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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INNOTRAC CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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(INNOTRAC LOGO)
April 20, 2001
To Our Shareholders:
On behalf of the Board of Directors and management of Innotrac
Corporation, I cordially invite you to the Annual Meeting of Shareholders to be
held on May 21, 2001, at 9:00 AM, Eastern Daylight Time, at the Gwinnett Civic
and Cultural Center located at 6400 Sugarloaf Parkway in Duluth, Georgia.
At the Annual Meeting, shareholders will be asked to:
- Consider and vote upon the reelection of two current Innotrac
directors; and
- Approve an amendment to Innotrac's 2000 Stock Option and
Incentive Award Plan (the "Stock Incentive Plan") to increase
the number of shares of Common Stock reserved for issuance
under the Plan from 1,300,000 to 2,800,000.
Information about the nominees for directors, the Stock Incentive Plan,
and certain other matters is contained in the accompanying Proxy Statement. A
copy of Innotrac's 2000 Annual Report to Shareholders, which contains financial
statements and other important information about Innotrac's business, is also
enclosed.
It is important that your shares of stock be represented at the
meeting, regardless of the number of shares you hold. We encourage you to
specify your voting preferences by marking and dating the enclosed proxy card.
However, if you wish to vote for re-electing the nominees for director specified
herein and approving the amendment to the Stock Incentive Plan, all you need to
do is sign and date the proxy card.
Please complete and return the proxy card in the enclosed envelope,
whether or not you plan to attend the meeting. If you do attend and wish to vote
in person, you may revoke your proxy at that time.
I hope you are able to attend, and look forward to seeing you.
Sincerely,
/s/ Scott D. Dorfman
SCOTT D. DORFMAN
Chairman of the Board, President and
Chief Executive Officer
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INNOTRAC CORPORATION
6655 SUGARLOAF PARKWAY
DULUTH, GEORGIA 30097
-----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 2001
-----------------------
To the Shareholders of
Innotrac Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of
Innotrac Corporation will be held at 9:00 AM, Eastern Daylight Time, on Monday,
May 21, 2001, at the Gwinnett Civic and Cultural Center, 6400 Sugarloaf Parkway,
Duluth, Georgia 30097, for the following purposes:
1. To elect two directors whose terms, if re-elected,
will expire in 2004;
2. To approve an amendment to Innotrac's 2000 Stock
Option and Incentive Award Plan to increase the
number of shares of Common Stock reserved for
issuance under the Plan from 1,300,000 to 2,800,000;
and
3. To consider such other matters as may properly come
before the meeting and any adjournment or
postponement thereof.
Only shareholders of record on April 16, 2001, are entitled to notice
of and to vote at the Annual Meeting and any adjournment or postponement
thereof.
A Proxy Statement and a Proxy Card solicited by the Board of Directors
are enclosed herewith. Please sign, date and return the Proxy Card promptly in
the enclosed business reply envelope. If you attend the meeting you may, if you
wish, withdraw your Proxy and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS,
DAVID L. GAMSEY
APRIL 20, 2001 Secretary
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, WE URGE YOU TO
FILL IN, DATE, SIGN, AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
BUSINESS REPLY ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE,
AND IF YOU ARE PRESENT AT THE ANNUAL MEETING, YOU MAY, IF YOU WISH, REVOKE YOUR
PROXY AT THAT TIME AND EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
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INNOTRAC CORPORATION
PROXY STATEMENT CONTENTS
Introduction................................................................................ 1
Quorum and Voting Requirements.............................................................. 2
Voting Securities and Principal Shareholders................................................ 2
Items for Vote:
Item No. 1: Election of Directors.................................................. 3
Item No. 2: Approval of Amendment to 2000 Stock Incentive Plan..................... 6
Executive Compensation...................................................................... 10
Related Party Transactions.................................................................. 14
Report of the Compensation Committee on Executive Compensation.............................. 14
Stock Performance Graph..................................................................... 17
Independent Public Accountants.............................................................. 18
Report of the Audit Committee............................................................... 18
Shareholders' Proposals for 2002 Annual Meeting............................................. 19
Other Matters............................................................................... 19
Appendix A: Audit Committee Charter......................................................... A-1
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(INNOTRAC LOGO)
PROXY STATEMENT
DATED APRIL 20, 2001
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 2001
INTRODUCTION
This Proxy Statement is furnished to shareholders in connection with
the solicitation of proxies by the Board of Directors of Innotrac Corporation
("Innotrac" or the "Company") for use at Innotrac's 2001 Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Monday, May 21, 2001,
including any postponement, adjournment or adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting. Management
intends to mail this Proxy Statement and the accompanying form of proxy to
shareholders on or about April 20, 2001.
Only shareholders of record at the close of business on April 16, 2001
(the "Record Date"), are entitled to notice of and to vote in person or by proxy
at the Annual Meeting. As of the Record Date, there were 11,364,595 shares of
common stock, $.10 par value per share (the "Common Stock"), of Innotrac
outstanding and entitled to vote at the Annual Meeting.
Proxies in the accompanying form, duly executed and returned to the
management of Innotrac, and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the shareholder
at any time prior to the voting of the proxy by delivery of a subsequently dated
proxy, by written notification to the Secretary of Innotrac or by personally
withdrawing the proxy at the Annual Meeting and voting in person.
Proxies that are executed, but that do not contain any specific
instructions, will be voted for the election of all the nominees for director
specified herein and for approval of the amendment to Innotrac's 2000 Stock
Option and Incentive Award Plan to increase the number of shares of Common Stock
reserved for issuance under the Plan from 1,300,000 to 2,800,000. The persons
appointed as proxies will vote in their discretion on any other matter that may
properly come before the Annual Meeting or any postponement, adjournment or
adjournments thereof, including any vote to postpone or adjourn the Annual
Meeting.
A copy of Innotrac's Annual Report to Shareholders is being furnished
herewith to each shareholder of record as of the close of business on the Record
Date. Copies of Innotrac's Annual Report on Form 10-K for the year ended
December 31, 2000 will be provided free of charge upon written request to:
INNOTRAC CORPORATION
6655 SUGARLOAF PARKWAY
DULUTH, GEORGIA 30097
ATTN.: INVESTOR RELATIONS MANAGER
If the person requesting the Annual Report on Form 10-K for the year
ended December 31, 2000 was not a shareholder of record on the Record Date, the
request must include a representation that the person was a beneficial owner of
Common Stock on that date. Copies of any exhibits to Innotrac's Annual Report on
Form 10-K for the year ended December 31, 2000 will also be furnished on request
and upon payment of Innotrac's expenses in furnishing the exhibits.
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QUORUM AND VOTING REQUIREMENTS
The holders of a majority of the shares entitled to vote on the Record
Date, represented in person or by proxy, shall constitute a quorum for the
purpose of transacting business at the Annual Meeting. Each outstanding share
shall be entitled to one vote on each matter submitted to a vote at the Annual
Meeting. The required vote for each item of business at the Annual Meeting is as
follows:
- For Item 1 on the Proxy Card, the election of directors, those
nominees receiving the greatest number of votes at the Annual
Meeting, assuming a quorum is present, shall be deemed
elected, even though such nominees may not receive a majority
of the votes cast.
- For Item 2 on the Proxy Card, the approval of the amendment to
the Stock Incentive Plan, the vote of a majority of the shares
voted on the matter, assuming a quorum is present, shall be
the act of the shareholders on that matter.
- For any other business at the Annual Meeting, the vote of a
majority of the shares voted on the matter, assuming a quorum
is present, shall be the act of the shareholders on that
matter, unless the vote of a greater number is required by
law.
In counting the votes cast, only those cast "for" and "against" a
matter are included, although you cannot vote "against" a nominee for director.
An abstention and a "broker non-vote" are counted only for purposes of
determining the presence of a quorum at the Annual Meeting. "Broker non-votes"
are votes that brokers holding shares of record for their customers (i.e., in
"street name") are not permitted to cast under applicable regulations because
the brokers have not received clear voting instructions from their customers.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The following table sets forth the information concerning the
beneficial ownership of the Common Stock, which is Innotrac's only class of
voting stock, at March 19, 2001, by:
- each person known to Innotrac to beneficially own more than 5%
of the Common Stock;
- each director (including nominees for reelection), the Chief
Executive Officer and the four other most highly compensated
executive officers; and
- all of Innotrac's directors and executive officers as a group.
