pre14a-20090609.htm
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
SCHEDULE 14A
Proxy Statement Pursuant to Section
14(a) of the Securities Exchange Act of 1934
Filed by
the Registrant T
Filed by
a Party other than the Registrant o
Check the
appropriate box:
T Preliminary Proxy
Statement o Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
o
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material under Rule 14a-12
AROTECH
CORPORATION
(Exact Name of Registrant as
Specified in Charter)
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Payment
of Filing Fee (Check the appropriate box):
T No fee
required.
o Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1)
Title of each class of securities to which transaction applies:
(2)
Aggregate number of securities to which transaction applies:
(3)
Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4)
Proposed maximum aggregate value of transaction:
(5)
Total fee paid:
o Fee
paid previously with preliminary materials.
o Check box if any part of the fee
is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of its
filing..
(1)
Amount Previously Paid:
(2)
Form, Schedule or Registration Statement No.
(3)
Filing Party:
(4)
Date Filed:
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Arotech
Corporation
1229 Oak
Valley Drive
Ann Arbor,
Michigan 48108
Tel: (800)
281-0356 Fax: (734) 761-5368
http://www.arotech.com
Nasdaq:
ARTX
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Robert
S. Ehrlich
Chairman
and Chief Executive Officer
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April 30,
2009
Dear
Stockholder:
It is our
pleasure to invite you to the 2009 Annual Meeting of Stockholders of Arotech
Corporation, a Delaware corporation, to be held at 4:00 p.m. local time on
Tuesday, June 9, 2009 at the offices of Lowenstein Sandler P.C., 1251 Avenue of
the Americas, 18th Floor, New York, New York.
As per
our usual practice, we are distributing our proxy materials primarily over the
Internet. We believe that this method of distribution encourages more
stockholders to vote their proxies and reduces the cost and environmental impact
of mass distribution of paper proxy materials. If you wish to receive a paper or
e-mail copy of the proxy materials, you may do so in accordance with the
procedures set forth in the Notice of Internet Availability of Proxy Materials.
However, if you do decide that you want a paper copy of these proxy materials,
we urge you to simply print a copy from off the Internet (available at http://www.voteproxy.com)
rather than having your company incur the additional costs of printing and
mailing.
Whether
or not you plan to attend and regardless of the number of shares you own, it is
important that your shares be represented at the meeting. You are accordingly
urged to carefully review the proxy materials available to you on the Internet
and to vote electronically through the Internet or by telephone, all in
accordance with the procedures set forth in the Notice of Internet Availability
of Proxy Materials, in order to ensure your representation and the presence of a
quorum at the annual meeting. If you submit your proxy and then decide to attend
the annual meeting to vote your shares in person, you may still do so if you
hold your shares in your own name. Your proxy is revocable in accordance with
the procedures set forth in the Proxy Statement.
Sincerely,
Robert S.
Ehrlich
Chairman
of the Board of Directors
QUESTIONS
AND ANSWERS
Although
we encourage you to read the proxy statement in its entirety, we include these
Questions and Answers to provide background information and brief answers to
several questions that you may have about the Annual Meeting.
Q.
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What
is the purpose of the Annual
Meeting?
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A.
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At
our Annual Meeting, stockholders will act upon the matters outlined in the
accompanying Notice of Annual Meeting, including the following
proposals:
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1.
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To
elect three Class I directors for a three-year term ending in 2012 and
continuing until their successors are duly elected and qualified
(beginning on page 3);
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2.
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To
consider and act upon a proposal to amend our Amended and Restated
Certificate of Incorporation to reduce our authorized common stock from
250,000,000 shares to 50,000,000 shares (beginning on page
5);
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3.
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To
consider and act upon a proposal to amend our Amended and Restated
Certificate of Incorporation to authorize the Board of Directors, in
addition to the stockholders, to make, amend and repeal our by-laws
(beginning on page 7);
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4.
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To
consider and act upon a proposal to amend our Amended and Restated
Certificate of Incorporation to include a provision pursuant to which we
will be governed by Section 203 of the General Corporation Law of the
State of Delaware (beginning on page
9);
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5.
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To
consider and act upon a proposal to adopt the Arotech 2009 Equity
Incentive Plan and to reserve 5,000,000 shares of common stock for
issuance under such plan and to ratify certain previous issuances of
restricted stock (beginning on page 11);
and
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6.
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To
act upon all other business that may properly come before the meeting or
any postponements or adjournments
thereof.
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Q.
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Why
have I received a Notice of Internet Availability of Proxy
Materials?
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A.
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We
are distributing our proxy materials primarily over the Internet. We
believe that this method of distribution encourages more stockholders to
vote their proxies and reduces the cost and environmental impact of mass
distribution of paper proxy materials. You will not receive a printed copy
of our proxy materials unless you specifically request one. If you wish to
receive a paper or e-mail copy of the proxy materials, you may do so in
accordance with the procedures set forth in the Notice of Internet
Availability of Proxy Materials. However, if you do decide that you want a
paper copy of these proxy materials, we urge you to simply print a copy
from off the Internet rather than having your company incur the additional
costs of printing and mailing.
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Q.
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Why
is Arotech seeking stockholder approval for the first
proposal?
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A.
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Our
by-laws provide for a Board of one or more directors. The number of
directors is currently seven. Our Board is composed of three classes of
similar size. The members of each class are elected in different years, so
that only one-third of the Board is elected in any single year. Under
Delaware law, directors of a corporation are elected by the stockholders,
so we are presenting the Board of Directors’ slate of Class I directors
for election by the stockholders.
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Q.
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Why
is Arotech seeking stockholder approval for the second
proposal?
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A.
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We
pay franchise tax in Delaware based, in part, on the number of shares of
our common stock and preferred stock that are authorized in our
certificate of incorporation. Based on the authorized
shares
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currently
provided in our certificate of incorporation, we have been paying $165,000 per
year, which is the maximum franchise tax in Delaware. By reducing the authorized
number of shares as proposed, we anticipate reducing our annual franchise tax by
approximately $81,500.
Q.
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Why
is Arotech seeking stockholder approval for the third
proposal?
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A.
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Section
109 of the Delaware General Corporation Law provides that in order for a
board or directors to have the power to adopt, amend or repeal by-laws of
a corporation, the Certificate of Incorporation of the corporation must
include a provision conferring such powers upon the board of directors.
Absent such a provision, the by-laws of a corporation may be adopted,
amended or repealed only by the stockholders. We are seeking the
affirmative vote of the holders of a majority of the outstanding shares of
common stock entitled to vote at the meeting in order to approve an
amendment to our Amended and Restated Certificate of Incorporation to
permit the directors, in addition to the stockholders, to adopt,
amend or repeal our by-laws.
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Q.
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Why
is Arotech seeking stockholder approval for the fourth
proposal?
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A.
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We
believe that the protections that Section 203 of the Delaware General
Corporation Law would provide to us would be beneficial to the
stockholders because they would enhance the Board of Directors’ capacity
to defend against undesirable takeover attempts and, in the event of the
sale of the Company, enhance the Board of Directors’ ability to negotiate
a transaction that is in the stockholders’ best interest and maximizes
value for all stockholders. In the past, there have been a number of
surprise takeovers of publicly-owned corporations which have occurred
through tender offers or other sudden purchases of a substantial number of
outstanding shares. Such tender offers and other share purchases are often
followed by a merger or acquisition of the target corporation by the
purchaser without any negotiations with the Board of Directors of the
target corporation. Such a “two-tiered” business combination automatically
eliminates minority interests in the target corporation, often for less
valuable consideration per share than was paid in the purchaser’s original
tender offer or market purchases.
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Q.
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Why
is Arotech seeking stockholder approval for the fifth
proposal?
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A.
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We
believe that long-term incentive compensation programs align the interests
of management, employees and the stockholders to create long-term
stockholder value. The Board believes that plans such as the 2009 Equity
Incentive Plan increase our ability to achieve this objective, and, by
allowing for several different forms of long-term incentive awards, help
us to recruit, reward, motivate and retain talented personnel. The Board
believes strongly that the approval of the 2009 Equity Incentive Plan is
essential to our continued success. In particular, the Board believes that
our employees are our most valuable assets and that the awards permitted
under the 2009 Equity Incentive Plan are vital to our ability to attract
and retain outstanding and highly skilled individuals in the extremely
competitive labor markets in which we compete. Such awards also are
crucial to our ability to motivate employees to achieve our goals.
Furthermore, our current equity compensation plans for employees have all
either expired or have no more shares reserved for issuance under them,
making it imperative that we adopt a new plan. As part of the proposal, we
are asking stockholders to ratify certain previous grants of restricted
stock that were made to certain officers and employees. Ratification of
these grants as proposed will result in bringing them under the 2009
Equity Incentive Plan.
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Q.
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What
shares can I vote?
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A.
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All
shares of our common stock owned by you as of the close of business on the
record date, April [xx], 2009, may
be voted by you. These shares include (i) shares held directly in your
name as the stockholder of record, and (ii) shares held for you as the
beneficial owner through a stockbroker, bank or other nominee. Each share
of common stock owned by you entitles you to cast one vote on each matter
to be voted upon.
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Q.
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What
is the difference between holding shares as a stockholder of record and as
a beneficial owner?
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A.
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Most
of our stockholders hold their shares through a stockbroker, bank or other
nominee rather than directly in their own name. As summarized below, there
are some distinctions between shares held of record and those owned
beneficially.
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Stockholder
of Record
If your
shares are registered directly in your name with our transfer agent, American
Stock Transfer & Trust Company, you are considered, with respect to those
shares, the stockholder of record. As the stockholder of record, you have the
right to grant your voting proxy directly to us or to vote in person at the
Annual Meeting.
Beneficial
Owner
If your
shares are held in a stock brokerage account or by a bank or other nominee, you
are considered the beneficial owner of shares held in street name, and these
proxy materials are being forwarded to you by your broker, bank or nominee which
is considered, with respect to those shares, the stockholder of record. As the
beneficial owner, you have the right to direct your broker as to how to vote and
are also invited to attend the Annual Meeting. However, because you are not the
stockholder of record, you may not vote these shares in person at the Annual
Meeting unless you obtain a signed proxy from the record holder giving you the
right to vote the shares. If you do not vote your shares over the Internet or
otherwise provide the stockholder of record with voting instructions, your
shares may constitute broker non-votes. The effect of broker non-votes is more
specifically described in “What vote is required to approve each proposal?”
below.
Q.
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How
can I vote my shares in person at the Annual
Meeting?
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A.
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Shares
held directly in your name as the stockholder of record may be voted in
person at the Annual Meeting. If you wish to vote your shares at the
Annual Meeting, please bring the Notice of Internet Availability of Proxy
Materials that you received, as well as proof of
identification.
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Even
if you currently plan to attend the Annual Meeting, we recommend that you also
submit your proxy as described below so that your vote will be counted if you
later decide not to attend the meeting. Shares held beneficially in street name
may be voted in person by you at the Annual Meeting only if you obtain a signed
proxy from the record holder giving you the right to vote the
shares.
Q.
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What
vote is required to approve each
proposal?
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A.
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Holders
of a majority of the outstanding shares entitled to vote must be present,
in person or by proxy, at the Annual Meeting in order to have the required
quorum for the transaction of
business.
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With
respect to the first proposal (election of directors), directors are elected by
a plurality of the votes present in person or represented by proxy and entitled
to vote, and the director nominees who receive the greatest number of votes at
the Annual Meeting (up to the total number of directors to be elected) will be
elected. As a result, abstentions and “broker non-votes” (see below) will not
affect the outcome of the vote on this proposal.
With
respect to the second proposal (amending our certificate of incorporation to
reduce our authorized shares), the affirmative vote of a majority of all outstanding
shares of our common stock entitled to vote on this proposal is required
to approve the proposal. As a result, abstentions and “broker non-votes” (see
below) will have the same practical effect as a negative vote on this
proposal.
With
respect to the third proposal (amending our certificate of incorporation to
authorize our Board of Directors to amend our by-laws), the affirmative vote of
a majority of all outstanding
shares of our common stock entitled to vote on this proposal is required
to approve the proposal. As a result, abstentions and “broker non-votes” (see
below) will have the same practical effect as a negative vote on this
proposal.
With
respect to the fourth proposal (amending our certificate of incorporation to
include a provision pursuant to which we will be governed by Section 203 of the
General Corporation Law of the State of Delaware), the affirmative vote of a
majority of all outstanding
shares of our common stock entitled to vote on this proposal is required
to approve the proposal. As a result, abstentions and “broker non-votes” (see
below) will have the same practical effect as a negative vote on this
proposal.
With
respect to the fifth proposal (approval of the Arotech 2009 Equity Incentive
Plan), the affirmative vote of a majority of the total votes cast at the Annual
Meeting on this proposal, in person or by proxy, is required to approve the
proposal. As a result, abstentions will have the same practical effect as a
negative vote on this proposal, and “broker non-votes” (see below) will not
affect the outcome of the vote on this proposal.
Q.
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What
are “broker non-votes”?
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A.
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Broker
non-votes occur when nominees, such as banks and brokers holding shares on
behalf of beneficial owners, do not receive voting instructions from the
beneficial holders at least ten days before the meeting. If that happens,
the nominees may vote those shares only on matters deemed “routine” by the
New York Stock Exchange, such as the election of directors and the
adoption of the increase in authorized shares of common stock. Nominees
cannot vote on non-routine matters unless they receive voting instructions
from beneficial holders, resulting in so-called “broker non-votes.” The
effect of broker non-votes on each of the five proposals that will be
considered at the Annual Meeting is described above and in our proxy
statement.
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We
believe that the proposal for the election of directors and the three proposals
to amend our certificate of incorporation are considered to be “routine”
matters, and as a result we do not expect that there will be a significant
number of broker non-votes on these proposals. We believe that the proposal to
adopt the 2009 Equity Incentive Plan is not a “routine” matter, and as a result
there may be a significant number of broker non-votes on this
proposal.
Q.
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Where
can I find the voting results of the
meeting?
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A.
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We
will announce preliminary voting results at the meeting and publish final
results in a Current Report on Form 8-K to be filed by us with the SEC by
Thursday, June 11, 2009, by 5:30 p.m.
E.D.T.
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Q.
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Who
will count the votes?
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A.
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An
attorney with Lowenstein Sandler P.C., our outside counsel, will tabulate
the votes and act as the inspector of
elections.
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Q.
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Who
will bear the costs of this
solicitation?
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A.
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Our
Board of Directors is making this solicitation, and we will pay the entire
cost of preparing, assembling, printing, mailing and distributing these
proxy materials. If you choose to access the proxy materials over the
Internet, however, you are responsible for Internet access charges you may
incur. The solicitation of proxies or votes may be made in person, by
telephone or by electronic communication by our directors, officers and
employees, who will not receive any additional compensation for such
solicitation activities. We have hired Broadridge Financial Solutions,
Inc. to assist us in providing Internet access and in the distribution of
proxy materials. We will also reimburse
brokerage
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houses
and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding proxy and solicitation materials to
stockholders.
A.
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You
should read this proxy statement carefully and promptly submit your proxy
card or vote by telephone or the Internet as provided on the proxy card to
ensure that your vote is counted at the Annual
Meeting.
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Q.
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How
do I vote if I hold shares
directly?
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A.
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You
may vote your shares by attending the Annual Meeting in person and
completing a ballot or returning your validly executed proxy card at the
meeting. The Annual Meeting will begin promptly at 4:00 p.m. local time on
Tuesday, June 9, 2009 at the offices of Lowenstein Sandler P.C., 1251
Avenue of the Americas, 18th Floor, New York, New York. Attendance at the
Annual Meeting will not, by itself, result in the revocation of a
previously submitted proxy. Even if you are planning to attend the Annual
Meeting, we encourage you to submit your proxy in advance to ensure the
representation of your shares at the Annual
Meeting.
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If you do
not want to attend the Annual Meeting and you hold your shares directly, you may
vote by granting a proxy. To grant a proxy, vote over the Internet or by
telephone as instructed in the Notice of Availability of Proxy Materials, or
mail a signed proxy card, as soon as possible so that your shares may be
represented at the Annual Meeting. Votes over the Internet or by telephone must
be received by 11:59 p.m. E.D.T. on June 8, 2009 in order to be
counted.
Q.
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How
do I vote if I hold shares in street
name?
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A.
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If
you do not want to attend the Annual Meeting and you hold your shares in a
stock brokerage account or if your shares are held by a bank or nominee
(i.e., in “street
name”), you must provide your broker with directions on how to vote your
shares. Your broker will provide you with instructions regarding how to
direct your broker to vote your shares. It is important to follow these
instructions carefully to ensure your shares are represented at the Annual
Meeting. If you do not provide directions to your broker, your shares will
not be voted at the Annual Meeting.
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If you
want to attend the Annual Meeting and you hold your shares in street name, you
must obtain a signed proxy card from your broker, bank or other nominee acting
as record holder that gives you the right to vote the shares. Your broker will
provide you with instructions regarding how to obtain a signed proxy card from
the bank or other nominee acting as record holder in order to enable you to vote
your shares in person at the Annual Meeting.
Q.
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What
does it mean if I receive more than one Notice of Internet Availability of
Proxy Materials?
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A.
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It
means your shares are registered in different ways or are in more than one
account. Please provide voting instructions for all proxy and voting
instruction cards you receive.
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Q.
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How
can I change my vote after I have mailed my proxy
card?
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A.
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If
you are a holder of record, you may generally change your vote by
delivering a later-dated proxy or written notice of revocation to our
Corporate Secretary before the Annual Meeting, or by attending the Annual
Meeting and voting in person. If your shares are held in “street name” by
your broker, you must follow the instructions received from your broker
regarding how to change your
vote.
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1229
Oak Valley Drive
Ann
Arbor, Michigan 48108
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ANNUAL
MEETING OF THE STOCKHOLDERS
OF
AROTECH CORPORATION
TO
BE HELD ON JUNE 9, 2009
The
accompanying proxy is solicited by and on behalf of the Board of Directors of
Arotech Corporation, for use at our Annual Meeting of Stockholders and any
postponements and adjournments thereof. The meeting is to be held at the offices
of Lowenstein Sandler P.C., 1251 Avenue of the Americas, 18th Floor, New York,
New York, on Tuesday, June 9, 2009 at 4:00 p.m. local time, and thereafter as
the meeting may be postponed or adjourned from time to time, for the purposes
described in the accompanying Notice of Annual Meeting of
Stockholders.
Stockholders
of record at the close of business on April [xx], 2009 will be
entitled to vote at the annual meeting. As of April [xx], 2009, there were
[xx,xxx,xxx]
shares of our common stock outstanding held of record by [xxx] record
stockholders. Each holder of common stock is entitled to one vote per share on
each matter that comes before the annual meeting.
This
proxy statement and the enclosed form of proxy will be available on the Internet
to you commencing on or about April 30, 2009. We are also providing
Internet access to our annual report for the fiscal year ended December 31, 2008
to our stockholders along with this proxy statement.
Voting
Procedures and Vote Required
Proxies
that are properly marked, dated, and signed, or submitted electronically via the
Internet or by telephone by following the instructions on the proxy card, and
not revoked will be voted at the annual meeting in accordance with any indicated
directions. If no direction is indicated, proxies will be voted FOR the election of the Class
I director nominees for director set forth below; FOR the proposal amending our
certificate of incorporation to reduce our authorized shares; FOR the proposal amending our
certificate of incorporation to authorize our Board of Directors to amend our
by-laws; FOR the
proposal amending our Amended and Restated Certificate of Incorporation to
include a provision pursuant to which we will be governed by Section 203 of the
General Corporation Law of the State of Delaware; FOR the proposal approving the
Arotech 2009 Equity Incentive Plan; and IN THE DISCRETION OF THE HOLDERS OF
THE PROXIES with respect to any other business that properly comes before
the annual meeting and all matters relating to the conduct of the annual
meeting. If a broker indicates on the enclosed proxy or its substitute that it
does not have discretionary authority as to certain shares to vote on a
particular matter (“broker non-votes”), those shares will not be considered as
voting with respect to that matter. We believe that the tabulation procedures to
be followed by the Inspector of Elections are consistent with the general
requirements of Delaware law concerning voting of shares and determination of a
quorum.
You may
revoke your proxy at any time before it is voted by delivering to the Secretary
of our company a written revocation or a duly executed proxy bearing a later
date than the date of the proxy being revoked (including a proxy voted over the
Internet or by telephone). Any record stockholder attending
the
annual meeting in person may revoke his or her proxy and vote his or her shares
at the annual meeting.
Votes
cast by proxy or in person at the annual meeting will be tabulated by the
Inspector of Elections, with the assistance of our transfer agent. The Inspector
of Elections will also determine whether or not a quorum is present at the
annual meeting. The presence of a quorum is required to transact the business
proposed to be transacted at the annual meeting. The presence in person or by
proxy of holders of a majority of the outstanding shares of our common stock
entitled to vote will constitute a quorum for the transaction of business at the
annual meeting. Abstentions and broker non-votes (as defined above) will be
counted for purposes of determining the presence or absence of a
quorum.
With
respect to the first proposal (election of directors), directors are elected by
a plurality of the votes present in person or represented by proxy and entitled
to vote, and the director nominees who receive the greatest number of votes at
the Annual Meeting (up to the total number of directors to be elected) will be
elected. As a result, abstentions and “broker non-votes” (see below) will not
affect the outcome of the vote on this proposal.
With
respect to the second proposal (amending our certificate of incorporation to
reduce our authorized shares), the affirmative vote of a majority of all outstanding
shares of our common stock entitled to vote on this proposal is required
to approve the proposal. As a result, abstentions and “broker non-votes” (see
below) will have the same practical effect as a negative vote on this
proposal.
With
respect to the third proposal (amending our certificate of incorporation to
authorize our Board of Directors to amend our by-laws), the affirmative vote of
a majority of all outstanding
shares of our common stock entitled to vote on this proposal is required
to approve the proposal. As a result, abstentions and “broker non-votes” (see
below) will have the same practical effect as a negative vote on this
proposal.
With
respect to the fourth proposal (amending our certificate of incorporation to opt
into the protections of Section 203 of the Delaware General Corporation Law),
the affirmative vote of a majority of all outstanding
shares of our common stock entitled to vote on this proposal is required
to approve the proposal. As a result, abstentions and “broker non-votes” (see
below) will have the same practical effect as a negative vote on this
proposal.
With
respect to the fifth proposal (approval of the Arotech 2009 Equity Incentive
Plan), the affirmative vote of a majority of the total votes cast at the Annual
Meeting on this proposal, in person or by proxy, is required to approve the
proposal. As a result, abstentions will have the same practical effect as a
negative vote on this proposal, and “broker non-votes” (see below) will not
affect the outcome of the vote on this proposal.
The
solicitation of proxies will be conducted over the Internet and by mail, and we
will bear all attendant costs. These costs will include the expense of preparing
and mailing proxy solicitation materials for the annual meeting and
reimbursements paid to brokerage firms and others for their expenses incurred in
forwarding solicitation materials regarding the annual meeting to beneficial
owners of our common stock. We have hired Broadridge Financial Solutions, Inc.
to assist us in providing Internet access and in the distribution of notices and
of proxy materials. We will also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
for forwarding proxy and solicitation materials to stockholders. We may conduct
further solicitation personally, telephonically or by facsimile through our
officers, directors and employees, none of whom will receive additional
compensation for assisting with the solicitation.
We are
not aware of any matters other than those described in this proxy statement that
will be acted upon at the annual meeting. In the event that any other matters do
come before the annual meeting for a stockholder vote, the persons named as
proxies in the form of proxy being delivered to you along with this proxy
statement will vote in accordance with their best judgment on those
matters.
At least
ten days before the annual meeting, we will make a complete list of the
stockholders entitled to vote at the meeting open to the examination of any
stockholder for any purpose germane to the annual meeting. The list will be open
for inspection during ordinary business hours at our principal executive
offices, which are located at 1229 Oak Valley Drive, Ann Arbor, Michigan 48108,
and will also be made available to stockholders present at the annual
meeting.
ELECTION
OF DIRECTORS
Our
certificate of incorporation and by-laws provide for a Board of three or more
directors, composed of three classes of similar size. The number of directors is
currently set at seven. The members of each class are elected in different
years, so that only about one-third of the Board is elected in any single
year.
Dr.
Eastman and Messrs. Esses and Marrus are designated Class I directors and have
been elected for a term expiring this year and until their successors are
elected and qualified; Prof. Jones and Mr. Ehrlich are designated Class II
directors and have been elected for a term expiring in 2011 and until their
successors are elected and qualified; and Messrs. Borey and Sloyer are
designated Class III directors and have been elected for a term that expires in
2010 and until their successors are elected and qualified.
Unless
instructions are given to the contrary, each of the persons named as proxies
will vote the shares to which each proxy relates FOR the election of each of
the Class I director nominees listed below, for a term of three years expiring
at the annual meeting of stockholders to be held in 2012, and until the
nominee’s successor is duly elected and qualified or until the nominee’s earlier
death, removal or resignation. The nominees named below are presently
serving as directors, and all of them are anticipated to be available for
election and able to serve. However, if they should become unavailable, the
proxy will be voted for substitute nominee(s) designated by the Board. The three
nominees who receive the greatest number of votes properly cast for the election
of directors will be elected.
The
following table contains information concerning the nominees for directors and
the other incumbent directors:
Name
|
|
Age
|
|
Position
with Arotech
|
|
Class
|
|
Director
Since
|
Dr. Jay M.
Eastman(1)(2)
|
|
60
|
|
Director
|
|
I
|
|
October
1993
|
Steven
Esses(3)
|
|
44
|
|
President,
Chief Operating Officer and Director
|
|
I
|
|
July
2002
|
Michael
E. Marrus(1)(2)(3)
|
|
45
|
|
Director
|
|
I
|
|
October
2007
|
Prof.
Seymour Jones(2)(4)
|
|
77
|
|
Director
|
|
II
|
|
August
2005
|
Robert
S. Ehrlich(3)
|
|
70
|
|
Chairman
of the Board and Chief Executive Officer
|
|
II
|
|
May
1991
|
Edward
J. Borey(4)
|
|
58
|
|
Director
|
|
III
|
|
December
2003
|
Elliot
Sloyer(1)(3)(4)
|
|
44
|
|
Director
|
|
III
|
|
October
2007
|
(1)
|
Member
of the Compensation Committee.
|
(2)
|
Member
of the Nominating Committee.
|
(3)
|
Member
of the Executive and Finance Committee.
|
(4)
|
Member
of the Audit Committee.
|
Nominees
for Election as Class I Directors
Dr. Jay M. Eastman has been
one of our directors since October 1993. Since November 1991, Dr. Eastman has
served as President and Chief Executive Officer of Lucid, Inc., which is
developing laser technology applications for medical diagnosis and treatment.
Dr. Eastman served as Senior Vice President of Strategic Planning of PSC, Inc.
(“PSCX”), a manufacturer and marketer of laser diode bar code scanners, from
December 1995 through October 1997. Dr. Eastman is also a director of Dimension
Technologies, Inc., a developer and manufacturer of 3D displays for computer and
video displays. From 1981 until 1983, Dr. Eastman was the Director of the
University of Rochester’s Laboratory for Laser Energetics, where he was a member
of the staff from 1975 to 1981. Dr. Eastman holds a B.S. and a Ph.D. in Optics
from the University of Rochester in New York.
Steven Esses has been a
director since July 2002, our Executive Vice President since January 2003, our
Chief Operating Officer since February 2003 and our President since December
2005. From 2000 until 2002, Mr. Esses was a principal with Stillwater Capital
Partners, Inc., a New York-based investment research and advisory company (hedge
fund) specializing in alternative investment strategies. During this time, Mr.
Esses also acted as an independent consultant to new and existing businesses in
the areas of finance and business development. In 1995, Mr. Esses founded the
Dunkin’ Donuts franchise in Israel and was its Managing Director and CEO until
2005. Before founding Dunkin’ Donuts Israel, Mr. Esses was the Director of
Retail Jewelry Franchises with Hamilton Jewelry, and before that he served as
Executive Director of Operations for the Conway Organization, a major off-price
retailer with 17 locations.
Michael E. Marrus has been one
of our directors since October 2007. Mr. Marrus is an investment banker who
until February 2009 was a Managing Director of Collins Stewart LLC, the US
operations of Collins Stewart plc, a London based corporate broker traded on the
London Stock Exchange. Prior thereto, Mr. Marrus was a Managing Director of C.
E. Unterberg, Towbin, an investment banking firm that was acquired by Collins
Stewart plc. Prior to joining Unterberg, Towbin in 1998, Mr. Marrus was a
Principal and founding member of Fieldstone Private Capital Group, an investment
banking firm specializing in corporate, project and structured finance.
Previously, he was employed at Bankers Trust Company, initially in the Private
Equity and Merchant Banking Groups and subsequently in BT Securities, the
securities affiliate of Bankers Trust. Mr. Marrus has an A.B. from Brown
University and an M.B.A. from the Graduate School of Business, University of
Chicago.
Class
II Directors
Seymour Jones has been one of
our directors since August 2005. Mr. Jones has been a clinical professor of
accounting at New York University Stern School of Business since September 1993.
Professor Jones teaches courses in accounting, tax, forensic accounting and
legal aspects of entrepreneurism. He is also the Associate Director of Ross
Institute of Accounting Research at Stern School of Business. . His primary
research areas include audit committees, auditing, entrepreneurship, financial
reporting, and fraud. Professor Jones is the principal author of numerous books
including Conflict of
Interest, The Cooper
& Lybrand Guide to Growing Your Business, The Emerging Business and
The Bankers Guide to Audit
Reports and Financial Statements. From April 1974 to September 1995, Mr.
Jones was a senior partner of the accounting firm of Coopers and Lybrand, a
legacy firm of PriceWaterhouseCoopers LLP. Professor Jones is a certified public
accountant in New York State. Professor Jones received a B.A. in economics from
City College, City University of New York, and an M.B.A. from NYU
Stern.
Robert S. Ehrlich has been our
Chairman of the Board since January 1993 and our Chief Executive Officer since
October 2002. . From May 1991 until January 1993, Mr. Ehrlich was our Vice
Chairman of the Board, from May 1991 until October 2002 he was our Chief
Financial Officer, and from October 2002 until December 2005, Mr. Ehrlich also
held the title of President. Mr. Ehrlich was a director of
Eldat,
Ltd., an Israeli manufacturer of electronic shelf labels, from June 1999 to
August 2003. From 1987 to June 2003, Mr. Ehrlich served as a director of PSCX
and, between April 1997 and June 2003, Mr. Ehrlich was the chairman of the board
of PSCX. Mr. Ehrlich received a B.S. and J.D. from Columbia University in New
York, New York.
Class
III Directors
Edward J. Borey has been one
of our directors since December 2003. From July 2004 until October 2006, Mr.
Borey served as Chairman and Chief Executive Officer of WatchGuard Technologies,
Inc., a leading provider of network security solutions (NasdaqGM: WGRD). From
December 2000 to September 2003, Mr. Borey served as President, Chief Executive
Officer and a director of PSCX. Prior to joining PSCX, Mr. Borey was President
and CEO of TranSenda (May 2000 to December 2000). Previously, Mr. Borey held
senior positions in the automated data collection industry. At Intermec
Technologies Corporation (1995-1999), he was Executive Vice President and Chief
Operating Officer and also Senior Vice President/General Manager of the Intermec
Media subsidiary. Mr. Borey holds a B.S. in Economics from the State University
of New York, College of Oswego, an M.A. in Public Administration from the
University of Oklahoma, and an M.B.A. in Finance from Santa Clara
University.
Elliot Sloyer has been one of
our directors since October 2007. Mr. Sloyer is a Managing Member of WestLane
Capital Management LLC, which he founded in 2005. From 1992 until 2005, Mr.
Sloyer was a founder and Managing Director of Harbor Capital Management LLC,
which managed convertible arbitrage portfolios. Mr. Sloyer is active in
community organizations and currently serves on the investment committee of a
charitable organization. Mr. Sloyer has a B.A. from New York
University.
Vote
Required
Directors
will be elected by a plurality of the votes cast by the holders of our common
stock voting in person or by proxy at the annual meeting. Abstentions and broker
non-votes will each be counted as present for purposes of determining the
presence of a quorum, but will have no effect on the vote for election of
directors.
The
Board of Directors Recommends a Vote FOR Election
of
the Class I Nominees Described Above
AMENDING
ARTICLE FOUR OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
TO REDUCE OUR AUTHORIZED COMMON
STOCK FROM
250,000,000 SHARES TO 50,000,000 SHARES.
Background
Our Board
has approved and recommended for stockholder approval a proposed amendment to
Article Four of our Amended and Restated Certificate of Incorporation (our
“Certificate”) to reduce the number of shares of common stock that we are
authorized to issue from 250,000,000 to 50,000,000. The Board has directed that
the proposed amendment be submitted to a vote of our stockholders at the annual
meeting.
Our
Certificate currently authorizes 251,000,000 shares of capital stock, consisting
of 250,000,000 shares of common stock, $0.01 par value, and 1,000,000 shares of
preferred stock, $0.01 par value. The proposed amendment would reduce the
authorized common stock to 50,000,000 shares. The holders of common stock are
entitled to (i) one vote for each share of common stock registered in the name
of such holder, (ii) receive dividends on their shares of stock when and as
declared by the Board, and (iii) in the event of liquidation, dissolution or the
winding up of our affairs, share pro rata in the net assets
available
for
distribution to holders of common stock after satisfaction of the prior claims
of the holders of preferred stock of any series or any shares of any other class
of capital stock ranking senior to the common stock as to assets, in accordance
with our Certificate.
Text
of the Amendment
If this
proposal is adopted, the amended portion of Article Four of our Certificate will
read as follows:
FOUR: The
total number of shares of all classes of stock which the corporation shall have
authority to issue is fifty-one million (51,000,000) consisting of two classes
of shares designated as follows:
A. Fifty
million (50,000,000) shares of common stock, $0.01 par value (the “Common
Stock”); and
B. One
million (1,000,000) shares of preferred stock, $0.01 par value (the “Preferred
Stock”).
Reasons
for Seeking Stockholder Approval
The
reason for this proposal is to effect a significant saving in the amount of
franchise tax that the Company must pay each year in Delaware. We pay franchise
tax in Delaware based, in part, on the number of shares of our common stock and
preferred stock that are authorized in our Certificate. Based on the authorized
shares currently provided in our Certificate, we have been paying franchise tax
in the amount of $165,000 per year, which is the maximum franchise tax payable
in Delaware. By reducing the authorized number of shares as proposed, we
anticipate that our annual franchise tax would be reduced by approximately
$81,500.
As of
April [xx],
2009, there were [xx,xxx,xxx] shares of
common stock issued and outstanding, an additional [xxx,xxx] shares were
reserved for issuance under our stock option plans and an additional [x,xxx,xxx] shares were
reserved for issuance upon exercise of outstanding warrants and convertible
debt. On that date there were no shares of preferred stock outstanding. The
Board believes that the new reduced level of authorized shares will be adequate
to cover requirements in the foreseeable future. In the event that additional
authorized shares are needed in the future, the stockholders will then be asked
to approve an amendment to our Certificate to increase the authorized shares to
the level needed at that time.
Our Board
of Directors has determined that is in the best interests of Arotech and its
stockholders to approve the proposal amending our Certificate to reduce our
authorized common stock from 250,000,000 shares to 50,000,000 shares.
Accordingly, our Board of Directors unanimously recommends that you vote “FOR” the
proposal.
Vote
Required
Since
this is an amendment to our certificate of incorporation, under Delaware law the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock entitled to vote on this proposal will be required for approval of
this proposal. As a result, abstentions and broker non-votes will have the
effect of votes against the proposal.
The
Board of Directors Unanimously Recommends a vote FOR
the
Proposed Amendment to Article Four of Our Amended
and
Restated Certificate of Incorporation
Reducing
Our Authorized Common Stock
from
250,000,000 Shares to 50,000,000 Shares.
AMENDING
OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
TO ENABLE THE BOARD OF DIRECTORS
TO
MAKE, AMEND AND REPEAL OUR BY-LAWS
Background
Our Board
has approved and recommended for stockholder approval a proposed amendment to
our Certificate to authorize the Board to make, amend and repeal our
by-laws.
Reasons
for Seeking Stockholder Approval
Section
109 of the Delaware General Corporation Law provides that in order for a board
or directors to have the power to adopt, amend or repeal by-laws of a
corporation, the certificate of incorporation of the corporation must include a
provision conferring such powers upon the board of directors. Absent such a
provision, the by-laws of a corporation may be adopted, amended or repealed only
by the stockholders.
Our
Certificate currently does not permit our Board to make, amend or repeal our
by-laws. If adopted, this proposal would by adopting a new Article Seven G to
our Certificate enable the Board, in addition to and not instead of the
stockholders, to make, amend or repeal our by-laws under Delaware law. Further,
any further amendment or repeal of Article Seven G would require a majority vote
of the Board of Directors and the affirmative vote of at least 66 2/3% of all
stockholders of the then outstanding shares of capital stock.
The
certificates of incorporation of many public companies authorize their boards of
directors to adopt, amend or repeal the by-laws. This authority allows the
boards of directors of these companies to make changes to and update the by-laws
in a quick and flexible manner without requiring stockholder approval. Even with
this amendment, the stockholders always have the power to adopt, amend or repeal
the by-laws.
By-laws
typically provide rules and procedures for managing the business and affairs of
the corporation, such as calling and providing notice of meetings of
stockholders, quorum and voting requirements, voting and inspection procedures,
number and term of directors, nomination procedures for election of persons to
the board of directors, filling vacancies on the board and appointment of
officers and officers’ duties. From time to time, it may be desirable or
necessary to add to or change by-law provisions to reflect changes in our
practices or to reflect changes in applicable law. Granting our Board the power
to amend our by-laws will allow the Board to effect such change in a more
efficient, cost-effective manner without the necessity of incurring the expense
and time delay of a stockholder meeting.
Effect
of Stockholder Approval
The
proposed amendment to Article Seven of our Certificate may have anti-takeover
effects. Our current by-laws and our current Certificate contain certain
provisions with potential anti-takeover effects. In addition, Delaware law
permits adoption of additional measures designed to reduce a corporation’s
vulnerability to hostile takeover attempts. Many of these measures or other
changes altering the rights of
stockholders
and powers of management could be implemented in the future by amendment of our
by-laws.
This
proposal is not the result of the Board’s knowledge of any specific current
effort to obtain control of Arotech by means of a merger, tender offer, proxy
solicitation in opposition to management or otherwise. We are not submitting
this proposal to enable us to frustrate any efforts by another party to acquire
a controlling interest in us or to seek Board representation.
However,
if this proposal is adopted, then our Board could amend, and subsequently adopt
without stockholder approval, the by-laws in the future to include, without
limitation, any or all of the following provisions: requiring a supermajority
vote of the Board and/or the stockholders to amend any by-law provision designed
to reduce our vulnerability to hostile takeover attempts, including any
amendment of our staggered Board provision; and/or requiring a supermajority
vote of the stockholders or directors to increase the size of the Board or fill
vacancies on the Board. These types of provisions, if adopted, could have the
effect of discouraging or delaying a third party from making a tender offer or
otherwise attempting to obtain control of Arotech or remove incumbent
management.
Text
of the Amendment
If this
proposal is approved, Article Seven G of our Certificate will read in its
entirety as follows:
“G. In
furtherance and not in limitation of the powers conferred upon the stockholders
of the corporation by statute, the Board of Directors is expressly authorized to
make, amend and repeal the by-laws of the corporation. Notwithstanding any
provision of this Amended and Restated Certificate of Incorporation to the
contrary, the approval by a majority vote of the full Board of Directors of the
corporation and the affirmative vote of at least sixty-six and two-thirds
percent (66-2/3%) of the votes which all stockholders of the then outstanding
shares of capital stock of the corporation would be entitled to vote thereon,
voting together as a single class, shall be required to amend or repeal this
Article Seven G.”
Our Board
of Directors has determined that is in the best interests of Arotech and its
stockholders to approve the proposal allowing the Board to make, amend and
repeal by-laws. Accordingly, our Board of Directors unanimously recommends that
you vote “FOR” the
proposal.
Vote
Required
Since
this is an amendment to our certificate of incorporation, under Delaware law the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock entitled to vote on this proposal will be required for approval of
this proposal. As a result, abstentions and broker non-votes will have the
effect of votes against the proposal.
The
Board of Directors Unanimously Recommends a Vote FOR the Proposed
Amendment
to
Article Seven of Our Certificate of Incorporation Enabling
the
Board of Directors to Make, Amend and Repeal Our By-Laws.
AMENDING
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO
ELECT TO BE GOVERNED BY SECTION 203 OF THE
DELAWARE
GENERAL CORPORATION LAW
Background
Our Board
has approved and recommended for stockholder approval a proposed amendment to
our Certificate revising Article Six to provide that we will be governed by
Section 203 of the Delaware General Corporation Law (the “DGCL”). Under Section
203 of the DGCL, certain business combinations with interested stockholders of
Delaware corporations are subject to a three-year moratorium unless specified
conditions are met. The proposed amendment to opt into the provisions of Section
203 is not prompted by any specific takeover effort currently perceived by the
Board of Directors.
Description
of Section 203 of the DGCL
Section
203 of the DGCL provides that, subject to certain exceptions specified therein,
a corporation shall not engage in any business combination with any “interested
stockholder” for a three-year period following the date that such stockholder
becomes an interested stockholder unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares held by directors who are also officers
and employee stock purchase plans in which employee participants do not have the
right to determine confidentially whether plan shares will be tendered in a
tender or exchange offer) or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and by the
affirmative vote at an annual or special meeting, and not by written consent, of
at least 66-2/3% of the outstanding voting stock which is not owned by the
interested stockholder. Except as specified in Section 203 of the DGCL, an
interested stockholder is defined to include (a) any person that is the owner of
15% or more of the outstanding voting stock of the corporation (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only) or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (b) the affiliates and associates of
any such person.
Under
certain circumstances, Section 203 of the DGCL may make it more difficult for a
person who would be an “interested stockholder” to effect various business
combinations with a corporation for a three-year period. It is anticipated that
the provisions of Section 203 of the DGCL may encourage persons or companies
interested in acquiring us to negotiate in advance with our Board of Directors,
since the stockholder approval requirement would be avoided if a majority of the
directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested
stockholder.
Reasons
for Seeking Stockholder Approval
Article
Six of our Certificate, as currently in effect, specifically opts out of the
provisions of Section 203 of the DGCL. Now, however, our Board of Directors has
carefully considered the potential adverse effects of being subject to the
provisions of Section 203 described above and has unanimously concluded that any
adverse effects of Section 203 are substantially outweighed by the increased
protection which the statute will afford our stockholders.
We
believe it is in our best interest for Section 203 to apply to it because it
will encourage any potential acquirer to negotiate with our Board of Directors
and will reduce the likelihood of a hostile takeover. Section 203 also might
have the effect of limiting the ability of a potential acquirer to make a
two-tiered bid for us in which all stockholders would not be treated equally.
The application of Section 203 to us will confer upon the Board of Directors the
power to reject a proposed business combination in certain circumstances, even
though a potential acquirer may be offering a premium for our capital stock or
assets over the then-current market price. Section 203 may also discourage
potential acquirers that are unwilling to comply with its provisions. Section
203 should not interfere with any merger or business combination approved by the
Board of Directors. A substantial number of public companies are governed by
Section 203 of the DGCL, and we believe that such election is consistent with
good principles of corporate governance and is appropriate for widely-held
public companies incorporated in Delaware that do not have a controlling
stockholder.
Effect
of Stockholder Approval
Upon
approval of the proposal to amend our Certificate in accordance with Section
203(b) of the DGCL, “business combinations” with “interested stockholders” after
the amendment becomes effective will be conditioned upon satisfaction of the
provisions of Section 203 of the DGCL.
The
provisions of Section 203 are designed to discourage or make more difficult a
takeover or acquisition of control by interested stockholders without obtaining
the consent of our Board of Directors and our stockholders. This provision,
however, also could deprive stockholders of possible opportunities to realize a
premium for their shares and reduce the risk to management that it might be
displaced by a takeover.
Any
amendment, alteration or repeal of proposed Article Six after it is adopted by
our stockholders will require the affirmative vote of the holders of at least 66
2/3% of the combined voting power of all issued and outstanding shares of our
voting stock, voting together as a single class.
Text
of the Amendment
If this
proposal is approved, Article Six of our Certificate will be deleted in its
entirely and a new Article Six will be added to our Certificate as
follows:
“SIX: The
corporation expressly elects to be governed by Section 203 of the General
Corporation Law of the State of Delaware. Any amendment, alteration or repeal of
this Article Six will require the affirmative vote of the holders of at least 66
2/3% of the combined voting power of all issued and outstanding shares of the
corporation’s voting stock, voting together as a single class.”
Our Board
of Directors has determined that is in the best interests of Arotech and its
stockholders to approve the proposal amending our Certificate to provide that we
will be governed by Section 203 of the DGCL. Accordingly, our Board of Directors
unanimously recommends that you vote “FOR” the
proposal.
Vote
Required
Since
this is an amendment to our certificate of incorporation, under Delaware law the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock entitled to vote on this proposal will be required for approval of
this proposal. As a result, abstentions and broker non-votes will have the
effect of votes against the proposal.
The
Board of Directors Unanimously Recommends a Vote FOR
Amending
Our Certificate of Incorporation to
Elect
to be Governed by Section 203 of the
Delaware
General Corporation Law.
APPROVAL
OF THE 2009 EQUITY INCENTIVE PLAN AND
RATIFICATION
OF CERTAIN PREVIOUS GRANTS OF RESTRICTED STOCK
General
The Board
of Directors has adopted the 2009 Equity Incentive Plan (the “2009 Plan”),
subject to its approval by our stockholders.
The Board
believes that long-term incentive compensation programs align the interests of
management, employees and the stockholders to create long-term stockholder
value. The Board believes that plans such as the 2009 Plan increase our ability
to achieve this objective, and, by allowing for several different forms of
long-term incentive awards, help us to recruit, reward, motivate and retain
talented personnel. The Board believes strongly that the approval of the 2009
Plan is essential to our continued success. In particular, the Board believes
that our employees are our most valuable assets and that the awards permitted
under the 2009 Plan are vital to our ability to attract and retain outstanding
and highly skilled individuals in the extremely competitive labor markets in
which we compete. Such awards also are crucial to our ability to motivate
employees to achieve our goals.
Additionally,
our current equity compensation plans for employees have all either expired or
have no more shares reserved for issuance under them, making it imperative that
we adopt a new plan. As part of this proposal, we are asking stockholders to
ratify certain previous grants of restricted stock that were made to certain
management-level officers and employees in 2006 and 2007 for a total of
2,412,740 shares of restricted common stock, as explained in further detail
below. Ratification of these grants as proposed will result in bringing them
under the 2009 Plan.
