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EX-10.1 MOVIE GALLERY PERFORMANCE BONUS PLAN

 

EXHIBIT 10.1

MOVIE GALLERY, INC.

PERFORMANCE BONUS PLAN

     1) Purposes of the Plan. The Plan is intended to increase stockholder value and the
success of the Company by motivating Participants (1) to perform to the best of their abilities,
and (2) to achieve the Company’s objectives. The Plan’s goals are to be achieved by offering
Participants the opportunity to earn incentive awards for the achievement of goals relating to the
performance of the Company. The Plan is intended to permit the payment of bonuses that qualify as
performance-based compensation under section 162(m) of the Code.

     2) Definitions.

          (a) “Actual Award” means as to any Performance Period, the actual cash award (if any)
payable to the Participant for a Performance Period. Each Actual Award is determined by a Payout
Formula for a Performance Period, subject to the Committee’s authority under Section 8(a) to
eliminate or reduce the Actual Award otherwise payable.

          (b) “Base Salary” means any Performance Period, the Participant’s earned salary during
that Performance Period. Such Base Salary shall be before both (a) deductions for taxes or
benefits, and (b) deferrals of compensation pursuant to Company-sponsored plans.

          (c) “Board” means the Board of Directors of the Company.

          (d) “Cash Flow” means cash generated from operating activities.

          (e) “Code” means the Internal Revenue Code of 1986, as amended.

          (f) “Committee” means the Compensation Committee of the Board, or a sub-committee of
the Compensation Committee, which shall consist solely of two or more members of the Board who are
not employees of the Company and who otherwise qualify as “outside directors” within the meaning of
Section 162(m).

          (g) “Company” means Movie Gallery, Inc.

          (h) “Determination Date” means the latest possible date that will not jeopardize a
Target Award or Actual Award’s qualification as Performance-Based Compensation.

          (i) “EBITDA” means earnings before interest, taxes, depreciation and amortization, as
may be adjusted.

          (j) “Fiscal Year” means a fiscal year of the Company.

          (k) “Maximum Award” means as to any Participant for any Performance Period, $4
million.

          (l) “Participant” means an eligible executive or key employee of the Company
participating in the Plan for a Performance Period.

          (m) “Payout Formula” means as to any Performance Period, the formula or payout matrix
established by the Committee pursuant to Section 7 in order to determine the

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Actual Awards (if any) to be paid to Participants. The formula or matrix may differ from
Participant to Participant.

          (n) “Performance-Based Compensation” means compensation that is intended to qualify as
“performance-based compensation” within the meaning of Section 162(m).

          (o) “Performance Goals” means the goal(s) (or combined goal(s)) determined by the
Committee (in its discretion) to be applicable to a Participant for a Target Award for a
Performance Period. As determined by the Committee, the Performance Goals applicable to an Actual
Award and/or Target Award may provide for a targeted level or levels of achievement using one or
more of the following measures: (i) EBITDA, (ii) Cash Flow, (iii) Pre-Tax Margin, (iv) Profit, (v)
Return on Assets, (vi) Return on Invested Capital, and/or (vii) Revenue. Performance Goals may
differ from Participant to Participant, Performance Period to Performance Period and from award to
award. Any Performance Goal may be tested or measured, as applicable, (1) in absolute terms, (2)
in relative terms (including, but not limited, the passage of time and/or against other companies
or financial metrics), (3) on a per share and/or share per capita basis, (4) against the
performance of the Company as a whole or against particular segments or products of the Company,
and/or (5) on a pre-tax or after-tax basis. On or prior to the Determination Date, the Committee
shall determine whether any element(s) (for example, but not by way of limitation, the effect of
mergers or acquisitions) shall be included in or excluded from the calculation of any Performance
Goal with respect to any Participants (whether or not such determinations result in any Performance
Goal being measured on a basis other than generally accepted accounting principles).

          (p) “Performance Period” means any Fiscal Year or such other period shorter or longer
than a Fiscal Year, as determined by the Committee in its sole discretion. However, no Performance
Period shall have a duration longer than three Fiscal Years. Also, with respect to any
Participant, no more than three Performance Periods shall exist at any one time.

          (q) “Plan” means this Performance Bonus Plan, as amended from time to time.

          (r) “Pre-Tax Margin” means the percentage equal to Profit, divided by Revenue.

          (s) “Profit” means net income.

          (t) “Return on Assets” means the percentage equal to Profit, divided by average net
assets.

          (u) “Return on Invested Capital” means the percentage equal to Profit, divided by
average invested capital.

          (v) “Revenue” means net sales to third parties.

          (w) “Section 162(m) “means Section 162(m) of the Code, or any successor to Section
162(m), as that Section may be interpreted from time to time by the Internal Revenue Service,
whether by regulation, notice or otherwise.