To Innotrac's knowledge, except under applicable community property
laws or as otherwise indicated, the persons named in the table have sole voting
and sole investment control with regard to all shares beneficially owned.
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED
- ---------------- --------------------- ------------------
Scott D. Dorfman............................................... 5,567,047(2) 49.0%
Dimensional Fund Advisors Inc.................................. 772,400(3) 6.8
David L. Ellin................................................. 220,530(4) 1.9
Larry C. Hanger................................................ 24,021(5) *
David L. Gamsey................................................ 5,250 *
William F. Hendrick, Jr........................................ 17,529(6) *
Bruce V. Benator................................................. 31,000(7) *
Martin J. Blank................................................ 37,000(8) *
William H. Scott, III.......................................... 226,333(8)(9) 2.0
All directors and executive officers as a group (9 persons).... 6,128,908 53.0%
- ---------------
* Denotes less than 1%
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(1) Beneficial ownership is determined under the rules of the Securities
and Exchange Commission. These rules deem common stock subject to
options currently exercisable, or exercisable within 60 days, to be
outstanding for purposes of computing the percentage ownership of the
person holding the options or of a group of which the person is a
member, but they do not deem such stock to be outstanding for purposes
of computing the percentage ownership of any other person or group. As
of March 19, 2001, there were 11,364,595 shares of Common Stock
outstanding.
(2) Includes an aggregate of 243,618 shares owned by: (i) Mr. Dorfman's
wife individually and as custodian for the benefit of their three
oldest children; (ii) Mr. Dorfman's brother as trustee for the benefit
of Mr. Dorfman's three oldest children; (iii) shares held by Mr.
Dorfman's two oldest children directly; (iv) shares held by Mr. Dorfman
as custodian for his three youngest children; and (v) a foundation for
which Mr. Dorfman and his wife serve as trustees. Mr. Dorfman's address
is 6655 Sugarloaf Parkway, Duluth, Georgia 30097.
(3) According to a Schedule 13G filed February 2, 2001, Dimensional Fund
Advisors Inc. ("Dimensional") is a registered investment advisor that
furnishes investment advice to four registered investment companies and
serves as investment manager to certain other commingled group trusts
and separate accounts. In its role as investment advisor or manager,
Dimensional possesses voting and/or investment power with respect to
the shares of Innotrac's Common Stock owned by the investment
companies, trusts and separate accounts. Dimensional disclaims
beneficial ownership over the shares of Innotrac's Common Stock owned
by the investment companies, trusts and separate accounts. The address
of Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
(4) Includes 133,000 shares subject to presently exercisable stock options.
(5) Includes 20,500 shares subject to presently exercisable stock options.
(6) Includes 12,499 shares subject to presently exercisable stock options.
(7) Includes 30,000 shares subject to presently exercisable stock options
and options vesting in the next 60 days.
(8) Includes 15,000 shares subject to presently exercisable stock options
and options vesting in the next 60 days.
(9) Includes 208,333 shares owned of record by ITC Service Company, with
respect to which Mr. Scott is an officer and director. Mr. Scott
disclaims beneficial ownership of these shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
Innotrac's directors and executive officers, and persons who own more than 10%
of Innotrac's Common Stock, to file with the Securities and Exchange Commission
certain reports of beneficial ownership of the Common Stock. Based solely on
copies of such reports furnished to Innotrac and written representations that no
other reports were required, Innotrac believes that all applicable Section 16(a)
reports were filed by its directors, officers and 10% shareholders during the
fiscal year ended December 31, 2000 with the following exceptions: Messrs. Ellin
and Hendrick inadvertently failed to file Form 4s reporting their acquisitions
of 5,030 shares each, and Mr. Hanger inadvertently failed to file a Form 4
reporting his acquisition of 3,521 shares. These acquisitions were subsequently
reported on Form 5s. In addition, one of our new executive officers filed a Form
3 and Form 5 late.
ELECTION OF DIRECTORS
(ITEM NUMBER 1 ON THE PROXY CARD)
The Bylaws of Innotrac provide that the Board of Directors shall
consist of not less than five nor more than eleven directors, with the exact
number being set from time to time by the Board or the shareholders. The Board
presently consists of six directors, three of whom are independent directors.
The Board is divided into three classes of directors serving staggered
three-year terms. Two directors are to be elected at the meeting for a
three-year term expiring in 2004. The Board has nominated Scott D. Dorfman and
David L. Ellin for those positions.
Both nominees have indicated that they will serve if elected, but if
the situation should arise that either nominee is no longer able or willing to
serve, the proxy may be voted for the election of such other person as may be
designated by the Board of Directors.
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The following information as of March 19, 2001 has been furnished by
the nominees for director and the continuing directors. Except as otherwise
indicated, the nominees and the continuing directors have been or were engaged
in their present or last principal employment, in the same or a similar
position, for more than five years.
Name (Age) Information About the Nominees and the Continuing Directors
Nominees for Director at the Meeting and Whose Terms Will Expire in 2004 if Elected
SCOTT D. DORFMAN (43) Mr. Dorfman founded Innotrac and has served as Chairman of the Board,
President and Chief Executive Officer since its inception in 1984. Prior to
founding Innotrac, Mr. Dorfman was employed by Paymaster Checkwriter Company,
Inc., an equipment distributor. At Paymaster, Mr. Dorfman gained experience in
distribution, tracking and inventory control by developing and managing
Paymaster's mail order catalog.
DAVID L. ELLIN (42) Mr. Ellin joined Innotrac in 1986 and has served as Senior Vice President and
Chief Operating Officer since November 1997 and as a director since December
11997. From 1984 to Vice President from 1988 to November 1986, Mr. Ellin was
employed by the Atlanta branch of WHERE Magazine, where he managed the sales and
production departments. From 1980 to 1984, Mr. Ellin was employed by Paymaster,
where he was responsible for Paymaster's sales and collections.
Directors Whose Terms Expire in 2002
LARRY C. HANGER (46) Mr. Hanger joined Innotrac in 1994, and has served as Vice President-Business
Development since November 1997 and as a director since December 1997. He was
promoted to Senior Vice President in April 1999. He served as Innotrac's
Department Manager of Business Development from 1994 to November 1997, and was
responsible for the management of the telecommunication equipment marketing and
service business. From 1979 to 1994, Mr. Hanger served as Project Manager--Third
Party Marketing at BellSouth Corporation, where he managed the marketing program
for BellSouth's network services and was involved in implementing the billing
options program for BellSouth with Innotrac.
BRUCE V. BENATOR (43) Mr. Benator is the Managing Partner of Williams Benator and Libby, LLP,
certified public accountants, and has been a director since 1997. He has been
affiliated with the firm since 1984 and is the firm's Director of Accounting
and Auditing Services. From 1979 to 1984, Mr. Benator was employed by Ernst &
Young, LLP.
Directors Whose Terms Expire in 2003
MARTIN J. BLANK (54) Mr. Blank has been a director of Innotrac since 1997 and is a co-founder of
Automobile Protection Corporation, or APCO, a subsidiary of the Ford Motor
Company engaged in the marketing of extended vehicle service contracts and
warranty programs. Mr. Blank has served as Secretary and Director of APCO since
its inception in 1984 and as Chairman of the Board and Chief Operating Officer
since 1988. Mr. Blank's experiences prior to co-founding APCO include the
practice of law and the representation of and financial management for
professional athletes. Mr. Blank is admitted to the bar in the States of Georgia
and California.
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WILLIAM H. SCOTT, III (53) Mr. Scott has been a director of Innotrac since 1997 and has served as President
and Chief Operating Officer of ITC Holding Company, Inc., the parent company of
ITC Service Company, since 1991. He has been a director of Headhunter.Net, Inc.,
a job information and recruiting internet site, since October 1997 and has
served as Chairman of the Board of that company since July 1998. He has also
been a director of ITC Holding Company, Inc. since 1989, and served as its
Executive Vice President from 1989 to 1991. Mr. Scott is a director of Powertel,
Inc., a wireless telecommunications services company operating in the
southeastern United States; KNOLOGY Holdings, Inc., a broadband
telecommunications services company currently operating in Alabama, Florida,
Georgia and South Carolina; and ITC DeltaCom, Inc., a full service
telecommunications provider to business customers in the southeastern United
States.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors meets on a regular basis to supervise, review,
and direct Innotrac's business and affairs. During the 2000 fiscal year, the
Board held five meetings. The Board of Directors has established an Executive
Committee, an Audit Committee, a Compensation Committee and an Executive
Compensation Subcommittee to which it has assigned certain responsibilities in
connection with the governance and management of its affairs. Innotrac has no
standing nominating committee or other committee performing similar functions.
