SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [ ]
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[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a 6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 14a-12
BALCHEM CORPORATION
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(Name of Registrant as Specified In Its Charter)
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BALCHEM CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 2008
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TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
BALCHEM CORPORATION will be held in the NASDAQ MarketSite, Times Square, New
York, New York, on Friday, June 12, 2008 at 11:00 a.m. for the following
purposes:
1. To elect two Class 3 Directors to the Board of Directors to
serve until the Annual Meeting of Stockholders in 2011 and
thereafter until their respective successors are elected and
qualified;
2. To approve an amendment to the Corporation's Restated Articles
of Incorporation which increases the total number of shares of
common stock which the Corporation has authority to issue from
twenty-five million (25,000,000) shares of common stock to
sixty million (60,000,000) shares (a copy of which is appended
to this Proxy Statement as Exhibit A);
3. To approve the adoption of an amendment and restatement of the
Corporation's Amended and Restated 1999 Stock Plan, which is
reflected in the Second Amended and Restated 1999 Stock Plan
(a copy of which is appended as Exhibit B to this Proxy
Statement);
4. To ratify the appointment of McGladrey & Pullen, LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2008; and
5. To transact such other business as may properly come before
the Meeting or any adjournment thereof.
Information with respect to the above matters is set forth in the Proxy
Statement, which accompanies this Notice.
The Board of Directors has set April 24, 2008 as the record date for
the Annual Meeting. This means that only stockholders of record at the close of
business on that date are entitled to notice of and to vote at the Meeting or
any adjournment thereof.
We hope that all stockholders who can conveniently do so will attend
the Meeting. Stockholders who do not expect to be able to attend the Meeting are
requested to fill in, date and sign the enclosed proxy and promptly return the
same in the stamped, self-addressed envelope enclosed for your convenience.
Stockholders who are present at the Meeting may withdraw their proxies and vote
in person, if they so desire.
BY ORDER OF THE BOARD OF DIRECTORS
Dino A. Rossi, Chairman, President & CEO
Dated: April ____, 2008
P.O. Box 600, New Hampton, New York 10958 Tel: 845-326-5600 Fax: 845-326-5702
www.balchem.com
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PROXY STATEMENT
BALCHEM CORPORATION
GENERAL
This Proxy Statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of Balchem Corporation (the "Company") to be
voted at the 2008 Annual Meeting of Stockholders (the "Annual Meeting" or the
"Meeting") to be held at the NASDAQ MarketSite, 4 Times Square, New York, NY, on
Thursday, June 12, 2008 at 11:00 AM, local time, and at any adjournments or
postponements thereof. This Proxy Statement and a proxy card are expected to be
sent to stockholders beginning on or about April ___, 2008.
The Board of Directors has fixed the close of business on April 24,
2008 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. At the Annual Meeting, stockholders will
be asked to consider and vote upon the election of two Class 3 Directors to the
Board of Directors to serve until the annual meeting of Stockholders in 2011 and
thereafter until their respective successors are elected and qualified.
Stockholders will also be asked to ratify the Board of Directors' selection of
McGladrey & Pullen, LLP as the Company's independent registered public
accounting firm for the 2008 fiscal year. Stockholders will also consider an
amendment to the Company's Restated Articles of Incorporation which increases
the total number of shares of common stock which the Company has authority to
issue from twenty-five million (25,000,000) shares of common stock to sixty
million (60,000,000) shares, as well as amendments to the Company's 1999 Stock
Plan. Stockholders may also consider and act upon such other matters as may
properly come before the Annual Meeting or any adjournment or adjournments
thereof.
You can ensure that your shares are voted at the Annual Meeting by
completing, signing, dating and returning the enclosed proxy card in the
envelope provided. Sending in a signed proxy will not affect your right to
attend the Meeting and vote. A stockholder who gives a proxy may revoke it at
any time before it is exercised by voting in person at the Annual Meeting, by
submitting another proxy bearing a later date or by notifying the Inspectors of
Election or the Secretary of the Company of such revocation in writing prior to
the Annual Meeting. Please note, however, that if your shares are held of record
by a broker, bank or other nominee and you wish to attend and vote in person at
the Annual Meeting, you must obtain from the record holder a proxy issued in
your name.
Proxies may be solicited, without additional compensation, by
directors, officers and other regular employees of the Company by telephone,
email, telefax or in person. All expenses incurred in connection with this
solicitation will be borne by the Company. In addition, the Company has engaged
_____________________, as the proxy solicitor for the Annual Meeting. Brokers,
nominees, fiduciaries and other custodians have been requested to forward
soliciting material to the beneficial owners of Common Stock held of record by
them, and such custodians will be reimbursed for their reasonable expenses.
PROPOSAL NO.1
ELECTION OF DIRECTORS
The Company's By-laws provide, effective as of the Annual Meeting, for
a staggered term Board of Directors consisting of six (6) members, with the
classification of the Board of Directors into three classes (Class 1, Class 2
and Class 3). The term of the three current Class 3 directors will expire at the
Annual Meeting and the number of Class 3 directors authorized by the Company's
By-laws will be reduced to two (2), effective on the date of the Annual Meeting.
One current Class 3 director, Hoyt Ammidon, Jr., will retire effective on the
date of the Annual Meeting and the other two Class 3 directors, Perry W. Premdas
and Dr. John Y. Televantos, are nominated for reelection to the Board. The Class
1 and Class 2 directors will remain in office until their terms expire, at the
annual meetings of stockholders to be held in the years 2010 and 2009,
respectively.
Accordingly, at the 2008 Annual Meeting, two Class 3 Directors are to
be elected to hold office until the annual meeting of stockholders to be held in
2011 and thereafter until their successors have been elected and qualified. The
nominees listed below with brief biographies are currently directors and have
been nominated for
election after due consideration by the Corporate Governance and Nominating
Committee. The Board is not aware of any reason why any such nominee may be
unable to serve as a director. If either or both of such nominees are unable to
serve, the shares represented by all valid proxies will be voted for the
election of such other person or persons, as the case may be, as the Board may
recommend.
Vote Required to Elect Directors
Under the rules of the Securities and Exchange Commission, boxes and a
designated blank space are provided on the form of proxy for stockholders to
mark if they wish to vote in favor of or withhold authority to vote for the
Company's nominees for director.
Assuming a quorum has been reached, a determination must be made as to
the results of the vote on each matter submitted for stockholder approval.
A director nominee must receive a plurality of the votes cast at the
Meeting, which means that a broker non-vote or a vote withheld from a particular
nominee or nominees will not affect the outcome of the election of directors.
All shares represented by duly executed proxies will be voted For the
election of the nominees named in this Proxy Statement as directors unless
authority to vote For any such nominee has been withheld. If for any reason any
such named nominee should not be available as a candidate for director, the
proxies will be voted in accordance with the authority conferred in the proxy
for such other candidate as may be nominated by the Company's Board of
Directors.
Nominees for Election as Director
Perry W. Premdas, age 55, was appointed as a Director of the Company in
January 2008. He is currently retired. From 1999 to 2004, Mr. Premdas was Chief
Financial Officer of Celanese AG, a chemical and plastics business spun-off by
Hoechst AG and listed on the Frankfurt stock exchange and the NYSE. He was
Senior Executive Vice President and Chief Financial Officer of Centeon LLC from
1997 to 1998. Over his 30 year career, he has led the treasury, finance, audit
and investor relations functions in US and international companies and had
general manager, executive and director roles in various wholly-owned and joint
venture operations. Mr. Premdas holds a BA from Brown University and an MBA from
the Harvard University Graduate School of Business. He is currently a member of
the Board of Directors of Ferro Corporation and Compass Minerals (both listed on
the NYSE). Mr. Premdas was recommended to the Company as a director candidate
through a third party search firm.
Dr. John Y. Televantos, age 55, has been a Director since February
2005. Currently, Dr. Televantos is also a Principal of Arsenal Capital Partners,
Inc., a private equity investment firm. Dr. Televantos was formerly with
Hercules, Inc. as President of the Aqualon Division and as Vice President of
Hercules, Inc. from April 2002 through February 2005. He had been President and
Chief Executive Officer, and prior to that Chief Operating Officer, of Foamex
International during the period from June 1999 through December 2001. Prior to
that, he was Vice President, Development Businesses and Research at Lyondell
Chemical Company since 1998. Dr. Televantos holds B.S. and Ph.D. degrees in
Chemical Engineering from the University of London, United Kingdom. He also has
been on several public and private company Boards and is affiliated with other
key industry-related groups.
Upon recommendation by the Corporate Governance & Nominating Committee,
the Board of Directors of the Company recommends a vote For the election of
---
Perry W. Premdas and John Y. Televantos as Class 3 Directors to hold office
until the Annual Meeting of Stockholders for the Year 2011 and until their
successors are elected. Proxies received by the Company will be so voted unless
such proxies withhold authority to vote for such nominees.
Directors Not Standing For Election
4
In addition to Mr. Premdas and Dr. Televantos, the Company's Board of
Directors includes the following members:
Hoyt Ammidon, Jr., age 70, has been a Director of the Company since
2001. He is a retired managing director of Berkshire Capital Corporation, where
he served from 1994 to 2004. In accordance with policies established by the
Board of Directors, Mr. Ammidon will retire from the Company's Board of
Directors effective on the date of the Annual Meeting.
Edward L. McMillan, age 62, has been a Director of the Company since
February 2003. Mr. McMillan owns and manages McMillan, LLC, a
transaction-consulting firm that provides strategic consulting services and
facilitates mergers and/or acquisitions predominantly to the food and
agribusiness industry sectors. From 1988 to 1996, he was President and CEO of
Purina Mills, Inc., where he was involved for approximately 25 years in various
senior level positions in marketing, strategic planning, and business segment
management. Since September 2005, he has been a director of Nutracea, a publicly
traded OTC company. In addition, he is also a director of Marical, Inc., a
privately held corporation.
Kenneth P. Mitchell, age 68, has been the Company's Lead Director since
October 1, 2005 and has been a Director of the Company since 1993. Mr. Mitchell,
who is currently retired, was Chief Executive Officer of Oakite Products Inc.
from 1986 to 1993. Since February 1997, he has been a director of Tetra
Technologies, Inc., an NYSE traded company, where he also serves as chairman of
the Nominating and Corporate Governance Committee.
Dino A. Rossi, age 53, has been a Director of the Company since 1997
and Chairman of the Company's Board of Directors since February 22, 2007. Mr.
Rossi has been President and Chief Executive Officer of the Company since
October 1997, Chief Financial Officer of the Company from April 1996 to January
2004 and Treasurer of the Company from June 1996 to June 2003. He was Vice
President, Finance and Administration of Norit Americas Inc., a wholly-owned
subsidiary of Norit N.V., a Dutch chemicals company, from January 1994 to
February 1996, and Vice President, Finance and Administration of Oakite Products
Inc., a specialty chemicals company, from 1987 to 1993.
Dr. Elaine R. Wedral, age 64, has been a Director of the Company since
October 2003. Dr. Wedral is retired. Currently she serves as the President of
the International Life Sciences Institute in North America. She was President of
Nestle R&D Center, Inc. in New Milford, Connecticut and Head of Nestle Food
Service Systems worldwide from 1999 to 2005. Prior to that, she held a variety
of technical positions at Nestle. Dr. Wedral holds 34 patents in food
processing, food nutrition and ingredient areas, and is on the editorial board
of Food Processing Magazine. She received her Ph.D. from Cornell University in
Food Biochemistry, an M.S. in Food Microbiology and a B.S. from Purdue
University in Biochemistry. She is currently also a director of Sensient
Technologies Corporation, a public company listed on the NYSE, and continues to
work with several key industry/university related groups in advisory capacity.
Director Independence
The Board of Directors has made an affirmative determination that each
of the Company's directors, other than Mr. Rossi, is independent, as such term
is defined under Nasdaq Marketplace Rules.
Meeting Attendance
During fiscal 2007, the Board of Directors met 5 times during regular
meetings and 2 times for telephonic special meetings. Each director attended at
least 75% of the meetings of the Board held when he or she was a director and of
all meetings of those Committees of the Board on which he or she served.
The Company has a policy to strongly encourage directors to attend each
annual meeting of stockholders. Historically, attendance has been excellent. All
directors were in attendance at the Company's 2007 annual meeting of
stockholders.
5
Committees of the Board of Directors
The Company's Board of Directors has a standing Audit Committee,
Executive Committee, Compensation Committee, and Corporate Governance and
Nominating Committee. The Board of Directors appoints the members of each
Committee. In 2007, the Audit Committee held five meetings, while the Corporate
Governance and Nominating and Compensation Committees each held three meetings.
The Executive Committee did not meet in 2007.
Audit Committee. The Audit Committee, in its capacity as a committee of
the Board of Directors, is directly responsible for appointing, compensating and
overseeing the work of the accounting firm retained for the purposes of
preparing or issuing audit reports or related work. The Audit Committee also
assists the Board of Directors in fulfilling its oversight responsibilities with
respect to the Company's financial reporting, internal controls and procedures,
and audit functions. Responsibilities, activities and independence of the Audit
Committee are discussed in greater detail under the section of this Proxy
Statement entitled "Audit Committee Report."
The Board of Directors of the Company has adopted a written charter for
the Audit Committee, which is available on the Corporate Governance page in the
Investor Relations section of the Company's Web site, www.balchem.com. The
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current members of the Audit Committee are Messrs. Ammidon (Chair), McMillan,
Mitchell and Premdas. The Board of Directors of the Company has determined that
the Audit Committee Chairman, Mr. Ammidon, qualifies as an "audit committee
financial expert", as defined in Section 407 of the Sarbanes-Oxley Act of 2002,
and that all members of the Audit Committee are "independent" under the Nasdaq
Marketplace Rules applicable to audit committee members. Mr. Premdas will assume
the Chairmanship of the Audit Committee upon Mr. Ammidon's retirement at the
Annual Meeting. The Board of Directors of the Company has also determined that
Mr. Premdas qualifies as an "audit committee financial expert", as defined in
Section 407 of the Sarbanes-Oxley Act of 2002.
Compensation Committee. The duties of the Compensation Committee are to
(i) recommend to the Board of Directors a compensation program, including
incentives, for the Chief Executive Officer and senior executives of the
Company, for approval by the full Board of Directors, (ii) prepare an Annual
Report of the Compensation Committee for inclusion in the Company's Proxy
Statement as contemplated by the requirements of Schedule 14A of the Securities
Exchange Act of 1934, as amended, (iii) propose to the full Board of Directors
the compensation of directors, and (iv) to administer the Company's 1999 Amended
and Restated Stock Plan for officers, directors, directors emeritus and
employees of and consultants to the Company and its subsidiaries (referred to in
this Proxy Statement as the "1999 Stock Plan" or the "Amended Plan").
The Board of Directors of the Company has adopted a written charter for
the Compensation Committee, which is available on the Corporate Governance page
in the Investor Relations section of the Company's Web site, www.balchem.com.
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The current members of the Compensation Committee are Dr. Televantos (Chair),
Messrs. McMillan and Mitchell, and Dr. Wedral, each of whom are independent
directors.
See "Compensation Discussion and Analysis - Compensation Committee" and
"Report of the Compensation Committee of the Board of Directors" below.
Corporate Governance & Nominating Committee. The duties of the
Corporate Governance & Nominating Committee are, among other things, to consider
and make recommendations to the Board concerning the appropriate size, function
and needs of the Board, to determine the criteria for Board membership, to
evaluate and recommend responsibilities of the Board committees, to annually
review and assess the adequacy of the Company's corporate governance guidelines
and recommend any changes to the Board, to oversee an annual self-evaluation of
the Board and Board Committees, to consider matters of corporate social
responsibility and corporate public affairs related to the Company's employees
and stockholders, to recruit, evaluate and nominate new candidates for
directorships, to prepare and update an orientation program for new Directors,
to evaluate the performance of current directors in connection with the
expiration of their term in office providing advice to the full Board as to
nomination for reelection, and to recommend policies on director retirement age.
The Board of Directors of the Company has adopted a written charter for
the Corporate Governance & Nominating Committee, which is available on the
Corporate Governance page in the Investor Relations section of
6
the Company's Web site, www.balchem.com and was attached as Exhibit A to the
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Company's 2006 Proxy Statement. The current members of the Corporate Governance
& Nominating Committee are Dr. Wedral (Chair), Messrs. Ammidon and Mitchell and
Dr. Televantos.
Executive Committee. The Executive Committee is authorized to exercise
all the powers of the Board of Directors in the interim between meetings of the
Board, subject to the limitations imposed by Maryland law. The Executive
Committee is also responsible for the recruitment, evaluation and selection of
suitable candidates for the position of Chief Executive Officer ("CEO"), for
approval by the full Board, for the preparation, together with the Compensation
Committee, of objective criteria for the evaluation of the performance of the
CEO, and for reviewing the CEO's plan of succession for key executives of the
Company.
The current members of the Executive Committee are Messrs. McMillan,
Mitchell (Chair), and Dr.
Televantos.
7
Nominations of Directors
The Corporate Governance & Nominating Committee considers re-nominating
incumbent directors who continue to satisfy the Company's criteria for
membership on the Board; whom the Board believes will continue to make
contributions to the Board; and who consent to continue their service on the
Board. If the incumbent directors are not nominated for re-election or if there
is otherwise a vacancy on the Board, the Committee will solicit recommendations
for nominees from persons that the Committee believes are likely to be familiar
with qualified candidates, including members of the Board and management. The
Committee may also determine to engage a professional search firm to assist in
identifying qualified candidates. The Committee also considers external director
candidates or candidates recommended by one or more substantial, long-term
stockholders. Generally, stockholders who individually or as a group hold 5% or
more of the Company's common stock and have continued to do so for over one year
will be considered substantial, long-term stockholders. The Committee will
consider stockholder recommendations regarding potential nominees for next
year's annual stockholders meeting, consistent with the policy described above,
if the Committee receives such recommendations prior to the deadline for
stockholder proposal submissions, set forth below in "Stockholder Proposals for
2009 Annual Meeting." Stockholder nominations that comply with these procedures
and that meet the criteria outlined above will receive the same consideration
that other candidates receive.
