SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SMART CHOICE AUTOMOTIVE GROUP, INC.
(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)(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:
[ ] 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>
SMART CHOICE AUTOMOTIVE GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 24, 1998
TO THE SHAREHOLDERS OF SMART CHOICE AUTOMOTIVE GROUP, INC.
Notice is hereby given that the annual meeting of shareholders (the "Annual
Meeting") of Smart Choice Automotive Group, Inc., a Florida corporation (the
"Company"), will be held at the Company's corporate office located at 5200 South
Washington Avenue, Titusville, Florida 32780 on Wednesday, June 24, 1998 at 8:00
a.m. (EDT), to consider and vote upon the following proposals, all of which are
more completely set forth in the accompanying Proxy Statement:
1. To elect seven directors of the Company to serve as the Company's Board of
Directors. If the proposal to establish a classified Board of Directors
(Proposal No. 2 below) is approved, the seven directors will be elected to
a classified Board of Directors with three directors being elected for a
term of three years, two directors being elected for a term of two years,
and two directors being elected for a term of one year, and until their
successors are duly elected and qualified. If the proposal to establish a
classified Board of Directors is not approved, all seven directors will be
elected for one year terms expiring at the Company's 1999 Annual Meeting of
Shareholders.
2. To amend the Company's Bylaws to provide for the classification of the
Company's Board of Directors into three classes serving staggered terms, as
described above.
3. To approve the Company's 1998 Executive Incentive Compensation Plan as
described in the Proxy Statement.
4. To approve a specific stock option grant of 12,500 shares of Common Stock
to each of the Company's outside directors as their 1998 director
compensation.
5. To approve a specific stock option grant of 2,000 shares of Common Stock to
each of 24 of the Company's automobile sales managers to vest if sales
goals are met.
6. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on May 6, 1998 as
the record date (the "Record Date") for the determination of stockholders of the
Company entitled to notice of, and to vote at, the Annual Meeting. Only
stockholders of record at the close of business on the Record Date are entitled
to notice of, and to vote at, the Annual Meeting.
By order of the Board of Directors,
Gary R. Smith, President
Titusville, Florida
Date: May __, 1998
A PROXY CARD AND THE ANNUAL REPORT OF THE COMPANY FOR 1997 ARE ENCLOSED. IT
IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH DOES NOT
REQUIRE POSTAGE IN THE UNITED STATES.
<PAGE>
SMART CHOICE AUTOMOTIVE GROUP, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 24, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Smart Choice Automotive Group, Inc., a Florida
corporation (the "Company"), of proxies from the holders of the Company's Common
Stock, par value $.01 per share ("Common Stock"), for use at the annual meeting
of shareholders (the "Annual Meeting") of the Company to be held at 8:00 a.m.
(EDT), on Wednesday, June 24, 1998, or at any adjournment(s) or postponement(s)
thereof, pursuant to the foregoing Notice of Annual Meeting of Shareholders.
The approximate date that this Proxy Statement and the enclosed proxy card
are first being sent to shareholders is May __, 1998. Shareholders should review
the information provided herein in conjunction with the Company's 1997 Annual
Report, which accompanies this Proxy Statement. The Company's principal
executive offices are located at 5200 South Washington Avenue, Titusville,
Florida 32780, and its telephone number is (407) 269-9680.
PURPOSES OF THE MEETING
At the Annual Meeting the Company's shareholders will consider and vote
upon the following matters:
1. To elect seven directors of the Company to serve as the Company's Board of
Directors. If the proposal to establish a classified Board of Directors
(Proposal No. 2 below) is approved, the seven directors will be elected to
a classified Board of Directors with three directors being elected for a
term of three years, two directors being elected for a term of two years
and two directors being elected for a term of one year, and until their
successors are duly elected and qualified. If the proposal to establish a
classified Board of Directors is not approved, all seven directors will be
elected for one-year terms expiring at the Company's 1999 Annual Meeting of
Shareholders.
2. To amend the Company's Bylaws to provide for the classification of the
Company's directors into three classes serving staggered terms, as
described above.
3. To approve the Company's 1998 Executive Incentive Compensation Plan as
described in the Proxy Statement.
4. To approve a specific stock option grant of 12,500 shares of Common Stock
to each of the Company's outside directors as their 1998 director
compensation.
5. To approve a specific stock option grant of 2,000 shares of Common Stock to
each of 24 of the Company's automobile sales managers to vest if sales
goals are met.
6. To transact such other business as may properly come before the meeting.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth below)
will be voted FOR the election of the seven nominees for director; FOR approval
of the amendment of the Company's Bylaws to provide for the classification of
the Company's Board of Directors; FOR approval of the 1998 Plan; and for
approval of the grants of stock options to the Company's directors and sales
managers described above in Proposal 4. In the event a shareholder specifies a
different choice by means of the enclosed proxy, his or her shares will be voted
in accordance with the specification so made. The Board does not know of any
other matters that may be brought before the Annual Meeting nor does it foresee
or have reason to believe that proxy holders will have to vote for substitute or
alternate nominees. In the event that any other matter should come before the
Annual Meeting or any nominee is not available for election, the persons named
in the enclosed proxy will have discretionary authority to vote all proxies not
marked to the contrary with respect to such matters in accordance with their
best judgment.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors of the Company has fixed the close of business on
May 6, 1998 as the record date (the "Record Date") for the Annual Meeting. Only
holders of record of the outstanding shares of Common Stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. As of the close of business on the
Record Date, the Company had issued and outstanding 12,743,580 shares of Common
Stock. The presence, in person or by proxy, of the holders of a majority of the
issued and outstanding shares of Common Stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum to transact business.
The affirmative vote of the holders of shares of Common Stock having a
plurality of the voting power of the Company, in person or by proxy, is required
for Proposal 1, the election of seven directors. Shareholders do not have the
right to cumulate their votes for directors. The affirmative vote of a majority
of the votes cast is required to approve Proposals 2, 3, 4 and 5.
The Florida Business Corporation Act (the "FBCA") provides matters are
approved if the votes cast in favor of the action exceed the votes cast against
the action (unless the matter is one for which the FBCA, or other applicable
laws, or the Company's Articles of Incorporation require a greater vote).
Therefore, under the FBCA, abstentions and broker non-votes have no legal
effect.
A list of shareholders entitled to vote at the Annual Meeting will be
available at the Company's offices at 5200 South Washington Avenue, Titusville,
Florida 32780 for a period of ten days prior to the Annual Meeting and at the
Annual Meeting itself for examination by any shareholder.
A SHAREHOLDER WHO SUBMITS A PROXY ON THE ACCOMPANYING PROXY CARD HAS THE
POWER TO REVOKE IT AT ANY TIME PRIOR TO ITS USE BY DELIVERING A WRITTEN NOTICE
TO THE SECRETARY OF THE COMPANY AT ITS OFFICES, BY EXECUTING A LATER-DATED PROXY
OR BY ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON. UNLESS AUTHORITY IS
WITHHELD, PROXIES THAT ARE PROPERLY EXECUTED WILL BE VOTED FOR THE PURPOSES SET
FORTH THEREON.
<PAGE>
MANAGEMENT
The following table sets forth the names, ages, and positions with the
Company of all of the executive officers and directors of the Company. Also set
forth below is information as to the principal occupation and business
experience for each person in the table.
<TABLE>
<CAPTION>
Name Age Position and Office
---- --- -------------------
<S> <C> <C>
Robert J. Abrahams 71 Chairman of the Board and director
Gary R. Smith 45 President, Chief Executive Officer, and director
Ronald W. Anderson 50 Executive Vice President and Chief Operating Officer
Joseph E. Mohr 32 Executive Vice President and Chief Financial Officer
Joseph A. Alvarez 42 Executive Vice President
Robert J. Downing 40 Senior Vice President and Chief Legal Officer
David E. Bumgardner 60 Director
Jeffrey D. Congdon 54 Director
John W. Holden, Jr. 57 Director
Craig Macnab 41 Director
Gerald C. Parker 55 Director
Donald A. Wojnowski, Jr. 37 Director
Joseph Yossifon 50 Director
</TABLE>
Robert J. Abrahams has been Chairman of the Board and a director of the
Company since 1997. For the past ten years, Mr. Abrahams has been self employed
as an independent consultant in the financial services industry. Mr. Abrahams
also serves on the Boards of Directors of two public companies, HMI Industries,
Inc. and Ugly Duckling Corp., and six private companies, which are independent
consumer finance companies. Prior to that time, Mr. Abrahams spent 28 years with
Heller Financial Corporation ("Heller"), an international financial services
company, in charge of its consumer finance activities. Mr. Abrahams held various
titles at Heller, including Executive Vice President from 1985 to 1988. Mr.
Abrahams serves as a member of the Executive Committee and Compensation
Committee of the Board of Directors of the Company.
Gary R. Smith has been the President, Chief Executive Officer, and a
director of the Company since 1997. For the past six years, since 1990, Mr.
Smith has been the President, Chief Executive Officer, and through 1997 owner of
Florida Finance Group, Inc. ("FFG"), an automobile finance company. Mr. Smith
has also served since 1981 as the President, Chief Executive Officer, and
through 1997 owner of Suncoast Auto Brokers, Inc. ("SAB"), an automobile
dealership, and Suncoast Auto Brokers Enterprises, Inc., a used car dealership
("SABE"). On January 28, 1997, the Company acquired FFG, SAB and SABE. Mr. Smith
served as President of the Florida Independent Automobile Dealers Association in
1993 and currently serves as a member of the association's Board of Directors.
Mr. Smith also serves as a member of the Board of Directors of the National
Independent Automobile Dealers Association. Mr. Smith is a member of the
Executive Committee of the Board of Directors of the Company.
Ronald W. Anderson joined the Company as Executive Vice President and Chief
Operating Officer in 1997. From June 1996 to March 1997 he was Vice President of
Marketing for North American Mortgage Insurance Group. From 1989 through June
1996, he was Executive Vice President for operations of the Riverside Group, a
diversified holding company, the business of which included real estate,
insurance, and retail building supplies.
Joseph E. Mohr joined the Company as its Senior Vice President and Chief
Financial Officer in 1997 and was promoted to Executive Vice President in 1998.
From 1994 through 1997, Mr. Mohr was a management consultant with Gemini
Consulting, and from 1991 through 1994 he was a Senior Business Operations
Specialist with Heller Financial Corporation. Mr. Mohr has practiced accounting
with Arthur Andersen and has a MBA degree from the University of Chicago.
Joseph A. Alvarez has served as Executive Vice President of the Company
since 1997, in which capacity he is in charge of the automobile sales activities
of the Company. Prior to joining the Company, Mr. Alvarez was general manager of
the following factory franchised new car dealerships: Lokey Automobile Group
(1996-1997); Carlisle Motors (1994-1996); and Dimmitt Cadillac (1988-1994).
Robert J. Downing joined the Company as Senior Vice President and Chief
Legal Officer in 1998. From 1990 to present, he has been the principal
shareholder in Downing & Associates, a law firm in Miami, Florida and New
Mexico. During that time, Mr. Downing also acted as of counsel to Cohen & Cohen,
P.A. a Santa Fe, New Mexico law firm (1994 through 1997) and as of counsel to
Montgomery & Andrews, P.A., an Albuquerque, New Mexico law firm (1991 through
1992).
David E. Bumgardner has been a director of the Company since 1997. For the
past fifteen years, Mr. Bumgardner has been the President and through 1997 owner
of Miracle Mile Motors, a used car dealership, and Palm Beach Finance and
Mortgage Company, an automobile finance company, both of which were purchased by
the Company in 1997. Mr. Bumgardner is presently a private investor. He serves
as a member of the Audit Committee of the Board of Directors.
Jeffrey D. Congdon was appointed as a director of the Company in 1998. Mr.
Congdon has been Vice Chairman of the Board of Directors of Budget Group, Inc.
since January 1991. From January 1991 to November 1997 he also served as the
Budget Group, Inc.'s Chief Financial Officer. Since December 1990, he has been
Secretary, Treasurer and a director of Tranex Credit Corporation. From 1980 to
1989, he was an executive officer and principal stockholder of corporations that
owned and operated 30 Budget franchises that were sold to Budget Rent a Car
Corporation in 1989. From 1982 to 1996, Mr. Congdon owned and operated retail
new and/or used vehicle sales operations in Indianapolis, Indiana.
John W. Holden, Jr. was appointed as a director of the Company in 1998. Mr.
Holden has been President and Chief Executive Officer of Pioneer Credit Company,
a consumer finance company, since 1974.
Craig Macnab was appointed as a director of the Company in 1997. Since
1997 Mr. Macnab has been President of Tandem Capital, which provides growth
capital to small, rapidly growing public companies with market capitalization up
to $100 million. Mr. Macnab also serves on the Board of Directors of five public
companies, Clinicor, Inc., Teltronics, Inc., Environmental Tectonics
Corporation, JDN Realty Corp., and Digital Transmission Systems, Inc. From 1993
until 1996 he was a partner in J.C. Bradford, a securities firm. Mr. Macnab also
serves on the Compensation Committee and Audit Committee of the Board. Tandem
Capital is an affiliate of Sirrom Capital Corporation which holds $7.5 million
in convertible notes of the Company and other securities exercisable for the
Company's Common Stock.
Gerald C. Parker has been a director of the Company since 1997. For the
past ten years, Mr. Parker has been involved in the structuring and funding of
start-up companies. At present, Mr. Parker serves as President of Investment
Management of America, Inc., a merger and acquisition firm. Mr. Parker also
serves as a director of LRG Restaurant Group, Inc., a publicly traded company.
Mr. Parker is a member of the Compensation Committee of the Board of Directors.
Donald J. Wojnowski, Jr. has been a director of the Company since 1996.
Since 1992 he has been a stockbroker and registered principal of Empire
Financial Group, Inc., an NASD registered broker-dealer. Mr. Wojnowski serves as
a member of the Executive Committee of the Board of Directors of the Company.
Joseph Yossifon has been a director of the Company since 1996 and since
1985 has been a private investor. From 1976 to 1985 he was the president of
A-1-A Discounts, an appliance retailer located in Orlando, Florida. Mr. Yossifon
serves as a member of the Compensation Committee of the Board of Directors of
the Company.
Committees and Meetings of the Board of Directors
During 1997, the Board of Directors held 13 meetings. During 1997, each
director attended at least 75% of the aggregate of the meetings of the Board of
Directors and of the committees on which such director served as a member except
for David Bumgardner. The Company's Board of Directors has a standing
Compensation Committee and Audit Committee. The Compensation Committee, which
held two meetings in 1997 makes recommendations to the Board of Directors
regarding salaries, incentives and other forms of compensation for executive
officers, directors, and employees of the Company. The Audit Committee, which
held one meeting in 1997, reviews the Company's accounting practices, internal
accounting controls, and financial results, and oversees the engagement of the
Company's independent auditors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's Common Stock, to file with the SEC and NASDAQ initial reports of
beneficial ownership and reports of changes of beneficial ownership of Common
Stock of the Company. Such persons are also required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. The
Company believes, based solely on a review of the copies of such forms furnished
to the Company, that during 1997 such individuals complied with all Section
16(a) filing requirements applicable to them, (i) except that Ronald W. Anderson
and Joseph E. Mohr did not report on a timely basis the granting to each of them
of options to purchase Common Stock in December 1997; and (ii) and Gerald C.
Parker did not report on a timely basis dispositions of Common Stock in March,
April, May and June of 1997. To the knowledge of the Company appropriate reports
of such transactions have been filed with the SEC.
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during the
1997, 1996, and 1995 fiscal years of those persons who were, at December 31,
1997: (i) the Chief Executive Officer of the Company; (ii) the Company's four
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at December 31, 1997; and (iii)
those former executive officers of the Company who would have been included
under (ii) but for the fact that they were not executive officers of the Company
at December 31, 1997 (the "Named Executive Officers"). The annual salary
information in the table below is for 1997, except for the information for Ralph
H. Eckler, which is for 1997, 1996 and 1995. None of the Named Executive
Officers served for all of 1997, and therefore salary amounts for 1997 do not
reflect salary for a full year.
<TABLE>
<CAPTION>
Long Term
Compensation-
Securities
Name And Annual Compensation Underlying
Principal Position Salary($) Bonus ($) Options (1)
- ------------------ -------- -------- ----------
<S> <C> <C> <C>
Robert J. Abrahams $110,819 -- 222,500
Chairman of the Board
Gary R. Smith $217,851 -- 302,500
President and Chief Executive Officer
Ronald W. Anderson $115,328 -- 87,025
Executive Vice President and Chief
Operating Officer
Joseph E. Mohr $37,073 -- 77,025
Executive Vice President and Chief
Financial Officer
Joseph A. Alvarez $113,010 50,000(4) 105,000
Executive Vice President
Ralph H. Eckler (2) 1997 - $101,657 -- 310,000
Former President and Chief 1996 - $100,000
Executive Officer 1995 - $105,776
Fred E. Whaley (3) $153,263 -- 500,000
Former Executive Vice President and
Chief Financial Officer
</TABLE>
- ------------------
(1) The amounts shown in this column represent outstanding stock options
granted as compensation. See "Executive Compensation-Stock Option Plans."
(2) Mr. Eckler was also paid $100,000 in 1997 in connection with the
termination of his employment.
(3) The Company has asserted in litigation with Mr. Whaley that these grants
have been rescinded.
(4) Mr. Alvarez's employment agreement provides for a bonus payment at the end
of each fiscal year of $50,000, which the Company paid in 1998.
Option Grants to Executive Officers in Last Fiscal Year
- -------------------------------------------------------
Various stock option plans and arrangements are in effect that provide
options to purchase Common Stock as compensation to executive officers,
directors, and employees of the Company. See "Stock Option Plans." The following
table sets forth information regarding stock options granted during 1997 to the
Named Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of
Securities Total Options Market Stock Price
Underlying Granted to Exercise Price at Appreciation for
Options Employees in Price Per Date of Expiration Option Term (1)
------- -----------------
Granted (#) Fiscal Year Share ($/Sh) Grant(2) Date 5%($) 10%
----------- ----------- ------------ -------- --------- -------------------- ------
($)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Abrahams 210,000 10.8% $1.00 $4.94 12/01/2002 $862,077 $1,142,828
12,500 .6% $2.00 $4.94 3/05/2002 38,814 55,526
Gary R. Smith 100,000 5.2% $4.50 7/29/2002 60,513 194,204
Ronald W. Anderson 30,000 1.5% $4.88 3/24/2002 6,754 46,861
25,000 1.3% $4.50 7/29/2002 15,128 48,551
12,025 .6% $2.00 $4.00 12/31/2002 37,339 53,416
Joseph E. Mohr 35,000 1.8% $2.00 $6.25 9/19/2002 108,679 155,471
30,000 1.5% $6.25 9/19/2002 -- --
12,025 .6% $2.00 $4.00 12/31/2002 37,339 53,416
Joseph A. Alvarez 80,000 4.1% $2.00 $6.00 4/11/2002 248,410 355,363
25,000 1.3% $4.50 7/29/2002 15,128 48,551
Ralph H. Eckler 100,000 5.1% $6.50 9/30/2002 -- --
Fred E. Whaley (5) 200,000 10.3% $2.00 $4.88 3/24/2002 621,025 888,408
200,000 10.3% $4.88 3/24/2002 45,025 312,408
50,000 2.6% (3) 3/24/2002 (4) (4)
50,000 2.6% (3) 3/24/2002 (4) (4)
- -----------------------
</TABLE>
(1) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions. The amounts reflected in this table will not necessarily be
achieved.
(2) If greater than exercise price.
(3) At public offering price if a public offering is completed.
(4) Not capable of determination.
(5) The Company has asserted in litigation with Mr. Whaley that these grants
have been rescinded.
Aggregate Option Exercises and December 31, 1997 Option Values
- --------------------------------------------------------------
The following table sets forth information concerning stock options
exercised by the Named Executive Officers in 1997 and the value of unexercised
stock options at December 31, 1997 for the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money Options at
Acquired on Value Options at December 31, 1997 December 31, 1997
Name Exercise (#) Realized (#) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert J. Abrahams -- -- 210,000 / 0 420,000 / 0
12,500 / 0 25,000 / 0
Gary R. Smith 200,000 $800,000 100,000 / 0 0 / 0
Ronald W. Anderson 20,000 $ 80,000 30,000 / 0 0 / 0
25,000 / 0 0 / 0
12,025 /0 24,050 / 0
Joseph E. Mohr -- -- 35,000 / 0 70,000 / 0
30,000 / 0 0 / 0
12,025 / 0 0 / 0
Joseph A. Alvarez -- -- 80,000 / 0 160,000 / 0
25,000 / 0 0 / 0
Ralph H. Eckler -- -- 250,000 / 0 --
35,000 / 0 24,500 / 0
20,000 / 0 40,000 / 0
Fred E. Whaley (1) -- -- 200,000 / 0 400,000 / 0
200,000 / 0 0 / 0
0 / 50,000 0 / 0
0 / 50,000 0 / 0
- -----------------
</TABLE>
(1) The Company has asserted in litigation with Mr. Whaley that these grants
have been rescinded.
Stock Option Plans
- ------------------
Options Granted in 1997. The Company, then known as Eckler Industries, Inc.
(for the time period prior to the Merger, "Eckler") and engaged in the
manufacture and sale of Corvette parts and accessories, was established in its
current form in January of 1997 by a merger (the "Merger") of Eckler with Smart
Choice Holdings, Inc. ("SCHI") and various companies involved in the sale and
financing of new and used cars. In 1997, stock options were granted by the
Company to executive officers, directors and employees of the Company that have
generally had five year terms, vested from immediately to over three years, and
were exercisable at the market price of the Common Stock on the date of grant.
In addition, four trusts (the "Trusts") were established in January 1997 in
connection with the Merger by Gerald C. Parker and Thomas E. Conlan with an
aggregate of 1,420,000 shares of Common Stock for the purpose of granting stock
options as compensation to executive officers and employees of the Company. Mr.
Parker is a director and principal shareholder of the Company; Mr. Conlan is a
principal shareholder of and consultant to the Company; and both of them were
founders of SCHI. Gary R. Smith, President and Chief Executive Officer of the
Company, and Gerald C. Parker are the trustees of the Trusts and determine the
recipients of and the terms of options granted by the Trusts. Options granted by
the Trusts have generally had five year terms, vested from immediately to over
three years, and were exercisable at below the market price of the Common Stock
on the date of grant. At December 31, 1997 options granted by the Trusts were
outstanding to purchase a total of 1,192,500 shares of Common Stock.
Eckler Plans. In 1995, Eckler established a Combined Qualified and
Non-Qualified Employee Stock Option Plan (the "Combined Plan") and a
Non-Qualified Stock Option Plan (the "Non-Qualified Plan") (collectively the
"Eckler Plans"). Under the Combined Plan, "incentive options" under Section 422
of the Internal Revenue Code may be granted. The Board of Directors of the
Company has the power to grant options under the Eckler Plans. Since the Merger,
the Company has not granted any options under either Eckler Plan, and no current
executive officer of the Company holds options from either Eckler Plan.
At December 31, 1997 options to purchase 140,000 shares and 35,000 shares
of Common Stock, respectively, were outstanding under the Combined Plan and the
Non-Qualified Plan. A total of 475,000 shares and 35,000 shares of Common Stock,
respectively, may be granted under the Combined Plan and the Non-Qualified Plan.
Retirement and Savings Plan
- ---------------------------
The Company has a Retirement and Savings Plan (the "401(k) Plan") for the
benefit of eligible employees. Pursuant to the 401(k) Plan, employees may elect
to contribute a portion of their salaries to the 401(k) Plan subject to certain
limits. The 401(k) Plan permits, but does not require, additional matching
contributions and profit sharing contributions to the 401(k) Plan by the Company
on behalf of all eligible participants of the Plan. The Company's contributions
vest over seven years. During 1997 the Company did not make any contribution to
the 401(k) Plan for its employees.
Employment Agreements; Consulting Agreement
- -------------------------------------------
In 1997, the Company entered into employment agreements with Messrs.
Abrahams, Smith, Alvarez, Anderson and Mohr providing for initial base salaries
of $120,000, $250,000, $150,000, $150,000 and $150,000, respectively. Mr.
Alvarez's employment agreement provides for a bonus payment at the end of each
fiscal year of $50,000. The initial term of Mr. Smith's contract is five years
and the others are for three. Each of the employment contracts is renewable,
unless notice of termination is given prior to the renewal period. The salary
for each executive is subject to annual review, and each executive is to be
provided an automobile allowance ranging from $500 to $700, monthly. In
addition, the employment contracts provide for continuation of the executive's
base salary and benefits for the remainder of the contract period if the
employee is terminated without cause prior to the expiration of the contract.
The contracts also contain confidentiality and non-compete covenants.
Under an agreement between the Company and Ralph Eckler dated September 30,
1997, Mr. Eckler's employment agreement was terminated, and he was retained as a
consultant for five years for $20,000 per year, all of which was paid in advance
in October 1997. Under the agreement, Mr. Eckler was granted a five year option
to purchase 100,000 shares of Common Stock exercisable at $6.50 per share.
Further, the exercise price of a previously granted option for 50,000 shares was
changed to $6.50 per share from $10.00 per share. The agreement also provides
Mr. Eckler with certain registration rights for the above-referenced options in
addition to 200,000 shares he beneficially owns. The agreement also provides Mr.
Eckler with health insurance, the transfer of his Company vehicle to him and a
right of first refusal on the sale of the Company's Corvette parts business.
Director Compensation
- ---------------------
The Company compensates its directors who are not employees by granting
them options to purchase shares of the Company's Common Stock. In 1997, the
non-employee directors were each granted five-year options for 12,500 shares of
Common Stock exercisable at $5.50 per share. The non-employee directors are
reimbursed their travel expenses to attend meetings.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
During 1997 the Company's Board of Directors with the advice of the
Compensation Committee determined compensation matters during 1997. No executive
officer of the Company served as a member of the Compensation Committee or Board
of Directors of another entity which had an executive officer who served on the
Company's Board of Directors or Compensation Committee during the fiscal year
ended December 31, 1997.
Compensation Committee Report on Executive Compensation
- -------------------------------------------------------
The Company's Compensation Committee reviews and makes recommendations to
the Company's Board of Directors regarding the Company's executive compensation
program. In that connection the Compensation Committee reviews each of the
elements of the executive compensation program of the Company and periodically
assesses the effectiveness and competitiveness of the program in total. The
Compensation Committee has furnished the following report on executive
compensation.
The Company's compensation program for executive officers is primarily
comprised of base salary, bonus, and short and long-term incentives in the form
of stock option grants. Executives also participate in various other benefit
plans, including medical and 401(k) plans, versions of which are generally
available to all employees of the Company.
The Company's philosophy is to pay base salaries to executives at levels
that enable the Company to attract, motivate and retain highly qualified
executives. In addition, the Company gives bonuses as a reward for performance
based upon individual performance and overall Company financial results. Stock
option grants are intended to result in no reward if the stock price does not
appreciate, but may provide substantial reward to executives as stockholders
benefit from stock price appreciation.
Base Salary and Bonuses. Each Company executive receives a base salary,
which when aggregated with his bonus, is intended to be competitive with
similarly situated executives in the Company's industry. The Company targets
based pay at the level required to attract and retain highly qualified
executives. In determining salaries, individual experience and performance and
specific needs particular to the Company are taken into account.
In addition to base salary, executives are eligible to receive an annual
bonus. The Board of Directors has approved the Company's Executive Incentive
Bonus Plan which would provide for cash bonuses to executives based on the
Company's and the executive's 1998 performance. No bonuses were paid to
executive officers in 1997. The amount of bonus and the performance criteria
vary with the position and role of the executive within the Company, although
bonuses are significantly tied to the Company's financial performance.
Stock, Options and Other Awards. The Company believes that it is important
for executives to have an equity stake in the Company and, toward this end, has
made option grants to key executives from time to time. Option grants have taken
into account the level of awards granted to executives at companies in the
Company's industry, the awards granted to other executives within the Company
and the individual officer's specific role at the Company. At the 1998 Annual
Meeting of Shareholders, the shareholders will consider a proposal to approve
the Company's 1998 Executive Incentive Compensation Plan (the "1998 Plan") which
includes, among other things, provisions for grants of stock, stock options,
stock appreciation rights, restricted and deferred stock, bonus stock, dividend
equivalents, awards in lieu of cash obligations, and other stock-based awards,
to executive officers.
A plan committee comprised of directors who are not employees of the
Company administer the 1998 plan. Reference is made to the detailed information
concerning the 1998 Plan elsewhere herein.
Chief Executive Officer Compensation. Gary R. Smith was the owner and
president of the used car dealerships and finance company that were acquired by
the Company in the Eckler/Smart Choice merger. The terms of Mr. Smith's
employment were primarily negotiated with him in connection with the merger
transaction. Mr. Smith's five year employment agreement with the Company
provides for a salary of $250,000 per year with no increase in salary level. Mr.
Smith did not receive a bonus in 1997. The Compensation Committee believes that
Mr. Smith's salary is at or below the compensation paid to Chief Executive
Officers of comparable, publicly-held companies.
Robert J. Abrahams
Craig Macnab
Gerald C. Parker
Joseph Yossifon
Stock Performance Graph
- -----------------------
Set forth below is a line graph comparing the percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return of the Nasdaq Composite Index and the Company's peer
group index. The Company's peer group consists of Ugly Duckling Corporation and
Lithia Motors, Inc. The stock performance graph assumes $100 was invested on
January 29, 1997 (the first day of trading of the Company's Common Stock
following the Eckler Industries, Inc./Smart Choice Holdings, Inc. merger) and
measures the return thereon at various points based on the closing price of the
Common Stock on the dates indicated.
Smart Choice Peer NASDAQ
Measurement Period Automotive Group, Inc. Group Composite
------------------ ---------------------- ----- ---------
1/29/97 100 100 100
3/31/97 89 86 90
6/30/97 79 75 106
9/30/97 102 83 124
12/31/97 68 66 116
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the number of
shares of Common Stock beneficially owned by (i) each director of the Company,
(ii) the Named Executive Officers, (iii) all directors and executive officers of
the Company as a group, and (iv) each shareholder known by the Company to be a
beneficial owner of more than 5% of the Company's voting securities as of April
27, 1998. The Company believes that except as otherwise noted, each person named
has sole investment and voting power with respect to the shares of Common Stock
indicated as beneficially owned by such person.
<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Name of Beneficial Owner Owned(1)(2) of Class(2)
------------------------ ----------- -----------
<S> <C> <C>
Executive Officers and Directors
- --------------------------------
Robert J. Abrahams (3) 252,500 2.0%
Gary R. Smith (4) 588,814 12.6%
Ronald W. Anderson (5) 87,025 *
Joseph E. Mohr (6) 77,025 *
Joseph A. Alvarez (7) 105,000 *
Robert J. Downing ( 8 ) 70,000 *
David E. Bumgardner (9) 314,214 2.5%
Jeffrey Congdon (10) 32,500 *
John W. Holden, Jr. (21) 10,000 *
Craig Macnab (11) 42,000 *
Gerald C. Parker (12) 1,075,733 %
Donald A. Wojnowski, Jr. (13) 72,500 *
Joseph Yossifon (14) 65,000 *
All executive officers and directors
as a group (12 persons) 3,973,144 31.18%
Former Executive Officers
- -------------------------
Ralph H. Eckler (15) 1,693,000 12.8%
Fred E. Whaley (16) 415,000 3.2%
Certain Shareholders (17)
Thomas E. Conlan (18) 1,420,489 10.9%
Sirrom Capital Corporation (19) 1,787,012 12.3%
Gary R. Smith and Gerald C. Parker, 1,180,833 9.3%
Trustees (20)
</TABLE>
- -----------------------
*Less than 1%.
(1) For purposes of calculating beneficial ownership percentages, 12,743,581
shares of Common Stock were deemed outstanding.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant, or right. Shares of Common Stock subject to
options, warrants, or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage of the
person holding such options, warrants, or rights but are not deemed
outstanding for computing the percentage of any other person.
(3) The shares shown represent (i) 30,000 shares owned directly; and (ii)
222,500 shares underlying presently exercisable rights to acquire Common
Stock.
(4) The shares shown represent (i) 488,814 shares owned directly; and (ii)
100,000 shares underlying presently exercisable rights to acquire Common
Stock. See Note (20) for information as to Mr. Smith's beneficial ownership
of shares of Common Stock held by trusts as to which Mr. Smith and Gerald
C. Parker are co-trustees.
(5) The shares shown represent (i) 20,000 shares owned directly; and (ii)
67,025 shares underlying presently exercisable rights to acquire Common
Stock.
(6) The shares shown underlie presently exercisable rights to acquire Common
Stock.
(7) The shares shown underlie presently exercisable rights to acquire Common
Stock.
(8) The shares shown underlie presently exercisable rights to acquire Common
Stock.
(9) The shares shown represent (i) 289,214 shares owned directly; and (ii)
25,000 shares underlying presently exercisable rights to acquire Common
Stock.
(10) The shares shown represent (i) 20,000 shares owned directly; and (ii)
12,500 shares underlying presently exercisable rights to acquire Common
Stock.
(11) The shares shown represent (i) 17,000 shares owned directly; and (ii)
25,000 shares underlying presently exercisable rights to acquire Common
Stock. Mr. Macnab is an affiliate of Sirrom Capital Corporation, which is a
creditor and principal shareholder of the Company.
(12) The shares shown represent (i) 770,733 shares owned directly; (ii) 100,000
shares underlying presently exercisable rights to acquire Common Stock;
(iii) 200,000 shares underlying a presently exercisable option which Mr.
Parker holds jointly with Thomas E. Conlan and Ralph H. Eckler; and (iv)
5,000 shares held in a trust of which Mr. Parker is a co-trustee with
Thomas E. Conlan. See Note (20) for information as to Mr. Parker's
beneficial ownership of shares of Common Stock held by trusts as to which
Mr. Parker and Gary R. Smith are co-trustees.
(13) The shares shown represent (i) 27,500 shares owned directly; and (ii)
45,000 shares underlying presently exercisable rights to acquire Common
Stock.
(14) The shares shown represent (i) 20,000 shares owned directly; and (ii)
45,000 shares underlying presently exercisable rights to acquire Common
Stock.
(15) The shares shown represent (i) 1,183,000 shares owned directly, (ii)
310,000 shares underlying presently exercisable rights to acquire Common
Stock; and (iii) 200,000 shares underlying a presently exercisable option
which Mr. Eckler holds jointly with Thomas E. Conlan and Gerald C. Parker.
(16) The shares shown represent (i) 15,000 shares owned directly; and (ii)
400,000 shares underlying presently exercisable options to acquire Common
Stock. The Company has asserted in litigation with Mr. Whaley that these
option grants have been rescinded.
(17) Each of these shareholders, together with Gary R. Smith, Ralph H. Eckler,
and Gerald C. Parker, beneficially own 5% or more of the outstanding Common
Stock.
(18) The shares shown represent (i) 1,140,489 shares owned directly; (ii)
200,000 shares underlying a presently exercisable option which Mr. Conlan
holds jointly with Gerald C. Parker and Ralph H. Eckler; (iii) 75,000
shares underlying presently exercisable rights to acquire Common Stock; and
(iv) 5,000 shares held in a trust of which Mr. Conlan is a co-trustee with
Gerald C. Parker. Thomas E. Conlan's address is 303 E. 7th Avenue,
Windemere, Florida 34786.
(19) These shares shown represent shares underlying presently exercisable rights
to acquire Common Stock. The address of Sirrom Capital Corporation is 500
Church Street, Suite 200, Nashville, Tennessee 37219.
(20) Gerald C. Parker and Gary R. Smith are co-trustees of four trusts which
hold these shares and share voting and investment power as to these shares.
(21) The shares shown are owned directly.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 28, 1997, the Company acquired all the issued and outstanding
common stock of Smart Choice Holdings, Inc. ("SCHI") through a merger of SCHI
into an acquisition subsidiary of the Company (the "Merger"), in which 6.5
million shares of the Common Stock were issued to shareholders of SCHI, on a one
share for one share exchange ratio. SCHI was, at the time of the Merger, a
holding company that had as its primary assets, a used car dealership with two
locations, an automobile finance company, two dealership consulting businesses,
and the rights to acquire other new and used car dealerships and their related
finance companies. Gary R. Smith, President, Chief Executive Officer, and a
director of the Company, and a beneficial owner of more than 5% of the
outstanding Common Stock of the Company (a "principal shareholder"), Gerald C.
Parker, a director and principal shareholder of the Company, Ralph H. Eckler, a
principal shareholder of the Company and in 1997, an executive officer and a
director of the Company, and Thomas E. Conlan, a principal shareholder of the
Company, each were stockholders, officers and/or directors of SCHI prior to the
Merger. Information regarding the interests of Messrs. Smith, Parker, Conlan and
Eckler, in the Merger and related transactions is set forth below.
Thomas E. Conlan was a founder, principal stockholder, officer and director
of SCHI. In the Merger, Mr. Conlan received 1,177,389 shares of Company Common
Stock in exchange for his shares of SCHI stock. In addition, Mr. Conlan is the
beneficiary of two trusts, the Conlan Smart Choice Management Trust and the
Conlan Smart Choice Finance Trust (the "Conlan Trusts"). In the Merger, these
trusts received an additional 445,000 and 265,000 shares of Company Common
Stock, respectively, in exchange for the SCHI stock held thereby. Messrs. Smith
and Parker are the trustees of the Conlan Trusts; however, Mr. Conlan has the
sole right to receive any proceeds of the sale of the Company Common Stock held
by the Conlan Trusts. The Conlan Trusts may, at the option of the trustees and
based upon the first to occur of the satisfaction of the purposes of the trusts
or February 15, 2007, cause shares of Company Common Stock held by the trusts to
be purchased by the Company. In the case of the Finance Trust, the purchase
price per share is generally $2.00. In the case of the Management Trust, the
purchase price will be an average of the market price for the Common Stock for
the 20 days immediately preceding the date of the trustees' notice regarding
such purchase by the Company.
Gerald C. Parker was a founder and director of SCHI. In the Merger, Mr.
Parker received 1,177,390 shares of Company Common Stock in exchange for his
shares of SCHI stock. In addition, Mr. Parker is the beneficiary of two trusts,
the Parker Smart Choice Management Trust and the Parker Smart Choice Finance
Trust (the "Parker Trusts"). In the Merger, these trusts received 445,000 and
265,000 shares of Company Common Stock, respectively, in exchange for the SCHI
stock held thereby. Messrs. Smith and Parker are the trustees of the Parker
Trusts; however, Mr. Parker has the sole right to receive any proceeds of the
sale of the Company Common Stock held by the Parker Trusts. The Parker Trusts
may, at the option of the trustees and based upon whether the first to occur of
the satisfaction of the purposes of the trusts or February 15, 2007, cause
shares of Company Common Stock held by such trusts to be purchased by the
Company. In the case of the Finance Trust, the purchase price per share is
generally $2.00. In the case of the Management Trust, the purchase price will be
an average of the market price for the Common Stock for the 20 days immediately
preceding the date of the trustees' notice regarding such purchase by the
Company.
Ralph H. Eckler was a director and the President and Chief Executive
Officer of the Company prior to the Merger. At the time of the Merger Mr. Eckler
owned 160,000 shares of SCHI stock, in exchange for which he received 160,000
shares of Company Common Stock. Additionally, and as part of the terms and
conditions of the Merger agreement, Mr. Eckler agreed to surrender his rights
under his then current employment agreement and the right to receive up to
670,000 options to purchase Company Common Stock in exchange for a new
employment agreement, options to purchase 150,000 shares of Company Common Stock
and certain registration rights with respect to 200,000 shares of Company Common
Stock. The options are exercisable at $8.75 per share for 100,000 shares and
$6.50 per share for 50,000 shares.
Gary R. Smith was the former President, a director and the sole shareholder
of Florida Finance Group, Inc. ("FFG"), Suncoast Auto Brokers, Inc. ("SAB") and
Suncoast Auto Brokers Enterprises, Inc. ("SABE") (collectively the "Smith
Companies"). Mr. Smith sold substantially all the assets of SAB and SABE and all
the issued and outstanding stock of FFG to SCHI prior to the Merger in exchange
for a promissory note in the principal amount of $1,031,008.36 and 285,714
shares of SCHI common stock. At the time of the Merger, Mr. Smith's shares of
SCHI common stock were exchanged for an equal number of shares of Company Common
Stock. As a result of the Merger, Mr. Smith also became the President and Chief
Executive Officer of the Company and a member of the Company's Board of
Directors. SCHI after the Merger became a wholly-owned subsidiary of the
Company, and continues to be the obligor on such note.
Gary R. Smith leases the Company real property in Pinellas Park, Florida on
which the Company operates a used car dealership. The lease term expires in 1999
and has three one-year renewals. The monthly rental for the property is $3,500
plus taxes.
David Bumgardner, a director of the Company, owned all the stock of Two Two
Five North Military Corp. ("225") and Palm Beach Finance and Mortgage Company
("PBF") (the "Bumgardner Companies"). The Bumgardner Companies consisted of an
automobile dealership and a related finance company. Prior to the Merger, Mr.
Bumgardner had agreed to sell the Bumgardner Companies to SCHI. On February 14,
1997 the Company acquired substantially all the assets of the Bumgardner
Companies in exchange for (i) a 9% convertible debenture in the principal amount
of $467,601; (ii) a 9% convertible debenture in the principal amount of $800,000
secured by inventory; and (iii) 285,714 shares of Company Common Stock. Mr.
Bumgardner's debentures are convertible into Company Common Stock at $8.75 per
share, on the closing of a public offering of Common Stock by the Company. In
connection with the acquisition of the Bumgardner Companies, Mr. Bumgardner was
appointed to the Board of Directors of the Company. In addition, Mr. Bumgardner
leases the Company real property in West Palm Beach, Florida on which the
Company operates a used car dealership. The lease term expires in 2002 and has
two five-year renewals. The monthly rental for the property is $12,000 plus
taxes.
Sirrom Capital Corporation ("Sirrom") is a principal shareholder of the
Company. In 1997, Sirrom loaned the Company $7.5 million pursuant to two
convertible promissory notes (the "Sirrom Notes") that bear interest at 12% per
annum. One of the Sirrom Notes has a principal amount of $3.5 million, matures
on March 12, 1999, and is convertible into Common Stock at $3.67 per share,
subject to adjustment. The other Sirrom Note has a principal amount of $4.0
million, matures on May 12, 2002, and is convertible into Common Stock at $7.50
per share, subject to adjustment. In connection with these financings, Sirrom
was also granted options (the "Sirrom Options") to purchase Common Stock from
the Conlan Smart Choice Finance Trust and the Parker Smart Choice Finance Trust
at $3.00 per share and received registration rights for shares of Common Stock
issued on conversion of the Sirrom Notes and exercise of the Sirrom Options.
Craig Macnab, a Vice President of Sirrom became a member of the Board of
Directors of the Company on March 21, 1997.
On September 30, 1997, the Company entered into a Settlement Agreement and
Release (the "Release Agreement") with Ralph H. Eckler. The Release Agreement
terminated, by mutual consent, Mr. Eckler's employment agreement and also
effected Mr. Eckler's resignation from the Company's Board of Directors. The
Release Agreement retains Mr. Eckler as a consultant to the Company for a period
of five years for an aggregate payment of $100,000 which was paid in advance. In
addition, Mr. Eckler has been granted a right of first refusal with respect to
the purchase of Eckler Industries, Inc. (the wholly owned subsidiary of the
Company consisting of the Company's Corvette parts manufacturing and retail
business) for a period of five years. The Company also (i) conveyed to Mr.
Eckler an automobile (having a book value of $14,069) that was currently being
supplied for his use, (ii) granted him options to purchase 100,000 shares of
Company Common Stock at the price of $6.50 per share, (iii) reset the conversion
price of options to purchase 50,000 shares of Company Common Stock held by Mr.
Eckler from $10 per share to $6.50 per share, and (iv) granted to Mr. Eckler
certain registration rights.
Pursuant to Ralph H. Eckler's former employment agreement, the Company was
obligated to pay Mr. Eckler an annual fee equal to two percent of the
outstanding balance of all Company loans guaranteed by Mr. Eckler. During 1997,
Mr. Eckler was paid $38,459 in such fees. On November 4, 1997, the loan was
refinanced, and Mr. Eckler was released as a guarantor on November 4, 1997.
During 1997, the Company paid $103,750 to Greyhouse Services Corporation
("Greyhouse") pursuant to a consulting agreement which was terminated in 1997.
Gerald C. Parker and Thomas E. Conlan own 100% of Greyhouse. In March 1997, the
Company issued to each of Messrs. Conlan and Parker an option to purchase 75,000
shares of Common Stock exercisable at the then market price of $4.81 per share
in satisfaction of outstanding consulting fees owed Greyhouse of approximately
$105,000.
PROPOSALS TO THE SHAREHOLDERS
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
The persons named in the enclosed proxy will vote to elect as directors the
seven nominees listed below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the Proxy to that effect. All of the
nominees presently serve on the Board of the Company. Two current members of the
Board of Directors, Joseph Yossifon and David E. Bumgardner, are not standing
for re-election. Mr. Macnab has been nominated to serve as a director under the
terms of Loan Agreements entered into by the Company with Sirrom Capital
Corporation ("Sirrom") pursuant to which Sirrom has loaned the Company $7.5
million. Such Loan Agreements provide that so long as Sirrom is the holder of
the Notes issued pursuant to such Loan Agreements the Company will include one
nominee of Sirrom in the management's slate of nominees to be elected to the
Board of Directors and to recommend to the Company's stockholders the election
of such nominee.
All of the nominees listed below have indicated a willingness to serve on
the Board. If any of the nominees become unable to serve or for good cause will
not serve, the persons named on the enclosed proxy will vote as the Board
recommends for substitute nominees, vote to allow the vacancy created thereby to
remain open until filled by the Board, or vote to reduce the number of directors
for the ensuing year.
If the proposed amendment to the Company's Bylaws to establish a classified
Board is approved (Proposal No. 2 below), three Class I directors will be
elected for a three-year term expiring at the 2001 Annual Meeting of
Stockholders, two Class II directors will be elected for a two-year term
expiring at the 2000 Annual Meeting of Stockholders, and two Class III directors
will be elected for a one-year term expiring at the 1999 Annual Meeting of
Stockholders, in all cases subject to the election and qualification of their
successors. If the proposed amendments are not approved, all seven directors
will be elected for one-year terms expiring at the 1999 Annual Meeting of
Stockholders. The nominees for director, their class assignments, and their
terms of office if the proposed classified Board amendment is adopted are as
follows:
Nominee Class Term
- ------- ----- ----
Robert J. Abrahams I 3 years
Gary R. Smith I 3 years
Craig Macnab I 3 years
Jeffrey Congdon II 2 years
John W. Holden, Jr. II 2 years
Gerald C. Parker III 1 year
Donald J. Wojnownski, Jr. III 1 year
The seven nominees who receive the greatest number of votes cast for the
election of directors at the Annual Meeting shall become directors at the
conclusion of the tabulation of votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED ABOVE.
The Board of Directors unanimously approved each of the following proposals
for presentation to the Company's shareholders.
AMENDMENT TO THE BYLAWS TO PROVIDE FOR A
CLASSIFIED BOARD OF DIRECTORS (PROPOSAL NO. 2)
Proposed Amendment
- ------------------
The Company's Bylaws provide that the Company's directors shall be elected
at each Annual Meeting of stockholders. The Board is not divided into classes.
The Board has adopted, subject to stockholder approval, an amendment to the
Company's Bylaws to cause the Board of Directors to be divided into three
classes with staggered terms. At the Annual Meeting, stockholders will be asked
to consider and vote on the proposed amendment.
If Proposal No. 2 is approved, the Board will be divided into Class I,
Class II and Class III directors, with one Class to be elected each year. The
initial term of office for the Class III directors would expire at the 1999
Annual Meeting of Stockholders, the initial term of office for the Class II
directors would expire at the 2000 Annual Meeting of Stockholders and the
initial term of the Class I directors would expire at the 2001 Annual Meeting of
Stockholders. Upon the expiration of the initial staggered terms, directors
would be elected for three year terms to succeed those directors whose terms
expire. New directors elected to fill a vacancy on the Board will serve until
the next election of the Class to which such director belongs.
If this proposal is approved, Article II, Section 4 of the Bylaws would be
amended to provide in its entirety as follows:
Section 4. Election and Term. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each Class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The term of the
initial Class I directors shall terminate on the date of the 2001 Annual
Meeting of Stockholders; the term of the initial Class II directors shall
terminate on the date of the 2000 Annual Meeting of Stockholders; and the
term of the initial Class III directors shall terminate on the date of the
1999 Annual Meeting of Stockholders. At each Annual Meeting of Stockholders
beginning in 1999, successors to the class of directors whose term expires
at the Annual Meeting of Stockholders shall be elected for a three-year
term. If the number of directors changes, any increase or decrease in
directorships shall be apportioned among the Classes so as to maintain the
number of directors in each Class as nearly equal as possible, and any
additional directors of any Class elected to fill a vacancy resulting from
an increase in such Class shall hold office only until the next election of
directors of that Class by the stockholders of the Corporation, but in no
case will a decrease in the number of directors shorten the term of any
incumbent director. Directors shall hold office until the Annual Meeting of
Stockholders for the year in which their terms expire and until their
successors shall be duly elected and qualified, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an
Annual or Special Meeting of Stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of the Company's Articles of Incorporation, or the
resolution or resolutions adopted by the Board of Directors creating such
class or series, as the case may be, applicable thereto, and such directors
so elected shall be divided into classes pursuant to this Section 4 as may
be determined by the Board of Directors.
Reasons for Classified Board Structure and Possible Anti-Takeover Effect
- ------------------------------------------------------------------------
The Board believes that a classified Board will help lend continuity and
stability to the management of the Company. Following adoption of the classified
Board structure, at any given time approximately two-thirds of the members of
the Board will generally have had experience as directors of the Company. The
Board believes that this will facilitate long-range business planning, strategic
planning and policy making. In particular, the Company believes that a
classified Board will permit the Company to more effectively represent the
interests of all of its stockholders in a variety of situations, including
responding to circumstances which might be created by demand or actions of a
single stockholder or stockholder group, than might be the case if the Board
were not classified and a measure of continuity from year to year were not
thereby assured.
The proposed classified Board amendment could discourage efforts to obtain
control of the Company. The classification of directors will have the effect of
making it more difficult for stockholders to change the composition of the Board
in a relatively short period of time since at least two Annual Meetings of
Stockholders will be required to effect a change in a majority of the members of
the Board. The delay afforded by the proposed amendments will help ensure that
the Board, if confronted with a hostile tender offer, a proxy contest or other
similar proposal, would have sufficient time to review and consider the proposal
and appropriate alternatives to the proposal and to act in what it believes to
be the best interests of the stockholders. The proposed amendment is not a
response to any specific effort of which the Company is aware to accumulate the
Company's stock or to obtain control of the Company.
Vote Required
- -------------
The proposed classified Board amendment must be approved by the affirmative
vote of a majority of the votes cast on the proposal. Proxies will be voted in
accordance with the specifications marked thereon, and if no specification is
marked, a signed proxy will be voted "FOR" the adoption of Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2.
APPROVAL OF THE SMART CHOICE AUTOMOTIVE GROUP, INC.
1998 EXECUTIVE INCENTIVE COMPENSATION PLAN (PROPOSAL NO. 3)
1998 Executive Incentive Compensation Plan
- ------------------------------------------
Background and Purpose. The following is a summary of the Company's
proposed 1998 Executive Incentive Compensation Plan (the "1998 Plan") that the
Board of Directors has approved and recommended that the shareholders approve at
the Annual Meeting. The terms of the 1998 Plan provide for grants of stock
options, stock appreciation rights ("SARs"), restricted stock, deferred stock,
other stock-related awards and performance or annual incentive awards that may
be settled in cash, stock or other property (collectively, "Awards.") The
effective date of the 1998 Plan is April 30, 1998 (the "Effective Date"). No
Awards have been made under the 1998 Plan and no Awards will be granted under
the 1998 Plan unless the 1998 Plan is approved by the shareholders at the Annual
Meeting.
Shareholder approval of the 1998 Plan is required (i) for purposes of
compliance with certain exclusions from the limitations of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), which are further
described below, (ii) in order for the 1998 Plan to be eligible under the "plan
lender" exemption from the margin requirements of Regulation G promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (iii)
by the rules of the Nasdaq Small Cap Market on which the Company's Common Stock
is listed.
The following is a summary of certain principal features of the 1998 Plan.
This summary is qualified in its entirety by reference to the complete text of
the Plan, which is attached hereto as Exhibit A. Shareholders are urged to read
the actual text of the Plan in its entirety.
Shares Available for Awards; Annual Per-Person Limitations. Under the 1998
Plan, the total number of shares of Common Stock that may be subject to the
granting of Awards under the 1998 Plan at any time during the term of the Plan
shall be equal to 1,500,000 shares, plus the number of shares with respect to
which Awards previously granted under the 1998 Plan that terminate without being
exercised, and the number of shares that are surrendered in payment of any
Awards or any tax withholding requirements.
The 1998 Plan limits the number of shares which may be issued pursuant to
incentive stock options to 1,500,000 shares.
In addition, the 1998 Plan imposes individual limitations on the amount of
certain Awards in part to comply with Code Section 162(m). Under these
limitations, during any fiscal year the number of options, SARs, restricted
shares of Common Stock, deferred shares of Common Stock, shares as a bonus or in
lieu of other Company obligations, and other stock-based Awards granted to any
one participant may not exceed 250,000 for each type of such Award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
an annual incentive Award or other cash Award in any fiscal year to any one
participant is $1,000,000, and the maximum amount that may be earned as a
performance Award or other cash Award in respect of a performance period by any
one participant is $5,000,000.
The Committee that administers the 1998 Plan (defined below) is authorized
to adjust the limitations described in the two preceding paragraphs and is
authorized to adjust outstanding Awards (including adjustments to exercise
prices of options and other affected terms of Awards) in the event that a
dividend or other distribution (whether in cash, shares of Common Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange or other
similar corporate transaction or event affects the Common Stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of participants. The Committee is also authorized to adjust performance
conditions and other terms of Awards in response to these kinds of events or in
response to changes in applicable laws, regulations or accounting principles.
Eligibility. The persons eligible to receive Awards under the 1998 Plan are
the officers, directors, employees and independent contractors of the Company
and its subsidiaries. Thus, Robert J. Abrahams, Gary R. Smith, Ronald W.
Anderson, Joseph E. Mohr, Joseph A. Alvarez, Robert J. Downing, Jeffrey D.
Congdon, John W. Holden, Jr., Craig Macnab, Gerald C. Parker and Donald A.
Wojnowski, Jr., executive officers and/or directors of the Company, would be
eligible to participate in the 1998 Plan if approved by the shareholders.
No independent contractor will be eligible to receive any Awards other than
stock options. An employee on leave of absence may be considered as still in the
employ of the Company or a subsidiary for purposes of eligibility for
participation in the 1998 Plan.
Administration. The 1998 Plan is to be administered by a committee
designated by the Board of Directors consisting of not less than three directors
(the "Committee"), each member of which must be a "non-employee director" as
defined under Rule 16b-3 under the Exchange Act and an "outside director" for
purposes of Section 162(m) of the Code. However, except as otherwise required to
comply with Rule 16b-3 of the Exchange Act, or Section 162(m) of the Code, the
Board may exercise any power or authority granted to the Committee. Subject to
the terms of the 1998 Plan, the Committee or the Board is authorized to select
eligible persons to receive Awards, determine the type and number of Awards to
be granted and the number of shares of Common Stock to which Awards will relate,
specify times at which Awards will be exercisable or settleable (including
performance conditions that may be required as a condition thereof), set other
terms and conditions of Awards, prescribe forms of Award agreements, interpret
and specify rules and regulations relating to the 1998 Plan, and make all other
determinations that may be necessary or advisable for the administration of the
1998 Plan.
Stock Options and SARs. The Committee or the Board is authorized to grant
stock options, including both incentive stock options ("ISOs"), which can result
in potentially favorable tax treatment to the participant, and non-qualified
stock options, and SARs entitling the participant to receive the amount by which
the fair market value of a share of Common Stock on the date of exercise (or
defined "change in control price" following a change in control) exceeds the
grant price of the SAR. The exercise price per share subject to an option and
the grant price of an SAR are determined by the Committee, but in the case of an
ISO must not be less than the fair market value of a share of Common Stock on
the date of grant. For purposes of the 1998 Plan, the term "fair market value"
means the fair market value of Common Stock, Awards or other property as
determined by the Committee or the Board or under procedures established by the
Committee or the Board. Unless otherwise determined by the Committee or the
Board, the fair market value of Common Stock as of any given date shall be the
closing sales price per share of Common Stock as reported on the principal stock
exchange or market on which Common Stock is traded on the date as of which such
value is being determined or, if there is no sale on that date, then on the last
previous day on which a sale was reported. The maximum term of each option or
SAR, the times at which each option or SAR will be exercisable, and provisions
requiring forfeiture of unexercised options or SARs at or following termination
of employment generally are fixed by the Committee or the Board, except that no
option or SAR may have a term exceeding ten years. Options may be exercised by
payment of the exercise price in cash, shares that have been held for at least 6
months, outstanding Awards or other property having a fair market value equal to
the exercise price, as the Committee or the Board may determine from time to
time. Methods of exercise and settlement and other terms of the SARs are
determined by the Committee or the Board. SARs granted under the 1998 Plan may
include "limited SARs" exercisable for a stated period of time following a
change in control of the Company, as discussed below.
Restricted and Deferred Stock. The Committee or the Board is authorized to
grant restricted stock and deferred stock. Restricted stock is a grant of shares
of Common Stock which may not be sold or disposed of, and which may be forfeited
in the event of certain terminations of employment, prior to the end of a
restricted period specified by the Committee or the Board. A participant granted
restricted stock generally has all of the rights of a stockholder of the
Company, unless otherwise determined by the Committee or the Board. An Award of
deferred stock confers upon a participant the right to receive shares of Common
Stock at the end of a specified deferral period, subject to possible forfeiture
of the Award in the event of certain terminations of employment prior to the end
of a specified restricted period. Prior to settlement, an Award of deferred
stock carries no voting or dividend rights or other rights associated with share
ownership, although dividend equivalents may be granted, as discussed below.
Dividend Equivalents. The Committee or the Board is authorized to grant
dividend equivalents conferring on participants the right to receive, currently
or on a deferred basis, cash, shares of Common Stock, other Awards or other
property equal in value to dividends paid on a specific number of shares of
Common Stock or other periodic payments. Dividend equivalents may be granted
alone or in connection with another Award, may be paid currently or on a
deferred basis and, if deferred, may be deemed to have been reinvested in
additional shares of Common Stock, Awards or otherwise as specified by the
Committee or the Board.
Bonus Stock and Awards in Lieu of Cash Obligations. The Committee or the
Board is authorized to grant shares of Common Stock as a bonus free of
restrictions, or to grant shares of Common Stock or other Awards in lieu of
Company obligations to pay cash under the 1998 Plan or other plans or
compensatory arrangements, subject to such terms as the Committee or the Board
may specify.
Other Stock-Based Awards. The Committee or the Board is authorized to grant
Awards that are denominated or payable in, valued by reference to, or otherwise
based on or related to shares of Common Stock. Such Awards might include
convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares of Common Stock, purchase rights for shares of Common
Stock, Awards with value and payment contingent upon performance of the Company
or any other factors designated by the Committee or the Board, and Awards valued
by reference to the book value of shares of Common Stock or the value of
securities of or the performance of specified subsidiaries or business units.
The Committee or the Board determines the terms and conditions of such Awards.
Performance Awards, Including Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an Award, and the
timing thereof, may be subject to such performance conditions (including
subjective individual goals) as may be specified by the Committee or the Board.
In addition, the 1998 Plan authorizes specific annual incentive Awards, which
represent a conditional right to receive cash, shares of Common Stock or other
Awards upon achievement of certain preestablished performance goals and
subjective individual goals during a specified fiscal year. Performance Awards
and annual incentive Awards granted to persons whom the Committee expects will,
for the year in which a deduction arises, be "covered employees" (as defined
below) will, if and to the extent intended by the Committee, be subject to
provisions that should qualify such Awards as "performance-based compensation"
not subject to the limitation on tax deductibility by the Company under Code
Section 162(m). For purposes of Section 162(m), the term "covered employee"
means the Company's chief executive officer and each other person whose
compensation is required to be disclosed in the Company's filings with the SEC
by reason of that person being among the four highest compensated officers of
the Company as of the end of a taxable year. If and to the extent required under
Section 162(m) of the Code, any power or authority relating to a performance
Award or annual incentive Award intended to qualify under Section 162(m) of the
Code is to be exercised by the Committee and not the Board.
Subject to the requirements of the 1998 Plan, the Committee or the Board
will determine performance Award and annual incentive Award terms, including the
required levels of performance with respect to specified business criteria, the
corresponding amounts payable upon achievement of such levels of performance,
termination and forfeiture provisions and the form of settlement. In granting
annual incentive or performance Awards, the Committee or the Board may establish
unfunded award "pools," the amounts of which will be based upon the achievement
of a performance goal or goals based on one or more of certain business criteria
described in the 1998 Plan (including, for example, total stockholder return,
net income, pretax earnings, EBITDA, earnings per share, and return on
investment). During the first 90 days of a fiscal year or performance period,
the Committee or the Board will determine who will potentially receive annual
incentive or performance Awards for that fiscal year or performance period,
either out of the pool or otherwise.
After the end of each fiscal year or performance period, the Committee or
the Board will determine (i) the amount of any pools and the maximum amount of
potential annual incentive or performance Awards payable to each participant in
the pools and (ii) the amount of any other potential annual incentive or
performance Awards payable to participants in the 1998 Plan. The Committee or
the Board may, in its discretion, determine that the amount payable as an annual
incentive or performance Award will be reduced from the amount of any potential
Award.
Other Terms of Awards. Awards may be settled in the form of cash, shares of
Common Stock, other Awards or other property, in the discretion of the Committee
or the Board. The Committee or the Board may require or permit participants to
defer the settlement of all or part of an Award in accordance with such terms
and conditions as the Committee or the Board may establish, including payment or
crediting of interest or dividend equivalents on deferred amounts, and the
crediting of earnings, gains and losses based on deemed investment of deferred
amounts in specified investment vehicles. The Committee or the Board is
authorized to place cash, shares of Common Stock or other property in trusts or
make other arrangements to provide for payment of the Company's obligations
under the 1998 Plan. The Committee or the Board may condition any payment
relating to an Award on the withholding of taxes and may provide that a portion
of any shares of Common Stock or other property to be distributed will be
withheld (or previously acquired shares of Common Stock or other property be
surrendered by the participant) to satisfy withholding and other tax
obligations. Awards granted under the 1998 Plan generally may not be pledged or
otherwise encumbered and are not transferable except by will or by the laws of
descent and distribution, or to a designated beneficiary upon the participant's
death, except that the Committee or the Board may, in its discretion, permit
transfers for estate planning or other purposes subject to any applicable
restrictions under Rule 16b-3.
Awards under the 1998 Plan are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Committee or the Board may, however, grant Awards in exchange for other Awards
under the 1998 Plan, awards under other Company plans, or other rights to
payment from the Company, and may grant Awards in addition to and in tandem with
such other Awards, rights or other awards.
Acceleration of Vesting; Change in Control. The Committee or the Board may,
in its discretion, accelerate the exercisability, the lapsing of restrictions or
the expiration of deferral or vesting periods of any Award, and such accelerated
exercisability, lapse, expiration and if so provided in the Award agreement,
vesting shall occur automatically in the case of a "change in control" of the
Company, as defined in the 1998 Plan (including the cash settlement of SARs and
"limited SARs" which may be exercisable in the event of a change in control). In
addition, the Committee or the Board may provide in an Award agreement that the
performance goals relating to any performance based Award will be deemed to have
been met upon the occurrence of any "change in control." Upon the occurrence of
a change in control, if so provided in the Award agreement, stock options and
limited SARs (and other SARs which so provide) may be cashed out based on a
defined "change in control price," which will be the higher of (i) the cash and
fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any reorganization, merger,
consolidation, liquidation, dissolution or sale of substantially all assets of
the Company, or (ii) the highest fair market value per share (generally based on
market prices) at any time during the 60 days before and 60 days after a change
in control. For purposes of the 1998 Plan, the term "change in control"
generally means (a) approval by shareholders of any reorganization, merger or
consolidation or other transaction or series of transactions if persons who were
shareholders immediately prior to such reorganization, merger or consolidation
or other transaction do not, immediately thereafter, own more than 50% of the
combined voting power of the reorganized, merged or consolidated company's then
outstanding, voting securities, or a liquidation or dissolution of the Company
or the sale of all or substantially all of the assets of the Company (unless the
reorganization, merger, consolidation or other corporate transaction,
liquidation, dissolution or sale is subsequently abandoned), or (b) a change in
the composition of the Board such that the persons constituting the current
Board, and subsequent directors approved by the current Board (or approved by
such subsequent directors), cease to constitute at least a majority of the
Board.
Amendment and Termination. The Board of Directors may amend, alter,
suspend, discontinue or terminate the 1998 Plan or the Committee's authority to
grant Awards without further stockholder approval, except stockholder approval
must be obtained for any amendment or alteration if such approval is required by
law or regulation or under the rules of any stock exchange or quotation system
on which shares of Common Stock are then listed or quoted. Thus, stockholder
approval may not necessarily be required for every amendment to the 1998 Plan
which might increase the cost of the 1998 Plan or alter the eligibility of
persons to receive Awards. Stockholder approval will not be deemed to be
required under laws or regulations, such as those relating to ISOs, that
condition favorable treatment of participants on such approval, although the
Board may, in its discretion, seek stockholder approval in any circumstance in
which it deems such approval advisable. Unless earlier terminated by the Board,
the 1998 Plan will terminate at such time as no shares of Common Stock remain
available for issuance under the 1998 Plan and the Company has no further rights
or obligations with respect to outstanding Awards under the 1998 Plan.
Securities Act Registration. The Company intends to register the shares of
Common Stock available for Awards under the 1998 Plan pursuant to a Registration
Statement on Form S-8 filed with the SEC. Federal Income Tax Consequences of
Awards of Options. The following is a brief description of the federal income
tax consequences generally arising with respect to Awards of options under the
1998 Plan.
Tax Consequences. The grant of an option will create no tax consequences
for the participant or the Company. A participant will not have taxable income
upon exercising an ISO (except that the alternative minimum tax may apply). Upon
exercising an option other than an ISO, the participant must generally recognize
ordinary income equal to the difference between the exercise price and the fair
market value of the freely transferable and non-forfeitable shares of Common
Stock acquired on the date of exercise.
Upon a disposition of shares of Common Stock acquired upon exercise of an
ISO before the end of the applicable ISO holding periods, the participant must
generally recognize ordinary income equal to the lesser of (i) the fair market
value of the shares of Common Stock at the date of exercise of the ISO minus the
exercise price, or (ii) the amount realized upon the disposition of the ISO
shares of Common Stock minus the exercise price. Otherwise, a participant's
disposition of shares of Common Stock acquired upon the exercise of an option
(including an ISO for which the ISO holding periods are met) generally will
result in short-term or long-term capital gain or loss measured by the
difference between the sale price and the participant's tax basis in such shares
of Common Stock (the tax basis generally being the exercise price plus any
amount previously recognized as ordinary income in connection with the exercise
of the option).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option. The Company generally is not entitled to a tax deduction relating to
amounts that represent a capital gain to a participant. Accordingly, the Company
will not be entitled to any tax deduction with respect to an ISO if the
participant holds the shares of Common Stock for the ISO holding periods prior
to disposition of the shares.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code, which generally disallows a public company's tax deduction for
compensation to covered employees in excess of $1 million in any tax year
beginning on or after January 1, 1994. Compensation that qualifies as
"performance-based compensation" is excluded from the $1 million deductibility
cap, and therefore remains fully deductible by the company that pays it. As
discussed above, the Company intends that options and certain other Awards
granted to employees whom the Committee expects to be covered employees at the
time a deduction arises in connection with such Awards, qualify as such
"performance-based compensation," so that such Awards will not be subject to the
Section 162(m) deductibility cap of $1 million. Future changes in Section 162(m)
or the regulations thereunder may adversely affect the ability of the Company to
ensure that options or other Awards under the 1998 Plan will qualify as
"performance-based compensation" that is fully deductible by the Company under
Section 162(m).
The foregoing discussion, which is general in nature and is not intended to
be a complete description of the federal income tax consequences of the 1998
Plan, is intended for the information of shareholders at the Annual Meeting and
not as tax guidance to participants in the 1998 Plan. This discussion does not
address the effects of other federal taxes or taxes imposed under state, local
or foreign tax laws. Participants in the 1998 Plan should consult a tax advisor
as to the tax consequences of participation.
New Plan Benefits. No Awards have been granted under the 1998 Plan through
the date of this Proxy Statement.
The Company believes that Awards granted under the 1998 Plan will be
granted primarily to those persons who possess a capacity to contribute
significantly to the successful performance of the Company. Because persons to
whom Awards may be made are to be determined from time to time by the Committee
in its discretion, it is impossible at this time to indicate the precise number,
name or positions of persons who will hereafter receive Awards or the nature and
terms of such Awards.
Vote Required
- -------------
The affirmative vote of a majority of the votes cast is required to approve
Proposal 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
APPROVE THE 1998 EXECUTIVE INCENTIVE COMPENSATION PLAN.
APPROVAL OF OPTION GRANTS
TO OUTSIDE DIRECTORS
(PROPOSAL NO. 4)
Options Granted
- ---------------
The Board of Directors has approved and recommends to the stockholders that
they approve specific stock option grants in 1998 to the Company's outside
directors. Certain rules of the Nasdaq SmallCap market, which first became
applicable to the Company in February of 1998, require that such grants of stock
options be submitted to the Company's shareholders for approval.
In 1998, the Company granted, subject to shareholder approval, to each of
Gerald C. Parker, Craig Macnab, Donald A. Wojnowski, Jr., David E. Bumgardner,
Jeffrey Congdon, and Joseph Yossifon, all of whom are members of the Board of
Directors who are not employees of the Company, five year options each to
purchase 12,500 shares of Common Stock. These stock options were granted as
director fees to the Company's outside directors. The exercise price for these
stock options is $2.50 per share, except for those of Mr. Congdon which are
exercisable for $4.94 per share, in each case the market value of the Common
Stock on the date of grant. Based on the closing price for the Common Stock of
$4.47 on May 6, 1998, the market value of the Common Stock underlying these
options to purchase 12,500 shares of Common Stock was $55,875. These stock
options constitute the only consideration from the Company to outside directors,
except for reimbursement of travel expenses related to Board and committee
meetings. The Board of Directors considers the grant of these stock options to
be an economical, non-cash method for compensating the Company's outside
directors.
Vote Required
- -------------
The affirmative vote of a majority of the votes cast is required to approve
Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
APPROVE THESE STOCK OPTION GRANTS.
APPROVAL OF OPTION GRANTS TO SALES
MANAGERS (PROPOSAL NO. 5)
Options Granted
- ---------------
The Board of Directors has approved and recommends to the stockholders that
they approve specific stock option grants in 1998 to the Company's automobile
sales managers. Certain rules of the Nasdaq SmallCap market, which first became
applicable to the Company in February of 1998, require that such grants of stock
options be submitted to the Company's shareholders for approval.
In 1998 the Company granted, subjected to shareholder approval, to each of
its automobile sales managers a five year option to purchase 2,000 shares of
Common Stock for $2.25 per share, the fair market value on the date of grant.
Based on the closing price for the Common Stock of $4.47 on May 6, 1998, the
market value of the Common Stock underlying these options to purchase 2,000
shares of Common Stock was $8,940. These options vest quarterly over one year if
the Company's sales goals are met. At present there are 24 sales managers in the
group that was granted these options. The Board of Directors granted these
options to provide the Company's automobile sales managers an economic incentive
to meet or exceed the Company's automobile sales goals.
Vote Required
- -------------
The affirmative vote of a majority of the votes cast is required to approve
Proposal 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
APPROVE THESE STOCK OPTION GRANTS.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BDO Seidman, LLP currently serves as the independent certified public
accountants for the Company. Representatives of BDO Seidman, LLP will be present
at the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Any proposal of a shareholder intended to be presented at the Company's
1999 Annual Meeting of Shareholders must be received by the President of the
Company for possible inclusion in the Company's Proxy Statement, and notice of
meeting relating to that meeting by December ___, 1998. Shareholder proposals
must be made in compliance with applicable legal requirements promulgated by the
Securities and Exchange Commission and be furnished to the President by
certified mail, return receipt requested.
COSTS OF SOLICITATION
The entire cost of solicitation of proxies by the Board of Directors will
be borne by the Company. In addition, to the use of the mails, proxies may be
solicited by personal interview, facsimile, telephone and telegram by directors,
officers and employee of the Company. The Company expects to reimburse brokers
or other persons for their reasonable out-of-pocket expenses in forwarding proxy
material to beneficial owners.
YOU ARE URGED TO SIGN AND RETURN YOUR PROXY PROMPTLY TO MAKE CERTAIN YOUR
SHARES WILL BE VOTED AT THE 1998 ANNUAL MEETING. FOR YOUR CONVENIENCE, A RETURN
ENVELOPE IS ENCLOSED.
BY ORDER OF THE BOARD OF DIRECTORS
Gary R. Smith, President
Titusville, Florida
May ___, 1998
<PAGE>
EXHIBIT "A"
SMART CHOICE AUTOMOTIVE GROUP, INC.
1998 Executive Incentive Compensation Plan
<PAGE>
SMART CHOICE AUTOMOTIVE GROUP, INC.
1998 Executive Incentive Compensation Plan
<TABLE>
<S> <C>
1. Purpose.................................................................................1
2. Definitions.............................................................................1
3. Administration..........................................................................3
(a) Authority of the Committee.....................................................3
(b) Manner of Exercise of Committee Authority......................................3
(c) Limitation of Liability........................................................4
4. Stock Subject to Plan...................................................................4
(a) Limitation on Overall Number of Shares Subject to Awards.......................4
(b) Application of Limitations.....................................................4
5. Eligibility; Per-Person Award Limitations...............................................4
6. Specific Terms of Awards................................................................4
(a) General........................................................................4
(b) Options........................................................................5
(c) Stock Appreciation Rights......................................................5
(d) Restricted Stock...............................................................6
(e) Deferred Stock.................................................................7
(f) Bonus Stock and Awards in Lieu of Obligations..................................7
(g) Dividend Equivalents...........................................................7
(h) Other Stock-Based Awards.......................................................8
7. Certain Provisions Applicable to Awards.................................................8
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.........................8
(b) Term of Awards.................................................................8
(c) Form and Timing of Payment Under Awards; Deferrals.............................8
(d) Exemptions from Section 16(b) Liability........................................9
8. Performance and Annual Incentive Awards.................................................9
(a) Performance Conditions.........................................................9
(b) Performance Awards Granted to Designated Covered Employees.....................9
(c) Annual Incentive Awards Granted to Designated Covered Employees...............10
(d) Written Determinations........................................................11
(e) Status of Section 8(b) and Section 8(c) Awards Under Code Section 162(m)......11
9. Change in Control......................................................................11
(a) Effect of "Change in Control."................................................11
(b) Definition of "Change in Control..............................................12
(c) Definition of "Change in Control Price."......................................12
10. General Provisions.....................................................................12
(a) Compliance With Legal and Other Requirements..................................12
(b) Limits on Transferability; Beneficiaries......................................12
(c) Adjustments...................................................................13
(d) Taxes.........................................................................13
(e) Changes to the Plan and Awards................................................13
(f) Limitation on Rights Conferred Under Plan.....................................14
(g) Unfunded Status of Awards; Creation of Trusts.................................14
(h) Nonexclusivity of the Plan....................................................14
(i) Payments in the Event of Forfeitures; Fractional Shares.......................14
(j) Governing Law.................................................................14
(k) Plan Effective Date and Stockholder Approval; Termination of Plan.............14
</TABLE>
<PAGE>
SMART CHOICE AUTOMOTIVE GROUP, INC.
1998 Executive Incentive Compensation Plan
1. Purpose. The purpose of this 1998 Executive Incentive Compensation Plan
(the "Plan") is to assist Smart Choice Automotive Group, Inc., a Florida
corporation (the "Company") and its subsidiaries in attracting, motivating,
retaining and rewarding high-quality executives and other employees, officers,
Directors and independent contractors by enabling such persons to acquire or
increase a proprietary interest in the Company in order to strengthen the
mutuality of interests between such persons and the Company's stockholders, and
providing such persons with annual and long term performance incentives to
expend their maximum efforts in the creation of shareholder value. The Plan is
also intended to qualify certain compensation awarded under the Plan for tax
deductibility under Section 162(m) of the Code (as hereafter defined) to the
extent deemed appropriate by the Committee (or any successor committee) of the
Board of Directors of the Company.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof.
(a) "Annual Incentive Award" means a conditional right granted to a
Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of
a specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR), Restricted
Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or
Annual Incentive Award, together with any other right or interest, granted
to a Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards
or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or
the laws of descent and distribution to receive such benefits.
(d) "Beneficial Owner", "Beneficially Owning" and "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d-3
under the Exchange Act and any successor to such Rule. (e) "Board" means
the Company's Board of Directors.
(f) "Change in Control" means Change in Control as defined with
related terms in Section 9 of the Plan.
(g) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.
(i) "Committee" means a committee designated by the Board to
administer the Plan; provided, however, that the Committee shall consist of
at least two directors, and each member of which shall be (i) a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange
Act, unless administration of the Plan by "non-employee directors" is not
then required in order for exemptions under Rule 16b-3 to apply to
transactions under the Plan, and (ii) an "outside director" within the
meaning of Section 162(m) of the Code, unless administration of the Plan by
"outside directors" is not then required in order to qualify for tax
deductibility under Section 162(m) of the Code.
(j) "Corporate Transaction" means a Corporate Transaction as defined
in Section 9(b)(i) of the Plan. (k) "Covered Employee" means an Eligible
Person who is a Covered Employee as specified in Section 8(e) of the Plan.
(l) "Deferred Stock" means a right, granted to a Participant under
Section 6(e) hereof, to receive Stock, cash or a combination thereof at the
end of a specified deferral period.
(m) "Director" means a member of the Board.
(n) "Disability" means a permanent and total disability (within the
meaning of Section 22(e) of the Code), as determined by a medical doctor
satisfactory to the Committee.
(o) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g) hereof, to receive cash, Stock, other Awards or other
property equal in value to dividends paid with respect to a specified
number of shares of Stock, or other periodic payments.
(p) "Effective Date" means the effective date of the Plan, which shall
be [ ].
(q) "Eligible Person" means each Executive Officer of the Company (as
defined under the Exchange Act) and other officers, Directors and employees
of the Company or of any Subsidiary, and independent contractors with the
Company or any Subsidiary. The foregoing notwithstanding, only employees of
the Company or any Subsidiary shall be Eligible Persons for purposes of
receiving any Incentive Stock Options. An employee on leave of absence may
be considered as still in the employ of the Company or a Subsidiary for
purposes of eligibility for participation in the Plan.
(r) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(s) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.
(t) "Fair Market Value" means the fair market value of Stock, Awards
or other property as determined by the Committee or the Board, or under
procedures established by the Committee or the Board. Unless otherwise
determined by the Committee or the Board, the Fair Market Value of Stock as
of any given date shall be the closing sale price per share reported on a
consolidated basis for stock listed on the principal stock exchange or
market on which Stock is traded on the date as of which such value is being
determined or, if there is no sale on that date, then on the last previous
day on which a sale was reported.
(u) "Incentive Stock Option" or "ISO" means any Option intended to be
designated as an incentive stock option within the meaning of Section 422
of the Code or any successor provision thereto.
(v) "Incumbent Board" means the Incumbent Board as defined in Section
9(b)(ii) of the Plan.
(w) "Limited SAR" means a right granted to a Participant under Section
6(c) hereof.
(x) "Option" means a right granted to a Participant under Section 6(b)
hereof, to purchase Stock or other Awards at a specified price during
specified time periods.
(y) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h) hereof.
(z) "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if
each of the corporations in the chain (other than the Company) owns stock
possessing 50% or more of the combined voting power of all classes of stock
in one of the other corporations in the chain.
(aa) "Participant" means a person who has been granted an Award under
the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(bb) "Performance Award" means a right, granted to an Eligible Person
under Section 8 hereof, to receive Awards based upon performance criteria
specified by the Committee or the Board.
(cc) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
and shall include a "group" as defined in Section 13(d) thereof.
(dd) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) hereof, that is subject to certain restrictions and to a risk
of forfeiture.
(ee) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
(ff) "Stock" means the Company's Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant to
Section 10(c) hereof.
(gg) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
(hh) "Subsidiary" means any corporation or other entity in which the
Company has a direct or indirect ownership interest of 50% or more of the
total combined voting power of the then outstanding securities or interests
of such corporation or other entity entitled to vote generally in the
election of directors or in which the Company has the right to receive 50%
or more of the distribution of profits or 50% or more of the assets on
liquidation or dissolution.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee; provided, however, that except as otherwise expressly provided in
this Plan or in order to comply with Code Section 162(m) or Rule 16b-3 under the
Exchange Act, the Board may exercise any power or authority granted to the
Committee under this Plan. The Committee or the Board shall have full and final
authority, in each case subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants, grant Awards, determine
the type, number and other terms and conditions of, and all other matters
relating to, Awards, prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award agreements and correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee or the Board may deem necessary or advisable
for the administration of the Plan. In exercising any discretion granted to the
Committee or the Board under the Plan or pursuant to any Award, the Committee or
the Board shall not be required to follow past practices, act in a manner
consistent with past practices, or treat any Eligible Person in a manner
consistent with the treatment of other Eligible Persons.
(b) Manner of Exercise of Committee Authority. The Committee, and not the
Board, shall exercise sole and exclusive discretion on any matter relating to a
Participant then subject to Section 16 of the Exchange Act with respect to the
Company to the extent necessary in order that transactions by such Participant
shall be exempt under Rule 16b-3 under the Exchange Act. Any action of the
Committee or the Board shall be final, conclusive and binding on all persons,
including the Company, its subsidiaries, Participants, Beneficiaries,
transferees under Section 10(b) hereof or other persons claiming rights from or
through a Participant, and stockholders. The express grant of any specific power
to the Committee or the Board, and the taking of any action by the Committee or
the Board, shall not be construed as limiting any power or authority of the
Committee or the Board. The Committee or the Board may delegate to officers or
managers of the Company or any subsidiary, or committees thereof, the authority,
subject to such terms as the Committee or the Board shall determine, (i) to
perform administrative functions, (ii) with respect to Participants not subject
to Section 16 of the Exchange Act, to perform such other functions as the
Committee or the Board may determine, and (iii) with respect to Participants
subject to Section 16, to perform such other functions of the Committee or the
Board as the Committee or the Board may determine to the extent performance of
such functions will not result in the loss of an exemption under Rule 16b-3
otherwise available for transactions by such persons, in each case to the extent
permitted under applicable law and subject to the requirements set forth in
Section 8(d). The Committee or the Board may appoint agents to assist it in
administering the Plan.
(c) Limitation of Liability. The Committee and the Board, and each member
thereof, shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any executive officer, other
officer or employee of the Company or a Subsidiary, the Company's independent
auditors, consultants or any other agents assisting in the administration of the
Plan. Members of the Committee and the Board, and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the Committee or
the Board, shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action or determination.
4. Stock Subject to Plan.
(a) Limitation on Overall Number of Shares Subject to Awards. Subject to
adjustment as provided in Section 10(c) hereof, the total number of shares of
Stock reserved and available for delivery in connection with Awards under the
Plan shall be the sum of (i) 1,500,000, plus (ii) the number of shares with
respect to Awards previously granted under the Plan that terminate without being
exercised, expire, are forfeited or canceled, and the number of shares of Stock
that are surrendered in payment of any Awards or any tax withholding with regard
thereto. Any shares of Stock delivered under the Plan may consist, in whole or
in part, of authorized and unissued shares or treasury shares. Subject to
adjustment as provided in Section 10(c) hereof, in no event shall the aggregate
number of shares of Stock which may be issued pursuant to ISOs exceed 1,500,000
shares.
(b) Application of Limitations. The limitation contained in Section 4(a)
shall apply not only to Awards that are settleable by the delivery of shares of
Stock but also to Awards relating to shares of Stock but settleable only in cash
(such as cash-only SARs). The Committee or the Board may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting (as,
for example, in the case of tandem or substitute awards) and make adjustments if
the number of shares of Stock actually delivered differs from the number of
shares previously counted in connection with an Award.
5. Eligibility; Per-Person Award Limitations.
Awards may be granted under the Plan only to Eligible Persons. In each
fiscal year during any part of which the Plan is in effect, an Eligible Person
may not be granted Awards relating to more than [250,000] shares of Stock,
subject to adjustment as provided in Section 10(c), under each of Sections 6(b),
6(c), 6(d), 6(e), 6(f), 6(g), 6(h), 8(b) and 8(c). In addition, the maximum
amount that may be earned as an Annual Incentive Award or other cash Award in
any fiscal year by any one Participant shall be [$2,000,000], and the maximum
amount that may be earned as a Performance Award or other cash Award in respect
of a performance period by any one Participant shall be [$5,000,000].
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth in
this Section 6. In addition, the Committee or the Board may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to Section
10(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee or the Board shall determine, including
terms requiring forfeiture of Awards in the event of termination of employment
by the Participant and terms permitting a Participant to make elections relating
to his or her Award. The Committee or the Board shall retain full power and
discretion to accelerate, waive or modify, at any time, any term or condition of
an Award that is not mandatory under the Plan. Except in cases in which the
Committee or the Board is authorized to require other forms of consideration
under the Plan, or to the extent other forms of consideration must be paid to
satisfy the requirements of Florida law, no consideration other than services
may be required for the grant (but not the exercise) of any Award.
(b) Options. The Committee and the Board each is authorized to grant
Options to Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee or the Board, provided
that such exercise price shall not, in the case of Incentive Stock Options,
be less than 100% of the Fair Market Value of the Stock on the date of
grant of the Option and shall not, in any event, be less than the par value
of a share of Stock on the date of grant of such Option. If an employee
owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company or any Parent Corporation and
an Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option (to the extent required by the Code at the time
of grant) shall be no less than 110% of the Fair Market Value of the Stock
on the date such Incentive Stock Option is granted.
(ii) Time and Method of Exercise. The Committee or the Board shall
determine the time or times at which or the circumstances under which an
Option may be exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the time or times
at which Options shall cease to be or become exercisable following
termination of employment or upon other conditions, the methods by which
such exercise price may be paid or deemed to be paid (including in the
discretion of the Committee or the Board a cashless exercise procedure),
the form of such payment, including, without limitation, cash, Stock, other
Awards or awards granted under other plans of the Company or any
subsidiary, or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis), and the
methods by or forms in which Stock will be delivered or deemed to be
delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code. Anything in
the Plan to the contrary notwithstanding, no term of the Plan relating to
ISOs (including any SAR in tandem therewith) shall be interpreted, amended
or altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any ISO under Section 422
of the Code, unless the Participant has first requested the change that
will result in such disqualification. Thus, if and to the extent required
to comply with Section 422 of the Code, Options granted as Incentive Stock
Options shall be subject to the following special terms and conditions:
(A) the Option shall not be exercisable more than ten years
after the date such Incentive Stock Option is granted; provided,
however, that if a Participant owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation and the Incentive
Stock Option is granted to such Participant, the term of the
Incentive Stock Option shall be (to the extent required by the
Code at the time of the grant) for no more than five years from
the date of grant; and
(B) The aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of
stock with respect to which Incentive Stock Options granted under
the Plan and all other option plans of the Company or its Parent
Corporation during any calendar year exercisable for the first
time by the Participant during any calendar year shall not (to
the extent required by the Code at the time of the grant) exceed
$100,000.
(c) Stock Appreciation Rights. The Committee and the Board each is
authorized to grant SAR's to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the Participant to whom it
is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of stock on the date of exercise (or, in the
case of a "Limited SAR" that may be exercised only in the event of a Change
in Control, the Fair Market Value determined by reference to the Change in
Control Price, as defined under Section 9(c) hereof), over (B) the grant
price of the SAR as determined by the Committee or the Board. The grant
price of an SAR shall not be less than the Fair Market Value of a share of
Stock on the date of grant except as provided under Section 7(a) hereof.
(ii) Other Terms. The Committee or the Board shall determine at the
date of grant or thereafter, the time or times at which and the
circumstances under which a SAR may be exercised in whole or in part
(including based on achievement of performance goals and/or future service
requirements), the time or times at which SARs shall cease to be or become
exercisable following termination of employment or upon other conditions,
the method of exercise, method of settlement, form of consideration payable
in settlement, method by or forms in which Stock will be delivered or
deemed to be delivered to Participants, whether or not a SAR shall be in
tandem or in combination with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised in
connection with a Change in Control or other event as specified by the
Committee or the Board, may be granted on such terms, not inconsistent with
this Section 6(c), as the Committee or the Board may determine. SARs and
Limited SARs may be either freestanding or in tandem with other Awards.
(d) Restricted Stock. The Committee and the Board each is authorized to
grant Restricted Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee or the Board may impose, which restrictions may
lapse separately or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the Committee or the
Board may determine at the date of grant or thereafter. Except to the
extent restricted under the terms of the Plan and any Award agreement
relating to the Restricted Stock, a Participant granted Restricted Stock
shall have all of the rights of a stockholder, including the right to vote
the Restricted Stock and the right to receive dividends thereon (subject to
any mandatory reinvestment or other requirement imposed by the Committee or
the Board). During the restricted period applicable to the Restricted
Stock, subject to Section 10(b) below, the Restricted Stock may not be
sold, transferred, pledged, hypothecated, margined or otherwise encumbered
by the Participant.
(ii) Forfeiture. Except as otherwise determined by the Committee or
the Board at the time of the Award, upon termination of a Participant's
employment during the applicable restriction period, the Participant's
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the Committee or the
Board may provide, by rule or regulation or in any Award agreement, or may
determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock shall be waived in whole or in part
in the event of terminations resulting from specified causes, and the
Committee or the Board may in other cases waive in whole or in part the
forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee or the Board shall
determine. If certificates representing Restricted Stock are registered in
the name of the Participant, the Committee or the Board may require that
such certificates bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock, that the
Company retain physical possession of the certificates, and that the
Participant deliver a stock power to the Company, endorsed in blank,
relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee or the Board may require that any cash
dividends paid on a share of Restricted Stock be automatically reinvested
in additional shares of Restricted Stock or applied to the purchase of
additional Awards under the Plan. Unless otherwise determined by the
Committee or the Board, Stock distributed in connection with a Stock split
or Stock dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property has
been distributed.
(e) Deferred Stock. The Committee and the Board each is authorized to grant
Deferred Stock to Participants, which are rights to receive Stock, cash, or a
combination thereof at the end of a specified deferral period, subject to the
following terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of Deferred Stock
shall occur upon expiration of the deferral period specified for such
Deferred Stock by the Committee or the Board (or, if permitted by the
Committee or the Board, as elected by the Participant). In addition,
Deferred Stock shall be subject to such restrictions (which may include a
risk of forfeiture) as the Committee or the Board may impose, if any, which
restrictions may lapse at the expiration of the deferral period or at
earlier specified times (including based on achievement of performance
goals and/or future service requirements), separately or in combination, in
installments or otherwise, as the Committee or the Board may determine.
Deferred Stock may be satisfied by delivery of Stock, cash equal to the
Fair Market Value of the specified number of shares of Stock covered by the
Deferred Stock, or a combination thereof, as determined by the Committee or
the Board at the date of grant or thereafter. Prior to satisfaction of an
Award of Deferred Stock, an Award of Deferred Stock carries no voting or
dividend or other rights associated with share ownership.
(ii) Forfeiture. Except as otherwise determined by the Committee or
the Board, upon termination of a Participant's employment during the
applicable deferral period thereof to which forfeiture conditions apply (as
provided in the Award agreement evidencing the Deferred Stock), the
Participant's Deferred Stock that is at that time subject to deferral
(other than a deferral at the election of the Participant) shall be
forfeited; provided that the Committee or the Board may provide, by rule or
regulation or in any Award agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Deferred Stock
shall be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee or the Board may in other cases
waive in whole or in part the forfeiture of Deferred Stock.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee or the Board at date of grant, Dividend Equivalents on the
specified number of shares of Stock covered by an Award of Deferred Stock
shall be either (A) paid with respect to such Deferred Stock at the
dividend payment date in cash or in shares of unrestricted Stock having a
Fair Market Value equal to the amount of such dividends, or (B) deferred
with respect to such Deferred Stock and the amount or value thereof
automatically deemed reinvested in additional Deferred Stock, other Awards
or other investment vehicles, as the Committee or the Board shall determine
or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee and the
Board each is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of Company obligations to pay cash or deliver other property
under the Plan or under other plans or compensatory arrangements, provided that,
in the case of Participants subject to Section 16 of the Exchange Act, the
amount of such grants remains within the discretion of the Committee to the
extent necessary to ensure that acquisitions of Stock or other Awards are exempt
from liability under Section 16(b) of the Exchange Act. Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee or the Board.
(g) Dividend Equivalents. The Committee and the Board each is authorized to
grant Dividend Equivalents to a Participant entitling the Participant to receive
cash, Stock, other Awards, or other property equal in value to dividends paid
with respect to a specified number of shares of Stock, or other periodic
payments. Dividend Equivalents may be awarded on a free-standing basis or in
connection with another Award. The Committee or the Board may provide that
Dividend Equivalents shall be paid or distributed when accrued or shall be
deemed to have been reinvested in additional Stock, Awards, or other investment
vehicles, and subject to such restrictions on transferability and risks of
forfeiture, as the Committee or the Board may specify.
(h) Other Stock-Based Awards. The Committee and the Board each is
authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, Stock,
as deemed by the Committee or the Board to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee or the Board, and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified subsidiaries or business units. The Committee
or the Board shall determine the terms and conditions of such Awards. Stock
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 6(h) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Stock, other Awards or other property, as the Committee or the Board shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee or the Board, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the Committee or the Board shall require
the surrender of such other Award or award in consideration for the grant of the
new Award. In addition, Awards may be granted in lieu of cash compensation,
including in lieu of cash amounts payable under other plans of the Company or
any subsidiary, in which the value of Stock subject to the Award is equivalent
in value to the cash compensation (for example, Deferred Stock or Restricted
Stock), or in which the exercise price, grant price or purchase price of the
Award in the nature of a right that may be exercised is equal to the Fair Market
Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options granted with an exercise price "discounted" by
the amount of the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee or the Board; provided that in no event shall the
term of any Option or SAR exceed a period of ten years (or such shorter term as
may be required in respect of an ISO under Section 422 of the Code).
(c) Form and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made by the
Company or a subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee or the Board
shall determine, including, without limitation, cash, Stock that have been held
for at least 6 months, other Awards or other property, and may be made in a
single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Stock in
connection with such settlement, in the discretion of the Committee or the Board
or upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee or
the Board (subject to Section 10(e) of the Plan) or permitted at the election of
the Participant on terms and conditions established by the Committee or the
Board. Payments may include, without limitation, provisions for the payment or
crediting of a reasonable interest rate on installment or deferred payments or
the grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Company that this Plan comply in all respects with applicable provisions of Rule
16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither the
grant of any Awards to nor other transaction by a Participant who is subject to
Section 16 of the Exchange Act is subject to liability under Section 16(b)
thereof (except for transactions acknowledged in writing to be non-exempt by
such Participant). Accordingly, if any provision of this Plan or any Award
agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall
avoid liability under Section 16(b). In addition, the purchase price of any
Award conferring a right to purchase Stock shall be not less than any specified
percentage of the Fair Market Value of Stock at the date of grant of the Award
then required in order to comply with Rule 16b-3.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee or
the Board. The Committee or the Board may use such business criteria and other
measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 8(b) and 8(c) hereof in the case of a Performance Award or Annual
Incentive Award intended to qualify under Code Section 162(m). If and to the
extent required under Code Section 162(m), any power or authority relating to a
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m), shall be exercised by the Committee and not the Board.
(b) Performance Awards Granted to Designated Covered Employees. If and to
the extent that the Committee determines that a Performance Award to be granted
to an Eligible Person who is designated by the Committee as likely to be a
Covered Employee should qualify as "performance-based compensation" for purposes
of Code Section 162(m), the grant, exercise and/or settlement of such
Performance Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder including
the requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise and/or
settlement of such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Participant or to different
Participants.
(ii) Business Criteria. One or more of the following business criteria
for the Company, on a consolidated basis, and/or specified subsidiaries or
business units of the Company (except with respect to the total stockholder
return and earnings per share criteria), shall be used exclusively by the
Committee in establishing performance goals for such Performance Awards:
(1) total stockholder return; (2) such total stockholder return as compared
to total return (on a comparable basis) of a publicly available index such
as, but not limited to, the Standard & Poor's 500 Stock Index or the S&P
Specialty Retailer Index; (3) net income; (4) pretax earnings; (5) earnings
before interest expense, taxes, depreciation and amortization; (6) pretax
operating earnings after interest expense and before bonuses, service fees,
and extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on
investment; (12) operating earnings; (13) working capital or inventory; and
(14) ratio of debt to stockholders' equity. One or more of the foregoing
business criteria shall also be exclusively used in establishing
performance goals for Annual Incentive Awards granted to a Covered Employee
under Section 8(c) hereof that are intended to qualify as
"performanced-based compensation under Code Section 162(m).
(iii) Performance Period; Timing For Establishing Performance Goals.
Achievement of performance goals in respect of such Performance Awards
shall be measured over a performance period of up to ten years, as
specified by the Committee. Performance goals shall be established not
later than 90 days after the beginning of any performance period applicable
to such Performance Awards, or at such other date as may be required or
permitted for "performance-based compensation" under Code Section 162(m).
(iv) Performance Award Pool. The Committee may establish a Performance
Award pool, which shall be an unfunded pool, for purposes of measuring
Company performance in connection with Performance Awards. The amount of
such Performance Award pool shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Performance Award pool as a
percentage of any of such business criteria, a percentage thereof in excess
of a threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria.
(v) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Stock, other Awards or other property,
in the discretion of the Committee. The Committee may, in its discretion,
reduce the amount of a settlement otherwise to be made in connection with
such Performance Awards. The Committee shall specify the circumstances in
which such Performance Awards shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end of a
performance period or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees. If and
to the extent that the Committee determines that an Annual Incentive Award to be
granted to an Eligible Person who is designated by the Committee as likely to be
a Covered Employee should qualify as "performance-based compensation" for
purposes of Code Section 162(m), the grant, exercise and/or settlement of such
Annual Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an Annual
Incentive Award pool, which shall be an unfunded pool, for purposes of
measuring Company performance in connection with Annual Incentive Awards.
The amount of such Annual Incentive Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof during the given
performance period, as specified by the Committee in accordance with
Section 8(b)(iii) hereof. The Committee may specify the amount of the
Annual Incentive Award pool as a percentage of any such business criteria,
a percentage thereof in excess of a threshold amount, or as another amount
which need not bear a strictly mathematical relationship to such business
criteria.
(ii) Potential Annual Incentive Awards. Not later than the end of the
90th day of each fiscal year, or at such other date as may be required or
permitted in the case of Awards intended to be "performance-based
compensation" under Code Section 162(m), the Committee shall determine the
Eligible Persons who will potentially receive Annual Incentive Awards, and
the amounts potentially payable thereunder, for that fiscal year, either
out of an Annual Incentive Award pool established by such date under
Section 8(c)(i) hereof or as individual Annual Incentive Awards. In the
case of individual Annual Incentive Awards intended to qualify under Code
Section 162(m), the amount potentially payable shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof in the given
performance year, as specified by the Committee; in other cases, such
amount shall be based on such criteria as shall be established by the
Committee. In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth in Section 5
hereof.
(iii) Payout of Annual Incentive Awards. After the end of each fiscal
year, the Committee shall determine the amount, if any, of (A) the Annual
Incentive Award pool, and the maximum amount of potential Annual Incentive
Award payable to each Participant in the Annual Incentive Award pool, or
(B) the amount of potential Annual Incentive Award otherwise payable to
each Participant. The Committee may, in its discretion, determine that the
amount payable to any Participant as an Annual Incentive Award shall be
reduced from the amount of his or her potential Annual Incentive Award,
including a determination to make no Award whatsoever. The Committee shall
specify the circumstances in which an Annual Incentive Award shall be paid
or forfeited in the event of termination of employment by the Participant
prior to the end of a fiscal year or settlement of such Annual Incentive
Award.
(d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award pool or
potential individual Performance Awards and as to the achievement of performance
goals relating to Performance Awards under Section 8(b), and the amount of any
Annual Incentive Award pool or potential individual Annual Incentive Awards and
the amount of final Annual Incentive Awards under Section 8(c), shall be made in
writing in the case of any Award intended to qualify under Code Section 162(m).
The Committee may not delegate any responsibility relating to such Performance
Awards or Annual Incentive Awards if and to the extent required to comply with
Code Section 162(m).
(e) Status of Section 8(b) and Section 8(c) Awards Under Code Section
162(m). It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Section 8(b) and 8(c) hereof granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of Code Section 162(m) and regulations thereunder shall, if so designated by the
Committee, constitute "qualified performance-based compensation" within the
meaning of Code Section 162(m) and regulations thereunder. Accordingly, the
terms of Sections 8(b), (c), (d) and (e), including the definitions of Covered
Employee and other terms used therein, shall be interpreted in a manner
consistent with Code Section 162(m) and regulations thereunder. The foregoing
notwithstanding, because the Committee cannot determine with certainty whether a
given Participant will be a Covered Employee with respect to a fiscal year that
has not yet been completed, the term Covered Employee as used herein shall mean
only a person designated by the Committee, at the time of grant of Performance
Awards or an Annual Incentive Award, as likely to be a Covered Employee with
respect to that fiscal year. If any provision of the Plan or any agreement
relating to such Performance Awards or Annual Incentive Awards does not comply
or is inconsistent with the requirements of Code Section 162(m) or regulations
thereunder, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements.
9. Change in Control.
(a) Effect of "Change in Control." If and to the extent provided in the
Award, in the event of a "Change in Control," as defined in Section 9(b), the
following provisions shall apply:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of the
time of the Change in Control, subject only to applicable restrictions set
forth in Section 10(a) hereof;
(ii) Limited SARs (and other SARs if so provided by their terms) shall
become exercisable for amounts, in cash, determined by reference to the
Change in Control Price;
(iii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan shall lapse
and such Awards shall be deemed fully vested as of the time of the Change
in Control, except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 10(a) hereof; and
(iv) With respect to any such outstanding Award subject to achievement
of performance goals and conditions under the Plan, such performance goals
and other conditions will be deemed to be met if and to the extent so
provided by the Committee in the Award agreement relating to such Award.
(b) Definition of "Change in Control. A "Change in Control" shall be deemed
to have occurred upon:
(i) Approval by the shareholders of the Company of a reorganization,
merger, consolidation or other form of corporate transaction or series of
transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization,
merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation
or dissolution of the Company or the sale of all or substantially all of
the assets of the Company (unless such reorganization, merger,
consolidation or other corporate transaction, liquidation, dissolution or
sale (any such event being referred to as a "Corporate Transaction") is
subsequently abandoned); or (ii) Individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors of
the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Securities Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the
Incumbent Board.
(c) Definition of "Change in Control Price." The "Change in Control Price"
means an amount in cash equal to the higher of (i) the amount of cash and fair
market value of property that is the highest price per share paid (including
extraordinary dividends) in any Corporate Transaction triggering the Change in
Control under Section 9(b)(i) hereof or any liquidation of shares following a
sale of substantially all of the assets of the Company, or (ii) the highest Fair
Market Value per share at any time during the 60-day period preceding and the
60-day period following the Change in Control.
10. General Provisions.
(a) Compliance With Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee or the Board, postpone the
issuance or delivery of Stock or payment of other benefits under any Award until
completion of such registration or qualification of such Stock or other required
action under any federal or state law, rule or regulation, listing or other
required action with respect to any stock exchange or automated quotation system
upon which the Stock or other Company securities are listed or quoted, or
compliance with any other obligation of the Company, as the Committee or the
Board, may consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change in Control, the Company
shall take or cause to be taken no action, and shall undertake or permit to
arise no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery
or payment, to the extent that such postponement or other condition would
represent a greater burden on a Participant than existed on the 90th day
preceding the Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan, including any Award or right which
constitutes a derivative security as generally defined in Rule 16a-1(c) under
the Exchange Act, shall be pledged, hypothecated or otherwise encumbered or
subject to any lien, obligation or liability of such Participant to any party
(other than the Company or a Subsidiary), or assigned or transferred by such
Participant otherwise than by will or the laws of descent and distribution or to
a Beneficiary upon the death of a Participant, and such Awards or rights that
may be exercisable shall be exercised during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative, except
that Awards and other rights (other than ISOs and SARs in tandem therewith) may
be transferred to one or more Beneficiaries or other transferees during the
lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent such
transfers and exercises are permitted by the Committee or the Board pursuant to
the express terms of an Award agreement (subject to any terms and conditions
which the Committee or the Board may impose thereon, and further subject to any
prohibitions or restrictions on such transfers pursuant to Rule 16b-3). A
Beneficiary, transferee, or other person claiming any rights under the Plan from
or through any Participant shall be subject to all terms and conditions of the
Plan and any Award agreement applicable to such Participant, except as otherwise
determined by the Committee or the Board, and to any additional terms and
conditions deemed necessary or appropriate by the Committee or the Board.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that a
substitution or adjustment is determined by the Committee or the Board to be
appropriate in order to prevent dilution or enlargement of the rights of
Participants under the Plan, then the Committee or the Board shall, in such
manner as it may deem equitable, substitute or adjust any or all of (i) the
number and kind of shares of Stock which may be delivered in connection with
Awards granted thereafter, (ii) the number and kind of shares of Stock by which
annual per-person Award limitations are measured under Section 5 hereof, (iii)
the number and kind of shares of Stock subject to or deliverable in respect of
outstanding Awards and (iv) the exercise price, grant price or purchase price
relating to any Award and/or make provision for payment of cash or other
property in respect of any outstanding Award. In addition, the Committee (and
the Board if and only to the extent such authority is not required to be
exercised by the Committee to comply with Code Section 162(m)) is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards (including Performance Awards and performance goals, and Annual Incentive
Awards and any Annual Incentive Award pool or performance goals relating
thereto) in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence, as well as acquisitions
and dispositions of businesses and assets) affecting the Company, any Subsidiary
or any business unit, or the financial statements of the Company or any
Subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the Company, any
Subsidiary or business unit thereof, performance of comparable organizations,
economic and business conditions, personal performance of a Participant, and any
other circumstances deemed relevant; provided that no such adjustment shall be
authorized or made if and to the extent that such authority or the making of
such adjustment would cause Options, SARs, Performance Awards granted under
Section 8(b) hereof or Annual Incentive Awards granted under Section 8(c) hereof
to Participants designated by the Committee as Covered Employees and intended to
qualify as "performance-based compensation" under Code Section 162(m) and the
regulations thereunder to otherwise fail to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder.
(d) Taxes. The Company and any Subsidiary is authorized to withhold from
any award granted, any payment relating to an Award under the Plan, including
from a distribution of Stock, or any payroll or other payment to a Participant,
amounts of withholding and other taxes due or potentially payable in connection
with any transaction involving an Award, and to take such other action as the
Committee or the Board may deem advisable to enable the Company and Participants
to satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in respect
thereof in satisfaction of a Participant's tax obligations, either on a
mandatory or elective basis in the discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan, or the Committee's authority to grant Awards
under the Plan, without the consent of stockholders or Participants, except that
any amendment or alteration to the Plan shall be subject to the approval of the
Company's stockholders not later than the annual meeting next following such
Board action if such stockholder approval is required by any federal or state
law or regulation (including, without limitation, Rule 16b-3 or Code Section
162(m)) or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to the Plan to
stockholders for approval; provided that, without the consent of an affected
Participant, no such Board action may materially and adversely affect the rights
of such Participant under any previously granted and outstanding Award. The
Committee or the Board may waive any conditions or rights under, or amend,
alter, suspend, discontinue or terminate any Award theretofore granted and any
Award agreement relating thereto, except as otherwise provided in the Plan;
provided that, without the consent of an affected Participant, no such Committee
or the Board action may materially and adversely affect the rights of such
Participant under such Award. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee or the Board
may modify or adjust the right so that pooling of interest accounting shall be
available, including the substitution of Stock having a Fair Market Value equal
to the cash otherwise payable hereunder for the right which caused the
transaction to be ineligible for pooling of interest accounting.
(f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ of the Company or a Subsidiary; (ii) interfering in any way with the
right of the Company or a Subsidiary to terminate any Eligible Person's or
Participant's employment at any time, (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to be treated
uniformly with other Participants and employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant is duly issued or transferred shares of Stock in accordance with
the terms of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation
of trusts and deposit therein cash, Stock, other Awards or other property, or
make other arrangements to meet the Company's obligations under the Plan. Such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant. The trustee of such trusts may be authorized to dispose of
trust assets and reinvest the proceeds in alternative investments, subject to
such terms and conditions as the Committee or the Board may specify and in
accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable including incentive arrangements and awards which do not qualify under
Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee or the Board, in the event of a forfeiture
of an Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee or the Board shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the laws of the State of Florida without giving
effect to principles of conflicts of laws, and applicable federal law.
(k) Plan Effective Date and Stockholder Approval; Termination of Plan. The
Plan shall become effective on the Effective Date, subject to subsequent
approval within 12 months of its adoption by the Board by stockholders of the
Company eligible to vote in the election of directors, by a vote sufficient to
meet the requirements of Code Sections 162(m) and 422, Rule 16b-3 under the
Exchange Act, applicable NASDAQ requirements, and other laws, regulations, and
obligations of the Company applicable to the Plan. Awards may be granted subject
to stockholder approval, but may not be exercised or otherwise settled in the
event stockholder approval is not obtained. The Plan shall terminate at such
time as no shares of Common Stock remain available for issuance under the Plan
and the Company has no further rights or obligations with respect to outstanding
Awards under the Plan.
<PAGE>
PROXY FOR COMMON STOCK
SMART CHOICE AUTOMOTIVE GROUP, INC. SHAREHOLDER PROXY
THIS SHAREHOLDER PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS JUNE 24, 1998
The undersigned hereby appoints Gary R. Smith, Robert J. Downing and James Neal
Hutchinson, Jr. and any of them, as proxies, each with the power to appoint his
substitute, to represent, and vote all shares of Common Stock of and on behalf
of the undersigned as designated on the reverse side at the Annual Meeting of
Shareholders of Smart Choice Automotive Group, Inc. to be held June 24, 1998,
and any adjournments thereof, with all powers the undersigned would possess if
personally present and voting at such meeting.
Please mark your votes
as indicated in this example [ X ]
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, 4 and 5.
1. ELECTION OF DIRECTORS: Robert J. Abrahams, Gary R. Smith, Jeffrey D.
Congdon, John W. Holden, Jr., Craig Macnab, Gerald C. Parker and Donald A.
Wojnowski, Jr.
[ ] FOR nominees listed above (except [ ] WITHHOLD AUTHORITY
as marked to the contrary below) to vote for
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
2. PROPOSAL TO AMEND THE BYLAWS TO PROVIDE FOR THREE CLASSES OF DIRECTORS
SERVING STAGGERED TERMS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE THE 1998 EXECUTIVE INCENTIVE COMPENSATION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO APPROVE GRANT OF STOCK OPTIONS TO OUTSIDE DIRECTORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO APPROVE GRANT OF STOCK OPTIONS TO SALES MANAGERS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is indicated, the Proxy will be
voted FOR Proposals 1, 2, 3, 4 and 5.
PLEASE MARK ON THIS SIDE; THEN SIGN, DATE
AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE>
(Continued from other side)
ANNUAL MEETING OF SHAREHOLDERS
SMART CHOICE AUTOMOTIVE GROUP, INC.
to be held at:
5200 S. Washington Avenue
Titusville, Florida 32780
June 24, 1998
8:00 A.M., Local Time
This Proxy, when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is indicated, the Proxy
will be voted FOR Proposals 1, 2, 3, 4 and 5. In their discretion, the Proxies
are authorized to vote upon such other business as may properly come before the
annual meeting.
THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
Date: , 1998
--------------------
--------------------------------------------
Signature
--------------------------------------------
Signature if held jointly
PLEASE SIGN EXACTLY AS NAME(S) APPEAR(S) HEREON. If shares are held in the
name of two or more persons, all must sign. When signing as Attorney, Executor,
Administrator, Personal Representative, Trustee, or Guardian, give full title as
such. If signer is a corporation, sign full corporate name by duly authorized
officer.
