SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Shop At Home, Inc.
(Name of Registrant as Specified In Its Charter)
C. Michael Norton, Wyatt, Tarrant & Combs, 2525 West End Avenue,
Suite 1500, Nashville, Tennessee 37203
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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SHOP AT HOME, INC.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 29, 2001
Notice is hereby given that the Annual Meeting (the "Meeting") of
Shareholders of Shop At Home, Inc. (hereinafter called the "Company"), will be
held at Loews Vanderbilt Plaza Hotel, located at 2100 West End Avenue,
Nashville, Tennessee, on November 29, 2001, at 10:00 a.m. Central Standard Time,
for the following purposes:
(1) To consider and to vote upon the election of seven (7)
directors to serve until the next annual meeting or until
their successors are duly elected and qualified;
(2) To consider and to vote upon the approval of amendments to the
Company's 1999 Employee Stock Option Plan to increase the
number of shares of Common Stock which may be issued pursuant
to options granted under the Plan from 3,000,000 to 6,000,000
shares, and to make certain other changes; and
(3) To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
Information regarding the matters to be acted upon at the Annual
Meeting is contained in the Proxy Statement accompanying this Notice. The Annual
Meeting may be adjourned or postponed from time to time without notice, other
than the announcement of the adjournment or postponement at the Annual Meeting
or any adjournments or postponements thereof, and any and all business for which
notice is hereby given may be transacted at any such adjourned or postponed
Meeting.
The Board of Directors has fixed the close of business on October 3,
2001, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Meeting.
By Order of the Board of Directors
George J. Phillips, Secretary
Nashville, Tennessee
November ____, 2001
YOUR REPRESENTATION AT THE MEETING IS IMPORTANT. TO ENSURE YOUR REPRESENTATION,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY. SHOULD YOU DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO
AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT IS VOTED.
ii
TABLE OF CONTENTS
Information Concerning the Solicitation.......................................1
Date, Time and Place of Meeting......................................1
Record Date; Shares Outstanding Entitled to Vote.....................1
Voting and Revocation of Proxies.....................................1
Quorum; Vote Required; Broker Non-Votes..............................2
Security Ownership of Certain Beneficial Owners...............................2
Proposal No. 1 -- Election of Directors.......................................3
Director Nominees....................................................4
Meetings and Committees of the Board.................................4
Security Ownership of Management and Directors.......................5
Other Executive Officers.............................................6
Remuneration of Directors and Officers...............................7
Summary Compensation.................................................7
Option Grants in Last Fiscal Year....................................9
Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values.......................................................11
Kent E. Lillie Compensation.........................................12
Employment Agreements...............................................12
Compensation of Directors...........................................13
Compensation of Members of the Office of the Chairman...............14
Omnibus Stock Incentive Plan........................................14
1999 Employee Stock Option Plan.....................................14
Transactions with Management and Directors..........................15
Compensation Committee Interlocks and Insider Participation.........15
Transactions with Related Parties...................................15
Report on Executive Compensation....................................15
Compensation Philosophy and Policies for Executive Officers.........16
Base Salary.........................................................16
Annual Bonus........................................................16
Long-Term Incentives................................................17
Chief Executive Compensation........................................17
Audit Committee Report..............................................18
Independent Public Accountants......................................19
Fees Paid to the Company's Independent Auditors.....................19
Shareholder Return Comparisons......................................19
Compliance with Section 16(a) of the Exchange Act...................19
Proposal No. 2 - Approval of Amendment to 1999 Stock Option Plan.............20
General Information.................................................20
Terms of Options....................................................20
Plan Amendments.....................................................21
Tax Effects of Plan Participation...................................21
Amendments..........................................................22
Recommendation of the Board of Directors............................23
Proposal No. 3 -- Other Business.............................................24
Other Information............................................................24
Interests of Company Affiliates.....................................24
Proposals of Shareholders...........................................24
Cost of Solicitation of Proxies.....................................24
Annual Report.......................................................24
Appendix A: Audit Committee Charter..........................................i
Appendix B: Amended and Restated 1999 Stock Option Plan....................iii
SHOP AT HOME, INC.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013
(615) 263-8000
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING THE SOLICITATION
The accompanying proxy is solicited by the Board of Directors of Shop
At Home, Inc. (the "Company"), for use at the Annual Meeting of Shareholders to
be held for the purposes described in this Proxy Statement, notice of which is
attached hereto.
This Proxy Statement and the Annual Report of the Company for the
fiscal year ended June 30, 2001, have been mailed on or about November ____,
2001, to all shareholders of record on October 3, 2001.
The purposes of the Annual Meeting are: [1] to consider and to vote
upon the election of seven (7) directors; [2] to consider and to vote upon the
approval of amendments to the Company's 1999 Employee Stock Option Plan to
increase the number of shares of Common Stock which may be issued pursuant to
options granted under the Plan from 3,000,000 to 6,000,000, and to make certain
other changes; and [3] to consider such other business as may properly come
before the meeting or any adjournment or postponement thereof.
Date, Time and Place of Meeting
The Annual Meeting will be held on Thursday, November 29, 2001, at
10:00 a.m. Central Standard Time, at Loews Vanderbilt Plaza Hotel, 2100 West End
Avenue, Nashville, Tennessee.
Record Date; Shares Outstanding Entitled to Vote
The Board of Directors has fixed the close of business on October 3,
2001 (the "Record Date") as the record date for the Annual Meeting. The
Company's only class of securities entitled to vote is its Common Stock, $.0025
par value per share ("Common Stock"). On the Record Date, the Company had
outstanding 41,816,831 shares of Common Stock. Only shareholders of record at
the close of business on the Record Date will be entitled to vote at the Annual
Meeting. Shareholders will be entitled to one vote for each share held, which
vote may be given in person or by proxy authorized in writing.
Voting and Revocation of Proxies
The proxy conferred by the proxy card accompanying this Proxy Statement
is solicited on behalf of the Board of Directors of the Company for use at the
Annual Meeting. Shareholders entitled to vote are requested to complete, date,
and sign the accompanying proxy card and promptly return it in the accompanying
envelope or otherwise mail it to the Company. All proxies evidenced by proxy
cards that are properly executed and returned, and that are not revoked, will be
voted at the Annual Meeting in accordance with the instructions indicated
thereon. If no instructions are indicated on the proxy card, all shares
represented by that proxy will be voted: "FOR" the election of all director
nominees; and "FOR" the approval of the amendments to the 1999 Employee Stock
Option Plan.
The Board of Directors does not presently intend to bring any business
before the Annual Meeting other than the proposals discussed in this Proxy
Statement and specified in the Notice of Annual Meeting attached hereto. The
Board of Directors knows of no other matters that are to be brought to a vote at
the Annual Meeting. If, however, any other matter properly comes before the
Annual Meeting, the persons appointed in the proxy, or their substitutes, will
vote in accordance with their best judgment on such matters.
A shareholder of record who signs and returns a proxy in the
accompanying form may revoke that proxy at any time before the authority granted
thereby is exercised (i) by attending the Annual Meeting and electing to vote in
person, although attendance at the Annual Meeting, will not, by itself, revoke a
proxy; (ii) by filing with the Secretary of the Company a written revocation
bearing a date later than the proxy, or (iii) by duly executing and filing with
the Secretary of the Company, prior to the vote at the Annual Meeting, a proxy
relating to the same shares bearing a later date.
Quorum; Vote Required; Broker Non-votes
Under the Tennessee Business Corporation Act (the "Act") and the
Company's Bylaws, the presence, in person or by proxy, of a majority of the
outstanding shares of the Company's Common Stock is necessary to establish a
quorum of the Company's shareholders for the purpose of taking action at the
Annual Meeting. For these purposes, shares which are present or represented by a
proxy at the Annual Meeting will be counted for quorum purposes, regardless of
whether the holder of the shares or proxy fails to vote on any particular matter
or whether a broker with discretionary authority fails to exercise its
discretionary voting authority with respect to any particular matter.
The directors standing for election must be elected by a plurality of
the votes cast at the Annual Meeting. Any other action to be taken at the Annual
Meeting must be approved by a majority of the votes cast. For these voting
purposes, abstentions and broker non-votes will not be counted in determining
whether the directors standing for election have been elected or whether any
other action has been approved. A broker non-vote occurs when a nominee holding
shares for a beneficial owner does not vote the shares on a proposal because the
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner.
None of the proposals will give any shareholder of the Company the
right to dissent from such action, and to thereby obtain payment in cash of the
fair value of that shareholder's shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following information relates to the Common Stock of the Company
beneficially owned, directly or indirectly, by all persons known by the Company
to be the beneficial owners of more than five percent (5%) of the Common Stock,
as of October 3, 2001. Unless otherwise noted, the named persons have sole
voting and investment power with respect to the shares indicated.
Amount and Nature of Percent of
Name and Address of Beneficial Owner(1) Beneficial Ownership Class
J.D. Clinton and SAH Holdings, Ltd.(2)...... 4,584,624 10.9%
Legacy Media Partners, LLC; Legacy Asset
Management, Inc.; Legacy Investment Group,
Inc.; Michael D. Easterly; John R. Jordan;
W. Charles Warner; and Glenn M. and Ronda J.
Caudill (the "Legacy Group") (3)............ 3,199,142 7.7%
(1) In addition to shares over which the person has voting power or
investment power, a person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
of this Proxy Statement upon the exercise of options and warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options and warrants that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Proxy Statement have been exercised.
(2) Mr. Clinton's address and the address of SAH Holdings, Ltd. ("SAH"),
is 400 Fifth Avenue South, Suite 205, Naples, Florida 34102. SAH is a
Florida limited partnership, and Gatehouse Equity Management Corporation, a
Tennessee corporation ("GEM"), is its sole general partner. Mr. Clinton is
chairman, a director and the sole shareholder of GEM. SAH currently owns
3,268,508 shares of Common Stock. Clinton Investments, Ltd., a Florida
limited partnership of which GEM is the sole general partner, owns
1,137,785 shares of Common Stock. GEM owns 18,600 shares of Common Stock.
Mr. Clinton individually holds options to purchase 91,250 shares of stock
from the Company. Mr. Clinton's wife owns, individually, 9,320 shares of
Common Stock. Two trusts, the beneficiaries of which are members of Mr.
Clinton's immediate family, own 59,161 shares of Common Stock in the
aggregate. All of the listed shares are assumed to be beneficially owned by
Mr. Clinton.
(3) The address of the Legacy Group is 3384 Peachtree Road, N.E., Suite
300, Atlanta, Georgia 30326-1106. Legacy Media Partners, LLC ("LMP"),
a Georgia limited liability company, is the beneficial owner of 2,829,332
shares, made up of 1,896,145 shares owned directly and certain shares for
which it may be deemed to be the beneficial owner, as follows: 216,000
shares held by Mr. Jordan; 329,000 shares held by Mr. Warner, along with
15,000 shares owned by Mr. Warner jointly with his two daughters, 10,000
shares owned by Mr. Warner jointly with his wife, and 2,000 held
individually by Mr. Warner's wife; and 262,466 shares owned directly by Mr.
Caudill, and 125,121 shares owned directly by Mrs. Caudill. Jordan, Warner
and the Caudill's have each granted LMP a revocable proxy to vote such
shares. Legacy Asset Management, Inc., a Georgia corporation and a member
and the sole manager of LMP ("LAM"), is the beneficial owner of 369,810
shares which are directly owned by clients of LAM for whom LAM acts as an
investment advisor. Of these 369,810 shares, 54,500 are directly owned by
Mr. Easterly and 25,700 shares are owned by Legacy Investment Group, Inc.,
a Georgia corporation that is the holding company parent of LAM. Mr.
Easterly is a director and the controlling shareholder of Legacy Investment
Group.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors proposes the election of the seven (7) nominees
listed below to serve a one-year term or until their successors are duly elected
and qualified. Unless contrary instructions are received, it is intended that
the shares represented by the Proxy solicited by the Board of Directors will be
voted in favor of the election as directors of all the nominees named below. If,
for any reason, any of the nominees is not available for election, the persons
named in the Proxy have advised that they will vote for such substitute nominees
as the Board of Directors of the Company may propose. The Board of Directors has
no reason to expect that any of these nominees will fail to be candidates at the
meeting, and therefore does not at this time have any substitute nominee under
consideration. The information relating to the seven (7) nominees set forth
below has been furnished to the Company by the individuals named. With the
exception of Mr. Stansberry, all of the nominees are presently directors of the
Company. Of those who are currently serving as Directors, Mr. Bone and Mr.