The Committee and the Board has adopted guidelines for identifying or
evaluating nominees for director, including incumbent directors and nominees
recommended by stockholders. The Company's current policy is to require that a
majority of the Board of Directors be independent; at least three of the
directors have the financial literacy necessary for service on the audit
committee and at least one of these directors qualifies as an audit committee
financial expert. In addition, directors may not serve on the boards of more
than three other public companies, without the approval of the Board of
Directors; and directors must satisfy the Company's age limit policy for
directors which require that a director retire at the conclusion of his or her
term in which he or she reaches the age of 70. The guidelines for nomination for
a position on the Board of Directors, provide for the selection of nominees
based on the nominees' skills, achievements and experience, and contemplate that
the following will be considered, among other things, in selecting nominees:
knowledge, experience and skills in areas critical to understanding the Company
and its business, personal characteristics, such as integrity and judgment, and
the candidate's ability to commit to the Board of Directors of the Company.
Lead Director
Mr. Mitchell has been the Lead Director since 2005. The Lead Director
functions, in general, to reinforce the independence of the Board of Directors
of the Company. This person is appointed on a rotating basis from the
independent Directors. The Lead Director will serve at the election of the Board
and, in any event, only so long as that person shall be an independent Director
of the Company. The Corporate Governance and Nominating Committee will review
annually the description of the Lead Director position and recommend to the
Board any changes that it considers appropriate. The Lead Director provides a
source of Board leadership complementary to that of the Chairman. Amongst other
things, the Lead Director is responsible for working with the Chairman and other
directors to set agendas for Board meetings; providing leadership in times of
crisis together with the Executive Committee; chairing regular meetings of
independent Board members without management present (executive sessions);
acting as liaison between the independent Directors and the Chairman; and
chairing Board meetings when the Chairman is not in attendance.
Communicating With the Board of Directors
Members of the Board and executive officers are accessible by mail in
care of the Company. Any matter intended for the Board, or for any individual
member or members of the Board, should be directed to the General Counsel with a
request to forward the communication to the intended recipient. In the
alternative, stockholders can direct correspondence to the Board via the
Chairman, or to the attention of the Lead Director, in care of the Company at
the Company's principal executive office address, P.O. Box 600, New Hampton, NY
10958. The Company will forward such communications, unless of an obviously
inappropriate nature, to the intended recipient.
8
Executive Sessions of the Board of Directors
The Company's independent Directors meet regularly in executive
sessions following each regularly scheduled meeting of the Board of Directors.
These executive sessions are presided over by the Lead Director. The independent
Directors presently consist of all current Directors, except Mr. Rossi.
Executive Officers
Set forth below is certain information concerning the executive
officers of the Company (other than Mr. Rossi, whose background is described
above under the caption "Directors"), which officers serve at the discretion of
the Board of Directors:
Francis J. Fitzpatrick, CPA, age 47, has been the Chief Financial
Officer of the Company since January 2004 and Treasurer of the Company since
June 2003, and was Controller of the Company from April 1997 to January 2004. He
has been an executive officer and Assistant Secretary of the Company since June
1998. He was Director of Financial Operations/Controller of Alliance
Pharmaceutical Corp., a pharmaceuticals company, from September 1989 through
March 1997.
Matthew D. Houston, age 44, has been General Counsel since January of
2005 and Secretary, since June of 2005. He was General Counsel and Secretary of
Eximias Pharmaceutical Corporation, a privately held corporation from 2001 to
2004. Mr. Houston also held several internal counsel positions at BASF
Corporation from 1994 to 2001. Mr. Houston received his Juris Doctorate from
Saint Louis University.
David F. Ludwig, age 50, has been Vice President and General Manager,
Specialty Products since July 1999 and an executive officer of the Company since
June 2000. He was Vice President and General Manager of Scott Specialty Gases, a
manufacturer of high purity gas products and specialty gas blends, from
September 1997 to June 1999. From 1986 to 1997 he held various international and
domestic sales and marketing positions with Engelhard Corporation's Pigments and
Additives Division.
Robert T. Miniger, age 54, has been Vice President, Human Resources
since April 2001 and an executive officer of the Company since June 2003. He was
the Global Director of Human Resources for the Industrial Coatings Strategic
Business Unit of PPG Industries Inc. from 1995 to 2000. From 1980 to 1995, he
held several human resource positions within PPG including glass manufacturing
and corporate office assignments.
Paul H. Richardson, PhD, CChem, age 38, has been Vice President of
Research and Development and an Executive Officer of the Company since July
2005, and was Director of Research and Development, January 2004 to July 2005
and Director of Materials Science, January 2001 to January 2004. Since his
Bachelors degree in chemistry and PhD in polymer science from the University of
Durham, England, Dr. Richardson has held Research Scientist and Project
Management positions at Unilever Plc. (January 1995 to April 1997) and National
Starch and Chemical Company (September 1997 to December 2000).
Code of Business Conduct and Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers
that applies to the Company's Chief Executive Officer, Chief Financial Officer,
Treasurer and Corporate Controller. The Company has also adopted a Business
Ethics Policy applicable to its employees and a further Policy Statement which
confirms that, as and when appropriate, the Business Ethics Policy and the Code
of Ethics for Senior Financial Officers are applicable to the Company's
directors and officers. Any waiver of any provision in the Code of Ethics or
Business Ethics Policy in favor of members of the Board or in favor of executive
officers may be made only by the Board. Any such waiver, and any amendment to
such Code, will be publicly disclosed in a Current Report on Form 8-K. The Code
of Ethics and Business Ethics Policy and further Policy Statement are available
on the Corporate Governance page in the Investor Relations section of the
Company's Web site, www.balchem.com.
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9
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and holders of more than
10% of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of any subsequent changes in
ownership of Common Stock and other equity securities of the Company. Specific
due dates for these reports have been established and the Company is required to
disclose any failure to file by these dates.
The Company believes that during the fiscal year ended December 31,
2007, its officers and directors and holders of more than 10% of the Company's
Common Stock complied with Section 16(a) filing date requirements with respect
to transactions during such year.
Compensation Committee Interlocks and Insider Participation
Messrs. McMillan and Mitchell and Drs. Televantos and Wedral, each of
whom is a director of the Company, served as the members of the Compensation
Committee during 2007. None of Messrs. McMillan or Mitchell or Drs. Televantos
or Wedral (i) were, during the last completed fiscal year, an officer or
employee of the Company, (ii) was formerly an officer of the Company or (iii)
had any relationship requiring disclosure by the Company under Item 404 of
Regulation S-K under the Securities Act of 1933, as amended, which has not been
disclosed.
10
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO
THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
On February 27, 2008, the Board of Directors adopted a resolution
recommending that the shareholders approve an amendment to the Company's
Restated Articles of Incorporation (the "Charter" or "Articles of
Incorporation"). In particular, the Board of Directors recommends that article
FOURTH of the Charter be amended to increase the total number of shares of
Common Stock that the Company is authorized to issue from twenty-five million
(25,000,000) shares to sixty million (60,000,000), which would increase the
total number of shares of the Company's capital stock from twenty-seven million
(27,000,000) to sixty-two million (62,000,000) shares (the "Amendment"). The
Company also is authorized to issue 2,000,000 shares of Preferred Stock, par
value $25.00 per share, and the proposed amendment will not affect this
authorization.
If the amendment to the Articles of Incorporation is approved by the
stockholders, the Company will promptly file Articles of Amendment with the
Maryland Secretary of State reflecting the increase in authorized shares. The
amendment will become effective on the date the Articles of Amendment is
accepted for filing by the Maryland Secretary of State.
Amendment
The Amendment to the Company's Articles of Incorporation approved by
the Board of Directors on February 27, 2008 and to be voted on at the Meeting is
set forth on Exhibit A hereto.
The Company's Articles of Incorporation currently authorizes the
issuance of twenty-seven million (27,000,000) shares of capital stock.
Twenty-five million (25,000,000) shares of which are designated as Common Stock,
par value $.06 2/3 per share, and two million (2,000,000) shares of which have
been designated as Preferred Stock, par value of $25.00 per share.
As of March 31, 2008, there were 18,078,425 shares of Common Stock
outstanding. In addition, approximately 2,738,312 shares of Common Stock have
been reserved for future issuance under the 1999 Stock Plan and the stock option
plans which preceded the 1999 Stock Plan whether by outstanding options or by
reason of future grants or awards. Balchem has never issued any shares of
Preferred Stock.
The Company has also historically made matching contributions under its
401(k)/Profit Sharing Plan in shares of Common Stock, corresponding in value to
up to 35% of employee elective contributions. Plan participants may elect to
invest up to 10% of their elective contributions in shares of Common Stock. For
2007, an aggregate of 20,869 shares of Common Stock were issued by the Company
to be held by the trustee under the 401(k)/Profit Sharing Plan for plan
participant accounts.
At our 2005 annual meeting, the stockholders approved a measure similar
to the present proposal recommended by the then Board of Directors.
Specifically, the stockholders approved the increase in the Company's authorized
common shares from 10,000,000 shares to 25,000,000 shares. Since the 2005 annual
meeting, the Company has twice split its common stock on a 3 for 2 basis, once
in December 2005 and again in December of 2006. The Company believes the
aforementioned stock splits contributed to increased stockholder value over the
past three years.
As in 2005, the Board of Directors believes that increasing the number
of authorized shares of capital stock will provide the Company with greater
flexibility to pursue actions that enhance stockholder value (as the Company
believes has occurred as a result of the prior authorization). After adjusting
for shares of capital stock reserved for issuance under the 1999 Stock Plan, its
predecessor stock option plans and shares authorized for issuance under the
401(k)/Profit Sharing Plan, the Company currently has fewer than 3,700,000
shares of capital stock available for issuance. The Board of Directors considers
this amount to be insufficient for the Company to meet various needs that may
arise from time to time in the future. If approved by stockholders, the
Amendment would provide sufficient shares, without additional expense or delay,
for investments or acquisitions by the Company, stock sales, grants, sales or
awards under future management incentive and employee benefit plans and
programs, stock splits or
11
stock dividends and other general corporate purposes.
As of the date of this Proxy Statement, the Board of Directors has not
taken any action which would use the proposed additional authorized shares for
any such purposes.
Each additional share of our Common Stock authorized by the Amendment
to the Company's Articles of Incorporation will have the same rights and
privileges as each share of Common Stock currently authorized or outstanding.
The holders of Common Stock have no preemptive rights. Authorized but unissued
shares of our Common Stock may be issued at such times, for such purposes and
for such consideration as the Board of Directors may determine to be appropriate
without further authority from our stockholders, except as otherwise required by
applicable law or stock exchange policies.
The approval of the Amendment will result in a greater number of shares
of Common Stock available for issuance. Stockholders could therefore experience
a reduction in their stockholders' percentage interest with respect to earnings
per share, voting, liquidation value and/or book or market value per share if
the additional authorized shares are issued other than through a proportional
issuance such as a stock split or stock dividend.
Required Vote for Approval of Amendment to Articles of Incorporation
Under the rules of the Securities and Exchange Commission, boxes are
provided on the form of proxy for stockholders to mark if they wish to vote for,
withhold authority to vote for, or abstain from voting with respect to the
proposal to amend the Company's Articles of Incorporation.
Assuming a quorum has been reached, a determination must be made as to
the results of the vote on each matter submitted for stockholder approval.
The affirmative vote of the holders of two-thirds of the issued and
outstanding shares of Common Stock is required to approve the Amendment to the
Company's Articles of Incorporation. Since the affirmative vote of two-thirds of
the issued and outstanding shares of Common Stock is required to approve the
Amendment, as opposed to a specified percentage of the shares present at the
Annual Meeting, the failure to vote in person or by proxy, or an abstention from
voting, will have the same effect as a vote against the Amendment. If
stockholders do not approve the Amendment, then the Charter will continue in
effect without amendment.
All shares represented by duly executed proxies will be voted For the
proposed Amendment to the Company's Articles of Incorporation unless authority
to vote For such proposal has been withheld or a vote Against is specified on
such proxy.
Recommendation of the Board of Directors Concerning the Amendment to the
Articles of Incorporation
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSAL TO AMEND
THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE AMENDMENT.
---
PROPOSAL NO. 3
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S
AMENDED AND RESTATED 1999 STOCK PLAN
Through its Amended and Restated 1999 Stock Plan (the "Amended Plan"),
the Company has utilized stock options and restricted stock purchase awards as a
key part of its overall compensation strategy for directors and employees,
including executive officers, since its adoption in 1999. In 2003, the
stockholder's approved amendments to the Company's original 1999 Stock Plan,
including the increase of shares reserved for issuance under the original plan
to 1,200,000 (4,050,00 after adjusting for the 2004, 2005 and 2006 three-for-two
stock splits)
12
from 600,000 and the authorization of stock awards under the original plan. As
of March 31, 2008, there are 343,328 shares available under the Amended Plan.
The Amended Plan is scheduled to expire in April, 2009, eliminating our
ability to utilize stock options, restricted stock purchase awards and other
awards as part of our compensation strategy for directors and employees.
Our Compensation Committee has recommended and our Board of Directors
has approved, subject to stockholder approval, the adoption of an amendment and
restatement of the Amended Plan (collectively to be referred to as the "Second
Amended Plan"), which will provide as follows:
(1) for a termination date of April 9, 2018;
(2) to authorize 4,000,000 shares reserved for future grants under
the Second Amended Plan;
(3) for the making of grants of stock appreciation rights,
restricted stock and performance awards;
(4) for immediate acceleration of vesting of awards issued under
the plan in the event of a change in control of the Company;
and
(5) for compliance with the requirements of Sections 409A and
162(m) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code" or the "Code").
The Second Amended Plan is necessary in order to permit us to continue
utilizing stock options and other equity awards as part of our compensation
strategy for employees, directors, consultants, including executive officers.
The Second Amended Plan will enable us to continue the purposes of the Amended
Plan by providing continued additional incentives to attract and retain
qualified and competent employees and directors. This is in keeping with our
overall compensation philosophy, which attempts to place equity in the hands of
our employees in an effort to further instill shareholder considerations and
values in the actions of such employees. The Company has grown markedly over the
past three years and fully expects this trend to continue. Additionally, the
Company operates in a highly competitive labor market where equity awards to
employees continue to be an important ongoing compensation and motivational
tool. Finally, opportunities may arise during the course of business where stock
based compensation to selected suppliers of goods and services may be in the
best interests of the Company.
The Second Amended Plan also complies with Section 409A of the Internal
Revenue Code. Section 409A was adopted in 2004, and relevant Company documents
must comply with the new rules by December 31, 2008. The changes to comply with
Section 409A are technical in nature. In addition, to ensure the deductibility
of performance-based compensation under Section 162(m) of the Internal Revenue
Code, approval of the Second Amended Plan will constitute approval of the
permitted performance goals applicable to performance-based awards and the limit
on the number of awards granted to a single participant in any plan year.
Assuming consistent practice of the Amended Plan, and if shareholders
do not approve the Second Amended Plan, we will not be able to make further
grants to employees under the Amended Plan after April 2009. For more
information on our Equity Based Compensation, see the sections of this Proxy
Statement entitled "Compensation Discussion and Analysis," "Executive
Compensation - Terms of Awards," and "Equity Compensation Plan Information."
Description of the Second Amended Plan
The following summary of the Second Amended Plan is qualified in its
entirety by reference to the complete text of the Second Amended Plan, a copy of
which is attached to this proxy statement as Exhibit B.
Shares Reserved For Issuance Under the Second Amended Plan
The maximum aggregate number of shares of Common Stock that may be
issued under the Second Amended Plan is 4 million shares, subject to adjustment
in the event of stock dividends, stock splits, combination of shares,
recapitalizations or other changes in the outstanding common stock, all of which
may be issued either directly as restricted stock, stock appreciation rights,
performance awards or upon the exercise of the stock options granted under the
Second Amended Plan. If an Option granted under the Second Amended Plan expires
or terminates without having been fully exercised or otherwise ceases to be
exercisable in full, the unpurchased shares covered by such Option will again be
available for use under the Second Amended Plan. The maximum number of shars
subject to award that any participant may be granted in a calendar year is
150,000.
13
Administration of the Second Amended Plan
Consistent with current practice, the Second Amended Plan will be
administered by the Board of Directors of the Company or, if the Board of
Directors so determines, the Compensation Committee thereof. Subject to the
terms of the Second Amended Plan, the Board (or the Committee, as the case may
be) has the authority to determine to whom equity awards shall be granted
(subject to certain eligibility requirements for grants of incentive stock
options), the number of shares covered by each such grant, where applicable, the
exercise or purchase price per share, the time or times at which the equity
awards shall be granted, and other terms and provisions governing the equity
awards, including any applicable performance criteria, as well as the
restrictions, if any, applicable to shares of Common Stock granted as Awards or
issuable or purchased pursuant to the Second Amended Plan.
Awards Under the Second Amended Plan
Stock Options. The Board of Directors or the Compensation Committee (as
the case may be) may grant options qualifying as incentive stock options under
the Internal Revenue Code and/or nonqualified stock options. At the time the
option is granted, the Board of Directors or the Compensation Committee will
determine the number of shares subject to the option, the exercise (or purchase)
price per share, the period during which the option may be exercised and the
restrictions and conditions on and to that exercise. However, the exercise price
of each option will be at least equal to the fair market value of our common
stock, and the term of an incentive stock option may not exceed 10 years from
the date of grant.
Stock Appreciation Rights. The Board of Directors or the Compensation
Committee (as the case may be) may grant stock appreciation rights ("SARs")
either separately or in conjunction with an award of stock options. The term,
exercisability and other provisions of an SAR will be fixed by the Board of
Directors or Compensation Committee. SARs generally allow the grantee to realize
the appreciation in the shares of our Common Stock subject to the grant over the
life of the award. Payment of an SAR may be made in cash, shares or a
combination of both at the discretion of the Board of Directors or the
Compensation Committee. If an SAR granted in combination with an underlying
stock option is exercised, the right under the underlying option to purchase
shares would terminate.
