UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES
EXCHANGE ACT OFof the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Useuse of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X][x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ]
Soliciting Material Pursuant to Rule 14a-12[Section]240.14a-12
HEICO CORPORATION
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(Name of Registrant Asas Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(1) Title of each class of securities to which transaction applies:
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[ ]materials:
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HEICO CORPORATION
3000 TAFT STREET, HOLLYWOOD, FLORIDATaft Street, Hollywood, Florida 33021
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 16, 2007
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Notice of Annual Meeting of Shareholders
To Be Held March 28, 2008
JW Marriott
1109 Brickell Avenue
Miami, FL 33131
The Annual Meeting of Shareholders of HEICO Corporation, a Florida
corporation, will be held on Friday, March 16, 200728, 2008 at 10:00 a.m., Eastern
Daylight Time, at the Conrad Miami Hotel at Espirito Santo Plaza, 1395JW Marriott, 1109 Brickell Avenue, Miami, FloridaFL 33131, for
the following purposes:
1. To elect a Board of Directors for the ensuing year;
2. To approve the HEICO Corporation 2007 Incentive CompensationAmended and Restated 2002 Stock
Option Plan;
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent registered public accounting firm for the fiscal year
ending October 31, 2007;2008; and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only holders of record of HEICO Corporation Common Stock and Class A
Common Stock as of the close of business on January 22, 200725, 2008 will be entitled
to vote at the Meeting.
You are requested, regardlessRequested, Regardless of the numberNumber of shares owned,Shares Owned, to signSign
and dateDate the enclosed proxyEnclosed Proxy and to mailMail it promptly,Promptly, or to use the telephoneUse The Telephone or
Internet voting systems set forthVoting Systems Set Forth in the proxy.Proxy. You may revoke your proxy eitherMay Revoke Your Proxy Either
by a written noticeWritten Notice to HEICO or in personPerson at the meeting (without affecting any
vote previously taken).Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
LAURANSLaurans A. MENDELSONMendelson
Chairman of the Board,
President and Chief Executive Officer
February 16, 200721, 2008
HEICO CORPORATION
3000 TAFT STREET, HOLLYWOOD, FLORIDA 33021
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PROXY STATEMENT
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This Proxy Statement is furnished to the shareholders of HEICO
Corporation ("HEICO" or the "Company") in connection with the solicitation of
proxies by HEICO's Board of Directors for use at the Annual Meeting of
Shareholders of HEICO (the "Annual Meeting") to be held at the Conrad Miami
Hotel at Espirito Santo Plaza, 1395JW Marriott, 1109
Brickell Avenue, Miami, FloridaFL 33131 on Friday, March 16, 200728, 2008 at 10:00 a.m., Eastern
Daylight Time. This Proxy Statement is first being mailed to shareholders on or
about February 20, 2007.28, 2008.
At the annual meeting, the shareholders will be asked to elect a Board
of Directors ("Board"); to approve amendments to the HEICO Corporation 2007 Incentive
Compensation2002 Stock Option Plan; to
ratify the appointment of Deloitte & Touche LLP as the Company's independent
registered public accounting firm for the fiscal year ending October 31, 2007;2008;
and to vote on any other business which properly comes before the meeting.
The Board of Directors of HEICO urges you to promptly date, sign and
mail your proxy, or to use the telephone or Internetinternet voting systems set forth in
the proxy, in the form enclosed with this Proxy Statement, to make certain that
your shares are voted at the meeting. Proxies in the enclosed or other
acceptable form that are received in time for the meeting will be voted.
However, you may revoke your proxy at any time prior to its use by a revocation
in writing or a later dated proxy that is received in sufficient time by HEICO
prior to the Annual Meeting; and, if you attend the meeting, you may vote your
shares in person.
If your proxy is received in time for the meeting, it will be voted in
the manner specified by you in the proxy. If you do not specify a choice, the
proxy will be voted as indicated in the form of proxy.
HEICOWe will bear the expense of soliciting proxies in the accompanying
form. Solicitations will be by mail, and our directors, officers and regular
employees of HEICO may solicit proxies personally or by telephone, telegram or special
letter. HEICOWe will also employ D. F. King & Co., 48 Wall Street, New York, New York
10005, to assist in soliciting proxies for a fee of $6,500$7,000 plus related
out-of-pocket expenses.
Only holders of record of HEICO Common Stock, $0.01 par value per share
(the "Common("Common Stock"), and Class A Common Stock, $0.01 par value per share (the
"Class("Class A
Common Stock"), as of the close of business on January 22, 200725, 2008 will be entitled
to vote at the meeting. On that date, there were outstanding 10,414,77810,565,891 shares
of Common Stock, each entitled to one vote, and 15,134,22315,679,009 shares of Class A
Common Stock, each entitled to 1/10th vote per share.
VOTING REQUIREMENTSVoting Requirements
The presence, in person or by proxy, of the holders of a majority of
the voting power of the shares of all classes of the Company'sHEICO's common stock entitled
to vote shall constitute a quorum at the annual meeting of shareholders. If a
quorum is present, the affirmative vote of a majority of the voting power of the
shares of all classes of the Company'sHEICO's common stock represented in person or by proxy
at the annual meeting and entitled to vote on the subject matter at the annual
meeting shall be required to elect members of the Board of Directors.
A proxy submitted by a shareholder may indicate that all or a portion
of the shares represented by such proxy are not being voted by such shareholder
with respect to a particular matter ("non-voted shares"). This could occur, for
example, when a broker is not permitted to vote shares held in "street name" on
certain matters in the absence of instructions from the beneficial owner of the
shares. Non-voted shares with respect to a particular matter will be counted for
purposes of determining the presence of a quorum but will not be counted as
shares present and entitled to vote on such matter for purposes of voting, and
therefore, will have no effect on matters brought to a vote
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at the annual meeting. Shares voted to abstain as to a particular matter and
directions to "withhold authority" to vote for directors, will be counted for
purposes of determining the presence of a quorum and will be counted as present
and entitled to vote with respect to such matter for purposes of voting, and
therefore, will have the effect of votes against the matters brought to a vote
at the annual meeting.
Under the terms of the HEICO Savings and Investment Plan (the "Plan"("Plan"), all
shares allocated to the accounts of participating employees will be voted or not
voted by the trustee of the Plan as directed by written instructions from the
participating employees, and allocated shares for which no instructions are
received and all unallocated shares will be voted by the trustee of the Plan in
the same proportion as the shares for which instructions are received. Voting
instruction cards are being mailed to all participants in the Plan. If a
participant also owns shares outside the Plan, the participant must return both
the proxy card and the voting instruction card as indicated on those cards in
order to cause all of their shares to be voted in accordance with their
instructions. To be assured that the trustee will receive voting instruction
cards on a timely basis, voting instruction cards for shares in the Plan must be
duly signed and received no later than March 13, 2007.21, 2008. The total number of
shares in the Plan as of the record date represents approximately 8.1%7.3% of the
voting power of all classes of common stock outstanding as of the record date
and entitled to vote at the annual meeting.
Internet Availability of Proxy Materials and Annual Report
This Proxy Statement and our 2007 Annual Report are also available on our
web site at www.heico.com under the heading "Investor Relations."
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VOTING SECURITIES OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of HEICO Common Stock and Class A Common Stock as of January 22, 200725, 2008
by (i) each person who is known to the Companyus to be the beneficial owner of more than 5%
of the outstanding Common Stock or Class A Common Stock; (ii) the Chief
Executive Officer, Chief Financial Officer and the other fourthree most highly
compensated executive officers; (iii) each of the directorsmembers of the Company;Board of
Directors; and (iv) all directors and executive officers of the Company as a
group. Except as set forth below, the shareholders named below have sole voting
and investment power with respect to all shares of Common Stock and Class A
Common Stock shown as being beneficially owned by them.
SHARES BENEFICIALLY OWNEDShares Beneficially Owned (2)
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CLASS-----------------------------------------------
Class A
COMMON STOCK COMMON STOCK
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NAME AND ADDRESS OF BENEFICIAL OWNERCommon Stock Common Stock
--------------------- ---------------------
Name and Address of Beneficial Owner (1) NUMBER PERCENT NUMBER PERCENTNumber Percent Number Percent
- ---------------------------------------------------------------------- ---------- ---------- ---------- -------------------------------------------------- --------- ------- --------- -------
(a) Certain beneficial owners:
Mendelson Reporting Group (3) ........................................ 2,503,527 22.54% 390,191 2.54%......................................... 1,987,823 17.75% 397,120 2.51%
Dr. Herbert A. Wertheim (4) ..................................................................................... 1,136,176 10.91%10.75% 1,132,196 7.48%7.22%
Royce & Associates, LLC (5) .......................................... -- -- 1,504,937 9.94%
Renaissance Technologies Group1,266,437 8.08%
Next Century Growth Investors, LLC (6) ................................... 833,800 8.01%............................... 843,606 7.98% -- --
Susquehanna Investment GroupEagle Asset Management, Inc. (7) ..................................... 838,403 7.93% -- -- 1,196,029 7.90%
JPMorgan Chase & Co. (8) ............................................. 700,220 6.72% -- --
Investment Counselors of Maryland, LLC (9) ........................... -- -- 976,856 6.45%
Baron Reporting Group (10) ...........................................(8)............................................. -- -- 932,900 6.16%5.95%
Barclays Global Reporting Group (11) ................................ 552,046 5.30%(9) .................................. 628,340 5.95% -- --
Renaissance Technologies LLC (10) .................................... 586,100 5.55% -- --
Rene Plessner Reporting Group (12)(11) ................................... 540,497 5.19%5.12% -- --
T. Rowe Price Associates, Inc. (13) .................................. -- -- 760,720 5.03%
(b) Directors:
Samuel L. Higginbottom ............................................... 5,749 * 200Higginbottom................................................ -- -- 2,830 *
Wolfgang Mayrhuber (14)(12) .............................................. 31,313 * 23,13724,333 *
Eric A. Mendelson (15)(13) ............................................... 731,515 6.81% 172,714 1.13%447,191 4.11% 179,504 1.14%
Laurans A. Mendelson (16)(14) ............................................ 1,373,521 13.13% 147,6821,108,524 10.49% 149,024 *
Victor H. Mendelson (17)(15) ............................................. 713,055 6.64% 199,213 1.31%432,108 3.97% 198,010 1.26%
Albert Morrison, Jr. (18)(16) ............................................ 19,864 * 15,07816,274 *
Joseph W. Pallot ..................................................... 1,316 * *1,196 *
Dr. Alan Schriesheim (19) ............................................ 112,180 1.07% 97,995(17)............................................. 90,742 * 99,191 *
Frank J. Schwitter ................................................... * * *-- -- 1,077 *
(c) Executive officers listed in Summary Compensation Table
who are not directors:
Thomas S. Irwin (20) ................................................. 503,789 4.74% 100,278(18).................................................. 370,542 3.45% 70,959 *
William S. Harlow (19) ............................................... 241 * 1,919 *
All directors and executive officers as a group (11 persons) (21)(20) .... 3,188,192 27.82% 637,334 4.11%2,501,841 21.72% 614,899 3.86%
All directors, executive officers, the HEICO Savings and
Investment Plan and the Mendelson Reporting Group as a
group (22)(21) ........................................................ 3,973,111 34.67% 1,352,530 8.71%3,214,271 27.91% 1,263,512 7.92%
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* Represents ownership of less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner identified
is c/o HEICO Corporation, 3000 Taft Street, Hollywood, Florida 33021.
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(2) The number of shares of Common Stock and Class A Common Stock deemed
outstanding as of January 22, 200725, 2008 includes (i) 10,414,77810,565,891 shares of Common
Stock; (ii) 15,134,22315,679,009 shares of Class A Common Stock; and (iii) shares
issuable upon exercise of stock options held by the respective person or
group which are presently exercisable or which may be exercised within 60
days after January 22, 200725, 2008 as set forth below. Pursuant to the rules of
the Securities and Exchange Commission, presently exercisable stock options
and stock options that become exercisable within 60 days are deemed to be
outstanding and beneficially owned by the person or group for the purpose
of computing the percentage ownership of such person or group, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person or group.
(3) The Mendelson Reporting Group consists of Laurans A. Mendelson; Eric A.
Mendelson; Victor H. Mendelson; Mendelson International Corporation, a
corporation whose stock is owned solely by Eric and Victor Mendelson and
whose Chairman of the Board is Laurans A. Mendelson; LAM Limited Partners,
a partnership whose sole general partner is a corporation controlled by
Arlene Mendelson, the wife of Laurans A. Mendelson; LAM Alpha Limited
Partners, a partnership whose sole general partner is a corporation
controlled by Laurans A. Mendelson; EAM Management Limited Partners, a
partnership whose sole general partner is a corporation controlled by Eric
A. Mendelson; VHM Management Limited Partners, a partnership whose sole
general partner is a corporation controlled by Victor H. Mendelson; and the
Victor H. Mendelson Revocable Investment Trust, whose grantor, sole
presently vested beneficiary and trustee is Victor H. Mendelson. Includes
691,000633,000 shares of Common Stock and 212,601115,968 shares of Class A Common Stock
subject to stock options that are presently exercisable or exercisable
within 60 days after January 22, 2007.25, 2008. See Notes (15)(13), (16)(14) and (17)(15)
below. The address of the Mendelson Reporting Group is 825 Brickell Bay
Drive, 16th Floor, Miami, Florida 33131.
(4) The address of Dr. Wertheim is 191 Leucadendra Drive, Coral Gables,
Florida 33156.
(5) Based on information in a Schedule 13G/A filed on January 22, 2007,February 1, 2008, all
shares are held in portfolios of certain mutual funds and/or institutional
accounts managed by Royce & Associates, LLC, a registered investment
advisor. The address of Royce & Associates, LLC is 1414 Avenue of the
Americas, New York, New York 10019.
(6) Based on information in a Schedule 13G filed on February 12, 2007,14, 2008, all
shares are beneficially owned by Renaissance Technologies Corp., anNext Century Growth Investors, LLC, a
registered investment advisor, and James H. Simons,Thomas L. Press and Donald M. Longlet,
control personpersons of Renaissance
Technologies Corp.Next Century Growth Investors, LLC. The address of Renaissance Technologies Corp.Next
Century Growth Investors, LLC, Thomas L. Press and James
H. SimonsDonald M. Longlet is
800 Third Avenue, New York, New York 10022.5500 Wayzata Blvd., Suite 1275, Minneapolis, Minnesota 55416.
(7) Based on information in a Schedule 13G dated January 22, 2008, all shares
are beneficially owned by Eagle Asset Management, Inc., a registered
investment advisor. The address of Eagle Asset Management, Inc. is 880
Carillon Parkway, St. Petersburg, Florida 33716.
(8) Based on information in a Schedule 13G/A filed on February 7, 2007, all
shares are held by Susquehanna Investment Group, registered brokers or
dealers. The address of Susquehanna Investment Group is 401 City Avenue,
Suite 220, Bala Cynwyd, Pennsylvania 19004.
(8) Based on information in a Schedule 13G filed on February 8, 2007, by
JPMorgan Chase & Co., a parent holding company, and on behalf of its wholly
owned subsidiaries (i) JPMorgan Chase Bank, National Association; (ii) J.P.
Morgan Investment Management Inc.; and (iii) JPMorgan Investment Advisors
Inc. The address of JPMorgan Chase & Co. is 270 Park Avenue, New York, New
York 10017.
(9) Based on information in a Schedule 13G filed on February 6, 2007, all
shares are held in portfolios of advisory clients of Investment Counselors
of Maryland, LLC, a registered investment advisor. The address of
Investment Counselors of Maryland, LLC is 803 Cathedral Street, Baltimore,
Maryland 21201.
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(10) Based on information in a Schedule 13G filed on February 14, 2007,2008, all
shares are beneficially owned by Baron Capital Group, Inc. ("BCG") and
Ronald Baron, parent holding companies; BAMCO, Inc., a registered
investment advisor; and Baron Small Cap Fund, a registered investment
company (collectively, "Baron Reporting Group"). BCG and Ronald Baron
disclaim beneficial ownership of shares held by their controlled entities
(or the investment advisory clients thereof) to the extent such shares are
held by persons other than BCG and Ronald Baron. BAMCO, Inc. disclaims
beneficial ownership of shares held by its investment advisory clients to
the extent such shares are held by persons other than BAMCO, Inc. and its
affiliates. The address of Baron Reporting Group is 767 Fifth Avenue, New
York, New York 10153.
(11)(9) Based on information in a Schedule 13G filed on January 23, 2007,February 5, 2008, reflects
257,070272,743 shares of Common Stock held by Barclays Global Investors, NA, a
bank, and 294,976354,697 shares of Common Stock held by Barclays Global Fund Advisors,
a registered investment advisor.advisor, and 900 shares of Common Stock held by
Barclays Global Investors, LTD, a bank (collectively, "Barclays Global
Reporting Group"). The address of Barclays Global Investors, NA and
Barclays Global Fund Advisors is 45 Fremont Street, San Francisco,
California 94105. (12)The address of Barclays Global Investors, LTD is Murray
House, 1 Royal Mint Court, London, EC3N 4HH.
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(10) Based on information in a Schedule 13G/A filed on February 13, 2008, all
shares are beneficially owned by Renaissance Technologies LLC., an
investment advisor, and James H. Simons, control person of Renaissance
Technologies LLC. The address of Renaissance Technologies LLC and James H.
Simons is 800 Third Avenue, New York, New York 10022.
(11) Based on information in a Schedule 13D dated February 24, 2002 filed by
Mr. Plessner individually and as sole Trustee for the Rene Plessner
Associates, Inc. Profit Sharing Plan. Reflects 107,127 shares of Common
Stock held by Mr. Plessner and 433,370 shares of Common Stock held by the
Rene Plessner Associates, Inc. Profit Sharing Plan, an employee profit
sharing plan of Rene Plessner Associates, Inc., an executive search
company. The address of Rene Plessner Reporting Group is 200 East 74th
Street, Penthouse A, New York, New York 10021.
(13) Based on information in a Schedule 13G filed on February 13, 2007, all
shares are beneficially owned by T. Rowe Price Associates, Inc., a
registered investment advisor. The address of T. Rowe Price Associates,
Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.
(14)(12) Includes 30,000 shares of Common Stock and 20,930 shares of Class A Common
Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007.
(15)25, 2008.
(13) Includes 157,282 shares of Common Stock and 64,709 shares of Class A Common Stock held by Mendelson
International Corporation; 82,360 shares of Common Stock held by EAM
Management Limited Partners; 323,000316,500 shares of Common Stock and 83,87957,984
shares of Class A Common Stock subject to stock options that are presently
exercisable or exercisable within 60 days after January 22, 2007; 20,19025, 2008; 20,435
shares of Common Stock and 19,09919,235 shares of Class A Common Stock held by
the HEICO Savings and Investment Plan and allocated to Eric A. Mendelson's
account; and 950 shares of Common Stock and 1,094 shares of Class A Common
Stock owned by Eric A. Mendelson's children. See Note (3) above.
(16)(14) Laurans A. Mendelson disclaims beneficial ownership with respect to 157,282
shares of Common Stock and 64,709
shares of Class A Common Stock,
respectively, of these shares, which are held in the name of Mendelson
International Corporation and 45,441 shares of Common Stock and 13,175
shares of Class A Common Stock, which were donated to and are presently
held by the Laurans A. and Arlene H. Mendelson Charitable Foundation,
Inc., of which Mr. Mendelson is President. Includes 1,099,7881,036,796 shares of
Common Stock and 23546,278 shares of Class A Common Stock held solely by Mr.
Mendelson or LAM Limited Partners or LAM Alpha Limited Partners. Also
includes 45,00026,287 shares of Common Stock and 44,843 shares of Class A Common Stock subject to
stock options that are presently exercisable or exercisable within 60 days
after January 22, 2007 and 26,010 shares of Common Stock and 24,72024,862 shares of Class A Common
Stock held by the HEICO Savings and Investment Plan and allocated to
Laurans A. Mendelson's account. See Notes (3), (13) and (15).
(15) and (17).
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(17) Includes 157,282 shares of Common Stock and 64,709 shares of Class A Common Stock held by Mendelson
International Corporation; 36,180 shares of Common Stock held by VHM
Management Limited Partners; 323,000316,500 shares of Common Stock and 83,87957,984
shares of Class A Common Stock subject to stock options that are presently
exercisable or exercisable within 60 days after January 22, 200725, 2008 of which
30,000 shares of Common Stock are held by the Victor H. Mendelson
Revocable Investment Trust; 16,53216,763 shares of Common Stock and 15,54915,685
shares of Class A Common Stock held by the HEICO Savings and Investment
Plan and allocated to Victor H. Mendelson's account; and 1,000 shares of
Common Stock and 1,1101,100 shares of Class A Common Stock owned by Victor H.
Mendelson's children. See Note (3) above.
(18)(16) Includes 10,000 shares of Common Stock and 1,000 shares of Class A Common
Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007.25, 2008. Albert Morrison, Jr.'s
voting and dispositive power with respect to 6,966 shares of Common Stock
and 8,516 shares of Class A Common Stock is held indirectly through
Sheridan Ventures, Inc., a corporation of whichowned by Mr. Morrison is the
President, but not a shareholder.
(19)Morrison's wife.
(17) Includes 111,18290,182 shares of Common Stock and 95,795 shares of Class A Common
Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 200725, 2008, and includes 2,200
shares of Class A Common Stock held by the estate of Dr. Schriesheim's
wife.
(20)(18) Includes 202,499189,000 shares of Common Stock and 56,85536,434 shares of Class A
Common Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 200725, 2008 and 34,15934,459 shares of
Common Stock and 32,71032,845 shares of Class A Common Stock held by the HEICO
Savings and Investment Plan and allocated to Thomas S. Irwin's account.
(21)5
(19) Includes 1,044,681156 shares of Common Stock and 387,181includes 1,838 shares of Class A
Common Stock held by the HEICO Savings and Investment Plan and allocated
to William S. Harlow's account and 85 shares of Common Stock and 81 shares
of Class A Common Stock owned by Mr. Harlow's wife.
(20) Includes 952,182 shares of Common Stock and 270,127 shares of Class A
Common Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007.25, 2008. The total for all
directors and executive officers as a group (11 persons) also includes
96,89198,100 shares of Common Stock and 92,07894,465 shares of Class A Common Stock
held by the HEICO Savings and Investment Plan and allocated to accounts of
the executive officers pursuant to the Plan.
(22)(21) Includes 2,503,5271,987,823 shares of Common Stock and 390,191397,120 shares of Class A
Common Stock owned by the Mendelson Reporting Group and 881,810810,530 shares of
Common Stock and 807,274743,078 shares of Class A Common Stock held by the HEICO
Savings and Investment Plan of which 711,839664,456 shares of Common Stock and
626,128581,466 shares of Class A Common Stock are allocated to participants in
the Plan, including 96,89198,100 shares of Common Stock and 92,07894,465 shares of
Class A Common Stock allocated to the directors and executive officers as
a group, and of which 169,971146,074 shares of Common Stock and 181,146161,612 shares of
Class A Common Stock are unallocated as of January 22, 2007.25, 2008.
6
PROPOSAL TO ELECT DIRECTORS
(Proposal No. 1)
Each of the nine individuals named in the table below has been
nominated by the Board of Directors of the Company for election to the Board of
Directors at the Annual Meeting to serve until the next annual meeting or until
his successor is elected and qualified. All of the nominees are currently
serving on the Board of Directors. The Board of Directors has no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve.
NAME AGE CORPORATE OFFICE OR POSITION DIRECTOR SINCEName Age Corporate Office or Position Director Since
- ---------------------- ---- ------------------------------------------------------- ---------------------------- --------------
Samuel L. Higginbottom 8586 Director 1989
Wolfgang Mayrhuber 5960 Director 2001
Eric A. Mendelson 4142 President - Flight Support Group; 1992
President and Chief Executive Officer of HEICO
Aerospace Holdings Corp; and Director
Laurans A. Mendelson 6869 Chairman of the Board; President and Chief Executive 1989
Officer; and Director
Victor H. Mendelson 3940 President - Electronic Technologies Group 1996
and General Counsel of the Company; President
and Chief Executive Officer of HEICO Electronic
Technologies Corp.; and Director
Albert Morrison, Jr. 7071 Director 1989
Joseph W. Pallot 4648 Director 2004
Dr. Alan Schriesheim 7677 Director 1984
Frank J. Schwitter 7374 Director 2006(1)2006
(1) Mr. Schwitter was appointed as a member of the Board of Directors on
December 18, 2006.
BUSINESS EXPERIENCE OF NOMINEESBusiness Experience Of Nominees
Samuel L. Higginbottom is a retired executive officer of Rolls Royce,
Inc. (an aircraft engine manufacturer), where he served as Chairman, President
and Chief Executive Officer from 1974 to 1986. He was the Chairman of the
Columbia University Board of Trustees from 1982 until September 1989. He was
President, Chief Operating Officer and a director of Eastern Airlines, Inc.,
from 1970 to 1973 and served in various other executive capacities with that
company from 1964 to 1969. Mr. Higginbottom was a director of British Aerospace
Holdings, Inc., an aircraft manufacturer, from 1986 to 1999 and was a director
of AmeriFirst Bank from 1986 to 1991. He is a Trustee Emeritus of St. Thomas
University, Miami, Florida. Mr. Higginbottom is considered an "independent"
Director under New York Stock Exchange rules.
