NATIONAL AUTO CREDIT INC /DE
Form PRE 14A
NATIONAL AUTO CREDIT, INC.
555 MADISON AVENUE, 29TH FLOOR
December [12], 2005
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of National Auto Credit, Inc. to be held on January 31, 2005 at the Angelika
Film Center,18W Houston Street New York, New York 10012 at 10:00 A.M. (EST).
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the Annual Meeting. During the meeting, we
will also report on the operations of your Company and directors and officers
will be present to respond to your questions.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WE
URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED WHITE PROXY CARD AS SOON AS
POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. This will not
prevent you from voting in person, but will assure that your vote is counted if
you are unable to attend the meeting.
It is always a pleasure for me and the other members of your Board of
Directors to meet with our stockholders. We look forward to greeting as many of
you as possible at the meeting.
On behalf of your Board of Directors, thank you for your continued
interest and support.
/s/ James McNamara
James McNamara
Chairman of the Board and
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. AS SUCH,
PLEASE SIGN, DATE AND MAIL YOUR WHITE PROXY CARD AT YOUR EARLIEST CONVENIENCE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
IF YOU OWN YOUR SHARES THROUGH BANK OR BROKERAGE ACCOUNTS, YOU SHOULD BRING A
WRITTEN STATEMENT FROM THE BANK OR BROKER VERIFYING THAT YOU ARE THE BENEFICIAL
OWNER OF YOUR SHARES OR OTHER APPROPRIATE PROOF OF YOUR OWNERSHIP IF YOU WISH TO
ATTEND THE MEETING.
TO BE HELD ON JANUARY 31, 2006
To the Holders of Common Stock:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
National Auto Credit, Inc. (the "Company") will be held at 10:00 A.M., at the
ANGELIKA FILM CENTER,18W HOUSTON STREET NEW YORK, NEW YORK 10012, for the
following purposes:
(1)  To elect all directors of the Company to hold office until the
next Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified;
(2)  To ratify the appointment of Grant Thornton LLP as independent
public accountants for the fiscal year ending January 31, 2006;
(3)  To consider and act upon a proposal to amend and restate the
Company's Certificate of Incorporation, including a proposed
change of the Company's name to [Insert Pending];
(4)  To consider and act upon a proposal to ratify an equity
compensation plan (the 2005 Equity Compensation Plan), under
which performance-related incentives will be granted to
designated employees, certain consultants and advisors and
non-employee directors of the Company; and
(5)  To transact such other business as may properly come before the
meeting or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 12,
2005 as the Record Date for the determination of shareholders entitled to notice
of, and to vote at, the Annual Meeting or any adjournments thereof.
Representation of at least a majority of all outstanding shares of Common Stock
is required to constitute a quorum. Accordingly, it is important that your stock
be represented at the meeting. The Company will admit to the Annual Meeting
stockholders of record, persons holding proof of beneficial ownership or who
have been granted proxies and any other person that the Company, in its sole
discretion, may elect to admit. If you plan to attend the Annual Meeting, please
check the appropriate box on your proxy card.
By Order of the Board of Directors,
/s/ Robert V. Cuddihy, Jr.
Robert V. Cuddihy, Jr.
Chief Financial Officer,
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE
ANNUAL MEETING, PLEASE SIGN, DATE, AND MAIL THE ENCLOSED WHITE PROXY CARD. A
PREPAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. PLEASE ACT AT YOUR FIRST
CONVENIENCE.
PRELIMINARY PROXY STATEMENT
The enclosed proxy is being solicited by the Board of Directors of
National Auto Credit, Inc. ("NAC" or the "Company") for use in connection with
the Annual Meeting of Stockholders to be held on January 31, 2006. This proxy
statement and enclosed proxy are first being sent to stockholders on or about
December 12, 2005. The mailing address of the principal executive office of the
Company is 555 Madison Avenue, 29th Floor, New York, New York 10022. The cost of
preparing, printing and mailing the notice of meeting, form of proxy, proxy
statement and annual report will be borne by the Company. Banks, brokerage
houses, custodians, nominees and fiduciaries are being requested to forward the
soliciting material to their principals and to obtain authorization for the
execution of proxies, and may be reimbursed for their out-of-pocket expenses
incurred in connection therewith.
Your vote is important. SHARES REPRESENTED BY PROXIES WILL BE VOTED IN
ACCORDANCE WITH INSTRUCTIONS ON THE PROXY CARDS OR, IF NO INSTRUCTIONS ARE
PROVIDED, SUCH PROXIES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF
THE BOARD OF DIRECTORS "FOR" PROPOSALS NUMBERED 1 THROUGH 4. THE PROXIES ARE
ALSO AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER MATTER WHICH MAY
PROPERLY COME BEFORE THE ANNUAL MEETING.
Any stockholder giving the enclosed proxy has the right to revoke it
at any time before it is voted. To revoke a proxy, the stockholder must file
with the Secretary of the Company either a written revocation or a duly executed
proxy bearing a later date. If you decide to attend the meeting, you may revoke
your proxy and vote your shares in person.
The record of stockholders entitled to notice of, and to vote at, the
Annual Meeting was taken at the close of business on December 12, 2005. At that
date the Company had outstanding [8,540,114] shares of Common Stock ($.05 par
value) of the Company ("Common Stock"). Each share of Common Stock is entitled
to one vote. No other class of securities is entitled to vote at this meeting.
Under Section 216 of the Delaware General Corporation Law and the
Company's Second Amended and Restated By-Laws, a majority of the shares of the
Common Stock, present in person or represented by proxy, shall constitute a
quorum for purposes of the Annual Meeting. In all matters other than the
election of directors, the affirmative vote of the majority of shares present in
person or represented by proxy at the Annual Meeting and entitled to vote on the
subject matter shall be the act of the stockholders. Directors shall be elected
by a plurality of the votes present in person or represented by proxy at the
Annual Meeting and entitled to vote on the election of directors. Abstentions
will have the effect of votes against a proposal, and broker non-votes (that is,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which the brokers or nominees do not have
discretionary power) will have no effect on the vote.
AVAILABLE INFORMATION AND SOURCES OF INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). The reports, proxy
statements and other information filed by the Company with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices at 233 Broadway, New York, New York 10279, and 175 W. Jackson Boulevard,
Suite 900, Chicago, Illinois 60604. Copies of such material also may be obtained
by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You are being furnished with a copy
of the annual report of the Company on Form 10-K along with this proxy
statement, in satisfaction of the informational requirements of the Exchange
Act. It is not to be regarded as proxy-solicitation material.
Statements contained in this Proxy Statement or in any document
incorporated by reference in this Proxy Statement as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed or incorporated by reference as an exhibit to the
registration statement or such other document, each such statement being
qualified in all respects by such reference.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitations of proxies made hereby and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any other person. The delivery of this Proxy Statement shall
not under any circumstances create an implication that there has been no change
in the affairs of the Company since the date hereof or that the information
herein is correct as of any time subsequent to its date.
SECURITY OWNERSHIP OF OFFICERS, DIRECTORS AND 5% OWNERS
The following table lists the number of shares of Common Stock beneficially
owned as of October 31, 2005, by those known by the Company to own beneficially
5% or more of the Common Stock, all the directors, each executive officer listed
in the table under the caption "Executive Compensation" and all directors and
executive officers of the Company as a group. As of October 31, 2005, 8,540,114
shares of Common Stock, $.05 par value, of the Registrant were outstanding.
Amount and Nature
Beneficial      Percent of
Name and Address                              Ownership+        Class*
---------------------------------------   -----------------   ----------
James McNamara                               2,510,075(1)        28.2%
John A. Gleason                                210,000(2)         2.4%
Henry Y. L. Toh                                210,000(2)         2.4%
Robert V. Cuddihy, Jr.                         200,000            2.3%
James M. Augur                                      --             --
Donald Shek                                         --             --
All executive officers and directors as
a group (six persons)                        3,130,075(3)        33.5%
Campus Family 2000 Trust                     1,883,333(4)        19.0%
42 Oak Avenue
Tuckahoe, NY 10707
+ The number of shares beneficially owned is deemed to include shares of the
Company's Common Stock as to which the beneficial owner has or shares either
investment or voting power. Unless otherwise stated, and except for voting
powers held jointly with a person's spouse, the persons and entities named in
the table have voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Each such person's percentage
ownership is determined by assuming that the options or convertible securities
that are held by such person, and which are exercisable within 60 days from the
date hereof, have been exercised or converted, as the case may be.
All information with respect to beneficial ownership is based on filings made by
the respective beneficial owners with the Securities and Exchange Commission
(the "SEC") or information provided to the Company by such beneficial owners.
* Based on 8,540,114 shares outstanding as of October 31, 2005
(1) Includes 2,135,075 shares of Common Stock and 375,000 shares currently
issuable upon exercise of options.
(2) Includes 210,000 shares currently issuable upon exercise of options.
(3) Includes 2,335,075 shares outstanding and 795,000 shares issuable upon
exercise of options.
(4) Pursuant to the terms of the $2.8 million Convertible Promissory Note
outstanding at October 31, 2005, the holder has the option to convert the note
into Common Stock at the rate of $1.50 per share for an aggregate of 1,883,333
shares of Common Stock if fully converted.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of five members.
Pursuant to the terms of the Company's Second Amended and Restated By-Laws,
adopted by the Board of Directors as of November 3, 2005, the directors of the
Company shall no longer be divided into three classes that are elected on a
staggered basis at annual meetings of stockholders. Instead, each director shall
now be subject to election on an annual basis -- at the annual meeting of
stockholders -- for a one year term. Four of the Company's five directors are
not affiliated with the Company in any capacity (except, in the cases of Mr.
Gleason and Mr. Toh, by virtue of their directorship and stock ownership) and
should therefore be considered "independent."
The Board of Directors has nominated James J. McNamara, John A.
Gleason, James M. Augur, Donald Shek, and Henry Y.L. Toh to serve as directors
of the Company for a one-year term, until the Annual Meeting of Stockholders in
2006 and until their successors are duly elected and qualified.
Each nominee has consented to be a nominee and to serve as a director
if elected. Except as otherwise directed on the proxy card, the persons named as
proxies will vote for the election of the designated nominees. In the event that
a nominee should become unavailable for election as a director, the persons
named as proxies will vote for any substitute nominees that the Board of
Directors may select.
Set forth below is biographical information for the directors of the
Company, each of whom has been nominated by the Board of Directors for election
at this year's Annual Meeting of Stockholders.
Information concerning the current directors and executive officers of
the Company is set forth as follows:
Name                     Age   Position
----------------------   ---   -------------------------------------------------
James J. McNamara         56   Chairman of the Board and Chief Executive Officer
Robert V. Cuddihy, Jr.    46   Chief Financial Officer, Secretary and Treasurer
James M. Augur            70   Director
John A. Gleason           56   Director
Donald Shek               56   Director
Henry Y. L. Toh           48   Director
NOMINEES TO SERVE A ONE YEAR TERM UNTIL THE 2006 ANNUAL MEETING OF STOCKHOLDERS:
JAMES J. MCNAMARA   Director Since 1998
Currently Serving until 2005 Annual Meeting of Stockholders
Mr. McNamara has been Chairman of the Board and Chief Executive Officer since
November 2000. Mr. McNamara has been a Director of NAC since February 1998 and
previously served as its Chairman from April 1998 to November 1999. Mr. McNamara
has also been President of Film Management Corporation (a film company) since
1995, and he has been President and Chief Executive Officer of Celebrity
Entertainment, Inc. (an entertainment company) since 1992. Mr. McNamara was
Chairman of the Board and Chief Executive Officer of Princeton Media Group, Inc.
(a magazine publisher) from 1994 to 1998. A subsidiary of Princeton Media Group,
Inc. and Celebrity Entertainment, Inc. each effected an assignment of their
respective assets for the benefit of creditors in 1998.
JAMES M. AUGUR      Director Since 2004
Mr. Augur has been a Director of NAC since May 2004. Mr. Augur has been a
commercial and residential architect for over 30 years. Mr. Augur currently
serves as a consultant to owners and developers for land planning and
architectural services and is the Chairman and President of JMA and Associates.
JOHN A. GLEASON     Director Since 2000
Mr. Gleason has been a Director of NAC since April 2000. Mr. Gleason previously
served as Director of NAC from February 1998 to September 1999. From 1995 to
1998, Mr. Gleason served on NAC's Dealer Advisory Board, serving as Chairman of
such panel from 1996 to 1998. Mr. Gleason has been the President and principal
of Automax, Inc., an independent car dealership since 1987. Mr. Gleason has been
the President of New Franklin, Inc., an automobile finance consulting firm,
since 1992 and has been a partner in Coslar Properties LLC, a real estate firm,
DONALD SHEK         Director Since 2003
Mr. Shek has been a Director of NAC since December 2003. Mr. Shek has been a
financial consultant in private practice since January 1998. From 1993 to 2002,
Mr. Shek was a Registered Representative for the Financial West Group, an NASD
broker/dealer.
HENRY Y. L. TOH     Director Since 1998
Mr. Toh has been a Director of NAC since December 1998. Mr. Toh is also a
Director of two other public companies, Acceris Communications, Inc., formerly
I-Link Incorporated (an Internet telephone company), since 1992 and Teletouch
Communications, Inc. (a paging and telecom services provider) since December
2001. Mr. Toh has been the principal officer of Four M. International, Inc. (a
private investment entity) since 1992. Mr. Toh is also a director of Crown
Financial Group, Inc., an NASD Broker/Dealer, since March 2004. Mr. Toh was also
a Director of Bigmar, Inc, a pharmaceutical company, from 2002 to February 2004.
STOCKHOLDER VOTE REQUIRED FOR PROPOSAL 1 AND BOARD RECOMMENDATION:
The election of the nominees for director requires the affirmative
vote of the holders of a plurality of the votes of the shares of Common Stock
present in person or represented by proxy at the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors and beneficial owners of more than ten percent of any class of equity
securities of the Company to file initial reports of ownership and reports of
changes in ownership with the SEC and each exchange on which its securities are
traded. Officers and directors are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of such forms furnished to the Company, all requisite
filings were made in the Company's fiscal year ended January 31, 2005.
