<PAGE>
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
2
<PAGE>
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $_______________.
2) Form, Schedule or Registration Statement No.: _______________.
3) Filing Party: _______________.
4) Date Filed: _______________.
<PAGE>
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 29, 2000, at 9:00 a.m., for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. 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 May
1, 2000, 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
April 28, 2000
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.
<PAGE>
MOTO PHOTO, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 ................................................................................. 6
Information Concerning Nominees .............................................................. 6
Meetings of Board of Directors and Committees ................................................ 7
Compensation of Outside Directors ............................................................ 8
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION ......................................................... 8
Executive Officers ........................................................................... 8
Executive Compensation ....................................................................... 10
Option Grants During 1999 .................................................................... 11
Option Exercises and Year-End Option Values .................................................. 12
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements.............................................................. 12
Compensation Committee Interlocks and Insider Participation................................... 13
Report of the Compensation Committee and Mr. Adler............................................ 13
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS....................................................... 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................... 17
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................................................... 18
PROPOSALS OF SHAREHOLDERS.............................................................................. 18
OTHER MATTERS.......................................................................................... 19
</TABLE>
<PAGE>
MOTO PHOTO, INC.
4444 LAKE CENTER DRIVE
DAYTON, OHIO 45426
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
JUNE 29, 2000
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 29, 2000 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
30, 2000, 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 May 1, 2000. As of the date hereof, the Company had 7,723,217 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. Shares represented by proxies which are marked "withhold
authority" with respect to the election of any one or more nominees for election
as directors will be counted for the purpose of determining the number of shares
represented by proxy at the Annual Meeting. Shares represented by proxies
returned by brokers where the brokers' discretionary authority is limited by
stock exchange rules will be treated as represented at the Annual Meeting only
as to such matter or matters, if any, voted on in the proxies. 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
<PAGE>
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; and
(b) 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. 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 that
are marked "withhold authority" with respect to the election of any one or more
nominees for election as directors 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. 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.
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
<PAGE>
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, 1999, 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 20, 2000, the Company had 7,723,217 shares of Common Stock
outstanding and entitled to vote. The following table sets forth certain
information regarding the beneficial ownership of the Company's Common Stock as
of April 20, 2000 by (i) each of the Company's directors or nominees for
director, its chief executive officer and the four other most highly compensated
executive officers, (ii) all directors, nominees 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.
<PAGE>
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF SHARES OF CLASS (1)
---- --------- ------------
<S> <C> <C>
DIRECTORS AND CERTAIN
EXECUTIVE OFFICERS
Michael F. Adler (2)........................ 1,497,578 18.8%
4444 Lake Center Drive
Dayton, OH 45426
Harry D. Loyle (3).......................... 551,040 7.1%
210 New Road, Suite 15
Linville, NJ 08232
David A. Mason (4).......................... 148,279 1.9%
Dexter B. Dawes (5)......................... 67,865 *
Frank W. Benson (5)......................... 56,267 *
D. Lee Carpenter (5)........................ 41,967 *
Leslie Charm (5)............................ 25,000 *
James F. Robeson, Ph.D. (6)................. 20,567 *
Frank M. Montano (7)........................ 244,819 3.1%
Leonard S. Swartz (8)....................... 80,710 1.0%
Lloyd F. Noland (9)......................... 35,413 *
ALL DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS AS A GROUP (14 PERSONS) (10).............. 2,890,428 33.7%
BENEFICIAL OWNERS OF MORE THAN
5% OF THE COMMON STOCK
Fuji Photo Film U.S.A. Inc. (11)............ 1,000,000 11.5%
555 Taxter Road
Elmsford, NY 10523
Mark E. Brady (12).......................... 507,635 6.6%
Robert J. Suttman (12)
Ronald L. Eubel (12)
William Hazen (12)
Bernie Holtgreive (12)
c/o Eubel Brady & Suttman
Asset Management, Inc.
7777 Washington Village Drive,
Suite 210
Dayton, OH 45459
- ------------------------
</TABLE>
* Less than 1%
(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
<PAGE>
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 6,000 shares 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; (iv) include 258,837 shares which he has the right to acquire by
exercise of stock options which are currently exercisable; and (v)
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
1,144,039 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.
(3) Includes 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 106,889 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 5,000 shares which Dr. Robeson has the right to acquire upon
exercise of stock options which are currently exercisable.