Stock and Restricted Stock Awards. The Board of Directors or the
Compensation Committee (as the case may be) may also award shares of our Common
Stock either as a restricted stock award or as a bonus award that is not subject
to restriction. With respect to restricted stock, the Board of Directors or the
Compensation Committee shall fix the restrictions and the restriction period
applicable to each restricted stock award (which restriction period may be
accelerated or waived by the Board of Directors or Compensation Committee). The
recipient of a restricted stock award will be unable to dispose of the shares
prior to the expiration of the restriction period. Unless otherwise determined
by the Board of Directors or the Compensation Committee, during this period, the
recipient will be entitled to vote the shares and receive any regular cash
dividends on such shares. Each stock certificate representing a restricted share
award will be required to bear a legend giving notice of the restrictions in the
grant.
Performance Share Awards. The Board of Directors or the Compensation
Committee (as the case may be) may grant Performance Share Awards under which
payment may be made in shares of our Common Stock (including restricted shares).
Such awards will be paid upon the attainment of certain performance goals
measured over a period of not less than three months or more than five years.
After the end of each performance period, the Board of Directors or the
Compensation Committee will determine the amount, if any, of performance awards
payable to each participant based upon the achievement of certain established
business criteria. The Board of Directors or the Compensation Committee, in its
discretion, will determine the performance goals, the length of an award period
and the manner and medium of payment of each Performance Award. In order to
receive awards, a grantee must remain in the employ of the Company until the
completion of the award period, except that the Board of Directors or
Compensation Committee may provide complete or partial exceptions to that
requirement as it deems equitable.
The Committee may determine that SARs, restricted stock or Performance
Share Awards granted to an employee shall be considered "qualified
performance-based compensation" under Code section 162(m). In setting the
performance goals for grants designated as "qualified performance-based
compensation", the Committee will use objectively determinable performance goals
based on one or more of the following criteria: pre- or after-tax net earnings,
sales or revenue, operating earnings, operating cash flow, return on net assets,
return on shareholders' equity, return on assets, return on capital, stock price
growth, shareholder returns, gross or net profit margin, earnings per share,
price per share, market share, or strategic business criteria consisting of one
or more Corporation objectives based on meeting specified revenue goals, market
penetration goals, geographic business expansion
14
goals, cost targets, product development goals, goals relating to acquisitions
or divestitures, or any other objective measure derived from any of the
foregoing criteria. The performance goals may relate to the employee's business
unit or the performance of the Company as a whole, or any combination of the
foregoing. Performance goals need not be uniform as among employees.
Acceleration of Vesting upon Change of Control
Upon a Change in Control, all outstanding awards will vest, become
immediately exercisable or payable or have all restrictions lifted as may apply
to the type of award granted. A "Change of Control" is defined in the Second
Amended Plan as:
(i) the acquisition of combined voting power of fifty
percent (50%) or greater of the then outstanding
equity securities of the Company by another entity or
person;
(ii) consummation of a reorganization, merger, or
consolidation to which the Company is a party or a
sale of all or substantially all the assets of the
Company to another entity, if more than fifty percent
(50%) of the combined voting power of the continuing
or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not
stockholders of the Company immediately prior to such
merger, consolidation or other reorganization;
(iii) approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company;
or
(iv) any other event, including a merger or other
transaction, which the Committee designates as a
Change in Control with respect to the Company.
Eligible Participants
Under the Second Amended Plan, incentive stock options may be granted
to employee and officers of the Company. Non-qualified options, SARs, Stock
Awards, Restricted Stock and Performance Share Awards may be granted to
directors, officers, directors emeritus and consultants.
Transferability
Awards granted pursuant to the Second Amended Plan are not assignable
or transferable other than by will or by the laws of descent and distribution
and are exercisable during the grantee's lifetime only by the grantee. The Board
or the Compensation Committee does, however, have the discretion to permit
awards to be transferable, consistent with the provisions of the Second Amended
Plan.
Amendment
The Board of Directors may amend the Second Amended Plan, subject to
the requirements of applicable law and other regulatory requirements, including
those imposed by Nasdaq, except that stockholder approval must be obtained with
respect to any amendment increasing the total number of shares that may be
issued, modifying the eligibility for grants of incentive stock options,
modifying the minimum exercise price at which incentive stock options may be
granted, or extending the term of the Second Amended Plan.
Term of the Second Amended Plan
The Amended Plan was effective as of April 9, 1999 and will terminate
on April 8, 2009. If approved, the Second Amended Plan, will terminate on April
7 2018, unless terminated earlier by the Board of Directors or extended by the
Board with the approval of the shareholders.
Federal Income Tax Consequences
Stock Options. The grant of an incentive stock option or a
non-qualified stock option will not result in income for the grantee or in a
deduction for the Company. The exercise of a non-qualified stock option will
result in ordinary income for the grantee and a deduction for the Company
measured by the difference between the option
15
price and the fair market value of the shares received at the time of exercise.
The exercise of an incentive stock option will not result in income for the
grantee if the grantee (i) does not dispose of the shares within two years after
the date of grant or one year after the transfer of shares upon exercise and
(ii) is an employee of the Company or a subsidiary from the date of grant until
three months before the exercise date. If these requirements are met, the basis
of the shares upon later disposition will be the option price. Any gain will be
taxed to the employee as long-term capital gain and the Company would not be
entitled to a deduction. The excess of the market value on the exercise date
over the option price is an item of tax preference, potentially subject to the
alternative minimum tax.
If the grantee disposes of the shares prior to the expiration of either
of the holding periods, the grantee will recognize ordinary income, and we will
be entitled to a deduction equal to the lesser of the fair market value of the
shares on the exercise date minus the option price or the amount realized on
disposition minus the option price. Any gain in excess of the ordinary income
portion will be taxable as long-term or short-term capital gain.
Restricted Stock Awards. The grant of restricted stock should not
result in income for the grantee or in a deduction for the Company for federal
income tax purposes, assuming the shares transferred are subject to restrictions
resulting in a "substantial risk of forfeiture." If there are no such
restrictions, the grantee will recognize ordinary income upon receipt of the
shares. Dividends paid to the grantee while the stock remained subject to
restriction will be treated as compensation for federal income tax purposes. At
the time the restrictions lapse, the grantee will receive ordinary income, and
we will be entitled to a deduction measured by the fair market value of the
shares at the time of lapse (less any amounts paid for the restricted stock at
the time of grant.
SARs and Performance Awards. The grant of an SAR or a Performance Share
Award will not result in income for the grantee or in a deduction for the
Company. Upon the exercise of a SAR or the receipt of shares or cash under a
Performance Share Award, the grantee will recognize ordinary income, and we will
be entitled to a deduction measured by the fair market value of the shares plus
any cash received.
Section 162(m). The Second Amended Plan is intended to provide
performance-based compensation within the meaning of Section 162(m) of the Code,
which generally limits the deduction by an employer for compensation of certain
covered officers.
Other Information
Since it is within the discretion of the Committee to determine which
employees and directors will receive awards under the Second Amended Plan, the
number of awards to be granted under the Second Amended Plan to specified
persons cannot be determined. See "Executive Compensation - Grants of Plan-Based
Awards" and "- Director Compensation" for information as to the number and types
of awards granted to the Company's named executive officers and directors under
the Amended Plan in 2007.
Vote Required to Approve the Second Amended Plan
Approval of this proposal requires the affirmative vote of the holders
of a majority of the shares of the Company's common stock present or represented
by proxy at the Meeting.
All shares represented by duly executed proxies will be voted For the
proposed Second Amended Plan unless authority to vote For any such proposal has
been withheld or a vote Against is specified on such proxy.
Recommendation of the Board of Directors Concerning the Second Amended Plan
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSAL TO ADOPT
THE SECOND AMENDED AND RESTATED 1999 STOCK PLAN, AND UNANIMOUSLY RECOMMENDS THAT
THE COMPANY'S STOCKHOLDERS VOTE FOR THE APPROVAL OF SECOND AMENDED AND RESTATED
---
1999 STOCK PLAN.
16
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee
During the fiscal year ended December 31, 2007, our Compensation
Committee held primary responsibility for determining executive compensation
levels. The Committee is composed of four independent directors. The Committee
solicits, receives and analyzes compensation recommendations from Company
management and consultants to determine each facet of the compensation for our
executive officers. The Committee also administers our Amended and Restated 1999
Stock Plan. The Committee solicits input from our Chief Executive Officer with
respect to the performance of our executive officers and their compensation
levels no less than once per calendar year, usually in the first quarter.
The members of our Compensation Committee have extensive and varied
experience with various public and private corporations - as investors and
stockholders, as senior executives, and as directors charged with the oversight
of management and the setting of executive compensation levels. In particular,
as a Principal of Arsenal Capital Partners, Inc. Dr. Televantos is exposed to
compensation trends of the various companies in which his firm has invested and
manages, and Mr. Mitchell is a member of the Compensation Committee of Tetra
Technologies, Inc., a publicly traded company. In addition to the extensive
experience and expertise of the Committee's members and their familiarity with
the Company's performance and the performance of our executive officers, the
Committee is able to draw on the experience of other Directors and on various
legal and accounting executives employed by the Company, and the Committee has
access to readily available public information regarding executive compensation
structure and the establishment of appropriate compensation levels.
The Compensation Committee has authority to engage attorneys,
accountants and consultants, including executive compensation consultants, to
solicit input concerning compensation matters, and to delegate any of its
responsibilities to one or more directors or members of management where it
deems such delegation appropriate and permitted under applicable law.
In 2003, the Compensation Committee retained Mercer Human Resource
Consulting, Inc. to provide an executive compensation study. The results of said
effort provided the Compensation Committee broad data with which the Committee
was able to benchmark and compare our current executive compensation structure
against other similarly situated companies.
In 2006, the Compensation Committee retained Deloitte Compensation
Consulting Group to assist in the development of a revised equity based segment
of our executive compensation. In 2007, the Deloitte Compensation Consulting
Group continued to provide assistance to the Compensation Committee with respect
to total cash compensation and long term compensation as such relates to both
executives and directors of the Company. In particular, the Deloitte
Compensation Consulting Group delivered a benchmarking analysis of total cash
compensation and long term incentives of companies operating in the food,
pharmaceutical ingredients and specialty chemical industries, which also have:
(1) demonstrated recent three year revenue growth of 15-25%; (2) a market cap of
two hundred million dollars to four hundred million dollars; and (3) two hundred
million dollars to five hundred million dollars in revenue. It is through these
efforts that we have instituted the structure of our program for granting
executives and directors certain cash compensation and equity in the Company, as
discussed below.
General Compensation Objectives and Guidelines
The Company's overall compensation philosophy has been to offer
competitive salaries, cash incentives, stock options and benefit plans
consistent with peer entities and considering the Company's financial
performance. Rewarding key employees who contribute to the continued success of
the Company through cash compensation and equity participation are key elements
of the Company's compensation policy. The Company's executive compensation
policy is to attract and retain key executives necessary for the Company's short
and long-term success by establishing a direct link between executive
compensation and the performance of the Company, by rewarding individual
initiative and the achievement of annual corporate goals through salary and cash
bonus awards, and by providing equity awards to allow executives to participate
in enhanced stockholder value.
17
In awarding salary increases and bonuses, the Compensation Committee
relates various elements of corporate performance to the elements of executive
compensation. The Compensation Committee considers whether the compensation
package as a whole adequately compensates the applicable executive for the
Company's performance during the past year and the executive's contribution to
such performance.
Pursuant to the Company's compensation philosophy, the total annual
compensation of its executive officers is primarily made up of base salary,
cash-based incentives and stock-based incentive compensation. In addition, the
Company provides retirement compensation plans, group welfare benefits and
certain perquisites. In executing our executive compensation policy, we seek to
reward each executive's achievement of designated objectives relating to our
company's annual and long-term performance and individual fulfillment of
responsibilities. While compensation survey data and benchmarking are useful
guides for comparative purposes, we believe that a successful compensation
program also requires the application of judgment and subjective determinations
of individual performance. Accordingly, our Compensation Committee applies its
judgment to adjust and align each individual element of our compensation program
with the broader objectives of the program.
The Company does not have any formal stock ownership requirements for
its executive officers but notes that its directors and executive officers are
stockholders of the Company, as is disclosed elsewhere in this Proxy Statement.
The Board of Directors is, however, considering a proposal for the adoption of
stock ownership guidelines for directors and officers. The Company provides in
its insider trading policies that directors and executive officers may not sell
Company securities short and may not sell puts, calls or other similar
derivative securities tied to our Common Stock.
Base Salary
Base salary represents the fixed component of the executive
compensation program. The Company's philosophy regarding base salaries is to
maintain salaries at reasonably competitive peer group industry levels.
Determinations of base salary levels are established based upon the magnitude of
responsibilities and the scope of the position, as well as based upon an annual
review of marketplace competitiveness and on the Company's existing compensation
structure. Periodic increases in base salary relate to individual contributions
to the Company's overall performance and industry competitive pay practices. In
determining appropriate levels of base salary, the Compensation Committee relied
in part on industry compensation surveys, including WorldatWork, a leading
not-for-profit association dedicated to knowledge leadership in compensation and
benefits, as well as Salary.com and Deloitte Compensation Consulting Group.
The Committee solicits input from Mr. Rossi with respect to the
performance of our executive officers and their compensation levels. During
2007, the base salaries of our executive officers, were increased to the amounts
identified in the Summary Compensation Table.
Cash Based Incentives
Bonuses represent the variable, at-risk, component of the executive
compensation program that is tied to both Company performance and individual
achievement. The Company's policy is to base a meaningful portion of its
executive officers' cash compensation on bonus opportunities. In determining
bonuses, the Company considers factors such as the individual's contribution to
the Company's performance and the relative performance of the Company during the
year.
At the end of each calendar year, the Compensation Committee of the
Board of Directors approves an Incentive Compensation Program for the succeeding
calendar year (the "ICP"). The ICP provides for the awarding of bonus
compensation to executive officers and certain other employees, based upon
objective levels of achievement of specific goals established for the particular
officer or employee, and for the weighting of those goals to determine the
amount of the bonus.
The process of establishing applicable goals requires a well-defined
annual business plan from which most ICP goals are measured. Our annual business
plan evolves from our corporate strategic plan and is approved by the Board of
Directors each December for the following fiscal year. Individual goals under
the ICP are a composite of
18
our corporate goals and key individual objectives. In addition, no bonuses are
required to be paid under the ICP unless a specified minimum level of
consolidated net income before interest and taxes ("NIBIT") is achieved by the
Company. The Compensation Committee established such minimum level of NIBIT for
the 2007 calendar year as part of the approval of the annual plan.
In addition to NIBIT goal, individual ICP goals involve, amongst other
things, the development of new revenue generating products or services meeting
our profit criteria; the implementation of procedures that will improve
efficiency, effectiveness or safety of our products or services; the development
of a change or changes in procedures or processes that reduce cost without
sacrificing quality; the improvement of methods resulting in increased
productivity without loss of quality; and the development of ideas that will
improve quality without increasing cost. Under the ICP, each goal is determined
objectively and consistently. The goals require an individual to stretch beyond
his or her defined job description responsibility. The value placed on each
individual ICP goal depends heavily upon the degree of which the goal will help
us meet our annual plan; the relative degree of difficulty, creativity or
involvement required to achieve the goal; and the intrinsic value of the goal,
i.e., magnitude of income enhancement or cost savings. Each employee will
typically have 4-6 ICP goals.
The following table sets forth the individual ICP goals for bonus cash
compensation for the named executive officers, Mr. Rossi, Mr. Fitzpatrick, Dr.
Richardson, Mr. Ludwig and Mr. Houston for the fiscal year ended December 31,
2007, together with the corresponding percentage weight of each goal as such
related to total ICP bonus for each individual. The goals below were designed to
be challenging, yet attainable, but not assured.
2007 ICP GOALS
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Percentage
Name, Title Individual ICP Goals Weighted
------------------------------------------------------------------------------------------------------------------
Dino Rossi, o Achieve 2007 Annual Plan NIBIT 40%
Chairman, o Achieve 2007 Annual Plan Consolidated Net Sales at Minimum Gross 10%
President and Margin Percentage
CEO o Achieve 2007 Annual Plan Return on Company Assets 10%
o Development, Integration and Completion of Corporate Acquisition(s) 40%
Frank Fitzpatrick, o Achieve 2007 Annual Plan NIBIT 25%
CFO, Treasurer o Achieve 2007 Annual Plan Consolidated Net Sales at Minimum Gross 15%
and Assistant Margin Percentage
Secretary o Achieve 2007 Annual Plan Return on Company Assets 15%
o Development, Integration and Completion of Corporate Acquisition(s) 15%
o Achieve 2007 Annual Plan Cash Flow 15%
o Implementation of 2007 Corporate Tax Strategy 15%
David Ludwig, o Achieve 2007 Annual Plan NIBIT 10%
VP/GM, o Achieve 2007Annual Plan Specialty Product Segment Sales 15%
Specialty o Achieve 2007 Specialty Products Segment NIBIT 25%
Products o Achieve 2007 Annual Plan Return on Company Assets 15%
o Development and Completion of Acquisitions/New Products for to the 35%
Specialty Product Segment
Paul Richardson, o Achieve 2007 Annual Plan NIBIT 10%
VP, Research & o Development of New Products, Coatings and Technology in 2008 80%
Development o Achieve 2007Annual Plan Encapsulated Products Segment Sales 10%
Matthew o Achieve 2007 Annual Plan NIBIT 20%
Houston, o Reduce 2007 Legal Expenses 20%
General Counsel o Development, Integration and Completion of Corporate Acquisition(s) 25%
& Secretary o Integrate European Operations with US Legal 20%
o Develop and implement Corporate Records Retention Policy 15%
------------------------------------------------------------------------------------------------------------------
19
When the Board of Directors establishes the corporate goals for each
fiscal year, the Compensation Committee similarly establishes the relative
weight of each individual ICP goal based on its importance to the Company's
success and the ability of the individual to affect the success or failure of
the particular goal. For example, while each of the above individuals shares
responsibility to the minimum NIBIT, Dr. Richardson's and Mr. Ludwig's weighted
percentage associated with the minimum NIBIT are lower, because of the
concentration of their efforts on the Specialty Products and Encapsulated
Products segments, respectively.