Purpose
of the 2009 Plan
The 2009
Plan will allow us to make broad-based grants of stock options (nonstatutory and
incentive), stock appreciation rights, restricted stock, restricted stock units,
performance units and performance shares to employees, non-employee directors
and consultants as key elements of compensation. The 2009 Plan will be
administered by a committee appointed by the Board, in accordance with the
provisions contained in the 2009 Plan.
Description
of the Equity Incentive Plan
The
following description of the principal terms of the 2009 Plan is a summary and
is qualified in its entirety by the full text of the 2009 Plan, which is
attached as Appendix
B hereto.
Administration. The 2009 Plan
provides that it may be administered by the Board of Directors or by one or more
committees appointed by the Board of Directors (as the case may be, the
“Administrator”). The Board has appointed the Compensation Committee to
administer the 2009 Plan.
The 2009
Plan was adopted by the Board, subject to stockholder approval, on April 20,
2009 and has a term of ten years measured from the date of stockholder approval.
Accordingly, no grants may be made under the 2009 after the ten-year anniversary
of the date of stockholder approval, but the 2009 Plan will continue thereafter
while previously granted options, rights and awards remain subject to the 2009
Plan.
Types of Options and other
Awards. The 2009 Plan authorizes the Administrator to grant options
(“Options”) that are Incentive Stock Options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the “Code”), Nonstatutory
Stock Options or a combination of both. In addition, the 2009 Plan authorizes
the Administrator to grant Stock Appreciation Rights (“SARs”), and Restricted
and Unrestricted Stock Awards (“Awards”).
Eligibility. All our and our
affiliates’ officers, employees and consultants are eligible to receive Options,
SARs, and Awards under the 2009 Plan (approximately 450 persons as of March 31,
2009). An employee who also serves as a director is eligible to receive Options,
SARs and Awards under the 2009 Plan. Grants of Options, SARs, and Awards under
the 2009 Plan are discretionary, and we are, except to the extent indicated
below with respect to ratification of previous grants, unable, at the present
time, to determine the identity or number of directors, officers and other
employees who may be granted Options, SARs, and Awards under the 2009 Plan in
the future.
Shares Subject to the 2009
Plan. Subject to adjustments set forth in the 2009 Plan, the aggregate
number of shares of common stock available for issuance in connection with all
Options, SARs, and Awards granted to employees and consultants under the 2009
Plan will be 5,000,000, in each case subject to customary adjustments for stock
splits, stock dividends or similar transactions. Incentive Stock Options may be
granted under the 2009 Plan with respect to all of those shares.
If any
Option, SAR or Award granted under the 2009 Plan terminates without having been
exercised in full or if any Award is forfeited, the number of shares of common
stock as to which such Option or SAR was not exercised or Award has been
forfeited shall be available for future grants within certain limits under the
2009 Plan. No employee, director or consultant may receive Options or SARs
relating to more than 1,000,000 shares of common stock in the aggregate in any
year.
Terms and Conditions of
Options. The Administrator determines the exercise price of Options
granted under the 2009 Plan. The exercise price of Options may not be less than
the fair market value, on the date of grant, per share of common stock issuable
upon exercise of the Option (or 110% of fair market value in the case of
Incentive Stock Options granted to a ten-percent stockholder
If on the
date of grant the common stock is listed on a stock exchange or is quoted on the
automated quotation system of Nasdaq, the fair market value shall generally be
the closing sale price on the date of grant (or, if no trades were made on the
date of grant, for the last trading day before the date of grant). If no such
prices are available, the fair market value shall be determined in good faith by
the Administrator based on the reasonable application of a reasonable valuation
method. On April 16, 2009, the closing sale price of a share of common stock on
the Nasdaq Global Market was $0.73.
No option
may be exercisable for more than ten years (five years in the case of an
Incentive Stock Option granted to a ten-percent stockholder) from the date of
grant. Options issued under the 2009 Plan will be exercisable at such time or
times as the Administrator prescribes at the time of grant. No employee may
receive Incentive Stock Options that first become exercisable in any calendar
year in an amount exceeding $100,000.
Generally,
the option price may be paid (a) in cash or by certified check, (b) through
delivery of shares of common stock having a fair market value equal to the
purchase price, or (c) a combination of these methods. The Administrator also is
authorized to establish a cashless exercise program.
No Option
may be transferred other than by will or by the laws of descent and
distribution, and during a recipient’s lifetime an Option may be exercised only
by the recipient. Unless otherwise provided by the Administrator, Options that
are exercisable at the time of a recipient’s termination of service with us will
continue to be exercisable for three months, unless the optionee terminates
employment or service
with us
due to death, disability or retirement in which case the Option will be
exercisable for a period of one year, or for cause, in which case the Option
will cease to be exercisable upon termination.
Stock Awards. The
Administrator also may grant an Award of restricted stock, restricted stock
units (“Restricted Stock Units”) or unrestricted stock to any eligible employee,
consultant or director. Under a restricted stock Award, shares of common stock
that are the subject of the Award are generally subject to forfeiture to the
extent that the recipient terminates service with us prior to the Award having
vested or if the performance goals established by the Administrator as a
condition of vesting are not achieved. Shares of common stock subject to a
restricted stock Award cannot be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of by the recipient of the award unless and
until the applicable restrictions lapse. Unless otherwise determined by the
Administrator, holders of restricted shares will have the right to vote such
shares and to receive any cash dividends with respect thereto during the
restriction period. Any stock dividends will be subject to the same restrictions
as the underlying shares of restricted stock.
Under a
Restricted Stock Unit Award, Restricted Stock Units that are the subject of the
Award are generally subject to forfeiture to the extent that the recipient
terminates service with us prior to the Award having vested or if the
performance goals established by the Administrator as a condition of vesting are
not achieved. To the extent that the Award of Restricted Stock Units vests, the
recipient shall become entitled to receive a number of shares of common stock
equal to the number of Restricted Stock Units that became vested. Restricted
Stock Units cannot be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of by the recipient of the award and during a recipient’s
lifetime may be exercised only by the recipient. Prior to the delivery of shares
of common stock with respect to an Award of Restricted Stock Units, the
recipient shall have no rights as a shareholder of the Company.
Unrestricted
stock Awards are grants of shares of common stock that are not subject to
forfeiture.
To the
extent that the Administrator grants Awards that are subject to the satisfaction
of performance goals specified by the Administrator (“Performance Awards”), the
Administrator shall establish the specified levels of performance goals.
Performance goals may be weighted for different factors and measures. The
Administrator will have discretion to make adjustments to a Performance Award in
certain circumstances, such as when a person is promoted into a position of
eligibility for a Performance Award, is transferred between eligible positions
with different performance goals, terminates employment and is subsequently
rehired, takes a leave of absence, or other similar circumstances deemed
appropriate by the Administrator. The Administrator may also increase or
decrease an Award to any individual, except that, an Award intended to be
“qualified performance-based compensation” for purposes of Section 162(m) of the
Code, may not be increased. The Administrator will certify the degree of
attainment of performance goals after the end of each year.
If Awards
are intended to satisfy the conditions for deductibility under Section 162(m) of
the Code as “performance-based compensation,” the performance criteria will be
selected from among the following, which may be applied to us as a whole, or to
an individual recipient, or to a department, unit, division or function within
our company or an affiliate, and they may apply on a pre- or post-tax basis,
either alone or relative to the performance of other businesses or individuals
(including industry or general market indices): (a) earnings (either in the
aggregate or on a per-share basis, reflecting dilution of shares as the
Administrator deems appropriate and, if the Administrator so determines, net of
or including dividends) before or after interest and taxes (“EBIT”) or before or
after interest, taxes, depreciation, and amortization (“EBITDA”); (b) gross or
net revenue or changes in annual revenues; (c) cash flow(s) (including either
operating or net cash flows); (d) financial return ratios; (e) total stockholder
return, stockholder return based on growth measures or the attainment by the
shares of a specified value for a specified period of time, share price, or
share price appreciation; (f) earnings growth or growth in earnings per share;
(g)
return
measures, including return or net return on assets, net assets, equity, capital,
investment, or gross sales; (h) adjusted pre-tax margin; (i) pre-tax profits;
(j) operating margins; (k) operating profits; (l) operating expenses; (m)
dividends; (n) net income or net operating income; (o) growth in operating
earnings or growth in earnings per share; (p) value of assets; (q) market share
or market penetration with respect to specific designated products or product
groups and/or specific geographic areas; (r) aggregate product price and other
product measures; (s) expense or cost levels, in each case, where applicable,
determined either on a company-wide basis or in respect of any one or more
specified divisions; (t) reduction of losses, loss ratios or expense ratios; (u)
reduction in fixed costs; (v) operating cost management; (w) cost of capital;
(x) debt reduction; (y) productivity improvements; (z) average inventory
turnover; or (aa) satisfaction of specified business expansion goals or goals
relating to acquisitions or divestitures.
Stock Appreciation Rights. An
SAR may be granted by the Administrator either alone, or in tandem with, Options
or other Awards under the 2009 Plan. An SAR shall relate to such number of
shares of common stock as the Administrator determines. Each SAR will have an
exercise period determined by the Administrator not to exceed ten years from the
date of grant. Upon exercise of an SAR, the holder will receive a number of
shares of common stock equal to (i) the number of shares for which the SAR is
exercised times the appreciation in the fair market value of a share of common
stock between the date the SAR was granted and its date of exercise; divided by
(ii) the fair market value of a share of common stock on the date that the SAR
is exercised.
Effect of Certain Corporate
Transactions. In the event that we liquidate or dissolve, to the extent
not previously exercised or settled, and unless otherwise determined by the
Administrator, Options and SARs shall terminate immediately prior to the
liquidation or dissolution. In the event that we merge or consolidate with
another corporation, or if we sell substantially all of our assets (any of the
foregoing, a “Corporate Transaction”), then except as otherwise provided in the
applicable grant agreement, each Option or SAR will either be assumed or
substituted by the successor corporation. If the successor corporation refuses
to assume the Options and/or SARs, the Options and/or SARs will become fully
vested and exercisable for a specified period, and then terminate. In the event
of a Corporate Transaction in which the successor corporation does not assume or
substitute each outstanding Award, unless otherwise provided in the Award
agreement, all vesting periods and conditions under the Award will be deemed to
be satisfied.
Amendment, Termination. The
2009 Plan may be amended or terminated at any time by the Board, except that no
amendment may be made without shareholder approval if such approval is required
by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended,
or other applicable law, and no amendment or revision may alter or impair an
outstanding Option, SAR or Award without the consent of the holder
thereof.
Federal
Income Consequences
Following
is a summary of the federal income tax consequences of Option and other grants
under the 2009 Plan. Optionees and recipients of SARs and/or Awards granted
under the 2009 Plan are advised to consult their personal tax advisors before
exercising an Option, SAR or Award or disposing of any stock received pursuant
to the exercise of an Option, SAR or Award. In addition, the following summary
is based upon an analysis of the Code as currently in effect, existing laws,
judicial decisions, administrative rulings, regulations and proposed
regulations, all of which are subject to change and does not address state,
local or other tax laws.
Nothing
contained in this discussion of certain federal income tax considerations is
intended or written to be used, and cannot be used, for the purpose of (i)
avoiding tax-related penalties under the Internal Revenue Code or (ii)
promoting, marketing, or recommending to another party any transactions or
tax-related matters addressed herein.
Treatment
of Options
The Code
treats Incentive Stock Options and Nonstatutory Stock Options differently.
However, as to both types of Options, no income will be recognized to the
optionee at the time of the grant of the options under the 2009 Plan, nor will
we be entitled to a tax deduction at that time.
Generally,
upon exercise of a Nonstatutory Stock Option, an optionee will recognize
ordinary income tax on the excess of the fair market value of the stock on the
exercise date over the option price. We will be entitled to a tax deduction in
an amount equal to the ordinary income recognized by the optionee in the fiscal
year which includes the end of the optionee’s taxable year. We will be required
to satisfy applicable withholding requirements in order to be entitled to a tax
deduction. In general, if an optionee, in exercising a Nonstatutory Stock
Option, tenders shares of our common stock in partial or full payment of the
option price, no gain or loss will be recognized on the tender. However, if the
tendered shares were previously acquired upon the exercise of an Incentive Stock
Option and the tender is within two years from the date of grant or one year
after the date of exercise of the Incentive Stock Option, the tender will be a
disqualifying disposition of the shares acquired upon exercise of the Incentive
Stock Option.
For
Incentive Stock Options, there is no taxable income to an optionee at the time
of exercise. However, the excess of the fair market value of the stock on the
date of exercise over the exercise price will be taken into account in
determining whether the “alternative minimum tax” will apply for the year of
exercise. If the shares acquired upon exercise are held until at least two years
from the date of grant and more than one year from the date of exercise, any
gain or loss upon the sale of such shares, if held as capital assets, will be
long-term capital gain or loss (measured by the difference between the sales
price of the stock and the exercise price). Under current federal income tax
law, a long-term capital gain will be taxed at a rate which is less than the
maximum rate of tax on ordinary income. If the two-year and one year holding
period requirements are not met (a “disqualifying disposition”), an optionee
will recognize ordinary income in the year of disposition in an amount equal to
the lesser of (i) the fair market value of the stock on the date of exercise
minus the exercise price or (ii) the amount realized on disposition minus the
exercise price. The remainder of the gain will be treated as long-term capital
gain, depending upon whether the stock has been held for more than a year. If an
optionee makes a disqualifying disposition, we will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the
optionee.
In
general, if an optionee, in exercising an Incentive Stock Option, tenders shares
of common stock in partial or full payment of the option price, no gain or loss
will be recognized on the tender. However, if the tendered shares were
previously acquired upon the exercise of another incentive stock option and the
tender is within two years from the date of grant or one year after the date of
exercise of the other option, the tender will be a disqualifying disposition of
the shares acquired upon exercise of the other option.
As noted
above, the exercise of an Incentive Stock Option could subject an optionee to
the alternative minimum tax. The application of the alternative minimum tax to
any particular optionee depends upon the particular facts and circumstances
which exist with respect to the optionee in the year of exercise. However, as a
general rule, the amount by which the fair market value of the common stock on
the date of exercise of an option exceeds the exercise price of the option will
constitute an item of “adjustment” for purposes of determining the alternative
minimum taxable income on which the alternative tax may be imposed. As such,
this item will enter into the tax base on which the alternative minimum tax is
computed, and may therefore cause the alternative minimum tax to become
applicable in any given year.
Generally,
options granted with a per share exercise price no less than 100% of the fair
market value of the common stock as of the date of grant are not subject to
“additional taxes” under Code Section 409A. However, options with a lower
exercise price may be subject to Code Section 409A, and the re-
cipients
of such options may become subject to a 20% “additional tax” that may be imposed
as of the date of grant, whether or not the option is exercised. Recipients of
options with an exercise price less than 100% of the fair market value of the
common stock as of the date of grant are urged to consult with their personal
tax or legal advisor.
Treatment
of Stock Awards
Generally,
absent an election to be taxed currently under Section 83(b) of the Code (a
“Section 83(b) Election”), there will be no federal income tax consequences to
either the recipient or us upon the grant of a restricted stock Award. At the
expiration of the restriction period and the satisfaction of any other
restrictions applicable to the restricted shares, the recipient will recognize
ordinary income and we generally will be entitled to a corresponding deduction
equal to the fair market value of the common stock at that time. If a Section
83(b) Election is made within 30 days after the date the restricted stock Award
is granted, the recipient will recognize an amount of ordinary income at the
time of the receipt of the restricted shares, and we generally will be entitled
to a corresponding deduction, equal to the fair market value (determined without
regard to applicable restrictions) of the shares at such time. If a Section
83(b) Election is made, no additional income will be recognized by the recipient
upon the lapse of restrictions on the shares (and prior to the sale of such
shares), but, if the shares are subsequently forfeited, the recipient may not
deduct the income that was recognized pursuant to the Section 83(b) Election at
the time of the receipt of the shares.
The
recipient of a Restricted Stock Unit Award will recognize ordinary income as and
when the units vest. The amount of the income will be equal to the fair market
value of the shares of the common stock issued at that time, and the Company
will be entitled to a corresponding deduction. The recipient of a Restricted
Stock Unit Award will not be permitted to make a Section 83(b) Election with
respect to such Award.
The
recipient of an Unrestricted Stock Award will recognize ordinary income, and we
generally will be entitled to a corresponding deduction, equal to the fair
market value of the common stock at the time the Award is made.
Treatment
of Stock Appreciation Rights
Generally,
the recipient of a SAR will not recognize any income upon grant of the SAR, nor
will we be entitled to a deduction at that time. Upon exercise of the SAR, the
holder will recognize ordinary income, and we generally will be entitled to a
corresponding deduction, equal to the fair market value of the common stock at
that time.
Potential
Limitation on Company Deductions
Code
Section 162(m) denies a deduction to any publicly held corporation for
compensation paid to certain “covered employees” in a taxable year to the extent
that compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to Options granted in the future under the 2009 Plan,
when combined with all other types of compensation received by a covered
employee from us, may cause this limitation to be exceeded in any particular
year. Certain kinds of compensation, including qualified “performance-based
compensation,” are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Code Section 162(m),
compensation attributable to options will qualify as performance-based
compensation, provided that: (i) the stock award plan contains a per-employee
limitation on the number of shares for which stock options may be granted during
a specified period; (ii) the per-employee limitation is approved by the
stockholders; (iii) the award is granted by a compensation committee comprised
solely of “outside directors”; and (iv) the exercise price of the award is no
less than the fair market value of the stock on the date of grant.
Tax
Withholding
We, as
and when appropriate, shall have the right to require each optionee purchasing
shares of common stock and each grantee receiving an Award of shares of common
stock to pay any federal, state or local taxes required by law to be withheld,
or in the case of stock Awards to issue stock net of tax
withholding.
Section
409A
Section
409A of the Code provides certain requirements with respect to non-qualified
deferred compensation arrangements. These include requirements with respect to
an individual’s election to defer compensation and the timing and form of
distribution of the deferred compensation. Section 409A also generally provides
that distributions must be made on or following the occurrence of certain events
(e.g., the individual’s separation from service, a predetermined date, or the
individual’s death). Section 409A imposes restrictions on an individual’s
ability to change his or her distribution timing or form after the compensation
has been deferred. For certain individuals who are officers, Section 409A
generally requires that such individual’s distribution commence no earlier than
six months after such officer’s separation from service.
Awards
granted under the Plan with a deferral feature may be subject to the
requirements of Section 409A. If an Award is subject to and fails to satisfy the
requirements of Section 409A, the recipient of that Award will recognize
ordinary income on the amounts deferred under the Award, to the extent vested,
which may be prior to when the compensation is actually or constructively
received. Also, if an Award that is subject to Section 409A fails to comply with
Section 409A’s provisions, Section 409A imposes an additional 20% federal income
tax on compensation recognized as ordinary income, as well as possible interest
charges and penalties. Certain states have enacted laws similar to Section 409A
which impose additional taxes, interest and penalties on non-qualified deferred
compensation arrangements. We will also have withholding and reporting
requirements with respect to such amounts.
THE
FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION UPON
PARTICIPANTS AND US WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE
2009 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX
CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS
OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY
RESIDE.
Ratification
of Certain Previous Restricted Stock Grants
This
proposal also seeks ratification of certain previous grants of restricted stock
(“Previous Grants”) that were made to certain management-level officers and
employees for a total of 2,412,740 shares of restricted common stock.
Ratification of these grants as proposed will result in bringing them under the
2009 Plan. If this proposal is approved, we will issue new restricted stock
grant agreements to the recipients in place of the existing agreements on
substantially similar vesting and other terms as the existing agreements, and
such grants will be subject to the 2009 Plan. As a result, the number of shares
reserved for issuance under the 2009 Plan will be reduced by the number granted
(2,412,740).
The
following table identifies by name those of our executive officers who are
recipients of Previous Grants and as a group all non-executive officers who were
recipients of Previous Grants, as well as indicating the aggregate number of
shares granted to each recipient These grants are generally subject to
forfeiture to the extent (i) the recipient’s service is terminated prior to the
grant becoming vested and exercisable and/or (ii) the recipient fails to satisfy
certain performance goals established by the Compensation Committee of the Board
of Directors.
Name
|
|
Aggregate
Number of
Shares
|
Robert
S. Ehrlich
|
|
848,767(1)
|
Steven
Esses
|
|
633,973(2)
|
Thomas
J. Paup
|
|
150,000
|
All
non-executive officers as a group
|
|
420,000
|
TOTAL |
|
|
2,412,740
|
(1)
|
On
April 19, 2009, we agreed with our Chairman and Chief Executive Officer,
Mr. Robert S. Ehrlich, to modify Mr. Ehrlich’s employment agreement. Under
the terms of Mr. Ehrlich’s employment agreement, we were obligated to
pre-fund Mr. Ehrlich’s severance into a trust, in cash. We are not
currently in compliance with this obligation. By agreement with Mr.
Ehrlich, we funded $240,000 of Mr. Ehrlich’s severance package in shares
of our stock rather than in cash, to be held in a trust until such time as
Mr. Ehrlich shall be entitled to payment of his severance package. Based
on the closing price of our stock ($0.73) on the Nasdaq Stock Market on
April 17, 2009 (the date on which our Board of Directors and Mr. Ehrlich
agreed to this arrangement), it was agreed that a total of 328,767 shares
would be issued and given over to the trust, to remain there until such
time as Mr. Ehrlich shall be entitled to his severance package pursuant to
the terms of his employment agreement. The economic risk of gain or loss
on these shares is to be borne by Mr. Ehrlich. Should Mr. Ehrlich leave
our employ under circumstances in which he is not entitled to his
severance package (primarily, termination for Cause as defined in his
employment agreement), these shares would be returned to us for
cancelation.
|
(2)
|
On
April 19, 2009, we agreed with our President and Chief Operating Officer,
Mr. Steven Esses, to modify Mr. Esses’s employment agreement. Under the
terms of Mr. Esses’s employment agreement, we were obligated to pre-fund
Mr. Esses’s severance into a trust, in cash. We are not currently in
compliance with this obligation. By agreement with Mr. Esses, we funded
$200,000 of Mr. Esses’s severance package in shares of our stock rather
than in cash, to be held in a trust until such time as Mr. Esses shall be
entitled to payment of his severance package. Based on the closing price
of our stock ($0.73) on the Nasdaq Stock Market on April 17, 2009 (the
date on which our Board of Directors and Mr. Esses agreed to this
arrangement), it was agreed that a total of 273,973 shares would be issued
and given over to the trust, to remain there until such time as Mr. Esses
shall be entitled to his severance package pursuant to the terms of his
employment agreement. The economic risk of gain or loss on these shares is
to be borne by Mr. Esses. Should Mr. Esses leave our employ under
circumstances in which he is not entitled to his severance package
(primarily, termination for Cause as defined in his employment agreement),
these shares would be returned to us for
cancelation.
|
Effect
of a Failure to Obtain Stockholder Approval
If this
proposal is not approved, we will have little if any ability to grant equity
incentive awards to employees or consultants, as our current equity compensation
plans for employees have all either expired or have no more shares reserved for
issuance under them. In addition, if this proposal is not approved, the previous
grants of restricted stock disclosed in the table above will not be ratified,
and we will cancel these grants. Cancellation of the grants may have accounting,
tax and/or other consequences to us and tax consequences to the recipients. In
addition, the recipients may have a claim against us for relying on the grant of
such awards.
Vote
Required
The
affirmative vote of a majority of the votes cast at the meeting at which a
quorum representing a majority of all outstanding shares of our common stock is
present and voting, either in person or by proxy, is required for approval of
this proposal. Abstentions and broker non-votes will each be counted as present
for purposes of determining the presence of a quorum; abstentions will have the
same practical effect as a negative vote on this proposal, and broker non-votes
will not have any effect on the outcome of this proposal.
