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
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 INDUSTRIES, 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.
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(1) Title of each class of securities to which transaction applies:
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(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):
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previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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DHB INDUSTRIES, INC.
400 POST AVENUE, SUITE 303
WESTBURY, NEW YORK 11590
April 15,2005
Dear Stockholder:
We will hold our 2005 Annual Meeting of Stockholders at 4:00 p.m.
Eastern Time on May 6, 2005 at our Point Blank Body Armor facility located at
2102 S.W. 2nd Street, Pompano Beach, Florida and we look forward to greeting you
personally if you are able to attend.
At the Annual Meeting, you will be asked (i) to elect seven (7)
directors, (ii) to ratify the appointment of Rachlin Cohen and Holtz LLP as our
independent auditors for 2005 and (iii) to consider and vote upon our proposed
2005 Omnibus Equity Incentive Plan. These matters are described in detail in the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. Our
Board of Directors recommends that you vote FOR election of each of the director
nominees, FOR the ratification of Rachlin Cohen and Holtz LLP as our independent
auditors for 2005 and FOR approval of the 2005 Omnibus Equity Incentive Plan.
Please refer to the Proxy Statement for detailed information on each of the
proposals and the Annual Meeting. A proxy, as well as a copy of our 2004 Annual
Report on Form 10-K/A, is included along with the Proxy Statement. We made
copies of this Proxy Statement and form of proxy available to stockholders
beginning on April 18, 2005.
Your stockholder vote is more important than ever in 2005. Each share of
our stock that you own represents one vote. If you do not vote your shares, you
will not have a say in the important issues to be voted on at the Annual
Meeting. The seven (7) nominees receiving the most votes "for" election will be
elected as directors; and to pass the other proposals included in this year's
Proxy Statement will require a majority of votes present or represented at the
Annual Meeting and entitled to vote on the matter. Many of our stockholders do
not vote, so the stockholders who do vote influence the outcome of the election
in greater proportion than their percentage ownership. In addition, banks and
brokers that have not received voting instructions from their clients cannot
vote on their clients' behalf on "non-routine" proposals, such as approval of
the 2005 Omnibus Equity Incentive Plan, which further reduces the number of
votes cast. 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 2005 Annual Meeting of Stockholders of DHB
Industries, Inc. (the "Company") will be held on May 6, 2005 at 4:00 p.m.
Eastern Time at the Company's Point Blank Body Armor facility located at 2102
S.W. 2nd Street, Pompano Beach, Florida. The Annual Meeting is being called for
the following purposes:
1. To elect seven (7) 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 Rachlin Cohen and Holtz LLP as the
Company's independent auditors for 2005.
3. To consider and vote upon the Company's proposed 2005 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 April 1, 2005
are entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
DAWN M. SCHLEGEL
SECRETARY
Westbury, New York
April 15, 2005
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
April 15, 2005
Our Board of Directors solicits your proxy for the 2005 Annual Meeting of
Stockholders to be held on May 6, 2005 at 4:00 p.m. Eastern Time at our Point
Blank Body Armor facility located at 2102 S.W. 2nd Street, Pompano Beach,
Florida, and at any postponement or adjournment of the annual meeting, for the
purposes set forth in the "Notice of Annual Meeting of Stockholders."
RECORD DATE AND SHARE OWNERSHIP
Only stockholders of record at the close of business on April 1, 2005 will be
entitled to vote at the Annual Meeting. One-third of the shares of common stock
outstanding on the record date must be present in person or by proxy to have a
quorum. As of the close of business on April 1, 2005, 45,337,575 shares of
common stock were outstanding. We made copies of this proxy statement and form
of proxy available to stockholders beginning on April 18, 2005.
SUBMITTING AND REVOKING YOUR PROXY
If you complete and submit your proxy, the person named as proxy will vote the
shares represented by your proxy in accordance with your instructions. If you
submit a proxy card but do not fill out the voting instructions on the proxy
card, the person named as proxy will vote the shares represented by your proxy
as follows:
FOR the election of the director nominees set forth in "Proposal 1:
Election of Directors."
FOR the ratification of Rachlin Cohen and Holtz LLP as our independent
auditors for 2005 set for in "Proposal 2: Ratification of Independent Auditors."
FOR approval of the proposed 2005 Omnibus Equity Incentive Plan set forth
in "Proposal 3: The Proposed 2005 Omnibus Equity Incentive Plan."
In addition, if other matters are properly presented for voting at the Annual
Meeting, the person named as proxy will vote on such matters in accordance with
their best judgment. We have not received notice of other matters that may
properly be presented for voting at the Annual Meeting.
Your stockholder vote is more important than ever in 2005. Each share of our
stock that you own represents one vote. If you do not vote your shares, you will
not have a say in the important issues to be voted on at the Annual Meeting. The
seven (7) nominees receiving the most votes "for" election will be elected as
directors; and to pass, the other proposals included in this year's proxy
statement will require a majority of votes present or represented at the Annual
i
Meeting and entitled to vote on the matter. Many of our stockholders do not
vote, so the stockholders who do vote influence the outcome of the election in
greater proportion than their percentage ownership. In addition, banks and
brokers that have not received voting instructions from their clients cannot
vote on their clients' behalf on "non-routine" proposals, such as approval of
the 2005 Omnibus Equity Incentive Plan, which further reduces the number of
votes cast. Accordingly, please take a moment now to complete, sign, date and
mail the enclosed proxy.
You may revoke your proxy at any time prior to the closing of polls at the
Annual Meeting by giving written notice to the Secretary of the Annual Meeting
or by the delivery of a later dated proxy at the Annual Meeting or by mail to
Dawn M. Schlegel, Secretary, DHB Industries, Inc., 400 Post Avenue, Suite 303,
Westbury, New York 11590. If you hold shares through a bank or brokerage firm,
you must contact that firm to revoke any prior voting instructions. Your
presence at the Annual Meeting does not itself revoke the proxy. Proxies
properly executed, duly returned and not revoked, will be voted at the Annual
Meeting in accordance with the directions specified in the proxy.
VOTES REQUIRED TO ADOPT PROPOSALS
Each share of our common stock outstanding on the record date will be
entitled to one vote on each matter. The seven (7) nominees for election as
directors who receive the most votes "for" election will be elected.
Ratification of the appointment of the independent auditors and approval of our
2005 Omnibus Equity Incentive Plan will require an affirmative vote of the
majority of the shares of common stock present or represented at the Annual
Meeting and entitled to vote on the matter.
For the election of directors, withheld votes do not affect whether a
nominee has received sufficient votes to be elected. For the purpose of
determining whether the stockholders have approved matters other than the
election of directors, abstentions are treated as shares present or represented
and voting, so abstaining has the same effect as a negative vote. Shares held by
brokers that do not have discretionary authority to vote on a particular matter
and that have not received voting instructions from their customers are not
counted or deemed to be present or represented for the purpose of determining
whether stockholders have approved that matter, but they are counted as present
for the purpose of determining the existence of a quorum at the Annual Meeting.
Please note that banks and brokers that have not received voting instructions
from their clients cannot vote on their clients' behalf on "non-routine"
proposals, such as approval of the 2005 Omnibus Equity Incentive Plan but may
vote their clients' shares on the election of directors and the ratification of
independent auditors. PROXY SOLICITATION EXPENSES
Our Board of Directors is soliciting proxies in the enclosed form, and we will
pay the expenses of soliciting such proxies. Following the original mailing of
the proxies and other soliciting materials, we may also solicit proxies by mail,
telephone, telegraph, and facsimile or in person. We do not currently expect
that we will retain a proxy solicitation firm; however, we reserve the right to
retain outside proxy solicitors if necessary. We will pay the costs of outside
proxy solicitors if they are retained. Following the original mailing of the
proxies and other soliciting materials, we will request brokers, custodians,
nominees and other record holders of the common stock to forward copies of the
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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, we will, upon the request of the record holders, reimburse such holders
for their reasonable expenses. Solicitation will be made by mail and possibly
supplemented by telephone or other personal contact by our directors, officers
and regular employees without special compensation other than payment of out of
pocket expenses.
STOCKHOLDERS SHARING THE SAME LAST NAME AND ADDRESS
In accordance with notices that we sent to certain stockholders, we are sending
only one copy of our annual report and proxy statement to stockholders who share
the same last name and address, unless they have notified us that they want to
continue receiving multiple copies. This practice, known as "householding," is
designed to reduce duplicate mailings and save significant printing and postage
costs as well as natural resources. If you received a householded mailing this
year and you would like to have additional copies of our annual report and/or
proxy statement mailed to you, or you would like to opt out of this practice for
future mailings, please submit your request by telephone to (516) 997-1155 or
mail to Dawn M. Schlegel , Secretary, DHB Industries, Inc., 400 Post Avenue,
Suite 303, Westbury, New York 11590. We will promptly send additional copies of
the annual report and/or proxy statement upon receipt of such request. You may
also contact us if you received multiple copies of the annual meeting materials
and would prefer to receive a single copy in the future. Unfortunately,
householding for bank and brokerage accounts is limited to accounts within the
same bank or brokerage firm. For example, if you and your spouse share the same
last name and address, and you and your spouse each have two accounts containing
DHB Industries, Inc. ("DHB") stock at two different brokerage firms, your
household will receive two copies of our annual meeting materials--one from each
brokerage firm.
PROPOSAL 1
ELECTION OF DIRECTORS
Seven (7) 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 2006. Each
of our directors 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 of common stock represented
by proxy will be voted for the election of the Board of Directors' nominees.
Such nominees are listed below. All seven (7) nominees are currently directors.
Each individual nominated for election as a director 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 our Board of Directors or leave a vacancy. Our Board of Directors
has no reason to believe that any of the persons listed as nominees will be
unable or unwilling to serve. Our Board of Directors has affirmatively
determined that each nominee for the Board of Directors, other than Mr. Brooks
and Mrs. Schlegel, does not have a material relationship with DHB that would
iii
interfere with the exercise of independent judgment and is "independent" under
Section 121(A) of the listing standards of the American Stock Exchange.
Our Board of Directors recommends that each stockholder vote "FOR" each of the
Board of Directors' nominees.
INFORMATION CONCERNING NOMINEES
The following is information concerning nominees for election as directors. Each
of such persons is presently a director.
Director
Name of Nominee Age Principal Occupation Since
_______________ ___ ____________________ ________
David H. Brooks 50 Chairman and Chief Executive Officer 1992
Dawn M. Schlegel 35 Chief Financial Officer 2000
Jerome Krantz 50 Owner of Krantz Financial Group 2000
Gary Nadelman 52 Partner in a ladies apparel manufacturer, Ninety
Holding 2001
Cary Chasin 57 Advertising Executive at Star Publishing Group 2002
Barry Berkman 64 Attorney - Partner with Berkman Bottger & Rodd 2003
Gen. Larry Ellis, USA, 58 Retired - Commanding General, United Sates Army
Retired Forces 2004
DAVID H. BROOKS has served as the Chairman or Co-Chairman since our
inception in 1992. Mr. Brooks has served as the Chief Executive Officer 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 has been the Chief Financial Officer since September 1999.
Mrs. Schlegel has also served as Treasurer and Secretary since September 1999,
and was elected a Director as of July 2000. Prior thereto, Mrs. Schlegel was our
Accounting Manager since 1996. Prior to joining us, Mrs. Schlegel was a Senior
Accountant with Israeloff, Trattner & Co. CPAs, P.C., a certified public
accounting firm, for more than five years where she managed audits of middle
market companies and her duties included auditing, compilation and review of
financial statements, taxes, and general accounting. Mrs. Schlegel is a licensed
Certified Public Accountant in the State of New York.
JEROME KRANTZ has been a director 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 industries. Mr.
Krantz is a chartered life underwriter, a chartered financial consultant, and a
iv
registered investment advisor. Mr. Krantz currently serves as Chairman of the
Audit and Compensation Committees of the Board of Directors.
GARY NADELMAN has been a director 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, Garrick Sales. 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 has been a director 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 prior thereto, he owned
and operated an apparel retail store, Pants Palace. He was an employee of DHB
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 has been a director 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.
GENERAL LARRY ELLIS, USA, RETIRED has been a director of the Company
since December 2004. Retired General Larry Ellis completed his military career
as Commanding General, United States Army Forces commanded from November 2001
until he retired on July 1, 2004. For more than thirty-five years, General Ellis
has served in a succession of command and staff positions worldwide within the
U.S. Military
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DAVID H. BROOKS,
DAWN M. SCHLEGEL, JEROME KRANTZ, GARY NADELMAN, CARY CHASIN, BARRY BERKMAN AND
LARRY ELLIS AS DIRECTORS.
BOARD AND COMMITTEE MEETINGS
Our directors serve for a term of one year following their election at the
Annual Meeting, and until their successors have been elected and qualified. Our
officers serve at the discretion of the Board of Directors. In 2004, there were
a total of thirteen 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 of Directors and the committees on which he or she served. Our
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 Board
of Directors. Formal action is generally accomplished by the unanimous written
consent of the directors. Our directors are encouraged to attend our Annual
v
Meetings. No members of the Board of Directors attended the Company's 2004
annual stockholders meeting.
Our Board of Directors has two committees, the Audit Committee and the
Compensation Committee. In 2004, each of these Committees was comprised of three
directors, Jerome Krantz, Gary Nadelman, and Cary Chasin, who are not officers
of DHB and who are all independent directors as defined under Section 121(A) of
the listing standards of the American Stock Exchange and under Rule 10A-3 under
the Securities Exchange Act of 1934, as amended. In 2004, there were seven
meetings of the Audit Committee and three meetings of the Compensation
Committee. All members of each Committee attended all Committee meetings.
COMPENSATION COMMITTEE
Our Compensation Committee reviews and determines salaries, performance-based
incentives and other matters relating to executive compensation, and administers
our equity compensation plan, including reviewing and granting stock options to
our executive officers. Our Compensation Committee also reviews and determines
various other company compensation policies and matters.
AUDIT COMMITTEE
Our Audit Committee assists the Board of Directors in its general oversight of
our financial reporting, internal controls and audit functions, and is directly
responsible for the appointment, retention, compensation and oversight of the
work of our independent auditors. The responsibilities and activities of the
Audit Committee are described in greater detail in "Report of the Audit
Committee" and "Appendix A: Audit Committee Charter."
Our Board of Directors has determined that all of the Audit Committee members
meet the American Stock Exchange standard of being able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement, and cash flow statement. Our Board of Directors has determined that
Mr. Krantz, a certified financial planner and registered investment advisor, is
an "audit committee financial expert" as that term is defined in Item 401(h) of
Regulation S-K. You should understand that this designation is a disclosure
requirement of the Securities and Exchange Commission related to Mr. Krantz's
experience and understanding with respect to certain accounting and auditing
matters. This designation does not impose upon Mr. Krantz any duties,
obligations or liability that are greater than are generally imposed on him as a
member of the Audit Committee and the Board of Directors, and his designation as
an audit committee financial expert pursuant to this Securities and Exchange
Commission requirement does not affect the duties, obligations or liability of
any other member of the Audit Committee or the Board of Directors. Our Audit
Committee has adopted a charter, a copy of which was included as Appendix A to
this proxy statement.