(7) Includes 217,597 shares which Mr. Montano has the right to acquire upon
exercise of stock options which are currently exercisable.
(8) Includes 44,354 shares which Mr. Swartz has the right to acquire upon
exercise of stock options which are currently exercisable and excludes
850 shares owned by Mr. Swartz's wife, as to which Mr. Swartz disclaims
beneficial ownership.
(9) Includes 18,517 shares which Mr. Noland has the right to acquire upon
exercise of stock options which are currently exercisable.
(10) Includes 862,612 shares which such group has the right to acquire upon
exercise of stock options which are currently exercisable.
<PAGE>
(11) Consists of 1,000,000 shares issuable upon exercise of warrants owned by
Fuji Photo Film U.S.A., Inc. ("Fuji").
(12) Consists of shares as to which Mark E. Brady, Robert J. Suttman, Ronald
Eubel, William Hazel, and Bernie Holtgreive each share voting and
investment power. Mr. Suttman and Mr. Brady together beneficially own
82,750 shares, as to which they 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
In December 1999, the Company exchanged its Series G Non-Voting
Cumulative Preferred Stock, all of which was held by Fuji, for an Amended Series
G Preferred Stock issue. Fuji is the holder of 1,000,000 shares of Amended
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 has a mandatory redemption date of January 1,
2003. The Fuji Preferred Stock is redeemable by the Company at any time in
aggregate amounts of at least $1 million. No dividends will be paid. If the
Company does not redeem the Fuji Preferred Stock on January 1, 2003, the Company
must make penalty payments of $900,000 in 2003 and $1,000,000 per year in 2004
and each year thereafter until the stock is redeemed. 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.
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 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 under certain other
circumstances ("Redemption Event") which include, after appropriate cure
periods, failure by the Company to meet certain requirements under a supply
contract with Fuji, 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 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
<PAGE>
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 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 no person who at any time during 1999 was
director, executive officer, or beneficial owner of more than ten percent of any
class of the equity securities of the Company failed to file reports as required
by Section 16(a) of the Securities Exchange Act of 1934, except as described
below.
Through inadvertence, Michael F. Adler filed one late report as to one
transaction; in addition, through inadvertence, the reports relating to one
issuance of stock as director compensation for Messrs. Benson, Carpenter, Dawes,
Loyle, and Robeson were filed late. In each case, the reports were filed as soon
as the failure to file was discovered.
ELECTION OF DIRECTORS
The Board of Directors has established the size of the Board as eight
members and has nominated all of the current members of the Board for
re-election. Each director to be 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 shall occur 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, other
than the father-son relationship between Michael F. Adler, Chairman and Chief
Executive Officer, and Stephen M. Adler, Vice President of Company Store
Operations.
INFORMATION CONCERNING NOMINEES
<PAGE>
MICHAEL F. ADLER. Age 63. 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 in June, 1983. Mr. Adler has also
been President, Chief Executive Officer and a director of Progressive
Industries Corporation ("Progressive") since 1968. He is a member of the
Board of Directors of the International Franchise Association. Mr. Adler is
also a member of the Board of Directors and Chairman of the Venture Capital
and Strategic Planning Committee of the City-Wide Development Corporation,
Dayton, Ohio, The National Center for Industrial Competitiveness, the Dayton
Art Institute, and The Advisory Board of Alpha Capital. He chairs the 20/20
Economic Development Committee for the City of 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 72. 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 51. 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 56. Mr. Charm became a director in October, 1990.
Since August 1990 Mr. Charm has also been partner of Restoration Associates, an
entrepreneurial advisory firm in Babson Park, Massachusetts. In addition, since
1985 Mr. Charm has been an adjunct professor of entrepreneurial finance at
Babson College in Wellesley, Massachusetts. He is also a director of several
privately-held companies and of New Generation Foods, Inc., in Scarsdale, New
York, a publicly-held company providing credit information via the Internet.
DEXTER B. DAWES. Age 63. Mr. Dawes became a director of the Company in
December, 1989. He is a private investor with interests in technology firms.