The Company has adopted a Code of Business Conduct, Ethics and
Corporate Governance ("Code of Ethics") that applies to its directors, officers
and employees. A copy of the Company's Code of Ethics will be provided free of
charge, upon written request to the following address: National Auto Credit,
Inc., 555 Madison Avenue, 29th Floor, New York, NY 10022, Attention: Robert V.
Cuddihy, Jr.
Meetings and Attendance
During the fiscal year ended January 31, 2005, there were four (4)
meetings of the Board of Directors. All directors attended all of the board
meetings and the meetings of the committees on which they serve.
The Board of Directors has established various committees to assist it
in discharging its duties. The three standing Committees of the Board of
Directors are the Audit Committee, the Corporate Governance and Nominating
Committee and the Compensation and Stock Option Committee.
Consisting entirely of independent directors, the Audit Committee's
function is to evaluate the adequacy of the Company's internal accounting
controls, review the scope of the audit by the independent auditors and related
matters pertaining to the examination of the financial statements, review the
year-end and the quarterly financial statements, review the nature and extent of
any non-audit services provided by the Company's independent auditors and make
recommendations to the Board of Directors with respect to the foregoing matters
as well as with respect to the appointment of the Company's independent
auditors. The Audit Committee had four meetings in the fiscal year ended January
31, 2005. The Audit Committee is responsible for overseeing the Company's
compliance with the Sarbanes Oxley Act of 2002 and all rules promulgated
thereunder by the SEC and the National Association of Securities Dealers, Inc.
("NASD"). The members of the Audit Committee are independent, as independence is
defined by Rule 4200(a)(15) of the NASD listing standards, as applicable and as
may be modified or supplemented. The Audit Committee is governed by a written
charter that was adopted by the Company in November 2005 and that was included
as an exhibit to a Form 8-K filed by the Company on November 8, 2005. Copies of
such charter are available to the shareholders upon request to the Secretary of
the Company. The Audit Committee is responsible for approving the engagement of,
and has engaged, Grant Thornton LLP to perform audit services for the Company
and its subsidiaries.
Audit Committee Financial Expert
The Board of Directors has determined that Henry Y. L. Toh and Donald Shek each
qualify as an "audit committee financial expert" within the meaning of the rules
of the SEC and as financially sophisticated audit committee members under the
Nasdaq National Market Rules.
REPORT OF AUDIT COMMITTEE
Notwithstanding anything to the contrary set forth in any of our
previous or future filings under the Securities Act of 1933, as amended or the
Exchange Act that might incorporate this proxy statement, in whole or in part,
the following report of the Audit Committee shall not be deemed to be
incorporated by reference into any such filings and shall not otherwise be
deemed filed under such Acts.
The Audit Committee has:
o    Reviewed and discussed the audited financial statements with
o    Discussed with the independent auditors the matters required to
be discussed by SAS 61, as it may be modified or supplemented.
o    Received the written disclosures and the letter from the
independent auditors required by Independence Standards Board
Standard No. 1, as may be modified or supplemented, and has
discussed with the independent auditors the auditors'
independence.
o    Based on the review and discussions above, recommended to the
Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the last
fiscal year for filing with the Securities and Exchange
Respectfully submitted by the
members of the Audit Committee:
Henry Y. L. Toh
Donald Shek
JOHN GLEASON
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee's functions are to
(1) identify qualified individuals to become members of the Board of Directors,
(2) select the director nominees to be presented for election at each annual
meeting of shareholders, (3) regularly develop, review and recommend to the
Board of Directors a set of corporate governance policies applicable to the
Company, and (4) provide oversight for the evaluation of the performance of the
Board of Directors. The Corporate Governance and Nominating Committee will
consider recommendations for the position of director submitted by stockholders
in writing in accordance with the Company's By-Laws to the Secretary of the
Company, 555 Madison Avenue, 29th Floor, New York, NY 10022. The members of the
Corporate Governance and Nominating Committee are independent, as independence
is defined by Rule 4200(a)(15) of the NASD listing standards, as applicable and
as may be modified or supplemented. The Corporate Governance and Nominating
Committee is governed by a written charter that was adopted by the Company in
November 2005 and that was included as an exhibit to a Form 8-K filed by the
Company on November 8, 2005. Copies of such charter are available to the
shareholders upon request to the Secretary of the Company. The Company's By-Laws
provide that stockholders may nominate one or more persons for election as
director or directors at the 2006 Annual Meeting of Stockholders only if written
notice to make such nomination or nominations has been given either by personal
delivery or by mail, postage prepaid, to the Secretary of the Company not less
than fourteen (14) nor more than fifty (50) days prior to any meeting of the
stockholders called for the election of directors. The Corporate Governance and
Nominating Committee has not yet met, given that it was recently formed, already
after the Board of Directors' selection of the director nominees to be presented
for election at this year's Annual Meeting of Stockholders. The members of the
Corporate Governance and Nominating Committee, none of whom is an employee of
the Company or its affiliates, are:
James M. Augur
Compensation and Stock Option Committee
The Compensation and Stock Option Committee (formerly the Compensation
Committee), which consists entirely of independent directors, did not hold any
meetings in the fiscal year ended January 31, 2005. The Compensation and Stock
Option Committee administers the Company's 1993 Equity Incentive Plan, 2003
Restricted Stock Plan and would also administer the 2005 Equity Compensation
Plan if approved by the stockholders of the Company at the upcoming Annual
Meeting of Stockholders. The Compensation and Stock Option Committee is
generally empowered to review the performance and development of the management
of the Company in achieving corporate goals and objectives and to assure that
senior executives of the Company are compensated effectively in a manner
consistent with the strategy of the Company, competitive practice, and the
requirements of the appropriate regulatory bodies. Toward that end, the
Committee oversees, reviews and administers all compensation, equity and
employee benefit plans and programs. The Compensation and Stock Option Committee
is governed by a written charter that was adopted by the Company in November
2005 and that was included as an exhibit to a Form 8-K filed by the Company on
November 8, 2005. Members of the Compensation and Stock Option Committee, none
of whom are employees of the Company or its affiliates, are:
John A. Gleason
EXECUTIVE OFFICERS OF THE COMPANY
The current Executive Officers of the Company are Mr. McNamara and
Robert V. Cuddihy, Jr., whose biography is set forth below. Mr. McNamara's
biography is set forth above under Proposal 1: "Election of Directors."
ROBERT V. CUDDIHY, JR.   Chief Financial Officer, Secretary and Treasurer
Mr. Cuddihy has been the Company's Chief Financial Officer and
Treasurer since September 2001. Mr. Cuddihy has been the Company's Secretary
since January 2003. Mr. Cuddihy was an independent financial consultant to the
Company from May 2001 to August 2001. From July 1987 to March 2001, Mr. Cuddihy
was the Chief Financial Officer of HMG Worldwide Corporation, a company engaged
in in-store marketing and retail store fixturing design and manufacture, and
also served as a Director from February 1998 to May 2001. HMG Worldwide
Corporation effected an assignment of their assets for the benefit of creditors
in 2002. From July 1981 to July 1987, Mr. Cuddihy was with KPMG Peat Marwick,
Certified Public Accountants, where he last served as a senior audit manager.
The following table sets forth information as to compensation paid by
the Company and its subsidiaries for the fiscal years ended January 31, 2003,
2004 and 2005 to each of the directors and executive officers of the Company:
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation                    Awards           Payouts
-----------------------------------   -----------------------   -------
(a)                      (b)      (c)         (d)          (e)           (f)          (g)        (h)          (i)
Other                   Securities                  All
Annual      Restricted   Underlying     LTIP        Other
Name and Principal                                    Compensation      Stock      Options/    Payouts   Compensation
Position                Year   Salary($)   Bonus($)        ($)         Award(s)     SARs (#)     ($)          ($)
---------------------   ----   ---------   --------   ------------   ----------   ----------   -------   ------------
James J. McNamara,      2005     500,000    250,000                                                         91,740
Chairman of the Board   2004     500,000    250,000                                                         87,740
and Chief Executive     2003     500,000    250,000                                                         89,913
Robert V. Cuddihy,      2005     265,000     30,250                                                         37,900
Jr., Chief Financial    2004     265,000     27,500      54,400        200,000                              22,045
Officer, Secretary &    2003     265,000     15,000                                                         13,662
OPTION GRANTS IN FISCAL YEAR ENDED JANUARY 31, 2005 AND FISCAL YEAR-END
OPTION VALUES
Option/SAR Grants in Last Fiscal Year
% of Total Options
Number of Shares    Granted to Employees   Exercise
Underlying Options       in year ended       or Base   Expiration   Grant Date
Name         Granted              1/31/2005          Price       Date      Fair Value
----   ------------------   --------------------   --------   ----------   ----------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a)                                (b)            (c)             (d)               (e)
Securities         Value of
Underlying       Unexercised
Unexercised       In-the-Money
Options/SARs at   Options/SARs at
Shares                      1/31/2005 (#)     1/31/2005 ($)
Acquired on       Value        Exercisable/      Exercisable/
Name                          Exercise (#)   Realized ($)    Unexercisable     Unexercisable
---------------------------   ------------   ------------   ---------------   ---------------
James J. McNamara,                 --             --            750,000            --/--
and Chief Executive Officer
Robert V. Cuddihy, Jr.,            --             --                 --            --/--
Secretary & Treasurer
Board of Directors Interlocks and Insider Participation:
The Board of Directors consists of Messrs. McNamara, Augur, Gleason,
Shek and Toh. Mr. McNamara is an employee of the Company. The non-employee
directors participated in all deliberations and actions of the Company's Board
of Directors concerning executive officer compensation. There are no interlocks
between the Company and other entities involving the Company's executive
officers and Board members who serve as executive officers or Board members of
such other entities.
Remuneration of Directors and Related Matters
Each non-employee member of the Board of Directors receives compensation of
$15,000 per annum for serving thereon. Non-employee directors who also serve on
the Audit Committee of the Board of Directors are entitled to additional
compensation of $10,000 per annum. The non-employee members of Board of
Directors are also entitled to reimbursement for all reasonable
fees and expenses incurred in connection with the performance of services on
behalf of the Company. Fees and expenses are reimbursed upon submission of
appropriate documentation for such fees and expenses to the Company in
accordance with the then-current NAC policy.
Amounts paid to directors in the fiscal year ended January 31, 2005 aggregated
$75,000 for services rendered during the period as follows:
Director                Amount
--------------------   -------
James J. McNamara(1)   $    --
James M. Augur(2)      $10,000
John A. Gleason        $15,000
Donald Shek            $25,000
Henry Y.L. Toh         $25,000
(1) Directors who are also employees of NAC do not receive any additional
compensation for serving on the Board of Directors.
(2) Mr. Augur joined the NAC Board of Director in May 2005 and received a
pro-rata payment of the director fee for the period served on the Board.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All current transactions between the Company, and its officers,
directors and principal stockholders or any affiliates thereof are, and in the
future such transactions will be, on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
EMPLOYMENT CONTRACTS AND OTHER ARRANGEMENTS WITH EXECUTIVE OFFICERS
Employment Agreement with James J. McNamara
On December 15, 2000, NAC's Board of Directors approved an Employment
Agreement, effective as of November 3, 2000, with James J. McNamara. Under the
terms of that agreement, Mr. McNamara was to be employed as Chief Executive
Officer for an initial term of three years, until December 31, 2003, with a base
salary of $500,000 per year. In the event that NAC achieves certain performance
objectives established by the Board of Directors, Mr. McNamara also receives a
target cash bonus of $250,000, which may also be increased by the Board if the
Board believes it appropriate to reward his performance for that year. During
the fiscal year ended January 31, 2005, because of Mr. McNamara's successful
efforts on several fronts, the bonus was approved by the Board. Following the
initial three-year term, the Employment Agreement was automatically extended on
a month-to-month basis and may be cancelled with 90 days prior notice given by
either party. NAC may terminate the Employment Agreement at any time for cause,
and Mr. McNamara may terminate it at any time in his discretion.
The Employment Agreement also granted Mr. McNamara options to purchase
an additional 750,000 shares of NAC Common Stock with an exercise price equal to
the average of the closing bid prices of the Common Stock on the OTCBB for the
five trading days preceding December 16, 2000 or $.664, which also may be
exercised by means of cashless exercise. In June 2005, subject to an agreement
with shareholders, NAC and Mr. McNamara cancelled 375,000 of the above options.
The remaining 375,000 options continue to have a term of 10 years from the date
of grant, December 15, 2000, and are fully vested and exercisable. From time to
time, the Board may, in its discretion, increase Mr. McNamara's base salary and
grant additional options to Mr. McNamara, on such terms as the Board determines,
subject to the approval of the Compensation and Stock Option Committee.
The Employment Agreement also provides for certain payments in the
event of a termination without cause by NAC or a termination for good reason by
Mr. McNamara as follows: NAC will pay to Mr. McNamara one dollar ($1) less than
the amount that would constitute an "excess parachute payment" under Section
280G of the Internal Revenue Code. NAC shall pay to Mr. McNamara such amount in
lump sum cash payment as soon as practicable following the effective date of
such termination. NAC shall also continue to provide Mr. McNamara with all
employee benefits and perquisites in which he was participating or which he was
receiving at the effective date of termination (or if greater, at the end of the
prior year) for two years following termination.
If it is determined by reason of any payment, or the occurrence of an
option vesting, pursuant to the terms of the Employment Agreement (or upon any
other plan, agreement or program) upon a Change in Control, as defined in the
Employment Agreement (collectively the "Payment"), the Executive would be
subject to the excise tax imposed by Code Section 4999 (the "Parachute Tax"),
then Mr. McNamara shall be entitled to receive an additional payment or payments
(a "Gross-Up Payment") in an amount such that, after payment by Mr. McNamara of
all taxes (including any Parachute Tax) imposed upon the Gross-Up Payment, Mr.
McNamara will retain an amount of the Gross-Up Payment equal to the Parachute
Tax imposed upon the Payment.