NOMINATING COMMITTEE/DIRECTOR NOMINATIONS
Our Board of Directors does not have a designated nominating committee and has
not adopted a formal nominating committee charter. Our Board of Directors has
determined that due to its small size a separate committee is not necessary in
order to carry out the functions generally performed by a nominating committee.
vi
Our entire Board of Directors participates in the identification and evaluation
of qualified nominees to be presented for consideration by our stockholders and
the designation of those directors who will serve on the Audit and Compensation
Committees; however, no nominee is presented for consideration by our
stockholders unless such nominee is recommended by a majority of our directors
that are independent directors as defined under Section 121(A) of the listing
standards of the American Stock Exchange. By Board of Directors resolution, our
Board of Directors has determined that in evaluating director candidates, the
Board of Directors will consider the appropriate size of the Board of Directors,
our needs, the skills and experience of our directors and any candidates and a
candidate's familiarity with accounting standards and our industry. When
considering current directors for nomination for reelection, the Board of
Directors considers the member's prior performance and contributions. Although
the Board of Directors has the authority to retain a search firm to assist it to
identify director candidates, there has to date been no need to employ a search
firm. The Board of Directors does not evaluate potential nominees for director
differently based on whether they are recommended by a stockholder, an officer,
a director or any other person.
Our Board of Directors 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,
our Board of Directors will consider any candidate recommended by a stockholder.
If you would like to recommend a director candidate for consideration by our
Board of Directors you may submit your recommendation to our executive offices
at Board of Directors, DHB Industries, Inc., 400 Post Avenue, Suite 303,
Westbury, New York 11590. The submission should identify the individual, his or
her educational background, work experience and previous public board service
and include a statement that the person has agreed to serve if nominated and
elected. Any information that would be required to be included in a proxy
statement filed under then-current Securities and Exchange Commission rules
should also be included. If you wish to nominate a person for election to the
Board of Directors yourself, as contrasted with recommending a potential nominee
to the Board of Directors for its consideration, you must comply with any
requirements set forth in our Bylaws. See "Stockholder Proposals And
Communications."
EXECUTIVE OFFICERS
Set forth below is certain information regarding our executive officer that is
not also a director nominee:
SANDRA L. HATFIELD, age 51, has been Chief Operating Officer since December
2000. From October 1996 until December 2000, she served as President of Point
Blank Body Armor Inc., one of our subsidiaries. For more than five years before
that, she was the Vice President of Production at Protective Apparel Corporation
of America, another of our subsidiaries.
vii
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding the
compensation of our executive officers whose total salary and bonus for any of
the years ended December 31, 2004, 2003 or 2002 exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
Name and Principal Year Salary($) Other Restricted Securities LTIP All Other
Position Annual Stock Underlying Payouts Compensation
Compensation(1) Award(s) ($) Options/ ($) ($)
SARs(#)
David H. Brooks, 2004 $675,000 $87,500(1) 0 50,000 0 $2,000,000
Chairman and Chief 2003 625,000 156,250 0 50,000 0 1,000,000
Executive Officer 2002 575,000 68,750 0 25,000 0 0
Sandra L. Hatfield, 2004 $225,385 0(2) 0 0 0 $750,000
Chief Operating 2003 163,068 0 0 0 0 695,000
Officer 2002 163,068 0 0 25,000 0 0
Dawn M. Schlegel, 2004 $200,000 0(2) 0 50,000 0 $500,000
Chief Financial 2003 140,625 0 0 50,000 0 100,000
Officer 2002 140,625 0 0 25,000 0 0
<FN>
1. While Mr. Brooks's employment agreement provides for an annual salary
of $500,000 through July 2001, with annual increases of $50,000, Mr.
Brooks received additional salary to compensate him for foregone
vacation time provided for in such agreement.
2. Although certain officers receive certain benefits, such as auto
allowances and expense allowances, the value of such perquisites did
not in any year exceed the lesser of $50,000 or 10% of the respective
officer's salary and bonus.
</FN>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS.
In July 2000, Mr. Brooks 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. This agreement also awards Mr.
Brooks 750,000 common stock warrants each year that are immediately exercisable
at $1.00 per share and which expire July 1, 2010. Because we own companies in
New York, Florida, Belgium and Tennessee and Mr. Brooks is expected to spend
considerable time in all locations, this agreement requires us to pay the
expenses associated with Mr. Brooks's Florida residence and a car and driver in
all locations. Because Mr. Brooks is expected to utilize his residences to
conduct business for us, we are required to pay certain expenses of Mr. Brooks's
residences including without limitation telephone, information services,
delivery services and certain entertainment expenses. In 2004, the Compensation
Committee formalized the provisions of this agreement pertaining to Mr. Brooks's
Florida residence, by providing for the monthly payment to an affiliated company
of Mr. Brooks, which owns the residence, of an amount equivalent to the market
rental rate for comparable properties less any direct expenses of such residence
paid by us. This contract is subject to renewal by Mr. Brooks for an additional
term of five years on the same terms and conditions.
viii
In 2002, the Board of Directors adopted a resolution authorizing us 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. In 2004, the Audit Committee adopted a 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 DHB business, and the business use of the plane
belonging to Mr. Brooks's affiliate, at rates equivalent to comparable charter
flights. See "Certain Relationships and Related Transactions."
In 2003, the Compensation Committee adopted a resolution providing that, upon a
change of control, all unvested common stock warrants held by directors and
executive officers would vest and become immediately exercisable, that
management is entitled to a buyout of their autos, and management would be
entitled to severance payments equal to four months base salary in the event of
the termination of their respective employment within six months after the
effective date of the change of control.
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option/warrant grants to the executive officers
named in the Summary Compensation Table above during 2004.
Number of % of Total Options Potential Gain at Assumed Annual
Securities Granted to Rates of Stock Price
Underlying Employees in Exercise or Appreciation for Option Term 1:
Options Base Price Expiration
Name Granted Fiscal Year ($/Share) Date 5% 10%
David H. Brooks 50,000 4% $5.88 01/15/08 $863,162 $1,099,823
Sandra L. Hatfield -- -- -- -- -- --
Dawn M. Schlegel 50,000 4% $5.88 01/15/08 $86,3162 $1,099,823
<FN>
1. These amounts assume hypothetical appreciation rates of 5% and 10% over
the term of the option, as required by SEC rules, and are not intended
to forecast the appreciation of the stock price. No gain to the named
officers will occur unless the price of DHB common stock exceeds the
exercise price of the options.
</FN>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information regarding the number and value of
unexercised warrants/options held at December 31, 2004 by the executive officers
listed in the Summary Compensation Table above.
ix
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Warrants / Options at Warrants / Options at
Fiscal Year-End Fiscal Year-End(1)
----------------------------------------------------------------------------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
David H. Brooks 3,669,757 $69,930,000 50,000 -0- $658,000 $-0-
Sandra L. Hatfield 269,545 $3,532,000 25,000 100,000 $59,650 $1,704,000
Dawn M. Schlegel 177,006 $2,932,000 50,000 -0- $658,000 $-0-
<FN>
1. Based on the closing price on December 31, 2004 of $19.04 for a share of
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 2004. None of Messrs. Krantz, Nadelman or Chasin (i) was an
officer or employee of DHB or any of its subsidiaries during 2004, (ii) was
formerly an officer of DHB or any of its subsidiaries, or (iii) had any
relationship requiring disclosure pursuant to any paragraph of Item 404 of
Regulation S-K promulgated under the Securities Exchange Act of 1934, as
amended.
DIRECTOR COMPENSATION
During 2004, our directors who were not officers or employees 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. In
March 2004, each of the six members of the Board of Directors, including those
directors that are also executive officers, were awarded 50,000 five-year common
stock warrants which are exercisable at $5.88 per share. These warrants provide
for an exercise for cash or, at the option of the holder, cashless exercise,
based upon the prior five days' market price.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation of our 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 DHB or any of its affiliates.
x
GENERAL POLICIES
Our compensation programs are intended to enable us to attract,
motivate, reward and retain the management talent required to achieve our
corporate objectives, and thereby increase stockholder value. It is our policy
to provide incentives to our senior management to achieve both short-term and
long-term objectives and to reward exceptional performance and contributions to
the development of our businesses. To attain these objectives, our executive
compensation program includes a competitive base salary and stock-based
compensation.
Stock warrants are granted to employees, including our executive
officers, by the Board of Directors or the Compensation Committee. The
Compensation Committee believes that stock warrants provide an incentive that
focuses the executive's attention on managing our business from the perspective
of an owner with an equity stake. 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 our
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 2003, the Compensation Committee adopted a resolution providing
that, upon a change of control, all unvested common stock warrants held by
directors and executive officers would vest and become immediately exercisable,
that management is entitled to a buyout of their autos, and management would be
entitled to severance payments equal to four months base salary in the event of
the termination of their respective employment within six months after the
effective date of the change of control.
In December 2004 and 2003, the Compensation Committee authorized the
payment of $4.8 million and $3 million, respectively, in cash bonuses to key
employees and officers, to reward those individuals who contributed to our
substantial revenue growth and profitability. Our continued growth and positive
performance are a testament to the dedicated employees who work for us, who have
exceeded the goals and forecasts that we have set for our business.
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 our 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 our stock plans, qualitative factors bearing on an individual's
experience, responsibilities, management and leadership abilities, and job
performance.
For fiscal 2004, the Compensation Committee elected to award bonuses to
Sandra L. Hatfield and Dawn M. Schlegel in the amount of $750,000 and $500,000,
respectively. The Compensation Committee determined that these amounts were
appropriate given our financial performance, the substantial contribution made
by each of such officers to our performance and the compensation levels of
executives of companies with which we compete.
xi
COMPENSATION OF CHIEF EXECUTIVE OFFICER
For fiscal 2004, pursuant to the terms of his employment agreement,
David H. Brooks received a base salary of $675,000. See "Executive Compensation
- - Employment Agreements." In light of his employment agreement, the Compensation
Committee was not required to make any decision regarding Mr. Brooks's base
salary. In addition, the Compensation Committee approved the payment of the
comparable rate ($25,000 per month) for the use of his Florida residence, since
the majority of our business operations are located in Florida which requires
Mr. Brooks to spend substantial time in Florida. The Compensation Committee also
authorized the reimbursement of charter fees to a affiliated company owned by
Mr. Brooks's children for the use of a personal jet, for all business trips. See
"Certain Relationships and Related Transactions." The Compensation Committee
elected to award Mr. Brooks a $2,000,000 bonus for fiscal 2004, in recognition
of our performance and accomplishments in exceeding all forecasts and increasing
revenues and profits. Mr. Brooks also received warrants to purchase 50,000
shares of common stock at $5.88 per share, as did each of the other then-current
directors.
COMPENSATION COMMITTEE
Jerome Krantz, Chairman
Cary Chasin
Gary Nadelman
PERFORMANCE GRAPH
The following graph indicates total return of the DHB common stock to
stockholders for the last five fiscal years ended December 31, 2004 as compared
to the total return for the AMEX Market Index (the common stock trades on the
American Stock Exchange) and the Security Protection Services Group Index, our
peer group. The common stock traded on the OTC Bulletin Board and the Boston
Stock Exchange until February 1, 2002 when it began trading on the American
Stock Exchange.
xii
[COMPARE CUMULATIVE TOTAL RETURN GRAPH APPEARS HERE]
12/31/1999 12/29/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004
DHB Industries, Inc. 100.00 243.46 827.77 230.94 973.85 2648.86
Security/Protection 100.00 89.31 138.48 104.54 163.18 249.75
AMEX Market Index 100.00 98.77 94.22 90.46 123.12 140.99
The above graph assumes $100 invested on December 31, 1999 (the last day of
trading for the fiscal year ended December 31, 1999) in the 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.
Note: The Performance Graph above shall not be deemed to be incorporated by
reference into any filing by DHB 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the common stock as
of April 10, 2005, for (i) each person known by us to beneficially own more than
five percent of the shares of outstanding common stock, (ii) each of the
executive officers listed in the Summary Compensation Table, and (iii) all of
our 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.
xiii
Number of Shares Beneficially
Name Owned(2) Percent Owned(1)
David H. Brooks(3) 6,963,171(3) 15%
Jerome Krantz 64,300(4) *
Sandra L. Hatfield 125,000(5) *
Dawn M. Schlegel 78,003(6) *
Gary Nadelman 122,125(7) *
Cary Chasin 50,000(8) *
Barry Berkman 182,200(9) *
Larry Ellis - -
All executive officers and directors as a group
(8 people) 7,584,799(10) 17%(9)
<FN>
* - Less than one (1%)
1. Based upon 45,337,575 shares outstanding as of April 10, 2005. In
calculating the percentage owned by any individual officer or director,
the number of currently exercisable warrants and options held by such
individual has been included in the calculation of the percentage
owned.
2. Includes options or warrants which are those exercisable within 60 days
after April 10, 2005. 3. Consists of 2,587,133 shares owned by a
corporation, of which Mr. Brooks is President, 768,746 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
owned by Mr. Brooks, 3,057,292 shares owned by a corporation of which
Mr. Brooks's wife is President, and 50,000 shares acquirable under
currently exercisable warrants at a price of 5.88 per share; issued in
2004. Mr. Brooks's address is 400 Post Avenue, Westbury, New York
11590.
4. Includes 50,000 shares, which may be acquired under currently
exercisable warrants issued in 2004 at a price of $5.88 per share.
5. Includes 125,000 shares, which may be acquired under currently
exercisable warrants at prices between $2.00 and $7.11 per share.
6. Includes 50,000 shares, which may be acquired under currently
exercisable warrants issued in 2004 at a price of $5.88 per share.
7. Includes 50,000 shares, which may be acquired under currently
exercisable warrants issued in 2004 at a price of $5.88 per share.
8. Includes 50,000 shares, which may be acquired under currently
exercisable warrants issued in 2004 at a price of $5.88 per share.
9. Includes 75,000 shares, which may be acquired under currently
exercisable warrants at a prices between $4.33 and $5.88 per share;
50,000 of the warrants were issued in 2004.
10. Includes 450,000 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 our directors and
executive officers, and persons who own more than ten percent of a registered
class of our equity securities, to file with the Securities and Exchange
Commission and with the American Stock Exchange, initial reports of ownership
xiv
and reports of changes of ownership of our common stock and our other equity
securities, and Securities and Exchange Commission regulations require executive
officers, directors and greater-than-ten-percent beneficial owners to furnish us
with copies of all Section 16(a) forms they file. To our knowledge, based solely
on a review of the copies of such reports furnished to us and written
representations that no other reports were required during the fiscal year ended
December 31, 2004, all Section 16(a) filing requirements applicable to our
executive officers, directors and greater-than-ten-percent beneficial owners
were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We lease a 67,000 square foot office and manufacturing facility located at 4031
N.E. 12th Terrace, Oakland Park, Florida, for our Point Blank subsidiary and our
Sports Group. Until July 2004, we leased this facility from V.A.E. Enterprises
LLC, a limited liability company controlled by Mrs. Terry Brooks, the wife of
David H. Brooks, and beneficially owned by Mr. and Mrs. Brooks's minor children.
Our management performed a comparison of market rental rates for comparable
properties at the time we entered into this lease and determined that the terms
of the lease were at the then-current market rental rate that could then have
been obtained from an unrelated third party. In July 2004, the building was sold
to an unrelated third party, Cabot Industries Value Fund LP., from whom we now
lease the facility under the same terms as the previous lease. Total rent
expense under this lease payable to the related party was $369,000 in 2004 and
the lease expires on December 31, 2010.
Mrs. Terry Brooks, the wife of David H. Brooks, owns a company called Tactical
Armor Products, Inc., or TAP. We purchase certain components of the
ballistic-resistant apparel that we manufacture and sell from TAP. The majority
of our purchases from TAP are hard armor overweight Small Arms Protective
Inserts, or SAPIs, which can be inserted into our Interceptor and other Outer
Tactical Vests. TAP is also an approved subcontractor on certain of our
government contracts to perform sewing, but the cost of sewing was not a
material portion of our purchases from TAP during 2004. Our purchases from TAP
during 2004 totaled approximately $17.6 million. To facilitate the delivery and
integration of the products that we purchase from TAP, we permit TAP to
manufacture certain products in a portion of our manufacturing facility in
Jacksboro, Tennessee, for which TAP paid us occupancy charges of approximately
$39,600 in 2004. The rent paid by TAP is an estimated allocable portion of our
total rent for the facility.
During 2004, we sold certain raw materials, consisting of ceramic cores for the
overweight SAPIs, to TAP at cost. Our sales to TAP during 2004 totaled
approximately $6.6 million.
In 1997, the Compensation Committee 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 our annual net
income. Under his employment agreement, we 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. In 2002, the Board of Directors adopted a resolution
authorizing us 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. In 2004, the Compensation Committee
xv
formally repealed the 1997 Resolution, and the Audit Committee 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
DHB business, and the business use of the plane belonging to Mr. Brooks's
affiliate, at rates equivalent to comparable charter flights.
In 2003, we did not reimburse Mr. Brooks for certain expenses relating to the
Florida residence and office, the corporate use of the New York residence and
the business use of the plane belonging to Mr. Brooks's affiliate in the
aggregate amount of approximately $721,000. Also in the year 2003, a total of
approximately $322,000 of personal expenses was charged by Mr. Brooks to DHB
credit cards. The net of these two amounts is approximately $399,000. During
2004, Mr. Brooks and his affiliates waived all rights to reimbursement in
respect of such amount.
Pursuant to the 2004 Resolution, we paid an affiliate of Mr. Brooks charter fees
for the use of a plane to fly our executive officers and Board of Directors on
business trips during 2004. We paid direct expenses associated with the 2004
plane use to third party vendors that are not affiliated with Mr. Brooks of
approximately $696,000 for pilot pay, fuel and maintenance and reimbursed Mr.
Brooks's affiliate approximately $161,000 to bring the total cost of the plane
trips to the comparable charter rate as determined by the Compensation
Committee. During 2004, the Compensation Committee approved the fair rental
value payment of $25,000 per month for the cost of renting Mr. Brooks's Florida
residence to formalize the provision in his employment contract which calls for
the reimbursement of his Florida living expenses. We paid direct expenses to
unrelated third parties of approximately $171,000 during 2004 and reimbursed Mr.
Brooks's affiliate which owns the Florida residence, approximately $129,000 for
2004.
AUDIT COMMITTEE REPORT
In 2004, our Audit Committee was comprised of three directors, Jerome Krantz,
Gary Nadelman, and Cary Chasin, who are not officers of DHB and who are all
independent directors as defined under Section 121(A) of the listing standards
of the American Stock Exchange and under Rule 10A-3 under the Securities
Exchange Act of 1934, as amended. Our Audit Committee has adopted a charter, a
copy of which was included as Appendix A to this proxy statement.
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
our financial reporting process and systems of internal controls, (ii)
monitoring the independence and performance of our independent auditors, and
(iii) providing an avenue of communication among the independent auditors,
management and the Board of Directors.
In this context, during 2004, the Audit Committee met four times telephonically,
three times in person and held discussions with management and our independent
auditors. The Audit Committee's Chairman, as representative of the Audit
Committee, also discussed the interim financial information contained in each
xvi
quarterly earnings announcement with our Chief Financial Officer and our
independent auditors prior to public release.
The Audit Committee has reviewed and discussed our 2004 audited financial
statements with management. In addition, the Audit Committee has discussed with
our independent auditors their independence from us and our 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 our independent auditors (Independence Discussions with Audit Committees).
The Audit Committee considered whether the independent auditor's provision of
non-audit services to us is compatible with maintaining the auditor's
independence and concluded that the independent auditor is independent from us
and management. The Audit Committee also reviewed with our independent auditors
the matters required to be communicated under Statement on Auditing Standards
No. 61 concerning their evaluation of our internal controls and the overall
quality of our accounting and financial reporting.
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 2004 be included in our Annual Report on Form 10-K for
the year ended December 31, 2004, for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Jerome Krantz, Chairman
Cary Chasin
Gary Nadelman
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
GENERAL
The Board of Directors has selected Rachlin Cohen and Holtz LLP
("Rachlin") as our independent auditors for the year ending December 31, 2005.
The Board of Directors requests the ratification of the appointment of Rachlin
by the stockholders at the Annual Meeting. A representative of Rachlin is
expected to be present at the Annual Meeting and will have the opportunity to
make statements of he or she desires to do so and will be available to respond
to appropriate questions.
..Weiser LLP has acted as our independent auditors for the fiscal years ended
December 31, 2003 and 2004. We do not expect representatives of Weiser LLP to be
present at the Annual Meeting or to be available to respond to appropriate
questions.
CHANGE IN INDEPENDENT AUDITORS
Grant Thornton LLP served as our independent auditors for the year ended
December 31, 2002. On August 20, 2003, we were notified by Grant Thornton that
it had decided to resign as our independent auditors. Grant Thornton had served
as our independent auditors since May 29, 2002, and audited our 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
xvii
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. There has been no
disagreement 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 to make reference to the subject matter of the
disagreement in connection with its reports.
During the two fiscal years and interim period 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 us that in connection with its audit of our consolidated
financial statements for the year ended December 31, 2002 for filing with our
Form 10-K/A for that year, it had 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 our Form 10-K for
the fiscal year ended December 31, 2002, our reliance on substantial outside
assistance from outside professionals in preparing our financial statements, and
understaffing in our accounting and finance department. After further review,
Grant Thornton reissued their audit report in our Form 10-K/A for the fiscal
year ended December 31, 2003 which states that our consolidated financial
statements presented fairly, in all material respects, the consolidated
financial position of DHB 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 us of these
deficiencies on the date of their resignation. The Audit Committee did not
discuss these deficiencies with Grant Thornton before their resignation. We have
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 our financial statements and we have taken steps
to address each of the deficiencies identified by Grant Thornton. On August 27,
2003, we engaged Weiser as our independent auditors.
Grant Thornton has not withdrawn its opinion on our financial statements for the
fiscal year ended December 31, 2002, which were included in our Form 10-K/A for
the fiscal year ended December 31, 2002 and our Form 10-K/A for the fiscal year
ended December 31, 2003; however, in consultation with Grant Thornton, we
decided to have our financial statements for the fiscal year ended December 31,
2002, that are included in our Form 10-K/A for the fiscal year ended December
31, 2004, audited by Rachlin, Cohen & Holtz LLP.
On April 8, 2005, we were notified that Weiser had declined to stand for
re-election as our principal independent accountants. Notwithstanding its
decision not to stand for re-election, Weiser has advised us that it intends to
complete its audit of our internal control over financial reporting as of
December 31, 2004 and upon completion of such audit, to provide its opinion
regarding such controls as of such date (the "Weiser Opinion"). We have not
received the Weiser Opinion.
During our two most recent fiscal years, the opinion of Weiser did not contain
an adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. During our two most recent
xviii
fiscal years and through April 8, 2005, there were no disagreements with Weiser
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 Weiser would have caused Weiser to make reference to the
subject matter of the disagreement in connection with its reports except that on
March 16, 2005, after the close of business, we transmitted our annual report on
Form 10-K for the year ended December 31, 2004 (the "2004 10-K") for filing via
EDGAR with the Securities and Exchange Commission on March 17, 2005. Shortly
before we transmitted our 2004 10-K, representatives of Weiser called to inform
us that Weiser had not completed its final review of the last revisions to the
Form 10-K and, accordingly, had not yet released its audit report for filing.
Despite Weiser's call, the 2004 10-K was forwarded for filing. Subsequently,
early on March 17, 2005, before the opening of business, we, in consultation
with Weiser, amended the Form 10-K by filing a Form 10-K/A (the "2004 10-K/A")
to include the revisions to our financial statements requested by Weiser and
certain other changes and Weiser released its audit report for filing. Such
revisions were to amend certain financial information including the Note
payable-Bank, on the consolidated balance sheet, and the related footnote, Note
6-Note Payable-Bank, as well as the discussion of the Note Payable-Bank in
Liquidity and Capital Resources, Note 2 Supplemental Cash Flow Information, Note
9 Stockholders Equity, and to correct the omission of the 2004 amount on the
line titled "Accounts receivable" under the caption "Cash Flows from Operating
Activities" in the Consolidated Statement of Cash Flows. Representatives of
Weiser discussed the subject matter of this issue with members of our Audit
Committee and Board of Directors. We have authorized Weiser to respond fully to
the inquiries of any successor independent accountants concerning the subject
matter of such issue.
During our two most recent fiscal years and through April 8, 2005, Weiser has
not advised us of any "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
Weiser has advised us that, in its view, there exists certain deficiencies in
our system for pricing certain inventory and there exists a need to enhance and
strengthen our Audit Committee in order to improve the Committee's
effectiveness. Weiser has informed us that these matters will be discussed in
the Weiser Opinion and Weiser informed us that there will be no change in their
opinion regarding our 2004 financial statements. Representatives of Weiser
discussed the subject matter of these issues with members of our Audit Committee
and Board of Directors. We have authorized Weiser to respond fully to the
inquiries of any successor independent accountants concerning the subject matter
of such issues.
On April 13, 2005, we engaged Rachlin as our principal independent accountants
for the fiscal year ending December 31, 2005. As discussed above, in
consultation with Grant Thornton, the independent accountants that had
previously audited our financial statements for the 2002 fiscal year, we decided
to retain a new auditor to re-audit our financial statements for 2002. We
retained Rachlin to re-audit the financial statements for 2002 for inclusion in
the 2004 10-K and 2004 10-K/A. With the exception of consultations pertaining to
Rachlin's audit of the 2002 financial statements and the inclusion of the 2002
financial statements in the 2004 10-K and 2003 10-K/A, prior to April 13, 2005,
we did not consult with Rachlin regarding: (i) the application of accounting
principles to a specified transaction, either completed or proposed; (ii) the
type of audit opinion that might be rendered by Rachlin on our financial
statements; nor (iii) any matter that was either the subject of a disagreement
xix
(as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions
to that Item) or a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-K).
FEES OF INDEPENDENT AUDITORS
The following table shows the fees that we paid or accrued for the audit
and other services provided by Weiser LLP for fiscal years ended December 31,
2004 and 2003. We retained Weiser LLP as our independent accountants on August
27, 2003.
2004 2003
---- ----
Audit Fees $557,177 $348,840
Tax Fees $ 20,884 $ 29,892
All Other Fees $ 6,902 $ 0
During 2004, we paid Rachlin $234,831 for consulting services in
connection with assisting us in documenting our internal control policies and
procedures. In 2005, we paid Rachlin $136,037 in audit fees to perform a
re-audit of our financial statements for the fiscal year ended December 31,
2002.
AUDIT FEES. This category includes the audit of our annual financial
statements, review of our Form 10-K Annual Report, Form 10-Q Quarterly Reports
and services that are normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements for those fiscal
years. This category also includes advice on accounting matters that arose
during, or as a result of, the audit of our financial statements, the related
attestation report of our internal controls under Sarbanes Oxley and the
preparation of an annual "management letter" on internal control matters.
TAX FEES This category consists of professional services rendered by
our independent accountants for tax compliance, tax advice and tax planning and
preparation of our tax returns.
ALL OTHER FEES. This category consists of fees for responding to SEC
inquiry letters and other miscellaneous items.
AUDIT COMMITTEE PRE-APPROVAL POLICY
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 our independent accountants, in order to assure that the provision of such
services does not impair our independent accountants' independence. Before
engaging the independent accountants 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 our management.
xx
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, our 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
our independent accountants.
The affirmative vote of a majority of the shares present in person
at the Annual Meeting or represented by proxy and entitled to vote is required
for ratification of the appointment of Rachlin as our independent auditors for
2005.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF
RACHLIN AS OUT INDEPENDENT AUDITORS FOR 2005
PROPOSAL 3
THE PROPOSED 2005 OMNIBUS EQUITY INCENTIVE PLAN
As of December 31, 2004, we had outstanding options/warrants, and
shares available for future grants of options/warrants under our equity plan as
follows:
Equity Compensation Plan Information
Number of securities remaining
Number of securities to be Weighted-average exercise available for future issuance
issued upon exercise of price of outstanding under equity compensation plans
outstanding options, options, warrants and (excluding securities
-------------
Plan category warrants and rights rights reflected in column (a))
- ------------- ------------------- ------ ------------------------
(a) (b) (c)
Equity compensation plans
approved by security
holders.... 507,000 $5.00 -0-
Equity compensation plans not
approved by security
holders.... -0- -- -0-
Total ............ 507,000 $5.00 -0-
As indicated in the above table, we have previously granted options or warrants
for substantially all of the shares available under the 1995 Stock Option Plan,
and thus the Board of Directors has adopted a 2005 Omnibus Equity Incentive Plan
(the "Plan") subject to approval by our 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, we believe that it is
in our best long-term interest to incentivize our employees through equity-based
compensation. Under the rules of the American Stock Exchange (on which the DHB
common stock is traded), and certain Internal Revenue Code requirements,
xxi
stockholder approval is required with respect to new equity compensation plans
such as the Plan. The Plan is not qualified under the 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, our officers, directors, employees and/or consultants DHB
and/or our 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. In each fiscal year during any part of which the 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 awards 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 any
performance awards is $1,000,000 multiplied by the number of full years in the
performance period. (On April 14, 2005, the closing price of the Common Stock
was $8.16.) As of April 14, 2005, a total of approximately 60 individuals would
be considered for participation in and receive grants under the Plan, including
the three named officers in the compensation table above, two additional
executives and five non-executive directors. Although the Compensation Committee
has not considered any potential grants under the Plan, had the Plan been in
effect in 2004, it is expected that the named officers, the executive group, the
non-executive director group and non-executive officer employee group would have
received options grants in the amounts set forth in the table below:
New Plan Benefits
2005 Omnibus Equity Incentive Plan
_________________________________________________________________________________________________
Name and Position Dollar Value ($)(1) Number of Units
_________________________________________________________________________________________________
David H. Brooks, Chairman and Chief Executive Officer 50,000
_________________________________________________________________________________________________
Sandra L. Hatfield Chief Operating Officer 125,000
_________________________________________________________________________________________________
Dawn M. Schlegel Chief Financial Officer 50,000
_________________________________________________________________________________________________
Executive Group 50,000
_________________________________________________________________________________________________
Non-Executive
_________________________________________________________________________________________________
Director Group 225,000
_________________________________________________________________________________________________
Non-Executive Officer
_________________________________________________________________________________________________
Employee Group 7,000
_________________________________________________________________________________________________
<FN>
(1) The exercise price of awards to be granted under the Plan is unknown because
we expect that the exercise price will be equal to the fair market value on the
date of grant.
</FN>
xxii
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 DHB 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 DHB 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 (or in the case of a sale, the sale price if lower) and the exercise
price of the option will be treated as taxable ordinary income to the option
holder (with a corresponding tax deduction to DHB, subject to certain statutory
requirements) in the year in which the shares are disposed of. The difference
between the fair market value of the stock purchased upon exercise of an
incentive stock option and the exercise price is a preference for purposes of
the alternative minimum tax.
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
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 DHB 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 DHB 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.
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 DHB (other than a termination for cause), a
payment (payable, at DHB's option, either in cash, in common stock, in other
xxiii
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 DHB. 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 DHB is entitled to a corresponding tax deduction.
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 DHB) 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 DHB). 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
DHB 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. DHB 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 DHB) from time to time as the deferred stock becomes vested and outstanding.
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. To the extent granted as additional
compensation, bonus stock awards are taxable as 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 DHB. 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 DHB 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.
xxiv
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
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 DHB 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 generally taxable as ordinary income to the recipient
(with a corresponding tax deduction to DHB) from time to time as DHB 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 DHB, 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 DHB; (ix) working capital; (x) management of fixed costs
or variable costs; (xi) 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; and (xiii) debt reduction. 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 DHB. The Compensation Committee may exclude
the impact of an event or occurrence which the Compensation 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 DHB or not within
the reasonable control of DHB's management, or (iii) a change in accounting
standards required by generally accepted accounting principles.
CHANGE IN CONTROL. The Plan provides that, upon a change in control of
DHB, 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
xxv
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 more than 50% of the outstanding common stock or combined voting
power of the outstanding voting securities of the Company (unless initiated by
DHB or any of its employee benefit plans); (b) any involuntary turnover of a
majority of the Board of Directors of DHB within a period of twleve consecutive
months or (c) any business combination to which DHB or any of its subsidiaries
is a party unless (i) pre-existing stockholders of DHB 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 DHB)
beneficially owns more than 50% 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 Board of
directors at the time of the agreement for such business combination.
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 DHB'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. DHB 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, either
because the exercise price is no less than the fair market value of the
underlying stock on the grant date or 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 DHB to ensure that options under
the Plan will qualify as "performance based" compensation that is fully
deductible by DHB. Other awards may also qualify as "performance based"
compensation based on the performance criteria described in the Performance
Awards described above.
ACCOUNTING. DHB 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 the first fiscal year
commencing after June 15, 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, DHB would be required, beginning in 2006, 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
xxvi
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 April 14, 2015 (the tenth anniversary of the adoption of
the Plan by the 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 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.
The Plan will be administered by the Compensation Committee of the 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
xxvii
authority to amend the Plan (except for matters requiring stockholder approval
under applicable law or stock exchange rules), the 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
2005 OMNIBUS EQUITY INCENTIVE PLAN
ANNUAL REPORT
A copy of our Annual Report on Form 10-K/A for the year ended December 31, 2004
(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 wishes to submit a proposal for inclusion in the proxy
statement and proxy for our 2006 Annual Meeting of Stockholders, such proposal
must be received at our principal executive office by DECEMBER 16, 2006. All
such proposals are subject to the applicable rules and requirements of the
Securities and Exchange Commission. Additionally, if a stockholder intends to
present a proposal for business to be considered at the 2006 Annual Meeting of
Stockholders but does not seek inclusion of the proposal in the proxy statement
and proxy for such meeting, then we must receive the proposal by MARCH 1, 2006
(45 days before the first anniversary of the mailing of this proxy statement)
for it to be considered timely received. If notice of a stockholder proposal is
not timely received, the proxies will be authorized to exercise discretionary
authority with respect to the proposal.
The Board of Directors does not have a formal process for stockholders to send
communications (including director nominations) to the Board of Directors. Due
to the infrequency of stockholder communications to the Board of Directors, the
Board of Directors does not believe that a formal process is necessary. Written
communications to the Board of Directors may be sent to our executive offices at
400 Post Avenue, Suite 303, Westbury, New York 11590, and we will promptly
circulate such communications to all members of the Board of Directors (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 of Directors.
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.
xxviii
OTHER MATTERS
We know of no other matters to come before the Annual Meeting other than those
referred to in the Notice of Annual Meeting of Stockholders. 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
We will provide without charge to each person whose proxy is solicited, upon the
written request of any such person, a copy of our Annual Report on Form 10-K/A
for its fiscal year ended December 31, 2004 as filed with the Securities and
Exchange Commission, including the financial statements and the schedules
thereto. We do not undertake to furnish without charge copies of all exhibits to
our Form 10-K/A, but we will furnish any exhibit upon the payment of a charge
equal to our costs of copying and mailing any such exhibits. Written requests
should be directed to Mrs. Dawn M. Schlegel, Chief Financial Officer, 400 Post
Avenue, Suite 303, Westbury, New York 11590. Each such request must set forth a
good faith representation that, as of the record date, 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.
xxix
APPENDIX A
DHB INDUSTRIES, INC.
Audit Committee Charter
As Modified
12/14/01
The Audit Committee of the Board of Directors shall be comprised of three (3)
directors selected by the Board of Directors of the Company. Each member of the
Committee shall be an independent director, as defined by the applicable rules
of the Securities and Exchange Commission and the American Stock Exchange,
without regard to listing of the Company's Common Stock thereon, each of such
Directors shall have sufficient financial experience and ability to enable such
persons to discharge the responsibilities of the Audit Committee, and shall have
accounting or related financial management expertise.
The following shall constitute the charter of the Audit Committee:
1. To review and discuss the audited financial statements of the Company
with the Company's independent accountants;
2. To review and discuss the audited financial statements of the Company
and management.
3. To discuss with the independent auditors the matters required to be
discussed by SAS 61 (Codification of Statements on Auditing Standards,
AU 380), as may be modified or supplemented;
4. To receive the written disclosure and the letter from the independent
accountants required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees), as may be modified or supplemented, and to
discuss with the independent accountant the independent accountant's
independence.
5. To recommend to the Board of Directors that the audited financial
statements be included in the Company's Annual Report;
6. To review with the independent auditors the Company's independent
system of audit and financial controls and results of internal audits
and to review such matters with appropriate members of management;
7. To review and discuss the Company's financial reports, accounting
standards and principles of the Company, and any significant changes
in such standards or principles or in their application;
xxx
8. To review any matters pertaining to the integrity of management,
including conflicts of interest, adherence to standards of business
conduct, and report to the full Board thereon;
9. To make recommendations to the full Board with respect to management
intentions concerning the retention of, or change in, the Company's
independent auditor or in the personnel of the independent auditing
firm assigned to audit the Company's financial statements; and
10. To assure compliance by the Company with the requirements of Section
120 and 121 of the American Stock Exchange Guide to Listed Companies,
as the same currently exist and may be amended from time to time
hereafter.
xxxi
APPENDIX B
OMNIBUS EQUITY INCENTIVE PLAN
DHB INDUSTRIES, INC.
2005 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.......................................................6
(c) Limitation of Liability.........................................................................6
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...................................................7
(c) Availability of Shares Not Delivered under Awards...............................................7
(d) No Further Awards Under Prior Plan..............................................................7
5. Eligibility; Per-Person Award Limitations................................................................8
6. Specific Terms of Awards.................................................................................8
(a) General.........................................................................................8
(b) Options.........................................................................................8
(c) Stock Appreciation Rights.......................................................................9
(d) Restricted Stock Awards........................................................................10
(e) Deferred Stock Award...........................................................................11
(f) Bonus Stock....................................................................................12
(g) Performance Awards.............................................................................12
(h) Other Stock-Based Awards.......................................................................12
7. Certain Provisions Applicable to Awards.................................................................13
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.........................................13
(b) Term of Awards.................................................................................13
(c) Form and Timing of Payment Under Awards; Deferrals.............................................13
(d) Exemptions from Section 16(b) Liability........................................................14
(e) Compliance with Code Section 409A..............................................................14
8. Code Section 162(m) Provisions..........................................................................14
(a) Covered Employees..............................................................................14
(b) Performance Criteria...........................................................................14
xxxii
(c) Performance Period; Timing for Establishing Performance Goals..................................15
(d) Adjustments....................................................................................15
9. Change in Control.......................................................................................15
(a) Effect of "Change in Control"..................................................................15
(b) Definition of "Change in Control"..............................................................16
10. General Provisions......................................................................................18
(a) Compliance With Legal and Other Requirements...................................................18
(b) Limits on Transferability; Beneficiaries.......................................................18
(c) Adjustments....................................................................................19
(d) Taxes..........................................................................................20
(e) Changes to this Plan and Awards................................................................20
(f) Limitation on Rights Conferred Under Plan......................................................21
(g) Unfunded Status of Awards; Creation of Trusts..................................................21
(h) Nonexclusivity of this Plan....................................................................21
(i) Payments in the Event of Forfeitures; Fractional Shares........................................21
(j) Governing Law..................................................................................22
(k) Non-U.S. Laws..................................................................................22
(l) Plan Effective Date and Shareholder Approval; Termination of Plan..............................22
xxxiii
DHB INDUSTRIES, INC.
2005 OMNIBUS EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of this 2005 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, 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 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 the Award
Agreement). An approved leave of absence shall include sick
leave, military leave, or any other authorized personal leave.
2
(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) "Effective Date" means the date on which this Plan is adopted by
the Board, which is April 14, 2005, subject to approval within
twelve (12) months thereafter by stockholders of the Company in
accordance with Section 10(l) hereof.
(s) "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.
(t) "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.
(u) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and
successor provisions and rules thereto.
(v) "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 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.
(w) "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
3
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.
(x) "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.
(y) "Incumbent Board" has the meaning ascribed to such term in
Section 9(b)(ii) hereof.
(z) "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.
(aa) "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.
(bb) "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.
(cc) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(i) hereof.
(dd) "Outstanding Company Common Stock" has the meaning ascribed to
such term in Section 9(b)(i) hereof.
(ee) "Outstanding Company Voting Securities" has the meaning ascribed
to such term in Section 9(b)(i) hereof.
(ff) "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.
(gg) "Performance Award" means any Award granted pursuant to Section
6(g) hereof.
4
(hh) "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.
(ii) "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.
(jj) "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.
(kk) "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 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.
(ll) "Restricted Stock Award" means an Award granted to a Participant
under Section 6(d) hereof.
(mm) "Restriction Period" has the meaning ascribed to such term in
Section 6(d)(i) hereof.
(nn) "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.
(oo) "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.
(pp) "Stock Appreciation Right" means a right granted to a Participant
under Section 6(c) hereof.
(qq) "Subsidiary" means any corporation or other entity in which the
Company has a direct or indirect ownership interest of 80% or
more of the total combined voting power of the then outstanding
securities or interests of such corporation entitled to vote
generally in the election of directors or in which the Company
has at least 80 percent of the profits interest or capital
interest of such other entity.
(rr) "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.
5
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 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.
6
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 or Deferred Stock Awards, and (iii)
covered by Stock Appreciation Rights, is 12,000,000 Shares. In
addition, subject to adjustment as provided in Section 10(c)
hereof, the maximum aggregate number of Shares that may be issued
under this Plan pursuant to the exercise of Incentive Stock
Options is 10,000,000 Shares. No Participant may receive Awards
representing more than 1,000,000 Shares in any one calendar year.
The foregoing limitations 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 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, 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 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.
(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.
7
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
Awards, 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 Awards 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:
(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 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
8
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 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, 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 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 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)
are exercisable for the first time by the Participant
during any calendar year shall not exceed $100,000.
(c) STOCK APPRECIATION RIGHTS. The Committee may grant Stock
Appreciation Rights to any Eligible Person (a "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
9
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.
(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, and any other terms and conditions of any
Stock Appreciation Right. The amount payable upon exercise
of a Stock Appreciation Right shall be paid solely in the
form of Shares, unless the Committee determines that payment
in the form of cash or property (other than Shares) would
not cause the Stock Appreciation Rights to be subject to
Section 409A of the Code.
(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
10
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 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. 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
11
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 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 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.
(f) BONUS STOCK. The Committee is authorized to grant Shares to any
Eligible Persons as a bonus, 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) 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 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.
(h) 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(h) shall be purchased for such
12
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, 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.
(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 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, upon occurrence of
one or more specified events (in addition to a Change in
Control), if the Committee determines that such acceleration and
cash settlement would not cause the Award to be subject to
Section 409A of the Code or, if such Award is or would be subject
to Section 409A, would not cause the Award to fail to meet, or to
be operated in accordance with, the requirements of Section 409A
(including, without limitation, those referred to in Code Section
409(a)(1)(A)(i)). 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
13
may include, without limitation, provisions for the payment or
crediting of a reasonable interest rate on installment or
deferred payments.
(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).
(e) COMPLIANCE WITH CODE SECTION 409A. It is the intent of the
Company that each Award under this Plan either (i) not be subject
to the requirements of Section 409A, as interpreted by IRS Notice
2005-1 (2005-2 I.R.B. 274) and any subsequent guidance published
by the IRS regarding Section 409A, or (ii) meet and be operated
in accordance with such requirements. Accordingly, each Award
under this Plan shall comply with the requirements of Section
409A, if applicable, and shall be administered in accordance with
such requirements.
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
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
14
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."
(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.
(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.
15
(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 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"
16
(i) The acquisition by any Person of Beneficial Ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of more than fifty percent (50%) 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 twelve (12) consecutive months
(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 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
17
trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns,
directly or indirectly, more than fifty percent (50%)
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.
Notwithstanding anything to the contrary in the foregoing
provisions of this Section 9, in no event shall a "Change in Control" for
purposes of this Plan include a transaction or other event or series of events
that would not be a "Change in Control Event" as defined in IRS Notice 2005-1
(or such Treasury Regulations or other guidance published by the IRS as may
modify or supercede Notice 2005-1).
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) 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
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
18
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.
19
(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 (i) 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 or (ii) cause any Award hereunder
to fail to satisfy the requirements of Code Section 409A, if
applicable.
(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,
20
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 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 and Section
409A of the Code 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
21
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.
(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 earlier of (i) termination of
this Plan by the Board, or (ii) 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.
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