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 Section 240.14a-11(c) or Section
240.14a-12
POMEROY IT SOLUTIONS, INC.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-11
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies: N/A
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): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials. N/A
[ ] 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:
POMEROY
Dear Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders of
Pomeroy IT Solutions, Inc. on Thursday, June 16, 2005 at 9:00 a.m. at the
Cincinnati Airport Hilton, 7373 Turfway Road, Florence, Kentucky 41042.
We hope that you will be able to attend the Meeting. If you do not expect to be
present and wish your stock to be voted, please sign, date and mail the enclosed
proxy card. Your shares cannot be voted unless you either vote by proxy or vote
by ballot at the Meeting.
If you plan to attend the Meeting and will need special assistance because of a
disability, please contact Michael E. Rohrkemper, Chief Financial Officer, 1020
Petersburg Road, Hebron, KY 41048, (859) 586-0600.
Very truly yours,
/s/ David B. Pomeroy
David B. Pomeroy, II
Chairman of the Board
YOUR VOTE IS IMPORTANT
Please Sign, Date and Return Your Proxy
Pomeroy IT Solutions, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 2005 annual meeting of shareholders of Pomeroy IT Solutions, Inc. will be
held at the Cincinnati Airport Hilton, 7373 Turfway Road, Florence, Kentucky
41042 on Thursday, June 16, 2005 at 9:00 A.M., E.D.T. for the following
purposes:
1. To elect ten directors; and
2. To approve certain amendments to the 2002 Amended and Restated
Outside Directors' Stock Option Plan; and
3. To transact such other business as may be properly brought before
the meeting and any and all adjournments thereof.
Stockholders of record at the close of business on April 29, 2005 will be
entitled to notice of and to vote at the meeting.
Stockholders are cordially invited to attend the meeting. Please complete,
execute and return the enclosed proxy card in the enclosed envelope whether or
not you plan to attend so that your shares may be represented at the meeting. If
you attend the meeting, you may revoke your proxy and vote in person if you
choose.
By Order of The Board of Directors
/s/ Michael E. Rohrkemper
_________________________________
Michael E. Rohrkemper, Secretary
May 5, 2005
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Date
PROXY STATEMENT
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Pomeroy IT Solutions, Inc., a Delaware corporation
(the "Company"), for use at the Annual Meeting of Stockholders, which will be
held Thursday, June 16, 2005 at 9:00 A.M., E.D.T., at the Cincinnati Airport
Hilton, 7373 Turfway Road, Florence, Kentucky 41042 and at any and all
adjournments of that meeting for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders. This Proxy Statement and the enclosed
proxy card are first being sent to stockholders on or about May 16, 2005. The
Company's principal executive offices are located at 1020 Petersburg Road,
Hebron, KY 41048.
Shares represented by proxies received by the Company at or prior to the meeting
will be voted according to the instructions indicated on the proxy. You can
specify how you want your shares voted on each proposal by marking the
appropriate boxes on the proxy card. If your proxy card is signed and returned
without specifying a vote or abstention on any proposal, it will be voted
according to the recommendation of the Board of Directors on that proposal. The
Board of Directors knows of no other matters that may be brought before the
meeting. However, if any other business is properly presented for action at the
meeting, the persons named on the proxy card will vote according to their best
judgment.
A proxy card may be revoked at any time before it is voted at the meeting by
filing with the corporate secretary an instrument revoking it, by a duly
executed proxy bearing a later date, or by voting in person by ballot at the
meeting.
Only stockholders of record at the close of business on April 29, 2005 will be
entitled to the notice of and to vote at the meeting. On that date, there were
12,583,945 Common Shares outstanding and entitled to vote, and each such share
is entitled to one (1) vote on each matter to be considered. Stockholders do not
have cumulative voting rights in the election of directors. Tabulation of
proxies and votes cast at the meeting will be counted and certified to by an
independent agent.
A majority of the votes entitled to be cast on matters to be considered at the
meeting will constitute a quorum. If a share is represented for any purpose at
the meeting, it is deemed to be present for quorum purposes and for all other
matters. Abstentions and shares held of record by a broker or its nominee
("Broker Shares") that are voted on any matter are included in determining the
number of votes present or represented at the meeting. Broker non-votes will not
be deemed to have been cast either "for" or "against" a matter, although they
will be counted in determining if a quorum is present. Proxies marked "abstain"
or a vote to abstain by a stockholder present in person at the Annual Meeting
will have the same legal effect as a vote "against" a matter because it
represents a share present or represented at the meeting and entitled to vote.
The specific vote requirements for the proposals being submitted to stockholder
vote at the Annual Meeting are set forth under the description of each proposal
in this Proxy Statement.
The expense of this solicitation will be borne by the Company. Arrangements may
be made with brokerage firms and other custodians, nominees and fiduciaries to
forward solicitation material for the Annual Meeting to beneficial owners of the
Company's stock and the Company will reimburse these institutions for their
expense in so doing.
1
STOCK OWNERSHIP
The following table sets forth, as of March 31, 2005, the beneficial ownership
of shares of the Company's Common stock, $.01 par value ("Common Stock"), by
each Director and nominee for Director of the Company, each executive officer
named in the Summary Compensation Table (below), each person known to the
Company to be the beneficial owner of more than five percent (5%) of its
outstanding shares of Common Stock, and by the Directors and executive officers
of the Company as a group.
AMOUNT & NATURE OF % of
NAME AND ADDRESS (1) BENEFICIAL OWNERSHIP (2) Class
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David B. Pomeroy, II 2,240,095 (3) 17.24%
Stephen E. Pomeroy 573,865 (4) 4.38%
James H. Smith, III 23,612 (5) *
Michael E. Rohrkemper 53,063 (6) *
William H. Lomicka 20,001 (7) *
Vincent D. Rinaldi 12,501 (8) *
Kenneth R. Waters 12,500 (9) *
Debra E. Tibey 15,001 (10) *
Edward E. Faber 12,501 (11) *
David G. Boucher - *
Directors and all Executive
Officers as a Group 2,963,139 (12) 22.81%
FMR Corp. 1,834,037 (13) 14.62%
82 Devonshire Street
Boston, MA 02109
Wells Fargo and Company 1,389,173 (14) 11.08%
420 Montgomery Street
San Francisco, CA 94104
Wells Capital Management Inc. 1,352,173 (15) 10.78%
525 Market Street, 10th Floor
San Francisco, CA 94104
Dimensional Fund Advisors, Inc. 1,016,049 (16) 8.10%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Barclays Global Investors, NA 667,962 (17) 5.33%
45 Fremont Street
San Francisco, CA 94105
________________________________
* Less than one percent (1%)
2
(1) The address for all directors and executive officers is the corporate
address.
(2) The "Beneficial Owner" of a security includes any person who shares voting
power or investment power with respect to such security or has the right to
acquire beneficial ownership of such security within 60 days based solely
on information provided to the Company.
(3) Includes 22,636 shares owned by his spouse as to which Mr. David B. Pomeroy
disclaims beneficial ownership. Also includes 452,000 shares of common
stock issuable upon exercise of stock options.
(4) Includes 39 shares owned by his spouse as to which Mr. Stephen E. Pomeroy
disclaims beneficial ownership. Includes 568,250 shares of Common Stock
issuable upon exercise of stock options.
(5) Includes 20,001 shares of Common Stock issuable upon exercise of stock
options.
(6) Includes 50,000 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 20,001 shares of Common Stock issuable upon exercise of stock
options.
(8) Includes 12,501 shares of Common Stock issuable upon exercise of stock
options.
(9) Includes 10,000 shares of Common Stock issuable upon exercise of stock
options.
(10) Includes 15,001 shares of Common Stock issuable upon exercise of stock
options.
(11) Includes 12,501 shares of Common Stock issuable upon exercise of stock
options.
(12) Includes 1,160,255 shares of Common Stock issuable upon exercise of stock
options. Includes 22,675 shares of Common Stock owned by the spouses of Mr.
David B. Pomeroy and Mr. Stephen E. Pomeroy as to which they disclaim
beneficial ownership.
(13) Beneficial ownership information is taken from latest Form 13G filed
February 14, 2005 for the reporting period ending December 31, 2004.
(14) Beneficial ownership information is taken from latest Form 13G filed
January 21, 2005 for the reporting period ending December 31, 2004.
(15) Beneficial ownership information is taken from latest Form 13G filed
January 21, 2005 for the reporting period ending December 31, 2004.
(16) Beneficial ownership information is taken from latest Form 13G filed
February 09, 2005 for the reporting period ending December 31, 2004.
(17) Beneficial ownership information is taken from latest Form 13G filed
February 14, 2005 for the reporting period ending December 31, 2004.
3
PROPOSAL 1 - ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
Ten directors are to be elected at the Annual Meeting of Stockholders, each to
serve until the next annual meeting and until his successor shall have been
elected and qualified. With the exception of Mr. David G. Boucher, all nominees
are presently members of the Board of Directors. The election of each nominee
for director requires the affirmative vote of the holders of a plurality of the
shares of Common Stock cast in the election of directors. The proxy solicited
hereunder will be voted, unless otherwise instructed, for the election of the
ten nominees named below. If, for any unforeseen reason, any nominee should
become unavailable, the proxies will exercise their discretion in voting for a
substitute. The Board of Directors recommends that the stockholders vote for the
ten nominees for director named below. The following contains information
relating to each nominee for election to the Board of Directors:
Year First Elected As A
Name, Age, Principal Occupation for Last Five -----------------------
Years; and Directorships in Public Corporations Director
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David B. Pomeroy, II, 55, is Chairman of the Board and was Chief Executive 1992
Officer of the Company until his resignation in June 2004. Mr. David B. Pomeroy,
II was a founder of the first of the Company's predecessor businesses (the
"Pomeroy Companies") in 1981. Mr. David B. Pomeroy, II controlled the Pomeroy
Companies until their reorganization into Pomeroy Computer Resources in 1992,
and has served as Chairman of the Board since 1992. Mr. David B. Pomeroy, II
served as Chief Executive Officer from 1992 through June 2004. Mr. David B.
