UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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First Acceptance Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1
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Title of each class of securities to which transaction applies:
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(2
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Aggregate number of securities to which transaction applies:
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(3
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Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it
was determined):
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(4
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Proposed maximum aggregate value of transaction:
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(5
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Total fee paid:
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Fee paid previously with preliminary materials:
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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.
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(1
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Amount Previously Paid:
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(2
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Form, Schedule or Registration Statement No.:
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(3
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Filing Party:
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(4
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Date Filed:
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FIRST ACCEPTANCE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 17, 2009
To our Stockholders:
The 2009 annual meeting of stockholders of First Acceptance Corporation will be held Tuesday,
November 17, 2009, at 9:30 a.m., central time, at our corporate headquarters, which are located at
3322 West End Ave., Suite 1000, Nashville, Tennessee 37203. At the meeting, stockholders will vote
on the following matters:
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1.
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Election of the nine directors set forth in this proxy statement to serve until
the next annual meeting of stockholders or until their respective successors are duly
elected and qualified;
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2.
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Approval of the Amended and Restated First Acceptance Corporation 2002 Long
Term Incentive Plan;
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3.
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Approval of a value-for-value option exchange whereby certain outstanding stock
options would be exchanged for shares of restricted common stock;
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4.
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Ratification of the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending June 30, 2010; and
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5.
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Any other matters that may properly come before the meeting.
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Stockholders of record at the close of business on October 5, 2009 are entitled to notice of and to
vote at the meeting.
Your vote is important. Please COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD in the
enclosed stamped envelope in order that as many shares as possible will be represented.
* * * IMPORTANT NOTICE * * *
Regarding Internet Availability of Proxy Materials
for the 2009 Annual Meeting of Stockholders to be held on November 17, 2009
In accordance with new rules issued by the Securities and Exchange Commission,
you may access our 2009 Annual Report and our Proxy Statement at
http://phx.corporate-ir.net/phoenix.zhtml?c=120257&p=irol-2009ProxyMaterials
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By Order of the Board of Directors,
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Kevin P. Cohn
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Secretary
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Nashville, Tennessee
October 16, 2009
TABLE OF CONTENTS
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i
FIRST ACCEPTANCE CORPORATION
3322 WEST END AVE., SUITE 1000
NASHVILLE, TENNESSEE 37203
PROXY STATEMENT
The Board of Directors of First Acceptance Corporation (referred to herein as the Board or the
Board of Directors) is soliciting proxies to be used at the 2009 annual meeting of stockholders.
This proxy statement and the enclosed proxy card will be first mailed to stockholders on or about
October 16, 2009.
ABOUT THE MEETING
What Is the Purpose of the Annual Meeting?
At our annual meeting, stockholders will vote on the matters outlined in the accompanying notice of
meeting. In addition, our management will report on our performance during fiscal 2009 and respond
to questions from stockholders.
Who Is Entitled to Vote?
Only stockholders of record at the close of business on the record date, October 5, 2009, are
entitled to receive notice of the annual meeting and vote the shares of common stock that they held
on that date at the meeting, or any postponement or adjournment of the meeting. Each outstanding
share of our common stock entitles its holder to cast one vote on each matter to be voted upon.
What Constitutes a Quorum?
For purposes of voting on all matters, the presence at the meeting, in person or by proxy, of the
holders of a majority of the shares of common stock outstanding on the record date will constitute
a quorum. As of the record date, 48,311,873 shares of our common stock were outstanding. Proxies
received but marked as abstentions will be included in the calculation of the number of shares
considered to be present at the meeting.
How Do I Vote?
If you complete and properly sign the accompanying proxy card and return the card to us, the card
will be voted as you direct. If you are a registered stockholder and attend the meeting, you may
deliver your completed proxy card in person. Street name stockholders who wish to vote at the
meeting will need to obtain a proxy card from the institution that holds their shares.
Can I Change My Vote After I Return My Proxy Card?
Yes. You can revoke your proxy at any time before it is exercised in any of three ways:
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by submitting written notice of revocation to the Assistant Secretary of the Company;
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by submitting another proxy that is later dated and properly signed; or
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by voting in person at the meeting.
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1
What Are the Boards Recommendations?
Unless you give other instructions on your proxy card, the persons named as proxy holders on the
proxy card will vote in accordance with the recommendations of the Board of Directors. The Boards
recommendations are set forth below, and a description of each item is included in this proxy
statement. In summary, the Board recommends a vote:
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for election of each of the nominated directors;
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for approval of the Amended and Restated First Acceptance Corporation 2002 Long Term
Incentive Plan;
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for approval of the exchange of certain outstanding stock options for shares of
restricted common stock; and
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for ratification of the appointment of Ernst & Young LLP as our independent auditors
for the fiscal year ending June 30, 2010.
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With respect to any other matter that properly comes before the meeting, the proxy holders will
vote as recommended by the Board of Directors or, if no recommendation is given, in their own
discretion.
What Vote Is Required to Approve Each Proposal?
Each of the director nominees must receive affirmative votes from a plurality of the votes cast to
be elected. This means that the nine nominees receiving the greatest number of votes will be
elected as directors. The approval of the Amended and Restated First Acceptance Corporation 2002
Long Term Incentive Plan, the proposed option exchange and the ratification of the appointment of
Ernst & Young LLP as our independent auditors, as well as any other matter that properly comes
before the meeting, in order to be approved, must receive affirmative votes from a majority of the
shares represented in person or by proxy and entitled to vote on the matter. If you abstain from
voting on the election of directors, your abstention will have no effect on the outcome, provided
that a quorum has been established. If you abstain from voting on the Amended and Restated First
Acceptance Corporation 2002 Long Term Incentive Plan, the proposed option exchange, or the
ratification of the appointment of Ernst & Young LLP as our independent auditors, your abstention
will have the same effect as a vote against the proposal.
Will My Shares Be Voted if I Do Not Sign and Return My Proxy Card?
If you are a registered stockholder and do not sign and return your proxy card, your shares will
not be voted at the annual meeting. If your shares are held in street name and you do not issue
instructions to your broker, your broker may vote your shares at its discretion with respect to the proposals relating to the election of directors and the ratification of the
appointment of Ernst & Young LLP as our independent auditors.
What Is a Broker Nonvote?
Under current New York Stock Exchange rules, brokers and nominees may exercise their voting
discretion without receiving instructions from the beneficial owner of the shares on proposals that
are deemed to be routine matters. If a proposal is not a routine matter, the broker or nominee may
not vote the shares with respect to the proposal without receiving instructions from the beneficial
owner of the shares. If a broker turns in a proxy card expressly stating that the broker is not
voting on a nonroutine matter, such action is referred to as a broker nonvote. Under current New
York Stock Exchange rules, the proposals relating to the election of directors and the ratification
of the appointment of Ernst & Young LLP as our independent auditors are deemed to be routine
matters with respect to which brokers and nominees may exercise their voting discretion without
receiving instructions from the beneficial owner of the shares. The proposals relating to the
Amended and Restated First Acceptance Corporation 2002 Long Term Incentive Plan and the proposed
option exchange are deemed to be non-routine matters, and brokers and nominees may not exercise
their discretion to vote on those proposals without receiving instructions from the beneficial
owner of the shares.
2
STOCK OWNERSHIP
The following table shows the amount of our common stock beneficially owned (unless otherwise
indicated) by our current directors, our named executive officers listed in this proxy statement
and our current directors and executive officers as a group. Except as indicated in the table,
none of our stockholders beneficially owns more than 5% of our common stock. Except as otherwise
indicated, all information is as of October 5, 2009.
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Acquirable
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Outstanding
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Within 60
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Percent of
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Name
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Shares
(1)
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Days (2)
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Class (3)
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Gerald J. Ford
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16,073,465
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(4
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33.3
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Thomas M. Harrison, Jr.
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6,999,999
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(5
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100,000
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14.7
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%
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Donald J. Edwards
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536,666
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(6
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3,725,678
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8.2
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%
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Rhodes R. Bobbitt
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171,661
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*
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Tom C. Nichols
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49,500
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Lyndon L. Olson, Jr.
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4,000
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William A. Shipp, Jr.
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15,501
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Harvey B. Cash
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4,000
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Stephen J. Harrison
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7,048,039
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(7
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100,000
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14.8
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Edward L. Pierce
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465,000
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(8
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212,500
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1.4
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Kevin P. Cohn
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131,250
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Dan L. Walker
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34,667
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(9
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20,000
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Keith E. Bornemann
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13,866
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(9
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11,000
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*
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All current
directors and executive officers
as a group (13 persons)
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31,416,364
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4,300,428
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67.9
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%
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*
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Represents less than 1% of our outstanding common stock.
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(1)
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The number of shares shown includes shares that are individually or jointly owned, as well as
shares over which the individual has either sole or shared investment or voting authority.
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(2)
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Reflects the number of shares that could be purchased by exercise of options exercisable on
October 5, 2009 or within 60 days thereafter under our stock incentive plan.
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(3)
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Pursuant to the rules of the Securities and Exchange Commission (the SEC), shares of common
stock that an individual owner has a right to acquire within 60 days pursuant to the exercise
of stock options are deemed to be outstanding for the purpose of computing the ownership of
that owner, but are not deemed outstanding for the purpose of computing the ownership of any
other individual owner. Likewise, the shares subject to options held by our directors and
executive officers that are exercisable within 60 days are all deemed outstanding for the
purpose of computing the percentage ownership of all executive officers and directors as a
group.
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(4)
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Includes 12,319,654 shares owned through Hunters Glen/Ford Ltd. (Hunters Glen); 1,229,718
shares owned through Turtle Creek Revocable Trust (Turtle Creek Trust); and 1,960,365 shares
owned by Mr. Fords son. Because Mr. Ford is one of two general partners of Hunters Glen and
the sole stockholder of Ford Diamond Corporation, a Texas corporation and the other general
partner of Hunters Glen, Mr. Ford is considered the beneficial owner of the shares that
Hunters Glen owns. Since Mr. Ford is trustee of Turtle Creek Trust, Mr. Ford is considered
the beneficial owner of the shares that Turtle Creek Trust owns. Address: 200 Crescent Court,
Suite 1365, Dallas, Texas 75201.
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(5)
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Includes 2,188,168 shares held by the Thomas M. Harrison, Jr. Family 2008 Grantor Retained
Annuity Trust and 4,811,831 shares held by the Thomas M. Harrison, Jr. Family 2009 Grantor
Retained Annuity Trust. Address: c/o Bass, Berry & Sims PLC, 315 Deaderick St., Suite 2700,
Nashville, Tennessee 37238.
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(6)
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Address: Flexpoint Ford, LLC, 676 N. Michigan Avenue, Suite 3300, Chicago, Illinois 60611.
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(7)
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Includes 17,537 shares of unvested restricted stock, 2,188,168 shares held by the Stephen J. Harrison 2008
Grantor Retained Annuity Trust and 4,811,831 shares held by the Stephen J. Harrison 2009
Grantor Retained Annuity Trust. Address: c/o Bass, Berry & Sims PLC, 315 Deaderick St., Suite
2700, Nashville, Tennessee 37238.
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(8)
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Includes 160,000 shares of unvested restricted stock.
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(9)
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Represents shares of unvested restricted stock.
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3
Section 16(a) Beneficial Ownership Reporting Compliance
The federal securities laws require our directors and executive officers and persons who own more
than 10% of our common stock to timely file with us and the SEC initial reports of ownership and
reports of changes in ownership. Based solely upon a review of filings with the SEC and written
representations that no other reports were required, we believe that all of our directors and
officers complied during fiscal 2009 with their reporting requirements.
CORPORATE GOVERNANCE
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines that outline the composition, operations and
responsibilities of the Board of Directors. The Corporate Governance Guidelines require that at
least a majority of the members of the Board must be independent, as defined by applicable law and
the standards of the New York Stock Exchange. The Board has determined that each of Messrs.
Bobbitt, Cash, Nichols, Olson and Shipp are independent within the meaning of the rules of the
New York Stock Exchange as currently in effect. The Corporate Governance Guidelines also require
that all of the members of the Audit, Compensation, and Nominating and Corporate Governance
Committees of the Board must be independent. A copy of our Corporate Governance Guidelines may be
found on the corporate governance page of our website at www.firstacceptancecorp.com, and we will
send a written copy of our Corporate Governance Guidelines to any stockholder who requests a copy
by delivering written notice to Michael J. Bodayle, Assistant Secretary, First Acceptance
Corporation, 3322 West End Ave., Suite 1000, Nashville, Tennessee 37203.
The non-management members of the Board of Directors meet regularly in executive sessions. The
Chairman of the Board of Directors presides over executive sessions of the non-management
directors. Stockholders and all other interested parties may send communications to the Chairman of
the Board of Directors or to any of the non-management directors at 3322 West End Ave., Suite 1000,
Nashville, Tennessee 37203.
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics which outlines the principles, policies
and laws that govern our activities and establishes guidelines for professional conduct in the
workplace. The Code of Business Conduct and Ethics includes provisions relating to ethical conduct,
conflicts of interest, compliance with law and internal reporting of violations of the code.
The Code of Business Conduct and Ethics applies to directors as well as executive officers and
other employees. Every employee is required to read and certify annually that he or she has read
and understands, and will comply with, the Code of Business Conduct and Ethics. A copy of our Code
of Business Conduct and Ethics may be found on the corporate governance page of our website at
www.firstacceptancecorp.com, and we will send a written copy of our Code of Business Conduct and
Ethics to any stockholder who requests a copy by delivering written notice to Michael J. Bodayle,
Assistant Secretary, First Acceptance Corporation, 3322 West End Ave., Suite 1000, Nashville,
Tennessee 37203. We intend to disclose amendments to or waivers from the Code of Business Conduct
and Ethics for the benefit of our executive officers or directors, if any, on our web site at
www.firstacceptancecorp.com.
4
PROPOSAL
1 ELECTION OF DIRECTORS
The Board of Directors is comprised of nine members. The Board of Directors has nominated and
recommends to the stockholders Rhodes R. Bobbitt, Harvey B. Cash, Donald J. Edwards, Gerald J.
Ford, Stephen J. Harrison, Thomas M. Harrison, Jr., Tom C. Nichols, Lyndon L. Olson, Jr. and
William A. Shipp, Jr. for election to serve as directors until our next annual meeting of
stockholders and until such time as their respective successors are duly elected and qualified.
Each of the director nominees is currently a director and was elected by the stockholders at our
2008 annual meeting of stockholders.
If any of the nominees should become unable to accept election, the persons named in the proxy may
vote for such other person or persons as may be designated by the Board of Directors. Management
has no reason to believe that any of the nominees named above will be unable to serve.
Certain information with respect to the nominees for election as directors is set forth below.
Rhodes R. Bobbitt
, 64, has served as a director of the Company
since August 2004. From February 1987 until his retirement in June
2004, Mr. Bobbitt served as managing director and Dallas regional
office manager of the Private Client Service Group Credit Suisse
First Boston and its predecessor, Donaldson, Lufkin & Jenrette.
Prior to joining Donaldson, Lufkin & Jenrette, Mr. Bobbitt was vice
president of security sales in the Dallas office of Goldman Sachs &
Co. Mr. Bobbitt is a director of Hilltop Holdings, Inc.
Harvey B. Cash
, 70, has served as a director of the Company since
November 1996. Mr. Cash has been a general partner of InterWest
Partners, a venture capital fund, since 1986. Mr. Cash is a
director of Silicon Laboratories, Ciena Corporation, and Argo Group
International Holdings, Ltd.
Donald J. Edwards
, 43, has served as a director of the Company
since July 2002. Mr. Edwards currently is the managing principal
for Flexpoint Ford, LLC (formerly Flexpoint Partners, LLC), a
Chicago-based private equity firm (Flexpoint Ford), and served as
our President and Chief Executive Officer from July 2002 through
April 2004. Prior to July 2002, Mr. Edwards served as a Principal
in GTCR Golder Rauner, a Chicago-based private equity firm, for
over five years.
Gerald J. Ford
, 65, has been Chairman of the Board of Directors and
a director of the Company since its formation in August 1996. Mr.
Ford served as our Chief Executive Officer from our formation until
July 2002. He currently is a private investor, and serves as
Chairman of the Board of Trustees of Southern Methodist University,
as a trustee of Southwestern Medical Foundation, and as Chairman of
Flexpoint Ford. Mr. Ford was the Chairman of the Board, Chief
Executive Officer and a director of Golden State Bancorp Inc., a
holding company whose primary asset was its indirect ownership of
California Federal Bank, from September 1998 through November 2002.
Mr. Ford is a director of Freeport-McMoRan Copper & Gold, McMoRan
Exploration Co., Scientific Games Corporation and Hilltop Holdings,
Inc.
Stephen J. Harrison
, 57, has served as our Chief Executive Officer
and a director of the Company since April 2004. Mr. Harrison served
as our President from April 2004 through February 2008. In 1995,
Mr. Harrison co-founded USAuto Insurance Company, Inc., predecessor
of USAuto Holdings, Inc. (USAuto Holdings), which we acquired in
April 2004. Mr. Harrison has over 30 years experience in insurance
and related industries, including automobile insurance and
insurance agency operations. From 1974 to 1991, he served in
various capacities with the Harrison Insurance Agency, a
family-owned multi-line insurance agency. From 1991 to 1993, Mr.
Harrison served as President of Direct Insurance Company, a
non-standard automobile insurance company. Mr. Harrison is the
brother of Thomas M. Harrison, Jr., a director of the Company.
Thomas M. Harrison, Jr.
, 59, has served as a director of the
Company since April 2004. Mr. Harrison served as Executive Vice
President and Secretary of the Company from April 2004 until his
retirement in December 2007. Mr. Harrison co-founded USAuto
Insurance Company, Inc., predecessor to USAuto Holdings, in 1995
and served as Vice President and Secretary of USAuto Holdings from
1995 until December 2007. Mr. Harrison is the brother of Stephen J.
Harrison, who is our Chief Executive Officer and a director of the
Company.
5
Tom C. Nichols
, 62, has served as a director of the Company since
November 2005. Mr. Nichols has served as Investment Chief
Executive Officer of Carlile Holdings, Inc., a bank holding
company, since March 2008. Mr. Nichols served as President and a
director of First United Bancorp and Chairman, President and Chief
Executive Officer of State National Bancshares, Fort Worth from
October 1996 to March 2008.
Lyndon L. Olson, Jr.
, 62, has served as a director of the Company
since August 2004. Mr. Olson served as a senior advisor to
Citigroup, Inc., serving as a consultant to senior management, from
2001 to 2008. Mr. Olson served as United States Ambassador to
Sweden from 1998 until 2001. From 1990 to 1998, Mr. Olson served
with Citigroup as President and Chief Executive Officer of
Travelers Insurance Holdings and the Associated Madison Companies.
Prior to joining Citigroup, Mr. Olson served as President of the
National Group Corporation and Chief Executive Officer of its
National Group Insurance Company.
William A. Shipp, Jr.
, 57, has served as a director of the Company
since August 2004. Mr. Shipp has been principal of W.A. Shipp, Jr.
& Co., a financial advisory firm, since July 1995 and has served as
Treasurer/Secretary of the Jack C. Massey Foundation since July
1999. From December 1983 to June 1995, Mr. Shipp served as Vice
President of Massey Investment Company. Prior to joining Massey
Investment Company, Mr. Shipp worked for more than eight years in
various audit and tax capacities for Ernst & Young LLP. Mr. Shipp
is a certified public accountant.
Required Vote; Recommendation of the Board
The affirmative vote of a plurality of the votes cast by the stockholders entitled to vote at the
meeting is required for the election of directors. Abstentions will be counted in determining
whether there is a quorum, but will not be voted with respect to the proposal. Therefore, so long
as a quorum has been established, abstentions will have no effect on whether this proposal is
approved.
The Board of Directors recommends that you vote FOR each of the nominees.
6
How Are Our Directors Compensated?
Each non-employee director receives an annual retainer of $20,000, payable in equal, quarterly
installments in arrears. The Chairman of the Audit Committee of the Board of Directors receives an
additional annual retainer of $5,000, payable in equal, quarterly installments in arrears.
Non-employee directors also receive a fee of $2,000 for each Board of Directors meeting attended
and $1,000 for each Board committee meeting attended. In addition, non-employee directors other
than Messrs. Edwards, Ford and Thomas M. Harrison, Jr. receive an award pursuant to our 2002 Long
Term Incentive Plan of 1,000 shares of restricted stock on the date of each annual meeting of our
stockholders. The restricted stock is subject to forfeiture if the director ceases to serve as a
director of the Company during the period of six months following the date of the award, subject to
certain exceptions.
The following table summarizes information with respect to the compensation paid to the members of
our Board in fiscal 2009.
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Fees Earned
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Stock
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or Paid in
|
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Awards
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Name
|
|
Cash ($)
|
|
($) (1)
|
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Total ($)
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Rhodes R. Bobbitt
|
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45,000
|
|
2,950
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47,950
|
Harvey B. Cash
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29,000
|
|
2,950
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31,950
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Donald J. Edwards
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34,000
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|
|
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34,000
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Gerald J. Ford
|
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30,000
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|
|
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30,000
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Thomas M. Harrison, Jr.
|
|
30,000
|
|
|
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30,000
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Thomas C. Nichols
|
|
37,000
|
|
2,950
|
|
39,950
|
Lyndon L. Olson, Jr.
|
|
27,000
|
|
2,950
|
|
29,950
|
William A. Shipp, Jr.
|
|
50,000
|
|
2,950
|
|
52,950
|
|
|
|
(1)
|
|
Represents the proportionate amount of the total value of stock awards to directors
recognized as an expense during fiscal 2009 for financial accounting purposes under
Statement of Financial Accounting Standards No. 123 (Revised),
Share Based Payment
(SFAS
123R), disregarding for this purpose estimated forfeitures relating to service-based
vesting conditions. Compensation expense is equal to the grant date fair value of the
stock awards using the closing price for the Companys common stock on the New York Stock
Exchange on the date of grant ($2.95). As of June 30, 2009, there were no unvested stock
awards held by our non-employee directors.
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What Committees Has the Board Established?
The Board of Directors has standing Audit, Compensation, and Nominating and Corporate Governance
Committees. A copy of the charter for each committee may be found on the corporate governance page
of our website at www.firstacceptancecorp.com and is available to any stockholder who requests a
copy by delivering written notice to Michael J. Bodayle, Assistant Secretary, First Acceptance
Corporation, 3322 West End Ave., Suite 1000, Nashville, Tennessee 37203.
Audit Committee
. The principal functions of the Audit Committee are (i) to oversee our accounting
and financial reporting processes and audits of our financial statements; (ii) to engage or
discharge our independent auditors; (iii) to review the nature and scope of the audit, including,
but not limited to, a determination of the effectiveness of the audit effort through meetings held
at least annually with independent auditors, and a determination through discussion with the
auditors that no unreasonable restrictions were placed on the scope or implementation of their
examinations; (iv) to oversee and review the independence, qualifications and performance of the
auditors; (v) to pre-approve all auditing and non-auditing services to be provided by our
independent auditors; (vi) to review our financial statements and disclosures in our periodic
reports with management and our independent auditors; (vii) to review our policies with respect to
risk assessment, risk management and the quality and adequacy of our internal controls and
processes through discussions with and reports from our independent auditors and management; (viii)
to establish procedures for handling any complaints relating to accounting, internal controls or
auditing matters and to ensure that such complaints are treated confidentially and anonymously;
(ix) to review material changes in accounting and reporting principles and practices and discuss
with management and outside auditors the selection, application and disclosure of critical
accounting policies and practices used in our financial statements; (x) to retain, at our expense,
outside counsel, auditors or other experts, consultants or advisors as it deems
7
necessary or appropriate in the performance of its duties; and (xi) to report to the full Board of Directors on
the results of its reviews. The Audit Committee operates under a written charter adopted by the
full Board of Directors. Members of the Audit Committee are Messrs. Bobbitt, Nichols and Shipp,
all of whom are independent directors. Mr. Shipp is an audit committee financial expert, as
defined in Item 407(d)(5)(ii) of Regulation S-K. During
fiscal 2009, the Audit Committee met seven times.
