TO THE
SHAREHOLDERS OF FREDERICK’S OF HOLLYWOOD GROUP INC.:
NOTICE IS
HEREBY GIVEN that the Annual Meeting of Shareholders of Frederick’s of Hollywood
Group Inc., a New York corporation, will be held at 10:00 a.m. Eastern Time on
Wednesday, January 12, 2011, at Club 101 on the Main Floor at 101 Park Avenue,
New York, New York. You are cordially invited to attend the meeting,
which will be held for the following purposes:
|
1.
|
To
elect six directors to serve for the ensuing one-year period and until
their successors are elected and
qualified.
|
|
2.
|
To
approve our 2010 Long-Term Incentive Equity
Plan.
|
|
3.
|
To
transact such other business as may properly come before the meeting and
any and all postponements or
adjournments.
|
These
items of business are described in more detail in this proxy statement, which we
encourage you to read in its entirety before voting. Only
shareholders of record at the close of business on November 29, 2010 are
entitled to notice of, and to vote at, the meeting and any postponements or
adjournments thereof.
All
shareholders are cordially invited to attend the meeting in
person. However, to ensure your representation at the meeting, you
are urged to complete, sign, date and return the enclosed proxy card as soon as
possible. Returning your proxy card will not affect your right to
vote in person if you attend the meeting. You may revoke your proxy
if you so desire at any time before it is voted. If your shares are
held in an account at a brokerage firm or bank, you must instruct your broker or
bank on how to vote your shares.
Your
vote is important regardless of the number of shares you own. Whether
you plan to attend the meeting or not, please complete, sign, date and return
the enclosed proxy card as soon as possible in the envelope
provided.
Important
Notice Regarding the Availability of
Proxy
Materials for the Annual Meeting of Shareholders to be held on January 12,
2011
Our proxy statement is
attached. Financial and other information concerning our company is
contained in our Annual Report to Shareholders for the fiscal year ended July
31, 2010 (“annual report”). Pursuant to rules promulgated by the
Securities and Exchange Commission, or SEC, we have elected to provide access to
our proxy materials both by sending you this full set of proxy materials,
including the proxy statement, annual report and a proxy card, and by notifying
you of the availability of these proxy materials on the
Internet. This proxy statement and our annual report are available on
our corporate website at www.fohgroup.com.
|
By
Order of the Board of Directors
|
|
|
|
Thomas
Rende, Secretary
|
New York,
New York
December
7, 2010
FREDERICK’S
OF HOLLYWOOD GROUP INC.
PROXY
STATEMENT
GENERAL
INFORMATION
This
proxy statement and the enclosed proxy card are furnished in connection with the
solicitation of proxies by the board of directors of Frederick’s of Hollywood
Group Inc. (referred to as the “Company,” “we” or “us”), a New York corporation,
for use at the Annual Meeting of Shareholders (“Annual Meeting”) to be held at
10:00 a.m. Eastern Time on Wednesday, January 12, 2011, at Club 101 on the Main
Floor at 101 Park Avenue, New York, New York.
This
proxy statement and the enclosed proxy card, together with the Annual Report to
Shareholders for the fiscal year ended July 31, 2010 (“annual report”), are
first being mailed on or about December 7, 2010, to shareholders of record on
November 29, 2010.
What
matters am I voting on?
You are
being asked to vote on the following matters:
|
·
|
The
election of six directors to serve for the ensuing one-year period and
until their successors are elected and qualified – we refer to this
proposal as the “director election
proposal”;
|
|
·
|
To
approve our 2010 Long-Term Incentive Equity Plan – we refer to this
proposal as the “stock plan proposal”;
and
|
|
·
|
To
transact such other business as may properly come before the Annual
Meeting and any and all postponements or
adjournments.
|
Who
is entitled to vote?
Persons
who were holders of our common stock as of the close of business on November 29,
2010, the record date, are entitled to vote at the Annual Meeting. As
of November 29, 2010, we had issued and outstanding 38,421,972 shares of common
stock, par value $0.01 per share, our only class of voting securities
outstanding. Each holder of our common stock is entitled to one vote
for each share held on the record date.
What
is the effect of giving a proxy?
Proxies
in the form enclosed are solicited by and on behalf of our board of
directors. The persons named in the proxy card have been designated
as proxies by our board of directors. If you sign and return the
proxy card in accordance with the procedures set forth in this proxy statement,
the persons designated as proxies by the board will vote your shares at the
Annual Meeting as specified in your proxy card.
If you
sign and return your proxy card in accordance with the procedures set forth in
this proxy statement but you do not provide any instructions as to how your
shares should be voted, your shares will be voted “FOR” the election of the
nominees listed below under the director election proposal and “FOR” the
approval of the stock plan proposal. If you give your proxy, your
shares also will be voted in the discretion of the proxies named on the proxy
card with respect to any other matters properly brought before the Annual
Meeting and any postponements or adjournments thereof. If any other
matters are properly presented at the Annual Meeting for action, the persons
named in the proxy card will vote the proxies in accordance with their best
judgment.
May
I change my vote after I return my proxy card?
Yes. Any
proxy given pursuant to this solicitation may be revoked by you at any time
before it is exercised. You may effectively revoke your proxy
by:
|
·
|
delivering
written notification of your revocation to the Corporate Secretary of
Frederick’s of Hollywood Group
Inc.;
|
|
·
|
voting
in person at the Annual Meeting; or
|
|
·
|
delivering
another proxy bearing a later date.
|
Please
note that your attendance at the Annual Meeting will not alone serve to revoke
your proxy.
What
is a quorum?
A quorum
is the minimum number of shares required to be present at the Annual Meeting for
the meeting to be properly held under our bylaws and New York
law. The presence, in person or by proxy, of a majority of the votes
entitled to be cast at the Annual Meeting will constitute a quorum at the
meeting. A proxy submitted by a shareholder may indicate that all or
a portion of the shares represented by the proxy are not being voted
(“shareholder withholding”) with respect to a particular
matter. Similarly, a broker may not be permitted to vote stock
(“broker non-vote”) held in street name on a particular matter in the absence of
instructions from the beneficial owner of the stock. The shares
subject to a proxy which are not being voted on a particular matter because of
either shareholder withholding or broker non-vote will not be considered shares
present and entitled to vote on that matter. These shares, however,
may be considered present and entitled to vote on other matters and will count
for purposes of determining the presence of a quorum if the shares are being
voted with respect to any matter at the Annual Meeting. If the proxy
indicates that the shares are not being voted on any matter at the Annual
Meeting, the shares will not be counted for purposes of determining the presence
of a quorum. Abstentions are voted neither “for” nor “against” a
matter, but are counted in the determination of a quorum.
How
many votes are needed for approval of each matter?
The
election of directors requires a plurality vote of the votes cast at the Annual
Meeting. “Plurality” means that the individuals who receive the largest number
of votes cast “FOR” are elected as directors. Consequently, any shares not voted
“FOR” a particular nominee, whether as a result of a direction of the
shareholder to withhold authority, abstentions or a broker non-vote, will not be
counted in the nominee’s favor. As there are six directors to be elected, the
six persons receiving the highest votes will be elected if nominees other than
those nominated by the board are presented.
The stock plan proposal must be
approved by a majority of the votes cast at the Annual Meeting with respect to
the proposal. Abstentions and shares deemed present at the Annual Meeting but
not entitled to vote with respect to the proposal (because of either shareholder
withholding or broker non-vote) are not deemed voted and therefore will have no
effect on such vote.
Any other
proposal properly brought at the Annual Meeting must be approved by a majority
of the votes cast at the meeting with respect to the proposal.
How
do I vote?
You may
vote your shares by returning the enclosed proxy card either by mail or
facsimile or by delivering it in person at the Annual Meeting. The prompt return
of the completed proxy card will assist us in preparing for the meeting.
Complete, date, sign and return the enclosed proxy card in the envelope provided
for that purpose (to which no postage needs to be affixed if mailed in the
United States). You can specify your choices by marking the appropriate boxes on
the proxy card. If you attend the Annual Meeting, you may deliver your completed
proxy card in person or fill out and return a ballot that will be supplied to
you. If you wish to fax your proxy, please copy both the front and
back of the signed proxy card and fax it to American Stock Transfer & Trust
Co. at (718) 921-8355.
Shareholders
who hold their securities through a broker or bank will also have the option to
authorize their proxies to vote their securities electronically through the
Internet or by telephone. If you hold your securities through a
broker, bank or other nominee, you should check your proxy card or voting
instruction card forwarded by your broker, bank or other nominee who holds your
securities for instructions on how to vote by these methods.
Do
you provide electronic access to the proxy statement and annual
report?
Yes. You
may obtain copies of this proxy statement and our annual report by visiting our
corporate website at www.fohgroup.com and
clicking the “Investor Relations” tab. Once you are in the Investor Relations
section of our corporate website, you will find our proxy statement and annual
report under the section heading “Annual Meeting Materials.” The contents
of our website are not, and shall not be, deemed a part of this proxy statement,
our annual report or quarterly reports. You also may obtain copies of our annual report (without exhibits), without charge, by
sending a written request to: Frederick’s of Hollywood Group Inc.,
6255 Sunset Boulevard,
Hollywood, California 90028, Attention: Corporate
Secretary. We will provide
copies of the exhibits to the annual report, without charge, upon receipt of a
written request addressed to the Corporate Secretary.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth
information regarding the beneficial ownership of our common stock as of
November 29, 2010 by:
|
·
|
each
person or group (as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (“Exchange Act”)) known by us
to be the beneficial owner of more than 5% of our outstanding shares of
common stock on November 29, 2010;
|
|
·
|
each
of our named executive officers and directors;
and
|
|
·
|
all
of our named executive officers and directors, as a
group.
|
The percentage of beneficial ownership
indicated below is based on 38,421,972 shares of our common stock outstanding on
November 29, 2010.
|
|
Beneficial Ownership of
Our Common Stock on
November 29, 2010
|
|
Name and Address of
Beneficial Owner(1)
|
|
|
|
|
|
|
TTG
Apparel, LLC
287
Bowman Avenue
Purchase,
New York 10577
|
|
|
1,766,322 |
(2) |
|
|
4.6 |
% |
Tokarz
Investments, LLC
287
Bowman Avenue
Purchase,
New York 10577
|
|
|
8,704,515 |
(2)(3) |
|
|
22.5 |
% |
Fursa
Alternative Strategies LLC, on behalf of certain funds and accounts
affiliated with or managed by it or its affiliates
P.O.
Box 813
Amityville,
New York 11701
|
|
|
18,868,871 |
(4) |
|
|
46.9 |
% |
Thomas
J. Lynch
|
|
|
860,000 |
(5) |
|
|
2.2 |
% |
Peter
Cole
|
|
|
598,112 |
(6) |
|
|
1.6 |
% |
Thomas
Rende
|
|
|
436,720 |
(7) |
|
|
1.1 |
% |
Linda
LoRe
|
|
|
875,249 |
(8) |
|
|
2.2 |
% |
John
L. Eisel
|
|
|
135,024 |
(9) |
|
|
* |
|
William
F. Harley
Fursa
Alternative Strategies LLC
P.O.
Box 813
Amityville,
New York 11701
|
|
|
130,389 |
(10) |
|
|
* |
|
Milton
J. Walters
|
|
|
105,487 |
(11) |
|
|
* |
|
All
directors and executive officers as a group (7
individuals)
|
|
|
3,140,981 |
(12) |
|
|
7.9 |
% |
(1)
|
Unless
otherwise noted, the business address of each of Thomas J. Lynch, Linda
LoRe, Peter Cole, Thomas Rende, John L. Eisel and Milton J. Walters is c/o
Frederick’s of Hollywood Group Inc., 6255 Sunset Boulevard, Hollywood,
California 90028.
|
(2)
|
According
to a Schedule 13D, dated January 28, 2008, and filed with the SEC on
February 5, 2008, Michael T. Tokarz is the sole controlling person and
manager of each of TTG Apparel, LLC and Tokarz Investments,
LLC.
|
(3)
|
Includes
317,538 shares of common stock issuable upon exercise of currently
exercisable warrants.
|
(4)
|
Represents
(a) 17,051,333 shares of common stock and (b) 1,817,538 shares of common
stock issuable upon exercise of currently exercisable
warrants. Of these securities, the following securities are
subject to a Pledge Agreement between Fursa Master Global Event Driven
Fund LP and Scotia Capital (USA) Inc. (“Pledge Agreement”): (i) 11,359,292
shares of common stock and (ii) 1,152,181 shares of common stock issuable
upon exercise of currently exercisable
warrants.
|
(5)
|
Includes
(a) currently exercisable options to purchase 240,000 shares of common
stock, (b) options to purchase 120,000 shares that become exercisable
within 60 days of November 29, 2010 and (c) 250,000 shares of restricted
stock, of which 50,000 shares are vested and 50,000 shares will vest on
each January 2, 2011, 2012, 2013 and 2014. Excludes options to
purchase 600,000 shares of common stock that are not exercisable within 60
days of November 29, 2010.
|
(6)
|
Includes
(a) 70,000 shares of common stock held by Performance Enhancement
Partners, LLC and (b) currently exercisable options to purchase 162,500
shares of common stock granted to Performance Enhancement Partners,
LLC. Peter Cole, as sole member of Performance Enhancement
Partners, has voting and dispositive power over these
shares.
|
(7)
|
Includes
(a) currently exercisable options to purchase 176,250 shares of common
stock, (b) 157,644 shares of common stock held jointly with Mr. Rende’s
spouse, (c) 1,650 shares of common stock owned by Mr. Rende’s spouse and
(d) 100,000 shares of restricted stock, of which 25,000 shares will vest
on each June 1, 2011 and 2012 and 50,000 shares will vest on June 1, 2013.
Excludes options to purchase 115,000 shares of common stock that are
not exercisable within 60 days of November 29,
2010.
|
(8)
|
Includes
(a) currently exercisable options to purchase 500,249 shares of common
stock, (b) options to purchase 25,000 shares that become exercisable
within 60 days of November 29, 2010 and (c) 200,000 shares of restricted
stock, of which 100,000 shares are vested and 50,000 shares vest on each
of December 31, 2010 and 2011. Excludes options to purchase
60,113 shares of common stock that are not exercisable within 60 days of
November 29, 2010.
|
(9)
|
Includes
currently exercisable options to purchase 6,000 shares of common
stock.
|
(10)
|
As
Chief Investment Officer of Fursa Alternative Strategies LLC
(“Fursa”), William F. Harley exercises voting and dispositive power
over shares beneficially owned by certain funds and accounts affiliated
with, managed by, or over which Fursa or any of its affiliates exercises
investment authority, including, without limitation, with respect to
voting and dispositive rights, described in Footnote 4 above. Mr. Harley
disclaims beneficial ownership of the shares described in Footnote
4 above except to the extent of his pecuniary interest
therein. Accordingly, such shares are not included in Mr.
Harley’s beneficial ownership.
|
(11)
|
Includes
(a) 50,290 shares of common stock held by Sagebrush Group, Inc. and (b)
currently exercisable options to purchase 26,718 shares of common
stock. Excludes options to purchase 4,452 shares of common
stock that are not exercisable within 60 days of November 29,
2010. Milton Walters, as the sole shareholder of Sagebrush
Group, Inc., has voting and dispositive power over the shares held by
Sagebrush Group, Inc.
|
(12)
|
Includes
an aggregate of 1,256,717 shares of common stock that Thomas J. Lynch,
Peter Cole, Thomas Rende, Linda LoRe, John L. Eisel and Milton J. Walters
have the right to acquire upon exercise of outstanding options that are
exercisable within 60 days of November 29,
2010.
|
DIRECTOR
ELECTION PROPOSAL
Our board
of directors currently consists of six members. All directors hold
office for the ensuing one-year period and until their successors have been
elected and qualified. Upon the recommendation of the nominating and
governance committee, the board of directors has nominated Thomas J. Lynch,
Peter Cole, John L. Eisel, William F. Harley, Linda LoRe and Milton J. Walters
to serve as directors for the ensuing one-year period and until their successors
have been elected and qualified.
The
election of directors requires a plurality vote of the shares of common stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting. “Plurality” means that the individuals who receive the
highest number of votes cast “FOR” election are elected as directors. Any
shares not voted “FOR” a particular nominee (whether as a result of abstentions,
a direction to withhold authority or a broker non-vote) will not be counted in
the nominee’s favor.
Unless
authority is withheld, the proxies solicited by the board of directors will be
voted “FOR” the election of these nominees. In case any of the
nominees becomes unavailable for election to the board of directors, an event
which is not anticipated, the persons named as proxies, or their substitutes,
will have full discretion and authority to vote or refrain from voting for any
other candidate in accordance with their judgment. The six nominees for
directors, their current positions, term of office and business background are
set forth below.
Information
Concerning Nominees for Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Lynch
|
|
42
|
|
Chairman
and Chief Executive Officer
|
|
2008
|
Linda
LoRe
|
|
56
|
|
President
and Director
|
|
2008
|
Peter
Cole(2)
|
|
62
|
|
Director
|
|
2004
|
John
L. Eisel(1)(2)(3)
|
|
61
|
|
Director
|
|
2004
|
William
F. Harley(2)(3)
|
|
47
|
|
Director
|
|
2008
|
Milton
J. Walters(1)(3)
|
|
68
|
|
Director
|
|
2008
|
(1) Member
of the Audit Committee
(2) Member
of the Compensation Committee
(3) Member
of the Nominating and Governance Committee
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE
ELECTION OF EACH OF THE NOMINEES.
Our board of directors believes that it
is necessary for each of our directors to possess qualities, attributes and
skills that contribute to a diversity of views and perspectives among the
directors and enhance the overall effectiveness of the board. As
described under “Nominating
and Governance Committee Information – Guidelines for Selecting Director
Nominees”, our nominating and governance committee considers all factors
it deems relevant when evaluating prospective candidates or current board
members for nomination to the board, as prescribed in its written charter and
established guidelines. All of our directors bring to the board leadership
experience derived from past service. They also all bring a diversity of views
and perspectives derived from their individual experiences working in a range of
industries and occupations, which provide the board, as a whole, with the skills
and expertise that reflect our company’s needs. Certain individual experiences,
qualifications and skills of our directors that contribute to the board’s
effectiveness as a whole are described in the biographies set forth
below.