The
Board of Directors Recommends a Vote FOR
Adoption
of the 2009 Equity Compensation Plan.
CORPORATE
GOVERNANCE
We
operate within a corporate governance plan for the purpose of defining
responsibilities, setting high standards of professional and personal conduct,
and assuring compliance with such responsibilities and standards. We monitor
developments in the area of corporate governance. The Board has initiated
actions consistent with the Sarbanes-Oxley Act of 2002, the Securities and
Exchange Commission and The Nasdaq Stock Market.
In the
fiscal year ending December 31, 2008, the Board held seven meetings. All
directors attended at least 75% of the aggregate number of meetings of the Board
and meetings of the committees of the Board on which such director
serves.
As of
January 1, 2009, members of the Board of Directors satisfied the applicable
independent director requirements of both the Securities and Exchange Commission
and Rule 4200 of The Nasdaq Stock Market. Our non-management directors meet
regularly in executive session separate from management.
It is our
policy that each of our directors is invited and encouraged to attend our annual
meeting of stockholders. All of our directors attended our 2008 annual meeting
of stockholders.
Our Board
of Directors has an Audit Committee, a Compensation Committee, a Nominating
Committee and an Executive and Finance Committee. The current composition of the
various committees of the Board of Directors is as follows (the name of the
chairman of each committee appears in italics):
Audit
Committee
|
Compensation
Committee
|
Nominating
Committee
|
Executive
and Finance Committee
|
Seymour
Jones
Edward
J. Borey
Elliot
Sloyer
|
Jay
M. Eastman
Michael
E. Marrus
Elliot
Sloyer
|
Michael
E. Marrus
Jay
M. Eastman
Seymour
Jones
|
Robert
S. Ehrlich
Steven
Esses
Elliot
Sloyer
Michael
E. Marrus
|
Audit
Committee
Created
in December 1993, the purpose of the Audit Committee is to review with
management and our independent auditors the scope and results of the annual
audit, the nature of any other services provided by the independent auditors,
changes in the accounting principles applied to the presentation of our
financial statements, and any comments by the independent auditors on our
policies and procedures with respect to internal accounting, auditing and
financial controls. The Audit Committee was established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. In
addition, the Audit Committee is charged with the responsibility for making
decisions on the engagement, compensation, retention and oversight of the work
of our independent auditors.
The Audit
Committee consists of Prof. Jones (Chair) and Messrs. Borey and Sloyer. Each
member of the Audit Committee is an “independent director,” as that term is
defined in Rule 4200(a)(15) of the listing standards and Marketplace Rules of
the National Association of Securities Dealers (the “NASD”) and the SEC’s Rule
10A-3. All Audit Committee members possess the required level of financial
literacy. Prof. Jones has been designated as the “Audit Committee’s Financial
Expert.” The Audit Committee operates under a formal charter that governs its
duties, which charter is publicly available through a hyperlink located on the
investor relations page of our website, at http://www.arotech.com/compro/investor.html.
Additionally, in compliance with SEC rules we are required to append a copy of
the Audit Committee Charter to our proxy statement at least once every three
years. We last sent a copy of our charter to our stockholders in our 2006 proxy
statement. We have accordingly attached a copy of our Audit Committee Charter as
Appendix B hereto.
The Audit
Committee held four meetings during the fiscal year ending December 31,
2008.
Compensation
Committee
The
Compensation Committee was established in December 1993. The duties of the
Compensation Committee are to recommend compensation arrangements for our
executive officers and review annual compensation arrangements for all other
officers and significant employees.
The
Compensation Committee consists of Dr. Eastman (Chair) and Messrs. Marrus and
Sloyer. Each member of the Compensation Committee is an independent director as
that term is defined in the NASD listing standards. The Compensation Committee
operates under a formal charter that governs its duties, which charter is
publicly available through a hyperlink located on the investor relations page of
our website, at http://www.arotech.com/compro/investor.html.
The
Compensation Committee maintains compensation and incentive programs designed to
motivate, retain and attract management and utilize various combinations of base
salary, bonuses payable upon the achievement of specified goals, discretionary
bonuses and grants of restricted stock. Our Chief Executive Officer, Robert S.
Ehrlich, our Chief Operating Officer, Mr. Steven Esses, and our Chief Financial
Officer, Mr. Thomas J. Paup, are all parties to employment agreements with us.
The Compensation Committee reviews the compensation, both cash and stock, of our
executive officers on an annual basis, while taking into account as well changes
in compensation during previous years. Some of these components, such as salary,
are generally fixed and do not vary based on our financial and other
performance; some components, such as bonus, are in whole or in part dependent
upon the achievement of certain goals jointly agreed upon by our management and
the Compensation Committee; and some components, such as stock options and
restricted stock, have a value that is dependent upon our stock price at the
time of award and going forward. The Compensation Committee reviews the
compensation, both cash and stock, of our executive officers on an annual basis,
while taking into account as well changes in compensation during previous
years.
The
Compensation Committee performs an annual review of our executive officers’ cash
compensation and share and option holdings to determine whether they provide
adequate compensation for the services they perform, as well as adequate
incentives and motivation to our executive officers and whether they adequately
compensate our executive officers relative to comparable officers in other
companies.
Compensation
Committee meetings typically have included, for all or a portion of some of the
meetings, a representative of The Burke Group, Inc., a well-known consulting
firm specializing in executive officer compensation, as well as preliminary
discussion with our Chairman and Chief Executive Officer prior to our
Compensation Committee deliberating without any members of management present.
For compensation decisions, including decisions regarding the grant of equity
compensation relating to executive officers (other than our Chairman and Chief
Executive Officer), the Compensation Committee typically considers the
recommendations of our Chairman and Chief Executive Officer.
The
Compensation Committee held two meetings during the
fiscal year ending December 31, 2008.
Nominating
Committee
The
Nominating Committee, created in February 2003, identifies and proposes
candidates to serve as members of the Board of Directors. Proposed nominees for
membership on the Board of Directors submitted in writing by stockholders to
Arotech’s Secretary will be brought to the attention of the Nominating
Committee.
The
Nominating Committee consists of Mr. Marrus (Chair), Dr. Eastman and Prof.
Jones. Each member of the Nominating Committee is an independent director as
that term is defined in the NASD list-
ing
standards. The Nominating Committee makes recommendations to the Board of
Directors regarding new directors to be selected for membership on the Board of
Directors and its various committees. The Nominating Committee operates under a
formal charter that governs its duties. The Nominating Committee’s charter is
publicly available through a hyperlink located on the investor relations page of
our website, at http://www.arotech.com/compro/investor.html.
The
Nominating Committee held one meeting during the fiscal year ending December 31,
2008.
Policies
Regarding Director Qualifications
The Board
has adopted policies regarding director qualifications. To be considered for
nomination as a director, any candidate must meet the following minimum
criteria:
a. Ability
and willingness to undertake a strategic governance role, clear and distinct
from the operating role of management.
b. High-level
leadership experience in business, government, or other major complex
professional or non-profit organizations that would have exposed the individual
to the challenges of leadership and governance in a dynamic and highly
competitive marketplace.
c. Highly
accomplished in their respective field, with superior credentials and
recognition.
d. Demonstrated
understanding of the elements and issues relevant to the success of a large
publicly-traded company in the current volatile business, legal and governance
environment.
e. Demonstrated
business acumen and creative/strategic thinking ability.
f. Personal
Characteristics:
Ø
|
Ability
and willingness to contribute special competencies to the Board in a
collaborative manner. The areas of expertise required at any point in time
may vary, based on the existing composition of the Board. They may
include, but would not be limited to, capabilities honed as a CEO or a
senior functional leader in operations, finance, information technology,
marketing, organizational development, and experience making step change
to transform a business.
|
Ø
|
Personal
integrity and highest ethical character. Absence of any conflicts of
interest, either real or perceived.
|
Ø
|
Willingness
to apply sound and independent business judgment, enriching management and
Board proposals or challenging them constructively as
appropriate.
|
Ø
|
Willing
to exert influence through strong influence skills and constructive
teamwork. This is essential to effective collaboration with other
directors as well as providing constructive counsel to the
CEO.
|
Ø
|
Understanding
of and full commitment to our governance principles and the obligation of
each director to contribute to good governance, corporate citizenship, and
corporate image for Arotech.
|
Ø
|
Willingness
to devote the time necessary to assume broad fiduciary responsibility and
to participate fully in Arotech governance requirements with appropriate
due diligence and attention.
|
In this
regard, each nominee will be asked to disclose the boards of directors on which
he or she currently sits, and each current director will be asked to inform the
Nominating Committee of additional corporate board nominations (both for-profit
and non-profit). This notification is to ensure appropriate dialogue about the
impact of the added responsibilities on the individual’s availability to perform
thoroughly his or her duties as an Arotech director.
The Board
of Directors will consist of a majority of people who are active, primarily in
business roles, and selected retired individuals. Those active in the business
community will bring the most current business thinking, and retirees will bring
their long experience and seasoned business judgment. Every effort will be made
to achieve diversity in the Board’s membership.
From time
to time, the particular capabilities needed to round out the total Board’s
portfolio of competencies may vary. The Nominating Committee is empowered to
consider the demographics of the total Board as it considers the requirements
for each Board vacancy and to identify particular unique capabilities needed at
that point in time.
Policies
Regarding Director Nominations
The
Board’s Nominating Committee is responsible for the Board of Director’s
nomination process. New candidates for the Board of Directors may be identified
by existing directors, a third party search firm (paid for its professional
services) or may be recommended by stockholders. In considering new candidates
submitted by stockholders, the Nominating Committee will take into consideration
the needs of the Board of Directors and the qualifications of the candidate.
However, all director nominees will be evaluated against the same standards and
in the same objective manner, based on competencies and personal characteristics
listed above, regardless of how they were identified. To have a candidate
considered by the Nominating Committee, a stockholder must submit the
recommendation in writing and must include the following
information:
Ø
|
The
name of the stockholder and evidence of the person’s ownership of our
stock, including the number of shares owned and the length of time of
ownership; and
|
Ø
|
The
name of the candidate, the candidate’s resume or a listing of his or her
qualifications to be a director of Arotech and the person’s consent to be
named as a director if selected by the Nominating Committee and nominated
by the Board of Directors.
|
The
stockholder recommendation and information described above must be sent to
Arotech’s Secretary at 1229 Oak Valley Drive, Ann Arbor, Michigan 48108, and
must be received by Arotech’s Secretary not less than 120 days prior to the
anniversary date of our most recent proxy statement in connection with our
previous year’s annual meeting of stockholders.
Once a
person has been identified by the Nominating Committee as a potential candidate,
the Committee may collect and review publicly available information regarding
the person to assess whether the person should be considered further. If the
Nominating Committee determines that the candidate warrants further
consideration, the Chairman or another member of the Committee will contact the
person. Generally, if the person expresses a willingness to be considered and to
serve on the Board of Directors, the Nominating Committee will request
information from the candidate, review the person’s accomplishments and
qualifications, including in light of any other candidates that the Committee
might be considering, and conduct one or more interviews with the candidate. In
certain instances, Committee members may contact one or more references provided
by the candidate or may contact other members of the business community or other
persons that may have greater first-hand knowledge of the candidate’s
accom-
plishments.
The Committee’s evaluation process does not vary based on whether or not a
candidate is recommended by a stockholder, although, the Board of Directors may
take into consideration the number of shares held by the recommending
stockholder and the length of time that such shares have been held.
Executive
and Finance Committee
The
Executive and Finance Committee, created in August 2001, exercises the powers of
the Board during the intervals between meetings of the Board, in the management
of our property, business and affairs (except with respect to certain
extraordinary transactions).
The
Executive and Finance Committee consists of Messrs. Ehrlich (Chair), Esses,
Marrus and Sloyer.
The
Executive and Finance Committee met once during the fiscal year ending December
31, 2008.
COMPENSATION
AND OTHER MATTERS
Director
Compensation
Non-employee
members of our Board of Directors are paid a cash retainer of $7,000 (plus
expenses) per quarter, plus $500 per quarter for each committee on which such
outside directors serve. The Chairman of the Audit Committee receives an
additional retainer of $1,500 per quarter, and the Chairman of the Compensation
Committee receives an additional retainer of $1,000 per quarter. No per-meeting
fees are paid. In addition, we have adopted a Non-Employee Director Equity
Compensation Plan, pursuant to which non-employee directors receive an initial
grant of a number of restricted shares having a fair market value on the date of
grant equal to $25,000 upon their election as a director, and an annual grant on
March 31 of each year of a number of restricted shares having a fair market
value on the date of grant equal to $15,000. Each grant of restricted stock
shall become free of restrictions in three equal installments on each of the
first, second and third anniversaries of the grant, unless the director resigns
from the Board prior to such vesting. Restrictions lapse automatically in the
event of a director being removed for service other than for cause, or being
nominated as a director but failing to be elected, or death, disability or
mandatory retirement. Furthermore, all restrictions lapse prior to the
consummation of a merger or consolidation involving us, our liquidation or
dissolution, any sale of substantially all of our assets or any other
transaction or series of related transactions as a result of which a single
person or several persons acting in concert own a majority of our
then-outstanding common stock.
The
following table shows the compensation earned or received by each of our
non-officer directors for the year ended December 31, 2008:
DIRECTOR
COMPENSATION
Name
|
|
Fees
Earned or Paid in Cash
($)
|
|
|
Stock Awards(1)
($)
|
|
|
Total
($)
|
|
Dr.
Jay M. Eastman
|
|
$ |
32,000 |
|
|
$ |
15,000 |
(2) |
|
$ |
47,000 |
|
Edward
J. Borey
|
|
$ |
32,000 |
|
|
$ |
15,000 |
(3) |
|
$ |
47,000 |
|
Seymour
Jones
|
|
$ |
36,000 |
|
|
$ |
15,000 |
(4) |
|
$ |
51,000 |
|
Elliot
Sloyer
|
|
$ |
32,000 |
|
|
$ |
25,000 |
(5) |
|
$ |
57,000 |
|
Michael
E. Marrus
|
|
$ |
32,000 |
|
|
$ |
25,000 |
(6) |
|
$ |
57,000 |
|
Jack
Rosenfeld(7)
|
|
$ |
30,000 |
|
|
$ |
15,000 |
|
|
$ |
45,000 |
|
Lawrence
M. Miller(7)
|
|
$ |
30,000 |
|
|
$ |
15,000 |
|
|
$ |
45,000 |
|
(1) |
|
This
column reflects the compensation cost for the year ended December 31, 2008
of each director’s restricted stock, calculated in accordance with SFAS
123R.
|
|
(2) |
|
As
of December 31, 2008, Dr. Eastman held 8,785 restricted shares of our
common stock.
|
|
(3) |
|
As
of December 31, 2008, Mr. Borey held 8,785 restricted shares of our common
stock.
|
|
(4) |
|
As
of December 31, 2008, Prof. Jones held 8,785 restricted shares of our
common stock.
|
|
(5)
|
As
of December 31, 2008, Mr. Sloyer held 10,978 restricted shares of our
common stock.
|
(6)
|
As
of December 31, 2008, Mr. Marrus held 10,978 restricted shares of our
common stock.
|
(7)
|
This
individual retired as a director as of October 27,
2008.
|
Executive
Officer Compensation
The
following table, which should be read in conjunction with the explanations
provided above, shows the compensation that we paid (or accrued) to our
executive officers during the fiscal years ended December 31, 2008 and
2007:
SUMMARY
COMPENSATION TABLE(1)
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards(2)
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Robert
S. Ehrlich
Chairman,
Chief Executive Officer and a director
|
|
2008
|
|
$ |
400,000 |
|
|
$ |
90,000 |
|
|
$ |
– |
|
|
$ |
518,017 |
(3) |
|
$ |
1,008,017 |
|
|
2007
|
|
$ |
400,000 |
|
|
$ |
175,000 |
|
|
$ |
753,783 |
|
|
$ |
241,411 |
(4) |
|
$ |
1,570,194 |
|
Thomas
J. Paup
Vice
President – Finance and Chief Financial Officer
|
|
2008
|
|
$ |
160,000 |
|
|
$ |
48,000 |
|
|
$ |
– |
|
|
$ |
6,188 |
(5) |
|
$ |
214,188 |
|
|
2007
|
|
$ |
143,100 |
|
|
$ |
71,550 |
|
|
$ |
138,067 |
|
|
$ |
2,908 |
(5) |
|
$ |
355,625 |
|
Steven
Esses
President,
Chief Operating Officer and a director
|
|
2008
|
|
$ |
167,352 |
(6) |
|
$ |
75,000 |
|
|
$ |
– |
|
|
$ |
136,588 |
(7) |
|
$ |
378,940 |
|
|
2007
|
|
$ |
72,816 |
(8) |
|
$ |
138,520 |
(9) |
|
$ |
259,891 |
|
|
$ |
106,528 |
(10) |
|
$ |
577,755 |
|
(1)
|
We
paid the amounts reported for each named executive officer in U.S. dollars
and/or New Israeli Shekels (NIS). We have translated amounts paid in NIS
into U.S. dollars at the exchange rate of NIS into U.S. dollars at the
time of payment or accrual, except that certain items are pursuant to
corporate policy paid at a set exchange rate that may be higher than the
actual exchange rate on the date of payment. The difference, which was a
positive number in 2007 and 2008, has been reported under “All Other
Compensation,” above.
|
(2)
|
Reflects
the value of restricted stock awards granted to our executive officers
based on the compensation cost of the award computed in accordance with
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment, which we refer to
as SFAS 123R, but excluding any impact of assumed forfeiture rates. See
Note 2.p. of the Notes to Consolidated Financial Statements in our Annual
Report to Stockholders. The number of shares of restricted stock received
by our executive officers pursuant to such awards in 2007, vesting in
equal amounts over three years (one-half based on tenure and performance
criteria and one-half based only on tenure), was as follows: Mr. Ehrlich,
240,000; Mr. Paup, 43,125; Mr. Esses, 120,000. The number of shares of
restricted stock received by our executive officers pursuant to such
awards in 2006, vesting one-quarter immediately and the remaining
three-quarters in equal amounts over three years (one-half based on tenure
and performance criteria and one-half based only on tenure), was as
follows: Mr. Ehrlich, 200,000; Mr. Paup, 53,125; Mr. Esses,
100,000.
|
(3)
|
Of
this amount, $82,802 represents payments to Israeli pension and education
funds; $30,192 represents our accrual for severance pay that will be
payable to Mr. Ehrlich upon his leaving our employ other than if he is
terminated for cause, such as a breach of trust; $176,442 represents the
effect of exchange rate differences on salary and bonus payments; and
$131,771 represents the increase of our accrual for severance pay that
would be payable to Mr. Ehrlich under the laws of the State of Israel if
we were to terminate his employment.
|
(4)
|
Of
this amount, $69,137 represents payments to Israeli pension and education
funds; $13,289 represents our accrual for severance pay that will be
payable to Mr. Ehrlich upon his leaving our employ other than if he is
terminated for cause, such as a breach of trust; $44,047 represents the
increase of the accrual for vacation days redeemable by Mr. Ehrlich; and
$29,859 represents the increase of our accrual for severance pay that
would be payable to Mr. Ehrlich under the laws of the State of Israel if
we were to terminate his employment.
|
(5)
|
Represents
the increase in our accrual for Mr. Paup for accrued but unused vacation
days.
|
(6)
|
Does
not include $153,668 that we paid in consulting fees to Sampen
Corporation, a New York corporation owned by members of Steven Esses’s
immediate family, from which Mr. Esses receives a salary. See “Certain
Relationships and Related Transactions – Consulting Agreement with Sampen
Corporation,” below.
|
(7)
|
Of
this amount, $29,671 represents payments to Israeli pension and education
funds; $42,701 represents the effect of exchange rate differences on
salary and bonus payments; and $(21,158) represents
the decrease of our accrual for severance pay that would be payable to Mr.
Esses if we were to terminate his employment.
|
(8)
|
Does
not include $219,354 that we paid in consulting fees to Sampen
Corporation, a New York corporation owned by members of Steven Esses’s
immediate family, from which Mr. Esses receives a salary. See “Certain
Relationships and Related Transactions – Consulting Agreement with Sampen
Corporation,” below.
|
(9)
|
Does
not include $24,756 that we paid as a bonus to Sampen Corporation, a New
York corporation owned by members of Steven Esses’s immediate family, from
which Mr. Esses receives a salary. See “Certain Relationships and Related
Transactions – Consulting Agreement with Sampen Corporation,”
below.
|
(10)
|
Of
this amount, $15,744 represents payments to Israeli pension and education
funds; and $4,177 represents the increase of our accrual for severance pay
that would be payable to Mr. Esses if we were to terminate his
employment.
|
Executive
Loans
In 1999,
2000 and 2002, we extended certain loans to our Named Executive Officers. These
loans are summarized in the following table, and are further described under
“Certain Relationships and Related Transactions – Officer Loans,”
below.
Name
of Borrower
|
|
Date
of Loan
|
|
Original
Principal
Amount
of Loan
|
|
Amount
Outstanding
as
of 12/31/07
|
|
Terms
of Loan
|
Robert
S. Ehrlich
|
|
12/28/99
|
|
$ 167,975
|
|
$ 201,570
|
|
Ten-year
non-recourse loan to purchase our stock, secured by the shares of stock
purchased.
|
Robert
S. Ehrlich
|
|
02/09/00
|
|
$ 789,991
|
|
$ 818,357
|
|
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of stock
purchased.
|
Robert
S. Ehrlich
|
|
06/10/02
|
|
$ 36,500
|
|
$
46,593
|
|
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of stock
purchased.
|
Plan-Based
Awards
Grants
of Stock Options
We did
not grant any stock options to our executive officers during 2008.
Grants
of Restricted Stock
We did
not grant any restricted stock to our executive officers during
2008.
Stock
Option Exercises and Vesting of Restricted Stock Awards
Our
executive officers did not exercise any stock options during 2008. The following
table presents awards of restricted stock that vested during the year ended
December 31, 2008.
STOCK
VESTED
Name
|
|
Number
of Shares
Acquired
on Vesting
(#)
|
|
|
Value
Realized
on Vesting(1)
($)
|
|
Robert
S.
Ehrlich
|
|
|
106,667 |
|
|
$ |
43,733 |
|
Thomas
J.