Compensation Committee
. The functions of the Compensation Committee include reviewing and approving
the Companys compensation policies, the compensation arrangements for senior management and
directors, the compensation and benefit plans in which officers and directors are eligible to
participate, and awards under (and otherwise administering) such plans. The Compensation Committee
operates under a written charter adopted by the full Board of Directors. Members of the
Compensation Committee are Messrs. Cash, Nichols and Olson, all of whom are independent directors.
During fiscal 2009, the Compensation Committee met two times.
Nominating and Corporate Governance Committee
. The Nominating and Corporate Governance Committee is
responsible for identifying qualified individuals to serve as directors; reviewing the
qualifications of incumbent directors and those candidates proposed by a director, executive
officer or stockholder; making recommendations to the full Board of Directors regarding such
candidates; recommending the candidates that will serve on the various committees of the Board;
reviewing Board composition; and reviewing the management succession plan of the Company.
When determining whether to nominate a current director to be reelected as a director, the
Nominating and Corporate Governance Committee must review the performance of the director during
the prior year using performance criteria established by the Nominating and Corporate Governance
Committee which, at a minimum, shall include:
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attendance at Board and Committee meetings;
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|
|
|
preparedness for Board and Committee meetings;
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|
|
|
|
quality of objectivity in exercising business judgment;
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|
|
|
participation at Board and Committee meetings; and
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|
|
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candor toward other directors, management and professionals retained by the Company.
|
The Nominating and Corporate Governance Committee has no specifically defined process for
identifying and evaluating nominees, but it seeks to identify potential candidates for membership
on the Board through conversations with members of the Board, senior management and other
constituencies. The Nominating and Corporate Governance Committee may from time to time engage a
third party to identify or evaluate or assist in identifying or evaluating potential nominees. The
Nominating and Corporate Governance Committee is also responsible for reviewing the qualifications
and performance of incumbent directors to determine whether to recommend them to the Board of
Directors as nominees for re-election.
The Nominating and Corporate Governance Committee also considers nominees proposed by our
stockholders in accordance with the provisions contained in our bylaws and certificate of
incorporation. Nominations made by stockholders must be made by written notice setting forth the
information required by our bylaws and certificate of incorporation received by the secretary of
the Company at least 60 days in advance of the annual meeting of stockholders, or (if later) within
ten days after the first public notice of that meeting is sent to stockholders. Stockholders may
propose nominees for consideration by the Nominating and Corporate Governance Committee by
submitting the names and supporting information to: Michael J. Bodayle, Assistant Secretary, First
Acceptance Corporation, 3322 West End Ave., Suite 1000, Nashville, Tennessee 37203.
In addition, the Nominating and Corporate Governance Committee is responsible for reviewing and
recommending corporate governance policies for the Company; reviewing potential conflicts of
interest involving directors or executive officers of the Company; evaluating Board performance,
including the effectiveness of current Board policies and practices; and reviewing any regulatory
requirements relating to the continuing education of directors. The Nominating and Corporate
Governance Committee operates under a written charter adopted by the full Board of Directors.
Members of the Nominating and Corporate Governance Committee are Messrs. Bobbitt, Cash and Shipp,
all of whom are independent directors. During fiscal 2009, the Nominating and Corporate Governance
Committee met two times.
8
How Often Did the Board Meet During Fiscal 2009?
The Board of Directors met five times during fiscal 2009. Each of the directors attended at least
75% of the aggregate of all meetings of the Board of Directors and all meetings of the committees
on which the director served, with the exception of Messrs. Cash and Olson. All of the directors
other than Mr. Olson attended our 2008 annual meeting of stockholders.
How Do I Communicate with the Board?
Stockholders and all other interested parties can send communications to the Board of Directors
and, if applicable, to specified individual directors c/o First Acceptance Corporation, 3322 West
End Ave., Suite 1000, Nashville, Tennessee 37203. All stockholder communications will be forwarded
directly to the Board of Directors or, if applicable, to specified individual directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with our Related Party Transaction Policy, our Nominating and Corporate Governance
Committee is responsible for reviewing and approving the terms and conditions of all transactions
involving the Company and our executive officers, directors and beneficial owners of 5% or more of
our common stock and their affiliates. The Nominating and Corporate Governance Committee considers
all relevant information and facts available regarding a related party transaction, and takes into
account factors that it deems to be appropriate, including, without limitation, whether the
transaction is on terms no less favorable to the Company than could be obtained from unaffiliated
third parties and whether the transaction is reasonably expected to benefit the Company. Approval
of the Nominating and Corporate Governance Committee is not required for compensation paid to any
director of the Company for services rendered to the Company in his capacity as a director if the
compensation is required to be disclosed in the Companys proxy statement pursuant to applicable
SEC rules. The Nominating and Corporate Governance Committee is also not required to approve any
compensation paid to an executive officer of the Company if the compensation is required to be
reported in the Companys proxy statement pursuant to applicable SEC rules or if the executive
officer is not an immediate family member of another executive officer or director of the Company,
the compensation would be required to be included in the Companys proxy statement if the executive
officer was a named executive officer and the Companys Compensation Committee approved such
compensation.
Donald J. Edwards, our former President and Chief Executive Officer and a current director, was
terminated as our President and Chief Executive Officer on April 30, 2004. In connection with Mr.
Edwards separation from the Company, we entered into a Separation Agreement with Mr. Edwards.
Pursuant to the terms of the Separation Agreement, we agreed to reimburse Flexpoint Partners, LLC,
now known as Flexpoint Ford, LLC, an entity controlled by Mr. Edwards, for all expenses incurred by
Flexpoint Ford pursuant to the lease for its office space located in Chicago, Illinois. The lease
expired on August 31, 2009. During the 2009 fiscal year, we paid Flexpoint Ford an aggregate of
$74,790 pursuant to the Separation Agreement. Gerald J. Ford currently serves as the Chairman of
Flexpoint Ford and Mr. Fords son is a Principal of Flexpoint Ford.
Effective May 1, 2004, we entered into an Advisory Services Agreement with Flexpoint Ford pursuant
to which Flexpoint Ford rendered
advisory services to the Company. Pursuant to the Advisory Services Agreement, we paid Flexpoint
Ford a quarterly fee of $62,500 and reimbursed it for its reasonable expenses incurred in
connection with providing those advisory services for a four-year period through April 2008. During
the 2009 fiscal year, we paid Flexpoint Ford advisory services fees of $20,833 pursuant to the
Advisory Services Agreement.
Thomas
M. Harrison, Jr.s brother-in-law, Buck Hussung, served as Vice President Premium
Processing and Customer Service of the Company through July 2009. Mr. Hussung is compensated in a
manner consistent with our employment and compensation policies applicable to other employees of
similar title and responsibility. The aggregate annual compensation paid by the Company to Mr.
Hussung during the 2009 fiscal year exceeded $120,000.
9
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our current executive officers.
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Name
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Age
|
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Position
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Stephen J. Harrison
|
|
|
57
|
|
|
Chief Executive Officer
|
Edward L. Pierce
|
|
|
52
|
|
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President
|
Kevin P. Cohn
|
|
|
40
|
|
|
Senior Vice President and Chief Financial
Officer
|
Daniel L. Walker
|
|
|
46
|
|
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Senior Vice President Operations
|
Keith E. Bornemann
|
|
|
37
|
|
|
Vice President Corporate Controller
|
Stephen J. Harrison
has served as our Chief Executive Officer and a director of the Company
since April 2004. Mr. Harrison served as our President from April 2004 through February 2008. In
1995, Mr. Harrison co-founded USAuto Insurance Company, Inc., predecessor of USAuto Holdings, Inc.,
which we acquired in April 2004. Mr. Harrison has over 30 years experience in insurance and related
industries, including automobile insurance and insurance agency operations. From 1974 to 1991, he
served in various capacities with the Harrison Insurance Agency, a family-owned multi-line
insurance agency. From 1991 to 1993, Mr. Harrison served as President of Direct Insurance Company,
a non-standard automobile insurance company. Mr. Harrison is the brother of Thomas M. Harrison,
Jr., a director of the Company.
Edward L. Pierce
has served as our President since February 2008. Mr. Pierce served as
Executive Vice President of the Company from August 2006 to February 2008 and Chief Financial
Officer from October 2006 to February 2008. From May 2001 through February 2006, Mr. Pierce served
as Executive Vice President and Chief Financial Officer and as a director of BindView Development
Corporation, a publicly-traded network security software development company. From November 1994
through January 2001, Mr. Pierce held various financial management positions, including Executive
Vice President and Chief Financial Officer, with Metamor Worldwide Corporation, a publicly-traded
global information technology services company. Previously, Mr. Pierce was Corporate Controller of
American Oil and Gas Corporation and a Senior Audit Manager at Arthur Andersen & Co.
Kevin P. Cohn
has served as our Senior Vice President, Chief Financial Officer and Secretary
since February 2008. Mr. Cohn served as Chief Accounting Officer and Corporate Controller of the
Company from October 2006 to February 2008. From May 2001 through May 2006, he served as Vice
President, Chief Accounting Officer and Corporate Controller of BindView Development Corporation, a
publicly-traded network security software development company. From December 1997 until February
2001, Mr. Cohn was employed by Metamor Worldwide Inc., a publicly-traded global information
technology services company, where he was Vice President, Chief Accounting Officer and Corporate
Controller. Before that, Mr. Cohn was employed with Ernst & Young LLP as an Audit Manager.
Daniel L. Walker
has served as our Senior Vice President Operations since October 2007
having responsibilities for both claims and underwriting. Mr. Walker served as our Senior Vice
President Claims from July 2007 to October 2007 and Vice President Claims from March 2007 to
July 2007. He has over 20 years claims experience, and served as Chief Claim Officer for Canal
Insurance Company from August 2002 to March 2007.
Keith E. Bornemann
has served as Vice President Corporate Controller of the Company since
November 2008 and Corporate Controller of the Company from February 2008 to November 2008. Mr.
Bornemann served as Assistant Controller of the Company from January 2007 to February 2008. He has
over 13 years of accounting, finance and internal audit experience, and was employed from January
2005 to January 2007 by Sachem, Inc., a privately-held global manufacturing company, where he was
Manager of Finance and Internal Audit. From July 1995 to December 2004, Mr. Bornemann was employed
with Ernst & Young LLP, most recently as an Audit Senior Manager.
10
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed of three directors who are independent
directors as defined under the applicable rules of the Securities Exchange Commission and the New
York Stock Exchange. The Audit Committee operates under a written charter adopted by the full Board
of Directors. The Audit Committees responsibilities include oversight of our independent auditors
and internal audit function, as well as oversight of our financial reporting process on behalf of
the full Board of Directors. Management has the primary responsibility for the financial statements
and the reporting process. Our independent auditors are responsible for expressing an opinion on
the conformity of our audited financial statements to generally accepted accounting principles.
In this context, for fiscal 2009, the Audit Committee reviewed and discussed with management and
the independent auditors the audited financial statements. Management represented to the Audit
Committee that our consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States. The Audit Committee reviewed a report on the
effectiveness of our internal control over financial reporting and Managements Annual Report on
Internal Control Over Financial Reporting and Ernst and Youngs Report of Independent Registered
Public Accounting Firm, which are included in our Annual Report on Form 10-K for the year ended
June 30, 2009.
The Audit Committee discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 114. The Audit Committee has received the written disclosures
and the letter from the independent accountant required by applicable requirements of the Public
Company Accounting Oversight Board regarding the independent accountants communications with the
Audit Committee concerning independence, and has discussed with the independent accountant the
independent accountants independence. The Audit Committee has
also considered whether the independent
auditors provision of non-audit services to the Company is compatible with maintaining the
auditors independence.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to
the full Board of Directors that the audited financial statements be included in our Annual Report
on Form 10-K for the year ended June 30, 2009, which was filed with the SEC.
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|
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THE AUDIT COMMITTEE
|
|
|
Rhodes R. Bobbitt
|
|
|
Tom C. Nichols
|
|
|
William A. Shipp, Jr.
|
The foregoing report of the Audit Committee shall not be deemed incorporated by reference by any
general statement incorporating by reference the proxy statement into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not otherwise be deemed
filed under such acts.
11
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and, based upon such review
and discussions, the Compensation Committee recommended to the Board that the Compensation
Discussion and Analysis be included in this Proxy Statement.
|
|
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|
|
THE COMPENSATION COMMITTEE
|
|
|
Harvey B. Cash
|
|
|
Tom C. Nichols
|
|
|
Lyndon L. Olson, Jr.
|
Compensation Discussion and Analysis
Overview of Compensation Process.
The Compensation Committee of our Board of Directors is
responsible for establishing the compensation arrangements for our employees, including our
executive officers, and reviewing and making recommendations to the full Board of Directors
regarding non-employee director compensation. The Compensation Committee is also responsible for
the administration of our stock incentive plans and other compensation plans in which our employees
participate. It is the responsibility of the Compensation Committee to determine whether, in its
judgment, our executive compensation policies are reasonable and appropriate, meet the stated
objectives of those policies and effectively serve our best interests and the best interests of our
stockholders. Each member of the Compensation Committee is an independent director as defined
under the applicable rules of the New York Stock Exchange and our Corporate Governance Guidelines,
a non-employee director as defined in Rule 16b-3 of the rules promulgated under the Securities
Exchange Act of 1934, and an outside director for the purposes of the Internal Revenue Code of
1986, in each case as determined by our Board of Directors.
The Compensation Committee reviews our compensation policies on an annual basis and the
compensation of individual executives is reviewed annually in light of the compensation policies
for that year. In setting and reviewing executive compensation, in addition to corporate
performance, the Compensation Committee believes it is appropriate to consider the level of
experience and responsibilities of each executive, as well as the personal contributions a
particular individual may make to the corporate enterprise. No relative weight is assigned to
quantitative or qualitative factors considered by the Compensation Committee in reaching its
decisions. The Company did not engage a compensation consultant or engage in benchmarking of
comparable companies in determining the compensation of its executive officers during fiscal 2009.
Role of Executive Officers in Compensation Decisions.
The Compensation Committee makes all
decisions regarding the compensation of our executive officers. The Compensation Committee
annually evaluates the performance of our executive officers, and our chief executive officer and
president provide the Compensation Committee with their assessment of the performance of our
executive officers other than themselves. Decisions regarding the compensation of employees other than our executive officers are made by our chief executive officer
and president in consultation with other members of management.
What Is Our Philosophy of Executive Officer Compensation?
The Compensation Committee believes that the primary objectives of our executive compensation
policies should be:
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To attract and retain talented executives by providing compensation that is,
overall, competitive with the compensation provided to executives at companies of
comparable position in our industry, while maintaining compensation within levels
that are consistent with our annual budget, financial objectives and operating
performance;
|
12
|
|
|
To provide appropriate incentives for executives to work toward the achievement
of our annual financial performance and business goals; and
|
|
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|
|
To more closely align the interests of executives with those of stockholders and
the long-term interests of the company by providing long-term incentive
compensation in the form of stock options or other equity-based long-term incentive
compensation.
|
The Compensation Committee is committed to a strong link between our financial and strategic
objectives and our compensation and benefit practices. It is the Committees objective to have a
substantial portion of each executive officers compensation contingent upon our performance, as
well as upon his or her individual performance. Accordingly, the Compensation Committees
compensation philosophy for an executive officer emphasizes an overall analysis of the executives
performance for the prior year, his or her projected role and responsibilities, required impact on
execution of our strategy, total cash and equity compensation internally, and other factors the
Compensation Committee deems appropriate.
Elements of 2009 Executive Compensation.
For the fiscal year ended June 30, 2009, the
principal components of compensation for our executive officers were:
Base Salary
. We provide executive officers with base salaries to compensate them for
services provided during the year. The base salaries of our executive officers are established by
the terms of employment agreements between the Company and those executives. These employment
agreements provide for a minimum base salary, adjusted for such increases as the Compensation
Committee shall determine to be appropriate. The Compensation Committee generally reviews the base
salaries of our executive officers on an annual basis. In determining whether an increase in base
compensation for the executive officers is appropriate, the Compensation Committee considers the
performance of the Company and the executive officer during the prior year, the executive officers
level of base salary relative to other executive officers of the Company, and the recommendations
of the chief executive officer and president. In setting 2009 base salaries, the Compensation
Committee considered the fact that Messrs. Walker and Bornemann
changed their position within the
Company and/or assumed increased responsibilities with the Company
during 2009. Based upon these factors, the
Compensation Committee approved base salaries for our executive officers for calendar year 2009 and
2008 as follows.
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|
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|
2009
|
|
2008
|
Name
|
|
Base Salary ($)
|
|
Base Salary ($)
|
Stephen J. Harrison
|
|
500,000
|
|
500,000
|
Edward L. Pierce
|
|
400,000
|
|
400,000
|
Kevin P. Cohn
|
|
250,000
|
|
250,000
|
Daniel L. Walker
|
|
240,000
|
|
207,500
|
Keith E. Bornemann
|
|
160,000
|
|
135,000
|
Cash Bonus
. The Compensation Committee considers that compensation should be linked to
operating performance. To achieve this link with regard to short-term performance, the Compensation
Committee relies on cash bonuses awarded to our executive officers and other key employees. In
February 2009, the Compensation Committee approved a bonus plan for the Companys employees for the
2009 fiscal year. Pursuant to the terms of the plan, certain employees of the Company, including
the Companys executive officers, were eligible to receive cash bonuses based upon such employees
attainment of individual specific performance objectives related to his or her specific area of
responsibility and the Companys attainment of financial performance objectives, each as determined
by the Compensation Committee. The cash bonuses pursuant to the plan were based 50% upon the
attainment of individual specific performance objectives and 50% upon the attainment of Company
financial performance objectives. Individual specific performance objectives included
achievement of enhancements and improvements to the Companys
sales and marketing, underwriting and claims handling, information
technology, and financial reporting functions, as well as the achievement of specific performance objectives by employees that
report to the executive officers. The amount available to be paid as cash bonuses pursuant to the
Companys attainment of financial performance objectives was equal to 7.5% of the pre-tax
accounting income of the Company (as adjusted to exclude expenses related to the class action
litigation against the Company in Alabama and Georgia, charges related to other than temporary
impairments of investments, and restructuring charges). The percentage of the cash bonus an
employee was eligible to receive pursuant to the attainment of Company financial
13
performance objectives was equal to the percentage of the individual specific performance objectives attained
by such employee. The maximum total bonus award that Stephen J. Harrison, Edward L. Pierce, Kevin
P. Cohn, Daniel L. Walker and Keith E. Bornemann were eligible to receive for fiscal 2009 was 100%
of base salary for Mr. Harrison, 75% of base salary for Mr. Pierce, 66.7% of base salary for Mr.
Cohn, 50% of base salary for Mr. Walker and 35% of base salary for Mr. Bornemann.
During fiscal 2009, Mr. Harrison achieved 90% of his individual specific performance objectives,
Mr. Pierce achieved 90% of his objectives, Mr. Cohn achieved 94% of his objectives, Mr. Walker
achieved 91% of his objectives and Mr. Bornemann achieved 100% of his individual specific
performance objectives. Pursuant to the 2009 bonus plan, the executive officers received the
following bonuses for fiscal 2009 based upon the achievement of their individual specific
performance objectives: Mr. Harrison, $225,000; Mr. Pierce, $135,000; Mr. Cohn, $78,337; Mr.
Walker, $50,903; and Mr. Bornemann, $25,813.
During fiscal 2009, the Company recorded a goodwill impairment charge of approximately $68.0
million, which resulted in a 2009 pre-tax accounting loss for the Company of $49.9 million. As a
result, no bonuses were earned for 2009 relating to the Company financial performance objective
component of the 2009 bonus plan. The Compensation Committee considered, however, that the
goodwill impairment charge related to goodwill created in connection with a transaction during 2004
and was not the result of actions taken by the executive officers during fiscal 2009. The
Compensation Committee also considered that, excluding the goodwill impairment charge, the Company
would have recorded pre-tax accounting income (as adjusted to exclude expenses related to the class
action litigation against the Company in Alabama and Georgia, charges related to other than
temporary impairments of investments, and restructuring charges) of
approximately $20 million.
Based upon these factors, the Compensation Committee awarded discretionary cash bonuses to the
executive officers as follows: Mr. Pierce, $65,000; Mr. Cohn, $46,663; Mr. Walker, $41,597; and Mr.
Bornemann, $21,187. These cash bonuses were equal to 48% to 82% of
the bonuses to which those executive officers would have been entitled pursuant to the Company
financial performance component of the 2009 bonus plan, if the goodwill impairment charge was excluded from the
calculation of pre-tax accounting income. The cash bonuses paid for fiscal 2009 to named executive
officers are reflected in the Summary Compensation Table.
Equity Awards
. Equity awards, including stock options and restricted common stock
(restricted stock awards), are the principal vehicle for payment of long-term compensation for
our executive officers. The Compensation Committee believes stock-based incentive compensation
should be structured so as to closely align the interests of the executive officers with the
interests of our stockholders. All equity awards are granted pursuant to incentive plans approved
by our stockholders. The Compensation Committee determines the equity award grants to the
executive officers and takes into account the recommendations of the chief executive officer and
president prior to approving awards of stock-based incentive compensation. These equity awards are
granted in part to reward the senior executives for their long-term strategic management of the
Company, and to motivate the executives to improve stockholder value. The Compensation Committee
may also grant an award to an executive officer upon the commencement of his or her employment with
the Company or upon a change in his or her duties or responsibilities with the Company. During
fiscal 2009, the Compensation Committee awarded an aggregate of 96,070 shares of restricted common
stock to our executive officers. Stock awards granted during fiscal 2009 to the named executive
officers are reflected in the Summary Compensation Table and Grants of Plan-Based Awards Table.
As
described in Proposal 3 Approval of the Option
Exchange below, the Compensation Committee approved, and
recommended that the Board of Directors and the stockholders approve, a value-for-value exchange of certain
underwater stock options held by senior officers of the Company. In approving
the exchange, the Compensation Committee considered that the exercise price of the
options to be exchanged had exceeded the trading price of our common stock for over
twenty-four months and believed that the options were no longer effective as incentives
to motivate and retain those officers. The Compensation Committee also considered the
continuing financial impact on the Company of those options and the potential impact of
other types of incentive awards. For more information with respect to the proposed
exchange, see Proposal 3 Approval of the Option Exchange in this proxy statement.
4
01(k)
Plan
. The Company maintains a 401(k) plan that provides for a matching contribution
by the Company of 100% of the participants voluntary salary contributions of the first 3% of the
participants salary contributed by the participant, plus 50% of the next 2% of salary, up to the
maximum voluntary salary contribution established by the U.S. Department of Labor.
Perquisites and Other Benefits.
The Company does not generally provide material perquisites that
are not, in the Compensation Committees view, integrally and directly related to the executive
officers duties. Our executive officers also participate in other broad-based benefit programs
that are generally available to our salaried employees, including health, dental, disability and
life insurance programs.
Benefits Upon Termination of Employment.
We have employment agreements with our executive
officers. These agreements generally provide that if the executive is terminated without cause or
resigns for good reason (as defined in the employment agreements), the executive will receive
certain severance payments and benefits. The Compensation Committee believes that the severance
provisions contained in the employment agreements are an important element in attracting and
retaining executive officers. See Potential Payments Upon Termination or
14
Change in Control for information with respect to potential payments and benefits under these employment
agreements and our other compensation arrangements upon the termination of our executive officers.
Tax and Accounting Matters.