Ditomassi were elected on May 7, 2001, and the others were elected at the
Company's annual meeting held on November 17, 2000.
On May 7, 2001, the Board voted to increase the size of the Board by
two persons, and filled the resulting two vacancies by electing Mr. Ditomassi
and Mr. Bone to the Board. On May 4, 2001, the Board of Directors voted to
terminate the services of Kent E. Lillie as the President and Chief Executive
Office of the Company, and on May 16, 2001, Kent E. Lillie resigned as a member
of the Company's Board of Directors. On October 3, 2001, J. Daniel Sullivan
resigned from the Board of Directors. For the 2002 fiscal year, the Board has
voted to set the number of directors at seven (7).
The Directors shall be elected by a plurality of the votes cast by the
shares entitled to vote in the election at the Annual Meeting.
The Board of Directors recommends that shareholders vote "FOR" the
nominees listed below. Proxies, unless indicated to the contrary, will be voted
"FOR" the listed nominees.
J.D. Clinton, Director and Chairman of the Board. Mr. Clinton has
been a Director and Chairman of the Board since 1993. Between May 7 and October
1, 2001, Mr. Clinton served as a member of the Office of the Chairman, which
assumed responsibility for the management of the Company during the period in
which it had no chief executive officer. Mr. Clinton is Chairman, President and
Chief Executive Officer of Independent Southern BancShares, Inc., Brownsville,
Tennessee, a diversified financial institutions holding company, and also serves
as Chairman and a Director of INSOUTH Bank, Brownsville, Tennessee. Age 57.
Frank A. Woods, Director and Co-Chief Executive Officer. Mr.
Woods has been a Director since 1993. Between May 7 and October 1, 2001, Mr.
Woods served as a member of the Office of the Chairman, which assumed
responsibility for the management of the Company during the period in which it
had no chief executive officer. As of October 1, 2001, the Company's Board
elected Mr. Woods as Co-Chief Executive Officer of the Company. From 1991 to
2000, Mr. Woods was Chairman of the Board and Director of MediaUSA L.L.C. (and
its predecessor company, MediaOne), Nashville, Tennessee, a communications
consulting and strategic planning firm. Mr. Woods has been a principal of The
Woods Group in Nashville, Tennessee, a diversified merchant banking firm. Age
60.
George R. Ditomassi, Director and Co-Chief Executive Officer. Mr.
Ditomassi has been a Director since May 7, 2001, and between May 7 and October
1, 2001, Mr. Ditomassi served as a member of the Office of the Chairman, which
assumed responsibility for the management of the Company during the period in
which it had no chief executive officer. As of October 1, 2001, the Company's
Board elected Mr. Ditomassi as Co-Chief Executive Officer of the Company. Mr.
Ditomassi was formerly Chairman of Milton Bradley Company, a manufacturer and
marketer of toys and games. He has served as a Director of Milton Bradley
Company since 1982 and was President between 1985 and 1990. Between 1990 and
1996, he was Chief Operating Officer of Games and International, Hasbro, Inc., a
toy and game manufacturer and marketer, and he served as President of Hasbro
International during 1996 and 1997. Age 66.
A.E. Jolley, Director. Mr. Jolley has been a Director since 1986.
Mr. Jolley has been President of Lakeway Containers, Inc., Morristown,
Tennessee, a corrugated container manufacturer, since 1975. He is also the
Chairman of the Morristown City Planning Commission and is the President of the
Walter State Community College Foundation Board of Trustees. Age 62.
Joseph I. Overholt, Director. Mr. Overholt has been a Director
since 1986. Mr. Overholt has been President and Owner of Planet Systems, Inc.,
an internet service provider engaging in the satellite delivery of internet data
and local internet services, since 1992. Mr. Overholt served as a Vice President
of the Company from 1986 through August 1993. Age 54.
Charles W. Bone, Director. Mr. Bone was elected to the Board on May 7,
2001, and between May 7 and October 1, 2001, Mr. Bone served as a member of the
Office of the Chairman, which assumed responsibility for the management of the
Company during the period in which it had no chief executive officer. He has
practiced law since 1971, and is a partner in the regional law firm, Wyatt,
Tarrant & Combs, LLP, which he joined in 1994. Age 55.
Don C. Stansberry, Jr., Director Nominee. Mr. Stansberry is
President and a Director of Rose Hall Resorts, a company that is the general
partner of Rose Hall Resorts, L.P. in Montego Bay, Jamaica. Rose Hall Resorts,
L.P. owns The Ritz-Carlton Hotel at Rose Hall in Montego Bay, the development of
which Mr. Stansberry coordinated with John W. Rollins & Associates. He also
serves as a Director of Rose Hall Developments, Ltd. and is President of Rollins
Jamaica, Ltd. In addition, he is the Vice Chairman of Nashville Speedway, USA,
which recently developed and opened a new superspeedway in Wilson County
(Nashville), Tennessee. Prior to his affiliation with these development
companies, he had practiced law since 1963, chiefly concentrating in products
liability disputes and business litigation as a shareholder with Baker,
Donelson, Bearman & Caldwell, PC, and as a partner in a predecessor firm, Baker,
Worthington Crossley, Stansberry & Woolf. He is a Director Emeritus of the First
National Bank of Oneida, Tennessee. Age 62.
The principal business activity of each of the above Directors has been
as shown above during the past five years, except that in some cases the
individual has been employed by a predecessor organization or has undertaken
greater responsibilities with the same employer, a parent company, or a
successor organization.
Meetings and Committees of the Board
The Board of Directors has no standing nominating committee or compensation
committee. All directors of the Company participate in executive compensation
decisions. An administrative committee comprised of Mr. Clinton and Mr. Woods
(and previously Mr. Lillie prior to his departure) has administered the
Company's 1991 Omnibus Stock Incentive Plan. In addition, Mr. Bone was appointed
by the Board on October 4, 2001, to be the Chairman of the Stock Option
Committee, a separate administrative committee appointed by the Board to
administer the Company's 1999 Stock Option Plan, replacing Mr. Woods. Mr.
Clinton is a member of this committee.
The Audit Committee is comprised of three Directors appointed by the
Board of Directors: Mr. Jolley, Mr. Clinton, and Mr. Overholt. During the last
fiscal year, the audit committee held three (3) meetings. The Audit Committee
functions pursuant to a written charter adopted by the Board of Directors, a
copy of which is attached as Appendix A to this Proxy Statement. The Audit
Committee is authorized to recommend to the Board of Directors independent
certified public accounting firms for selection as auditors to the Company; make
recommendations to the Board of Directors on auditing matters; examine and make
recommendations to the Board of Directors concerning the scope of audits; and
review and approve the terms of transactions between or among the Company and
related parties. Mr. Jolley is the chairman of the Audit Committee. The formal
report of the Audit Committee for the fiscal year ending June 30, 2001, is set
forth below under the heading "Audit Committee Report."
During the fiscal year ended June 30, 2001, the Board of Directors held
fourteen (14) meetings. No incumbent director attended fewer than 75% of the
Board meetings during the year.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table presents the beneficial ownership of the Common
Stock of the Company, as of October 3, 2001, by the Company's directors,
director nominees, the executive officers named in the Remuneration of Directors
and Officers, and by all directors, director nominees and executive officers as
a group.
Amount and Nature of Percent of
Name of Beneficial Owner(1) Beneficial Ownership Class
J.D. Clinton (2)................... 4,584,624 10.9%
A.E. Jolley (3).................... 623,592 1.5%
Joseph I. Overholt (4)............. 521,250 1.2%
Frank A. Woods (5)................. 242,917 *
George R. Ditomassi(6)............. 211,167 *
Charles W. Bone(7)................. 145,000 *
Don C. Stansberry, Jr.............. 4,500 *
Arthur D. Tek (8).................. 271,000 *
Everit A. Herter (9)............... 37,000 *
H. Wayne Lambert (10).............. 91,600 *
George J. Phillips (11)............ 56,000 *
All Directors and executive officers
as a group (13 persons)...... 6,813,650 15.9%
* Less than 1.0%.
(1) In addition to those shares over which the person has voting power or
investment power, a person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the
date of this Proxy Statement upon the exercise of options and warrants.
Each beneficial owner's percentage ownership is determined by assuming
that options and warrants that are held by such person (but not those
held by any other person) and that are exercisable within 60 days from
the date of this Proxy Statement have been exercised.
(2) See Notes in preceding section entitled "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS."
(3) Includes options to purchase 92,500 shares.
(4) Includes options to purchase 86,250 shares.
(5) Includes options to purchase 237,917 shares.
(6) Includes options to purchase 204,167 shares.
(7) Includes options to purchase 62,500 shares.
(8) Includes options to purchase 96,000 shares.
(9) Includes options to purchase 28,000 shares.
(10) Includes options to purchase 26,000 shares.
(11) Includes options to purchase 39,000 shares.
OTHER EXECUTIVE OFFICERS
The following information relates to the executive officers of the Company,
as of October 6, 2001, other than Mr. Woods and Mr. Ditomassi, who also serve as
directors of the Company, as noted above. Mr. Woods, Mr. Ditomassi, Mr. Merrihew
and Mr. Tek have employment agreements, and the remaining executive officers
serve at the discretion of the Board:
Name Age Position
Everit A. Herter....60 Executive Vice President of Affiliate Relations
H. Wayne Lambert....51 Executive Vice President & Chief Information Officer
Thomas N. Merrihew..46 Executive Vice President of Sales and Merchandising
George J. Phillips..39 Executive Vice President, General Counsel & Secretary
Arthur D. Tek.......52 Executive Vice President & Chief Financial Officer
Robert B. Wales.....38 Executive Vice President of Operations
Everit A. Herter, Executive Vice President of Affiliate Relations.
Mr. Herter became Executive Vice President of Affiliate Relations in September
1998. He served the Company from 1994 to 1998 first as consultant, then as
Director of Affiliate Relations, and later as Vice President for Affiliate
Relations. Prior to joining the Company, Mr. Herter was a Senior Vice President
with the international advertising agency, J. Walter Thompson Company ("JWT").
He was employed by JWT for 16 years. Before joining JWT, Mr. Herter was Vice
President and Management Supervisor on the Ford Motor Company corporate
advertising account and Assistant to the President of Kenyon & Eckhardt
Advertising in New York City.
H. Wayne Lambert, Executive Vice President and Chief Information
Officer. Mr. Lambert became Executive Vice President and Chief Information
Officer in August 1999. He joined the Company in March 1992 as Vice President of
Information Technology. Prior to joining the Company, he served as Operations
Officer for National Book Warehouses, Inc. in Knoxville, Tennessee. Prior to
joining National Book Warehouses, he served as Assistant Controller for the
Knoxville News-Sentinel, a daily newspaper in Knoxville, Tennessee. Mr. Lambert
is a retired Captain of the Tennessee Air National Guard and a Base Budget
Officer. He is a graduate of the University of Tennessee.
Thomas N. Merrihew, Executive Vice President of Sales and
Merchandising. Mr. Merrihew became Executive Vice President of Sales and
Marketing by the Company's Board of Directors on August 13, 2001. Previously, he
served as General Manager and Vice President of Merchandising from 2000, to
2001, for buy.com, an Internet retailer that markets and merchandises products
online. From 1994, to 2000, Mr. Merrihew was a Vice President and Merchandise
Manager for the television and electronic retailer QVC, Inc., where his
responsibilities included new product development, branding, and promotions. He
is a graduate of San Jose State University.
George J. Phillips, Executive Vice President, General Counsel and
Secretary. Mr. Phillips joined the Company in November 1997. Prior to joining
the Company, Mr. Phillips was Counselor to the Assistant Attorney General of the
Civil Division of the United States Department of Justice from 1993 through
1997, where he oversaw the Office of Consumer Litigation. Prior to joining the
Justice Department, Mr. Phillips was in private practice with Baker,
Worthington, Crossley, Stansberry & Woolf in Nashville, Tennessee, from 1989 to
1993, where he concentrated on litigation. Mr. Phillips graduated from Duke
University and obtained his law degree from the University of Tennessee. Mr.
Phillips is a member of the American Corporate Counsel Association and the
Tennessee Bar Association.
Arthur D. Tek, Executive Vice President and Chief Financial Officer.
Mr. Tek has served as the Executive Vice President and Chief Financial Officer
since March 1999. Prior to joining the Company, Mr. Tek served as Chief
Financial Officer of Paxson Communications Corporation, a television
broadcasting company, from 1992 to March 1999. Mr. Tek currently serves as
Chairman of the Board of Directors for the Broadcast Cable Financial Management
Association, an industry trade organization. He is also a member of the American
Institute of Certified Public Accountants. Mr. Tek graduated from Tulane
University, and holds master's degrees from Columbia University and Rensselaer
Polytechnic Institute.