In December of 2007, the Compensation Committee eliminated NIBIT as the
determining financial performance item upon which bonuses under the ICP would be
paid and replaced it with a specified minimum consolidated earnings before
interest, taxes, depreciation and amortization ("EBITDA") to be achieved by the
Company in order for bonuses to be paid under the ICP. It is the intent of the
Company to use EBITDA in this manner on a going forward basis. Accordingly, such
minimum level of EBITDA for 2008 is based upon the Company's results of
operations for the 2007 calendar year as part of the approval of the annual
business plan.
The 2008 individual ICP goals are similar in scope to the 2007 ICP
goals. Below are the 2008 ICP goals for the named executive officers above. As
with the 2007 performance goals, the 2008 goals are designed to be challenging,
yet attainable, but not assured.
2008 ICP GOALS
------------------------------------------------------------------------------------------------------------------
Percentage
Name, Title Individual ICP Goals Weighted
------------------------------------------------------------------------------------------------------------------
Dino Rossi, o Achieve 2008 Annual Plan EBITDA 25%
Chairman, o Achieve 2008 Annual Plan Return on Company Assets 20%
President and o Execute 2008 Company Corporate Acquisition(s) Strategy 20%
CEO o Achieve 2008 Annual Plan Earnings per Share of Common Stock 20%
o Achieve 2008 Annual Plan Consolidated Net Sales of Company 10%
o Achieve 2008 Annual Plan Equity and Benefits Plan Enhancement 5%
Frank Fitzpatrick, o Achieve 2008 Annual Plan EBITDA 25%
CFO, Treasurer o Achieve 2008 Annual Plan Return on Company Assets 15%
and Assistant o Execute 2008 Company Corporate Acquisition(s) Strategy 15%
Secretary o Achieve 2008 Annual Plan Cash Flow 15%
o Achieve 2008 Annual Plan Earnings per Share of Common Stock 15%
o Achieve 2008 Annual Plan Equity and Benefits Plan Enhancement 15%
David Ludwig, o Achieve 2008 Annual Plan EBITDA 10%
VP/GM, o Achieve 2008Annual Plan Specialty Product Segment Sales 15%
Specialty o Achieve 2008 Specialty Products Segment NIBIT 25%
Products o Achieve 2008 Annual Plan Return on Company Assets 10%
o Development of New Products Specific to the Specialty Product Segment 40%
Paul Richardson, o Development of New Products in 2008, with Minimal Sales 65%
VP Research & o Achieve 2008 Annual Plan EBITDA 20%
Development o Achieve 2008Annual Plan Encapsulated Products Segment Sales 15%
Matthew o Achieve 2008 Annual Plan EBITDA 25%
Houston, o Achieve 2008 Legal Expense Budget 20%
General Counsel o Reduce Company ISS Corporate Governance Quotient 30%
& Secretary o Execute 2008 Company Acquisition(s) Strategy 25%
------------------------------------------------------------------------------------------------------------------
20
The Compensation Committee sets target bonuses for each executive
officer participating in the ICP. Target bonuses are based upon a percentage of
each executive officer's base yearly salary. The Compensation Committee
determines actual bonus amounts paid to the executive officers, which may be
higher or lower than the target bonus, based upon each executive officer's
performance relative to the specific established performance goals upon which
the target bonus amounts were based.
Actual bonuses for a particular fiscal year are generally determined
during the first quarter of the following fiscal year and paid at the discretion
of the Compensation Committee. ICP bonuses were paid in early 2008 to our
executive officers for performance during fiscal year ended 2007 in the amounts
identified under "Non-Equity Incentive Plan Compensation" in the Summary
Compensation Table. Performance based incentive paid to Mr. Rossi is discussed
below.
Pursuant to the terms of the employment agreement between the Company
and Mr. Rossi, Mr. Rossi is entitled to earn an annual bonus of up to 100% of
his base salary, based upon achieving operating and/or financial targets
established by the Board or an authorized committee thereof. Half of such bonus
compensation opportunity is determined pursuant to the ICP and those specific
goals are set forth above. The Compensation Committee has established a minimum
level of consolidated EBITDA for the 2008 fiscal year to be achieved by the
Company in order for Mr. Rossi to be entitled to the portion of such bonus
compensation not covered by the ICP.
Equity Based Compensation
The Compensation Committee believes that one important goal of the
executive compensation program should be to provide executives, key employees --
who have significant responsibility for the management, growth and future
success of the Company, and Directors -- with an opportunity for investment in
the Company and the incentive advantages inherent in stock ownership in the
Company. The goal of this approach is that the interests of the stockholders,
executives, employees and Directors will be closely aligned.
Prior to 2006, we accomplished this goal generally through the granting
of stock options to executive officers and other key employees of the Company
from time to time, giving them a right to purchase shares of the Company's
Common Stock at a specified price in the future. Grants of options have been
based primarily on an employee's potential contribution to the Company's growth
and financial results. Options have been granted at the prevailing market value
of the Company's Common Stock and accordingly will only have value if the
Company's stock price increases. With limited exceptions, grants of options to
employees have provided for incremental vesting over three years and the
individual must be employed by the Company for such options to vest.
Partially in response to changes in which stock options are accounted
for under generally accepted accounting principles, we have modified the
structure and composition of the long-term equity based component of our
executive compensation. Beginning in 2006 and continuing thereafter, the Company
grants a combination of restricted shares and options to our executives. We also
granted restricted shares to our non-management directors in 2005 and 2006.
Restricted stock, which vests over an extended period, encourages ownership and
commitment at the director level.
Awards under the Company's 1999 Stock Plan are based upon individual
contribution and expected contribution going forward, and may or may not be
granted in any given fiscal year. The Committee considers Company performance,
as well. It is our expectation to continue yearly grants of restricted stock
awards and non-qualified options to executive officers. It is now the practice
of the Compensation Committee to review and approve awards for officers and
certain employees during its December meeting. To avoid timing of equity-based
awards ahead of the release of our quarterly earnings and other material
non-public information, the annual awards to our senior management, including
executive officers, are typically granted coinciding with the date of our
December Board of Directors Meeting.
The Compensation Committee postponed the grant awards of equity in
December of 2007, as is the usual practice and intention of the Committee, to
await the results of an executive compensation study which was performed by
Deloitte Compensation Consulting Group. The final data of this study was
presented to the Compensation Committee in January of 2008. These awards were
then granted in January of 2008, but intended to apply to the individual's
performance for 2007. Accordingly, our named executive officers were granted the
21
following restricted shares in January of 2008: Mr. Rossi: 13,500 shares; Mr.
Fitzpatrick: 4,500 shares; Mr. Ludwig: 2,500 shares; Mr. Houston: 1,500 shares;
and Dr. Richardson: 4,000 shares. Additionally, in January 2008, we granted
Non-Qualified Options to our executive officers as follows: Mr. Rossi, Mr.
Fitzpatrick, Mr. Ludwig, Mr. Richardson and Mr. Houston were granted options to
purchase 45,000; 35,000; 26,500; 20,500; and 10,000 shares, respectively, at an
exercise price of $20.41 per share, which was the common stock price at the end
of trading on day of grant.
Employment Agreement
The Company entered into an employment agreement with Mr. Rossi in
2001. Except for Mr. Rossi, there are no agreements or understandings between
the Company and any executive officer which guarantee continued employment or
guarantee any level of compensation, including incentive or bonus payments. The
Company does not have a written policy regarding employment agreements.
Retirement Plans
401(k)/Profit Sharing Plan
The Company's executive officers, as well as most employees, are
eligible to participate in the 401(k) Retirement Plan/Profit Sharing Plan (the
"401(k) Plan"). The 401(k) Plan provides that participating employees may make
elective contributions of up to 15% of pre-tax salary, subject to ERISA
limitations, and for the Company to make matching contributions on a monthly
basis equal in value to 35% of each participant's elective contributions. Such
matching contributions are made in shares of the Company's Common Stock.
The profit-sharing portion of the 401(k) Plan is discretionary and
non-contributory. Profit sharing contributions are restricted to employees
(including executive officers) who have completed 1,000 hours of service and are
employed on the last day of a plan year. The Company contributes, in cash, a
minimum of 3.55% of an eligible participant's taxable compensation (subject to
certain exclusions).
Perquisites
Perquisites are granted to the executive officers occasionally and are
generally de minimis and not a material component of compensation.
Mr. Rossi is entitled to the use of an automobile leased by the Company
and to be reimbursed for a specified level of premiums for life and disability
insurance. He is also entitled to the use of a financial planner, as well as
participation in a country club membership for corporate business. Mr. Ludwig is
also entitled to the use of an automobile leased by the Company. The Company
pays to insure and maintain both Mr. Rossi's and Mr. Ludwig's automobiles. The
Company also pays fuel expenses to the extent related to Company business.
Messrs. Fitzpatrick and Houston and Dr. Richardson receive cash allowances
associated with the use of their personal automobiles.
The following Compensation Committee Report shall not be incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under the Securities Act or the Exchange Act.
22
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed the above "Compensation Discussion and
Analysis" with management.
Based upon this review and discussion, we have recommended to the Board
of Directors that the "Compensation Discussion and Analysis" be included in this
Proxy Statement.
Submitted by the Compensation Committee of the Board of Directors.
John Y. Televantos (Chairman)
Edward L. McMillan
Kenneth P. Mitchell
Elaine R. Wedral
23
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by (i) our Chief
Executive Officer ("Principal Executive Officer"), (ii) our Chief Financial
Officer ("Principal Financial Officer"), and (iii) each of our three most highly
compensated executive officers (each a "Named Executive Officer") for the fiscal
years ended December 31, 2007 and 2006.
Summary Compensation Table
----------------------------------------------------------------------------------------------------------------------------
Non-Equity
Stock Option Incentive Plan All Other
Awards Awards Compensation Compensation
Name and Principal Salary (1) (1) (2) (3) Total
Position Year ($) ($) ($) ($) ($) ($)
----------------------------------------------------------------------------------------------------------------------------
Dino A. Rossi 2007 $368,814 $56,111 $209,769 $260,000 $13,688 (a) $908,382
Chairman, President & 2006 $338,600 $3,778 $198,528 $212,445 $17,364 (b) $770,715
CEO
Francis J. Fitzpatrick 2007 $180,000 $18,704 $161,359 $59,220 $21,993 (c) $441,275
CFO, Treasurer and 2006 $169,000 $1,259 $152,270 $62,406 $21,582 (d) $406,517
Asst. Secretary
David F. Ludwig 2007 $201,385 $12,469 $129,226 $52,636 $13,689 (e) $409,404
VP/GM Specialty Products 2006 $193,481 $839 $123,072 $41,894 $18,026 (f) $377,312
Paul H. Richardson 2007 $166,000 $18,704 $101,854 $34,160 $20,773 (g) $341,490
VP, R&D 2006 $155,385 $1,259 $80,852 $43,575 $20,357 (h) $301,428
Matthew D. Houston 2007 $168,115 $6,235 $36,807 $42,250 $18,327 (i) $271,733
General Counsel and
Secretary
----------------------------------------------------------------------------------------------------------------------------
(1) The amounts included in the "Stock Awards" and "Option Awards" columns
reflect the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007, in accordance
with FAS 123(R) adjusted to eliminate service-based forfeiture
assumptions used for financial reporting purposes. With respect to the
amounts reported for 2006, these amounts relate to awards granted in
2006 and in prior years. With respect to the amounts reported for 2007,
since we did not make any stock awards or option awards during the
fiscal year ended December 31, 2007, these amounts relate solely to
awards granted in prior years. A discussion of the assumptions used in
valuation of stock and option awards may be found in "Note 2 -
Stockholders' Equity" in the Notes to Consolidated Financial Statements
of our Annual Report on Form 10-K for the year ended December 31, 2007,
as filed with the SEC on March 17, 2008.
(2) Reflects the value of cash incentive bonuses earned under our ICP.
(3) The amounts reflected represent employer matching contributions and
profit sharing contributions made under the Company's combined
401(k)/profit sharing plan, automobile allowance and the Company paid
portion of life, health, and disability insurance benefits, in the
following amounts for each Named Executive Officer for the indicated
year:
(a) Mr. Rossi's other compensation for 2007 consists of
$13,412 for contributions under the Company's
401(k)/profit sharing plan, $5,000 for personal
automobile allowance, and $276 for life, health and
disability insurance benefits.
24
(b) Mr. Rossi's other compensation for 2006 consists of
$13,060 for contributions under the Company's
401(k)/profit sharing plan, $3,506 for personal
automobile allowance, and $798 for life, health and
disability insurance benefits.
(c) Mr. Fitzpatrick's other compensation for 2007
consists of $13,412 for contributions under the
Company's 401(k)/profit sharing plan, $8,400 for
automobile allowance, and $180 for life, health and
disability insurance benefits.
(d) Mr. Fitzpatrick's other compensation for 2006
consists of $13,060 for contributions under the
Company's 401(k)/profit sharing plan, $8,308 for
automobile allowance, and $214 for life, health and
disability insurance benefits.
(e) Mr. Ludwig's other compensation for 2007 consists of
$13,412 for contributions under the Company's
401(k)/profit sharing plan, $4,707 for personal
automobile allowance, and $276 for life, health and
disability insurance benefits.
(f) Mr. Ludwig's other compensation for 2006 consists of
$13,060 for contributions under the Company's
401(k)/profit sharing plan, $4,524 for personal
automobile allowance, and $259 for life, health and
disability insurance benefits.
(g) Mr. Richardson's other compensation for 2007 consists
of $12,865 for contributions under the Company's
401(k)/profit sharing plan, $7,800 for automobile
allowance, and $108 for life, health and disability
insurance benefits.
(h) Mr. Richardson's other compensation for 2006 consists
of $12,738 for contributions under the Company's
401(k)/profit sharing plan, $7,500 for automobile
allowance, and $119 for life, health and disability
insurance benefits.
(i) Mr. Houston's other compensation for 2007 consists of
$11,145 for contributions under the Company's
401(k)/profit sharing plan, $7,062 for automobile
allowance, and $120 for life, health and disability
insurance benefits.
Grants of Plan Based Awards
The following table discloses the plan based awards granted in 2007. It
includes the target levels for bonus awards under our non-equity incentive plan
for 2007. As discussed in the Compensation Discussion and Analysis, the Company
did not grant stock options or restricted stock to its Named Executive Officers
in 2007. Although the practice of the Company is to grant such equity to those
individuals in December of each fiscal year, the Compensation Committee awaited
results of an executive compensation study which was performed by Deloitte
Compensation Consulting Group. The final data of this study was presented to the
Compensation Committee in January of 2008. The actual number of stock options
and restricted stock awards granted in fiscal 2008, but applicable to fiscal
2007, are as set forth in the table below.
Estimated Future Payouts
under Non-Equity Incentive All Other All Other
Plan Awards (1) Stock Option
----------------------------------- Awards: Awards: Exercise
Number of Number of Price of
Shares of Securities Option Grant Date
Grant Restricted Underlying Awards Fair Value
Name Date Threshold Target Maximum Stock (#) Options (#) ($/Sh) (2)
------------------------------------------------------------------------------------------------------------------------------
Dino A. Rossi 1/12/2008 -- $212,500 $276,250 13,500 45,000 $20.41 $561,515
Francis J. Fitzpatrick 1/12/2008 -- $63,000 $81,900 4,500 35,000 $20.41 $314,674
David F. Ludwig 1/12/2008 -- $70,700 $91,910 2,500 26,500 $20.41 $219,799
Paul H. Richardson 1/12/2008 -- $60,200 $78,260 4,000 20,500 $20.41 $212,063
Matthew D. Houston 1/12/2008 -- $42,250 $54,925 1,500 10,000 $20.41 $94,310
------------------------------------------------------------------------------------------------------------------------------
25
(1) Represents target payout levels under the ICP for 2007 performance. The
actual amount of incentive bonus earned by each Named Executive Officer
in 2007 is reported under the Non-Equity Incentive Plan Compensation
column in the Summary Compensation Table. Additional information
regarding the design of the ICP is included in the Compensation
Discussion and Analysis.
(2) The FAS 123(R) value of awards granted on 1/12/2008 was $20.34 per
share of restricted stock, and $6.38 per stock option with an exercise
price of $20.41.
Employment Agreement
As of January 1, 2001, the Company entered into an Employment Agreement
with Mr. Rossi, which provides for Mr. Rossi to serve as the Company's President
and Chief Executive Officer. Mr. Rossi's Employment Agreement initially provided
for a base salary, subject to annual increases if approved by the Board of
Directors. Mr. Rossi's current salary for fiscal 2008 pursuant to the Employment
Agreement is $425,000. Mr. Rossi is eligible to earn a bonus of 50% of base
salary under the ICP. Mr. Rossi is also eligible to receive a performance bonus
(as determined by the Board of Directors) of up to 50% of annual salary, based
on a target figure which exceeds financial targets established by the Board of
Directors in the ICP, for each fiscal year during the term of his employment.
Mr. Rossi's Employment Agreement also provides that if the Company
terminates his employment other than for cause or in the event Mr. Rossi
terminates his employment under certain limited circumstances effectively
amounting to a constructive termination, he will be entitled to severance
payments of 150% of his then current annual salary, and if such termination by
the Company occurs within two years after a change of control event involving
the Company he would be entitled to severance payments equal to 200% of the sum
of his then current annual salary plus the annual bonus earned by him for the
fiscal year immediately preceding the year in which the change of control event
occurred. If Mr. Rossi were to terminate his employment prior to the second
anniversary of such a change of control event, he would be entitled to severance
payments equal to 100% of his then current annual salary. In the event of any
termination by the Company entitling Mr. Rossi to severance payments, his
theretofore granted but unvested options to purchase Common Stock of the Company
would immediately vest and be exercisable in accordance with their terms. Mr.
Rossi's entitlement to severance payments would be subject to a modified payment
schedule to the extent necessary to avoid such payments being considered an
"excess parachute payment" for purposes of Section 280G of the Internal Revenue
Code. During the period of Mr. Rossi's employment (or, in the case of a
voluntary termination by Mr. Rossi or a termination of his employment by the
Company for cause, the balance of the term of the Employment Agreement before
giving effect to such termination) and for a period of one year thereafter, the
Employment Agreement imposes on Mr. Rossi certain non-competition and
non-solicitation obligations regarding the Company and its customers and its
employees.