Section 162(m) of the Internal Revenue Code of 1986, enacted as
part of the Omnibus Budget Reconciliation Act of 1993, generally disallows a tax deduction to
public companies for compensation over $1,000,000 paid to the chief executive officer and the four
other most highly compensated executive officers. Under Internal Revenue Service regulations,
qualifying performance-based compensation will not be subject to the deduction limit if certain
requirements are met. The Compensation Committee expects to continue to monitor the application of
Section 162(m) to executive compensation and will take appropriate action if it is warranted in the
future. We operate our compensation programs with the intention of complying with Section 409A of
the Internal Revenue Code of 1986.
Employment Agreements
We have employment agreements with each of our executive officers. The employment agreements
provide for a minimum base salary, adjusted for such increases as the Compensation Committee
determines to be appropriate. The employment agreements provide that the Company will employ the
executive until the executives termination of employment with the Company. In the event the
executives employment with the Company is terminated for any reason, including termination by the
Company for or without cause, resignation by the executive for or without good reason, or the
executives death, disability or retirement, he will be entitled to receive his accrued but unpaid base salary,
bonus and vacation pay through the effective date of termination, and unreimbursed
employment-related expenses. In the event the executives employment with the Company is
terminated by the Company for cause (as defined under Potential Payments Upon Termination or
Change in Control), the Company shall have no further obligations under the employment agreement.
In the event the executives employment with the Company is terminated by the executive without
good reason (as defined under Potential Payments Upon Termination or Change in Control), the
Company shall have no further obligations under the employment agreement. In the event the
executives employment with the Company is terminated by the Company without cause, by the
executive for good reason, or as the result of death, disability or
retirement or in connection with a
change-in-control (as defined under Potential Payments Upon Termination or Change in Control),
the employment agreement provides that the executive will be entitled to severance payments and
benefits as described below under Potential Payments Upon Termination or Change in Control.
Payment of the severance payments and benefits generally is conditioned upon the executives
compliance with other provisions of his employment agreement, which include limitations upon his
use and disclosure of confidential information, solicitation of employees, interference with the
Companys business opportunities and an obligation not to compete with the business of the Company
for a specified period following termination of employment.
Compensation Committee Interlocks and Insider Participation
During fiscal 2009, the Compensation Committee of the Board of Directors was composed of Harvey B.
Cash, Tom C. Nichols and Lyndon L. Olson, Jr. None of these persons has at any time been an
officer or employee of the Company or any of its subsidiaries. In addition, there are no
relationships among our executive officers, members of the Compensation Committee or entities
whose executives serve on the Board of Directors or the Compensation Committee that require
disclosure under applicable SEC regulations.
15
Summary
Compensation Table Fiscal Years 2007 - 2009
The following table sets forth compensation for fiscal years 2009, 2008 and 2007 earned by (i) our
chief executive officer, (ii) our chief financial officer, and (iii) our three next highest paid
executive officers.
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Compensation
|
|
All Other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary ($)
|
|
|
|
($)
|
|
|
($) (1)
|
|
|
($) (2)
|
|
|
($)
|
|
Compensation ($)
|
|
|
Total ($)
|
|
Stephen J. Harrison
|
|
|
2009
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
51,300
|
|
|
|
61,505
|
|
|
|
225,000
|
|
|
9,500
|
(3)
|
|
|
847,305
|
|
Chief Executive Officer
|
|
|
2008
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
73,806
|
|
|
|
|
|
|
9,100
|
|
|
|
582,906
|
|
|
|
|
2007
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
73,806
|
|
|
|
|
|
|
8,900
|
|
|
|
582,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward L. Pierce
|
|
|
2009
|
|
|
|
400,000
|
|
|
|
|
65,000
|
|
|
|
753,017
|
|
|
|
443,783
|
|
|
|
135,000
|
|
|
9,500
|
(3)
|
|
|
1,806,300
|
|
President
|
|
|
2008
|
|
|
|
350,000
|
|
|
|
|
100,000
|
|
|
|
199,952
|
|
|
|
411,814
|
|
|
|
|
|
|
9,100
|
|
|
|
1,070,866
|
|
|
|
|
2007
|
|
|
|
269,423
|
(4)
|
|
|
|
285,838
|
(5)
|
|
|
|
|
|
|
317,544
|
|
|
|
|
|
|
70,907
|
|
|
|
943,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin P. Cohn
|
|
|
2009
|
|
|
|
250,000
|
|
|
|
|
46,663
|
|
|
|
|
|
|
|
250,284
|
|
|
|
78,337
|
|
|
9,500
|
(3)
|
|
|
634,784
|
|
Senior Vice
President, Chief
|
|
|
2008
|
|
|
|
225,000
|
|
|
|
|
83,750
|
|
|
|
|
|
|
|
178,356
|
|
|
|
|
|
|
9,100
|
|
|
|
496,206
|
|
Financial Officer and
Secretary
|
|
|
2007
|
|
|
|
145,513
|
(6)
|
|
|
|
125,000
|
(7)
|
|
|
|
|
|
|
108,648
|
|
|
|
|
|
|
126,776
|
|
|
|
505,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Walker
|
|
|
2009
|
|
|
|
223,750
|
|
|
|
|
41,597
|
|
|
|
6,706
|
|
|
|
35,766
|
|
|
|
50,903
|
|
|
|
|
|
|
358,723
|
|
Senior Vice
President - Operations
|
|
|
2008
|
|
|
|
203,750
|
|
|
|
|
65,000
|
|
|
|
|
|
|
|
10,191
|
|
|
|
|
|
|
|
|
|
|
278,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith E. Bornemann
|
|
|
2009
|
|
|
|
147,500
|
|
|
|
|
21,187
|
|
|
|
2,682
|
|
|
|
23,249
|
|
|
|
25,813
|
|
|
6,001
|
(3)
|
|
|
226,432
|
|
Vice
President and Corporate Controller
|
|
|
2008
|
|
|
|
122,500
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
14,298
|
|
|
|
|
|
|
77,995
|
|
|
|
239,793
|
|
|
|
|
(1)
|
|
Represents the proportionate amount of the total value of restricted stock awards recognized
as an expense during fiscal 2009 for financial accounting purposes under SFAS 123R,
disregarding for this purpose estimated forfeitures relating to service-based vesting
conditions. Compensation expense is equal to the closing price of the Companys Common Stock
on the New York Stock Exchange on the date of grant as amortized over the service period.
|
|
(2)
|
|
Represents the proportionate amount of the total value of option awards recognized as an
expense during fiscal 2009 for financial accounting purposes under SFAS 123R, disregarding for
this purpose estimated forfeitures relating to service-based vesting
conditions. These amounts do not reflect the actual amounts that were
paid to, or may be realized by, the executive for fiscal 2009. Compensation
expense is equal to the grant date fair value of the options estimated using the Black-Scholes
option pricing model as amortized over the service period. See Note 5 to our consolidated
financial statements in our Annual Report on Form 10-K for the year ended June 30, 2009 for
the assumptions made in determining option values.
|
|
(3)
|
|
Represents the matching amounts paid by the Company under our 401(k) Plan.
|
|
(4)
|
|
Mr. Pierces employment with the Company commenced on September 13, 2006.
|
|
(5)
|
|
Includes a bonus of $100,000 relating to fiscal 2007 and a signing bonus of $185,838 paid by
the Company in connection with the commencement of his employment.
|
|
(6)
|
|
Mr. Cohns employment with the Company commenced on October 9, 2006.
|
|
(7)
|
|
Includes a bonus of $50,000 relating to fiscal 2007 and a signing bonus of $75,000 paid by
the Company in connection with the commencement of his employment.
|
16
Grants of Plan-Based Awards Fiscal Year 2009
The following table sets forth information concerning each grant of an equity award made to a
named executive officer in fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Future Payouts
Under Non-Equity Incentive
Plan Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock or
|
|
|
Exercise
or Base
Price of
Stock and
Option
|
|
|
Grant Date
Fair Value
of Stock
and Option
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Maximum
|
|
|
Units
|
|
|
Awards
|
|
|
Awards
|
|
Name
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
($)/sh
(1)
|
|
|
($)
(1)
|
|
Stephen J. Harrison
|
|
|
10/1/08
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(2)
|
|
|
3.42
|
|
|
|
51,300
|
|
|
|
|
2/10/09
|
|
|
|
|
|
|
|
|
|
|
|
17,537
|
(2)
|
|
|
2.50
|
|
|
|
43,843
|
|
|
|
|
2/10/09
|
|
|
|
175,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward L. Pierce
|
|
|
10/1/08
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(3)
|
|
|
3.42
|
|
|
|
51,300
|
|
|
|
|
2/10/09
|
|
|
|
105,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin P. Cohn
|
|
|
2/10/09
|
|
|
|
58,333
|
|
|
|
166,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Walker
|
|
|
2/10/09
|
|
|
|
|
|
|
|
|
|
|
|
34,667
|
(4)
|
|
|
2.50
|
|
|
|
86,668
|
|
|
|
|
2/10/09
|
|
|
|
39,156
|
|
|
|
111,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith E. Bornemann
|
|
|
2/10/09
|
|
|
|
|
|
|
|
|
|
|
|
13,866
|
(4)
|
|
|
2.50
|
|
|
|
34,665
|
|
|
|
|
2/10/09
|
|
|
|
18,069
|
|
|
|
51,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Regarding the restricted stock awards, grant date fair value is equal to the product of
the number of shares of restricted stock issued and the closing price for the Companys
Common Stock on the New York Stock Exchange on the date of grant.
|
|
(2)
|
|
Restricted stock award granted under our 2002 Long Term Incentive Plan. Pursuant to the
restricted stock award agreements, the 15,000 shares issued on October 1, 2008 vested on
July 1, 2009, while the 17,537 shares issued on February 10, 2009 vest in equal 25%
installments over a four-year period beginning on the first anniversary of the date of
grant. Unvested restricted stock will vest under certain circumstances, including any
termination of employment of Mr. Stephen J. Harrison as described within the Potential
Payments Upon Termination or Change in Control section.
|
|
(3)
|
|
Restricted stock award granted under our 2002 Long Term Incentive Plan. Pursuant to the
restricted stock award agreement, the shares vested on July 1, 2009.
|
|
(4)
|
|
Restricted stock award granted under our 2002 Long Term Incentive Plan. Pursuant to the
restricted stock award agreements, the shares vest in equal 20% installments over a
five-year period beginning on the first anniversary of the date of
grant. Unvested restricted stock will vest under certain circumstances,
including any termination of employment of Messrs. Walker or Bornemann, as applicable, as
described within the Potential Payments Upon Termination or Change in Control section.
|
17
Outstanding Equity Awards at Fiscal Year-End Fiscal Year 2009
The following table sets forth information concerning outstanding equity awards held by our
named executive officers at June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
Market Value
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
of Shares or
|
|
|
|
of Shares or
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
|
Option
|
|
|
Option
|
|
|
Units of Stock
|
|
|
|
Units of Stock That
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
|
Exercise
|
|
|
Expiration
|
|
|
That Have
|
|
|
|
Have
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
Price ($)
|
|
|
Date
|
|
|
Not Vested (#)
|
|
|
|
Not Vested ($)
|
|
Stephen J. Harrison
|
|
|
100,000
|
|
|
|
|
|
|
|
|
6.64
|
|
|
|
4/30/14
|
|
|
|
17,537
|
(1)
|
|
|
|
37,354
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(1)
|
|
|
|
31,950
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward L. Pierce
|
|
|
125,000
|
|
|
|
125,000
|
(3)
|
|
|
|
11.81
|
|
|
|
9/13/16
|
|
|
|
400,000
|
(4)
|
|
|
|
852,000
|
(2)
|
|
|
|
25,000
|
|
|
|
75,000
|
(5)
|
|
|
|
3.04
|
|
|
|
3/18/18
|
|
|
|
15,000
|
(4)
|
|
|
|
31,950
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin P. Cohn
|
|
|
50,000
|
|
|
|
50,000
|
(3)
|
|
|
|
11.13
|
|
|
|
10/9/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,250
|
|
|
|
168,750
|
(5)
|
|
|
|
3.04
|
|
|
|
3/18/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Walker
|
|
|
20,000
|
|
|
|
80,000
|
(6)
|
|
|
|
3.04
|
|
|
|
3/18/18
|
|
|
|
34,667
|
(7)
|
|
|
|
73,841
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith E. Bornemann
|
|
|
4,000
|
|
|
|
6,000
|
(8)
|
|
|
|
10.12
|
|
|
|
2/7/17
|
|
|
|
13,866
|
(7)
|
|
|
|
29,535
|
(2)
|
|
|
|
7,000
|
|
|
|
28,000
|
(6)
|
|
|
|
3.04
|
|
|
|
3/18/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company issued 15,000 and 17,537 restricted shares to Mr. Stephen J. Harrison on
October 1, 2008 and February 10, 2009, respectively. Pursuant to the restricted stock award
agreements, the 15,000 shares issued on October 1, 2008 vested on July 1, 2009, while the
17,537 shares issued on February 10, 2009 vest in equal 25% installments over a four-year
period beginning on the first anniversary of the date of grant. Unvested restricted stock
will vest under certain circumstances, including any termination of employment of Mr.
Stephen J. Harrison, as described within the Potential Payments Upon Termination or Change
in Control section.
|
|
(2)
|
|
Market value based on a closing share price of $2.13 for the Companys Common Stock on
the New York Stock Exchange on June 30, 2009.
|
|
(3)
|
|
Mr. Pierce was granted an option to purchase 250,000 shares on September 13, 2006 and
Mr. Cohn was granted an option to purchase 100,000 shares on October 9, 2006. The options
vest in equal 25% installments over a four-year period beginning on the first anniversary
of the date of grant.
|
|
(4)
|
|
The Company issued 400,000 and 15,000 restricted shares to Mr. Pierce on March 18, 2008
and October 1, 2008, respectively. Pursuant to the restricted stock award agreements, of
the 400,000 shares issued on March 18, 2008, 160,000 shares vested on July 1, 2009 and
80,000 shares vested on October 1, 2009 and an additional 80,000 shares vest on each of
October 1, 2010 and 2011, while the 15,000 shares issued on October 1, 2008 vested on July
1, 2009. Unvested restricted stock will become fully exercisable under certain
circumstances, including any termination of employment of Mr. Pierce, as described within
the Potential Payments Upon Termination or Change in Control section.
|
|
(5)
|
|
Messrs. Pierce and Cohn were granted an option to purchase 100,000 and 225,000 shares,
respectively, on March 18, 2008. The options vest in equal 25% installments over a
four-year period beginning on the first anniversary of the date of grant.
|
|
(6)
|
|
Messrs. Walker and Bornemann were granted an option to purchase 100,000 and 35,000
shares, respectively, on March 18, 2008. The options vest in equal 20% installments over a
five-year period beginning on the first anniversary of the date of grant.
|
|
|
(7)
|
|
The Company issued 34,667 and 13,866 restricted shares to Messrs. Walker and Bornemann,
respectively, on February 10, 2009. Pursuant to the restricted stock award agreements, the
shares vest in equal installments over a five-year period beginning
on the first anniversary of the date of grant. Unvested restricted stock will
become fully exercisable under certain circumstances, including any termination of
employment of Messrs. Walker or Bornemann, as applicable, as described within the
Potential Payments Upon Termination or Change in Control section.
|
|
|
(8)
|
|
Mr. Bornemann was granted an option to purchase 10,000 shares on February 7, 2007. The
option vests in equal 20% installments over a five-year period beginning on the first
anniversary of the date of grant.
|
18
Option Exercises and Stock Vested Fiscal Year 2009
During fiscal 2009, none of our named executive officers exercised any stock options or became
vested in any restricted stock awards.
Equity Compensation Plan Information
The following table summarizes information with respect to our equity compensation plans as of
June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Securities To Be
Issued Upon
Exercise of
|
|
Weighted
Average
Exercise Price of
|
|
Number of Securities
Remaining Available
For Future Issuance
|
Plan Category
|
|
Outstanding
Options
|
|
Outstanding
Options
|
|
Under Equity
Compensation Plans
|
Equity compensation
plans approved by
security holders
|
|
|
5,307,678
|
|
|
$
|
4.04
|
|
|
|
2,189,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Payments Upon Termination or Change in Control
The Companys named executive officers are subject to written employment agreements that set
forth the consideration payable to such named executive officers in connection with the termination
of their employment. Payments of these amounts generally are conditioned upon the named executive
officers compliance with the other provisions of his employment agreement, which include
limitations upon his use and disclosure of confidential information, solicitation of employees,
interference with the Companys business opportunities and an obligation not to compete with the
business of the Company for a specified period following termination of employment. In addition,
the stock award agreements to which each of the named executive officers is a party include certain
provisions that address the rights of the named executive officers upon termination.
Description of Potential Payments on Termination or Change in Control.
The discussion below
outlines the amount of compensation payable to each of the named executive officers of the Company
in the event of a termination of employment or following a change in control. Except as otherwise
noted, the discussion below applies to each of the named executive officers.
Payments Made Upon Any Termination of Employment
.
Regardless of the manner in which a
named executive officers employment with the Company is terminated, he will be entitled to receive
the following amounts:
|
|
|
accrued but unpaid base salary through the effective date of termination;
|
|
|
|
|
accrued but unpaid bonus owed to the executive as of the date of termination;
|
|
|
|
|
accrued but unpaid vacation pay; and
|
|
|
|
|
unreimbursed employment-related expenses.
|
Payments Made Upon Termination of a Named Executive Officer for Cause
.
The Company
may terminate each named executive officer for cause, which is defined as:
|
|
|
his conviction of a felony or a crime involving moral turpitude;
|
|
|
|
|
his act of dishonesty or fraud that has caused material harm to the Company;
|
|
|
|
|
his willful and continued failure to substantially perform duties and obligations
under his employment agreement (other than any such failure resulting from incapacity
due to physical or mental illness); or
|
|
|
|
|
his uncured gross negligence or willful misconduct.
|
If a named executive officer were terminated for cause, he would not be entitled to receive
any amounts other than as listed under Payments Made Upon Any Termination of Employment above.
19
Payments Made Upon Resignation of a Named Executive Officer Without Good Reason
.
Each
named executive officer may resign at any time. If his resignation were not for good reason (as
defined below), he would not be entitled to receive any amounts other than as listed under
Payments Made Upon Any Termination of Employment above.
The term good reason is defined in the Companys employment agreements as:
|
|
|
|
|
|
|
a reduction in the amount of the executives compensation in a manner that
constitutes a breach of his employment agreement;
|
|
|
|
|
a material uncured breach of the Companys obligations under the employment
agreement;
|
|
|
|
|
an assignment of duties materially inconsistent with his position, duties,
responsibilities and status with the Company, a reduction of his authority, a material
change in his reporting responsibilities, titles or offices, or removal of him from any
such positions (except in connection with the termination of his employment for cause,
resignation of his employment other than for good reason or as a result of his death or
disability); or
|
|
|
|
|
a requirement that he relocate his place of work to a location more than 50 miles
from the Companys current corporate headquarters (25 miles with respect to Mr. Stephen
J. Harrison).
|
And, solely with respect to Mr. Stephen J. Harrisons employment agreement, as:
|
|
|
a change in control (as defined below) of the Company (other than one that he
approved or voted in favor of in his capacity as a director and/or stockholder of the
Company); or
|
|
|
|
|
removal from the Board other than for cause or is not reelected to the Board at the
end of his term of service thereon.
|
Payments Made Upon Disability of a Named Executive Officer
.
In the event of a named
executive officers disability (defined as executives incapacitation or other absence from his
full-time duties for six consecutive months or for at least 180 days during any 12-month period, in
either case as a result of a mental or physical illness or injury), he would be entitled to:
|
|
|
all amounts under Payments Made Upon Any Termination of Employment above.
|
The term disability is defined under Mr. Stephen J. Harrisons employment agreement as:
|
|
|
an inability to engage in any substantial gainful activity by reason of any
medically physical or mental impairment which can be expected to result in death or can
be expected to last for a continuous period of not less than twelve (12) months;
|
|
|
|
|
the receipt of income replacement benefits for a period of not less than three (3)
months under an accident and health plan sponsored by the Company which covers
employees of the Company by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months; or
|
|
|
|
|
totally disabled, as determined by the Social Security Administration.
|
In the event of Mr. Stephen J. Harrisons disability, he would also be entitled to:
|
|
|
payments during the severance period (as defined below) in an amount equal to 60% of
his initial base salary, payable in regular installments, net of any benefits he
receives from disability insurance;
|
|
|
|
|
participate during the severance period in all employee health benefit programs made
generally available to the Companys senior management; and
|
|
|
|
|
the immediate vesting of all options granted pursuant to his nonqualified stock
option agreement.
|
The term severance period is defined under Mr. Stephen J. Harrisons employment agreement as
the second anniversary of the termination of his employment.
20
The term total and permanent disability is defined under the Companys 2002 Long Term
Incentive Plan, as amended, as a person being qualified for long-term disability benefits under the
Companys or one of its subsidiaries disability plans or insurance policies; or, if no such plan
or policy is then in existence or if such person is not eligible to participate in such plan or
policy, that the person is incapacitated and absent from his or her duties with the Company or any
of its subsidiaries on a full time basis for a period of six (6) continuous months or for at least
one hundred eighty (180) days during any twelve (12) month period as a result of mental or physical
illness or physical injury, as determined in good faith by the Compensation Committee.
In the event of a named executive officers total and permanent disability, he would also be
entitled to:
|
|
|
the immediate termination of all remaining restrictions set forth and relating to
all restricted stock awards granted to him.
|
Payments Made Upon Death of a Named Executive Officer
.
In the event of a named
executive officers death, his estate would be entitled to:
|
|
|
all amounts under Payments Made Upon Any Termination of Employment above; and
|
|
|
|
|
the immediate termination of all remaining restrictions set forth and relating to
all restricted stock awards granted to him.
|
In the event of Mr. Stephen J. Harrisons death, his estate would also be entitled to:
|
|
|
a bonus in the amount equal to the annual bonus he would have been entitled to had
he remained an employee for the entire year, multiplied by the number of days in such
year prior to the date of death, divided by 365; and
|
|
|
|
|
the immediate vesting of all options granted pursuant to his nonqualified stock
option agreement.
|
Payments Made Upon Retirement of a Named Executive Officer
.
In the event of a named
executive officers retirement, he would be entitled to:
|
|
|
all amounts under Payments Made Upon Any Termination of Employment above; and
|
|
|
|
|
the immediate termination of all remaining restrictions set forth and relating to
all restricted stock awards granted to him.
|
Payments Made Upon Termination Without Cause or Resignation for Good Reason
.
In the
event of a named executive officers termination without cause or resignation for good reason, he
would be entitled to all amounts under Payments Made Upon Any Termination of
Employment above. In the event of Mr. Stephen J. Harrisons termination without cause or resignation for good
reason, he would also be entitled to:
|
|
|
a payment equal to the product of his then current base salary, times two (2),
payable in one lump sum as of the effective date of termination or resignation;
|
|
|
|
|
a payment equal to the product of his annual bonus paid for the fiscal year
immediately preceding the fiscal year in which the termination or resignation occurs,
times two (2), payable in one lump sum as of the effective date of termination or
resignation;
|
|
|
|
|
participate through the second anniversary of termination or resignation in all
employee health benefit programs made generally available to the Companys senior
management;
|
|
|
|
|
an additional payment for any excise taxes resulting from the foregoing payments if
the foregoing payments are made in connection with a change in control of the Company;
and
|
|
|
|
|
the immediate vesting of all options granted pursuant to his nonqualified stock
option agreement.
|
21
In the event of Messrs. Pierce or Cohns termination without cause or resignation for good
reason, he would also be entitled to:
|
|
|
a payment equal to the product of his then current base salary, times two (2),
payable in regular installments through the first anniversary of termination or
resignation (if the termination or resignation is in connection with a change in
control (as defined below) of the Company and occurs within twelve (12) months of such
change in control, then the payment is payable in one lump sum as of the effective date
of the termination or resignation);
|
|
|
|
|
participate through the first anniversary of termination or resignation in all
employee health benefit programs made generally available to the Companys senior
management; and
|
|
|
|
|
an additional payment for any excise taxes resulting from the foregoing payments if
the foregoing payments are made in connection with a change in control of the Company.
|
Pursuant to the terms of Messrs. Pierce and Cohns nonqualified stock option
agreement, 25% of their unvested options shall vest and become fully exercisable upon a
termination without cause.
In the event of Mr. Pierces termination without cause or resignation for good reason, he
would also be entitled to:
|
|
|
the immediate termination of all remaining restrictions set forth and relating to
all restricted stock awards granted to him.
|
In the event of Mr. Walkers termination without cause or resignation for good reason, he
would also be entitled to:
|
|
|
a payment equal to his then current base salary payable in regular installments
through the first anniversary of termination or resignation (if the termination or
resignation is in connection with a change in control (as defined below) of the
Company and occurs within twelve (12) months of such change in control, then a payment
equal to the product of his then current base salary, times 200 percent, is payable in
one lump sum as of the effective date of the termination or resignation);
|
|
|
|
|
participate through the first anniversary of termination or resignation in all
employee health benefit programs made generally available to the Companys employees
(if termination or resignation is in connection with a change in control (as defined
below) of the Company and occurs within twelve (12) months of such change in control,
then participation through the second anniversary of termination or resignation in all
employee health benefit programs made generally available to the
Companys employees); and
|
|
|
|
|
the immediate termination of all remaining restrictions set forth and relating to
all restricted stock awards granted to him.
|
In the event of Mr. Bornemanns termination without cause or resignation for good reason, he
would also be entitled to:
|
|
|
a payment equal to his then current base salary payable in regular installments
through the first anniversary of termination or resignation (if the termination or
resignation is in connection with a change in control (as defined below) of the
Company and occurs within twelve (12) months of such change in control, then a payment
equal to the product of his then current base salary, times 150 percent, is payable in
one lump sum as of the effective date of the termination or resignation);
|
|
|
|
|
participate through the first anniversary of termination or resignation in all
employee health benefit programs made generally available to the
Companys employees; and
|
|
|
|
|
the immediate termination of all remaining restrictions set forth and relating to
all restricted stock awards granted to him.
|
22
The term change in control is defined under the Companys 2002 Long Term Incentive Plan, as
amended, as:
|
|
|
any consolidation, merger or share exchange of the Company in which the holders of a
majority of the Companys outstanding voting power prior to such transaction do not own
at least a majority of the outstanding voting power of the Company or any successor
thereto following such transaction;
|
|
|
|
|
any sale, lease, exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all or
substantially all of the assets of the Company;
|
|
|
|
|
the approval by the stockholders of the Company of any plan or proposal for the
liquidation or dissolution of the Company;
|
|
|
|
|
the cessation of control (by virtue of their not constituting a majority of
directors) of the Board by the individuals who (a) at July 1, 2002 were directors or
(b) become directors after July 1, 2002 and whose election or nomination for election
by the Companys stockholders was approved by a vote of at least two-thirds of the
directors then in office who were directors on July 1, 2002 or whose election or
nomination for election was previously so approved; or
|
|
|
|
|
the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) of an aggregate of 50% or more of the voting power of
the Companys outstanding voting securities by any person or group (as such term is
used in Rule 13d-5 under the Securities Exchange Act of 1934) who beneficially owned
less than 50% of the voting power of the Companys outstanding voting securities on
July 1, 2002.
|
Provided, however, that notwithstanding the foregoing, an acquisition shall not constitute a
change in control if the acquiror is (a) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company and acting in such capacity; (b) a subsidiary of the Company
or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of voting securities of the Company; or (c) in a Title 11
bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the
Company to a case under Chapter 7.
Pursuant to the terms of each named executive officers nonqualified stock option agreement,
upon the effective date of a change in control, all unvested options granted to him will
immediately become fully vested and exercisable provided that he is employed by (or, if he is a
consultant or an outside director, is providing services to) the Company or a subsidiary from the
grant date to the effective date of the change in control.
Pursuant to the terms of each named executive officers restricted stock award agreement, upon
the effective date of a change in control, all restrictions set forth and relating to such
restricted stock awards granted to him will immediately be terminated.
Summary of Potential Payments on Termination or Change in Control.
The following tables set
forth the estimated benefits to which each named executive officer is entitled in the event that
(i) the Company terminates the named executive officer without cause or the named executive officer
resigns for good reason, (ii) the Company terminates the named executive officer without cause or
the named executive officer resigns for good reason in connection with a change in control of the
Company, or (iii) the Company terminates the named executive officer for cause or the named
executive officer resigns without good reason, or as a result of disability, death or retirement of
the named executive officer, assuming that the triggering event took place on and as of June 30,
2009.
23
Termination Without Cause or Resignation For Good Reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
Additional
Severance
Payment
|
|
|
Continued
Benefit
Plan
Coverage
|
|
|
Accelerated
Stock Option
Vesting
|
|
|
Accelerated
Restricted
Stock Vesting
|
|
|
|
|
Name
|
|
($) (1)
|
|
|
($) (2)
|
|
|
($) (3)
|
|
|
($) (4)
|
|
|
($) (5)
|
|
|
Total ($)
|
|
Stephen J. Harrison
|
|
|
225,000
|
|
|
|
1,000,000
|
|
|
|
13,476
|
|
|
|
|
|
|
|
69,304
|
|
|
|
1,307,780
|
|
Edward L. Pierce
|
|
|
200,000
|
|
|
|
800,000
|
|
|
|
10,238
|
|
|
|
|
|
|
|
883,950
|
|
|
|
1,894,188
|
|
Kevin P. Cohn
|
|
|
125,000
|
|
|
|
500,000
|
|
|
|
10,238
|
|
|
|
|
|
|
|
|
|
|
|
635,238
|
|
Daniel L. Walker
|
|
|
92,500
|
|
|
|
240,000
|
|
|
|
6,566
|
|
|
|
|
|
|
|
73,841
|
|
|
|
412,907
|
|
Keith E. Bornemann
|
|
|
47,000
|
|
|
|
160,000
|
|
|
|
9,994
|
|
|
|
|
|
|
|
29,535
|
|
|
|
246,529
|
|
|
|
|
(1)
|
|
In the case of Mr. Stephen J. Harrison, includes the receipt of the accrued and unpaid
bonuses and a lump sum payment equal to the bonus paid to the executive for the fiscal year
immediately preceding the year in which the termination of employment occurs times two (2).
In the case of Messrs. Pierce, Cohn, Walker and Bornemann, includes the receipt of the
accrued and unpaid bonuses as stipulated in their respective employment agreements.
|
|
(2)
|
|
In the case of Messrs. Stephen J. Harrison, Pierce and Cohn, includes the receipt of an
amount equal to the then current base salary times two (2). In the case of Messrs. Walker
and Bornemann, includes the receipt of the then current base salary.
|
|
(3)
|
|
Represents the estimated maximum aggregate amount of the named executive officers
payable share of all medical, dental, health and disability insurance payables by the
Company for the benefit of the named executive officer and members of his immediate family
until the second anniversary of the date of termination of employment in the case of Mr.
Stephen J. Harrison, and for the period of twelve (12) months after the termination date in
the case of Messrs. Pierce, Cohn, Walker and Bornemann; also includes the continuation of
all employee health benefit programs generally available to similarly situated employees
during the defined post-termination period.
|
|
|
(4)
|
|
Information regarding outstanding unexercisable options held by each named executive
officer is set forth in the Outstanding Equity Awards at Fiscal Year-End table above. Stock
options that have vested on an accelerated basis are exercisable within either twelve (12)
or twenty-four (24) months, pursuant to the respective stock option agreement, following
the date of the termination of service (which for purposes of this table is June 30, 2009).
Consequently, the amounts included in this column represent the maximum profit the named
executive officer would have received had he (i) exercised any of these options that were
in-the-money and (ii) sold the underlying stock at $2.13 per share on June 30, 2009. All
stock options held on June 30, 2009 were out-of-the-money.
|
|
|
(5)
|
|
Market value based on a closing share price of $2.13 for the Companys Common Stock on
the New York Stock Exchange on June 30, 2009.
|
24
Termination Without Cause or Resignation for Good Reason Resulting From a Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
Additional
Severance
Payment
|
|
|
Continued
Benefit
Plan
Coverage
|
|
|
Accelerated
Stock Option
Vesting
|
|
|
Accelerated
Restricted
Stock Vesting
|
|
|
|
|
Name
|
|
($) (1)
|
|
|
($) (2)
|
|
|
($) (3)
|
|
|
($) (4)
|
|
|
($) (5)
|
|
|
Total ($)
|
|
Stephen J. Harrison
|
|
|
225,000
|
|
|
|
1,000,000
|
|
|
|
13,476
|
|
|
|
|
|
|
|
69,304
|
|
|
|
1,307,780
|
|
Edward L. Pierce
|
|
|
200,000
|
|
|
|
800,000
|
|
|
|
10,238
|
|
|
|
|
|
|
|
883,950
|
|
|
|
1,894,188
|
|
Kevin P. Cohn
|
|
|
125,000
|
|
|
|
500,000
|
|
|
|
10,238
|
|
|
|
|
|
|
|
|
|
|
|
635,238
|
|
Daniel L. Walker
|
|
|
92,500
|
|
|
|
480,000
|
|
|
|
13,133
|
|
|
|
|
|
|
|
73,841
|
|
|
|
659,474
|
|
Keith E. Bornemann
|
|
|
47,000
|
|
|
|
240,000
|
|
|
|
9,994
|
|
|
|
|
|
|
|
29,535
|
|
|
|
326,529
|
|
|
|
|
(1)
|
|
In the case of Mr. Stephen J. Harrison, includes the receipt of the accrued and unpaid
bonuses and a lump sum payment equal to the bonus paid to the executive for the fiscal year
immediately preceding the year in which the termination of employment occurs times two (2).
In the case of Messrs. Pierce, Cohn, Walker and Bornemann, includes the receipt of the
accrued and unpaid bonuses as stipulated in their respective employment agreements.
|
|
(2)
|
|
In the case of Messrs. Stephen J. Harrison, Pierce, Cohn and Walker, includes the
receipt of an amount equal to their then current base salary times two (2). In the case of
Mr. Bornemann, includes the receipt of an amount equal to their then current base salary
times 150 percent.
|
|
(3)
|
|
Represents the estimated maximum aggregate amount of the named executive officers
payable share of all medical, dental, health and disability insurance payables by the
Company for the benefit of the named executive officer and members of his immediate family
until the second anniversary of the date of termination of employment in the case of
Messrs. Stephen J. Harrison and Walker, and for the period of twelve (12) months after the
termination date in the case of Messrs. Pierce, Cohn and Bornemann; also includes the
continuation of all employee health benefit programs generally available to similarly
situated employees during the defined post-termination period.
|
|
|
(4)
|
|
Information regarding outstanding unexercisable options held by each named executive
officer is set forth in the Outstanding Equity Awards at Fiscal Year-End table above. Stock
options that have vested on an accelerated basis are exercisable within either twelve (12)
or twenty-four (24) months, pursuant to the respective stock option agreement, following
the date of the termination of service (which for purposes of this table is June 30, 2009).
Consequently, the amounts included in this column represent the maximum profit the named
executive officer would have received had he (i) exercised any of these options that were
in-the-money and (ii) sold the underlying stock at $2.13 per share on June 30, 2009. All
stock options held on June 30, 2009 were out-of-the-money.
|
|
|
(5)
|
|
Market value based on a closing share price of $2.13 for the Companys Common Stock on
the New York Stock Exchange on June 30, 2009.
|
25
Termination For Cause or Resignation Without Good Reason, or Resulting From Disability,
Death or Retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
Additional
Severance
Payment
|
|
|
Continued
Benefit
Plan
Coverage
|
|
|
Accelerated
Stock Option
Vesting
|
|
|
Accelerated
Restricted
Stock Vesting
|
|
|
|
|
Name
|
|
($) (1)
|
|
|
($) (2)
|
|
|
($) (3)
|
|
|
($) (4)
|
|
|
($) (5)
|
|
|
Total ($)
|
|
Stephen J. Harrison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or
Resignation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Good
Reason
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
Disability
|
|
|
225,000
|
|
|
|
300,000
|
|
|
|
13,476
|
|
|
|
|
|
|
|
69,304
|
|
|
|
607,780
|
|
Death
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,304
|
|
|
|
294,304
|
|
Retirement
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,304
|
|
|
|
294,304
|
|
Edward L. Pierce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or
Resignation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Good
Reason
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Disability
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
883,950
|
|
|
|
1,083,950
|
|
Death
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
883,950
|
|
|
|
1,083,950
|
|
Retirement
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
883,950
|
|
|
|
1,083,950
|
|
Kevin P. Cohn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or
Resignation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Good
Reason
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
Disability
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
Death
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
Retirement
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
Daniel L. Walker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or
Resignation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Good
Reason
|
|
|
92,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,500
|
|
Disability
|
|
|
92,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,841
|
|
|
|
166,341
|
|
Death
|
|
|
92,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,841
|
|
|
|
166,341
|
|
Retirement
|
|
|
92,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,841
|
|
|
|
166,341
|
|
Keith E. Bornemann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or
Resignation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Good
Reason
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,000
|
|
Disability
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,535
|
|
|
|
76,535
|
|
Death
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,535
|
|
|
|
76,535
|
|
Retirement
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,535
|
|
|
|
76,535
|
|
|
|
|
(1)
|
|
Includes the receipt of the accrued and unpaid bonuses as stipulated in their
respective employment agreements.
|
|
(2)
|
|
In the case of Mr. Stephen J. Harrison, includes the receipt of 60% of his initial base
salary, net of any benefits received from disability insurance, as stipulated in his
employment agreement.
|
|
(3)
|
|
In the case of Mr. Stephen J. Harrison, represents the estimated maximum aggregate
amount of his payable share of all medical, dental, health and disability insurance
payables by the Company for the benefit of him and members of his immediate family until
the second anniversary of the date of termination of employment.
|
|
|
(4)
|
|
Information regarding outstanding unexercisable options held by each named executive
officer is set forth in the Outstanding Equity Awards at Fiscal Year-End table above.
Stock options that have vested on an accelerated basis are exercisable within either twelve
(12) or twenty-four (24) months, pursuant to the respective stock option agreement,
following the date of the termination of service (which for purposes of this table is June
30, 2009). Consequently, the amounts included in this column represent the maximum profit
the named executive officer would have received had he (i) exercised any of these options
that were in-the-money and (ii) sold the underlying stock at $2.13 per share on June 30,
2009. All stock options held on June 30, 2009 were out-of-the-money.
|
|
|
(5)
|
|
Market value based on a closing share price of $2.13 for the Companys Common Stock on
the New York Stock Exchange on June 30, 2009.
|
26
PROPOSAL
2 APPROVAL OF AMENDED AND RESTATED
FIRST ACCEPTANCE CORPORATION 2002 LONG TERM INCENTIVE
PLAN
The Board of Directors has approved and recommends that the Companys stockholders approve the
Amended and Restated First Acceptance Corporation 2002 Long Term Incentive Plan (the Restated Plan).
The Restated Plan, as proposed to be amended and restated, is attached to this proxy statement as
Appendix A. Defined terms used but not defined in the following discussion shall have the meaning
given to those terms in the Restated Plan.
The Proposed Amendments
The following summary of the material amendments included in the Restated Plan is qualified in
its entirety by reference to the text of the Restated Plan, which is attached to this proxy
statement as Appendix A.
The Restated Plan provides that the Committee may offer to buy Options previously granted
pursuant to the plan in exchange for a payment in cash, Common Stock or Restricted Stock. The
Board of Directors has proposed this amendment to the Restated Plan to permit the Company to
consummate the option exchange described in Proposal 3
Approval of the Option Exchange in this
proxy statement.
The Restated Plan also permits the Company to withhold from the number of shares to be
delivered to a Participant upon exercise or vesting of an Award a number of shares having a fair
market value equal to the Participants required tax withholding payment. Prior to this amendment,
the plan permitted such withholding upon the exercise of a Stock Option, but
did not expressly permit withholding of shares upon the vesting of an Award of Restricted Stock.
The Restated Plan permits the Company to grant Awards in the form of Performance Awards, which
shall consist of a right that is (i) denominated in cash or Common Stock (including, but not
limited to Restricted Stock and Restricted Stock Units), (ii) valued, as determined by the
Committee, in accordance with the achievement of performance goals established by the Committee,
and (iii) payable at such time and in such form as the Committee shall determine. The Board of
Directors has proposed this amendment to the plan to provide the Committee with additional
flexibility to design management incentives.
The Board of Directors has determined that these amendments and the other amendments reflected
in the Restated Plan are in the best interests of the Company and its stockholders, approved the
Restated Plan, and recommends the Restated Plan for approval by the Companys stockholders. If
approved by the stockholders at the annual meeting, the plan will become effective as of
November 17, 2009.
Summary of the Material Provisions of the Restated Plan, As Amended and Restated
The following summary of the material provisions of the Restated Plan is qualified in its
entirety by reference to the text of the Restated Plan, which is attached to this proxy statement
as Appendix A.
General
. The Restated Plan affords the Board of Directors and the Compensation Committee of
the Board of Directors (the Committee) the ability to design management incentives that are
responsive to the Companys needs. The Restated Plan permits the grant of awards consisting of
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Awards and Other Stock-Based Awards (collectively referred to
herein as Awards). All capitalized terms used herein shall have the meanings set forth in the
Restated Plan.
Shares Authorized for Issuance
. The number of shares of Common Stock that may be delivered
pursuant to Awards granted under the Restated Plan is 8,500,000 shares. Shares to be issued may be
made available from authorized but unissued Common Stock, Common Stock held by the Company in its
treasury, or Common Stock purchased by the Company on the open market or otherwise. If shares of
Common Stock are subject to an Option, Stock Appreciation Right or other Award that expires or
terminates for any reason without having been exercised or settled in full, or if an Option, Stock
Appreciation Right or other Award is settled in cash or is otherwise exercised or settled in a
manner such that some or all of the shares of Common Stock relating to such Award are not issued to
a Participant, then the shares of Common Stock which have not become outstanding shall become
available for
27
issuance under the Restated Plan. If any shares of Common Stock subject to an Award are not
delivered to a Participant because the Award is exercised through a reduction of shares subject to
the Award (i.e., net exercised) or an appreciation distribution in respect of a Stock
Appreciation Right is paid in Common Stock, then the number of shares subject to the Award that are
not delivered to the Participant will remain available for subsequent issuance under the Restated
Plan. If the exercise price of any Award is satisfied by tendering Common Stock by the Participant,
then the number of shares so tendered will remain available for subsequent issuance under the
Restated Plan.
The aggregate number of shares of Common Stock actually issued or transferred by the Company
upon the exercise of Incentive Stock Options (ISOs) may not exceed 6,000,000 shares. Further, no
Participant may be granted any Awards of Options or Stock Appreciation Rights covering an aggregate
of more than 3,000,000 shares of Common Stock during any fiscal year, and no Covered Officer (as
defined in the Restated Plan) may be granted any Performance Awards covering an aggregate of more
than 1,500,000 shares of Common Stock, or $5,000,000 if settled in cash, during any fiscal year.
Eligibility
. Employees, consultants, and outside directors (non-employee directors) of the
Company and its subsidiaries may be selected by the Committee to receive benefits under the
Restated Plan. As of September 30, 2009, the number of individuals who would potentially be
eligible for awards under the Restated Plan is approximately 1,100.
Options
. An Award of Options may be granted by the Committee for either Nonqualified Stock
Options or ISOs. The Option Price for any share of Common Stock that may be purchased under a
Nonqualified Stock Option may be less than, equal to, or greater than the Fair Market Value of the
share on the Date of Grant. The Option Price for any share of Common Stock that may be purchased
under an ISO must be at least equal to the Fair Market Value on the Date of Grant. However, if at
the time an Option is otherwise to be granted pursuant to the Restated Plan, the optionee or rights
holder owns directly or indirectly Common Stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or its parent or Subsidiary
corporations, then any ISO to be granted to such optionee or rights holder pursuant to the Restated
Plan shall be at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock
of the Company, and such Option will not be exercisable until after the expiration of five (5)
years from the date such Option is granted. The Option Price is payable (i) in cash or cash
equivalents, or, (ii) at the discretion of the Committee, by transfer to the Company of
unencumbered shares of Common Stock previously acquired by the Participant, valued at the Fair
Market Value of such shares on the date of exercise, (iii) by a combination of (i) or (ii), or (iv)
by any other method approved or accepted by the Committee in its sole discretion, including, if the
Committee so determines, (x) a cashless (broker-assisted) exercise that complies with applicable
laws or (y) withholding shares of Common Stock (net-exercise) otherwise deliverable to the
Participant pursuant to the Option having an aggregate Fair Market Value at the time of exercise
equal to the total Option Price. In general, no Option shall be exercisable after the expiration
of ten (10) years from the date such Option was granted. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Committee may specify in the applicable Award
Agreement. Each Option will be exercisable at such times and subject to such terms and conditions
as the Committee may specify in the applicable Award Agreement.
Stock Appreciation Rights.
A Stock Appreciation Right (SAR) is the right to receive a
payment, in cash, and/or Common Stock, equal to the excess of the Fair Market Value of a specified
number of shares of Common Stock on the date the SAR is exercised over the Grant Price for such
shares. The Grant Price for any share of Common Stock subject to a SAR may be less than, equal to,
or greater than the Fair Market Value of the share on the Date of Grant. In the discretion of the
Committee, the amount payable to the Participant as a result of the exercise of a SAR may be
settled in cash, Common Stock or a combination thereof. A fractional share will not be delivered
upon the exercise of a SAR, but a cash payment will be made in lieu thereof. In general, no SAR
will be exercisable after the expiration of ten (10) years from the date such SAR was granted. Each
SAR will be exercisable at such times and subject to such terms and conditions as the Committee may
specify in the applicable Award Agreement.
Restricted Stock & Restricted Stock Units
. The Committee shall have sole and complete
authority to determine (i) the Participants to whom Restricted Stock and Restricted Stock Units
shall be granted, (ii) the number of shares of Restricted Stock and the number of Restricted Stock
Units to be granted to each Participant, (iii) the duration of the period during which, and the
conditions under which, the Restricted Stock and Restricted Stock Units may be forfeited to the
Company, and the other terms and conditions of such Awards. Each Restricted Stock and Restricted
Stock Unit Award shall be set forth in the Award Agreement containing the terms of such Restricted
Stock
28
or Restricted Stock Unit Award. Such Award Agreement will set forth a period of time during
which the grantee must remain in the continuous employment of the Company in order for the
forfeiture and transfer restrictions to lapse. If the Committee so determines, the restrictions
may lapse during such restricted period in installments with respect to specified portions of the
shares covered by the Restricted Stock or Restricted Stock Unit Award. The Award Agreement may
also, in the discretion of the Committee, set forth performance or other conditions that will
subject the shares to forfeiture and transfer restrictions. The Committee may waive all or any
part of the restrictions applicable to any or all outstanding Restricted Stock and Restricted Stock
Unit Awards. At the end of the restricted period and provided that any other restrictive conditions
of the Restricted Stock Award are met, or at such earlier time as otherwise determined by the
Committee, all restrictions set forth in the Award Agreement relating to the Restricted Stock Award
or in the Restated Plan will lapse as to the Restricted Stock subject thereto, and a stock
certificate for the appropriate number of shares of Common Stock, free of the restrictions and
restricted stock legend, will be delivered to the Participant. Each Restricted Stock Unit shall
have a value equal to the Fair Market Value of a share of Common Stock. Restricted Stock Units
will be paid in cash, Common Stock, other securities or other property, as determined in the sole
discretion of the Committee, upon the lapse of the restrictions applicable thereto, or otherwise in
accordance with the applicable Award Agreement.
Performance Awards
. The Committee shall have sole and complete authority to determine the
Participants who shall receive Performance Awards, which shall consist of a right that is (i)
denominated in cash or Common Stock (including but not limited to Restricted Stock and Restricted
Stock Units), (ii) valued, as determined by the Committee, in accordance with the achievement of
such performance goals during such performance periods as the Committee shall establish, and (iii)
payable at such time and in such form as the Committee shall determine. The Committee shall
determine the performance goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount and kind of any payment or
transfer to be made pursuant to any Performance Award. Performance Awards may be paid in a lump sum
or in installments or on a deferred basis. The Committee may waive any performance goals and/or
other terms and conditions relating to a Performance Award. Each Award Agreement shall set forth
the extent to which the Participant shall have the right to retain Performance Awards following
such Participants Termination of Employment. A Participants rights to any Performance Award may
not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of in
any manner, except by will or the laws of descent and distribution, and/or except as the Committee
may determine at or after grant. Performance Awards to Covered Officers may be made subject to the
attainment of performance goals based on one or more of the following Company Subsidiary, operating
unit, business segment or division financial performance measures: (i) earnings before interest,
taxes, depreciation and/or amortization; (ii) operating income or profit; (iii) operating
efficiencies; (iv) return on equity, assets, capital, capital employed or investment; (v) net
income; (vi) earnings (gross, net, pre-tax, after tax or per
share); (vii) utilization; (viii) gross
or net profit margins; (ix) stock price or total stockholder return; (x) customer growth or sales;
(xi) debt reduction; (xii) revenue; (xiii) market share; (xiv) strategic business objectives,
consisting of one or more objectives based on meeting specified cost targets, business expansion
goals or goals relating to acquisitions or divestitures; or (xv) any combination thereof. No later
than 90 days following the commencement of each performance period (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (1) select
the performance goal or goals applicable to the performance period, (2) establish the various
targets and bonus amounts which may be earned for such performance period, and (3) specify the
relationship between performance goals and targets and the amounts to be earned by each Covered
Officer for such performance period.
Other Stock-Based Awards
. The Committee shall have the authority to determine the Participants
who shall receive Other Stock-Based Awards, which shall consist of any right that is (i) not an
Award described above and (ii) an Award of Common Stock or an Award denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to, Common Stock.
Subject to the terms of the Restated Plan and any applicable Award Agreement, the Committee shall
determine the terms and conditions of any such Other Stock-Based Award.
Vesting
. The Committee determines the vesting schedule, if any, and conditions for each
particular Award, including the time limits for the exercise of Options following certain events,
such as death, disability or other termination of employment. Vesting typically occurs over some
period of years, but may be accelerated in certain instances. The Committee is free to accelerate
the vesting of an Award for other reasons. The terms of the individual Award are contained in a
separate Award Agreement executed between the Company and the Participant.
29
Assignability
. ISOs may not be transferred, assigned, pledged, hypothecated or otherwise
conveyed or encumbered other than by will or the laws of descent and distribution and may be
exercised during the lifetime of the Participant only by the Participant or the Participants
legally authorized representative, and each Award Agreement in respect of an ISO shall so provide.
The designation by a Participant of a beneficiary will not constitute a transfer of the ISO. The
Committee may waive or modify this limitation to the extent the limitation is not required for
compliance with Section 422 of the Code.
Except as otherwise provided in the Restated Plan, Nonqualified Stock Options and SARs may not
be transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by
will or the laws of descent and distribution. The Committee may, in its discretion, authorize all
or a portion of a Nonqualified Stock Option or a SAR granted to a Participant to be on terms which
permit transfer by such Participant to:
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|
|
the spouse (or former spouse), children or grandchildren of the Participant
(Immediate Family Members);
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|
|
a trust or trusts for the exclusive benefit of such Immediate Family Members or
entities exempt from Section 501(c)(3) of the Code as described below;
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|
|
a partnership in which the only partners are such Immediate Family Members and/or
entities which are controlled by Immediate Family Members;
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|
an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code
or any successor provision; or
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|
a split interest trust or pooled income fund described in Section 2522(c)(2) of the
Code or any successor provision, as long as:
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there is no consideration for any such transfer;
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the Award Agreement pursuant to which such Nonqualified Stock Option or SAR is
granted is approved by the Committee and must expressly provide for transferability in
a manner consistent with the Restated Plan; and
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|
|
subsequent transfers of transferred Nonqualified Stock Options or SARs are
prohibited except those by will or the laws of descent and distribution.
|
Administration and Amendments
. The Restated Plan is to be administered by the Board of
Directors, except that the Board of Directors has the authority under the Restated Plan to delegate
any or all of its powers under the Restated Plan to a committee consisting of not less than two
directors. The Board of Directors is authorized to interpret the Restated Plan and related
agreements and other documents. The Board of Directors has broad discretion to determine the terms
of the Awards, including the types of Awards, exercise prices of Options, vesting provisions,
forfeiture and termination provisions and other restrictions.
In addition, the Chief Executive Officer of the Company may recommend to the Committee to whom
Awards be granted, the number of shares to be granted in such Award, and the price and terms of
such Awards. Further, the Committee may by resolution adopted by the Board of Directors, authorize
one or more officers of the Company to designate eligible persons for Awards and the number of
shares to be given to such person; provided, however, that the resolution of the Board shall
specify the total number of shares subject to such Awards, the price to be paid for such awards,
and not authorize the officer to designate himself as the recipient.
The Board of Directors may amend, alter, revise, suspend, or discontinue the Restated Plan
from time to time without the consent of the Participants, except where so required by the terms of
the Restated Plan, applicable law or the rules and regulations of a national securities exchange;
provided, however, that no amendment which requires stockholder approval in order for the Restated
Plan and Awards under the Restated Plan to continue to comply with Sections 162(m), 421 and 422 of
the Code, including any successors to such Sections, shall be effective unless such amendment shall
be approved by the requisite vote of the stockholders of the Company entitled to vote thereon.
30
Adjustments
. The number of shares and type of Common Stock (or the securities or property)
that may be made the subject of Awards, the number of shares and type of Common Stock (or other
securities or property) subject to outstanding Awards, the number of shares and type of Common
Stock (or other securities or property) specified as the annual per-participant limitations under
the Restated Plan, the Option Price of each outstanding Award, and the number of or Grant Price of
shares of Common Stock subject to outstanding SARs previously granted and unexercised under the
Restated Plan are subject to adjustment in the event of stock dividends, stock splits, combinations
of shares, recapitalizations, mergers, consolidations, spin-offs, reorganizations, liquidations,
issuances of rights or warrants, and similar events. In the event of any such transaction or event,
the Committee, if deemed appropriate, may provide for a cash payment to the holder of an
outstanding Award, except as may otherwise be provided by the applicable Award Agreement.
Awards Granted Under the Plan
Because awards under the Restated Plan are at the discretion of the Compensation Committee, the
benefits that will be awarded under the Restated Plan to persons other than non-employee directors are not
currently determinable. The following table shows as to each of the named executive officers, all
current executive officers as a group, all current directors who are not also executive officers as
a group, and all other employees as a group, as of September 30, 2009, the aggregate number of
shares of common stock subject to awards granted under the Restated Plan, excluding awards that have been
canceled or forfeited, and the weighted average per share exercise price of options granted under
the Restated Plan. As of September 30, 2009, the market value of a share of common stock based on the
closing price for such stock on The New York Stock Exchange was $2.70.
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Shares of
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Shares of Common
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Weighted Average
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Restricted Stock
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Stock Subject to
|
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Option Exercise
|
Name
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Subject to Awards
|
|
Outstanding Options
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Price Per Share
|
Stephen J. Harrison
|
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32,537
|
|
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100,000
|
|
|
$
|
6.64
|
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Edward L. Pierce
|
|
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415,000
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|
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350,000
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|
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$
|
9.30
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Kevin P. Cohn
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325,000
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|
|
$
|
5.53
|
|
Daniel L. Walker
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34,667
|
|
|
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100,000
|
|
|
$
|
3.04
|
|
Keith E. Bornemann
|
|
|
13,866
|
|
|
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45,000
|
|
|
$
|
4.61
|
|
All current
executive officers
as a group (5
persons)
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496,070
|
|
|
|
920,000
|
|
|
$
|
6.77
|
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|
|
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|
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|
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All current
directors who are
not also executive
officers as a group
(2 persons)
(1)
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3,825,678
|
|
|
$
|
3.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other employees
as a group (18
persons)
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125,037
|
|
|
|
526,000
|
|
|
$
|
5.82
|
|
|
|
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(1)
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|
Outstanding options are held by Donald J. Edwards and Thomas M.
Harrison, Jr., both of whom formerly served as executive officers of the Company.
|
Termination
of the Restated Plan
. The Restated Plan terminates on
November 17, 2019.
31
Federal Income Tax Consequences
The following is a brief summary of certain of the federal income tax consequences of certain
transactions under the Restated Plan based on federal income tax laws currently in effect. This
summary is not intended to be complete and does not describe state, local or foreign tax
consequences.
Incentive Stock Options.
No taxable income is recognized by the Participant upon the grant or
exercise of an ISO. If Common Stock is issued to a Participant pursuant to the exercise of an ISO,
and if no disqualifying disposition of the shares is made by the Participant within two years of
the Date of Grant or within one year after the transfer of the shares to the Participant, then: (i)
upon the sale of the shares, any amount realized in excess of the Option Price is taxed to the
Participant as long-term capital gain, and any loss sustained will be a capital loss; and (ii) no
deduction is allowed to the Company for federal income tax purposes. The exercise of an ISO gives
rise to an item of tax preference that may result in an alternative minimum tax liability for the
Participant unless the Participant makes a disqualifying disposition of the shares received upon
exercise.
If Common Stock acquired upon the exercise of an ISO is disposed of prior to the expiration of
the holding periods described above, then generally: (i) the Participant recognizes ordinary income
in the year of disposition in an amount equal to the excess, if any, of the Fair Market Value of
the shares at exercise (or, if less, the amount realized on the disposition of the shares) over the
Option Price paid for such shares, and (ii) the Company is entitled to deduct any such recognized
amount. Any further gain or loss realized by the Participant is taxed as short-term or long-term
capital gain or loss, as the case may be, and does not result in any deduction by the Company.
Subject to certain exceptions for disability or death, if an ISO is exercised more than three
months following the termination of the Participants employment, the option is generally taxed as
a Nonqualified Stock Option.
Nonqualified Stock Options.
Except as noted below, with respect to Nonqualified Stock
Options: (i) no income is recognized by the Participant at the time the Option is granted; (ii)
generally upon exercise of the Option, the Participant recognizes ordinary income in an amount
equal to the difference between the Option Price paid for the shares and the Fair Market Value of
the shares on the date of exercise, and the Company will be entitled to a tax deduction in the same
amount; and (iii) at disposition, any appreciation (or depreciation) after the date of exercise is
treated either as short-term or long-term capital gain or loss, depending upon the length of time
that the Participant has held the shares.
Stock Appreciation Rights (SARs)
. No income is recognized by a Participant in connection with
the grant of a SAR. When the SAR is exercised, the Participant generally recognizes ordinary income
in an amount equal to the amount of cash and the Fair Market Value of any shares received. The
Company is entitled to a deduction at the time and in the amount included in the Participants
income by reason of the exercise. If the Participant receives Common Stock upon exercise of a SAR,
the post-exercise appreciation or depreciation is treated in the same manner discussed above under
Nonqualified Stock Options.
Restricted Stock
. A Participant receiving restricted stock generally recognizes ordinary
income in the amount of the Fair Market Value of the restricted stock at the time the stock is no
longer subject to forfeiture, less the consideration paid for the stock. The Company is generally
entitled to a deduction of an amount equal to such ordinary income recognized by the Participant.
With respect to the sale of shares after the forfeiture period has expired, the tax basis for
determining gain or loss when such shares are sold is the amount included in ordinary income plus
any purchase price paid for the shares, and the holding period to determine whether the Participant
has long-term or short-term capital gain or loss generally begins when the restriction period
expires.
However, under Section 83(b) of the Internal Revenue Code, a Participant may elect, within 30 days
of the grant of the stock, to recognize taxable ordinary income on the date of grant equal to the
excess of the Fair Market Value of the shares of restricted stock (determined without regard to the
restrictions) over the purchase price of the restricted stock. The Company is entitled to a
deduction equal to the amount that is taxable as ordinary income to the Participant in the year
that such income is taxable. If the stock appreciates in value between the time of the 83(b)
election and the date the stock is no longer subject to forfeiture, the tax on the appreciation
will be deferred until such time as the stock is sold. When such appreciated shares are sold, the
tax basis for determining gain or loss is equal to the taxable ordinary income recognized on the
date of grant plus any purchase price paid for the stock, and the holding period commences on the
date of grant.
32
Restricted Stock Units.
A Participant who receives a Restricted Stock Unit will in most cases
be subject to tax at ordinary income rates on the cash received or the Fair Market Value of the
Common Stock delivered to the Participant at the time of such payment under the terms of the
Restricted Stock Unit agreement. In the case of a sale of Common Stock received upon the
settlement of the Restricted Stock Unit, the holding period to determine whether the Participant
has long-term or short-term capital gain or loss begins upon the receipt of the Common Stock and
the tax basis for such Common Stock will be equal to the Fair Market Value thereof on such date.
Performance Awards.
A Participant who receives a Performance Award generally recognizes
ordinary income in an amount equal to any cash received and the Fair Market Value of any shares
received on the date of payment or delivery. In that taxable year, the Company would receive a
federal income tax deduction in an amount equal to the ordinary income that the Participant has
recognized.
Other Stock-Based Awards.
The federal income tax treatment of Other Stock-Based Awards depends
on the nature of any such Award and the restrictions applicable to such Award. Such an Award may,
depending on the conditions applicable to the Award, be taxable as an Option, an Award of
Restricted Stock, Restricted Stock Unit or in a manner not described herein.
The Board of Directors recommends a vote FOR the approval of the Amended and Restated First
Acceptance Corporation 2002 Long Term Incentive Plan.
33
PROPOSAL 3 APPROVAL OF THE OPTION EXCHANGE
Introduction
We are seeking stockholder approval of a one-time value-for-value option exchange (the
Exchange). On September 24, 2009, our Board of Directors, upon the recommendation of our
Compensation Committee, authorized the Exchange, subject to stockholder approval of both the
Exchange and the amendment and restatement of the Companys 2002 Long Term Incentive Plan as
discussed in Proposal 2 Approval of Amended and Restated First Acceptance
Corporation 2002 Long Term Incentive Plan in this proxy statement. If implemented, the Exchange would permit certain employees to
surrender certain outstanding stock options (the Exchange Options) that are underwater (i.e.,
stock options with an exercise price that is greater than our current trading price) for
cancellation in exchange for a lesser number of shares of Restricted Stock to be granted under the
Restated Plan (the Exchange Stock). The Exchange will only be consummated if the Companys
stockholders approve both the Exchange as described in this Proposal 3 and the Restated Plan as
described in Proposal 2 in this proxy statement.
The Exchange Options consist of a total of eight Stock Option Awards that were granted to
eight members of our current senior management team, four of whom are named executive officers.
The Exchange Options were granted between April 20, 2004 and July 18, 2007 and have exercise prices
ranging from $6.64 per share to $11.81 per share. Between October 1, 2008 and September 30, 2009,
the sales price for our common stock ranged from $3.80 per share to $1.66 per share, and the
average closing price of our common stock during that period was $2.61. Each of the Exchange
Options has been underwater for at least 24 months. The Exchange
Options include all outstanding Stock Option Awards held by current
employees of the Company that have been underwater for at least
twelve months.
Pursuant to the Exchange, the Exchange Options would be eligible for exchange for Exchange
Stock having a value equal to or less than the value of the Exchange Options on the date of the
Exchange. For the purposes of the Exchange, each Exchange Option will be valued as of the last
trading day prior to the consummation of the Exchange based upon the Black-Scholes option pricing
model, and the shares of Exchange Stock will be valued based upon the closing price of the
Companys common stock on the last trading day prior to the consummation of the Exchange. No
participant in the Exchange may receive Exchange Stock having a value of greater than $150,000 at
the time of the Exchange. If the Exchange
and the Restated Plan are
approved by the Companys stockholders, the Company
anticipates that the Exchange will be consummated as soon as practicable following the annual
meeting.
Background & Reasons for the Exchange
Equity awards, including stock options and restricted stock, are the principal vehicle for
payment of long-term compensation for certain of our employees, and we believe that ownership of
equity interests in the Company by its senior management provides a substantial motivation for
superior performance by more closely aligning the economic interests of those employees with the
overall performance of the Company and the interests of its stockholders. Therefore, by granting
equity awards, in part, to reward the employees for their long-term strategic management of the
Company, and to motivate the employees to improve stockholder value, we reinforce the link between
our stockholders and our senior managements focus on personal responsibility, creativity and
stockholder returns.
Like
many companies, we have experienced a significant decline in our
stock price over the past two years due in large part to adverse economic conditions impacting our customers and the
continued weakness of the United States economy. While we have made changes to our business and
implemented a number of initiatives to respond to this economic downturn, and continue to do so,
our stock price has nevertheless declined. As a result of this decrease in stock price, the
Exchange Options are significantly underwater and have been underwater for a long period of time.
Because of the continued challenging economic environment, we believe the Exchange Options are no
longer effective as incentives to motivate and retain the members of our senior management.
Furthermore, although the Exchange Options are not likely to be exercised as long as our stock
price is lower than the applicable exercise price, the Exchange Options continue to impact our
financial statements and have the potential to dilute our stockholders interests for up to the
full remaining term of the Exchange Options, while delivering little or no retentive or incentive
value and no opportunity to recapture value from the associated compensation expense, unless they
are surrendered or cancelled.
34
We believe the best course of action is to replace the Exchange Options with shares of
restricted stock based upon a value-for-value exchange as described below. By exchanging the
Exchange Options for the Exchange Stock, the Company will more cost-effectively provide retentive
and incentive value than it would by simply issuing incremental equity or paying additional cash
compensation.
Alternatives Considered
When considering how best to continue to provide incentives to our senior employees
who hold underwater stock options, we considered the following alternatives:
Increase cash compensation.
To replace equity incentives, we considered whether we could
substantially increase base and bonus cash compensation. However, significant increases in
cash compensation would substantially increase our cash compensation expense and reduce our cash
flow from operations, which could adversely affect our business and operating results. In addition,
these increases would not necessarily best align the interests of our senior employees with those
of our stockholders.
Grant additional equity awards.
We also considered special grants of additional stock options
at current market prices or restricted stock. However, these additional grants would increase our
compensation expense and dilute the interests of our stockholders.
Exchange options for cash.
We also considered implementing a program to exchange the Exchange
Options for cash payments. However, an exchange program where the Exchange Options are exchanged
for cash would accelerate our compensation expense and reduce our cash flow from operations, which
could adversely affect our business and operating results. In addition, we do not believe that such
a program would best align the interests of our senior employees with those of our stockholders.
Exchange options for options with lower exercise prices.
We also considered implementing a
program to exchange the Exchange Options for options having an exercise price equal to the market
price of our common stock on the date of the Exchange. We believe, however, that implementing an
option-for-restricted stock exchange would have two relative advantages versus an option-for-option
exchange with an equivalent accounting impact. First, an option-for-restricted stock exchange would
require the grant of substantially fewer shares of restricted stock than options in an
option-for-option exchange (i.e., fewer shares will be subject to the replacement
restricted stock awards granted than replacement option awards). Second, our potential stockholder
dilution would be less in an option-for-restricted stock exchange compared with an
option-for-option exchange.
Implementing the Exchange
We have not commenced the Exchange and will not do so unless our stockholders approve this
proposal and the Restated Plan discussed in Proposal 2. If our stockholders approve this proposal
and Proposal 2, we expect to commence the Exchange as soon as practicable following the annual
meeting by entering into Option Cancellation and Restricted Stock Award Agreements with the
persons who hold the Exchange Options. The Company will not conduct any public solicitation
in connection with the Exchange and does not believe it is required to conduct a public tender
offer in connection with the Exchange because the Exchange Options are held by a total of eight
persons, all of whom are members of our current senior management team and four of whom are named
executive officers, and the Exchange will be conducted solely through
private, individual transactions. Even if the Exchange is approved by our stockholders, the Compensation
Committee will retain the authority, in its discretion, to terminate, amend or postpone the
Exchange at any time prior to completion of the Exchange (provided that the Exchange will not be
amended to permit the issuance of restricted stock having a value greater than the fair value of
the Exchange Options surrendered).
35
Details of the Exchange
The following describes important features of the Exchange:
Who is Eligible to Participate in the Exchange?
The following table sets forth
information with respect to the persons that hold the Exchange Options, the date each Exchange
Option was granted, the number of shares of common stock issuable upon exercise of the Exchange
Option, and the exercise price of the Exchange Option. Provided the following individuals are
employed by us on the date of the Exchange, and hold Exchange Options on such date, they will
be eligible to participate in the Exchange:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common
|
|
|
|
|
Option
|
|
Stock Issuable Upon
|
|
Option
|
Name
|
|
Grant Date
|
|
Exercise
|
|
Exercise Price
|
Stephen J. Harrison
|
|
4/30/04
|
|
|
100,000
|
|
|
$
|
6.64
|
|
Edward L. Pierce
|
|
9/13/06
|
|
|
250,000
|
|
|
$
|
11.81
|
|
Kevin P. Cohn
|
|
10/9/06
|
|
|
100,000
|
|
|
$
|
11.13
|
|
Keith E. Bornemann
|
|
2/7/07
|
|
|
10,000
|
|
|
$
|
10.12
|
|
Joe Best
|
|
2/7/07
|
|
|
25,000
|
|
|
$
|
10.12
|
|
John Barnett
|
|
7/18/07
|
|
|
20,000
|
|
|
$
|
10.08
|
|
Michael J. Bodayle
|
|
9/13/06
|
|
|
50,000
|
|
|
$
|
11.81
|
|
William Pentecost
|
|
9/13/06
|
|
|
50,000
|
|
|
$
|
11.81
|
|
What Options Are Eligible to be Exchanged in the Exchange?
As discussed above, the Exchange
Options consist of eight Stock Option Awards, held by eight persons, that have a per share exercise
price greater than or equal to $6.64 per share.
How Many Shares of Restricted Stock Will Participants Receive in the Exchange?
Our objective
in determining the number of shares of Exchange Stock to be issued in the Exchange is to provide for the grant of Exchange Stock
that will have a value no greater than the value of the Exchange Options surrendered. The number
of shares of Exchange Stock to be issued in exchange for each Exchange Option will be established
based upon the closing price of the Companys common stock on the last trading day before the date
of the Exchange.
We will estimate the fair value of each Exchange Option using the Black-Scholes option
valuation model based upon assumptions regarding expected option term, annualized volatility rate,
risk-free rate of return and dividend yield. Each Exchange Option will be exchanged for a
number of shares of Exchange Stock having a value equal to or less than the value of the Exchange
Option (based on the closing sale price of our common stock on the last trading day before the
date of the Exchange); provided, that no participant in the Exchange may receive Exchange Stock
having a value of greater than $150,000 at the time of the Exchange.
The number of shares of Exchange Stock to be issued in the Exchange will be based upon the value of the Exchange
Options and the Exchange Stock as of the last trading day prior to the Exchange. As a result, we
cannot currently determine the number of shares of Exchange Stock to be issued in the Exchange.
36
The
following table sets forth, solely for illustrative purposes, the general terms of the Exchange if the Exchange had been consummated on October 1, 2009.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Each Share
|
|
|
|
|
|
|
|
|
|
Number of Shares of
|
|
|
|
|
|
|
Subject
|
|
Total
|
|
|
|
|
|
Exchange Stock to
|
|
|
Shares Subject to
|
|
to the Exchange
|
|
Value of Exchange
|
|
Value of Each Share
|
|
be Issued in the
|
Name
|
|
Exchange Option
|
|
Option (1)
|
|
Option
|
|
of Exchange Stock
|
|
Exchange
|
Stephen J. Harrison
|
|
|
100,000
|
|
|
$
|
0.6782
|
|
|
$
|
67,820
|
|
|
$
|
2.40
|
|
|
|
28,258
|
|
Edward L. Pierce
|
|
|
250,000
|
|
|
$
|
0.7489
|
|
|
$
|
150,000
|
|
|
$
|
2.40
|
|
|
|
62,500
|
(2)
|
Kevin P. Cohn
|
|
|
100,000
|
|
|
$
|
0.7868
|
|
|
$
|
78,680
|
|
|
$
|
2.40
|
|
|
|
32,783
|
|
Keith E. Bornemann
|
|
|
10,000
|
|
|
$
|
0.8739
|
|
|
$
|
8,739
|
|
|
$
|
2.40
|
|
|
|
3,641
|
|
Joe Best
|
|
|
25,000
|
|
|
$
|
0.8739
|
|
|
$
|
21,847
|
|
|
$
|
2.40
|
|
|
|
9,103
|
|
John Barnett
|
|
|
20,000
|
|
|
$
|
0.9193
|
|
|
$
|
18,386
|
|
|
$
|
2.40
|
|
|
|
7,660
|
|
Michael J. Bodayle
|
|
|
50,000
|
|
|
$
|
0.7489
|
|
|
$
|
37,445
|
|
|
$
|
2.40
|
|
|
|
15,602
|
|
William Pentecost
|
|
|
50,000
|
|
|
$
|
0.7489
|
|
|
$
|
37,445
|
|
|
$
|
2.40
|
|
|
|
15,602
|
|
|
|
|
(1)
|
|
The value of the Exchange Options as of October 1, 2009 was estimated using the Black-Scholes
option pricing model based on the following assumptions: expected option term, five to seven
years; annualized volatility rate, 64%; risk-free rate of return, 2.20% to 2.82%; and dividend
yield, 0%.
|
|
(2)
|
|
The number of shares of Exchange Stock Mr. Pierce would receive in the Exchange was reduced
because no participant may receive Exchange Stock having a value of greater than $150,000 at
the time of the Exchange.
|
What Are the Terms of the Exchange Stock?
The Exchange Stock issued to Messrs. Harrison,
Pierce and Cohn in the Exchange will vest in four equal, annual installments beginning on the first
anniversary of the date of the Exchange. The Exchange Stock issued to Messrs. Bornemann, Barnett,
Best, Bodayle and Pentecost will vest in five equal, annual installments beginning on the first
anniversary of the date of the Exchange.
Why Are We Seeking Stockholder Approval of the Exchange?
Under the listing rules of the New
York Stock Exchange and the current terms of the Companys 2002 Long Term Incentive Plan,
stockholder approval is required in order for us to implement the Exchange. As previously
discussed, if our stockholders approve this proposal and the Restated Plan, we intend to consummate the Exchange promptly
following the annual meeting.
Accounting Treatment.
We have adopted the provisions of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 123 (Revised),
Share Based Payments
(SFAS 123R).
Under SFAS 123R, we will recognize the incremental compensation expense, if any, resulting from the
Exchange Stock issued in the Exchange. The incremental compensation expense will be measured (i) as
the excess, if any, of the fair value of the Exchange Stock granted to employees in exchange for
surrendered Exchange Options, measured as of the date the Exchange Stock is granted, over (ii) the
fair value of the Exchange Options surrendered in exchange for the new awards, measured immediately
prior to the Exchange. Under FAS 123R, because this is a value-for-value exchange, we do not expect
to recognize any incremental compensation expense due to the Exchange Stock granted in the
Exchange, other than immaterial compensation expense that might result from fluctuations in our
stock price after the values of Exchange Options and Exchange Stock are determined and before the Exchange actually occurs.
U.S. Federal Income Tax Consequences.
We believe the exchange of Exchange Options for
Exchange Stock pursuant to the Exchange should be treated as a non-taxable exchange and that we,
our stockholders and employees should recognize no income for United States federal income tax
purposes upon the surrender of the Exchange Options and the grant of the Exchange Stock. When the
shares of Exchange Stock vest according to the vesting schedule described above, and shares of
common stock are issued to the employees, the shares issued will be subject to United States income
and employment taxes and applicable income and employment taxes will be withheld.
The preceding paragraph is a summary of the anticipated material United States federal income
tax consequences of participating in the Exchange and of holding Exchange Stock. The Internal
Revenue Service is not precluded from adopting a contrary position and the law and regulations
themselves are subject to change.
The Board of Directors recommends a vote FOR the approval of the Exchange.
37
PROPOSAL 4 RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee has selected Ernst & Young LLP to serve as our independent auditors for
the current fiscal year, and the stockholders are requested to ratify this appointment. Ernst &
Young has served as our independent registered public accounting firm since September 2005. A
representative of Ernst & Young is expected to be present at the annual meeting, will have an
opportunity to make a statement if he or she so desires and is expected to be available to respond
to appropriate questions. Stockholders should recognize that the ratification of the appointment
of Ernst & Young does not preclude the Audit Committee from subsequently determining to change
independent auditors if the Audit Committee determines such action to be in the best interests of
the Company and its stockholders.
Fees Billed to Us by Ernst & Young LLP For Fiscal 2009 and 2008
Audit Fees.
The aggregate audit fees billed by Ernst & Young for the fiscal years ended June
30, 2009, and 2008 were $765,000 and $856,350, respectively. The fees include professional
services and expenses for annual audits, including internal control over financial reporting, and
quarterly reviews of our financial statements.
Audit-Related Fees.
Audit-related fees billed by Ernst & Young for the fiscal years ended
June 30, 2009 and 2008 were $25,000 and $22,000, respectively. These fees related to the audit of
the Companys 401(k) plan.
Tax Fees.
The aggregate tax fees billed by Ernst & Young for the fiscal year ended June 30,
2009 and 2008 were $79,500 and $60,000, respectively. These fees related primary to the preparation
of fiscal year federal and state income tax returns for the Company.
All Other Fees.
No amounts were billed by Ernst & Young during the fiscal years ended June 30,
2009 and 2008 that would be categorized as All Other Fees.
Audit Committee Pre-Approval Policies and Procedures.
Our Audit Committee has adopted a policy, contained in its Restated Charter, which provides
that our Audit Committee must pre-approve all audit and non-audit services provided to the Company
by our independent auditors. This policy is administered by our senior management, which reports
throughout the year to the Audit Committee. The Audit Committee pre-approved all audit and
non-audit services provided by Ernst & Young.
Auditor Rotation Policies
Ernst & Young maintains partner rotation policies in accordance with the rules promulgated by
the SEC. Such rules have required rotation of the lead audit partner after five years of
assignment to the engagement.
Required Vote; Recommendation of the Board
Approval of this proposal requires the affirmative vote of a majority of the shares
represented in person or by proxy and entitled to vote on the matter. A properly executed proxy
marked ABSTAIN with respect to this proposal will have the same effect as a vote against the
proposal. However, as discussed elsewhere in this proxy statement, both abstentions and broker
nonvotes will factor into the determination of the existence of a quorum.
The Board of Directors recommends that you vote FOR the ratification of the appointment of
Ernst & Young LLP as First Acceptance Corporations independent auditors.
38
OTHER MATTERS
As of the date of this proxy statement, we know of no business that will be presented for
consideration at the annual meeting other than the items referred to above. If any other matter is
properly brought before the meeting for action by stockholders, proxies in the enclosed form
returned to us will be voted in accordance with the recommendation of the Board of Directors or, in
the absence of such a recommendation, in accordance with the judgment of the proxy holder.
ADDITIONAL INFORMATION
Stockholder Proposals for the 2010 Annual Meeting
. Pursuant to Rule 14a-8(e) of the Securities
Exchange Act of 1934, stockholder proposals submitted in accordance with applicable rules and
regulations for presentation at our next annual meeting and received at our executive offices no
later than June 8, 2010 will be considered for inclusion in our proxy statement and form of proxy
relating to the 2010 annual meeting.
For other stockholder proposals to be timely (but not considered for inclusion in our proxy
statement), a stockholders notice must be received at our executive offices no later than 60 days
before our annual meeting or (if later) within ten days after the public notice of that meeting is
sent to the stockholders of the Company, and should otherwise comply with the advance notice
provisions of our certificate of incorporation. For proposals that are not timely filed, we retain
discretion to vote the proxies that we receive. For proposals that are timely filed, we retain
discretion to vote the proxies that we receive, provided (1) we include in our proxy statement
advice on the nature of the proposal and how we intend to exercise our voting discretion and (2)
the proponent does not issue a proxy statement.
Proxy Solicitation Costs
. The proxies being solicited hereby are being solicited by us. We
will bear the cost of soliciting proxies in the enclosed form. Our officers and regular employees
may, but without compensation other than their regular compensation, solicit proxies by mail,
personal conversations, telephone, telex, facsimile or electronic means. Upon request, we will
reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation
material to the beneficial owners of our common stock.
Financial Statements Available
. A copy of our 2009 Annual Report to Stockholders containing
our Annual Report on Form 10-K for the year ended June 30, 2009 and other information accompanies
this proxy statement.
Householding Information
. As permitted by the SECs proxy statement rules, we will deliver
only one copy of our 2009 Annual Report to Stockholders or this proxy statement to two or more
stockholders who share an address, unless we have received contrary instructions from one or more
of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of our
2009 Annual Report to Stockholders or this proxy statement to a stockholder at a shared address to
which a single copy of the documents was delivered. Conversely, stockholders sharing an address who
are receiving multiple copies of our annual reports or proxy statements may request delivery of a
single copy.
Requests in this regard should be addressed to:
Michael J. Bodayle,
Assistant Secretary
First Acceptance Corporation
3322 West End Ave., Suite 1000
Nashville, TN 37203
(615) 844-2907
39
Appendix A
AMENDED
AND RESTATED FIRST ACCEPTANCE CORPORATION
2002 LONG TERM INCENTIVE PLAN
The
Amended and Restated First Acceptance Corporation 2002 Long Term Incentive Plan (the
Plan) was adopted by the Board of Directors of First Acceptance Corporation, a Delaware
corporation (the Company). This Plan amends and restates the First Acceptance Corporation 2002
Long Term Incentive Plan, as amended, that was originally approved by the Companys shareholders on
April 30, 2004. The amendments contained in this Plan shall become effective upon approval by the
holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present
or by written consent in accordance with applicable law. Subject to such approval, Awards may be
granted hereunder on and after the adoption of this Plan by the Board.
ARTICLE I.
PURPOSE
The purpose of the Plan is to foster and promote the long-term financial success of the
Company and its Subsidiaries and materially increase the value of the Company and its Subsidiaries
by (a) encouraging the long-term commitment of the Employees, Consultants, and Outside Directors of
the Company and its Subsidiaries, (b) motivating performance of the Employees, Consultants, and
Outside Directors of the Company and its Subsidiaries by means of long-term performance related
incentives, (c) encouraging and providing Employees, Consultants, and Outside Directors of the
Company and its Subsidiaries with an opportunity to obtain an ownership interest in the Company,
(d) attracting and retaining outstanding Employees, Consultants, and Outside Directors by providing
incentive compensation opportunities, and (e) enabling participation by Employees, Consultants, and
Outside Directors in the long-term growth and financial success of the Company and its
Subsidiaries.
ARTICLE II.
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the following terms shall
have the meanings indicated:
2.1 Award means the grant of any Option, SAR, Restricted Stock, Restricted Stock Unit,
Performance Award or Other Stock-Based Award, whether granted singly or in combination or in
tandem.
2.2 Award Agreement means a written agreement between a Participant and the Company which
sets out the terms of the grant of an Award.
2.3 Board means the board of directors of the Company.
2.4 Cause shall mean, unless otherwise defined in the applicable Award Agreement, the
Company or a Subsidiary having cause to terminate a Participants employment or service, as
defined in any written employment agreement then in effect between the Participant and the Company,
or, in the absence of such an agreement with respect to any Participant, such Participants (i)
failure to comply with the employment policies of the Company or any Subsidiary or a material
breach of an employment, consulting or other agreement, including any written confidentiality,
non-compete, non-solicitation or business opportunity covenant contained in any agreement entered
into by such Participant and the Company or any Subsidiary; (ii) commission of any material act of
dishonesty, breach of trust or misconduct in connection with performance of employment-related
duties; or (iii) conviction of, or pleading guilty or
nolo contendere
to, any felony or to any
crime involving dishonesty, theft or unethical business conduct, or conduct which could impair or
injure the Company or its reputation.
2.5 Change in Control shall mean any of the following: (i) any consolidation, merger or
share exchange of the Company in which the holders of a majority of the Companys outstanding
voting power prior to such transaction do not own at least a majority of the outstanding voting
power of the Company or any successor thereto following such transaction; (ii) any sale, lease,
exchange or other transfer (excluding transfer by way of
pledge or hypothecation) in one transaction or a series of related transactions, of all or
substantially all of the assets of the Company; (iii) the stockholders of the Company approve any
plan or proposal for the liquidation or dissolution of the Company; (iv) the cessation of control
(by virtue of their not constituting a majority of directors) of the Board by the individuals who
(x) at the date of this Plan were directors or (y) become directors after the date of this Plan and
whose election or nomination for election by the Companys stockholders was approved by a vote of
at least two-thirds of the directors then in office who were directors at the date of this Plan or
whose election or nomination for election was previously so approved; (v) the acquisition of
beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of an aggregate of 50%
or more of the voting power of the Companys outstanding voting securities by any person or group
(as such term is used in Rule 13d-5 under the 1934 Act) who beneficially owned less than 50% of the
voting power of the Companys outstanding voting securities on the date of this Plan; provided ,
however , that notwithstanding the foregoing, an acquisition shall not constitute a Change in
Control hereunder if the acquiror is (x) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company and acting in such capacity, or (y) a Subsidiary of the
Company or a corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of voting securities of the Company; or (vi)
in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case
involving the Company to a case under Chapter 7.
2.6 Code means the Internal Revenue Code of 1986, as amended.
2.7 Committee means the committee appointed or designated by the Board to administer the
Plan in accordance with
Article 3
of this Plan.
2.8 Common Stock means the common stock, par value $0.01 per share, which the Company is
currently authorized to issue or may in the future be authorized to issue, or any securities into
which or for which the common stock of the Company may be converted or exchanged, as the case may
be, pursuant to the terms of this Plan.
2.9 Company means First Acceptance Corporation, a Delaware corporation, and any successor
entity.
2.10 Consultant means any person performing advisory or consulting services for the Company
or a Subsidiary, with or without compensation, to whom the Company chooses to grant an Award in
accordance with the Plan, provided that bona fide services must be rendered by such person and
such services shall not be rendered in connection with the offer or sale of securities in a capital
raising transaction.
2.11
Covered Officer
shall mean at any date (i) any individual who, with respect to the
previous taxable year of the Company, was a covered employee of the Company within the meaning of
Section 162(m); provided, however, that the term Covered Officer shall not include any such
individual who is designated by the Committee, in its discretion, at the time of any Award or at
any subsequent time, as reasonably expected not to be such a covered employee with respect to the
current taxable year of the Company or with respect to the taxable year of the Company in which any
applicable Award will be paid or vested and (ii) any individual who is designated by the Committee,
in its discretion, at the time of any Award or at any subsequent time, as reasonably expected to be
such a covered employee with respect to the current taxable year of the Company or with respect
to the taxable year of the Company in which any applicable Award will be paid or vested.
2.12 Date of Grant means the effective date on which an Award is made to a Participant as
set forth in the applicable Award Agreement.
2.13 Employee means common law employee (as defined in accordance with the Regulations and
Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary
of the Company.
2.14 Fair Market Value means, as of a particular date, (a) if the shares of Common Stock are
listed on a national securities exchange, the closing sales price per share of Common Stock on the
consolidated transaction reporting system for the principal securities exchange for the Common
Stock on that date, or, if there shall have
2
been no such sale so reported on that date, on the last preceding date on which such a sale
was so reported, (b) if the Common Stock is not so listed or quoted, the mean between the closing
bid and asked price on that date, or, if there are no quotations available for such date, on the
last preceding date on which such quotations shall be available, or (d) if none of the above is
applicable, such amount as may be determined by the Committee (acting on the advice of an
Independent Third Party, should the Committee elect in its sole discretion to utilize an
Independent Third Party for this purpose), in good faith, to be the fair market value per share of
Common Stock.
2.15
Grant Price
means the price established at the time of grant of an SAR pursuant to
Article VI
used to determine whether there is any payment due upon exercise of the SAR.
2.16 Independent Third Party means an individual or entity independent of the Company having
experience in providing investment banking or similar appraisal or valuation services and with
expertise generally in the valuation of securities or other property for purposes of this Plan. The
Board Committee may utilize one or more Independent Third Parties.
2.17 Incentive Stock Option means an incentive stock option within the meaning of Section
422 of the Code, granted pursuant to this Plan.
2.18 Nonpublicly Traded means not listed on a national securities exchange registered with
the Securities and Exchange Commission.
2.19 Nonqualified Stock Option means a nonqualified stock option, granted pursuant to this
Plan, to which Section 421 of the Code does not apply.
2.20 Option means a Nonqualified Stock Option or an Incentive Stock Option granted pursuant
to
Article VI
hereof.
2.21 Option Price means the price that must be paid by a Participant upon exercise of an
Option to purchase a share of Common Stock.
2.22 Outside Director means a director of the Company who is not an Employee.
2.23 Other Stock-Based Award shall mean any Award granted under
Article IX
of the
Plan.
2.24 Participant means an Employee, Consultant, or Outside Director of the Company or a
Subsidiary to whom an Award is granted under this Plan.
2.25 Performance Award shall mean any Award granted under
Article VIII
of the Plan.
2.26
Plan means this Amended and Restated First Acceptance Corporation 2002 Long Term
Incentive Plan, as amended from time to time.
2.27 Restricted Stock means shares of Common Stock issued or transferred to a Participant
pursuant to
Article VII
of this Plan which are subject to restrictions or limitations set
forth in this Plan and in the related Award Agreement.
2.28 Restricted Stock Unit shall mean any unit granted under
Article VII
of the
Plan.
2.29 Retirement means any Termination of Service solely due to retirement upon or after
attainment of age sixty-five (65), or permitted early retirement as determined by the Committee.
2.30 SAR or stock appreciation right means the right to receive a payment, in cash and/or
Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of
Common Stock on the date the SAR is exercised over the Grant Price for such shares.
3
2.31 Section 162(m) shall mean Section 162(m) of the Code and the regulations promulgated
thereunder and any successor provision thereto as in effect from time to time.
2.32 Subsidiary means (i) any corporation in an unbroken chain of corporations beginning
with the Company, if each of the corporations other than the last corporation in the unbroken chain
owns stock possessing a majority of the total combined voting power of all classes of stock in one
of the other corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general partnership interest and a
majority of the limited partnership interests entitled to vote on the removal and replacement of
the general partner, and (iii) any partnership or limited liability company, if the partners or
members thereof are composed only of the Company, any corporation listed in item (i) above or any
limited partnership listed in item (ii) above. Subsidiaries means more than one of any such
corporations, limited partnerships, partnerships or limited liability companies.
2.33 Substitute Award shall mean an Award granted pursuant to
Article XIV
solely in
assumption of, or in substitution for, an outstanding award previously granted by a company
acquired by the Company or with which the Company combines.
2.34 Termination of Service occurs when a Participant who is an Employee or a Consultant of
the Company or any Subsidiary shall cease to serve as an Employee or Consultant of the Company and
its Subsidiaries, for any reason; or, when a Participant who is an Outside Director of the Company
or a Subsidiary shall cease to serve as a director of the Company and its Subsidiaries for any
reason. Except as may be necessary or desirable to comply with applicable federal or state law, a
Termination of Service shall not be deemed to have occurred when a Participant who is an Employee
becomes a Consultant or an Outside Director or vice versa. If, however, a Participant who is an
Employee and who has an Incentive Stock Option ceases to be an Employee but does not suffer a
Termination of Service, and if that Participant does not exercise the Incentive Stock Option within
the time required under Code section 422 upon ceasing to be an Employee, the Incentive Stock Option
shall thereafter become a Nonqualified Stock Option.
2.35 Total and Permanent Disability means a Participant is qualified for long-term
disability benefits under the Companys or Subsidiarys disability plan or insurance policy; or, if
no such plan or policy is then in existence or if the Participant is not eligible to participate in
such plan or policy, that the Participant is incapacitated and absent from his or her duties with
the Company or any Subsidiary on a full time basis for a period of six (6) continuous months or for
at least one hundred eighty (180) days during any twelve (12) -month period as a result of mental
or physical illness or physical injury, as determined in good faith by the Committee; provided that, with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning
given it under the rules governing Incentive Stock Options under the Code.
ARTICLE III.
ADMINISTRATION
3.1
General Administration; Establishment of Committee
. Subject to the terms of this
Article 3
, the Plan shall be administered by the Board or such committee of the Board as is
designated by the Board to administer the Plan (the Committee). The Committee shall consist of
not fewer than two persons. Any member of the Committee may be removed at any time, with or without
cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board. At any time there is no Committee to administer the Plan, any
references in this Plan to the Committee shall be deemed to refer to the Board.
Membership on the Committee shall be limited to those members of the Board who are outside
directors under Section 162(m) of the Code and non-employee directors as defined in Rule 16b-3
promulgated under the 1934 Act. The Committee shall select one of its members to act as its
chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the
members of the Committee present at a meeting at which a quorum is present shall be the act of the
Committee.
4
3.2
Designation of Participants and Awards
.
(a) The Committee or the Board shall determine and designate from time to time the eligible
persons to whom Awards will be granted and shall set forth in each related Award Agreement such
terms, provisions, limitations, and performance requirements as are approved by the Committee but
not inconsistent with the Plan. The Committee shall determine whether an Award Agreement shall
include one type of Award or two or more Awards granted in combination or two or more Awards
granted in tandem (that is, a joint grant where exercise of one Award results in cancellation of
all or a portion of the other Award). Although the members of the Committee shall be eligible to
receive Awards, no member of the Committee shall participate in any decisions regarding any Award
granted hereunder to such member. All decisions with respect to any Award, and the terms and
conditions thereof, to be granted under the Plan to any member of the Committee shall be made
solely and exclusively by the other members of the Committee, or if such member is the only member
of the Committee, by the Board.
In addition, the chief executive officer of the Company may recommend to the Board or the
Committee (i) that Awards be granted to one or more Employees, Officers, Consultants, or Outside
Directors, (ii) the number of shares of Common Stock to be subject to such Awards, and (iii) the
price to be paid for such Awards and such other terms that the chief executive officer deems
appropriate with respect to such Awards; in such case, the chief executive officers
recommendations shall not be binding on the Board and the Board may, in its sole discretion, accept
or deny the chief executive officers recommendations.
(b) Notwithstanding
Section 3.2(a)
, to the extent consistent with applicable
securities laws, the Board may in its discretion and by a resolution adopted by the Board,
authorize one or more officers of the Company (an Authorized Officer) to (i) designate one or
more Employees as eligible persons to whom Awards will be granted under the Plan and (ii) determine
the number of shares of Common Stock that will be subject to such Awards; provided, however, that
the resolution of the Board granting such authority shall (x) specify the total number of shares of
Common Stock that may be made subject to the Awards, (y) set forth the price or prices (or a
formula by which such price or prices may be determined) to be paid for the purchase of the Common
Stock subject to such Awards, and (z) not authorize an officer to designate himself as a recipient
of any Award. The Authorized Officer shall notify the Committee in writing of the persons
designated to receive such Awards, the type of Award, the Date of Grant, the number of shares of
Common Stock that will be subject to such Awards, and the purchase price to be paid for such
shares. If authorized to do so in the Boards written resolution, the Authorized Officer shall
cause the Company to execute an Award Agreement with the Participant, subject to the Committees
ratification of such terms of an Award as required by law.
