SCHEDULE 14A INFORMATION
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Ultralife Batteries, Inc.
(Name of Registrant as Specified In Its Charter)
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ULTRALIFE BATTERIES, INC.
2000 TECHNOLOGY PARKWAY
NEWARK, NEW YORK 14513
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 12, 2002
Notice is hereby given that the 2002 Annual Meeting of Stockholders (the
"Meeting") of Ultralife Batteries, Inc. (the "Company") will be held on
Thursday, December 12, 2002 at 10:30 A.M. at the JP Morgan Chase Conference
Center, 270 Park Avenue, 11th Floor, Room C, New York, New York 10017 for the
following purposes:
1. To elect directors for a term of one year and until their successors
are duly elected and qualified.
2. To approve and ratify the selection of PricewaterhouseCoopers LLP as
the Company's independent auditors for the fiscal year ending June 30, 2003.
3. To amend the Company's 2000 Stock Option Plan to:
(a) increase the number of shares of the Company's Common Stock
available for issuance under that Plan from 500,000 to
1,000,000 shares; and
(b) eliminate any reference to post-termination time periods
within which outstanding options can be exercised and provide
the Committee (as defined in the 2000 Stock Option Plan) with
the discretion to determine the terms of post-termination
exercises.
4. To authorize the conversion of a $600,000 Convertible Subordinated
Debenture issued to Joseph C. Abeles, a director of the Company, on April 23,
2002 to 200,000 shares of the Company's Common Stock.
5. To transact such other business as may properly come before the Meeting
and any adjournments thereof.
Only stockholders of record of Common Stock, par value $.10 per share, of
the Company at the close of business on October 18, 2002 are entitled to receive
notice of, and to vote at and attend the Meeting. If you do not expect to be
present, you are requested to fill in, date and sign the enclosed Proxy, which
is solicited by the Board of Directors of the Company, and to return it promptly
in the enclosed envelope. In the event you decide to attend the Meeting in
person, you may, if you desire, revoke your proxy and vote your shares in
person.
The Company's Annual Report to Stockholders for the fiscal year ended June
30, 2002, which includes the Company's Form 10-K, is enclosed.
By Order of the Board of Directors
Ranjit C. Singh
Chairman of the Board of Directors
Dated: October 28, 2002
================================================================================
IMPORTANT
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
================================================================================
ULTRALIFE BATTERIES, INC.
2000 TECHNOLOGY PARKWAY
NEWARK, NEW YORK 14513
(315) 332-7100
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 12, 2002
INFORMATION CONCERNING SOLICITATION AND VOTING
This proxy statement is furnished to stockholders in connection with the
solicitation of proxies by the Board of Directors of Ultralife Batteries, Inc.
(the "Company") for use at the 2002 Annual Meeting of Stockholders (the
"Meeting") to be held on Thursday, December 12, 2002 at 10:30 A.M. and at any
adjournments thereof. The Meeting will be held at the JP Morgan Chase Conference
Center, 270 Park Avenue, 11th Floor, Room C, New York, New York 10017.
The approximate date on which the enclosed form of proxy and this proxy
statement are first being sent to stockholders of the Company is November 1,
2002.
When a proxy is returned properly signed, the shares represented thereby
will be voted in accordance with the stockholder's directions. If the proxy is
signed and returned without choices having been specified, the shares will be
voted FOR the election of each director-nominee named herein, and FOR each of
the other proposals identified herein. If for any reason any of the nominees for
election as directors shall become unavailable for election, discretionary
authority may be exercised by the proxies to vote for substitute nominees
proposed by the Board of Directors of the Company. A stockholder has the right
to revoke a previously granted proxy at any time before it is voted by filing
with the Secretary of the Company a written notice of revocation, or a duly
executed later-dated proxy, or by requesting return of the proxy at the Meeting
and voting in person.
Only stockholders of record at the close of business on October 18, 2002
are entitled to notice of, and to vote at, the Meeting. As of October 18, 2002,
there were 13,352,269 shares of the Company's Common Stock, par value $.10 per
share ("Common Stock"), issued and outstanding, each entitled to one vote per
share at the Meeting.(1) A majority of the outstanding shares of Common Stock,
represented in person or by proxy at the Meeting, will constitute a quorum for
the transaction of all business. Pursuant to the provisions of the Delaware
General Corporation Law, directors shall be elected by a plurality of the votes
cast by the holders of shares of Common Stock present in person or represented
by proxy at the Meeting and entitled to vote at the Meeting. Because directors
are elected by a plurality of the votes cast, withholding authority to vote with
respect to one or more nominees will have no effect on the outcome of the
election, although such shares would be counted as present for purposes of
determining the existence of a quorum. Similarly, any broker non-votes (which
occur when shares held by brokers or nominees for beneficial owners are voted on
some matters but not on others in the absence of instructions from the
beneficial owner) are not considered to be votes cast and therefore would have
no effect on the outcome of the election of directors, although they would be
counted for quorum purposes. The affirmative vote of holders of a majority of
the shares of Common Stock represented at the Meeting and entitled to vote on
the proposal to ratify the Company's auditors is required for approval of that
proposal. Accordingly, abstentions and any broker non-votes, since they are
considered to be represented at the Meeting, would
----------
(1) Does not include 27,250 treasury shares.
have the same effect as votes cast against that proposal. The affirmative vote
of holders of a majority of the shares of Common Stock represented at the
Meeting and entitled to vote on the proposal to amend the 2000 Stock Option Plan
is required for approval of that proposal. Accordingly, abstentions and any
broker non-votes, since they are considered to be represented at the Meeting
would have the same effect as votes cast against that proposal. The affirmative
vote of holders of a majority of the shares of Common Stock represented at the
Meeting and entitled to vote on the proposal to authorize the conversion of the
convertible subordinated debenture issued to a director of the Company is
required for approval of that proposal. Accordingly, abstentions and any broker
non-votes, since they are considered to be represented at the Meeting would have
the same effect as votes cast against the proposal.
The cost of solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by use of the mails, some of the
officers, directors and regular employees of the Company, without extra
remuneration, may solicit proxies personally or by telephone, telefax or similar
transmission. The Company will reimburse record holders for expenses in
forwarding proxies and proxy soliciting material to the beneficial owners of the
shares held by them.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors currently has seven directors, all of whom are
running for reelection. Directors are elected by a plurality of the votes cast
by the stockholders of the Company at a stockholders meeting at which a quorum
of shares is represented. Each director shall serve until the next annual
meeting of stockholders and until the successors of such directors shall have
been elected and qualified. The names of, and certain information with respect
to, the persons nominated for election as directors are presented on the
following pages.
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
John D. Kavazanjian 51 Mr. Kavazanjian was elected as the Company's President and Chief
Executive Officer effective July 12, 1999 and as a director on
August 25, 1999. Prior to joining the Company, Mr. Kavazanjian
worked for Xerox Corporation from 1994 in several capacities, most
recently as Corporate Vice President, Chief Technology Officer,
Document Services Group.
Joseph C. Abeles 87 Mr. Abeles, a founder of the Company, has been a director since
March 1991. He previously served as the Company's Treasurer. Mr.
Abeles, formerly a director of Power Conversion, Inc., is a private
investor and currently serves as a director emeritus of Bluegreen
Corporation (formerly Patten Corporation).
Joseph N. Barrella 56 Mr. Barrella, one of the founders of the Company and a director,
has held strategic positions throughout the Company's existence.
Mr. Barrella currently serves as Senior Vice President of Business
Development, a position he has held since December 1998. Mr.
Barrella has been involved in the development and manufacture of
lithium batteries for more than 25 years. He holds a number of
patents relating to lithium battery designs and has authored
several publications relating to battery technology.
2
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Carl H. Rosner 73 Mr. Rosner, a director of the Company since January 1992, is
currently President and Chief Executive Officer of CardioMag
Imaging, Inc. and the former Chairman of Intermagnetics General
Corporation ("IGC"). Mr. Rosner, a founder of IGC, was Chairman of
IGC since its formation until his retirement in 2002, and was
President and Chief Executive Officer until May 31, 1999. He is
currently Chairman-Emeritus of IGC.
Ranjit C. Singh 49 Mr. Singh has been a director of the Company since August 2000.
Since February 2002, he has served as President and Chief Executive
Officer of Reliacast Inc., a video streaming software and services
company. Prior to that, he was President and Chief Operating
Officer of ContentGuard, a spinoff of Xerox Corporation that is
jointly owned with Microsoft. ContentGuard develops and markets
digital property rights software. Before joining ContentGuard
earlier in 2000, Mr. Singh worked for Xerox as a corporate Senior
Vice President in various assignments related to software
businesses. Mr. Singh joined Xerox in 1997, having come from
Citibank where he was Vice President of Global Distributed
Computing. Prior to that, he was a principal at two start-up
companies and also held executive positions at Data General and
Digital Equipment Corporation.
Patricia C. Barron 58 Ms. Barron has been a director of the Company since September
2000. Ms. Barron is a Professor at the Stern School of Business,
New York University, where she focuses on issues of corporate
governance, the role and responsibilities of Boards of Directors
and leadership. Professor Barron teaches in the MBA and Executive
Education programs, is on the Advisory Board of the Berkeley Center
for Entrepreneurial Studies, and is a Senior Fellow of the Center
for Digital Economy Research. In addition to her work at the Stern
School, Professor Barron serves as a Director on the Boards of
Aramark Corporation, and United Services Automobile Association.
Prior to joining the Stern School, Professor Barron had a 28-year
career in business. She was an Associate at McKinsey and Company
and then moved to Xerox Corporation where she became a Corporate
Officer and held the positions of Chief Information Officer,
President, Office Products Division, and President, Xerox
Engineering Systems.
3
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Daniel W. Christman 59 Mr. Christman was appointed to the Board of Directors in August of
2001. He is currently the Executive Director of the Kimsey
Foundation in Washington, D.C. Prior to that, he was
Superintendent for the U.S. Military Academy at West Point, New
York from June 1996 until July 2001. He currently serves as a
director of United Services Automobile Association, an insurance
mutual corporation, Microlis Corporation, a semi conductor
equipment manufacturer, and Metal Storm Limited, a defense research
and development company.
The Board of Directors has unanimously approved the above-named nominees
for directors. The Board of Directors recommends a vote FOR all of these
nominees.
BOARD OF DIRECTORS
The Board of Directors met 13 times during the fiscal year ended June 30,
2002. During the fiscal year ended June 30, 2002, all of the members of the
Board attended at least 75% of the aggregate of: (1) the total number of
meetings of the Board (held during the period for which such person has been a
director); and (2) the total number of meetings held by all committees of the
Board on which such member served.