The Employment Agreement was amended as of December 9, 2005 to conform
certain provisions thereof to Section 409A of the Internal Revenue Code, which
was enacted as part of the American Jobs Creation Act of 2004, and the proposed
regulations issued by the Treasury Department under Section 409A. The amendment
provides that certain payments to Mr. Rossi in connection with the termination
of his employment would not be due and payable before six months after the
applicable termination. The six-month delay relates to Mr. Rossi's status as a
"key employee" (as defined under Section 409A and the accompanying proposed
regulations).
Terms and Conditions of Awards
The 1999 Stock Plan was adopted and approved by our stockholders in
1999 and was amended in 2003. Under the 1999 Stock Plan, the officers and other
employees of the Company may be granted options to purchase Common Stock of the
Company which qualify as "incentive stock options" ("ISO" or "ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
directors, officers and employees may be granted options to purchase Common
Stock which do not qualify as ISOs ("non-Qualified Option" or "Non-Qualified
Options"); and directors, officers and employees may be granted the right to
make direct purchases of Common
26
Stock from the Company ("Purchases"). Both ISOs and Non-Qualified Options are
referred to in this Proxy Statement individually as an "Option" and collectively
as "Options." The exercise price per share specified to each Option granted
under the 1999 Stock Plan may not be less than the fair market value per share
of Common Stock on the date of such grant.
All of our restricted stock awards for executive officers have the same
features. Each executive officer may purchase the stock at a purchase price
equal to the par value of the shares ($.06-2/3 per share). The purchased
restricted stock is subject to a repurchase option in favor of the Company and
to restrictions on transfer until it vests. The purchased stock will vest in
full in four years, or upon an earlier change of control of the Company,
provided the executive officer is employed by the Company on that date. In the
event the purchaser's employment with the Company is terminated for cause or
upon the purchaser's voluntary resignation from the Company's employ, prior to
vesting in full, the Company may repurchase all of the purchased shares at a
purchase price of $.06-2/3 per share. The Company may repurchase a pro-rated
amount of the purchased shares, based on the amount of time remaining until the
vesting date, at a purchase price of $.06-2/3 per share in the event the
purchaser ceases to be an employee of the Company prior to vesting by reason of:
(1) the purchaser's voluntary retirement from the Company's employ at or after
age 62; (2) the purchaser's death, major disability or significant illness; or
(3) termination of the purchaser's employment by the Company without cause.
Repurchases are subject to the approval of the Compensation Committee of the
Board.
Our Non-Qualified Options granted vest as follows: 20% on the first
anniversary of the grant date; 40% on the second anniversary of the grant date;
and 40% on the third anniversary of the grant date. Our Non-Qualified Options
expire ten years after grant.
Outstanding Equity Awards at Fiscal Year End
The following table shows outstanding stock option awards classified as
exercisable and unexercisable as of December 31, 2007 for each Named Executive
Officer. The table also discloses the number and value of unvested restricted
stock awards as of December 31, 2007.
Option Awards Stock Awards
--------------------------------------------------------------- ---------------------------
Number of Securities
Underlying Unexercised Market
Options (#) Number Value of
--------------------------------- of Shares Shares of
Of Stock
Stock that Have
Option Option that Have Not
Exercisable Un- Exercise Expiration Not Vested (3)
Name (1) Exercisable (1) Price ($) Date Vested(2) ($)
-------------------------- -------------- -------------- ----------- ------------- ------------ ------------
Dino A. Rossi 16,875 - $ 1.88 10/21/09
23,625 - $ 3.30 09/15/10
67,500 - $ 6.27 10/25/11
67,500 - $ 6.83 09/12/12
67,500 - $ 6.77 12/12/13
74,250 - $ 8.77 09/16/14
54,000 (4) 36,000 (4) $ 13.81 09/16/15
9,000 (5) 36,000 (5) $ 17.81 12/08/16
13,500 (6) $231,120
Francis J. Fitzpatrick 40,500 - $ 6.83 09/12/12
50,625 - $ 6.77 12/12/13
60,750 - $ 8.77 09/16/14
40,500 (7) 27,000 (7) $ 13.81 09/16/15
6,900 (8) 27,600 (8) $ 17.81 12/08/16
4,500 (9) $ 77,040
27
David F. Ludwig 12,150 - $ 6.83 09/12/12
32,400 - $ 6.77 12/12/13
50,625 - $ 8.77 09/16/14
32,400 (10) 21,600 (10) $ 13.81 09/16/15
5,400 (11) 21,600 (11) $ 17.81 12/08/16
3,000 (12) $ 51,360
Paul H. Richardson 5,400 - $ 6.77 12/12/13
13,500 - $ 8.77 09/16/14
13,500 (13) 9,000 (13) $ 13.19 06/24/15
13,500 (14) 9,000 (14) $ 13.81 09/16/15
4,500 (15) 18,000 (15) $ 17.81 12/08/16
4,500 (16) $ 77,040
Matthew D. Houston 19,050 - $ 9.87 01/24/15
6,750 (17) 4,500 (17) $ 13.81 09/16/15
900 (18) 3,600 (18) $ 17.81 12/08/16
1,500 (19) $ 25,680
(1) Stock option awards are exercisable 20% after 1 year, 60%
after 2 years and 100% after 3 years from the date of grant.
(2) Restricted stock vests 20% on the first anniversary of the
grant date; 40% on the second anniversary of the grant date;
and 40% on the third anniversary of the grant date.
(3) Value is computed based on the closing price of our Common
Stock on the NASDAQ on December 29, 2006, which was $17.12 per
share.
(4) Mr. Rossi's 90,000 options granted on September 16, 2005 at
$13.81 per share became exercisable starting September 16,
2006 with twenty percent being exercisable on this date and an
additional forty percent being exercisable on September 16,
2007 and 2008, respectively.
(5) Mr. Rossi's 45,000 options granted on December 8, 2006 at
$17.81 per share became exercisable starting December 8, 2007
with twenty percent being exercisable on this date and an
additional forty percent being exercisable on December 8, 2008
and 2009, respectively.
(6) Mr. Rossi's 13,500 share restricted stock award granted on
December 8, 2006 for $.06 2/3 per share will vest in full on
December 8, 2010.
(7) Mr. Fitzpatrick's 67,500 options granted on September 16, 2005
at $13.81 per share became exercisable starting September 16,
2006 with twenty percent being exercisable on this date and an
additional forty percent being exercisable on September 16,
2007 and 2008, respectively.
(8) Mr. Fitzpatrick's 34,500 options granted on December 8, 2006
at $17.81 per share became exercisable starting December 8,
2007 with twenty percent being exercisable on this date and an
additional forty percent being exercisable on December 8, 2008
and 2009, respectively.
(9) Mr. Fitzpatrick's 4,500 share restricted stock award granted
on December 8, 2006 for $.06 2/3 per share will vest in full
on December 8, 2010.
(10) Mr. Ludwig's 54,000 options granted on September 16, 2005 at
$13.81 per share became exercisable starting September 16,
2006 with twenty percent being exercisable on this date and an
additional forty percent being exercisable on September 16,
2007 and 2008, respectively.
28
(11) Mr. Ludwig's 27,000 options granted on December 8, 2006 at
$17.81 per share became exercisable starting December 8, 2007
with twenty percent being exercisable on this date and an
additional forty percent being exercisable on December 8, 2008
and 2009, respectively.
(12) Mr. Ludwig's 3,000 share restricted stock award granted on
December 8, 2006 for $.06 2/3 per share will vest in full on
December 8, 2010.
(13) Mr. Houston's 11,250 options granted on September 16, 2005 at
$13.81 per share became exercisable starting September 16,
2006 with twenty percent being exercisable on this date and an
additional forty percent being exercisable on September 16,
2007 and 2008, respectively.
(14) Mr. Richardson's 13,500 options granted on June 24, 2005 at
$13.81 per share became exercisable starting June 24, 2006
with twenty percent being exercisable on this date and an
additional forty percent being exercisable on June 24, 2007
and 2008, respectively.
(15) Mr. Richardson's 22,500 options granted on September 16, 2005
at $13.81 per share became exercisable starting September 16,
2006 with twenty percent being exercisable on this date and an
additional forty percent being exercisable on September 16,
2007 and 2008, respectively.
(16) Mr. Richardson's 22,500 options granted on December 8, 2006 at
$17.81 per share became exercisable starting December 8, 2007
with twenty percent being exercisable on this date and an
additional forty percent being exercisable on December 8, 2008
and 2009, respectively.
(17) Mr. Richardson's 4,500 share restricted stock award granted on
December 8, 2006 for $.06 2/3 per share will vest in full on
December 8, 2010.
(18) Mr. Houston's 4,500 options granted on December 8, 2006 at
$17.81 per share became exercisable starting December 8, 2007
with twenty percent being exercisable on this date and an
additional forty percent being exercisable on December 8, 2008
and 2009, respectively.
(19) Mr. Houston's 1,500 share restricted stock award granted on
December 8, 2006 for $.06 2/3 per share will vest in full on
December 8, 2010.
Option Exercises and Stock Vested
The following table sets forth certain information regarding options
and stock awards exercised and vested, respectively, by each of our Named
Executive Officers during the fiscal year ended December 31, 2007.
Option Exercises and Stock Vested Table
Option Awards Stock Awards
------------------------------------- -----------------------------------
Number of Number of
Shares Value Realized Shares
Acquired on on Exercise Acquired on Value Realized
Name Exercise (#) ($)(1) Vesting (#) on Vesting ($)
------------------------------------ --------------- ------------------ --------------- ----------------
Dino A. Rossi 96,525 $1,253,501 - -
Francis J. Fitzpatrick - - - -
David F. Ludwig - - - -
Paul H. Richardson - - - -
Matthew D. Houston - - - -
29
(1) Value realized represents the excess of the fair market value of the
shares at the time of exercise over the exercise price of the options.
Termination of Employment and Change of Control Arrangements
Agreement with Dino A. Rossi. We entered into an employment agreement
with Dino A. Rossi on January 1, 2001, which provides for automatic one-year
extensions of the employment term unless either party provides written notice of
its intention not to extend the agreement within 60 days of the end of the
then-current term. Mr. Rossi receives an annual base salary of $425,000 in 2008,
an annual incentive bonus and medical and other benefits. Mr. Rossi's bonus is
targeted to be 50% of his base salary for the appropriate year, although he may
be entitled to up to 100% of his base salary as bonus.
If we terminate Mr. Rossi's Employment Agreement other than for cause
or in the event Mr. Rossi terminates his employment under certain limited
circumstances effectively amounting to a constructive termination, he will be
entitled to severance payments of 150% of his then current annual salary, plus
the pro rata portion of the annual bonus he would have received had he been
employed by us through the end of the full fiscal year in which the termination
occurred. If such termination by the Company occurs within two years after a
change of control event, he would be entitled to severance payments equal to
200% of the sum of his then current annual salary plus the annual bonus earned
by him for the fiscal year immediately preceding the year in which the change of
control event occurred. If Mr. Rossi were to terminate his employment prior to
the second anniversary of such a change of control event, he would be entitled
to severance payments equal to 100% of his then current annual salary. In the
event of any termination by the Company entitling Mr. Rossi to severance
payments, his granted but unvested options and restricted stock would
immediately vest and be exercisable in accordance with their terms.
Under the employment agreement with Mr. Rossi, "Cause" means: habitual
absence or lateness; gross insubordination; failure to devote full time to
Company's business; failure to comply with the obligations of confidentiality;
any action which constitutes a violation of any applicable criminal statute; or
any act which frustrates or violates the undivided duty of loyalty owed by Mr.
Rossi to the Company. In addition, "Change in Control" means:
(a) any person or group is or becomes (including by merger,
consolidation or otherwise) the beneficial owner, directly or
indirectly, of 50% or more of the voting power of the total outstanding
voting stock of Company;
(b) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Director
of the Company (together with any new directors whose election to the
Board of Directors, or whose nomination for election by the
stockholders of the Company, was approved by a vote of 75% of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease to constitute a majority of the Board
of Directors then in office; or
(c) the sale or other disposition (other than by way of merger
or consolidation) of all or substantially all of the capital stock or
assets of Company to any person or group as an entirety or
substantially as an entirety in one transaction or a series of related
transactions, unless the ultimate beneficial owners of the voting stock
of such person immediately after giving effect to such transaction own,
directly or indirectly, more than 80% of the total voting power of the
total outstanding voting stock of Company immediately prior to such
transaction.
The amount of compensation payable to Mr. Rossi in the event of
termination of employment, assuming termination as of December 31, 2007, and a
share price for the Company's common stock equal to the closing market price on
the last trading day prior to that date, is set forth in the table below. We are
not obligated to provide any compensation to Mr. Rossi in the case of a change
in control that does not result in termination of employment.
30
Benefits and Payments upon Termination
---------------------------------------------------------------------------------------------------------------------
Acceleration
of
Vesting of
Options
and
ICP Restricted
Base Salary Bonus(1) Stock Total
------------------------------------------------------------
Voluntary termination by Mr. Rossi or termination
for Cause $0 $368,814 $5,658,311 $5,658,311
Termination by Mr. Rossi within 12 months after
demotion by Company or as a result of constructive
termination $553,221 $368,814 $6,376,118 $7,298,153
Termination by Company following a Change in
Control, except for Cause(2) $737,628 $737,628 $6,376,118 $7,851,374
Voluntary termination by Mr. Rossi following a
Change of Control(2) $368,814 $368,814 $6,376,118 $7,113,749
Termination by Company for any reason other than
for Cause or after receipt of notice of termination
from Mr. Rossi $553,221 $368,814 $6,376,118 $7,298,153
Death $0 $368,814 $5,658,311 $5,658,311
---------------------------------------------------------------------------------------------------------------------
(1) Represents the target bonus level under the ICP.
(2) Assumes the Change of Control occurred within the two year period prior
to December 31, 2007.
The amounts shown in the table above do not include payments for accrued salary
and vacation, or payments made under the life insurance policy in the case of
death
All of our executive officers other than Mr. Rossi are
employees-at-will and, as such, do not have employment agreements, therefore, we
are not obligated to provide any post-employment compensation or benefits.
However, upon a change of control, as defined in the 1999 Stock Plan, and at the
sole discretion of the Compensation Committee, all unvested stock option grants
may become exercisable and all outstanding restricted share grants may fully
vest.
Director Compensation
For 2007, the Company paid each of its directors, other than Mr. Rossi,
an annual retainer of $18,000 and $4,000 for each Board meeting attended, plus
expense. For fiscal 2007, the Company also paid to each of its directors serving
on Committees the following fees, plus expenses, for each Committee meeting
attended: Chairman of the Audit Committee, $2,500; Chairman of the Compensation
Committee, $2,000; chairman of all other Committees, $1,500; and all other
Committee members, $1,000. The Lead Director was paid an additional $5,000
retainer fee for the year.
The following table discloses the cash, equity awards, and other
compensation earned, paid, or awarded, as the case may be, to each of the
Company's directors (other than Mr. Rossi, whose compensation is set forth in
the Summary Compensation Table above) during the fiscal year ended December 31,
2007.
31
Fees
Earned or Stock All Other
Paid in Awards Compensation
Name Cash ($) (1)(2)($) ($) Total ($)
---------------------------- -------------- ----------- ---------------- ------------
Hoyt Ammidon, Jr. $41,500 $106,050 - $147,550
Edward McMillan $41,000 $106,050 - $147,050
Kenneth Mitchell $47,000 $106,050 - $153,050
Perry Premdas - $145,463 - $145,463
John Televantos $43,000 $106,050 - $149,050
Elaine Wedral $42,000 $106,050 - $148,050
(1) On February 27, 2008, each director, other than Mr. Rossi and Mr.
Premdas was awarded 5,000 shares of restricted stock. Mr. Premdas was
awarded 6,750 shares of Restricted Stock on January 2, 2008. The shares
are subject to a repurchase option in favor of the Company and to
restrictions on transfer until they vest in accordance with the
provisions of the Restricted Stock Purchase Agreement dated February
27, 2008 or January 2, 2008, as applicable, between the Company and
each such director. The amounts included in the "Stock Awards" column
reflect the dollar amount to be recognized for financial statement
reporting purposes beginning for the fiscal year ended December 31,
2008, in accordance with FAS 123(R) adjusted to eliminate service-based
forfeiture assumptions used for financial reporting purposes. The
weighted average grant date fair value per share of each award was
$21.35. A discussion of the assumptions used in valuation of stock and
option awards may be found in "Note 2 - Stockholders' Equity" in the
Notes to Consolidated Financial Statements of our Annual Report on Form
10-K for the year ended December 31, 2007, as filed with the SEC on
March 17, 2008.
(2) The following table shows the aggregate number of options and stock
awards outstanding for each Outside Director as of December 31, 2007:
Aggregate Aggregate
Stock Option Stock Awards
Outstanding Outstanding
as of as of
Name 12/31/2007 12/31/2007
---------------------------------------------------------------
Hoyt Ammidon, Jr. 38,011 13,500
Edward McMillan 41,386 13,500
Kenneth Mitchell 38,011 13,500
Perry Premdas - -
John Televantos 4,500 13,500
Elaine Wedral 29,623 13,500
Directors have entered into Restricted Stock Purchase Agreements with
the Company to purchase the Company's Common Stock pursuant to the Company's
1999 Stock Plan. These Agreements replace the stock option plan in which
non-employee directors participated in prior years.
Under the Agreements, each of Mr. Ammidon, Jr., Dr. Televantos, Mr.