Employment Agreement with Robert V. Cuddihy, Jr.
Effective December 31, 2001, NAC consummated an employment agreement
with Robert V. Cuddihy, Jr. Under the terms of the agreement, Mr. Cuddihy was to
be employed as Chief Financial Officer and Treasurer for an initial term of
three years, until December 31, 2004, with a base salary of $240,000 per year
and a minimum annual bonus of $25,000 per year. Mr. Cuddihy is also entitled to
NAC employee benefits of health insurance, 401-K plan and related programs.
Following the initial three year term, the agreement has been renewed on a
month-to-month basis, and is terminable upon 90 days prior written notice by
either party. In the event that the agreement is terminated by NAC without
cause, Mr. Cuddihy shall receive one year's worth of compensation in the form of
severance compensation. As a consequence of Mr. Cuddihy's successful performance
in the fiscal year ended January 31, 2005 on several fronts, including his
management of day-to-day finance and administration activities of NAC and its
newly acquired businesses, Mr. Cuddihy was awarded a bonus of $30,250 in cash.
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE
The principal goal of the Company's compensation program is to help
the Company attract, motivate and retain the executive talent required to
develop and achieve the Company's strategic and operating goals with a view to
maximizing stockholder value. The key elements of this program and the
objectives of each element are as follows:
Base Salary:
o    Establish base salaries that are competitive with those payable to
executives holding comparable positions at similar-sized strategic
resource companies.
o    Provide periodic base salary increases as appropriate, consistent with
the Company's overall operating and financial performance, with a view
to rewarding successful individual performance and keeping pace with
competitive practices.
Long-term Incentive:
o    Facilitate the alignment of executives' interests with those of the
Company's shareholders by providing opportunities for meaningful stock
ownership.
Bonuses, Salary Increases and Option Grants:
o    Executive officers are eligible to receive option grants, cash bonuses
and increases in salary based upon the performance of the Company and
their individual progress during the preceding year. Such grants, if
any, are determined by the Compensation and Stock Option Committee or
Board of Directors from time to time during each fiscal year with the
input and recommendation of the Company's Chief Executive Officer.
Although the Board does not have an established policy for measuring
performance and establishing salary, bonuses and option grants, the
Compensation and Stock Option Committee and the Board are influenced
by the Company's financial performance and the contributions made by
individual executives to that performance. The Board of Directors
believes that such a retrospective analysis is most appropriate and
practicable for an acquisition-oriented company specializing in
development-stage enterprises like the Company, which operates in an
uncertain environment and without the same sorts of standard measures
of performance as are available to more seasoned companies. In
addition, options may be granted to attract new executives or
directors. The Company does not consider the amount and terms of
options and stock already held by executive officers in its
deliberations to determine awards.
Compensation of Chief Executive Officer:
o    The base salary of the Chief Executive Officer is determined according
to the same principles described above as applicable to compensation
of the Company's other executive officers. When determining base
salaries, the Board of Directors considers salary, bonus and long-term
incentive compensation for other comparable companies in the corporate
communications, entertainment, corporate events services and movie
exhibition industry sectors, in similar geographic areas and at
similar stages of growth and development, as reported in public
filings of such comparable companies. The Board of Directors also has
discussions with other industry executives and financial advisors. The
Chief Executive Officer has a great deal of experience in acquiring
and building emerging companies, and the Board views his leadership as
a critical factor in the successes the Company has achieved to date
and as very important to realization of the Company's near-term goals.
Summary of Actions Taken
Generally once a year, and at more frequent periodic intervals when deemed
necessary in individual cases, the Board of Directors reviews the performance of
the Company's executive officers. In the fiscal year ended January 31, 2005, the
Board of Directors took no action concerning the performance or compensation of
its executive officers.
Respectfully submitted by the members of
the Compensation and Stock Option
The following table compares the yearly change in NAC's cumulative total
shareholder return on its Common Stock (based on the market price of NAC's
common stock) with the cumulative total return of the S&P 600 Small Cap Index,
the Russell 2000 Index, and Reading International, Inc. (a theatre and real
estate concern).
2/1/00   1/31/01   1/31/02   1/31/03   1/31/04   1/31/05
National Auto Credit, Inc.      100       27        13        13        57        30
S&P 600 Small Cap Index         100      119       122        99       145       167
Russell 2000 Index              100      102        97        75       117       125
Reading International, Inc.     100       77        69       145       224       288
For purposes of the above table, NAC is compared to Reading International Inc.
as such company is engaged principally in the operations of various film
theatres. NAC's current operations are comprised principally of its investment
in the Angelika Film Center LLC and corporate communications.
RATIFICATION OF THE COMPANY'S SELECTION OF ITS AUDITORS
The Board of Directors recommends to the stockholders that they ratify
the selection of Grant Thornton LLP, independent auditors, to audit the accounts
of the Company for the fiscal year ending January 31, 2006. Grant Thornton LLP
served as the Company's auditors for the fiscal year ended January 31, 2005. If
the stockholders do not ratify this selection, the Board of Directors will
reconsider its selection of Grant Thornton LLP and may appoint new auditors upon
recommendation of the Audit Committee.
A representative of Grant Thornton LLP will have the opportunity to
make a statement at the Annual Meeting if he or she desires to do so and will be
available to respond to appropriate questions.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents fees, including reimbursements for
expenses, for professional audit services rendered by Grant Thornton LLP for the
audit of the Company's annual financial statements for the years ended January
31, 2005 and January 31, 2004 and fees billed for other services rendered by
Grant Thornton LLP during those periods.
FISCAL YEAR ENDED 1/31/04   FISCAL YEAR ENDED 1/31/05
Audit Fees (1)           $150,000                    $155,000
Audit Related Fees (2)   $  7,000                    $ 10,000
Tax Fees (3)             $103,000                    $138,000
All Other Fees (4)       $     --                    $     --
Total                    $270,000                    $303,000
(1)  Audit Fees consist of fees billed for professional services rendered for
the audit of the Company's consolidated annual financial statements and
review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided by Grant Thornton
LLP in connection with statutory and regulatory filings or engagements.
(2)  Audit-Related Fees consist of fees billed for assurance and related
services that are reasonably related to the performance of the audit or
review of the Company's consolidated financial statements and are not
reported under "Audit Fees."
(3)  Tax Fees consist of fees billed for professional services rendered for tax
compliance, tax advice and tax planning, including preparation of tax
returns, review of restrictions on net operating loss carry-forwards and
other general tax services.
(4)  All Other Fees consist of fees for products and services other than the
services reported above. There were no such fees incurred by the Company
during the last two fiscal years ended January 31, 2004 and January 31,
2005, respectively.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES OF
In accordance with the requirements of the Sarbanes-Oxley Act of 2002
and the rules and regulations promulgated thereunder, the Audit Committee has
adopted an informal approval policy that it believes will result in an effective
and efficient procedure for the pre-approval of services performed by the
independent auditor.
Audit Services include the annual financial statement audit (including
quarterly reviews) and other procedures required to be performed by the
independent auditor in order to render an opinion on our financial statements.
The Audit Committee may pre-approve specified annual audit services engagement
terms and fees and other specified audit fees. All other audit services must be
specifically pre-approved by the Audit Committee. The Audit Committee monitors
the audit services engagement and may approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope or other items.
Audit-Related Services
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements which historically have been provided to us by the independent
auditor and are consistent with the SEC's rules on auditor independence. The
Audit Committee may pre-approve specified audit-related services within
pre-approved fee levels. All other audit-related services must be pre-approved
by the Audit Committee.
The Audit Committee may pre-approve specified tax services that the
Audit Committee believes would not impair the independence of the auditor and
that are consistent with SEC rules and guidance. All other tax services must be
specifically approved by the Audit Committee.
Other services are services provided by the independent auditor that
do not fall within the established audit, audit-related and tax services
categories. The Audit Committee may pre-approve specific other services that do
not fall within any of the specified prohibited categories of services.
All requests for services to be provided by the independent auditor,
which must include a detailed description of the services to be rendered and the
amount of corresponding fees, are submitted to the Chief Financial Officer. The
Chief Financial Officer authorizes services that have been pre-approved by the
Audit Committee. If there is any question as to whether a proposed service fits
within a pre-approved service, the Audit Committee chair is consulted for a
determination. The Chief Financial Officer submits requests or applications to
provide services that have not been pre-approved by the Audit Committee, which
must include an affirmation by the Chief Financial Officer and the independent
auditor that the request or application is
consistent with the SEC's rules on auditor independence, to the Audit Committee
(or its chair or any of its other members pursuant to delegated authority) for
approval.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF GRANT
THORNTON LLP TO AUDIT THE ACCOUNTS OF THE COMPANY FOR THE FISCAL YEAR ENDING
APPROVAL OF THE COMPANY'S SECOND AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, INCLUDING NAME CHANGE AND INCREASE IN AUTHORIZED CAPITAL
The Board of Directors is proposing the second amendment and
restatement of our Certificate of Incorporation, as amended heretofore (the
"Certificate of Incorporation"), (i) to change our corporate name from "National
Auto Credit, Inc." to "[Insert_Pending]," with a concomitant change in our
stated corporate purpose, (ii) to increase our authorized capital from
40,000,000 million shares of common stock and 2,000,000 shares of preferred
stock to 50,000,000 shares of common stock and 5,000,000 shares of preferred
stock, (iii) to delineate the size of the Board of Directors to be within a
range of between five (5) and nine (9) members and (iv) to make other changes
that will bring the Certificate of Incorporation into conformity with the basic
provisions of Delaware General Corporation Law that have evolved since the times
at which the Company's original Certificate of Incorporation and Amended and
Restated Certificate of Incorporation were adopted (in October 1995 and December
1995), respectively. As of November 3, 2005, the Board of Directors adopted
resolutions approving the proposed second amendment and restatement of our
Certificate of Incorporation and recommending that the shareholders ratify such
amendment and restatement.
Proposed Name Change and Accompanying Change in Stated Corporate Purpose
The proposal to change the Company's name is made in light of the
transformation of the Company's business and operations from the acquisition of,
leasing, selling, and generally dealing in, all types of new and used motor
vehicles and accessories into the realms of corporate communications,
entertainment and movie exhibition. The name change is necessary to align our
name to the nature of our business and operations. The Board of Directors
believes that it will be in the Company's best interest to use [Insert Pending]
as the Company's new name. Concomitant with such name change, the stated
purposes for which the Company was formed--as described in Article III of our
Certificate of Incorporation-- will also be revised to reflect the actual nature
of our current business and operations.
Proposed Increase in Authorized Capital
The Board of Directors proposes to increase the total number of shares
of common stock, par value $0.05 per share, that we are authorized to issue from
40,000,000 to 50,000,000, with a concomitant increase in the number of preferred
shares, par value $0.05 per share, that we are authorized to issue from
2,000,000 to 5,000,000. As of October 31, 2005, there were
8,540,114 shares of common stock issued and outstanding, constituting
approximately 21.4% of our current authorized common stock, and no shares of
preferred stock outstanding. Furthermore, the Company is currently committed to
issue additional stock under certain circumstances, including (i) 1,883,333
shares of common stock to be issued upon the exercise of conversion rights by
the holder of a $2.8 million convertible promissory note issued by the Company
in connection with the Company's acquisition of The Campus Group effective July
31, 2003, (ii) up to 1,000,000 shares of common stock to be issued upon the
exercise of warrants to be granted to shareholders of the Company who held NAC
shares continuously from December 14, 2000 through December 24, 2002, pursuant
to the Amended Stipulation of Settlement, dated November 15, 2004, entered into
by the Company, which settled the derivative and class action lawsuit entitled
Robert Zadra, et al v. James A. McNamara, et al. (Index No. 01-604859) (the
"Settlement Agreement") and (ii) 1,063,352 shares of our authorized common stock
that have been reserved for future issuance to directors, officers, employees
and consultants of the Company under our equity incentive plans (including our
existing equity plans and the proposed 2005 Equity Compensation Plan).
The Board of Directors has determined that the above-described
increase in authorized capital would be desirable in that it would enable the
Company to meet needs that may arise from time to time in the future, including,
for example, the issuance of shares in connection with acquisitions of new
entities that would expand or complement our current operational strengths. At
the present time, we have no specific plans, arrangements or understandings for
the issuance of additional shares of our common stock (other than shares to be
issued upon conversion of the convertible promissory note and under our equity
incentive plans, as described above). Under our Certificate of Incorporation, as
amended (and under the proposed Second Amended and Restated Certificate of
Incorporation as well), our shareholders do not have preemptive rights and thus
will have no rights to purchase any of the additional shares of common stock
that may be issued in the future by the Board of Directors.
Proposed Reduction of Size of Board of Directors to Between Five and Nine
Under the Settlement Agreement, we are required to reduce the
prescribed size of our Board of Directors, as set forth in our Certificate of
Incorporation, as amended, from thirteen (13) to no less than five (5) nor more
than nine (9) members, provided that upon the certification of the independent
directors of the Company that an increase to greater than nine (9) members is
required to accommodate exceptional circumstances, such an increase may approved
by the Board of Directors, but not prior to January 1, 2007. Currently, our
Board is comprised of five members, Mr. McNamara, Mr. Augur, Mr. Gleason, Mr.
Shek and Mr. Toh, which complies with the required size of the Board under the
Settlement Agreement. Therefore, the proposed amendment and restatement to our
certificate of incorporation to reduce the size of the Board to between five and
nine members merely implements the terms of the Settlement Agreement, thereby
ensuring our adherence to efficient principles of corporate governance and
allows our Board to continue to function at its current size, while not
disrupting the management of the Company.
