SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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ESCALA GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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ESCALA GROUP, INC.
October 27, 2005
To Our Stockholders:
You are cordially invited to attend the annual meeting of stockholders
of Escala Group, Inc. (formerly "Greg Manning Auctions, Inc."), which will be
held at the offices of Kramer Levin Naftalis & Frankel LLP located at 1177
Avenue of the Americas, New York, NY 10036, on Wednesday, December 14, 2005, at
10:00 AM Eastern Standard Time.
The notice of annual meeting and proxy statement covering the formal
business to be conducted at the annual meeting follow this letter.
We hope that you will attend the annual meeting in person. Whether or
not you plan to attend, please complete, sign, date and return the enclosed
proxy card promptly in the accompanying reply envelope to assure that your
shares are represented at the meeting.
Sincerely,
[GRAPHIC OMITTED][GRAPHIC OMITTED]
MARTHA HUSICK
Secretary
Escala Group, Inc. 623 Fifth Avenue, 27th Floor, New York, New York 10017
Phone 212 421 9400 / Fax 212 421 2535 / www.escalagroup.com
ESCALA GROUP, INC.
623 Fifth Avenue
New York, New York 10017
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NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders of Escala Group, Inc. will be held at
the offices of Kramer Levin Naftalis & Frankel LLP, located at 1177 Avenue of
the Americas, New York, NY 10036, on Wednesday, December 14, 2005, at 10:00 AM
Eastern Standard Time, for the following purposes:
o to elect three directors to serve for terms of three years and until
their respective successors have been duly elected and qualified;
o to approve the Greg Manning 2000 Plan Incentive Compensation
Program;
o to approve the Jose Miguel Herrero Incentive Compensation Program;
o to ratify the appointment of Amper, Politziner & Mattia P.C. as
Escala's independent registered public accounting firm for the
fiscal year ending June 30, 2006; and
o to transact such other business as may be properly brought before
the meeting and any adjournment or postponement thereof.
Stockholders of record at the close of business on October 17, 2005, are
entitled to notice of, and to vote at, the annual meeting and any adjournment or
postponement. Whether or not you plan to attend the annual meeting, please
complete, sign, date and return the enclosed proxy card in the reply envelope
provided, which requires no postage if mailed in the United States. Stockholders
attending the annual meeting may vote in person even if they have returned a
proxy card. By promptly returning your proxy card, you will greatly assist us in
preparing for the annual meeting.
By order of the Board of Directors
[GRAPHIC OMITTED][GRAPHIC OMITTED]
MARTHA HUSICK
Secretary
New York, New York
October 27, 2005
ESCALA GROUP, INC.
(formerly Greg Manning Auctions, Inc.)
PROXY STATEMENT FOR
2005 ANNUAL MEETING OF STOCKHOLDERS
To be held on December 14, 2005
Commencing on or about October 28, 2005, this proxy statement and the
enclosed form of proxy card are being mailed to stockholders of Escala Group,
Inc., a Delaware corporation ("Escala" or the "Company"), in connection with the
Company's Board of Directors' solicitation of proxies for use at the annual
meeting of Escala stockholders and at any adjournment or postponement. The
annual meeting is being held at the offices of Kramer Levin Naftalis & Frankel
LLP, located at 1177 Avenue of the Americas, New York, NY 10036, on Wednesday,
December 14, 2005, at 10:00 AM Eastern Standard Time, for the purposes described
in this proxy statement.
Escala's annual report is included with this proxy statement. It contains
Escala's financial statements for fiscal year 2005 (under the name "Greg Manning
Auctions, Inc.") and other information concerning Escala.
During the ten days prior to the annual meeting, a list of stockholders
entitled to vote at the annual meeting will be available for examination by
stockholders at the offices of Kramer Levin Naftalis & Frankel LLP, 1177 Avenue
of the Americas, New York, NY 10036, on Wednesday, December 14, 2005, at 10:00
AM Eastern Standard Time during ordinary business hours. A stockholder list will
also be available for examination at the annual meeting.
If you are unable to attend the annual meeting, you may vote by proxy on
any matter to come before the meeting. The Board of Directors is, by means of
this proxy statement, soliciting your proxy. Any proxy given pursuant to this
solicitation and received in time for the annual meeting will be voted as
specified on the proxy card. If no instructions are given, proxies will be voted
(1) FOR election of the nominees named below under the caption "Election of
Directors," (2) FOR approval of the Greg Manning 2000 Plan Incentive
Compensation Program, (3) FOR approval of the Jose Miguel Herrero Incentive
Compensation Program, (4) FOR ratification of the appointment of Amper,
Politziner & Mattia P.C. as Escala's independent registered public accountants
for the fiscal year ending June 30, 2006, and (5) in the discretion of the
proxies named on the proxy card, with respect to any other matters properly
brought before the annual meeting.
You may vote by telephone, over the Internet, by mail and in person, as
described in the attached proxy materials. Attendance in person at the annual
meeting will not of itself revoke a proxy, but any stockholder who does attend
the annual meeting may revoke a proxy orally and vote in person. Proxies may be
revoked at any time before they are voted by submitting a properly executed
proxy with a later date or by sending a written notice of revocation to Escala's
corporate secretary at Escala's principal executive offices.
The holders of a majority of the outstanding shares of Escala common stock
entitled to vote, present in person or represented by proxy, will constitute a
quorum for the transaction of business. Abstentions and shares held of record by
a broker or its nominee ("Broker Shares") that are voted in any manner are
included in determining the number of votes present and for purposes of
determining whether a quorum is present.
In order to be elected, a nominee for director must receive a plurality of
the votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. The affirmative vote of the
holders of a majority of the issued and outstanding shares of common stock
present in person or by proxy and entitled to vote on the matter is required to
approve the Greg Manning 2000 Plan Incentive Compensation Program, to approve
the Jose Miguel Herrero Incentive Compensation Program and to ratify the
appointment of the independent registered public accountants. In all cases
abstentions and Broker Shares that are not voted will not be included in
determining the number of votes cast. A "withheld" vote on a
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director nominee will have no direct effect on the election. An abstention on
one of the other items will have the effect of a vote against approval of that
item. Broker shares that are not voted on a given matter will not be included in
determining the number of votes entitled to vote on the matter, and therefore
will have no effect on the outcome of the vote on that matter. Escala has
appointed an inspector who will determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, and the validity and effect of proxies, and will receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots, or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting or any stockholder entitled to vote at the meeting, the
inspectors will make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them will be prima facie evidence of the facts
stated and of the vote as certified by them.
Only stockholders of record at the close of business on October 17, 2005
are entitled to notice of, and to vote at, the annual meeting and any
adjournment or postponement. As of the close of business on October 17, 2005,
there were 27,728,820 shares of Escala common stock outstanding. Each share of
common stock entitles the record holder to one vote on all matters properly
brought before the annual meeting and any adjournment or postponement, with no
cumulative voting.
As of October 17, 2005, executive officers and directors of Escala owned,
in the aggregate, approximately 78% of the outstanding common stock (including
for this purpose approximately 68% owned by Afinsa Bienes Tangibles, S.A.
("Afinsa") and its wholly owned subsidiary, Auctentia, S.L. ("Auctentia".)) They
have indicated that they intend to vote in the manner recommended by the Board
of Directors.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's directors are elected at the annual meeting of stockholders.
Escala's restated certificate of incorporation provides that the members of
Escala's Board of Directors must be divided into three classes, as nearly equal
in size as possible, with the term of office of one class expiring each year.
Accordingly, in any given year only those directors belonging to one class may
be changed and it would take elections in three consecutive years to change the
entire Board of Directors. At the upcoming annual meeting, three directors will
be elected to serve three-year terms (until the third succeeding annual meeting,
in 2008) and until their respective successors are duly elected and qualified.
Unless authority to vote for the election of directors is withheld, the enclosed
proxy will be voted FOR the election of the nominees named below.
Gregory N. Roberts, Mark B. Segall and Jose Miguel Herrero have been
nominated by the Board of Directors for election to the Board, to serve until
the third succeeding annual meeting, in 2008, and until their respective
successors are duly elected and qualified. No other nominations were submitted.
Esteban Perez and Scott S. Rosenblum have been elected, and Antonio
Martins da Cruz and Rafael del Valle-Iturriaga have been appointed, to serve
until the 2006 annual meeting of stockholders.
Greg Manning, James M. Davin and Carlos de Figueiredo have been elected to
serve until the 2007 annual meeting of stockholders.
Escala's restated certificate of incorporation provides that directors may
be removed only for cause and that any such removal must be approved by the
affirmative vote of at least a majority of the outstanding shares of Escala
capital stock entitled to vote generally in the election of directors cast at a
meeting of stockholders called for that purpose.
Information Concerning Directors
You will find below background information with respect to the nominees
for election and the directors whose terms of office will continue after the
upcoming annual meeting. See "Security Ownership of
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Certain Beneficial Owners and Management" for information regarding their
holdings of Escala common stock.
NOMINEES FOR DIRECTORS WHOSE TERMS EXPIRE IN 2008
Gregory N. Roberts, age 43, a director since February 2000, is the
President of Escala Group's North American Coin Division, which includes
Spectrum Numismatics and A-Mark Precious Metals. Mr. Roberts has been President
of Spectrum since the early 1990s. He is also a lifetime member of the
Professional Numismatics Guild.
Mark B. Segall, age 43, a director since December 1999, has since June
2003 served as Chairman and CEO of Kidron Corporate Advisors, LLC, which
provides M&A and corporate consulting services. Until June 2003, he was Chief
Executive Officer of Investec Inc., the U.S. Investment Banking arm of The
Investec Group. Mr. Segall was a partner at Kramer Levin Naftalis & Frankel LLP,
a New York law firm, from 1996 through 1999. Mr. Segall serves on Board of
Directors of Answers Corporation, The Comtech Group and Integrated Asset
Management.
Jose Miguel Herrero, age 50, was appointed as President and CEO of Escala
Group on September 28, 2005 and as a director of the Company on September 24,
2003. In 2001 he founded and thereafter served as managing partner of High
Ground, a corporate finance firm focused on technology and innovation. In 1996
he founded and through 2000 served as CEO of LaNetro, S.A., an internet company
based in Spain. Prior to that, he served as managing partner of Berinor
Associates. Mr. Herrero received his B.S. in Electrical Engineering and Computer
Science and M.S. in Electrical Engineering from Santa Clara University,
California, and obtained an M.B.A. in Finance and International Operations from
U.C. Berkeley. Mr. Herrero has held board positions in several companies and,
until his relocation to the United States on behalf of the Company, was a member
of the "Circulo de Empresarios", a prominent think tank in Spain, and a member
of its committee on Corporate Governance.
The Board of Directors recommends that stockholders vote FOR the election
of the nominees named above.
DIRECTORS WHOSE TERMS EXPIRE IN 2006
Antonio Martins da Cruz, age 58, was appointed a director of the Company
on September 28, 2005. Since 2004, Mr. Martins da Cruz has served as Professor
of International Relations at the University Lusiada, Lisbon, Portugal. From
2002 to 2003 Mr. Martins da Cruz was the Portuguese Minister for Foreign Affairs
and from 1999 to 2001 was the Portuguese Ambassador to Spain. From 1994 to 1999
Mr. Martins da Cruz served as the Portuguese Ambassador to NATO and from 1985 to
1994 served as National Security Adviser and Head of the Portuguese Prime
Minister's diplomatic advisers. Mr. Martins da Cruz is graduated in Law from the
University of Lisbon, Portugal and International Economic Relations from the
University of Geneva, Switzerland.
Esteban Perez, age 63, has been a director of Escala Group since January
2001 and Chairman of the Board of Directors since December 12, 2002. Mr. Perez
currently acts as Chief Corporate Strategy Officer for the Company. Mr. Perez
was Chairman of Tubacex S.A., a listed company in the Spanish Stock Exchange,
from which he departed in 1993, and now is Chairman of Auctentia, S.A. Mr. Perez
is also Chairman of the Board of Finarte Espana, an art auction house in Madrid.
For the past five years, Mr. Perez has represented Afinsa Bienes Tangibles, S.A
as member of the Board of Trustees and the Art Committee in the Guggenheim
Museum of Bilbao. He is currently Vice-Chairman of International Auctioneers, a
strategic alliance of leading art auction houses. Mr. Perez is graduated in
Economics and Law by the Deusto University, Bilbao.
Rafael del Valle-Iturriaga, age 50, was appointed a director of the
Company on September 28, 2005. Since December 2004, Mr. del Valle-Iturriaga has
been the Chief Executive Officer of Saarema Inversiones, a private equity firm
based in Madrid, Spain. Mr. Mr. del Valle-Iturriaga was the Managing Director
and Head of the Iberian Division of Bank of America N.A., Madrid, Spain from
October 20 to December 2004. Mr. del Valle-Iturriaga's financial career started
in 1979 at the Chase Manhattan Bank N.A., which he left in 1991 as
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Head of Commercial Banking, Madrid, Spain. Mr. Mr. del Valle-Iturriaga received
his B.A. in Law from the University of Deusto (Bilbao), Spain and his B.A. in
Business Administration from ICADE University, Madrid, Spain.
Scott S. Rosenblum, age 55, has been a director of the Company since
December 1992. Since 1991, Mr. Rosenblum has been a partner in the law firm of
Kramer Levin Naftalis & Frankel LLP and currently serves on the firm's Executive
Committee as well as Chairman of the Corporate Department. From 1993 to 2000,
Mr. Rosenblum was Managing Partner of the firm. Mr. Rosenblum received his J.D.
degree from the University of Pennsylvania and his A.B. from Dartmouth College.
Anthony Bongiovanni and Emilio Ballester, formerly members of the Board in
the class whose term expires in 2006, resigned from the Board on September 27,
2005, citing business reasons.
DIRECTORS WHOSE TERMS EXPIRE IN 2007
Greg Manning, age 59, was appointed as President, North American and Asian
Philatelic Auction Division on September 28, 2005. Mr. Manning also serves as
First Vice Chairman of the Board. Mr. Manning was Chairman of the Board of the
Company since its inception in 1981 through December 2002, and served as the
Company's Chief Executive Officer from December 8, 1992 to September 28, 2005.
Mr. Manning was the Company's President from 1981 until August 12, 1993 and from
March 8, 1995 to September 27, 2005.
James M. Davin, age 59, a director since February 2000, has since 1993
been President of Davin Capital Corporation, a private investment company and
Davin Capital, L.P., a private investment partnership. Mr. Davin is also a
former member of the Advisory Board of the Georgetown University School of
Business, from which he graduated in 1967. Mr. Davin's investment career started
in 1969 at Credit Suisse First Boston, which he left in 1988 as Managing
Director to join Drexel Burnham Lambert Group, Inc. in 1990. Mr. Davin left
Drexel as Executive Vice President, Senior Trading Official, a position mandated
by the SEC under the company's agreement with the US District Attorney's office,
after which he joined Lehman Brothers. Mr. Davin left Lehman Brothers in 1993 as
Managing Director to serve as Vice Chairman of Craig Drill Capital, a private
investment fund in New York. Mr. Davin has been an active member of the National
Association of Securities Dealers, for which he was Chairman and Vice Chairman
of Governors in 1987 as well as a board member from 1985 until 1988. Mr. Davin
received his B.S. in Business Administration from Georgetown University.
