than 50% of the total combined voting power of the
stock of the Company, its successor or the corporation to which the assets of
the Company were transferred, as the case may be: (i) a sale or exchange by the
shareholders in a single or series of related transactions of more than 50% of
the Company's voting stock; (ii) a merger or consolidation in which the Company
is a party; (iii) the sale, exchange or transfer of all or substantially all of
the assets of the Company; or (iv) a liquidation or dissolution of the Company.
If a Change in Control occurs, the surviving, continuing, successor or
purchasing corporation or other business entity or parent thereof may either
assume the Company's rights and obligations under the outstanding options or
substitute substantially equivalent options for the acquirer's stock. The 2000
Plan permits the board, in granting any option, to provide in the option
agreement that if the outstanding option is not assumed or replaced upon a
Change in Control then its vesting and exercisability will be accelerated
effective ten days prior to the Change in Control to such extent, if any, as
specified by the board in the option agreement. Options that are not assumed,
replaced or exercised prior to a Change in Control will terminate. In addition,
the 2000 Plan permits the board to provide in any option agreement that if,
within 12 months following a Change in Control, the optionee's service is
involuntarily terminated without cause (as defined in the plan) or the optionee
resigns for good reason (as defined in the plan), then the vesting and
exercisability of the option will be accelerated to such extent, if any, as
specified by the board in the option agreement, and the option will remain
exercisable for up to 12 months after the date of the optionee's termination of
service (but not beyond the option's expiration date).
TERMINATION OR AMENDMENT. The 2000 Plan will continue in effect until
the earlier of its termination by the board or the date on which all shares
available for issuance under the plan have been issued and all restrictions on
such shares under the terms of the plan and the agreements evidencing options
granted under the plan have lapsed. The board may terminate or amend the 2000
Plan at any time. However, without shareholder approval, the board may not amend
the 2000 Plan to increase the total
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number of shares of common stock issuable thereunder or effect any other change
that would require shareholder approval under applicable law. No termination or
amendment may affect an outstanding option unless expressly provided by the
board, and, in any event, may not adversely affect an outstanding option without
the consent of the optionee, unless the amendment is necessary to comply with
applicable law.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the
U.S. federal income tax consequences under current law of participation in the
2000 Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
Options granted under the 2000 Plan are not intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code and,
therefore, will be nonstatutory stock options having no special tax status. An
optionee generally recognizes no taxable income as the result of the grant of a
nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee normally recognizes ordinary income in the amount of the difference
between the option exercise price and the fair market value of the shares on the
determination date (as defined below). If the optionee is an employee, such
ordinary income generally is subject to withholding of income and employment
taxes. The "determination date" is the date on which the option is exercised
unless the shares are subject to a substantial risk of forfeiture (as in the
case where an optionee is permitted to exercise an unvested option and receive
unvested shares which, until they vest, are subject to the Company's right to
repurchase them at the original exercise price upon the optionee's termination
of service) and are not transferable, in which case the determination date is
the earlier of (i) the date on which the shares become transferable or (ii) the
date on which the shares are no longer subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to Section 83(b) of the Internal Revenue Code, to have the
exercise date be the determination date by filing an election with the Internal
Revenue Service no later than 30 days after the date the option is exercised.
Upon the sale of stock acquired by the exercise of a nonstatutory stock option,
any gain or loss, based on the difference between the sale price and the fair
market value on the determination date, will be taxed as capital gain or loss.
No tax deduction is available to the Company with respect to the grant of a
nonstatutory stock option or the sale of the stock acquired pursuant to such
grant. The Company generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee as a result of the exercise
of a nonstatutory stock option, except to the extent such deduction is limited
by applicable provisions of the Internal Revenue Code.
NEW PLAN BENEFITS
On April 7, 2000, the date on which it adopted the 2000 Plan, the Board
of Directors approved the grant of options to selected employees, and Effective
Date Options were granted under the terms of the 2000 Plan to the nonemployee
directors. However, the 2000 Plan provides that such options may not be
exercised and will terminate if the shareholders do not approve the 2000 Plan.
The Board of Directors established an exercise price of $15.00 per share under
these options. On April 7, 2000, the closing price per share of the Company's
common stock as reported on the Nasdaq National Market was $11.1875.
With the exception of the future automatic grant of options to
nonemployee directors, all options will be granted under the 2000 Plan at the
discretion of the Board of Directors, and, accordingly, are not yet
determinable. In addition, benefits under the 2000 Plan will depend on a number
of factors, including the fair market value of the Company's common stock on
future dates and the exercise decisions made by the optionees. Consequently it
is not possible to determine the benefits that might be received by optionees
receiving discretionary grants under the 2000 Plan. Furthermore, with respect to
options to be granted automatically to nonemployee directors on the dates of
subsequent annual meetings, the number of shares subject to each option will
depend on the values of the factors taken into account in applying the
Black-Scholes option pricing model. These include the fair market value of the
Company's common stock on the grant date, the option exercise price, the
expected life of the option, the expected stock price volatility, the expected
dividends on common stock, and the risk-free interest rate for the expected term
of the option.
The following table sets forth (i) the numbers of shares subject to
options granted to certain persons and groups of persons subject to the approval
of the 2000 Plan by the shareholders, and (ii) the numbers of shares that would
have been granted on July 19, 1999 the date of last year's annual meeting of
shareholders, to those nonemployee directors remaining in office immediately
following that annual meeting had the 2000 Plan been in effect and had the
number of shares subject to such options been determined by the Black-Scholes
formula method provided under the 2000 Plan for nonemployee director options to
be granted on the dates of the annual meetings in 2001 and subsequent years
during the term of the 2000 Plan.
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VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
Approval of this proposal requires a number of votes "For" the proposal
that represents a majority of the shares present or represented by proxy and
voting at the Annual Meeting. Abstentions and broker non-votes will each be
counted as present for purposes of determining the presence of a quorum but will
have no effect on the outcome of the vote.
As described above, the 2000 Plan is intended to preserve the treatment
of option-related compensation as "performance-based compensation" for purposes
of Section 162(m) of the Code. By approving this proposal, the shareholders will
be approving, among other things, the eligibility requirements for participation
in the 2000 Plan and the Grant Limit.
The Board of Directors believes that adoption of the proposed 2000 Plan
is in the best interests of the Company and its shareholders for the reasons
stated above. THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE THE 2000 PLAN.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has an Executive Committee, an Audit
Committee, a Compensation Committee, and a Nominating Committee.
The Executive Committee currently consists of Messrs. Langley (Chairman), Hart,
and Weil. The Executive Committee may exercise substantially all the powers
vested in the Board of Directors except for certain actions as prescribed by
California law.
The Audit Committee consists of Messrs. Ruppert (Chairman), Foulkrod, and
Williams, none of whom has been or is an officer or employee of the Company. In
1999, this Committee met seven times. The functions of the Audit Committee
include reviewing the accounting principles and practices employed by the
Company and its subsidiaries; meeting with the Company"s independent auditors to
review their reports on their audits of the Company"s financial statements,
their comments on the internal
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accounting controls of the Company and the action taken by management with
regard to such comments; reviewing auditor independence; issuing an Audit
Committee report to shareholders; and recommending annually to the Board of
Directors the appointment of the Company"s independent auditors. The Audit
Committee has the authority, in its discretion, to order interim and unscheduled
audits and to perform such other duties as may be assigned to it from time to
time by the Board of Directors.
The Compensation Committee consists of Messrs. Weil (Chairman), Foulkrod, and
Ruppert, none of whom was or is an officer or employee of the Company. The
Compensation Committee met one time in 1999. The functions of the Compensation
Committee include reviewing and approving the overall executive compensation
program for officers of the Company and its subsidiaries, considering and
reviewing compensation levels for services as a member of the Board of
Directors, approving individual executive officer compensation packages and
recommending to the Board of Directors modifications of the compensation package
for the Chief Executive Officer. The Compensation Committee"s goals are to
attract and retain qualified directors and key executives critical to the
long-term success of the Company, to reward executives for the long-term success
of the Company and the enhancement of shareholder value, and to integrate
executive compensation with both annual and long-term financial results of the
Company.
The Nominating Committee met one time in 1999. Its members consist of Messrs.
Langley (Chairman), Ruppert, and Hart. The Committee will consider nominees
recommended by shareholders; such recommendations must be submitted in writing
to the Committee.
DIRECTORS' ATTENDANCE
In 1999, there were five meetings of the Board of Directors of the Company. All
of the directors attended 75% or more of the aggregate of their respective Board
of Directors and Committee meetings.
DIRECTORS' COMPENSATION
Directors who are not officers or employees of the Company or its subsidiaries
receive a retainer of $15,000 per year, $1,000 for each Board and Committee
meeting attended in person and $500.00 for each telephonic Board and Committee
meeting attended. There is a limit of $4,000 per day in Board and Committee fees
to any one director. In line with the recent study by William M. Mercer,
Incorporated, the annual retainer for each nonemployee member of the Board of
Directors was increased to $20,000 effective July 1, 2000; see Report of the
Compensation Committee.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation for
fiscal year 1999 of the (i) Chief Executive Officer of the Company (ii) the four
other highly compensated executive officers of the Company as of December 31,
1999 whose salary and bonus exceeded $100,000. (Messrs. Langley, Hart, Sharpe,
Burchfield, and Mosier are sometimes hereinafter referred to as "Named
Officers"). Amounts under the caption "Bonus" are amounts earned for performance
during the year including amounts paid after the end of the year.
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(1) Mr. Hart became President and CEO of the Company on November 20, 1996.
Prior to that time he was President and CEO of Physicians Insurance
Company of Ohio since July 15, 1995.
(2) Mr. Langley and Mr. Hart were each compensated $533,328 by the Company
for consulting services in 1997 in the areas of investment banking,
investment portfolio analysis, and analysis of operations. In addition,
Mr. Langley and Mr. Hart entered into consulting agreements with a
subsidiary of Global Equity Corporation for annual compensation of
$266,672 each for consulting services in the areas of investment
banking, investment portfolio analysis, and analysis of operations. On
December 31, 1997, Mr. Langley and Mr. Hart each signed employment
agreements with the Company on terms substantially similar to the
consulting agreements.
(3) Mr. Langley became Chairman of the Board of Directors of Physicians
Insurance Company of Ohio on July 15, 1995. He became Chairman of the
Board of Directors of the Company on November 20, 1996.
(4) Mr. Sharpe became Chief Operating Officer of Physicians Insurance
Company of Ohio on June 3, 1994. He became Chief Operating Officer of
the Company on November 20, 1996.
(5) Mr. Burchfield became Chief Financial Officer and Treasurer of
Physicians Insurance Company of Ohio on November 3, 1995. He became
Chief Financial Officer and Treasurer of the Company on November 20,
1996.
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(6) Mr. Mosier became General Counsel and Secretary of Physicians Insurance
Company of Ohio in 1984. He became General Counsel and Secretary of the
Company on November 20, 1996.
(7) Represents amounts contributed by the Company to the PICO Holdings,
Inc. Employees 401(k) Retirement Plan and Trust. This retirement plan
conforms to the requirements of the Employee Retirement Income Security
Act.
OPTION GRANTS IN LAST FISCAL YEAR
None of the Named Officers received options during the year ended December 31,
1999.
