Point.360 DEF 14A 2011
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _______)
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¨ Preliminary Proxy Statement
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x Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to Section 240.14a-12
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2777 N. Ontario Street
Burbank, California 91504
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 30, 2011
To the Shareholders of Point.360:
The Annual Meeting of shareholders of Point.360 will be held at 1801 Century Park East, 16th Floor, Los Angeles, CA 90067, on November 30, 2011 at 11:00 a.m., local time, to consider and vote upon the following matters:
Information concerning these matters, including the names of the nominees for Point.360’s Board of Directors is set forth in the Proxy Statement accompanying this Notice. Only shareholders of record at the close of business on October 10, 2011 will be entitled to notice of and to vote at the meeting and any adjournment or postponement thereof.
You are requested to sign, date and complete the enclosed proxy and return it promptly in the accompanying postage-prepaid, pre-addressed envelope (or to use telephone or internet voting procedures if offered by your broker) whether or not you expect to attend the meeting to ensure that your shares will be represented. Any shareholder giving a proxy has the right to revoke it at any time before it is voted.
October 10, 2011
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE (OR USE TELEPHONE OR INTERNET VOTING PROCEDURES, IF OFFERED BY YOUR BROKER) IN ORDER TO ENSURE THAT YOUR VOTES ARE COUNTED.
2777 N. Ontario Street
Burbank, California 91504
Persons Making the Solicitation
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the “Board”) of Point.360 (the “Company”) of proxies for use at the Annual Meeting of Shareholders to be held on November 30, 2011, and at any adjournment or postponement thereof. This Proxy Statement is first being made available to shareholders on the Internet and by mail (upon shareholder request) on or about October 10, 2011. You are requested to sign, date and return the proxy card to be mailed to you (or to use telephone or Internet voting procedures if offered by your broker) in order to ensure that your shares are represented at the meeting.
All shares of the Company’s Common Stock (as defined below under “Record Date and Stock Entitled to Vote”) represented by a properly completed proxy received in time for the Annual Meeting will be voted by the proxy holders as provided therein. Where a shareholder specifies a choice on the proxy with respect to any matter to be voted upon, the shares will be voted accordingly by the proxy holders. If no direction is given in the proxy, it will be voted “FOR” the election of the directors nominated, “FOR” the ratification and approval of SingerLewak, LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2012 and in accordance with the best judgment of the proxy holders with respect to any other business that properly comes before the annual meeting.
In addition to solicitation by mail, regular employees of the Company and its transfer agent may solicit proxies in person or by telephone without additional compensation. The Company will pay persons holding shares in their names or in the names of their nominees, but not owning such shares beneficially, for the expenses of forwarding soliciting materials to the beneficial owners. The Company will bear all expenses incurred in soliciting its shareholders. Such expenses are estimated not to exceed $10,000.
Revocability of Proxy
Any proxy given by a shareholder of the Company may be revoked at any time before it is voted at the Annual Meeting by a written notice of revocation to the Secretary of the Company, at the address set forth at the top of this page, or by filing a duly executed proxy bearing a later date, or upon request if the shareholder is present at the meeting. If your shares are held in “street name” and you have instructed your broker or intermediary to vote your shares, you must follow the instructions received from your broker or other intermediary to revoke your instructions.
Record Date and Stock Entitled to Vote
Only holders of record of Common Stock at the close of business on October 10, 2011, are entitled to notice of and to vote at the meeting or any adjournment or postponement thereof. The outstanding voting securities of the Company on that date consisted of 10,513,166 shares of Common Stock.
Holders of the Company’s Common Stock are entitled to one vote for each share held as of the above record date, except that in the election of directors each shareholder has cumulative voting rights and is entitled to a number of votes equal to the number of shares held by such shareholder multiplied by the number of directors to be elected, which number is currently five. The shareholder may cast these votes all for a single candidate or may distribute the votes among any or all of the candidates. No shareholder will be entitled to cumulate votes for a candidate, however, unless that candidate’s name has been placed in nomination prior to the voting and the shareholder, or any other shareholder, has given notice at the Annual Meeting prior to the voting of an intention to cumulate votes. In such an event, the proxy holder may allocate among the management nominees the votes represented by proxies in the proxy holder’s sole discretion.
Quorum; Shareholder Vote
A majority of the outstanding shares of the Company must be present in person or by proxy at the Annual Meeting to constitute a quorum for the transaction of business. Shares represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee which are represented at the Annual Meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal or proposals) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. For purposes of determining the outcome of a proposal, shares represented by such proxies will not be treated as affirmative votes.