Prior to December 5, 2001, each non-employee director was entitled to
receive a $750 monthly retainer as well as $750 for each Board meeting attended;
subject to the provision that the meeting compensation was reduced by 50% if the
director participated by conference call. The Chairman of the Board was paid an
additional $15,000 per annum for acting as Chairman. Arthur Lieberman served as
the Company's Chairman of the Board until December 5, 2001, when Ranjit C. Singh
was elected Chairman.
Effective December 5, 2001, the director compensation package was modified
to provide that each non-employee director would receive a $2,000 quarterly
retainer with the quarter commencing January 1, 2002 and that the Chairman of
the Board would receive a $3,750 quarterly retainer. Compensation for meeting
attendance, including those in which a director participates by conference call,
remained the same. Mr. Singh became Chairman on December 5, 2001.
In addition, pursuant to the provisions of Section 6(i) of the Company's
2000 Stock Option Plan (the "2000 Option Plan"), each director receives an
option at the end of each calendar quarter to purchase 1,500 shares of Common
Stock. This option vests immediately with a term of five years from the date of
grant and is granted at an exercise price equal to the closing price of the
Common Stock on the date of grant.
The Compensation and Management Committee recently recommended increasing
the options for each non-employee director (other than the Chairman of the
Board) by 1,500 shares for each calendar quarter, effective for the calendar
quarter ended June 30, 2002. Pursuant to the same recommendation, the Chairman
of the Board will receive an additional 3,500 share option per calendar quarter,
effective for the calendar quarter ended June 30, 2002. These additional options
will be granted pursuant to Section 6(h) of the 2000 Option Plan, and the terms
of these additional options will be fixed by the Compensation and Management
Committee pursuant to the authority granted that Committee under Section 6 of
the 2000 Option Plan.
In a coordinated effort to preserve the Company's cash resources, during
the quarter ended December 31, 2001, the Company and certain directors agreed
that the Company would withhold cash payments to which the directors were
otherwise entitled. As a result, the Company has not paid any of the director
retainers or meeting fees since September 30, 2001. In a further effort to
conserve its cash resources, the Company's Compensation and Management
Committee, in accordance with the provisions of the 2000 Option Plan, has
recommended compensating its non-employee directors with additional stock
options in lieu of the cash retainers and meeting fees to which they were
otherwise entitled.
COMMITTEES OF THE BOARD
The Board has established four standing committees to assist it in
carrying out its responsibilities: the Compensation and Management Committee,
the Audit and Finance Committee, the Governance Committee and the Executive
Committee.
4
The members of the Compensation and Management Committee are currently
Daniel W. Christman (Chair) and Patricia C. Barron. Arthur M. Lieberman was a
member of the Compensation and Management Committee until he resigned from the
Board on June 4, 2002. The Compensation and Management Committee has general
responsibility for recommending to the Board remuneration for the Chairman and
determining the remuneration of other officers elected by the Board, granting
stock options and otherwise administering the Company's stock option plans, and
approving and administering any other compensation plans or agreements. The
Compensation and Management Committee met five times during the fiscal year
ended June 30, 2002.
The members of the Audit and Finance Committee are Carl H. Rosner (Chair),
Ranjit C. Singh and Joseph C. Abeles all of whom are independent directors. This
committee has oversight responsibility for reviewing the scope and results of
the independent auditors' annual examination of the Company's financial
statements, meeting with the Company's financial management and the independent
auditors to review matters relating to internal accounting controls, the
Company's accounting practices and procedures and other matters relating to the
financial condition of the Company, and recommending to the Board of Directors
the appointment of the independent auditors. The Audit and Finance Committee met
four times during the fiscal year ended June 30, 2002.
The members of the Governance Committee are currently Patricia C. Barron
(Chair), Ranjit C. Singh and Daniel W. Christman. This Committee reviews the
performance of the Company's directors, makes recommendations to the Board of
Directors for membership and committee assignments and manages the annual
evaluation of the performance of the Company's Chief Executive Officer. The
Governance Committee met six times during the fiscal year ended June 30, 2002.
The Governance Committee serves as the Nominating Committee. The Committee
will consider persons whom stockholders recommend as candidates for election as
Company directors. Stockholders may submit names of qualified candidates along
with detailed information on their backgrounds to the Company's Secretary for
referral to the Committee for consideration.
The members of the Executive Committee are Ranjit C. Singh, Joseph C.
Abeles, Carl H. Rosner and John D. Kavazanjian (Chair). Arthur M. Lieberman was
a member of the Executive Committee until he resigned on June 4, 2002. This
committee is responsible for overseeing such matters as the Board of Directors
determines from time to time. The Executive Committee met two times during the
fiscal year ended June 30, 2002.
Each committee member receives $500 for each committee meeting attended.
Prior to December 5, 2001, the Company's policy was that the committee meeting
fee would be reduced by 50% if the committee member participated by conference
call. The policy was revised, however, on December 5, 2001 to permit
participation by conference call without any reduction in fees. In addition,
each committee chair, other than Mr. Kavazanjian, receives $2,500 per annum. As
noted above with respect to director retainers and fees, the Company and its
directors have similarly agreed to withhold payment of committee fees and
committee chairman fees, and the Company is considering issuing additional stock
options in lieu of cash retainers and fees to which individuals were otherwise
entitled.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of September 30, 2002 by
(i) each person known by the Company to beneficially own more than five percent
of the outstanding shares of Common Stock, (ii) each director and certain named
executive officers of the Company, and (iii) all directors and executive
officers of the Company as a group.
Number of Shares Percent
Name and Address of Beneficial Owner (1) Beneficially Owned Beneficially Owned (21)
------------------------------------------------------- ---------------------------- ------------------------
State of Wisconsin Investment Board (2) 2,218,600 16.6%
P.O. Box 7842
Madison, Wisconsin 53707
Kimelman & Baird, LLC, Daeg Capital Management, LLC, 1,869,600 14.0%
Daeg Partners, LP, Sheila Baird, Michael Kimelman and
Scott Kimelman (3)
100 Park Avenue
New York, New York 10017
Intermagnetics General Corporation (4) 899,053 6.7%
450 Old Niskayuna Road
Latham, New York 12210-0461
Dimensional Fund Advisors Inc. (5) 728,300 5.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Ultralife Taiwan, Inc. (6) 700,000 5.2%
2-3 Industry E. Rd II
Science-Based Industrial Park
Hsinchu, Taiwan, Republic of China
Joseph C. Abeles (7) 525,989 3.9%
Joseph N. Barrella (8) 327,000 2.4%
Patricia C. Barron (9) 27,000 *
Daniel W. Christman (10) 8,000 *
John D. Kavazanjian (11) 344,500 2.5%
Carl H. Rosner (12) 46,000 *
Ranjit C. Singh (13) 15,500 *
Peter F. Comerford (14) 17,000 *
Robert W. Fishback (15) 21,000 *
William A. Schmitz (16) 31,300 *
Julius M. Cirin (17) 20,200 *
Nancy C. Naigle (18) 9,000 *
Patrick R. Hanna, Jr. (19) 7,000
All directors and executive officers
as a group (13 persons)(20) 1,399,489 9.8
----------
* Less than 1%
(1) Except as otherwise indicated, the stockholders named in this table have
sole voting and investment power with respect to the shares of Common
Stock beneficially owned by them. The information provided in this table
is based upon information provided to the Company by such stockholders.
The address of each of the directors and executive officers of the Company
is c/o Ultralife Batteries, Inc., 2000 Technology Parkway, Newark, New
York 14513.
(2) The amount shown is derived from Amendment No. 7 to Schedule 13G dated
February 15, 2002.
(3) The amount shown and the following information is derived from Amendment
No. 2 to Schedule 13G dated October 15, 2002: 1,102,800 shares are
beneficially owned by Kimelman & Baird, LLC, which shares dispositive
power with respect to all of such shares; 766,800 shares are beneficially
owned by Daeg Capital Management, LLC, which shares voting and dispositive
power with respect to all of such shares; 766,800 shares are beneficially
owned by Daeg Partners, L.P. which shares voting and dispositive power
with respect to all of such shares; 1,869,600 shares are beneficially
owned by Sheila Baird, who shares voting power with respect to 766,800 of
such shares and who shares dispositive power with respect to all 1,869,600
shares; 1,869,600 shares are beneficially owned by Michael Kimelman, who
shares voting power with respect to 766,800 of such shares and shares
dispositive power with respect to all 1,869,600 shares; and 766,800 shares
are beneficially owned by Scott Kimelman, who shares voting and
dispositive power with respect to all 766,800 shares.
6
(4) The amount shown is derived from Amendment No. 6 to Schedule 13D dated
March 17, 2000. The amount shown does not include 46,000 shares
beneficially owned by Carl H. Rosner (4,000 shares owned individually and
42,000 shares subject to options which may be exercised within 60 days of
September 30, 2002). Mr. Rosner is the Chairman-Emeritus of Intermagnetics
General Corporation ("IGC"). Therefore, IGC may be deemed to share voting
and investment power with respect to the shares beneficially owned by Mr.
Rosner. IGC disclaims beneficial ownership of the shares beneficially
owned Mr. Rosner. Pursuant to Amendment No. 7/A to Schedule 13D dated
October 24, 2002, IGC sold 727,153 shares, which sale divested IGC of all
of its shares of the Company's Common Stock.
(5) The amount shown and the following information is derived from an
Amendment to Schedule 13G dated January 30, 2002: Dimensional Fund
Advisors Inc. ("Dimensional"), an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, furnishes investment
advice to four investment companies registered under the Investment
Company Act of 1940, and serves as investment manager to certain other
commingled group trusts and separate accounts. These investment companies,
trusts and accounts are the "Funds." In its role as investment advisor or
manager, Dimensional has sole power to vote and sole power to dispose of
all of the reported shares that are owned by the Funds. All the securities
reported are owned by the Funds. Dimensional disclaims beneficial
ownership of such shares.
(6) As of September 30, 2002, the Company owned approximately 30% of this
venture and has the right to nominate two of the venture's six directors.
Subsequent to September 30, 2002, the Company reduced its ownership
interest in Ultralife Taiwan, Inc. ("UTI") to approximately 10.6% and
reacquired the 700,000 shares of the Company's Common Stock owned by UTI.
(7) Includes 39,000 shares subject to options which may be exercised by Mr.
Abeles within 60 days of September 30, 2000. Also includes 200,000 shares
to be issued upon conversion of a $600,000 debenture, which conversion is
subject to approval of the Company's stockholders at the Meeting. See
PROPOSAL 4.