McMillan, Mr. Mitchell and Dr. Wedral purchased 13,500 shares of the Company's
Common Stock at the purchase price of $.06-2/3 per share. The purchased stock is
subject to a repurchase option in favor of the Company and to restrictions on
transfer until it vests in accordance with the provisions of the Agreements. The
purchased stock will vest in full seven years from the date of the Agreements,
provided the purchaser is still a director of the Company on that date. The
purchased stock will also vest in full prior to seven years upon: (1) the
purchaser's retirement from the Company's Board of Directors at or after age 70;
(2) the purchaser's death or major disability, (3) the purchaser's resignation
from the Company's
32
Board of Directors due to a conflict of interest or serious illness, and (4) a
change of control of the Company (as defined in the Agreements). The purchased
shares will not vest and the Company may repurchase all of the purchased shares
at a purchase price of $.06-2/3 per share in the event of gross misconduct on
the part of the purchaser in the performance of his or her duties as a director
of the Company prior to vesting, as determined by majority vote of the Board of
Directors. A pro rated amount of the purchased shares may be repurchased by the
Company at a purchase price of $.06-2/3 per share in the event the purchaser
ceases to be a director of the Company prior to vesting of the purchased shares
for any reason other than gross misconduct.
The Company does not pay any other direct or indirect compensation to
directors in their capacity as such.
Related Party Transactions
Other than the compensation and employment arrangements described
above, we have not entered into any transactions with any of our directors or
executive officers or their immediate family members in 2007.
In accordance with our Audit Committee charter, our Audit Committee is
responsible for reviewing and approving the terms and conditions of all related
party transactions, including any transaction in which any of our directors,
director nominees, executive officers or holders of more than 5% of our capital
stock have or will have a direct or indirect material interest. If we were to do
so, any such transaction would need to be approved by our Audit Committee prior
to us entering into such transaction. A report is made to our Audit Committee
annually disclosing all related parties that are employed by us and related
parties that are employed by other companies that we had a material relationship
with during that year, if any. The Audit Committee, as well as the full Board of
Directors, reviews any potential transactions which may involve related parties
at least once per calendar year.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information, as of December 31, 2007, with
respect to shares of the Company's Common Stock that may be issued pursuant to
awards under the 1999 Stock Plan, described above, as well as under the
Company's prior stock option plans, which plans were replaced by the 1999 Stock
Plan. These plans are the Company's only equity compensation plans approved by
security holders, and there are no equity compensation plans that have not been
approved by security holders. It should be noted that shares of the Company's
Common Stock may be allocated to, or purchased on behalf of, participants in the
Company's 401(k)/Profit Sharing Plan (described above). Consistent with
Securities and Exchange Commission regulations governing equity compensation
plans, information relating to shares issuable or purchased under the Company's
401(k)/Profit Sharing Plan is not included from the table below.
--------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Number of shares
remaining available for
future issuance under
Number of shares to be Weighted-average exercise equity compensation plans
issued upon exercise of price per share of (excluding shares
outstanding options, outstanding options, reflected
Plan Category warrants and rights warrants and rights in column (a))
--------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security 2,061,159 $10.05 723,678
holders
--------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders - - -
--------------------------------------------------------------------------------------------------------------------
Total 2,061,159 $10.05 723,678
--------------------------------------------------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners and of Management
33
The table below sets forth as of April 1, 2008, the number of shares of
Common Stock beneficially owned by (i) each director, (ii) each of the Named
Executive Officers who is currently an officer of the Company, (iii) each
beneficial owner of, or institutional investment manager exercising investment
discretion with respect to 5% or more of the outstanding shares of Common Stock
known to the Company based upon filings with the Securities and Exchange
Commission, and (iv) all directors and executive officers of the Company as a
group, and the percentage ownership of the outstanding Common Stock as of such
date held by each such holder and group:
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership (1) Class (2)
-----------------------------------------------------------------------------------------------------------
Ashford Capital Management, Inc.(3) 1,512,394 8.4%
Kayne Anderson Rudnick Investment Management, LLC (4) 1,328,643 7.3%
Segall, Bryant & Hamill Investment Council (5) 1,029,280 5.7%
Brown Capital Management (6) 909,813 5.0%
Wellington Management Co. LLP (7) 906,550 5.0%
Dino A. Rossi (8)* 451,646 2.5%
Frank Fitzpatrick (9)* 223,856 1.2%
David F. Ludwig (10)* 145,722 **
Kenneth P. Mitchell (11)* 64,779 **
Paul Richardson (12)* 61,058 **
Edward L. McMillan (13)* 60,831 **
Elaine R. Wedral (14)* 48,123 **
Matthew D. Houston (15)* 30,227 **
John Televantos(16)* 23,000 **
Hoyt Ammidon, Jr. (17)* 18,500 **
Perry Premdas (18)* 7,250 **
All directors and executive officers as a group (12 persons) 1,201,952 6.6%
(19)
Shares Outstanding April 1, 2008 18,078,425
* Such person's address is c/o the Company, P.O. Box 600, New Hampton, New York
10958.
** Indicates less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes
voting or investment power with respect to securities. In accordance
with SEC rules, shares which may be acquired upon exercise of stock
options which are currently exercisable or which become exercisable
within 60 days after the date of the information in the table are
deemed to be beneficially owned by the optionee. Except as indicated by
footnote, and subject to community property laws where applicable, to
the Company's knowledge, the persons or entities named in the table
above are believed to have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by
them.
(2) For purposes of calculating the percentage of outstanding shares held
by each person named above, any shares which such person has the right
to acquire within 60 days after the date of the information in the
table are deemed to be outstanding, but not for the purpose of
calculating the percentage ownership of any other person.
(3) Based upon information provided in a Schedule 13G for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13G is
P.O. Box 4172, Wilmington, DE 19807.
(4) Based upon information provided in Schedule 13G for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13G is
1800 Avenue of the Stars, 2nd Floor, Los Angeles, CA 90067.
34
(5) Based upon information provided in a Schedule 13F for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13F is
10 S. Wacker Dr. Suite 3500. Chicago, IL 60606.
(6) Based upon information provided in a Schedule 13G for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13G is
1201 N. Calvert Street Baltimore, Maryland 21202.
(7) Based upon information provided in a Schedule 13G for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13G is
75 State Street Boston, MA 02109.
(8) Consists of 380,250 shares such person has the right to acquire
pursuant to stock options, 27,000 shares of restricted stock, 13,346
shares held in such person's Company 401(k)/profit sharing plan
account, and 31,050 shares held directly.
(9) Consists of 199,275 shares such person has the right to acquire
pursuant to stock options, 9,000 shares of restricted stock, 10,518
shares held in such person's Company 401(k)/profit sharing plan
account, and 5,063 shares held directly.
(10) Consists of 132,975 shares such person has the right to acquire
pursuant to stock options, 5,500 shares of restricted stock and 7,247
shares held in such person's Company 401(k)/profit sharing plan
account.
(11) Consists of 38,011 shares such person has the right to acquire pursuant
to stock options, 18,500 shares of restricted stock, and 8,268 shared
held directly.
(12) Consists of 50,400 shares such person has the right to acquire pursuant
to stock options, 8,500 shares of restricted stock and 2,158 shares
held in such person's Company 401(k)/profit sharing plan account.
(13) Consists of 41,386 shares such person has the right to acquire pursuant
to stock options and 18,500 shares of restricted stock.
(14) Consists of 29,623 shares such person has the right to acquire pursuant
to stock options and 18,500 shares of restricted stock.
(15) Consists of 26,700 shares such person has the right to acquire pursuant
to stock options, 3,000 shares of restricted stock and 527 shares held
in such person's Company 401(k)/profit sharing plan account.
(16) Consists of 4,500 shares such person has the right to acquire pursuant
to stock options, and 18,500 shares of restricted stock.
(17) Consists of 18,500 shares of restricted stock.
(18) Consists of 6,750 shares of restricted stock, and 500 shared held
directly
(19) Consists of options to purchase 964,161 shares, 154,750 shares of
restricted stock, 37,215 shares in the accounts of six executive
officers under the Company's 401(k)/profit sharing plan, and 45,326
shares held by individuals directly.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board has selected McGladrey & Pullen LLP ("M&P") as the Company's
independent registered public accounting firm for the year ending December 31,
2008. The Company is submitting its selection of M&P for ratification by the
stockholders at the Annual Meeting. M&P has audited the Company's financial
statements since 2005. Representatives of M&P will be present at the Annual
Meeting and will have an opportunity to make a statement if they wish and will
be available to respond to appropriate questions.
The Company's Bylaws do not require that the stockholders ratify the
selection of M&P as the Company's independent registered public accounting firm.
However, the Company is submitting the selection of M&P to stockholders for
ratification as a matter of good corporate governance practice. If stockholders
do not ratify the selection, the Audit Committee will reconsider whether to
retain M&P. Even if the selection is ratified, the Board and the Audit Committee
in their discretion may change the appointment at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
Principal Accountant Fees and Services
During 2007, the Company retained M&P to audit the consolidated
financial statements for 2007. In addition, the Company also retained M&P to
provide services relating to Management's Assessment of Internal Controls as
required by Section 404 of the Sarbanes-Oxley Act, as well as with the
preparation of the Company's
35
tax returns and other audit-related and tax-related
services. The following table shows the fees paid or accrued by the Company for
the audit and other professional services provided by M&P for 2006 and 2007:
2007 2006
---- ----
Audit fees (1) 487,500 305,175
Audit-related fees (2) 40,688 82,700
Tax fees (3) 53,124 32,852
-------------------------
Total fees 581,312 420,727
=========================
(1) Fees relating to audit of the annual consolidated financial
statements and quarterly reviews.
(2) Fees relating to employee benefit plan audit, SEC comment
letter and acquisition due diligence.
(3) Fees for tax compliance, state tax audits, international tax
issues and advisory services.
36
Policy on Pre-Approval of Audit and Non-Audit Services
All auditing and non-audit services provided to the Company by the
independent accountants are pre-approved by the Audit Committee or in certain
instances by one or more of its members pursuant to delegated authority. At the
beginning of each year, the Audit Committee reviews and approves all known audit
and non-audit services and fees to be provided by and paid to the independent
accountants. During the year, specific audit and non-audit services or fees not
previously approved by the Audit Committee are approved in advance by the Audit
Committee or in certain instances by one or more of its members pursuant to
delegated authority. In addition, during the year the Chief Financial Officer
and the Audit Committee monitor actual fees to the independent accountants for
audit and non-audit services.
Audit Committee Review
The Audit Committee has reviewed the services rendered by M&P during
2007 and has determined that the services rendered are compatible with
maintaining the independence of M&P as the Company's independent registered
public accounting firm.
Vote Required; Recommendation of the Board
The affirmative vote of the majority of the votes cast is required for
ratification.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF M&P AS THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2008.
Audit Committee Report
The following report of the Audit Committee shall not be deemed to be
soliciting material or to be filed with the Securities and Exchange Commission
or incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically requests that the information be treated as
soliciting material or that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The Board of Directors has appointed an Audit Committee consisting of
four directors. Each member of the Audit Committee is independent as defined
under the NASDAQ Marketplace Rules applicable to audit committee members. The
Board of Directors has adopted a written charter with respect to the Audit
Committee's responsibilities. The Audit Committee oversees the Company's
internal and independent auditors and assists the Board of Directors in
overseeing matters relating to the Company's financial reporting process.
In fulfilling its responsibilities, the Audit Committee reviewed and
discussed the audited financial statements for the fiscal year ended December
31, 2007 with management and discussed the audit with McGladrey & Pullen, LLP
("M&P"), the Company's independent auditors. The Audit Committee also discussed
with the Company's independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communications with Audit Committees),
as amended. This included a discussion of the independent auditors' judgment as
to the quality, not just the acceptability, of the Company's accounting
principles as applied to the Company's financial reporting, and such other
matters that generally accepted auditing standards require to be discussed with
the Audit Committee. The Audit Committee also received from M&P the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) and the Audit Committee
discussed with M&P and management M&P's independence.
Management is responsible for maintaining internal controls over
financial reporting and assessing the effectiveness of internal control over
financial reporting. The independent registered public accounting firm's
responsibility is to express an opinion on the effectiveness of the Company's
internal control over financial reporting based on their audit. In fulfilling
its oversight responsibilities, the Audit Committee reviewed the
37
Company's assessment process of internal controls over financial reporting. The
Audit Committee reviewed with the independent registered public accounting firm
any deficiencies that had been identified during their engagement.
The Audit Committee also considered whether the provision of non-audit
services by M&P to the Company is compatible with M&P's independence. M&P
advised the Audit Committee that M&P was and continues to be independent
accountants with respect to the Company.
Based upon the reviews and considerations referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2007 for filing with the Securities and
Exchange Commission.
The Audit Committee has also recommended the Board of Directors approve
the selection of M&P as the Company's independent auditors for 2008.
Hoyt Ammidon, Jr. (Chair)
Edward L. McMillan
Kenneth P. Mitchell
Perry W. Premdas
being the members of the Audit
Committee of the Board of Directors
Quorum Required
Maryland law and the Company's By-laws require the presence of a quorum
for the Meeting, defined as the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at the Meeting.
Abstentions and broker non-votes will be treated as "present" for purposes of
determining whether a quorum has been reached.
Broker non-votes are shares held by brokers or nominees that are
present in person or represented by proxy, but are not voted on a particular
matter because instructions have not been received from the beneficial owner and
the broker or nominee does not have discretion to vote without such
instructions. Brokers and nominees generally do not have such discretion when
the matter is deemed by Nasdaq to be "non-routine." However, Nasdaq generally
considers the election of directors to be a "routine" matter with respect to
which brokers and nominees could vote shares held by them in street-name in
their discretion absent any instructions received from the beneficial owners of
such shares.
Voting Securities
Stockholders of record on April 24, 2008 (the "Record Date") will be
eligible to vote at the Meeting. The voting securities of the Company consist of
its Common Stock, $.06-2/3 par value, of which ______________ shares were
outstanding on the Record Date. Each share of Common Stock outstanding on the
Record Date will be entitled to one vote.
Stockholder Proposals for 2009 Annual Meeting
From time to time, the stockholders of the Company may wish to submit
proposals which they believe should be voted upon by the stockholders. The
Securities and Exchange Commission has adopted regulations which govern the
inclusion of such proposals in the Company's annual meeting proxy materials. All
such proposals must be submitted to the Secretary of the Company at the
Company's principal executive offices no later than December __, 2008 in order
to be considered for inclusion in the Company's year 2009 proxy materials. With
respect to any stockholder proposal not submitted for inclusion in the Company's
year 2009 proxy materials, the proxy for such meeting will confer discretionary
authority to vote on such proposal unless the Company is notified of such
proposal
38
not later than March __, 2009 (45 days prior to the anniversary of the date this
Proxy Statement is first being sent to stockholders).
Matters Not Determined at the Time of Solicitation
The Board of Directors is not aware of any matters to come before the
Meeting other than as described above. If any matter other than as described
above should come before the Meeting, then the persons named in the enclosed
form of proxy will have discretionary authority to vote all proxies with respect
thereto in accordance with their judgment.
Approval of any other matter that may come before the Annual Meeting
will be determined by the vote of a majority of the shares of Common Stock
present in person or by proxy at the Annual Meeting and voting on such matters.
With respect to an abstention, the shares will be considered present and
entitled to vote at the Annual Meeting and they will have the same effect as
votes against the matter. With respect to broker non-votes, the shares will not
be considered entitled to vote at the Annual Meeting for such matter and the
broker non-votes will have the practical effect of reducing the number of
affirmative votes required to achieve a majority vote for such matter by
reducing the total number of shares from which the majority is calculated.
New Hampton, New York
----------
The Annual Report to Stockholders of the Company for the fiscal year
ended December 31, 2007 is being mailed to stockholders with these proxy
materials. The Annual Report does not form part of these proxy materials for the
solicitation of proxies.
39
EXHIBIT A
BALCHEM CORPORATION
ARTICLES OF AMENDMENT
Balchem Corporation, a Maryland corporation, hereby certifies to the Department
of Assessments and Taxation of Maryland that:
1. The charter of Balchem Corporation (the "Corporation") is hereby amended by
deleting existing Article FOURTH in its entirety and substituting in lieu
thereof a new article to read as follows:
"FOURTH: The total number of shares of stock which the Corporation has authority
to issue is sixty-two million (62,000,000) shares consisting of sixty million
(60,000,000) shares of common stock, $.06 2/3 par value per share, and two
million (2,000,000) shares of preferred stock, $25.00 par value per share. The
aggregate par value of all authorized shares of all classes having a par value
is fifty-four million two thousand dollars ($54,002,000).
Subject to the provisions of Section 2-105 of the Maryland General Corporation
Law, the board of directors of the Corporation is authorized to issue the
preferred stock of the Corporation, from time to time, in one or more series,
each series to be with such preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as the board of directors shall determine. Each share
of any series of preferred stock shall be identical with all other shares of
that series.
Except as otherwise provided by law, or as authorized by the board of directors
of the Corporation, all right to vote and all voting power incident to the
Corporation's stock shall be vested exclusively in the holders of the common
stock, which shares shall also have all of the rights not specifically granted
to the preferred stock. The holders of the preferred stock shall not be entitled
to notice of any meeting of stockholders except as authorized by the board of
directors or as may be specifically required by law."
2. The amendment to the charter of the Corporation as hereinabove set forth has
been duly advised by the board of directors and approved by the stockholders of
the Corporation as required by law.
3. The total number of shares of all classes of stock which the Corporation had
authority to issue immediately prior to this amendment was twenty-seven million
(27,000,000) shares consisting of twenty-five million (25,000,000) shares of
common stock, $.06 2/3 par value per share, and two million (2,000,000) shares
of preferred stock, $25.00 par value per share. The aggregate par value of all
such authorized shares of all classes having a par value is fifty-one million
six hundred sixty-seven thousand and five hundred dollars ($51,667,500).
4. The total number of shares of all classes of stock which the Corporation has
authority to issue, pursuant to the charter of the Corporation as hereby
amended, is sixty-two million (62,000,000) shares consisting of sixty million
(60,000,000) shares of common stock, $.06 2/3 par value per share, and two
million (2,000,000) shares of preferred stock, $25.00 par value per share. The
aggregate par value of all authorized shares of all classes having a par value
is fifty-four million two thousand dollars ($54,002,000).
5. The undersigned President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and as to all matters or facts required to be
verified under oath, the undersigned President acknowledges that, to the best of
his knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties for
perjury.
40
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed in
its name and on its behalf by its President and attested to by its Secretary as
of the ____ day of _________, 2008.
ATTEST: BALCHEM CORPORATION
_______________________________ By: _______________________________
Matthew D. Houston, Secretary Dino A. Rossi, President
41
EXHIBIT B
SECOND AMENDED AND RESTATED 1999 STOCK PLAN
BALCHEM CORPORATION
SECOND AMENDED AND RESTATED
1999 STOCK PLAN
1. Purpose. The Second Amended and Restated Balchem Corporation 1999
Stock Plan (the "Plan") is intended to provide Balchem Corporation, a Maryland
corporation (the "Company"), with a means of attracting and retaining the
services of key persons and to advance the interests of the Company and its
stockholders by affording to certain persons, upon whose judgment, initiative
and efforts the Company is largely dependent for the successful conduct of its
business, an opportunity for investment in the Company and the incentive
advantages inherent in stock ownership in the Company, by providing (a) to the
officers and other employees of the Company and any present or future parent or
subsidiaries of the Company (collectively, "Related Companies") opportunities to
purchase stock in the Company pursuant to options granted hereunder which
qualify as "incentive stock options" ("ISO" or "ISOs") under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code"); (b) to directors,
officers, employees and directors emeritus of and consultants to the Company and
Related Companies opportunities to purchase stock in the Company pursuant to
options granted hereunder which do not qualify as ISOs ("Non-Qualified
Option(s)"); (c) to directors, officers, employees and directors emeritus of and
consultants to the Company and Related Companies opportunities to make direct
purchases of stock in the Company ("Purchases"); and (d) to directors, officers,
employees, directors emeritus and consultants of the Company and Related
Companies awards of stock and equity interests in the Company, including stock
appreciation rights (SARs), restricted stock and performance share awards
("Performance Shares") (collectively referred to herein as "Awards"). Both ISOs
and Non-Qualified Options are referred to hereinafter individually as an
"Option" and collectively as "Options". Options, authorizations to make
Purchases and Awards are referred to hereafter collectively as "Stock Rights".
As used herein, the terms "parent" and "subsidiary" mean "parent corporation"
and "subsidiary corporation", respectively, as those terms are defined in
Section 424 of the Code.
2. Administration of the Plan.
(a) Board or Committee Administration. The Plan shall be
administered by the Board of Directors of the Company (the "Board"). The Board
may appoint a Compensation Committee (the "Committee") to administer the Plan
consisting of two or more persons. The Board, if it deems it advisable, may
cause such Committee to consist solely of persons who qualify as both (i)
"non-employee directors", within the meaning of Rule 16b-3 or any successor
provision ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended, and (ii) "outside directors", within the meaning of Section
162(m)(4)(C)(i) of the Code. To the extent required by Rule 16b-3, with respect
to specific grants of Stock Rights, the Plan shall be administered in accordance
with Rule 16b-3. Subject to ratification of the grant or authorization of each
Stock Right by the Board (if so required by applicable state law), and subject
to the terms of the Plan, the Committee shall have the authority to (i)
determine the employees of the Company and Related Companies (from among the
class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may
be granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) to whom Non-Qualified Options, authorizations to make Purchases
and Awards may be granted; (ii) determine the time or times at which Options or
Awards may be granted or Purchases made; (iii) determine the option price of
shares subject to each Option, which price, in either case, shall not be less
than fair market value per share of Common Stock (as defined herein) on the date
of such grant, and in the case of ISOs, shall not be less than the minimum price
specified in paragraph 6, and the purchase price of shares subject to each
Purchase; (iv) determine whether each Option granted shall be an ISO or a
Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times
when each option shall become exercisable and the duration of the exercise
period; (vi) determine whether restrictions such as vesting, forfeiture, rights
of first refusal and repurchase options are to be imposed on shares subject to
Stock Rights and the nature of such restrictions, if any, and (vii) interpret
the Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out
42
the Plan as it may deem best. Nothing contained herein shall limit the right or
authority of the Board to act on all matters as to which authority is or may be
granted to the Committee. No member of the Board or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Stock Right granted under it.
(b) Committee Action. The Committee may select one of its members as
its chairman, and shall hold meetings at such times and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee, shall be the valid
acts of the Committee. All references in the Plan to the Committee shall mean
the Board if no Committee has been appointed or if the Board determines to act
in lieu of the Committee. From time to time the Board may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefore, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(c) Grant of Stock Rights to Board Members. Stock Rights may be
granted to members of the Board consistent with the provisions of paragraph 2(a)
above, if applicable. All grants of Stock Rights to members of the Board shall
in all other respects be made in accordance with the provisions of the Plan
applicable to other eligible persons. Consistent with the provisions of
paragraph 2(a) above, members of the Board who are either (i) eligible for Stock
Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on
any matters affecting the administration of the Plan or the grant of any Stock
Rights pursuant to the Plan, except that no such member shall act solely in his
capacity as a member of the Committee and not as a member of the Board, upon the
granting to him of Stock Rights, it being understood that, except as otherwise
required by applicable law, such member may take part in a vote or action by the
Board itself (rather than by the Committee if then constituted and acting), and
that any such member who does not so act may nevertheless be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken, with respect to the granting to him of Stock Rights.
(d) Stock Appreciation Rights.
(i) Grant and Exercise. SARs may be granted separate from or in
conjunction with all or part of any Option granted under the Plan and shall be
nontransferable except that a SAR shall be transferable upon transfer of the
related Option. In the case of a Non-Qualified Options, SARs may be granted
either at or after the time of the grant of such Option. In the case of an ISO,
SARs may be granted only at the time of the grant of such Option.
(A) A SAR or applicable portion thereof granted with respect
to a given Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that, unless otherwise
determined by the Committee, in its sole discretion at the time of grant, a SAR
granted with respect to less than the full number of shares covered by a related
Option shall not be reduced until the number of shares covered by an exercise or
termination of the related Option exceeds the number of shares not covered by
the SAR. A SAR not granted in connection with an Option shall terminate at the
time specified in the grant.
(B) A SAR granted in connection with an Option may be
exercised by an optionee, in accordance with Section 2(d)(ii) of the Plan, by
surrendering the applicable portion of the related Option. Upon such exercise
and surrender, the optionee shall be entitled to receive an amount determined in
the manner prescribed in Section 2(d)(ii) of the Plan. Options which have been
so surrendered, in whole or in part, shall no longer be exercisable to the
extent the related SARs have been exercised. A SAR not granted in connection
with an Option may be exercised by the grantee's delivery to the Committee of a
notice of exercise, in the form prescribed by the Committee.
(ii) Terms and Conditions. SARs shall be subject to such terms
and conditions, not inconsistent with the provisions of the Plan, as shall be
determined from time to time by the Committee, in its sole discretion, including
the following:
(A) SARs shall be exercisable only at such time or times
established by the Committee. SARs granted in connection with Options shall be
exercisable only at such time or times and to the extent that the Options to
which they relate shall be exercisable.
(B) Upon the exercise of a SAR, an optionee shall be
entitled to receive up to, but not more than, an amount in cash and/or shares of
Common Stock equal in value to the excess of
43
the Fair Market Value of one share of Common Stock over the base amount
established by the Committee, multiplied by the number of shares in respect of
which the SAR shall have been exercised, with the Committee having the right to
determine the form of payment. In the case of a SAR granted in connection with
an Option the base amount shall be the exercise price of the related Option. If
the Committee shall determine to make all of such payments in Common Stock, no
fractional shares shall be issued and no payments shall be made in lieu of
fractional shares.
(C) Upon the exercise of a SAR, the Option or part thereof
to which such SAR is related, if any, shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 5 of the Plan on the number
of shares of Common Stock to be issued under the Plan, but only to the extent of
the number of shares issued under the SAR at the time of exercise based on the
value of the SAR at such time.
(D) A SAR granted in connection with an Option may be
exercised only if and when the market price of the Common Stock subject to the
Option exceeds the exercise price of such Option.
(E) In the event of a Change of Control, all SARs remaining
subject to forfeiture shall immediately cease to be subject to forfeiture, shall
be deemed exercised and cash or a stock certificate or stock certificates
representing the proceeds of such exercise shall be delivered to the grantee.
(e) Restricted Stock.
(i) Administration. Shares of Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the persons to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be awarded, the
price (if any) to be paid by the recipient of Restricted Stock, the time or
times within which such awards may be subject to forfeiture, and all other
conditions of the awards. The Committee may condition the vesting of Restricted
Stock upon the attainment of specified performance goals or such other factors
as the Committee may determine, in its sole discretion, at the time of the
award. The provisions of Restricted Stock awards need not be the same with
respect to each recipient.
(ii) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the applicable terms and conditions of such award. The
purchase price for shares of Restricted Stock may be zero, unless a higher price
is required by applicable law. Each person receiving a Restricted Stock award
shall be issued a stock certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of such person, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Second Amended and
Restated Balchem Corporation 1999 Stock Plan and an Agreement
entered into between the registered owner and the Balchem
Corporation. Copies of such Plan and Agreement are on file in
the principal corporate offices of Balchem Corporation."
The Committee may require that the stock certificates evidencing shares of
Restricted Stock be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the grantee shall have delivered to the Company a stock power, endorsed
in blank, relating to the Common Stock covered by such award.
(iii) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 2(e) shall be subject to the following
restrictions and conditions:
(A) During a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the grantee shall not be
permitted to sell, transfer, pledge, assign or otherwise encumber shares of
Restricted Stock awarded under the Plan. The Committee, in its sole discretion,
may
44
provide for the lapse of such restrictions in installments and may accelerate or
waive such restrictions in whole or in part, based on service, performance
and/or such other factors or criteria as the Committee may determine, in its
sole discretion.
(B) Except as provided herein, the grantee shall have, with
respect to the shares of Restricted Stock, all of the rights of a shareholder of
the Company, including the right to vote the Restricted Stock and the right to
receive cash dividends, if any. The Committee, in its sole discretion, as
determined at the time of award, may permit or require the payment of cash
dividends to be deferred and, if the Committee so determines, reinvested in
additional shares of Restricted Stock to the extent shares are available under
Section 5 of the Plan. Such dividends shall be converted into additional shares
of Restricted Stock by dividing (i) the aggregate amount or value of the
dividends paid with respect to that number of shares of Common Stock equal to
the number of shares of Restricted Stock then credited by (ii) the fair market
value per share of Common Stock on the payment date for such dividend. The
additional shares of Restricted Stock credited by reason of such dividend
equivalents shall be subject to all the terms and conditions of the shares of
Restricted Stock to which they relate.
(C) Subject to the applicable provisions of the award
agreement and this Section 2(e), upon termination of a grantee's service with
the Company for reasons other than death or Disability during the Restriction
Period, all shares of Restricted Stock still subject to restriction shall be
forfeited by the grantee. Subject to the provisions of the Plan, the Committee,
in its sole discretion, may provide for the lapse of such restrictions in
installments and may waive such restrictions, in whole or in part, at any time,
based on such factors as the Committee shall deem appropriate in its sole
discretion. Upon the death or Disability of a grantee during the Restriction
Period, the Committee may, in its sole discretion, cause all Restricted Stock
remaining subject to forfeiture to immediately cease to be subject to forfeiture
and a stock certificate or stock certificates representing such shares of Common
Stock to be issued and delivered to the grantee or the grantee's estate, as the
case may be.
(D) In the event of hardship or other special circumstances
of a grantee whose service with the Company is involuntarily terminated (other
than for Cause), the Committee may, in its sole discretion, waive in whole or in
part any or all remaining restrictions with respect to such grantee's shares of
Restricted Stock, based on such factors as the Committee may deem appropriate.
(E) If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction Period, the
certificates for such shares shall be promptly delivered by the Corporation to
the grantee, if retained by the Company.
(F) In the event of a Change of Control, all Restricted
Stock remaining subject to forfeiture shall immediately cease to be subject to
forfeiture and a stock certificate or stock certificates representing such
shares of Common Stock to be issued and delivered to the grantee.
(f) Performance Shares.
i) Awards and Administration. The Committee shall determine the
persons to whom and the time or times at which Performance Shares shall be
awarded, the number of Performance Shares to be awarded to any such person, the
duration of the period (the "Performance Period") during which, and the
conditions under which, receipt of the shares of Stock will be deferred, and the
other terms and conditions of the award in addition to those set forth below.
The Committee may condition the receipt of shares of Stock pursuant to a
Performance Share award upon the attainment of specified performance goals or
such other factors or criteria as the Committee shall determine, in its sole
discretion. The provisions of Performance Share awards need not be the same with
respect to each Participant, and such awards to individual Participants need not
be the same in subsequent years.
(ii) Terms and Conditions. Performance Shares awarded pursuant
to this Section 2(f) shall be subject to the following terms and conditions and
such other terms and conditions, not inconsistent with the terms of this Plan,
as the Committee shall deem desirable:
(iii) Conditions. The Committee, in its sole discretion, shall
specify the Performance Period during which, and the conditions under which, the
receipt of shares of Stock covered by the
45
Performance Share award will be earned. The Performance Period shall be no less
than three (3) months and not longer than five (5) years from the grant date of
the Performance Shares.
(iv) Stock Certificate. At the expiration of the Performance
Period or interim earn out performance periods, if the Committee, in its sole
discretion, determines that the conditions specified in the Performance Share
agreement have been satisfied, a stock certificate or stock certificates
representing the number of shares of Stock covered by the Performance Share
award shall be issued and delivered to the grantee. A grantee shall not be
deemed to be the holder of Common Stock, or to have the rights of a holder of
Common Stock, with respect to the Performance Shares unless and until a stock
certificate or stock certificates representing such shares of Common Stock are
issued to such grantee.
(v) Death, Disability or Retirement. Subject to the provisions
of the Plan, if a grantee terminates service with the Company during a
Performance Period because of death, disability or retirement, such grantee (or
his estate) shall be entitled to receive, at the expiration of the Performance
Period, a percentage of Performance Shares that is equal to the percentage of
the Performance Period that had elapsed as of the date of termination, provided
that the Committee, in its sole discretion, determines that the conditions
specified in the Performance Share agreement have been satisfied. In such event,
a stock certificate or stock certificates representing such shares of Common
Stock shall be issued and delivered to the grantee or the grantee's estate, as
the case may be.
(vi) Termination of Service. Unless otherwise determined by the
Committee at the time of grant, the Performance Shares will be forfeited upon a
termination of service during the performance period for any reason other than
death, disability or retirement.
(vii) Change of Control. In the event of a Change of Control,
all conditions applicable to the Performance Shares shall terminate and a stock
certificate or stock certificates representing shares of Common Stock subject to
the Performance Shares shall be issued and delivered to the grantee.
3. Eligible Employees and Others. ISOs may be granted to any
employee of the Company or any Related Company. Those officers and directors of
the Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, authorizations to make Purchases and Awards may be
granted to any director (whether or not an employee), officer, employee, or
director emeritus of or consultant to the Company or any Related Company. The
Committee may take into consideration a recipient's individual circumstances in
determining whether to grant such individual a Stock Right. The granting of any
Stock Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participation in any other grant of Stock
Rights.
4. Stock. The stock subject to Options, Purchases and Awards shall
be authorized but unissued shares of Common Stock of the Company, par value six
and two-thirds cents ($0.06 2/3) per share ("Common Stock"), or shares of Common
Stock re-acquired by the Company in any manner. The aggregate number of shares
which may be issued pursuant to the Plan is 4,000,000 shares, all of which may
be used for grants of ISOs, and subject to adjustment as provided in paragraph
13. Any such shares may be issued as Awards or pursuant to excersises of ISOs or
Non-Qualified Options, or to persons or entities making Purchases, so long as
the number of shares so issued does not exceed such aggregate number, as
adjusted or amended from time to time by a vote of stockholders or otherwise
pursuant to paragraph 13. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject to such Option shall again be available for grants of Stock Rights under
the Plan. The maximum number of shares as to which Options, Purchases and Awards
may be granted to any particular individual in any calendar year shall be
150,000, subject to adjustment as provided in paragraph 13.
5. Granting of Stock Rights.
(a) Stock Rights may be granted under the Plan at any time on or
after April 9, 2008 and prior to April 8, 2018. The date of grant of a Stock
Right under the Plan will be the date specified by the Committee at the time it
grants the Stock Right; provided, however, that such date shall not be prior to
the date on which the Committee acts to approve the grant. The Committee shall
have the right, with the consent of the optionee, to convert an ISO granted
under the Plan to a Non-Qualified Option pursuant to paragraph 17.
46
(b) Anything in the Plan to the contrary notwithstanding, the
effectiveness of the Plan and of the grant of all Stock Rights pursuant to the
Plan are in all respects subject to approval of the Plan, and the Plan and such
Stock Rights granted under it shall be of no force or effect unless and until,
and no Stock Rights granted hereunder shall in any way vest or become
exercisable in any respect unless and until, approval of the Plan is obtained,
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company present in person or by proxy and entitled to
vote at a meeting of stockholders at which the Plan is presented for approval,
in form and substance satisfactory to counsel for the Company. In the event that
such stockholder approval as aforesaid has not been received by the first
anniversary of the date of adoption of the Plan by the Board, then in such event
the Plan and any Stock Rights granted under the Plan shall become null and void,
and, upon the occurrence of such stockholder approval, the Plan and such Stock
Rights shall become effective as of the date of the adoption by the Board of the
Plan or the grant of such Stock Rights, as the case may be.
6. Minimum ISO Price; ISO Limitations.
(a) Price for ISOs. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Company, the price per share specified in
the agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant.
(b) $100,000 Annual Limitation on ISOs. Each eligible employee
may be granted ISOs only to the extent that, in the aggregate under the Plan and
all incentive stock option plans of the Company and any Related Company, such
ISOs do not become exercisable for the first time by such employee during any
calendar year in a manner which would entitle the employee to purchase, pursuant
to the exercise of incentive stock options (that is, ISOs), more than $100,000
in fair market value (determined at the time the ISOs were granted) of Common
Stock in that year. This provision is intended to impose the annual vesting
limitation contained in Section 422(b)(7) of the Code and shall be interpreted
consistently therewith. Any Options granted to an employee in excess of such
amount will be treated as Non-Qualified Options.
(c) Determination of Fair Market Value. If, at the time an
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for which
the prices or quotes discussed in this sentence are available prior to the date
such Option is granted and shall mean (i) the average (on that date) of the high
and low prices of the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange and is reported on
the NASDAQ National Market List; or (iii) the average of the closing bid and
asked prices last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not then traded on a
national securities exchange and is not then reported on the NASDAQ National
Market List. However, if the Common Stock is not publicly traded at the time an
option is granted under the Plan, "fair market value" shall be deemed to be the
fair value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length and the regulations issued by the IRS
under Code Section 409A.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years from the date of grant, and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Company. Subject to
earlier termination as provided in paragraphs 9 and 10, the term of each ISO
shall be the term set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a Non-Qualified
Option pursuant to paragraph 17.
8. Exercise of Option. Subject to the provisions of paragraphs 9
through 12, each option granted under the Plan shall be exercisable as follows:
47
(a) Full Vesting or Partial Vesting. The Option shall either be
fully exercisable on the date of grant or shall become exercisable thereafter in
such installments as the Committee may specify.
(b) Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
(c) Partial Exercise. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. Options granted under the Plan
shall be subject to the accelerated vesting requirements of Section 14 below.
9. Termination of Employment. If an ISO optionee ceases to be
employed by the Company and all Related Companies other than by reason of death
or disability as defined in paragraph 10, no further installments of his ISOs
shall become exercisable, and his ISOs shall terminate after the passage of
sixty (60) days from the date of termination of his employment, but in no event
later than on their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 17. Employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service), provided
that the period of such leave does not exceed ninety (90) days or, if longer,
any period during which such optionee's right to reemployment is guaranteed by
statute. A bona fide leave of absence with the written approval of the Committee
shall not be considered an interruption of employment under the Plan, provided
that such written approval contractually obligates the Company or any Related
Company to continue the employment of the optionee after the approved period of
absence. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Companies, so long as the
optionee continues to be an employee of the Company or any Related Company. No
grant shall constitute an employment contract. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Company for the length
of any vesting schedule or for any portion thereof or for any other period of
time.
10. Death; Disability.
(a) Death. If an ISO optionee ceases to be employed by the
Company and all Related Companies by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the optionee's death.
(b) Disability. If an ISO optionee ceases to be employed by the
Company and all Related Companies by reason of his disability, he shall have the
right to exercise any ISO held by him on the date of termination of employment,
to the extent of the number of shares with respect to which he could have
exercised it on that date, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22(e)(3) of the Code
or successor statute.
11. Transferability. The Committee may, in its discretion, authorize
all or a portion of the Options to be granted to an optionee (other than any
intended to qualify as ISOs) to be on terms which permit transfer by such
optionee to Family Members of the optionee, provided that (i) any such transfer
is not a transfer for value, (ii) the stock option agreement pursuant to which
such Options are granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this paragraph 11, (iii)
the specific transfer must be approved by the Committee, and (iv) subsequent
transfers of the transferred Options shall be prohibited (except for a transfer
to a Family Member of the optionee from another Family Member of the optionee
which otherwise complies with the foregoing requirements). For purposes hereof,
a "Family Member" of an optionee includes any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, brother-in-law, or sister-in-law, of the optionee,
including adoptive relationships, any person sharing the optionee's household
(other than a tenant or employee of the
48
optionee), a trust in which above-described Family Members have more than fifty
percent of the beneficial interest, a foundation in which such above-described
Family Members (or the optionee) control the management of assets, and any other
entity in which such above-described Family Members (or the optionee) own more
than fifty percent of the voting interests. The following transactions shall not
be deemed transfers for value: (A) a transfer under a domestic relations order
in settlement of marital property rights; and (B) a transfer to an entity in
which more than fifty percent of the voting interests are owned by Family
Members (or the optionee) in exchange for an interest in that entity. Except
with respect to Options that shall be transferred in accordance with this
paragraph 11, all Options shall be exercisable during the lifetime of the
grantee only by him. Following a transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
transfer, provided that, for purposes of paragraph 16, the term "optionee" or
"grantee" shall be deemed to refer to the transferee. The events of termination
of employment under paragraph 9 shall continue to be applied with respect to the
original optionee, following which the Options shall be exercisable by the
transferee only to the extent, and for the periods, specified in paragraph 9,
and the Company shall have no obligation to provide notice to a transferee of
any early termination of an Option on account of termination of the employment
of the original optionee or otherwise. The original optionee shall remain
subject to withholding taxes upon exercise.
12. Terms and Conditions. Options and other Stock Rights shall be
evidenced by instruments (which need not be identical) in such forms as the
Committee may from time to time approve. Such instruments shall conform to the
terms and conditions set forth in paragraphs 2 through 11 hereof, as applicable,
and may contain such other provisions as the Committee deems advisable which are
not inconsistent with the Plan, including restrictions applicable to shares of
Common Stock issuable upon exercise of Options or issued or otherwise acquired
pursuant to other Stock Rights. Without limiting the foregoing, the Committee
may provide in connection with the grant of a Stock Right for the termination
and/or cancellation of such Stock Right if the grantee's employment shall be
terminated for cause. In granting any Non-Qualified Option, the Committee may
specify that such Non-Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, and/or to such termination and cancellation
provisions as the Committee may determine. The Committee may from time to time
confer authority and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
13. Adjustments. Upon the occurrence of any of the following events,
an optionee's rights with respect to options granted to him under the Plan shall
be adjusted as hereinafter provided, unless otherwise specifically provided in
the written agreement between the optionee and the Company relating to such
Option:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company under the Plan (the "Successor Board"), shall, as to outstanding
Options, take one or more of the following actions: (i) make appropriate
provision for the continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options, or make provision for the
exchange of such Options for, the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition (less the
exercise price thereof not paid); or (ii) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options any equity securities of the successor
corporation; or (iii) upon written notice to the optionees, provide that all
Options must be exercised, to the extent then exercisable, within a specified
number of days from the date of such notice, at the end of which period the
Options shall terminate; or (iv) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value (determined as of the date
in question in a manner consistent with paragraph 6(c)) of the shares subject to
such Options (to the extent then exercisable) over the exercise price thereof;
or (v) accelerate the date of exercise of such Options or of any installment of
any such Options; or (vi) terminate all Options in exchange on an equitable
49
basis for the grant of similar stock options for the purchase of shares of
capital stock of any successor corporation; or (vii) any combination of any of
the foregoing referred to in clauses (i) through (vi) above.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization.
(d) Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
(e) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
(f) Issuances of Securities. 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 subject to Options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(g) Fractional Shares. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
(h) Adjustments. Upon the happening of any of the foregoing
events described in subparagraphs (a), (b) or (c) above, the class and aggregate
number of shares set forth in paragraph 4 that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan, and the
maximum number of shares as to which Options may be granted to any one
individual, as provided in paragraph 4, shall also be appropriately adjusted to
reflect the events described in such subparagraphs. The Committee or the
Successor Board shall determine the specific adjustments to be made under this
paragraph 13 and, subject to paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made under the Plan receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs (a), (b) or
(c) above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. Change of Control.
(a) "Change of Control" means the occurrence of any of the
following events:
(i) the acquisition or holding by any Person of combined
voting power of fifty percent (50%) or greater of the then outstanding equity
securities of the Company;
(ii) consummation of a reorganization, merger, or
consolidation to which the Company is a party or a sale of all or substantially
all the assets of the Company to another entity, if more than fifty percent
(50%) of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization;
(iii) approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company; or
50
(iv) any other event, including a merger or other
transaction, which the Committee designates as a Change in Control with respect
to the Company.
(v) Notwithstanding the foregoing, in the event of any Award
subject to Code Section 409A, Change of Control shall mean a Change of Control
as provided under Code Section 409A and the regulations issued thereunder.
(b) Unvested Awards. Notwithstanding any provision in this Plan
or any Award agreement, in the event of a Change of Control, as defined in
paragraph (a) above, (i) all outstanding Options and SARs shall vest immediately
and become exercisable in full, (ii) the restrictions applicable to any
outstanding shares of Restricted Stock shall lapse, (iii) the Performance Period
applicable to any outstanding Performance Shares shall lapse, and (iv) the
performance goals applicable to any outstanding Performance Shares shall be
deemed to be satisfied.
15. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefore
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise (determined as of the
date in question in a manner consistent with paragraph 6(c)) to the cash
exercise price of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest Applicable Federal Rate,
as defined in Section 1274(d) of the Code, or (d) in the discretion of the
Committee, by delivery (including by telecopier) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable instructions to a broker-dealer to sell (or margin) a sufficient
portion of the shares and deliver the sale (or margin loan) proceeds directly to
the Company to pay for the exercise price, or (e) at the discretion of the
Committee, by any combination of (a), (b), (c) or (d) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c) or (d) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a stockholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
16. Term and Amendment of Plan. The Plan shall expire on April 7,
2018 (except as to Options outstanding on that date). The Board may terminate or
amend the Plan in any respect at any time, except that, without the approval of
the stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(a) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 16, in no event may action of the Board or
stockholders amending the Plan alter or impair the rights of a grantee, without
his consent, under any Stock Right previously granted to him.
17. Conversion of ISOs into Non-Qualified Options; Termination of
ISOs. The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Company at the time of such conversion.
Such actions may include, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such Options.
At the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with the Plan. Nothing in the Plan shall be
deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
51
18. Application of Funds. The proceeds received by the Company from
the sale of shares pursuant to Options granted and Purchases authorized under
the Plan shall be used for general corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
20. Withholding of Income Taxes. Upon the exercise of a
Non-Qualified Option, the making of a Purchase of Common Stock for less than its
fair market value, the making of a Disqualifying Disposition (as defined in
paragraph 21), the exercise of an Option transferred by the original optionee in
accordance with paragraph 11, the award of vested shares of Common Stock, or the
vesting of restricted Common Stock acquired pursuant to a Stock Right under the
Plan, the Company, may require the optionee, purchaser, grantee or original
optionee to pay to the Company in cash an amount equal to all applicable
withholding taxes in respect of the amount that is considered compensation
includable in such person's gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the making of a Purchase of Common
Stock for less than its fair market value, (iii) the Awards of vested shares of
Common Stock, (iv) the vesting of restricted Common Stock acquired pursuant to a
Stock Right, or (i) the exercise of a transferred Option, on the grantee's
payment of such amount.
21. Notice to Company of Disqualifying Disposition. Each employee
who receives an ISO must agree to notify the Company in writing immediately
after the employee makes a Disqualifying Disposition of any Common Stock
acquired pursuant to the exercise of an ISO. A "Disqualifying Disposition" is
any disposition (including any sale) of such Common Stock before the later of
(a) two years after the date the employee was granted the ISO, or (b) one year
after the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of
the Plan and the instruments evidencing Stock Rights shall be governed by the
laws of the State of Maryland or the laws of any jurisdiction in which the
Company or its successors in interest may be organized. In construing this Plan,
the singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.
23. Qualified Performance-Based Compensation.
(a) Designation as Qualified Performance-Based Compensation. The
Committee may determine that SARs, Restricted Stock or Performance Shares
granted to an employee shall be considered "qualified performance-based
compensation" under Code section 162(m). The provisions of this Section 23 shall
apply to any such grants that are to be considered "qualified performance-based
compensation" under Code section 162(m). To the extent that grants of SARs,
Restricted Stock or Performance Shares are designated as "qualified
performance-based compensation" under Code section 162(m) are made, no such
grant may be made as an alternative to another grant that is not designated as
"qualified performance based compensation" but instead must be separate and
apart from all other grants made.
(b) Performance Goals. When SARs, Restricted Stock or
Performance Shares that are to be considered "qualified performance-based
compensation" are granted, the Committee shall establish in writing (i) the
objective performance goals that must be met, (ii) the period during which
performance will be measured, (iii) the maximum amounts that may be paid if the
performance goals are met, and (iv) any other conditions that the Committee
deems appropriate and consistent with the Plan and the requirements of Code
section 162(m) for "qualified performance-based compensation." The performance
goals shall satisfy the requirements for "qualified performance-based
compensation," including the requirement that the achievement of the goals be
substantially uncertain at the time they are established and that the
performance goals be established in such a way that a third party with knowledge
of the relevant facts could determine whether and to what extent the performance
goals have been met. The Committee shall not have discretion to increase the
amount of compensation that is payable upon achievement of the designated
performance goals, but the Committee may reduce the amount of compensation that
is payable upon achievement of the designated performance goals.
52
(c) Criteria Used for Objective Performance Goals. In setting
the performance goals for grants designated as "qualified performance-based
compensation" pursuant to this Section 23, the Committee shall use objectively
determinable performance goals based on one or more of the following criteria:
pre- or after-tax net earnings, sales or revenue, operating earnings, operating
cash flow, return on net assets, return on shareholders' equity, return on
assets, return on capital, stock price growth, shareholder returns, gross or net
profit margin, earnings per share, price per share, market share, or strategic
business criteria consisting of one or more Corporation objectives based on
meeting specified revenue goals, market penetration goals, geographic business
expansion goals, cost targets, product development goals, goals relating to
acquisitions or divestitures, or any other objective measure derived from any of
the foregoing criteria. The performance goals may relate to the employee's
business unit or the performance of the Corporation as a whole, or any
combination of the foregoing. Performance goals need not be uniform as among
employees.
(d) Timing of Establishment of Goals. The Committee shall
establish the performance goals in writing either before the beginning of the
performance period or during a period ending no later than the earlier of (i) 90
days after the beginning of the performance period or (ii) the date on which 25%
of the performance period has been completed, or such other date as may be
required or permitted under applicable regulations under Code section 162(m).
(e) Announcement of Results. The Committee shall certify and
announce the results for the performance period to all grantees after the
Corporation announces the Corporation's financial results for the performance
period. If and to the extent that the Committee does not certify that the
performance goals have been met, the applicable grants for the performance
period shall be forfeited or shall not be paid, as applicable.
(f) Death, Disability or Other Circumstances. The Committee may
provide that grants shall be payable or restrictions shall lapse, in whole or in
part, in the event of the grantee's death or disability during the performance
period, a Change of Control or under other circumstances consistent with the
Treasury regulations and rulings under Code section 162(m).
(g) Shareholder Approval for "Qualified Performance-Based
Compensation." If SARs, Restricted Stock or Performance Shares are to be granted
as "qualified performance-based compensation", the Plan must be re-approved by
the Company's shareholders no later than the first shareholders meeting that
occurs in the fifth year following the year in which the shareholders previously
approved the Plan, if additional grants are to be made under Section 23 and if
required by section 162(m) of the Code or the regulations thereunder. Any such
re-approval shall not affect outstanding grants made within the five-year period
following the year in which the previous approval was obtained.
24. Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a grantee or optionee by the Company, nothing contained
herein shall give any such grantee or optionee any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or payments in lieu
of Common Stock or with respect to awards hereunder.
25. No Right to Continued Employment. The adoption of the Plan shall
not confer upon any employee of the Company any right to continued employment
with the Company, nor shall it interfere in any way with the right of the
Company to terminate the employment of any of its employees at any time.
26. Section 409A Compliance. This Plan is intended to comply with
the requirements of Code Section 409A, and the regulations issued thereunder. To
the extent of any inconsistencies with the requirements of Code Section 409A,
the Plan shall be interpreted and amended in order to meet such Code Section
409A requirements. Notwithstanding anything contained in this Plan or in any
amendments attached hereto to the contrary, it is the intent of the Company to
have this Plan interpreted and construed to comply with any and all provisions
Code Section 409A including any subsequent amendments, rulings or
interpretations from appropriate governmental agencies.
53
REVOCABLE PROXY
BALCHEM CORPORATION
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD JUNE 12, 2008
The undersigned hereby appoints Dino A. Rossi, Francis J. Fitzpatrick and David
Ludwig, and each of them individually, as attorneys and proxies of the
undersigned, with full power of substitution, at the Annual Meeting of
Stockholders of Balchem Corporation scheduled to be held on June 12, 2008, and
at any adjournments thereof, and to vote all shares of Common Stock of the
Company which the undersigned is entitled to vote on all matters coming before
said meeting.
The undersigned hereby revokes all proxies heretofore given by the undersigned
to vote at said meeting or any adjournment thereof.
Please be sure to sign and date
this Proxy in the box below.
---------------------------------
Date
---------------------------------
Stockholder sign above
---------------------------------
Co-holder (if any) sign above
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Election of Directors: For All Withhold All For All Except*
Election of two (2)
Class 3 Directors [ ] [ ] [ ]
Nominees for Election as Class 3 Directors:
Perry W. Premdas and Dr. John Y. Televantos
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Proposal to approve an amendment to the For Against Abstain
Articles of Incorporation increasing the
number of authorized shares of Common [ ] [ ] [ ]
Stock from 25,000,000 to 60,000,000.
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Proposal to approve the amendments to the For Against Abstain
Amended and Restated 1999 Stock Plan
[ ] [ ] [ ]
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Ratification and approval of the appointment For Against Abstain
of McGladrey and Pullen, LLP, as the
Company's independent registered [ ] [ ] [ ]
accounting firm for the year 2008
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*INSTRUCTION: To withhold authority to vote for any one or more individual
nominee(s) for election to the Board of Directors, mark "For All Except" and
write the name of such nominee in the space provided below:
----------------------------------------------------------------
The proxies are directed to vote as specified and in their discretion on all
other matters coming before the Annual Meeting. If no direction is made, the
proxies will vote: FOR the nominees for election as Directors named above; FOR
the ratification and approval of the appointment of McGladrey and Pullen, LLP,
as the Company's independent registered accounting firm for the year 2008; FOR
the proposal to amend the Articles of Incorporation as described above; and FOR
the approval of the amendment to the Amended and Restated 1999 Stock Plan.
The Board of Directors recommends a vote: FOR each named nominee for election as
a Director; FOR the ratification and approval of the appointment of McGladrey
and Pullen, LLP, as the Company's independent registered accounting firm for the
year 2008; FOR the proposal to amend the Articles of Incorporation as described
above; and FOR the approval of the amendment to the Amended and Restated 1999
Stock Plan.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE MEETING. [ ]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign. If the signer is a
corporation, please sign full corporate name by duly authorized officer. If a
partnership or a limited liability company, please sign in partnership or
limited liability company name by authorized persons.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY