SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
ROCKY SHOES & BOOTS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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ROCKY SHOES & BOOTS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
April 12, 2006
Dear Shareholder:
I am pleased to invite you to the Annual Meeting of Shareholders of Rocky
Shoes & Boots, Inc. to be held on Tuesday, May 16, 2006, at 4:00 p.m., at
Stuarts Opera House, located at 34 Public Square, Nelsonville, Ohio. Parking is
available in Nelsonville at Rocky Shoes & Boots, Inc., at 39 East Canal Street,
and directions and transportation to Stuarts Opera House will be available. We
look forward to meeting all of our shareholders who are able to attend.
At the Annual Meeting, you will be asked to (i) elect J. Patrick Campbell,
Michael L. Finn, G. Courtney Haning, and Curtis A. Loveland for two-year terms
as Class II Directors, (ii) consider and vote upon a proposal to amend the
Company's Second Amended and Restated Articles of Incorporation to change the
Company's name to Rocky Brands, Inc., (iii) consider and vote upon a proposal to
amend the Company's Second Amended and Restated Articles of Incorporation to
increase the authorized number of shares of the Company's common stock, without
par value, from 10,000,000 to 25,000,000, (iv) ratify the selection of Deloitte
& Touche LLP as the Company's independent registered public accounting firm for
the 2006 fiscal year, and (v) transact any other business which may properly
come before the meeting or any adjournment thereof. A copy of the Proxy
Statement and the proxy card are enclosed.
It is very important that your shares are represented and voted at the
meeting whether or not you plan to attend. Accordingly, please sign, date, and
return your proxy card in the enclosed envelope at your earliest convenience. If
you are a shareholder of record and attend the meeting, you may vote in person
if you wish and your proxy will not be used.
Your interest and participation in the affairs of the Company are greatly
appreciated. Thank you for your continued support.
Sincerely,
Mike Brooks
Chairman and Chief Executive Officer
ROCKY SHOES & BOOTS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 12, 2006
To Our Shareholders:
The Annual Meeting of Shareholders of Rocky Shoes & Boots, Inc. will be
held at Stuarts Opera House, located at 34 Public Square, Nelsonville, Ohio, on
Tuesday, May 16, 2006, at 4:00 p.m. local time, for the following purposes:
(1) To elect four Class II Directors of the Company, each to serve
for a two-year term expiring at the 2008 Annual Meeting of
Shareholders.
(2) To consider and vote upon a proposal to amend the Company's
Second Amended and Restated Articles of Incorporation to
change the Company's name to Rocky Brands, Inc.
(3) To consider and vote upon a proposal to amend the Company's
Second Amended and Restated Articles of Incorporation to
increase the authorized number of shares of the Company's
common stock, without par value, from 10,000,000 to
25,000,000.
(4) To ratify the selection of Deloitte & Touche LLP as the
Company's independent registered public accounting firm for
the fiscal year ending December 31, 2006.
(5) To transact any other business which may properly come before
the meeting or any adjournment thereof.
Owners of record of common stock of the Company at the close of business
on March 27, 2006, will be entitled to vote at the meeting.
You will be most welcome at the meeting, and we hope you can attend.
Directors and officers of the Company and representatives of its independent
registered public accounting firm will be present to answer your questions and
to discuss its business.
We urge you to execute and return the enclosed proxy as soon as possible
so that your shares may be voted in accordance with your wishes. If you attend
the meeting, you may vote in person and your proxy will not be used.
By Order of the Board of Directors,
Curtis A. Loveland
Secretary
PLEASE SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
ROCKY SHOES & BOOTS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2006
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This Proxy Statement is furnished to the shareholders of Rocky Shoes &
Boots, Inc. (the "Company") in connection with the solicitation of proxies to be
used in voting at the Annual Meeting of Shareholders to be held on May 16, 2006,
and at any adjournment thereof. The enclosed proxy is solicited by the Board of
Directors of the Company. This Proxy Statement and the enclosed proxy will be
first sent or given to the Company's shareholders on approximately April 12,
2006.
The Company will bear the cost of the solicitation of proxies, including
the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. Representatives of the
Company may solicit proxies by mail, telegram, telephone, or personal interview.
All shares represented by the accompanying proxy will be voted as directed
if the proxy is properly signed and received by the Company before the meeting
or, in the absence of specific instructions to the contrary, will be voted in
accordance with the board of directors' unanimous recommendations, which are:
- FOR the election of J. Patrick Campbell, Michael L. Finn, G.
Courtney Haning, and Curtis A. Loveland as Class II Directors of the
Company;
- FOR the proposal to amend the Company's Second Amended and Restated
Articles of Incorporation to change the Company's name to Rocky
Brands, Inc.;
- FOR the proposal to amend the Company's Second Amended and Restated
Articles of Incorporation to increase the authorized number of
shares of the Company's common stock, without par value, from
10,000,000 to 25,000,000;
- FOR the ratification of the selection of Deloitte & Touche LLP as
the independent registered public accounting firm for the Company
for the 2006 fiscal year; and
- at the discretion of the persons acting under the proxy, to transact
such other business as may properly come before the meeting or any
adjournment thereof.
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Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by filing a written notice with the Secretary of the
Company prior to the meeting. Shareholders of record who attend the meeting may
vote in person and their proxies will not be used.
Holders of record of common stock of the Company at the close of business
on March 27, 2006, will be entitled to vote at the Annual Meeting. At that time,
the Company had 5,386,093 shares of common stock outstanding and entitled to
vote. Each share of common stock outstanding on the record date entitles the
holder to one vote on each matter submitted at the Annual Meeting.
The presence, in person or by proxy, of a majority of the outstanding
shares of common stock of the Company is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum. Broker non-votes occur when brokers, who hold their customers' shares in
street name, sign and submit proxies for such shares and vote such shares on
some matters, but not others. Typically, this would occur when brokers have not
received any instructions from their customers, in which case the brokers, as
the holders of record, are permitted to vote on "routine" matters, which
typically include the election of directors and ratification of independent
public accountants.
The election of each director nominee requires the favorable vote of a
plurality of all votes cast by the holders of common stock at a meeting at which
a quorum is present. Proxies that are marked "Withhold Authority" and broker
non-votes will not be counted toward such nominee's achievement of a plurality
and thus will have no effect. Each of the proposed amendments to the Company's
Second Amended and Restated Articles of Incorporation requires the affirmative
vote of the holders of a majority of the common stock outstanding and entitled
to vote on the matter. The ratification of Deloitte & Touche as the Company's
independent registered public accounting firm requires the affirmative vote of
the holders of a majority of the common stock present and entitled to vote on
the matter. Broker non-votes will not be counted as being in favor or against
either of the proposed amendments to the Company's Second Amended and Restated
Articles of Incorporation or the ratification of Deloitte & Touche LLP.
2
ELECTION OF DIRECTORS
The Company's Code of Regulations provides for a classified board of
directors with two classes. Each class of directors consists, as nearly as
practical, of one-half of the total number of directors. The total number of
authorized directors has been fixed by the Board of Directors at eight. The
Board of Directors proposes the re-election of the four incumbent Class II
Directors to continue their service as Class II Directors at the 2006 Annual
Meeting of Shareholders. The four incumbent Class I Directors will continue in
office until the 2007 Annual Meeting of Shareholders.
J. Patrick Campbell, Michael L. Finn, G. Courtney Haning, and Curtis A.
Loveland are currently Class II Directors of the Company and are being nominated
by the Board of Directors for re-election as Class II Directors.