(8) Includes 208,000 shares subject to options which may be exercised by Mr.
Barrella within 60 days of September 30, 2002.
(9) Includes (i) 1,200 shares held jointly with Ms. Barron's husband, and (ii)
12,000 shares subject to options which may be exercised by Ms. Barron
within 60 days of September 30, 2002.
(10) Includes 7,500 shares subject to options which may be exercised by Mr.
Christman within 60 days of September 30, 2002.
(11) Includes 339,500 shares subject to options which may be exercised by Mr.
Kavazanjian within 60 days of September 30, 2002.
(12) Includes 42,000 shares subject to options which may be exercised by Mr.
Rosner within 60 days of September 30, 2002. Does not include shares owned
by IGC. Mr. Rosner is the Chairman-Emeritus of IGC and therefore may be
deemed to share voting and investment power with respect to the shares
held by IGC. Mr. Rosner disclaims beneficial ownership of the shares owned
by IGC.
(13) Includes 13,500 shares subject to options which may be exercised by Mr.
Singh within 60 days of September 30, 2002.
(14) Includes 16,000 shares subject to options which may be exercised by Mr.
Comerford within 60 days of September 30, 2002.
(15) These shares are subject to options which may be exercised by Mr. Fishback
within 60 days of September 30, 2002.
(16) Includes (i) 28,000 shares subject to options which may be exercised by
Mr. Schmitz within 60 days of September 30, 2001, and (ii) 300 shares held
by Mr. Schmitz' wife.
(17) These shares are subject to options which may be exercised by Mr. Cirin
within 60 days of September 30, 2002.
(18) Includes (i) 2,000 shares held jointly with Ms. Naigle's husband, and (ii)
7,000 shares subject to options which may be exercised by Ms. Naigle
within 60 days of September 30, 2002.
(19) Includes 6,000 shares subject to options which may be exercised by Mr.
Hanna within 60 days of September 30, 2002.
(20) Includes 759,700 shares subject to options which may be exercised by the
named directors and executive officers within 60 days of September 30,
2002 and the 200,000 shares to be issued upon conversion of a $600,000
debenture to Mr. Abeles, which conversion is subject to approval of the
Company's stockholders at the Meeting. Does not include 853,053 shares
owned directly by IGC, of which Mr. Rosner is the Chairman-Emeritus, and
does not include 700,000 shares owned by Ultralife Taiwan, Inc., a
Taiwanese venture of which the Company owns 30%.
(21) Based on 13,352,269 shares issued and outstanding.
Section 16(a) Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than ten-percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based solely on review of
the copies of such reports furnished to the Company during the fiscal year ended
June 30, 2002, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with,
except as follows: Joseph C. Abeles, one report disclosing one transaction;
Patricia C. Barron, one report disclosing one transaction; Patrick N. Hanna, two
reports disclosing a total of four transactions; Sheila Baird and Michael
Kimelman, each a Form 3; Sheila Baird, 18 reports disclosing a total of 72
transactions and Michael Kimelman, 17 reports disclosing a total of 71
transactions (see Security Ownership of Certain Beneficial Owners and Management
-- holdings of Kimelman & Baird, LLC, Daeg Capital Management, LLC, Daeg
Partners, LP, Sheila Baird, Michael Kimelman and Scott Kimelman).
7
EXECUTIVE COMPENSATION
The names of, and certain information with respect to the Company's
executive officers who are not also directors, are presented on the following
pages.
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Julius M. Cirin 49 Mr. Cirin, a battery industry veteran, has served as Vice
President of Product and Industry Marketing since March 2002,
having served as Vice President of Corporate Marketing prior to
that. Prior to joining the Company at its founding in March
1991 as Director of Marketing, Mr. Cirin served as Quality
Assurance Manager for Eastman Kodak Company in the Ultra
Technologies Division from 1986 to 1989. From 1979 to 1986, Mr.
Cirin worked at Duracell USA in several product and process
engineering, and quality management positions. Mr. Cirin has a
B.S. in Marketing Management from St. John Fisher College in
Rochester, New York.
Peter F. Comerford 45 Mr. Comerford was named Vice President of Administration and
General Counsel on July 1, 1999 and was elected Secretary of the
Company in December 2000. He joined the Company in May of 1997
as Senior Corporate Counsel and was appointed Director of
Administration and General Counsel in December of that year.
Prior to joining the Company, Mr. Comerford was a practicing
attorney for approximately fourteen years having worked
primarily in municipal law departments including the City of
Niagara Falls, New York where he served as the Corporation
Counsel. Mr. Comerford has a B.A. from the State University of
New York at Buffalo, an MBA from Canisius College and a J.D.
from the University of San Diego School of Law.
Robert W. Fishback 46 Mr. Fishback joined the Company in December 1998 as Corporate
Controller. He became Vice President of Finance and Chief
Financial Officer in October 1999. Prior to joining the
Company, Mr. Fishback served as Controller-Shared Services for
ITT Industries, a diversified manufacturing company, from 1997
to 1998. From 1995 to 1997, he was Director-Corporate
Accounting for Goulds Pumps Inc., a manufacturer of industrial
and commercial pumps. From 1983 to 1995, Mr. Fishback served in
various managerial capacities in finance and operations with
Frontier Corporation, a provider of local and long-distance
telecommunications services. He is a CPA and has an MBA in
finance from the State University of New York at Buffalo. His
undergraduate degree in accounting is from Grove City College.
8
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Patrick R. Hanna, Jr. 54 Mr. Hanna has served as Vice President of Corporate Business
Strategy since December 2001. He joined the Company in February
2000 as Director of Strategic Planning after a 23-year career
with Xerox Corporation. Mr. Hanna served in many capacities in
the areas of strategic and business planning development, most
recently as the Strategic Planning Manager of the Xerox Internet
and Software Services organization.
Nancy C. Naigle 54 Ms. Naigle, has served as Vice President of Sales and Marketing
since March 2002, having joined the Company in January of 2001
as Vice President of Worldwide Sales. Previously, she was
employed at Xerox Corporation for 20 years, where she held
multiple sales and general management positions, most recently
as Vice President and General Manager of the, Software Solutions
Business Group. Ms. Naigle has both a B.A. and a Master's
degree in English and Mathematics from the University of Texas
in Arlington, and earned an MBA from the University of Dallas.
William A. Schmitz 40 Mr. Schmitz, currently Chief Operating Officer, joined the
Company in December 1999 as Vice President, Manufacturing, and
became Vice President and General Manager, Primary Batteries in
2000 and Chief Operating Officer in November 2001. Before this,
Mr. Schmitz worked for Bausch & Lomb from 1985 to 1999 in
several positions, most recently as Director, New Product
Development in the Eyewear Division from 1995 to 1999. Mr.
Schmitz has an M.S. in Operations Management from the University
of Rochester and a B.S. in Mechanical Engineering from the
Rochester Institute of Technology.
The individuals named in the following tables include, as of June 30,
2002, the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company whose salary and bonus exceeded
$100,000 ("Named Executive Officers").
The following table sets forth information concerning the annual and
long-term compensation of the Named Executive Officers for all services in all
capacities to the Company and its subsidiary during the Company's fiscal years
ended June 30, 2002, 2001 and 2000:
Summary Compensation Table
All Other
Annual Compensation Long Term Compensation Compensation ($)
------------------------------------------- -------------------------------------- ----------------
Other Annual Restricted
Name and Principal Compensation($) Stock Awards Underlying LTIP
Position Year Salary($) Bonus($) (1) ($) Options/SARs Payouts($)
-------------------------- ---- --------- -------- --------------- ------------ ------------ ---------- ----------------
John D. Kavazanjian 2002 $289,387 $ 5,000 $23,347 $0 6,000 $0 $0
President and Chief 2001 299,998 0 27,001 0 6,000 0 0
Executive Officer 2000 288,960 50,000 17,502 0 506,000 0 0
Joseph N. Barrella 2002 $185,577 $ 0 $16,870 $0 101,000 $0 $0
Senior Vice President of 2001 196,725 0 20,544 0 6,000 0 0
Business Development 2000 172,439 0 37,427 0 56,000 0 0
Nancy C. Naigle 2002 $119,538 $28,240 $13,251 $0 20,000 $0 $0
Vice President of Sales 2001 61,923 10,000 1,790 0 25,000 0 0
and Marketing 2000 -- -- -- -- -- -- --
William A. Schmitz 2002 $117,308 $ 8,530 $ 7,897 $0 50,000 $0 $0
Chief Operating Officer 2001 124,647 $ 0 15,620 0 0 0 0
2000 57,942 0 4,858 0 45,000 0 0
Robert W. Fishback 2002 $122,000 $ 2,000 $ 9,145 0 10,000 0 $0
Vice President of Finance 2001 129,423 0 13,616 0 0 0 0
and Chief Financial Officer 2000 101,202 10,000 14,700 0 25,000 0 0
(1) The amounts reported in this column are categorized in the following
table.
John D. Joseph N. Nancy C. William A. Robert W.
Kavazanjian Barrella Naigle Schmitz Fishback
----------- -------- ------ ------- --------
Insurance
2002 $9,286 $12,915 $11,645 $5,790 $6,465
2001 9,993 13,320 1,790 12,410 9,871
2000 11,040 11,425 -- 4,858 8,175
Automobile
2002 $8,500 $0 $0 $0 $0
2001 7,500 0 0 0 0
2000 6,000 7,824 -- 0 4,000
Directors Fees
2002 $0 $0 $0 $0 $0
2001 0 0 0 0 0
2000 0 13,187 -- 0 0
401(k) Plan(5)
2002 $5,561 $3,955 $1,606 $2,108 $2,680
2001 9,855 7,862 0 4,364 4,149
2000 462 4,991 -- 0 2,525
(1) Represents the Company's matching grants to the employees' 401(k) Plan
accounts for fiscal years ended June 30, 2002, 2001 and 2000.
9
The following table sets forth information concerning options granted to the
Named Executive Officers during the Company's fiscal year ended June 30, 2002:
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value at
Assumed Annual Rates of
Individual Grants Stock Price Appreciation for Option Term (1)
-------------------------------------------------------------------------------- --------------------------------------------
% Price 5% Dollar 10% Dollar
Shares (12) (13) Exp Date Gain (14) Gain (14)
------ ---- ---- -------- --------- ---------
John D. Kavazanjian 1,500(2) 0.35% $6.25 9/28/06 $121 $2,607
President and Chief 1,500(3) 0.35% 4.49 12/31/06 1,861 4,112
Executive Officer 1,500(4) 0.35% 3.38 3/2807 1,401 3,095
1,500(5) 0.35% 3.50 6/28/07 1,450 3,204
Joseph N. Barrella 1,500(2) 0.35% $6.25 9/28/06 $121 $2,607
Senior Vice 1,500(3) 0.35% 4.49 12/31/06 1,861 4,112
President of 1,500(4) 0.35% 3.38 3/28/07 1,401 3,095
Business Development 1,500(5) 0.35% 3.50 6/28/07 1,450 3,204
50,000(6) 11.72% 4.15 11/16/07 70,570 160,099
45,000(7) 10.55% 3.15 4/16/08 48,209 109,369
Nancy C. Naigle 10,000(8) 2.34% $4.15 11/16/07 $14,114 $32,020
Vice President of 10,000(9) 2.34% 3.39 4/10/08 11,529 26,156
Sales and Marketing
William A. Schmitz 50,000(10) 11.72% $4.15 11/16/07 $70,570 $160,099
Chief Operating
Officer
Robert W. Fishback 10,000(11) 2.34% $3.39 4/10/08 $11,529 $26,156
Vice President of
Finance and Chief
Financial Officer
1. There is no assurance that the value realized by an employee will be at or
near the amount estimated using this model. These amounts rely on assumed
future stock price movements that cannot be predicted accurately.
2. Vested on the date of grant, September 28, 2001.
3. Vested on the date of grant, December 31, 2001.
4. Vested on the date of grant, March 30, 2002.
5. Vested on the date of grant, June 29, 2002.
6. Vests in 10,000 share increments on the first, second, third, fourth and
fifth anniversaries of the date of grant, November 16, 2001.
7. Vests in 10,000 share increments on the first, second, third, fourth and
fifth anniversaries of the date of grant, April 16, 2002.
8. Vests in 2,000 share increments on the first, second, third, fourth and
fifth anniversaries of the date of grant, November 16, 2001.
9. Vests in 2,000 share increments on the first, second, third, fourth and
fifth anniversaries of the date of grant, April 10, 2002.
10. Vests in 10,000 share increments on the first, second, third, fourth and
fifth anniversaries of the date of grant, November 16, 2001.
11. Vests in 2,000 share increments on the first, second, third, fourth and
fifth anniversaries of the date of grant, April 10, 2002.
12. 426,500 total number of options were granted to employees.
13. Fair market value of stock at date of grant.
14. Fair market value of stock at end of actual option term assuming annual
compounding at the stated rate, less the option price.
The following table sets forth certain information concerning the number
of shares of Common Stock acquired upon the exercise of stock options during the
Company's fiscal year ended June 30, 2002 and the number and value at June 30,
2002 of unexercised stock options to purchase shares of Common Stock held by the
Named Executive Officers.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of Unexercised Value of Unexercised in the
Shares Value Options/SARs at FY-End Money Options/SARs at
Acquired on Realized (#) FY-End ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
------------------------- ------------ -------- ------------------------- ----------------------------
John D. Kavazanjian 0 $0 248,000/270,000 $179/$0
President and Chief
Executive Officer
Joseph N. Barrella 0 $0 193,000/135,000 $179/$15,705
Senior Vice President
of Business Development
Nancy C. Naigle 0 $0 5,000/40,000 $0/$1,090
Vice President of
Sales and Marketing
William A. Schmitz 0 $0 18,000/77,000 $0/$0
Chief Operating
Officer
Robert W. Fishback 0 $0 19,000/31,000 $0/$1,090
Vice President of
Finance and Chief
Financial Officer
(1) Market value of Company's Common Stock at exercise or year-end, minus the
exercise price.
The Company has no long-term incentive plan. Consequently, there have been
no qualifying awards during the fiscal year ended June 30, 2002. Also, the
Company has no employee pension plans to which it makes contributions, except as
described below under "401(k) Plan".
10
Employment Arrangements
In connection with the hiring of Mr. Kavazanjian as the Company's
President and Chief Executive Officer effective July 12, 1999, the Company
agreed to pay him a salary of $300,000 per annum and a signing bonus of $50,000.
Additionally, the Company granted Mr. Kavazanjian an option to purchase 500,000
shares of Common Stock for $5.19 per share, exercisable until July 12, 2005. The
option vests 50,000 shares at issue and 90,000 shares on July 12, 2000, 2001,
2002, 2003 and 2004. In September 2002, the Company entered into a new
employment agreement with Mr. Kavazanjian pursuant to which the Company agrees
to pay Mr. Kavazanjian a salary of $300,000 per annum. Pursuant to that
agreement, the Company has agreed that if Mr. Kavazanjian's employment is
terminated by the Company except for "cause" prior to July 1, 2003, Mr.
Kavazanjian shall be entitled to receive $300,000 within 30 days following that
termination, and the portion of the option granted to Mr. Kavazanjian in June
1999 which is scheduled to vest on July 12, 2003, shall be deemed to have vested
as of such termination date. In addition, Mr. Kavazanjian shall have one year
after the termination of his employment to exercise any vested but unexercised
stock options. On February 1, 2003, both the Company and Mr. Kavazanjian shall
have the option of terminating Mr. Kavazanjian's employment agreement effective
June 30, 2003. In the event neither party opts to terminate the employment
relationship, the employment agreement shall renew automatically for an
additional year, each year, and the parties shall continue to be required to
give notice of intent to terminate by February 1 of the year in which agreement
is intended to be terminated effective June 30. As a result of across-the-board
management salary reductions, Mr. Kavazanjian is currently being paid an annual
salary of $270,000.
In September 2002, the Company entered into an employment agreement with
Mr. Barrella pursuant to which the Company agrees to pay Mr. Barrella a salary
of $197,745 per annum. Pursuant to that agreement, the Company has agreed that
if Mr. Barrella's employment is terminated by the Company except for "cause"
prior to July 1, 2003, Mr. Barrella shall be entitled to receive $197,745 within
30 days following that termination. In addition, Mr. Barrella shall have one
year after the termination of his employment to exercise any vested but
unexercised stock options. On February 1, 2003, both the Company and Mr.
Barrella shall have the option of terminating Mr. Barrella's employment
agreement effective June 30, 2003. In the event neither party opts to terminate
the employment relationship, the employment agreement shall renew automatically
for an additional year, each year, and the parties shall continue to be required
to give notice of intent to terminate by February 1 of the year in which the
agreement is intended to be terminated effective June 30. As a result of
across-the-board management salary reductions, Mr. Barrella is currently being
paid an annual salary of $177,970.
In September 2002, the Company entered into an employment agreement with
Mr. Schmitz pursuant to which the Company agrees to pay Mr. Schmitz a salary of
$125,000 per annum. Pursuant to that agreement, the Company has agreed that if
Mr. Schmitz's employment is terminated by the Company except for "cause" prior
to July 1, 2003, Mr. Schmitz shall be entitled to receive $125,000 within 30
days following that termination. In addition, Mr. Schmitz shall have one year
after the termination of his employment to exercise any vested but unexercised
stock options. On February 1, 2003, both the Company and Mr. Schmitz shall have
the option of terminating Mr. Schmitz's employment agreement effective June 30,
2003. In the event neither party opts to terminate the employment relationship,
the employment agreement shall renew automatically for an additional year, each
year, and the parties shall continue to be required to give notice of intent to
terminate by February 1 of the year in which the agreement is intended to be
terminated effective June 30. As a result of across-the-board management salary
reductions, Mr. Schmitz is currently being paid an annual salary of $112,500.
In addition to the above compensation, in accordance with the Company's
revised Board compensation policy, each of Mr. Kavazanjian and Mr. Barrella, as
directors of the Company, receives an
11
option, at the end of each calendar quarter to purchase 1,500 shares of Common
Stock. This option is granted to each director on the last business day of the
calendar quarter. It vests immediately with a term of five years from the date
of grant and is granted at a purchase price equal to the closing price of the
Common Stock on the date of grant.
401(k) Plan
The Company established a profit sharing plan under Sections 401(a) and
401(k) of the Code (the "401(k) Plan"), effective as of June 1, 1992. The 401(k)
plan was amended effective as of January 1, 1994. All employees in active
service who have completed 1,000 hours of service or were participating in the
401(k) Plan as of January 1, 1994, not otherwise covered by a collective
bargaining agreement (unless such agreement expressly provides that those
employees are to be included in the 401(k) Plan), are eligible to participate in
the 401(k) Plan. Eligible employees may direct that a portion of their
compensation, up to a maximum of 17% (in accordance with all IRS limitations in
effect on January 1, 1998) be withheld by the Company and contributed to their
account under the 401(k) Plan.
In April 1996, the Board of Directors authorized a Company matching
contribution up to a maximum of 1 1/2% of an employee's annual salary for the
calendar year ended December 31, 1996 and 3% for subsequent calendar years. In
January 2001, the matching contribution was raised to a maximum of 4% (100%
match of up to 3% of annual salary, and 50% match above 3% to a maximum of 5% of
salary). The Company made or accrued contributions of $150,000, $234,000, and
$162,000 for the fiscal years ending June 30, 2000, 2001, and 2002,
respectively. In January 2002, the Company match was suspended in an effort to
conserve cash.
All 401(k) contributions are placed in a trust fund to be invested at the
trustee's discretion, except that the Company may designate that the funds be
placed and held in specific investment accounts managed by an investment manager
other than the trustee. Amounts contributed to employee accounts by the Company
or as compensation reduction payments, and any earnings or interest accrued on
employee accounts, are not subject to federal income tax until distributed to
the employee, and may not be withdrawn (absent financial hardship) until death,
retirement or termination of employment.
REPORT OF COMPENSATION AND MANAGEMENT COMMITTEE
CONCERNING EXECUTIVE COMPENSATION
Overview
Compensation determinations are made by the Company's Compensation and
Management Committee. The Company seeks to provide executive compensation that
will support the achievement of the Company's financial goals while attracting
and retaining talented executives and rewarding superior performance.
The Company seeks to provide an overall level of compensation to the
Company's executives that is competitive within the Company's industry and with
other companies of comparable size and complexity. Compensation in any
particular case may vary from the industry average on the basis of annual and
long-term Company performance as well as individual performance. The
Compensation and Management Committee will exercise its discretion to set
compensation where, in its judgment, external, internal or individual
circumstances warrant it.
In general, the Company compensates its executive officers through a
combination of salary and stock option awards. Additionally, the Company's
executives are eligible to participate in or receive benefits under an employee
benefit plan made available by the Company to its executives and/or employees.
12
Salary
Of the primary elements of executive compensation set forth above, salary
is generally the least affected by the Company's performance, although it is
very much dependent on individual performance. Executive salaries for the fiscal
year ended June 30, 2002 were, however, adversely affected by the Company's
performance. Executives, at the recommendation of the Compensation and
Management Committee and in a cooperative effort to conserve the Company's cash
resources, reduced their salaries initially by 20%, which reduction was then
followed by an across-the-board increase so that the Company's executives are
now receiving 90% of their former salaries. The Company believes that salaries
paid to its executives are competitive with industry norms. The salary levels
and annual increases of all executive officers of the Company must be approved
by the Compensation and Stock Option Committee. Salary levels for executives are
determined by progress made in the operational and functional areas for which
they are responsible as well as the overall performance of the Company.
Executives' salaries are reviewed annually. The timing and amount of any
increase to executives both depend upon (i) the performance of the individual
and, (ii) to a lesser extent, the financial performance of the Company.
Stock Options
Stock options are designed to provide long-term incentives and rewards,
tied to the price of the Company's Common Stock. Given the vagaries of the stock
market, stock price performance and financial performance are not always
consistent. The Compensation and Management Committee believes that stock
options, which provide value to the participants only when the Company's
stockholders benefit from stock price appreciation, are an appropriate
complement to the Company's overall compensation policies. Executive officers of
the Company are eligible to receive option grants under the Company's stock
option plans. The decision to award stock options to an executive is based upon
such considerations as the executive's position with the Company and is designed
to be competitive for individuals at that level. The Compensation and Management
Committee administers the Company's stock option plans.
Employee Benefit Plans
Executives of the Company are each entitled to participate in or receive
benefits under any pension plan, profit-sharing plan, life insurance plan,
health insurance plan or other employee benefit plan made available by the
Company to its executives and employees. The Company also provides Mr.
Kavazanjian with supplemental life insurance ($700,000 coverage in addition to
$300,000 of basic coverage) and supplemental disability insurance. Currently,
the Company provides medical insurance for its executive officers and has
established the 401(k) Plan. All executive officers and employees are eligible
to participate in the 401(k) Plan.
Chief Executive Officer
Mr. Kavazanjian joined the Company in July 1999, entering into an
employment agreement with the Company, the principal terms of which are
described earlier in this Proxy Statement. Mr. Kavazanjian and the Company
entered into a new employment agreement in September 2002, the principal terms
of which are described earlier in this Proxy Statement. In reviewing the
performance of the Chief Executive Officer, the Compensation and Stock Option
Committee considers the scope and complexity of his job during the past year,
progress made in planning for the future development and growth and return on
assets of the Company.
13
Compensation and Management Committee
Daniel W. Christman, Chair
Patricia C. Barron
PERFORMANCE GRAPH
The following graph compares the cumulative return to holders of the
Company's Common Stock for the period commencing June 30, 1997 through the
fiscal year ended June 30, 2002 with the NASDAQ U.S. Index and the NASDAQ
Electronic Components Index for the same period. The comparison assumes $100 was
invested on June 30, 1997 in the Company's Common Stock and in each of the
comparison groups, and assumes reinvestment of dividends. The Company paid no
dividends during the comparison period.
Base
Period
Company/Index Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02
----------------------------------------------------------------------------
ULTRALIFE
BATTERIES INC 100 73.12 47.31 96.77 55.91 30.10
NASDAQ NATIONAL
MARKET INDEX 100 131.63 189.11 279.59 151.56 103.34
NASDAQ ELECTRONIC
COMPONENTS 100 99.04 176.02 438.97 161.59 97.81
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee is composed of independent directors and
operates under a written charter adopted by the Audit Committee and the Board.
The Audit and Finance Committee's charter was attached to last year's Proxy
Statement as Appendix A.
Management has the primary responsibility for the Company's financial
statements and the reporting process, including the system of internal controls.
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the independent
accountants for the Company, is responsible for performing an independent audit
of the Company's consolidated financial statements in accordance with generally
accepted auditing standards and to issue a report thereon. The Audit and Finance
Committee acts only in an oversight capacity. The Audit and Finance Committee
relies on the work and assurances of the Company's management, which has the
primary responsibility for financial statements and reports, and of the
independent auditors, who, in their report, express an opinion on the conformity
of the Company's annual financial statements to generally accepted accounting
principles.
In this context, the Audit and Finance Committee has met and held
discussions with management and the independent accountants. Management
represented to the Audit and Finance Committee that the Company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles, and the Audit and Finance Committee has reviewed and
discussed the consolidated
14
financial statements with management and the independent accountants. The Audit
and Finance Committee discussed with the independent accountants matters
required to be discussed by Statement on Auditing Standards No. 61
"Communication With Audit Committees".
The independent accountants provided to the Audit and Finance Committee
the written disclosures required by the Independence Standards Board Standard
No. 1 "Independence Discussion With Audit Committees". The Audit and Finance
Committee discussed with the accountants the accountants' independence.
The Audit and Finance Committee discussed with the Company's independent
accountants the plans for their audit. The Audit and Finance Committee met with
the independent accountants, with and without management present, and discussed
the results of their examinations, their evaluations of the Company's internal
controls, and the quality of the Company's financial reporting.
In reliance on these reviews and discussions, and the report of the
independent auditors, the Audit and Finance Committee recommended to the Board
of Directors, and the Board approved, that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended June 30,
2002, for filing with the Securities and Exchange Commission.
On July 24, 2002, the Company dismissed its previous independent public
accountants, Arthur Andersen LLP ("Arthur Andersen") and engaged
PricewaterhouseCoopers. This decision was approved by the Company's Board of
Directors, based on the recommendation of the Audit and Finance Committee. The
decision was based on interviews with large public accounting firms and
reflected the Audit Committee's judgment as to which firm was best suited to
deliver external audits to the Company.
The following fees were paid to Arthur Andersen for services rendered in
fiscal 2002:
Review Fees - The aggregate fees billed by Arthur Andersen for professional
services rendered for the reviews of the financial statements included in the
Company's Quarterly Reports on Form 10-Q for quarters in the fiscal year ended
June 30, 2002, were $11,000.
Financial Information Systems Design and Implementation Fees - Arthur Andersen
did not render professional services relating to financial information systems
design and implementation for the fiscal year ended June 30, 2002.
All Other Fees - The aggregate fees billed by Arthur Andersen for services
rendered to the Company, other than the services described above for the fiscal
year ended June 30, 2002 were $118,965. The vast majority of these fees relate
to tax preparation fees, review of Securities and Exchange Commission filings
and certain financial and tax advisory services in support of the Company.
The following fees were accrued or paid to PricewaterhouseCoopers for
services rendered with respect to the Company's operations for fiscal 2002:
Audit Fees - the aggregate fees billed by PricewaterhouseCoopers for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal year ended June 30, 2002, were $60,000.
Financial Information Systems Design and Implementation Fees -
PricewaterhouseCoopers did not render professional services relating to
financial information systems design and implementation for the fiscal year
ended June 30, 2002.
All Other Fees -PricewaterhouseCoopers did not render any other services to the
Company, other than the audit services described above, for the fiscal year
ended June 30, 2002.
15
The Audit and Finance Committee has recommended to the Board, and the
Board has approved, the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for fiscal 2003.
Audit and Finance Committee
Carl H. Rosner, Chair
Ranjit C. Singh
Joseph C. Abeles
PROPOSAL 2
APPROVE AND RATIFY AUDITORS
The firm of PricewaterhouseCoopers LLP, certified public accountants,
served as the independent auditors of the Company in connection with the audit
of the June 30, 2002 financial statements. As the Company engaged
PricewaterhouseCoopers LLP on July 24, 2002, PricewaterhouseCoopers did not
perform any services for which it was paid professional fees during the fiscal
year ended June 30, 2002. The Company has accrued amounts to be paid
PricewaterhouseCoopers for its services in connection with the audit of the June
30, 2002 financial statements.
On July 24, 2002, the Company dismissed its independent public
accountants, Arthur Andersen and engaged PricewaterhouseCoopers as its new
independent public accountants, effective immediately for the fiscal year ending
June 30, 2002. Arthur Andersen's reports on the Company's consolidated financial
statements for each of the fiscal years ended June 30, 2001 and June 30, 2000
did not contain an adverse opinion or a disclaimer of opinion, nor were
qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal year ended June 30, 2001 and June 30, 2000, and the subsequent
interim period through March 31, 2002, there were no disagreements between the
Company and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to Arthur Andersen's satisfaction, would have caused Arthur Andersen to
make reference to the subject matter of any such disagreements in connection
with their reports on the Company's financial statements for such years.
During the fiscal years ended June 30, 2001 and June 30, 2002 and the
subsequent interim period through March 31, 2002, the Company did not consult
with PricewaterhouseCoopers with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events required by applicable
securities laws.
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending June 30, 2003. This
selection will be presented to the stockholders for their approval at the
Meeting. The Board of Directors recommends a vote in favor of the proposal to
approve and ratify this selection, and the persons named in the enclosed proxy
(unless otherwise instructed therein) will vote such proxies FOR this proposal.
If the stockholders do not approve this selection, the Board of Directors will
reconsider its choice.
The Company has been advised by PricewaterhouseCoopers LLP that a
representative will be present at the Meeting and will be available to respond
to appropriate questions. In addition, the Company intends to give such
representative an opportunity to make any statements if he or she should so
desire.
The Board of Directors recommends a vote in favor of the proposal to
approve and ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year
16
ending June 30, 2003, and, unless otherwise indicated therein, the shares
represented by the enclosed properly executed proxy will be voted FOR such
proposal.
PROPOSAL 3
AMENDMENT TO 2000 STOCK OPTION PLAN
The Board of Directors is proposing an amendment to the Ultralife
Batteries, Inc. 2000 Stock Option Plan (the "2000 Option Plan") to: (i) increase
the number of shares of the Company's Common Stock reserved for issuance under
the 2000 Option Plan by 500,000 shares, to 1,000,000 shares; and (ii) eliminate
any references to post-termination time periods within which outstanding options
can be exercised and provide the Compensation and Stock Option Committee with
the discretion to determine the terms of post-termination exercises.
The Board of Directors believes that stock options are invaluable tools
for the recruitment, retention and motivation of qualified employees, including
officers, directors and other persons who can contribute materially to the
Company's success. The Company has historically used stock options for these
purposes. In 1992, the Company adopted the Ultralife Batteries, Inc. 1992 Stock
Option Plan (the "1992 Plan"). The 1992 Plan expired on October 13, 2002.