          (x) “Target Award” means the target award payable under the Plan to a Participant for
the Performance Period, expressed as a percentage of his or her Base Salary or a specific dollar
amount, as determined by the Committee in accordance with Section 6.

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     3) Plan Administration.

          a) The Committee shall be responsible for the general administration and interpretation of the
Plan and for carrying out its provisions. Subject to the requirements for qualifying compensation
as Performance-Based Compensation, the Committee may delegate specific administrative tasks to
Company employees or others as appropriate for proper administration of the Plan. Subject to the
limitations on Committee discretion imposed under Section 162(m), the Committee shall have such
powers as may be necessary to discharge its duties hereunder, including, but not by way of
limitation, the following powers and duties, but subject to the terms of the Plan:

               i) discretionary authority to construe and interpret the terms of the Plan, and to determine
eligibility, Actual Awards and the amount, manner and time of payment of any Actual Awards
hereunder;

               ii) to prescribe forms and procedures for purposes of Plan participation and distribution of
Actual Awards; and

               iii) to adopt rules, regulations and bylaws and to take such actions as it deems necessary or
desirable for the proper administration of the Plan.

          b) Any rule or decision by the Committee that is not inconsistent with the provisions of the
Plan shall be conclusive and binding on all persons, and shall be given the maximum deference
permitted by law.

     4) Eligibility. The employees eligible to participate in the Plan for a given
Performance Period shall be employees of the Company who are designated by the Committee in its
sole discretion. No person shall be automatically entitled to participate in the Plan.

     5) Performance Goal Determination. The Committee, in its sole discretion, shall
establish the Performance Goals for each Participant for the Performance Period. Such Performance
Goals shall be set forth in writing on or prior to the Determination Date.

     6) Target Award Determination. The Committee, in its sole discretion, shall establish
a Target Award for each Participant. Each Participant’s Target Award shall be determined by the
Committee in its sole discretion, and each Target Award shall be set forth in writing prior to the
Determination Date.

     7) Determination of Payout Formula or Formulae. On or prior to the Determination
Date, the Committee, in its sole discretion, shall establish a Payout Formula or Formulae for
purposes of determining the Actual Award (if any) payable to each Participant. Each Payout Formula
shall (a) be set forth in writing prior to the Determination Date, (b) be based on a comparison of
actual performance to the Performance Goals, (c) provide for the payment of a Participant’s Target
Award if the Performance Goals for the Performance Period are achieved, and (d) provide for an
Actual Award greater than or less than the Participant’s Target Award, depending upon the extent to
which actual performance exceeds or falls below the Performance Goals. Notwithstanding the
preceding, in no event shall a Participant’s Actual Award for any Performance Period exceed the
Maximum Award.

     8) Determination of Awards; Award Payment.

          a) Determination and Certification. After the end of each Performance Period, the
Committee shall certify in writing (for example, in its meeting minutes) the extent to

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which the Performance Goals applicable to each Participant for the Performance Period were
achieved or exceeded. The Actual Award for each Participant shall be determined by applying the
Payout Formula to the level of actual performance that has been certified by the Committee.
Notwithstanding any contrary provision of the Plan, the Committee, in its sole discretion, may (a)
eliminate or reduce the Actual Award payable to any Participant below that which otherwise would be
payable under the Payout Formula, and (b) determine whether or not a Participant will receive an
Actual Award in the event the Participant incurs terminates his or her employment with the Company
prior to the date the Actual Award otherwise is to be paid.

          (b) Right to Receive Payment. Each Actual Award that may become payable under the
Plan shall be paid solely from the general assets of the Company. Nothing in this Plan shall be
construed to create a trust or to establish or evidence any Participant’s claim of any right to
payment of an Actual Award other than as an unsecured general creditor with respect to any payment
to which he or she may be entitled.

          (c) Form of Payment. The Company shall pay all Actual Awards in cash paid to the
Participant.

          (d) Timing of Payments. Except as provided in Section 8(e), the Company shall
distribute amounts payable to Participants as soon as is practicable following the determination
and written certification of the Actual Award for a Performance Period, but in no event later than
90 days after the end of the applicable Performance Period.

          (e) Deferral. The Committee may defer payment of, and apply a vesting schedule to,
one or more Actual Awards, or any portion(s) thereof, as the Committee (in its sole discretion)
determines, except that no such vesting schedule may exceed four years. In addition, the
Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash
that would otherwise be delivered to a Participant under the Plan. Any such deferral elections
shall be subject to such rules and procedures as shall be determined by the Committee in its sole
discretion.

