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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]/x/
Filed by a Party other than the Registrant [ ]/ /
Check the appropriate box:
[ ]/ / Preliminary Proxy Statement
[ ]/ / Confidential, for use of the Commissioner Only (as permitted by Rule
14a-6(c)(2))
[x]/x/ Definitive Proxy Statement
[ ]/ / Definitive Additional Materials
[ ]/ / Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
THE MAXIM GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x]/x/ No fee required.
[ ]/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:_______________________________
----------------------
2) Aggregate number of securities to which transaction applies:
_______________________________________----------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):___________________________________________
----------------------
4) Proposed maximum aggregate value of transaction:_____________
----------------------
5) Total fee paid:_______________________________________________
[ ]
-------------------------
/ / Fee paid previously with preliminary materials.
[ ]/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
____________________________________--------------------------------------
2) Form, Schedule or Registration Statement No.:
_______________---------------
3) Filing Party:
____________________________________-------------------------
4) Date Filed:
____________________________________---------------------------
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[MAXIM LETTERHEAD]
June 4, 1998THE MAXIM GROUP, INC.
210 TOWNPARK DRIVE
KENNESAW, GEORGIA 30144
November 12, 1999
Dear Stockholder:
This year's Annual Meeting of Stockholders ("Annual Meeting") of The
Maxim Group, Inc. (the "Company") will be held on Friday, June 26, 1998Tuesday, December 14, 1999 at
10:00 a.m., local time, at the Company's offices, 210 TownPark Drive, Kennesaw,
Georgia 30144. You are cordially invited to attend.
The Notice of Annual Meeting and a Proxy Statement, which describe the
formal business to be conducted at the Annual Meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign and
return the enclosed proxy in the prepaid envelope to assure that your shares
will be represented. Your shares cannot be voted unless you date, sign and
return the enclosed proxy or attend the Annual Meeting in person. Regardless of
the number of shares you own, your careful consideration of, and vote on, the
matters before our stockholders are important.
A copy of the Company's 19981999 Annual Report is also enclosed for your
information.
We look forward to seeing you at the Annual Meeting.
Very truly yours,
/s/ A.J. NassarA. J. NASSAR
A. J. NASSAR
President and Chief Executive Officer
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THE MAXIM GROUP, INC.
210 TOWNPARK DRIVE
KENNESAW, GEORGIA 30144
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 26, 1998DECEMBER 14, 1999
The annual meeting of shareholders of The Maxim Group, Inc. (the
"Company") will be held on Friday, June 26, 1998Tuesday, December 14, 1999 at 10:00 a.m., at the
principal office of the Company located at 210 TownPark Drive, Kennesaw, Georgia
30144, for the following purposes:
(1) To elect two (2)three (3) directors to serve for a term of three years and
until their successors are elected and qualified;
(2) To approve an amendment to the 1993 Stock Option PlanCertificate of Incorporation of the
Company to increasechange the number of shares of Common Stock available for grant
thereunder from 3,000,000 sharescorporate name to 4,000,000 shares;"Flooring America, Inc."; and
(3) To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on May 28, 1998November 1,
1999 will be entitled to notice of and to vote at the meeting or any
adjournments or postponements thereof.
A Proxy Statement and a proxy solicited by the Board of Directors are
enclosed herewith. Please sign, date and return the proxy promptly. If you
attend the meeting, you may, if you wish, withdraw your proxy and vote in
person.
By Order of the Board of Directors,
/s/ A.J. NassarNASSAR
A.J. NASSAR
President and Chief Executive Officer
Kennesaw, Georgia
June 4, 1998November 12, 1999
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT YOUR VOTE MAY BE
RECORDED AT THE MEETING IF YOU DO NOT ATTEND PERSONALLY.
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THE MAXIM GROUP, INC.
210 TOWNPARK DRIVE
KENNESAW, GEORGIA 30144
ANNUAL MEETING OF SHAREHOLDERS
JUNE 26, 1998
-----------------------DECEMBER 14, 1999
-------------------
PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of The Maxim Group, Inc. (the "Company")
for the Annual Meeting of Shareholders to be held on Friday, June 26, 1998,Tuesday, December 14, 1999,
and any adjournments or postponements thereof, at the time and place and for the
purposes set forth in the accompanying notice of the meeting. The expense of
this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be paid by the Company. In addition to solicitations by mail,
officers and regular employees of the Company, at no additional compensation,
may assist in soliciting proxies by telephone. This Proxy Statement and the
accompanying proxy are first being mailed to shareholders on or about June 4,
1998.November
12, 1999. The address of the principal executive offices of the Company is 210
TownPark Drive, Kennesaw, Georgia 30144.
Any proxy given pursuant to this solicitation may be revoked by any
shareholder who attends the meeting and gives oral notice of his election to
vote in person, without compliance with any other formalities. In addition, any
proxy given pursuant to this solicitation may be revoked prior to the meeting by
delivering to the Secretary of the Company an instrument revoking it or a duly
executed proxy for the same shares bearing a later date. Proxies which are
returned properly executed and not revoked will be voted and will be voted in
accordance with the shareholder's directions specified thereon. Where no
direction is specified, proxies will be voted for the election of the nominees
named below as Class IIIII Directors of the Company and for adoption of the
amendment to the 1993 Stock Option Plan.Company's Certificate of Incorporation. Abstentions and broker
non-votes will be counted as shares present for purposes of determining the
presence of a quorum but will not be counted as votes either in favorcast for purposes of
or againstdetermining whether the proposal to amend the 1993 Stock Option Plan.Certificate of Incorporation has
received sufficient votes for adoption. Since approval of the amendment to the
Certificate of Incorporation requires the affirmative vote of holders of a
majority of shares outstanding, a shareholder who fails to return a proxy or who
abstains from voting on the proposal in his proxy will have functionally voted
against the proposal.
The record of shareholders entitled to vote at the annual meeting was
taken on May 28, 1998.November 1, 1999. On that date the Company had outstanding and entitled
to vote 16,167,61319,072,532 shares of common stock, par value $.001 per share (the
"Common Stock"), with each share entitled to one vote.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of April 15, 1998,November 1, 1999, with respect to (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Executive Officers (as defined herein), and (iv) all directors and
executive officers as a group. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned.
NAME AND ADDRESSOF NUMBER OF SHARES PERCENTAGE OF OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) TOTAL
- ----------------------------------- --------------------- -------------
Joseph J. Jillson.............................. 130,000(2) *
Richard A. Kaplan......................................... 930,000 5.7%
7 Far View Hill
Rochester, New York 14620
A.J. Nassar(2)............................................ 1,210,960 7.1
210 TownPark Drive
Kennesaw, Georgia 30144
M.B. Seretean............................................. 677,000 4.2
H. Stanley Padgett(3)..................................... 179,497 1.1
Herb Biggers(4)........................................... 20,000Kaplan.............................. 110,956 *
Thomas P. Leahey(5)....................................... 57,000Leahey............................... 52,500(3) *
Ronald H. McSwain.............................. 76,900(4) *
A.J. Nassar.................................... 949,628(5) 4.8
J. Michael Nixon............................... 140,000 *
Larry T. Solari................................ 40,000(2) *
Herb Wolk...................................... 200,000 1.0
Mack Hale...................................... 39,758(3) *
Gary F. Brugliera.............................. 10,500(6) *
David E. Cicchinelli...................................... 0 0
James W. Inglis(6)........................................ 190,000 1.2
J. Michael Nixon.......................................... 115,000Cicchinelli........................... 15,000(3) *
Herb Wolk................................................. 200,000 1.2H. Stanley Padgett ............................ 138,179(7) *
FMR Corp.(7).............................................. 1,206,100 7.4
82 Devonshire Street
Boston, Massachusetts 02109
Wellington Management Company, LLP(8)..................... 1,002,700 6.5
75 State Street
Boston, Massachusetts 02109Corp....................................... 1,284,900(8) 6.7
Julian D. Saul................................. 1,826,984(9) 9.6
Linda Saul Schejola............................ 1,260,000(10) 6.6
Cumberland Associates LLC(9).............................. 876,700 5.4
1114 Avenue of the Americas
New York, New York 10036LLC...................... 1,173,400(11) 6.2
All directors and executive
officers as a group (13(17 persons)(10)........................................ 3,685,836 21.1......... 1,882,522(12) 9.4
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*Less than one percent of outstanding sharesshares.
(1) "Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both and also
includes options which are exercisable within sixty days of the date
hereof. Beneficial ownership as reported in the above table has been
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determined in accordance with Rule 13d-3 of the Securities Exchange Act of
1934. The percentages are based upon
16,306,360-2-
19,072,532 shares outstanding as of April 15, 1998,November 1, 1999, except for certain
parties who hold presently
exercisable options to purchase shares.shares which are exercisable within
the next 60 days. The percentages for those parties who hold presently
exercisable options are based upon the sum of 16,306,36019,072,532 shares plus the
number of shares subject to presently
exercisable options held by them which are exercisable
within the next 60 days, as indicated in the following notes.
(2) Includes 705,96020,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(3) Includes 166,320Represents shares of Common Stock subject to stock options exercisable
within the next 60 days.
(4) Includes 20,0006,000 shares of Common Stock subjectowned by a foundation with respect
to stock options
exercisable within the next 60 days.which Mr. McSwain serves as trustee.
(5) Includes 57,000725,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(6) Includes 140,00010,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(7) Includes 125,002 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(8) According to aan amended Schedule 13G dated February 14, 1998October 8, 1999 filed with the
Commission by FMR Corp. ("FMR"), Edward C. Johnson 3d and3rd, Abigail P. Johnson
and Fidelity International Limited. Mr. Johnson is the Chairman of FMR and
the owner of 12% of the aggregate outstanding voting stock of FMR and Ms.
Johnson is a director of FMR and the owner of 24.5% of the aggregate
outstanding voting stock of FMR and each may be deemed to be members of a
controlling group with respect to FMR. The Schedule 13G states that (i)
Fidelity Management & Research Company, a registered investment adviser
and a wholly-owned subsidiary of FMR ("Fidelity"), is the beneficial owner
of 956,400999,400 shares of Common Stock as a result of acting as investment
advisor to various registered investment companies (the "Funds"), (ii) Mr.
Johnson, FMR (through its control of Fidelity) and the Funds each has sole
power to dispose of the 956,400999,400 shares owned by the Funds, and (iii) the
power to vote all of the 956,400999,400 shares resides with the Board of Trustees
of the Funds. The Schedule 13G further states that (i) Fidelity Management
Trust Company ("Fidelity Management"('Fidelity Management'), a wholly-owned subsidiary of FMR
and a bank as defined in Section 3(a)(6) of the Exchange Act, is the
beneficial owner of 249,70013,500 shares of Common Stock as a result of it
serving as investment manager of the institutional account(s) and (ii)
each of Mr. Johnson and FMR (through its control of Fidelity Management)
has sole voting and dispositive power over 249,70013,500 shares of Common Stock
owned by such institutional account(s). The Schedule 13G further states
that Fidelity International Limited ("FIL") is the beneficial owner of
272,000 shares of Common Stock of the Company. A partnership controlled by
Edward C. Johnson 3rd and members of his family owns shares of FIL voting
stock with the right to cast approximately 39.89% of the total votes which
may be cast by all holders of FIL voting stock. According to the Schedule
13G, FMR and FIL are separate and independent corporate entities. The
Company makes no representation as to the accuracy or completeness of the
information reported. (8) Based onThe address of FMR Corp. is 82 Devonshire Street,
Boston, Massachusetts 02109 and the address of FIL is Pembroke Hall, 42
Crowlane, Hamilton, Bermuda.
(9) According to a Schedule 13G dated January 14,October 12, 1998 filed with the
Commission by Wellington Management Company.Mr. Saul, his beneficial ownership (i) includes 18,947
shares owned individually by Mr. Saul and 1,808,037 shares owned by a
trust of which Mr. Saul is the sole trustee, and (ii) excludes 63,016
shares owned by Mr. Saul's spouse, with respect to which he disclaims
beneficial ownership. The Company makes no
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representation as to the accuracy or completeness of the information
reported. Mr. Saul's address is 702 Mt. Sinai Road, Dalton, Georgia 30720.
(10) According to a Schedule 13G dated October 12, 1998 filed with the
Commission by Ms. Schejola, her beneficial ownership includes 12,631
shares owned individually by Ms. Schejola and 1,247,369 shares owned by a
trust of which Ms. Schojola is the sole trustee. The Company makes no
representation as to the accuracy or completeness of the information
reported. (9) Based onMs. Schejola's address is Via Bottazzi, 2, 15057 Tortona (AI),
Italy.
(11) According to a Schedule 13G dated April 6, 1998October 12, 1999 filed with the
Commission by Cumberland Associates LLC.LLC ("Cumberland"), its beneficial
ownership (i) includes 1,020,000 shares with respect to which it has
sole voting and dispositive power and 153,200 shares with respect to
which it shares voting and dispositive power, and (ii) excludes 15,500
shares owned by Glenn Krevlin, a member of Cumberland. The Company
makes no representation as to the accuracy or completeness of the
information reported. (10)Cumberland's address is 1114 Avenue of the
Americas, New York, New York 10036.
(12) Includes an aggregate of 1,192,659929,038 shares of Common Stock subject to stock
options exercisable within the next 60 days.
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ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of eight persons.
The Company's Certificate of Incorporation provides that the Board of Directors
shall consist of not less than three nor more than 15 members, the precise
number to be determined from time to time by the Board of Directors. At the
Company's 1996 Annual Meeting of Shareholders held in August 1996, the Board of
Directors was classified into three classes, as nearly equal in number as
possible, each of which, after initial terms of one, two and three years, will
serve for three years, with one class being elected each year. TwoThree Class IIIII
directors are presently standing for election to the Board. The Board of
Directors recommends the election of the twothree nominees listed below.
Each of the nominees has consented to being named in this Proxy Statement
and to serve as a director of the Company if elected. In the event that any
nominee withdraws or for any reason is not able to serve as a director, the
proxy will be voted for such other person as may be designated by the Board of
Directors, but in no event will the proxy be voted for more than twothree nominees.
The affirmative vote of a plurality of all votes cast at the meeting by the
holders of the Common Stock is required for the election of the twothree nominees
standing for election. Management of the Company has no reason to believe that
any nominee will not serve if elected.
The following persons have been nominated by management for election to the
Board of Directors as Class IIIII directors, to serve for a term of three years
and until their successors are elected and qualified:
DAVID E. CICCHINELLI, age 45, has served as President, Retail Groups of
the Company since May 1998 and as a director of the Company since October 1997.
Mr. Cicchinelli was a management consultant from November 1997 to May 1998 and
served as the President and Chief Executive Officer of Color Tile, Inc., a
retail floor covering company, from April 1996 to October 1997. Prior to joining
Color Tile, Inc., Mr. Cicchinelli served as the President and Chief Operating
Officer of Carpetland USA, Inc., a retail floor covering company, from 1984 to
April 1996.
JAMES W. INGLIS,RICHARD A. KAPLAN, age 54, has served as a directorDirector of the Company since
May 19961989, and served as its Chief Operating Officer and Senior Executive Vice
President from May 1996 to March 1998. Mr. Inglis has served as consultant to
the Company since March 1998. From 1983 to 1996, Mr. Inglis served in various
capacities with The Home Depot, Inc., a home improvement retailer, including
most recently as its Executive Vice President of Strategic Development and as a
member of its board of directors. Mr. Inglis serves as a director of K&G Men's
Center, Inc., a clothing retailer.
The following persons are members of the Board of Directors who are not
standing for election to the Board this year and whose term will continue after
the Annual Meeting of Shareholders.
RICHARD A. KAPLAN, age 52, has served as Chairman Emeritus of the Company since February 1995
and served as Chairman of the Board of the Company from 1989 to February
1994. Mr. Kaplan founded the Company in 1989. Mr. Kaplan has also served as
President and Chief Executive Officer of Pictometry International, LLC, a
technology company, since August 1999. Mr. Kaplan served as Chairman of the
Board of Worksmart International, Inc., a personnel consulting company, since 1995. Mr. Kaplan servedfrom
1995 to 1998, and as Chairman of the Board of Richland Industries Corp., a
retail floor covering chain based in Rochester, New York, from 1972 to 1995.
RONALD H. MCSWAIN, age 57, has served as Chairman of the Board of the
Company since June 1999. Since 1968, Mr. McSwain has served as the President and
owner of McSwain's Carpets, a retail floorcovering business. Mr. McSwain serves
as a director of Johnson Investment Mutual Fund Trust, an investment company.
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A.J. NASSAR, age 41,43, has served as President, Chief Executive Officer and
a Director of the Company since December 1990. From 1986 to 1990, Mr. Nassar
served as Vice President and Chief
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8 Operating Officer of Kenny Carpet and
Linoleum, Inc., a multistore retail carpet chain in western New York. He was
previously employed in the carpet manufacturing industry by Trend Carpet Mills
and Queen Carpet Mills, where he was responsible for sales of floor covering
products to floor covering retailers.
Mr. Nassar servesThe following persons are members of the Board of Directors who are not
standing for election to the Board this year and whose term will continue after
the Annual Meeting of Shareholders.
CLASS I DIRECTORS, SERVING FOR A TERM EXPIRING AT THE 2000 ANNUAL MEETING
OF SHAREHOLDERS:
THOMAS P. LEAHEY, age 38, has served as Executive Vice President, Finance
of the Company since August 1993, as Treasurer since July 1994 and as a
directorDirector of North Atlantic Acquisition Corp.,the Company since November 1998. Mr. Leahey was employed by
Wachovia Bank of Georgia, N.A. from September 1991 to August 1993 as a blind pool investment company.Vice
President in the Corporate Banking Division. Mr. Leahey's banking career
began in January 1984 and included service with Barnett Bank of Central
Florida, N.A. and, from March 1987 to July 1991, with Fleet/Norstar Financial
Group.
J. MICHAEL NIXON, age 53,54, has served as a Director of the Company since
February 1996. Mr. Nixon has served as the President and co-owner of Q.I.
Corporation, a building materials contractor, since 1967.
H. STANLEY PADGETT,HERB WOLK, age 50,67, has served as a Senior Executive Vice
President and Director of the Company since August 1996. Since joining Image
Industries, Inc., a wholly-owned subsidiary of the Company ("Image") in 1976,
Mr. Padgett has served as Vice President of Manufacturing and Vice President of
Operations of Image prior to becoming its President and Chief Executive Officer
in July 1990. Mr. Padgett has been a member of the Board of Directors of Image
since September 1990. Mr. Padgett was elected to the Board of Directors of the
Company in August 1996 in accordance with the terms of the merger agreement with
Image.
M.B. SERETEAN, age 73, has served as a Director of the Company since
September 1993 and as its Chairman of the Board since February 1995. Mr.
Seretean was a founder of Coronet Industries, Inc., a carpet manufacturer, in
1956 and served as its President and Chairman of the Board until his retirement
in 1987. Mr. Seretean serves as a director of Trend Laboratories, Inc., a
cosmetics company. He is a former director of RCA Corporation, Turner
Broadcasting Corporation, the Atlanta Hawks and the Atlanta Braves.
HERB WOLK, age 66, has served as a director of the Company since 1991. Mr.
Wolk is the owner and President of Cadillac Carpet Distributors and has served
in various capacities with that company since 1976.
Mr. Wolk is the
Chairman-electCLASS II DIRECTORS, SERVING FOR A TERM EXPIRING AT THE 2001 ANNUAL MEETING
OF SHAREHOLDERS:
JOSEPH J. JILLSON, age 56, has served as a Director of the American Floor Covering Association.Company since
November 1998. Mr. Jillson has served as an executive officer and co-owner of
Q.I. Corporation, a building materials contractor, since 1967.
LARRY T. SOLARI, age 57, has served as a Director of the Company since
April 1999. Mr. Solari has served as Chairman of the Board and Chief Executive
Officer of BSI Holdings, Inc., a builder services company, since 1998. Mr.
Solari served as Chairman of the Board and Chief Executive Officer of Sequential
Products, Inc., a manufacturer in the building materials industry, from 1996 to
1997, as President of the Building Materials Group of Domtar, Inc. from 1994 to
1996, and as President of the Construction Products Group of The Owens - Corning
Company from 1989 to 1994. Mr. Solari is a director of Beazer Homes, Inc., a
single family homebuilder, Therma - Tru, Inc. and Pacific Coast Building
Products, Inc.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.
COMPLIANCE WITH SECTION 16(A)16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of the
outstanding Common Stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. To the Company's knowledge,
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based solely on a review of the copies of such reports furnished to the Company
and representations that no other reports were required, during the fiscal year
ended January 31, 19981999 all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% shareholders were complied with, except
for Richard A. Kaplan, a director of the Company, who failed to file on a timely
basis one report relating to one transaction, and A. J. Nassar, the President
and Chief Executive Officer of the Company, who failed to file on a timely
basis one report relating to one transaction.
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9
Although it is not the Company's obligation to make filings pursuant to
Section 16 of the Securities Exchange Act of 1934, the Company has adopted a
policy requiring all Section 16 reporting persons to report monthly to the
ChiefDirector of Financial OfficerReporting of the Company as to whether any transactions
in the Company's Common Stock occurred during the previous month.
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
The Board of Directors held 1524 meetings during the year ended January 31,
1998.1999. Each director attended at least 75% or more of the aggregate number of
meetings held by the Board of Directors and the committees on which he served.
The Company's Board of Directors has four standing committees -- the Audit
Committee, the Compensation Committee, the Stock Option Committee and the
Directors' Nominating Committee.
The Audit Committee presently consists of Richard A. Kaplan andJoseph J. Jillson, J. Michael
Nixon.Nixon and Larry T. Solari. The Audit Committee has been assigned the
principal functions of: (i) recommending the independent auditors; (ii)
reviewing and approving the annual report of the independent auditors; (iii)
approving the annual financial statements; and (iv) reviewing and approving
summary reports of the auditor's findings and recommendations. The Audit
Committee held one meetingthree meetings during the year ended January 31, 1998.1999.
The Compensation Committee presently consists of Richard A. Kaplan, J.
Michael Nixon M.B. Seretean and Herb Wolk. The Compensation Committee has been assigned the
functions of approving and monitoring the remuneration arrangements for senior
management. The Compensation Committee held two meetingsone meeting during the year ended
January 31, 1998.1999.
The Stock Option Committee presently consists of Richard A. Kaplan and
Herb Wolk. The Stock Option Committee has been assigned the functions of
administering the Company's 1993 Stock Option Plan and granting options
thereunder. The Stock Option Committee held four meetings during the year ended
January 31, 1998.1999.
The Directors' Nominating Committee presently consists of Richard A.
Kaplan, A.J. Nassar and Herb Wolk. The Directors' Nominating Committee has been
assigned the functions of making recommendations to the full Board for the
selection of director nominees. The Directors' Nominating Committee did not meet
during the year ended January 31, 1998.1999.
Any shareholder entitled to vote for the election of directors may
nominate a person or persons for election as a director only if written notice
of such shareholder's intention to make any such nomination is given either by
personal delivery or mailed by the United States Mail, postage prepaid,
certified and return receipt requested, to the Secretary of the Company not
later than the later of (i) the close of business on the seventh (7th) calendar
day following the date on which notice of the meeting of shareholders for the
election of directors is first given to shareholders (any such notice of meeting
of shareholders shall not be given earlier than the record date for the meeting
of shareholders) and (ii) a date ninety (90) days prior to the date of the
meeting of shareholders. Each such notice shall set forth: (a) the name and
address of the shareholder
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who intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the shareholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings
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10 between the shareholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Commission had each nominee been
nominated, or intended to be nominated, by the Board; and (e) the consent of
each nominee to serve as a director of the Company if so elected.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME Age Position with the Company
- ---- --- -------------------------
Ronald H. McSwain................ 57 Chairman of the Board
A.J. Nassar...................... 4143 President, Chief Executive Officer and Director
H. Stanley Padgett............... 50 SeniorThomas P. Leahey................. 38 Executive Vice President - Finance, Treasurer and Director; President of Image
David E. Cicchinelli.............Director
Leonard H. Thill ................ 45 President, Retail Groups
Herb Biggers..................... 47 Chief Operating Officer
Thomas P. Leahey................. 36 Executive Vice President, Finance and Treasurer
Mack Hale........................ 56 Executive Vice President, Merchandising
Sandra Fowler.................... 35 Executive Vice President, Administration
H. Gene Harper................... 37 Chief Financial Officer and Secretary
Karen A. McClelland ............. 40 Executive Vice President - Customer Service
Paul D. Bumblauskas ............. 42 Executive Vice President - Operations
Paul R. Renn .................... 44 Executive Vice President - Sales and Marketing
Mack Hale........................ 59 Executive Vice President - Merchandising
Sandra Fowler.................... 37 Executive Vice President - Administration
Michael L. DeGrace............... 54 President - Franchise Divisions
Michael Cherico.................. 41 President - GCO Carpet Outlet Division
Ronald E. Dunn................... 44 President - CarpetsPlus Division
The executive officers of the Company are appointed by the Board of
Directors and hold office at the pleasure of the Board. See "Election of
Directors" for information with respect to Messrs. McSwain, Nassar Padgett and Cicchinelli.
HERB BIGGERSLeahey.
LEONARD H. THILL has served as Chief Financial Officer and Secretary of
the Company since September 1999. Mr. Thill served in various capacities with
the United States Securities and Exchange Commission from 1987 to September
1999, including most recently as Assistant Chief Accountant with the
Commission's Division of Enforcement.
KAREN A. MCCLELLAND has served as Executive Vice President - Customer
Service of the Company since June 1999. Ms. McClelland served as Vice President
- - Retail of the Company from April 1999 to June 1999. Prior to joining the
Company, Ms. McClelland served as President of McClelland Associates, Inc., a
consulting firm, from 1995 to March 1999. Ms. McClelland served as Vice
President of Operations/Technology of Sound Floor Coverings, Inc., a floor
covering retailer, from 1993 to 1994, and was a Senior Manager for the
accounting firm of Price Waterhouse from 1988 to 1993.
PAUL D. BUMBLAUSKAS has served in various capacities with the Company
since June 1998, including most recently as Executive Vice President
- -Operations. Mr. Bumblauskas served as Regional Vice President of Shaw
Industries, Inc., a floor covering manufacturer, from December 1995 to June
1998, as Regional Vice President of Carpetland USA, Inc., a floor covering
retailer, from July 1996, including Chief Operating Officer since March 1998. Mr. Biggers1994 to December 1995, and was a Generalpartner with SV
Associates, an accounting firm, from April 1992 to July 1994.
-7-
PAUL R. RENN has served in various capacities with the Company since
October 1997, including most recently as Executive Vice President - Sales and
Marketing. Mr. Renn served as Sales Manager in the Expo divisionSouthwest Region of The Home Depot, Inc.Abbey Carpets, a
floor covering cooperative, from January 1994April 1995 to October 1995, and the President and Chief Executive Officeras General
Manager - Texas of Hancock Park
Associates from 1988 to 1994. Mr. Biggers' retail experience includes positions
of Chief Operating Officer of Seattle Lighting Corporation, the President and
Chief Executive Officer of Forecast Lighting, Inc., and President and Chief
Executive Officer of Homestead Fan Company.
THOMAS P. LEAHEY has served as Executive Vice President, Finance of the
Company since August 1993 and as Treasurer since July 1994. Mr. Leahey was
employed by the Wachovia Bank of Georgia, N.A.Carpet Exchange, a floor covering retailer, from September
19911989 to August
1993 as a Vice President in the Corporate Banking Division. Mr. Leahey's banking
career began in January 1984 and included service with Barnett Bank of Central
Florida, N.A. and, from March 1987 to July 1991, with Fleet/Norstar Financial
Group.1995.
MACK HALE has served in various capacities with the Company since May
1993, including Executive Vice President - Merchandising since April 1998. From
January 1992 to May 1993, Mr. Hale served as Executive Vice President of
Unituft, Inc., a floor covering marketing support company. Mr. Hale served as
Vice President of Sales and Director of Marketing of Mohawk Industries, Inc., a
major carpet manufacturer, from 1983 to 1991. At Mohawk, Mr. Hale was
responsible for all marketing and promotional functions. Prior to his employment
at Mohawk, Mr. Hale served as Vice President, Sales of Horizon Industries, Inc.,
a major carpet manufacturer.
SANDRA FOWLER has served as Executive Vice President - Administration of
the Company since September 1993. From 1982 to September 1993, Ms. Fowler served
in various capacities with Shaw the
-7-
11
nation's largest carpetIndustries, Inc., a floor covering manufacturer,
including Manager of Corporate Accounts, where she acted as the liaison between
that company and its corporate customers in all areas, ranging from sales to
administration.
H. GENE HARPERMICHAEL L. DEGRACE has served as Chief Financial Officer and SecretaryPresident - Franchise Divisions of the
Company since February 1999. From 1997 to January 1999, Mr. DeGrace served as
Vice President - Sales and Marketing of Image Industries, Inc., which was a
wholly-owned subsidiary of the Company from August 1996 to January 1999. Mr.
DeGrace served as Vice President of Sales and Marketing of Beulieu of America,
Inc., a carpet manufacturer, from 1995 to 1996, and served in various
capacities, including most recently as Regional Vice President, with Shaw
Industries, Inc., a carpet manufacturer, from 1979 to 1995.
MICHAEL CHERICO has served in various capacities with the Company since
1993, including most recently as President of its GCO Carpet Outlet Division.
RONALD E. DUNN has served as President of the Company's CarpetsPlus
Division since September 1994.1998. Mr. Harper was employed by KPMG Peat Marwick
LLP from 1983 to September 1994Dunn served as Chairman of the Board and
Chief Executive Officer of CarpetsPlus of America, LLC, a senior managernational resource
company specializing in the audit department.floor covering industry, from 1997 until September
1998. Mr. Dunn served as Vice President of Sales of Mohawk Industries, Inc., a
floor covering manufacturer, from 1990 to 1996.
-8-
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years ended January 31, 1999, 1998 and 1997 and for the ten month transition period
ended January 31, 1996 concerning compensation paid or
accrued by the Company to or on behalf of the Company's Chief Executive Officer
and each of the other fourfive most highly compensated executive officers of the
Company during the year ended January 31, 1999 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------- ------------
OTHER NUMBER OF
NAME AND ANNUAL OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDED COMPENSATION
- --------------------------------------------- ---- -------- -------------- ----- --------------- --------------- ------------
A.J. Nassar................ 1998 $350,012 $265,000Nassar.................... 1999 $600,000 $1,920,012 $27,591(2) 250,000 $ 2,375 275,000 --
President and Chief 1998 350,012 265,000 10,750(2) 275,000 --
Executive Officer 1997 229,479 -- 2,29510,670(2) 200,000 --
Executive Officer 1996(2) 165,456 25,000 1,654 142,400(3)David E. Cicchinelli........... 1999(3) 177,884 152,707 -- James W. Inglis............ 1998 $218,384 $ 75,000 -- --450,000 --
Chief Operating Officer
1997(4) 175,176Thomas P. Leahey............... 1999 108,839 37,000 1,633 50,000 --
200,000 $116,250(5)
H. Stanley Padgett......... 1998 $295,000 -- -- 25,000 $10,926(5)
Senior Executive 1997(6) 170,200 -- -- -- -- Vice President 1996(7) 284,200 -- -- -- --
Herb Biggers...............- 1998 $173,828 $ 11,250 -- 50,000 --
Chief Operating Officer 1997(8) 51,330 21,250 -- 50,000 $ 5,626
Thomas P. Leahey........... 1998 $ 96,147 $ 30,000 $ 1,436 25,000 --
Executive Vice President,Finance 1997 75,762 6,195 1,125 -- --
Finance 1996(2) 58,286Mack Hale...................... 1999(4) 140,768 10,000 1,962 25,000 --
Executive Vice President -
Merchandising
Gary F. Brugliera.............. 1999(5) 119,231 -- -- 75,000 --
Executive Vice President and
Chief Financial Officer
H. Stanley Padgett............. 1999(6) 297,180 -- -- -- 2,180
Senior Executive 1998 295,000 -- -- 25,000 10,926
Vice President 1997(7) 170,200 -- -- -- --
- ---------------------
(1) RepresentsExcept as otherwise indicated, represents the Company's matching
contribution under its 401(k) plan.