Carlos de Figueiredo, age 39, was appointed a director and Second Vice
Chairman of the Company in September 24, 2003. He has a B.S. in Theoretical
Physics from Universidad Complutense, Madrid, and MBA from Instituto de Empresa,
also in Madrid. He was Purchasing and Maintenance Manager of Afinsa Bienes
Tangibles, S.A. from 1990 until 1995, and General Manager of Filafinsa
(Philatelic Division of Afinsa Bienes Tangibles, S.A.) from 1995 until 2002. He
was also Administrator of Auctentia since 2002. At present he is Member of the
Board of Directors of Afinsa Bienes Tangibles, S.A. (since 1998), Member of the
Board of Trustees of the Fundacion Albertino de Figueiredo para la Filatelia
(since 1999), Member of the European Philatelic Academy (since 2003), President
of ACOFIL (Association of Portuguese Philatelic Dealeres) and President of ASCAT
(International Association of Philatelic Catalogues, Albums and Magazines
Publishers) since 2004, and Member of the WADP Executive Committee (World
Association for the Development of Philately, which is an organization belonging
to UPU, Universal Postal Union) since 2005.
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CORPORATE GOVERNANCE AND BOARD MATTERS
Controlled Corporation
The Nasdaq Stock Market, Inc. has adopted Marketplace Rules with respect
to certain corporate governance matters, including requirements for a board
consisting of a majority of independent directors, executive sessions of
independent directors and independent compensation and nominating committees,
among others. Under such Marketplace Rules, a company of which more than 50% of
the voting power is held by an individual, group or another company, referred to
as a "controlled company," is exempt from these requirements (other than the
requirement for executive sessions of independent directors). We are a
controlled company under the Nasdaq Marketplace Rules, because, as of October
17, 2005, Afinsa and Auctentia collectively beneficially owned approximately 68%
of the voting power of our stock. On this basis, we are relying on the exemption
from these Nasdaq Marketplace Rules.
Meetings
The Board of Directors met seven times in fiscal 2005 (including meetings
by electronic conference). Each director attended at least 75% of the meetings
of the Board of Directors and of the committees, if any, of which he was a
member.
Under the Company's policy, each director of the Company is expected to be
present at annual meetings of stockholders, absent exigent circumstances that
prevents his attendance. Where a director is unable to attend an annual meeting
in person but is able to do so by electronic conferencing, the Company will
arrange for the director's participation by means where the director can hear,
and be heard, by those present at the meeting. All the directors of the Company
(who were then directors) attended the 2004 annual meeting of stockholders.
Board Committees
Audit Committee
The Audit Committee of the Board of Directors assists the Board in
fulfilling its responsibility for oversight of the integrity of the Company's
financial statements; the independence, qualifications and performance of the
Company's independent auditors; the Company's compliance with legal and
regulatory requirements; the performance of the Company's internal audit
function and internal audit firm and the oversight of the Company's system of
disclosure controls and system of internal controls regarding finance,
accounting, legal compliance, and ethics that management and the Board have
established. The Committee is directly responsible for the appointment,
compensation, retention, termination and oversight of the work of the
independent auditors and any other accounting firm engaged for the purpose of
preparing an audit report or performing other audit, review or attest services
for the Company (including resolution of disagreements between management and
the independent auditors regarding financial reporting) for the purpose of
preparing its audit report or related work.
During the fiscal year ended June 30, 2005, the Audit Committee was
comprised of James M. Davin (Chairman), Jose Miguel Herrero and Mark B. Segall.
The Board determined that the members qualified as "independent" under the
applicable standards. In July 2005, Jose Miguel Herrero resigned from the Audit
Committee. Rafael del Valle-Iturriaga, who was also determined by the Board to
be "independent", was appointed to the Audit Committee on September 28, 2005.
The Board believes that all the members of the Audit Committee have
sufficient experience, knowledge and other personal qualities to be considered
"financially literate" and be active, effective and contributing members of the
Audit Committee. While the Board has not determined that any member of the Audit
Committee qualifies as an "audit committee financial expert" under the SEC's
technical definition, the Board believes that because the members have relevant
qualities and experience which are not captured in the definition, and because
of their past effectiveness as members of the Board and the Audit Committee, it
is
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appropriate that the Audit Committee not have such an "audit committee financial
expert" under the Company's current conditions and circumstances.
The roles and responsibilities of the Audit Committee are set forth in a
written Audit Committee Charter, a copy of which is attached to this Proxy
Statement as Exhibit A.
The Audit Committee met 30 times during fiscal 2005.
Compensation Committee
During the year ended June 30, 2005, the Compensation Committee consisted
of Esteban Perez (Chairman), James M. Davin, Greg Manning, Scott S. Rosenblum
and Carlos de Figueiredo. The Compensation Committee makes recommendations to
the Board regarding compensation to executive officers. The Compensation
Committee met six times during fiscal 2005. The roles and responsibilities of
the Compensation Committee are set forth in a written Charter, a copy of which
is attached to this Proxy Statement as Exhibit B.
Nominating and Corporate Governance Committee
The principal responsibilities of the Nominating and Corporate Governance
Committee are to determine the slate of director nominees for election to the
Company's Board of Directors and identify and recommend candidates to fill
vacancies occurring between annual stockholder meetings. The roles and
responsibilities of the Nominating and Corporate Governance Committee are set
forth in a written Charter, a copy of which is attached to this Proxy Statement
as Exhibit C. During the year ended June 30, 2005, the members of the Nominating
and Corporate Governance Committee were Esteban Perez (Chairman), James M.
Davin, Jose Miguel Herrero and Greg Manning.
The Nominating and Corporate Governance Committee works with the Board to
determine the appropriate characteristics, skills, and experiences for the Board
as a whole and its individual members. The Committee believes that members of
the Company's Board of Directors must posses certain basic personal and
professional qualities in order to properly discharge their fiduciary duties to
stockholders, provide effective oversight of the management of the Company and
monitor the Company's adherence to principles of sound corporate governance.
These qualities, which are only threshold criteria and are subject to limited
exceptions, include integrity, absence of conflict of interest which would
impair the ability to serve, fair and equal representation, achievement,
oversight, business understanding and available time.
The Company is of the view that the continuing service of qualified
incumbents promotes stability and continuity in the board room, contributing to
the Board's ability to work as a collective body, while giving the Company the
benefit of the familiarity and insight into the Company's affairs that its
directors have accumulated during their tenure. Accordingly, the process of the
Committee for identifying nominees reflects the Company's practice of
re-nominating incumbent directors who continue to satisfy the Committee's
criteria for membership on the Board, whom the Committee believes continue to
make important contributions to the Board and who consent to continue their
service on the Board.
The Committee will identify and evaluate new candidates for election to
the Board where there is no qualified and available incumbent, including for the
purpose of filling vacancies arising by reason of the resignation, retirement,
removal, death or disability of an incumbent director or a decision of the
directors to expand the size of the Board. The Committee will solicit
recommendations for nominees from persons that the Committee believes are likely
to be familiar with qualified candidates. These persons may include members of
the Board, including members of the Committee, and management of the Company.
The Committee may also determine to engage a professional search firm to assist
in identifying qualified candidates. As to each recommended candidate that the
Committee believes merits consideration, the Committee will cause to be
assembled information concerning the background and qualifications of the
candidate, including information concerning the candidate required to be
disclosed in the Company's proxy statement under the rules of the SEC and any
relationship between the candidate and the person or persons recommending the
candidate; determine if the candidate satisfies the minimum qualifications
required by
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the Committee of candidates for election as director; determine if the candidate
possesses any of the specific qualities or skills that under the Committee's
policies must be possessed by one or more members of the Board; consider the
contribution that the candidate can be expected to make to the overall
functioning of the Board; and consider the extent to which the membership of the
candidate on the Board will promote diversity among the directors. In its
discretion, the Committee may solicit the views of the Chief Executive Officer,
other members of the Company's senior management and other members of the Board
regarding the qualifications and suitability of candidates to be nominated as
directors. In its discretion, the Committee may designate one or more of its
members (or the entire Committee) to interview any proposed candidate. Based on
all available information and relevant considerations, the Committee will select
a candidate who, in the view of the Committee, is most suited for membership on
the Board. In making its selection, the Committee will evaluate candidates
proposed by stockholders under criteria similar to the evaluation of other
candidates, except that the Committee may consider, as one of the factors in its
evaluation of stockholder recommended nominees, the size and duration of the
interest of the recommending stockholder or stockholder group in the equity of
the Company. The Committee maintains appropriate records regarding its process
of identifying and evaluating candidates for election to the Board.
It is the policy of the Company that the Nominating and Corporate
Governance Committee of the Board consider recommendations for the nomination of
directors submitted by holders of the Company's shares entitled to vote
generally in the election of directors. The Nominating and Corporate Governance
Committee will give consideration to these recommendations for positions on the
Board where the Committee has not determined to re-nominate a qualified
incumbent director. The Nominating and Corporate Governance Committee will only
consider recommendations of nominees who satisfy the minimum qualifications
prescribed by the Committee for Board candidates. In considering any
recommendation for the nomination of directors, the Nominating and Corporate
Governance Committee will take into account the size and duration of a
recommending stockholder's ownership interest in the Company. Only those
recommendations whose submission complies with the procedural requirements
adopted by the Nominating and Corporate Governance Committee will be considered
by the Committee.
The Nominating and Corporate Governance Committee met three times in
fiscal 2005.
Corporate Strategy Committee
During the year ended June 30, 2005, the Corporate Strategy Committee
consisted of Esteban Perez (Chairman), Greg Manning, Carlos de Figueiredo,
Emilio Ballester, Scott S. Rosenblum, James M. Davin, Jose Miguel Herrero and
Mark B. Segall. The Corporate Strategy Committee serves to advise the Board on
corporate strategy matters, including proposed acquisitions, strategic
initiatives and other similar matters. The Corporate Strategy Committee met
three times in fiscal 2005.
Code of Business Conduct and Ethics
The Company's Code of Business Conduct and Ethics ("Code") is available at
the Company's internet website (www.escalagroup.com) and will be provided in
print without charge to any stockholder who submits a request in writing to
Escala Investor Relations, 623 Fifth Avenue, New York, New York 10017. The Code
applies to the Company's every director and officer of the Company, including
the CEO and the CFO, and all employees of the Company and any of its
subsidiaries. The Code provides that any waiver of the Code may be made only by
the Board.
Stockholder Communications to the Board
The Company's security holders may send communications to the Board of
Directors. All communications should be delivered either in writing addressed
c/o Legal Department at 623 Fifth Avenue, New York, New York 10017, or by e-mail
to directors@escalagroup.com. All communications must be accompanied by the
following information: a statement of the type and amount of the securities of
the Company that the person holds; and any special interest, meaning an interest
not in the capacity as a stockholder of the company, of the person in the
subject matter of the communication; and the address, telephone number and
e-mail address, if any, of the person submitting the communication.
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Concerns about accounting, internal accounting controls or auditing
matters should be reported pursuant to the procedures outlined on our website at
http://www.escalagroup.com/investors.html, under "Complaint Hotline".
Compensation of Directors
Escala currently reimburses each director for expenses incurred in
connection with his attendance at each meeting of the Board of Directors or a
committee on which he serves. In addition, each outside director is entitled to
receive the following, pursuant to the Compensation Policy for Outside Directors
and Certain Executive Officers adopted by the Board on May 18, 2005: (a) each
outside director is entitled to receive $1,000 for each Board and Committee
meeting attended; (b) the Chairman of the Audit Committee is entitled to receive
$5,000 per year; (c) each member of the Audit Committee (including the Chairman)
is entitled to receive $10,000 per year; and (d) each outside director is
entitled to receive an amount per year calculated pursuant to a formula based on
such director's pro rata portion of 1% of the pre-tax income of Escala, which
amount is increased (or decreased) by the percentage change in the price of a
share of Escala from the beginning of the fiscal year to the end of the fiscal
year; provided that in no event in any year shall (i) the percentage increase or
decrease exceed 30% or (ii) the amount to be received by each outside director
be less than $20,000. The price of a share of Escala stock is be calculated by
averaging the closing prices for each of the ten business days immediately
preceding the date of calculation. The minimum payment is be made at the
beginning of each fiscal year, and any additional amounts payable pursuant to
the formula are to be paid promptly after Escala's financial results are
publicly disclosed. Any director serving less than a full fiscal year is
entitled to a pro rata portion of the payments otherwise due. The policy also
provides that, in the discretion of the Compensation Committee, in addition to
amounts otherwise payable under applicable contracts, each employee-director and
the President of European Operations, Chief Financial Officer and General
Counsel will receive an amount per year equal to the amount payable to each
outside director pursuant to the formula, except that such person is not be
entitled to receive any minimum amount.
Compensation Committee Interlocks and Insider Participation
During the year ended June 30, 2005, the Compensation Committee consisted
of Esteban Perez (Chairman), James M. Davin, Greg Manning, Scott S. Rosenblum
and Carlos de Figueiredo. Until September 27, 2005, Greg Manning was President
and Chief Executive Officer of the Company, and now serves as the President of
its North American and Asian Philatelic Auction Division. Esteban Perez is
compensated by Escala for his services as Chief Corporate Strategy Officer of
the Company and also serves as Chairman of the Board of Directors and Chief
Executive Officer of Auctentia, which, together with Afinsa, owns approximately
68% of the Company's common stock. Mr. Manning and Mr. Perez recused themselves
from all discussions and votes regarding the terms of their respective contracts
and the compensation set forth therein.
Carlos de Figueiredo is a director of Afinsa and receives compensation
from Afinsa through an affiliated entity. Scott S. Rosenblum is a partner of the
law firm Kramer Levin Naftalis & Frankel LLP, which provided legal services to
Escala during the year ended June 30, 2005 and continues to do so.
8
EXECUTIVE OFFICERS
Escala's executive officers are as follows:
Name Age Position
---- --- --------
Jose Miguel Herrero 50 President and Chief Executive
Officer (1)
Esteban Perez 63 Chief Corporate Strategy Officer
Greg Manning 59 President, North American and
Asian Philatelic Auction Division (1)
Ramon Egurbide 63 President, European Operations
Gregory N. Roberts 43 President, North
American Coin Division
Larry Crawford 57 Executive Vice President and
Chief Financial Officer
Carol Meltzer 46 General Counsel
Laurence Gibson 48 Chief Operating Officer, North
American and Asian Philatelic
Auction Division
Rafael Guitian 40 Vice President,
European Operations
(1) Appointed as such effective September 28, 2005
See "Election of Directors" for information relating to Messrs. Herrero,
Manning, Perez and Roberts.
Ramon Egurbide, age 63, is President, European Operations, which includes
all the Company's European subsidiaries (Corinphila in Switzerland, the Kohler
Companies in Germany and Central de Compras and Auctentia Subastas/Afinsa
Auctions in Spain). Mr. Egurbide is also responsible for all of the Company's
sales to Afinsa, both through Central de Compras and GMA. Mr. Egurbide graduated
with a B.S. in Engineering from Bilbao University, and served as CFO of Tubacex,
S.A., a listed company in the Spanish Stock Exchange, from which he departed in
1993. Since that time, he has been CFO in Afinsa
9
Bienes Tangibles, S.A., and CEO of Auctentia, S.L., as well as Sole
Administrator of several companies within the Afinsa Group.
