<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(c)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sections 240.14a-11(c) or
section 240.14a-12
National Insurance Group
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
NATIONAL INSURANCE GROUP
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 11, 1996
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
NATIONAL INSURANCE GROUP (the "Company"), a California corporation, will be held
on Thursday, July 11, 1996 at 10:00 a.m., local time, at The Embassy Suites
(formerly Crown Sterling Suites), 250 Gateway Boulevard, South San Francisco,
California 94080, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the amendment to the Company's 1986 Stock Option Plan to
extend the term of the Plan to November 2006.
3. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
public accountants of the Company for the 1996 fiscal year.
4. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on June 10, 1996
are entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting. However,
to assure your representation at the meeting, you are urged to mark, sign and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose.
Any shareholder attending the meeting may vote in person even if he or
she has returned a proxy.
Sincerely,
Paulette J. Taylor, Secretary
South San Francisco, California
June 20, 1996
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 3
NATIONAL INSURANCE GROUP
395 OYSTER POINT BOULEVARD
SUITE 500
SOUTH SAN FRANCISCO, CALIFORNIA 94080
MEETING TO BE HELD AT
THE EMBASSY SUITES
250 GATEWAY BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of NATIONAL INSURANCE GROUP
(the "Company" or "National") for use at the Annual Meeting of Shareholders to
be held Thursday, July 11, 1996 at 10:00 a.m., local time, and at any
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at The Embassy Suites (formerly Crown Sterling Suites), 250 Gateway
Boulevard, South San Francisco, California 94080. The Company's telephone number
is (415) 872-6772.
Great Pacific Insurance Company, Fastrac Systems, Inc. Insurance Agent
& Broker (formerly Mark A. Speizer & Co., Inc.), Fastrac Systems, Inc. and
Pinnacle Data Corporation, the Company's wholly-owned subsidiaries through which
the Company carries out all of its business activities, are hereinafter referred
to in this Proxy as "GPIC," the "Agency," "Fastrac" and "PDC," respectively.
These proxy solicitation materials were mailed on or about June 20,
1996 to all shareholders entitled to vote at the meeting.
RECORD DATE AND SHARE OWNERSHIP
Shareholders of record at the close of business on June 10, 1996 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 4,702,197 shares of the Company's Common Stock were issued and
outstanding. For information regarding security ownership by management and by
5% shareholders, see "Other Information--Share Ownership by Principal
Shareholders and Management."
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
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VOTING AND SOLICITATION; QUORUM
Every shareholder voting for the election of directors may cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute the shareholder's votes on the
same principle among as many candidates as the shareholder thinks fit, provided
that votes cannot be cast for more than the number of candidates to be elected.
However, no shareholder shall be entitled to cumulate votes unless the
candidate's name has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the meeting prior to
the voting of the intention to cumulate the shareholder's votes. The Company
seeks discretionary authority to cumulate votes in the event that additional
persons are nominated at the Annual Meeting for election as directors.
On matters other than the election of directors, each share has one
vote. Votes against any such proposal will be counted for determining the
presence or absence of a quorum and will also be counted as having been voted
with respect to the proposal for purposes of determining whether the requisite
majority of voting shares has been obtained, but will be treated as votes
against the proposal.
An automated system administered by the Company's transfer agent
tabulates the proxies received prior to the date of the Annual Meeting. While
there is no definitive statutory or case law authority in California as to the
proper treatment of abstentions and broker non-votes, the Company believes that
both abstentions and broker non-votes should be counted for purposes of
determining whether a quorum is present at the Annual Meeting. The Company
further believes that neither abstentions nor broker non-votes should be
counted as having been voted with respect to the proposal for purposes of
determining whether the requisite majority of voting shares has been obtained.
In the absence of controlling precedent to the contrary, the Company intends to
treat abstentions and broker non-votes in this manner.
A majority of the outstanding shares constitutes the quorum required to
transact business at the Annual Meeting.
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone, telegram or facsimile.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of security holders of the Company which are intended to be
presented by such shareholders at the Company's 1997 Annual Meeting must have
been received by the Company no later than February 20, 1997 in order that they
may be included in the proxy statement and form of proxy relating to that
meeting.
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INFORMATION REGARDING CHANGE OF CONTROL OF THE COMPANY
Pursuant to an Option and Stock Purchase Agreement entered into on May
1, 1996, as amended (the "Stock Purchase Agreement"), between Howard L. Herman
and Marcia Herman, Bradley Herman, Barbara Herman, and the Joel Franklin Herman
Trust (collectively, the "Sellers"), and Mark A. Speizer, Mr. Speizer, a founder
of the Company and current member of the Board of Directors, agreed to purchase
from the Sellers a total of 824,295 shares of Common Stock of the Company (the
"Herman Shares") for a purchase price of $10.50 per share. Howard L. Herman is
also a founder of the Company and current member of the Board of Directors.
788,795 of the Herman Shares were purchased on May 31, 1996 and the remaining
35,500 Herman Shares were purchased on June 18, 1996. The Herman Shares
represent approximately 17.5% of the outstanding stock of the Company.
Mr. Speizer's agreement to purchase the Herman Shares pursuant to the
Stock Purchase Agreement was expressly conditioned upon receipt of an approval
from the California Department of Insurance (the "Department"), or an exemption
granted by the Department from the full filing and prior approval requirements
set by the Department. On May 23, 1996, the Department granted such exemption.
Pursuant to the Stock Purchase Agreement, the purchase price for the
Herman Shares was $8,655,098, of which $3,074,805 was paid in cash, and
$5,580,293 was paid by promissory notes payable by Mr. Speizer to the Sellers
(the "Speizer Notes"). The Speizer Notes shall be payable over fifteen years,
shall bear interest at 9% per annum and shall be payable in monthly installments
of principal and interest in the aggregate amount of $56,599 per month. As
collateral for the Speizer Notes, Mr. Speizer has pledged to the Sellers,
pursuant to Security Agreements and Stock Pledges, the Herman Shares and 400,000
additional shares of the Company's Common Stock currently owned by Mr. Speizer
(together the "Pledged Shares"). The Pledged Shares shall be held in escrow by
City National Bank (of Beverly Hills, California), as pledgeholder, pursuant to
the terms of an Escrow Agreement dated May 31, 1996 between Mr. Speizer, the
Sellers and City National Bank as escrow agent.
Mr. Speizer has obtained from Arabella S.A. ("Arabella"), a Luxembourg
company, a line of credit for up to $4.2 million. Advances under the line of
credit from Arabella are evidenced by a one-year term note bearing interest at
10% per annum (the "Arabella Note"). The Arabella Note is unsecured and no
principal or accrued interest will be due and payable by Mr. Speizer until May
31, 1997, the end of the term. Such line of credit is available to fund the
purchase of the Herman Shares and amounts necessary for Mr. Speizer to make any
regularly scheduled payments of principal and interest on the Speizer Notes
during the term of the Arabella Note and certain other expenses.
Immediately prior to Mr. Speizer's acquisition of the Herman Shares,
Mr. Speizer was the beneficial owner of approximately 22.5% of the outstanding
shares of the Company's Common Stock and was its largest shareholder. As a
result of the acquisition of the Herman Shares, Mr. Speizer is the beneficial
owner of more than 40% of the outstanding shares of the Company's Common Stock
and should be able, through such beneficial ownership, to control the Company.
On May 31, 1996, Mr. Speizer executed a Term Sheet for Option Agreement
(the "Term Sheet"), which requires him to negotiate in good faith to enter into
an option agreement with Scorpion Acquisition LLC, a Delaware limited liability
company ("Scorpion"). The Term Sheet provides that, subject to
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obtaining Department approval of the acquisition (the application for such
approval is being prepared), Scorpion may exercise its option to acquire the
Pledged Shares from Mr. Speizer (the "LLC Option") for consideration consisting
of assumption of Mr. Speizer's obligations under the Speizer Notes and the
Arabella Note and a 22.5% profits interest in Scorpion (after return of capital
to certain members of Scorpion and the payment of certain expenses by Scorpion).
If the LLC Option is exercised, Mr. Speizer will become a member of Scorpion,
and Scorpion and Mr. Speizer will own approximately 26% and 14%, respectively,
of the outstanding stock of the Company. The LLC Option shall terminate on
November 30, 1996; however, the parties have agreed, in good faith, to consider
a three month extension of the LLC Option. The Speizer Notes and the Pledge
Agreements allow Mr. Speizer to assign his obligations thereunder to Scorpion,
and the Arabella Note allows Mr. Speizer to assign his obligations thereunder
upon the consent of Arabella, which consent shall not be unreasonably withheld.
In the event the agreement setting forth the LLC Option is not successfully
negotiated and executed, or if the Department does not approve the acquisition
of the Pledged Shares by Scorpion, or if the LLC Option is not exercised, Mr.
Speizer will retain ownership of the Pledged Shares and the obligations under
the Speizer Notes and Arabella Note.
Mr. Speizer has designated the slate of directors to be voted on at the
Annual Meeting, including Nuno Brandolini d'Adda and Kevin R. McCarthy, who are
members of Scorpion, Bruce A. Cole and Saul B. Jodel, and the Company's Board of
Directors has approved Mr. Speizer's slate of directors as management's slate of
directors. Following the Annual Meeting, Mr. Speizer intends to seek the offices
of Chairman of the Board and Chief Executive Officer of the Company and each of
the Company's subsidiaries and will seek to have his nominee selected as
President of the Company upon the resignation of John R. Gaulding, the current
President. Mr. Speizer anticipates that Mr. Cole may be involved in the senior
management of the Company. In connection with Mr. Speizer obtaining control of
the Company, the Company has agreed to enter into severance agreements with
various members of its current management team. See "Certain Transactions."
Mr. Speizer has acquired the Herman Shares with a view towards actively
managing the Company and considering actions that would enhance shareholder
value. Mr. Speizer believes that the Company's Common Stock is undervalued and
he believes that the Board of Directors should be evaluating alternatives
available to the Company to maximize the value of the Company for all
shareholders. If the proposed slate of directors is elected, the reconfigured
Board of Directors intends to conduct a detailed review of the Company and its
operations, properties, policies and personnel, and to consider alternative
strategies to enhance shareholder value.
PROPOSAL NO. ONE
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company provide for a board of five directors.
Accordingly, a board of five directors is proposed to be elected at the meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for management's five nominees named below, none of whom, except for Mark
A. Speizer, are presently directors of the Company. Each of Nuno Brandolini
d'Adda, Bruce A. Cole, Saul B. Jodel and Kevin R. McCarthy is nominated for
election to the Board to fill the vacancies
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created as a result of Howard L. Herman, Kenneth Ross and Mel Croner not
standing for re-election to the Board and as a result of John R. Gaulding, who
was appointed to the Board in April 1996, not standing for election to the
Board. In the event that any nominee of the Company is unable or declines to
serve as a director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will assure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. The term of office of each person elected as a director will continue
until the next Annual Meeting of Shareholders or until his successor has been
elected and qualified.
The names of the nominees, and certain information about them, are set
forth below.
<TABLE>
<CAPTION>
Name of Nominee Age (1) Principal Occupation
- --------------- ------- --------------------
<S> <C> <C>
Nuno Brandolini d'Adda 42 Chairman of the Board and Chief Executive Officer of
Scorpion Holdings, Inc.
Bruce A. Cole 48 Executive Vice President and General Counsel of JB
Oxford Holdings
Saul B. Jodel 45 President and Chairman of the Board of Original San
Francisco Toymakers, Inc.
Kevin R. McCarthy 35 President of Scorpion Holdings, Inc.
Mark A. Speizer 52 Director of National, the Agency, Fastrac, GPIC and
PDC.
</TABLE>
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(1) As of the Record Date.
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There is no
family relationship between any director or executive officer of the Company,
except that Mr. Speizer's and Mr. Cole's paternal grandfathers were brothers and
the maternal grandmothers of Mr. Speizer and David Brody, a former executive
officer of the Company, were sisters.
Mr. Brandolini has been Chairman of the Board and Chief Executive
Officer of Scorpion Holdings, Inc., a merchant bank, since May 1995. Prior to
that he was affiliated with various merchant banks, serving as Managing Director
of Rosecliff, Inc. from November 1993 to May 1995, as Vice President of Salomon
Inc. from June 1992 to November 1993, and as President of Balthens Group from
May 1988 to June 1991. Mr. Brandolini serves on the Board of Directors of Sonex
Research, a technology based company which has developed a product to favorably
alter the internal combustion process; Arabella S.A., a holding company based in
Luxembourg which invests in public and private securities; and Hariston Corp., a
Canadian holding corporation with interests in a Polish specialty retailer and a
CD Rom based educational software developer.
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Mr. Cole has been Executive Vice President and General Counsel of JB
Oxford Holdings, the parent of JB Oxford Co., a registered broker-dealer, and
certain other subsidiaries, since March 1994. From January 1991 to March 1994 he
served as special counsel to the law firm of Rubenstein & Perry.
Mr. Jodel has been President and Chairman of the Board of Original San
Francisco Toymakers, Inc. since January 1992. From 1984 to October 1991 he
served in various executive capacities with Lewis Galoob Toys, most recently as
President.
Mr. McCarthy has been President of Scorpion Holdings, Inc. since
November 1995. From October 1993 to October 1995 he was Chief Financial Officer
of Rosecliff, Inc. From May 1988 to October 1993 he was with the accounting firm
Ernst & Young, most recently as a partner.
Mr. Speizer, a co-founder of the Company, has served on the Board of
Directors of National since its inception. Between November 1986 and October
1995, Mr. Speizer served as Chairman of the Board and Chief Executive Officer of
National and between June 1995 and October 1995 served as President of National.
Between 1972 and October 1995, Mr. Speizer also served in various executive
level capacities and as Chairman of the Board of National's subsidiaries.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
With respect to the election of directors, shareholders have cumulative
voting rights, which means that each shareholder has the number of votes equal
to the number of shares held multiplied by the number of directors to be
elected. Each shareholder may give all such votes to one candidate or distribute
such shareholder's votes among the candidates as the shareholder chooses.
However, the right to cumulate votes may not be exercised until the candidate or
candidates have been nominated and a shareholder has given notice at the Annual
Meeting of the shareholder's intention to vote cumulatively. If any shareholder
present at the Annual Meeting gives such notice, all shareholders may cumulate
their votes. The candidates receiving the highest number of votes of shares
entitled to vote for them, up to the number of directors to be elected, shall be
elected. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES
SET FORTH HEREIN.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of eleven meetings
during the fiscal year ended December 31, 1995. Each person who was a director
during 1995 attended or participated in at least 75% of the aggregate number of
meetings of the Board of Directors and the number of meetings of committees on
which he served.
The Audit Committee of the Board of Directors, which currently consists
of directors Croner and Ross, held four meetings during the last fiscal year.
The Audit Committee recommends engagement of the Company's independent public
accountants. It is primarily responsible for approving the services performed by
the Company's independent public accountants and for reviewing and evaluating
the Company's accounting principles and its system of internal accounting
controls. Following the Annual Meeting, a new Audit Committee will be appointed.
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The Compensation Committee, which currently consists of Messrs. Croner
and Ross, met four times during fiscal 1995. The Compensation Committee reviews
and makes recommendations to the Board concerning the Company's executive
compensation policy and administers the Company's 1986 Stock Option Plan.
Following the Annual Meeting, a new Compensation Committee will be appointed.
The Company does not have a nominating committee or a committee
performing the functions of a nominating committee.
DIRECTOR COMPENSATION
Each non-employee director of the Company is paid at the rate of $1,000
per month, payable monthly. Employee directors are not compensated for their
services on the Board of Directors or on committees of the Board. Non-employee
directors also participate in the 1991 Director Option Plan (the "Director
Plan"). The Director Plan provides for the automatic grant of a nonstatutory
stock option to purchase 50,000 shares of Common Stock of the Company on the
date such person first becomes a director (which number was increased from
25,000 shares at the May 1995 Annual Meeting of Shareholders). All options
granted under the Director Plan vest at the rate of one-fourth of the shares
subject to the option on the first anniversary of the date of grant, with
one-forty-eighth of such shares vesting at the end of each month thereafter.
During the fiscal year ended December 31, 1995, director Ross was automatically
granted an option to purchase 25,000 shares at a per share exercise price of
$6.50 (the Director Plan provides that any non-employee director who was a
member of the Board on May 24, 1995 and who had been a member of the Board for
at least one month prior to such date would receive an automatic grant of a
25,000 share option), and directors Croner, Herman and Speizer were each
automatically granted an option to purchase 50,000 shares at per share exercise
prices of $6.50, $6.125 and $6.25, respectively.
PROPOSAL NO. TWO
APPROVAL OF AMENDMENT TO 1986 STOCK OPTION PLAN
GENERAL
In November 1986 and June 1987, the Company's Board of Directors and
shareholders, respectively, adopted and approved the 1986 Stock Option Plan, as
amended (the "1986 Plan"). The 1986 Plan originally provided for the issuance of
460,000 shares of Common Stock of the Company. As of the Record Date, the
shareholders have approved amendments to the 1986 Plan increasing the number of
shares subject to the 1986 Plan to the current reserve of 1,006,820. For a
detailed description of the 1986 Plan, see "Summary of the 1986 Plan."
PROPOSAL
The 1986 Plan is set to expire on November 13, 1996. In April 1996, the
Board of Directors approved an amendment to the 1986 Plan to extend the term
thereof for an additional ten years. At the Annual Meeting, the shareholders are
being requested to approve this amendment to the 1986 Plan.
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VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the shares
represented, in person or by proxy, and voting at the Annual Meeting on this
Proposal No. Two will be required to approve the amendment to the 1986 Plan. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
SUMMARY OF THE 1986 PLAN
The essential features of the 1986 Plan, taking into account the
proposed amendment, are outlined below.
Purpose. The purpose of the 1986 Plan is to provide additional
incentive to employees and consultants to work to maximize shareholder value.
The 1986 Plan also utilizes vesting periods to encourage key employees and
consultants to continue in the employ of or service to the Company.
Administration. The 1986 Plan must be administered by either the Board
of Directors or a committee appointed by the Board (the "Committee"). The 1986
Plan is currently being administered by the Compensation Committee of the Board
of Directors. The interpretation and construction of any provision of the 1986
Plan by the Committee shall be final and binding.
Eligibility. The 1986 Plan provides that options may be granted to
employees (including officers and directors who are also employees) and
consultants of the Company and its majority-owned subsidiaries, all of whom are
eligible to participate in the 1986 Plan. The Committee selects the optionees
and determines the number of shares to be subject to each option. In making such
determination, there is taken into account the duties and responsibilities of
the optionee, the value of the optionee's services, his or her present and
potential contributions to the success of the Company, and other factors deemed
relevant by the Compensation Committee of the Board of Directors.
Terms of Options. The terms of options granted under the 1986 Plan are
to be determined by the Committee. Each option is to be evidenced by a stock
option agreement between the Company and the employee or consultant to whom such
option is granted, and is subject to the following additional terms and
conditions. The following is a brief description of some of the additional terms
and conditions contained in a stock option agreement, and does not purport to be
a complete nor exhaustive collection of such terms and conditions:
(a) Exercise of the Option: The optionee must earn the right to
exercise his or her option by continuing to work for or provide services to the
Company. The Committee determines when options granted under the 1986 Plan may
be exercised. An option is exercised by giving written notice of exercise to the
Company specifying the number of full shares of Common Stock to be purchased and
simultaneously tendering payment of the purchase price to the Company. Payment
for shares issued upon exercise of an option may consist of cash or check in
United States currency.
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(b) Exercise Price: The option price is determined by the Committee but
may in no event be less than the fair market value of the Common Stock on the
date the option is granted. The fair market value on the date of grant is
determined by the Committee based upon the closing sales price of the Common
Stock as reported on the Nasdaq National Market on the date of grant of the
option.
(c) Termination of Employment or Consulting Relationship: The 1986 Plan
provides that if the optionee's employment or consulting relationship with the
Company is terminated for any reason other than death or disability, the option
may be exercised within 30 days (or such longer period of time as determined by
the Committee, but in no event later than the expiration date of the term of
such option as set forth in the stock option agreement) after such termination
and may be exercised to the extent the option was exercisable on the date of
termination.
(d) Disability: If an optionee should terminate his or her employment
or consulting relationship as a result of total and permanent disability, the
option may be exercised at any time within six months (or such longer period of
time as determined by the Committee, but in no event later than the expiration
date of the term of such option as set forth in the stock option agreement)
after such termination to the extent the option was exercisable on the date of
termination.
(e) Death: If an optionee should die while in the employ of or while
consulting to the Company, the option may be exercised at any time within 12
months after death (or such longer period of time as determined by the
Committee, but in no event later than the expiration date of the term of such
option as set forth in the stock option agreement), but only to the extent the
option was exercisable on the date of death. If an optionee should die within 30
days (or such longer period of time as determined by the Committee, but in no
event later than the expiration date of the term of such option as set forth in
the stock option agreement) after termination of his or her employment or
consulting relationship with the Company, the option may be exercised within six
months after death (or such longer period of time as determined by the
Committee, but in no event later than the expiration date of the term of such
option as set forth in the stock option agreement) to the extent the option was
exercisable on the date of termination of employment or the consulting
relationship.
(f) Termination of Options: No option may have a term greater than ten
years.
(g) Nontransferability of Options: An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution, and is
exercisable during the optionee's lifetime only by the optionee, or in the event
of optionee's death, by a person who acquires the right to exercise the option
by bequest or inheritance or by reason of the death of the optionee.
(h) Other Provisions: The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1986 Plan as may be
determined by the Committee.
Adjustments Upon Changes in Capitalization; Corporate Transactions. In
the event any change is made in the Company's capitalization as a result of a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Company's Common Stock, appropriate adjustment shall be
made in the option price and in the number of shares subject to the option. In
the event of the proposed
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dissolution or liquidation of the Company, all outstanding options automatically
terminate, unless otherwise provided by the Committee. The Committee may, in its
discretion, make provision for accelerating the exercisability of options
outstanding under the 1986 Plan in such event.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, all outstanding options shall be assumed or an equivalent option
shall be substituted by the successor corporation, unless the Committee
determines, in its discretion and in lieu of such assumption or substitution to
accelerate the exercisability of outstanding options.
Amendment and Termination of the 1986 Plan. The Committee may amend the
1986 Plan at any time or from time to time or may terminate the 1986 Plan
without approval of the shareholders; however, the approval of the holders of a
majority of the outstanding shares of the Company represented and voting in
person or by proxy at a meeting of shareholders and entitled to vote is required
for any amendment which materially increases the benefits which may accrue to
participants under the 1986 Plan. No such action by the Committee or
shareholders may alter or impair any option previously granted under the 1986
Plan without the consent of the optionee. In any event, the 1986 Plan shall
terminate in November 2006.
TAX INFORMATION
Options granted under the 1986 Plan may only be nonstatutory options.
An optionee will not recognize any taxable income at the time he or she
is granted a nonstatutory option. However, upon its exercise, the optionee will
recognize taxable income generally measured as the excess of the then fair
market value of the shares purchased over the purchase price. Upon resale of
such shares by the optionee, any difference between the sales price and the
optionee's purchase price, to the extent not recognized as taxable income as
described above, will be treated as long-term or short-term capital gain or
loss, depending on the holding period.
Generally, the Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee with respect to shares
acquired upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the Director Plan, does not purport to be complete,
and does not discuss the tax consequences of the optionee's death or the income
tax laws of any municipality, state or foreign country in which an optionee may
reside.
-10-
<PAGE> 13
PROPOSAL NO. THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand L.L.P. ("Coopers
& Lybrand") independent accountants, to audit the financial statements of the
Company for the fiscal year ending December 31, 1996. Coopers & Lybrand has
audited the Company's financial statements since the fiscal year ended December
31, 1986. A representative of Coopers & Lybrand is expected to be present at the
meeting, will have the opportunity to make a statement, and is expected to be
available to respond to appropriate questions.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the shares
represented, in person or by proxy, and voting at the Annual Meeting on this
Proposal No. Three is required to ratify the selection of Coopers & Lybrand as
the Company's accountants. In the event that the shareholders do not approve the
selection of Coopers & Lybrand, the appointment of the independent accountants
will be reconsidered by the Board of Directors. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
OTHER INFORMATION
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock
of the Company as of the Record Date by (i) each person or entity who is known
by the Company to beneficially own more than 5% of the Company's Common Stock,
(ii) each of the officers named in the Summary Compensation Table (the "Named
Officers"), (iii) each of the Company's current directors and nominees for
director, and (iv) all current directors and executive officers as a group. A
total of 4,702,197 shares of the Company's Common Stock were issued and
outstanding as of the Record Date.
-11-
<PAGE> 14
<TABLE>
<CAPTION>
Number Percent
Name and Address of Shares(1) of Total
---------------- ------------ --------
<S> <C> <C>
Mark A. Speizer (2)........................................ 1,925,729 40.6%
400 Oyster Point Boulevard, Suite 115
South San Francisco, CA 94080
Ryback Management Corporation (3)
and its affiliated entities................................ 613,800 13.1%
7711 Carondelet Avenue, Suite 700
Box 16900
St. Louis, MO 63105
Brinson Partners, Inc. (4)
and its affiliated entities................................ 520,599 11.1%
209 South LaSalle Street
Chicago, IL 60604-1295
Bankers Insurance Company (5).............................. 300,500 6.4%
360 Central Avenue
St. Petersburg, FL 33701
John R. Gaulding (6)....................................... 250,000 5.0%
c/o National Insurance Group
395 Oyster Point Boulevard, Suite 500
South San Francisco, CA 94080
David B. Brody (7) ........................................ 119,611 2.5%
Paulette J. Taylor (8)..................................... 72,250 1.5%
Howard L. Herman (9)....................................... 48,500 1.0%
Kenneth Ross (10).......................................... 41,250 *
Douglas H. Helm (11) ...................................... 28,633 *
Melvyn D. Croner (8)....................................... 12,500 *
Nuno Brandolini d'Adda..................................... -- --
Bruce A. Cole.............................................. -- --
Saul B. Jodel.............................................. -- --
Kevin R. McCarthy.......................................... -- --
All directors and executive officers
as a group (10 persons) (12)............................... 2,562,973 48.0%
</TABLE>
- ---------
* Less than 1%
(1) The number and percentage of shares beneficially owned is determined
under rules of the Securities and Exchange Commission (the "SEC"), and
the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has sole or shared voting power
or investment power and also any shares which the individual has the
right to acquire within 60 days of the Record Date through the exercise
of any stock option or other right. Unless otherwise indicated in the
footnotes, each person has sole voting and investment power (or shares
such powers with his or her spouse) with respect to the shares shown as
beneficially owned.
(2) Includes: (i) 40,520 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date, (ii)
2,400 shares held by Mr. Speizer's wife, Linda Speizer, (iii) 2,400
shares held by each of Mr. Speizer's two daughters, (iv) an aggregate
of 636,614 shares which have been pledged to The Pacific Bank and The
Commercial Bank as collateral for loans to Mr. Speizer, and (v) an
agreement to purchase 35,500 from Howard L. Herman and Marcia Herman
pursuant to the Stock Purchase
-12-
<PAGE> 15
Agreement, which shares were purchased on June 18, 1996. Mr. Speizer,
formerly President, Chief Executive Officer and Chairman of the Board,
terminated his employment with the Company in October 1995.
(3) Based on Amendment No. 1 to Schedule 13G dated January 25, 1996, filed
by Ryback Management Corporation with the SEC. Includes 466,800 shares
owned by Lindner Growth Fund and 147,000 shares owned by Ryback
Management Corporation.
(4) Based on Amendment No. 6 to Schedule 13G dated February 9, 1996, filed
by Brinson Partners, Inc. ("BPI") with the SEC on behalf of itself,
Brinson Trust Company ("BTC"), Brinson Holdings, Inc. ("BHI"), SBC
Holding (USA), Inc. ("SBCUSA") and Swiss Bank Corporation ("SBC"). BTC
is a wholly-owned subsidiary of BPI. BPI is a wholly-owned subsidiary
of BHI. BHI is a wholly-owned subsidiary of SBCUSA. SBCUSA is a
wholly-owned subsidiary of SBC. BPI, BHI, SBCUSA and SBC share voting
and dispositive power with respect to 520,599 shares, of which shares
BTC shares voting and dispositive power with respect to 147,064 shares.
(5) Based on Schedule 13D dated June 12, 1996, filed by Bankers Insurance
Company with the SEC.
(6) All such shares of Common Stock are issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date. In
the event of the occurrence of a Change of Control (as defined in
"Certain Transactions"), 200,000 of such option shares will be
cancelled.
(7) Includes 84,741 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date. Mr.
Brody, formerly Executive Vice President, Information Services,
terminated his employment with the Company in January 1996; however, he
has continued to serve the Company in a consulting capacity.
(8) All such shares of Common Stock are issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date.
(9) Includes 13,000 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date.
Includes 35,500 shares which were purchased by Mark Speizer on June 18,
1996 pursuant to the Stock Purchase Agreement.
(10) Includes 31,250 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date.
(11) Includes 27,633 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date. Mr.
Helm, formerly Executive Vice President, Sales and Marketing,
terminated his employment with the Company in June 1995; however, he
has continued to serve the Company in a consulting capacity.
(12) Includes an aggregate of 641,894 issuable upon exercise of outstanding
options exercisable within 60 days of the Record Date.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities, to file certain reports regarding ownership of, and transactions in,
the Company's securities with the SEC. Such officers, directors and ten percent
(10%) shareholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) forms that they file.
-13-
<PAGE> 16
Based solely on its review of such forms received by it, or written
representations from certain reporting persons, the Company believes that during
fiscal 1995 all Section 16(a) filing requirements applicable to its officers,
directors and ten percent (10%) shareholders were complied with.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation received in the last three
fiscal years by (i) each individual who served as the Company's Chief Executive
Officer during the last fiscal year, (ii) each of the two other most highly
compensated executive officers whose salary plus bonus exceeded $100,000 during
the last fiscal year who served as executive officers at the end of the fiscal
year ended December 31, 1995, and (iii) Douglas H. Helm and Howard L. Herman,
who would have qualified as executive officers pursuant to item (ii) but for the
fact that they were not serving as executive officers as of the end of the
fiscal year ended December 31, 1995.
-14-
<PAGE> 17
<TABLE>
<CAPTION>
Long Term
Compensation
--------------------------------
Annual Compensation Awards
-------------------------------------------------------------------
All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ---- ----- ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Mark A. Speizer(1) 1995 565,212(2) 0 50,000 602,000(3)
Former Chairman of the Board, CEO 1994 297,711 0 50,000(4) 0
and President 1993 310,000 0 50,000(5) 0
- ------------------------------------------------------------------------------------------------------------------------------
Melvyn D. Croner(6) 1995 70,000 0 50,000 6,000(7)
Former Acting President, CEO and 1994 --- --- --- ---
Chairman of the Board 1993 --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------
David B. Brody(8) 1995 201,493 0 100,000 0
Executive Vice President, Information 1994 250,000 0 24,000(9) 0
Services 1993 250,000 0 5,000(5) 0
- ------------------------------------------------------------------------------------------------------------------------------
Paulette J. Taylor 1995 144,231 0 5,000 0
Executive Vice President, General 1994 121,635 0 16,000(10) 0
Counsel and Secretary 1993 120,672 0 5,000(5) 0
- ------------------------------------------------------------------------------------------------------------------------------
Douglas H. Helm(11) 1995 677,556(12) 0 0 0
Former Executive Vice President, Sales 1994 699,740(13) 0 40,000(14) 0
and Marketing 1993 883,563(15) 0 5,000(5) 0
- ------------------------------------------------------------------------------------------------------------------------------
Howard L. Herman(16) 1995 387,535(17) 0 50,000 544,000(18)
Former President and Acting Chief 1994 258,767 0 32,500(4) 0
Financial Officer 1993 270,754 0 32,500(5) 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Speizer terminated his employment with National in October 1995.
(2) Includes severance payment of $285,000 attributable to salary (the
"$285,000 Payment"). Pursuant to the terms of Mr. Speizer's Severance
Agreement with the Company, he is required to repay to the Company the
$285,000 Payment in the event he becomes an employee of the Company, to
the extent set forth in "Certain Transactions." See "Information
Regarding Change of Control of the Company" regarding Mr. Speizer's
intent to become Chief Executive Officer of the Company.
(3) Represents severance payment of $600,000 (the "Severance Payment") and
$2,000 payable in his capacity as a non-employee director of National.
Pursuant to the terms of Mr. Speizer's Severance Agreement with the
Company, he is required to repay to the Company the Severance Payment
in the event he becomes an employee of the Company, to the extent set
forth in "Certain Transactions." See "Information Regarding Change of
Control of the Company" regarding Mr. Speizer's intent to become Chief
Executive Officer of the Company.
(4) Pursuant to National's February 1994 option repricing program (the
"February Repricing"), this option was granted upon the simultaneous
cancellation of an option to purchase a like number of shares granted
in fiscal 1993.
-15-
<PAGE> 18
(5) Pursuant to the February Repricing, this option was cancelled upon the
simultaneous grant of an option to purchase a like number of shares in
fiscal 1994.
(6) Mr. Croner served as Acting President, CEO and Chairman of the Board
until John R. Gaulding assumed such positions in April 1996. Mr. Croner
continues to serve on the Board of Directors of National.
(7) Represents compensation payable in his capacity as a non-employee
director of National.
(8) Mr. Brody terminated his employment with National in January 1996;
however, he continues to serve the Company in a consulting capacity.
(9) Pursuant to National's November 1994 option repricing program (the
"November Repricing"), options to purchase an aggregate of 19,000
shares were granted upon the simultaneous cancellation of options to
purchase an aggregate of 19,000 shares granted in prior fiscal years.
In addition, an option to purchase 5,000 shares was granted pursuant to
the November Repricing upon the simultaneous cancellation of an option
to purchase 5,000 shares granted pursuant to the February Repricing.
(10) Pursuant to the November Repricing, options to purchase an aggregate of
11,000 shares were granted upon the simultaneous cancellation of
options to purchase an aggregate of 11,000 shares granted in prior
fiscal years. In addition, an option to purchase 5,000 shares was
granted pursuant to the November Repricing upon the simultaneous
cancellation of an option to purchase 5,000 shares granted pursuant to
the February Repricing.
(11) Mr. Helm terminated his employment with National in June 1995; however,
he continues to serve the Company in a consulting capacity.
(12) Includes $616,172 of employee's commission received as a percentage of
net sales revenue.
(13) Includes $579,740 of employee's commission received as a percentage of
net sales revenue.
(14) Pursuant to the November Repricing, options to purchase an aggregate of
35,000 shares were granted upon the simultaneous cancellation of
options to purchase an aggregate of 35,000 shares granted in prior
fiscal years. In addition, an option to purchase 5,000 shares was
granted pursuant to the November Repricing upon the simultaneous
cancellation of an option to purchase 5,000 shares granted pursuant to
the February Repricing.
(15) Includes $763,563 of employee's commission received as a percentage of
net sales revenue.
(16) Mr. Herman terminated his employment with National in June 1995.
(17) Includes severance payment of $245,754 attributable to salary.
(18) Represents severance payment of $537,000 and $7,000 payable in his
capacity as a non-employee director of National.
OPTION GRANTS IN LAST FISCAL YEAR
The following tables set forth, as to the Named Officers, certain
information relating to stock options granted during fiscal 1995.
-16-
<PAGE> 19
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent Annual Rates of Stock
Securities of Total Price Appreciation
Underlying Options for Option Term (3)
Options Granted to Exercise or ---------------------
Granted Employees in Base Price Expiration
Name (#) Fiscal Year (1) ($/Sh) Date (2) 5% ($) 10% ($)
- ------------------------ ---------- --------------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Speizer 50,000 (4) 6.25 10/20/05 196,530 498,045
Melvyn D. Croner 50,000 (4) 6.50 05/23/05 204,391 517,966
David B. Brody 100,000 54.6% 5.125 01/01/05 322,309 816,793
Paulette J. Taylor 5,000 2.7% 6.50 05/23/05 20,439 51,797
Douglas H. Helm 0 -- -- -- -- --
Howard L. Herman 50,000 (4) 6.125 06/01/95 192,599 488,084
</TABLE>
- ------------
(1) The total number of shares subject to options granted to employees in
fiscal 1995 was 183,000.
(2) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or
an acquisition of the Company.
(3) Potential realizable value assumes that the stock price increases from
the date of grant until the end of the option term (10 years) at the
annual rate specified (5% and 10%). Annual compounding results in total
appreciation of 63% (at 5% per year) and 159% (at 10% per year). If the
price of the Company's Common Stock were to increase at such rates from
the price at 1995 fiscal year end ($5.875 per share) over the next 10
years, the resulting stock price at 5% and 10% appreciation would be
$9.57 and $15.24, respectively. The assumed annual rates of
appreciation are specified in SEC rules and do not represent the
Company's estimate or projection of future stock price growth. The
Company does not necessarily agree that this method can properly
determine the value of an option.
(4) The 50,000 share options granted to Messrs. Speizer, Croner and Herman
were granted pursuant to the 1991 Director Option Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
There were no option exercises in fiscal 1995 by the Named Officers.
The following table provides information with respect to the value of
unexercised options held by the Named Officers at the close of business on
December 29, 1995.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End (#) at Fiscal Year End ($)(2)
------------------------------ ----------------------------------
Name Exercisable(1) Unexercisable Exercisable Unexercisable
---- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark A. Speizer 40,520(3) 50,000 -- --
Melvyn D. Croner 0 50,000 -- --
David B. Brody 84,741(4) 0 15,936 --
Paulette J. Taylor 22,250(5) 0 8,250 --
Douglas H. Helm 27,633(3) 0 7,109 --
Howard L. Herman 23,000(3) 50,000 -- --
</TABLE>
-17-
<PAGE> 20
- ----------
(1) Options granted under the Company's 1986 Stock Option Plan are fully
exercisable from their date of grant, whether or not vested. Unvested
shares purchased upon exercise of an option are subject to a repurchase
option in favor of the Company, which repurchase option lapses over
time.
(2) Market value of underlying securities based on the closing price of
$5.875 of the Company's Common Stock on the Nasdaq National Market on
December 29, 1995, minus the exercise price.
(3) All of such shares are vested as of December 29, 1995.
(4) Includes 45,886 vested shares and 38,855 unvested shares as of December
29, 1995.
(5) Includes 9,000 vested shares and 13,250 unvested shares as of December
29, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors is
composed of two non-employee directors, Melvyn D. Croner and Kenneth Ross.
During the fiscal year ended December 31, 1995, no interlocking relationship
existed between the Company's Board of Directors or the compensation committee
of any other company, nor has any such interlocking relationship existed in the
past.
CERTAIN TRANSACTIONS
In January 1995, David B. Brody entered into an employment agreement
with National and its current and future subsidiaries for an annual salary of
$227,000 and certain fringe benefits (the "Brody Agreement"). The Brody
Agreement was amended in January 1995 to provide that Mr. Brody would work full
time for the Company through June 30, 1995 for a bi-weekly salary of $8,730 and,
commencing July 1, 1995 through December 31, 1995 he would devote not less than
three business days per week to the business of the Company and receive $873 for
each day worked. The Brody Agreement was further amended in August 1995 to
provide that options granted to Mr. Brody prior to 1995 would continue to vest
so long as Mr. Brody continues to be employed by the Company in any capacity,
including as a consultant. The Brody Agreement terminated in January 1996, at
which time Mr. Brody resigned from his position with National. Mr. Brody serves
as a consultant to National and is compensated at the rate of $200 per hour.
In January 1990, Douglas H. Helm entered into an employment agreement
with National, the Insurance Subsidiary, FASTRAC and PDC which provides for an
annual aggregate salary of $120,000, certain fringe benefits and commission
agreement income based on schedules set forth in the employment agreement. The
commission agreement provides that in the event Mr. Helm's employment is
terminated (i) voluntarily by Mr. Helm, (ii) by Mr. Helm for cause, or (ii) due
to the death or permanent disability of Mr. Helm, or if the employment agreement
is not renewed or substituted, Mr. Helm or his beneficiaries, as the case may
be, shall be entitled to receive commissions, based on the commission schedules
set forth in the employment agreement, for a certain period following such
termination of employment (the "Post Termination Commission Provision"). Mr.
Helm's employment agreement terminated in December 1994; however, he continued
to be employed by National through July 1, 1995 and continues to serve National
in a consulting capacity. The Post Termination Commission Provision remains in
effect.
-18-
<PAGE> 21
Pursuant to a Severance Agreement and Full Release of All Claims
entered into on May 23, 1995 between National and its current and future
subsidiaries (collectively, the "Companies") and Howard L. Herman, the former
President of National, Mr. Herman's employment with the Companies was terminated
on May 31, 1995. In connection with Mr. Herman's termination, he was paid
approximately $783,000 in settlement of certain claims and to cover certain
miscellaneous expenses. In addition, National agreed to extend the exercise
period of Mr. Herman's unexercised stock options under National's 1986 Stock
Option Plan through the dates on which such options would have expired had he
continued to be employed by the Companies. In addition, Mr. Herman agreed to
perform consulting services for the Companies relating to matters on which he
worked during his employment by the Companies and, for a period of one year
following termination, not to compete with the Companies in selected areas of
the United States.
Pursuant to a Severance Agreement and Release of Claims entered into on
October 19, 1995 between the Companies and Mark A. Speizer, the former
President, Chief Executive Officer and Chairman of the Board of the Companies
(the "Severance Agreement"), Mr. Speizer's employment with the Companies was
terminated on even date therewith. In connection with Mr. Speizer's termination,
he was paid $885,000 in settlement of certain claims and to cover certain
miscellaneous expenses. The Severance Agreement sets forth "Speizer agrees that
he will not seek nor accept employment with the Company in the future and that
the Company is entitled to reject without cause any application for employment
with the Company made by him, and not hire him, and that Speizer shall have no
cause of action against the Company arising out of any such rejection." In
addition, the Severance Agreement sets forth that "If Speizer in any other
manner becomes an employee of the Company, Speizer shall be obligated to return
all amounts paid to him pursuant to this Severance Agreement and Release unless
otherwise agreed in writing by the parties hereto." See "Information Regarding
Change of Control of the Company" regarding Mr., Speizer's intent to seek the
offices of Chairman of the Board and Chief Executive Officer of the Company. In
addition, National agreed to extend the exercise period of Mr. Speizer's
unexercised stock options under National's 1986 Stock Option Plan through the
dates on which such options would have expired had he continued to be employed
by the Companies. In addition, Mr. Speizer agreed, for a period of one year
following termination, (i) not to compete with the Companies in selected areas
of the United States and (ii) to perform consulting services for the Companies
up to a maximum of seven hours per week.
In February 1996, John R. Gaulding entered into a Consulting Agreement
with the Companies, pursuant to which he agreed to provide consulting services
to the Companies for the months of February and March 1996 at a rate of $25,000
per month. In February 1996, the Companies entered into an At-Will Employment
Agreement (the "Agreement") with Mr. Gaulding, an amendment to which Agreement
(the "Amendment") has been presented by the Board of Directors to the
Compensation Committee for approval in connection with the change of control of
the Company contemplated by the acquisition by Mr. Speizer of the Herman Shares.
Pursuant to the Agreement, Mr. Gaulding agreed to serve, commencing April 1,
1996, as Chief Executive Officer and President of National and each of its
subsidiaries, and the Companies agreed to pay Mr. Gaulding a signing bonus of
$100,000, payable in installments of $50,000 on April 1, 1996 and $25,000 on
each of October 1, 1996 and January 1, 1997 (the "Signing Bonus"), and an annual
salary of $300,000. Pursuant to an incentive performance program recommended by
the Compensation Committee of the Board of Directors and approved by the Board
of Directors, which program would set specific goals and performance criteria
and targets for fiscal years 1996 and 1997 ("Incentive Plan Criteria and
Targets"), Mr. Gaulding would be eligible to receive an
-19-
<PAGE> 22
annual incentive award of (i) up to $150,000 for achieving the at target goal of
the Incentive Plan Criteria and Targets, (ii) up to $90,000 for achieving an
acceptable level but not at target goal, and (iii) $300,000 for achieving an
exceptional above target goal, provided that the incentive compensation for 1996
shall be pro rated based upon the months Mr. Gaulding is a full time employee
and officer of the Companies. Pursuant to the Agreement, Mr. Gaulding was
granted an option to purchase 250,000 shares of Common Stock of National, all of
which shares were scheduled to vest on March 31, 1998, subject to acceleration
of vesting in the event of Mr. Gaulding's termination of employment in
connection with a "change in control of the Companies" or in the event of an
"adverse change in the board of directors," as such terms were to be defined by
National's Compensation Committee and Board of Directors. Additionally, in the
event of such termination, Mr. Gaulding would have been eligible to receive any
installment of the Signing Bonus not yet paid. In the event Mr. Gaulding's
employment with the Companies were to be terminated without Cause (defined in
the Agreement as gross negligence or engaging in gross misconduct) within 24
months following the date of the Agreement, Mr. Gaulding would be entitled to
receive any installment of the Signing Bonus not yet paid and a severance
payment ranging from (i) $300,000, in the event his employment were terminated
within nine months following the date of the Agreement, to (ii) $150,000, in the
event his employment were terminated more than 18 months but less than 24 months
following the date of the Agreement.
Pursuant to the Amendment, the compensation and benefits payable to Mr.
Gaulding under the Agreement will be cancelled and replaced by the following
arrangements. Pursuant to the Amendment, subject to Mr. Gaulding remaining
employed by the Company as of the date immediately preceding a Change of Control
(as defined below), in the event of a Change of Control, 200,000 option shares
will be cancelled and the remaining 50,000 of such option shares will become
fully vested. Mr. Gaulding's severance arrangement resulting from a Change of
Control, subject to Mr. Gaulding remaining employed by the Company as of the
date immediately preceding a Change of Control, provides for Mr. Gaulding to (i)
receive a cash payment of $350,000, subject to withholding, (ii) remain an
employee of the Companies through the end of the month in which a Change of
Control occurs, (iii) become a consultant to the Companies commencing
immediately following the termination of his employment and for a period of two
years thereafter with annual compensation equal to $171,600, paid monthly, as
Form 1099 compensation not subject to withholding, (iv) receive up to $10,000
per year Company-paid life insurance, and (v) receive up to $25,000
reimbursement during the term of the consulting arrangement for office space and
related expenditures. "Change of Control" means the shareholders of the Company
(i) elect members of the Board such that three or more of the directors serving
as of May 21, 1996 no longer serve as Board members, (ii) elect at least three
members of the slate of directors nominated for election at the Annual Meeting,
or (iii) approve a merger or consolidation of the Company in which the
shareholders of the Company immediately prior thereto do not hold at least 50%
of the total voting power of the Company or surviving entity immediately
following such merger or consolidation, or approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
In August 1995, Kevin C. Eichler, Executive Vice President and Chief
Financial Officer of the Company, was granted an option to purchase 25,000
shares of the Company's Common Stock at a per share exercise price of $6.25. One
quarter of such option shares vest on August 9, 1996 and one forty-eighth of
such shares vest at the end of each month thereafter. In April 1996, Mr. Eichler
was granted an option to purchase 50,000 shares of the Company's Common Stock at
a per share exercise price of $6.75. 25,000 of such option shares vest at the
rate of one forty-eighth of such shares on May 25, 1996
-20-
<PAGE> 23
and at the end of each month thereafter, and the remaining 25,000 of such option
shares shall vest on April 25, 2000.
In May 1995, Paulette J. Taylor, Executive Vice President and General
Counsel of the Company, was granted an option to purchase 5,000 shares of the
Company's Common Stock at a per share exercise price of $6.50. One quarter of
such option shares vest on May 23, 1996 and one forty-eighth of such shares vest
at the end of each month thereafter. In May 1996, Ms. Taylor was granted an
option to purchase 50,000 shares of the Company's Common Stock at a per share
exercise price of $7.00. 25,000 of such option shares vest at the rate of one
forty-eighth of such shares on June 21, 1996 and at the end of each month
thereafter, and the remaining 25,000 of such option shares shall vest on May 21,
2000.
In August 1995, Tyron Yun, Executive Vice President and Chief
Information Officer of the Company, was granted an option to purchase 25,000
shares of the Company's Common Stock at a per share exercise price of $6.25. One
quarter of such option shares vest on August 9, 1996 and one forty- eighth of
such shares vest at the end of each month thereafter.
See "Proposal No. One--Election of Directors--Director Compensation"
for a description of options granted under the Director Plan during the fiscal
year ended December 31, 1995.
In connection with the change of control of the Company contemplated by
the acquisition by Mr. Speizer of the Herman Shares, the Company has agreed to
enter into change of control agreements ("Change of Control Agreements") with
the following executive officers of the Company: Kevin C. Eichler, Paulette J.
Taylor, and Roger Conley, Executive Vice President of Sales and Marketing. Each
such Change of Control Agreement will provide for severance consisting of (i)
one year base salary, (ii) a $10,000 lump-sum payment in lieu of one-year
Company paid participation under its group health plan pursuant to Title X of
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), (iii) a
$35,000 lump-sum payment in lieu of outplacement counseling, (iv) full
acceleration of vesting of outstanding and unexercised options with a period of
two years following termination of employment during which such options may be
exercised, and (v) remaining an employee of the Company through the end of the
month in which a Change of Control occurs. The Change of Control Agreements
provide that in the event the severance benefits provided would trigger the
golden parachute excise tax and non-deductibility provisions of the Internal
Revenue Code, they shall be reduced so that such provisions are not triggered.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act, that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and the Performance Graph
on page 24 shall not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is comprised of two independent,
non-employee directors, Melvyn D. Croner and Kenneth Ross, who have no
interlocking relationships, as defined by the Securities and Exchange
Commission. Messrs. Croner and Ross are not standing for re-election as
directors at the Annual Meeting and following the Annual Meeting a new
Compensation Committee will
-21-
<PAGE> 24
be appointed. The Compensation Committee establishes the general compensation
plans of the Company, including the Company's 1986 Stock Option Plan. The
Committee reviews compensation, evaluates performance, and determines base
salary levels for the Company's executives.
The Chief Executive Officer ("CEO") of the Company is invited to attend
and participate in Committee meetings, except when CEO compensation is being
discussed. The CEO may designate the General Counsel, another Executive Vice
President or the head of the Human Resources function to attend and participate
in the CEO's stead.
Final decisions regarding executive compensation (excluding stock
options) are made by the full Board of Directors based on recommendations of the
Committee and decisions regarding stock option grants to executives are made by
the Committee.
The Company's executive compensation programs are designed to attract
and retain executives who will contribute to the Company's long-term success, to
reward the achievement of both short-term and long-term strategic goals, and to
link executive and shareholder interests through equity-based plans.
The three components of the Company's executive compensation program
for fiscal 1995 were base salary, short-term incentives in the form of a target
bonus and long-term incentives represented by stock option grants. The
Committee's policies in these areas are as follows:
Base Salary
The Committee reviews compensation surveys and the reports of
compensation consultants to determine the recommended levels of basic salary.
Salaries are established at levels that are competitive for the Company's size,
type of industry, and the nature of the function to be performed.
Incentive Bonus
The payment of incentive bonuses is dependent on the performance of the
Company and the achievement of objectives developed for each individual
executive. Due to the Company's performance, no incentive bonus payments were
made to the Company's executives during 1995.
Stock Option Grants
Under the Company's 1986 Stock Option Plan, stock options may be
granted to officers, other employees and consultants of the Company. The size of
the stock option awards is based primarily on the individual's responsibilities
and performance, as well as on an assessment of competitive equity compensation
structures. Options are designed to match the interests of officers, employees
and consultants with those of the shareholders. Stock options are generally
granted with an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. Current grants generally vest over a period
of four years. This approach is designed to encourage the growth and
preservation of shareholder value and to secure the long-term commitment of
officers, employees and consultants.
-22-
<PAGE> 25
Change of Control Arrangements
See "Certain Transactions" for a description of the severance
arrangements presented to or approved by the Compensation Committee for each of
John R. Gaulding, Kevin C. Eichler, Paulette J. Taylor and Roger Conley in
connection with the change of control contemplated by the acquisition by Mr.
Speizer of the Herman Shares. Such severance arrangements have been approved by,
or are under consideration by, the Compensation Committee in order to ensure an
orderly transition of management of the Company and to preserve shareholder
value.
1995 CEO COMPENSATION
During 1995, until his resignation effective October 19, 1995, the
salary of CEO Mark A. Speizer remained at the level established for 1994, which
amounted to a reduction of 4% from fiscal 1993. Mr. Speizer was not granted an
employee stock option and received no incentive compensation during 1995.
Following Mr. Speizer's resignation and through March 1996, director Melvyn D.
Croner served as Acting CEO and President of the Company. Mr. Croner was
compensated at the rate of $35,000 per month.
Melvyn D. Croner
Kenneth Ross
-23-
<PAGE> 26
COMPARATIVE STOCK PERFORMANCE
The graph below compares the total shareholder return on the Common
Stock of the Company for the last five fiscal years with the cumulative total
return on the Index for Nasdaq Stock Market (U.S. Companies) and the Index for
the Nasdaq Fire, Marine, and Casualty Insurance Group over the same period
(assuming the investment of $100 in the Company's Common Stock, the Index for
Nasdaq Stock Market (U.S. Companies) and the Index for Nasdaq Fire, Marine, and
Casualty Insurance Group on January 1, 1991, and reinvestment of all dividends.
NATIONAL INSURANCE GROUP
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
DATE COMPANY INDEX MARKET INDEX PEER INDEX
<S> <C> <C> <C>
12/31/90 100.000 100.000 100.000
01/31/91 110.345 111.085 105.765
02/28/91 117.952 121.770 114.161
03/28/91 105.810 129.918 121.926
04/30/91 102.341 130.742 121.535
05/31/91 90.855 136.742 124.430
06/28/91 117.063 128.414 120.845
07/31/91 136.282 136.016 122.495
08/30/91 147.537 142.779 120.547
09/30/91 145.781 143.304 117.700
10/31/91 144.025 148.041 125.951
11/29/91 155.406 143.069 130.642
12/31/91 144.810 160.546 142.693
01/31/92 180.130 169.934 146.338
02/28/92 190.090 173.785 149.573
03/31/92 197.196 165.583 147.134
04/30/92 195.420 158.482 142.536
05/29/92 182.301 160.541 146.100
06/30/92 185.876 154.265 149.895
07/31/92 178.727 159.728 161.007
08/31/92 178.039 154.847 162.331
09/30/92 163.652 160.604 172.004
10/30/92 154.660 166.929 177.905
11/30/92 191.925 180.214 185.106
12/31/92 177.441 186.849 192.343
01/29/93 246.244 192.168 198.549
02/26/93 261.938 184.999 206.114
03/31/93 269.214 190.353 211.737
04/30/93 263.757 182.230 202.112
05/28/93 208.405 193.116 198.247
06/30/93 212.061 194.009 198.924
07/30/93 241.311 194.237 207.053
08/31/93 242.498 204.277 214.185
09/30/93 240.661 210.361 215.694
10/29/93 255.358 215.089 208.603
11/30/93 219.676 208.674 194.489
12/31/93 191.986 214.491 198.039
01/31/94 177.218 221.000 204.997
02/28/94 167.164 218.936 197.118
03/31/94 154.162 205.469 186.474
04/29/94 122.587 202.804 186.318
05/31/94 108.840 203.299 188.935
06/30/94 82.568 195.864 192.071
07/29/94 93.827 199.882 192.680
08/31/94 84.945 212.624 195.034
09/30/94 75.507 212.081 190.174
10/31/94 71.731 216.248 185.349
11/30/94 76.126 209.076 179.147
12/30/94 79.933 209.663 190.652
01/31/95 91.352 210.839 197.269
02/28/95 78.029 221.988 206.124
03/31/95 81.836 228.571 203.739
04/28/95 87.545 235.772 208.561
05/31/95 108.480 241.857 212.842
06/30/95 106.577 261.454 217.638
07/31/95 104.674 280.665 220.104
08/31/95 101.819 286.343 231.012
09/29/95 98.964 292.943 242.131
10/31/95 76.126 291.263 245.313
11/30/95 83.739 298.106 259.300
12/29/95 85.642 296.564 267.363
</TABLE>
-24-
<PAGE> 27
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed form of Proxy to vote the shares they
represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: June 20, 1996
-25-
<PAGE> 28
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NATIONAL INSURANCE GROUP
1996 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of NATIONAL INSURANCE GROUP, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated June 20, 1996, and hereby appoints
John R. Gaulding and Paulette J. Taylor, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1996 Annual
Meeting of Shareholders of NATIONAL INSURANCE GROUP to be held on July 11,
1996, at 10:00 a.m., local time, at The Embassy Suites, 250 Gateway Boulevard,
South San Francisco, California 94080 and at any adjournment(s) thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
if then and there personally present, on the matters set forth below:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 29
[X] Please mark your votes as indicated in this example
1. ELECTION OF DIRECTORS: FOR all nominees WITHHELD AUTHORITY
listed below (except to vote for all
as indicated) nominees listed below
[ ] [ ]
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
Nominees: Nuno Brandolini d'Adda Bruce A. Cole
Saul B. Jodel Kevin R. McCarthy
Mark A. Speizer
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's 1986 Stock
Option Plan [ ] [ ] [ ]
3. Proposal to ratify the appointment of
Coopers & Lybrand L.L.P. as the FOR AGAINST ABSTAIN
independent public accountants of the [ ] [ ] [ ]
company for the 1996 fiscal year.
and upon such other matter or matters which may properly come before the
meeting and any adjournment(s) thereof.
This proxy will be voted as directed or, if no direction is indicated, will be
voted "FOR" the election of directors named herein, "FOR" each proposal listed,
and as said proxies deem advisable on such other matters as may come before the
meeting.
Either of such attorneys or substitutes shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
Signatures(s)___________________________________________________Dated:__________
(This Proxy should be dated, signed by the shareholder(s) exactly as his or her
name appears hereon, and returned promptly in the enclosed envelope. Persons
signing in a fiduciary capacity should so indicate.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 30
NATIONAL INSURANCE GROUP
1986 STOCK OPTION PLAN
(AS AMENDED THROUGH JULY 11, 1996)
1. Purposes of the Plan. The purpose of this Stock Option Plan is to
provide additional incentive to Employees and Consultants to work to maximize
shareholder value. This Stock Option Plan also utilizes vesting periods to
encourage key Employees and Consultants to continue in the employ of or service
to the Company. The Plan and/or the granting of any option under the Plan to any
employee shall not be construed to be any form of employment contract or
guarantee of future employment or compensation.
Options granted hereunder shall be "nonstatutory stock options."
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Common Stock" shall mean the Common Stock of the Company.
(c) "Company" shall mean National Insurance Group, a California
corporation.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Employee" shall mean any person, including officers and
directors, employed by the Company or any parent or subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(f) "Consultant" shall mean any person who is engaged by the Company
or any subsidiary to render consulting services and is compensated for such
consulting services, and any director of the Company whether compensated for
such services or not; provided that if and in the event the Company registers
any class of any equity security pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the term Consultant shall
thereafter not include directors who are not compensated for their services or
are paid only a director's fee by the Company.
<PAGE> 31
(g) "Option" shall mean a stock option granted pursuant to the Plan.
(h) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(i) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(j) "Plan" shall mean this 1986 Stock Option Plan.
(k) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 1,006,820 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3
of the Exchange Act, the Plan may be administered by different bodies with
respect to members of the Board of Directors of the Company ("Directors"),
officers of the Company, within the meaning of Section 16 of the Exchange Act
and the rules and regulations promulgated thereunder ("Officers"), who are not
Directors, and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers
Subject to Section 16(b). With respect to Option grants made to Employees who
are also Officers or Directors subject to Section 16(b) of the Exchange Act, the
Plan shall be administered by (A) the Board of Directors, if the Board of
Directors may administer the Plan in compliance with the rules governing a plan
intended to qualify as a discretionary plan under Rule 16b-3, or (B) a committee
designated by the Board of Directors to administer the Plan, which committee
shall be constituted to comply with the rules governing a plan intended to
qualify as a discretionary plan under Rule 16b-3 (the "Committee"). Once
appointed, such Committee
-2-
<PAGE> 32
shall continue to serve in its designated capacity until otherwise directed by
the Board of Directors. From time to time the Board of Directors may increase
the size of the Committee and appoint additional members, remove members (with
or without cause) and substitute new members, fill vacancies (however caused),
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules governing a plan intended to
qualify as a discretionary plan under Rule 16b-3.
(ii) Administration With Respect to Other Persons. With respect
to Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board of
Directors or (B) a committee designated by the Board of Directors, which
committee shall be constituted to satisfy the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Internal Revenue Code of 1986, as amended (the "Applicable Laws"). Once
appointed, such Committee shall serve in its designated capacity until otherwise
directed by the Board of Directors. The Board of Directors may increase the size
of the Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by Applicable Laws.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant "nonstatutory
stock options"; (ii) to determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the Common
Stock; (iii) to determine the exercise price per share of Options to be granted,
which exercise price shall be determined in accordance with Section 8(a) of the
Plan; (iv) to determine the Employees or Consultants to whom, and the time or
times at which, Options shall be granted and the number of shares to be
represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend
and rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical) and,
with the consent of the holder thereof, modify or amend each Option; (viii) to
accelerate or defer (with the consent of the Optionee) the exercise date of any
Option, consistent with the provisions of Section 5 of the Plan; (ix) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Board; and (x) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
-3-
<PAGE> 33
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility.
(a) Options may be granted only to Employees and Consultants. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment, compensation or consulting relationship
with the Company, nor shall it interfere in any way with his right or the
Company's right to terminate his employment or consulting relationship at any
time.
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 150,000 Shares.
(ii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iii) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the limit
set forth in Section 5(c). For this purpose, if the exercise price of an Option
is reduced, the transaction will be treated as a cancellation of the Option and
the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of twenty (20) years unless sooner terminated
under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be ten (10) years from
the date of grant thereof or such shorter term as may be provided in the Stock
Option Agreement.
-4-
<PAGE> 34
8. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be no less than 100% of the fair market value per Share on the
date of grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices of the Common Stock for the date of grant, as reported in the Wall
Street Journal (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in
the event the Common Stock is listed on a stock exchange, the fair market value
per Share shall be the closing price on such exchange on the date of grant of
the Option, as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Board and may consist entirely of either cash or check in United States
currency.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the Company receives written notice of such exercise and full payment for
the Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to Optioned Stock. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 of the
Plan.
-5-
<PAGE> 35
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. If an
Employee or Consultant ceases to serve as an Employee or Consultant, he may, but
only within thirty (30) days (or such longer period of time as is determined by
the Board, but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement) after the date he ceases to be an
Employee or Consultant of the Company, exercise his Option to the extent that he
was entitled to exercise it at the date of such termination. To the extent that
he was not entitled to exercise the Option at the date of such termination, or
if he does not exercise such Option (which he was entitled to exercise) within
the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event an Employee or Consultant is unable to continue
his employment or consulting relationship (as the case may be) with the Company
as a result of his total and permanent disability (as defined in section
22(e)(3) of the Internal Revenue Code), he may, but only within six (6) months
(or such longer period of time as is determined by the Board, but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement) from the date of termination, exercise his Option to the
extent he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have
been in continuous status as an Employee or Consultant since the
date of grant of the Option, the Option may be exercised, at any
time within twelve (12) months following the date of death (or such
longer period of time as is determined by the Board, but in no event
later than the expiration date of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but
-6-
<PAGE> 36
only to the extent of the right to exercise that had accrued at the
date of the Optionee's death; or
(ii) within thirty (30) days (or such longer period of time as
is determined by the Board, but in no event later than the
expiration date of the term of such Option as set forth in the
Option Agreement) after the termination of continuous status as an
employee or Consultant, the Option may be exercised, at any time
within six (6) months following the date of death (or such longer
period of time as is determined by the Board, but in no event later
than the expiration date of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at
the date of termination.
10. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
-7-
<PAGE> 37
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of thirty (30) days from the date of such notice,
and the Option will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided, however, that a following revision or amendment shall require approval
of the Shareholders of the Company in the manner described in Section 17 of the
Plan:
(i) if the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision
or amendment, any material increase in the benefits accruing to
participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity security by the Company under Section 12 of
the Exchange Act, such shareholder
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approval shall be solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Shareholder Approval. If and in the event that the Company
registers any class of any equity security pursuant to Section 12 of the
Exchange Act, the approval of such shareholders of the Company shall be:
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(a) (1) solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder, or (2)
solicited after the Company has furnished in writing to the holders entitled to
vote substantially the same information concerning the Plan as that which would
be required by the rules and regulations in effect under Section 14(a) of the
Exchange Act at the time such information is furnished; and
(b) obtained at or prior to the first annual meeting of
shareholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.
If such shareholder approval is obtained by written consent, it
must be obtained by the unanimous written consent of all shareholders of the
Company.
18. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information.
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