SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sections 240.14a-11(c) or Sections 240.14a-
12
MOTO PHOTO, INC.
(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------.
2) Aggregate number of securities to which transaction applies:
---------------.
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: ---------------.
4) Proposed maximum aggregate value of transaction: ---------------.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $ .
---------------
2) Form, Schedule or Registration Statement No.: .
---------------
3) Filing Party: .
---------------
4) Date Filed: .
---------------
MOTO PHOTO, INC.
4444 LAKE CENTER DRIVE
DAYTON, OHIO 45426
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF COMMON STOCK:
The Annual Meeting of Shareholders of Moto Photo, Inc. (the "Company") will
be held at the offices of the Company, 4444 Lake Center Drive, Dayton, Ohio
45426, on Thursday, June 18, 1998 at 9:00 a.m., for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To approve the amendment of the 1992 Performance and Equity Incentive
Plan of the Company (the `1992 Plan'') (i) to increase the total
number of shares of Common Stock that are authorized for issuance
pursuant to the 1992 Plan from 1,250,000 shares to 2,000,000 shares and
(ii) to permit non-employee directors of the Company to receive awards
under the 1992 Plan.
3. To transact such other business as may properly be brought before the
Annual Meeting or any adjournment of the Annual Meeting.
The accompanying Proxy Statement contains information regarding the items
of business to be considered at the Annual Meeting.
The holders of Common Stock of record at the close of business on April 27,
1998, are entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof. A list of such shareholders will be available at the
Annual Meeting and during the ten days before the Annual Meeting at the offices
of the Company, 4444 Lake Center Drive, Dayton, Ohio 45426.
Dayton, Ohio
May 11, 1998
Even if you plan to attend the meeting, please sign the enclosed proxy card and
return it promptly in the envelope enclosed for that purpose. If you have
previously submitted a proxy card and are present at the Annual Meeting, you
will be able to revoke the proxy and vote your shares in person.
MOTO PHOTO, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TABLE OF CONTENTS
PAGE
GENERAL.................................................. 1
Record Date and Outstanding Voting Stock............ 1
Quorum and Voting................................... 1
Action To Be Taken Under the Proxy.................. 1
Votes Required...................................... 2
Solicitation of Proxies............................. 2
Revocation of Proxies............................... 2
Annual Report....................................... 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................... 3
Potential Future Change in Control.................. 5
Compliance with Section 16(a) of the Securities
Exchange Act of 1934............................. 5
ELECTION OF DIRECTORS.................................... 5
Information Concerning Nominees..................... 6
Meetings of Board of Directors and Committees....... 7
Compensation of Outside Directors................... 7
PROPOSAL TO APPROVE THE AMENDMENT OF THE 1992 PERFORMANCE
AND EQUITY INCENTIVE PLAN OF THE COMPANY.............. 8
Summary of Proposed Amendments to the Plan.......... 8
Description of the 1992 Plan........................ 9
Federal Income Tax Consequences..................... 12
Summary of Award Activity Pursuant to 1992 Plan..... 13
Vote Required for Approval.......................... 15
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION............ 16
Executive Officers.................................. 16
Executive Compensation.............................. 16
Option Grants During 1997........................... 17
Option Exercises and Year-End Option Values ........ 17
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements.................... 18
Compensation Committee Interlocks and Insider
Participation..................................... 19
Report of the Compensation Committee and Mr. Adler...19
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS......... 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 22
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................. 23
PROPOSALS OF SHAREHOLDERS.................................24
OTHER MATTERS.............................................24
MOTO PHOTO, INC.
4444 LAKE CENTER DRIVE
DAYTON, OHIO 45426
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
JUNE 18, 1998
The following information is furnished in connection with the Annual
Meeting of Shareholders of Moto Photo, Inc. (the "Company") to be held on
Thursday, June 18, 1998 at 9:00 a.m., at the offices of the Company, 4444 Lake
Center Drive, Dayton, Ohio. This Proxy Statement will be mailed on or about May
11, 1998, to holders of Voting Common Stock ("Common Stock") of record as of the
record date.
GENERAL
RECORD DATE AND OUTSTANDING VOTING STOCK
The record date ("Record Date") for determining shareholders entitled to
vote at the Annual Meeting has been fixed at the time of the closing of business
on April 27, 1998. On that date, the Company had 7,805,973 shares of Common
Stock outstanding and entitled to be voted.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. Abstentions and shares represented by proxies returned by
brokers whose discretionary authority is limited by stock exchange rules will be
treated as present at the Annual Meeting for purposes of determining a quorum.
If a quorum is not present at the Annual Meeting, the Annual Meeting may be
adjourned to another place, date or time. At any such reconvened meeting at
which a quorum is present, any business may be transacted which might have been
transacted at the original meeting.
Cumulative voting is not permitted in the election of directors of the
Company. On all matters (including the election of directors) submitted to a
vote of the shareholders at the Annual Meeting or any adjournment of the Annual
Meeting, holders of Common Stock will be entitled to one vote for each share of
Common Stock owned of record by such shareholder on the Record Date.
ACTION TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form which are properly executed and returned
will be voted in accordance with the instructions on the proxies. Any proxy
upon which no instructions have been indicated with respect to a specified
matter will be voted as follows:
(a) "FOR" the election to the Board of Directors of the eight
persons named in this Proxy Statement as the nominees of the Board of
Directors;
(b) "FOR" the approval of the amendment to the 1992 Performance
and Equity Incentive Plan of the Company (the "1992 Plan"); and
(c) As to any other matters which may properly come before the
meeting, in accordance with the recommendation of the Board of
Directors. The Board of Directors knows of no other matters to be
presented for consideration at the meeting.
VOTES REQUIRED
Directors will be elected by a plurality of the votes of the shares present
in person or represented by proxy at the Annual Meeting. The affirmative vote
of the holders of a majority of the shares of Common Stock which are present in
person or represented by proxy at the Annual Meeting is required to approve the
amendment to the 1992 Plan. Any other matters properly brought before the
Annual Meeting will be decided by a majority of the votes cast on the matter,
unless otherwise required by law.
For voting purposes, shares represented by proxies which are marked
`withhold authority'' with respect to the election of any one or more nominees
for election as directors and proxies which are marked `abstain'' on the
proposal to approve the amendment to the 1992 Plan will be counted. As a
result, proxies marked `abstain'' with regard to the proposal to approve the
amendment to the 1992 Plan will have the same effect as if the shares
represented thereby were voted against approval. However, because directors are
elected by a plurality rather than a majority of the shares present in person or
represented by proxy at the Annual Meeting, proxies marked "withhold authority"
with respect to any one or more nominees will not affect the outcome of the
nominee's election unless the nominee receives no affirmative votes or unless
other candidates are nominated for election as directors. Shares represented by
proxies returned by brokers where the brokers' discretionary authority is
limited by stock exchange rules will not be counted.
SOLICITATION OF PROXIES
The enclosed proxy for the Annual Meeting is being solicited by the Board
of Directors of the Company. The cost of soliciting the proxies in the enclosed
form will be borne by the Company. In addition to the use of the mails, proxies
may be solicited by personal interview, telephone, and facsimile by directors,
officers or other regular employees of the Company. No additional compensation
will be paid to directors, officers or other regular employees for such
services. Copies of proxy solicitation materials will be furnished to banks,
brokerage houses fiduciaries and custodians holding in their names shares of
Common Stock beneficially owned by others to forward to such beneficial owners.
The Company may, upon request, reimburse banks, brokerage houses and other
institutions, nominees and fiduciaries for their reasonable expenses in
forwarding proxy materials to beneficial owners.
REVOCATION OF PROXIES
Any shareholder returning the accompanying proxy may revoke such proxy at
any time prior to its exercise by (a) giving written notice to the Company of
such revocation, (b) voting in person at the Annual Meeting, or (c) executing
and delivering to the Company a later-dated proxy. Any such written notice of
revocation or later-dated proxy should be addressed to Jacob A. Myers,
Secretary, at the Company's offices.
ANNUAL REPORT
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, including audited financial statements, accompanies this
Proxy Statement. Neither the Report nor the financial statements are deemed to
be a part of the material for the solicitation of proxies.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
At April 15, 1998, the Company had 7,805,973 shares of Common Stock
outstanding. The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 15, 1998 by (i)
each of the Company's directors or nominees for director, its chief executive
officer and its four other most highly compensated executive officers, (ii) all
directors and executive officers of the Company as a group, and (iii) each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock. Unless otherwise indicated, the Company believes that
the persons named in the table have sole voting and investment power with
respect to the shares indicated as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES CLASS (1)
<S> <C> <C>
DIRECTORS AND CERTAIN
EXECUTIVE OFFICERS
Michael F. Adler (2) ................... 1,494,941 18.5%
4444 Lake Center Drive
Dayton, OH 45426
Harry D. Loyle (3) ..................... 533,175 6.8%
410 South Main Plaza
Pleasantville, NJ 08232
David A. Mason (4) ..................... 113,805 1.4%
Dexter B. Dawes (5) .................... 40,800 *
Frank W. Benson (5) .................... 39,900 *
Douglas M. Thomsen ..................... 34,900 *
D. Lee Carpenter ....................... 25,600 *
Leslie Charm (5) ....................... 25,000 *
James F. Robeson, Ph.D. ................ 0 0%
Frank M. Montano(6) .................... 102,534 1.3%
Leonard S. Swartz (7) .................. 51,102 *
Paul Pieschel (8) ...................... 25,387 *
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (12 PERSONS) (9) ............ 2,514,385 30.2%
BENEFICIAL OWNERS OF MORE THAN
5% OF THE COMMON STOCK .................