Proposed Other Changes to Conform with Current Delaware Law
The Company is subject to Section 203 of the Delaware General
Corporation Law and other statutory provisions that could discourage potential
takeover attempts. Such provisions prohibit us from engaging in specified
business combinations with "interested stockholders,"
including beneficial owners of 15% or more of the voting power of our
outstanding shares. After a stockholder acquires 15% or more of the voting power
of our outstanding shares, combinations may be permissible only if specified
conditions are satisfied. Such conditions include the approval of the business
combination by the directors of the Company, thereby allowing the directors to
resist a change or potential change in control of the Company if they determine
that such change is opposed to, or not in the best interest of, the stockholders
of the Company. The existing Certificate of Incorporation contains provisions
that restrict business combinations with "interested stockholders" but which are
partially inconsistent with the corresponding provisions of Section 203 of the
Delaware General Corporation Law, due to revisions in that statutory section
since the original adoption of the Company's Certificate of Incorporation and
the first amendment and restatement thereof. The proposed Second Amended and
Restated Certificate of Incorporation will modernize the Company's charter and
bring it into conformity with current Delaware law on this subject.
The Company has always afforded its officers, directors and employees
the maximum indemnification permitted under Delaware law, under the theory that
such protection enables our officers, directors and employees to function at
their optimum level of performance on behalf of the Company, without the
distraction of potential personal liability for matters involving the Company's
operations, except where any such individual has acted improperly. The proposed
restatement of our Certificate of Incorporation implements this concept more
clearly than it is currently stated therein, subject to the important exceptions
in which an individual has either (a) breached his or her duty of loyalty, (b)
acted or failed to act in a manner involving intentional misconduct or knowing
violation of the law, or (c) derived improper personal benefit. Furthermore, the
revised indemnification provisions of our proposed amended and restated charter
will automatically update themselves to provide for the maximum indemnification
protection afforded under Delaware law to the extent that Delaware law is
hereafter amended to allow for even broader indemnification protection. These
updates to our charter will keep it in-step with future revisions to Delaware
law that may arise, without necessitating constant revision of our charter. The
Board therefore recommends its adoption.
There are various other minor proposed changes to the Certificate of
Incorporation reflected in the Second Amended and Restated Certificate of
Incorporation, none of which will effect substantial changes to the Company's
charter or to the rights of stockholders or other parties arising thereunder,
but which will rather merely modernize its terminology and language. The Board
of Directors encourages you to review the complete text of the proposed amended
and restated charter, attached hereto as Appendix A.
Vote Required for Amendment and Restatement of Certificate of Incorporation
The affirmative vote of a majority of the outstanding shares of our
common stock is necessary for the approval of the proposed Second Amended and
Restated Certificate of Incorporation. The full text of the Second Amended and
Restated Certificate of Incorporation-- if approved as proposed-- will be
substantially in the form attached hereto as Appendix A. Upon approval at the
Annual Meeting, the Second Amended and Restated Certificate of Incorporation
will be promptly filed by the Company with the Secretary of State of the State
of Delaware. The Second Amended and Restated Certificate of Incorporation will
be effective on the effective date of its filing with the Secretary of State.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
COMPANY'S SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
RATIFICATION OF THE 2005 EQUITY COMPENSATION PLAN
The 2005 Equity Compensation Plan, or the 2005 Plan, was approved by
the Board of Directors on November 3, 2005, subject to the approval of the
stockholders. If approved by the stockholders, the 2005 Plan will be effective
as of November 3, 2005 (although no grants thereunder will be effectuated prior
to such approval by the stockholders). A description of the 2005 Plan is
included below. It is not a complete statement of the 2005 Plan. The full text
of the 2005 Plan has been attached as Appendix B to the electronic copy of this
proxy statement, which is available at the Securities and Exchange Commission's
website located at www.sec.gov.
The 2005 Plan provides our employees, non-employee directors,
consultants and advisors with the opportunity to receive grants of incentive
stock options, nonqualified stock options, stock awards, and stock appreciation
rights related to our stock. Unless terminated earlier by our Board of Directors
or extended with stockholder approval, the Plan will terminate on October 31,
The purpose of the 2005 Plan is to give participants an ownership
interest in the Company and to create an incentive for them to contribute to our
growth, thereby benefiting our stockholders, and aligning the economic interests
of the participants with those of our stockholders. On October 31, 2005, the
closing price of our common stock was $0.52 per share.
The 2005 Plan will be administered by the Compensation and Stock
Option Committee of our Board of Directors or its delegate. The Compensation and
Stock Option Committee consists of at least two or more directors who are not
our employees. The Compensation and Stock Option Committee members serve until
their resignation or removal by the Board of Directors. The Compensation and
Stock Option Committee has the authority to determine the individuals to whom
grants will be made under the 2005 Plan, to determine the type, size, and terms
of any grants made, to determine when grants will be made and the duration of
any applicable exercise or restriction period, and to deal with any other
matters arising under the 2005 Plan. The Compensation and Stock Option Committee
also has the power and authority to administer and interpret the 2005 Plan. The
Compensation and Stock Option Committee's determinations relating to the
interpretation and operation of the 2005 Plan will be conclusive and binding. In
no event may the Compensation and Stock Option Committee (i) amend a stock
option to reduce the exercise price; (ii) substitute a stock option for another
stock option with a lower exercise price; (iii) cancel a stock option and issue
a new stock option with a lower exercise price to the same holder within six
months following the date of the cancellation; or (iv)
cancel an outstanding stock option with an exercise price below our stock's fair
market value for the purpose of granting a replacement equity award of a
different type within six months following the date of the cancellation.
The following persons are eligible to receive grants under the 2005
o    All of our employees and the employees of any subsidiary we may have
during the duration of the plan;
o    Non-employee directors; and
o    Consultants and advisors.
As of October 31, 2005, we had five (5) directors and approximately
sixty-five (65) employees, which included two executive officers. In addition,
we routinely utilize varying levels of consultants and advisors to conduct our
normal business operations.
SHARES SUBJECT TO THE 2005 PLAN
The 2005 Plan authorizes the issuance of 2,000,000 shares of our
common stock pursuant to any form of grant. Of such shares, a maximum of
2,000,000 shares may be issued under stock awards. The maximum number of shares
that may be subject to grants made to any individual under the 2005 Plan during
any calendar year is 2,000,000 shares. If any grant of shares under the 2005
Plan shall for any reason expire or otherwise terminate, in whole or part,
without having been exercised in full, the stock not acquired shall revert to
and again become available for issuance under the 2005 Plan.
These limits will be adjusted by the Compensation and Stock Option
Committee for stock splits, stock dividends, recapitalizations, merger or
reorganization in which we are the surviving corporation, a reclassification or
change in the par value of our stock, or other similar transactions affecting
our stock. Shares used to make grants may be issued directly by us or purchased
on the open market and then transferred to participants by us.
TYPES OF GRANTS AVAILABLE UNDER THE 2005 PLAN
The following types of grants are available under the 2005 Plan:
Incentive stock options;
Nonqualified stock options;
Stock appreciation rights;
Stock Awards; and
Restricted Stock Units.
The 2005 Plan provides for the award of incentive stock options and
nonqualified stock options, which provide the option holder with the right to
purchase shares of our common stock at a specified exercise price during a
specified period of time.
Nonqualified stock options may be awarded to anyone eligible to
participate in the 2005 Plan. Only our employees or the employees of any
subsidiaries are eligible to receive incentive stock options. Under the 2005
Plan, the exercise price of nonqualified and incentive stock options must be
equal to or greater than the fair market value of a share of our stock on the
date of grant.
Only $100,000 of any incentive stock options (based on the fair market
value of the stock on the date(s) of grant) may first become exercisable by an
employee during any calendar year. In other words, the aggregate amount of all
incentive stock options granted under all of our plans that first become
exercisable by an employee in any calendar year may not exceed $100,000. Any
options that exceed this limit must be nonqualified stock options. In addition,
if an employee who receives an incentive stock option owns more than 10% of the
voting power of our stock or the stock of a subsidiary, the exercise price must
be at least equal to 110% of the fair market value of our stock on the date of
grant, and the option term may not be longer than five years. See "Federal
Income Tax Consequences" below, which includes a discussion regarding the tax
differences between a nonqualified stock option and an incentive stock option.
OPTION TERMS.
Each grant under the 2005 Plan will be accompanied by a grant
instrument. The grant instrument will describe the type and number of grants
that the option holder has been awarded and the terms and restrictions
applicable to the grant. The grant instrument for an option will describe when
the option will become exercisable.
The exercise term of each option will be determined by the
Compensation and Stock Option Committee and set forth in the applicable grant
instrument. The term of an option may not exceed ten years; provided, however,
if an option holder owns more than 10% of the voting power of our stock or the
stock of a subsidiary, an incentive stock option may not have a term that
exceeds five years from the date of grant. The Compensation and Stock Option
Committee may accelerate the exercisability of options awarded under the 2005
Plan at any time for any reason.
An option holder may pay the exercise price, as specified in the
applicable grant instrument (i) in cash, (ii) through a broker by having a
broker sell our stock simultaneously with the exercise of the option, or (iii)
by such other method of payment as the Compensation and Stock Option Committee
may approve.
TERMINATION.
Unless the Compensation and Stock Option Committee determines
otherwise or an option expires by its terms within a shorter period, if an
option holder ceases to be employed by,
or provide service to, the Company for any reason other than death, disability
or termination for misconduct, the option holder will have 90 days from the date
of termination to exercise any vested options. If an option holder is terminated
for misconduct, the option holder will have 30 days from the date of termination
to exercise any vested options. Unless the Compensation and Stock Option
Committee determines otherwise or an option expires by its terms within a
shorter period, if an option holder ceases to be employed by, or provide
services to, us on account of (i) disability, or (ii) death (during the term of
service or within 90 days thereafter for reasons other than termination for
misconduct), the option holder will have one year from the termination date to
exercise any vested options. If an option holder dies while employed by, or
providing services to, the Company, all of the unexercised outstanding options
of the person shall become immediately exercisable. Unless the Compensation and
Stock Option Committee determines otherwise, all options that have not become
exercisable on the date on which an option holder ceases to be employed by, or
provide service to, us will terminate. To the extent a company sponsored plan,
policy or agreement provides for a longer exercise period, that exercise period
shall apply in lieu of the exercise periods summarized in this paragraph.
STOCK APPRECIATION RIGHTS (SARS)
SARs give the recipient the right to receive the appreciation in the
value of our stock over a specified period of time. SARs which shall be settled
in shares of our stock shall be counted in full against the number of shares
available for award under the 2005 Plan, regardless of the number of shares of
stock issued upon the exercise and settlement of the SAR. The Compensation and
Stock Option Committee may grant SARs separately or in tandem with any option.
Tandem SARs may be granted either at the time the option is granted or at any
time while the option remains outstanding; however, with respect to incentive
stock options, tandem SARs may be granted only at the time of grant. When an
option is exercised, any SARs relating to the stock covered by such option will
terminate. When a tandem SAR is exercised, the related option will terminate to
the extent of an equal number of shares of our stock.
Value. When a SAR is exercised, the holder will receive an amount of
our stock equal to the amount by which the fair market value of the underlying
stock on the date of exercise exceeds the base amount of the SAR. Unless the
Compensation and Stock Option Committee determines otherwise, the base amount of
each SAR will be equal to the per share exercise price of the related option,
or, if there is no related option, the fair market value of a share of our stock
as of the date of grant of the SAR.
Terms. SARs are exercisable and are subject to vesting and other
restrictions as specified in the applicable grant instrument. The Compensation
and Stock Option Committee may accelerate the exercisability of all or any
outstanding SARs at any time for any reason.
otherwise or a SAR expires by its terms within a shorter period, SARs will
terminate on the same terms as discussed above with respect to options.
Stock awards are a grant of our stock that is subject to restrictions
or no restrictions, as set forth in the grant instrument. The Compensation and
Stock Option Committee will determine whether stock awards will be granted, the
type of award (including without limitation, stock grants and restricted stock
units), the number of shares that will be awarded, any restrictions applicable
to the stock awards and when and how the restrictions will lapse. Until the
restrictions lapse, stock awards cannot be sold, assigned, transferred, pledged
or otherwise disposed of. Unless the Compensation and Stock Option Committee
determines otherwise, if employment or service terminates while stock awards are
subject to restrictions, any shares whose restrictions have not yet lapsed will
be forfeited and returned to us.
QUALIFIED PERFORMANCE-BASED COMPENSATION.
The Compensation and Stock Option Committee may determine that stock
awards will be granted as qualified performance-based compensation for tax
purposes. The Internal Revenue Code limits a company's ability to deduct
compensation for each of its five highest paid executives in excess of $1
million per year. The Internal Revenue Code provides an exception to this limit
if the compensation is designated as qualified performance-based compensation.
If the Compensation and Stock Option Committee grants stock awards that are
intended to be qualified performance-based compensation, the Company must meet
specified performance goals, designated by the Compensation and Stock Option
Committee, in order for the qualified performance-based compensation to be
payable.
The Compensation and Stock Option Committee will establish the
performance goals for qualified performance-based compensation, the performance
period during which the goals must be met, the threshold, target and maximum
amounts that may be paid if the performance goals are met, and any other
conditions deemed appropriate and consistent with the 2005 Plan and legal
requirements. The Compensation and Stock Option Committee will establish the
performance goals for qualified performance-based compensation in writing at the
beginning of the performance period, or during a period that is no later than
the earlier of either 90 days after the beginning of the performance period, or
the date on which 25% of the performance period has been completed, or such
other date that is permitted under the Internal Revenue Code.
The performance goals will be based on objective criteria such as
stock price, earnings per share, net earnings, operating earnings, return on
assets, stockholder return, return on equity, growth in assets, unit volume,
sales, market share, or strategic business criteria based on our meeting
specific revenue goals, market penetration goals, geographic business expansion
goals, cost targets, or goals relating to acquisitions or divestitures. The
performance goal results will be announced for each performance period
immediately following the announcement of our financial results for the
performance period. If the performance goals for a performance period are not
met, the grants subject to the performance goals will be forfeited.
Restricted stock units provides a grant that represents the right of
the holder to receive an amount of cash or Company stock based upon a value of
the restricted stock unit, if performance goals are met or upon a vesting
schedule. A restricted stock unit shall be based upon the fair
market value of a share of Company stock or such other measurement base as the
Compensation and Stock Option Committee deems appropriate.