It is intended that, unless otherwise directed, the shares represented by
the enclosed proxy will be voted FOR the election of Messrs. Campbell, Finn,
Haning, and Loveland as Class II Directors. In the event that any of the
nominees for director should become unavailable, the number of directors of the
Company may be decreased pursuant to the Company's Code of Regulations, or the
Board of Directors may designate a substitute nominee, in which event the shares
represented by the enclosed proxy will be voted for such substitute nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR.
The following table sets forth for each nominee and each continuing
director of the Company, such person's name, age, the year in which he became a
director of the Company, and his position with the Company and the Company's
subsidiaries, Five Star Enterprises Ltd. ("Five Star"); Lifestyle Footwear, Inc.
("Lifestyle"); Rocky Canada, Inc. ("Rocky Canada"); Georgia Boot LLC, EJ
Footwear LLC, HM Lehigh Safety Shoe Co. LLC, Georgia Boot Properties LLC,
Durango Boot Company LLC, Northlake Boot Company LLC, EJ Asia Limited, Lehigh
Safety Shoe Co. LLC, and Lehigh Safety Shoe Properties LLC (collectively, the
"EJ Subsidiaries" and together with Five Star, Lifestyle and Rocky Canada, the
"Subsidiaries").
CLASS II DIRECTORS
(NOMINEES - TERMS TO EXPIRE IN 2008)
DIRECTOR
NAME AGE SINCE POSITION
------------------- --- -------- -----------------------
J. Patrick Campbell 57 2004 Director of the Company
Michael L. Finn 62 2004 Director of the Company
G. Courtney Haning 57 2004 Director of the Company
Curtis A. Loveland 59 1993 Director of the Company and Secretary of the
Company and Subsidiaries
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CLASS I DIRECTORS
(TERMS EXPIRE IN 2007)
DIRECTOR
NAME AGE SINCE POSITION
------------------- --- -------- ---------------------------------------------
Mike Brooks 59 1992 Director of the Company, Five Star, Lifestyle
and the EJ Subsidiaries, Chairman and Chief
Executive Officer of the Company and
Subsidiaries
Glenn E. Corlett 62 2000 Director of the Company
Harley E. Rouda, Jr. 44 2003 Director of the Company
James L. Stewart 73 1996 Director of the Company
J. Patrick Campbell has served as President and Chief Operating Officer of
Grantham Education Corporation since January 2006. Mr. Campbell has also served
on the board of directors of Grantham Education Corporation and its subsidiary,
Grantham University, since January 2006. Mr. Campbell was self-employed as a
consultant to various corporations and the financial services industry from
January 2001 to December 2005. From January 2004 until February 2005, Mr.
Campbell served as Chief of Technology and Operations for the American Stock
Exchange. From January 1997 until December 2001, Mr. Campbell held various
executive positions at The Nasdaq Stock Market, including Chief Operating
Officer of Nasdaq Inc. and Chairman, Nasdaq Investment Products. Prior to
joining Nasdaq, Mr. Campbell was employed by The Ohio Company, a privately held
investment bank, from 1971 to 1996 as Senior Executive Vice President, and he
was a member of the board of directors from 1991 to 1996. Mr. Campbell serves on
the board of directors and is chairman of the audit committee of Shearer's
Foods, Inc., a privately held company.
Michael L. Finn has served as President of Central Power Systems, a
wholesale distributor in Columbus, Ohio, since 1985, and President of Chesapeake
Realty Co., a real estate development and management company in Columbus, Ohio,
since 1970.
G. Courtney Haning has served as Chairman, President and Chief Executive
Officer of Peoples National Bank, a community bank in New Lexington, Ohio, since
January 1991.
Curtis A. Loveland has served as Secretary of the Company since October
1992, of Five Star and Lifestyle since December 1992, of Rocky Canada since July
2003, and of the EJ Subsidiaries since January 2005. Mr. Loveland has been a
practicing attorney for 33 years and has been a partner in the law firm of
Porter, Wright, Morris & Arthur LLP, Columbus, Ohio since 1979. Mr. Loveland
also serves on the Board of Directors of Applied Innovation Inc., a
telecommunications products manufacturer.
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Mike Brooks has served as Chairman and Chief Executive Officer of the
Company and its Subsidiaries since January 2005, upon the Company's acquisition
of new subsidiaries. Prior to that he served as Chairman, President, and Chief
Executive Officer of the Company from August 1991 to January 2005. Mr. Brooks
also has served Lifestyle as President since November 1988 and as Chairman and
Chief Executive Officer since December 1992, and Five Star as President since
March 1987, as Chairman since August 1991, and as Chief Executive Officer since
December 1992. Mr. Brooks is a pattern engineering and shoe design graduate of
the Ars Sutoria in Milan, Italy. After employment with U.S. Shoe Corporation and
various tanning companies, Mr. Brooks returned to the family shoe business in
Nelsonville, Ohio, in 1975, serving first as Manager of Product Development and
a national salesman and then, in 1984, becoming President. He has been a
director of American Apparel and Footwear Association (formerly Footwear
Industries of America) since April 1986 and currently serves on the Executive
Board.
Glenn E. Corlett has been Dean and Professor of Accounting of the College
of Business at Ohio University, Athens, Ohio, since July 1997. From 1993 to
1996, Mr. Corlett was Executive Vice President and Chief Operating Officer of
N.W. Ayer & Partners, an international advertising agency, headquartered in New
York, New York. Mr. Corlett also served as Chief Financial Officer of N.W. Ayer
& Partners from 1990 to 1995. Prior to joining N.W. Ayer & Partners, Mr. Corlett
had a long history with Price Waterhouse where he was partner-in-charge for
mergers and acquisitions in New York from 1988 to 1990; tax partner-in-charge in
Denver from 1984 to 1988 and in Cleveland from 1979 to 1984; and held partner
and staff positions from 1971 to 1979. Mr. Corlett also serves on the board of
directors of Preformed Line Products Company, an international designer and
manufacturer of products and systems employed in the construction and
maintenance of overhead and underground networks for energy, communications and
broadband network companies.
Harley E. Rouda, Jr. has served as Chief Executive Officer and General
Counsel of Real Living, Inc., an independently-owned residential real estate
firm headquartered in Columbus, Ohio, since February 2002. He has also served as
Chief Executive Officer and General Counsel of HER Realtors, a Columbus based
real estate firm, since May 1999 and May 1997, respectively. Prior to serving as
Chief Executive Officer, Mr. Rouda served as President of HER Realtors from May
1996 until May 1999.
James L. Stewart has served as the proprietor of Rising Wolf Ranch, Inc.,
East Glacier, Montana, a summer resort and a winter rehabilitation center for
teenage boys involved with drug abuse. Mr. Stewart also consults for various
retail and catalog companies. Between 1984 and 1991, Mr. Stewart served as the
President and Chief Executive Officer of Dunns Inc. and as the Vice President
and General Manager of Gander Mountain Inc. Before that time, he served Sears
Roebuck & Co. for 28 years in various management capacities.
5
AMENDMENT TO THE COMPANY'S SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY
The Board of Directors proposes that the shareholders of the Company
approve an amendment to the Company's Second Amended and Restated Articles of
Incorporation to change the Company's name from "Rocky Shoes & Boots, Inc." to
"Rocky Brands, Inc." The Board of Directors believes that the name "Rocky
Brands, Inc." more accurately reflects the nature of the Company's business
today.
The vote required to approve the proposal to amend the Company's Second
Amended and Restated Articles of Incorporation to change the Company's name is a
majority of the common stock outstanding and entitled to vote on the matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE AMENDMENT TO THE COMPANY'S SECOND AMENDED AND
RESTATED ARTICLES OF INCORPORATION TO CHANGE THE COMPANY'S NAME.
AMENDMENT TO THE COMPANY'S SECOND AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company's Second Amended and Restated Articles of Incorporation
currently authorize the Company to issue up to 10,000,000 shares of common
stock, without par value. The Board of Directors has adopted, subject to
shareholder approval, an amendment to Article Fourth of the Second Amended and
Restated Articles of Incorporation to increase the authorized number of shares
of Common Stock from 10,000,000 shares to 25,000,000 shares. The full text of
the proposed amendment to Article Fourth of the Second Amended and Restated
Articles of Incorporation is as follows:
RESOLVED, that Rocky Shoes & Boots, Inc. hereby adopts the following
amendment to its Second Amended and Restated Articles of Incorporation and
that the Chief Executive Officer, President, an Executive Vice President,
and the Secretary or Assistant Secretary of Rocky Shoes & Boots, Inc. are
hereby authorized to and directed to sign and file in the office of the
Secretary of the State of Ohio a certificate containing a copy of the
resolution adopting the amendment and a statement of the manner of its
adoption:
The Second Amended and Restated Articles of Incorporation are hereby
amended by striking out in its entirety the first paragraph of
Article Fourth and substituting in lieu thereof the following:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have the authority to issue is
Twenty-Five Million Five Hundred Thousand (25,500,000) consisting
of:
1. Twenty-Five Million (25,000,000) shares of Common Stock,
without par value (the "Common Stock");
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2. Two Hundred Fifty Thousand (250,000) shares of Voting
Preferred Stock, without par value (the "Voting Preferred Stock");
and
3. Two Hundred Fifty Thousand (250,000) shares of Non-Voting
Preferred Stock, without par value (the "Non-Voting Preferred
Stock").
The Company is presently authorized to have issued and outstanding
10,500,000 shares, consisting of (a) 10,000,000 shares of common stock, without
par value, and (b) 500,000 shares of preferred stock, without par value, of
which 250,000 shares are voting preferred stock and 250,000 shares are
non-voting preferred stock. The proposed amendment does not change the express
terms of the common stock. No change in the express terms, or in the number of
authorized shares, of the preferred stock is proposed.
As of February 28, 2006, of the 10,000,000 shares of common stock
presently authorized, 5,351,023 shares were issued and outstanding and 487,500
shares were reserved for issuance under the Company's stock option plans.
The Board of Directors believes that the proposed increase in the
authorized shares of common stock is desirable to enhance the Company's
flexibility to issue shares in connection with one or more of the following:
- acquisitions;
- strategic investments;
- corporate transactions, such as stock splits or stock dividends;
- financing transactions, such as public offerings of common stock or
convertible securities;
- incentive and employee benefit plans; and
- otherwise for corporate purposes that have not yet been identified.
If the proposed Amended and Restated Certificate of Incorporation is
adopted, the additional authorized shares of common stock may be issued upon the
approval of the Board of Directors at such times, in such amounts, and upon such
terms as our Board of Directors may determine, without further approval of the
shareholders, unless such approval is expressly required by applicable law,
regulatory agencies, or the Nasdaq Stock Market (or any other exchange or
quotation service on which the Company's common stock may then be listed).
Further, the Company's shareholders will have no preemptive rights to purchase
additional shares.
The affirmative vote of the holders of a majority of common stock
outstanding and entitled to vote on the matter is required to adopt this
proposal. It will become effective upon the filing of the amendment to the
Company's Second Amended and Restated Articles of Incorporation with the
Secretary of State of Ohio, which the Company intends to make on May 17, 2006,
the day after completion of the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE AMENDMENT TO THE COMPANY'S SECOND AMENDED AND
RESTATED ARTICLES OF INCORPORATION TO INCREASE THE COMPANY'S AUTHORIZED SHARES
OF COMMON STOCK, WITHOUT PAR VALUE, FROM 10,000,000 TO 25,000,000.
7
INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS,
AND PRINCIPAL SHAREHOLDERS
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
The Board of Directors of the Company held a total of five meetings during
2005. During 2005, each of the directors attended 75% or more of the total
number of (i) meetings of the Board, and (ii) meetings of committees of the
Board on which such director served.
Upon consideration of the criteria and requirements regarding director
independence set forth in the rules of the National Association of Securities
Dealers, Inc. ("NASD"), the Board of Directors has determined that a majority of
its members are independent. Specifically, the Board has determined that each of
Messrs. Campbell, Corlett, Finn, Haning, Loveland, Rouda, and Stewart, meet the
standards of independence established by NASD Rule 4200(a)(15).
The Company has a standing Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee. The members of the Audit
Committee are Messrs. Corlett (Chairman), Campbell, and Haning. Mr. Rouda was
also a member of the Audit Committee until May 17, 2005, when he was replaced by
Mr. Campbell. The Board of Directors has determined that each of Messrs.
Corlett, Campbell, Haning, and Rouda are independent as independence is defined
in NASD Rule 4200(a)(15) and Rule 10A-3(b)(1) of the Securities Exchange Act of
1934, as amended, and that the Audit Committee meets the composition
requirements of NASD Rule 4350(d)(2). The Board of Directors has determined that
Mr. Corlett meets the requirements of a "financial expert" as set forth in
Section 401(h) of Regulation S-K promulgated by the Securities and Exchange
Commission ("SEC").
The Audit Committee met nine times during 2005. The Audit Committee
oversees and monitors management's and the independent auditors' participation
in the accounting and financial reporting processes and the audits of the
financial statements of the Company. The Audit Committee has the responsibility
to appoint, compensate, retain and oversee the work of the independent
registered public accounting firm and to consult with the independent auditors
on matters relating to the scope of the audit, any non-audit assignments and
related fees, the accounting principles used by the Company in financial
reporting, internal financial auditing procedures, and the adequacy of the
Company's internal control procedures. The Audit Committee is governed by an
Amended and Restated Audit Committee Charter, which is posted on the Company's
website at www.rockyboots.com. The Audit Committee Report relating to the 2005
fiscal year appears on pages 23 and 24.
The members of the Compensation Committee are Messrs. Rouda (Chairman),
Stewart, and Finn. The Board of Directors has determined that each of Messrs.
Rouda, Stewart, and Finn are independent as independence is defined in NASD Rule
4200(a)(15).
The Compensation Committee met six times during 2005. This Committee
administers the 1995 Stock Option Plan and the 2004 Stock Incentive Plan and
approves compensation for the Company's executive officers. The Compensation
Committee report relating to the 2005 fiscal year appears on pages 20 and 21.
The members of the Nominating and Corporate Governance Committee are
Messrs. Loveland (Chairman), Corlett, and Finn. The Board of Directors has
determined that each of Messrs. Loveland, Corlett, and
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Finn are independent as independence is defined in NASD Rule 4200(a)(15). The
Nominating and Corporate Governance Committee Charter is posted on the Company's
website at www.rockyboots.com.
The Nominating and Corporate Governance Committee met once during fiscal
2005. The Nominating and Corporate Governance Committee oversees the director
nomination process. The Nominating and Corporate Governance Committee has the
responsibility to identify and recommend individuals qualified to become
directors. When considering potential candidates, the Nominating and Corporate
Governance Committee reviews the candidate's character, judgment, skills,
including financial literacy, and experience in the context of the needs of the
Board of Directors. The Company generally does not pay any third parties to
identify or evaluate, or assist in identifying or evaluating, potential
nominees.
The Nominating and Corporate Governance Committee considers the
recommendations of shareholders regarding potential director candidates. In
order for shareholder recommendations regarding possible director candidates to
be considered by the Nominating and Corporate Governance Committee:
- such recommendations must be provided to the Nominating and
Corporate Governance Committee c/o Rocky Shoes & Boots, Inc., 39
East Canal Street, Nelsonville, Ohio 45764, in writing at least 120
days prior to the date of the next scheduled annual meeting;
- the nominating shareholder must meet the eligibility requirements to
submit a valid shareholder proposal under Rule 14a-8 of the
Securities Exchange Act of 1934, as amended; and
- the nominating shareholder must describe the qualifications,
attributes, skills, or other qualities of the recommended director
candidate.
The Nominating and Corporate Governance Committee also has the
responsibility to develop and recommend to the Board of Directors a set of
corporate governance principles applicable to the Company and to administer and
oversee the Company's Code of Business Conduct and Ethics.
The Company's Board of Directors welcomes communications from
shareholders. Shareholders may send communications to the Board of Directors, or
to any Director in particular, c/o Rocky Shoes & Boots, Inc., 39 East Canal
Street, Nelsonville, Ohio 45764. Any correspondence addressed to the Board of
Directors, or to any one of the Company's Directors in care of our offices is
forwarded to the addressee without review by management.
It is the Company's expectation that all members of the Board of Directors
attend the Annual Meeting of Shareholders. All members of the Company's Board of
Directors were present at the Company's 2005 Annual Meeting of Shareholders,
except for Mr. Rouda.
9
COMPENSATION OF DIRECTORS
During 2005, the Company compensated each director who is not an officer
or employee of the Company as follows:
- an annual retainer of $10,000 for service on the Board of Directors,
payable in shares of the Company's common stock;
- an annual retainer of $5,000 for service as Chairman of the Audit
Committee;
- an annual retainer of $2,000 for service as Chairman of the
Compensation Committee;
- an annual retainer of $2,000 for service as Chairman of the
Nominating and Corporate Governance Committee;
- $1,500 for each Board meeting attended;
- $750 for each committee meeting attended; and
- $500 for each telephonic Board or committee meeting attended.
All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with Board or committee meetings.
On January 3, 2005, 335 shares of restricted stock were issued to each of
Messrs. Campbell, Corlett, Finn, Haning, Loveland, Rouda, and Stewart based on a
stock price of $29.80 per share. All such shares are fully vested, but not
saleable in the public markets until one year from the date of grant.
In addition, each of the non-employee directors is granted an option to
purchase 5,000 shares of the Company's common stock each year. The exercise
price of such options equals 100% of the fair market value of the shares on the
date of grant. The options are vested at the date of grant but not exercisable
until a period of one year from the date of grant and terminate on the sixth
anniversary of the date of grant. On January 3, 2005, nonqualified options to
purchase 5,000 shares of common stock were granted to each of Messrs. Campbell,
Corlett, Finn, Haning, Loveland, Rouda, and Stewart, at an exercise price of
$29.80 per share pursuant to the Company's 2004 Stock Incentive Plan. These
nonqualified options became exercisable on January 3, 2006 and expire on January
3, 2011.
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EXECUTIVE OFFICERS
In addition to Mike Brooks, the following individuals are executive
officers of the Company:
David Sharp, 50, has served as President and Chief Operating Officer of
the Company and its Subsidiaries since January 2005. Prior to that, he served as
Executive Vice President and Chief Operating Officer of the Company from March
2002 until January 2005. He served as Senior Vice President - Sales and
Operations from June 2001 until March 2002, as Vice President of Sales and
Marketing from October 2000 until June 2001, and as Vice President of
Manufacturing Operations and Marketing from June 2000 until October 2000. Mr.
Sharp has served as Executive Vice President and Chief Operating Officer of Five
Star and Lifestyle from August 2003 until January 2005 and of Rocky Canada from
July 2003 until January 2005. Prior to that time, he served as Senior Vice
President - Sales and Operations of Five Star and Lifestyle from February 2002
until August 2003. Prior to joining the Company, from September 1994 until
October 1999, Mr. Sharp served in various capacities, including Vice President
and General Manager, of an operating division of H.H. Brown, Inc., a wholly
owned subsidiary of Berkshire-Hathaway, Inc., engaged in the footwear business.
Mr. Sharp also has held various senior sales and marketing positions at Acme
Boot Co., Inc. and Converse, Inc. from June 1991 until September 1994.
James E. McDonald, 45, has served as Executive Vice President, Chief
Financial Officer, and Treasurer of the Company and its Subsidiaries since
January 2005. Prior to that, he served as Vice President and Chief Financial
Officer of the Company from June 2001, and as Treasurer from August 2003, until
January 2005. Mr. McDonald served as Vice President and Chief Financial Officer
of Five Star and Lifestyle from February 2002 until January 2005 and of Rocky
Canada from July 2003 until January 2005. He served as Treasurer of Five Star
and Lifestyle from August 2003 until January 2005 and Rocky Canada from July
2003 until January 2005. Prior to joining the Company, from July 1996 until June
2001, Mr. McDonald served as Chief Financial Officer for two operating divisions
of H.H. Brown, Inc., a wholly owned subsidiary of Berkshire-Hathaway, Inc.,
engaged in the footwear business. Mr. McDonald also served as Controller of
Wright's Knitwear Corporation, a privately held manufacturer of apparel.
Thomas R. Morrison, 58, has served as Senior Vice President - Wholesale
Brands of the Company since May 2005. Prior to that he served as President of
Georgia Boot LLC from July 1986 until January 2005.
Officers are elected annually by the Board of Directors and serve at its
discretion. There are no family relationships among directors and executive
officers of the Company.
11
OWNERSHIP OF COMMON STOCK BY MANAGEMENT
The following table sets forth information regarding beneficial ownership
of the Company's common stock by each nominee for director, each director, each
of the Company's executive officers named in the Summary Compensation Table, and
the directors and executive officers of the Company as a group as of February
28, 2006:
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) CLASS(1)
---------------------------------- --------------------- ----------
Mike Brooks 395,614(2) 7.3%
J. Patrick Campbell 8,955(2) *
Glenn E. Corlett 24,922(2) *
Michael L. Finn 6,232(2) *
G. Courtney Haning 6,232(2) *
Curtis A. Loveland 72,422(2) 1.3%
James E. McDonald 51,450(2) *
Thomas R. Morrison 6,000(2) *
Harley E. Rouda, Jr. 12,011(2) *
David Sharp 68,000(2) 1.3%
James L. Stewart 18,781(2) *
All Directors and Executive
Officers as a Group (11 persons) 634,619(2) 11.5%
----------
* indicates less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities. Except as
otherwise noted, none of the named individuals shares with another person
either voting or investment power as to the shares reported. "Percentage
of Class" is calculated by dividing the number of shares beneficially
owned by the total number of outstanding shares of the Company on February
28, 2006, plus the number of shares such person has the right to acquire
within 60 days of February 28, 2006.
(2) Includes 79,750 shares of common stock for Mr. Brooks, 5,000 shares of
common stock for Mr. Campbell, 17,500 shares of common stock for Mr.
Corlett, 5,000 shares of common stock for Mr. Finn, 5,000 shares of common
stock for Mr. Haning, 20,000 shares of common stock for Mr. Loveland,
32,500 shares of common stock for Mr. McDonald, 6,000 shares of common
stock for Mr. Morrison, 10,000 shares of common stock for Mr. Rouda,
25,500 shares of common stock for Mr. Sharp, 10,000 shares of common stock
for Mr. Stewart, and 184,750 shares of common stock for all directors and
executive officers as a group, which could be acquired under stock options
exercisable within 60 days of February 28, 2006.
12
OWNERSHIP OF COMMON STOCK BY PRINCIPAL SHAREHOLDERS
The following table sets forth information relating to the beneficial
ownership of common stock by each person known by the Company to own
beneficially more than 5% of the outstanding shares of common stock:
NUMBER OF SHARES
NAME OF OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(2)
------------------------------------------ --------------------- ----------
Mike Brooks 395,614(3) 7.3%
c/o Rocky Shoes & Boots, Inc.
39 East Canal Street
Nelsonville, Ohio 45764
SunTrust Banks, Inc. 403,095(4) 7.6%
303 Peachtree Street, Suite 1500
Atlanta, Georgia 30308
SILLC Holdings, LLC 484,261(5) 9.1%
Raritan Plaza I, Raritan Center, 2nd Floor
Edison, New Jersey 08818
----------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities.
(2) "Percentage of Class" is calculated by dividing the number of shares
beneficially owned by the total number of outstanding shares of the
Company on February 28, 2006, plus the number of shares such person has
the right to acquire within 60 days of February 28, 2006.
(3) Includes 79,750 shares of common stock for Mike Brooks which could be
acquired under stock options exercisable within 60 days of February 28,
2006.
(4) Based on information filed on Schedule 13G with the Securities and
Exchange Commission on February 13, 2006 by SunTrust Banks, Inc.
("SunTrust") as parent holding company for Trusco Capital Management, Inc.
and for SunTrust Bank Holding Company as parent company for SunTrust Bank
in various fiduciary capacities. The address of the principal business
office of SunTrust is 303 Peachtree Street, Suite 1500, Atlanta, Georgia
30308.
(5) Based on information filed on Schedule 13G with the Securities and
Exchange Commission on January 18, 2005 by SILLC Holdings, LLC ("SILLC"),
Strategic Industries, LLC ("Strategic"), Citibank Venture Capital Equity
Partners, L.P. ("CVCEP"), CVC Partners, LLC ("CVC Partners"), Citigroup
Venture Capital GP Holdings, Ltd. ("CVC GP Holdings"), Court Square
Capital Limited ("Court Square"), Citigroup Banking Corporation ("CBC"),
and Citigroup Inc. ("Citigroup"). Strategic is the sole member of SILLC.
CVCEP holds a membership interest in Strategic. CVC Partners holds a
general partnership
13
interest in CVCEP. CVC GP Holdings has a membership interest in CVC
Partners. Court Square is the sole shareholder of CVC GP Holdings. CBC is
the sole shareholder of Court Square. The address of the principal
business office of SILLC and Strategic is Raritan Plaza I, Raritan Center
2nd Floor, Edison, NJ 08818. The address of the principal business office
of each of CVCEP, CVC Partners, CVC GP Holdings, Court Square, and
Citigroup is 399 Park Avenue, New York, NY 10043. The address of the
principal business office of CBC is One Penn's Way, New Castle, DE 19720.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during each of the Company's last three complete fiscal years to the
Company's Chief Executive Officer and the only other executive officers of the
Company whose combined salary and bonus exceeded $100,000 for 2005:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
NAME AND FISCAL YEAR ANNUAL COMPENSATION RESTRICTED ALL OTHER
PRINCIPAL POSITION ENDED SALARY BONUS AWARDS($)(2) OPTIONS (#) COMPENSATION
Mike Brooks(1) 12/31/05 $350,000 -- $29,820 -- $ 77,158 (3)(4)
Chairman and Chief 12/31/04 $300,000 $183,000 -- 15,000 $ 72,000 (3)(4)
Executive Officer of the 12/31/03 $250,000 $231,000 -- 15,000 $105,270 (3)(4)
Company and Subsidiaries
David Sharp 12/31/05 $285,000 -- $29,820 -- $ 26,326 (4)
President and Chief 12/31/04 $250,000 $125,000 -- 13,000 $ 34,175 (4)
Operating Officer of the 12/31/03 $210,000 $131,000 -- 13,000 $ 15,123 (4)
Company and Subsidiaries
James E. McDonald 12/31/05 $230,000 -- $29,820 -- $ 25,826 (4)
Executive Vice President, 12/31/04 $188,000 $67,680 -- 10,000 $ 0
Chief Financial Officer, 12/31/03 $173,500 $96,000 -- 10,000 $ 0
and Treasurer of the
Company and Subsidiaries
Thomas R. Morrison (5) 12/31/05 $200,000 -- -- 21,000 $ 0
Senior Vice President of 12/31/04 N/A N/A -- N/A N/A
Sales-Wholesale Brands of 12/31/03 N/A N/A -- N/A N/A
the Company
----------
(1) The Company has entered into an employment agreement with Mr. Brooks (See
"Employment Agreements" below).
14
(2) Represents for each officer indicated, the restricted stock awards for the
specified fiscal year under the 2004 Stock Incentive Plan. Information set
forth above is based on the closing price of the Company's common stock on
the date on which the awards were made.
On May 27, 2005, each of Messrs. Brooks, Sharp, and McDonald received an
award of 1,000 shares of restricted stock, valued at $29.82 per share. The
shares vest on January 1, 2006, subject to continued employment with the
Company. Dividends will not be paid or accrue with respect to shares of
restricted stock until such shares vest. None of the named executive
officers have any other restricted stock holdings.
(3) The Company has entered into a deferred compensation agreement with Mr.
Brooks. The agreement provides that certain benefits will be paid to Mr.
Brooks or a designated beneficiary upon retirement, death, or termination
of employment with the Company (or an affiliate). Under the agreement, Mr.
Brooks qualifies for the benefits after 15 years of service with the
Company or a predecessor corporation. If Mr. Brooks retires after age 65,
Mr. Brooks or his beneficiary will receive monthly payments ranging from
$1,250 to $2,500 for a ten-year period commencing 90 days after
retirement. If Mr. Brooks dies before age 65, the beneficiary will receive
the greater of $17,250 annually or the amount Mr. Brooks would have
received had he terminated his employment after age 65, reduced by an
amount equal to 5/9ths of one percent times the number of months remaining
before Mr. Brooks would have reached age 65. If Mr. Brooks terminates his
employment with the Company for any reason prior to age 65, Mr. Brooks
will be entitled to receive the greater of the cash surrender value of a
policy of insurance purchased by the Company on the life of Mr. Brooks or
the amount Mr. Brooks would have received had he terminated his employment
after age 65, reduced by an amount equal to 5/9ths of one percent times
the number of months remaining before Mr. Brooks would have reached age
65. Finally, the agreement provides that Mr. Brooks will not, during or
after his employment with the Company, directly or indirectly, compete
with the Company or disclose any confidential information relative to the
business of the Company. If Mr. Brooks breaches this or any other covenant
under the agreement, no further payments are due or payable by the Company
to Mr. Brooks or his beneficiary and the Company has no further liability
under the agreement. The benefits under the agreement have vested for Mr.
Brooks. The amounts shown under "All Other Compensation" for Mr. Brooks
include $33,870 for 2003, $0 for 2004, and $0 for 2005,
reflecting the present value of the benefits earned during the year
indicated.
(4) The amounts shown under "All Other Compensation" for Messrs. Brooks, Sharp
and McDonald include $77,158, $26,326 and $25,826, respectively for 2005,
$72,000 and $34,175, respectively for 2004, and $72,000 and $15,123,
respectively for 2003, reflecting life insurance premiums paid by the
Company.
(5) Mr. Morrison joined the Company in January 2005.
15
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding stock options
granted during 2005 to each of the executive officers:
INDIVIDUAL GRANTS
-----------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ASSUMED ANNUAL RATES
GRANTED TO OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------------
NAME (#) YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
------------------ --------- ---------- --------- ---------- ----- -------- --------
Mike Brooks -- 0% -- -- -- -- --
David Sharp -- 0% -- -- -- -- --
James E. McDonald -- 0% -- -- -- -- --
Thomas R. Morrison 20,000(2) 15.5% $28.84 1/6/13 $0 $275,396 $659,622
1,000(3) 0.8% $24.36 12/30/13 $0 $ 11,631 $ 27,858
----------
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included by
the Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the Company's common stock. Such amounts are based
on the assumption that the option holders hold the options granted for
their full term. The actual value of the options will vary in accordance
with the market price of the Company's common stock. The column headed
"0%($)" is included to illustrate that the options were granted at fair
market value and option holders will not recognize any gain without an
increase in the stock price, which increase benefits all shareholders
commensurately.
(2) On January 6, 2005, options to purchase 20,000 shares of common stock were
granted to Mr. Morrison. The options were granted at an exercise price
equal to the closing price of the Company's common stock on January 5,
2005. These options vest and become exercisable on January 6, 2006, at a
rate of 25% per year employed, and expire on January 6, 2013.
(3) On December 30, 2005, options to purchase 1,000 shares of common stock
were granted to Mr. Morrison. The options were granted at an exercise
price equal to the closing price of the Company's common stock on December
30, 2005. These options vested and became exercisable immediately on the
date of grant and expire on December 30, 2013.
16
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the exercise of
stock options during 2005, and the number and value of stock options held by the
executive officers named in the Summary Compensation Table as of December 31,
2005:
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END ($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ -------- -------- ----------- ------------- ---------- -------------
Mike Brooks 25,000 214,250 67,250 23,750 1,196,805 278,425
David Sharp 2,500 62,950 16,500 18,750 335,957 207,220
James E. McDonald -- -- 27,500 15,000 497,825 170,125
Thomas R. Morrison -- -- 1,000 20,000 -- --
----------
(1) Represents the total gain which would have been realized if all
in-the-money options held at fiscal year-end had been exercised,
determined by multiplying the number of shares underlying the options by
the difference between the per share option exercise price and per share
fair market value at year-end. An option is in-the-money if the fair
market value of the underlying shares exceeds the exercise price of the
option.
17
RETIREMENT PLAN
The Company's Restated Retirement Plan for Non-Union Employees (the
"Retirement Plan") is a defined benefit pension plan which is intended to
qualify under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). Until December 31, 2005, all Rocky Shoes & Boots, Inc.
employees, including U.S. territorial employees, excluding leased employees and
those employees covered by a collective bargaining agreement, were eligible to
participate in the Retirement Plan if they were at least 21 years old and had
worked at least 1,000 hours for the Company over a period of one year. As of
December 31, 2005, the Company froze the Retirement Plan for all non-U.S.
territorial employees.
The Retirement Plan provides for the payment of a monthly retirement
benefit commencing at age 65, subject to certain early and late retirement
options. The amount of the monthly benefit is determined pursuant to a formula
contained in the Retirement Plan which takes the greater of 1.5% of Mr. Brooks's
average monthly compensation, or $12.00, and multiplies it by Mr. Brooks's
number of years of credited service up to a maximum of 35 years. The average
monthly compensation is determined for the three consecutive years which gives
the participant the highest average. Compensation for this purpose means wages
which are subject to federal income tax withholding.
The following table illustrates the operation of the Retirement Plan by
showing various annual retirement benefits payable to participating employees in
the compensation and years of service classifications indicated, assuming that
participants retire at age 65 and that each participant elects a joint and
survivor annuity for the lives of the participant and his or her spouse. There
is no reduction of benefits for Social Security retirement income.
YEARS OF SERVICES
------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ ------- ------- ------- ------- --------
$ 80,000 $18,000 $24,000 $30,000 $36,000 $ 42,000
100,000 22,500 30,000 37,500 45,000 52,500
125,000 28,125 37,500 46,875 56,250 65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 39,375 52,500 65,625 78,750 91,875
210,000* 47,250 63,000 78,750 94,500 110,250
----------
*The maximum pay level recognized at this time is $210,000. This maximum is
indexed with the COLA % each year, with $5,000 incremental increases.
For each of the executive officers named in the Summary Compensation
Table, the compensation covered by the Retirement Plan for 2005, was $210,00 for
each of Messrs. Brooks, Sharp, and McDonald. The Code imposes limitations on the
amount of annual benefits payable to an individual under the Retirement Plan.
This limit for the 2005 Plan Year is $175,000. The estimated years of service
for each of the executive officers as of December 31, 2005, was 30.7 years for
Mr. Brooks, 5.5 years for Mr. Sharp, and 4.5 years for Mr. McDonald.
18
EMPLOYMENT AGREEMENTS
On July 1, 1995, Mr. Brooks entered into an employment agreement with the
Company. The employment agreement provides for a minimum base salary and a
covenant not-to-compete. Mr. Brooks' employment agreement is "at will" and,
therefore, does not have a stated term.
The covenant not-to-compete contained in Mr. Brooks' employment agreement
is for the time of employment, plus a one-year period following termination of
employment; provided, that if his employment is terminated following a change in
control (as defined in the employment agreement), the covenant not-to-compete
will terminate immediately. If the agreement is terminated as a result of a
change in control, or if he resigns after a change in control, he is entitled to
receive 2.99 times his average annual compensation, including bonuses and
taxable fringe benefits, over the last five taxable years immediately preceding
the date of a change in control, but in no event will such payments constitute
excess parachute payments within the meaning of the Code. Under the employment
agreement, a change in control is deemed to have occurred if (i) the Company or
50% or more of its assets or earning power is acquired and less than a majority
of the outstanding voting shares of the survivor of such acquisition is owned,
immediately after such acquisition, by the owners of the voting shares of the
Company outstanding immediately prior to such acquisition, or (ii) there is a
change in a majority of the Board of Directors of the Company over any two-year
period, which has not been approved in advance by at least two-thirds of the
directors of the Company in office at the beginning of the period.
19
The following Compensation Committee Report, Performance Graph, and Audit
Committee Report shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any of the
Company's filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee has the authority and responsibility to
determine and administer the Company's officer compensation policies and to
approve the salaries of executive officers, the formula for bonus awards to
executive officers, and the grant of stock options and restricted stock to
executive officers and other key employees under the Company's 1995 Stock Option
Plan and 2004 Stock Incentive Plan. The Compensation Committee consists solely
of independent directors of the Company. In general, the philosophy of the
Compensation Committee is to attract and retain qualified executives, reward
current and past individual performance, provide short-term and long-term
incentives for superior future performance, and relate total compensation to
individual performance and performance of the Company.
On July 1, 1995, the Company entered into an employment contract, approved
by the Company's Board of Directors, with Mr. Brooks. The base salary under the
employment contract is subject to review by the Compensation Committee and may
be increased periodically.
The determination of executive officer base salaries for the fiscal year
ended December 31, 2005, including increases to the minimum base salary fixed by
the employment contract of Mr. Brooks (see EMPLOYMENT AGREEMENTS above), was
based primarily on subjective factors, such as the Compensation Committee's
perception of individual performance and the executive officer's contribution to
the overall performance of the Company, and not on specific criteria. No
specific weight was given to any of these factors because each of these factors
was considered significant and the relevance of each varies depending upon an
officer's responsibilities. These factors were also taken into account when the
Compensation Committee established Mr. Brooks' salary at $350,000 for the fiscal
year ended December 31, 2005.
The Company established an executive bonus program for 2005. The bonuses
payable under the executive bonus program were based on percentages of a
participant's salary. The amount of the percentage bonus depended on the
Company's operating income. The percentages payable to the named executive
officers ranged from 16% to 102%, depending on the officer and the amount of
operating income. Four of the Company's named executive officers, including Mr.
Brooks, were eligible to participate in the executive bonus pool for 2005. The
percentages issued under the program were allocated at the beginning of 2005
among these four executive officers based upon the Compensation Committee's
subjective perception of each executive officer's contribution to the overall
profitability of the Company. Under the executive bonus program, no bonuses were
awarded to executive officers for 2005.
The purpose of the Company's 1995 Stock Option Plan and 2004 Stock
Incentive Plan is to provide long-term incentives to key employees and motivate
key employees to improve the Company's performance, and in turn, the performance
of the Company's common stock. Stock option awards are considered annually by
the Compensation Committee. The value of the stock options awarded is entirely
dependent upon the Company's stock performance over a period of time.
20
The number of shares of common stock subject to the options granted during
2005 was determined based on a subjective evaluation of the past performance of
the individual, the total compensation being paid to the individual, the
individual's scope of responsibility, and the anticipated value of the
individual's contribution to the Company's future performance. No specific
weight was given to any of these factors. Although information as to the options
awarded to each executive officer during previous years was reviewed by the
Compensation Committee, the Compensation Committee did not consider the total
amount of options held by an officer in determining the size of an option
awarded for 2005.
Options were granted under the 2004 Stock Incentive Plan by the Company
during 2005 to 24 key employees in recognition of their efforts relating to the
integration of the new EJ Subsidiaries. Each stock option awarded had an
exercise price equal to the fair market value of the underlying common stock of
the Company on the date of the grant. The options granted immediately vested and
became exercisable on the date of grant and terminate eight years from the date
of grant. All options granted during 2005 to employees are subject to certain
forfeiture restrictions in the 2004 Stock Incentive Plan.
The Budget Reconciliation Act of 1993 amended the Code to add Section
162(m) which bars a deduction to any publicly held corporation for compensation
paid to a "covered employee" in excess of $1,000,000 per year. The Compensation
Committee does not believe that this law will impact the Company because the
current level of compensation for each of the Company's executive officers is
well below the $1,000,000 salary limitation.
COMPENSATION COMMITTEE
Harley E. Rouda, Jr., Chairman
James L. Stewart
Michael L. Finn
21
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company
with the NASDAQ Stock Market (U.S.) Index and the Standard & Poor's Footwear
Index, which is a published industry index. The comparison of the cumulative
total return to shareholders for each of the periods assumes that $100 was
invested on December 31, 2001, in the common stock of the Company, and in the
NASDAQ Stock Market (U.S.) Index and the Standard & Poor's Footwear Index and
that all dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ROCKY SHOES & BOOTS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S&P FOOTWEAR INDEX
[PERFORMANCE GRAPH]
Cumulative Total Return
---------------------------------------------------
12/00 12/01 12/02 12/03 12/04 12/05
------ ------ ------ ------ ------ ------
ROCKY SHOES & BOOTS, INC. 100.00 148.90 135.23 577.81 769.03 628.65
NASDAQ STOCK MARKET(U.S.) 100.00 70.75 51.08 76.82 85.44 96.38
S & P FOOTWEAR 100.00 101.33 84.09 128.56 169.06 170.05
*$100 invested on December 31, 2001 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
22
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
GENERAL. In accordance with the Audit Committee Charter adopted by the
Board of Directors, the Audit Committee assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing, and financial reporting practices of the Company. During the 2005
fiscal year, the Audit Committee met nine times.
REVIEW AND DISCUSSION WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. In
fulfilling its oversight responsibility as to the audit process, the Audit
Committee obtained from Deloitte & Touche LLP a formal written statement
describing all relationships between Deloitte & Touche LLP and the Company that
might bear on Deloitte & Touche LLP's independence consistent with Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees,
discussed with Deloitte & Touche LLP any relationships that may impact Deloitte
& Touche LLP's objectivity and independence, and satisfied itself as to Deloitte
& Touche LLP's independence. The Audit Committee also discussed with management
and Deloitte & Touche LLP the quality and adequacy of the Company's internal
controls. In addition, the Audit Committee reviewed and discussed with Deloitte
& Touche LLP all communications required by generally accepted auditing
standards, including those described in Statement on Auditing Standards No. 61,
Communication with Audit Committees, and, with and without management present,
discussed and reviewed the results of Deloitte & Touche LLP's examination of the
consolidated financial statements.
REVIEW WITH MANAGEMENT. The Audit Committee reviewed and discussed the
audited consolidated financial statements of the Company as of and for the
fiscal year ended December 31, 2005 with management. Management has the
responsibility for the preparation of the Company's consolidated financial
statements, and Deloitte & Touche LLP has the responsibility for the examination
of those statements.
AUDIT FEES. The aggregate fees billed for professional services rendered
by Deloitte & Touche LLP, the member firm of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, "Deloitte & Touche LLP," which includes
Deloitte Consulting), for the audits of the Company's annual consolidated
financial statements, including those for its subsidiaries, for the 2005 fiscal
year, the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for the fiscal year, and for professional
services rendered for audits related to the effectiveness of internal control
over financial reporting were $1,046,725 (including direct engagement
expenses). The aggregate fees billed for professional services rendered by
Deloitte & Touche LLP for the audits of the Company's annual consolidated
financial statements, including those for its subsidiary, Lifestyle Footwear,
Inc., for the 2004 fiscal year, the reviews of the financial statements included
in the Company's Quarterly Reports on Form 10-Q for the fiscal year, and for
professional services rendered for audits related to the effectiveness of
internal control over financial reporting were $767,000 (including direct
engagement expenses).
AUDIT-RELATED FEES. The aggregate fees billed by Deloitte & Touche LLP for
audit-related services rendered for the Company for the 2005 fiscal year were
$76,500. The aggregate fees billed by Deloitte & Touche LLP for audit-related
services rendered for the Company and its subsidiaries for the 2004 fiscal year
were $220,457. Audit-related fees in 2004 included fees for financial due
diligence relating to the acquisition of EJ Footwear Group.
TAX FEES. The aggregate fees billed by Deloitte & Touche LLP for
tax-related services rendered for the Company for the 2005 fiscal year were
$155,201. The aggregate fees billed by Deloitte & Touche LLP for tax-
23
related services rendered for the Company and its subsidiaries for the 2004
fiscal year were $86,616. The tax-related services were all in the nature of tax
compliance and tax planning.
ALL OTHER FEES. There were no fees billed for services rendered to the
Company by Deloitte & Touche LLP, other than the audit services, audit-related
services, and tax services, for either the 2005 or 2004 fiscal year.
PRE-APPROVAL POLICY. The Audit Committee is required to pre-approve all
auditing services and permitted non-audit services (including the fees and terms
thereof) to be performed for the Company by its independent auditor or other
registered public accounting firm, subject to the de minimus exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange
Act of 1934, as amended, that are approved by the Audit Committee prior to
completion of the audit.
CONCLUSION. Based on the reviews and discussions with management and
Deloitte & Touche LLP noted above, the Audit Committee recommended to the Board
that the Company's audited consolidated financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005
to be filed with the Securities and Exchange Commission. The Audit Committee
also determined that the provision of services other than services described
under "Audit Fees" was compatible with maintaining Deloitte & Touche LLP's
independence.
AUDIT COMMITTEE
Glenn E. Corlett, Chairman
J. Patrick Campbell
G. Courtney Haning
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION / RELATED PARTY
TRANSACTIONS
During 2005, the members of the Compensation Committee were Messrs. Rouda
(Chairman), Stewart, and Finn. None of these members was an executive officer or
employee of the Company or its subsidiaries during or prior to his service as a
member of the Compensation Committee. Certain other directors, executive
officers, and principal shareholders of the Company, or members of their
immediate families, have participated in transactions with, or have had certain
business relationships with, the Company during 2005.
In January 2005, the Company purchased a manufacturing facility in
Nelsonville, Ohio for $505,000 from the William Brooks Real Estate Company, an
Ohio corporation, 25% of which is owned by Mike Brooks. The Company believes,
based on its knowledge of comparable properties, that this purchase was made on
terms no less favorable to the Company or its affiliates than it could have
obtained from unrelated parties.
Mr. Loveland, a director of the Company, is a partner in the law firm of
Porter, Wright, Morris & Arthur LLP, which provides legal services to the
Company.
During 2005, the Company employed certain members of Mr. Brooks' immediate
family. Jason Brooks, Mr. Brooks' son, served as the Company's Vice President of
Sales, Field Accounts, Stuart Brooks, Mr. Brooks' brother, served as the
Company's Vice President of Sales, Work and Duty, and Mark Pitts, Mr. Brooks'
son-in-law, served as the Company's Vice President of Sales, Key Accounts and
each received base salaries and bonuses
24
of $126,000, $126,000, and $142,000, respectively, in 2005. Additionally, Jay
Brooks, Mr. Brooks' brother, served as an independent contractor to the Company
and was paid a total of $77,919 in 2005.
The Company believes that all terms of the transactions and existing
arrangements set forth above are no less favorable to the Company than similar
transactions and arrangements which might have been entered into with unrelated
parties.
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth additional information as of December 31, 2005,
concerning shares of our common stock that may be issued upon the exercise of
options and other rights under our existing equity compensation plans and
arrangements, divided between plans approved by our shareholders and plans or
arrangements not submitted to our shareholders for approval. The information
includes the number of shares covered by, and the weighted average exercise
price of, outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights.
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES FOR ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED
WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (A))
(A) (B) (C)
-------------------- -------------------- --------------------
Equity compensation plans approved
by security holders (1) 658,851 $14.49 467,500
Equity compensation plans not
approved by security holders -- -- --
------- ------ -------
Total 658,851 $14.49 467,500
======= ====== =======
----------
(1) Equity compensation plans approved by shareholders include the 1992 Stock
Option Plan, the Second Amended and Restated 1995 Stock Option Plan, and
the 2004 Stock Incentive Plan.
25
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has appointed Deloitte & Touche LLP as its
independent registered public accounting firm for the Company for the fiscal
year ending December 31, 2006. Although not required, the Board of Directors is
submitting its selection to the shareholders of the Company for ratification.
Deloitte & Touche LLP has served as the independent registered public accounting
firm for the Company since its formation in 1992. The Board of Directors
believes that the reappointment of Deloitte & Touche LLP for the fiscal year
ending December 31, 2006, is appropriate because of the firm's reputation,
qualifications, and experience. The Board of Directors will reconsider the
appointment of Deloitte & Touche LLP if its selection is not ratified by the
shareholders.
Representatives of Deloitte & Touche LLP will be present at the meeting
and will have an opportunity to make a statement if they desire to do so. Such
representatives will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF ITS APPOINTMENT OF DELOITTE & TOUCHE LLP.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and greater than 10% shareholders, to file
reports of ownership and changes in ownership of the Company's securities with
the Securities and Exchange Commission. Copies of the reports are required by
SEC regulation to be furnished to the Company. Based on its review of such
reports and written representations from reporting persons, the Company believes
that all filing requirements were complied with during fiscal 2005, except as
disclosed herein. Each of Messrs. Sharp and Stewart filed one late Form 4, each
with respect to one transaction.
PROPOSALS BY SHAREHOLDERS FOR 2007 ANNUAL MEETING
Each year the Board of Directors submits its nominations for election of
directors at the Annual Meeting of Shareholders. Other proposals may be
submitted by the Board of Directors or the shareholders for inclusion in the
Proxy Statement for action at the Annual Meeting. Any proposal submitted by a
shareholder for inclusion in the Proxy Statement for the Annual Meeting of
Shareholders to be held in 2007 must be received by the Company (addressed to
the attention of the Secretary) on or before December 13, 2006. Any shareholder
proposal submitted outside the processes of Rule 14a-8 under the Securities
Exchange Act of 1934 for presentation at our 2007 annual meeting will be
considered untimely for purposes of Rule 14a-4 and 14a-5 if notice thereof is
received by the Company after February 24, 2007. To be submitted at the meeting,
any such proposal must be a proper subject for shareholder action under the laws
of the State of Ohio.
26
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no other
business that will come before the meeting. Should any other matter requiring a
vote of the shareholders arise, the proxy in the enclosed form confers upon the
persons designated to vote the shares discretionary authority to vote with
respect to such matter in accordance with their best judgment.
The Company's Annual Report to Shareholders for the fiscal year ending
December 31, 2005, including financial statements, was furnished to shareholders
concurrently with the mailing of this proxy material.
By Order of the Board of Directors,
Curtis A. Loveland
Secretary
27
ROCKY SHOES & BOOTS, INC.
39 EAST CANAL STREET, NELSONVILLE, OHIO 45764
---------------------------------------------
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 16, 2006
The undersigned hereby appoints MIKE BROOKS, DAVID SHARP, and CURTIS A.
LOVELAND, or any one of them acting alone, my attorneys and proxies, with full
power of substitution to each, to vote all shares of Common Stock which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of said
corporation to be held on May 16, 2006, 4:00 p.m., local time, at Stuarts Opera
House, 34 Public Square, Nelsonville, Ohio 45764, and at any adjournment
thereof, with all of the powers I would have if personally present, for the
following purposes:
1. ELECTION OF CLASS II DIRECTORS
For Withhold
J. Patrick Campbell [ ] [ ]
Michael L. Finn [ ] [ ]
G. Courtney Haning [ ] [ ]
Curtis A. Loveland [ ] [ ]
2. Approval and adoption of amendment to the Company's Second Amended and
Restated Articles of Incorporation to change the Company's name to Rocky
Brands, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval and adoption of amendment to the Company's Second Amended and
Restated Articles of Incorporation to increase number of authorized shares
of the Company's common stock from 10,000,000 to 25,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification of selection of Deloitte & Touche LLP as the Company's
independent registered public accounting firm for the 2006 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. TO TRANSACT such other business as may properly come before the meeting
and any adjournment thereof.
The undersigned gives unto said attorneys and proxies, or substitutes, full
power and authority to do whatsoever in their opinion may be necessary or proper
to be done in the exercise of the power hereby conferred, including the right to
vote for any adjournment, hereby ratifying all that said attorneys and proxies,
or substitutes, may lawfully do or cause to be done by virtue hereof. Any of the
said attorneys and proxies, or substitutes, who shall be present and shall act
at the meeting shall have and may exercise all the powers of said attorneys and
proxies hereunder.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Shareholders, dated April 12, 2006, the Proxy Statement and the
Annual Report of the company furnished therewith. Any proxy heretofore given to
vote said shares is hereby revoked.
Please sign and date this Proxy below and return it in the enclosed
envelope.
Dated ________________________________, 2006
_____________________________________________
(Signature)
_____________________________________________
(Signature)
SIGNATURE(S) SHALL AGREE WITH THE NAME(S)
PRINTED ON THIS PROXY. IF SHARES ARE
REGISTERED IN TWO NAMES, BOTH SHAREHOLDERS
SHOULD SIGN THIS PROXY. IF SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS
SUCH. THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS.