SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
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 sec.240.14a-11(c) or sec.240.14a-12
MOVIE GALLERY, INC.
(Name of Registrant as Specified in its Charter)
(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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
MOVIE GALLERY, INC.
739 W. Main Street
Dothan, Alabama 36301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On Friday, June 13, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Movie
Gallery, Inc. (the "Company") will be held at the Ritz-Carlton--Buckhead, 3434
Peachtree Road, NE, Atlanta, Georgia 30326 on Friday, June 13, 1997 at 10:00
a.m. (Eastern Time) for the following purposes:
(1) To elect members of the Board of Directors to serve until the
next annual meeting of stockholders;
(2) To approve an amendment to the Company's 1994 Stock Plan, as
amended, to increase from 1,750,000 to 2,250,000 the number of
shares available for grant; and
(3) To transact such other business as may properly come before the
meeting or any adjournments thereof.
These items are more fully described in the accompanying Proxy
Statement. The Board of Directors has fixed the close of business on April 25,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the meeting. Only stockholders at the close of business on the
record date are entitled to vote at the meeting.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU WILL
NOT BE ABLE TO ATTEND THE MEETING TO VOTE IN PERSON, PLEASE COMPLETE, SIGN AND
DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PAID
ENVELOPE. The Proxy may be revoked at any time prior to its exercise at the
meeting.
By Order of the Board of Directors,
/s/ S. Page Todd
S. Page Todd
Senior Vice President,
General Counsel and Secretary
Dothan Alabama
May 14, 1997
<PAGE>
MOVIE GALLERY, INC.
739 W. Main Street
Dothan, Alabama 36301
ANNUAL MEETING OF STOCKHOLDERS
June 13, 1997
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Movie
Gallery, Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by and on behalf of the Board of Directors of the
Company. The proxies solicited hereby are to be voted at the Annual Meeting of
Stockholders of the Company to be held on June 13, 1997, and at any and all
adjournments thereof (the "Annual Meeting").
A form of proxy is enclosed for your use. The shares represented by
each properly executed unrevoked proxy will be voted as directed by the
stockholder executing the proxy. If no direction is made, the shares represented
by each properly executed unrevoked proxy will be voted "FOR" (i) the election
of management's nominees for the Board of Directors; and (ii) the amendment of
the Company's 1994 Stock Plan to increase from 1,750,000 to 2,250,000 the number
of shares available for grant. With respect to any other item of business that
may come before the Annual Meeting, the proxy holders will vote the proxy in
accordance with their best judgment.
Any proxy given may be revoked at any time prior to its exercise by
filing with S. Page Todd, Secretary of the Company, an instrument revoking such
proxy or by the filing of a duly executed proxy bearing a later date. Any
stockholder present at the meeting who has given a proxy may withdraw it and
vote his or her shares in person if such stockholder so desires.
It is contemplated that the solicitation of proxies will be made
primarily by mail. Should it, however, appear desirable to do so in order to
ensure adequate representation of shares at the Annual Meeting, officers, agents
and employees of the Company may communicate with stockholders, banks, brokerage
houses and others by telephone, telegraph, or in person to request that proxies
be furnished. All expenses incurred in connection with this solicitation will be
borne by the Company. In following-up the original solicitation of proxies by
mail, the Company may make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the shares eligible to vote at the Annual Meeting and will
reimburse them for their expenses in so doing. The Company has no present plans
to hire special employees or paid solicitors to assist in obtaining proxies, but
reserves the option of doing so if it should appear that a quorum otherwise
might not be obtained. This Proxy Statement and the accompanying form of proxy
are first being mailed to stockholders on or about May 14, 1997.
1
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only holders of record of the Company's voting securities at the
close of business on April 25, 1997 (the "Record Date") are entitled to notice
of and to vote at the Annual Meeting. As of the Record Date, the Company had
issued and outstanding 13,420,791 shares of the Company's Common Stock ("Common
Stock"), the holders of which are entitled to vote at the Annual Meeting. Each
share of Common Stock that was issued and outstanding as of the Record Date is
entitled to one vote at the Annual Meeting. The presence, in person or by proxy,
of stockholders entitled to cast at least a majority of the votes entitled to be
cast by all stockholders will constitute a quorum for the transaction of
business at the Annual Meeting.
Directors will be elected by a plurality of the votes cast. Only
votes cast for a nominee will be counted, except that each properly executed
unrevoked proxy will be voted for the six management nominees for the Board of
Directors in the absence of instructions to the contrary. Abstentions, broker
non-votes and instructions on a proxy to withhold authority to vote for one or
more of such nominees will result in the respective nominees receiving fewer
votes.
Abstentions may be specified as to all proposals to be brought before
the Annual Meeting, other than the election of directors. Approval of each of
the proposals to be brought before the Annual Meeting (not including the
election of directors) will require the affirmative vote of at least a majority
in voting interest of the stockholders present in person or by proxy at the
Annual Meeting and entitled to vote thereon. As to the proposals, if a
stockholder abstains from voting on a proposal it will have the effect of a
negative vote on that proposal, but if a broker indicates that it does not have
authority to vote certain shares, those votes will not be considered as shares
present and entitled to vote at the Annual Meeting with respect to that proposal
and, therefore, will have no effect on the outcome of the vote.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 25, 1997 by each
person known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock and as to the number of shares beneficially
owned by (i) each director of the Company, (ii) the Chief Executive Officer and
each of the five other current or former executive officers of the Company named
in the Summary Compensation Table under the heading "Compensation of Directors
and Executive Officers" (the "Named Executive Officers") and (iii) all directors
and executive officers as a group. The Company believes that, unless otherwise
noted, the persons listed below have sole investment and voting power with
respect to the Common Stock they own.
<TABLE>
<CAPTION>
Number of Percentage
Shares of of
Name and Address (1) Common Stock Outstanding
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Joe Thomas Malugen (2)..................2,690,400 (3) 20.0%
H. Harrison Parrish (4).................2,689,448 (5) 20.0
Strong Capital Management, Inc..........2,434,350 (6) 18.1
Richard S. Strong
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Joseph F. Troy.......................... 110,000 (7) *
William B. Snow......................... 105,000 (8) *
Sanford C. Sigoloff..................... 90,000 (9) *
Philip B. Smith......................... 86,000 (9) *
S. Page Todd............................ 41,890 (10) *
J. Steven Roy........................... 30,400 (11) *
Charles J. Wyse (12).................... 15,000 (13) *
All executive officers and directors
as a group (13 persons)............... 5,875,038 (14) 42.3
2
<PAGE>
<FN>
- ---------------
* Less than 1%.
(1) Unless otherwise noted, the address for all persons listed is c/o the
Company at 739 W. Main Street, Dothan, Alabama 36301.
(2) Mr. Malugen is the Chairman of the Board and Chief Executive Officer of
the Company.
(3) Includes 2,900 shares for which Mr. Malugen disclaims beneficial ownership.
(4) Mr. Parrish is a Director and the President of the Company.
(5) Includes 18 shares held as custodian for his daughter and 260 shares held
by his spouse.
(6) Based upon the information in a Schedule 13G filed with the SEC on January
13, 1997. At the time of such filing, Strong Discovery Fund owned 710,000
shares, or 5.3% of the outstanding securities at that time.
(7) Represents shares which are not outstanding but are subject to currently
exercisable options.
(8) Includes 85,000 shares which are not outstanding but are subject to
currently exercisable options.
(9) Includes 85,000 shares which are not outstanding but are subject to
currently exercisable stock options.
(10) Includes 36,250 shares which are not outstanding but are subject to
currently exercisable stock options and excludes 58,750 shares which are
subject to options that are not currently exercisable.
(11) Includes 30,000 shares which are not outstanding but are subject to
currently exercisable stock options (including those which become
exercisable within sixty days) and excludes 45,000 shares which are
subject to options that are not currently exercisable.
(12) Mr. Wyse resigned as Chief Operating Officer in March 1997.
(13) Based upon information reported to the Company in February 1997. Includes
10,000 shares which are not outstanding but are subject to currently
exercisable stock options.