     9) Term of Plan. Subject to approval of the Company’s stockholders at the Company’s
2006 Annual Meeting, the Plan shall become effective on January 2, 2006. The Plan shall continue
until terminated under Section 10 of the Plan.

     10) Amendment and Termination of the Plan. The Committee may amend, modify, suspend
or terminate the Plan, in whole or in part, at any time, including the adoption of amendments
deemed necessary or desirable to correct any defect or to supply omitted data or to reconcile any
inconsistency in the Plan or in any Actual Award granted hereunder; provided, however, that no
amendment, alteration, suspension or discontinuation shall be made that would (i) impair any
payments to Participants made prior to such amendment, modification, suspension or termination,
unless the Committee has made a determination that such amendment or modification is in the best
interests of all persons to whom Actual Awards have theretofore been granted; provided further,
however, that in no event may such an amendment or modification result in an increase in the amount
of compensation payable pursuant to such Actual Award or (ii) cause compensation that is, or may
become, payable hereunder to fail to qualify as Performance-Based Compensation. To the extent
necessary or advisable under applicable law, including Section 162(m), Plan amendments shall be
subject to stockholder approval. At no time before the actual distribution of funds to
Participants under the Plan shall any Participant accrue any vested interest or right whatsoever
under the Plan except as otherwise stated in this Plan.

     11) Withholding. Distributions pursuant to this Plan shall be subject to all
applicable federal and state tax and withholding requirements.

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     12) Employment. This Plan does not constitute a contract of employment or
compensation or impose on either the Participant or the Company any obligation to retain the
Participant as an employee. This Plan does not change the status of the Participant as an employee
at will, the policies of the Company regarding termination of employment, nor guarantee further
continuing participation in the Plan.

     13) Successors. All obligations of the Company under the Plan, with respect to awards
granted hereunder, shall be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of
all or substantially all of the business or assets of the Company.

     14) Indemnification. Each person who is or shall have been a member of the Committee,
or of the Board, shall be indemnified and held harmless by the Company against and from (a) any
loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or failure to act under
the Plan or any award, and (b) from any and all amounts paid by him or her in settlement thereof,
with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such
claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be entitled under the
Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or
under any power that the Company may have to indemnify them or hold them harmless.

     15) Nonassignment. The rights of a Participant under this Plan shall not be
assignable or transferable by the Participant except by will or the laws of intestacy.

     16) Governing Law. The Plan shall be governed by the laws of the State of Delaware
(without regard to its conflict of laws provisions).

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                                                                    Exhibit 10.1

                           AMERICA SERVICE GROUP INC.

                 1999 AMENDED AND RESTATED INCENTIVE STOCK PLAN

                             STOCK GRANT CERTIFICATE

This Stock Grant Certificate evidences a Stock Grant made pursuant to the
America Service Group Inc. Amended and Restated 1999 Incentive Stock Plan of
______ shares of restricted Stock to _________________, who shall be referred to
as "Director." This Stock Grant is granted effective as of __________, 20__,
which shall be referred to as the "Grant Date."

                                    AMERICA SERVICE GROUP INC.

                                    By:
                                        -------------------------------------

                              TERMS AND CONDITIONS

     SS. 1. PLAN AND STOCK GRANT CERTIFICATE. This Stock Grant is subject to all
of the terms and conditions set forth in this Stock Grant Certificate and in the
Plan. If a determination is made that any term or condition set forth in this
Stock Grant Certificate is inconsistent with the Plan, the Plan shall control.
All of the capitalized terms not otherwise defined in this Stock Grant
Certificate shall have the same meaning in this Stock Grant Certificate as in
the Plan. A copy of the Plan will be made available to Director upon written
request to the corporate Secretary of the Company.

     SS. 2. STOCKHOLDER STATUS. Director shall have the right under this Stock
Grant to receive cash dividends on all of the shares of Stock subject to this
Stock Grant and to vote such shares until Director's right to such shares is
forfeited or becomes nonforfeitable. If Director forfeits any shares under
Section 3, Director shall at the same time forfeit Director's right to vote such
shares and to receive cash dividends paid with respect to such shares. Any Stock
dividends or other distributions of property made with respect to shares that
remain subject to forfeiture under Section 3 shall be held by the Company, and
Director's rights to receive such dividends or other property shall be forfeited
or shall be nonforfeitable at same time the shares of Stock with respect to
which the dividends or other property are attributable are forfeited or become
nonforfeitable. Except for the rights to receive cash dividends and vote the
shares of Stock subject to this Stock Grant which are described in this Section
2, Director shall have no rights as a Stockholder with respect to such shares of
Stock until Director's interest in such shares has become nonforfeitable.

<PAGE>

     SS. 3. VESTING AND FORFEITURE.

          (a)  Vesting. Subject to Section 3(b), Director's interest in the
               Stock subject to this Stock Grant shall become nonforfeitable as
               follows:

               (1)  his interest in the first one-fourth of the shares of Stock
                    subject to this Stock Grant (rounding down to the nearest
                    whole number) shall become nonforfeitable only if he remains
                    a member of the Board through the first anniversary of the
                    Grant Date,

               (2)  his interest in the second one-fourth of the shares of Stock
                    subject to this Stock Grant (rounding down to the nearest
                    whole number) shall become nonforfeitable only if he remains
                    a member of the Board through the second anniversary of the
                    Grant Date,

               (3)  his interest in the third one-fourth of the shares of Stock
                    subject to this Stock Grant (rounding down to the nearest
                    whole number) shall become nonforfeitable only if he remains
                    a member of the Board through the third anniversary of the
                    Grant Date, and

               (4)  his interest in the balance of the shares of Stock subject
                    to this Stock Grant shall become nonforfeitable only if he
                    remains a member of the Board through the fourth anniversary
                    of the Grant Date.

          (b)  Forfeiture. If Director's status as such terminates for any
               reason whatsoever before his or her interest in all of the shares
               of Stock subject to this Stock Grant have become nonforfeitable
               under Section 3(a), then he or she shall (except as provided in
               Section 14 of the Plan) forfeit all of the shares of Stock
               subject to this Stock Grant except those shares in which he or
               she has (pursuant to Section 3(a)) a nonforfeitable interest on
               the date his or her status as a Director so terminates.

     SS. 4. STOCK CERTIFICATES. Company shall issue a stock certificate for the
shares of Stock subject to this Stock Grant in the name of Director upon
Director's execution of the irrevocable stock power in favor of Company attached
as Exhibit A. The Secretary of Company shall hold such stock certificate
representing such shares and any distributions made with respect to such shares
(other than cash dividends) until such time as his or her interest in such
shares have become nonforfeitable or have been forfeited. As soon as practicable
after each date as of which his or her interest in any shares becomes
nonforfeitable under Section 3(a), Company shall issue to Director a stock
certificate reflecting the shares in which his or her interest has become
nonforfeitable on such date (together with any distributions made with respect
to the shares that have been held by Company). If shares are forfeited, the
shares (together with any distributions made with respect to the shares that
have been held by Company) automatically shall revert back to Company.

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<PAGE>

     SS. 5. NONTRANSFERABLE. No rights granted under this Stock Grant
Certificate shall be transferable by Director.

     SS. 6. OTHER LAWS. Company shall have the right to refuse to transfer
shares of Stock subject to this Stock Grant to Director if Company acting in its
absolute discretion determines that the transfer of such shares might violate
any applicable law or regulation.

     SS. 7. NO RIGHT TO CONTINUE SERVICE. Neither the Plan, this Stock Grant
Certificate, nor any related material shall give Director the right to be
nominated or elected as a member of the Board.

     SS. 8. GOVERNING LAW. The Plan and this Stock Grant Certificate shall be
governed by the laws of the State of Delaware.

     SS. 9. BINDING EFFECT. This Stock Grant Certificate shall be binding upon
Company and Director and their respective heirs, executors, administrators and
successors.

     SS. 10. HEADINGS AND SECTIONS. The headings contained in this Stock Grant
Certificate are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Stock Grant Certificate. All references to
sections in this Stock Grant Certificate shall be to sections of this Stock
Grant Certificate unless otherwise expressly stated as part of such reference.

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<PAGE>

                                    EXHIBIT A

                             IRREVOCABLE STOCK POWER

         As a condition to the issuance to the undersigned of a stock
certificate for the _______ shares of Stock which were granted to the
undersigned as a Stock Grant under the America Service Group Inc. 1999 Amended
and Restated Incentive Stock Plan in the Stock Grant Certificate dated
__________, the undersigned hereby executes this Irrevocable Stock Power in
order to sell, assign and transfer to America Service Group Inc. the shares of
Stock subject to such Stock Grant for purposes of effecting any forfeiture
called for under Section 3(b) of the Stock Grant Certificate and does hereby
irrevocably give America Service Group Inc. the power (without any further
action on the part of the undersigned) to transfer such shares of Stock on its
books and records back to America Service Group Inc. to effect any such
forfeiture. This Irrevocable Stock Power shall expire automatically with respect
to the shares of Stock on the date such shares of Stock are no longer subject to
forfeiture under Section 3(b) of such Stock Grant Certificate or, if earlier,
immediately after such a forfeiture has been effected with respect to such
shares of Stock.

                                      ----------------------------------------
                                      Signature

                                      ----------------------------------------
                                      [Print Name]

                                      ----------------------------------------
                                      Date

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