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DIRECTORS§14.405 March 199714-175M §14.405 To approve a Directors' Compensation Plan under which common stock is issued to each outside director in payment of one-half of the director's annual retainer fee (with a copy of the Directors' Compensation Plan) AGENDA ITEM TWO PROPOSAL TO APPROVE DIRECTORS' COMPENSATION PLAN In February 1996 and subject to stockholder approval at the 1996 Annual Meeting, the Board of Directors approved a Directors' Compensation Plan (the "Directors' Plan") pursuant to which shares of the class of $1.00 par value common stock of the Company known as Common Stock (the "Common Stock") will be issued to each director in payment of one-half of the director's annual retainer fee. The Directors' Plan is set forth as Appendix I of this Proxy Statement and is incorporated herein by reference. The purpose of the Plan is to enable the Company to attract and retain directors who contribute to the Company's success by their ability, ingenuity and industry, and to bette r ensure that the interests of such directors are more closely aligned with the int erests of the Company's stockholders. The Directors' Plan is being submitted to stockholders of the Company for approval for the sole purpose of qualifying the Director's Plan under Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Act"). Rule 16b-3 provides that the award of an equity security of an issuer pursuant to a plan which is qualified under Rule 16b-3 is exempt from the short swing trading liability of Section 16(b) of the Act. Section 16(b) provides, in pertinent part, that in order to prevent the unfair use of information which may have been obtained by a director, officer (which term is more specifically defined in the regulations), or any person who owns more than 10% of the equity securities of an issuer whose securities are registered under Section 12 of the Act , any profit realized by such a person from any purchase and sale, or any sale and purchase, of any equity security of such issuer within any period of less than six months shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such director, officer, or 10% stockholder. If the Directors' Plan is approved by stockholders, then stock issued under the Directors' Plan would be exempt from being "matched" against sales of the Company's Common Stock for purposes of Section 16(b). The Board of Directors believes that the Directors' Plan is in the best intere sts of the Company and recommends that stockholders approve the plan. The Directors' Plan provides that on May 1, 1996, and on each May 1 thereafter, one-half of each director's annual retainer fee shall be paid in shares of Common Stock of the Company. At the present time, the annual retainer fee payable to non-employee directors amounts to $15,000, and the annual retainer fee payable to employee directors amounts to $3,000, such annual retainer fees being divided into two equal semi-annual payments on May 1 and November 1 each year. The amount of the annual retainer fee payable to both non-employee and employee directors is subject to future adjustment by action of the Board of Directors. In addition, in the discretion of each director, a di rector may elect to be paid the entire amount of his annual retainer fee in share s of Company Common Stock. This election must be effected by a written notice by such director §14.405PROXY STATEMENTS : STRATEGY & FORMS 14-175N © 1997 Jefren Publishing Company, making such election on or before October 31 of each year, and such election shall be irrevocable and shall apply to the payment on May 1 of the entire annual retainer fee for the next succeeding year. The number of whole shares of Company Common Stock to be paid to the director will be determined on May 1 by dividing the dollar amount of ei ther the semi-annual retainer fee, or the entire annual retainer fee if the director had so elected, to be paid in Company Common Stock by the market price (defined to mea n the closing bid price) of the Common Stock on such date. Fractional shares will not be issued, but will be paid in cash to the director. For purposes of Rule 16b-3, the Directors' Plan also provides that a director may not sell the shares issued under the Plan for a period of six months after the date of issuance. Shares awarded under the Plan will be issued from the Company's treasury or, alternately, from authorized and unissued shares. As of March 8, 1996, the closing bid price for the Company's Common Stock as reported on the Nasdaq National Market System was $12.75 per share. The Directors' Plan must be approved by a majority of all votes present or represented at the Annual Meeting and entitled to vote on this matter. The Board of Directors recommends that stockholders vote FOR the Directors' Compensation Plan. DIRECTORS§14.405 March 199714-175M [THE NEXT PAGE IS 14-176A]