SCHEDULE 14A
RULE 14a - 101
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Amendment No. _____)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14s-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
DHB CAPITAL GROUP INC
________________________________________________________________________________
(Name or Registrant as Specified in Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
(2) Aggregate number of securities to which transaction applied:
________________________________________________________________________________
(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
was calculated and state how it was determined):
________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
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[ ] Fee paid previously with preliminary materials:
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[ ] 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:
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DHB INDUSTRIES, INC.
400 POST AVENUE, SUITE 303
WESTBURY, NEW YORK 11590
November 26, 2004
To Our Stockholders:
You are cordially invited to attend the 2004 Annual Meeting of
Stockholders (the "Annual Meeting") of DHB Industries, Inc. (the "Company") to
be held at the Company's Point Blank Body Armor facility located at 2102 S.W.
2nd Street, Pompano Beach, Florida 33069, on Thursday, December 30, 2004 at 4:00
p.m. local time. Your Board of Directors looks forward to greeting personally
those stockholders able to be present.
At the Annual Meeting, you will be asked (i) to elect six directors,
(ii) to ratify the appointment of Weiser LLP as the Company's independent
auditors for its 2004 fiscal year, and (iii) to consider and vote upon the
Company's proposed 2004 Omnibus Equity Incentive Plan. These matters are
described in detail in the accompanying Notice of Annual Meeting of Stockholders
and Proxy Statement. A proxy, as well as a copy of the Company's 2003 Annual
Report on Form 10-K/A, is included along with the Proxy Statement. These
materials are being sent to stockholders on or about November 26, 2004.
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares you may own, and whether or not you plan to
attend. Accordingly, please take a moment now to complete, sign, date and mail
the enclosed proxy.
We appreciate your cooperation, and look forward to seeing you at the
Annual Meeting.
Sincerely,
/s/ DAVID H. BROOKS
David H. Brooks
Chairman and Chief Executive Officer
DHB INDUSTRIES, INC.
400 POST AVENUE, SUITE 303
WESTBURY, NEW YORK 11590
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY given that the 2004 Annual Meeting of Stockholders of DHB
Industries, Inc. (the "Company") will be held on Thursday, December 30, 2004 at
4:00 p.m. local time at the Company's Point Blank Body Armor facility located at
2102 S.W. 2nd Street, Pompano Beach, Florida 33069. The Annual Meeting is being
called for the following purposes:
1. To elect six directors to hold office during the year following the
Annual Meeting and until their successors are elected and qualified.
2. To ratify the appointment of Weiser LLP as independent auditors for
the Company for 2004.
3. To consider and vote upon the Company's proposed 2004 Omnibus Equity
Incentive Plan.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement of the Annual Meeting.
The foregoing items are more fully described in the Proxy Statement
accompanying this Notice along with the form of proxy.
Only stockholders of record at the close of business on November 19,
2004 are entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ DAWN M. SCHLEGEL
_____________________
DAWN M. SCHLEGEL
SECRETARY
Westbury, New York
November 26, 2004
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE ANNUAL MEETING.
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT HAS BEEN VOTED.
DHB INDUSTRIES, INC.
400 POST AVENUE, SUITE 303
WESTBURY, NEW YORK 11590
PROXY STATEMENT
November 26, 2004
This Proxy Statement is first being sent to stockholders on or about November
26, 2004 in connection with the solicitation by the Board of Directors of DHB
Industries, Inc., a Delaware corporation (the "Company"), of proxies to be used
at the 2004 Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Thursday, December 30, 2004 at 4:00 p.m. local time at the Company's Point Blank
Body Armor facility located at 2102 S.W. 2nd Street, Pompano Beach, Florida
33069.
The Annual Meeting has been called for the following purposes: (1) electing six
directors; (2) ratifying the appointment of Weiser LLP as independent auditors
of the Company for 2004; (3) considering and voting upon the Company's proposed
2004 Omnibus Equity Incentive Plan (the "Plan"); and (4) transacting such other
business as may properly come before the Annual Meeting.
The person named in the enclosed proxy has been selected by the Board of
Directors and will vote shares of Common Stock represented by valid Board of
Directors' proxies. She has indicated that, unless otherwise indicated in the
enclosed proxy, she intends to vote for the election of the nominees listed
below and in favor of Proposals 2 and 3 above.
Any stockholder signing and returning the enclosed form of proxy has the power
to revoke it by giving written notice to the Secretary of the Annual Meeting or
by the delivery of a later dated proxy. Presence at the Annual Meeting does not
itself revoke the proxy. Proxies properly executed, duly returned to the Company
and not revoked, will be voted at the Annual Meeting in accordance with the
directions specified in the proxy. If no directions are given, the proxy will be
voted "FOR" the election of the six director nominees and "FOR" Proposals 2 and
3.
The Company has no knowledge of any other matters to be presented at the Annual
Meeting, except the reports of officers on which no action is proposed to be
taken. In the event that other matters do properly come before the Annual
Meeting, the person named in the proxy will vote in accordance with her judgment
on such matters.
The close of business on November 19, 2004 has been fixed as the record date
(the "Record Date") for the determination of holders of record of the shares of
Common Stock entitled to notice of and to vote at the Annual Meeting. On the
Record Date, there were issued and outstanding 40,922,416 shares of Common
Stock. Each share has one vote. A quorum consisting of a simple majority of all
shares outstanding and entitled to vote at the Annual Meeting, present in person
or represented by proxy, is required for the purpose of considering all of the
matters to come before the Annual Meeting. A quorum being present, directors are
elected by a plurality of shares voted, and the ratification of the appointment
of independent auditors and approval of the Plan require the affirmative vote of
a simple majority of the votes cast.
At the Annual Meeting, broker "non-votes" and shares as to which a stockholder
abstains or withholds a vote are included for purposes of determining whether a
quorum of shares is present at the Annual Meeting. A broker "non-vote" occurs
when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received instructions from the beneficial
owner. Broker "non-votes" are not included in the tabulation of the voting
results on the election of directors or issues requiring approval of a majority
of the votes cast. However, broker non-votes, withheld votes and abstentions
have the same effect as a vote against the proposals to ratify the appointment
of the Company's independent auditors and to approve the Plan.
The Company is soliciting proxies in the enclosed form, and the Company will pay
the expenses of soliciting such proxies. Following the original mailing of the
proxies and other soliciting materials, the Company and/or its agents may also
solicit proxies by mail, telephone, telegraph, and facsimile or in person. The
Company does not currently expect that it will retain a proxy solicitation firm.
Following the original mailing of the proxies and other soliciting materials,
the Company will request brokers, custodians, nominees and other record holders
of the Company's Common Stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Common Stock and to
request authority for the exercise of proxies. In such cases, the Company, upon
the request of the record holders, will reimburse such holders for their
reasonable expenses. Solicitation will be made by mail and possibly supplemented
by telephone or other personal contact to be made without special compensation
by regular officers and employees of the Company. No solicitation will be made
by specifically engaged employees or soliciting agents.
PROPOSAL 1
ELECTION OF DIRECTORS
Six directors will be elected at the Annual Meeting to serve for terms of
approximately one year expiring on the date of the Annual Meeting in 2005. Each
director of the Company is elected annually and holds office until the next
annual meeting of stockholders and until his or her successor is duly elected.
In the absence of instructions to the contrary, the shares represented by proxy
will be voted for the election of the Board of Directors' nominees. Such
nominees are listed below. All six nominees are currently directors of the
Company.
Each individual nominated for election as a director of the Company has agreed
to serve if elected. However, if any nominee becomes unable or unwilling to
serve if elected, the persons named in the accompanying proxy intend to vote for
the election of the balance of the named nominees and such other person as may
be recommended by the Board of Directors. The Board of Directors has no reason
to believe that any of the persons listed as nominees will be unable or
unwilling to serve.
The Board of Directors recommends that each stockholder vote "FOR" the Board of
Directors' nominees.
2
INFORMATION CONCERNING NOMINEES
The following is information concerning nominees for election as directors of
the Company. Each of such persons is presently a director of the Company.
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- -------------------- --------
David H. Brooks 49 Chairman and Chief Executive Officer of the Company 1992
Dawn M. Schlegel 35 Chief Financial Officer of the Company 2000
Jerome Krantz 49 President of Krantz Financial Group 2000
Gary Nadelman 52 Partner in a ladies apparel Manufacturer 2001
Cary Chasin 57 Advertising Executive 2002
Barry Berkman 64 Attorney - Partner with Berkman Bottger & Rodd 2003
David H. Brooks, age 49, has served as the Chairman or Co-Chairman of
the Company since its inception in 1992. Mr. Brooks has served as the Chief
Executive Officer of the Company since July 2000, having previously served in
that capacity prior to September 1998. Mr. Brooks also serves as Chairman of the
Board, President and a Director of Brooks Industries of L.I., Inc., a privately
held venture capital firm.
Dawn M. Schlegel, age 35, has been the Chief Financial Officer of the
Company since September 1999. Mrs. Schlegel has also served as Treasurer and
Secretary of the Company since September 1999, and was elected a Director as of
July 2000. Prior thereto, Mrs. Schlegel was the Accounting Manager for the
Company's operations and finances since 1996. Prior to joining the Company, Mrs.
Schlegel was a Senior Accountant with Israeloff, Trattner & Co. CPAs, P.C., a
certified public accounting firm, for more than five years.
Jerome Krantz, age 49, has been a director of the Company since July
2000. Mr. Krantz has been the owner of and employed with Krantz Financial Group
for over five years, and has over 25 years of experience in the insurance and
financial industry. Mr. Krantz is a chartered life underwriter, a chartered
financial consultant, and a registered investment advisor. Mr. Krantz currently
serves as Chairman of the Audit and Compensation Committees of the Board of
Directors.
Gary Nadelman, age 52, has been a director of the Company since July
2001. Since 2003, Mr. Nadelman has been President of Ninety Holding, a
subsidiary of Central Park West, a privately held clothing manufacturer. From
2002 to 2003, Mr. Nadelman was a partner in a privately held clothing
manufacturer. Immediately prior thereto, he was the President of Synari, Inc., a
manufacturer of women's sportswear and other apparel, for more than five years.
Mr. Nadelman has over twenty years of experience in the apparel industry. Mr.
Nadelman serves on the Audit and Compensation Committees of the Board of
Directors.
Cary Chasin, age 57, has been a Director of the Company since October
2002. Mr. Chasin has been an advertising executive at Star Community Publishing
Group (formerly known as DSA Community Publishing) for three years. Immediately
3
prior thereto, he owned and operated an apparel retail store. He was an employee
of the Company from November 1999 through April 2000, working on special
projects including the closing of the hard armor division. He has over 30 years'
experience in owning and operating apparel retail, manufacturing and importing
businesses. Mr. Chasin serves on the Audit and Compensation Committees of the
Board of Directors.
Barry Berkman, age 64, has been a Director of the Company since
February 2003. Mr. Berkman has been a partner with Berkman Bottger & Rodd, a New
York law firm, since 1994, and he is a member of the American Bar Association.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DAVID H. BROOKS,
DAWN M. SCHLEGEL, JEROME KRANTZ, GARY NADELMAN, CARY CHASIN AND BARRY BERKMAN AS
DIRECTORS.
BOARD AND COMMITTEE MEETINGS
The Company's directors serve for a term of approximately one year following
their election at the Annual Meeting of Stockholders, and until their successors
have been duly elected and qualified. The officers serve at the discretion of
the Board of Directors. In 2003, there were a total of 22 meetings of the Board
of Directors (including actions taken by written consent), and no director
attended less than 75% of all meetings of the Board and the committees on which
he or she served. The Company's directors discharge their responsibilities
throughout the year by personal meetings and other communications, including
frequent and considerable telephone contact with each other regarding matters of
interest and concern to the Company. Formal action is customarily accomplished
by the unanimous written consent of the directors.
The Company's Board of Directors has two committees, consisting of an Audit
Committee and a Compensation Committee. In 2003, each of such Committees was
comprised of three directors, Jerome Krantz, Gary Nadleman and Cary Chasin. None
of such individuals is an officer or employee of the Company, and all of them
are considered "independent" under Section 121(A) of the listing standards of
the American Stock Exchange. The Board of Directors has determined that Jerome
Krantz, a certified financial planner and registered investment advisor, is an
"audit committee financial expert," and he is independent of management. In
2003, there were four meetings of the Audit Committee, and three meetings of the
Compensation Committee. All members of each Committee attended all of such
meetings.
The Board of Directors does not have a designated Nominating Committee. Rather,
the entire Board participates in the identification and evaluation of qualified
individuals to be presented for consideration by the stockholders, and the
designation of those directors who will serve on the Audit and Compensation
Committees. The Board has not previously received any recommendations for
director candidates from stockholders, and has not adopted a formal process for
considering director candidates who may be recommended by stockholders. However,
the Company's policy is to give due consideration to any and all such
candidates, and in evaluating director nominees, the Board considers the
appropriate size of the Board, the needs of the Company, the skills and
experience of its directors, and familiarity with accounting standards and the
4
Company's industry. The Company does not pay fees to any third parties to assist
in identifying potential nominees.
During 2003, directors who were not officers or employees of the Company did not
receive any cash compensation for serving as such, but were reimbursed for their
direct expenses incurred in connection with the discharge of their
responsibilities. The Company has periodically granted stock options to all
directors for their services. In January 2003, the then five members of the
Board of Directors were each awarded 50,000 warrants exercisable at a $1.41 per
share for five years. In July 2003, the additional board member (Barry Berkman)
was issued 50,000 warrants exercisable at $4.33 per share for five years.
One director (Jerome Krantz) attended the Company's 2003 annual stockholders
meeting.
CODE OF ETHICS
In June 2003, the Board of Directors adopted a Code of Ethics for the Company's
CEO, CFO, Chief Accounting Officer, Controllers and other financial officers, a
copy of which was attached as an exhibit to the Company's Form 10-K/A for the
year ended December 31, 2003. The Company's Code of Ethics is intended to be a
codification of the business and ethical principles which guide the Company, and
to deter wrongdoing, to promote honest and ethical conduct, to avoid conflicts
of interest, and to foster full, fair, accurate, timely and understandable
disclosures, compliance with applicable government laws, rules and regulations,
the prompt internal reporting of violations and accountability for adherence to
the Code of Ethics.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Set forth below is certain information regarding the Company's current executive
officers:
David H. Brooks, age 49, has served as the Chairman or Co-Chairman of
the Company since its inception in 1992. Mr. Brooks has served as the Chief
Executive Officer of the Company since July 2000, having previously served in
that capacity prior to September 1998. Mr. Brooks also serves as Chairman of the
Board, President and a Director of Brooks Industries of L.I., Inc., a privately
held venture capital firm.
Dawn M. Schlegel, age 35, has been the Chief Financial Officer of the
Company since September 1999. Mrs. Schlegel has also served as Treasurer and
Secretary of the Company since September 1999, and was elected a Director as of
July 2000. Prior thereto, Mrs. Schlegel was the Accounting Manager for the
Company's operations and finances since 1996. Prior to joining the Company, Mrs.
Schlegel was a Senior Accountant with Israeloff, Trattner & Co. CPAs, P.C., a
certified public accounting firm, for more than five years.
Sandra L. Hatfield, age 50, has been Chief Operating Officer of the
Company since December 2000. From October 1996 until December 2000, she served
as President of Point Blank Body Armor Inc., a subsidiary of the Company. For
more than five years before that, she was the Vice President of Production at
Protective Apparel Corporation of America, another subsidiary of the Company.
5
SUMMARY COMPENSATION
The following table sets forth certain summary information regarding the
compensation earned or paid to the Company's Chief Executive Officer and to all
other executive officers whose total salary and bonus for the year ended
December 31, 2003 exceeded $100,000 (collectively, the "Named Executive
Officers") for their services to the Company and its subsidiaries during fiscal
2003, 2002 and 2001:
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
Name and Principal Year Salary($) Other Restricted Securities LTIP All Other
Position Annual Stock Underlying Payouts Compensation(2)
Compensation(1) Award(s) ($) Options/ ($) ($)
SARs(#)
David H. Brooks, 2003 $625,000 $156,250 0 50,000 0 $1,000,000
Chairman and Chief 2002 575,000 68,750 0 25,000 0 0
Executive Officer 2001 525,000 0 0 25,000 0 0
Sandra L. Hatfield, 2003 $163,068 0 0 0 0 $695,000
Chief Operating Officer 2002 163,068 0 0 25,000 0 0
2001 163,497 0 0 0 0 0
Dawn M. Schlegel, Chief 2003 $140,625 0 0 50,000 0 $100,000
Financial Officer 2002 140,625 0 0 25,000 0 0
2001 103,718 0 0 125,000 0 0
<FN>
(1) Although certain officers receive certain benefits, such as auto
allowances and expense allowances, the value of such perquisites
did not exceed the lesser of $50,000 or 10% of the respective
officer's annual salary and bonus.
(2) Represents bonus payments. Does not include payments on behalf of
Mr. Brooks described in the following paragraphs.
</FN>
Pursuant to his 1996 employment agreement with the Company (which was superseded
in 2000 by another employment agreement), Mr. Brooks was entitled to receive
annual bonuses equal to 10% of the Company's net income in each year of the
agreement. In 1997, Mr. Brooks permanently waived the right to all such bonuses,
and the Compensation Committee of the Company's Board of Directors adopted a
resolution (the "1997 Resolution") granting to Mr. Brooks the right to
reimbursement for business and personal expenses in an aggregate annual amount
not to exceed 10% of the Company's annual net income. Under both his 1996
employment agreement and his 2000 employment agreement (which remains in
effect), the Company agreed to reimburse Mr. Brooks for all expenses associated
with a Florida residence and office owned by an affiliate of Mr. Brooks, and
expenses incurred in conducting business from his New York residence; and by
resolution dated April 22, 2002, the Board of Directors authorized the Company
to pay for all business trips related to the business use of an airplane owned
by an affiliate of Mr. Brooks, at a total cost not to exceed the cost of
comparable charter services. On August 12, 2004, the Compensation Committee
formally repealed the 1997 Resolution, and the Audit Committee of the Company's
6
Board of Directors adopted a resolution (the "2004 Resolution") which
specifically approved payment or reimbursement for the fair rental value of the
Florida residence and office, the corporate use of the New York residence (in a
net amount equal to the fair rental value of the allocable portion of the New
York residence used to conduct Company business), and the Company use of the
plane belonging to Mr. Brooks' affiliate at rates equivalent to comparable
charter flights.
In 2003, the Company did not reimburse Mr. Brooks for certain expenses relating
to the Florida residence and office, the New York home office and the use of Mr.
Brooks' affiliate's airplane. The unreimbursed expenses relating to the Florida
residence and office were estimated (utilizing applicable depreciation schedules
contained in the U.S. Master Tax Guide) to be approximately $251,000, the
allocable cost of the use of the New York home office was estimated (again using
applicable depreciation schedules from the U.S. Master Tax Guide) to be
approximately $12,800, and the Company's use of the private airplane was valued
at approximately $457,000 (based on comparable charter rates). In the year 2003,
a total of approximately $322,000 of personal expenses were charged by Mr.
Brooks to Company credit cards, which was more than offset by Mr. Brooks and his
affiliate not receiving reimbursement from the Company of a total of
approximately $721,000. Mr. Brooks and his affiliates have waived all rights to
reimbursement in respect of such amounts.
On a cumulative basis from 1997 through 2003, utilizing the same calculation
methodology described above, unreimbursed costs relating to the Florida
residence and office, the New York home office and the private airplane, and
unpaid salary under his employment contracts, totaled approximately $2,769,000
(consisting of approximately $1,228,000 in respect of the Florida residence and
office, $90,000 in respect of the New York home office, $953,000 in respect of
the private airplane, and $498,000 in respect of unpaid salary). In this same
period, a total of approximately $2,000,000 was charged by Mr. Brooks to Company
credit cards for personal expenses and other expenses that could not be clearly
characterized as business expenses. The Company also paid by check or cash
relatively small amounts for other non-business expenses of Mr. Brooks and his
affiliates. In each of such years and for the 1997 to 2003 period as a whole,
netting these totals against one another yields a net balance due to Mr. Brooks
and his affiliate. Mr. Brooks and his affiliate have waived all rights to
reimbursement in respect of all unreimbursed amounts. In addition, Mr. Brooks
has waived any claim for accrued or unpaid amounts that could still be due to
him under the 1997 Resolution.
The Company recognizes that its prior periodic reports as filed with the SEC
omitted disclosure of the 1997 Resolution and omitted specific disclosure of the
offsetting unreimbursed personal and business expenses, all of which would have
assisted in a fuller understanding of the Company's business, operations and
commitments. In 2004, consistent with the repeal of the 1997 Resolution, Mr.
Brooks has reimbursed the Company for all personal expenditures made by him in
2004 on Company credit cards, and the Company has maintained specific records to
reflect the specific reimbursement authorized by the 2004 Resolution;
accordingly, disclosures regarding executive compensation and related party
transactions in 2004 and thereafter are expected to include specific disclosures
of the amounts reimbursable pursuant to the 2004 Resolution.
7
EMPLOYMENT AGREEMENTS
In July 2000, Mr. Brooks and the Company entered into a five-year employment
agreement. Pursuant to the agreement, Mr. Brooks received an annual salary of
$500,000 through July 2001, with annual increases of $50,000 thereafter. On the
effective date of the agreement, Mr. Brooks received warrants to purchase
3,750,000 shares of Common Stock exercisable at $1.00 per share and vesting 20%
in July 2000 and in 20% annual increments thereafter. The warrants expire in
July 2010. As the Company has businesses in Florida and requires Mr. Brooks to
spend considerable time there, this agreement includes provisions for certain of
his Florida expenses.
Until 2004, Mr. Brooks was also entitled to be reimbursed for certain costs and
expenses, in accordance with the 1997 Resolution described above. Mr. Brooks has
waived all rights with respect to any outstanding reimbursement obligations, and
the 1997 Resolution was repealed on August 12, 2004. See "Executive
Compensation-Summary Compensation" above.
In 2003, the Compensation Committee adopted a resolution providing that, upon a
change of control of the Company, all unvested warrants held by directors and
executive officers would vest and become immediately exercisable, management
would be entitled to a buyout of their leased company cars, and severance
payments equal to four months base salary in the event of the termination of
their respective employment with the Company within six months after the
effective date of the change of control.
OPTION/SAR GRANTS
The Company made warrant grants to the Named Executive Officers in the fiscal
year ended December 31, 2003, and the potential realizable values of such
warrants at the end of their terms, assuming certain levels of stock price
appreciation, are as follows:
WARRANT/SAR GRANTS IN FISCAL 2003
INDIVIDUAL GRANTS
Number of
Securities % of Total Potential Realized Value at
underlying Warrants/SARs Assumed Annual Rates of Stock
warrants / Granted to Exercise or Price Appreciation for Warrant
SAR's(1) Employees in Base Price Expiration Term(2):
Name Granted Fiscal Year ($/Share) Date 5% 10%
---- ------- ----------- --------- ---- -- ---
David H. Brooks 50,000 4% $1.41 1/15/08 $69,319 $78,101
Sandra L. Hatfield 0 0% -- -- -- --
Dawn M. Schlegel 50,000 4% $1.41 1/15/08 $69,319 $78,101
<FN>
(1) The Company has no SAR's.
(2) These amounts assume hypothetical appreciation rates of 5% and 10% over the
term of the option, as required by the SEC, and are not intended to forecast the
appreciation of the stock price. No gain to the Named Executive Officers will
occur unless the price of the Company's common shares exceeds the options'
exercise price.
</FN>
8
AGGREGATED WARRANT / OPTION EXERCISES AND FISCAL YEAR-END WARRANT/OPTION VALUES
The following table sets forth information regarding the exercise of stock
warrants during 2003 and the number and value of unexercised warrants/options
held by each of the Named Executive Officers at December 31, 2003. The table
does not include warrants provided to Mr. Brooks in capacities other than as a
director or officer of the Company. The Company has not granted any SAR's.
AGGREGATED WARRANT/OPTION EXERCISES IN FISCAL 2003 AND
FISCAL YEAR END WARRANT/OPTION VALUES
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Warrants / Options at Warrants / Options at
Fiscal Year-End Fiscal Year-End(1)
-------------------------------------------------------------------------------------------------------
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
---- Acquired on Realized ($) ----------- ------------- ----------- -------------
Exercise (#) ------------
------------
David H. Brooks -0- N/A 3,125,000 750,000 $18,464,250 $4,492,500
Sandra L. Hatfield -0- N/A 325,000 100,000 1,394,000 599,000
Dawn M. Schlegel -0- N/A 205,000 -0- 2,321,400 -0-
<FN>
1. Based on the closing price on December 31, 2003 of $6.99 for a
share of the Company's Common Stock.
</FN>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Messrs. Krantz, Nadelman and Chasin served as members of the Compensation
Committee during the 2003 fiscal year. None of Messrs. Krantz, Nadelman or
Chasin (i) was an officer or employee of the Company or any of its subsidiaries
during the 2003 fiscal year, (ii) was formerly an officer of the Company or any
of its subsidiaries; or (iii) had any relationship requiring disclosure by the
Company under any paragraph of Item 404 of Regulation S-K (Certain Relationships
and Related Transactions) promulgated under the Securities Exchange Act of 1934.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is generally determined by
either the Board of Directors or the Compensation Committee of the Board of
Directors, subject to approval by the Board of Directors, and subject to
applicable employment agreements. Each member of the Compensation Committee is a
director who is not an employee of the Company or any of its affiliates.
9
GENERAL POLICIES
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the management talent required to achieve
its corporate objectives, and thereby increase stockholder value. It is the
Company's policy to provide incentives to its senior management to achieve both
short-term and long-term objectives and to reward exceptional performance and
contributions to the development of the Company's businesses. To attain these
objectives, the Company's executive compensation program includes a competitive
base salary and stock-based compensation.
Stock warrants are granted to employees, including the Company's executive
officers, by the Board or the Compensation Committee. The Compensation Committee
believes that stock warrants provide an incentive that focuses the executive's
attention on managing the Company from the perspective of an owner with an
equity stake in the business. Incentive stock warrants are awarded with an
exercise price equal to the market value of Common Stock on the date of grant,
and all warrants have a maximum term of ten years and generally become
exercisable not less than six months after the date of grant. Among the
Company's executive officers, the number of shares subject to warrants granted
to each individual generally depends upon the level of that officer's
responsibility. Previous grants of stock options or warrants are reviewed but
are not considered the most important factor in determining the size of any
executive's stock option award in a particular year.
In December 2003, the Compensation Committee authorized the payment of
$3,000,000 in cash bonuses to key employees and officers, to reward those
individuals who contributed to the Company's substantial revenue growth and
profitability. The continued growth and positive performance of the Company is a
testament to the dedicated employees who work for the Company, who have exceeded
the goals and forecasts set by the Company.
RELATIONSHIP OF COMPENSATION TO PERFORMANCE
The Compensation Committee annually establishes, subject to the approval of the
Board of Directors and any applicable employment agreements, the salaries that
will be paid to the Company's executive officers during the coming year. In
setting salaries, the Compensation Committee takes into account several factors,
including competitive compensation data, the extent to which an individual may
participate in the stock plans maintained by the Company, qualitative factors
bearing on an individual's experience, responsibilities, management and
leadership abilities, and job performance.
For fiscal 2003, the Compensation Committee elected to award bonuses to Sandra
L. Hatfield and Dawn M. Schlegel in the amount of $695,000 and $100,000,
respectively. The Compensation Committee determined that these amounts were
appropriate given the Company's financial performance, the substantial
contribution made by each of such officers to such performance, and the
compensation levels of executives of companies competitive with the Company.
10
COMPENSATION OF CHIEF EXECUTIVE OFFICER
For fiscal 2003, pursuant to the terms of his employment agreement with the
Company, David H. Brooks received a base salary of $650,000. See "Executive
Compensation - Employment Agreements". In light of this employment agreement,
the Compensation Committee was not required to make any decision regarding Mr.
Brooks' base salary. In addition, the unreimbursed use by the Company of certain
property belonging to Mr. Brooks and certain of his affiliates, more than offset
approximately $322,000 of personal expenses the Company paid on behalf of Mr.
Brooks. (See "Executive Compensation - Summary Compensation" and "Executive
Compensation - Employment Agreements" above.) The Compensation Committee elected
to award Mr. Brooks a $1,000,000 bonus for fiscal 2003, in recognition of the
outstanding performance of the Company and its accomplishments of exceeding all
expectations and forecasts, and increased revenues and profits. Mr. Brooks also
received warrants to purchase 50,000 shares of Common Stock at $1.41 per share
(as did each of the other then-current directors of the Company).
COMPENSATION COMMITTEE
Jerome Krantz, Chairman
Cary Chasin
Gary Nadelman
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
GENERAL
As of the date of this Proxy Statement, the Company's authorized capital stock
consists of Common Stock, and Preferred Stock, par value $.001 per share (the
"Preferred Stock"). On the Record Date, there were 40,922,416 shares of Common
Stock outstanding, no shares of Common Stock held in treasury, and 500,000
shares of Preferred Stock outstanding. The holders of Common Stock are entitled
to elect all members of the Board. As of the Record Date, there were 1,750
record holders of Common Stock (reflecting approximately 22,000 beneficial
owners), and one record holder of Preferred Stock.
The following table summarizes information regarding stock warrants outstanding
as of November 19, 2004.
Exercise Price Number of Weighted Average Number of
Range Warrants Exercise Price Shares
----- Outstanding -------------- Exercisable
----------- -----------
0 to $1.00 3,750,000 $1.00 3,750,000
$1.01 to $1.50 250,000 $1.41 250,000
$1.51 to $2.00 475,000 $2.00 375,000
$2.01 to $2.50 120,000 $2.25 120,000
$2.51 to $3.00 5,000 $3.00 5,000
$3.01 to above 583,000 $5.72 561,000
------- -------
Totals 5,173,000 $1.68 5,061,000
========= =========
11
BENEFICIAL OWNERSHIP
The following table sets forth the beneficial ownership of the
Company's Common Stock as of November 19, 2004, for (i) each person known by the
Company to beneficially own more than five percent of the shares of outstanding
Common Stock, (ii) each of the directors and nominees, (iii) each of the
executive officers listed in the Summary Compensation Table in "Executive
Compensation", and (iv) all of the Company's executive officers and directors as
a group. Except as otherwise indicated, all shares are beneficially owned, and
the persons named as the owners hold investment and voting power.
Name Number of Shares Percent Owned(1)
---- Beneficially Owned(2) ----------------
--------------------- * - Less than 1%
David H. Brooks 16,666,440(3) 37%
Jerome Krantz 195,350(4) *
Sandra L. Hatfield 325,000(5) *
Dawn M. Schlegel 255,500(6) *
Gary Nadelman 240,875(7) *
Cary Chasin 162,000(8) *
Barry Berkman 232,200(9) *
All executive officers and Directors as
a group (7 people) 18,077,365(1)0 39%10
<FN>
1. Based upon 40,922,416 shares outstanding as of November 19, 2004. In
calculating the percentage owned by any individual officer or director,
the number of currently exercisable warrants and options held by such
individual have been included in the calculation of the percentage
owned.
2. Includes options or warrants that are exercisable within 60 days after
November 19, 2004.
