United States
Securities and Exchange Commission
Washington, DC 20549
SCHEDULE 14A
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 by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
POMEROY IT SOLUTIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials. N/A
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[GRAPHIC OMITTED]
POMEROY
Dear Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders of
Pomeroy IT Solutions, Inc. on Tuesday, June 20, 2006 at 9:00 a.m. at the
Cincinnati Airport Hilton, 7373 Turfway Road, Florence, Kentucky 41042.
We hope that you will be able to attend the Meeting. If you do not expect to be
present and wish your stock to be voted, please sign, date and mail the enclosed
proxy card. Your shares cannot be voted unless you either vote by proxy or vote
by ballot at the Meeting.
If you plan to attend the Meeting and will need special assistance because of a
disability, please contact Samantha Shirley 1020 Petersburg Road, Hebron, KY
41048, (859) 586-0600 Ext 1402.
Very truly yours,
/s/ David B. Pomeroy, II
David B. Pomeroy, II
Chairman of the Board
YOUR VOTE IS IMPORTANT
Please Sign, Date and Return Your Proxy
2
Pomeroy IT Solutions, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 2006 annual meeting of shareholders of Pomeroy IT Solutions, Inc. will be
held at the Cincinnati Airport Hilton, 7373 Turfway Road, Florence, Kentucky
41042 on Tuesday, June 20, 2006, at 9:00 A.M., E.D.T. for the following
purposes:
1. To elect ten directors; and
2. To approve certain amendments to the 2002 Amended and Restated
Outside Directors' Stock Incentive Plan; and
3. To transact such other business as may be properly brought before
the meeting and any and all adjournments thereof.
Stockholders of record at the close of business on May 5, 2006 will be entitled
to notice of and to vote at the meeting.
Stockholders are cordially invited to attend the meeting. Please complete,
execute and return the enclosed proxy card in the enclosed envelope whether or
not you plan to attend so that your shares may be represented at the meeting. If
you attend the meeting, you may revoke your proxy and vote in person if you
choose.
By Order of The Board of Directors
/s/ Kevin G. Gregory
- ----------------------------------
Kevin G. Gregory, Secretary
May 5, 2006
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PROXY STATEMENT
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Pomeroy IT Solutions, Inc., a Delaware corporation
(the "Company"), for use at the Annual Meeting of Stockholders, which will be
held Tuesday, June 20, 2006 at 9:00 A.M., E.D.T., at the Cincinnati Airport
Hilton, 7373 Turfway Road, Florence, Kentucky 41042 and at any and all
adjournments of that meeting for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders. This Proxy Statement and the enclosed
proxy card are first being sent to stockholders on or about May 12, 2006. The
Company's principal executive offices are located at 1020 Petersburg Road,
Hebron, KY 41048.
Shares represented by proxies received by the Company at or prior to the meeting
will be voted according to the instructions indicated on the proxy. You can
specify how you want your shares voted on each proposal by marking the
appropriate boxes on the proxy card. If your proxy card is signed and returned
without specifying a vote or abstention on any proposal, it will be voted
according to the recommendation of the Board of Directors on that proposal. The
Board of Directors knows of no other matters that may be brought before the
meeting. However, if any other business is properly presented for action at the
meeting, the persons named on the proxy card will vote according to their best
judgment.
A proxy card may be revoked at any time before it is voted at the meeting by
filing with the corporate secretary an instrument revoking it, by a duly
executed proxy bearing a later date, or by voting in person by ballot at the
meeting.
Only stockholders of record at the close of business on May 5, 2006 will be
entitled to the notice of and to vote at the meeting. On that date, there were
12,620,469 Common Shares outstanding and entitled to vote, and each such share
is entitled to one (1) vote on each matter to be considered. Stockholders do not
have cumulative voting rights in the election of directors. Tabulation of
proxies and votes cast at the meeting will be counted and certified to by an
independent agent.
A majority of the votes entitled to be cast on matters to be considered at the
meeting will constitute a quorum. If a share is represented for any purpose at
the meeting, it is deemed to be present for quorum purposes and for all other
matters. Abstentions and shares held of record by a broker or its nominee
("Broker Shares") that are voted on any matter are included in determining the
number of votes present or represented at the meeting. Broker non-votes will not
be deemed to have been cast either "for" or "against" a matter, although they
will be counted in determining if a quorum is present. Proxies marked "abstain"
or a vote to abstain by a stockholder present in person at the Annual Meeting
will have the same legal effect as a vote "against" a matter because it
represents a share present or represented at the meeting and entitled to vote.
The specific vote requirements for the proposals being submitted to stockholder
vote at the Annual Meeting are set forth under the description of each proposal
in this Proxy Statement.
The expense of this solicitation will be borne by the Company. Arrangements may
be made with brokerage firms and other custodians, nominees and fiduciaries to
forward solicitation material for the Annual Meeting to beneficial owners of the
Company's stock and the Company will reimburse these institutions for their
expense in so doing.
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STOCK OWNERSHIP
The following table sets forth, as of March 31, 2006, the beneficial ownership
of shares of the Company's Common stock, $.01 par value ("Common Stock"), by
each Director and nominee for Director of the Company, each executive officer
named in the Summary Compensation Table (below), each person known to the
Company to be the beneficial owner of more than five percent (5%) of its
outstanding shares of Common Stock, and by the Directors and executive officers
of the Company as a group.
AMOUNT & NATURE OF
NAME AND ADDRESS (1) BENEFICIAL OWNERSHIP (2) % of Class
- -------------------------------- ------------------------ -----------
David B. Pomeroy, II 2,208,315 (3) 16.85%
Stephen E. Pomeroy 648,826 (4) 4.88%
Kevin G. Gregory 61,250 (5) *
Keith Blachowiak 50,000 (6) *
P. Hope Griffith 27,500 (7) *
John E. McKenzie 76,020 (8) *
James H. Smith, III 26,111 (9) *
Michael E. Rohrkemper - *
William H. Lomicka 29,167 (10) *
Vincent D. Rinaldi 21,667 (11) *
Debra E. Tibey 29,167 (12) *
Edward E. Faber 26,667 (13) *
Kenneth R. Waters 22,500 (14) *
David G. Boucher 10,000 (15) *
Ronald E. Krieg 10,000 (16) *
Directors and all Executive
Officers as a Group 3,247,190 (17) 24.81%
FMR Corp. 1,390,129 (18) 10.99%
82 Devonshire Street
Boston, MA 02109
Wells Fargo and Company 1,738,073 (19) 13.74%
420 Montgomery Street
San Francisco, CA 94104
Wells Capital Management Inc. 1,669,673 (20) 13.20%
525 Market Street, 10th Floor
San Francisco, CA 94104
Dimensional Fund Advisors, Inc. 1,066,160 (21) 8.43%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Byram Capital Management LLC 822,329 (22) 6.50%
41 West Putnam Avenue
Greenwich, CT 06830
- --------------------------------
* Less than one percent (1%)
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(1) The address for all directors and executive officers is the corporate
address.
(2) The "Beneficial Owner" of a security includes any person who shares voting
power or investment power with respect to such security or has the right to
acquire beneficial ownership of such security within 60 days based solely
on information provided to the Company.
(3) Includes 22,636 shares owned by his spouse as to which Mr. David B. Pomeroy
disclaims beneficial ownership. Also includes 452,000 shares of common
stock issuable upon exercise of stock options.
(4) Includes 568,250 shares of Common Stock issuable upon exercise of stock
options. Also includes 75,000 restricted shares.
(5) Includes 50,000 shares of Common Stock issuable upon exercise of stock
options. Also includes 11,250 restricted shares.
(6) Includes 50,000 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 20,000 shares of Common Stock issuable upon exercise of stock
options. Also includes 7,500 restricted shares
(8) Includes 69,833 shares of Common Stock issuable upon exercise of stock
options. Also includes 6,187 restricted shares
(9) Includes 22,500 shares of Common Stock issuable upon exercise of stock
options.
(10) Includes 29,167 shares of Common Stock issuable upon exercise of stock
options.
(11) Includes 21,667 shares of Common Stock issuable upon exercise of stock
options.
(12) Includes 29,167 shares of Common Stock issuable upon exercise of stock
options.
(13) Includes 26,667 shares of Common Stock issuable upon exercise of stock
options.
(14) Includes 20,000 shares of Common Stock issuable upon exercise of stock
options,
(15) Includes 10,000 shares of Common Stock issuable upon exercise of stock
options.
(16) Includes 10,000 shares of Common Stock issuable upon exercise of stock
options.
(17) Includes 1,379,251 shares of Common Stock issuable upon exercise of stock
options. Includes 99,937 restricted shares. Includes 22,636 shares of
Common Stock owned by the spouse of Mr. David B. Pomeroy as to which he
disclaims beneficial ownership.
(18) Beneficial ownership information is taken from latest Form 13G filed
February 14, 2006 for the reporting period ending December 31, 2005.
(19) Beneficial ownership information is taken from latest Form 13G filed
February 2, 2006 for the reporting period ending December 31, 2005.
(20) Beneficial ownership information is taken from latest Form 13G filed
February 2, 2006 for the reporting period ending December 31, 2005.
(21) Beneficial ownership information is taken from latest Form 13G filed
February 1, 2006 for the reporting period ending December 31, 2005.
(22) Beneficial ownership information is taken from latest Form 13G filed
February 13, 2006 for the reporting period ending December 31, 2005.
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PROPOSAL 1 - ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
Ten directors are to be elected at the Annual Meeting of Stockholders, each to
serve until the next annual meeting and until his successor shall have been
elected and qualified. All nominees are presently members of the Board of
Directors. The election of each nominee for director requires the affirmative
vote of the holders of a plurality of the shares of Common Stock cast in the
election of directors. The proxy solicited hereunder will be voted, unless
otherwise instructed, for the election of the ten nominees named below. If, for
any unforeseen reason, any nominee should become unavailable, the proxies will
exercise their discretion in voting for a substitute. The Board of Directors
recommends that the stockholders vote for the ten nominees for director named
below. The following contains information relating to each nominee for election
to the Board of Directors:
Name, Age, Principal Occupation for Last Five Year First Elected As A
Years; and Directorships in Public Corporations Director
- ---------------------------------------------------------------------------------------- -----------------------
David B. Pomeroy, II, 56, is Chairman of the Board and was Chief Executive 1992
Officer of the Company until his resignation in June 2004. Mr. David B. Pomeroy,
II was a founder of the first of the Company's predecessor businesses (the
"Pomeroy Companies") in 1981. Mr. David B. Pomeroy, II controlled the Pomeroy
Companies until their reorganization into Pomeroy Computer Resources in 1992,
and has served as Chairman of the Board since 1992. Mr. David B. Pomeroy, II
served as Chief Executive Officer from 1992 through June 2004. Mr. David B.
Pomeroy, II served as President of the Company from 1992 through January 2001.
Stephen E. Pomeroy, 37, has been a Director of the Company since February, 1998. 1998
Mr. Stephen Pomeroy was promoted to Chief Executive Officer of the Company in
June 2004. Additionally, Mr. Stephen Pomeroy is President and Chief Operating
Officer of the Company. From May 1997 to January 2001, Mr. Stephen Pomeroy was
the Chief Financial Officer of the Company. In December 1998, Mr. Stephen
Pomeroy was named President and Chief Executive Officer of Pomeroy Select
Integration Solutions, Inc. (a wholly owned subsidiary of the Company). Mr.
Stephen Pomeroy was the Vice President of Marketing and Corporate Development
from September 1996 to May 1997.
Kevin G. Gregory, 43, has been a Director of the Company since January, 2006. 2006
Mr. Gregory was named Senior Vice President and Chief Financial Officer,
Secretary and Treasurer in January 2006. Prior to joining the Company, Mr.
Gregory was Senior Vice President and Chief Financial Officer for ProQuest
Company. He joined ProQuest in 1996. Prior to that time, he spent eight years in
public accounting. Mr. Gregory holds a bachelor's degree in Accounting from the
University of Notre Dame and is a CPA. He holds both a law degree and a master
of law in taxation from the DePaul University College of Law.
James H. Smith, III, 55, has been a Director of the Company since April 1992. 1992
Mr. Smith is a shareholder in the law firm of Lindhorst & Dreidame Co., L.P.A.,
Cincinnati, Ohio, where he has practiced law since 1979. Lindhorst & Dreidame
acts as outside general counsel to the Company.