(14) Includes 461,251 shares which are not outstanding but are subject to
currently exercisable options and excludes 253,749 shares which are
subject to options that are not currently exercisable. Does not include
any holdings of Mr.Wyse.
</FN>
</TABLE>
ELECTION OF DIRECTORS
Nominees
Directors are elected at each annual meeting of the stockholders and hold
office until their respective successors are elected and qualified. The Board of
Directors believes that the election to the Board of Directors of the persons
identified below, all of whom are currently serving as Directors of the Company
and have consented to continue to serve if elected, would be in the best
interests of the Company. The names of such nominees and certain biographical
information about them are set forth below:
Joe Thomas Malugen, age 45, co-founded the Company in 1985 and since
that time, has been its Chairman of the Board and Chief Executive Officer. Prior
to the Company's initial public offering of Common Stock in August 1994, Mr.
Malugen had been a practicing attorney in the States of Alabama and Missouri
since 1978, but spent a majority of his time managing the operations of the
Company beginning in early 1992. Mr. Malugen received a B.S. degree in Business
Administration from the University of Missouri-Columbia, his J.D. from
Cumberland Law School, Samford University and his L.L.M. (in Taxation) from New
York University Law School.
H. Harrison Parrish, age 49, co-founded the Company in 1985 and since
that time, has been President and a Director of the Company. From December 1988
until January 1992, Mr. Parrish was Vice President of Deltacom, Inc., a regional
long distance telephone provider. Mr. Parrish received a B.A. degree in Business
Administration from the University of Alabama.
William B. Snow, age 65, was elected Vice Chairman of the Board in
July 1994, and he served as Chief Financial Officer from July 1994 until May
1996. Mr. Snow entered into a two-year consulting agreement with the Company
commencing January 1, 1997. Mr. Snow was the Executive Vice President and Chief
Financial Officer and a Director of Consolidated Stores Corporation, a
publicly-held specialty retailer, from 1985 until he retired in June 1994. Mr.
Snow is a member of the Board of Directors of Action Industries, Inc., a
publicly-held company. Mr. Snow is a Certified Public Accountant, and he
received his Masters in Business Administration from the Kellogg Graduate School
of Management at Northwestern University and his Masters in Taxation from DePaul
University.
3
<PAGE>
Sanford C. Sigoloff, age 66, became a director of the Company in
September 1994. Since 1989, Mr. Sigoloff has been Chairman of the Board,
President and Chief Executive Officer of Sigoloff & Associates, Inc., a
management consulting company. In August 1989, LJ Hooker Corporation, a client
of Sigoloff & Associates, Inc., appointed Mr. Sigoloff to act as its Chief
Executive Officer during its reorganization under Chapter 11 of the United
States Bankruptcy Code. From March 1982 until 1988, Mr. Sigoloff was Chairman of
the Board, President, and Chief Executive Officer of Wickes Companies, Inc., one
of the largest retailers in the United States. Mr. Sigoloff is a director of the
following publicly-held corporations: ChatCom, Inc.; Digital Video Systems,
Inc.; Kaufman and Broad Home Corporation; SunAmerica, Inc. and Wickes
plc-London, England. In addition, Mr. Sigoloff is an adjunct full professor at
the John E. Anderson Graduate School of Management at the University of
California at Los Angeles.
Philip B. Smith, age 61, became a director of the Company in September
1994. Mr. Smith has been a Vice Chairman of the Board of Spencer Trask
Securities Incorporated since 1991. He was formerly a Managing Director of
Prudential Securities in its merchant bank. Mr. Smith is a founding General
Partner of Lawrence Venture Associates, a venture capital limited partnership
headquartered in New York City. From 1981 to 1984, he served as Executive Vice
President and Group Executive of the worldwide corporations group at Irving
Trust Company. Prior to joining Irving Trust Company, he was at Citibank for 15
years, where he founded Citicorp Venture Capital as President and Chief
Executive Officer. Since 1988 he has also been the managing general partner of
Private Equity Partnership, L.P. Mr. Smith is a director of ChatCom, Inc.;
DenAmerica Corp. (formerly American Family Restaurants, Inc.); Digital Video
Systems, Inc. and KLS EnviroResources, Inc., publicly-held companies. Mr. Smith
is an adjunct professor at Columbia University Graduate School of Business.
Joseph F. Troy, age 58, became a director of the Company in September
1994. Mr. Troy is the founder and has been a member of the law firm of Troy &
Gould Professional Corporation since May 1970. He is a director of Digital Video
Systems, Inc., a publicly-held company.
The shares of each properly executed unrevoked proxy will be voted
FOR the election of all of the above named nominees unless the stockholder
executing such proxy indicates that the proxy shall not be voted for all or any
one of the nominees. If for any reason any nominee should, prior to the Annual
Meeting, become unavailable for election as a Director, an event not now
anticipated, the proxies will be voted for such substitute nominee, if any, as
may be recommended by the Board of Directors. In no event, however, shall the
proxies be voted for a greater number of persons than the number of nominees
named.
Meetings; Attendance; Committees
The Board of Directors of the Company held four meetings during the
fiscal year ended January 5, 1997. Each director during the past fiscal year
attended at least 75% of the total number of the Company's Board meetings held
and committee meetings on which such directors served during the fiscal year
ended January 5, 1997, with the exception of Mr. Sigoloff, who missed two board
meetings and four committee meetings due to illness.
The Board of Directors of the Company has an Audit Committee. The
members of the Audit Committee currently are Messrs. Sigoloff, Smith and Troy.
The Audit Committee met twelve times during the last fiscal year. The duties of
the Audit Committee are to review and act or report to the Board of Directors
with respect to various audit and accounting matters, including the annual
audits of the Company (and their scope), the annual selection of the independent
auditors of the Company, the nature of the services to be performed by and the
fees to be paid to the independent auditors of the Company, and the rendering of
"fairness" determinations concerning transactions between the Company and its
directors and officers.
4
<PAGE>
The Compensation Committee consists of Messrs. Sigoloff, Smith and
Troy. The Compensation Committee held one meeting during the fiscal year ended
January 5, 1997.
The Board of Directors does not have a Nominating Committee.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth the compensation for services in all
capacities to the Company for the fiscal year ended January 5, 1997 and the
fiscal years ended December 31, 1995 and 1994 for the Chief Executive Officer of
the Company and the five highest paid executive officers of the Company whose
total annual salary and bonus exceeded $100,000 (collectively referred to as the
"Named Executives"):
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
________________ Shares of
Other Common Stock
Period Annual Underlying All Other
Name and Principal Position Ended Salary Bonus Compensation Options Compensation
_________________________ _______________ ________ _____ ____________ _____________ ____________
<S> <C> <C> <C> <C> <C> <C>
Joe Thomas Malugen January 5, 1997 $200,000 $ 24,000(1) -- $
Chairman and December 31, 1995 200,000 -- 24,000(1) -- --
Chief Executive Officer December 31, 1994 144,167 31,500 -- --
-- 94,000(2)
1,750,000(2)
H. Harrison Parrish January 5, 1997 200,000 24,000(1) -- --
President and Director December 31, 1995 200,000 -- 24,000(1) --
December 31, 1994 132,762 28,036 -- -- 94,000(2)
332,500 1,750,000(2)
William B. Snow(3) January 5, 1997 176,923 -- 12,000(1) 50,000(4) --
Vice Chairman of the Board December 31, 1995 200,000 -- 24,000(1) 10,000(4) --
and Consultant
Charles J. Wyse January 5, 1997 149,385 17,500 11,000(1) -- --
Chief Operating Officer(5) December 31, 1995 56,615 -- 12,521(6) 50,000(7) --
J. Steven Roy(3) January 5, 1997 122,885 28,525 5,500(1) 25,000(8) --
Senior Vice President and December 31, 1995 57,692 8,650 7,581(9) 50,000(10) --
Chief Financial Officer
S. Page Todd January 5, 1997 110,577 21,250 3,500(1) 20,000(8) --
Senior Vice President, December 31, 1995 100,500 15,800 -- 25,000(11) --
Secretary and General Counsel
<FN>
- ---------------
(1) Automobile allowance.
(2) S Corporation distributions.