Fuji Photo Film U.S.A. Inc. (10) ....... 1,000,000 11.4%
555 Taxter Road
Elmsford, NY 10523
Mark E. Brady (11) ..................... 433,960 5.6%
Robert J. Suttman(11)
Ronald Eubel (11)
c/o Eubel Brady & Suttman
Asset Management, Inc.
7777 Washington Village Drive, Suite 210
Dayton, OH 45459
<FN>
Less than 1%
</TABLE>
1. Percent of class is calculated without regard to shares of Common Stock
issuable upon exercise of outstanding warrants or stock options, except that any
shares a person is deemed to own by having the right to acquire upon exercise of
a warrant or option are considered to be outstanding solely for purpose of
calculating such person's percentage ownership.
2. The shares of Common Stock indicated as beneficially owned by Mr. Adler:
(i) include 2,332 shares owned by Michael F. Adler as custodian for Elizabeth
Adler; (ii) include 6,000 shares owned by the Elizabeth Adler Trust for which
Mr. Adler is trustee; (iii) include 1,000 shares which he has the right to
acquire upon exercise of warrants owned by him; (iv) include 216,666 shares
which he has the right to acquire by exercise of stock options which are
currently exercisable; (v) include 2,000 shares issuable upon the exercise of
warrants owned by the Robert Adler Trust for which Mr. Adler is co-trustee and
shares voting and investment power with Jacob A. Myers, an officer of the
Company; and (vi) exclude a total of 11,000 shares owned by Mr. Adler's spouse,
as to which Mr. Adler disclaims beneficial ownership. Such shares also include
1,192,039 shares of Common Stock owned by Progressive Industries Corporation
("Progressive"), which is 99% owned by Mr. Adler and his family, which shares
of Common Stock Mr. Adler may be deemed to own beneficially due to his
ownership of a controlling interest in Progressive and his position as
President of Progressive. The shares of Common Stock owned by Progressive
include 46,000 shares issuable upon exercise of warrants owned by Progressive.
3. Includes 3,000 shares which Mr. Loyle has the right to acquire upon
exercise of warrants owned by him and 25,000 shares which he has the right to
acquire by exercise of stock options which are currently exercisable.
Mr. Loyle shares voting and investment power with his wife.
4. Includes 74,555 shares which Mr. Mason has the right to acquire upon
exercise of stock options which are currently exercisable and excludes 2,000
shares owned by Mr. Mason's wife, as to which Mr. Mason disclaims beneficial
ownership.
5. Includes 25,000 shares which this individual has the right to acquire upon
exercise of stock options which are currently exercisable.
6. Includes 75,552 shares which Mr. Montano has the right to acquire upon
exercise of stock options which are currently exercisable and 11,012 shares
which Mr. Montano holds in the Company's 401(k) plan.
7. Includes 16,501 shares which Mr. Swartz has the right to acquire upon
exercise of stock options which are currently exercisable.
8. Includes 12,387 shares which Mr. Pieschel has the right to acquire upon
exercise of stock options which are currently exercisable.
9. Includes 561,181 shares which such group has the right to acquire upon
exercise of stock options which are currently exercisable and 52,000 shares
which such group has the right to acquire upon exercise of warrants.
10. Consists of 1,000,000 shares issuable upon exercise of warrants owned by
Fuji Photo Film U.S.A., Inc. ("Fuji").
11. Consists of shares as to which Mark E. Brady, Robert J. Suttman and Ronald
Eubel each share voting and investment power. Also, Mr. Suttman beneficially
owns 5,000 additional shares as to which he has sole voting and investment power
and Mr. Brady beneficially owns 1,900 additional shares as to which he has sole
voting and investment power.
POTENTIAL FUTURE CHANGE IN CONTROL
Fuji is the holder of 1,000,000 shares of Series G Non-Voting Cumulative
Preferred Stock (the "Fuji Preferred Stock") and warrants to purchase 1,000,000
shares of the Company's Common Stock for $2.375 per share which expire in 2002.
The Fuji Preferred Stock is redeemable by the Company at any time in
aggregate amounts of at least $1 million. The shares are subject to mandatory
redemption on January 1, 1999 ("Mandatory Redemption Date"). Any redemption of
the Fuji Preferred Stock must be either in cash from the proceeds of an equity
offering or in Common Stock valued at 90% of the market price at the time of
redemption; provided, however, that Fuji may refuse any proposed redemption by
the Company in shares of Common Stock and elect to continue to hold the Fuji
Preferred Stock without impairment of any right to require redemption at a later
time. The redemption price for the Fuji Preferred Stock is $10.00 per share, or
an aggregate of $10 million. If the market price of the Company's Common Stock
on the Mandatory Redemption Date is less than $3.00 per share, the redemption of
the Fuji Preferred Stock will be extended until the earlier of (i) the first
date on which the market price of the Common Stock exceeds $3.00 per share or
(ii) one year following the initial Mandatory Redemption Date. If the Fuji
Preferred Stock is redeemed in shares of Common Stock, depending upon the market
price of the Common Stock and the number of shares of Common Stock outstanding,
such redemption could result in Fuji's acquiring control of the Company.
The Fuji Preferred Stock is also redeemable at Fuji's option under certain
other circumstances ("Redemption Event") which include, after appropriate cure
periods, default by the Company under certain other agreements between the
Company and Fuji, the termination of involvement in the day-to-day management of
the Company of either of Michael F. Adler or David A. Mason, a change in control
of the Company, the Company's bankruptcy or insolvency, or failure by the
Company to meet its obligations under other indebtedness in excess of $100,000.
If the Company fails to redeem all of the Fuji Preferred Stock upon the
occurrence of a Redemption Event, Fuji has the right, until all of the shares of
Fuji Preferred Stock are redeemed or the Redemption Event is cured, to elect the
majority of the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires directors
and executive officers of the Company and persons who beneficially own more than
10% of the Company's Common Stock to file reports of ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission. The Company is required to disclose delinquent filings of reports
by such persons. Based on a review of the copies of such reports and amendments
thereto received by the Company, or written representations that no filings were
required, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers, directors and 10% shareholders were met
during 1997.
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
The Board of Directors of the Company currently consists of eight members.
Douglas M. Thomsen, a director of the Company, has decided not to stand for re-
election at the Annual Meeting. The remaining seven members of the Board of
Directors have been nominated for re-election and James F. Robeson, Ph.D., has
been nominated for election to fill the vacancy resulting from Mr. Thomsen's
departure. Each director elected will hold office until the next annual meeting
of shareholders and until his successor is duly elected and qualified, or until
such director's earlier death, resignation or removal. The affirmative vote of
a plurality of the votes cast in person or by proxy at the meeting is required
to elect each nominee listed. If any nominee becomes unavailable for any
reason, or if a vacancy occurs before the election (which events are not
anticipated), the shares of Common Stock represented by the enclosed proxy will
be voted for such other person as may be recommended by the Board of Directors
of the Company.
There is no formal arrangement among the directors or shareholders to
nominate any person for election to the Board of Directors. No family
relationships exist between or among directors or officers of the Company.
INFORMATION CONCERNING NOMINEES
Michael F. Adler. Age 61. Mr. Adler was elected Chief Executive Officer
of the Company in June, 1985, and its Chairman in October, 1990. From February,
1984 through December, 1996 he served as the Company's President. He was
elected a director of the Company on June 29, 1983. Mr. Adler has also been
President, Chief Executive Officer and a director of Progressive Industries
Corporation ("Progressive") since 1968, positions he still holds. He is a
member of the Board of Directors and Chairman of the Venture Capital Committee
of the City-Wide Development Corporation, Dayton, Ohio, and a member of the
Board of Directors of The Dayton Art Institute, The National Center for
Industrial Competitiveness and The 2003 Committee in Dayton, Ohio. Mr. Adler
has previously been a member of the Board of Trustees of the Photo Marketing
Association, the Ohio Building Authority, and the State Governance Board-Jobs
for Ohio Graduates, a member of the executive committee and past Chairman of the
Board of Trustees-Jobs for Dayton Graduates, as well as chairman of the
nominating council of the Public Utilities Commission of Ohio and of the City-
Wide Development Corporation, Dayton, Ohio.
Frank W. Benson. Age 70. Mr. Benson became a director of the Company in
February, 1989. Since June, 1988, Mr. Benson has been Director of Finance and
Administration, and, since October, 1989, Treasurer of the Center for Policy
Negotiation, Inc. in Boston, Massachusetts. He served as an independent
consultant to small businesses from May, 1987 through May, 1988. From February,
1983 through April, 1987, Mr. Benson was President, Treasurer, and a director
(through January, 1987) of Bailey's of Boston, Inc., a manufacturer and retailer
of ice cream and candies in Massachusetts.
D. Lee Carpenter. Age 49. Mr. Carpenter became a director in December,
1997. Since 1978, Mr. Carpenter has been Chairman and Chief Executive Officer
of Design Forum in Dayton, Ohio, a firm providing strategic design services to
businesses. Mr. Carpenter is a member of the Board of Directors of the
Association of Professional Design Firms and a member of the American Institute
of Graphic Arts, the International Mass Retailers Association and the National
Retail Federation.
Leslie Charm. Age 54. Mr. Charm became a director in October, 1990. Mr.
Charm's principal occupation since August, 1990 has been as partner of
Restoration Associates, an entrepreneurial advisory firm in Massachusetts. Mr.