The affirmative vote of a plurality of the votes cast at the meeting is required for the election of directors. A properly executed proxy marked “WITHHELD” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. For each other item, the affirmative vote of the holders of a majority of the shares represented in person or by proxy and voting on the item will be required for approval, provided that the shares voting affirmatively must also constitute a majority of the required quorum for the meeting.
Delivery of Proxy Materials
To minimize our expenses, the Company’s Proxy Statement and 2011 Form 10-K Report are being made available via the Internet at http://www.point360.com/investors.html. We will deliver promptly upon written or oral request copies of these documents. Requests for copies of these documents, and requests that in the future separate documents be sent to shareholders, should be directed by writing to Point.360, 2777 North Ontario Street, Burbank, California 91504, Attention: Corporate Secretary, or by calling our Corporate Secretary at (818) 565-1400.
Request for a Single Set of Proxy Materials
If you share an address with another shareholder and have received multiple copies of our proxy materials, you may write or call us at the address set forth in the preceding paragraph to request delivery of a single copy of these materials.
Important Notice Regarding the Internet Availability of Proxy Materials for the Shareholders Meeting to be Held on November 30, 2011
This Proxy Statement, the accompanying proxy and our 2011 Form 10-K Report are also available on our website at www.point360.com.
ELECTION OF DIRECTORS
(Item 1 on proxy card)
The following table sets forth information concerning the nominees of management for directors for the ensuing year. Each nominee has agreed to serve as a director if elected. The term of office for all nominees listed below will expire at the next annual meeting to be held in 2012 or when their successors are elected and qualified. If any of the nominees listed below is unable to serve as a director, the proxy holders will vote for a substitute nominee or nominees recommended by the Board of Directors. Additional information about each nominee is set forth in the section of this Proxy Statement entitled “Management.”
Meetings and Committees
The standing committees of the Board of Directors are the Audit Committee, the Nominating and Governance Committee, and the Compensation Committee.
The Audit Committee of our Board of Directors is comprised of Messrs. Oki, Baker and Bell (Chairman). All members of our Audit Committee are independent directors as required by the listing standards of the NASDAQ Capital Market and the Securities and Exchange Commission (the “SEC>”). Messrs. Oki, Baker and Bell are each an “audit committee financial expert” as defined by regulations of the SEC.
Our Audit Committee assists our Board in its oversight of our financial reporting process. Our management has primary responsibility for the financial statements and the reporting process, including systems of internal controls. Our independent registered public accounting firm (which we refer to as the independent accountants) is responsible for auditing our financial statements and expressing an opinion as to their conformity to accounting principles generally accepted in the United States.
In the performance of its oversight function, our Audit Committee reviews and discusses with management and the independent accountants our audited financial statements. Our Audit Committee discusses with the independent accountants the matters required to be discussed by Statement on Auditing Standards No. 114 and Auditing Standard No. 2 relating to communication with audit committees. In addition, our Audit Committee receives from the independent accountants the written disclosures and letter required by Independence Standards Board Standard No. 1 relating to independence discussions with audit committees. Our Audit Committee also discusses with the independent accountants their independence from Point.360 and our management and considers whether the independent auditor’s provision of non-audit services to our company is compatible with maintaining the auditors’ independence.
Our Audit Committee discusses with our independent accountants the overall scope and plans for their audits. Our Audit Committee meets with the independent accountants, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls and the overall quality of our financial reporting. In addition, our Audit Committee meets with our Chief Executive Officer and Chief Financial Officer to discuss the processes that they have undertaken to evaluate the accuracy and fair presentation of our financial statements and the effectiveness of our system of disclosure controls and procedures.
In 2007, the Board adopted a written Audit Committee Charter. It is available on the Company’s website at www.point360.com.
Nominating and Governance Committee
The Nominating and Governance Committee of our Board of Directors is comprised of Messrs. Baker (Chairman), Hutchins, Bell and Oki. Our Nominating and Governance Committee considers and recommends candidates for election to our Board, advises our Board on director compensation, oversees performance evaluations of our Board and Board committees and advises our Board on corporate governance matters. All members of our Nominating and Governance Committee are independent directors as required by the listing standards of the NASDAQ Capital Market.