Within an administratively reasonable time after receipt of the Authorized Officers written
notice of one or more Awards, the Committee shall authorize or ratify the grant of such Awards and
shall prescribe all other terms of such Awards pursuant to its authority set forth in
Section
3(a)
.
3.3
Authority of the Committee
. The Committee, in its discretion, shall have the full power
and authority in its discretion to (i) interpret the Plan, (ii) prescribe, amend, and rescind any
rules and regulations necessary or appropriate for the administration of the Plan, (iii) establish
performance goals for an Award and certify the extent of their achievement, (iv) accelerate the
time at which all or any part of an Award may be settled or exercised, (v) make all determinations
under the Plan concerning any Termination of Service and whether such termination has occurred by
reason of Cause, Disability, Retirement or in connection with a Change in Control; and (vi) make
such other determinations or certifications and take such other action as it deems necessary or
advisable in the administration of the Plan. Any interpretation, determination, or other action
made or taken by the Committee shall be final, binding, and conclusive on all interested parties.
The Committees discretion set forth herein shall not be limited by any provision of the Plan,
including any provision which by its terms is applicable notwithstanding any other provision of the
Plan to the contrary.
To the extent consistent with applicable securities laws, the Committee may delegate to
officers of the Company, pursuant to a written delegation, the authority to perform specified
functions under the Plan. Any actions taken by any officers of the Company pursuant to such written
delegation of authority shall be deemed to have been taken by the Committee.
5
With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3
promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of
any exchange or inter-dealer quotation system upon which the Companys securities are listed or
quoted, or any other applicable law, rule or restriction (collectively, applicable law), to the
extent that any such restrictions are no longer required by applicable law, the Committee shall
have the sole discretion and authority to grant Awards that are not subject to such mandated
restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.
ARTICLE IV.
ELIGIBILITY
Any Employee (including an Employee who is also a director or an officer), Outside Director,
or Consultant of the Company whose judgment, initiative, and efforts contributed or may be expected
to contribute to the successful performance of the Company is eligible to participate in the Plan.
The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any
Employee, Outside Director, or Consultant of the Company or any Subsidiary. Awards may be granted
by the Committee at any time and from time to time to new Participants, or to then Participants, or
to a greater or lesser number of Participants, and may include or exclude previous Participants, as
the Committee shall determine. Except as required by this Plan, Awards granted at different times
need not contain similar provisions. The Committees determinations under the Plan (including
without limitation determinations of which Employees, Outside Directors, or Consultants, if any,
are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such
Awards and the agreements evidencing same) need not be uniform and may be made by it selectively
among Participants who receive, or are eligible to receive, Awards under the Plan.
ARTICLE V.
SHARES SUBJECT TO PLAN
5.1
Number Available for Awards
. Subject to adjustment as provided in
Articles XI
and
XII
, the maximum number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is 8,500,000 shares. Shares to be issued may be made available from
authorized but unissued Common Stock, Common Stock held by the Company in its treasury, or Common
Stock purchased by the Company on the open market or otherwise. During the term of this Plan, the
Company will at all times reserve and keep available the number of shares of Common Stock that
shall be sufficient to satisfy the requirements of this Plan.
5.2
Reuse of Shares
.
(a) If shares of Common Stock are subject to an Option, SAR or other Award which shall expire
or terminate for any reason without having been exercised or settled in full, or in the event that
an Option, SAR or other Award is settled in cash or is otherwise exercised or settled in a manner
such that some or all of the shares of Common Stock relating to the Option are not issued to the
Participant (or beneficiary) (including as the result of the use of shares for withholding taxes),
the shares of Common Stock subject thereto which have not become outstanding shall (unless the Plan
shall have sooner terminated) become available for issuance under the Plan.
(b) If any shares of Common Stock subject to an Award are not delivered to a Participant
because the Award is exercised through a reduction of shares subject to the Award (i.e., net
exercised) or an appreciation distribution in respect of a SAR is paid in Common Stock, then the
number of shares subject to the Award that are not delivered to the Participant shall remain
available for subsequent issuance under the Plan.
(c) If the exercise price of any Award is satisfied by tendering Common Stock by the
Participant (either by actual delivery or attestation), then the number of shares so tendered shall
remain available for subsequent issuance under the Plan.
(d) In no event shall the number of shares of Common Stock subject to Incentive Stock Options
exceed, in the aggregate, 6,000,000 shares of Common Stock plus shares subject to Incentive Stock
Options which are forfeited or terminated, or expire unexercised.
6
ARTICLE VI.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.1
Grant.
Subject to the provisions of the Plan and other applicable legal requirements, the
Committee shall have sole and complete authority to determine the Participants to whom Options and
SARs shall be granted, the number of shares of Common Stock subject to each Award, the exercise
price and the conditions and limitations applicable to the exercise of each Option and SAR. An
Option may be granted with or without a related SAR. A SAR may be granted with or without a
related Option. The grant of an Option shall take place when the Committee by resolution, written
consent or other appropriate action determines to grant such Option for a particular number of
shares to a particular Participant at a particular Option Price. The Committee shall have the
authority to grant Incentive Stock Options and to grant Non-Qualified Stock Options. In the case
of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply
with Section 422 of the Code, as from time to time amended, and any regulations implementing such
statute. A person who has been granted an Option or SAR under this Plan may be granted additional
Options or SARs under the Plan if the Committee shall so determine; provided, however, that to the
extent the aggregate Fair Market Value (determined at the time the Incentive Stock Option is
granted) of the Common Stock with respect to which all Incentive Stock Options are exercisable for
the first time by an Employee during any calendar year (under all plans described in of Section
422(d) of the Code of the Employees employer corporation and its parent and Subsidiaries) exceeds
$100,000, such Options shall be treated as Non-Qualified Stock Options.
6.2
Price.
The Committee in its sole discretion shall establish the Option Price at the time
each Option is granted and the Grant Price at the time each SAR is granted. Except in the case of
Substitute Awards, the Option Price of an Option may not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock with respect to which the Option is granted on the date
of grant of such Option. In the case of Substitute Awards or Awards granted in connection with an
adjustment provided for in
Article XI
of the Plan in the form of Options, such grants shall
have an Option Price per share that is intended to maintain the economic value of the Award that
was replaced or adjusted, as determined by the Committee. Notwithstanding the foregoing and except
as permitted by the provisions of
Article XI
hereof, the Committee shall not have the power
to (i) amend the terms of previously granted Options or SARs to reduce the Option Price of such
Options or the Grant Price of such SARs, or (ii) cancel such Options or SARs and grant substitute
Options or SARs with a lower Option Price or Grant Price than the cancelled Options or SARs, in
each case without the approval of the Companys stockholders. Except with respect to Substitute
Awards, SARs may not have a Grant Price less than the Fair Market Value of a share of Common Stock
on the date of grant.
6.3
Term.
Subject to the Committees authority under
Article III
and the provisions
of
Section 6.6
, each Option and SAR and all rights and obligations thereunder shall expire
on the date determined by the Committee and specified in the Award Agreement. The Committee shall
be under no duty to provide terms of like duration for Options or SARs granted under the Plan.
Notwithstanding the foregoing, but subject to the last sentence of
Section 6.4(a)
, no
Option or SAR shall be exercisable after the expiration of ten (10) years from the date such Option
or SAR was granted.
6.4
Exercise
.
(a) Each Option and SAR shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement
or thereafter. The Committee shall have full and complete authority to determine whether an Option
or SAR will be exercisable in full at any time or from time to time during the term of the Option
or SAR, or to provide for the exercise thereof in such installments, upon the occurrence of such
events and at such times during the term of the Option or SAR as the Committee may determine. An
Award Agreement may provide that the period of time over which an Option, other than an Incentive
Stock Option, may be exercised shall be automatically extended if on the scheduled expiration of
such Option, the Participants exercise of such Option would violate applicable securities law;
provided, however, that during the extended exercise period the Option may only be exercised to the
extent the Option was exercisable in accordance with its terms immediately prior to such scheduled
expiration date; provided further, however, that
7
such extended exercise period shall end not later than thirty (30) days after the exercise of
such Option first would no longer violate such laws.
(b) The Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal, state or foreign
securities laws or the Code, as it may deem necessary or advisable. The exercise of any Option
granted hereunder shall be effective only at such time as the sale of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
(c) An Option or SAR may be exercised in whole or in part at any time, with respect to whole
shares only, within the period permitted thereunder for the exercise thereof, and shall be
exercised by written notice of intent to exercise the Option or SAR, delivered to the Company at
its principal office, and payment in full to the Company at the direction of the Committee of the
amount of the Option Price for the number of shares of Common Stock with respect to which the
Option is then being exercised.
(d) Payment of the Option Price shall be made in (i) cash or cash equivalents, or, (ii) at the
discretion of the Committee, by transfer, either actually or by attestation, to the Company of
unencumbered shares of Common Stock previously acquired by the Participant, valued at the Fair
Market Value of such shares on the date of exercise (or next succeeding trading date, if the date
of exercise is not a trading date), together with any applicable withholding taxes, such transfer
to be upon such terms and conditions as determined by the Committee, (iii) by a combination of (i)
or (ii), or (iv) by any other method approved or accepted by the Committee in its sole discretion,
including, if the Committee so determines, (x) a cashless (broker-assisted) exercise that complies
with applicable laws or (y) withholding shares of Common Stock (net-exercise) otherwise deliverable
to the Participant pursuant to the Option having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price. Until the optionee has been issued the Common Stock
subject to such exercise, he or she shall possess no rights as a stockholder with respect to such
Common Stock.
(e) At the Committees discretion, the amount payable to the Participant as a result of the
exercise of a SAR may be settled in cash, Common Stock or a combination thereof. A fractional
share shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu
thereof.
6.5
Termination of Employment or Service.
Except as otherwise provided in the applicable
Award Agreement, an Option may be exercised only to the extent that it is then exercisable, and if
at all times during the period beginning with the date of granting such Option and ending on the
date of exercise of such Option the Participant is an Employee, Outside Director or Consultant, and
shall terminate immediately upon a Termination of Service of the Participant. Notwithstanding the
foregoing provisions of this
Section 6.5
to the contrary, the Committee may determine in
its discretion that an Option may be exercised following any such termination of employment,
whether or not exercisable at the time of such termination of employment; provided, however, that
in no event may an Option be exercised after the expiration date of such Option specified in the
applicable Award Agreement, except as provided in the last sentence of
Section 6.4(a)
.
6.6
Ten Percent Stock Rule.
Notwithstanding any other provisions in the Plan, if at the time
an Option is otherwise to be granted pursuant to the Plan, the optionee or rights holder owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Common Stock of the
Company possessing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or its parent or Subsidiary corporations (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee or rights
holder pursuant to the Plan shall satisfy the requirement of Section 422(c)(5) of the Code, and the
Option Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of the
Common Stock of the Company, and such Option by its terms shall not be exercisable after the
expiration of five (5) years from the date such Option is granted.
6.7
Buyout Provisions.
Notwithstanding any other provision of the Plan, the Committee may at
any time offer to buy out for a payment in cash, Common Stock or Restricted Stock an Option
previously granted, based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
8
6.8
Maximum Individual Grant
. No Participant may receive during any fiscal year of the
Company Awards of Options or SARs covering an aggregate of more than 3,000,000 shares of Common
Stock.
ARTICLE VII.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
7.1
Grant
.
(a) Subject to the provisions of the Plan and other applicable legal requirements, the
Committee shall have sole and complete authority to determine the Participants to whom Restricted
Stock and Restricted Stock Units shall be granted, the number of shares of Restricted Stock and the
number of Restricted Stock Units to be granted to each Participant, the duration of the period
during which, and the conditions under which, the Restricted Stock and Restricted Stock Units may
be forfeited to the Company, and the other terms and conditions of such Awards. The Restricted
Stock and Restricted Stock Unit Awards shall be evidenced by Award Agreements in such form as the
Committee shall from time to time approve, which agreements shall comply with and be subject to the
terms and conditions provided hereunder and any additional terms and conditions established by the
Committee that are consistent with the terms of the Plan.
(b) Each Restricted Stock and Restricted Stock Unit Award made under the Plan shall be for
such number of shares of Common Stock as shall be determined by the Committee and set forth in the
Award Agreement containing the terms of such Restricted Stock or Restricted Stock Unit Award. Such
agreement shall set forth a period of time during which the grantee must remain in the continuous
employment of the Company in order for the forfeiture and transfer restrictions to lapse. If the
Committee so determines, the restrictions may lapse during such restricted period in installments
with respect to specified portions of the shares covered by the Restricted Stock or Restricted
Stock Unit Award. The Award Agreement may also, in the discretion of the Committee, set forth
performance or other conditions that will subject the shares to forfeiture and transfer
restrictions. The Committee may, at its discretion, waive all or any part of the restrictions
applicable to any or all outstanding Restricted Stock and Restricted Stock Unit Awards.
7.2
Dividends and Other Distributions
.
(a) Prior to the lapse of any applicable transfer restrictions, Participants holding
Restricted Stock shall be credited with any cash dividends paid with respect to such Restricted
Stock while they are so held, unless determined otherwise by the Committee and set forth in the
Award Agreement. The Committee may apply any restrictions to such dividends that the Committee
deems appropriate. Except as set forth in the Award Agreement or otherwise determined by the
Committee, in the event (a) of any adjustment as provided in
Article XI
, or (b) any shares
or securities are received as a dividend, or an extraordinary dividend is paid in cash, on
Restricted Stock, any new or additional shares or securities or any extraordinary dividends paid in
cash received by a Participant on such Restricted Stock shall be subject to the same terms and
conditions, including any transfer restrictions, as relate to the original Restricted Stock.
(b) The applicable Award Agreement will specify whether a Participant will be entitled to
receive dividend equivalent rights in respect of Restricted Stock Units at the time of any payment
of dividends to stockholders on Common Stock. If the applicable Award Agreement specifies that a
Participant will be entitled to receive dividend equivalent rights, (i) the amount of any such
dividend equivalent right shall equal the amount that would be payable to the Participant as a
stockholder in respect of a number of shares equal to the number of Restricted Stock Units then
credited to the Participant, (ii) any such dividend equivalent right shall be paid in accordance
with the Companys payment practices as may be established from time to time and as of the date on
which such dividend would have been payable in respect of outstanding Common Stock, and (iii) the
applicable Award Agreement will specify whether dividend equivalents shall be paid in respect of
Restricted Stock Units that are not yet vested.
7.3
Transfer Restrictions on Restricted Stock.
At the time of a Restricted Stock Award, a
certificate representing the number of Shares awarded thereunder shall be registered in the name of
the grantee. Such
9
certificate shall be held by the Company or any custodian appointed by the Company for the
account of the grantee subject to the terms and conditions of the Plan, and shall bear such a
legend setting forth the restrictions imposed thereon as the Committee, in its discretion, may
determine. The foregoing to the contrary notwithstanding, the Committee may, in its discretion,
provide that a Participants ownership of Restricted Stock prior to the lapse of any transfer
restrictions or any other applicable restrictions shall, in lieu of such certificates, be evidenced
by a book entry (
i.e
., a computerized or manual entry) in the records of the Company or its
designated agent in the name of the Participant who has received such Award, and confirmation and
account statements sent to the Participant with respect to such book-entry shares may bear the
restrictive legend referenced in the preceding sentence. Such records of the Company or such agent
shall, absent manifest error, be binding on all Participants who receive Restricted Stock Awards
evidenced in such manner. The holding of Restricted Stock by the Company or such an escrow holder,
or the use of book entries to evidence the ownership of Restricted Stock, in accordance with this
Section 7.3
, shall not affect the rights of Participants as owners of the Restricted Stock
awarded to them, nor affect the restrictions applicable to such shares under the Award Agreement or
the Plan, including the transfer restrictions.
7.4
Other Rights of Restricted Stockholders.
Unless otherwise provided in the applicable
Award Agreement, the grantee shall have all other rights of a stockholder with respect to the
Restricted Stock, including the right to vote such shares, subject to the following restrictions:
(i) the grantee shall not be entitled to delivery of the stock certificate until the expiration of
the restricted period and the fulfillment of any other restrictive conditions set forth in the
Award Agreement with respect to such Restricted Stock; (ii) none of the shares of Restricted Stock
may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of
during such restricted period or until after the fulfillment of any such other restrictive
conditions; and (iii) except as otherwise determined by the Committee at or after grant, all of the
shares of Restricted Stock shall be forfeited and all rights of the grantee to such shares shall
terminate, without further obligation on the part of the Company, unless the grantee remains in the
continuous employment of the Company for the entire restricted period in relation to which such
shares were granted and unless any other restrictive conditions relating to the Restricted Stock
Award are met.
7.5
Termination of Restrictions on Restricted Stock.
At the end of the restricted period and
provided that any other restrictive conditions of the Restricted Stock Award are met, or at such
earlier time as otherwise determined by the Committee, all restrictions set forth in the Award
Agreement relating to the Restricted Stock Award or in the Plan shall lapse as to the Restricted
Stock subject thereto, and a stock certificate for the appropriate number of shares of Common
Stock, free of the restrictions and restricted stock legend, shall be delivered to the Participant
or the Participants beneficiary or estate, as the case may be (or, in the case of book-entry
shares, such restrictions and restricted stock legend shall be removed from the confirmation and
account statements delivered to the Participant or the Participants beneficiary or estate, as the
case may be, in book-entry form).
7.6
Payment of Restricted Stock Units.
Each Restricted Stock Unit shall have a value equal to
the Fair Market Value of a share of Common Stock. Restricted Stock Units shall be paid in cash,
Common Stock, other securities or other property, as determined in the sole discretion of the
Committee, upon the lapse of the restrictions applicable thereto, or otherwise in accordance with
the applicable Award Agreement. Except as otherwise determined by the Committee at or after grant,
Restricted Stock Units may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of, and all Restricted Stock Units and all rights of the grantee to such
Restricted Stock Units shall terminate, without further obligation on the part of the Company,
unless the grantee remains in continuous employment of the Company for the entire restricted period
in relation to which such Restricted Stock Units were granted and unless any other restrictive
conditions relating to the Restricted Stock Unit Award are met. Except as otherwise provided in
the Plan or the applicable Award Agreement, a Participant shall have no rights of a stockholder
with respect to Restricted Stock Units.
ARTICLE VIII.
PERFORMANCE AWARDS
8.1
Grant.
The Committee shall have sole and complete authority to determine the Participants
who shall receive Performance Awards, which shall consist of a right that is (i) denominated in
cash or Common Stock (including but not limited to Restricted Stock and Restricted Stock Units),
(ii) valued, as determined by the Committee, in accordance with the achievement of such performance
goals during such performance periods as the Committee shall establish, and (iii) payable at such
time and in such form as the Committee shall determine.
10
8.2
Terms and Conditions.
Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any Performance Award and
the amount and kind of any payment or transfer to be made pursuant to any Performance Award, and
may amend specific provisions of the Performance Award; provided, however, that such amendment may
not adversely affect existing Performance Awards made within a performance period commencing prior
to implementation of the amendment.
8.3
Payment of Performance Awards.
Performance Awards may be paid in a lump sum or in
installments following the close of the performance period or, in accordance with the procedures
established by the Committee, on a deferred basis. Notwithstanding the foregoing, the Committee
may in its discretion, waive any performance goals and/or other terms and conditions relating to a
Performance Award. A Participants rights to any Performance Award may not be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of in any manner, except by
will or the laws of descent and distribution, and/or except as the Committee may determine at or
after grant.
8.4
Termination of Service.
Each Award Agreement shall set forth the extent to which the
Participant shall have the right to retain Performance Awards following such Participants
Termination of Employment. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the applicable Award Agreement, need not be uniform among all such
Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for the
termination of employment.
8.5
Provisions Applicable To Covered Officers And Performance Awards
. Notwithstanding
anything in the Plan to the contrary, unless the Committee determines that a Performance Award to
be granted to a Covered Officer should not qualify as performance-based compensation for purposes
of Section 162(m), Performance Awards granted to Covered Officers shall be subject to the terms and
provisions of this
Section 8.5
. Accordingly, unless otherwise determined by the Committee,
if any provision of the Plan or any Award Agreement relating to such an Award does not comply or is
inconsistent with Section 162(m), such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements, and no provision shall be deemed to confer upon the
Committee discretion to increase the amount of compensation otherwise payable to a Covered Officer
in connection with any such Award upon the attainment of the performance criteria established by
the Committee.
(a) The Committee may grant Performance Awards to Covered Officers based solely upon the
attainment of performance targets related to one or more performance goals selected by the
Committee from among the goals specified below. For the purposes of this
Section 8.5
,
performance goals shall be limited to one or more of the following Company, Subsidiary, operating
unit, business segment or division financial performance measures:
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(i)
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earnings before interest, taxes, depreciation and/or amortization;
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(ii)
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operating income or profit;
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(iii)
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operating efficiencies;
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(iv)
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return on equity, assets, capital, capital employed or investment;
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(v)
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net income;
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(vi)
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earnings (gross, net, pre-tax, after tax or per share);
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(vii)
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utilization;
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(viii)
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gross or net profit margins;
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(ix)
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stock price or total stockholder return;
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(x)
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customer growth or sales;
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(xi)
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debt reduction;
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(xii)
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revenue;
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(xiii)
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market share;
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(xiv)
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strategic business objectives, consisting of
one or more objectives based on meeting specified cost targets,
business expansion goals or goals relating to acquisitions or
divestitures; or
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(xv)
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any combination thereof.
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Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise
employ comparisons
11
based on internal targets, the past performance of the Company or any Subsidiary, operating unit,
business segment or division of the Company and/or the past or current performance of other
companies, and in the case of earnings-based measures, may use or employ comparisons relating to
capital, stockholders equity and/or Shares outstanding, or to assets or net assets. The Committee
may appropriately adjust any evaluation of performance under criteria set forth in this
Section
8.5(a)
to exclude any of the following events that occurs during a performance period: (i)
asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes
in tax law, accounting principles or other such laws or provisions affecting reported results, (iv)
accruals for reorganization and restructuring programs and (v) any extraordinary non-recurring
items as described in Accounting Principles Board Opinion No. 30 and/or in managements discussion
and analysis of financial condition and results of operations appearing in the Companys annual
report to stockholders for the applicable year.
(b) With respect to any Covered Officer, the maximum annual number of shares of Common Stock
in respect of which all Performance Awards may be granted under
Article VIII
of the Plan is
1,500,000 and the maximum amount of all Performance Awards that are settled in cash and that may be
granted under this
Article VIII
in any year is $5,000,000.
(c) To the extent necessary to comply with Section 162(m), with respect to grants of
Performance Awards, no later than 90 days following the commencement of each performance period (or
such other time as may be required or permitted by Section 162(m) of the Code), the Committee
shall, in writing, (1) select the performance goal or goals applicable to the performance period,
(2) establish the various targets and bonus amounts which may be earned for such performance
period, and (3) specify the relationship between performance goals and targets and the amounts to
be earned by each Covered Officer for such performance period. Following the completion of each
performance period, the Committee shall certify in writing whether the applicable performance
targets have been achieved and the amounts, if any, payable to Covered Officers for such
performance period. In determining the amount earned by a Covered Officer for a given performance
period, subject to any applicable Award Agreement, the Committee shall have the right to reduce
(but not increase) the amount payable at a given level of performance to take into account
additional factors that the Committee may deem relevant in its sole discretion to the assessment of
individual or corporate performance for the performance period.