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William H. Lomicka, 69, has been a Director of the Company since January 1999. 1999
Mr. Lomicka is Chairman of Coulter Ridge Capital, a private investment firm, a
position he has held since 1999. Mr. Lomicka is currently a director of Counsel
Corporation, a publicly traded investment company. Between 1989 and 1999, he was
President of Mayfair Capital, Inc., a private investment firm. Mr. Lomicka is a
graduate of the College of Wooster in Wooster, Ohio and has a Master's of
Business Administration degree from the Wharton School of the University of
Pennsylvania.
Vincent D. Rinaldi, 57, has been a Director of the Company since June 1999. Mr. 1999
Rinaldi is President and Chief Executive Officer of National City Commercial
Capital Corporation (formerly, Information Leasing Corporation ("ILC")) and
Procurement Alternatives Corporation ("PAC"), both wholly-owned subsidiaries of
National City Corporation. The combined companies finance and manage equipment
for a wide range of companies. Mr. Rinaldi was the founder of ILC in 1984 prior
to its acquisition by Provident (now National City) in 1996. Mr. Rinaldi is
currently a Director of Thrucom, Inc., Qsys International Inc. and Infonet Inc.
Debra E. Tibey, 47, has been a Director of the Company since June 2002. Ms. 2002
Tibey has been in the IT Industry for over 24 years and has held various senior
management positions in sales and marketing. From 1988 through 2000, she worked
for Ingram Micro, the world's largest distributor of technology products and
services. During her 12 year tenure with Ingram Micro she served in various
leadership roles ultimately serving as Senior Vice President of Sales. She was
responsible for leading seven customer sales divisions including: VAR's, Direct
Marketers, Retail, SMB, System Integrators, Telephony, and Enterprise. Her staff
consisted of 1,400 associates and domestic revenue exceeded 16 billion dollars
in sales. Prior to joining Ingram Micro she lived in the Netherlands and served
as Vice President and General Manager of Export for Aakasoft, a European
software distributor. She traveled extensively thoughout Europe and was
responsible for all sales and marketing outside of the Benelux market. Prior to
joining Aakasoft she was Director of Sales and Marketing for Creighton
Development, a PC and Apple software developer. Ms.Tibey was responsible for
developing and implementing the company's channel strategy which consisted of
distributors, VARS, DMRS, and manufacturer representatives. Ms. Tibey is
currently a consultant in the IT Industry and a principle of Zoey LP, an
educational publishing company that markets to the healthcare industry. She also
serves on the board of directors of Interlink Networks, a security software
company. She also sits on the advisory board for Soft Search, a private company.
Kenneth R. Waters, 55, has been a Director since June 2004. Mr. Waters was 2004
previously a director of the Company from April 1997 until January 1999, and
from June 2001 until January 2003. He served as a director of Pomeroy Select
Integration Solutions, Inc., a wholly owned subsidiary of the Company, from
December 1998 through March 2001. Mr. Waters has worked in the computer industry
since 1978. Mr. Waters was an executive with ComputerLand from 1978 to 1988,
Chief Executive Officer of Power Up Software from 1992 to 1993 and President of
MicroAge from 1993 to 1995. Most recently, he has been an industry consultant,
serving as such for the Company from January 1997 through March 2001. Mr. Waters
is currently President of KRW LLC, a private consulting company, and Chief
Executive
8
Officer of E-Seek Inc., a private ID hardware company. Mr. Waters has a law
degree.
David G. Boucher, 62, has been a Director of the Company since June 2005. Mr. 2005
Boucher is currently Chairman and Chief Executive Officer of Dave Boucher
Enterprises, a consultant in distribution channels marketing. Mr. Boucher is
also the Non-Executive Chairman of Verity Professionals Inc. In addition, he
sits on the boards of directors of Market Velocity Inc., Advisors for Knowlagent
and Telephonetics Inc. He also serves on the Advisory Board of Clearpath
Networks Inc. In May 2000, Mr. Boucher, retired after thirty years with IBM
Corporation where he held numerous executive positions in the IBM Personal
Systems Group, including Vice President of Channel Sales for North America, Vice
President of Distribution Channels Management for North America and Vice
President and General Manager for Worldwide Distribution Channels Marketing for
the IBM Personal Systems Group.
Ronald E. Krieg, 63, has been a Director of the Company since December 2005. Mr 2005
Krieg is a Certified Public Accountant and has been an audit partner of Jackson,
Rolfes, Spurgeon & Co. since August 1, 2004. Prior to August 1, 2004, Mr. Krieg
was with Grant Thornton LLP since 1965, other than for two years when he served
in the United States Marine Corps. He became a partner in Grant Thornton LLP in
1978. Mr. Krieg has 40 years in the practice of public accounting with a
national firm, and has considerable experience in the areas of Sarbanes-Oxley
and internal auditing. He is a past president of the Cincinnati Chapter of the
Institute of Internal Auditors and has served on its Board of Governors for over
30 years. Mr. Krieg also serves as a member of the Board of Directors of CECO
Environmental Corp., a publicly traded company, and serves on its Audit
Committee.
Stephen E. Pomeroy is the son of David B. Pomeroy, II. There are no other family
relationships among the Company's directors and executive officers.
There were six (6) meetings of the Board of Directors in 2005. Each member of
the Board of Directors attended at least seventy-five percent (75%) of (1) the
aggregate of the total number of meetings of the Board, and (2) the total number
of meetings held by committees on which he or she served.
DIRECTOR INDEPENDENCE
The Board of Directors has determined that the following seven directors are
"independent" as defined by applicable law and Nasdaq listing standards: James
H. Smith, III, William H. Lomicka, Vincent D. Rinaldi, Debra E. Tibey, Kenneth
R. Waters, David G. Boucher and Ronald E. Krieg. In addition, the Board of
Directors has determined that Edward E. Faber, who will serve as a director
until the annual meeting, is independent. All of the foregoing directors, except
Mr. James H. Smith, III, are independent as "independence" is defined for audit
committee members in Nasdaq Rule 4350(d).
COMMUNICATION FROM STOCKHOLDERS
The Board will give appropriate attention to written communications that are
submitted by stockholders, and will respond if and as appropriate. The Secretary
will review each stockholder communication. The Secretary will forward to the
entire Board (or to members of the Board committee, if the communication relates
to a subject matter clearly within that committee's area of responsibility) each
communication that (a) relates to the Company's business or governance, (b)
9
is not offensive and is legible in form and reasonably understandable in
content, and (c) does not merely relate to a personal grievance against the
Company or a team member or further personal interest not shared by the other
stockholders generally.
Stockholders of the Company may communicate with the Board in writing addressed
to:
Board of Directors
c/o Corporate Secretary
Pomeroy IT Solutions, Inc.
1020 Petersburg Road
Hebron, KY 41048
CODE OF ETHICS
The Company has adopted a written Code of Ethics ("Code") that applies to our
Directors, officers, and employees of the Company and its subsidiaries including
the Company's Chief Executive Officer and Chief Financial Officer. The Code is
available under the corporate governance section of the Company's website
(www.pomeroy.com). The Company will post amendments to or waivers from its Code
at the same location on its website. Additionally, the Company has incorporated
ethical and conduct standards into its policies and agreements with employees.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Company has a standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act which oversees the accounting and
financial reporting processes of the Company and audits of the financial
statements of the Company. The Company's Audit Committee is currently composed
of four independent directors (as defined by Nasdaq Rule 4350(d)), Mr. William
H. Lomicka, Mr. Edward E. Faber, Mr. Ronald E. Krieg and Ms. Debra E. Tibey.
The Board of Directors has determined that Mr. Ronald E. Krieg is an "audit
committee financial expert" as defined in Item 401(h) of Regulation S-K. The
Audit Committee held ten (10) meetings and numerous discussions during fiscal
2005. The Audit Committee consults with the independent auditors regarding
their examination of the financial statements of the Company and their related
assessment of internal controls. It reports to the Board of Directors on these
matters and recommends the independent auditors to be designated for the ensuing
year. See Report of the Audit Committee beginning on page 27.
Nominating and Corporate Governance Committee
The Company has a standing Nominating and Corporate Governance Committee which
operates under a written charter adopted by the Board of Directors (a copy of
which is included herewith as Exhibit A). The Nominating and Corporate
Governance Committee held three (3) meetings during fiscal 2005. The Company's
Nominating Committee and Corporate Governance Committee is currently composed of
two independent directors, Kenneth R. Waters and Debra E. Tibey. The principal
functions of the Nominating and Corporate Governance Committee are to assist the
Board in identifying individuals for service as directors of the Company and as
Board committee members, to develop and monitor a process for evaluating Board
effectiveness, and to develop, oversee and administer the establishment of the
Company's corporate governance guidelines. This committee is comprised of
independent directors as defined by applicable Nasdaq listing requirements and
has adopted a formal written charter.
Candidates for Board Membership. The Board as a whole is responsible for
selecting nominees for the Board. The Nominating and Corporate Governance
Committee is responsible for screening and recommending candidates. In
fulfilling this role, the committee may, without obligation, receive
recommendations from the Chief Executive Officer or shareholders of the Company.
The Nominating and Corporate Governanace Committee will consider shareholder
recommendations for candidates for the Board. The name of any recommended
candidate for director, together with a brief biological sketch, a document
indicating the candidate's willingness to serve, if elected, and evidence of the
nominating shareholder's ownership of the Company stock should be sent to the
attention of the Corporate Secretary of the Company. Factors to be considered by
the Nominating and Corporate Governance Committee in recommending candidates for
Board membership include, but are not limited to:
10
- Personal qualities and characteristics, accomplishments and reputation
in the business community;
- Current knowledge and contacts in the communities in which the Company
does business and in the Company's industry or other industries
relevant to the Company's business;
- Ability and willingness to commit adequate time to Board and committee
matters;
- The fit of the individual's skills and personality with those of other
directors and potential directors in building a Board that is
effective, collegial and responsive to the needs of the Company; and
- Diversity of viewpoints, backgrounds and experience.
In recommending directors for re-election to the Board at the expiration of
their terms, the Nominating and Corporate Governance Committee shall consider a
director's overall effectiveness, including whether changes in employment
status, health, community activity or other factors may impair a director's
continuing contributions to the Board. The Board does not believe that adopting
a set term limit for directors serves the interests of the Company.
Compensation Committee
The Company has a standing Compensation Committee which held two (2) meetings
during fiscal 2005, composed of two independent directors, Mr. Vincent D.
Rinaldi and Mr William H. Lomicka. This committee reviews the compensation paid
by the Company and makes recommendations on these matters to the Board of
Directors. See Report of the Compensation Committee beginning on page 13.
Stock Option Committee
The Company has a standing Stock Option Committee consisting of Mr. James H.
Smith III. This committee administers the 2002 Non-Qualified and Incentive Stock
Option Plan. During fiscal 2005, this committee held no formal meeting.
DIRECTOR'S FEES
The Board of Directors' adopted a new fee schedule, which became effective
January 6, 2005, under which each director who is not an employee of the
Company, except for Mr. Smith, shall receive a quarterly retainer equal to six
thousand dollars ($6,000) and fees for attendance at committee meetings as
follows: $500 for each Board of Directors meeting attended (including as part
of each such meeting any committee meetings held on the same date); $500 for
each Stock Option Committee attended; $1,000 for each Nominating Committee
meeting attended; $1,500 for
11
each Compensation Committee meeting attended; and $2,000 for each Audit
Committee meeting attended. Mr. Smith's law firm, Lindhorst & Dreidame Co.,
L.P. A., will be compensated for his time in attendance at Directors' meetings
based on his hourly rate. Each non-employee director also receives an annual
stock option grant as provided in the Company's 2002 Amended and Restated
Outside Directors' Stock Incentive Plan.
DIRECTOR COMMITMENT AND ATTENDANCE
It is the policy of the Company that all directors should make every effort to
attend in person the four regularly scheduled quarterly meetings of the Board,
the organizational meeting held in conjunction with the Company's Annual
Stockholders' Meeting, and the associated meetings of committees of which they
are members; provided, however, that members may attend such meetings by
telephone or video conference if necessary to mitigate conflicts. The 2005
Annual Meeting of stockholders was attended by four directors.
12
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is currently composed of
two independent directors, Mr. Vincent D. Rinaldi and Mr. William H. Lomicka.