Our Nominating and Governance Committee will consider and recommend candidates for election to our Board. The Committee will also consider candidates for election to our Board submitted by shareholders. Each member of the committee participates in the review and discussion of director candidates. In addition, a member of our Board of Directors who is not on the committee may meet with and evaluate the suitability of candidates. In making its selection of candidates to recommend for election, the committee will seek persons who have achieved prominence in their field and who possess significant experience in areas of importance to our company. The minimum qualifications that our Nominating and Governance Committee will require in any nominated candidate will include integrity, independence, forthrightness, analytical skills and the willingness to devote appropriate time and attention to our affairs. Candidates would also need to demonstrate a willingness to work as part of a team in an atmosphere of trust and a commitment to represent the interests of all our shareholders rather than those of a specific constituency. Successful candidates will also need to demonstrate significant experience in areas of importance to our company, such as general management, finance, marketing, technology, law, international business or public sector activities.
In 2007, the Board adopted a written Nominating and Governance Committee Charter. It is available on the Company’s website at www.point360.com.
The Compensation Committee of our Board of Directors is comprised of Messrs. Oki (Chairman), Bell and Baker. Our Compensation Committee has oversight responsibility for the compensation programs for our executive officers and other employees. All members of our Compensation Committee are independent directors as required by the listing standards of the NASDAQ Exchange Capital Market, relevant federal securities laws and regulations, including Section 16 of the Securities Act of 1934, and Section 162(m) of the Internal Revenue Code of 1986. A copy of the Compensation Committee’s Charter is on the Company’s website at www.point360.com.
Director Independence and Meetings
The Board of Directors has determined that each director other than the Company’s Chief Executive Officer, Haig S. Bagerdjian, is “independent” within the meaning of Rule 5605(a)(2) of the NASDAQ Stock Market, Inc., and that each member of the Audit Committee, the Nominating and Governance Committee and the Compensation Committee is “independent” within the meaning of Rule 5605(a)(2).
During the fiscal year ended June 30, 2011, the Board of Directors held seven meetings. The Audit, Nominating and Governance and Compensation Committees held five, one and one meetings, respectively, during the fiscal year ended June 30, 2011, either separately or in conjunction with regular meetings of the Board of Directors. During fiscal 2011, each director attended all of meetings of the Board and of committees of the Board on which he served during his respective term as a director with the exception of Mr. Oki who was absent from one Audit Committee meeting.
Director Nominee Criteria and Process
The Nominating and Governance Committee will consider shareholder nominations for candidates for membership on the Board. In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board. Any shareholder nominations proposed for consideration by the Nominating and Governance Committee should include the nominee's name and qualifications for Board membership and should be addressed to:
2777 N. Ontario Street
Burbank, CA 91504
The Nominating and Governance Committee believes that members of the Board should have the highest professional and personal ethics and values. They should have broad experience at the policy-making level in business, government, education, technology or public interest. They should be committed to enhancing shareholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Each director must represent the interests of all shareholders.
The Nominating and Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee will periodically assess the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Governance Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms, shareholders or other persons. These candidates will be evaluated at regular or special meetings of the Nominating and Governance Committee, and may be considered at any point during the year. As described above, the Nominating and Governance Committee considers shareholder nominations for candidates for the Board. If any materials are provided by a shareholder in connection with the nomination of a director candidate, such materials will be forwarded to the Nominating and Governance Committee. The Nominating and Governance Committee will also review materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a shareholder. Although the Nominating and Governance Committee believes that director nominees should add to the range of backgrounds and experiences of the Company’s directors, neither the Nominating and Governance Committee nor the Board of Directors has a policy regarding the consideration of diversity in identifying and evaluating director nominees.
All five of the director nominees identified in this Proxy Statement currently serve as directors of the Company and were elected as directors at the Company’s last annual meeting of shareholders.
Board Leadership Structure and Role in Risk Oversight
Haig S. Bagerdjian serves as the Chairman of the Board of Directors and as the Company’s President and Chief Executive Officer. Given Mr. Bagerdjian’s extensive business experience and knowledge of the Company, the Board believes that the interests of all of the Company’s shareholders are best served at the present time through a leadership model with a combined Chairman/CEO structure. The Board also believes that Mr. Bagerdjian’s extensive knowledge of the Company and the industry in which it operates places him in the best position to provide leadership to the Board as it considers strategy and that having a Chairman who is not involved with the day-to-day operations of the Company would not be productive or in the best interests of the Company’s shareholders. Although the Board has not designated any other director to serve as its “lead independent director,” all of the Company’s directors (other than Mr. Bagerdjian) are independent and have access to the Chief Executive Officer and other Company executives on request. All of the Company’s independent directors serve actively on Board committees and may request agenda topics to be addressed at Board and committee meetings.
The full Board of Directors has responsibility for general oversight of risks facing the Company, with reviews of certain areas of risk being conducted by the relevant Board committees, which then provide reports to the full Board. The Board receives reports from management on areas of risk facing the Company and periodically conducts discussions with management regarding the identification, assessment and management of these risks.
Shareholder Communications with the Board of Directors
Any shareholder who desires to communicate with the entire Board of Directors or with specified directors should send a letter to the Company’s Corporate Secretary at the Company’s address listed above under “Director Nominee Criteria and Process”. All such letters will be sent to all Board members or, if applicable, to the directors specified by the shareholder.
Directors’ Attendance at Annual Shareholder Meetings
Directors are encouraged by the Board to attend annual meetings of the Company shareholders. All directors attended the last annual meeting of shareholders.
The Board of Directors recommends that shareholders vote “FOR” the election as directors of the five nominees listed above.
PROPOSAL TO RATIFY THE APPOINMENT OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
(Item 2 on proxy card)
We are asking you to ratify the Board’s selection of SingerLewak LLP (“SingerLewak>”) as our independent registered public accounting firm for the fiscal year ending June 30, 2012.
Effective July 26, 2002, Old Point.360 (our predecessor company), through action of its Audit Committee, engaged SingerLewak as its independent registered public accounting firm. SingerLewak audited Old Point.360’s and Point.360’s financial statements for the fiscal years 2002 through 2011.
We do not anticipate that any representative of SingerLewak will attend the Annual Meeting.
We are submitting this proposal to you because we believe that such action follows sound corporate practice. If ratification of the appointment of SingerLewak as our independent registered public accounting firm is not obtained at the Annual Meeting, the Audit Committee will reconsider its appointment.
The Board of Directors recommends a vote “FOR” the ratification of the appointment of SingerLewak as the Company’s independent registered public accounting firm.
AUDIT COMMITTEE REPORT
The Audit Committee of the Company is comprised of three independent directors, who have signed this report, and the Audit Committee operates under a written charter. The primary purposes of the Audit Committee are to monitor the integrity of the financial statements of the Company, review the Company’s internal accounting procedures and controls, oversee the independence, qualification and performance of the Company’s independent accountants, and appoint the independent accountants.
The Board of Directors has determined that Messrs. Baker, Oki and Bell are independent (within the meaning of Rule 5605(a)(2) of the Nasdaq Stock Market, Inc. and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act>”), and applicable rules of the SEC). The Board has also determined that Messrs. Baker, Bell and Oki are each an “audit committee financial expert” under applicable SEC rules.
During fiscal year 2011, the Audit Committee met with the senior members of the Company’s management team and the Company’s independent accountants. The Audit Committee also met separately with the Company’s independent accountants and separately with the Company’s Chief Financial Officer. The parties discussed financial management, accounting and internal controls.
The Audit Committee appointed the Company’s independent accountants and reviewed with the Company’s financial management and the independent accountants the overall audit scope and plans, the results of internal and external audit examinations, evaluations by the accountants of the Company’s internal controls and the quality of the Company’s financial reporting.
The Audit Committee reviewed and discussed the audited financial statements included in the Company’s Annual Report with the Company’s management including, without limitation, a discussion of the quality and not just the acceptability of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements as well as in Management’s Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report on Form 10-K. In addressing the reasonableness of management’s accounting judgments, members of the Audit Committee asked for and received management’s representations that the audited consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles, and have expressed to both management and accountants their general preference for conservative policies when a range of accounting options is available.
In its meeting with representatives of the independent accountants, the Audit Committee asked for and received responses to several questions that the Audit Committee believes are particularly relevant to its oversight. These questions included (1) whether there were any significant accounting judgments made by management in preparing the financial statements that would have been made differently had the accountants themselves prepared and been responsible for the financial statements; (2) whether, based on the auditors’ experience and their knowledge of the Company, the Company’s financial statements fairly present to investors, with clarity and completeness, the Company’s financial position and performance for the reporting period in accordance with generally accepted accounting principles and SEC disclosure requirements; and (3) whether, based on their experience and their knowledge of the Company, they believe the Company has implemented internal controls that are appropriate for the Company.
The Audit Committee has discussed with SingerLewak the matters required to be discussed by Statement on Auditing Standards No. 114, as amended (AICPA, Professional Standards, Volume 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received from SingerLewak the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and has discussed with SingerLewak their independence.