CHANGE IN CONTROL
If a change of control (as defined in the 2005 Plan) occurs, where the
Company is not the survivor corporation, unless the Company determines
otherwise, (i) all outstanding options and SARs that are not exercised shall be
assumed by, or replaced by the surviving corporation, and outstanding stock
awards and restricted stock units shall be converted to stock awards and
restricted stock units of the surviving corporation. In addition, any of the
following actions may occur (i) outstanding options and SARs shall accelerate
and become exercisable in whole or in part, (ii) the restrictions and conditions
on all outstanding stock awards and restricted stock units shall lapse, in whole
or in part, (iii) option holders shall be required to surrender their
outstanding options and SARs in exchange for a payment in cash or stock, in an
amount equal to the amount by which the fair market value of the shares of
Company stock subject to the option exceeds the exercise price of the options or
the base amount exceeds the unexercised SAR, (iv) after giving option holders an
opportunity to exercise their outstanding options and SARs all outstanding
options and SARs shall terminate as of the date of the change of control or such
other date as specified.
Generally, grants are not transferable except upon death. Grants may
only be exercised during the lifetime of the recipient and may not be
transferred except by will, through the laws of descent and distribution or, in
the case of grants other than incentive stock options, pursuant to a domestic
relations order, if permitted by the Compensation and Stock Option Committee.
However, the Compensation and Stock Option Committee may permit the transfer of
nonqualified stock options to family members or a trust or other entity
established for the benefit of family members.
The Plan may be amended by our Board of Directors at any time.
However, the stockholders must approve any amendment for which stockholder
approval is required under applicable provisions of the Internal Revenue Code or
under applicable exchange requirements.
FEDERAL INCOME TAX CONSEQUENCES
The current United States federal income tax treatment of options and
stock awards under the 2005 Plan is generally described below. This description
of tax consequences is not a complete description. There may be different income
tax consequences under certain circumstances, and there may be gift and estate
tax consequences. Local, state and other taxing authorities may also tax grants
under the 2005 Plan. Tax laws are subject to change. Each award holder should
consult with their personal tax advisor concerning the application of the
general principles discussed below to their own situation and the application of
other tax laws. The 2005 Plan is not subject to the Employee Retirement Income
Security Act of 1974 and is not a tax-qualified plan under Section 401 of the
Internal Revenue Code.
NONQUALIFIED STOCK OPTIONS.
There generally are no federal income tax consequences upon the grant
of a nonqualified stock option. Upon the exercise of a nonqualified stock
option, the recipient will recognize ordinary income in an amount equal to the
difference between the exercise price and the fair market value on the date of
exercise. Any gain or loss realized on disposition of shares purchased upon the
exercise of a nonqualified stock option will be treated as a capital gain or
loss for federal income tax purposes. The capital gain tax rate will depend on
the length of time the participant holds the shares and other factors. We
generally will be entitled to a corresponding federal income tax deduction.
If a participant surrenders shares underlying a nonqualified stock
option to pay the exercise price, such person will recognize no gain or loss on
the surrendered shares, and the basis and holding period for the surrendered
shares will continue to apply to that number of new shares equal to the
surrendered shares. To the extent that the number of shares received upon the
exercise of the option exceeds the number surrendered, the fair market value of
the excess shares on the date of exercise, reduced by any cash paid by
participant upon exercise, will be includible in gross income. The basis in the
excess shares will equal the sum of the cash paid upon the exercise of the stock
option plus any amount included in the exercising person's gross income as a
result of the exercise.
INCENTIVE STOCK OPTIONS.
of an incentive stock option. A recipient will not recognize income for purposes
of the regular federal income tax upon the exercise of an incentive stock
option. However, for purposes of the alternative minimum tax, in the year in
which an incentive stock option is exercised, the amount by which the fair
market value of the shares acquired upon exercise exceeds the exercise price
will be included in alternative minimum taxable income.
Income will be recognized upon the sale of stock acquired upon
exercise of an incentive stock option. If the shares acquired upon exercise of
an incentive stock option are disposed after two years from the date the option
was granted and after one year from the date the shares were transferred upon
the exercise of the option, the person will recognize long-term capital gain or
loss in the amount of the difference between the amount realized on the sale and
the exercise price. We will not be entitled to any corresponding tax deduction.
If a participant disposes of shares acquired upon exercise of an
incentive stock option before satisfying both holding period requirements (a
disqualifying disposition), the gain recognized on the disposition will be taxed
as ordinary income to the extent of the difference between the fair market value
of the shares on the date of exercise (or the amount realized on the
disposition, if less) and the exercise price, and generally, we will be entitled
to a deduction in that amount. The gain, if any, in excess of the amount
recognized as ordinary income will be long-term or short-term capital gain,
depending upon the length of time the participant held the shares before the
disposition.
If a participant surrenders shares received upon the exercise of a
prior incentive stock option to pay the exercise price of any option within
either the two-year or one-year holding
periods described above, the disqualifying disposition of the shares used to pay
the exercise price will result in income (or loss) to the participant and, to
the extent of recognized income, a tax deduction to us. If a participant
surrenders the shares after the holding period requirements are met, or if a
participant surrender shares that were not received upon the exercise of an
incentive stock option, the participant will recognize no gain or loss on the
surrendered shares, and the basis and the holding period for the surrendered
shares will continue to apply to that number of new shares that is equal to the
surrendered shares. The holding period for purposes of determining whether a
participant has a disqualifying disposition for the new shares when they sell
the shares will begin on the date the shares were exercised. To the extent that
the number of shares received exceeds the number of shares surrendered, the
basis in the excess shares will equal the amount of cash, if any, paid for such
excess shares and the holding period with respect to the excess shares will
begin on the date the shares were exercised.
STOCK APPRECIATION RIGHTS.
of a SAR. Upon exercise of a SAR, the participant will recognize ordinary income
equal to the fair market value of any shares received. We generally will be
entitled to a corresponding federal income tax deduction at the time of exercise
of the SAR.
When a participant sells any shares acquired by the exercise of a SAR,
he or she will have capital gain or loss in an amount equal to the difference
between the amount realized upon the sale and the adjusted tax basis in the
shares (the amount of ordinary income recognized at the time of exercise of the
SAR).
STOCK AWARDS.
If a participant receives restricted stock awards, he or she generally
will not recognize taxable income, and we will not be entitled to a deduction,
until the stock is transferable or no longer subject to a substantial risk of
forfeiture for federal tax purposes, whichever occurs earlier. When the stock is
either transferable or is no longer subject to a substantial risk of forfeiture,
the participant will recognize ordinary income in an amount equal to the fair
market value of the shares (less any amounts paid for the shares) at that time,
and generally, we will be entitled to a deduction in the same amount.
However, a participant may elect to recognize ordinary income in the
year when the restricted stock awards are granted in an amount equal to the fair
market value of the shares subject to the award (less any amounts paid for such
shares) at that time, determined without regard to any restrictions. In that
event, we generally will be entitled to a corresponding deduction in the same
year. Any gain or loss recognized by a participant upon a later disposition of
the shares will be capital gain or loss.
If a participant receives stock awards that are not subject to a
substantial risk of forfeiture or are transferable at grant, the participant
will recognize ordinary income on the value of the shares at the date of grant.
We will generally be entitled to a corresponding tax deduction.
TAX WITHHOLDING.
We have the right to deduct from all grants or other compensation
payable to a participant any taxes required to be withheld with respect to
grants under the 2005 Plan. We may require that a participant pay to us the
amount of any required withholding. The Compensation and Stock Option Committee
may permit a participant to satisfy our tax withholding obligation with respect
to a grant by having shares withheld. However, the value of shares withheld may
not exceed the minimum required tax withholding amount.
TRANSFER OF STOCK OPTIONS.
A participant may be permitted to transfer nonqualified stock options
to family members or a trust or other entity established for the benefit of
family members, consistent with applicable law. The tax consequences of stock
option transfers are complex and should be carefully evaluated by a participant
with the advice of their tax advisor.
Generally, a participant will not recognize income at the time such
participant makes a gift of a nonqualified stock option to a family member or a
trust or other entity. When the transferee later exercises the option, the
transferor (and not the transferee) must recognize ordinary income on the
difference between the fair market value of the stock and the exercise price.
For federal gift tax purposes, if an option is transferred before the
option has become exercisable, the transfer will not be considered by the
Internal Revenue Service to be a completed gift until the option becomes
exercisable. The value of the gift will be determined when the option becomes
exercisable. Gifts of options may qualify for the $10,000 gift tax annual
exclusion. If a participant dies after transferring an option in a completed
gift transaction, the transferred option may be excluded from the participant's
estate for estate tax purposes if the applicable estate tax requirements have
been met.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE RATIFICATION OF THE 2005
EQUITY COMPENSATION PLAN.
SOLICITATION OF PROXIES
This proxy solicitation is being made by the Board of Directors of NAC
for use at the Annual Meeting. The cost of this proxy solicitation will be borne
by NAC. In addition to solicitation by mail, solicitations also may be made by
advertisement, telephone, telegram, facsimile transmission or other electronic
media, or personal contacts. Proxies may be solicited by NAC and its directors,
officers and employees (who will receive no compensation therefor in addition to
their regular salaries). Arrangements will also be made with brokerage houses
and other custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of the common stock of NAC, and such persons will be
reimbursed for their expenses.
Management does not know of any business to be transacted at the
meeting other than as indicated herein. However, certain stockholders may
present topics for discussion from the floor. Should any such matter properly
come before the meeting for a vote, the persons designated as proxies will vote
thereon in accordance with their best judgment.
You are urged to sign, date and mail the enclosed proxy in the prepaid
envelope provided for such purpose. For planning purposes, it is hoped that
registered stockholders will give us advance notice of their plans to attend the
meeting by marking the box provided on the proxy card.
A list of the Company's stockholders of record at the close of
business on December 12, 2005, will be available at the Annual Meeting and
during the ten days prior thereto, at the office of the Company, 555 Madison
Avenue, 29th Floor, New York, New York, 10022.
If you will need special assistance at the Annual Meeting because of a
disability or if you require directions to the Annual Meeting, please contact
Robert V. Cuddihy, Jr., the Secretary of the Company, at (212) 644-1400.
Deadline for submitting proposals for next year's meeting.
Stockholders who intend to present proposals in connection with the Company's
2006 Annual Meeting of Stockholders must submit their proposals to the Secretary
of the Company in accordance with the Company's By-Laws not less than not less
than fourteen (14) nor more than fifty (50) days prior to the meeting of
stockholders at which directors may be elected.
YOUR VOTE IS IMPORTANT! YOU ARE URGED TO
SIGN, DATE, AND MAIL YOUR PROXY PROMPTLY.
PRELIMINARY PROXY CARD
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 31, 2005
The undersigned hereby: (a) acknowledges receipt of the Notice of
Annual Meeting of Stockholders of National Auto Credit, Inc. (the "Company") to
be held on January 31, 2006 and the Proxy Statement in connection therewith,
each dated December 14, 2005; (b) appoints James J. McNamara and Robert V.
Cuddihy, Jr., and each of them with power of substitution, as Proxies; (c)
authorizes the Proxies to represent and vote, as designated hereon, all the
shares of Common Stock of the Company, held of record by the undersigned on
December 12, 2005, at such Annual Meeting and at any adjournment(s) thereof; and
(d) revokes any proxies heretofore given.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND MAIL THIS PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE
SEE REVERSE SIDE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
EACH OF PROPOSALS 1, 2, 3 AND 4.
1. ELECTION OF DIRECTORS
DIRECTOR- NOMINEES:
James J. McNamara
[_] FOR ALL NOMINEES   [_] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"FOR ALL NOMINEES" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
IMMEDIATELY BELOW.)
2. RATIFICATION OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT AUDITORS
[_] FOR   [_] AGAINST   [_] ABSTAIN
3. ADOPTION OF THE COMPANY'S SECOND AMENDED AND RESTATED CERTIFICATE OF
4. RATIFICATION OF THE 2005 EQUITY COMPENSATION PLAN
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
[_] Check here if you plan to attend
SIGNATURE(S)
NOTE: Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such.
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
SECOND AMENDED AND RESTATED
National Auto Credit, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (the "GCL"), does hereby certify that:
1. The name of the corporation is National Auto Credit, Inc.
2. The original Certificate of Incorporation of the Corporation was filed with
the Secretary of State of Delaware on October 27, 1995.
3. This Second Amended and Restated Certificate of Incorporation, which amends
and restates the Corporation's Certificate of Incorporation in its entirety, has
been duly adopted in accordance with the provisions of Sections 242 and 245 of
the GCL, and the stockholders of the Corporation have voted in favor thereof at
an annual meeting of the stockholders held in accordance with the provisions of
the GCL. The provisions of the Second Amended and Restated Certificate of
Incorporation are as follows:
The name of this corporation is [Pending Approval By Shareholders]
(the "Corporation").
The address of the Corporation's registered office in the State of
Delaware is 1209 West Orange Street, City of Wilmington, County of New Castle.
The name of the registered agent at such address is The Corporation Trust
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "GCL"). Without limiting the generality of the
foregoing, the purpose or purposes for which the Corporation is formed are to
engage in the business of the full service design, creative development,
production, post production editing and transmission, via broadcast satellite
videoconferencing, webcasting and traditional on-site presentations of corporate
education and training video and other services for use at corporate events and
to operate in the movie exhibition industry.
In general, to do everything incidental or conducive to the full
accomplishment of the foregoing objects; and to do any and everything necessary
and proper to carry on any business authorized hereby, and to any other
legitimate business not expressly mentioned herein which is not prohibited by
the laws of the State of Delaware or the laws of any other state or jurisdiction
in which the Corporation does or may do business; and to exercise all the powers
conferred upon a corporation by the laws of the State of Delaware, the above
enumerated powers being merely descriptive and not limiting as to any and all
powers which the Corporation may be authorized to do and perform under the laws
of the State of Delaware.
The Corporation is authorized to issue two classes of capital stock to
be designated, respectively, "Common Stock" and "Preferred Stock". The total
number of shares that the Corporation is authorized to issue is fifty-five
million (55,000,000). Fifty million (50,000,000) shares shall be Common Stock,
par value $0.05 per share, and five million (5,000,000) shares shall be
Preferred Stock, par value $0.05 per share.