Larry Crawford, age 57, has been Chief Financial Officer and Executive
Vice President since April 23, 2001. Mr. Crawford served as Chief Financial
Officer of Arzee Holdings, Inc. from 1996 to 2001 and as Vice President of
Finance and Chief Financial Officer of Talon, Inc., a subsidiary of Coats
Viyella plc from 1987 to 1996. Mr. Crawford is a certified public accountant and
received his B.A. from Pennsylvania State University and his M.B.A. from the
Lubin School of Business of Pace University.
Carol Meltzer, age 46, has served provided legal services to the Company
since 1995. She previously practiced law at Stroock & Stroock & Lavan LLP and
Kramer Levin Naftalis & Frankel LLP. She received her B.A. and J.D. degrees from
the University of Michigan.
Laurence Gibson, age 48, has served as Chief Operating Officer, North
American and Asian Philatelic Auction Division since June 2003. He also serves
as the Managing Director of John Bull Stamps Auctions Ltd. in Hong Kong. From
1998 to 2003, Mr. Gibson served as the Senior Vice President for Michael Rogers
Inc., an auction firm specializing in Asian philately. Mr. Gibson is a graduate
of Drew University in Madison, New Jersey, with a degree in Economics, and has
over 20 years of professional experience in the philatelic industry.
Rafael Guitian, age 40, is Vice President, European Operations. Mr.
Guitian holds a Ph.D and Masters in Finance, as well as a B.A. in Business
Administration, from Complutense University of Madrid. Prior to joining Escala,
he has worked in various positions for several Spanish companies, including Dun
& Bradstreet and Afinsa.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Escala's directors and executive officers and persons who beneficially own more
than ten percent of Escala's common stock to report their ownership of and
transactions in Escala's common stock to the Securities and Exchange Commission.
Copies of these reports are also required to be supplied to Escala. Escala
believes, based solely on a review of the copies of such reports, that during
the year ended June 30, 2005, all of such persons were in compliance with all
applicable Section 16(a) reporting requirements.
There are no family relationships among any of Escala's directors or
executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At October 17, 2005, Afinsa and its wholly owned subsidiary, Auctentia,
collectively beneficially owned approximately 68% of the Company's outstanding
common stock. Esteban Perez, Chairman of the Board of Directors and an executive
officer of the Company, is Chairman of the Board of Directors and Chief
Executive Officer of Auctentia. Carlos de Figueiredo is the First Vice Chairman
of the Board of the Company and a director of three of the Company's European
subsidiaries, and is also a director of Afinsa and the son of a 50% stockholder
of Afinsa. Ramon Egurbide, President of European Operations for the Company, is
Managing Director of Auctentia.
Escala and its wholly owned subsidiary, GMAI Auctentia Central de Compras,
S.L. ("CdC"), are parties to separate agreements with Afinsa, each dated August
1, 2003, pursuant to which Escala and CdC have agreed to act as exclusive
suppliers of collectibles for Afinsa, on a worldwide basis. As amended, the
purchasing agreements have a ten-year term, terminable by either party upon six
months' notice. In addition to paying the purchase price for the goods sold to
Afinsa under the contracts, Afinsa pays the Company an amount equal to 10% of
the aggregate purchase price of all such goods sold.
On September 8, 2003, the Company consummated three separate transactions
with Auctentia. In the first transaction, the Company acquired all of
Auctentia's equity interests in the following operating
10
subsidiaries of Auctentia in exchange for the issuance of 3,729,226 shares of
the Company's common stock: Corinphila Auktionen; Heinrich Kohler Berliner
Briefmarken-Auktionen; Heinrich Kohler Auktionshaus; Heinrich Kohler
Briefmarkenhandel; Heinrich Kohler Verwaltungs; Auctentia Deutschland; and
Auctentia Subastas. The aggregate purchase price was approximately $6,004,000
(3,729,226 shares at $1.61 per share). In the second transaction, under an
inventory purchase agreement and in exchange for the issuance to Auctentia of
6,444,318 shares of stock, the Company acquired from Auctentia all of its right,
title and interest to all of the outstanding membership interests of CdC, whose
sole assets consisted of an inventory of certain philatelic and art assets. The
value of the inventory was recorded based upon the closing trading price of the
Company's common stock on the NASDAQ National Market on January 23, 2003, the
date on which the agreement was entered into; as such, the fair value of the
inventory was approximately $10,118,000 (based upon 6,444,318 shares at $1.57
per share). In the last transaction, the Company issued to Auctentia 2,826,456
shares of its common stock, for a purchase price of the Euro equivalent of US
$5.0 million.
In September 2003, the Company granted options to acquire common stock of
Escala as follows: (a) 22,500 options to Juan Antonio Cano, Chairman of the
Board and a 50% stockholder of Afinsa; (b) 22,500 options to Vincente Martin
Pena, a director of Afinsa; (c) 22,500 shares to Emilio Ballester, then an
employee of Afinsa; and (d) 22,500 options to Carlos de Figueiredo, a director
of both Afinsa and the Company. Each of the options granted vested 50%
immediately, and 25% on each of the first and second anniversaries of the date
of grant. The exercise price for the options was $4.83, which was the fair
market value of the Company's stock on the date of grant.
At June 30, 2005, the Company had outstanding an accounts receivable
balance from Afinsa of approximately $8,781,000. During the year ended June 30,
2005, sales to Afinsa were approximately $123,348,000.
DooCollect, S.L., a subsidiary of Afinsa, acts as agent of CdC to sell
material owned by CdC to third parties through various channels, including
through the Internet. Sales through DooCollect in the twelve months ended June
30, 2005 were $454,000.
CdC has sold and expects to continue to sell certain art inventory through
an art gallery (known as Metta Gallery) operated by Mundimer, S.L. which is a
subsidiary of Afinsa. Sales through the Metta Gallery in the twelve months ended
June 30, 2005 were $169,000.
CdC also sells art material through Finarte Casa D'aste Espana, S.A.
(Finarte), a subsidiary of Auctentia, which operates as an auction house. Sales
of art through Finarte in the twelve month period ended June 30, 2005 were
$46,000.
The Company leases office space from Afinsa in Madrid, Spain, of
approximately 2,700 square feet at an annual rental of approximately $139,000.
The lease will terminate in December 2005.
On June 17, 2002, the Company entered into an amendment to the employment
agreement with Mr. Roberts, a director of the Company. In connection with the
amendment, the Company made available to Mr. Roberts a non-interest bearing loan
in the amount of $600,000. The loan is required to be repaid on an annual basis
in three equal installments commencing February 18, 2006; provided that if Mr.
Roberts is employed by the Company on the date that an installment is due, that
installment payment will be forgiven, and that if his employment is terminated
for death, disability, without cause or by Mr. Roberts with good reason (as
defined), then the entire loan will be forgiven at the date of termination. If
Mr. Robert's employment terminates for cause or by Mr. Roberts without good
reason, then the outstanding amount of the loan will accelerate and be due and
payable within 30 days of termination. An aggregate of $600,000 has been
disbursed under the loan agreement; this was the outstanding principal amount of
the loan throughout fiscal 2005.
Scott S. Rosenblum, a director of the Company, is a partner of the law
firm Kramer, Levin, Naftalis & Frankel, LLP, which provides legal services to
the Company. Anthony L. Bongiovanni, Jr., who resigned as a director of Escala
on September 27, 2005, is president of Micro Strategies, Incorporated, which
provides computer services to the Company. Expenditures for services rendered by
Micro Strategies were approximately $280,000 for the year ended June 30, 2005.
11
In June 2004, one of the former minority stockholders of Corinphila
Auktionen, then a majority-owned subsidiary of the Company, made a loan to that
company in the aggregate amount of $1,200,000. This loan bears interest at the
rate of 4% per annum and is repayable on demand, upon six month's notice. As of
June 30, 2005 the loan balance was $506,000.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the last three fiscal years, the
compensation earned for services rendered in all capacities by Escala's chief
executive officer and the other four highest-paid executive officers serving as
such at the end of whose compensation for that fiscal year was in excess of
$100,000, as well as the compensation earned by any executive officer who would
otherwise have been included in this table on the basis of salary and bonus in
fiscal year 2005 but who resigned or terminated employment during that year. The
individuals named in the table will be hereinafter referred to as the "Named
Officers."
- -------------------------------------------------------------------------------------------------------------------------
Long Term Awards:
Annual Compensation (1) Compensation
Securitires Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- -------------------------------------------------------------------------------------------------------------------------
Greg Manning (2) 2005 500,000 750,000 None None
Chief Executive Officer 2004 450,000 750,000 45,000 None
and President 2003 400,000 335,000 410,000 (3) None
- -------------------------------------------------------------------------------------------------------------------------
Ramon Egurbide 2005 219,683 25,685 None None
President, 2004 144,712 None 95,000 None
European Operations 2003 None None None None
- -------------------------------------------------------------------------------------------------------------------------
Gregory N. Roberts 2005 437,500 (5) None 31,318 (4)
President, Spectrum 2004 341,669 125,000 45,000 29,900 (4)
Numismatics, Inc. 2003 300,000 100,000 None 28,440 (4)
- -------------------------------------------------------------------------------------------------------------------------
Larry Crawford 2005 176,250 50,000 None None
Executive Vice President 2004 162,500 50,000 75,000 None
and Chief Financial Officer 2003 150,000 50,000 10,000 None
- -------------------------------------------------------------------------------------------------------------------------
Esteban Perez 2005 208,333 52,083 None None
Chief Corporate Strategy 2004 None None 120,000 None
Officer 2003 None None None None
- -------------------------------------------------------------------------------------------------------------------------
(1) The aggregate amount of perquisites and other personal benefits, if
any, paid in each fiscal year did not exceed the lesser of 10% of
the Named Officer's total annual salary and bonus for each fiscal
year or $50,000; so that amount is not included in the table.
(2) Mr. Manning resigned as Chief Executive Officer and President as of
September 27, 2005, and on that date was appointed as President of
Escala's North American and Asian Philatelic Auction Division.
12
(3) 85,000 of these options were cancelled effective July 31, 2002, and
new options were granted on February 4, 2003.
(4) The Company made a non-interest bearing loan to Mr. Roberts in the
amount of $600,000 on June 17, 2002. The amount shown is the imputed
income to Mr. Roberts, calculated under Internal Revenue Service
rules.
(5) The Compensation Committee has not yet met to consider a bonus for
Mr. Roberts for fiscal 2005.
For the year ended June 30, 2005, Escala had no long-term incentive plan.
Option Grants Table for Fiscal 2005
There were no stock options or stock appreciation rights granted to the
Named Officers during fiscal 2005.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information regarding the exercise of stock
options during the last fiscal year by the Named Officers in the Summary
Compensation Table above and the fiscal year-end value of unexercised options.
- ------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money
Acquired on Value Options at June 30, 2005 Options at June 30, 2005
Name Exercise Realized ($) (1) Exercisable/Unexercisable (#) Exercisable/Unexercisable ($)(2)
- ------------------------------------------------------------------------------------------------------------------------------
Greg Manning None - 130,625 / 5,625 1,071,344 / 51,469
- ----------------------------------------------------------------------------------------------------------------------------
Ramon Egurbide None - 84,375 / 20,625 497,906 / 165,969
- ----------------------------------------------------------------------------------------------------------------------------
Greg N. Roberts 200,000 1,580,000 314,375 / 5,625 2,890,656 / 51,469
- ----------------------------------------------------------------------------------------------------------------------------
Larry Crawford 35,000 319,625 66,875 / 8,125 421,156 / 76,969
- ----------------------------------------------------------------------------------------------------------------------------
Esteban Perez None - 103,125 / 24,375 631,406 / 184,969
- ----------------------------------------------------------------------------------------------------------------------------
(1) Represents the aggregate market value of the shares converted by the
options on the date of exercise less the aggregate exercise price
paid by the executive.
(2) Assumes a fair market value for Escala's common stock of $11.95, the
closing market price per share of Escala's common stock as reported
by NASDAQ on June 30, 2005.
Equity Compensation Plan Information
The following table provides information as of June 30, 2005 with respect
to the shares of Escala's common stock that may be issued under Escala's
existing equity compensation plans.
13
(c)
Number of securities
remaining available for
(b) future issuance under
(a) Weighted average equity compensation plans
Number of securities to be issued exercise price of (excluding securities
upon exercise of outstanding outstanding options, reflected in
Plan category options, warrants and rights warrants and rights ($) column (a))
Equity compensation plans approved
by security holders (1)............... 1,813,865 $5.46 745,737
Equity compensation plans not approved
by security holders................... -- -- --
(1) Consists of the 1993 Stock Option Plan, as amended, and the 1997 Stock
Incentive Plan, as amended. Employment Agreements and Other Arrangements
Escala is a party to an employment agreement with Mr. Herrero (the
"Herrero Employment Agreement") which provides for his services as President and
Chief Executive Officer. The Herrero Employment Agreement has a term ending June
30, 2008. The agreement provides for an initial base salary of $500,000, with
annual increases in each year of the term based on the percentage increase, if
any, in the Consumer Price Index for the relevant fiscal year. Mr. Herrero will
also receive a signing bonus of $690,000 (payable $200,000 immediately; $245,000
on June 30, 2006; and $245,000 on July 2, 2007 and provided in each case that
Mr. Herrero is employed on the date of payment) and be eligible for a retention
bonus to be determined in accordance with the terms of his agreement, which
bonus will not be less than $300,000. Mr. Herrero will also be eligible to
receive an annual performance bonus equal to the lesser of 1% of the Company's
pre-tax income or $400,000, subject to adjustment based on stock price
performance, and a long-term incentive award payable in Escala stock and
calculated based on the appreciation in the price of the Company's stock from
July 1, 2005 to June 30, 2008, in each case pursuant to the terms of an
incentive compensation program as described more fully below under "Proposal 3 -
Approval of the Jose Miguel Herrero Incentive Compensation Program". The
Compensation Committee has sole discretion to award further compensation and
benefits (including discretionary bonus) based on material changes in size and
complexity of the Company or other extraordinary circumstances. Mr. Herrero is
also entitled to participate in the Compensation Policy for Outside Directors
and Certain Executive Officers, as described above under "Compensation of
Directors."
The agreement provides for Escala to reimburse Mr. Herrero for various
expenses, including relocation and housing expenses, tuition expenses and car
expenses.
In the event of termination for cause or without good reason, Mr. Herrero
will be entitled to receive any accrued and unpaid salary, accrued vacation, any
performance bonus not yet paid for any fiscal year ending prior to the
termination date, and expense reimbursement ("accrued benefits"). In the event
of termination with good reason (which includes a change of control) or without
cause, Mr. Herrero will be entitled to receive accrued benefits, a lump-sum
payment equal to 12 months' base salary, and a portion of the retention bonus,
performance bonus and long-term incentive award as calculated under the terms of
the Herrero Employment Agreement.
Under the agreement, Mr. Herrero cannot compete with the Company or
solicit its employees during the term of employment. In addition, if Mr.
Herrero's employment terminates, other than due to expiration of the agreement,
the noncompetition and nonsolicitation restrictions continue through the later
of 12 months after the termination of employment or the date upon which all
severance payments cease.
The Herrero Employment Agreement contains customary confidentiality,
non-solicitation and indemnification provisions.
Escala has entered into an employment agreement with Mr. Crawford to serve
as Chief Financial Officer, effective April 23, 2001. The agreement provides for
a salary of $150,000 per annum, plus a quarterly bonus of $12,500 in the event
Escala's pre-tax income (as defined) equals or exceeds $50,000. In October 2002,
the Company entered into an amendment to the employment agreement with Mr.