Each of the directors attended 75% of the Board meetings and meetings
of committees on which he served during the 2000 fiscal year.
Audit Committee. The primary function of the Audit Committee is to
assist the Board of Directors in fulfilling its financial and other oversight
responsibilities. The Audit Committee's duties, responsibilities and activities
include reviewing Innotrac's financial statements, reports and other financial
information, overseeing the annual audit and the independent auditors and
reviewing the integrity of Innotrac's financial reporting process and the
quality and appropriateness of its accounting principles. Messrs. Benator, Blank
and Scott comprise the members of the Audit Committee. The Audit Committee held
three meetings during fiscal 2000.
The Board has adopted a written Audit Committee Charter, which is
attached to this Proxy Statement as Appendix A. The members of the Audit
Committee are all independent as defined in the listing standards of the Nasdaq
Stock Market.
Compensation Committee and Executive Compensation Subcommittee. The
Compensation Committee is responsible for the review and approval of
compensation of employees above a certain salary level, the review of management
recommendations relating to incentive compensation plans, the administration of
Innotrac's Stock Incentive and Senior Executive Compensation Plans, the review
of compensation of directors and consultation with management and the Board on
senior executive continuity matters. Messrs. Dorfman, Blank and Scott comprise
the members of the Compensation Committee. The Compensation Committee held no
meetings during fiscal 2000.
The Executive Compensation Subcommittee, comprised of Messrs. Blank and
Scott, was constituted to (1) achieve certain securities law advantages with
respect to stock-based compensation to Innotrac's officers and directors and (2)
maintain the tax deductibility of certain annual compensation in excess of $1
million to Innotrac's Chief Executive Officer and four other most highly
compensated officers.
Executive Committee. The Executive Committee, pursuant to authority
delegated by the Board, from time to time considers certain matters in lieu of
convening a meeting of the full Board, subject to any restrictions in applicable
law related to the delegation of certain powers to a committee of the Board.
Messrs. Dorfman, Ellin and Benator comprise the members of the Executive
Committee. The Executive Committee held no meetings during fiscal 2000.
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DIRECTORS' COMPENSATION
We pay our outside directors an annual fee of $10,000, and additional
fees of $250 and $100, respectively, for each Board meeting and committee
meeting attended. We also reimburse all directors for their travel and other
expenses incurred in connection with attending Board or committee meetings.
We have traditionally granted options annually to each of our outside
directors on or about the dates we hold our annual meetings of shareholders. The
exercise price is the closing price of our Common Stock reported on the Nasdaq
National Market on the date of grant. On May 15, 2000, we granted options for
20,000 shares to each of Messrs. Benator, Blank and Scott. These options are
exercisable at $5.875 per share. One half of such shares vest on the second
anniversary of the date of grant, a quarter on the third anniversary and the
remaining quarter on the fourth anniversary.
APPROVAL OF AMENDMENT TO 2000 STOCK INCENTIVE PLAN
(ITEM NUMBER 2 ON THE PROXY CARD)
PURPOSE OF THE AMENDMENT TO THE 2000 STOCK INCENTIVE PLAN
The Board of Directors adopted the Innotrac Corporation 2000 Stock
Option and Incentive Award Plan (the "Stock Incentive Plan") on March 28, 2000.
The Stock Incentive Plan was subsequently approved by Innotrac's shareholders at
the 2000 Annual Meeting of Shareholders on May 17, 2000. On December 20, 2000,
the Board of Directors voted to amend the Stock Incentive Plan, subject to
shareholder approval, to increase the number of the shares of Common Stock
reserved for issuance under the Stock Incentive Plan from 1,300,000 to
2,800,000. The initial number of shares reserved for issuance has been depleted
by incentive awards. As of March 19, 2001, options for 1,797,325 shares of
Common Stock and a restricted stock award for 50,000 shares of Common Stock were
outstanding under the Stock Incentive Plan and Innotrac's former 1997 stock
option plan.
The Board of Directors is proposing that Innotrac's shareholders
approve the amendment to the Stock Incentive Plan for a number of reasons,
including compliance with Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). See "Compliance with Section 162(m) of the Internal
Revenue Code" below. The amendment to the Stock Incentive Plan, if approved by
shareholders, will be effective December 20, 2000. The Stock Incentive Plan, as
amended, will remain in effect until February 7, 2010, unless it is terminated
by the Board at an earlier date.
The Board of Directors believes that the Stock Incentive Plan plays an
integral role in Innotrac's ability to attract and retain key employees and
directors and to provide incentives for such persons to promote Innotrac's
financial success. The following description of the material features of the
Stock Incentive Plan is a summary and is qualified in its entirety by reference
to the Stock Incentive Plan, a copy of which will be provided to any shareholder
upon written request to Innotrac. The Stock Incentive Plan is not subject to the
provisions of the Employee Retirement Income Security Act of 1974.
GENERAL
Awards granted under the Stock Incentive Plan may be "incentive stock
options" ("ISOs"), as defined in Section 422 of the Code, "nonqualified stock
options" ("NQSOs"), shares of Common Stock subject to terms and conditions set
by the Board of Directors ("restricted stock" or "stock awards"), stock
appreciation rights or performance shares.
The Compensation Committee of the Board of Directors or its designee,
or the Executive Compensation Subcommittee or its designee, generally has
discretion to set the terms and conditions of grants and awards, including the
term, exercise price, and vesting conditions (including vesting based on
Innotrac's performance); to select the persons who receive such grants and
awards; and to interpret and administer the Stock Incentive Plan. The maximum
number of shares of Common Stock with respect to which awards may be granted
under the Stock
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Incentive Plan is 2,800,000 shares, subject to approval by the shareholders of
the amendment described above. The Board of Directors may at any time amend or
terminate the Stock Incentive Plan, subject to applicable laws and shareholder
approval requirements. Innotrac will pay the administrative costs of the Stock
Incentive Plan.
DESCRIPTION OF AWARDS
Options. ISOs may be granted only to employees of Innotrac, including
officers. NQSOs may be granted to any person employed by or performing services
for Innotrac, including non-employee directors. The option price for each ISO
may be not less than 100% of the fair market value of the Common Stock subject
to the option. The option price for a NQSO can be less than, equal to, or
greater than the fair market value on the date of grant. ISOs are also subject
to certain limitations prescribed by the Code, including the requirement that
such options may not be granted to employees who own more than 10% of the
combined voting power of all classes of voting stock (a "principal shareholder")
of Innotrac, unless the option price is at least 110% of the fair market value
of the Common Stock subject to the option. In addition, an ISO granted to a
principal shareholder may not be exercisable more than five years from its date
of grant.
Full payment of the option price must be made when an Option is
exercised. The purchase price may be paid in cash or in such other form of
consideration as the Committee may approve, which may include shares of Common
Stock valued at their fair market value on the date of exercise, or by any other
means which the Committee determines to be consistent with the Stock Incentive
Plan's purpose and applicable law. A participant will have no rights as a
shareholder with respect to the shares subject to his option until the option is
exercised. The maximum number of shares for which options (ISOs and NQSOs) may
be granted to any individual during any calendar year is 500,000 shares, subject
to anti-dilution and similar provisions.
Stock Appreciation Rights. The Committee may grant stock appreciation
rights separately or in connection with another stock incentive, and the
Committee may provide that the holder may exercise them at any time or that they
will be paid at a certain time or times or upon the occurrence or non-occurrence
of certain events. Stock appreciation rights may be settled in shares of Common
Stock or in cash, according to terms established by the Committee with respect
to any particular award. The maximum number of stock appreciation rights which
can be granted under the Stock Incentive Plan during any calendar year to any
individual is 500,000.
Restricted Stock; Stock Awards. Participants may also be awarded shares
of Common Stock pursuant to a stock award. The Committee, in its discretion, may
prescribe that a participant's rights in a stock award shall be nontransferable
or forfeitable or both unless certain conditions are satisfied. These conditions
may include, for example, a requirement that the participant continue employment
with Innotrac for a specified period or that Innotrac or the participant achieve
stated objectives. In addition, the restrictions may lapse incrementally.
At the time a grant of restricted stock is made, the Committee shall
establish a period or periods of time (the "Restricted Period") applicable to
such grant. Subject to certain provisions, at the end of the Restricted Period,
all restrictions shall lapse and the restricted stock shall vest in the
participant. The Committee may, in its discretion, shorten or terminate the
Restricted Period, or waive any conditions for the lapse or termination of
restrictions with respect to all or any portion of the restricted stock at any
time after the date the grant is made.
Upon a grant of restricted stock, a stock certificate representing the
number of shares of restricted stock granted to the Participant shall be
registered in the participant's name and shall be held in custody by Innotrac or
a bank selected by the Committee for the participant's account. Following such
registration, the participant shall, subject to certain restrictions, have the
rights and privileges of a shareholder as to such restricted stock, including
the right to receive dividends and to vote such restricted stock, except that
the right to receive cash dividends shall be the right to receive such dividends
either in cash currently or by payment in restricted stock, as the Committee
shall determine. The maximum number of shares of restricted stock or stock
awards which can be granted under the Stock Incentive Plan during any calendar
year to any individual is 500,000.
Performance Share Awards. The Stock Incentive Plan also provides for
the award of performance shares. A performance share award entitles the
participant to receive a payment equal to the fair market value of a specified
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number of shares of Common Stock if certain performance standards are met. The
Committee will prescribe the requirements that must be satisfied before a
performance share award is earned. The performance share requirements may
include, for example, a requirement that the participant continue employment
with Innotrac for a specified period or that Innotrac or the participant achieve
stated objectives. To the extent that performance shares are earned, the
obligation may be settled in cash, in Common Stock or by a combination of the
two.
No participant shall have, as a result of receiving a performance share
award, any rights as a shareholder until and to the extent that the performance
shares are earned and Common Stock is transferred to such participant. If the
award agreement so provides, a participant may receive a cash payment equal to
the dividends that would have been payable with respect to the number of shares
of Common Stock covered by an award between (a) the date that the performance
shares are awarded and (b) the date that a transfer of Common Stock to the
participant, cash settlement, or combination thereof is made pursuant to the
performance share award.
TERMINATION OF AWARDS.
The terms of an award may provide that it will terminate, among other
reasons, upon the holder's termination of employment or other status with
Innotrac or its subsidiaries, upon a specified date, upon the holder's death or
disability, or upon the occurrence of a change in control. Also, the Committee
may, within the terms of the Stock Incentive Plan, provide in the award
agreement for the acceleration of vesting for any of the above reasons.
COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code denies a deduction by an employer for
certain compensation in excess of $1 million per year paid by a publicly traded
corporation to the Chief Executive Officer or any of the four most highly
compensated executive officers other than the Chief Executive Officer (the
"Named Executive Officers"). Compensation realized with respect to stock
options, including upon exercise of an NQSO or upon a disqualifying disposition
of an ISO, as described below under "Certain Federal Income Tax Consequences",
will be excluded from this deduction limit if it satisfies certain requirements,
including a requirement that the Stock Incentive Plan be approved by Innotrac's
shareholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Options. Under current tax law, a holder of an ISO under the Stock
Incentive Plan does not, as a general matter, realize taxable income upon the
grant or exercise of the ISO. (Depending upon the holder's income tax situation,
however, the exercise of the ISO may have alternative minimum tax implications.)
In general, a holder of an ISO will only recognize income at the time that
Common Stock acquired through exercise of the ISO is sold or otherwise disposed
of. In that situation, the amount of income that the optionee must recognize is
equal to the amount by which the value of the Common Stock on the date of the
sale or other disposition exceeds the option exercise price. If the optionee
disposes of the stock after the required holding period--that is, no earlier
than a date that is two years after the date of grant of the option and one year
after the date of exercise -- the income is taxed as capital gains. If
disposition occurs prior to expiration of the holding period, the optionee will
recognize ordinary income equal to the difference between the fair market value
of the shares at the exercise date and the option exercise price; any additional
increase in the value of option shares after the exercise date will be taxed as
capital gain. Innotrac is entitled to a tax deduction equal to the amount of
ordinary income recognized by the optionee.
An optionee will not realize income when an NQSO option is granted to
him or her. Upon exercise of such option, however, the optionee must recognize
ordinary income to the extent that the fair market value of the Common Stock on
the date the option is exercised exceeds the option exercise price. Any such
gain is taxed in the same manner as ordinary income in the year the option is
exercised. Thereafter, any additional gain recognized upon the disposition of
the shares of stock obtained by the exercise of an NQSO will be taxed as short
or long-term capital gain, depending on the optionee's holding period. Innotrac
will not experience any tax consequences upon the grant of an NQSO, but will be
entitled to take an income tax deduction equal to the amount that the option
holder includes in income (if any) when the NQSO is exercised.
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Stock Awards; Restricted Stock. With respect to outright grants of
Common Stock under the Stock Incentive Plan, Innotrac is of the opinion that the
participant will realize compensation income at the time of grant in an amount
equal to the fair market value of the Common Stock less any amount paid for such
Common Stock. Innotrac is also of the opinion that it will be entitled to a
deduction under the Code in the amount and at the time that compensation income
is realized by the participant.
With respect to the grant of restricted stock under the Stock Incentive
Plan, Innotrac is of the opinion that the participant will realize compensation
income in an amount equal to the fair market value of the restricted stock
(whether received as a grant or as a dividend), less any amount paid for such
restricted stock, at the time when the participant's rights with respect to such
restricted stock are no longer subject to a substantial risk of forfeiture,
unless the participant elected, pursuant to a special election provided in the
Code, to be taxed on the restricted stock at the time it was granted or received
as a dividend, as the case may be. Dividends paid to the participant during the
Restricted Period will be taxable as compensation income, rather than as
dividend income, unless the election referred to above was made. Innotrac is
also of the opinion that it will be entitled to a deduction under the Code in
the amount and at the time that compensation income is realized by the
participant.
Performance Share Awards. Unless an election is made under Section
83(b) of the Code, a participant will recognize income on account of the
settlement of a performance share award. The amount of such income will be equal
to any cash that is paid and the fair market value of Common Stock (on the date
that the shares are first transferable or not subject to a substantial risk of
forfeiture) that is received in settlement of the award, and Innotrac will
generally be entitled to claim a deduction of such amount for tax purposes.
NEW STOCK INCENTIVE PLAN BENEFITS
As of March 19, 2001, options for 1,797,325 shares of Common Stock and
a restricted stock award for 50,000 shares of Common Stock were outstanding
under the Stock Incentive Plan and Innotrac's former 1997 stock option plan.
Subject to the approval by the shareholders of the increase in the number of
shares of Common Stock reserved for issuance under the Stock Incentive Plan,
future awards will be made at the discretion of the Committee. The number of
options and awards that may be granted in the future to eligible participants is
not currently determinable.
RECOMMENDATION OF THE BOARD
The Board of Directors, which unanimously approved the Stock Incentive
Plan, recommends a vote "FOR" approval of the amendment to the Stock Incentive
Plan.
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued
by Innotrac for services rendered during the fiscal years ended December 31,
2000, 1999 and 1998, to or for Innotrac's Named Executive Officers. The total
amount of perquisites, personal benefits and other annual compensation paid to
the Named Executive Officers do not in any case exceed the lesser of $50,000 or
ten per cent of such officer's total salary and bonus.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- ------------------------
RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING ALL OTHER
NAME YEAR SALARY BONUS AWARDS OPTIONS(#) COMPENSATION
- ------------------------------- ------ -------- -------- ---------- ---------- ------------
Scott D. Dorfman 2000 $302,607 $ 67,500 -- 100,000 $47,134(1)
Chairman of the Board, 400,000(2)
President and Chief 1999 383,675 325,000 -- -- 58,625
Executive Officer 1998 356,855 250,000 -- -- 26,218
David L. Ellin 2000 173,708 55,500 $200,000(3) 100,000 12,137(4)
Senior Vice President and 400,000(2)
Chief Operating Officer 1999 163,825 119,755 -- 6,000 11,357
1998 145,000 87,000 -- -- 10,241
Larry C. Hanger 2000 144,451 45,000 -- 100,000 2,923(5)
Senior Vice President-- 180,000(2)
Business Development 1999 120,440 100,000 -- 3,500 766
1998 100,000 100,000 -- -- 500
David L. Gamsey (5) 2000 148,246 80,000 -- 150,000 --
Senior Vice President, Chief 225,000(2)
Financial Officer and
Secretary
William F. Hendrick, Jr. (6) 2000 122,693 40,000 -- 100,000 40,616(3)
Vice President-- 180,000(2)
Telecommunications 1999 86,308 65,925 -- 25,000 5,394
- ---------------
(1) Includes (i) Innotrac's matching contribution to deferred compensation
plan in the approximate amount of $45,280 and (ii) the full dollar
amount of premiums, $1,854, paid by Innotrac with respect to
split-dollar life insurance on the life of Mr. Dorfman.
(2) Represents options to acquire membership interests in Innotrac's
subsidiary, Return.com Online, LLC.
(3) As required by the rules of the Securities and Exchange Commission, the
value of restricted stock awards is calculated by multiplying the
numbers of shares of restricted stock granted (50,000) by the closing
sale price ($4.00) of the Common Stock on the Nasdaq National Market on
the date of grant (December 20, 2000). Using this same calculation, the
value of this award on the last trading day of Innotrac's 2000 fiscal
year, December 29, 2000, was $175,000. This award vests entirely on the
fourth anniversary of the date of grant. It is the only outstanding
restricted stock award to any of the Named Executive Officers.
(4) Represents Innotrac's matching contribution to deferred compensation
plan.
(5) Mr. Gamsey's employment commenced May 2000.
(6) Mr. Hendrick's employment commenced April 1999.
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The following table sets forth option grants to Named Executive
Officers during fiscal 2000.
OPTION GRANTS IN FISCAL 2000
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ------------------------------------------------------------------------------------------ ----------------------
PERCENT OF TOTAL
SHARES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS FISCAL YEAR(1) PRICE DATE 5% 10%
- ------------------------ ---------- ------------------ -------- ----------- -------- --------
Scott D. Dorfman 50,000 3.79% $7.13 3/28/2010 $224,201 $568,169
50,000 3.79 3.13 12/22/2010 98,422 249,421
400,000(2) 9.1 0.35 6/6/2010 88,045 223,124
David L. Ellin 50,000 3.79 7.13 3/28/2010 224,201 568,169
50,000 3.79 3.13 12/22/2010 98,422 249,421
400,000(2) 9.1 0.35 6/6/2010 88,045 223,124
Larry C. Hanger 50,000 3.79 7.13 3/28/2010 224,201 568,169
50,000 3.79 3.13 12/22/2010 98,422 249,421
180,000(2) 4.1 0.35 6/6/2010 39,620 100,406
David L. Gamsey 100,000 7.58 6.19 5/8/2010 389,286 986,527
50,000 3.79 3.13 12/22/2010 98,422 249,421
225,000(2) 5.1 0.35 6/6/2010 49,525 125,507
William F. Hendrick, Jr. 50,000 3.79 7.13 3/28/2010 224,201 568,169
50,000 7.58 3.13 12/22/2010 98,422 249,421
180,000(2) 4.1 0.35 6/6/2010 39,620 100,406
- ---------------
(1) Based on options for 1,320,000 shares of Innotrac Common Stock granted
to employees in fiscal 2000 or options to acquire 4,400,000 membership
interests in Innotrac's subsidiary, Return.com Online, LLC, granted in
fiscal 2000, as appropriate.
(2) Represents options to acquire membership interests in Innotrac's
subsidiary, Return.com Online, LLC.
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No options were exercised by any Named Executive Officers during fiscal
2000. The following table sets forth the year-end value of unexercised options
held by the Named Executive Officers at the fiscal year ended December 31, 2000.
FISCAL YEAR-END OPTION VALUES
NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END AT FISCAL YEAR END(1)
------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ------------- ----------- -------------
Scott D. Dorfman -- 100,000 -- $18,500
-- 400,000(2) -- --
David L. Ellin 134,642 176,358 -- 18,500
-- 400,000(2) -- --
Larry C. Hanger 20,500 108,000 -- 18,500
-- 180,000(2) -- --
David L. Gamsey -- 150,000 -- 18,500
-- 225,000(2) -- --
William F. Hendrick, Jr. 12,499 112,501 -- 18,500
-- 180,000(2) -- --
- ---------------
(1) As required by the rules of the Securities and Exchange Commission, the
value of unexercised in-the-money options for Innotrac Common Stock is
calculated based on the closing sale price of the Common Stock on the
Nasdaq National Market as of the last trading day of its fiscal year,
December 29, 1999, which was $3.50 per share. For options to acquire
membership interests in Innotrac's subsidiary, Return.com Online, LLC,
the value of unexercised-in-the-money is calculated based on the most
recent transaction in Return.com membership interests.
(2) Represents options to acquire membership interests in Innotrac's
subsidiary, Return.com Online, LLC.
EXECUTIVE CONTRACTS, TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS
In 2000, Innotrac entered into employments agreements with Messrs.
Dorfman, Ellin, Hanger and Gamsey.
Scott D. Dorfman. Mr. Dorfman has entered into an agreement to serve as
Innotrac's Chairman of the Board, President and Chief Executive Officer. His
employment agreement expires on December 31, 2005. Mr. Dorfman will receive a
salary of no less than $425,000 for fiscal 2001 and is eligible for annual
increases and a performance-based bonus which can be up to 100% of his salary.
He may participate in such benefit plans as Innotrac maintains from time to time
for senior executives, and receives customary perquisites.
Mr. Dorfman's employment agreement may be terminated by either party if
he dies or becomes disabled, by Innotrac for "good cause" (as defined) or for
any reason by either party upon 90 days' notice. Upon any termination of his
employment, he is entitled to all compensation and benefits accrued through the
date of termination plus any bonus earned for the year during which he is
terminated, calculated based on the performance of Innotrac through the
termination date and prorated for the partial year of employment. If Mr.
Dorfman's employment is terminated because he dies or becomes disabled, then in
addition to accrued compensation, all of his stock options become vested as of
the termination date and will expire in accordance with their respective
scheduled expiration dates. If Innotrac terminates his agreement for good cause
or if Mr. Dorfman terminates his employment (if there has been no change in
control of Innotrac in the 18 months prior to termination), then all his
unvested stock options are forfeited
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as of the termination date and his vested options remain exercisable for a
period of 90 days after the termination date, after which they will expire. If
Innotrac terminates Mr. Dorfman's employment without good cause, then in
addition to accrued compensation, Mr. Dorfman is entitled to continue to receive
his normal salary for a period of six months following the termination date.
Upon termination without good cause, all of his stock options become vested as
of the termination date and will expire upon the first anniversary of the
termination date.
If Innotrac terminates Mr. Dorfman without good cause within 18 months
after a change in control of Innotrac, or if Mr. Dorfman terminates his
employment for "good reason" (as defined) within the same period, Mr. Dorfman is
entitled to continue to receive his normal salary and certain benefits and
perquisites for a period of 18 months following the termination date. All his
stock options shall become vested on the termination date and remain exercisable
for the longer of their respective scheduled expiration dates or three years
following the termination date. If Mr. Dorfman terminates his employment without
good reason within 18 months after a change in control of Innotrac, he is
entitled to all the same compensation and benefits described in this paragraph,
except that his salary and other benefits shall only continue for 12 months
following the termination date.
Mr. Dorfman is subject to customary confidentiality, noncompete and
nonsolicitation covenants during the term of his employment and for an
additional period of one year following his termination. During this period, Mr.
Dorfman must keep Innotrac's confidential information confidential. He is
prohibited during this period from engaging in the businesses of selling Caller
ID technology and hardware, fulfillment services, e-commerce fulfillment and
e-commerce return services as well as other similar services that Innotrac
offers, within a 35-mile radius of any of Innotrac's locations. Furthermore, he
is prohibited during this period from soliciting Innotrac customers, with some
exceptions during the period from his termination to the first anniversary of
his termination. Mr. Dorfman is obligated to keep Innotrac's trade secrets
confidential for as long as they remain trade secrets.
David L. Ellin. Mr. Ellin has entered into an agreement to serve as
Innotrac's Senior Vice President and Chief Operating Officer until December 31,
2005. Mr. Ellin will receive a salary of no less than $175,000 for fiscal 2001
and is eligible for annual increases and a performance-based bonus which can be
up to 60% of his salary. The other provisions of Mr. Ellin's employment
agreement are similar to those described above with respect to Mr. Dorfman's
employment agreement.
Larry C. Hanger. Mr. Hanger has entered into an agreement to serve as
Innotrac's Senior Vice President--Business Development until December 31, 2005.
Mr. Hanger will receive a salary of no less than $150,000 for fiscal 2001 and is
eligible for annual increases and a performance-based bonus which can be up to
60% of his salary. The other provisions of Mr. Hanger's employment agreement are
similar to those described above with respect to Mr. Dorfman's employment
agreement.
David L. Gamsey. Mr. Gamsey has entered into an agreement to serve as
Innotrac's Senior Vice President and Chief Financial Officer until December 31,
2005. Mr. Gamsey will receive a salary of no less than $240,000 for fiscal 2001
and is eligible for annual increases and a performance-based bonus which can be
up to 50% of his salary. The other provisions of Mr. Gamsey's employment
agreement are similar to those described above with respect to Mr. Dorfman's
employment agreement.
Mr. Gamsey's agreement provides that he shall be granted options for
100,000 shares of Common Stock effective as of May 9, 2000, which are reflected
above in the "Option Grants in Fiscal 2000" table. The agreement also provides
that Innotrac shall cause its affiliate, Return.com Online LLC, to issue Mr.
Gamsey options for 180,000 shares of its common stock, which are also reflected
in the "Option Grants in Fiscal 2000" table. All such options become fully
vested if a majority of Innotrac is sold to a third party.
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RELATED PARTY TRANSACTIONS
Innotrac leases a single engine aircraft from a company wholly-owned by
Scott D. Dorfman pursuant to a lease that provides for annual rent of $72,000.
The initial three-year term of the lease expired on February 19, 2001, and
automatically renewed for an additional year pursuant to the terms of the lease.
Innotrac is responsible for maintenance, insurance, taxes, fuel and other
expenses associated with the aircraft.
In 2000, Innotrac paid $84,655 in fees to Williams Benator & Libby,
LLP, certified public accountants, for tax and consulting services. Bruce V.
Benator, one of our directors, is Managing Partner of Williams Benator & Libby,
LLP.
POLICY RESPECTING RELATED PARTY TRANSACTIONS
The Board of Directors has adopted a policy that any transactions
between Innotrac and any of its officers, directors, or principal shareholders
or affiliates must be on terms no less favorable than those that could be
obtained from unaffiliated parties in comparable situations and must be approved
by the Audit Committee of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Dorfman, Blank and Scott comprised the members of the
Compensation Committee during fiscal 2000. Messrs. Blank and Scott comprised the
members of the Executive Compensation Subcommittee. While Mr. Dorfman is our
Chairman, President and Chief Executive Officer, neither Mr. Blank nor Mr. Scott
is a current officer or former officer of Innotrac. We have entered into a
transaction with Mr. Dorfman as described in "Related Party Transactions."
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report sets forth Innotrac's current compensation policies for its
executive officers and describes the basis on which fiscal 2000 compensation
determinations were made with respect to the executive officers, including the
Chairman, President and Chief Executive Officer, Mr. Dorfman, and the other
Named Executive Officers. Messrs. Dorfman, Blank and Scott comprised the
Compensation Committee during fiscal 2000 and Messrs. Blank and Scott comprised
the Executive Compensation Subcommittee.
GENERAL COMPENSATION PHILOSOPHY
The programs and policies for the compensation of Innotrac's executive
officers are designed to attract and retain capable executive officers, and to
link the compensation of executive officers to the attainment of performance
goals and increases in Innotrac's stock price.
In fiscal 2000, Innotrac entered into employment contracts with Messrs.
Dorfman, Ellin, Hanger and Gamsey, as described above under "Executive
Compensation--Executive Contracts, Termination and Change-in-Control
Arrangements." The Compensation Committee believes employment contracts with
Innotrac's most senior executive officers are appropriate and beneficial to
Innotrac and its shareholders, as they promote retention of the most valuable
and experienced officers and continuity of high level management.
The Committee reviews and determines the appropriateness of the
compensation paid to each of Innotrac's executive officers at least annually,
with the philosophy described above as its guide. While promoting initiative and
providing incentives for superior executive management performance, the
Committee also seeks to assure that Innotrac is able to compete for and retain
talented personnel to lead it in achieving levels of financial performance that
enhances shareholder value over the long-term as well as the short-term.
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PRINCIPAL EXECUTIVE COMPENSATION ELEMENTS
Our compensation programs consist of the following basic components:
- Competitive base salaries,
- Annual incentive bonuses,
- Long-term incentive stock options, appreciation rights or
bonuses, and
- Customary benefits.
Base Salaries. The base salaries of Innotrac's executive officers are
generally established without reference to specific company performance or
competitive criteria. Salaries for the executive officers who were employed as
such throughout fiscal 1999 (other than the Chief Executive Officer) were
increased in the beginning of fiscal 2000 because of generally improved
financial performance in fiscal 1999 in such areas as gross profit, operating
expenses, operating income and net income as compared with prior periods. The
employment agreements which several of our senior executive officers entered
into in fiscal 2000 guarantee certain minimum salaries determined through a
process of arm's length negotiations. Salaries of executive officers are
reviewed on at least an annual basis, but increases are not mandated by the
employment agreements.
Annual Incentive Bonuses. Annual incentive bonuses for executive
officers are normally determined under Innotrac's Senior Executive Incentive
Compensation Plan (the "Executive Plan"), which Innotrac's shareholders approved
in fiscal 2000. The Executive Plan ties the incentive compensation payable to
the executive officers directly to the attainment of specific, objective
performance targets, thereby aligning the interests of management with the
interests of Innotrac's shareholders. The amount of bonuses potentially payable
to executive officers is determined as a range of percentages of an individual
officer's salary. Bonuses paid in accordance with the Executive Plan can be
based on the achievement of any number of enumerated performance criteria, such
as earnings before interest and taxes, earnings before interest, taxes,
depreciation and amortization, return on capital employed, cash flow, cash flow
return, operating income, gross margin, net income, earnings per share, return
on equity, return on assets (or net assets), pre-tax profit, market value of the
Company's stock and total shareholder return. No bonuses were paid pursuant to
the Executive Plan for fiscal 2000. However, based on Innotrac's subjective
assessment of competitive conditions and the necessity of bonuses to retain
management required them, special cash bonuses were paid to the executive
officers for fiscal 2000. See "Summary Compensation Table" for the amounts of
bonuses paid to the Named Executive Officers for fiscal 2000.
Long-Term Stock Incentives. Innotrac believes that stock options and
other stock incentives play an integral role in its ability to attract and
retain employees and directors and to provide incentives for such persons to
promote Innotrac's financial success. Moreover, stock incentives benefit
Innotrac by closely aligning the interests of grantees with the interests of
Innotrac's shareholders. In furtherance of this policy, Innotrac's shareholders
are being asked to approve at the 2001 Annual Meeting of Shareholders an
amendment to the Stock Incentive Plan to increase the number of shares of Common
Stock reserved for issuance under the Stock Incentive Plan from 1,300,000 to
2,800,000. This proposal and the Stock Incentive Plan is described under Item
No. 2 in this Proxy Statement, "Approval of Amendment to 2000 Stock Incentive
Plan."
Under the Stock Incentive Plan, employees, including executive
officers, non-employee directors and independent advisors and consultants to the
Company and its subsidiaries, may be granted long-term stock incentives in the
form of stock options, stock appreciation rights, restricted stock and
performance shares. Options granted to the Named Executive Officers in fiscal
2000 are set forth under the table captioned "Option Grants in Fiscal 2000."
Although incentive grants made in prior periods are taken into account when
making grants to the same grantees in subsequent periods, this consideration is
only one of several criteria. During fiscal 2000, grants were made to encourage
employees to promote increases in the market price of Innotrac's Common Stock.
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COMPENSATION OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
As with the other executive officers, Mr. Dorfman did not receive a
bonus pursuant to the Executive Plan for fiscal 2000, although he received a
special cash bonus for the reasons described above. Mr. Dorfman's fiscal 2000
salary was decreased from his fiscal 1999 salary due to Innotrac's performance.
Mr. Dorfman has generally had a larger percentage of his annual
compensation at risk on the basis of Innotrac's performance than have the other
executive officers. Mr. Dorfman's employment agreement establishes his annual
incentive bonus as the highest percentage of salary among the executive officers
with employment agreements. Also in fiscal 2000, Mr. Dorfman was granted stock
options to increase his long-term incentive to improve Innotrac's performance
and stock price.
BENEFITS
Executives also participate, on a voluntary basis, in Innotrac's
regular employee benefit programs, including group medical and dental coverage,
group life insurance and group long-term disability insurance. In addition,
executive officers can participate in a deferred compensation plan with respect
to which Innotrac provides matching contributions. The rate of match depends
upon the officer's number of years in service, and ranges from 25% of a
participant's contribution for less than 5 years of service to 100% for 10 years
or more, although in no case will the appropriate percentage apply to an amount
in excess of 30% of a participating executive's compensation (excluding
bonuses).
EXECUTIVE COMPENSATION SUBCOMMITTEE AND COMPENSATION DEDUCTIBILITY POLICY
The Executive Compensation Subcommittee was constituted to (1) achieve
certain securities law advantages with respect to stock-based compensation to
Innotrac's officers and directors and (2) maintain the tax deductibility of
certain annual compensation in excess of $1 million to Innotrac's Named
Executive Officers under Section 162(m) of the Internal Revenue Code. During
meetings of the full Compensation Committee, Mr. Dorfman normally recuses
himself from discussions and votes regarding his own compensation, or in
circumstances where his participation, as an Innotrac employee, would affect
compliance with such securities laws or Section 162(m). See "Compliance with
Section 162(m) of the Internal Revenue Code" above under Item No. 2 in this
Proxy Statement, "Approval of Amendment to 2000 Stock Incentive Plan." Although
Innotrac's policy is to maintain the tax deductibility of compensation to
executive officers under Section 162(m), Innotrac and the Committee retain the
discretion to make compensation decisions without regard to deductibility when
it is in the best interests of Innotrac and its shareholders to do so.
Scott D. Dorfman--Martin J. Blank--William H. Scott, III
(Members of the Compensation Committee during fiscal 2000)
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STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return of Innotrac's Common Stock against the
cumulative total return of The Nasdaq Stock Market (U.S.) Index and the Nasdaq
Non-Financial Index for the period commencing on May 7, 1998 and ending on
December 31, 2000.
(GRAPH)
CUMULATIVE TOTAL RETURN
--------------------------------------------------------------
05/07/1998 12/1998 12/1999 12/2000
---------- ------- ------- -------
Innotrac Corporation............................. 100 138 105 27
Nasdaq Stock Market (U.S.) Index................. 100 121 224 135
Nasdaq Non-Financial Index....................... 100 123 241 141
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INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee,
appoints each year the firm that will serve as Innotrac's independent public
accountants. The Board has appointed Arthur Andersen LLP, which firm served as
independent public accountants for Innotrac during the past fiscal year, to
serve as such accountants for the current fiscal year. Such appointment is not
subject to ratification or other vote by the shareholders.
A representative of Arthur Andersen LLP is expected to be present at
the Annual Meeting, with the opportunity to make a statement if he or she
desires to do so, and is expected to be available to respond to appropriate
questions.
FEES
The aggregate fees billed for professional services by Arthur Andersen
LLP for the audit of Innotrac's annual financial statements for fiscal 2000 and
for the reviews of Innotrac's quarterly financial statements during fiscal 2000
was $88,000.
Arthur Andersen LLP billed no other fees to Innotrac during fiscal
2000, including for financial information systems design or implementation, and
performed no non-audit services.
REPORT OF THE AUDIT COMMITTEE
The Board of Directors, in its business judgment, has determined that
all three members of the Audit Committee are "independent", as required by
applicable listing standards of The Nasdaq Stock Market. The Committee operates
pursuant to an Audit Committee Charter that was adopted by the Board on May 15,
2000, a copy of which is attached to this Proxy Statement as Appendix A.
Innotrac's management is responsible for its internal accounting controls and
the financial reporting process. Innotrac's independent accountants, Arthur
Andersen LLP, are responsible for performing an audit of Innotrac's consolidated
financial statements in accordance with auditing standards generally accepted in
the United States and for expressing an opinion as to their conformity with
generally accepted accounting principles. The Audit Committee's responsibility
is to monitor and oversee these processes.
In keeping with that responsibility, the Audit Committee has reviewed
and discussed Innotrac's audited consolidated financial statements with
management and the independent accountants. In addition, the Audit Committee has
discussed with Innotrac's independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61, "Communications with Audit
Committee," as currently in effect. In addition, the Audit Committee has
received the written disclosures from the independent accountants required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," and has discussed with the independent accountants their
independence.
Other than Mr. Benator, the members of the Audit Committee are not
professionally engaged in the practice of auditing or accounting and are not
experts in the fields of accounting or auditing. None of the members are experts
in respect of auditor independence. Members of the Committee rely without
independent verification on the information provided to them and on the
representations made by management and the independent accountants. Accordingly,
the Audit Committee's oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or appropriate internal control and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions referred to
above do not assure that the audit of the Company's financial statements has
been carried out in accordance with generally accepted auditing standards, that
the financial statements are presented in accordance with generally accepted
accounting principles or that the Company's auditors are in fact "independent".
Based on the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above and in the Audit Committee Charter, the Committee
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recommended to the Board of Directors that the audited consolidated financial
statements of Innotrac be included in the Annual Report on Form 10-K for the
year ended December 31, 2000 for filing with the Securities and Exchange
Commission.
This report is respectfully submitted by the Audit Committee of the
Board of Directors.
Bruce V. Benator--Martin J. Blank--William H. Scott, III
(Members of the Audit Committee during fiscal 2000)
SHAREHOLDERS' PROPOSALS FOR 2002 ANNUAL MEETING
Any shareholder who wishes to present a proposal appropriate for
consideration at Innotrac's 2002 Annual Meeting of Shareholders must submit the
proposal in proper form to Innotrac at its address set forth on the first page
of this Proxy Statement no later than December 21, 2001 for the proposal to be
considered for inclusion in Innotrac's proxy statement and form of proxy
relating to such Annual Meeting. Innotrac must be notified of any other
shareholder proposal intended to be presented for consideration at the 2002
Annual Meeting not later than March 6, 2002 or else proxies may be voted on such
proposal at the discretion of the persons named in the proxy.
OTHER MATTERS
All of the expenses involved in preparing, assembling, and mailing this
Proxy Statement and the materials enclosed herewith and soliciting proxies will
be paid by Innotrac. It is estimated that such costs will be nominal. Innotrac
may reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for expenses reasonably incurred by them in sending proxy materials
to beneficial owners of stock. The solicitation of proxies will be conducted
primarily by mail but may include telephone, telegraph or oral communications by
directors, officers, or regular employees of Innotrac, acting without special
compensation.
The Board of Directors is aware of no other matters, except for those
incidental to the conduct of the Annual Meeting, that are to be presented to
shareholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any postponement,
adjournment, or adjournments thereof, it is the intention of the persons named
in the proxy to vote the proxy in accordance with their judgment.
Shareholders are urged to fill in, date and sign the accompanying form
of proxy and return it to Innotrac as soon as possible.
BY ORDER OF THE BOARD OF DIRECTORS,
DAVID L. GAMSEY
Secretary
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APPENDIX A:
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its financial and other oversight responsibilities by:
- Serving as an independent and objective party to monitor the
Company's financial statements, financial reporting process
and internal control system.
- Reviewing and appraising the Company's outside auditors and
internal financial management.