From 1997 to 2000, Mr. Dawes was a director and Chairman of the Board of Puffin
Designs, Inc., a
<PAGE>
software company based in Sausalito, California, that he founded. From 1975 to
1998, Mr. Dawes was Chairman of the New York and San Francisco-based investment
banking firm of Bangert, Dawes, Reade, Davis & Thom Incorporated. In addition,
between September, 1989, and December, 1996, Mr. Dawes was President of John
Hancock Capital Growth Management, Inc.
HARRY D. LOYLE. Age 46. Mr. Loyle became a director of the Company
in July, 1993. Since July, 1985, Mr. Loyle's principal occupation has been as
President of ProMoto Management Corporation, an area developer for the
Company. He also serves as Secretary/Treasurer and is a shareholder and
director of the following MotoPhoto-Registered Servicemark- franchisees: Corral
Photographic Corporation in Northfield, New Jersey, Post Imaging Corporation
in Huntingdon Valley, Pennsylvania, KEKOA Management, Inc. in Wayne,
Pennsylvania, and The Positive Negative, Inc. in Bala Cynwyd, Pennsylvania.
Mr. Loyle serves as director and/or officer or partner of a number privately
held businesses in New Jersey and Pennsylvania. 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 Franchisee Advisory Council of the International Franchise Association
and, in February, 2000, was elected the Council's Chairman.
DAVID A. MASON. Age 59. 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. He is a former member of the Board of Directors of the Dayton
chapter of the Financial Executives' Institute and of the Executive Board of
Advisors of the International Minilab Association, Inc. Mr. Mason is also
President of National Photo Labs II, Inc., a franchise owner with one
MotoPhoto-Registered Servicemark- store in Dayton, Ohio.
JAMES F. ROBESON, PH.D. Age 63. Dr. Robeson became a director in June,
1998. Between December, 1997 and July 10, 1998, he was acting Chief Executive
Officer and President of ROBERDS, Inc., a chain of electronics, appliance, and
furniture stores based in West Carrollton, Ohio. Dr. Robeson has also been a
director of ROBERDS since November, 1993. From July, 1996 through December,
1997, Dr. Robeson was Interim Director, Miami University Art Museum, Oxford,
Ohio. He was Herbert E. Markley Visiting Scholar in Business, Miami University,
Oxford, Ohio, from August, 1995 through May, 1997. From July, 1993 to the
present, Dr. Robeson has served as an independent consultant to distribution
companies and as an independent consultant on marketing, logistics, and general
business matters, including services rendered through the firm of
PricewaterhouseCoopers.
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held five meetings during 1999. The Board of
Directors has established standing Audit and Compensation Committees; it does
not have a
<PAGE>
nominating committee. 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. The Audit Committee has three members: Mr. Dawes,
Chairman, Mr. Charm, and Mr. Loyle. The Audit Committee met three times during
1999.
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 three members: Mr. Benson, Chairman, Mr.
Carpenter, and Dr. Robeson. The Compensation Committee met twice during 1999.
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 1999, outside directors were entitled to receive monthly fees of
$400, as well as a fee of $750 per Board of Directors meeting attended in
person, $225 per committee meeting attended in person, and $150 per meeting
attended via telephone conference call. The fee structure is unchanged for 2000.
The Board of Directors has also approved a plan to compensate outside directors
who choose to participate in the plan with shares of Common Stock instead of
cash payments. During 1999, each director who participated in the plan received
shares having a value, based on the average closing sale prices of the Common
Stock during December 1998 ($1.27), equal to 150% of the cash compensation that
the director would otherwise have been entitled to receive. For 2000, the
formula for calculating stock in lieu of cash compensation will be the same but
will be based on the average closing sale price of the Common Stock during
December 1999 ($1.003). Messrs. Benson, Carpenter, Dawes, Loyle, and Robeson
elected to receive Common Stock as compensation during 1999 and have elected to
do so again in 2000.
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
<PAGE>
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, or have been chosen to serve, as executive officers of the Company.
FRANK M. MONTANO. Age 48. Mr. Montano was appointed President and Chief
Operating Officer in January, 1997. From September, 1992 through December, 1996,
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 67. Mr. Swartz has been Senior Vice President
for Franchise Operations since January 1990. From July, 1989 to January, 1990,
Mr. Swartz was Senior Vice President for Operations. Between February, 1984 and
July, 1989, Mr. Swartz was Executive Vice President for Operations of the
Company.