Crawford, which extended the term through June 30, 2006. Mr. Crawford's base
salary under the agreement increased to $190,000 on May 1, 2005.
GMAI Auctentia Central De Compras, S.L., a subsidiary of Escala, has
entered into an agreement with Mr. Perez, as amended, for his services as Chief
Corporate Strategy Officer of Escala, effective February 1, 2005. The term of
the agreement is for one year, which is automatically renewed for successive
one-year periods unless otherwise terminated. The agreement provides for
compensation of 400,000 Euros per annum (approximately $480,000, based on
current exchange rates). Mr. Perez is also entitled to receive an annual cash
bonus equal to the pre-tax income of Escala, up to a maximum bonus of 100,000
Euros.
GMAI Auctentia Central De Compras, S.L. has also entered into an
employment agreement with Mr. Egurbide, effective February 1, 2005. The
agreement provides for a salary of 200,000 Euros annually
14
(approximately $240,000, based on current exchange rates) for the period from
February 1, 2005 to November 30, 2005, increasing to 215,000 Euros for the
period December 1, 2005 to November 30, 2006, and increasing to 230,000 Euros
thereafter. Mr. Egurbide is also entitled to receive an annual cash bonus equal
to 0.5% of the pre-tax income of Escala, up to a maximum bonus of 50,000 Euros.
Mr. Roberts has entered into an employment agreement providing for his
services as President of Spectrum, which originally terminated on February 18,
2005. The agreement provides for a salary of $300,000 per annum, increasing (on
an annual basis) to $500,000 per annum effective February 18, 2005. In June
2002, the Company entered into an amendment to the employment agreement with Mr.
Roberts. Under the terms of the amendment, the employment term has been extended
for an additional three years, to February 18, 2008; Mr. Roberts is entitled to
receive a salary of $550,000 for the seventh year, and $600,000 for the eighth
year. Mr. Roberts also received a loan in the amount of $600,000 the repayment
of which can be forgiven under certain circumstances. In the event that pursuant
to Section 5.1 of the Merger Agreement, dated December 8, 1999, among Spectrum,
Escala and Mr. Roberts, among others, the original sellers of the stock of
Spectrum to Escala no longer have the right to nominate two members of the Board
of Directors of Escala, then, so long as Mr. Roberts is employed by Spectrum,
Mr. Roberts will be entitled to nominate two members of the Board of Directors
of Escala, provided that such persons are reasonably acceptable to Escala.
Each of Messrs. Herrero, Perez, Egurbide, Crawford and Roberts is eligible
to participate in any employee benefit plan and fringe benefit programs, if any,
as Escala may from time to time provide to its senior employees generally. Each
of such individuals is also entitled to certain other benefits, including those
payable in the event of termination of employment under certain circumstances.
Mr. Manning's contract with the Company, pursuant to which he served as
President and Chief Executive Officer of the Company, terminated on June 30,
2005. Since that time, Mr. Manning has been receiving the salary and benefits
which he was receiving under the contract at the date of termination. Effective
September 28, 2005, Mr. Manning was appointed as President of Escala's North
American and Asian Philatelic Auction Division. The Company is currently
negotiating the terms of Mr. Manning's new employment agreement (the "Proposed
Manning Agreement").
Escala offers basic health, major medical and life insurance to its
employees. Escala maintains an employee savings plan under Section 401(k) of the
Internal Revenue Code. Employees are eligible to participate in the plan after
six months of service and become fully vested after five years of service.
Employee contributions are discretionary to a maximum of 15% of compensation.
For the fiscal year ended June 30, 2005, Escala contributed an amount equal to
10% of all eligible contributions by employees, up to a maximum annual
contribution of $500 per participating employee.
Escala has adopted no other retirement, pension or similar program.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
subject to the approval of the Board of Directors, determines the compensation
of the Company's executive officers, including the Chief Executive Officer, and
oversees the administration of executive compensation programs. In August 2005,
the Board of Directors established an Independent Advisory Committee to consider
and approve the Herrero Employment Agreement and the Proposed Manning Agreement
in accordance with the regulations under IRC Section 162(m). Mark B. Segall and
James M. Davin are the current members of the Independent Advisory Committee.
During the year ended June 30, 2005, the Compensation Committee approved
the terms of new employment agreements with Esteban Perez, Chief Corporate
Strategy Officer, and Ramon Egurbide, President, European Operations. Subsequent
to the year ended June 30, 2005, the Compensation Committee recommended to the
Board the terms of the employment agreement with Mr. Herrero, President and
Chief Executive Officer, which agreement was approved by the Board and became
effective on
15
September 28, 2005. The terms of these agreements are described above, under
"Employment Agreements and Other Arrangements".
Executive Compensation Policies and Programs
The Company's executive compensation programs are designed to attract and
retain highly qualified executives with outstanding leadership ability and
experience. A portion of each executive's total compensation is variable and
dependent upon the attainment of strategic and financial goals and individual
performance.
There are three basic components to the Company's compensation program:
base pay; annual bonus; and equity compensation. The Committee considers each
component in the context of individual and Company performance, competitive
conditions and equity among employees. The Committee intends that these
components, in the aggregate, provide for targeted total compensation for each
executive that is reasonably competitive with similarly situated executives. To
this end, the Committee reviews competitive data with respect to total
compensation and the separate components of compensation based on published
surveys and comparative analyses developed by compensation consultants and
in-house staff. The Committee intends that total targeted compensation fall
within a range from median to approximately the 75th percentile for similarly
situated executives, but the Committee takes into account a number of subjective
factors in setting compensation, including the experience and demonstrated
abilities of the individual executive, prior compensation, particular items for
which the executive may negotiate, industry trends and other circumstances.
Based on similar considerations, the Committee sets terms of the bonus and
equity components that provide for upward and downward variations from the
targeted levels based on above-target or below-target performance. Again, the
Committee generally intends that these terms be competitive, but the Committee
exercises its judgment in setting these terms with a view to providing an
incentive to excellent performance that will enhance the total return to
stockholders.
Base Pay
Base pay is designed to be competitive, although conservative, as compared
to salary levels for equivalent executive positions at similarly sized
companies. An executive's actual salary within this competitive framework will
vary based on responsibilities, experience, leadership, potential future
contribution, and demonstrated individual performance (measured against
strategic management objectives such as strengthening market share and
profitability, and expanding the markets for the Company's products). The types
and relative importance of specific financial and other business objectives vary
among the Company's executives depending on their positions and the particular
operations or functions for which they are responsible.
Annual Bonus
In fiscal 2005, Messrs. Manning, Egurbide, Perez and Crawford were
entitled to receive non-discretionary bonuses pursuant to their respective
contracts (see "Employment Agreements and Other Arrangements", above"), based on
Escala's pre-tax income. The Committee has agreed that, in fiscal 2006, in the
case of Mr. Herrero, the bonus amount may be increased or decreased 15% based on
the appreciation (or depreciation) in value of Escala's common stock during the
year. Each of them may receive additional discretionary bonuses, and Mr. Roberts
and other executive officers may also receive discretionary bonuses, at the
election of the Compensation Committee. In awarding discretionary bonuses, the
Committee takes into account individual performance, Company performance, job
responsibilities and market and other competitive factors. The Committee does
not assign a precise weighting to these factors, however.
Equity-based Compensation
In fiscal 2005, the Company determined to cease awarding stock options to
its executive officers and to offer other types of equity-based awards. No stock
option or other equity awards were granted during the fiscal year. Going
forward, as described above, the cash bonus to Mr. Herrero (which amount is
16
not based upon the equity value) may be increased or decreased based upon the
equity value. In addition, Escala has instituted equity-based long-term
incentive awards as an alternative to traditional stock option or stock
appreciation rights arrangements. Currently these awards have been granted to
Mr. Herrero, but the Compensation Committee anticipates that they will be
granted to other executives as well.
The awards provide compensation based on the appreciation in Escala's
common stock over a specified period (in the case of Mr. Herrero, three years).
The executive receives an amount -- paid in shares of Escala's common stock --
equal to the appreciation in value of a specified number of shares over the
period. Although the structure resembles a stock appreciation right, the
executive does not have the ability to exercise the award at any time; the award
measures stock price appreciation over a pre-determined period.
(Mr. Herrero's award also includes an alternative measure, which averages
the stock price appreciation for the first year of the three-year period, the
first two years of the period and all three years. Mr. Herrero receives the
greater of the basic appreciation measure or the average measure.)
Equity compensation is designed to align the interests of the Company's
executives with those of stockholders by encouraging executives to enhance the
value of the Company.
Other Plans
Each of the executive officers is eligible to participate in any employee
benefit plan, perquisites and fringe benefit programs as Escala may from time to
time provide to its senior employees generally.
Escala offers basic health, major medical and life insurance to its
employees, including its executive officers. Escala maintains an employee
savings plan under Section 401(k) of the Internal Revenue Code. Employees,
including executive officers, are eligible to participate in the plan after six
months of service and become fully vested after five years of service. Employee
contributions are discretionary to a maximum of 15% of compensation. For the
fiscal year ended June 30, 2005, Escala contributed an amount equal to 10% of
all eligible contributions by employees, up to a maximum annual contribution of
$500 per participating employee.
President and Chief Executive Officer
During fiscal 2005, the Company was a party to an employment agreement
with Mr. Manning providing for his services as President and Chief Executive
Officer. Under the agreement, in fiscal 2005 Mr. Manning received an annual
salary of $500,000, plus an annual cash bonus equal to 10% of the company's
pre-tax income between $500,000 and $7,500,000. Pre-tax income was defined to
mean the net income of the Company for the fiscal year before federal income
taxes and bonuses paid to Mr. Manning under his agreement or under any other
executive employment agreement entered into by the Company, determined in
accordance with generally accepted accounting principles consistently applied as
determined by the Company's independent registered public accounting firm.
Qualifying Compensation
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code ("Section 162(m)"). Section 162(m) disallows a tax
deduction for any publicly held corporation for certain executive officers'
compensation exceeding $1 million per person in any taxable year unless it is
"performance based" within the meaning of Section 162(m). During the year ended
June 30, 2005, the non-performance-based compensation of Mr. Manning exceeded $1
million. The Company was required to pay such compensation to Mr. Manning under
the terms of its employment contract with him. The Committee believes that while
it is generally in the Company's best interests to preserve the tax
deductibility of compensation paid to senior executives, tax deductibility is
only one consideration among many in the design of the Company's compensation
program for executives. The Committee believes that, in implementing an
executive compensation program that attracts and retains high quality
management, there
17
may be circumstances in which the Company's interests are better served by
maintaining flexibility to pay compensation that may not be fully deductible
under Section 162(m).
Members of the Compensation Committee:
Esteban Perez, Chairman
James M. Davin
Greg Manning
Scott S. Rosenblum
Carlos de Figueiredo
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934,
the above Report of the Compensation Committee shall not be incorporated by
reference into any such filings and shall not otherwise be deemed filed under
such acts.
PERFORMANCE GRAPH
The following graph demonstrates a five-year comparison of cumulative
total returns for the Company's Common Stock, the Standard and Poor's 500 Stock
Index and the Russell 2000 Index. Escala operates in a specialty market niche.
Based on our review, there are no reasonably identifiable public competitors
that have traded for a period of five years that directly operate in all the
same markets as Escala and are traded on the same exchange. Therefore, our
comparison is limited to public issuers with similar market capitalization in
the Russell 2000 Index.
The graph assumes an investment of $100 on June 30, 2000 in Escala, the
stocks comprising the Standard & Poor's 500 Stock Index and the stocks
comprising the Russell 2000 Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN BETWEEN
ESCALA GROUP, INC., THE S&P 500 INDEX AND THE RUSSELL 2000 INDEX
18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to Escala with
respect to the beneficial ownership of Escala common stock as of October 17,
2005, by (1) all persons who are beneficial owners of 5% or more of Escala
common stock, (2) each director and nominee, (3) the Named Officers in the
Summary Compensation Table above, and (4) all directors and executive officers
as a group.
The information regarding beneficial ownership of Escala common stock has
been presented in accordance with the rules of the Securities and Exchange
Commission. Under these rules, a person may be deemed to beneficially own any
shares of common stock as to which such person, directly or indirectly, has or
shares voting power or investment power, and to beneficially own any shares of
common stock as to which such person has the right to acquire voting or
investment power within 60 days through the exercise of any stock option or
other right. The percentage of beneficial ownership as to any person as of a
particular date is calculated by dividing (a) (i) the number of shares
beneficially owned by such person plus (ii) the number of shares as to which
such person has the right to acquire voting or investment power within 60 days
by (b) the total number of shares outstanding as of such date, plus any shares
that such person has the right to acquire from the Company within 60 days.
Including those shares in the tables does not, however, constitute an admission
that the named shareholder is a direct or indirect beneficial owner of those
shares. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares that power with that person's
spouse) with respect to all shares of capital stock listed as owned by that
person or entity.
Security Ownership of Certain Beneficial Owners
Name and Address of Amount and Nature Percent of
Beneficial Owner Of Beneficial Ownership Common Stock
------------------- ----------------------- -------------
Greg Manning (1)
775 Passaic Avenue 2,155,000 7.7%
West Caldwell, New Jersey 07006
Afinsa Bienes Tangibles, S.A.(2) 18,781,073 67.7%
Lagasca 88
Madrid, Spain 28001
(1) Includes 2,018,750 shares of common stock and options to purchase 136,250
shares of common stock , which are exercisable within 60 days of October
17, 2005.
(2) Afinsa Bienes Tangibles, S.A. beneficially owns 18,781,073 shares of
Escala's common stock, including 410,520 shares held directly and
18,370,553 held through its wholly-owned subsidiary, Auctentia, S.L. Due
to such holdings, Auctentia also is a greater than five percent beneficial
owner of Escala common stock. Auctentia's address is Paseo de la
Castellana, 50-3rd 28046 Madrid Spain.
19
Security Ownership of Management
The following table shows the number of shares of common stock
beneficially owned as of October 17, 2005, by each director, nominee for
director, executive officer named in the Summary Compensation Table and the
directors and executive officers of the Company as a group.
- ----------------------------------------------------------------------------
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Common Stock (2)
- ----------------------------------------------------------------------------
Greg Manning (3) 2,155,000 7.7%
- ----------------------------------------------------------------------------
Carlos de Figueiredo (4) 18,826,073 67.8%
- ----------------------------------------------------------------------------
Gregory N. Roberts (5) 818,304 2.9%
- ----------------------------------------------------------------------------
Scott S. Rosenblum (6) 124,000 *
- ----------------------------------------------------------------------------
Esteban Perez (7) 130,000 *
- ----------------------------------------------------------------------------
Larry Crawford (8) 132,500 *
- ----------------------------------------------------------------------------
Mark B. Segall (9) 80,000 *
- ----------------------------------------------------------------------------
James M. Davin (10) 81,250 *
- ----------------------------------------------------------------------------
Jose Miguel Herrero (11) 65,000 *
- ----------------------------------------------------------------------------
Ramon Egurbide (12) 105,000 *
- ----------------------------------------------------------------------------
Antonio Martins da Cruz (13) 1,000 *
- ----------------------------------------------------------------------------
Rafael del Valle-Iturriaga None *
- ----------------------------------------------------------------------------
All Executive Officers and 22,518,127 78.0%
Directors, as a group
- ----------------------------------------------------------------------------
* Less than 1%
(1) Except as otherwise indicated below, each named person has voting and
investment ownership with respect to the securities owned by them.
(2) Based on 27,728,820 shares outstanding at October 17, 2005, calculated in
accordance with Rule 13d-3(d)(1)(I) under the Exchange Act.
(3) Includes 2,018,750 shares of common stock and options exercisable within
60 days of October 17, 2005 to purchase 136,250 shares of common stock .
(4) Includes 11,250 shares of common stock and options exercisable within 60
days of October 17, 2005 to purchase 33,750 shares of common stock. Mr. de
Figueiredo is a director of Afinsa and is the son of a 50% stockholder of
Afinsa. Afinsa beneficially owns 18,781,073 shares of common stock, of
which 410,520 shares are owned directly and 18,370,553 shares are owned by
Auctentia.
(5) Includes 498,304 shares of common stock. Also includes options exercisable
within 60 days of October 17, 2005 to purchase 320,000 shares.
20
(6) Includes 4,000 shares of common stock and options exercisable within 60
days of October 17, 2005 to purchase 120,000 shares of common stock.
(7) Includes 2,500 shares of common stock and options exercisable within 60
days of October 17, 2005 to purchase 127,500 shares of common stock . Mr.
Perez is Chairman of the Board of Directors of Auctentia and Escala and is
Chief Corporate Strategy Officer of Escala. Auctentia is wholly owned by
Afinsa. The shares of common stock beneficially owned by Auctentia are
included in the figures set forth for Mr. de Figueiredo, above.
(8) Includes 60,000 shares of common stock and options exercisable within 60
days of October 17, 2005, to purchase 72,500 shares of common stock. Does
not include options not exercisable within 60 days of October 17, 2005 to
purchase 2,500 shares of common.
(9) Includes options exercisable within 60 days of October 17, 2005, to
purchase 80,000 shares of common stock.
(10) Includes options exercisable within 60 days of October 17, 2005, to
purchase 81,250 shares of common stock.
(11) Includes options exercisable within 60 days of October 17, 2005, to
purchase 65,000 shares of common stock.
(12) Includes options exercisable within 60 days of October 17, 2005, to
purchase 105,000 shares of common stock.
(13) Includes 1,000 shares of common stock.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors assists the Board in
fulfilling its responsibility for oversight of the integrity of the Company's
financial statements; the independence, qualifications and performance of the
Company's independent registered public accounting firm; the Company's
compliance with legal and regulatory requirements; the performance of the
Company's internal audit function and internal audit firm and the oversight of
the Company's system of disclosure controls and system of internal controls
regarding finance, accounting, legal compliance, and ethics that management and
the Board have established.
The Committee is directly responsible for the appointment, compensation,
retention, termination and oversight of the work of the independent auditors and
any other accounting firm engaged for the purpose of preparing an audit report
or performing other audit, review or attest services for the Company (including
resolution of disagreements between management and the independent auditors
regarding financial reporting) for the purpose of preparing its audit report or
related work.
The Committee operates under a written charter adopted by the Board of
Directors (the "Charter"). The Committee reviews and reassesses the Charter
annually, and recommends any proposed changes to the full Board for approval.
Management is primarily responsible for the Company's financial reporting
process, including maintaining the system of internal controls, and the
preparation of the Company's consolidated financial statements in accordance
with generally accepted accounting principles, as well as the objectivity and
integrity of such statements. The Company's independent registered public
accounting firm is responsible for auditing those financial statements,
expressing an opinion based on their audit as to whether, in all material
respects, the statements are presented in conformity with the Standards of the
Public Company Accounting Oversight Board, testing the effectiveness of the
Company's internal controls and discussing with the Committee any issues the
auditors believe should be raised with the Committee. The Committee actively
monitors and reviews these processes and financial statements. In carrying out
its duties, the
21
Committee relies in part on the information provided to it, and on the
representations made to it, by management and the independent auditors, as well
as by the Company's internal auditors and outside advisors.
The Committee met with Amper, Politziner & Mattia, P.C., the Company's
independent registered public accounting firm, with and without management
present, to review and discuss the overall scope and plans for the audit of the
Company's consolidated financial statements for the fiscal year ended June 30,
2005 and the results of such audit, including the independent auditors'
evaluations of the Company's internal controls and the overall quality of the
Company's financial reporting. Management represented to the Committee that the
Company's financial statements were prepared in accordance with generally
accepted accounting principles. The Committee reviewed and discussed the
Company's auditing and accounting principles and procedures and the Company's
financial statements presentation with management and the independent auditors,
including a review of any significant financial reporting issues and the
selection, application and disclosure of the Company's accounting policies,
including policies for which management is required to exercise discretion or
judgment regarding implementation. These discussions included consideration of
the quality, not just the acceptability, of the accounting principles utilized,
the reasonableness of significant accounting judgments and the clarity of
disclosure in the Company's financial statements. The Committee also discussed
with management and the independent auditors the process used to support the
certifications of the Company's and Chief Executive Officer and Chief Financial
Officer required under the rules of the Securities and Exchange Commission and
the Sarbanes-Oxley Act of 2002 to accompany the Company's periodic filings with
the Securities and Exchange Commission. The Committee also reviewed and
discussed such other matters as it deemed appropriate, including other
provisions of the Sarbanes-Oxley Act of 2002 and matters adopted or proposed to
be adopted by the Securities and Exchange Commission and Nasdaq.
The Committee also discussed and reviewed with the independent auditors
all communications required under generally accepted accounting principles,
including the matters required to be discussed by the independent auditors with
the Committee under Statement on Auditing Standards No. 61, as amended
(Communication with Audit Committees).
In addition, the Company's independent auditors provided to the Committee
a formal written statement describing all relationships between the independent
auditors and the Company that might bear on the auditors' independence as
required by Independence Standards Board Standard No. 1, as amended
(Independence Discussions with Audit Committees). The Committee reviewed and
discussed with the independent auditors any matters that may impact the
independent auditors' objectivity and independence from the Company and
management, including the auditors' provision of non-audit services to the
Company. Nothing came to the Committee's attention as a result of its review of
the auditors' statement or its discussions with the independent auditors that
would indicate that the independent auditors lacked such objectivity or
independence.
Based upon the Committee's receipt and review of the various materials and
assurances described above and its discussions with management and the
independent auditors, the Committee (then consisting of James M. Davin and Mark
Segall) recommended to the Board of Directors that the Company's audited
consolidated financial statements for the fiscal year ended June 30, 2005 be
included in the Company's Annual Report on Form 10-K for such fiscal year to be
filed with the Securities and Exchange Commission. The Board ratified such
recommendation.
James M. Davin, Chairman
Mark B. Segall
Rafael del Valle-Iturriaga (appointed September 28, 2005)
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934,
the above Report of the Audit Committee shall not be incorporated by reference
into any such filings and shall not otherwise be deemed filed under such acts.
22
Fees Paid to Amper Politziner & Mattia P.C.
The following table shows the fees paid or accrued by the Company for the
audit and other services provided by Amper, Politziner & Mattia, P.C. ("APM")
for the most recent two fiscal years.
Type of Service Fiscal 2005 Fiscal 2004
----------- -----------
Audit Fees (1) $ 787,000 $245,000
Audit-Related Fees (2) 248,000 355,000
Tax Fees (3) 38,000 70,000
---------- --------
$1,073,000 $670,000
(1) Comprised of the audit of the Company's annual financial statements and
reviews of the Company's quarterly financial statements, as well as work
generally only the independent registered public accounting firm can
reasonably be expected to provide, such as statutory audits and financial
audits of subsidiaries; services (such as consents) associated with SEC
registration statements filed in connection with securities offerings
($32,000 and $16,000 in fiscal years 2005 and 2004, respectively); and
financial accounting and reporting consultations. The fiscal year 2005
audit fees include the audit of the effectiveness over internal control
over financial reporting and management's assessment of the Company's
internal control over financial reporting , as required by Section 404 of
the Sarbanes-Oxley Act of 2002.
(2) Comprised of services rendered in connection with acquisitions and
consultations regarding financial accounting and reporting.
(3) Comprised of services for tax compliance, tax return preparation, tax
advice and tax planning.
In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee
established policies and procedures under which all audit and non-audit services
performed by the Company's principal accountants must be approved in advance by
the Audit Committee. As provided in the Sarbanes-Oxley Act, all audit and
non-audit services must be pre-approved by the Audit Committee in accordance
with these policies and procedures. Based in part on consideration of the
non-audit services provided by APM during fiscal year 2004 and 2005, the Audit
Committee determined that such non-audit services were compatible with
maintaining the independence of APM.
We are submitting the selection of APM to the stockholders for
ratification as a matter of good corporate practice. If the stockholders fail to
ratify the selection, the Audit Committee will consider whether to retain that
firm. Even if the selection is ratified, the Audit Committee in its discretion
may direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines that such a change
would be in the best interests of the Company and its stockholders.
PROPOSAL 2 - APPROVAL OF THE GREG MANNING 2000 PLAN INCENTIVE
COMPENSATION PROGRAM
Background
In connection with the proposed employment agreement (the "Proposed
Manning Agreement") between Escala and Mr. Manning, Escala's Independent
Advisory Committee adopted, subject to approval by Escala's stockholders and
subject to the execution of the Proposed Manning Agreement, the Greg
23
Manning 2000 Plan Incentive Compensation Program (the "Manning Program"). The
Manning Program is intended to provide Mr. Manning with certain compensation
based upon Escala's financial performance. The payments under the Manning
Program are intended to qualify as "performance-based compensation" within the
meaning of Section 162(m)(4) of the Internal Revenue Code of 1986, as amended
(the "IRC"). In general, under IRC Section 162(m), compensation in excess of $1
million that is paid in any year to Escala's chief executive officer and the
next four most highly compensated employees will not be deductible by Escala
unless the compensation constitutes "performance-based compensation" (or
satisfied a different exception). The Independent Advisory Committee reserves
the right to establish alternative incentive compensation arrangements for Mr.
Manning if it determines, in its discretion, that it would be in the best
interests of Escala and its stockholders to do so, even if the result is a loss
of deductibility for certain compensation payments.
The following description of the Manning Program is qualified in its
entirety by reference to the full text of the Manning Program, which is set
forth in the attached Exhibit D.
Material Terms of the Manning Program
Mr. Manning is the only participant in the Manning Program.
The Manning Program provides for two separate compensation arrangements,
an annual "Performance Bonus" and a long-term "Incentive Award." Prior to any
payment under the Manning Program, the Independent Advisory Committee shall
certify the amount of the Performance Bonus and/or the Incentive Award (as
defined below) to which Mr. Manning is entitled.
The Manning Program is structured as an Annex to the Proposed Manning
Agreement, and the terms set forth in the Proposed Manning Agreement, including
without limitation, with respect to arbitration of disputes, shall apply to the
Manning Program to the extent not inconsistent with the terms of the Manning
Program.
Performance Bonus
Escala shall pay Mr. Manning an annual Performance Bonus for each fiscal
year during the Proposed Manning Agreement term equal to the sum of (1) 0.5% of
Escala's pre-tax income and (2) 5% of Escala's North American and Asian
Philatelic Auction Division pre-tax income. The Performance Bonus shall not
exceed $250,000 in any fiscal year.
The pre-tax income of Escala and Escala's North American and Asian
Philatelic Auction Division means net income before taxes and deductions for any
bonus paid under the Manning Program, determined by Escala in accordance with
its standard accounting practices, except that Escala's pre-tax income shall not
include income attributable to the North American and Asian Philatelic Auction
Division. Allocations of expenses between divisions of the Company shall be
determined by the Company in accordance with its standard practices.
The Performance Bonus shall be paid within thirty days following the
issuance of financial statements for the fiscal year in respect of which such
bonus is payable, provided that in no event shall the Performance Bonus be paid
later than the March 14 following the end of the fiscal year.
24
Incentive Award
The Company will pay Mr. Manning an Incentive Award based on the
appreciation in value of 100,000 shares of Escala's common stock. The Incentive
Award shall be paid in shares of Escala's common stock.
The Incentive Award shall equal one-half of the appreciation in value of
the 100,000 shares from the closing price of Escala's common stock on July 1,
2005, such appreciation to be measured by the average closing price for the
period between June 1, 2008 and June 30, 2008. This represents the maximum value
of the Incentive Award. The number of shares and closing prices used to measure
the value of this award are subject to adjustment in the event of stock spits,
stock dividends and other extraordinary corporate events.
The Incentive Award, if any, is intended to be paid on July 31, 2008;
except that payment will be delayed to the extent necessary under Section
409A(a)(2)(B)(i) of the IRC. The Incentive Award shall be paid in shares of
Escala's common stock. The number of shares payable to Mr. Manning shall be
based on the closing price of Escala's common stock on June 30, 2008.
Termination of Employment
If Mr. Manning's employment terminates for any reason other than by Escala
for Cause or by Mr. Manning without Good Reason (as each such term is defined in
the Proposed Manning Agreement), Mr. Manning shall be entitled to:
o the Performance Bonus, if not yet paid, for any fiscal year ending
prior to the date of Mr. Manning's termination of employment
(payable as and when such bonus would have been paid had Mr.
Manning's employment continued);
o a prorated portion of the Performance Bonus for the fiscal year in
which Mr. Manning's employment terminated; and
o payment of the Incentive Award, except that in such a case the
Incentive Award will be equal to one half of the appreciation in
value of 100,000 shares between the closing price on July 1, 2005,
and average closing price for the 30-day period preceding the date
of termination.
Payment of the prorated Performance Bonus and the Incentive Award, if any,
shall be made thirty days following the date of termination; except that payment
will be delayed until six months following the date of termination to the extent
necessary under Section 409A(a)(2)(B)(i) of the IRC.
If Mr. Manning's employment is terminated by Escala for Cause or by Mr.
Manning without Good Reason, Mr. Manning shall be entitled only to any
Performance Bonus not yet paid for any fiscal year ending prior to the date of
Mr. Manning's termination of employment.
The payment following termination of employment of a pro-rated Performance
Bonus or an Incentive Award is conditioned upon (i) Mr. Manning signing a
release of claims against Escala and (ii) Mr. Manning complying with certain
non-competition and non-solicitation covenants included in the Manning
Employment Agreement.
Other Information
The Board and Compensation Committee retain the authority to administer
this Incentive Compensation Program and to amend it from time to time. Any such
amendment will be subject to approval by the stockholders of the Company to the
extent required by applicable rules of the Nasdaq National Market. However, such
rules do not necessarily require stockholder approval of all amendments that
might have the effect of increasing the cost of the Program to Escala.
25
Under U.S. federal income tax law, the dollar amounts paid to Mr. Manning
under the Performance Bonus and the fair market value of shares issued under the
Incentive Award will be taxable as ordinary income to him. Escala should be
entitled to claim a tax deduction equal to the ordinary income he recognizes.
Escala believes that its right to claim this tax deduction will not be limited
by IRC Section 162(m), although there is no assurance that the payments will be
tax deductible by Escala in all circumstances.
New Plan Benefits Table
- ----------------------------------------------------------------------------
Name and Position Dollar Value ($) Number of Units(2)
- ----------------------------------------------------------------------------
Jose Miguel Herrero, Chief Executive $0 N/A
Officer
- ----------------------------------------------------------------------------
Greg Manning, President, U.S. and $250,000(1) 50% of appreciation
Asian Philatelic Auction Division of 100,000 shares (2)
- ----------------------------------------------------------------------------
Esteban Perez $0 N/A
- ----------------------------------------------------------------------------
Gregory N. Roberts $0 N/A
- ----------------------------------------------------------------------------
Larry Crawford $0 N/A
- ----------------------------------------------------------------------------
Ramon Egurbide $0 N/A
- ----------------------------------------------------------------------------
Executive Group(3) $250,000 50% of appreciation
of 100,000 shares(2)
- ----------------------------------------------------------------------------
Non-Executive Director Group $0 N/A
- ----------------------------------------------------------------------------
Non-Executive Officer Employee Group $0 N/A
- ----------------------------------------------------------------------------
(1) Represents the maximum amount that may be awarded as a Performance Bonus
in the 2006 fiscal year. The actual amount awarded may be less depending
upon Escala's and Escala's North American and Asian Philatelic Auction
Division's pre-tax income for the year.
(2) Represents the Incentive Award under the Program. The Incentive Award
constitutes a type of stock appreciation right. The award will be paid by
issuing shares of Escala's common stock, based on the appreciation in
stock value over a 3-year period, as explained above.
(3) Refers to all executive officers as a group. Only one of the Company's
executive officers is eligible to participate in this Program.
Approval of this proposal requires the affirmative vote of a majority of
the shares of common stock present at the annual meeting (or represented by
proxy) and entitled to vote thereon. If stockholders do not approve this
proposal, no compensation will be paid under the Manning Program.
The Board of Directors recommends that stockholders vote FOR the approval
of the Greg Manning 2000 Plan Incentive Compensation Program.
PROPOSAL 3 - APPROVAL OF THE JOSE MIGUEL HERRERO INCENTIVE COMPENSATION PROGRAM
Background
In connection with the employment agreement (the "Herrero Employment
Agreement") between Escala and Mr. Herrero (described under "Employment
Agreements and Other Arrangements"),
26
Escala's Independent Advisory Committee adopted, subject to approval by Escala's
stockholders, the Jose Miguel Herrero Incentive Compensation Program (the
"Herrero Program"). The Herrero Program is intended to provide Mr. Herrero with
certain compensation based upon Escala's financial performance. The payments
under the Herrero Program are intended to qualify as "performance-based
compensation" within the meaning of Section 162(m)(4) of the Internal Revenue
Code of 1986, as amended (the "IRC"). In general, under IRC Section 162(m),
compensation in excess of $1 million that is paid in any year to Escala's chief
executive officer and the next four most highly compensated employees will not
be deductible by Escala unless the compensation constitutes "performance-based
compensation" (or satisfies a different exception). The Independent Advisory
Committee reserves the right to establish alternative incentive compensation
arrangements for Mr. Herrero if it determines, in its discretion, that it would
be in the best interests of Escala and its stockholders to do so, even if the
result is a loss of deductibility for certain compensation payments.
The following description of the Herrero Program is qualified in its
entirety by reference to the full text of the Herrero Program, which is set
forth in the attached Exhibit E.
Material Terms of the Herrero Program
Mr. Herrero is the only participant in the Herrero Program.
The Herrero Program provides for two separate compensation arrangements,
an annual "Performance Bonus" and a long-term "Incentive Award." Prior to any
payment under the Herrero Program, the Independent Advisory Committee shall
certify the amount of the Performance Bonus and/or the Incentive Award (as
defined below) to which Mr. Herrero is entitled.
The Herrero Program is structured as an Annex to the Herrero Employment
Agreement, and the terms set forth in the Herrero Employment Agreement,
including without limitation, with respect to arbitration of disputes, shall
apply to the Herrero Program to the extent not inconsistent with the terms of
the Herrero Program.
Performance Bonus
Escala shall pay Mr. Herrero an annual Performance Bonus for each fiscal
year during the Herrero Employment Agreement term equal to 1% of Escala's
pre-tax income. The Performance Bonus may be adjusted as described below, and in
no event shall exceed $400,000 in any fiscal year. Escala's pre-tax income means
Escala's net income of Escala before taxes and deductions for any bonus paid
under the Herrero Program, determined by Escala in accordance with its standard
accounting practices.
The term Performance Bonus may be increased or decreased by 15% depending
upon the average closing price of Escala's common stock for the thirty-day
period ending on the last day of the applicable fiscal year compared to the
average closing price for the thirty-day period ending on the first day of the
fiscal year. If the end-of-year average closing price is at least 15% greater
than the beginning-of-year average closing price, the Performance Bonus shall be
increased by 15%. If the end-of-year average closing price is less than the
beginning-of-year average closing price, the Performance Bonus shall be
decreased by 15%. If the end-of-year average closing price is greater, but not
15% greater, than the beginning-of-year average closing price, the Base Bonus
Amount shall not be adjusted. The measurement of appreciation in market price
and related closing prices are subject to adjustment in the event of stock
splits, dividends and other extraordinary corporate events.
The Performance Bonus shall be paid within thirty days following the
issuance of financial statements for the fiscal year in respect of which such
bonus is payable, provided that in no event shall the Performance Bonus be paid
later than the March 14 following the end of the fiscal year.
27
Incentive Award
The Company will pay Mr. Herrero an Incentive Award based on the
appreciation in value of 200,000 shares of Escala's common stock. The Incentive
Award shall be paid in shares of Escala's common stock.
The Incentive Award shall equal the greater of (A) and (B), but in each
case only to the extent it exceeds $300,000.
A. One-half of the appreciation in value of the 200,000 shares from the
closing price of Escala's common stock on July 1, 2005, and the
average closing price for the period between June 1, 2008 and June
30, 2008.
B. The average of one-half of the appreciation in value of the 200,000
shares from the closing price of Escala's common stock on July 1,
2005 and the average closing price during three periods, June 2006,
June 2007 and June 2008.
The Incentive Award, if any, is intended to be paid on July 31, 2008;
except that payment will be delayed to the extent necessary under Section
409A(a)(2)(B)(i) of the IRC. The Incentive Award shall be paid in shares of
Escala's common stock. The number of shares payable to Mr. Herrero shall be
based on the closing price of Escala's common stock on June 30, 2008. The
formula explained above represents the maximum value of the Incentive Award. The
number of shares and closing prices used to measure the value of this award are
subject to adjustment in the event of stock splits, stock dividends and other
extraordinary corporate events.
Termination of Employment
If Mr. Herrero's employment terminates for any reason other than by Escala
for Cause or by Mr. Herrero without Good Reason (as each such term is defined in
the Herrero Employment Agreement), Mr. Herrero shall be entitled to:
o the Performance Bonus, if not yet paid, for any fiscal year ending
prior to the date of Mr. Herrero's termination of employment
(payable as and when such bonus would have been paid had Mr.
Herrero's employment continued);
o a prorated portion of the Performance Bonus for the fiscal year in
which Mr. Herrero's employment terminated; and
o payment of the Incentive Award, except that in such a case the
Incentive Award will be equal to one half of the appreciation in
value of 200,000 shares between the closing price on July 1, 2005,
and average closing price for the 30-day period preceding the date
of termination, minus $300,000. Payment of the Incentive Award, if
any, shall be made thirty days following the date of termination;
except that payment will be delayed until six months following the
date of termination to the extent necessary under Section
409A(a)(2)(B)(i) of the IRC.
28
If Mr. Herrero's employment is terminated by Escala for Cause or by Mr.
Herrero without Good Reason, Mr. Herrero shall be entitled only to any
Performance Bonus not yet paid for any fiscal year ending prior to the date of
Mr. Herrero's termination of employment.
The payment following termination of employment of a pro-rated Performance
Bonus or an Incentive Award is conditioned upon (i) Mr. Herrero signing a
release of claims against Escala and (ii) Mr. Herrero complying with certain
non-competition and non-solicitation covenants included in the Herrero
Employment Agreement.
Other Information
The Board and Compensation Committee retain the authority to administer
this Incentive Compensation Program and to amend it from time to time. Any such
amendment will be subject to approval by the stockholders of the Company to the
extent required by applicable rules of the Nasdaq National Market. However, such
rules do not necessarily require stockholder approval of all amendments that
might have the effect of increasing the cost of the Program to Escala.
Under U.S. federal income tax law, the dollar amounts paid to Mr. Herrero
under the Performance Bonus and the fair market value of shares issued under the
Incentive Award will be taxable as ordinary income to him. Escala should be
entitled to claim a tax deduction equal to the ordinary income he recognizes.
Escala believes that its right to claim this tax deduction will not be limited
by IRC Section 162(m), although there is no assurance that the payments will be
tax deductible by Escala in all circumstances.
New Plan Benefits Table
- ----------------------------------------------------------------------------
Name and Position Dollar Value ($) Number of Units(2)
- ----------------------------------------------------------------------------
Jose Miguel Herrero, Chief Executive $400,000(1) 50% of appreciation
Officer on 200,000 shares(2)
- ----------------------------------------------------------------------------
Greg Manning, President, North $0 N/A
American and Asian Philatelic
Auction Division
- ----------------------------------------------------------------------------
Esteban Perez $0 N/A
- ----------------------------------------------------------------------------
Gregory N. Roberts $0 N/A
- ----------------------------------------------------------------------------
Larry Crawford $0 N/A
- ----------------------------------------------------------------------------
Ramon Egurbide $0 N/A
- ----------------------------------------------------------------------------
Executive Group(3) $400,000(1) 50% of appreciation
on 200,000 shares(2)
- ----------------------------------------------------------------------------
Non-Executive Director Group $0 N/A
- ----------------------------------------------------------------------------
Non-Executive Officer Employee Group $0 N/A
- ----------------------------------------------------------------------------
(1) Represents the maximum amount that may be awarded as a Performance Bonus.
The actual amount awarded may be less depending upon Escala's pre-tax
income for the year.
(2) Represents the Incentive Award under the Program. The Incentive Award
constitutes a type of stock appreciation right. The award will be paid by
issuing shares of Escala's common stock, based on the appreciation in
stock value over a 3-year period, as explained above.
29
(3) Refers to all executive officers as a group. Only one of the Company's
executive officers is eligible to participate in this Program.
Approval of this proposal requires the affirmative vote of a majority of
the shares of common stock present at the annual meeting (or represented by
proxy) and entitled to vote thereon. If stockholders do not approve this
proposal, no compensation will be paid under the Herrero Program.
The Board of Directors recommends that stockholders vote FOR the approval
of the Jose Miguel Herrero Incentive Compensation Program.
PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed Amper,
Politziner & Mattia P.C. ("APM") as the independent registered public accounting
firm to examine the Company's consolidated financial statements for the fiscal
year ending June 30, 2006 and to render other professional services as required.
APM also served as the Company's independent registered public accountant for
the years ended June 30, 2005, 2004 and 2003.
One or more representatives of APM are expected to be present at the
Annual Meeting and will have the opportunity to make a statement, if they so
desire, and to respond to appropriate questions from stockholders.
Stockholder ratification of the selection of APM as the Company's
independent registered public accounting firm is not required by the Company's
Bylaws or otherwise. However, the Audit Committee of the Board is submitting the
selection of APM to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection, the Audit
Committee will consider whether to retain that firm. Even if the selection is
ratified, the Audit Committee in its discretion may direct the appointment of a
different independent registered public accounting firm at any time during the
year if it determines that such a change would be in the best interests of the
Company and its stockholders.
This proposal requires the affirmative vote of a majority of the shares of
common stock present at the annual meeting (or represented by proxy) and
entitled to vote thereon.
30
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at next year's Annual
Meeting of Stockholders and included in Escala's proxy materials for that
meeting must be received by Escala, addressed to the attention of Escala's
corporate secretary, at its offices at 623 Fifth Avenue, New York, New York
10017, no later than June 30, 2006 (120 days prior to the first anniversary of
the mailing date of this proxy statement), in order to be included in Escala's
proxy statement and proxy card relating to that meeting. Such proposal must
comply with all other applicable legal requirements in order to be included in
the proxy materials for that meeting. In addition, a stockholder who intends to
present an item of business at the 2006 Annual Meeting of Stockholders, other
than a proposal submitted for inclusion in Escala's proxy materials, must
provide notice of such business to Escala on or before June 30, 2006 and must
comply with all applicable requirements of Escala's Bylaws.
OTHER BUSINESS
The Board of Directors has, at the date of this proxy statement, received
no notice and otherwise is not aware of any other matter that is to be presented
to stockholders for formal action at the annual meeting. If, however, any other
matter properly comes before the meeting or any adjournment or postponement
thereof, it is the intention of the persons named in the enclosed form of proxy
card to vote proxies in accordance with their judgment on such matters.
OTHER INFORMATION
Although it has entered into no formal agreements to do so, Escala will
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses in forwarding proxy-soliciting materials to their
principals. The cost of soliciting proxies on behalf of the Board of Directors
will be borne by Escala. Proxies will be solicited principally through the mail
but, if deemed desirable, may also be solicited personally or by telephone,
telegraph, facsimile transmission, or special letter by directors, officers and
regular employees of Escala without additional compensation.
A copy of Escala's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission (including financial statements and schedules), as well
as copies of our corporate governance materials, will be furnished without
charge to a stockholder upon written request to: Martha Husick, Corporate
Secretary, Escala Group, Inc., 623 Fifth Avenue, New York, New York 10017.
It is important that your stock be represented at the annual meeting
whether or not you expect to attend. The Board of Directors urges you to
complete, date, sign, and return the enclosed proxy card in the enclosed
postage-paid reply envelope. Your cooperation as a stockholder, regardless of
the number of shares of stock you own, will reduce the expenses incident to a
follow-up solicitation of proxies.
If you have any questions about voting your shares, please telephone
Escala at (212) 421-9400.
Sincerely,
[GRAPHIC OMITTED][GRAPHIC OMITTED]
MARTHA HUSICK
Secretary
New York, New York
October 27, 2005
31
PROXY CARD
ESCALA GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned stockholder of Escala Group, Inc. ("Escala") hereby
revokes all previous proxies, acknowledges receipt of the notice of annual
meeting of stockholders and the related proxy statement, and appoints Jose
Miguel Herrero and Larry Crawford, and each of them, as proxies of the
undersigned, with full power of substitution to vote all shares of Escala's
common stock that the undersigned is entitled to vote at the annual meeting of
stockholders to be held at the offices of Kramer Levin Naftalis & Frankel
located at 1177 Avenue of the Americas, New York, NY 10036, on Wednesday,
December 14, 2005, at 10:00 AM Eastern Standard Time, and at any adjournments
thereof. The shares represented by the proxy may only be voted in the manner
specified below.
1. To elect three directors to serve for terms of three years and until their
respective successors have been duly elected and qualified.
FOR To WITHHOLD authority to vote for any nominees, enter their
name or names below:
Mark B. Segall |_| _____________________________________________
Gregory N. Roberts |_| _____________________________________________
Jose Miguel Herrero |_| _____________________________________________
2. To approve the Greg Manning 2000 Plan Incentive Compensation Program.
FOR |_| AGAINST |_| ABSTAIN |_|
3. To approve the Jose Miguel Herrero Incentive Compensation Program.
FOR |_| AGAINST |_| ABSTAIN |_|
4. To ratify the appointment of Amper, Politziner & Mattia P.C. as Escala's
independent registered public accounting firm for the fiscal year ending
June 30, 2006.
FOR |_| AGAINST |_| ABSTAIN |_|
5. To conduct such other matters incident to the conduct of the meeting,
including any adjournment or adjournments thereof.
FOR |_| AGAINST |_| ABSTAIN |_|
The Board of Directors recommends you vote "FOR" the above proposals.
32
This proxy when properly executed will be voted in the manner directed
above. In the absence of direction for the above proposal, this proxy will be
voted "FOR" that proposal.
(Continued on the other side.)
33
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please print the stockholder name exactly as it appears on this proxy. If
the shares are registered in more than one name, the signature of each person in
whose name the shares are registered is required. A corporation should sign in
its full corporate name, with a duly authorized officer signing on behalf of the
corporation and stating his or her title. Trustees, guardians, executors, and
administrators should sign in their official capacity, giving their full title
as such. A partnership should sign in its partnership name, with an authorized
person signing on behalf of the partnership.
Dated: ____________, 2005
__________________________________________
(Print Name)
__________________________________________
(Authorized Signature)
I plan to attend the annual meeting in person:
|_| Yes
|_| No
34
Exhibit A
ESCALA GROUP, INC.
Amended and Restated Audit Committee Charter
This Audit Committee Charter ("Charter") has been adopted by the Board of
Directors (the "Board") of Escala Group, Inc. (the "Company"). The Audit
Committee of the Board (the "Committee") shall review and reassess the adequacy
of this Charter annually and recommend any proposed changes to the Board for
approval.
Membership; Organization
The membership of the Committee shall consist of three or more directors
as determined by the Board, each of whom shall be free of any relationship that,
in the opinion of the Board, may interfere with such member's individual
exercise of independent judgment. Each Committee member shall also meet the
independence requirements for serving on audit committees as set forth in the
listing standards of the Nasdaq National Market (the "Nasdaq"). In addition,
each Committee member shall meet the requirements for "financial literacy" and
at least one member shall have "accounting or related financial management
expertise", as such terms are defined in the applicable listing standards of the
Nasdaq.
Members of the Committee shall be appointed by the Board. The Board may
remove members of the Committee with or without cause at any time. Unless a
chairman of the Committee is appointed by the Board, the members of the
Committee shall elect a chairman of the Committee by majority vote of the full
Committee membership. The chairman shall be responsible for leadership of the
Committee, including scheduling and presiding over meetings, preparing agendas,
making regular reports to the Board, and maintaining regular liaison with the
Chief Executive Officer, Chief Financial Officer, the lead independent audit
partner, and the director of internal audit.
The Committee shall meet at least four times annually or more frequently
as circumstances dictate. A majority of the members shall constitute a quorum.
If a quorum is present, a majority of the members present shall decide any
question brought before the Committee. The chairman of the Committee may call a
meeting of the Committee upon due notice to each other member at least
twenty-four hours prior to the meeting and any member of the Committee may do so
upon due notice at least forty-eight hours prior to the meeting.
The Committee shall maintain free and open communication (including
private executive sessions at least annually) with the independent auditors, the
internal auditors, and Company management. In discharging its oversight role,
the Committee shall have full access to all Company books, records, facilities,
personnel, and outside professionals. The Committee may retain such independent
counsel and other advisors as it determines are necessary to carry out its
duties. The Company shall provide such funding as the Committee determines is
appropriate in connection with the retention of such advisors and the
compensation of any independent auditor for audit, review or attest services, as
well as for the ordinary administrative expenses of the Committee in carrying
out its duties. Each member of the Committee shall be entitled to rely on (i)
the integrity of those persons and organizations within and outside the Company
from which it receives information, (ii) the accuracy of the financial and other
information provided by such persons or organizations absent actual knowledge to
the contrary (which shall be promptly reported to the Board), and (iii)
representations made by management as to all audit and non-audit services
provided by the auditors to the Company.
1
Responsibilities
The Committee is directly responsible for the appointment, compensation,
retention and oversight of the work of any independent auditor engaged
(including resolution of disagreements between management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company.
Each such firm shall report directly to the Committee. The Committee shall also
be responsible for overseeing the accounting and financial reporting processes
of the Company and the audits of the financial statements of the Company.
The Committee and the Board recognize that management (including the
internal audit staff) and the independent auditors have more resources and time
and more detailed knowledge and information regarding the Company's accounting,
financial and auditing practices than do Committee members. The Committee's job
is one of oversight. Management is responsible for the preparation,
presentation, and integrity of the Company's financial statements. Management
and the internal auditing department are responsible for maintaining appropriate
accounting and financial reporting principles and practices and internal
controls and procedures designed to assure compliance with accounting standards
and applicable laws and regulations. The independent auditors are responsible
for auditing the annual financial statements, reviewing the Company's quarterly
financial statements prior to the filing of each quarterly report on Form 10-Q,
and other procedures.
Although the Board and the Committee may wish to consider other duties
from time to time, the general recurring activities of the Committee in carrying
out its oversight role are described below. The Committee shall be responsible
for:
o Retaining the independent auditors to audit the annual financial
statements of the Company (subject to stockholder ratification, if
applicable) and review the quarterly financial statements of the Company.
Although the Committee has the sole authority to appoint the independent
auditor, the Committee will continue the longstanding practice of
recommending that the Board ask the Company's stockholders at their annual
meeting to approve the Committee's selection of independent auditor.
o Evaluating the performance of the independent auditors, determining the
compensation of the independent auditors and, where appropriate,
recommending the replacement of such auditors.
o Either (i) approving, in advance, the engagement of the independent
auditors to perform any audit or permissible non-audit service or (ii)
establishing pre-approval policies and procedures for such services in
accordance with Rule 2-01(c)(7) of Regulation S-X. The Committee shall not
approve the engagement of the independent auditors to render any of the
non-audit services which are prohibited by Rule 2-01(c)(4) of Regulation
S-X.
o Annually obtaining from the independent auditors a formal written
statement describing all relationships between the auditors and the
Company, addressing the matters set forth in Independence Standards Board
Standard No. 1. The Committee shall actively engage in a dialogue with the
independent auditors with respect to any disclosed relationships that may
impact the objectivity and independence of the auditors and shall consider
whether the independent auditors' provision of permissible non-audit
services to the Company, if any, is compatible with the auditors'
independence. The Committee shall take appropriate actions to satisfy
itself as to the auditors' independence.
o Reviewing the audited financial statements and discussing them with
management and the independent auditors. These discussions shall include
the matters required to be discussed under Statement of Auditing Standards
No. 61, as modified or supplemented, and consideration of the quality of
the Company's accounting principles as applied in its financial reporting.
Such discussions may include a review of particularly sensitive accounting
estimates, reserves and accruals, review of judgmental areas, review of
audit adjustments, review of risk exposures that may have a material
2
impact on the Company's financial statements and the steps management has
taken to monitor and control such exposures, and other such inquiries as
the Committee or the independent auditors shall deem appropriate. Based on
its review, the Committee shall make its recommendation to the Board as to
the inclusion of the Company's audited financial statements in the
Company's Annual Report on Form 10-K (or the Annual Report to
Stockholders, if distributed prior to the filing of the Form 10-K).
o Obtaining from the independent auditors timely (in accordance with Rule
2-07 of Regulation S-X) reports regarding critical accounting policies and
procedures to be used in an audit, all alternative treatments within GAAP
for policies and practices related to material items that have been
discussed with management (including the ramifications of the use of the
alternative disclosures and treatments and the treatment preferred by the
independent auditors), and other material written communications between
the independent auditors and management (such as any management letters
provided by the auditors and any Company response to such letters and any
schedules of unadjusted differences).
o Preparing annually a report to be included in the Company's proxy
statement as required by the rules of the Securities and Exchange
Commission, and submitting such report to the Board for approval.
o Overseeing the relationship with the independent auditors, including
discussing with the auditors the planning and staffing of the audit and
the nature and rigor of the audit process, receiving and reviewing audit
reports, reviewing with the auditors any problems or difficulties the
auditors may have encountered in carrying out their responsibilities, and
providing the auditors full access to the Committee and the Board to
report on all appropriate matters.
o Providing oversight of the Company's auditing, accounting and financial
reporting principles, policies, controls, procedures and practices, and
reviewing significant changes to the foregoing as suggested by the
independent auditors, internal auditors or management.
o Reviewing with management and the independent auditors the interim
financial information prior to the Company's filing of each Form 10-Q;
this review shall be done by the Committee as a whole or through the
Committee chairman.
o Annually obtaining from the independent auditors a formal written
statement of the fees billed for audit services, audit-related services,
tax services and all other services rendered by the independent auditors
for the most recent fiscal year, as well as the nature of the services
comprising the fees disclosed under each category other than audit fees,
the percentage of hours expended on the audit engagement that were
attributed to persons other than the auditors' full-time, permanent
employees (if greater than 50%) and the percentage of services under each
category (other than audit fees) that were approved by the Committee after
the provision of services under the "de minimis" safe harbor of Rule
2-01(c)(7) of Regulation S-X.
o Reviewing and approving all "related party" transactions which would be
required to be disclosed under Item 404 of Regulation S-K.
o Discussing with management, the internal auditors and the independent
auditors the quality and adequacy of the Company's internal audit controls
and procedures and the internal audit function's organization,
responsibilities, plans, results, budget and staffing, as well as
providing oversight to internal audit activities, including review of
significant reports prepared by the internal auditors, and management's
response.
o Reviewing any disagreements between management and the independent auditor
in connection with the preparation of the financial statements. The
Committee shall resolve any disagreements between management and the
independent auditor regarding financial reporting. The
3
Committee shall review any significant difficulties reported by the
independent auditor in conducting the audit, including any restrictions on
the scope of work or access to required information.
o Discussing with management and/or the Company's general counsel any legal
matters (including the status of pending litigation) that may have a
material impact on the Company's financial statements, and any material
reports or inquiries from regulatory or governmental agencies.
o Evaluating the rotation of the independent auditor as well as the rotation
of the lead audit and reviewing partners at the independent auditor. The
Committee shall confirm, in consultation with the independent auditor,
that the lead audit and reviewing partners assigned by the independent
auditor have been rotated in compliance with Rule 2-01(c)(6) of Regulation
S-X.
o Establishing and maintaining procedures for the receipt, retention and
treatment of complaints regarding accounting, internal accounting or
auditing matters.
o Establishing and maintaining procedures for the confidential, anonymous
submission by Company employees regarding questionable accounting or
auditing matters.
o Reviewing and investigating any matters pertaining to the integrity of
management, including conflicts of interests or adherence to standards of
business conduct as required in the Company's policies, including the
Company's Code of Ethics for the Chief Executive Officer and senior
financial officers and any other code of business conduct that may be in
effect from time to time. The Committee shall review and assess the
adequacy of all such codes from time to time.
o Reviewing and recommending appropriate insurance coverage for directors
and officers.
o Reporting its activities to the full Board and making such recommendations
with respect to the above and any other matters as the Committee may deem
necessary or appropriate.
4
Exhibit B
ESCALA GROUP, INC.
Compensation Committee Charter
Role
- ----
The Compensation Committee's role is to discharge the Board's responsibilities
relating to compensation of the Company's executives, to produce an annual
report on executive compensation for inclusion in the Company's proxy statement,
and to oversee and advise the Board on the adoption of policies that govern the
Company's compensation programs, including stock and benefit plans.
Membership
- ----------
The membership of the Committee consists of at least three directors, at least
two of whom is to be free of any relationship that, in the opinion of the Board,
would interfere with his or her exercise of independent judgment. Applicable
laws and regulations will be followed in evaluating a member's independence. The
Board appoints the chairperson. Each member of the Committee shall have
experience in general management, law, finance and knowledge of the Company.
Operations
- ----------
The Committee meets at two times a year. Additional meetings may occur as the
Committee or its chair deems advisable. The Committee will cause to be kept
adequate minutes of all its proceedings, and will report its actions to the next
meeting of the Board. Committee members will be furnished with copies of the
minutes of each meeting and any action taken by unanimous consent. The
Compensation Committee is governed by the same rules regarding meetings
(including meetings by conference telephone or similar communications
equipment), action without meetings, notice, waiver of notice, and quorum and
voting requirements as are applicable to the Board. The Committee is authorized
to adopt its own rules of procedure not inconsistent with (a) any provision of
this Charter, (b) any provision of the Bylaws of the Company, or (c) the laws of
the state of Delaware.
Authority
- ---------
The Committee will have the resources and authority necessary to discharge its
duties and responsibilities, including the authority to retain outside counsel
or other experts or consultants, as it deems appropriate. Any communications
between the Committee and legal counsel in the course of obtaining legal advice
will be considered privileged communications of the Company and the Committee
will take all necessary steps to preserve the privileged nature of those
communications.
Responsibilities
- ----------------
The principal responsibilities and functions of the Compensation Committee
are as follows:
1. Review the competitiveness of the Company's executive compensation
programs to ensure (a) the attraction and retention of corporate officers,
(b) the motivation of corporate officers to achieve the Company's business
objectives, and (c) to align the interest of key leadership with the
long-term interests of the Company's shareholders.
2. Review trends in management compensation, oversee the development of new
compensation plans and, when necessary, approve the revision of existing
plans.
3. Review the performance of executive management.
4. Review and approve CEO goals and objectives, evaluate CEO performance in
light of these corporate objectives, and recommend to the Board for
approval CEO compensation levels consistent with company philosophy.
1
5. Recommend to the Board for approval the salaries, bonus and other
compensation for all executive officers of the Company (including the CEO
and new executive officers).
6. Recommend to the Board for approval termination packages for executive
officers (including the CEO).
7. Review and approve the awards made under any executive officer bonus plan,
and provide an appropriate report to the Board.
8. Review and approve all compensation to Board members and members of
Committees of the Board, with due regard to the motivation of directors,
the alignment of directors' interests with those of the shareholders and
practices at comparable companies.
9. Develop and oversee an overall evaluation process and compensation
structure for the Company at large with respect to senior officers;
oversee management's implementation of such process.
10. Review and discuss with the Board and executive officers plans for officer
development and corporate succession plans for the CEO and other executive
officers.
11. Produce an annual Report of the Compensation Committee on Executive
Compensation for the Company's annual proxy statement in compliance with
applicable Securities and Exchange Commission rules and regulations and
relevant listing authority.
12. Review and make recommendations concerning long-term incentive
compensation plans, including the use of stock options and other
equity-based plans for all directors and executive officers. The Committee
will act on behalf of the Board as the "Committee" established to
administer equity-based and employee benefit plans to directors and
executive officers, and as such will discharge any responsibilities
imposed on the Committee under those plans, including making and
authorizing grants, in accordance with the terms of those plans (it being
understood that the "Stock Option Committee" will serve such function with
respect to all other employees of and consultants to the Company).
13. Annually evaluate the Committee's performance and this Charter.
2
Exhibit C
ESCALA GROUP, INC.
Nominating Committee Charter
Process for Identifying Candidates for Director
- -----------------------------------------------
1. The Committee shall formulate a process to identify candidates to be
recommended to the Board for nomination as directors.
2. This process shall at a minimum-
o reflect the minimum qualifications that in the view of the Committee
are required for membership on the Board;
o reflect any additional qualifications that in the view of the
Committee are required of one or more members of the Board;
o provide for the consideration of the qualifications, performance and
contributions of incumbent Board members who consent to re-election;
o provide for the identification and evaluation of potential nominees
for positions for which the Committee does not select qualified
incumbents for re-election; and
o provide for appropriate documentation of the nominations process.
3. The Company is of the view that the continuing service of qualified
incumbents promotes stability and continuity in the board room, giving the
Company the benefit of the familiarity and insight into the Company's
affairs that its directors have accumulated during their tenure, while
contributing to the Board's ability to work as a collective body.
Accordingly, the process of the Committee for identifying nominees shall
reflect the Company's practice of re-nominating incumbent directors who
continue to satisfy the Committee's criteria for membership on the Board,
whom the Committee believes will continue to make important contributions
to the Board and who consent to continue their service on the Board.
Policy and Procedures Regarding Nominating Recommendations of Security Holders
- ------------------------------------------------------------------------------
1. The Committee shall formulate and recommend for adoption to the full Board
a policy regarding consideration of nominees for election to the Board of
Directors who are recommended by security holders of the Company.
2. The policy shall state at a minimum that the Committee will consider
candidates nominated by stockholders of the Company.
3. The policy shall contain any other elements that the Committee deems
appropriate. These elements may include requirements relating to share
ownership of recommending security holders; qualifications of recommended
candidates; and compliance with procedures for submission of
recommendations.
4. The Committee shall adopt procedures for the submission of stockholder
nominating recommendations to the Committee, consistent with the policy
adopted by the Board. These procedures shall at a minimum include
requirements and specifications relating to-
o the timing for submission of recommendations;
3
o the manner of submission of recommendations;
o information required to be provided concerning the recommending
stockholder;
o information required to be provided concerning the proposed nominee;
o the consent of the proposed nominee to be contacted and interviewed
by the Committee; and
o the consent of the proposed nominee to serve if nominated and
elected.
Procedures for Security Holder Communications with the Board
- ------------------------------------------------------------
1. It is the policy of the Company to facilitate security holder
communications to the Board.
2. The Committee shall formulate procedures for security holders to send
communications to the Board. These procedures shall at a minimum include
requirements and specifications relating to-
o the manner in which communications may be sent to the directors;
o any information required to be provided concerning the communicating
security holder or other party;
o the process for collecting and organizing communications; and
o the manner and timing of delivery of communications to the
directors.
Policy on Director Attendance at Annual Meetings
- ------------------------------------------------
1. The Committee shall formulate and recommend to the Board for adoption a
policy regarding attendance of directors at annual meetings of the
Company' stockholders.
2. The policy may provide for attendance of directors by appropriate means of
electronic conferencing.
4
Exhibit D
Greg Manning 2000 Plan Incentive Compensation Program
1. Introduction.
------------
This Greg Manning Incentive Compensation Program (the "Program") is
established by Escala Group, Inc. (the "Company") to provide Greg Manning
("Executive") with "performance-based compensation" during his employment within
the meaning of Section 162(m)(4) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Program has been approved by a committee of the
Company's Board of Directors comprised solely of at least two independent
directors (the "Committee") and is subject to approval by the shareholders of
the Company. Prior to any payment under the Program, the Committee shall certify
the amount of the Performance Bonus (as defined below) and/or the Long-Term
Incentive Award (as defined below) to which Executive is entitled.
This Program is an Annex to the employment and consulting agreement
between Executive and the Company, dated as of ________ (the "Employment
Agreement"), and the provisions of the Employment Agreement, including without
limitation, with respect to arbitration of disputes, shall apply to this Program
to the extent not inconsistent with the terms of the Program.
2. Performance Bonus.
-----------------
The Company shall pay Executive an annual performance cash bonus (the
"Performance Bonus") for each fiscal year during the Term (as defined in the
Employment Agreement) equal to (A) an amount equal to the sum of (i) 10% of the
Divisional Pre-Tax Income (as defined below) and (ii) 1% of the Company Pre-Tax
Income (as defined below), divided by (B) 2; provided, however, that in no event
shall the total Performance Bonus exceed $250,000.
(a) The term "Divisional Pre-Tax Income" shall mean the net income of the
Company's North American and Asian Philatelic Auction Division before taxes and
deductions for any bonus paid under the Program, as determined by the Company in
accordance with its standard accounting practices. Allocations of expenses
between divisions of the Company shall be determined by the Company in
accordance with its standard practices.
(b) The term "Company Pre-Tax Income" shall mean the net income of the
Company before taxes and deductions for any bonus paid under the Program, less
the Divisional Pre-Tax Income, all as determined by the Company in accordance
with its standard accounting practices.
(c) The Performance Bonus shall be paid within thirty days following the
issuance of financial statements for the fiscal year in respect of which such
bonus is payable, provided that in no event shall the Performance Bonus be paid
later than the March 14 next occurring following the end of such fiscal year.
(d) Except as provided below, Executive must be employed by the Company on
the last day of the fiscal year to be eligible for the Performance Bonus.
3. Long-Term Incentive Award.
-------------------------
(a) The Company will pay to Executive in shares of the Company's common
stock an amount equal to 50% of the Appreciation in Stock Price (as defined
below) for 100,000 shares of common stock of the Company. The "Appreciation in
Stock Price" shall mean the appreciation, if any, between (1) the closing price
of the common stock of the Company on July 1, 2005, and (2) the Average Closing
Price (as defined below) for the period between June 1, 2008 and June 30, 2008.
1
(b) Payment of the Long-Term Incentive Award, if any, shall be made on
July 31, 2008; provided, however, that if necessary to comply with Section
409A(a)(2)(B)(i) of the Code, and applicable administrative guidance and
regulations, such payment shall be made on December 31, 2008. The number of
shares payable to Executive shall be based on the closing price of the Company's
common stock on June 30, 2008.
(c) Except as provided below, Executive must be employed by the Company on
June 30, 2008 to be eligible for the Long-Term Incentive Award.
4. Termination of Employment.
-------------------------
(a) Subject to Sections 4(c) and 4(d) below, if Executive's employment
terminates by reason of Executive's death or becoming Totally Disabled (as
defined in the Employment Agreement) or is terminated by the Company without
Cause (as defined in Section 4(c) of the Employment Agreement), Executive shall
be entitled to:
(i) any Performance Bonus not yet paid for any fiscal year ending
prior to the date of Executive's termination of employment
(payable as and when such bonus would have been paid had
Executive's employment continued);
(ii) a prorated portion of the Performance Bonus for the fiscal
year in which Executive's employment terminated, based on the
number of days Executive was employed by the Company in such
fiscal year (the Performance Bonus to be otherwise calculated
and paid in accordance with, and subject to, the Program); and
(iii) payment of the Long-Term Incentive Award in accordance with,
and subject to, Section 3 of the Program, provided that in
such a case the Appreciation in Stock Price shall be the
appreciation, if any, between (1) the closing price of the
common stock of the Company on July 1, 2005, and (2) the
Average Closing Price for the 30-day period preceding the date
of termination of employment. Payment of the Long-Term
Incentive Award, if any, shall be made thirty days following
the date of termination of employment; provided, however, if
necessary to comply with Section 409A(a)(2)(B)(i) of the Code,
and applicable administrative guidance and regulations, such
payment shall be made six months following the date of
termination of employment.
(b) If Executive's employment is terminated by the Company for Cause (as
defined in Section 4(c) of the Employment Agreement) or is terminated by
Executive, Executive shall be entitled only to any Performance Bonus not yet
paid for any fiscal year ending prior to the date of Executive's termination of
employment (payable as and when such bonus would have been paid had Executive's
employment continued).
(c) The payment of any amounts pursuant to Sections 4(a)(ii) and (iii)
hereof is expressly conditioned upon the delivery by Executive to the Company of
a release in form and substance satisfactory to the Company of any and all
claims Executive may have against the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives arising out of or related to Executive's employment by the
Company and the termination of such employment.
(d) If, at the time of termination of Executive's employment for any
reason, Executive is in material breach of any covenant contained in Section 7
of the Employment Agreement, Executive (or his estate, as applicable) shall not
be entitled to any payment (or if payments have commenced, any continued
payment) under Sections 4(a)(ii) and (iii) hereof.
2
5. Average Closing Price.
---------------------
For purposes of the Program, "Average Closing Price" with respect to a
specified period of time shall mean the average of closing prices of the
Company's common stock as reported in the Wall Street Journal for those dates
during the specified period on which the national stock exchanges are open for
business.
3
Exhibit E
Jose Miguel Herrero Incentive Compensation Program
1. Introduction.
------------
This Jose Miguel Herrero Incentive Compensation Program (the "Program") is
established by Greg Manning Auctions, Inc. (the "Company") to provide Jose
Miguel Herrero ("Executive") with "performance-based compensation" within the
meaning of Section 162(m)(4) of the Internal Revenue Code of 1986, as amended
(the "Code"). The Program has been approved by a committee of the Company's
Board of Directors comprised solely of at least two independent directors (the
"Committee") and is subject to approval by the shareholders of the Company.
Prior to any payment under the Program, the Committee shall certify the amount
of the Performance Bonus (as defined below) and/or the Long-Term Incentive Award
(as defined below) to which Executive is entitled.
This Program is an Annex to the employment agreement between Executive and
the Company, dated as of September 27, 2005 (the "Employment Agreement"), and
the provisions of the Employment Agreement, including without limitation, with
respect to arbitration of disputes, shall apply to this Program to the extent
not inconsistent with the terms of the Program.
2. Performance Bonus.
-----------------
The Company shall pay Executive an annual performance cash bonus (the
"Performance Bonus") for each fiscal year during the Term equal to (1) the
lesser of 1% of the Company Pre-Tax Income (as defined below) and $400,000 (the
"Base Bonus Amount"), (2) as adjusted by the Performance Bonus Adjustment (as
defined below), if any.
(a) The term "Company Pre-Tax Income" shall mean the net income of the
Company before taxes and deductions for any bonus paid under the Program,
determined by the Company in accordance with its standard accounting practices.
(b) The term "Performance Bonus Adjustment" shall mean (1) if the Average
Closing Price (as defined below) for the Company's common stock for the
thirty-day period ending on the last day of the fiscal year is at least 15%
greater than the Average Closing Price for the thirty-day period ending on the
first day of the fiscal year, then the Base Bonus Amount shall be increased by
15%; (2) if the Average Closing Price for the thirty-day period ending on the
last day of the fiscal year is less than 15% greater than the Average Closing
Price for the thirty-day period ending on the first day of the fiscal year (but
has increased over such period), then the Base Bonus Amount shall not be
adjusted; and (3) if the Average Closing Price for the thirty-day period ending
on the last day of the fiscal year is less than the Average Closing Price for
the thirty-day period ending on the first day of the fiscal year, then the Base
Bonus Amount shall be decreased by 15%.
(c) The Performance Bonus shall be paid within thirty days following the
issuance of financial statements for the fiscal year in respect of which such
bonus is payable, provided that in no event shall the Performance Bonus be paid
later than the March 14 next occurring following the end of such fiscal year.
(d) Except as provided below, Executive must be employed by the Company on
the last day of the fiscal year to be eligible for the Performance Bonus.
3. Long-Term Incentive Award.
-------------------------
(a) The Company will pay to Executive in shares of the Company's common
stock (the "Long-Term Incentive Award") an amount equal to the greater of:
1
(i) (A) the product of (1) 1/2, multiplied by (2) 200,000,
multiplied by (3) the appreciation in stock price, if any, between (x) the
closing price of the common stock of the Company on July 1, 2005, and (y)
the Average Closing Price for the period between June 1, 2008 and June 30,
2008, minus (B) $300,000; and
(ii) the sum of
(A) the product of (1) 1/2, multiplied by (2) 200,000,
multiplied by (3) 1/3, multiplied by (4) the
appreciation in stock price, if any, between (x) the
closing price of the common stock of the Company on July
1, 2005, and (y) the Average Closing Price for the
period between June 1, 2006 and June 30, 2006, plus
(B) the product of (1) 1/2, multiplied by (2) 200,000,
multiplied by (3) 1/3, multiplied by (4) the
appreciation in stock price, if any, between (x) the
closing price of the common stock of the Company on July
1, 2005, and (y) the Average Closing Price for the
period between June 1, 2007 and June 29, 2007, plus
(C) the product of (1) 1/2, multiplied by (2) 200,000,
multiplied by (3) 1/3, multiplied by (4) the
appreciation in stock price, if any, between (x) the
closing price of the common stock of the Company on July
1, 2005, and (y) the Average Closing Price for the
period between June 1, 2008 and June 30, 2008,
minus $300,000.
(b) Payment of the Long-Term Incentive Award, if any, shall be made on
July 31, 2008; provided, however, that if necessary to comply with Section
409A(a)(2)(B)(i) of the Code, and applicable administrative guidance and
regulations, such payment shall be made on December 31, 2008. The number of
shares payable to Executive shall be based on the closing price of the Company's
common stock on June 30, 2008.
(c) Except as provided below, Executive must be employed by the Company on
June 30, 2008 to be eligible for the Long-Term Incentive Award.
4. Termination of Employment.
-------------------------
(a) Subject to Sections 4(c) and 4(d) below, if Executive's employment
terminates for any reason other than by the Company for Cause or by the
Executive without Good Reason (as each such term is defined in the Employment
Agreement), Executive shall be entitled to:
(i) any Performance Bonus not yet paid for any fiscal year ending
prior to the date of Executive's termination of employment (payable as and
when such bonus would have been paid had Executive's employment
continued);
(ii) a prorated portion of the Performance Bonus for the fiscal
year in which Executive's employment terminated, based on the number of
days Executive was employed by the Company in such fiscal year (the
Performance Bonus to be otherwise calculated and paid in accordance with,
and subject to, the Program); and
(iii) payment of the Long-Term Incentive Award in accordance with,
and subject to, Section 3 of the Program, provided that in such a case the
Company will pay to Executive in shares of the Company's common stock an
amount equal to (A) the product of (1) 1/2, multiplied
2
by (2) 200,000, multiplied by (3) the appreciation in stock price, if any,
between (x) the closing price of the common stock of the Company on July
1, 2005, and (y) the Average Closing Price for the 30-day period preceding
the date of termination, minus (B) $300,000. Payment of the Long-Term
Incentive Award, if any, shall be made thirty days following the date of
termination; provided, however, if necessary to comply with Section
409A(a)(2)(B)(i) of the Code, and applicable administrative guidance and
regulations, such payment shall be made six months following the date of
termination.
(b) If Executive's employment is terminated by the Company for Cause or by
Executive without Good Reason, Executive shall be entitled only to any
Performance Bonus not yet paid for any fiscal year ending prior to the date of
Executive's termination of employment (payable as and when such bonus would have
been paid had Executive's employment continued).
(c) The payment of any amounts pursuant to Sections 4(a)(ii) and (iii)
hereof is expressly conditioned upon the delivery by Executive to the Company of
a release in form and substance reasonably satisfactory to the Company of any
and all claims Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of or related to Executive's
employment by the Company and the termination of such employment.
(d) If, at the time of termination of Executive's employment for any
reason, Executive is in material breach of any covenant contained in Section 6
of the Employment Agreement, Executive (or his estate, as applicable) shall not
be entitled to any payment (or if payments have commenced, any continued
payment) under Sections 4(a)(ii) and (iii) hereof.
5. Average Closing Price.
---------------------
For purposes of the Program, "Average Closing Price" with respect to a
specified period of time shall mean the average of closing prices of the
Company's common stock as reported in the Wall Street Journal for those dates
during the specified period on which the national stock exchanges are open for
business.
3