-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G+Wyy0zMZ4uPOtJHTNsMMSIcxy6NOM7Rm3CqxIDGHjv1mJHvOaw+Ef1/PgJyInlX EtXPS5uxIkbmIByAkhcgJw== 0000950152-01-000032.txt : 20010122 0000950152-01-000032.hdr.sgml : 20010122 ACCESSION NUMBER: 0000950152-01-000032 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001215 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL AUTO CREDIT INC /DE CENTRAL INDEX KEY: 0001004981 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 341816760 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11601 FILM NUMBER: 1500785 BUSINESS ADDRESS: STREET 1: 30000 AURORA RD CITY: SOLON STATE: OH ZIP: 44139 BUSINESS PHONE: 4403491000 MAIL ADDRESS: STREET 1: 30000 AURORA RD CITY: SOLON STATE: OH ZIP: 44139 FORMER COMPANY: FORMER CONFORMED NAME: NEW NAC INC DATE OF NAME CHANGE: 19951214 8-K 1 l85759ae8-k.txt NATIONAL AUTO CREDIT, INC. 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: December 15, 2000 NATIONAL AUTO CREDIT, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 1-11601 34-1816760 ----------- ---------- --------------- (State or other jurisdiction (Commission File No.) (Employer Identification No.) of incorporation) 30000 Aurora Road, Solon, Ohio 44139 ---------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (440) 349-1000 --------------- 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS ZOOMLOT TRANSACTION On December 15, 2000, National Auto Credit, Inc., a Delaware corporation ("NAC" or the "Company"), entered into a Merger Agreement and Plan of Reorganization (the "Merger Agreement") to acquire ZoomLot Corporation , a Delaware corporation, together with its subsidiaries (collectively, "ZoomLot"). The transaction is intended to be a tax-free reorganization for federal income tax purposes with ZoomLot Corporation merging with and into ZLT Acquisition Corp. ("ZLT"), a Delaware corporation and a wholly owned subsidiary of NAC, with ZLT continuing as the surviving entity of the merger. As part of the merger, ZLT changed its name to "ZoomLot Corporation" (hereinafter the survivor is referred to as "ZLT/ZoomLot"). ZoomLot provides business-to-business e-commerce services to independent or non-franchised used-car dealerships, financing and insurance companies and other participants in the used-car industry. ZoomLot's services are designed to enable such dealerships and lenders and insurance companies to identify each other for the purpose of providing the used-car dealer's customers with financing and insurance. Under the terms of the Merger Agreement, NAC has agreed to issue to the former ZoomLot shareholders 270,953 shares of its Series B preferred stock and 729,047 shares of its Series C preferred stock. Subject to certain conditions, the shares of the Series B preferred stock will be convertible into, or will automatically convert into, shares of NAC's common stock ("Common Stock") at the ratio (subject to adjustment for stock splits and other anti-dilutive events) of 10 shares of Common Stock for each share of preferred stock. So long as at least two hundred and five thousand (205,000 shares) of Series B preferred stock are issued and outstanding, the holders of shares of Series B preferred stock, voting separately as a class, will be entitled to nominate and elect the lesser of (i) two (2) members to the Board of Directors or (ii) a number of directors that would represent one-sixth (1/6) of the entire membership of the Board; and for so long as at least one hundred and ten thousand (110,000) shares of Series B preferred stock are issued and outstanding, the holders of shares of Series B preferred stock, voting separately as a class, shall be entitled to nominate and elect one (1) member to the Board. Subject to certain conditions, the shares of Series C preferred stock will be redeemable at the option of the holder thereof, or at the option of NAC, for a price per share equal to 10 times (subject to adjustment for stock splits and other anti-dilutive events) the then market price of a share of Common Stock. No voting rights will attach to the Series C preferred stock. No dividend payments will be made with respect to any share of Common Stock unless a dividend in an amount equal to ten (10) times the amount of the dividend payable with respect to a share of Common Stock is paid with respect to each share of the Series B and C preferred stock. Also, in the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of shares of Series B and C preferred stock will be entitled to receive an amount per share equal to ten (10) 3 times the amount payable per share of Common Stock upon such liquidation, dissolution or winding up. The foregoing is a summary description of certain rights and preferences of the Series B and C preferred stock and by its nature is incomplete. It is subject to the more complete description set forth in the Certificate of Designations of Series B and Series C preferred stock of National Auto Credit, Inc. as set forth in a resolution duly adopted by the Board of Directors of National Auto Credit, Inc. The Certificate of Designations is filed with this Current Report as Exhibit 4.1. Certain terms and characteristics of the Series B and C preferred stock were established in order that the merger transaction not violate, or trigger the termination of, a Stock Purchase and Standstill Agreement dated as of November 3, 2000 between NAC and Reading Entertainment Inc. and certain of its affiliates. As discussed below that agreement was, in a separate transaction, terminated after the Merger Agreement was entered into between NAC and the ZoomLot shareholders. As a result, the parties have had subsequent discussions relating to modifying certain terms and characteristics of the Series B and/or C preferred stock, as well as certain other terms and conditions of the merger transaction, and management believes that certain of those terms and characteristics are likely to be modified. 666,667 shares of the Series C preferred stock will be subject to forfeiture under certain conditions. Specifically, one half of those shares will be forfeited, if, by December 31, 2003, ZLT/ZoomLot has not achieved at least $4.5 million in earnings before interest, taxes, depreciation and amortization for a period of twelve (12) consecutive months. The remaining one-half of those shares will be forfeited if, by December 31, 2003, ZLT/ZoomLot has failed to achieve such earnings and has also failed to break even on a cash basis for a minimum period of six (6) consecutive months. If, however, certain "valuation events" should occur prior to December 31, 2003, those financial performance objectives will be deemed to have been achieved. These valuation events generally consist of (a) transaction that would involve an investment in ZLT/ZoomLot or one of its subsidiaries of at least $10 million, where the pre-investment valuation of ZLT/ZoomLot or any subsidiary of ZLT/ZoomLot is at least $30 million, (b) a change in control of NAC or (c) the termination of the key executives of ZLT/ZoomLot without cause. During the forfeiture period, the stock will also be subject to a Lock-up, Standstill and Voting Agreement, discussed below, as a result of which the shares will be transferable only on the terms provided. In addition, under the terms of the Merger Agreement, NAC agreed to make at least $6.5 million in working capital available to ZLT/ZoomLot to facilitate the continued development of ZLT/ZoomLot. The obligation to provide this funding is conditioned on ZLT/ZoomLot meeting certain specified performance and development criteria. NAC has also committed to advance funds to ZLT/ZoomLot to enable it to repay approximately $5 million advanced to ZoomLot by certain of its affiliates. The terms of the merger provide that the funds advanced to ZLT/ZoomLot by NAC to repay the affiliate advances will be refunded to NAC, with interest, by certain of the former 4 ZoomLot shareholders if the financial performance criteria referred to above are not met and the valuation events referred to above do not occur by December 31, 2003. ANCILLARY AGREEMENTS A. Registration Rights Agreement On December 15, 2000 the Company entered into a Registration Rights Agreement (the "RRA") with the former shareholders of ZoomLot (the "Shareholders"). Pursuant to the terms of the RRA, such Shareholders have been granted certain registration rights with respect to the shares of NAC's stock received or to be received by them in connection with the ZoomLot merger. The foregoing is a summary description of certain terms and provisions of the RRA, and by its nature is incomplete. The RRA is filed with this Current Report as Exhibit 4.2. B. Lockup, Standstill and Voting Agreement On December 15, 2000, the Company entered into a Lockup, Standstill and Voting Agreement (the "Voting Agreement") with the "Shareholders. The Voting Agreement generally provides, INTER ALIA, that (i) until December 31, 2007 provided the Shareholders in the aggregate own beneficially in excess of 15% of the votes that could be cast by the holders of all NAC's outstanding voting stock each shareholder will vote all of his shares of voting securities issued by NAC on each and every matter that is submitted to the shareholders of NAC in the same proportions in which all other NAC Voting Shares voted on such matter are voted; and (ii) until June 30, 2003, each Shareholder agrees to abide by certain standstill and non-solicitation agreements; and (iii) until September 30, 2004 in the case of the forfeitable shares, and until June 30, 2002 in the case of the non-forfeitable shares, each Shareholder also agrees not to sell or otherwise dispose of any shares of NAC stock without the prior written consent of NAC. The foregoing is a summary description of certain terms and provisions of the Voting Agreement, and by its nature is incomplete. The Voting Agreement is filed with this Current Report as Exhibit 4.3. C. Employment Agreements Certain of the key former ZoomLot employees were required to execute Employment Agreements as a condition of the Merger. ITEM 5. OTHER EVENTS a) Repurchase of shares from Reading Entertainment Inc. and others. On December 15, 2000, NAC, together with National Cinemas, Inc., entered into an agreement (the "Repurchase Agreement") with Reading Entertainment, Inc., FA, Inc., Citadel Holding Corporation and Craig Corporation (the "Reading Stockholders") for the repurchase of 4,777,121 shares of NAC common stock for the sum of $8 million. 5 As part of the Repurchase Agreement, James J. Cotter and Scott A. Braly resigned from the Board of Directors. In addition, as part of the Repurchase Agreement, the terms or restrictions contained in the November 3, 2000 Stock Purchase and Standstill Agreement between NAC and the Reading Stockholders which were still in or had continuing effect were terminated. This repurchase transaction was completed on December 28, 2000. b) New Directors/Resignation of Directors The following Directors resigned from NAC's Board of Directors: Philip A. Sauder, James J. Cotter, Scott A. Braly and David L. Huber. None of the four departing directors resigned because of a disagreement with NAC on any matter relating to NAC's operations, policies or practices. Two new Directors were also added to the Board of Directors: Mallory Factor and Thomas F. Carney, Jr. c) Employment Agreement with James J. McNamara On December 15, 2000, NAC's Board of Directors approved an employment agreement, effective as of November 3, 2000, with James J. McNamara. Under the terms of that agreement, Mr. McNamara is employed as Chief Executive Officer until December 31, 2003, with a base salary of $500,000 per year and an annual bonus of at least $250,000, which may be increased based on NAC's achievement of certain performance milestones. Mr. McNamara has also received a lump-sum payment of $750,000 as a signing bonus and compensation for past services rendered to the Company and he will be entitled to an additional bonus in the amount of $1,000,000 in the event that NAC's Common Stock is listed on the NASDAQ Stock Market, the American Stock Exchange or the New York Stock Exchange. The employment agreement also provides Mr. McNamara with a grant of NAC Common Stock and options, with staggered vesting, to purchase an additional 750,000 shares of NAC Common Stock and for certain payments in the event of a termination without cause by NAC or a termination for good reason by Mr. McNamara. Mr. McNamara also holds the title of Chairman of the Board of Directors of the Company. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED It is impracticable to file the financial statements of ZoomLot required by Rule 3-05 of Regulation S-X at this date. Such financial statements will be 6 filed by amendment within 60 days of the date of the filing of this Report on Form 8-K. (B) PRO FORMA FINANCIAL INFORMATION It is impracticable to file the pro forma financial information required by Article 11 of Regulation S-X at this date. Such pro forma financial information will be filed by amendment within 60 days of the date of the filing of this Report on Form 8-K. (C) EXHIBITS (2) Merger Agreement and Plan of Reorganization by and among ZLT Acquisition Corp. ("ZLT"), a Delaware corporation and a wholly owned subsidiary of NAC; ZoomLot Corporation, a Delaware corporation, including all of its subsidiaries (collectively, "ZoomLot"); and (each of the following, a "Shareholder" and all of the following together, collectively, the "Shareholders") Ernest C. Garcia II, Verde Reinsurance Company, Ltd., a Nevis Island corporation, Ernie Garcia III 2000 Trust, Brian Garcia 2000 Trust, Ray Fidel, Steven Johnson, Mark Sauder, EJMS Investors Limited Partnership, an Arizona limited partnership, Colin Bachinsky, Chris Rompalo, Donna Clawson, Mary Reiner, and Kathy Chacon.; (4) 4.1 Certificate of Designations of Series B and C Preferred Stock of National Auto Credit, Inc. 4.2 Registration Righs Agreement 4.3 Lockup, Standstill and Voting Agreement (10) 10.1 Employment Agreement between NAC and James J. McNamara*. (99) 99.1 Stock Purchase and Standstill Agreement by and among Reading Entertainment, Inc., FA, Inc., Citadel Holding Corporation, Craig Corporation, and National Auto Credit; - -------- * Indicates a management contract or compensatory plan or arrangement required to be filed. 7 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 2, 2001 NATIONAL AUTO CREDIT, INC. (Registrant) By: /s/ JAMES J. MCNAMARA ------------------------------ JAMES J. MCNAMARA Chief Executive Officer 8 Exhibit - ------- 2 Merger Agreement and Plan of Reorganization by and among ZLT Acquisition Corp. ("ZLT"), a Delaware corporation and a wholly Owned subsidiary of NAC; ZoomLot Corporation, a Delaware Corporation, including all of its subsidiaries (collectively, "ZoomLot"); and (each of the following, a "Shareholder" and all of the following together, collectively, the "Shareholders") Ernest C. Garcia II, Verde Reinsurance Company, Ltd., A Nevis Island Corporation, Ernie Garcia III 2000 Trust, Brian Garcia 2000 Trust, Ray Fidel, Steven Johnson, Mark Sauder, EJMS Investors Limited Partnership, an Arizona limited partnership, Colin Bachinsky, Chris Rompalo, Donna Clawson, Mary Reiner, and Kathy Chacon 4.1 Certificate of Designations of Series B and C Preferred Stock of National Auto Credit, Inc. 4.2 Registration Rights Agreement 4.3 Lock-up, Standstill and Voting Agreement 10.1 Employment Agreement between NAC and James J. McNamara 99.1 Stock Purchase and Standstill Agreement by and among Reading Entertainment, Inc., FA, Inc., Citadel Holding Corporation, Craig Corporation, and National Auto Credit EX-2 2 l85759aex2.txt EXHIBIT 2 1 EXHIBIT 2 MERGER AGREEMENT AND PLAN OF REORGANIZATION THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION ("AGREEMENT") is made and entered into as of December 15, 2000, by and among: NATIONAL AUTO CREDIT, INC. ("NAC" or the "PARENT"), a Delaware corporation; ZLT ACQUISITION CORP. ("ZLT" or "MERGER SUB"), a Delaware corporation and a wholly owned subsidiary of Parent; ZOOMLOT CORPORATION ("ZOOMLOT" or the "ACQUIRED COMPANY"), a Delaware corporation; and (each of the following, a "SHAREHOLDER" and all of the following together, collectively, the "SHAREHOLDERS") Ernest C. Garcia II, Verde Reinsurance Company, Ltd., a Nevis Island corporation, Ernie Garcia III 2000 Trust, Brian Garcia 2000 Trust, Ray Fidel, Steven Johnson, Mark Sauder, EJMS Investors Limited Partnership, an Arizona limited partnership, Colin Bachinsky, Chris Rompalo, Donna Clawson, Mary Reiner, and Kathy Chacon. RECITALS A. NAC wishes to acquire all of the outstanding capital stock of ZoomLot from the Shareholders. B. NAC, Merger Sub, ZoomLot, and the Shareholders intend to effect a merger of ZoomLot with and into Merger Sub (the "MERGER") in accordance with this Agreement and the Delaware General Corporation Law (the "DELAWARE CORPORATE LAW"). Upon consummation of the Merger, ZoomLot will have been merged into Merger Sub, which, as the surviving corporation of the Merger, will succeed to all of the assets and liabilities of ZoomLot, will change its name to ZoomLot Corporation and, subject to the terms of this Agreement, will continue to carry on the business of ZoomLot. C. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "CODE"). D. NAC has caused the formation of Merger Sub for the purpose of accomplishing a tax-free triangular merger with ZoomLot. E. This Agreement has been approved by the respective boards of directors of NAC, Merger Sub and ZoomLot and has been adopted by NAC, as the sole stockholder of Merger Sub. F. In connection with the execution and delivery of this Agreement, some or all of the Shareholders are executing and delivering to Parent (i) a Registration Rights Agreement dated as of even date herewith, (ii) a certain Lockup, Standstill and Voting Agreement, dated as of even date herewith, wherein such Shareholders have agreed, inter alia, to certain restrictions on the transfer of the shares of capital stock of NAC to be received by them in the Merger and to certain other restrictions and, under certain circumstances, to vote their shares in NAC in a prescribed manner and (iii) certain Employment Agreements,. 2 NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be bound hereby, do mutually agree as follows: ARTICLE 1 THE MERGER In connection with the Merger, the respective boards of directors of NAC, ZLT and ZoomLot have, by resolutions duly adopted, approved the following provisions of this Article 1 as the plan of merger required by the applicable provisions of the Delaware Corporate Law: 1.1 THE MERGER. At the Effective Time (as defined in SECTION 1.3), in accordance with this Agreement and the Delaware Corporate Law, ZoomLot shall be merged with and into Merger Sub, the separate existence of ZoomLot (except as such existence may be continued by operation of law) shall cease, and Merger Sub shall continue as the surviving corporation under the corporate name of "ZoomLot Corporation." Merger Sub, in its capacity as the corporation surviving the Merger, sometimes is referred to herein as the "SURVIVING CORPORATION." 1.2 EFFECT OF THE MERGER. The Surviving Corporation shall possess all the rights, privileges, immunities and franchises, of a public as well as of a private nature, of each of Merger Sub and ZoomLot (collectively, the "CONSTITUENT CORPORATIONS"); all property, real, personal and mixed, and all accounts payable arising in the ordinary course of business and accrued expenses due on whatever account, and all debts, liabilities and duties due to each of the Constituent Corporations shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed; and the Surviving Corporation shall be responsible and liable for all liabilities and obligations of each of the Constituent Corporations, in each case in accordance with Delaware Corporate Law and, to the extent applicable, Arizona Law. 1.3 CONSUMMATION OF THE MERGER. The parties hereto will cause a certificate of merger relating to the Merger to be delivered to the Secretary of State of the State of Delaware in accordance with Delaware Corporate Law. The Merger shall be effective at such time as such certificate of merger is duly filed with the Secretary of State of the State of Delaware. The date and time when the Merger shall become effective is referred to herein as the "EFFECTIVE TIME." It is the intention of the parties to cause such certificate of merger to be filed with the Secretary of State of the State of Delaware during the Closing (as defined in SECTION 1.7 below). 1.4 CERTIFICATE OF INCORPORATION AND BYLAWS: DIRECTORS AND OFFICERS. (a) The Certificate of Incorporation and Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation immediately after the Effective Time and shall thereafter continue to be its Certificate of Incorporation and Bylaws 2 3 until amended or otherwise changed as provided therein and under the Delaware Corporate Law. (b) NAC, as the sole shareholder of the Surviving Corporation, shall vote its shares in the Surviving Corporation so as to cause the Board of Directors of the Surviving Corporation immediately after the Effective Time to consist of three (3) directors, two (2) of which are to be nominated by NAC and one (1) of which (the "SHAREHOLDER'S DIRECTOR") is to be nominated by the Shareholders' Representative (as defined in SECTION 9.11 below). The initial Shareholders' Director shall be Ray Fidel. The Board of Directors of the Surviving Corporation shall continue to consist of three (3) directors until the end of the Forfeiture Period (as defined in SECTION 1.8(b) below), and the Shareholders shall retain the right to nominate the Shareholders' Director until the end of the Forfeiture Period. If at any time, while the Shareholders are entitled to nominate the Shareholders' Director, it becomes necessary or the Shareholders desire to replace the incumbent Shareholders' Director, the Shareholders' Representative, on behalf of the Shareholders, shall notify NAC (and NAC shall notify any other shareholders, if any, of the Surviving Corporation) of their intentions and shall specify the Shareholders' new nominee. If at such time NAC is the sole shareholder of the Surviving Corporation, NAC shall cause the board of directors of the Surviving Corporation to include the Shareholders' new nominee; but if at such time NAC is not the sole shareholder of the Surviving Corporation, NAC shall vote its shares in the Surviving Corporation in favor of causing the Board of Directors of the Surviving Corporation to include the Shareholders' new nominee. Following the end of the Forfeiture Period, the shareholders of the Surviving Corporation shall have full control over the composition of the Board of Directors of the Surviving Corporation (c) The officers of ZoomLot holding office immediately prior to the Effective Time shall be the officers of the Surviving Corporation immediately after the Effective Time, holding the same offices as they held with ZoomLot prior thereto. 1.5 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, ZoomLot or the holders of any of the outstanding securities will be treated as follows: (a) All 100,000 shares of common stock (the "ZOOMLOT COMMON STOCK"), par value $.01 per share, of ZoomLot issued and outstanding immediately prior to the Effective Time shall automatically be canceled and extinguished and shall be converted into and become (i) 270,953 validly issued, fully-paid and nonassessable shares of NAC's Series B preferred stock ("SERIES B PREFERRED STOCK"), par value $.50 per share and with the rights and preferences therefor as designated pursuant to the Certificate of Designations in the form attached hereto as EXHIBIT J (the "CERTIFICATE OF DESIGNATIONS") and (ii) 729,047 validly issued, fully-paid and nonassessable shares of NAC's Series C preferred stock ("SERIES C PREFERRED STOCK"), par value $.50 per share and with the rights and preferences therefor as designated pursuant to the Certificate of Designations, all of which 3 4 shares of Series B Preferred Stock and Series C Preferred Stock (collectively, the "NAC MERGER SHARES") shall be issuable to and among the Shareholders pro rata; provided, however, that no fractional shares of Series B or Series C Preferred Stock shall be issued to any Shareholder, but any fractional share of Series B or Series C Preferred Stock shall be rounded up or down to the nearest whole number share of Series B or Series C Preferred Stock. (b) Each share of common stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall continue to constitute one validly issued, fully-paid and nonassessable share of common stock, par value $.01 per share, of the Merger Sub as the Surviving Corporation. (c) The number of NAC Merger Shares set forth in subsection (a) above shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into NAC common stock, $.05 par value per share (the "NAC COMMON STOCK")), reorganization, recapitalization or other like change with respect to NAC Common Stock occurring after the date hereof and prior to the Effective Time. 1.6 REORGANIZATION. The parties hereby adopt this Agreement as a "plan of reorganization" and shall consummate the Merger in accordance with Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. None of the parties shall take a reporting position inconsistent with the treatment of the Merger as a reorganization pursuant to Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. Further, none of the parties shall take a reporting position reflecting the NAC Merger Shares as either (i) "nonqualified preferred stock" (as defined in Section 351(g)(2) of the Code) or (ii) "Section 306 stock" (as defined in Section 306(c) of the Code). 1.7 CLOSING. The closing (the "CLOSING") of the transactions contemplated by this Agreement shall occur immediately upon the due execution hereof by all of the parties hereto at such place and at such time as the parties may mutually agree upon. It is the intention of the parties to cause the certificate of merger to be filed with the Secretary of State of the State of Delaware during the Closing. If necessary to accomplish all of the transactions provided for herein or contemplated hereby, the Closing may occur over more than one day, but in any event no later than December 31, 2000. Notwithstanding anything contained herein to the contrary, immediately upon the execution and delivery of this Agreement by or on behalf of all of the parties hereto, the Shareholders shall be entitled to have two individuals, as designated by the Shareholders' Representative (as hereinafter defined), appointed to fill vacancies, and to serve, on the board of directors of NAC pending completion of the Closing, any such appointment to be effective until such time as the registered holders of shares of the Series B Preferred Stock (voting as a class) are entitled, pursuant to the Certificate of Designations, for the first time to elect one or more members to the board of directors of NAC or, if earlier, until the passage of December 31, 2000 without the completion or consummation of the Closing. 1.8 DELIVERY OF CERTIFICATES, POSSIBILITY OF FORFEITURE. (a) DELIVERY. At the Closing, NAC shall deliver to each Shareholder a stock certificate or certificates registered in his, her or its name representing 100% of 4 5 such Shareholder's pro rata portion (based upon his, her or its percentage ownership of the outstanding ZoomLot Common Stock immediately prior to the Effective Time) of the NAC Merger Shares, certain of which certificates will be subject to the possibility of forfeiture as set forth in SECTION 1.8(b) below. The shares of Series C Preferred Stock to be issued to each Shareholder shall be represented by two stock certificates, each representing one-half (1/2) of the total number of shares of Series C Preferred Stock to be issued to such Shareholder. (b) POSSIBILITY OF FORFEITURE, OBJECTIVES. The shares of Series B Preferred Stock and 62,380 shares of the Series C Preferred Stock to be issued in the Merger shall not be subject to forfeiture (the Series B Preferred Stock and such shares of Series C Preferred Stock are hereinafter referred to collectively as the "NONFORFEITABLE SHARES"). Prior to December 31, 2003 (such date being referred to as the "EXPIRATION DATE" and the period between the Closing and the Expiration Date being referred to as the "FORFEITURE PERIOD"), the remainder of the shares of the Series C Preferred Stock issued in the Merger as contemplated under SECTION 1.5(a) above (such shares collectively the "FORFEITABLE SHARES") shall be subject to forfeiture and return to NAC in the event that the Surviving Corporation does not meet certain objectives (the "FIRST OBJECTIVE" and the "SECOND OBJECTIVE," respectively, and collectively the "OBJECTIVES") that are set forth in the attached EXHIBIT A. Upon the issuance of any stock certificate representing those shares of Series C Preferred Stock that are Nonforfeitable Shares, a designation shall be made on such stock certificate that the shares represented thereby are Nonforfeitable Shares; and upon the issuance of any stock certificate representing those shares of Series C Preferred Stock that are Forfeitable Shares, a designation shall be made on such stock certificate that the shares represented thereby are Forfeitable Share In the event the Surviving Corporation (together with its consolidated subsidiaries, if any) meets the First Objective on or before the Expiration Date, one-half (1/2) of the Forfeitable Shares will cease to be subject to forfeiture. In the event the Surviving Corporation (together with its consolidated subsidiaries, if any) meets the Second Objective on or before the Expiration Date, the remaining one-half (1/2) of the Forfeitable Shares will cease to be subject to forfeiture. Notwithstanding the foregoing, if by the Expiration Date the Surviving Corporation (together with its consolidated subsidiaries, if any) has met the Second Objective but not the First Objective, none of the Forfeitable Shares shall be forfeited. (c) PROCEDURE. For purposes of determining whether either or both of the Objectives have been achieved and/or the performance and development criteria set forth in EXHIBIT E attached hereto have been, or are being, complied with, the parties shall use the following procedure. Promptly after the preparation of financial statements for each fiscal quarter, NAC shall deliver to the Shareholders' Representative (as hereinafter defined) the consolidated balance sheet and income statements for the Surviving Corporation and its subsidiaries for such fiscal quarter and for the fiscal year-to-date through the end of such fiscal quarter (the 5 6 "FINANCIAL STATEMENTS"), which statements shall have been prepared in accordance with generally accepted accounting principles ("GAAP") (but excluding footnotes and other disclosures required by GAAP). NAC shall also calculate the earnings before interest, taxes, depreciation and amortization of the Surviving Corporation and its consolidated subsidiaries (the "SURVIVING CORPORATION EBITDA"), which shall be adjusted as necessary to exclude any corporate overhead, management fee or similar expenses, if any, of NAC, and any other financial or operating results referred to on EXHIBIT A hereto and shall provide to the Shareholders' Representative a statement setting forth in reasonable detail the computation thereof. The foregoing calculation of the Surviving Corporation EBITDA and such other financial or operating results shall be used in determining whether any shares continue to be subject to forfeiture under SECTION 1.8(b) hereof unless, within fifteen (15) days after the initial determination thereof has been given to the Shareholders' Representative, the Shareholders' Representative has given NAC notice (the "EBITDA DISPUTE NOTICE") that the Shareholders' Representative disputes the calculation of the Surviving Corporation EBITDA or other financial or operating results, which notice shall set forth in reasonable detail the exclusions or calculations being disputed in good faith. In the event an EBITDA Dispute Notice is timely given by the Shareholders' Representative, NAC and the Shareholders' Representative shall attempt in good faith to resolve the dispute. Each party shall cooperate fully with the other in connection with the foregoing calculation and shall permit access to all information reasonably necessary to make or verify such calculation. (d) ARBITRATION. If NAC and the Shareholders' Representative are unable to resolve a dispute as to the satisfaction of the First Objective or the Second Objective or as to whether the performance and development criteria set forth in EXHIBIT E have been, or are being, met in all material respects, such dispute will be resolved by binding arbitration before a single, independent arbitrator who is or has been a Certified Public Accountant actively engaged in accounting practice. In the event that NAC and the Shareholders' Representative are unable to agree upon an arbitrator, the arbitrator will be selected by the American Arbitration Association ("AAA") located in New York City in accordance with the commercial arbitration rules of the AAA. Any arbitration proceeding contemplated hereunder (whether pursuant to this SECTION 1.8(d) or any other provision of this Agreement) shall be conducted in New York City. Each of NAC and the Shareholders shall bear their own costs in connection with any arbitration. The resolution of disputes by such arbitrator shall be set forth in writing and shall be conclusive and binding upon, and non-appealable by, the parties, and the determination of (A)(i) the Surviving Corporation EBITDA and/or such other financial or operating results used in determining whether any shares continue to be subject to forfeiture and (ii) whether or not an Objective has been satisfied and (B) whether the performance and development criteria set forth in EXHIBIT E have been, or are being, met in all material respects, or with respect to any other matter contemplated hereunder to be determined or resolved by arbitration, shall become final upon the date of such resolution, and may be entered as a final judgment in any court of proper jurisdiction 6 7 (e) VALUATION EVENT. The Forfeitable Shares shall also cease to be subject to forfeiture upon the occurrence of any of the following events (each a "VALUATION EVENT") at any time on or before the Expiration Date: (i) the execution by the Surviving Corporation or one of its subsidiaries, during the Forfeiture Period, of an agreement that provides for a private cash equity investment in the Surviving Corporation or such subsidiary of not less than $10 million and pursuant to which the pre-money valuation of the Surviving Corporation and its subsidiaries is $30 million or more, provided that the transaction contemplated by such agreement closes prior to or within 120 days following the Expiration Date; (ii) the execution, during the Forfeiture Period, of an agreement for the sale by NAC of all or substantially all of the equity or assets of the Surviving Corporation in a transaction in which the Surviving Corporation and/or its subsidiaries are valued at $30 million or more, provided that the transaction contemplated by such agreement closes prior to or within 120 days following the Expiration Date; (iii) the execution, during the Forfeiture Period, of an agreement or plan that provides for (A) a firm commitment underwritten initial public offering by the Surviving Corporation, (B) a reverse merger pursuant to which the Surviving Corporation or any of its subsidiaries is to become a reporting company under the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), (C) a spin off in whole or in part of the capital stock of the Surviving Corporation or any of its subsidiaries to the shareholders of NAC, or (D) any event similar to the events in (A), (B) and (C), in each such case in which the Surviving Corporation or any of its subsidiaries is valued at $30 million or more pre-money and, in the case of an initial public offering, the proceeds are not less than $10 million, provided in each of the foregoing cases that the transaction contemplated by such agreement or plan closes prior to or within 120 days following the Expiration Date; (iv) the execution, during the Forfeiture Period, of an agreement to provide a private cash equity investment in NAC or any of its subsidiaries of not less than $10 million and pursuant to which the pre-money valuation of the Surviving Corporation and its subsidiaries is $30 million, wherein $10 million or more of the proceeds of such investment is intended for the Surviving Corporation or any of the Surviving Corporation's subsidiaries, provided that the transaction contemplated by such agreement closes prior to or within 120 days following the Expiration Date; (v) the termination by the Surviving Corporation of the employment of Ray Fidel and Mark Sauder, other than for "cause" (as such term is defined or understood under New York law) or on account of their disability, if the Surviving Corporation is, at the time of each of such terminations, in compliance in all material respects with the performance and development criteria set forth in EXHIBIT E; or (vi) NAC undergoes a Change in Control, where "CHANGE OF CONTROL" means any of the following: (A) any merger of NAC in which NAC is not the continuing or surviving entity or pursuant to which capital stock of NAC would be converted into cash, securities or other property, other than a merger of NAC in which the holders of NAC's capital stock immediately prior to such merger have the same proportionate ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after such merger or (B) the failure of the individuals who either constituted the Board of Directors of NAC at the 7 8 conclusion of the first meeting of shareholders of NAC following the Closing, were elected by the Holders of shares of Series B Preferred Stock or by a director who was elected by the Holders of shares of Series B Preferred Stock or were elected or approved by any director who was elected by the Holders of shares of Series B Preferred Stock or by a director who was elected by the Holders of shares of Series B Preferred Stock to constitute a majority of the Board of Directors of NAC, excluding, however, the election, or the nomination for election by NAC's shareholders, of any new director approved by a vote of at least two-thirds of the directors then still in office who were directors at the conclusion of the first meeting of shareholders of NAC following the Closing or by vote of the Holders of shares of Series B Preferred Stock or by a director who was elected by vote of the Holders of shares of Series B Preferred Stock; or (C) any person (other than any Shareholder or affiliate of any Shareholder) acquiring more than 50% of NAC's issued and outstanding capital stock unless such acquisition, or the transaction pursuant to which such acquisition was made, was approved or consented to by the Board or Directors of NAC. For each Valuation Event described in clause (i) through (iv) of this section, the minimum investment and pre-money valuation criteria shall each be increased dollar-for-dollar for any amount in excess of $6.5 million (or, if less, such lesser amount of funding as may be required to be provided to the Surviving Corporation pursuant to SECTION 1.11(b) hereof) in funding provided to the Surviving Corporation by NAC. Whenever this paragraph provides that a transaction is required to close within a specified period of time in order to constitute a Valuation Event, NAC agrees that it shall use commercially reasonable efforts to satisfy all conditions to such closing that are within NAC's control to permit such transaction to close within such time period. (f) LEGEND. In addition to the legend provided in SECTION 4.8 of this Agreement and any legend that may be required under the Standstill Agreement, the certificates representing the Forfeitable Shares shall bear the following legend: THESE SHARES ARE TAKEN SUBJECT TO A POSSIBILITY OF FORFEITURE AS SET FORTH IN THE MERGER AGREEMENT AND PLAN OF REORGANIZATION AMONG NATIONAL AUTO CREDIT INC., ZLT ACQUISITION CORP., ZOOMLOT CORPORATION, AND ERNEST C. GARCIA II, VERDE REINSURANCE COMPANY, LTD., ERNIE GARCIA III 2000 TRUST, BRIAN GARCIA 2000 TRUST, RAY FIDEL, STEVEN JOHNSON, MARK SAUDER, EJMS INVESTORS LIMITED PARTNERSHIP, COLIN BACHINSKY, CHRIS ROMPALO, DONNA CLAWSON, MARY REINER, AND KATHY CHACON. STOP TRANSFER INSTRUCTIONS HAVE BEEN PLACED AGAINST THESE SHARES TO RESTRICT THEIR TRANSFER, EXCEPT AS PERMITTED UNDER SUCH MERGER AGREEMENT." 