PAUL PIESCHEL. Age 60. 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. Between 1984 and July, 1999, and
commencing again on April 1, 2000, Mr. Pieschel has also served as the Company's
Vice President of Human Resources.
LLOYD F. ("RICK") NOLAND. Age 54. Mr. Noland was appointed Senior Vice
President of Marketing in August, 1998. From December, 1995 through October,
1997, Mr. Noland served as President of Whitmire Micro-Gen, a manufacturer of
chemicals and equipment for professional pest control, horticultural, and animal
health industries in St. Louis, Missouri, and a wholly-owned subsidiary of S.C.
Johnson & Son. From 1993 through November, 1995, Mr. Noland was Director, Global
Business Development, for S.C. Johnson & Son, a company marketing consumer and
institutional cleaning, fragrance, insecticide, and storage products, in Racine,
Wisconsin.
ALFRED E. LEFELD. Age 41. Mr. Lefeld was appointed Vice President and
Controller in October 1994 and assumed responsibility for Wholesale Operations
effective April 1, 2000. From June, 1993 to October, 1994, Mr. Lefeld was MIS
Director for the Company. From January, 1992 through May, 1993, Mr. Lefeld was
Controller-Midwest-Division for MAB Paints and Coatings.
STEPHEN M. ADLER. Age 38. Mr. Adler was appointed Vice President of
Company Store Operations effective April 1, 2000. From January, 1996 to April,
2000, he was
<PAGE>
Director of Company Store Operations. From August, 1995 to January, 1996, Mr.
Adler was a Franchise Business Consultant for the Company. From April, 1990 to
January, 1994, he was a District Manager of Company stores.
LINDA I. KRAMER. Age 55. Ms. Kramer will become Vice President of
Franchise Operations effective June 1, 2000. Since July, 1999, she has been Vice
President of Training and Education; between July, 1999 and April, 2000, Ms.
Kramer also served as Vice President of Human Resources. Ms. Kramer has worked
for the Company since October 1995, in the following capacities: from June, 1998
to July, 1999, as Senior Director of Training, Receivables, and Customer Care;
from January, 1998 to June, 1998, as Director of Receivables and Customer Care;
from October, 1996 to January, 1998, as Director of Receivables, Point-of-Sale,
and Customer Care; and from October, 1995 to October, 1996, as Franchise
Operations Support Specialist. Before she joined the Company, Ms. Kramer served
with Family Dining Concepts in Dayton, Ohio, as its President from March 1994 to
October 1995 and Vice President from 1990 to March 1994.
<PAGE>
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. 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 1999 $200,000 $25,906 $28,561 - $7,370
Chairman and Chief 1998 189,634 - 23,544 38,760 5,900
Executive Officer 1997 160,125 68,627 26,975 - 10,001
Frank M. Montano 1999 $167,437 $21,048 $4,090 7,544 $6,782
President and Chief 1998 162,604 - 3,895 37,464 13,044
Operating Officer 1997 154,725 52,591 3,246 - 14,452
David A. Mason 1999 $126,846 $21,125 $4,090 7,023 $2,787
Executive Vice 1998 123,223 - 3,895 28,416 3,200
President, Chief 1997 117,400 42,073 3,246 - 5,949
Financial Officer
and Treasurer
Leonard S. Swartz 1999 $112,058 $ 2,500 $3,498 6,160 $2,446
Senior Vice President - 1998 108,332 - 2,776 25,299 2,523
Franchise Operations 1997 103,854 8,088 2,776 - 7,058
Lloyd F. Noland 1999 $137,991 $20, 619 - 17,585 $14,530
Senior Vice President - 1998 54,519 15,000 - 75,000 $8,453
Marketing (3) 1997 - - - - -
</TABLE>
(1) The primary component of "Other Annual Compensation" for Mr. Adler is a
car allowance. In 1999, 1998, and 1997, the car allowances were $14,468,
$14,225, and $14,123, respectively.
(2) "All Other Compensation" in 1999 for Mr. Adler consists of (i) $4,170 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)
$3,200 consisting of the Company's contributions for Mr. Adler to the
Company's defined contribution retirement plan. "All Other Compensation"
in 1999 for Mr. Montano consists of (i) $3,672 indebtedness (principal and
interest) forgiven by the Company during 1999 under transition loans made
by the Company to Mr. Montano during 1992 and 1993 in connection with his
employment by the Company; and (ii) $3,200 representing the
<PAGE>
Company's contribution for Mr. Montano to the Company's defined
contribution retirement plan. "All Other Compensation" in 1999 for Mr.