Pomeroy, II served as President of the Company from 1992 through January 2001.
James H. Smith, III, 54, has been a Director of the Company since April 1992.
Mr. 1992 Smith is a shareholder in the law firm of Lindhorst & Dreidame Co.,
L.P.A., Cincinnati, Ohio, where he has practiced law since 1979. Lindhorst &
Dreidame acts as outside general counsel to the Company.
Michael E. Rohrkemper, 58, has been a Director of the Company since July 1993. 1993
Mr. Rohrkemper is a certified public accountant and was formerly a partner in
the Cincinnati, Ohio accounting firm of Rohrkemper & Ossege Ltd., from 1991
through May 2001, at which time he left his accounting practice to join Pomeroy
as its Vice President of Finance and Administration. On August 10, 2001, Mr.
Rohrkemper was promoted to Chief Financial Officer and named Secretary and
Treasurer of the Company.
Stephen E. Pomeroy, 36, has been a Director of the Company since February, 1998. 1998
Mr. Stephen Pomeroy was promoted to Chief Executive Officer of the Company in
June 2004. Additionally, Mr. Stephen Pomeroy is President and Chief Operating
Officer of the Company. From May 1997 to January 2001, Mr. Stephen Pomeroy was
the Chief Financial Officer of the Company. In December 1998, Mr. Stephen
Pomeroy was named President and Chief Executive Officer of Pomeroy Select
Integration Solutions, Inc. (a wholly owned subsidiary of the Company). Mr.
Stephen Pomeroy was the Vice President of Marketing and Corporate Development
from September 1996 to May 1997.
William H. Lomicka, 68, has been a Director of the Company since January 1999. 1999
Mr. Lomicka is Chairman of Coulter Ridge Capital, Inc. a private investment
firm, a position he has held since 1999. Mr. Lomicka is currently a director of
Counsel Corporation, a publicly traded investment company.
4
Between 1989 and 1999, he was President of Mayfair Capital, Inc., a private
investment firm. Mr. Lomicka is a graduate of the College of Wooster in Wooster,
Ohio and has a Master's of Business Administration degree from the Wharton
School of the University of Pennsylvania.
Vincent D. Rinaldi, 56, has been a Director of the Company since June 1999. Mr. 1999
Rinaldi is President and Chief Executive Officer of National City Commercial
Capital Corporation (formerly, Information Leasing Corporation ("ILC")) and
Procurement Alternatives Corporation ("PAC"), both wholly-owned subsidiaries of
National City Corporation. The combined companies finance and manage equipment
for a wide range of companies. Mr. Rinaldi was the founder of ILC in 1984 prior
to its acquisition by Provident in 1996. Mr. Rinaldi is currently a Director of
Thrucom, Inc., Qsys International Inc. and Infonet Inc.
Debra E. Tibey, 46, has been a Director of the Company since June 2002. Ms. 2002
Tibey has been an independent consultant since March 2000. She formerly served
as Senior Vice President of Sales from October 1988 through February 2000 for
Ingram Micro, Inc., a wholesale provider of technology solutions, products and
services. During her thirteen-year tenure with Ingram Micro, Ms. Tibey was
responsible for leading the domestic sales organization. From July 1986 through
August 1988, Ms. Tibey served as Vice President and General Manager of export
for Aakasoft, a European software distributor. She is currently a Director of
Healthzones.
Edward E. Faber, 72, has been a Director of the Company since June 2002. Mr. 2002
Faber has been retired since 1992, has more than thirty years of experience
managing and developing high-technology growth companies. Mr. Faber's experience
includes twelve years in sales and marketing management with IBM Corporation,
Memorex Corporation and Four Phase Systems before becoming the founding
President of Computerland Corporation ("Computerland") in September 1976. During
his twelve-year tenure with Computerland, Mr. Faber also served as
Computerland's Vice Chairman, Chairman, and Chief Executive Officer. Prior to
retiring from an active management career, Mr. Faber also served as the
President and Chief Executive Officer of SuperCuts, Inc., where he was
responsible for organizing and executing a successful initial public stock
offering for the company. Mr. Faber currently serves as Chairman of the Board of
Matrixx Initiatives, Inc., which is a publicly traded company.
Kenneth R. Waters, 53, has been a Director since June 2004. Mr. Waters was 2004
previously a director of the Company from April 1997 until January 1999, and
from June 2001 until January 2003. He served as a director of Pomeroy Select
Integration Solutions, Inc., a wholly owned subsidiary of the Company, from
December 1998 through March 2001. Mr. Waters has worked in the computer industry
since 1978. Mr. Waters was an executive with ComputerLand from 1978 to 1988,
Chief Executive Officer of Power Up Software from 1992 to 1993 and President of
MicroAge from 1993 to 1995. Most recently, he has been an industry consultant,
serving as such for the Company from January 1997 through March 2001. Mr. Waters
is currently President of KRW LLC, a private consulting company, and Chief
Executive Officer of E-Seek Inc., a private ID hardware company. Mr. Waters has
a law degree.
David G. Boucher, 61, is currently Chairman and Chief Executive Officer of Dave N/A
Boucher Enterprises, a consultant in distribution channels marketing.
5
Mr. Boucher is also the Non-Executive Chairman of Verity Professionals LLC. In
addition, he sits on the Board of Directors of Market Velocity Inc., QuickVault
LLC, and Telephonetics Inc. He also serves on the Advisory Board of Clearpath
Networks Inc. In May 2000, Dave Boucher, retired after thirty years with IBM
Corporation where he held numerous executive positions in the IBM Personal
Systems Group, including Vice President of Channel Sales for North America, Vice
President of Distribution Channels Management for North America and Vice
President and General Manager for Worldwide Distribution Channels Marketing for
the IBM Personal Systems Group.
Stephen E. Pomeroy is the son of David B. Pomeroy, II. There are no other family
relationships among the Company's directors and executive officers.
There were four (4) meetings of the Board of Directors in 2004. Each member of
the Board of Directors attended at least seventy-five percent (75%) of the
aggregate of the total number of meetings of the Board and committees on which
he served.
DIRECTOR INDEPENDENCE
The Board of Directors has determined that the following six directors are
"independent" as defined by applicable law and Nasdaq listing standards: James
H. Smith, III, William H. Lomicka, Vincent D. Rinaldi, Debra E. Tibey, Edward E.
Faber, and Kenneth R. Waters. In addition, the Board has determined that David
G. Boucher, nominee, meets the independent definition. All of the foregoing
directors (including the nominee), except Mr. James H. Smith, III, are
independent as "independence" is defined for audit committee members in Nasdaq
Rule 4350(d).
COMMUNICATION FROM STOCKHOLDERS
The Board will give appropriate attention to written communications that are
submitted by stockholders, and will respond if and as appropriate. The
Secretary will review each stockholder communication. The Secretary will
forward to the entire Board (or to members of the Board committee, if the
communication relates to a subject matter clearly within that committee's area
of responsibility) each communication that (a) relates to the Company's business
or governance, (b) is not offensive and is legible in form and reasonably
understandable in content, and (c) does not merely relate to a personal
grievance against the Company or a team member or further personal interest not
shared by the other stockholders generally.
Stockholders of the Company may communicate with the Board in writing addressed
to:
Board of Directors
c/o Corporate Secretary
Pomeroy IT Solutions, Inc.
1020 Petersburg Road
Hebron, KY 41048
CODE OF ETHICS
The Company has adopted a written Code of Ethics ("Code") that applies to our
Directors, officers, and employees of the Company and its subsidiaries including
the Company's Chief Executive Officer and Chief Financial Officer. The Code is
available under the corporate governance section of the Company's website
(www.pomeroy.com). The Company will post amendments to or waivers from its Code
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at the same location on its website. Additionally, the Company has incorporated
ethical and conduct standards into its policies and agreements with employees.
6
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Company has a standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act which oversees the accounting and
financial reporting processes of the Company and audits of the financial
statements of the Company. The Company's Audit Committee is currently composed
of three independent directors (as defined by Nasdaq Rule 4350(d)), Mr. William
H. Lomicka, Mr. Edward E. Faber, and Ms. Debra E. Tibey. The Board of Directors
has determined that Mr. William H. Lomicka is an "audit committee financial
expert" as defined in Item 401(h) of Regulation S-K. The Audit Committee held
four (4) meetings and numerous discussions during fiscal 2004. The Audit
Committee consults with the independent auditors regarding their examination of
the financial statements of the Company and their related assessment of internal
controls. It reports to the Board of Directors on these matters and recommends
the independent auditors to be designated for the ensuing year. See Report of
the Audit Committee beginning on page 20.
Nominating and Corporate Governance Committee
The Company has a standing Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committee held two (2) meetings during
fiscal 2004. The Company's Nominating Committee and Corporate Governance
Committee is currently composed of two independent directors, Kenneth R. Waters
and Debra E. Tibey. The principal functions of the Nominating and Corporate
Governance Committee are to assist the Board in identifying individuals for
service as directors of the Company and as Board committee members, to develop
and monitor a process for evaluating Board effectiveness, and to develop,
oversee and administer the establishment of the Company's corporate governance
guidelines. This committee is comprised of independent directors as defined by
applicable Nasdaq listing requirements and has adopted a formal written charter.
Candidates for Board Membership. The Board as a whole is responsible for
selecting nominees for the Board. The Nominating and Corporate Governance
Committee is responsible for screening and recommending candidates. In
fulfilling this role, the committee may, without obligation, receive input from
the Chief Executive Officer. Factors to be considered by the Nominating and
Corporate Governance Committee in recommending candidates for Board membership
include, but are not limited to:
- Personal qualities and characteristics, accomplishments and reputation
in the business community;
- Current knowledge and contacts in the communities in which the Company
does business and in the Company's industry or other industries
relevant to the Company's business;
- Ability and willingness to commit adequate time to Board and committee
matters;
- The fit of the individual's skills and personality with those of other
directors and potential directors in building a Board that is
effective, collegial and responsive to the needs of the Company; and
- Diversity of viewpoints, backgrounds and experience.
In recommending directors for re-election to the Board at the expiration of
their terms, the Nominating and Corporate Governance Committee shall consider a
director's overall effectiveness, including whether changes in employment
status, health, community activity or other factors may impair a director's
continuing contributions to the Board. The Board does not believe that adopting
a set term limit for directors serves the interests of the Company.
7
Compensation Committee
The Company has a standing Compensation Committee which held three (3) meetings
during fiscal 2004, composed of two independent directors, Ms. Debra E. Tibey
and Mr. William H. Lomicka. This committee reviews the compensation paid by the
Company and makes recommendations on these matters to the Board of Directors.
Stock Option Committee
The Company has a standing Stock Option Committee consisting of Messrs.
Rohrkemper and Smith. This committee administers the 2002 Non-Qualified and
Incentive Stock Option Plan. During fiscal 2004, this committee held no formal
meeting.
DIRECTOR'S FEES
The Board of Directors' adopted a new fee schedule, which became effective
January 6, 2005, under which each director who is not an employee of the
Company, except for Mr. Smith, shall receive a quarterly retainer equal to six
thousand dollars ($6,000) and fees for attendance at committee meetings as
follows: $500 for each Board of Directors meeting attended (including as part
of each such meeting any committee meetings held on the same date); $500 for
each Stock Option Committee attended; $1,000 for each Nominating Committee
meeting attended; $1,500 for each Compensation Committee meeting attended; and
$2,000 for each Audit Committee meeting attended. Mr. Smith's law firm,
Lindhorst & Dreidame Co., L.P. A., will be compensated for his time in
attendance at Directors' meetings based on his hourly rate. Each non-employee
director also receives an annual stock option grant as provided in the Company's
2002 Outside Directors' Stock Option Plan.
DIRECTOR COMMITMENT AND ATTENDANCE
All directors should make every effort to attend in person the four regularly
scheduled quarterly meetings of the Board, in addition to the organizational
meeting held in conjunction with the Company's Annual Stockholders' Meeting, as
well as the associated meetings of committees of which they are members;
provided, however, that members may attend such meetings by telephone or video
conference if necessary to mitigate conflicts. All directors should make every
effort to attend the two regularly scheduled meetings of the Board, the
associated meetings of committees of which they are members and any other
meetings of committees of which they are members in person or by telephone or
video conference. The 2004 Annual Meeting of stockholders was attended by the
following directors: Mr. David B. Pomeroy, Mr. Stephen E. Pomeroy, Mr. Michael
E. Rohrkemper, and Mr. James H. Smith.
8
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is currently composed of
two independent directors, Ms. Debra E. Tibey and Mr. William H. Lomicka. The
Compensation Committee is responsible for the establishment and oversight of the
Company's Executive Compensation Program. This program is designed to meet the
objectives of attracting, retaining and motivating executive employees and
providing a balance of short term and long term incentives that can recognize
individual contributions from an executive and the overall operating and
financial results of the Company. The Compensation Committee intends to review
Executive Compensation on a regular basis and to compare the competitiveness of
the Company's executive compensation and corporate performance with other
corporations comparable to the Company. The Compensation Committee believes that
the significant equity interest in the Company held by the Company's management
aligns the interests of the stockholders and management. Through the programs
adopted by the Company a significant portion of Executive Compensation is linked
to individual and corporate performance and stock price appreciation.
The basic elements of the Company's Executive Compensation Program consist
primarily of base salary, potential for annual cash bonus opportunities and
stock options. The Compensation Committee believes that incentives play an
important role in motivating executive performance and attempts to reward
achievement of both short and long term goals. However, the emphasis on using
stock options as a long term incentive is intended to insure a proper balance in
the achievement of long term business objectives which ties a significant
portion of the executive's compensation to factors which impact on the
performance of the Company's stock.
Compensation opportunities must be adequate to enable the Company to compete
effectively in the labor market for qualified executives. The elements of the
Executive Compensation Program are designed to meet these demands, and at the
same time encourage increases in shareholder value.
BASE SALARIES
Base salaries for executives are initially determined by evaluating the duties
and responsibilities of the position to be held by the individual, the
experience of the executive and the competitive marketplace for executive
talent. The Company has entered into Employment Agreements that establish
salaries for certain executive officers. Salaries for executives and other
employees are reviewed periodically and may be set at higher levels if the
Company concludes that is appropriate in light of that particular individual's
responsibilities, experience and performance.
ANNUAL CASH BONUSES
The Company's executives and other employees are eligible to receive annual cash
awards or bonuses at the discretion of the Compensation Committee with the
approval of the Board of Directors. In determining whether such discretionary
awards should be made, the Compensation Committee considers corporate
performance measured by financial and operating results including income, return
on assets and management of expenses and costs.
9
CHIEF EXECUTIVE OFFICER COMPENSATION AND CONSULTING AGREEMENT
Mr. David B. Pomeroy, II served as Chairman of the Board throughout fiscal 2004
and Chief Executive Officer until his resignation on June 10, 2004. Mr. David B.
Pomeroy's compensation for fiscal 2004, which included an annual salary, bonuses
and stock options, was determined in accordance with the terms of the Thirteenth
Amendment to Mr. David B. Pomeroy's Employment agreement, which established the
performance criteria for fiscal 2004, adopted by the Compensation Committee in
February 2004. The terms of Mr. David B. Pomeroy's Employment Agreement and any
amendments thereto were based on the factors described above including a review
of the compensation paid to executives of comparable companies.
Following his resignation as Chief Executive Officer on June 10, 2004, Mr. David
B. Pomeroy continued to serve as the Chairman of the Board of the Company under
the terms of his existing employment agreement. Thereafter, the Company's
Compensation Committee reviewed a new arrangement for the continued services of
David B. Pomeroy. In early October 2004, the Compensation Committee determined
the principal terms of the new arrangement with Mr. David B. Pomeroy and
directed legal counsel to prepare a draft of a Consulting Agreement for the
parties review. The new arrangement included, in addition to other terms, a lump
sum cash service award for Mr. David B. Pomeroy. On November 11, 2004, the
Company announced a $1.5 million non-recurring charge, which included, among
other things, the lump sum cash service award and other bonuses contemplated in
the Consulting Agreement (as defined below).
On January 31, 2005, the Company and Mr. David B. Pomeroy entered into a
Consulting Agreement for Mr. David B. Pomeroy (the "Consulting Agreement") to
document the terms of the new arrangement described above. The Consulting
Agreement has a term of five (5) years commencing January 5, 2005 (the
"Effective Date"). Pursuant to the terms of the Consulting Agreement, the
employment of David B. Pomeroy with the Company, and his Employment Agreement
dated March 12, 1992, as amended from time to time thereafter (the last such
amendment being the Thirteenth Amendment to Employment Agreement effective
January 6, 2004), are terminated as of the Effective Date. However, in the
Consulting Agreement David B. Pomeroy has agreed to provide certain consulting
services to the Company and to continue to serve on the Board of Directors of
the Company as non-executive Chairman of the Board throughout the term of the
Consulting Agreement.
The Consulting Agreement provides that David B. Pomeroy will be paid base
compensation of $250,000 per year, and provides for the payment of certain
bonuses, including a $100,000 bonus payable in the first quarter of 2005
relating to the 2004 annual incentive plan year and the opportunity to earn 50%
of the annual bonus contemplated in his employment agreement based on the
Company achieving net profits of $17,500,000 in the 2004 fiscal year. The
Consulting Agreement also calls for the payment of a lump-sum cash service award
in the amount of $750,000 in consideration of David B. Pomeroy's long-standing
service, contributions, and leadership to the Company, the payment of an annual
housing allowance of $25,000 for the Company's use of certain real property in
Arizona beneficially owned by David B. Pomeroy, the continuation of medical and
disability insurance coverage throughout the term of the Consulting Agreement,
and the reimbursement of certain expenses incurred by David B. Pomeroy in the
performance of his duties under the Consulting Agreement. Except as specifically
set forth in the Consulting Agreement, David B. Pomeroy shall not be eligible to
participate in any long-term incentive plans, retirement plans, or benefit plans
offered by the Company to employees.
The Consulting Agreement contains certain non-compete, nondisclosure of
confidential information, and non-solicitation provisions applicable throughout
the term of the Consulting Agreement, and provides that the Company will
indemnify and hold harmless David B. Pomeroy from all actions, claims, losses,
etc. resulting from his good faith performance of his duties under the
Consulting Agreement.
10
Mr. Stephen E. Pomeroy served as Chief Executive Officer beginning June 10, 2004
and through the remainder of fiscal 2004. Mr. Stephen E. Pomeroy's compensation,
which includes an annual salary, bonuses and stock options, was determined in
accordance with the terms of the First Amendment to Mr. Stephen E. Pomeroy's
Amended and Restated Employment agreement, which established the performance
criteria for fiscal 2004, adopted by the Compensation Committee on January 6,
2004. The terms of Mr. Stephen E. Pomeroy's Amended and Restated Employment
Agreement and any amendments thereto were based on the factors described above
including a review of the compensation paid to executives of comparable
companies.
Submitted by the Compensation Committee
Debra E. Tibey and William H. Lomicka
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2004, the Compensation Committee consisted of two non-employee
Directors, Debra E. Tibey, and William H. Lomicka.
The Company's principal executive offices, distribution facility and national
training center comprised of approximately 36,000, 161,000 and 22,000 square
feet of space, respectively, are located in Hebron, Kentucky. These facilities
are leased from Pomeroy Investments, LLC ("Pomeroy Investments"), a Kentucky
limited liability company controlled by David B. Pomeroy, II, Chairman of the
Board of the Company, under a ten year triple-net lease agreement which expires
in October 2010. The lease agreement provides for 2 five-year renewal options.
In addition, the Company pays for the business use of other real estate that is
owned by Pomeroy Investments.
The Company is currently negotiating with Pomeroy Investments for terms and
conditions to govern a new lease for approximately 69,000 additional rentable
square feet located in a building that Pomeroy Investments is constructing on
property adjacent to the Company's corporate headquarters in Hebron, Kentucky.
The Company intends to utilize the space for its full-service customer support
call center. While a final lease agreement has not been entered into by and
between the parties as of the date upon which this Proxy Statement is being
filed, it is the intent of the parties to enter into a new lease agreement for
the approximate 69,000 additional rental square feet with an initial term of ten
(10) years and two (2) five-year renewal options that may be exercised in the
sole and complete discretion of Company. The final version of the lease
agreement will be subject to approval of the Company's Audit Committee.
Incident to the execution of such a new lease, the parties also intend to amend
the existing lease agreement for the Company's principal executive offices,
distribution facility and national training center to extend the term thereof so
that the term of the two leases will run concurrently and provide scheduled
termination dates and renewal options that are the same under both agreements.
Mr. James H. Smith, a director of the Company, is a stockholder in the law firm
of Lindhorst & Dreidame Co., L.P.A. Lindhorst & Dreidame Co. serves as general
counsel to the Company. The legal services provided to the Company by Lindhorst
& Dreidame Co. constituted less than 5% of the firm's business in 2004.
Mr. Vincent D. Rinaldi, a director of the Company, is the President and Chief
Executive Officer of National City Commercial Capital Corporation, (formerly,
Information Leasing Corporation) a wholly-owned subsidiary of National City
Corporation. On April 16, 2002, the Company closed the sale of a majority of
the assets of its wholly owned subsidiary - Technology Integration Financial
Services, Inc. to Information Leasing Corporation. In connection with this
sale, the Company signed an exclusive seven-year vendor agreement whereby the
Company is appointed as an agent for remarketing and reselling of the leased
equipment sold. The Company will be paid a commission on future lease
transactions referred to and accepted by Information Leasing Corporation and
will act as the remarketing and reselling agent for such future leased
equipment.
11
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table is a summary for the fiscal years 2004, 2003 and 2002 of
certain information concerning the compensation paid or accrued by the Company
to the Chief Executive Officer, the other two executive officers of the Company
as of the end of its most recent fiscal year (collectively, the "Named Executive
Officers") and two additional employees.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- --------------
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS ALL OTHER
POSITION YEAR SALARY (1) BONUS COMPENSATION # (2) COMPENSATION
- ---------------------------- ---- -------------- -------- -------------- -------------- --------------
David B. Pomeroy 2004 $ 570,000(3) $350,000 - 100,000 $ 750,000 (4)
Chief Executive Officer 2003 $ 570,000 - $ 20,300 (5) 50,000 -
(January 6, 2004- 2002 $ 495,000 - - 50,000 -
June 10, 2004)
Stephen E. Pomeroy 2004 $ 495,000 - $ 2,520 (6) 130,000 -
Chief Executive Officer 2003 $ 450,000 $500,000 $ 2,460 (6) 150,000 -
(June 10, 2004 to present), 2002 $ 450,000 - - 79,999 -
President, and Chief
Operating Officer
Michael E. Rohrkemper 2004 $ 200,000 $ 65,000 $ 8,100 (7) 25,000 -
Chief Financial Officer, 2003 $ 200,000 $ 15,000 $ 8,100 (7) 15,000 -
Secretary, and Treasurer 2002 $ 188,942 $ 30,000 $ 8,100 (7) 15,000 -
Stephen R. Rodenhiser 2004 - $ 24 $ 414,495 (8) - -
Sales Representative
Albert C. Kuhlo 2004 $ 26 $ 3,810 $ 276,695 (9) - -
Sales Representative 2002 $ 26 - $ 390,759 (9) - -
(1) Includes amounts deferred at the direction of the executive
officer pursuant to the Company's 401(k) Retirement Plan.
(2) Unless otherwise noted, all stock options are awarded based
on the fair market value of the Company's Common stock at the
time of grant. Represents options granted during fiscal years
2004, 2003, and 2002.
(3) Includes $95,000 for business use of real estate in Arizona.
(4) Represents lump-sum cash service award.
(5) Includes taxable fringe benefits.
(6) Includes phone and entertainment allowance of $2,520 in 2004
and $2,460 in 2003.
(7) Includes phone and automobile allowance of $8,100 in 2004,
2003 and 2002.
(8) Includes commissions of $414,495 earned in 2004.
(9) Includes commissions of $276,695 earned in 2004 and $390,759
earned in 2002.
12
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning the grant of
options to purchase Common Stock to any of the Named Executive Officers during
fiscal year 2004.
Individual Grants
- ----------------------------------------------------------------------------------------
Potential Realizable
Value
at Assumed Annual
No. of Shares of Percent of Total Rates of Stock Price
Common Stock Options Granted to Exercise or Appreciation for Option Term
Underlying Options Employees Base Price Expiration -----------------------------
Name Granted in Fiscal Year ($/Sh) Date 5% 10%
- --------------------- ------------------ ------------------- ------------ ---------- ------------ ---------------
David B. Pomeroy, II 100,000 8.52% $ 14.70 02/18/14 $ 924,475 $ 2,342,801
Stephen E. Pomeroy 30,000 2.56% $ 12.45 09/16/09 $ 103,191 $ 228,025
100,000 8.52% $ 13.72 11/03/09 $ 379,058 $ 837,619
Michael E. Rohrkemper 15,000 1.28% $ 14.64 03/01/09 $ 60,671 $ 134,068
10,000 0.85% $ 14.08 03/15/06 $ 14,432 $ 29,568
AGGREGATE STOCK OPTION EXERCISES IN YEAR ENDED JANUARY 5, 2005
AND YEAR END STOCK OPTION VALUES
The following table sets forth information concerning aggregated option
exercises in fiscal year 2004 and the number and value of unexercised options
held by each of the Named Executive Officers at January 5, 2005.
No. of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
January 5, 2005 January 5, 2005
(#) ($)
Shares ----------------------- -------------------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------- --------------- ------------- ----------------------- -------------------------
David B. Pomeroy, II 50,000 $ 148,416 437,500/ 0 $ 581,406/ 0
Stephen E. Pomeroy 19,125 $ 180,971 557,500/ 0 $ 1,007,600/ 0
Michael E. Rohrkemper - $ - 35,000/ 30,000 $ 48,950/ $78,350
13
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following tables summarizes as of January 5, 2005 information regarding our
equity compensation plans.
- ------------------------------------------------------------------------------------------------------
Plan category Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future issuance
outstanding options, warrants and rights under equity
warrants and rights compensation
plans(excluding
securities reflected
in column (a))
(a) (b) (c ) (1)
- ------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 2,733,919 $ 13.34 2,029,954
- ------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security holders - - -
- ------------------------------------------------------------------------------------------------------
Total 2,733,919 $ 13.34 2,029,954
- ----------------------------------====================================================================
(1) Includes 373,891 shares available for future issuance under the 1998
Employees Stock Purchase Plan.
Submitted by Board of Directors
EMPLOYMENT AGREEMENTS
Mr. David B. Pomeroy, II (1/6/04-6/10/2004)
(See Chief Executive Officer Compensation and Consulting Agreement)
Mr. David B. Pomeroy, II served as Chairman of the Board throughout fiscal 2004
and Chief Executive Officer until his resignation on June 10, 2004. Mr. David B.
Pomeroy's compensation for fiscal 2004, which included an annual salary, bonuses
and stock options, was determined in accordance with the terms of the Thirteenth
Amendment to Mr. David B. Pomeroy's Employment agreement, which established the
performance criteria for fiscal 2004, was adopted by the Compensation Committee
in February 2004. The terms of Mr. David B. Pomeroy's Employment Agreement and
any amendments thereto were based on the factors described below including a
review of the compensation paid to executives of comparable companies.
Effective January 6, 2004, Mr. David B. Pomeroy entered into a Thirteenth
Amendment to the Employment Agreement with the Company (the "Thirteenth
Amendment"). Mr. David B. Pomeroy's compensation under the Thirteenth Amendment
included a base salary of $475,000 for fiscal 2004. The Thirteenth Amendment
also provided that effective February 18, 2004, Mr. Pomeroy shall be awarded the
option to acquire 100,000 shares of the common stock of the Company at the fair
market value of such shares on February 18, 2004.
In addition, the Company paid Mr. David B. Pomeroy (or to a legal entity
controlled by him) $7,916.67 per month during the term of the Agreement, for the
business use of real estate in Arizona owned by a legal entity controlled by Mr.
David B. Pomeroy. In the event of a change of control (as defined in the
Agreement), the Company is required to provide Mr. David B. Pomeroy with 100
hours of flight time on a private air carrier for business use per year for the
term of the agreement. Currently, the cost of one hour of flight time ranges
from $1,400 to $2,300 depending on various factors.
14
The employment of Mr. David B. Pomeroy with the Company, and his Employment
Agreement dated March 12, 1992, as amended from time to time thereafter (the
last such amendment being the Thirteenth Amendment to Employment Agreement
effective January 6, 2004), were terminated as of January 5, 2005. In
connection with the termination of his Employment Agreement and the termination
of his employment, Mr. David B. Pomeroy entered into the Consulting Agreement
with the Company, the terms of which are described in the Report of the
Compensation Committee on Chief Executive Compensation and Consulting Agreement.
Mr. Stephen E. Pomeroy
Mr. Stephen E. Pomeroy's employment agreement with the Company has a term of
five years, which is extended on a daily basis resulting in a perpetual
five-year term. Effective November 3, 2003, Mr. Stephen E. Pomeroy entered into
an Amended and Restated Employment Agreement with the Company (the "Amended and
Restated Agreement"). Under the Amended and Restated Agreement with the
Company, Mr. Stephen E. Pomeroy received a base salary of $495,000 for fiscal
2004 and his base salary increased to $544,000 for fiscal 2005, which base
salary shall remain in effect for each subsequent year of the Employment
Agreement unless modified by the Compensation Committee of the Company.
Thereafter, on January 6, 2004, the Company and Mr. Stephen E. Pomeroy entered
into a First Amendment to Amended and Restated Employment Agreement, which
affirms and ratifies the terms and conditions of the Amendment and Restated
Agreement, except for the provisions concerning Mr. Stephen E. Pomeroy's
eligibility to earn an annual bonus. The First Amendment to Amended and
Restated Employment Agreement makes Mr. Stephen E. Pomeroy eligible to earn an
annual bonus up to $800,000 and 125,000 non-qualified stock options based upon
the Company meeting certain predetermined goals in fiscal 2004. It is
anticipated that the Company will provide Mr. Stephen E. Pomeroy with a
substantially similar bonus and incentive plan for fiscal 2005, but such plan
has not been mutually agreed upon and reduced to writing as of the date of the
filing of this Proxy Statement.
According to the terms of Mr. Stephen E. Pomeroy's Amended and Restated
Employment Agreement, it states that if Mr. Stephen E. Pomeroy's employment
agreement is terminated within one year following a change-of-control, Mr.
Stephen E. Pomeroy shall receive a severance payment based upon five years of
his base pay at the time of termination. In addition, Mr. Stephen E. Pomeroy
would be paid for any bonus or other compensation that he would have received
had he not been terminated and continued participation in the Company's benefit
programs for five years.
Mr. Michael E. Rohrkemper
Effective March 5, 2003, the Company and Mr. Michael E. Rohrkemper entered into
a Second Amendment to Employment Agreement ("Second Amendment") under which Mr.
Michael E. Rohrkemper receives a base annual salary of $200,000, which base
salary shall remain in effect unless or until modified in writing by the
parties. In addition, the Second Amendment set forth certain quarterly and
year-end bonuses that Mr. Michael E. Rohrkemper was eligible to earn in fiscal
2004 based upon the Company's performance and attainment of certain
pre-determined criteria under the Second Amendment.
Effective March 7, 2005, the Company and Mr. Michael E. Rohrkemper entered into
a Third Amendment to Employment Agreement ("Third Amendment") under which Mr.
Michael E. Rohrkemper's base annual salary was increased from $200,000. to
$225,000. Such base annual salary shall remain in effect unless or until
modified in writing by the parties. In addition, the Third Amendment sets
forth certain quarterly and year-end bonuses that Mr. Michael E. Rohrkemper is
eligible to earn in fiscal 2005 based upon the Company's performance and
attainment of certain pre-determined criteria. Mr. Michael E. Rohrkemper's
bonus criteria for fiscal 2005 is substantially similar to what was in effect
for quarterly and year-end bonuses in fiscal 2004, which bonuses were also based
upon the Company's performance
15
PERFORMANCE GRAPH
The following Performance Graph compares the percentage of the cumulative total
stockholder return on the Company's Common shares with the cumulative total
return assuming reinvestment of dividends of (i) the S&P 500 Stock Index and
(ii) the NASDAQ Composite Index.
CUMULATIVE TOTAL RETURN
BASED ON REINVESTMENT OF $100 BEGINNING JANUARY 5,2000
[GRAPHIC OMITED]
- -----------------------------------------------------------------------
01/05/00 01/05/01 01/05/02 01/05/03 01/05/04 01/05/05
- -----------------------------------------------------------------------
Pomeroy 100 117.60 109.80 94.90 115.80 115.00
- -----------------------------------------------------------------------
S&P 500 100 92.60 83.62 64.80 80.04 84.43
- -----------------------------------------------------------------------
NASDAQ COMP 100 62.10 53.10 35.80 52.80 53.90
- -----------------------------------------------------------------------
16
PROPOSAL 2 - TO APPROVE THE AMENDMENTS TO THE COMPANY'S 2002 AMENDED AND
RESTATED OUTSIDE DIRECTORS' STOCK OPTION PLAN
BACKGROUND
In March 2002, the Board of Directors of the Company adopted the 2002 Outside
Directors' Stock Option Plan (as amended, the "Directors' Plan"), which was
approved by the stockholders on June 13, 2002. On March 11, 2004, the Board of
Directors approved the amendment and restatement of the Directors' Plan to (1)
increase the number of shares of common stock reserved for issuance under the
Directors' Plan, and (2) amend the terms and conditions of future options
awarded to outside Directors. This amendment and restatement of the Directors'
Plan was approved by the stockholders on June 10, 2004. As of April 5, 2005,
there were 85,000 shares subject to outstanding options under the Directors'
Plan and 168,856 shares available for granting additional options. Also as of
that date, there were outstanding options for 17,500 shares under the 1992
Outside Directors Stock Option Plan. To the extent that any of the options
outstanding under the 1992 Outside Directors Plan are canceled or expire, the
number of shares reserved for issuance under the Directors Plan is automatically
increased by the number of shares subject to such canceled or expired options.
REASONS FOR AND DESCRIPTION OF PROPOSED AMENDMENTS
On January 6, 2005, the Board of Directors approved certain amendments to the
Directors' Plan, subject to stockholder approval. The primary purposes of the
amendments are to (1) increase the options awarded to each outside director on
their respective anniversary dates from 5,000 shares to 10,000 shares, and (2)
to increase the exercise period of options granted under the Directors' Plan
from a period of 2 years from and after the date of their grant to 5 years from
and after the date of their grant. The foregoing summary of the amendments to
the Directors' Plan is qualified in its entirety by the specific language of the
Amendment to 2002 Amended and Restated Outside Directors' Stock Option Plan (the
"Directors' Plan Amendment"), a copy of which is attached to this proxy
statement as Exhibit A. The Board believes it is advisable and in the best
interests of the Company to continue to encourage stock ownership by its outside
directors. The Board believes that the proposed changes are desirable to better
enable the Company to attract and retain the best available individuals to serve
as outside directors of the Company.
DESCRIPTION OF STOCK PLAN, AS AMENDED, SUBJECT TO STOCKHOLDER APPROVAL
The following summary of the Directors' Plan, as amended, is qualified in its
entirety by the specific language of the Directors' Plan, a copy of which was
attached as Exhibit A to the proxy statement of the Company relating to the
annual meeting of stockholders held on June 10, 2004 (such proxy statement
having been filed with the SEC on May 4, 2004), and by the specific language of
the Directors' Plan Amendment.
Purpose. The Board of Directors of the Company believes that the Company's
long-term success is dependent upon its ability to attract and retain highly
qualified directors who, by virtue of their ability and qualifications, make
important contributions to the Company. The Directors' Plan is intended to
encourage outside directors of the Company to acquire and increase their
ownership of common stock of the Company on reasonable terms and aid in
attracting and retaining such individuals. The Board further believes that
stock options motivate high levels of performance and provide an effective means
of recognizing contributions to the success of the Company.
Administration. The Directors' Plan will be administered by the Board or a
committee of the Board appointed (hereafter referred to as the "Administrator"),
in accordance with the provisions of the Plan. The Administrator is authorized
to determine the fair market value of the shares subject to Options, approve the
17
form of award agreement, and determine certain procedures and conditions, not
inconsistent with the terms of the Directors' Plan, of any Option.
Stock Subject to Plan. The maximum number of Shares subject to the Directors'
Plan is 281,356. The number of Shares reserved for issuance as of April 5, 2005
was 168,856, which includes 17,500 shares that were subject to outstanding
options under the 1992 Directors' Plan as of its termination date, that had been
canceled or that expired unexercised as of April 5, 2005. The Directors' Plan
provides that, subject to the maximum number of shares reserved, the number of
Shares reserved under the Directors' Plan will automatically increase by the
number of shares of common stock subject to those options that were still
outstanding under the 1992 Plan as of March 30, 2004 that are subsequently
either canceled or expire unexercised.
Eligibility. Options are granted only to outside (non-employee) directors of
the Company. Currently, the Company has six outside directors.
Plan Benefits. Under the Directors' Plan, as amended, an option is granted
automatically, on an annual basis to each outside director as follows: (1) an
Option for 10,000 shares of the Company's common stock on the first day of the
initial term of the outside director, and (2) an Option for 10,000 shares on the
first day of each consecutive year of service on the Board. All Options must be
evidenced by a written award agreement.
The exercise price of each Option is the fair market value of the Company's
common stock on the date the Option is granted. All Options are fully vested as
of the date of grant and must be exercised within five years of the date of
grant, subject to earlier termination in the event of termination of the
Director's service on the Board. An Option may be exercised within three months
of the termination of service of a Director (but not beyond the term of the
Option), except in the case of the death of a Director, the Option may be
exercised by the deceased Director's legatee, personal representative or
distribute within one year of the date of death (but not beyond the term of the
Option).
The exercise price per share for the Options granted under the Amended
Directors' Plan will be the fair market value of a share of Company common stock
on the date the Option is granted. The exercise price is payable in cash, or at
the discretion of the Administrator, in whole or in part by check, promissory
note or in shares of common stock valued at their fair market value at the date
of exercise. The cash proceeds from the exercise of Options constitute general
funds of the Company and may be used by it for any purpose.
Term of Plan. The term of the plan is for ten years ending on March 26, 2012.
Adjustments upon Change in Capitalization or Merger. In the event the Company's
common stock changes by reason of any stock split, reverse split, stock
dividend, combination, reclassification or similar change in the Company's
capital structure effected without consideration, appropriate adjustments shall
be made to the number of shares of stock subject to the Directors' Plan, the
number of shares subject to any outstanding awards and the exercise price for
shares subject to outstanding awards. In the event of a liquidation or
dissolution, any unexercised awards will terminate. In the event of a merger or
consolidation of the Company, if the outstanding awards are not assumed or
replaced with an equivalent substitute, the right to exercise such awards will
be accelerated to permit exercise prior to the merger or consolidation.
Amendments and Termination. The Board may amend, alter, suspend or discontinue
the Amended Directors' Plan at any time and for any reason. A termination of
the Plan shall not affect Options already outstanding. In addition, the Company
shall obtain stockholder approval for any amendment to the Directors' Plan to
the extent necessary and desirable to comply with applicable laws. No
amendment, suspension or termination of the Directors' Plan may materially
impair the rights under awards previously granted without the consent of the
Optionee.
The Administrator may amend the terms of existing Options granted under the
Directors' Plan provided that no amendment may, without stockholder approval,
reduce the exercise price of outstanding options or cancel or amend outstanding
18
options for the purpose of repricing, replacing or regranting such options with
an exercise price that is less than the exercise price of the original Options.
Federal Income Tax Consequences Relating to the Directors' Plan, as Amended.
The U.S. federal income tax consequences to the Company and the Optionees under
the Directors' Plan are complex and subject to change. The following discussion
is only a summary of the general rules applicable to the Directors' Plan.
Generally, the grant of a nonqualified stock option will not result in income
for the participant or in a deduction for the Company. The exercise of a
nonqualified stock option would result in ordinary income for the participant
and a deduction for the Company measured by the difference between the exercise
price and the fair market value of the shares received at the time of exercise.
VOTE REQUIRED AND BOARD RECOMMENDATION
At the Annual Meeting, the stockholders will be asked to approve the amendments
to the Directors' Plan described above (as set forth in more detail in the
Directors' Plan Amendment). The resolution that will be introduced at the
Annual Meeting is as follows:
RESOLVED, that the amendments to the 2002 Amended and Restated Outside
Directors Stock Option Plan set forth in that certain Amendment to
2002 Amended and Restated Outside Directors Stock Option Plan be, and
they hereby are, authorized, adopted and approved by the stockholders
of this Corporation.
Assuming the presence of a quorum at the Annual Meeting, the affirmative vote of
the holders of a majority of the shares present in person or represented by
proxy is required to approve the amendments to the Directors' Plan. Abstentions
will be counted toward the tabulation of votes cast and will have the same
effect as negative votes. Broker non-votes are counted towards a quorum but are
not counted for any purpose in determining whether this matter has been
approved. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. James H. Smith, III, a director of the Company, is a shareholder in the law
firm of Lindhorst & Dreidame Co. L.P.A., which serves as general counsel to the
Company. See "Compensation Committee Interlocks and Insider Participation".
Mr. David B. Pomeroy, II, Chairman of the Board, engaged in certain transactions
with the Company in the last fiscal year. See "Compensation Committee Interlocks
and Insider Participation" and "Employment Agreements."
Mr. Vincent D. Rinaldi, a director of the Company, is the president of National
City Commercial Capital (formerly, Information Leasing Corporation) a
wholly-owned subsidiary of National City Corporation. On April 16, 2002, the
Company closed the sale of a majority of the assets of Technology Integration
Financial Services, Inc. to Information Leasing Corporation. See "Compensation
Committee Interlocks and Insider Participation".
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. Stephen E. Pomeroy, Chief Executive Officer, President and Chief Operating
Officer failed to file one Form 4 with respect to the 100,000 options granted on
November 3, 2004 with an exercise price of $13.72. This transaction was
subsequently reported on a Form 5 with respect to 2004.
Ms. Debra E. Tibey, director, filed a late Form 4 with respect to the 2,500
options granted on November 10, 2004 with an exercise price of $13.70.
Mr. William H. Lomicka, director, failed to file Form 4 with respect to the
2,500 options granted on November 10, 2004 with an exercise price of $13.70.
This transaction was subsequently included on the Form 4 filed January 11, 2005.
REPORT OF THE AUDIT COMMITTEE
The audit committee is currently comprised of Mr. William H. Lomicka, Mr. Edward
E. Faber and Ms. Debra E. Tibey, all of whom were independent as defined by
applicable Nasdaq rules in effect for audit committee members in Nasdaq Rule
4350(d). The audit committee operates under a written charter adopted by the
Board of Directors and is presented as Exhibit B. As described more fully in
its charter, the purpose of the audit committee is to assist the Board of
Directors in its general oversight of the Company's financial reporting,
internal control and audit functions. Management is responsible for the
preparation, presentation and integrity of the Company's financial statements,
accounting and financial reporting principles, internal controls and procedures
designed to ensure compliance with accounting standards, applicable laws and
regulations. Crowe Chizek and Company LLC, the Company's independent auditor,
is responsible for performing an independent audit of the consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America.
The audit committee members are not professional accountants or auditors, and
their functions are not intended to duplicate or to certify the activities of
management and the independent auditor, nor can the audit committee certify that
the independent auditor is "independent" under applicable rules. The audit
committee serves a board-level oversight role, in which it provides advice,
counsel and direction to management and the auditors on the basis of the
information it receives, discussions with management and the auditors and the
experience of the audit committee's members in business, financial and
accounting matters.
Among other matters, the audit committee monitors the activities and performance
of the Company's external auditors, including the audit scope, external audit
fees, auditor independence matters and the extent to which the independent
auditor may be retained to perform non-audit services. The audit committee and
the Board have ultimate authority and responsibility to select, evaluate and,
20
when appropriate, replace the Company's independent auditor. The audit committee
also reviews the results of the external audit work with regard to the adequacy
and appropriateness of the Company's financial, accounting and internal
controls. Management and independent auditor presentations to and discussions
with the audit committee also cover various topics and events that may have
significant financial impact or are the subject of discussions between
management and the independent auditor.
The audit committee has reviewed and discussed the consolidated financial
statements with management and the independent auditor and management
represented to the audit committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles. The independent auditor represented that its presentations included
the matters required to be discussed with the independent auditor by Statement
on Auditing Standards No. 61, as amended, "Communication with Audit Committees,"
and Section 204 of the Sarbanes-Oxley Act and it implementing SEC rules.
The Company's independent auditor also provided the Committee with the written
disclosures required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and the audit committee
discussed with the independent auditor that firm's independence.
Following the audit committee's discussions with management and the independent
auditor, the audit committee recommended that the Board of Directors include the
audited consolidated financial statements in the Company's annual report on Form
10-K for the year ended January 5, 2005.
Submitted by the Audit Committee
William H. Lomicka, Edward E. Faber and Debra E. Tibey
INDEPENDENT PUBLIC ACCOUNTANTS
Crowe Chizek and Company LLC, which has served as independent certified public
accountants to the Company since October 3, 2003, has been selected by the
Company to serve in that capacity in fiscal 2005. Prior to October 3, 2003,
Grant Thornton LLP was the Company's independent certified public accountants.
Representatives of Crowe Chizek and Company LLC will be present at the Annual
Meeting in order to respond to questions and to make any statement such
representative deems appropriate.
Representatives of Crowe Chizek and Company LLC attended most meetings of the
audit committee of the Board during fiscal 2004. The audit committee reviews
audit and non-audit services performed by the Company's independent accountants
as well as the fees charged by them for such services. In its review of
non-audit service fees, the audit committee considers, among other things, the
possible effect of the performance of such services on the auditor's
independence.
FEES PAID TO INDEPENDENT ACCOUNTANTS
The following table shows the fees paid or accrued by the Company for the audit
and other services provided by the Company's independent accountants for the
fiscal years 2004 and 2003:
Fiscal 2004 Fiscal 2003
------------ ------------
Audit Fees $ 203,465 $ 141,535
Audit-Related Fees 158,889 37,423
Tax Fees 169,523 81,000
All Other Fees - -
------------ ------------
Total $ 531,877 $ 259,958
============ ============
Audit Fees-Audit fees consist of fees for the audit of our annual financial
statements and the review of interim financial statements included in our
quarterly reports on Form 10-Q and all services that are normally provided in
connection with statutory and regulatory filings or engagements.
21
Audit-Related Fees-Audit-related fees consist of fees for assurance and related
services that are reasonably related to the performance of the audit and the
review of our financial statements and which are not reported under "Audit
Fees." These services relate to attest services performed in connection with
the review of internal controls required by Section 404 of the Sarbanes-Oxley
Act, employee benefit plan audits, due diligence related to acquisitions,
accounting consultations in connection with acquisitions, consultations related
to internal control, attest services that are not required by statute or
regulation and consultations concerning financial accounting and reporting
standards.
Tax Fees-Tax fees consist of fees for tax compliance, tax advice and tax
planning services.
All Other Fees-All other fees related to professional services rendered for
services not reported in other categories above.
AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES
The Audit Committee has adopted policies and procedures relating to the approval
of all audit and non-audit services that are to be performed by our independent
auditor. This policy generally provides that we will not engage our independent
auditor to render audit or non-audit services unless the service is specifically
approved in advance by the Audit Committee with the exception of minor
incidentals. For fiscal 2004, the Audit Committee pre-approved 100% of the
audit fees, 100% of the audit-related fees, and 100% of the tax fees reported
above.
22
PROPOSALS FOR 2006 MEETING
In order to be eligible for inclusion in the Company's proxy statement for the
2006 annual meeting of stockholders, stockholder proposals must be received by
the Secretary of the Company at its principal office, 1020 Petersburg Road,
Hebron, Kentucky 41048, by January 6, 2006.
Stockholders who intend to present a proposal at such meeting without inclusion
of such proposal in our proxy materials pursuant to Rule 14a-8 under the
Exchange Act are required to provide advance notice of such proposal to our
Secretary at the aforementioned address not later than March 15, 2006.
If we do not receive notice of such a stockholder proposal on or before May 15,
2006, our management will use its discretionary authority to vote the shares
that they represent by proxy in accordance with the recommendations of the
Board.
We reserve the right to reject, rule out of order, or take other appropriate
action with respect to any proposal that does not comply with these or other
applicable requirements.
By Order of the Board of Directors
/s/ Michael E. Rohrkemper
_________________________________
Michael E. Rohrkemper, Secretary
May 5, 2005
- -----------
Date
23
EXHIBIT A
2002 AMENDED AND RESTATED OUTSIDE DIRECTORS'
STOCK OPTION PLAN OF
POMEROY IT SOLUTIONS, INC.
(FORMERLY, POMEROY COMPUTER RESOURCES, INC.)
1. PURPOSE OF THE PLAN. This 2002 Amended and Restated Outside Directors'
Stock Option Plan of Pomeroy IT Solutions, Inc. is intended to encourage
directors of the Company who are not officers or employees of the Company or any
of its Subsidiaries to acquire or increase their ownership of common stock of
the Company on reasonable terms. The opportunity so provided is intended to
foster in participants a strong incentive to put forth maximum effort for the
continued success and growth of the Company and its Subsidiaries, to aid in
retaining individuals who put forth such efforts, and to assist in attracting
the best available individuals to the Company to serve as directors in the
future.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
2.2 "Award" means an Option.
2.3 "Award Agreement" means a written agreement in such form as may be,
from time to time, hereafter approved by the Committee, which shall be duly
executed by the Company and the Director and which sets forth the terms and
conditions of an Option as provided under the Plan.
2.4 "Board" means the Board of Directors of Pomeroy Computer Resources,
Inc.
2.5 "Common Stock" means shares of the Company's common stock, par
value .01 per share.
2.6 "Code" means the Internal Revenue Code of 1986, as in effect at the
time of reference, or any successor revenue code which may hereafter be adopted
in lieu thereof, and reference to any specific provisions of the Code shall
refer to the corresponding provisions of the Code as it may hereafter be amended
or replaced.
2.7 "Committee" means the Committee appointed by the Board of Directors
in accordance with paragraph (a) of Section 4 of the Plan.
2.8 "Company" means Pomeroy Computer Resources, Inc.
2.9 "Directors" means directors who serve on the Board and who are not
officers or employees of the Company or any of its Subsidiaries.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.11 "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such system
or exchange for the last market trading day prior to the time of determination
as reported in the Wall Street Journal or such other source as the Administrator
deems reliable; or
24
(ii) If the Common Stock is quoted on NASDAQ (but not on the
National Market System thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high and low asked prices for the Common Stock; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
2.12 "Option" means the right to purchase the number of the Common
Stock specified by the Plan, at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the Committee
impose. The term Option includes Initial Options and Anniversary Options, as
defined in Section 5.
2.13 "Optioned Stock" means the Common Stock subject to an Option.
2.14 "Optionee" means a Director who receives an Option.
2.15 "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
2.16 "Plan" means the Company's 2002 Amended and Restated Outside
Directors' Stock Option Plan.
2.17 "Share" means a share of Common Stock, as adjusted in accordance
with Section 12 of this Plan.
2.18 "Subsidiary" means any corporation or other legal entity other
than the employer corporation in an unbroken chain of corporations or other
legal entities beginning with the employer corporation if each of the
corporations or other legal entities other than the last corporation or other
legal entity in the unbroken chain owns stock, a membership interest, or any
other voting interest possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock, membership interests or other
voting interests in one of the other corporations or other legal entities in
such chain.
2.19 "Term" means the period during which a particular Option may be
exercised.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares of which may be optioned and
sold under the Plan is 281,356 (which includes options for 35,000 shares of
Common Stock which were outstanding under the 1992 Outside Directors' Stock
Option Plan (the "1992 Directors' Plan") as of March 30, 2004 (the "1992
Outstanding Options")). As of the effective date of the Amended and Restated
Outside Directors' Plan, 246,356 shares of Common Stock shall be reserved for
issuance under the Plan (which includes 27,500 shares that were subject to
options under the 1992 Directors Plan that have been canceled or expired as of
March 30, 2004), however, the number of shares reserved for issuance under the
Plan shall automatically increase as the 1992 Outstanding Options are canceled
or expire (by an amount equal to the number of shares of Common Stock issuable
upon exercise of such canceled or expired 1992 Outstanding Options). The number
of shares of Common Stock reserved for issuance under this Plan shall not
increase as a result of the exercise of any of the 1992 Outstanding Options.
The Common Stock may be authorized, but unissued, or reacquired Common Stock.
If an Option would expire or become unexercisable for any reason without
having been exercised in full, the unpurchased shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
25
4. ADMINISTRATION OF THE PLAN.
(a) The Board shall appoint the Committee, which shall consist of not
less than two (2) disinterested persons as defined in Rule 16b-3 of the Exchange
Act. Subject to the provisions of the Plan, the Committee shall have full
authority to interpret the Plan, and to prescribe, amend, and rescind rules and
regulations relating to it. The Board may, from time to time, appoint members
to the Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Committee. The
Committee shall select one of its members as its Chairman and shall hold its
meetings at such times and places as it shall deem advisable. A majority of its
members shall constitute a quorum. Any action of the Committee may be taken by
a written instrument signed by all of the members, and any action so taken shall
be fully as effective as if it had been taken by a vote of a majority of the
members at a meeting duly called and held. The Committee shall make such rules
and regulations for the conduct of its business as it shall deem advisable and
shall keep minutes of its meetings and records of all action taken in writing
without a meeting. No member of the Committee shall be liable, in the absence
of bad faith, for any act or omission with respect to his/her service on the
Committee.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2.11 of the Plan;
(ii) to approve forms of agreement for use under the Plan;
(iii) to determine whether and under what circumstance an Option
may be settled in cash under Section 8(d) instead of Common Stock;
(c) Effective Committee's Decision. All decisions, determinations and
------------------------------
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. GRANT OF OPTIONS. An Option to purchase 10,000 shares of Common Stock
(the "Initial Option") shall, without action by the Board or Committee, be
granted to each Director on the first day of his/her initial term as a director
or on the effective date of the Plan, whichever shall occur later, provided
he/she meets the definition of a disinterested director in Rule 16b-3 of the
Exchange Act. Upon the first day of an eligible Director's second consecutive
year of service on the Board, and on the first day of each consecutive year of
service thereafter, an additional Option to purchase 5,000 shares of Common
Stock (an "Anniversary Option") shall, without action by the Board or Committee,
be granted to such Director. In the event of a Director who is commencing an
initial term, but such Director had been a Director of the Company previously,
the Administrator may, in its sole discretion, determine to decrease the number
of shares subject to the Initial Option, taking into account the particular
circumstances of such situation. Notwithstanding the foregoing provisions of
this paragraph, if the number of shares of Common Stock available to grant under
the Plan on a scheduled date of grant is insufficient to make all automatic
grants required to be made pursuant to the Plan on such date, then each eligible
Director shall receive an Option to purchase a pro rata number of the remaining
shares of Common Stock available under the Plan; provided, however, that if such
proration results in fractional shares of Common Stock, then such Option shall
be rounded down to the nearest number of whole shares of Common Stock.
26
6. STOCK OPTIONS.
6.1 Option Price.
-------------
(a) The exercise price per share of any Option granted under the
Plan shall be the Fair Market Value of the shares of Common Stock covered by the
Option on the date set forth in Section 2.11.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator and may consist entirely of (1) cash, (2) check, (3)
promissory note, (4) other Shares which (x) in the case of Shares acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (y) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised, (5) authorization from the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds required
to pay the exercise price, (7) by delivering an irrevocable subscription
agreement for the Shares which irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under all applicable laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
(c) The Company, in its sole discretion, may establish a procedure
whereby a Director, subject to the requirements of Section 16 of the Exchange
Act, Rule 16b-3, Regulation T, federal income tax laws, and other federal, state
and local tax and securities laws, can exercise an Option or portion thereof
without making a direct payment of the option price to the Company. If the
Company so elects to establish the cashless exercise program, the Company shall
determine, in its sole discretion, and from time to time, such administrative
procedures and policies as it deems appropriate, and such procedures and
policies shall be binding on any Director wishing to utilize the cashless
exercise program.
6.2 Terms of Options.
------------------
(a) Prior to June 10, 2004, any Option granted hereunder shall be
exercisable for a Term of five (5) years from the date of grant thereof (Date of
Grant), but shall be subject to earlier termination as hereinafter provided, and
prior to its expiration or termination the Option may be exercised within the
following time limitations.
(i) After one (1) year from the Date of Grant, it may be
exercised as to not more than one-third (1/3) of the shares of Common Stock
originally subject to the Option.
(ii) After two (2) years from the Date of Grant, it may be
exercised as to not more than two-thirds (2/3) of the shares of Common Stock
originally subject to the Option.
(iii) After three (3) years from the Date of Grant, it may be
exercised as to any part or all of the shares of Common Stock originally subject
to Option.
(b) From and after June 10, 2004, all Options shall be exercisable
for a Term of two (2) years from the Date of Grant, but shall be subject to
earlier termination as hereinafter provided, and all such Options shall be fully
vested as of the Date of Grant.
27
6.3 Termination of Directorship. In the event that a Director ceases
-----------------------------
to be a member of the Board (other than by reason of death), an Option may be
exercised by the Director (to the extent that the Director was entitled to do so
at the time he/she ceased to be a member of the Board) at any time within three
(3) months after he/she ceases to be a member of the Board, but not beyond the
Term of the Option.
6.4 Death of a Director. In the event of the death of a Director, the
--------------------
Option may be exercised at any time within twelve (12) months following the date
of death, but in no event later than the expiration date of the Term of such
Option as set forth in the Option Agreement (by the Director's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance),
but only to the extent that the Director was entitled to exercise the Option at
the date of death. To the extent that the Director was not entitled to exercise
the Option at the date of termination or if the Director does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
7. TERM OF THE PLAN. The Amended and Restated Plan shall become effective
on June 10, 2004, provided the Plan has been previously adopted by the Board of
Directors and approved by the stockholders of the Company as determined in
Section 18 of the Plan. It shall continue in effect for the remainder of the
initial term of ten (10) years, which expire June 13, 2012, unless sooner
terminated under Section 14 of the Plan.
8. EXERCISE OF OPTION.
(a) Any Option granted hereunder shall be exercisable at such times
under such conditions as determined by the Administrator, and shall be
permissible under the terms of the Plan.
(b) The Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
Option has been given to the Company in accordance with the terms of the Option
by the person entitled to exercise the Option and full payment for the Shares
with respect to which the Option is exercised has been received by the Company.
Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 6.1(b) of the Plan.
Exercise of an Option in any manner will result in a decrease in the number
of Shares which may thereafter be available, both for purpose of the Plan and
for sale under the Option by the number of Shares as to which the Option is
exercised.
(c) Options granted to persons subject to Section 16(b) of the Exchange
Act, must comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
(d) Buy-Out Provisions. The Administrator may at any time offer to
-------------------
buy-out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
9. RIGHTS OF OPTIONEE. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue, or cause to be issued, such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than:
(a) by will or the laws of descent and distribution, and an Option may be
exercised during the lifetime of the holder of the Option, only by him/her, or
in the event of his/her death, by the legal representative of the estate of the
deceased Director, or the person or persons who shall acquire the right to
exercise an Option by the bequest or inheritance by reason of the death of the
28
Director, or in the event of disability, his/her personal representative, or (b)
pursuant to a Qualified Domestic Relations Order, as defined in the Code, or the
Employee Retirement and Security Act (ERISA), or the rules thereunder.
11. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. The Company
shall be authorized to withhold from any Award granted or payment due under the
Plan the amount of withholding taxes due in respect of an Award or payment
hereunder and to take such other action as may be necessary in the opinion of
the Company to satisfy all obligations for the payment of taxes. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable laws, the Optionee is obligated to pay the Company an amount
required to be withheld under applicable tax laws, the Optionee may satisfy the
withholding tax obligation by electing to have the Company withhold from the
Shares to be issued upon exercise of the Option that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of the
Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt for consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
29
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Board shall notify the Optionee at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action.
In the event of a merger or consolidation of the Company with or into another
corporation or the sale of substantially all of the Company's assets
(hereinafter, a "merger"), the Option shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. In the event that such successor corporation does
not agree to assume the Option or to substitute an equivalent option, the Board
shall, in lieu of such assumption or substitution, provide for the Optionee to
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which the Option would not otherwise the exercisable. If the Board
makes an Option fully exercisable in lieu of assumption or substitution in the
event of a merger, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of fifteen (15) days from the date of such notice
and the Option will terminate upon the expiration of such period. For purposes
of this paragraph, the Option shall be considered assumed if, following the
merger, the Option or right confers the right to purchase, for each Share of
stock subject to the Option immediately prior to the merger, the consideration
(whether stock, cash, or other securities or property) received in the merger by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger was not
solely common stock of the successor corporation or its parent, the Board may,
with the consent of the successor corporation and the participant, provide for
the consideration to be received upon the exercise of the Option, for each Share
of stock subject to the Option, to be solely common stock of the successor
corporation or its Parent equal to the Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. FORM OF OPTIONS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or the stockholders of the Company shall
constitute the granting of any Option. An Option shall be granted hereunder on
the date or dates specified in the Plan. Whenever the Plan provides for the
receipt of an Option by a Director, the Secretary or the President of the
Company, or such other person as the Committee shall appoint, shall forthwith
send notice thereof to the Director, in such form as the Committee shall
approve, stating the number of Shares of Common Stock subject to the Option, the
Term of the Option, and all other terms and conditions thereof provided by the
Plan. The notice shall be accompanied by a written Award Agreement which shall
have been duly executed by or on behalf of the Company. Execution by the
Director to whom such Option is granted of said Award Agreement in accordance
with the provisions set forth in this Plan shall be a condition precedent to the
exercise of any Option.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or discontinue the Plan, but no amendment, alternation, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
--------------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
30
(c) Amendments to Prior Grants. Subject to the terms and conditions
-----------------------------
and within the limitations of the Plan, the Administrator may amend the terms of
any Option theretofore granted, prospectively or retroactively, but no such
amendment shall (i) materially impair the rights of any Optionee without his or
her consent or (ii) except for adjustments made pursuant to Section 12, reduce
the exercise price of outstanding Options or cancel or amend outstanding Options
for the purpose of repricing, replacing or regranting such Options with an
exercise price that is less than the exercise price of the original Options
without stockholder approval.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such representation is required by any of the
aforementioned relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company 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.
17. AGREEMENTS. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
18. STOCKHOLDER APPROVAL. The amendments to this Amended and Restated
Outside Directors' Stock Option Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Amended and Restated Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under applicable state and federal
law.
19 INFORMATION TO OPTIONEES. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which is provided to all
stockholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to Directors
whose duties in connection with the Company assure their access to equivalent
information.
20. FEES AND COSTS. The Company shall pay all original issue taxes on the
exercise of any Option granted under the Plan and all other fees and expenses
necessarily incurred by the Company in connection therewith.
21. OTHER PROVISIONS. As used in the Plan, and in Award Agreements and
other documents prepared in implementation of the Plan, references to the
masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in such Award
Agreements and other documents prepared in implementation of the Plan are for
convenience only and shall not affect the meaning of any provision hereof or
thereof.
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EXHIBIT B
POMEROY IT SOLUTIONS, INC.
(FORMERLY, POMEROY COMPUTER RESOURCES, INC.)
AUDIT COMMITTEE CHARTER
ORGANIZATION
------------
There shall be a committee of the board of directors to be known as
the audit committee. The audit committee shall be composed of directors,
who are independent of the management of the corporation, who are free of
any relationship that, in the opinion of the board of directors, would
interfere with their exercise of independent judgment as a committee
member.
STATEMENT OF POLICY
---------------------
The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential
shareholders, and investment community relating to corporate accounting,
reporting practices of the corporation, and the quality and integrity of
the financial reports of the corporation. In so doing, it is the
responsibility of the audit committee to maintain free and open means of
communication between the directors, the independent auditors, the internal
auditors, and the financial management of the corporation.
RESPONSIBILITIES
----------------
In carrying out its responsibilities, the audit committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and shareholders that
the corporate accounting and reporting practices of the corporation are in
accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
- - Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the corporation and its
divisions and subsidiaries.
- - Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.
- - Review with the independent auditors and financial and accounting
personnel, the adequacy and effectiveness of the accounting and financial
controls of the corporation, and elicit any recommendations for the
improvement of such internal control procedures or particular areas where
new or more detailed controls or procedures are desirable. Particular
emphasis should be given to the adequacy of such internal controls to
expose any payments, transactions, or procedures that might be deemed
illegal or otherwise improper. Further, the committee periodically should
review company policy statements to determine their adherence to the code
of conduct.
- - Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine that
the independent auditors are satisfied with the disclosure and content of
the financial statements to be presented to the shareholders. Any changes
in accounting principles should be reviewed.
- - Provide sufficient opportunity for the independent auditors to meet with
the members of the audit committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the corporation's financial, accounting, and
auditing personnel, and the cooperation that the independent auditors
received during the course of the audit.
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- - Review accounting and financial human resources and succession planning
within the company.
- - Submit the minutes of all meetings of the audit committee to, or
discuss the matters discussed at each committee meeting with, the board of
directors.
- - Investigate any matters brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose if,
in its judgment, that is appropriate.
33