Robert B. Wales, Executive Vice President of Operations. Mr.
Wales joined the Company as Executive Vice President of Operations on September
24, 2001. Immediately prior to joining the Company, Mr. Wales from June to
September, 2001 was the Chief Information Officer of Newgen Results, Inc.,
primarily a business-to-business application service provider specializing in
customer relationship management for the automotive industry. Newgen Results,
Inc. is a subsidiary of Teletech Holdings, where Mr. Wales worked from August
2000 until June 2001 as Director of Systems Integration. From 1997 to 2000 Mr.
Wales served as General Manager and Director of Operations for CenturyTel
Telecommunications, Inc., a call center service provider. From 1986 to 1997, he
was employed by the HSN, LP (Home Shopping Network) as call center director,
responsible for the management of its Customer Service Department and all
related functions. Prior to being the call center director, Mr. Wales held a
number of positions at HSN in technology and call center operations.
REMUNERATION OF DIRECTORS AND OFFICERS
Summary Compensation
The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended June 30, 2001, to those persons who
served as the Company's CEO during the 2001 fiscal year and were the Company's
most highly compensated executive officers (other than the CEO) serving as of
the end of fiscal year 2001 with compensation exceeding $100,000 (collectively,
the "Named Executive Officers").
Summary Compensation Table
Long Term
Annual Compensation Compensation
Securities All Other
Name and Other Annual Underlying Options Compen-
Principal Salary Bonus Compensation /SARs sation
Position Year $ $ $ (#)(2) $
Kent E. Lillie, 2001 208,251 -- 11,500(1) 135,000 3,209,734(3)
President & CEO 2000 216,556 73,050 12,000(1) 20,000 4,000(4)
1999 204,583 -- 12,000(1) 510,000 --
Theodore M. Engle(5) 2001 170,317 -- -- 150,000 --
III, President & 2000 158,774 -- -- 24,500 --
COO of the Network 1999 140,000 -- -- 50,000 --
Arthur D. Tek 2001 175,329 75,000 -- 150,000 --
Executive Vice 2000 168,434 30,789 -- 40,000 41,461(6)
President & CFO 1999 47,115 -- -- 150,000 --
H. Wayne Lambert 2001 130,242 -- -- 50,000 --
Executive Vice 2000 121,890 -- -- 20,000 17,503(6)
President and CIO 1999 104,338 -- -- 150,000 1,554(6)
Everit A. Herter 2001 136,254 40,000 13,755(7) 25,000 24,829(6)
Executive 2000 129,973 1,000 -- -- 42,627(6)
Vice President 1999 120,769 12,000 -- -- --
Affiliate Relations
George J. Phillips 2001 131,538 -- -- 50,000 --
Executive Vice 2000 113,247 -- -- 10,000 --
President, General 1999 102,923 -- -- 25,000 --
Counsel & Sec.
J.D. Clinton, See "Compensation of Members of the Office
Member--Office of the of the Chairman" below.
Chairman
Frank A. Woods, See "Compensation of Members of the Office
Member--Office of the of the Chairman" below.
Chairman
George R. Ditomassi, See "Compensation of Members of the Office
Member--Office of the of the Chairman" below.
Chairman
Charles W. Bone, See "Compensation of Members of the Office
Member--Office of of the Chairman" below.
the Chairman
(1) Other Annual Compensation consists of automobile allowances.
(2) All numbers represent options to purchase Common Stock of the Company.
(3) This amount represents severance payments to Mr. Lillie. See "Kent E.
Lillie Compensation" below.
(4) This was a one-time fringe benefit.
(5) Mr. Engle resigned from the Company effective August 2, 2001.
(6) Relocation allowances.
(7) Tax liability reimbursement.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning stock
option and stock appreciation right ("SAR") grants to any Named Executive
Officer who was granted a stock option during the Company's 2001 fiscal year.
Options/SAR Grants in Last Fiscal Year
Potential Realizable Value
Individual at Assumed Annual Rates of
Stock Price Appreciation for
Option Term
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to Or Base
Options/SARs Employees in Price Expiration
Name Granted Fiscal Year ($/sh)
(#) Date 5%($) 10%($)
Kent E. Lillie 10,000 .78 $3.75 (1) NA NA
25,000 1.96 1.125 (2) NA NA
100,000 7.83 1.5312 5/23/05 35,140 76,222
Theodore M. Engle 100,000 7.83 3.9375 8/3/02(3) 8,393 17,242
50,000 3.91 1.5312 (4) NA NA
Arthur D. Tek(5) 8,000 .63 3.375 9/7/06 9,183 20,832
8,000 .63 3.375 9/7/07 10,992 25,615
8,000 .63 3.375 9/7/08 12,891 30,877
8,000 .63 3.375 9/7/09 14,886 36,655
8,000 .63 3.375 9/7/10 16,980 43,031
2,000 .16 2.75 9/11/06 1,871 4,244
2,000 .16 2.75 9/11/07 2,239 5,218
2,000 .16 2.75 9/11/08 2,626 6,290
2,000 .16 2.75 9/11/09 3,032 7,469
2,000 .16 2.75 9/11/10 3,459 8,766
20,000 1.57 1.5312 3/1/07 10,415 23,628
20,000 1.57 1.5312 3/1/08 12,467 29,054
20,000 1.57 1.5312 3/1/09 14,621 35,021
20,000 1.57 1.5312 3/1/10 16,884 41,586
20,000 1.57 1.5312 3/1/11 19,259 48,807
H. Wayne Lambert(6) 10,000 .78 1.5312 3/1/07 5,208 11,814
10,000 .78 1.5312 3/1/08 6,234 14,527
10,000 .78 1.5312 3/1/09 7,311 17,511
10,000 .78 1.5312 3/1/10 8,442 20,793
10,000 .78 1.5312 3/1/11 9,630 24,403
Everit A. Herter(7) 5,000 .39 1.5312 3/1/07 2,604 5,907
5,000 .39 1.5312 3/1/08 3,117 7,263
5,000 .39 1.5312 3/1/09 3,655 8,755
5,000 .39 1.5312 3/1/10 4,221 10,396
5,000 .39 1.5312 3/1/11 4,815 12,202
George J. Phillips(8) 10,000 .78 1.5312 3/1/07 5,208 11,814
10,000 .78 1.5312 3/1/08 6,234 14,527
10,000 .78 1.5312 3/1/09 7,311 17,511
10,000 .78 1.5312 3/1/10 8,442 20,793
10,000 .78 1.5312 3/1/11 9,630 24,403
J.D. Clinton 10,000 (9) 3.75 8/16/05 10,361 22,894
43,750 (9) 1.125 11/17/05 13,598 30,049
12,500 (9) 1.63 5/7/06 5,629 12,439
Frank A. Woods 10,000 (9) 3.75 8/16/05 10,361 22,894
5,000 (9) 2.75 9/11/05 3,799 8,395
43,750 (9) 1.125 11/17/05 13,598 30,049
12,500 (9) 1.63 5/7/06 5,629 12,439
25,000 (9) 2.10 5/18/06 14,505 32,052
George R. Ditomassi 37,500 (9) 1.63 5/7/06 16,888 37,317
50,000 (9) 2.10 5/18/06 29,010 64,104
Charles W. Bone 37,500 (9) 1.63 5/7/06 16,888 37,317
25,000 (9) 2.10 5/18/06 14,505 32,052
(1) Granted to Mr. Lillie as a member of the Board of Directors of the
Company on August 16, 2000. The option expired 30 days after Mr.
Lillie's resignation from the Board on May 16, 2001, when not
exercised.
(2) Granted to Mr. Lillie as a member of the Board of Directors of the
Company on November 17, 2000. This option would have expired 30 days
after Mr. Lillie's resignation from the Board on May 16, 2001; however,
the option was exercised by Mr. Lillie during that period.
(3) Granted to Mr. Engle on July 7, 2000, with options to purchase 20,000
shares vesting on July 7, 2001, and options to purchase 20,000 shares
vesting on July 7 of the subsequent four years. Upon Mr. Engle's
resignation from the Company on August 3, 2001, unvested options
expired and vested options expired 30 days later; however, under terms
of Mr. Engle's Departure Agreement, the Company agreed to extend the
expiration date of the vested option to purchase 20,000 shares to
August 3, 2002.
(4) Granted to Mr. Engle on March 1, 2001, with options to purchase 10,000
shares vesting on March 1, 2002, and options to purchase 10,000 shares
vesting on March 1 of the subsequent four years. Upon Mr. Engle's
resignation from the Company on August 3, 2001, at a time when all
options were unvested, these options expired as of that date.
(5) Options to purchase 40,000 shares granted on September 7, 2000; options
to purchase 10,000 shares granted on September 11, 2000; and options to
purchase 100,000 shares granted on March 1, 2001. In each case, options
to purchase 20% of the shares vest one year after the date of grant,
and 20% vest on the same date in the next four years.
(6) Options to purchase 50,000 shares granted on March 1, 2001, with
options to purchase 10,000 shares vesting on March 1, 2002, and options
to purchase 10,000 shares vesting on March 1 of the subsequent four
years.
(7) Options to purchase 25,000 shares granted on March 1, 2001, with
options to purchase 5,000 shares vesting on March 1, 2002, and options
to purchase 5,000 shares vesting on March 1 of the subsequent four
years.
(8) Options to purchase 50,000 shares granted on March 1, 2001, with
options to purchase 10,000 shares vesting on March 1, 2002, and options
to purchase 10,000 shares vesting on March 1 of the subsequent four
years.
(9) These individuals are included as Named Executive Officers because of
their service as members of the Office of the Chairman between May 7
and October 1, 2001; however, because they were not employees of the
Company, the percentage in question is not applicable.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth certain information with respect to
options exercised by any Named Executive Officer during the 2001 fiscal year of
the Company, and with respect to unexercised options to purchase shares of the
Common Stock held by such officers as of the end of the 2001 fiscal year.
Aggregate Option/SAR Exercises In Last Fiscal Year
And Fiscal Year End Option/SAR Value
Number of Unexercised Value of Unexercised
Options/SARs at June In-the-Money
30, 2001 Exercisable/ Options/SARs
Unexercisable At June 30, 2001
Shares Acquired Value Realized Exercisable/
Name on Exercise (#) Unexercisable(2)
($)(1)
Kent E. Lillie 25,000 $20,875 775,000/100,000 $48,300/$10,500
(1) Options exercised on May 16, 2001, and amount realized is based on the
Nasdaq National Market closing price of $1.96 on that date.
(2) Based on a closing price of $2.98 on the NASDAQ National Market on June 29,
2001.
Kent E. Lillie Compensation
Kent E. Lillie's employment by the Company as its Chief Executive
Officer and President was terminated by action of the Board of Directors on May
4, 2001. Thereafter, on May 16, 2001, Mr. Lillie and the Company entered into a
Severance and Settlement Agreement, setting forth the terms and conditions of
Mr. Lillie's departure from the Company. Under the terms of the Agreement, the
employment agreement with Mr. Lillie dated January 27, 1999, was terminated.
Further, the Company made a lump sum payment to Mr. Lillie of $3,209,734, less
applicable withholding taxes and from which was deducted $1,000,000 representing
a compensation bonus advance paid to Mr. Lillie on March 31, 2001. The Company
also agreed to continue health insurance benefits to Mr. Lillie for a period of
up to 18 months. In addition, the Company extended the expiration date of
certain options held by Mr. Lillie to purchase up to 610,000 shares of the
Company's Common Stock for a period of four years. Mr. Lillie agreed not to
compete with the Company for a period of one year, and the Company agreed that
if Mr. Lillie complied with this non-competition requirement, the Company would
forgive an indebtedness owed to the Company by Mr. Lillie then in the principal
amount of $765,266. The debt represents the balance due on a loan of $800,000
made to Mr. Lillie by the Company in 1997 in connection with his relocation to
Nashville and purchase of a personal residence.
Employment Agreements
Arthur D. Tek. On February 25, 1999, the Company executed an employment
agreement with Arthur D. Tek whereby Mr. Tek commenced employment as the
Company's Executive Vice President and Chief Financial Officer. Under the terms
of the agreement, Mr. Tek will be employed for a term of five (5) years,
beginning on March 12, 1999, with a base salary of $175,000 per year. The term
of the agreement may only be extended by mutual agreement. If the Company elects
not to renew the agreement, then Mr. Tek will be paid his base salary for one
year or until he accepts a position with another company. In addition to the
base salary, the agreement provides Mr. Tek an annual bonus of up to $75,000 per
year, based on a bonus plan similar to the one previously in effect for Mr.