(3) Mr. Snow served as Chief Financial Officer of the Company until May 1996
and was succeeded by Mr. Roy.
(4) These options were awarded under the Company's 1994 Stock Option Plan, as
amended, and were fully vested on the date of grant.
(5) Mr. Wyse resigned as Chief Operating Officer in March 1997.
(6) Includes $5,000 automobile allowance and $7,521 relocation allowance.
(7) Includes options granted under the Company's 1994 Stock Option Plan, as
amended, 10,000 of which became exercisable prior to his resignation from
the Company.
(8) Includes options granted under the Company's 1994 Stock Option Plan, as
amended, which become exercisable in five equal annual installments, the
first of which will commence on the first anniversary of the date of grant.
(9) Includes $3,500 automobile allowance and $4,081 relocation allowance.
(10) Includes options granted under the Company's 1994 Stock Option Plan, as
amended, which become exercisable in five equal annual installments, the
first of which commenced on the date of grant.
(11) Includes options granted under the Company's 1994 Stock Option Plan, as
amended, which become exercisable in four equal annual installments, the
first of which commenced on the first anniversary of the date of grant.
</FN>
</TABLE>
5
<PAGE>
Director Compensation. Members of the Board of Directors who are not
officers of the Company receive an annual fee of $12,000 and receive fees of
$1,000 for each Board meeting and $500 for each committee meeting that they
attend. The Company has granted, at or above the fair market value of the Common
Stock on the date of the grant, vested options to purchase 85,000 shares of
Common Stock to each of Messrs. Sigoloff and Smith and vested options to
purchase 110,000 shares of Common Stock to Mr. Troy.
Employment and Consulting Arrangements. Messrs. Malugen and Parrish
have entered into two-year employment agreements with the Company, effective
August 1994, which will be automatically renewed annually unless notice is
delivered by either party six months prior to the end of the term. Under the
terms of the agreements, Messrs. Malugen and Parrish receive an annual salary of
$200,000 and, beginning in 1995, became eligible to receive a bonus in an amount
to be determined annually by the Board of Directors. In the event of the death
of either Mr. Malugen or Mr. Parrish, his legal representative will be entitled
to receive compensation through the last day of the calendar month in which his
death occurred and a $50,000 payment. If either Mr. Malugen or Mr. Parrish
becomes disabled such that he is unable to perform his duties under his
Employment Agreement, he shall be entitled to receive 100% of his salary for a
90 day period. In addition to salary and bonus, the Company is required to
provide each of Messrs. Malugen and Parrish with a monthly car allowance of
$2,000. Mr. Snow has entered into a two-year consulting agreement with the
Company, effective January 1, 1997. Under the terms of Mr. Snow's agreement, he
will receive a consulting fee of $60,000 per year. In the event of his death or
permanent disability, the agreement shall immediately terminate. None of the
remaining Named Executives have employment agreements with the Company.
Stock Options. The following tables set forth certain information
with respect to stock options granted by the Company to the Named Executives
during the fiscal year ended January 5, 1997, stock option exercises during that
year and the value of unexercised stock options at that year's end.
<TABLE>
OPTION GRANT TABLE
Option Grants during the Fiscal Year ended January 5, 1997
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
------------------------------------------------------------- -------------------------
Number of
Shares of % of Total
Common Stock Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year ($/Sh)(3) Date 5% 10%
- --------------- ---------------- -------------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
William B. Snow 15,000(1) 4.48% $14.00 10/31/2006 $132,067 $334,685
J. Steven Roy 25,000(2) 7.47 14.00 10/31/2006 220,111 557,809
S. Page Todd 20,000(2) 5.98 14.00 10/31/2006 176,089 446,247
<FN>
- ---------------
(1) These options were granted either "at or above market" and were fully
vested on the date of grant.
(2) These options were granted "at or above market" on the date of grant and
first become exercisable on the first anniversary of the grant date, with
20% of the underlying shares becoming exercisable at that time, an
additional 20% of the option shares becoming exercisable on each
successive anniversary date, and full vesting on the fifth anniversary
date. The options were granted for a term of 10 years, subject to earlier
termination in certain events related to termination of employment.
(3) The exercise price and tax withholding related to exercise may be paid by
delivery of already owned shares or by offset of the underlying shares,
subject to certain conditions. Under the terms of the Company's stock
incentive plan, the stock option committee retains discretion, subject to
plan limits, to modify the terms of outstanding options and to reprice the
options.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year
and Year-End Option Values
<CAPTION>
Number of Shares
of Common Stock
Underlying Value of Unexercised
Unexercised In-the-money
Options at Options at
Shares Year-End Year-End(1)
Acquired on Value -------------- -------------------
Name Exercise Realized Exercisable/ Exercisable/
Unexercisable Unexercisable
- ------------------ --------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C>
William B. Snow -- -- 85,000/0 $0/0
Charles Wyse(2) -- -- 10,000/40,000 0/0
J. Steven Roy -- -- 20,000/55,000 0/0
S. Page Todd -- -- 36,250/58,750 0/0
<FN>
- -----------------
(1) Market value of underlying securities at year-end, minus the exercise
price of "in-the-money" options.
(2) Mr. Wyse resigned as the Company's Chief Operating Officer in March 1997.
</FN>
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Sanford C. Sigoloff, Philip B. Smith and Joseph F. Troy served as
members of the Compensation Committee of the Company's Board of Directors for
the fiscal year ended January 5, 1997. Mr. Troy, who is a Director of the
Company and also a member of its Executive and Audit Committees is a member of
the law firm of Troy & Gould Professional Corporation ("Troy & Gould"). During
the fiscal year ended January 5, 1997, the Company paid Troy & Gould
approximately $260,000 for legal services rendered.
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that might incorporate by reference previous or
future filings, including this Proxy Statement, in whole or in part, the
following report and the Performance Graph on page 10 hereof shall not be
incorporated by reference into any of such filings.
JOINT REPORT OF THE BOARD OF DIRECTORS AND THE STOCK OPTION
COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Messrs. Malugen and Parrish have written employment agreements and
these agreements were entered into by the Company prior to its initial public
offering in August 1994. Neither Mr. Malugen nor Mr. Parrish were paid a bonus
under their employment agreements for the fiscal year ended January 5, 1997.
They are eligible to receive a bonus for the current fiscal year in an amount to
be determined by the Board of Directors.
Bonuses were paid to all of the executive officers of the Company for
the fiscal year ended January 5, 1997, except for Messrs. Malugen, Parrish and
Snow, who received no bonuses. The amount of these bonuses was determined on a
quarterly basis by Messrs. Malugen and Parrish based upon the performance of the
Company for each fiscal quarter, primarily sales and net income as compared to
budget, as well as a review of the performance of each executive officer. The
payment of bonuses and the general performance criteria were reviewed by the
Board of Directors, who delegated to Messrs. Malugen and Parrish the authority
to fix bonuses for each executive officer of the Company, other than themselves.
7
<PAGE>
The base compensation for each of the executive officers was fixed at
the time of their employment by the Company or, as to Messrs. Malugen and
Parish, at the time of execution of their respective employment agreements. No
increases in base compensation have been approved. The Board of Directors or the
Compensation Committee will review the base compensation and bonus arrangements
for the current fiscal year with respect to each executive officer.
The Company believes that equity ownership by executive officers
provides incentive to build stockholder value and align the interests of
executive officers with the interests of stockholders. Upon hiring executive
officers and other key employees, the administrator of the Stock Option Plan
(currently the entire Board of Directors and hereinafter "Plan Administrator")
will typically recommend stock option grants to those persons under the Stock
Option Plan, subject to applicable vesting periods. Thereafter, the Plan
Administrator will consider awarding grants, usually on an annual basis. The
Board of Directors believes that these additional annual grants will provide
incentive for executive officers to remain with the Company. Options will be
granted at or above the market price of the Company's Common Stock on the date
of grant and, consequently, will have value only if the price of the Company's
Common Stock increases over the exercise price. The size of the initial grant
will usually be determined based upon prior grants to other executive officers
and key employees. In determining the size of the periodic grants, the Plan
Administrator will consider various factors, including the amount of any prior
option grants, the executive's or employee's performance during the current
fiscal year and his or her expected contributions during the succeeding fiscal
year.
The foregoing report on executive compensation is provided by the
following directors:
Board of Directors
Joe Thomas Malugen
H. Harrison Parrish
William B. Snow
Sanford C. Sigoloff
Philip B. Smith
Joseph F. Troy
8
<PAGE>
COMPANY PERFORMANCE
The following graph sets forth a comparison of cumulative total
returns for the Company, the NASDAQ Market Value Index and a peer group index
for the period during which the Company's Common Stock has been registered under
Section 12 of the Exchange Act. The peer group index consists of all companies
(i) that have the same Standard Industrial Classification industry number as the
Company and (ii) whose securities have been registered under the Exchange Act
during the period covered by the performance graph.
<TABLE>
Comparison of Cumulative Total Return
[Graphic line chart representing the following values:]
<CAPTION>
NASDAQ
Movie Gallery, Inc. U. S. Companies Peer Group
------------------- --------------- -------------
<S> <C> <C> <C>
8/2/94 100 100 100
9/30/94 138 106 109
12/30/94 173 104 109
3/31/95 179 114 108
6/30/95 234 130 119
9/29/95 285 146 131
12/29/95 203 148 125
3/29/96 168 155 138
6/28/96 140 167 145
9/30/96 87 173 154
12/31/96 87 182 151
</TABLE>
The graph assumes that the value of the investment in the Company's
Common Stock, the NASDAQ Market Index and the peer group of companies each was
$100 on August 2, 1994 and that all dividends were reinvested.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases approximately 6,500 square feet out of a total of
23,000 square feet of corporate office space from Messrs. Malugen and Parrish.
On June 1, 1994, the Company entered into a three-year lease (with two two-year
options) with respect to such space, which provides for monthly rental payments
of $3,650. The terms of the lease were not negotiated at arm's length, but the
Company believes that they are fair and reasonable and are comparable to those
which could have been obtained from a nonaffiliated third party. For the fiscal
year ended January 5, 1997, the total amount of lease payments made by the
Company to Messrs. Malugen and Parrish was $43,800.
During the fiscal year ended January 5, 1997, the Company paid Troy &
Gould approximately $260,000 for legal services rendered. Mr. Troy is a member
of that law firm.
During the fiscal year ended January 5, 1997, the Company paid Todd &
Sons $94,340 for certain store supplies and promotional materials. In addition,
Sight & Sound, the Company's primarily supplier of videocassettes and video
games, paid Todd & Sons, at the direction of the Company, an aggregate of
$17,551 for promotional items using funds allocated to the Company by Sight &
Sound as cooperative advertising credits. The Company generally purchases
materials, and causes Sight & Sound to purchase materials, from Todd & Sons only
when its prices are equal to or less than prices available from unaffiliated
third parties, and often materials are purchased from Todd & Sons only after
competitive bidding. Todd & Sons is owned by the brothers of Mr. Todd.
The Company and Messrs. Malugen and Parrish entered into a Tax
Indemnification Agreement with respect to the Company's status as an S
corporation prior to the Company's initial public offering in August 1994.
Pursuant to that agreement, the Company is obligated to indemnify each of them
for any federal or state income tax liability they may incur on any increase in
taxable income resulting from a final determination of any adjustment with
respect to the Company's income or deductions from April 1992 through the
termination of the Company's S corporation status in August 1994 (the "S
Period"). Pursuant to this agreement, the Company paid Messrs. Malugen and
Parrish an aggregate of $51,083 in early 1997 as a final settlement of federal
tax liability from the "S Period" as a result of an Internal Revenue Service
Examination which was resolved in 1996. In addition, the Company remains
obligated to indemnify Messrs. Malugen and Parrish for any state income taxes
they must pay in connection with the Company's status as an S corporation.
9
<PAGE>
The Company has entered into separate but identical indemnity
agreements (the "Indemnity Agreements") with each director of the Company (the
"Indemnities"). The Indemnity Agreements provide that the Company will indemnify
each Indemnitee to the fullest extent authorized or permitted by law against
payment of and liability for any and all expenses actually and reasonably
incurred by the Indemnitee, including, but not limited to, judgments, fines,
settlements and expenses of defense, payable by reason of the fact that the
Indemnitee is or was a director and/or officer of the Company or is or was
serving, at the request of the Company, as a director, officer, employee or
agent of another corporation, provided it is determined that the Indemnitee
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the Company and, in the case of a criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful.
The Indemnity Agreements also provide that all costs and expenses incurred by
the Indemnitee in defending or investigating such claim shall be paid by the
Company unless the Company, independent legal counsel or the stockholders of the
Company determine that: (i) the Indemnitee did not act in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the Company; (ii) in the case of any criminal action or proceeding, the
Indemnitee had reasonable cause to believe his conduct was unlawful; or (iii)
the Indemnitee intentionally breached his duty to the Company or its
stockholders.
The Company believes that the terms of all transactions described
above are no less favorable than terms that could have been obtained from third
parties. All transactions between the Company and its officers or directors are
subject to the approval by a majority of the disinterested members of the Board
of Directors.
AMENDMENT TO THE COMPANY'S 1994 STOCK PLAN, AS AMENDED
TO INCREASE THE NUMBER OF SHARES COVERED BY THE PLAN
The Board of Directors has approved, and has voted to recommend to
the stockholders that they approve, an amendment to the Company's 1994 Stock
Plan, as amended (the "Plan") to increase the number of shares of Common Stock
that may be issued upon the exercise of options provided under the Plan from
1,750,000 shares to 2,250,000 shares. It is proposed that Section 4 of the Plan
be amended to provide as follows:
"4. Stock Subject to Plan. There shall be reserved for issuance
under the Plan 2,250,000 shares of Common Stock of the Company
("Stock") or the number of shares of Stock, which, in accordance
with the provisions of Section 13 hereof, shall be substituted
therefor. Such shares may be treasury shares. If an option or
stock appreciation right granted under the Plan shall expire or
terminate for any reason without having been exercised in full,
shares subject to the unexercised portion thereof shall again be
available for the purposes of the Plan."
The Board of Directors believes that its existing stock option plan
has played, and will continue to play, a major role in enabling the Company to
attract certain officers, directors and other key employees. Options granted to
such individuals provide them with long-term incentives that are consistent with
the Company's compensation policy of providing compensation that is closely
related to the performance of the Company. As of the date of this Proxy
Statement, approximately 170,000 options remained available for grant under the
Plan. To allow the Company to continue to obtain the benefit of incentives
available under the Plan, the Company's Board of Directors has adopted and
recommended for submission to the stockholders for their approval a proposal to
increase the number of shares that may be issued upon the exercise of options
granted under the Plan. Pursuant to Section 16 of the Plan, this increase must
be approved by the affirmative vote of a majority of the shares of the Company's
Common Stock represented in person or by proxy and voting at the Annual Meeting,
assuming that a quorum is present.
10
<PAGE>
The following table sets forth, with respect to the Named Executives,
all current executive officers as a group, all current non-employee directors as
a group and all nonexecutive officers and employees as a group, the number of
shares of Common Stock subject to options granted under the Plan as of April 25,
1997 and the average per-share exercise price of such options.
<TABLE>
<CAPTION>
Options Granted
----------------------------------
Number of Average
Name of Individual Shares Subject Per-Share
or Identity of Group to Options Exercise Price(1)
- ---------------------------------------------------- -------------- -----------------
<S> <C> <C>
Joe Thomas Malugen 0 $ 0
H. Harrison Parrish 0 0
William B. Snow 85,000 15.33
J. Steven Roy 75,000 24.42
S. Page Todd 95,000 22.41
Executive Officer group (10 persons) 435,000 19.46
Non-employee director group (3 persons) 280,000 17.13
Non-executive officers and employee group (190 persons) 589,850 20.82
<FN>
- --------------------
(1) These amounts are based on a weighted average exercise price that is
obtained by multiplying all options by their exercise price and then
dividing by the total number of options for such category. The closing
price of the Common Stock issuable upon the exercise of options under the
Plan as of April 25, 1997 was $5.50 per share.
</FN>
</TABLE>
The following is a summary of the Plan.
General. The Plan Administrator has the authority to grant either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, nonstatutory stock options, stock appreciation
rights and other incentive grants. The Plan provides that options may be granted
thereunder to key employees, officers, directors or other persons providing
significant services to the Company.
Administration. The Plan provides that it shall be administered by a
committee established by the Board of Directors comprised of two or more
"Non-Employee Directors" of the Board, as defined in Rule 16b-3 under the
Exchange Act or any successor rule thereto, or by the full Board.
Terms of Grants. The terms of grants of options, stock appreciation
rights ("SARs"), shares of restricted stock or stock bonuses under the Plan are
determined by the Plan Administrator. Each grant of an option, SAR or restricted
stock is evidenced by a stock option agreement, stock appreciation right
agreement or restricted stock agreement. Grants are also subject to the
following terms and conditions:
(a) Stock Options. The term of each option and the manner in
which it may be exercised are determined by the Plan Administrator; provided,
however, that no option may be exercisable more than ten years after the date of
grant or, in the case of an incentive stock option to an eligible employee
owning more than 10% of the Company's outstanding securities, no more than five
years. Payment for the shares purchased upon exercise of an option may be in
cash, or with the Plan Administrator's consent, in shares of the Company's
Common Stock. The Plan provides that the aggregate fair market value (determined
at the time the option is granted) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000.
(b) Terms of Stock Appreciation Rights. The Plan Administrator
may grant SARs either alone or in conjunction with all or part of an option.
Upon the exercise of a SAR, a holder generally is entitled, without payment to
the Company, to receive from the Company in exchange therefor an amount equal to
the value of the excess of the fair market value on the date of exercise of one
share of Common Stock over its fair market value on the date of grant (or, in
the case of a SAR granted in connection with an option, the excess of the fair
market value of one share of Common Stock over the option price per share under
the option to which the SAR relates), multiplied by the number of shares covered
by the SAR or the option, or portion thereof, that is surrendered. Payment by
the Company upon exercise of a SAR may be made in Common Stock valued at fair
market value, in cash, or partly in Common Stock and partly in cash, all as
determined by the Plan Administrator.
11
<PAGE>
A SAR is exercisable only at the time or times established by the
Plan Administrator. If a SAR is granted in connection with an option, the
following rules also apply: (1) the SAR is exercisable only to the extent and on
the same conditions that the related option could be exercised; (2) upon
exercise of the SAR, the option or portion thereof to which the SAR relates
terminates; and (3) upon exercise of the option, the related SAR or portion
thereof terminates.
(c) Terms of Restricted Stock and Stock Bonuses. The purchase
price of restricted shares of Common Stock offered for sale under the Plan, the
vesting schedule and all other terms, conditions and restrictions of the
issuance of restricted stock will be determined by the Plan Administrator, in
its discretion, subject to the terms of the Plan. The restrictions may include
restrictions concerning transferability, repurchase by the Company and
forfeiture of the shares issued. The restricted stock may be issued for such
consideration (including promissory notes and services) as determined by the
Plan Administrator.
Upon sale and issuance of restricted stock or stock bonuses to an
officer, key employee or other person providing significant services to the
Company, the Company will issue certificates evidencing the stock but will
retain possession of the certificates until the shares have vested, at which
time the certificates representing the vested shares will be delivered to the
issuee. In the event the restricted stock is paid for by delivery of a
promissory note, however, all restricted stock generally will be required to be
pledged to the Company until the promissory note relating thereto is paid in
full.
A person who receives restricted stock or a stock bonus will be
entitled to vote the stock and to receive any dividends or other distributions
declared with respect to the stock so long as he remains in the employ of or
continues to provide services to the Company; provided, however, that all
dividends or other distributions paid by the Company with respect to such shares
of stock shall be retained by the Company until the shares of Common Stock are
no longer subject to forfeiture or repurchase, at which time all accumulated
amounts will be paid to the recipient.
(d) All Grants
(i) Termination of Employment. If the holder's
employment terminates for any reason other than death, disability or retirement,
options and SARs under the Plan may be exercised no later than 30 days after
such termination and may be exercised only to the extent the option or SAR was
exercisable as of the date of such termination. If the holder's employment
terminates because of the retirement or disability of the holder, then options
and SARs under the Plan may be exercised no later than three months after such
termination and may be exercised only to the extent the options or SARs were
exercisable at the date of such retirement or disability. If a holder's
employment terminates, any non-vested portions of restricted stock awards or
stock bonuses will be repurchased by the Company at a price equal to the
purchase price paid therefor, subject to any applicable restrictions on the
repurchase of shares by the Company.
(ii) Death of Holder. If a holder should die while
employed by the Company, options and SARs may be exercised at any time within
twelve months after death, but only to the extent the options and SARs would
have been exercisable on the date of death.
12
<PAGE>
(iii) Non-Transferability of Awards. Options and SARs
are non-transferable by the holder other than by will or the laws of descent and
distribution, or, except in the case of incentive stock options, pursuant to a
qualified domestic relations order defined under the Internal Revenue Code of
1986 or Title I of the Employee Retirement Income Security Act, and is
exercisable during the holder's lifetime only by such holder, or, in the event
of death, by the holder's estate or by a person who acquires the right to
exercise the option or SARs by bequest or inheritance.
Federal Income Tax Aspects. The following is a brief summary of
certain of the Federal income tax consequences of certain transactions under the
Plan based on Federal income tax laws in effect on January 1, 1997. This summary
is not intended to be exhaustive and does not describe state or local tax
consequences.
(a) Nonqualified Stock Options. In general, (i) no income
will be recognized by an optionee at the time a nonqualified stock option is
granted; (ii) at exercise, ordinary income will be recognized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market value of the shares, if unrestricted, on the date of
exercise; and (iii) at sale, appreciation (or depreciation) after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on how long the shares have been held.
(b) Incentive Stock Options. In general, no income will be
recognized by an optionee upon the grant or exercise of an incentive stock
option (although the difference between the value of the shares and the exercise
price is added to the tax base of the alternative minimum tax). If shares of
Common Stock are issued to the optionee pursuant to the exercise of an incentive
stock option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one year after the
issuance of such shares to the optionee, then upon the sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an incentive
stock option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or exchange) over the option price
paid for such shares. Any further gain (or loss) realized by the participant
generally will be taxed as short-term or long-term capital gain (or loss)
depending on the holding period.
(c) Stock Appreciation Rights. There are no federal tax
consequences to the recipient of a SAR upon its grant. A holder exercising SARs
will generally recognize compensation income in an amount equal to the amount of
cash and/or the then fair market value of the shares of Common Stock received
upon exercise of the SAR in the tax year in which payment is made in respect of
the SAR and the Company will normally be entitled to a tax deduction for an
equivalent amount for the same year.
(d) Restricted Stock and Stock Bonuses. Restricted stock and
stock bonuses generally will not be taxable to the recipient until they have
vested (i.e., the date when they are no longer subject to repurchase by the
Company or, if the recipient is potentially subject to liability under Section
16(b) of the Exchange Act, when a sale would not subject the shareholder to
liability under Section 16(b), whichever is later). The tax will be imposed at
ordinary income rates on the difference between the fair market value of the
restricted stock on the date of vesting and its issue price. Alternatively, the
recipient may elect under Section 83(b) of the Code to be taxed in the year he
received the restricted stock. If the recipient makes the Section 83(b)
election, he will be taxed at ordinary income rates on the difference between
the fair market value of the restricted stock on the date issued and its issue
price, and no additional tax will be imposed when the restricted stock vests.
The Section 83(b) election is irrevocable and must be made within 30 days of the
issuance of the restricted stock. Any subsequent increase or decrease in the
fair market value of the restricted stock will be taxed as a capital gain or
loss when the restricted stock is sold. In the event that a recipient of
restricted stock terminates employment during any vesting or other restriction
period and forfeits his shares, no deduction may be claimed for the income
recognized by reason of the Section 83(b) election. The Company generally will
be entitled to a deduction in the amount of the ordinary income reportable by
the recipient for the year in which it is reportable.
13
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, as well as persons who own more than
ten percent of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of beneficial ownership and
reports of changes in beneficial ownership of the Company's Common Stock.
Directors, executive officers and greater-than-ten-percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of copies of reports filed with the SEC and
submitted to the Company since January 1, 1996 and on written representations by
certain directors and executive officers of the Company, the Company believes
that, with the exceptions described below, all of the Company's directors and
executive officers filed all required reports on a timely basis during the past
fiscal year. Mr. Snow reported on Form 5 two open market sales for which he
failed to file Forms 4. Mr. Todd filed an amendment to his Form 5 to reflect the
inadvertent omission of an open market purchase of shares held in trust for one
of his children. Mr. Malugen filed a late Form 5 to report fourteen open market
transactions by a relative consisting of an aggregate of 3,600 shares purchased
and 700 shares sold during 1994 and 1995. Mr. Parrish filed a Form 5 to correct
the omission from his Form 3 of five open market purchases of a total of 1,948
shares which occurred in 1994.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders are advised that any stockholder proposal, including
nominations to the Board of Directors, intended for consideration at the 1998
Annual Meeting must be received by the Company no later than January 9, 1998 to
be included in the proxy material for the 1998 Annual Meeting. It is recommended
that stockholders submitting proposals direct them to the Company, c/o S. Page
Todd, Secretary of the Company, and utilize certified mail, return-receipt
requested in order to ensure timely delivery.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual
Meeting other than as specified herein. If other business should, however, be
properly brought before such meeting, the persons voting the proxies will vote
them in accordance with their best judgment.
THE STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ J. T. Malugen
Joe Thomas Malugen
Chairman of the Board
May 14, 1997
14
<PAGE>
MOVIE GALLERY, INC.
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Common Stock of MOVIE GALLERY, INC.
(the "Company") hereby appoints JOE THOMAS MALUGEN, H. HARRISON PARRISH and
WILLIAM B. SNOW, and each of them, proxies of the undersigned, each with full
power to act without the other and with the power of substitutions, to represent
the undersigned at the Annual Meeting of Stockholders of the Company to be held
at the Ritz-Carlton--Buckhead, 3434 Peachtree Road, NE, Atlanta, Georgia 30326
on Friday, June 13, 1997 at 10:00 a.m. (Eastern Time), and at any adjournments
thereof, and to vote all shares of Common Stock of the Company standing in the
name of the undersigned with all the powers the undersigned would possess if
personally present, in accordance with the instructions on the reverse hereof,
and in their discretion upon such other business as may properly come before the
meeting.
The undersigned hereby revokes any other proxy to vote at such Annual
Meeting of Stockholders and hereby ratifies and confirms all that said proxies,
and each of them, may lawfully do by virtue hereof. The undersigned also
acknowledges receipt of the notice of Annual Meeting of Stockholders to be held
June 13, 1997, the Proxy Statement and the Annual Report to Stockholders for the
fiscal year ended January 5, 1997 furnished herewith.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, AND WILL BE
VOTED IN FAVOR OF ANY MATTERS AS TO WHICH NO INSTRUCTIONS ARE INDICATED. PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
1. Election of Directors.
Nominees standing for election: Malugen, Parrish, Snow, Sigoloff,
Smith and Troy
FOR ABSTAIN ___________________________________
For all nominees except as noted
above.
2. Proposal to amend the Company's 1994 Stock Plan, as amended, to increase
from 1,750,000 to 2,250,000 the number of shares available for grant.
FOR AGAINST ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
Signature:
Date:
Signature:
Date:
<PAGE>
MOVIE GALLERY, INC.
1994 STOCK PLAN, AS AMENDED
1. Purpose. The purpose of the Movie Gallery, Inc.'s 1994 Stock Plan
(the "Plan"), is to provide an incentive to officers, directors and employees of
Movie Gallery, Inc. and its subsidiaries (collectively, the "Company") and to
other persons providing significant services to the Company to remain in the
employ of the Company or provide services to the Company and contribute to its
success.
As used in the Plan, the term "Code" shall mean the Internal Revenue
Code of 1986, as amended, and any successor statute, and the term "Subsidiary"
shall have the meaning set forth in Section 424(f) of the Code.
2. Administration. The Plan shall be administered by either (i) a Plan
Committee established by the Board of Directors of the Company (the "Board")
comprised of two or more "Non-Employee Directors" of the Board as defined in
Rule 16b-3 (or any successor rule) promulgated by the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended or (ii)
during such times as no Plan Committee is appointed by the Board, the full
Board. The Board may appoint and remove members of the Plan Committee in its
discretion subject only to the requirements set forth herein. As used herein,
the term "Administrator" shall mean the Plan Committee or, if no Plan Committee
is then appointed, the full Board. The Administrator shall determine the meaning
and application of the provisions of the Plan and all option and stock
appreciation right agreements executed pursuant thereto, and its decisions shall
be conclusive and binding upon all interested persons. Subject to the provisions
of the Plan, the Administrator shall have the sole authority to determine:
The persons to whom awards shall be made;
The amount of the awards;
The price to be paid for the Stock (defined below) upon the exercise
of each option;
The period within which each option or stock appreciation right shall
be exercised and, with the consent of the holder, any extensions of such period
(provided, however, that the original period and all extensions shall not exceed
the maximum period permissible under the Plan); and
The other terms and conditions of the awards.
3. Eligibility. Officers, directors and employees of the Company and
persons providing significant services to the Company shall be eligible to
receive awards under the Plan.
4. Stock Subject to Plan. There shall be reserved for issuance under
the Plan 1,750,000 shares of Common Stock of the Company ("Stock") or the number
of shares of Stock, which, in accordance with the provisions of Section 13
hereof, shall be substituted therefor. Such shares may be treasury shares. If an
option or stock appreciation right granted under the Plan shall expire or
terminate for any reason without having been exercised in full, shares subject
to the unexercised portion thereof shall again be available for the purposes of
the Plan.
5. Types of Awards. The Administrator may, from time to time, take the
following action, separately or in combination, under the Plan: (i) grant
incentive stock options, as defined in Section 422 of the Code, as provided in
Section 6(a) hereof; (ii) grant options other than incentive stock options as
provided in Section 6(b) hereof; (iii) award stock bonuses as provided in
Section 7 hereof; (iv) sell shares subject to restrictions as provided in
Section 8(b) hereof; and (v) grant stock appreciation rights as provided in
Section 9 hereof. At the discretion of the Administrator, an individual may be
given an election to surrender an award in exchange for the grant of a new
award.
<PAGE>
6. Options.
(a) Incentive Stock Options. It is intended that options granted
pursuant to this Section 6(a) qualify as incentive stock options as defined in
Section 422 of the Code. Incentive stock options shall be granted only to
employees of the Company. Each stock option agreement evidencing an incentive
stock option shall provide that the option is subject to the following terms and
conditions and to such other terms and conditions not inconsistent therewith as
the Administrator may deem appropriate in each case:
(1) Option Price. The price to be paid for each share of
Stock upon the exercise of each incentive stock option shall be determined by
the Administrator at the time the option is granted, but shall in no event be
less than 100% of the fair market value of the shares on the date the option is
granted, or not less than 110% of the fair market value of such shares on the
date such option is granted in the case of an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or of its Parent or
Subsidiaries. As used in this Plan the term "date the option is granted" means
the date on which the Administrator authorizes the grant of an option hereunder
or any later date specified by the Administrator. Fair market value of the
shares shall be (i) the mean of the high and low prices of shares of Stock sold
on the New York, American Stock Exchange or the NASDAQ National Market System on
the date the option is granted (or if there was no sale on such date, the
highest asked price for the Stock on such date), or (ii) if the Stock is not
listed on either of those exchanges on the date the option is granted, the mean
between the "bid" and "asked" prices of the Stock in the National
Over-The-Counter Market on the date the option is granted, or (iii) if the Stock
is not traded in any market, the price determined by the Administrator to be
fair market value, based upon such evidence as it may deem necessary or
desirable.
(2) Period of Option and Exercise. The period or periods
within which an option may be exercised shall be determined by the Administrator
at the time the option is granted, but in no event shall any option granted
hereunder be exercised more than ten years from the date the option was granted
nor more than five years from the date the option was granted in the case of an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company.
(3) Payment for Stock. The option exercise price for each
share of Stock purchased under an option shall be paid in full at the time of
purchase. The Administrator may provide that the option price be payable, at the
election of the holder of the option and with the consent of the Administrator,
in whole or in part either in cash or by delivery of Stock in transferable form,
such Stock to be valued for such purpose at its fair market value on the date on
which the option is exercised. No share of Stock shall be issued upon exercise
until full payment therefor has been made, and no optionee shall have any rights
as an owner of Stock until the date of issuance to him of the stock certificate
evidencing such Stock.
(4) Limitation on Amount Becoming Exercisable In Any One
Calendar Year. Subject to the overall limitations of Section 4 hereof (relating
to the aggregate shares subject to the Plan), the aggregate fair market value
(determined as of the time the option is granted) of Stock with respect to which
incentive stock options are exercisable for the first time by the optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company) shall not exceed $100,000.
(b) Nonqualified Stock Options. Nonqualified stock options may be
granted not only to employees but also to directors who are not employees of the
Company and to persons who provide substantial services to the Company. Each
nonqualified stock option granted under the Plan shall be evidenced by a stock
option agreement between the person to whom such option is granted and the
Company. Such stock option agreement shall provide that the option is subject to
the following terms and conditions and to such other terms and conditions not
inconsistent therewith as the Administrator may deem appropriate in each case:
<PAGE>
(1) Option Price. The price to be paid for each share of
Stock upon the exercise of an option shall be determined by the Administrator at
the time the option is granted. As used in this Plan, the term "date the option
is granted" means the date on which the Administrator authorizes the grant of an
option hereunder or any later date specified by the Administrator. To the extent
that the fair market value of Stock is relevant to the pricing of the option by
the Administrator, fair market value of the Stock shall be determined as set
forth in Section 5(a)(1) hereof.
(2) Period of Option and Exercise. The period or periods
within which an option may be exercised shall be determined by the Administrator
at the time the option is granted, but in no event shall such period exceed 10
years from the date the option is granted.
(3) Payment for Stock. The option exercise price for Stock
purchased under an option shall be paid in full at the time of purchase. The
Administrator may provide that the option exercise price be payable at the
election of the holder of the option, with the consent of the Administrator, in
whole or in part either in cash or by delivery of Stock in transferable form,
such Stock to be valued for such purpose at its fair market value on the date on
which the option is exercised. No share of Stock shall be issued until full
payment therefor has been made, and no optionee shall have any rights as an
owner of shares of Stock until the date of issuance to him of the stock
certificate evidencing such Stock.
7. Stock Bonuses. The Administrator may award Stock under the Plan as
stock bonuses. Stock awarded as a bonus shall be subject to the terms,
conditions, and restrictions determined by the Administrator. The restrictions
may include restrictions concerning transferability and forfeiture of the shares
of Stock awarded, together with such other restrictions as may be determined by
the Administrator. If shares of Stock are subject to forfeiture, all dividends
or other distributions paid by the Company with respect to the shares of Stock
shall be retained by the Company until the shares of Stock are no longer subject
to forfeiture, at which time all accumulated amounts shall be paid to the
recipient. The Administrator may require the recipient to sign an agreement as a
condition of the award, but may not require the recipient to pay any monetary
consideration other than amounts necessary to satisfy tax withholding
requirements. The agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Administrator. The certificates
representing the shares awarded shall bear any legends required by the
Administrator. Upon the issuance of a stock bonus, the number of shares of Stock
reserved for issuance under the Plan shall be reduced by the number of shares of
Stock issued.
8. Restricted Stock. The Administrator may issue Stock under the Plan
for such consideration (including promissory notes and services) as determined
by the Administrator. Stock issued under the Plan shall be subject to the terms,
conditions and restrictions determined by the Administrator. The restrictions
may include restrictions concerning transferability, repurchase by the Company
and forfeiture of the shares issued, together with such other restrictions as
may be determined by the Administrator. If shares of Stock are subject to
forfeiture or repurchase by the Company, all dividends or other distributions
paid by the Company with respect to the shares of Stock shall be retained by the
Company until the shares of Stock are no longer subject to forfeiture or
<PAGE>
repurchase, at which time all accumulated amounts shall be paid to the
recipient. All Stock issued pursuant to this Section 8 shall be subject to a
purchase agreement, which shall be executed by the Company and the prospective
recipient of the shares prior to the delivery of certificates representing such
shares to the recipient. The purchase agreement may contain any terms,
conditions, restrictions, representations and warranties required by the
Administrator. The certificates representing the shares of Stock shall bear any
legends required by the Administrator. Upon the issuance of restricted stock,
the number of shares of Stock reserved for issuance under the Plan shall be
reduced by the number of shares of Stock issued.
9. Stock Appreciation Rights.
(a) Grant. Stock appreciation rights may be granted under the Plan
by the Administrator, subject to such rules, terms, and conditions as the
Administrator prescribes.
(b) Exercise.
(1) Each stock appreciation right shall entitle the holder,
upon exercise, to receive from the Company in exchange therefor an amount equal
to the value of the excess of the fair market value on the date of exercise of
one share of Stock over its fair market value on the date of grant (or, in the
case of a stock appreciation right granted in connection with an option, the
excess of the fair market value of one share of Stock over the option price per
share under the option to which the stock appreciation right relates),
multiplied by the number of shares covered by the stock appreciation right or
the option, or portion thereof, that is surrendered. No stock appreciation right
shall be exercisable at a time that the amount determined under this
subparagraph is negative. Payment by the Company upon exercise of a stock
appreciation right may be made in Stock valued at fair market value, in cash, or
partly in Stock and partly in cash, all as determined by the Administrator.
(2) A stock appreciation right shall be exercisable only at
the time or times established by the Administrator. If a stock appreciation
right is granted in connection with an option, the following rules shall apply:
(1) the stock appreciation right shall be exercisable only to the extent and on
the same conditions that the related option could be exercised; (2) upon
exercise of the stock appreciation right, the option or portion thereof to which
the stock appreciation right relates terminates; and (3) upon exercise of the
option, the related stock appreciation right or portion thereof terminates.
(3) The Administrator may withdraw any stock appreciation
right granted under the Plan at any time and may impose any conditions upon the
exercise of a stock appreciation right or adopt rules and regulations from time
to time affecting the rights of holders of stock appreciation rights. Such rules
and regulations may govern the right to exercise stock appreciation rights
granted prior to adoption or amendment of such rules and regulations as well as
stock appreciation rights granted thereafter.
(4) For purposes of this Section 9, the fair market value of
the Stock shall be determined as of the date the stock appreciation right is
exercised, under the methods set forth in Section 5(a)(1).
(5) No fractional shares shall be issued upon exercise of a
stock appreciation right. In lieu thereof, cash may be paid in an amount equal
to the value of the fraction or, if the Administrator shall determine, the
number of shares may be rounded downward to the next whole share.
<PAGE>
(6) Upon the exercise of a stock appreciation right for
shares, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued. Cash payments of stock appreciation
rights shall not reduce the number of shares of Stock reserved for issuance
under the Plan.
10. Nontransferability. Except as otherwise determined by the
Administrator, the options and stock appreciation rights granted pursuant to the
Plan shall be nontransferable except by will or the laws of descent and
distribution of the state or county of the holder's domicile at the time of
death, or, except in the case of incentive stock options, pursuant to a
qualified domestic relations order defined under the Code or Title I of the
Employee Retirement Income Security Act, and shall be exercisable during the
holder's lifetime only by him (or, except with respect to incentive stock
options, in the case of a transfer pursuant to a qualified domestic relations
order, by the transferee under such qualified domestic relations order) and
after his death, by his personal representative or by the person entitled
thereto under his will or the laws of intestate succession.
11. Termination of Employment or Other Relationship. Upon termination
of the holder's employment or other relationship with the Company, his rights to
exercise options or stock appreciation rights, as the case may be, then held by
him shall be only as follows (in no case do the time periods referred to below
extend the term specified in any option or stock appreciation right, as the case
may be):
(a) Death or Disability. Upon the death of a holder of an option or
stock appreciation right, any option or stock appreciation right which he holds
may be exercised (to the extent exercisable at his death), unless it otherwise
expires, within such period after the date of his death (not to exceed twelve
(12) months) as the Administrator shall prescribe in his option or stock
appreciation right agreement, by the employee's representative or by the person
entitled thereto under his will or the laws of intestate succession. Upon the
disability (within the meaning of Section 22(e)(3) of the Code) of an employee,
any option or stock appreciation right which he holds may be exercised (to the
extent exercisable as of the date of disability), unless it otherwise expires,
within such period after the date of his disability (not to exceed twelve (12)
months) as the Administrator shall prescribe in his option or stock appreciation
right agreement.
(b) Retirement. Upon the retirement of an officer, director or
employee or the cessation of services provided by a nonemployee (either pursuant
to a Company retirement plan, if any, or pursuant to the approval of the
Administrator), an option or stock appreciation right may be exercised (to the
extent exercisable at the date of such termination or cessation) by him within
such period after the date of his retirement or cessation of services (not to
exceed three (3) months) as the Administrator shall prescribe in his option or
stock appreciation right agreement.
(c) Other Termination. In the event an officer, director or employee
ceases to serve as an officer or director or leaves the employ of the Company or
a nonemployee ceases to provide services to the Company for any reason other
than as set forth in (a) and (b), above, any option or stock appreciation right
which he holds shall terminate at (i) the earlier of 30 days after the date (A)
his employment terminates, or (B) he ceases providing services to the Company or
the date he receives written notice that his employment or rendering of services
is or will be terminated, or (ii) such later date as determined by the
Administrator not to exceed the maximum period under Section 11(b) hereof with
respect to incentive stock options. The foregoing shall not extend any option or
stock appreciation right beyond the term specified therein and such option or
stock appreciation right shall be exercisable only to the extent exercisable at
the date of termination of employment or cessation of services.
(d) Administrator Discretion. The Administrator may in its sole
discretion accelerate the exercisability of any or all options or stock
appreciation rights upon termination of employment or cessation of services.
<PAGE>
12. Discretionary Acceleration on Merger or Sale of the Company. In
the event the Company or its shareholders enter into an agreement to dispose of
all or substantially all of the assets or capital stock of the Company by means
of a sale, merger, consolidation, reorganization, liquidation or otherwise, an
option or stock appreciation right granted under the Plan will, in the
discretion of the Administrator, if so authorized by the Board of Directors and
conditioned upon consummation of such disposition of assets or stock, become
immediately exercisable in full during the period commencing as of the date of
the execution of such agreement and ending as of the earlier of the stated
termination date of the option or stock appreciation right or the date on which
the disposition of assets or stock contemplated by the agreement is consummated.
13. Adjustment of Shares; Termination of Options.
(a) Adjustment of Shares. In the event of changes in the outstanding
Stock by reason of stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the
Administrator), an appropriate adjustment shall be made by the Administrator in
the number of shares reserved under the Plan, in the number of shares set forth
in Section 4 hereof, in the number of shares and the option price per share
specified in any stock option agreement with respect to any unpurchased shares
and in the number of and exercise price for stock appreciation rights. The
determination of the Administrator as to what adjustments shall be made shall be
conclusive. Adjustments for any options to purchase fractional shares shall also
be determined by the Administrator. The Administrator shall give prompt notice
to all holders of options and stock appreciation rights of any adjustment
pursuant to this Section.
(b) Termination of Options and Stock Appreciation Rights on Merger;
Sale or Liquidation of Company. Notwithstanding anything to the contrary in this
Plan, in the event of any merger, consolidation or other reorganization of the
Company in which the Company is not the surviving or continuing corporation (as
determined by the Administrator) or in the event of the liquidation or
dissolution of the Company, all options and stock appreciation rights granted
hereunder shall terminate on the effective date of the merger, consolidation,
reorganization, liquidation, or dissolution unless there is an agreement with
respect thereto which expressly provides for the assumption of such options and
stock appreciation rights by the continuing or surviving corporation.
14. Securities Law Requirements. The Company's obligation to issue
shares of its Stock upon exercise of an option or stock appreciation right, upon
the grant of Stock bonuses, or upon the issuance of restricted Stock is
expressly conditioned upon the completion by the Company of any registration or
other qualification of such shares under any state and/or federal law or rulings
and regulations of any government regulatory body or the making of such
investment representations or other representations and undertakings by the
optionee or the recipient, as the case may be (or his legal representative, heir
or legatee, as the case may be), in order to comply with the requirements of any
exemption from any such registration or other qualification of such shares which
the Company in its sole discretion shall deem necessary or advisable. The
Company may refuse to permit the sale or other disposition of any shares
acquired pursuant to any such representation until it is satisfied that such
sale or other disposition would not be in contravention of applicable state or
federal securities law.
15. Tax Withholding. As a condition to exercise of an option or stock
appreciation right or otherwise, the award of a Stock bonus or shares of
restricted Stock, the Company may require the holder to pay over to the Company
all applicable federal, state and local taxes which the Company is required to
withhold with respect to the exercise of an option or stock appreciation right
granted hereunder. At the discretion of the Administrator and upon the request
of an optionee, the minimum statutory withholding tax requirements may be
satisfied by the withholding of shares of Stock otherwise issuable to the holder
upon the exercise of an option or stock appreciation right.
<PAGE>
16. Amendment. The Board of Directors may amend the Plan at any time,
except that without shareholder approval:
(a) The number of shares of Stock which may be reserved for issuance
under the Plan shall not be increased except as provided in Section 13(a)
hereof;
(b) The option price per share of Stock subject to incentive options
may not be fixed at less than 100% of the fair market value of a share of Stock
on the date the option is granted;
(c) The maximum period of ten (10) years during which the options
and stock appreciation rights may be exercised may not be extended;
(d) The class of persons eligible to receive awards under the Plan
as set forth in Section 3 shall not be changed; and
(e) This Section 16 may not be amended in a manner that limits or
reduces the amendments which require shareholder approval.
17. Effective Date. The Plan shall be effective upon its adoption by
the Board of Directors of the Company. Options and stock appreciation rights may
be granted but not exercised prior to shareholder approval of the Plan. If any
awards are made and shareholder approval shall not have been obtained within 12
months of the date of adoption of this Plan by the Board of Directors, such
award shall terminate retroactively as of the date they were made.
18. Termination. The Plan shall terminate automatically as of the
close of business on the day preceding the 10th anniversary date of its adoption
by the Board of Directors or earlier by resolution of the Board of Directors or
upon consummation of the disposition of capital stock or assets of the Company,
as described in Sections 12 and 13(b) hereof. Unless otherwise provided herein,
the termination of the Plan shall not affect the validity of any option or stock
appreciation right agreement outstanding at the date of such termination.
19. Stock Option, Stock Appreciation Rights and Purchase Agreements.
Each option and stock appreciation right granted and each Stock bonus or
restricted Stock award under the Plan shall be evidenced by a written agreement
("Agreement") executed by the Company and accepted by the holder, which (i)
shall contain each of the provisions and agreements herein specifically required
to be contained therein, (ii) if applicable, shall indicate whether such option
is to be an incentive stock option or a nonqualified stock option, and if it is
to be an incentive stock option, such Agreement shall contain terms and
conditions permitting such option to qualify for treatment as an incentive stock
option under Section 422 of the Code, (iii) if applicable, shall indicate
whether the stock appreciation right is granted in connection with an option,
(iv) may contain the agreement of the holder to remain in the employ of, and/or
to render services to, the Company for a period of time to be determined by the
Administrator, and (iv) may contain such other terms and conditions as the
Administrator deems desirable and which are not inconsistent with the Plan.
20. No Right to Employment. Nothing in this Plan or in any award
granted hereunder shall confer upon any recipient any right to continue in the
employ of the Company or to continue to perform services for the Company, or
shall interfere with or restrict in any way the rights of the Company to
discharge or terminate any officer, director, employee, independent contractor
or consultant at any time for any reason whatsoever, with or without good cause.
