UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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______HOOPER HOLMES, INC.________
(Name of Registrant as Specified in its Charter)
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HOOPER HOLMES, INC.
560 N. Rogers Road
Olathe, Kansas 66062
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
June 11, 2014
_______________________________
The annual meeting of shareholders of Hooper Holmes, Inc. will be held at 10:00 a.m. (Central Time) on Wednesday, June 11, 2014 at the Hilton Garden Inn, 12080 South Strang Line Road, Olathe, Kansas 66062, for the following purposes:
1.To elect 5 directors to serve 1-year terms;
| 2. | To approve an amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan; |
| 3. | To consider an advisory vote on the approval of the compensation of our named executive officers; and |
| 4. | To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014. |
Shareholders of record at the close of business on April 15, 2014 may vote at the annual meeting and at any adjournment or postponement of the meeting. In connection with our solicitation of proxies for the annual meeting, we are making available this proxy statement, proxy card and our 2013 Annual Report to shareholders on or about April 29, 2014. Please vote in one of the following ways:
| • | Use the toll-free number shown on your proxy card or Notice and Access card; |
| • | Vote via the Internet, as indicated on your Notice and Access card; |
| • | Complete, sign, date and return your proxy card in the enclosed postage-paid envelope, if you received a full set of proxy materials; or |
| • | Vote in person at the meeting. |
Your vote is very important. Please use one of the methods above to ensure that your vote will be counted. Your proxy may be revoked at any time before the vote at the annual meeting by following the procedures outlined in the proxy statement.
By Order of the Board of Directors
Tracy D. Mackey
General Counsel and Corporate Secretary
April 29, 2014
PER HOLMES, INC.
PROXY STATEMENT
FOR 2014 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, JUNE 11, 2014
COMMON QUESTIONS ABOUT OUR ANNUAL MEETING AND PROXY STATEMENT
| Q: | Why did I receive these proxy materials? |
| A: | Our Board of Directors is soliciting your proxy so that, as a shareholder of Hooper Holmes, Inc. (the “Company”), you will have the opportunity to vote on matters that will be presented at our 2014 annual meeting of shareholders. This proxy statement provides you with information about us and these proposals to assist you in voting your shares. |
| Q: | What proposals will be voted on at the meeting? |
A: At the annual meeting, our shareholders will be asked to:
| • | Elect 5 directors to serve for a 1-year term (Proposal 1); |
| • | Approve the amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan (Proposal 2); |
| • | Conduct a non-binding advisory vote on the approval of the compensation of our named executive officers (Proposal 3); |
| • | Ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year (Proposal 4); and |
| • | Take action on any other business that properly comes before the meeting and any adjournments or postponements of the meeting. |
Q: What shares owned by me can be voted?
| A: | All shares of the Company’s common stock, $0.04 par value per share, owned by you as of the close of business on April 15, 2014, the record date for the determination of shareholders entitled to notice of, and the right to vote at, the meeting, may be voted by you. These shares include those held directly in your name as the shareholder of record and held for you in “street name” as the beneficial owner through a stockbroker, bank or other nominee. |
Each holder of record of shares of our common stock outstanding on the record date will be entitled to one vote for each share held on all matters to be voted on at the annual meeting.
| Q: | What is the difference between holding shares as a shareholder of record and as a “street name” holder? |
| A: | These terms describe how you hold your shares. If your shares are registered directly in your name with the Company’s transfer agent, Registrar and Transfer Company, you are considered the shareholder of record. |
If your shares are held in a stock brokerage account or by a bank or other nominee, your shares are held in “street name”. If you hold your shares in street name, you have the right to direct your broker or nominee on how to vote.
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| Q: | How can I vote my shares? |
A: You can vote either in person at the meeting or by proxy without attending the meeting.
This proxy statement, the accompanying proxy card and the Company’s 2013 annual report to shareholders are being made available on the Internet at www.proxyvote.com, as indicated in the Notice and Access card being mailed separately.
To vote by proxy, you must do one of the following:
| • | Vote over the Internet (instructions are in the Notice and Access card); or |
| • | Vote by telephone (toll-free number is indicated on your proxy card or Notice and Access card); or |
| • | If you received a paper copy of your proxy materials, fill out the enclosed proxy card, date and sign it, and return it in the enclosed postage-paid envelope. |
Shares held directly in your name as the shareholder of record may be voted in person at the annual meeting. To do so, please bring the enclosed proxy card and proof of identification. If you hold your shares in street name and wish to vote in person at the meeting, you must request a legal proxy from your broker or nominee to present at the meeting.
| Q: | How does the Board recommend I vote on the proposals? |
| A: | The Board recommends a vote “FOR” each of the director nominees for the Board, “FOR” the amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan, “FOR” the approval of the Company’s executive compensation programs, and “FOR” the ratification of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014. |
| Q: | What vote is required to approve each proposal? |
A: Proposal 1 – Election of Directors
A plurality of the votes cast is required to elect the nominees as directors. You may not cumulate your votes in the election of directors. The five nominees receiving the highest number of affirmative votes will be elected to the Board. You may withhold authority to vote for any or all nominees for directors. Votes “WITHHELD” will not have effect on the outcome of the vote. Votes cannot be voted for a greater number of persons than the number of nominees named.
Proposal 2 – Amendment and Restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan
The affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy at the meeting will be required to approve the proposal.
Proposal 3 – Non-Binding Advisory Vote on Executive Compensation
The affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy at the meeting will be required to approve the proposal.
Proposal 4 – Ratification of Appointment of KPMG LLP as Independent Registered Public Accounting Firm
The affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy at the meeting will be required to approve the proposal.
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Under New York law, “votes cast” at a meeting of shareholders by the holders of shares entitled to vote are determinative of the outcome of the matter subject to a vote. Although abstentions and broker non-votes are considered in determining the presence of a quorum, they will not be considered “votes cast” and will have no effect on the outcome of the vote on the proposals.
| Q: | What happens if I hold my shares in “street name” and don’t provide my broker voting instructions? |
| A: | In certain circumstances, if you do not provide instructions to your broker on how you wish to vote, your broker will be allowed to vote for you on routine proposals, but your broker is prohibited from voting on other proposals. The proposals on which the broker is prohibited from voting for you result in “broker non-votes”. The election of directors (Proposal 1), the approval of the amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan (Proposal 2) and the advisory vote on the compensation of our named executive officers (Proposal 3) are each considered non-routine matters; the proposal to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year (Proposal 4) is considered a routine matter. Please be sure to give specific voting instructions to your broker so that your shares can be represented. |
| Q: | What is the quorum for the meeting? |
| A: | The presence in person or by proxy of a majority of the shares of our common stock issued and outstanding and entitled to vote on the record date will constitute a quorum at the annual meeting. On our record date, April 15, 2014, there were 70,419,649 shares of our common stock issued and outstanding and entitled to vote at our annual meeting. All shares that are voted “FOR” or “AGAINST” any matter, votes that are “WITHHELD” for Board nominees, abstentions and broker non-votes are counted as present for purposes of determining the presence of a quorum. |
If we do not have a quorum at the meeting, a vote for adjournment will be taken among the shareholders present or represented by proxy. If a majority of the shareholders present or represented by proxy vote for adjournment, it is our intention to adjourn the meeting until a later date and to vote proxies received at such adjourned meeting.
| Q: | How may I vote on the proposals to be voted on at the meeting? |
| A: | In the election of directors (Proposal 1), you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. |
For the proposals regarding the approval of the amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan (Proposal 2), the advisory vote on the compensation of our named executive officers (Proposal 3) and the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year (Proposal 4), you may vote “FOR” or “AGAINST” or “ABSTAIN.”
| Q: | What if I return a proxy but do not make specific choices with respect to some or all of the matters listed on my proxy card? |
| A: | If you return a signed and dated proxy card without marking your voting selections, your shares will be voted “FOR” the election of each of the five nominees for director, “FOR” the approval of the amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan, “FOR” the approval of the |
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compensation of our named executive officers, and “FOR” the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year.
| Q: | Can I change my vote? |
| A: | You may change your proxy instructions at any time prior to the vote at the meeting. For shares held directly in your name, you may accomplish this by: |
| • | voting again over the Internet or by telephone prior to 11:59 p.m. EDT on June 10, 2014; |
| • | signing another proxy card with a later date and returning it to us prior to the meeting; |
| • | sending a properly signed written notice that you are revoking your proxy to Hooper Holmes, Inc., 560 N. Rogers Road, Olathe, Kansas 66062, Attention: Corporate Secretary; or |
| • | attending the meeting and notifying the election officials at the meeting that you wish to revoke your proxy and vote in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request. |
If you have instructed a broker, trustee or other nominee to vote your shares, you should follow the directions received from your broker, trustee or other nominee to change those instructions.
| Q: | What does it mean if I receive more than one proxy or voting instruction card? |
| A: | It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive. |
| Q: | Who is paying for this solicitation? |
| A: | We are paying for the solicitation of proxies, including the cost of preparing, printing and mailing the Notice and Access card, the proxy statement, the proxy card and any additional related information. |
We will reimburse brokers, banks and other financial institutions and nominees for their reasonable out-of-pocket expenses in forwarding proxy materials to their customers who hold shares in street name.
The solicitation of proxies through this proxy statement may be supplemented by mail, telephone, fax, personal solicitation or other communication methods by directors, officers or other of our employees without additional compensation to them.
| Q: | What do I need to do to attend the meeting? |
| A: | You may attend the meeting if you are listed as a shareholder of record as of the record date and bring proof of identification. If you hold your shares through a broker or other nominee, you will need to provide proof of ownership by bringing either a copy of a brokerage statement showing your share ownership as of the record date or a legal proxy if you wish to vote your shares in person at the meeting. In addition to the items above, you should bring proof of identification. |
| Q: | How can I access the Company’s proxy materials and annual report electronically? |
| A: | This proxy statement, the accompanying proxy card and the Company’s 2013 annual report to shareholders are being made available on the Internet at www.proxyvote.com, through the notice and access process available to the Company’s shareholders, as indicated in the Notice and Access card being mailed separately. Most shareholders can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies in the mail. |
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If you own Hooper Holmes stock in your name, you can choose this option and save us the cost of producing and mailing these documents by checking the box for electronic delivery on your proxy card, or by following the instructions provided when you vote over the Internet. If you hold your Hooper Holmes stock through a bank, broker or other holder of record, please refer to the information provided by that entity for instructions on how to elect to view future proxy statements and annual reports over the Internet.
Q: Who counts the votes?
| A: | We have retained Broadridge Financial Solutions, Inc. as the Inspector of Election for the annual meeting. Representatives of Broadridge will tabulate the votes represented by proxies, cast by ballot and the Internet. |
Q: Is my vote confidential?
| A: | Proxy cards, ballots and voting tabulations that identify individual shareholders are handled in a manner intended to protect your voting privacy. Your vote will not be disclosed except as needed to permit the Company to tabulate and certify the vote, as required by law, or in limited circumstances such as a contested election. All comments written on the proxy card or elsewhere will be forwarded to management. |
Q: Can I vote on other matters?
| A: | Our bylaws limit the matters presented at the annual meeting to those in the notice of the meeting and those otherwise properly brought before the meeting. If any other matters are presented at the meeting, your signed proxy gives the individuals named as proxies authority to vote your shares on such matters at their discretion. |
Q: Where can I find the voting results of the meeting?
| A: | We will announce preliminary voting results at the meeting, if those results are then available, and we will publish final results in a Current Report on Form 8-K filed with the Securities and Exchange Commission within four business days following the meeting. |
Annual Report to Shareholders
A copy of our annual report to shareholders, which includes our annual report on Form 10-K for the 2013 fiscal year, accompanies this proxy statement. Shareholders may also obtain, free of charge, a copy of the 2013 annual report on Form 10-K, without exhibits, by writing to Hooper Holmes, Inc., 560 N. Rogers Road, Olathe, Kansas 66062, Attention: Corporate Secretary. The 2013 annual report on Form 10-K is also available through the Company’s website at www.hooperholmes.com. The 2013 annual report on Form 10-K does not constitute proxy soliciting materials.
Householding
Under applicable rules, we are permitted to mail a single proxy statement and annual report or Notice and Access card, as applicable, to households at which two or more shareholders reside. Accordingly, shareholders sharing an address who have been previously notified by their broker or its intermediary will receive only one copy of the proxy statement and annual report or Notice and Access card, unless the shareholder has provided contrary instructions. Individual proxy cards or voting instruction forms (or electronic voting facilities) will, however, continue to be provided for each shareholder account. If you prefer to receive separate copies of the proxy statement or annual report or Notice and Access card, either now or in the future, please notify us by mail at 560 N. Rogers Road, Olathe, Kansas 66062, attention: Corporate Secretary, or by telephone at (913) 764-1045. If you are currently a shareholder sharing an address with another shareholder and wish to have only one proxy statement and annual report or Notice and Access card delivered to the household in the future, please contact us at the same address or telephone number.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
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Our Board of Directors has nominated the five persons listed below to serve as directors. If elected, each of our director nominees will serve until the 2015 annual meeting or until a successor has been elected and qualified. If any of the five nominees becomes unavailable for election, the persons named on the proxy card as proxies may vote for other nominees selected by the Board or the named proxies.
Each of our director nominees is currently a member of our Board.
Dr. Elaine L. Rigolosi, whose term as director expires as of this year’s annual meeting, is retiring from our Board and will not be seeking re-election. Upon Dr. Rigolosi’s retirement, the size of the Board will be reduced from six to five persons.
Our Board recommends that shareholders vote “FOR” the election of the five director nominees in this Proposal 1. Proxies will be voted for this proposal unless you otherwise specify in the proxy.
Director Nominees
Ronald V. Aprahamian
| age 67, director since 2009 | Mr. Aprahamian has been our Chair of the Board since 2012. Mr. Aprahamian was elected to the Board in 2009 as a shareholder nominee. He has served as a director of Sunrise Senior Living, Inc. from 1995 until November 2008. He served as Chairman of the Board of Superior Consultant Holdings Corp. from October 2000 to October 2003, and as a director from 2003 to 2005. He also served as a director of First Consulting Group, Inc. from April 2005 to January 2007. |
Mr. Aprahamian is qualified to serve on our Board as he has been engaged in a broad range of business development activities as an investor, consultant, board member, and chief executive officer in companies engaged in the healthcare, computer software, banking, aviation engineering products, fiber optics, and telecommunications industries.
Henry E. Dubois
| age 52, director since 2013 | Mr. Dubois became our President and Chief Executive Officer of the Company and was appointed to the Board in April 2013. From January to April 2013, Mr. Dubois served as financial and strategic consultant to the Executive Committee of the Board pursuant to an Interim Services Agreement between the Company and Randstad Professionals US, LP, d/b/a Tatum. Mr. Dubois was employed by Tatum from January 2011 until September 2013. From February 2005 through December 2012, he was engaged by GeoEye, Inc., a global supplier of high resolution satellite and aerial imagery, as Executive Vice President and as Chief Financial Officer from January 2006 through December 2008 and as a management and financial consultant during the balance of the engagement. Previously, he served as President, Chief Operating Officer and Chief Financial Officer of DigitalGlobe, Inc. and held senior executive positions including chief executive officer and chief financial officer of two companies in the Asia Pacific region. |
Mr. Dubois’ qualifications to serve on our Board include his demonstrated expertise and experience in financial management, operations and strategic planning.
Larry Ferguson
| age 64, director since 2009 | Mr. Ferguson has served as CEO of several publicly traded and privately held companies, including First Consulting Group, Inc., a publicly held company serving the healthcare industry, from 2006 to 2008. Since 1995, he has served as CEO of |
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The Ferguson Group, a private equity consulting and investment firm focused on healthcare and life sciences information technology companies. He also serves as a director of Accelrys, Inc., a publicly traded company. He previously held executive positions with American Express and First Data Corporation.
Mr. Ferguson’s qualifications to serve on our Board include his extensive experience in the healthcare and life sciences information technology industry. Mr. Ferguson was elected to the Board in 2009 as a shareholder nominee and served as the Chairman of the Board until January 2012. He serves as the Chair of the Governance and Nominating Committee and is a member of our Audit and Compensation Committee.