ARTICLE IX.
OTHER STOCK-BASED AWARDS
The Committee shall have the authority to determine the Participants who shall receive Other
Stock-Based Awards, which shall consist of any right that is (i) not an Award described in
Sections 6
,
7
or
8
above and (ii) an Award of Common Stock or an Award
denominated or payable in, valued in whole or in part by reference to, or otherwise based on or
related to, Common Stock (including, without limitation, securities convertible into Common Stock),
as deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of
the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions
of any such Other Stock-Based Award.
ARTICLE X.
TERM; AMENDMENTS
10.1
Term
. The Plan, as amended and restated, shall be effective from the date that this
amended and restated Plan is approved by the Board. Unless sooner terminated by action of the
Board, the Plan will terminate on the date that is ten years after the date this amended and
restated Plan is approved by the Board, but Awards granted before that date will continue to be
effective in accordance with their terms and conditions.
10.2
Amendment or Discontinuance
. Subject to the limitations set forth in this
Article
X
, the Board may at any time and from time to time, without the consent of the Participants,
alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that
no amendment which requires stockholder approval in order for the Plan and Awards made under the
Plan to continue to comply with Sections 162(m), 421, and 422 of the Code, including any successors
to such Sections, shall be effective unless such amendment shall be approved by the requisite vote
of the stockholders of the Company entitled to vote thereon. Except as otherwise provided in any
existing Award Agreement, any such amendment shall, to the extent deemed necessary or advisable by
the
12
Committee, be applicable to any outstanding Awards theretofore granted under the Plan. Except
as otherwise provided in any Award Agreement, in the event of any such amendment to the Plan, the
holder of any Award outstanding under the Plan shall, upon request of the Committee and as a
condition to the exercisability thereof, execute a conforming amendment in the form prescribed by
the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this
Plan to the contrary, unless required by law, no action contemplated or permitted by this
Article X
shall adversely affect any rights of Participants or obligations of the Company
to Participants with respect to any Incentive theretofore granted under the Plan without the
consent of the affected Participant.
ARTICLE XI.
CAPITAL ADJUSTMENTS
In the event that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, stock split, reverse stock split,
rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off, combination,
subdivision, repurchase, or exchange of Common Stock or other securities of the Company, issuance
of warrants or other rights to purchase Common Stock or other securities of the Company, or other
similar corporate transaction or event affects the Common Stock, then the Committee shall in an
equitable and proportionate manner, as determined by the Committee (and, as applicable, in such
manner as is consistent with Sections 162(m), 422 and 409A of the Code and the regulations
thereunder) in order to prevent the dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, adjust any or all of the (i) the number of shares and
type of Common Stock (or the securities or property) which thereafter may be made the subject of
Awards, (ii) the number of shares and type of Common Stock (or other securities or property)
subject to outstanding Awards, (iii) the number of shares and type of Common Stock (or other
securities or property) specified as the annual per-participant limitations under
Sections
6.8
and
8.5(b)
of the Plan, (iv) the Option Price of each outstanding Award, and (v)
the number of or Grant Price of shares of Common Stock then subject to outstanding SARs previously
granted and unexercised under the Plan to the end that the same proportion of the Companys issued
and outstanding shares of Common Stock in each instance shall remain subject to exercise at the
same aggregate Grant Price; provided however, that the number of shares of Common Stock (or other
securities or property) subject to any Award shall always be a whole number. In lieu of the
foregoing, if deemed appropriate, the Committee may make provision for a cash payment to the holder
of an outstanding Award, except as may otherwise be provided in an applicable Award Agreement.
Such adjustments shall be made in accordance with the rules of any securities exchange, stock
market, or stock quotation system to which the Company is subject. No adjustment or cash payment
will be required under this
Article XI
for the issuance of Common Stock for such
consideration, not less than the par value of the Common Stock, as may be determined from time to
time by the Board to be fair consideration.
Upon the occurrence of any such adjustment or cash payment, the Company shall provide notice
to each affected Participant of its computation of such adjustment or cash payment which shall be
conclusive and shall be binding upon each such Participant.
ARTICLE XII.
RECAPITALIZATION, MERGER AND CONSOLIDATION
12.1
No Effect on Companys Authority
. The existence of this Plan and Awards granted hereunder
shall not affect in any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the
Companys capital structure and its business, or any merger or consolidation of the Company, or any
issuance of bonds, debentures, preferred or preference stocks ranking prior to or otherwise
affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase
same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part
of its assets or business, or any other corporate act or proceeding, whether of a similar character
or otherwise.
12.2
Conversion of Awards Where Company Survives
. Subject to any required action by the
stockholders, if the Company shall be the surviving or resulting corporation in any merger,
consolidation or share exchange, any Award granted hereunder shall pertain to and apply to the
securities or rights (including cash, property, or assets) to which a holder of the number of
shares of Common Stock subject to the Award would have been entitled.
13
12.3
Exchange or Cancellation of Incentives Where Company Does Not Survive
. In the event of
any merger, consolidation or share exchange which is a Change of Control in which the Company does
not survive, there may be substituted for each share of Common Stock subject to the unexercised
portions of outstanding Options or SARs, that number of shares of each class of stock or other
securities or that amount of cash, property, or assets of the surviving, resulting or consolidated
company which were distributed or distributable to the stockholders of the Company in respect to
each share of Common Stock held by them, such outstanding Options or SARs to be thereafter
exercisable for such stock, securities, cash, or property in accordance with their terms.
Notwithstanding the foregoing, however, all Stock Options or SARs may be canceled by the
Company, in its sole discretion, as of the effective date of any merger, consolidation or share
exchange which is a Change of Control in which the Company does not survive, by either:
(a) giving notice to each holder thereof or his personal representative of its intention to
cancel such Stock Options or SARs and permitting the purchase during the thirty (30) day period
next preceding such effective date of any or all of the shares subject to such outstanding Stock
Options or SARs, including, in the Boards discretion, some or all of the shares as to which such
Stock Options or SARs would not otherwise be vested and exercisable; or
(b) paying the holder thereof an amount equal to a reasonable estimate of the difference
between the net amount per share payable in such transaction or as a result of such transaction,
and the exercise price per share of such Option (hereinafter the Spread), multiplied by the
number of shares subject to the Option. In cases where the shares constitute, or would after
exercise, constitute Restricted Stock, the Company, in its discretion, may include some or all of
those shares in the calculation of the amount payable hereunder. In estimating the Spread,
appropriate adjustments to give effect to the existence of the Options shall be made, such as
deeming the Options to have been exercised, with the Company receiving the exercise price payable
thereunder, and treating the shares receivable upon exercise of the Options as being outstanding in
determining the net amount per share. In cases where the proposed transaction consists of the
acquisition of assets of the Company, the net amount per share shall be calculated on the basis of
the net amount receivable with respect to shares of Common Stock upon a distribution and
liquidation by the Company after giving effect to expenses and charges, including but not limited
to taxes, payable by the Company before such liquidation could be completed.
(c) An Option or SAR that by its terms would be vested and exercisable upon a Change in
Control will be considered vested and exercisable for purposes of
Section 12.3(a)
hereof.
ARTICLE XIII.
LIQUIDATION OR DISSOLUTION
Subject to
Section 12.3
hereof, in case the Company shall, at any time while any Award
under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its
property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall be
entitled to receive, in lieu of each share of Common Stock of the Company which such Participant
would have been entitled to receive under the Awards, the same kind and amount of any securities or
assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation,
or winding up with respect to each share of Common Stock of the Company. If the Company shall, at
any time prior to the expiration of any Award, make any partial distribution of its assets, in the
nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution
of a cash dividend payable out of earned surplus and designated as such) then in such event the
purchase price, if any, Option Prices or Grant Prices then in effect with respect to each Option or
SAR shall be reduced, on the payment date of such distribution, in proportion to the percentage
reduction in the tangible book value of the shares of the Companys Common Stock (determined in
accordance with generally accepted accounting principles) resulting by reason of such distribution.
ARTICLE XIV.
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER ENTITIES
Awards may be granted under the Plan from time to time in substitution for similar instruments
held by
14
employees or directors of a corporation, partnership, or limited liability company who
become or are about to become Employees or Outside Directors of the Company or any Subsidiary as a
result of a merger or consolidation of the employing corporation with the Company, the acquisition
by the Company of equity of the employing entity, or any other similar transaction pursuant to
which the Company becomes the successor employer. The terms and conditions of the Substitute Awards
so granted may vary from the terms and conditions set forth in this Plan to such extent as the
Committee at the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the Awards in substitution for which they are granted.
ARTICLE XV.
MISCELLANEOUS PROVISIONS
15.1
Investment Intent
. The Company may require that there be presented to and filed with it
by any Participant under the Plan, such evidence as it may deem necessary to establish that the
Awards granted or the shares of Common Stock to be purchased or transferred are being acquired for
investment and not with a view to their distribution.
15.2
Nonpublicly Traded Common Stock
. In the event a Participant receives, as Restricted Stock
or pursuant to the exercise of a Stock Option, shares of Common Stock that are Nonpublicly Traded,
the Committee may impose restrictions and conditions on the transfer or other disposition of those
shares. The restrictions and conditions may be reflected in the Award Agreement or in a separate
stockholders agreement.
15.3
No Right to Continued Employment
. Neither the Plan nor any Awards granted under the Plan
shall confer upon any Participant any right with respect to continuance of employment by the
Company or any Subsidiary.
15.4
Indemnification of Board and Committee
. No member of the Board or the Committee, nor any
officer or Employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all members of the Board and the Committee, each officer of the Company,
and each Employee of the Company acting on behalf of the Board or the Committee shall, to the
extent permitted by law, be fully indemnified and protected by the Company in respect of any such
action, determination, or interpretation.
15.5
Effect of the Plan
. Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any person any right to be granted an Award or any other rights
except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the
Committee and executed on behalf of the Company, and then only to the extent and upon the terms and
conditions expressly set forth therein. The terms and conditions of Awards need not be the same
with respect to each Participant. Nothing contained in the Plan shall prevent the Company or any
Subsidiary from adopting or continuing in effect other compensation arrangements, which may, but
need not, provide for the grant of Options, Restricted Stock, Restricted Stock Units, Other
Stock-Based Awards or other types of Awards provided for hereunder.
15.6
Compliance With Other Laws and Regulations
. Notwithstanding anything contained herein to
the contrary, the Company shall not be required to sell or issue shares of Common Stock under any
Award if the issuance thereof would constitute a violation by the Participant or the Company of any
provisions of any law or regulation of any governmental authority or any national securities
exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted
or traded; and, as a condition of any sale or issuance of shares of Common Stock under an Award,
the Committee may require such agreements or undertakings, if any, as the Committee may deem
necessary or advisable to assure compliance with any such law or regulation. The Plan, the grant
and exercise of Awards hereunder, and the obligation of the Company to sell and deliver shares of
Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any government or regulatory agency as may be required.
15.7
Tax Requirements
. The Company shall have shall have the right and is hereby authorized to
withhold from any Award, from any payment due or transfer made under any Award or under the Plan,
or from any other compensation or other amount owing to a Participant, the amount (in cash, Common
Stock, other securities, other Awards or other property) of any applicable withholding or other
tax-related obligations in respect of an Award, its
15
exercise or any other transaction involving an Award, or any payment or transfer under an Award or under the Plan and to take such other action as
may be necessary in the opinion of the Company to satisfy all obligations for the payment of such
taxes. The Participant receiving shares of Common Stock issued under the Plan shall be required to
pay the Company the amount of any taxes which the Company is required to withhold with respect to
such shares of Common Stock. Such payments shall be required to be made prior to the delivery of
any certificate representing such shares of Common Stock. Such payment may be made (i) by the
delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of
fractional shares under (iii) below) the required tax withholding obligation of the Company; (ii)
if the Company, in its sole discretion, so consents in writing, the actual delivery by the
exercising Participant to the Company of shares of Common Stock previously owned by the
Participant, which shares so delivered have an aggregate Fair Market Value that equals or exceeds
(to avoid the issuance of fractional shares under (iii) below) the required tax withholding
payment; (iii) if the Company, in its sole discretion, so consents in writing, the Companys
withholding of a number of shares to be delivered upon the exercise, vesting or other payment of an
Award, which shares so withheld have an aggregate fair market value that equals (but does not
exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii).
Notwithstanding the foregoing, in the event of an assignment of a Nonqualified Stock Option or SAR
pursuant to
Section 15.8
, the Participant who assigns the Nonqualified Stock Option or SAR
shall remain subject to withholding taxes upon exercise of the Nonqualified Stock Option or SAR by
the transferee to the extent required by the Code or the rules and regulations promulgated
thereunder.
15.8
Assignability
. Incentive Stock Options may not be transferred, assigned, pledged,
hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and
distribution and may be exercised during the lifetime of the Participant only by the Participant or
the Participants legally authorized representative, and each Award Agreement in respect of an
Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not
constitute a transfer of the Option. The Committee may waive or modify any limitation contained in
this
Section 15.8
that is not required for compliance with Section 422 of the Code.
Except as otherwise provided herein, Nonqualified Stock Options and SARs may not be
transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will
or the laws of descent and distribution. The Committee may, in its discretion, authorize all or a
portion of a Nonqualified Stock Option or an SAR granted to a Participant to be on terms which
permit transfer by such Participant to (i) the spouse (or former spouse), children or grandchildren
of the Participant (Immediate Family Members), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members or entities described in (iv) below, (iii) a partnership in which
the only partners are (1) such Immediate Family Members and/or (2) entities which are controlled by
Immediate Family Members, (3), (iv) an entity exempt from federal income tax pursuant to Section
501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled income
fund described in Section 2522(c)(2) of the Code or any successor provision, provided that (x)
there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to which
such Nonqualified Stock Option or SAR is granted must be approved by the Committee and must
expressly provide for transferability in a manner consistent with this
Section 15.8
, and
(z) subsequent transfers of transferred Nonqualified Stock Options or SARs shall be prohibited
except those by will or the laws of descent and distribution.
Following any transfer, any such Nonqualified Stock Option or SAR shall continue to be subject
to the same terms and conditions as were applicable immediately prior to transfer, provided that
for purposes of
Articles VIII
,
X
,
XI
,
XIII
and
XV
hereof
the term Participant shall be deemed to include the transferee. The events of Termination of
Service shall continue to be applied with respect to the original Participant, following which the
Nonqualified Stock Options and SARs shall be exercisable, if at all, by the transferee only to the
extent and for the periods specified in the Award Agreement. The Committee and the Company shall
have no obligation to inform any transferee of a Nonqualified Stock Option or an SAR of any
expiration, termination, lapse or acceleration of such Stock Option or SAR. The Company shall have
no obligation to register with any federal or state securities commission or agency any Common
Stock issuable or issued under a Nonqualified Stock Option or SAR that has been transferred by a
Participant under this
Section 15.8
.
15.9
Dividend Equivalents.
In the sole and complete discretion of the Committee, an Award may
provide the Participant with dividends or dividend equivalents, payable in cash, Common Stock,
other securities or other property on a current or deferred basis. All dividend or dividend
equivalents which are not paid currently may, at the Committees discretion, accrue interest, be
reinvested into additional Common Stock, or, in the case of dividends or
16
dividend equivalents credited in connection with Performance Awards, be credited as additional Performance Awards and
paid to the Participant if and when, and to the extent that, payment is made pursuant to such
Award. The total number of Shares available for grant under
Article V
shall not be reduced
to reflect any dividends or dividend equivalents that are reinvested into additional Common Stock
or credited as Performance Awards.
15.10
No Guarantee of Favorable Tax Treatment
. Although the Company intends to administer the
Plan so that Awards will be exempt from, or will comply with, the requirements of Section 409A of
the Code, the Company does not warrant that any Award under the Plan will qualify for favorable tax
treatment under Section 409A of the Code or any other provision of federal, state, local or foreign
law. The Company shall not be liable to any Participant for any tax, interest, or penalties that
Participant might owe as a result of the grant, holding, vesting, exercise, or payment of any Award
under the Plan.
15.11
No Trust or Fund Created.
Neither the Plan nor any Award shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship between the Company or
any Subsidiary and a Participant or any other person. To the extent that any person acquires a
right to receive payments from the Company or any Subsidiary pursuant to an Award, such right shall
be no greater than the right of any unsecured general creditor of the Company or any Subsidiary.
15.12
Severability.
If any provision of the Plan or any Award is, or becomes, or is deemed to
be invalid, illegal or unenforceable in any jurisdiction or as to any Participant or Award, or
would disqualify the Plan or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee, materially altering
the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction,
Participant or Award and the remainder of the Plan and any such Award shall remain in full force
and effect.
15.13
Use of Proceeds
. Proceeds from the sale of shares of Common Stock pursuant to Incentives
granted under this Plan shall constitute general funds of the Company.
15.14
Legend
. Each certificate representing shares of Restricted Stock issued to a Participant
shall bear the following legend, or a similar legend deemed by the Company to constitute an
appropriate notice of the provisions hereof (any such certificate not having such legend shall be
surrendered upon demand by the Company and so endorsed):
On the face of the certificate:
Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate.
On the reverse:
The shares of stock evidenced by this certificate are subject to and transferable only in
accordance with that certain First Acceptance Corporation Long Term Incentive Plan (the Plan), a
copy of which is on file at the principal office of the Company in Nashville, Tennessee. No
transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject
to the provisions of said Plan. By acceptance of this certificate, any holder, transferee or
pledgee hereof agrees to be bound by all of the provisions of said Plan.
The following legend shall be inserted on a certificate evidencing Common Stock issued under
the Plan if the shares were not issued in a transaction registered under the applicable federal and
state securities laws:
Shares of stock represented by this certificate have been acquired by the holder for investment
and not for resale, transfer or distribution, have been issued pursuant to exemptions from the
registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than
pursuant to effective registration under such laws, or in transactions otherwise in compliance with
such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which
the Company may rely upon an opinion of counsel satisfactory to the Company.
17
A copy of this Plan shall be kept on file in the principal office of the Company in Nashville,
Tennessee.
18
FIRST ACCEPTANCE CORPORATION
|
Proxy Solicited on Behalf of the Board of Directors of the Company for the
Annual Meeting, November 17, 2009
|
You are encouraged to specify your vote by marking the appropriate box BELOW but you need not
mark any box if you wish to vote in accordance with the Board of Directors recommendations which
are FOR the election of the named nominees as directors and FOR Proposals 2, 3 and 4. The Proxies
cannot vote your shares unless you sign and return this card. This Proxy may be revoked in writing
at anytime prior to the voting thereof.
|
First Acceptance Corporation
|
FIRST ACCEPTANCE CORPORATION THIS IS YOUR
PROXY
|
Your Proxy is being solicited by the Board of
Directors of First Acceptance Corporation for the
Annual Meeting of Stockholders to be held on
November 17, 2009, at 9:30 a.m., central time, at
our corporate headquarters, which are located at
3322 West End Avenue, Suite 1000, Nashville,
Tennessee 37203.
|
Enclosed with this Proxy is a Proxy Statement
containing important information about the matters
that you are being asked to approve.
|
Your vote is important. Whether or not you plan to
attend the Annual Meeting, you can be sure your
shares are represented at the meeting by promptly
returning your completed Proxy card prior to the
Annual Meeting.
|
Please mark the boxes on the Proxy card below to
indicate how your shares are to be voted, then sign
the card, detach it and return your Proxy card in
the enclosed envelope.
|
Thank you in advance for your prompt consideration
of these matters.
|
Please mark your
votes as indicated
in this example
|
1. Election of Directors (Proposal No. 1) ALL FOR ALL
|
Nominees:
01 Rhodes R. Bobbitt
02 Harvey B. Cash
03 Donald J. Edwards
04 Gerald J. Ford
05 Stephen J. Harrison
|
06 Thomas M. Harrison, Jr.
07 Tom C. Nichols
08 Lyndon L. Olson, Jr.
09 William A. Shipp, Jr.
|
2. To approve the Amended and Restated
First Acceptance Corporation 2002
Long Term Incentive Plan.
|
3. To approve a value-for-value
option exchange whereby certain
outstanding stock options would be
exchanged for shares of restricted
common stock.
|
4. To ratify the appointment of Ernst
& Young LLP as independent auditors
for the Company for the fiscal year
ending June 30, 2010.
|
This Proxy, when properly executed,
will be voted in the manner directed
herein and will authorize the Proxies to
take action in their discretion upon
other matters that may properly come
before the meeting. If no direction is
made, the Proxy will be voted in
accordance with the recommendations of
the Board of Directors. Proxies are
authorized to vote upon matters incident
to the conduct of the meeting, such as
approval of one or more adjournments of
the meeting for the purposes of obtaining
additional stockholder votes.
|
Mark Here for
Address Change or
Comments
SEE REVERSE
|
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
|
You can now access your First Acceptance Corporation account online.
|
Access your First Acceptance Corporation account online via Investor ServiceDirect
®
(ISD).
|
BNY Mellon Shareowner Services, the transfer agent for First Acceptance Corporation, now makes it
easy and convenient to get current information on your shareholder account.
|
· View account status
View payment history for dividends
|
· View certificate history
Make address changes
|
· View book-entry information
Obtain a duplicate 1099 tax
form
|
Visit us on the web at http://www.bnymellon.com/shareowner/isd For
Technical Assistance Call 1-877-978-7778 between 9am-7pm Monday-Friday
Eastern Time
|
Available 24 hours per day, 7 days per week
|
TOLL FREE NUMBER: 1-800-370-1163
|
Choose MLink
SM
for fast, easy and secure 24/7 online access to
your future proxy materials, investment plan statements, tax documents and
more. Simply log on to Investor ServiceDirect
®
at
www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt
you through enrollment.
|
Important notice regarding the Internet availability of proxy materials for the Annual Meeting of
Stockholders. The Proxy Statement and the 2009 Annual Report to Stockholders are available at:
|
http://phx.corporate-ir.net/phoenix.zhtml?c=120257&p=irol-2009ProxyMaterials
|
FIRST ACCEPTANCE CORPORATION
|
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
|
AT 9:30 AM, CENTRAL TIME, TUESDAY, NOVEMBER 17, 2009 FIRST
ACCEPTANCE CORPORATION, 3322 WEST END AVENUE, SUITE 1000, NASHVILLE,
TENNESSEE 37203
|
The undersigned hereby constitutes and appoints each of Stephen J. Harrison and Kevin P. Cohn
his or her true and lawful agents and proxies with full power of substitution in each to represent
the undersigned, with all the powers which the undersigned would possess if personally present, and
to vote the Common Stock of First Acceptance Corporation held of record by the undersigned on the
record date, at the Annual Meeting of Stockholders of First Acceptance Corporation, to be held at
First Acceptance Corporation, 3322 West End Avenue, Suite 1000, Nashville, Tennessee 37203, on
November 17, 2009, at 9:30 a.m., central time, and at any adjournment or postponement thereof, on
all matters coming before said meeting.
|
ELECTION OF DIRECTORS: To elect each of Rhodes R. Bobbitt, Harvey B. Cash, Donald J. Edwards,
Gerald J. Ford, Stephen J. Harrison, Thomas M. Harrison, Jr., Tom C. Nichols, Lyndon L. Olson, Jr.
and William A. Shipp, Jr. to serve until the next Annual Meeting of Stockholders and until their
successors are duly elected and qualified or their earlier death, resignation or removal from
office.
|
The Board of Directors recommends a vote FOR the election of all named nominees for director
and FOR Proposals 2, 3 and 4.
|
(Mark the corresponding box on the reverse side)
|
BNY MELLON SHAREOWNER
SERVICES P.O. BOX 3550
SOUTH HACKENSACK, NJ
07606-9250
|
(Continued and to be marked, dated and signed, on the other side)
|
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