Noland consists of (i) $4,848 indebtedness (principal and interest)
forgiven by the Company during 1999 under transition loans made by the
Company to Mr. Noland during 1998 in connection with his employment by
the Company, (ii) $6,842 of moving expense reimbursement in connection
with his employment by the Company, and (iii) $2,840 representing the
Company's contribution for Mr. Noland to the Company's defined
contribution retirement plan. "All Other Compensation" in 1999 for
Messrs. Mason and Swartz consists of the Company's contributions for them
to the Company's defined contribution retirement plan.
(3) Mr. Noland joined the Company August 3, 1998.
OPTION GRANTS DURING 1999
The following table provides information concerning the grant of stock
options during the year ended December 31, 1999 to each of the named executive
officers who received option grants during such year.
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
--------------------------------------------------- ---------------------------------
% OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(1) IN 1999 PER SHARE DATE 5% 10%
- ---- ---------- ------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Frank M. Montano 7,544 5.3% $1.0625 4/13/2004 $ 2,214 $ 4,892
David A. Mason 7,023 4.9% 1.0625 4/13/2004 2,061 4,554
Leonard S. Swartz 6,160 4.3% 1.0625 4/13/2004 1,808 3,995
Lloyd F. Noland 17,585 12.3% 1.0625 4/13/2004 5,161 11,404
- ---------------------------
</TABLE>
(1) All of the options shown were granted under the Company's Stock Ownership
Program under the 1992 Performance and Equity Incentive Plan. All of the
options are exercisable in 20% increments per year on each successive
anniversary date of the grant. Each officer is required to own and retain
shares of the Company's Common Stock to participate in the Stock Ownership
Program, and the number of shares underlying option grants under the
program is calculated using a formula based, in part, on the number of
shares owned, generally resulting in grants of options to purchase four
shares for each one share owned.
<PAGE>
(2) The Potential Realizable Values upon exercise of stock options are equal
to the product of the number of shares underlying the options and the
difference between (i) the respective hypothetical stock prices on the
date of option exercise and (ii) the exercise price per share of the
options. The hypothetical stock prices are equal to the price per share of
the Common Stock as of the date of the option grant compounded annually at
the rates of 5% and 10%, respectively, over the term of the option. The
rates of appreciation used are required by the Securities and Exchange
Commission and do not represent a projection or estimate by the Company on
the potential growth of the value of its Common Stock. Therefore, there
can be no assurance that the rate of stock price appreciation presented in
this table can be achieved.
OPTION EXERCISES AND YEAR-END OPTION VALUES
None of the named executive officers exercised any stock option during
the year ended December 31, 1999. The following table provides information
concerning unexercised stock options held by the named executive officers as of
December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END($)(1)
--------------- ---------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael F. Adler 251,085 44,342 - -
Frank M. Montano 208,596 100,292 - -
David A. Mason 99,802 39,526 - -
Leonard S. Swartz 38,063 34,649 - -
Lloyd F. Noland 15,000 77,585 - -
- --------------------
</TABLE>
(1) Based on the closing sale price of the Company's Common Stock on December
31, 1999 of $0.844 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 which is automatically
renewed at the end of each fiscal year for an additional three years 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 base salary was set at $200,000 per year. 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 $4,170 for this
<PAGE>
policy during 1999. 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, which was subsequently extended through
December 31, 2000. In December 1999, the employment contract was amended to
provide, among other things, for a term through December 31, 2002. Commencing
January 1, 2002, 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 $127,500 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's eligibility for bonus payments will
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, which was subsequently extended through December 31, 2000. In
December 1999, the employment contract was amended to provide, among other
things, for a term through December 31, 2002. Commencing January 1, 2002, 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 provides for a base salary of
$169,125 per year, subject to annual review by Mr. Adler after consultation with
the Compensation Committee. Under the employment contract, Mr. Montano's
eligibility for bonus payments will 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 January, 1999, Lloyd F. Noland, the Company's Senior Vice President
of Marketing, entered into an employment contract with a term through December
31, 2001. Commencing January 1, 2001, 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. Noland or the Company elects not to continue the contract or
unless Mr. Noland's employment is terminated earlier. The employment contract
provides for a base salary of
<PAGE>
$135,000 per year, subject to annual review by Mr. Adler after consultation with
the Compensation Committee. Mr. Noland's bonus for 1999 was based on an
incentive formula set forth in the contract. Mr. Noland's eligibility for bonus
payments in future years will be determined by Mr. Adler after consultation with
the Compensation Committee.