Gus D. Halas
| age 63, director since 2013 | Mr. Halas was appointed to the Board in April 2013. Mr. Halas serves on the Audit Committee and Compensation Committee. Mr. Halas has served as CEO of several companies. He has been Chief Executive Officer and President of the Central Operating Companies at Central Garden & Pet Company since April 2011. Mr. Halas was President and Chief Executive Officer of T-3 Energy Services, Inc. from May 2003 to March 2009 and also served as Chairman of the Board of Directors from March 2004 to March 2009. From August 2001 to April 2003, Mr. Halas served as President and Chief Executive Officer of Clore Automotive, Inc. He also serves as a director for Triangle Petroleum Corp. |
Mr. Halas is qualified to serve on our Board because of his experience and expertise as an executive and a director with companies implementing “turnaround” strategies. Mr. Halas serves as the Chair of the Compensation Committee and is a member of the Audit Committee.
Thomas A. Watford
| age 53, director since 2010 | As President and Chief Operating Officer of Santa Rosa Consulting, Mr. Watford leads a company that offers an extensive portfolio of solutions that allow healthcare organizations to meet their operational and strategic objectives. Prior to joining Santa Rosa in 2008, Mr. Watford served as Chief Financial Officer and Chief Operating Officer of First Consulting Group, Inc., a $300 million NASDAQ listed company serving the healthcare industry. As Chief Operating Officer of First Consulting from 2006 to 2008, Mr. Watford was responsible for service delivery, infrastructure, and development operations in India and Vietnam. As Chief Financial Officer of First Consulting from 2005 to 2008, he led the financial turnaround of the company and, with the CEO, led the process that resulted in the sale of the firm. |
Mr. Watford’s qualifications to serve on our Board include his more than 25 years’ experience in the healthcare industry, where he has delivered professional and IT services to healthcare providers, health plans and life sciences companies. He serves as the Chair of the Audit Committee, and is a member of the Governance and Nominating Committees.
CORPORATE GOVERNANCE
Governance Structure
The Board has adopted Corporate Governance Guidelines for the Company which provide, among other things, that the Board generally favors separating the roles of Chairman and Chief Executive Officer. The Board believes it is generally appropriate for the CEO to maintain a primary focus on the Company’s strategic and operational
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plans, and for the Chairman to provide an independent focus on serving shareholder interests. The Board has had an independent Chairman since 2009. The Corporate Governance Guidelines provide that no individual who has attained the age of 72 years will be appointed to the Board or be nominated for election or reelection as a director.
Director Independence
Our common stock is listed on the NYSE MKT stock exchange, which is referred to in this proxy statement as the NYSE MKT. The NYSE MKT Company Guide requires that at least a majority of the members of our Board be “independent directors” within the meaning of the listing standards of the NYSE MKT.
The Board has affirmatively determined that each of the members of the Board other than Henry E. Dubois, the Company’s President and Chief Executive Officer, is, as of the date of this proxy statement, an “independent director” within the meaning of the listing standards of the NYSE MKT.
Director Attendance at Annual Meetings of Our Shareholders
We encourage, but do not require, our directors to attend annual meetings of our shareholders. All of our continuing directors at the time of our 2013 annual meeting of our shareholders attended that meeting.
Board and Board Committee Meetings
During 2013, our Board held a total of 28 meetings, in addition to taking other actions by unanimous written consent in lieu of a meeting. All of our Board members attended at least 75% of the meetings of our Board and of the committees on which he or she served that were held during the period for which he or she was a director or committee member during 2013.
Risk Oversight
The Board oversees our functions to assure that our assets are properly safeguarded, that appropriate financial and other controls are maintained, and that business is conducted prudently and in compliance with applicable laws, regulations and ethical standards. Although the Board as a whole carries out this oversight function, much of the work is delegated to various Board Committees which meet regularly and report back to the full Board.
In particular, the Audit Committee is responsible for reviewing and overseeing our financial statements, including the integrity of our financial and disclosure controls, legal compliance programs and procedures, and procedures for identifying, evaluating and controlling material financial, legal and operational risk. The Audit Committee, whose members are all “independent” directors, receives regular reports about these matters from, and meets separately with, our outside auditors, and receives regular reports from our management.
While the Board and its Committees are responsible for risk oversight, our management is responsible for managing risk. We have robust internal processes and a strong internal control environment to identify and manage risks and to communicate with the Board. The Board and the Audit Committee monitor and evaluate the effectiveness of the internal controls and the risk management program at least annually. Management communicates routinely with the Board, Board Committees and individual Directors on the significant risks identified and how they are being managed. Directors are free to, and often do, communicate directly with senior management.
Board Committees
As of the date of this proxy statement, the Board of Directors has the following standing committees:
| • | Audit Committee |
| • | Compensation Committee |
| • | Governance and Nominating Committee |
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Each of these committees has a written charter approved by the Board. These charters are posted on our website at www.hooperholmes.com. In addition, the Board from time to time may establish additional committees for particular purposes. The Executive Committee was formed in late 2012 and was discontinued as of September 30, 2013.
The current membership of each of the Board’s committees is set forth below:
| Director | Audit Committee | Compensation Committee | Governance and Nominating Committee | ||
| Ronald V. Aprahamian | |||||
| Henry E. Dubois | |||||
| Larry Ferguson | X | X | Chair | ||
Gus D. Halas(1) | X | Chair | |||
| Dr. Elaine L. Rigolosi | X | X | |||
| Thomas A. Watford | Chair | X | |||
(1) Appointed to Audit Committee and Compensation Committee on April 15, 2013.
Audit Committee
As specified in the Audit Committee’s charter, the Audit Committee was established to assist the Board in fulfilling its oversight responsibilities, primarily through:
| • | overseeing management’s conduct of the Company’s financial reporting process and systems of internal accounting and financial controls; |
| • | monitoring the independence and performance of the Company’s independent registered public accounting firm; and |
| • | providing an avenue of communication among the independent registered public accounting firm, management and the Board. |
The Audit Committee is currently comprised of three members, each of whom satisfies the independence standards specified in Section 803B(2) of the NYSE MKT Company Guide and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Board has determined that Thomas A. Watford, the committee’s chair, qualifies as an “audit committee financial expert” as defined by SEC rules.
The Audit Committee charter provides that the committee’s responsibilities and duties are:
| • | oversight of our internal controls, which encompasses: the annual review of the budget of the internal audit function, its staffing, audit plan, and material findings of internal audit reviews and management’s response; assessment of the effectiveness of or weaknesses in our internal control over financial reporting, which may also entail obtaining from the independent registered public accounting firm its report, if required, regarding the effectiveness of our internal control over financial reporting; and review of the appointment and performance of the senior internal auditor, and the activities, organizational structure and qualifications of the persons responsible for the internal audit function; |
| • | the evaluation of the performance and independence of the independent registered public accounting firm, which encompasses: review of the scope, plan and procedures to be used on the annual audit; review of the results of the annual audit and interim financial reviews performed by the independent registered public accounting firm; inquiring into accounting adjustments that were noted or proposed by the independent registered public accounting firm but were passed as immaterial or otherwise; the review, at least annually, of a report by the independent registered public accounting firm as to the independent registered public accounting firm’s internal quality control procedures; and pre-approval |
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of the fees for all audit and non-audit services performed by the independent registered public accounting firm;
| • | the review of our annual and interim consolidated financial statements, which encompasses: the review of significant estimates and judgments underlying such financial statements, all critical accounting policies, major changes to our accounting principles and practices and material questions of choice with respect to such principles and practices; review of earnings press releases; and review of related party transactions and other matters relating to our financial affairs and its accounts; and |
| • | the review of our compliance with laws, regulations and policies. |
The Audit Committee met five times in 2013.
Compensation Committee
The Compensation Committee currently consists of three members, each of whom is an “independent director” as defined by applicable NYSE MKT listing standards.
In accordance with the Compensation Committee’s charter, the committee, among other matters, annually reviews and recommends to the Board the compensation of our Chief Executive Officer and, based in part upon our Chief Executive Officer’s recommendation, approves the compensation of the other members of our senior management. The Compensation Committee also administers the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan and the Hooper Holmes, Inc. 2008 Omnibus Employee Incentive Plan and determines the nature and terms of the awards granted under those plans. The Compensation Committee also administers the Hooper Holmes, Inc. 2007 Non-Employee Director Restricted Stock Plan and the Stock Purchase Plan (2004) of Hooper Holmes, Inc. In overseeing these plans, the Compensation Committee has the sole authority for day-to-day administration and interpretation of the plans. The Compensation Committee has the authority to engage outside advisors to assist it in the performance of its duties; the Compensation Committee may not delegate this authority to others. The Compensation Committee may, however, form and delegate some or all of its authority to subcommittees when it deems appropriate.
The Compensation Committee periodically reviews and recommends to the Board the compensation for the Company’s non-employee directors. Information regarding director compensation amounts paid in 2013 can be found in the Director Compensation Table located in the discussion below under the caption “Compensation of Directors.” The Compensation Committee and our Board believe that (i) non-employee director compensation should fairly compensate directors for work required in a company of our size and scope, (ii) such compensation should align such directors’ interests with the long-term interests of our shareholders, and (iii) the structure of director compensation should be simple, transparent and easy for shareholders to understand.
Hooper Holmes’ compensation programs are designed to attract, retain, and motivate executive officers and to provide a framework that delivers outstanding financial results over the long term. Our compensation programs for executive officers reflect the competitive environment in which we operate and incorporate performance-based criteria. To that end, the Compensation Committee monitors the executive compensation and compensation plans of other companies. In addition, our compensation programs are designed to establish compensation packages that balance cash and equity in a manner designed to align executive compensation with shareholder interests and also take into account the Company’s cash position.
We are required to seek non-binding advisory votes from shareholders to approve the compensation as disclosed in the discussion under the caption “Compensation of Executive Officers” and to approve how often such a advsisory vote should occur. In 2013, a majority of shareholders voted to support an annual advisory vote on the compensation of executive officers. Shareholder Proposal 3 below represents such advisory votes.
While the advisory vote on compensation is non-binding, the Compensation Committee and the Board value the opinions of our shareholders as expressed through their votes and other communications. Accordingly, the Compensation Committee and the Board will carefully consider the outcome of the advisory vote on executive
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compensation and shareholder opinions received from other communications when making future compensation decisions.
The Compensation Committee met nine times in 2013.
Governance and Nominating Committee
The Governance and Nominating Committee’s principal purposes are to:
| • | recommend to the Board principles for governance; |
| • | oversee the evaluation of the Board and management; |
| • | recommend to the Board persons to be nominated for election as directors; and |
| • | assign Board members to Board committees. |
The charter of the Governance and Nominating Committee provides that the committee is to have such number of directors as determined by the Board. Except as otherwise permitted, each of the committee members is to be an “independent director” as defined by applicable NYSE MKT listing standards. The Governance and Nominating Committee has three members, each of whom is independent under the NYSE MKT listing standards.
Under applicable NYSE MKT listing requirements, at least a majority of the members of the Board must meet the definition of “independent director” set forth in such listing requirements. The Governance and Nominating Committee believes that it is preferable for at least one member of the Board to meet the criteria for an “audit committee financial expert” as defined by SEC rules.
The Governance and Nominating Committee’s goal is to assemble a Board that brings to the Company a diversity of experience. Directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of our shareholders. They should have an inquisitive and objective perspective and mature judgment. Taken as a whole, the Board should include members with a record of experience and achievement in fields relevant to the Company’s current and planned future business activities, and members with knowledge or experience that can be a source of strategic guidance to Company management. Director candidates must have sufficient time available, in the judgment of the Governance and Nominating Committee, to perform all Board and committee responsibilities. They must have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. Members of the Board are expected to rigorously prepare for, attend and participate in all Board and applicable committee meetings. Other than the foregoing, there are no stated minimum criteria for director nominees, although the Governance and Nominating Committee may also consider such other factors as it may deem, from time to time, in the best interests of the Company and its shareholders.
Candidates for director nominees are evaluated by the Governance and Nominating Committee in the context of the current composition of the Board, the Company’s operating requirements and the long-term interests of the Company’s shareholders. The Governance and Nominating Committee uses its network of contacts to compile a list of potential candidates and may also engage, if it deems appropriate, a professional search firm and, in such case, pay that firm a fee for its assistance in identifying or evaluating director candidates. In the case of new director candidates, the Governance and Nominating Committee will seek to determine whether the nominee is independent under applicable NYSE MKT listing standards, SEC rules and regulations and with the advice of counsel, if necessary. The Governance and Nominating Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the functions and needs of the Board. In the case of incumbent directors whose terms of office are set to expire, the Governance and Nominating Committee reviews such directors’ overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance, and whether there are any relationships and transactions that might impair such directors’ independence.
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The Governance and Nominating Committee meets to discuss and consider such candidates’ qualifications and then selects a nominee or nominees for recommendation to the Board by majority vote.
The Governance and Nominating Committee does not have a specific diversity policy, but considers diversity of race, ethnicity, gender, age, cultural background and professional experiences in evaluating candidates for Board membership. The Board believes that a variety of points of view represented on the Board contributes to a more effective decision-making process.
As set forth in the Governance and Nominating Committee’s charter, the Governance and Nominating Committee will evaluate any candidates recommended by shareholders in accordance with the same criteria applicable to the evaluation of candidates proposed by directors or management. A shareholder who wishes to recommend a person for election as a director at the 2014 annual meeting of shareholders, without including such nominee in the Company’s proxy materials, must notify the Company of such nominee in writing by March 13, 2015, but not before February 11, 2015. The notice containing such nominee must also include certain information specified in our bylaws. Shareholders should submit their recommendations to the attention of our Corporate Secretary, 560 N. Rogers Road, Olathe, Kansas 66062, by certified mail - return receipt requested.
If a shareholder wishes to have a nominee for director included in the Company’s proxy materials for the 2015 annual meeting of shareholders, the shareholder must be considered an “eligible shareholder” under the Company’s bylaws, and the nomination must be received by the Company by March 13, 2015. The notice containing such nominee must also include certain information specified in our bylaws. Shareholders should submit their notices to the attention of the Company’s Corporate Secretary, 560 N. Rogers Road, Olathe, Kansas 66062, by certified mail – return receipt requested. To be considered an “eligible shareholder,” such shareholder, together with his or her affiliates, must have continuously held (for at least one year preceding March 13, 2015) beneficial ownership of not less than 5% of the voting power of our outstanding voting securities entitled to vote in the election of directors and must comply with all applicable provisions of our bylaws.
The Governance and Nominating Committee did not have any formal separate meetings during 2013. All business of the Governance and Nominating Committee was conducted as part of meetings of the full Board of Directors in 2013.
Executive Committee
In 2013, the principal purpose of the Executive Committee was to work at the discretion of the Board on certain high level and sensitive matters, including evaluating the strategic direction of the Company. In 2013, the Executive Committee formally met four times and much more frequently on an informal basis to consider matters related to our financing arrangements, Mr. Dubois’s retention as a consultant and subsequent appointment to the Board and management, and transaction-related matters. The Executive Committee was comprised of three independent directors. The Board discontinued the Executive Committee effective September 30, 2013.
Code of Conduct and Ethics
We are committed to sound principles of corporate governance that promote honest, responsible and ethical business practices. Our corporate governance policies and practices are actively reviewed and evaluated by our Board and the Governance and Nominating Committee.
We have adopted a Code of Conduct and Ethics to provide standards for ethical conduct in dealing with agents, customers, suppliers, political entities and others. Our Code of Conduct and Ethics applies to all of our directors, officers and employees (and those of our subsidiaries), including our Chief Executive Officer, Chief Financial Officer and Controller. Our Code of Conduct and Ethics is posted on our website at www.hooperholmes.com. A printed copy of our Code of Conduct and Ethics is also available to shareholders, without charge, upon written request directed to our Corporate Secretary at the following address: Hooper Holmes, Inc., 560 N. Rogers Road, Olathe, Kansas 66062.
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Communications with Our Board
Shareholders and other interested persons may communicate in writing with our Board, any of its committees, or a particular director by sending written communications to our Corporate Secretary at 560 N. Rogers Road, Olathe, Kansas 66062. The mailing envelope should contain a clear notation indicating that the enclosed letter is a “Shareholder-Board Communication” or “Shareholder-Director Communication.” All such letters should clearly state whether the intended recipients are all of the members of the Board or certain specified individual directors. You must include your name and address in the written communication and indicate whether you are a shareholder. The Corporate Secretary will review any communications received from shareholders and all material communications from shareholders will be forwarded to the appropriate director or directors or Committee of the Board based on the subject matter.