Charm is a former director of the International Franchise Association. In
addition, since 1989 Mr. Charm has been an adjunct professor of entrepreneurial
finance at Babson College in Wellesley, Massachusetts. Mr. Charm is a director
of several privately-held companies.
Dexter B. Dawes. Age 61. Mr. Dawes became a director of the Company in
December, 1989. Since 1972, Mr. Dawes has been Chairman of the New York and San
Francisco-based investment banking firm of Bangert, Dawes, Reade, Davis & Thom
Incorporated. From September, 1989, through December, 1996, Mr. Dawes was
President of John Hancock Capital Growth Management, Inc.
Harry D. Loyle. Age 44. Mr. Loyle became a director of the Company in
July, 1993. Since July, 1985, Mr. Loyle's principal occupation has been as
President and Director of Franchise Development for ProMoto Management
Corporation, an area developer for the Company. Mr. Loyle serves as director
and/or officer or partner of a number of privately held businesses in New Jersey
and Pennsylvania, including four Company franchisees. From 1976 to 1985, he was
President and General Manager of Charlex, Inc., a company that owned and
operated retail photographic stores. In January, 1995, Mr. Loyle was elected to
the Franchise Advisory Council of the International Franchise Association and,
in June, 1996, to the Council's Executive Committee.
David A. Mason. Age 57. Mr. Mason was elected Treasurer and a director of
the Company in June, 1983 and Executive Vice President - Finance and Chief
Financial Officer in December, 1983. Mr. Mason has also been Senior Vice
President and Treasurer of Progressive since 1975 and a director of Progressive
since 1976, positions he still holds.
James F. Robeson, Ph.D. Age 61. Since December 1997, Dr. Robeson has been
President and Chief Executive Officer of ROBERDS, Inc., a chain of furniture
stores based in Dayton, Ohio. He has also served as a director of ROBERDS since
November 1993. Dr. Robeson was Interim Director, Miami University Art Museum,
Oxford, Ohio, from July 1996 through December 1997. From August 1995 through
May 1997, he was Herbert E. Markley Visiting Scholar in business, Miami
University, from August 1995 through May 1997. From July 1993 to the present,
Dr. Robeson has served as an independent consultant on marketing, logistics, and
general business matters, including services rendered through the firm of
Coopers and Lybrand. From 1988 through June 1993, Dr. Robeson was Dean, Richard
T. Farmer School of Business Administration, Miami University. He currently
serves as a director of Gummer Wholesale, a regional distributor of grocery,
candy, and tobacco products, Newark, Ohio; Huffy Corporation, a diversified
manufacturer and supplier of services to retails, Dayton, Ohio; ROBERDS, Inc.;
and Design Forum, a firm providing strategic design services, Dayton, Ohio.
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held four meetings during 1997. The Board of
Directors has established standing Audit and Compensation Committees but does
not have a nominating committee. During 1997, each director attended, in person
or through telephone conference call, at least three-fourths of the aggregate
meetings of the Board of Directors and the meetings of the committees, if any,
on which he served.
The Audit Committee meets with management to consider the adequacy of the
internal controls of the Company and the objectivity of financial reporting.
The Audit Committee also meets with the independent auditors and with financial
personnel of the Company about such matters. The independent auditors
periodically meet alone with the Audit Committee and always have unrestricted
access to the Audit Committee. During 1997 the Audit Committee had two members:
Mr. Dawes, Chairman, and Mr. Loyle. The Audit Committee met twice during 1997.
The Compensation Committee meets to review and to make recommendations to
the Board about certain compensation matters. In addition, the Compensation
Committee administers the Company's 1992 Performance and Equity Incentive Plan.
The Compensation Committee has four members: Mr. Benson, Chairman, Mr. Charm,
Mr. Carpenter and Mr. Thomsen. The Compensation Committee met twice during
1997.
COMPENSATION OF OUTSIDE DIRECTORS
The Company pays certain compensation to its outside directors for their
services to the Company. Directors who are also employees of the Company
receive no additional remuneration for serving as directors.
During 1997, outside directors were entitled to receive monthly fees of
$350, as well as a fee of $500 per Board of Directors meeting attended in
person, $225 per committee meeting attended in person, and $150 per meeting
attended via telephone conference call. For 1998, the monthly directors' fees
will be $400 and the fee for each Board meeting attended in person will increase
to $750. The Board of Directors has also approved a plan to compensate outside
directors who choose to participate in the plan with shares of the Common Stock
instead of cash payments. During 1997, each outside director who participated in
the plan received 200 shares of Common Stock per month, 300 shares per Board
meeting attended in person, 100 shares per meeting attended via telephone
conference call, and 100 shares per committee meeting attended. Messrs. Benson,
Dawes, Loyle, and Thomsen elected to receive Common Stock as compensation during
1997. Messrs. Benson, Carpenter, Dawes, Loyle, and Thomsen have elected to
receive Common Stock as compensation during 1998.
In addition, Mr. Charm, who acts as a consultant to the Company, was paid
fees of $6,000 for his services in that capacity during 1997.
PROPOSAL TO APPROVE THE AMENDMENT OF THE 1992 PERFORMANCE
AND EQUITY INCENTIVE PLAN OF THE COMPANY
(Item 2 on the Proxy Card)
The 1992 Performance and Equity Incentive Plan of the Company (the "1992
Plan") is designed to promote and advance the interests of the Company and its
shareholders by enabling the Company to attract, retain and reward managerial
and other key employees and to strengthen the mutuality of interests between
participants and the shareholders of the Company in the Company's long-term
growth, profitability and financial success by offering a comprehensive
incentive compensation program including stock and cash incentive awards based
on performance and other equity-based awards.
SUMMARY OF PROPOSED AMENDMENTS TO THE PLAN
The Board of Directors has approved the amendment of the 1992 Plan (i) to
increase the total number of shares of Common Stock that are authorized for
issuance pursuant to awards granted under the 1992 Plan from 1,250,000 shares to
2,000,000 shares and (ii) to permit non-employee directors of the Company to
become eligible to receive awards under the 1992 Plan.
Increase in Number of Shares. As of April 15, 1998, a total of only 64,934
shares were available for issuance in connection with any future awards under
the 1992 Plan. The Board of Directors has approved the proposed amendment to
the 1992 Plan in order to ensure that a sufficient number of shares will be
available for future activity under the 1992 Plan. The Board of Directors
considers as essential to the Company's management recruitment and retention
strategy its ability to offer competitive compensation opportunities, including
stock options or other equity-based incentive awards, to management prospects as
well as the Company's current officers and other management personnel. If the
amendment to the 1992 Plan is not approved by the shareholders, the Company's
ability to offer equity-based incentive compensation awards and its
corresponding ability to attract and retain well qualified, motivated and
experienced management personnel in an increasingly competitive employment
market may be adversely affected.
Furthermore, the Board of Directors believes that it is highly desirable
and in the best interests of the Company and the shareholders to strengthen the
mutuality of interests between management and the shareholders. The Board of
Directors believes this mutuality of interests is further strengthened by
requiring management to actually own shares and have personal funds at risk.
Accordingly, most of the options that have been granted under the 1992 Plan are
under terms requiring an optionee to own and retain at least one share of stock
for each four options that were granted.
The proposed amendments to the 1992 Plan, including the increase in the
number of shares authorized under the 1992 Plan, were unanimously approved by
the Board of Directors. In addition, each director, including Michael F. Adler,
Chairman of the Board of Directors and Chief Executive Officer of the Company,
and Harry D. Loyle, have indicated their intention to vote the shares
beneficially owned by them in favor of the proposed amendments. Mr. Adler and
Mr. Loyle are believed by the Company to be the largest individual shareholders
of the Company. See "Security Ownership of Certain Beneficial Owners and
Management."
Eligibility of Non-Employee Directors. The Board of Directors believes
that stock ownership by non-employee directors, by strengthening the mutuality
of interests between the non-employee directors and the shareholders, is
desirable and in the best interests of the Company and the shareholders. In
order to encourage stock ownership by non-employee directors, the Company has a
program for the compensation of non-employee directors through grants of Common
Stock in lieu of cash fees. This program is described under "Election of
Directors - Compensation of Outside Directors" and is expected to be conducted
under the 1992 Plan if the proposed amendments are approved by the shareholders.
Under shareholder approval policies that have recently been adopted by the
NASDAQ Stock Market, on which the Company's Common Stock is authorized for
trading, the approval of the shareholders is required for plans under which
stock options or shares of stock may be granted to directors and officers,
subject to certain de minimus exceptions. By enabling the stock in lieu of cash
fees program for non-employee directors to be conducted under the 1992 Plan, the
amendments to the 1992 Plan will facilitate the administration of the stock in
lieu of cash fees program and compliance with the requirements of the NASDAQ
Stock Market. If the amendments are approved, the non-employee directors of the
Company will also become eligible to receive stock options or other appropriate
awards permitted by the 1992 Plan.
DESCRIPTION OF THE 1992 PLAN
The 1992 Plan empowers the Company from time to time until July 15, 2002 to
award to eligible participants Incentive, Non-Qualified and Deferred
Compensation Stock Options, Stock Appreciation Rights, Restricted Stock and
Restricted Unit Grants, Performance Equity and Performance Unit Grants, any
other Stock-Based Awards (collectively, the "Awards") authorized by the
Compensation Committee of the Board of Directors (the "Committee"), and any
combination of any or all of such Awards, whether in tandem with each other or
otherwise.
Administration. The 1992 Plan is administered by the Committee. The
Committee has the sole authority to construe and interpret the 1992 Plan, to
make rules and regulations relating to the implementation of the 1992 Plan, to
select participants, to establish the terms and conditions of Awards and to
grant Awards, with broad authority to delegate its responsibilities to others.