Options for approximately 20,000 shares which were granted pursuant to the 1992
Plan have lapsed, unexercised since June 30, 2002. In addition, options for an
additional 515,000 shares are scheduled to terminate at various times through
December 31, 2002. The Company expects that all or a significant amount of these
currently outstanding options will lapse unexercised because the terms of the
options will soon expire and because the exercise prices of those options are
significantly higher than the price at which the Company's Common Stock is
currently trading. The number of shares proposed to be added to the 2000 Option
Plan is approximately the same number of shares subject to issuance upon
exercise of these options that are currently outstanding and expected to lapse
and represents the maximum number of shares that could be issued pursuant to the
grant of future options under the 2000 Option Plan, if amended. The 2000 Option
Plan has 81,300 shares available for future issuance pursuant to new options
grants as of September 30, 2002. The Board of Directors believes that it is
important to have additional shares available to provide adequate flexibility to
meet future needs. In effect, the additional shares proposed to be added to the
2000 Option Plan are merely replacement shares for those options that are
expected to lapse unexercised. The Company, by proposing this amendment to the
2000 Option Plan, is maintaining the status quo with respect to options
available for future grants. To the extent any of the currently outstanding
options that the Company believes will lapse unexercised are, in fact,
exercised, the Company, through its Compensation and Management Committee, will
remove that number of shares from consideration for future issuance under the
2000 Option Plan, as amended.
Section 9(a) of the 2000 Option Plan provides that upon the termination of
an employee's employment or a consultant's consulting relationship with the
Company or a director's term of office with the Company, the options held by
such person shall terminate on the day three months following such termination
of employment, consultancy or directorship; provided, however, that the
Compensation and Management Committee shall have the discretion to provide that
upon termination of an employee's employment or a consultant's consulting
relationship as a result of retirement, disability or death, the optionholder or
the optionholder's legal representative may exercise any outstanding and
then-exercisable installments of that person's options for a period not to
exceed: (i) one year from the date of such termination in the case of death or
permanent and total disability, and (ii) three months from the date of such
termination in the case of retirement or other disability. In no event, however,
shall the period extend beyond the expiration of the initial option term or
shall any option be exercisable for more than the maximum number of shares that
the optionholder was entitled to purchase at the date of retirement, disability,
or death, as the case may be.
In order to provide greater flexibility in dealing with post-termination
exercises of options granted under the 2000 Option Plan, the Company is
proposing to amend the 2000 Option Plan to eliminate any references to
post-termination time periods within which outstanding options can be exercised
and
17
provide the Compensation and Management Committee with the discretion to
determine the terms of post-termination exercises. Accordingly, the Company
proposes that Section 9(a) of the 2000 Option Plan be amended to read as
follows:
"(a) Upon the termination of an Employee's employment or a
Consultant's consulting relationship with the Corporation or a Director's
term of office with the Corporation, the Committee shall have the
discretion to provide that upon termination of an Employee's employment or
a Consultant's consulting relationship or a Director's term of office,
such Grantee or his or her legal representative may exercise any
outstanding and then-exercisable installments of his or her Options for a
period to be determined by the Committee in its sole discretion; provided,
however, that in no event shall the period extend beyond the expiration of
the Option term. In no event shall any Option be exercisable for more than
the maximum number of shares that the Grantee was entitled to purchase at
the date of termination of an Employee's employment or a Consultant's
consulting relationship with the Corporation or a Director's term of
office with the Corporation. In the case of an Employee or Consultant, the
transfer among the Corporation and any Subsidiary shall not be deemed to
be a termination of the employment or consulting relationship, and a
change from the status of an Employee to a Consultant or from a Consultant
to an Employee shall not be deemed to be a termination of the employment
or consultant's relationship."
The Board of Directors recommends a vote in favor of the proposal to amend
the 2000 Option Plan to increase the number of shares of Common Stock available
for issuance from 500,000 to 1,000,000 shares, and to eliminate any references
to post-termination time periods within which outstanding options can be
exercised and provide the Compensation and Stock Option Committee with the
discretion to determine the terms of post-termination exercises, and (unless
otherwise directed therein) it is intended that the shares represented by the
enclosed properly executed proxy will be voted FOR such proposal.
Summary of 2000 Option Plan
The 2000 Option Plan is intended to encourage stock ownership by the
Company's executive officers, key employees, outside directors and consultants
and advisors to provide an incentive for such persons to expand and improve the
Company's profits and to assist the Company in attracting and retaining key
employees, directors, consultants and advisors. The 2000 Option Plan provides
that options granted under the 2000 Plan will be designated as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended, or
as non-statutory stock options by the Compensation and Management Committee of
the Board of Directors (the "Committee"), which also will have discretion as to
the persons to be granted options, the number of shares subject to the options
and the terms of the option agreements. Only employees will be entitled to
receive incentive stock options, while outside directors, consultants and
advisors will only be entitled to receive non-statutory stock options.
The 2000 Option Plan provides that (i) all options granted thereunder
shall be exercisable during a period of no more than ten years from the date of
grant (five years for options granted to holders of 10% or more of the
outstanding shares of Common Stock), and (ii) the option exercise price for
incentive stock options shall be at least equal to 100% of the fair market value
of the Company's Common Stock on the date of grant (110% for options granted to
holders of 10% or more of the outstanding shares of Common Stock) and the option
exercise price for non-statutory stock options shall be at least equal to 85% of
the fair market value of the Company's Common Stock on the date of grant. The
aggregate fair market value, as determined on the date of grant, of shares of
Common Stock for which incentive stock options are first exercisable under the
terms of the 2000 Option Plan by an optionholder during any calendar year cannot
exceed $100,000. Except with respect to options granted to directors as
described below, the exercise price of a non-statutory stock option is
determined by the Committee.
18
All options (except those options granted to directors) generally may be
exercised only if the optionholder remains continuously associated with the
Company from the date of grant to the date of exercise. Options may, however, be
exercised within certain specified time periods upon termination of association
with the Company or upon the death or disability of an optionholder. Incentive
stock options are not transferable by the holder of the option. The 2000 Option
Plan continues the Company's policy of granting five-year options of 1,500
shares each to its directors on the last day of each calendar quarter and
options under the 2000 Option Plan will be granted for that purpose.
The 2000 Option Plan provides that in the event of any reclassification,
recapitalization, merger, reorganization, issuance of warrants, rights or
debentures, stock dividend, stock split or reverse stock split, cash dividend,
property dividend, combination or exchange of shares, repurchase of shares or
any other change in corporate structure which in the judgment of the Committee
materially affects the value of shares, the Committee may adjust the number of
shares and the exercise price in a manner it deems appropriate.
Certain options authorized to be granted under the 2000 Option Plan will
be treated as non-statutory stock options for federal income tax purposes. Under
federal income tax law presently in effect, no income is realized by the grantee
of a non-statutory stock option granted pursuant to the 2000 Option Plan until
the option is exercised. At the time of exercise of a non-statutory stock
option, the optionee will realize ordinary compensation income, and the Company
will generally be entitled to a deduction, in the amount by which the market
value of the shares subject to the option at the time of exercise exceeds the
exercise price. The Company's deduction is conditioned upon withholding on the
income amount. Upon the sale of shares acquired upon exercise of a non-statutory
stock option, the excess of the amount realized from the sale over the
optionee's tax basis then the shares will be taxable.
Certain options authorized to be granted under the 2000 Option Plan are
intended to qualify as incentive stock options for federal income tax purposes.
Under federal income tax law currently in effect, the optionee will recognize no
income, and the Company will be entitled to no deduction, upon grant or upon
improper exercise of the incentive stock option. The excess of the fair market
value of the shares on the exercise date over the exercise price will, however,
be taken into account in calculating the employee's alternative minimum taxable
income. If any employee exercises an incentive stock option and does not dispose
of any of the option shares within two years following the date of grant of the
option and within one year following the date of exercise of the option, then
any gain realized upon subsequent disposition of the shares received on exercise
of the option will be treated as income from the sale or exchange of a capital
asset. If an employee disposes of shares acquired upon exercise of an incentive
stock option before the expiration of either the one-year holding period or the
two-year waiting period, any amount realized will be taxable as ordinary
compensation income in the year of such disqualifying disposition to the extent
of the lesser of the excess of the fair market value of the shares on the
exercise date over the exercise price or the excess of the fair market value of
the shares on the date of disposition over the employee's tax basis in the
shares. If the employee disposes of the shares in a transaction in which loss
would not be recognized, the amount realized will be taxable as ordinary
compensation income to the extent that the fair market value of the shares on
the exercise date exceeds the exercise price. The Company will not be allowed
any deduction for federal income tax purposes at either the time of the grant or
exercise of an incentive stock option. Upon any disqualifying disposition by an
employee, the Company will generally be entitled to a deduction to the extent
the employee realized ordinary income.
The above summary of the 2000 Option Plan is qualified in its entirety by
reference to the full text of the 2000 Option Plan, a copy of which is attached
to this Proxy Statement as Appendix A.
19
PROPOSAL 4
CONVERSION OF $600,000 CONVERTIBLE SUBORDINATED DEBENTURE ISSUED
TO JOSEPH C. ABELES
In April 2002, the Company authorized a private placement to accredited
investors only and the potential issuance of up to 2,300,000 shares of its
Common Stock. One of the Company's directors, Joseph C. Abeles, in order to
assist the Company in its capital raising efforts, expressed a willingness to
participate in the private placement. Although the private placement was
structured as a straight common stock equity investment, because of NASDAQ rules
and regulations regarding stockholder approval of issuances of stock to officers
or directors, the Company issued to Mr. Abeles a debenture for $600,000 which,
by its terms, automatically converts to shares of the Company's Common Stock at
the rate of $3.00 per share (the private placement price) upon obtaining
stockholder approval of the conversion at the Meeting. By structuring the
investment in this manner, there was no immediate liquidity to the investor, the
conversion price was fixed, the conversion would be automatic upon obtaining
stockholder approval regardless of the market price of the common stock at the
date of conversion, and all discretion would have been removed from the
conversion portion of the transaction. The debenture also provides that upon
obtaining stockholder approval, thereby triggering an automatic conversion of
the debenture, any interest that otherwise would have accrued on the debenture
will be forgiven.
If stockholder approval of the conversion is not obtained at the Meeting,
the Company will be obligated to pay the full principal amount of the debenture
plus all accrued interest on December 31, 2002. Interest accrues on the
debenture at the rate of 10% per annum.
The 200,000 shares of the Company's Common Stock to be issued upon the
conversion of the debenture, if stockholder approval is obtained, are reflected
in Mr. Abeles' beneficial ownership under "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" appearing earlier in this Proxy Statement. As
of October 25, 2002, the Company's Common Stock was trading at $2.20 per share.
The Company would prefer to retain its limited cash resources to fund operations
rather than repaying the debt to Mr. Abeles. The Board of Directors recommends a
vote in favor of the proposal to authorize the conversion of the debenture, and
the persons named in the enclosed proxy (unless otherwise instructed therein)
will vote such proxies FOR this proposal. If the stockholders do not approve
this proposal, the Company will need to pay the obligation represented by the
debenture, including accrued interest, or arrange for extended or refinanced
payment terms.
Other Matters
The Board of Directors does not intend to present, and has not been
informed that any other person intends to present, any matters for action at the
Meeting other than those specifically referred to in this Proxy Statement. If
any other matters properly come before the Meeting, it is intended that the
holders of the proxies will act in respect thereof in accordance with their best
judgment.
A representative of PricewaterhouseCoopers LLP, the Company's principal
accountant, plans to be present at the Meeting, will have the opportunity to
make a statement, and is expected to be available to respond to questions.
Submission of Stockholder Proposals
Under Rule 14a-8(c) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), stockholder proposals intended for inclusion in the Proxy
Statement for the Company's 2003 Annual Meeting of Stockholders must be
submitted in writing to the Company to the Corporate Secretary at 2000
Technology Parkway, Newark, New York 14513, and must be received by the Company
by June 30, 2003.
20
Any stockholder proposal submitted for consideration at the Company's 2003
Annual Meeting of Stockholders but not submitted for inclusion in the Proxy
Statement for that meeting that is received by the Company after September 12,
2003 will not be considered filed on a timely basis with the Company under Rule
14a-4(c)(1) of the Exchange Act. For such proposals that are not timely filed,
the Company retains discretion to vote proxies it receives. For such proposals
that are timely filed, the Company retains discretion to vote proxies it
receives provided that the Company includes in its Proxy Statement advice on the
nature of the proposal and how it intends to exercise its voting discretion and
the proponent of any such proposal does not issue its own proxy statement.
The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 2002, as filed with the SEC, is included in the Annual Report to
Stockholders which accompanies this Proxy Statement.
October 28, 2002 By Order of the Board of Directors
Ranjit C. Singh
Chairman of the Board of Directors
21
PROXY
ULTRALIFE BATTERIES, INC.
Annual Meeting of Stockholders on December 12, 2002
Proxy solicited on behalf of the Board of Directors
The undersigned hereby appoints each of John D. Kavazanjian and Peter F.
Comerford as the undersigned's proxy, with full power of substitution, to vote
all of the undersigned's shares of Common Stock in Ultralife Batteries, Inc.
(the "Company") at the Annual Meeting of Stockholders of the Company to be held
on December 12, 2002 at 10:30 A.M. local time, at the JP Morgan Chase Conference
Center, 270 Park Avenue, 11th Floor, Room C, New York, New York 10017, or at any
adjournment, on the matters described in the Notice of Annual Meeting and Proxy
Statement and upon such other business as may properly come before such meeting
or any adjournments thereof, hereby revoking any proxies heretofore given.
(Continued and to be signed on the reverse side)
|X| Please mark your votes as in this example using dark ink only.
Each properly executed proxy will be voted in accordance with
specifications made on the reverse side hereof. Unless authority to vote for one
or more of the nominees is specifically withheld according to the instructions,
a signed Proxy will be voted FOR the election of the named nominees for
directors and, unless otherwise specified, FOR the other proposals listed herein
and described in the accompanying proxy statement.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
check the box to vote "FOR" all nominees and strike a line through the nominee's
name in the list below.)
1. Election of Directors.
Withhold Authority
For all nominees to vote for all
listed below nominees listed below
|_| |_|
Nominees: Joseph C. Abeles
Joseph N. Barrella
Patricia C. Barron
Daniel W. Christman
John D. Kavazanjian
Carl H. Rosner
Ranjit C. Singh
2. Proposal to ratify PricewaterhouseCoopers LLP as the Company's independent
auditors.
|_| FOR
|_| AGAINST
|_| ABSTAIN
3. Proposal to amend the Company's 2000 Stock Option Plan to:
(a) increase the number of shares of the Company's Common Stock
available for issuance under that Plan from 500,000 to 1,000,000
shares; and
(b) eliminate any reference to post-termination time periods within
which outstanding options can be exercised and provide the
Compensation and Stock Option Committee with the discretion to
determine the terms of post-termination exercises.
|_| FOR
|_| AGAINST
|_| ABSTAIN
4. Proposal to authorize the conversion of a $600,000 Convertible
Subordinated Debenture issued to Joseph C. Abeles, a director of the
Company, on April 23, 2000 to 200,000 shares of the Company's Common
Stock.
|_| FOR
|_| AGAINST
|_| ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting and any adjournments
thereof.
The undersigned acknowledges receipt with this Proxy of a copy of the
Notice of Annual Meeting and Proxy Statement dated October 28, 2002, describing
more fully the proposals set forth herein.
_____________________________________ Date: _________________, 2002
Signature
_____________________________________ Date: _________________, 2002
Signature if held jointly
Sign exactly as set forth herein. If signed as executor, administrator,
trustee or guardian, indicate the capacity in which you are acting. Proxies by
corporations should be signed by a duly authorized officer and bare corporate
seal. Please sign and return the proxy card promptly in enclosed envelope.
ULTRALIFE BATTERIES, INC
2000 STOCK OPTION PLAN
Section 1. Purpose.
The Plan authorizes the Committee (as hereafter defined) to provide key
Employees (including officers of the Corporation), Directors and Consultants of
the Corporation and its Subsidiaries, who are in a position to contribute
materially to the long-term success of the Corporation, with options to acquire
common stock of the Corporation, in accordance with the terms specified herein.
The Corporation believes that this incentive program will cause those persons to
increase their interest in the Corporation's welfare, and aid in attracting and
retaining Employees, Directors and Consultants of outstanding ability.
Section 2. Definitions.
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Change in Control" shall mean the occurrence of any of the following:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Corporation
representing 30% or more of the voting power of the then outstanding securities
of the Corporation; (ii) during any period of two consecutive calendar years
there is a change of 25% or more in the composition of the Board of the
Corporation in office at the beginning of the period except for changes approved
by at least two-thirds of the Directors then in office who were Directors at the
beginning of the period; (iii) the stockholders of the Corporation approve an
agreement providing for (A) the merger or consolidation of the Corporation with
another corporation where the stockholders of such corporation, immediately
after the merger or consolidation, own shares entitling such stockholders to 50%
or more of all votes (without consideration of the rights of any class of stock
to elect Directors by separate class vote) to which all stockholders of the
corporation issuing cash or securities in the merger or consolidation would be
entitled in the election of directors or where the members of the Board of
Directors of such corporation, immediately after the merger or consolidation,
constitute a majority of the Board of Directors of the corporation issuing cash
or securities in the merger or consolidation, or (B) the sale or other
disposition of all or substantially all the assets of the Corporation, or a
liquidation, dissolution or statutory exchange of the Corporation; or (iv) any
person has commenced, or announced an intention to commence, a tender offer or
exchange offer for 30% or more of the voting power of the then-outstanding
securities of the Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
(d) "Committee" shall mean a Committee of not less than two Directors who
are "Non-Employee Directors," as that term is defined and interpreted pursuant
to Rule 16b-3 under the Exchange Act. The Committee shall be appointed by and
serve at the pleasure of the Board.
A-1
(e) "Consultant" shall mean any consultant of the Corporation or its
Subsidiaries.
(f) "Control Person" shall mean any person who, as of the date of grant of
an Option, owns (within the meaning of Section 422A(b)(6) of the Code) stock
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Corporation or of any parent or Subsidiary.
(g) "Corporation" shall mean Ultralife Batteries, Inc., a Delaware
corporation.
(h) "Director" shall mean any member of the Board.
(i) "Employee" shall mean any employee of the Corporation or its
Subsidiaries, including Directors who are otherwise employed by the Corporation.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934 as it
may be amended from time to time.
(k) "Fair Market Value" shall mean for any day (i) if the Corporation is a
registrant under Section 12 of the Exchange Act, the closing price of the Stock
in the over-the-counter market, as reported through the National Association of
Securities Dealers Automated Quotation System or, if the stock is listed or
admitted to trading on any national securities exchange, the last reported sale
price on such exchange or, (ii) if the Corporation is not a registrant under
Section 12 of the Exchange Act, the price of the Stock will be determined by the
Board on the date of grant but will not be less than the par value of such
Stock.
(l) "Grantee" shall mean a Person granted an Option under the Plan.
(m) "ISO" shall mean an Option granted pursuant to the Plan to purchase
shares of Stock and intended to qualify as an incentive stock option under
Section 422 of the Code, as now or hereafter constituted.
(n) "NQSO" shall mean an Option granted pursuant to the Plan to purchase
shares of the Stock that is not an ISO.
(o) "Options" shall refer collectively to NQSOs and ISOs subject to the
Plan.
(p) "Parent" shall mean any parent of the Corporation as defined in
Section 425 of the Code.
(q) "Plan" shall mean this 2000 Stock Option Plan as set forth herein and
as amended from time to time.
(r) "Securities Act" shall mean the Securities Act of 1933 as it may be
amended from time to time.
(s) "Stock" shall mean shares of the Common Stock of the Corporation.
A-2
(t) "Subsidiary" shall mean any subsidiary corporation as defined in
Section 425 of the Code.
Section 3. Shares of Stock Subject to the Plan.
Subject to the provisions of Section 8, the Stock which may be issued or
transferred pursuant to Options granted under the Plan shall not exceed 500,000
shares in the aggregate. Stock issuable upon the exercise of any Option may be
authorized but unissued shares or reacquired shares of Stock. If any unexercised
Options lapse or terminate for any reason, the Stock covered thereby may again
be optioned. More than one Option may be granted to one person.
Section 4. Administration of the Plan.
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have the authority to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of stock option agreements
thereunder and to make all other determinations necessary or advisable for the
administration of the Plan. Any controversy or claim arising out of or related
to the Plan or the Options granted thereunder shall be determined unilaterally
by, and at the sole discretion of, the Committee. The provisions of stock option
agreements for Options granted under Section 6 hereof may provide that, upon the
occurrence of a Change in Control specified in Section 2(b)(iii) hereof, the
Committee may require the cancellation for cash of outstanding Options or the
issuance of comparable replacement options granted by the entity.
Section 5. Types of Options.
Options granted under the Plan may be of two types: ISOs and NQSOs. The
Committee shall have the authority and discretion to grant to an eligible
Employee either ISOs, NQSOs, or both, but shall clearly designate the nature of
each Option at the time of grant. Consultants and Directors shall only receive
NQSOs.