Section 4A. Common Stock.
4A.1. General. Subject to the powers, preferences and rights of
any Preferred Stock having any preference priority over, or rights superior to,
the Common Stock and except as otherwise provided by law and this Article, the
holders of the Common Stock shall have and possess all powers and voting and
other rights pertaining to the stock of the Corporation and each share of Common
Stock shall be entitled to one vote. Except as otherwise provided by the GCL or
this Certificate of Incorporation, the holders of record of Common Stock shall
share ratably in all dividends payable in cash, stock or otherwise and other
distributions, whether in respect of liquidation or dissolution (voluntary or
involuntary) or otherwise.
4A.2. Voting. The holders of the Common Stock are entitled to one
vote for each share of Common Stock held at all meetings of stockholders
(including without limitation in the election of directors of the Corporation).
There shall be no cumulative voting.
4A.3 Number. The number of authorized shares of Common Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote, irrespective of the provisions of Section
242(b)(2) of the GCL.
4A.4 Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors of the Corporation (the "Board of Directors"), subject to any
preferential dividend rights of any then outstanding Preferred Stock.
4A.5 Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to participate ratably in all assets of the Corporation available for
distribution to its stockholders, subject to any preferential rights of any then
outstanding Preferred Stock.
Section 4B. Preferred Stock.
4B.1. General; Fixing of Preferences, Rights and Number of a
Series. The shares of Preferred Stock may be issued as a class without series,
or if so determined from time to time by the Board of Directors, either in whole
or in part in one or more series, each series to be expressly designated by
distinguishing number, letter, or title prior to the issue of any shares
thereof. The shares of Preferred Stock, and each series thereof, may have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, liquidation, optional, or other special
rights and qualifications, limitations, or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for the issue of
such stock adopted by the Board of Directors. There is hereby expressly granted
to the Board of Directors the authority to fix or alter the dividend rights,
dividend rates, dividend preferences and participations, conversion rights,
voting rights, rights, and terms of redemption (including sinking fund
provisions), the redemption price or prices, the rights and preferences in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation or upon any distribution of assets by the Corporation and any other
special rights, qualifications, limitations on and restrictions of, any wholly
unissued class or series of shares of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series. Subject to the prior and superior rights of the Preferred Stock
set forth in any resolution or resolutions of the Board of Directors providing
for the initial issuance of any particular series of Preferred Stock, the
holders of Preferred Stock shall not be entitled to participate in dividends
(payable in cash, stock, or otherwise) as may be declared by the Board of
Directors of the Corporation to be payable on the Common Stock.
4B.2. Voting. Except to the extent otherwise provided in the
resolution or resolutions of the Board of Directors providing for the initial
issue of shares of Preferred Stock or a particular series thereof, Preferred
Stock shall be entitled to vote for each share thereof so held share for share
with the holders of the Common Stock without distinction as to class, and shall
not be entitled to vote separately as a class or series of a class.
4B.3. Number. The number of shares of Preferred Stock authorized
to be issued may be increased or decreased from time to time (but not below the
number of shares of Preferred Stock then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote, and
the holders of the Preferred Stock shall not be entitled to vote separately as a
class or series of a class on any such increase or decrease.
NO PREEMPTIVE RIGHTS
Except to the extent otherwise provided in the resolution or
resolutions of the Board of Directors providing for the initial issue of shares
of a particular series of Preferred Stock, no holder of stock of the Corporation
of any class shall have any preferential, preemptive or other right to subscribe
for or to purchase from the Corporation any stock of the Corporation of any
class, whether or not now authorized, or to purchase any bonds, certificates of
indebtedness, debentures, notes, obligations or other issue whether or not the
same shall be convertible into stock of the Corporation of any class, or shall
entitle the owner or holder to purchase stock of the Corporation of any class.
SECTION 203 OF GCL
Section 6A. General.
Any merger or consolidation of the Corporation with or into any other
corporation, or any sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Corporation to or with any
other corporation, person or other entity, with respect to which any stockholder
vote or consent is required under the GCL, shall require the affirmative vote of
the holders of [at least two-thirds (2/3)] of each class of stock outstanding
and entitled to vote at any meeting of the stockholders. Such affirmative vote
shall be required notwithstanding the fact that some lesser percentage may be
specified by the GCL or otherwise. This Article VI may not be altered, added to,
amended or repealed except by the affirmative vote the holders of [two-thirds
(2/3)] in interest of each class of stock outstanding entitled to vote at a
meeting called for said purpose, provided notice of the proposed alteration,
addition, amendment or repeal shall have been given in the notice of such
meeting of stockholders.
Section 6B. Business Combinations with Interested Stockholders.
The Corporation hereby elects to be governed by Section 203 of the
GCL.
STOCKHOLDER ACTION; CORPORATION'S BOOKS
Stockholders of the Corporation shall take action by (i) meetings held
pursuant to this Certificate of Incorporation and the By-Laws or (ii) written
consent in lieu a meeting pursuant to the provisions of Section 228 of the GCL
and Article II, Section 10 of the Corporation's By-Laws. Meetings of
stockholders may be held within or without the State of Delaware, as the By-Laws
may provide. Special meetings of the stockholders, for any purpose or purposes,
may be called by the Chairman of the Board of Directors or such other officers
of the Corporation as the By-Laws shall provide, and shall be called upon the
request in writing of a majority of the Board of Directors, or at the request in
writing of stockholders owning a majority in amount of the entire capital stock
of the Corporation issued and outstanding and entitled to vote. The books of the
Corporation may be kept (subject to any provision contained in the GCL) outside
of the State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
PERPETUAL EXISTENCE
The Corporation is to have a perpetual existence.
MANAGEMENT OF BUSINESS OF THE CORPORATION
The management of the business and the conduct of the affairs of the
Corporation shall be vested in the Board of Directors, of which there shall be
not less than five (5) nor more than nine (9) members, as may be determined from
time to time by resolution of the Board of Directors and in accordance with the
provisions of the Corporation's By-Laws.
AMENDMENT OF BY-LAWS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend, alter
or repeal the By-Laws of the Corporation. Such power of the Board of Directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend, alter or repeal the By-Laws of the Corporation.
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of the GCL or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under Section 279 of the
GCL order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs.
If a majority in number representing three-fourths (3/4) in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
REDEMPTION OF SHARES
The Corporation may purchase, from time to time, and to the extent
permitted by the GCL, shares of any class of stock issued by it. Such purchases
may be made either in the open market or at private or public sale, and in such
manner and amounts, from such holder or holders
of outstanding shares of the Corporation and at such prices as the Board of
Directors shall from time to time determine, and the Board of Directors is
hereby empowered to authorize such purchases from time to time without any vote
of the holders of any class of shares now or hereafter authorized and
outstanding at the time of any such purchase, subject to the provisions of the
By-Laws of the Corporation.
ARTICLE XIII
Any director or officer of the Corporation shall not be disqualified
by his office from dealing or contracting with the Corporation as a vendor,
purchaser, employee, agent, lessor, lessee or otherwise.
No transaction contract or other act of the Corporation shall be void
or voidable or in any way affected or invalidated by reason of the fact that any
director or officer, or any firm or corporation in which such director or
officer is a member or is a shareholder, director or officer, is in any way
interested in such transaction, contract or other act provided (i) the fact that
such director, officer, firm or corporation is so interested shall be disclosed
or shall be known to the Board of Directors or such members thereof as shall be
present at any meeting of the Board of Directors at which action upon any such
transaction, contract or other act shall be taken; and (ii) no other approval
for such transaction is required under the Corporation's By-Laws; nor shall any
such director or officer be accountable or responsible to the Corporation for or
in respect of any such transaction, contract or other act of the Corporation or
for any gains or profits realized by him by reason of the fact that he or any
firm of which he is a member or any corporation of which is a shareholder,
director or officer is interested in such transaction, contract or other act;
and any such director may be counted in determining the existence of a quorum at
any meeting of the Board of Directors which shall authorize or take action in
respect of any such transaction, contract or other act, and may vote thereat to
authorize, ratify or approve any such transaction, contract or other act with
like force and effect as if he or any firm of which he is a member or any
corporation of which is a shareholder, director or officer were not interested
in such transaction, contract or other act.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and agents (and any other persons to which
Delaware law permits the Corporation to provide indemnification) through By-Law
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the GCL, subject only to
limits created by applicable Delaware law (statutory or non-statutory).
To the fullest extent permitted by applicable law, the directors of
the Corporation shall not be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of the GCL or any amendment thereto or shall be liable by reason
that, in addition to any and all other requirements for such liability, such
director (1) shall have breached the director's duty of loyalty to the
Corporation or its stockholders, (2) shall have acted in a manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (3) shall have derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended. To the fullest extent permitted by applicable law, each person who was
or is made a party or is threatened to be made a party to or is in any way
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), including any appeal therefrom, by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or a direct or indirect Subsidiary, or is
or was serving at the request of the Corporation as a director or officer of
another entity or enterprise, shall be indemnified and held harmless by the
Corporation, and the Corporation shall advance all expenses incurred by any such
person in defense of any such proceeding prior to its final determination, to
the fullest extent authorized by the GCL. In any proceeding against the
Corporation to enforce these rights, such person shall be presumed to be
entitled to indemnification and the Corporation shall have the burden of proving
that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article XIV shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect Subsidiary, or by a person serving at the request of the Corporation as
a director or officer of another entity or enterprise, enter into contracts to
provide such persons with specified rights to indemnification, which contracts
may confer rights and protections to the maximum extent permitted by the GCL, as
amended and in effect from time to time. If a claim under this Article XIV is
not paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expenses of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce the right to be advanced
expenses incurred in defending any proceeding prior to its final disposition
where the required undertaking, if any, has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it permissible
under the GCL for the Corporation to indemnify the claimant for the amount
claimed, but the claimant shall be presumed to be entitled to indemnification
and the Corporation shall have the burden of proving that the claimant has not
met the standards of conduct for permissible indemnification set forth in the
If the GCL is hereafter amended to permit the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment, the indemnification rights conferred by this
Article XIV shall be broadened to the fullest extent permitted by the GCL, as so
amended.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss under the GCL.
IN WITNESS WHEREOF, the undersigned, being the Chief Financial
Officer, Secretary and Treasurer of the Corporation, hereby certifies that the
facts hereinafter stated are truly set
forth, and accordingly executes this Second Amended and Restated Certificate of
Incorporation this ___ day of [January], 2006.
(Signature)
Robert V. Cuddihy, Jr.,
2005 EQUITY COMPENSATION PLAN
The purpose of the National Auto Credit, Inc. 2005 Equity Compensation
Plan (the "Plan") is to provide (i) designated employees of National Auto
Credit, Inc. (the "Company") and its parents and subsidiaries, (ii) certain
consultants and advisors who perform services for the Company or its parents or
subsidiaries, and (iii) non-employee members of the Board of Directors of the
Company (the "Board") with the opportunity to receive grants of incentive stock
options, nonqualified stock options, stock awards, and stock appreciation
rights. The Company believes that the Plan will encourage the participants to
contribute materially to the growth of the Company, thereby benefiting the
Company's stockholders, and will align the economic interests of the
participants with those of the stockholders.
1.   ADMINISTRATION
(a) Committee. The Plan shall be administered and interpreted by the
members of the Compensation and Stock Option Committee of the Board (the
"Committee"), which consists of "outside directors" as defined under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and
related Treasury regulations, and "non-employee directors" as defined under Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). However, the Board may ratify or approve any grants as it deems
appropriate, and the Board shall approve and administer all grants made to
non-employee directors. The Committee may delegate authority to one (1) or more
delegates as it deems appropriate.
(b) Committee Authority. The Committee or its delegate shall have the
sole authority to (i) determine the individuals to whom grants shall be made
under the Plan; (ii) determine the type, size, and terms of the grants to be
made to each such individual; (iii) determine the time when the grants will be
made and the duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration of
exercisability; (iv) amend the terms of any previously issued grant; and (v)
deal with any other matters arising under the Plan. Notwithstanding anything in
this Plan to the contrary, but subject to adjustments as described in Section
3(b) below, in no event may the Board, the Committee or its or their delegate
(A) amend or modify an Option (as defined below) in a manner that would reduce
the Exercise Price (as defined below) of such Option; (B) substitute an Option
for another Option with a lower Exercise Price; (C) cancel an Option and issue a
new Option with a lower Exercise Price to the holder of the cancelled Option
within six (6) months following the date of the cancellation of the cancelled
Option; or (D) cancel an outstanding Option that is under water (i.e., for which
the Fair Market Value, as defined below, of the underlying Shares are less than
the Option's Exercise Price) for the purpose of granting a replacement Grant (as
defined below) of a different type within six (6) months following the date of
cancellation of the cancelled Option.
(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such
rules, regulations, agreements, and instruments for implementing the Plan and
for the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interest in the Plan or in any
awards granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company, not as a fiduciary, and in
keeping with the objectives of the Plan and need not be uniform as to similarly
situated individuals.
2.   GRANTS
(a) Awards under the Plan may consist of grants of incentive stock
options as described in Section 5 below ("Incentive Stock Options"),
nonqualified stock options as described in Section 5 below ("Nonqualified Stock
Options") (Incentive Stock Options and Nonqualified Stock Options are
collectively referred to as "Options"), stock awards as described in Section 6
below ("Stock Awards"), restricted stock units as described Section 6 below
("Restricted Units") and stock appreciation rights described in Section 7 below
("SARs") (hereinafter collectively referred to as "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan and as specified in the individual grant
instrument or an amendment to the grant instrument (the "Grant Instrument"). All
Grants shall be made conditional upon the Grantee's (as defined below)
acknowledgement, in writing or by acceptance of the Grant, that all decisions
and determination of the Company shall be final and binding on the Grantee, his
or her beneficiaries and any other person having or claiming an interest under
such Grant. Grants under a particular Section of the Plan need not be uniform as
among the Grantees.