Thomas J. Lynch became
our Chief Executive Officer in January 2009 and our Chairman of the Board in May
2009 and has been a member of our board of directors since January
2008. From February 2007 to December 2008, he served as Chief
Executive Officer of Fursa. From July 2006 to January 2007, Mr. Lynch
was a Managing Director at UBS, an investment bank and global asset management
business. From August 2000 to May 2006, Mr. Lynch was Managing
Director and Senior Vice President of Mellon Asset Management. Mr. Lynch
was a member of the Mellon Asset Management Senior Management Committee and was
a thought leader in global distribution strategies and strategic
planning. Mr. Lynch had direct management responsibility for a $36
billion (Assets Under Management) institutional asset management
business. Mr. Lynch received a B.A. degree from St. Anselm
College and attended The Brandeis University International Business
School. Mr. Lynch provides our board of directors with extensive
finance, strategic planning and operational expertise and significant managerial
and leadership experience derived from his prior roles in senior executive
positions.
Linda LoRe has served as our
President since February 2009, as President and Chief Executive Officer of
the retail division and a member of our board of directors since January
2008, and as President and Chief Executive Officer of FOH Holdings, Inc., one of
our wholly-owned subsidiaries (“FOH Holdings”), since July 1999. From 1991
to 1999, Ms. LoRe was President and Chief Executive Officer of Giorgio Beverly
Hills, a California-based fragrance company. Ms. LoRe has 37 years of
retail experience including 20 years as a chief executive officer. Ms. LoRe has
been a member of the board of directors of FOH Holdings since October 1998 and
of its subsidiaries since 1999. Ms. LoRe also is a member of the Trusteeship of
the International Women’s Forum, for which she previously served on the Board,
The Women’s Leadership Board for the Kennedy School of Government at Harvard
University, the Board of Advisors for the Fashion Institute of Design
Merchandising (FIDM) and the United States Air Force, as its Entertainment and
Industry Liaison emeritus. In addition, Ms. LoRe is a founding board member
of the Youth Mentoring Connection, which serves at-risk youth in Southern
California. Ms. LoRe attended California State University at Long Beach.
Ms. LoRe provides our board of directors with intimate knowledge of our
company’s business, operations and management, and extensive retail industry and
leadership experience derived from her current and former positions as President
and Chief Executive Officer of our company and Giorgio Beverly
Hills.
Peter Cole has served as a
member of our board of directors since April 2004 and was our Executive Chairman
from January 2008 to May 2009. From January 2007 to January 2008, he
served as the lead director to facilitate the completion of our merger with FOH
Holdings. Since October 2005, Mr. Cole has been the managing member
of Performance Enhancement Partners, LLC, a private consulting firm that he
founded. Since July 2010, Mr. Cole has served as Chief Executive
Officer of Harmony Health & Beauty, Inc., a privately-held in-airport
retailer. From April 2001 through July 2005, he served as Chairman of
the Board and Chief Executive Officer of Qwiz, Inc., a privately-held leading
provider of skills and behavioral testing now operating as Previsor,
Inc. Prior to joining Previsor, Inc., Mr. Cole was a Managing
Director at Citibank, where he was responsible for one of its global capital
markets businesses. Mr. Cole currently serves as a director and
member of the audit committee of Qwiz Holdings, LLC. He received a
B.A. degree in economics from the University of Vermont. Mr. Cole provides our
board of directors with management and turnaround expertise, as well as general
business experience derived from his service on the board and as an executive
officer of other companies.
John L. Eisel has been a
member of our board of directors since April 2004. Since 1980, Mr.
Eisel has been a partner at Wildman, Harrold, Allen & Dixon LLP, a law firm
located in Chicago, Illinois that he joined in 1975. Mr. Eisel’s primary
areas of practice are mergers and acquisitions and securities
regulation. As part of his legal practice, he has provided legal
counsel to the boards of directors of a number of both public and private
companies. Mr. Eisel was Chairman of his firm’s Management Committee
from 1994 to 1999 and is currently a member of his firm’s Executive Committee.
Mr. Eisel received a B.S. degree in accounting and a J.D. degree from
the University of Illinois. Mr. Eisel passed the CPA examination in
1971. He currently serves on the board of directors of two private
companies and he is a member of the Planning Committee for the Ray Garrett Jr.
Corporate and Securities Law Institute. Mr. Eisel brings to our board
of directors an in-depth understanding of financial statements and SEC reporting
requirements as well as extensive and diverse general business and legal
knowledge.
William F. “Mickey” Harley,
III has been a member of our board of directors since January
2008. Mr. Harley is President and Chief Investment Officer of Fursa,
which he co-founded in April 1999 (as HBV Capital Management, LLC) and then sold
to Mellon Financial Corporation in July 2002 (at which time it was re-named
Mellon HBV Alternative Strategies LLC). Mr. Harley served as Chief Investment
Officer and Chief Executive Officer of Fursa from July 2002 until he purchased
it from Mellon in December 2006. Mr. Harley is principally
responsible for Fursa’s investment decisions. From June 1996 to April
1999, Mr. Harley was the Head of Research at Milton Partners, L.P., a hedge fund
manager specializing in arbitrage funds. Before joining Milton Partners, Mr.
Harley was a Vice President and Director of Allen & Company, where he was
responsible for the day-to-day management and investment strategies of the
arbitrage department. From January 2003 to April 2006, and since
April 2007, Mr. Harley has served as a director of FOH Holdings. Mr.
Harley also currently serves on the board of directors of Xemplar Energy
Corporation (TSX Venture: XE) and previously served on the board of directors of
J.L. French Automotive Castings, Inc., Metromedia International Group, Inc.,
Integral Systems, Inc., Coastal Greenland Limited and Interboro
Insurance. Mr. Harley received a Masters degree in public and private
management from Yale University’s School of Management and a B.S. degree in
chemical engineering and a B.A. degree in economics from Yale
University. Mr. Harley provides our board of directors with expertise in
finance and financial markets and with experience derived from his service on
the board of other public and private companies.
Milton J. Walters has been a
member of our board of directors since January 2008 and a director of FOH
Holdings since January 2003. He has more than 40 years of investment
banking experience including serving as Managing Director of AG Becker and
its successor Warburg Paribas Becker from 1965 to 1984; Senior Vice
President and Managing Director of Smith Barney from 1984 to 1988; Managing
Director of Prudential Securities from 1997 to 1999; and since August 1999 as
President and Chief Executive Officer of Tri-River Capital, a strategic
financial advisory and valuation service provider which he
founded. Mr. Walters has been a director of Sun Healthcare Group,
Inc. (NASDAQ: SUNH) since 2001 and of its subsidiary, Sabra Health Care REIT, Inc. (NASDAQ:
SBRA) since November 2010. From January 2003 to June 2010, he served
as a director and chairman of the audit committee of Decision One
Corporation, a privately held information technology services company. Mr.
Walters is a member of the Economics Club of New York, the National Association
of Corporate Directors and the University Club of New York. He is a
former Trustee of Hamilton College and Friends Academy. Mr. Walters
received an A.B. degree from Hamilton College. Mr. Walters provides
our board of directors with finance expertise, having over 40 years of
investment banking experience; leadership, management and a range of industry
experience derived from his current and former positions as president of a
company that he founded and as a managing director and group head of various
investment banking firms; and public company experience from service on the
board of directors of other public and private companies.
Executive
Officers
Besides
Thomas J. Lynch and Linda LoRe, who are also directors, we have one additional
executive officer:
Thomas Rende, 50 years old,
has served as our Chief Financial Officer since January 2008, and as Chief
Financial Officer of the wholesale division since February 1999. He
also served as a member of our board of directors from January 2008 to May 2010
and from April 2004 to April 2007. Since joining the company, he has
held various positions within the finance department. Mr. Rende
received a B.S. degree in economics from the State University of New York at
Oneonta.
Independence
of Directors
Our
common stock is listed on the NYSE Amex. As a result, we follow the rules
of the NYSE Amex in determining whether a director is
independent. The board of directors also consults with our counsel to
ensure that the board’s determinations are consistent with those rules and all
relevant securities and other laws and regulations regarding the independence of
directors. The current NYSE Amex listing standards define an “independent
director” generally as a person, other than an officer or employee of a company,
who does not have a relationship with the company that would interfere with the
director’s exercise of independent judgment. As a “smaller reporting
company,” the NYSE Amex requires that at least 50% of the board of directors be
considered independent, as determined by the board. Consistent with these
considerations, the board of directors affirmatively has determined that John
Eisel, William Harley and Milton Walters will be our independent directors for
the ensuing year. The other remaining directors, Thomas Lynch and
Linda LoRe, are not independent because they are current
employees. Mr. Cole is not independent because he served as an
executive officer during fiscal year 2009.
Code
of Ethics
Our board
of directors has adopted a code of ethics that applies to our directors,
officers and employees as well as those of our subsidiaries. Our code
of ethics can be found on our corporate website at www.fohgroup.com. In
addition, requests for copies of the code of ethics should be sent in writing to
Frederick’s of Hollywood Group Inc., 6255 Sunset Boulevard, Hollywood,
California 90028, Attention: Corporate Secretary.
Meetings
and Committees of the Board of Directors
During
the year ended July 31, 2010, our board of directors met eleven times and acted
by unanimous written consent on seven occasions. All of our directors
attended the 2010 Annual Meeting of Shareholders. Although we do not have a
formal policy regarding director attendance at annual shareholder meetings, we
attempt to schedule annual meetings so that all directors can
attend. In addition, we expect our directors to attend all board
meetings and the meetings of the committees of the board upon which they serve
and to spend the time needed and meet as frequently as necessary to properly
discharge their responsibilities. No member of the board of directors
attended fewer than 75% of the total number of meetings of the board and
committees upon which they served during fiscal year 2010. We have
standing audit, compensation and nominating and governance committees. Copies of
our committee charters are available free of charge on our corporate website at
www.fohgroup.com.
Leadership
Structure
Our company is led by Thomas J. Lynch,
who has served as our Chairman of the Board and Chief Executive Officer since
January 2009. We believe that combining the role of Chairman of the Board and
Chief Executive Officer promotes unified leadership and direction for our
company and provides for a single focus for management to execute our strategy
and business plan. Mr. Lynch’s financial expertise and intimate
knowledge of our operations and strategy make him uniquely positioned and
qualified to serve in these capacities, and we believe Mr. Lynch is seen by our
business partners, investors and other stakeholders as providing strong
leadership for our company.
We do not have a lead director and do
not believe that appointing a lead director would materially impact the
performance of the board of directors, as it currently employs a variety of
structural and operational controls that serve the same purpose. For example,
our independent directors meet regularly in executive sessions. These sessions
provide an opportunity for the independent directors to speak candidly on any
matter of interest, without the Chief Executive Officer or other members of
management present. All board members are free to suggest the inclusion of items
on board of directors and committee meeting agendas, and, to the fullest extent
possible, all meeting materials and presentations are distributed to the board
members in advance, allowing efficient use of time during meetings for questions
and comprehensive deliberations. All board members have direct and complete
access to our company’s management.
Risk
Oversight
Our board of directors oversees an
enterprise wide approach to risk management, designed to support the achievement
of our objectives and to maintain shareholder value. The independent audit
committee is primarily responsible for overseeing our exposure to financial risk
and reviewing the steps management has taken to monitor and control that
exposure. The audit committee meets at least once per quarter, in
addition to periodic meetings with management and our independent auditors to
accomplish its purpose. While the audit committee has primary responsibility for
overseeing risk management, the full board of directors participates in an
annual enterprise risk management assessment, which is led by management. This
assessment includes a discussion of our most significant risks as well as a
centralized evaluation and determination of risk appetite, to ensure consensus
and mutual understanding between the board and management. In
addition, each of our committees considers the risks within its area of
responsibility.
Compensation
Committee Information
Our
compensation committee, which held five meetings and acted by unanimous consent
on two occasions during fiscal year 2010, is currently comprised of Peter Cole
(chairman), William F. Harley and John L. Eisel. Messrs. Eisel and
Harley are each independent directors under the NYSE Amex listing
standards. Mr. Cole does not qualify as an independent director under
the NYSE Amex standards because he served as an executive officer of our company
within the past three years. Despite his lack of independence, our
board of directors determined that Peter Cole’s membership on the compensation
committee is in the best interests of our company and its shareholders due
to his knowledge and depth of experience with compensation related
issues.
The
compensation committee does not have a formal written charter. The
responsibilities of the compensation committee include:
|
·
|
establishing
the general compensation policy for our executive officers, including the
chief executive officer;
|
|
·
|
administering
our equity compensation plans; and
|
|
·
|
determining
who participates in each of these plans, establishing performance goals
and target payouts, and determining specific grants and bonus awards to
participants.
|
Our compensation committee makes all
final approvals with respect to compensation of executive officers based on its
assessment of the value of each executive’s contribution, the results of recent
past fiscal years in light of prevailing business conditions, our goals for the
ensuing fiscal year and, to a lesser extent, prevailing compensation levels at
companies considered to be comparable to our company. Our
compensation committee considers recommendations from our chief executive
officer relating to the compensation of our other executive officers, but the
chief executive officer does not make recommendations regarding his own
compensation. Executive officers other than our chief executive
officer generally are not involved in determining executive
compensation.
Nominating
and Governance Committee Information
General
Our
nominating and governance committee, which held one meeting and acted by
unanimous consent on one occasion during fiscal year 2010, is currently
comprised of John L. Eisel (chairman), Milton J. Walters and William F.
Harley, each an independent director under the NYSE Amex listing
standards. The nominating and governance committee is responsible for
overseeing the selection of persons to be nominated to serve on the board of
directors. The nominating and governance committee considers persons
identified by its members, management, shareholders, investment bankers and
others. There have been no material changes to the procedures by which
security holders may recommend nominees to the board.
Our board
of directors has adopted a written charter and established guidelines for
selecting nominees and a method by which shareholders may propose to the
nominating committee candidates for selection as nominees for
directors.
Guidelines
for Selecting Director Nominees
The
guidelines for selecting nominees generally provide that persons to be nominated
should be actively engaged in business endeavors, have an understanding of
financial statements, corporate budgeting and capital structure, be familiar
with the requirements of a publicly traded company, be familiar with industries
relevant to our business endeavors, be willing to devote significant time to the
oversight duties of the board of directors of a public company, and be able to
promote a diversity of views based on the person’s education, experience and
professional employment. The nominating and governance committee evaluates
each individual in the context of the board as a whole, with the objective of
recommending a group of persons that can best implement our business plan,
perpetuate our business and represent shareholder interests. The
nominating and governance committee may require certain skills or attributes,
such as financial or accounting experience, to meet specific board needs that
arise from time to time. The nominating and governance committee does not
distinguish among nominees recommended by shareholders and other
persons.
Procedure
for Shareholders to Recommend Director Candidates
Shareholders
and others who wish to recommend candidates to the nominating and governance
committee for consideration as directors must submit their written
recommendations to the nominating committee and include all of the information
described in the section “Shareholder Proposals and
Nominations.”
Our
nominating and governance committee recommended to our board of directors to
nominate Thomas J. Lynch, Peter Cole, John L. Eisel, William F. Harley, Linda
LoRe and Milton J. Walters for re-election as directors. Our
nominating and governance committee did not receive proposals from any
shareholders or others for suggested director candidates.
Audit
Committee Information and Report
General
Our audit
committee, which met five times and acted by unanimous consent on one occasion
during fiscal year 2010, consists of Milton J. Walters (chairman) and John L.
Eisel, each an independent director under the NYSE Amex listing
standards. As required by the NYSE Amex, since we are a “smaller
reporting company,” our audit committee is comprised of at least two independent
directors who are also “financially literate.” The NYSE Amex
standards define “financially literate” as being able to read and understand
fundamental financial statements, including a company’s balance sheet, income
statement and cash flow statement.
Financial
Expert on Audit Committee
We must
certify to the NYSE Amex that the audit committee has, and will continue to
have, at least one member who has past employment experience in finance or
accounting, requisite professional certification in accounting, or other
comparable experience or background that results in the individual’s financial
sophistication. The board of directors has determined that John L Eisel and
Milton J. Walters both satisfy the NYSE Amex’s definition of financial
sophistication and also both qualify as “audit committee financial experts,” as
defined under the rules and regulations of the SEC.
Audit
Committee Pre-Approval Policies and Procedures
In
accordance with Section 10A(i) of the Exchange Act, before we engage our
independent registered public accounting firm to render audit or permitted
non-audit services, the engagement is approved by the audit committee. The
audit committee approved all of the fees referred to in the section below
entitled “Principal Accountant
Fees” for fiscal year 2010.
Principal
Accountant Fees
On
January 5, 2009, we were notified that, effective December 31, 2008, the
shareholders of Mahoney Cohen & Company, CPA, P.C. (“Mahoney Cohen”) became
shareholders of Mayer Hoffman McCann P.C. pursuant to an asset purchase
agreement and that Mahoney Cohen resigned as our independent registered public
accounting firm. The New York practice of Mayer Hoffman McCann P.C. now
operates under the name Mayer Hoffman McCann CPAs (“MHM”). In January
2009, the audit committee engaged MHM as our independent registered public
accounting firm. The audit report of Mahoney Cohen on our
consolidated financial statements as of and for the year ended July 26, 2008 did
not contain an adverse opinion or a disclaimer of opinion, and was not qualified
or modified as to uncertainty, audit scope or accounting principles. In
connection with the audit of our consolidated financial statements for the
fiscal year ended July 26, 2008 and through Mahoney Cohen’s resignation, there
were (i) no disagreements between us and Mahoney Cohen on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Mahoney Cohen, would have caused Mahoney Cohen to make reference to the subject
matter of the disagreement in their report on our financial statements for such
year and (ii) no reportable events within the meaning set forth in Item
304(a)(1)(v) of Regulation S-K.
During
the year ended July 26, 2008 and through the date of MHM’s engagement, we did
not consult with MHM regarding any of the matters or reportable events set forth
in Item 304(a)(2)(i) and (ii) of Regulation S-K.
The
following table summarizes the aggregate fees (rounded to the nearest $1,000)
billed to us by Mahoney Cohen and MHM for professional services for the years
ended July 31, 2010 and July 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
Audit
Fees(1)
|
|
$ |
387,000 |
|
|
$ |
415,000 |
|
Audit
Related Fees(2)
|
|
|
42,000 |
|
|
|
21,000 |
|
Tax
Fees(3)
|
|
|
108,000 |
|
|
|
115,000 |
|
|
|
$ |
537,000 |
|
|
$ |
551,000 |
|
|
(1)
|
Represents
the aggregate fees billed for professional services rendered in connection
with the audit of our consolidated financial statements and the review of
the consolidated financial statements included in our Quarterly Reports on
Form 10-Q.
|
|
(2)
|
Represents
the aggregate fees billed in connection with the reviews of various SEC
filings and employee benefit plan
audits.
|
|
(3)
|
Represents
the aggregate fees billed for professional services rendered for tax
compliance, tax advice and tax
planning.
|
Audit Committee Report for the Fiscal
Year Ended July 31, 2010
The audit
committee reviews the Company’s financial reporting process on behalf of the
board of directors. Management has the primary responsibility for the
financial statements and reporting process. The independent registered
public accounting firm is responsible for auditing those financial statements
and expressing an opinion on the fairness of the audited financial statements
based on the audit conducted in accordance with the standards of the Public
Company Accounting Oversight Board (“PCAOB”).
In this
context, the audit committee has met and held discussions with management and
the independent registered public accounting firm. Management represented
to the audit committee that the Company’s consolidated financial statements were
prepared in accordance with generally accepted accounting principles in the
United States of America, and the audit committee has reviewed and discussed the
consolidated financial statements with management and the independent registered
public accounting firm. The audit committee discussed with the independent
registered public accounting firm the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended, and PCAOB AU
380, “Communication with
Audit Committees”. The independent registered public accounting
firm also provided the audit committee with the written disclosures required by
PCAOB Rule 3526, “Communication with Audit Committee
Concerning Independence” and the audit committee discussed with the
independent registered public accounting firm and management the auditor’s
independence, including with regard to fees for services rendered during the
fiscal year and all other professional services rendered by the independent
registered public accounting firm.
In
reliance on the reviews and discussions referred to above, the audit committee
recommended to the board of directors, and the board has approved, that the
Company’s audited financial statements be included in the Annual Report on Form
10-K for the fiscal year ended July 31, 2010, for filing with the Securities and
Exchange Commission.
|
Audit
Committee:
|
|
Milton
J. Walters (chairman)
|
|
John
L. Eisel
|
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth the compensation paid to or earned by each of the
named executive officers for the years ended July 31, 2010 and July 25,
2009:
Name and
Principal
|
|
Fiscal
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
All Other
Compensation
|
|
|
|
|
Thomas
J. Lynch
|
|
2010
|
|
|
597,692 |
(2) |
|
|
- |
|
|
|
24,221 |
(3) |
|
|
43,419 |
|
|
|
28,317 |
(4) |
|
|
693,649 |
|
Chairman
and CEO
|
|
2009
|
|
|
336,923 |
(5) |
|
|
- |
|
|
|
9,913 |
(3) |
|
|
46,323 |
|
|
|
14,514 |
(6) |
|
|
407,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda
LoRe
|
|
2010
|
|
|
650,000 |
|
|
|
- |
|
|
|
156,531 |
(7) |
|
|
144,652 |
|
|
|
39,282 |
(4) |
|
|
990,465 |
|
President
|
|
2009
|
|
|
650,000 |
|
|
|
- |
|
|
|
247,399 |
(7) |
|
|
144,652 |
|
|
|
41,088 |
(6) |
|
|
1,083,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Rende
|
|
2010
|
|
|
336,077 |
(8) |
|
|
- |
|
|
|
7,583 |
(9) |
|
|
47,198 |
|
|
|
20,324 |
(4) |
|
|
411,182 |
|
EVP
and CFO
|
|
2009
|
|
|
340,000 |
|
|
|
- |
|
|
|
- |
|
|
|
51,523 |
|
|
|
24,492 |
(6) |
|
|
416,015 |
|
(1)
|
Represents
the dollar amount recognized for financial statement reporting purposes
during the years ended July 31, 2010 and July 25, 2009, computed in
accordance with the Financial Accounting Standards Board’s Accounting
Standards Codification Topic 718 (“ASC 718”), except that, pursuant to the
rules of the SEC relating to executive compensation disclosure, the
amounts exclude the impact of estimated forfeitures related to
service-based vesting conditions. Assumptions used in the
calculation of these amounts are disclosed in Note 12 to our audited
consolidated financial statements for the year ended July 31, 2010
contained in our Annual Report on Form 10-K filed with the SEC on October
25, 2010.
|
(2)
|
Mr.
Lynch’s annual base salary decreased from $600,000 to $540,000 effective
June 29, 2010 pursuant to his amended and restated employment
agreement dated June 29, 2010.
|
(3)
|
Represents
stock-based compensation expense, as computed in accordance with ASC 718,
recorded during the years ended July 31, 2010 and July 25, 2009
relating to 150,000 shares of restricted stock issued to Mr. Lynch on June
29, 2010, which vest in three equal annual installments of 50,000 shares
on each of January 2, 2012, 2013 and 2014 provided he is employed by us on
each such date, and 100,000 shares of restricted stock issued to Mr. Lynch
on January 29, 2009 under our 2000 Performance Equity Plan, 50,000 shares
of which vested on January 2, 2010 and 50,000 shares of which vest on
January 2, 2011 provided he is employed by us on such
date.
|
(4)
|
Represents
payments that we made in fiscal year 2010 for the named executive officers
as follows:
|
|
|
|
|
|
Long Term
Disability
Insurance ($)
|
|
|
Group
Health
Insurance ($)
|
|
|
|
|
|
Matching
Contribution
Under the
401(k) Plan
($)
|
|
|
|
|
Thomas
J. Lynch
|
|
|
- |
|
|
|
1,037 |
|
|
|
12,280 |
|
|
|
15,000 |
|
|
|
- |
|
|
|
28,317 |
|
Linda
LoRe
|
|
|
10,550 |
|
|
|
1,728 |
|
|
|
12,004 |
|
|
|
15,000 |
|
|
|
- |
|
|
|
39,282 |
|
Thomas
Rende
|
|
|
2,680 |
|
|
|
864 |
|
|
|
12,280 |
|
|
|
4,500 |
|
|
|
- |
|
|
|
20,324 |
|
(5)
|
Represents
salary paid to Mr. Lynch in accordance with the terms of his employment
agreement dated January 29, 2009 from the commencement of his employment
on January 2, 2009 to July 25,
2009.
|
(6)
|
Represents
payments that we made in fiscal year 2009 for the named executive officers
as follows:
|
|
|
|
|
|
Long Term
Disability
Insurance ($)
|
|
|
Group
Health
Insurance ($)
|
|
|
|
|
|
Matching
Contribution
Under the
401(k) Plan
($)
|
|
|
|
|
Thomas
J. Lynch
|
|
|
- |
|
|
|
313 |
|
|
|
5,451 |
|
|
|
8,750 |
|
|
|
- |
|
|
|
14,514 |
|
Linda
LoRe
|
|
|
10,550 |
|
|
|
1,070 |
|
|
|
11,843 |
|
|
|
15,000 |
|
|
|
2,625 |
|
|
|
41,088 |
|
Thomas
Rende
|
|
|
2,680 |
|
|
|
992 |
|
|
|
16,920 |
|
|
|
3,900 |
|
|
|
- |
|
|
|
24,492 |
|
(7)
|
Represents
stock-based compensation expense, as computed in accordance with ASC 718,
recorded during the years
ended July 31, 2010 and July 25, 2009 relating to 200,000 shares of
restricted stock issued to Ms. LoRe on January 28,
2008. 100,000 shares vested on December 31, 2009, and 50,000
shares vest on each of December 31, 2010 and 2011 provided she is employed
by us on each such date.
|
(8)
|
In
accordance with Mr. Rende’s amended and restated employment agreement
dated June 1, 2010, his annual base salary decreased from $340,000 to
$310,000 effective June 1,
2010.
|
(9)
|
Represents
stock-based compensation expense, as computed in accordance with ASC 718,
recorded during the year ended July 31, 2010 relating to 100,000 shares of
restricted stock issued to Mr. Rende on June 1, 2010 under our 2000
Performance Equity Plan. 25,000 shares vest on each of June 1,
2011 and 2012, and the remaining 50,000 shares vest on June 1, 2013,
provided Mr. Rende is employed by us on each such
date.
|
Grants
of Plan-Based Awards
The
following table sets forth information regarding awards to the named executive
officers under our equity compensation plans during the year ended July 31,
2010. There can be no assurance that the grant date fair value of the
stock and option awards will ever be realized by the
individual. The amount of these awards that was expensed is included
in the Summary Compensation Table:
|
|
|
|
Number of
Shares of
Stock
(#)
|
|
|
Number of
Securities
Underlying
Options (#)
|
|
|
Exercise or
Base Price
of Option
Awards
($/sh)
|
|
|
Exercise Price
of Option
Awards on the
Grant Date
($/sh)(1)
|
|
|
Grant Date
Fair Value of
Stock and
Option
Awards ($)(2)
|
|
Thomas
J. Lynch
|
|
6/29/10
|
|
|
150,000 |
(3) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
117,000 |
|
|
|
6/29/10
|
|
|
- |
|
|
|
600,000 |
(4) |
|
|
0.78 |
|
|
|
0.78 |
|
|
|
333,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Rende
|
|
6/01/10
|
|
|
100,000 |
(5) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
84,000 |
|
|
|
6/01/10
|
|
|
- |
|
|
|
100,000 |
(6) |
|
|
0.84 |
|
|
|
0.84 |
|
|
|
60,060 |
|
(1)
|
Represents
the closing price of our common stock on the date of
grant.
|
(2)
|
The
fair value of the option awards was calculated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used
for each grant: risk-free interest rate 2.55%; expected life of 7 years;
expected volatility 76.2% and expected dividends of zero. The
fair value generated by the Black-Scholes model may not be indicative of
the future benefit, if any, that may be received by the
holder. The fair value of the stock awards was calculated by
the fair value of our common stock on the date of grant multiplied by the
respective number of shares.
|
We
account for our stock-based employee compensation arrangements under ASC 718,
which requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards, in the financial statements.
(3)
|
Represents
shares of restricted stock issued to Mr. Lynch in accordance with the
terms of his employment agreement dated June 29, 2010. The
shares vest in equal annual installments of 50,000 shares on each of
January 2, 2012, 2013 and 2014, provided that he is employed by us on each
such date.
|
(4)
|
Represents
shares issuable upon exercise of a stock option granted to Mr. Lynch in
accordance with the terms of his employment agreement dated June 29,
2010. 150,000 shares vest on January 2, 2012, 200,000 shares
vest on January 2, 2013 and the remaining 250,000 shares vest on January
2, 2014.
|
(5)
|
Represents
shares of restricted stock issued to Mr. Rende in accordance with the
terms of his employment agreement dated June 1, 2010. 25,000
shares vest on each of June 1, 2011 and 2012, and the remaining 50,000
shares vest on June 1, 2013, provided that he is employed by us on each
such date.
|
(6)
|
Represents
shares issuable upon exercise of a stock option granted to Mr. Rende in
accordance with the terms of his employment agreement dated June 1,
2010. 25,000 shares vest on each of June 1, 2011 and 2012 and
the remaining 50,000 shares vest on June 1,
2013.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table summarizes the outstanding equity awards as of July 31, 2010 for
each of the named executive officers:
|
|
|
|
|
|
|
|
Number of
Securities
Underlying
Unexercised
Exercisable
Options (#)
|
|
|
Number of
Securities
Underlying
Unexercised
Un-exercisable
Options (#)
|
|
|
Option
Exercise
Price ($)
|
|
|
|
Number of
Shares that have
Not Vested(#)
|
|
|
Market Value of
Shares that have
Not Vested($)
|
|
Thomas
J. Lynch
|
|
|
240,000 |
|
|
|
120,000 |
(1) |
|
|
0.38 |
|
1/28/2019
|
|
|
50,000 |
(7) |
|
|
46,000 |
(11) |
|
|
|
|
|
|
|
600,000 |
(2) |
|
|
0.78 |
|
6/28/2020
|
|
|
150,000 |
(8) |
|
|
138,000 |
(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda
LoRe
|
|
|
244,907 |
|
|
|
- |
|
|
|
1.90 |
|
12/1/2013
|
|
|
100,000 |
(9) |
|
|
92,000 |
(11) |
|
|
|
180,342 |
|
|
|
60,113 |
(3) |
|
|
2.46 |
|
12/7/2016
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
25,000 |
(4) |
|
|
3.10 |
|
1/27/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Rende
|
|
|
37,500 |
|
|
|
- |
|
|
|
2.90 |
|
12/9/2014
|
|
|
100,000 |
(10) |
|
|
92,000 |
(11) |
|
|
|
45,000 |
|
|
|
30,000 |
(5) |
|
|
2.00 |
|
10/12/2016
|
|
|
|
|
|
|
|
|
|
|
|
78,750 |
|
|
|
- |
|
|
|
3.10 |
|
1/27/2015
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
100,000 |
(6) |
|
|
0.84 |
|
5/31/2020
|
|
|
|
|
|
|
|
|
(1)
|
These
options vest on January 2, 2011.
|
(2)
|
These
options vest in three annual installments as follows: (i) 150,000 options
vest on January 2, 2012, (ii) 200,000 options vest on January 2, 2013 and
(iii) 250,000 options vest on January 2,
2014.
|
(3)
|
These
options vest on January 29, 2011.
|
(4)
|
These
options vest on January 28, 2011.
|
(5)
|
These
options vest in two equal annual installments beginning on October 13,
2010.
|
(6)
|
These
options vest in three annual installments as follows: (i) 25,000 options
vest on June 1, 2011, (ii) 25,000 options vest on June 1, 2012 and (iii)
50,000 options vest on June 1,
2013.
|
(7)
|
Represents
shares of restricted stock issued to Mr. Lynch in accordance with the
terms of his employment agreement dated January 29, 2009. The
shares vest on January 2, 2011, provided Mr. Lynch is employed by us on
such date.
|
(8)
|
Represents
shares of restricted stock issued to Mr. Lynch in accordance with the
terms of his employment agreement dated June 29, 2010. The
shares vest in equal annual installments of 50,000 shares on each of
January 2, 2012, 2013 and 2014, provided Mr. Lynch is employed by us on
each such date.
|
(9)
|
Represents
shares of restricted stock issued to Ms. LoRe in January 2008 in
accordance with the terms of an equity incentive agreement, dated December
14, 2007. The shares vest in equal annual installments of
50,000 shares on each of December 31, 2010 and 2011, provided Ms. LoRe is
employed by us on each such date.
|
(10)
|
Represents
shares of restricted stock issued to Mr. Rende in accordance with the
terms of his employment agreement dated June 1, 2010. 25,000
shares vest on each of June 1, 2011 and 2012, and the remaining 50,000
shares vest on June 1, 2013, provided Mr. Rende is employed by us on each
such date.
|
(11)
|
The
market value of shares reported is computed based on the July 30,
2010 (the last trading day in our fiscal 2010 year) closing price of
our common stock of $0.92.
|
Option
Exercises and Stock Vested in Fiscal Year 2010
The following table summarizes the
vesting of stock awards for the named executive officers during the year ended
July 31, 2010. No options were exercised by the named executive
officers during the year ended July 31, 2010.
|
|
|
|
|
|
|
|
|
Number of Shares
Acquired on
Exercise (#)
|
|
|
Value
Realized on
Exercise ($)
|
|
|
Number of
Shares
Acquired on
Vesting (#)
|
|
|
Value
Realized on
Vesting ($)
|
|
Thomas
J. Lynch
|
|
|
- |
|
|
|
- |
|
|
|
50,000 |
|
|
|
73,625 |
(1) |
Linda
LoRe
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
156,000 |
(2) |
Thomas
Rende
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(1)
|
For
each share vested, the value realized on vesting represents the average of
the average of the high and low trading prices of our common stock on the
trading days prior to and after January 2, 2010, the vesting date (a
non-trading day) of $1.4725, multiplied by the number of shares acquired
on vesting.
|
(2)
|
For
each share vested, the value realized on vesting represents the closing
price of our common stock of $1.56 on December 31, 2009, the vesting date,
multiplied by the number of shares acquired on
vesting.
|
Equity
Compensation Plan Information
The
following sets forth certain information as of July 31, 2010 concerning our
equity compensation plans:
|
|
Number of Shares to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
|
|
|
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
|
|
|
Number of Shares
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
|
|
Plans
approved by shareholders
|
|
|
|
|
|
|
|
|
|
1988
Non-Qualified Stock Option Plan
|
|
|
732,500 |
|
|
$ |
0.96 |
|
|
|
100,833 |
|
2000
Performance Equity Plan
|
|
|
681,750 |
(1) |
|
$ |
2.47 |
|
|
|
452,876 |
(2) |
2003
Employee Equity Incentive Plan
|
|
|
975,974 |
|
|
$ |
2.38 |
|
|
|
– |
|
January
2008 Warrants(3)
|
|
|
635,076 |
|
|
$ |
3.31 |
|
|
|
– |
|
Plans
not approved by shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
March
2010 Warrants(4)
|
|
|
2,543,760 |
|
|
$ |
1.41 |
|
|
|
– |
|
May
2010 Warrants(5)
|
|
|
1,500,000 |
|
|
$ |
2.33 |
|
|
|
– |
|
Total
|
|
|
7,069,060 |
|
|
$ |
1.97 |
|
|
|
553,709 |
|
(1)
|
Includes
18,000 shares of common stock issuable upon exercise of options under our
2000 Performance Equity Plan granted to non-employee directors pursuant to
our Non-Employee Director Compensation
Plan.
|
(2)
|
Our
Non-Employee Director Compensation Plan provides that each non-employee
director may elect to receive his or her annual stipend and meeting fees
in cash and/or shares of our common stock under our 2000 Performance
Equity Plan in such proportion as is determined by each non-employee
director. If a non-employee director elects to be paid in stock, either in
full or in part, the number of shares of common stock to be issued is
determined by dividing the dollar amount of the stipend and meeting fees
earned during the quarter (or a percentage thereof, if the non-employee
director elects to receive stock payment in part) by the last sale price
of our common stock on the last trading day of each calendar quarter in
which the fees were earned. As of July 31, 2010, an aggregate
of 264,748 shares of common stock have been issued to non-employee
directors.
|
On
June 1, 2010, we issued 100,000 shares of restricted stock to our Chief
Financial Officer under the 2000 Performance Equity Plan. 25,000
shares vest on each of June 1, 2011 and 2012 and 50,000 shares vest on June 1,
2013 provided that he is employed by us on each such date.
On
June 24, 2010, we issued 75,000 shares of restricted stock to one of our
employees under the 2000 Performance Equity Plan. 18,750 shares vest
on each of June 24, 2011 and 2012 and 37,500 shares vest on June 24,
2013 provided that the employee is employed by us on each such
date.
On
June 29, 2010, we issued 150,000 shares of restricted stock to our Chairman
and Chief Executive Officer under the 2000 Performance Equity
Plan. 50,000 shares vest on each of January 2, 2012, 2013 and
2014 provided that he is employed by us on each such date.
On
January 29, 2009, we issued 100,000 shares of restricted stock to our Chairman
and Chief Executive Officer under the 2000 Performance Equity
Plan. 50,000 shares vested on January 2, 2010 and 50,000 shares will
vest on January 2, 2011 provided that he is employed by us on such
date.
(3)
|
On
January 28, 2008, as sole consideration for their commitments to act as
standby purchasers in connection with our $20 million rights offering, we
issued to Fursa and Tokarz warrants to purchase an aggregate of 596,592
shares of common stock, subject to adjustment. Pursuant to the
anti-dilution adjustment provisions contained in the warrants, following
the consummation of our private placement to accredited investors on March
16, 2016 (the “Private Placement”), the number of shares of common stock
issuable upon exercise of the warrants was increased from an aggregate of
596,592 shares to an aggregate of 635,076 shares and the exercise price
was decreased from $3.52 per share to $3.31 per share. The
warrants expire on January 28,
2011.
|
(4)
|
In
connection with the consummation of the Private Placement, we issued
to the investors two-and-a-half year Series A warrants to purchase up to
an aggregate of 1,162,820 shares of common stock at an exercise price of
$1.25 per share, and five-year Series B warrants to purchase up to an
aggregate of 1,162,820 shares of common stock at an exercise price of
$1.55 per share. In addition, we issued to Avalon Securities Ltd. and its
designees, who acted as placement agent in the transaction, warrants to
purchase an aggregate of 218,030 shares of common stock at an exercise
price of $1.21 per share. Except for the exercise price, these
warrants are identical to the Series B warrants issued to investors in the
Private Placement.
|
(5)
|
On
May 18, 2010, in connection with the consummation of the transactions
contemplated by the Debt Exchange and Preferred Stock Conversion
Agreement, dated as of February 1, 2010, with accounts and funds managed
by and/or affiliated with Fursa, we issued to Fursa three, five and
seven-year warrants, each to purchase 500,000 shares of common stock (for
an aggregate of 1,500,000 shares of common stock) at exercise prices of
$2.00, $2.33 and $2.66 per share,
respectively.
|
Compensation
Arrangements for Executive Officers
Thomas
J. Lynch
On June
29, 2010, we entered into an employment agreement with Thomas J. Lynch, which
provides for Mr. Lynch to continue to serve as our Chief Executive Officer until
January 2, 2014 at a base salary of $540,000 per year. Mr. Lynch
voluntarily reduced his annual salary by $60,000 (or an aggregate of $210,000
over the term of the agreement) in support of our continuing efforts to reduce
expenses. Pursuant to the terms of the employment agreement, in
addition to his base salary, Mr. Lynch is eligible to receive, for the years
ending July 30, 2011, July 28, 2012, July 27, 2013 and July 26, 2014, an annual
performance bonus equal to 65% of his base salary based on achieving certain
targeted performance goals established by the compensation committee and
approved by the board of directors for each fiscal year. The bonus
for the year ending July 26, 2014 will be prorated for the partial
year. No performance bonus was required to be paid to Mr. Lynch for
the year ended July 31, 2010. From time to time, Mr. Lynch also will
be eligible to receive such discretionary bonuses as the compensation committee
deems appropriate.
In
addition to his base salary, on June 29, 2010, we granted Mr. Lynch a ten-year,
non-qualified option to purchase 600,000 shares of common stock under our 2010
Long-Term Incentive Equity Plan at an exercise price of $0.78 per share (the
closing price of our common stock on such date), with 150,000, 200,000 and
250,000 shares vesting on January 2, 2012, 2013 and 2014,
respectively. The grant of the option is subject to and conditioned
upon approval by our shareholders of the stock plan proposal, which we are
seeking at the Annual Meeting. If shareholder approval of the
stock plan proposal is not obtained, the option shall be deemed null and
void.
Additionally,
on June 29, 2010, we issued Mr. Lynch 150,000 shares of restricted stock under
our 2000 Performance Equity Plan, with 50,000 shares vesting on each of January
2, 2012, 2013 and 2014, provided that Mr. Lynch is employed by us on each such
date.
Mr.
Lynch’s employment agreement also provides for us to pay the premiums on a life
insurance policy for him providing a death benefit of $1,500,000 to Mr. Lynch’s
designated beneficiary. During the year ended July 31, 2010, Mr.
Lynch did not elect to receive life insurance. The employment agreement
also provides for us to pay the premiums on a disability insurance policy for
Mr. Lynch providing a non-taxable benefit of at least $10,000 per month
(currently $12,000 per month) payable to Mr. Lynch in the event of his
disability. Under the employment agreement, Mr. Lynch is prohibited from
disclosing confidential information about us and employing or soliciting any of
our current employees to leave us during his employment and for a period of one
year thereafter. The employment agreement does not contain any change
of control or non-competition provisions.
Linda
LoRe
On August
1, 2010, our employment agreement with Linda LoRe, dated as of January 29, 2008,
expired and she became an employee at-will. Ms. LoRe continues to
serve as our President and a director. Effective August 1, 2010, Ms.
LoRe’s salary was reduced by $250,000 to $400,000 per year. We are
currently in negotiations with Ms. LoRe regarding a new employment
agreement.
Thomas
Rende
On June
1, 2010, we entered into an employment agreement with Thomas Rende, which
provides for Mr. Rende to continue to serve as our Chief Financial Officer for a
three-year term until June 1, 2013 at a base salary of $310,000 per
year. Mr. Rende voluntarily reduced his annual salary by $30,000 (or
an aggregate of $90,000 over the term of the agreement) in support of our
continuing efforts to reduce expenses. Pursuant to the terms of the
employment agreement, in addition to his base salary, Mr. Rende is eligible to
receive, for the years ending July 30, 2011, July 28, 2012 and July 27, 2013, an
annual performance bonus equal to 35% of his base salary based on achieving
certain targeted performance goals established by the Chief Executive Officer
and approved by the compensation committee for each fiscal year. The
bonus for the year ending July 27, 2013 will be prorated for the partial
year. No performance bonus was paid to Mr. Rende for the years ended
July 31, 2010 and July 25, 2009 because no bonus plan was in effect for those
fiscal years. From time to time, Mr. Rende also will be eligible to
receive upon the recommendation of the Chief Executive Officer, such
discretionary bonuses as the compensation committee deems
appropriate.
In
addition to his base salary, on June 1, 2010, we granted Mr. Rende a ten-year,
non-qualified option to purchase 100,000 shares of common stock under our 1988
Stock Option Plan at an exercise price of $0.84 per share (the closing price of
our common stock on such date), with 25,000 shares vesting on each of June
1, 2011 and 2012 and 50,000 shares vesting on June 1, 2013.
Additionally,
on June 1, 2010, we issued Mr. Rende 100,000 shares of restricted stock under
our 2000 Performance Equity Plan, with 25,000 shares vesting on each of June 1,
2011 and 2012 and 50,000 shares vesting on June 1, 2013, provided that Mr. Rende
is employed by us on each such date.
Mr.
Rende’s employment agreement also provides for us to pay the premiums on a life
insurance policy for him providing a death benefit of $1,000,000 to Mr. Rende’s
designated beneficiary and a disability insurance policy for Mr. Rende providing
a non-taxable benefit of at least $10,000 per month payable to Mr. Rende in the
event of his disability. Under the employment agreement, Mr. Rende is
prohibited from disclosing confidential information about us and employing or
soliciting any of our current employees to leave us during his employment and
for a period of one year thereafter. The employment agreement does not contain
any change of control or non-competition provisions.
Potential
Termination or Change of Control Payments
Messrs.
Lynch and Rende each have an employment agreement with us that provides for the
following potential payments in the event of their
termination. Unless otherwise indicated, all such payments will be
paid in accordance with our normal payroll procedures. To the extent
necessary to comply with Internal Revenue Code Section 409A, all cash amounts
due may be paid in a lump-sum cash payment on the six-month anniversary of the
date of termination of employment.
Thomas
J. Lynch
Payment Upon Death or
Disability. In the event of death
or termination due to “disability” (as defined in his employment agreement), Mr.
Lynch, or his designated beneficiary, as the case may be, will be entitled to
receive:
|
·
|
base
salary through the date of death or
disability;
|
|
·
|
any
non-equity incentive compensation that would have become payable for the
year in which the employment was terminated, pro-rated for the number of
months worked during the fiscal year of
termination;
|
|
·
|
all
valid business expense reimbursements;
and
|
|
·
|
all
accrued but unused vacation pay.
|
In
addition, in the case of death, his beneficiary will be entitled to receive
proceeds from a company-paid life insurance policy to be provided to Mr.
Lynch in his name. During the year ended July 31, 2010, Mr.
Lynch did not elect to receive life insurance. We also maintain a
long-term disability insurance policy for Mr. Lynch, which, upon his disability,
will provide a non-taxable benefit of at least $10,000 per month (currently
$12,000 per month), payable to him.
Payment Upon Involuntary Termination
Without Cause or Resignation for Good Reason. If Mr.
Lynch terminates his employment for “good reason” (as defined in his
employment agreement) or is terminated by us without “cause” (as defined in his
employment agreement), or if we do not continue his employment at the end of the
employment term upon substantially similar terms, he will be entitled to receive
the following:
|
·
|
base
salary through the end of the employment term (January 2,
2014);
|
|
·
|
any
non-equity incentive compensation that would have become payable for the
year in which the employment was terminated, pro-rated for the number of
months worked during the fiscal year of
termination;
|
|
·
|
life
and disability insurance benefits through the end of the employment
term;
|
|
·
|
company-paid
continuation of medical coverage for one year after the end of the
term;
|
|
·
|
all
valid business expense reimbursements;
and
|
|
·
|
all
accrued but unused vacation pay.
|
In
addition, the portion of a stock option granted in January 2009 that would
otherwise have vested within the one-year period following termination will
immediately vest, and the stock option granted in June 2010 and the restricted
stock issued in January 2009 and June 2010 will continue to vest as
scheduled.
Thomas
Rende
Payment Upon Death or
Disability. In the event of death
or termination due to “disability” (as defined in his employment agreement), Mr.
Rende, or his designated beneficiary, as the case may be, will be entitled to
receive:
|
·
|
base
salary through the date of death or
disability;
|
|
·
|
any
non-equity incentive compensation that would have become payable for the
year in which the employment was terminated, pro-rated for the number of
months worked during the fiscal year of
termination;
|
|
·
|
all
valid business expense reimbursements;
and
|
|
·
|
all
accrued but unused vacation pay.
|
In
addition, in the case of death, his beneficiary will be entitled to receive
proceeds from a company-paid life insurance policy provided to him in his
name. We also maintain a long-term disability insurance policy for Mr.
Rende, which will provide a non-taxable benefit of at least $10,000 per month,
payable to him.
Payment Upon Involuntary Termination
Without Cause or Resignation for Good Reason. If Mr. Rende terminates
his employment for “good reason” (as defined in his employment agreement) or is
terminated by us without “cause” (as defined in his employment agreement), or if
we do not continue his employment at the end of the employment term upon
substantially similar terms, he will be entitled to receive the
following:
|
·
|
base
salary through the end of the employment term (June 1,
2013);
|
|
·
|
any
non-equity incentive compensation that would have become payable for the
year in which the employment was terminated, pro-rated for the number of
months worked during the fiscal year of
termination;
|
|
·
|
life
and disability insurance benefits through the end of the employment
term;
|
|
·
|
company-paid
continuation of medical coverage for one year after the end of the
term;
|
|
·
|
all
valid business expense reimbursements;
and
|
|
·
|
all
accrued but unused vacation pay.
|
In
addition, Mr. Rende’s outstanding stock options and restricted stock will
continue to vest as scheduled.
The
following table reflects the amounts that would have been payable to each of the
named executive officers had their employment terminated as of July 31,
2010:
|
|
|
|
|
|
|
|
|
|
Involuntary
Termination
Without Cause
or
Resignation for
Good Reason
|
|
Thomas
J. Lynch
|
|
Base
Salary
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,845,000 |
|
|
|
Severance
|
|
|
- |
|
|
|
- |
|
|
|
450,000 |
|
|
|
Restricted
Stock(2)
|
|
|
- |
|
|
|
- |
|
|
|
92,000 |
|
|
|
Accelerated
Vesting of Stock Options(3)
|
|
|
- |
|
|
|
- |
|
|
|
64,800 |
|
|
|
Medical
Insurance
|
|
|
- |
|
|
|
- |
|
|
|
76,940 |
|
|
|
Disability
Insurance
|
|
|
- |
|
|
|
- |
|
|
|
3,630 |
|
|
|
Life
Insurance
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
Accrued
Vacation Pay
|
|
|
- |
|
|
|
47,077 |
|
|
|
47,077 |
|
|
|
Total
|
|
$ |
- |
|
|
$ |
47,077 |
|
|
$ |
2,579,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda
LoRe(4)
|
|
Severance
|
|
$ |
1,137,500 |
|
|
$ |
- |
|
|
$ |
812,500 |
|
|
|
Restricted
Stock(2)
|
|
|
92,000 |
|
|
|
- |
|
|
|
- |
|
|
|
Medical
Insurance
|
|
|
25,647 |
|
|
|
- |
|
|
|
25,647 |
|
|
|
Accrued
Vacation Pay
|
|
|
292,747 |
|
|
|
292,747 |
|
|
|
292,747 |
|
|
|
Total
|
|
$ |
1,547,894 |
|
|
$ |
292,747 |
|
|
$ |
1,130,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Rende
|
|
Base
Salary
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
878,333 |
|
|
|
Severance
|
|
|
- |
|
|
|
- |
|
|
|
250,000 |
|
|
|
Medical
Insurance
|
|
|
- |
|
|
|
- |
|
|
|
65,542 |
|
|
|
Disability
Insurance
|
|
|
- |
|
|
|
- |
|
|
|
2,448 |
|
|
|
Life
Insurance
|
|
|
- |
|
|
|
- |
|
|
|
8,040 |
|
|
|
Accrued
Vacation Pay
|
|
|
- |
|
|
|
31,795 |
|
|
|
31,795 |
|
|
|
Total
|
|
$ |
- |
|
|
$ |
31,795 |
|
|
$ |
1,236,158 |
|
(1)
|
The
employment agreements for Messrs. Lynch and Rende do not contain any
change in control provisions. Ms. LoRe’s employment agreement,
dated as of January 29, 2008, which expired on August 1, 2010, contained a
change in control provision. The compensation that would have
been payable to Ms. LoRe in connection with a change in control under her
expired employment agreement is set forth in the table
above.
|
(2)
|
The
value of restricted stock subject to accelerated vesting represents the
closing price of our common stock of $0.92 on July 30, 2010, the last
trading day of the year ended July 31, 2010, multiplied by the shares of
restricted stock subject to accelerated
vesting.
|
(3)
|
The
value of stock options subject to accelerated vesting represents the
closing price of our common stock of $0.92 on July 30, 2010 the last
trading day of the year ended July 31, 2010, less the option exercise
price of $0.38, multiplied by 120,000 shares underlying the portion of the
option subject to accelerated
vesting.
|
(4)
|
The
amounts reflected in the table above represent what would have been
payable to Ms. LoRe had her employment terminated as of July 31, 2010
under her employment agreement, dated as of January 29, 2008, which
expired on August 1, 2010. Therefore, such payments will not be
owed to her upon any future
termination.
|
Compensation
Plans
Non-Equity
Compensation Plan
2010 Annual Incentive Bonus
Plan
On June
29, 2010, our board of directors adopted the 2010 Annual Incentive Bonus Plan,
in which employees selected by our compensation committee will
participate. The compensation committee has initially determined that
Thomas Lynch and Thomas Rende will participate in the 2010 Annual Incentive
Bonus Plan. Under this plan, commencing with the fiscal year ending
July 30, 2011, participants will be eligible to receive an annual cash bonus of
up to a percentage of the participant’s base salary as determined by the
compensation committee. The maximum cash bonus award for the named
executive officers participating in the 2010 Annual Incentive Bonus Plan,
expressed as a percentage of base salary as set forth in their respective
employment agreements, is as follows: Thomas J. Lynch, 65% and Thomas
Rende, 35%.
The bonus
payment for each participant is calculated based on two components: (1) our
annual financial performance (“Company Performance Component”), representing up
to 80% of the total eligible bonus; and (2) the participant’s individual
performance (“Individual Performance Component”), representing up to 20% of the
total eligible bonus. If we achieve less than 80% of the Target
Adjusted EBITDA (as defined below), no participant will be eligible to receive
any bonus.
Company Performance
Component. The Company
Performance Component is based upon an evaluation of our Adjusted EBITDA
(defined as earnings before interest, taxes, depreciation, amortization, stock
compensation expense, any bonus awarded under the plan, and adjustments for
non-recurring items as determined by the board of directors) against a target
Adjusted EBITDA approved annually by the board of directors (“Target Adjusted
EBITDA”). If we achieve 100% or more of the Target Adjusted EBITDA,
each participant’s total eligible bonus will range from 10% of the total
eligible bonus upon achievement of 100% of the Target Adjusted EBITDA up to a
maximum of 80% of the total eligible bonus upon achievement of 140% or more of
the Target Adjusted EBITDA.
Individual Performance
Component. The Individual
Performance Component is based on an individual’s achievement of performance
objectives, as approved annually by the compensation committee. If we
achieve 80% or more of the Target Adjusted EBITDA, up to 20% of the
participant’s total eligible bonus may be paid out upon the achievement of such
individual performance objectives.
Equity
Compensation Plans
Employee Stock Ownership
Plan
Effective
December 31, 2007, we decided to terminate our Employee Stock Ownership and
Capital Accumulation Plan. As of November 29, 2010, there were no
participants or shares remaining in the plan.
Amended
and Restated 1988 Non-Qualified Stock Option Plan
On
December 13, 1988, our shareholders approved the 1988 Non-Qualified Stock Option
Plan covering up to 833,333 shares of common stock to provide an additional
continuing form of long-term incentive to selected officers. On September
19, 2006, our board of directors approved the Amended and Restated 1988
Non-Qualified Stock Option Plan, which (i) increased the time period in which an
employee terminated for any reason other than death or disability has to
exercise the portion of the option which is exercisable on the date of
termination from 30 days to 90 days following the date of termination; (ii)
provides for continued exercisability of options after termination in the
discretion of the compensation committee as set forth in the stock option
agreement at the time of grant; (iii) increased the time period in which an
employee terminated due to disability has to exercise the option from 180 days
to one year from the date of termination; and (iv) increased the time period in
which the legal representative or legatee under the will of an employee who dies
within 90 days (instead of 30 days) after the date of termination of employment
or while employed by us or a subsidiary has to exercise the decedent employee’s
option from 180 days to one year from the date of death. Unless terminated
by the board, the 1988 Non-Qualified Stock Option Plan shall remain effective
until no further options may be granted and all options granted under the 1988
Non-Qualified Stock Option Plan are no longer outstanding. During
fiscal year 2010, an option to purchase 100,000 shares was granted to our Chief
Financial Officer and options to purchase an aggregate of 110,000 shares were
granted to two employees under the 1988 Non-Qualified Stock Option
Plan. During fiscal year 2009, an option to purchase 360,000 shares
was granted to our Chief Executive Officer under this plan. As of November
29, 2010, there were options outstanding to purchase 732,500 shares, exercisable
at prices ranging from $0.38 per share to $2.90 per share of our common stock at
a weighted average exercise price of $0.96 per share.
Amended
and Restated 2000 Performance Equity Plan
On
February 22, 2000, the board of directors adopted the 2000 Performance Equity
Plan covering 375,000 shares of common stock under which our officers,
directors, key employees and consultants are eligible to receive incentive or
non-qualified stock options, stock appreciation rights, restricted stock awards,
stock reload options and other stock based awards. Shareholders approved
the 2000 Performance Equity Plan on November 28, 2000. On January 23,
2008, our shareholders approved the Amended and Restated 2000 Performance Equity
Plan, which increased the number of shares of our common stock available for
issuance under the plan from 375,000 shares to 2,000,000 shares, added a 500,000
share limit on grants to any individual in any one calendar year in order for
the plan to comply with Section 162(m) of the Internal Revenue Code and made
other changes to comply with Section 409A of the Internal Revenue Code.
The Amended and Restated 2000 Performance Equity Plan will terminate when
no further awards may be granted and awards granted are no longer outstanding,
provided that incentive options may only be granted until February 21, 2010.
To the extent permitted under the provisions of the 2000 Performance
Equity Plan, the compensation committee has authority to determine the selection
of participants, allotment of shares, price and other conditions of
awards. During fiscal years 2010 and 2009, 62,500 and 127,500
options, respectively, were granted to our employees under the 2000 Performance
Equity Plan. As of November 29, 2010, there were options outstanding
to purchase an aggregate of 666,750 shares, exercisable at prices ranging from
$0.17 per share to $3.10 per share of our common stock at a weighted average
exercise price of $2.50 per share.
During the year ended July 31, 2010, we
issued, pursuant to the 2000 Performance Equity Plan, 150,000, 100,000 and
75,000 shares of restricted stock to our Chief Executive Officer, our Chief
Financial Officer and one employee, respectively. The 150,000 shares issued to
our Chief Executive Officer vest in three equal annual installments of 50,000
shares each on January 2, 2012, 2013 and 2014, provided the executive is
employed by us on each such date. The 100,000 shares issued to our Chief
Financial Officer vest in three installments of 25,000, 25,000 and 50,000 shares
on June 1, 2011, 2012 and 2013, respectively, provided the executive is employed
by us on each such date. The 75,000 shares issued to one of our
employees vest in three installments of 18,750, 18,750 and 37,500 shares on June
24, 2011, 2012 and 2013, respectively, provided the employee is employed by us
on each such date.
During the year ended July 25, 2009, we
issued, pursuant to the 2000 Performance Equity Plan, 100,000 shares of
restricted stock to our Chief Executive Officer. 50,000 shares vested
on January 2, 2010 and the remaining 50,000 shares will vest on January 2, 2011,
provided that the executive is employed by us on such date.
Our Non-Employee Director Compensation
Plan provides that each non-employee director may elect to receive the annual
stipend and meeting fees in cash and/or shares of our common stock under our
2000 Performance Equity Plan in such proportion as is determined by each
non-employee director. In addition, on November 8, 2010, we made a
one-time issuance of 20,000 shares of fully vested common stock to each of our
four non-employee directors under the 2000 Performance Equity
Plan. As of November 29, 2010, an aggregate of 381,021 shares of
common stock have been issued to non-employee directors under the 2000
Performance Equity Plan.
Amended
and Restated 2003 Employee Equity Incentive Plan
FOH Holdings adopted the 2003 Employee
Equity Incentive Plan on December 1, 2003. The plan authorized FOH Holdings to
issue incentive or nonqualified stock options to its employees and officers.
The plan was amended and restated as of December 1, 2006, primarily to
increase the number of shares covered under the plan and to permit the issuance
of nonqualified stock options to independent directors. On January
28, 2008, the 2003 Employee Equity Incentive Plan and underlying options
were assumed by us. As of November 29, 2010, there were options
outstanding to purchase an aggregate of 941,208 shares, exercisable at prices
ranging from $1.12 per share to $4.52 per share of our common stock at a
weighted average exercise price of $2.37 per share. No additional
grants may be made under the 2003 Employee Equity Incentive
Plan.
2010
Long-Term Incentive Equity Plan
On June
29, 2010, the board of directors adopted the 2010 Long-Term Incentive Equity
Plan covering 4,000,000 shares of common stock under which our officers,
directors, key employees and consultants are eligible to receive incentive or
non-qualified stock options, stock appreciation rights, restricted stock awards,
stock reload options and other stock based awards. The 2010 Long-Term
Incentive Equity Plan will terminate when no further awards may be granted and
awards granted are no longer outstanding, provided that incentive options may
only be granted until June 28, 2020. To the extent permitted under
the provisions of the 2010 Long-Term Incentive Equity Plan, the compensation
committee has authority to determine the selection of participants, allotment of
shares, price and other conditions of awards. During the fiscal year
ended July 31, 2010, an option to purchase 600,000 shares was granted to our
Chief Executive Officer under the 2010 Long-Term Incentive Equity Plan at an
exercise price of $0.78 per share. The grant of the option is subject to and
conditioned upon approval by our shareholders of the 2010 Long-Term Incentive
Equity Plan, which we are seeking at the Annual Meeting. If
shareholder approval is not obtained, the option shall be deemed null and
void.
Compensation
Arrangements for Directors
We pay
our non-employee directors in accordance with the terms of our Non-Employee
Director Compensation Plan, which was adopted by our board of directors in
December 2004 and became effective on January 1, 2005. Under the
plan, each non-employee director receives (i) an annual stipend of $20,000,
payable quarterly in arrears, (ii) $2,000 per day for board or committee
meetings attended in person, regardless of the number of meetings held that day
and (iii) $1,000 per meeting for board or committee meetings attended
telephonically, unless two or more teleconference call meetings are held
back-to-back on the same call, in which case each non-employee director will
receive $1,000 for the entire call. Payment of the annual stipend and
meeting fees are made, at the election of each non-employee director, in cash
and/or shares of common stock under our 2000 Performance Equity Plan in such
proportion as is determined by each non-employee director. If a
non-employee director elects to be paid in stock, either in full or in part, the
number of shares of common stock to be issued is determined by dividing the
dollar amount of the stipend and meeting fees earned during the quarter (or a
percentage thereof, if the non-employee director elects to receive stock payment
in part) by the last sale price of our common stock on the last trading day of
each calendar quarter in which the fees were earned.
We also
pay or reimburse each non-employee director for all transportation, hotel and
other expenses reasonably incurred by the non-employee director in connection
with attendance at board and committee meetings against itemized reports and
receipts submitted with respect to any such expenses and approved in accordance
with our customary procedures.
On
November 8, 2010, we made a one time issuance of 20,000 shares of fully vested
common stock to each of our four non-employee directors under the 2000
Performance Equity Plan.
The
following table summarizes the compensation of our non-employee directors for
the year ended July 31, 2010. Directors who are employees of our
company do not receive separate compensation for their service as a
director.
|
|
Fees Earned or
Paid in Cash
($)
|
|
|
|
|
|
All Other
Compensation
($)
|
|
|
|
|
Peter
Cole(2)
|
|
|
38,000 |
|
|
|
- |
|
|
|
- |
|
|
|
38,000 |
|
John
L. Eisel(3)
|
|
|
16,000 |
|
|
|
24,000 |
|
|
|
- |
|
|
|
40,000 |
|
William
F. Harley(4)
|
|
|
- |
|
|
|
32,000 |
|
|
|
- |
|
|
|
32,000 |
|
Michael
A. Salberg(5)
|
|
|
26,667 |
|
|
|
- |
|
|
|
- |
|
|
|
26,667 |
|
Joel
M. Simon(6)
|
|
|
27,583 |
|
|
|
4,084 |
|
|
|
- |
|
|
|
31,667 |
|
Milton
J. Walters(7)
|
|
|
30,750 |
|
|
|
10,251 |
|
|
|
- |
|
|
|
41,001 |
|
(1)
|
Represents
the dollar value of the compensation that the director elected to receive
in shares of our common stock in lieu of cash
compensation.
|
(2)
|
As
compensation for Mr. Cole’s services as a non-employee director and for
his attendance at board and/or committee meetings, Mr. Cole received cash
payments of $38,000.
|
(3)
|
As
compensation for Mr. Eisel’s services as a non-employee director and for
his attendance at board and/or committee meetings, Mr. Eisel received cash
payments of $16,000 and payments in common stock of 19,962 shares at a
total value of $24,000.
|
(4)
|
As
compensation for Mr. Harley’s services as a non-employee director and for
his attendance at board and/or committee meetings, Mr. Harley received
payments in common stock of 26,648 shares at a total value of
$32,000.
|
(5)
|
As
compensation for Mr. Salberg’s services as a non-employee director and for
his attendance at board and/or committee meetings, Mr. Salberg received
cash payments of $26,667. Mr. Salberg’s term as a director
ended on May 12, 2010.
|
(6)
|
As
compensation for Mr. Simon’s services as a non-employee director and for
his attendance at board and/or committee meetings, Mr. Simon received cash
payments of $27,583 and payments in common stock of 3,665 shares at a
total value of $4,084. Mr. Simon’s term as a director ended on
May 12, 2010.
|
(7)
|
As
compensation for Mr. Walters’ services as a non-employee director and for
his attendance at board and/or committee meetings, Mr. Walters received
cash payments of $30,750 and payments in common stock of 8,497 shares at a
total value of $10,251.
|
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act
requires our officers, directors and persons who beneficially own more than ten
percent of our common stock to file reports of ownership and changes in
ownership with the SEC. These reporting persons are also required to furnish us
with copies of all Section 16(a) forms they file. To our knowledge, based solely
on the review of the copies of these forms furnished to us and representations
that no other reports were required, all Section 16(a) reporting requirements
were complied with during the fiscal year ended July 31, 2010.
Certain
Relationships and Related Transactions
Related Party Policy
Our Code
of Ethics requires us to avoid, wherever possible, all related party
transactions that could result in actual or potential conflicts of interest,
except under guidelines approved by the board of directors (or the audit
committee). Related party transactions are defined under SEC rules as
transactions in which (1) the aggregate amount involved will or may be expected
to exceed the lesser of $120,000 or one percent of the average of our total
assets in any calendar year, (2) we or any of our subsidiaries is a participant,
and (3) any related party, which includes (a) an executive officer, director or
nominee for election as a director, (b) a greater than 5 percent beneficial
owner of our common stock, or (c) an immediate family member of the persons
referred to in clauses (a) and (b), has or will have a direct or indirect
material interest. A conflict of interest situation can arise when a person
takes actions or has interests that may make it difficult to perform his or her
work objectively and effectively. Conflicts of interest may also arise if a
person, or a member of his or her family, receives improper personal benefits as
a result of his or her position.
Our audit
committee, pursuant to its written charter, is responsible for reviewing and
approving related-party transactions to the extent we enter into such
transactions. The audit committee will consider all relevant factors when
determining whether to approve a related party transaction, including whether
the related party transaction is on terms no less favorable than terms generally
available to an unaffiliated third party under the same or similar circumstances
and the extent of the related party’s interest in the transaction. No director
may participate in the approval of any transaction in which he or she is a
related party, but that director is required to provide the audit committee with
all material information concerning the transaction. Additionally, we require
each of our directors and executive officers to complete a directors’ and
officers’ questionnaire on an annual basis that elicits information about
related party transactions. These procedures are intended to determine whether
any such related party transaction impairs the independence of a director or
presents a conflict of interest on the part of a director, employee or
officer.
Related Party Transactions
On May
18, 2010, we completed the transactions contemplated by the Debt Exchange and
Preferred Stock Conversion Agreement, dated as of February 1, 2010, with
accounts and funds managed by and/or affiliated with Fursa. At the
closing, we issued to Fursa an aggregate of 8,664,373 shares of our common stock
upon exchange of approximately $14,285,000 of outstanding secured long-term debt
(“Tranche C Debt”) and accrued interest, and conversion of approximately
$8,795,000 of Series A Preferred Stock, including accrued dividends,
representing all of our outstanding shares of Series A Preferred Stock, at an
effective price of approximately $2.66 per share.
We also issued to Fursa three, five and
seven-year warrants, each to purchase 500,000 shares of common stock (for an
aggregate of 1,500,000 shares of common stock) at exercise prices of $2.00,
$2.33 and $2.66 per share, respectively. The warrants are exercisable
for cash or on a cashless basis, at Fursa’s option. At any time after
the first anniversary of the issuance date, we may redeem the warrants, in whole
but not in part, upon not less than 20 business days’ written notice to Fursa,
at a redemption price of $0.01 per share, if the last sale price of the common
stock is at least 200% of the exercise price of the warrants for 10 consecutive
trading days ending on the day prior to the date on which notice of redemption
is given to Fursa. Following the transaction, Fursa’s aggregate
beneficial ownership of our common stock increased from approximately 33% to
approximately 47%. As Fursa is a related party, the transaction resulted
in an increase to shareholders’ equity of $23,080,000.
THE
STOCK PLAN PROPOSAL
Background
Our board
of directors approved the 2010 Long-Term Incentive Equity Plan on June 29, 2010,
subject to shareholder approval. We are submitting the plan to
shareholders for their approval so that options granted under the plan may
qualify for treatment as incentive stock options and awards under the plan may
constitute performance-based compensation not subject to Section 162(m) of
the Internal Revenue Code, as amended (the “Code”).
The plan
reserves 4,000,000 shares of common stock for issuance in accordance with the
plan’s terms. On June 29, 2010, subject to shareholder approval, an
option to purchase 600,000 shares was granted to our Chief Executive Officer
under the plan, leaving 3,400,000 shares available for grant under the plan.
The
purpose of the plan is to enable us to offer our employees, officers, directors
and consultants whose past, present and/or potential contributions to us and our
subsidiaries have been, are or will be important to our success, an opportunity
to acquire a proprietary interest in our company. The various types of long-term
incentive awards that may be provided under the plan are intended to enable us
to respond to changes in compensation practices, tax laws, accounting
regulations and the size and diversity of our business.
A summary
of the principal features of the plan is provided below, but is qualified in its
entirety by reference to the full text of the plan, which is attached to this
proxy statement as Annex A.
Administration
The plan
is administered by our compensation committee. Subject to the provisions of the
plan, the committee determines, among other things, the persons to whom from
time to time awards may be granted, the specific type of awards to be granted,
the number of shares subject to each award, share prices, any restrictions or
limitations on the awards, and any vesting, exchange, deferral, surrender,
cancellation, acceleration, termination, exercise or forfeiture provisions
related to the awards.
Stock
Subject to the Plan
If any
shares are subject to an award that is forfeited, settled in cash or expires,
any unissued shares covered by such award will be available for issuance under
the plan. If a holder pays the exercise price of a stock option by
surrendering any previously owned shares or arranges to have the
appropriate number of shares otherwise issuable upon exercise withheld to cover
the withholding tax liability associated with the stock option exercise, then,
in the compensation committee’s discretion, the number of shares available under
the plan may be increased by the lesser of (i) the number of shares surrendered
and shares used to pay taxes and (ii) the number of shares purchased under the
stock option.
Under the
plan, on a change in the number of shares of common stock as a result of a
dividend on shares of common stock payable in shares of common stock, common
stock forward split or reverse split, combination or exchange of shares of
common stock or other extraordinary or unusual event that results in a change in
the shares of common stock as a whole, the compensation committee shall
determine, in its sole discretion, whether the terms of the outstanding award
require adjustment.
Eligibility
Awards
may be granted under the plan to employees, officers, directors and consultants
who are deemed to have rendered, or to be able to render significant services to
us or our subsidiaries and who are deemed to have contributed, or to have the
potential to contribute, to our success.
Types
of Awards
Options. The plan
provides both for “incentive” stock options as defined in Section 422 of the
Code, and for options not qualifying as incentive options, both of which may be
granted with any other award under the plan. The compensation committee
determines the exercise price per share of common stock purchasable under an
incentive or non-qualified stock option, which may not be less than 100% of the
fair market value on the day of the grant or, if greater, the par value of a
share of common stock. However, the exercise price of an incentive stock option
granted to a person possessing more than 10% of the total combined voting power
of all classes of stock may not be less than 110% of the fair market value on
the date of grant. The aggregate fair market value of all shares of common stock
with respect to which incentive stock options are exercisable by a participant
for the first time during any calendar year (under all of our plans), measured
at the date of the grant, may not exceed $100,000 or such other amount as may be
subsequently specified under the Code or the regulations
thereunder.
An
incentive stock option may only be granted within a ten-year period beginning
June 29, 2010 and may only be exercised within ten years from the date of the
grant, or within five years in the case of an incentive stock option granted to
a person who, at the time of the grant, owns common stock possessing more than
10% of the total combined voting power of all classes of our stock. Subject to
any limitations or conditions the compensation committee may impose, stock
options may be exercised, in whole or in part, at any time during the term of
the stock option by giving written notice of exercise to us specifying the
number of shares of common stock to be purchased. The notice must be accompanied
by payment in full of the purchase price, either in cash or, if provided in the
agreement, in our securities or in combination of the two or such other means
which the compensation committee determines are consistent with the plan’s
purpose and applicable law.
Generally,
stock options granted under the plan may not be transferred other than by will
or by the laws of descent and distribution and all stock options are exercisable
during the holder’s lifetime, or in the event of legal incapacity or
incompetency, the holder’s guardian or legal representative. However, a holder,
with the approval of the compensation committee, may transfer a non-qualified
stock option by gift, for no consideration, to a family member of the holder, by
domestic relations order to a family member of the holder or by transfer to an
entity in which more than 50% of the voting interests are owned by family
members of the holder or the holder, in exchange for an interest in that
entity.
Generally,
if the holder is an employee, no stock options granted under the plan may be
exercised by the holder unless he or she is employed by us or our subsidiaries
at the time of the exercise and has been so employed continuously from the time
the stock options were granted. However, in the event the holder’s employment is
terminated due to disability, the holder may still exercise his or her vested
stock options for a period of one year or such other greater or lesser period as
the compensation committee may determine, from the date of termination or until
the expiration of the stated term of the stock option, whichever period is
shorter. Similarly, should a holder die while employed by us or one of our
subsidiaries, his or her legal representative or legatee under his or her will
may exercise the decedent holder’s vested stock options for a period of one year
from the date of his or her death, or such other greater or lesser period as the
compensation committee may determine or until the expiration of the stated term
of the stock option, whichever period is shorter. If the holder’s employment is
terminated due to normal retirement, the holder may still exercise his or her
vested stock options for a period of one year from the date of termination or
until the expiration of the stated term of the stock option, whichever period is
shorter. If the holder’s employment is terminated for any reason other than
death, disability or normal retirement, the stock option will automatically
terminate, except that if the holder’s employment is terminated without cause,
then the portion of any stock option that is vested on the date of termination
may be exercised for the lesser of three months after termination of employment,
or such other greater or lesser period as the compensation committee may
determine but not beyond the balance of the stock option’s term.
The
compensation committee may at any time, in its sole discretion, offer to
repurchase a stock option previously granted, based upon such terms and
conditions as the committee shall establish and communicate to the holder at the
time that such offer is made.
Stock Appreciation
Rights. Under the plan, stock appreciation rights may be granted to
participants who have been, or are being, granted stock options under the plan
as a means of allowing the participants to exercise their stock options without
the need to pay the exercise price in cash. In conjunction with non-qualified
stock options, stock appreciation rights may be granted either at or after the
time of the grant of the non-qualified stock options. In conjunction with
incentive stock options, stock appreciation rights may be granted only at the
time of the grant of the incentive stock options. A stock appreciation right
entitles the holder to receive a number of shares of common stock having a fair
market value equal to the excess fair market value of one share of common stock
over the exercise price of the related stock option, multiplied by the number of
shares subject to the stock appreciation rights. The granting of a stock
appreciation right will not affect the number of shares of common stock
available for awards under the plan. The number of shares available for awards
under the plan will, however, be reduced by the number of shares of common stock
acquirable upon exercise of the stock option to which the stock appreciation
right relates.
Restricted
Stock. Under the plan, shares of restricted stock may be
awarded either alone or in addition to other awards granted under the plan. The
compensation committee determines the persons to whom grants of restricted stock
are made, the number of shares to be awarded, the price if any to be paid for
the restricted stock by the person receiving the stock from us, the time or
times within which awards of restricted stock may be subject to forfeiture, the
vesting schedule and rights to acceleration thereof, and all other terms and
conditions of the restricted stock awards.
Restricted
stock awarded under the plan may not be sold, exchanged, assigned, transferred,
pledged, encumbered or otherwise disposed of, other than to us, during the
applicable restriction period. In order to enforce these restrictions, the plan
requires that all shares of restricted stock awarded to the holder remain in our
physical custody until the restrictions have terminated and all vesting
requirements with respect to the restricted stock have been fulfilled. We will
retain custody of all dividends and distributions made or declared with respect
to the restricted stock during the restriction period. A breach of any
restriction regarding the restricted stock will cause a forfeiture of the
restricted stock and any retained distributions. Except for the foregoing
restrictions, the holder will, even during the restriction period, have all of
the rights of a shareholder, including the right to vote the
shares.
Other Stock-Based
Awards. Under the plan, other stock-based awards may be
granted, subject to limitations under applicable law, that are denominated or
payable in, valued in whole or in part by reference to, or otherwise based on,
or related to, shares of common stock, as deemed by the compensation committee
to be consistent with the purposes of the plan. These other stock-based awards
may be in the form of purchase rights, shares of common stock awarded that are
not subject to any restrictions or conditions, convertible or exchangeable
debentures or other rights convertible into shares of common stock and awards
valued by reference to the value of securities of, or the performance of, one of
our subsidiaries. These other stock-based awards may include performance shares
or options, whose award is tied to specific performance criteria. These other
stock-based awards may be awarded either alone, in addition to, or in tandem
with any other awards under the plan or any of our other plans.
Accelerated
Vesting and Exercisability
If any
one person, or more than one person acting as a group, acquires the ownership of
stock of the company that, together with the stock held by such person or group,
constitutes more than 50% of the total fair market value or combined voting
power of the stock of our company, and our board of directors does not authorize
or otherwise approve such acquisition, then the vesting periods of any and all
stock options and other awards granted and outstanding under the plan shall be
accelerated and all such stock options and awards will immediately and entirely
vest, and the respective holders thereof will have the immediate right to
purchase and/or receive any and all common stock subject to such stock options
and awards on the terms set forth in the plan and the respective agreements
respecting such stock options and awards. An increase in the percentage of stock
owned by any one person, or persons acting as a group, as a result of a
transaction in which we acquire our stock in exchange for property is not
treated as an acquisition of stock for the foregoing purposes.
The
compensation committee may, in the event of an acquisition by any one person, or
more than one person acting as a group, together with acquisitions during the
12-month period ending on the date of the most recent acquisition by such person
or persons, of assets from us that have a total gross fair market value equal to
or more than 50% of the total gross fair market value of all of the assets of
our company immediately before such acquisition or acquisitions, or if any one
person, or more than one person acting as a group, acquires the ownership of
stock of our company that, together with the stock held by such person or group,
constitutes more than 50% of the total fair market value or combined voting
power of the stock of our company, which has been approved by our board of
directors, (i) accelerate the vesting of any and all stock options and other
awards granted and outstanding under the plan, or (ii) require a holder of any
award granted under the plan to relinquish such award to us upon the tender by
us to the holder of cash in an amount equal to the repurchase value of such
award. For this purpose, gross fair market value means the value our assets, or
the value of the assets being disposed of, determined without regard to any
liabilities associated with such assets.
Notwithstanding
any provisions of the plan or any award granted thereunder to the contrary, no
acceleration shall occur with respect to any award to the extent such
acceleration would cause the plan or an award granted thereunder to fail to
comply with Section 409A of the Code.
Award
Limitation
No
participant may be granted awards for more than 1,000,000 shares in any
consecutive twelve (12) month period.
Other Limitations
The
compensation committee may not modify or amend any outstanding option or stock
appreciation right to reduce the exercise price of such option or stock
appreciation right, as applicable, below the exercise price as of the date of
grant of such option or stock appreciation right. In addition, no option or
stock appreciation right may be granted in exchange for, or in connection with,
the cancellation or surrender of an option or stock appreciation right or other
award having a higher exercise price.
Withholding
Taxes
Upon the
exercise of any award granted under the plan, the holder may be required to
remit to the Company an amount sufficient to satisfy all federal, state and
local withholding tax requirements prior to delivery of any certificate or
certificates for shares of common stock.
Amendments
Subject
to the approval of the board, where required, the compensation committee may at
any time, and from time to time, amend the plan, provided that no amendment will
be made that would impair the rights of a holder under any agreement entered
into pursuant to the plan without the holder’s consent (except to the extent
necessary to comply with Section 409A of the Code). In addition, the
committee may not increase the shares available under the plan, increase the
individual limits on awards, allow for an exercise price below fair market
value, permit the repricing of options or stock appreciation rights, or adopt
any other amendment that would require shareholder approval.
Federal
Income Tax Consequences
The
material U.S. federal income tax consequences of awards under the plan, based on
the current provisions of the Code and the regulations thereunder, with respect
to employees who are subject to U.S. income tax are as follows:
The grant
of an option to an employee will have no tax consequences to the employee or to
the company or its subsidiaries or affiliates. In general, upon the exercise of
an incentive stock option (“ISO”), the employee will not recognize income, and
the employer will not be entitled to a tax deduction. However, the excess of the
acquired shares’ fair market value on the exercise date over the exercise price
is included in the employee’s income for purposes of the alternative minimum
tax. When an employee disposes of ISO shares, the difference between the
exercise price and the amount realized by the employee will, in general,
constitute capital gain or loss, as the case may be. However, if the employee
fails to hold the ISO shares for more than one year after exercising the ISO and
for more than two years after the grant of the ISO, (i) the portion of any gain
realized by the employee upon the disposition of the shares that does not exceed
the excess of the fair market value of the shares on the exercise date over the
exercise price generally will be treated as ordinary income, (ii) the balance of
any gain or any loss will be treated as a capital gain or loss, and (iii) the
employer generally will be entitled to a tax deduction equal to the amount of
ordinary income recognized by the employee. If an employee exercises an ISO more
than three months after his termination of employment with the company and any
subsidiary in which the company owns at least 50% of the voting power (or one
year after his termination of employment if the reason for the termination is
disability), the option will be treated for tax purposes as a non-qualified
stock option, as described below.
In
general, upon the exercise of a non-qualified stock option, the employee will
recognize ordinary income equal to the excess of the acquired shares’ fair
market value on the exercise date over the exercise price, and the employer
generally will be entitled to a tax deduction in the same amount.
With
respect to other awards that are settled either in cash or in shares that are
transferable or are not subject to a substantial risk of forfeiture, the
employee will recognize ordinary income equal to the excess of (a) the cash or
the fair market value of any shares received (determined as of the date of
settlement) over (b) the amount, if any, paid for the shares by the employee,
and the employer generally will be entitled to a tax deduction in the same
amount.
In the
case of an award to an employee that is settled in shares that are
nontransferable and subject to a substantial risk of forfeiture, the employee
generally will recognize ordinary income equal to the excess of (a) the
fair market value of the shares received (determined as of the date on which the
shares become transferable or not subject to a substantial risk of forfeiture,
whichever occurs first) over (b) the amount, if any, paid for the shares by
the employee, and the employer generally will be entitled to a tax deduction in
the same amount.
An
employee whose shares are both nontransferable and subject to a substantial risk
of forfeiture may elect under Section 83(b) of the Code to recognize income
when the shares are received, rather than upon the expiration of the transfer A
participant may make a Section 83(b) election, within 30 days of the
transfer of the restricted stock. If a participant makes an election and
thereafter forfeits the shares, no ordinary loss deduction will be allowed. The
forfeiture will be treated as a sale or exchange upon which there is realized
loss equal to the excess, if any, of the consideration paid for the shares over
the amount realized on such forfeiture. The loss will be a capital loss if the
shares are capital assets. If a participant makes an election under
Section 83(b), the holding period will commence on the day after the date
of transfer and the tax basis will equal the fair market value of shares, as
determined without regard to the restrictions, on the date of
transfer.
New
Plan Benefits
As of
November 29, 2010, no options or other stock awards have been granted under the
2010 Long-Term Incentive Equity Plan for which shareholder approval is sought
except for a ten-year, non-qualified option to purchase 600,000 shares of common
stock granted to our Chief Executive Officer at an exercise price of $0.78 per
share (the closing price of our common stock on such date), with 150,000,
200,000 and 250,000 shares vesting on January 2, 2012, 2013 and 2014,
respectively. As of November 29, 2010, the closing price of our
common stock was $0.96 per share. Since future issuances under the 2010
Long-Term Incentive Equity Plan will depend on the individuals selected at the
discretion of the compensation committee to receive awards; the number of shares
to be awarded; and the fair market value of our common stock at various future
dates, it is not possible at this time to determine the benefits that will be
received under the plan by all eligible employees, officers, directors or
consultants. However, the board of directors has approved granting
options and shares of restricted stock to the named executive officers, certain
non-executive employees and the non-employee directors under the 2010 Long-Term
Incentive Equity Plan at an exercise price equal to the last sale price of our
common stock on the date of grant, contingent upon shareholder approval of the
plan. The “New Plan Benefits” table below sets forth information regarding
benefits to be provided under the 2010 Long-Term Incentive Equity Plan only to
the extent as can reasonably be anticipated as of November 29,
2010.
NEW
PLAN BENEFITS
2010
Long-Term Incentive Equity Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Lynch
|
|
|
600,000 |
|
|
|
333,746 |
(2) |
|
|
- |
|
|
|
- |
|
Chairman
and Chief Executive Officer
|
|
|
84,000 |
|
|
|
56,388 |
(3) |
|
|
36,000 |
|
|
|
34,560 |
|
Linda
LoRe
President
|
|
|
42,000 |
|
|
|
28,194 |
(3) |
|
|
18,000 |
|
|
|
17,280 |
|
Thomas
Rende
EVP
and CFO
|
|
|
35,000 |
|
|
|
23,495 |
(3) |
|
|
15,000 |
|
|
|
14,400 |
|
Named
Executive Officer Group
(3
persons)
|
|
|
761,000 |
|
|
|
441,823 |
(3) |
|
|
69,000 |
|
|
|
66,240 |
|
Non-Executive
Director Group
(4
persons)
|
|
|
70,000 |
|
|
|
46,990 |
(3) |
|
|
30,000 |
|
|
|
28,800 |
|
Non-Executive
Officer Employee Group
(7
persons)
|
|
|
196,000 |
|
|
|
131,573 |
(3) |
|
|
84,000 |
|
|
|
80,640 |
|
(1)
|
It
is anticipated that all of the options and shares of restricted stock set
forth in the table above, other than the option to purchase 600,000 shares
granted to Mr. Lynch, will vest in equal annual installments on the first,
second and third anniversaries of the grant
date.
|
(2)
|
The
fair value of the option award was calculated using the Black-Scholes
option-pricing model using an exercise price of $0.78 per share, which was
the closing price of our common stock on June 29, 2010, the date the
option was granted. The following weighted-average assumptions
were used for the grant: risk-free interest rate of 2.43%; expected life
of 7 years; expected volatility of 76.3% and expected dividends of
zero. The fair value generated by the Black-Scholes model may
not be indicative of the future benefit, if any, that may be received by
the option holder.
|
(3)
|
The
estimated fair value of the options was calculated using the Black-Scholes
option-pricing model with an assumed exercise price of $0.96 per share,
which was the closing price of our common stock on November 29,
2010. The following weighted-average assumptions were used for
the expected grants: risk-free interest rate of 2.19%; expected life of 7
years; expected volatility of 74.4% and expected dividends of
zero. The fair value generated by the Black-Scholes model may
not be indicative of the future benefit, if any, that may be received by
the option holders.
|
(4)
|
Calculated
based on $0.96 per share closing price of our common stock on November 29,
2010.
|
Vote
Required
The
affirmative vote of a majority of the shares of the common stock present in
person or by proxy and entitled to vote at the Annual Meeting is required to
approve the plan.
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE STOCK PLAN PROPOSAL.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
A representative of MHM, our
independent registered public accounting firm for the fiscal year ended July 31,
2010, is expected to be present at the Annual Meeting. The
representative will have the opportunity to make a statement and will be
available to respond to appropriate questions from shareholders. The
board of directors has selected MHM as our independent registered public
accounting firm for the fiscal year ending July 30, 2011.
SOLICITATION
OF PROXIES
The
solicitation of proxies in the enclosed form is made on behalf of our board of
directors and we are paying for the cost of this solicitation. In
addition to the use of the mails, proxies may be solicited personally or by
telephone using the services of our directors, officers and regular employees at
nominal cost. We will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for expenses incurred in sending proxy
material to beneficial owners of our stock.
SHAREHOLDER
PROPOSALS AND NOMINATIONS
In order
for any shareholder proposal or nomination to be presented at the fiscal 2011
Annual Meeting of Shareholders or to be eligible for inclusion in our proxy
statement for such meeting, we must receive them at our principal executive
offices by August 9, 2011. Each proposal should include the exact
language of the proposal, a brief description of the matter and the reasons for
the proposal, the name and address of the shareholder making the proposal and
the disclosure of that shareholder’s number of shares of common stock owned,
length of ownership of the shares, representation that the shareholder will
continue to own the shares through the annual shareholder meeting, intention to
appear in person or by proxy at the annual shareholder meeting and material
interest, if any, in the matter being proposed.
Shareholders
who wish to recommend to the nominating committee a candidate for election to
the board of directors should send their letters to Frederick’s of Hollywood
Group Inc., 6255 Sunset Boulevard, Hollywood, California 90028, Attention:
nominating and governance committee. The Corporate Secretary will promptly
forward all such letters to the members of the nominating committee.
Shareholders must follow certain procedures to recommend to the nominating and
governance committee candidates for election as directors. In
general, in order to provide sufficient time to enable the nominating and
governance committee to evaluate candidates recommended by shareholders in
connection with selecting candidates for nomination in connection with our
Annual Meeting of Shareholders, the Corporate Secretary must receive the
shareholder’s recommendation no later than thirty days after the end of our
fiscal year.
The
recommendation must contain the following information about the
candidate:
|
·
|
Current
business and residence addresses and telephone numbers, as well as
residence addresses for the past 20
years;
|
|
·
|
Principal
occupation or employment and employment history (name and address of
employer and job title) for the past 20 years (or such shorter period as
the candidate has been in the
workforce);
|
|
·
|
Educational
background;
|
|
·
|
Permission
for us to conduct a background investigation, including the right to
obtain education, employment and credit
information;
|
|
·
|
Three
character references and contact
information;
|
|
·
|
The
number of shares of our common stock beneficially owned by the
candidate;
|
|
·
|
The
information that would be required to be disclosed by us about the
candidate under the rules of the SEC in a proxy statement soliciting
proxies for the election of such candidate as a director (which currently
includes information required by Items 401, 404 and 405 of Regulation
S-K); and
|
|
·
|
A
signed consent of the nominee to serve as a director of our company, if
elected.
|
OTHER
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
The board
of directors provides a process for shareholders and interested parties to send
communications to the board. Shareholders and interested parties may
communicate with the board of directors, any committee chairperson or the
non-management directors as a group by writing to the board or committee
chairperson in care of Frederick’s of Hollywood Group Inc., 6255 Sunset
Boulevard, Hollywood, California 90028. Each communication will be
forwarded, depending on the subject matter, to the board, the appropriate
committee chairperson or all non-management directors.
DISCRETIONARY
VOTING OF PROXIES
Pursuant
to Rule 14a-4 promulgated by the SEC, shareholders are advised that our
management will be permitted to exercise discretionary voting authority under
proxies it solicits and obtains for the fiscal 2011 Annual Meeting of
Shareholders with respect to any proposal presented by a shareholder at such
meeting, without any discussion of the proposal in our proxy statement for such
meeting, unless we receive notice of such proposal at our principal office in
Hollywood, California, not later than October 24, 2011.
OTHER
MATTERS
The board
of directors knows of no matter which will be presented for consideration at the
Annual Meeting other than the matters referred to in this proxy
statement. Should any other matter properly come before the Annual
Meeting, it is the intention of the persons named in the accompanying proxy to
vote such proxy in accordance with their best judgment.
|
By
Order of the Board of Directors
|
|
|
|
Thomas
Rende, Secretary
|
New York,
New York
December
7, 2010
Annex
A
FREDERICK’S
OF HOLLYWOOD GROUP INC.
2010
Long-Term Incentive Equity Plan
Section
1. Purpose;
Definitions.
1.1. Purpose. The
purpose of the 2010 Long-Term Incentive Equity Plan (“Plan”) is to enable the
Company to offer to its employees, officers, directors and consultants whose
past, present and/or potential contributions to the Company and its Subsidiaries
have been, are or will be important to the success of the Company, an
opportunity to acquire a proprietary interest in the Company. The various types
of long-term incentive awards that may be provided under the Plan will enable
the Company to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its
businesses.
1.2. Definitions. For purposes
of the Plan, the following terms shall be defined as set forth
below:
(a) “Agreement”
means the agreement between the Company and the Holder, or such other document
as may be determined by the Committee, setting forth the terms and conditions of
an award under the Plan.
(b) “Board”
means the Board of Directors of the Company.
(c) “Code”
means the Internal Revenue Code of 1986, as amended from time to
time.
(d) “Committee”
means the committee of the Board designated to administer the Plan as provided
in Section 2.1.
(e) “Common
Stock” means the Common Stock of the Company, par value $0.01 per
share.
(f) “Company”
means Frederick’s of Hollywood Group Inc., a corporation organized under the
laws of the State of New York.
(g) “Disability”
means physical or mental impairment as determined under procedures established
by the Committee for purposes of the Plan.
(h) “Effective
Date” means the date determined pursuant to Section 11.1.
(i)
“Fair Market Value,” unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as of any
given date: (i) if the Common Stock is listed on a national securities exchange
or the Nasdaq Stock Market, the last sale price of the Common Stock in the
principal trading market for the Common Stock on such date, as reported by the
exchange or Nasdaq, as the case may be; (ii) if the Common Stock is not listed
on a national securities exchange or the Nasdaq Stock Market, but is traded in
the over-the-counter market, the closing bid price for the Common Stock on such
date, as reported by the OTC Bulletin Board or Pink Sheets, LLC or similar
publisher of such quotations; and (iii) if the fair market value of the Common
Stock cannot be determined pursuant to clause (i) or (ii) above, such price as
the Committee shall determine, in good faith.
(j)
“Holder” means a person who has received an award under the Plan.
(k) “Incentive
Stock Option” means any Stock Option intended to be and designated as an
“incentive stock option” within the meaning of Section 422 of the
Code.
(l)
“Non-qualified Stock Option” means any Stock Option that is not an
Incentive Stock Option.
(m) “Normal
Retirement” means retirement from active employment with the Company or any
Subsidiary on or after such age which may be designated by the Committee as
“retirement age” for any particular Holder. If no age is designated, it shall be
65.
(n) “Other
Stock-Based Award” means an award under Section 9 that is valued in whole or in
part by reference to, or is otherwise based upon, Common Stock.
(o) “Parent”
means any present or future “parent corporation” of the Company, as such term is
defined in Section 424(e) of the Code.
(p) “Plan”
means the Frederick’s of Hollywood Group Inc. 2010 Long-Term Incentive Equity
Plan, as hereinafter amended from time to time.
(q) “Repurchase
Value” shall mean the Fair Market Value if the award to be settled under Section
2.2(e) or repurchased under Section 9.2 is comprised of shares of Common Stock
and the difference between Fair Market Value and the Exercise Price (if lower
than Fair Market Value) if the award is a Stock Option or Stock Appreciation
Right; in each case, multiplied by the number of shares subject to the
award.
(r) “Restricted
Stock” means Common Stock received under an award made pursuant to
Section 7 that is subject to restrictions under Section 7.
(s) “SAR
Value” means the excess of the Fair Market Value (on the exercise date) over (a)
the exercise price that the participant would have otherwise had to pay to
exercise the related Stock Option or (b) if a Stock Appreciation Right is
granted unrelated to a Stock Option, the Fair Market Value of a share of Common
Stock on the date of grant of the Stock Appreciation Right, in either case,
multiplied by the number of shares for which the Stock Appreciation Right is
exercised.
(t)
“Stock Appreciation Right” means the right to receive from the Company, on
surrender of all or part of the related Stock Option, without a cash payment to
the Company, a number of shares of Common Stock equal to the SAR Value divided
by the Fair Market Value (on the exercise date).
(u) “Stock
Option” or “Option” means any option to purchase shares of Common Stock which is
granted pursuant to the Plan.
(v) “Subsidiary”
means any present or future “subsidiary corporation” of the Company, as such
term is defined in Section 424(f) of the Code.
(w) “Vest”
means to become exercisable or to otherwise obtain ownership rights in an
award.
Section
2. Administration.
2.1. Committee
Membership. The Plan shall be
administered by a Committee of the Board of at least two directors, all of whom
are “outside directors” within the meaning of the regulations issued under
Section 162(m) of the Code. Committee members shall serve for such term as the
Board may in each case determine and shall be subject to removal at any time by
the Board.
2.2. Powers of
Committee. The Committee
shall have full authority to award, pursuant to the terms of the Plan: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, and/or (iv)
Other Stock-Based Awards. For purposes of illustration and not of limitation,
the Committee shall have the authority (subject to the express provisions of
this Plan):
(a) to
select the officers, employees, directors and consultants of the Company or any
Subsidiary to whom Stock Options, Stock Appreciation Rights, Restricted Stock
and/or Other Stock-Based Awards may from time to time be awarded
hereunder.
(b) to
determine the terms and conditions, not inconsistent with the terms of the Plan,
of any award granted hereunder (including, but not limited to, number of shares,
share exercise price or types of consideration paid upon exercise of such
options, such as other securities of the Company or other property, any
restrictions or limitations, and any vesting, exchange, surrender, cancellation,
acceleration, termination, exercise or forfeiture provisions, as the Committee
shall determine);
(c) to
determine any specified performance goals or such other factors or criteria
which need to be attained for the vesting of an award granted
hereunder;
(d) to
determine the terms and conditions under which awards granted hereunder are to
operate on a tandem basis and/or in conjunction with or apart from other equity
awarded under this Plan and cash and non-cash awards made by the Company or any
Subsidiary outside of this Plan; and
(e) to
make payments and distributions with respect to awards (i.e., to “settle” awards)
through cash payments in an amount equal to the Repurchase Value.
The
Committee may not modify or amend any outstanding Option or Stock Appreciation
Right to reduce the exercise price of such Option or Stock Appreciation Right,
as applicable, below the exercise price as of the date of grant of such Option
or Stock Appreciation Right. In addition, no Option or Stock
Appreciation Right may be granted in exchange for, or in connection with, the
cancellation or surrender of an Option or Stock Appreciation Right or other
award having a higher exercise price.
Notwithstanding
anything to the contrary, the Committee shall not grant to any one Holder in any
consecutive twelve (12) month period awards for more than 1,000,000 shares in
the aggregate.
2.3. Interpretation of
Plan.
(a) Committee
Authority. Subject to
Section 10, the Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall from time to time deem advisable to interpret the terms and provisions of
the Plan and any award issued under the Plan (and to determine the form and
substance of all agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 10, all decisions made by the
Committee pursuant to the provisions of the Plan shall be made in the
Committee’s sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock
Options. Anything in
the Plan to the contrary notwithstanding, no term or provision of the Plan
relating to Incentive Stock Options (including but not limited to Stock
Appreciation rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
Section
3. Stock
Subject to Plan.
3.1. Number of
Shares. Subject to
the last sentence of Section 7.1, the total number of shares of Common Stock
reserved and available for issuance under the Plan shall be 4,000,000 shares.
Shares of Common Stock under the Plan (“Shares”) may consist, in whole or in
part, of authorized and unissued shares or treasury shares. If any shares of
Common Stock that have been granted pursuant to a Stock Option cease to be
subject to a Stock Option, or if any shares of Common Stock that are subject to
any Stock Appreciation Right, Restricted Stock award or Other Stock-Based Award
granted hereunder are forfeited, or any such award otherwise terminates without
a payment being made to the Holder in the form of Common Stock, such shares
shall again be available for distribution in connection with future grants and
awards under the Plan. If a Holder pays the exercise price of a Stock Option by
surrendering any previously owned shares and/or arranges to have the appropriate
number of shares otherwise issuable upon exercise withheld to cover the
withholding tax liability associated with the Stock Option exercise, then, in
the Committee’s discretion, the number of shares available under the Plan may be
increased by the lesser of (i) the number of such surrendered shares and shares
used to pay taxes; and (ii) the number of shares purchased under such Stock
Option.
3.2. Adjustment Upon Changes in
Capitalization, Etc. In the event
of any common stock dividend payable on shares of Common Stock, Common Stock
split or reverse split, combination or exchange of shares of Common Stock, or
other extraordinary or unusual event which results in a change in the shares of
Common Stock of the Company as a whole, the Committee shall determine, in its
sole discretion, whether such change equitably requires an adjustment in the
terms of any award in order to prevent dilution or enlargement of the benefits
available under the Plan (including number of shares subject to the award and
the exercise price) or the aggregate number of shares reserved for issuance
under the Plan. Any such adjustments will be made by the Committee, whose
determination will be final, binding and conclusive.
Section
4. Eligibility.
Awards
may be made or granted to employees, officers, directors and consultants who are
deemed to have rendered or to be able to render significant services to the
Company or its Subsidiaries and who are deemed to have contributed or to have
the potential to contribute to the success of the Company and which recipients
are qualified to receive options under the regulations governing Form S-8
registration statements under the Securities Act of 1933, as amended
(“Securities Act”). No Incentive Stock Option shall be granted to any person who
is not an employee of the Company or an employee of a Subsidiary at the time of
grant or so qualified as set forth in the immediately preceding sentence.
Notwithstanding the foregoing, an award may also be made or granted to a person
in connection with his hiring or retention, or at any time on or after the date
he reaches an agreement (oral or written) with the Company with respect to such
hiring or retention, even though it may be prior to the date the person first
performs services for the Company or its Subsidiaries; provided, however, that
no portion of any such award shall vest prior to the date the person first
performs such services and the date of grant shall be deemed to be the date
hiring or retention commences.
Section
5. Stock
Options.
5.1. Grant and
Exercise. Stock Options
granted under the Plan may be of two types: (i) Incentive Stock Options and (ii)
Non-qualified Stock Options. Any Stock Option granted under the Plan shall
contain such terms, not inconsistent with this Plan, or with respect to
Incentive Stock Options, not inconsistent with the Plan and the Code, as the
Committee may from time to time approve. The Committee shall have the authority
to grant Incentive Stock Options or Non-qualified Stock Options, or both types
of Stock Options which may be granted alone or in addition to other awards
granted under the Plan. To the extent that any Stock Option intended to qualify
as an Incentive Stock Option does not so qualify, it shall constitute a separate
Non-qualified Stock Option.
5.2. Terms and
Conditions. Stock Options
granted under the Plan shall be subject to the following terms and
conditions:
(a) Option Term. The term of
each Stock Option shall be fixed by the Committee; provided, however, that an
Incentive Stock Option may be granted only within the ten-year period commencing
from the Effective Date and may only be exercised within ten years of the date
of grant (or five years in the case of an Incentive Stock Option granted to an
optionee who, at the time of grant, owns Common Stock possessing more than 10%
of the total combined voting power of all classes of voting stock of the Company
(“10% Shareholder”)).
(b) Exercise Price. The exercise
price per share of Common Stock purchasable under a Stock Option shall be
determined by the Committee at the time of grant and may not be less than 100%
of the Fair Market Value on the date of grant (or, if greater, the par value of
a share of Common Stock); provided, however, that the exercise price of an
Incentive Stock Option granted to a 10% Shareholder will not be less than 110%
of the Fair Market Value on the date of grant.
(c) Exercisability. Stock
Options shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. The Committee intends
generally to provide that Stock Options be exercisable only in installments,
i.e., that they vest over time, typically over a five-year
period. The Committee may waive such installment exercise provisions
at any time at or after the time of grant in whole or in part, based upon such
factors as the Committee determines. Notwithstanding the foregoing,
in the case of an Incentive Stock Option, the aggregate Fair Market Value (on
the date of grant of the Option) with respect to which Incentive Stock Options
become exercisable for the first time by a Holder during any calendar year
(under all such plans of the Company and its Parent and Subsidiaries) shall not
exceed $100,000.
(d) Method of
Exercise. Subject to whatever installment, exercise and waiting
period provisions are applicable in a particular case, Stock Options may be
exercised in whole or in part at any time during the term of the Option by
giving written notice of exercise to the Company specifying the number of shares
of Common Stock to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, which shall be in cash or, if provided in the
Agreement, either in shares of Common Stock (including Restricted Stock and
other contingent awards under this Plan) or partly in cash and partly in such
Common Stock, or such other means which the Committee determines are consistent
with the Plan’s purpose and applicable law. Cash payments shall be made by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be required
to deliver certificates for shares of Common Stock with respect to which an
Option is exercised until the Company has confirmed the receipt of good and
available funds in payment of the purchase price thereof (except that, in the
case of an exercise arrangement approved by the Committee and described in the
last sentence of this paragraph, payment may be made as soon as practicable
after the exercise). The Committee may permit a Holder to elect to
pay the Exercise Price upon the exercise of a Stock Option by irrevocably
authorizing a third party to sell shares of Common Stock (or a sufficient
portion of the shares) acquired upon exercise of the Stock Option and remit to
the Company a sufficient portion of the sale proceeds to pay the entire Exercise
Price and any tax withholding resulting from such exercise.
(e) Stock
Payments. Payments in the form of Common Stock shall be valued at
the Fair Market Value on the date of exercise. Such payments shall be made by
delivery of stock certificates in negotiable form that are effective to transfer
good and valid title thereto to the Company, free of any liens or encumbrances.
A Holder shall have none of the rights of a Shareholder with respect to the
shares subject to the Option until such shares shall be transferred to the
Holder upon the exercise of the Option.
(f) Transferability. Except
as may be set forth in the next sentence of this Section or in the Agreement, no
Stock Option shall be transferable by the Holder other than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the Holder’s lifetime, only by the Holder (or, to the extent of legal
incapacity or incompetency, the Holder’s guardian or legal representative).
Notwithstanding the foregoing, a Holder, with the approval of the Committee, may
transfer a Non-Qualified Stock Option (i) (A) by gift, for no consideration, or
(B) pursuant to a domestic relations order, in either case, to or for the
benefit of the Holder’s “Immediate Family” (as defined below), or (ii) to an
entity in which the Holder and/or members of Holder’s Immediate Family own more
than fifty percent of the voting interest, in exchange for an interest in that
entity, subject to such limits as the Committee may establish and the execution
of such documents as the Committee may require, and the transferee shall remain
subject to all the terms and conditions applicable to the Non-Qualified Stock
Option prior to such transfer. The term “Immediate Family” shall mean any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including adoptive
relationships, any person sharing the Holder’s household (other than a tenant or
employee), a trust in which these persons have more than fifty percent
beneficial interest, and a foundation in which these persons (or the Holder)
control the management of the assets. The Committee may, in its sole
discretion, permit transfer of an Incentive Stock Option in a manner consistent
with applicable tax and securities law upon the Holder’s request.
(g) Termination by Reason of
Death. If a Holder’s employment by, or association with, the Company
or a Subsidiary terminates by reason of death, any Stock Option held by such
Holder, unless otherwise determined by the Committee and set forth in the
Agreement, shall thereupon automatically terminate, except that the portion of
such Stock Option that has vested on the date of death may thereafter be
exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify in the Agreement) from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is shorter.
(h) Termination by Reason of
Disability. If a Holder’s employment by, or association with, the
Company or any Subsidiary terminates by reason of Disability, any Stock Option
held by such Holder, unless otherwise determined by the Committee and set forth
in the Agreement, shall thereupon automatically terminate, except that the
portion of such Stock Option that has vested on the date of termination may
thereafter be exercised by the Holder for a period of one year (or such other
greater or lesser period as the Committee may specify in the Agreement) from the
date of such termination or until the expiration of the stated term of such
Stock Option, whichever period is shorter.
(i) Termination by Reason of
Normal Retirement. Subject to the provisions of Section 12.3, if
such Holder’s employment by, or association with, the Company or any Subsidiary
terminates due to Normal Retirement, any Stock Option held by such Holder,
unless otherwise determined by the Committee and set forth in the Agreement,
shall thereupon automatically terminate, except that the portion of such Stock
Option that has vested on the date of termination may thereafter be exercised by
the Holder for a period of one year (or such other greater or lesser period as
the Committee may specify in the Agreement) from the date of such termination or
until the expiration of the stated term of such Stock Option, whichever period
is shorter.
(j) Other
Termination. Subject to the provisions of Section 12.3, if such
Holder’s employment by, or association with, the Company or any Subsidiary
terminates for any reason other than death, Disability or Normal Retirement, any
Stock Option held by such Holder, unless otherwise determined by the Committee
and set forth in the Agreement, shall thereupon automatically terminate, except
that, if the Holder’s employment is terminated by the Company or a Subsidiary
without cause, the portion of such Stock Option that has vested on the date of
termination may thereafter be exercised by the Holder for a period of three
months (or such other greater or lesser period as the Committee may specify in
the Agreement) from the date of such termination or until the expiration of the
stated term of such Stock Option, whichever period is shorter.
(k) Buyout and Settlement
Provisions. The Committee may at any time, in its sole discretion,
offer to repurchase a Stock Option previously granted, based upon such terms and
conditions as the Committee shall establish and communicate to the Holder at the
time that such offer is made.
Section
6. Stock
Appreciation Rights.
6.1. Grant and
Exercise. Subject to the terms and conditions of the Plan, the
Committee may grant Stock Appreciation Rights in tandem with an Option or alone
and unrelated to an Option. The Committee may grant Stock Appreciation Rights to
participants who have been or are being granted Stock Options under the Plan as
a means of allowing such participants to exercise their Stock Options without
the need to pay the exercise price in cash. In the case of a Non-qualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Non-qualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
6.2. Terms and
Conditions. Stock Appreciation Rights shall be subject to the
following terms and conditions:
(a) Exercisability. Stock
Appreciation Rights shall be exercisable as shall be determined by the Committee
and set forth in the Agreement, subject to the limitations, if any, imposed by
the Code with respect to related Incentive Stock Options.
(b) Termination. A
Stock Appreciation Right shall terminate and shall no longer be exercisable upon
the termination or after the exercise of the related Stock Option.
(c) Method of
Exercise. Stock Appreciation Rights shall be exercisable upon such
terms and conditions as shall be determined by the Committee and set forth in
the Agreement and by surrendering the applicable portion of the related Stock
Option. Upon such exercise and surrender, the Holder shall be entitled to
receive a number of shares of Common Stock equal to the SAR Value divided by the
Fair Market Value on the date the Stock Appreciation Right is
exercised.
(d) Shares Affected Upon
Plan. The granting of a Stock Appreciation Right shall not affect
the number of shares of Common Stock available for awards under the Plan. The
number of shares available for awards under the Plan will, however, be reduced
by the number of shares of Common Stock acquirable upon exercise of the Stock
Option to which such Stock Appreciation Right relates.
Section
7. Restricted
Stock.
7.1. Grant. Shares of
Restricted Stock may be awarded either alone or in addition to other awards
granted under the Plan. The Committee shall determine the eligible persons to
whom, and the time or times at which, grants of Restricted Stock will be
awarded, the number of shares to be awarded, the price (if any) to be paid by
the Holder, the time or times within which such awards may be subject to
forfeiture (“Restriction Period”), the vesting schedule and rights to
acceleration thereof and all other terms and conditions of the
awards. Notwithstanding anything to the contrary elsewhere in this
Plan, for purposes of determining the number of Shares available for awards
pursuant to Section 3.1, each share of Common Stock subject to a Restricted
Stock award shall be deemed to be one Share.
7.2. Terms and
Conditions. Each Restricted Stock award shall be subject to the
following terms and conditions:
(a) Certificates. Restricted
Stock, when issued, will be represented by a stock certificate or certificates
registered in the name of the Holder to whom such Restricted Stock shall have
been awarded. During the Restriction Period, certificates representing the
Restricted Stock and any securities constituting Retained Distributions (as
defined below) shall bear a legend to the effect that ownership of the
Restricted Stock (and such Retained Distributions) and the enjoyment of all
rights appurtenant thereto are subject to the restrictions, terms and conditions
provided in the Plan and the Agreement. Such certificates shall be deposited by
the Holder with the Company, together with stock powers or other instruments of
assignment, each endorsed in blank, which will permit transfer to the Company of
all or any portion of the Restricted Stock and any securities constituting
Retained Distributions that shall be forfeited or that shall not become vested
in accordance with the Plan and the Agreement.
(b) Rights of
Holder. Restricted Stock shall constitute issued and outstanding
shares of Common Stock for all corporate purposes. The Holder will have the
right to vote such Restricted Stock and to exercise all other rights, powers and
privileges of a holder of Common Stock with respect to such Restricted Stock,
with the exceptions that (i) the Holder will not be entitled to delivery of the
stock certificate or certificates representing such Restricted Stock until the
Restriction Period shall have expired and unless all other vesting requirements
with respect thereto shall have been fulfilled; (ii) the Company will retain
custody of the stock certificate or certificates representing the Restricted
Stock during the Restriction Period; (iii) the Company will retain custody of
all dividends and distributions (“Retained Distributions”) made, paid or
declared with respect to the Restricted Stock (and such Retained Distributions
will be subject to the same restrictions, terms and conditions as are applicable
to the Restricted Stock) until such time, if ever, as the Restricted Stock with
respect to which such Retained Distributions shall have been made, paid or
declared shall have become vested and with respect to which the Restriction
Period shall have expired; (iv) a breach of any of the restrictions, terms or
conditions contained in this Plan or the Agreement or otherwise established by
the Committee with respect to any Restricted Stock or Retained Distributions
will cause a forfeiture of such Restricted Stock and any Retained Distributions
with respect thereto.
(c)
Vesting;
Forfeiture. Upon the expiration of the Restriction Period with
respect to each award of Restricted Stock and the satisfaction of any other
applicable restrictions, terms and conditions (i) all or part of such Restricted
Stock shall become vested in accordance with the terms of the Agreement, and
(ii) any Retained Distributions with respect to such Restricted Stock shall
become vested to the extent that the Restricted Stock related thereto shall have
become vested. Any such Restricted Stock and Retained Distributions that do not
vest shall be forfeited to the Company and the Holder shall not thereafter have
any rights with respect to such Restricted Stock and Retained Distributions that
shall have been so forfeited.
Section
8. Other
Stock-Based Awards.
Other
Stock-Based Awards may be awarded, subject to limitations under applicable law,
that are denominated or payable in, valued in whole or in part by reference to,
or otherwise based on or related to, shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, purchase rights, shares of Common Stock awarded which are not
subject to any restrictions or conditions, convertible or exchangeable
debentures, or other rights convertible into shares of Common Stock and awards
valued by reference to the value of securities of or the performance of
specified Subsidiaries. These other stock-based awards may include performance
shares or options, whose award is tied to specific performance criteria. Other
Stock-Based Awards may be awarded either alone or in addition to or in tandem
with any other awards under this Plan or any other plan of the Company. Each
other Stock-Based Award shall be subject to such terms and conditions as may be
determined by the Committee.
Section
9. Accelerated
Vesting and Exercisability.
9.1. Non-Approved
Transactions. If any one person, or more than one person acting as a
group, acquires the ownership of stock of the Company that, together with the
stock held by such person or group, constitutes more than 50% of the total fair
market value or combined voting power of the stock of the Company, and the Board
does not authorize or otherwise approve such acquisition, then the vesting
periods of any and all Stock Options and other awards granted and outstanding
under the Plan shall be accelerated and all such Stock Options and awards will
immediately and entirely vest, and the respective holders thereof will have the
immediate right to purchase and/or receive any and all Common Stock subject to
such Stock Options and awards on the terms set forth in this Plan and the
respective Agreements respecting such Stock Options and awards. An increase in
the percentage of stock owned by any one person, or persons acting as a group,
as a result of a transaction in which the Company acquires its stock in exchange
for property is not treated as an acquisition of stock for purposes of this
Section 9.1.
9.2. Approved
Transactions. The Committee may, in the event of an
acquisition by any one person, or more than one person acting as a group,
together with acquisitions during the 12-month period ending on the date of the
most recent acquisition by such person or persons, of assets from the Company
that have a total gross fair market value equal to or more than 50% of the total
gross fair market value of all of the assets of the Company immediately before
such acquisition or acquisitions, or if any one person, or more than one person
acting as a group, acquires the ownership of stock of the Company that, together
with the stock held by such person or group, constitutes more than 50% of the
total fair market value or combined voting power of the stock of the Company,
which has been approved by the Company’s Board of Directors, (i) accelerate the
vesting of any and all Stock Options and other awards granted and outstanding
under the Plan, or (ii) require a Holder of any award granted under this Plan to
relinquish such award to the Company upon the tender by the Company to Holder of
cash in an amount equal to the Repurchase Value of such award. For this purpose,
gross fair market value means the value of the assets of the Company, or the
value of the assets being disposed of, determined without regard to any
liabilities associated with such assets.
9.3. Code Section
409A. Notwithstanding any provisions of this Plan or any award
granted hereunder to the contrary, no acceleration shall occur with respect to
any award to the extent such acceleration would cause the Plan or an award
granted hereunder to fail to comply with Code Section 409A.
Section
10. Amendment
and Termination.
The Board
may at any time, and from time to time, amend alter, suspend or discontinue any
of the provisions of the Plan, but no amendment, alteration, suspension or
discontinuance shall be made that would impair the rights of a Holder under any
Agreement theretofore entered into hereunder, without the Holder’s consent,
except as set forth in this Plan.
Section
11. Term
of Plan.
11.1. Effective
Date. The Plan shall be effective as of, and the Effective Date
shall be, June 29, 2010, subject to the approval of the Plan by the Company’s
shareholders within one year after the Effective Date. Any awards
granted under the Plan prior to such approval shall be effective when made
(unless otherwise specified by the Committee at the time of grant), but shall be
conditioned upon, and subject to, such approval of the Plan by the Company’s
shareholders and no awards shall vest or otherwise become free of restrictions
prior to such approval.
11.2.
Termination
Date. Unless terminated by the Board, this Plan shall continue to
remain effective until such time as no further awards may be granted and all
awards granted under the Plan are no longer outstanding. Notwithstanding the
foregoing, grants of Incentive Stock Options may be made only during the
ten-year period beginning on the Effective Date.
Section
12. General
Provisions.
12.1. Written
Agreements. Each award granted under the Plan shall be confirmed by,
and shall be subject to the terms of, the Agreement executed by the Company and
the Holder, or such other document as may be determined by the Committee. The
Committee may terminate any award made under the Plan if the Agreement relating
thereto is not executed and returned to the Company within 10 days after the
Agreement has been delivered to the Holder for his or her
execution.
12.2. Unfunded Status of
Plan. The Plan is intended to constitute an “unfunded” plan for
incentive and deferred compensation. With respect to any payments not yet made
to a Holder by the Company, nothing contained herein shall give any such Holder
any rights that are greater than those of a general creditor of the
Company.
12.3. Employees.
(a) Engaging in Competition With
the Company; Solicitation of Customers and Employees; Disclosure of Confidential
Information. If a Holder’s employment with the Company or a
Subsidiary is terminated for any reason whatsoever, and within 12 months after
the date thereof such Holder either (i) accepts employment with any competitor
of, or otherwise engages in competition with, the Company or any of its
Subsidiaries, (ii) solicits any customers or employees of the Company or any of
its Subsidiaries to do business with or render services to the Holder or any
business with which the Holder becomes affiliated or to which the Holder renders
services or (iii) uses or discloses to anyone outside the Company any
confidential information or material of the Company or any of its Subsidiaries
in violation of the Company’s policies or any agreement between the Holder and
the Company or any of its Subsidiaries, the Committee, in its sole discretion,
may require such Holder to return to the Company the economic value of any award
that was realized or obtained by such Holder at any time during the period
beginning on the date that is six months prior to the date such Holder’s
employment with the Company is terminated. In such event, Holder agrees to remit
to the Company, in cash, an amount equal to the difference between the Fair
Market Value of the Shares on the date of termination (or the sales price of
such Shares if the Shares were sold during such six month period) and the price
the Holder paid the Company for such Shares.
(b) Termination for
Cause. If a Holder’s employment with the Company or a Subsidiary is
terminated for cause, the Committee may, in its sole discretion, require such
Holder to return to the Company the economic value of any award that was
realized or obtained by such Holder at any time during the period beginning on
that date that is six months prior to the date such Holder’s employment with the
Company is terminated. In such event, Holder agrees to remit to the Company, in
cash, an amount equal to the difference between the Fair Market Value of the
Shares on the date of termination (or the sales price of such Shares if the
Shares were sold during such six month period) and the price the Holder paid the
Company for such Shares.
(c) No Right of
Employment. Nothing contained in the Plan or in any award hereunder
shall be deemed to confer upon any Holder who is an employee of the Company or
any Subsidiary any right to continued employment with the Company or any
Subsidiary, nor shall it interfere in any way with the right of the Company or
any Subsidiary to terminate the employment of any Holder who is an employee at
any time.
12.4. Investment Representations;
Company Policy. The Committee may require each person acquiring
shares of Common Stock pursuant to a Stock Option or other award under the Plan
to represent to and agree with the Company in writing that the Holder is
acquiring the shares for investment without a view to distribution thereof. Each
person acquiring shares of Common Stock pursuant to a Stock Option or other
award under the Plan shall be required to abide by all policies of the Company
in effect at the time of such acquisition and thereafter with respect to the
ownership and trading of the Company’s securities.
12.5. Additional Incentive
Arrangements. Nothing contained in the Plan shall prevent the Board
from adopting such other or additional incentive arrangements as it may deem
desirable, including, but not limited to, the granting of Stock Options and the
awarding of Common Stock and cash otherwise than under the Plan; and such
arrangements may be either generally applicable or applicable only in specific
cases.
12.6. Withholding
Taxes. Not later than the date as of which an amount must first be
included in the gross income of the Holder for Federal income tax purposes with
respect to any Stock Option or other award under the Plan, the Holder shall pay
to the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. If permitted by the Committee, tax
withholding or payment obligations may be settled with Common Stock, including
Common Stock that is part of the award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditioned
upon such payment or arrangements and the Company or the Holder’s employer (if
not the Company) shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Holder from the
Company or any Subsidiary.
12.7. Governing
Law. The Plan and all awards made and actions taken thereunder shall
be governed by and construed in accordance with the law of the State of New York
(without regard to choice of law provisions).
12.8. Other Benefit
Plans. Any award granted under the Plan shall not be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or any Subsidiary and shall not affect any benefits under any other
benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this
Plan).
12.9. Non-Transferability. Except
as otherwise expressly provided in the Plan or the Agreement, no right or
benefit under the Plan may be alienated, sold, assigned, hypothecated, pledged,
exchanged, transferred, encumbranced or charged, and any attempt to alienate,
sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the
same shall be void.
12.10. Applicable
Laws. The obligations of the Company with respect to all Stock
Options and awards under the Plan shall be subject to (i) all applicable laws,
rules and regulations and such approvals by any governmental agencies as may be
required, including, without limitation, the Securities Act, and (ii) the rules
and regulations of any securities exchange on which the Common Stock may be
listed.
12.11. Conflicts. If
any of the terms or provisions of the Plan or an Agreement conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with such requirements.
Additionally, if this Plan or any Agreement does not contain any provision
required to be included herein under Section 422 of the Code, such provision
shall be deemed to be incorporated herein and therein with the same force and
effect as if such provision had been set out at length herein and therein. If
any of the terms or provisions of any Agreement conflict with any terms or
provisions of the Plan, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of the Plan.
Additionally, if any Agreement does not contain any provision required to be
included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
12.12. Certain Awards Deferring or
Accelerating the Receipt of Compensation. To the extent applicable,
all awards granted, and all Agreements entered into, under the Plan are intended
to comply with Section 409A of the Code, which was added by the American Jobs
Creation Act of 2004 and relates to deferred compensation under nonqualified
deferred compensation plans. The Committee, in administering the Plan, intends,
and the parties entering into any Agreement intend, to restrict provisions of
any awards that may constitute deferred receipt of compensation subject to Code
Section 409A requirements to those consistent with this Section. The Board may
amend the Plan to comply with Code Section 409A in the future.
12.13. Non-Registered
Stock. The shares of Common Stock to be distributed under this
Plan have not been, as of the Effective Date, registered under the Securities
Act or any applicable state or foreign securities laws and the Company has no
obligation to any Holder to register the Common Stock or to assist the Holder in
obtaining an exemption from the various registration requirements, or to list
the Common Stock on a national securities exchange or any other trading or
quotation system, including the Nasdaq Stock Market.