Eligibility. Managerial employees, including all officers of the Company,
and other key employees of the Company who hold positions of significant
responsibility are eligible to receive Awards under the 1992 Plan. On April 15,
1998, this group consisted of approximately 100 persons. Under the proposed
amendments to the 1992 Plan, members of the Board of Directors who are not
employed by the Company will also be eligible to receive Awards under the 1992
Plan. All references below to requirements based on the employment by the
Company of a participant in the 1992 Plan will be deemed also to refer to
service as a director by any non-employee director who receives an Award under
the 1992 Plan. The selection of recipients of, and the nature and size of,
Awards granted under the 1992 Plan is wholly within the discretion of the
Committee. There is no limit on the number of shares of Common Stock in respect
to which Awards may be granted to or exercised by any person. Whether an Award
may be exercised after a participant's termination of employment shall be
determined by the Committee, except that if a participant's employment with the
Company and its subsidiaries terminates for any reason within six months after
the date of grant of any Award held by such participant, such Award shall expire
as of such date of termination.
Shares Subject to 1992 Plan. The maximum number of shares of Common Stock
in respect of which Awards may be granted under the 1992 Plan will be increased
by the proposed amendments to the 1992 Plan from 1,250,000 shares to 2,000,000
shares. Such maximum number of shares in payment of Awards granted or which may
be subject to Awards is subject to appropriate equitable adjustment in the event
of a reorganization, stock split, stock dividend, combination of shares, merger,
consolidation of or other recapitalization of the Company. If any Awards are
forfeited, terminated, settled in cash or exchanged for other Awards or expire
unexercised, the shares of Common Stock theretofore subject to such awards will
again be available for further awards. In addition, shares which are subject to
Stock Appreciation Rights which expire unexercised or were not issued upon the
exercise thereof and shares received in payment of the purchase price of a stock
option in the exercise thereof will again be available for Awards under the 1992
Plan. No fractional shares may be issued under the 1992 Plan.
Incentive Stock Options. Options designated as Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), may be granted under the 1992 Plan to officers and
employees of the Company. The number of shares of Common Stock in respect of
which Incentive Stock Options are first exercisable by any optionee during any
calendar year may not have a fair market value (determined at the date of grant)
in excess of $100,000 (or such other limit as may be imposed by the Code).
Incentive Stock Options may be exercisable for such period or periods not in
excess of 10 years after the date of grant as shall be determined by the
Committee.
Non-Qualified Stock Options. Non-Qualified Stock Options may be granted
under the 1992 Plan for such number of shares of Common Stock and will be
exercisable for such period or periods as the Committee may determine.
Deferred Compensation Stock Options. Deferred Compensation Stock Options
are designed to provide a means by which compensation payments can be deferred
to future dates. The number of shares subject to a Deferred Compensation Stock
Option is determined by the Committee using the following formula:
Amount of Compensation Deferred = Number of
(FMV - Exercise Price) Optioned Shares
where FMV means the fair market value of a share of Common Stock at the date
such option is granted and Exercise Price is the price at which such option may
be exercised, as determined by the Committee. Deferred Compensation Stock
Options will be exercisable for such period or periods as the Committee shall
determine.
Option Exercise Prices. In general, the exercise price of an Incentive
Stock Option must be at least 100% of the fair market value of the Common Stock
on the date of grant. Non-Qualified Stock Options and Deferred Compensation
Stock Options may be issued at such option exercise price as the Committee may
determine, except that the Committee will not issue such options at less than
100% of the fair market value of the Common Stock of the Company at the date of
grant unless it has been determined that such "discount" option price will not
result in taxable income under the Code to the optionee at the date of grant or
the date such option becomes first exercisable rather than at the date of
exercise.
Exercise of Options. No stock option may be exercised, except as provided
below, unless the holder thereof remains in the continuous employ of the
Company. Stock options shall be exercisable only upon the payment in full of
the applicable option exercise price in cash or, if approved by the Committee,
in shares of Common Stock (at the fair market value thereof at exercise date) or
by surrendering outstanding Awards denominated in stock or stock units. No
Incentive, Non-Qualified or Deferred Compensation Stock Option may be exercised
after the optionee ceases to be an employee of the Company, except where the
Committee adopts terms and conditions relating to such Option which permit its
exercise.
Stock Appreciation Rights. Under the 1992 Plan, a Stock Appreciation Right
("SAR") may be granted in tandem with, or independent of, any other Award
granted under the Plan. An SAR is an Award which will entitle the holder to
receive an amount equal to all, or some portion (as determined by the Committee
in respect of each SAR granted), of the excess of the fair market value of a
share of Common Stock on the date of exercise over the fair market value of such
share at the date of grant, multiplied by the number of shares as to which the
holder is exercising the SAR. The Company will pay such amount to the holder in
cash or in shares of Common Stock (at fair market value on the date of exercise)
or in Deferred Compensation Stock Options, or combination thereof, as the
Committee may in its sole discretion determine, except that any SAR exercised
upon or after a Change in Control (as defined in the 1992 Plan) must be paid in
cash.
When an SAR granted in tandem with an option is exercised, such option is
canceled to the extent that the SAR is exercised. Conversely, if the optionee
elects to exercise the option, the tandem SAR is canceled. The exercise of an
SAR granted in respect of (but not in tandem with) an option, either at the time
the option is granted or subsequent to the grant of the option, will not result
in the cancellation of such related option and the exercise of such option will
not result in the cancellation of the related SAR. The exercise of an SAR paid
in cash will not be included as an Award for the purpose of determining the
number of shares of Common Stock which may be issued under the 1992 Plan.
In no event may an SAR be exercised within six months after the date
granted, except in the event of the death or disability of the participant. The
Committee may also determine that an SAR shall be automatically exercised on one
or more specified dates.
Restricted Stock. An Award of Restricted Stock consists of a specified
number of shares of Common Stock which are transferred to a participant selected
by, and for such consideration as determined by, the Committee and are subject
to forfeiture to the Company under such conditions and for such periods of time
as the Committee may determine. A participant may vote and receive cash
dividends on the shares of Restricted Stock awarded, but may not sell, assign,
transfer, pledge or otherwise encumber such shares of Restricted Stock during
the restriction period. Certificates for Restricted Stock will be held by the
Company until all conditions have been satisfied.
Restricted Units. An Award of Restricted Units (each unit having a value
equivalent to one share of Common Stock) may be granted to a participant subject
to such terms and conditions as the Committee may deem appropriate. Restricted
Units may be paid upon the expiration of the relevant restriction period in
cash, in shares of Common Stock equal to the number of Restricted Units granted,
in Deferred Compensation Stock Options or in any combination thereof, as
determined by the Committee.
Performance Equity and Performance Unit Grants. Performance Equity grants
(with each unit equal in value to one share of Common Stock at the date of
grant) and Performance Unit grants (with each unit representing such monetary
value as assigned by the Committee) entitle the participant to receive cash,
shares of Common Stock, Deferred Compensation Stock Options or any combination
thereof, as determined by the Committee, based upon the degree of achievement of
pre-established performance goals over a pre-established performance period as
determined by the Committee in its discretion. Performance goals are fixed by
the Committee on the basis of such criteria and to accomplish such goals as the
Committee may select. The Committee has sole discretion to determine the
employees eligible for Awards of Performance Equity or Performance Units, the
duration of each performance measurement period, the value of each Performance
Unit and the number of shares or units earned on the basis of the Company's
and/or the participant's performance relative to the established goals. During
a performance measurement period, the Committee may adjust the performance goals
upward or downward.
At the end of any performance measurement period, the Committee will
determine the number of performance shares and performance units which have been
earned on the basis of the actual performance in relation to the performance
goals. A participant must be an employee at the end of the performance period
to receive the proceeds of a Performance Equity or Performance Unit Grant;
provided, however, that if such participant dies, retires, becomes disabled or
ceases to be an employee with the Committee's consent prior to the end of the
performance measurement period, the Committee may authorize total or partial
payment to such participant or his or her legal representative. Performance
Equity grantees shall be entitled to receive payment for each unit earned in an
amount equal to the fair market value of a shares of Common Stock at the date of
the vesting of the Performance equity Award. Performance Unit grantees shall be
entitled to receive payment for each unit earned in an amount equal to the
dollar value of such unit.
Other Stock-Based Grants; Deferrals. The Committee has authority under the
1992 Plan to grant other Awards of Common Stock or Awards denominated as stock
units. The Committee may also permit a participant to elect to defer receipt of
the proceeds of any Award granted under the 1992 Plan.
Transferability. No Award granted under the 1992 Plan, and no right or
interest therein, is assignable or transferable by a participant except by will
or the laws of descent and distribution.
Term, Amendment and Termination. The 1992 Plan will terminate on July 15,
2002, except with respect to Awards then outstanding. The Board of Directors
may amend or terminate the 1992 Plan at any time, except that the Board of
Directors may not, without approval of the shareholders of the Company, make any
amendment which would increase the total number of shares available for issuance
(except as permitted by the 1992 Plan to reflect changes in capitalization),
materially change the eligibility requirements or materially increase the
benefits accruing to participants under the 1992 Plan.