Policies on Reporting Certain Concerns Regarding Accounting and Other Matters
We have adopted policies on the reporting of concerns to our Audit Committee regarding any suspected misconduct, illegal activities or fraud, including any questionable accounting, internal accounting controls or auditing matters, or misconduct. Any person who has a concern regarding possible misconduct by any of our employees, including any executive officer, or any of our agents, may submit that concern to: Hooper Holmes, Inc., Attention: Corporate Secretary, 560 N. Rogers Road, Olathe, Kansas 66062. Employees may communicate all concerns regarding any misconduct to our General Counsel and/or the Audit Committee on a confidential and anonymous basis through our “whistleblower” hotline at 1-866-384-6616. Any communication received through the toll-free number is promptly reported to our General Counsel, as well as other appropriate management members.
COMPENSATION OF DIRECTORS
The table below sets forth the fees and other compensation that we paid our non-employee directors for services performed in 2013. In addition to these fees and other compensation, all directors are reimbursed for their out-of-pocket expenses incurred in attending Board and Board committee meetings.
| Nature of Director Compensation | Amount | |
Annual Board Retainers:(1) | ||
| Non-Executive Chair of the Board | $40,000 | |
| Additional Retainer for Non-Executive Chair of the Board | $35,000 | |
| Other Non-Employee Directors | $20,000 | |
Annual Board Committee Retainers:(1) | ||
| Audit Committee Chair | $12,000 | |
| Executive Committee Chair | $12,000 | |
| Other Committee Chairs | $8,000 | |
| Audit Committee Members | $8,000 | |
| Executive Committee Members | $12,000 | |
| Other Committee Members | $6,000 | |
| Fees for Board Meetings/Teleconferences Attended: | ||
| Regular or Special Meetings | $2,500 per meeting | |
| Teleconferences | $1,500 per teleconference | |
Fees for Board Committee Meetings Attended: (2) | ||
| Regular or Special Meetings | $1,500 per meeting | |
| Teleconferences | $750 per teleconference | |
| Annual Restricted Stock Grant: | ||
Non-Executive Chair of the Board(3) | 10,000 shares | |
Other Non-Employee Directors(3) | 5,000 shares | |
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(1) | The annual Board and Board committee retainers are paid in installments on a quarterly basis. If a director is a member of the Board or a Board committee for less than the full year, he or she receives quarterly installments of the annual Board and Board committee retainers only for the quarterly periods in which he or she serves on the Board or the applicable Board committee(s). |
(2) | The Chair and members of the Executive Committee do not receive fees for meetings or teleconferences of the Executive Committee. |
(3) | The 2007 Plan provides for the automatic grant, on an annual basis, of 5,000 shares of restricted stock to each non-employee member of the Board (other than the non-executive chair of the Board or the lead director, if there is no non-executive chair). The non-executive chair of the Board (or the lead director, if there is no non-executive chair) receives 10,000 shares. |
Director Compensation Table
The following table shows total compensation awarded or paid to each non-employee director during 2013.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) |
| Ronald V. Aprahamian | 136,700 | 4,200 | 140,900 |
| Larry Ferguson | 112,100 | 2,100 | 114,200 |
| Gus D. Halas | 75,850 | 2,100 | 77,950 |
| Dr. Elaine L. Rigolosi | 92,350 | 2,100 | 94,450 |
| Kenneth Rossano | 42,750 | – | 42,750 |
| Thomas A. Watford | 96,100 | 2,100 | 98,200 |
(1) | The stock awards reflected in this column were granted under the 2007 Plan. Stock awards under the plan are normally made in June of each year. The amounts shown represent the fair value of the stock awards on the date of grant. |
Board Governance and Compensation – 2014 Changes
The Board of Directors has approved certain governance and compensation changes to become effective upon the conclusion of the 2014 annual meeting of shareholders.
Due to the decrease in the size of the Board following the 2014 annual meeting of shareholders, the Board has determined that, following such meeting, each independent director would serve on each of the Audit, Compensation and Governance and Nominating Committees.
In connection with such Board governance realignment, the Board also determined to adopt a new compensation structure for the directors, to become effective following the 2014 annual meeting of shareholders. The new director compensation program is designed to align the directors’ interests more directly with the shareholders by providing a greater percentage of overall compensation in the form of stock grants. The new program is summarized as follows:
Annual Board retainers will be paid in a combination of cash and stock. All Non-employee directors will be paid an annual retainer of $60,000. The Non-Executive Chair will be paid an additional retainer of $20,000. These retainers are intended to provide compensation for four in-person Board meetings and four Committee meetings of each Committee on which they serve per year. Compensation for Board or Committee meetings in excess of four will be $750 per meeting, whether in person or telephonic. Committee chairs will receive an additional annual cash retainer as
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follows: Audit ($10,000), Compensation ($7,500) and Governance and Nominating ($5,000). In addition to the cash compensation, subject to approval of the Amended and Restated 2011 Omnibus Employee Incentive Plan (Proposal 2), each director will receive a grant of 100,000 shares of restricted stock, with immediate vesting, issued as of the date of the annual meeting to be issued under such plan. If the shareholders fail to approve the 2011 Amended and Restated Omnibus Employee Incentive Plan, the Board will consider alternative structures for the Board compensation program.
Director and Officer Indemnification
The Company has agreed to indemnify each of its directors and executive officers for all expenses actually and reasonably incurred in defending or settling an action to which such person is a party or threatened to be made a party or is otherwise involved because of his or her status as a director or officer of the Company. If the action is brought by or in the right of the Company, the indemnification must be made only if such person acted in good faith, for a purpose reasonably believed to be in the best interest of the Company (or, in the case of service to another entity, not opposed to the interest of the Company).
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information available to us as of April 15, 2014, regarding the beneficial ownership of our common stock by (i) each person, or group of affiliated persons, known by us to beneficially own more than five percent (5%) of the outstanding shares of our common stock, (ii) each of our directors and director nominees, (iii) each of our named executive officers listed in the Summary Compensation Table located elsewhere in this proxy statement, and (iv) all of our directors and executive officers as a group.
The information in the table has been presented in accordance with SEC rules and is not necessarily indicative of beneficial ownership for any other purpose. Under the SEC’s rules, a person is deemed to own beneficially all securities as to which that person owns or shares voting or dispositive power, as well as all securities which such person may acquire within 60 days through the exercise of currently available conversion rights or options. If two or more persons share voting or dispositive power with respect to specific securities, all of such persons may be deemed to be the beneficial owner of such securities. Information with respect to persons other than the holders listed in the table below that share beneficial ownership with respect to the securities shown is set forth in certain of the footnotes to the table.
Except as otherwise noted, the number of shares owned and percentage ownership in the following table is based on 70,410,649 shares of common stock outstanding on April 15, 2014.
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Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Common Stock Outstanding |
5% Shareholders: | ||
Heartland Advisors, Inc. and William J. Nasgovitz 789 North Water Street Milwaukee, WI 53202 | 12,209,238 (1) | 17.34% |
J. Carlo Cannell 1315 South Highway 89, Suite 203 P.O. Box 3459 Jackson, WV 83001 | 10,681,538 (2) | 15.17% |
Named Executive Officers, Directors and Nominees for Director: | ||
Ronald V. Aprahamian(3) | 3,391,400 | 4.82% |
Henry E. Dubois(4) | 705,532 | 1.00% |
| Larry Ferguson | 207,500 | * |
| Gus D. Halas | 105,000 | * |
Dr. Elaine L. Rigolosi(5) | 218,400 | * |
| Thomas Watford | 15,000 | * |
Tom Collins(6) | 128,100 | * |
Ransom J. Parker(7) | 50,000 | * |
Michael J. Shea(8) | 130,506 | * |
Joseph A. Marone, Jr.(9) | 429,203 | * |
| Burt R. Wolder | 189,047 | * |
All Directors and Executive Officers as a Group (12 persons) | 5,569,668 (10) | 7.91% |
| * | Represents less than one percent of the outstanding shares of our common stock. |
(1) | Heartland Advisors, Inc. and William J. Nasgovitz, who is identified as the president and control person of Heartland Advisors, Inc., filed an amended Schedule 13G on February 6, 2014, disclosing that they have shared voting power with respect to 11,450,231 shares of our common stock and shared dispositive power with respect to 12,209,238 shares. The amended Schedule 13G indicates that Mr. Nasgovitz disclaims beneficial ownership of these shares. |
(2) | J. Carlo Cannell filed an amended Schedule 13D on December 13, 2013, disclosing that he has sole voting power and sole dispositive power with respect to all 10,681,538 shares. |
(3) | Includes 60,000 shares held by Mr. Aprahamian as trustee for his late mother’s trust. |
(4) | Includes 500,000 shares that Mr. Dubois has the right to acquire within 60 days of April 15, 2014, upon the exercise of outstanding options. |
(5) | Includes 3,600 shares held in the name of Dr. Rigolosi’s husband. |
(6) | Includes 122,100 shares that Mr. Collins has the right to acquire within 60 days of April 15, 2014, upon the exercise of outstanding options. |
(7) | Information known to us on April 8, 2013, Mr. Parker’s last day of employment. |
(8) | Information known to us on September 25, 2013, Mr. Shea’s last day of employment. |
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(9) | Information known to us on April 2, 2014, Mr. Marone’s last day of employment. Includes 345,350 shares that Mr. Marone has the right to acquire within 60 days of April 15, 2014, upon the exercise of outstanding options. |
(10) | Includes shares which certain of the individuals included in the table have the right to acquire within 60 days of April 15, 2014 upon exercise of outstanding options. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers, and the beneficial owners of more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of the Company. Directors, executive officers and such beneficial owners are required by SEC regulations to furnish us with copies of all reports they file under Section 16(a). The Company has historically undertaken to make such filings on behalf of its directors and executive officers.
To our knowledge, based solely on our review of the copies of such reports (and amendments to such reports) furnished to us, we are not aware of any required Section 16(a) reports that were not filed on a timely basis with respect to the fiscal year ended December 31, 2013.
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter, the Audit Committee assists the Board in fulfilling its responsibilities for the oversight of the quality and integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, the performance of the internal audit function and independent audit, and the independence and qualifications of our independent registered public accounting firm, which reports directly to the Audit Committee. The Audit Committee operates under a charter approved by the Board. The full text of the Audit Committee charter is available on our website at www.hooperholmes.com. As of the date of this proxy statement, the Audit Committee is comprised of three directors, each of whom the Board has determined to be independent within the meaning of rules adopted by the SEC and the listing standards of the NYSE MKT.
Our management has responsibility for preparing our consolidated financial statements, maintaining effective internal control over financial reporting and assessing the effectiveness of the internal control over financial reporting. Our independent registered public accounting firm, KPMG LLP, is responsible for performing an audit of our consolidated financial statements in accordance with the standards established by the Public Company Accounting Oversight Board, and for issuing their report on the results of their audit.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has met with management and KPMG LLP and has reviewed and discussed with them the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2013.
2. The Audit Committee has discussed and reviewed with KPMG LLP the matters required by Public Company Accounting Oversight Board, Auditing Standard No. 16, Communication with Audit Committees, and, with and without management present, discussed and reviewed the results of KPMG LLP’s audit of the consolidated financial statements.
3. The Audit Committee has obtained from KPMG LLP the written disclosure and the letter required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and has discussed with KPMG LLP any relationships that may impact their objectivity and independence as provided in Public Company Accounting Oversight Board Rule 3526, and has satisfied itself as to their independence. The Audit Committee reviewed, with KPMG LLP and management, the audit plan, audit scope and identification of audit risks.
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4. Based upon the review and discussions described in the preceding paragraphs 1 through 3 above, and the Audit Committee’s review of the representations of management, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in our annual report on Form 10-K for the fiscal year ended December 31, 2013, for filing with the SEC.
Date: April 28, 2014
/s/ Thomas A. Watford
Committee Chair
/s/ Larry Ferguson
Committee Member
/s/ Gus D. Halas
Committee Member
The foregoing report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent the Company specifically incorporates this report by reference therein.
PROPOSAL NO. 2
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE HOOPER HOLMES, INC.
2011 OMNIBUS EMPLOYEE INCENTIVE PLAN
Upon the recommendation of the Compensation Committee, the Board has adopted an amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan (the “Amended and Restated Omnibus Plan”) and is submitting the Amended and Restated Omnibus Plan to our shareholders for approval.
The Amended and Restated Omnibus Plan currently provides for grants to our senior management and other employees of stock options and shares of restricted stock. The Amended and Restated Omnibus Plan is being amended and restated to include as eligible participants non-employee directors and consultants who perform bona fide services to us under the Amended and Restated Omnibus Plan. The Amended and Restated Omnibus Plan is also being amended and restated to change the name of the plan to the “Hooper Holmes, Inc. 2011 Omnibus Incentive Plan.”
The receipt, exercise and/or payout of any and all awards granted under the Amended and Restated Omnibus Plan may be made subject to the satisfaction of performance conditions. Our Board intends to use such awards to enhance our ability to attract and retain highly qualified officers, key employees and other personnel, as well as non-employee directors and consultants and to motivate such persons to expend maximum effort to improve our business results and earnings. The Board believes that, by providing an opportunity to our employees to acquire or increase their equity interests in the company, their interests are better aligned with those of our shareholders.
The Amended and Restated Omnibus Plan is to remain in effect until the earlier of (i) the 10th anniversary of its original effective date (May 24, 2011), or (ii) the date all shares of stock available for issuance under the Amended and Restated Omnibus Plan have been issued.
If approved by our shareholders, the Amended and Restated Omnibus Plan will become effective as of June 11, 2014. No awards have been nor will be made under the Amended and Restated Omnibus Plan that were not otherwise permitted by the original plan, unless and until the Amended and Restated Omnibus Plan is approved by our shareholders. Shareholder approval of the Amended and Restated Omnibus Plan is desired, among other reasons, to meet the listing requirements of the NYSE MKT stock exchange.
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The material features of the Amended and Restated Omnibus Plan are summarized below. The summary is qualified in its entirety by reference to the specific provisions of the Amended and Restated Omnibus Plan, the full text of which is set forth as Annex A to this proxy statement.
Eligibility to Receive Awards under the Amended and Restated Omnibus Plan
Any of our employees or any employee of our subsidiaries or other affiliate will be eligible to receive awards under the Amended and Restated Omnibus Plan. Non-employee directors and consultants who provide bona fide services to us may also be granted awards under the Amended and Restated Omnibus Plan.
Name
To reflect the addition of non-employee directors and consultants as eligible participants under the Amended and Restated Plan, the Amended and Restated Omnibus Plan will be known as the “Hooper Holmes, Inc. 2011 Omnibus Incentive Plan.”
Administration
The Amended and Restated Omnibus Plan will be administered by the Compensation Committee. The Compensation Committee will select the employees to whom awards will be granted and set the terms and conditions of such awards, including any performance goals applicable to certain awards.
Shares Reserved for Awards
The number of shares of our common stock available for issuance under the Amended and Restated Omnibus Plan is 3,500,000 shares. The number (and kind) of shares authorized for awards is subject to proportional adjustment for changes in our capitalization, a reorganization, stock split, reverse stock split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in our shares, effected without receipt of consideration.
Shares of our common stock to be issued under the Amended and Restated Omnibus Plan shall be authorized but unissued shares, shares purchased in the open market or otherwise, treasury shares or any combination of such shares, as the Compensation Committee or, if appropriate, the Board may determine.
The Amended and Restated Omnibus Plan includes provisions specifying the number of shares of our common stock that will count against the share limit under the plan. The shares subject to an option will count against the limit on a one-for-one basis.
Any shares that are not used because (i) the terms and conditions of the applicable award are not met, (ii) the award terminates, expires, or is exchanged or forfeited, or (iii) the award is settled in cash in lieu of shares may again be used for an award under the Amended and Restated Omnibus Plan.
Types of Awards
Awards under the Amended and Restated Omnibus Plan may include:
| • | stock options (provided that all options granted under the Amended and Restated Omnibus Plan will be non-qualified stock options; that is, options that do not qualify as incentive stock options) (“NQSOs”); and |
| • | shares of restricted stock (restricted in the sense that such shares may be subject to, among other things, restrictions based on the achievement of corporate and/or individual performance goals, time-based restrictions on vesting, holding requirements, and transfer/sale restrictions). |
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The actual number and types of awards that will be granted under the Amended and Restated Omnibus Plan are not determinable at this time. The Compensation Committee will make these determinations in its sole discretion.
Options. The Compensation Committee may grant to participants in the Amended and Restated Omnibus Plan options to purchase shares of our common stock. The Compensation Committee will determine the terms and conditions of each option award, including the number of shares of stock for which the option may be exercised, the option exercise price, vesting schedule, any conditions upon which the option shall become vested and exercisable, the term of the option, the consequence of a grantee’s ceasing to be an employee, and the form of payment upon exercise of the option.