Lillie. The agreement grants Mr. Tek options to purchase up to 150,000 shares of
Common Stock at an exercise price of $13.00 per share during the term of the
agreement. Of those options, options to purchase 30,000 shares vested on March
12, 1999, and additional options to purchase 24,000 shares vest on each
anniversary date thereafter for five years. The options expire on the earlier to
occur of (a) five years after the date of vesting or (b) 90 days after
termination of Mr. Tek's employment with the Company. If within two years of a
"change of control," as defined in the agreement, the Company terminates Mr. Tek
without cause or Mr. Tek resigns, then the Company has agreed to continue Mr.
Tek's base salary for a period of two years or the remainder of the term of the
agreement, whichever is shorter, and has also agreed to extend the time during
which Mr. Tek can exercise his stock options to one (1) year following the
termination. In the event the Company terminates Mr. Tek without cause or Mr.
Tek resigns due to the Company's breach of the agreement, then the Company has
agreed to continue Mr. Tek's base salary for one year, unless he accepts a
position with another company. The agreement also provides that Mr. Tek will not
compete with the Company for one year following the termination of his
employment, unless the agreement is terminated by the Company without cause or
by Mr. Tek due to the Company's breach of the agreement.
Frank A. Woods and George R. Ditomassi. The Company entered into
employment agreements with Mr. Woods and Mr. Ditomassi dated as of October 1,
2001. Except for the provision of a signing bonus of $25,000 paid to Mr.
Ditomassi, the agreements are identical. Each agreement is for a term of two
years, and is thereafter automatically extended for one year terms unless either
party terminates the agreement at least 30 days prior to its expiration date.
Mr. Woods and Mr. Ditomassi will each receive a base salary of $200,000 per
year, and will be entitled to certain bonus compensation based upon the
performance of the Company. For the fiscal year ending June 30, 2002, they will
each receive a $100,000 bonus if the Company has positive EBITDA for the year
(operating income plus depreciation and amortization), and they will each
receive a bonus of 3.5% of the amount of positive EBITDA. For future years, each
of them will receive an annual bonus of 5.0% of the increase in EBITDA (provided
that if EBITDA declines, bonuses are thereafter paid only to the extent it
exceeds the previous highest EBITDA amount). Mr. Woods and Mr. Ditomassi were
each granted options to purchase 350,000 shares of the Company's Common Stock at
$2.00 (the market price on the grant date of October 4, 2001), and they will
each receive options to purchase an additional 150,000 shares of Common Stock if
the shareholders approve the amendments to the 1999 Employee Stock Option Plan,
described below, with the option price to be equal to the market price of the
Common Stock when granted. One-third of the shares covered by these options vest
on the date of grant, with one-third vesting on the first anniversary of the
grant and one-third on the second anniversary. The Company may terminate the
employment of Mr. Woods or Mr. Ditomassi with or without cause. If the
employment of either person is terminated without cause, the Company has agreed
to pay the employee one year of his base salary plus any "earned bonus." The
agreement defines "earned bonus" as equal to the full bonus (as calculated on
the applicable bonus formula) if the employee works for one-half or more of the
Company's fiscal year, and as equal to one-half the full bonus (as calculated on
the applicable bonus formula) if the employee works less than one-half of the
Company's fiscal year. In addition, options granted to that person will vest in
an amount so that the employee will receive a pro rata portion of all options
equal to his months of service compared to the term of the agreement. The
employee will have one year to exercise such options. If the employment of
either Mr. Woods or Mr. Ditomassi is terminated within one year after a change
of control of the Company, including the employee's resignation but excluding
termination for cause, all unvested options will vest, and he will have one year
to exercise the options. In addition, such employee will receive one year's base
salary plus his "earned bonus" for the year. Both employees have also agreed not
to compete with the Company for a period of two years after the termination of
the employment agreement.
Compensation of Directors
In June 1997, each director was granted an option to purchase 10,000
shares of the Common Stock of the Company at a price of $2.875 per share. These
options expire in June 2002 if not exercised prior to such date. Beginning in
1998, the Company paid each director $500 for each meeting attended ($100 if
attendance is by telephone), along with the director's expenses associated with
attending the meeting. Effective December 2, 1998, the amount paid to Directors
was increased to $1,000 for each meeting attended ($500 if attendance is by
telephone). Effective January 1, 1998, the Company also granted to each director
an option to purchase 5,000 shares of the Company's Common Stock at an exercise
price of $3.75, the market price on the date issued. Effective December 2, 1998
the Company also granted to each director for their services in fiscal year 1999
an option to purchase 10,000 shares of the Company's Common Stock at an exercise
price of $6.969, the market price on the date granted. On November 17, 2000, in
addition to the setting the same compensation for attendance at Board meetings,
the Company provided that the Directors would also be entitled to one half of
the fees paid for Board Meetings for committee meetings.
During the fiscal year ended June 30, 2001, the following options were
granted to the directors of the Company (exclusive of Mr. Lillie):
No. of Shares Option
Director Underlying Options Exercise
Price
J.D. Clinton 10,000 $ 3.75
43,750 1.125
12,500 1.63
A.E. Jolley 10,000 3.75
20,000 2.75
37,500 1.125
Joseph I. Overholt 10,000 3.75
20,000 2.75
31,250 1.125
J. Daniel Sullivan 10,000 3.75
25,000 2.75
43,750 1.125
Frank A. Woods 10,000 3.75
5,000 2.75
43,750 1.125
12,500 1.63
25,000 2.10
Charles W. Bone 37,500 1.63
25,000 2.10
George R. Ditomassi 37,500 1.63
50,000 2.10
Compensation of the Members of the Office of the Chairman
Between May 7, 2001, and October 1, 2001, Mr. Clinton, Mr. Bone, Mr.
Ditomassi and Mr. Woods served as members of the Office of the Chairman,
together assuming the management responsibilities of the Company after Mr.
Lillie's termination as chief executive officer on May 4, 2001, and prior to the
employment of Mr. Woods and Mr. Ditomassi as Co-Chief Executive Officers on
October 1, 2001. For their services, the Company paid Mr. Bone and Mr. Woods
each a monthly fee of $7,500, granted each of them options to purchase 12,500
shares at $1.63 per share and options to purchase 25,000 shares at $2.10 per
share. The Company also agreed to make a loan to Mr. Bone of $136,950, the
proceeds of which Mr. Bone paid to the Company in order to exercise warrants to
purchase 82,500 shares of the Company's Common Stock. The loan is without
recourse to Mr. Bone and the shares he purchased are pledged to the Company as
collateral for the loan. For his services, the Company issued to Mr. Ditomassi
options to purchase 12,500 shares at $1.63 per share and options to purchase
50,000 shares at $2.10 per share. For his services, the Company loaned to
certain affiliates of Mr. Clinton a total of $3,465,360, the proceeds of which
Mr. Clinton's affiliates paid to the Company in order to exercise warrants to
purchase 2,087,566 shares of the Company's Common Stock. The loans are without
recourse to Mr. Clinton or his affiliates and the shares purchased are pledged
to the Company as collateral for the loans.
Omnibus Stock Incentive Plan
The Company's Omnibus Stock Incentive Plan (the "Plan") was adopted by
the Company's Board of Directors on October 15, 1991, and approved by the
Company's shareholders at the 1991 annual meeting of shareholders. The Plan was
amended at the 1996 annual meeting of shareholders to make certain technical
changes. The ability to make grants under this Plan terminated on October 15,
2001.
A special administrative committee of the Board of Directors was
appointed to administer the plan. All employees of the Company were eligible to
receive stock options and/or stock appreciation rights under the plan. Options
granted under the Plan can be either incentive stock options or nonqualified
stock options. Incentive stock options to purchase Common Stock may be granted
at not less than 100% of fair market value of the Common Stock on the date of
the grant.
No option that is an incentive stock option nor any corresponding SAR
related to such option shall be exercisable after the expiration of ten (10)
years from the date such option or SAR was granted or after the expiration of
five (5) years in the case of any such option or SAR that was granted to a 10%
shareholder.
The Plan provided that a maximum of 1,500,000 shares of Common Stock
could be issued under the Plan. As of October 15, 2001, stock options for
528,500 shares of Common Stock had been granted under the Plan and were
outstanding and unexercised. A total of 659,400 shares of Common Stock of the
Company had been previously exercised. Mr. Lillie's options were not granted by
the Company pursuant to the Plan. The Company has never issued any SARs.
1999 Employee Stock Option Plan
See "Proposal No. 2--Approval of 1999 Employee Stock Option Plan
Amendments" below.
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
Compensation Committee Interlocks and Insider Participation
The Board of Directors of the Company does not have a standing
compensation committee. All directors of the Company participate in executive
compensation decisions.
Transactions with Related Parties
In September 1998, the Company relocated its studios and headquarters
to newly constructed facilities in Nashville, Tennessee. The real property for
the new facility was initially acquired by a limited liability company organized
by individuals related to J.D. Clinton, and that company obtained a construction
loan (the "Facility Loan") in January 1998 from a commercial lender to build the
facility. The loan was guaranteed by the Company and also was personally
guaranteed by Mr. Clinton. The Company agreed to pay to Mr. Clinton an annual
fee equal to 1% of the amount of the Facility Loan in consideration for Mr.
Clinton's guaranty, which was to be payable in either cash or in stock of the
Company. In March 1998, the Company acquired the facility by acquiring all of
the ownership interest in the limited liability company for a price equal to the
balance due on the Facility Loan, thereby generating no profits for the owners
of the limited liability company. The Company paid the Facility Loan in full
upon the acquisition of the limited liability company, thereby terminating Mr.
Clinton's guaranty. As a result of the agreement to pay a fee to Mr. Clinton for
his guaranty, the Company issued to Mr. Clinton a total of 11,226 shares of
Common Stock. The Company also retained the services of a development company
with respect to the construction and development of the facility, and paid a
development fee of approximately $165,000 for its services. The development
company is owned by Stephen Sanders, an individual who is related to J.D.
Clinton. The Board of Directors of the Company approved the development
agreement and determined that the agreed upon fee was in an amount considered
normal and typical in the industry for the type of services to be rendered.
In connection with the relocation of Kent E. Lillie's primary residence
from Atlanta, Georgia, to Nashville, Tennessee, the Company made an
interest-free loan to Mr. Lillie in the principal amount of $800,000. See
"REMUNERATION OF DIRECTORS AND OFFICERS--Kent E. Lillie Compensation" herein.
On September 1, 1999, the Company entered into a lease agreement with
INSOUTH Bank under which the Company leased approximately 9,244 square feet of
office space in a commercial building which is adjacent to the main offices of
the Company in Nashville. The lease is for a term of five (5) years, with
renewal options, at a lease rate that was determined by the Company to be
comparable to the lease rates for comparable space in the area. Mr. Clinton, a
Director and Chairman of the Board of the Company, is the controlling
shareholder of INSOUTH Bank.
An entity affiliated with Mr. Woods, a Director and Co-Chief Executive
Officer of the Company, was paid in October 2000 a merchant banking fee of
$200,000 in connection with a new revolving credit facility. The fee was
approved by the Company's Board of Directors. The amount of the fee was
determined by the Board of Directors to be comparable to fees for comparable
services.
In May 2001, Mr. Bone was elected to the Board of Directors and a
member of the Office of the Chairman. Mr. Bone is a partner in the law firm of
Wyatt, Tarrant & Combs, LLP, which provides the Company's principal legal
representation.
REPORT ON EXECUTIVE COMPENSATION
The Company's Board of Directors makes decisions on compensation of the
Company's executives. Each member of the Board, except for Frank A. Woods and
George R. Ditomassi, is a non-employee director. It is the responsibility of the
Board to assure that the executive compensation programs are reasonable and
appropriate, meet their stated purpose and effectively service the interests of
the Company and its shareholders. Set forth below is the report of the Board of
Directors with respect to executive compensation.
Compensation Philosophy and Policies for Executive Officers
The Company believes that the most effective executive compensation
program aligns the interests of the Company's executives with the interests of
its shareholders. The Company's primary corporate mission is to achieve positive
cash flow and profitability on a consistent basis, thereby enhancing long-term
shareholder value. In pursuit of that mission, the Board seeks to maintain a
strong positive nexus between this mission and its compensation and benefit
goals.
The Company's executive compensation program exemplifies the Board's
commitment to that nexus. The Company relies upon compensation methods for its
executive officers that emphasize overall Company performance.
The Company's executive compensation program supports the Company's
mission by:
Directly aligning the interests of executive officers
with the long-term interests of the Company's
shareholders by making Company stock appreciation
over the long term the cornerstone of executive
compensation through awards that can result in the
ownership of substantial amounts of the Company's
Common Stock.
Providing compensation opportunities that create an
environment that attracts and retains talented
executives on a long-term basis.
Emphasizing pay for performance by having a
meaningful portion of executive compensation "at
risk."
At present, the Company's executive compensation program is comprised
of three primary components: base salary, annual cash incentive (bonus) and
long-term incentive opportunity in the form of stock options. Two of the three
components of the Company's executive compensation plan--bonus and stock
options--directly relate to overall performance by the Company.
Base Salary
The base salary of the Company's Chief Executive Officers is governed
by an employment agreement with the Company. As a part of its search for a Chief
Executive Officer and senior officers in 2001, the Board determined that in
order to attract individuals with knowledge and experience necessary to
implement the Company's mission, the Company needed to provide these individuals
with a certain level of compensation. The Board also determined to place a
greater portion of the compensation package in performance-based compensation
(i.e., performance bonus and stock options), thereby providing an incentive for
outstanding performance. The Board believes that the employment agreements with
senior management contain an appropriate mix of guaranteed and performance-based
compensation.
The Company has employment agreements with its Co-Chief Executive
Officers, its Chief Financial Officer, and its Executive Vice President of Sales
and Merchandising. All other executive officer salaries are evaluated on an
annual basis. In determining appropriate salary levels and salary increases, the
Board considers achievement of the Company's mission, level of responsibility,
individual performance, internal equity and external pay practices. In this
regard, the Board attempts to set base salaries of all executive officers at
fair rates of compensation.
Annual Bonus
The Board believes that annual bonuses to executive officers encourage
management to focus attention on key operational goals of the Company, and
corporate and business earnings are the main performance measure for awards of
bonuses. In that regard, the agreements with the Company's Co-Chief Executive
Officers provide an annual bonus tied to the achievement and maintenance of
positive cash flow. In addition, the agreement with the Company's CFO provides
for a bonus equal to 25% of the amount of the bonus paid to the President up to
$75,000, and the Company may also pay the CFO a discretionary bonus. The bonus
agreement with the Company's Executive Vice President of Sales and Merchandising
provides for a bonus based upon the Company's annual gross profit operating
results. With respect to the other executive officers of the Company, the Board
does not have a formal annual incentive plan. Instead, the Board has elected to
review the corporate and business performance of the Company on a periodic
basis, and make awards to executive officers if appropriate. In determining
appropriate annual bonuses, the Board considers achievement of the Company's
mission, level of responsibility, individual performance, internal equity, and
external pay practices. In the fiscal year ended June 30, 2001, the Board
elected to award cash bonuses to four executive officers (not including Kent E.
Lillie).
Long-Term Incentives
The Company's only current long-term incentive compensation is stock
options that are directly related to improvement in long-term shareholder value.
The Board believes that stock option grants provide an incentive to executive
officers that focuses each officer's attention on managing the Company from the
perspective of an owner with an equity stake in the business. In addition, the
Board believes that stock option grants provide the Company with a mechanism for
recruiting individuals by providing an opportunity for those officers to profit
from the results of their contributions to the Company. These grants also help
ensure that operating decisions are based on long-term results that benefit the
Company and, ultimately, the Company's shareholders.
The options granted to executive officers provide the right to purchase
shares of Common Stock usually at the fair market value on the date of grant.
Typically, each stock option becomes vested and exercisable over a period of
time, generally five years. The number of shares covered by each grant reflects
the Board's assessment of the executive's level of responsibility, and his or
her past and anticipated contributions to the Company. The size of option grants
to individual executives is designed to reflect the impact the individual has on
decisions that affect the overall success of the Company.
In the fiscal year ended June 30, 1999, the Company awarded executive
officers (excluding Kent E. Lillie) options to purchase up to 270,000 shares of
Common Stock. In the fiscal year ended June 30, 2000, the Company awarded
executive officers (excluding Kent E. Lillie) options to purchase up to 221,500
shares of Common Stock. In the fiscal year ended June 30, 2001, the Company
awarded executive officers (excluding Kent E. Lillie) options to purchase up to
450,000 shares of Common Stock. Since June 30, 2001, the Company has awarded its
executive officers options to purchase up to 175,000 shares of Common Stock (not
including the options granted to Mr. Woods and Mr. Ditomassi in connection with
their employment agreements dated October 1, 2001).
Chief Executive Compensation
The regulations of the SEC require the Board to disclose the basis for
the compensation of the Company's Chief Executive Officer relative to the
Company's performance. The Company's Chief Executive Officer was its President,
Kent E. Lillie, until May 4, 2001, when his employment agreement was terminated.
Mr. Lillie's compensation was governed by the terms of an employment agreement
dated September 25, 1993, a second employment agreement dated July 1, 1997, and
a third employment agreement dated January 27, 1999.
The Board's general approach in establishing Mr. Lillie's compensation
was to provide a base salary augmented by an annual bonus based upon specific
corporate-wide performance criteria, and stock options reflective of the value
of that performance. The Board approved a current base salary of $225,000 as
provided by the third employment agreement, and a quarterly bonus based upon the
financial performance of the Company. The Board determined, based upon the
information available, that the base salary and annual bonus was below the
market rate and within the Company's overall internal compensation goal. Mr.
Lillie was paid a bonus for the fiscal year ended June 30, 2000 of $73,050.
Consistent with the goals stated above, that fact reflects the Company's overall
performance during that fiscal year and not Mr. Lillie's performance.
As a part of the first employment agreement, dated September 25, 1993,
Mr. Lillie was granted options to purchase up to 600,000 shares of the Company's
Common Stock at an exercise price of $1.00 per share, all of which have been
exercised. The Board granted Mr. Lillie options to purchase 500,000 shares of
its Common Stock as an additional long-term incentive during the fiscal year
ended June 30, 1997. Effective July 1, 1997, the Company and Mr. Lillie entered
into a new employment agreement, under which Mr. Lillie received options to
purchase 50,000 shares of the Company's Common Stock and certain changes were
made in the computation of Mr. Lillie's bonus. Effective January 27, 1999, the
Company and Mr. Lillie entered into a new employment agreement, under which Mr.
Lillie received options to purchase 500,000 shares of the Company's Common
Stock.
As of October 1, 2001, the Company entered into employment agreements
with Mr. Woods and Mr. Ditomassi to serve as Co-Chief Executive Officers. Their
agreements provide for a base salary of $200,000 each, and bonus compensation
related to the Company's cash flow performance. (See "REMUNERATION OF DIRECTORS
AND OFFICERS--Employment Agreements--Frank A. Woods and George R. Ditomassi"
herein.) Each agreement is for a term of two years, and is thereafter
automatically extended for one year terms unless either party terminates the
agreement at least 30 days prior to its expiration date. For the fiscal year
ending June 30, 2002, they will each receive a $100,000 bonus if the Company has
positive EBITDA for the year (operating income plus depreciation and
amortization), and they will each receive a bonus of 3.5% of the amount of such
positive EBITDA. For future years, each of them will receive an annual bonus of
5.0% of the increase in EBITDA (provided that if EBITDA declines, bonuses are
thereafter paid only to the extent it exceeds the previous highest EBITDA
amount). Mr. Woods and Mr. Ditomassi were each granted options to purchase
350,000 shares of the Company's Common Stock at $2.00 (the market price on
October 4, 2001), and they will each receive options to purchase an additional
150,000 shares of Common Stock if the shareholders approve the amendments to the
1999 Stock Option Plan, described below, with the option price to be equal to
the market price of the Common Stock when granted. One-third of the shares
covered by these options vest on the date of grant, with one-third vesting on
the first anniversary of the grant and one-third on the second anniversary. The
Company may terminate the employment of Mr. Woods or Mr. Ditomassi with or
without cause.
THE FOREGOING REPORT IS SUBMITTED BY ALL MEMBERS OF THE COMPANY'S BOARD OF
DIRECTORS WHO ARE THE FOLLOWING:
Charles W. Bone George R. Ditomassi Joseph I. Overholt
J.D. Clinton A.E. Jolley Frank A. Woods
AUDIT COMMITTEE REPORT
The Audit Committee is comprised of three (3) independent directors and
operates under a written charter, a copy of which is attached to this Proxy
Statement as Appendix A. The Committee recommends to the Board of Directors the
selection of the Company's independent auditors.
In fulfilling its responsibilities, the Audit Committee has reviewed
and discussed the audited consolidated financial statements for the Company for
the fiscal year ending June 30, 2001, with the Company's management and
PricewaterhouseCoopers, the Company's independent auditors.
The Audit Committee has discussed with PricewaterhouseCoopers the
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees." In addition, the Committee has received
the written disclosures and the letter from PricewaterhouseCoopers required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees" and has discussed with PricewaterhouseCoopers its independence
from the Company and its management.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommends to the Board of Directors that the audited consolidated
financial statements for the Company for the fiscal year ended June 30, 2001, be
included in the Company's Annual Report on Form 10-K for the year ended June 30,
2001, for filing with the Securities and Exchange Commission.
THE FOREGOING REPORT IS SUBMITTED BY THE MEMBERS OF THE AUDIT COMMITTEE
A.E. Jolley, Chairman
J.D. Clinton
Joseph I. Overholt
INDEPENDENT PUBLIC ACCOUNTANTS
On October 4, 2001, the Board of Directors of the Company selected
Deloitte & Touche as the principal accountants for the Company for the fiscal
year ending June 30, 2002. For the fiscal year ending June 30, 2001, the
principal accountants for the Company were PricewaterhouseCoopers.
Representatives of Deloitte & Touche and PricewaterhouseCoopers are not expected
to be present at the shareholders' meeting.
Fees Paid to the Company's Independent Auditors
Audit Fees. PricewaterhouseCoopers billed the Company $183,896 in
aggregate fees for professional services rendered for the audit of the Company's
annual financial statements for the fiscal year ending June 30, 2001, and the
reviews of the financial statements included in the Company's Quarterly Reports
on Form 10-Q.
All Other Fees. The aggregate of all other fees billed for professional
services rendered during the Fiscal Year 2001 by PricewaterhouseCoopers was
$298,559, in addition to the audit fees. The services rendered for these fees
include pension and statutory audits, business acquisitions, internal audit,
consultations, and tax services.
Financial Information Systems Design and Implementation Fees.
PricewaterhouseCoopers did not bill the Company any fees for professional
services associated with the design and implementation of the Company's
financial information systems for the fiscal year ended June 30, 2001.
The Audit Committee of the Company's Board of Directors has considered
whether the non-audit services rendered by the Company's independent auditors
with respect to the foregoing fees are compatible with maintaining the principal
accountant's independence.
SHAREHOLDER RETURN COMPARISONS
The following line-graph compares the cumulative shareholder returns
for the Company over the past five (5) years with a broad market equity index
and a published industry or line-of-business index. For these purposes, the
Company has chosen the Nasdaq Market Index and a Peer Group Index composed of a
combination of those industries classified as "Media - Broadcasting - TV" and
"Retail - Catalog & Mail Order Houses" by Media General Financial Services, Inc.
The chart below uses as a beginning price the average of the high and low bid of
the Company's Stock on June 30, 1996 (the last trading day prior to fiscal year
1997), and assumes $100 invested on that date.
1996 1997 1998 1999 2000 2001
Shop At 100.00 72.58 91.94 229.84 120.57 76.90
Home, Inc.
Peer Group 100.00 103.25 128.40 148.10 197.68 144.76
Index
NASDAQ 100.00 120.46 159.68 223.77 336.71 186.46
Market Index
Compliance with Section 16(a) of the Exchange Act
Officers, directors and certain shareholders of companies which have
equity securities registered with the SEC under Section 12 of the Securities
Exchange Act of 1934, as amended from time to time (the "Securities Exchange
Act"), must file certain periodic reports (identified as Forms 3, 4 and 5) with
respect to their stock ownership of the company, and certain changes therein.