Paup
|
|
|
45,000 |
|
|
$ |
18,450 |
|
Steven
Esses
|
|
|
21,459 |
|
|
$ |
8,798 |
|
|
|
(1)
|
Reflects
the aggregate market value of the shares of restricted stock determined
based on a per share price of $0.41, the closing price of our common stock
on the Nasdaq Global Market on December 31, 2008, which was the last
trading day of
2008.
|
Outstanding
Equity Awards at Fiscal Year-End
The table
below sets forth information for our executive officers with respect to option
and restricted stock values at the end of the fiscal year ended December 31,
2008.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Name
|
|
Option
Awards
|
|
Stock
Awards
|
Number
of Securities Underlying
Unexercised
Options(1)
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
Number
of
Shares
that
Have
Not
Vested
(#)
|
|
Market
Value
of
Shares that
Have
Not
Vested(2)
($)
|
|
Equity
Incentive
Plan
Awards
|
Number
of
Unearned
Shares
that
Have
Not
Vested
(#)
|
|
Market
Value
of
Unearned
Shares
that
Have
Not
Vested(2)
($)
|
Exercisable
|
|
Unexercisable
|
Robert
S. Ehrlich
|
|
5,178
|
|
0
|
|
$
5.46
|
|
12/31/11
|
|
106,666
|
|
$
43,733
|
|
80,000
|
|
|
|
|
4,687
|
|
0
|
|
$
5.46
|
|
04/01/12
|
|
|
|
|
|
|
|
|
|
|
1,116
|
|
0
|
|
$
5.46
|
|
07/01/12
|
|
|
|
|
|
|
|
|
|
|
4,687
|
|
0
|
|
$
5.46
|
|
10/01/12
|
|
|
|
|
|
|
|
|
|
|
6,294
|
|
0
|
|
$
5.46
|
|
01/01/13
|
|
|
|
|
|
|
|
|
Thomas
J. Paup
|
|
–
|
|
–
|
|
–
|
|
–
|
|
32,291
|
|
|
|
42,916
|
|
|
Steven
Esses
|
|
714
|
|
0
|
|
$
8.54
|
|
12/31/12
|
|
120,000
|
|
|
|
90,000
|
|
$
36,900
|
|
|
1,785
|
|
0
|
|
$
11.62
|
|
07/22/12
|
|
|
|
|
|
|
|
|
|
|
(1)
|
All
options in the table are vested.
|
(2)
|
Reflects
the aggregate market value of the shares of restricted stock determined
based on a per share price of $0.41, the closing price of our common stock
on the Nasdaq Global Market on December 31, 2008, which was the last
trading day of
2008.
|
Employment
Contracts
Robert
S. Ehrlich
Mr.
Ehrlich is party to an employment agreement with us executed in April 2007. The
term of this employment agreement as extended expires on December 31,
2011.
The
employment agreement provides for a base salary of $33,333 per month, as
adjusted annually for Israeli inflation and devaluation of the Israeli shekel
against the U.S. dollar, if any. Mr. Ehrlich has waived this adjustment for 2008
and 2009. Additionally, the board may at its discretion raise Mr. Ehrlich’s base
salary. The employment agreement also grants Mr. Ehrlich a retention bonus in
the amount of 200,000 shares of restricted stock, vesting one-third on each of
December 31, 2007, 2008 and 2009.
The
employment agreement provides that we will pay an annual bonus, on a sliding
scale, in an amount equal to 35% of Mr. Ehrlich’s annual base salary then in
effect if the results we actually attain for the year in question are 90% or
more of the amount we budgeted at the beginning of the year, up to a maximum of
75% of his annual base salary then in effect if the results we actually attain
for the year in question are 120% or more of the amount we budgeted at the
beginning of the year. For 2008, the Compensation Committee choose financial
targets for determining eligibility for the above-referenced cash incentive
bonus that are determined 50% on the achievement of set budgetary forecast
targets for revenue growth and 50% on the achievement of set budgetary forecast
targets for EBITDA, which is determined by taking net profit and adding back in
interest expense (income), net (after deduction of minority interest),
depreciation of fixed assets, taxes (after deduction of minority interest), and
amortization of inventory adjustments and of intangible assets, capitalized
software costs and technology impairment. We did not achieve the targets set by
the Compensation Committee for 2008, and accordingly the incentive bonus for
2008 was not paid. New targets will be chosen for 2009 based upon future
budgetary forecasts.
The
employment agreement also contains various benefits customary in Israel for
senior executives, tax and financial planning expenses and an automobile, and
contains confidentiality and non-competition covenants. Pursuant to the
employment agreement, we granted Mr. Ehrlich demand and “piggyback” registration
rights covering shares of our common stock held by him.
We can
terminate Mr. Ehrlich’s employment agreement in the event of death or disability
or for “Cause” (defined as conviction of certain crimes, willful failure to
carry out directives of our board of directors or gross negligence or willful
misconduct). Mr. Ehrlich has the right to terminate his employment upon a change
in our control or for “Good Reason,” which is defined to include adverse changes
in employment status or compensation, our insolvency, material breaches and
certain other events. Additionally, Mr. Ehrlich may terminate his agreement for
any reason upon 120 days’ notice.
Upon
termination of employment, the employment agreement provides for payment of all
accrued and unpaid compensation and benefits (including under most circumstances
Israeli statutory severance, described above), and (unless we have terminated
the agreement for Cause or Mr. Ehrlich has terminated the agreement without Good
Reason and without giving us 120 days’ notice of termination) bonuses (to the
extent earned) due for the year in which employment is terminated and severance
pay in the amount of up to $1,625,400, except that in the event of termination
by Mr. Ehrlich on 120 days’ prior notice, the severance pay will be only that
amount that has vested (meaning that it had been scheduled to have been
deposited in trust as described in the next paragraph). Furthermore, in respect
of any termination by us other than termination for Cause or termination of the
agreement due to Mr. Ehrlich’s death or disability, or by Mr. Ehrlich other than
for Good Reason, all outstanding options and all restricted shares will be fully
vested. Restricted shares that have vested prior to the date of termination are
not forfeited under any circumstances, including termination for
Cause.
A table
describing the payments that would have been due to Mr. Ehrlich under his
employment agreement had Mr. Ehrlich’s employment with us been terminated at the
end of 2008 under various circumstances (pursuant to the terms of his
then-current employment agreement) appears under “Potential Payments and
Benefits upon Termination of Employment – Robert S. Ehrlich,”
below.
Pursuant
to the terms of our employment agreement Mr. Ehrlich, funds to secure payment of
Mr. Ehrlich’s contractual severance are to be deposited into accounts for his
benefit, with payments to be made pursuant to an agreed-upon schedule. As of
December 31, 2008, a total of $587,905 had been deposited into accounts with two
capital management funds. These accounts are in our name and continue to be
owned by us, and we benefit from all gains and bear the risk of all losses
resulting from deposits of these funds.
Steven
Esses
Mr. Esses
is party to an employment agreement with our Electric Fuel Ltd. subsidiary and
guaranteed by us executed in April 2008, effective as of January 1, 2008. The
term of this employment agreement as extended expires on December 31,
2011.
The
employment agreement provides for a base salary of NIS 53,023.50 per month
(approximately $13,787 at the rate of exchange in effect on January 1, 2008),
with an automatic annual 6% increase to adjust for inflation. Mr. Esses waived
his inflation adjustment for 2008. Additionally, the board may at its discretion
raise Mr. Esses’s base salary. The agreement also provides for a stock retention
bonus of 200,000 shares of restricted stock, vesting (i) 25,000 shares on
December 31, 2008, 25,000 shares on December 31, 2009, and 25,000 shares on
December 31, 2010, with each such vesting being contingent solely on Mr. Esses
being employed by us on the scheduled vesting date, (ii) 25,000 shares on
December 31, 2008, 25,000 shares on December 31, 2009, and 25,000 shares on
December 31, 2010, with each such vesting being contingent on Mr. Esses being
employed by us on the scheduled vesting date and on performance criteria to be
established by the Compensation Committee of our Board of Directors, and (iii)
50,000 shares on January 1, 2011, with such vesting being contingent upon Mr.
Esses succeeding to the position of Chief Executive Officer by such date. We did
not achieve the targets set by the Compensation Committee for 2008, and
accordingly the 25,000 performance shares for 2008 were not vested.
The
agreement
further provides for a cash retention bonus of NIS 900,000 (approximately
$234,000 at the rate of exchange in effect on January 1, 2008).
The
employment agreement provides that if the results we actually attain in a given
year are at least 90% of the amount we budgeted at the beginning of the year, we
will pay a bonus, on a sliding scale, in an amount equal to a minimum of 20% of
Mr. Esses’s annual base salary then in effect, up to a maximum of 75% of his
annual base salary then in effect if the results we actually attain for the year
in question are 120% or more of the amount we budgeted at the beginning of the
year. For 2008, the Compensation Committee choose financial targets for
determining eligibility for the above-referenced cash incentive bonus that are
determined 50% on the achievement of set budgetary forecast targets for revenue
growth and 50% on the achievement of set budgetary forecast targets for EBITDA,
which is determined by taking net profit and adding back in interest expense
(income), net (after deduction of minority interest), depreciation of fixed
assets, taxes (after deduction of minority interest), and amortization of
inventory adjustments and of intangible assets, capitalized software costs and
technology impairment. We did not achieve the targets set by the Compensation
Committee for 2008, and accordingly the incentive bonus for 2008 was not paid.
New targets will be chosen for 2009 based upon future budgetary
forecasts.
The
employment agreement also contains various benefits customary in Israel for
senior executives, tax and financial planning expenses and an automobile, and
contain confidentiality and non-competition covenants. Pursuant to the
employment agreements, we granted Mr. Esses demand and “piggyback” registration
rights covering shares of our common stock held by him.
We can
terminate Mr. Esses’s employment agreement in the event of death or disability
or for “Cause” (defined as conviction of certain crimes, willful failure to
carry out directives of our board of directors or gross negligence or willful
misconduct). Mr. Esses has the right to terminate his employment upon a change
in our control or for “Good Reason,” which is defined to include adverse changes
in employment status or compensation, our insolvency, material breaches and
certain other events. Additionally, Mr. Esses may retire (after age 65), retire
early (after age 55) or terminate his agreement for any reason upon 150 days’
notice.
Upon
termination of employment, the employment agreement provides for payment of all
accrued and unpaid compensation, and (unless we have terminated the agreement
for Cause or Mr. Esses has terminated the agreement without Good Reason and
without giving us 150 days’ notice of termination) bonuses (to the extent
earned) due for the year in which employment is terminated (in an amount of not
less than 20% of base salary) and severance pay, as follows: (A) before the end
of the first year of the agreement, a total of (i) $30,400 plus (ii) eighteen
(18) times monthly salary; (B) before the end of the second year of the
agreement, a total of (i) $56,000 plus (ii) twenty (20) times monthly salary;
(C) before the end of the third year of the agreement, a total of (i) $81,600
plus (ii) twenty-two (22) times monthly salary; or (D) at or after the end of
the third year of the agreement, a total of (i) $107,200 plus (ii) twenty-four
(24) times monthly salary. In all of the above cases, “base salary” and “monthly
salary” mean what Mr. Esses’s salary would have been had he not waived his
inflation adjustment. Furthermore, Mr. Esses will receive, in respect of all
benefits, an additional sum in the amount of (i) $75,000, in the case of
termination due to disability, Good Reason, death, or non-renewal, or (ii)
$150,000, in the case of termination due to early retirement, retirement, change
of control or change of location. Additionally, in respect of any termination
due to a change of control or a change in the primary location from which Mr.
Esses shall have conducted his business activities during the 60 days prior to
such change, all outstanding options and all restricted shares will be fully
vested. Restricted shares that have vested prior to the date of termination are
not forfeited under any circumstances, including termination for
Cause.
A table
describing the payments that would have been due to Mr. Esses under his
employment agreement had Mr. Esses’s employment with us been terminated at the
end of 2008 under various circum-
stances
appears under “Potential Payments and Benefits upon Termination of Employment –
Steven Esses,” below.
Pursuant
to the terms of our employment agreement Mr. Esses, funds to secure payment of
Mr. Esses’s contractual severance are to be deposited into accounts for his
benefit, with payments to be made pursuant to an agreed-upon schedule. As of
December 31, 2008, a total of $100,000 had been deposited into accounts with two
capital management funds. These accounts are in our name and continue to be
owned by us, and we benefit from all gains and bear the risk of all losses
resulting from deposits of these funds.
See also
“Certain Relationships and Related Transactions – Consulting Agreement with
Sampen Corporation,” below.
Thomas
J. Paup
Mr. Paup
is party to an amended and restated employment agreement with us executed in
April 2008, effective as of January 1, 2008, having a term running until
December 31, 2011. Under the terms of his employment agreement, Mr. Paup is
entitled to receive a base salary of $160,000 per annum, with increases of 6%
per year thereafter to take account of inflation, and will be eligible for a
bonus with a target equal to between 20% and 50% of the base salary. Mr. Paup
waived his inflation adjustment for 2008. The actual bonus payout shall be
determined based upon the Company’s achievement level against financial and
performance objectives determined by the Compensation Committee of our Board of
Directors. We did not achieve the targets set by the Compensation Committee for
2008, and accordingly the incentive bonus for 2008 was not paid. New targets
will be chosen for 2009 based upon future budgetary forecasts. The agreement
also provides for a stock retention bonus of 65,000 shares of restricted stock,
vesting (i) 10,834 shares on December 31, 2008, 10,833 shares on December 31,
2009, and 10,833 shares on December 31, 2010, with each such vesting being
contingent solely on Mr. Paup being employed by us on the scheduled vesting
date, and (ii) 10,834 shares on December 31, 2008, 10,833 shares on December 31,
2009, and 10,833 shares on December 31, 2010, with each such vesting being
contingent on Mr. Paup being employed by us on the scheduled vesting date and on
performance criteria to be established by the Compensation Committee of our
Board of Directors. We did not achieve the targets set by the Compensation
Committee for 2008, and accordingly the 10,834 performance shares for 2008 were
not vested. Mr. Paup’s employment agreement provides that if we terminate his
agreement other than for cause (defined as conviction of certain crimes, willful
failure to carry out directives of our board of directors or gross negligence or
willful misconduct), we must pay Mr. Paup severance in an amount of four times
his monthly salary plus an additional two months’ salary for every year worked
during the term of his agreement, with the maximum severance payable of one
year’s salary; these payments are doubled in the event of termination by reason
of a change of control. In all of the above cases, “monthly salary” mean what
Mr. Paup’s salary would have been had he not waived his inflation adjustment.
Additionally, in respect of any termination due to a change of control, all
outstanding options and all restricted shares will be fully vested. Restricted
shares that have vested prior to the date of termination are not forfeited under
any circumstances, including termination for Cause.
Others
Other
employees have entered into individual employment agreements with us. These
agreements govern the basic terms of the individual’s employment, such as
salary, vacation, overtime pay, severance arrangements and pension plans.
Subject to Israeli law, which restricts a company’s right to relocate an
employee to a work site farther than sixty kilometers from his or her regular
work site, we have retained the right to transfer certain employees to other
locations and/or positions provided that such transfers do not result in a
decrease in salary or benefits. All of these agreements also contain provisions
governing the confidentiality of information and ownership of intellectual
property learned or created during the course
of the
employee’s tenure with us. Under the terms of these provisions, employees must
keep confidential all information regarding our operations (other than
information which is already publicly available) received or learned by the
employee during the course of employment. This provision remains in force for
five years after the employee has left our service. Further, intellectual
property created during the course of the employment relationship belongs to
us.
A number
of the individual employment agreements, but not all, contain non-competition
provisions which restrict the employee’s rights to compete against us or work
for an enterprise which competes against us. Such provisions remain in force for
a period of two years after the employee has left our service.
Under the
laws of Israel, an employee of ours who has been dismissed from service, died in
service, retired from service upon attaining retirement age, or left due to poor
health, maternity or certain other reasons, is entitled to severance pay at the
rate of one month’s salary for each year of service, pro rata for partial years of
service. We currently fund this obligation by making monthly payments to
approved private provident funds and by its accrual for severance pay in the
consolidated financial statements. See Note 2.r. of the Notes to the
Consolidated Financial Statements contained in our Annual Report to
Stockholders.
Potential
Payments and Benefits upon Termination of Employment
This
section sets forth in tabular form quantitative disclosure regarding estimated
payments and other benefits that would have been received by certain of our
executive officers if their employment had terminated on December 31, 2008 (the
last business day of the fiscal year).
For a
narrative description of the severance and change in control arrangements in the
employment contracts of Messrs. Ehrlich, Esses and Paup, see “– Employment
Contracts,” above. Each of Messrs. Ehrlich and Esses will be eligible to receive
severance payments in excess of accrued but unpaid items only if he signs a
general release of claims.
Robert
S. Ehrlich
The
following table describes the potential payments and benefits upon employment
termination for Robert S. Ehrlich, our Chairman and Chief Executive Officer,
pursuant to applicable law and the terms of his employment agreement with us, as
if his employment had terminated on December 31, 2008 (the last business day of
the fiscal year) under the various scenarios described in the column headings as
explained in the footnotes below.
ROBERT
S. EHRLICH
|
|
Payments
and Benefits
|
|
Death
or
Disability(1)
|
|
|
Cause(2)
|
|
|
Good
Reason(3)
|
|
|
Change
of
Control(4)
|
|
|
Termination
at Will(5)
|
|
|
Other
Employee
Termination(6)
|
|
Accrued
but unpaid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
salary
|
|
$ |
33,333 |
|
|
$ |
33,333 |
|
|
$ |
33,333 |
|
|
$ |
33,333 |
|
|
$ |
33,333 |
|
|
$ |
33,333 |
|
Vacation
|
|
|
77,340 |
|
|
|
77,340 |
|
|
|
77,340 |
|
|
|
77,340 |
|
|
|
77,340 |
|
|
|
77,340 |
|
Recuperation
pay(7)
|
|
|
363 |
|
|
|
363 |
|
|
|
363 |
|
|
|
363 |
|
|
|
363 |
|
|
|
363 |
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manager’s
insurance(8)
|
|
|
5,277 |
|
|
|
5,277 |
|
|
|
5,277 |
|
|
|
5,277 |
|
|
|
5,277 |
|
|
|
5,277 |
|
Continuing
education fund(9)
|
|
|
2,500 |
|
|
|
2,500 |
|
|
|
2,500 |
|
|
|
2,500 |
|
|
|
2,500 |
|
|
|
2,500 |
|
Tax
gross-up on automobile
|
|
|
1,167 |
|
|
|
– |
|
|
|
1,167 |
|
|
|
1,167 |
|
|
|
1,167 |
|
|
|
– |
|
Contractual
severance
|
|
|
1,625,400 |
|
|
|
– |
|
|
|
1,625,400 |
|
|
|
1,625,400 |
|
|
|
1,625,400 |
|
|
|
– |
|
Statutory
severance(10)
|
|
|
715,388 |
|
|
|
– |
|
|
|
715,388 |
|
|
|
715,388 |
|
|
|
715,388 |
|
|
|
– |
|
Accelerated
vesting of restricted stock
|
|
|
168,800 |
|
|
|
– |
|
|
|
168,800 |
|
|
|
168,800 |
|
|
|
– |
|
|
|
– |
|
TOTAL:
|
|
$ |
2,629,568 |
|
|
$ |
118,813 |
|
|
$ |
2,629,568 |
|
|
$ |
2,629,568 |
|
|
$ |
2,460,768 |
|
|
$ |
118,813 |
|
(1)
|
“Disability”
is defined in Mr. Ehrlich’s employment agreement as a physical or mental
infirmity which impairs the Mr. Ehrlich’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
(2)
|
“Cause”
is defined in Mr. Ehrlich’s employment agreement as (i) conviction for
fraud, crimes of moral turpitude or other conduct which reflects on us in
a material and adverse manner; (ii) a willful failure to carry out a
material directive of our Board of Directors, provided
that such directive concerned matters within the scope of Mr. Ehrlich’s
duties, would not give Mr. Ehrlich “Good Reason” to terminate his
agreement (see footnote 4 below) and was capable of being reasonably and
lawfully performed; (iii) conviction in a court of competent jurisdiction
for embezzlement of our funds; and (iv) reckless or willful misconduct
that is materially harmful to us.
|
(3)
|
“Good
Reason” is defined in Mr. Ehrlich’s employment agreement as (i) a change
in Mr. Ehrlich’s status, title, position or responsibilities which, in Mr.
Ehrlich’s reasonable judgment, represents a reduction or demotion in his
status, title, position or responsibilities as in effect immediately prior
thereto; (ii) a reduction in Mr. Ehrlich’s base salary; (iii) the failure
by us to continue in effect any material compensation or benefit plan in
which Mr. Ehrlich is participating; (iv) our insolvency or the filing (by
any party, including us) of a petition for our winding-up; (v) any
material breach by us of any provision of Mr. Ehrlich’s employment
agreement; (vi) any purported termination of Mr. Ehrlich’s employment for
cause by us which does not comply with the terms of Mr. Ehrlich’s
employment agreement; and (vii) any movement of the location where Mr.
Ehrlich is generally to render his services to us from the Jerusalem/Tel
Aviv area of Israel.
|
(4)
|
“Change
of Control” is defined in Mr. Ehrlich’s employment agreement as (i) the
acquisition (other than from us in any public offering or private
placement of equity securities) by any person or entity of beneficial
ownership of 20% or more of the combined voting power of our
then-outstanding voting securities; or (ii) individuals who, as of January
1, 2000, were members of our Board of Directors (the “Original Board”),
together with individuals approved by a vote of at least 2/3 of the
individuals who were members of the Original Board and are then still
members of our Board, cease for any reason to constitute at least 1/3 of
our Board; or (iii) approval by our stockholders of a complete winding-up
or an agreement for the sale or other disposition of all or substantially
all of our assets.
|
(5)
|
“Termination
at Will” is defined in Mr. Ehrlich’s employment agreement as Mr. Ehrlich
terminating his employment with us on written notice of at least 120 days
in advance of the effective date of such termination.
|
(6)
|
“Other
Employee Termination” means a termination by Mr. Ehrlich of his employment
without giving us the advance notice of 120 days needed to make such a
termination qualify as a “Termination at Will.”
|
(7)
|
Pursuant
to Israeli law and our customary practice, we pay Mr. Ehrlich in July of
each year the equivalent of ten days’ “recuperation pay” at the statutory
rate of NIS 318 (approximately $86) per day.
|
(8)
|
Payments
to managers’ insurance, a benefit customarily given to senior executives
in Israel, come to a total of 15.83% of base salary, consisting of 8.33%
for payments to a fund to secure payment of statutory severance
obligations, 5% for pension and 2.5% for disability. The managers’
insurance funds reflected in the table do not include the 8.33% payments
to a fund to secure payment of statutory severance obligations with
respect to amounts paid prior to December 31, 2008, which funds are
reflected in the table under the “Statutory severance”
heading.
|
(9)
|
Pursuant
to Israeli law, we must contribute an amount equal to 7.5% of Mr.
Ehrlich’s base salary to a continuing education fund, up to the
permissible tax-exempt salary ceiling according to the income tax
regulations in effect from time to time. At December 31, 2008, the ceiling
then in effect was NIS 15,712 (approximately $4,133). In Mr. Ehrlich’s
case, we have customarily contributed to his continuing education fund in
excess of the tax-exempt ceiling, and then reimbursed Mr. Ehrlich for the
tax. The sums in the table reflect this additional contribution and the
resultant tax reimbursement.
|
(10)
|
Under
Israeli law, employees terminated other than for cause receive severance
in the amount of one month’s base salary for each year of work, at their
salary rate at the date of
termination.
|
Steven
Esses
The
following table describes the potential payments and benefits upon employment
termination for Steven Esses, our President and Chief Operating Officer,
pursuant to applicable law and the terms of his employment agreement with us, as
if his employment had terminated on December 31, 2008 (the last business day of
the fiscal year) under the various scenarios described in the column headings as
explained in the footnotes below.
See also
“Certain Relationships and Related Transactions – Consulting Agreement with
Sampen Corporation,” below.