(2) Represents compensation forIncludes auto allowance and other perquisites, in addition to the
ten-month period ended January 31,
1996, which period was the result of a change in the fiscal year end of
the Company from March 31 to January 31.Company's matching contribution under its 401(k) plan.
(3) Includes options to purchase 40,000 shares of common stock which were
subsequently cancelled.
(4) Mr. InglisCicchinelli joined the Company in May 1996.
(5) Represents the discount to fair market value1998 and became its Chief
Operating Officer in connection with the
purchase byJuly 1998. Mr. InglisCicchinelli resigned effective April
12, 1999.
(4) Mr. Hale became an executive officer of 50,000 shares of Common Stock from the Company in May 1996.April 1998.
(5) Mr. Brugliera joined the Company in June 1998 and resigned effective
September 21, 1999.
(6) Mr. Padgett resigned effective January 29, 1999.
(7) Amounts indicated include compensation paid to Mr. Padgett by (i) the
Company and Image Industries, Inc. subsequent to the acquisition of
Image by the Company on August 30, 1996 and (ii) Image for the period
from June 30, 1996 to August 30, 1996.
-8--9-
12
(7) Represents compensation paid to Mr. Padgett by Image for its fiscal
year ended June 29, 1996.
(8) Mr. Biggers joined the Company in July 1996 and became its Chief
Operating Officer in March 1998.
EMPLOYMENT AGREEMENTS
A.J. NASSAR. On June 4, 1997, the Company entered into an Employment
Agreement with A.J. Nassar, pursuant to which Mr. Nassar serves as Chief
Executive Officer of the Company. The Employment Agreement, which was amended on
January 1, 1998, is for a term of three years, expiring on June 4, 2000, and
provides for an annual base salary of $600,000 plus an annual bonus of $200,000
for each fiscal year in which the Company attains certain earnings targets
established by the Board of Directors. The Employment Agreement will
automatically renew unless it is earlier terminated or either the Company or Mr.
Nassar elects not to renew the Employment Agreement. The Employment Agreement
provides for certain severance payments to be paid to Mr. Nassar in the event of
a change in control of the Company. In the event of a change in control, Mr.
Nassar will be entitled, during the term of his Employment Agreement, to
terminate his employment with the Company and, subject to certain adjustments,
to receive a lump sum cash payment equal to two years' salary, as well as 12
months' provision of employee benefits and a pro rata portion of his annual
bonus. In the event Mr. Nassar is terminated by the Company without cause, he
will receive during the balance of his term of employment (not to exceed 24
months), the annual base salary which would otherwise be payable to Mr. Nassar
had he remained in the employ of the Company. In addition, all unvested stock
options will become immediately exercisable and Mr. Nassar will receive 12
months' provision of employee benefits and a pro rata portion of his annual
bonus. The Employment Agreement contains non-compete and non- solicitationnon-solicitation
provisions, effective through the actual date of termination of the Employment
Agreement and for a period of two years thereafter.
LEONARD H. THILL. On September 27, 1999, the Company entered into an
Employment Agreement with Leonard H. Thill, pursuant to which Mr. Thill serves
as Chief Financial Officer of the Company. The Employment Agreement is for a
term of three years, expiring on September 27, 2002, and provides for an annual
base salary of $225,000 plus an annual bonus of up to 50% of his base salary if
the Company attains certain operating and financial goals established by the
Company's executive management team and the Compensation Committee of its Board
of Directors. The Employment Agreement will automatically renew unless it is
earlier terminated or either the Company or Mr. Thill elects not to renew the
Employment Agreement. In the event Mr. Thill is terminated by the Company
without cause, he will receive, for a period of 12 months thereafter, the annual
base salary which would otherwise be payable to Mr. Thill had he remained in the
employ of the Company. In addition, all unvested stock options will become
immediately exercisable. The Employment Agreement contains non-solicitation
provisions, effective through the actual date of termination of the Employment
Agreement and for a period of three years thereafter.
H. STANLEY PADGETT. On August 30, 1996 and again on July 30, 1997, H.
Stanley Padgett entered into amendments to his employment agreement with Image.
Under the amended agreement, which will expire on July 30, 2000, Mr. Padgett servesserved as a Senior Executive Vice
President of the Company and as the President and Chief Executive Officer of
Image. Mr. Padgett will be entitledPadgett's employment agreement was assigned to receive an annual
base salary of $295,000 which is subject to increase atAladdin Carpets on
January 29, 1999, in connection with the discretion of the
Compensation Committee, plus certain specified benefits and other benefits
generally available to other senior executive officerssale of Image. The employment
agreement provides thatAt the Compensation Committee may also grant an annual
bonus to Mr. Padgett. In the event that Mr. Padgett's employment is terminated
without cause, as defined under the agreement, he is entitled to a severance
payment equal to the salary which would be owed to him through the remainder of
the term of the agreement, but in no event less than one year's then-current
salary, as well as a bonus equal to the average of the two prior years' annual
bonuses. In addition, certain benefits shall be continued for a period of six
months, and all unvested options held bysame time, Mr.
Padgett which would vest in the
year of termination shall vest in full. In the event of termination of Mr.
Padgett's employment for any reason other than cause within 12 months after a
change in control,resigned all positions with the Company shall pay Mr. Padgett an amount equal to his
annual base salary as then in effect, in lieu of any other severance payment,
and shall continue certain benefits, including a company automobile and medical,
life and disability insurance, for a period of six months. If Mr. Padgett's
employment is terminated for cause, or if he voluntarily terminates his
employment with Image, he shall not be entitled to a severance payment or bonus
and shall be subject to a one-year noncompetition covenant. Termination of
employment includes death, disability, voluntary termination by the employee or
involuntary termination by Image with or without cause, which would include a
material change in position or responsibility.Image.
COMPENSATION OF DIRECTORS
Directors of the Company who are compensated as officers of the Company
serve without compensation for their services as directors. All directors of the
Company are reimbursed by the Company for all out-of-pocket expenses reasonably
incurred by them in the discharge of their duties as directors, including
out-of-pocket expenses incurred in attending meetings of the Board of Directors
and -9-
13
of any committees of the Board of Directors. Certain of the Company's
outside directors have also been granted options to purchase shares of common
stock of the Company. In addition, from time to time, certain of the Company's
outside directors assist in conducting workshops and orientation sessions for
the Company's franchisees, for which they customarily have been paid consulting
fees of $10,000 annually.
-10-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation Committee of
the Board of Directors during the year ended January 31, 1998:1999: Richard A.
Kaplan, J. Michael Nixon, M.B. Seretean and Herb Wolk. None of the members of
the Compensation Committee has been an officer or employee of the Company or any
of its subsidiaries. Except as set forth herein under "Certain Transactions,"
there were no material transactions between the Company and any of the members
of the Compensation Committee during the fiscal year ended January 31, 1998.1999.
STOCK OPTION PLAN
The Company has adopted a 1993 Stock Option Plan (the "1993 Plan") for
employees who are contributing significantly to the management or operation of
the business of the Company or its subsidiaries as determined by the Company's
Board of Directors or the committee administering the 1993 Plan. The 1993 Plan
provides for the grant of options to purchase up to 3,000,0005,000,000 shares of Common
Stock (4,000,000 shares if the proposed amendment to the 1993 Plan is approved
at the Annual Meeting) at the discretion of the Board of Directors of the Company or a committee
designated by the Board of Directors to administer the 1993 Plan. The option
exercise price must be at least 100% (110% in the case incentive stock options
granted to a holder of 10% or more of the Common Stock) of the fair market value
of the Common Stock on the date the option is granted and the options are
exercisable by the holder thereof in full at any time prior to their expiration
in accordance with the terms of the 1993 Plan. Stock options granted pursuant to
the 1993 Plan will expire on or before (1) the date which is the tenth
anniversary of the date the option is granted, or (2) the date which is the
fifth anniversary of the date an incentive stock option is granted in the event
that the option is granted to a key employee who owns more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
of the Company.
The following table provides certain information concerning individual
grants of stock options under the 1993 Plan made during the fiscal year ended
January 31, 19981999 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE---------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED TO EXERCISE OR PRICE APPRECIATION FORANNUAL RATES OF STOCK
OPTIONS EMPLOYEES IN BASE PRICE OPTION TERM (1)PRICE APPRECIATION FOR
GRANTED FISCAL ($ PER EXPIRATION --------------------------OPTION TERM (1)
------------------------
NAME (#) YEAR SHARE) DATE 5% 10%
---- ------- ------------ ------------ ---------- ---------- --------------- ----- ------ ----- --- ---
A.J. Nassar................... 175,000(2) 13.5% $11.00 5/01/07 $1,210,621 $3,067,954250,000(2) 20.1 $14.25 10/14/06 $1,700,925 $4,074,025
David E. Cicchinelli.......... 250,000(3) 20.1 15.13 6/6/08 2,378,793 6,028,325
200,000(2) 15.3% 13.75 1,729,459 4,382,791
James W. Inglis...............16.7 14.25 10/14/06 1,360,740 3,259,220
Thomas P. Leahey.............. 50,000(2) 4.2 14.25 10/14/06 340,185 814,805
Mack Hale..................... 25,000(4) 2.1 14.25 10/14/06 170,093 407,403
Gary F. Brugliera............. 50,000(5) 4.2 15.75 6/22/08 495,254 1,255,072
25,000(4) 2.1 14.25 10/14/06 170,093 407,403
H. Stanley Padgett............ -- -- -- 11/01/07 -- -- H. Stanley Padgett............ 25,000(3) 1.9% 13.75 11/01/07 216,182 547,849
Herb Biggers.................. 50,000(4) 3.8% 11.50 5/01/07 361,614 916,402
Thomas P. Leahey.............. 10,000(4) 0.8% 10.00 5/01/07 62,889 159,374
15,000(3) 1.2% 13.75 11/01/07 129,709 328,709--
-10-
14- ---------------------
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the
Company's Common Stockcommon stock appreciates in value from the date of grant at the
5% and 10% annual rates prescribed by the SEC and therefore are not
intended to forecast possible future appreciation, if any, of the price of
the Company's Common Stock.common stock.
-11-
(2) Options are immediately exercisable.vest on July 31, 2006; provided, however, that options vest on
April 30, 2000 if the closing price of the Company's common stock is
greater than $25.00 per share for any period of ten consecutive trading
days prior to April 30, 2000.
(3) Options vest in increments of 20% per year commencingbeginning on November 1,
1998.June 16, 1999 and
on each June 16 thereafter until fully vested. These options terminated
upon the resignation of Mr. Cicchinelli in April 1999.
(4) Options vest on July 31, 2006; provided, however, that options vest in
increments of 25% per year beginning on April 30, 2000 and on each April
30 thereafter until fully vested if the closing price of the Company's
common stock is greater than $25.00 per share for any period of ten
consecutive trading days prior to April 30, 2000.
(5) Options vest in increments of 20% per year commencingbeginning on May 1, 1998.June 22, 1999 and
on each June 22 thereafter until fully vested.
The following table provides certain information concerning options
exercised during fiscal 19981999 and the value of unexercised options held by the
Named Executive Officers as of January 31, 1998.1999.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
FISCAL YEAR END AT FISCAL YEAR-END (A)
SHARES --------(1)
----------------------- ----------------------------
ACQUIRED ON VALUE EXER- UNEXER- EXER- UNEXER-
NAME EXERCISE (#) REALIZED ($) CISABLE CISABLE CISABLE CISABLE
- ---- ------------ ------------ ------- ------- ---------- --------------- -------
A.J. Nassar.........................Nassar................... -- $ -- 715,480 259,520 $7,907,311 $2,199,184
David E. Cicchinelli......... -- -- 705,960 19,040 $3,824,852 $103,768
James W. Inglis.....................15,000 450,000 129,375 3,548,750
Thomas P. Leahey.............. 12,500 210,156 46,500 71,000 777,188 688,875
Mack Hale..................... 10,000 172,500 36,380 35,517 601,034 290,629
Gary F. Brugliera............. -- -- 120,000 80,000 690,000 460,000-- 75,000 -- 553,125
H. Stanley Padgett.................. 275,000 $4,231,250 166,320 25,000 2,413,010 81,250
Herb Biggers........................Padgett............ -- -- 10,000 90,000 50,000 475,000
Thomas P. Leahey....................171,320 -- 3,438,435 -- 55,000 25,000 620,000 118,750
- ---------------------------
(a)(1) Dollar values were calculated by determining the difference between the
closing price of $17.00$22.625 per share of common stock as reported by the New
York Stock Exchange on January 31, 1998,29, 1999,
and the exercise price of the options.
EMPLOYEE RETIREMENT SAVINGS PLAN
The Company has established a savings and profit-sharing plan that
qualifies as a tax-deferred savings plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for its salaried employees who are at least 21
years old and who have completed one year of service with the Company. Under the
401(k) Plan, eligible employees may contribute up to 20% of their gross salary
to the 401(k) Plan or $9,500, whichever is less. Each participating employee is
fully vested in contributions made by such employee. The Company presently
matches 25% of the amount contributed by an employee up to 6% of the employee's
salary, but the Company's policy regarding matching contributions may be changed
annually in the discretion of the Board of Directors. All amounts contributed
under the 401(k) Plan are invested in one or more investment accounts
administered by an independent plan administrator.
-12-
CERTAIN TRANSACTIONS
As of AprilOctober 1, 1998,1999, a total of $1.0 million$935,000 was owed to the Company by A.J.
Nassar, the Company's President and Chief Executive Officer. During fiscal 1999,
loans totaling $850,326 were made to Mr. Nassar by the Company. These loans
accrued interest at an annual rate of 9-1/4% and were repaid by Mr. Nassar
during fiscal 1999. The largest aggregate amount of indebtedness outstanding
from Mr. Nassar to the Company since the beginning of fiscal 19981999 was $1.8$1.5
million. All amounts currently owed by Mr. Nassar bear interest at an annual
rate of 8%. Mr. Nassar has agreed to repay all outstanding obligations to the
Company in five annual installments of $200,000 per year (plus accrued -11-
15
interest) commencing on July 1, 1998 and on
each March 1 thereafter until maturity. Certain of the loans made to Mr. Nassar in the past were done without
prior approval ofIn connection therewith, the Board of Directors of
the Company but were later ratified
byhas approved the Board.payment to Mr. Nassar of an annual bonus in an
amount sufficient to allow Mr. Nassar to pay the annual installments on this
loan. All borrowings were made by Mr. Nassar to fund certain of his personal
expenses. No additional loans will be made by the Company to Mr. Nassar.
The Company may in the future, however, make loans to other officers and
employees in furtherance of proper corporate purposes.
In August 1997, the Company invested $1.0 million in North Atlantic
Acquisition Corp. ("North Atlantic"), a blind pool investment vehicle. A.J.
Nassar, the President and Chief Executive Officer of the Company, is a director
and a shareholder of North Atlantic. At the time of the Company's investment in
North Atlantic, Mr. Nassar owned 14.1% of the outstanding Class A common stock
of North Atlantic. As a result of North Atlantic's initial public offering in
late 1997, Mr. Nassar's percentage of ownership was reduced to 1.7% of the
outstanding shares of Class A common stock.
Kevodrew Realty, Inc. ("Kevodrew"), a company controlled by A.J.
Nassar, leases space to a Company-owned store in Louisville, Kentucky. Payments
by the Company to Kevodrew pursuant to this lease totaled $89,983 in fiscal
1998.
In March 1998, the Company entered into a three-year consulting
agreement with James W. Inglis, a director of the Company and its former Chief
Operating Officer. The consulting agreement, which is cancelable upon thirty
days notice by either party, provides for Mr. Inglis to receive an annual
consulting fee of $100,000, for which he will oversee merchandising and
marketing of the Company's CarpetMAX stores. The consulting agreement contains
non-compete provisions, effective through the actual date of termination of the
consulting agreement.
In January 1998, the Company loaned $100,000 to Herb Biggers, who at the
time was serving as the Company's Chief Operating Officer. This loan bearsaccrued
interest at an annual rate of 8.5%, payable monthly, with principal due on
demand. This loan was made to Mr. Biggers to fund certain of his personal
expenses. The maximum aggregate amount of indebtedness outstanding forfrom Mr.
Biggers to the Company since the beginning of fiscal 19981999 was $102,000. AsUpon the
termination of April 1,Mr. Biggers' employment in June 1998, $102,000 was owed bythe Company repurchased
certain stock options previously granted to Mr. Biggers for $453,000, which
represents the aggregate spread between the fair market value of the Company's
common stock on that date and the exercise price of these stock options. In July
1998, Mr. Biggers used a portion of the proceeds from this transaction to repay
his debt to the Company.
GCO leases two facilities in Montgomery, Alabama, from Dicky W.
McAdams, a former director, who served onIn May 1998, the Board of DirectorsCompany loaned $100,000 to Sandra Fowler, the Executive
Vice President Administration of the Company. This loan accrued interest at an
annual rate of 8.5%, payable monthly, with principal due on demand. This loan
was made to Ms. Fowler to fund certain of her personal expenses. This loan was
repaid by Ms. Fowler in December 1998.
In September 1998, the Company from 1991loaned $100,000 to August 1997,David E. Cicchinelli,
who at the time was serving as the Company's Chief Operating Officer and the former Chairmana
director. This loan bears interest at an annual rate of GCO. One of these
facilities is owned directly by Mr. McAdams and the other facility is owned by a
partnership in which Mr. McAdams has a 50% interest. Lease payments8.5%, payable monthly,
with principal due on demand. The loan was made to Mr. McAdamsCicchinelli to fund
certain of his personal expenses. As of October 1, 1999, $109,000, including
accrued interest, remained outstanding on this loan.
Herb Wolk and the partnership totaled $167,568 in fiscal 1998.
Richard A. Kaplan and Herb Wolk,Ronald H. McSwain, directors of the Company, each own a
floor covering retailer which is a franchisee of the Company. During fiscal
1999, Mr. Wolk's floor covering company paid less than $1,000 to the Company for
miscellaneous items and Ronald
McSwain, a former directorreceived $128,000 in rebates and other consideration
from the Company. During fiscal 1999, Mr. McSwain's floor covering company paid
$11,000 to the Company for various services and received $567,000 in rebates and
other consideration from the Company.
Julian D. Saul, who owns 9.6% of the outstanding shares of common stock of
the Company, own or ownedserves as President and a director of Shaw Industries, Inc., one of
the Company's suppliers of floor covering retailers
which are franchiseesproducts. During fiscal 1999, the
Company purchased approximately $84 million of floor covering products from Shaw
and received approximately $12 million of rebates and other vendor support
payments from Shaw. In addition, in connection with the acquisition of the
Company. The following table sets forth forretail store assets of Shaw in August 1998, the periods indicated,Company issued to Shaw a
promissory note in the amounts paidprincipal amount of $18 million. This note is due
November 1999 and bears interest at a rate equal to the Company by the franchisees controlled
by these directors and rebates received by these franchisees. Rebate payments to
these franchiseesrate paid by the Company
represent a pass throughon its senior credit facility. Approximately $12 million remained outstanding on
this note as of volume rebates paid
by various floorcovering manufacturers to the Company.
FISCAL 1996 FISCAL 1997 FISCAL 1998
--------------------- ----------------------- ----------------------
AMOUNTS PAID AMOUNTS PAID AMOUNTS PAID
NAME TO COMPANY REBATES TO COMPANY REBATES TO COMPANY REBATES
- ----------------- ----------- -------- ----------- -------- ----------- --------
Richard A. Kaplan $ 55,187 $ 35,909 $ -- $ -- $ -- $ --
Ronald McSwain 242,550 206,453 330,602 210,113 465,048 231,743
Herb Wolk 47,604 26,863 61,485 25,553 134,384 72,903
----------- -------- ----------- -------- ----------- --------
Total $ 345,341 $269,225 $ 392,087 $235,666 $ 599,432 $304,646
=========== ======== =========== ======== =========== ========
October 1, 1999.
The ability of the Company to enter into future transactions with
affiliates is limited by the terms of its Senior Notessenior subordinated notes and Credit Facility.
-12-senior
credit facility.
-13-
16
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock against
the cumulative total return of the Nasdaq Stock Market Index, the Nasdaq Retail
Stock Index, the Standard & Poor's 500 Index and the Standard
& Poor's Retail Composite Index for the period commencing on SeptemberMarch 30, 1993 (the date of the
Company's initial public offering of Common Stock)1994 and
ending January 30, 199829, 1999 (the "Measuring Period"). The Nasdaq Stock Market Index and the Nasdaq Retail
Stock Index have historically been the indicies against which the Common Stock
has been measured because, prior to 1997, the Common Stock was quoted on the
Nasdaq National Market. In June 1997, the Company listed the Common Stock on the
New York Stock Exchange and quotation of the Common Stock on the Nasdaq National
Market was terminated. The Company intends to discontinue use of the Nasdaq
Stock Market and the Nasdaq Retail Stock Indices in future proxy statements. The
Company intends to use the Standard & Poor's 500 and Standard & Poor's Retail
Composite Indices in lieu thereof because, in the Company's opinion, these
indices will provide the Company's shareholders with a better benchmark for the
Company's performance versus its peers in the retail industry. The graph assumes that the
value of the investment in the Company's Common Stock and each index was $100 on
September 30, 1993.March 31, 1994. The yearly change in cumulative total return is measured by
dividing (i) the sum of (a) the cumulative amount of dividends for each fiscal year,
assuming dividend reinvestment, and (b) the change in share price between the
beginning and end of the Measuring Period, by (ii) the share price at the
beginning of the Measuring Period. The Company has not paid any cash dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE MAXIM GROUP, INC.
COMMON STOCK, NASDAQ STOCK MARKET INDEX, NASDAQ RETAIL STOCK
INDEX, S&P 500 INDEX AND S&P RETAIL COMPOSITE INDEX
MEASUREMENT
PERIOD (FISCAL YEAR THE MAXIM NASDAQ STOCK NASDAQ RETAIL S&P RETAIL
COVERED) GROUP, INC. MARKET INDEX STOCK INDEX S&P 500 INDEX COMPOSITE INDEX
------------------- ----------- ------------ ----------- ------------- ---------------
September 30, 1993 $100 $100 $100 $100 $100
March 31, 1994 229 98 94 98 99100 100 100
March 31, 1995 235 109 92 113103 116 101
January 31, 1996* 179 142 101 14678 150 101
January 31, 1997 314 186 124 185 120138 189 121
January 31,30, 1998 324 220 146 235 179140 240 180
January 29, 1999 189 318 294
* On January 13, 1996, the Company changed its fiscal year end from March 31 to
January 31.
ASSUMES $100 INVESTED ON SEPTEMBERMARCH 30, 19931994 IN THE MAXIM GROUP, INC. COMMON
STOCK, NASDAQ STOCK MARKET INDEX, NASDAQ RETAIL STOCK
INDEX, S&P 500 INDEX AND S&P RETAIL COMPOSITE INDEX
-13--14-
17
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEES
ON EXECUTIVE COMPENSATION
During the year ended January 31, 1998,1999, the Compensation Committee of the
Board of Directors was comprised of four non-employee members of the Board and
the Stock Option Committee of the Board of Directors was comprised of two
non-employee members of the Board. The Compensation Committee is responsible
for: (i) setting the Company's compensation philosophy and policies; (ii) review
and approval of pay recommendations for the executive officers of the Company;
and (iii) initiation of all compensation actions for the Chief Executive Officer
of the Company. The Stock Option Committee has the authority to grant stock
options under the Company's 1993 Stock Option Plan (the "1993 Plan") and is
responsible for setting the terms and administering the Company's 1993 Stock Option Plan.
The Company's compensation policies have been designed to align the
financial interests of the Company's management with those of its shareholders,
and reflect the nature of the Company by taking into account the Company's
operating environment and the expectations for continued growth and enhanced
profitability. Compensation for each of the Company's executive officers
consists of a base salary an annualand in certain instances, discretionary bonusbonuses and
stock options. The Company does not currently provide executive officers with
other long term incentive compensation other than the ability to contribute
their earnings to the Company's 401(k) Plan.
The Compensation Committee's philosophy is that the predominanta substantial portion of
an executive's compensation should be based directly upon the value of long-term
incentive compensation in the form of stock option awards. The Compensation
Committee believes that providing executives with the opportunities to acquire
significant stakes in the growth and prosperity of the Company (through grants
of stock options), while maintaining other elements of the Company's
compensation program at conservative levels, will enable the Company to attract
and retain executives with the outstanding management abilities and
entrepreneurial spirit which are essential to the Company's ongoing success.
Furthermore, the Compensation Committee believes that this approach to
compensation motivates executives to perform to their full potential.
At least annually, theThe Compensation Committee reviewsis responsible for reviewing salary
recommendations for the Company's executives (other than the Chief Executive
Officer) and then approves such
recommendations, with any modifications it has
deemeddeems appropriate. The annual salary
recommendations are made under the ultimate direction of the Chief Executive
Officer, based on peer group and national industry surveys of total compensation
packages, as well as evaluations of the individual executive's past and expected
future performance. Similarly,
the Compensation Committee fixes theThe base salary of the Chief Executive Officer is set by the
terms of his employment agreement with the Company.
The amount of any annual bonus to be paid to executive officers is
determined based onupon a review of competitive compensation data and the
Chief Executive
Officer'sexecutive officer's overall compensation package, and the Compensation Committee's
assessment of his past performance and its expectation as to his future
performance in leading the Company.
The Compensation Committee also determines, based upon the
recommendation of the Chief Executive Officer, the annual bonus, if any, to be
paid to executive officers (other than the Chief Executive Officer). The amount
of each individual bonus is determined based uponwell as an evaluation of
such factors as individual performance, increases in the Company's revenue, net
income, net income per share and market penetration, as well as the executive's
contribution to the Company's performance. The Compensation Committee applies similar
criteria in setting the amountIn recognition of annual bonus, if any, earned by the Chief Executive
Officer.Officer's efforts during the year ended January 31, 1999 in, among other things,
selling the Company's manufacturing operations, he was awarded bonuses
totaling $1.9 million.
Stock options represent a substantial portion of compensation for the
Company's executive officers, including the Chief Executive Officer. Stock
options are granted at the prevailing market price on the date of grant, and
will only have value if the Company's stock price increases. Generally, grants
vest in equal amounts over a period of five years (although certain special
types of grants may vest either immediately or over a shorter period) and
executives must be employed by the Company at the time of vesting in order to
exercise the options. Grants of stock options generally are based upon the level
of the executive's position with the Company and an evaluation of the
executive's past and expected future -14-
18
performance. The Compensation Committee
believes that dependence on stock options for a significant portion of
executives' compensation more closely aligns such executives' interests with
those of the Company's shareholders, since the ultimate value of such
compensation is linked directly to stock price.
The Company recently negotiated a new employment agreement for its
Chief Executive Officer, which currently provides for an annual base salary of
$600,000. The base salary paid to the Chief Executive Officer is reviewed
annually by the Compensation Committee and may be adjusted based on competitive
compensation data, the Chief Executive Officer's overall compensation package
and the Compensation Committee's assessment of his past experience and its
expectation as to his future contributions in leading the Company and its
businesses. The Compensation Committee did not increase the salary of any other
executive officer.-15-
During the year ended January 31, 1998,1999, the Stock Option Committee granted
the Chief Executive Officer options to purchase 375,000250,000 shares of the Company's
Common Stock. In addition, options to purchase 50,000450,000 shares of Common Stock
were granted to the Company's new Chief Operating Officer during the year. Other
members of senior management received stock options to purchase an aggregate of
215,000 shares of Common Stock. All of the options granted to the Chief
Executive Officer, as well as a substantial portion of the options granted to
the other executive officers, vest in July 2006, with earlier vesting in April
2000 if the closing price of the Company's Common Stock is greater than $25.00
per share for any period of ten consecutive trading days prior to April 30,
2000. Each of these stock option awards were based upon an evaluation of
individual performance criteria and is consistent with the philosophy of
providing incentives based on the Company's future performance.
The Compensation Committee continually evaluates the Company's
compensation policies and procedures with respect to executives. Although the
Compensation Committee believes that current compensation policies have been
successful in aligning the financial interests of executive officers with those
of the Company's shareholders and with Company performance, it continues to
examineexecutives, including
examining what modifications, if any, should be implemented to further
link executive compensation with both individual and Company performance.
STOCK OPTION COMMITTEE COMPENSATION COMMITTEE
Richard A. Kaplan Richard A. Kaplan
Herb Wolk J. Michael Nixon
M. B. Seretean
Herb Wolk
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act ofNOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, as amended, or the
Securities Exchange Act ofAS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the foregoing
Report of Compensation and Stock Option Committees on Executive Compensation and
the Stockholder Return Performance Graph shall not be incorporated by reference
into any such filings.
-15-AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOREGOING REPORT OF
COMPENSATION AND STOCK OPTION COMMITTEES ON EXECUTIVE COMPENSATION AND THE
STOCKHOLDER RETURN PERFORMANCE GRAPH SHALL NOT BE INCORPORATED BY REFERENCE INTO
ANY SUCH FILINGS.
-16-
19
AGENDA ITEM TWO
PROPOSAL TO AMEND 1993 STOCK OPTION PLAN
GENERALCERTIFICATE OF INCORPORATION
TO CHANGE CORPORATE NAME
On July 30, 1993,June 9, 1999, the Board of Directors of the Company adopted a 1993
Stock Option Plan (as amended, the "1993 Plan") for eligible officers, directors
and key employeesapproved an
amendment to Article I of the Company. The 1993 Plan provides forCompany's Certificate of Incorporation, as amended
(the "Certificate of Incorporation"), to change the grant of both
incentive and non-qualified stock options. The purpose of the 1993 Plan is to
encourage and enable eligible directors, officers and key employeescorporate name of the
Company and its subsidiaries to acquire proprietary interests in"Flooring America, Inc." In connection therewith, the Company and
its subsidiaries throughfollowing
resolution will be introduced at the ownershipAnnual Meeting:
RESOLVED: That Article I of common stockthe Certificate of Incorporation of the
Company shall be amended by deleting the text thereof in its entirety and
to
provide motivation for participating directors, officers and key employees to
remain in the employ of and to give greater effort on behalfreplacing it as follows: "The name of the Company.
UnderCorporation is Flooring America, Inc."
The proposal to change the terms of the 1993 Plan, the Stock Option Committee of the
Board of Directors may grant options to purchase shares of Common Stock to
officers, directors and employees of the Company or of a subsidiary of the
Company.
As of May 15, 1998, the Company had granted options to purchase shares
of Common Stock pursuant to the 1993 Plan as follows: (i) each Named Executive
Officer (A.J. Nassar: 827,400 shares; James W. Inglis: 200,000 shares; H.
Stanley Padgett: 66,318 shares; Herb Biggers: 100,000 shares; and Thomas P.
Leahey: 80,000 shares); (ii) all current executive officers as a group:
1,475,615 shares; (iii) all current directors who are not executive officers as
a group: 380,000 shares; (iv) each nominee for election as a director (David E.
Cicchinelli: 15,000 shares; and James W. Inglis: 200,000 shares) and (v) all
employees, including all current officers who are not executive officers, as a
group: 2.5 million shares.
DESCRIPTION OF PROPOSED AMENDMENT
On May 1, 1998, the Board of Directors of the Company adopted an
amendment to the 1993 Plan which would increase the number of shares of the
Company Common Stock available for grant thereunder to 4,000,000 shares from
3,000,000 shares. As of May 15, 1998, less than 10,000 shares of Common Stock
remained available for grant under the 1993 Plan. The proposed increase in the
number of authorized shares would ensure the uninterrupted continuation of the
1993 Plan. The Board of Directors recommends that shareholders vote FOR the
proposed amendment. The affirmative vote of a majority of the shares of the
Company Common Stock represented in person or by proxy at the Annual MeetingCompany's corporate name is necessary for the approval of the amendment to the 1993 Plan.
DESCRIPTION OF 1993 PLAN
Effective Date. The effective date of the 1993 Plan is July 30,1993.
The 1993 Plan shall remain in effect until all shares subject to or which may
become subject to the 1993 Plan shall have been purchased pursuant to options
granted under the 1993 Plan, provided that options under the 1993 Plan must be
granted within ten (10) years from the effective date.
Shares Subject to the 1993 Plan. The sharespart of the
Company's common
stock available for issuancestrategy of marketing itself as a true national retailer, which
includes changing the name of its retail floor covering stores to a single brand
operating under the 1993 Plan may, atname "Flooring America." The Company currently operates
under a number of different retail trade names and concepts, including
CarpetMAX, New York Carpet World, The Carpet Exchange and Carpetland USA (the
"Maxim Brands"). In an effort to reconcile territorial conflicts between
Company-owned stores and stores operated by franchisees under the election"CarpetMAX"
trade name, Maxim will focus on becoming a national retailer. The Company
believes that the new name will also help ensure that customers focus on
flooring products rather than the multiple identities of the Board of Directors, be either treasury shares or shares originally issued for
such purpose. The maximum number of shares which shall be reservedMaxim Brands. Store
conversions from Maxim Brands to Flooring America commenced in October 1999 and
made
available for sale underare expected to extend through September 2000. To further support the
1993 Plan shall be 3,000,000 shares of Common Stock
(4,000,000 shares ifconsolidation to one brand, the amendmentCompany intends to offer its CarpetMAX
franchisees the opportunity to convert their CarpetMAX stores to franchised
Flooring America outlets pursuant to a franchise agreement similar to the
1993 Plancurrent CarpetMAX franchise agreement, but with additional obligations and
restrictions placed upon the franchisee more consistent with a typical franchise
agreement. The Company intends to build brand name awareness for Flooring
America stores through community involvement, charitable acts and grass roots
advertising efforts. To that end, the Company has become a corporate sponsor for
the Special Olympics and has chosen Cathy Rigby to act as its national
spokesperson.
Although changing the corporate name is not a precondition to the
rebranding of the Company's stores to the Flooring America concept, changing the
corporate name will help to more closely identify the Company with its retail
stores.
In accordance with Delaware corporate law, if approved by the
shareholders, the proposed amendment will become effective upon the filing of a
Certificate of Amendment relating thereto with the Company atSecretary of State of
Delaware, which will occur as promptly as practicable following the Annual
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20
Meeting). Any shares subject to an option which for any reason expires orMeeting. Assuming this proposal is terminated may again be subject to an option under the 1993 Plan.
Persons Eligible to Participate in the 1993 Plan. Under the 1993 Plan,
options may be granted only to officers, directors and key employees of the
Company or its subsidiaries.
Administration of the 1993 Plan. The 1993 Plan shall be administered by
the Board of Directors or by a committee comprised of no fewer than two (2)
members appointed by the Board of Directors of the Company from among its
members (the "Committee"). Members of the Committee shall be "disinterested
persons" as such term is defined under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended. Subject to the provisions of the 1993 Plan, the Board
of Directors or the Committee has the authority to determine the employees to
whom options shall be granted and to determine exercise prices, vesting
requirements, the term of and the number of shares covered by each option.
Exercise Price, Terms of Exercise and Payment for Shares. Each option
granted under the 1993 Plan will be represented by an Option Agreement which
shall set forth the terms particular to that option, including the number of
shares covered by the option, the exercise price, the term of the option and any
vesting requirements.
The exercise price of options granted under the 1993 Plan will be
determined by the Committee, but in no event shall be less than 100% of the
Average Market Price of the common stock on the date of the grant of the option.
The term Average Market Price is defined in the 1993 Plan to be the average of
the high bid and low ask prices as of the close of business for the Company's
shares of common stock in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc., Automated Quotation System (or
other national quotation service). If the Company's common stock is registered
on a national securities exchange, then Average Market Price shall mean the
closing price of the Company's common stock on such national securities
exchange. If the Company's Common Stock is not traded in the organized markets,
then the price shall be the fair market value of the common stock as determined
in good faith by the Board of Directors or the Committee, but in no case less
than the par value of such stock.
Options may be exercised in whole or in part by the optionee, but in no
event later than ten (10) years from the date of the grant. Any incentive stock
option granted under the 1993 Plan to an individual who owns more than 10% of
the total combined voting power of all classes of stock of the Company or a
subsidiary may not be purchased at a price less than 110% of the market price on
the day the option is granted, and no such option may be exercised more than
five (5) years from the date of grant. The purchase price for the shares shall
be paid in cash or shares of common stock of the Company, or a combination of
both. Upon payment, the Company will deliver stock certificates for such shares
to the optionee.
Termination of Service. In the event that a holder of an option granted
under the 1993 Plan ceases to be a director or employee of the Company or any
subsidiary of the Company for any reason other than his death or total and
permanent disability, any incentive stock option or unexercised portion thereof,
which is otherwise exercisable on the date of such termination, shall expire
three (3) months from the date of such termination. Any incentive stock options
which are not exercisable on the date of such termination shall immediately
terminate.
Upon the death or total and permanent disability of the holder of an
option, any incentive stock option or unexercised portion thereof which is
otherwise exercisable shall expire within one year of the
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21
date of such death or disability. Any incentive stock options which were not
exercisable on the date of such death or disability shall be immediately
exercisable for a period of one year.
Options granted under the 1993 Plan are exercisable during the lifetime
of the optionee only by the optionee. All options granted under the 1993 Plan
are non-transferable except by will or under the laws of descent and
distribution.
Reorganization and Recapitalization. In case the Company is merged or
consolidated with another corporation and the Company is not the survivor, or in
case the Company is acquired by another corporation, or in case of a separation,
reorganization, recapitalization or liquidation of the Company, the Board of
Directors of the Company shall either make appropriate provision for the
protection of any outstanding options, including without limitation the
substitution of appropriate stock of the Company or of the merged, consolidated
or otherwise reorganized corporation which will be issuable in respect of the
shares of the Common Stock of the Company, or upon written notice to the
optionee, provide that the option must be exercised within 60 days oradopted, it will be
terminated.
In the event that dividends are payable in Common Stock of the Company
or in the event there are splits, subdivisions or combinations of shares of
Common Stock of the Company, the number of shares available under the 1993 Plan
will be increased or decreased proportionately, as the case may be, and the
number of shares deliverable upon the exercise thereafter of any option
theretofore granted will be increased or decreased proportionately, as the case
may be, without change in the aggregate purchase price.
Limitation on Number of Shares That May be Purchased. For incentive
stock options granted under the 1993 Plan, the aggregate fair market value
(determined at the time the option was granted) of the shares with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000.
Amendment and Termination of the 1993 Plan. With respect to any shares
of stock at the time not subject to options, the Board of Directors may at any
time and from time to time, terminate, modify or amend the 1993 Plan in any
respect, except that no such modification or amendment shall be made absent the
approval of the shareholders of the Company to: (i) increase the maximum number
of shares for which options may be granted under the 1993 Plan; (ii) reduce the
option price or waiting period; (iii) extend the period during which options may
be granted or exercised; (iv) change the class of employees eligible for
incentive stock options; (v) otherwise materially modify the requirements as to
eligibility for participation in the 1993 Plan; or (vi) otherwise materially
increase the benefits accruing to participants under the 1993 Plan.
With the consent of the affected optionee, the Board of Directors or
the Committee may amend outstanding option agreements in a manner consistent
with the 1993 Plan.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. All incentive stock options granted or to be
granted under the 1993 Plan which are designated as incentive stock options are
intended to be incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
Under the provisions of Section 422 of the Code, neither the holder of
an incentive stock option nor the Company will recognize income, gain, deduction
or loss upon the grant or exercise of an incentive stock option. An optionee
will be taxed only when the stock acquired upon exercise of his
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22
incentive stock option is sold or otherwise disposed of in a taxable
transaction. If at the time of such sale or disposition the optionee has held
the shares for the required holding period (two years from the date the option
was granted and one year from the date of the transfer of the shares to the
optionee), the optionee will recognize long-term capital gain or loss, as the
case may be, based upon the difference between his exercise price and the net
proceeds of the sale. However, if the optionee disposes of the shares before the
end of such holding period, the optionee will recognize ordinary income on such
disposition in an amount equal to the lesser of:
(a) gain on the sale or other disposition; or
(b) the amount by which the fair market value of the shares on the
date of exercise exceeded the option exercise price, with any excess gain being
capital gain, long-term or short-term, depending on whether or not the shares
had previously been held for more than one year on the date of sale or other
taxable disposition.
The foregoing discussion and the reference to capital gain or loss
treatment therein assume that the option shares are a capital asset in the hands
of the optionee. A sale or other disposition which results in the recognition of
ordinary income to the optionee will also result in a corresponding income tax
deduction for the Company.
The 1993 Plan permits an optionee to pay all or part of the purchase
price for shares acquired pursuant to exercise of an incentive stock option by
transferring to the Company other shares of the Company's common stock owned by
the optionee. Section 422 of the Code provides that an option will continue to
be treated as an incentive stock option even if an optionee exercises such
incentive stock option with previously acquired stock of the corporation
granting the option. Accordingly, except as noted below with respect to certain
"statutory option stock," an optionee who exercises an incentive stock option in
whole or in part by transferring to the Company shares of the Company's common
stock will recognize no gain or loss upon such exercise. The optionee's basis in
the shares so acquired will be equal to the optionee's cost basis in the shares
surrendered (plus, in the case of payment of the purchase price in a combination
of cash and surrendered shares, the amount of any cash paid).
Section 424(c)(3) of the Code provides that if "statutory option stock"
is transferred in connection with the exercise of an incentive stock option, and
if the holding period requirements under Section 422(a)(1) of the Code are not
met with respect to such statutory option stock before such transfer, then
ordinary income will be recognized as a result of the transfer of statutory
option stock. However, the incentive stock option stock acquired through the
exchange of statutory option stock will still qualify for favorable tax
treatment under Section 422 of the Code.
Incentive stock options offer two principal tax benefits: (1) the
possibility of converting ordinary income into capital gain to the extent of the
excess of fair market value over option price at the time of exercise, and (2)
the deferral of recognition of gain until disposition of the stock acquired upon
the exercise of the option.
At present, the maximum tax rate on capital gains is 20% for assets
held for more than 18 months and 28% for assets held for more than 12 months but
not more than 18 months, while the maximum tax rate on ordinary income is 39.6%.
Thus, the conversion of ordinary income into capital gain produces some tax
benefit for certain taxpayers. However, the benefit of income deferral generally
provided by incentive stock options is reduced for some taxpayers since the
excess of the fair market value of shares acquired through the exercise of an
incentive stock option over the exercise price is taken into account
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23
in computing an individual taxpayer's alternative minimum taxable income. Thus,
the exercise of an incentive stock option could result in the imposition of an
alternative minimum tax liability.
In general, an option granted under the 1993 Plan which is designated
as an incentive stock option will be taxed as described above. However, in some
circumstances an option which is designated as an incentive stock option will be
treated as a non-qualified stock option and the holder taxed accordingly. For
example, a change in the terms of an option which gives the employee additional
benefits may be treated as the grant of a new option. Unless all the criteria
for treatment as an incentive stock option are met on the date the "new option"
is considered granted (such as the requirement that the exercise price of the
option be not less than the fair market value of the stock as of the date of the
grant), the option will be treated and taxed as a non-qualified stock option.
Non-Qualified Stock Options. All options granted or to be granted under
the 1993 Plan which do not qualify as incentive stock options are non-statutory
options not entitled to special tax treatment under Section 422 of the Code.
A participant in the 1993 Plan will recognize taxable income upon the
grant of a non-qualified stock option only if such option has a readily
ascertainable fair market value as of the date of the grant. In such a case, the
recipient will recognize taxable ordinary income in an amount equal to the
excess of the fair market value of the option as of such date over the price, if
any, paid for such option. No income would then be recognized on the exercise of
the option, and when the shares obtained through the exercise of the option are
disposed of in a taxable transaction, the resulting gain or loss would be
capital gain or loss (assuming the shares are a capital asset in the hands of
the optionee). However, under the applicable Treasury Regulations, the
non-qualified stock options issued under the 1993 Plan will not have a readily
ascertainable fair market value unless at the time such options are granted
similar options of the Company are actively traded on an established market. The
Company presently has no such actively traded options.
Upon the exercise of a non-statutory option not having a readily
ascertainable fair market value, the optionee recognizes ordinary income in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the option exercise price for those shares. The Company is not
entitled to an income tax deduction with respect to the grant of a non-statutory
stock option or the sale of stock acquired pursuant thereto. The Company
generally is permitted a deduction equal to the amount of ordinary income the
optionee is required to recognize as a result of the exercise of a non-statutory
stock option.
The 1993 Plan permits the Committee to allow an optionee to pay all or
part of the purchase price for shares acquired pursuant to an exercise of a
non-statutory option by transferring to the Company other shares of the
Company's Common Stock owned by the optionee. If an optionee exchanges
previously acquired Common Stock pursuant to the exercise of a non-qualified
stock option, the Internal Revenue Service has ruled that the optionee will not be taxed onnecessary for
shareholders to surrender stock certificates. Instead, when certificates are
presented for transfer, new certificates bearing the unrealized appreciation of the shares surrendered in the
exchange. In other words, the optionee is not taxed on the difference between
his or her cost basis for the old shares and their fair market value on the date
of the exchange, even though the previously acquired shares are valued at the
current market price for purposes of paying all or part of the option price.
General. The 1993 Plan is not qualified under Section 401(a) of the
Code and is not subject to the provisions of the Employee Retirement Income
Security Act of 1974.
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24
The preceding discussion is based upon federal tax laws and regulations
in effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the statutory provisions of the Code, its legislative
history and related income tax regulations. Furthermore, the foregoing is only a
general discussion of the federal income tax consequences of the 1993 Plan and
does not purport tonew name will be a complete description of all federal income tax aspects
of the 1993 Plan. Option holders may also be subject to state and local taxes in
connection with the grant or exercise of options granted under the 1993 Plan and
the sale or other disposition of shares acquired upon exercise of the options.
Each employee receiving a grant of options should consult with his or her
personal tax advisor regarding federal, state and local consequences of
participating in the 1993 Plan.issued.
The approval of the holders of a majority of the issued and outstanding
shares of Common Stock of the Company Common Stock present and voting atis required for the Annual Meeting is necessary to approveadoption of the
proposed amendment to the 1993 Plan.Certificate of Incorporation. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS APPROVE THE PROPOSED AMENDMENT TO THE
1993 PLAN.CERTIFICATE OF INCORPORATION.
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INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has served as independent auditors of the Company for
the fiscal year ended January 31, 1998.1999. Representatives of Arthur Andersen LLP
are expected to be present at the shareholders' meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions. The Company has not selected its independent accountants
for the 19992000 fiscal year. The Company anticipates that the independent
accountants who will examine and report on the Company's consolidated financial
statements for the year ending January 31, 1999February 5, 2000 will be selected during the
thirdfourth quarter of the current fiscal year.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report for the year ended January 31, 19981999 on Form
10-K as filed with the Securities and Exchange Commission, is available to
shareholders who make written request therefor to the Company, Attention: Chief
Financial Officer at 210 TownPark Drive, Kennesaw, Georgia 30144. Copies of
exhibits and basic documents filed with that report or referenced therein will
be furnished to shareholders of record upon request.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's 19992000
annual meeting must be received at the Company's principal executive offices by
January 30, 1999February 15, 2000 in order to be eligible for inclusion in the Company's
proxy statement and form of proxy for that meeting.
-21-
25With respect to any such proposals received by the Company after April
17, 2000, the persons named in the form of proxy solicited by management in
connection with the 2000 meeting of shareholders of the Company will have
discretionary authority to vote on any such shareholder proposals in
accordance with their judgment of what is in the best interest of the Company.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
annual meeting. However, if other matters should come before the annual meeting
it is the intention of the persons named in the enclosed form of Proxy to vote
the Proxy in accordance with their judgment of what is in the best interest of
the Company.
By Order of the Board of Directors,
/s/ A.J. NassarNASSAR
A.J. NASSAR
President and Chief Executive Officer
Kennesaw, Georgia
June 4, 1998
-22-November 12, 1999
-18-
26
EXHIBIT A
---------
THE MAXIM GROUP, INC.
210 TOWNPARK DRIVE
KENNESAW, GEORGIA 30144
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 19981999 ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints A.J. Nassar and Thomas P. Leahey or either of
them, with power of substitution to each, the proxies of the undersigned to vote
the Common Stock of the undersigned at the Annual Meeting of Shareholders of THE
MAXIM GROUP, INC. to be held on June 26, 1998,December 14, 1999, at 10:00 a.m. at 210 TownPark
Drive, Kennesaw, Georgia 30144, and any adjournments or postponements thereof:
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ABOVE PROPOSALS LISTED ON THE REVERSE
SIDE AND UNLESS INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE
PROVIDED, THIS PROXY WILL BE SO VOTED.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE
- --------------------------------------------------------------------------------
NOTE: Please date and sign this Proxy exactly as name(s) appear(s) on reverse
side. When signing as an attorney, trustee, executor, administrator or guardian,
please give your title as such. If a corporation or partnership, give full name
by authorized officer. In the case of joint tenants, each joint owner must sign.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ----------------------------------- ------------------------------------------------------------------- ----------------------------------
- ----------------------------------- ------------------------------------------------------------------- ----------------------------------
- ----------------------------------- ------------------------------------------------------------------- ----------------------------------
27
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
--------------------------- 1. To elect two (2) directors to
serve for a term of three
THE MAXIM GROUP, INC. years and until their
successors are elected and
--------------------------- qualified.
FOR ALL WITH- FOR ALL
NOMINEES HOLD EXCEPT
David E. Cicchinelli [ ] [ ] [ ]
James W. Inglis
Mark box at right if an address [ ] INSTRUCTION: To withhold authority
change or comment has been noted to vote for any individual nominee
on the reverse side of this card. mark the "For All Except"box and
write that nominee's name in the
space provided below.
---------------------------------
RECORD DATE SHARES:
For Against Abstain
2. To approve an amendment to the [ ] [ ] [ ]
1993 Stock Option Plan of the Company to
increase the number of shares of Common
Stock available for
grant thereunder from 3,000,000 shares to
4,000,000 shares.
Please be sure to sign and date this Proxy. Date:
---------------
- --------------------------------------------/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
____________________________________________
THE MAXIM GROUP, INC.
____________________________________________
CONTROL NUMBER:
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date:_______________
- -------------------------------------------------------------
Shareholder sign here Co-owner sign here
3. To transact such other business
incidental to the conduct of the Annual
Meeting as may properly come before the
Annual Meeting or any adjournments or
postponements thereof.
DETACH CARD
DETACH CARD
1. To elect three (3) directors
to serve for a term of three
years and until their
successors are elected and
qualified.
FOR ALL WITH- FOR ALL
NOMINEES HOLD EXCEPT
Richard A. Kaplan / / / / / /
Ronald H. McSwain
A. J. Nassar
INSTRUCTION: To withhold authority to vote for any individual
nominee mark the "For All Except" box and write that nominee's name
in the space provided below.
- ------------------------------------------------------
2. To approve an amendment to the Certificate of Incorporation of
the Company to change the corporate name to "Flooring
America, Inc."
FOR / / AGAINST / / ABSTAIN / /
3. To transact such other business incidental to the conduct of the
Annual Meeting as may properly come before the Annual Meeting
or any adjournments or postponements thereof.
Mark box at right if an address change or comment has been
noted on the reverse side of this card / /
DETACH CARD