OPTION EXERCISES AND FISCAL 1999 YEAR-END VALUE
The following table provides information concerning options held as of December
31, 1999 by the Named Officers. No options were exercised in 1999 by such
individuals.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- ----------
(1) Based on the closing price of the Company's Common Stock on December
31, 1999 on the Nasdaq National Market of $12.3125 per share.
(2) The number of options shown above for Mr. Langley and Mr. Hart includes
the right to purchase shares of the Company under Call Option
Agreements assumed by the Company in August 1998; see Stock Ownership
of Certain Beneficial Owners and Management, footnote 4.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
Mr. Langley and Mr. Hart each entered into employment agreements effective
December 31, 1997 with the Company. Total compensation to Mr. Langley and Mr.
Hart under these employment agreements is $800,000 each on an annual basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a rights offering conducted by the Company in March 2000, an
investment partnership named PICO Equity Investors, L.P. acquired on March 28,
2000, 3,333,333 newly issued shares which were not subscribed for in the rights
offering. PICO Equity Investors, L.P. is managed by PICO Equity Investors
Management, LLC. PICO Equity Investors Management, LLC is owned by Mr. Langley,
Mr. Hart and Mr. Weil. PICO Equity Investors Management, LLC will exercise all
voting and investment decisions with respect to these 3,333,333 shares for up to
ten years. The interest of PICO Equity Investors Management, LLC in any profits
and losses earned on this investment will be proportional to the capital
contributions made to PICO Equity Investors, L.P. by the partners; i.e.,
1,000/50,001,000. There are no other fees or other management compensation of
any kind payable to Mr. Langley, Mr. Hart, and Mr. Weil.
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REPORT OF THE COMPENSATION COMMITTEE
This report of the Compensation Committee, and the Stock Price Performance Graph
set forth below, shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933, as amended (the "Securities Act") or under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under the Securities Act or the Exchange
Act.
COMMITTEE MEMBERS
The three-member Compensation Committee of the Board of Directors is a standing
committee composed entirely of outside Directors. Mr. Weil is the chairman and
Mr. Foulkrod and Dr. Ruppert are the other members.
COMMITTEE FUNCTIONS
The Compensation Committee is responsible for assuring that all of the executive
compensation programs of the Company are developed, implemented, and
administered in a way that supports the Company's fundamental philosophy that a
significant portion of executive compensation should be effectively linked to
Company performance.
The Compensation Committee meets on a regularly scheduled basis. It reviews and
approves the overall executive compensation program which includes both base pay
and incentive compensation. It considers and approves individual executive
officer compensation packages based on recommendations of the Company's Chief
Executive Officer. It recommends, for the approval of the full Board, any
modification to the compensation package of the Company's Chief Executive
Officer.
The Compensation Committee also reviews the level of compensation paid to
nonemployee members of the Company's Board of Directors and makes
recommendations to the Board of Directors to modify the level of nonemployee
directors compensation when appropriate.
EXECUTIVE COMPENSATION PHILOSOPHY
The Board of Directors of the Company's predecessor retained an independent
compensation expert, William M. Mercer, Incorporated ("Mercer"). In 1996, Mercer
conducted an analysis of marketplace executive compensation levels. The scope of
Mercer's study covered the Company's Chairman and President and Chief Executive
Officer. The objectives of Mercer's study were as follows:
o Analyze the scope, responsibilities and skill requirements of the jobs
performed by Messrs. Langley and Hart and compare and contrast to
comparable benchmark executive positions found in the marketplace.
o Develop an appropriate methodology for selecting comparable benchmark
jobs, industry categories and a peer group of companies comparable to
the Company in terms of business focus, industry classification and
size; and competition for senior executives with the skills, expertise
and talent demonstrated by the Company's top two executives.
o For the appropriate benchmark jobs, industry category and peer company
group, collect information on marketplace compensation levels and
practices from compensation surveys and peer company proxy statements.
The companies included in the peer company group are not necessarily
those included in the Nasdaq Insurance Stock Index used to determine
the most relevant marketplace compensation levels and to compare actual
Company compensation levels.
o Develop alternate approaches for structuring the total compensation
package for the Company's top two executives, in terms of compensation
elements to be used, the mix of total pay and how short and long term
incentive compensation might be structured to accurately reflect
performance.
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Mercer's study recommended to the Compensation Committee a compensation strategy
with the following objectives:
o To provide a total compensation package that:
- is competitive with market rates for executives with similar
skill, talent and job requirements.
- is closely linked to the Company's strategy and the role of
covered executives in building shareholder value through
growing the book value and, ultimately, the market value of
the Company.
o To retain critical executive talent by:
- providing a reasonable and competitive level of current income
(cash flow).
- providing for loss of future incentive opportunity if an
executive terminates employment before unrealized investment
gains are realized.
o To link executive rewards to shareholder interests by:
- tying incentive awards to growth in book value which
ultimately translates into increased market price per share
(as investments are liquidated for gains, and the Company
grows earnings).
- granting additional stock options in the future.
The Compensation Committee believes that to accomplish these goals, the
executive compensation program should be based on three distinct components:
base pay, annual incentives, and long-term incentives. The Company obtains
industry and peer group surveys, and consults with independent experts, to
evaluate the Company's executive compensation programs in comparison with those
offered by its comparable competitors.
In March 2000, the Compensation Committee asked Mercer to examine the present
level of stock options granted to the Company's management, to recommend an
appropriate level of stock options to be granted in the future to the Company's
management, and to review the level of compensation paid to the Company's
nonemployee directors. The Compensation Committee believed such a review by
Mercer was necessary in order to assist the Company in retaining and attracting
qualified directors and executives, and to link executive and director rewards
to the long term interests of the Company's shareholders. Mercer's study
recommended that additional stock options be granted to management to enhance
the Company's ability to retain and attract key executives. Mercer's study also
recommended that, to enable the Company to remain competitive and to continue to
be able to retain and attract qualified members of the Board of Directors and to
align directors long term interests with those of shareholders, nonemployee
directors compensation should be increased and should contain an element of
stock options granted annually. The nonemployee directors options granted
annually will vest immediately as a further incentive to nonemployee directors
and to further link nonemployee director's compensation with the Company's
performance. In line with the recent study by Mercer, with respect to annual
cash remuneration paid to nonemployee directors, the board approved the
Compensation Committees recommendation that the Company's annual retainer fee be
increased to $20,000 per nonemployee director.
The Compensation Committee has considered amendments to the Internal Revenue
Code denying deductions for annual compensation to certain executives in excess
of $1 million, subject to certain exceptions. The Company's compensation
structure has been such that it does not believe that it is likely that the $1
million cap will affect the Company in the near future. The Internal Revenue
Service has issued proposed regulations which, among other things, provide for a
transition period of three years for plans previously approved by shareholders.
The Company is studying the proposed regulations, but has not yet determined
what steps may be required or desirable with respect to its existing plans.
EXECUTIVE COMPENSATION PROGRAM
The features of the executive compensation program as recommended by Mercer and
approved by the Compensation Committee are:
BASE COMPENSATION. A fixed rate, to be reviewed annually. Future adjustments
will take into account movement in executive compensation levels, changes in job
responsibilities, and the size of the Company.
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INCENTIVE AWARDS. Based on growth of book value per share in a fiscal year.
Awards are earned when a pre-determined threshold is surpassed. If book value
per share of the Company exceeds this threshold, the incentive award is equal to
5% of the increase in book value per share multiplied by the number of shares
outstanding at the beginning of the fiscal year. The threshold for 1999 was 23%.
GOALS OF COMPENSATION COMMITTEE
The Compensation Committee attempts to align executive compensation with the
value achieved by the executives for the Company's shareholders. The Company's
compensation program for executives emphasizes a combination of base salary,
discretionary bonuses, and stock options designed to attract, retain, and
motivate executives who will maximize shareholder value. The Compensation
Committee considers individual and Company performance, as well as compensation
paid by comparable companies.
Executives also participate in other employee benefit programs, including health
insurance, group life insurance, and the Company's 401(k) Plan.
DISCUSSION OF 1999 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
No bonus was paid with respect to the Company's performance in 1999. In 1997,
the Compensation Committee recommended to the Board of Directors, and the Board
of Directors accepted the recommendation, that it was appropriate for the CEO
and the Chairman to be compensated as employees, rather than as consultants.
Accordingly, effective December 31, 1997, the CEO and Chairman entered into
employment agreements with the Company.
As stated above, the Compensation Committee believes the interest of Company
shareholders is best served by aligning the CEO's short-term compensation, over
and above competitive fixed annual rate of pay, with an increase in the
Company's book value per share which will ultimately be reflected in higher
market values per share. Specifically, a threshold was set at 80% of the S&P
500's annualized total return for the five previous calendar years. For 1999,
this threshold was approximately 23%. Since the Company's book value per share
decreased in 1999, and did not exceed the threshold, no bonus was payable for
1999.
In light of the Global Equity Corporation options converted to options to buy
the Company's stock in 1998 and the Company's assumption of the Guinness Peat
Group, plc call option agreements in 1998, the Compensation Committee did not
grant any options to the CEO in 1999.
The Committee believes that the compensation provided by this combination of
fixed annual compensation, and short-term and long term incentives provides a
mechanism to fairly compensate the CEO while providing the CEO with a strong
incentive to maximize shareholder value.
June 28, 2000 Compensation Committee
John D. Weil, Chairman
S. Walter Foulkrod, III, Esq.
Richard D. Ruppert, MD
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions
Messrs. Weil and Foulkrod,Campbell, and Dr. Ruppert, serve as members of the Compensation Committee. None of these individuals had anyis, or has been, an employee or officer of the interlock relationships
requiring disclosure.
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STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of the Company, the Nasdaq
Insurance Stocks Index, and the Nasdaq Stock Market (U.S. Companies) for the
period January 1, 1995 through December 31, 1999.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PICO HOLDINGS, INC., NASDAQ INSURANCE STOCK INDEX AND RUSSELL 2000 INDEX
[PERFORMANCE GRAPH]
Assumes $100 invested on Jan. 1, 1995
Fiscal Year Ending Dec. 31, 1999
The graph assumes $100 was invested on January 1, 1995 in the Company's Common
Stock, the Nasdaq Stock Market (U.S. Companies) Index, and the Nasdaq Insurance
Stocks Index, and that all dividends were reinvested. The performance of PICO
Holdings, Inc. stock on this graph represents the historical performance of
shares of Citation Insurance Group, which was renamed PICO Holdings, Inc. on
November 20, 1996. It does not represent the historical stock performance of
Physicians Insurance Company of Ohio.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based on a review of the copies of these reports received by the Company and
written representations from certain reporting persons that they have complied
with the relevant filing requirements, the Company believes that all filing
requirements have been complied with on a timely basis for the fiscal year ended
December 31, 1999.
INDEPENDENT AUDITORS
Deloitte & Touche LLP was the Company's independent auditing firm for fiscal
year 1999 and has been appointed by the Board of Directors as the Company's
independent auditing firm for fiscal year 2000. Representatives of Deloitte &
Touche LLP are expected to be present at the meeting, will have the opportunity
to make any statements they desire, and will be available to respond to
appropriate questions from shareholders.
Company.