3.   SHARES SUBJECT TO THE PLAN
(a) Shares Authorized. Subject to adjustment as described below, (i)
the maximum aggregate number of shares of common stock of the Company ("Company
Stock") that may be issued or transferred under any forms of Grants under the
Plan is 2,000,000 shares, (ii) the maximum aggregate number of shares of Company
Stock that may be issued under the Plan under Incentive Stock Options is , and
(iii) the maximum aggregate number of shares of Company Stock that may be issued
under the Plan under awards other than Options and SARs is 2,000,000 shares. For
purposes of this Section 3(a), SARs to be settled in shares of Company Stock
shall be counted in full against the number of shares of Company Stock available
for award under the Plan, regardless of the number of exercise gain shares
issued upon the settlement of the SAR. The maximum aggregate number of shares of
Company Stock that shall be subject to Grants made under the Plan to any
individual during any calendar year shall be 2,000,000 shares, subject to
adjustment as described below. The shares may be authorized but unissued shares
of Company Stock or reacquired shares of Company Stock, including shares
purchased by the Company on the open market for purposes of the Plan. If and to
the extent Options granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged, or surrendered without having been exercised or if any
Stock Awards (including restricted Stock Awards received upon the exercise of
Options) are forfeited, the shares subject to such Grants shall again be
available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend, spin-off,
recapitalization, stock split, or combination or exchange of shares; (ii) by
reason of a merger, reorganization, or consolidation; (iii) by reason of a
reclassification or change in par value; or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding shares of Company Stock is substantially reduced as a result of a
spin-off or the Company's payment of an extraordinary dividend or distribution,
the maximum number of shares of Company Stock available for Grants, the maximum
number of shares of Company Stock that any individual participating in the Plan
may be granted in any year, the number of shares covered by outstanding Grants,
the kind of shares issued under the Plan, and the price per share of such Grants
shall be appropriately adjusted by the Company to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude the enlargement or dilution of rights and benefits
under such Grants; provided, however, that any fractional shares resulting from
such adjustment shall be rounded down to the nearest whole share. Any
adjustments determined by the Company shall be final, binding, and conclusive.
4.   ELIGIBILITY FOR PARTICIPATION
(a) Eligible Persons. All employees of the Company and its parents or
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan. Consultants and
advisors who perform services for the Company or any of its parents or
subsidiaries ("Key Advisors") shall be eligible to participate in the Plan if
the Key Advisors render bona fide services to the Company or its parents or
subsidiaries, the services are not in connection with the offer and sale of
securities in a capital-raising transaction, and the Key Advisors do not
directly or indirectly promote or maintain a market for the Company's
securities.
(b) Selection of Grantees. The Company shall select the Employees,
Non-Employee Directors, and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to a particular Grant. Employees,
Non-Employee Directors, and Key Advisors who receive Grants under this Plan
shall hereinafter be referred to as "Grantees."
5.   GRANTING OF OPTIONS
The Company may grant an Option to an Employee, Non-Employee Director,
or Key Advisor. The following provisions are applicable to Options.
(a) Number of Shares. The Company shall determine the number of shares
of Company Stock that will be subject to each Grant of Options to Employees,
Non-Employee Directors, and Key Advisors.
(b) Type of Option and Price.
(i) Incentive Stock Options are intended to satisfy the
requirements of Section 422 of the Code. Nonqualified Stock Options are not
intended to so qualify. Incentive Stock Options may be granted only to employees
of the Company or its parents or subsidiaries, as defined in Section 424 of the
Code. Nonqualified Stock Options may be granted to Employees, Non-Employee
Directors, and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option may be equal to or greater than the Fair Market Value of a
share of Company Stock on the date the Option is granted; provided, however,
that (A) the Exercise Price of an Incentive
Stock Option shall be equal to, or greater than, the Fair Market Value of a
share of Company Stock on the date the Incentive Stock Option is granted and (B)
an Incentive Stock Option may not be granted to an Employee who, at the time of
grant, owns or beneficially owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
parent or subsidiary of the Company, unless the Exercise Price per share is not
less than one hundred ten percent (110%) of the Fair Market Value of Company
Stock on the date of grant.
(iii) So long as the Company Stock is publicly traded, the Fair
Market Value per share shall be determined as follows: (A) if the principal
trading market for the Company Stock is a national securities exchange or the
Nasdaq National Market, the last reported sale price thereof on the relevant
date or (if there were no trades on that date) the latest preceding date upon
which a sale was reported, or (B) if the Company Stock is not principally traded
on such exchange or market, the mean between the last reported "bid" and "asked"
prices of Company Stock on the relevant date, as reported on Nasdaq or, if not
so reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Company determines. If the Company Stock is not publicly traded or, if publicly
traded, is not subject to reported transactions or "bid" or "asked" quotations
as set forth above, the Fair Market Value per share shall be as determined by
the Company.
(c) Option Term. The term of any Option shall not exceed ten (10)
years from the date of grant. However, an Incentive Stock Option that is granted
to an Employee who, at the time of grant, owns or beneficially owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, or any parent or subsidiary of the Company, may
not have a term that exceeds five (5) years from the date of grant.
(d) Exercisability of Options.
(i) Options shall become exercisable in accordance with such
terms and conditions of the Plan and specified in the Grant Instrument. The
Company may accelerate the exercisability of any or all outstanding Options at
any time for any reason.
(ii) The Company may provide in a Grant Instrument that the
Grantee may elect to exercise part or all of an Option before it otherwise has
become exercisable. Any shares so purchased shall be restricted shares and shall
be subject to a repurchase right in favor of the Company during a specified
restriction period, with the repurchase price equal to the lesser of (A) the
Exercise Price or (B) the Fair Market Value of such shares at the time of
repurchase, and (C) any other restrictions determined by the Company.
(e) Grants to Non-Exempt Employees. Options granted to persons who are
non-exempt employees under the Fair Labor Standards Act of 1938, as amended,
shall have an Exercise Price not less than one hundred percent (100%) of the
Fair Market Value of the Company Stock on the date of grant, and may not be
exercisable for at least six (6) months after the date of grant (except that
such Options may become exercisable upon the Grantee's death, Disability (as
defined below) or retirement, or upon a Change in Control (as defined below) or
other circumstances permitted by applicable regulations).
(f) Termination of Employment, Disability, or Death.
(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by, or providing service to, the Employer (as
defined below) as an Employee, Key Advisor or member of the Board. In the event
that a Grantee ceases to be employed by, or provide service to, the Employer for
any reason other than Disability, death, termination for Cause (as defined
below), or as set forth in Section 5(f)(v) of this Plan, any Option which is
otherwise exercisable by the Grantee shall terminate unless exercised within
ninety (90) days after the date on which the Grantee ceases to be employed by,
or provide service to, the Employer (or within such other period of time as may
be specified by the Company), but in any event no later than the date of
expiration of the Option term. Except as otherwise provided, any of the
Grantee's Options that are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by, or provide service to, the Employer shall
terminate as of such date.
(ii) In the event the Grantee ceases to be employed by, or
provide service to, the Employer on account of a termination by the Employer for
Cause, any Option held by the Grantee shall terminate as of the date on which
the Grantee ceases to be employed by, or provide service to, the Employer. In
addition, notwithstanding any other provisions of this Section 5, if after the
Grantee's termination of employment or service, the Company determines that the
Grantee engaged in conduct that constitutes Cause, any Option held by the
Grantee shall terminate as the date the Company determines that the Grantee
engaged in such conduct. Upon any exercise of an Option, the Company may
withhold delivery of share certificates pending resolution of an inquiry that
could lead to a finding resulting in a forfeiture.
(iii) In the event the Grantee ceases to be employed by, or
provide service to, the Employer because of a Disability, any Option which is
otherwise exercisable by the Grantee shall terminate unless exercised within one
(1) year after the date on which the Grantee ceases to be employed by, or
provide service to, the Employer (or within such other period of time as may be
specified by the Company), but in any event no later than the date of expiration
of the Option term. Except as otherwise provided, any of the Grantee's Options
that are not otherwise exercisable as of the date on which the Grantee ceases to
be employed by, or provide service to, the Employer shall terminate as of such
(iv) If the Grantee dies while employed by, or providing service
to, the Employer, any Option which is otherwise exercisable by the Grantee shall
terminate unless exercised within one (1) year after the date the Grantee's
death (or within such other period of time as may be specified by the Company),
but in any event no later than the date of expiration of the Option term. If the
Grantee dies within ninety (90) days after the date on which the Grantee ceased
to be employed or provide service on account of a termination specified in
Section 5(f)(i) above (or within such other period of time as may be specified
by the Company), any Option that is otherwise exercisable by the Grantee shall
terminate unless exercised within one (1) year after the date on which the
Grantee ceased to be employed by, or provide service to, the Employer (or within
such other period of time as may be specified), but in any event no later than
the date of expiration of the Option term. Except as otherwise provided, any of
the Grantee's Options that are not otherwise exercisable as of the date of the
Grantee's death shall terminate as of such date.
(v) Notwithstanding anything herein to the contrary, to the
extent that any Company-sponsored plan, policy or arrangement, or any agreement
to which the Company is a party provides for a longer exercise period for a
Grantee's Options under applicable circumstances than the exercise period that
is provided for in this Section 5(f) under those
circumstances, then the exercise period set forth in such plan, policy,
arrangement or agreement applicable to such circumstances shall apply in lieu of
the exercise period provided for in this Section 5(f).
(vi) For purposes of this Section 5(f) and Section 6 below:
(a) (A) The term "Employer" shall mean the Company and its
parent and subsidiary corporations or other entities, as determined by the
(B) "Employed by, or provide service to, the Employer" shall
mean employment or service as an Employee, Key Advisor or member of the Board
(so that, for purposes of exercising Options or SARs and satisfying conditions
with respect to Stock Awards, or Restricted Units a Grantee shall not be
considered to have terminated employment or service until the Grantee ceases to
be an Employee, Key Advisor or member of the Board).
(C) "Disability" shall mean a Grantee's becoming disabled
within the meaning of the Employer's long-term disability plan applicable to the
Grantee, as determined in the sole discretion of the Committee or its delegate.
(D) "Cause" means (i) willful and continued failure by the
Grantee to substantially perform the Grantee's duties with the Company (other
than any such failure resulting from the Grantee's incapacity due to physical or
mental illness) or (ii) the willful engaging by the Grantee in conduct which is
demonstrably injurious to the Company, monetarily or otherwise. For purposes of
this definition, no act, or failure to act, on the Grantee's part shall be
deemed "willful" unless done, or omitted to be done, by the Grantee not in good
faith or without reasonable belief that the Grantee's act, or failure to act,
was in the best interest of the Company. Notwithstanding the preceding
definition, the term "Cause" shall have the same meaning given to such term or
similar term in an employment or other agreement between a Grantee and an
(g) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company. The Grantee shall pay the Exercise Price for an Option as specified
by the Company (i) in cash, (ii) payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board, or (iii) by
such other method as the Company may approve. Shares of Company Stock used to
exercise an Option shall have been held by the Grantee for the requisite period
of time to avoid adverse accounting consequences to the Company with respect to
the Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 8 below).
(h) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the Company Stock on
the date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year, under the
Plan or any other stock option plan of the Company or a parent or subsidiary,
exceeds One Hundred Thousand Dollars ($100,000), then the Option, as to the
excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock
Option shall not be granted to any person who is not an employee of the Company
or a parent or subsidiary (within the meaning of Section 424(f) of the Code) of
6.   STOCK AWARDS
The Company may transfer shares of Company Stock or cash to an
Employee, Non-Employee Director, or Key Advisor under a Stock Award. The
following provisions are applicable to Stock Awards.
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Stock Awards may be issued or transferred for
consideration or for no consideration, and subject to restrictions or no
restrictions. Restrictions on Stock Awards shall lapse over a period of time or
according to such other criteria as set forth in the Grant Instrument. The
period of time during which the Stock Award will remain subject to restrictions
will be designated in the Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Grant Instrument shall set forth the number
of shares of Company Stock to be issued or transferred pursuant to a Stock Award
and the restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the Grantee ceases to be
employed by, or provide service to, the Employer (as defined in Section 5(f)
above) during a period designated in the Grant Instrument as the Restriction
Period, or if other specified conditions are not met, the Stock Award shall
terminate as to all shares covered by the Stock Award as to which the
restrictions have not lapsed, and those shares of Company Stock must be
immediately returned to the Company. The Company may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of the Stock Award except to a successor under
Section 9(a) below. Each certificate for Stock Awards shall contain a legend
giving appropriate notice of the restrictions in the Grant. The Grantee shall be
entitled to have the legend removed from the stock certificate covering the
shares subject to restrictions when all restrictions on such shares have lapsed.
The Company may determine that it will not issue certificates for Stock Awards
until all restrictions on such shares have lapsed, or that the Company will
retain possession of certificates for Stock Awards until all restrictions on
such shares have lapsed.
(e) Right to Vote and to Receive Dividends. The right to vote the
shares of a Stock Award during the Restriction Period shall be exercisable only
by the manager of the business unit of the Company for which the Grantee
performs services or with which the Grantee is most closely associated (the
"Voting Trustee"). The Voting Trustee shall vote the shares of a Stock Award
during the Restriction Period for or against any given matter upon which the
shareholders of the Company are provided with the right to vote in proportion to
the results of such vote taken by the shareholders of the Company on such
matter. The Committee may, but shall not be required to, adopt additional rules
and provisions governing the voting trust of which this paragraph is subject.
The Grantee shall have the right to receive any dividends or other distributions
paid on such restricted shares, subject to any restrictions deemed appropriate
by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Stock Awards
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions. The
Company may determine, as to any or all Stock Awards, that the restrictions
shall lapse without regard to any Restriction Period.
(g) Restricted Stock Units. The Committee or its delegate may grant
Restricted Units ("Restricted Units") to an Employee or Key Advisor. Each
Restricted Unit shall represent the right of the Grantee to receive an amount in
cash or Company Stock (as determined by the Committee or its delegate) based on
the value of the Restricted Unit, if performance goals established by the
Committee are met or upon the lapse of a specified vesting period. A Restricted
Unit shall be based on the Fair Market Value of a share of Company Stock or on
such other measurement base as the Committee or its delegate deems appropriate.