In performing all of these functions, the Audit Committee acts in an oversight capacity. The Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports, and of the independent accountants who, in their report, express an opinion on the conformity of the Company’s financial statements to accounting principles generally accepted in the United States of America..
Based on the review and discussions referred to above, the Audit Committee recommended to the Company’s Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 filed with the SEC.
CODE OF ETHICS
On May 30, 2007, the Company adopted a Code of Ethics (the “Code>”) applicable to the Company’s Chief Executive Officer, Chief Financial Officer and all other employees. Among other provisions, the Code sets forth standards for honest and ethical conduct, full and fair disclosure in public filings and shareholder communications, compliance with laws, rules and regulations, reporting of code violations and accountability for adherence to the Code. The text of the Code has been posted on the Company’s website (www.point360.com). A copy of the Code can be obtained free-of-charge upon written request to:
If the Company makes any amendment to, or grant any waivers of, a provision of the Code that applies to our principal executive officer or principal financial officer and that requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver and the reasons for the amendment or waiver on our website.
Executive Officers and Directors
The directors, director nominees and executive officers of the Company are as follows:
HAIG S. BAGERDJIAN became Chairman of the Board of Old Point.360 (our predecessor company) in September 2001 and was appointed President and Chief Executive Officer in October 2002. He was appointed to these positions with the Company in April 2007. He was Executive Vice President of Syncor International Corporation, a leading provider of radiopharmaceuticals, comprehensive nuclear pharmacy services and medical imaging services, from 1991 to 2002. From 1987 to 1991, he served in several executive level positions at Calmark Holding Corporation. He also was General Counsel for American Adventure, Inc., which was a subsidiary of Calmark Holding. Mr. Bagerdjian received a J.D. from Harvard Law School and is admitted to the State Bar of California. Mr. Bagerdjian is a director of Innodata-Isogen, Inc. Mr. Bagerdjian’s diverse business experience provides him with a wide range of expertise that is valuable to our Board in confronting various business-related challenges and opportunities.
ALAN R. STEEL became Executive Vice President, Finance and Administration and Chief Financial Officer of Old Point.360 in November 2000. He was appointed to these positions with the Company in April 2007. From 1994 to 2000, Mr. Steel was Vice President, Finance and Chief Financial Officer of Advanced Machine Vision Corporation, a NASDAQ listed company involved in research, development, manufacturing and sales of sophisticated vision sorting and defect removal equipment for food, paper, tobacco and other markets. From 1983 to 1994, Mr. Steel was Vice President and Chief Financial Officer of DDL Electronics, Inc., a New York Stock Exchange listed company in the electronics industry. Mr. Steel served as controller of DDL from 1980-1983. Mr. Steel was previously a financial manager for Atlantic Richfield Company and a certified public accountant with Arthur Andersen & Co.
ROBERT A. BAKER is the President and Chief Executive Officer of RAB Associates, a Los Angeles, California-based firm specializing in financial reorganizations, crisis management and equity receiverships, which he founded in 1974. Prior to establishing RAB Associates, Mr. Baker was the President and CEO of American Management Company, a management consulting firm specializing in computer system design and programming. Mr. Baker’s experience in advising corporations that confront various challenging financial events and conditions assists the Board in developing the Company’s business strategies and monitoring their execution.
GREGGORY J. HUTCHINS is a tax partner at Holthouse Carlin & Van Trigt, LLP, a public accounting firm. Prior to joining Holthouse Carlin & Van Trigt in January 1993, Mr. Hutchins served as Senior Tax Manager for KPMG Peat Marwick, managing corporate and high net worth individual clients from August 1984 until December 1992. Mr. Hutchins’ tax and accounting expertise assists the Board in addressing tax-related filing and reporting requirements with which the Company must comply.
SAM P. BELL was President of Los Angeles Business Advisors (LABA) from 1996 to 2004, at which time, LABA ceased operations. LABA was comprised of 30 chief executive officers of major companies in the Los Angeles region and focused on high impact projects where their collective resources could be utilized to positively influence the economic vitality of the area. Prior to joining LABA, Mr. Bell was Area Managing Partner of Ernst & Young, certified public accountants, for the Pacific Southwest Region, retiring in 1996 after 39 years with the firm. Mr. Bell currently serves, or has served in the past, in high-level positions for numerous charitable and educational concerns, and is a current panel member for the NASDAQ in reviewing filing issues for NASDAQ-listed companies. Mr. Bell is currently a board member of TCW Strategic Income Fund, Inc., TCW Funds and Broadway National Bank. Mr. Bell’s extensive accounting experience assists the Board and the Audit Committee in addressing the numerous accounting-related issues, regulations and SEC reporting requirements to which public companies are subject.
G. SAMUEL OKI has served as President of Meta Information Services, Inc., a database and information management services enterprise, since 1982. Mr. Oki has served as an officer and board member of a number of closely held companies. Mr. Oki has a B.S. degree in Horticulture from Colorado State University and an M.B.A. from the University of Southern California. Mr. Oki brings to the Board valuable experience in serving as a director of other companies and in confronting the issues to which the directors of a wide range of companies are subject.
Each executive officer serves in office at the discretion of the Board of Directors, subject to the terms of any employment agreement that may be entered into with such officer.
Compensation of Directors
Each director who is not an employee of the Company is paid a cash fee of $3,750 per quarter, $1,000 for each meeting attended in person and $500 for each meeting attended telephonically. Board committee members receive $500 for each meeting not held in conjunction with a Board meeting. The chairman of the audit committee receives $7,500 per year, and chairmen of the compensation and nominating and corporate governance committees receive $4,000 and $3,000, per year, respectively. Each director also receives an annual fully vested stock option grant to purchase 7,500 shares at an exercise price equal to the fair market value on the date of any annual meeting at which the director is reelected to the Board. Members of the Board who are not employees of the Company receive options to purchase 15,000 shares of Common Stock upon their initial election to the Board. These options vest in 50% increments over the two-year period following the date of grant. Directors are also reimbursed for travel and other reasonable expenses relating to meetings of the Board.
The following table sets forth, for each director who is not also a named executive in the Summary Compensation Table, compensation for the year ended June 30, 2011:
Summary Compensation Table
The following table sets forth the compensation for the Chief Executive Officer and the Chief Financial Officer for the three years ended June 30, 2011. No other executive officer’s total compensation for the year ended June 30, 2011 exceeded $100,000.
Options Granted In the Year Ended June 30, 2011
Stock option awards granted to the executive officers named in the Summary Compensation Table during the year ended June 30, 2011 were as follows:
Grants of Plan-Based Awards
(1) Options were granted on February 9, 2011. Options will vest 25% on each of the first four anniversary dates of the grant.
(2) Represents the aggregate grant date fair value of the stock options awarded to the named executive officer, calculated in accordance with FASB ASC Topic 718, and does not take into account any estimated forfeitures. The amounts shown above do not necessarily correspond to the actual values that will be recognized by each officer from the awards.
All options in the above table were unexercised as of June 30, 2011.
Outstanding Equity Awards at Fiscal Year-End
The following table shows the options held by each of the Company’s executive officers who are named in the Summary Compensation Table as of June 30, 2011.
(1) All options vest 25% annually beginning on the first anniversary of the grant date.
2007 Equity Incentive Plan and 2010 Incentive Plan
Point.360’s Board of Directors has adopted the Point.360 2007 Equity Incentive Plan (the “2007 Plan”) and the 2010 Incentive Plan (the “2010 Plan”) (together, the “Plans”), and the Company’s shareholders have approved the Plans. Up to 2,000,000 and 4,000,000 shares of our Common Stock may be issued under the 2007 Plan and 2010 Plan, respectively. Pursuant to the Plans, officers, non-employee directors and employees of Point.360, as well as other persons who render services to or are otherwise associated with Point.360, are eligible to receive incentive and/or nonqualified stock options. The 2007 Plan and 2010 Plan expire in April 2017 and November 2020, respectively. The Plans are administered by the Board of Directors. The selection of participants, allotments of shares, determination of price and other conditions or purchase of options will be determined by the Board or a Stock Option Committee appointed by the Board at its sole discretion in order to attract and retain persons instrumental to the success of Point.360. Incentive stock options granted under the Plans are exercisable for a period of up to ten years from the date of grant at an exercise price which is not less than the fair market value of the Common Stock on the date of the grant, except that the term of an incentive stock option granted under the Plans to a shareholder owning more than 10% of the voting power of Point.360 on the date of grant may not exceed five years and its exercise price may not be less than 110% of the fair market value of the Common Stock on the date of the grant. Non-qualified options granted under the Plans may not be granted at less than the fair market value of the Common Stock on the date of grant.
The following table sets forth information regarding the securities authorized for issuance under our equity compensation plans as of June 30, 2011:
The Company has entered into severance agreements with Messrs. Bagerdjian and Steel. The agreements provide that if Mr. Bagerdjian or Mr. Steel is terminated following a change in control during the term of the agreements other than for cause, disability or without good reason (as defined), then Mr. Bagerdjian and Mr. Steel shall receive a severance payment equal to 275% and 200%, respectively, of the sum of (1) base salary and (2) the higher of (x) the average bonus earned during the preceding three years or (y) the target annual bonus for the year in which the termination occurs. If terminated under the severance agreement, Mr. Bagerdjian and Mr. Steel would also receive employee benefits for specified periods of time. Furthermore, previously granted stock options shall vest fully. Under certain circumstances, amounts paid pursuant to the severance agreements will be subject to a tax gross-up payment if such amounts are subject to an excise tax as contemplated by Section 280G of the Internal Revenue Code. For purposes of the severance agreements, a change of control shall be deemed to have occurred if (A) a tender offer shall be made and consummated for the ownership of 35% or more of the outstanding voting securities of the Company, (B) the Company shall be merged or consolidated with another corporation and as result of such merger or consolidation less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, other than affiliates (within the meaning of the Exchange Act) of any party to such merger or consolidation, as the same shall have existed immediately prior to such merger or consolidation, (C) the Company shall sell, lease, exchange or transfer substantially all of its assets to another corporation, entity or person which is not a wholly-owned subsidiary, (D) a person (other than executive), as defined in Sections 13(d) and 14 (d) of the Exchange Act, shall acquire 35% or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record, in a single transaction or a series of related transactions by one person or more than one person acting in concert), or (E) the shareholders of the Company approve a plan or proposal for the liquidation or dissolution of the Company.
Assuming that a triggering event occurred on June 30, 2011, severance amounts payable would have been $1,925,000 and $864,000 for Messrs. Bagerdjian and Steel, respectively, plus life, disability and health insurance benefits for 33 months immediately following the date of termination. The value of such benefits is estimated to be $17,000 and $27,000 for Messrs. Bagerdjian and Steel, respectively, based on the cost of such benefits on June 30, 2011.
Indemnification of Officers and Directors
Point.360’s Articles of Incorporation limit the liability of our directors. As permitted by the California General Corporation Law, directors will not be liable to Point.360 for monetary damages arising from a breach of their fiduciary duty as directors in certain circumstances. Such limitation does not affect liability for any breach of a director’s duty to Point.360 or its shareholders (1) with respect to approval by the director of any transaction from which he derives an improper personal benefit, (2) with respect to acts or omissions involving an absence of good faith, that he believes to be contrary to the best interest of Point.360 or our shareholders, that involve intentional misconduct or a knowing culpable violations of law, that constitute an unexcused pattern or inattention that amounts to an abdication of his duty to Point.360 or our shareholders, or that show a reckless disregard for his duty to Point.360 or our shareholders in circumstances in which he was, or should have been aware, in the ordinary course of performing his duties, of a risk of serious injury to Point.360 or our shareholders, or (3) based on transactions between Point.360 and our directors or another corporation with interrelated directors or on improper distribution, loans or guarantees under applicable sections of the California General Corporation Law. Such limitation of liability also does not affect the availability of equitable remedies such as injunctive relief or rescission.
Our Bylaws state that, to the maximum extent permitted by the California General Corporation Law and by our Articles of Incorporation, we will indemnify each of our officers and directors and may indemnify each of our other agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that any such person is or was an agent of Point.360. Our Bylaws also state that the indemnification provided by the Bylaws will not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under the Bylaws or any agreement, vote of shareholders, or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and that no provision of the Bylaws will limit or prohibit indemnification by us to the fullest extent permitted by California law.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers and directors pursuant to the provisions described above, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
TRANSACTIONS WITH RELATED PERSONS
During the year ended June 30, 2011, the Company paid $38,500 to Holthouse Carlin & Van Trigt LLP (“HCVT”) for the preparation of tax returns and other tax related services. In 2011, the Company and HCVT entered into a Release and Settlement Agreement, pursuant to which the Company received $1 million for the Company’s complete release of any claim against HCVT concerning HCVT’s representation relating to a litigation matter. Mr. Hutchins is a partner in HCVT.
In September 2010, in connection with the settlement of a lawsuit between the Company and DG FastChannel, Inc. (“DGFC”), Mr. Bagerdjian entered into a Put and Call Agreement with DGFC. Pursuant to the settlement of the lawsuit, Point.360 issued 250,000 shares of its Common Stock to DGFC valued at $500,000. Mr. Bagerdjian had the right to purchase the shares at any time before March 21, 2011 for $500,000. DGFC had the right to sell the shares to Mr. Bagerdjian for $500,000 (the “put right”) on March 21, 2011. If DGFC exercised the put right, the Company might be required, at Mr. Bagerdjian’s option, to (1) purchase the shares from Mr. Bagerdjian for $500,000 in cash or (2) pay the difference between $2.00 per share and the market price of the Common Stock (if positive) on March 21, 2011 in cash or by the issuance of additional shares of the Company’s Common Stock. In April 2011, Mr. Bagerdjian purchased from DGFC the put shares for $500,000, and the Company purchased from Mr. Bagerdjian the 250,000 shares for $500,000 and immediately canceled the shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of Common Stock as of September 30, 2011, by (1) each person who is known by the Company to own beneficially more than 5% of the outstanding Common Stock; (2) each of Point.360’s directors and director nominees; (3) each executive officer identified in the Summary Compensation Table; and (4) all executive officers and directors of the Company as a group:
* Less than 1%.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act and rules promulgated thereunder, the Company’s directors, executive officers, and any person holding beneficially more than 10% of the Company’s Common Stock are required to report their ownership of the Company’s securities and any changes in that ownership to the SEC and to file copies of the reports with the Company. Specific due dates for these reports have been established, and the Company is required to report in this Proxy Statement any failures to file by these dates during the last fiscal year.
Based upon a review of filings with the SEC and written representations that no other reports were required, the Company believes that all of its directors, executive officers and persons owning more than 10% of the Company’s Common Stock complied during the year ended June 30, 2011 with the reporting requirements of Section 16(a) of the Exchange Act.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
SingerLewak examined, as independent accountants, the financial statements of the Company for the years ended June 30, 2011 and 2010. The following table shows the fees billed to us by SingerLewak for the audit and other services rendered by SingerLewak during these periods. The Audit Committee has determined that the non-audit services rendered by SingerLewak were compatible with maintaining SingerLewak’s independence.
All audit related and other services rendered by SingerLewak were pre-approved by the Audit Committee. The Audit Committee has adopted a pre-approval policy that provides for the pre-approval of all services performed for us by SingerLewak. The policy authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services. Pursuant to this policy, the Board delegated such authority to the Chairman of the Audit Committee. All pre-approval decisions must be reported to the Audit Committee at its next meeting if not approved in conjunction with an Audit Committee Meeting.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement has been or will be specifically incorporated by reference into any filing by the Company under the Securities Act or the Exchange Act, the section of this Proxy Statement entitled “Audit Committee Report” shall not be deemed to be incorporated, unless specifically otherwise provided in such filing.
SHAREHOLDER PROPOSALS AT THE NEXT
ANNUAL MEETING OF SHAREHOLDERS
Shareholders of the Company who intend to submit proposals to the Company’s shareholders for inclusion in the Company’s proxy statement and form of proxy relating to the next annual meeting of shareholders must submit such proposals to the Company no later than June 13, 2012 in order to be included in the proxy materials. Shareholder proposals should be submitted to the Corporate Secretary, Point.360, 2777 N. Ontario Street, Burbank, CA 91504.
For any proposal that is not submitted for inclusion in next year’s proxy statement but is instead sought to be presented directly at the 2012 annual meeting, SEC rules permit the persons named in the Company’s form of proxy for the next annual meeting to vote proxies in their discretion if the Company (1) receives notice of the proposal before August 26, 2012 and advises shareholders in the 2012 proxy statement about the nature of the matter and how the proxy holders intend to vote or (2) does not receive notice of the proposal before August 26, 2012. Notices of intention to present proposals directly at the 2012 annual meeting should be submitted to the Corporate Secretary, Point.360, 2777 N. Ontario Street, Burbank, CA 91504.
If any matters not referred to in this Proxy Statement should properly come before the meeting, the persons named in the proxies will vote the shares represented thereby in accordance with their judgment. The Board of Directors is not aware of any such matters that may be presented for action at the meeting.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
The Company will furnish without charge a copy of its Annual Report on Form 10-K for the fiscal year ended June 30, 2011, as filed with the SEC, including the financial statements and financial statement schedules thereto, to any shareholder desiring a copy. Shareholders may write to the Company at:
Attn: Corporate Secretary
2777 N. Ontario Street
Burbank, CA 91504.