3. Consists of 5,415,402 common shares owned directly by Mr. Brooks,
768,746 common shares owned by a trust of which Mr. Brooks is the
trustee, 500,000 shares issuable upon conversion of Series A, 12%
Convertible Preferred Stock, which currently are convertible and
represent 100% of the issued and outstanding shares of Preferred Stock
owned by Mr. Brooks, 3,057,292 shares owned by his wife, 3,000,000
shares owned by his wife as custodian for his minor children, and
3,925,000 shares acquirable under currently exercisable warrants at
prices between $1.00 and $7.11 per share; 50,000 of the warrants were
issued in 2003 and 50,000 were issued in 2004. Mr. Brooks is the only
person known by the Company to beneficially own more than 5% of the
Company's outstanding Common Stock, and his address is 400 Post Avenue,
Westbury, New York 11590.
4. Includes 10,000 shares held jointly with his spouse and 150,000 shares
which may be acquired upon exercise of currently exercisable warrants
at prices between $1.41 and $7.11 per share; 50,000 of the warrants
were issued in 2003 and 50,000 were issued in 2004.
5. Consists of 325,000 shares which may be acquired under currently
exercisable warrants at prices between $2.00 and $7.11 per share.
6. Consists of 500 shares held jointly with her spouse and 255,000 shares
which may be acquired under currently exercisable warrants at prices
between $1.41 and $7.11 per share; 50,000 of the warrants were issued
in 2003 and 50,000 were issued in 2004.
12
7. Includes 150,000 shares which may be acquired upon exercise of
currently exercisable warrants at prices between $1.41 and $7.11 per
share; 50,000 of the warrants were issued in 2003 and 50,000 were
issued in 2004.
8. Consists of 62,000 shares held jointly with his spouse and 100,000
shares which may be acquired under currently exercisable warrants at a
price of $1.41 per share; 50,000 of the warrants were issued in 2003
and 50,000 were issued in 2004.
9. Includes 100,000 shares which may be acquired under currently
exercisable warrants at a price of $4.33 per share; 50,000 of the
warrants were issued in 2003 and 50,000 were issued in 2004.
10. Includes 5,005,000 shares purchasable pursuant to currently exercisable
warrants held by directors and officers.
</FN>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission and with the American Stock Exchange, initial reports of
ownership and reports of changes of ownership of Common Stock and other equity
securities of the Company, and SEC regulations require executive officers,
directors and greater-than-ten-percent beneficial owners to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required during the
fiscal year ended December 31, 2003, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater-than-ten-percent
beneficial owners were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has funded certain of its acquisitions and operations through the
use of term loans from Mr. David H. Brooks, Chairman of the Board and principal
stockholder of the Company. On January 14, 2002, Mr. Brooks exchanged $3 million
of the approximately $10 million of indebtedness due him at the time, for
500,000 shares of the Company's newly authorized Series A, 12% Convertible
Preferred Stock (the "Preferred Stock"). The Preferred Stock has a dividend rate
of $0.72 per share per annum, an amount equal to the interest that would have
been payable on the exchanged indebtedness. Shares of the Preferred Stock are
convertible, on a one-to-one basis, at the option of the holder, into shares of
Common Stock. The shares of Preferred Stock are redeemable at the option of the
Company on December 15 of each year. During 2002, the Company repaid $5.5
million of principal indebtedness owed to Mr. Brooks, bringing the total
indebtedness owed by the Company to Mr. Brooks as of December 31, 2002 to $1.5
million. During the second quarter of 2003, the Company repaid the balance of
$1.5 million to Mr. Brooks, eliminating the shareholder loan from the Company's
balance sheet. These shareholder loans had borne interest at 12% per annum.
Interest expense on these loans included in the Company's financial statements
for the years ended December 31, 2003 and 2002 was approximately $93,000 and
$540,000, respectively.
Until June 30, 2004, the Company's Point Blank subsidiary leased a 67,000 square
foot office and manufacturing facility (the "Oakland Park Facility") located at
4031 N.E. 12th Terrace, Oakland Park, Florida 33334, from V.A.E. Enterprises LLC
13
("V.A.E."), a limited liability company controlled by Terry Brooks, the wife of
Mr. David H. Brooks, and beneficially owned by Mr. and Mrs. Brooks' minor
children. Total base rental under this lease was $682,000 in 2003 and $643,000
in 2002, and the lease expires on December 31, 2010. Management performed a
comparison of market rates at the time the lease was entered into, and believes
that the terms of the lease were at the current market price that would then
have been obtained from an unrelated party. On June 30, 2004, V.A.E. sold the
Oakland Park Facility to an unaffiliated third party, at which time the Company
guaranteed Point Blank's future obligations under the lease, for which the
Company received a $25,000 payment.
The Company has been purchasing certain products, which are components of
ballistic-resistant apparel manufactured and sold by the Company, from Tactical
Armor Products, Inc. ("TAP"), a company owned by Terry Brooks, the wife of Mr.
David H. Brooks. The total of such purchases in 2003, 2002 and 2001 were
approximately $29,243,000, $7,975,000 and $2,760,000, respectively. The Company
has benefited by doing business with TAP as the unit prices charged by TAP have
been less than the prices charged to the Company by its previous outside
suppliers, TAP's products are available on demand, and the Company would not be
able to fulfill the demands of its customers through any other source. To
facilitate the delivery and integration of these components, beginning in May
2001, the Company permitted TAP to manufacture these components in a portion of
the Company's manufacturing facility in Jacksboro, Tennessee, for which TAP paid
to the Company occupancy charges of approximately $39,600, $39,600 and $26,400
for the years ended December 31, 2003, 2002 and 2001, respectively. (The rent
paid by TAP is an estimated allocable portion of the Company's total rent for
the entire facility.) Terry Brooks also owned another company, U.S.
Manufacturing Corporation, that received revenues of $560,000 and $43,355 from
the Company in 2003 and 2002 for stitching work, but has since been merged into
TAP. TAP is an approved subcontractor under the applicable contracts between the
Company and the United States federal government.
During 2003, the Company retained an attorney, who is the son of the COO, Sandra
Hatfield, and is a licensed attorney in the State of Tennessee, to perform legal
and consulting services throughout the year. For his legal services, the Company
paid him $95,000 during the year ended December 31, 2003.
The Company has also received and continues to receive the use of certain
property belonging to Mr. David H. Brooks and certain of his affiliates, as more
particularly described in "Executive Compensation - Summary Compensation" above.
In accordance with the 2004 Resolution, Mr. Brooks and his affiliates are
entitled to be paid or reimbursed for such use as described in "Executive
Compensation - Summary Compensation" above.
14
AUDIT COMMITTEE REPORT
Effective January 31, 2000, the Securities and Exchange Commission adopted new
rules and amendments to current rules relating to the disclosure of information
about companies' audit committees. The new rules require that, for all votes of
shareholders occurring after December 15, 2000, the proxy statement must contain
a report of the audit committee addressing several issues identified in the
rules. In addition, the SEC recommends that audit committees adopt written
charters. Our Audit Committee has adopted a charter, a copy of which was
included as Appendix A to the Company's 2002 proxy statement.
In 2003, our Audit Committee was comprised of three directors, Jerome Krantz,
Gary Nadelman, and Cary Chasin, who are not officers of the Company. They are
all considered "independent" under Section 121(A) of the listing standards of
the American Stock Exchange. The Board of Directors has determined that Mr.
Krantz is an "audit committee financial expert."
At the time of his appointment to the Audit Committee, Mr. Chasin was not
considered to be "independent" because he had been employed by the Company
within the preceding three years; however, due to Mr. Chasin's familiarity with
many then-current matters of Company business, the Board of Directors determined
that it was in the best interests of the Company and its stockholders that Mr.
Chasin serve on the Audit Committee, and the Company received from the American
Stock Exchange a waiver of the independence requirement with respect to Mr.
Chasin, conditional upon the preceding disclosure.
The primary function of the Audit Committee is to assist the Board of Directors
in fulfilling its oversight responsibilities. The primary duties and
responsibilities of the Audit Committee include: (i) monitoring the integrity of
the Company's financial reporting process and systems of internal controls, (ii)
monitoring the independence and performance of the Company's independent
auditors, and (iii) providing an avenue of communication among the independent
auditors, management and the Board of Directors.
In this context, during 2003, the Audit Committee met four times telephonically
and held discussions with management and the Company's independent auditors. The
Audit Committee's Chairman, as representative of the Audit Committee, also
discussed the Company's interim financial information contained in each
quarterly earnings announcement with the Company's Chief Financial Officer and
the Company's independent auditors prior to public release.
The Audit Committee has reviewed and discussed the Company's 2003 audited
financial statements with management and discussed with Weiser LLP ("Weiser")
the matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees), which includes, among other items,
matters related to the conduct of the audit of the Company's annual consolidated
financial statements. In addition, the Audit Committee has discussed with Weiser
their independence from the Company and its management, including the matters in
the written disclosures and letter required by the Independence Standards Board
Standard No. 1 and provided to the Audit Committee by Weiser (Independence
Discussions with Audit Committees).
15
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements for 2003 be included in the Company's Annual Report on Form
10-K/A for the year ended December 31, 2003, for filing with the SEC. The Audit
Committee and the Board of Directors also have recommended, subject to
stockholder ratification, the selection of Weiser as the Company's independent
auditors for the fiscal year ending December 31, 2004. In the event that the
Board's selection of auditors is not ratified by a majority of the shares voting
thereon, the Audit Committee and the Board will review its future selection of
auditors.
AUDIT COMMITTEE
Jerome Krantz, Chairman
Cary Chasin
Gary Nadelman
PERFORMANCE GRAPH
NOTE: THE FOLLOWING SECTION OF THIS PROXY STATEMENT SHALL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE INTO ANY FILING BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, NOTWITHSTANDING ANY INCORPORATION
BY REFERENCE OF ANY OTHER PORTIONS OF THIS PROXY STATEMENT.
The following indexed graph indicates the Company's total return to its
stockholders since September 4, 1998 (the day the Company's stock began trading
on NASDAQ) as compared to the total return for the AMEX Market Index (the Common
Stock currently trades on the American Stock Exchange) and the Security
Protection Services Group Index (the "Peer Group"). The Common Stock traded on
NASDAQ until December 21, 1999, at which point it traded on the OTC Bulletin
Board and the Boston Stock Exchange, where it traded until February 1, 2002 when
it began trading on the American Stock Exchange. Media General Financial Service
prepared the performance graph below.
16
COMPARE CUMULATIVE TOTAL RETURN
AMONG DHB INDUSTRIES, INC.
AMEX MARKET INDEX AND COREDATA GROUP INDEX
[GRAPH GOES HERE]
- -------------------------------------------- ----------- ----------- ------------ ----------- ----------- ----------
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-
- -------------------------------------------- ----------- ----------- ------------ ----------- ----------- ----------
DHB INDUSTRIES, INC. 100.00 14.03 34.15 116.10 32.39 136.59
- -------------------------------------------- ----------- ----------- ------------ ----------- ----------- ----------
COREDATA GROUP INDEX 100.00 80.49 71.88 111.46 84.15 131.34
- -------------------------------------------- ----------- ----------- ------------ ----------- ----------- ----------
AMEX MARKET INDEX 100.00 124.67 123.14 117.47 112.78 153.50
- -------------------------------------------- ----------- ----------- ------------ ----------- ----------- ----------
The above graph assumes $100 invested on September 4, 1998 (the day the
Company's Common Stock began trading on NASDAQ) in the Company's Common Stock,
the AMEX Market Index (the Common Stock began trading on the American Stock
Exchange on February 1, 2002) and the Peer Group. It assumes reinvestment of
dividends.
PROPOSAL 2
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Weiser LLP ("Weiser") as the
Company's independent auditors for the year ending December 31, 2004. The Board
of Directors requests the ratification of the appointment of Weiser by the
stockholders at the Annual Meeting.
Grant Thornton LLP ("Grant Thornton") served as the Company's
independent auditors for the year ended December 31, 2002. On August 20, 2003,
the Company was notified by Grant Thornton that it had decided to resign as the
Company's independent auditors. Grant Thornton had served as the Company's
independent auditors since May 29, 2002, and audited the Company's financial
statements solely for the year ended December 31, 2002. The opinion of Grant
Thornton with respect to such financial statements did not contain an adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. There have been no
disagreements with Grant Thornton on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Grant Thornton, would have
caused Grant Thornton make reference to the subject matter of the disagreement
in connection with its reports.
During the Company's most recent fiscal years and through August 20,
2003, there were no "reportable events" as listed in Item 304(a)(1)(v)(A)-(D) of
Regulation S-K adopted by the Securities and Exchange Commission, except that
Grant Thornton notified the Company that in connection with its audit of the
Company's consolidated financial statements for the year ended December 31, 2002
17
for filing with the Company's Form 10-K/A for that year, it identified certain
deficiencies involving internal control that it considered to be significant
deficiencies that, in the aggregate, constituted material weaknesses under
standards established by the American Institute of Certified Public Accountants.
These deficiencies included the failure to disclose certain related party
transactions in the Company's Form 10-K for the fiscal year ended December 31,
2002, the Company's reliance on substantial outside assistance from outside
professionals in preparing the Company's financial statements, and understaffing
in the Company's accounting and finance department. After further review, Grant
Thornton reissued their audit report in the Company's Form 10-K/A which states
that the Company's consolidated financial statements presented fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2002 and the consolidated results of its
operations and consolidated cash flows for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States.
Grant Thornton formally notified the Company of these deficiencies on
the date of their resignation. The Company's Audit Committee did not discuss
these deficiencies with Grant Thornton before their resignation. The Company has
authorized Grant Thornton to discuss the subject matter of each material
weakness identified with the successor auditor subsequently engaged as the
principal accountant to audit the Company's financial statements, and the
Company has taken steps to address each of the deficiencies identified by Grant
Thornton.
On August 27, 2003, the Company engaged Weiser as the Company's
independent auditors for the year ended December 31, 2003.
AUDIT FEES. The aggregate fees billed for professional services
rendered by Grant Thornton for the audit of the Company's financial statements
("Audit Services") during the year ended December 31, 2002 were $179,820. The
aggregate fees billed by Grant Thornton for services rendered to the Company,
other than the services described above under "Audit Fees", for the fiscal year
ended December 31, 2002 were approximately $7,500. These fees were principally
for review of the Company's Quarterly Reports on Form 10-Q. There were no audit
or non-audit services rendered by Grant Thornton to the Company prior to May 29,
2002. Weiser had billed the Company a total of $275,000 for audit services (in
respect of the 2003 fiscal year) through April 9, 2004.
AUDIT-RELATED FEES. A portion of the "transition fee" paid to Grant
Thornton (as described in "All Other Fees" below) may be considered to be for
assurance and audit-related services, although the Company is unable to make a
precise allocation. The Company paid to Weiser $25,000 in fees relating to the
review of quarterly reports in 2003, and reimbursed Weiser $7,820 for travel
expenses in conjunction with the audit of the 2003 annual financial statements.
TAX FEES. Grant Thornton billed the Company $11,250 for the preparation
of the Company's corporate income tax returns for the year ended December 31,
2002. Weiser has provided the Company with professional services for tax
compliance, tax advice and tax planning, and billed the Company aggregate fees
of approximately $49,900 for such professional services through September 30,
2004.
18
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Grant
Thornton did not render any professional services described in paragraph
(c)(4)(ii) of Rule 2-01 of Regulation S-X (17 C.F.R. 210.2-01), for the Company
during the year ended December 31, 2002. The Audit Committee determined that the
absence of any such services was compatible with maintaining the independence of
Grant Thornton. There were no audit or non-audit services rendered by Grant
Thornton to the Company prior to May 29, 2002. No such services have to date
been provided to the Company by Weiser.
ALL OTHER FEES. Grant Thornton billed and the Company paid a
"transition fee" for the change in accountants of $31,800, an additional $25,000
for time thereafter incurred in reviewing the 10-K, and an additional $50,000
for time responding to an SEC investigation relating to the Company. There were
no other fees billed by Grant Thornton for services rendered to the Company,
other than the services described above, for the fiscal year ended December 31,
2002. There were no audit or non-audit services rendered by Grant Thornton to
the Company prior to May 29, 2002. Except for audit and tax fees described
above, and $1,020 in fees for responding to SEC inquiry letters, Weiser has not
billed the Company or provided any services other than in connection with the
audit of the Company's financial statements and tax planning during the year
ended December 31, 2003.
The Audit Committee of the Board of Directors maintains a pre-approval policy
with respect to audit and non-audit services to be performed by the Company's
independent auditor, in order to assure that the provision of such services does
not impair the auditor's independence. Before engaging the independent auditor
to render a service, the engagement must be either specifically approved by the
Audit Committee, or entered into pursuant to the pre-approval policy. Unless the
Audit Committee specifically provides for a different period, the term of any
pre-approval is 12 months from the date of the pre-approval. Pre-approval
authority may be delegated to one or more members of the Audit Committee, who
must report any pre-approval decisions to the Audit Committee at its next
scheduled meeting; however, the Audit Committee may not delegate pre-approval
authority to Company management.
Pursuant to the pre-approval policy, the Audit Committee must specifically
pre-approve the terms of the annual audit services engagement, and any changes
in terms resulting from changes in audit scope, the Company's structure or other
matters. Within certain parameters, the Audit Committee has also pre-approved
certain audit-related services (other than internal control-related services),
tax services and other services. However, in both 2003 and 2004, the Audit
Committee has specifically approved all specific engagements relating to the
Company's independent auditor.
A representative of Weiser is expected to be present at the Annual Meeting and
will have the opportunity to make statements if he or she desires to do so and
will be available to respond to appropriate questions.
The affirmative vote of a majority of the shares of Common Stock present in
person at the Annual Meeting or represented by proxy is required for
ratification of the appointment of Weiser as the independent accountants for
2004.
19
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF WEISER LLP
PROPOSAL 3
THE PROPOSED 2004 OMNIBUS EQUITY INCENTIVE PLAN
The Company currently maintains a single equity compensation plan, its 1995
Stock Option Plan. The following table reflects the outstanding
options/warrants, and shares available for future grants of options/warrants
under the 1995 Stock Option Plan.
Equity Compensation Plan Information
Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
Plan category (excluding securities
reflected in column (a))
- ----------------- ----------------- ----------------- -----------------
(a) (b) (c)
Equity compensation plans
approved by security holders
5,123,000 $1.51 -0-
Equity compensation plans not
approved by security holders
-0- -- -0-
---------- -----
Total 5,123,000 -0-
As indicated in the above table, the Company has previously granted options or
warrants for substantially all of the shares available under the 1995 Stock
Option Plan, and thus the Board of Directors of the Company has adopted a 2004
Omnibus Equity Incentive Plan (the "Plan") subject to approval by the Company's
stockholders. A copy of the Plan is included as Exhibit A to this Proxy
Statement, and the following summary is qualified in its entirety by reference
to the complete text of the Plan.
As indicated in the report of the Compensation Committee, the Company believes
that it is in the Company's best long-term interest to incentivize its employees
through equity-based compensation. Under the rules of the American Stock
Exchange (on which the Company's Common Stock is traded), and certain Internal
Revenue Code requirements, stockholder approval is required with respect to new
equity compensation plans such as the Plan. The Plan is not qualified under the
20
provisions of Section 401(a) of the Internal Revenue Code, and is not subject to
any of the provisions of the Employee Retirement Income Security Act of 1974.
Pursuant to the Plan, officers, directors, employees and/or consultants of the
Company and/or its subsidiaries would be able to receive incentive stock
options, non-qualified stock options, restricted stock awards, deferred stock
awards, bonus stock, stock appreciation rights (SARs), dividend equivalents,
and/or other stock-based awards with respect to up to an aggregate of 12,000,000
shares of the Common Stock, plus the number of shares with respect to which
awards previously granted under the Plan terminate without being exercised and
the number of shares that are surrendered in payment of any awards or tax
withholding requirements. (On November 19, 2004, the closing price of the Common
Stock was $19.24.) As of November 19, 2004, a total of approximately 60
individuals would be considered for participation in and receive grants under
the Plan, including the three named officers in the compensation table above,
two additional executives, four non-executive directors, and one former
non-executive employee. Although the Compensation Committee has not considered
any potential grants under the Plan, had the Plan been in effect in 2003, it is
expected that the named officers and non-executive directors would have received
option grants in the amounts awarded to them under the 1995 Stock Option Plan as
described above, and that up to 100,000 options would have been issued to other
executives.
INCENTIVE STOCK OPTIONS. With respect to incentive stock options, the
Plan provides that the exercise price of each such option must be at least equal
to 100% of the fair market value of the Common Stock on the date that such
option is granted (and 110% of fair market value in the case of stockholders
who, at the time the option is granted, own more than 10% of the total
outstanding Common Stock), and requires that each such option have an expiration
date not later than the tenth anniversary of the date of the grant of such
option (or the fifth anniversary of the date of grant in the case of 10%
stockholders). However, with certain limited exceptions, in the event that the
option holder ceases to be associated with the Company, or engages in or is
involved with any business similar to that of the Company, such option holder's
incentive options immediately terminate. The aggregate fair market value,
determined as of the date(s) of grant, for which incentive stock options are
first exercisable by an option holder during any one calendar cannot exceed
$100,000. The recipient of an incentive stock option is generally not subject to
tax upon the grant of the option. Provided that the option holder retains the
shares acquired upon exercise of an incentive stock option until one year after
the date of exercise and two years after the date of the option grant, the
option holder will not recognize any taxable income from the exercise of the
option (and the Company will not receive any corresponding tax deduction), and
the option holder will recognize capital gain or loss upon the ultimate
disposition of the option shares (with the amount of gain or loss generally
computed as the difference between the exercise price and the ultimate sale
price of the option shares); however, if the option holder disposes of the
option shares prior to satisfying such holding periods, then the difference
between the fair value of the shares at the time of exercise and the exercise
price of the option will be treated as taxable ordinary income to the option
holder (with a corresponding tax deduction to the Company, subject to certain
statutory requirements) in the year in which the shares are disposed of.
NON-QUALIFIED STOCK OPTIONS. With respect to non-qualified stock
options, the Plan requires that the exercise price of each such options be at
least equal to 100% of the fair market value of the Common Stock on the date
21
that such option is granted. Non-qualified options must have an expiration date
not later than the tenth anniversary of the date of the grant of such option.
However, with certain limited exceptions, in the event that the option holder
ceases to be associated with the Company, or engages in or becomes involved with
any business similar to that of the Company, such option holder's non-qualified
options immediately terminate. The recipient of a non-qualified option generally
will not be subject to tax upon the grant of the option, but upon exercise of
the option, the option holder will recognize taxable ordinary income (and the
Company will, subject to certain statutory requirements, receive a corresponding
tax deduction) in an amount equal to the difference between the fair value of
the shares at the time of exercise and the exercise price of the option. Such
ordinary income will increase the option holder's basis in the subject shares to
an amount equal to the fair value of the shares at the time of exercise, and any
further gain or loss upon subsequent disposition of the shares will be taxable
as capital gain or loss.
RESTRICTED STOCK. Restricted stock is a grant of shares of Common Stock
which is subject to specified vesting provisions and limitations on transfer,
but which immediately entitles the recipient to all rights of a stockholder with
respect to those shares. Vesting is typically contingent upon the employee's
continued employment for a specific period of time and/or upon the achievement
of specified performance goals. Restricted stock awards are taxable as ordinary
income to the recipient (with a corresponding tax deduction to the Company) from
time to time as the restricted stock vests, although the recipient may elect to
recognize income upon receipt of the stock (with a corresponding tax deduction
to the Company). The recipient's tax basis in the restricted stock will be the
amount paid for such shares plus any ordinary income recognized either when the
stock is received or when the stock becomes vested, and upon any disposition of
the restricted stock, the difference between the sale price and the recipient's
tax basis will be treated as a capital gain or loss. Restricted stock awards may
be preferable to option grants because fewer shares are required to achieve the
same award value based on the grant date value; however, shares of restricted
stock are considered to be outstanding and will thus be included in the
denominator for computing "diluted" earnings per share, and to the extent that
the Company is required to account for restricted stock awards as compensation
expense, this may result in lower earnings per share than the expense
attributable to an option award.
DEFERRED STOCK. Deferred stock is a grant of shares of Common Stock
which becomes effective upon (and does not confer stockholder rights until) the
expiration of the deferral period specified for such deferred stock award, and
which may be subject to further restrictions (including a risk of forfeiture)
such as achievement of performance goals, future service requirements or other
requirements. The Company may satisfy its obligations in respect of a deferred
stock award by the delivery of shares of Common Stock, cash equal to the fair
market value of the subject shares, or a combination thereof. Deferred Stock
awards are taxable as ordinary income to the recipient (with a corresponding tax
deduction to the Company) from time to time as the deferred stock becomes
vested. The shares underlying a deferred stock award are not considered
outstanding until such shares have become vested in accordance with the
requirements of the subject award.
BONUS STOCK. Bonus stock is an award of shares of Common Stock which is
granted as additional compensation, or in lieu of obligations to pay cash or
deliver other property. To the extent granted as additional compensation or in
lieu of other compensation obligations, bonus stock awards are taxable as
22
ordinary income to the recipient (with the amount of income equal to the excess,
if any, of the fair market value of the stock received over any amount paid by
the recipient in exchange for the stock), with a corresponding tax deduction to
the Company. If, however, the stock is not vested when it is received under the
Plan (such as, for example, if the recipient is required to remain employed with
the Company for a period of time in order to have the right to sell the stock),
the tax treatment will be similar to the tax treatment of restricted stock as
described above.
STOCK APPRECIATION RIGHTS. With respect to SARs, such rights permit the
holder thereof to receive, after a fixed period of time or upon termination of
such holder's association with the Company (other than a termination for cause),
a payment (payable, at the Company's option, either in cash, in Common Stock, in
other awards under the Plan, or a combination) equal to any net appreciation in
the market price of the Common Stock underlying the SARs, between the date on
which the SAR was granted and the target date or the date of the termination of
the holder's association with the Company. SARs may be granted separately from
other awards under the Plan, or in tandem with options granted under the Plan.
The recipient does not incur tax liability from the grant or termination of
SARs, but upon exercise of or payment in respect of the SAR, the holder of the
SAR recognizes ordinary income to the extent of such payment, and the Company is
entitled to a corresponding tax deduction. With respect to SARs granted in
tandem with options under the Plan, if the recipient elects to surrender the
underlying option in exchange for cash or shares of stock equal to the
appreciation inherent in the underlying option, these same tax consequences will
apply; however, if the recipient elects to exercise the underlying option, he or
she will be taxed at the time of exercise as if he or she had exercised a
non-qualified stock option, and the Company will be entitled to a corresponding
tax deduction.
DIVIDEND EQUIVALENTS. The Plan also permits the award of dividend
equivalents and other stock-based awards. Dividend equivalents entitle the
recipient to receive, from time to time as and when dividends are paid by the
Company on the Common Stock, an amount equal to the dividends that would have
been paid on a fixed number of shares of Common Stock (as stipulated in the
award of such dividend equivalents); payments in respect of dividend equivalents
may be made in cash, shares of Common Stock, other awards under the Plan, or
other property, in each case having a value equal to the subject dividends, or
may be required to be reinvested in additional shares of Common Stock and
subject to such restrictions on transferability and risks of forfeiture as may
be determined by the Compensation Committee with respect to each particular
award of dividend equivalents. The recipient of a dividend equivalent award will
recognize ordinary income at the time the award is received, in an amount equal
to the fair market value of such award; and the Company will generally be
entitled to a corresponding tax deduction. Other stock-based awards are awards
under the Plan that may be denominated or payable in, valued in whole or in part
by reference to, or otherwise based on or related to, shares of Common Stock, as
determined by the Compensation Committee on a case-by-case basis; such awards
may include securities other than or in addition to Common Stock.
PERFORMANCE AWARDS. The Plan also permits the grant of performance
awards, which are awards (payable in cash, shares of Common Stock, or other
awards under the Plan) that are granted subject to the achievement of
performance criteria during the performance period established for the subject
performance award (which performance period must not be less than 12 months or
more than 5 years). Performance awards granted to persons whom the Compensation
23
Committee expects will, for the year in which a deduction arises, be covered
employees under Section 162(m) of the Internal Revenue Code will, if and to the
extent intended by the Compensation Committee, be subject to provisions that
should qualify such awards as "performance based" compensation which is not
subject to the limitation on tax deductibility under Section 162(m). (See
"Section 162(m)" below.) Payment by the Company in respect of a performance
award is made only after the end of the subject performance period, and may be
paid in a lump sum or installments in accordance with the subject performance
award and any procedures established by the Compensation Committee. Payments
under a performance award are taxable as ordinary income to the recipient (with
a corresponding tax deduction to the Company) from time to time as the Company
makes payment in respect of such performance award.
Subject to the requirements of the Plan, the Compensation Committee
will determine the terms of performance awards, including the required levels of
performance with respect to specified business criteria, the corresponding
amounts payable upon achievement of such levels of performance, termination and
forfeiture provisions, and the form of settlement. One or more of the following
business criteria for the Company, on a consolidated basis, and/or for specific
subsidiaries or business units (except with respect to the total stockholder
return and earnings per share criteria), will be used by the Compensation
Committee in establishing performance goals for such performance awards: (i)
earnings per share; (ii) increase in revenues or margins; (iii) increase in cash
flows; (iv) operating margins; (v) return on net assets, investment, capital or
equity; (vi) economic value added; (vii) direct contributions; (viii) net
income; pre-tax earnings; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; earnings after interest expense
and before extraordinary or special items; operating income; income before
interest income or expense, unusual items and income taxes (local, state or
federal) and excluding budgeted and actual bonuses which might be paid under any
ongoing bonus plans of the Company; (ix) working capital; (x) management of
fixed costs or variable costs; (xii) identification or consummation of
investment opportunities or completion of specified projects in accordance with
corporate business plans, including strategic mergers, acquisitions or
divestitures; (xii) total stockholder returns; (xiii) debt reduction; and (xiv)
any of the above goals determined on an absolute or relative basis or as
compared to the performance of a published or special index deemed applicable by
the Compensation Committee including, but not limited to, the Standard & Poor's
500 Stock Index or a group of companies that are comparable to the Company.
CHANGE IN CONTROL. The Plan provides that, upon a change in control of
the Company, unless the successor company assumes the subject options or other
awards under the Plan or substitutes comparable options or awards, then all
future service requirements for vesting under outstanding awards under the Plan
will be deemed to have been satisfied, any performance goals or conditions will
be deemed earned and payable based on performance to the date of the change in
control, and the remaining performance-based portion of the subject award will
be converted to a restricted stock award or deferred stock award. A change in
control is generally defined as (a) a person or group acquiring beneficial
ownership of 50% or more of the outstanding Common Stock or combined voting
power of the outstanding voting securities of the Company (unless initiated by
the Company or any of its employee benefit plans); (b) any involuntary turnover
of a majority of the Board of Directors of the Company within a period of two
consecutive years; (c) any business combination to which the Company or any of
its subsidiaries is a party unless (i) pre-existing stockholders of the Company
24
beneficially own 50% or more of the outstanding Common Stock and combined voting
power of the outstanding voting securities of the surviving corporation in such
business combination, (ii) no person (other than an employee benefit plan of the
Company) beneficially owns 50% or more of the outstanding Common Stock or
combined voting power of the outstanding voting securities of the surviving
corporation in such business combination, and (iii) at least a majority of the
members of the board of directors of the surviving corporation were members of
the Company's board of directors at the time of the agreement for such business
combination; or (d) approval by the Company's stockholders of a complete
liquidation or dissolution of the Company.
SECTION 162(M). In general, Section 162(m) of the Internal Revenue Code
disallows a public company's tax deduction for compensation to covered employees
(consisting of the Chief Executive Officer and other officers whose compensation
is required to be disclosed in the Company's SEC filings) to the extent of
compensation in excess of $1,000,000 in any year. That limitation, however,
would not apply to "performance based" compensation under the Plan. The Company
intends that options granted to employees who are expected to be employees
covered by Section 162(m) at the time a deduction arises in connection with such
options, will, based on the performance criteria described in "Performance
Awards" above, qualify as such "performance based" compensation, so that such
options will not be subject to the $1,000,000 deductibility limitation. Future
changes in Section 162(m) or the regulations thereunder may adversely affect the
ability of the Company to ensure that options under the Plan will qualify as
"performance based" compensation that is fully deductible by the Company.
ACCOUNTING. The Company does not currently account for options or
warrants as compensation expense, which is optional under Statement of Financial
Accounting Standards No. 123. The Financial Accounting Standards Board (the
"FASB") recently adopted (and then deferred the effective date of) a rule that,
in its current form, would require companies, beginning in July 2005, to treat
all option grants as expenses at the time of grant (valuing the options by using
a predictive financial model). This rule has encountered substantial opposition
from many elements of the business community, and numerous members of the United
States Congress, who have lobbied the Securities and Exchange Commission to
further delay the effective date of the rule, and who have sponsored proposed
legislation that would require the expensing of only the options granted to the
five most highly compensated employees of the subject company. If the FASB rule
becomes effective in its current form, the Company would be required, beginning
in July 2005, to estimate the future value of all equity-based compensation
grants at the time of grant (using a predictive financial model), and deduct
such values in calculating net income. Such a non-cash charge could have a
material effect on net income and earnings per share, and may become one of the
factors that the Compensation Committee will consider in determining the types
and amounts of equity-based compensation awards.
The Plan will expire on November 23, 2014 (the tenth anniversary of the adoption
of the Plan by the Company's Board of Directors), or sooner if no further shares
of Common Stock remain available for issuance under the Plan, or upon any
termination of the Plan by the Company's Board of Directors. Any awards under
the Plan that are outstanding at the time of expiration or termination of the
Plan will remain in effect until they have been exercised or terminated, or have
expired.
25
The Plan will be administered by the Compensation Committee of the Company's
Board of Directors, each of whose members must be an outside director and
"independent" within the rules of the American Stock Exchange. In the absence of
a Compensation Committee, the Plan will be administered by the independent
members of the Board of Directors. The Plan administrator will have full
authority to make awards under the Plan consistent with the specific
requirements of the Plan, and containing other terms and conditions (which may
include, among other things, vesting, time-in-service, performance criteria and
other requirements, termination and forfeiture provisions, payment and
settlement methods, and the ability to exercise options on a cashless basis
through the surrender of outstanding shares or awards under the Plan) as may be
deemed appropriate in each instance. The Plan gives broad latitude to the Plan
administrator to determine the amounts and types of awards and the allocation of
awards as among the various eligible participants, and expressly grants the Plan
administrator the right, without requirement of stockholder approval, to reprice
any or all options and other awards under the Plan, subject to specific
limitations imposed by the Plan, and under applicable tax law with respect to
incentive stock options.
On October 11, 2004, Congress passed the American Jobs Creation Act of 2004 (the
"Act"), which contains provisions relating to deferred compensation plans.
President Bush has since signed this legislation. The Act gives the Treasury
Department the authority to issue Treasury Regulations to define terms, provide
exceptions, and create a window of time during which existing plans may be
altered or amended in order to comply with the Act. Until such Treasury
Regulations are promulgated, it is impossible to predict the exact effect the
legislation will have on the operation of the Plan. The Act provides that all
compensation deferred after December 31, 2004 under a "non-qualified deferred
compensation plan" will be includible in gross income for the tax year, to the
extent not subject to a "substantial risk of forfeiture" and not previously
included in gross income, if, at any time during the tax year, the plan either
fails to meet the requirements for (i) distributions, (ii) acceleration of
benefits, and (iii) elections, or is not operated in accordance with any of the
aforementioned requirements. The definition of a "nonqualified deferred
compensation plan" is broad enough to include stock options, supplemental
executive retirement plans, stock appreciation rights, restricted stock, bonus
and incentive deferral arrangements, restricted stock units, and phantom stock
plans. The Act is not intended to change the tax treatment of incentive stock
options and options granted under employee stock purchase plans (ESPPs).
Furthermore, the Act is not intended to apply to non-qualified stock options if
such options (a) are taxable under Section 83 of the Internal Revenue Code; (b)
provide for the grant of the option with a strike price that is not less than
the fair market value of the underlying stock on the date of grant; and (c) do
not include any deferral feature other than the feature that the option holder
has the right to exercise the option in the future. Consistent with its general
authority to amend the Plan (except for matters requiring stockholder approval
under applicable law or stock exchange rules), the Company's Board of Directors
will have the right, without further stockholder approval, to amend the Plan so
that it complies with the Act, as and when the related Treasury Regulations
become effective.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
2004 OMNIBUS EQUITY INCENTIVE PLAN
26
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K/A for the year ended December
31, 2003 (without exhibits) as filed with the Securities and Exchange Commission
is being mailed to stockholders with this Proxy Statement.
STOCKHOLDER PROPOSALS AND COMMUNICATIONS
If any stockholder of the Company wishes to submit a proposal for inclusion in
the proxy statement and proxy for the Company's 2005 Annual Meeting of
Stockholders, such proposal must be received at the Company's principal
executive office by March 31, 2005. All such proposals are subject to the
applicable rules and requirements of the Securities and Exchange Commission.
The Board of Directors does not have a formal process for stockholders to send
communications (including director nominations) to the Board. Due to the
infrequency of stockholder communications to the Board, the Board does not
believe that a formal process is necessary. Written communications to the Board
may be sent to the Board at the Company's chief executive offices at 400 Post
Avenue, Suite 303, Westbury, New York 11590, and the Company will promptly
circulate such communications to all members of the Board (or to those
particular directors to whom such communication is specifically addressed). Such
communications will be screened to the extent necessary in order to ascertain
the intended recipients or appropriate recipients among the members of the
Board.
A shareholder who intends to nominate an individual for election to the Board of
Directors (other than a candidate proposed by the Board of Directors) must do so
in accordance with the foregoing procedures.
OTHER MATTERS
Management knows of no other matters to come before the Annual Meeting other
than those referred to in the Notice of Meeting. However, if any other matters
properly come before the Annual Meeting, the shares represented by the proxy
solicited hereby will be voted on such matters in accordance with the best
judgment of the person voting the shares represented by the proxy.
ANNUAL REPORT ON FORM 10-K/A
The Company will provide without charge to each person whose proxy is
solicited, upon the written request of any such person, a copy of the Company's
Annual Report on Form 10-K/A for its fiscal year ended December 31, 2003 as
filed with the SEC, including the financial statements and the schedules
thereto. The Company does not undertake to furnish without charge copies of all
exhibits to its Form 10-K/A, but will furnish any exhibit upon the payment of a
charge equal to the Company's costs of copying and mailing any such exhibits.
Such written requests should be directed to Mrs. Dawn M. Schlegel, Chief
Financial Officer, 400 Post Avenue, Suite 303, Westbury, New York 11590. Each
27
such request must set forth a good faith representation that, as of November 19,
2004, the person making the request was a beneficial owner of securities
entitled to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
DAWN M. SCHLEGEL
SECRETARY
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
28
EXHIBIT A
2004 OMNIBUS EQUITY INCENTIVE PLAN
DHB INDUSTRIES, INC.
2004 OMNIBUS EQUITY INCENTIVE PLAN
DHB INDUSTRIES, INC.
2004 OMNIBUS LONG-TERM INCENTIVE COMPENSATION PLAN
1. PURPOSE...............................................................1
2. DEFINITIONS...........................................................1
3. ADMINISTRATION........................................................6
(A) AUTHORITY OF THE COMMITTEE...................................6
(B) MANNER OF EXERCISE OF COMMITTEE AUTHORITY....................7
(C) LIMITATION OF LIABILITY......................................7
4. SHARES SUBJECT TO PLAN................................................7
(A) LIMITATION ON OVERALL NUMBER OF SHARES SUBJECT TO AWARDS.....7
(B) APPLICATION OF LIMITATION TO GRANTS OF AWARDS................8
(C) AVAILABILITY OF SHARES NOT DELIVERED UNDER AWARDS............8
(D) NO FURTHER AWARDS UNDER PRIOR PLAN...........................9
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS.............................9
6. SPECIFIC TERMS OF AWARDS..............................................9
(A) GENERAL......................................................9
(B) OPTIONS.....................................................10
(C) STOCK APPRECIATION RIGHTS...................................11
(D) RESTRICTED STOCK AWARDS.....................................12
(E) DEFERRED STOCK AWARD........................................13
(F) BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS...............14
(G) DIVIDEND EQUIVALENTS........................................14
(H) PERFORMANCE AWARDS..........................................15
(I) OTHER STOCK-BASED AWARDS....................................15
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS..............................15
(A) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS......15
(B) TERM OF AWARDS..............................................16
(C) FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS..........16
(D) EXEMPTIONS FROM SECTION 16(B) LIABILITY.....................16
8. CODE SECTION 162(M) PROVISIONS.......................................17
(A) COVERED EMPLOYEES...........................................17
(B) PERFORMANCE CRITERIA........................................17
(C) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
GOALS.......................................................17
(D) ADJUSTMENTS.................................................18
i
9. CHANGE IN CONTROL....................................................18
(A) EFFECT OF CHANGE IN CONTROL.................................18
(B) DEFINITION OF "CHANGE IN CONTROL"...........................19
10. GENERAL PROVISIONS...................................................20
(A) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS................20
(B) LIMITS ON TRANSFERABILITY; BENEFICIARIES....................21
(C) ADJUSTMENTS.................................................21
(D) TAXES.......................................................23
(E) CHANGES TO THIS PLAN AND AWARDS.............................23
(F) LIMITATION ON RIGHTS CONFERRED UNDER PLAN...................23
(G) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS...............24
(H) NONEXCLUSIVITY OF THIS PLAN.................................24
(I) PAYMENTS IN THE EVENT OF FORFEITURES; FRACTIONAL SHARES.....24
(J) GOVERNING LAW...............................................24
(K) NON-U.S. LAWS...............................................24
(L) PLAN EFFECTIVE DATE AND SHAREHOLDER APPROVAL; TERMINATION
OF PLAN.....................................................24
ii
DHB INDUSTRIES, INC.
2004 OMNIBUS EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of this 2004 OMNIBUS EQUITY INCENTIVE PLAN
(this "Plan") is to assist DHB Industries, Inc., a public corporation (the
"Company"), and its Related Entities (as hereinafter defined) in attracting,
motivating, retaining and rewarding high-quality executives and other employees,
officers, directors, consultants and other persons who provide services to the
Company or its Related Entities by enabling such persons to acquire or increase
a proprietary interest in the Company in order to strengthen the mutuality of
interests between such persons and the Company's stockholders, and providing
such persons with long-term performance incentives to expend their maximum
efforts in the creation of stockholder value.
2. DEFINITIONS. For purposes of this Plan, the following terms shall be
defined as set forth below, in addition to the terms defined in Section 1
hereof.
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, Deferred Stock Award, Share granted as a bonus or in
lieu of another award, Dividend Equivalent, Other Stock-Based Award or
Performance Award, together with any other right or interest, granted to a
Participant under this Plan.
(b) "Award Agreement" means any written agreement, contract or
other instrument or document evidencing any Award granted by the Committee
hereunder.
(c) "Business Combination" has the meaning ascribed to such
term in Section 9(b)(iii) hereof.
(d) "Beneficiary" means the person, persons, trust or trusts
that have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Beneficial Owner" has the meaning ascribed to such term
in Rule 13d-3 under the Exchange Act and any successor to such Rule.
(f) "Board" means the Company's Board of Directors.
(g) "Cause" shall, with respect to any Participant, have the
meaning specified in the applicable Award Agreement. In the absence of any
definition in an applicable Award Agreement, "Cause" shall have the equivalent
meaning or the same meaning as "cause" or "for cause" set forth in any
employment, consulting or other agreement for the performance of services
between the Participant and the Company or a Related Entity or, in the absence
1
of any such agreement or any such definition in such agreement, such term shall
mean (i) the failure by the Participant to perform, in a reasonable manner, his
or her duties as assigned by the Company or a Related Entity, (ii) any violation
or breach by the Participant of his or her employment, consulting or other
similar agreement with the Company or a Related Entity, if any, (iii) any
violation or breach by the Participant of any non-competition, non-solicitation,
non-disclosure and/or other similar agreement with the Company or a Related
Entity, (iv) any act by the Participant of dishonesty or bad faith with respect
to the Company or a Related Entity, (v) use of alcohol, drugs or other similar
substances in a manner that adversely affects the Participant's work
performance, (vi) the commission by the Participant of any act, misdemeanor, or
crime reflecting unfavorably upon the Participant or the Company or any Related
Entity, or (vii) any statement (written or verbal) by the Participant which
denigrates, demeans, libels or slanders the Company or a Related Entity and
which has had or is reasonably likely to have a material adverse effect on the
Company or any Related Entity or its business, operations or reputation. The
good faith determination by the Committee of whether the Participant's
Continuous Service was terminated by the Company for "Cause" shall be final and
binding for all purposes hereunder.
(h) "Change in Control" means a Change in Control as defined
with related terms in Section 9(b) of this Plan.
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.
(j) "Committee" means the Compensation Committee of the Board
or another committee comprised of Board members and designated by the Board to
administer this Plan; provided, however, that if the Board fails to designate a
committee or if there are no longer any members on the committee so designated
by the Board, then the Board shall serve as the Committee. The Committee shall
consist of at least two directors, and each member of the Committee shall be (i)
a "non-employee director" within the meaning of Rule 16b-3 (or any successor
rule) under the Exchange Act, unless administration of this Plan by
"non-employee directors" is not then required in order for exemptions under Rule
16b-3 to apply to transactions under this Plan, (ii) an "outside director"
within the meaning of Section 162(m) of the Code, and (iii) "Independent".
(k) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(l) "Continuous Service" means the uninterrupted provision of
services to the Company or any Related Entity in any capacity of Employee,
Director, Consultant or other service provider. Continuous Service shall not be
considered to be interrupted in the case of (i) any approved leave of absence,
(ii) transfers among the Company, any Related Entities, or any successor
entities, in any capacity of Employee Director, Consultant or other service
provider, or (iii) any change in status as long as the individual remains in the
service of the Company or a Related Entity in any capacity of Employee,
Director, Consultant or other service provider (except as otherwise provided in
2
the Award Agreement). An approved leave of absence shall include sick leave,
military leave, or any other authorized personal leave.
(m) "Covered Employee" means an Eligible Person who is a
"covered employee" within the meaning of Section 162(m)(3) of the Code, or any
successor provision thereto.
(n) "Deferred Stock" means a right to receive Shares,
including Restricted Stock, cash or a combination thereof, at the end of a
specified deferral period.
(o) "Deferred Stock Award" means an Award of Deferred Stock
granted to a Participant under Section 6(e) hereof.
(p) "Director" means a member of the Board or the board of
directors of any Related Entity.
(q) "Disability" means a permanent or total disability (within
the meaning of Section 22(e) of the Code), as determined by a medical doctor
satisfactory to the Committee.
(r) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g) hereof, to receive cash, Shares, other Awards or
other property equal in value to regular dividends paid with respect to a
specified number of Shares, or other periodic payments.
(s) "Effective Date" means the date on which this Plan is
adopted by the Board, which is November 16, 2004, subject to approval within
twelve (12) months thereafter by stockholders of the Company in accordance with
Section 10(l) hereof.
(t) "Eligible Person" means each officer, Director, Employee,
Consultant and other person who provides services to the Company or any Related
Entity. The foregoing notwithstanding, only employees of the Company, or any
parent corporation or subsidiary corporation of the Company (as those terms are
defined in Code Sections 424(e) and (f), respectively), shall be Eligible
Persons for purposes of receiving any Incentive Stock Options. An Employee on
leave of absence may be considered as still in the employ of the Company or a
Related Entity for purposes of eligibility for participation in this Plan.
(u) "Employee" means any person, including an officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company or a Related Entity shall not be sufficient
to constitute "employment" by the Company.
(v) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(w) "Fair Market Value" means the fair market value of Shares,
Awards or other property as determined by the Committee, or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value of a Share as of any given date shall be the closing sale
price per Share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which Shares are traded on the date as of
3
which such value is being determined or, if there is no sale on that date, then
on the last previous day on which a sale was reported.
(x) "Freestanding Stock Appreciation Right" has the meaning
ascribed to such term in Section 6(c) hereof.
(y) "Good Reason" shall, with respect to any Participant, have
the meaning specified in the applicable Award Agreement. In the absence of any
definition in an applicable Award Agreement, "Good Reason" shall have the
equivalent meaning or the same meaning as "good reason" or "for good reason" set
forth in any employment, consulting or other agreement for the performance of
services between the Participant and the Company or a Related Entity or, in the
absence of any such agreement or any such definition in such agreement, such
term shall mean (i) the assignment to the Participant of any duties inconsistent
in any material respect with the Participant's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as assigned by the Company or a Related Entity, or any other
action by the Company or a Related Entity which results in a material diminution
in such position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company or a Related Entity promptly after receipt
of notice thereof given by the Participant, or (ii) any material failure by the
Company or a Related Entity to comply with its obligations to the Participant as
agreed upon, other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company or a Related Entity
promptly after receipt of notice thereof given by the Participant.
(z) "Incentive Stock Option" means any Option intended to be
designated as an incentive stock option within the meaning of Section 422 of the
Code or any successor provision thereto.
(aa) "Incumbent Board" has the meaning ascribed to such term
in Section 9(b)(ii) hereof.
(bb) "Independent," when referring to either the Board or
members of the Committee, has the same meaning as used in the rules of the
American Stock Exchange or any national securities exchange on which any
securities of the Company are listed or quoted for trading, and if not listed or
quoted for trading, by the rules of American Stock Exchange.
(cc) "Option" means a right granted to a Participant under
Section 6(b) hereof, to purchase Shares or other Awards at a specified price
during specified time periods.
(dd) "Optionee" means a person to whom an Option is granted
under this Plan or any person who succeeds to the rights of such person under
this Plan.
(ee) "Option Proceeds" means the cash actually received by the
Company for the exercise price in connection with the exercise of Options that
are exercised after the Effective Date of this Plan, plus the maximum tax
benefit that could be realized by the Company as a result of the exercise of
such Options, which tax benefit shall be determined by multiplying (i) the
amount that is deductible for Federal income tax purposes as a result of any
such option exercise (currently, equal to the amount upon which the
Participant's withholding tax obligation is calculated), times (ii) the maximum
4
Federal corporate income tax rate for the year of exercise. With respect to
Options, to the extent that a Participant pays the exercise price and/or
withholding taxes with Shares, Option Proceeds shall not include or be
calculated with respect to the amounts so paid in Shares.
(ff) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(i) hereof.
(gg) "Outstanding Company Common Stock" has the meaning
ascribed to such term in Section 9(b)(i) hereof.
(hh) "Outstanding Company Voting Securities" has the meaning
ascribed to such term in Section 9(b)(i) hereof.
(ii) "Participant" means a person who has been granted an
Award under this Plan which remains outstanding, including a person who is no
longer an Eligible Person.
(jj) "Performance Award" means any Award of Performance Shares
or Performance Units granted pursuant to Section 6(h) hereof.
(kk) "Performance Period" means that period established by the
Committee at the time any Performance Award is granted or at any time thereafter
during which any performance goals specified by the Committee with respect to
such Award are to be measured.
(ll) "Performance Share" means any grant pursuant to Section 8
of a unit valued by reference to a designated number of Shares, which value may
be paid to the Participant by delivery of such property as the Committee shall
determine, including cash, Shares, other property, or any combination thereof,
upon achievement of such performance goals during the Performance Period as the
Committee shall establish at the time of such grant or thereafter.
(mm) "Performance Unit" means any grant pursuant to Section 8
of a unit valued by reference to a designated amount of property (including
cash) other than Shares, which value may be paid to the Participant by delivery
of such property as the Committee shall determine, including cash, Shares, other
property, or any combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at the time of
such grant or thereafter.
(nn) "Person" has the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and
shall include a "group" as defined in Section 13(d) thereof.
(oo) "Related Entity" means any Subsidiary, and any business,
corporation, partnership, limited liability company or other entity designated
by the Board in which the Company or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(pp) "Restricted Stock" means any Share issued with the
restriction that the holder may not sell, transfer, pledge or assign such Share
and with such other restrictions as the Committee, in its sole discretion, may
5
impose (including any restriction on the right to vote such Share and the right
to receive any dividends), which restrictions may lapse separately or in
combination at such time or times, in installments or otherwise, as the
Committee may deem appropriate.
(qq) "Restricted Stock Award" means an Award granted to a
Participant under Section 6(d) hereof.
(rr) "Restriction Period" has the meaning ascribed to such
term in Section 6(d)(i) hereof.
(ss) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to this Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.
(tt) "Shares" means the shares of common stock of the Company,
par value $0.001 per share, and such other securities as may be substituted (or
resubstituted) for Shares pursuant to Section 10(c) hereof.
(uu) "Stock Appreciation Right" means a right granted to a
Participant under Section 6(c) hereof.
(vv) "Subsidiary" means any corporation or other entity in
which the Company has a direct or indirect ownership interest of 50% or more of
the total combined voting power of the then outstanding securities or interests
of such corporation or other entity entitled to vote generally in the election
of directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% or more of the assets on liquidation or
dissolution.
(ww) "Substitute Awards" means Awards granted or Shares issued
by the Company in assumption of, or in substitution or exchange for, awards
previously granted, or the right or obligation to make future awards, by an
entity acquired by the Company or any Related Entity or with which the Company
or any Related Entity combines.
(xx) "Tandem Stock Appreciation Right" has the meaning
ascribed to such term in Section 6(c) hereof.
3. ADMINISTRATION.
(A) AUTHORITY OF THE COMMITTEE. This Plan shall be
administered by the Committee, except to the extent the Board elects to
administer this Plan, in which case this Plan shall be administered by only
those directors who are Independent Directors and references herein to the
"Committee" shall be deemed to include references to the Independent members of
the Board. The Committee shall have full and final authority, subject to and
consistent with the provisions of this Plan, to select Eligible Persons to
become Participants, grant Awards, determine the type, number and other terms
and conditions of, and all other matters relating to, Awards, prescribe Award
Agreements (which need not be identical for each Participant) and rules and
regulations for the administration of this Plan, construe and interpret this
Plan and Award Agreements and correct defects, supply omissions or reconcile
inconsistencies therein, and to make all other decisions and determinations as
6
the Committee may deem necessary or advisable for the administration of this
Plan. In exercising any discretion granted to the Committee under this Plan or
pursuant to any Award, the Committee shall not be required to follow past
practices, act in a manner consistent with past practices, or treat any Eligible
Person in a manner consistent with the treatment of other Eligible Persons.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee,
and not the Board, shall exercise sole and exclusive discretion on any matter
relating to a Participant then subject to Section 16 of the Exchange Act with
respect to the Company to the extent necessary in order that transactions by
such Participant shall be exempt under Rule 16b-3 under the Exchange Act. Any
action of the Committee shall be final, conclusive and binding on all persons,
including the Company, its Related Entities, Participants, Beneficiaries,
transferees under Section 10(b) hereof or other persons claiming rights from or
through a Participant, and stockholders. The express grant of any specific power
to the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Company or any Related Entity, or
committees thereof, the authority, subject to such terms as the Committee shall
determine, to perform such functions, including administrative functions, as the
Committee may determine to the extent that such delegation will not result in
the loss of an exemption under Rule 16b-3(d)(1) for Awards granted to
Participants subject to Section 16 of the Exchange Act in respect of the Company
and will not cause Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) to fail to so qualify. The Committee may
appoint agents to assist it in administering this Plan.
(c) LIMITATION OF LIABILITY. The Committee and the Board, and
each member thereof, shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any officer or Employee,
the Company's independent auditors, Consultants or any other agents assisting in
the administration of this Plan. Members of the Committee and the Board, and any
officer or Employee acting at the direction or on behalf of the Committee or the
Board, shall not be personally liable for any action or determination taken or
made in good faith with respect to this Plan, and shall, to the extent permitted
by law, be fully indemnified and protected by the Company with respect to any
such action or determination.
4. SHARES SUBJECT TO PLAN.
(a) LIMITATION ON OVERALL NUMBER OF SHARES SUBJECT TO AWARDS.
Subject to adjustment as provided in Section 10(c) hereof, the maximum aggregate
number of Shares that may be (i) issued under this Plan pursuant to the exercise
of Options, (ii) issued pursuant to Restricted Stock Awards, Deferred Shares or
Performance Shares, and (iii) covered by Stock Appreciation Rights is 12,000,000
Shares. No Participant may receive Awards representing more than 1,000,000
Shares in any one calendar year. In addition, the maximum number of Performance
Units that may be granted to a Participant in any one calendar year is 1,000,000
for each full or fractional year included in the Performance Period for the
grant of Performance Units during such calendar year. This limitation shall be
applied as of any date by taking into account the number of Shares available to
be made the subject of new Awards as of such date, plus the number of Shares
previously issued under this Plan and the number of Shares subject to
7
outstanding Awards as of such date. Any Shares delivered under this Plan may
consist, in whole or in part, of authorized and unissued Shares or treasury
Shares.
(b) APPLICATION OF LIMITATION TO GRANTS OF AWARDS. No Award
may be granted if the number of Shares to be delivered in connection with such
Award or, in the case of an Award relating to Shares but settled only in cash
(such as cash-only Stock Appreciation Rights), the number of Shares to which
such Award relates, exceeds the number of Shares remaining available under this
Plan, minus the number of Shares deliverable in settlement of or relating to
then outstanding Awards. The Committee may adopt reasonable counting procedures
to ensure appropriate counting, avoid double counting (as, for example, in the
case of tandem or substitute awards) and make adjustments if the number of
Shares actually delivered differs from the number of Shares previously counted
in connection with an Award.
(c) AVAILABILITY OF SHARES NOT DELIVERED UNDER AWARDS.
(i) If any Shares subject to an Award are forfeited,
expire or otherwise terminate without issuance of such Shares,
or any Award is settled for cash or otherwise does not result
in the issuance of all or a portion of the Shares subject to
such Award, such Shares shall, to the extent of such
forfeiture, expiration, termination, cash settlement or
non-issuance, again be available for Awards under this Plan.
(ii) In the event that any Option or other Award
granted hereunder is exercised through the tendering of Shares
(either actually or by attestation) or by the withholding of
Shares by the Company, or withholding tax liabilities arising
from such Option or other Award are satisfied by the tendering
of Shares (either actually or by attestation) or by the
withholding of Shares by the Company, then only the number of
Shares issued net of the Shares tendered or withheld shall be
counted for purposes of determining the maximum number of
Shares available for grant under this Plan.
(iii) Shares reacquired by the Company on the open
market using Option Proceeds shall be available for Awards
under this Plan. The increase in Shares available pursuant to
the repurchase of Shares with Option Proceeds shall not be
greater than the amount of such proceeds divided by the Fair
Market Value of a Share on the date of exercise of the Option
giving rise to such Option Proceeds.
(iv) Substitute Awards shall not reduce the Shares
authorized for grant under this Plan or authorized for grant
to a Participant in any period. Additionally, in the event
that a company acquired by the Company or any Related Entity
or with which the Company or any Related Entity combines has
shares available under a pre-existing plan approved by
stockholders and not adopted in contemplation of such
acquisition or combination, the shares available for grant
pursuant to the terms of such pre-existing plan (as adjusted,
to the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such
acquisition or combination to determine the consideration
8
payable to the holders of common stock of the entities party
to such acquisition or combination) may be used for Awards
under this Plan and shall not reduce the Shares authorized for
grant under this Plan; provided that Awards using such
available shares shall not be made after the date awards or
grants could have been made under the terms of the
pre-existing plan, absent the acquisition or combination, and
shall only be made to individuals who were not Employees or
Directors prior to such acquisition or combination.
(v) Notwithstanding anything in this Section 4(c) to
the contrary and solely for purposes of determining whether
Shares are available for the grant of Incentive Stock Options,
the maximum aggregate number of shares that may be granted
under this Plan shall be determined without regard to any
Shares restored pursuant to this Section 4(c) that, if taken
into account, would cause this Plan to fail the requirement
under Code Section 422 that this Plan designate a maximum
aggregate number of shares that may be issued.
(d) NO FURTHER AWARDS UNDER PRIOR PLAN. In light of the
adoption of this Plan, no further awards shall be made under any prior plans
after the Effective Date.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted
under this Plan only to Eligible Persons. Subject to adjustment as provided in
Section 10(c), in each fiscal year during any part of which this Plan is in
effect, no Participant may be granted (i) Options or Stock Appreciation Rights
with respect to more than 1,000,000 Shares or (ii) Restricted Stock, Performance
Shares and/or Other Stock-Based Awards with respect to more than 1,000,000
Shares. In addition, the maximum dollar value payable to any one Participant
with respect to any Performance Period with respect to Performance Units is
$1,000,000 multiplied by the number of full years in the Performance Period.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to Section
10(e)), such additional terms and conditions, not inconsistent with the
provisions of this Plan, as the Committee shall determine, including but not
limited to terms requiring forfeiture of Awards in the event of termination of
Continuous Service by the Participant, terms requiring the achievement of
performance goals and/or future service requirements in order for Awards to vest
and be exercisable, and terms permitting a Participant to make elections
relating to his or her Award. The Committee shall retain full power and
discretion to accelerate, waive or modify, at any time, any term or condition of
an Award that is not mandatory under this Plan. Except in cases in which the
Committee is authorized to require other forms of consideration under this Plan,
no consideration other than services may be required for the grant (but not the
exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options to
any Eligible Person on the following terms and conditions:
9
(i) EXERCISE PRICE. Other than in connection with
Substitute Awards, the exercise price per Share purchasable
under an Option shall be determined by the Committee, provided
that such exercise price shall not be less than 100% of the
Fair Market Value of a Share on the date of grant of the
Option and shall not, in any event, be less than the par value
of a Share on the date of grant of the Option. If an Employee
owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the
Company (or any parent corporation or subsidiary corporation
of the Company, as those terms are defined in Sections 424(e)
and (f) of the Code, respectively) and an Incentive Stock
Option is granted to such employee, the exercise price per
Share under such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no less
than 110% of the Fair Market Value of a Share on the date such
Incentive Stock Option is granted.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall
determine the time or times at which or the circumstances
under which an Option may be exercised in whole or in part
(including based on achievement of performance goals and/or
future service requirements), the time or times at which
Options shall cease to be or become exercisable following
termination of Continuous Service or upon other conditions,
the methods by which the exercise price may be paid or deemed
to be paid (including in the discretion of the Committee a
cashless exercise procedure), the form of such payment,
including, without limitation, cash, Shares, other Awards or
awards granted under other plans of the Company or a Related
Entity, or other property (including notes or other
contractual obligations of Participants to make payment on a
deferred basis provided that such deferred payments are not in
violation of the Sarbanes-Oxley Act of 2002, or any rule or
regulation adopted thereunder or any other applicable law),
and the methods by or forms in which Shares will be delivered
or deemed to be delivered to Participants.
(iii) INCENTIVE STOCK OPTIONS. The terms of any
Incentive Stock Option granted under this Plan shall comply in
all respects with the provisions of Section 422 of the Code.
Anything in this Plan to the contrary notwithstanding, no term
of this Plan relating to Incentive Stock Options (including
any Stock Appreciation Right issued in tandem therewith) shall
be interpreted, amended or altered, nor shall any discretion
or authority granted under this Plan be exercised, so as to
disqualify either this Plan or any Incentive Stock Option
under Section 422 of the Code, unless the Participant has
first requested, or consents to, the change that will result
in such disqualification. Thus, if and to the extent required
to comply with Section 422 of the Code, Options granted as
Incentive Stock Options shall be subject to the following
special terms and conditions:
(A) the Option shall not be exercisable more
than ten years after the date such Incentive Stock Option is
granted; provided, however, that if a Participant owns or is
deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power
10
of all classes of stock of the Company (or any parent
corporation or subsidiary corporation of the Company, as those
terms are defined in Sections 424(e) and (f) of the Code,
respectively) and the Incentive Stock Option is granted to
such Participant, the term of the Incentive Stock Option shall
be (to the extent required by the Code at the time of the
grant) for no more than five years from the date of grant; and
(B) The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is
granted) of the Shares with respect to which Incentive Stock
Options granted under this Plan and all other option plans of
the Company (and any parent corporation or subsidiary
corporation of the Company, as those terms are defined in
Sections 424(e) and (f) of the Code, respectively) during any
calendar year exercisable for the first time by the
Participant during any calendar year shall not (to the extent
required by the Code at the time of the grant) exceed
$100,000.
(c) STOCK APPRECIATION RIGHTS. The Committee may grant Stock
Appreciation Rights to any Eligible Person in conjunction with all or part of
any Option granted under this Plan or at any subsequent time during the term of
such Option (a "Tandem Stock Appreciation Right"), or without regard to any
Option (a "Freestanding Stock Appreciation Right"), in each case upon such terms
and conditions as the Committee may establish in its sole discretion, not
inconsistent with the provisions of this Plan, including the following:
(i) RIGHT TO PAYMENT. A Stock Appreciation Right
shall confer on the Participant to whom it is granted a right
to receive, upon exercise thereof, the excess of (A) the Fair
Market Value of one Share on the date of exercise over (B) the
grant price of the Stock Appreciation Right as determined by
the Committee. The grant price of a Stock Appreciation Right
shall not be less than the Fair Market Value of a Share on the
date of grant, in the case of a Freestanding Stock
Appreciation Right, or less than the associated Option
exercise price, in the case of a Tandem Stock Appreciation
Right.
(ii) OTHER TERMS. The Committee shall determine at
the date of grant or thereafter, the time or times at which
and the circumstances under which a Stock Appreciation Right
may be exercised in whole or in part (including based on
achievement of performance goals and/or future service
requirements), the time or times at which Stock Appreciation
Rights shall cease to be or become exercisable following
termination of Continuous Service or upon other conditions,
the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in
which Shares will be delivered or deemed to be delivered to
Participants, whether or not a Stock Appreciation Right shall
be in tandem or in combination with any other Award, and any
other terms and conditions of any Stock Appreciation Right.
(iii) TANDEM STOCK APPRECIATION RIGHTS. Any Tandem
Stock Appreciation Right may be granted at the same time as
the related Option is granted or, for Options that are not
Incentive Stock Options, at any time thereafter before
exercise or expiration of such Option. Any Tandem Stock
11
Appreciation Right related to an Option may be exercised only
when the related Option would be exercisable and the Fair
Market Value of the Shares subject to the related Option
exceeds the exercise price at which Shares can be acquired
pursuant to the Option. In addition, if a Tandem Stock
Appreciation Right exists with respect to less than the full
number of Shares covered by a related Option, then an exercise
or termination of such Option shall not reduce the number of
Shares to which the Tandem Stock Appreciation Right applies
until the number of Shares then exercisable under such Option
equals the number of Shares to which the Tandem Stock
Appreciation Right applies. Any Option related to a Tandem
Stock Appreciation Right shall no longer be exercisable to the
extent the Tandem Stock Appreciation Right has been exercised,
and any Tandem Stock Appreciation Right shall no longer be
exercisable to the extent the related Option has been
exercised.
(D) RESTRICTED STOCK AWARDS. The Committee is authorized to
grant Restricted Stock Awards to any Eligible Person on the following terms and
conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock Awards
shall be subject to such restrictions on transferability, risk
of forfeiture and other restrictions, if any, as the Committee
may impose, or as otherwise provided in this Plan, covering a
period of time specified by the Committee (the "Restriction
Period"). The terms of any Restricted Stock Award granted
under this Plan shall be set forth in a written Award
Agreement which shall contain provisions determined by the
Committee and not inconsistent with this Plan. The
restrictions may lapse separately or in combination at such
times, under such circumstances (including based on
achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the
Committee may determine at the date of grant or thereafter.
Except to the extent restricted under the terms of this Plan
and any Award Agreement relating to the subject Restricted
Stock Award, a Participant granted Restricted Stock shall have
all of the rights of a shareholder, including the right to
vote the Restricted Stock and the right to receive dividends
thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee). During the Restriction
Period, subject to Section 10(b) below, the Restricted Stock
may not be sold, transferred, pledged, hypothecated, margined
or otherwise encumbered by the Participant.
(ii) FORFEITURE. Except as otherwise determined by
the Committee, upon termination of a Participant's Continuous
Service during the applicable Restriction Period, the
Participant's Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company;
provided that the Committee may provide, by rule or regulation
or in any Award Agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to
Restricted Stock Awards shall be waived in whole or in part in
the event of terminations resulting from specified causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock
granted under this Plan may be evidenced in such manner as the
Committee shall determine. If certificates representing
12
Restricted Stock are registered in the name of the
Participant, the Committee may require that (A) "stop
transfer" instructions be placed against such Restricted Stock
with the Company's transfer agent, (B) such certificates bear
an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, (C) the
Company retain physical possession of the certificates, and
(D) the Participant deliver stock powers to the Company,
endorsed in blank, relating to the Restricted Stock.
(iv) DIVIDENDS AND SPLITS. As a condition to the
grant of a Restricted Stock Award, the Committee may require
or permit a Participant to elect that any cash dividends paid
on a Share of Restricted Stock be automatically reinvested in
additional Shares of Restricted Stock or applied to the
purchase of additional Awards under this Plan. Unless
otherwise determined by the Committee, Shares distributed in
connection with a stock split or stock dividend, and other
property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Shares or
other property have been distributed.
(v) MINIMUM VESTING PERIOD. Except for certain
limited situations (including termination of employment, a
Change in Control referred to in Section 9, grants to new
hires to replace forfeited compensation, grants representing
payment of earned Performance Awards or other incentive
compensation, or grants to Directors), Restricted Stock Awards
subject solely to future service requirements shall have a
Restriction Period of not less than three years from date of
grant (but permitting pro-rata vesting over such time).
(e) DEFERRED STOCK AWARD. The Committee is authorized to grant
Deferred Stock Awards to any Eligible Person on the following terms and
conditions:
(i) AWARD AND RESTRICTIONS. Satisfaction of a
Deferred Stock Award shall occur upon expiration of the
deferral period specified for such Deferred Stock Award by the
Committee (or, if permitted by the Committee, as elected by
the Participant). In addition, a Deferred Stock Award shall be
subject to such restrictions (which may include a risk of
forfeiture) as the Committee may impose, if any, which
restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on
achievement of performance goals and/or future service
requirements), separately or in combination, in installments
or otherwise, as the Committee may determine. A Deferred Stock
Award may be satisfied by delivery of Shares, cash equal to
the Fair Market Value of the specified number of Shares
covered by the Deferred Stock, or a combination thereof, as
determined by the Committee at the date of grant or
thereafter. Prior to satisfaction of a Deferred Stock Award, a
Deferred Stock Award carries no voting or dividend or other
rights associated with Share ownership.
(ii) FORFEITURE. Except as otherwise determined by
the Committee, upon termination of a Participant's Continuous
Service during the applicable deferral period or portion
13
thereof to which forfeiture conditions apply (as provided in
the Award Agreement evidencing the Deferred Stock Award), the
Participant's Deferred Stock Award that is at that time
subject to deferral (other than a deferral at the election of
the Participant) shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to a Deferred
Stock Award shall be waived in whole or in part in the event
of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the
forfeiture of any Deferred Stock Award.
(iii) DIVIDEND EQUIVALENTS. Unless otherwise
determined by the Committee at date of grant, any Dividend
Equivalents that are granted with respect to any Deferred
Stock Award shall be either (A) paid with respect to such
Deferred Stock Award at the dividend payment date in cash or
in Shares of unrestricted stock having a Fair Market Value
equal to the amount of such dividends, or (B) deferred with
respect to such Deferred Stock Award and the amount or value
thereof automatically deemed reinvested in additional Deferred
Stock, other Awards or other investment vehicles, as the
Committee shall determine or permit the Participant to elect.
(f) BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. The
Committee is authorized to grant Shares to any Eligible Persons as a bonus, or
to grant Shares or other Awards in lieu of obligations to pay cash or deliver
other property under this Plan or under other plans or compensatory
arrangements, provided that, in the case of Eligible Persons subject to Section
16 of the Exchange Act, the amount of such grants remains within the discretion
of the Committee to the extent necessary to ensure that acquisitions of Shares
or other Awards are exempt from liability under Section 16(b) of the Exchange
Act. Shares or Awards granted hereunder shall be subject to such other terms as
shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to any Eligible Person entitling the Eligible Person to
receive cash, Shares, other Awards, or other property equal in value to the
regular dividends paid with respect to a specified number of Shares, or other
periodic payments. Dividend Equivalents may be awarded on a free-standing basis
or in connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Shares, Awards, or other investment vehicles, and
subject to such restrictions on transferability and risks of forfeiture, as the
Committee may specify.
(h) PERFORMANCE AWARDS. The Committee is authorized to grant
Performance Awards to any Eligible Person payable in cash, Shares, or other
Awards, on terms and conditions established by the Committee, subject to the
provisions of Section 8 hereof. The performance criteria to be achieved during
any Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Award; provided,
however, that a Performance Period shall not be shorter than 12 months nor
longer than five years. Except as provided in Section 9 hereof or as may be
provided in an Award Agreement, Performance Awards will be distributed only
after the end of the relevant Performance Period. The performance goals to be
achieved for each Performance Period shall be conclusively determined by the
Committee and may be based upon the criteria set forth in Section 8 hereof. The
amount of the Award to be distributed shall be conclusively determined by the
14
Committee. Performance Awards may be paid in a lump sum or in installments
following the close of the Performance Period or, in accordance with procedures
established by the Committee, on a deferred basis.
(i) OTHER STOCK-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to any Eligible Person
such other Awards that may be denominated or payable in, valued in whole or in
part by reference to, or otherwise based on, or related to, Shares, as deemed by
the Committee to be consistent with the purposes of this Plan. Other Stock-Based
Awards may be granted to Participants either alone or in addition to other
Awards granted under this Plan, and such Other Stock-Based Awards shall also be
available as a form of payment in the settlement of other Awards granted under
this Plan. The Committee shall determine the terms and conditions of such
Awards. Shares delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(i) shall be purchased for such consideration
(including, without limitation, loans from the Company or a Related Entity
provided that such loans are not in violation of the Sarbanes-Oxley Act of 2002,
or any rule or regulation adopted thereunder or any other applicable law), paid
for at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, other Awards or other property, as the Committee shall
determine.
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS.
Awards granted under this Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Related Entity, or any business entity to be acquired by the
Company or a Related Entity, or any other right of a Participant to receive
payment from the Company or any Related Entity. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award or award, the Committee shall
require the surrender of such other Award or award in consideration for the
grant of the new Award. In addition, Awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of the
Company or any Related Entity, in which the value of Stock subject to the Award
is equivalent in value to the cash compensation (for example, Deferred Stock or
Restricted Stock), or in which the exercise price, grant price or purchase price
of the Award in the nature of a right that may be exercised is equal to the Fair
Market Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options or Stock Appreciation Rights granted with an
exercise price "discounted" by the amount of the cash compensation surrendered).
(b) TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee; provided that in no event shall
the term of any Option or Stock Appreciation Right exceed a period of ten years
(or, in the case of an Incentive Stock Option, such shorter term as may be
required under Section 422 of the Code).
(c) FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS.
Subject to the terms of this Plan and any applicable Award Agreement, payments
to be made by the Company or a Related Entity upon the exercise of an Option or
15
other Award or settlement of an Award may be made in such forms as the Committee
shall determine, including, without limitation, cash, Shares, other Awards or
other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Any installment or deferral provided for
in the preceding sentence shall, however, be subject to the Company's compliance
with the provisions of the Sarbanes-Oxley Act of 2002, the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and all applicable
rules of the American Stock Exchange or any national securities exchange on
which the Company's securities are listed or quoted for trading and, if not
listed or quoted for trading on either the American Stock Exchange or a national
securities exchange, then the rules of the American Stock Exchange. The
settlement of any Award may be accelerated, and cash paid in lieu of Stock in
connection with such settlement, in the discretion of the Committee or upon
occurrence of one or more specified events (in addition to a Change in Control).
Installment or deferred payments may be required by the Committee (subject to
Section 10(e) hereof, including the consent provisions thereof in the case of
any deferral of an outstanding Award not provided for in the original Award
Agreement) or permitted at the election of the Participant on terms and
conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of a reasonable interest
rate on installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Shares.
(d) EXEMPTIONS FROM SECTION 16(B) LIABILITY. It is the intent
of the Company that the grant of any Awards to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall be exempt
from Section 16 pursuant to an applicable exemption (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly, if
any provision of this Plan or any Award Agreement does not comply with the
requirements of Rule 16b-3 then applicable to any such transaction, such
provision shall be construed or deemed amended to the extent necessary to
conform to the applicable requirements of Rule 16b-3 so that such Participant
shall avoid liability under Section 16(b).
8. CODE SECTION 162(M) PROVISIONS.
(a) COVERED EMPLOYEES. If and to the extent that the Committee
determines at the time a Restricted Stock Award, a Performance Award, or an
Other Stock-Based Award is granted to an Eligible Person who is, or is likely to
be, as of the end of the tax year in which the Company would claim a tax
deduction in connection with such Award, a Covered Employee, then the Committee
may provide that this Section 8 is applicable to such Award.
(b) PERFORMANCE CRITERIA. If a Restricted Stock Award, a
Performance Award or an Other Stock-Based Award is subject to this Section 8,
then the lapsing of restrictions thereon and the distribution of cash, Shares or
other property pursuant thereto, as applicable, shall be contingent upon
achievement of one or more objective performance goals. Performance goals shall
be objective and shall otherwise meet the requirements of Section 162(m) of the
Code and regulations thereunder including the requirement that the level or
levels of performance targeted by the Committee result in the achievement of
performance goals being "substantially uncertain." One or more of the following
business criteria for the Company, on a consolidated basis, and/or for Related
Entities, or for business or geographical units of the Company and/or a Related
16
Entity (except with respect to the total shareholder return and earnings per
share criteria), shall be used by the Committee in establishing performance
goals for such Performance Awards: (1) earnings per share; (2) increase in
revenues or margins; (3) increase in cash flow; (4) operating margin; (5) return
on net assets, investment, capital, or equity; (6) economic value added; (7)
direct contribution; (8) net income; pre-tax earnings, earnings before interest
and taxes; earnings before interest, taxes, depreciation and amortization;
earnings after interest expense and before extraordinary or special items;
operating income; income before interest income or expense, unusual items and
income taxes (local, state or federal) and excluding budgeted and actual bonuses
which might be paid under any ongoing bonus plans of the Company; (9) working
capital; (10) management of fixed costs or variable costs; (11) identification
or consummation of investment opportunities or completion of specified projects
in accordance with corporate business plans, including strategic mergers,
acquisitions or divestitures; (12) total stockholder return; and (13) debt
reduction. Any of the above goals may be determined on an absolute or relative
basis or as compared to the performance of a published or special index deemed
applicable by the Committee including, but not limited to, the Standard & Poor's
500 Stock Index or a group of companies that are comparable to the Company. The
Committee may exclude the impact of an event or occurrence which the Committee
determines should appropriately be excluded, including (i) restructurings,
discontinued operations, extraordinary items, and other unusual or non-recurring
charges, (ii) an event either not directly related to the operations of the
Company or not within the reasonable control of the Company's management, or
(iii) a change in accounting standards required by generally accepted accounting
principles.
(c) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
GOALS. Achievement of performance goals in respect of such Performance Awards
shall be measured over a Performance Period no shorter than 12 months and no
longer than five years, as specified by the Committee. Performance goals shall
be established not later than 90 days after the beginning of any Performance
Period applicable to such Performance Awards, or at such other date as may be
required or permitted for "performance-based compensation" under Code Section
162(m).
(d) ADJUSTMENTS. The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection with Awards
subject to this Section 8, but may not exercise discretion to increase any such
amount payable to a Covered Employee in respect of an Award subject to this
Section 8. The Committee shall specify the circumstances in which such Awards
shall be paid or forfeited in the event of termination of Continuous Service by
the Participant prior to the end of a Performance Period or settlement of
Awards.
9. CHANGE IN CONTROL.
(a) EFFECT OF "CHANGE IN CONTROL." Subject to Section
9(a)(iv), and if and only to the extent provided in the Award Agreement, or to
the extent otherwise determined by the Committee, upon the occurrence of a
"Change in Control," as defined in Section 9(b):
(i) Any Option or Stock Appreciation Right that was
not previously vested and exercisable as of the time of the
Change in Control shall become immediately vested and
exercisable, subject to applicable restrictions set forth in
Section 10(a) hereof.
17
(ii) Any restrictions, deferral of settlement, and
forfeiture conditions applicable to a Restricted Stock Award,
Deferred Stock Award or an Other Stock-Based Award subject
only to future service requirements granted under this Plan
shall lapse and such Awards shall be deemed fully vested as of
the time of the Change in Control, except to the extent of any
waiver by the Participant and subject to applicable
restrictions set forth in Section 10(a) hereof.
(iii) With respect to any outstanding Performance
Award, Restricted Stock Award, Deferred Stock Award or Other
Stock-Based Award subject to achievement of performance goals
and conditions under this Plan, (A) a pro rata portion of the
Award shall be considered earned and payable based on the
portion of the Performance Period completed as of the date of
the Change in Control and based on performance to such date,
or if performance to such date is not determinable, based on
target performance, and (B) the value at target performance of
the remaining portion of the Award shall be converted to a
Restricted Stock Award, or a Deferred Stock Award for purposes
of Section 9(a)(iv). If Awards are not assumed or substituted
for by the successor company pursuant to Section 9(a)(iv),
then the full Award shall be considered earned and payable.
(iv) Notwithstanding the foregoing, if in the event
of a Change in Control the successor company assumes or
substitutes for an Option, Stock Appreciation Right,
Restricted Stock Award, Deferred Stock Award or Other
Stock-Based Award, then each outstanding Option, Stock
Appreciation Right, Restricted Stock Award, Deferred Stock
Award or Other Stock-Based Award shall not be accelerated as
described in Sections 9(a)(i), (ii) and (iii). For the
purposes of this Section 9(a)(iv), an Option, Stock
Appreciation Right, Restricted Stock Award, Deferred Stock
Award or Other Stock-Based Award shall be considered assumed
or substituted for if following the Change in Control the
award confers the right to purchase or receive, for each Share
subject to the Option, Stock Appreciation Right, Restricted
Stock Award, Deferred Stock Award or Other Stock-Based Award
immediately prior to the Change in Control, the consideration
(whether stock, cash or other securities or property) received
in the transaction constituting the Change in Control by
holders of Shares for each Share held on the effective date of
such 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 transaction
constituting a Change in Control is not solely common stock of
the successor company, the Committee may, with the consent of
the successor company, provide that the consideration to be
received upon the exercise or vesting of an Option, Stock
Appreciation Right, Restricted Stock Award, Deferred Stock
Award or Other Stock-Based Award, for each Share subject
thereto, will be solely common stock of the successor company
substantially equal in fair market value to the per share
consideration received by holders of Shares in the transaction
18
constituting the Change in Control. The determination of such
substantial equality of value of consideration shall be made
by the Committee in its sole discretion and its determination
shall be conclusive and binding.
(b) DEFINITION OF "CHANGE IN CONTROL". Unless otherwise
specified in an Award Agreement, a "Change in Control" shall mean the occurrence
of any of the following:
(i) The acquisition by any Person of Beneficial
Ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of fifty percent (50%) or more of either (A)
the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock"), or (B) the combined
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this Section 9(b), the
following acquisitions shall not constitute a Change in
Control: (w) any acquisition directly from the Company; (x)
any acquisition by the Company; (y) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary; or (z) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii)
below; or
(ii) During any period of two (2) consecutive years
(not including any period prior to the Effective Date),
individuals who constitute the Board on the Effective Date
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective
Date whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger,
statutory share exchange or consolidation or similar corporate
transaction involving the Company or any of its Subsidiaries,
a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock
of another entity by the Company or any of its Subsidiaries
(each a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially
all of the individuals and entities who were the Beneficial
Owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively,
the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
19
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, fifty
percent (50%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the
Board of Directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(iv) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
10. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS. The Company
may, to the extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Shares or payment of other benefits under any Award
until completion of such registration or qualification of such Shares or other
required action under any federal or state law, rule or regulation, listing or
other required action with respect to any stock exchange or automated quotation
system upon which the Shares or other Company securities are listed or quoted,
or compliance with any other obligation of the Company, as the Committee may
consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Shares or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations.
(b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Award or
other right or interest granted under this Plan shall be pledged, hypothecated
or otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party, or assigned or transferred by such Participant
otherwise than by will or the laws of descent and distribution or to a
Beneficiary upon the death of a Participant, and such Awards or rights that may
be exercisable shall be exercised during the lifetime of the Participant only by
the Participant or his or her guardian or legal representative, except that
Awards and other rights (other than Incentive Stock Options and Stock
Appreciation Rights in tandem therewith) may be transferred to one or more
Beneficiaries or other transferees during the lifetime of the Participant, and
may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent such transfers are permitted by the Committee
pursuant to the express terms of an Award Agreement (subject to any terms and
20
conditions which the Committee may impose thereon). A Beneficiary, transferee,
or other person claiming any rights under this Plan from or through any
Participant shall be subject to all terms and conditions of this Plan and any
Award Agreement applicable to such Participant, except as otherwise determined
by the Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
(c) ADJUSTMENTS.
(i) ADJUSTMENTS TO PLAN SHARES AND AWARDS. In the
event that, at any time and from time to time subsequent to
the Effective Date, there occurs any stock dividend,
extraordinary dividend or other distribution (whether in the
form of cash, Shares, or other property), recapitalization,
forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share
exchange, liquidation, dissolution or other similar corporate
transaction or event relating to or affecting the outstanding
Shares and/or such other securities of the Company or any
other applicable issuer, then the number of Shares then
available under this Plan shall be arithmetically or otherwise
appropriately adjusted to reflect the effects of such
transaction or event, and the Committee shall, in such manner
as it may deem equitable, substitute, exchange or adjust any
or all of (A) the number and kind of Shares which may be
delivered in connection with Awards granted thereafter, (B)
the number and kind of Shares by which annual per-person Award
limitations are measured under Section 5 hereof, (C) the
number and kind of Shares subject to or deliverable in respect
of outstanding Awards, (D) the exercise price, grant price or
purchase price relating to any Award and/or make provision for
payment of cash or other property in respect of any
outstanding Award, and (E) any other aspect of any Award that
the Committee determines to be appropriate.
(ii) ADJUSTMENTS IN CASE OF CERTAIN CORPORATE
TRANSACTIONS. In the event of any proposed sale of all or
substantially all of the Company's assets or any
reorganization, merger, consolidation, or other form of
corporate transaction in which the Company does not survive,
or in which the Shares are exchanged for or converted into
securities issued by another entity, the successor or
acquiring entity or an affiliate thereof may, with the consent
of the Committee, assume each outstanding Award or substitute
an equivalent option, right or other award. If the successor
or acquiring entity or an affiliate thereof does not cause
such an assumption or substitution of any Award, then that
Award shall terminate upon consummation of the sale, merger,
consolidation, or other corporate transaction, with or without
consideration as determined by the Committee. The Committee
shall give written notice of any proposed transaction referred
to in this Section 10(c)(ii) a reasonable period of time prior
to the closing date for such transaction (which notice may be
given either before or after the approval of such
transaction), in order that Participants may have a reasonable
period of time prior to the closing date of such transaction
within which to exercise any Awards that are then exercisable
(including any Awards that may become exercisable upon the
closing date of such transaction). A Participant may condition
his exercise of any Awards upon the consummation of the
transaction.
21
(iii) OTHER ADJUSTMENTS. In addition, the Committee
(and the Board if and only to the extent such authority is not
required to be exercised by the Committee to comply with
Section 162(m) of the Code) is authorized to make adjustments
in the terms and conditions of, and the criteria included in,
Awards (including Performance Awards, or performance goals
relating thereto) in recognition of unusual or nonrecurring
events (including, without limitation, acquisitions and
dispositions of businesses and assets) affecting the Company,
any Related Entity or any business unit, or the financial
statements of the Company or any Related Entity, or in
response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the
business strategy of the Company, any Related Entity or
business unit thereof, performance of comparable
organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances
deemed relevant; provided that no such adjustment shall be
authorized or made if and to the extent that such authority or
the making of such adjustment would cause Options, Stock
Appreciation Rights, Performance Awards granted under Section
8(b) hereof to Participants designated by the Committee as
Covered Employees and intended to qualify as
"performance-based compensation" under Code Section 162(m) and
the regulations thereunder to otherwise fail to qualify as
"performance-based compensation" under Code Section 162(m) and
regulations thereunder.
(d) TAXES. The Company and any Related Entity are authorized
to withhold, from any Award granted, any payment relating to an Award under this
Plan, including from a distribution of Shares, or any payroll or other payment
to a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company or any
Related Entity and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Shares or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(e) CHANGES TO THIS PLAN AND AWARDS. The Board may amend,
alter, suspend, discontinue or terminate this Plan, or the Committee's authority
to grant Awards under this Plan, without the consent of stockholders or
Participants, except that any amendment or alteration to this Plan shall be
subject to the approval of the Company's stockholders not later than the annual
meeting next following such Board action if such stockholder approval is
required by any federal or state law or regulation (including, without
limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any stock
exchange or automated quotation system on which the Shares may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to this Plan to stockholders for approval; provided that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee may waive any conditions
or rights under, or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award Agreement relating thereto, except as
otherwise provided in or in a manner in violation of this Plan; provided that,
without the consent of an affected Participant, no such Committee or Board
22
action may materially and adversely affect the rights of such Participant under
such Award. Notwithstanding anything to the contrary contained in this Plan, but
subject to the express requirements of this Plan with regard to the minimum
exercise price or other pricing applicable to Options or Stock Appreciation
Rights (as the case may be), the Committee shall be authorized to amend any
outstanding Option and/or Stock Appreciation Right to reduce the exercise price
or grant price without the prior approval of the stockholders of the Company. In
addition, the Committee shall be authorized to cancel outstanding Options and/or
Stock Appreciate Rights and replace them with Awards having a lower exercise
price without the prior approval of the stockholders of the Company.
(f) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither this
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Company or a Related Entity, (ii)
interfering in any way with the right of the Company or a Related Entity to
terminate any Eligible Person's or Participant's Continuous Service at any time,
(iii) giving an Eligible Person or Participant any claim to be granted any Award
under this Plan or to be treated uniformly with other Participants and
Employees, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company unless and until the Participant is duly issued or
transferred Shares in accordance with the terms of an Award.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. This Plan
is intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Shares pursuant to an Award, nothing contained in this
Plan or any Award shall give any such Participant any rights that are greater
than those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Shares, other Awards
or other property, or make other arrangements to meet the Company's obligations
under this Plan. Such trusts or other arrangements shall be consistent with the
"unfunded" status of this Plan unless the Committee otherwise determines with
the consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee may specify
and in accordance with applicable law.
(h) NONEXCLUSIVITY OF THIS PLAN. Neither the adoption of this
Plan by the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as it
may deem desirable, including incentive arrangements and awards which do not
qualify under Section 162(m) of the Code.
(i) PAYMENTS IN THE EVENT OF FORFEITURES; FRACTIONAL SHARES.
Unless otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other consideration. No
fractional Shares shall be issued or delivered pursuant to this Plan or any
Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional Shares or whether
such fractional Shares or any rights thereto shall be forfeited or otherwise
eliminated.
23
(j) GOVERNING LAW. The validity, construction and effect of
this Plan, any rules and regulations under this Plan, and any Award Agreement
shall be determined in accordance with the laws of the jurisdiction of
incorporation of the Company without giving effect to principles of conflict of
laws and excluding (to the greatest extent permissible by law) any rule of law
that would cause the application of the laws of any jurisdiction other than the
laws of the jurisdiction of incorporation of the Company.
(k) NON-U.S. LAWS. The Committee shall have the authority to
adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Subsidiaries may operate to assure the viability of the
benefits from Awards granted to Participants performing services in such
countries and to meet the objectives of this Plan.
(l) PLAN EFFECTIVE DATE AND SHAREHOLDER APPROVAL; TERMINATION
OF PLAN. This Plan shall become effective on the Effective Date, subject to
subsequent approval, within 12 months of its adoption by the Board, by
stockholders of the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Sections 162(m) (if applicable)
and 422, Rule 16b-3 under the Exchange Act (if applicable), applicable
requirements under the rules of any stock exchange or automated quotation system
on which the Shares may be listed or quoted, and other laws, regulations, and
obligations of the Company applicable to this Plan. Awards may be granted
subject to stockholder approval, but may not be exercised or otherwise settled
in the event that stockholder approval is not obtained. This Plan shall
terminate at the earliest of (i) such time as no Shares remain available for
issuance under this Plan, (ii) termination of this Plan by the Board, or (iii)
the tenth anniversary of the Effective Date. Awards outstanding upon expiration
of this Plan shall remain in effect until they have been exercised or
terminated, or have expired.
24
DHB INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby acknowledges receipt of the proxy statement and
hereby constitutes and appoints Dawn M. Schlegel, with the power of
substitution, as Proxy of the undersigned to represent and vote all shares of
Common Stock, par value $0.001 per share, of DHB Industries, Inc. (the
"Company") owned by the undersigned at the Annual Meeting of Stockholders of the
Company to be held at the offices of the Company's subsidiary, Point Blank Body
Armor, Inc., located at 2102 S.W. 2nd Street, Pompano Beach, Florida 33069, at
4:00 p.m. local time on December 30, 2004 and at any adjournment or postponement
thereof. This Proxy hereby revokes any prior Proxy or Proxies. This Proxy when
properly executed will be voted as directed herein by the undersigned. IF NO
DIRECTION IS MADE, SHARES WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS NAMED IN
THE PROXY STATEMENT AND "FOR" PROPOSALS 2 AND 3.
[X] Please mark your votes as in this example.
1. To elect as directors, all the persons names below. [ ]For [ ]Withheld
David H. Brooks Gary Nadelman Jerome Krantz
Cary Chasin Dawn M. Schlegel Barry Berkman
To Withhold Your Vote For One Or More Nominees, Write That Nominee's
Name In the Space Provided Below:
-----------------------------------------------------------------------
2. To ratify the appointment of Weiser LLP as independent auditors of the
Company for 2004.
For:________ Against: ___________ Abstain: _________
3. To approve the proposed 2004 Omnibus Equity Incentive Plan.
For:________ Against: ___________ Abstain: _________
4. In her discretion, the proxy is authorized to vote upon such other
business as may properly come before the Annual Meeting.
(Signature should conform exactly to name shown on the proxy. When
joint tenants hold shares, both should sign. Executors, administrators,
guardians, trustees, attorneys and officers signing for corporations
should give full title.)
Date: _______________________________________________
Signature: __________________ Signature if held jointly:_______________
Please date, sign and return this Proxy promptly using the enclosed
envelope.