The Committee or its delegate shall determine the number of Restricted Units to
be granted and the requirements applicable to such Restricted Units.
(h) Designation as Qualified Performance-Based Compensation. The
Committee may determine that Stock Awards or Restricted Units granted to an
Employee shall be considered "qualified performance-based compensation" under
Section 162(m) of the Code. The provisions of this paragraph (g) shall apply to
Stock Awards or Restricted Units that are to be considered "qualified
performance-based compensation" under Section 162(m) of the Code.
(i) Performance Goals. When Stock Awards or Restricted Units are
to be considered "qualified performance-based compensation" are granted, the
Committee shall establish in writing (A) the objective performance goals that
must be met, (B) the performance period during which the performance goals must
be met (the "Performance Period"), (C) the threshold, target and maximum amounts
that may be paid if the performance goals are met, and (D) any other conditions
that the Committee deems appropriate and consistent with the Plan and Section
162(m) of the Code. The performance goals may relate to the Employee's business
unit or the performance of the Company and its parents and subsidiaries as a
whole, or any combination of the foregoing. The Committee shall use objectively
determinable performance goals based on one (1) or more of the following
criteria: stock price, earnings per share, net earnings, operating earnings,
return on assets, stockholder return, return on equity, growth in assets, unit
volume, sales, market share, or strategic business criteria consisting of one
(1) or more objectives based on meeting specified revenue goals, market
penetration goals, geographic business expansion goals, cost targets or goals
relating to acquisitions or divestitures.
(ii) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (A) ninety (90)
days after the beginning of the Performance Period or (B) the date on which
twenty-five percent (25%) of the Performance Period has been completed, or such
other date as may be required or permitted under applicable regulations under
Section 162(m) of the Code. The performance goals shall satisfy the requirements
for "qualified performance-based compensation," including the requirement that
the achievement of the goals be substantially uncertain at the time they are
established and that the goals be established in such a way that a third party
with knowledge of the relevant facts could determine whether and to what extent
the performance goals have been met. The Committee shall not have discretion to
increase the amount of compensation that is payable upon achievement of the
designated performance goals.
(iii) Announcement of Grants. The Committee shall certify and
announce the results for each Performance Period to all Grantees immediately
following the announcement of the Company's financial results for the
Performance Period. If and to the extent that the
Committee does not certify that the performance goals have been met, the grants
of Stock Awards for the Performance Period shall be forfeited or shall not be
made, as applicable.
(iv) Death, Disability or Other Circumstances. The Committee may
provide that Stock Awards or Restricted Units shall be payable or restrictions
on Stock Awards shall lapse, in whole or in part, in the event of the Grantee's
death or Disability during the Performance Period, or under other circumstances
consistent with the Treasury regulations and rulings under Section 162(m) of the
7.   STOCK APPRECIATION RIGHTS
The Company may grant SARs to an Employee, Non-Employee Director, or
Key Advisor. The following provisions are applicable to SARs.
(a) General Requirements. The Company may grant SARs to an Employee,
Non-Employee Director or Key Advisor separately or in tandem with any Option
(for all or a portion of the applicable Option). Tandem SARs may be granted
either at the time the Option is granted or at any time thereafter while the
Option remains outstanding; provided, however, that, in the case of an Incentive
Stock Option, SARs may be granted only at the time of the grant of the Incentive
Stock Option. Unless otherwise specified in the Grant Instrument, the base
amount of each SAR shall be equal to the per share Exercise Price of the related
Option or, if there is no related Option, the Fair Market Value of a share of
Company Stock as of the date of grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
granted to a Grantee that shall be exercisable during a specified period shall
not exceed the number of shares of Company Stock that the Grantee may purchase
upon the exercise of the related Option during such period. Upon the exercise of
an Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. A SAR shall be exercisable during the period
specified in the Grant Instrument and shall be subject to such vesting and other
restrictions as may be specified. The Company may accelerate the exercisability
of any or all outstanding SARs at any time for any reason. SARs may only be
exercised while the Grantee is employed by, or providing service to, the
Employer or during the applicable period after termination of employment or
service as described in Section 5(f) above. A tandem SAR shall be exercisable
only during the period when the Option to which it is related is also
exercisable.
(d) Grants to Non-Exempt Employees. Notwithstanding the foregoing,
SARs granted to persons who are non-exempt employees under the Fair Labor
Standards Act of 1938, as amended, shall have a base amount not less than one
hundred percent (100%) of the Fair Market Value of the Company Stock on the date
of grant, and may not be exercisable for at least six (6) months after the date
of grant (except that such SARs may become exercisable, as determined by the
Committee, upon the Grantee's death, Disability or retirement, or upon a Change
of Control or other circumstances permitted by applicable regulations).
(e) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in Company Stock. The
stock appreciation for a SAR is the amount
by which the Fair Market Value of the underlying Company Stock on the date of
exercise of the SAR exceeds the base amount of the SAR as described in Section
7(a) above. For purposes of calculating the number of shares of Company Stock to
be received, shares of Company Stock shall be valued at their Fair Market Value
on the date of exercise of the SAR. Notwithstanding anything to the contrary,
the Company may pay the appreciation of a SAR in the form of cash, shares of
Company Stock, or a combination of the two (2), so long as the ability to pay
such amount in cash does not result in the Grantee incurring taxable income
related to the SAR prior to the Grantee's exercise of the SAR.
(f) Number of SARs Authorized for Issuance. For purposes of Section
3(a) of the Plan, SARs to be settled in shares of Company Stock shall be counted
in full against the number of shares of Company Stock available for award under
the Plan, regardless of the number of exercise gain shares issued upon the
settlement of the SAR.
8.   WITHHOLDING OF TAXES
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state, and local tax withholding
requirements. The Employer may require that the Grantee or other person
receiving or exercising Grants pay to the Employer the amount of any federal,
state, or local taxes that the Employer is required to withhold with respect to
such Grants, or the Employer may deduct from other wages paid by the Employer
the amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Company so permits, a Grantee
may elect to satisfy the Employer's income tax withholding obligation with
respect to a Grant by having shares withheld up to an amount that does not
exceed the Grantee's minimum applicable withholding tax rate for federal
(including FICA), state, and local tax liabilities. The election must be in a
form and manner prescribed by the Company.
9.   TRANSFERABILITY OF GRANTS
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except (i) by will or by the laws of
descent and distribution or (ii) with respect to SARs and Option grants other
than Incentive Stock Options, pursuant to a domestic relations order or
otherwise as permitted by the Company. When a Grantee dies, the personal
representative or other person entitled to succeed to the rights of the Grantee
may exercise such rights. Any such successor must furnish proof satisfactory to
the Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Grant Instrument may provide that a Grantee may transfer
Nonqualified Stock Options to family members, or one (1) or more trusts or other
entities for the benefit of or owned by family members, consistent with
applicable securities laws, provided that the Grantee receives no consideration
for the transfer of an Option and the transferred Option shall continue to be
subject to the same terms and conditions as were applicable to the Option
immediately before the transfer.
10.  CHANGE IN CONTROL OF THE COMPANY
As used herein, a "Change of Control" shall be deemed to have occurred
(a) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) (other than persons who are shareholders on the effective date
of the Plan) becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than 50% of the voting power of the then outstanding securities of the
Company; provided that a Change of Control shall not be deemed to occur as a
result of a change of ownership resulting from the death of a shareholder, and a
Change of Control shall not be deemed to occur as a result of a transaction in
which the Company becomes a subsidiary of another corporation and in which the
shareholders of the Company, immediately prior to the transaction, will
beneficially own, immediately after the transaction, shares entitling such
shareholders to more than 50% of all votes to which all shareholders of the
parent corporation would be entitled in the election of directors (without
consideration of the rights of any class of stock to elect directors by a
separate class vote); or
(b) The consummation of (i) a merger or consolidation of the Company
with another corporation where the shareholders of the Company, immediately
prior to the merger or consolidation, will not beneficially own, immediately
after the merger or consolidation, shares entitling such shareholders to more
than 50% of all votes to which all shareholders of the surviving corporation
would be entitled in the election of directors (without consideration of the
rights of any class of stock to elect directors by a separate class vote), (ii)
a sale or other disposition of all or substantially all of the assets of the
Company or (iii) a liquidation or dissolution of the Company.
11.  CONSEQUENCES OF A CHANGE IN CONTROL
(a) Notice. Upon a Change of Control, the Company shall provide each
Grantee with outstanding Grants written notice of such Change of Control.
(b) Assumption of Grants. Upon a Change of Control where the Company
is not the surviving corporation (or survives only as a subsidiary of another
corporation), unless otherwise determined, all outstanding Options and SARs that
are not exercised shall be assumed by, or replaced with comparable options by
the surviving corporation (or a parent or subsidiary of the surviving
corporation), and outstanding Stock Awards and Restricted Units shall be
converted to Stock Awards or Restricted Units of the surviving corporation (or a
parent or subsidiary of the surviving corporation).
(c) Other Alternatives. Notwithstanding the foregoing, in the event of
a Change of Control, any of the following actions with respect to any or all
outstanding Grants may occur as determined by the Company (i) outstanding
Options and SARs shall accelerate and become exercisable, in whole or in part,
(ii) the restrictions and conditions on outstanding Stock Awards and Restricted
Units shall lapse, in whole or in part, (iii) Grantees shall be required to
surrender their outstanding Options and SARs in exchange for a payment in cash
or stock, in an amount equal to the amount by which the then Fair Market Value
of the shares of Company Stock subject to the Grantee's unexercised Options
exceeds the Exercise Price of the Options or the base amount exceeds the
unexercised SAR, (iv) after giving Grantees an opportunity to exercise their
outstanding Options and SARs all outstanding Options and SARs shall terminate as
of the date of the Change of Control or such other date as specified. The
Company shall have no
obligation to take any of the foregoing actions, and, in the absence of any such
actions, outstanding Options, SARs, Stock Awards and Restricted Units shall
continue in effect according to their terms (subject to any assumption pursuant
to subsection (b)).
12. REQUIREMENTS FOR ISSUANCE OR TRANSFER OF SHARES
(a) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with. Any Grant made shall be conditioned on
the Grantee's undertaking in writing to comply with such restrictions on his or
her subsequent disposition of such shares of Company Stock, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
(b) Lock-Up Period. If so requested by the Company or any
representative of the underwriters (the "Managing Underwriter") in connection
with any underwritten offering of securities of the Company under the Securities
Act of 1933, as amended (the "Securities Act"), a Grantee (including any
successor or assigns) shall not sell or otherwise transfer any shares or other
securities of the Company during the thirty (30) day period preceding and the
one hundred eighty (180)-day period following the effective date of a
registration statement of the Company filed under the Securities Act for such
underwriting (or such shorter period as may be requested by the Managing
Underwriter and agreed to by the Company) (the "Market Standoff Period"). The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
13.  AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment. The Board or its delegate may amend or terminate the
Plan at any time; provided, however, that neither the Board nor its delegate
shall have the authority to amend the Plan without stockholder approval if such
approval is required in order to comply with the Code or other applicable laws,
or to comply with applicable stock exchange requirements.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth (10th) anniversary of its effective date, unless
the Plan is terminated earlier by the Company or is extended by the Company with
the approval of the stockholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the Company
acts under Section 19(b) below. The termination of the Plan shall not impair the
power and authority of the Company with respect to an outstanding Grant. Whether
or not the Plan has terminated, an outstanding Grant may be terminated or
amended under Section 19(b) below or may be amended by agreement of the Company
and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
14.  FUNDING OF THE PLAN
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
15.  RIGHTS OF PARTICIPANTS
Nothing in this Plan shall entitle any Employee, Non-Employee
Director, Key Advisor, or other person to any claim or right to be granted a
Grant under this Plan. Neither this Plan nor any action taken hereunder shall be
construed as giving any individual any rights to be retained by or in the employ
of the Employer or any other employment rights.
16.  NO FRACTIONAL SHARES
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Company shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
17.  HEADINGS
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
18.  EFFECTIVE DATE OF THE PLAN
The Plan shall be effective on October 31, 2005, subject to the
subsequent approval of the Plan by the shareholders of the Company.
19.  MISCELLANEOUS
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Company to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees, or for other proper corporate purposes, or (ii) limit the
right of the Company to grant stock options or make other awards outside of this
Plan. Without limiting the foregoing, the Company may make a Grant to an
employee of another corporation who becomes an Employee by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company, the parent or any of their subsidiaries in
substitution for a stock option or stock award grant made by such corporation.
The terms and conditions of the substitute grants may vary from the terms and
conditions required by the Plan and from those of the substituted stock
incentives. The Company shall prescribe the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs,
and the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act it is the intent of
the Company that the Plan and all transactions under the Plan comply with all
applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In
addition, it is the intent of the Company that the Plan and applicable Grants
under the Plan comply with the applicable provisions of Section 162(m) of the
Code and Section 422 of the Code. To the extent that any legal requirement of
Section 16 of the Exchange Act or Section 162(m) or Section 422 of the Code as
set forth in the Plan ceases to be required under Section 16 of the Exchange Act
or Section 162(m) or Section 422 of the Code, that Plan provision shall cease to
apply. The Company may revoke any Grant if it is contrary to law or modify a
Grant to bring it into compliance with any valid and mandatory government
regulation. The Company may also adopt rules regarding the withholding of taxes
on payments to Grantees. The Company may, in its sole discretion, agree to limit
its authority under this Section 19(b).
(c) Employees Subject to Taxation Outside the United States. With
respect to Grantees who are subject to taxation in countries other than the
United States, Grants may be made on such terms and conditions as the Company
deems appropriate to comply with the laws of the applicable countries, and the
Company may create such procedures, addenda and subplans and make such
modifications as may be necessary or advisable to comply with such laws.
(d) Governing Law. The validity, construction, interpretation, and
effect of the Plan and Grant Instruments issued under the Plan shall be governed
and construed by and determined in accordance with the laws of the State of
Delaware, without giving effect to the conflict of laws provisions thereof.