Based solely upon a review of the Forms 3 and 4 and amendments thereto furnished
to the Company during the most recent fiscal year and Forms 5 and amendments
thereto furnished to the Company with respect to the most recent fiscal year, no
director, officer, or shareholder beneficially owning more than 10% of any class
of equity securities failed on a timely basis to file reports required by
Section 16(a) of the Exchange Act, except as follows:
The options granted to Mr. Bone, Mr. Ditomassi and Mr. Woods in May
2001, issued as a result of their agreement to serve as members of the Office of
the Chairman, were not reported on a Form 3 or Form 4 until July 2001 (rather
than by June 10, 2001). This was due to an administrative oversight. The
Company's practice has been to file these reports as an accommodation to the
directors.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO 1999 EMPLOYEE STOCK OPTION PLAN
On October 23, 2001, the Board of Directors, subject to shareholder
approval, adopted amendments to the 1999 Employee Stock Option Plan (the "1999
Plan"), which modifies the 1999 Plan as follows:
(1) Increases the number of shares of Common Stock authorized for
issuance upon exercise of options granted under the 1999 Plan from
3,000,000 shares to 6,000,000 shares;
(2) Removes from the definition of "change in control" the
circumstance of Mr. Clinton ceasing to be Chairman and Kent E.
Lillie ceasing to be the Chief Executive Officer or Chairman of
the Company and gives the Board flexibility to define a change in
control; and
(3) Adds a provision that the Company may not issue options for the
purchase of more than 750,000 shares of Common Stock in any one
fiscal year to any single person.
A copy of the 1999 Plan, as amended and restated, is annexed as
Appendix B (the "Amended and Restated 1999 Plan").
A description of the 1999 Plan and the amendments follows below. The
descriptions of the 1999 Plan set out herein are summaries, and reference is
hereby made to the 1999 Plan and the Amended and Restated 1999 Plan for a fuller
and complete description of such terms and provisions.
General Information
The 1999 Plan is administered by the full Board of Directors or a
committee of the Board (the "Committee") consisting of two or more non-employee
directors, as defined in Rule 16b-3 promulgated under the Securities Exchange
Act. All directors and key employees of the Company and its subsidiaries
(persons to whom options are granted are referred to as "Participants"), shall
be eligible to receive options under the 1999 Plan; no director or other person
who is not also an employee of the Company or a subsidiary shall be eligible to
receive "incentive stock options" ("ISOs"), as defined under the Internal
Revenue Code of 1986, as amended (the "Code"). Subject to the provisions of the
1999 Plan, the Board or the Committee shall select the directors and key
employees to whom options will be granted, determine the number of shares of
Common Stock that will be subject to each option, and determine the time when
options will be granted, the manner in which each option is exercisable, the
duration of the exercise period, and the terms of conditions of options that are
based on performance. Under the 1999 Plan, the Board or the Committee is
authorized to include in an option agreement such other terms and conditions
that are not inconsistent with the 1999 Plan and which the Board or the
Committee deem appropriate.
Term of Options
An option entitles the holder to purchase the number of shares subject
to the option at the option exercise price specified in the 1999 Plan. For all
ISOs granted under the 1999 Plan, the option exercise price will be equal to the
fair market value of a share of Common Stock on the date of the grant, unless
the person to whom an ISO is granted owns more than ten percent (10%) of the
total voting stock of the Company, in which case the exercise price must not be
less than 110% of the fair market value of the stock at the time of the grant.
Each option may be exercised in full or in part and at such time as the Board or
the Committee determines at the time of grant. These pricing and exercise terms
are set by the Board of Directors or the Committee at its discretion and are
required only under the 1999 Plan only with respect to ISOs. Any nonqualified
options may be granted on different pricing and exercise terms.
The option exercise price may be paid in cash or, unless the Board or
the Committee determines otherwise, in shares of Common Stock or in a
combination of cash and such shares.
Each option agreement shall specify the expiration date of the option.
The expiration date for ISOs shall not be more than ten years after the date of
grant or five years in the case of an ISO granted to a ten percent shareholder.
Upon a Participant's death, the options may be exercised, to the extent
exercisable by the Participant at the date of death, by the appropriate
representative of a Participant's estate. The Board or the Committee may treat a
period when the Participant is on military or other leave of absence as a period
of employment. If the leave exceeds 90 days and reemployment by the Company is
not guaranteed, the Participant's employment shall be deemed to have terminated
on the 91st day of the leave.
Options are not transferable except by will or by the laws of descent
and distribution.
Plan Amendments
The Board may amend, suspend or terminate the 1999 Plan at any time,
except that shareholder approval shall be required for any amendment which would
(i) change the number of shares of Common Stock which may be delivered under the
1999 Plan, (ii) change the employees or class of employees eligible to receive
ISOs, or (iii) require shareholder approval under applicable federal or state
law.
Tax Effects of Plan Participation
Federal Income Tax Treatment. The 1999 Plan is not, nor is it intended
to be, qualified under Section 401(a) of the Code. The 1999 Plan has been
structured, however, so that options granted thereunder may qualify as ISOs.
ISOs. The grant of an ISO has no immediate federal income tax
consequences to the Company or to the Participant. Likewise, the exercise of an
ISO will not have an immediate federal income tax consequence to the Company or
the Participant. The exercise of an ISO, however, may subject the Participant to
federal alternative minimum tax in the year in which the ISO is exercised.
To qualify for treatment as an ISO, (i) a Participant may not dispose
of any shares received upon the exercise of an option within two years from the
date of grant or within one year from the date of the issuance of such shares
(together the "Holding Periods"), and (ii) a Participant who ceases to be an
employee of the Company must exercise his or her option within three months
after the date of his or her cessation of employment or, in the event of the
Participant's cessation of employment due to permanent or total disability,
within one year of his or her cessation of employment. In the event of the
Participant's death, the option will continue to qualify for treatment as an
ISO, provided that (i) the Participant was employed by the Company or its
affiliates on the date of his or her death, or within three months of his or her
death, and (ii) the Participant's estate, or the person(s) to whom the
Participant's rights pass by will or by the laws of descent or distribution,
complies with all other terms of the option.
If the option qualifies for treatment as an ISO, the Participant
recognizes no taxable gain or loss either on the grant or the exercise of the
ISO. The Participant will generally recognize long-term capital gain or loss
upon the sale of any shares received upon the exercise of an option provided the
holding period applicable to stock acquired through an ISO is satisfied. The
Participant's gain will be equal to the difference between the net sale proceeds
and the Participant's tax basis in the Common Stock received upon exercise of
the ISO. Generally, the Participant's tax basis will be equal to the option
price. Since the Participant recognizes no compensation income with respect to
an ISO (except upon the occurrence of a disqualifying event, as discussed
below), the Company is not entitled to any compensation tax deduction with
respect to an ISO.
If the Participant takes action which disqualifies the option from
treatment as an ISO (such as the failure to meet the Holding Periods), then the
Participant will recognize compensation or ordinary income in the year of the
disqualifying event, and the Company will receive a tax deduction from its
income in the tax year in which the Participant recognizes income, in an amount
equal to the lesser of (i) the fair market value on the date of exercise minus
the option price of the optioned shares, and (ii) the amount realized on the
disposition minus the option price. The balance of the Participant's gain on
disposition of the shares acquired pursuant to the exercise of the option will
be long-term capital gain, provided the holding period applicable to long-term
capital assets is satisfied. For this purpose, the Participant's tax basis in
the stock will include any ordinary income recognized on the disqualifying
disposition of the stock.
Any ordinary income recognized by the Participant will constitute wages
for federal income and employment tax purposes. Accordingly, the Company may
make whatever arrangements are necessary to ensure that funds equaling the
amount of income and employment taxes required to be withheld are available for
payment.
Nonqualified Options. The Participant will recognize no taxable gain
or loss on the grant of a nonqualified option ("NSO") under the 1999 Plan. Upon
exercise of a nonqualified stock option, the Participant will recognize
compensation or ordinary income in an amount equal to the excess of the fair
market value of the shares of the Common Stock received over the option price of
such shares. Upon a subsequent sale of the stock, the Participant will recognize
short-term or long-term capital gain or loss depending upon the Participant's
holding period for the stock. The Participant's gain will be equal to the
difference between the net sale proceeds and the Participant's tax basis in the
Common Stock received upon exercise of the NSO. Generally, the Participant's tax
basis will be equal to the option price plus the compensation income recognized
at the time the NSO is exercised. The Company will be allowed a federal income
tax deduction for the amount recognized as ordinary income by the Participant
upon the Participant's exercise of the option.
Amendments
Number of Shares
The maximum number of shares of Common Stock that may be subject to
options granted under the 1999 Plan is currently 3,000,000. As of October 11,
2001, there were options to purchase 2,859,400 shares of Common Stock of the
Company issued and unexercised under the 1999 Plan. In addition, options to
purchase 25,000 shares of Common Stock, which were previously issued, have been
exercised. This leaves 115,600 shares of Common Stock for which new options
under the 1999 Plan can be issued. The Company believes that the issuance of
stock options to its directors and key employees is a significant factor in
recruiting and retaining exceptional directors and employees. The Amended and
Restated 1999 Plan increases the number of shares for which options can be
issued from 3,000,000 to 6,000,000 shares.
The shares that may be issued under the 1999 Plan may be authorized but
unissued shares. If there is a stock split, stock dividend, recapitalization,
spin-off of assets, or other relevant change affecting the Common Stock, the
maximum number of shares issuable under the 1999 Plan or to any Participant and
the number of shares subject to, and the option price of, outstanding options
will be equitably adjusted by the Board or Committee.
If the amendments to the 1999 Plan are approved, the Board has voted
to grant Mr. Woods and Mr. Ditomassi each options to purchase 150,000 shares of
Common Stock. (See "REMUNERATION OF DIRECTORS AND OFFICERS--Employment
Agreements--Frank A. Woods and George R. Ditomassi" herein.)
Change in Control
The Board or the Committee may provide that an option shall be
exercisable, even if not then vested, in full or in part, on or after a change
in control of the Company. A "change of control" is currently defined in the
1999 Plan to occur upon (i) the sale of all, or substantially all, of the assets
of the Company to a person which is not controlled by the Company, (ii) the
approval by the Company's shareholders of a plan of liquidation, or (iii) a
change in control under the Securities Exchange Act, except that a change in
control shall be considered to have occurred if a person becomes the beneficial
owner of 30% or more of the voting stock of the Company, unless the Board has
approved the acquisition. A change of control shall also be considered to have
occurred if the members of the current Board of Directors (and future Directors
who are approved by a majority of the Board and approved by the shareholders)
cease to constitute a majority of the Board, or if both J.D. Clinton ceases to
be Chairman of the Board and Kent E. Lillie ceases to be either the Chief
Executive Officer or Chairman of the Board. Mr. Lillie's employment as the Chief
Executive Officer was terminated on May 4, 2001, and reference to Mr. Lillie is
no longer applicable. Further, the Board does not believe that tying the vesting
of options to any particular director's or officer's continued service with the
Company serves any useful purpose. The Amended and Restated 1999 Plan, if
approved by the shareholders, will remove from the definition of "change of
control" the reference to Mr. Clinton and Mr. Lillie. The Board further believes
that a static definition of "change in control" is not in the best interests of
the Company, and that the Board or the Committee should have the flexibility to
vary the conditions which might constitute a change in control as it deems
appropriate.
Maximum Number of Shares For Which Options May be Issued
Options issued under the 1999 Plans can be either ISOs or nonqualifed
options, with each type having different tax consequences as described above
under "Tax Effect of Plan Participation."
Section 162(m) of the Internal Revenue Code generally provides that a
publicly held corporation cannot deduct as an expense for federal income tax
purposes any compensation in excess of $1,000,000 in any fiscal year paid to its
chief executive officer or the next four most highly compensated officers of the
corporation, who are identified as the named executive officers in the
corporation's proxy statement. The exercise of options can result in income to
such officers, and the 1999 Plan provides that, to the extent the exercise of an
option would cause the officer to have income of more than $1,000,000 in any
fiscal year which is not deductible by the Company under Section 162(m), such
option is not exercisable in that year, but such option shall continue to be
exercisable in the following year (subject to the option expiring in accordance
with its terms).
The $1,000,000 limit is not applicable to "qualified performance-based
compensation," as defined in the regulations of the IRS. Compensation
attributable to stock options is deemed to satisfy this performance-based
requirement if the plan under which the option is granted states the maximum
number of shares with respect to which options may be granted during a specified
period to any employee, and the amount of the employee's compensation is based
solely on an increase in the value of the shares after the date of the grant of
the option. The current 1999 Plan does not state the maximum number of shares to
which options may be granted to an employee. The Amended and Restated 1999 Plan
remedies this by providing that no employee may be granted stock options for
more than 750,000 shares of Common Stock during any fiscal year of the Company.
The Board believes this amendment is beneficial to the Company by providing
greater flexibility to the Company with respect to the granting of stock
options.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE
AMENDMENTS TO THE 1999 PLAN.
PROPOSAL NO. 3
OTHER BUSINESS
The Board of Directors of the Company currently is unaware of any
proposal to be presented at the Annual Meeting other than the matters specified
in the Notice of Annual Meeting accompanying this Proxy Statement. Should any
other proposal properly come before the Annual Meeting, the persons named in the
enclosed proxy will vote on each such proposal in accordance with their
discretion.
OTHER INFORMATION
Interests of Company Affiliates
None of the Company's directors, executive officers or principal
shareholders, including any of their affiliates has any interest in the matters
to be acted upon at the Annual Meeting, other than the specific matters
described herein.
Proposals of Shareholders
Shareholders intending to submit proposals for presentation at the 2002
annual meeting of Shareholders of the Company for inclusion in the proxy
statement and form of proxy relating to that meeting should forward those
proposals to George J. Phillips, Secretary, Shop At Home, Inc., 5388 Hickory
Hollow Parkway, Antioch, Tennessee 37013. Proposals must be in writing and must
be received by the Company by June 23, 2002. Proposals should be sent to the
Company by certified mail, return receipt requested.
Cost of Solicitation of Proxies
The cost of solicitation of proxies, including expenses in connection
with preparing, assembling and mailing this Proxy Statement, will be borne by
the Company. That solicitation will be made by mail, and also may be made by the
Company's regular officers or employees, personally or by telephone or by
facsimile transmission. The Company may reimburse brokers, custodians and
nominees for their expenses in sending proxies and proxy material to beneficial
owners.
Annual Report
The Company's 2001 Annual Report on Form 10-K accompanies this Proxy
Statement. The Annual Report does not form any part of the material for the
solicitation of proxies.
APPENDIX A
AUDIT COMMITTEE CHARTER
SHOP AT HOME, INC.
ORGANIZATION
The Audit Committee is appointed by the Board to assist the Board in
monitoring (1) the integrity of the financial statements of the Company, (2) the
compliance by the Company with legal and regulatory requirements and (3) the
independence and performance of the Company's internal and external auditors.
The Committee shall be comprised of three (3) Board members appointed
by the Board. The members of the Audit Committee shall meet the independence and
experience requirements of the NASDAQ Stock Market, Inc.
AUTHORITY
The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee. The Audit Committee shall make
regular reports to the Board.
RESPONSIBILITIES
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
2. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could
significantly affect the Company's financial statements.
3. Review an analysis prepared by management and the independent auditor
of significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial statements.
4. Review with management and the independent auditor the Company's
quarterly financial statements prior to the filing of its Form 10-Q.
5. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures.
6. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditors or management.
7. Recommend to the Board the appointment of the independent auditor,
which firm is ultimately accountable to the Audit Committee
and the Board.
8. Approve the fees to be paid to the independent auditor.
9. Receive periodic reports from the independent auditor regarding the
auditor's independence consistent with Independence Standards Board
Standard 1, discuss such reports with the auditor, and if so determined
by the Audit Committee, take or recommend that the full Board take
appropriate action to oversee the independence of the auditor.
10. Evaluate together with the Board the performance of the independent
auditor and, if so determined by the Audit Committee, recommend that
the Board replace the independent auditor.
11. Review the appointment and replacement of the senior internal auditing
executive.
12. Review the significant reports to management prepared by the internal
auditing department and management's responses.
13. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit.
14. Obtain from the independent auditor assurance that Section 10A of the
Securities Exchange Act of 1934 has not been implicated.
15. Obtain reports from management, the Company's senior internal auditing
executive and the independent auditor that the Company's
subsidiary/foreign affiliated entities are in conformity with
applicable legal requirements and the Company's Code of Conduct.
16. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to
the conduct of the audit.
17. Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
auditor and the Company's response to that letter. Such review should
include:
(a) Any difficulties encountered in the course of the audit
work, including any restrictions on the scope of
activities or access to required information.
(b) Any changes required in the planned scope of the internal
audit.
(c) The internal audit department responsibilities, budget and
staffing.
18. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy
statement.
19. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations and with the
Company's Code of Ethics.
20. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators
or governmental agencies.
21. Meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditor in separate
executive sessions.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Code of Ethics.
APPENDIX B
SHOP AT HOME, INC.
AMENDED AND RESTATED
1999 STOCK OPTION PLAN
1. Purpose. The purpose of the Shop At Home, Inc. 1999 Stock
Option Plan is to promote the interests of the Company by affording an incentive
to directors and key employees to continue their service to the Company and its
Subsidiaries and to use their best efforts on its behalf; and further to aid the
Company and its Subsidiaries in attracting, maintaining, and developing capable
personnel of a caliber required to ensure the continued success of the Company
and its Subsidiaries by having the means to offer to such persons an opportunity
to acquire or increase their proprietary interest in the Company through the
granting of incentive stock options and nonstatutory stock options to purchase
the Company's stock pursuant to the terms of the Plan.
2. Definitions.
A. "Board" means the Company's Board of Directors.
B. "Change in Control" means such facts and circumstances as the Board or the
Committee may designate from time to time as constituting a change in control of
the Company, and in the absence of such designations, the term shall mean: (a)
the sale, lease, exchange or other transfer of all or substantially all of the
assets of the Company (in one transaction or in a series of related
transactions) to a person that is not controlled by the Company, (b) the
approval by the Company shareholders of any plan or proposal for the liquidation
or dissolution of the Company, or (c) a change in control of the Company of a
nature that would be required to be reported (assuming such event has not been
"previously reported") in response to Item 1(a) of the Current Report on Form
8-K, as in effect on the effective date of the Plan, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
limitation, such a change in control shall be deemed to have occurred at such
time as (i) any Person becomes after the date this Plan is approved or ratified
by the Company's shareholders the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of 30% or
more of the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors unless the Board
shall have expressly approved the transaction or acquisition that resulted in
such Person becoming the beneficial owner of such voting power, or (ii)
individuals who constitute the board of directors of the Company on the date
this Plan is approved or ratified by the Company's shareholders cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to such date whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors comprising or deemed pursuant hereto to comprise the
Board on the date this Plan is approved or ratified by the Company's
shareholders (either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director) shall be,
for purposes of this clause (ii) considered as though such person were a member
of the Board on the date this Plan is approved or ratified by the Company's
shareholders.
C. "Code" means the Internal Revenue Code of 1986, as amended.
D. "Committee" means the committee appointed by the Board to administer the Plan
pursuant to Section 4.
E. "Common Stock" means the Company's $.0025 par value common
stock or the Common Stock or securities of a Successor that have been
substituted therefor pursuant to Section 9.
F. "Company" means Shop At Home, Inc., with its principal place of business
at 5388 Hickory Hollow Parkway, Antioch, Tennessee 37013.
G. "Disability" means, as defined by and to be construed in
accordance with Code Section 22(e)(3), any medically determinable physical or
mental impairment that is expected to result in death or that has lasted or can
be expected to last for a continuous period of not less than twelve (12) months,
and that renders Optionee unable to engage in any substantial gainful activity.
An Optionee shall not be considered to have a Disability unless Optionee
furnishes proof of the existence thereof in such form and manner, and at such
time, as the Board or the Committee may require.
H. "ISO" means an option to purchase Common Stock that at the time the
option is granted qualifies as an incentive stock option within the meaning
of Code Section 422.
I. "NSO" means a nonstatutory stock option to purchase Common Stock that at
the time the option is granted does not qualify as an ISO.
J. "Option Price" means the price to be paid for Common Stock upon the exercise
of an option, in accordance with Section 7.E.
K. "Optionee" means a director or key employee to whom an option has been
granted under the Plan.
L. "Optionee's Representative" means the personal representative of
Optionee's estate, and after final settlement of Optionee's estate, the
successor or successors entitled thereto by law.
M. "Plan" means the Shop At Home, Inc. 1999 Stock Option Plan, as set forth
herein, and as amended from time to time.
N. "Subsidiary" means any "subsidiary corporation" that at the time an
option is granted qualifies as a subsidiary of the Company as defined by
Code Section 424(f).
O. "Successor" means the entity surviving a Change in Control.
P. "Ten Percent Shareholder" means an employee (including an
employee director) who, at the time an option is granted, owns more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or Subsidiary employing Optionee or of its parent (within the meaning of
Code Section 424(e)) or subsidiary (within the meaning of Code Section 424(f))
corporation.
3. Shares Subject to Plan.
A. Authorized Unissued or Treasury Shares. Subject
to Section 9, shares to be delivered upon exercise of
options shall be made available, at the discretion of the Board, from the
authorized unissued shares of Common Stock.
B. Aggregate Number of Shares. Subject to adjustments and
substitutions made pursuant to Section 9, the
aggregate number of shares that may be issued upon exercise of all options
that may be granted under the Plan shall not exceed six
million (6,000,000) of the Company`s authorized shares of Common Stock.
C. Shares Subject to Expired Options. Shares of Common Stock
subject to, but not delivered under, an option that expires or terminates for
any reason without having been fully exercised shall be available for any lawful
corporate purpose, including for transfer pursuant to other options granted to
the same director or key employee or other directors or key employees without
decreasing the aggregate number of shares of Common Stock that may be granted
under the Plan.
4. Administration. The Plan shall be administered by the full Board or
Board committee consisting solely of two (2) or more non-employee directors, as
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended from time to time. The Board or the Committee shall have full power and
authority to construe, interpret, and administer the Plan and may from time to
time adopt such rules and regulations for carrying out the Plan as it may deem
proper and in the Company's best interest.
5. Grant of Options. Subject to the terms and conditions of the Plan,
the Board or the Committee shall have jurisdiction and discretion to: [i] select
the directors and key employees to whom options are awarded; [ii] authorize the
award of ISOs, NSOs or a combination of ISOs and NSOs, which may, in the Board's
or the Committee's discretion, be performance-based options; [iii] determine the
number of shares of Common Stock subject to each option; [iv] determine the
time(s) when options will be granted, the manner in which each option is
exercisable, and the duration of the exercise period; [v] determine the terms
and conditions of performance-based options; [vi] fix other provisions of the
option agreement that it deems necessary or desirable consistent with the terms
of the Plan; and [vii] determine all other questions relating to the
administration of the Plan. Any decision made, or action taken by the Board or
the Committee in connection with the administration of the Plan, and the
interpretation of any provision of the Plan by the Board or the Committee shall
be final, conclusive, and binding upon all persons and the officers of the
Company shall place into effect and shall cause the Company to perform its
obligations under the Plan in accordance with the determinations of the Board or
the Committee in administering the Plan. Notwithstanding the foregoing, No
employee shall be eligible to be granted Options covering more than 750,000
shares of common stock during any fiscal year of the Company.
6. Eligibility. Directors and key employees of the Company and its
Subsidiaries, including officers and directors, shall be eligible to receive
options under the Plan; provided that no director or other person who is not
also an employee of the Company or a Subsidiary shall be eligible to receive an
ISO. Directors and key employees to whom options may be granted will be those
selected by the Board or the Committee from time to time who, in the sole
discretion of the Board or the Committee, have contributed in the past or who
may be expected to contribute materially in the future to the successful
performance of the Company and its Subsidiaries.
7. Terms and Conditions of Options. Each option granted under the Plan
shall be evidenced by an option agreement signed by Optionee and approved by the
Board or the Committee on the Company's behalf. An option agreement shall
constitute a binding contract between the Company and Optionee, and every
Optionee, upon acceptance of such option agreement, shall be bound by the terms
and restrictions of the Plan and of the option agreement. Such agreement shall
be subject to the following express terms and conditions and to such other terms
and conditions that are not inconsistent with the Plan as the Board or the
Committee deems appropriate.
A. $100,000 ISO Limitation. The aggregate fair market value
(determined as of the option grant date) of the stock for which ISOs will first
become exercisable by an Optionee in any calendar year under all ISO plans of
Optionee's employer corporation and its parent corporation and Subsidiaries
shall not exceed One Hundred Thousand Dollars ($100,000.00). Options granted in
excess of this limitation shall constitute NSOs.
B. Option Period. Subject to Section 7.F, each option
agreement shall specify the period during which the option is exercisable and
shall provide for expiration of the option at the end of such period. The Board
or the Committee may extend the period except that no extension shall be made
without Optionee's consent if the extension would disqualify the option as an
ISO.
C. Option Vesting. Each option agreement shall specify the
time(s) during the option period that the option vests and becomes exercisable.
The option agreement may provide for vesting and exercise of the option in
installments.
D. Acceleration of Option Vesting.
[1] Change in Control. The Board or the Committee may
provide in the option agreement for the exercise dates of outstanding
options to accelerate and be fully or partially exercisable on or after
the date of a Change in Control.
[2] Death or Disability. The Board or the Committee
may provide in the option agreement for the exercise dates of
outstanding options to accelerate and be fully or partially exercisable
upon termination of Optionee's employment due to death and/or
Disability.
E. Option Price. The Option Price per share of Common Stock
shall be determined by the Board or the Committee at the time an option is
granted, provided that the Option Price for an ISO shall be not less than fair
market value at the time of grant (one hundred ten percent (110%) of the fair
market value at the time of grant in the case of an ISO granted to a Ten Percent
Shareholder). The Option Price shall be subject to adjustments in accordance
with Section 9. The fair market value of Common Stock on any given measurement
date shall be the closing bid price of the Common Stock in the over-the-counter
market on the measurement date (or if there was no sale of the Common Stock on
that date, on the immediately preceding date on which there was a sale of the
Common Stock), as reported by the National Association of Securities Dealers
Automated Quotation System.
F. Option Expiration. An option shall cease to be exercisable
upon expiration. Each option agreement shall specify the expiration date for the
option. Notwithstanding the foregoing, the option agreement may not provide for
an ISO to expire more than ten (10) years after the date of grant (five (5)
years in the case of an ISO granted to a Ten Percent Shareholder). Upon
Optionee's death, Optionee may exercise options, to the extent exercisable on
the date of Optionee's death, by Optionee's Representative at any time before
expiration of the option.
G. Leaves of Absence. The Board or the Committee may, in its
discretion, treat all or any portion of any period during which an Optionee is
on military or on an approved leave of absence from the Company or a Subsidiary
as a period of employment of the Optionee by the Company or Subsidiary for
purposes of accrual of rights under the Plan. Notwithstanding the foregoing, in
the case of an ISO, if a leave of absence exceeds ninety (90) days and
reemployment is not guaranteed by contract or statute, Optionee's employment by
the Company or a Subsidiary shall be deemed to have terminated on the 91st day
of the leave.
H. Payment of Option Price. Each option shall provide that the
Option Price shall be paid to the Company at the time of exercise either in cash
or in such other consideration as the Board or the Committee deems appropriate,
including, but not limited to, Common Stock already owned by Optionee having a
total fair market value, as determined by the Board or the Committee, equal to
the Option Price, or a combination of cash and Common Stock having a total fair
market value, as determined by the Board or the Committee, equal to the Option
Price.
I. Manner of Exercise. To exercise an option, Optionee shall
deliver to the Company, or in the case of a cashless exercise, to a
broker-dealer in the Common Stock with the original copy to the Company, the
following: [i] advance written notice specifying the number of shares as to
which the option is being exercised and, if determined by counsel for the
Company to be necessary, representing that such shares are being acquired for
investment purposes only and not for purpose of resale or distribution; and [ii]
payment by Optionee, or the broker-dealer, for such shares in cash, or if the
Board or the Committee in its discretion agrees to so accept, by delivery to the
Company of other Common Stock owned by Optionee, or in some combination of cash
and such Common Stock acceptable to the Board or the Committee. As soon as
administratively practicable after receipt of written notice of exercise, and
provided that all conditions precedent contained in the Plan are satisfied, the
Company shall, without transfer or issuance tax or other incidental expenses to
Optionee, deliver to Optionee, at the offices of the Company, a certificate or
certificates for the Common Stock. If Optionee fails to accept delivery of the
Common Stock, Optionee's right to exercise the applicable portion of the option
shall terminate. If payment of the Option Price is made in Common Stock, the
value of the Common Stock used for payment of the Option Price shall be the fair
market value of the Common Stock, determined in accordance with Section 7.E, on
the business day preceding the day written notice of exercise is delivered to
the Company. Subject to the terms and conditions of any applicable option
agreement, any option granted under the Plan may be exercised in whole or in
part in installments at such time or times as the Board or the Committee may
prescribe in the applicable option agreement.
J. Exercises Causing Loss of Compensation Deduction. No part
of an option may be exercised to the extent the exercise would cause Optionee to
have compensation from the Company and its affiliated companies for any year in
excess of $1 million and that is nondeductible by the Company and its affiliated
companies pursuant to Code Section 162(m). Any option not exercisable because of
this limitation shall continue to be exercisable in any subsequent year in which
the exercise would not cause the loss of the Company's or its affiliated
companies' compensation tax deduction, provided that an ISO may not be exercised
later than ten (10) years from the date of grant or five (5) years in the case
of a Ten Percent Shareholder, and further provided the option otherwise complies
with the terms and conditions of the Plan and option agreement. This section
shall not limit the exercise of an option in the event of a Change in Control to
the extent provided by the Board or the Committee in the option agreement
K. Investment Representation. Each option agreement may
provide that, upon demand by the Board, the Committee, Optionee or Optionee's
Representative shall deliver to the Board or the Committee at the time of
exercise of an option or portion thereof a written representation that the
shares are being acquired for investment and not for resale or distribution.
Delivery of the representation, if required by the Board or the Committee, shall
be a condition precedent to the right of Optionee or Optionee's Representative
to exercise the option.
L. ISOs. Each option agreement that provides for the grant of
an ISO shall contain such terms and provisions as the Board or the Committee
deems necessary or desirable to qualify the option as an ISO within the meaning
of Code Section 422.
M. Transferability of Options. Options granted under the
Plan may not be transferred by the Optionee exceptby will or the laws of
descent and distribution, and may be exercised only by the Optionee during the
Optionee's lifetime.
N. No Rights as Shareholder. No Optionee or Optionee's
Representative shall have any rights as a shareholder
with respect to Common Stock subject to an option before the date of transfer
to the Optionee of a certificate or certificates for such shares.
O. No Rights to Continued Employment. Neither the Plan nor
any option granted under the Plan shall confer upon any Optionee any right
with respect to continuance of employment by the Company or any Subsidiary,
nor shall it interfere in any way with the right of the Company or any
Subsidiary to terminate the Optionee's employment.
8. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of options, and the obligation of the Company to sell and deliver
Common Stock under such options, shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required. The Company shall not be required to issue
or deliver any certificates for Common Stock before [i] the listing of the
Common Stock on any stock exchange or over-the-counter market on which the
Common Stock may then be listed and [ii] the completion of any registration or
qualification of any governmental body that the Company shall, in its sole
discretion, determine to be necessary or advisable. To the extent the Company
meets the then applicable requirements for the use thereof and to the extent the
Company may do so without undue cost or expense, and subject to the
determination by the Board or the Committee that such action is in the Company's
best interest, the Company intends to register the issuance and sale of such
Common Stock by the Company under federal and applicable state securities laws
using a Form S-8 registration statement under the Securities Act of 1933, as
amended, or such successor form as shall then be available.
9. Capital Adjustments Affecting Stock, Mergers and Consolidations.
A. Capital Adjustments. In the event of a capital adjustment
in the Common Stock resulting from a stock dividend, stock split,
reorganization, merger, consolidation, or a combination or exchange of shares,
the number of shares of Common Stock subject to the Plan and the number of
shares under option shall be automatically adjusted to take into account such
capital adjustment. The price of any share under option shall be adjusted so
that there will be no change in the aggregate purchase price payable upon
exercise of the option.
B. Mergers and Consolidations. In the event the Company merges
or consolidates with another entity, or all or a substantial portion of the
Company's assets or outstanding capital stock are acquired (whether by merger,
purchase or otherwise) by a Successor, the kind of shares that shall be subject
to the Plan and to each outstanding option shall, automatically by virtue of
such merger, consolidation or acquisition, be converted into and replaced by
shares of stock of the Successor having rights and preferences no less favorable
than the Common Stock, and the number of shares subject to the option and the
purchase price per share upon exercise of the option shall be correspondingly
adjusted, so that, by virtue of such merger, consolidation or acquisition, each
Optionee shall have the right to purchase [i] that number of shares of stock of
the Successor that have a value equal, as of the date of such merger, conversion
or acquisition, to the value, as of the date of such merger, conversion or
acquisition, of the shares of Common Stock of the Company theretofore subject to
Optionee's option, [ii] for a purchase price per share that, when multiplied by
the number of shares of stock of the Successor subject to the option, equal the
aggregate exercise price at which Optionee could have acquired all of the shares
of Common Stock of the Company theretofore optioned to Optionee.
C. No Effect on Company's Rights. The granting of an option
pursuant to the Plan shall not affect in any way the right and power of the
Company to make adjustments, reorganizations, reclassifications, or changes of
its capital or business structure or to merge, consolidate, dissolve, liquidate,
sell or transfer all or any part of its business or assets.
10. Amendment, Suspension, or Termination. The Board shall have the
right, at any time, to amend, suspend or terminate the Plan in any respect that
it may deem to be in the best interests of the Company, except that no amendment
shall be made without approval by shareholders of the Company holding not less
than a majority of the votes represented and entitled to be voted at a duly held
meeting of the Company's shareholders that would: [i] change the aggregate
number of shares of Common Stock which may be delivered under the Plan, except
as provided in Section 9; or [ii] change the employees or class of employees
eligible to receive ISOs; or [iii] require shareholder approval under applicable
federal or state laws.
11. Effective Date, Term and Approval. The effective date of the Plan
shall be July 21, 1999 (the date of Board adoption of the Plan), subject to
approval by shareholders of the Company holding not less than a majority of the
shares present and voting at its 1999 Annual Shareholder Meeting. The Plan shall
terminate ten (10) years after the effective date of the Plan and no options may
be granted under the Plan after such time, but any option granted prior thereto
may be exercised in accordance with its terms.
12. Severability. The invalidity or unenforceability of any provision
of the Plan or option agreement under the Plan shall not affect the validity and
enforceability of the remaining provisions of the Plan and the option agreement,
and the invalid or unenforceable provision shall be stricken to the extent
necessary to preserve the validity and enforceability of the Plan and the
options granted hereunder.
13. Governing Law. The Plan shall be governed by the laws of the State
of Tennessee.
SHOP AT HOME, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS OF SHOP AT HOME, INC.
IN CONNECTION WITH THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 29, 2001.
The undersigned shareholder of Shop At Home, Inc., a Tennessee
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated November ____, 2001, and hereby
appoints each of A. E. Jolley and Joseph I. Overholt, as proxy, each with full
power of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Shareholders of Shop At Home,
Inc. to be held at Loews Vanderbilt Plaza Hotel, located at 2100 West End
Avenue, Nashville, Tennessee, on November 29, 2001, at 10:00 a.m., Central
Standard Time, and at any adjournments or postponements thereof, and to vote all
shares of Common Stock that the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below.
(1) ELECTION OF DIRECTORS:
[ ] FOR all the following nominees (except as indicated to the contrary
below):
Charles W. Bone, J.D. Clinton, George R. Ditomassi, A. E.
Jolley, Joseph I. Overholt, Don C. Stansberry Jr. and
Frank A. Woods (to serve until the next annual meeting or
until their successors are duly elected and qualified)
[ ] AGAINST the following nominee(s) (please print name(s)):
[ ] WITHHOLD AUTHORITY (ABSTAIN) to vote for the following nominees
(please print name):
[ ] AGAINST all nominees.
[ ] WITHHOLD AUTHORITY (ABSTAIN) to vote for all nominees.
(2) To approve the amendment to the Company's 1999 Employee Stock Option
Plan that increases the number of shares of Common Stock authorized for
issuance upon exercise of options granted under the 1999 Employee Stock
Option Plan from 3,000,000 shares to 6,000,000 shares, and that makes
certain other changes.
[ ]FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(3) In their discretion, to transact such other business as may properly
be brought before the meeting or any adjournment or
postponement thereof.
[ ]FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(Please date and sign this proxy on the reverse side.)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS INDICATED, WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED, AND IN
THE DISCRETION OF THE PROXIES ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING, INCLUDING, AMONG OTHER THINGS, CONSIDERATION OF ANY MOTION MADE FOR
ADJOURNMENT OR POSTPONEMENT OF THE MEETING.
Date , 2001. PLEASE SIGN HERE AND RETURN PROMPTLY
----------------------
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registered in the
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attorneys, and
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