Change in Control. In the event of a Change in Control of the Company
(defined in the 1992 Plan to mean the acquisition of 35% or more of the Common
Stock of the Company by any "Acquiring Person" coupled with any change in the
composition of the Board of Directors with the effect that a majority of the
directors are not "Continuing Directors"), unless the Board of Directors
expressly provides otherwise as of the date of any such Change in Control, (i)
all Incentive, Non-Qualified and Deferred Compensation Stock Options and Stock
Appreciation Rights then outstanding shall be fully exercisable, (ii) all
restrictions on and conditions of all Restricted Stock Grants and Restricted
Unit Grants then outstanding shall be deemed satisfied, and (iii) all
Performance Equity Grants and Performance Unit Grants shall be deemed to have
been fully earned, subject in each case to the limitation that any such Award
shall have been outstanding at least six months.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code, and the existing regulations
thereunder, the anticipated Federal income tax consequences in respect of the
several types of Awards under the 1992 Plan (including grants of Incentive Stock
Options and Non-Qualified Stock Options under the Stock Ownership Plan) are as
described below.
At Grant of Options and SARs. An optionee will not recognize any taxable
income at the time an Incentive Stock Option or an SAR is granted and the
Company will not be entitled to a Federal income tax deduction at that time.
The same rules should apply to Non-Qualified and Deferred Compensation Stock
Options. However, because Non-Qualified Stock Options and Deferred Compensation
Stock Options may be granted at option exercise prices substantially below the
fair market value of the Common Stock of the Company on the date the option is
granted, the Internal Revenue Service ("IRS") might take the position that under
certain circumstances income is recognized at the time granted equal to the
amount of the "discount" at which a Non-Qualified Stock Option or a Deferred
Compensation Stock Option was granted.
Incentive Stock Options. No ordinary income will be recognized by the
holder of an Incentive Stock Option at the time of exercise. The excess of the
fair market value of the shares at the time of exercise over the aggregate
option price will be an adjustment to alternative minimum taxable income for
purposes of the Federal "alternative minimum tax" (`AMT'') at the date of
exercise.
If the optionee holds the shares until the later of two years after the date
the option was granted or one year after the acquisition of such shares, the
difference between the aggregate option price and the amount realized upon
disposition of the shares will constitute mid term or long term capital gain or
loss, as the case may be, and the Company will not be entitled to a Federal
income tax deduction. In determining whether the optionee has an AMT liability,
the optionee's basis in the shares should be increased by the amount included in
AMT income at the date of exercise. If the shares are disposed of in a sale,
exchange or other "disqualifying disposition" prior to either of such holding
periods, the optionee recognize ordinary income in an amount equal to the lessor
of (i) the excess of the fair market value of the shares purchased at the time
of exercise over the aggregate option price; and (ii) the amount of gain
recognized on disposition and the Company will usually be entitled to a Federal
income tax deduction equal to such amount.
Non-Qualified and Deferred Compensation Stock Options. If Non-Qualified
Stock Options are issued at an exercise price of at least 100% of the fair
market value of the Common Stock at the date granted, ordinary income will be
recognized by the holder at the time of exercise of the option in an amount
equal to the excess of the fair market value of the shares purchased at the time
of such exercise over the aggregate option price. The Company will usually be
entitled to a corresponding Federal income tax deduction for the year of the
exercise. At the time of sale of the shares, the optionee will generally
realize a capital gain or loss based upon the difference between the per share
fair market value at the time of exercise and the per share selling price at the
time of such sale of the shares.
In the case of Non-Qualified Stock Options which may be, and Deferred
Compensation Stock Options which are intended to be, issued at an option
exercise price which is substantially less than 100% of fair market value, the
same rules should apply, unless the IRS takes the position that such "discount"
options are subject to tax on the grant date or at the time they first become
exercisable. In such event, the Company would be entitled to a corresponding
Federal income tax deduction at such time.
Stock Appreciation Rights. Upon the exercise of an SAR, the holder will
realize taxable ordinary income on the amount of cash received and/or the then
current fair market value of the shares of Common Stock acquired and the Company
will be entitled to a corresponding Federal income tax deduction. The holder's
basis in any shares of Common Stock acquired will be equal to the amount of
ordinary income upon which he or she was taxed. Upon any subsequent
disposition, any gain or loss realized will be a capital gain or loss.
Restricted Stock. Unless a participant makes the election described below,
a participant receiving a Restricted Stock Award will not recognize income and
the Company will not be allowed a deduction at the time such shares of
Restricted Stock are granted. While the restrictions on the shares are in
effect, a participant will recognize compensation income equal to the amount of
any dividends received and the Company will be allowed a deduction in a like
amount. When the restrictions on the shares are removed or lapse, the excess of
fair market value of the shares on the date the restrictions are removed or
lapse over the amount paid, if any, by the participant for the shares will be
treated as ordinary compensation income to the participant and allowed as a
deduction for Federal income tax purposes to the Company. Upon disposition of
the shares, any gain or loss recognized by the participant will be treated as
capital gain or loss, and the capital gain or loss will be short term or long
term depending upon the period of time the shares are held by the participant
following the removal or lapse of the restrictions. However, by filing a
Section 83(b) election with the IRS within 30 days after the date of grant, a
participant's ordinary income and commencement of holding period and the
Company's deduction will be determined as of the date of grant. In such a case,
the amount of ordinary income recognized by such a participant and deductible by
the Company will be equal to the excess of the fair market value of the shares
as of the date of grant over the amount paid, if any, by the participant for the
shares. If such election is made and a participant thereafter forfeits his or
her stock, no refund or deduction will be allowed for the amount previously
included in such participant's income.
Performance Equity, Performance Units and Restricted Units. A participant
receiving any Performance Award or any Restricted Units will not recognize
income, and the Company will not be allowed a deduction, at the time such Award
is granted. When a participant receives payment in cash or shares of Common
Stock, the amount of cash and the fair market value of the shares of Common
Stock received will be ordinary income to the participant and will be allowed as
a deduction for Federal income tax purposes to the Company.
Special Rules. To the extent an optionee pays all or part of the option
price of a stock option by tendering shares of Common Stock owned by the
optionee, the tax consequences described above apply except that the number of
shares received upon such exercise which is equal to the number of shares
surrendered in payment of the option price shall have the same basis and tax
holding period as the shares surrendered. If the shares surrendered had
previously been acquired upon the exercise of an Incentive Stock Option, the
surrender of such shares may be a disqualifying disposition of such shares. The
additional shares received upon such exercise have a tax basis equal to the
amount of ordinary income recognized on such exercise and a holding period which
commences on the date of exercise.
Withholding Taxes. Withholding taxes must be paid at the time of exercise
of any Non-Qualified or Deferred Compensation Stock Option or SAR. Withholding
taxes must also be paid in respect of any Restricted Stock or Restricted Unit
when the restrictions thereon lapse. In respect of all other Awards,
withholding taxes must be paid whenever income to the 1992 Plan participant is
recognized for tax purposes.
SUMMARY OF AWARD ACTIVITY PURSUANT TO 1992 PLAN
The following table indicates as of April 15, 1998 the number of shares
authorized for issuance under the 1992 Plan (exclusive of the proposed increase
in the authorized number of shares), the aggregate number of shares subject to
outstanding Awards, the number of shares issued pursuant to prior Awards, the
number of shares available for future Awards (exclusive of the proposed increase
in the authorized number of shares), and the number of shares available for
future Awards (including the proposed increase in the authorized number of
shares):
<TABLE>
<CAPTION>
AVAILABLE FOR AVAILABLE FOR
AUTHORIZED SUBJECT TO ISSUED FUTURE AWARDS FUTURE AWARDS
(EXCLUSIVE OF OUTSTANDING AWARDS PURSUANT TO (EXCLUSIVE OF INDLUDING
PROPOSED (NET OF PRIOR PROPOSE PROPOSED
INCREASE) CANCELLATIONS)(1) AWARDS(2) INCREASE) INCREASE
<C> <C> <C> <C> <C>
1,250,000 1,180,966 4,100 64,934 814,934
</TABLE>
1. Outstanding Awards under the 1992 Plan consist of Incentive Stock Options
to purchase 955,966 shares of Common Stock and Non-Qualified Stock Options to
purchase 225,000 shares of Common Stock granted to executive officers and
eligible employees of the Company at exercise prices ranging from $1.1875 to
$2.50 per share. Of the 1,180,966 options outstanding under the Plan, 710,966
were granted on the conditions that the employees already own at least 500
shares of the Common Stock or one share of Common Stock for each 4 options
granted and that they keep a specified number of shares of Common Stock
throughout the term of the option. The exercise prices of all such options are
100% of the market price of the Common Stock on the date of grant (other than
options to purchase 295,427 shares of Common Stock granted to Mr. Adler as to
which the exercise price is 110% of the market price of the Common Stock on the
date of grant), and such options become exercisable at rates ranging from 20% to
33-1/3% per year commencing one year from the date of grant. The expiration
dates of such options range from May 20, 1998 to March 13, 2008. Of such
options, 246,159 were granted to employees of the Company other than executive
officers and 934,807 were granted to executive officers of the Company as
follows: Michael F. Adler - Chairman and Chief Executive Officer - 294,826;
Frank M. Montano - President and Chief Operating Officer - 300,763; David A.
Mason - Executive Vice President and Chief Financial Officer - 131,864; Leonard
S. Swartz - Senior Vice President - Franchise Operations - 66,160; Paul Pieschel
- - Senior Vice President - Franchise Sales - 51,454; and Alfred E. Lefeld - Vice
President and Controller - 56,340.
2. Represents shares purchased by eligible employees of the Company pursuant
to a stock purchase program offered during 1994 under the 1992 Plan. Under
this program the Company purchased for the accounts of participants 4,100
shares of Common Stock on the open market at a price of $2.1461 per share and
paid all fees and commissions associated therewith. Participants were required
to pay 50% of the purchase price.
Based on the closing sale price of the Common Stock of the Company as
reported on the NASDAQ on April 15, 1998 of $2.50 per share, the market value of
the total number of shares of Common Stock issued under the 1992 Plan was
$10,250, the market value of shares underlying outstanding Awards under the 1992
Plan was $2,952,415, the market value of shares subject to future Awards
(exclusive of the proposed increase in the number of shares authorized for
issuance under the 1992 Plan) was $162,335, and the market value of shares
subject to future Awards (including the proposed increase in the number of
shares authorized for issuance under the 1992 Plan) was $2,037,335.
Provided that the shareholders approve the proposed amendment to the 1992
Plan, the increased number of shares will be available for any of Awards
authorized under the 1992 Plan. Except as described below in connection with
the issuance of Common Stock to outside directors of the Company, the Committee
has not considered or approved any future Awards under the 1992 Plan, and, as a
result, the identity of future Award recipients and the size and terms of future
Awards are not known at this time.
As described herein under ``Election of Directors - Compensation of
Outside Directors,''the outside directors of the Company who elect to receive
shares of Common Stock in lieu of cash compensation receive grants of 200 shares
of Common Stock per month, 300 shares per Board meeting attended in person, 100
shares per meeting attended via telephone conference call and 100 shares per
committee meeting attended. If the shareholders approve the amendment of the
1992 Plan to permit outside directors of the Company to become eligible to
participate in the 1992 Plan, it is anticipated that such stock compensation
grants will in the future be conducted pursuant to the 1992 Plan upon terms
determined by the Committee.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the shares of Common
Stock which are present in person or represented by proxy at the Annual Meeting
is required to approve the amendment to the 1992 Plan. Proxies marked "abstain"
with regard to the proposal to approve the amendment to the 1992 Plan will be
counted for the purpose of determining the number of shares represented by proxy
at the Annual Meeting. As a result, proxies marked "abstain" with regard to the
proposal will have the same effect as if the shares represented thereby were
voted against approval. Shares represented by proxies returned by brokers where
the brokers' discretionary authority is limited by stock exchange rules will not
be counted as represented at the meeting for voting purposes.
The Board of Directors unanimously approved the proposed amendments to the
1992 Plan. In addition, each director, including Michael F. Adler, Chairman of
the Board of Directors and Chief Executive Officer of the Company, and Harry D.
Loyle, has indicated his intention to vote the shares he beneficially owns in
favor of the proposed amendments. Mr. Adler and Mr. Loyle are believed by the
Company to be the largest individual shareholders of the Company. See "Security
Ownership of Certain Beneficial Owners and Management."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT OF THE 1992 PLAN.
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
In addition to Messrs. Adler and Mason, who are listed elsewhere herein
under the heading "Information Concerning Nominees," the following individuals
also serve as executive officers of the Company.
Frank M. Montano. Age 46. Mr. Montano was appointed President and Chief
Operating Officer in January, 1997. From September, 1992 to January, 1997, Mr.
Montano served as Executive Vice President and Chief Operating Officer. From
June, 1990 to September, 1992, he served with Sbarro, Inc., first as Vice
President of Licensing (June, 1990 to May, 1991) and then as Senior Vice
President (May, 1991 to September, 1992). From April, 1989 to June, 1990, Mr.
Montano was associated with Diet Center, Inc., as Vice President of Operations
(April, 1989 to October, 1989) and as Senior Vice President (October, 1989 to
June, 1990). From August, 1986 to April, 1989, Mr. Montano was Vice President
of Franchising for Marriott Corporation.
Leonard S. Swartz. Age 65. Mr. Swartz was appointed Senior Vice President
of Franchise Operations in July, 1989 and in January, 1990, was given primary
responsibility for franchise operations. Between February, 1984 and July, 1989,
Mr. Swartz was Executive Vice President for Operations of the Company.
Paul Pieschel. Age 58. Mr. Pieschel was appointed Senior Vice President
of Franchise Sales in February, 1997. From March, 1985 to February, 1997, Mr.
Pieschel was Vice President of Franchise Sales. Since 1984, Mr. Pieschel has
also served as the Company's Vice President of Human Resources.
Alfred E. Lefeld. Age 39. Mr. Lefeld was appointed Vice President and
Controller in October, 1994. From June, 1993 to October, 1994, Mr. Lefeld
served as director of MIS for the Company. From January, 1992 to May, 1993, Mr.
Lefeld served as Controller - Midwest Division for MAB Paints and Coatings.
From March, 1984 to December, 1992, Mr. Lefeld was Controller for Paint America
Company.
EXECUTIVE COMPENSATION
The following table provides information with respect to compensation
received for the preceding three fiscal years by the Company's chief executive
officer and the four other most highly compensated executive officers of the
Company during 1997. These individuals are referred to herein as the "named
executive officers."
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION(1) OPTIONS(#) SATION(2)
<S> <C> <C> <C> <C> <C> <C>
Michael F. Adler 1997 $160,125 $68,627 $26,975 - $10,001
Chairman and Chief 1996 156,000 85,000 21,924 190,000 14,048
Executive Officer 1995 154,615 - 18,882 66,687 2,600
Frank M. Montano 1997 $154,725 $52,591 $3,246 - $14,452
President and Chief 1996 150,800 51,000 3,246 200,000 15,212
Operating Officer 1995 149,462 - 3,246 63,880 12,884
David A. Mason 1997 $117,400 $42,073 $3,246 - $ 5,949
Executive Vice 1996 114,400 50,000 3,246 55,000 7,493
President, Chief 1995 113,385 - 3,246 48,889 1,400
Financial Officer
and Treasurer
Leonard S. Swartz 1997 $103,854 $ 8,088 $2,776 - $ 7,058
Senior Vice President - 1996 100,384 15,839 2,776 - 12,959
Franchise Operations 1995 96,390 - 2,776 41,253 2,300
Paul Pieschel 1997 $86,275 $31,395(3) $3,246 - $ 4,944
Senior Vice President - 1996 80,500 24,993 3,246 - 7,423
Franchise Sales 1995 71,824 33,685 3,246 30,969 1,896
</TABLE>
1. The primary compenent of "Other Annual Compensation" for Mr. Adler is a car
allowance. In 1997, 1996, and 1995, the car allowances were $14,123, $12,032,
and $11,117, respectively.
2. " All Other Compensation" for Mr. Adler consists of (i) $2,670 of insurance
premiums paid by the Company with respect to a $500,000 term life insurance
policy covering Mr. Adler that is maintained by the Company for Mr. Adler's
benefit pursuant to his employment agreement and (ii) $4,963 consisting of the
Company's contributions for Mr. Adler to the Company's defined contribution
retirement plan. "All Other Compensation" in 1997 for Mr. Montano consists of
$1,951 equivalent to interest at 9% that would have accrued during such period
on transition loans made by the Company to Mr. Montano during 1992 and 1993 in
connection with his employment by the Company with respect to which no interest
is charged, $8,673 representing indebtedness under such loans forgiven by the
Company during 1997, and $1,460 representing the Company's contribution for Mr.
Montano to the Company's defined contribution retirement plan. ``ll Other
Compensation''in 1997 for Messrs. Mason, Swartz, and Pieschel consists of the
Company's contributions for them to the Company's defined contribution
retirement plan.
3. Bonus to Mr. Pieschel for 1997, 1996, and 1995 includes commissions, paid
to Mr. Pieschel in connection with the sale of franchises, of $29,395, $20,993,
and $33,685, respectively.
OPTION GRANTS DURING 1997
The Company granted no options to any of the named executive officers
during the year ended December 31, 1997.
OPTION EXERCISES AND YEAR-END OPTION VALUES
None of the named executive officers exercised any stock options during the
year ended December 31, 1997. The following table provides information
concerning unexercised stock options held by the named executive officers as of
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR END FISCAL YEAR END (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Michael F. Adler 216,666 40,001 $281,636 $ 11,000
Frank M. Montano 75,552 188,328 $ 56,526 $ 150,414
David A. Mason 74,555 28,334 $ 5,715 $ 14,167
Leonard S.Swartz 16,501 24,752 $ 8,250 $ 12,376
Paul Pieschel 12,387 18,582 $ 6,193 $ 9,291
</TABLE>
1. Based on the closing sale price of the Company's Common Stock on December
31, 1997 of $2.75 per share as reported on the NASDAQ.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In April, 1997, Michael F. Adler, the Company's Chairman and Chief
Executive Officer, entered into an employment contract with a term through
December 31, 1999. The employment contract is automatically renewed at the end
of each fiscal year for an additional three year term unless the Board takes
other action. The employment contract provides for a base salary of $161,500
per year, subject to annual review by the Board of Directors. Beginning April,
1998, Mr. Adler's annual base salary has been set at $200,000. The employment
contract calls for Mr. Adler's bonuses to be determined by the Board of
Directors or a committee of the Board. The employment contract requires the
Company to maintain for Mr. Adler's benefit a $500,000 term life insurance
policy covering Mr. Adler. The Company paid premiums of $2,670 for this policy
during 1997. The employment contract also provides that, in the event Mr.
Adler's employment is terminated without cause, he will be entitled to salary
continuation equal to thirty-six months of the salary he was receiving
immediately prior to termination, as well as continuation of benefits which he
was receiving at the time of termination, including health insurance and use of
suitable office and secretarial support, but excluding a car allowance.
In June, 1996, David A. Mason, the Company's Executive Vice President,
Chief Financial Officer and Treasurer, entered into an employment contract with
a term through December 31, 1998. In December, 1997, the employment contract was
amended to provide, among other things, for a term through December 31, 2000.
Commencing January 1, 2000, the term of the employment agreement will be
extended so that the term of the agreement will always be for a period of one
year unless Mr. Mason or the Company elects not to continue the contract or
unless Mr. Mason's employment is terminated earlier. The employment contract,
as amended, provides for a base salary of $125,000 per year, subject to annual
review by Mr. Adler after consultation with the Compensation Committee of the
Board of Directors. Under the employment contract, Mr. Mason will be eligible
for bonus payments for 1998 based on an incentive formula set forth in the
contract. The employment contract calls for Mr. Mason's bonuses for subsequent
years to be determined by Mr. Adler after consultation with the Compensation
Committee. The employment contract provides that, if there is a change in
control of the Company, the employment contract will be extended for three years
from the date of the change of control.
In June, 1996, Frank M. Montano, the Company's President and Chief
Operating Officer, entered into an employment contract with a term through
December 31, 1998. In December, 1997, the employment contract was amended to
provide, among other things, for a term through December 31, 2000. Commencing
January 1, 2000, the term of the employment agreement will be extended so that
the term of the agreement will always be for a period of one year unless Mr.
Montano or the Company elects not to continue the contract or unless Mr.
Montano's employment is terminated earlier. The employment contract, as
amended, provides for a base salary of $165,000 per year, subject to annual
review by Mr. Adler after consultation with the Compensation Committee. Under
the employment contract, Mr. Montano will be eligible for bonus payments for
1998 based on an incentive formula set forth in the contract. The employment
contract calls for Mr. Montano's bonuses for subsequent years to be determined
by Mr. Adler after consultation with the Compensation Committee. The employment
contract provides that, if there is a change in control of the Company, the
employment contract will be extended for three years from the date of the change
of control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors are
Frank W. Benson, Chairman of the Committee, D. Lee Carpenter and Douglas M.
Thomsen, all of whom are independent non-employee directors. During 1997,
Leslie Charm, an independent non-employee director, also served on the
Compensation Committee. The Committee establishes the compensation of the Chief
Executive Officer. Michael F. Adler, Chairman and Chief Executive Officer of
the Company, sets compensation for all other executive officers but reviews such
decisions with the Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE AND MR. ADLER
COMPENSATION ELEMENTS
Compensation of the Company's executive officers consists of three
principal elements:
Base salaries designed to be competitive in the Company's geographic
market and with comparably situated companies;
Annual bonuses which are generally dependent on the Company's
profitability for the year but from time to time discretionary
bonuses are granted based on a subjective review of the performance
of executive officers and taking into consideration accomplishments
which will benefit the Company over the longer term; and
Stock options which are designed to align the executive officers'
interests with long-term interests of the shareholders.
EXECUTIVE OFFICER COMPENSATION
Several of the Company's executive officers, including Messrs. Adler,
Montano, and Mason, are employed pursuant to employment contracts which specify
base salary and bonus levels. It is the Company's policy to pay base salaries
to executive officers in the 25th to 75th percentile for comparable positions
for comparably situated companies. In December, 1997, the employment contracts
of Messrs. Montano and Mason were amended to increase the base salary levels of
Mr. Montano by $8,900 to $165,000 per year and of Mr. Mason by $6,600 to
$125,000 per year. These increases reflect the Committee's positive assessment
of the performance of these individuals and the Committee's desire to keep their
base salary within the range of base salaries described above for persons in
comparable positions at comparable companies.
Bonuses for executive officers are determined either by the terms of the
executive officer's employment contract approved by the Compensation Committee,
or in the absence of specific contractual provisions, by the Compensation
Committee as to Mr. Adler's bonus, and by Mr. Adler, after consultation with the
Compensation Committee, as to the bonuses for the remaining executive officers.
All executive officers received bonuses for 1997. Other than the bonus for Mr.
Pieschel which was determined by Mr. Adler after consultation with the
Committee, the bonuses for the executive officers were based on achievement by
the Company of certain profit levels and/or achievement by the executive
officers' respective departments of certain profit levels. Bonuses to the
executive officers for 1997 totaled $180,721.
The Compensation Committee administers the Company's 1992 Performance and
Equity Incentive Plan (`the Plan''), which permits the Committee to grant to
officers and key employees stock option and other equity-based incentive awards.
In authorizing awards under the Plan to executive officers, the Committee
considers various factors, including the relative responsibilities of the
recipient, the Committee's subjective evaluation of the recipient's performance,
and the recipient's relative equity interest in the Company in the form of
stock, stock options, or other equity-based incentive awards in view of the
Committee's desire to align the interests of management and the shareholders in
the long-term performance and financial success of the Company.
During 1997, the executive officers of the Company did not receive any
option grants pursuant to the Plan or other equity awards from the Company.
However, long-term equity incentive compensation remains an important element in
the Company's compensation policies and additional stock options or other
equity-based incentive awards will be considered in the future.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Compensation for the Company's Chief Executive Officer, Michael F. Adler,
is determined under the terms of his employment contract with the Company.
During 1997, Mr. Adler received base salary of $160,125. Mr. Adler's bonus
compensation is determined by the Compensation Committee pursuant to the
employment contract and for 1997 was dependent upon the Company's achieving
certain target pre-tax net income levels. The target levels were reached during
1997, and Mr. Adler received a bonus of $68,627 for the period, based on the
target levels achieved and a percentage of the Company's income in excess of the
target levels.
SECTION 162(M)
The Committee has not adopted a policy with respect to qualification of
executive compensation in excess of $1 million per individual for deduction
under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The Committee currently does not anticipate that the
compensation of any executive officer during 1998 will exceed the limits on
deductibility for 1998. In determining a policy for future periods, the
Committee would expect to consider a number of factors, including the tax
position of the Company, the materiality of amounts likely to be involved and
any potential ramifications of the loss of flexibility to respond to
unforeseeable changes in circumstances.
Compensation Committee:
Frank W. Benson, Chairman of Compensation Committee
D. Lee Carpenter
Douglas M. Thomsen
Leslie Charm
Michael F. Adler, Chief Executive Officer
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
The following line graph compares the yearly percent change in the
cumulative total shareholder return of the Company's Common Stock against the
cumulative total return of the Center for Research in Security Prices ("CRSP")
Index for the NASDAQ Stock Market (U.S. Companies) and the CRSP Index for NASDAQ
Retail Trade Stocks for the period of five fiscal years (1993 to 1997). It
assumes that $100 was invested on December 31, 1992 in the Company's Common
Stock and in each of the other indices, with all dividends reinvested.
<TABLE>
<CAPTION>
Date Company Market Peer
Index Index Index
<S> <C> <C> <C>
12/31/92 100.000 100.000 100.000
01/29/93 150.000 102.847 98.084
02/26/93 168.750 99.010 92.892
03/31/93 162.500 101.876 94.648
04/30/93 131.250 97.528 88.971
05/28/93 162.500 103.354 93.586
06/30/93 143.750 103.832 93.447
07/30/93 143.750 103.954 95.190
08/31/93 125.000 109.327 100.590
09/30/93 106.250 112.583 103.645
10/29/93 156.250 115.114 107.796
11/30/93 125.000 111.682 103.666
12/31/93 137.500 114.796 105.521
01/31/94 143.750 118.281 105.225
02/28/94 131.250 117.177 103.080
03/31/94 131.250 109.971 96.982
04/29/94 150.000 108.544 97.186
05/31/94 137.500 108.809 94.930
06/30/94 118.750 104.830 93.026
07/29/94 112.500 106.980 93.178
08/31/94 103.125 113.800 100.175
09/30/94 103.125 113.509 101.697
10/31/94 100.000 115.740 102.937
11/30/94 125.000 111.900 99.028
12/30/94 118.750 112.214 96.136
01/31/95 100.000 112.843 92.770
02/28/95 90.625 118.811 94.685
03/31/95 115.625 122.334 95.097
04/28/95 109.375 126.186 94.576
05/31/95 112.500 129.442 96.825
06/30/95 109.375 139.932 104.751
07/31/95 93.750 150.218 110.442
08/31/95 100.000 153.262 110.131
09/29/95 100.000 156.787 112.133
10/31/95 100.000 155.888 110.155
11/30/95 90.625 159.549 109.569
12/29/95 78.125 158.699 105.908
01/31/96 62.500 159.482 104.851
02/29/96 65.625 165.552 111.778
03/29/96 62.500 166.101 119.117
04/30/96 59.375 179.882 129.885
05/31/96 93.750 188.141 132.946
06/28/96 84.375 179.660 127.313
07/31/96 100.000 163.662 119.514
08/30/96 100.000 172.832 127.982
09/30/96 93.750 186.052 134.401
10/31/96 100.000 183.997 128.853
11/29/96 93.750 195.372 132.013
12/31/96 93.750 195.196 126.264
01/31/97 87.500 209.068 128.943
02/28/97 90.625 197.511 124.504
03/31/97 78.125 184.617 120.105
04/30/97 90.625 190.389 116.104
05/30/97 87.500 211.973 128.306
06/30/97 90.625 218.455 135.705
07/31/97 93.750 241.517 141.974
08/29/97 98.438 241.149 144.383
09/30/97 112.500 255.413 153.868
10/31/97 118.750 242.142 145.736
11/28/97 118.750 243.337 148.909
12/31/97 137.500 239.527 148.738
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1983, Foto Fair International, Inc. ("FFI"), a wholly-owned
subsidiary of Progressive, merged into the Company. Progressive is 99% owned by
Michael F. Adler and his family. Mr. Adler is Chief Executive Officer and
Chairman of the Board of Directors of the Company, and a director and executive
officer of Progressive. In connection with such merger, the Company acquired
the assets and business of FFI, which primarily was the management by FFI of the
businesses of National Photo Labs, Inc. ("NPL") and National Photo Labs II, Inc.
("NPL II"), both of which were engaged in the one-hour photo processing
business. NPL sold or closed all of its stores and was dissolved in November
1995. Directors and executive officers of the Company own 23% of the
outstanding common stock of NPL II and owned 16% of the outstanding common stock
of NPL. NPL II owns one one-hour photo processing store. The store owned by
NPL II is managed by the Company pursuant to a management agreement and is
operated as a MotoPhoto store under a franchise agreement. The management
agreement provides for an annual incentive fee based on cash generated. The
franchise agreement provides for monthly royalties equal to the greater of 5% of
net sales or $1,000 per store. During the year ended December 31, 1997, the
Company received from NPL II total revenues of approximately $269,000, including
all royalty and incentive fees paid and revenues derived from the sale by the
Company to NPL II of operating supplies and merchandise. This amount
constituted approximately 0.6% of the Company's total revenues.
The terms of the merger of FFI and the Company described above were all
determined by arms' length negotiation between the Company and Progressive,
prior to Progressive's becoming a shareholder of the Company. The merger with
FFI was approved by the shareholders of the Company.
Progressive purchased a MotoPhoto store from the Company and signed a
franchise agreement for the store, effective as of January 1, 1996. The
purchase price of the store was $64,000, its book value as of December 31, 1995.
During 1997, this store paid the Company royalty and advertising fees of
$25,143. Total revenues derived by the Company from this store, including all
royalty and advertising fees paid and revenues derived from the sale by the
Company to Progressive of operating supplies and merchandise, were approximately
$103,064. This amount constituted approximately 0.4% of the Company's total
revenues.
The Company's corporate offices are located at 4444 Lake Center Drive,
Dayton, Ohio 45426. The building in which the Company's offices are located is
76% owned by Michael F. Adler, members of Mr. Adler's family, David A. Mason,
and Leonard S. Swartz. Such offices, consisting of approximately 33,000 square
feet on approximately 2.4 acres of land, have been leased by the Company
pursuant to a lease agreement which commenced on July 1, 1989 and which has been
extended through 1999. In July 1990, the lease terms were amended to provide
for rent payable as follows: $12,792 per month through June 1992; $16,097 per
month from July 1992 through June 1994; and $18,083 per month from July 1994
through June 1999. During 1997, the Company made lease payments totaling
$216,996.
Pursuant to the employment contract for Frank M. Montano when he joined the
Company in 1992, the Company advanced him moving expenses, the cost of temporary
housing in Dayton for a limited period of time, and a monthly living allowance
until Mr. Montano's home was sold. In connection with this arrangement, upon
the sale of his home in 1993, Mr. Montano executed a promissory note for
$52,036, the amount of the moving expenses and temporary housing and living
allowances; so long as Mr. Montano is still employed by the Company, one-sixth
of the principal will be forgiven on each anniversary date of the sale of his
home.
In February, 1997, the Company agreed to manage a MotoPhoto franchised
store owned by W. P. Enterprises, Inc. (`WP''), a corporation owned by Richard
Zsambok, the brother-in-law of Michael F. Adler. The management agreement
provides for an annual incentive fee based on cash generated and a monthly fee,
which supersedes the royalty fee required by the franchise agreement, equal to
the greater of 5% of net sales or $1,000. During 1997, this store paid the
Company monthly and advertising fees of $17,990. Total revenues derived by the
Company from this store, including all monthly, incentive and advertising fees
paid and revenues derived from the sale by the Company to WP of operating
supplies and merchandise, were approximately $87,188. This amount constituted
approximately 0.3% of the Company's total revenues.
The foregoing transactions were and all future transactions with or loans
to officers, directors, key employees or their affiliates will be approved by a
majority of the members of the Board of Directors who were not officers of the
Company and/or were not interested in the transaction.
Harry D. Loyle, a director of the Company, is a shareholder, officer and
director in four MotoPhoto franchisees -- Corral Photographic Corporation, Nash
Photographic Corporation (which became a franchisee in 1998), Post Imaging
Corporation, and The Positive Negative, Inc. Each such franchisee owns and
operates one store under a MotoPhoto franchise agreement which provides for a
royalty fee of six percent of net retail sales and an advertising fee of one-
half percent of net retail sales. The three companies named above that were
franchisees during 1997 paid royalty and advertising fees of $77,159 during
1997. Total revenues derived by the Company from such stores during 1997 were
$330,404, which constituted approximately 0.8% of the Company's total revenues.
In addition, Mr. Loyle is owner and President of ProMoto Management
Corporation (`ProMoto''), which acts as an area developer for the Company
pursuant to an area development agreement. As Area Developer, ProMoto receives
a portion of the initial franchise fee as compensation for the recruitment of a
franchisee in its area and also receives a portion of the royalty paid to the
Company by any franchised store in its area (including the stores owned by the
four franchisees named above) as compensation for performing training,
marketing, quality control and other services which would otherwise be performed
by the Company. During 1997, the Company paid ProMoto fees of $614,393. The
terms of the Company's area development agreement with ProMoto are the same as
those in the agreements of most of the Company's other area developers.
D. Lee Carpenter, a director of the Company, is Chairman and Chief
Executive Officer of Design Forum, which provides store design services to the
Company. The Company paid Design Forum fees of $5,898 for such services during
1997, and anticipates that it will pay Design Forum a total of approximately
$125,000 in fees for store design services during 1997 and 1998.
Jay Adler, son of Michael F. Adler, is President of Franchise Development
and Management Corporation (`FDMC''), which acted as an area developer for the
Company pursuant to an area development agreement through July 23, 1997. During
1997, the Company paid FDMC fees of $147,225. The terms of the Company's area
development agreement with FDMC were on substantially the same terms as those
offered to the Company's other area developers during the period in which the
agreement was entered into.
During 1996, Caroline Zsambok, Ph.D., wife of Michael F. Adler, provided
organizational learning services to the Company through her employer, Klein
Associates. In early 1997, Dr. Zsambok resigned from Klein Associates and
formed her own company, Z Research and Consulting (`Z Research''), through
which she has continued to provide consultation to the Company on training and
organizational learning and development. During 1997, the Company paid Klein
Associates fees of approximately $6,720 and Z Research fees of approximately
$36,522. The Company has agreed to provide Z Research with an office at the
Company's headquarters and limited secretarial support for non-Company work it
performs. Z Research reimburses the Company for all out-of-pocket expenses the
Company incurs in providing Z Research with an office and secretarial support.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Ernst & Young LLP, independent certified public accountants, have been
reappointed as independent auditors for the Company and it subsidiaries to
examine and report on its financial statements for 1998. Ernst & Young LLP have
been auditors of the accounts of the Company since November 1983.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, with the opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
PROPOSALS OF SHAREHOLDERS
The Board of Directors will consider proposals of shareholders intended to
be presented for action at the 1998 Annual Meeting of Shareholders. According
to the rules of the Securities and Exchange Commission, such proposals will be
included in the Company's Proxy Statement if they are received in a timely
manner and if certain other requirements are met. For a shareholder proposal to
be included in the Company's Proxy Statement relating to the 1999 Annual
Meeting, a written proposal complying with the requirements established by the
Securities and Exchange Commission must be received at the Company's principal
executive offices, located at 4444 Lake Center Drive, Dayton, Ohio 45426, no
later than January 11, 1999.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
action at the meeting other than those listed in the Notice of Meeting and
referred to in this Proxy Statement. If any other matters properly come before
the meeting or any adjournment of the meeting, the persons named on the
accompanying proxy intend to vote the shares represented by them in accordance
with the recommendations of the Board of Directors.
MOTO PHOTO, INC.
4444 LAKE CENTER DRIVE, DAYTON, OHIO 45426
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael F. Adler, David A. Mason and Jacob A.
Myers as Proxies, or any of them, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as designated below, all
the shares of Voting Common Stock of Moto Photo, Inc. (the "Company"), held of
record by the undersigned on April 27, 1998, at the Annual Meeting of
Shareholders to be held on June 18, 1998, or any adjournment thereof.
1. ELECTION OF DIRECTORS
FOR the nominees listed below (except WITHHOLD AUTHORITY to
-- as marked to the contrary in the --vote for all nominees
space below) listed below
Adler Benson Carpenter Charm Dawes
-- -- -- -- --
Loyle Mason Robeson
-- -- --
2. Proposal to approve the amendment of the 1992 Performance and Equity
Incentive Plan of the Company.
For Against Abstain
-- -- --
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted as specified by the
shareholders. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR THE
ELECTION OF ALL OF THE NOMINEES LISTED IN ITEM 1, AND FOR THE PROPOSAL LISTED IN
ITEM 2. If any other matters are brought before the meeting or if a nominee for
election as a director named in the proxy statement for election as a director
is unable to serve or for good cause will not serve, the proxy will be voted in
accordance with the recommendations of the Board on such matters or for such
substitute nominees as the Board may recommend.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement and hereby expressly revokes any and all proxies heretofore
given or executed by the undersigned with respect to the shares represented by
this proxy.
Date
========================================
(Signature of Shareholder)
(Signature of Joint Shareholder, if any)
Please date this proxy, sign EXACTLY as name appears on this proxy and return it
in the enclosed envelope. When signing as attorney, executor, administrator,
trustee or guardian, please give full title. If more than one trustee, all
should sign. If shares are registered in more than one name, signatures of all
such persons are required.
