<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14(a)-12
National Insurance Group
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:________________________________________________________
(2) Aggregate number of securities to which transaction
applies:________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
________________________________________________________________
(4) Proposed maximum aggregate value of transaction:________________
(5) Total fee paid:_________________________________________________
/ / Fee paid previously with preliminary materials.
<PAGE> 2
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_________________________________________
(2) Form, Schedule or Registration Statement No.:___________________
(3) Filing Party:___________________________________________________
(4) Date Filed:_____________________________________________________
<PAGE> 3
[NATIONAL INSURANCE GROUP LOGO]
NATIONAL INSURANCE GROUP
------------------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 15, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
NATIONAL INSURANCE GROUP, a California corporation (the "Company"), will be held
on Monday, June 15, 1998 at 10:00 a.m., local time, at The Embassy 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 consider and act upon a proposal to amend the Company's Articles of
Incorporation to change the name of the Company.
3. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
public accountants of the Company for the 1998 fiscal year.
4. To transact such other business as may properly come before the meeting
and any adjournments 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 April 20, 1998, 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,
Robert P. Barbarowicz, Secretary
South San Francisco, California
April 28, 1998
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> 4
[NATIONAL INSURANCE GROUP LOGO]
NATIONAL INSURANCE GROUP
------------------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL INFORMATION
The enclosed Proxy is solicited on behalf of NATIONAL INSURANCE GROUP, a
California corporation (the "Company" or "National"), for use at the Annual
Meeting of Shareholders to be held Monday, June 15, 1998 at 10:00 a.m., local
time, and at any adjournments 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, 250 Gateway Boulevard, South San Francisco,
California 94080. The Company's principal executive offices are located at 395
Oyster Point Boulevard, Suite 500, South San Francisco, California 94080, and
its telephone number is (650) 872-6772.
The Company conducts all of its business through its wholly-owned
subsidiaries: Pinnacle Data Corporation, a California corporation ("Pinnacle
Data"), Great Pacific Insurance Company, a California corporation ("GPIC"),
Pinnacle Real Estate Tax Services, Inc., a Delaware corporation, and Pinnacle
Real Estate Tax Services of New York, Inc., a Delaware corporation
(collectively, "PinTax"), Pinnacle Management Solutions Insurance Services, a
California corporation ("PMSIS"), and Fastrac Systems, Inc., a California
corporation ("Fastrac").
These proxy solicitation materials were mailed on or about May 5, 1998 to
all shareholders entitled to vote at the meeting.
The entire cost of this solicitation will be borne by the Company,
including expenses in connection with preparing and mailing proxy solicitation
materials. 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 on behalf of the Company by certain of the Company's directors,
officers and regular employees, without additional compensation, personally, by
telephone, facsimile or other means of communication.
RECORD DATE AND SHARE OWNERSHIP
Shareholders of record at the close of business on April 20, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 4,102,882 shares of the Company's Common Stock were issued and
outstanding, all of which are entitled to be voted at the meeting. For
information regarding security ownership by management and by 5% shareholders,
see "Other Information -- Security Ownership of Certain Beneficial Owners and
Management."
1
<PAGE> 5
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.
VOTING AND 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. 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 either additional persons are
nominated at the Annual Meeting for election as directors or cumulative voting
is invoked by any shareholder.
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. Abstentions and
broker non-votes will be counted for purposes of determining whether a quorum is
present at the Annual Meeting, but will not be counted as having been voted with
respect to the election of directors or with respect to any proposal.
The presence, either in person or by proxy, of persons entitled to vote a
majority of the outstanding shares of the Company's common stock is necessary to
constitute a quorum to transact business at the Annual Meeting.
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S MEETING
Proposals of security holders of the Company which are intended to be
presented by such shareholders at the Company's 1999 Annual Meeting must be
received by the Company no later than January 5, 1999 in order that they may be
included in the proxy statement and form of proxy relating to that meeting.
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, all of whom are presently
directors of the Company with a term expiring at the Annual Meeting. 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 shall have
qualified.
2
<PAGE> 6
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>
Bard E. Bunaes 62 Chairman and Chief Executive Officer of Constitution
Reinsurance Corporation
Bruce A. Cole 50 President of the Company and of Pinnacle Data, GPIC, PinTax,
PMSIS and Fastrac
Lawrence M. Goodman 54 Principal of LMG Associates
Saul B. Jodel 47 President and Chairman of the Board of The Original San
Francisco Toymakers, Inc.
Mark A. Speizer 54 Chairman and Chief Executive Officer of the Company and of
Pinnacle Data, GPIC, PinTax, PMSIS and Fastrac.
</TABLE>
- ---------------
(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.
MR. BUNAES is Chairman of the Board and Chief Executive Officer of
Constitution Reinsurance Corporation, a position that he has held since
November, 1969. In addition to being a director of Constitution Reinsurance
Corporation Mr. Bunaes serves as a director of the following companies:
Constitution Re Corporation, Constitution Management Corp. and CRC/Corsair, Inc.
Mr. Bunaes serves as a director of the affiliated companies, Sirius America
Insurance Corporation, Sirius International Insurance Company (Stockholm,
Sweden) and ABB Investment Management Corporation (Stamford, CT), which is
registered as an investment advisor under the Investment Advisors Act of 1940.
Mr. Bunaes is also a director of the Reinsurance Association of America.
Constitution Reinsurance Corporation has been a reinsurer of GPIC in excess of
15 years. In 1996 and 1997 premiums paid to Constitution Reinsurance Corporation
by GPIC with respect to such reinsurance totaled approximately $34,000 and
$70,000, respectively, and in 1998 is expected to be approximately $76,000.
MR. COLE has served as President of the Company and its subsidiaries since
July 1996. From March 1994 through July 1996, Mr. Cole was general counsel and
executive vice president of JB Oxford Holdings, Inc. From 1991 through March
1994 Mr. Cole was of counsel to the law firm Rubinstein & Perry, A Professional
Corporation, and Rubinstein & Perry, LLP, with an emphasis on business and
corporation law with extensive involvement in corporate restructuring and
securities industries matters. Mr. Cole was a founding partner of the law firm
of Hendrickson, Higbie & Cole and served as a partner of the firm from 1981 to
1991.
MR. GOODMAN was President and Chief Operating Officer of Columbia
Manufacturing Corporation from 1983 through 1994. From 1972 to 1983 Mr. Goodman
was the managing partner of Triad Leasing, a company which leased heavy
industrial equipment. From 1984 to present Mr. Goodman has been the managing
partner of CMC, a real estate investment partnership. Since 1997 Mr. Goodman has
been a principal of LMG Associates, a firm which provides consulting services.
MR. JODEL has been President and Chairman of the Board of The 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. SPEIZER, a co-founder of the Company, has served on the Board of
Directors of the Company since its inception. Since July 1996, Mr. Speizer has
served as Chairman of the Board and Chief Executive Officer of the Company and
for the subsidiaries of the Company. Between November 1986 and October 1995, Mr.
Speizer served as Chairman of the Board and Chief Executive Officer of the
Company, and between June 1995 and October 1995, served as President of the
Company. Between 1972 and October 1995, Mr. Speizer also served in various
executive level capacities and as a director and Chairman of the Board for the
subsidiaries of the Company.
3
<PAGE> 7
VOTE REQUIRED; RECOMMENDATIONS OF BOARD OF DIRECTORS
The election of directors will be determined by a plurality of the votes
cast at the Annual Meeting by holders of shares represented in person or by
proxy. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES
SET FORTH HEREIN.
BOARD MEETING AND COMMITTEES
The Board of Directors of the Company held a total of thirteen (13)
meetings during the calendar year ended December 31, 1997. Each person who was a
director during 1997 attended or participated in at least 75% of the aggregate
number of meetings of the Board of Directors during his term and the number of
meetings of committees on which he served.
The Audit Committee of the Board of Directors, which currently consists of
directors Saul B. Jodel, Bard E. Bunaes and Lawrence M. Goodman, held three (3)
meetings during the last fiscal year. The Audit Committee recommends the
appointment 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.
The Compensation Committee, which currently consists of directors Lawrence
M. Goodman, Saul B. Jodel and Bard E. Bunaes, met three (3) times during fiscal
1997. 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 Nominating Committee, which currently consists of Bard E. Bunaes, Saul
B. Jodel and Mark A. Speizer, held one meeting in 1997. The Nominating Committee
identifies and recommends to the Board of Directors prospective candidates to be
considered as nominees for election to the Board. The Nominating Committee will
consider the names and qualifications of candidates for the Board submitted by
shareholders in accordance with the procedures set forth in "Shareholder
Proposals For Next Year's Meeting" above. Following the Annual Meeting, a new
Nominating Committee will be appointed.
DIRECTOR COMPENSATION
Each non-employee director of the Company is paid at the rate of $1,000 per
month. 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, as amended (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. The Director Plan further provides
that if Mr. Speizer and Howard L. Herman, the Company's former President, shall
sell or otherwise transfer beneficial ownership of more than 75% of the
aggregate number of shares controlled by them as of May 23, 1995, the optionee
(except for options granted under the Director Plan to Mr. Speizer and/or Mr.
Herman) shall thereafter have the right to exercise such option as to all of the
optioned stock, including shares as to which such option would not otherwise be
exercisable. As of May 23, 1995, Mr. Speizer and Mr. Herman controlled an
aggregate of 1,772,329 shares which number is subject to adjustment in
accordance with the provision of the Directors Plan regarding adjustments upon
changes in capitalization or merger. On May 31, 1996, Mr. Speizer purchased
788,795 shares from Mr. Herman and certain Herman family members and trusts. On
June 18, 1996, Mr. Speizer purchased 35,500 shares from Mr. Herman and his
spouse. Such purchases constituted the purchase of all shares owned and
beneficially owned by Mr. Herman. During the fiscal year ended December 31,
1997, director Bard E. Bunaes was automatically granted an option to purchase
50,000 shares at a per share exercise price of $7.125. In January 1998 when
Lawrence Goodman
4
<PAGE> 8
joined the Board of Directors he was automatically granted an option to purchase
50,000 shares at a per share exercise price of $8.3125.
PROPOSAL NO. TWO
APPROVAL OF AMENDMENT TO THE ARTICLES OF INCORPORATION
GENERAL
On April 15, 1998, the Board of Directors approved, and recommended for
adoption by shareholders at this annual meeting, an amendment to Article 1 of
the Company's Articles of Incorporation to change the name of the Company to
National Information Group. For the reasons described below, the Board of
Directors believes that it would be in the best interests of the Company and its
shareholders to make such change to the name of the Company. To accomplish this
name change, it is necessary to amend the applicable provision of the Company's
Articles of Incorporation.
PROPOSAL
Important and positive changes have occurred at the Company over the past
couple of years. The increase in the information services portion of the
Company's business and the recent addition of Pinnacle Real Estate Tax Services,
Inc. to the group of the Company's subsidiaries, has provided the Company with a
unique opportunity to change its name. While the National Insurance Group name
served the Company well for many years, it does not reflect the Company as it
exists today. The Board of Directors believes that changing the name of the
Company is a fundamental component of its repositioning. The change of the
Company's name reflects a recognition of the growth in the non-insurance portion
of the Company's business. After careful consideration, the Board believes that
"National Information Group" better reflects the new mix of the Company's
portfolio of businesses and its position as a provider of information services
as well as insurance products to financial institutions and others.
The change of the Company's name will not affect in any way the validity of
currently outstanding stock certificates. Shareholders will not be required to
surrender or exchange any stock certificates that they currently hold. The
Company will request that the Nasdaq Stock Market allow the Company to continue
to use the ticker symbol "NAIG."
The Board of Directors believes that the adoption of the proposed amendment
to the Articles of Incorporation is in the best interests of the Company and the
shareholders. Accordingly, the Board is proposing that Article 1 of the Articles
of Incorporation be amended to change the name of the Company to "National
Information Group."
The full text of Article 1 of the Articles of Incorporation, as proposed to
be amended, is as follows:
"The name of this corporation is National Information Group."
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the outstanding shares
will be required to approve the amendment to Article 1 of the Company's Articles
of Incorporation to change the name of the Company to National Information
Group. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
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, 1998. Coopers & Lybrand has
audited the Company's financial statements since the fiscal year ended December
31,
5
<PAGE> 9
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
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages as of the Record Date,
are set forth below. Except for Mr. Bergstrom, Mr. Gauer, and Mr. Padilla the
following hold the indicated office with respect to the Company and each of the
subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH NATIONAL
---- --- ----------------------
<S> <C> <C>
Mark A. Speizer 54 Chairman of the Board and Chief Executive Officer
Bruce A. Cole 50 President
Robert P. Barbarowicz 51 Executive Vice President, General Counsel and Secretary
Gregory S. Saunders 35 Executive Vice President, Treasurer and Chief Financial
Officer
Douglas H. Helm 56 Executive Vice President, Business Development and Strategic
Marketing
George R. Jump 47 Executive Vice President, Sales
Gunnar Bergstrom 35 Executive Vice President of PinTax
Gerry L. Gauer 33 Executive Vice President of Pinnacle Data
Larry Padilla 48 Executive Vice President of Fastrac and PMSIS
</TABLE>
MR. SPEIZER, a co-founder of the Company, has served on the Board of
Directors of National since its inception. Since July 1996, Mr. Speizer has
served as Chairman of the Board and Chief Executive Officer of the Company.
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 a Director and Chairman
of the Board of the Subsidiaries.
MR. COLE was elected President of the Company in July 1996. From March 1994
through July 1996, Mr. Cole was general counsel and executive vice president of
JB Oxford Holdings, Inc. From January 1991 through March 1994, Mr. Cole was of
counsel to the law firm Rubinstein & Perry, A Professional Corporation, and
Rubinstein & Perry, LLP, with an emphasis on business and corporation law with
extensive involvement in corporate restructuring and securities industries
matters. Mr. Cole was a founding partner of the law firm of Hendrickson, Higbie
& Cole and served as a partner of the firm from 1981 to 1991.
MR. BARBAROWICZ was elected Executive Vice President, General Counsel and
Secretary of the Company in August 1996. From 1993 to 1996, Mr. Barbarowicz was
a shareholder in the law firm Rubinstein & Perry, A Professional Corporation.
Mr. Barbarowicz was of counsel to Rubinstein & Perry, LLP from 1991 to 1993.
From 1983 to 1990, Mr. Barbarowicz was First Vice President and Assistant
General Counsel of H.F. Ahmanson & Company and was General Counsel for The
Ahmanson Insurance Companies from 1982 to 1989. In 1995, Mr. Barbarowicz
commenced voluntary proceedings under the provisions of Chapter 13 of the
federal bankruptcy laws, which proceedings were voluntarily withdrawn by Mr.
Barbarowicz within sixty days thereafter without any action taken or any debts
discharged.
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<PAGE> 10
MR. SAUNDERS joined the Company in March 1997 as Executive Vice President,
Treasurer and Chief Financial Officer of the Company. From 1990 to 1997, Mr.
Saunders held several senior management positions at Transcisco Industries,
Inc., including Vice President and Chief Financial Officer. From 1985 through
1988, Mr. Saunders served in various financial management capacities at PLM
International, Inc., including Controller of PLM Transportation Equipment
Management, Inc. Prior to 1985, Mr. Saunders held finance and system analytical
positions at American Express Company, Inc. and Control Data Business Advisors,
Inc.
MR. HELM was elected Executive Vice President, Business Development and
Strategic Marketing in May 1997. From July 1995 to May 1997, Mr. Helm was
President and Chief Executive Officer of the Property/Casualty Division of
InsWeb Corporation. From 1989 to 1995, Mr. Helm was Executive Vice President,
Sales and Marketing of the Company. Mr. Helm held a variety of executive offices
and management positions in the insurance industry from 1970 to 1997.
MR. JUMP was elected Executive Vice President, Sales in November 1997. Mr.
Jump assumed responsibility for the sales area of the Company in February 1998.
Mr. Jump joined the Company in 1993 and had served as a Vice President and
Senior Vice President of Sales of the Company's subsidiaries from 1993 to 1997.
Prior to joining the Company, Mr. Jump was the Vice President, Marketing of
American Security Group from 1980 to 1993.
MR. BERGSTROM was elected Executive Vice President and General Manager of
PinTax in September 1997. From 1996 to 1997, Mr. Bergstrom served with Chicago
Title & Trust Company in their Mergers, Acquisitions and New Business
Development Unit. Prior to 1996, Mr. Bergstrom served as Executive Vice
President of American Realty Tax Services, Inc. and American Realty Tax Services
of New York, Inc.
MR. GAUER was elected Executive Vice President and General Manager of
Pinnacle Data in November 1997 and served as Senior Vice President and General
Manager of Pinnacle Data since July 1996. From August 1995 through July 1996,
Mr. Gauer was a consultant and temporary employee of Pinnacle Data. From 1994
through August 1995, Mr. Gauer was self employed as a financial consultant. Mr.
Gauer was Operations Manager for Foster Ousley Conley, a nationwide appraisal
firm, from 1992 until 1994.
MR. PADILLA joined Fastrac and PMSIS in June 1996 as Senior Vice President
and General Manager and was elected as Executive Vice President and General
Manager in November 1997. From May 1994 until May 1996, Mr. Padilla was Senior
Vice President and Director of Loan Administration at First Interstate Bank. Mr.
Padilla was First Vice President at Great Western Bank from May 1990 to May
1994. Prior to May 1994 Mr. Padilla held various executive positions with other
financial institutions.
The executive officers serve at the discretion of the Board of Directors of
the Company. Mr. Speizer and Mr. Cole have each entered into employment
agreements with the Company for a three year term commencing July 11, 1996. Mr.
Speizer's and Mr. Cole's employment agreements each provide, among other things,
that during the term of the employment agreements the Board of Directors may
terminate Mr. Speizer's or Mr. Cole's employment only upon written notice for
cause. Cause is defined as a conviction of a felony or a finding of liability
based on intentional tortious conduct consisting of a breach of fiduciary duty
relating to his performance as an officer and/or director of the Company. In
addition, Mr. Cole's employment agreement provides that if the Company
terminates Mr. Cole for reasons other than for cause, the Company shall pay Mr.
Cole, in a single payment payable upon termination, an amount equal to (i) his
unpaid base salary for the remainder of the three year term, (ii) the
undiscounted remaining costs to provide the benefits provided in the employment
agreement for the remainder of the three year term, such as the cost of Mr.
Cole's membership and participation in professional associations, a $1,000 per
month motor vehicle allowance and premiums for certain insurance, including a $1
million life insurance policy, and (iii) any unpaid bonus from the previous year
plus any bonus payable pursuant to any bonus plan then in effect.
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<PAGE> 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
National as of the Record Date by (i) each person or entity who is known by
National to beneficially own more than 5% of National's Common Stock, (ii) the
Named Officers, (iii) each of National's current directors and director
nominees, and (iv) all current directors, director nominees and executive
officers as a group. A total of 4,102,882 shares of National's Common Stock were
issued and outstanding as of the Record Date. For the purposes of the following
information, any securities not outstanding which are subject to options or
other right to acquire within 60 days of the Record Date are deemed to be
outstanding for the purposes of computing the percentage of outstanding
securities owned by such individual, but are not deemed to be outstanding for
the purpose of computing the percentage of outstanding securities owned by any
other person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF SHARES (1) OF TOTAL
---------------- ------------- --------
<S> <C> <C>
Mark A. Speizer(2).......................................... 1,674,751 39.7%
395 Oyster Point Blvd., Suite 500
South San Francisco, CA 94080
Brinson Partners, Inc.(3) and its affiliated entities....... 352,299 8.6%
209 South LaSalle Street
Chicago, IL 60604-1295
Scorpion Acquisition, LLC(4) and its affiliated party....... 300,000 7.3%
505 Park Avenue, 12th Floor
New York, NY 10022
Dimensional Fund Advisors Inc.(5)........................... 224,700 5.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Bruce A. Cole(6)............................................ 54,917 1.3%
Douglas H. Helm............................................. 1,000 *
Robert P. Barbarowicz(7).................................... 10,896 *
Gerry L. Gauer(8)........................................... 11,979 *
Saul B. Jodel(9)............................................ 28,958 *
Bard E. Bunaes(10).......................................... 11,800 *
Lawrence M. Goodman......................................... 2,000 *
All current directors, director nominees and executive
officers
as a group (8 persons)(11)................................ 1,796,301 41.7%
</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) 111,042 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date, (ii)
12,400 shares held by Mr. Speizer's spouse, Linda Speizer, (iii) 8,400
shares held by Mr. Speizer and his wife for the benefit of each of Mr.
Speizer's two daughters (4,200 shares for the benefit of each daughter),
(iv) 300,000 shares which have been pledged to a stock brokerage firm as
collateral for a loan to Mr. Speizer (v) and 1,224,295 shares which
8
<PAGE> 12
have been pledged in connection with the Stock Purchase Agreement involving
the Herman Shares, as referenced in "Certain Transactions."
(3) Based on Amendment No. 8 to Schedule 13G dated February 11, 1998, filed by
Brinson Partners, Inc. ("BPI") with the SEC on behalf of itself, Brinson
Holdings, Inc. ("BHI"), SBC Holding (USA), Inc. ("SBCUSA") and Swiss Bank
Corporation ("SBC"). 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 352,299 shares.
(4) Based on Schedule 13D dated February 20, 1998, filed by Scorpion
Acquisition, LLC with the SEC on behalf of itself and Paul Caland who, as
an 80% member of Scorpion Acquisition, LLC, shares voting and dispositive
power with respect to 300,000 shares.
(5) Based on a Schedule 13G dated February 9, 1997 filed by Dimensional Fund
Advisors, Inc. ("Dimensional") with the SEC. In addition, Dimensional has
advised the Company that Dimensional is a registered investment advisor and
is deemed to have beneficial ownership of 224,700 shares of the Company, as
of December 31, 1997, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company,
or in series of the DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, for all of which Dimensional
serves as investment manager. Dimensional disclaims beneficial ownership of
all such shares.
(6) Includes 47,917 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date.
(7) Includes 9,896 shares of Common Stock issuable upon exercise of outstanding
options exercisable within 60 days of the Record Date.
(8) Represents 11,979 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date.
(9) Includes: (i) 23,958 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of the Record Date and (ii)
1,000 shares held by Mr. Jodel for the benefit of his son.
(10) Includes 4,800 shares held by Mr. Bunaes for the benefit of his daughter
(11) Includes an aggregate of 233,959 shares 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 National's officers and directors and persons who own
more than ten percent (10%) of a registered class of National's equity
securities, to file certain reports regarding ownership of, and transactions in,
National's securities with the SEC. Such officers, directors and ten percent
(10%) shareholders are also required by SEC rules to furnish National with
copies of all Section 16(a) forms that they file.
Based solely on its review of such forms received by it, or written
representations from certain reporting persons, National believes that during
fiscal 1996 all Section 16(a) filing requirements applicable to its officers,
directors and ten percent (10%) shareholders were complied with except Mr.
Bunaes failed timely to file one report which reported two transactions and Mr.
Helm failed timely to file one report which reported one transaction.
9
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation received in the last three
fiscal years by (i) each individual who served as National's Chief Executive
Officer during the last fiscal year and (ii) each of the four other most highly
compensated executive officers whose salary plus bonus exceeded $100,000 during
the last fiscal year who served as executive officers at the end of the fiscal
year ended December 31, 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------------ ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
--------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark A. Speizer....................... 1997 300,000 325,000 0 24,189(1)
Chairman of the Board and CEO 1996 134,601 60,000 75,000 23,828(2)
1995 565,212(3) 0 50,000 602,000(4)
Bruce A. Cole......................... 1997 290,000 165,000 -- 31,020(5)
President 1996 124,923 40,000 75,000 23,490(6)
1995 -- -- -- --
Robert P. Barbarowicz................. 1997 147,885 50,000 0 0
Executive Vice President, General 1996 68,269 0 25,000 0
Counsel and Secretary 1995 -- -- -- --
Douglas H. Helm....................... 1997 100,288 55,000 25,000 87,462(7)
Executive Vice President 1996 0 0 0 502,895(7)
Business Development and Strategic 1995 64,615 0 0 593,482(7)
Marketing
Gerry L. Gauer........................ 1997 156,000 35,000 0 0
Executive Vice President, 1996 153,000 23,000 25,000 0
Pinnacle Data 1995 27,333 0 0 0
</TABLE>
- ---------------
(1) Represents $12,189 of premiums on a term life insurance policy paid by the
Company for Mr. Speizer's benefit and an automobile allowance of $12,000.
(2) Represents $12,458 of premiums on a term life insurance policy paid by the
Company for Mr. Speizer's benefit, an automobile allowance of $5,370 and
$6,000 paid to Mr. Speizer while he was a non-employee director of National.
(3) Includes severance payment of $285,000 attributable to salary relating to
Mr. Speizer's termination of employment with National in October 1995.
(4) Represents severance payment of $600,000 (the "Severance Payment") and
$2,000 paid to Mr. Speizer while he was a non-employee director of National.
Pursuant to the terms of a severance agreement between Mr. Speizer and the
Company Mr. Speizer was required to repay to the Company the Severance
Payment in the event he became an employee of the Company to the extent set
forth in "Certain Transactions."
(5) Represents $19,020 of premiums on a term life insurance policy paid by the
Company for Mr. Cole's benefit and an automobile allowance of $12,000.
(6) Represents $18,120 of premiums on a term life insurance policy paid by the
Company for Mr. Cole's benefit and an automobile allowance of $5,370.
(7) Represents commissions paid to Mr. Helm pursuant to a certain Agreement of
Employment Termination and Release, dated July 2, 1995 which related to Mr.
Helm's prior employment with the Company. See "Certain Transactions."
10
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following tables set forth, as to the Named Officers, certain
information relating to stock options granted during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
PERCENT POTENTIAL REALIZABLE
NUMBER OF OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE OR FOR OPTION TERM(3)
GRANTED FISCAL YEAR BASE PRICE EXPIRATION ------------------------
NAME (#) (1) ($/SH) DATE(2) 5%($) 10%($)
---- ----------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Speizer........ 0 -- -- -- -- --
Bruce A. Cole.......... 0 -- -- -- -- --
Robert P.
Barbarowicz.......... 0 -- -- -- -- --
Douglas H. Helm........ 25,000 13.3% $10.875 9/5/07 $171,281 $432,281
Gerry L. Gauer......... 0 -- -- -- -- --
</TABLE>
- ---------------
(1) The total number of shares subject to options granted to employees in fiscal
1997 was 188,000.
(2) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death,
disability or an acquisition of National, subject to certain time periods in
which options for any vested shares may be exercised.
(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 National's
Common Stock were to increase at such rates from the price at 1997 fiscal
year end ($8.75 per share) over the next 10 years, the resulting stock price
at 5% and 10% appreciation would be $14.26 and $22.66, respectively. The
assumed annual rates of appreciation are specified in SEC rules and do not
represent National's estimate or projection of future stock price growth.
National does not necessarily agree that this method can properly determine
the value of an option.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
There were no option exercises in fiscal 1997 by the Named Officers. The
following table provides information with respect to the value of unexercised
options held by the Named Officers at the close of business on December 31,
1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(2)
------------------------------- ----------------------------
NAME EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark A. Speizer......................... 93,333(3) 62,500(4) $184,032 $171,094
Bruce A. Cole........................... 35,417 39,583 $101,824 $113,801
Robert P. Barbarowicz................... 6,771 18,229 $ 23,699 $ 63,802
Douglas H. Helm(5)...................... 0 25,000 -- --
Gerry L. Gauer.......................... 8,854 16,146 $ 25,455 $ 46,420
</TABLE>
- ---------------
(1) Options granted under National'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 National, which repurchase option lapses over time. The options
listed as Exercisable are those which could be exercised without being
subject to a repurchase option in favor of National.
(2) Market value of underlying securities based on the closing price of $8.75 of
National's Common Stock on the NASDAQ National Market on December 31, 1997,
minus the exercise price.
11
<PAGE> 15
(3) Represents 66,250 under the 1986 Stock Option Plan and 27,083 under the 1991
Director Option Plan. At December 31, 1997, of Mr. Speizer's exercisable
options 20,833 were not in-the-money.
(4) Represents 39,583 under the 1986 Stock Option Plan and 22,917 under the 1991
Director Option Plan. At December 31, 1997, all of Mr. Speizer's
unexercisable options were in-the-money.
(5) At December 31, 1997 none of Mr. Helm's options were in the money.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors is composed
of three non-employee directors, Lawrence M. Goodman, Bard E. Bunaes and Saul B.
Jodel. No interlocking relationship exists between the Company's Board of
Directors and the compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
CERTAIN TRANSACTIONS
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 Mr. Speizer, Mr. Speizer agreed to
purchase from the Sellers a total of 824,295 shares of Common Stock of National
(the "Herman Shares") for a purchase price of $10.50 per share. 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 represented
approximately 17.5% of the then 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 Insurance Commissioner (the "Commissioner"), or an exemption
granted by the Commissioner from the full filing and prior approval requirements
set by the Commissioner. On May 23, 1996, the Commissioner 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 are payable over fifteen years, shall bear interest
at 9% per annum and are 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 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 are to be held in escrow by City National Bank (of
Beverly Hills, California) pursuant to the terms of an Escrow Agreement dated
May 31, 1996 between Mr. Speizer, the Sellers and City National Bank as escrow
agent. As of April 13, 1998 the outstanding principal under the Speizer Notes
totaled approximately $5,229,000.
Mr. Speizer 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 was unsecured and no principal or
accrued interest was due and payable by Mr. Speizer until May 31, 1997, the end
of the term. Such line of credit was available to fund the purchase of the
Herman Shares and remained available to fund 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.
In February 1997 Mr. Speizer and Arabella agreed, subject to any required
regulatory approvals, that Arabella would accept as payment in full of the
obligations owed by Mr. Speizer to Arabella under the Arabella Note on the
payment date thereof the sum of $2,000,000 in cash and 300,000 shares of the
Company's Common Stock and the term of the Arabella Note was extended. On April
14, 1997, it was determined that no further regulatory approvals were required
for such transaction. In July 1997 in repayment of the Arabella Note, Arabella
acquired 300,000 shares of the Company's Common Stock from Mr. Speizer and was
paid $2,000,000 by Mr. Speizer. In November 1997, such shares were transferred
by Arabella to Scorpion Acquisition, LLC ("Scorpion Acquisition") by Arabella in
exchange for an 80% interest in Scorpion Acquisition. Nuno Brandolini and Kevin
McCarthy each own an
12
<PAGE> 16
8.4% interest in Scorpion Acquisition as members of Scorpion Acquisition. Mr.
Paul Caland owns an 80% interest in Scorpion Acquisition, which interest Mr.
Caland acquired from Arabella in December, 1997. Messrs. Brandolini and McCarthy
were directors of National and its subsidiaries from July 1996 to July 1997. The
foregoing discussion of the interests of Messrs. Brandolini, McCarthy and Caland
in Scorpion Acquisition and the transfer of the member interests of Arabella to
Mr. Caland are based upon information filed by Scorpion Acquisition and Mr.
Caland in a Schedule 13D with the Securities and Exchange Commission on February
27, 1997.
In February 1997, Mr. Speizer entered into a Purchase and Sale Agreement
(the "Purchase Agreement") with Scorpion Acquisition, pursuant to which Scorpion
Acquisition agreed to sell, and Mr. Speizer agreed to purchase, all of the
rights and interest conveyed by Mr. Speizer to Scorpion Acquisition under a
certain Term Sheet for Option Agreement which required him to negotiate in good
faith to enter into an option agreement with Scorpion Acquisition. In July 1997
Scorpion Acquisition sold to Mr. Speizer all such rights previously granted to
Scorpion Acquisition by Mr. Speizer to acquire shares of the Company owned by
Mr. Speizer. In consideration for sale of such rights to Mr. Speizer, Mr.
Speizer will pay to Scorpion Acquisition an amount equal to the greater of
$4,000,000 or 50% of the notional profits that would have been earned on a
notional 924,000 shares of Common Stock with a notional cost of $7.75 per share,
each subject to certain defined adjustments. Profits are determined by reference
to the average closing price of Common Stock (and the average closing price of
securities other than Common Stock paid by dividend, spin-off or otherwise on
Common Stock ("Distributed Stock")) during the fifteen business days preceding
and the fifteen business days following June 30, 2002, or if Scorpion
Acquisition has made an election permitted under its purchase agreement with Mr.
Speizer, that date between January 1, 2000 and June 30, 2002 that is so elected.
Mr. Speizer may pay the purchase price in cash or in shares of National or
shares of Distributed Stock subject to having received any necessary approvals
or exemptions from the California Insurance Commissioner as may be required by
statute or regulation.
As collateral for the repayment of a loan Mr. Speizer has pledged to a
stock brokerage firm 300,000 shares of the Company's Common Stock currently
owned by Mr. Speizer.
In September 1996 National entered into a consulting agreement with
Scorpion Holdings, Inc., a Delaware corporation ("Scorpion"), an affiliate of
Scorpion Acquisition, pursuant to which Scorpion agreed to provide certain
consulting services in connection with (i) management and strategic planning,
(ii) the identification of financing, acquisitions and divestiture opportunities
for National, and (iii) other matters relating to the day-to-day business and
operation of National or any of its subsidiaries or affiliated companies, as the
Board of Directors of National may from time to time reasonably request. In
addition, if National engages in any (i) merger, consolidation or sale of any of
its assets (other than in the ordinary course of its business) or outstanding
securities or (ii) acquisition of assets or stock of another company, Scorpion
has the right to act as a financial advisor to National pursuant to an
engagement agreement, the terms and conditions of which shall be mutually agreed
upon by National and Scorpion. The term of the consulting agreement was for one
year; and the term was extended for an additional period of one year, which
expires on September 11, 1998. Pursuant to the consulting agreement, Scorpion
receives an annual fee of $300,000 plus reimbursement for reasonable
out-of-pocket costs and expenses. Based upon information furnished to the
Company the Company understands that Mr. Brandolini was the sole shareholder, a
director and chief executive officer of Scorpion. Mr. McCarthy was a director
and president of Scorpion.
In October 1996, National entered into a bridge loan agreement with
Hydrodynamics Corporation ("Hydrodynamics"), pursuant to which National loaned
to Hydrodynamics $300,000. The bridge loan is evidenced by a Convertible
Promissory Note, in the principal amount of $300,000, which note bears interest
at the rate of 10% per annum and matured on October 28, 1997. Mr. Brandolini and
Mr. McCarthy, who were directors of National, were also directors, officers and
shareholders of Hydrodynamics. In December 1996, Hydrodynamics commenced
voluntary proceedings under Chapter 11 of the federal bankruptcy laws. In
February 1997, Arabella, S.A. purchased from National the Convertible Promissory
Note of Hydrodynamics issued to National for a purchase price of $300,000.
National assigned its rights under the Convertible
13
<PAGE> 17
Promissory Note and the Stock Purchase Warrant to Arabella, S.A. Mr. Brandolini
was also a director of Arabella S.A.
In March 1997 National entered into an employment agreement with Gregory S.
Saunders pursuant to which Mr. Saunders was engaged as National's Executive Vice
President, Treasurer and Chief Financial Officer. The agreement is an at-will
employment agreement. Mr. Saunders is paid a salary which equals $150,000 per
year and Mr. Saunders is eligible for an annual bonus.
In May 1997 National entered into an employment agreement (the "New
Employment Agreement") with Douglas H. Helm, effective as of May 26, 1997,
pursuant to which Mr. Helm was engaged as the Company's Executive Vice
President, Business Development and Strategic Marketing. The New Employment
Agreement is an at-will employment agreement. Mr. Helm shall be paid a salary
which equals $175,000 per year, a guaranteed bonus of $20,000 per year payable
in equal monthly amounts, and an annual bonus of up to $30,000, the exact amount
of which is determined with reference to certain performance benchmarks to be
agreed upon between the Company and Mr. Helm within 90 days from the
commencement of Mr. Helm's employment.
Mr. Helm's prior employment with the Company, which was rendered pursuant
to a certain Agreement for Employment, dated January 1, 1990 (the "Original
Employment Agreement"), was terminated pursuant to a certain Agreement of
Employment Termination and Release, dated July 2, 1995 (the "Termination
Agreement"). Pursuant to the Original Employment Agreement, as confirmed in the
Termination Agreement, Mr. Helm was entitled to receive certain commissions for
a three year period commencing January 1, 1995 (the "Commissions"). With respect
to the Commissions which would otherwise be earned and payable for the period
between May 1, 1997 and December 31, 1997, the New Employment Agreement modified
the provisions relating to the payment of such Commissions as follows:
a. To the extent the Commissions are earned in any given month, Mr.
Helm shall be paid $12,000 of the Commissions each month he is employed by
the Company. If the amount of the Commissions earned for a particular month
is greater than $12,000, then the Company shall hold such excess amount of
Commissions (the "Excess Commissions"). The cumulative amount of such
Excess Commissions which remains unpaid, from time to time are referred to
as "Cumulative Excess Commissions". The Company is not obligated to hold
the Cumulative Excess Commissions in a separate account, and is not
obligated to pay Mr. Helm any interest on the Cumulative Excess
Commissions.
b. If the amount of the Commissions earned for a particular month is
less than $12,000, then Mr. Helm will be paid (i) the amount of the
Commissions earned for such month, plus (ii) an amount equal to the
difference between the amount of Commissions earned for such month and
$12,000; provided however, the amount payable under (ii) above shall only
be paid to Mr. Helm from the Cumulative Excess Commissions in an amount up
to, but not in excess of, the total amount of the Cumulative Excess
Commissions, as it exists at such time. Any amounts so paid from the
Cumulative Excess Commissions shall reduce the amount of Cumulative Excess
Commissions.
c. If Mr. Helm's employment is terminated at any time, the Company
shall pay to Mr. Helm promptly the total amount, if any, of the Cumulative
Excess Commissions which exist at that time, and if Mr. Helm's employment
is terminated prior to December 31, 1997 then any Commissions earned after
the date of such termination shall be paid in the same manner as they would
have been paid before the execution of the New Employment Agreement.
d. If, at any time, while Mr. Helm is employed by the Company, when
there exists any Cumulative Excess Commissions, any subsidiary of National
makes an initial public offering of its common stock, then, by delivery of
a written notice to the Company prior to such initial public offering, Mr.
Helm may elect to accelerate the payment of all or a portion of amount of
the Cumulative Excess Commissions which exists at that time, which amounts
shall be paid by the Company to such subsidiary on Mr. Helm's behalf in
exchange for common stock of such subsidiary at a purchase price per share
which is equal to seventy-five percent (75%) of the initial public offering
price of the stock; provided, however, any such
14
<PAGE> 18
purchase of common stock shall be subject to the approval of the
underwriter engaged by the subsidiary with respect to any such initial
public offering.
On April 15, 1998, National and Mr. Helm entered into an amendment of the
New Employment Agreement pursuant to which National agreed to pay Mr. Helm the
then existing balance of Cumulative Excess Commissions, which amounted to
approximately $127,030. Such amendment also deleted the provisions set forth in
paragraph (d) above.
In June 1997 National invested $120,000 for interests as a member of a
limited liability company known as BevMed Holdings, L.L.C. ("BevMed"), a
Delaware limited liability company, in a private placement offering of $1.8
million. BevMed provides heart monitoring services and devices. The investment
was identified to the Company by Mr. Cole, a director and President of National
and its subsidiaries. Mr. Cole is an investor in BevMed as a member of the
limited liability company. Mr. Cole did not receive any compensation from the
Company or BevMed in connection with the private placement offering by BevMed.
In August 1997, National invested $100,000 for a limited partnership
interest in Pizza Partners, L.P., a Delaware limited partnership. Among other
things, such partnership was formed to acquire a number of Pizza Hut restaurants
in Northern California, Oregon and Nevada. The investment was identified and
recommended to the Company by Scorpion.
In August 1997, National purchased from John Gaulding, the former President
and Chief Executive Officer of the Company, his outstanding and vested option to
purchase 50,000 shares of stock granted to him pursuant to the Company's 1986
Stock Option Plan, as amended (the "Plan"), which option was modified pursuant
to that certain Second Amendment of John R. Gaulding At-Will Employment
Agreement, dated July 1996, for a purchase price of $75,000. The shares
represented by such option were returned to the Plan for further reissuance.
In November 1997, Mr. Cole assigned to the Company certain interests that
he had in an agreement by and among Salomon Brothers, Inc., Xinming Mu and Mr.
Cole, relating to the payment of certain fees in connection with an engagement
of Salomon Brothers, Inc. by New Industries Investment Co. LTD. To date no fees
have been paid to the Company and the Company believes any rights that Mr. Cole
transferred to it represent a contingent right for which payment is not
foreseeable.
On January 29, 1998, the Compensation Committee of the Board of Directors
of National, approved the granting of an option to purchase 37,500 shares of
common stock of National to Mr. Brandolini and an option to purchase 37,500
shares of common stock of National to Mr. McCarthy. Both options were granted
under the Plan. The options were granted to Messrs. Brandolini and McCarthy in
their capacities as consultants to the Company through Scorpion. The option
price is $8.31 per share, determined in accordance with the Plan. The options to
Messrs. Brandolini and McCarthy permit the exercise of the option as to 25% of
the shares for which the option is granted one year following the date of grant,
and cumulatively to the extent of 1/48 of the shares subject to the option for
each month which has expired thereafter. In accordance with the provisions of
the Plan, in the event that the status of Messrs. Brandolini and McCarthy as
consultants to the Company terminates, then shares subject to the option must be
exercised within 30 days of the date that the optionee ceases to be a consultant
to the Company, provided, however, that any such option can only be exercised to
the extent that such option was exercisable pursuant to the Plan as of the date
the optionee ceased to be a consultant.
Mr. Bunaes is a director of National and each of its subsidiaries and he
was elected as a director of National on July 11, 1997. Mr. Bunaes is the
Chairman of the Board and Chief Executive Officer of Constitution Reinsurance
Corporation, which is one of the reinsurance companies to whom the Company cedes
reinsurance. Constitution Reinsurance Corporation has been a reinsurer to the
Company for more than fifteen years. In 1996 and 1997, the Company paid to
Constitution Reinsurance Corporation reinsurance premiums of $34,000 and
$70,000, respectively. The Company expects that reinsurance premiums to be paid
to Constitution Reinsurance Corporation in 1998 will be approximately $76,000.
In July 1996, National entered into an employment agreement with Mark A.
Speizer pursuant to which Mr. Speizer was engaged as National's Chairman of the
Board and Chief Executive Officer. The term of such
15
<PAGE> 19
employment agreement is three years. Mr. Speizer served as National's Chairman
of the Board and Chief Executive Officer during 1997 pursuant to the terms of
such employment agreement. Mr. Speizer's employment agreement provides, among
other things, that during the term of the employment agreement the Board of
Directors may terminate Mr. Speizer's employment only upon written notice for
cause. Cause is defined as a conviction of a felony or a finding of liability
based on intentional tortuous conduct consisting of a breach of fiduciary duty
relating to his performance as an officer and/or director of the Company. Mr.
Speizer is paid a salary of $300,000 per year plus a bonus and certain expenses.
Mr. Speizer was granted an option to purchase 75,000 shares of Common Stock of
National, one-third of which options shall vest after one (1) year with the
balance vesting monthly over the next 24 months. The employment agreement
further provided for a waiver of the limitation of employment provisions
contained in the Severance Agreement and Release of Claims entered into by Mr.
Speizer and National on October 19, 1995 (the "Severance Agreement"). The
Severance Agreement was entered into in connection with the termination of Mr.
Speizer's employment in 1995. Pursuant to that agreement, Mr. Speizer was paid
approximately $885,000. Section 7.3 of the Severance Agreement provided that
"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. *** 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."
The employment agreement provided that the provisions of the Severance
Agreement limiting Mr. Speizer's right to accept future employment with National
are null and void and that the obligation to repay any amounts paid to Mr.
Speizer under the Severance Agreement are waived provided that Mr. Speizer
remains employed by National for the three year term of his employment
agreement. Section 8 of the employment agreement provides: "WAIVER OF LIMITATION
ON REEMPLOYMENT. The parties agree that Section 7.3 of the Severance Agreement
and Release of Claims entered into between Speizer and the Company on October
19, 1995, limiting Speizer's right to accept future employment with the Company
shall be null and void, and the Company waives any right it may have or may have
had under that provision to require Speizer to forfeit sums paid under the
Severance and Release Agreement provided that Speizer remains employed by the
Company during the Term of this Agreement. Notwithstanding the foregoing, in the
event of Speizer's death or disability, Speizer or his estate will not be
obligated to forfeit said sums."
In July 1996 National entered into an employment agreement with Bruce A.
Cole pursuant to which Mr. Cole was engaged as National's President. The term of
such employment agreement is three years. Mr. Cole served as President of
National during 1997 pursuant to the terms of such employment agreement. Mr.
Cole is paid a salary of $290,000 per year plus a bonus and certain expenses.
Mr. Cole was granted an option to purchase 75,000 shares of Common Stock of
National one-third of which options shall vest after one (1) year with the
balance vesting monthly over the next 24 months. Mr. Cole's employment agreement
provides, among other things, that during the term of the employment agreement
the Board of Directors may terminate Mr. Cole's employment only upon written
notice for cause. Cause is defined as a conviction of a felony or a finding of
liability based on intentional tortuous conduct consisting of a breach of
fiduciary duty relating to his performance as an officer and/or director of the
Company. In addition, Mr. Cole's employment agreement provides that if the
Company terminates Mr. Cole for reasons other than for cause, the Company shall
pay Mr. Cole, in a single payment payable upon termination, an amount equal to
(i) his unpaid base salary for the remainder of the three year term, (ii) the
undiscounted remaining costs to provide the benefits provided in the employment
agreement for the remainder of the three year term, such as the cost of Mr.
Cole's membership and participation in professional associations, a $1,000 per
month automobile allowance and premiums for certain insurance, including a $1
million life insurance policy, and (iii) any unpaid bonus from the previous year
plus any bonus payable pursuant to any bonus plan then in effect.
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BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
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 President, 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 1996 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, location,
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. Incentive bonuses were paid to certain executive officers of the
Company during 1997. See "Executive Compensation -- Summary Compensation Table".
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.
Tax Policy
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code, which provides a limit on the deductibility of compensation for
certain executive officers in excess of $1,000,000 per year. The Committee has
not yet developed a policy with respect to qualifying compensation for
deductibility. No Named Officer of the company had taxable compensation for 1997
in excess of the deduction limit. The Committee intends to continue to evaluate
the impact of this Internal Revenue Code provision.
1997 Chief Executive Officer Compensation
In July 1996, National entered into an employment agreement with Mark A.
Speizer pursuant to which Mr. Speizer was engaged as National's Chairman of the
Board and Chief Executive Officer (See, "Certain Transactions"). Pursuant to the
terms of such agreement Mr. Speizer received compensation in 1997 of
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<PAGE> 21
$300,000 plus a bonus of $325,000, paid in 1998 for work performed in 1997. As
additional compensation Mr. Speizer received $24,189 which represented the
payment of premiums on certain life insurance and an automobile allowance.
Because Mr. Speizer's compensation is determined pursuant to such employment
agreement and no modifications to such agreement have been made or proposed, the
Compensation Committee did not address the issue of Mr. Speizer's compensation
in 1997.
Members of the Compensation Committee
Larry Goodman, Chair
Saul B. Jodel
Bard E. Bunaes
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, 1993 and reinvestment of all dividends.)
CUMULATIVE SHAREHOLDER RETURN:
NATIONAL INSURANCE GROUP VS. INDICES FOR NASDAQ STOCK MARKET (U.S. COMPANIES)
AND THE NASDAQ FIRE, MARINE, AND CASUALTY INSURANCE GROUP
[GRAPH]
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OTHER MATTERS
The Company is not aware of any 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.
By Order of the Board of Directors,
Robert P. Barbarowicz, Secretary
Dated: April 28, 1998
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF NATIONAL INSURANCE GROUP
NATIONAL INSURANCE GROUP
1998 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 April 28, 1998, and hereby
appoints Mark A. Speizer and Robert P. Barbarowicz, 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 1998 Annual
Meeting of Shareholders of NATIONAL INSURANCE GROUP to be held on June 15,
1998, at 10:00 a.m., local time, at The Embassy Suites, 250 Gateway Boulevard,
South San Francisco, California 94080 and at any adjournments 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> 24
FOR WITHHOLD
all nominees AUTHORITY
listed below (except to vote for all
as indicated) nominees listed below
ELECTION OF DIRECTORS: [ ] [ ]
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: Bard E. Bunaes
Bruce A. Cole
Lawrence M. Goodman
Saul B. Jodel
Mark A. Speizer
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's Articles [ ] [ ] [ ]
of Incorporation.
FOR AGAINST ABSTAIN
3. Proposal to ratify the appointment of [ ] [ ] [ ]
Coopers & Lybrand L.L.P. as the
independent public accountants of the
company for the 1997 fiscal year.
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 or said attorneys-in-fact hereunder.
Signatures 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. If shares are held by joint
tenants or as community property, both should sign.)
FOLD AND DETACH HERE