Effective April, 1999, Paul Pieschel, the Company's Senior Vice
President of Marketing, entered into an employment contract with a term through
December 31, 2001. Commencing January 1, 2001, 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. Pieschel or the Company elects not to continue
the contract or unless Mr. Pieschel's employment is terminated earlier. The
employment contract provides for a base salary of $91,971 per year, subject to
annual review by Mr. Adler after consultation with the Compensation Committee.
Mr. Pieschel's eligibility for bonus payments is determined by Mr. Adler after
consultation with the Compensation Committee.
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 James F.
Robeson, Ph.D. All of such current members of the Compensation Committee are
independent non-employee directors of the Company. The Committee establishes the
compensation of the Chief Executive Officer, subject to the terms of his
employment contract. 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.
<PAGE>
EXECUTIVE OFFICER COMPENSATION
Several of the Company's executive officers, including Messrs. Adler,
Montano, Mason, Pieschel, and Noland, 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, 1999, the
employment contracts of Messrs. Montano and Mason were amended to increase the
base salary level of Mr. Montano by $4,125 to $169,125 and of Mr. Mason by
$2,500 to $127,500 per year, effective April 1, 1999. These increases reflect
the Committee's positive assessment of the performance of these individuals and
the Committee's desire to keep their base salaries within the range of base
salaries described above for persons in comparable positions at comparable
companies.
Bonuses for executive officers are determined by the terms of the
executive officer's employment contract, if any, approved by the Compensation
Committee. In the absence of specific contractual provisions, the Compensation
Committee determines Mr. Adler's bonus, and Mr. Adler, after consultation with
the Compensation Committee, determines the bonuses for the remaining executive
officers. All executive officers received bonuses for 1999. Other than the bonus
for Mr. Noland, which for 1999 was set by his employment contract, 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 serving
as such in 1999 totaled $91,189. Mr. Pieschel, Senior Vice President of
Franchise Sales, received no bonus as such but received commissions in
connection with the Company's sales of franchises for 1999 at commission levels
determined by Mr. Adler after consultation with the Compensation Committee. The
Compensation Committee intends that bonuses for 2000 be structured to reward
financial performance and financial and strategic initiatives that will likely
positively impact shareholder value.
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,
whether the recipient and/or his department met certain specified targets, 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 1999, options to purchase a total of 42,696 shares of Common
Stock were granted to executive officers at exercise prices equal to 100% of the
market value of the
<PAGE>
shares on the date of grant. All of such options were granted in connection with
a program requiring the optionee to own and retain at least one share of Common
Stock for each four options granted, thus furthering the Compensation
Committee's goal of strengthening the mutuality of interests of management and
the shareholders through increased share ownership by management.
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 1999, Mr. Adler received base salary of $200,000, which did not
increase from 1998. Mr. Adler's bonus compensation is determined by the
Compensation Committee pursuant to the employment contract and for 1999 was
dependent upon the Company's achieving certain target pre-tax profit levels.
These target levels were reached during 1999, and Mr. Adler received a bonus of
$25,906 for that period, based on the target levels achieved and a percentage of
the company's income in excess of the target levels. No options were granted to
Mr. Adler during 1999.
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 2000 will exceed the limits on
deductibility for 2000. 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
James F. Robeson, Ph.D.
Michael F. Adler, Chief Executive Officer
<PAGE>
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 (1995 to 1999). It
assumes that $100 was invested on December 30, 1994 in the Company's Common
Stock and in each of the other indices, with all dividends reinvested.
<TABLE>
<CAPTION>
Index for the Index for
NASDAQ Stock NASDAQ
Company Market (U.S. Retail
Date Common Stock Companies) Trade Stocks
<C> <C> <C> <C>
12/30/1994 100.000 100.000 100.000
01/31/1995 84.211 100.527 96.490
02/28/1995 76.316 105.809 98.481
03/31/1995 97.368 108.951 98.910
04/28/1995 92.105 112.381 98.369
05/31/1995 94.737 115.288 100.706
06/30/1995 92.105 124.622 108.949
07/31/1995 78.947 133.775 114.867
08/31/1995 84.210 136.490 114.544
09/29/1995 84.211 139.634 116.627
10/31/1995 84.211 138.830 114.562
11/30/1995 76.316 142.086 113.952
12/29/1995 65.789 141.335 110.145
01/31/1996 52.632 142.042 109.025
02/29/1996 55.263 147.456 116.231
03/29/1996 52.632 147.952 123.862
04/30/1996 50.000 160.208 135.057
05/31/1996 78.947 167.558 138.248
06/28/1996 71.053 160.005 132.390
07/31/1996 84.210 145.762 124.283
08/30/1996 84.211 153.938 133.092
09/30/1996 78.947 165.704 139.769
10/31/1996 84.211 163.870 133.998
11/29/1996 78.947 174.037 137.291
12/31/1996 78.947 173.892 131.306
01/31/1997 73.68 186.232 134.102
02/28/1997 76.316 175.932 129.487
03/31/1997 65.790 164.463 124.913
04/30/1997 76.316 169.582 120.749
05/30/1997 73.684 188.791 133.425
06/30/1997 76.316 194.590 141.117
07/31/1997 78.947 215.098 147.500
08/29/1997 82.895 214.787 150.030
09/30/1997 94.737 227.521 159.980
10/31/1997 100.000 215.666 151.319
11/28/1997 100.000 216.809 154.740
12/31/1997 115.790 213.073 154.272
01/30/1998 105.263 219.818 156.473
<PAGE>
02/27/1998 114.474 240.486 170.701
03/31/1998 100.000 249.365 185.151
04/30/1998 100.000 253.567 185.413
05/29/1998 84.211 239.491 178.610
06/30/1998 68.421 256.214 189.004
07/31/1998 76.316 253.213 175.667
08/31/1998 63.158 203.152 129.783
09/30/1998 78.289 231.347 137.041
10/30/1998 63.158 241.334 152.271
11/30/1998 60.526 265.721 174.137
12/31/1998 50.000 300.184 187.590
01/29/1999 57.895 343.848 191.321
02/26/1999 50.000 313.013 176.543
03/31/1999 47.368 336.019 187.106
04/30/1999 43.421 345.423 190.314
05/28/1999 42.105 337.595 177.772
06/30/1999 43.421 367.463 184.316
07/30/1999 50.000 361.742 176.863
08/31/1999 65.790 376.003 156.987
09/30/1999 57.895 375.966 166.001
10/29/1999 47.368 403.775 169.213
11/30/1999 44.737 447.425 184.672
12/31/1999 35.526 545.673 168.554
</TABLE>
LEGEND
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 12/1994 12/1995 12/1996 12/1997 12/1998 12/1998
- ----------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Moto Photo, Inc. 100.0 65.8 78.9 115.8 50.0 35.5
Nasdaq Stock Market (U.S. Companies) 100.0 141.3 173.9 213.1 300.2 545.7
Nasdaq Retail Trade Stocks 100.0 110.1 131.3 154.3 187.6 168.6
SIC 5200-5599, 5700, 5799, 5900-5999
U.S. & Foreign
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/30/94.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Adler, Mason, Swartz, and Pieschel own 23% of the outstanding
common stock of National Photo Labs II, Inc. ("NPL II"). 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-Registered Servicemark- 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. During the year ended December 31,
1999, the Company received from NPL II total revenues of approximately
$283,000, including all royalty and
<PAGE>
incentive fees paid and revenues derived from the sale by the Company to NPL II
of operating supplies and merchandise. This amount constituted approximately
0.8% of the Company's total revenues.
Progressive operates a MotoPhoto-Registered Servicemark- store under a
franchise agreement. During 1999 this store paid the Company royalty and
advertising fees of $22,346. Total revenues derived by the Company from this
store, including all royalty and advertising fees paid and revenues derived
from the sale of operating supplies and merchandise, were approximately
$98,000. This amount constituted approximately 0.3% 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, were leased by the Company for $18,083
per month through June 1999. The Company signed a new lease with an initial term
of ten years commencing July 1, 1999, and two five-year renewal options. The
rent is $20,327 per month through June 2004 and $22,374 from July 2004 through
June 2009. During 1999, the Company made lease payments totaling $225,660.