8 9 (g) OTHER MATTERS RELATING TO FORFEITABLE SHARES. During the Forfeiture Period, the Shareholders will be entitled to all dividends paid with respect to the Forfeitable Shares and the Forfeitable Shares shall be treated for all purposes as outstanding stock of NAC. Each of the parties agrees that inclusion of the forfeiture provisions arises because of difficulties in determining the current value of either or both of ZoomLot and NAC. Consistent with the foregoing, none of the parties shall take a position that the Forfeitable Shares do not constitute shares received in the reorganization described in SECTION 1.6; provided, however, that, if any of the Forfeitable Shares is forfeited in accordance with the provisions of this Agreement, such shares shall be treated as an adjustment in the number of shares issued in connection with the reorganization. In the event any Forfeitable Shares shall be forfeited as provided herein, upon the forfeiture of such Shares any and all dividends or other distributions theretofore paid or made with respect to such Shares shall forthwith be returned to NAC. (h) STOP TRANSFER. Each Shareholder consents to the placing of stop transfer instructions on the books and records of NAC and its transfer agent against such Shareholder's NAC Merger Shares (and against any other of NAC issued as a dividend or other distribution upon, or issued in exchange for, upon the conversion of or in full or partial payment or consideration for any NAC Merger Shares) to restrict their transfer, except as permitted under this Agreement and the Standstill Agreement. (i) FORFEITURE MECHANICS. (i) NAC shall be entitled to immediate return of any Forfeitable Shares forfeited hereunder from any one or more Shareholders, individually or jointly, at NAC's discretion, without being required to seek a proportionate return from all Shareholders. (ii) If Forfeitable Shares are required to be returned and the number of Forfeitable Shares that are to be returned has been determined, the Shareholders' Representative shall have seven (7) business days from the date of notice sent to the Shareholders' Representative to return and deliver to NAC the stock certificate(s) representing such Shares, properly endorsed for transfer to NAC. If the Shareholders' Representative fails to deliver to NAC the stock certificate(s) representing such Shares to NAC within such time period, the Shareholders shall be jointly and severally liable for all costs and expenses (including legal fees) incurred by NAC in connection with the return and/or cancellation of such Shares. (iii) In addition to any other remedy available to NAC hereunder or at law, upon forfeiture of any Forfeitable Shares, such Shares shall be deemed cancelled and shall be deemed to no longer be outstanding, and NAC shall be entitled to treat them as such, regardless of whether the stock certificate(s) representing such Forfeitable Shares have been delivered to NAC. 9 10 1.9 NON-TRANSFERABILITY OF SHARES SUBJECT TO FORFEITURE. During the Forfeiture Period, the Forfeitable Shares shall be non-transferable, except if the intended transferee agrees, in a writing delivered to, in form and substance satisfactory to, and for the benefit of, NAC, to be bound by this Agreement. 1.10 SEAT ON NAC BOARD. The Certificate of Designations shall provide that, subject to the terms and conditions set forth therein, the registered holders of the outstanding shares of the Series B Preferred Stock shall be entitled, voting as a class, to elect one or more members to the board of directors of NAC. At the point in time at which the holders of shares of the Series B Preferred Stock are no longer entitled, as a class, to elect any member to the board of directors of NAC, the Shareholders' Representative, on behalf of the Shareholders, shall be entitled to nominate one person for election to the board of directors of NAC, provided the nominee is reasonably satisfactory to NAC. NAC shall take action to cause such nominee to be elected to NAC's board of directors promptly thereafter. NAC shall include such nominee as may have been designated by the Shareholders' Representative in management's slate of nominees for election at each annual meeting of NAC's shareholders and shall take all other actions necessary or appropriate to cause such nominee to be elected to the Board, including the solicitation of proxies in support thereof. All rights of the Shareholders or of the Shareholders' Representative under this SECTION 1.10 shall expire upon the earlier of (a) the date as of which the Nonforfeitable Shares are no longer subject to lockup under the Standstill Agreement or (b) such time as the Shareholders own of record, in the aggregate, less than five million (5,000,000) shares of NAC Common Stock (it being agreed and understood that for the purposes of determining the whether the Shareholders own of record such number of shares of NAC Common Stock, each Shareholder shall be deemed to own of record, in addition to the number of shares of NAC Common Stock owned of record by such Shareholder, ten (10) shares of NAC Common Stock for each outstanding share of Series B Preferred Stock or Series C Preferred Stock owned of record by such Shareholder), as adjusted for any stock splits, reorganizations or recapitalizations, whether or not any of such shares of NAC Common Stock (or the shares of Series B Preferred Stock or Series C Preferred Stock referred to in the preceding parenthetical clause) is subject to forfeiture but has not yet been forfeited as provided above. 1.11 FUNDING; PROTECTIVE PROVISIONS. (a) NAC and each Shareholder acknowledge and agree that, during the Forfeiture Period (or, if earlier, until such time as the Forfeitable Shares are no longer subject to forfeiture under the terms of this Agreement) and subject to the terms of their respective employment agreements, Ray Fidel, Mark Sauder and Eric Splaver shall have authority and responsibility for the day-to-day management and operation of the Surviving Corporation's business, and shall assist NAC in setting mutually acceptable goals and budgets to maximize the productivity, efficiency and profitability of the Surviving Corporation. Notwithstanding the foregoing, the authority and responsibility for the day-to-day management of the Surviving Corporation's business shall not be deemed to authorize or permit management, except with the prior approval or consent of the Surviving Corporation's Board of Directors, to take any action traditionally or under applicable law requiring the approval or authorization of the Surviving Corporation's Board of Directors, which action would include, without limitation, any of the following: 10 11 (i) To sell or otherwise dispose of any property or assets of the Surviving Corporation or of any subsidiary of the Surviving Corporation, other than in the ordinary course of business of the Surviving Corporation or such subsidiary, or collaterally assign, mortgage, pledge or otherwise encumber any of the property or assets of the Surviving Corporation or of any subsidiary of the Surviving Corporation; (ii) To incur, or allow or permit any subsidiary to incur, any indebtedness, other than normal trade payables, equipment leases and similar items incurred in the ordinary course of business; (iii) To incur, or allow or permit any subsidiary to incur, any obligation in excess of $100,000 or any series of obligations, or group of similar obligations, that together exceed $250,000 in the aggregate; (iv) To change the terms of any employment agreement or other compensation arrangement with any Shareholder; (v) To change the business of the Surviving Corporation; (vi) To engage any accounting or law firm or consultant or consulting firm not currently retained by ZoomLot; (vii) To hire any employee whose total compensation exceeds $100,000 in any year; (viii) To declare or pay any bonus to any employee; or (ix) To enter into (including by way of renewal or extension) any related party transaction. (b) During the Forfeiture Period, unless otherwise agreed to by the Shareholders' Representative, NAC agrees (i) subject to the reduction described below, to make additional working capital of up to six million five hundred thousand dollars ($6500,000) available to the Surviving Corporation in order to facilitate the continued development of the Surviving Corporation, two million dollars ($2,000,000) of which shall be funded within 10 days following the Closing; (ii) to maintain separate books and records for the Surviving Corporation and its subsidiaries on a consolidated basis (it being agreed and understood that the foregoing provisions of this clause (ii) shall not be deemed to restrict NAC in consolidating (for tax, accounting or other purposes) the Surviving Corporation and its subsidiaries with NAC and such other direct or indirect subsidiaries as NAC may from time to time have); (iii) to maintain the Surviving Corporation as a separate entity and not to combine, merge, consolidate or liquidate the Surviving Corporation or sell or otherwise dispose of any of its assets except in the ordinary course of its business or sell or otherwise dispose of any of its stock; (iv) not unreasonably to change, except in the ordinary course of its business, (A) the prices charged for the Surviving Corporation's products and services, (B) the level of compensation of the Surviving Corporation's consultants and full-time corporate employees or (C) the level of the Surviving 11 12 Corporation's general and administrative expenses; and (v) calculate the Surviving Corporation EBITDA in accordance with GAAP, consistently applied. NAC shall not change the name of the Surviving Corporation during the Forfeiture Period without the prior written consent of the Shareholders' Representative. NAC may withhold from the funds required to be provided pursuant to clause (i) above an amount equal to the amount of any damages or other expenses incurred by the Surviving Corporation or NAC as a result of a breach of any representation, warranty or other covenant or agreement of ZoomLot or the Shareholders (or any of them) set forth in this Agreement until the amount of such damages or other expenses (less any applicable basket as contemplated by SECTION 8.5(b) hereof) has been paid to NAC; and if NAC withholds any such funds pursuant to the foregoing right, but it is subsequently determined that there was no such breach, appropriate revisions to EXHIBITS A and E shall be made retroactively. (c) Notwithstanding anything in this Agreement to the contrary, the obligations of NAC to provide funding to the Surviving Corporation or to act or refrain from taking action (including, without limitation, any of the actions or restrictions set forth in paragraph (a) above) shall be expressly conditioned upon the Surviving Corporation and its management meeting in all material respects the agreed-upon performance and development criteria set forth in EXHIBIT E other than on account of the material breach by NAC of its covenants hereunder. (d) Provided that the Surviving Corporation is meeting in all material respects the performance and development criteria set forth in EXHIBIT E, NAC shall not take any action, except with the consent of the Shareholders' Representative, to remove or replace the officers of the Surviving Corporation or any member of the Board of Directors of the Surviving Corporation who has been nominated by the Shareholders pursuant to SECTION 1.4(b) above; PROVIDED, HOWEVER, that, notwithstanding the foregoing, any Employment Agreement with any Shareholder shall be subject to termination by the Surviving Corporation for "cause" or on account of the disability of such Shareholder in accordance with the terms of such Employment Agreement regardless of whether the performance and development criteria set forth in EXHIBIT E have been, or are being, met. The foregoing provisions of this clause (d) shall not affect or limit the occurrence of any Valuation Event pursuant to clause (v) of SECTION 1.8(e) above. (e) If at any time the agreed-upon performance and development criteria set forth in EXHIBIT E are not being met in any material respect (regardless of the reason(s) therefor, other than on account of the material breach by NAC of its covenants hereunder), NAC shall be entitled to replace (or cause the Surviving Corporation to replace) any or all of the then-existing management without any liability therefor (other than liability, if any, for any severance benefits to be paid under the respective officer's employment agreement). In the event NAC wishes to exercise the above entitlement, NAC shall have the right, but not the obligation, (prior to and in anticipation of the exercise of such entitlement) to submit to arbitration, before the AAA in the City, County and State of New York, under the rules thereof, the question of whether such performance and development criteria have been or are being met in all material respects. Such arbitration shall be submitted for determination before a single arbitrator selected mutually by NAC and the Shareholders' Representative; provided, however, that, if 12 13 within ten (10) days following receipt by the Shareholders' Representative of a demand for arbitration from NAC, NAC and the Shareholders' Representative cannot agree upon an arbitrator, such arbitration shall be submitted for determination before a single arbitrator selected by the AAA. The determination rendered in any such arbitration shall be conclusive and binding on all of the parties hereto. 1.12 CYGNET PAYABLE AND TRANSFER OF ASSETS. Prior to the Closing, ZoomLot shall transfer the Finance System Plus dealer management system and all of the assets acquired from Wilson Software Corp. and Donald G. Wilson (such dealer management system and such assets, collectively, the "DMS ASSETS") to Cygnet Capital Corporation ("CYGNET") and shall assign to Cygnet the related contract with Wilson Software Corp. (which contract shall be assumed by Cygnet), and, in consideration thereof, the current obligation of ZoomLot to Cygnet of approximately five million dollars ($5,000,000), shall be reduced to _________ dollars ($________), and contemporaneously with the Closing, the outstanding amount of such current obligation of ZoomLot to Cygnet shall be satisfied upon the payment out of funds contributed to ZoomLot by NAC at the Closing in an amount not to exceed $4,562,567.56 (the "CYGNET PAYABLE"). The Surviving Corporation shall have the right to repurchase the DMS Assets pursuant to a Right of Repurchase in the form attached hereto as EXHIBIT K. Cygnet and the Garcia Shareholders (as defined below) jointly and severally agree that if both the First Objective and Second Objective are not met by the Expiration Date, or a Valuation Event does not occur prior to the Expiration Date, then an amount equal to the Cygnet Payable, plus interest thereon from the Closing Date at nine percent (9%) per annum, shall immediately be due and payable from Cygnet and the Garcia Shareholders to NAC. The Garcia Shareholders (jointly and severally) and Cygnet agree that they shall be jointly and severally liable for any payment to NAC as a result of the previous sentence. Without limiting the foregoing, the Garcia Shareholders (jointly and severally) and Cygnet, jointly and severally, agree that NAC shall be entitled to seek repayment from all or any one of the Garcia Shareholders and/or from Cygnet, individually or jointly, at NAC's discretion, without being required to seek a proportionate return from all or any of the Garcia Shareholders and Cygnet. For purposes of this SECTION 1.12, the term "GARCIA SHAREHOLDERS" shall mean, collectively, Ernest C. Garcia, II and Verde Reinsurance Company, Ltd. 1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. NAC and Merger Sub, on the one hand, and ZoomLot and the Shareholders, on the other hand, shall use all reasonable efforts to take all such actions as may be necessary or appropriate in order to carry out the purposes of this Agreement and to vest the Surviving Corporation with full possession of all the rights, privileges, immunities and franchises of the Constituent Corporations or to subject the Surviving Corporation fully to all debts and obligations of the Constituent Corporations. The officers and directors of the Surviving Corporation are fully authorized in the name of the Constituent Corporations, or otherwise, to take, and shall take, all such actions. 13 14 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF NAC AND MERGER SUB NAC and Merger Sub hereby represent and warrant to ZoomLot and the Shareholders that, as of the date hereof, and (except as otherwise specified below) again at and as of the Effective Time, except as set forth in the section corresponding with the section below of a letter, dated as of the date hereof, furnished by NAC or the Merger Sub to ZoomLot and the Shareholders or the Shareholders' Representative (the "NAC DISCLOSURE LETTER"), that: 2.1 ORGANIZATION AND QUALIFICATION. Each of NAC and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted in every jurisdiction where the failure to do so would have a materially adverse effect on its assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition or financing arrangements. The copies of the Certificate of Incorporation and Bylaws of NAC and the Certificate of Incorporation and Bylaws of Merger Sub previously furnished to ZoomLot and the Shareholders or the Shareholders' Representative reflect all amendments thereto and are correct and complete and, except for and as contemplated by the Certificate of Designations, will not be amended prior to Closing. Notwithstanding anything contained herein to the contrary, no representation is made in this Article 2 with respect the Merger Sub after it has become the Surviving Corporation. 2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of NAC and Merger Sub has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement by NAC and Merger Sub and the consummation by NAC and Merger Sub of the transactions contemplated hereby to be performed by NAC and Merger Sub, respectively, have been duly authorized by NAC and the Merger Sub, respectively, and no other corporate proceedings on the part of NAC or the Merger Sub are necessary to authorize this Agreement and such transactions. This Agreement has been duly executed and delivered by NAC and Merger Sub and constitutes a valid and binding obligation of each, enforceable against each in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to the enforcement of creditors' rights generally and by general principles of equity. Neither NAC nor Merger Sub is subject to, or obligated under, any provision of (a) its Certificate of Incorporation or its Bylaws, (b) any agreement, arrangement or understanding, (c) any license, franchise or permit or (d) any law, regulation, order, judgment or decree, that would be breached or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its or any of its subsidiaries' assets would be created, by its execution, delivery and performance of this Agreement and the consummation by it of the transactions contemplated hereby. Except for such filings as are required to be made pursuant to Delaware Corporate Law in order to create, authorize or authorize the issuance of the shares of Series B Preferred Stock and the Series C Preferred Stock and effect the Merger or pursuant to federal and state securities laws in order to comply with such laws in connection with the registration for resale by the Shareholders of shares of the NAC Common Stock as contemplated under the Registration Rights Agreement, which filings NAC agrees to make as and to the extent provided 14 15 in the Registration Rights Agreement, no authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of NAC or Merger Sub for the consummation by NAC and Merger Sub of the transactions contemplated by this Agreement to be performed by NAC and Merger Sub. 2.3 NO MATERIALLY ADVERSE CHANGES. Except as set forth in one or more of the NAC Business Reports (as defined in SECTION 2.6 hereof), there has not been any materially adverse change in the assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition or prospects, or financing arrangements of NAC since September 13, 2000. 2.4 VALIDITY OF STOCK. The NAC Merger Shares shall, when issued: (i) be duly authorized, validly issued, fully paid and nonassessable and free of liens and encumbrances created by any person other than the Shareholders, subject, however to forfeiture as provided for in this Agreement and to such restrictions as are provided for under the Standstill Agreement, and (ii) be free and clear of any transfer restrictions, liens and encumbrances, except for restrictions on transfer under applicable federal securities laws, including Rule 144 promulgated under the Securities Act of 1933, as amended, (the "SECURITIES ACT"), except as provided for in this Agreement and except for such restrictions as are provided for under the Standstill Agreement. 2.5 CAPITALIZATION. The authorized equity capitalization of NAC consists of 40,000,000 shares of NAC Common Stock and 2,000,000 shares of preferred stock, of which 100 shares have been designated as Series A Convertible Preferred Stock, 275,000 shares have been (or upon the filing of the Certificate of Designations will be) designated as Series B Preferred Stock and 735,000 shares have been (or upon the filing of the Certificate of Designations will be) designated as Series C Preferred Stock. As of the date of this Agreement, 13,615,723 shares of NAC Common Stock are issued and outstanding, all of which shares are validly issued, fully paid and nonassessable, and no shares of preferred stock are outstanding. Except as disclosed in one or more of the NAC Business Reports or provided for in this Agreement or the Certificate of Designations, there are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments obligating NAC to issue or sell any shares of capital stock of NAC or securities or obligations of any kind convertible into or exchangeable for any shares of capital stock of NAC or of any other corporation, nor are there any stock appreciation, phantom stock or similar rights outstanding based upon the book value or any other attribute of NAC. No holders of outstanding shares of NAC Common Stock are entitled to any preemptive or other similar rights. 2.6 FINANCIAL STATEMENTS AND SEC FILINGS. NAC has made available to the Shareholders (or the Shareholders' Representative) true and correct copies of each report, registration statement (on a form other than Form S-8) and definitive proxy statement filed by NAC with the U.S. Securities and Exchange Commission (the "SEC") between January 1, 2000 and the date of this Agreement. NAC will also deliver to the Shareholders' Representative, on or before the Effective Time, any reports that are filed with the SEC after the date hereof, and any other reports sent generally to its shareholders after the date hereof, but not required to be filed with the SEC. All such reports are collectively referred to herein as the "NAC BUSINESS REPORTS"; and the financial statements, including the notes thereto, contained in the NAC 15 16 Business Reports are collectively referred to hereinafter as the "NAC FINANCIAL STATEMENTS." NAC has duly filed all reports required to be filed by it with the SEC under the Securities Act and the Securities Exchange Act of 1934, as amended, and no such report, nor any report sent to NAC's shareholders generally, contains any untrue statement of material fact or omits to state any material fact required to be stated therein or necessary to make the statements in such report, in light of the circumstances under which they were made, not misleading. The NAC Financial Statements included in the NAC Business Reports were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved and present fairly the consolidated financial position, results of operations and cash flows of NAC and its consolidated subsidiaries as of the dates and for the periods indicated therein, subject, in the case of unaudited interim statements, to normal year-end accounting adjustments and the absence of complete footnote disclosure. 2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent stated in the NAC Financial Statements or in one or more of the NAC Business Reports, NAC does not have any material liabilities or obligations (whether accrued, absolute, contingent, unliquidated, known, unknown or otherwise), other than (i) liabilities incurred in the ordinary course of business and (ii) obligations under contracts and commitments incurred in the ordinary course of business, that, in both clauses (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of NAC. 2.8 LITIGATION. Except as set forth in one or more of the NAC Business Reports, there are no actions, suits, proceedings, orders or investigations pending or threatened against NAC, at law or in equity, in any court or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and there is no basis known to NAC for any of the foregoing. 2.9 NO COMMISSIONS. NAC has not incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 2.10 NO LIABILITIES OF MERGER SUB. Except for its obligations under this Agreement, Merger Sub is not subject to any liabilities, obligations or claims, whether absolute or contingent, liquidated or unliquidated, known or unknown. Merger Sub was formed solely for the purpose of consummating the transactions contemplated by this Agreement and has not engaged in any business or other activities for any other purpose. 2.11 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of NAC or Merger Sub is required in connection with the consummation of the transactions contemplated by this Agreement except the filing of the Certificate of Merger and the Certificate of Designations with the Secretary of State of Delaware and the filing and registration with the SEC and/or state securities or "blue sky" commissions or other authorities as contemplated under the Registration Rights Agreement. 2.12 DISCLOSURE. Neither this Agreement nor any of the exhibits hereto contains any untrue statement of a material fact or omits a material fact necessary to make the statements 16 17 contained herein or therein, in light of the circumstances in which they were made, not misleading, and there is no fact known to NAC that has not been disclosed to the Shareholders (or the Shareholders' Representative) that materially affects adversely or could reasonably be anticipated to materially affect adversely the business, including the operating results, assets, customer, supplier or employee relations and business prospects, of NAC. 2.13 TAX MATTERS. (a) NAC has, and at the Effective Time will have, no plan or intention to: (i) Liquidate Merger Sub; (ii) Merge Merger Sub with or into any other corporation other than ZoomLot; (iii) Sell or otherwise dispose of the stock of Merger Sub except for transfers of stock to corporations "controlled" (within the meaning of Section 368(c) of the Code) by NAC; (iv) Cause Merger Sub to sell or otherwise dispose of any of its assets or assets acquired in the Merger except for (i) sales or other dispositions made in the ordinary course of business, (ii) transfers described in Section 368(a)(2)(C) of the Code; (iii) transfers to members of the "qualified group" (within the meaning of Treasury Regulations Section 1.368-1(d)(4)(ii)) encompassing NAC (the "NAC GROUP") following the Effective Time, or (iv) transfers to a partnership if either (x) members of the NAC Group, in the aggregate, own a significant interest in that partnership or (y) one or more members of the NAC Group have active and substantial management functions as a partner with respect to that partnership; (v) Cause Merger Sub to issue additional shares of stock that would result in NAC losing "control" (within the meaning of Section 368(c) of the Code) of Merger Sub following the Effective Time; (vi) Cause Merger Sub or the NAC Group following the Effective Time to discontinue the historic business conducted by ZoomLot preceding the Effective Time or fail to use in the Surviving Corporation's business a significant portion of the assets held by ZoomLot immediately preceding the Effective Time; (vii) Take any action that might otherwise cause the Merger not to be treated as a "reorganization" within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. (b) Prior to the Effective Time, neither NAC nor any person "related" to NAC will, "in connection with" the Merger, acquire (directly or indirectly) any shares of ZoomLot capital stock. For purposes hereof, the term "related" has the meaning 17 18 in Treasury Regulations Section 1.368-1(e)(3) and the term "in connection with" has the meaning in Treasury Regulations Section 1.368-1(e)(2). (c) At the Effective Time: (i) NAC will own all of the outstanding stock of Merger Sub; (ii) Merger Sub will own all of the assets ever owned by Merger Sub; and 2.14 DIRECTORS AND OFFICERS INSURANCE. NAC has furnished to ZoomLot a true and complete copy of its Director and Officer Insurance policy as in effect on the date hereof. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ZOOMLOT ZoomLot and the Principal Shareholders (being those Shareholders that directly or indirectly, beneficially or of record, individually or together with any member of such Shareholder's immediate family and/or other affiliates of such Shareholder, as of the date of this Agreement own five percent (5%) of more of any class of capital stock of ZoomLot), jointly and severally, represent and warrant to NAC and Merger Sub that, as of the date hereof and again at and as of the Effective Time, except as set forth in the section corresponding with the section below of a letter, dated as of the date hereof, furnished by ZoomLot to NAC and Merger Sub (the "ZOOMLOT DISCLOSURE LETTER"), that: 3.1 ORGANIZATION AND QUALIFICATION. ZoomLot is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted. ZoomLot is duly qualified to do business in every jurisdiction where the failure to do so would have a materially adverse effect on its assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition, prospects, or financing arrangements. The copies of ZoomLot's Certificate of Incorporation and Bylaws, which have been furnished by ZoomLot to NAC prior to the date of this Agreement, reflect all amendments made thereto and are correct and complete. ZoomLot does not own any capital stock or other equity interest in any corporation or other entity except that it owns all of the issued and outstanding capital stock of each of the corporations (each, a "ZOOMLOT SUBSIDIARY" and collectively the "ZOOMLOT SUBSIDIARIES") listed in Section 3.1 of the ZoomLot Disclosure Letter. Each of the ZoomLot Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the State specified after its name in such Section 3.1, and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and (b) is duly qualified to do business in every jurisdiction where the failure to do so would have a materially adverse effect on its assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition, prospects, or financing arrangements. The copies of the Certificate of Incorporation (or other charter document) and Bylaws of each of the ZoomLot Subsidiaries, which have been furnished by ZoomLot to NAC prior to the date of this Agreement, reflect all amendments made thereto and are correct and complete 18 19 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. ZoomLot has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement by ZoomLot and the consummation by ZoomLot of the transactions contemplated hereby have been duly authorized by the Board of Directors of ZoomLot and have been duly approved by the Shareholders, and no other corporate proceedings on the part of ZoomLot are necessary to authorize this Agreement and such transactions. This Agreement has been duly executed and delivered by ZoomLot, and constitutes a valid and binding obligation of ZoomLot, enforceable against ZoomLot in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to the enforcement of creditors' rights generally and by general principles of equity. ZoomLot is not subject to, or obligated under, any provision of (a) its Certificate of Incorporation or Bylaws, (b) any agreement, arrangement or understanding, (c) any license, franchise or permit or (d) any law, regulation, order, judgment or decree, that would be breached or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its assets would be created, by its execution, delivery and performance of this Agreement or the consummation by it of the transactions contemplated hereby. Except for such filings as are required to be made pursuant to Delaware Corporate Law and Arizona Law in order to effect the Merger, no authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of ZoomLot for the consummation by ZoomLot of the transactions contemplated by this Agreement. None of the ZoomLot Subsidiaries is subject to, or obligated under, any provision of (a) its Certificate of Incorporation (or other charter document) or Bylaws, (b) any agreement, arrangement or understanding, (c) any license, franchise or permit or (d) any law, regulation, order, judgment or decree, that would be breached or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its assets would be created, by the execution, delivery and performance of this Agreement by ZoomLot or the consummation by ZoomLot of the transactions contemplated hereby. 3.3 CAPITALIZATION AND VOTING RIGHTS. The authorized capital stock of ZoomLot consists of: (a) Capital Stock. 1,000,000 shares of common stock, par value $0.001 per share, of which only 100,000 shares are, and immediately prior to the Closing will be, issued and outstanding, and 1,000,000 shares of preferred stock, par value $0.001 per share, of which no shares are, and immediately prior to the Closing will be, issued and outstanding. (b) The outstanding shares of ZoomLot Common stock are, and immediately prior to the Closing will be, owned by the Shareholders and in the respective numbers for each Shareholder as specified in EXHIBIT G attached hereto. (c) The outstanding shares of ZoomLot Common Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued in accordance with the registration or qualification provisions of the Securities Act and any relevant state securities laws, or pursuant to valid exemptions therefrom. 19 20 (d) There are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from ZoomLot or any ZoomLot Subsidiary of any shares of its capital stock. Neither ZoomLot nor any ZoomLot Subsidiary is a party or subject to any agreement or understanding, and there is no agreement or understanding between any persons or entities, that affects or relates to the voting or giving of written consents with respect to any security, or by a director, of ZoomLot or any ZoomLot Subsidiary. 