The exercise price of an option awarded under the Amended and Restated Omnibus Plan may not be less than 100% of the fair market value of a share of our common stock on the date the Compensation Committee grants the option award.
Unless the award agreement memorializing the terms of an option award specifies otherwise, an option awarded under the Amended and Restated Omnibus Plan will vest and become exercisable in four equal annual installments (i.e., 25% on each of the second through fifth anniversaries of the grant date). The Amended and Restated Omnibus Plan includes provisions that may alter the vesting schedule or the ability to exercise an option in the event of a grantee’s ceasing to be an employee or the occurrence of a change of control of the Company. An option granted under the Amended and Restated Omnibus Plan will expire no later than the 10th anniversary of its grant date.
The Amended and Restated Omnibus Plan provides a number of alternative methods to pay the exercise price of an option, including:
| • | in cash; |
| • | by tendering previously acquired shares of our common stock having an aggregate fair market value at the time of exercise of the option equal to the exercise price for the shares for which the option is being exercised; |
| • | by a net exercise of the option (that is, using a portion of the shares of stock subject to the option, valued at the fair market value of a share of our common stock on the date of exercise of the option, to pay the option price for the shares for which the option is being exercised); and |
| • | through a “cashless” exercise (in which the shares of stock underlying the option are sold by a licensed securities broker, with the proceeds used to pay the option price). |
Restricted Stock. The Compensation Committee may grant to participants in the Amended and Restated Omnibus Plan awards of shares of restricted stock - that is, shares subject to specified restrictions (for example, the achievement of corporate and/or individual performance goals, time-based restrictions on vesting, holding requirements, and transfer/sale restrictions).
Unless the award agreement memorializing the terms of an award of shares of restricted stock specifies otherwise, such an award will vest and become exercisable in four equal annual installments (i.e., 25%) on each of the second through fifth anniversaries of the grant date. Unless the Compensation Committee otherwise provides in an award agreement, upon a grantee’s ceasing to be an employee for any reason other than his death or disability, any award of shares of restricted stock held by the grantee that have not vested, or with respect to which all applicable restrictions and conditions have not been satisfied or lapsed, shall be deemed forfeited. However, the Compensation Committee may, in its discretion, in any individual case, provide for a waiver of restrictions or forfeiture conditions related to the shares of restricted stock.
Unless the Compensation Committee provides otherwise in the applicable award agreement, a grantee holding an award of shares of restricted stock granted under the Amended and Restated Omnibus Plan will have right to vote such shares and will be credited with dividends paid with respect to those shares.
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General Terms of Awards
Prohibition on Repricing. The Amended and Restated Omnibus Plan provides that, without shareholder approval, no amendment or modification may be made to an outstanding option (for example, by reducing the exercise price or replacing the option with cash or another award type) that would be treated as a repricing under the rules of the principal stock exchange on which our common stock is then listed.
Restrictions on Transferability of Awards. An award granted under the Amended and Restated Omnibus Plan is not generally transferable by the grantee except in the event of the grantee’s death or unless otherwise required by law. An award agreement with respect to an award of an option may provide that a grantee may transfer to a “family member” (as defined in the plan) all or part of an award in a “not for value” transaction - for example, by a gift or a transfer under a domestic relations order in settlement of marital property rights.
Effect of Cessation of Employee Status. Unless specifically stated otherwise in the applicable award agreement, upon the date on which a grantee ceases to be employed by us, all rights to exercise the grantee’s unvested options shall terminate immediately. Vested options shall be exercisable after the grantee ceases to be an employee only during the applicable time periods described below and thereafter shall terminate.
| • | If a grantee dies while an employee, the grantee’s vested options may be exercised by his or her beneficiary not later than the expiration date specified in the applicable award agreement or twelve months after the grantee’s death, whichever is earlier. |
| • | If a grantee ceases to be an employee due to disability (as defined in the plan), the grantee may exercise his or her vested options not later than the expiration date specified in the applicable award agreement or twelve months after ceasing to be an employee, whichever is earlier. |
| • | If a grantee ceases to be an employee by reason of retirement (as defined in the plan), all rights to exercise his or her vested options shall terminate no later than the expiration date specified in the applicable award agreement or twelve months after the grantee ceases to be an employee, whichever is earlier. |
| • | If a grantee ceases to be an employee for any reason other than death, disability or retirement, all rights to exercise his or her vested options shall terminate no later than the expiration date specified in the applicable award agreement or thirty days after the date the grantee ceases to be an employee, whichever is earlier, unless the Compensation Committee decides that such options shall terminate on the date the grantee ceases to be an employee. |
Forfeiture Provisions. The Amended and Restated Omnibus Plan provides that we may retain the right in an award agreement to cause a forfeiture of the gain realized by a grantee in connection with an award(s) on account of actions taken by the grantee in violation of or in conflict with any (i) employment agreement, (ii) non-competition agreement, (iii) agreement prohibiting solicitation of our employees or clients, or (iv) any confidentiality obligation. In addition, we may annul an award if the grantee ceases to be an employee as a result of a termination for cause (as defined in the plan).
The Amended and Restated Omnibus Plan also provides that, if we are required to prepare an accounting restatement due to our material noncompliance, as a result of misconduct, with any financial reporting requirement under applicable securities laws, the individuals subject to automatic forfeiture under the Sarbanes-Oxley Act of 2002 and any grantee who knowingly engaged in or failed to prevent the misconduct, or was grossly negligent in engaging or failing to prevent the misconduct, shall reimburse us the amount of any payment in settlement of an award earned or accrued during the 12-month period following the first public issuance or filing of the financial document(s) embodying the financial reporting requirement.
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Amendment, Suspension and Termination of the Amended and Restated Omnibus Plan
The Board may at any time amend, suspend or terminate the Amended and Restated Omnibus Plan, provided that no such action shall, without the consent of an award grantee, impair the rights or obligations under any award previously granted under the plan. Amendment of the Amended and Restated Omnibus Plan shall require approval of the our shareholders to the extent determined by the Board to be necessary under our organizational documents, or by applicable law or stock exchange listing requirements. Shareholder approval will be required if the amendment would (i) materially increase the benefits accruing to grantees, (ii) materially increase the aggregate number of shares of our common stock that may be issued under the plan, or (iii) materially modify the requirements as to eligibility for participation in the plan.
Federal Income Tax Consequences
Based on current provisions of the Internal Revenue Code of 1986, as amended, and the existing regulations thereunder, the anticipated U.S. federal income tax consequences of awards of options and restricted stock granted under the Amended and Restated Omnibus Plan are as described below. The following discussion is not intended to be a complete discussion of applicable law and is based on the U.S. federal income tax laws in effect as of the date of this proxy statement.
Stock Options. The only stock options that may be granted under the Amended and Restated Omnibus Plan are non-qualified stock options, or NQSOs. An employee receiving a NQSO does not recognize taxable income on the date of grant of the NQSO, provided that the stock option does not have a readily ascertainable fair market value at the time it is granted. In general, the employee must recognize ordinary income at the time of exercise of the NQSO in the amount of the difference between the fair market value of the shares of common stock on the date of exercise and the option price. The ordinary income recognized will constitute compensation for which tax withholding generally will be required. The amount of ordinary income recognized by an employee will be deductible by us in the year that the employee recognizes the income if we comply with the applicable reporting requirements.
Shares of our common stock acquired upon the exercise of a NQSO will have a tax basis equal to their fair market value on the exercise date or other relevant date on which ordinary income is recognized, and the holding period for the common stock generally will begin on the date of exercise or such other relevant date. Upon subsequent disposition of the common stock, the employee will recognize long-term capital gain or loss if the employee has held the common stock for more than one year prior to disposition, or short-term capital gain or loss if the employee has held the common stock for one year or less.
If an employee pays the exercise price, in whole or in part, with previously acquired shares of common stock, the employee will recognize ordinary income in the amount by which the fair market value of the shares of common stock received exceeds the option exercise price. The employee will not recognize gain or loss upon delivering the previously acquired shares of common stock to us. Shares of common stock received by an employee, equal in number to the previously acquired shares of common stock exchanged therefor, will have the same basis and holding period for long-term capital gain purposes as the previously acquired shares of common stock. Shares of common stock received by an employee in excess of the number of such previously acquired shares of common stock will have a basis equal to the fair market value of the additional shares of common stock as of the date ordinary income is recognized. The holding period for the additional shares of common stock will commence as of the date of exercise of the NQSO or such other relevant date.
Restricted Stock. The recognition of income from an award of restricted stock for federal income tax purposes depends on the restrictions imposed on the shares. Generally, taxation will be deferred until the first taxable year the shares are no longer subject to substantial risk of forfeiture or the shares are freely transferable. At the time the restrictions lapse, the grantee will recognize ordinary income equal to the then fair market value of the shares. The grantee may, however, make an election to include the value of the shares in gross income in the year such shares are granted despite such restrictions. Generally, we will be entitled to deduct as a business expense, in the year the grantee includes the compensation in income, the same amount that the grantee includes as compensation.
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Section 162(m). Section 162(m) of the Internal Revenue Code generally disallows a federal income tax deduction to public companies for certain compensation in excess of $1 million paid to a corporation’s chief executive officer and certain of the corporation’s other executive officers. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The Amended and Restated Omnibus Plan has been designed to permit the Compensation Committee to grant certain awards that qualify as performance-based compensation for purposes of satisfying the conditions of Section 162(m).
Vote Required
Approval of the Amended and Restated Omnibus Plan will require the affirmative vote of the holders of a majority of the shares of our common stock present in person or by proxy and entitled to vote at the annual meeting, assuming the presence of a quorum at the annual meeting. If the shareholders do not approve the Amended and Restated Omnibus Plan, it will not be implemented but we reserve the right to adopt such other compensation plans and programs as we deem appropriate and in the best interests of the company and its shareholders.
The Board recommends a vote “FOR” the approval of the amendment and restatement of the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan.
PROPOSAL NO. 3
ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
Our compensation programs are designed to attract, retain, and motivate executive officers and to provide a framework that delivers outstanding financial results over the long term. Our compensation programs for executive officers reflect the competitive environment in which we operate and incorporate performance-based criteria. To that end, the Compensation Committee monitors the executive compensation and compensation plans of other companies. In addition, our compensation programs are designed to establish compensation packages that balance cash and equity in a manner designed to align executive compensation with shareholder interests and also take into account the Company’s cash position.
Shareholders are urged to read the “Compensation of Executive Officers” section of this proxy statement, which discusses our compensation policies and procedures, and the 2013 compensation for our named executive officers. The Compensation Committee and the Board believe that our compensation policies and procedures are effective in achieving our goals and are consistent with shareholder interests.
In accordance with section 14A of the Securities Exchange Act, we are including in this proxy statement a separate shareholder vote on executive compensation, which vote is non-binding. Accordingly, we are asking you to approve, on an advisory basis, the compensation of our named executive officers, as described in the “Compensation of Executive Officers” section of this proxy statement, including the related compensation tables and other narrative executive compensation disclosure contained therein.
The following resolution will be submitted for a shareholder vote at the Annual Meeting:
“RESOLVED, that the shareholders of Hooper Holmes, Inc. approve, on an advisory basis, the compensation of Hooper Holmes’ named executive officers, as disclosed in the Compensation of Executive Officers section, compensation tables and narrative discussion of this Proxy Statement.”
While this advisory resolution is non-binding, the Compensation Committee and the Board value the opinions of our shareholders as expressed through their votes and other communications. Accordingly, the Compensation Committee and the Board will carefully consider the outcome of the advisory vote on executive compensation and shareholder opinions received from other communications when making future compensation decisions. The Board
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therefore recommends that you indicate your support for our compensation policies and procedures for its named executive officers, as outlined above.
Vote Required
Approval of this proposal will require the affirmative vote of the holders of a majority of the shares of our common stock present in person or by proxy and entitled to vote at the annual meeting, assuming the presence of a quorum at the annual meeting. Because this vote is advisory, it will not be binding upon the Board. However, the Compensation Committee will consider the outcome of the vote, along with other relevant factors, in evaluating its executive compensation program.
The Board recommends that shareholders vote, on an advisory basis, “FOR” the approval of the named executive officers’ compensation described in the Compensation of Executive Officers section, the compensation tables and the narrative discussion of this proxy statement.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed the firm of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements of the Company and, if required, the effectiveness of the Company’s internal control over financial reporting for the fiscal year ending December 31, 2014. KPMG LLP has served as the Company’s auditors since 1980. Due to the change in corporate headquarters during 2014 to Olathe, Kansas, KPMG LLP’s Kansas City, Missouri office will now service the audit relationship. Although shareholder ratification of our independent registered public accounting firm is not required by our bylaws or otherwise, we are submitting the selection of KPMG LLP to our shareholders for ratification to permit shareholders to participate in this important corporate decision.
Representatives of KPMG LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire, and will be available to respond to appropriate questions.
Vote Required
Ratification of the selection of KPMG LLP as the Company’s independent registered public accounting firm for 2014 requires the affirmative vote of the majority of the votes cast at the annual meeting.
Board Recommendation
The Board recommends that shareholders vote “FOR” the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014.
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Principal Accountant Fees and Services
The following table presents the fees for professional services rendered by KPMG LLP for the audit of our annual consolidated financial statements for the years ended December 31, 2013 and 2012, and fees for other services rendered by KPMG LLP during those periods.
| Type of Fees | Fiscal Year Ended December 31, 2013 | Fiscal Year Ended December 31, 2012 | |
Audit Fees(1) | $625,000 | $573,500 | |
Audit-Related Fees(2) | 19,400 | – | |
Tax Fees(3) | 105,020 | 96,580 | |
| Total Fees | $749,420 | $670,080 | |
(1) | Audit fees in each of 2013 and 2012 include the audit of our consolidated financial statements and review of quarterly financial statements. Audit fees for 2013 and 2012 also included additional billings for non-routine and other matters subject to audit during these years. |
(2) | Audit-related fees in 2013 consist of fees incurred related to the Current Report on Form 8-K filed with the SEC on October 4, 2013 in connection with the sale of the former Portamedic operations. |
(3) | Tax fees in each of 2013 and 2012 consist of fees for tax compliance and general tax consulting services. |
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee, in accordance with its charter, reviews and pre-approves all audit and permissible non-audit services provided by KPMG LLP, our independent registered public accounting firm, and the related fees, prior to the Company’s engagement of KPMG LLP to provide such services. By resolution of the Audit Committee, the chair of the Audit Committee may approve dollar amounts in excess of the fees established in such resolution(s), subject to ratification by the full committee at its next regular meeting. At subsequent Audit Committee meetings, the Audit Committee receives updates on services being provided by the independent registered public accounting firm, and management may present additional services for approval. All services being provided by the independent registered public accounting firm are regularly reviewed. For 2013, all audit and non-audit services provided by KPMG LLP were approved in advance by the Audit Committee.
The Audit Committee has considered whether provision of the above non-audit services is compatible with maintaining KPMG LLP’s independence and has determined that such services are compatible with maintaining KPMG LLP’s independence.
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information relating to our equity compensation plans as of December 31, 2013.
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| Plan Category | (a) | (b) | (c) |
Equity compensation plans approved by security holders(1) | 4,150,550 | $0.75 | 5,507,476 |
Equity compensation plans not approved by security holders | ____ | ____ | ____ |
(1) | As of December 31, 2013, the 2011 Plan, the 2008 Plan and the 2007 Plan and the 2004 Employee Stock Purchase Plan were the four equity compensation plans that were in effect and under which the Company may make future awards. The number of shares available for grant under each plan as of December 31, 2013 is as follows: 2011 Plan –1,375,250; 2008 Plan – 2,936,850; 2007 Plan – 360,000; 2004 Employee Stock Purchase Plan – 835,376. In addition, options to purchase shares of common stock remain outstanding as of that date under the Hooper Holmes, Inc. 2002 Stock Option Plan, the Hooper Holmes, Inc. 1999 Stock Option Plan, the 1997 Stock Option Plan, and the 1997 Director Option Plan. |
EXECUTIVE OFFICERS
The following table shows information about our executive officers as of April 15, 2014:
| Name | Age | Position |
| Henry E. Dubois | 52 | President and Chief Executive Officer, and a member of the Board of Directors |
| Tom Collins | 37 | Senior Vice President and Chief Financial Officer, Treasurer |
| Tracy D. Mackey | 43 | General Counsel and Corporate Secretary |
Information with respect to each of our executive officers other than Henry E. Dubois is provided below. Information regarding Mr. Dubois, who is a director as well as an executive officer of the Company, has been previously provided in the discussion of Proposal No. 1 in this proxy statement.