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SOLICITATION OF PROXIES
The Board of Directors is not aware of any matters other than those specifically stated in the Notice of AnnualSpecial Meeting which are to be presented for action at the meeting. However, should any further matter requiring a vote of the shareholders arise, it is the intention of the persons named in the proxy to vote the proxy in accordance with their judgment.
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The cost of this solicitation of proxies is being borne by the Company. In addition to the solicitation of proxies by use of the mails,mail, the Company may use the services of one or more directors, officers or other regular employees of the Company (who will receive no additional compensation for their services in such solicitation) to solicit proxies personally and by telephone. Arrangements will be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of the stock held of record by such persons, and the Company will reimburse such firms or persons for reasonable expenses actually incurred by them in so doing.
SHAREHOLDER NOMINATION OF DIRECTORS
Nominations other than those made by the directors of the Company must be in
writing and be delivered or mailed to the Secretary of the Company not less than
60 days prior to the Annual Meeting. Such nominations must include the
information regarding each nominee required by the Bylaws of the Company.
Nominations not made according to these procedures will be disregarded.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
AT NEXT ANNUAL MEETING
Proposals of stockholdersshareholders intended to be presented at the next annual meeting of the stockholdersshareholders of the Company must be received by the Company at its offices no later than March 9, 2001,January 27, 2006, and satisfy the conditions established by the Securities and Exchange Commission for stockholdershareholder proposals to be included in the Company's proxy statementCompany’s Proxy Statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business that the Board of Directors intends to present or knows that others will present at the meeting is as set forth above. If any other matter or matters are properly brought before the meeting, or any adjournment thereof, it is the intention of the persons named in the accompanying form of proxy to vote the proxy on such matters in accordance with their best judgment.
July 7, 2000
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APPENDIX 1
November 8, 2005
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Appendix I
PICO HOLDINGS, INC.
2000 NONSTATUTORY STOCK OPTION PLAN
2005 Long-Term Incentive Plan
2005 Long-Term Incentive Plan
PICO Holdings, Inc.
2005 Long-Term Incentive Plan
2005 Long-Term Incentive Plan
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
---------------------------------------Establishment, Purpose and Term of Plan.
1.1 ESTABLISHMENT. Establishment.The PICO Holdings, Inc. 2000 Nonstatutory Stock
Option2005 Long-Term Incentive Plan (the "PLAN"“Plan”) is hereby established effective as of April 7, 2000,
the date of its adoptionDecember 8, 2005 (the“Effective Date”), subject to approval by the Board (the "EFFECTIVE DATE")shareholders of the Company on that date.
1.2Purpose.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its shareholders by providing an incentive to attract and retain and reward persons performingthe best qualified personnel to perform services for the Participating Company Group, and by motivating such persons to contribute to the growth and profitability of the Participating Company Group.Group, by aligning their interests with interests of the Company’s shareholders, and by rewarding such persons for their services by tying a significant portion of their total compensation package to the success of the Company. The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Shares, Performance Units, Restricted Stock Units, Deferred Compensation Awards and other Stock-Based Awards as described below.
1.3 TERM OF PLAN. Term of Plan.The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing OptionsAwards granted under the Plan have lapsed. However, all Awards shall be granted, if at all, within ten (10) years from the Effective Date. Moreover, Incentive Stock Options shall not be granted later than ten (10) years from the date of shareholder approval of the Plan.
2. DEFINITIONS AND CONSTRUCTION.
----------------------------Definitions and Construction.
2.1 DEFINITIONS. Definitions.Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) "BOARD" “Affiliate”means (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly, or indirectly through one or more intermediary entities. For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration on Form S-8 under the Securities Act.
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(b) “Award”means any Option, SAR, Restricted Stock Award, Performance Share, Performance Unit, Restricted Stock Unit or Deferred Compensation Award or other Stock-Based Award granted under the Plan.
(c) “Award Agreement”means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant.
(d) “Board”means the Board of Directors of the Company. If
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(e) “Change in Control”means the occurrence of any of the following events:
(i) The members of the Board on the Effective Date (“Incumbent Directors”) cease for any reason other than death to constitute at least a majority of the members of the Board, provided that any director whose election, or more Committees have been appointednomination for election by the BoardCompany’s shareholders, was approved by a vote of at least a majority of the then Incumbent Directors also will be treated as an Incumbent Director; or
(ii) Any “person” including a “group” (as such terms are used in the Exchange Act §§13(d) and 14(d)(2), but excluding the Company, any other Participating Company, any employee benefit plan of the Company or any Participating Company) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing more than 50 percent of the combined voting power of the Company’s then outstanding securities; or
(iii) The consummation of a definitive agreement or a series of related agreements[a]for the merger or other business combination of the Company with or into another entity of which the shareholders of the Company immediately before the effective date of the merger or other business combination own less than 50 percent of the voting power of the surviving business entity immediately after the effective date of the merger or other business combination or[b]for the sale or other disposition of all or substantially all of the assets of the Company to administeranother entity in which the Plan,
"BOARD" also meansshareholders of the Company immediately before the effective date of such Committee(s).
(b) "CODE" merger or other business combination own less than 50 percent of the voting power immediately after the sale or disposition; or
(iv) The liquidation or dissolution of the Company.
(f) “Code”means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE"
(g) “Committee”means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY"
(h) “Company”means PICO Holdings, Inc., a California corporation, or any successor corporation thereto.
(e) "CONSULTANT"
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(i) “Consultant”means a person engaged to provide consulting or advisory services (other than as an Employee or a Director)member of the Board) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on registration on a Form S-8 Registration Statement under the Securities Act.
(f) "DIRECTOR"
(j) “Deferred Compensation Award”means an award of Stock Units granted to a Participant pursuant to Section 11 of the Plan.
(k) “NonemployeeDirector”means a member of the Board orwho is not an employee of the board of
directors of any other Participating Company.
(g) "DISABILITY"
(l) “Disability”means the inabilitypermanent and total disability of the Optionee, inParticipant, within the opinionmeaning of Section 22(e)(3) of the Code.
(m) “Dividend Equivalent”means a credit, made at the discretion of the Committee or as otherwise provided by the Plan, to the account of a qualified physician acceptableParticipant in an amount equal to the Company, to perform the major
dutiescash dividends paid on one share of the Optionee's position with the Participating Company Group becauseStock for each share of the sickness or injury of the Optionee.
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(h) "EMPLOYEE" Stock represented by an Award held by such Participant.
(n) “Employee”means any person treated as an employee (including an Officer or a Directormember of the Board who is also treated as an employee) in the records of a Participating Company;Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Directormember of the Board nor payment of a director'sdirector’s fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual'sindividual’s employment or termination of employment, as the case may be. For purposes of an individual'sindividual’s rights, if any, under the Plan as of the time of the Company'sCompany’s determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination.
(i) "EXCHANGE ACT"
(o) “Exchange Act”means the Securities Exchange Act of 1934, as amended.
(j) "FAIR MARKET VALUE"
(p) “Fair Market Value”means, as of any date, the value of a share of Stock or other property as determined by the Board,Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
(i) If,Except as otherwise determined by the Committee, if, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean
of the closing bid and asked prices of a share of Stock if the Stock is so
quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap
MarketNew York Stock Exchange or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported inThe Wall Street Journalor such other source as the Company deems reliable. If the relevant date does not fall on a day on
3
which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board,Committee, in its discretion.
(ii) If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the BoardCommittee in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse.
(k) "INSIDER"
(q) “Incentive Stock Option”means an Option intended to be (as set forth in the Award Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.
(r) “Insider”means an Officer, or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
(l) "NONSTATUTORY STOCK OPTION"
(s) “Net-Exercise”means a procedure by which the Participant will be issued a number of shares of Stock determined in accordance with the following formula:
X = Y(A-B)/A, where
X = the number of shares of Stock to be issued to the Participant upon exercise of the Option;
Y = the total number of shares with respect to which the Participant has elected to exercise the Option;
A = the Fair Market Value of one (1) share of Stock;
B = the exercise price per share (as defined in the Participant’s Award Agreement).
(t) “Nonemployee Director”means a Director who is not an Employee.
(u) “Nonstatutory Stock Option”means an Option not intended to be (as set forth in the Award Agreement) an incentive stock option within the meaning of Section 422(b) of the Code.
(m) "NONEMPLOYEE DIRECTOR" means a Director of the Company who
is not an Employee.
(n) "NONEMPLOYEE DIRECTOR OPTION" means an Option granted to a
Nonemployee Director pursuant to Section 7 of the Plan.
(o) "OFFICER"
(v) “Officer”means any person designated by the Board as an officer of the Company.
(p) "OPTION"
(w) “Option”means athe right to purchase Stock at a stated price for a specified period of time granted to a Participant pursuant to the
terms and conditionsSection 6 of the Plan. All Options shallAn Option may be either an Incentive Stock Option or a Nonstatutory Stock Options.
(q) "OPTION AGREEMENT" Option.
(x) “Option Expiration Date”means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictionsdate of expiration of the Option granted toOption’s term as set forth in the Optionee and any shares acquired upon the exercise
thereof. An Option Agreement may consist of a form of "Notice of Grant of Stock
Option" and a form of "Stock Option Agreement" incorporated therein by
reference, or such other form or forms as the Board may approve from time to
time.
(r) "OPTIONEE" means a person who has been granted one or more
Options.
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(s) "PARENT CORPORATION" Award Agreement.
(y) “Parent Corporation”means any present or future "parent
corporation"“parent corporation” of the Company, as defined in Section 424(e) of the Code.
(t) "PARTICIPATING COMPANY"
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(z) “Participant”means any eligible person who has been granted one or more Awards.
(aa) “Participating Company”means the Company or any Parent Corporation, Subsidiary Corporation or Subsidiary Corporation.
(u) "PARTICIPATING COMPANY GROUP" Affiliate.
(bb) “Participating Company Group”means, at any point in time, all corporationsentities collectively which are then Participating Companies.
(v) "RULE 16B-3"
(cc) “Performance Award”means an Award of Performance Shares or Performance Units.
(dd) “Performance Award Formula”means, for any Performance Award, a formula or table established by the Committee pursuant to Section 9.3 of the Plan which provides the basis for computing the value of a Performance Award at one or more threshold levels of attainment of the applicable Performance Goal(s) measured as of the end of the applicable Performance Period.
(ee) “Performance Goal”means a performance goal established by the Committee pursuant to Section 9.3 of the Plan.
(ff) “Performance Period”means a period established by the Committee pursuant to Section 9.3 of the Plan at the end of which one or more Performance Goals are to be measured.
(gg) “Performance Share”means a bookkeeping entry representing a right granted to a Participant pursuant to Section 9 of the Plan to receive a payment equal to the value of a Performance Share, as determined by the Committee, based on performance.
(hh) “Performance Unit”means a bookkeeping entry representing a right granted to a Participant pursuant to Section 9 of the Plan to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon performance.
(ii) “Restricted Stock Award”means an Award of Restricted Stock.
(jj) “Restricted Stock Unit”or“Stock Unit”means a bookkeeping entry representing a right granted to a Participant pursuant to Section 10 or Section 11 of the Plan, respectively, to receive a share of Stock on a date determined in accordance with the provisions of Section 10 or Section 11, as applicable, and the Participant’s Award Agreement.
(kk) “Restriction Period”means the period established in accordance with Section 8.4 of the Plan during which shares subject to a Restricted Stock Award are subject to Vesting Conditions.
(ll) “Retirement”. Unless the Committee specifies otherwise in the Award Agreement, the date a Participant’s employment, consulting relationship, or membership on the Board of Directors Terminates on or after earlier of [a] reaching age 65 or [b] reaching age 55 and completing at least 7 years of service (as defined in the Company’s tax-qualified
5
Code §401(k) plan as in effect on the Effective Date, whether or not the Participant is participating in, or eligible to participant in, that plan).
(mm) “Rule 16b-3”means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
(w) "SECTION 162(M)"
(nn) “SAR”or“Stock Appreciation Right”means a bookkeeping entry representing, for each share of Stock subject to such SAR, a right granted to a Participant pursuant to Section 7 of the Plan to receive payment in shares of Stock of an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the exercise price.
(oo) “Section 162(m)”means Section 162(m) of the Code, as
amended by the Revenue ReconciliationCode.
(pp) “Securities Act of 1993 (P.L. 103-66).
(x) "SECURITIES ACT" ”means the Securities Act of 1933, as amended.
(y) "SERVICE"
(qq) “Service”means an Optionee'sa Participant’s employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. An Optionee'sA Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the OptioneeParticipant renders such Service to the Participating Company Group or a change in the Participating Company for which the OptioneeParticipant renders such Service, provided that there is no interruption or termination of the Optionee'sParticipant’s Service. Furthermore, an Optionee'sa Participant’s Service with the Participating Company Group shall not be deemed to have terminated if the OptioneeParticipant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. However, if any such leave taken by a Participant exceeds ninety (90) days, then on the one hundred eighty-first (181st) day following the commencement of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option, unless the Participant’s right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Optionee's OptionParticipant’s Award Agreement. The Optionee'sA Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporationentity for which the OptioneeParticipant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Optionee'sParticipant’s Service has terminated and the effective date of such termination.
(z) "STOCK"
(rr) “Stock”means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2.
(aa) "SUBSIDIARY CORPORATION" 4.2 of the Plan.
(ss) “Stock-Based Awards”means any award that is valued in whole or in part by reference to, or is otherwise based on, the Stock, including dividends on the Stock, but not limited to those Awards described in Sections 6 through 11 of the Plan.
(tt) “Subsidiary Corporation”means any present or future "subsidiary corporation"“subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.
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(uu) “Ten Percent Owner”means a Participant who, at the time an Option is granted to the Participant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company (other than an Affiliate) within the meaning of Section 422(b)(6) of the Code.
(vv) “Vesting Conditions”means those conditions established in accordance with Section 8.4 or Section 10.2 of the Plan prior to the satisfaction of which shares subject to a Restricted Stock Award or Restricted Stock Unit Award, respectively, remain subject to forfeiture or a repurchase option in favor of the Company upon the Participant’s termination of Service.
2.2 CONSTRUCTION. Construction.Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or"“or” is not intended to be exclusive, unless the context clearly requires otherwise.
3. ADMINISTRATION.
--------------Administration.
3.1 ADMINISTRATION BY THE BOARD. Administration by the Committee.The Plan shall be administered by the Board.Committee. All questions of interpretation of the Plan or of any OptionAward shall be determined by the Board,Committee, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option.Award.
3.2 AUTHORITY OF OFFICERS. Authority of Officers.Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.3 POWERS OF THE BOARD. In addition, to any other powers set forththe extent specified in a resolution adopted by the Plan and subject toBoard, the provisionsChief Executive Officer of the Plan, the BoardCompany shall have the fullauthority to grant Awards to an Employee who is not an Insider and final power and authority, in its discretion:
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23
(a) to determinewho is receiving a salary below the persons to whom, andlevel which requires approval by the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to determine the Fair Market Value of shares of Stock or
other property;
(c) to determineCommittee; provided that the terms conditions and restrictions
applicableof such Awards conform to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, includingguidelines established by the withholding or delivery of shares of stock, (iv) the timing, termsCommittee and conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v)provided further that at the time of making such Awards the expiration of the
Option, (vi) the effect of the Optionee's termination of ServiceChief Executive Officer also is a Director.
3.3Administration with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicableRespect to the Option or such shares not
inconsistent with the terms of the Plan;
(d) to approve one or more forms of Option Agreement;
(e) to amend, modify, extend, cancel or renew any Option or to
waive any restrictions or conditions applicable to any Option or any shares
acquired upon the exercise thereof;
(f) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(g) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(h) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent not inconsistent with the
provisions of the Plan or applicable law.
3.4 ADMINISTRATION WITH RESPECT TO INSIDERS. Insiders.With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
3.5 COMMITTEE COMPLYING WITH SECTION 162(M)
3.4Committee Complying with Section 162(m). IfWhile the Company is a "publicly“publicly held corporation"corporation” within the meaning of Section 162(m), the Board may establish a Committee of "outside directors"“outside directors” within the meaning of Section 162(m) to approve the grant of any OptionAward which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m).
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3.5Powers of the Committee.In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock or units to be subject to each Award based on the recommendation of the Chief Executive Officer of the Company (except that Awards to the Chief Executive Officer shall be based on the recommendation of the independent members of the Board in compliance with applicable stock exchange rules and Awards to Nonemployee Directors shall be granted automatically pursuant to Section 7 of the Plan);
(b) to determine the type of Award granted and to designate Options as Incentive Stock Options or Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or other property;
(d) to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares purchased pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the Performance Award Formula and Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the effect of the Participant’s termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
(e) to determine whether an Award will be settled in shares of Stock, cash, or in any combination thereof;
(f) to approve one or more forms of Award Agreement;
(g) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;
(h) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participant’s termination of Service;
(i) without the consent of the affected Participant and notwithstanding the provisions of any Award Agreement to the contrary, to unilaterally substitute at any time a Stock Appreciation Right providing for settlement solely in shares of Stock in place of any outstanding Option, provided that such Stock Appreciation Right covers the same number of shares of Stock and provides for the same exercise price (subject in each case to adjustment in
8
accordance with Section 4.2) as the replaced Option and otherwise provides substantially equivalent terms and conditions as the replaced Option, as determined by the Committee;
(j) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards;
(k) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law; and
(l) to delegate to the Chief Executive Officer or the Chief Operating Officer the authority with respect to ministerial matters regarding the Plan and Awards made under the Plan.
3.6 INDEMNIFICATION. Restrictions on Option or SAR Repricing.Without the affirmative vote of holders of a majority of the shares of Stock cast in person or by proxy at a meeting of the shareholders of the Company at which a quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Board shall not approve a program providing for either (a) the cancellation of outstanding Options or SARs and the grant in substitution therefore of new Options or SARs having a lower exercise price or (b) the amendment of outstanding Options or SARs to reduce the exercise price thereof. This paragraph shall not be construed to apply to “issuing or assuming a stock option in a transaction to which section 424(a) applies,” within the meaning of Section 424 of the Code.
3.7Indemnification.In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys'attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, 4
24
suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
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4. SHARES SUBJECT TO PLAN.
----------------------Shares Subject to Plan.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Maximum Number of Shares Issuable.Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be onetwo million twosix hundred fifty four thousand (1,200,000)(2,654,000) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. If an outstanding OptionAward for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock are acquired upon the
exercise ofpursuant to an OptionAward subject to a Companyforfeiture or repurchase option and are forfeited or repurchased by the Company, at the Optionee's exercise price, the shares of Stock allocable to the unexercisedterminated portion of such OptionAward or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued pursuant to the Plan (a) with respect to any portion of an Award that is settled in cash or (b) to the extent such shares are withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 15.2. Upon payment in shares of Stock pursuant to the exercise of an SAR, the number of shares available for issuance under the Plan shall be reduced only by the number of shares actually issued in such payment. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net-Exercise, the number of shares available for issuance under the Plan shall be reduced only by the net number of shares for which the Option is exercised.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. InAdjustments for Changes in Capital Structure.Subject to any required action by the shareholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the shareholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate adjustments shall be made in the number and classkind of shares subject to the Plan and to any outstanding Options,Awards, in the Section 162(m) Grant
LimitAward limits set forth in Section 5.35.4 and in the exercise or purchase price per share ofunder any outstanding OptionsAward in order to prevent dilution or enlargement of Optionees'Participants’ rights under the Plan. NotwithstandingFor purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” Any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, andnumber. The Committee in no eventits sole discretion, may also make such adjustments in the exercise priceterms of any Option be decreasedAward to an amount less thanreflect, or related to, such changes in the par value, if any,capital structure of the stock
subject to the Option.Company or distributions as it deems appropriate, including modification of Performance Goals, Performance Award Formulas and Performance Periods. The adjustments determined by the BoardCommittee pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
----------------------------------Eligibility and Award Limitations.
5.1 PERSONS ELIGIBLE FOR OPTIONS. OptionsPersons Eligible for Awards.Awards may be granted only to Employees, DirectorsConsultants and Consultants, subject to the limitations and
restrictions set forth in Section 5.2.Non-employee Directors. For purposes of the foregoing sentence, "Employees," "Directors" “Employees,” “Consultants“and "Consultants"“Non-employee Directors” shall include prospective
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Employees, prospective DirectorsConsultants and prospective ConsultantsNon-employee Directors to whom OptionsAwards are granted in connection with written offers of an employment or other service relationship with the Participating Company Group.Group; provided, however, that no Stock subject to any such Award shall vest, become exercisable or be issued prior to the date on which such person commences Service.
5.2Participation.Awards are granted solely at the discretion of the Committee. Eligible persons may be granted more than one (1) Option.Award. However, eligibility in accordance with this Section shall not entitle any person to be granted an Option,Award, or, having been granted an Option,Award, to be granted an additional Option.
5.2 OPTION GRANT RESTRICTIONS. A Nonemployee DirectorAward.
5.3Incentive Stock Option Limitations.
(a) Persons Eligible. An Incentive Stock Option may be granted only to a person who, aton the timeeffective date of grant, is an Employee of the Company, a Nonemployee Director.
AllParent Corporation or a Subsidiary Corporation (each being an“ISO-Qualifying Corporation”). Any person who is not an Employee of an ISO-Qualifying Corporation on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee of an ISO-Qualifying Corporation shall be deemed granted effective on the date such person commences Service with an ISO-Qualifying Corporation, with an exercise price determined as of such date in accordance with Section 6.1.
(b) Fair Market Value Limitation.To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by a Participant for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a limitation different from that set forth in this Section, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate which portion of such Option the Participant is exercising. In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Upon exercise, shares issued pursuant to each such portion shall be separately identified.
5.4Award Limits.
(a) Maximum Number of Shares Issuable Pursuant to Incentive Stock Options.
5.3 SECTION 162(M) GRANT LIMIT. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed 2,654,000 shares. The maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to all Awards other than Incentive Stock
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Options shall be the number of shares determined in accordance with Section 4.1, subject to adjustment as provided in Section 4.2 and further subject to the limitation set forth in Section 5.4(b) below.
(b) Aggregate Limit on Full Value Awards.Subject to adjustment as provided in Section 4.2, in no event shall more than 2,654,000 shares in the aggregate be issued under the Plan pursuant to the exercise or settlement of Restricted Stock Awards, Restricted Stock Unit Awards and Performance Awards (“Full Value Awards”). Except with respect to a maximum of five percent (5%) of the shares of Stock authorized in this Section 5.4(b), any Full Value Awards which vest on the basis of the Participant’s continued Service shall not provide for vesting which is any more rapid than annual pro rata vesting over a three (3) year period and any Full Value Awards which vest upon the attainment of Performance Goals shall provide for a Performance Period of at least twelve (12) months.
(c) Section 162(m) Award Limits.The following limits shall apply in the aggregate to the grant of any suchAward if, at the time asof grant, the Company is a "publicly“publicly held corporation"corporation” within the meaning of Section 162(m),.
(i) Options and SARs.Subject to adjustment as provided in Section 4.2, no Employee or prospective Employee shall be granted one or more Options within any fiscal year of the Company one or more Options or Freestanding Stock Appreciation Rights which in the aggregate are for the purchase of more than five hundred thousand (500,000)
shares. An Option which is canceledfifty percent (50 %) of the total number of shares of Stock reserved for issuance under the Plan and approved by the Company’s shareholders.
(ii) Restricted Stock and Restricted Stock Unit Awards.Subject to adjustment as provided in the sameSection 4.2, no Employee shall be granted within any fiscal year of the Company one or more Restricted Stock Awards or Restricted Stock Unit Awards, subject to Vesting Conditions based on the attainment of Performance Goals, for more than fifty percent (50 %) of the total number of shares of Stock reserved for issuance under the Plan and approved by the Company’s shareholders.
(iii) Performance Awards.Subject to adjustment as provided in Section 4.2, no Employee shall be granted (1) Performance Shares which it was granted shall continue to be counted againstcould result in such Employee receiving more than fifty percent (50 %) of the Section 162(m)
Grant Limittotal number of shares of Stock reserved for issuance under the Plan and approved by the Company’s shareholders for each full fiscal year of the Company contained in the Performance Period for such period.
Award, or (2) Performance Units which could result in such Employee receiving more than two million dollars ($2 million) for each full fiscal year of the Company contained in the Performance Period for such Award. No Participant may be granted more than one Performance Award for the same Performance Period.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------Terms and Conditions of Options.
Options shall be evidenced by OptionAward Agreements specifying the number of shares of Stock covered thereby, in such form as the BoardCommittee shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed OptionAward Agreement. OptionAward Agreements evidencing Options may
12
incorporate all or any of the terms of the Plan by reference and except as otherwise set forth in Section 7 with respect to
Nonemployee Director Options, shall comply with and be subject to the following terms and conditions:
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25
6.1 EXERCISE PRICE. Exercise Price.The exercise price for each Option shall be established in the discretion of the Board;Committee; provided, however, that (a) the exercise price per share shall be not less than eighty-fivethe Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less than one hundred ten percent (85%(110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code.
6.2 EXERCISABILITY AND TERM OF OPTIONS. Exercisability and Term of Options.Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the BoardCommittee and set forth in the OptionAward Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of twenty
(20)ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (b)(c) no Option granted to a prospective Employee, prospective Consultant or prospective Nonemployee Director may become exercisable prior to the date on which such person commences Service with a Participating Company.Service. Subject to the foregoing, unless otherwise specified by the BoardCommittee in the grant of an Option, (other than a Nonemployee
Director Option), any Option granted hereunder shall terminate twenty (20)ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.
6.3 PAYMENT OF EXERCISE PRICE.
Payment of Exercise Price.
(a) FORMS OF CONSIDERATION AUTHORIZED. Forms of Consideration Authorized.Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or in cash equivalent;equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the OptioneeParticipant having a Fair Market Value not less than the exercise price;price, (iii) by delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"“Cashless Exercise”);, (iv) provided that the Optionee is an Employee
(unless otherwise not prohibited by law, including, without limitation, any
regulation promulgated by the Board of Governors of the Federal Reserve System)
and in the Company's sole discretion at the time the Option is exercised, by delivery of the Optionee's promissory note in a form approved by the Company for
the aggregateproperly executed notice of exercise price; provided that, if the Company is incorporated in
the State of Delaware, the Optionee shall pay in cash that portion of the
aggregate exercise price not less than the par value of the shares being
acquired;electing a Net-Exercise, (v) by such other consideration as may be approved by the BoardCommittee from time to time to the extent permitted by applicable law;law, or (vi) by any combination thereof. The BoardCommittee may at any time or from time to time by approval
of or by amendment to the standard forms of Option Agreement described in
Section 8, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.
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(b) LIMITATIONS ON FORMS OF CONSIDERATION.Limitations on Forms of Consideration.
(i) TENDER OF STOCK. Tender of Stock.Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company'sCompany’s stock. Unless otherwise provided by
the Board, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Optionee for more than six (6) months (and not used for
another Option exercise by attestation during such period) or were not acquired,
directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. Cashless Exercise.The Company reserves, at any and all times, the right, in the Company'sCompany’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise.
(iii) PAYMENT BY PROMISSORY NOTE. No promissory noteExercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.
6.4Effect of Termination of Service.
(a)Option Exercisability.Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Committee, an Option shall be permittedexercisable after a Participant’s termination of Service only during the applicable time periods provided in the Award Agreement.
(b)Extension if Exercise Prevented by Law.Notwithstanding the foregoing, unless the Committee provides otherwise in the Award Agreement, if the exercise of an Option usingwithin the applicable time periods is prevented by the provisions of Section 14 below, the Option shall remain exercisable until three (3) months (or such longer period of time as determined by the Committee, in its discretion) after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.
(c)Extension if Participant Subject to Section 16(b).Notwithstanding the foregoing, if a promissory note would be
a violationsale within the applicable time periods of any law. Any permitted promissory note shall be on such terms as
the Board shall determine. The Board shall have the authority to permit or
require the
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26
Optionee to secure any promissory note used to exercise an Option with the
shares of Stock acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or with other
collateral acceptable(iii) the Option Expiration Date.
6.5Transferability of Options.During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative. Prior to the Company. Unless otherwise provided by the Board, if
the Company at any time is subject to the regulations promulgated by the Boardissuance of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, the Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to accept from the Optioneeextent permitted by the tenderCommittee, in its discretion, and set forth in the Award Agreement evidencing such Option, a Nonstatutory Stock Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 Registration Statement under the Securities Act.
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7.Terms and Conditions of aStock Appreciation Rights.
Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of whole shares of Stock havingsubject to the Award, in such form as the Committee shall from time to time establish. No SAR or purported SAR shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Award Agreements evidencing SARs may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
7.1Types of SARs Authorized.SARs may be granted in tandem with all or any portion of a related Option (a“Tandem SAR”) or may be granted independently of any Option (a “Freestanding SAR”). A Tandem SAR may be granted either concurrently with the grant of the related Option or at any time thereafter prior to the complete exercise, termination, expiration or cancellation of such related Option.
7.2Exercise Price.The exercise price for each SAR shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share subject to a Tandem SAR shall be the exercise price per share under the related Option, and (b) the exercise price per share subject to a Freestanding SAR shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the SAR.
7.3Exercisability and Term of SARs.
(a) Tandem SARs. Tandem SARs shall be exercisable only at the time and to the extent, and only to the extent, that the related Option is exercisable, subject to such provisions as the Committee may specify where the Tandem SAR is granted with respect to less than the full number of shares of Stock subject to the related Option.
(b) Freestanding SARs shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions that shall be determined by the Company, equalCommittee and set forth in the Award Agreement evidencing such SAR; provided, however, that no Freestanding SAR shall be exercisable after the expiration of ten (10) years after the effective date of grant of such SAR.
7.4Deemed Exercise of SARs.If, on the date on which an SAR would otherwise terminate or expire, the SAR by its terms remains exercisable immediately prior to allsuch termination or expiration and, if so exercised, would result in a payment to the holder of such SAR, then any partportion of the federal, state, local and foreign taxes, if any, required by
lawsuch SAR which has not previously been exercised shall automatically be deemed to be withheld by the Participating Company Groupexercised as of such date with respect to such Optionportion.
7.5Effect of Termination of Service.Subject to earlier termination of the SAR as otherwise provided herein and unless otherwise provided by the Committee in the grant of an SAR and set forth in the Award Agreement, an SAR shall be exercisable after a Participant’s termination of Service only as provided in the Award Agreement.
7.6Nontransferability of SARs.During the lifetime of the Participant, an SAR shall be exercisable only by the Participant or the shares acquired uponParticipant’s guardian or legal representative. Prior to the exercise thereof. Alternativelyof an SAR, the SAR shall not be subject in any manner to
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anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or in
addition, in its discretion, the Company shall have the right to require the
Optionee, through payroll withholding, cash payment or otherwise, includinggarnishment by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligationscreditors of the Participating Company Group arising in connection
with the OptionParticipant or the shares acquired uponParticipant’s beneficiary, except transfer by will or by the exercise thereof. The Fair
Market Valuelaws of anydescent and distribution.
8.Terms and Conditions of Restricted Stock Awards.
Restricted Stock Awards shall be evidenced by Award Agreements specifying the number of shares of Stock withheldsubject to the Award, in such form as the Committee shall from time to time establish. No Restricted Stock Award or tenderedpurported Restricted Stock Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Award Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to satisfythe following terms and conditions:
8.1Types of Restricted Stock Awards Authorized.Restricted Stock Awards may or may not require the payment of cash compensation for the stock. Restricted Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 9.4. If either the grant of a Restricted Stock Award or the lapsing of the Restriction Period is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 9.3 through 9.5(a).
8.2Purchase Price.The purchase price, if any, such tax
withholding obligations shall not exceed the amount determined by the applicable
minimum statutory withholding rates. The Company shall have no obligation to
deliverfor shares of Stock issuable under each Restricted Stock Award and the means of payment shall be established by the Committee in its discretion.
8.3Purchase Period.A Restricted Stock Award requiring the payment of cash consideration shall be exercisable within a period established by the Committee; provided, however, that no Restricted Stock Award granted to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to release shares of Stock from an escrow establishedthe date on which such person commences Service.
8.4Vesting and Restrictions on Transfer.Shares issued pursuant to any Restricted Stock Award may or may not be made subject to Vesting Conditions based upon the Option Agreement until the Participating Company Group's tax
withholding obligations have been satisfiedsatisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 9.4, as shall be established by the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued underCommittee and set forth in the Plan may beAward Agreement evidencing such Award. During any Restriction Period in which shares acquired pursuant to a Restricted Stock Award remain subject to a
rightVesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of first refusal, oneother than as provided in the Award Agreement or more repurchase options, or other conditions and
restrictions as determined by the Boardprovided in its discretion at the time the Option
is granted. The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to
one or more persons as may be selected by the Company.Section 8.7. Upon request by the Company, each OptioneeParticipant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject
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8.5Voting Rights; Dividends and Distributions.Except as provided in this Section, Section 8.4 and any Award Agreement, during the Restriction Period applicable to earlier terminationshares subject to a Restricted Stock Award, the Participant shall have all of the Optionrights of a shareholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. However, in the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as otherwise provided hereindescribed in Section 4.2, any and unlessall new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
8.6Effect of Termination of Service.Unless otherwise provided by the BoardCommittee in the grant of an Optiona Restricted Stock Award and set forth in the OptionAward Agreement, an Option
shall be exercisable after an Optionee's termination of Service only during the
applicable time period determined in accordance with this Section 6.6 and
thereafter shall terminate:
(i) DISABILITY. If the Optionee's Service terminates
because of the Disability of the Optionee, the Option, to the extent unexercised
and exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months (or such longer period
of time as determined by the Board, in its discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service terminates
because of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months (or such longer period of time as
determined by the Board, in its discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months (or such longer
period of time as determined by the Board, in its discretion) after the
Optionee's termination of Service.
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(iii) TERMINATION AFTER CHANGE IN CONTROL. The Board
may, in its discretion, provide in any Option Agreement that if the Optionee's
Service ceases as a result of "Termination After Change in Control" (as defined
in such Option Agreement), then (1) the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date, and (2) the exercisability and vesting of the Option and
any shares acquired upon the exercise thereof shall be accelerated effective as
of the date on which the Optionee's Service terminated to such extent, if any,
as shall have been determined by the Board, in its discretion, and set forth in
the Option Agreement. Notwithstanding the foregoing, if the Company and the
other party to the transaction constituting a Change in Control agree to treat
such transaction as a "pooling-of-interests" for accounting purposes and it is
determined that the provisions or operation of this Section 6.6(a)(iii) would
preclude treatment of such transaction as a "pooling-of-interests" and provided
further that in the absence of the preceding sentence such transaction would be
treated as a "pooling-of-interests," then this Section 6.6(a)(iii) shall be
without force or effect, and the vesting and exercisability of the Option shall
be determined under any other applicable provision of the Plan or the Option
Agreement evidencing such Option.
(iv) OTHER TERMINATION OF SERVICE. If the Optionee'sParticipant’s Service terminates for any reason, except Disability,whether voluntary or involuntary (including the Participant’s death or Termination After
Change in Control,disability), then the Option,Participant shall forfeit to the extent unexercised and exercisableCompany any shares acquired by the Optionee onParticipant pursuant to a Restricted Stock Award which remain subject to Vesting Conditions as of the date on whichof the Optionee'sParticipant’s termination of Service terminated, may be
exercisedin exchange for the payment of the purchase price, if any, paid by the OptioneeParticipant. The Company shall have the right to assign at any time priorany repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.
8.7Nontransferability of Restricted Stock Award Rights.Prior to the expirationissuance of six (6) months
(orshares of Stock pursuant to a Restricted Stock Award, rights to acquire such longer period of time as determined by the Board, in its discretion)
after the date on which the Optionee's Service terminated, butshares shall not be subject in any event no
later than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of an Option within the applicable time periods
set forth in Section 6.6(a) is preventedmanner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by the provisions of Section 11 below,
the Option shall remain exercisable until six (6) months (or such longer period
of time as determined by the Board, in its discretion) after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercisecreditors of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
6.7 TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an
Option shall be exercisable only by the OptioneeParticipant or the Optionee's guardian or
legal representative. No Option shall be assignable or transferable by the
Optionee,Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing,All rights with respect to the extent permitted by the Board, in its
discretion, and set forth in the Option Agreement evidencing such Option, an
Optiona Restricted Stock Award granted to a Participant hereunder shall be assignableexercisable during his or transferable subject toher lifetime only by such Participant or the applicable
limitations, if any, described in the General Instructions to Form S-8
Registration Statement under the Securities Act.
7. TERMS AND CONDITIONS OF NONEMPLOYEE DIRECTOR OPTIONS.
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Nonemployee Director OptionsParticipant’s guardian or legal representative.
9.Terms and Conditions of Performance Awards.
Performance Awards shall be evidenced by OptionAward Agreements
specifying the number of shares of Stock covered thereby, in such form as the BoardCommittee shall from time to time establish. SuchNo Performance Award or purported Performance Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Award Agreements evidencing Performance Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions of Section 6 to the extent not inconsistent
with this Section and the following terms and conditions:
7.1 AUTOMATIC GRANT. Subject
9.1Types of Performance Awards Authorized.Performance Awards may be in the form of either Performance Shares or Performance Units. Each Award Agreement evidencing a Performance Award shall specify the number of Performance Shares or Performance Units subject thereto, the Performance Award Formula, the Performance Goal(s) and Performance Period applicable to the execution by a Nonemployee Director
of an appropriate Option Agreement, Nonemployee Director Options shall be
granted automaticallyAward, and without further actionthe other terms, conditions and restrictions of the Board, as follows:
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(a) EFFECTIVE DATE OPTIONS. Each person who isAward.
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9.2Initial Value of Performance Shares and Performance Units.Unless otherwise provided by the Committee in granting a Nonemployee
Director on the Effective DatePerformance Award, each Performance Share shall be granted on such datehave an Option
("Effective Date Option") to purchase one thousand five hundred (1,500) shares
of Stock.
(b) ANNUAL OPTIONS. On the date of each annual meeting of the
shareholders of the Company, commencing with the annual meeting held in 2001,
each Nonemployee Director (including any Director who previously did not qualify
as a Nonemployee Director but who subsequently becomes a Nonemployee Director)
who remains a Nonemployee Director immediately following such annual meeting
shall be granted an Option (an "Annual Option") to purchase that number of whole
shares of Stock determined by dividing (i) fifteen thousand dollars ($15,000) by
(ii) an amountinitial value equal to the estimated fair valueFair Market Value of an option for one (1) share of Stock, (the "FAIR VALUE PER SHARE") determinedsubject to adjustment as ofprovided in Section 4.2, on the date of such annual
meeting using the Black-Scholes option pricing model in accordance with the
following: The Company shall, at its expense, arrange with its independent
accountants to make a determination of the applicable Fair Value Per Share as of
theeffective date of grant of the Nonemployee Director Options.Performance Share. Each Performance Unit shall have an initial value determined by the Committee. The Black-Scholes option
pricing model shall be appliedfinal value payable to determinethe Participant in settlement of a Performance Award determined on the basis of the applicable Fair Value Per SharePerformance Award Formula will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee.
9.3Establishment of Performance Period, Performance Goals and Performance Award Formula.In granting each Performance Award, the Committee shall establish in writing the same manner inapplicable Performance Period, Performance Award Formula and one or more Performance Goals which, it is applied forwhen measured at the purposesend of the Company's
financial statement disclosures made in accordance with Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), taking into account those factors
whichPerformance Period, shall determine on the Company's independent accountants determine would be appropriate in
applying the Black-Scholes option pricing model for purposes of SFAS 123 to an
option having the same terms as the termsbasis of the Nonemployee Director Options
granted pursuantPerformance Award Formula the final value of the Performance Award to this subsection (b).
(c) RIGHT TO DECLINE NONEMPLOYEE DIRECTOR OPTION.
Notwithstanding the foregoing, any person may elect not to receive a Nonemployee
Director Option by delivering written notice of such electionbe paid to the BoardParticipant. To the extent compliance with the requirements under Section 162(m) with respect to “performance-based compensation” is desired, the Committee shall establish the Performance Goal(s) and Performance Award Formula applicable to each Performance Award no later than the dayearlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain. Once established, the Performance Goals and Performance Award Formula shall not be changed during the Performance Period. The Company shall notify each Participant granted a Performance Award of the terms of such Award, including the Performance Period, Performance Goal(s) and Performance Award Formula.
9.4Measurement of Performance Goals.Performance Goals shall be established by the Committee on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial performance (each, a“Performance Measure”), subject to the following:
(a) Performance Measures.Performance Measures shall have the same meanings as used in the Company’s financial statements, or, if such terms are not used in the Company’s financial statements, they shall have the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Company’s industry. Performance Measures shall be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit as may be selected by the Committee. For purposes of the Plan, the Performance Measures applicable to a Performance Award shall be calculated in accordance with generally accepted accounting principles, but prior to the dateaccrual or payment of any Performance Award for the same Performance Period and excluding the effect (whether positive or negative) of any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Performance Goals applicable to the Performance Award. Each such Nonemployee Director Optionadjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Performance Measures in order to prevent the dilution or enlargement of the Participant’s rights with respect to a
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Performance Award. Performance Measures may be one or more of the following, as determined by the Committee: (i) sales revenue; (ii) gross margin; (iii) operating margin; (iv) operating income; (v) pre-tax profit; (vi) earnings before interest, taxes and depreciation and amortization; (vii) net income; (viii) expenses; (ix) the market price of the Stock; (x) earnings per share; (xi) return on shareholder equity; (xii) return on capital; (xiii) return on net assets; (xiv) economic value added; and (xv) market share; (xvi) post-tax profit; (xvii) total shareholder return; (xviii) customer satisfaction; (xix) safety; (xx) customer service; or (xxi) such other measures as determined by the Committee consistent with this Section 9.4(a).
(b) Performance Targets.Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final value of a Performance Award determined under the applicable Performance Award Formula by the level attained during the applicable Performance Period. A Performance Target may be stated as an absolute value or as a value determined relative to a standard selected by the Committee.
9.5Settlement of Performance Awards.
(a) Determination of Final Value.As soon as practicable following the completion of the Performance Period applicable to a Performance Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement in accordance with the applicable Performance Award Formula.
(b) Discretionary Adjustment of Award Formula.In its discretion, the Committee may, either at the time it grants a Performance Award or at any time thereafter, provide for the positive or negative adjustment of the Performance Award Formula applicable to a Performance Award that is not intended to constitute “qualified performance based compensation” to a “covered employee” within the meaning of Section 162(m) (a“Covered Employee”) to reflect such Participant’s individual performance in his or her position with the Company or such other factors as the Committee may determine. With respect to a Performance Award intended to constitute qualified performance-based compensation to a Covered Employee, the Committee shall have the discretion to reduce some or all of the value of the Performance Award that would otherwise be granted. A person so declining a Nonemployee Director Optionpaid to the Covered Employee upon its settlement notwithstanding the attainment of any Performance Goal and the resulting value of the Performance Award determined in accordance with the Performance Award Formula.
(c) Payment in Settlement of Performance Awards.As soon as practicable following the Committee’s determination and certification in accordance with Sections 9.5(a) and (b), payment shall receive no paymentbe made to each eligible Participant (or such Participant’s legal representative or other consideration in lieuperson who acquired the right to receive such payment by reason of the Participant’s death) of the final value of the Participant’s Performance Award. Payment of such declined Nonemployee
Director Option. A person who has declined a Nonemployee Director Option may
revoke such election by delivering written notice of such revocation to the
Board no later than the day prior to the date such Nonemployee Director Option
wouldamount shall be granted pursuant to Section 7.1(a) or (b), as the case may be.
7.2 EXERCISE PRICE. The exercise price per sharemade in cash, shares of Stock, subjector a combination thereof as determined by the Committee.
9.6Voting Rights; Dividend Equivalent Rights and Distributions.Participants shall have no voting rights with respect to each Effective Date Option shall be fifteen dollars ($15.00), an amount in
excess of the Fair Market Value of a shareshares of Stock on the Effective Date. The
exercise price per share of stock subject to each Annual Option shall be the
Fair Market Value of a share of stock onrepresented by Performance Share Awards until the date of grantthe issuance of such shares, if any (as evidenced by
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the appropriate entry on the books of the Annual Option.
7.3 EXERCISABILITY AND TERM OF NONEMPLOYEE DIRECTOR OPTIONS. Each
Nonemployee Director OptionCompany or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Performance Share Award that the Participant shall be fully vested and exercisableentitled to receive Dividend Equivalents with respect to the payment of cash dividends on theStock having a record date of
grant of the Option and thereafter until its termination; provided, however,
that no Effective Date Option shall be exercisable prior to the date on which the shareholdersPerformance Shares are settled or forfeited. Such Dividend Equivalents, if any, may be credited to the Participant in the form of cash. Dividend Equivalents will be accumulated and paid to the extent that Performance Shares become nonforfeitable, as determined by the Committee. Settlement of Dividend Equivalents will be made in cash and may be paid on the same basis as settlement of the related Performance Share as provided in Section 9.5. Dividend Equivalents shall not be paid with respect to Performance Units. In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company initially approveas described in Section 4.2, appropriate adjustments shall be made in the Plan. Each Nonemployee
Director OptionParticipant’s Performance Share Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would entitled by reason of the shares of Stock issuable upon settlement of the Performance Share Award, and all such new, substituted or additional securities or other property shall terminatebe immediately subject to the same Performance Goals as are applicable to the Award.
9.7Effect of Termination of Service.Unless otherwise provided by the Committee in the grant of a Performance Award and cease to be exercisableset forth in the Award Agreement, the effect of a Participant’s termination of Service on the tenth (10th)
anniversaryPerformance Award shall be as follows:
(a) Death or Disability.If the Participant’s Service terminates because of the date of grantdeath or Disability of the Option, unless earlier terminatedParticipant before the completion of the Performance Period applicable to the Performance Award, the final value of the Participant’s Performance Award shall be determined by the extent to which the applicable Performance Goals have been attained with respect to the entire Performance Period and shall be prorated based on the number of months of the Participant’s Service during the Performance Period. Payment shall be made following the end of the Performance Period in any manner permitted by Section 9.5.
(b) Other Termination of Service.If the Participant’s Service terminates for any reason except death or Disability before the completion of the Performance Period applicable to the Performance Award, such Award shall be forfeited in its entirety; provided, however, that in the event of an involuntary termination of the Participant’s Service, the Committee, in its sole discretion, may waive the automatic forfeiture of all or any portion of any such Award.
9.8Nontransferability of Performance Awards.Prior to settlement in accordance with the termsprovisions of the Plan, no Performance Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Option Agreement evidencing such
Option.
7.4 EFFECT OF TERMINATION OF SERVICE. Subject to earlier termination of
the Nonemployee Director Option as otherwise provided herein, each Nonemployee
Director Option shall be exercisable after the Optionee's termination of Service
only during the applicable time period determined in accordance with Section 6.6
and thereafter shall terminate; provided, however, that if an Optionee's Service
terminates by reason of the Optionee ceasing to be a Director as a result of a
Change in Control (as defined in Section 9, below), the Nonemployee Director
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee at any time
prior to the expiration of twelve (12) months after the date on which the
Optionee's Service was so terminated, but in any event no later than the Option
Expiration Date.
7.5 TRANSFERABILITY OF NONEMPLOYEE DIRECTOR OPTIONS. During the
lifetime of the Optionee, a Nonemployee Director Option shall be exercisable
only by the Optionee or the Optionee's guardian or legal representative. No
Nonemployee Director Option shall be assignable or transferable by the Optionee,Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. NotwithstandingAll rights with respect to a Performance Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the foregoing,Participant’s guardian or legal representative.
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10.Terms and Conditions of Restricted Stock Unit Awards.
Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the extent permittedAward, in such form as the Committee shall from time to time establish. No Restricted Stock Unit Award or purported Restricted Stock Unit Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
10.1Grant of Restricted Stock Unit Awards.Restricted Stock Unit Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 9.4. If either the grant of a Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 9.3 through 9.5(a).
10.2Vesting.Restricted Stock Units may or may not be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 9.4, as shall be established by the Board,Committee and set forth in the Award Agreement evidencing such Award.
10.3Voting Rights, Dividend Equivalent Rights and Distributions.Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to the date on which Restricted Stock Units held by such Participant are settled. Such Dividend Equivalents, if any, shall be paid by crediting the Participant with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock. The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time (or as soon thereafter as practicable) as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would entitled by reason of the shares of Stock issuable upon settlement of the
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Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.
10.4Effect of Termination of Service.Unless otherwise provided by the Committee in the grant of a Restricted Stock Unit Award and set forth in the Award Agreement, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant to the Award which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service.
10.5Settlement of Restricted Stock Unit Awards.The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award vest or on such other date determined by the Committee, in its discretion, and set forth in the OptionAward Agreement evidencingone (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 10.3) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such Option, a Nonemployee Director
Option shall be assignable or transferabledate, subject to the withholding of applicable limitations,taxes. Notwithstanding the foregoing, if any, describedpermitted by the Committee and set forth in the General InstructionsAward Agreement, the Participant may elect in accordance with terms specified in the Award Agreement to Form S-8
Registration Statement underdefer receipt of all or any portion of the Securities Act.
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8. STANDARD FORMS OF OPTION AGREEMENT.
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8.1 OPTION AGREEMENT. Unlessshares of Stock or other property otherwise providedissuable to the Participant pursuant to this Section.
10.6Nontransferability of Restricted Stock Unit Awards.Prior to the issuance of shares of Stock in settlement of a Restricted Stock Unit Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
11.Deferred Compensation Awards.
11.1Establishment of Deferred Compensation Award Programs.This Section 11 shall not be effective unless and until the Board of Directors takes action through amendment to the Plan and such amendment will include all modifications required for the Plan to comply with the provisions of Code Section 409A. The Committee, in its discretion and upon such terms and conditions as it may determine, may establish one or more programs pursuant to the Plan under which:
(a) Participants designated by the Committee who are Insiders or otherwise among a select group of highly compensated Employees may irrevocably elect, prior to a date specified by the Committee, to reduce such Participant’s compensation otherwise payable in cash (subject to any minimum or maximum reductions imposed by the Committee) and to be granted automatically at such time or times as specified by the Committee one or more Awards of Stock Units with respect to such numbers of shares of Stock as determined in accordance with the rules of the program established by the Committee and having such other terms and conditions as established by the Committee.
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(b) Participants designated by the Committee who are Insiders or otherwise among a select group of highly compensated Employees may irrevocably elect, prior to a date specified by the Committee, to be granted automatically an Award of Stock Units with respect to such number of shares of Stock and upon such other terms and conditions as established by the Committee in lieu of:
(i) shares of Stock otherwise issuable to such Participant upon the exercise of an Option;
(ii) shares of Stock otherwise issuable to such Participant upon the exercise of an SAR; or
(iii) cash or shares of Stock otherwise issuable to such Participant upon the settlement of a Performance Award or Performance Unit.
11.2Terms and Conditions of Deferred Compensation Awards.Deferred Compensation Awards granted pursuant to this Section 11 shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish. No such Deferred Compensation Award or purported Deferred Compensation Award shall be a valid and binding obligation of the Option is granted, an OptionCompany unless evidenced by a fully executed Award Agreement. Award Agreements evidencing Deferred Compensation Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditionsconditions:
(a) Vesting Conditions. Deferred Compensation Awards shall not be subject to any vesting conditions.
(b) Terms and Conditions of Stock Units.
(i) Voting Rights; Dividend Equivalent Rights and Distributions.Participants shall have no voting rights with respect to shares of Stock represented by Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, a Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to date on which Stock Units held by such Participant are settled. Such Dividend Equivalents shall be paid by crediting the Participant with additional whole and/or fractional Stock Units as of the date of payment of such cash dividends on Stock. The method of determining the number of additional Stock Units to be so credited shall be specified by the Committee and set forth in the appropriate form of Option Agreement
approved byAward Agreement. Such additional Stock Units shall be subject to the Board concurrently with its adoption of the Plan and as amended
from time to time.
8.2 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any standard form of Option Agreement
described in this Section 8 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that thesame terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan.
9. CHANGE IN CONTROL.
-----------------
9.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT"and shall be deemed to have
occurred if any ofsettled in the following occurs with respectsame manner and at the same time (or as soon thereafter as practicable) as the Stock Units originally subject to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the Company or, in the case of a Transaction
described in Section 9.1(a)(iii), the corporation or other business entity to
which the assets of the Company were transferred (the "TRANSFEREE"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting securities of one or more corporations or other business entities which
own the Company or the Transferee, as the case may be, either directly or
through one or more subsidiary corporations or other business entities. The
Board shall have the right to determine whether multiple sales or exchanges of
the voting securities of the Company or multiple Ownership Change Events are
related, and its determination shall be final, binding and conclusive.
9.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS.Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, appropriate adjustments shall be made in the Participant’s Stock Unit Award so that it represent the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which
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the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award.
(ii) Settlement of Stock Unit Awards.A Participant electing to receive an Award of Stock Units pursuant to this Section 11, shall specify at the time of such election a settlement date with respect to such Award. The Company shall issue to the Participant as soon as practicable following the earlier of the settlement date elected by the Participant or the date of termination of the Participant’s Service, a number of whole shares of Stock equal to the number of whole Stock Units subject to the Stock Unit Award. Such shares of Stock shall be fully vested, and the Participant shall not be required to pay any additional consideration (other than applicable tax withholding) to acquire such shares. Any fractional Stock Unit subject to the Stock Unit Award shall be settled by the Company by payment in cash of an amount equal to the Fair Market Value as of the payment date of such fractional share.
(iii) Nontransferability of Stock Unit Awards.Prior to their settlement in accordance with the provision of the Plan, no Stock Unit Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
12.Other Stock-Based Awards.
In addition to the Awards set forth in Sections 6 through 11 above, the Committee, in its sole discretion, may carry out the purpose of this Plan by awarding Stock-Based Awards as it determines to be in the best interests of the Company and subject to such other terms and conditions as it deems necessary and appropriate.
13.Change in Control.
13.1Effect of Change in Control on Options and SARs.Unless otherwise provided in a fully executed written Award Agreement with the surviving, continuing, successor, or purchasing corporation or
other business entity or parent thereof, asParticipant, upon the case may be (the "ACQUIRING
CORPORATION"), may, without the consentoccurrence of any Optionee, either assume the
Company's rights and obligations under outstanding Options or substitute for
outstanding Options substantially equivalent options for the Acquiring
Corporation's stock. In the event the Acquiring Corporation elects not to assume
or substitute for outstanding Options in connection with a Change in Control the exercisabilityall outstanding Options and vesting of each such outstanding OptionSARs shall immediately vest and become exerciseable in full and any shares acquired upon the exercise thereofof such Options and SARs shall not be subject to any further Vesting Condition or other conditions.
13.2Effect of Change in Control on Restricted Stock and Other Awards.Unless otherwise provided in a fully executed written Award Agreement with the Participant, upon the occurrence of a Change in Control, the Vesting Condition, Restriction Period or Performance Goal applicable to the shares subject to a Restricted Stock Award or other Award held by Optioneesa Participant whose Service has not terminated prior to such date shall be accelerated, effective as of the date ten
(10) days prior to the date of the Change in Control shall be accelerated and/or waived and the Award shall become payable to suchthe extent if any, as
shall have been determined by the Board, in its discretion, and set forthspecified in the Option Agreement evidencing such Option. The exerciseAward Agreement. Any acceleration, waiver, payment or vestingthe lapsing of any Option
and any shares acquired upon the exercise thereofrestriction that was permissible solely by reason of this Section 9.213.2 and the provisions of such Optionthe applicable Award Agreement shall be conditioned upon the consummation of the Change in Control. Any Options which
are neither assumed or substituted for by the Acquiring Corporation in
connection
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14.Compliance with the Change in Control nor exercised as of the date of the Change
in Control shall terminate and cease to be outstanding effective as of the date
of the Change in Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Change in Control and any consideration
received pursuant to the Change in Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in
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Section 9.1(a)(i) constituting a Change in Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate unless the Board otherwise provides in its discretion.
9.3 FEDERAL EXCISE TAX UNDER SECTION 4999 OF THE CODE.
(a) EXCESS PARACHUTE PAYMENT. In the event that any
acceleration of vesting pursuant to an Option and any other payment or benefit
received or to be received by the Optionee would subject the Optionee to any
excise tax pursuant to Section 4999 of the Code due to the characterization of
such acceleration of vesting, payment or benefit as an "excess parachute
payment" under Section 280G of the Code, the Optionee may elect, in his or her
sole discretion, to reduce the amount of any acceleration of vesting called for
under the Option in order to avoid such characterization. Notwithstanding the
foregoing, if the Company and the other party to the transaction constituting a
Change in Control agree to treat such transaction as a "pooling-of-interests"
for accounting purposes and it is determined that the provisions or operation of
this Section 9.3(a) would preclude treatment of such transaction as a
"pooling-of-interests" and provided further that in the absence of the preceding
sentence such transaction would be treated as a "pooling-of-interests," then
this Section 9.3(a) shall be without force or effect.
(b) DETERMINATION BY INDEPENDENT ACCOUNTANTS. To aid the
Optionee in making any election called for under Section 9.3(a), no later than
the date of the occurrence of any event that might reasonably be anticipated to
result in an "excess parachute payment" to the Optionee as described in Section
9.3(a), the Company shall request a determination in writing by independent
public accountants selected by the Company (the "ACCOUNTANTS")Securities Law As soon as
practicable thereafter, the Accountants shall determine and report to the
Company and the Optionee the amount of such acceleration of vesting, payments
and benefits which would produce the greatest after-tax benefit to the Optionee.
For the purposes of such determination, the Accountants may rely on reasonable,
good faith interpretations concerning the application of Sections 280G and 4999
of the Code. The Company and the Optionee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make their required determination. The Company shall bear all fees and expenses
the Accountants may reasonably charge in connection with their services
contemplated by this Section 9.3(b).
10. PROVISION OF INFORMATION.
------------------------
Each Optionee shall be given access to information concerning the
Company equivalent to that information generally made available to the Company's
common shareholders.
11. COMPLIANCE WITH SECURITIES LAW.
------------------------------
The grant of OptionsAwards and the issuance of shares of Stock upon exercise
of Optionspursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. Options may not
be exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations orand the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no OptionAward may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise of the Optionor issuance be in effect with respect to the shares issuable upon
exercise ofpursuant to the OptionAward or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise ofpursuant to the OptionAward may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company'sCompany’s legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exerciseissuance of any Option,Stock, the Company may require the OptioneeParticipant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
11
31
12. TERMINATION OR AMENDMENT OF PLAN.
--------------------------------
15.Tax Withholding.
15.1Tax Withholding in General.The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise or Net Exercise of an Option, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to an Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.
15.2Withholding in Shares.The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.
16.Amendment or Termination of Plan.
The Board or the Committee may terminateamend, suspend or amendterminate the Plan at any time. However, subject
to changes in applicable law, regulations or rules that would permit otherwise,
without the approval of the Company'sCompany’s shareholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (b)(c) no other amendment of the Plan that would require approval of the Company'sCompany’s shareholders under any applicable law, regulation or rule. No
25
amendment, suspension or termination or
amendment of the Plan shall affect any then outstanding OptionAward unless expressly provided by the Board.Board or the Committee. In any event, no terminationamendment, suspension or amendmenttermination of the Plan may adversely affect any then outstanding OptionAward without the consent of the Optionee,Participant unless such termination or amendment is necessary to comply with any applicable law, regulation or rule. 13. SHAREHOLDER APPROVAL.
--------------------
TheNotwithstanding the above, no amendment or termination of the Plan has been adoptedshall accelerate the payment of any deferred compensation as prohibited by Code Section 409A.
17.Miscellaneous Provisions.
17.1Repurchase Rights.Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Board subjectCommittee in its discretion at the time the Award is granted. The Company shall have the right to its approvalassign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company's shareholders atCompany. Upon request by the 2000 Annual Meeting of the shareholders, includingCompany, each Participant shall execute any adjournment thereof (the "2000 Annual Meeting"). Any Option grantedagreement evidencing such transfer restrictions prior to the approvalreceipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
17.2Provision of Information.Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common shareholders.
17.3Rights as Employee, Consultant or Nonemployee Director.No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan byor any Award granted under the Company's shareholdersPlan shall become exercisable
no earlierconfer on any Participant a right to remain an Employee, Consultant or Nonemployee Director or interfere with or limit in any way any right of a Participating Company to terminate the Participant’s Service at any time. To the extent that an Employee of a Participating Company other than the date ofCompany receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee has an employment relationship with the Company.
17.4Rights as a Shareholder.A Participant shall have no rights as a shareholder approval of the Plan. In the event that
such shareholder approval is not obtained at the 2000 Annual Meeting, each such
Option shall terminate effective onwith respect to any shares covered by an Award until the date of the 2000 Annual Meeting.
IN WITNESS WHEREOF,issuance of such shares (as evidenced by the undersigned Secretaryappropriate entry on the books of the Company certifies
thator of a duly authorized transfer agent of the foregoing sets forthCompany). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.2 or another provision of the Plan.
17.5Fractional Shares.The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
17.6Severability. If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and
26
enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
17.7Beneficiary Designation.Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participant’s death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. If a married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse. If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal representative.
17.8Unfunded Obligation.Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company. The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan. Each Participating Company shall be responsible for making benefit payments pursuant to the Plan on behalf of its Participants or for reimbursing the Company for the cost of such payments, as determined by the Company in its sole discretion. In the event the respective Participating Company fails to make such payment or reimbursement, a Participant’s (or other individual’s) sole recourse shall be against the respective Participating Company, and not against the Company. A Participant’s acceptance of an Award pursuant to the Plan shall constitute agreement with this provision.
17.9Choice of Law.Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of California, without regard to its conflict of law rules.
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PICO Holdings, Inc. 2000 Nonstatutory Stock
Option
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6
!123456564525!
MMMMMMMMMMMM
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
C 1234567890 JNT
 | ||
| o | Mark this box with an X if you have made changes to your name or address details above. | |
Annual Meeting Proxy Card
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
| A | To approve the PICO Holdings, Inc. 2005 Long-Term Incentive Plan |
| For | Against | Abstain | ||||
| 1. | The Board of Directors recommends a vote FOR the proposal to approve the PICO Holdings, Inc. 2005 Long-Term Incentive Plan. | o | o | o | ||
| B | Authorized Signatures - Sign Here - This section must be completed for your instructions to be executed. |
Note: Please sign exactly as duly adopted byname appears on this card. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title.
| Signature 1 — Please keep signature within the box | Signature 2 — Please keep signature within the box | Date (mm/dd/yyyy) | ||
| / / | ||||
1 U P X H H H P P P P 0067351
Proxy — PICO Holdings, Inc.
Proxy Solicited on Behalf of the Board on April 7, 2000.
James F. Mosier
Secretary
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PROXY PROXY
PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS SOLICITED BY THE BOARD OF DIRECTORS
of Directors
The undersigned hereby appoints John R. Hart and James F. Mosier, or either of them acting alone, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent, and to vote as designated below,on the reverse side, all the shares of Common Stock of PICO Holdings, Inc. (the "Company"“Company”) held of record by the undersigned on June 30, 2000October 31, 2005 at the AnnualSpecial Meeting of Shareholders of the Company to be held at the Museum of Contemporary Art, Coast Room, 700 Prospect Street, La Jolla, California 92037 on August 18, 2000December 8, 2005 at 9:00 a.m. (PDT)(PT), and at any adjournment thereof.
(The Board of Directors recommends a vote FOR Item 1.)
| 1. | To approve the PICO Holdings, Inc. 2005 Long-Term Incentive Plan. | |
| 2. | To transact such other business as may be properly brought before the meeting and any adjournment thereof. |
When properly executed, these instructions will be voted in the manner directed on the reverse side of this card; if you do not provide direction, this proxy will be voted FOR item 1.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSEDENVELOPE.
(ContinuedENVELOPE
OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS BELOW.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS BELOW.
Telephone and to be signed on reverse side.)
- --------------------------------------------------------------------------------
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PICO HOLDINGS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
For Withhold For All
1. ElectionInternet Voting Instructions
You can vote by telephone OR Internet! Available 24 hours a day 7 days a week!
Instead of Two Directors, to Serve for All All Except
Three-Year Terms untilmailing your proxy, you may choose one of the Annual Meeting [ ] [ ] [ ]
of Shareholders in 2003.
NOMINEES: Richard D. Ruppert, MD,
S. Walter Foulkrod, III, Esq.
------------------------------------------------
(To withhold authoritytwo voting methods outlined below to vote for an individual
nominee, strike a line throughyour proxy.
 |  | |||||
• | Call toll free 1-866-731-VOTE (8683) in the United States or Canada any time on a touch tone telephone. There is | • | Go to the following web site: | |||
| NO CHARGEto you for the call. | WWW.COMPUTERSHARE.COM/US/PROXY | |||||
• | Follow the simple instructions provided by the recorded message. | • | Enter the information requested on your computer screen and follow the simple instructions. | |||
| 123456 | C0123456789 | 12345 |
If you vote by telephone or the nominee's name
inInternet, please DO NOT mail back this proxy card.
Proxies submitted by telephone or thelist above.)
2. To ratify the appointment of Deloitte & Touche, LLP
as the Company's independent auditors for fiscal years
1999 and 2000.
[ ]Internet must be received by 1:00 a.m., Central Time, on XXXXXX XX, 200X.
THANK YOU FOR[ ] AGAINST [ ] ABSTAIN
3. To amend Article III of the Company's Articles of
Incorporation to eliminate the Preferred Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve the Company's 2000 Nonstatutory Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the above named Proxies are
authorized to vote upon each other item of business
as may properly come before the meeting or any
adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN
THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE.
- ------------------------------------------------
(Signature)
- ------------------------------------------------
(Signature if held jointly)
Dated:
------------------------------------------
Please sign exactly as your name(s) appears on
your stock certificate. If such stock is held
by joint tenants, both persons should sign.
When signing as attorney, executor,
administrator, trustee or guardian, please note
your title as such. If the stock is registered
in the name of a corporation, please sign in
the corporation's name by the president or any
other authorized officer. If the stock is
registered in the name of a partnership, please
sign in the partnership's name by an authorized
person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
EVEN IF YOU ARE PLANNING TO ATTEND THE MEETING IN PERSON,
YOU ARE URGED TO SIGN AND MAIL THIS PROXY IN THE RETURN ENVELOPE
SO THAT YOUR STOCK MAY BE REPRESENTED AT THE MEETING.VOTING
Proxies submitted by telephone or the
THANK YOU FOR