STEVEN
ESSES
|
|
Payments
and Benefits
|
|
Non-
Renewal(1)
|
|
|
Death
or
Disability(2)
|
|
|
Cause(3)
|
|
|
Good
Reason(4)
|
|
|
Change
of
Control(5)
|
|
|
Change
of
Location(6)
|
|
|
Retirement(7)
|
|
|
Early
Retirement(8)
|
|
|
Other
Employee
Termination(9)
|
|
Accrued
but unpaid(10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
salary
|
|
$ |
13,946 |
|
|
$ |
13,946 |
|
|
|
13,946 |
|
|
$ |
13,946 |
|
|
$ |
13,946 |
|
|
$ |
13,946 |
|
|
$ |
13,946 |
|
|
$ |
13,946 |
|
|
$ |
13,946 |
|
Vacation
|
|
|
64,721 |
|
|
|
64,721 |
|
|
|
64,721 |
|
|
|
64,721 |
|
|
|
64,721 |
|
|
|
64,721 |
|
|
|
64,721 |
|
|
|
64,721 |
|
|
|
64,721 |
|
Sick
leave(11)
|
|
|
17,455 |
|
|
|
17,455 |
|
|
|
– |
|
|
|
17,455 |
|
|
|
17,455 |
|
|
|
17,455 |
|
|
|
17,455 |
|
|
|
17,455 |
|
|
|
– |
|
Recuperation
pay(12)
|
|
|
254 |
|
|
|
254 |
|
|
|
254 |
|
|
|
254 |
|
|
|
254 |
|
|
|
254 |
|
|
|
254 |
|
|
|
254 |
|
|
|
254 |
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manager’s
insurance(13)
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
2,209 |
|
Continuing
education fund(14)
|
|
|
1,415 |
|
|
|
1,415 |
|
|
|
1,415 |
|
|
|
1,415 |
|
|
|
1,415 |
|
|
|
1,415 |
|
|
|
1,415 |
|
|
|
1,415 |
|
|
|
1,415 |
|
Tax
gross-up on automobile
|
|
|
1,167 |
|
|
|
1,167 |
|
|
|
– |
|
|
|
1,167 |
|
|
|
1,167 |
|
|
|
1,167 |
|
|
|
1,167 |
|
|
|
1,167 |
|
|
|
– |
|
STEVEN
ESSES
|
|
Payments
and Benefits
|
|
Non-
Renewal(1)
|
|
|
Death
or
Disability(2)
|
|
|
Cause(3)
|
|
|
Good
Reason(4)
|
|
|
Change
of
Control(5)
|
|
|
Change
of
Location(6)
|
|
|
Retirement(7)
|
|
|
Early
Retirement(8)
|
|
|
Other
Employee
Termination(9)
|
|
Contractual
severance
|
|
|
356,432 |
|
|
|
356,432 |
|
|
|
– |
|
|
|
356,432 |
|
|
|
356,432 |
|
|
|
356,432 |
|
|
|
356,432 |
|
|
|
356,432 |
|
|
|
– |
|
Statutory
severance(15)
|
|
|
70,738 |
|
|
|
70,738 |
|
|
|
– |
|
|
|
70,738 |
|
|
|
70,738 |
|
|
|
70,738 |
|
|
|
70,738 |
|
|
|
70,738 |
|
|
|
– |
|
Benefits
|
|
|
75,000 |
|
|
|
75,000 |
|
|
|
– |
|
|
|
75,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
– |
|
TOTAL:
|
|
$ |
603,337 |
|
|
$ |
603,337 |
|
|
$ |
82,545 |
|
|
$ |
603,337 |
|
|
$ |
603,337 |
|
|
$ |
603,337 |
|
|
$ |
603,337 |
|
|
$ |
603,337 |
|
|
$ |
$82,545 |
|
|
|
(1)
|
“Non-renewal”
is defined in Mr. Esses’s employment agreement as a decision, made with
written notice of at least 90 days in advance of the effective date of
such decision, by either us or Mr. Esses not to renew Mr. Esses’s
employment for an additional two-year term. Pursuant to the terms of Mr.
Esses’s employment agreement, in the absence of such notice, Mr. Esses’s
employment agreement automatically renews.
|
(2)
|
“Disability”
is defined in Mr. Esses’s employment agreement as a physical or mental
infirmity which impairs the Mr. Esses’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
(3)
|
“Cause”
is defined in Mr. Esses’s employment agreement as (i) conviction for
fraud, crimes of moral turpitude or other conduct which reflects on us in
a material and adverse manner; (ii) a willful failure to carry out a
material directive of our Chief Executive Officer, provided
that such directive concerned matters within the scope of Mr. Esses’s
duties, would not give Mr. Esses “Good Reason” to terminate his agreement
(see footnote 4 below) and was capable of being reasonably and lawfully
performed; (iii) conviction in a court of competent jurisdiction for
embezzlement of our funds; and (iv) reckless or willful misconduct that is
materially harmful to us.
|
(4)
|
“Good
Reason” is defined in Mr. Esses’s employment agreement as (i) a change in
(a) Mr. Esses’s status, title, position or responsibilities which, in Mr.
Esses’s reasonable judgment, represents a reduction or demotion in his
status, title, position or responsibilities as in effect immediately prior
thereto, or (b) in the primary location from which Mr. Esses shall have
conducted his business activities during the 60 days prior to such change;
or (ii) a reduction in Mr. Esses’s base salary; (iii) the failure by us to
continue in effect any material compensation or benefit plan in which Mr.
Esses is participating; (iv) our insolvency or the filing (by any party,
including us) of a petition for our winding-up; (v) any material breach by
us of any provision of Mr. Esses’s employment agreement; and (vi) any
purported termination of Mr. Esses’s employment for cause by us which does
not comply with the terms of Mr. Esses’s employment
agreement.
|
(5)
|
“Change
of Control” is defined in Mr. Esses’s employment agreement as (i) the
acquisition (other than from us in any public offering or private
placement of equity securities) by any person or entity of beneficial
ownership of 30% or more of the combined voting power of our
then-outstanding voting securities; or (ii) individuals who, as of January
1, 2000, were members of our Board of Directors (the “Original Board”),
together with individuals approved by a vote of at least 2/3 of the
individuals who were members of the Original Board and are then still
members of our Board, cease for any reason to constitute at least 1/3 of
our Board; or (iii) approval by our stockholders of a complete winding-up
or an agreement for the sale or other disposition of all or substantially
all of our assets.
|
(6)
|
“Change
of location” is defined in Mr. Esses’s employment agreement as a change in
the primary location from which Mr. Esses shall have conducted his
business activities during the 60 days prior to such
change.
|
(7)
|
“Retirement”
is defined as Mr. Esses terminating his employment with us at age 65 or
older on at least 150 days’ prior notice.
|
(8)
|
“Early
Retirement” is defined as Mr. Esses terminating his employment with us at
age 55 or older (up to age 65) on at least 150 days’ prior
notice.
|
(9)
|
Any
termination by Mr. Esses of his employment with us that does not fit into
any of the prior categories, including but not limited to Mr. Esses
terminating his employment with us, with or without notice, other than at
the end of an employment term or renewal thereof, in circumstances that do
not fit into any of the prior categories.
|
(10)
|
Does
not include a total of $12,800 in accrued but unpaid consulting fees due
at December 31, 2008 to Sampen Corporation, a New York corporation owned
by members of Steven Esses’s immediate family, from which Mr. Esses
receives a salary. See “Certain Relationships and Related Transactions –
Consulting Agreement with Sampen Corporation,” below.
|
(11)
|
Limited
to an aggregate of 30 days.
|
(12)
|
Pursuant
to Israeli law and our customary practice, we pay Mr. Esses in July of
each year the equivalent of six days’ “recuperation pay” at the statutory
rate of NIS 318 (approximately $86) per day.
|
(13)
|
Payments
to managers’ insurance, a benefit customarily given to senior executives
in Israel, come to a total of 15.83% of base salary, consisting of 8.33%
for payments to a fund to secure payment of statutory severance
obligations, 5% for pension and 2.5% for disability. The managers’
insurance funds reflected in the table do not include the 8.33% payments
to a fund to secure payment of statutory severance obligations with
respect to amounts paid prior to December 31, 2008, which funds are
reflected in the table under the “Statutory severance”
heading.
|
(14)
|
Pursuant
to Israeli law, we must contribute an amount equal to 7.5% of Mr. Esses’s
base salary to a continuing education fund, up to the permissible
tax-exempt salary ceiling according to the income tax regulations in
effect from time to time. At December 31, 2008, the ceiling then in effect
was NIS 15,712 (approximately $4,350). In Mr. Esses’s case, we have
customarily contributed to his continuing education fund in excess of the
tax-exempt ceiling, and then reimbursed Mr. Esses for the tax. The sums in
the table reflect this additional contribution and the resultant tax
reimbursement.
|
(15)
|
Under
Israeli law, employees terminated other than for cause receive severance
in the amount of one month’s base salary for each year of work, at their
salary rate at the date of
termination.
|
Thomas
J. Paup
The
following table describes the potential payments and benefits upon employment
termination for Thomas J. Paup, our Vice President – Finance and Chief Financial
Officer, pursuant to applicable law and the terms of his employment agreement
with us, as if his employment had terminated on December 31, 2008 (the last
business day of the fiscal year) under the various scenarios described in the
column headings as explained in the footnotes below.
THOMAS
J. PAUP
|
|
Payments
and Benefits
|
|
Death
or
Disability(1)
|
|
|
Cause(2)
|
|
|
Change
of
Control(3)
|
|
|
Non-Renewal(4)
|
|
Accrued
but unpaid:
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
salary
|
|
|
$6,666 |
|
|
|
$6,666 |
|
|
|
$6,666 |
|
|
|
$6,666 |
|
Vacation
|
|
|
11,692 |
|
|
|
11,692 |
|
|
|
11,692 |
|
|
|
11,692 |
|
Contractual
severance
|
|
|
– |
|
|
|
– |
|
|
|
160,000 |
|
|
|
80,000 |
|
TOTAL:
|
|
|
$18,358 |
|
|
|
$18,358 |
|
|
|
$178,358 |
|
|
|
$98,358 |
|
(1)
|
“Disability”
is defined in Mr. Paup’s employment agreement as a physical or mental
infirmity which impairs the Mr. Paup’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
(2)
|
“Cause”
is defined in Mr. Paup’s employment agreement as (i) a breach of trust by
Mr. Paup, including, for example, but without limitation, commission of an
act of moral turpitude, theft, embezzlement, self-dealing or insider
trading; (ii) the unauthorized disclosure by Mr. Paup of confidential
information of or relating to us; (iii) a material breach by Mr. Paup of
his employment agreement; or (iv) any act of, or omission by, Mr. Paup
which, in our reasonable judgment, amounts to a serious failure by Mr.
Paup to perform his responsibilities or functions or in the exercise of
his authority, which failure, in our reasonable judgment, rises to a level
of gross nonfeasance, misfeasance or malfeasance.
|
(3)
|
“Change
of Control” is defined in Mr. Paup’s employment agreement as (i) the
acquisition (other than from us in any public offering or private
placement of equity securities) by any person or entity of beneficial
ownership of 30% or more of the combined voting power of our
then-outstanding voting securities; or (ii) individuals who, as of
December 31, 2007, were members of our Board of Directors (the “Original
Board”), together with individuals approved by a vote of at least 2/3 of
the individuals who were members of the Original Board and are then still
members of our Board, cease for any reason to constitute at least 1/3 of
our Board; or (iii) approval by our stockholders of a complete winding-up
or an agreement for the sale or other disposition of all or substantially
all of our assets.
|
(4)
|
“Non-Renewal”
is defined in Mr. Paup’s employment agreement as Mr. Paup terminating his
employment with us on written notice of at least 120 days in advance of
the effective date of such
termination.
|
REPORT
OF THE AUDIT COMMITTEE
The Audit
Committee of the Board of Directors (the “Audit Committee”) consists of three
non-employee directors, Prof. Seymour Jones (Chair), Edward J. Borey and Elliot
Sloyer, each of whom has been determined to be independent as defined by the
Nasdaq rules and SEC regulations. The Audit Committee operates under a written
charter adopted by the Board of Directors.
Management
is responsible for Arotech’s internal controls and the financial reporting
process. The independent accountants are responsible for performing an
independent audit of Arotech’s consolidated financial statements in accordance
with generally accepted accounting principles and to issue a report thereon. The
Audit Committee’s responsibility is to monitor and oversee these
processes.
In this
context the Audit Committee has met and held discussions with management and the
independent accountants. Management represented to the Audit Committee that
Arotech’s audited consolidated financial statements were prepared in accordance
with generally accepted accounting principles, and the Audit Committee has
reviewed and discussed the audited consolidated financial statements with
management and the independent accountants. The Audit Committee discussed with
the independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61.
Arotech’s
independent accountants also provided to the Audit Committee the written
disclosure required by Independence Standards Board Standard No. 1,
“Independence Discussions with Audit Committees.” The Committee discussed with
the independent accountants that firm’s independence and considered whether the
non-audit services provided by the independent accountants are compatible with
maintaining its independence.
Based on
the Audit Committee’s discussions with management and the independent
accountants, and the Audit Committee’s review of the representation of
management and the report of the independent accountants to the Audit Committee,
the Audit Committee recommended that the Board of Directors include the audited
consolidated financial statements in Arotech’s Annual
Report on
Form 10-K for the year ended December 31, 2008 filed with the Securities and
Exchange Commission.
Submitted
by the Audit Committee
Prof.
Seymour Jones
Edward J.
Borey
Elliot
Sloyer
FEES
BILLED FOR SERVICES RENDERED BY PRINCIPAL ACCOUNTANT
In
accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit
Committee’s charter, all audit and audit-related work and all non-audit work
performed by our independent accountants, BDO Seidman, LLP (“BDO”), is approved
in advance by the Audit Committee, including the proposed fees for such work.
The Audit Committee is informed of each service actually rendered.
Ø
|
Audit Fees. Audit fees
billed or expected to be billed to us by BDO for the audit of the
financial statements included in our Annual Report on Form 10-K, and
reviews of the financial statements included in our Quarterly Reports on
Form 10-Q, for the years ended December 31, 2008 and 2007 totaled
approximately $514,000 and $428,000,
respectively.
|
Ø
|
Audit-Related Fees. BDO
billed us $23,000 and $16,000 for the fiscal years ended December 31, 2008
and 2007, respectively, for assurance and related services that are
reasonably related to the performance of the audit or review of our
financial statements.
|
Ø
|
Tax Fees. BDO billed or
expected to bill us an aggregate of $25,000 for each of the fiscal years
ended December 31, 2008 and 2007, for tax services, principally advice
regarding the preparation of income tax
returns.
|
Ø
|
All Other Fees. BDO did
not provide additional services other than the services reported
above.
|
Applicable
law and regulations provide an exemption that permits certain services to be
provided by our outside auditors even if they are not pre-approved. We have not
relied on this exemption at any time since the Sarbanes-Oxley Act was
enacted.
A
representative of BDO Seidman, LLP is not expected to be present at the Annual
Meeting.
INFORMATION
REGARDING BENEFICIAL OWNERSHIP OF COMMON STOCK
The
following table sets forth information regarding the security ownership, as of
April [xx],
2009, of those persons owning of record or known by us to own beneficially 5% or
more of our common stock and of each of our Named Executive Officers and
directors, and the shares of common stock held by all of our directors and
executive officers as a group.
Name and Address of Beneficial Owner(1)
|
|
Shares Beneficially Owned(2)(3)
|
|
|
Percentage of Total Shares Outstanding(3)
|
|
Dimensional
Fund Advisors LP
|
|
|
681,759 |
(4) |
|
|
5.0 |
% |
Robert
S. Ehrlich
|
|
|
935,160 |
(5) |
|
|
6.5 |
% |
Steven
Esses
|
|
|
623,257 |
(6) |
|
|
4.3 |
% |
Thomas
J. Paup
|
|
|
139,166 |
(7) |
|
|
* |
|
Dr.
Jay M. Eastman
|
|
|
29,661 |
(8) |
|
|
* |
|
Name and Address of Beneficial Owner(1)
|
|
Shares Beneficially Owned(2)(3)
|
|
|
Percentage of Total Shares Outstanding(3)
|
|
Edward
J. Borey
|
|
|
29,661 |
(9) |
|
|
* |
|
Prof.
Seymour Jones
|
|
|
29,661 |
(10) |
|
|
* |
|
Elliot
Sloyer
|
|
|
62,951 |
(11) |
|
|
* |
|
Michael
E. Marrus
|
|
|
32,951 |
(12) |
|
|
* |
|
All
of our directors and executive officers as a group (8
persons)
|
|
|
2,564,207 |
(13) |
|
|
17.9 |
% |
|
|
*
|
Less
than one percent.
|
(1)
|
The
address of each named beneficial owner other than Dimensional Fund
Advisors LP is in care of Arotech Corporation, 1229 Oak Valley Drive, Ann
Arbor, Michigan 48108.
|
(2)
|
Unless
otherwise indicated in these footnotes, each of the persons or entities
named in the table has sole voting and sole investment power with respect
to all shares shown as beneficially owned by that person, subject to
applicable community property laws.
|
(3)
|
Based
on [xx,xxx,xxx]
shares of common stock outstanding as of April [xx],
2009. For purposes of determining beneficial ownership of our common
stock, owners of options exercisable within sixty days are considered to
be the beneficial owners of the shares of common stock for which such
securities are exercisable. The percentage ownership of the outstanding
common stock reported herein is based on the assumption (expressly
required by the applicable rules of the Securities and Exchange
Commission) that only the person whose ownership is being reported has
exercised his options for shares of common stock.
|
(4)
|
Dimensional
Fund Advisors LP (“Dimensional”), Palisades West, Building One, 6300 Bee
Cave Road, Austin, Texas, 78746, 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 possesses investment and/or voting power over our
securities that are owned by the Funds, and may be deemed to be the
beneficial owner of our shares held by the Funds. However, all such
securities are owned by the Funds. Dimensional disclaims beneficial
ownership of such securities. All information in this footnote and in the
text to which this footnote relates is based on a Schedule 13G filed with
the Securities and Exchange Commission on February 6, 2008, as amended on
February 9, 2009.
|
(5)
|
Consists
of 382,667 shares held directly by Mr. Ehrlich, 186,666 shares of unvested
restricted stock (the vesting of 80,000 of which is subject to future
performance criteria), 328,767 shares held as part of a trust securing the
payment of Mr. Ehrlich’s severance package pursuant to the terms of our
employment agreement with him, 3,571 shares held by Mr. Ehrlich’s wife (in
which shares Mr. Ehrlich disclaims beneficial ownership), 11,527 shares
held in Mr. Ehrlich’s pension plan, and 21,962 shares issuable upon
exercise of options exercisable within 60 days of March 31,
2009.
|
(6)
|
Consists
of 136,785 shares held directly by Mr. Esses, 210,000 shares of unvested
restricted stock (the vesting of 90,000 of which is subject to future
performance criteria), 273,973 shares held as part of a trust securing the
payment of Mr. Esses’s severance package pursuant to the terms of our
employment agreement with him, and 2,499 shares issuable upon exercise of
options exercisable within 60 days of March 31, 2009.
|
(7)
|
Consists
of 63,959 shares held directly by Mr. Paup and 75,207 shares of unvested
restricted stock (the vesting of 42,916 of which is subject to future
performance criteria).
|
(8)
|
Consists
of 1,645 shares owned directly by Dr. Eastman and 28,016 shares of
unvested restricted stock.
|
(9)
|
Consists
of 2,787 shares owned directly by Mr. Borey and 28,016 shares of unvested
restricted stock.
|
(10)
|
Consists
of 1,645 shares owned directly by Prof. Jones and 28,016 shares of
unvested restricted stock.
|
(11)
|
Consists
of 32,742 shares owned directly by Mr. Sloyer and 30,209 shares of
unvested restricted stock.
|
(12)
|
Consists
of 2,742 shares owned directly by Mr. Marrus and 30,209 shares of unvested
restricted stock.
|
(13)
|
Includes
24,461 shares issuable upon exercise of options exercisable within 60 days
of March 31, 2009 and 616,339 shares of unvested restricted stock (the
vesting of 212,916 of which is subject to future performance
criteria).
|
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the
securities laws of the United States, our directors, certain of our officers and
any persons holding more than ten percent of our common stock are required to
report their ownership of our common stock and any changes in that ownership to
the Securities and Exchange Commission. Specific due dates for these reports
have been established and we are required to report any failure to file by these
dates during 2008. We are not aware of any instances during 2008, not previously
disclosed by us, where such “reporting persons” failed to file the required
reports on or before the specified dates.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Officer
Loans
On
December 3, 1999, Robert S. Ehrlich purchased 8,928 shares of our common stock
out of our treasury at the closing price of the common stock on December 2,
1999. Payment was rendered by Mr. Ehrlich in the form of non-recourse promissory
notes due in 2009 in the amount of $167,975, bearing simple annual interest at a
rate of 2%, secured by the shares of common stock purchased and other shares of
common stock previously held by him. As of December 31, 2008, the aggregate
amount outstanding pursuant to this promissory note was $201,570.
On
February 9, 2000, Mr. Ehrlich exercised 9,404 stock options. Mr. Ehrlich paid
the exercise price of the stock options and certain taxes that we paid on his
behalf by giving us a non-recourse promissory note due in 2025 in the amount of
$789,991, bearing annual interest (i) as to $329,163, at 1% over the
then-current federal funds rate announced from time to time by the Wall Street Journal, and (ii)
as to $460,828, at 4% over the then-current percentage increase in the Israeli
consumer price index between the date of the loan and the date of the annual
interest calculation, secured by the shares of our common stock acquired through
the exercise of the options and certain compensation due to Mr. Ehrlich upon
termination. As of December 31, 2008, the aggregate amount outstanding pursuant
to this promissory note was $818,357.
On June
9, 2002, Mr. Ehrlich exercised 3,571 stock options. Mr. Ehrlich paid the
exercise price of the stock options by giving us a non-recourse promissory note
due in 2012 in the amount of $36,500, bearing simple annual interest at a rate
equal to the lesser of (i) 5.75%, and (ii) 1% over the then-current federal
funds rate announced from time to time, secured by the shares of our common
stock acquired through the exercise of the options. As of December 31, 2008, the
aggregate amount outstanding pursuant to this promissory note was
$46,593.
Consulting
Agreement with Sampen Corporation
We have a
consulting agreement with Sampen Corporation that we executed in March 2005,
effective as of January 1, 2005. Sampen is a New York corporation owned by
members of Steven Esses’s immediate family, and Mr. Esses is an employee of both
the Company and of Sampen. The term of this consulting agreement as extended
expires on December 31, 2010, and is extended automatically for additional terms
of two years each unless either Sampen or we terminate the agreement
sooner.
Pursuant
to the terms of our agreement with Sampen, Sampen provides one of its employees
to us for such employee to serve as our Chief Operating Officer. We pay Sampen
$12,800 per month, plus an annual bonus, on a sliding scale, in an amount equal
to a minimum of 20% of Sampen’s annual base compensation then in effect, up to a
maximum of 75% of its annual base compensation then in effect if the results we
actually attain for the year in question are 120% or more of the amount we
budgeted at the beginning of the year. We also pay Sampen, to cover the cost of
our use of Sampen’s offices as an ancillary New York office and the attendant
expenses and insurance costs, an amount equal to 16% of each monthly payment of
base compensation.
STOCKHOLDER
COMMUNICATIONS AND PROPOSALS
Stockholder
Communications with the Board of Directors
The Board
has established a process to receive communications from stockholders.
Stockholders may contact any member (or all members) of the Board at <directors@arotech.com>.
Non-management directors may be contacted as a group at <nonmanagement-directors@arotech.com>.
Any Board committee or any chair of any such committee may be contacted as
follows: <audit-chair@arotech.com>,
<compensation-chair@arotech.com>,
or <nominating-chair@arotech.com>.
If you cannot send an electronic message, you may contact Board members by mail
at: Arotech Board Members, 1229 Oak Valley Drive, Ann Arbor, Michigan
48108.
The
Arotech Corporation Investor Relations Department is responsible for forwarding
all such communications to the Board of Directors, and where appropriate, to
management. Communications are screened to exclude certain items that are
unrelated to the duties and responsibilities of the Board, such as spam, junk
mail and mass mailings, product complaints, product inquiries, new product
suggestions, job inquiries, surveys, business solicitations or advertisements,
and material that is unduly hostile, threatening, illegal or similarly
unsuitable. Communications that are filtered out are made available to any
director upon request. The Board may involve management in preparing its
responses to stockholder communications.
Stockholder
Proposals
Pursuant
to the rules of the Securities and Exchange Commission, stockholder proposals
made in accordance with Rule 14a-8 under the Exchange Act intended to be
included in our proxy material for the next annual meeting must be received by
us on or before January 31, 2010. Any proposals must be received at our
principal executive offices, 1229 Oak Valley Drive, Ann Arbor, Michigan 48108,
Attention: Corporate Secretary by the applicable date.
Stockholder
proposals submitted outside the processes of Rule 14a-8 must be received by our
Corporate Secretary in a timely fashion. To be timely, such notice and
information regarding the proposal and the stockholder must be delivered to or
mailed and received by our Corporate Secretary at our principal executive
offices, 1229 Oak Valley Drive, Ann Arbor, Michigan 48108, not less than 45 days
nor more than 60 days prior to the annual meeting; provided, however, that in
the event that less than 60 days’ notice or prior public disclosure of the date
of the annual meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the seventh day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made.
ANNUAL
REPORT
Copies of our Annual Report on Form
10-K (including audited financial statements), as amended, filed with the
Securities and Exchange Commission may be obtained without charge by writing to
Stockholder Relations, Arotech Corporation, 1229 Oak Valley Drive, Ann Arbor,
Michigan 48108. A request for a copy of our Annual Report on Form 10-K
must set forth a good-faith representation that the requesting party was either
a holder of record or a beneficial owner of our common stock on April [xx], 2009. Exhibits to
the Form 10-K will be mailed upon similar request and payment of specified fees
to cover the costs of copying and mailing such materials.
Our
audited financial statements for the fiscal year ended December 31, 2008 and
certain other related financial and business information are contained in our
2008 Annual Report to Stockholders, which is being made available to our
stockholders along with this proxy statement, but which is not deemed a part of
the proxy soliciting material.
OTHER
MATTERS
We are
not aware of any other matter that may come before the annual meeting of
stockholders and we do not currently intend to present any such other matter.
However, if any such other matters properly come before the meeting or any
adjournment thereof, the persons named as proxies will have discretionary
authority to vote the shares represented by the accompanying proxy in accordance
with their own judgment.
By
Order of the Board of Directors,
Yaakov
Har-Oz
Senior
Vice President, General Counsel and Secretary
Ann
Arbor, Michigan
April 30,
2009
Appendix
A
Arotech
Corporation
AUDIT
COMMITTEE CHARTER
I. STATEMENT
OF POLICY
The Audit
Committee shall assist the Board of Directors (the “Board”) of Arotech
Corporation (“Arotech”) in fulfilling its oversight responsibility by reviewing
the accounting and financial reporting processes of Arotech and its subsidiaries
(collectively, the “Company”), the Company’s system of internal controls
regarding finance, accounting, legal compliance and ethics, and the audits of
the Company’s financial statements. In so doing, it is the responsibility of the
Audit Committee to maintain free and open means of communications among the
Company’s Board of Directors, outside auditors and senior management. The Audit
Committee’s primary responsibilities and duties are:
·
|
Serve
as an independent and objective party to monitor the Company’s financial
reporting process, internal control system and disclosure control
system.
|
·
|
Review
and appraise the audit efforts of the Company’s independent
accountants.
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·
|
Assume
direct responsibility for the appointment, compensation, retention and
oversight of the work of the outside auditors and for the resolution of
disputes between the outside auditors and the Company’s management
regarding financial reporting
issues.
|
·
|
Provide
an open avenue of communication among the independent accountants,
financial and senior management and the
Board.
|
The Audit
Committee will primarily fulfill these responsibilities by carrying out the
activities identified in Section IV of this Charter.
The
Company shall be responsible for the providing the Audit Committee with
appropriate funding, as determined by the Audit Committee, in order to
compensate the outside auditors and advisors engaged by or employed by the Audit
Committee.
II. COMPOSITION
OF THE AUDIT COMMITTEE
The Audit
Committee shall consist of at least three “independent” Directors of Arotech and
shall serve at the pleasure of the Board. An “independent” Director is defined
as an individual who (a) is not an officer or salaried employee or an affiliate
of the Company, (b) does not have any relationship that, in the opinion of the
Board, would interfere with his or her exercise of independent judgment as an
Audit Committee member, (c) meets the independence requirements of the
Securities and Exchange Commission (the “SEC”) and the Nasdaq Stock Market or
such other securities exchange or market on which Arotech’s securities are
traded and (d) except as permitted by the SEC and the Nasdaq Stock Market or
such other securities exchange or market on which Arotech’s securities are
traded, does not accept any consulting, advisory or other compensatory fee from
the Company.
At least
one member of the Audit Committee shall be a “financial expert” as defined by
the SEC and the Nasdaq Stock Market or such other securities exchange or market
on which Arotech’s securities are traded. Each Audit Committee member must be
able to read and understand financial statements, including a balance sheet,
income statement, and cash flow statement.
The
members of the Audit Committee shall be designated by the full Board from time
to time. The Board shall designate one member of the Audit Committee to serve as
chairperson of the committee.
III. MEETINGS
AND MINUTES
The Audit
Committee shall meet at least quarterly, with additional meetings if
circumstances require, for the purpose of satisfying its responsibilities. The
Audit Committee shall maintain minutes of each meeting of the Audit Committee
and shall report the actions of the Audit Committee to the Board, with such
recommendations as the Audit Committee deems appropriate.
IV. RESPONSIBILITIES
AND DUTIES OF THE AUDIT COMMITTEE
The Audit
Committee shall oversee and monitor the Company’s accounting and financial
reporting process, internal control system and disclosure control system, review
the audits of the Company’s financial statements and review and evaluate the
performance of the Company’s outside auditors. In fulfilling these duties and
responsibilities, the Audit Committee shall take the following actions, in
addition to performing such functions as may be assigned by law, the Company’s
certificate of incorporation, the Company’s bylaws or the Board.
1.
|
The
Audit Committee shall assume direct responsibility for the appointment,
retention and oversight of the work of the outside auditors and, when
appropriate, the replacement of the outside auditors. As part of the audit
process, the Audit Committee shall meet with the outside auditors to
discuss and decide the audit’s scope. The Audit Committee shall determine
that the outside audit team engaged to perform the external audit consists
of competent, experienced, auditing professionals. The Audit Committee
shall also review and approve the compensation to be paid to the outside
auditors and shall be authorized to compensate the outside
auditors.
|
2.
|
The
Audit Committee shall take, or recommend that the full Board take,
appropriate action to ensure the independence of the outside auditors. The
Audit Committee shall require the outside auditors to advise the Company
of any fact or circumstances that might adversely affect the outside
auditors’ independence or judgment with respect to the Company under
applicable auditing standards. The Audit Committee shall require the
outside auditors to submit, on an annual basis, a formal written statement
setting forth all relationships between the outside auditors and the
Company that may affect the objectivity and independence of the outside
auditors. Such statement shall confirm that the outside auditors are not
aware of any conflict of interest prohibited by Section 10A(l) of the
Securities Exchange Act of 1934 (the “Exchange Act”). The Audit Committee
shall actively engage in a dialogue with the outside auditors with respect
to any disclosed relationships or services that may impact the objectivity
and independence of the outside
auditors.
|
3.
|
The
Audit Committee shall require the outside auditors to advise the Audit
Committee in advance in the event that the outside auditors intend to
provide any professional services to the Company other than services
provided in connection with an audit or a review of the Company’s
financial statements (“non-audit services”); provided that such non-audit
services are not listed in Section 10A(g) of the Exchange Act (“prohibited
services”). The Audit Committee shall approve, in advance, any non-audit
services to be provided to the Company by the Company’s outside auditing
firm.
|
4.
|
The
Audit Committee shall obtain confirmations from time to time from the
Company’s outside auditing firm that such firm is not providing to the
Company (i) any prohibited services, or (ii) any other non-audit service
or any auditing service that has not been approved in advance by the Audit
Committee. The Audit Committee shall have the authority to approve the
provision of non-audit services that have not been pre-approved by the
Audit Committee, but only to the extent that such non-audit services
qualify under the de
minimus exception set forth in Section 10A(i)(1)(B) of the Exchange
Act. The Audit Committee shall record in its minutes and report to the
Board all approvals of non-audit services granted by the Audit
Committee.
|
5.
|
The
Audit Committee shall meet with the outside auditors, with no management
in attendance, to openly discuss the quality of the Company’s accounting
principles as applied in its financial reporting, including issues such as
(a) the appropriateness, not just the acceptability, of the accounting
principles and financial disclosure practices used or proposed to be used
by the Company, (b) the clarity of the Company’s financial disclosures and
(c) the degree of aggressiveness or conservatism that exists in the
Company’s accounting principles and underlying estimates and other
significant decisions made by the Company’s management in preparing the
Company’s financial disclosures. The Audit Committee shall then meet,
without operating management or the outside auditors being present, to
discuss the information presented to
it.
|
6.
|
The
Audit Committee shall meet with the outside auditors and management to
review the Company’s quarterly reports on Form 10-Q and annual report on
Form 10-K and discuss any significant adjustments, management judgments
and accounting estimates and any significant new accounting policies
before such forms are filed with the SEC. The Audit Committee shall
require the outside auditors to report to the Audit Committee all critical
accounting policies and practices to be used, all alternative treatments
of financial information within generally accepted accounting principles
that have been discussed with the Company’s management, ramifications of
the use of such alternative disclosures and treatments, the treatments
preferred by the outside auditors and other material written
communications between the outside auditors and the Company’s management,
including management’s letters and schedules of unadjusted
differences.
|
7.
|
Upon
the completion of the annual audit, the Audit Committee shall review the
audit findings reported to it by the outside auditors, including any
comments or recommendations of the outside auditors, with the entire
Board.
|
8.
|
The
Audit Committee shall review all reports received from the federal and
state regulatory authorities and assure that the Board is aware of the
findings and results. In addition, it will meet with the appropriate
members of senior management designated by the Audit Committee to review
the responses to the respective regulatory
reports.
|
9.
|
The
Audit Committee shall consider and review with management: (a) significant
findings during the year and management’s responses thereto, including the
status of previous audit recommendations and (b) any difficulties
encountered in the course of their audits, including any restrictions on
the scope of activities or access to required
information.
|
10.
|
The
Audit Committee shall consider and approve, if appropriate, changes to the
Company’s auditing and accounting principles and practices, as suggested
by the outside auditors or management, and the Audit Committee shall
review with the outside auditors and management the extent to which such
changes have been implemented (to be done at an appropriate amount of time
prior to the implementation of such changes as decided by the Audit
Committee).
|
11.
|
The
Audit Committee shall prepare a letter for inclusion in the Company’s
proxy statement describing the discharge of the Audit Committee’s
responsibilities.
|
12.
|
The
Audit Committee will review and update this Charter periodically, at least
annually, and as conditions may dictate. The Audit Committee Charter shall
be presented to the full Board for its approval of any
changes.
|
13.
|
Commencing
on such date as Section 102(a) of the Sarbanes-Oxley Act of 2002 (the
“Act”) becomes effective, the Audit Committee shall obtain confirmation
from the outside auditors at the commencement of each audit that such firm
is a “registered public accounting firm” as such term is defined under the
Act.
|
14.
|
The
Audit Committee shall have the authority to engage independent counsel and
other advisers as it determines necessary to perform its
duties.
|
15.
|
The
Audit Committee shall establish procedures for (i) the receipt, retention
and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters and (ii) the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing
matters.
|
16.
|
The
Audit Committee shall investigate or consider such other matters within
the scope of its responsibilities and duties as the Audit Committee may,
in its discretion, determine to be
advisable.
|
Appendix
B
AROTECH
CORPORATION
2009
EQUITY INCENTIVE PLAN
1. Purposes of the Plan. The
purposes of the Arotech Corporation 2009 Equity Incentive Plan (the “Plan”) are: to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to Employees and Consultants,
and to promote the success of the Company and any Parent or Subsidiary. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Awards,
Unrestricted Share Awards and Stock Appreciation Rights also may be granted
under the Plan.
2. Definitions. As used herein,
the following definitions shall apply:
“Administrator” means
a Committee which has been delegated the responsibility of administering the
Plan in accordance with Section 4 of the Plan or, if there is no such Committee,
the Board. The Board has initially delegated the responsibility of administering
the Plan to the Compensation Committee of the Board of Directors.
“Applicable Laws”
means the requirements relating to the administration of equity compensation
plans under the applicable corporate and securities laws of any of the states in
the United States, U.S. federal securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Awards are, or will
be, granted under the Plan.
“Award” means an
Option, a Stock Appreciation Right, a Stock Award and/or the grant of
Unrestricted Shares.
“Board” means the
Board of Directors of the Company.
“Cause” unless
otherwise defined in the instrument evidencing the Award or in an employment or
services agreement between the Company or a Related Company and a Participant,
means, with respect to any Participant, such Participant’s (i) conviction of, or
plea of nolo contendere to, a felony or crime involving moral turpitude; (ii)
fraud on, or misappropriation of any funds or property of, the Company or any
Parent or Subsidiary; (iii) personal dishonesty, willful misconduct, willful
violation of any law, rule or regulation (other than minor traffic violations or
similar offenses) or breach of fiduciary duty which involves personal profit;
(iv) willful misconduct in connection with the Participant’s duties; (v) chronic
use of alcohol, drugs or other similar substances which affects the
Participant’s performance of services; or (vi) material breach of any provision
of any employment, services, non-disclosure, non-competition, non-solicitation
or other similar agreement executed by the Participant for the benefit of the
Company or any Parent or Subsidiary, all as reasonably determined by the
Administrator, which determination will be conclusive.
“Code” means the
Internal Revenue Code of 1986, as amended.
“Committee” means a
committee of Directors appointed by the Board in accordance with Section 4 of
the Plan.
“Common Stock” means
the common stock, par value $0.01 per share, of the Company.
“Company” means
Arotech Corporation, a Delaware corporation.
“Consultant” means any
person, including an advisor, engaged by the Company or a Parent or Subsidiary
to render services to such entity, other than an Employee.
“Corporate
Transaction,” unless otherwise defined in the instrument evidencing the
Award or in a written employment or services agreement between the Company or a
Related Company and a Participant, means consummation of either:
(a) a
merger or consolidation of the Company with or into any other corporation,
entity or person; or
(b) a
sale, lease, exchange or other transfer in one transaction or a series of
related transactions of all or substantially all the Company’s outstanding
securities or all or substantially all the Company’s assets.
Notwithstanding
the foregoing, a Corporate Transaction shall not include a Related Party
Transaction.
“Director” means a
member of the Board.
“Disability” unless
otherwise defined by the Administrator, means a mental or physical impairment of
the Participant that is expected to result in death or that has lasted or is
expected to last for a continuous period of 12 months or more and that causes
the Participant to be unable, in the opinion of the Company, to perform his or
her duties for the Company or a Related Company and to be engaged in any
substantial gainful activity.
“Employee” means any
person, including officers and Directors, serving as an employee of the Company
or any Parent or Subsidiary. An individual shall not cease to be an Employee in
the case of (i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary or any successor. For purposes of an Option initially granted as an
Incentive Stock Option, if a leave of absence of more than three months
precludes such Option from being treated as an Incentive Stock Option under the
Code, such Option thereafter shall be treated as a Nonstatutory Stock Option for
purposes of this Plan. Neither service as a Director nor payment of a director’s
fee by the Company shall be sufficient to constitute “employment” by the
Company.
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“Fair Market Value”
means, as of any date, the value of Common Stock determined as
follows:
(i) if
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq Global Market or The
Nasdaq Capital Market of The Nasdaq Stock Market, the Fair Market Value of a
Share of Common Stock shall be the closing sales price of a Share of Common
Stock as quoted on such exchange or system for such date (or the most recent
trading day preceding such date if there were no trades on such date), as
reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;
(ii) if
the Common Stock is regularly quoted by a recognized securities dealer but is
not listed in the manner contemplated by clause (i) above, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock
for such
date (or the most recent trading day preceding such date if there were no trades
on such date), as reported in The Wall Street Journal
or such other source as the Administrator deems reliable; or
(iii) if
neither clause (i) above nor clause (ii) above applies, the Fair Market Value
shall be determined in good faith by the Administrator based on the reasonable
application of a reasonable valuation method.
“Incentive Stock
Option” means an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code and the regulations promulgated
thereunder.
“Nonstatutory Stock
Option” means an Option not intended to qualify as an Incentive Stock
Option.
“Option” means a stock
option granted pursuant to the Plan.
“Option Agreement”
means an agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Option grant. Each Option Agreement shall be subject
to the terms and conditions of the Plan.
“Optioned Stock” means
the Common Stock subject to an Option.
“Optionee” means the
holder of an outstanding Option granted under the Plan.
“Parent” means a
“parent corporation” of the Company (or, in the context of Section 16(c) of the
Plan, of a successor corporation), whether now or hereafter existing, as defined
in Section 424(e) of the Code.
“Participant” shall
mean any Service Provider who holds an Option, a Stock Award, Unrestricted
Shares or Stock Appreciation Rights granted or issued pursuant to the
Plan.
“Related Company”
means any entity that, directly or indirectly, is in control of or is controlled
by the Company.
“Related Party
Transaction” means (a) a merger or consolidation of the Company in which
the holders of shares of Common Stock immediately prior to the merger hold at
least a majority of the shares of Common Stock in the Successor Corporation
immediately after the merger; (b) a sale, lease, exchange or other transaction
in one transaction or a series of related transactions of all or substantially
all the Company’s assets to a wholly-owned subsidiary corporation; (c) a mere
reincorporation of the Company; or (d) a transaction undertaken for the sole
purpose of creating a holding company that will be owned in substantially the
same proportion by the persons who held the Company’s securities immediately
before such transaction.
“Retirement” unless
otherwise defined by the Administrator from time to time for purposes of the
Plan, means retirement on or after the individual’s normal retirement date under
the Company’s 401(k) plan or other similar successor plan applicable to salaried
employees.
“Rule 16b-3” means
Rule 16b-3 of the Exchange Act or any successor to such Rule 16b-3, as such rule
is in effect when discretion is being exercised with respect to the
Plan.
“Section 16(b)” means
Section 16(b) of the Exchange Act.
“Service Provider”
means an Employee or Consultant.
“Service Termination
Date” means, with respect to a Participant, the first day upon which the
Participant no longer has an employment or service relationship with the Company
or any Related Company.
“Share” means a share
of the Common Stock, as adjusted in accordance with Section 16 of the
Plan.
“Stock Appreciation
Right” means a right awarded pursuant to Section 14 of the
Plan.
“Stock Award” means an
Award of Shares pursuant to Section 11 of the Plan or an award of Restricted
Stock Units pursuant to Section 12 of the Plan.
“Stock Award
Agreement” means an agreement, approved by the Administrator, providing
the terms and conditions of a Stock Award.
“Stock Award Shares”
means Shares subject to a Stock Award.
“Stock Awardee” means
the holder of an outstanding Stock Award granted under the Plan.
“Subsidiary” means a
“subsidiary corporation” of the Company (or, in the context of Section 16(c) of
the Plan, of a successor corporation), whether now or hereafter existing, as
defined in Section 424(f) of the Code.
“Unrestricted Shares”
means a grant of Shares made on an unrestricted basis pursuant to Section 13 of
the Plan.
3. Stock Subject to the Plan. The
maximum aggregate number of Shares that may be issued under the Plan is
5,000,000 Shares, all of which may be issued in respect of Incentive Stock
Options. The maximum number of Shares subject to Options and Stock Appreciation
Rights which may be issued to any Participant under this Plan during any
calendar year is 1,000,000 Shares. The class and aggregate number of Shares
referred to in this paragraph shall be subject to adjustment in accordance with
Section 16(a) of the Plan.
The
Shares may be authorized but unissued, or reacquired, shares of Common Stock. If
an Option or Stock Appreciation Right expires or becomes unexercisable without
having been exercised in full or is canceled or terminated, or if any Shares
underlying a Stock Award are forfeited, the Shares that were subject thereto
shall be added back to the Shares available for issuance under the
Plan.
4. Administration of the
Plan.
(a) Procedure.
(i) Multiple Administrative Bodies.
Different Committees with respect to different groups of Service
Providers may administer the Plan.
(ii) Section 162(m). To the extent
that the Administrator determines it to be desirable to qualify Awards granted
hereunder as “performance-based compensation” within the meaning of Section
162(m) of the Code, the Plan shall be administered by a Committee of two or more
“outside directors” within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
(iii) Rule 16b-3. If the Company is
subject to Section 16(b), the transactions contemplated hereunder shall (from
the date that the Company is first subject to Section 16(b)),
be
structured to satisfy the requirements for exemption under Rule
16b-3.
(iv) Other Administration. Other
than as provided above, the Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable
Laws.
(b) Powers of the Administrator.
Subject to the provisions of the Plan, the Administrator shall have the
authority, in its discretion:
(i) to
determine the Fair Market Value;
(ii) to
select the Service Providers to whom Options, Stock Awards, Unrestricted Shares
and Stock Appreciation Rights may be granted hereunder;
(iii) to
determine the number of shares of Common Stock to be covered by each Award
granted hereunder;
(iv) to
approve forms of agreement for use under the Plan;
(v) to
determine the terms and conditions, not inconsistent with the terms of the Plan,
of any Award granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options and Stock
Appreciation Rights may be exercised (which may be based on performance
criteria), any vesting, acceleration or waiver of forfeiture provisions, and any
restriction or limitation regarding any Option, Stock Appreciation Right or
Stock Award, or the Shares of Common Stock relating thereto, based in each case
on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to
construe and interpret the terms of the Plan, Awards granted pursuant to the
Plan and agreements entered into pursuant to the Plan;
(vii) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for the
purpose of qualifying for preferred tax treatment under foreign tax
laws;
(viii) to
modify or amend each Award (subject to Section 19 of the Plan), including the
discretionary authority to extend the post-termination exercisability period of
Options and/or Stock Appreciation Rights longer than is otherwise provided for
in the Plan and to accelerate the time at which any outstanding Option or Stock
Appreciation Right may be exercised;
(ix) to
allow grantees to satisfy withholding tax obligations by having the Company
withhold from the Shares to be issued upon exercise of an Option or Stock
Appreciation Rights that number of Shares having a Fair Market Value equal to
the amount required to be withheld, provided that withholding is calculated at
the minimum statutory withholding level. The Fair Market Value of the Shares to
be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All determinations to have Shares withheld for
this purpose shall be made by the Administrator in its discretion;
(x) to
reduce the exercise price of any Option to the then current Fair Market Value if
the Fair Market Value of the Common Stock covered by such Option shall have
declined since the date the Option was granted;
(xi) to
authorize any person to execute on behalf of the Company any agreement entered
into pursuant to the Plan and any instrument required to effect the grant of an
Award previously granted by the Administrator; and
(xii) to
make all other determinations deemed necessary or advisable for administering
the Plan.
(c) Effect of Administrator’s
Decision. The Administrator’s decisions, determinations and
interpretations shall be final and binding on all holders of Awards. None of the
Board, the Committee or the Administrator, nor any member or delegate thereof,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with the Plan, and each of the
foregoing shall be entitled in all cases to indemnification and reimbursement by
the Company in respect of any claim, loss, damage or expense (including without
limitation reasonable attorneys’ fees) arising or resulting therefrom to the
fullest extent permitted by law and/or under any directors’ and officers’
liability insurance coverage which may be in effect from time to
time.
5. Eligibility.
(a) General. Nonstatutory Stock
Options, Stock Appreciation Rights, Stock Awards and Unrestricted Shares may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees. Notwithstanding anything contained herein to the contrary, an Award
may be granted to a person who is not then a Service Provider; provided, however, that the
grant of such Award shall be conditioned upon such person becoming a Service
Provider at or prior to the time of the execution of the agreement evidencing
such Award.
6. Limitations.
(a) Each
Option shall be designated in the Option Agreement as either an Incentive Stock
Option or a Nonstatutory Stock Option. However, notwithstanding such
designation, if a single Employee becomes eligible in any given year to exercise
Incentive Stock Options for Shares having a Fair Market Value in excess of
$100,000, those Options representing the excess shall be treated as Nonstatutory
Stock Options. In the previous sentence, “Incentive Stock Options” include
Incentive Stock Options granted under any plan of the Company or any Parent or
any Subsidiary. For the purpose of deciding which Options apply to Shares that
“exceed” the $100,000 limit, Incentive Stock Options shall be taken into account
in the same order as granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is
granted.
(b) None
of the Plan, any Award or any agreement entered into pursuant to the Plan shall
confer upon a Participant any right with respect to continuing the grantee’s
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Participant’s right or the Company’s right to terminate such
relationship at any time, for any reason or no reason.
7. Term of the Plan. Subject to
Section 23 of the Plan, the Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten years from the date of
approval pursuant to Section 23 of the Plan unless terminated earlier under
Section 19 of the Plan.
8. Term of Options. The term of
each Option (“Option Term”) shall be stated in the applicable Option Agreement.
In the case of an Incentive Stock Option, the term shall be ten years from the
date of grant or such shorter term as may be provided in the applicable Option
Agreement. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Incentive Stock Option is granted, owns, directly
or indirectly, stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the In-
centive
Stock Option shall be five years from the date of grant or such shorter term as
may be provided in the applicable Option Agreement.
9. Option Exercise Price;
Exercisability.
(a) Exercise Price. The per share
exercise price for the Shares to be issued pursuant to exercise of an Option
shall be determined by the Administrator; provided, that in no event
shall the exercise price per Share purchasable under an Incentive Stock Option
be less than 100% of the Fair Market Value of the Incentive Stock Option on the
date of grant, and provided, further, that any Incentive
Stock Option granted to any Employee who, at the time the Incentive Stock Option
is granted, owns more than 10% of the voting power of all classes of shares of
the Company or of any Parent or Subsidiary will have an exercise price per Share
of not less than 110% of the Fair Market Value per Share on the date of grant.
The exercise price per Share purchasable under a Nonstatutory Stock Option shall
be determined by the Administrator.
(b) Exercise Period and
Conditions. At the time that an Option is granted, the Administrator
shall fix the period within which the Option may be exercised and shall
determine any conditions that must be satisfied before the Option may be
exercised.
10. Exercise of Options;
Consideration.
(a) Procedure for Exercise; Rights as a
Shareholder. Any Option granted hereunder shall be exercisable according
to the terms of the Plan and at such times and under such conditions as
determined by the Administrator and set forth in the Option Agreement. Unless
the Administrator (or Option Agreement) provides otherwise, vesting of Options
granted hereunder shall be tolled during any unpaid leave of absence. An Option
may not be exercised for a fraction of a share. An Option shall be deemed
exercised when the Company receives: (i) written or electronic notice of
exercise (in accordance with the Option Agreement) from the person entitled to
exercise the Option, and (ii) full payment for the Shares with respect to which
the Option is exercised. Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the Option
Agreement and Section 10(c) of the Plan. Shares issued upon exercise of an
Option shall be issued in the name of the Optionee. Until the Shares are issued
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Shares are issued, except as provided in Section 16 of
the Plan. Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a
Service Provider. The Administrator shall establish and set forth in each
instrument that evidences an Option whether the Option shall continue to be
exercisable, and the terms and conditions of such exercise, if the Participant
ceases to be employed by, or to provide services to, the Company or a Related
Company, which provisions may be waived or modified by the Administrator at any
time. If not so established in the instrument evidencing the Option, the Option
shall be exercisable according to the following terms and conditions, which may
be waived or modified by the Administrator at any time:
(i) Except
as otherwise set forth in this Section 10(b), any portion of an Option that is
not vested and exercisable on the Service Termination Date shall expire on such
date.
(ii) Any
portion of an Option that is vested and exercisable on the Service Termination
Date shall expire on the earliest to occur of:
(1) if the Participant’s
Service Termination Date occurs for reasons other than Cause, Retirement,
Disability or death, the day which is three months after such
Service
Termination Date;
(2) if
the Participant’s Service Termination Date occurs by reason of Retirement,
Disability or death, the one-year anniversary of such Service Termination Date;
and
(3) the
last day of the Option Term (the “Option Expiration Date”).
Notwithstanding the foregoing, if the
Participant dies after his or her Service Termination Date but while an Option
is otherwise exercisable, the portion of the Option that is vested and
exercisable on such Service Termination Date shall expire upon the earlier to
occur of (y) the Option Expiration Date and (z) the one-year anniversary of the
date of death, unless the Administrator determines otherwise.
Also notwithstanding the foregoing, in
case of termination of the Participant’s employment or service relationship for
Cause, all Options granted to that Participant shall automatically expire upon
first notification to the Participant of such termination, unless the
Administrator determines otherwise. If a Participant’s employment or service
relationship with the Company is suspended pending an investigation of whether
the Participant shall be terminated for Cause, all of the Participant’s rights
under any Option shall likewise be suspended during the period of investigation.
If any facts that would constitute termination for Cause are discovered after
the Participant’s relationship with the Company or a Related Company has ended,
any Option then held by the Participant may be immediately terminated by the
Administrator, in its sole discretion.
(iii) A
Participant’s transfer of employment or service relationship between or among
the Company and any Related Company, or a change in status from an employee to a
consultant, agent, advisor or independent contractor or a change in status from
a consultant, agent, advisor or independent contractor to an employee, shall not
be considered a termination of employment or service relationship for purposes
of this Section 10(b). Unless the Administrator determines otherwise, a
termination of employment or service relationship shall be deemed to occur if a
Participant’s employment or service relationship is with an entity that has
ceased to be a Related Company.
(iv) The
effect of a Company-approved leave of absence on the application of this Section
10(b) shall be determined by the Administrator, in its sole
discretion.
(v) If
a Participant’s employment or service relationship with the Company or a Related
Company terminates by reason of Disability or death, the Option shall become
fully vested and exercisable for all of the shares subject to the Option. Such
Option shall remain exercisable for the time period set forth in this Section
10(b).
(c) Form of Consideration. The
Administrator shall determine the acceptable form of consideration for
exercising an Option, including the method of payment. In the case of an
Incentive Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist entirely
of:
(i) cash;
(ii) check;
(iii) other
Shares which (A) have been owned by the Optionee for more than six months on the
date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised;
(iv) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan;
(v)
any combination of the foregoing methods of payment; or
(vi) such
other consideration and method of payment for the issuance of Shares to the
extent permitted by Applicable Laws.
11. Stock Awards. The
Administrator may, in its sole discretion, grant (or sell at par value or such
higher purchase price as it determines) Shares to a Service Provider subject to
such terms and conditions as the Administrator sets forth in a Stock Award
Agreement evidencing such grant. Stock Awards may be granted or sold in respect
of past services or other valid consideration or in lieu of any cash
compensation otherwise payable to such individual. The grant of Stock Awards
under this Section 11 shall be subject to the following provisions:
(a) At
the time a Stock Award under this Section 11 is made, the Administrator shall
establish a vesting period (the “Restricted Period”) applicable to the Stock
Award Shares subject to such Stock Award. The Administrator may, in its sole
discretion, at the time a grant is made, prescribe restrictions in addition to
the expiration of the Restricted Period, including the satisfaction of corporate
or individual performance objectives. None of the Stock Award Shares may be
sold, transferred, assigned, pledged or otherwise encumbered or disposed of
during the Restricted Period applicable to such Stock Award Shares or prior to
the satisfaction of any other restrictions prescribed by the Administrator with
respect to such Stock Award Shares.
(b) The
Company shall issue, in the name of each Service Provider to whom Stock Award
Shares have been granted, stock certificates representing the total number of
Stock Award Shares granted to such person, as soon as reasonably practicable
after the grant. The Company, at the direction of the Administrator, shall hold
such certificates, properly endorsed for transfer, for the Stock Awardee’s
benefit until such time as the Stock Award Shares are forfeited to the Company,
or the restrictions lapse.
(c) Unless
otherwise provided by the Administrator, holders of Stock Award Shares shall
have the right to vote such Shares and have the right to receive any cash
dividends with respect to such Shares. All distributions, if any, received by a
Stock Awardee with respect to Stock Award Shares as a result of any stock split,
stock distribution, combination of shares, or other similar transaction shall be
subject to the restrictions of this Section 11.
(d) Unless
otherwise provided by the Stock Award Agreement, any Stock Award Shares granted
to a Service Provider pursuant to the Plan shall be forfeited if the Stock
Awardee terminates employment, his or her consultancy arrangement or his or her
directorship with the Company or its subsidiaries for any reason prior to the
expiration or termination of the applicable Restricted Period and the
satisfaction of any other conditions applicable to such Stock Award Shares. Upon
such forfeiture, the Stock Award Shares that are forfeited shall be retained in
the treasury of the Company and be available for subsequent awards under the
Plan.
(e) Upon
the expiration or termination of the Restricted Period and the satisfaction of
any other conditions prescribed by the Administrator, the restrictions
applicable to the Stock Award Shares shall lapse and, at the Stock Awardee’s
request, a stock certificate for the number of Stock Award Shares with respect
to which the restrictions have lapsed shall be delivered, free of all such
restrictions, to the Stock Awardee or his or her beneficiary or estate, as the
case may be.
12. Restricted Stock Units. The
Administrator may, in its sole discretion, grant Restricted Stock Units to a
Service Provider subject to such terms and conditions as the Administrator sets
forth in a
Stock
Award Agreement evidencing such grant. “Restricted Stock Units” are Awards
denominated in units evidencing the right to receive Shares of Common Stock,
which may vest over such period of time and/or upon satisfaction of such
performance criteria or objectives as is determined by the Administrator at the
time of grant and set forth in the applicable Stock Award Agreement, without
payment of any amounts by the Stock Awardee thereof (except to the extent
required by law). Prior to delivery of shares of Common Stock with respect to an
award of Restricted Stock Units, the Stock Awardee shall have no rights as a
shareholder of the Company.
Upon
satisfaction and/or achievement of the applicable vesting requirements relating
to an award of Restricted Stock Units, the Stock Awardee shall be entitled to
receive a number of shares of Common Stock that are equal to the number of
Restricted Stock Units that became vested. To the extent, if any, set forth in
the applicable Stock Award Agreement, cash dividend equivalents may be paid
during, or may be accumulated and paid at the end of, the applicable vesting
period, as determined by the Administrator.
Unless
otherwise provided by the Stock Award Agreement, any Restricted Stock Units
granted to a Service Provider pursuant to the Plan shall be forfeited if the
Stock Awardee terminates employment, his or her consultancy arrangement or his
or her directorship with the Company or its subsidiaries for any reason prior to
the expiration or termination of the applicable vesting period and/or the
achievement of such other vesting conditions applicable to the
Award.
Prior to
the delivery of any shares of Common Stock in connection with an award of
Restricted Stock Units, the Stock Awardee shall pay or make adequate provision
acceptable to the Company for the satisfaction of the statutory minimum
prescribed amount of federal and state income tax and other withholding
obligations of the Company, including, if permitted by the Administrator, by
having the Company withhold from the number of shares of Common Stock otherwise
deliverable in connection with an award of Restricted Stock Units, a number of
shares of Common Stock having a Fair Market Value equal to an amount sufficient
to satisfy such tax withholding obligations.
13. Unrestricted Shares. The
Administrator may grant Unrestricted Shares in accordance with the following
provisions:
(a) The
Administrator may cause the Company to grant Unrestricted Shares to Service
Providers at such time or times, in such amounts and for such reasons as the
Administrator, in its sole discretion, shall determine. No payment shall be
required for Unrestricted Shares.
(b) The
Company shall issue, in the name of each Service Provider to whom Unrestricted
Shares have been granted, stock certificates representing the total number of
Unrestricted Shares granted to such individual, and shall deliver such
certificates to such Service Provider as soon as reasonably practicable after
the date of grant or on such later date as the Administrator shall determine at
the time of grant.
14. Stock Appreciation Rights. A
Stock Appreciation Right may be granted by the Administrator either alone, in
addition to, or in tandem with other Awards granted under the Plan. Each Stock
Appreciation Right granted under the Plan shall be subject to the following
terms and conditions:
(a) Each
Stock Appreciation Right shall relate to such number of Shares as shall be
determined by the Administrator.
(b) The
“Award Date” (i.e., the
date of grant) of a Stock Appreciation Right shall be the date specified by the
Administrator, provided that that date shall not be before the date on which the
Stock Appreciation Right is actually granted. The Award Date of a Stock
Appreciation Right shall not be prior to the date on which the recipient
commences providing services as a Service Provider. The term of
each
Stock Appreciation Right shall be determined by the Administrator, but shall not
exceed ten years from the date of grant. Each Stock Appreciation Right shall
become exercisable at such time or times and in such amount or amounts during
its term as shall be determined by the Administrator. Unless otherwise specified
by the Administrator, once a Stock Appreciation Right becomes exercisable,
whether in full or in part, it shall remain so exercisable until its expiration,
forfeiture, termination or cancellation.
(c) A
Stock Appreciation Right may be exercised, in whole or in part, by giving
written notice to the Administrator. As soon as practicable after receipt of the
written notice, the Company shall deliver to the person exercising the Stock
Appreciation Right stock certificates for the Shares to which that person is
entitled under Section 14(d) hereof.
(d) A
Stock Appreciation Right shall be exercisable for Shares only. The number of
Shares issuable upon the exercise of the Stock Appreciation Right shall be
determined by dividing:
(A) the
number of Shares for which the Stock Appreciation Right is exercised multiplied
by the amount of the appreciation per Share (for this purpose, the “appreciation
per Share” shall be the amount by which the Fair Market Value of a Share on the
exercise date exceeds (x) in the case of a Stock Appreciation Right granted in
tandem with an Option, the exercise price or (y) in the case of a Stock
Appreciation Right granted alone without reference to an Option, the Fair Market
Value of a Share on the Award Date of the Stock Appreciation Right);
by
(B) the
Fair Market Value of a Share on the exercise date.
15. Non-Transferability. Unless
determined otherwise by the Administrator, an Option, Stock Appreciation Right
or Restricted Stock Unit may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Participant, only by the Participant. If the Administrator makes an Option,
Stock Appreciation Right or Restricted Stock Unit transferable, such Option,
Stock Appreciation Right or Restricted Stock Unit shall contain such additional
terms and conditions as the Administrator deems appropriate. Notwithstanding the
foregoing, the Administrator, in its sole discretion, may provide in the Option
Agreement regarding a given Option that the Optionee may transfer, without
consideration for the transfer, his or her Nonstatutory Stock Options to members
of his or her immediate family, to trusts for the benefit of such family
members, or to partnerships in which such family members are the only partners,
provided that the transferee agrees in writing with the Company to be bound by
all of the terms and conditions of this Plan and the applicable Option. During
the period when Stock Award Shares are restricted (by virtue of vesting
schedules or otherwise), such Shares may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution.
16. Adjustments Upon Changes in
Capitalization, Dissolution, Merger or Asset Sale.
(a) Changes in Capitalization.
Subject to any required action by the shareholders of the Company, the number of
Shares covered by each outstanding Option, Stock Appreciation Right and Stock
Award, and the number of Shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options, Stock Appreciation Rights,
Stock Awards or Unrestricted Share Awards have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, Stock
Appreciation Right or Stock Award, as well as the price per share of Common
Stock covered by each such outstanding Option or Stock Appreciation Right, shall
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company
shall not
be deemed to have been “effected without receipt of consideration.” Such
adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares of Common Stock subject to an Award hereunder.
(b) Dissolution or Liquidation.
To the extent not previously exercised or settled, and unless otherwise
determined by the Administrator in its sole discretion, Options and Stock
Appreciation Rights shall terminate immediately prior to the dissolution or
liquidation of the Company. To the extent a forfeiture provision or repurchase
right applicable to an Option or Stock Appreciation Right has not been waived by
the Administrator, the Option or Stock Appreciation Right shall be forfeited
immediately prior to the consummation of the dissolution or
liquidation.
(c) Corporate Transactions and their
Effect on Options and Stock Appreciation Rights.
(i) In
the event of a Corporate Transaction, except as otherwise provided in the
instrument evidencing an Option or Stock Appreciation Right (or in a written
employment or services agreement between a Participant and the Company or
Related Company) and except as provided in subsection (ii) below, each
outstanding Option and Stock Appreciation Right shall be assumed or an
equivalent option or right substituted by the surviving corporation, the
successor corporation or its parent corporation, as applicable (the “Successor
Corporation”).
(ii) If,
in connection with a Corporate Transaction, the Successor Corporation refuses to
assume or substitute for an Option or Stock Appreciation Right, then each such
outstanding Option or Stock Appreciation Right shall become fully vested and
exercisable with respect to 100% of the un-vested portion of the Option or Stock
Appreciation Right. In such case, the Administrator shall notify the Participant
in writing or electronically that the un-vested portion of the Option or Stock
Appreciation Right specified above shall be fully vested and exercisable for a
specified time period. At the expiration of the time period, the Option or Stock
Appreciation Right shall terminate, provided that the Corporate Transaction has
occurred.
(iii) For
the purposes of this Section 16(c), the Option or Stock Appreciation Right shall
be considered assumed or substituted for if following the Corporate Transaction
the option or right confers the right to purchase or receive, for each share of
Common Stock subject to the Option or Stock Appreciation Right immediately prior
to the Corporate Transaction, the consideration (whether stock, cash, or other
securities or property) received in the Corporate Transaction by holders of
Common Stock for each share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares); provided,
however, that if such consideration received in the Corporate Transaction is not
solely common stock of the Successor Corporation, the Administrator may, with
the consent of the Successor Corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Appreciation Right, for each
share of Common Stock subject thereto, to be solely common stock of the
Successor Corporation substantially equal in fair market value to the per share
consideration received by holders of Common Stock in the Corporate Transaction.
The determination of such substantial equality of value of consideration shall
be made by the Administrator and its determination shall be conclusive and
binding.
(iv) All
Options and Stock Appreciation Rights shall terminate and cease to remain
outstanding immediately following the Corporate Transaction, except to the
extent assumed by the Successor Corporation.
(d) Further Adjustment of Options and
Stock Appreciation Rights. Subject to Section 16(b) and (c), the
Administrator shall have the discretion, exercisable at any time before a sale,
merger, consolidation, reorganization, liquidation or change of control of the
Company, as defined by the Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to the
Participants, with respect to Options and Stock Appreciation Rights. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Options or Stock Appreciation Rights so as to provide for earlier, later,
extended or additional time for exercise, lifting restrictions and other
modifications, and the Administrator may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Administrator may take such action before or after granting
Options or Stock Appreciation Rights to which the action relates and before or
after any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change of control that is the reason for such
action.
(e) Limitations. The grant of
Options or Stock Appreciation Rights shall in no way affect the Company’s right
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
(f) Fractional Shares. In
the event of any adjustment in the number of shares covered by any Option or
Stock Appreciation Right, each such Option or Stock Appreciation Right shall
cover only the number of full shares resulting from such
adjustment.
(g) Corporate Transactions and their
Effect on Stock Awards. In the event of a Corporate Transaction, then,
absent a provision to the contrary in any particular Stock Award (in which case
the terms of such Stock Award shall supersede each of the provisions of this
paragraph which are inconsistent with such Stock Award), each outstanding Stock
Award shall be assumed or an equivalent agreement or award substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the Administrator determines that the successor corporation or a
Parent or a Subsidiary of the successor corporation has refused to assume or
substitute an equivalent agreement or award for each outstanding Stock Award,
all vesting periods and conditions under Stock Awards shall be deemed to have
been satisfied.
17. Substitute Options. In the
event that the Company, directly or indirectly, acquires another entity, the
Board may authorize the issuance of stock options (“Substitute Options”) to the
individuals performing services for the acquired entity in substitution of stock
options previously granted to those individuals in connection with their
performance of services for such entity upon such terms and conditions as the
Board shall determine, taking into account the conditions of Code Section
424(a), as from time to time amended or superseded, in the case of a Substitute
Option that is intended to be an Incentive Stock Option. Shares of capital stock
underlying Substitute Stock Options shall not constitute Shares issued pursuant
to the Plan for any purpose.
18. Date of Grant. The date of
grant of an Option, Stock Appreciation Right, Stock Award or Unrestricted Share
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option, Stock Appreciation Right, Stock Award or
Unrestricted Share, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each grantee
within a reasonable time after the date of such grant.
19. Amendment and Termination of the
Plan. The Board may modify, revise or terminate this Plan at any time and
from time to time, subject to the approval of the Company’s shareholders to the
extent required by Applicable Laws; provided, however, that no such
modification, revision, or termina-
tion of
the Plan may impair the rights of any Participant without the Participant’s
written consent. All Awards granted under this Plan shall be subject to the
terms and provisions of this Plan and any amendment, modification or revision of
this Plan shall be deemed to amend, modify or revise all Awards outstanding
under this Plan at the time of such amendment, modification or
revision.
20. Conditions Upon Issuance of
Shares.
(a) Legal Compliance. Shares
shall not be issued in connection with the grant of any Stock Award or
Unrestricted Share or the exercise of any Option or Stock Appreciation Right
unless such grant or the exercise of such Option or Stock Appreciation Right and
the issuance and delivery of such Shares shall comply with Applicable Laws and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
(b) Investment Representations.
As a condition to the grant of any Stock Award or Unrestricted Share or the
exercise of any Option or Stock Appreciation Right, the Company may require the
person receiving such Award or exercising such Option or Stock Appreciation
Right to represent and warrant at the time of any such exercise or grant that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.
(c) Additional Conditions. The
Administrator shall have the authority to condition the grant of any Award in
such other manner that the Administrator determines to be appropriate, provided
that such condition is not inconsistent with the terms of the Plan. Such
conditions may include, among other things, obligations of recipients to execute
non-compete, non-solicitation and non-disclosure covenants.
(d) Trading Policy Restrictions.
Option and Stock Appreciation Right exercises and other Awards under the Plan
shall be subject to the terms and conditions of any insider trading policy
established by the Company or the Administrator.
21. Inability to Obtain Authority.
The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
22. Reservation of Shares. The
Company, during the term of this Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
23. Shareholder Approval. The Plan
shall be subject to approval by the shareholders of the Company within twelve
(12) months after the date the Plan is adopted. Such shareholder approval shall
be obtained in the manner and to the degree required under Applicable Laws.
Notwithstanding any provision in the Plan to the contrary, any exercise of an
Option or Stock Appreciation Right granted before the Company has obtained
shareholder approval of the Plan in accordance with this Section 23 shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with this Section 23.
24. Withholding; Notice of Sale.
The Company shall be entitled to withhold from any amounts payable to an
Employee any amounts which the Company determines, in its discretion, are
required to be withheld under any Applicable Law as a result of any action taken
by a holder of an Award.
25. Governing Law. This Plan shall
be governed by the laws of the State of Michigan, without regard to conflict of
laws principles.
Adopted by action of the Board of
Directors
on the 20th day of April,
2009.
Adopted by shareholders of the
Company
on the ___ day of ___________,
2009.