Tom Collins. Mr. Collins had been the Company’s Senior Vice President of Portamedic Operations since September 2011. In this capacity, Mr. Collins had responsibility for day-to-day operations of Portamedic. Prior to that, Mr. Collins had been the Company’s Vice President of Laboratory Operations since January 2011. Mr. Collins joined the Company in March 2010 as Vice President of Supply Chain. From January 2005 until March 2010, Mr. Collins was a Principal and Owner of Preferred Finance Partners (PFP), a Kansas City-based management advisory services firm that provided financial and operations support to domestic and international clients with revenues up to $800 million. While at PFP, Mr. Collins’ practice focused on outsourced CFO services, corporate strategy and turnaround and
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restructuring advisory. Prior to PFP, Mr. Collins served in various capacities with the accounting and consulting firms Grant Thornton and PricewaterhouseCoopers.
Tracy D. Mackey. Ms. Mackey joined Hooper Holmes in April 2014 as General Counsel and Corporate Secretary. Prior to joining Hooper Holmes, Ms. Mackey served as senior counsel at Waddell & Reed Financial, Inc. from January 2012 to April 2014 and as Lead Senior Corporate Counsel at Embarq Corporation from May 2006 to July2009. Prior to 2006, Ms. Mackey served as in-house counsel at Sprint Corporation and was a partner at the law firm Blackwell Sanders Peper Martin LLP (now Husch Blackwell).
COMPENSATION OF EXECUTIVE OFFICERS
The objective of our executive compensation is to enhance the Company’s long-term profitability by providing compensation that will attract and retain superior talent, reward performance, and align the interests of our executive officers with the long-term interests of our shareholders. For 2013, there were two principal components of the compensation we pay to our executive officers: (1) base salary and (2) equity compensation plans.
Base Salary
Each of our executive officers receives an annual base salary paid in cash.
Equity Compensation Plans
We sponsor and maintain the 2011 Plan and the 2008 Plan in which our executive officers are eligible to participate and under which grants may be made. Each of the 2011 Plan and the 2008 Plan is described more fully below under the heading “Stock Option Plans.”
Compensation Arrangements of Henry Dubois
Mr. Dubois served as a consultant to the Executive Committee of the Board from January 3, 2013 until April 8, 2013 and as President and Chief Executive Officer of the Company from April 8, 2013 until September 29, 2013 pursuant to an Interim Services Agreement, dated as of January 3, 2013, between Randstad Professionals US, LP, d/b/a Tatum and the Company. Under the Interim Services Agreement with Tatum, the Company made a base payment to Tatum of $12,000 per week, with a cash bonus of up to an additional $8,000 per week based on certain performance measures. In connection with Mr. Dubois’ services, he received from Tatum approximately 65% of the amount paid by the Company to Tatum. Pursuant to these arrangements, Mr. Dubois received aggregate compensation of $526,735 from Tatum.
On September 30, 2013, the Company and Mr. Dubois entered into an employment agreement under which Mr. Dubois agreed to continue to serve in his role as President and Chief Executive Officer of the Company. Pursuant to the employment agreement, Mr. Dubois will be paid a base salary of $375,000 per year, such amount to be reviewed at least annually by the Compensation Committee. Base salary may be adjusted by the Board, in its sole discretion, based on the Committee’s and Board’s consideration of the Company’s performance, financial and otherwise. In 2013, Mr. Dubois received $95,192 in base salary under the employment agreement.
Mr. Dubois’ annual target bonus opportunity under the employment agreement will be equal to 50% of his base salary and is subject to Mr. Dubois and the Company achieving agreed upon financial targets and goals and objectives. No such bonus was paid to Mr. Dubois pursuant to the agreement in 2013.
In accordance with the employment agreement, on September 30, 2013, Mr. Dubois was granted options to purchase 2,000,000 shares of the Company’s common stock under the 2011 Plan. The options were vested at the time of grant with respect to 25% of the shares. The options will vest with respect to the remaining 75% of the shares in three equal installments on the September 30, 2014, September 30, 2015 and September 30, 2016.
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For his efforts prior to his entering into the employment agreement, Mr. Dubois also received a one-time discretionary bonus consisting of $64,400 in cash and 205,532 shares of Company common stock awarded under the 2008 Plan and having a market value of $96,600 on September 30, 2013, the date of grant. There is a one-year restriction on Mr. Dubois’ ability to trade these shares. The employment agreement also provides that Mr. Dubois will be entitled to participate in any other annual bonus or incentive compensation plans or programs and any retirement and other benefit plans and programs as may be in effect or adopted by the Company from time to time. No other incentive amounts or bonuses were paid to Mr. Dubois for 2013 other than as set forth above.
If Mr. Dubois’ employment is terminated for any reason, Mr. Dubois will be entitled to receive (i) any accrued and unpaid base salary, (ii) any unreimbursed business expenses, and (iii) payment for any accrued and unused vacation time. In addition, if Mr. Dubois’ employment is terminated by the Company other than for Cause, if he resigns for Good Reason, or if a Triggering Event occurs following a Change in Control (within the meanings given to such terms in the employment agreement), and upon the execution and delivery of a release by Mr. Dubois in favor of the Company, Mr. Dubois will be entitled to receive his base salary for one year in twelve equal installments, without interest, on a monthly basis for twelve (12) consecutive months. In the case of termination of the agreement due to the occurrence of a Triggering Event following a Change in Control, Mr. Dubois will be entitled to the acceleration of vesting of equity grants and removal of any trading restrictions on his stock.
Compensation Arrangements of Tom Collins
On September 25, 2013 the Company entered into an employment agreement with Mr. Collins in connection with his appointment as our Senior Vice President and Chief Financial Officer. Mr. Collins did not have an employment agreement with the Company prior to his appointment as our Senior Vice President and Chief Financial Officer.
Pursuant to the employment agreement, Mr. Collins will be paid a base salary of $220,000 per year, such amount to be reviewed at least annually by our Chief Executive Officer and Compensation Committee. Base salary may be adjusted by the Committee, in its sole discretion, based on the Committee’s consideration of the Company’s performance, financial and otherwise. In 2013, Mr. Collins received $59,041 in base salary under the employment agreement. Mr. Collins’ annual base salary was $205,000 immediately before entering into the employment agreement.
Mr. Collins’ annual target bonus opportunity under the employment agreement will be equal to 40% of his base salary and is subject to Mr. Collins and the Company achieving agreed upon financial targets and goals and objectives. No such bonus was paid to Mr. Collins pursuant to the agreement in 2013.
In accordance with the employment agreement, on September 25, 2013, Mr. Collins was granted options to purchase 325,000 shares of the Company’s common stock under the 2008 Plan. The options will vest with respect to 33% of the shares on September 30, 2014 and September 30, 2015 and with respect to 34% of the shares on September 25, 2016. Mr. Collins also received a one-time transaction bonus of $102,500 as compensation for his efforts leading an internal project team as well as new and increased efforts on the transition team in connection with the Portamedic transaction. The employment agreement also provides that Mr. Collins will be entitled to participate in any other annual bonus or incentive compensation plans or programs and any retirement and other benefit plans and programs as may be in effect or adopted by the Company from time to time. No other incentive amounts or bonuses were paid to Mr. Collins for 2013 other than as set forth above.
If Mr. Collins' employment is terminated for any reason, Mr. Collins will be entitled to receive (i) any accrued and unpaid base salary, (ii) any unreimbursed business expenses, and (iii) any accrued and unused vacation time. In addition, if Mr. Collins' employment is terminated by the Company other than for Cause, if he resigns for Good Reason, or when a Triggering Event occurs following a Change in Control (within the meanings given to such terms in the employment agreement), and upon the execution and delivery of a release by Mr. Collins in favor of the Company, Mr. Collins will be entitled to receive his base salary in twelve equal installments, without interest, on a monthly basis for twelve (12) consecutive months. In the case of termination of the employment agreement due to the occurrence of a Triggering Event following a Change in Control, Mr. Collins will be entitled to an acceleration of vesting of equity grants and removal of any trading restrictions on his stock.
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Summary Compensation Table
The following table summarizes, with respect to our 2013 fiscal year, compensation awarded to or earned by our Named Executive Officers.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Option Awards(2) ($) | All Other Compensation ($) | Total ($) |
Henry E. Dubois (3) President and Chief Executive Officer | 2013 | 441,728(4) | 64,400(5) | 96,600(5) | 680,000 | 180,199(6) | 1,462,927 |
Tom Collins (7) Senior Vice President and Chief Financial Officer, Treasurer | 2013 | 208,980(8) | 102,500(9) | – | 110,500 | – | 421,980 |
Joseph A. Marone, Jr. (10) Vice President and Controller | 2013 | 153,750 | – | – | – | 8,750 (11) | 162,500 |
Ransom J. Parker(12) Former President and Chief Executive Officer | 2013 2012 | 109,231 400,000 | – – | – – | – 94,000 | 424,852 (13) 4,354 (14) | 534,083 498,354 |
Michael J. Shea(15) Former Senior Vice President, Chief Financial Officer and Treasurer | 2013 2012 | 192,188 256,250 | – – | – – | – 70,500 | 300,462 (16) 10,125 (17) | 492,650 336,875 |
Burt R. Wolder (18) Former Senior Vice President and Chief Marketing Officer | 2013 2012 | 187,500 231,432 | – – | – – | – 47,000 | 61,883 (19) 11,250 (20) | 249,383 289,682 |
(1) | Represents the fair value of stock awards calculated as of the date of grant. |
(2) | Represents grant date fair value calculated in accordance with current authoritative accounting literature. For a description of the assumptions made in our valuation of option awards, please refer to Note 4 to our consolidated financial statements in its annual report on Form 10-K for the year ended December 31, 2013. The amounts shown for prior year periods have been calculated in accordance with the same methodology. |
(3) | Mr. Dubois was appointed as President and Chief Executive Officer effective April 8, 2013. |
(4) | Reflects all compensation received by Mr. Dubois as Chief Executive Officer. From April 8, 2013 until September 30, 2013, Mr. Dubois served in such capacity pursuant to the Interim Services Agreement with Tatum and received $346,536 in connection therewith. Thereafter, Mr. Dubois served in such capacity pursuant to his employment agreement and received $95,192 as base salary thereunder, based on an annual base salary of $ 375,000. |
(5) | Mr. Dubois was entitled to a one-time discretionary bonus of $161,000 based on his performance prior to entering into his employment agreement dated September 30, 2013. Pursuant to Mr. Dubois’ employment agreement, the discretionary bonus was paid in a one-lump sum cash payment equal to 40% of the bonus amount, or $64,400, and the award of stock with a value equal to 60% of the bonus amount, or $96,600. Accordingly, Mr. Dubois was granted an award of 205,532 shares of stock based on a grant date fair value per share of $0.47. |
(6) | All Other Compensation for 2013 includes $180,199 received by Mr. Dubois from January 2013 to April 2013 as a consultant to the Executive Committee of the Board pursuant to the Interim Services Agreement with Tatum. |
(7) | Mr. Collins was appointed as Senior Vice President, Chief Financial Officer and Treasurer effective September 25, 2013. |
(8) | In accordance with his employment agreement dated September 25, 2013, the annual base salary for Mr. Collins is $220,000. |
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(9) | Mr. Collins was paid a one-time transaction bonus of $102,500 in connection with the executive’s efforts in prior to being named as Senior Vice President, Chief Financial Officer and Treasurer effective September 25, 2013. |
(10) | Mr. Marone’s employment was terminated as Vice President and Controller on April 2, 2014. |
(11) | Includes the incremental cost in 2013 for personal use of a company-provided automobile of $8,750. |
(12) | Mr. Parker resigned as President and Chief Executive Officer effective April 8, 2013. |
(13) | Includes severance paid to Mr. Parker in accordance with his employment agreement of $400,000, payment for accrued benefits of $18,077, and post-employment insurance benefits of $6,775. |
(14) | Includes the incremental cost in 2012 for personal use of a company-provided automobile of $4,354. |
(15) | Mr. Shea resigned as Senior Vice President, Chief Financial Officer and Treasurer effective September 25, 2013. |
(16) | Includes severance paid to Mr. Shea in accordance with his employment agreement of $256,250, payment for accrued benefits of $21,744, post-employment insurance benefits of $15,530 and the incremental cost in 2013 for personal use of a company-provided automobile of $6,938. |
(17) | Includes the incremental cost in 2012 for personal use of a company-provided automobile of $10,125. |
(18) | Mr. Wolder’s employment was terminated as Senior Vice President, Healthcare effective September 30, 2013. |
(19) | Includes severance paid to Mr. Wolder of $41,667, payment for accrued benefits of $11,779 and the incremental cost in 2013 for personal use of a company-provided automobile of $8,437. |
(20) | Includes the incremental cost in 2012 for personal use of a company-provided automobile of $11,250. |
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Outstanding Equity Awards at Fiscal Year-End Table
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested ($) |
| Henry E. Dubois | 500,000 | 1,500,000 (1) | $0.47 | 09/30/2023 | ||
| Tom Collins | 23,100 | 11,900 (2) | $1.06 | 07/29/2021 | ||
| 99,000 | 201,000 (3) | $0.65 | 07/31/2022 | |||
| – | 325,000 (4) | $0.48 | 09/25/2023 | |||
| Joseph A. Marone, Jr. | 20,000 | – | $2.86 | 04/02/2015 | ||
| 40,000 | – | $2.61 | 04/02/2015 | |||
| 100,000 | – | $1.00 | 04/02/2015 | |||
| 37,500 | 12,500 (5) | $0.45 | 04/02/2015 | |||
| 100,000 | – | $0.72 | 04/02/2015 | |||
| 23,100 | 11,900 (5) | $1.06 | 04/02/2015 | |||
| 24,750 | 50,250 (5) | $0.65 | 04/02/2015 | |||
6,250 (5) | 3,313 | |||||
8,500 (5) | 4,505 | |||||
Ransom J. Parker (6) | – | – | – | – | – | – |
Michael J. Shea (6) | – | – | – | – | – | – |
Burt R. Wolder (6) | – | – | – | – | – | – |
(1) | Scheduled to vest in three installments: 25% on the first, second and third anniversaries of the grant date, September 30, 2013. |
(2) | Scheduled to vest on July 29, 2014. |
(3) | Scheduled to vest in two installments: 33% on the second anniversary of the grant date, July 31, 2012, and the remainder on July 31, 2015. |
(4) | Scheduled to vest in three installments: 33% on the first and second anniversaries of the grant date, September 25, 2013, and the remainder on September 25, 2016. |
(5) | Mr. Marone’s employment was terminated as Vice President and Controller effective April 2, 2014. |
(6) | Mr. Parker, Mr. Shea and Mr. Wolder had no outstanding equity awards as of December 31, 2013. |
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Stock Option Plans
The Company sponsors and maintains the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan (the “2011 Plan”) and the Hooper Holmes, Inc. 2008 Omnibus Employee Incentive Plan (the “2008 Plan”) in which our executive officers are eligible to participate and under which grants may be made. In addition, options to purchase shares of our common stock issued to our executive officers remain outstanding as of the date of this proxy statement under the Hooper Holmes, Inc. 1999 Stock Option Plan and the Hooper Holmes, Inc. 2002 Stock Option Plan.
Subject to the terms of any option agreement with respect to an award under the 2011 Plan and the 2008 Plan, all outstanding options granted under either of these plans may fully vest and become exercisable for the 15-day period immediately prior to a change of control of the Company where the option awards are not being assumed or continued as part of the transaction. In lieu of vesting for the 15-day period immediately prior to the change of control, the Compensation Committee may elect to cancel all outstanding option awards and pay to the option holder an amount equal to the amount paid to the holders of Company stock at the time of the change of control that exceeds the applicable option exercise price. Under each of these plans, a “change of control” is defined as the occurrence of any of the following events:
| • | if any person (other than the Company, its affiliates, a trustee or fiduciary holding securities under an employee benefit plan of the Company, an underwriter temporarily holding Company securities or a corporation owned, directly or indirectly, by the Company shareholders in the same proportion as their ownership in the Company) is or becomes, directly or indirectly, the beneficial owner of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities; |
| • | any individuals who on the effective date of the 2011 Plan or 2008 Plan constitute the Board (as applicable, the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, unless the election or nomination of the individual was approved by at least a majority of the directors then comprising the Incumbent Board; or |
| • | the Company shareholders approve a merger, consolidation or share exchange of the Company with any other corporation or entity, or approve the issuance of voting securities of the Company in connection with a merger, consolidation or share exchange of the Company, or the Company’s shareholders approve a plan of complete liquidation or dissolution of the Company. |
Subject to the terms of any option agreement with respect to an award under the Hooper Holmes, Inc. 1999 Stock Option Plan and the Hooper Holmes, Inc. 2002 Stock Option Plan, all outstanding options granted under either of these plans are to fully vest and become exercisable immediately prior to or concurrent with an actual or threatened change in control of the Company. A “change in control of the Company” is defined as a change in control of a nature that would be required to be reported in response to Schedule 14A of Regulation 14A under the Exchange Act, including:
| • | if any person, or group of affiliated persons, is or becomes, the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities; |
| • | if, during any period of 24 consecutive months during the term of an option or stock appreciation right granted under any of these plans, individuals who at the beginning of such period constituted the Board cease for any reason to constitute at least a majority of the Board, unless the election, or the nomination for election by the Company’s shareholders, of each director who was not a director at the date of grant has been approved in advance by directors representing at least 2/3rds of the directors then in office who were directors at the beginning of the period; |
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| • | upon the first purchase of the Company’s common stock in accordance with a tender or exchange offer (other than such an offer made by the Company); or |
| • | upon a complete liquidation or dissolution by the Company. |
A “threatened change in control of the Company” is defined as any set of circumstances which in the opinion of the Board poses a real, substantial and immediate possibility of leading to a change in control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Board has adopted a policy regarding transactions with related persons that specifies the procedures to be followed by the Governance and Nominating Committee of the Board in considering, and determining whether to approve or ratify, a transaction with a related person. For purposes of the policy statement, a “related person” is defined to mean:
| • | any person who is or was (since the beginning of our most recently completed fiscal year) a director, nominee for director or executive officer of the Company or any subsidiary of the Company; |
| • | any person (including an entity or group) who is the beneficial owner of more than 5% of any class of the our voting securities; |
| • | any individual who is an immediate family member of any such person (i.e., such person’s spouse, either parent, a step-parent, a child or stepchild, sibling, mother or father-in-law, brother or sister-in-law, son or daughter-in-law, or any person sharing the household of such person); or |
| • | any firm, corporation or other entity in which any such person serves as an executive officer or general partner or, together with any other persons described above, owns 10% or more of the equity interests of that firm, corporation or other entity. |
The policy statement stipulates that each member of the Board and/or management is to provide the Governance and Nominating Committee of the Board with any and all information pertaining to any proposed or existing related person transaction promptly after becoming aware of such transaction. Upon being advised of the transaction, the Governance and Nominating Committee will consider, among other things:
| • | the nature of the interest the related person has in the transaction; |
| • | the materiality of the interest the related person has or may have in the transaction; |
| • | the approximate dollar amount of the transaction; |
| • | whether the transaction is fair to the Company; |
| • | whether the transaction is on terms no less favorable than those generally available to unaffiliated third parties under the same or similar circumstances; |
| • | the significance of the transaction to investors in light of all the circumstances; and |
| • | whether the transaction would present a conflict of interest for a director or executive officer, as set forth in the Company’s Code of Conduct and Ethics, or violate any other provision of such code. |
If the Governance and Nominating Committee determines to approve or ratify the transaction, the committee is to provide the Board with a report consisting of the facts relating to the transaction considered by the committee, the material terms and business purpose of the transaction, the benefits to the Company and to the related person, and
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whether the transaction requires a waiver of the Company’s Code of Conduct and Ethics. The report shall also indicate the basis for the committee’s approval or ratification of the transaction.
There were no “related person” transactions arising or existing during 2012 or 2013, nor any currently proposed transactions, requiring disclosure under the applicable NYSE MKT listing standards, SEC rules and regulations or the Company’s policies and procedures, other than the following:
Henry E. Dubois, the Company’s current President and Chief Executive Officer, served as a consultant to the Executive Committee of the Board from January 2013 until April 2013, pursuant to an Interim Services Agreement, dated as of January 3, 2013, between Randstad Professionals US, LP, d/b/a Tatum and the Company. From April 2013 until September 2013, Mr. Dubois served as President and Chief Executive Officer of the Company under the terms of the agreement with Tatum. Under the agreement with Tatum, the Company made a base payment to Tatum of $12,000 per week, with a cash bonus of up to an additional $8,000 per week based on certain performance measures. In connection with Mr. Dubois’s services, he received from Tatum approximately 65% of the amount paid by the Company to Tatum. Mr. Dubois’s compensation from Tatum is more thoroughly discussed in the Section “Compensation of Executive Officers – Summary Compensation Table.”
ADJOURNMENT OF THE ANNUAL MEETING
In the event there is an insufficient number of shares of our common stock present in person or by proxy at the annual meeting to constitute a quorum, the Board will request approval to adjourn the annual meeting to a later date. The place and date to which the annual meeting would be adjourned would be announced at the annual meeting.
SHAREHOLDER PROPOSALS FOR 2015 ANNUAL MEETING
All shareholder proposals intended to be considered for inclusion in the Company’s proxy materials for the 2015 annual meeting of shareholders (other than nominees for director as discussed earlier in this proxy statement) must be made in writing and received at the Company’s executive office not later than December 30, 2014, and must otherwise comply with SEC Rule 14a-8. The notice containing such proposal must also include certain information specified in our bylaws. Shareholders should submit their proposals to the attention of the Company’s Corporate Secretary, 560 N. Rogers Road, Olathe, Kansas 66062, by certified mail – return receipt requested.
A shareholder who wishes to put forth a proposal to be considered at the 2015 annual meeting of shareholders without including the proposal in the Company’s proxy materials must notify the Company of such proposal in writing by March 13, 2015, but not before February 11, 2015. The notice containing such proposal must also include certain information specified in our bylaws. Shareholders should submit their proposals to the attention of the Company’s Corporate Secretary, 560 N. Rogers Road, Olathe, Kansas 66062, by certified mail – return receipt requested. If we receive a notice after March 13, 2015, or before February 11, 2015, such notice will be considered untimely, and we will not have any obligation to present the proposal at the 2014 annual meeting of shareholders.
April 29, 2014
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ANNEX A
HOOPER HOLMES, INC.
2011 OMNIBUS INCENTIVE PLAN
(Amended and Restated as of June 11, 2014)
Hooper Holmes, Inc., a New York corporation (the “Company”), sets forth herein the terms of its 2011 Omnibus Incentive Plan (as amended and restated, the “Plan”), as follows:
1.PURPOSE
The Plan is intended to:
| • | enhance the Company’s and its Affiliates’ (as defined herein) ability to attract and retain highly qualified officers, key employees, directors, consultants and other persons; and |
| • | motivate such persons to expend maximum effort to improve the business results and earnings of the Company |
principally by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company.
The Plan provides for the grant of stock options and restricted stock. These awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the Plan.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents, including Award Agreements (as defined herein), the following definitions shall apply:
“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company, including, without limitation, any Subsidiary and any corporation, partnership, joint venture, limited liability company or other entity in which the Company owns, directly or indirectly, at least fifty percent (50%) of the total combined voting power of such corporation or the capital interest or profits interest of such partnership, joint venture, limited liability company or other entity. For purposes of granting Options, an entity may not be considered an Affiliate if it would result in the shares of Stock subject to an Award of Options not to qualify as service recipient stock under Code Section 409A.
“Award” means a grant under the Plan of an Option or Restricted Stock.
“Award Agreement” means either (i) a written agreement entered into by the Company or an Affiliate with a Grantee that evidences and sets out the terms and conditions applicable to an Award, or (ii) a written statement issued by the Company or an Affiliate to a Grantee describing the terms and provisions of an Award.
“Board” means the Board of Directors of the Company.
“Cause” means, except as otherwise determined by the Committee and set forth in an Award Agreement:
(a) if a Grantee is subject to an employment, retention or similar agreement between the Company or an Affiliate and the Grantee that defines “cause,” such definition; and
(b) for all other Grantees:
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(i) any act of personal dishonesty by the Grantee in connection with his or her responsibilities to the Company and intended to result (or which results) in personal enrichment to the Grantee;
(ii) the Grantee’s willful act constituting Gross Misconduct that is injurious to the Company; or
(iii) the Grantee’s conviction or plea of guilty or nolo contendere to a felony involving theft or moral turpitude that the Committee reasonably believes had or will have a material detrimental effect on the Company’s reputation or business.
“Change of Control” shall occur if any of the following events occur:
(a) any Person, other than:
(i) the Company or any of its Affiliates;
(ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates;
(iii) an underwriter temporarily holding securities in connection with an offering of such securities; or
(iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Stock in the Company
is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities (other than as a result of an acquisition(s) of securities from the Company);
(b) individuals who, as of the Effective Date, 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 Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors 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 the Plan, considered as though such person were a member of the Incumbent Board;
(c) the Company’s shareholders approve a merger, consolidation or share exchange of the Company with any other corporation or entity, or approve the issuance of voting securities of the Company in connection with a merger, consolidation or share exchange of the Company, regardless of which entity is the survivor, other than:
(i) a merger, consolidation or share exchange that would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or share exchange continuing to represent immediately after such merger, consolidation or share exchange more than 50% of the combined voting power of the Company or the surviving entity; or
(ii) a merger, consolidation or share exchange effected to implement a re-capitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of 35% or more of either the then outstanding shares of Stock of the Company or the combined voting power of the Company’s then outstanding securities; or
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(d) the Company’s shareholders approve a plan of complete liquidation or dissolution of the Company or an agreement for the Company’s sale or disposition of all (or substantially all) of its assets, in one transaction or a series of transactions within any period of 24 consecutive months.
“Code” means the U.S. Internal Revenue Code of 1986, as now in effect or as hereafter amended from time to time, or any successor thereto. Any reference to a specific provision of the Code includes any successor provision and the regulations promulgated under such provision.
“Committee” means the Compensation Committee of the Board, or any other duly authorized committee of the Board appointed by the Board to administer the Plan.
“Company” means Hooper Holmes, Inc., a New York corporation.
“Consultant” means any Person, including an advisor, engaged by the Company or an Affiliate to who renders bona fide services to the Company or an Affiliate
“Director” means any member of the Board.
“Disability” with respect to any Grantee, means any physical or mental incapacity as a result of which the Grantee is unable to perform substantially all of his or her essential duties for an aggregate of four (4) months, whether or not consecutive, during any calendar year, and which cannot be reasonably accommodated by the Company (or any Affiliate) without undue hardship.
“Effective Date” means May 24, 2011, the date of the approval of the Plan by the Company’s shareholders at the annual meeting of shareholders held on that date.
“Eligible Recipient” means any Employee, Consultant or non-Employee Director.
“Employee” means any employee of the Company or an Affiliate. For greater clarity, and without limiting the generality of the foregoing, individuals described in the first sentence of this definition who are foreign nationals or are employed outside of the United States, or both, are Employees and may be granted Awards on the terms and conditions set forth in the Plan, or on such other terms and conditions as may, in the judgment of the Committee, be necessary or desirable to further the purposes of the Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as now in effect or as hereafter amended from time to time, or any successor act thereto.
“Fair Market Value” or “FMV” means, as applied to a specific date, the value of a share of Stock, determined as follows:
(a) If, on such date, the Stock is listed on an established national or regional stock exchange, or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or such market. If there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market. If there is no such reported closing price on the applicable date, the Fair Market Value shall be:
(v) the mean between the high and low sales prices on such date or, if no sale of Stock is reported on such date, on the next preceding day on which any sale of Stock shall have been reported, provided such next preceding day is within no more than a two-week period of such date; and
(vi) if no sale of Stock is reported on the applicable date or during the two-week period preceding that date, the mean between the highest bid and lowest asked prices on the applicable date or the date closest to that date during the prior two-week period.
(b) If, on such date, the Stock is not then listed on a national or regional stock exchange or publicly traded on an established securities market, Fair Market Value shall be the value of the Stock as determined by the
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Committee in good faith in a manner consistent with Treasury Regulations promulgated under Code Section 409A.
“Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons has more than 50% of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) controls the management of the assets, and any other entity in which one or more of these persons (or the Grantee) owns more than 50% of the combined voting power.
“Fiscal Year” means the year commencing on January 1 and ending December 31, or such other time period as approved by the Board.
“Grant Date,” with respect to an Award, means, as determined by the Committee, the latest to occur of (i) the date as of which the Committee approves the Award, (ii) the date on which the Grantee of the Award first becomes eligible to receive the Award by virtue of becoming an Eligible Recipient, or (iii) such other date as may be specified by the Committee.
“Grantee” means any Person who receives or holds an Award under the Plan.
“Gross Misconduct” means:
(a) theft or damage of Company property;
(b) use, possession, sale or distribution of illegal drugs;
(c) being under the influence of alcohol or drugs (except to the extent medically prescribed) while on duty or on Company premises;
(d) involvement in activities representing conflicts of interest;
(e) improper disclosure of confidential information;
(f) conduct endangering, or likely to endanger, the health or safety of one or more Eligible Recipients; or
(g) falsifying or misrepresenting information on Company records.
“Nonqualified Stock Option” or “NQSO” means an Option that is not an “incentive stock option” within the meaning of Section 422 of the Code, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time.
“Option” means an option to purchase one or more shares of Stock granted in accordance with the terms of the Plan.
“Option Price” means the per share exercise price for shares of Stock subject to an Option.
“Period of Restriction” means the period when an Award of Restricted Stock is subject to forfeiture based on the passage of less than a specified period of time, the potential failure to achieve specified performance criteria and/or the non-occurrence of other events as determined by the Committee, in its discretion.
“Person” has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof. A “Person” shall not include (i) the Company or any Affiliate, (ii) any trustee or other fiduciary under an employee benefit plan sponsored by the Company or any Affiliate, or (iii) any corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportion as their ownership of Stock.
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“Restricted Stock” means shares of Stock awarded under Section 10 of the Plan.
“Retirement” shall mean a termination of employment, for reasons other than Cause, Disability or death, upon or following a Grantee’s attainment of age fifty-five (55) and completion of at least (10) years of service with the Company, or at such earlier time as the Committee may determine.
“Securities Act” means the Securities Act of 1933, as now in effect or as hereafter amended from time to time, or any successor act thereto.
“Stock” means the common stock of the Company, $0.04 par value per share.
“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.
3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Committee shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s certificate of incorporation and by-laws, the Committee’s charter and applicable law. The Committee shall have full and exclusive discretionary power to, among other things:
| • | interpret the terms and the intent of the Plan and any Award Agreement or other agreement ancillary to or in connection with the Plan; |
| • | determine eligibility for Awards; and |
| • | adopt such rules, regulations and guidelines for administering the Plan as the Committee may deem necessary or proper. |
Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to Section 13 of the Plan, adopting modifications and amendments, or subplans, to the Plan or any Award Agreement, including any that are necessary or appropriate to comply with the laws or compensation practices of the countries and other jurisdictions in which the Company and/or any Affiliates operate.
All actions and determinations shall be by the affirmative vote of a majority of the members of the Committee present at a meeting or by unanimous consent of the Committee executed in writing in accordance with the Company’s certificate of incorporation and by-laws and applicable law. The interpretation and construction by the Committee of any provision of the Plan, any Award or any Award Agreement shall be final, binding and conclusive.
The Committee may employ attorneys, consultants, accountants, agents and other individuals, any of whom may be an Eligible Recipient, and the Committee, the Company, and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon Award recipients, the Company, and all other interested parties.
3.2 Forfeiture of Award under Certain Circumstances.
(a) The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee in connection with an Award(s) on account of actions taken by the Grantee in violation of or in conflict with any (i) employment agreement, (ii) non-competition agreement, (iii) agreement prohibiting solicitation of Eligible Recipients or clients of the Company or any Affiliate, or (iv) confidentiality obligation with respect to the Company or any Affiliate. In addition, the Company may annul an Award if the Grantee ceases to be an Eligible Recipient as a result of a termination for Cause.
(b) If the Company is required to prepare an accounting restatement due to material noncompliance by the Company, as a result of misconduct, with any financial reporting requirement under applicable securities laws, the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 and
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any Grantee who knowingly engaged in the misconduct, was grossly negligent in engaging in the misconduct, knowingly failed to prevent the misconduct or was grossly negligent in failing to prevent the misconduct, shall reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission (whichever first occurred) of the financial document(s) embodying such financial reporting requirement.
3.3 No Repricing. Notwithstanding anything in the Plan to the contrary, no amendment or modification may be made to an outstanding Option, including, without limitation, by reducing the exercise price of an Option or replacing an Option with cash or another Award type, that would be treated as a repricing under the rules of the principal stock exchange on which the Stock is then listed, in each case, without the approval of the Company’s shareholders; provided, that, appropriate adjustments may be made to outstanding Options in accordance with Section 12 of the Plan and may be made to make changes to achieve compliance with applicable law, including Code Section 409A.
3.4 No Liability. The Committee shall not be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement.
3.5 Share Issuance/Book-Entry. Notwithstanding any provision of the Plan to the contrary, the issuance of shares of Stock under the Plan may be evidenced in such a manner as the Committee, in its discretion, deems appropriate, including, without limitation, book-entry registration or issuance of one of more stock certificates.
4. SHARES OF STOCK SUBJECT TO THE PLAN
4.1 Number of Shares of Stock Available for Awards. Subject to adjustment as provided in Section 12 of the Plan, the number of shares of Stock available for issuance under the Plan shall be equal to three million five hundred thousand (3,500,000).
Any of the shares of Stock available for Awards under the Plan may be used for any types of Awards described in the Plan.
Shares of Stock issued or to be issued under the Plan shall be authorized but unissued shares, shares purchased in the open market or otherwise, treasury shares or any combination thereof, as the Committee or, if appropriate, the Board may determine.
4.2 Adjustments in Authorized Shares. The Committee shall have the right to substitute or assume Awards in connection with mergers, reorganizations, separations or other transactions to which Code Section 424(a) applies. Subject to any shareholder approval requirement under the listing standards of the principal stock exchange on which the Stock is listed at the time of any such transaction, the number of shares of Stock reserved in accordance with Section 4 shall be increased by the corresponding number of Awards assumed and, in the case of substitution, by the net increase in the number of shares of Stock subject to Awards before and after the substitution. Notwithstanding the foregoing, no such adjustment shall be authorized to the extent that such adjustment would cause the Award to become subject to Code Section 409A.
4.3 Share Usage.
(a) Shares of Stock covered by an Award shall be counted as used as of the Grant Date with respect to such Award.
(b) For purposes of computing the total number of shares of Stock granted under the Plan, the following rules shall apply to Awards payable in shares of Stock, where appropriate:
(i) Any shares of Stock that are subject to an Award of Options shall be counted against the limit set forth in Section 4.1 as one (1) share for every one (1) share subject to such an Award;
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(ii) Where two types of Awards (each of which is payable in shares of Stock) are granted to a Grantee in tandem with each other, such that the exercise of one type of Award with respect to a number of shares cancels an equal number of shares of the other, the number of shares subject to only one of such tandem Awards shall be counted against the aggregate number of shares of Stock available for issuance under the Plan; and
(iii) The maximum number of shares of Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested in additional shares of Stock or credited as additional shares of Restricted Stock issued or issuable under the Plan.
Additional rules for determining the number of shares of Stock granted under the Plan may be made by the Committee as the Committee deems necessary or desirable.
(c) Any shares of Stock that are not used because the terms and conditions of the applicable Award are not met may again be used for an Award under the Plan.
(d) Any shares of Stock that are not used because the Award (or any portion thereof) terminates, expires, is exchanged or forfeited, or is settled in cash in lieu of shares of Stock, may again be used for an Award under the Plan.
(e) The number of shares of Stock available for issuance under the Plan shall not be increased by (i) any shares tendered or withheld, or Award surrendered, in connection with the purchase of shares upon exercise of an Option as described in Section 9.8, or (ii) any shares withheld or deducted from an Award payment in connection with the Company’s tax withholding obligations as described in Section 16.
4.4 No Issuance of Fractional Shares. No fractional shares of Stock may be issued under the Plan. Cash shall be paid in lieu of any factional shares in settlement of any Award.
5. EFFECTIVE DATE AND DURATION
5.1 Effective Date. The Plan shall commence as of the Effective Date.
5.2 Term. The Plan shall remain in effect, subject to the right of the Committee or the Board to amend, suspend or terminate the Plan at any time in accordance with Section 13, until the earlier of (i) the tenth anniversary of the Effective Date, or (ii) all shares of Stock subject to the Plan have been issued according to the Plan’s provisions. No Award shall be made under the Plan after the Plan’s termination date, but Awards made prior to the Plan’s termination date may extend beyond that date.
6. AWARD ELIGIBILITY AND PARTICIPATION
6.1 Eligibility. Awards may be made under the Plan to Eligible Recipients.
6.2 Participation. The Committee may from time to time select the Eligible Recipients to whom Awards shall be granted and, subject to the Plan’s provisions, shall determine, in the Committee’s discretion, the nature, terms and amount of each Award.
6.3 Limitations on Awards to Grantees. During any time when the Company has a class of equity securities registered under Section 12 of the Exchange Act, to the extent any Award is subject to the attainment of performance goals, then the maximum aggregate Award of shares of Stock that can be awarded under the Plan to any one Eligible Recipient in any Fiscal Year shall be four hundred thousand (400,000) Shares. This limitation shall be subject to adjustment as provided in Section 12 of the Plan.
7. AWARD AGREEMENT
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7.1 General. Each Award granted under the Plan shall be evidenced by an Award Agreement, in such form or forms as the Committee shall from time to time determine. Award Agreements granted from time to time or at the same time need not contain the same or similar provisions but shall be consistent with and subject to the terms of the Plan.
7.2 Option Award Agreements. An Award Agreement for an Award of an Option shall specify, among other things:
| • | the Option Price, |
| • | the number of shares of Stock to which the Option pertains, |
| • | the vesting schedule, |
| • | the conditions upon which an Option shall become vested and exercisable, |
| • | the term of the Option, |
| • | treatment upon the Grantee’s ceasing to be an Employee, Consultant or non-Employee Director, |
| • | the form of payment upon exercise, and |
| • | any such other provisions the Committee shall determine. |
7.3 Restricted Stock Award Agreements. An Award Agreement for an Award of Restricted Stock shall specify, among other things:
| • | the purchase price (if any), |
| • | the number of shares of Restricted Stock subject to the Award, |
| • | the vesting period and/or the Period (s) of Restriction, |
| • | treatment upon the Grantee’s ceasing to be an Employee, Consultant or Director, |
| • | voting and/or dividend rights, if any, and |
| • | any such other provisions the Committee shall determine. |
8. PERFORMANCE CONDITIONS APPLICABLE TO AWARDS
The right of a Grantee to receive a grant of, or to exercise or receive the payout with respect to, any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such corporate and individual criteria and other measures of performance as it may deem appropriate in establishing such performance conditions.
9. TERMS AND CONDITIONS OF AWARDS OF OPTIONS
9.1 Grant. Subject to the terms and provisions of the Plan, Options may be granted to Eligible Recipients at any time and from time to time and upon such terms as shall be determined by the Committee in its discretion. Notwithstanding the foregoing, no Option may be granted more than ten (10) years after the earlier of (i) adoption of the Plan by the Board and (ii) the Effective Date. All Options granted under the Plan shall be Nonqualified Stock Options.
9.2 Price. The Option Price for each Award of an Option shall be determined by the Committee but and set forth in the applicable Award Agreement, but shall be a price not less than 100 percent of the FMV of a share of Stock on the Grant Date of the applicable Award.
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9.3 Vesting. Subject to Sections 9.5 and 12, each Award of an Option granted under the Plan shall, unless otherwise provided in the Award Agreement, vest and become exercisable in four (4) equal annual installments commencing with the second anniversary of the Grant Date. The Committee may provide that an entire Option (or portion thereof) may not be exercised unless and until a Grantee remains an Eligible Recipient for a period of time from the Grant Date of the Option.
9.4 Term. Each Award of an Option granted under the Plan shall expire, and all rights to purchase shares of Stock thereunder shall cease, at such time as the Committee shall determine at the time of grant; provided, however, no Award of an Option shall be exercisable later than the tenth (10th) anniversary of its Grant Date.
9.5 Effect of Termination of Employment or Other Service. Unless specifically stated otherwise in the applicable Award Agreement, upon the date on which a Grantee’s employment or other service with or to the Company or an Affiliate is terminated, all rights to exercise Grantee’s Options shall terminate immediately to the extent such Options are then unvested, and to the extent any Options are then vested such Options shall be exercisable after the Grantee’s employment or other service with or to the Company or an Affiliate is terminated only during the applicable time period determined in accordance with this Section and thereafter shall terminate.
(a) Cessation Due to Death, Disability or Retirement.
(i) If a Grantee’s employment or other service with or to the Company or an Affiliate is terminated due to the Grantee’s death, the Grantee’s Options, to the extent unexercised and vested on the date on which the Grantee dies, may be exercised by his or her Beneficiary at any time, or from time to time, but not later than the expiration date specified in the applicable Award Agreement or twelve (12) months after the Grantee’s death, whichever is earlier.
(ii) If a Grantee’s employment or other service with or to the Company or an Affiliate is terminated due to the Grantee’s Disability, the Grantee may exercise his or her Options, to the extent unexercised and vested on the date on which such termination occurred, at any time, or from time to time, but not later than the expiration date specified in the applicable Award Agreement or twelve (12) months after such Grantee’s employment or other service with or to the Company is terminated, whichever is earlier.
(iii) If a Grantee’s employment or other service with or to the Company or an Affiliate is terminated by reason of Retirement, all rights to exercise his or her Options, to the extent unexercised and vested on the date on which such termination occurred, shall terminate no later than the expiration date specified in the applicable Award Agreement or twelve (12) months after such Grantee’s employment or other service with or to the Company is terminated, whichever is earlier.
(b) Cessation for Reasons other than Death, Disability or Retirement. If a Grantee’s employment or other service with or to the Company or an Affiliate is terminated for any reason other than death, Disability or Retirement, all rights to exercise his or her Options, to the extent unexercised and vested on the date on which such termination occurred, shall terminate no later than the expiration date specified in the applicable Award Agreement or thirty (30) days after such Grantee’s employment or other service with or to the Company is terminated, whichever is earlier, unless the Committee decides that such Options shall terminate on the date of such termination.
9.6 Suspension of Right to Exercise Options. The Company reserves the right from time to time to suspend the exercise of any Option awarded under the Plan where such suspension is deemed by the Company as necessary or appropriate for corporate purposes. No such suspension shall extend the life of the Option beyond its expiration date, and in no event will there be a suspension in the five (5) calendar days immediately preceding the expiration date of such Option.
9.7 Manner of Exercise. Subject to the terms of Section 9.6, an Option that is exercisable may be exercised by the delivery to the Company of a notice of exercise on any business day, at the Company’s principal office, in a form
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specified or accepted by the Committee, or by complying with any alternative procedures that may be authorized by the Committee. Such notice shall set forth the number of shares of Stock with respect to which the Option is to be exercised. Subject to the terms of Section 16, the exercise notice shall be accompanied by full payment for the shares of Stock for which the Option is being exercised, plus the amount (if any) of federal and/or other taxes which the Company may, in its judgment, be required to withhold with respect to such Option exercise.
9.8 Form of Payment Upon Exercise of Option. The Option Price upon exercise of an Option, together with any withholding taxes, shall be payable to the Company in full:
(a) in cash or cash equivalents acceptable to the Company (unless otherwise determined or accepted by the Committee, all payments in cash shall be paid in United States dollars);
(b) by tendering (either by actual delivery or attestation) previously acquired shares of Stock having an aggregate FMV at the time of exercise of the Option equal to the Option Price for the shares for which the Option is being exercised and any withholding taxes;
(c) by a net exercise of the Option (that is, by using a portion of the shares of Stock subject to the Option, valued at the FMV of the date of exercise of the Option, to pay the Option Price for the shares of Stock for which the Option is being exercised and any withholding taxes);
(d) to the extent permitted by law and by the Award Agreement, by delivery (on a form acceptable to the Committee) of an irrevocable direction to a licensed securities broker or financial services firm acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes, subject to any arrangements then in effect with respect to the broker or financial services firm pertaining to such transaction;
(e) by any other method approved or accepted by the Committee in its sole discretion, subject to such rules and regulations as the Committee may establish; or
(f) any combination of the methods described in subsections (a), (b), (c), (d) or (e) above.
9.9 Delivery of Shares. As soon as practicable after receipt of a notice of exercise of an Option by a Grantee and the payment in full of the Option Price for the shares of Stock for which the Option is being exercised and any required federal or other taxes, the Committee shall cause to be delivered to the Grantee a stock certificate or certificates or, as provided in Section 3.5, a book-entry registration, evidencing the Grantee’s ownership of such shares.
9.10 Restrictions on Transferability of Shares of Stock Following Exercise of Option. The shares of Stock acquired by a Grantee upon the exercise of an Award of an Option may be subject to restrictions on transfer under applicable securities laws, the requirements of any stock exchange or market upon which the Stock is listed and/or traded, or as the Committee may deem advisable, including, without limitation, restrictions requiring the Grantee to hold the shares acquired for a specified period of time.
9.11 Restrictions on the Transferability of Options.
(a) Generally. Except as otherwise provided in Section 9.11(b), an Option granted under the Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted under the Plan shall be exercisable during the lifetime of a Grantee only by that Grantee (or, in the event of the Grantee’s legal incapacity or incompetency, the Grantee’s guardian or legal representative).
(b) Family Transfers. If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Option to any Family Member. For purposes of this Section 9.11(b), a “not for value” transfer is a transfer which is:
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(i) a gift;
(ii) a transfer under a domestic relations order in settlement of marital property rights; or
(iii) a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity.
Following a transfer under this Section 9.11(b), any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer. Subsequent transfers of transferred Options are prohibited except to Family Members of the original Grantee in accordance with this Section 9.11(b) or by will or the laws of descent and distribution.
10. TERMS AND CONDITIONS OF AWARDS OF SHARES OF RESTRICTED STOCK
10.1 Awards of Shares of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant shares of Restricted Stock to Grantees in such amounts and upon such terms as the Committee shall determine.
10.2 Vesting; Period of Restriction; Other Restrictions.
(a) Vesting. Subject to Sections 10.3 and 12, each Award of shares of Restricted Stock shall, unless otherwise provided in the Award Agreement, vest in four (4) equal annual installments commencing with the second anniversary of the Grant Date. The Committee may provide that an Award of shares of Restricted Stock (or a portion of such Award) may not vest unless and until a Grantee remains an Employee, Consultant or non-Employee Director, as applicable, for a period of time from the Grant Date of such Award.
(b) Period of Restriction. At the time an Award of shares of Restricted Stock is made, the Committee may, in its discretion, establish a Period of Restriction applicable to such shares of Restricted Stock. Each Award of shares of Restricted Stock may be subject to a different Period of Restriction.
(c) Other Restrictions. The Committee may, in its discretion, at the time an Award of shares of Restricted Stock is made or at any time thereafter, prescribe such other conditions and/or restrictions applicable to such Award, including:
| • | restrictions based upon the achievement of corporate and individual performance goals, which may be applicable to all or any portion of the Award; |
| • | time-based restrictions on vesting following the attainment of performance goals; |
| • | restrictions under applicable laws or under the requirements of any stock exchange or market upon which shares of Stock are listed or traded; or |
| • | holding requirements or sale restrictions placed on the shares upon vesting of such Award. |
10.3 Effect of Termination of Employment or Other Service. Each Award Agreement with respect to an award of shares of Restricted Stock shall set forth the extent, if any, to which the Grantee shall have the right to retain any outstanding Award of shares of Restricted Stock following the Grantee’s termination of employment or other service with or to the Company or any Affiliate due to death or Disability of such Grantee. Such provisions shall be determined in the sole discretion of the Committee and need not be uniform among Awards of shares of Restricted Stock granted under the Plan. Unless the Committee otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, upon a Grantee’s termination of employment or other service with or to the Company or any Affiliate for any reason other than the Grantee’s death or Disability, any Award of shares of Restricted Stock held by such Grantee that has not vested, or with respect to which all applicable restrictions and conditions have not been satisfied or lapsed, shall immediately be deemed forfeited; provided, however, that the Committee may, in its discretion, in any individual case, provide for waiver in whole or in part of restrictions or forfeiture conditions related to the shares of Restricted Stock. Upon forfeiture of an
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Award of shares of Restricted Stock, the Grantee shall have no further rights with respect to such Award, including but not limited to any right to vote the shares of Restricted Stock or any right to receive dividends with respect to the shares of Restricted Stock.