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, with one-sixth of the principal to be forgiven on
each anniversary date of the sale of his home so long as Mr. Montano was still
employed by the Company. The final incremental amount was forgiven under the
note during 1999.
Pursuant to the employment contract for Lloyd F. Noland when he joined
the Company in 1998, the Company advanced him moving expenses and a monthly
living allowance for a limited period of time. In connection with this
arrangement, Mr. Noland executed a promissory note for $40,352, the amount of
the moving expenses and temporary living allowance; so long as Mr. Noland is
still employed by the Company, the Company will forgive one-fifth of the
principal on each anniversary date of his joining the Company.
In February, 1997, the Company agreed to manage a MotoPhoto-Registered
Servicemark- 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 1999, this store paid the Company monthly and advertising fees of
$16,941. Total revenues derived by the Company from this store, including all
royalty and advertising fees
<PAGE>
paid and revenues derived from the sale of operating supplies and merchandise,
were approximately $91,000. This amount constituted approximately 0.2% 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, or as appropriate, of
the Compensation Committee, 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-Registered Servicemark- franchisees -- Corral
Photographic Corporation, Post Imaging Corporation, KEKOA Management, Inc.,
and The Positive Negative, Inc. Each such franchisee owns and operates one
store under a 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. Mr. Loyle also was a shareholder, officer, and director in Nash
Photographic Corporation, which, for a portion of 1999, owned and operated a
MotoPhoto(R) store in Abington, Pennsylvania under a similar franchise
agreement. During 1999, these five franchises paid royalty and advertising
fees of $113,133. Total revenues derived by the Company from such stores were
approximately $481,000, which constituted approximately 1.3% 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 1999, the Company paid ProMoto fees of approximately
$454,152. 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.
During 1999, Caroline Zsambok, wife of Michael F. Adler, provided
consultation to the Company on training and organizational learning services
through her company, Z Research and Consulting ("Z Research"). During 1999, the
Company paid Z Research fees of approximately $42,185. 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 compensates 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
<PAGE>
Ernst & Young LLP, independent certified public accountants, have been
reappointed by the Board of Directors of the Company as independent auditors for
the Company and it subsidiaries to examine and report on its financial
statements for 1999. 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 2001 Annual Meeting of Shareholders. For a
shareholder proposal to be included in the Company's Proxy Statement relating to
the 2001 Annual Meeting, a written proposal complying with certain requirements
established by the Securities and Exchange Commission, including Rule 14a-8
under the Securities Exchange Act of 1934, must be received at the Company's
principal executive offices, located at 4444 Lake Center Drive, Dayton, Ohio
45426, no later than January 29, 2001.
In addition, shareholders are notified that the deadline for providing
the Company timely notice of any shareholder proposal to be submitted outside of
the Rule 14a-8 process for consideration at the 2001 Annual Meeting is April 15,
2001. As to all such matters of which the Company does not have notice as of
April 15, 2001, discretionary authority to vote on such proposal will be granted
to the persons designated in the Company's proxy related to the 2001 Annual
Meeting.
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. Nonetheless, the enclosed proxy confers
discretionary authority to vote with respect to those matters described in Rule
14a-4(c) under the Securities Exchange Act of 1934, including those matters that
the Board of Directors does not know, a reasonable time before proxy
solicitation, are to be represented at the Annual Meeting. 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.
<PAGE>
REVOCABLE PROXY
MOTO PHOTO, INC.
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
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 May 1, 2000, at the Annual Meeting of Shareholders
to be held on June 29, 2000, or any adjournment thereof.
Please be sure to sign and date
this Proxy in the box below. --------------------------
Date
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Shareholder sign above Co-holder (if any) sign above
WITH- FOR ALL
FOR HOLD EXCEPT
1. ELECTION OF DIRECTORS / / / / / /
ADLER, BENSON, CARPENTER, CHARM, DAWES,
LOYLE, MASON AND ROBESON
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK "FOR
ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
- --------------------------------------------------------------------------------
2. 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. 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.
<PAGE>
Detach above card, sign, date and mail in postage paid envelope provided.
MOTO PHOTO, INC.
4444 LAKE CENTER DRIVE, DAYTON, OHIO 45426
Please date this proxy, sign EXACTLY as name appears hereon. 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.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