Wolfgang Mayrhuber was elected to the Board of Directors in 2001 after
serving as Advisor to the Board of Directors of the Company since 1997. Mr.
Mayrhuber has served as Chairman of the Executive Board and Chief Executive
Officer of Deutsche Lufthansa AG ("Lufthansa") since June 2003. He has served
with Lufthansa since 1970, and has held various senior management positions for
the maintenance and overhaul of aircraft, components and engines. In 1992, Mr.
Mayrhuber was appointed Executive Vice President and Chief Operating Officer
Technical at Lufthansa. In 1994, he became Chairman of the Executive Board of
Lufthansa Technik AG. In 2001, Mr. Mayrhuber was appointed to the Executive
Board of Deutsche Lufthansa AG. Mr. Mayrhuber is also a member of the
supervisory boards of BMW AG, Eurowings Luftverkehrs AG and a number of
Lufthansa affiliates. Mr. Mayrhuber is considered an "independent" Director
under New York Stock Exchange rules.
7
Eric A. Mendelson has been an employee of the Company since 1990,
serving in various capacities. Mr. Mendelson has served as Executive Vice
President of the Company since 2001, President and Chief Executive Officer of
HEICO Aerospace Holdings Corp., a subsidiary of HEICO, since its formation in
1997 and President of HEICO Aerospace Corporation since 1993. Mr. Mendelson is a
co-founder, and, since 1987, has been Managing Director of Mendelson
International Corporation, a private investment company, which is a shareholder
of HEICO. Mr. Mendelson currently serves as a Trustee and Member of the Society
of Mt. Sinai Founders of Mt. Sinai Medical Center in Miami Beach, Florida. Eric
Mendelson is the son of Laurans Mendelson and the brother of Victor Mendelson.
Eric Mendelson is considered an "inside" Director under New York Stock Exchange
rules.
Laurans A. Mendelson has served as Chairman of the Board of the Company
since December 1990. He has also served as Chief Executive Officer of the
Company since February 1990 and President of the Company since September 1991.
HEICO Corporation is a member of the Aerospace Industries Association ("AIA") in
Washington D.C., and Mr. Mendelson frequently serves on the Board of Governors
of AIA. He is also Chairman of the Board of Trustees, Chairman of the Executive
Committee and member of the Society of Mt. Sinai Founders of Mt. Sinai Medical
Center in Miami Beach, Florida. In addition, Mr. Mendelson served as a Trustee
of Columbia University in The City of New York from 1995 to 2001, as well as
Chairman of the Trustees' Audit Committee. Mr. Mendelson currently serves as
Trustee Emeritus of Columbia University. Mr. Mendelson is a Certified Public
Accountant. Laurans A. Mendelson is the father of Eric Mendelson and Victor
Mendelson. Laurans Mendelson is considered an "inside" director under New York
Stock Exchange rules.
Victor H. Mendelson has been associated with the Company since 1990,
serving in various capacities. Mr. Mendelson has served as Executive Vice
President of the Company since 2001, President and Chief Executive Officer of
HEICO Electronic Technologies Corp., a subsidiary of HEICO, since September 1996
and as General Counsel of the Company since 1993. He was the Chief Operating
Officer of the Company's former MediTek Health Corp. subsidiary from 1995 until
its profitable sale in 1996. Mr. Mendelson is a co-founder, and, since 1987, has
been President of Mendelson International Corporation, a private investment
company which is a shareholder of HEICO. He is a Trustee of the Greater Miami
Chamber of Commerce, a Trustee of St. Thomas University in Miami Gardens,
Florida and a Director of the Florida Grand Opera. Victor Mendelson is the son
of Laurans Mendelson and the brother of Eric Mendelson. Victor Mendelson is
considered an "inside" director under New York Stock Exchange rules.
Albert Morrison, Jr. is Chairman Emeritus of Morrison, Brown, Argiz &
Company,Farra, LLP a certified public accounting firm located in Miami, Florida, where
he served as Chairman from 1971 to January 2003. He serves as the Chairman of
the Miami-Dade County Industrial Development Authority. Mr. Morrison also serves
as a director of Logic Devices, Inc., a computer electronics company, and as a
member of the Board of Directors of the Florida International University
Foundation. Mr. Morrison is considered an "independent" Director under New York
Stock Exchange rules.
Joseph W. Pallot has been a Shareholder of Devine Goodman Pallot &
Wells, P.A., a Miami, Florida-based transactional and litigation boutique law
firm since 2000. From 1993 to 2000 he was a Partner of the law firm of Steel
Hector & Davis LLP. Mr. Pallot also serves on the board of directors and
executive committee of the Beacon Council (Miami-Dade County, Florida's official
economic development organization). Mr. Pallot is considered an "independent"
Director under New York Stock Exchange rules.
Dr. Alan Schriesheim is retired from the Argonne National Laboratory,
where he served as Director from 1984 to 1996. From 1983 to 1984, he served as
Senior Deputy Director and Chief Operating Officer of Argonne. From 1956 to
1983, Dr. Schriesheim served in a number of capacities with Exxon Corporation in
research and administration, including positions as General Manager of the
Engineering Technology Department for Exxon Research and Engineering Co. and
Director of Exxon's Corporate Research Laboratories. Dr. Schriesheim is also a
member of the Board of the Children's Memorial Hospital of Chicago, Illinois.
Dr. Schriesheim is considered an "independent" Director under New York Stock
Exchange rules.
8
Frank J. Schwitter has been engaged principally as a consultant for law
and accounting firms since 1998. From 1996 to 1998, Mr. Schwitter served as
Senior Business Advisor and Technical Consultant to Prasetio Utomo & Co. in
Indonesia. Prior to 1996, Mr. Schwitter served 38 years with Arthur Andersen
LLP, where he was a partner and the Managing Director of the Firm's
International Business Program from 1982 to 1996. Mr. Schwitter also served as
an officer and director of a number of business organizations including the
Foreign Policy Association, the Business Council for International
Understanding, Council of the Americas, the Long Island Association of Business
and the Huntington Chamber of Commerce. From 1998 to 2003, Mr. Schwitter served
on the Technical Standards Committee of the American Institute of Certified
Public Accountants ("AICPA") and he remains a member of the AICPA. Mr. Schwitter
is a Certified Public Accountant in New York State. Mr. Schwitter is considered
an "independent" Director under New York Stock Exchange rules.
CORPORATE GOVERNANCE, BOARD COMMITTEES AND MEETINGSCorporate Governance, Board Committees and Meetings
During the fiscal year ended October 31, 2006,2007, the Board of Directors
held foursix meetings. The Board of Directors has determined that Mr. Higginbottom,
Mr. Mayrhuber, Mr. Morrison, Mr. Pallot, Dr. Schriesheim and Mr. Schwitter have
met the standards of independence as set forth in the Company's Corporate
Governance Guidelines, which are consistent with the standards established by
the New York Stock Exchange.
The full Board of Directors discussed and reviewed whether each
Director was "independent" under New York Stock Exchange ("NYSE") rules. The
CompanyBoard of Directors has used these rules to determine whether aeach Director is
independent. These rules state that a Director who has a "material" relationship
with the Company will be deemed an "inside" or "non-independent" Director. As
MessersLaurans, Eric and Victor Mendelson are all employed in executive positions with
the Company, they are deemed "inside" or "non-independent" Directors. Under NYSE rules, all other
members of the Board are "independent," as they and their employers lack
material relationships with the Company. The Board reviewed and confirmed this
conclusion.
As noted above, Mr. Mayrhuber is Chairman of the Executive Board and
Chief Executive Officer of Lufthansa. A Lufthansa subsidiary is a customer of
the Company's Flight Support Group and owns 20% of the Flight Support Group.
As
HEICO'sHowever, the Company's sales to Lufthansa and all of its subsidiaries
constituted less than 2% of Lufthansa's consolidated annual revenues, Mr. Mayrhuber is an "independent"
Director under NYSE rules and, the Company's Board came to the same conclusion,
as, in
addition, to the foregoing and among other reasons, neither Lufthansa nor Mr. MayhuberMayrhuber receive any remuneration from HEICO,the
Company other than Mr. Mayhuber'sMayrhuber's standard Directors fees paid to him for
service as a Directormember of the Board of Directors of the Company. As a result, the
Board of Directors concluded that Mr. Mayrhuber is an "independent" Director
under NYSE rules.
As all other members of the Board and their employers lack material
relationships with the Company, they are deemed "independent" under NYSE rules.
The Board of Directors reviewed and confirmed these conclusions.
The Board of Directors has the following standing committees: an
Executive Committee, a Nominating and Corporate Governance Committee, a
Compensation Committee, a Finance/Audit Committee, an Environmental, Safety and
Health Committee, and a Stock Option Plan Committee. From time to time, special
committees for a limited purpose and duration may be established. Committee
member appointments to the standing committees are re-evaluated annually and
approved by the Board of Directors at its next regularly scheduled meeting that
follows the annual meeting of shareholders. Information regarding each of the
currentstanding committees is as follows:
The Executive Committee has such powers as are delegated by the Board
of Directors, which may be exercised while the Board of Directors is not in
session, provided such powers are not in conflict with specific powers conferred
to other committees or are otherwise contrary to law. The Executive Committee
did not meetmet one time in fiscal 20062007 and its members consist of Mr. Laurans Mendelson
(Committee Chairman), Mr. Mayrhuber, Mr. Higginbottom and Dr. Schriesheim.
The Nominating and Corporate Governance Committee assists the Board of
Directors in identifying and recommending to the Board qualified individuals to
be nominated as director; makes recommendations concerning committee membership,
appointments and director compensation; periodically reviews and recommends to
the Board of Directors updates to the Company's Corporate Governance Guidelines;
assists the Board and the Company in interpreting and applying the Company's
Corporate Governance Guidelines and Code of Business Conduct; and oversees the
annual evaluation of management and of the Board of Directors. The Nominating
and Corporate
9
Governance Committee met two times in fiscal 20062007 and its members consist of Mr.
Higginbottom (Committee Chairman), Mr. Morrison and Dr. Schriesheim.
9
Prior to nominating an existing director for re-election to the Board
of Directors, the Nominating and Corporate Governance Committee will consider
the existing director's independence, if required, skills, performance and
meeting attendance. The Nominating and Corporate Governance Committee will
consider candidates recommended by shareholders (see the caption "Shareholder
Proposals and Nominations" contained herein). In evaluating candidates for
potential director nomination, the Nominating and Corporate Governance Committee
will consider, among other things, candidates that are independent, if required;
who possess personal and professional integrity; have good business judgment,
relevant experience and skills; and who would be effective as a director in
conjunction with the full Board of Directors in collectively serving the
long-term interests of the Company'sour shareholders. All candidates will be reviewed in the
same manner, regardless of the source of recommendation.
The Compensation Committee reviews and approves compensation of the
Company'sour
officers, key employees and directors. In addition, the Compensation Committee
reviews and discusses with management the Compensation Discussion and Analysis
and based on the review and discussion, recommends its inclusion in the proxy
statement. The Compensation Committee met fourtwo times in fiscal 20062007 and its
members consist of Mr. Higginbottom (Committee Chairman), Mr. Morrison and Dr.
Schriesheim. The Board of Directors has determined that each member of the
Compensation Committee is independent in accordance with the New York Stock
Exchange's listing standards. The annual
report of the Compensation Committee regarding
Compensation Discussion and Analysis is contained herein.
The Finance/Audit Committee oversees the quality and integrity of theour
accounting, auditing, internal control and financial reporting practices, of the
Company,
including the appointment, compensation, retention and oversight of the work of
the Company'sour independent auditor. The Finance/Audit Committee also advises the Board of
Directors regarding transactions presenting a potential conflict of interest
between the Company and any member of the Board of Directors or any executive
officer. The Finance/Audit Committee met fivefour times in fiscal 20062007 and its
members consist of Mr. Morrison (Committee Chairman), Mr. Higginbottom, Mr.
Pallot, Dr. Schriesheim and Mr. Schwitter. Mr. Schwitter joined the
Finance/Audit Committee in December 2006. The Board of Directors has determined
that each member of the Finance/Audit Committee is "financially literate" and
"independent" in accordance with the New York Stock Exchange's listing standards
and that Mr. Morrison is an "audit committee financial expert", as defined by
the Securities and Exchange Commission. The annual report of the Finance/Audit
Committee is contained herein.
The Environmental, Safety and Health Committee meets with the Company'sour senior
management and oversees compliance in all matters relating to federal and state
environmental, safety and health regulations. The Environmental, Safety and
Health Committee met three timesone time in fiscal 20062007 and its members consist of Dr.
Schriesheim (Committee Chairman), Mr. Mayrhuber, Mr. Eric Mendelson and Mr.
Victor Mendelson. The Environmental, Safety and Health Committee also visits Companyour
operating locations on a periodic basis.
The Stock Option Plan Committee administers the Company'sour stock option plans and
has authority to grant options, to determine the persons to whom and the times
at which options are granted, and to determine the terms and provisions of each
grant. The Stock Option Plan Committee did not meet in fiscal 20062007 and its
members consist of Mr. Morrison (Committee Chairman) and Mr. Higginbottom.
All Board of Directors Committee Charters, Corporate Governance
Guidelines, as well as HEICO's Code of Ethics and Business Conduct are located
on HEICO's web site at www.heico.com or in print upon written request to the
Corporate Secretary at the Company's headquarters.
Each of the directors attended 75% or more of the meetings of the Board
of Directors and committees on which hethey served in fiscal 2006. The Company does2007. We do not have
a formal policy regarding attendance by members of the Board of Directors at the
annual meeting of shareholders, but it encourageswe encourage directors to attend and
historically, most have done so. All of the then eightnine members of the Board of Directors
attended the 20062007 annual shareholder meeting.
The non-managementindependent directors meet at least once per year in an executive
session. The non-managementindependent directors elect a presiding director for each executive
session among the chairs of the committees of the Board committees on a rotating basis.
10
COMPENSATION OF DIRECTORSCompensation Committee Interlocks and Insider Participation
Mr. Higginbottom, Mr. Morrison and Dr. Schrieschein served as members
of the Compensation Committee during fiscal 2007. No member of the Compensation
Committee was an officer or employee of our Company during fiscal 2007 or was
formally an officer of our Company. During the year ended October 31, 2007, none
of our executive officers served on the board of directors or compensation
committee of any other entity whose directors or executive officers served
either on our Board of Directors or on our Compensation Committee.
Compensation of Directors
Directors of the Company receive an annual retainer of $75,000$85,000 and are
required to purchase shares of HEICO common stock equivalent to one-half of the
annual retainer ($37,500)42,500). The Company accrues one-half of each directors'
annual retainer and periodically purchases HEICO common stock on behalf of
directors.
Directors are paid a fee of $2,000 for each regular Board of Directors
meeting attended and members of committees of the Board of Directors are paid a
$6,500$7,500 annual retainer for each committee served and $1,200 for attendance at
each committee meeting or site visit. In addition, committee chairmen are paid
an annual retainer of $2,500 for each committee chaired. During fiscal 2006, an
aggregate of $508,100 was paid or accrued to directors under the compensation
arrangements described above (including $115,000 to Samuel Higginbottom, $82,100
to Wolfgang Mayrhuber, $109,700 to Albert Morrison, Jr., $78,000 to Joseph
Pallot and $123,300 to Dr. Alan Schriesheim), excluding amounts to Laurans A.
Mendelson, Eric A. Mendelson and Victor H. Mendelson, which are reported in the
Summary Compensation Table.
The Directors' Retirement Plan, which was adopted in 1991 in order to
facilitate Director retirements and covered the then current directors of the
Company, was amended as of November 2003 to effectively freeze vested benefits.
Four of the current nine Directors are covered under the Directors' Retirement
Plan. Under the Directors' Retirement Plan, as amended, the four current
Directors who are participants will receive annually the average retainer
($19,000) such Director was paid during his service as a member of the Board of
Directors payable in quarterly installments. At the election of such Director,
these quarterly payments begin either at age 70 or upon retirement from the
Board of Directors and continue for the same period of time that the participant
served on the Board of Directors, not to exceed ten years. During fiscal 2006,
$64,1842007,
$20,000 was accrued pursuant to the Directors' Retirement Plan, while amounts
totaling $69,500$56,000 were paid, including $19,000$18,000 to a retired director.
Director Compensation Table
The table below summarizes the compensation paid to our non-employee
directors during fiscal 2007.
Nonqualified
Deferred
Fees Earned or Option Compensation All Other
Name Paid in Cash Awards (1) Earnings (2) Compensation (3) Total
- ---------------------- -------------- ----------- --------------- ---------------- --------
Samuel L. Higginbottom $154,551 $-- $-- $19,000 $173,551
Wolfgang Mayrhuber 107,161 -- 61,686 -- 168,847
Albert Morrison, Jr. 145,029 -- -- -- 145,029
Joseph W. Pallot 102,664 -- -- -- 102,664
Dr. Alan Schriesheim 158,626 -- -- 19,000 177,626
Frank J. Schwitter 93,677 -- -- -- 93,677
- ----------------------------------
(1) No stock options were granted to any Directors in fiscal 2007. As of
October 31, 2007, each of our non-employee directors held the following
number of options: Samuel L. Higginbottom held no options; Wolfgang
Mayrhuber held options for 30,000 shares of Common Stock and $19,000
to20,930 shares
of Class A Common Stock; Albert Morrison Jr. held options for 10,000
shares of Common Stock and 1,000 shares of Class A Common
11
Stock; Joseph W. Pallot held no options; Dr. Alan Schriesheim.
RECOMMENDATIONSchriesheim held options
for 111,182 shares of Common Stock and 95,795 shares of Class A Common
Stock; and Frank J. Schwitter held no options. The Company recognized no
compensation costs in fiscal 2007 for financial reporting purposes in
accordance with Statement of Financial Accounting Standards No. 123(R) for
stock options granted to Directors prior to fiscal 2007.
(2) Represents earnings from the Company's two non-qualified deferred
compensation plans as described within the "Executive Compensation"
section under the caption "Non-qualified Deferred Compensation" below.
(3) Represents payments made from the Directors' Retirement Plan. The
aggregate value of perquisites and other personal benefits is less than
$10,000 per non-employee director.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE
NOMINEES.
12
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis should be read in
conjunction with the various compensation tables contained elsewhere in this
proxy statement. References to our "named executive officers" in this Analysis
are to the same persons set forth in the compensation tables.
Compensation Objectives
The Compensation Committee of the Board of Directors (the "Committee")
subscribes to the overall philosophy that our compensation policies should
accomplish three simple objectives. The objectives are:
1. Compensate our executives fairly;
2. Motivate our executives to grow our Company's revenue, profits,
cash flow and market capitalization; and
3. Retain our executives and have the ability to attract new ones as
needed.
Compensation Overview
In establishing compensation to meet these goals, the members of the
Committee rely on their judgment as business people established over long
careers as executives. The Committee is mindful of HEICO's performance since the
current executive team took office more than 18 years ago. When the current
executive team took over management of the Company in 1990, our sales were
$26,239,000 for that fiscal year and we reported income from continuing
operations of $1,961,000.
Since that time, with the exception of two years following the
September 11, 2001 attacks wherein the commercial aviation industry went into an
immediate and substantial decline, or periods in which we sold operating
businesses for a profit, our sales and income have consistently grown to the
point that, in fiscal 2007, we reported $507,924,000 and $39,005,000 in sales
and net income, respectively. This increase equates to a compound annual growth
rate of 19% in both sales and net income over that 17 year period. The Committee
also believes our shareholders have benefited immensely over the years, as
$100,000 invested in HEICO at the time current management took over operation of
the business in 1990 was worth $3,813,000 at December 31, 2007.
During this time, our executive team successfully diversified our
revenue base so that we derive sales from various commercial aviation, defense,
space, medical and other industries. Management accomplished this through a
combination of organic growth and with more than 30 acquisitions in the past 11
years. Meanwhile, our debt levels have remained low(1).
In making its compensation decisions, the Committee looks at executive
compensation in light of the totality of the available information. The
Committee's views are influenced not only by our historical performance, but
also by the fact that current management has held a significant stake in HEICO
for many years, by our historical performance, by other business opportunities
available to our executives, by the high degree of mutual trust and faith that
has developed between and among the executives and the Board of Directors, by
the amounts and types of compensation which other companies pay to their
executives, by general economic conditions, by a general sense of fairness, by
the complexity and risk of their jobs and, perhaps, most important, by the
Committee's collective business judgment and prior experience in compensating
and motivating executives. The Committee believes that compensation decisions
are partially based on intangible considerations which, when put into practice,
yield tangible results. The Committee does not believe a particular decision to
fix an executive's compensation at a certain number will necessarily result in a
specific outcome.
- ----------------------------------
(1) As of 10/31/07, HEICO had long term debt of $53,765,000 on shareholders
equity of $371,601,000. As a result of the Company's successful operations,
during fiscal 2007, the Company paid back 100% of the amount it borrowed under
its revolving line of credit for acquisitions.
13
The Committee believes that its overall compensation decisions will
provide an appropriate example and direction for the executive team, and help to
continue our long record of growth. In 2007, the Committee used its past
successes and policies as a guide. Based on our 30% and 22% growth in sales and
net income, respectively, during fiscal 2007, the Committee believes that its
compensation methods and levels were successful. Further, given that management
has remained with us over a long period of time and that we have achieved the
excellent operating results set forth in our financial statements, the Committee
has concluded that its compensation policies are meeting the stated objectives
and are appropriate.
Elements of Compensation
The Committee breaks executive compensation into four primary
categories which are discussed in more detail below. The categories are:
1. Base salary;
2. Cash bonus;
3. Stock options; and
4. Retirement-related/Long-term compensation.
In addition to these, the Committee believes it is appropriate to allow
executives certain perquisites as discussed below.
Determining Compensation Levels
To help gauge whether our compensation program and levels are fair and
appropriate, the Committee has engaged the independent, third-party compensation
consultants Steven Hall & Partners, Clark Consulting and Fulcrum Partners.
Steven Hall & Partners was engaged to conduct benchmark analysis of our
executive base salaries and bonuses based on the levels of compensation paid to
executives at other public companies with financial and/or other characteristics
which are similar to ours. Twenty companies were used for the benchmarks that
have similar revenues, market capitalizations, profits or industries to ours,
and were selected by the consultants with input from management. The companies
used in the benchmark analyses were: AAR Corp., Aeroflex Incorporated, Analogic
Corporation, Argon ST, Inc., BE Aerospace, Inc., Comtech Telecommunications
Corp., Cubic Corporation, Ducommun Incorporated, EDO Corporation, EnPro
Industries, Inc., ESCO Technologies Inc., Esterline Technologies Corp., Franklin
Electric Co., Inc., K&F Industries Holdings, Inc., Kaydon Corporation, TransDigm
Group, Inc., Triumph Group, Inc., United Industrial Corporation, ViaSat, Inc.
and Woodward Governor Company.
Clark Consulting provided the Committee with advice regarding the HEICO
Corporation Leadership Compensation Plan. Fulcrum Partners provided the
Committee with advice on benefits policies generally and conducts actuarial
studies for certain benefit plan contributions.
The Committee considered the information from the consultants
principally as a test of the fairness and appropriateness of our compensation
levels, and simply to see if the Committee's general views of compensation are
similar to a range of other comparable companies. In reviewing benchmark
analyses, the Committee also took into consideration the fact that some of the
other companies in the analyses evaluated executives principally based on their
revenues or number of employees. Our management team has historically focused on
our profitability, cash flow and market capitalization in the belief that these
are ultimately the items that drive shareholder wealth, rather than the size of
our company in terms of revenue or employees. When considering benchmark data,
the Committee thinks it is appropriate if our executive management team is
compensated in the higher percentiles of companies reviewed because of our
typically higher profit margins and very long-term, consistent record of growth.
The benchmark information which the Committee utilized supported its
conclusions. Although the Committee finds the benchmarks helpful, it reserves
the discretion to ignore or interpret them based upon its judgment.
14
Base Salary
The Committee determines base salary by considering what historically
has been paid to our executives, benchmark analyses as discussed below, the need
to offer our executives a base salary competitive with other income generating
opportunities which they might have, and the growth in our sales and income. The
named executives received base salary increases commensurate with our historical
practices and to levels which we believe are supported by our size, the
complexity of our operations and what we believe the executives could readily
earn as base salary from other activities.
In setting base salary compensation, the Committee also considers the
other elements below, such as bonus and retirement/long term compensation
amounts.
Bonus
The executive officers presented to us a budget for fiscal 2007 as the
year commenced. The budget contained a significant targeted increase in sales
and income for the Company. The Committee generally believes that the
executives' bonuses for meeting the targeted budget, should approximate 100% of
the executive's base salary. The Company's incentive plan also provides for
larger or smaller bonus payments for exceeding or falling short of the targeted
budget. This conclusion is based upon the Committee's collective prior
experience as business people and is supported by the benchmarking studies
performed on our behalf. Our goal is to provide incentives to management to meet
short term objectives, to be competitive with other income generating
opportunities our executives might have, and to treat the executives fairly at
all times when the Company performs well. Historically, our executive officers
have had no bonuses paid to them in periods when our financial performance did
not meet the budgeted goals, even if we grew significantly during that period.
At our last Annual Meeting of Shareholders in March 2007, the
shareholders approved an incentive plan that complied with Section 162(m) of the
Internal Revenue Code (the "Code"). The Company sought approval of this plan in
order to maximize tax deductibility of certain executive compensation. Upon
adoption of the incentive plan, the Committee established a minimum, target and
maximum bonus level for each of the named executives for fiscal 2007. The bonus
targets were based upon the Company meeting net income goals for fiscal 2007. In
order for each executive to achieve the maximum payout, the Company's net income
needed to increase by 41%. Net income increased by 22%, which was correlated to
specific target bonus payments established by us prior to the 2007 Shareholders
Meeting. The bonuses paid to our executive officers corresponded with those
specific targeted bonus amounts.
Before setting these targets, the Committee reviewed benchmarks and
other data provided by the compensation consultant and concluded that the
targets were appropriate. The Committee believes that 22% growth in net income
(as well as 30% growth in sales) was a very difficult objective to achieve and,
therefore, concluded that significant incentive compensation in the form of
bonus payments were warranted. We also note that numerous other management-level
employees at HEICO are offered bonus opportunities equal to 100% or more of
their base salary if their operations meet certain targets.
Retirement-Related/ Long Term Compensation
For over 20 years, we have offered a 401(k) Plan to nearly all of our
employees, including our executive officers. As of October 31, 2007, over 2,000
current and former employees participated in our 401(k) Plan. Under this plan,
which is available to all eligible employees--including both non-executive and
executive employees--our employees may elect to defer a portion of their cash
compensation into an account within the plan, which amount is then matched at a
certain rate by us in cash or HEICO shares. Based upon a recommendation by
management, the Committee annually approves the matching rate for each of our
subsidiaries and the full Board ratifies that rate. As has been the case in past
years, in 2007 federal tax laws limited the permitted benefits to our named
executive officers in the plan to a matching rate less than most of our other
employees.
15
After conducting compensation reviews with the compensation
consultants, the Committee realized that our long term retirement compensation
was generally below that of the companies in our benchmark index industry.
Accordingly, the Committee recommended to the Board that it approve the HEICO
Corporation Leadership Compensation Plan (the "LCP") which is qualified under
Section 409A of the Internal Revenue Code.
The LCP is available to more than 100 HEICO employees. It provides that
participating employees may contribute a portion of their compensation to the
LCP and we will match those contributions at a specified fraction of the
employee's contribution. The matching rate is established by the Committee and
ratified by the Board of Directors each year. In addition, the Committee and
Board retained discretion to contribute additional amounts to each participant's
account in the LCP.
The Committee wants to ensure that executive officers generate
sufficient retirement funds so that they are not focused on alternative business
activities to supplement their incomes. Further, the Committee wants us to
remain competitive with compensation offered by other employers. Finally, the
Committee wants to demonstrate good faith to our executive officers by
proactively offering them benefits before they have to ask for the benefits
themselves. We believe this fosters an environment of trust between the Board of
Directors and the executive officers.
In order to catch up for retirement benefits not previously allocated
to our executive officers, we made the contributions set forth in the
Compensation Tables corresponding to the named executive officers. The
compensation consultants based their recommendations on the years of service by
the executives to HEICO, their ages and their statistically estimated proximity
to retirement. Based upon the recommendations of the Committee's compensation
consultants, the contributions to the accounts of Laurans A. Mendelson and
Thomas S. Irwin were substantially larger than those paid to the other named
executive officers.
Perquisites
For at least 20 years, we have offered either automobiles or automobile
allowances to our executive officers, and certain other executives, who utilize
their automobiles, at least in part, for company business. To the extent that
they use the automobiles for non-company business, they receive a personal
benefit. In addition, we pay for life insurance for some of our executive
officers consistent with past practices. Under our Aircraft Utilization Policy,
executive officers who utilize corporate aircraft for an exclusively personal,
non-Company business use pay the incremental direct hourly operating charges for
that use, unless otherwise prohibited. The Aircraft Utilization Policy allows
executive officers to bring family and others on business and other flights
aboard corporate aircraft. In fiscal 2007, executive officers who utilized
corporate aircraft for exclusively personal purposes in which no Company
business was involved paid the incremental direct hourly operating costs
(including fuel surcharges, landing fees, segment fees and federal excise taxes)
directly to the aircraft operator for such use.
The Committee's benchmarking analyses and own experience have led the
Committee to conclude these types and amounts of perquisites to be appropriate
and customary for executive officers with many other companies.
Stock Options
No stock options were awarded to executive officers in 2007 or in the
three preceding years. Throughout the 1990s and until 2003, we regularly awarded
stock options to our employees, including the named executive officers. The
Committee believed, and still believes, that stock option awards align the
shareholders' and option-holders' interests because option-holders received no
gain from their options unless all shareholders benefited from an increase in
HEICO share prices.
Since 1990, the combined value of our classes of common stock increased
by 3,713%, or 24% per annum through December 31, 2007, so that our executives
who received stock options during that period gained wealth, while our
shareholders also gained wealth. During the past 4 years the Committee did not
offer stock options due to governmentally-mandated accounting treatment changes
for stock options and in recognition of the fact that our
16
executive officers had, in the Committee's opinion, previously received stock
option grants. However, the Committee is concerned that it has not replaced
stock options compensation as a significant long term incentive attribute and an
alignment mechanism for shareholders and management. In order to ensure these
interests are aligned, the Committee believes that it should re-commence
granting stock options. Accordingly, the Company is seeking approval to make
additional shares available for grant under its principal stock option plan as
discussed under Proposal No. 2 elsewhere in this proxy statement.
Management Involvement
The Committee requested that our Chief Financial Officer and Chief
Executive Officer work with our compensation consultants to verify benchmarks on
other companies' practices and, where appropriate, provide updated suggestions
for compensation methods. To this extent, the Committee relied on the
independent compensation consultants and on management to finalize the benchmark
indexes and to exchange information. That information is then provided to the
Committee, which studies and analyzes it. The Committee directs the involved
management to provide further information as the Committee deems appropriate.
The Committee retains all discretion over compensation of the Company's
executive officers.
Other Compensation Issues
The Committee does not have set formulas for allocating between
long-term and currently paid out compensation, but consider recommendations of
compensation consultants and our own judgment in determining amounts we believe
to be fair for the Company and the executives. This also applies to the
breakdown between cash and non-cash compensation.
The Committee evaluates many items of corporate performance in setting
its policies and making compensation decisions. Among these are changes in
revenues, operating income and cash flow from operating activities as defined by
generally accepted accounting principles, whether the company met both
quantitative and qualitative goals, management's efforts, management's work
ethic, management's adherence to corporate policies, management's ethical
conduct, our reputation with varying stake holders, the difficulty in managing
the business, our historical performance, whether failure to meet any goals was
the result of completely externals factors or management errors, and other
considerations. In fiscal 2007, the Committee believed that all of these factors
were positive and that the executives put forth significant efforts on the
Company's behalf. This also was factored into the Committee's compensation
decisions.
The Committee does not, however, study each executive officer's
individual performance or contribution to our performance. The Committee
encourages our executive officers to work together as a group and compensate all
of our Executive Vice Presidents at the same level, while compensating our Chief
Executive Officer at roughly double the rate of the Executive Vice Presidents.
We do not specifically analyze the relationship between compensation of our
executive officers and other employees (which is sometimes referred to as "pay
equity" analyses). As we have never had to restate results for which prior
compensation decisions have been made, we do not have policies regarding the
adjustment or recovery thereof. In the event that such a situation does arise,
the Committee will address it as it determines to be appropriate at that time.
The Committee does not separately consider how compensation or amounts
realizable from prior compensation are considered in other elements of
compensation, however, those are factors which the Committee views in the total
mix of information. The Committee also considers the impact of our accounting
policies on our overall performance in both cash utilization and accounting
terms.
We do not require our named executives to own specific amounts of HEICO
equity securities, but the Committee does take into consideration in the total
mix of information the fact that our executive officers hold, and have held,
significant amounts of our equity securities. In addition, our policies direct
that, over time, members of HEICO's Board should purchase HEICO shares
equivalent to 50% of their annual Board retainer. Three of our named executive
officers are members of our Board and all of them have followed that policy. The
Committee views ownership of HEICO shares as a commitment to the Company and
believes that it should be encouraged.
17
Executive officers who also serve on the Company's Board receive
compensation for their service as Directors commensurate with the independent
Directors. We believe that this policy, which has been in place for nearly
twenty years, is appropriate given the risks and efforts attendant with service
on the Board of Directors.
Change of Control Payments
The only Change of Control arrangement we have is a contract entered
into in 1989 with Thomas S. Irwin, our Executive Vice President & Chief
Financial Officer, whereby, upon a change of control, (as defined in that
agreement), he would receive a lump sum, severance payment equal to 2 years
compensation if he is terminated within 3 years after a change of control. Based
upon his fiscal 2007 compensation, Mr. Irwin would be eligible to receive
$1,808,453 under this agreement. The Committee believes that it might be
advisable for us to enter into agreements containing non-competition clauses for
the other named executives in the event of a change of control of HEICO. This
would facilitate a change of control by reducing the risk of competition for a
potential acquirer. The executive officers have not yet been willing to enter
into such an agreement, but the Committee intends to review the issue with them
periodically. In addition, under the LCP, Laurans Mendelson and Thomas Irwin
would receive lump sum payment of their previously accrued benefits to the LCP
upon a change in control. For Laurans Mendelson the payment would be $1,500,000
and for Thomas Irwin the payment would be $1,100,000. Accordingly, based upon
fiscal 2007 compensation levels, the aggregate of all change in control payments
to the named executive officers would be $4,408,453.
The following report of the Compensation Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent we specifically
incorporate the report by reference in any such filing.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on that
review and discussions, the Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this
Proxy Statement and be incorporated by reference into the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 2007.
Respectfully submitted by the Compensation Committee of the Company's Board of
Directors: Samuel L. Higginbottom (Chairman), Albert Morrison, Jr., and Dr. Alan
Schriesheim.
18
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLESummary Compensation Table
The following table provides the compensation earned by the Company's
Chief Executive Officer, Chief Financial Officer and each of the three other
most highly compensated executive officers of the Company or its subsidiaries
(collectively, the "Named Executive Officers") whose total annual salary and bonus exceeded $100,000 in the lastduring fiscal year:2007:
LONG-TERM
COMPENSATION
NUMBER OF
SECURITIES
ANNUAL COMPENSATION(1) UNDERLYING
FISCAL ------------------------------------------ OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(2) GRANTED COMPENSATIONNon-qualified
Non-Equity Deferred
Name and Principal Fiscal Option Incentive Plan Compensation All Other
Position Year Salary (1) Bonus (1) Awards (2) Compensation (3) Earnings (4) Compensation (5) Total
- ------------------------------------------------------------ ------ ------------ ------------ ------------ ------------ ---------------------- --------- ---------- ---------------- ------------- ---------------- ----------
Laurans A. Mendelson 2006 $ 775,460 $ 796,000 $ 74,500 -- $ 549,590(3)2007 $826,385 $-- $-- $968,625 $342,582 $702,881 $2,840,473
Chairman of the Board, 2005 720,836 721,000 60,144 -- 45,190(3)
President and Chief
Executive Officer
2004 651,557 585,000 44,551 -- 42,940(3)
Thomas S. Irwin 2006 402,918 415,0002007 430,385 -- -- 423,600(4)47,492 503,685 168,705 468,033 1,618,300
Executive Vice
President 2005 368,890 369,000 -- -- 54,200(4) and Chief
Financial Officer
2004 327,907 325,000 -- -- 41,650(4)
Eric A. Mendelson 2006 402,918 415,000 75,6002007 430,385 -- 90,450(5)123,927 503,685 40,805 407,564 1,506,366
President - Flight
Support Group;
2005 368,890 369,000 57,644 -- 21,050(5)
President and Chief
Executive Officer
2004 327,907 325,000 42,525 -- 18,800(5)
of HEICO Aerospace
Holdings Corp.Corp
Victor H. Mendelson 2006 402,918 415,000 75,6002007 430,385 -- 81,050(6)123,927 503,685 27,564 401,780 1,487,341
President - Electronic
Technologies 2005 368,890 369,000 60,044 -- 19,650(6) Group and
General Counsel of the 2004 327,907 325,000 48,111 -- 17,400(6)
Company; President and
Chief Executive Officer
of HEICO Electronic
Technologies Corp.Corp
William S. Harlow 2007 185,000 185,000 -- -- 1,173 13,733 384,906
Vice President,
Corporate Development
- --------------------------------------------
(1) Salary and bonus amounts include amounts deferred by executive officersthe Named Executive
Officers pursuant to the HEICO Corporation Leadership Compensation Plan, a
non-qualified deferred compensation plan available to selected employees. Under suchexecutives.
For more information on this plan, see "Non-qualified Deferred
Compensation," which follows below within this Executive Compensation
section.
(2) No stock options were granted in fiscal 2007. Amounts stated reflect the
dollar amount recognized for financial statement reporting purposes for
fiscal 2007 in accordance with Statement of Financial Accounting Standards
No. 123(R) of stock option awards granted prior to fiscal 2007.
(3) Consists of payments made under the HEICO Corporation 2007 Incentive
Compensation plan as described within "Grants of Plan-Based Awards," which
follows below within this Executive Compensation section.
(4) Represents earnings from the Company's two non-qualified deferred
compensation plans as described within the "Non-qualified Deferred
Compensation" section, which follows below within this Executive
Compensation section. Includes earnings of $99,022 for Laurans A.
Mendelson and $59,051 for Thomas S. Irwin on their account balances in a
non-qualified deferred compensation plan selectedto which the Company has not made
any contributions; the executive officers made contributions to that plan
in prior years. Also includes earnings of
19
$243,560, $109,654, $40,805, $27,564 and $1,173 for Laurans A. Mendelson,
Thomas S. Irwin, Eric A. Mendelson, Victor H. Mendelson and William S.
Harlow, respectively, in the Company's other non-qualified deferred
compensation plan, which earnings are generated from self-directed
investments of all amounts in the plan held for those executive officers.
These earnings are generated on all amounts in the plan held for the
respective executive officers, which includes contributions by both the
Company and the executive officers in the last fiscal year and the prior
year.
(5) See the following table entitled "All Other Compensation" for an itemized
disclosure of this element of compensation.
All Other Compensation
-------------------------------------------------------------------------------------------------
Company
Company Contribution
Contribution to HEICO
to HEICO Corporation
Savings and Leadership
Investment Compensation
Plan (2) Plan (3) Perquisites
(a defined (a deferred Use of and Other
Fiscal Director Insurance contribution compensation Company Personal
Name Year Fees Benefits (1) retirement plan) plan) Car (4) Benefits (5) Total
- -------------------- ------ --------- ------------ ---------------- ------------- ------- ------------ ---------
Laurans A. Mendelson 2007 $99,564 $38,405 $11,150 $547,936 $5,826 $-- $702,881
Thomas S. Irwin 2007 -- 74,267 11,150 377,527 5,089 -- 468,033
Eric A. Mendelson 2007 99,064 16,250 11,150 273,822 7,278 -- 407,564
Victor H. Mendelson 2007 99,064 14,850 11,150 273,773 2,943 -- 401,780
William S. Harlow 2007 -- -- 8,396 5,337 -- -- 13,733
- ----------------------------------
(1) Annual life and medical insurance premiums paid by the Company.
(2) Participation in the HEICO Savings and Investment Plan is available to
substantially all employees of the Company.
(3) For more information on the HEICO Corporation Leadership Compensation
Plan, see "Non-qualified Deferred Compensation," which follows below
within this Executive Compensation section.
(4) Personal use of Company's vehicle provided to the Named Executive
Officers. The Company reports the personal use of such vehicles as part of
each Named Executive Officer's compensation.
(5) Our Named Executive Officers personally use the Company's facilities, and
from time to time, use tickets for sporting and entertainment events for
personal purposes, and receive occasional secretarial support with respect
to personal matters. These perquisites and other personal benefits in
aggregate, however, do not exceed $10,000 for any of the Named Executive
Officers.
20
Grants of Plan-Based Awards
The HEICO Corporation 2007 Incentive Compensation Plan ("Incentive
Plan") was approved by the Board of Directors and the shareholders of the
Company in fiscal 2007. The Incentive Plan authorizes the Compensation Committee
of the Board of Directors to select participants, designate performance periods,
authorize performance awards that may be earned by achievement of performance
goals during the performance periods, and set the other terms of performance
awards. The following table summarizes certain information with respect to
grants of awards to the Named Executive Officers of the Company under our
non-equity incentive plans and stock option plans for fiscal 2007.
Payouts Under Non-Equity Incentive Plan Awards for
Performance at Specified Levels (1)
--------------------------------------------------------
Name Threshold Target Maximum Earned
- -------------------- --------- --------- ---------- ---------
Laurans A. Mendelson $437,500 $875,000 $1,312,000 $968,625
Thomas S. Irwin 227,500 455,000 682,500 503,685
Eric A. Mendelson 227,500 455,000 682,500 503,685
Victor H. Mendelson 227,500 455,000 682,500 503,685
- ----------------------------------
(1) These values represent the threshold, target, maximum and actual earned
payouts under the Incentive Plan. The actual earned bonus awards under the
Incentive Plan were paid at 111% of the targeted levels and in accordance
with the Incentive Plan because the Company exceeded its targeted budget.
Please refer to the "Bonus" section of the Compensation Discussion and
Analysis for further information about the Incentive Plan.
21
Outstanding Equity Awards at Fiscal 2007 Year-End
Option awards are generally subject to a vesting schedule that provide
for the vesting at the rate of 20% per year over the first five years following
grant. The following table summarizes information regarding equity-based awards
held by our Named Executive Officers as of October 31, 2007.
Number of Securities
Underlying Unexercised Options Option Option
Share ---------------------------------- Exercise Expiration
Name Class (1) Exercisable Unexercisable (2) Price Date
- -------------------- --------- ------------ ----------------- -------- ------------
Laurans A. Mendelson -- -- -- -- --
Thomas S. Irwin C 14,000 -- $12.12 12/17/2009
C 80,000 -- $14.13 6/11/2011
C 45,000 -- $11.73 6/17/2012
C 5,000 -- $11.62 6/17/2012
C 11,412 2,854 $7.88 3/17/2013
C 24,587 6,147 $7.82 3/17/2013
CA 4,634 -- $12.12 12/17/2009
CA 16,800 -- $14.13 6/11/2011
CA 4,500 -- $11.73 6/17/2012
CA 500 -- $11.62 6/17/2012
CA 3,968 992 $5.50 3/17/2013
CA 432 108 $5.60 3/17/2013
CA 2,458 615 $7.82 3/17/2013
CA 1,141 286 $7.88 3/17/2013
Eric A. Mendelson C 14,000 -- $12.12 12/17/2009
C 135,000 -- $14.13 6/11/2011
C 5,000 -- $11.62 6/17/2012
C 45,000 -- $11.73 6/17/2012
C 56,000 14,000 $7.88 3/17/2013
C 38,000 9,500 $7.82 3/17/2013
CA 4,634 -- $12.12 12/17/2009
CA 28,350 -- $14.13 6/11/2011
CA 4,500 -- $11.73 6/17/2012
CA 500 -- $11.62 6/17/2012
CA 6,600 1,650 $5.60 3/17/2013
CA 5,600 1,400 $7.88 3/17/2013
CA 3,800 950 $7.82 3/17/2013
Victor H. Mendelson C 14,000 -- $12.12 12/17/2009
C 135,000 -- $14.13 6/11/2011
C 5,000 -- $11.62 6/17/2012
C 45,000 -- $11.73 6/17/2012
C 56,000 14,000 $7.88 3/17/2013
C 38,000 9,500 $7.82 3/17/2013
CA 4,634 -- $12.12 12/17/2009
CA 28,350 -- $14.13 6/11/2011
CA 4,500 -- $11.73 6/17/2012
CA 500 -- $11.62 6/17/2012
CA 6,600 1,650 $5.60 3/17/2013
CA 5,600 1,400 $7.88 3/17/2013
CA 3,800 950 $7.82 3/17/2013
William S. Harlow -- -- -- -- --
- --------------------------------------------
(1) "C" denotes HEICO Common Stock and "CA" denotes HEICO Class A Common Stock.
(2) All unexercisable options are scheduled to vest on March 17, 2008.
22
Aggregate Option Exercises During Last Fiscal Year
The following table provides information concerning stock option
exercises during fiscal 2007 for each of the Named Executive Officers:
Option Awards
-------------------------------
Number of
Shares Acquired Value Realized
Name on Exercise on Exercise
- ----------------------------- --------------- --------------
Laurans A. Mendelson 89,843 (1) $2,340,210
Thomas S. Irwin 69,672 (2) $1,991,985
Eric A. Mendelson 109,395 (3) $3,183,392
Victor H. Mendelson 137,195 (4) $3,758,973
William S. Harlow 16,638 (5) $235,243
- -------------------
(1) Represents 45,000 shares of Common Stock and 44,843 shares of Class A Common
Stock acquired upon the exercise of options granted in fiscal 1997.
(2) Represents 47,250 shares of Common Stock and 22,422 shares of Class A Common
Stock acquired upon the exercise of options granted in fiscal 1997.
(3) Represents 79,500 shares of Common Stock and 29,895 shares of Class A Common
Stock acquired upon the exercise of options granted in fiscal 1997.
(4) Represents 79,500 shares of Common Stock and 57,695 shares of Class A Common
Stock acquired upon the exercise of options granted in fiscal 1997.
(5) Represents 16,638 shares of Class A Common Stock acquired upon the exercise
of options granted in fiscal 1998 and 1999.
23
Non-qualified Deferred Compensation
The HEICO Corporation Leadership Compensation Plan ("LCP") was
established in fiscal 2006 and is a non-qualified deferred compensation plan
that conforms to Section 409A of the Internal Revenue Code. The LCP provides
eligible employees, officers, and directors of the Company the opportunity to
voluntarily defer base salary, bonus payments, commissions, long-term incentive
awards and directors fees, as applicable, on a pre-tax basis. The Company
matches 50% of the first 6% of base salary deferred by each participant. While
the Company has no obligation to do so, the LCP also provides the Company the
opportunity to make discretionary contributions to a participant's account. The
discretionary contributions generally vest over a four year period and are
generally paid at retirement.
The Company also sponsors another non-qualified deferred compensation
plan ("DCP"), which was available to directors, officers and select employees,
who elected to defer a portion of their compensation through December 31, 2004.
Amounts deferred arewere immediately vested and invested in individually directed
investment accounts. Earnings on such investment accounts, which are maintained
by a trustee, accrue to the benefit of the individual.
(2) Represents Directors' fees.
(3) Includes annual life insurance premiums paid by the Company of $34,790 in
fiscal 2006, 2005individual, and 2004. Amounts also include Company contributions to
Mr. Laurans A. Mendelson's HEICO Savings and Investment Plan account of
$10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150 in fiscal 2004.
Participation in the HEICO Savings and Investment Plan is available to
substantially all employees of the Company. The fiscal 2006 amount also
includes a discretionary Company contribution to Mr. Laurans A. Mendelson's
HEICO Corporation Leadership Compensation Plan account of $504,000. See
Note (7) below.
12
(4) Includes annual insurance premiums paid by the Company of $61,800 in fiscal
2006, $43,800 in fiscal 2005, and $33,500 in fiscal 2004. Amounts also
include Company contributions to Mr. Irwin's HEICO Savings and Investment
Plan account of $10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150
in fiscal 2004. Participation in the HEICO Savings and Investment Plan is
available to substantially all employees of the Company. The fiscal 2006
amount also includes a discretionary Company contribution to Mr. Irwin's
HEICO Corporation Leadership Compensation Plan account of $351,000. See
Note (7) below.
(5) Includes annual life insurance premiums paid by the Company of $10,650 in
fiscal 2006, 2005 and 2004. Amounts also include Company contributions to
Mr. Eric A. Mendelson's HEICO Savings and Investment Plan account of
$10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150 in fiscal 2004.
Participation in the HEICO Savings and Investment Plan is available to
substantially all employees of the Company. The fiscal 2006 amount also
includes a discretionary Company contribution to Mr. Eric A. Mendelson's
HEICO Corporation Leadership Compensation Plan account of $69,000. See Note
(7) below.
(6) Includes annual life insurance premiums paid by the Company of $9,250 in
fiscal 2006, 2005 and 2004. Amounts also include Company contributions to
Mr. Victor H. Mendelson's HEICO Savings and Investment Plan account of
$10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150 in fiscal 2004.