10.4 Rights of Grantees Holding Shares of Restricted Stock.
(c) Voting Rights. Unless the Committee otherwise provides in the applicable Award Agreement, a Grantee holding an Award of shares of Restricted Stock granted or issued under the Plan shall have the right to vote such shares.
(d) Dividend Rights. During the vesting period and/or the Period of Restriction, unless the Committee determines otherwise, a Grantee holding an Award of shares of Restricted Stock granted under the Plan shall be credited with dividends paid with respect to the shares of Restricted Stock while they are so held, in a manner determined by the Committee in its sole discretion. Such dividends will be held and subject to forfeiture until such time as the restrictions lapse on the shares of Restricted Stock to which they relate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Stock or shares of Restricted Stock. Such dividends or dividend equivalents shall be paid no later than 2-1/2 months following the end of the calendar year in which the applicable restrictions lapse and such dividends or dividend equivalents become payable to a Grantee. All distributions, if any, received by a Grantee with respect to an Award of Restricted Stock as a result of any stock split, stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to such Award.
10.5 Purchase of Restricted Stock. The Grantee shall be required, to the extent required by applicable law, to purchase shares of Restricted Stock from the Company at a purchase price equal to the greater of (i) the aggregate par value of the shares of Stock represented by such Restricted Stock, or (ii) the purchase price, if any, specified in the Award Agreement relating to such Award of Restricted Stock. The purchase price, if any, shall be payable in cash or, in the discretion of the Committee, in consideration for past services rendered to the Company or an Affiliate.
10.6 Restrictions on Transferability of Restricted Stock. Except as otherwise provided in this Plan or the Award Agreement, an Award of shares of Restricted Stock granted under the Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated during the applicable vesting period and/or Period of Restriction specified in the Award Agreement or prior to the satisfaction of any other restrictions applicable to the Award.
10.7 Restricted Stock Certificate; Delivery of Stock. The Company shall issue, in the name of each Grantee to whom an Award of Restricted Stock has been made, a stock certificate(s) representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Secretary of the Company shall hold such certificate(s) for the Grantee’s benefit until such time as (i) the Restricted Stock is forfeited, or (ii) the applicable vesting period and/or Period of Restriction expires, and all restrictions applicable to the Award lapse. Such certificate(s) shall bear a legend(s) that complies with applicable securities laws and regulations and makes appropriate reference to the vesting and other restrictions imposed under the Plan and the Award Agreement. In the alternative, as provided in Section 3.5, the Company may make a book-entry registration evidencing the Grantee’s ownership of shares of Restricted Stock with appropriate stop transfer instructions.
Upon the expiration or termination of any vesting period and/or Period of Restriction and the satisfaction of any other conditions prescribed by the Committee, the restrictions applicable to shares of Restricted Stock settled in shares of Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate(s) for such shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee’s beneficiary, as the case may be (or, as provided in Section 3.5, the Company may make a book-entry registration evidencing same).
11. REQUIREMENTS OF LAW
11.1 General.
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(d) The Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including any federal or state securities laws or regulations.
(e) If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares of Stock subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares of Stock under the Plan, no shares may be issued or sold to a Grantee or any other individual exercising an Option that may be settled in shares of Stock unless such listing, registration or qualification shall have been effected or obtained free of any conditions not acceptable to the Company. Any delay caused thereby shall in no way affect the date of termination of the Award. Without limiting the generality of the foregoing, upon the exercise of any Option that may be settled in shares of Stock, or the delivery of any shares of Stock underlying an Award, unless a registration statement under the Securities Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required to sell or issue such shares unless the Committee has received evidence, satisfactory to the Committee, that the Grantee or any other individual exercising an Option may acquire such shares in accordance with an exemption from registration under the Securities Act.
The Company may, but shall in no event be obligated to, register any securities which may be issued under the Plan in accordance with the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock under the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option under circumstances in which the laws of such jurisdiction apply shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
11.2 Exchange Act Rule 16b-3. During any time when the Company has a class of equity securities registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards under the Plan and the exercise of Options granted under the Plan will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Committee does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Committee, and shall not affect the validity of the Plan. If Rule 16b-3 is revised or replaced, the Committee may exercise its discretion to modify the Plan in any respect necessary to satisfy the requirements, or to take advantage of any features, of the revised exemption or its replacement.
12. EFFECT OF CHANGES IN CAPITALIZATION
12.1 Changes in Stock.
(a) If, after the Effective Date, the number of outstanding shares of Stock is increased or decreased, or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company, on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares, effected without receipt of consideration by the Company, the number and kinds of shares for which grants of Options and other Awards may be made under the Plan shall be adjusted proportionately and accordingly so that the proportionate interest of the Award recipient immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options shall not change the aggregate Option Price of such outstanding Options. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration by the Company.
(b) In the event of any distribution to the Company’s shareholders of securities of any other entity or other assets (including an extraordinary dividend, but excluding a non-extraordinary dividend, of the Company)
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without receipt of consideration by the Company, the Committee shall, in the manner the Committee deems appropriate, adjust (i) the number and kind of shares subject to outstanding Awards (or, in the case of Awards of Options that have been partially exercised at the time of such distribution, the portion of such Awards that remain outstanding) and/or (ii) the exercise price of outstanding Options, to reflect such distribution.
12.2 Reorganization in which the Company is the Surviving Entity which does not Constitute a Change of Control. If the Company is the surviving entity in any reorganization, merger or consolidation of the Company with one or more other entities that does not constitute a Change of Control, any outstanding Option (or the portion of such Option outstanding) previously granted under the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such outstanding Option (or outstanding portion thereof) would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment of the Option Price so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger or consolidation. Subject to any contrary language in an Award Agreement evidencing an Award, any restrictions applicable to the shares of Stock underlying such Award shall apply as well to any replacement shares received by the Grantee as a result of the reorganization, merger or consolidation.
12.3 Change of Control Transaction in which Awards are not Assumed. Upon the occurrence of a Change of Control in which outstanding Awards of Options and/or shares of Restricted Stock are not being assumed or continued, unless otherwise specifically prohibited under applicable law or the rules and regulations of a national securities exchange on which the shares of Stock are then listed or traded:
(a) Outstanding Awards of Options. With respect to outstanding Awards of Options, either of the following two actions shall be taken:
(i) fifteen (15) days prior to the scheduled consummation of a Change of Control, all outstanding Awards of Options shall become immediately exercisable and shall remain exercisable for a period of 15 days; or
(ii) the Committee may elect, in its discretion, to cancel any outstanding Awards of Options, and pay and deliver (or cause to be paid and delivered) to the holder thereof an amount in cash or securities (or a combination thereof) having a value equal to the product of the number of shares of Stock subject to the Option (the “Award Shares”) multiplied by the amount, if any, by which (I) the formula or fixed price per share to be paid to holders of shares of Stock outstanding at the time of consummation of the Change of Control transaction, in accordance with the terms of the agreement(s) memorializing the Change of Control transaction, exceeds (II) the Option Price applicable to such Award Shares. Such payment shall occur within a reasonable time subsequent to the Change of Control transaction, but in no event later than 2-1/2 months following the end of the calendar year in which the Change of Control transaction occurs.
With respect to the Company’s establishment of a 15-day exercise window as provided above, (i) any exercise of an Option during the 15-day period shall be conditioned upon the consummation of the Change of Control transaction and shall be effective only immediately before the consummation of the Change of Control transaction, and (ii) upon consummation of any Change of Control transaction, the Plan and all outstanding but unexercised Awards of Options shall terminate. The Committee shall send notice of a Change of Control transaction that will result in a termination of the Plan and all outstanding but unexercised Awards of Options to all individuals who hold such Awards not later than the time at which the Company gives notice of such event to its shareholders.
(b) Outstanding Awards of Restricted Stock. With respect to outstanding Awards of Restricted Stock, either of the following two actions shall be taken:
(i) all outstanding Awards of shares of Restricted Stock shall be deemed to have vested and the shares of Stock subject to such Awards shall be delivered, immediately prior to the occurrence of such Change of Control; or
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(ii) the Committee may elect, in its sole discretion, to cancel any outstanding Awards of Restricted Stock and pay and deliver (or cause to be paid and delivered) to the holder thereof an amount in cash or securities (or a combination thereof) having a value (as determined by the Committee acting in good faith) equal to the formula or fixed price per share to be paid to holders of shares of Stock outstanding at the time of consummation of the Change of Control transaction. Such payment shall occur within a reasonable time subsequent to the Change of Control transaction, but in no event later than 2-1/2 months following the end of the calendar year in which the Change of Control transaction occurs.
12.4 Change of Control in which Awards are Assumed. The Plan, and any Awards of Options and/or shares of Restricted Stock granted prior to a Change of Control, shall continue in the manner and under the terms so provided in the event of a Change of Control if provision is made in writing in connection with such Change of Control for either (i) the assumption or continuation of such Options and/or shares of Restricted Stock, or (ii) the substitution of such Options and/or shares of Restricted Stock for new options and shares of restricted stock relating to the stock of the successor entity, or a parent or subsidiary of the successor entity, with appropriate adjustments to the number of shares, as well as option exercise prices.
12.5 Adjustments. Adjustments under this Section 12 (other than adjustments made in accordance with Section 12.4) related to shares of Stock or securities of the Company shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued under any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The Committee may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for different provisions to apply to an Award in place of those described in this Section 12. This Section 12 does not limit the Company’s ability to provide for alternative treatment of Awards outstanding under the Plan upon the occurrence of events that do not constitute a Change of Control.
12.6 No Limitations on Company. The making of Awards under the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate, or sell or transfer all or any part of its business or assets.
13. AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or terminate the Plan as to any shares of Stock as to which Awards have not been made. An amendment shall be contingent on approval of the Company’s shareholders to the extent determined by the Board to be necessary under the Company’s organizational documents, or by applicable law or stock exchange listing requirements. In addition, an amendment will be contingent on approval of the Company’s shareholders if the amendment would:
§ materially increase the benefits accruing to Grantees under the Plan;
§ materially increase the aggregate number of Shares that may be issued under the Plan; or
§ materially modify the requirements as to eligibility for participation in the Plan.
No amendment, suspension or termination of the Plan shall, without the consent of the Award recipient, impair rights or obligations under any Award previously awarded under the Plan.
No awards shall be made after termination of the Plan.
14. BENEFICIARY DESIGNATION
A Grantee’s “beneficiary” is the person or persons entitled to receive payments or other benefits or exercise rights that are available under the Plan in the event of the Grantee’s death. A Grantee may designate a beneficiary or change a previous beneficiary designation at such times prescribed by the Committee by using forms and following procedures
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approved or accepted by the Committee for that purpose. If a Grantee fails to designate a beneficiary or the beneficiary designated by the Grantee is not eligible to receive payments or other benefits or exercise rights that are available under the Plan at the Grantee’s death, the beneficiary shall be the Grantee’s estate.
Notwithstanding the provisions of this Section above, the Committee may in its discretion, after notifying any affected Grantees, modify the foregoing requirements, institute additional requirements for beneficiary designations. In addition, the Committee may suspend the existing beneficiary designations of living Grantees or the process of determining beneficiaries under this Section, or both, in favor of another method of determining beneficiaries.
15. RIGHTS OF GRANTEES
15.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company or an Affiliate to terminate any Grantee’s employment or other service relationship at any time, nor confer upon any Grantee any right to continue in the capacity in which he or she is employed or otherwise serves the Company or an Affiliate.
Neither an Award nor any benefits arising under this Plan shall constitute part of an employment or other contract with the Company or an Affiliate and, accordingly, subject to the terms of the Plan, the Plan may be terminated or modified at any time in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or an Affiliate for severance payments, or otherwise, except as provided in the Plan.
For purposes of the Plan, unless otherwise provided by the Committee, a transfer of employment or other service relationship of a Grantee between the Company and an Affiliate or among Affiliates, shall not be deemed a termination of his or her status as a Grantee. The Committee may stipulate in a Grantee’s Award Agreement or otherwise the conditions under which a transfer of employment or other service relationship to an entity that is spun-off from the Company or an Affiliate or a vendor to the Company or an Affiliate, if any, shall not be deemed to terminate his or her status as a Grantee for purposes of an Award.
15.2 Participation. No Eligible Recipient shall have a right to be selected to receive an Award. No Grantee, having been selected to receive an Award, shall have a right to be selected to receive a future Award or (if selected to receive such a future Award) a right to receive such a future Award on terms and conditions identical or in proportion in any way to any prior Award.
15.3 Rights as a Shareholder. A Grantee shall have none of the rights of a shareholder with respect to shares of Stock covered by any Award until the Grantee becomes the record holder of such shares.
16. WITHHOLDING TAXES
The Company or any Affiliate shall have the power and the right to deduct or withhold, or require a Grantee to remit to the Company or any Affiliate, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign (including the Grantee’s FICA obligation), required by law or regulation to be withheld with respect to any taxable event arising or as a result of this Plan. The Committee may provide for Grantees to satisfy withholding requirements by having the Company withhold shares of Stock or the Grantee making such other arrangements, in either case on such conditions as the Committee specifies.
17. SUCCESSORS
Any obligations of the Company or an Affiliate under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company or Affiliate, respectively, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company or Affiliate, as applicable.
18. GENERAL PROVISIONS
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18.1 Investment Representations. The Committee may require each Grantee receiving shares of Stock under an Award to represent and warrant in writing that the Grantee is acquiring the shares for investment and without any present intention to sell or distribute such shares.
18.2 Eligible Recipients Based Outside of the United States. Without limiting in any way the generality of the Committee’s powers under this Plan, including but not limited to the power to specify any terms and conditions of an Award consistent with law, in order to comply with the laws in other countries in which the Company or an Affiliate operates or has Eligible Recipients, the Committee, in its sole discretion, shall have the power and authority, notwithstanding any provision of the Plan to the contrary, to:
(c) determine which Affiliates shall be covered by the Plan;
(d) determine which Eligible Recipients outside the United States are eligible to participate in the Plan;
(e) modify the terms and conditions of any Award granted to a Grantee outside the United States to comply with applicable foreign laws;
(f) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any subplans and modifications to Plan terms and procedures established under this Section 18.2 by the Committee shall be attached to the Plan document as appendices; and
(g) take any action, before or after an Award is made, that the Committee deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.
Notwithstanding the above, the Committee may not take any actions hereunder and no Awards shall be granted that would violate the Exchange Act, the Code, any securities law, or governing statute or any other applicable law.
18.3 Unfunded Plan. Grantees shall have no right, title, or interest whatsoever in or to any investments that the Company or an Affiliate may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Grantee, beneficiary, legal representative, or any other person. Awards shall be general, unsecured obligations of the Company, except that if an Affiliate executes an Award Agreement instead of the Company the Award shall be a general, unsecured obligation of the Affiliate and not an obligation of the Company. To the extent that any individual acquires a right to receive payments from the Company or an Affiliate, such right shall be no greater than the right of an unsecured general creditor of the Company or Affiliate, as applicable. All payments to be made hereunder shall be paid from the general funds of the Company or Affiliate, as applicable, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to ERISA.
18.4 Other Compensation and Benefit Plans. Nothing in this Plan shall be construed to limit the right of the Company or an Affiliate to establish other compensation or benefit plans, programs, policies or arrangements. Except as may be otherwise specifically stated in any other benefit plan, policy, program or arrangement, no Award shall be treated as compensation for purposes of calculating a Grantee’s rights under any such other plan, policy, program or arrangement.
18.5 No Constraint on Corporate Action. Nothing in this Plan shall be construed (i) to limit, impair or otherwise affect the Company’s or an Affiliate’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets, or (ii) to limit the right or power of the Company or an Affiliate to take any action which such entity deems to be necessary or appropriate.
19. LEGAL CONSTRUCTION
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19.1 Captions. The use of captions in the Plan or any Award Agreement is for convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement.
19.2 Other Provisions. Each Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion.
19.3 Severability. In the event any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions of the Plan and the Award Agreement shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
19.4 Requirements of Law. The granting of Awards and the issuance of shares of Stock under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Company or an Affiliate shall receive the consideration required by law for the issuance of Awards under the Plan.
The inability of the Company or an Affiliate to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s or the Affiliate’s counsel to be necessary to the lawful issuance and sale of any shares of Stock hereunder, shall relieve the Company or Affiliate of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.
19.5 Governing Law. The Plan and each Award Agreement shall be governed by the laws of the State of New York, excluding any conflicts or choice of law, rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction.
19.6 Code Section 409A. The Plan and Awards granted under the Plan are not intended to be subject to Code Section 409A.
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