- Providing an open avenue of communication among the Company's
outside auditors, management, including internal financial
management, and the Board.
The Audit Committee will further carry out its purpose by engaging in
the activities enumerated in Section IV of this Charter.
II. MEMBERSHIP REQUIREMENTS
Members of the Audit Committee shall meet the following qualifications,
or such other qualifications as may be imposed from time to time by the Board,
by law or by the listing requirements of any stock exchange or automated
quotation system upon which a security of the Company may be traded or quoted.
(A) Independence
The Audit Committee shall be comprised of three or more directors as
determined by the Board. Except as provided below, the members of the Audit
Committee shall be independent directors. "Independent director" shall mean a
person other than an officer or employee of the Company or its subsidiaries or
any other individual having a relationship which, in the opinion of the Board,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
The following persons shall not be considered independent:
(1) A director who is employed by the Company or any of its
affiliates for the current year or any of the past three years.
(2) A director who accepts any compensation from the Company or
any of its affiliates in excess of $60,000 during the previous fiscal
year, other than compensation for Board service, benefits under a
tax-qualified retirement plan or non-discretionary compensation.
(3) A director who is a spouse, parent, child, sibling,
mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, or resides in the home of an individual
who is, or has been in any of the past three years, employed by the
Company or any of its affiliates as an executive officer.
(4) A director who is a partner in, or controlling shareholder or
an executive officer of, any for-profit business organization to which
the Company made, or from which the Company received, payments (other
than those arising solely from investments in the Company's securities)
that exceed 5% of the Company's or the other business organization's
consolidated gross revenues for that year, or $200,000, whichever is
more, in any of the past three years.
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(5) A director who is employed as an executive of another entity
where any of the Company's executives serve on that entity's
compensation committee.
Notwithstanding the preceding limitations, one director who is not
otherwise independent and is not a current employee, or an immediate family
member (as defined above) of a current employee, may be appointed to the Audit
Committee if the Board, under exceptional and limited circumstances, determines
that membership on the Audit Committee by the individual is required by the best
interests of the Company and its shareholders.
(B) Financial Literacy
All members of the Audit Committee shall be able to read and understand
fundamental financial statements, including the Company's balance sheet, income
statement, and cash flow statement or will become able to do so within a
reasonable period of time after his or her appointment to the Audit Committee.
At least one member shall have past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background which results in the individual's financial
sophistication.
(C) Election, Removal and Replacement
The members of the Audit Committee shall be elected by the Board.
Unless a Chair is elected by the full Board, the members of the Audit Committee
may designate a Chair.
In the event a director becomes disqualified from membership on the
Audit Committee, such director shall be removed as soon as practicable from
service on the Audit Committee by the Board. In the event the removal,
resignation, retirement, death or other termination of a director from service
on the Audit Committee results in the Audit Committee comprising less than three
members, the Board shall elect a new qualified director to the Audit Committee
as soon as practicable. If such election to the Audit Committee requires the
election by the shareholders of the Company or the directors of new director to
the Board, the Company and the Board may consult with any stock exchange or
automated quotation system upon which a security of the Company may be traded or
quoted.
III. MEETINGS AND GOVERNANCE
The Audit Committee shall meet at least annually in connection with the
Company's annual audit, or more frequently as circumstances dictate. In
addition, the Audit Committee or its Chair shall meet to review the Company's
quarterly or other interim financial statements, as appropriate. Such meetings
may be held in or out of the presence of the Company's management, outside
auditors or both, as appropriate. Other governance matters not addressed herein
shall be governed by the Company's articles of incorporation or bylaws.
IV. DUTIES, RESPONSIBILITIES AND ACTIVITIES
To fulfill its purpose, the Audit Committee has the following duties
and responsibilities and shall engage in the following activities:
(A) Review of Charter and Financial Statements and Reports
The Audit Committee shall review the Company's financial statements,
reports and other financial information, in conjunction with the Company's
internal financial management and outside auditors, as appropriate. Such review
shall include candid discussions of the quality--not merely the
acceptability--of the Company's accounting principles as applied in its
financial reporting. Reviews shall occur prior to dissemination of the
statement, report or other document to a third party or the public. Without
limitation, the Audit Committee shall review:
- The annual financial statements and any reports or other
financial information, including any certification, report,
opinion, or review rendered by the outside auditors.
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- Any quarterly or other interim financial statements and any
reports or other financial information, including any
certification, report, opinion, or review rendered by the
outside auditors. The Chair of the Audit Committee may
represent the entire Audit Committee for purposes of this
review.
- This Charter on an annual basis, or more frequently as
circumstances dictate.
- As circumstances dictate and as deemed necessary or advisable
from time to time, any material internal financial reports to
management prepared by internal financial management.
(B) Relationship with Outside Auditors
The Audit Committee's and the Board's relationship with the Company's
outside auditors shall governed by the following principles:
- The Company's outside auditors are ultimately accountable to
the Audit Committee and the Board.
- The Audit Committee and the Board are ultimately responsible
for selecting, evaluating and, where appropriate, replacing
the Company's outside auditors.
- The Audit Committee is responsible for ensuring receipt from
the outside auditors of a formal written statement delineating
all relationships between the outside auditors and the
Company. The Audit Committee is responsible for actively
engaging in a dialogue with the outside auditors with respect
to any disclosed relationships or services that may impact the
objectivity and independence of the outside auditors. The
Audit Committee is further responsible for taking, or
recommending that the Board take, appropriate action to
oversee the independence of the outside auditors.
(C) Relationship with Company and Internal Financial Management
The Audit Committee's and the Board's relationship with the Company's
management, including its internal financial management, shall governed by the
following principles:
- The Audit Committee is responsible for reviewing the integrity
of the Company's financial reporting process, both internal
and external.
- The Audit Committee is responsible for reviewing the quality
and appropriateness of the Company's accounting principles as
applied in its financial reporting.
- The Audit Committee is responsible for considering and
approving, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested
by the outside auditors or management, including internal
financial management.
(D) Audit Committee Report
The Audit Committee shall prepare an Audit Committee Report annually in
connection with the Company's annual audit. The Report shall address such
matters as deemed appropriate by the Audit Committee, but shall state whether
the Audit Committee:
- Reviewed and discussed the Company's audited financial
statements with management.
- Discussed with the outside auditors such qualitative matters
concerning the Company's accounting principles as applied in
its financial reporting as are appropriate.
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- Received from the outside auditors a formal written statement
delineating all relationships between the outside auditors and
the Company.
- Recommends to the Board that the Company's audited financial
statements be included in the Company's public filings or
other publicly available reports.
The names of the members of the Audit Committee shall appear at the end
of the Report.
(E) Other Activities
The Audit Committee may perform such activities from time to time, as
the Board deems appropriate. Without limitation, such activities may be assigned
to the Audit Committee because of the independence of its members.
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COMMON STOCK
OF INNOTRAC CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS FOR THE MAY 21, 2001
ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Scott D. Dorfman and David L. Gamsey, and
each of them, the proxy of the undersigned to vote the Common Stock of the
undersigned at the Annual Meeting of Shareholders of Innotrac Corporation (the
"Company") to be held on May 21, 2001, and any adjournment or postponement
thereof.
1. Election of directors
Scott D. Dorfman David L. Ellin
[ ] FOR all nominees for director listed above (except as marked to the
contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
[ ] WITHHOLD AUTHORITY to vote for an individual nominee. Write name(s)
below.
- --------------------------------------------------------------------------------
2. Approval of Amendment to 2000 Stock Incentive Plan.
[ ] FOR approval of Amendment.
[ ] AGAINST approval of Amendment.
[ ] ABSTAIN.
3. In accordance with their best judgment with respect to any other matters
that may properly come before the meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ELECTION AS DIRECTORS OF THE
PERSONS NAMED IN THE PROXY AND ACCOMPANYING PROXY STATEMENT AND "FOR" APPROVAL
OF THE AMENDMENT TO THE 2000 STOCK INCENTIVE PLAN, AND UNLESS INSTRUCTIONS TO
THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY WILL BE SO VOTED.
Date: , 2001
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Please sign this Proxy exactly as name
appears on the Proxy.
Note: When signing as attorney, trustee,
administrator, or guardian, please give your
title as such. In the case of joint tenants,
each joint owner must sign.