Participation in the HEICO Savings and Investment Plan is available to
substantially all employees of the Company. The fiscal 2006 amount also
includes a discretionary Company contribution to Mr. Victor H. Mendelson's
HEICO Corporation Leadership Compensation Plan account of $61,000. See Note
(7) below.
(7) The HEICO Corporation Leadership Compensation Plan (the "LCP") was
established in 2006 after the Compensation Committee concluded that the
Company was not offering certain benefits (mainly retirement benefits) that
were widely offered by other companies. This conclusion was based on an
independent, third-party compensation consulting firm study conducted for
the Committee. The LCP enables the Company to offer executives compensation
programs competitive with those offered by other companies and provides,
among other things, the opportunity to make discretionary contributions to
a participant's account. The discretionary contributionsare included in the
above Summary Compensation Table vest over a four year period and are
generally paid at retirement.column headed "Aggregate Earnings in Last Fiscal Year" in the table below. The
amounts of such payments are based on
actuarial estimates designedCompany makes no contributions to pay targeted benefits at the projected
retirement of each participant.
13
STOCK OPTION GRANTS IN LAST FISCAL YEAR
There were no individual grants of stock options pursuant to the
Company's stock option plan made during the fiscal year ended October 31, 2006
to the Named Executive Officers.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning stock option
exercises during fiscal 2006 and stock option holdings as of the fiscal year
ended October 31, 2006 for each of the Named Executive Officers.this plan.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-ENDExecutive Registrant Aggregate Aggregate
Contributions Contributions Earnings in Aggregate Balance at
in Last Fiscal in Last Fiscal Last Fiscal Withdrawals/ Last Fiscal
Name Plan Year Year (1)
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(2) Year (3) Distributions Year End
- -------------------- ------- -------------- -------------- ----------- ------------- ------------- ------------- ------------- ------------- ------------------------
Laurans A. Mendelson 122,302(2)LCP $47,746 $547,936 $243,560 $ 2,106,874 89,843 -- $ 2,306,153$1,343,149
DCP -- -- 99,022 -- 2,509,469
-------------- -------------- ----------- ------------- -----------
Total 47,746 547,936 342,582 -- 3,852,618
Thomas S. Irwin 51,849(3) 1,196,818 273,104 22,002 6,581,097 $ 605,729LCP 24,865 377,527 109,654 -- 863,098
DCP -- -- 59,051 -- 533,845
-------------- -------------- ----------- ------------- -----------
Total 24,865 377,527 168,705 -- 1,396,943
Eric A. Mendelson 111,838(4) 2,633,405 428,879 55,000 10,402,043 1,520,440LCP 24,865 273,822 40,805 -- 408,135
Victor H. Mendelson 149,818(5) 3,289,928 456,679 55,000 11,058,663 1,520,440LCP 24,865 273,773 27,564 -- 387,106
William S. Harlow LCP 192,991 5,337 1,173 -- 199,500
- -----------------------------
(1) Represents the closing price per shareIncludes discretionary contributions of the underlying common stock as$524,063, $365,094, $261,389 and
$261,340 to Laurans A. Mendelson, Thomas S. Irwin, Eric A. Mendelson, and
Victor H. Mendelson, respectively. Amounts also include matching
contributions of $23,873, $12,433, $12,433, $12,433 and $5,337 to Laurans
A. Mendelson, Thomas S. Irwin, Eric A. Mendelson, Victor H. Mendelson and
William S. Harlow, respectively.
(2) These amounts are also reported on the New York Stock Exchange on October 31, 2006 less the option
exercise price (if a positive spread) multiplied by the number of
unexercised stock option grants.
(2) Represents 61,257 shares of Common Stock and 61,045 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996.
(3) Represents 13,613 shares of Common Stock and 38,236 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996
and 1997.
(4) Represents 31,310 shares of Common Stock and 80,528 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996
and 1997.
(5) Represents 64,255 shares of Common Stock and 85,563 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996
and 1997.
14
COMPENSATION COMMITTEE REPORT
COMMITTEE STRUCTURE
Our Compensation Committee (the "Committee") consists exclusively of
members of the Board of Directors (the "Board") who are independent as defined
in New York Stock Exchange ("NYSE") regulations. Accordingly, no member of the
Committee is a current or former employee of the Company and no member of the
Committee receives any remuneration from the Company, other than remuneration
received for service as a Director. The Committee generally makes the
compensation decisions for the Company's executive officers and reviews
compensation implementation for other executives or managers within the Company.
However, decisions about stock options issued or to be issued under the 1993 or
2002 Stock Option Plans are made by the Stock Option Plan Committee (the "SOC"),
which then presents its actions to the full Board for ratification. The SOC also
consists of only "independent" directors. As a rule of thumb, the Committee
reports its actions and findings to the Board which, when appropriate, further
approves or ratifies those actions or findings.
HOW THE COMMITTEE APPROACHES EXECUTIVE COMPENSATION AND ITS GENERAL VIEWS ABOUT
EXECUTIVE COMPENSATION
For many years, the Committee has held to the principle that it is
necessary to reward executives with meaningful compensation for two reasons.
Based upon the Company's performance over a long period of time (please see Page
22 for the long-term HEICO stock price graph), as noted below, the Committee is
convinced that its approach has been successful and should continue.
First, the Committee feels that it is crucial to retain superior
managers, while incentivizing them to reach increasingly difficult goals.
Secondarily, the Committee believes that it is fair to share the Company's
success with its executive officers. Both of these philosophies are consistent
with the philosophies employed by the Company's management in dealing with all
of its Team Members.
These principles have not varied in at least the past 10 years because
the Company has been very successful during that time and, since 1990, both net
income from continuing operations and net sales have increased at approximately
19% per annum, compounded. In addition, as of December 31, 2006, the Company's
stock price has increased approximately 23% per annum, compounded, during the
same period of time.
In determining proper compensation, the Committee fully understands
that there are numerous opportunities available to its executives in private
equity transactions, real estate transactions, other public company transactions
and business opportunities, generally. In fact, during the past year, the head
of the General Electric division which competes with the Company elected to run
a much smaller business than he had been running in order to participate in a
private equity opportunity. The Committee does not want its executive officers
to be attracted to these kinds of opportunities that are well documented in the press.
Accordingly, the Committee firmly believes it must offer sufficient
compensation and recognitioncolumn entitled "Company
Contributions to its executives in order to highly motivate them
and retain their services. Additionally, there are numerous other, larger
aerospace and defense companies which offer substantial benefit packages not
offered by HEICO. As discussed below, as a result of a compensation study
conducted by an unrelated, third party consulting firm, the Committee realized
that HEICO was not awarding certain benefits to its executives that other
companies were, in fact, awarding. The Committee has begun to take steps to
address the apparent disparity in overall compensation packages between HEICO
and other aerospace companies.
Long ago, the Board accepted management's approach to driving the
business based upon profits, not revenues. Therefore, it does not believe in
compensating executives solely based upon the Company's revenue base, but rather
more on the Company's profitability, including, among other things, the
Company's profit margins, profit growth and cash flow.
15
In doing this, the Committee looks for an appropriate balance between
short-term and long-term Company goals. The Company's executive officers have
shown a history of successfully balancing these goals and have even sacrificed
their short-term results and compensation in order to ensure HEICO's growth in
later years. For example, following the September 11, 2001 attacks, many
companies reduced their research and development spending in order to preserve
short-term profits. HEICO's executive officers, with the Board's consent,
actually increased its product development spending in order to reap greater
results when its industry recovered. This had the effect of reducing short-term
results and the executives' compensation. The Company started witnessing the
major benefits from these actions in 2003 and the momentum from this decision
has continued to increase. Therefore, the Committee believes that it is
important to pay both cash compensation and issue stock options (although it has
refrained from issuing stock options to the executive management for more than 3
years) to help strike the desired short/long-term balance.
The Committee primarily relies on four methods of compensating its
executive officers and other managers. This has been the case for many years
and, based on the Company's performance the Committee has concluded these
methods are still appropriate:
1. Base Cash Compensation. The Committee relies on a variety of
factors, including the following items, in determining appropriate
base compensation levels:
a. External consultants;
b. Independent compensation research reports and studies;
c. Historical compensation data;
d. Knowledge of local markets; and
e. Personal knowledge of the executives.
The Committee also believes it is proper to adjust compensation on
an annual basis in the manner consistent with general corporate
employment practices. In doing so, it looks at the merits of each
executive officer's efforts, results, loyalty to the Company and
the factors listed above. The Committee notes, however, that in
years when the Company's financial results did not meet internal
expectations, usually as a result of completely external factors
unrelated to management or its efforts, such as the September 11,
2001 attacks or the SARS epidemic, the executive officers have
asked, and the Committee has agreed, that no increase would be
made to their base compensation. Conversely, in years of exemplary
performance, the Committee has rewarded executives with more
significant increases.
2. Cash Incentive/Performance Bonus Compensation. As is the case with
Base Cash Compensation, the Committee believes that bonus awards
are crucial during years when the Company realizes financial
success. The Committee utilizes the same factors mentioned above
in the section concerning Base Cash Compensation. The Committee
believes it must, in addition, maintain a discretionary approach
to bonuses to avoid the sometimes harsh results to both the
Company and an executive from a purely formulaic approach.
In difficult years, both the Committee and management have agreed
that bonuses were not in order. Examples include 2001, 2002 and
2003, when the Company's financial results suffered as a result of
completely external events unrelated to management, the Committee,
as suggested and requested by management itself, did not declare
regular bonuses. In the past, when the Company realized special
gains from unique asset sales, it has rewarded its executive
officers appropriately.
The Committee believes that Cash Incentive/Performance Bonus
Compensation is an important element in short-term incentive
compensation and, again, the Committee evaluates the Company's
earnings performance much more than it evaluates overall sales
levels. The Committee is pleased to note that HEICO's overall
profitability is often greater than the levels of companies with
much larger sales than HEICO's. The Committee believes it would be
unwise to compensate management mostly based on revenues, as
opposed to profitability, as this might incentivize managers to
generate low margin revenues which can create greater cash needs
for the Company.
16
The top four highest paid executive officers received bonus
compensation equal to approximately 50% of their total cash
compensation. In setting the executive officers' bonuses for
fiscal 2006, the Committee considered numerous factors, including,
but not limited to, the Company's financial performance in excess
of its budget, the 40% increase in net income and 45% increase in
sales over the prior fiscal year, management's efforts on the
Company's behalf and external compensation reports which clearly
stated that their bonuses should approximate 50% of the their
total cash compensation.
In January 2007, the Committee and the Board approved, subject to
shareholder approval as set forth herein, an incentive
compensation plan whereby the executive officers' bonuses will
principally be tied to specific performance objectives. The
Committee will also retain the flexibility and ability to award
bonuses based on other factors which it later determines in its
discretion. The Company is expected to receive significant tax
benefits from this plan's adoption.
3. Stock-Based Compensation. The Company has not awarded stock
options to any of the executive officers since fiscal 2003.
However, the Committee believes that stock options are an
important incentivization in compensation methods that benefits
employees only when all shareholders benefit. The Company's
practice has been to grant options at no less than the closing
price of the stock on the date of grant. A $1.00 investment in
HEICO shares in 1990 became worth $28.04 on December 31, 2006
(adjusted for stock splits and stock dividends, but excluding all
cash dividends). The Committee believes this increase in share
price results from the Company's enormous earnings and sales
growth, as well as the Company's increased product range, customer
base and structure. Options granted in the past only benefited
employees if all other shareholders benefited from share price
increases and the Company incurred no further cash compensation
expense. This helped the Company preserve cash for growth and
working capital purposes. The Company also receives a tax
deduction in the amount of the gain which is reported by the
option holder, which results in additional cash flow to the
Company. It should be noted that, in the case of the Company's
executive officers, the option holder must pay taxes approximately
equal to the cash benefit which the Company receives. Accordingly,
in those cases, the option holder receives only approximately 65%
of his reported benefit, net of federal income taxes.
The Company did not grant Restricted Stock or Performance Shares
to any employees in fiscal 2006 and it has not been the Company's
practice to issue them.
With respect to stock options, the Committee notes that the
Company's senior executives have historically exercised their
stock options and retained most of the shares issued, except what
they believed was required to cover taxes and exercise costs. The
Committee believes this demonstrated a commitment to the Company
and confidence in its future.
4. 401K, Other Miscellaneous. The Company did not award "Gross-ups"
(which are additional payments made to pay income taxes) to any of
the executive officers in fiscal 2006. However, virtually all
Company employees, including the executives, are eligible to
participate in the HEICO Savings and Investment Plan, which is the
Company's 401K plan, in the same manner as any similarly situated
HEICO employee. Further, each executive contributes to the Plan a
portion of his compensation. However, under federal regulations,
none of our top executive officers receive the full benefit of the
Plan, as they are limited in their participation in the Plan and
may not receive the same level of benefits as other employees.
In October 2006, after having received the report of an
independent, third-party compensation consulting firm and
considering its findings over a period of several months, the
Committee concluded that the Company was not offering certain
benefits that were widely offered by other companies.
To remedy this, the Committee and Board adopted the HEICO Corporation Leadership Compensation Plan (the "LCP"), which is a
plan qualified under Section 409(a) ofPlan" in the Internal Revenue Code.
Under the LCP, a large number of Company Team Members, including,
among others, engineers, controllers, production employees, sales
employees, mid-level managers, higher-level managers and executive
17
officers, are eligible to elect not to immediately receive a
portion of their compensation, but instead to defer payment until
a later date the amount they elect not to receive. The Company
will match a certain portion (currently up to 3% of their base
salary) of the amount which the Team Member defers for later
payment. While the Company has no obligation, the LCP also
provides the Company the opportunity to make discretionary
contributions to a participant's account. Discretionary LCP
contributions, if awarded, are reported for the Named Executive
Officers under "All
Other Compensation" table which supplements the "Summary Compensation
Table."
(3) These amounts are also reported in the Summarycolumn entitled "Non-qualified
Deferred Compensation Table ofEarnings" in the Proxy Statement. As part of"Summary Compensation Table." The
earnings in the same
study,LCP for each executive officer in the Committee concluded that it should seek to havelast fiscal year
reflects earnings on amounts in the Company benefit from Section 162(m) of the Internal Revenue Code
and, in fiscal 2007, adopted the HEICO Corporation 2007 Incentive
Compensation Plan (the "Incentive Plan")plan held for each executive officer
(including prior year contributions), which is being submitted
to shareholders for approval. Under the Incentive Plan, the
Company will receive significant tax benefits ifearnings are generated from
self-directed investments by the executive officers achieve certain goals setofficers. All earnings in advancethe
DCP for each executive officer reflect earnings on compensation deferred
into the DCP by each executive officer in prior years. The Company has
never contributed to the Compensation
Committee.
With respect to perquisites, the Company pays certain limited
benefits, such as life insurance premiums, for theDCP and no further deferrals may be made by
executive officers offers health benefits, automobiles and other benefits
common to executives and some employees at HEICO. Any non-HEICO
business, purely personal travel (air or otherwise) is not paid
for by the Company, but is paid for by the executive.
The Committee also notes that, with the exception of a change of
control agreement entered into with Thomas S. Irwin in 1989 (which agreement
entitles him to cash compensation if his employment is terminated within 3 years
of a change of control of the Company), none of the executive officers have
employment agreements or other agreements entitling them to special cash
payments upon termination of their employment.
Based upon the factors discussed above in computing compensation and
the Committee's opportunity to observe the Company's management and other
executives for more than 16 years, it believes that its practices are
appropriate and have yielded excellent results, which speak for themselves.
These results include the enormous growth in the Company's sales, earnings and
stock price while the Committee followed these policies.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's ("CEO") Compensation is set by the
Committee based upon the factors mentioned above with respect to the Committee's
Compensation Policies. The Committee evaluates the CEO's compensation formally
every 6 months and considers, among other things, the example he sets for
employees, stockholders, customers, and others and it evaluates the image that
he projects on the Company's behalf. The Committee also considers the CEO's high
level of candor with the Board, his overall efforts, his overall successDCP.
24
Potential Payments Upon Termination Following a Change in accomplishing the Company's goals (both long-term and short-term goals). During
difficult periods, the CEO has requested that he not be awarded any bonuses and
that his and other executive officers' salaries be frozen until such time as the
Company's financial results rose substantially. Under the CEO's leadership, the
Committee has observed the Company's net sales increase from $26,239,000 in
fiscal 1990 to $392,190,000 in fiscal 2006, while net income from continuing
operations improved from $1,961,000 in fiscal 1990 to $31,888,000 in fiscal
2006.
As noted above, during this CEO's tenure, the Company's share value has
dramatically appreciated - a $1,000 investment in HEICO shares in 1990 became
worth approximately $28,000 on December 31, 2006 (adjusted for stock splits and
stock dividends), but excluding all cash dividends.
The Committee must also consider the fact that the CEO had a very
successful business career prior to joining HEICO and receives many offers to
join other endeavors on a regular basis whereby he might receive greater
remuneration. The Committee believes the CEO's continuing commitment to the
Company is of great importance.
Further, the Company's banking line of credit requires that the CEO and
his family maintain their involvement and position with the Company as a
condition to HEICO's credit facility.
18
Finally, as we always note, the CEO has invested significant personal
sums in the Company and continues to hold a major investment in it. The Company
believes that his financial commitment to the Company as a shareholder
demonstrates his loyalty to HEICO and is indicative of the alignment of his
personal interests with those of the rest of HEICO's shareholders.
Submitted by the Compensation Committee of the Board of Directors: Samuel L.
Higginbottom (Chairman), Albert Morrison, Jr. and Dr. Alan Schriesheim.
EMPLOYMENT AGREEMENTControl
Thomas S. Irwin and the Company are parties to a key employment
termination agreement which provides lump sum, severance pay equal to 2two years
compensation and continuation of insurance benefits if this employee is
terminated within 3three years after a change of control of the Company (as
defined in the key employment termination agreement).
19
The following Reporttable presents payment information regarding termination
with cause, involuntary termination without cause, voluntary termination for
good reason, voluntary termination without good reason, and death or disability
within three years after such a change in control. The Company prepared the
table assuming these events occurred and the employment of Mr. Irwin with the
Company was terminated on the last day of fiscal year 2007, or October 31, 2007.
The various amounts listed in this table are estimates only. The actual amounts
to be paid can only be determined at the time of Mr. Irwin separation from the
Company.
Voluntary Voluntary
Involuntary Termination Termination
Termination Termination for Good without Good Death or
with Cause without Cause Reason Reason Disability
----------- ------------- ----------- ------------ ----------
Severance $ -- $1,659,919 $1,659,919 $ -- $ --
Insurance Benefits -- 148,534 148,534 -- --
Potential Payments and Benefits Upon a Change in Control
The following table presents estimated payments and benefits from the
Company to its Named Executive Officers ("NEO") if a change in control occurred
on October 31, 2007, the last day of fiscal 2007.
Laurans A. Thomas S. Eric A. Victor H. William S.
Mendelson Irwin Mendelson Mendelson Harlow
---------- --------- --------- --------- ----------
Acceleration of Vesting of
Stock Options (1) $ -- $147,090 $763,697 $763,697 $ --
Non-Equity Incentive 1,500,000 1,100,000 -- -- --
Awards (2)
- -------------------
(1) These amounts represent the value of the Finance/Audit CommitteeNEO's unvested stock options that
will vest immediately assuming a change in control, calculated based on the
difference between the option exercise price and market price of HEICO
Corporation Common Stock or Class A Common Stock as applicable. The Common
Stock and Class A Common Stock price as of the last day of fiscal year 2007
was $54.44 and $43.33, respectively. All these unvested stock options are
scheduled to vest on March 17, 2008.
(2) These amounts represent the estimated amounts which would be paid to its
NEO's to fully fund targeted retirement benefits under the Company's LCP for
those individuals who have reached retirement age pursuant to approval of
the Company's Board of Directors in December 2007. The actual amounts to be
paid upon a change in control can only be determined at the time on a change
in control.
25
PROPOSAL TO APPROVE
THE HEICO CORPORATION AMENDED AND RESTATED 2002 STOCK OPTION PLAN
(Proposal No. 2)
Background and Purpose.
In 2002, the Board of Directors adopted and the shareholders approved
the HEICO Corporation 2002 Stock Option Plan (the "Plan"), providing for the
issuance of up to 520,000 shares underlying options granted under the Plan, in
accordance with its terms. Subject to the approval of shareholders, the Board of
Directors has adopted two amendments to the Plan, pursuant to which (1) the
number of shares available for issuance under the Plan shall be increased by
1,500,000 and (2) the Plan shall expressly state that no options shall be
granted at an exercise price lower than the fair market price of the shares
underlying such options on the date of grant. Furthermore, the Board has
directed that the Plan, as so amended, be submitted to the shareholders for
their approval as the HEICO Corporation Amended and Restated 2002 Stock Option
Plan (the "Amended and Restated Plan").
As of the date of this proxy statement, 363,517 shares subject to
issuance upon the exercise of Options granted under the Plan were outstanding
and approximately 154,173 shares remain eligible for issuance under the Plan.
There have been no new grants of any options under the Plan since 2005. No
determination has been made by the Board of Directors as to the amount of stock
options, if any, that may be granted in fiscal 2008. The Board of Directors
wishes to ensure the Company's continued ability to offer stock options to
current and potential employees, and consultants, so that the Company is able to
meet the purpose of the Plan. The Company has approximately 2,200 employees.
The purpose of the Plan is to provide an additional incentive to attract and
retain qualified competent persons who provide services and upon whose efforts
and judgment the success of the Company is largely dependent, through the
encouragement of stock ownership in the Company by such persons through the
granting of incentive or non-qualified stock options (collectively, the
"Options") to purchase shares of Common Stock and Class A Common Stock of the
Company (collectively, the "Shares") to persons selected by the administrators
of the Plan from the class of all employees, directors and consultants of the
Company or its direct or indirect subsidiaries (each a "Related Entity").
Therefore, on February 20, 2008, the Board of Directors adopted the amendments
to the Plan as described above and hereby submits to the Company's shareholders
for their approval at the Annual Meeting the Amended and Restated Plan.
Shareholder approval of the Amended and Restated Plan is required (1)
to meet corporate governance requirements of the New York Stock Exchange, which
requires the approval of all equity compensation plans and any materials
amendments to such plans, (2) for purposes of compliance with certain exclusions
from the limitations of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), and (3) in order for certain Options granted under the
Plan to qualify as incentive stock options under Section 422 of the Code.
The following is a summary of certain principal features of the Amended
and Restated Plan. This summary is qualified in its entirety by reference to the
complete text of the Amended and Restated Plan, which is attached to this Proxy
Statement as Exhibit A. Shareholders are urged to read the actual text of the
Amended and Restated Plan in its entirety.
Administration of the Amended and Restated Plan.
The Amended and Restated Plan provides that it shall be administered by
the Board of Directors of the Company or by a committee appointed by the Board
(the "Committee") which shall be composed of two or more directors all of whom
shall be "outside directors" (as defined in the Amended and Restated Plan) in
compliance with Rule 16b-3 of the Exchange Act and Section 162(m) of the Code
(although Rule 16b-3 also may be complied with if the option grants are approved
by the Board).
The Committee or the Board in its sole discretion determines the
persons to be awarded the Options, the number of Shares subject thereto and the
exercise price and other terms thereof. In addition, the Committee or the Board
has full power and authority to construe and interpret the Amended and Restated
Plan, and the acts of the Committee or the Board are final, conclusive and
binding on all interested parties, including the Company, its
26
shareholders, its officers and employees, recipients of grants under the Amended
and Restated Plan, and all persons or entities claiming by or through such
persons.
Assuming approval of the proposed amendments to the Plan, an additional
aggregate of 1,500,000 Shares (subject to adjustment described below) will be
reserved, resulting in an aggregate of 1,654,173 Shares available for issuance
upon the exercise of Options granted under the Amended and Restated Plan. All
1,654,173 Shares may be issued pursuant to "incentive stock options," as defined
in Section 422 of the Internal Revenue Code. The Company has an aggregate of
26,245,363 shares of Common Stock and Class A Common Stock outstanding as of
January 31, 2008. The Options granted pursuant to the Amended and Restated Plan
may be with respect to Common Stock and/or Class A Common Stock in such
proportions as shall be determined by the Board or the Committee in its sole
discretion. The aggregate number of Options granted to any one Optionee
generally may not exceed 250,000 (subject to adjustments as described below) in
any fiscal year of the Company. However, the aggregate number of Options that
may be granted to an Optionee in the fiscal year of the Company in which he
first is employed by the Company or its Related Entities is 400,000 (subject to
adjustment as described below). The Shares acquired upon exercise of Options
granted under the Amended and Restated Plan will be authorized and issued
Shares. The Company's shareholders will not have any preemptive rights to
purchase or subscribe for any Shares by reason of the reservation and issuance
of Shares under the Amended and Restated Plan. If any Option granted under the
Amended and Restated Plan should expire or terminate for any reason other than
having been exercised in full, the unpurchased shares subject to that Option
will again be available for purposes of the Amended and Restated Plan.
Certain Terms and Conditions.
All Options granted under the Amended and Restated Plan must be
evidenced by a written agreement between the Company and the Optionee. The
agreement will contain such terms and conditions as the Committee or the Board
shall prescribe, consistent with the Amended and Restated Plan, including,
without limitation, the exercise price, term and any restrictions on the
exercisability of the Options granted.
For any Option granted under the Amended and Restated Plan, the
exercise price per Share may be any price determined by the Committee or the
Board; provided that, the exercise price per Share of any option may not be less
than the Fair Market Value of the Shares with respect to which the Option is
granted on the date such incentive stock option is granted. Previously, this
requirement was applicable only to incentive stock options granted under the
Plan (though the Company never granted any Options under the Plan at an exercise
price less than Fair Market Value). For purposes of the Amended and Restated
Plan, the "Fair Market Value" on any date of reference is deemed to be the
closing price of Shares on the business day immediately preceding such date,
unless the Committee or the Board in its sole discretion determines otherwise in
a fair and uniform manner. For this purpose, the closing price of Shares on any
business day is (i) if the Shares are listed or admitted for trading on any U.S.
national securities exchange, or if actual transactions are otherwise reported
on a consolidated transaction reporting system, the last reported sale price of
the Shares on such exchange or reporting system, as reported in any newspaper of
general circulation; (ii) if the Shares are quoted on the National Association
of Securities Dealers Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices in common use, the
mean between the closing high bid and low asked quotations for such day of the
Shares on such system; or (iii) if neither clause (i) nor (ii) is applicable,
the mean between the high bid and low asked quotations for Shares as reported by
the National Quotation Bureau, Incorporated if at least two securities dealers
have inserted both bid and asked quotations for the Shares on at least 5 of the
10 preceding days. The closing price per Share of Common Stock and Class A
Common Stock on February 19, 2008 as reported on the New York Stock Exchange was
$44.45 and $35.44, respectively.
The Committee or the Board may permit the exercise price of an Option
to be paid in cash, by certified or official bank check or personal check, by
money order, with already owned Shares that have been held by the Optionee for
at least six months (or such other Shares as the Company determines will not
cause the Company to recognize for financial accounting purposes a charge for
compensation expense), by the withholding of Shares issuable upon exercise of
the Option, by delivery of a properly executed exercise notice together with
such documentation as shall be required by the Committee or the Board (or, if
applicable, the broker) to effect a cashless exercise, or a combination of the
above. If paid in whole or in part with Shares, the value of the Shares
surrendered is deemed to be their Fair Market Value on the date the Option is
exercised. The Amended and Restated Plan also
27
authorizes the Company to lend money to an Optionee, guarantee a loan to an
Optionee, or otherwise assist an Optionee to obtain the cash necessary to
exercise all or a portion of the Option granted thereunder or to pay any tax
liability of the Optionee attributable to such exercise. No such loan may be
made to an executive officer or a director of the Company, or otherwise in
violation of any law or regulation applicable to the Company or the Amended and
Restated Plan. If the exercise price is paid in whole or part with the
Optionee's promissory note, such note shall (1) provide for full recourse to the
maker, (2) be collateralized by the pledge of the Shares that the Optionee
purchases upon exercise of such Option, (3) bear interest at the prime rate of
the Company's principal lender or such other rate as the Committee or the Board,
as the case may be, shall determine, and (4) contain such other terms as the
Committee or the Board in its sole discretion shall reasonably require.
The use of already owned Shares applies to payment for the exercise of
an Option in a single transaction and to the "pyramiding" of already owned
shares in successive, simultaneous Option exercises. In general, pyramiding
permits an Optionee to start with as little as one Share and exercise an entire
Option to the extent then exercisable (no matter what the number of Shares
subject thereto). By utilizing already owned Shares, no cash (except for
fractional share adjustments) is needed to exercise an Option. Consequently, the
Optionee would receive Shares equal in value to the spread between the fair
market value of the Shares subject to the Option and the exercise price of such
Option.
Upon the exercise of an option granted under the Amended and Restated
Plan or under any other stock plan of the Company which may be designated by the
Committee or the Board from time to time, the Optionee, at the discretion of the
Committee or the Board, may receive a reload option on the terms, conditions and
limitations determined by the Committee or the Board, from time to time. A
reload option gives the Optionee the right to purchase a number of Shares
surrendered to pay the exercise price and/or used to pay the withholding taxes
applicable to an Option exercise. Reload options do not increase the net equity
position of an Optionee. Their purpose is to facilitate continued stock
ownership in the Company by the Optionee.
No incentive stock option, and unless the prior written consent of the
Committee or the Board is obtained (which consent may be withheld for any
reason) and the transaction does not violate the requirements of Rule 16b-3 of
the Exchange Act, no non-qualified stock option granted under the Amended and
Restated Plan is assignable or transferable, other than by will or by the laws
of descent and distribution. During the lifetime of an Optionee, an Option is
exercisable only by him or her, or in the case of a non-qualified stock option,
by his or her permitted assignee. The expiration date of an Option under the
Amended and Restated Plan will be determined by the Committee or the Board at
the time of grant, but in no event may such an Option be exercisable after ten
years from the date of grant. An Option may be exercised at any time or from
time to time or only after a period of time in installments, as the Committee or
the Board determines. The Committee or the Board may in its sole discretion
accelerate the date on which any Option may be exercised. Each outstanding
Option granted under the Amended and Restated Plan may become immediately fully
exercisable in the event of certain transactions, including certain changes in
control of the Company, certain mergers and reorganizations, and certain
dispositions of substantially all the Company's assets.
Unless otherwise provided in the Option agreement, the unexercised
portion of any Option granted under the Amended and Restated Plan shall
automatically be terminated (a) three months after the date on which the
Optionee's service as an employee, director or consultant with the Company and
its Related Entities ("Continuous Service") is terminated for any reason other
than (i) Cause (as defined in the Optionee's agreement of employment and if
there is no agreement, as defined in the Amended and Restated Plan), (ii) mental
or physical disability, or (iii) death; (b) immediately upon the termination of
the Optionee's Continuous Service for Cause; (c) one year after the date on
which the Optionee's Continuous Service is terminated by reason of mental or
physical disability; or (d) one year after the date on which the Optionee's
Continuous Service is terminated by reason of Optionee's death, or if later,
three months after the date of Optionee's death if death occurs during the one
year period following the termination of the Optionee's Continuous Service by
reason of mental or physical disability.
To prevent dilution of the rights of a holder of an Option, the Amended
and Restated Plan provides for appropriate adjustment of the number of Shares
for which Options may be granted, the number of Shares subject to outstanding
Options and the exercise price of outstanding Options, in the event of any
increase or decrease in the number of issued and outstanding Shares of the
Company's capital stock resulting from a stock dividend, a
28
recapitalization or other capital adjustment of the Company. The Committee or
the Board has discretion to make appropriate antidilution adjustments to
outstanding Options in the event of a merger, consolidation or other
reorganization of the Company or a sale or other disposition of substantially
all of the Company's assets.
The Amended and Restated Plan will expire on March 19, 2012, and any
Option outstanding on such date will remain outstanding until it expires or is
exercised. The Committee or the Board may amend, suspend or terminate the
Amended and Restated Plan or any Option at any time, provided that such
amendment shall be subject to the approval of the Company's shareholders if such
shareholder approval is required by any federal or state law or regulation
(including, without limitation, Rule 16b-3 or to comply with Section 162(m) of
the Code) or the rules of any stock exchange or automated quotation system on
which the Shares may then be listed or granted. In addition, no amendment,
suspension or termination shall substantially impair the rights or benefits of
any Optionee, pursuant to any Option previously granted, without the consent of
the Optionee.
New Plan Benefits.
Because grants under the Amended and Restated Plan are discretionary,
it is not possible to determine or estimate the benefits or amounts that will be
received in the future by individual employees, consultants or groups of
employees or consultants under the Amended and Restated Plan. No stock options
have been granted since 2005, and the Committee has not determined the amount,
if any, of stock options that may be awarded in fiscal 2008 to the Company's
executive officers.
Federal Income Tax Consequences of Awards of Options.
The Amended and Restated Plan is not qualified under the provisions of
section 401(a) of the Code, and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Nonqualified Stock Options. Generally, an Optionee will not recognize
any income upon the receipt or vesting of a nonqualified stock option granted
under the Amended and Restated Plan. On exercise of a nonqualified stock option
granted under the Amended and Restated Plan, an Optionee will recognize ordinary
income equal to the excess, if any, of the fair market value on the date of
exercise of the Shares acquired on exercise of the Option over the exercise
price. If the Optionee is an employee of the Company, that income will be
subject to the withholding of federal income tax. The Optionee's tax basis in
those Shares will be equal to their fair market value on the date of exercise of
the Option, and his holding period for those Shares will begin on that date.
If an Optionee pays for Shares on exercise of an Option by delivering
Shares, the Optionee will not recognize gain or loss on the Shares delivered,
even if their fair market value at the time of exercise differs from the
Optionee's tax basis in them. The Optionee, however, will be taxed on the
exercise of the Option in the manner described above as if he had paid the
exercise price in cash. If a separate identifiable stock certificate is issued
for that number of Shares equal to the number of Shares delivered on exercise of
the Option, the Optionee's tax basis in the Shares represented by that
certificate will be equal to his tax basis in the Shares delivered, and his
holding period for those Shares will include his holding period for the Shares
delivered. The Optionee's tax basis and holding period for the additional Shares
received on exercise of the Option will be the same as if the Optionee had
exercised the Option solely in exchange for cash.
The Company will be entitled to a deduction for federal income tax
purposes equal to the amount of ordinary income taxable to the Optionee,
provided that amount constitutes an ordinary and necessary business expense for
the Company and is reasonable in amount, and either the Optionee includes that
amount in income or the Company timely satisfies its reporting requirements with
respect to that amount.
Incentive Stock Options. The Amended and Restated Plan provides for the
grant of stock options that qualify as "incentive stock options" as defined in
section 422 of the Code. Under the Code, an Optionee generally is not subject to
tax upon the grant or exercise of an incentive stock option. In addition, if the
Optionee holds a Share received on exercise of an incentive stock option for at
least two years from the date the Option was granted and at least one year from
the date the Option was exercised (the "Required Holding Period"), the
difference, if any,
29
between the amount realized on a sale or other taxable disposition of that Share
and the holder's tax basis in that Share will be long-term capital gain or loss.
If, however, an Optionee disposes of a Share acquired on exercise of an
incentive stock option before the end of the Required Holding Period (a
"Disqualifying Disposition"), the Optionee generally will recognize ordinary
income in the year of the Disqualifying Disposition equal to the excess, if any,
of the fair market value of the Share on the date the incentive stock option was
exercised over the exercise price. If, however, the Disqualifying Disposition is
a sale or exchange on which a loss, if realized, would be recognized for federal
income tax purposes, and if the sales proceeds are less than the fair market
value of the share on the date of exercise of the Option, the amount of ordinary
income recognized by the Optionee will not exceed the gain, if any, realized on
the sale. If the amount realized on a Disqualifying Disposition exceeds the fair
market value of the Share on the date of exercise of the Option, that excess
will be short-term or long-term capital gain, depending on whether the holding
period for the share exceeds one year.
An Optionee who exercises an incentive stock option by delivering
Shares acquired previously pursuant to the exercise of an incentive stock option
before the expiration of the Required Holding Period for those Shares is treated
as making a Disqualifying Disposition of those Shares. This rule prevents
"pyramiding" the exercise of an incentive stock option (that is, exercising an
incentive stock option for one Share and using that Share, and others so
acquired, to exercise successive incentive stock options) without the imposition
of current income tax.
For purposes of the alternative minimum tax, the amount by which the
fair market value of a Share acquired on exercise of an incentive stock option
exceeds the exercise price of that Option generally will be an adjustment
included in the Optionee's alternative minimum taxable income for the year in
which the Option is exercised. If, however, there is a Disqualifying Disposition
of the Share in the year in which the Option is exercised, there will be no
adjustment with respect to that Share. If there is a Disqualifying Disposition
in a later year, no income with respect to the Disqualifying Disposition is
included in the Optionee's alternative minimum taxable income for that year. In
computing alternative minimum taxable income, the tax basis of a Share acquired
on exercise of an incentive stock option is increased by the amount of the
adjustment taken into account with respect to that share for alternative minimum
tax purposes in the year the Option is exercised.
The Company is not allowed an income tax deduction with respect to the
grant or exercise of an incentive stock option or the disposition of a share
acquired on exercise of an incentive stock option after the Required Holding
Period. However, if there is a Disqualifying Disposition of a Share, the Company
is allowed a deduction in an amount equal to the ordinary income includible in
income by the Optionee, provided that amount constitutes an ordinary and
necessary business expense for the Company and is reasonable in amount, and
either the Optionee includes that amount in income or the Company timely
satisfies its reporting requirements with respect to that amount.
Section 162 Limitations. The Omnibus Budget Reconciliation Act of 1993
added Section 162(m) to the Code, which generally disallows a public company's
tax deduction for compensation to covered employees in excess of $1 million in
any tax year beginning on or after January 1, 1994. Compensation that qualifies
as "performance-based compensation" is excluded from the $1 million
deductibility cap, and therefore remains fully deductible by the Company that
pays it. The Company intends that Options granted to employees whom the
Committee expects to be covered employees at the time a deduction arises in
connection with such Options, will qualify as such "performance-based
compensation," so that such Options will not be subject to the Section 162(m)
deductibility cap of $1 million. Future changes in Section 162(m) or the
regulations thereunder may adversely affect the ability of the Company to ensure
that Options under the Amended and Restated Plan will qualify as
"performance-based compensation" that is fully deductible by the Company under
Section 162(m).
Importance of Consulting Tax Adviser. The information set forth above
is a summary only and does not purport to be complete. In addition, the
information is based upon current federal income tax rules and therefore is
subject to change when those rules change. Moreover, because the tax
consequences to any Optionee may depend on his particular situation, each
Optionee should consult his tax adviser as to the federal, state, local and
other tax consequences of the grant or exercise of an Option or the disposition
of Common Stock acquired on exercise of an Option.
30
Equity Compensation Plan Information
The following table summarizes information about the Company's equity
compensation plans as of October 31, 2007.
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
to be Issued Upon Weighted-Average Equity Compensation
Exercise of Exercise Price of Plans (Excluding
Outstanding Options, Outstanding Options, Securities Reflected in
Warrants, and Rights Warrants, and Rights Column (a))
Plan Category (a) (b) (c)
- ----------------------------------- -------------------- -------------------- ------------------------
Equity compensation plans
approved by security holders (1) 1,600,330 $10.21 162,904
Equity compensation plans not
approved by security holders (2) 275,000 $7.36 --
-------------------- ------------------------
Total 1,875,330 $9.79 162,904
==================== ========================
- ------------------------
(1) Represents aggregated information pertaining to the Company's three equity
compensation plans: the 1993 Stock Option Plan, the Non-Qualified Stock
Option Plan, and the 2002 Stock Option Plan. In accordance with the
instruction to Item 10, paragraph (c) under Schedule 14A, this table does
not include information with respect to additional securities to be
available for issuance under the Amended and Restated 2002 Stock Option
Plan, which additional securities are subject to shareholder approval
pursuant to this Proposal No. 2.
(2) Represents stock options granted to a former shareholder of a business
acquired in fiscal 1999. Such stock options were fully vested and
transferable as of the grant date and expire ten years from the date of
grant. The exercise price of such options was the fair market value as of
the date of grant.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE HEICO CORPORATION AMENDED AND RESTATED 2002 STOCK OPTION PLAN.
31
The following report of the Finance/Audit Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other HEICO filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent HEICOwe specifically
incorporates this Reportincorporate the report by reference therein.in any such filing.
FINANCE/AUDIT COMMITTEE REPORT
The Finance/Audit Committee (the "Audit Committee") of the Board of
Directors is composed entirely of five non-employee directors. The Board of
Directors has determined that each member of the Audit Committee is "financially
literate" and "independent" in accordance with the New York Stock Exchange's
listing standards and that Mr. Morrison is an "audit committee financial
expert," as defined by the Securities and Exchange Commission.
The purpose of the Audit Committee is to assist the Board of Directors
in fulfilling its responsibility for the oversight of the quality and integrity
of the accounting, auditing, internal control and financial reporting practices
of the Company and such other duties as directed by the Board of Directors. The
full responsibilities of the Audit Committee are set forth in its formal written
charter, which is available on HEICO's website at www.heico.com and is included
herein as Appendix B.www.heico.com.
Management is responsible for the Company's financial reporting
process, including establishing and maintaining its internal control over
financial reporting, and for the preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America. The Company's independent auditor, Deloitte & Touche
LLP, is responsible for auditing those financial statements and for expressing
an opinion as to whether those financial statements are, in all material
respects, presented fairly in conformity with accounting principles generally
accepted in the United States of America. Deloitte & Touche LLP is also
responsible for expressing an opinion on management's assessment and an opinion
on the effectiveness of the Company's internal control over financial reporting
based on its audit. The Audit Committee is responsible for monitoring and
reviewing these processes, acting in an oversight capacity relying on the
information provided to it and on the representations made by management and the
independent auditor.
As part of fulfilling its responsibilities, the Audit Committee
reviewed and discussed with management the Company's audited financial
statements as of and for the year ended October 31, 20062007 and discussed with
Deloitte & Touche LLP the matters required to be discussed by PCAOB Interim
Auditing Standard AU Section 380, "Communication with Audit Committees".Committees." The
Audit Committee received the written disclosures and the letter from Deloitte &
Touche LLP required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees".Committees." The Audit Committee discussed
and considered the independence of Deloitte & Touche LLP with representatives of
Deloitte & Touche LLP, reviewing as necessary all relationships and services
which might bear on the objectivity of Deloitte & Touche LLP. All non-audit
services performed by Deloitte & Touche LLP for the year ended October 31, 20062007
were pre-approved by the Audit Committee in accordance with its policy and
procedures, and the Audit Committee concluded that the provision of such
services by Deloitte & Touche LLP is compatible with maintaining its
independence. Deloitte & Touche LLP was provided with full access to the Audit
Committee to meet privately and was encouraged to discuss any matter it desired
with the Audit Committee or the full Board of Directors.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in its Annual Report on Form 10-K for the year
ended October 31, 2006,2007, for filing with the Securities and Exchange Commission.
Respectfully Submitted by the Finance/Audit Committee of the Company's Board of
Directors:
Albert Morrison, Jr. (Chairman), Samuel L. Higginbottom, Joseph W. Pallot,
Dr. Alan Schriesheim, and Frank J. Schwitter.
20
PERFORMANCE GRAPHS
The following graph and table compare the total return on $100 invested
in HEICO Common Stock and HEICO Class A Common Stock with the total return of
$100 invested in the New York Stock Exchange (NYSE) Composite Index and the Dow
Jones U.S. Aerospace Index for the five-year period from October 31, 2001
through October 31, 2006. The NYSE Composite Index measures all common stock
listed on the NYSE. The Dow Jones U.S. Aerospace Index is comprised of large
companies which make aircraft, major weapons, radar and other defense equipment
and systems as well as providers of satellites used for defense purposes. The
total returns include the reinvestment of cash dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[CHART APPEARS HERE]
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
---------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
---------- ---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 100.00 $ 64.29 $ 102.48 $ 130.93 $ 160.68 $ 265.26
HEICO Class A Common Stock (1) $ 100.00 $ 63.81 $ 101.42 $ 130.26 $ 159.20 $ 282.87
NYSE Composite Index $ 100.00 $ 86.56 $ 103.15 $ 115.85 $ 128.67 $ 151.90
Dow Jones U.S. Aerospace Index $ 100.00 $ 103.17 $ 117.96 $ 143.55 $ 173.94 $ 227.40
- ----------
(1) Information has been adjusted retroactively to give effect to a 10% stock
dividend paid in shares of Class A Common Stock in January 2004.
21
The following graph and table compare the total return on $100 invested
in HEICO Common Stock since October 31, 1990 with the same indices shown on the
five-year performance graph on the previous page. October 31, 1990 was the end
of the first fiscal year following the date the current executive management
team assumed leadership of the Company. No Class A Common Stock was outstanding
as of October 31, 1990. As with the five-year performance graph, the total
returns include the reinvestment of cash dividends.
COMPARISON OF SIXTEEN-YEAR CUMULATIVE TOTAL RETURN
[CHART APPEARS HERE]
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
---------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 100.00 $ 141.49 $ 158.35 $ 173.88 $ 123.41 $ 263.25
NYSE Composite Index $ 100.00 $ 130.31 $ 138.76 $ 156.09 $ 155.68 $ 186.32
Dow Jones U.S. Aerospace Index $ 100.00 $ 130.67 $ 122.00 $ 158.36 $ 176.11 $ 252.00
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
---------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 430.02 $ 1,008.31 $ 1,448.99 $ 1,051.61 $ 809.50 $ 1,045.86
NYSE Composite Index $ 225.37 $ 289.55 $ 326.98 $ 376.40 $ 400.81 $ 328.78
Dow Jones U.S. Aerospace Index $ 341.65 $ 376.36 $ 378.66 $ 295.99 $ 418.32 $ 333.32
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
--------------------------------------------------------------
2002 2003 2004 2005 2006
---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 670.39 $ 1,067.42 $ 1,366.57 $ 1,674.40 $ 2,846.48
NYSE Composite Index $ 284.59 $ 339.15 $ 380.91 $ 423.05 $ 499.42
Dow Jones U.S. Aerospace Index $ 343.88 $ 393.19 $ 478.49 $ 579.77 $ 757.97
- ----------
(1) Information has been adjusted retroactively to give effect to all stock
dividends paid during the sixteen-year period.
22
PROPOSAL TO APPROVE THE HEICO CORPORATION
2007 INCENTIVE COMPENSATION PLAN
(Proposal No. 2)
The Board of Directors recommends that you vote to approve the HEICO
Corporation 2007 Incentive Compensation Plan (the "Incentive Plan"). Such
shareholder approval will benefit the Company by enabling it to claim tax
deductions for incentive awards earned and paid under the Incentive Plan without
limitation under Section 162(m) of the Internal Revenue Code.
The Incentive Plan will provide to senior members of the Company's
management team who are executive officers the opportunity to earn cash annual
and long-term incentive awards. The Board of Directors regards the Incentive
Plan as an important means by which we can link executive pay to performance. By
providing for competitive levels of incentive compensation in a program that is
fully tax deductible by the Company, the Incentive Plan will serve as a useful
tool for attracting and retaining members of our senior management team.
Employees who are or may be promoted to executive officers are eligible for
selection for participation in the Incentive Plan. Currently we have five
executive officers.
SECTION 162(m)
Under Section 162(m), our ability to claim a tax deduction for
compensation paid or accrued with respect to the executive officers named in the
Summary Compensation Table and serving as such on the final day of the fiscal
year, defined as "covered employees," is limited to $1 million per year. Certain
types of compensation are exempted from this deductibility limitation, including
performance-based compensation. "Performance-based compensation" is compensation
paid (1) upon the attainment of an objective performance goal or goals, (2) upon
approval by the Compensation Committee or its equivalent, which committee must
be composed of outside Directors, and (3) pursuant to a plan as to which
shareholders have approved certain material terms, specifically the eligibility,
per-person limits, and the business criteria upon which the performance goals
are based. The Company intends that awards to persons who are potentially
"covered employees" under the Incentive Plan qualify as "performance-based
compensation" so that these awards will not be subject to the $1 million
deductibility limitation. Accordingly, shareholder approval of the Incentive
Plan will be deemed to include approval of the Incentive Plan's terms relating
to eligibility, annual limitations on incentive awards, and the business
criteria upon which performance goals may be based.
DESCRIPTION OF THE INCENTIVE PLAN
The following description of the Incentive Plan is qualified in its
entirety by the provisions of the Incentive Plan, a copy of which is attached as
Appendix A to this Proxy Statement.
The Incentive Plan authorizes the Compensation Committee of the Board
to select participants, designate performance periods, authorize performance
awards that may be earned by achievement of performance goals during the
performance periods, and set the other terms of performance awards.
Particular restrictions will apply to any authorization of an award
intended to qualify as "performance-based compensation" under Section 162(m).
Performance goals and related terms of such an award must be established during
the first 90 days of the performance period, and during the first 25% of any
performance period shorter than one year. The Compensation Committee must
specify the amounts that may be earned corresponding to particular levels of
performance. The Incentive Plan permits the Compensation Committee to measure
performance using a variety of business criteria, including the following:
o Net sales;
o Gross profit or pre-tax profit;
o Operating income, earnings before or after taxes, earnings before or
after minority interests, earnings before or after interest,
depreciation, amortization, or extraordinary or special items;
o Net income or net income per common share (basic or diluted);
23
o Return measures, including return on assets (gross or net), return on
investment, return on capital, or return on equity;
o Cash flow, free cash flow, cash flow return on investment (discounted
or otherwise), net cash provided by operating activities, or cash flow
in excess of cost of capital;
o Interest expense after taxes;
o Economic value created or economic profit;
o Operating margin or profit margin;
o Shareholder value creation measures, including but not limited to stock
price or total shareholder return;
o Revenues from specific assets, projects or lines of business;
o Expense targets, working capital targets, or operating efficiency; and
o Strategic business criteria, consisting of one or more objectives based
on meeting specified goals relating to market penetration, geographic
business expansion, operating goals, cost targets, customer
satisfaction, employee satisfaction, human resource management,
supervision of litigation and information technology, and acquisitions
or divestitures of assets, subsidiaries, affiliates or joint ventures.
The Compensation Committee retains discretion to set the level of
performance with respect to any business criteria that will result in the
earning of a specified amount under a performance award. Performance may be
measured in absolute terms, as a goal relative to performance in prior periods,
or as a goal compared to the performance of one or more comparable companies or
an index covering multiple companies, or in other ways specified by the
Compensation Committee.
A participant may potentially earn incentive awards up to his or her
"annual limit" in any calendar year. The annual limit for each individual is $5
million plus the amount of the participant's unused annual limit as of the close
of the previous fiscal year. A participant uses up his or her annual limit in a
given year based on the maximum potential amount of the incentive award
authorized by the Compensation Committee, even if the actual amount earned is
less than the maximum.
Upon completion of a performance period, the Compensation Committee
must determine the level of attainment of the pre-set performance goals and that
other material requirements have been met before any incentive award may be paid
out. For participants whose awards are intended to qualify for full tax
deductibility under Section 162(m), the Compensation Committee retains
discretion to adjust incentive awards downward, but not upward, in determining
the final award amount. For other participants, both upward and downward
adjustments are permitted.
The Compensation Committee generally can specify the circumstances in
which awards will be paid or forfeited in the event of a termination of
employment. However, the Incentive Plan provides that, in the event of death,
disability, retirement or termination of employment by the Company not for
cause, the participant will receive a pro rated incentive award, proportionate
to the part of the performance period worked by the participant, based on actual
performance, unless otherwise determined by the Compensation Committee.
The Compensation Committee has authority to amend, alter, suspend, or
terminate the Incentive Plan, but significant changes must be approved by the
Board. In addition, an amendment or modification must be approved by
shareholders if such approval is required to preserve the qualification of the
Incentive Plan under Section 162(m). Under this standard, however, amendments
that might broaden eligibility or increase the cost of the Incentive Plan to the
Company would not necessarily require shareholder approval.
24
NEW PLAN BENEFITS UNDER THE INCENTIVE PLAN
Awards under the Incentive Plan will be granted in the discretion of
the Compensation Committee. Except as described below, the recipients and other
terms of such awards cannot be determined at this time. Information regarding
our recent practices with respect to annual incentive awards under the current
programs is presented in the "Summary Compensation Table" and the "Compensation
Committee Report" included in this Proxy Statement.
The Compensation Committee has authorized certain incentive awards to
executive officers under the Incentive Plan, subject to shareholder approval of
the Incentive Plan, in order that those awards can qualify for full
deductibility if they are subsequently earned and paid out. These include annual
incentive awards for the fiscal year ending October 31, 2007. The annual
incentive awards will become payable for fiscal 2007 performance if a corporate
performance goal relating to net income excluding extraordinary items (if any)
is achieved. No amount will be payable unless a specified "threshold"
performance level is reached, and the award is payable at a designated maximum
rate if performance substantially in excess of the target performance level is
achieved. The table below shows the amounts payable under this award upon
achievement of specified levels of performance for fiscal 2007:
NEW PLAN BENEFITS
PAYOUT FOR PERFORMANCE AT SPECIFIED LEVEL
-----------------------------------------
NAME THRESHOLD TARGET MAXIMUM
- ----------------------------------------------- ----------- ----------- -----------
Laurans A. Mendelson $ 437,500 $ 875,000 $ 1,312,000
Thomas S. Irwin 227,500 455,000 682,500
Eric A. Mendelson 227,500 455,000 682,500
Victor H. Mendelson 227,500 455,000 682,500
All executive officers as a group (4 persons) 1,120,000 2,240,000 3,359,500
In the event shareholders disapprove the proposed Incentive Plan,
incentive awards will not be granted or paid out under the Incentive Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE HEICO CORPORATION 2007 INCENTIVE COMPENSATION PLAN.
2532
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal No. 3)
The Finance/Audit Committee has selected the firm of Deloitte & Touche
LLP as the Company's independent registered public accounting firm for the
fiscal year ending October 31, 2007.2008. Deloitte & Touche LLP has served as the
Company'sour
independent registered public accounting firm since 1990.
Shareholder ratification of this selection is not required by the
Company'sour
By-laws or otherwise. However, the Finance/Audit Committee and full Board of
Directors are requesting that shareholders ratify this appointment as a means
of soliciting shareholders' opinions and as a matter of good corporate
governance. If the shareholders do not ratify the selection, the Finance/Audit
Committee will reconsider whether or not to retain Deloitte & Touche LLP. Even
if the selection is ratified, the Finance/Audit Committee, in its discretion,
may direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines such change would
be in the best interests of the Company and its shareholders.
One or more representatives of Deloitte & Touche LLP are expected to be
present at the annual meeting on March 16, 2007.28, 2008. The representatives will have
the opportunity to make a statement, if they desire to do so, and will be
available to respond to appropriate questions from shareholders.
RECOMMENDATIONRecommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING OCTOBER
31, 2007.
PRINCIPAL ACCOUNTING FIRM FEES2008.
Principal Accounting Firm Fees
The following table presents the aggregate fees billed to the Company
by Deloitte & Touche LLP during the fiscal years ended October 31, 20062007 and
2005:
2006 2005
----------- -----------
Audit Fees (1) $ 1,650,000 $ 1,368,000
Audit-Related Fees (2) 20,000 17,000
Tax Fees (3) 241,000 214,000
All Other Fees -- --
----------- -----------
Total Fees $ 1,911,000 $ 1,599,000
=========== ===========2006:
2007 2006
---------- ----------
Audit Fees (1) $1,773,000 $1,650,000
Audit-Related Fees (2) 31,000 20,000
Tax Fees (3) 11,000 241,000
All Other Fees 20,000 --
---------- ----------
Total Fees $1,835,000 $1,911,000
========== ==========
- -----------------------------
(1) Audit Fees consist of fees billed for services rendered for the annual audit
of the Company'sour consolidated financial statements, the audit of management's assessment of its internal control over financial reporting,
the audit of the effectiveness of
the Company'sour internal control over financial reporting, the review of condensed
consolidated financial statements included in the Company'sour quarterly reports on Form
10-Q and services that are normally provided in connection with statutory
and regulatory filings or engagements.
(2) Audit-Related Fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of the Company'sour
consolidated financial statements that are not reported under the caption
"Audit Fees".Fees." The category includes fees related to audit of the HEICO
Savings and Investment Plan.
(3) Tax Fees consist of fees billed for services rendered for tax compliance.
2633
PRE-APPROVAL OF SERVICES PROVIDED BY THE INDEPENDENT AUDITORPre-approval of Services Provided by the Independent Auditor
The Finance/Audit Committee (the "Committee") has adopted a policy to pre-approve all
audit and permissible non-audit services provided by the independent auditor.
The Committee will consider annually and, if appropriate, approve the scope of
the audit services to be performed during the fiscal year as outlined in an
engagement letter proposed by the independent auditor. For permissible
non-audit services, the Companymanagement will submit to the Committee, at least annually,
a list of services and a corresponding budget estimate that it recommends the
Committee engage the independent auditor to provide. To facilitate the prompt
handling of certain unexpected matters, the Committee delegates to its Chairman
the authority to approve in advance all audit and non-audit services below
$10,000 to be provided by the independent auditor if presented to the full
Committee at the next regularly scheduled meeting. The independent auditor and
Companymanagement will routinely inform the Committee as to the extent of services
provided by the independent auditor in accordance with this pre-approval policy
and the fees incurred for the services performed to date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain subsidiaries of Lufthansa, for which Mr. Mayrhuber serves as
Chairman of the Executive Board and Chief Executive Officer, are customers of
certain subsidiaries of the Company. Purchases made by such subsidiaries of
Lufthansa represented in excess of five percent, but less than 10%, of the
Company's consolidated gross revenues for the fiscal year ended October 31,
2006.2007. The Company expects this customer relationship to continue in the current
fiscal year. The Company believes that the terms of its transactions with
Lufthansa are no less favorable to the Company than would have been obtained
from an unrelated party, and that Mr. Mayrhuber is not afforded any special
benefits as a result of the Company's transactions with Lufthansa. See page 9
for additional information.information about the Board of Directors' determination that Mr.
Mayrhuber is an independent director. The Financial/Audit Committee advises the
Board of Directors regarding potential transactions between the Company and any
of its directors or officers, and reviews them under a standard that the terms
of any such transaction should be no less favorable to the Company than would be
obtained from an unrelated party.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of reports of ownership, reports of changes
of ownership and written representations under Section 16(a) of the Securities
Exchange Act of 1934, which were furnished to the Company during or with respect
to fiscal 20062007 by persons who were, at any time during fiscal 2006,2007, directors or
executive officers of the Company or beneficial owners of more than 10% of the
outstanding shares of Common Stock or Class A Common Stock, no such person
failed to file on a timely basis any report required by such section during
fiscal 2006.2007.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any shareholder of the Company who wishes to present a proposal for action at the Company'sour next
annual meeting of shareholders presentlytentatively scheduled for March 14, 2008,27, 2009, or to
nominate a director candidate for the Company'sour Board of Directors, must submit such
proposal or nomination in writing to the Corporate Secretary at HEICO
Corporation, 3000 Taft Street, Hollywood, Florida 33021. The proposal or
nomination should comply with the time period and information requirements as
set forth in the Company'sour By-laws relating to shareholder business or shareholder
nominations, respectively. Shareholders interested in submitting a proposal for
inclusion in the Proxy Statement for the 20082009 annual meeting of shareholders may
do so by following the procedures prescribed in SEC Rule 14a-8. To be eligible
for inclusion, shareholder proposals must be received by the Company'sour Corporate Secretary
at the herein above address no later than October 23, 2007.
2731, 2008.
34
COMMUNICATION WITH THE BOARD OF DIRECTORS
Any shareholder or other interested party of the Company who wishes to
communicate with the Board of Directors, a committee of the Board, the
non-management directors as a group or any individual member of the Board, may
send correspondence to the Corporate Secretary at HEICO Corporation, 3000 Taft
Street, Hollywood, Florida 33021. The Corporate Secretary will compile and
submit on a periodic basis all shareholder and other interested parties'
correspondence to the entire Board of Directors, or, if and as designated in the
communication, to a committee of the Board, the non-management directors as a
group, the Presiding Director or an individual Board member.
SHAREHOLDERS SHARING THE SAME ADDRESS
The Company hasWe have adopted a procedure called "householding", which has
been in accordance with
rules approved by the Securities and Exchange Commission. Under this procedure,
a single copy of the annual report and proxy statement will be sent to any
household at which two or more shareholders reside if they appear to be members
of the same family, unless one of the shareholders at that address notifies us
that they wish to receive individual copies. Shareholders who participate in
householding will continue to receive separate proxy cards. Householding will
not affect dividend mailings in any way. This procedure reduces the Company'sour printing
costs and mailing fees.
If a single copy of the annual report and proxy statement was delivered
to an address that you share with another shareholder and you wish to receive a
separate copy of the 20062007 annual report or this proxy statement, or if you do
not wish to participate in householding and prefer to receive separate copies of
future materials, or if you are sharing an address with another shareholder and
are receiving multiple copies of annual reports or proxy statements and would
like to request delivery of a single copy of annual reports or proxy statements,
please call the Companyus at (954)-987-4000 987-4000 or write to the Corporate Secretary at HEICO
Corporation, 3000 Taft Street, Hollywood, Florida 33021.
GENERAL AND OTHER MATTERS
Neither HEICO nor the members of its Board of Directors intend to bring
before the Annual Meeting any matters other than those referred to in the
accompanying Notice of Annual Meeting of Shareholders. They have no present
knowledge that any other matters will be presented to be acted on pursuant to
your proxy. However, if any other matters properly come before the Annual
Meeting, the persons whose names appear in the enclosed form of proxy will have
the discretionary authority to vote the proxy in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
Laurans A. Mendelson
Chairman of the Board, President
and Chief Executive Officer
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APPENDIXAppendix A
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HEICO CORPORATION
2007 INCENTIVE COMPENSATIONAMENDED AND RESTATED
2002 STOCK OPTION PLAN
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1. GENERAL
This 2007 Incentive CompensationPurpose. The purpose of this Plan (the "Plan")is to advance the interests of HEICO
Corporation, a Florida corporation (the "Company") authorizes the grant of annual, and its Related Entities by
providing an additional incentive and long-term incentive
awards to executive officers and sets forth certain terms and conditions of such
Awards. The purpose of the Plan is to help the Company attract and retain executive officers of outstanding abilityqualified and competent
persons who provide services to motivate such persons to exert
their greatestthe Company and its Related Entities, and upon
whose efforts on behalfand judgment the success of the Company and its subsidiariesRelated Entities
is largely dependent, through the encouragement of stock ownership in the
Company by providing incentives directly linked tosuch persons.
2. Definitions. As used herein, the measuresfollowing terms shall have the
meanings indicated:
(a) "Board" shall mean the Board of Directors of the financial success
and performanceCompany.
(b) "Cause" shall mean a "Cause" as defined in the Optionee's
employment agreement with the Company or a Related Entity or in the absence of
an employment agreement, willful misconduct or gross negligence.
(c) "Class A Common Stock" shall mean the shares of Class A Common
Stock of the Company, and its businesses. The Plan is intended to
permit the Committee to qualify certain Awards as "performance-based"
compensation under Code Section 162(m).
2. DEFINITIONS
In addition to the terms defined in Section 1 and elsewhere in the
Plan, the following are defined terms under this Plan:
(a) "Annual Incentive Award" means an Award earned based on
performance in a Performance Period of one fiscal year or a portion thereof.
(b) "Award" means the amount of a Participant's Award Opportunity
in respect of a Performance Period determined by the Committee to have been
earned, and the Participant's rights to current or future payments in settlement
thereof.
(c) "Award Opportunity" means the Participant's opportunity to
earn specified amounts based on performance during a Performance Period. An
Award Opportunity constitutes a conditional right to receive settlement of an
Award.par value $0.01.
(d) "Cause" means "cause" as defined in an employment agreement
between the Company and the Participant in effect at the time of Termination of
Employment. If, however, there is no such employment agreement, Cause means an
individual's (i) intentional failure to perform reasonably assigned duties, (ii)
willful misconduct in the performance of duties, (iii) knowing misconduct which
results in the Company being required to prepare an accounting restatement due
to the material noncompliance of the Company with any financial reporting
requirement under the securities laws, (iv) willful violation of any law, rule
or regulation in connection with the performance of duties (other than traffic
violations or similar offenses), or (v) the commission of an act of fraud or
intentional misappropriation or conversion of assets or opportunities of the
Company or any subsidiary; provided, however, that the Committee may vary the
definition of "Cause" in any agreement or document relating to an Award to be
earned, but not yet earned.
(e) "Code" meansshall mean the Internal Revenue Code of 1986, as amended
from time to time.
References(e) "Committee" shall mean the committee appointed by the Board
pursuant to any provisionSection 13(a) hereof, or, if such committee is not appointed, the
Board.
(f) "Common Stock" shall mean the shares of Common Stock of the
Code include and successor
provisions thereto and regulations thereunder.
(f) "Committee" means the Compensation Committee of the Board of
Directors,Company, par value $.01.
(g) "Company" shall mean HEICO Corporation, a Florida corporation.
(h) "Consultant" shall mean any person (other than an Employee or such other Board committee as the Board may designate to
administer the Plan.
(g) "Covered Employee" means a
person designated by the Committee
as likely,Director, solely with respect to a given fiscal year of the Company, to be the Chief
Executive Officer or one of the other persons who will be named executive
officers whose compensation potentially will be subject to the limitations on
tax deductibility under Code Section 162(m) for that year (or a later yearrendering services in which an Award may be settled). This designation generally is required at the
time an Award Opportunity is granted. This designation generally is required at
the time an Award Opportunity is authorized. The Committee may designate more
than five persons as Covered Employees with respect to a given year.
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(h) "Participant" means an employee participating in this Plan.
(i) "Performance Goal" means the Company, business unit or
individual performance objectives or accomplishments requiredsuch person's capacity as
a condition to
the earning of an Award Opportunity.
(j) "Performance Period" means the period, specified by the
Committee, over which an Award Opportunity may be earned.
(k) "Retirement" means Termination of Employment of the
Participant at or after the Participant has reached age 65, at or after the
Participant has reached age 55 with 10 years of service or upon any other
Termination deemed a retirement by the Committee; provided, however, that in the
case of any retirement before age 65, the Participant shall have executed a
general release and has agreed to be subject to covenants relating to
noncompetition, nonsolicitation and other commitments through the end of the
Performance Period in which the Retirement occurs as then may be required by the
Committee for the protection of the Company's business.
(l) "Termination of Employment" means the termination of a
Participant's employment with the Company or a subsidiary immediately after
which the ParticipantDirector) who is not employedengaged by the Company or any subsidiary.
3. ADMINISTRATION
(a) AdministrationRelated Entity to render
consulting or advisory services to the Company or such Related Entity.
(i) "Continuous Service" shall mean the continuous service to the
Company or Related Entity, without interruption or termination, in any capacity
of Employee, Director or Consultant. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
among the Company, any Related Entity, or any successor, in any capacity of
Employee, Director or Consultant, or (iii) any change in status as long as the
individual remains in the service of the Company or a Related Entity in any
capacity of Employee, Director or Consultant (except as otherwise provided in
the Option Agreement). An approved leave of absence shall include sick leave,
military leave, or any other authorized personal leave.
(j) "Director" shall mean a member of the Board or the board of
directors of any Related Entity.
(k) "Effective Date" shall mean March 19, 2002.
(l) "Employee" shall mean any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a Director's normal compensation and fee (as applicable to all Directors or
Committee members, as the case may be) by the Committee. The Plan willCompany or a Related Entity shall
not be administeredsufficient to constitute "employment" by the Committee, provided thatCompany.
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(m) "Fair Market Value" of a Share on any date of reference shall
mean the "Closing Price" (as defined below) of the Shares on the trading day
immediately preceding the date of reference, unless the Committee may conditionor the Board
in its sole discretion shall determine otherwise in a fair and uniform manner.
For the purpose of determining Fair Market Value, the "Closing Price" of the
shares on any business day shall be (i) if the Shares are listed or admitted for
trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of its actionsthe Shares on approvalsuch exchange or ratificationreporting
system, as reported in any newspaper of general circulation, (ii) if the Shares
are quoted on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), or any similar system of automated dissemination
of quotations of securities prices in common use, the last reported sale price
of the Shares on such system or, if sales prices are not reported, the mean
between the closing high bid and low asked quotations for such day of the Shares
on such system, as reported in any newspaper of general circulation or (iii) if
neither clause (i) or (ii) is applicable, the mean between the high bid and low
asked quotations for the Shares as reported by the Board of Directors orNational Quotation Bureau,
Incorporated if at least two securities dealers have inserted both bid and asked
quotations for the independent
directorsShares on at least five of the Board. The Committeeten preceding days. If neither
(i), (ii), or (iii) above is applicable, then Fair Market Value shall have full and final authority to
take all actions hereunder, subject to and consistent with the provisions of the
Plan. This authority includes authority to correct any defect or supply any
omission or reconcile any inconsistency in the Plan and to construe and
interpret the Plan and any plan rules and regulations, authorization of an Award
Opportunity, Award, Award agreement, or other document hereunder; and to make
all other decisions and determinations as may be
required under the terms of the
Plan or as the Committee may deem necessary or advisable for the administration
of the Plan.
(b) Manner of Exercise of Authority. Any actiondetermined by the Committee or the Board in a fair and uniform manner.
(n) "Incentive Stock Option" shall mean an incentive stock option as
defined in Section 422 of the Code.
(o) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(p) "Officer" shall mean the Company's Chairman of the Board,
President, Chief Executive Officer, principal financial officer, principal
accounting officer, any vice-president of the Company in charge of a principal
business unit, division or function (such as sales, administration or finance),
any other officer who performs a policy-making function, or any other person who
performs similar policy-making functions for the Company. Officers of
Subsidiaries shall be deemed Officers of the Company if they perform such
policy-making functions for the Company. As used in this paragraph, the phrase
"policy-making function" does not include policy-making functions that are not
significant. If pursuant to Item 401(b) of Regulation S-K (17 C.F.R. ss.
229.401(b)) the Company identifies a person as an "executive officer," the
person so identified shall be deemed an "Officer" even though such person may
not otherwise be an "Officer" pursuant to the foregoing provisions of this
paragraph.
(q) "Option" (when capitalized) shall mean any option granted under
this Plan.
(r) "Option Agreement" shall mean the agreement between the Company
and the Optionee for the grant of an option.
(s) "Optionee" shall mean a person to whom a stock option is granted
under this Plan or any person who succeeds to the rights of such person under
this Plan by reason of the death of such person.
(t) "Outside Director" shall mean a member of the Board who qualifies
as an "outside director" under Section 162(m) of the Code and the regulations
thereunder and as a "Non-Employee Director" under Rule 16b-3 promulgated under
the Securities Exchange Act.
(u) "Parent" shall mean any corporation (other than the Company),
whether now or hereafter existing, in an unbroken chain of corporations ending
with the Company, if each of the corporations in the chain (other than the
Company) owns stock possessing 50% or more of the combined voting power of all
classes of stock in one of the other corporations in the chain.
(v) "Plan" shall mean this 2002 Amended and Restated Stock Option
Plan for the Company.
(w) "Related Entity" shall mean any Parent or Subsidiary, and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
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(x) "Securities Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
(y) "Share" or "Shares" shall mean a share of Common Stock or Class A
Common Stock.
(z) "Subsidiary" shall mean any corporation (other than the Company),
whether now or hereafter existing, in an unbroken chain of corporations
beginning with the Company, if each of the corporations other that the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
3. Shares Available for Option Grants. The Committee or the Board may
grant to Optionees from time to time Options to purchase an aggregate number of
Shares in an amount up to 1,654,173 Shares from the Company's authorized and
unissued Shares. The Options granted pursuant to this Plan may be with respect
to Common Stock and/or Class A Common Stock, in such proportions as shall be
determined by the Board or the Committee in its sole discretion. The aggregate
number of Shares available for the grant of Incentive Stock Options shall be
1,654,173 Shares. If any Option granted under the Plan shall terminate, expire,
or be canceled or surrendered as to any Shares, new Options may thereafter be
granted covering such Shares.
4. Incentive and Non-Qualified Options.
(a) An Option granted hereunder shall be either an Incentive Stock
Option or a Non-Qualified Stock Option as determined by the Committee or the
Board at the time of grant of the Option and shall clearly state whether it is
an Incentive Stock Option or a Non-Qualified Stock Option. All Incentive Stock
Options shall be granted within 10 years from the Effective Date. Incentive
Stock Options may not be granted to any person who is not an Employee of the
Company, the Parent or a Subsidiary.
(b) Options otherwise qualifying as Incentive Stock Options hereunder
will not be treated as Incentive Stock Options to the extent that the aggregate
fair market value (determined at the time the Option is granted) of the Shares,
with respect to which Options meeting the requirements of Section 422(b) of the
Code are exercisable for the first time by any individual during any calendar
year (under all plans of the Company and its Parent and Subsidiaries), exceeds
$100,000.
5. Conditions for Grant of Options.
(a) Each Option shall be evidenced by an Option Agreement that may
contain any term deemed necessary or desirable by the Committee or the Board,
provided such terms are not inconsistent with this Plan or any applicable law.
Optionees shall be those persons who are selected by the Committee or the Board
from the class of all Employees, Directors and Consultants of the Company or any
Related Entity.
(b) In granting Options, the Committee or the Board shall take into
consideration the contribution the person has made to the success of the Company
or any Related Entities and such other factors as the Committee or the Board
shall determine. The Committee or the Board shall also have the authority to
consult with and receive recommendations from officers and other personnel of
the Company and its Related Entities with regard to these matters. The Committee
or the Board may from time to time in granting Options under the Plan prescribe
such other terms and conditions concerning such Options as it deems appropriate,
including, without limitation, (i) prescribing the date or dates on which the
Option becomes exercisable, (ii) providing that the Option rights accrue or
become exercisable in installments over a period of years, or upon the
attainment of stated goals or both, (iii) prescribing pay back to the Company of
gains realized on the exercise of Options and forfeiture or expiration of Option
rights, or (iv) relating an Option to the Continuous Service or continued
employment of the Optionee for a specified period of time, provided that such
terms and conditions are not more favorable to an Optionee than those expressly
permitted herein.
(c) The Options granted to Optionees under this Plan shall be in
addition to regular salaries, pension, life insurance or other benefits related
to their employment or Continuous Service with the Company or its
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Related Entities. Neither the Plan nor any Option granted under the Plan shall
confer upon any person any right to employment or continuance of employment or
Continuous Service by the Company or its Related Entities.
(d) The Committee or the Board shall have the discretion to grant
Options that are exercisable for unvested Shares. Should the Optionee's
Continuous Service cease while holding such unvested Shares, the Company shall
have the right to repurchase, at the exercise price paid per share, any or all
of those unvested Shares. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the appropriate
vesting schedule for the purchased Shares) shall be established by the Committee
or the Board and set forth in the Option Agreement for the relevant Option.
(e) Notwithstanding any other provision of this Plan, an Incentive
Stock Option shall not be granted to any person owning directly or indirectly
(through attribution under Section 424(d) of the Code) at the date of grant,
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company (or of any Parent or Subsidiary of the Company at the
date of grant) unless the option price of such Option is at least 110% of the
Fair Market Value of the Shares subject to such Option on the date the Option is
granted, and such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
(f) Subject to the provision of Section 5(g) below, notwithstanding
any other provision of this Plan, and in addition to any other requirements of
this Plan, the aggregate number of Options granted to any one Optionee may not
exceed 250,000 per fiscal year of the Company, subject to adjustment as provided
in Section 10 hereof. The aggregate number of Options granted to any one
Optionee may be increased from 250,000 per fiscal year to 400,000 (subject to
adjustment as provided in Section 10 hereof) as an initial one-time grant
available only in the fiscal year of the Company in which an Optionee is first
employed by the Company or one of its Related Entities.
(g) Upon the exercise of an option granted under the Plan or under
any other stock plan of the Company which may be designated by the Committee or
the Board from time to time, the Optionee, at the discretion of the Committee or
the Board, may receive a reload option on the terms, conditions and limitations
determined by the Committee or the Board, from time to time. A reload option
gives the Optionee the right to purchase a number of Shares equal to the number
of Shares surrendered to pay the exercise price and/or used to pay the
withholding taxes applicable to an Option exercise. Reload options do not
increase the net equity position of an Optionee. Their purpose is to facilitate
continued stock ownership in the Company by Optionees.
6. Option Price. The option price per Share of any Option shall be any
price determined by the Committee or the Board; provided, however, that in no
event shall the option price per Share of any Option be less than the Fair
Market Value of the Shares underlying such Option on the date such Option is
granted.
7. Exercise of Options.
(a) An Option shall be deemed exercised when (i) the Company has
received written notice of such exercise in accordance with the terms of the
Option, (ii) full payment of the aggregate option price of the Shares as to
which the Option is exercised has been made, and (iii) arrangements that are
satisfactory to the Committee or the Board in its sole discretion have been made
for the Optionee's payment to the Company of the amount that is necessary for
the Company or Related Entity employing the Optionee to withhold in accordance
with applicable Federal or state tax withholding requirements.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, as well as the method of payment of the option price and
of any withholding and employment taxes applicable thereto, shall be determined
by the Committee or the Board and may in the discretion of the Committee or the
Board consist of: (1) cash, (2) certified or official bank check, (3) money
order, (4) Shares that have been held by the Optionee for at least six (6)
months (or such other Shares as the Company determines will not cause the
Company to recognize for financial accounting purposes a charge for compensation
expense), (5) the withholding of Shares issuable upon exercise of the Option,
(6) pursuant to a "cashless exercise" procedure, by delivery of a properly
executed exercise notice together with such other documentation, and subject to
such guidelines, as the Board or the Committee shall require to effect an
exercise of the Option and delivery to the Company by a licensed broker
acceptable to the Company of proceeds from the sale of Shares or a margin loan
sufficient to pay the exercise price and any
A-4
applicable income or employment taxes, or (7) such other consideration as the
Committee or the Board deems appropriate, or by a combination of the above. In
the case of an Incentive Stock Option, the permissible methods of payment shall
be specified at the time the Option is granted. The Committee or the Board in
its sole discretion may accept a personal check in full or partial payment of
any Shares. If the exercise price is paid, and/or the Optionee's tax withholding
obligation is satisfied, in whole or in part with Shares, or through the
withholding of Shares issuable upon exercise of the Option, the value of the
Shares surrendered or withheld shall be their Fair Market Value on the date the
Option is exercised.
(c) The Committee or the Board in its sole discretion may, on an
individual basis or pursuant to a general program established in connection with
this Plan, cause the Company to lend money to an Optionee, guarantee a loan to
an Optionee, or otherwise assist an Optionee to obtain the cash necessary to
exercise all or a portion of an Option granted hereunder or to pay any tax
liability of the Optionee attributable to such exercise. If the exercise price
is paid in whole or part with the Optionee's promissory note, such note shall
(i) provide for full recourse to the maker, (ii) be collateralized by the pledge
of the Shares that the Optionee purchases upon exercise of the Option, (iii)
bear interest at the prime rate of the Company's principal lender, and (iv)
contain such other terms as the Committee or the Board in its sole discretion
shall reasonably require.
(d) No Optionee shall be deemed to be a holder of any Shares subject
to an Option unless and until a stock certificate or certificates for those
Shares are issued to that person(s) under the terms of this Plan. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date the stock certificate is issued, except as
expressly provided in Section 10 hereof.
8. Exercisability of Options. Any Option shall become exercisable in such
amounts, at such intervals and upon such terms and/or conditions as the
Committee or the Board shall provide in the Option Agreement for that Option,
except as otherwise provided in this Section 8:
(a) The expiration date of an Option Agreement shall be determined by
the Committee or the Board at the time of grant, but in no event shall an Option
be exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise provided in any Option, each outstanding Option
shall not become immediately fully exercisable in the event of a "Change in
Control" but shall become fully exercisable in the event that the Committee or
the Board exercises its discretion to provide a cancellation notice with respect
to the Option pursuant to Section 9(b) hereof. For this purpose, the term
"Change in Control" shall mean:
(i) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or other form of corporate transaction or
series of transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately thereafter, own more than
50% of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated company's then outstanding
voting securities, in substantially the same proportions as their ownership
immediately prior to such reorganization, merger, consolidation or other
transaction, or a liquidation or dissolution of the Company or the sale of all
or substantially all of the assets of the Company (unless such reorganization,
merger, consolidation or other corporate transaction, liquidation, dissolution
or sale is subsequently abandoned); or
(ii) Individuals who, as of the date on which the Option is
granted, constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to the date on which the Option was granted whose election,
or nomination for election by the Company's shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
(other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company) shall be, for purposes
of this Agreement, considered as though such person were a member of the
Incumbent Board; or
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(iii) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act, of beneficial ownership (within the meaning of Rule
13-d promulgated under the Securities Exchange Act) of 30% of either the then
outstanding Shares of the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors (hereinafter referred to as the ownership of a "Controlling Interest")
excluding, for this purpose, any acquisitions by (1) the Company or its
Subsidiaries, (2) any person, entity or "group" that as of the date on which the
Option is granted owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest, (3)
any employee benefit plan of the Company or its Subsidiaries or (4) the
Mendelson Group. For this purpose, the term "Mendelson Group" shall mean Laurans
A. Mendelson and his immediate family, which shall include his spouse, parents,
descendants and spouses of descendants. The Mendelson Group shall also include
trusts, partnerships, limited liability companies, corporations, or other
entities in which a member or members of the Mendelson Group own, directly or
indirectly, more than fifty percent (50%) of the voting power or value.
(c) The Committee or the Board may in its sole discretion, accelerate
the date on which any Option may be exercised and may accelerate the vesting of
any Shares subject to any Option or previously acquired by the exercise of any
Option.
9. Termination of Option Period.
(a) Unless otherwise provided in any Option Agreement, the
unexercised portion of any Option shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(i) three months after the date on which the Optionee's
Continuous Service is terminated other than by reason of (A) "Cause", (B) a
mental or physical disability (within the meaning of Internal Revenue Code
Section 22(e)) of the Optionee as determined by a medical doctor satisfactory to
the Committee or the Board, or (C) death of the Optionee;
(ii) immediately upon the termination of the Optionee's
Continuous Service for Cause;
(iii) twelve months after the date on which the Optionee's
Continuous Service is terminated by reason of a mental or physical disability
(within the meaning of Section 22(e) of the Code) as determined by a medical
doctor satisfactory to the Committee or the Board;
(iv) (A) twelve months after the date of termination of the
Optionee's Continuous Service by reason of the death of the Optionee, or, if
later, (B) three months after the date on which the Optionee shall die if such
death shall occur during the one year period specified in Subsection 9(a)(iii)
hereof.
(b) To the extent not previously exercised, (i) each Option shall
terminate immediately in the event of (1) the liquidation or dissolution of the
Company, or (2) any reorganization, merger, consolidation or other form of
corporate transaction (each a "Corporate Transaction") in which either the
Company does not survive or the Shares are exchanged for or converted into
securities issued by another entity, unless the successor or acquiring entity,
or an affiliate thereof, assumes the Option or substitutes an equivalent option
or right pursuant to Section 10(c) hereof, and (ii) the Committee or the Board
in its sole discretion may by written notice ("cancellation notice") cancel,
effective upon the consummation of any Corporate Transaction, any Option that
remains unexercised and would otherwise not terminate on the effective date of
that transaction. The Committee or the Board shall give written notice of any
proposed transaction referred to in this Section 9(b) a reasonable period of
time prior to the closing date for such transaction (which notice may be given
either before or after approval of such transaction), in order that Optionees
may have a reasonable period of time prior to the closing date of such
transaction within which to exercise any Options that then are exercisable
(including any Options that may become exercisable upon the closing date of such
transaction). An Optionee may condition his exercise of any Option upon the
consummation of a transaction referred to in this Section 9(b).
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10. Adjustment of Shares.
(a) If at any time while the Plan is in effect or unexercised Options
are outstanding, there shall be any increase or decrease in the number of issued
and outstanding Shares through the declaration of a stock dividend or through
any recapitalization resulting in a stock split-up, combination or exchange of
Shares, then and in that event, the Board or the Committee shall make:
(i) appropriate adjustment in the maximum number of Shares
available for grant under the Plan, or available for grant to any person under
the Plan, so that the same percentage of the Company's issued and outstanding
Shares shall continue to be subject to being so optioned; and
(ii) any adjustments it deems appropriate in the number of
Shares and the exercise price per Share thereof then subject to any outstanding
Option, so that the same percentage of the Company's issued and outstanding
Shares shall remain subject to purchase at the same aggregate option price.
(b) Unless otherwise provided in any Option Agreement, the Board or
the Committee may change the terms of Options outstanding under this Plan, with
respect to the option price or the number of Shares subject to the Options, or
both, when, in the sole discretion of the Board or the Committee, such
adjustments become appropriate so as to preserve benefits under the Plan.
(c) In the event of a proposed sale of all or substantially all of
the Company's assets or any reorganization, merger, consolidation or other form
of corporate transaction in which the Company does not survive, or in which the
Shares are exchanged for or converted into securities issued by another entity,
then the successor or acquiring entity or an affiliate thereof may, with the
consent of the Committee or the Board, assume each outstanding Option or
substitute an equivalent option or right. If the successor or acquiring entity,
or an affiliate thereof, does not cause such an assumption or substitution to
occur, or the Committee or the Board does not consent to such an assumption or
substitution, then each Option shall terminate pursuant to Section 9(b) hereof
upon consummation of the sale, merger, consolidation or other corporate
transaction.
(d) Except as otherwise expressly provided herein, the issuance by
the Company of Shares of its capital stock of any class, or securities
convertible into Shares of capital stock of any class, either in connection with
a direct sale or upon the exercise of rights or warrants to subscribe therefore,
or upon conversion of Shares or obligations of the Company convertible into such
Shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made to, the number of or exercise price for Shares then
subject to outstanding Options granted under the Plan.
(e) Without limiting the generality of the foregoing, the existence
of outstanding Options granted under the Plan shall not affect in any manner the
right or power of the Company to make, authorize or consummate (i) any or all
adjustments, recapitalizations, reorganizations or other changes in the capital
structure or business of the Company or any Related Entity; (ii) any merger or
consolidation of the Company or any Related Entity; (iii) any issue by the
Company or any Related Entity of debt securities, or preferred or preference
stock that would rank above the Shares subject to outstanding Options; (iv) the
dissolution or liquidation of the Company or any Related Entity; (v) any sale,
transfer or assignment of all or any part of the assets or business of the
Company or any Related Entity; or (vi) any other corporate act or proceeding,
whether of a similar character or otherwise.
11. Transferability of Options and Shares.
(a) No Incentive Stock Option, and unless the prior written consent
of the Committee or the Board is obtained (which consent may be withheld for any
reason) and the transaction does not violate the requirements of Rule 16b-3
promulgated under the Securities Exchange Act no Non-Qualified Stock Option,
shall be subject to alienation, assignment, pledge, charge or other transfer
other than by the Optionee by will or the laws of descent and distribution, and
any attempt to make any such prohibited transfer shall be void. Each Option
shall be exercisable during the Optionee's lifetime only by the Optionee, or in
the case of a Non- Qualified Stock Option that has been assigned or transferred
with the prior written consent of the Committee or the Board, only by the
permitted assignee.
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(b) No Shares acquired by an Officer or Director pursuant to the
exercise of an Option may be sold, assigned, pledged or otherwise transferred
prior to the expiration of the six-month period following the date on which the
Option was granted, unless the transaction does not violate the requirements of
Rule 16b-3 promulgated under the Securities Exchange Act.
12. Issuance of Shares.
(a) Notwithstanding any other provision of this Plan, the Company
shall not be obligated to issue any Shares unless it is advised by counsel of
its selection that it may do so without violation of the applicable Federal and
State laws pertaining to the issuance of securities, and may require any stock
so issued to bear a legend, may give its transfer agent instructions, and may
take such other steps, as in its judgment are reasonably required to prevent any
such violation.
(b) As a condition to any sale or issuance of Shares upon exercise of
any Option, the Committee or the Board may require such agreements or
undertakings as the Committee or the Board may deem necessary or advisable to
facilitate compliance with any applicable law or regulation including, but not
limited to, the following:
(i) a representation and warranty by the Optionee to the
Company, at the time any Option is exercised, that he is acquiring the Shares to
be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to be bound
by any legends endorsed upon the certificate(s) for the Shares that are, in the
opinion of the Committee or the Board, necessary or appropriate to facilitate
compliance with the provisions of any securities laws deemed by the Committee or
the Board to be applicable to the issuance and transfer of those Shares.
13. Administration of the Plan.
(a) The Plan shall be administered by the Board or, at the discretion
of the Board, by a committee appointed by the Board (the "Committee") which
shall be composed of two or more Directors. The membership of the Committee
shall be constituted so as to comply at all times with the then applicable
requirements for Outside Directors of Rule 16b-3 promulgated under the
Securities Exchange Act and Section 162(m) of the Code. The Committee shall
serve at the pleasure of the Board and shall have the powers designated herein
and such other powers as the Board may from time to time confer upon it.
(b) Any and all decisions or determinations of the Committee shall be
made either (i) by a majority vote of the members of the Committee at a meeting
or (ii) without a meeting by the unanimous written approval of the members of
the Committee.
(c) The Committee or the Board, from time to time, may adopt rules
and regulations for carrying out the purposes of the Plan.
(d) The determinations of the Committee, and its interpretation and
construction of any provision of the Plan or any Option Agreement, shall be
final conclusive,and binding on all persons, unless determined otherwise by the Board. The
determinations of the Board, and its interpretation and construction of any
provision of the Plan or any Option Agreement, shall be final and binding on all
persons, including the Company, subsidiaries or affiliates, Participants,Committee. In the event that any person claimingaction taken by the
Board conflicts with any rights under the Plan from or through any Participant,
and shareholders. The express grant of any specific power to the Committee, and
the taking of any action taken by the Committee, the Board action shall
not be construed as limiting
any powercontrol.
14. Withholding or authority of the Committee. A memorandum signed by all members of
the Committee shall constitute the act of the Committee without the necessity,
in such event, to hold a meeting. AtDeduction for Taxes. If at any time thatspecified herein for
the making of any issuance or delivery of any Option or Shares to any Optionee,
any law or regulation of any governmental authority having jurisdiction in the
premises shall require the Company or a member ofRelated Entity to withhold, or to make
any deduction for, any taxes or to take any other action in connection with the
Committee is
not an "outside director" as defined under Code Section 162(m), any action ofissuance or delivery then to be made, the Committee relating to an Award intendedissuance or delivery shall be deferred
until the withholding or deduction shall have been provided for by the Committee to qualify as
"performance-based compensation" within the meaning of Section 162(m) may be
taken by a subcommittee, designated by the CommitteeOptionee
or the Board, composed
solely of twobeneficiary, or more "outside directors." Suchother appropriate action shall behave been taken.
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15. Interpretation.
(a) As it is the action of
the Committee for purposes of the Plan. The foregoing notwithstanding, no action
of the Committee shall be void or deemed beyond the authority of the Committee
solely because, at the time such action was taken, one or more members of the
Committee failed to qualify as an "outside director." The Committee may delegate
to specified officers or employeesintent of the Company authority to perform
administrative functions underthat the Plan to the extent permitted by law,
provided that no such delegation shall be permitted if it (i) would cause Awards
intended to qualify as performance-based compensation under Code Section 162(m)
to fail to so qualify, and (ii) would resultcomply in
a related-party transactionall respects with an executive officer required to be disclosed under Item 404(a) of Regulation
S-K (in accordance with Instruction 5.a.ii thereunder)Rule 16b-3 promulgated under the Securities Exchange Act
of 1934.
(c) Limitation of Liability. Each member("Rule 16b-3"), any ambiguities or inconsistencies in construction of the Plan
shall be interpreted to give effect to such intention, and if any provision of
the Plan is found not to be in compliance with Rule 16b-3, such provision shall
be deemed null and void to the extent required to permit the Plan to comply with
Rule 16b-3. The Committee or the Board may from time to time adopt rules and
regulations under, and amend, the Plan in furtherance of the intent of the
foregoing.
(b) The Plan and any Option Agreements entered into pursuant to the
Plan shall be administered and interpreted so that all Incentive Stock Options
granted under the Plan will qualify as Incentive Stock Options under Section 422
of the Code. If any provision of the Plan or any Option Agreement relating to an
Incentive Stock Option should be held invalid for the granting of Incentive
Stock Options or illegal for any reason, that determination shall not affect the
remaining provisions hereof, but instead the Plan and the Board of Directors, and any person to whom authority or duties are delegated
hereunder,Option Agreement shall
be entitled to,construed and enforced as if such provision had never been included in good faith, relythe
Plan or act upon any report or
other information furnished to him or herthe Option Agreement.
(c) This Plan shall be governed by any officer or other employeethe laws of the CompanyState of Florida.
(d) Headings contained in this Plan are for convenience only and
shall in no manner be construed as part of this Plan.
(e) Any reference to the masculine, feminine, or any
A - 2
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, orneuter gender shall
be a reference to such other professional retained
by the Company to assist in the administrationgender as is appropriate.
16. Amendment and Discontinuation of the Plan. No member ofThe Committee or the Board
may from time to time amend, suspend or Committee, nor any person to whom authority or duties are delegated
hereunder, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect toterminate the Plan and any
such person shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
4. ELIGIBILITY
Employees of the Company or any subsidiary who are or may become
executive officers of the Company may be selected by the Committee as eligible
to participate in this Plan.
5. PER-PERSON AWARD LIMITATION
Award Opportunities granted to any one eligible employee shall be
limited such that the amount that may be potentially earned for performance in
any one calendar year shall not exceed the Participant's Annual Limit. For this
purpose, the Annual Limit shall equal $5 million plus the amount of the
Participant's unused Annual Limit as of the close of the previous fiscal year.
For this purpose, (i) "potentially earned" means that if the performance
conditions are satisfied in that year, the Award Opportunity is no longer
subject to further risk related to performance, without regard to whether it is
to be paid currently or on a deferred basis or continues to be subject to any
service requirement or other non-performance condition, and (ii) a Participant's
Annual Limit is used to the extent an amount may be potentially earned or paid
under an Award, regardless of whether such amount is in fact earned or paid.
6. DESIGNATION AND EARNING OF AWARD OPPORTUNITIES
(a) Designation of Award Opportunities and Performance Goals. The
Committee shall select employees to participate in the Plan and shall designate
the Performance Period and, for each such Participant, the Award Opportunity
such Participant may earn for such Performance Period, the nature of the
Performance Goal the achievement of which will result in the earning of the
Award Opportunity, and the levels of earning of the Award Opportunity
corresponding to the levels of achievement of the Performance Goal. The
following terms will apply to Award Opportunities:
(i) Specification of Amount Potentially Earnable. Unless
otherwise determined by the Committee, the Award Opportunity earnable
by each Participant shall range from 0% to a specified maximum
percentage of a specified target Award Opportunity. The Committee shall
specify a table, grid, formula, or other information that sets forth
the amount of a Participant's Award Opportunity that will be earned
corresponding to the level of achievement of a specified Performance
Goal.
(ii) Denomination of Award Opportunity; Payment of Award.
Award Opportunities will be denominated in cash and Awards will be
payable in cash, except that the Committee may denominate an Award
Opportunity in shares of any class of the Company's stock and/or to
settle an Award Opportunity in shares of Common Stock if and to the
extent that shares of the Company's stock are authorized for use in
incentive awards and available under an equity compensation plan of the
Company.
(b) Limitations on Award Opportunities and Awards for Covered
Employees. If the Committee determines that an Award Opportunity to be granted
to an eligible person who is designated a Covered Employee by the Committee
should qualify as "performance-based compensation" for purposes of Code Section
162(m), the following provisions will apply:
(i) Performance Goal. The Performance Goal for such Award
Opportunities shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section
6(b). The Performance Goal shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations thereunder
(including
A - 3
Treasury Regulation Section 1.162-27(e) and successor regulations
thereto), including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of
performance goals being "substantially uncertain." The Committee may
determine that the Award Opportunity will be earned, or tentatively
earned, based upon achievement of any one measure of performance or
that two or more measures of performance must be achieved. The
Committee may establish a "gate-keeper" Performance Goal that conforms
to this Section 6(b) while specifying or considering other types of
performance (which need not meet the requirements of this Section 6(b))
as a basis for reducing the amount of the Award deemed earned upon
achievement of the gate-keeper Performance Goal. Performance Goals may
differ for Award Opportunities granted to any one Participant or to
different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis, and/or for
specified subsidiaries or affiliates or other business units of the
Company shall be used by the Committee in establishing the Performance
Goal for such Award Opportunities: (1) net sales; (2) gross profit or
pre-tax profit; (3) operating income, earnings before or after taxes,
earnings before or after minority interests, earnings before or after
interest, depreciation, amortization, or extraordinary or special
items; (4) net income or net income per common share (basic or fully
diluted); (5) return measures, including, but not limited to, return on
assets (gross or net), return on investment, return on capital, or
return on equity; (6) cash flow, free cash flow, cash flow return on
investment (discounted or otherwise), net cash provided by operating
activities, or cash flow in excess of cost of capital; (7) interest
expense after taxes; (8) economic value created or economic profit; (9)
operating margin or profit margin; (10) shareholder value creation
measures, including but not limited to stock price or total shareholder
return; (11) revenues from specific assets, projects or lines of
business; (12) targets relating to expense or operating expense,
working capital targets, or operating efficiency; and (13) strategic
business criteria, consisting of one or more objectives based on
meeting specified goals relating to market penetration, geographic
business expansion, operating goals, cost targets, customer
satisfaction, employee satisfaction, human resources management,
supervision of litigation and information technology, and acquisitions
or divestitures of assets, subsidiaries, affiliates or joint ventures.
The targeted level or levels of performance with respect to such
business criteria may be established at such levels and in such terms
as the Committee may determine, in its discretion, including in
absolute terms, as a goal relative to performance in prior periods, or
as a goal compared to the performance of one or more comparable
companies or an index covering multiple companies or an industry.
(iii) Performance Period and Timing for Establishing
Performance Goals. The Committee will specify the Performance Period
over which achievement of the Performance Goal in respect of such Award
Opportunities shall be measured. A Performance Goal shall be
established by the date which is the earlier of (A) 90 days after the
beginning of the applicable Performance Period or (B) the time 25% of
such Performance Period has elapsed.
(iv) Annual Incentive Awards Granted to Covered Employees.
The Committee may grant an Annual Incentive Award, intended to qualify
as "performance-based compensation" for purposes of Code Section
162(m), to an eligible person who is designated a Covered Employee for
a given fiscal year.
(v) Changes to Amounts Payable Under Awards During
Deferral Periods. Any settlement or other event that would change the
form of payment from that originally specified shall be implemented in
a manner such that the Award does not, solely for that reason, fail to
qualify as "performance-based compensation" for purposes of Code
Section 162(m).
(c) Additional Participants and Award Opportunity Designations
During a Performance Period. At any time during a Performance Period the
Committee may select a new employee or a newly promoted employee to participate
in the Plan for that Performance Period and/or designate, for any such
Participant, an Award Opportunity (or additional Award Opportunity) amount for
such Performance Period. In determining the amount of the Award Opportunity for
such Participant under this Section 6(c), the Committee may take into account
the portion of the Performance Period already elapsed, the performance achieved
during such elapsed portion of the Performance Period, and such other
considerations as the Committee may deem relevant.
A - 4
(d) Determination of Award. Within a reasonable time after the end
of each Performance Period, the Committee shall determine the extent to which
the Performance Goal for the earning of Award Opportunities was achieved during
such Performance Period and the resulting Award to the Participant for such
Performance Period. The Committee may adjust upward or downward the amount of an
Award, in its sole discretion, in light of such considerations as the Committee
may deem relevant, except that (i) no such discretionary upward adjustment of a
Performance Goal subject Section 6(b) is permitted, and (ii) any discretionary
adjustment is subject to Section 5, Section 8 and other applicable limitations
of the Plan. Unless otherwise determined by the Committee or as provided under
Section 8(a), the Award shall be deemed earned and vested at the time the
Committee makes the determination pursuant to this Section 6(d) and no
Participant shall have a legal right to receive an Award until such
determination has been made.
(e) Written Determinations. Determinations by the Committee as to
the establishment of Performance Goals, the amount potentially payable in
respect of Award Opportunities, the level of actual achievement of the
Performance Goals and the amount of any final Award earned shall be recorded in
writing in the case of Performance Awards intended to qualify under Section
162(m). Specifically, the Committee shall certify in writing, in a manner
conforming to applicable regulations under Section 162(m), with respect to any
Covered Employee prior to any settlement of each such Award, that the
Performance Goal relating to the Award and other material terms of the Award
upon which settlement was conditioned have been satisfied.
(f) Other Terms of Award Opportunities and Awards. Subject to the
terms of this Plan, the Committee may specify the circumstances in which Award
Opportunities and Awards shall be paid or forfeited in the event of a change in
control, termination of employment in circumstances other than those specified
in Section 8, or other event prior to the end of a Performance Period or
settlement of an Award, provided that such change occurs before an Award is
earned, provided that, without the consent of an affected Participant, changes
to previously specified terms are authorized only to the extent the Committee
preserved its discretion to make such changes and in any event such changes may
be made no later than the time an award is earned. With respect to Award
Opportunities and Awards under Section 6(b), any payments resulting from a
change in control or termination of employment need not qualify as
performance-based compensation under Section 162(m) if the authorization of such
non-qualifying payments would not otherwise disqualify the Award Opportunity or
Award from Section 162(m) qualification in cases in which no change in control
or termination of employment occurred.
(g) Adjustments. The Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Award
Opportunities and related Performance Goals in recognition of unusual or
nonrecurring events, including stock splits, stock dividends, reorganizations,
mergers, consolidations, large, special and non-recurring dividends, and
acquisitions and dispositions of businesses and assets, affecting the Company
and its subsidiaries or other business unit, or the financial statements of the
Company or any subsidiary, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business strategy of
the Company, any subsidiary or affiliate or business unit thereof, performance
of comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant;
provided, however, that no such adjustment shall be authorized or made if and to
the extent that the existence or exercise of such authority (i) would cause an
Award Opportunity or Award granted under Section 6(b) and intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to so qualify, or (ii) would cause the Committee to
be deemed to have authority to change the targets, within the meaning of
Treasury Regulation 1.162-27(e)(4)(vi), under the Performance Goals relating to
an Award Opportunity under Section 6(b) intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder. In the event of an equity restructuring, as defined in Statement of
Financial Accounting Standards 123R, which affects the Common Stock, a
Participant shall have a legal right to an adjustment to the Participant's Award
Opportunity and/or Award (including any performance goal based on market price
per share and any Award Opportunity or Award denominated in Common Stock) which
shall preserve without enlarging the value of the Award Opportunity or Award,
with the manner of such adjustment to be determined by the Committee in its
discretion, and subject to any limitation on this right set forth at the time of
initial authorization of the Award Opportunity in any document or controlling
pronouncement of the Committee limiting this right.
A - 5
7. SETTLEMENT OF AWARDS.
(a) Deferrals. The Committee may specify, at the time the Award
Opportunity is authorized, that an Award will be deferred as to settlement after
it is earned. In addition, a Participant will be permitted to elect to defer
settlement of an Award if and to the extent such Participant is selected to
participate in a Company deferral program covering such Awards and the
Participant has made a valid deferral election in accordance with that plan.
Deferrals must comply with applicable requirements of Section 409A of the Code.
(b) Settlement of Award. Any non-deferred Award shall be paid and
settled by the Company within 60 days after the date of determination by the
Committee under Section 6(d) hereof. With respect to any deferred amount of a
Participant's Award, such amount will be credited to the Participant's deferral
account under the governing deferral plan of the Company as promptly as
practicable at or after the date of determination by the Committee under Section
6(d) hereof.
(c) Tax Withholding. The Company shall deduct from any payment in
settlement of a Participant's Award or other payment to the Participant any
Federal, state, or local withholding or other tax or charge which the Company is
then required to deduct under applicable law with respect to the Award. The
Committee may specify other withholding terms relating to an Award that will be
settled by delivery of shares of Common Stock or other property.
(d) Non-Transferability. An Award Opportunity, any resulting
Award, including any deferred cash amount resulting from an Award, and any other
right hereunder shall be non-assignable and non-transferable, and shall not be
pledged, encumbered, or hypothecated to or in favor of any party or subject to
any lien, obligation, or liability of the Participant to any party of than the
Company or a subsidiary or affiliate.
8. EFFECT OF TERMINATION OF EMPLOYMENT.
Except to the extent set forth in subsections (a) and (b) of this
Section 8, upon a Participant's Termination of Employment prior to completion of
a Performance Period or, after completion of a Performance Period but prior to
the Committee's determination of the extent to which an Award has been earned
for such Performance Period, the Participant's Award Opportunity relating to
such Performance Period shall cease to be earnable and shall be canceled, and
the Participant shall have no further rights or opportunities hereunder:
(a) Disability, Death, Retirement or Termination by the Company
not for Cause. If Termination of Employment of the Participant is due to the
permanent disability, death, Retirement or Termination by the Company not for
Cause, the Participant or his or her beneficiary shall be deemed to have earned
and shall be entitled to receive an Award for any Performance Period for which
termination occurs prior to the date of determination under Section 6(d) hereof
equal to the Award which would have been earned had Participant's employment not
terminated multiplied by a fraction the numerator of which is the number of
calendar days from the beginning of the Performance Period to the date of
Participant's Termination of Employment and the denominator of which is the
number of calendar days in the Performance Period (but such fraction shall in no
event be greater than one). Such pro rata Award will be determined at the same
time as Awards for continuing Participants are determined (i.e., normally
following the end of the Performance Period in accordance with Section 6(d)
hereof); provided, however, that the Committee may not exercise negative
discretion with respect to such a Participant's Award except in a manner
consistent with its exercise of negative discretion for all Awards of
Participants who then remain employed by the Company. Upon its determination,
such pro rata Award shall be paid and settled promptly in cash, except to the
extent the settlement has been validly deferred in accordance with Section 7(a).
The portion of the Participant's Award Opportunity not earned will cease to be
earnable and will be canceled. For purposes of the Plan, the existence of a
"permanent disability" shall be determined by, or in accordance with criteria
and standards adopted by, the Committee. The foregoing notwithstanding, the
Committee may limit or expand the Participant's rights upon disability, death or
Retirement with respect to a given Award Opportunity.
(b) Other Terminations. In connection with any Termination of
Employment other than due to death, disability, Retirement, or Termination by
the Company not for Cause, the Committee may determine that the Participant
shall be deemed to have earned none, a portion, or all of an Award Opportunity
for a Performance
A - 6
Period for which the Committee has not yet determined the extent to which an
Award has been earned, in the Committee's sole discretion. This determination
may be specified at the time the Award Opportunity is established or made at any
time thereafter, except, without the consent of an affected Participant, changes
to previously specified terms are authorized only to the extent the Committee
preserved its discretion to make such changes .
9. ADDITIONAL FORFEITURE PROVISIONS APPLICABLE TO AWARDS
The Committee may impose as a condition of Award Opportunities and
Awards, and as a condition of a Participant's right to receive or retain cash,
Stock, or other property in connection with an Award, (i) requirements that the
Participant comply with specified conditions relating to non-competition,
confidentiality of information relating to or possessed by the Company,
non-solicitation of customers, suppliers, and employees of the Company,
cooperation in litigation, non-disparagement of the Company and its subsidiaries
and affiliates and the officers, directors and affiliates of the Company and it
subsidiaries and affiliates, and other restrictions upon or covenants of the
Participant, including during specified periods following termination of
employment or service to the Company, and (ii) requirements that, if any such
amounts were earned based on performance that is thereafter adversely affected
by a restatement of financial statements or financial information, that such
amounts shall be subject to forfeiture as specified by the Committee. Any
forfeiture or related provisions authorized under this Section 9 shall be
specified as a term of the Award by the Committee not later than the expiration
of 25% of the relevant Performance Period.
10. GENERAL PROVISIONS.
(a) Changes to this Plan. The Committee may at any time amend,
alter, suspend, discontinue, or terminate this Plan without the consent of
shareholders or Participants;Option;
provided, however, that, any such action beyondamendment to the scope of the Committee's authorityPlan shall be subject to the
approval of the Board
of Directors; provided further, that any such action shall be submitted to the
Company's shareholders for approval not later than the earliest annual meeting
for which the record date is at or after the date of such Committee or Board
action if such shareholder approval is required
by any applicable federal or state law or regulation (including, without
limitation, Rule 16b-3 or to comply with Section 162(m) of the Code) or the
rules of the New York Stock Exchange or any other stock exchange or automated quotation system on which the StockShares
may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit
other amendmentsgranted. Except to the extent provided in Sections 9 and
10 hereof, no amendment, suspension or termination of the Plan or any Option
issued hereunder shall substantially impair the rights or benefits of any
Optionee pursuant to shareholders for approval; and provided further,
that,any Option previously granted without the consent of an affected Participant, no such Committee or Board
action may materiallythe
Optionee.
17. Effective Date and adversely affectTermination Date. The Effective Date of the rightsPlan is
March 19, 2002, and the Plan shall terminate on the 10th anniversary of such Participant under
any outstanding Award (this restriction does not apply to an Award Opportunity,
however, which remains subjectthe
Effective Date. This Plan shall be submitted to the discretion of the Committee).
(b) Long-Term Incentives Not Annual Bonus for Purposes of Other
Plans. Amounts earned or payable under the Plan in connection with Awards not
designated by the Committee as "Annual Incentive Awards" shall not be deemed to
be annual incentive or annual bonus compensation (regardless of whether an Award
is earned in respect of a period of one year or less or disclosed as annual
bonus compensation under Securities and Exchange Commission disclosure rules)
for purposes of any retirement or supplemental pension plan of the Company or
any employment agreement or change in control agreement between the Company and
any Participant, or for purposes of any other plan, unless the Company shall in
writing specifically identify this Plan by name and specify that amounts earned
or payable hereunder shall be considered to be annual incentive or annual bonus
compensation.
(c) Unfunded Status of Participant Rights. Awards, accounts,
deferred amounts, and related rights of a Participant represent unfunded
deferred compensation obligationsshareholders of the Company
for ERISAtheir approval and federal income
tax purposesadoption and with respect thereto, the Participant shall have rights no
greater than those of an unsecured creditor of the Company.
(d) Nonexclusivity of the Plan. The adoption of this Plan shall
notOptions hereunder may be construed as creating any limitations on the power of the Board or
Committeegranted prior to
adopt such other compensation arrangements as it may deem desirable
for any Participant.
A - 7
(e) No Right to Continued Employment. Neither the Plan, the
authorization of an Award Opportunity, the grant of an Award nor any other
action taken hereunder shall be construed as giving any employee the right to be
retained in the employ of the Company or any of its subsidiaries or affiliates,
nor shall it interfere in any way with the right of the Company or any of its
subsidiaries or affiliates to terminate any employee's employment at any time.
(f) Severability. The invalidity of any provision of the Plan or
a document hereunder shall not deemed to render the remainder of this Plan or
such document invalid.
(g) Successors. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise,approval and whether
or not the corporate existence of the Company continues) to all or substantially
all of the business and/or assets of the Company to expressly assume and agree
to perform the Company's obligations under the Plan in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place;adoption; provided, however, that such successor may replace
the Plan with a plan substantially equivalent in opportunityany Incentive Stock Options
granted hereunder, and achievability,
as determined by a nationally recognized compensation consulting firm, and
covering the participants at the time of such succession. Any successor and the
ultimate parent company of such successor shall in any event be subjectif but only to the requirementsextent otherwise required by law or
the rules of this Section 10(g)any stock exchange or automated quotation system on which the
Shares may be listed, any Non-Qualified Stock Options granted hereunder, prior
to the same extent as the Company. Subject to
the foregoing, the Company may transfersuch approval and assign its rights and obligations
hereunder.
(h) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations or document hereunderadoption shall be determined in
accordance with the laws of the State of Florida, without giving effect to
principles of conflicts of laws,contingent upon obtaining such approval
and applicable provisions of federal law.
(i) Effective Date of Plan; Shareholder Approval; Termination of
Plan. This Plan shall be effective as of November 1, 2006. The Company shall
submit the Plan, including the material terms of the Plan specified in Treasury
Regulation Section 1.162-27(e)(4), to shareholders for approval at the Company's
2007 Annual Meeting of Shareholders, and the Plan shall be terminated without
any Award being deemed earned in the event shareholders decline to approve it at
that Annual Meeting. If approved by shareholders, the Plan will terminate at
such time as may be determined by the Board of Directors or the Committee
(provided that reapproval of the business criteria specified in Section 6(b)(ii)
may be required under Code Section 162(m) every five years in order for
compensation to Covered Employees to be fully deductible).
A - 8
APPENDIX B
HEICO CORPORATION
FINANCE/AUDIT COMMITTEE CHARTER
COMMITTEE'S PURPOSE
The Finance/Audit Committee (Committee) is appointed by the Board of
Directors (Board) to assist the Board in monitoring (1) the quality and
integrity of the financial statements of the Company, (2) compliance by the
Company with legal and regulatory requirements, (3) the independent auditor's
qualifications and independence, (4) performance of the Company's internal and
independent auditors, (5) the business practices and ethical standards of the
Company and (6) the financial affairs of the Company. The Committee shall also
serve as the Qualified Legal Compliance Committee (see separate Charter). The
Committee is also directly responsible for (a) the appointment, compensation,
retention and oversight of the work of the Company's independent auditors, and
(b) the preparation of the report that the Securities and Exchange Commission
(Commission) requires to be included in the Company's annual proxy statement.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are presented
fairly in all material respects in accordance with generally accepted accounting
principles. These are the responsibility of management and the independent
auditor.
COMMITTEE MEMBERSHIP
Independence. The Committee shall consist of three or more members of
the Board of Directors, each of whom shall be independent. Independence shall be
determined as to each member by the full Board. To be considered independent,
each Committee member must meet the independence requirements of the New York
Stock Exchange (NYSE), the Sarbanes-Oxley Act of 2002 (SOX) and the rules and
regulations of the Commission. Committee members shall not simultaneously serve
on the audit committees of more than two other public companies.
Financial Literacy. All members of the Committee shall be financially
literate, as defined by the Commission, or must become financially literate
within a reasonable period of time after their appointment to the Committee, and
at least one member of the Committee shall be an audit committee financial
expert, as determined in the judgment of the Board with reference to applicable
law and NYSE rules.
COMMITTEE COMPOSITION
The members of the Committee shall be nominated by the Nominating and
Corporate Governance Committee and elected by the Board at the annual
organizational meeting of the Board and shall serve until their successors shall
be duly elected and qualified.
Chairman. Unless a Chairman is elected by the full Board, the members
of the Committee shall designate a Chair by majority vote of all the Committee
members.
MEETINGS
The Committee shall meet at least four times annually or more
frequently as circumstances dictate. Meetings may be in person or by telephone
as needed to conduct the business of the Committee. The Committee may take
action by the unanimous written consent of the members in the absence of a
meeting. The Committee shall meet periodically with management, the internal
auditors and the independent auditor in separate executive sessions.
B - 1
AUTHORITY AND RESPONSIBILTY OF THE COMMITTEE
The Committee shall have the authority (1) to exercise all powers with
respect to the appointment, compensation, retention and oversight of the work of
the independent auditor for the Company and its subsidiaries, (2) to retain
special legal, accounting or other consultants to advise the Committee and to
pay the fees of such advisors and (3) to determine the amount of funds it needs
to operate and direct the CFO make such funds available. As part of its
oversight role, the Committee may investigate any matter brought to its
attention, with the full power to retain outside counsel or other experts for
this purpose. The 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 member of, or consultant to, the Committee.
Without limiting the generality of the foregoing, the Committee shall:
Financial Statement And Disclosure Matters
1. Review and discuss prior to public dissemination the annual
audited and quarterly unaudited financial statements with
management and the independent auditor, including major issues
regarding accounting, disclosure and auditing procedures and
practices as well as the adequacy of internal controls that could
materially affect the Company's financial statements. In addition,
the review shall include the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." Based on the annual review, the Committee
shall recommend inclusion of the audited financial statements in
the Company's Annual Report on Form 10-K to the Board.
2. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with
the preparation of the Company's financial statements, including
any significant changes in the Company's selection or application
of accounting principles, any major issues as to the adequacy of
the Company's internal controls and any special steps adopted in
light of material control deficiencies.
3. Review and discuss reports from the independent auditors on:
A. All critical accounting policies and practices to be used.
B. All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, ramification of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditor.
C. Other material written communications between the independent
auditor and management, such as any management letter.
4. Discuss with management the Company's earnings press releases as
well as financial information and earnings guidance provided to
analysts and rating agencies. Such discussion may be done
generally consisting of discussing the types of information to be
disclosed and the types of presentations to be made.
5. Discuss with management and the independent auditor the effect on
the Company's financial statements of significant regulatory and
accounting initiatives as well as off-balance sheet structures.
6. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Company's risk assessment
and risk management policies.
7. Review with the independent auditors any audit problems or
difficulties and management's response, including, but not limited
to (1) any restrictions on the scope of the auditor's activities,
(2) any restriction on the access of the independent auditors to
requested materials, (3) any significant disagreements with
management and (4) any audit differences that were noted or
proposed by the auditor but for which the Company's financial
statements were not adjusted (as immaterial or otherwise). The
Committee will resolve any disagreements between the auditors and
management regarding financial reporting.
B - 2
8. Review disclosures made to the Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form
10-Q about any significant deficiencies in the design or operation
of disclosure controls and procedures and any fraud involving
management or other employees who have a significant role in the
Company's internal controls.
9. Discuss at least annually with the independent auditors the
matters required to be discussed by Statement of Auditing
Standards No. 61--Communication with Audit Committees.
10. Prepare the Committee report that the Commission requires to be
included in the Company's annual proxy statement and review the
matters described in such report.
11. Obtain quarterly assurances from the senior internal auditing
executive and management that the system of internal controls is
adequate and effective. Obtain annually a report from the
independent auditor, with attestation, regarding management's
assessment of the effectiveness of the internal control structure
and procedures for financial reporting.
Responsibility For The Company's Relationship With The Independent Auditors
12. Be solely responsible for the appointment, compensation, retention
and oversight of the work of the independent auditors employed by
the Company. The independent auditor shall report directly to the
Committee. If the appointment of the independent auditors is
submitted for any ratification by stockholders, the Committee
shall be responsible for making the recommendation of the
independent auditors.
13. Review, at least annually, the qualifications, performance and
independence of the independent auditor. In conducting such
review, the Committee shall obtain and review a report by the
independent auditor describing (1) the firm's internal
quality-control procedures, (2) any material issues raised by the
most recent internal quality-control review, or peer review, of
the firm or by any inquiry or investigation by governmental or
professional authorities regarding services provided by the
independent auditing firm which could affect the financial
statements of the Company, and any steps taken to deal with any
such issues, and (3) all relationships between the independent
auditor and the Company that could be considered to bear on the
auditor's independence. This evaluation shall include the review
and evaluation of the lead partner of the independent auditor and
shall ensure the rotation of partners in accordance with
Commission rules and the securities laws.
14. Approve in advance any audit or permissible non-audit engagement
or relationship between the Company and the independent auditors.
The Committee shall establish guidelines for the retention of the
independent auditor for any permissible non-audit services. The
Committee hereby delegates to the Chairman of the Committee the
authority to approve in advance (below specified limits) all audit
or non-audit services to be provided by the independent auditor if
presented to the full Committee at the next regularly scheduled
meeting.
15. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit including the responsibilities
and staffing of the Company's personnel who will assist in the
audit.
16. Recommend to the Board policies for the Company's hiring of
employees or former employees of the independent auditor who
participated in any capacity in the audit of the Company.
Oversight Of The Company's Internal Audit Function
17. Review the appointment, evaluation, and where appropriate, the
termination of the Company's senior internal auditing executive.
18. Review the activities and organizational structure of the internal
auditing department and the significant reports to management
prepared by the internal auditing department and management's
responses.
19. Discuss with the independent auditor and management the internal
audit department's responsibilities, budget, staffing, audit plan
and any recommended changes in the planned scope of the internal
audit department.
B - 3
Compliance Oversight Responsibility
20. Obtain from the independent auditor assurance that Section 10A(b)
of the Securities Exchange Act of 1934, as amended, has not been
implicated.
21. Obtain reports from management and the Company's senior internal
auditing executive that the Company is in conformity with
applicable legal requirements and the Company's Code of Business
Conduct. Review disclosures required to be made under the
securities laws of insider and affiliated party transactions.
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 Business Conduct.
22. Establish and maintain procedures for the receipt, retention and
treatment of complaints received by the Company regarding
accounting, internal controls or auditing matters. Also, the
Committee shall maintain a reporting hotline for the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting, internal controls or auditing
matters.
23. Discuss with management and the independent auditor any
correspondence with regulators or governmental agencies and any
published reports that raise material issues regarding the
Company's financial statements or accounting policies.
24. Review at least annually legal matters with the Company's General
Counsel that may have a material impact on the financial
statements, the Company's compliance policies, including but not
limited to the Foreign Corrupt Practices Act, and any material
reports or inquiries received from regulators or governmental
agencies.
OTHER
25. Report regularly to the Board with respect to any issues that
arise with respect to the quality or integrity of the Company's
financial statements, the Company's compliance with legal or
regulatory requirements, the performance and independence of the
Company's independent auditors or the performance of the internal
audit function.
26. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval. Revised
charters should be disclosed periodically in accordance with
applicable rules and regulations.
27. Perform an annual performance self-evaluation of the Committee and
report findings to the Board.
B - 4adoption.
A-9
HEICO CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, MARCH 16, 200728, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of HEICO CORPORATION hereby appoints Laurans A.
Mendelson and Thomas S. Irwin, or either of them, the true and lawful attorney
or attorneys and proxy or proxies of the undersigned with full power of
substitution and revocation to each of them, to vote all the shares of stock
which the undersigned would be entitled to vote, if there personally present, at
the Annual Meeting of Shareholders of HEICO CORPORATION called to be held at the
Conrad Miami Hotel at Espirito Santo Plaza, 1395JW Marriott, 1109 Brickell Avenue, Miami, FloridaFL 33131, at 10:00 a.m. Eastern
StandardDaylight Time on March 16, 200728, 2008 (notice of such meeting has been received), and
at any adjournments thereof, with all powers which the undersigned would possess
if personally present. Without limiting the generality of the foregoing, said
attorneys and proxies are authorized to vote as indicated below.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all
contrary) nominees
listed below
NOMINEES: 01 Samuel L. Higginbottom, 02 Wolfgang Mayrhuber,
03 Eric A. Mendelson, 04 Laurans A. Mendelson, 05 Victor H. Mendelson,
06 Albert Morrison, Jr., 07 Joseph W. Pallot, 08 Dr. Alan Schriesheim,
09 Frank J. Schwitter
INSTRUCTION: To withhold authority to vote for an individual nominee, write that
nominee's name in the space provided below.
----------------------------------------------------------------------_____________________________________________________________
(Continued, and to be dated and signed on the reverse side)
2. APPROVAL OF THE 2007 INCENTIVE COMPENSATIONAMENDED AND RESTATED 2002 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, upon such other matters which may properly come before
the meeting or any adjournments.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT WHERE NO DIRECTION IS GIVEN, IT WILL
BE VOTED FOR THE ELECTION OF ALL DIRECTORS AND FOR PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENVELOPE PROVIDED, SO THAT
YOUR SHARES CAN BE VOTED AT THE MEETING.
Dated : _________________________, 2007:_________________________, 2008
Signature ---------------------------------_______________________________________
Signature if held jointly -----------------_______________________
(Please sign exactly as name appears hereon. If Executor,
Trustee, etc., give full title. If stock is held in the
name of more than one person, each should sign.)