Section 6. Grant of Options to Employees, Consultants and Directors.
(a) Key Employees and Consultants of the Corporation and its Subsidiaries
shall be eligible to receive Options under the Plan. Employees shall be eligible
to receive ISOs and NQSOs; Consultants shall be eligible to receive NQSOs only.
(b) The exercise price per share of Stock subject to an Option granted to
an Employee or Consultant shall be determined by the Committee; provided,
however, that (i) the exercise price of each share subject to an ISO shall be
not less than 100% of the Fair Market Value of a share of the Stock on the date
such ISO is granted, (ii) such exercise price shall not be less than 110% of
such Fair Market Value for any ISO granted to a Control Person, and (iii) the
exercise price of each share subject to a NQSO shall be not less than 85% of the
Fair Market Value of a share of the Stock on the date such NQSO is granted.
(c) The term of each Option granted to an Employee or Consultant shall be
determined by the Committee, provided that no Option shall be exercisable more
than ten years
A-3
from the date such Option is granted, and provided further that no ISO granted
to a Control Person shall be exercisable more than five years from the date of
Option grant.
(d) The Committee shall determine and designate from time to time the
Employees and Consultants who are to be granted Options, the nature of each
Option granted and the number of shares of Stock subject to each such Option.
(e) Notwithstanding any other provisions hereof, the aggregate Fair Market
Value (determined at the time the ISO is granted) of the Stock with respect to
which ISOs are exercisable for the first time by any Employee during any
calendar year under all plans of the Corporation and any Parent or Subsidiary
corporation shall not exceed $100,000.
(f) The Committee, in its sole discretion, shall determine whether any
Option granted to an Employee or Consultant shall become exercisable in one or
more installments and specify the installment dates. The Committee may also make
such other provisions, not inconsistent with the terms of this Plan as it may
deem desirable, including such provisions as it may deem necessary to qualify
any ISO under the provisions of Section 422 of the Code. The Committee, in its
discretion, shall have the power to accelerate the period or periods during
which Options become exercisable. Notwithstanding any determination by the
Committee regarding the exercise period of any Option granted to an Employee or
Consultant, all such Options shall immediately become exercisable upon a Change
in Control of the Corporation.
(g) The Committee may, at any time, grant new or additional options to any
eligible Employee or Consultant who has previously received Options under this
Plan, or options under other plans, whether such prior Options or other options
are still outstanding, have been exercised previously in whole or in part, or
have been canceled. The exercise price of such new or additional Options may be
established by the Board, subject to Section 6(b) hereof, without regard to such
previously granted Options or other options.
(h) No Option shall be granted under this Section 6 to Non-Employee
Directors unless that option, (i) provides that the Stock received upon exercise
of the Option may not be disposed of before the first day following the sixth
month anniversary date the Option was granted, or (ii) is granted pursuant to
Section 6(i) below.
(i) On the last day of each calendar quarter, commencing December 31,
2000, there shall be granted to each Director of the Corporation on such date,
including Directors who are also employees of the Corporation, a NQSO to
purchase 1,500 shares of Stock, up until the fifth anniversary of the grant
date, for a price equal to the closing price of the Stock on the Grant Date.
These options will be deemed vested on the date that they are granted.
(j) In no event shall any issued and outstanding option be repriced to a
lower exercise price at any time during the term of such option, without the
prior affirmative vote of a majority of shares of voting capital stock present
at a stockholders meeting in person or by proxy and entitled to vote thereon.
Any amendment or repeal of this provision shall require the affirmative vote of
a majority of shares of voting capital stock present at a stockholders meeting
in person or by proxy and entitled to vote thereon.
A-4
Section 7. Exercise of Options.
(a) Upon the exercise of any Option, the Grantee shall pay the exercise
price for the Stock being purchased in the manner provided in the particular
stock option agreement, including payment for such shares by surrender of shares
of Stock (at their Fair Market Value) if permitted by such stock option
agreement, including Stock acquired pursuant to the Option then being exercised.
(b) The number of shares which are issued pursuant to the exercise of an
Option shall be charged against the maximum limitation on shares set forth in
Section 3 hereof.
(c) Except as provided in Section 9, no Option granted to an Employee or
Consultant shall be exercised unless at the time of such exercise the Grantee is
then an Employee or Consultant.
(d) Before the Corporation issues Stock to a Grantee pursuant to the
exercise of a NQSO, the Corporation shall have the right to require that the
Grantee make such provisions, or furnish the Corporation such authorization,
necessary or desirable so that the Corporation may satisfy its obligation, under
applicable income tax laws, to withhold for income or other taxes due upon or
incident to such exercise. The Committee may adopt such rules, forms, and
procedures as it considers necessary or desirable to implement this Section
7(d), which rules, forms, and procedures shall be binding upon all Grantees, and
which shall be applied uniformly to all Grantees similarly situated.
Section 8. Adjustment Upon Changes in Capitalization.
In the event of any reclassification, recapitalization, merger,
consolidation, reorganization, issuance of warrants, rights or debentures, stock
dividend, stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares or any other change in
corporate structure which in the judgment of the Committee materially affects
the value of shares, the Committee may determine the appropriate adjustment, if
any, to the number and class of shares and the exercise price per share set
forth in any Option theretofore granted, provided that no such adjustments shall
be made to any ISO without the Grantee's consent, if such adjustment would cause
such ISO to fail to qualify as such.
Section 9. Termination of Relationship with the Corporation.
(a) Except as provided below in this Section 9(a), upon the termination of
an Employee's employment or a Consultant's consulting relationship with the
Corporation or a Director's term of office with the Corporation (unless the
Director continues to be an Employee or consultant to the Corporation), such
Grantee's options shall terminate on the day three months following such
termination of employment, consultancy or directorship. The Committee shall have
the discretion to provide that upon termination of an Employee's employment or a
Consultant's consulting relationship as a result of retirement, disability or
death, such Grantee or his or her legal representative may exercise any
outstanding and then exercisable installments of his or her Options for a period
not to exceed: (i) one year from the date of such termination in the case of
death or permanent and total disability (within the meaning of Section 22(e)(3)
of the Code), and (ii) three months from the date of such termination in the
case of retirement or other
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disability; provided, however, that in no event shall the period extend beyond
the expiration of the Option term. In no event shall any Option be exercisable
for more than the maximum number of shares that the Grantee was entitled to
purchase at the date of, retirement, disability, or death as the case may be. In
the case of an Employee or Consultant, the transfer among the Corporation and
any Subsidiary shall not be deemed to be a termination of the employment or
consulting relationship, and a change from the status of an Employee to a
Consultant or from a Consultant to an Employee shall not be deemed to be a
termination of the employment or consultant relationship.
(b) Subject to the foregoing, in the event of death, Options may be
exercised by a Grantee's legal representative.
Section 10. General Provisions.
(a) Each Option grant shall be evidenced by a written stock option
agreement containing such terms and conditions, not inconsistent with this Plan,
as the Committee shall approve. ISOs and NQSOs may be granted to Employees
simultaneously and subject to a single stock option agreement; provided,
however, that in no event shall a NQSO be granted in tandem with an ISO such
that the exercise of one affects the right to exercise the other. The terms and
provisions of such stock option agreements (including the exercise price
specified therein) may vary among Grantees and among different Options granted
to the same Grantee.
(b) The grant of an Option in any year shall not give the Grantee any
right to similar grants in future years or any right to continue such Grantee's
employment or consultant relationship with the Corporation or its Subsidiaries.
All Grantees shall remain subject to discharge to the same extent as if the Plan
were not in effect.
(c) No Grantee, and no beneficiary or other persons claiming under or
through the Grantee shall have any right, title or interest by reason of any
Option to any particular assets of the Corporation or its Subsidiaries, or any
shares of Stock allocated or reserved for the purposes of the Plan or subject to
any Option except as set forth herein. The Corporation shall not be required to
establish any fund or make any other segregation of assets to assure the payment
of any Option.
(d) No Option or other right under the Plan shall be subject to
anticipation, sale, assignment, pledge, encumbrance, or charge except by will or
the laws of descent and distribution, and an Option shall be exercisable during
the Grantee's lifetime only by the Grantee.
(e) Notwithstanding any other provision of this Plan or stock option
agreements made pursuant thereto, the Corporation shall not be required to issue
or deliver any certificate or certificates for shares of Stock under this Plan
prior to fulfillment of all of the following conditions:
(1) The listing, or approval for listing upon notice of issuance, of
such shares on any securities exchange on which the Stock may then be
traded;
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(2) Any registration or other qualification of such shares under any
state or federal law or regulation, or other qualification which the Board
shall, in its absolute discretion and upon the advice of counsel, deem
necessary or advisable;
(3) The obtaining of any other consent approval or permit from any
state or federal government agency which the Board shall, in its absolute
discretion and upon the advice of counsel, determine to be necessary or
advisable; and
(4) The execution by the Grantee (or the Grantee's legal
representative) of such written representation that the Committee may in
its sole discretion deem necessary or advisable to the effect that the
shares then being purchased are being purchased for investment with no
present intention of reselling or otherwise disposing of such shares in
any manner which may result in a violation of the Securities Act of 1933,
as amended, and the placement upon certificates for such shares of an
appropriate legend in connection therewith.
(f) The issuance of shares of Stock to Grantees or to their legal
representatives shall be subject to any applicable taxes and other laws or
regulations of the United States or of any state having jurisdiction thereof.
(g) In the case of a grant of an Option to any Employee or Consultant of a
Subsidiary, the Corporation may, if the Committee so directs, issue or transfer
the shares covered by the Option to the Subsidiary, for such lawful
consideration as the Committee may specify, upon the condition or understanding
that the Subsidiary will transfer the shares to the Employee or Consultant in
accordance with the terms of the Plan and the stock option agreement relating to
such Option.
Section 11. Amendment or Termination.
Subject to the provisions of Section 6(j), the Board may, at any time,
alter, amend, suspend, discontinue or terminate this Plan; provided, however,
that no such action shall adversely affect the rights of Grantees to Options
previously granted hereunder and, provided further, however, that any
stockholder approval necessary or desirable in order to comply with Rule 16b-3
under the Exchange Act or with Section 422 of the Code (or other applicable law
or regulation) shall be obtained in the manner required therein.
Section 12. Duration of Plan.
This Plan is effective upon its adoption by the Board on September 15,
2000, subject to the approval of the Corporation's stockholders. This Plan shall
terminate at the close of business on September 15, 2010, and no Option may be
granted under the Plan thereafter, but such termination shall not affect any
Options theretofore granted.
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