The Compensation Committee is responsible for the establishment and oversight of
the Company's Executive Compensation Program. This program is designed to meet
the objectives of attracting, retaining and motivating executive employees and
providing a balance of short-term and long-term incentives that can recognize
individual contributions from an executive and the overall operating and
financial results of the Company. The Compensation Committee intends to review
executive compensation on a regular basis and to compare the competitiveness of
the Company's executive compensation and corporate performance with other
corporations comparable to the Company. The Compensation Committee believes that
the significant equity interest in the Company held by the Company's management
aligns the interests of the stockholders and management. Through the programs
adopted by the Company a significant portion of Executive Compensation is linked
to individual and corporate performance and stock price appreciation.
The primary elements of the Company's Executive Compensation Program consist of
base salary, potential for annual cash bonus opportunities, stock options and
restricted stock awards. The Compensation Committee believes that incentives
play an important role in motivating executive performance and attempts to
reward achievement of both short and long term goals. However, the emphasis on
using stock options as a long term incentive is intended to insure a proper
balance in the achievement of long term business objectives which ties a
significant portion of the executive's compensation to factors which impact on
the performance of the Company's stock.
Compensation opportunities must be adequate to enable the Company to compete
effectively in the labor market for qualified executives. The elements of the
Executive Compensation Program are designed to meet these demands, and at the
same time encourage increases in shareholder value.
BASE SALARIES
Base salaries for executives are initially determined by evaluating the duties
and responsibilities of the position to be held by the individual, the
experience of the executive and the competitive marketplace for executive
talent. The Company has entered into Employment Agreements that establish
salaries for certain executive officers. Salaries for executives and other
employees are reviewed periodically and may be set at higher levels if the
Company concludes that is appropriate in light of that particular individual's
responsibilities, experience and performance.
ANNUAL CASH BONUSES
The Company's executives and other employees are eligible to receive annual cash
awards or bonuses at the discretion of the Compensation Committee with the
approval of the Board of Directors. In determining whether such discretionary
awards should be made, the Compensation Committee considers corporate
performance measured by financial and operating results including income, return
on assets and management of expenses and costs.
13
CHIEF EXECUTIVE OFFICER COMPENSATION
In early 2005, the Compensation Committee began a review of Mr. Stephen E.
Pomeroy's compensation package, including his annual salary, performance and
discretionary bonuses, restricted stock awards and stock option grants. Prior to
completion of this review, and in the third quarter of 2005, the Compensation
Committee approved, and the Company paid, a discretionary bonus to Mr. Pomeroy
of $300,000 and 27,000 restricted shares. The Second Amendment to Mr Pomeroy's
Amended and Restated Employment Agreement was formally approved by the
Compensation Committee on September 21, 2005 and executed by both parties on
October 13, 2005. Pursuant to this Second Amendment, Mr. Pomeroy received an
additional award of 48,000 restricted shares and a stock option grant of 50,000
shares. Since 2005, no subsequent bonuses have been paid or committed to.
Submitted by the Compensation Committee
Vincent D. Rinaldi and William H. Lomicka
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. David B. Pomeroy, Chairman of the Board, controls the company from which the
Company leases its headquarters, distribution facility and national training
center. These facilities were leased by the Company pursuant to a triple net
lease agreement, which expires in the year 2015. Base rental for fiscal 2005,
2004 and 2003 was approximately $1.2 million each year. The annual rental for
these properties was determined on the basis of a fair market value rental
opinion provided by an independent real estate company, which was updated in
2000. In addition, the Company pays for the business use of other real estate
that is owned by Mr. David B. Pomeroy. During fiscal year 2005, the Company
paid $25 thousand and during fiscal years 2004 and 2003, the Company paid, $95
thousand each year in connection with this real estate. During 2005, the
Company finalized a new lease agreement with this same related-party lessor, for
an additional 69,000 square feet of space at the Company's facilities in Hebron,
Kentucky. The lease is a ten-year triple-net lease with fair market value
rent payments of approximately $200 thousand annually.
On January 31, 2005, the Company and Mr. David B. Pomeroy entered into a
Consulting Agreement for Mr. David B. Pomeroy (the "Consulting Agreement"). The
Consulting Agreement has a term of five (5) years commencing January 5, 2005
(the "Effective Date").
The Consulting Agreement provides that David B. Pomeroy will be paid base
compensation of $250,000 per year, and provides for the payment of certain
bonuses, including a $100,000 bonus payable in the first quarter of 2005 The
Consulting Agreement also calls for the payment of a lump-sum cash service award
in the amount of $750,000 in consideration of David B. Pomeroy's long-standing
service, contributions, and leadership to the Company, the payment of an annual
housing allowance of $25,000 for the Company's use of certain real property in
Arizona beneficially owned by David B. Pomeroy, the continuation of medical and
disability insurance coverage throughout the term of the Consulting Agreement,
and the reimbursement of certain expenses incurred by David B. Pomeroy in the
performance of his duties under the Consulting Agreement. Except as specifically
set forth in the Consulting Agreement, David B. Pomeroy shall not be eligible to
participate in any long-term incentive plans, retirement plans, or benefit plans
offered by the Company to employees.
The Consulting Agreement contains certain non-compete, nondisclosure of
confidential information, and non-solicitation provisions applicable throughout
the term of the Consulting Agreement, and provides that the Company will
indemnify and hold harmless David B. Pomeroy from all actions, claims, losses,
etc. resulting from his good faith performance of his duties under the
Consulting Agreement.
14
Mr. James H. Smith, a director of the Company, is a stockholder in the law firm
of Lindhorst & Dreidame Co., L.P.A. Lindhorst & Dreidame Co. serves as general
counsel to the Company. The legal services provided to the Company by Lindhorst
& Dreidame Co. constituted less than 5% of the firm's business in 2005.
Mr. Vincent D. Rinaldi, a director of the Company, is the President and Chief
Executive Officer of National City Commercial Capital Corporation, (formerly,
Information Leasing Corporation) a wholly-owned subsidiary of National City
Corporation. On April 16, 2002, the Company closed the sale of a majority of the
assets of its wholly owned subsidiary - Technology Integration Financial
Services, Inc. to Information Leasing Corporation. In connection with this sale,
the Company signed an exclusive seven-year vendor agreement whereby the Company
is appointed as an agent for remarketing and reselling of the leased equipment
sold. The Company will be paid a commission on future lease transactions
referred to and accepted by National City Commercial Capital Corportation and
will act as the remarketing and reselling agent for such future leased
equipment.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table is a summary for the fiscal years 2005, 2004 and 2003 of
certain information concerning the compensation paid or accrued by the Company
to the Chief Executive Officer, the other four executive officers of the Company
as of the end of its most recent fiscal year (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATIONAWARDS
-------------------------------------------- -----------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK OPTIONS LTIP
POSITION YEAR SALARY BONUS COMPENSATION STOCK(10) # (2) PAYOUTS
- ------------------------- ---- ------------ ------------ ---------------- ----------- -------------- ------------
Stephen E. Pomeroy 2005 $ 495,000 $300,000 (1) $ 2,460 (4) $ 810,000 140,750 $292,500 (3)
President and Chief 2004 $ 495,000 - $ 2,520 (4) 130,000
Executive Officer 2003 $ 450,000 $ 500,000 $ 2,460 (4) 150,000
Michael E. Rohrkemper 2005 $ 197,308 $ 42,500 $ 7,425 (5) 25,000
Chief Financial Officer, 2004 $ 200,000 $ 65,000 $ 8,100 (5) 25,000
Secretary, and Treasurer 2003 $ 200,000 $ 15,000 $ 8,100 (5) 15,000
Kevin G. Gregory 2005 $ 0 (7) $ 0 0 $ 97,312 50,000
Senior Vice President and
Chief Financial Officer
P. Hope Griffith 2005 $ 69,231 (8) $ 0 $ 4,400 (5) $ 64,875 20,000
Senior Vice President of
Services
John E. McKenzie 2005 $166,154 (9) $ 50,000 $ 8,625 (5) $ 66,819 33,500 $ 61,292 (6)
Senior Vice President of
Sales and Marketing
(1) Represents lump-sum cash service award.
(2) Unless otherwise noted, all stock options are awarded based on
the fair market value of the Company's Common stock at the time
of grant. Represents options granted during fiscal years 2005,
2004, and 2003.
(3) Represents deferred compensation payout.
(4) Includes phone and entertainment allowance.
(5) Includes phone and automobile allowance.
(6) Includes deferred compensation of $25,000 and stock options
exercised of $36,292.
15
(7) Mr. Gregory's employment commenced January 3, 2006, two days
prior to the end of fiscal 2005. Mr. Gregory's salary for fiscal
2006 is $300,000.
(8) Ms. Griffith's employment commenced in August 2005. Ms. Griffith
was promoted to Senior Vice President of Services in December of
fiscal 2005. The compensation amounts listed above reflects her
total compensation for fiscal 2005. Ms. Griffith's salary for
fiscal 2006 is $225,000.
(9) Mr. McKenzie was promoted to Senior Vice President of Sales and
Marketing in December of fiscal 2005. The compensation amounts
listed above reflects his total compensation for fiscal 2005. Mr.
McKenzie's salary for fiscal 2006 is $225,000.
(10) The dollar value of the restricted stock awards has been
calculated by mulitplying the closing market price of the
Company's common stock on the date of the award by the number of
shares awarded.
16
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning the grant of
options to purchase Common Stock to each of the Named Executive Officers during
fiscal year 2005.
Individual Grants
- -----------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual
No. of Shares of Percent of Total Rates of Stock Price
Common Stock Options Granted to Exercise or Appreciation for Option Term
Underlying Options Employees Base Price Expiration ----------------------------------
Name Granted in Fiscal Year ($/Sh) Date 5% 10%
- --------------------- ------------------ ------------------- ------------- ---------- ---------------- ----------------
Stephen E. Pomeroy 90,750 8.96% $ 14.66 01/06/10 $ 367,564 $ 812,219
50,000 4.94% $ 11.19 11/03/10 $ 153,889 $ 340,054
Michael E. Rohrkemper 20,000 1.98% $ 15.24 02/21/06 $ 84,211 $ 186,083
Kevin G. Gregory 50,000 4.94% $ 8.25 01/03/11 $ 113,966 $ 251,835
P. Hope Griffith 20,000 1.98% $ 12.34 8/7/2007 $ 25,297 $ 51,828
John E. McKenzie 6,000 0.59% $ 14.91 3/2/2007 $ 9,170 $ 18,787
7,500 0.74% $ 12.24 5/24/2007 $ 9,410 $ 19,278
20,000 1.98% $ 7.90 11/19/2010 $ 43,652 $ 96,461
17
AGGREGATE STOCK OPTION EXERCISES IN YEAR ENDED JANUARY 5, 2006
AND YEAR END STOCK OPTION VALUES
The following table sets forth information concerning aggregated option
exercises in fiscal year 2005 and the number and value of unexercised options
held by each of the Named Executive Officers at January 5, 2006.
No. of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
January 5, 2006 January 5, 2006
(#) ($)
Shares ----------------------- -------------------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------- --------------- ------------- ----------------------- -------------------------
Stephen E. Pomeroy - $ - 618,250 / 0 $ 64,350 / 0
Michael E. Rohrkemper - $ - 72,500 / 0 $ 13,900 / 0
Kevin G. Gregory - $ - 50,000 / 0 $ 13,500 / 0
P. Hope Griffith - $ - 20,000 / 0 $ 0 / 0
John E. McKenzie - $ - 69,833 / 25,000 $ 2,965 / 15,367
18
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following tables summarizes as of January 5, 2006 information regarding
our equity compensation plans.
- -------------------------------------------------------------------------------------------
Plan category Number of Weighted- Number of
securities to be average exercise securities
issued upon price of remaining
exercise of outstanding available for
outstanding options, warrants future issuance
options, warrants and rights under equity
and rights compensation
plans(excluding
securities
reflected in
column (a))
(a) (1) (b)(2) (c) (3)
- -------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 3,049,764 $ 13.31 1,488,481
- -------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security holders - - -
- -------------------------------------------------------------------------------------------
Total 3,049,764 $ 13.31 1,488,481
- ----------------------------------=========================================================
<FN>
(1) Includes restricted stock awards under the 2002 Amended and Restated Stock
Incentive Plan ("Stock Incentive Plan") of 123,261 shares. Total
compensation expense recognized in fiscal 2005 for vested shares was $68
thousand. The unvested portion of these restricted stock awards is
presented as unearned compensation.
(2) Awards of restricted stock under the Stock Incentive Plan and shares
purchased under the 1998 Employee Stock Purchase Plan were not included in
determining the weighted average exercise price of outstanding options,
warrants and rights.
(3) Includes 331,026 shares available for future issuance under the 1998
Employee Stock Purchase Plan. Includes 476,739 shares available for
restricted stock awards under the Stock Incentive Plan. In the event
Proposal 2 is approved, up to 77,500 shares will become available for
restricted stock awards under the 2002 Amended and Restated Outside
Directors Stock Incentive Plan.
Submitted by Board of Directors
EMPLOYMENT AGREEMENTS
Mr. Stephen E. Pomeroy
Mr. Stephen E. Pomeroy's Amended and Restated Employment Agreement (the "Amended
and Restated Employment Agreement") with the Company was entered into effective
November 3, 2003 and provides for a term of five years, which is extended on a
daily basis resulting in a perpetual five-year term. The Amended and Restated
Employment Agreement provides Mr. Stephen E. Pomeroy with a base salary of
$544,000 for fiscal 2005 and each subsequent year unless modified by the
Compensation Committee of the Company. The Amended and Restated Employment
Agreement was subsequently amended on January 6, 2004 and again on October 13,
2005 to establish criteria
19
regarding Mr. Stephen E. Pomeroy's eligibility to earn annual bonuses and the
potential amount of such bonuses.
The Amended and Restated Employment Agreement, as amended, provides for annual
bonus potential of up to $400,000 in cash and a restricted stock award of up to
27,000 shares in the event the Company meets certain predetermined goals in
fiscal 2005. The Amended and Restated Employment Agreement, as amended, also
provides that: (i) on each consecutive annual anniversary date of its effective
date so long as Mr. Stephen E. Pomeroy remains employed by the Company, he shall
be granted an option to acquire 50,000 shares of the common shares of the
Company at the fair market value of such common shares as of the date of the
grant; and (ii) upon implementation of the Company's Long Term Incentive Program
for Management in 2005, Mr. Stephen E. Pomeroy would be entitled to an award of
restricted stock in the amount of 48,000 shares.
It is anticipated that the Company will provide Mr. Stephen E. Pomeroy with a
substantially similar bonus and incentive plan for fiscal 2006 but such plan has
not been agreed upon as of the date of the filing of this Proxy Statement.
Under the Amended and Restated Employment Agreement, if Mr. Stephen E. Pomeroy's
employment agreement is terminated within one year following a
change-of-control, Mr. Stephen E. Pomeroy shall receive a severance payment
equal to five years of his base pay at the time of termination. In addition,
Mr. Stephen E. Pomeroy would be paid any bonus or other compensation that he
would have received had he not been terminated and would be entitled to
continued participation in the Company's benefit programs for five years.
Mr. Kevin G. Gregory
Effective January 3, 2006, the Company and Mr. Kevin G. Gregory entered into an
Employment Agreement (the "Gregory Employment Agreement") which shall continue
for a period of three (3) years thereafter. The term of Mr. Gregory's
employment shall automatically renew for additional consecutive renewal terms of
one (1) year unless either party gives written notice of his/its intent not to
renew the term of the Gregory Employment Agreement at least 90 days prior to the
expiration of the then expiring term. Under the Gregory Employment Agreement,
Mr. Kevin G. Gregory receives a base annual salary of $300,000, which base
salary shall remain in effect unless or until modified in writing by the
parties. In connection with entering into the Gregory Employment Agreement, Mr.
Kevin G. Gregory received a bonus in the form of 50,000 fully vested stock
options. So long as Mr. Kevin G. Gregory remains employed by the Company, the
Gregory Employment Agreement provides that he shall be awarded (a) an option to
acquire 25,000 shares of common stock, $.01 par value, of the Company at the end
of the first year of the initial term of the Gregory Employment Agreement; and
(b) an option to acquire 25,000 shares of common stock, $.01 par value, of the
Company at the end of the second year of the initial term of the Gregory
Employment Agreement. Such stock options shall be subject to a three (3) year
vesting schedule and any other conditions contained in the Company's
Non-Qualified and Incentive Stock Option Plan and the related award agreement.
Ms. P. Hope Griffith
Ms. P. Hope Griffith 2006 Employment Agreement (the " Griffith Employment
Agreement") with the Company was entered into effective March 8, 2006 and
provides for a term of three years. The Griffith Employment Agreement provides
Ms. P. Hope Griffith with a base salary of $225,000 for fiscal 2006. In
connection with entering into the Griffith Employment Agreement, P. Hope
Griffith received a bonus in the form of 20,000 fully vested stock options. So
long as Ms. P. Hope Griffith remains employed by the Company, the Griffith
Employment Agreement provides that she shall be awarded (a) an option to acquire
20,000 shares of common stock, $.01 par value, of the Company at the end of the
first year of the initial term of the Griffith Employment Agreement; and (b) an
option to acquire 20,000 shares of common stock, $.01 par value, of the Company
at the end of the second year of the initial term of the Griffith Employment
Agreement. Such stock options shall be subject to a three (3) year vesting
schedule and any other conditions contained in the Company's Non-Qualified and
Incentive Stock Option Plan and the related award agreement.
Mr. John E. McKenzie
Mr. John E, McKenzie 2006 Employment Agreement (the "McKenzie Employment
Agreement") with the Company was entered into effective March 6, 2006 and
provides for a term of three years. The McKenzie Employment Agreement provides
Mr. John E. McKenzie with a base salary of $225,000 for fiscal 2006. In
connection with entering into the McKenzie Employment Agreement, Mr. John E.
McKenzie received a bonus in the form of 35,000 fully vested stock options and
$75,000 cash subject to a three year vesting schedule. So long as Mr. John E.
McKenzie remains employed by the Company, the McKenzie Employment Agreement
provides that he shall be awarded (a) an option to acquire 25,000 shares of
common stock, $.01 par value, of the Company at the end of the first year of the
initial term of the McKenzie Employment Agreement; and (b) an option to acquire
25,000 shares of common stock, $.01 par value, of the Company at the end of the
second year of the initial term of the McKenzie Employment Agreement. Such stock
options shall be subject to a three (3) year vesting schedule and any other
conditions contained in the Company's Non-Qualified and Incentive Stock Option
Plan and the related award agreement.
20
PERFORMANCE GRAPH
The following Performance Graph compares the percentage of the cumulative total
stockholder return on the Company's Common shares with the cumulative total
return assuming reinvestment of dividends of (i) the S&P 500 Stock Index and
(ii) the NASDAQ Composite Index.
[GRAPHIC OMITTED]
- -----------------------------------------------------------------------
01/05/01 01/05/02 01/05/03 01/05/04 01/05/05 01/05/06
- -----------------------------------------------------------------------
Pomeroy 100 93.30 80.70 98.50 97.70 56.80
- -----------------------------------------------------------------------
S&P 500 100 90.31 69.98 86.43 91.17 91.17
- -----------------------------------------------------------------------
NASDAQ COMP 100 85.50 57.60 85 86.90 94.60
- -----------------------------------------------------------------------
21
PROPOSAL 2 - TO APPROVE THE AMENDMENTS TO THE COMPANY'S 2002 AMENDED AND
RESTATED OUTSIDE DIRECTORS' STOCK INCENTIVE PLAN
BACKGROUND
In March 2002, the Board of Directors of the Company adopted the 2002 Amended
and Restated Outside Directors' Stock Incentive Plan (as amended, the
"Directors' Plan"), which was approved by the stockholders on June 13, 2002. On
March 11, 2004, the Board of Directors approved the amendment and restatement of
the Directors' Plan to (1) increase the number of shares of common stock of the
Company reserved for issuance under the Directors' Plan, and (2) amend the terms
and conditions of future stock options awarded to outside Directors. This
amendment and restatement of the Directors' Plan was approved by the
stockholders on June 10, 2004. On January 6, 2005, the Board of Directors
approved amendments to the Directors' Plan to (1) increase the stock options
awarded to each outside director on their respective anniversary dates from
5,000 shares to 10,000 shares, and (2) to increase the exercise period of stock
options granted under the Directors' Plan from a period of 2 years from and
after the date of their grant to 5 years from and after the date of their grant.
As of April 5, 2006, there were 165,000 shares subject to outstanding stock
options under the Directors' Plan and 98,856 shares available for granting
additional stock awards. Also as of that date, there were outstanding options
for 7,500 shares under the 1992 Outside Directors Stock Option Plan. To the
extent that any of the options outstanding under the 1992 Outside Directors Plan
are canceled or expire, the number of shares reserved for issuance under the
Directors Plan is automatically increased by the number of shares subject to
such canceled or expired options.
REASONS FOR AND DESCRIPTION OF PROPOSED AMENDMENTS
On April 11, 2006, the Board of Directors approved certain amendments to the
Directors' Plan, subject to stockholder approval. The primary purposes of the
amendments are to (1) add restricted stock as a type of award that may be
granted under the Directors' Plan and provide that the restriction period for
restricted stock awards shall be not less than 4 years, (2) provide that the
annual award of common stock to a Director will be a restricted stock grant
(unless the Board determines otherwise) but that the number of shares subject to
the annual award is decreased from 10,000 shares to 3,300 shares, and (3)
decrease the total number of shares reserved under the Directors Plan by 28,856
shares. The foregoing summary of the amendments to the Directors' Plan is
qualified in its entirety by the specific language of the 2002 Amended and
Restated Outside Directors' Stock Incentive Plan, a copy of which is attached to
this proxy statement as Exhibit C.
The Board believes it is advisable and in the best interests of the Company to
continue to encourage stock ownership by its outside directors. However, in
light of recent changes in the accounting treatment of stock options, the Board
believes that it is advantageous to the Company for the Awards to Directors to
be grants of restricted stock but for a reduced number of shares. By reducing
the number of shares subject to an Award, the dilutive effect of the Awards to
the stockholders of the Company is also reduced. Although it is the present
intention that Awards to Directors will be restricted stock grants rather than
stock options, since there have been frequent changes in the accounting
treatment to various equity incentives in the past and there continues to be the
possibility of future accounting or tax changes in the future, the Board
believes that it is advantageous for it to retain flexibility to grant awards as
restricted stock or stock options. The Board believes that the proposed changes
are desirable to better enable the Company to attract and retain the best
available individuals to serve as outside directors of the Company.
DESCRIPTION OF STOCK PLAN, AS AMENDED, SUBJECT TO STOCKHOLDER APPROVAL
The following summary of the Directors' Plan, as amended, is qualified in its
entirety by the specific language of the Directors' Plan, a copy of which is
attached to this proxy statement as Exhibit C.
22
Purpose. The Board of Directors of the Company believes that the Company's
long-term success is dependent upon its ability to attract and retain highly
qualified directors who, by virtue of their ability and qualifications, make
important contributions to the Company. The Directors' Plan is intended to
encourage outside directors of the Company to acquire and increase their
ownership of common stock of the Company on reasonable terms and aid in
attracting and retaining such individuals. The Board further believes that the
ownership of common stock in the Company motivates high levels of performance
and provides an effective means of recognizing contributions to the success of
the Company.
Administration. The Directors' Plan will be administered by the Board or a
committee of the Board appointed (hereafter referred to as the "Administrator"),
in accordance with the provisions of the Plan. The Administrator is authorized
to determine the fair market value of the shares subject to Awards, approve the
form of award agreement, and determine certain procedures and conditions, not
inconsistent with the terms of the Directors' Plan, of any Award.
Stock Subject to Plan. The maximum number of Shares subject to the Directors'
Plan, as amended, is 242,500 shares of common stock, $.01 par value, which
represents a decrease of 28,856. Of the total shares subject to the plan, there
are currently 70,000 shares available for future awards, not including the 7,500
shares subject to options outstanding under the 1992 Directors Plan. The
Directors' Plan provides that, subject to the maximum number of shares reserved,
the number of Shares reserved under the Directors' Plan will automatically
increase by the number of shares of common stock subject to those options that
were still outstanding under the 1992 Plan as of March 30, 2004 that are
subsequently either canceled or expire unexercised.
Eligibility. Options are granted only to outside (non-employee) directors of the
Company. The nominees for director at the annual meeting include seven outside
directors.
Plan Benefits. Under the Directors' Plan, as amended, an Award is granted
automatically, on an annual basis to each outside director as follows: (1) an
Award for 3,300 shares of Restricted Stock on the first day of the initial term
of the outside director, and (2) an Award for 3,300 shares of Restricted Stock
on the first day of each consecutive year of service on the Board. All Awards
must be evidenced by a written award agreement.
An Award shall be a grant of Restricted Stock unless the Board determines that
the Award shall be an Option in lieu of Restricted Stock. All Restricted Stock
Awards require a vesting period of not less than four years from the date of
grant during which there must be continued service as an independent Director.
Restricted Stock Awards may be issued for no cash consideration or for such
minimum consideration as may be determined by the Administrator. Typically, a
Director who receives Restricted Stock will have all of the rights of a
stockholder of the Company with respect to the shares of Restricted Stock,
including the right to vote the Shares and the right to receive dividends
provided that any stock dividends are subject to the same restrictions that
apply to the Restricted Stock. Subject to the minimum vesting period, the
Administrator has the authority to add or modify the terms and conditions of an
Award of Restricted Stock including the authority to: (1) provide for the
acceleration, lapse or waiver of any term, condition or restriction during the
Restriction Period based on service, performance, and/or such other factors or
criteria as the Administrator may determine, (2) at the time of the Award,
provide that the payment of cash dividends shall or may be deferred, (3) allow
vesting in the case of the death or disability of the Director, and (4) limit
the right to vote or receive dividends; provided, however, that the
Administrator may not reduce the vesting period to less than four years.
In the event that the Board determines that any Award shall be an Option,
instead of Restricted Stock, the Board shall determine the number of shares
subject to the Option, not to exceed 10,000 shares per annual Award. With
respect to any Option, the exercise price of each Option will be the fair market
value of the Company's common stock on the date the Option is granted. All
Options granted after April 11, 2006 will be subject to vesting as provided in
the Directors Plan and must be exercised within five years of the date of grant,
subject to earlier termination in the event of
23
termination of the Director's service on the Board. An Option may be exercised
within three months of the termination of service of a Director (but not beyond
the term of the Option), except in the case of the death of a Director, the
Option may be exercised by the deceased Director's legatee, personal
representative or distribute within one year of the date of death (but not
beyond the term of the Option). The exercise price for an Option is payable in
cash, or at the discretion of the Administrator, in whole or in part by check,
promissory note or in shares of common stock valued at their fair market value
at the date of exercise. The cash proceeds from the exercise of Options
constitute general funds of the Company and may be used by it for any purpose.
Term of Plan. The term of the plan is for ten years ending on March 26, 2012.
Adjustments upon Change in Capitalization or Merger. In the event the Company's
common stock changes by reason of any stock split, reverse split, stock
dividend, combination, reclassification or similar change in the Company's
capital structure effected without consideration, appropriate adjustments shall
be made to the number of shares of stock subject to the Directors' Plan, the
number of shares subject to any outstanding awards and the exercise price for
shares subject to outstanding awards. In the event of a liquidation or
dissolution, any unexercised awards will terminate. In the event of a merger or
consolidation of the Company, if the outstanding awards are not assumed or
replaced with an equivalent substitute, the right to exercise such awards will
be accelerated to permit exercise prior to the merger or consolidation.
Amendments and Termination. The Board may amend, alter, suspend or discontinue
the Amended Directors' Plan at any time and for any reason. A termination of
the Plan shall not affect Awards already outstanding. In addition, the Company
shall obtain stockholder approval for any amendment to the Directors' Plan to
the extent necessary and desirable to comply with applicable laws. No
amendment, suspension or termination of the Directors' Plan may materially
impair the rights under awards previously granted without the consent of the
Director.
The Administrator may amend the terms of existing Awards granted under the
Directors' Plan provided that no amendment may, without stockholder approval,
reduce the exercise price of outstanding options or cancel or amend outstanding
options for the purpose of repricing, replacing or regranting such options with
an exercise price that is less than the exercise price of the original Options.
Plan Benefits Received. Only outside directors are eligible to receive benefits
under the Directors' Plan. No officers or employees of the Company are eligible
to be Participants under the Plan. Assuming approval of the amendments to the
Directors' Plan and the subsequent issuance of Restricted Stock to the seven
outside directors to be elected at the annual meeting, the benefits of the
Directors' Plan for fiscal 2006 are set forth in the following table:
Number of Shares
Of Restricted Stock
Granted in 2006 Estimated Value*
------------------- ----------------
All outside Directors as a group 23,100 $ 195,195
Total 23,100 $ 195,195
____________________
* The estimated value of restricted stock granted in fiscal 2006 under the
Directors' Plan, as amended is based on the market value of the Company's common
stock on May 1, 2006.
For additional information relating to Awards previously issued under the
Directors' Plan and the 2002 Amended and Restated Stock Incentive Plan (for
employees and consultants), please see the table under the heading "Securities
Authorized for Issuance Under Equity Compensation Plans" on page 19 of this
proxy statement.
Federal Income Tax Consequences Relating to the Directors' Plan, as Amended.
The U.S. federal income tax consequences to the Company and the Directors under
the Directors' Plan are complex and subject to change. The following discussion
is only a summary of the general rules applicable
24
to the Directors' Plan. Directors should consult their own tax advisors since a
taxpayer's particular situation may be such that some variation of the general
rules described below will apply.
As described above, different types of awards may be granted under the Directors
Plan. The tax consequences related to each type of award is discussed
separately.
Options. Generally, the grant of a nonqualified stock option will not result in
- -------
income for the participant or in a deduction for the Company. The exercise of a
nonqualified stock option would result in ordinary income for the participant
and a deduction for the Company measured by the difference between the exercise
price and the fair market value of the shares received at the time of exercise.
Restricted Stock. Since all Restricted Stock Awards require a vesting period,
- -----------------
the granting of Restricted Stock will not result in taxable income to the
Director unless the Director elects to recognize as income at the time of grant
the difference between the fair market value and the amount, if any, paid by the
Director in exchange for the stock. If no such election is made, then as shares
of the Restricted Stock vest, the Director will recognize ordinary income for
the difference between the fair market value and the amount, if any, paid by the
Director in exchange for the stock. The participant's basis for determination
of gain or loss upon the subsequent disposition of Restricted Stock will be the
amount paid by the participant for such shares of Restricted Stock plus the
amount of ordinary income recognized by the participant. Upon disposition of
any Restricted Stock, the difference between the sale price and the
participant's basis in the Restricted Stock will be treated as capital gain or
loss and generally will be characterized as long-term capital gain or loss if,
at the time of disposition, the shares have been held for more than one year
since the participant recognized ordinary income with respect to such Restricted
Stock. In the year that the participant recognizes ordinary taxable income in
respect of an award of Restricted Stock, the Company will be entitled to a
deduction for federal income tax purposes equal to the amount of ordinary income
that the participant is required to recognize, provided that the deduction is
not otherwise disallowed under the Code.
VOTE REQUIRED AND BOARD RECOMMENDATION
At the Annual Meeting, the stockholders will be asked to approve the amendments
to the Directors' Plan described above (as set forth in more detail in the
Directors' Plan Amendment). The resolution that will be introduced at the
Annual Meeting is as follows:
RESOLVED, that the 2002 Amended and Restated Outside
Directors Stock Incentive Plan be, and it is hereby,
authorized, adopted and approved by the stockholders of this
Corporation.
Assuming the presence of a quorum at the Annual Meeting, the affirmative vote of
the holders of a majority of the shares present in person or represented by
proxy is required to approve the amendments to the Directors' Plan. Abstentions
will be counted toward the tabulation of votes cast and will have the same
effect as negative votes. Broker non-votes are counted towards a quorum but are
not counted for any purpose in determining whether this matter has been
approved. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. James H. Smith, III, a director of the Company, is a shareholder in the law
firm of Lindhorst & Dreidame Co. L.P.A., which serves as general counsel to the
Company. See "Compensation Committee Interlocks and Insider Participation".
Mr. David B. Pomeroy, II, Chairman of the Board, engaged in certain transactions
with the Company in the last fiscal year. See "Compensation Committee Interlocks
and Insider Participation."
Mr. Vincent D. Rinaldi, a director of the Company, is the president of National
City Commercial Capital (formerly, Information Leasing Corporation) a
wholly-owned subsidiary of National City Corporation. On April 16, 2002, the
Company closed the sale of a majority of the assets of Technology Integration
Financial Services, Inc. to Information Leasing Corporation. See "Compensation
Committee Interlocks and Insider Participation".
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. David B. Pomeroy II, Chairman of the Board, failed to file Form 4's with
respect to 31,780 shares gifted.
Mr. Stephen E. Pomeroy, Chief Executive Officer, President and Chief Operating
Officer failed to file a Form 4 related to 75,000 restricted shares granted on
October 24, 2005. Mr. Pomeroy also failed to file one Form 4 with respect to
the expiration of 50,000 options on January 6, 2006
Mr. Kevin G. Gregory, Chief Financial Officer, failed to file a Form 4 related
to 11,250 restricted shares granted on December 27, 2005 with a stock price of
$8.65
Mr. Keith Blachowiak, Chief Information Officer, failed to timely file a Form 3
after first becoming subject to the Section 16 reporting requirements. Mr.
Blachowiak also failed to file a Form 4 with respect to 50,000 options granted
on March 6, 2006 with a exercise price of $9.94.
Mr. John E. McKenzie, Senior Vice President of Sales and Marketing, failed to
timely file a Form 3 after first becoming subject to the Section 16 reporting
requirements. Mr. Mckenzie also failed to file Form 4s with respect to 35,000
and 10,000 options granted on March 28 and March 31, 2006 with exercise prices
of $8.71 and $8.58, respectively.
26
REPORT OF THE AUDIT COMMITTEE
The audit committee is currently comprised of Mr. William H. Lomicka, Mr. Edward
E. Faber, Mr. Ronald E. Krieg and Ms. Debra E. Tibey, all of whom were
independent as defined by Nasdaq Rule 4350(d). The audit committee operates
under a written charter adopted by the Board of Directors and is presented as
Exhibit B. As described more fully in its charter, the purpose of the audit
committee is to assist the Board of Directors in its general oversight of the
Company's financial reporting, internal control and audit functions. Management
is responsible for the preparation, presentation and integrity of the Company's
financial statements, accounting and financial reporting principles, internal
controls and procedures designed to ensure compliance with accounting standards,
applicable laws and regulations. Crowe Chizek and Company LLC, the Company's
independent auditor, is responsible for performing an independent audit of the
consolidated financial statements in accordance with auditing standards
generally accepted in the United States of America.
The audit committee members function is not intended to duplicate or to certify
the activities of management and the independent auditor, nor can the audit
committee certify that the independent auditor is "independent" under applicable
rules. The audit committee serves a board-level oversight role, in which it
provides advice, counsel and direction to management and the auditors on the
basis of the information it receives, discussions with management and the
auditors and the experience of the audit committee's members in business,
financial and accounting matters.
Among other matters, the audit committee monitors the activities and performance
of the Company's external auditors, including the audit scope, external audit
fees, auditor independence matters and the extent to which the independent
auditor may be retained to perform non-audit services. The audit committee and
the Board have ultimate authority and responsibility to select, evaluate and,
when appropriate, replace the Company's independent auditor. The audit committee
also reviews the results of the external audit work with regard to the adequacy
and appropriateness of the Company's financial, accounting and internal
controls. Management and independent auditor presentations to and discussions
with the audit committee also cover various topics and events that may have
significant financial impact or are the subject of discussions between
management and the independent auditor.
The audit committee has reviewed and discussed the consolidated financial
statements with management and the independent auditor and management
represented to the audit committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles. The independent auditor represented that its presentations included
the matters required to be discussed with the independent auditor by Statement
on Auditing Standards No. 61, as amended, "Communication with Audit Committees,"
and Section 204 of the Sarbanes-Oxley Act and it implementing SEC rules.
The Company's independent auditor also provided the Committee with the written
disclosures required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and the audit committee
discussed with the independent auditor that firm's independence.
Following the audit committee's discussions with management and the independent
auditor, the audit committee recommended that the Board of Directors include the
audited consolidated financial statements in the Company's annual report on Form
10-K for the year ended January 5, 2006.
Submitted by the Audit Committee
William H. Lomicka, Edward E. Faber, Ronald E. Krieg and Debra E. Tibey
27
INDEPENDENT PUBLIC ACCOUNTANTS
Crowe Chizek and Company LLC ("Crowe Chizek"),has served as independent
certified public accountants to the Company since October 3, 2003.
Representatives of Crowe Chizek are not expected to be present at the Annual
Meeting.
No independent accountant has been selected by the Company for the current
fiscal year. On April 20, 2006, the Company was notified by Crowe Chizek that it
would be resigning as the Company's independent accountant, effective upon
completion of the Form 10-Q for first quarter of fiscal 2006. The Company is in
the process of engaging a new independent accountant for the remainder of the
current fiscal year.
Crowe Chizek's reports on the Company's financial statements since its
engagement did not contain an adverse opinion or disclaimer of opinion and was
not otherwise qualified or modified as to any uncertainty, audit scope or
accounting principles. During the two most recent fiscal years ended January 5,
2006 and during the subsequent period through the date hereof, there was no
disagreement between the Company and Crowe Chizek 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 Crowe
Chizek, would have caused it to make a reference to the subject matter of the
disagreement(s) in connection with its report . Also during the two most recent
fiscal years and during the subsequent period through the date hereof, the
Company did not have any reportable events as described under Item 304
(a)(1)(iv) of Regulation S-K except for the existence of material weaknesses in
the Company's internal control over financial reporting as disclosed by the
Company at January 5, 2005 and January 5, 2006 and concurred with by Crowe
Chizek. (See Item 9A in Part II of the Company's Form 10-K/A for the fiscal
year ended January 5, 2005, filed May 5, 2005, and Item 9A in Part II of the
Company's Form 10-K for the fiscal year ended January 5, 2006 for a description
of the material weaknesses.) The Company previously reported the foregoing on a
Form 8-K, filed April 26, 2006,a copy of which was provided to Crowe Chizek
prior to filing. Crowe Chizek provided a letter addressed to the Securities and
Exchange Commission agreeing with the statements contained in the Form 8-K which
was filed as an exhibit to the Form 8-K.
Representatives of Crowe Chizek attended most meetings of the audit committee of
the Board during fiscal 2005. The audit committee reviews audit and non-audit
services performed by the Company's independent accountants as well as the fees
charged by them for such services. In its review of non-audit service fees, the
audit committee considers, among other things, the possible effect of the
performance of such services on the auditor's independence.
FEES PAID TO INDEPENDENT ACCOUNTANTS
The following table shows the fees paid or accrued by the Company for the audit
and other services provided by the Company's independent accountants for the
fiscal years 2005 and 2004:
Fiscal 2005 Fiscal 2004
------------ ------------
Audit Fees $ 122,707 $ 203,465
Audit-Related Fees 332,411 158,889
Tax Fees 177,950 169,523
All Other Fees - -
------------ ------------
Total $ 633,068 $ 531,877
============ ============
Audit Fees-Audit fees consist of fees for the audit of our annual financial
statements and the reviews of interim financial statements included in our
quarterly reports on Form 10-Q and all
28
services that are normally provided in connection with statutory and regulatory
filings or engagements.
Audit-Related Fees-Audit-related fees consist of fees for assurance and related
services that are reasonably related to the performance of the audit and the
review of our financial statements and which are not reported under "Audit
Fees." These services relate to attest services performed in connection with
the review of internal controls required by Section 404 of the Sarbanes-Oxley
Act, employee benefit plan audits, due diligence related to acquisitions,
accounting consultations in connection with acquisitions, consultations related
to internal control, attest services that are not required by statute or
regulation and consultations concerning financial accounting and reporting
standards.
Tax Fees-Tax fees consist of fees for tax compliance, tax advice and tax
planning services.
All Other Fees-All other fees related to professional services rendered for
services not reported in other categories above.
AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES
The Audit Committee has adopted policies and procedures relating to the approval
of all audit and non-audit services that are to be performed by our independent
auditor. This policy generally provides that we will not engage our independent
auditor to render audit or non-audit services unless the service is specifically
approved in advance by the Audit Committee with the exception of minor
incidentals. For fiscal 2005, the Audit Committee pre-approved 100% of the
audit fees, 100% of the audit-related fees, and 100% of the tax fees reported
above.
29
PROPOSALS FOR 2007 MEETING
In order to be eligible for inclusion in the Company's proxy statement for the
2007 annual meeting of stockholders, stockholder proposals must be received by
the Secretary of the Company at its principal office, 1020 Petersburg Road,
Hebron, Kentucky 41048, by January 12, 2007.
Stockholders who intend to present a proposal at such meeting without inclusion
of such proposal in our proxy materials pursuant to Rule 14a-8 under the
Exchange Act are required to provide advance notice of such proposal to our
Secretary at the aforementioned address not later than March 28, 2007.
If we do not receive notice of such a stockholder proposal on or before March
28, 2007, our management will use its discretionary authority to vote the shares
that they represent by proxy in accordance with the recommendations of the
Board.
We reserve the right to reject, rule out of order, or take other appropriate
action with respect to any proposal that does not comply with these or other
applicable requirements.
By Order of the Board of Directors
- ------------------------------
, Secretary
- -----------
- -----------
Date
30
EXHIBIT A
POMEROY IT SOLUTIONS, INC.
CHARTER OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
PURPOSE OF COMMITTEE: The purpose of the Nominating and Corporate Governance
Committee (the "Governance Committee") of the Board of Directors (the "Board")
of Pomeroy IT Solutions, Inc. (the "Company") is to identify and recommend
individuals to the Board for nomination as members of the Board and its
committees and to develop and recommend to the Board a set of corporate
governance guidelines applicable to the Company. The Governance Committee shall
report to the Board on a regular basis and not less than once a year.
COMMITTEE MEMBERSHIP
- ---------------------
The Governance Committee shall consist solely of "independent Directors," i.e.
those Directors who neither are officers or employees of the Company or its
Subsidiaries nor have a relationship which, in the opinion of the Board, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a Director, and who are otherwise "independent" under the
rules of the Nasdaq National Market.
Members shall be appointed by the Board after receiving recommendations from the
members of the Board so designated, and shall serve at the pleasure of the Board
and for such term or terms as the Board may determine.
COMMITTEE STRUCTURE AND OPERATIONS
- -------------------------------------
The Board shall designate one member of the Governance Committee as its
chairperson (the "Chairman"), with the chairpersonship to be rotated at least
once every two years. The Governance Committee shall meet in person or
telephonically at least twice a year at a time and place determined by the
Chairman, with further meetings to occur, or actions to be taken by unanimous
written consent, when deemed necessary or desirable by the Governance Committee
or the Chairman.
COMMITTEE DUTIES AND RESPONSIBILITIES
- ----------------------------------------
The following are the duties and responsibilities of the Governance Committee:
To make recommendations to the Board from time to time as to changes that the
Governance Committee believes to be desirable to the size of the Board or any
committee thereof.
To identify individuals believed to be qualified to become Board members, and to
recommend to the Board the nominees to stand for election as Directors at the
annual meeting of stockholders or, if applicable, at a special meeting of
stockholders. In the case of a vacancy on the Board (including a vacancy
created by an increase in the size of the Board), the Governance Committee shall
recommend to the Board an individual to fill such vacancy either through
appointment by the Board or through election by stockholders. In nominating
candidates, the Governance Committee shall take into consideration the factors
set forth under "Candidates for Board Membership" in the Company's Corporate
Governance Guidelines and such other factors as the Governance Committee deems
appropriate. The Governance Committee may consider candidates proposed by
management, but is not required to do so.
31
To develop and recommend to the Board standards, consistent with the
requirements of law or of any exchange on which the Company's securities are
traded, to be applied in making determinations as to the absence of
relationships between the Company or its subsidiaries and a director which, in
the opinion of the Board, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a Director.
To identify Board members qualified to fill vacancies on any committee of the
Board (other than the Governance Committee) and to recommend that the Board
appoint the identified member or members to the applicable committee. In
nominating a candidate for committee membership, the Governance Committee shall
take into consideration the factors set forth in the charter of the committee,
if any, as well as any other factors it deems appropriate, including without
limitation the consistency of the candidate's experience with the goals of the
committee and the interplay of the candidate's experience with the experience of
other committee members.
To oversee the periodic evaluation of the effectiveness of the Board.
To develop and recommend to the Board a set of corporate governance guidelines
applicable to the Company, and to review those guidelines at least every other
year.
To review the amount and composition of director compensation and, if deemed
appropriate, make recommendations to the Board regarding changes to Director
compensation.
To prepare and issue the evaluation required under "Performance Evaluation"
below.
To perform any other duties or responsibilities expressly delegated to the
Governance Committee by the Board from time to time.
DELEGATION TO SUBCOMMITTEE
- ----------------------------
The Governance Committee may, in its discretion, delegate all or a portion of
its duties and responsibilities to a subcommittee of the Governance Committee.
PERFORMANCE EVALUATION
- -----------------------
The Governance Committee shall produce and provide to the Board a periodic
performance evaluation which shall compare the performance of the Governance
Committee with the requirements of this charter. The performance evaluation
shall also recommend to the Board any improvements to the Governance Committee's
charter deemed necessary or desirable by the Governance Committee. The
performance evaluation by the Governance Committee shall be conducted in such
manner as the Governance Committee deems appropriate. The report to the Board
may take the form of an oral report by the Chairman or any other member of the
Governance Committee designated by the Governance Committee to make this report.
RESOURCES AND AUTHORITY OF THE COMMITTEE
- ---------------------------------------------
The Governance Committee shall have the resources and authority appropriate to
discharge its duties and responsibilities, including the authority to select,
retain, terminate, and approve the fees and other retention terms of special
counsel or other experts or consultants, as it deems appropriate, without
seeking approval of the Board or management. With respect to consultants or
search firms used to identify director candidates, this authority shall be
vested solely in the Governance Committee.
32
EXHIBIT B
POMEROY IT SOLUTIONS, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
-------------------------
- --------------------------------------------------------------------------------
PURPOSE
- -------
To assist the Board of Directors in fulfilling its oversight responsibilities
for (1) the integrity of Pomeroy IT Solutions, Inc.'s financial statements, (2)
the Company's compliance with legal and regulatory requirements, (3) the
independent auditor's qualifications and independence, and (4) the performance
of the Company's internal audit function and independent auditors. The Audit
Committee will also prepare the report that SEC rules require be included in the
Company's annual proxy statements.
Authority
---------
The Audit Committee has authority to conduct or authorize investigations into
any matters within its scope of responsibility. It is empowered to:
- Appoint, compensate, and oversee the work of the public
accounting firm employed by the organization to conduct the annual
audit. This firm will report directly to the Audit Committee.
- Resolve any disagreements between management and the auditor
regarding financial reporting.
- Pre-approve all auditing and permitted non-audit services
performed by the Company's external audit firm.
- Retain independent counsel, accountants, or others to advise the
Committee or assist in the conduct of an investigation.
- Seek any information it requires from employees-all of whom are
directed to cooperate with the Committee's requests-or external
parties.
- Meet with Company officers, external auditors, or outside
counsel, as necessary.
- The Committee may delegate authority to subcommittees, including
the authority to pre-approve all auditing and permitted non-audit
services, providing that such decisions are presented to the full
Committee at its next scheduled meeting.
Composition
-----------
The Audit Committee will consist of at least three and no more than six members
of the Board of Directors. The Board Nominating Committee will appoint
Committee members and the Committee chair.
Each Committee member will be both independent and financially literate. At
least one member shall be designated as the "financial expert", as defined by
applicable legislation and regulation. No Committee member shall simultaneously
serve on the audit committees of more than two other public companies.
MEETINGS
The Committee will meet at least four times a year, with authority to convene
additional meetings, as circumstances require. All Committee members are
expected to attend each meeting, in person or via tele- or video-conference.
The Committee will invite members of management, auditors or others to attend
meetings and provide pertinent information, as necessary. It will meet
separately, periodically, with management, with internal auditors and with
external auditors. It will also meet periodically in executive session.
Meeting agendas will be prepared and provided in advance to members, along with
appropriate briefing materials. Minutes will be prepared.
RESPONSIBILITIES
The Committee will carry out the following responsibilities:
33
FINANCIAL STATEMENTS
- --------------------
- Review significant accounting and reporting issues and understand
their impact on the financial statements. These issues include:
o Complex or unusual transactions and highly judgmental
areas
o Major issues regarding accounting principles and
financial statement presentations, including any significant
changes in the Company's selection or application of
accounting principles
o The effect of regulatory and accounting initiatives, as
well as off-balance sheet structures, on the financial
statements of the Company
- Review analyses prepared by management and/or the independent
auditor setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial
statements, including analyses of the effects of alternative GAAP
methods on the financial statements.
- Review with management and the external auditors the results of
the audit, including any difficulties encountered. This review will
include any restrictions on the scope of the independent auditor's
activities or on access to requested information, and any significant
disagreements with management.
- Discuss the annual audited financial statements and quarterly
financial statements with management and the external auditors,
including the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
- Review disclosures made by CEO and CFO during the Forms 10-K and
10-Q certification process about significant deficiencies in the
design or operation of internal controls or any fraud that involves
management or other employees who have a significant role in the
Company's internal controls.
- Discuss earnings press releases (particularly use of "pro forma",
or "adjusted" non-GAAP, information), as well as financial information
and earnings guidance provided to analysts and rating agencies. This
review may be general (i.e. the types of information to be disclosed
and the type of presentations to be made). The Audit Committee does
not need to discuss each release in advance.
INTERNAL CONTROL
- ----------------
- Consider the effectiveness of the Company's internal control
system, including information technology security and control.
- Understand the scope of internal and external auditors' review of
internal control over financial reporting, and obtain reports on
significant findings and recommendations, together with management's
responses.
INTERNAL AUDIT
- Review with management and the chief audit executive the charter,
plans, activities, staffing, and organizational structure of the
internal audit function.
- Ensure there are no unjustified restrictions or limitations, and
review and concur in the appointment, replacement, or dismissal of the
chief audit executive.
- Review the effectiveness of the internal audit function,
including compliance with The Institute of Internal Auditors'
Standards for the Professional Practice of Internal Auditing.
- On a regular basis, meet separately with the chief audit
executive to discuss any matters that the Committee or internal audit
believes should be discussed privately.
EXTERNAL AUDIT
- Review the external auditor's proposed audit scope and approach,
including coordination of audit effort with internal audit.
- Review the performance of the external auditors, and exercise
final approval on the appointment or discharge of the auditors. In
performing this review, the Committee will:
o At least annually, obtain and review a report by the
independent auditor describing: the firm's internal
quality-control procedures; any material issues raised by
the most recent internal quality-control review, or peer
review, of the firm, or by any inquiry or investigation
34
by governmental or professional authorities, within the
preceding five years, respecting one or more independent
audits carried out by the firm, and any steps taken to deal
with any such issues; and (to access the auditor's
independence) all relationships between the independent
auditor and the company.
o Take into account the opinions of management and
internal audit.
o Review and evaluate the lead partner of the independent
auditor.
o Present its conclusions with respect to the external
auditor to the Board.
- Ensure the rotation of the lead audit partner every five years
and other audit partners every seven years, and consider whether there
should be regular rotation of the audit firm itself.
- Present its conclusions with respect to the independent auditor
to the full Board.
- Set clear hiring policies for employees or former employees of
the independent auditors.
- On a regular basis, meet separately with the external auditors to
discuss any matters that the Committee or auditors believe should be
discussed privately.
COMPLIANCE
- Review the effectiveness of the system for monitoring compliance
with laws and regulations and the results of management's
investigation and follow-up (including disciplinary action) of any
instances of noncompliance.
- Establish procedures for: (i) The receipt, retention, and
treatment of complaints received by the listed issuer regarding
accounting, internal accounting controls, or auditing matters; and
(ii) The confidential, anonymous submission by employees of the listed
issuer of concerns regarding questionable accounting or auditing
matters.
- Review the findings of any examinations by regulatory agencies,
and any auditor observations.
- Review the process for communicating the code of conduct to
Company personnel, and for monitoring compliance therewith.
- Obtain regular updates from management and Company legal counsel
regarding compliance matters.
REPORTING RESPONSIBILITIES
- Regularly report to the Board of Directors about Committee
activities and issues that arise with respect to the quality or
integrity of the Company's financial statements, the Company's
compliance with legal or regulatory requirements, the performance and
independence of the Company's independent auditors, and the
performance of the internal audit function.
- Provide an open avenue of communication between internal audit,
the external auditors, and the Board of Directors.
- Report annually to the shareholders, describing the Committee's
composition, responsibilities and how they were discharged, and any
other information required by rule, including approval of non-audit
services.
- Review any other reports the Company issues that relate to
Committee responsibilities.
OTHER RESPONSIBILITIES
- Discuss with management the Company's major policies with respect
to risk assessment and risk management.
- Perform other activities related to this charter as requested by
the Board of Directors.
- Institute and oversee special investigations as needed.
- Review and assess the adequacy of the Committee charter annually,
requesting Board approval for proposed changes, and ensure appropriate
disclosure as may be required by law or regulation.
- Confirm annually that all responsibilities outlined in this
charter have been carried out.
Evaluate the Committee's and individual members' performance at
least annually.
35
EXHIBIT C
2002 AMENDED AND RESTATED OUTSIDE DIRECTORS'
STOCK INCENTIVE PLAN OF
POMEROY IT SOLUTIONS, INC.
1. PURPOSE OF THE PLAN. This 2002 Amended and Restated Outside
Directors' Stock Incentive Plan of Pomeroy IT Solutions, Inc. is intended to
encourage directors of the Company who are not officers or employees of the
Company or any of its Subsidiaries to acquire or increase their ownership of
common stock of the Company on reasonable terms. The opportunity so provided is
intended to foster in participants a strong incentive to put forth maximum
effort for the continued success and growth of the Company and its Subsidiaries,
to aid in retaining individuals who put forth such efforts, and to assist in
attracting the best available individuals to the Company to serve as directors
in the future.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
2.2 "Award" means an Option or Restricted Stock.
2.3 "Award Agreement" means a written agreement in such form as
may be, from time to time, hereafter approved by the Committee, which shall be
duly executed by the Company and the Director and which sets forth the terms and
conditions of an Award as provided under the Plan.
2.4 "Board" means the Board of Directors of Pomeroy IT Solutions,
Inc.
2.5 "Common Stock" means shares of the Company's common stock,
par value $.01 per share.
2.6 "Code" means the Internal Revenue Code of 1986, as in effect
at the time of reference, or any successor revenue code which may hereafter be
adopted in lieu thereof, and reference to any specific provisions of the Code
shall refer to the corresponding provisions of the Code as it may hereafter be
amended or replaced.
2.7 "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
2.8 "Company" means Pomeroy IT Solutions, Inc.
2.9 "Directors" means directors who serve on the Board and who are
not officers or employees of the Company or any of its Subsidiaries.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.11 "Fair Market Value" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on
36
such system or exchange for the last market trading day prior to the time of
determination as reported in the Wall Street Journal or such other source as the
Administrator deems reliable; or
(ii) If the Common Stock is quoted on NASDAQ (but not on the
National Market System thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high and low asked prices for the Common Stock; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
2.12 "Option" means the right to purchase the number of the Common
Stock specified by the Plan, at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the Committee
impose. The term Option includes Initial Options and Anniversary Options, as
defined in Section 5.
2.13 "Optioned Stock" means the Common Stock subject to an Option.
2.14 "Optionee" means a Director who receives an Option.
2.15 "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
2.16 "Participant" means a Director who is granted an Award under
the Plan.
2.17 "Plan" means the Company's 2002 Amended and Restated Outside
Directors' Stock Incentive Plan.
2.18 "Restricted Stock" means any Share issued pursuant to Section
7 with restriction that the holder may not sell, transfer, pledge or assign such
Share and with such other restrictions as the Administrator, in its sole
discretion, may impose (including without limitation, any restriction on the
right to vote such Share, and the right to receive any cash dividends), which
restrictions may lapse separately or in combination at such time or times, in
installments or otherwise, as the Administrator may deem appropriate.
2.17 "Share" means a share of Common Stock, as adjusted in
accordance with Section 12 of this Plan and "Shares" means the Shares of Common
Stock, as adjusted in accordance with Section 12 of this Plan.
2.18 "Subsidiary" means any corporation or other legal entity
other than the employer corporation in an unbroken chain of corporations or
other legal entities beginning with the employer corporation if each of the
corporations or other legal entities other than the last corporation or other
legal entity in the unbroken chain owns stock, a membership interest, or any
other voting interest possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock, membership interests or other
voting interests in one of the other corporations or other legal entities in
such chain.
2.19 "Term" means the period during which a particular Award may
be exercised.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of shares which may be awarded under
the Plan is 242,500 (which includes options for 7,500 shares of Common Stock
which were outstanding under the 1992 Outside Directors' Stock Option Plan (the
"1992 Directors' Plan") as of April 5, 2006 (the "1992 Outstanding Options")).
As of the effective date of the Amended and Restated Outside Directors' Plan,
235,000 shares of Common Stock shall be reserved for issuance under the Plan;
however, the number of shares reserved for issuance under the Plan shall
automatically
37
increase as the 1992 Outstanding Options are canceled or expire (by an amount
equal to the number of shares of Common Stock issuable upon exercise of such
canceled or expired 1992 Outstanding Options). The number of shares of Common
Stock reserved for issuance under this Plan shall not increase as a result of
the exercise of any of the 1992 Outstanding Options. The Common Stock may be
authorized, but unissued, or reacquired Common Stock.
If an Award would expire, terminate or become unexercisable for any
reason without having been exercised in full, or settled in cash in lieu of
Shares, or exchanged as provided herein, the unissued shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Further, if the exercise price of any Option
granted under the Plan or the tax withholding requirements with respect to an
Award under the Plan are satisfied by tendering Shares to the Company (either by
attestation or actual delivery), only the number of Shares issued, net of the
Shares tendered, if any, shall be deemed delivered for purposes of determining
the maximum number of Shares available for issuance under the Plan.
4. ADMINISTRATION OF THE PLAN.
4.1 The Board shall appoint the Committee, which shall consist of
not less than two (2) disinterested persons as defined in Rule 16b-3 of the
Exchange Act. Subject to the provisions of the Plan, the Committee shall have
full authority to interpret the Plan, and to prescribe, amend, and rescind rules
and regulations relating to it. The Board may, from time to time, appoint
members to the Committee in substitution for or in addition to members
previously appointed and may fill vacancies, however caused, in the Committee.
The Committee shall select one of its members as its Chairman and shall hold its
meetings at such times and places as it shall deem advisable. A majority of its
members shall constitute a quorum. Any action of the Committee may be taken by
a written instrument signed by all of the members, and any action so taken shall
be fully as effective as if it had been taken by a vote of a majority of the
members at a meeting duly called and held. The Committee shall make such rules
and regulations for the conduct of its business as it shall deem advisable and
shall keep minutes of its meetings and records of all action taken in writing
without a meeting. No member of the Committee shall be liable, in the absence
of bad faith, for any act or omission with respect to his/her service on the
Committee.
4.2 Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(a) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2.11 of the Plan;
(b) to approve forms of agreement for use under the Plan;
(c) to determine whether and under what circumstance an Award
may be settled in cash under Section 8(d) instead of Common Stock;
4.3 Effective Committee's Decision. All decisions,
--------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Participants and any other holders of any Awards.
5. GRANT OF AWARDS. An Award of 3,300 Shares of Restricted Stock (the
"Initial Award") shall, without action by the Board or Committee, be granted to
each Director on the first day of his/her initial term as a director or on the
effective date of the Plan, whichever shall occur later, provided he/she meets
the definition of a disinterested director in Rule 16b-3 of the Exchange Act.
Upon the first day of an eligible Director's second consecutive year of service
on the Board, and on the first day of each consecutive year of service
thereafter, an additional Award of 3,300 Shares of Restricted Stock (an
"Anniversary Award") shall, without action by the Board or Committee, be granted
to such Director. Notwithstanding the foregoing, the Board may determine with
respect to any Initial Award or Anniversary Award, that the Award shall be an
Option for up to 10,000 shares per annual Award, in lieu of an Award for
38
Restricted Stock. In the event of a Director who is commencing an initial term,
but such Director had been a Director of the Company previously, the
Administrator may, in its sole discretion, determine to decrease the number of
shares subject to the Initial Award, taking into account the particular
circumstances of such situation. Notwithstanding the foregoing provisions of
this paragraph, if the number of shares of Common Stock available to grant under
the Plan on a scheduled date of grant is insufficient to make all automatic
grants required to be made pursuant to the Plan on such date, then each eligible
Director shall receive an Award for a pro rata number of the remaining shares of
Common Stock available under the Plan; provided, however, that if such proration
results in fractional shares of Common Stock, then such Award shall be rounded
down to the nearest number of whole shares of Common Stock.
6. STOCK OPTIONS.
6.1 Option Price.
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(a) The exercise price per share of any Option granted under
the Plan shall be the Fair Market Value of the shares of Common Stock covered by
the Option on the date set forth in Section 2.11.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator and may consist entirely of (1) cash, (2) check, (3)
promissory note, (4) other Shares which (x) in the case of Shares acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (y) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised, (5) authorization from the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds required
to pay the exercise price, (7) by delivering an irrevocable subscription
agreement for the Shares which irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under all applicable laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
(c) The Company, in its sole discretion, may establish a
procedure whereby a Director, subject to the requirements of Section 16 of the
Exchange Act, Rule 16b-3, Regulation T, federal income tax laws, and other
federal, state and local tax and securities laws, can exercise an Option or
portion thereof without making a direct payment of the option price to the
Company. If the Company so elects to establish the cashless exercise program,
the Company shall determine, in its sole discretion, and from time to time, such
administrative procedures and policies as it deems appropriate, and such
procedures and policies shall be binding on any Director wishing to utilize the
cashless exercise program.
6.2 Terms of Options.
------------------
(a) Prior to June 10, 2004 and subsequent to April 11, 2006,
any Option granted hereunder shall be exercisable for a Term of five (5) years
from the date of grant thereof (Date of Grant), but shall be subject to earlier
termination as hereinafter provided, and prior to its expiration or termination
the Option may be exercised within the following time limitations.
(i) After one (1) year from the Date of Grant, it may be
exercised as to not more than one-third (1/3) of the shares of Common Stock
originally subject to the Option.
39
(ii) After two (2) years from the Date of Grant, it may
be exercised as to not more than two-thirds (2/3) of the shares of Common Stock
originally subject to the Option.
(iii) After three (3) years from the Date of Grant, it
may be exercised as to any part or all of the shares of Common Stock originally
subject to Option.
(b) From June 10, 2004 to April 11, 2006, all Options shall
be exercisable for a Term of five (5) years from the Date of Grant, but shall be
subject to earlier termination as hereinafter provided, and all such Options
shall be fully vested as of the Date of Grant.
6.3 Termination of Directorship. In the event that a Director
-----------------------------
ceases to be a member of the Board (other than by reason of death), an Option
may be exercised by the Director (to the extent that the Director was entitled
to do so at the time he/she ceased to be a member of the Board) at any time
within three (3) months after he/she ceases to be a member of the Board, but not
beyond the Term of the Option.
6.4 Death of a Director. In the event of the death of a Director,
-------------------
the Option may be exercised at any time within twelve (12) months following the
date of death, but in no event later than the expiration date of the Term of
such Option as set forth in the Option Agreement (by the Director's estate or by
a person who acquired the right to exercise the Option by bequest or
inheritance), but only to the extent that the Director was entitled to exercise
the Option at the date of death. To the extent that the Director was not
entitled to exercise the Option at the date of termination or if the Director
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
6.5 Exercise of Option.
--------------------
(a) Any Option granted hereunder shall be exercisable at such
times under such conditions as determined by the Administrator, and shall be
permissible under the terms of the Plan.
(b) The Option may not be exercised for a fraction of a
Share.
(c) An Option shall be deemed to be exercised when written
notice of such Option has been given to the Company in accordance with the terms
of the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 6.1(b) of the
Plan.
(d) Exercise of an Option in any manner will result in a
decrease in the number of Shares which may thereafter be available, both for
purpose of the Plan and for sale under the Option by the number of Shares as to
which the Option is exercised.
(e) Options granted to persons subject to Section 16(b) of
the Exchange Act, must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
6.6 Rights of Optionee. Until the issuance (as evidenced by the
--------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue, or cause to be issued, such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued.
7. RESTRICTED STOCK.
40
7.1 Issuance. A Restricted Stock Award shall be subject to
--------
restrictions imposed by the Administrator at the time of grant for a period of
time specified by the Administrator (the "Restriction Period") as provided
herein. Restricted Stock Awards may be issued hereunder to Participants for no
cash consideration or for such minimum consideration as may be required by
applicable law, either alone or in addition to other Awards granted under the
Plan.
7.2 Terms, Conditions and Restrictions. Each Award of Restricted
-----------------------------------
Stock must include continued service as an independent Director of the Company
for a period of four (4) years following the date of grant, except the
Administrator may (i) require a period longer than four (4) years, (ii)
determine whether the Restricted Stock vests in installments or entirely at the
end of the Restriction Period, and (iii) allow accelerated vesting in the case
of the death or disability (as defined by the Administrator) of the Participant.
The Administrator in its sole discretion shall specify the other terms,
conditions and restrictions under which Shares of Restricted Stock shall vest or
be forfeited. With respect to Restricted Stock during the Restriction Period,
the Administrator, in its sole discretion, may provide for the lapse of any
term, condition or restriction in installments and may accelerate or waive such
term, condition or restriction in whole or in part, based on service,
performance, and/or such other factors or criteria as the Administrator may
determine in its sole discretion. Except as otherwise provided in the Award
Agreement, the Participant shall have, with respect to the Shares of Restricted
Stock, all of the rights of a stockholder of the Company, including the right to
vote the Shares and the right to receive dividends. The Administrator, in its
sole discretion, as determined at the time of the Award, may provide that the
payment of cash dividends shall or may be deferred. Any deferred dividends may
be reinvested as the Administrator shall determine in its sole discretion,
including reinvestment of additional Shares of Restricted Stock. Stock dividends
issued with respect to restricted Stock shall be Restricted Stock and shall be
subject to the same terms, conditions and restrictions that apply to the Shares
with respect to which such dividends are issued. Any additional Shares of
Restricted Stock issued with respect to cash or stock dividends shall not be
counted against the maximum number of Shares for which Awards may be granted
under the Plan as set forth in Section 3.
7.3 Registration. Any Restricted Stock issued hereunder may be
------------
evidenced in such manner, as the Administrator, in its sole discretion, shall
deem appropriate, including without limitation, book entry registration or
issuance of a stock certificate or certificates. In the event any stock
certificates are issued in respect of Shares of Restricted Stock awarded under
the Plan, such certificates shall be registered in the name of the Participant
and shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Award.
8. TERM OF THE PLAN. The Amended and Restated Plan shall become
effective on June 10, 2004, provided the Plan has been previously adopted by the
Board of Directors and approved by the stockholders of the Company as determined
in Section 18 of the Plan. It shall continue in effect for the remainder of the
initial term of ten (10) years, which expire June 13, 2012, unless sooner
terminated under Section 14 of the Plan.
9. GENERAL PROVISIONS.
9.1 Non-Transferability of Awards. An Award may not be sold,
-------------------------------
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than: (a) by will or the laws of descent and distribution, and an Option may be
exercised during the lifetime of the Participant, only by him/her, or in the
event of his/her death, by the legal representative of the estate of the
deceased Participant, or the person or persons who shall acquire the right to
exercise an Option by the bequest or inheritance by reason of the death of the
Participant, or in the event of disability, his/her personal representative, or
(b) pursuant to a Qualified Domestic Relations Order, as defined in the Code, or
the Employee Retirement and Security Act (ERISA), or the rules thereunder.
9.2 Stock Withholding to Satisfy Withholding Tax Obligations. The
--------------------------------------------------------
Company shall be authorized to withhold from any Award granted or payment due
under the Plan the amount of
41
withholding taxes due in respect of an Award or payment hereunder and to take
such other action as may be necessary in the opinion of the Company to satisfy
all obligations for the payment of taxes. At the discretion of the
Administrator, Participants may satisfy withholding obligations as provided in
this paragraph. When a Participant incurs tax liability in connection with an
Award, which tax liability is subject to tax withholding under applicable laws,
the Participant is obligated to pay the Company an amount required to be
withheld under applicable tax laws, the participant may satisfy the withholding
tax obligation by electing to have the Company withhold from the Shares to be
issued upon exercise of the Award that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined (the "Tax Date").
All elections by a Participant to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Award as to which the election is made;
(c) all elections shall be subject to the consent or disapproval
of the Administrator;
(d) if the Participant is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
In the event the election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Award is exercised but such
Participant shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
9.3 Conditions Upon Issuance of Shares. Shares shall not be
--------------------------------------
delivered under the Plan unless the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the delivery of Shares pursuant to an Award, the
Company may require the Participant to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such representation is required by any of
the aforementioned relevant provisions of law.
9.4 Reservation of Shares. The Company, during the term of this
-----------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
9.5 Agreements. Awards shall be evidenced by written agreements
----------
in such form as the Board shall approve from time to time.
42
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Award, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt for consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Participant at least fifteen (15) days prior
to such proposed action. To the extent it has not been previously exercised,
the Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company with or into
another corporation or the sale of substantially all of the Company's assets
(hereinafter, a "merger"), the Option shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. In the event that such successor corporation does
not agree to assume the Option or to substitute an equivalent option, the Board
shall, in lieu of such assumption or substitution, provide for the Participant
to have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which the Option would not otherwise the exercisable. If
the Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger, the Board shall notify the Participant
that the Option shall be fully exercisable for a period of fifteen (15) days
from the date of such notice and the Option will terminate upon the expiration
of such period. For purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the Option or right confers the right to
purchase, for each Share of stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
parent, the Board may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option, for each Share of stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal to the Fair Market Value
to the per share consideration received by holders of Common Stock in the merger
or sale of assets.
11. FORM OF AWARDS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or the stockholders of the Company shall
constitute the granting of any Award. An Award shall be granted hereunder on
the date or dates specified in the Plan. Whenever the Plan provides for the
receipt of an Award by a Director, the Secretary or the President of the
Company, or such other person as the Committee shall appoint, shall forthwith
send notice thereof to the Director, in such form as the Committee shall
approve, stating the number of Shares of Common Stock subject to the Award, the
Term of the Award, and all other terms and conditions thereof provided by the
Plan. The notice shall be accompanied by a written Award Agreement which shall
have been duly executed by or on behalf of the Company. Execution by the
Director to whom such Award is granted of said Award Agreement in accordance
with the provisions set forth in this Plan shall be a condition precedent to the
exercise of any Award.
12. AMENDMENT AND TERMINATION OF THE PLAN.
43
(a) Amendment and Termination. The Board may at any time amend,
---------------------------
alter, suspend or discontinue the Plan, but no amendment, alternation,
suspension or discontinuation shall be made which would impair the rights of any
Participant under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASDAQ or an established stock
exchange), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
--------------------------------------
termination of the Plan shall not affect Awards already granted and such Awards
shall remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Participant and the
Board, which agreement must be in writing and signed by the Participant and the
Company.
(c) Amendments to Prior Grants. Subject to the terms and
-----------------------------
conditions and within the limitations of the Plan, the Administrator may amend
the terms of any Award theretofore granted, prospectively or retroactively, but
no such amendment shall (i) materially impair the rights of any Participant
without his or her consent or (ii) except for adjustments made pursuant to
Section 10, reduce the exercise price of outstanding Options or cancel or amend
outstanding Options for the purpose of repricing, replacing or regranting such
Options with an exercise price that is less than the exercise price of the
original Options without stockholder approval.
13. STOCKHOLDER APPROVAL. Any amendment to this Amended and Restated
Outside Directors' Stock Option Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the amendment is adopted. Such stockholder approval shall be obtained in the
degree and manner required under applicable state and federal law.
14. INFORMATION TO PARTICIPANTS. The Company shall provide to each
Participant, during the period for which such Participant has one or more Awards
outstanding, copies of all annual reports and other information which is
provided to all stockholders of the Company. The Company shall not be required
to provide such information if the issuance of Awards under the Plan is limited
to Directors whose duties in connection with the Company assure their access to
equivalent information.
15. FEES AND COSTS. The Company shall pay all original issue taxes on
the exercise of any Award granted under the Plan and all other fees and expenses
necessarily incurred by the Company in connection therewith.
16. OTHER PROVISIONS. As used in the Plan, and in Award Agreements and
other documents prepared in implementation of the Plan, references to the
masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in such Award
Agreements and other documents prepared in implementation of the Plan are for
convenience only and shall not affect the meaning of any provision hereof or
thereof.
44