3.4 BALANCE SHEET. (a) ZoomLot has provided NAC with an unaudited consolidated balance sheet, dated as of September 30, 2000 (the "BALANCE SHEET"), a consolidated statement of profit and loss from January 1, 2000 through September 30, 2000, and a consolidated statement of cash flows from January 1, 2000 through September 30, 2000 (collectively, the "CASH STATEMENTS"). The Balance Sheet presents fairly in all material respects the assets and liabilities of ZoomLot (on a consolidated basis) as of the date thereof, subject to normal year-end accounting adjustments and the absence of footnote disclosure. Except as and to the extent stated in the Balance Sheet, neither ZoomLot nor any of the ZoomLot Subsidiaries has any material liabilities or obligations (whether accrued, absolute, contingent, unliquidated, known, unknown or otherwise), other than (i) liabilities incurred in the ordinary course of business and (ii) obligations under contracts and commitments incurred in the ordinary course of business, that, in both clauses (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of ZoomLot (on a consolidated basis). The Cash Statements present fairly (on a consolidated basis) in all material respects the information purported to be presented therein. (b) FINANCIALS AUDITED IN DUE COURSE. The Balance Sheet and Cash Statements of ZoomLot and the ZoomLot Subsidiaries are capable of being audited (on a consolidated basis) in accordance with GAAP and SEC Regulation S-X, and SEC Regulation S-B (if applicable) within sixty (60) days of the Closing, although no guaranty is made that this will be done. In addition, ZoomLot will provide NAC with any and all statements for the relevant periods required for the filing of Form 8-K and registration statements as necessitated by or related to this Agreement. 3.5 NO MATERIALLY ADVERSE CHANGES. Since September 30, 2000, there has not been a materially adverse change in the assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition or prospects of ZoomLot or any ZoomLot Subsidiary. Without limiting the foregoing, since September 30, 2000, there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the ZoomLot or any ZoomLot Subsidiary from that reflected in the Balance Sheet, except changes in the ordinary course of business of the respective entity that have not been, in the aggregate, materially adverse; 20 21 (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results or business of ZoomLot or any ZoomLot Subsidiary (as such business is presently conducted); (c) any waiver by ZoomLot or any ZoomLot Subsidiary of a material right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by ZoomLot or any ZoomLot Subsidiary, except (i) in the ordinary course of business and (ii) that is not material to the assets, properties, financial condition, operating results or business (as such business is presently conducted) of ZoomLot or any ZoomLot Subsidiary; (e) any material change or amendment to a material contract or arrangement by which ZoomLot or any ZoomLot Subsidiary or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee of ZoomLot or any ZoomLot Subsidiary; (g) except as contemplated in SECTION 1.12 above, any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets of ZoomLot or any ZoomLot Subsidiary; (h) any resignation or termination of employment of any key officer of ZoomLot or any ZoomLot Subsidiary; and neither ZoomLot nor any ZoomLot Subsidiary, to the best of its knowledge, knows of the impending resignation or termination of employment of any such officer, except that it is expected that Ernest C. Garcia, II will resign as the Chief Executive Officer of ZoomLot at the Closing; (i) any receipt of notice that there has been a loss of, or material order cancellation by, any major customer of ZoomLot or any ZoomLot Subsidiary; and neither ZoomLot nor any ZoomLot Subsidiary, to the best of its knowledge, knows of any such loss or cancellation; (j) any mortgage, pledge, transfer of a security interest in, or lien, whether or not created by ZoomLot or any ZoomLot Subsidiary, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees or indemnities made by ZoomLot or any ZoomLot Subsidiary to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; 21 22 (l) any declaration, setting aside or payment or other distribution in respect of any of ZoomLot's capital stock, or any direct or indirect redemption, purchase or other acquisition by ZoomLot of any of such stock; (m) to the best of ZoomLot's knowledge, any other event or condition of any character that might be reasonably expected materially and adversely to affect the assets, properties, financial condition, operating results or business (as such business is presently conducted) of ZoomLot or any ZoomLot Subsidiary; or (n) any agreement or commitment by ZoomLot or any ZoomLot Subsidiary to do any of the things described in this SECTION 3.5. 3.6 LITIGATION. There are no actions, suits, proceedings, orders or investigations pending or threatened against ZoomLot or any ZoomLot Subsidiary, at law or in equity, before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and there is no basis known to ZoomLot for any of the foregoing. 3.7 SUBSIDIARIES. Except for its ownership of all of the outstanding capital stock of each of the ZoomLot Subsidiaries, ZoomLot does not presently own or control, directly or indirectly, any interest in any other corporation, association or other business entity. Neither ZoomLot nor any ZoomLot Subsidiary is a participant in any joint venture, partnership or similar arrangement. 3.8 PATENTS AND TRADEMARKS. ZoomLot and each of the ZoomLot Subsidiaries has sufficient ownership or rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes necessary for its business (collectively, the "INTELLECTUAL Property") as now conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, and except pursuant to software licenses obtained in the ordinary course of business, neither ZoomLot nor any ZoomLot Subsidiary is bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. Neither ZoomLot nor any of the ZoomLot Subsidiaries has violated, or by conducting its business as proposed will violate, any of the patents, trademarks, service marks, trade names, copyrights or trade secrets, licenses, processes, or other proprietary rights of any other person or entity. To the best knowledge of ZoomLot and the ZoomLot Subsidiaries, none of the employees of ZoomLot or any ZoomLot Subsidiary is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with his or her duties to ZoomLot or the respective ZoomLot Subsidiary, as the case may be, or that would conflict with the business of ZoomLot or the respective ZoomLot Subsidiary, as the case may be, as now conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the business of ZoomLot or any ZoomLot Subsidiary by any employee of ZoomLot or any ZoomLot Subsidiary, nor the conduct of the business of ZoomLot or any ZoomLot Subsidiary as now conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, 22 23 covenant or instrument under which any such employee is now obligated. There is no Intellectual Property or other rights that have been or are being used by ZoomLot or any ZoomLot Subsidiary (or are reasonably expected to be used by ZoomLot or any ZoomLot Subsidiary in the conduct of its business as currently contemplated) in which any employee of ZoomLot or any ZoomLot Subsidiary or any Shareholder has retained any rights. ZoomLot does not believe it is or will be necessary to utilize any inventions of any employee of ZoomLot or any ZoomLot Subsidiary (or people ZoomLot or any ZoomLot Subsidiary currently intends to hire) made prior to or outside the scope of his or her employment by ZoomLot or any ZoomLot Subsidiary. ZoomLot has taken all commercially reasonable action necessary to protect all of the Intellectual Property. 3.9 COMPLIANCE WITH OTHER INSTRUMENTS. Neither ZoomLot nor any ZoomLot Subsidiary is in violation or default of any provision of its Certificate of Incorporation (or other charter document) or Bylaws, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of any federal or state statute, rule of regulation applicable to ZoomLot or such ZoomLot Subsidiary. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice or both, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of ZoomLot or any ZoomLot Subsidiary or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to ZoomLot or any ZoomLot Subsidiary, that adversely affects its business as now conducted or proposed to be conducted immediately following the Closing, or its properties or its financial condition. 3.10 AGREEMENTS; ACTION. There are no agreements, understandings or proposed transactions between ZoomLot, or any ZoomLot Subsidiary, and any of its officers, directors or affiliates or any officer or director of any affiliate of ZoomLot. (a) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which ZoomLot or any ZoomLot Subsidiary is a party or by which it is bound that may involve (i) obligations (contingent or otherwise) of, or payments to, ZoomLot or any ZoomLot Subsidiary in excess of $40,000 or in excess of $250,000 in the aggregate; or (ii) the license of any patent, copyright, trade secret or other proprietary right or intellectual property to or from ZoomLot or any ZoomLot Subsidiary (other than the license of software and products in the ordinary course of business); or (iii) provisions restricting or affecting the development, manufacture or distribution of the products or services of ZoomLot or any ZoomLot Subsidiary; or (iv) indemnification by ZoomLot or any ZoomLot Subsidiary with respect to infringements of proprietary or similar rights. (b) Neither ZoomLot nor any ZoomLot Subsidiary has (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $20,000 or, in the case 23 24 of indebtedness and/or liabilities individually less than $20,000, in excess of $50,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than (A) the transfer of DMS Assets to Cygnet as contemplated by SECTION 1.12 above or (B) the sale of its inventory in the ordinary course of business. (c) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities ZoomLot or any ZoomLot Subsidiary has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (d) Neither ZoomLot nor any ZoomLot Subsidiary is a party to or otherwise bound by any contract, agreement or instrument, or subject to any restriction under its Certificate of Incorporation (or other charter document) or Bylaws, that adversely affects its business as now conducted or proposed to be conducted immediately following the Closing, or its properties or its financial condition. 3.11 RELATED PARTY TRANSACTIONS. No employee, officer or director of ZoomLot or any ZoomLot Subsidiary or member of his or her immediate family is indebted to ZoomLot or any ZoomLot Subsidiary, nor is ZoomLot or any ZoomLot Subsidiary indebted (or committed to make loans or extend any guarantee credit) to any of them. To the best knowledge of ZoomLot and the ZoomLot Subsidiaries, except as set forth in Section 1.12, none of such persons has any direct or indirect ownership interest in any firm or corporation with which ZoomLot or any ZoomLot Subsidiary is affiliated or with which ZoomLot or any ZoomLot Subsidiary has a business relationship, or any firm or corporation that competes with ZoomLot or any ZoomLot Subsidiary, except that employees, officers or directors of ZoomLot or any ZoomLot Subsidiary and members of their immediate families may own, in the aggregate, up to five percent (5%) of the stock in each publicly traded company that may compete with ZoomLot or any ZoomLot Subsidiary. No officer or director of ZoomLot or any ZoomLot Subsidiary nor any member of the immediate family of any such officer or director is directly or indirectly interested in any material contract with ZoomLot or any ZoomLot Subsidiary, excluding, however, any employment agreement between any such officer and ZoomLot or any ZoomLot Subsidiary. 3.12 PERMITS. ZoomLot and each ZoomLot Subsidiary has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, except for any franchise, permit, license or any similar authority the lack of which could not materially and adversely affect the business, properties or financial condition of ZoomLot or such ZoomLot Subsidiary, as the case may be. Neither ZoomLot nor any ZoomLot Subsidiary is in default in any material respect under any of such franchise, permit, license or other similar authority. 3.13 EMPLOYEE BENEFIT PLANS. Neither ZoomLot nor any ZoomLot Subsidiary has any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974, 24 25 except for those plans that NAC has elected to continue (which continued plans are listed in the ZoomLot Disclosure Letter). 3.14 TAX RETURNS, PAYMENTS AND ELECTIONS. Each of ZoomLot and the ZoomLot Subsidiaries has filed all tax returns and reports (including information returns and reports) that are required by law to have been filed by it on or prior to the date hereof or, as of the Effective Time, the Effective Time. These returns and reports are true and correct in all material respects. ZoomLot or the respective ZoomLot Subsidiary has paid, or will pay prior to the same becoming delinquent, all taxes shown to be due and payable on such returns and reports, and any assessments imposed, except those contested by ZoomLot or the respective ZoomLot Subsidiary in good faith and disclosed in writing to NAC. There are no tax deficiencies proposed or assessed against ZoomLot or any ZoomLot Subsidiary, and neither ZoomLot nor any ZoomLot Subsidiary has executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge, nor has any of the federal income tax returns and state income or franchise tax or sales or use tax returns of ZoomLot or any ZoomLot Subsidiary ever been audited by any governmental authority. Since the date of the Balance Sheet, neither ZoomLot nor any ZoomLot Subsidiary has incurred any taxes, assessments or governmental charges other than in the ordinary course of business, and ZoomLot and each applicable ZoomLot Subsidiary has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period. ZoomLot or the applicable ZoomLot Subsidiary has withheld or collected from each payment made to each of its employees the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. 3.15 MINUTE BOOKS. The minute books of ZoomLot and each of the ZoomLot Subsidiaries as provided to NAC contains a complete summary of all meetings of directors and stockholders of the respective corporation since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 3.16 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE COMPENSATION. Neither ZoomLot nor any ZoomLot Subsidiary is bound by or subject to (and none of its assets or properties is bound by or subject to) any contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best knowledge of ZoomLot and the ZoomLot Subsidiaries, has sought to represent any of the employees, representatives or agents of ZoomLot or any ZoomLot Subsidiary. There is no strike or other labor dispute involving ZoomLot or any ZoomLot Subsidiary pending, or to the best knowledge of ZoomLot and the ZoomLot Subsidiaries, threatened, that could have a materially adverse effect on the assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition or prospects, or financing arrangements of ZoomLot or any ZoomLot Subsidiary, nor, to the best knowledge of ZoomLot and the ZoomLot Subsidiaries, is there any labor organization activity involving any employees of ZoomLot or any ZoomLot Subsidiary. To the best knowledge of ZoomLot and the ZoomLot Subsidiaries, no officer or key employee, nor any group of key employees, intends to terminate his/her or their employment with ZoomLot or any ZoomLot Subsidiary, nor does ZoomLot or any ZoomLot Subsidiary have a present intention to terminate his/her or their employment with ZoomLot or any ZoomLot Subsidiary, except that it is expected 25 26 that Ernest C. Garcia, II will resign his position as Chief Executive Officer of ZoomLot at the Closing. The employment of each officer and other employee of ZoomLot or any ZoomLot Subsidiary is terminable at the will of ZoomLot or such ZoomLot Subsidiary without any penalty or other obligation on account thereof. ZoomLot and each ZoomLot Subsidiary have complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. Neither ZoomLot nor any ZoomLot Subsidiary is a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement. 3.17 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of ZoomLot or any ZoomLot Subsidiary is required in connection with the consummation of the transactions contemplated by this Agreement, except the filing of the Certificate of Merger with the Secretary of State of Delaware and the Arizona Corporation Commission. 3.18 TITLE TO PROPERTY AND ASSETS. Each of ZoomLot and the ZoomLot Subsidiaries owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business or do not materially impair ZoomLot's or the respective ZoomLot Subsidiary's ownership or use of such property or assets. With respect to the property and assets that it leases, each of ZoomLot and the ZoomLot Subsidiaries is in compliance with such leases and holds a valid leasehold interest free of any liens, claims or encumbrances. Neither this Agreement nor the consummation of the transactions contemplated hereby shall cause or result in (a) any new encumbrance or lien on any of the property or assets of ZoomLot or any ZoomLot Subsidiary or (b) any lease or leasehold with ZoomLot or any ZoomLot Subsidiary being terminated or otherwise becoming ineffective or unenforceable. 3.19 INSURANCE. Each of ZoomLot and the ZoomLot Subsidiaries has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. Each of ZoomLot and the ZoomLot Subsidiaries has in full force and effect product liability and errors and omissions insurance in amounts customary for companies similarly situated, and the policies providing such insurance will not be cancelled or terminated or otherwise become ineffective or unenforceable as a consequence of this Agreement or the consummation of the transactions contemplated hereby. 3.20 DISCLOSURE. Neither this Agreement nor any of the exhibits hereto, including the ZoomLot Disclosure Letter, contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading, and there is no fact known to ZoomLot or any ZoomLot Subsidiary or any of the Shareholders that that has not been disclosed to NAC that materially affects adversely or could reasonably be anticipated to materially affect adversely the business, including the operating results, assets, customer, supplier or employee relations and business prospects, of ZoomLot or any ZoomLot Subsidiary. 26 27 3.21 ENFORCEABILITY AGAINST CYGNET. Cygnet has the requisite corporate power and authority to enter into this Agreement to the extent provided for herein and to carry out its obligations hereunder. The execution and delivery of this Agreement by Cygnet and the consummation by Cygnet of the transactions contemplated hereby have been duly authorized by the Board of Directors of Cygnet, and no other corporate proceedings on the part of Cygnet are necessary to authorize this Agreement and such transactions. This Agreement has been duly executed and delivered by Cygnet, and constitutes a valid and binding obligation of Cygnet, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to the enforcement of creditors' rights generally and by general principles of equity. Except as set forth in the ZoomLot Disclosure Letter, Cygnet is not subject to, or obligated under, any provision of (a) its Certificate of Incorporation or Bylaws, (b) any agreement, arrangement or understanding, (c) any license, franchise or permit or (d) any law, regulation, order, judgment or decree, that would be breached or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its assets would be created, by its execution, delivery and performance of this Agreement and the consummation by it of the transactions contemplated hereby. No authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of Cygnet for the consummation by Cygnet of the transactions contemplated by this Agreement. ARTICLE 4 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS Each Shareholder represents and warrants to NAC and Merger Sub as of the date hereof and again at and as of the Effective Time, the following: 4.1 AUTHORITY. Such Shareholder has the power and authority to enter into this Agreement and to carry out its/his/her obligations hereunder. This Agreement has been duly executed by such Shareholder and constitutes a valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to the enforcement of creditors' rights generally and by general principles of equity. Such Shareholder is not subject to, or obligated under, any agreement, arrangement or understanding, or any law, regulation, order, judgment or decree, that would be breached or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its/his/her assets would be created, by its/his/her execution, delivery and performance of this Agreement and the consummation by it/him/her of the transactions contemplated hereby. No authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of such Shareholder for the consummation by it/him/her of the transactions contemplated by this Agreement. 4.2 STOCK OWNERSHIP. Such Shareholder represents that it/him/her is the legal and beneficial owner of the number of shares of ZoomLot Common Stock set forth opposite its/his/her name in the ZoomLot Disclosure Letter, free and clear of all restrictions, liens and encumbrances other than restrictions under federal and state securities laws and as set forth in this Agreement. 27 28 4.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. The NAC Merger Shares to be received by such Shareholder will be acquired for investment for such Shareholder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and such Shareholder has no present intention of selling, granting any participation in or otherwise distributing the same. By executing this Agreement, such Shareholder further represents that it/he/she does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person with respect to any of the NAC Merger Shares. 4.4 DISCLOSURE OF INFORMATION. Such Shareholder believes it/he/she has received all the information it/he/she considers necessary or appropriate for deciding whether to receive the NAC Merger Shares. Such Shareholder further represents that it/he/she has had an opportunity to ask questions and receive answers from NAC and its management regarding the business, properties, prospects and financial condition of NAC. The foregoing, however, does not limit or modify the representations and warranties of NAC in ARTICLE 2 of this Agreement or the right of such Shareholder to rely thereon. 4.5 INVESTMENT EXPERIENCE. Such Shareholder is an investor in securities of companies in the development stage and acknowledges that it/he/she is able to fend for itself/himself/herself, can bear the economic risk of its/his/her investment and has such knowledge and experience in financial or business matters that it/he/she is capable of evaluating the merits and risks of the investment of owning the NAC Merger Shares. 4.6 RESTRICTED SECURITIES. Such Shareholder understands that the NAC Merger Shares it/he/she is acquiring are characterized as "restricted securities" under the federal securities laws inasmuch as such Shares are being acquired from NAC in a transaction not involving a public offering, and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, such Shareholder represents that it/he/she is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 4.7 HOLDING PERIOD. Such Shareholder agrees that, for a period of one year from the Effective Time, it/he/she will not transfer or otherwise dispose of any of the NAC Merger Shares being issued to such Shareholder pursuant to the terms of this Agreement. 4.8 LEGENDS. It is understood that the Securities Act restricts the transferability of securities, such as the NAC Merger Shares, issued in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereunder, and that the certificates evidencing the NAC Merger Shares will bear, in addition to the legend provided in SECTION 4.8 above and any legend that may be required under the Standstill Agreement, the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE 28 29 REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED OTHER THAN TO: (A) NATIONAL AUTO CREDIT, INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THE HOLDER OF THIS CERTIFICATE AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED (UNLESS SUCH SECURITY IS TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY PROPOSED TRANSFER PURSUANT TO CLAUSE (B), (C) OR (D) ABOVE, THE COMPANY MAY REQUIRE THAT THE TRANSFEROR FURNISH IT WITH AN OPINION OF COUNSEL CONFIRMING THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. 4.9 SHAREHOLDINGS OF NAC. Prior to the date hereof, such Shareholder owns beneficially and of record the number of shares of NAC Common Stock set forth in the column across from his/her/its name on EXHIBIT G. 4.10 DISCLAIMER OF BENEFICIAL OWNERSHIP. Each Shareholder represents that, except as provided in the Standstill Agreement, it/he/she does not, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, have, or share, voting or investment power with respect to the NAC Merger Shares being issued to any other Shareholder pursuant to this Agreement. ARTICLE 5 ADDITIONAL AGREEMENTS 6.1 REGISTRATION RIGHTS. At the Effective Time, NAC and the Shareholders shall enter into a Registration Rights Agreement in the form attached hereto as EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT"). 6.2 STANDSTILL AGREEMENT. At the Effective Time, the Shareholders shall enter into a Standstill Agreement in the form attached hereto as EXHIBIT C. 6.3 EMPLOYMENT AGREEMENTS. At the Effective Time, the Surviving Corporation shall have entered into employment agreements substantially in the form attached hereto as EXHIBIT D with those persons designated by NAC on the date hereof. 29 30 6.4 EXPENSES. Each party to this Agreement shall bear it/he/she own expenses in connection with this Agreement and the transactions contemplated hereby, subject, however, to Section 1.8(i) above and ARTICLE 8 below. 6.5 TAX RETURNS. NAC shall prepare and file any and all tax returns with respect to ZoomLot that were not required to be filed by ZoomLot prior to the Effective Time. The Shareholders' Representative, or one of more of his designees reasonably acceptable to NAC, shall assist NAC in the preparation of such tax returns. 6.6 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice to the others of (a) the occurrence or failure to occur of any event, which occurrence or failure would be likely to cause any representation or warranty on its/his/her part contained in this Agreement to be untrue or inaccurate at, or at any time prior to, the Effective Time, and (b) any material failure of such party, or any officer, director, shareholder, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it/him/her hereunder. 6.7 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) NAC and ZoomLot shall each have the opportunity to make a complete due diligence review of the books, records, business and affairs of the other. (b) To facilitate the due diligence review, NAC and ZoomLot shall provide to each other and each other's agents complete access to all of each other's records and documents, shall provide each other with personal, bank and professional references, and shall use reasonable efforts to make available for consultation customers and suppliers. (c) Each party agrees that all non-public information provided to the other will be treated as confidential, and if this Agreement is terminated, will return to the other party all confidential documents (and all copies thereof) in its possession, or will certify to the other that all such documents not returned have been destroyed. Further, regardless of whether this Agreement is terminated, each party shall continue to hold all confidential information of the other in strictest confidence; provided, however, that, if the Merger is consummated, NAC shall have no obligation hereunder to hold in confidence any confidential or non-public information related to, or belonging to, ZoomLot or the Surviving Corporation. Non-public information shall not include any information that a party can demonstrate: (i) was already in such party's possession prior to negotiations related to this transaction; (ii) is or becomes publicly and openly known and in the public domain through no fault of such party; or (iii) is received by such party in a non-confidential manner from a third party having the right to disclose such information. 6.8 ZOOMLOT DIRECTORS AND OFFICERS LIABILITY. NAC shall use commercially reasonable efforts to include the directors and officers of the Surviving Corporation and all of its 30 31 subsidiaries in all agreements or covenants of indemnity and all policies of insurance applicable to the directors and officers of NAC. 6.9 ANTITAKEOVER PROVISIONS. If (i) any "moratorium," "control share," "fair price," "affiliate transaction," "business combination" or other antitakeover laws and regulations of any state or (ii) the restriction on business combinations with interested persons contained in NAC's Certificate of Incorporation (collectively an "ANTITAKEOVER PROVISION") is or may become applicable to the Merger or any subsequent transactions with Ernest C. Garcia, II or any of his affiliates or associates, NAC shall take all necessary actions to permit the transactions contemplated by this Agreement to be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate the effects of any Antitakeover Provision on the Merger or any subsequent transactions with Ernest C. Garcia, II or any of his affiliates or associates. 6.10 TECHNOLOGY AND MARKETING REVIEW. Lightyear Partners, LLC and Columbia Process Partners, Inc. are to commence a 3-week evaluation of the Surviving Corporation's technological platform and marketing strategy within 10 days following the Closing. The management of the Surviving Corporation shall accept and implement the reasonable recommendations of such consultants. To the extent such recommendations are implemented, appropriate changes shall be made to Exhibit A and Exhibit E to take into account any delays or expenses required by the implementation of such recommendations, except to the extent that the delays and expenses required by the implementation of such recommendations have already been taken into account in the preparation of Exhibit A or E. If such recommendations are implemented but NAC and the Shareholders' Representative cannot agree upon what changes, if any, are appropriate to be made to Exhibit A and Exhibit E to take into account any delays or expenses required by the implementation of such recommendations, except to the extent that the delays and expenses required by the implementation of such recommendations have already been taken into account in the preparation of Exhibit A or E, the determination of any such changes will be resolved by binding arbitration before a single, independent arbitrator who is or has been a Certified Public Accountant actively engaged in accounting practice. In the event that NAC and the Shareholders' Representative are unable to agree upon an arbitrator, the arbitrator will be selected by the American Arbitration Association AAA located in New York City in accordance with the commercial arbitration rules of the AAA. ARTICLE 7 CONDITIONS 7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) there shall not be pending by or before any court or other governmental body an order or injunction restraining or prohibiting the transactions contemplated hereby; and (b) no party hereto shall have terminated this Agreement as permitted herein. 31 32 7.2 ADDITIONAL CONDITIONS TO OBLIGATION OF ZOOMLOT AND THE SHAREHOLDERS. The obligation of ZoomLot and the Shareholders to effect the Merger is also subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) the representations and warranties of NAC and Merger Sub set forth in ARTICLE 2 above that are qualified by materiality shall be true and correct, and the representations and warranties of NAC and Merger Sub that are not so qualified shall be true and correct in all material respects, on and as of the Effective Time with the same force and effect as if made on and as of the Effective Time, and each of the NAC and the Merger Sub shall in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with it hereunder at or prior to the Effective Time; (b) NAC shall have furnished to ZoomLot a certificate in which NAC and Merger Sub shall certify that neither NAC nor Merger Sub has any reason to believe that the conditions set forth in SECTION 7.2(a), (d) AND (e) have not been fulfilled. (c) NAC shall have furnished to the Shareholders (i) a copy of the text of the resolutions by which the corporate action on the part of NAC and Merger Sub necessary to approve this Agreement, the Merger and the issuance of the NAC Merger Shares were taken and (ii) certificates executed on behalf of NAC certifying, in each case, that such copy is a true, correct and complete copy of such resolutions and that such resolutions were duly adopted and have not been amended or rescinded; (d) NAC shall have obtained each consent and approval necessary in order that the Merger and the transactions contemplated herein not constitute a breach or violation of, or result in a right of termination or acceleration or any encumbrance on any of NAC's assets pursuant to the provisions of, any agreement, arrangement or understanding or any license, franchise or permit; provided, however, that no such consent need be obtained with respect to (i) the Settlement Agreement and Release (the "FRANKINO SETTLEMENT"), dated November 3, 2000, between NAC and Samuel J. Frankino and certain of his affiliates (Samuel J. Frankino and such affiliates, collectively, the "FRANKINO ENTITIES") or (ii) the Stock Purchase and Standstill Agreement (the "READING SETTLEMENT"), dated November 3, 2000, between NAC and Reading Entertainment, Inc. and certain of its affiliates (collectively, the "READING ENTITIES"), and, notwithstanding anything contained herein to the contrary, no representation or warranty is made hereunder by NAC or the Merger Sub that the execution and delivery of this Agreement and/or the consummation of the transactions contemplated hereby will not constitute a breach or violation of, or result in a right of termination or acceleration under, either such agreement (it being agreed and understood, however, that this proviso shall not limit the obligations of NAC to provide any indemnification under the last sentence of SECTION 8.3(a) below); 32 33 (e) Between the date hereof and the Effective Time, (i) there shall have been no materially adverse change in the assets, financial condition, operating results, customer employee, supplier or franchise relations, business condition or prospects, or financing arrangements of NAC, (ii) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of NAC and (iii) none of the properties and assets of NAC shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages would have a material and adverse effect on the assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition or prospects, or financing arrangements of NAC, and NAC shall have delivered to the Shareholders' Representative a certificate, dated as of the Effective Time, to that effect; and (f) All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to ZoomLot's counsel, and ZoomLot and its counsel shall have received all such counterpart original and certified or other copies of such documents as they may have reasonably requested. 7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF NAC AND MERGER SUB. The obligations of NAC and Merger Sub to effect the Merger are also subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) the representations and warranties of ZoomLot and the Shareholders set forth in ARTICLES 3 and 4 above that are qualified by materiality shall be true and correct, and the representations and warranties of ZoomLot and the Shareholders set forth in ARTICLES 3 and 4 above that are not so qualified shall be true and correct in all material respects, on and as of the Effective Time with the same force and effect as if made on and as of the Effective Time, and each of ZoomLot and the Shareholders shall in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it and/or them hereunder at or prior to the Effective Time; (b) ZoomLot shall have furnished to NAC a certificate in which ZoomLot and the Shareholders shall certify that they have no reason to believe that the conditions set forth in SECTION 7.3(a), (f), (g) and (h) have not been fulfilled; (c) ZoomLot shall have furnished to NAC (i) a copy of the text of the resolutions by which the Board of Directors of ZoomLot and the board of directors or other governing body of each Shareholder that is not an individual approved this Agreement (including, without limitation, the plan of merger contained herein) and the Merger; and (ii) a certificate executed on behalf of ZoomLot by its corporate secretary certifying to NAC that such copy is a true, correct and complete copy of such resolutions of the Board of Directors of 33 34 ZoomLot and that such resolutions were duly adopted and have not been amended or rescinded; (d) The Shareholders shall have delivered to NAC the original certificate(s) for the shares of ZoomLot Common Stock, duly endorsed to the Surviving Corporation for cancellation; (e) The Shareholders shall have delivered stock powers executed in favor of NAC for each certificate representing Forfeitable Shares, and a limited power of attorney, in substantially the form of EXHIBIT H hereto, directing the persons named therein to deliver the executed stock power to NAC in the event such shares are required to be returned to NAC upon forfeiture. (f) ZoomLot and each of the Shareholders shall have obtained each consent and approval necessary in order that the Merger and the transactions contemplated herein not constitute a breach or violation of, or result in a right of termination or acceleration or any encumbrance on any of assets of ZoomLot or any ZoomLot Subsidiary pursuant to the provisions of, any agreement, arrangement or understanding or any license, franchise or permit; (g) Between the date hereof and the Effective Time, (i) there shall have been no materially adverse change in the assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition or prospects, or financing arrangements of ZoomLot or any ZoomLot Subsidiary, (ii) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of ZoomLot or any ZoomLot Subsidiary and (iii) none of the properties and assets of ZoomLot or any ZoomLot Subsidiary shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages may have a material and adverse effect on the assets, financial condition, operating results, customer, employee, supplier or franchise relations, business condition or prospects, or financing arrangements of ZoomLot or any ZoomLot Subsidiary, and ZoomLot and the Shareholders shall have delivered to NAC a certificate, dated as of the Effective Time, to that effect; (h) ZoomLot shall have delivered to NAC an agreement, substantially in the form attached hereto as EXHIBIT K and signed by each employee of ZoomLot or any ZoomLot Subsidiary who is listed on EXHIBIT L (the "TECHNOLOGY EMPLOYEES"), pursuant to which agreement such employee shall have confirmed the transfer to ZoomLot or such ZoomLot Subsidiary of all of such employee's right, title and interest in and to all inventions, ideas, know-how, patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, software programs, proprietary rights and processes that (i) were developed, created or otherwise derived during the period of such employee's employment with ZoomLot or any ZoomLot Subsidiary (whether or not during business time) or (ii) are used or useable in the business or operations of ZoomLot 34 35 or any ZoomLot Subsidiary as conducted at, or at any time prior to the Effective Time, regardless of when the same was developed, created or otherwise derived (all of the foregoing, collectively, the "PROPRIETARY MATERIAL"). The Technology Employees are the only employees of ZoomLot or any ZoomLot Subsidiary that are reasonably likely to possess any Proprietary Material or any right or interest in any Proprietary Material or to develop or create any Proprietary Material. (i) All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to NAC's counsel, and NAC and its counsel shall have received all such counterpart original and certified or other copies of such documents as they may reasonably have requested. ARTICLE 8 INDEMNITIES 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by NAC, Merger Sub, ZoomLot and the Shareholders in this Agreement shall survive until December 31, 2004, and no claim for any breach thereof may be made unless notice thereof is given to the other parties prior to such date; provided, however, that the representations and warranties contained in SECTION 2.13 and SECTION 3.14 shall survive until the end of the applicable statute of limitations, if longer, and the representations and warranties contained in SECTION 4.2 shall survive for ten (10) years; and provided, further, however, that the limitations on survival shall not apply to any breach of this Agreement constituting fraud. 8.2 ZOOMLOT AND THE SHAREHOLDERS AGREEMENT TO INDEMNIFY. (a) Subject to the limitations in this ARTICLE 8, ZoomLot and each of the Shareholders, severally and jointly, agree to indemnify, defend and hold harmless NAC and Merger Sub and their respective affiliates, directors, officers, employees and agents from and against all proceedings, judgments, decrees, demands, claims, actions, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and costs, (collectively referred to as "LOSSES") asserted against or incurred by NAC, Merger Sub or their respective directors, officers, employees or agents resulting from a breach of any covenant, agreement, representation or warranty of ZoomLot or the Shareholders contained in this Agreement or the exhibits hereto or in any certificate, document or instrument delivered hereunder by or on behalf of ZoomLot or any Shareholder pursuant hereto other than the Registration Rights Agreement, the Employment Agreements and the Standstill Agreement. Notwithstanding anything contained in the foregoing to the contrary, no Shareholder shall have any obligation hereunder with respect to the breach by any other Shareholder of such other Shareholder's representations and warranties in SECTION 4 above or such other Shareholder's covenant under the last sentence of SECTION 1.8(g) above. 35 36 (b) TAX MATTERS. Subject to the limitations in this ARTICLE 8, ZoomLot and the Shareholders also agree to indemnify, hold harmless and defend NAC and Merger Sub from and against any and all assessments, claims and liability relating to (i) any failure to file federal, state or local tax returns or amended returns for ZoomLot or any ZoomLot Subsidiary for any period, including short periods, for which a return was due, including any extensions, prior to or ending on the Effective Time; (ii) for any non-payment by ZoomLot or any ZoomLot Subsidiary of federal, state or local taxes due prior to or ending on the Effective Time; or (iii) for any errors or omissions related to any federal, state, or local tax returns, filed by ZoomLot or any ZoomLot Subsidiary prior to or ending on the Effective Time; provided, however, that in no event shall ZoomLot or the Shareholders be obligated to indemnify NAC or Merger Sub to the extent that any net operating loss carryover or separate return limitation year reflected in one or more tax returns of ZoomLot or any ZoomLot Subsidiary is subject to limitation or restrictions arising as a result of the Merger. (c) LIMITED EXCLUSION FOR ZOOMLOT. Notwithstanding anything contained herein to the contrary, in the event the Merger shall be consummated and ZoomLot shall be merged with and into the Merger Sub to become the Surviving Corporation, any liability contemplated hereunder to be born by ZoomLot shall be borne jointly and severally by the Shareholders and the Shareholders shall not have any right of contribution against, or otherwise have any claim against or right to recover from, ZoomLot or the Surviving Corporation on account of any breach or violation by ZoomLot of any of its representations, warranties, covenants or other agreements set forth in this Agreement or any of the exhibits hereto or any certificate, document or instrument delivered hereunder by or on behalf of ZoomLot. 8.3 NAC AND MERGER SUB'S AGREEMENT TO INDEMNIFY. (a) NAC and Merger Sub hereby agree to indemnify, defend and hold harmless ZoomLot and/or the Shareholders and their agents from and against all Losses asserted against or incurred by ZoomLot and/or the Shareholders and their respective affiliates, directors, officers, employees and agents resulting from a breach of any covenant, agreement, representation or warranty of NAC or Merger Sub contained in this Agreement or the exhibits hereto or in any certificate, document or instrument delivered hereunder by or on behalf of NAC or Merger Sub pursuant hereto other than the Registration Rights Agreement, the Employment Agreements and the Standstill Agreement. In addition, in the event (i) any third party should assert any action in the name of or on behalf of NAC against ZoomLot and/or the Shareholders on account of any actual or alleged illegality or impropriety of this Agreement or of the consummation of the transactions contemplated hereby, other than on account of any misrepresentation or breach by ZoomLot and/or any Shareholder hereunder, or (ii) any Frankino Entity shall assert any claim 36 37 against ZoomLot and/or the Shareholders on account of any breach of the Frankino Settlement resulting from the execution, delivery or performance of this Agreement, or (iii) any Reading Entity shall assert any claim against ZoomLot and/or the Shareholders on account of any breach of the Reading Settlement resulting from the execution, delivery or performance of this Agreement, NAC shall indemnify, defend and hold harmless ZoomLot and the Shareholders with respect to any and all Losses resulting from such claim. (b) In addition to the foregoing indemnity, NAC hereby agrees to indemnify, defend and hold harmless the Shareholders from and against all Losses asserted against or incurred by the Shareholders and their respective affiliates, directors, officers, employees and agents as a result of NAC's failure to make a filing determined to be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 8.4 NOTICE OF CLAIM. Any party who has a claim that would give rise to liability pursuant to this ARTICLE 8 shall give prompt notice to all other parties of such claim, together with a reasonable description thereof. With respect to any claim by a third party that is covered by the indemnifications contained hereunder, the party obligated to indemnify shall be afforded the opportunity, at its expense, to defend or settle such claim if, within ten (10) business days of notice thereof, it acknowledges in writing its indemnification obligation hereunder, utilizes counsel reasonably satisfactory to the indemnified party, commences such defense promptly and pursues such defense with diligence; provided, however, that such indemnifying party shall secure the consent of the indemnified party to any settlement, which consent shall not be unreasonably withheld or delayed. If any indemnified party defends any claim hereunder, such party shall use reasonable efforts in such defense and to mitigate Losses arising thereunder and shall not settle any claim without the consent of the indemnifying party, which shall not be unreasonably withheld or delayed. 8.5 CERTAIN LIMITATIONS. (a) CAP FOR BREACH AND SOLE REMEDY. The liability of ZoomLot and the Shareholders for indemnification under SECTION 8.2 above shall be limited, subject to subsection (d) below, to the value (as determined in SECTION 8.6 below) of the NAC Merger Shares that have not been forfeited pursuant to Section 1.8 herein (such value, the "ZOOMLOT CAP"), and, subject to subsection (d) below, the return of such shares (or payment of the value thereof) shall be the exclusive remedy of NAC (or any person acting or purporting to act by or in right of NAC) or affiliate, director, officer, shareholder, employee or agent of NAC in any claim or cause of action based thereon (subject to the exception in SECTION 8.5(d)) against ZoomLot and the Shareholders (or their related parties) for any inaccuracy, misrepresentation, breach of, or default in any of the representations, warranties or covenants given or made by ZoomLot or the Shareholders under this Agreement or any exhibit hereto or in any certificate, document or instrument delivered by or on behalf of ZoomLot or any Shareholder pursuant hereto other than the Registration Rights Agreement, the Employment Agreements and the Standstill Agreement The liability of NAC and Merger Sub for indemnification under SECTION 8.3 above shall be limited, subject to subsection (d) below, to fifteen million dollars ($15,000,000) (the "NAC CAP") and the payment of such amount (or the appropriate portion thereof) shall be the exclusive remedy of 37 38 ZoomLot and the Shareholders (and any person acting or purporting to act by or in right of ZoomLot and/or any one or more of the Shareholders) or affiliate, director, officer, shareholder, employee or agent of ZoomLot or any Shareholder in any claim or cause of action based thereon (subject to the exception in SECTION 8.5(d)) against NAC and/or Merger Sub (or their related parties) for any inaccuracy, misrepresentation, breach of, or default in any of the representations, warranties or covenants given or made by NAC and/or Merger Sub under this Agreement or any exhibit hereto or in any certificate, document or instrument delivered by or on behalf of NAC or Merger Sub pursuant hereto other than the Registration Rights Agreement, the Employment Agreements and the Standstill Agreement. (b) ABSENCE OF REMEDY FOR FAILURE TO MEET OBJECTIVES. In addition, NAC acknowledges and agrees that (i) NAC's sole remedy against ZoomLot or the Shareholders for any failure by the Surviving Corporation to achieve either or both of the Objectives shall be return of the Forfeitable Shares, all as described in ARTICLE 1 above, (or, in the event any Shareholder who is required to return to NAC any Forfeitable Shares shall refuse or otherwise fail to do so, to pay NAC the value of such Forfeitable Shares) and (ii) in no event shall ZoomLot or the Shareholders have any liability under this Agreement for any failure of the Surviving Corporation to achieve either or both of the Objectives other than for the return of the Forfeitable Shares (or, in the event any Shareholder who is required to return to NAC any Forfeitable Shares shall refuse or otherwise fail to do so, to pay NAC the value of such Forfeitable Shares); provided, however, that, if any Shareholder shall refuse or otherwise fail to return to NAC any Forfeitable Shares as required under Article 1 above, such Shareholder shall also be liable for damages as provided in SECTION 1.8(i) above. Nothing contained in this clause (b) shall be deemed to limit or restrict in any respect any liability ZoomLot or any Shareholder may have under or pursuant to Section 8.2 or otherwise with respect to any breach or violation of any representation, warranty, covenant or other agreement set forth in this Agreement or any exhibit hereto or in any certificate, document or instrument delivered hereunder by or on behalf of ZoomLot or any Shareholder pursuant hereto. (c) BASKET. In no event shall ZoomLot and the Shareholders, as a party on the one hand, or NAC, as a party on the other hand, be required to indemnify the other party for any Losses relating to any matter subject to indemnification under this ARTICLE 8 unless and until such Losses exceed in the aggregate $150,000 (the "BASKET"), in which event all such Losses in excess of the Basket shall be recoverable by the indemnified party. (d) INAPPLICABILITY OF CAP AND BASKET. The Basket and ZoomLot Cap or NAC Cap (as applicable) shall not apply to (i) the obligation of Cygnet and the Garcia Shareholders to repay the Cygnet Payable, (ii) any breach of this Agreement constituting fraud, (iii) NAC's obligation of indemnification under clause of SECTION 8.3, (iv) NAC's obligation of indemnification under the last sentence of SECTION 8.3(a), (v) ZoomLot's and the Shareholders' obligation of indemnification 38 39 under SECTION 8.2(b), (vi) the liability of any Shareholder pursuant to SECTION 1.8(i) or any Shareholder's obligation of indemnification under SECTION 8.2(a) with respect to any breach by it/him/her of SECTION 1.8(i), (vii) NAC's obligation of indemnification under SECTION 8.3(a) with respect to any breach by NAC of its representations and warranties in SECTION 2.13 or (viii) any Shareholder's obligation of indemnification under SECTION 8.2(a) with respect to any breach by such Shareholder of SECTION 1.8(g). 8.6 SATISFACTION OF OBLIGATIONS. If any indemnifying party becomes obligated to indemnify another party with respect to any claim for indemnification hereunder and the amount of liability with respect thereto shall have been finally determined, subject to the applicable limitations (if any) set forth in SECTION 8.5, the indemnifying party shall pay or otherwise satisfy such amount or obligation to the indemnified party within ten (10) days following receipt by the indemnifying party of written demand from the indemnified party. NAC and Merger Sub shall be obligated to satisfy any obligation pursuant to such claims for indemnification against ZoomLot or the Shareholders by first notifying the Shareholders' Representative of such finally determined obligation, and the Shareholders shall, at their option, either (i) pay the amount of such finally determined obligation in cash to NAC; or (ii) return to NAC a number of NAC Merger Shares equal to the amount of such finally determined obligation divided by $15.00 (subject to adjustment for any stock split, reorganization or recapitalization). If the NAC Merger Shares are not surrendered to NAC within such 10 days, the Shareholders waive their right/option to satisfy any indemnification obligation by the use of NAC Merger Shares. If a Shareholder elects to deliver NAC Merger Shares in satisfaction of an obligation, the Shareholder must first surrender Nonforfeitable Shares and may only deliver shares that remain subject to forfeiture to the extent that the obligation is in excess of the value of all of such Shareholder's Nonforfeitable Shares as determined by clause (ii) above and such Shareholder is surrendering, or has previously surrendered, all of such Shareholder's Nonforfeitable Shares in satisfaction of the current obligation or any prior obligation. 8.7 EXCLUSIVE REMEDY. The rights and remedies of NAC, Merger Sub, ZoomLot and the Shareholders provided for in this Agreement (including the rights to indemnification) shall be exclusive, and no other rights and remedies that may exist at law or in equity may be asserted against a party. It is agreed and understood that any party hereto may be separately liable, without application of any limitation or exclusion provided for herein, on account of any breach by such party of any of its/his/her representations, warranties, covenants and other agreements set forth in any Employment Agreement, the Standstill Agreement or the Registration Rights Agreement. ARTICLE 9 GENERAL PROVISIONS 9.1 AMENDMENT. This Agreement may not be amended except by and as provided in an instrument in writing approved by NAC, Merger Sub, ZoomLot and a majority-in-interest of the Shareholders or the Shareholders' Representative (who may agree to any amendment for and on behalf of any and all of the Shareholders) and signed on behalf of each of the parties hereto; 39 40 provided, however, that no amendment TO SECTION 1.12 hereof as it relates to Cygnet may be amended except by and as provided in an instrument in writing approved by NAC and Cygnet. 9.2 NON-WAIVER. Failure to insist upon strict compliance with any term, covenant or condition hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one time or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 9.3 PUBLIC STATEMENTS. Except as required by applicable law, no party shall make any public announcement or statement with respect to the Merger, this Agreement or any related transaction without the approval of the other parties, which approval will not be unreasonably withheld or delayed. Each party agrees to consult with the other parties prior to issuing any such public announcement or statement. 9.4 NOTICES. All notices and other communications hereunder shall be in writing and shall be sufficiently given if made by hand delivery, by telecopier, by recognized overnight courier service or by registered or certified mail (postage prepaid and return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by it by like notice): If to NAC or the Merger Sub: National Auto Credit, Inc. 30000 Aurora Road Solon, Ohio 44139 Attn: _________________ FAX: ________________ With a copy to: Parker, Duryee, Rosoff & Haft, P.C. 529 Fifth Avenue New York, New York 10017 Attn: Herbert F. Kozlov FAX: 212-972-9487 If to ZoomLot: ZoomLot Corporation 2575 East Camelback, Suite 700 Phoenix, Arizona 85016 Attn: Steven P. Johnson FAX: 602-778-5025 With a copy to: Snell & Wilmer, LLP One Arizona Center Phoenix, Arizona 85004-2202 Attn: Steven D. Pidgeon FAX: 602-382-6070 40 41 If to the Shareholders (or Ernest C. Garcia, II any of them): Verde Capital Partners, LLC 2525 East Camelback, Suite 1150 Phoenix, AZ 85016 FAX: 602-778-5025 With a copy to: Snell & Wilmer, LLP One Arizona Center Phoenix, Arizona 85004-2202 Attn: Steven D. Pidgeon FAX: 602-382-6070 If to Cygnet: Cygnet Capital Corporation 2575 East Camelback Road, Suite 700 Phoenix, Arizona 85016 Attn: Steven P. Johnson FAX: 602-778-5025 With a copy to: Snell & Wilmer, LLP One Arizona Center Phoenix, Arizona 85004-2202 Attn: Steven D. Pidgeon FAX: 602-382-6070 All such notices and other communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if delivered by mail; the next business day, if by recognized overnight courier service; and when receipt acknowledged, if telecopied; provided, however, notice to a party's attorney shall not constitute notice to such party. 9.5 INTERPRETATION. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. References to Sections and Articles refer to sections and articles of this Agreement unless otherwise stated. Words such as "herein," "hereinafter," "hereof," "hereto," "hereby" and "hereunder," and words of like import, unless the context requires otherwise, refer to this Agreement (including the exhibits and attachments hereto). As used in this Agreement, the 41 42 masculine, feminine and neuter genders shall be deemed to include the others if the context requires. This Agreement is the product of mutual negotiation; and no party shall be deemed the draftsperson hereof or of any portion or provision hereof. 9.6 SEVERABILITY. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or any of the other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable. 9.7 MISCELLANEOUS. This Agreement (together with all other documents and instruments referred to herein or contemplated hereby): (a) constitutes the entire agreement, and supersedes all other prior or contemporaneous agreements, representations, warranties and undertakings, both written and oral, among the parties, with respect to the subject matter hereof; (b) is not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise, except that NAC and the Merger Sub may assign all or any portion of their rights under this Agreement to any wholly owned subsidiary, but no such assignment shall relieve NAC and the Merger Sub of their obligations hereunder, and except that this Agreement may be assigned by operation of law to any corporation with or into which NAC may be merged. 9.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 9.9 GOVERNING LAW. This Agreement shall be governed by, interpreted under, and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed within the State of New York without giving effect to principles of conflicts of laws thereof. 9.10 WAIVER OF JURY TRIAL. Each of the parties hereto expressly waives its right to a jury trial with respect to any such suit, litigation or other judicial proceeding. 9.11 SHAREHOLDERS' REPRESENTATIVE. The Shareholders hereby irrevocably constitute and appoint Ernest C. Garcia, II to act as their true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, solely to execute any and all agreements and documents required or contemplated by this Agreement, including any amendments hereto, on behalf of the Shareholders. If, for any reason, Ernest C. Garcia, II is incapacitated or unable to act or submits to NAC and all of the other Shareholders his resignation as the Shareholders' Representative, the Shareholder who then holds of record the largest number of outstanding shares of NAC Common Stock is hereby appointed as to act as the Shareholders' Representative. NAC shall be entitled to send all notices to, and to rely upon all consents and approvals given, and all other actions taken, by, the incumbent Shareholders' Representative until such time as NAC receives actual notice of such Shareholders' Representative's resignation, death or incapacity. NAC shall be entitled to rely upon the response of the Shareholders' Representative in all matters pertaining to the subject 42 43 matter hereof, including, without limitation, any consent or approval provided or contemplated hereunder to be given by or on behalf of, or obtained from, the Shareholders or any of them. Notice to or service upon the Shareholders' Representative shall be deemed to constitute good and sufficient notice or service upon all of the Shareholders for all matters, including without limitation, all notices, demands for arbitration and legal process. As used in this Agreement, "SHAREHOLDERS' REPRESENTATIVE" means Ernest C. Garcia, II or such other person who may, from time to time, be appointed or authorized to act on behalf of the Shareholders as contemplated by this SECTION 9.11. 9.12 SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARY. This Agreement shall be binding upon and enforceable against the parties hereto and their heirs, executors, legal representatives, successors and assigns and shall inure to the benefit of the parties hereto and their heirs, executors, legal representative, successors and permitted assigns. This Agreement and each of the provisions hereof (including representations, warranties and covenants) are solely for the benefit of the parties and their respective successors and permitted assigns. No provisions of this Agreement or any of the documents and certificates executed in connection herewith (including any representations, warranties and covenants) shall be construed as creating any rights of any nature whatsoever in any other person or entity other than the parties (and their respective affiliates, directors, officers, employees and agents) and their respective successors and permitted assigns. [Balance of page intentionally left blank] 43 44 MERGER AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, each of NAC, Merger Sub, ZoomLot and the Shareholders has executed this Agreement, or caused it to be executed on its behalf by an officer or other representative thereunto duly authorized, all as of the date first written above. NATIONAL AUTO CREDIT, INC., a Delaware corporation By: -------------------------------------- Name: James J. McNamara Title: Chief Executive Officer ZOOMLOT ACQUISITION CORP., a Delaware corporation By: -------------------------------------- Name: James J. McNamara Title: President ZOOMLOT CORPORATION, a Delaware corporation By: -------------------------------------- Name: Ernest C. Garcia, II Title: Chief Executive Officer -------------------------------------- ERNEST C. GARCIA, II 44 45 MERGER AGREEMENT SIGNATURE PAGE VERDE REINSURANCE COMPANY, LTD., a Nevis Island corporation By: -------------------------------------- Name: Ernest C. Garcia, II Title: Managing Director ERNIE GARCIA III 2000 TRUST By: -------------------------------------- Name: Steven P. Johnson Title: Trustee BRIAN GARCIA 2000 TRUST By: -------------------------------------- Name: Steven P. Johnson Title: Trustee -------------------------------------- RAY FIDEL -------------------------------------- STEVEN P. JOHNSON -------------------------------------- MARK SAUDER EJMS INVESTORS LIMITED PARTNERSHIP, an Arizona limited partnership By: SMJE INVESTORS, LLC, AN ARIZONA LIMITED LIABILITY COMPANY, the General Partner By: -------------------------------------- Name: --------------------------------- Title: -------------------------------- 45 46 MERGER AGREEMENT SIGNATURE PAGE ----------------------------------------- COLIN BACHINSKY ----------------------------------------- CHRIS ROMPALO ----------------------------------------- DONNA CLAWSON ----------------------------------------- MARY REINER ----------------------------------------- KATHY CHACON Agreement as to SECTION 1.12 and ARTICLE 9 of this Agreement only, and for the purposes of those provisions of this Agreement Cygnet shall be deemed a party to this Agreement: CYGNET CAPITAL CORPORATION, an Arizona corporation By: ------------------------------------ Name: Steven P. Johnson Title: Vice President and Secretary 46 EX-4.1 3 l85759aex4-1.txt EXHIBIT 4.1 1 Exhibit 4.1 CERTIFICATE OF DESIGNATIONS OF SERIES B AND SERIES C PREFERRED STOCK OF NATIONAL AUTO CREDIT, INC. --------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware --------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of National Auto Credit, Inc. (the "CORPORATION"), a Delaware corporation, at a meeting duly called and held, a quorum being present: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of Article FOURTH of the Corporation's Restated Certificate of Incorporation, two new series of Preferred Stock of the Corporation are hereby created and designated as the Series B Preferred Stock and the Series C Preferred Stock. The rights, preferences, privileges, and restrictions granted to and imposed on the Series B Preferred Stock, which series shall consist of 275,000 authorized shares, are as set forth in Articles I and III below. The rights, preferences, privileges, and restrictions granted to and imposed on the Series C Preferred Stock, which series shall consist of 735,000 authorized shares, are as set forth in Articles II and III below. I. THE SERIES B PREFERRED STOCK 1. CONVERSION. (a) VOLUNTARY CONVERSION. The Holders (as hereinafter defined) of shares of the Series B Preferred Stock shall have the right to convert such shares as follows: (i) RIGHT TO CONVERT. Each share of Series B Preferred Stock shall be convertible, at the option of the Holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or, if there then be such a registrar and transfer agent, the registrar and transfer agent for such stock, into ten (10) (as the same may be adjusted pursuant to SUBSECTION (C) BELOW, the "SERIES B CONVERSION RATE"), shares of the Corporation's common stock ("COMMON STOCK"), par value $.05 per share, which shares of Common Stock upon issuance shall be validly issued, fully paid and nonassessable. As used herein, the "HOLDER" of any share of capital stock or other security shall mean the registered holder thereof as reflected in the books and records of the Corporation or, if there be such a registrar and transfer agent, in the books and record of the registrar and transfer agent for such share of capital stock or other security. 2 (ii) MECHANICS OF CONVERSION. Any Holder of shares of Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, only upon (A) the surrender of the certificate or certificates therefor, duly endorsed, at the office of the Corporation or, if there then be such a registrar and transfer agent, at the office of the registrar and of any transfer agent for the Series B Preferred Stock, and (B) the delivery by such Holder of written notice to the Corporation at its principal corporate office of such Holder's election to convert the same, which notice shall state therein the name or names in which the certificate or certificates for shares of Common Stock issuable upon the conversion of such shares of Series B Preferred are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver, or cause to be issued and delivered, at such office to such Holder, or to the specified nominee or nominees of such Holder, a certificate or certificates for the number of shares of Common Stock to which such Holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Preferred Stock to be converted, and as of the close of business on such date, (A) the Holder of the shares of Series B Preferred Stock surrendered for conversion shall cease to have any voting or other rights attendant to or associated with such shares, excepting only the right to receive shares of Common Stock upon the conversion thereof as contemplated hereby, and (B) the Person (as hereinafter defined) or Persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock. As used herein, "PERSON" means any individual, corporation, partnership (general or limited), limited liability company, joint venture or other business entity. (b) MANDATORY CONVERSION. (i) AUTOMATIC CONVERSION. Upon the occurrence of a Reading Termination (as hereinafter defined), each and all of the outstanding shares of Series B Preferred Stock shall automatically convert into shares of Common Stock at the Series B Conversion Rate. As used herein, a "READING TERMINATION" means the termination of that certain Stock Purchase And Standstill Agreement, dated as of November 3, 2000, by and among, on the one hand, Reading Entertainment, Inc., FA, Inc., Citadel Holding Corporation and Craig Corporation and, on the other hand, the Corporation. (ii) MECHANICS OF CONVERSION. Promptly following a Reading Conversion, the Corporation shall furnish or cause to be furnished to each Holder of outstanding shares of Series B Preferred Stock written notice, which notice shall state (A) that a Reading Conversion has occurred and that, as a consequence thereof, all of the outstanding shares of Series B Preferred Stock have been converted automatically into shares of Common Stock and (B) the Series B Conversion Rate then in effect and shall request that such Holder surrender and deliver to the Corporation or, if there then be such a registrar and transfer agent, the registrar and transfer agent for the Common Stock and Series B Preferred Stock, the stock certificate or certificates representing all of the shares of Series B Preferred Stock owned or held by such Holder. Promptly following the surrender and delivery of such stock certificate or certificates as so requested, the Corporation shall issue and deliver, or cause to be issued and delivered, at the Corporation's principal office or the office of such registrar and transfer agent to such Holder a certificate or certificates for the number of shares of Common Stock into which the shares of Series B Preferred Stock so surrendered have been converted. As of the close of business on the date a Reading Termination occurs, the Holder of any shares of Series B Preferred Stock shall 2 3 cease to have any voting or other rights attendant to or associated with such shares, excepting only the right to receive shares of Common Stock upon the conversion thereof as contemplated hereby, and upon surrender and delivery of the stock certificate or certificates for his, her or its shares of Series B Preferred Stock as provided above, such Holder shall be treated for all purposes as the record holder of the shares of Common Stock issuable upon conversion of such shares as contemplated above. (c) CONVERSION RATE ADJUSTMENTS OF SERIES B PREFERRED STOCK. In the event that the Corporation shall, at any time or from time to time while the shares of Series B Preferred Stock are outstanding, (i) declare a dividend or distribution on the Common Stock in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock into a greater number of shares or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, in each case, whether by reclassification of shares, recapitalization of the Corporation (including a recapitalization effected by a merger or consolidation) or otherwise, the Series B Conversion Rate in effect shall be proportionately adjusted so that the Holder of any share of Series B Preferred Stock converted after the record date for (or, if there be no record date for such event, the effective date of) such events shall be entitled to receive, upon conversion of his/her/its shares of Preferred Stock, the number of shares of Common Stock that such Holder would have been entitled to receive had such Series B Preferred Stock been converted immediately prior to such record date (or, if there be no record, such effective date). The Series B Conversion Rate shall be adjusted, cumulatively, for each and every event set forth above in this paragraph occurring prior to the effective date of the conversion. In case of any consolidation or merger of the Corporation with another Person, each share of Series B Preferred Stock shall thereafter be convertible only into the number of shares of stock or other securities or property, including cash, to which a Holder of the number of shares of Common Stock deliverable upon conversion of such share of the Series B Preferred Stock would have been entitled received upon such consolidation or merger had such share of Series B Preferred Stock been converted immediately prior to the record date for (or, if there be no record date for such event, the effective date of) such consolidation or merger; and, in any such case, appropriate adjustments shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the Holders of the Series B Preferred Stock to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the Series B Conversion Rate) shall thereafter be applicable, as nearly as may be reasonable, in relation to any shares of stock or other securities thereafter deliverable upon the conversion of shares of Series B Preferred Stock. (d) NOTICES OF ADJUSTMENT. Whenever one or more adjustments to the Series B Conversion Rate are required by the provisions of this subsection (d), the Corporation shall promptly place on file with the registrar and transfer agent, if any, for the Common Stock and the Series B Preferred Stock, and with the Secretary of the Corporation, a statement signed by two officers of the Corporation stating the adjusted Series B Conversion Rate. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing each such adjustment. Promptly after each adjustment to the Series B Conversion Rate, the Corporation shall mail a notice thereof to each Holder of shares of Series B Preferred Stock containing a brief description of the transaction causing such adjustment and the resulting 3 4 Series B Conversion Rate. The Corporation shall, upon the written request at any time of any Holder of shares of Series B Preferred Stock, furnish or cause to be furnished to such Holder a certificate setting forth (A) any adjustment and readjustment of the Series B Conversion Rate pursuant to this subsection (c) above, (B) the Series B Conversion Rate at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series B Preferred Stock. (e) NO IMPAIRMENT. Absent prior written consent of the Holders of a majority of the outstanding shares of Series B Preferred Stock, the Corporation shall not enter into any standstill or similar agreement, or any modification or amendment thereof, that would prohibit or restrict in any material respect (including by requiring stockholder approval) the ability of the corporation to issue shares of Common Stock upon conversion of the Series B Preferred Stock. (f) NO FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon the conversion of any share or shares of the Series B Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded up or down to the nearest whole share (with one-half being rounded upward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series B Preferred Stock the Holder thereof is at the time converting into shares of Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series B Preferred Stock, in addition to such other remedies as shall be available to the Holder of such shares of Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Certificate of Incorporation of the Corporation. 2. VOTING RIGHTS. (a) GENERAL VOTING RIGHTS. The Holder of each share of Series B Preferred Stock shall have the right to one vote for each share of Common Stock into which such share of Series B Preferred Stock could then be converted, and with respect to such vote, such Holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote; provided, however, that, notwithstanding anything contained herein to the contrary, for so long as the Holders of shares of Series B Preferred Stock, voting as a class, shall be entitled hereunder to elect one or more members to the Corporation's Board of Directors 4 5 (the "BOARD"), the holders of shares of Series B Preferred Stock shall not otherwise be able to exercise any vote with respect to the election of any member to the Board.. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series B Preferred Stock held by each Holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) CLASS VOTING FOR THE ELECTION OF DIRECTORS. For so long as at least two hundred and five thousand (205,000 shares) of Series B Preferred Stock are issued and outstanding, the Holders of shares of Series B Preferred Stock, voting separately as a class, shall be entitled to nominate and elect the lesser of (i) two (2) members to the Board or (ii) a number of directors that would represent one-sixth (1/6) of the entire membership of the Board; and for so long as at least one hundred and ten thousand (110,000) shares of Series B Preferred Stock are issued and outstanding, the Holders of shares of Series B Preferred Stock, voting separately as a class, shall be entitled to nominate and elect one (1) member to the Board. To the extent the Holders of shares of Series B Preferred Stock shall be entitled to nominate or elect two (2) members to the Board, such right shall be exercisable only with respect to members of the Board who have different terms as members of the Board unless all members of the Board have the same term. For foregoing right to nominate or elect members to the Board shall (except with respect to certain vacancies as provided below) only apply with respect to an election at an annual meeting of shareholders of the Corporation and shall first be available (subject to the foregoing terms and conditions) with respect to the first annual meeting of shareholders of the Corporation next following the initial issuance of shares of Series B Preferred. At least twenty (20) days prior to the distribution by the Corporation to its shareholders of a proxy statement relating to any annual meeting at which the Holders of shares of Series B Preferred Stock shall, as provided above, be entitled to nominate and elect a member to the Board, the Corporation shall give written notice (a "PROPOSED ANNUAL MEETING NOTICE") of such proposed annual meeting to all Holders of the then outstanding shares of Series B Preferred Stock and shall therein solicit from such Holders a nominee to be elected a member of the Board at such meeting. Following receipt of a Proposed Annual Meeting Notice from the Corporation, any Holder shall be entitled to give the Corporation written notice (a "NOMINEE NOTICE") specifying such individual (any such individual, a "PROPOSED CANDIDATE") as such Holder may wish to have nominated for election to the Board at the next annual meeting of shareholders, which notice shall be signed by such Holder, and upon the giving of any Nominee Notice, the Holder giving the same shall be deemed to have voted all of his/her/its shares of Series B Preferred Stock in favor of the nomination of the Proposed Candidate named in such Notice for election to the Board. The Corporation shall include in the proxy statement for such annual meeting, as a candidate for election to the Board at such meeting, the Proposed Candidate who has received the most votes from Holders as reflected in Nominee Notices received by the Corporation prior to the close of business on the fifteenth (15th) day following the date on which the Corporation gave the Proposed Annual Meeting Notice (or prior to the close of business on the business day next preceding such fifteenth day, if such fifteenth day is not a business day); provided, however, that the Corporation shall not be required to include such Proposed Candidate in such proxy statement as a nominee for election to the Board unless, on or before the close of business on such fifteenth day (or prior to the close of business on the business day next preceding such fifteenth day, if such fifteenth day is not a business day), in writing signed by such Proposed Candidate, all such information with respect to such Proposed Candidate as may be required to 5 6 be set forth in such proxy statement under applicable law and such other information as the Corporation may reasonably request. The Holders of shares of Series B Preferred Stock shall not be entitled to take any action at any meeting at which Holders of shares of Series B Preferred Stock are entitled to act separately as a class unless a quorum thereof is present in person or represented by proxy, where a quorum shall consist of the Holders of a majority of the then issued and outstanding shares of Series B Preferred Stock, and with respect to any vote to be taken by the Holders of shares of Series B Preferred Stock voting separately as a class, each Holder shall be entitled to one (1) vote for each share of Series B Preferred Stock owned of record by such Holder. In the case of any vacancy (other than a vacancy caused by removal) in the office of a director elected by the Holders of Series B Preferred Stock as contemplated by the foregoing provisions of this Section 2, the remaining director elected by the Holders of Series B Preferred Stock as contemplated by the foregoing provisions of this Section 2 (if there should be such a director) shall be entitled to elect a successor to hold office for the unexpired term of the director whose place shall be vacant. Any director who shall have been elected by the Holders of shares of Series B Preferred Stock, or by any director so elected as provided in the immediately preceding sentence, may be removed during the aforesaid term of office, either with or without cause, by, and (except as provided in the last sentence of this subsection (c)) only by, the affirmative vote of the Holders of shares of Series B Preferred Stock, given either at a special meeting of such Holders duly called for that purpose or pursuant to a written consent of such Holders, and any vacancy thereby created may be filled by the Holders of shares of Series B Preferred Stock represented at the meeting or pursuant to unanimous written consent. Notwithstanding anything contained in herein to the contrary, any director elected by the Holders of shares of Series B Preferred Stock may be removed by the affirmative vote of at least two-thirds (2/3) of the entire Board, exclusive of such director, if such director has, during the period such director was serving on the Board, (i) been guilty of fraud, embezzlement or defalcation against the Board, the Corporation or any of its subsidiaries or against any customer, client, vendor or supplier of the Corporation or any of its subsidiaries, (ii) been employed as an officer of the Corporation or any of its subsidiaries and such employment has been terminated for cause or (iii) has been convicted of any criminal act for which such director can be incarcerated for one year or more (regardless of whether such director is in fact incarcerated). II. THE SERIES C CONVERTIBLE PARTICIPATING PREFERRED STOCK 1. REDEMPTION BY HOLDER. (a) TIMING OF REDEMPTION RIGHT. At any time after the earlier of September 30, 2003 or the occurrence of a Redemption Event (as hereinafter defined), but in any event, no earlier than January 1, 2003, a Holder of shares of Series C Preferred Stock shall be entitled to give a Redemption Notice (as hereinafter defined) with respect to such of those shares as such Holder desires to have the Corporation redeem. Following receipt of an appropriate Redemption Notice, the Corporation (as more fully set forth below) shall, to the extent it may lawfully do so, redeem the shares of Series C Preferred Stock specified in such Notice by paying in cash therefor in an amount (the "REDEMPTION PAYMENT AMOUNT") equal to the product of (A) the number of shares of Series C Preferred Stock with respect to which such Redemption Notice has been given times (B) the greater of (x) $15.00 (as adjusted for any stock splits, stock dividends, recapitalizations 6 7 or the like) plus all declared but unpaid dividends on such shares or (y) ten (10) times the Fair Market Value (as hereinafter defined) of a share of Common Stock as of the date the Redemption Notice is received by the Corporation; Notwithstanding anything contained herein to the contrary, no Redemption Notice may be given, and if given shall not be effective, with respect to any shares of Series C Preferred Stock unless such shares shall no longer be subject to forfeiture pursuant to the Merger Agreement. (b) TIMING OF REDEMPTION PAYMENTS. Within thirty (30) days following receipt of any valid Redemption Notice, the Corporation shall pay to the Holder giving such Notice an amount equal to the lesser of (i) the full Redemption Payment Amount due to such Holder or (ii) the product of (A) the number of shares of Series C Preferred Stock being redeemed times (B) thirty dollars ($30) (as adjusted for any stock splits, stock dividends, recapitalizations or the like) (the amount of such product being hereinafter referred to as the "INITIAL CAP AMOUNT"). In the event the Redemption Payment Amount payable to any Holder of Series C Preferred Stock exceeds the Initial Cap amount payable to such Holder, the unpaid balance of such amount (such unpaid balance due to any such Holder, together with interest thereon at the rate of eight percent (8%) per annum from the date such Initial Cap Amount was due hereunder until such amount is paid, being hereinafter referred to as such Holder's "REDEMPTION BALANCE AMOUNT") shall be paid to such Holder in accordance with the following provisions of this subsection (b). Within ninety (90) days following the end of each fiscal year, the Corporation shall, to the extent it may legally do so, pay and apply to all Holders who, as of the end so such fiscal year, had a Redemption Balance Amount due to them an amount equal to the lesser of (A) the aggregate Redemption Balance Amounts owned to all such Holders as of the end of such fiscal year and (B) the Free Cash Flow of the Corporation for such fiscal year. In the event the Free Cash Flow of the Corporation for any fiscal year (or the portion thereof that the Corporation is legally permitted to pay) shall not be sufficient to pay the full Redemption Balance Amounts due to all such Holders as of the end of such fiscal year, such Free Cash Flow (or the portion thereof that the Corporation is legally permitted to pay) shall be paid to and among such Holders in proportion to the respective Redemption Balance Amounts owed to them as of the end of such fiscal year. The Corporation may (but is shall not be obligated), to the extent it may legally do so, pay any Redemption Balance Amount sooner than required above, provided that it shall not pay any portion of an Redemption Balance Amount due to any Holder of shares of Series C Preferred Stock unless it concurrently pays an equal portion (determined on the basis of the amount of the respective Redemption Balance Amounts as of the end of the calendar month next preceding the date of payment) of all other outstanding Redemption Balance Amounts. (c) TERMINATION OF RIGHTS. Upon surrender of any shares of Series C Preferred Stock to for redemption as contemplated above, the Holder of such shares shall cease to have any rights attendant to or associated with such shares, excepting only the right to receive payment for such shares as provided above. (d) DEFINITIONS. As used herein, the following terms shall have the following respective meanings: (i) "FAIR MARKET PRICE" of a share of Common Stock as of any date means the average of the daily Trading Prices for a share of Common Stock for the twenty (20) consecutive trading days commencing 20 days before immediately preceding such date, where the Trading 7 8 Price for a share of Common Stock on any trading day shall be (i) the last sale price on such day on the principal stock exchange or the Nasdaq National Market on which shares of Common Stock are then listed or admitted to trading, (ii) if no sale of Common Stock takes place on such day on any such exchange or market, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange or market, (iii) if the Common Stock are not then listed or admitted to trading on any stock exchange or such market, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by Nasdaq or the National Quotation Bureau, Inc. (or, if neither Nasdaq or the National Quotation Bureau, Inc. is at the time is engaged in business of reporting such prices, then such prices as furnished by any similar firm then engaged in such business, or if there is no such firm, as furnished by any member of the National Association of Securities Dealers ("NASD") selected in good faith by the Board). (ii) "FREE CASH FLOW" of the Corporation for any fiscal year means (a) the after-tax income of the Corporation (determined on a consolidated basis) for such fiscal year plus the amount of depreciation and amortization that were deducted for the purposes of determining the taxable income of the Corporation (determined on a consolidated basis) for such fiscal year LESS (b) the amount of any debt service required to be paid by the Corporation (determined on a consolidated basis) during the next following fiscal year. (iii) "MERGER AGREEMENT" means that certain Merger Agreement And Plan of Reorganization, dated as of December 15, 2000, by and among the Corporation, ZLT Acquisition Corp., ZoomLot Corporation and the Shareholders of ZoomLot Corporation, as the same existed on December 15, 2000. (iv) "REDEMPTION EVENT" means the occurrence of any Valuation Event or the achievement of any Objective that would render any of the shares of Series C Preferred Stock no longer subject to forfeiture under the terms of the Merger Agreement. (v) "REDEMPTION NOTICE" means a written notice that is timely given by the Holder of shares of Series C Preferred Stock to the Corporation at its principal offices, that is signed by such Holder, that specifies the shares of Series C Preferred Stock that such Holder wishes to have redeemed and that is accompanied by the stock certificates that represent the shares of Series C Preferred Stock that such Holder desires to have redeemed and that are being surrendered to the Corporation for redemption and cancellation. (vi) "VALUATION EVENT" means any of the following: (i) the execution by the Surviving Corporation (as defined in the Merger Agreement) or one of its subsidiaries, during the Forfeiture Period (as defined in the Merger Agreement), of an agreement that provides for a private cash equity investment in the Surviving Corporation or such subsidiary of not less than $10 million and pursuant to which the pre-money valuation of the Surviving Corporation and its subsidiaries is $30 million or more, provided that the transaction contemplated by such agreement closes prior to or within 120 days following the Expiration Date (as defined in the Merger Agreement); (ii) the execution, during the Forfeiture Period, of an agreement for the sale by the Corporation of all or substantially all of the equity or assets of the Surviving Corporation in a transaction in which the Surviving Corporation and/or its subsidiaries are valued at $30 million or more, provided that the transaction contemplated by such agreement closes prior to or 8 9 within 120 days following the Expiration Date; (iii) the execution, during the Forfeiture Period, of an agreement or plan that provides for (A) a firm commitment underwritten initial public offering by the Surviving Corporation, (B) a reverse merger pursuant to which the Surviving Corporation or any of its subsidiaries is to become a reporting company under the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), (C) a spin off in whole or in part of the capital stock of the Surviving Corporation or any of its subsidiaries to the shareholders of the Corporation, or (D) any event similar to the events in (A), (B) and (C), in each such case in which the Surviving Corporation or any of its subsidiaries is valued at $30 million or more pre-money and, in the case of an initial public offering, the proceeds are not less than $10 million, provided in each of the foregoing cases that the transaction contemplated by such agreement or plan closes prior to or within 120 days following the Expiration Date; (iv) the execution, during the Forfeiture Period, of an agreement to provide a private cash equity investment in the Corporation or any of its subsidiaries of not less than $10 million and pursuant to which the pre-money valuation of the Surviving Corporation and its subsidiaries is $30 million, wherein $10 million or more of the proceeds of such investment is intended for the Surviving Corporation or any of the Surviving Corporation's subsidiaries, provided that the transaction contemplated by such agreement closes prior to or within 120 days following the Expiration Date; (v) the termination by the Surviving Corporation of the employment of Ray Fidel, Mark Sauder and Eric Splaver, other than for "cause" (as such term is defined or understood under New York law) or on account of their disability, if the Surviving Corporation is, at the time of each of such terminations, in compliance in all material respects with the performance and development criteria set forth in EXHIBIT E to the Merger Agreement; or (vi) the Corporation undergoes a Change in Control, where "CHANGE OF CONTROL" means any of the following: (A) any merger of the Corporation in which the Corporation is not the continuing or surviving entity or pursuant to which capital stock of the Corporation would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's capital stock immediately prior to such merger have the same proportionate ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after such merger or (B) the failure of the individuals who either constituted the Board at the conclusion of the first meeting of shareholders of the Corporation following the Closing (as defined in the Merger Agreement), were elected by the Holders of shares of Series B Preferred Stock or by a director who was elected by the Holders of shares of Series B Preferred Stock or were elected or approved by any director who was elected by the Holders of shares of Series B Preferred Stock or by a director who was elected by the Holders of shares of Series B Preferred Stock to constitute a majority of the Board, excluding, however, the election, or the nomination for election by the Corporation's shareholders, of any new director approved by a vote of at least two-thirds of the directors then still in office who were directors at the conclusion of the first meeting of shareholders of the Corporation following the Closing or by vote of the Holders of shares of Series B Preferred Stock or by a director who was elected by vote of the Holders of shares of Series B Preferred Stock; or (C) any person (other than any Shareholder (as defined in the Merger Agreement) or affiliate of any Shareholder) acquiring more than 50% of the Corporation's issued and outstanding capital stock unless such acquisition, or the transaction pursuant to which such acquisition was made, was approved or consented to by the Board. For each Valuation Event described in clause (i) through (iv) above, the minimum investment and pre-money valuation criteria shall each be increased dollar-for-dollar for any amount in excess of $6.5 million (or, if less, such lesser amount of funding as may be required to be provided to the 9 10 Surviving Corporation pursuant to Section 1.11(b) of the Merger Agreement) in funding provided to the Surviving Corporation by the Corporation. 2. REDEMPTION BY THE CORPORATION. (a) TIMING OF REDEMPTION RIGHT. At any time after January 1, 2003, the Corporation shall have the right to redeem all or any portion of the outstanding of shares of Series C Preferred Stock. The Corporation may exercise such right by giving written notice (a "NOTICE OF REDEMPTIOn") to all Holders of shares of Series C Preferred Stock specifying the date such notice is being given to such Holders, the total number of shares of Series C Preferred Stock the Corporation has elected to redeem and the portion (the "REDEMPTION PORTION") of all then outstanding shares of Series C Preferred Stock that such number represents. Within thirty (30) days following receipt of any Notice of Redemption, each Holder of shares of Series C Preferred Stock shall deliver and surrender for redemption to the Corporation at its principal business office a certificate or certificates representing the redemption Portion of all shares of Series C Preferred Stock held of record by such Holder as of the date the Notice of Redemption was given (which certificate shall represent, FIRST, to the extent such Holder has any shares of Series C Preferred Stock that are Nonforfeitable Shares (as defined in the Merger Agreement), such shares of Series C Preferred Stock, second, to the extent such Holder has any shares of Series C Preferred Stock that, although Forfeitable Shares (as defined in the Merger Agreement), are no longer subject to forfeiture under the Merger Agreement, such shares, and third, only to the extent such Holder does not have any shares of Series C Preferred Stock that are Nonforfeitable Shares or that, although Forfeitable Shares, are no longer subject to forfeiture under the Merger Agreement, other shares of Series C Preferred Stock. (b) PAYMENT FOR SHARES CALLED FOR REDEMPTION. Within thirty (30) days following receipt of certificates representing shares of Series C Preferred Stock called for redemption as contemplated above, the Corporation shall pay to the Holder of such shares an amount equal to the product of (A) the number of shares of Series C Preferred Stock being redeemed times (B) the greater of (x) $15.00 (as adjusted for any stock splits, stock dividends, recapitalizations or the like) plus all declared but unpaid dividends on such shares or (y) ten (10) times the Fair Market Value of a share of Common Stock as of the date the Notice of Redemption was given to Holder of shares of Series C Preferred Stock. (c) TERMINATION OF RIGHTS. The Holder of such shares of Series C Preferred Stock called for redemption as contemplated above shall cease to have any rights attendant to or associated with such shares, excepting only the right to receive payment for such shares as provided above. 3. Voting Rights. No voting rights shall be attendant to or associated with the shares of Series C Preferred Stock. III. DESIGNATIONS COMMON TO BOTH SERIES B AND C PREFERRED STOCK 1. DIVIDEND PROVISIONS. No dividends shall be made with respect to any share of Common Stock unless a dividend in an amount equal to ten (10) times the amount of the 10 11 dividend payable with respect to a share of Common Stock is paid with respect to each share of the Series B and C Preferred Stock. 2. LIQUIDATION DISTRIBUTIONS. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the Holders of shares of Series B and C Preferred Stock shall be entitled to receive an amount per share equal to ten (10) times the amount payable per share of Common Stock upon such liquidation, dissolution or winding up. . 3. NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the Holders of any class of securities for the purpose of determining the Holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each Holder of shares of Series B or C Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 4. NOTICES GENERALLY; STATUS OF HOLDER. Any notice required or contemplated herein to be given to any Holders of shares of Series B or C Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to such Holder at his/her/its address appearing on the books and records of the Corporation or of the registrar and transfer agent for shares of the Series B and C Preferred Stock. Any notice required or contemplated herein to be given to the Corporation shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to the Corporation at the address of its then principal office and to the attention of the President of the Corporation. For all purposes hereof, the Corporation shall be entitled to treat the Holder of any shares of Series B or C Preferred Stock as the true and rightful owner of such shares, regardless of any notice or claim to the contrary. 5. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any shares of Series B or C Preferred Stock shall be converted or redeemed as contemplated above, such shares shall be cancelled, but the same shall revert to authorized but unissued shares of preferred stock of the corporation, without designation, until such time as, by appropriate resolution of the Board, such shares are designated as a difference series of preferred, following which such shares may again be issued with such rights, preferences, privileges, and restrictions as may be specified in such resolutions. 6. AMENDMENT AND WAIVER. The waiver (including any prospective waiver) of any provision hereof or of any breach of any obligation hereunder shall be effective, and any amendment, modification or other change of any provision hereof shall be effective, (i) as against the Corporation (and against its successors and assigns), if in writing signed by the Corporation and approved by a duly adopted resolution of the Board, (ii) as against any Holder of any shares of Series B or C Preferred Stock (and against such Holder's heirs, administrators, executors, legal representatives, successors and assigns), if in writing signed by such Holder, (iii) as against all Holders of any shares of Series B Preferred Stock (and against all such Holders' heirs, administrators, executors, legal representatives, successors and assigns), if in writing signed by the Shareholders' Representative (as defined in the Merger Agreement) or by or more 11 12 Holders of shares of Series B Preferred Stock who, at the time such writing is signed, individually or in the aggregate own of record a majority of the issued and outstanding shares of Series B Preferred Stock, (iv) as against all Holders of any shares of Series C Preferred Stock (and against all such Holders' heirs, administrators, executors, legal representatives, successors and assigns), if in writing signed by the Shareholders' Representative or by one or more Holders of shares of Series C Preferred Stock who, at the time such writing is signed, individually or in the aggregate own of record a majority of the issued and outstanding shares of Series C Preferred Stock, and (v) as against all Holders of any shares of Series B or C Preferred Stock (and against all such Holders' heirs, administrators, executors, legal representatives, successors and assigns), if in writing signed by the Shareholders' Representative or by one or more Holders of shares of Series B and/or C Preferred Stock who, at the time such writing is signed, individually or in the aggregate own of record a majority of the issued and outstanding shares of Series B and C Preferred Stock, taken together. Without limiting the generality of the foregoing, any and all provisions of this Certificate of Designations may be waived or amended, modified or otherwise changed, but no such waiver, amendment, modification or other change shall be binding on the Corporation unless the same has been approved by a duly approved resolution of the Board. 7. RESTRICTIONS ON TRANSFER. Notwithstanding anything contained herein to the contrary, nothing contained herein shall obligate the Corporation to issue any securities to any nominee or assignee of any Holder of shares of Series B or C Preferred Stock if such issuance would violate any federal or state securities laws or any other laws or would be violative of any contract, court order or other restraint binding upon such Holder or is such securities are subject to any stop transfer order or instructions. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be signed in its name and on its behalf this ______ day of December, 2000, by a duly authorized officer of the Corporation. NATIONAL AUTO CREDIT, INC. By:___________________________________ Name: James J. McNamara Title: Chief Executive Officer 12 EX-4.2 4 l85759aex4-2.txt EXHIBIT 4.2 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made as of December 15, 2000, by and among NATIONAL AUTO CREDIT, INC. ("NAC"), a Delaware corporation, and (each of the following, a "SHAREHOLDER," and all of the following together, collectively, the "SHAREHOLDERS") Ernest C. Garcia, II, Verde Reinsurance Company, Ltd., a Nevis Island corporation, Ernie Garcia III 2000 Trust, Brian Garcia 2000 Trust, Ray Fidel, Steven Johnson, Mark Sauder, Eric Splaver, Colin Bachinsky, Chris Rompalo, Donna Clawson, Mary Reiner, and Kathy Chacon. W I T N E S S E T H : WHEREAS, NAC, ZLT Acquisition Corp. ("ZLT"), a Delaware corporation wholly owned by NAC, ZoomLot Corporation ("ZOOMLOT"), a Delaware corporation, and the Shareholders have entered into a Merger Agreement And Plan Of Reorganization, dated as of even date herewith (the "MERGER AGREEMENT"); WHEREAS, pursuant to the Merger Agreement, upon the consummation of the merger transactions contemplated by the Merger Agreement, the Shareholders are to acquire certain shares of NAC's common stock ("COMMON STOCK"), par value $.05 per share, and certain shares NAC's Series B preferred stock and Series C preferred stock (respectively, "SERIES B PREFERRED STOCK" and "SERIES C PREFERRED STOCK" and, collectively, "Preferred Stock"), each par value $__ per share, (such shares of Common Stock and such shares of Preferred Stock, collectively, the "NAC MERGER SHARES") in exchange for their shares of the common stock of ZoomLot, and those shares of Series C Preferred Stock (the "Forfeitable Shares") are subject to forfeiture depending upon the achievement of certain financial objectives by the surviving corporation in the Merger; WHEREAS, each of the Shareholders has entered into a Lockup, Standstill and Voting Agreement (the "STANDSTILL AGREEMENT") with NAC, dated as of even date herewith, for the benefit of NAC; and WHEREAS, as a condition to the closing of the Merger Agreement, NAC and the Shareholders have agreed to enter into this Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS 1.1 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended; 2 1.2 "HOLDER" shall mean the registered holder of NAC Merger Shares or any shares of Common Stock that have been issued in lieu of any cash payment due upon the redemption of any shares of Preferred Stock. Notwithstanding anything contained herein to the contrary, a "HOLDER" shall not include any person or entity who or that, as a donee, assignee or transferee or otherwise, has acquired any NAC Merger Shares or any shares of Common Stock that have been issued in lieu of any cash payment due upon the redemption any shares of Preferred Stock if such person or entity has acquired such NAC Merger Shares or shares of Common Stock in violation of the Standstill Agreement or in violation of any other contract or other agreement binding upon any direct or indirect donor, assignor or other transferee of such NAC Merger Shares or shares of Common Stock. 1.3 "REGISTRATION EXPENSES" shall mean all expenses incurred by NAC in complying with SECTION 2.1 OR 2.2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for NAC, fees and expenses of independent public accountants of NAC, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of NAC, which shall be paid in any event by NAC). 1.4 "REGISTRABLE SECURITIES" means, collectively, (a) the shares of Common Stock issued to the Shareholders pursuant to Section 1.5 of the Merger Agreement, (b) the shares of Common Stock issuable or issued in lieu of any cash payment due upon the redemption of any shares of Preferred Stock and (c) any additional securities issued to the Holders prior to the effective date of the registration statement referred to below with respect to the foregoing upon or on account of any stock split, stock dividend, recapitalization, dilution adjustment or similar event. 1.5 "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder by the SEC. 1.6 "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale or resale of any of the Registrable Securities. 1.7 "SEC" or "COMMISSION" means the Securities and Exchange Commission. 1.8 All other capitalized terms used herein and defined in the Merger Agreement are used herein with the respective meanings ascribed to them in the Merger Agreement, unless the context herein otherwise requires. 2. REGISTRATION RIGHTS 2.1 REGISTRATION STATEMENT. 2 3 (a) Following the Closing, NAC shall prepare and file with the SEC one or more registration statements to register for resale by the Holders of the Registrable Securities in accordance with the following: (i) Within 120 days following the Closing, NAC shall file a registration statement (on such form as shall, in the opinion of counsel to NAC, be appropriate for such filing) covering the Registrable Securities that are neither Forfeitable Shares nor issuable in lieu of any cash payment due upon the redemption of any Forfeitable Shares; provided, however, that, if the same is permissible under the Securities Act, such registration statement shall cover all of the Registrable Securities. (ii) Within 90 days following the date that some or all of the Forfeitable Shares become non-forfeitable in accordance with the Merger Agreement, NAC shall file a registration statement (on such form as shall, in the opinion of counsel to NAC, be appropriate for such filing) covering those of the Registrable Securities that are issuable in lieu of any cash payment due upon the redemption of those Forfeitable Shares that have become non-forfeitable; provided, however, that NAC shall not be obligated to file a registration statement with respect to any of Registrable Securities that have been covered by the registration statement referred to in clause (i) above. (b) After filing, NAC shall diligently use commercially reasonable efforts to cause the respective registration statement (and/or file a new registration statement) to become and remain effective until the earlier of (i) the date as of which all of the Registrable Securities covered thereby have been resold by the Holders holding the same or (ii) until the Holders are free to resell all of the Registrable Securities covered thereunder pursuant to Rule 144(k). 2.2 PIGGY-BACK REGISTRATION RIGHTS. (a) If following the Closing NAC engages an underwriter to undertake a firm commitment underwritten public offering of any capital stock of NAC, then, at least twenty (20) days prior to the date of the filing by NAC of the registration statement with respect to such offering, NAC shall give written notice of such proposed public offering to each of the Holders. In the event any such Holder shall desire to sell or resell any of its/his/her Registrable Securities (exclusive of any portion thereof that are issuable in lieu of any cash payment due upon the redemption of any Forfeitable Shares that have not become non-forfeitable pursuant to the terms of the Merger Agreement) as part of or in conjunction with such public offering, such Holder shall, within ten (10) days of its/his/her receipt of such notice from NAC, give written notice of such desire to NAC, which notice shall specify (a) the number of Registrable Securities such Holder desires to sell or resell as part of or in conjunction with such public offering, (b) the respective portions of such Registrable Securities that are comprised of (i) shares of Common Stock that have been issued pursuant to Section 1.5 of the Merger Agreement, (ii) shares of Common Stock that have been issued in lieu of any cash payment due upon 3 4 the redemption of any shares of Series B Preferred Stock, (iii) shares of Common Stock that has been issued in lieu of any cash payment due upon the redemption of any shares of Series C Preferred Stock, (iv) shares of Common Stock that are issuable in lieu of any cash payment due upon the redemption of any shares of Series B Preferred Stock, and (v) shares of Common Stock that are issuable in lieu of any cash payment due upon the redemption of any shares of Series C Preferred Stock, and (c) the intended method of disposition of the Registrable Securities desired to be sold or resold. Except to the extent the managing or lead underwriter for such public offering objects to the same, NAC shall, subject to the conditions set forth below, include in such registration statement all of the Registrable Securities with respect to which NAC has received a proper and timely notice from the relevant Holder as contemplated above. In the event the managing or lead underwriter for such public offering objects to the inclusion in such registration statement of some, but not all, of the Registrable Securities with respect to which NAC has received proper and timely notices from the relevant Holders as contemplated above, no such Holder shall be entitled to have included in such registration statement more than its/his/her Allocable Fraction of the total number of Registrable Securities that such managing or lead underwriter will permit to be included in such registration statement, where the "ALLOCABLE FRACTION" for any such Holder means a fraction the numerator of which is the number of Registrable Securities that are then held by such Holder and the denominator of which is the total number of Registrable Securities that (a) are then held by all Holders who have, as contemplated above, given proper and timely notices of their desires to have some or all of their Registrable Securities sold or resold as part of or in conjunction with such public offering and (b) are not then Forfeitable Shares that have not become non-forfeitable pursuant to the terms of the Merger Agreement. The Holders acknowledge and agree that (I) NAC may hereafter grant piggy-back registration rights to other holders of securities of NAC , and (II) in such event, if the managing or lead underwriter for such public offering objects to the inclusion in the registration statement of some, but not all, of the securities that the Holders and such other holders desire to have included in such registration statement, such managing or lead underwriter shall include in such public offering only such securities (in addition to those being offered by NAC) as such managing or lead underwriter, in its sole and absolute discretion, shall deem appropriate, and shall be entitled, in its sole and absolute discretion, to apportion those securities to, and between or among, the Holders and such other holders in such amount(s) or portion(s) as such managing or lead underwriter, in its sole and absolute discretion, shall deem appropriate and each Holder shall be entitled to have included in such registration statement only up to his/her/its Allocable Fraction of such amount or portion as has been allocated or apportioned by such managing or lead underwriter to the Holders. (b) In the event any Holder elects, as contemplated by clause (a) above, to have any of its/his/her Registrable Securities included for sale or resale in the public offering contemplated thereby, such Holder (I) shall fully and promptly cooperate with the underwriter(s) for such public offering, which cooperation shall include, without limitation, the execution and delivery of such underwriting agreement as such underwriter(s) may request and taking all such other actions as NAC and/or such underwriter(s) may from time to time request, which request may include, without 4 5 limitation, an undertaking not to sell or otherwise dispose of any Registrable Securities for a specified period of time from any time prior to the effectiveness of the applicable registration statement through up to 180 days following the effectiveness of the applicable registration statement (provided, however, that, if the officers, the directors, any principal shareholders or any other holders whose securities are simultaneously being registered are required to agree not to sell or otherwise dispose of their shares for a longer period of time, such Holder shall agree to such longer time as a condition to the inclusion therein of any securities of such Holder) and (II) shall fully and promptly cooperate with any reasonable request made by NAC in connection with the consummation of such public offering, which cooperation shall include, without limitation, the execution and delivery of such agreements and other documents as NAC may reasonably request and the taking of all such other actions as NAC may from time to time reasonably request . The right of any Holder to have any of its/his/her Registrable Securities included in any registration statement contemplated by clause (a) above shall be conditioned upon such Holder's full compliance with this clause (b), and in the absence of such full compliance any Registrable Securities otherwise included in such registration statement shall be withdrawn from registration thereunder. 2.3 OBLIGATIONS OF NAC. Whenever required to effect the registration of any Registrable Securities pursuant to SECTION 2.1 or 2.2 hereof, NAC shall, within a commercially reasonably time: (a) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (b) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (c) Use commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Shareholders' Representative; provided that NAC shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (d) Notify each Holder holding any Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 5 6 2.4 EXPENSES OF REGISTRATION. NAC shall pay all Registration Expenses, except that the Holders shall bear all Selling Expenses attributable to their Registrable Securities being registered and fees of their counsel. 3. INDEMNIFICATION 3.1 To the extent permitted by law, NAC will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, and each person, if any, who controls such Holder against any losses, claims, damages or liabilities (joint or several) to which it/he/she or they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION") by NAC: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by NAC of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and NAC will pay to each such Holder, partner, officer, director or controlling person for any legal or other expenses reasonably incurred by him/her/it in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation (provided, however, that, if a party indemnified hereunder shall provide to NAC an undertaking in form and substance reasonably satisfactory to NAC to the effect that such indemnified party will refund to NAC all payments made or advanced to such indemnified party pursuant to this clause (iii) if it is not finally judicially determined that there has been a Violation with respect to which such indemnified party is entitled to indemnification hereunder, NAC shall from time to time, as the same are incurred and subject to receipt of written evidence that the same have been incurred, advance to such indemnified party funds to cover such legal and other expenses); provided, however, that the indemnity agreement contained in this SECTION 3.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the written consent of NAC, which consent shall not be unreasonably withheld, nor shall NAC be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon (i) a Violation that occurs in reliance upon, and in conformity with, written information furnished for use in connection with such registration by, or on behalf of, such Holder, partner, officer, director or controlling person of such Holder, (ii) such Holder's failure to deliver, at the time required by the Securities Act, a final or amended prospectus that corrects any actual or alleged untrue statement or omission contained in any preliminary prospectus or prior prospectus if such Holder previously has been provided such final or amended prospectus in accordance with SECTION 2.3 or otherwise, (iii) any offer or sale, or solicitation of any offer, made by the indemnified party in any jurisdiction in which the same is not registered or otherwise permitted, unless such indemnified party has been advised in writing by NAC that such offer or 6 7 sale, or such solicitation of any offer, is registered or otherwise permitted in such jurisdiction, or (iv) any other breach or violation by an indemnified party of the Securities Act, the Exchange Act or other federal or state law, exclusive of any such breach or violation to the extent the same is the consequence of any untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or the omission to state therein any material fact required to be stated therein or necessary to make the statements stated therein not misleading. 3.2 To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless NAC, each of its directors and officers and each person, if any, who controls NAC within the meaning of the Securities Act and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such other Holder, against any losses, claims, damages or liabilities (joint or several) to which NAC or any such director, officer, controlling person or other such Holder, or partner, director, officer or controlling person of such other Holder, may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by, or on behalf of, such Holder for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by NAC or any such director, officer, controlling person or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this SECTION 3.2 shall not apply to any Holder with respect to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the written consent of such Holder, which consent shall not be unreasonably withheld; and provided, further, however, that in no event shall any indemnity under this SECTION 3 exceed the net proceeds from the offering received by such Holder. 3.3 Promptly after receipt by an indemnified party under this SECTION 3 of notice of the commencement of any action (including any governmental action) with respect to which indemnification under this SECTION 3 may be sought by such indemnified party, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this SECTION 3, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and (to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed) assume, the defense thereof with counsel selected by the indemnifying party or parties with the consent of the indemnified party or parties (which consent shall not be unreasonably withheld or delayed); provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if 7 8 representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding (provided, however, that under no circumstances shall any indemnifying party be obligated to pay for more than one counsel representing any or all of the parties intended to be indemnified hereunder). The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of liability to the indemnified party under this SECTION 3 but only to the extent such failure is materially prejudicial to its ability to defend such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this SECTION 3. 3.4 If the indemnification provided for in this SECTION 3 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other hand, in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder. 3.5 The obligations of NAC and the Holders under this SECTION 3 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 4. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause NAC to register Registrable Securities pursuant to this Agreement may be assigned by a Holder to a transferee or assignee of Registrable Securities that (a) is a subsidiary, parent, general partner, limited partner, retired partner, member or retired member, or director, officer, employee or owner, of such Holder, or (b) is a member of such Holder's 8 9 immediate family or trust or other entity controlled by or formed for the benefit of such Holder or members of such Holder's immediate family; provided, however, that (i) the transferor shall, within ten (10) days after such transfer, furnish to NAC written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree, in writing in form and substance reasonably satisfactory to NAC, to be subject to all restrictions set forth in this Agreement. Notwithstanding anything contained herein to the contrary, no such assignment or transfer shall be made by any Holder, without the prior written consent of NAC (which consent may be withheld in NAC's sole discretion), during the period in which the Standstill Agreement shall be in effect unless such assignment or transfer is expressly permitted in the Standstill Agreement. 5. RULE 144 REPORTING With a view to making available to the Holders the benefits of certain rules and regulations of the SEC that may permit the sale of the Registrable Securities to the public without registration, NAC agrees to use its commercially reasonable efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act; (b) File with the SEC, in a timely manner, all reports and other documents required of NAC under the Exchange Act; and (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by NAC as to its compliance with the reporting requirements of Rule 144 of the Securities Act and of the Exchange Act; a copy of the most recent annual or quarterly report of NAC; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 6. MISCELLANEOUS 6.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 6.2 AMENDMENTS AND WAIVERS. Except as hereinafter provided, amendments to this Agreement shall require and shall be effective upon receipt of the written consent of NAC and of either the Majority Holders (as hereinafter defined) or the Shareholders' Representative, who is hereby expressly granted the right on behalf of all of the Shareholders (and their heirs, administrators, legal representatives, successors and assigns) to amend and/or supplement this Agreement. Except as hereinafter provided, compliance with any covenant or provision set forth herein may be waived upon written 9 10 consent by the party or parties whose rights are being waived; provided, that, the rights of holders of Registrable Securities can be waived only upon the written consent of the Majority Holders or the Shareholders' Representative. Any waiver or amendment may be given subject to satisfaction of conditions stated therein, and any waiver or amendment shall be effective only in the specific instance(s) and for the specific purpose(s) for which given. As used herein, "MAJORITY HOLDERS" means any Holder or group of Holders who or that, individually or in the aggregate, at the relevant time own of record a majority of the outstanding Registrable Securities (whether or not then subject to forfeiture, but exclusive of any thereof that, under the terms of the Merger Agreement, have been forfeited) then owned of record by all Holders, it being agreed and understood that, for the purposes of determining whether any Holder or group of Holders own of record a majority of the outstanding Registrable Securities, each Holder will be deemed to hold, in addition to those shares of Common Stock that are then held of record by such Holder and that were issued either (i) pursuant to Section 1.5 of the Merger Agreement or (ii) in lieu of any cash payment due upon the redemption of any shares of Preferred Stock, the shares of Common Stock that are issuable in lieu of any cash payment due upon the redemption of those outstanding shares of Preferred Stock then held of record by such Holder. 6.3 NOTICES. As the terms "notice" or "notices" are used herein as between the parties, such term shall mean a written document, explaining the reason for the notice, and the same shall be mailed by United States Postal Service Via Certified Mail, Return Receipt Requested, or by recognized overnight courier service, addressed as follows: If to NAC: National Auto Credit, Inc. 30000 Aurora Road Solon, Ohio 44139 Attn: Chief Executive Officer Fax: _________ with a copy to: Parker, Duryee, Rosoff & Haft, P.C. 529 Fifth Avenue New York, New York 10017 Attn: Herbert F. Kozlov, Esq. Fax: 212-972-9487 If to the Holders or any of them: Ernest C. Garcia, II 10 11 Verde Reinsurance Company, Ltd. 2525 East Camelback, Suite 1150 Phoenix, AZ 85016 Fax: 602-667-2484 with a copy to: Steven D. Pidgeon, Esquire Snell & Wilmer, LLP One Arizona Center Phoenix, AZ 85004 Fax: (602) 382-6070 Such notice shall be deemed to have been given on the date placed in the U.S. Mails or delivered to the overnight courier service, whether actually received by the addressee or not, and shall be deemed received by the addressee, whether actually received by the addressee or not, on the third business day after being so mailed or the next business day after being sent by overnight courier service. The parties may from time to time amend the above addresses and names by written notice given to the other party; provided, however, that any notice contemplated by SECTION 2.2 above to be sent to any Holder shall be sent to such Holder at its/his/her address as reflected on the books of NAC. 6.4 TERMINATION. This Agreement shall terminate with respect to any holder of Registrable Securities on the earlier of the date that all of such holder's Registrable Securities (a) have been sold pursuant to a registration statement under the Securities Act or have been otherwise sold or disposed of otherwise than to a transferee as contemplated by SECTION 4 hereof or (b) may immediately be sold by such holder pursuant to Rule 144 under the Securities Act during any 90-day period; provided, however, that this Agreement shall not terminate if any shares are subject to any then-effective registration rights pursuant to SECTION 2 hereof unless such shares have been sold or resold under an effective registration statement. 6.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and be enforceable against the parties hereto and their respective heirs, administrators, legal representatives, successors and assigns and shall inure to the benefit of and be enforceable by the parties hereto and their respective heirs, administrators, legal representatives, successors and permitted assigns, except that (a) NAC shall not have the right to delegate its obligations hereunder or to assign its rights hereunder and (b) no such assignment shall be made by any Shareholder (or any heir, administrator, legal representative, successor or assign of any Shareholder), without the prior written consent of NAC (which consent may be withheld in NAC's sole discretion), during the period in which and the Standstill Agreement shall be in effect unless such assignment is expressly permitted in the Standstill Agreement. 6.6 PRIOR AGREEMENTS. This Agreement constitutes the entire agreement between and among the parties with respect to the subject matter hereof and 11 12 supersedes any prior or contemporaneous understandings or agreements (written or oral) concerning the subject matter hereof, except for those agreements and understandings contained in the Merger Agreement and the other agreements, documents and instruments contemplated thereby and hereby. 6.7 SEVERABILITY. The provisions of this Agreement are severable, and in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of a provision contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement, but this Agreement shall be reformed and construed as if such invalid, illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provision or part shall be reformed so that it would be valid, legal and enforceable to the maximum extent possible. 6.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware applicable to contracts executed and to be performed wholly within that State, without giving effect to the choice or conflict of laws provisions or principles thereof. 6.9 WAIVER OF JURY TRIAL. Each of the parties hereto expressly waives its right to a jury trial with respect to any such suit, litigation or other judicial proceeding. 6.10 HEADINGS; INTERPRETATION. Article, section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. This Agreement is the product of mutual negotiation; therefore, no party shall be deemed the draftsperson hereof. 6.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. 6.12 FURTHER ASSURANCES. From and after the date of this Agreement, upon the request of any party hereto, the other parties shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out, and to effectuate fully, the intent and purposes of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12 13 IN WITNESS WHEREOF, the undersigned have executed this Registration Rights Agreement as of the day and year first above written. NATIONAL AUTO CREDIT, INC. VERDE REINSURANCE COMPANY, LTD. By: By: -------------------------------- ------------------------------- Its: Its: ------------------------------- ------------------------------ ERNIE GARCIA III 2000 TRUST BRIAN GARCIA 2000 TRUST By: By: -------------------------------- ------------------------------- Its: Its: ------------------------------- ------------------------------ - ----------------------------------- ---------------------------------- ERNEST C. GARCIA RAY FIDEL - ----------------------------------- ---------------------------------- STEVEN JOHNSON MARK SAUDER EJMS INVESTORS LIMITED PARTNERSHIP By: SJME Investors, LLC, an Arizona limited liability company, its General Partner ---------------------------------- COLIN BACHINSKY By: -------------------------------- Its: ------------------------------- - ----------------------------------- ---------------------------------- CHRIS ROMPALO DONNA CLAWSON 13 14 - ----------------------------------- ---------------------------------- MARY REINER KATHY CHACON 14 EX-4.3 5 l85759aex4-3.txt EXHIBIT 4.3 1 EXHIBIT 4.3 LOCKUP, STANDSTILL AND VOTING AGREEMENT LOCKUP, STANDSTILL AND VOTING AGREEMENT (this "AGREEMENT"), dated as of December 15, 2000, by and among NATIONAL AUTO CREDIT, INC. ("NAC"), a Delaware corporation, and (each of the following, a "SHAREHOLDER," and all of the following together, collectively, the "SHAREHOLDERS"): Ernest C. Garcia, II; Verde Reinsurance Company, Ltd., a Nevis Island corporation; Ernie Garcia III 2000 Trust; Brian Garcia 2000 Trust; Ray Fidel; Steven Johnson; Mark Sauder; EJMS Investors Limited Partnership, an Arizona limited partnership; Colin Bachinsky; Chris Rompalo; Donna Clawson; Mary Reiner; and Kathy Chacon. RECITALS: WHEREAS, concurrently with the execution of this Agreement, NAC, ZLT Acquisition Corp. ("ZLT"), a Delaware corporation wholly owned by NAC, ZoomLot Corporation ("ZOOMLOT"), a Delaware corporation, and the Shareholders have entered into a certain Merger Agreement and Plan of Reorganization (the "MERGER AGREEMENT"), dated as of even date herewith, pursuant to which the parties have agreed, upon the terms and subject to the conditions set forth therein, to merge ZoomLot into ZLT (the "MERGER"); WHEREAS, the Merger Agreement contemplates that each share of the common stock of ZoomLot shall be converted into or otherwise become shares of NAC Capital Stock (as hereinafter defined) such that, following the Merger, each Shareholder will be a shareholder of NAC; WHEREAS, Shareholders have represented that they currently Beneficially Own (as hereinafter defined), in the aggregate, approximately 400,000 shares of the common stock (the "COMMON STOCK"), $.05 par value, of NAC, as more particularly set forth on Exhibit G to the Merger Agreement; WHEREAS, upon the closing of the transactions contemplated by the Merger Agreement, the Shareholder Group (as hereinafter defined) will Beneficially Own collectively approximately 18.9% of the Common Stock issued and outstanding immediately after such closing; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, NAC has required each Shareholder to agree, and each Shareholder has agreed, to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties, covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: SECTION 1. - CERTAIN DEFINITIONS. In addition to the terms defined elsewhere in this Agreement, capitalized terms defined in the Merger Agreement and used but not defined in this Agreement have the respective meanings ascribed to them in the Merger Agreement. For purposes of this Agreement: 2 (a) "BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any securities means having "beneficial ownership" of such securities as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); PROVIDED, HOWEVER, that notwithstanding paragraph (d) of Rule 13d-3, for purposes hereof a Shareholder shall not be deemed to "beneficially own" shares of any class or series of NAC Capital Stock having voting rights until such time as such Shareholder actually acquires such shares or acquires the right to vote such shares. (b) "CAPITAL STOCK" means any class or series of the capital stock of NAC, whether voting or non-voting. (c) "COLLATERAL NAC SECURITIES" means, collectively, (i) any shares of Common Stock or other securities of NAC issued by NAC as a dividend or other distribution on account of any Capital Stock issued to any Shareholder in connection with or as part of the Merger, (ii) any shares of Common Stock or other securities of NAC issued by NAC upon the exercise, conversion, or exchange of any such Capital Stock, and (iii) any shares of Common Stock or other securities of NAC issued by NAC in full or partial consideration of the price payable by NAC upon the redemption (whether at the option of NAC or the holder of the respective security) of any such Capital Stock. (d) "FAMILY MEMBER" of any Shareholder means (i) the spouse of such Shareholder, (ii) each child and grandchild of such Shareholder or of the spouse of such Shareholder, (iii) each parent of such Shareholder, (iv) each sibling of such Shareholder, (v) each mother-, father-, sister- and brother-in-law of such Shareholder and (vi) each trust or similar arrangement under or pursuant to which such Shareholder or any other individuals referred to in the preceding clauses (i) through (v) is a trustee (or similar official) or a direct or indirect beneficiary. (e) "LOCKUP PERIOD" shall have the meaning set forth in Section 7(a) below. (f) "NAC VOTING SHARES" means shares of the Common Stock and any other class or series of NAC Capital Stock having voting rights. (g) "PERSON" means any individual, corporation, partnership (limited or general), limited liability company, trust, joint venture or other entity. (h) "PRE-OWNED NAC SHARES" of any Shareholder mean the shares of Common Stock owned by such Shareholder as of the date of this Agreement as reflected in Exhibit G to the Merger Agreement. (i) "SHAREHOLDER GROUP" means the Shareholders, together with their respective affiliates (i.e., a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Shareholder.) and associates (as such term is defined in Rule 14a-1(a) under the Exchange Act) and any other Person with whom any of them acts as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of, or voting or otherwise granting any consent or approval with respect to the votes or similar rights attendant to, any securities of NAC. For the purposes of the foregoing, all Family Members of any Shareholder shall be deemed to be members of the Shareholder Group. -2- 3 (j) As used herein, the term "VOTE" shall also include the giving of written consents or written approvals. (k) "VOTING PERIOD" shall have the meaning set forth in Section 5(a) below. SECTION 2. - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder, with respect to such Shareholder only, represents and warrants to NAC as follows: (a) OWNERSHIP OF SHARES. Such Shareholder is the sole record and Beneficial Owner of the number of shares of the common stock of ZoomLot (the "ZOOMLOT SHARES") set forth in the column opposite his/her/its name on Exhibit G to the Merger Agreement. There are no outstanding options or other rights to acquire from such Shareholder, or obligations of such Shareholder to sell or to acquire, any of the ZoomLot Shares except pursuant to the Merger Agreement. Except as disclosed in SCHEDULE 2(a) to this Agreement, with respect to all of such Shareholder's ZoomLot Shares and all shares of the Common Stock Beneficially Owned by such Shareholder prior to the date hereof such Shareholder has, and with respect to any and all NAC Capital Stock to be acquired in the Merger such Shareholder will have, sole voting power and sole power to issue instructions with respect to the matters herein, sole power of disposition, sole power of conversion, sole power to demand appraisal rights and sole power to agree to all of the matters set forth in this Agreement, in each case with no limitations, qualifications or restrictions on such rights, subject, however, to applicable securities laws and the terms of the Merger Agreement and this Agreement. (b) POWER; BINDING AGREEMENT. Such Shareholder has the legal capacity, power and authority to enter into and perform all of such Shareholder's obligations under this Agreement. This Agreement has been duly and validly executed and delivered by such Shareholder and constitutes a valid and binding agreement of such Shareholder, enforceable against such Shareholder in accordance with its terms except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) NO CONFLICTS. Except for filings under Sections 13(d) and 16 of the Exchange Act, no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority (a "GOVERNMENTAL ENTITY") is necessary for the execution of this Agreement by such Shareholder and the consummation by such Shareholder of the transactions contemplated by this Agreement. None of the execution and delivery of this Agreement by such Shareholder, the consummation by such Shareholder of the transactions contemplated by this Agreement or compliance by such Shareholder with any of the provisions, terms and conditions of this Agreement shall (i) conflict with or result in any breach of any organizational documents applicable to such Shareholder, (ii) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which such Shareholder is a party or by which such Shareholder or any of his/her/its properties or assets may -3- 4 be bound, or (iii) violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to such Shareholder or any of such Shareholder's properties or assets. (d) NO ENCUMBRANCE. Except as expressly permitted by this Agreement, the ZoomLot Shares are now, and at all times during the term of this Agreement all of the NAC Capital Stock and all Collateral NAC Securities owned or held by such Shareholder will be, held by such Shareholder, or by a nominee or custodian for the benefit of such Shareholder, free and clear of all mortgages, claims, charges, liens, security interests, pledges or options, proxies, voting trusts or agreements, understandings or arrangements, or any other rights whatsoever ("ENCUMBRANCES"), except for any such Encumbrances arising hereunder. (e) NO FINDER'S FEES. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of such Shareholder. (f) RELIANCE BY NAC. Such Shareholder understands and acknowledges that NAC is entering into the Merger Agreement in reliance upon such Shareholder's execution, delivery and performance of this Agreement. SECTION 3. - DISCLOSURE. Each Shareholder agrees to permit NAC to publish and disclose in all documents and schedules filed with the Securities and Exchange Commission (the "SEC"), and any press release or other disclosure document that NAC, in its sole discretion, determines to be necessary or desirable in connection with the Merger and any transactions related to the Merger, such Shareholder's identity and ownership of NAC Common Stock (and, if applicable, Capital Stock and Collateral NAC Securities) and the nature of Shareholder's commitments, arrangements and understandings under this Agreement. SECTION 4. - DIRECTORS AND OFFICERS. Notwithstanding any provision of this Agreement to the contrary, nothing in this Agreement shall limit or restrict a Shareholder from acting in the capacity as a director or officer of ZoomLot or NAC (it being understood that this Agreement shall apply to a Shareholder solely in such Shareholder's capacity as a shareholder of ZoomLot prior to the Merger and of NAC thereafter). SECTION 5. - VOTING AGREEMENT (a) As used herein, the term "VOTING PERIOD" shall mean each period commencing at such time as the Shareholder Group Beneficially Owns NAC Voting Shares that, if voted, would be able to be exercised with respect to a number of votes in excess of 15% of the total number of votes that could then be cast by the holders of all of the NAC Voting Shares then issued and outstanding on any manner with respect to which NAC Voting Shares may then be voted (regardless of whether such percentage ownership is the consequence of any acquisition or other action taken by or on behalf of any member of the Shareholder Group, any action taken by NAC (such as, by way of example only, a repurchase, redemption or cancellation of other shares of NAC Voting Shares) or any other situation or circumstance) and continuing until such time as the Shareholder Group Beneficially Owns NAC Voting Shares that, if voted, would not be able to be exercised with respect to a number of votes equal to at least 8% of the total number of votes that could then be cast by the holders of all of the NAC Voting Shares then issued and outstanding on any manner with respect to which NAC Voting Shares may then be voted. In the event, following -4- 5 the termination of a Voting Period on account of the Shareholder Group Beneficially Owning NAC Voting Shares that, if voted, would be able to be exercised with respect to a number of votes equal to less than 15% of the total number of votes that could then be cast by the holders of all of the NAC Voting Shares then issued and outstanding on any manner with respect to which NAC Voting Shares may then be voted, the Shareholder Group shall again Beneficially Own NAC Voting Shares that, if voted, would be able to be exercised with respect to a number of votes equal to in excess of 15% of the total number of votes that could then be cast by the holders of all of the NAC Voting Shares then issued and outstanding on any manner with respect to which NAC Voting Shares may then be voted, a new Voting Period will commence. (b) During each Voting Period, unless the requirements of this clause (b) have been waived by NAC pursuant to a resolution adopted by the Board of Directors of NAC, each Shareholder shall promptly and timely, (I) on each and every matter that is submitted to the shareholders of NAC for their vote and with respect to which the NAC Voting Shares then owned by such Shareholder or with respect to which such Shareholder has voting power may be voted, or the votes attendant to such Shares may be exercised, vote all such NAC Voting Shares, or exercise such votes, in the same proportions in which all other NAC Voting Shares voted on such matter are voted (without taking into consideration, in determining such proportions, any NAC Voting Shares that are not voted or with respect a "non-vote" or abstention is exercised or registered) and (II) on each and every matter that is submitted to the shareholders of NAC for their consent or approval and with respect to which such Shareholder may grant any right of consent or approval attendant to the NAC Voting Shares then owned by such Shareholder or with respect to which such Shareholder has voting power, exercise such right of consent or approval in the same proportions in which the right of consent or approval attendant to all other NAC Voting Shares is granted or denied. Notwithstanding anything contained in the foregoing to the contrary, at such time as the holders of shares of NAC's outstanding Series B Preferred Stock are not entitled to elect at least one member to NAC's Board of Directors, a Shareholder shall be entitled to vote all of the NAC Voting Shares then owned by such Shareholder or with respect to which such Shareholder has voting power, or otherwise exercise any consent or approval attendant to such Shares, in favor of the election to NAC's Board of Directors of any nominee selected by the Shareholders' Representative as contemplated by Section 1.10 of the Merger Agreement. (c) All determinations concerning the Beneficial Ownership percentage of the Shareholder Group, including the determination of whether a shareholder is a member of the Shareholder Group, shall be made by NAC's Board of Directors in its reasonable discretion. Any director who was nominated by the Shareholders or the Shareholders' Representative pursuant to the Merger Agreement shall not participate in the discussion or decision with respect to such determination. (d) In order more fully to assure the performance by each Shareholder of his/her/its obligations under the foregoing provisions of this Section 5, each Shareholder hereby irrevocably constitutes and appoints James McNamara and _______________, or either of them and each of them individually, as such Shareholder's true and lawful attorney-in-fact and agent (with full power of substitution and resubstitution), to act for and in the name, place and stead of such Shareholder, in any and all capacities, to perform such Shareholder's obligations under this Agreement in the event that such Shareholder shall fail to perform such obligations him-, her- or itself. -5- 6 (e) Notwithstanding anything contained herein to the contrary, in the event the Reading Settlement is terminated, other than pursuant to Section 10(b)(i) thereof on account of the Stockholders (as defined in the Reading Settlement) collectively owning, directly or indirectly, beneficially or of record, together with all Affiliates (as defined in the Reading Settlement) of such Stockholders, in the aggregate, less than 10% of NAC's then issued and outstanding Company Voting Stock (as defined in the Reading Settlement), the restrictions in the foregoing provisions of this Section 5 shall terminate and no longer be binding upon any of the parties hereto. SECTION 6. - STANDSTILL AGREEMENT (a) STANDSTILL. At all times from and after the date hereof, and until June 30, 2003, except with the approval or consent of the Board of Directors of NAC as evidenced by a resolution duly adopted by such Board, each Shareholder shall not, and shall not permit any entity controlled by such Shareholder to, in any manner, directly or indirectly: (i) acquire, or offer or agree to acquire, directly or indirectly, by purchase or otherwise, any beneficial interest in the NAC Capital Stock, or any securities convertible into or exchangeable for, or any other right to acquire NAC Capital Stock (except by way of (A) stock dividends or other distributions made on a pro rata basis with respect to NAC Merger Shares acquired by such Shareholder as a result of the Merger Agreement or such Shareholders' Pre-Owned Shares, (B) the issuance of securities upon the conversion or exchange of such NAC Merger Shares or (C) the issuance of securities in full or partial payment for any price payable by NAC upon the redemption of such NAC Merger Shares) if, immediately following such acquisition, the members of the Shareholder Group would Beneficially Own, in the aggregate, more than 45% (the "STANDSTILL PERCENTAGE") of the then outstanding Common Stock (it being agreed and understood that, for purposes of determining whether the Shareholder Group would Beneficially Own in the aggregate more than the Standstill Percentage of the then outstanding Common Stock, (I) each Shareholder shall, for each share of Series C Preferred Stock that is Beneficially Owned by such Shareholder and that is not, by it terms, convertible into shares of Common Stock, be deemed to own ten (10) shares of Common Stock (which number shall be subject to adjustment on account of any stock split, reorganization or recapitalizations) and (II) in addition to such other shares of Common Stock as are then outstanding, there shall be deemed to be outstanding a number of shares of Common Stock equal to the product of (A) the number of shares of Series C Preferred Stock then outstanding times (B) ten (10) (which number shall be subject to adjustment on account of any stock split, reorganization or recapitalizations)); provided, that if NAC repurchases or recapitalizes any of its shares and such repurchases or recapitalization result in the members of the Shareholder Group owning more than the Standstill Percentage at the effective time of such repurchase or recapitalization, no member of the Shareholder Group shall be obligated to divest him-, her- or itself of shares of NAC Capital Stock to meet the Standstill Percentage, but no member of the Shareholder Group shall (except by way of (A) stock dividends or other distributions made on a pro rata basis with respect to NAC Merger Shares acquired by such Shareholder as a result of the Merger Agreement or such Shareholders' Pre-Owned Shares, (B) the issuance of securities upon the -6- 7 conversion or exchange of such NAC Merger Shares or (C) the issuance of securities in full or partial payment for any price payable by NAC upon the redemption of such NAC Merger Shares) acquire any additional shares of NAC Capital Stock unless such acquisition would otherwise be permitted under this Section 6; (ii) solicit proxies or consents or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act) of proxies or consents with respect to securities of NAC with regard to any matter; (iii) seek to advise, encourage or influence any Person with respect to the voting of any securities of NAC, or induce, attempt to induce or in any manner assist any other Person in initiating any stockholder proposal or tender or exchange offer for securities of NAC or any change of control of NAC, or for the purpose of convening a stockholders' meeting of NAC; provided, that (A) any Shareholder may tender in any such tender or exchange offer and (B) no presentation before or other communication with the Board of Directors of NAC shall be deemed to constitute a violation of the foregoing restriction or prohibition; (iv) acquire or agree to acquire, by purchase or otherwise, more than 5% of any class of equity securities of any entity that, prior to the time such Shareholder acquires more than 5% of such class, is publicly disclosed (by filing with the Securities and Exchange Commission or otherwise), or is otherwise known to such Shareholder, to be the beneficial owner of more than 5% of the outstanding NAC Capital Stock or any class or series thereof; (v) make any public announcement regarding any possibility, intention, plan or arrangement relating to a tender or exchange offer for securities of NAC or a business combination (or other similar transaction that would result in a change of control), sale of assets, liquidation or other extraordinary corporate transaction between such Shareholder and NAC, or take any action that could reasonably be expected to require NAC to make a public announcement regarding any of the foregoing; (vi) deposit any securities of NAC in a voting trust or subject any securities of NAC to any arrangement or agreement with respect to the voting of securities of NAC, other than as provided in this Agreement; or (vii) form, join or in any way participate in a partnership, limited partnership, syndicate or other group (or otherwise act in concert with any other Person, except as a member of the Shareholder Group), for the purpose of (A) acquiring, holding or voting of securities of NAC (other than pursuant to the Merger Agreement), or (B) taking any other actions restricted or prohibited under clauses (i) through (vi) of this Section 6(a), or announce an intention to do, or enter into any arrangement or understanding with others to do, any of the actions restricted or prohibited under clauses (i) through (vi) of this Section 6(a). -7- 8 (b) PERMITTED TRANSACTIONS. (i) The restrictions contained in Section 6(a) of this Agreement shall immediately and automatically be suspended upon the occurrence and during the continuation of any of the following events and/or the completion of any competing proposal of a shareholder, unless the relevant event occurs with the consent or approval of NAC's Board of Directors: (i) the filing with the SEC of a Schedule 13D (or any successor filing) by any Person or group outside the Shareholder Group indicating that such Person or group has acquired more than 15% of the outstanding shares of Common Stock, which Schedule 13D expresses the filing party's intention to assume control of NAC, whether by tender offer, merger, proxy contest or otherwise; (ii) the commencement of a tender offer by any Person or group outside the Shareholder Group to acquire 15% or more of the outstanding shares of Common Stock; (iii) the solicitation of proxies by any Person (other than NAC or a member of the Shareholder Group) to which Rules 14a-3 to 14a-15 under the Exchange Act (or any successor rules) applies that is intended to effect a change in the majority of members of NAC's Board of Directors or . (ii) Section 6(a) hereof shall not prohibit transfers between members of the Shareholder Group or to their affiliates or Family Members, provided that each such transferee who has not previously executed this Agreement shall have agreed in writing, in form and substance reasonably acceptable to NAC and delivered to NAC, to be bound hereby. (iii) Notwithstanding anything contained herein to the contrary, in the event the Reading Settlement is terminated, other than pursuant to Section 10(b)(i) thereof on account of the Stockholders (as defined in the Reading Settlement) collectively owning, directly or indirectly, beneficially or of record, together with all Affiliates (as defined in the Reading Settlement) of such Stockholders, in the aggregate, less than 10% of NAC's then issued and outstanding Company Voting Stock (as defined in the Reading Settlement), the restriction contained in Section 6(a) shall terminate and no longer be binding upon any of the parties hereto. SECTION 7. - LOCKUP AGREEMENT. (a) DEFINITION OF LOCKUP. As used herein, the term "LOCKUP" shall mean the agreement of Shareholder not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any NAC Capital Stock without the prior written consent of NAC, from the date hereof and extending for such period of time (the "LOCKUP PERIOD") as set forth herein. (b) FORFEITABLE SHARE LOCKUP PERIOD. The Forfeitable Shares Beneficially Owned or to be Beneficially Owned by any Shareholder (and all Collateral NAC Securities (i) issued by NAC as a dividend or other distribution on account of any Forfeitable Shares, (ii) issued by NAC upon the exercise, conversion or exchange of any Forfeitable Shares or -8- 9 (iii) issued by NAC in full or partial consideration of the price payable by NAC upon the redemption (whether at the option of NAC or the holder of the respective security) of any Forfeitable Shares) shall be subject to Lockup until September 30, 2004. (c) NON-FORFEITABLE SHARE LOCKUP PERIOD. (i) The Nonforfeitable Shares (and all Collateral NAC Securities (i) issued by NAC as a dividend or other distribution on account of any Nonforfeitable Shares, (ii) issued by NAC upon the exercise, conversion or exchange of any Nonforfeitable Shares or (iii) issued by NAC in full or partial consideration of the price payable by NAC upon the redemption (whether at the option of NAC or the holder of the respective security) of any Nonforfeitable Shares) received or to be received by any Shareholder shall be subject to Lockup until June 30, 2002. (ii) Thereafter, one-half (1/2) of the Nonforfeitable Shares (and one-half (1/2) of all Collateral NAC Securities (i) issued by NAC as a dividend or other distribution on account of any Nonforfeitable Shares, (ii) issued by NAC upon the exercise, conversion or exchange of any Nonforfeitable Shares or (iii) issued by NAC in full or partial consideration of the price payable by NAC upon the redemption (whether at the option of NAC or the holder of the respective security) of any Nonforfeitable Shares) shall be released from Lockup, and one-half (1/2) of the Nonforfeitable Shares (and one-half (1/2) of all Collateral NAC Securities (i) issued by NAC as a dividend or other distribution on account of any Nonforfeitable Shares, (ii) issued by NAC upon the exercise, conversion or exchange of any Nonforfeitable Shares or (iii) issued by NAC in full or partial consideration of the price payable by NAC upon the redemption (whether at the option of NAC or the holder of the respective security) of any Nonforfeitable Shares) shall continue to be subject to Lockup until December 31, 2002. (d) RESTRICTIONS ON EXERCISE OF CERTAIN RIGHTS DURING THE STANDSTILL PERIOD. For so long as any security issued by NAC is subject to Lockup pursuant to this Section 7, the holder thereof shall not exercise any right (i) to convert such security into any other security or securities of NAC other than shares of Common Stock or (ii) to require or cause NAC to redeem such security. (e) ADDITIONAL LOCKUP AGREEMENT. If an underwriter managing an underwritten offering of NAC's securities in connection with the registration of shares of NAC Capital Stock requires the officers or directors of NAC to enter into a lockup agreement (an "INSIDER LOCKUP AGREEMENT"), each Shareholder also agrees to execute and deliver to such underwriter an additional lockup agreement, in substantially the same form and upon substantially same terms as the Insider Lockup Agreement, not to exceed the time limitations set forth in Section 2.2 (b) of the Registration Rights Agreement. SECTION 8. - PROXIES. Each Shareholder represents that any proxies given by such Shareholder prior to this Agreement regarding the ZoomLot Shares are not irrevocable, and that -9- 10 any such proxies have been revoked. Each Shareholder covenants that he/she/it shall not give a proxy or otherwise transfer any voting or similar rights with respect to any NAC Voting Shares to any Person during the term of this Agreement, except as expressly permitted by this Agreement. Notwithstanding the foregoing, a Shareholder may give a proxy to the person(s) designated by NAC's Board of Directors in connection with a proxy solicitation by NAC's Board of Directors or to the Shareholder Representative, provided that, pursuant to such proxy, the holder of such proxy is directed, during any Voting Period, is designated to be voted or exercised in accordance with Section 6 above. Any proxy granted or issued by any Shareholder in violation of the foregoing provisions of this Section 9 shall be null and void and of no force or effect. SECTION 9. - LEGEND/STOP TRANSFER. (a) Any certificate evidencing NAC Voting Shares or any Collateral NAC Securities issued at any time, including the certificates issued to the Shareholders representing the NAC Merger Shares, shall (in addition to such other legend(s) as may be required under the Merger Agreement of by law) have the following legend written, printed or stamped upon the face thereof: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS, CONDITIONS AND RESTRICTIONS OF A LOCKUP, STANDSTILL AND VOTING AGREEMENT, DATED AS OF DECEMBER 15, 2000, AMONG NATIONAL AUTO CREDIT, INC. AND CERTAIN SHAREHOLDERS, A COPY OF WHICH AGREEMENT IS ON FILE AT THE OFFICES OF NATIONAL AUTO CREDIT, INC. SUCH AGREEMENT, AMONG OTHER THINGS, MAY RESTRICT THE TRANSFER AND VOTING RIGHTS OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED, ENCUMBERED OR DISPOSED OF, EXCEPT AS EXPRESSLY PROVIDED IN SUCH AGREEMENT. STOP TRANSFER INSTRUCTIONS HAVE BEEN PLACED AGAINST THE SECURITIES AND THE CERTIFICATES EVIDENCING THE SECURITIES TO RESTRICT THEIR TRANSFER, EXCEPT AS PERMITTED UNDER SUCH AGREEMENT. (b) Each Shareholder consents to the placing of stop transfer instructions against such Shareholder's NAC Voting Shares and NAC Collateral Securities and the certificates evidencing the NAC Voting Shares and NAC Collateral Securities to restrict their transfer except as permitted under this Agreement. SECTION 10. - TERMINATION. This Agreement shall terminate on December 31, 2007; provided that certain provisions hereof, or the effect thereof, may terminate prior thereto in accordance with the terms of this Agreement. SECTION 11. - MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Agreement (together with the Merger Agreement and any other agreements, documents or instruments referred to herein or therein) constitutes the entire agreement with respect to the subject matter hereof and thereof and -10- 11 supersedes all other prior or contemporaneous agreements and understandings, both written and oral, among the parties, or any of them, with respect to such subject matter. (b) SUCCESSORS AND ASSIGNS. This Agreement shall not be assigned by operation of law or otherwise without the prior written consent of NAC and the Shareholders' Representative, and any effort to make any assignment in violation of the foregoing shall be null and void and of no force or effect. This Agreement shall be binding upon and enforceable against each party and each party's respective heirs, beneficiaries, executors, representatives, successors and assigns and shall inure to the benefit of and be enforceable by each party and each party's respective heirs, beneficiaries, executors, representatives, successors and permitted assigns. (c) AMENDMENT AND MODIFICATION. This Agreement may not be amended, altered, supplemented or otherwise modified except as provided in a written agreement executed and delivered by the parties hereto; provided, however, that any amendment, alteration, supplement or other modification signed by the Shareholders' Representative shall be binding upon each and all of the Shareholders with the same force and effect as if the same had been signed by each of the Shareholders. (d) NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given upon (i) transmitter's confirmation of a receipt of a facsimile transmission, (ii) confirmed delivery by a standard overnight carrier or when delivered by hand (with written confirmation of receipt) or (iii) the expiration of five (5) business days after the day when mailed by certified or registered mail, postage prepaid, addressed at the following addresses (or at such other address for a party as shall be specified by like notice); provided, however, that any notice of change of address or facsimile number shall be effective only upon the receipt thereof: If to National Auto Credit to: National Auto Credit, Inc. 30000 Aurora Road Solon, Ohio 44139 Attn: Chief Executive Officer FAX: ________________ with a copy to: Parker Duryee Rosoff & Haft 529 Fifth Ave., 8th Fl. New York, NY 10017 Attn: Herbert F. Kozlov, Esq. FAX: 212-972-9487 If to the Shareholders (or any of them): Ernest C. Garcia, II Verde Capital Partners, LLC 2525 East Camelback, Suite 1150 Phoenix, AZ 85016 -11- 12 FAX: 602-667-2484 with a copy to: Snell & Wilmer, L.L.P. One Arizona Center Phoenix, AZ 85004 Attn: Steven D. Pidgeon FAX: 602-382-6070 (e) SEVERABILITY. Any term or provision of this Agreement that is held to be invalid, illegal or unenforceable in any respect in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. (f) SPECIFIC PERFORMANCE. Each of the Shareholders recognizes and acknowledges that a breach by him/her/it of any of the covenants and agreements contained in this Agreement will cause NAC to sustain damages for which it would not have an adequate remedy at law for monetary damages, and therefore, each Shareholder agrees that, in the event of any such breach or threatened breach, NAC shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief, without being required to post any bond or provide any other surety or undertaking, in addition to any other remedy to which it may be entitled, at law or in equity. (g) NO WAIVER. No provision hereof may be waived, in whole or in part, except as provided in a written agreement executed and delivered by the parties hereto; provided, however, that any waiver signed by the Shareholders' Representative shall be binding upon each and all of the Shareholders with the same force and effect as if the same had been signed by each of the Shareholders. No waiver of any breach or default hereunder shall be considered valid unless in writing. The failure of any party to exercise any right, power or remedy provided under this Agreement or otherwise available in respect of this Agreement at law or in equity, or to insist upon compliance by any other party with its obligation under this Agreement, and any custom or practice of the parties at variance with the terms of this Agreement, will not constitute a waiver by such party of his/her/its right to exercise any such or other right, power or remedy or to demand such compliance. (h) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. (i) GOVERNING LAW. This Agreement shall be governed and construed in accordance with the internal laws of the State of Delaware, without giving effect to the principles of conflict of law thereof. (j) INTERPRETATION. The descriptive headings used herein are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. References to Sections and Paragraphs refer to sections and paragraphs of this Agreement unless -12- 13 otherwise stated. Words such as "herein," "hereinafter," "hereof," "hereto," "hereby" and "hereunder," and words of like import, unless the context requires otherwise, refer to this Agreement (including the exhibits and attachments hereto). As used in this Agreement, the masculine, feminine and neuter genders shall be deemed to include the others if the context requires. This Agreement is the product of mutual negotiation; and no party shall be deemed the draftsperson hereof or of any portion or provision hereof. (k) EXPENSES. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring the expenses (subject, however, to clause (l) below). (l) INDEMNIFICATION. Each Shareholder shall indemnify and hold harmless NAC from and against, and shall reimburse NAC for, any and all damages, charges, claims, liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees and other costs of collection or enforcement) resulting from or occasioned by any breach by such Shareholder of any of his/her/its representations, warranties, covenants and other agreements set forth in this Agreement. (m) FURTHER ASSURANCES. From time to time, at any other party's request and without further consideration, each party shall execute and deliver any additional documents and take any further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. No Shareholder shall take any action inconsistent with the purposes and provisions of this Agreement. (n) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, NAC and the Shareholders have caused this Agreement to be duly executed as of the day and year first written above. NATIONAL AUTO CREDIT, INC., a Delaware corporation By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ------------------------------------ ERNEST C. GARCIA, II -13- 14 VOTING AGREEMENT SIGNATURE PAGE VERDE REINSURANCE COMPANY, LTD., a Nevis Island corporation By: -------------------------------------- Name: Ernest C. Garcia, II Title: Managing Director ERNIE GARCIA III 2000 TRUST By: -------------------------------------- Name: Steven P. Johnson Title: Trustee BRIAN GARCIA 2000 TRUST By: -------------------------------------- Name: Steven P. Johnson Title: Trustee -------------------------------------- RAY FIDEL -------------------------------------- STEVEN P. JOHNSON -------------------------------------- MARK SAUDER EJMS INVESTORS LIMITED PARTNERSHIP, an Arizona limited partnership By: SMJE Investors, LLC, an Arizona limited liability company, the General Partner By: -------------------------------------- Name: --------------------------------- Title: -------------------------------- -14- 15 VOTING AGREEMENT SIGNATURE PAGE ----------------------------------------- COLIN BACHINSKY ----------------------------------------- CHRIS ROMPALO ----------------------------------------- DONNA CLAWSON ----------------------------------------- MARY REINER ----------------------------------------- KATHY CHACON -15- 16 SCHEDULE 2(a) SHARED VOTING POWER AND OTHER POWERS None -16- EX-10.1 6 l85759aex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), effective as of November 3, 2000 (the "Effective Date"), between JAMES J. MCNAMARA ("Executive") and NATIONAL AUTO CREDIT, INC., a Delaware corporation ("Employer"). In consideration of the premises and the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. EMPLOYMENT OF EXECUTIVE Employer hereby agrees to employ Executive, and Executive hereby agrees to be and remain in the employ of Employer, upon the terms and conditions hereinafter set forth. 2. EMPLOYMENT PERIOD; EMPLOYMENT YEAR 2.1 EMPLOYMENT PERIOD. Subject to earlier termination as provided in Section 5, the term of Executive's employment under this Agreement shall commence as of the date hereof and shall continue until December 31, 2003 (the "Initial Employment Period"). Unless either party gives notice of non-renewal at least ninety (90) days prior to the expiration of the Initial Employment Period or any extension thereof, the term of this Agreement shall be extended for an additional one (1) year period beyond the end of the Initial Employment Period, or the end of any extension thereof, as the case may be (the Initial Employment Period and any extension thereof is hereafter referred to as the "Employment Period"). 2.2 EMPLOYMENT YEAR. Each 12-month period ending on October 31 shall be hereinafter considered an "Employment Year." 3. DUTIES AND RESPONSIBILITIES; PLACE OF PERFORMANCE 3.1 DUTIES AND RESPONSIBILITIES. During the Employment Period, Executive shall have the titles of Chairman of the Board and Chief Executive Officer of the Employer. Executive shall devote substantially all of his business time to the Employer. Executive shall be responsible for the affairs of the Employer and its subsidiaries in pursuit of the Employer's Business. Executive shall perform such duties, consistent with his status as Chairman of the Board and Chief Executive Officer of Employer, as he may be assigned from time to time by Employer's Board of Directors (the "Board"). 3.2 PLACE OF PERFORMANCE. In connection with his employment during the Employment Period, the Executive shall be based at the Employer's current principal offices in Solon, Ohio or such other principal offices as may be established in the future by the Board. Executive shall travel to such principal office, as necessary, from his home and shall be reimbursed by Employer for all expenses thereof. Employer shall maintain an office for the Executive in either New York, New York or Palm Beach County, Florida. 2 4. COMPENSATION AND RELATED MATTERS 4.1 BASE SALARY. Employer shall pay to Executive a base salary at the rate of $500,000 per annum, subject to increase at the discretion of the Board (the initial base salary, including any Board approved increase thereof, the "Base Salary"), payable in advance in monthly increments. 4.2 ANNUAL BONUS. Schedule A hereto sets forth certain performance objectives (each a "Milestone") for the Employer to achieve during each Employment Year during the Initial Employment Period. To the extent the relevant Milestone for any Employment Year is achieved, Executive shall receive a cash bonus based on a target of $250,000 per year (the "Target Bonus"). Executive's bonus in any Employment Year may be increased above the Target Bonus if, in the opinion of the Board, such increase is appropriate to reward Executive's performance for such year (the Target Bonus, together with any increase, being hereinafter referred to as the "Bonus"). Except as otherwise set forth in Section 6 hereof, if any Milestone for the Employment Year in which the Employment Period terminates has been achieved prior to such termination, Executive shall be entitled to receive the full amount of the Target Bonus. (a) Schedule A contains Milestones expressed in terms of the Stock Price of Employer. As used herein, "Stock Price" shall mean the average of the closing bid prices of the Common Stock ("Common Stock"), par value $.05 per share, of Employer, as reported by the principal market where the Common Stock is then traded, over the [10] trading days preceding October 31 in each Employment Year (as adjusted for stock splits, stock dividends, reclassification or other similar events). If, at the end of the particular Employment Year, the Employer's Stock Price is equal to or exceeds one or more of the prices specified, Executive shall be entitled to the percentage of the Target Bonus set forth next to the highest such price achieved. Any Bonus earned as a result of achieving the Stock Price target shall be paid to Executive within three business days of the end of the Employment Year in which the Milestone is achieved. (b) Achievement of multiple Milestones in any Employment Year shall not entitle Executive to more than 100% of the Target Bonus for such Employment Year, unless the Board increases the Bonus with respect to such Employment Year. The maximum aggregate Target Bonus during the Initial Employment Period shall be three (3) times the Target Bonus, unless the Board increases the Bonus with respect to one or more Employment Years. (c) In the event of a Change in Control (as defined below) of Employer, Executive shall be immediately entitled to the full amount of the Target Bonus with respect to any Employment Years remaining in the Employment Period. As used in this Agreement, the term "Change in Control" means (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Employer; (ii) any sale, lease exchange or other transfer (in one transaction or a series of related transactions) of shares of capital stock of the Employer such that any person or group (other than the holders generally of the Employer's capital stock immediately prior to such transaction or series of transactions) shall -2- 3 become the owner, directly or indirectly, beneficially or of record, of shares representing more than thirty-three percent (33%) of the aggregate ordinary voting power represented by the issued and outstanding voting securities of the Employer; or (iii) any merger, consolidation, recapitalization, acquisition or similar transaction (other than any such transaction involving only the Employer and/or one or more wholly owned subsidiaries of the Employer) in which the outstanding voting securities of the Employer are converted into or exchanged for cash, securities or other property, such that immediately after such transaction any person or group (other than the holders generally of such capital stock immediately prior to such transaction or series of transactions) shall become the owner, directly or indirectly , beneficially or of record, of shares representing more than twenty percent (20%) of the aggregate ordinary voting power represented by the issued and outstanding voting securities of the Employer. 4.3 SIGNING BONUS AND COMPENSATION FOR PAST SERVICES; BONUS FOR STOCK LISTING. Within 10 days of the execution of this Agreement, Employer shall pay to Executive a lump-sum payment of $750,000 as a signing bonus and as compensation for services previously performed by Executive for the Employer. Executive shall also receive a $1,000,000 cash bonus immediately upon the Employer's Common Stock being listed on the NASDAQ Stock Market, the American Stock Exchange or the New York Stock Exchange; PROVIDED, HOWEVER, that such listing shall have occurred during the Initial Employment Period and that Executive's employment hereunder shall not have been terminated for "Cause" (as defined in Section 5.2 below) prior to the date of such listing. 4.4 LIFE INSURANCE. Employer shall maintain in effect at all times during the Employment Period, at Employer's expense, a policy of split dollar life insurance on the life of Executive with a death benefit equal to three (3) times the Base Salary, naming such person as Executive shall designate from time to time as the owner and beneficiary thereof; PROVIDED, HOWEVER, that the premium for such life insurance shall not exceed $50,000 per year. 4.5 AUTOMOBILE ALLOWANCE. Employer shall provide Executive with a monthly allowance during the Employment Period of $1,250 to cover the costs of a leased automobile, including maintenance, fuel, and insurance. 4.6 OTHER BENEFITS. During the Employment Period, subject to, and to the extent Executive is eligible under their respective terms, Executive shall be entitled to receive such fringe benefits as are, or are from time to time hereafter generally provided by Employer to Employer's senior management employees or other employees (other than those provided under or pursuant to separately negotiated individual employment agreements or arrangements) under any pension or retirement plan, disability plan or insurance, group life insurance, medical and dental insurance, accidental death and dismemberment insurance, travel accident insurance or other similar plan or program of Employer. Employer shall provide short-term and long-term disability insurance for Executive which provides benefits equal to at least 60% of Base Salary. To the degree that Employer's medical insurance does not fully cover the cost of an annual physical examination for Executive, Employer shall reimburse Executive for such expense promptly after such expense is incurred. Executive's Base Salary shall (where applicable) -3- 4 constitute the compensation on the basis of which the amount of Executive's benefits under any such plan or program shall be fixed and determined. 4.7 EXPENSE REIMBURSEMENT. Employer shall reimburse Executive for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon his presentation of signed, itemized accounts of such expenditures, all in accordance with Employer's procedures and policies as adopted and in effect from time to time and applicable to its senior management employees. 4.8 VACATIONS. Executive shall be entitled to 20 days paid vacation for each Employment Year during the Employment Period, in accordance with the Employer's vacation policy as in effect from time to time. The Executive shall also be entitled to paid holidays and personal days in accordance with the Employer's practice with respect to same as in effect from time to time. In addition, the Executive shall be entitled to take up to six weeks leave without salary during the Initial Employment Period and two additional weeks for each Employment Year the Employment Period is extended. 4.9 EQUITY INCENTIVES. In order to provide further incentive to Executive and align the interests of Executive with those of the stockholders of Employer, Employer shall grant to Executive equity incentives consisting of shares of Common Stock and options to purchase shares of Common Stock ("Options"). (a) SHARE GRANT. As a signing bonus, Executive shall be granted 350,000 shares of Common Stock. The Executive has previously been granted options to purchase 175,000 shares of Common Stock, which he has agreed to surrender to the Employer, prior to or concurrently with the issuance of the shares constituting his signing bonus. (b) OPTION AWARDS. As of the date that this Agreement is approved by the Board and executed by the Executive, Employer shall grant to Executive Options to purchase 750,000 shares of Common Stock with an exercise price equal to the average of the closing bid prices of the Common Stock on the OTC Electronic Bulletin Board for the five trading days preceding December 16, 2000. All Options granted pursuant to this paragraph shall: (i) be subject to an option agreement containing terms substantially similar to the terms generally provided in the option agreements of the Employer's other senior managers (except as otherwise modified herein); (ii) have a term of 10 years from the date of grant; (iii) shall be fully vest and be exerciseable as follows: a. Options with respect to 250,000 shares shall vest and be exerciseable immediately; b. Options with respect to 250,000 shares shall vest and be exerciseable on and after December 15, 2001; and -4- 5 c. Options with respect to 250,000 shares shall vest and be exerciseable on and after December 15, 2002; PROVIDED, HOWEVER, that upon a Change of Control, all Options that have not yet vested and become exerciseable shall be deemed to have vested and have become exerciseable as of the time immediately preceding such Change of Control; (iv) shall provide for cashless exercise of such Options; (v) be issued under a qualified omnibus long-term incentive plan (a "Plan") that will provide for Incentive Stock Options pursuant to Internal Revenue Code ("Code") Section 422, non-qualified stock options and other forms of long-term incentives. If the Employer does not have a Plan applicable to the Executive or if an existing Plan does not provide for the foregoing terms or if sufficient shares are not available for grant under an existing Plan, Employer undertakes to implement a Plan to provide for the issuance of Executive's Options. Failure of the Employer to implement such a Plan shall not prevent Executive's right to receive his Options and he may elect, in his sole discretion, to receive Options not subject to a Plan. (c) From time to time, the Board may, in its discretion, grant additional Options to Executive, on such terms as the Board determines. 5. TERMINATION OF EMPLOYMENT PERIOD 5.1 TERMINATION WITHOUT CAUSE; VOLUNTARY TERMINATION BY EXECUTIVE. Employer may, by notice to Executive at any time during the Employment Period, terminate the Employment Period without Cause (as defined below). Executive may, by notice to Employer at any time during the Employment Period, voluntarily resign from the Employer and terminate the Employment Period. A termination under this section shall be effective immediately. 5.2 BY EMPLOYER FOR CAUSE. Employer may, at any time during the Employment Period, by notice to Executive, terminate the Employment Period for "Cause" (as defined below) effective immediately, except as otherwise provided below. The notice shall set forth in reasonable detail the basis for such termination. In the event that it is possible for the Executive to cure or correct the circumstances set forth in the notice, the termination shall not be effective until the date that is thirty (30) days following the date on which such notice is given and the circumstances set forth in the notice shall not constitute "Cause" if within 30 days of such notice, Executive cures or corrects such circumstances. The Employer shall have "Cause" to terminate the Executive's employment hereunder upon the Executive's: (a) fraud, embezzlement, or any other illegal act committed intentionally by the Executive in connection with the Executive's duties as an executive of the Employer or -5- 6 any subsidiary or affiliate of the Employer which causes or may reasonably be expected to cause substantial economic injury to the Employer or any subsidiary or affiliate of the Employer, (b) conviction of any felony which causes or may reasonably be expected to cause substantial economic injury to the Employer or any subsidiary or affiliate of the Employer, or (c) willful or grossly negligent commission of any other act or failure to act which causes or may reasonably be expected (as of the time of such occurrence) to cause substantial economic injury to or substantial injury to the reputation of the Employer or any subsidiary or affiliate of the Employer, including, without limitation, any material violation of the Foreign Corrupt Practices Act, as described herein below. An act or failure to act on the part of Executive shall be considered "willful" if done, or omitted to be done, by Executive in bad faith or without a reasonable belief that the act or omission was in the best interest of Employer. 5.3 BY EXECUTIVE FOR GOOD REASON. Executive may, at any time during the Employment Period by notice to Employer, terminate the Employment Period under this Agreement for "Good Reason" (as defined below) effective immediately. For the purposes hereof, "Good Reason" means any of the following without Executive's consent: (A) subject to Section 3 above, a material and adverse change in the nature and scope of Executive's authority and duties from those exercised or performed by Executive immediately after the Effective Date; (B) a material breach of this Agreement by Employer (including, but not limited to, failure to pay any amount due to Executive when due, diminution of Executive's duties and responsibilities or a change in Executive's place of performance); PROVIDED, HOWEVER, that the circumstances set forth in this Section 5.3(A) and (B) will not be Good Reason if within 30 days of notice by the Executive to the Employer, Employer cures such circumstances. 5.4 DISABILITY. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Executive shall be unable to perform his duties under this Agreement for (i) a continuous period of at least 120 days, or (ii) periods aggregating at least 180 days during any period of 12 consecutive months (each a "Disability Period"), and at the end of the Disability Period there is no reasonable probability that Executive can promptly resume his duties hereunder, Executive shall be deemed disabled (the "Disability") and Employer, by notice to Executive, shall have the right to terminate the Employment Period for Disability at, as of or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician. The parties shall attempt to agree on such a physician. In the event that the parties are unable to so agree, such physician shall be selected by an arbitrator provided by the American Arbitration Association in New York, New York. Executive shall cooperate in all reasonable respects to enable an examination to be made by such physician. 5.5 DEATH. The Employment Period shall end on the date of Executive's death. 6. TERMINATION COMPENSATION -6- 7 6.1 TERMINATION WITHOUT CAUSE BY EMPLOYER OR FOR GOOD REASON BY EXECUTIVE. If the Employment Period is terminated by Employer without Cause or by Executive for Good Reason, Employer will pay to Executive one dollar ($1) less than the amount that would constitute a "excess parachute payment" under Code Section 280G. Employer shall pay to the Executive such amount in a lump sum cash payment as soon as practicable following the effective date of such termination. Employer shall also continue to provide the Executive with all employee benefits and perquisites which he was participating in or receiving at the effective date of termination (or if greater, at the end of the prior year) for two years. If such benefits cannot be provided under the Employer's programs, such benefits and perquisites will be provided on a tax effective basis on an individual basis to the Executive. 6.2 TERMINATION BY REASON OF DEATH. . If the Employment Period is terminated by death, pursuant to the provisions of Section 5.5, Employer shall pay to Executive's estate, within thirty (30) days of the effective date of termination, Executive's Base Salary through the date of termination plus Executive's Base Salary for an additional ninety (90) days. 6.3 CERTAIN OTHER TERMINATIONS. If the Employment Period is terminated by Employer pursuant to the provisions of Sections 5.2 or 5.4, Employer shall pay to Executive, within thirty (30) days of the effective date of termination, Executive's Base Salary through the date of termination. If the date of termination occurs after a Milestone has been achieved, Employer shall also pay to Executive, when due pursuant to provisions of Section 4.2 hereof, the Bonus for such Employment Year. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination. 6.4 NO OTHER TERMINATION COMPENSATION. Executive shall not, except as set forth in this Section 6, be entitled to any compensation following termination of the Employment Period. 6.5 MITIGATION OF DAMAGES. In the event of any termination of the Executive's employment by the Employer, the Executive shall not be required to seek other employment to mitigate damages, and any income earned by the Executive from other employment or self-employment shall not be offset against any obligations of the company to the Executive under this Agreement. The Employer's obligations hereunder and the Executive's rights to payment shall not be subject to any right of set-off, counterclaim or other deduction by the Employer not in the nature of customary withholding, other than in any judicial proceeding or arbitration. 7. PARACHUTE PAYMENTS (a) If it is determined (as hereafter provided) that by reason of any payment or Option vesting occurring pursuant to the terms of this Agreement (or otherwise under any other agreement, plan or program) upon a Change in Control (collectively, a "Payment"), the Executive would be subject to the excise tax imposed by Code Section 4999 (the "Parachute Tax"), then the Executive shall be entitled to receive an additional -7- 8 payment or payments (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any Parachute Tax) imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Parachute Tax imposed upon the Payment. (b) Subject to the provisions of Section 7(a) hereof, all determinations required to be made under this Section 7, including whether a Parachute Tax is payable by the Executive and the amount of such Parachute Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the nationally recognized firm of certified public accountants (the "Accounting Firm") used by the Employer prior to the Change in Control (or, if such Accounting Firm declines to serve, the Accounting Firms hall be a nationally recognized firm of certified public accountants selected by the Executive). The Accounting Firm shall be directed by the Employer or the Executive to submit its preliminary determination and detailed supporting calculations to both the Employer and the Executive within 15 calendar days after the determination date, if applicable, and any other such time or times as may be requested by the Employer or the Executive. If the Accounting Firm determines that any Parachute Tax is payable by the Executive, the Employer shall pay the required Gross-Up Payment to, or for the benefit of, the Executive within five business days after receipt of such determination and calculations. If the Accounting Firm determines that no Parachute Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Parachute Tax on his federal tax return. Any good faith determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Employer and the Executive absent a contrary determination by the Internal Revenue Service or a court of competent jurisdiction; provided, however, that no such determination shall eliminate or reduce the Employer's obligation to provide any Gross-Up Payments that shall be due as a result of such contrary determination. As a result of the uncertainty in the application of Code Section 4999 at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Employer should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts or fails to pursue its remedies pursuant to Section 7(f) hereof and the Executive thereafter is required to make a payment of any Parachute Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Employer and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Employer to, or for the benefit of, the Executive within five business days after receipt of such determination and calculations. (c) The Employer and the Executive shall provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Employer or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination contemplated by Section 7(b) hereof. -8- 9 (d) The federal tax returns filed by the Executive (or any filing made by a consolidated tax group which includes the Employer) shall be prepared and filed on a basis consistent with the determination of the Accounting Firm with respect to the Parachute Tax payable by the Executive. The Executive shall make proper payment of the amount of any Parachute Tax, and at the request of the Employer, provide to the Employer true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service, and such other documents reasonably requested by the Employer, evidencing such payment. If prior to the filing of the Executive's federal income tax return, the Accounting Firm determines in good faith that the amount of the Gross-Up Payment should be reduced, the Executive shall within five business days pay to the Employer the amount of such reduction. (e) The fees and expenses of the Accounting Firm for its services in connection with the determination and calculations contemplated by Sections 7(b) and (d) hereof shall be borne by the Employer. If such fees and expenses are initially advanced by the Executive, the Employer shall reimburse the Executive the full amount of such fees and expenses within five business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (f) In the event that the Internal Revenue Service claims that any payment or benefit received under this Agreement constitutes an "excess parachute payment" within the meaning of Code Section 280G(b)(1), the Executive shall notify the Employer in writing of such claim. Such notification shall be given as soon as practicable but not later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30 day period following the date on which the Executive gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall (i) give the Employer any information reasonably requested by the Employer relating to such claim; (ii) take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer and reasonably satisfactory to the Executive; (iii) cooperate with the Employer in good faith in order to effectively contest such claim; and (iv) permit the Employer to participate in any proceedings relating to such claim; PROVIDED, HOWEVER, that the Employer shall bear and pay directly all costs and expenses (including, but not limited to, additional interest and penalties and related legal, consulting or other similar fees) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for and against for any Parachute Tax or income tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. (g) The Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative -9- 10 appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; PROVIDED, HOWEVER, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after tax basis, from any Parachute Tax (or other tax, including interest and penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and PROVIDED, FURTHER, that if the Executive is required to extend the statute of limitations to enable the Employer to contest such claim, the Executive may limit this extension solely to such contested amount. The Employer's control of the contest shall be limited to issues with respect to which a corporate deduction would be disallowed pursuant to Code Section 280G and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. In addition, no position may be taken nor any final resolution be agreed to by the Employer without the Executive's consent if such position or resolution could reasonably be expected to adversely affect the Executive unrelated to matters covered hereto. (h) If, after the receipt by Executive of an amount advanced by the Employer in connection with the contest of the Parachute Tax claim, the Executive receives any refund with respect to such claim, the Executive shall promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto); PROVIDED, HOWEVER, if the amount of that refund exceeds the amount advanced by the Employer, the Executive may retain such excess. If, after the receipt by the Executive of an amount advanced by the Employer in connection with a Parachute Tax claim, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest the denial of such refund prior to the expiration of 30 days after such determination, such advance shall be deemed to be in consideration for services rendered after the Date of Termination. 8. PROFESSIONAL LIABILITY INSURANCE; INDEMNIFICATION 8.1 INSURANCE. The Employer will provide coverage for Executive under the Employer's director and officer professional liability insurance policy. 8.2 INDEMNIFICATION. Employer shall indemnify the Executive to the fullest extent permitted by law in effect as of the date hereof, or as hereafter amended, against all costs, expenses, liabilities and losses (including, without limitation, attorneys' fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts paid in settlement) reasonably incurred by the Executive in connection with a Proceeding. For the purposes of this section, a "Proceeding" shall mean any action, suit or proceeding, whether civil, criminal, administrative or investigative, in which the Executive is made, -10- 11 or is threatened to be made, a party to, or a witness in, such action, suit or proceeding by reason of the fact that he is or was an officer, director or employee of the Employer or is or was serving as an officer, director, member, employee, trustee or agent of any other entity at the request of the Employer. (a) NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by the Executive of notice of the commencement of any Proceeding, the Executive will, if a claim in respect thereof is to be made against the Employer under this Agreement, notify the Employer in writing of the commencement thereof; but the omission to so notify the Employer will not relieve the Employer from any liability that it may have to the Executive otherwise than under this Agreement. Notwithstanding any other provision of this Agreement, with respect to any such Proceeding as to which the Executive gives notice to the Employer of the commencement thereof: (i) The Employer will be entitled to participate therein at its own expense; and (ii) Except as otherwise provided in this Section 8.2(a)(ii) to the extent that it may wish, the Employer, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof, with counsel satisfactory to the Executive. After notice from the Employer to the Executive of its election to so assume the defense thereof, the Employer shall not be liable to the Executive under this Agreement for any legal or other expenses subsequently incurred by the Executive in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Executive shall have the right to employ the Executive's own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Employer of its assumption of the defense thereof shall be at the expense of the Executive unless (a) the employment of counsel by the Executive has been authorized by the Employer, (b) the Executive shall have reasonably concluded that there may be a conflict of interest between the Employer and the Executive in the conduct of the defense of such Proceeding (which conclusion shall be deemed reasonable if, without limitation, such action shall seek any remedy other than money damages and the Executive would be personally affected by such remedy or the carrying out thereof), or (c) the Employer shall not in fact have employed counsel to assume the defense of the Proceeding, in each of which cases the fees and expenses of counsel shall be at the expense of the Employer. The Employer shall not be entitled to assume the defense of any Proceeding brought against the Executive by or on behalf of the Employer or as to which the Executive shall have reached the conclusion provided for in clause (b) above. 9. CONFIDENTIALITY Unless otherwise required by law or judicial process, Executive shall retain in confidence during the Employment Period and after termination of Executive's employment with Employer pursuant to this Agreement all confidential information known to the Executive concerning Employer and its businesses. The obligations of -11- 12 Executive pursuant to this Section 9 shall survive the expiration or termination of this Agreement. 10. NONCOMPETITION. 10.1 GENERAL. For the duration of the Employment Period and the applicable Non-Compete Period (as defined below), the Executive shall not directly or indirectly, engage in any Competitive Activity (as defined below) in competition with the Employer. "Competitive Activity" shall mean: (A) the development, providing, marketing, administration, management, or acting as a consultant in the providing of, the principal operating business(es) of the Employer at the time of termination, (B) the participation, directly or indirectly, in any business which is the same as or substantially similar to or is or would be competitive with the sub-prime auto finance business of the Employer at the time; and (C) becoming an employee, director, officer, consultant, independent contractor, lecturer or advisor of or to, or otherwise providing services to, any business, individual, partnership, firm, association or corporation, if the Executive's duties relate in any manner to the business of developing, providing, marketing, administering, managing, or acting as a consultant in the providing of, the principal operating business(es) of the Employer at the time of termination. Nothing herein, however, shall prohibit Executive from acquiring or holding any issue of stock or securities of any business, individual, partnership, firm, or corporation (collectively "Entity") which has any securities listed on a national securities exchange or quoted in the daily listing of over-the-counter market securities, provided that at any one time he and members of his immediate family do not own more than five percent of the voting securities of any such Entity. The obligations of Executive pursuant to this Section 10 shall survive the expiration or termination of this Agreement. 10.2 NON-COMPETE PERIOD. Upon termination of Executive's employment hereunder, the prohibition against Executive engaging in a Competitive Activity shall remain in effect for the following periods (each a "Non-Compete Period"). (a) TERMINATION WITHOUT CAUSE BY EMPLOYER OR FOR GOOD REASON BY EXECUTIVE. If the Employment Period is terminated by Employer without Cause or by Executive for Good Reason, provided that all payments due to Executive from Employer have been made to Executive by Employer, the Non-Compete Period shall be six (6) months from the effective date of termination. (b) TERMINATION FOR CAUSE BY EMPLOYER OR WITHOUT GOOD REASON BY EXECUTIVE. If the Employment Period is terminated by Employer for Cause or by Executive without Good Reason, the Non-Compete Period shall be one year from the effective date of termination. (c) NON-RENEWAL. If the Employment Period ends as a result of the non-renewal of the Agreement by either party, the Non-Compete Period shall be six (6) months from the last day of the Employment Period. -12- 13 11. NONSOLICITATION. During the Non-Compete Period, Executive shall not directly or indirectly solicit to enter into the employ of any other Entity, or hire, any of the employees of the Employer (or individuals who were employees of the Employer within six months of termination of the Non-Compete Period). During the Non-Compete Period, Executive shall not, directly or indirectly, solicit, hire or take away or attempt to solicit, hire or take away (i) any customer or client of the Employer or (ii) any former customer or client (that is, any customer or client who ceased to do business with the Employer during the one (1) year immediately preceding such date) of the Employer or encourage any customer or client of the Employer to terminate its relationship with the Employer without the Employer's prior written consent. The obligations of Executive pursuant to this Section 11 shall survive the expiration or termination of this Agreement. 12. NON-DISPARAGEMENT OF THE EXECUTIVE The Employer shall not make any oral or written statement about the Executive which is intended or reasonably likely to disparage the Executive or otherwise degrade his reputation in the business or legal community. 13. FOREIGN CORRUPT PRACTICES ACT The Executive agrees to comply in all material respects with the applicable provisions of the U.S. Foreign Corrupt Practices Act of 1977 ("FCPA"), as amended, which provides generally that: under no circumstances will foreign officials, representatives, political parties or holders or public offices be offered, promised or paid any money, remuneration, things of value, or provided any other benefit, direct or indirect, in connection with obtaining or maintaining contracts or others hereunder. When any representative, employee, agent, or other individual or organization associated with the Executive is required to perform any obligation related to or in connection with this Agreement, the substance of this section shall be imposed upon such person and included in any agreement between the Executive and any such person. Failure by the Executive to comply in all material respects with the provisions of the FCPA (other than an inadvertent violation on the basis of advice from counsel to the Employer that the conduct in question is not a violation) shall constitute a material breach of this Agreement and shall entitle the Employer to terminate the Executive's employment for Cause. 14. SUCCESSORS; BINDING AGREEMENT This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by Executive and Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Executive's estate. -13- 14 15. SURVIVORSHIP The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 16. MISCELLANEOUS 16.1 NOTICES. Any notice, consent or authorization required or permitted to be given pursuant to this Agreement shall be in writing and sent to the party for or to whom intended, at the address of such party set forth below, by registered or certified mail, postage paid (deemed given five days after deposit in the U.S. mails) or personally or by facsimile transmission (deemed given upon receipt), or at such other address as either party shall designate by notice given to the other in the manner provided herein. If to Employer: National Auto Credit, Inc. 30000 Aurora Road Solon, Ohio 44139 Attention: General Counsel Facsimile: (440) 349-3141 If to Executive: James J. McNamara 127 Kings Road Palm Beach. FL 33480 Facsimile: (561) 659-1438 16.2 TAXES. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Executive) such amounts for income tax, social security, unemployment compensation and other taxes as shall be necessary or appropriate in the reasonable judgment of Employer to comply with applicable laws and regulations. 16.3 INVENTIONS; WORK FOR HIRE. Executive hereby agrees to assign and does hereby assign all of Executive's right, title and interest in or to any and all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, works of authorship, innovations and improvements (collectively "Inventions") conceived or made by Executive, whether alone or in concert with others whether patentable or subject to potential copyrights or not, except those that the Executive developed or develops entirely on Executive's own time without using the equipment, supplies, facilities, or confidential or proprietary information of the Employer and provided that such Inventions are unrelated to the business of the Employer. Executive agrees to promptly inform and disclose all Inventions to the Employer in writing and with respect to those Inventions that Executive is required to -14- 15 assign to the Employer hereunder to provide all assistance reasonably requested by the Employer in the preservation of its interests in the Inventions (such as by executing documents, testifying, etc.), such assistance to be provided at the Employer's expense but without additional compensation to the Executive. Executive agrees that any work prepared by the Executive during the Employment Period which work is subject to assignment under this paragraph and which is eligible for United States copyright protection or protection under the Universal Copyright Convention the Berne Copyright Convention and/or the Buenos Aires Copyright Convention, shall be a "work made for hire". In the event that any such work is deemed not to be a "work made for hire". Executive hereby assigns all right, title and interest in and to the copyright in such work to the Employer, and agrees to provide all assistance reasonably requested in the establishment, preservation and enforcement of the Employer's copyright in such work, such assistance to be provided at the Employer's expense but without any additional compensation to Executive. 16.4 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to the principles of conflicts of laws therein. 16.5 DISPUTE RESOLUTION AND ARBITRATION. In the event that any dispute arises between the Employer and the Executive regarding or relating to this Agreement and/or any aspect of the Executive's employment relationship with the Employer, AND IN LIEU OF LITIGATION AND A TRIAL BY JURY, the parties consent to resolve such dispute through mandatory arbitration under the Commercial Rules of the American Arbitration Association, before a single arbitrator in New York, New York. The parties hereby consent to the entry of judgment upon award rendered by the arbitrator in any court of competent jurisdiction. Notwithstanding the foregoing, however, should adequate grounds exist for seeking immediate injunctive or immediate equitable relief, any party may seek and obtain such relief; provided that, upon obtaining such relief, such injunctive or equitable action shall be stayed pending the resolution of the arbitration proceedings called for herein. The parties hereby consent to the exclusive jurisdiction in the state and Federal courts located in the City of New York, County of New York and State of New York for purposes of seeking such injunctive or equitable relief as set forth above. Each side shall bear its own costs; however any fees assessed by the American Arbitration Association shall be allocated by the arbitrator in his/her sole discretion. 16.6 HEADINGS. All descriptive headings in this Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Agreement. 16.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. -15- 16 16.8 SEVERABILITY. If any provision of this Agreement, or any part thereof, is held to be unenforceable, the remainder of such provision and this Agreement, as the case may be, shall nevertheless remain in full force and effect. 16.9 ENTIRE AGREEMENT AND REPRESENTATION. This Agreement contains the entire agreement and understanding between Employer and Executive with respect to the subject matter hereof. No representations or warranties of any kind or nature relating to Employer or its several businesses, or relating to Employer's assets, liabilities, operations, future plans or prospects have been made by or on behalf of Employer to Executive. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 15 day of December, 2000 and as of the date first above written. NATIONAL AUTO CREDIT, INC. By: -------------------------------------- Name: Title: ----------------------------------------- James J. McNamara -16- 17 SCHEDULE A PERFORMANCE MILESTONES YEAR 1 BONUS YEAR 2 BONUS YEAR 3 BONUS ------------ ------------ ------------ STOCK PRICE % EARNED STOCK PRICE % EARNED STOCK PRICE % EARNED ----------- -------- ----------- -------- ----------- -------- $0.75 25% $1.50 25% $2.40 25% $1.00 50% $1.85 50% $2.75 50% $1.25 100% $2.15 100% $3.15 100% NOTE: In the absence of an agreement with respect to any extension of the Initial Employment Period, or any extension of an earlier extension, the Target Bonus for each year shall be $300,000, which shall be earned as follows: - 25% Earned if the Stock Price at the end of the Employment Year is 110% of the Stock Price at the end of the prior Employment Year. - 50% Earned if the Stock Price at the end of the Employment Year is 120% of the Stock Price at the end of the prior Employment Year. - 100% Earned if the Stock Price at the end of the Employment Year is 130% of the Stock Price at the end of the prior Employment Year. -17- EX-99.1 7 l85759aex99-1.txt EXHIBIT 99.1 1 EXHIBIT 99.1 AGREEMENT FOR SALE OF SHARES ---------------------------- This STOCK PURCHASE AND STANDSTILL AGREEMENT, dated as of December 16, 2000 (this "Agreement"), is made and entered into by and among READING ENTERTAINMENT, INC., a Nevada corporation ("Reading"), FA, INC., a Nevada corporation and a wholly owned subsidiary of Reading ("FA"), CITADEL HOLDING CORPORATION, a Nevada corporation ("Citadel"), and CRAIG CORPORATION, a Nevada corporation ("Craig" and, collectively with Reading, FA and Citadel, the "Stockholders"), on the one hand, and NATIONAL AUTO CREDIT, INC., a Delaware corporation ("NAC" or the "Company"), and NATIONAL CINEMAS, INC., a Delaware corporation ("National Cinemas"), on the other hand. WHEREAS, the Stockholders own an aggregate of 4,777,121 shares (the "Shares") of common stock, par value $.05 per share, of the Company ("Company Common Stock"); NOW THEREFORE, in consideration of the above premises and the promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Stockholders and the Company hereby agree as follows: 1. Upon the terms and subject to the conditions of this Agreement, at the closing of the transactions contemplated hereby (the "Closing"), which Closing shall take place not later than December 22, 2000, the Stockholders shall sell, convey, assign, transfer and deliver to the Company, and the Company shall purchase, acquire and accept from the Stockholders, good and valid title to all of the Shares, free and clear of all liens, claims, charges or other encumbrances (collectively, "Liens"). In consideration of the aforesaid sale, conveyance, assignment, transfer and delivery of the Shares, at the Closing, the Company shall pay and convey to the Stockholders the aggregate sum of Eight Million Dollars ($8,000,000), in immediately available United States Dollars, by wire transfer to a bank account or bank accounts designated by the Stockholders. 2. The Company makes the following representations with respect to the transactions set forth in Paragraph 1 above: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and corporate authority to enter into this Agreement, and to consummate the transactions contemplated hereby. (b) The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby, have been authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Company and, assuming that this Agreement constitutes a valid and binding obligation of the Stockholders, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 2 3. The Stockholders, jointly and severally, make the following representations with respect to the transactions set forth in Paragraph 1 above: (a) Each of the Stockholders is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and each has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (b) The execution, delivery and performance by each of the Stockholders of this Agreement, and the consummation by each of the Stockholders of the transactions contemplated hereby, have been authorized by all necessary action, corporate or otherwise. This Agreement has been duly executed and delivered by each of the Stockholders, and, assuming that this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each such Stockholder, enforceable against each such Stockholder in accordance with its terms. 4. The Stockholders agree that from and after the date hereof, they, and each of them, will not, nor will they permit their affiliates or cause or assist in any way their associates or other representatives to, directly or indirectly, alone or in concert or in conjunction with any other "Person" or "Group" (as such terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (a) in any manner acquire, agree to acquire or to make any proposal (or request permission to make any proposal) to acquire, directly or indirectly, any beneficial interest in any securities of, equity interest in or any property or assets (other than property or assets transferred in the ordinary course of the Company's business) of the Company or any of its subsidiaries, (b) except with the prior written consent of the Company, propose to the Company or any of its stockholders to enter into any merger or business combination involving the Company or any of its subsidiaries or to purchase a material portion of the assets of the Company or any of its subsidiaries, (c) make or in any way participate in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the U.S. Securities and Exchange Commission) to vote, or seek to advise or influence any Person with respect to the voting of, any voting securities of the Company or any of its subsidiaries, (d) form, join or in any way participate in a Group with respect to any voting securities of the Company or any of its subsidiaries, (e) seek, alone or in concert with others, to control, change or influence the management, Board of Directors or policies of the Company or its affiliates or propose any matter to be voted upon by the stockholders of the Company, (f) disclose any intention, plan or arrangement inconsistent with the foregoing, (g) assist, advise or encourage any other Person in doing any of the foregoing, or (h) make any request or proposal to amend, waive or terminate any provisions of this Paragraph 4. Nothing in this Paragraph 4 shall affect the operation of or relationship between the parties hereto with respect to the Angelika Film Centers LLC. 5. The Stockholders, for themselves and their affiliated entities, successors-in-interest, representatives, agents and assigns, hereby release and discharge the Company, and each of the 3 Company's past, present and future officers, directors, stockholders, parent and/or subsidiary companies, affiliated entities, successors-in-interest, representatives, agents, employees, attorneys and assigns, and the individuals' heirs, administrators, executors, representatives, attorneys and assigns (collectively, the "NAC Group"), from any and all claims, demands, causes of action, actions, judgments, liens, indebtedness, costs, damages, obligations, attorneys' fees, losses and liability of whatever kind and character, whether known or unknown, foreseen or unforeseen, arising from the beginning of time to the date hereof that each of them has against any of the members of the NAC Group; PROVIDED, that nothing contained herein shall be deemed to release any member of the NAC Group from any of its obligations under this Agreement; nor shall anything contained herein release any rights to indemnification pursuant to the Company's By-Laws or pursuant to Delaware law to which James J. Cotter or Scott A. Braly would otherwise be entitled as former directors of the Company. 6. The Company, for itself and its affiliated entities, successors-in- interest, representatives, agents and assigns, hereby releases and discharges each of the Stockholders, and each of such Stockholder's respective past, present and future officers, directors, stockholders, parent and/or subsidiary companies, affiliated entities, successors-in-interest, representatives, agents, employees, attorneys and assigns, and the individuals' heirs, administrators, executors, representatives, attorneys and assigns (collectively, the "Stockholder Group"), from any and all claims, demands, causes of action, actions, judgments, liens, indebtedness, costs, damages, obligations, attorneys' fees, losses and liability of whatever kind and character, whether known or unknown, foreseen or unforeseen, arising from the beginning of time to the date hereof that each of them has against any of the members of the Stockholder Group; PROVIDED, that nothing contained herein shall release any Stockholder from any of its obligations under this Agreement or from any claim or obligation arising from and after April 6, 2000 with respect to Angelika Film Centers LLC or the operation of the Angelika Theater; nor shall anything contained herein release any Stockholder from any of its obligations under, or from any claim or obligation arising under, (i) the Limited Liability Company Agreement, dated as of August 27, 1996, by and between Angelika, Inc. and Sutton Hill Associates, as modified by that certain Amendment and Waiver Agreement, dated as of April 5, 2000, by and among FA, Angelika Film Centers LLC, National Cinemas, et. al. or (ii) the Management Agreement, dated as of August 27, 1996, by and between Angelika Film Centers LLC and City Cinemas Corporation, as amended to date. 7. The Company agrees to indemnify and hold harmless the Stockholders and their respective officers and directors from and against any claims asserted by any stockholder of the Company in his capacity as a stockholder of the Company with respect to the sale of the Shares by the Stockholders to the Company pursuant to this Agreement, and to bear the reasonable defense costs arising therefrom. Stockholders will give prompt notice of any such claim and will cooperate in the defense thereof. The Company shall have the right to assume the defense of any claim for which indemnity is sought and to select counsel reasonably satisfactory to the indemnified party to conduct such defense. The provisions of this Paragraph 7 shall not be applicable to any derivative claims (e.g., claims asserted in the name of the Company by a stockholder of the Company) or to any claims based on alleged violations of law by any of the 4 Stockholders or by the party seeking indemnity. 8. The Stock Purchase and Standstill Agreement, dated as of November 3, 2000, by and among the Company and the Stockholders is hereby terminated and shall be of no further force and effect. The provisions of Sections 5.9, 5.10 and 5.11 of the Purchase Agreement, dated as of April 5, 2000, by and among the Company, National Cinemas, FA and Reading are hereby terminated and shall be of no further force and effect. The Registration Rights Agreement, dated as of April 5, 2000, by and among the Company and FA is hereby terminated and shall be of no further force and effect. 9. Unless specifically provided herein, this Agreement is not intended to create, and shall not create, any rights in any person or entity that is not a party to this Agreement. 10. This Agreement has been prepared, and negotiations in connection with it have been carried on, by the efforts of each of the parties hereto, and this Agreement is to be construed fairly and in accordance with its plain meaning, and not strictly against any particular party, and no party hereto shall be deemed to be the draftsperson hereof. 11. This Agreement constitutes the entire understanding of the parties concerning its subject matter and may not be modified, altered, or discharged except by a writing signed by all of the parties hereto. No representations or promises except those set forth herein have been made to induce any party to enter into this Agreement. 12. This Agreement shall be binding on each of the parties hereto and on their respective successors and assigns. 13. The representations and warranties set forth in Paragraphs 2 and 3 hereof shall survive indefinitely following the execution of this Agreement and the consummation of the transactions contemplated hereby. 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, excluding its choice of law or conflicts of law or other provisions which might result in the selection of the substantive law of another jurisdiction. The parties hereto consent to the exclusive jurisdiction of the Federal and State courts situated in the State of New York, County of New York, with respect to any claim or action arising pursuant to this Agreement. 15. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. James J. Cotter and Scott A. Braly hereby resign from the Board of Directors of the Company. 5 [SIGNATURE PAGES FOLLOW] IN WITNESS WHEREOF, the undersigned parties have executed this Stock Purchase and Standstill Agreement as of the date first above written. NATIONAL AUTO CREDIT, INC. By: --------------------------------- Name: Title: NATIONAL CINEMAS, INC. By: --------------------------------- Name: Title: READING ENTERTAINMENT, INC. By: --------------------------------- Name: Title: FA, INC. By: --------------------------------- Name: Title: CITADEL HOLDING CORPORATION By: --------------------------------- Name: Title: CRAIG CORPORATION By: --------------------------------- 6 Name: Title: JAMES J. COTTER (as to paragraph 16 only) ------------------------------------ SCOTT A. BRALY (as to paragraph 16 only) ------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----