CCA INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 15, 2005
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the
Shareholders of CCA INDUSTRIES, INC., a Delaware corporation
(hereinafter, the "Company") will be held on June 15, 2005, at 12
noon, at the Grand Hyatt Hotel, 42nd Street and Grand Central,
New York, NY, for the following purposes:
Management Proposals
1. To elect directors to serve on the Board of Directors for
the ensuing year.
2. To approve management's appointment of KGS LLP, formerly
known as Sheft Kahn & Company LLP ("KGS") as the Company's
independent certified public accountants for the fiscal year
ending November 30, 2005.
3. Approval of the Company's Amended and Restated Stock Option
(Incentive) Plan.
Such other business, if any, as may properly come before the
meeting or any adjournment thereof, shall also be considered.
The identified proposals are more fully described, and related
information is presented, in the Proxy Statement accompanying
this Notice.
Only shareholders of record at the close of business on May 2,
2005 are entitled to notice of the meeting, and to vote at the
meeting and at any continuation or adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Ira W. Berman
Chairman of the Board
East Rutherford NJ
May 2, 2005
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, YOU ARE URGED
TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD. NO POSTAGE NEED
BE AFFIXED IF MAILED IN THE UNITED STATES AND IN THE ENVELOPE PROVIDED
THEREFOR.
CCA INDUSTRIES, INC.
East Rutherford, New Jersey 07073
www.ccaindustries.com
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of
Directors of CCA INDUSTRIES, INC., a Delaware corporation
(hereinafter, the "Company"), for use at its Annual Meeting of
Shareholders to be held on June 15, 2005 at 12 noon.
Shareholders of record on May 2, 2005 will be entitled to vote.
The meeting will be held at the Grand Hyatt Hotel, 42nd and Grand
Central, New York, NY.
The Company intends to mail this Proxy Statement, and the
Company's Annual Report for the 2004 fiscal year, on or about May
10, 2005.
I. GENERAL
A. Voting
The Company, as provided in and by its Certificate of
Incorporation, has two authorized classes of common stock,
denominated Common Stock and Class A Common Stock, and one
authorized class of preferred stock, denominated Preferred Stock.
On March 4, 2005, there were 6,156,803 shares of Common Stock
and 967,702 shares of Class A Common Stock outstanding.
At the date of this statement, no Preferred Stock is issued,
and the Board has no pending negotiation or plan concerning any
expected issuance of Preferred Stock.
Owners of Common Stock and owners of Class A Common Stock are
entitled to one vote for each share of stock held, and the voting
and other rights of each class are equivalent except in respect
to the election of directors.
In respect to the election of directors, the Class A Common
Stock shareholders have the right to elect four directors and the
Common Stock shareholders have the right to elect three. (In
consequence, no proposal to alter or change the right of Class A
Common Stock shareholders to elect a majority of directors could
be effectively voted unless a separate majority of Class A Common
Stock shares were voted therefor.)
A quorum, counting proxies and shares represented in person, is
necessary to the voting upon proposals proposed by Management,
and other business that may properly come before the Annual
Meeting. Fifty percent (50%) of all outstanding shares
constitutes a quorum for all purposes other than the election of
directors. In respect thereof, fifty percent (50%) of the
outstanding shares of Common Stock is a quorum for the election
of directors to be elected by the holders of Common Stock, and
Fifty percent (50%) of the outstanding shares of Class A Common
Stock is a quorum for the election of directors to be elected by
holders of Class A Common Stock.
Nonvoting of shares (whether by abstention, broker non-vote or
otherwise), other than the potential effect of denying a quorum,
has no impact on voting.
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B. Share Ownership of Directors, Officers and 5% Owners
The following table sets forth certain information regarding
the ownership of the Company's Common Stock and Class A Common
Stock as of March 4, 2005 by (i) all those known by the company
to be owners of as much as five (5%) percent of the outstanding
shares of Common Stock and/or Class A Common Stock, (ii) Each
Officer and Director, and (iii) Officers and Directors as a
group. Moreover, it presents individual ownership of "Option
Shares," and the aggregate Option Shares ownership of Officers
and Directors (with Option Shares representing the number of
shares purchasable upon exercise of options exercisable within 60
days). Unless otherwise indicated, each of the shareholders has
sole voting and investment power with respect to the shares owned
(subject to community property laws, where applicable), and is
beneficial owner of them.
Ownership
As a
Percentage of
All Shares
Outstanding/
Number of Shares Owned Assuming
Class A Ownership
Name and Address Common Stock Common Stock Option Shares Option Shares Exercise
David Edell 206,235 484,615 67,500 9.7/10.5%
c/o CCA Industries, Inc.
Ira W. Berman 214,965 483,087 73,000 9.8/10.7%
c/o CCA
Drew Edell 123,108 - 15,000 1.7/1.9%
c/o CCA
Dunnan Edell 42,075 - 90,000 0.6/1.8%
c/o CCA
Jack Polak 28,254 - 25,000 0.4/0.74%
195 Beech Street
East Chester, NY 10709
Stanley Kreitman 10,200 - 15,000 0.1/0.35%
c/o CCA
Robert Lage - - - 0.0/0.0%
c/o CCA
John Bingman - - 10,000 0.0/0.14%
c/o CCA
Officers & Directors 624,837 967,702 295,500
Table Notes
The numbers shown as "Option Shares" assume that the
unexercised options, exercisable within 60 days have been
exercised (and, that subject shares, not actually owned, are
actually owned). The percentage ownership figure, "Assumed
Ownership-Option Shares," aggregates the assumptions for the
group of Officers and Directors and, for each individual owner,
presents a measurement which assumes that the particular
individual has exercised such options and purchased subject
shares, but that no other owner of such options has "exercised
and purchased." The category "as a group" assumes exercise of
all unexercised options by table-represented parties. See
Section IV with reference to the options outstanding.
3
David Edell and Ira Berman own all of the outstanding shares of
Class A Common Stock.
Messrs. David Edell, Dunnan Edell, and Ira W. Berman were
officers and directors in fiscal 2004. Drew Edell and John
Bingman are officers. Messrs. Polak, Kreitman and Lage are
directors.
C. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the
2004, 2003 and 2002 fiscal years by all of the executive officers
whose fiscal 2004 compensation exceeded $100,000, including the
Chief Executive Officer (the "Named Officers").
Annual Compensation
Name and Principal Position Year Salary Bonus Other (I)
David Edell, 2004 $656,357 $573,543 $38,294
Chief Executive 2003 619,205 459,240 39,476
Officer 2002 584,155 332,060 40,152
Ira. W. Berman, 2004 $656,357 $573,543 $24,739
Secretary and 2003 619,205 459,240 29,499
Executive 2002 584,155 332,060 27,475
Vice President
Dunnan Edell, 2004 $312,692 $ 95,000 $ 5,305
President 2003 282,692 50,000 11,391
2002 253,172 45,000 7,281
Drew Edell 2004 $222,596 $ 50,000 $ 1,951
Vice President 2003 200,000 25,000 5,081
Operations 2002 203,845 25,000 1,178
John Bingman 2004 $111,980 $ 40,000 $ 1,005
Treasurer 2003 105,128 25,000 2,696
2002 99,843 20,000 3,037
Joel Last, 2004 $167,077 $ 40,900 $ 185
Vice President 2003 160,000 32,000 4,833
Sales 2002 160,000 15,000 5,984
Patrick Haberman, 2004 $156,922 $ 39,625 $ 6,000
Vice President 2003 152,077 31,350 9,278
Sales 2002 150,000 10,000 9,603
i. Includes the personal-use value of Company-leased
automobile, the value of Company-provided life insurance, and
health insurance that is made available to all employees.
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ii. Fiscal 2004 Option Grants and Option Exercises, Year-End
Option Valuations, Option Repricing
Options Issued To Named Officers and Directors During 2004
Date No.
of Options
Grant Granted Price
David Edell 6/16/2004 25,000 $ 9.00
Ira W. Berman 6/16/2004 25,000 $ 9.00
Dunnan Edell 6/16/2204 15,000 $ 8.25
Drew Edell 6/16/2004 15,000 $ 8.25
John Bingman 6/16/2004 10,000 $ 8.25
The next table identifies 2004 fiscal-year option exercises by
Named Officers and reports a valuation of their options.
Fiscal 2004 Aggregated Option Exercises
and November 30, 2004 Option Values
Number of Shares Value of
Covered by Unexercised
Number of Unexercised In-the-Money
Shares Acquired Options at Options at
On Exercise Value Realized Nov. 30, 2004 Nov. 30, 2004 (1)
David Edell 10,000 $ 80,000 112,500 $968,750
Ira W. Berman 30,000 $ 240,000 112,000 $963,500
Dunnan Edell - - 90,000 $828,750
Drew Edell 75,000 $ 468,750 15,000 $ 41,250
Stanley Kreitman 10,000 $ 68,500 15,000 $157,500
Jack Polak - - 25,000 $262,500
John Bingman - - 10,000 $ 27,500
---------------------
(1) Represents the difference between market price and the respective exercise
prices of options at November 30, 2004.
The following table identifies the stock options held by the
Named Officers and all other officers and directors, the exercise
prices of which have been reduced during the past 10 years.
Repriced Options
Original
Number of Shares Grant Date Price Date Repriced - New Prices
David Edell 100,000 Aug. 1 1997 $2.50 5/24/01 $.50
Ira W. Berman 100,000 Aug. 1 1997 $2.50 5/24/01 $.50
Dunnan Edell 50,000 Aug. 1 1997 $2.50 5/24/01 $.50
Drew Edell 50,000 Aug. 1 1997 $2.50 5/24/01 $.50
Stanley Kreitman 25,000 Aug. 1 1997 $2.50 5/24/01 $.50
Dunnan Edell 25,000 June 1 1995 $4.50 5/24/01 $.50
Drew Edell 25,000 June 1 1995 $4.50 5/24/01 $.50
Rami Abada 25,000 Aug. 1 1997 $2.50 5/24/01 $.50
Jack Polak 25,000 Aug. 1 1997 $2.50 5/24/01 $.50
(1) On November 3, 1998, the full Board of Directors authorized
the repricing in consequence of a declining market valuation,
inconsistent with the Company's realizable value. The market
price of the Common Stock at the date of repricing was $1.00;
and, at that date, the original option terms (10 years from
August 1, 1997) had approximately 8 years and 10 months to run.
When the options were originally issued, on August 1, 1997, the
market price of the Company's Common Stock was $2.50. On May 24,
2001, the company repriced the options again when the market
price was $.50.
5
(2) On June 10, 2000, the full Board of Directors authorized the
repricing in consequence of a declining market valuation,
inconsistent with the Company's realizable value. The market
price of common stock at the date of repricing was $1.10; and at
that date the original terms (5 years from June 10, 1995) were
extended for an additional 5 years. When the options were
originally issued on June 10, 1995, the market price of the
Company's common stock was $3. On May 24, 2001, the Company
repriced the options again when the market price was $.50, and
changed the expiration date to August 1, 2007.
iii. Compensation of Directors
Each outside director (Messrs. Kreitman, Polak, and Lage) was
paid $3,000 for the first meeting of fiscal 2004 and $5,000
thereafter per meeting for attendance of board meetings in fiscal
2004. Robert Lage, Chairman of the Audit and Compensation
committee, provided review services for which he received $30,000
as aggregate compensation for attendance at board meetings and
audit and compensation review services. No other compensation
was paid to any director for directorship duties or meeting
attendance. No independent director was granted any options in
2004.
The full Board of Directors met four times in fiscal 2004.
iv. Executive Compensation Principles; Audit and Compensation
Committees
The Audit Committee and the compensation Committee is comprised
of Messrs. Stanley Kreitman, Jack Polak, and Mr. Robert Lage.
(See Proposal No. 1. Included there, in the biographies of the
persons proposed for election to the Board, are particular
"Credentials" of Messrs. Kreitman, Polak and Lage.)
(An Audit Committee Charter was adopted by the full Board of
Directors in fiscal 2000, and a copy of it was appended to the
Proxy Statement disseminated for and in respect of the Company's
2001 Annual Meeting and was subsequently amended to conform to
the current regulations.)
Regarding fiscal 2004, the Audit Committee (a) reviewed and
discussed the Company's audited financial statements, with
management; (b) received and discussed the information required
to be discussed, pursuant to Auditing Standards and S.E.C.
regulations, with the Company's independent auditors; (c)
received written disclosures, and the letter concerning same,
from the independent auditors as required by S.E.C. regulations
and described by Independence Standard Board Standards; (d)
discussed the independence of the auditors, with the auditors;
and (e) recommended that the audited financial statements be
included in the Company's Annual Report on Form 10-K.
v. Employment Contracts/Compensation Program
The Company's Executive Compensation Program, administered by
the Compensation Committee (the membership of which is the same
as the Audit Committee), is based on guiding principles designed
to align executive compensation with Company values and
objectives, business strategy, management initiatives, and
financial performance, and has an established program to:
. Reward executives for long-term strategic management and the
enhancement of shareholder value.
. Integrate compensation programs with both the Company's annual
and long-term strategic planning.
. Support a performance-oriented environment that rewards
performance not only with respect to Company goals, but also
Company performance as compared to industry-performance levels.
The total compensation program consists of both cash and equity
based compensation. The Compensation Committee determines the
level of salary and bonuses, if any. The Committee determines
the salary or salary range based upon competitive norms. Actual
salary changes are based upon performance.
On March 17, 1994, the Board of Directors approved l0-year
employment contracts (herein below, the "Edell/Berman Contracts")
for David Edell and Ira Berman (with Mr. Edell and Mr. Berman
abstaining). Pursuant thereto, each was provided a base salary of
$300,000 in fiscal 1994, with a year-to-year CPI or 6% increment,
plus 2.5% of the Company's pre-tax income, less depreciation and
amortization (the "2.5% measure"), plus 20% of the base salary,
as bonus.
6
In February 1999, the 2.5% measure in the bonus provisions of
the Edell/Berman Contracts was amended so as to calculate it
against earnings before income taxes, less depreciation,
amortization, and expenditures for media and cooperative
advertising in excess of $8,000,000.
On May 24, 2001, the Edell/Berman Contracts were amended to
increase their base annual salaries to $400,000, and to extend
the terms through November 30, 2007, and on October 16, 2002,
their contracts (otherwise unamended), were extended to December
1, 2010.
David Edell's sons, Dunnan Edell and Drew Edell have 5-year
employment contracts that expire November 30, 2007, providing
base annual salaries of $270,000 and $200,000, respectively. Both
salaries were amended to $300,000 and $222,900 respectively. On
April 1, 2005, Drew Edell's salary was increased to $247,900.
Long-term incentives are provided through the issuance of stock
options.
vi. Stock Option Plans
The Company's 1994 Stock Option Plan covered 1,000,000 shares
of its Common Stock. (The 1994 Plan has expired; but there are
215,500 stock options issued under the 1994 Plan outstanding, and
yet exercisable to purchase 215,500 shares of Common Stock at
$0.50 per share.)
On July 9, 2003, the Company's 2003 Stock Option Plan was
approved by the shareholders at the Company's Annual Meeting.
The Stock Option Plan covers 1,000,000 shares of the Company's
stock. 105,000 options were issued on March 9, 2004, 50,000 were
exercisable at $9.00 per share: 25,000 each to David Edell and
Ira W. Berman. The remaining 55,000 shares were exercisable at
$8.25 as follows: 15,000 shares were issued each to Dunnan Edell
and Drew Edell and 10,000 each to John Bingman and Elias Ciudad
and 5,000 shares to a consultant to the Company. On August 25,
2004, another 25,000 shares were issued to key employees
exercisable at $7.50 per share.
The 1994 and 2003 Stock Option Plans provided:
(1)For the granting of two types of options: "Incentive Stock
Options" and "Nonqualified Stock Options". The Incentive Stock
Options (but not the Nonqualified Stock Options) are intended to
qualify as "Incentive Stock Options" as defined in Section 422(a)
of The Internal Revenue Code. The Plans are not qualified under
Section 401(a) of the Code, nor subject to the provisions of the
Employee Retirement Income Security Act of 1974.
(2)For option grants to employees (including officers and
directors who are also employees) and consultants of the Company
(provided, however, that Incentive Stock Options may not be
granted to any non-employee director or consultant).
7
Stock Option Plan Information
(a) (b) (c)
Plan Category . . . . . . . . . . . No. of Securities to be Weighted average No. of securities
issued upon exercise exercise price of remaining available
of outstanding options outstanding options for future issuance
warrants and rights under equity
compensation plans
(excluding securities
reflected in column (a)
Stock Option Plan.................... 215,500 $.59 -0-
approved by security
holders in 1994
Stock Option Plan . . . .. 130,000 $8.39 -0-
approved by security
holders in 2003
Proposed Amendment to the 2003 Stock Option Plan
approved by security holders on July 9, 2003.
The following is a brief description of certain important
features of the Amended and Restated 2003 Stock Option Plan
presented to shareholders for approval at this meeting. The full
text of the plan is annexed hereto as Exhibit A. The summary is
qualified in its entirety by reference to Exhibit A.
An amended plan is proposed to allow the administrative committee
additional incentives to keep personnel so that in the
committee's discretion, they can offer incentive stock options,
nonqualified stock options restricted shares and/or stock
appreciation rights.
Under the new regulations, the issuance of incentive stock
options or nonqualified options required an immediate cost to the
statement of operations of the value of the options issued. The
restricted shares and stock appreciation rights do not require
the expense upon issuance, but only upon the vesting of the
restricted shares or the stock appreciation rights. Under the
new regulations, a company must report the value of the ISOs or
nonqualified stock options as expenses upon issuance in the
period in which the options were issued. Under certain
restricted provisions, the restricted shares and the stock
appreciation rights, the committee has the right, in their
discretion, to require certain performance standards before the
vesting of either the restricted shares or the stock appreciation
rights. The committee will provide the performance
qualifications for the vesting and/or exercise which may include,
but are not limited to, (a) revenue growth of the company, (b)
earnings per share, (c) EBITDA, (d) term, (e) stock price
appreciation, (f) cap on the number of shares to be issued, (g)
term of vesting and the amount of shares that may be exercised in
any one fiscal year. The Company has been advised that depending
on the performance restricted issued required for the vesting and
the exercise, (subject to IRS approval), the value of the
issuance of the restricted shares and/or stock appreciation
rights may not be determinable for the purposes of an expense to
the Company's statement of operations upon issuance.
Effect of Issuance of Restricted Shares on Statement of Operations
In order to not create a stock option which may be charged
against the statement of operations when issued, the restricted
shares must require certain delineated performance standards so
that the restricted shares cannot be qualified as having a
definable accounting value. When all performance standards are
met, the company will be required to report the value of
restricted shares as an expense on the date of performance or on
the date of vesting. However, there is no assurance that the
decision of the committee will be accepted by accounting
8
standards under the new regulations to defer the exact date of
the values of the restricted shares or the stock appreciation
rights must be taken on the company's statement of operations.
Effect of Issuance of Stock Appreciation Rights on Statement of
Operations
Stock appreciation rights means a right granted to receive a
payment in cash or in stock to the excess of the fair market
value of the stock on the date of exercise over the purchase
price of the stock on the date of the issuance of the stock on
the date of grant. The dilution to the company on the date of
issuance of the stock pursuant to the stock appreciation rights
grants is to the extent that the excess of increase in the value
of the stock is the value of the stock price times the number of
units issued. That quotient determines the number of shares that
the company must issue at the fair market value on the date of
exercise. The dilution of the stock appreciation rights shares
is substantially less to the company than the dilution on the
issuance of shares pursuant ISOs and nonqualified stock options.
However, there is no assurance that the decision of the committee
will be adopted by accounting standards under the new regulations
to defer the exact date of the values that the stock appreciation
rights granted on the Company's statement of operations.
Federal Income Tax Consequences of the Long-Term Equity
Compensation Plan
Incentive Stock Options. The grant of an option is not a taxable
event for the grantee or the Company. With respect to "incentive
stock options," a grantee will not recognize taxable income upon
grant to exercise of an incentive option, and any gain realized
upon a disposition of shares received pursuant to the exercise of
an incentive option on the exercise date over the option will be
taxed as long term capital gain if the grantee holds the shares
for at least two years after the date of grant and for one year
after the date of exercise. However, the excess of the fair
market value of the shares subject to an incentive option on the
date of exercise over the option exercise price generally will be
included in the grantee's alternative minimum taxable income for
the purposes of the alternative minimum tax. This excess
increases the grantee's basis in the shares for purposes of the
alternative minimum tax but not for the purposes of the regular
income tax. A grantee may be entitled to a credit against
regular tax liability in future years for minimum taxes paid with
respect to the exercise of incentive options (e.g., for a year in
which the shares are sold at a gain). The Company and its
subsidiaries will not be entitled to any business expense
deduction with respect to the grant or exercise of an incentive
option held for the requisite holding period. If the grantee
fails to hold the shares for the requisite holding period, the
exercise of the incentive option will have the same tax treatment
as the exercise of a non-qualified option.
For the exercise of an incentive option to qualify for the
foregoing tax treatment, the grantee generally must be an
employee of the Company or a subsidiary from the date the option
is granted through a date within three months before the date of
exercise. There is no difference in the treatment for one who
terminates employment prior to or after attaining normal
retirement age. In the case of a grantee who is disabled, this
three-month period is extended to one year. In the case of an
employee who dies, the three-month period and the holding period
for shares received pursuant to the exercise of the option are
waived.
Non-qualified Options. Upon exercising a non-qualifying option,
a grantee generally will recognize ordinary income in an amount
equal to the difference between the exercise price and the fair
market value of the Common Stock on the date of grant. If the
Company complies with applicable reporting requirements and with
the restrictions of Section 162(m) of the Internal Revenue Code,
it will be entitled to a business expense deduction in the same
amount, subject to applicable limitations on the deduction of
amounts becoming vested as a result of a change of control. Upon
a subsequent sale or exchange of shares acquired pursuant to the
exercise of a nonqualifying option, the grantee will have taxable
gain or loss, measured by the difference between the amount
realized on the disposition and the tax basis of the shares
generally, the amount paid for the shares plus the amount treated
as ordinary income at the time the option was exercised).
Restricted Stock. A grantee who is awarded restricted stock will
not recognize any taxable income for federal income tax purposes
in the year of the award, provided the shares of Common Stock are
subject to restrictions (that is, the restricted stock is
nontransferable and subject to substantial risk of forfeiture).
However, the grantee may elect under Section 83(b) of the
Internal Revenue Code to recognize compensation income in the
9
year of the award in an amount equal to the fair market value of
the Common Stock on the date of the award (less the purchase
price, if any), determined without regard to the restrictions.
If the grantee does not make such a Section 83(b) election, the
fair market value of the Common Stock on the date of the award
(less the purchase price, if any), will be treated as
compensation income to the grantee and will be taxable in the
year the restrictions lapse and dividends paid while the common
Stock is subject to restrictions will be subject to withholding
taxes. If the Company complies with applicable reporting
requirements and with the restrictions of Section 162(m) of the
Internal Revenue Code, the Company will be entitled to a business
expense deduction in the same amount and generally at the same
time as the grantee recognizes ordinary income.
Under Section 409A of the Internal Revenue Code, deferred
compensation is subject to immediate taxation and a 20% excise
tax unless the arrangement complies with Section 409A both by its
terms and in operation. Good faith operational compliance is
required as of January 1, 2005, while applicable documents need
not be amended until December 31, 2005.
Internal Revenue Service Notice 2005-1 provides that stock
appreciation rights ("SARs") will be subject to immediate
taxation and an excise tax under Section 409A except for SARs of
a public company that can only be exercised for stock. Although
this guidance is preliminary, under the current state of the law,
the grant of a SAR that could be exercised for cash will subject
the recipient to tax on the value of the SAR as well as a 20%
excise tax. Under the American Jobs Creation Act of 2004
deferred compensation is taxed if a SAR is exercised in exchange
for cash but exempted from tax on deferred compensation if
exercised for stock.
Required Vote
Under the rules and regulations, the affirmative vote of the
holders of at least a majority of the votes eligible to be cast
at the Annual Meeting at which a quorum is present is required
for approval of the Plan Amendment.
The Amendment to the Plan
The affirmative vote of the holders of at least a majority of the
votes present and entitled to vote at the Annual Meeting at which
a quorum is present would ordinarily be sufficient for approval
of the Plan Amendment. In the event that less than a majority of
the total votes eligible to be cast at the Annual Meeting, but at
least a majority of the votes present and entitled to vote at the
Annual Meeting, vote in favor of the approval, the Plan Amendment
will be considered approved.
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vii. Performance Graph
Set forth below is a line graph comparing cumulative total
shareholder return on the Company's Common Stock, with the
cumulative total return of companies in the NASDAQ Stock Market
(U.S.) and the cumulative total return of Dow Jones's
Cosmetics/Personal Care Index.
GRAPH
11
D. The Board of Directors and Standing Committees
The Company's Board of Directors has no nominating committee.
Its Audit and Compensation Committee members are Messrs. Stanley
Kreitman, Jack Polak, and Robert Lage.
E. Related Directors And/Or Officers
David Edell is the Company's Chief Executive Officer. He is
also a director. Dunnan Edell and Drew Edell are his sons.
Dunnan Edell is President of the Company and a director. Drew
Edell is the Vice-President of Operations and Research and
Development.
F. Audit Fees
Sheft Kahn & Company LLP served as the Company's independent
auditors for 2004. The services performed by Sheft Kahn &
Company LLP in this capacity included conducting an audit in
accordance with generally accepted auditing standards of, and
expressing an opinion on, the Company's consolidated financial
statements.
Sheft Kahn & Company LLP fees for professional services
rendered in connection with (a) the audit and review of Forms 10-
K and all other SEC regulatory filings were $163,243 for the 2004
fiscal year, (b) Federal and State tax return preparation and
other tax matters for the 2004 were $40,116.
The Audit Committee considered all fees paid to Sheft Kahn &
Company LLP in recent years, and in the 2004 fiscal year, and
concluded that no fee-issue threatens their `independence.'
G. Revocability of Proxies
Any person giving a proxy in the form accompanying this
statement has the power to revoke it at any time before its
exercise. Thus, it may be revoked prior to its exercise by the
filing of an instrument of revocation, or a duly executed proxy
bearing a later date, with the Secretary of the Company at the
Company's principal executive office. A proxy holder can also
revoke a filed proxy by attending the meeting and voting in
person.
H. Solicitation of Proxies
It is estimated that the costs associated with proxy
solicitation will be approximately $15,000. The Company will
bear the entire cost of solicitation, including preparation,
assembly, printing and mailing of this Proxy Statement, the
proxy, and any additional material furnished to shareholders.
Copies of solicitation material will be furnished to brokerage
houses, fiduciaries, and custodians holding shares in their names
that are beneficially owned by others, for forwarding of such
material to beneficial owners. The Company may reimburse such
persons their forwarding costs. Original solicitation of proxies
by mail may be supplemented by telephone, telegram, or personal
solicitation by directors, officers or employees of the Company.
No additional compensation will be paid for any such services.
I. Shareholder Proposals for the Year 2006
Proposals of shareholders that are intended to be presented at
the Company's year 2006 Annual Meeting of Shareholders must be
received by the Company no later than February 13, 2006 in order
to be included in the Company's proxy materials relating to that
meeting.
12
II. MANAGEMENT PROPOSALS
PROPOSAL NO. 1
NOMINATION AND ELECTION OF DIRECTORS
All seven seats on the Company's Board of Directors are subject
to one - year terms and annual election. Four are subject to
election by holders of Class A Common Stock and three by holders
of Common Stock. Each director holds office until the next
Annual Meeting of Shareholders and until a successor is elected
and has qualified, or until death, resignation or removal.
The four nominees proposed for election by the holders of the
Company's Class A Common Stock (David Edell, Ira Berman, Jack
Polak and Stanley Kreitman) already serve as directors. The
three proposed for election by the holders of Common Stock,
(Dunnan Edell, Gio Batta Gori, PhD and Robert Lage) were
recommended by the nominating committee. Drew Edell was asked to
step aside as a director because he is not deemed a
"disinterested party" under the new regulations promulgated by
the Security and Exchange Commission and the American Stock
Exchange. The New regulations require that the board of
directors be constituted by a majority of independent directors.
Set forth below is information regarding all nominees,
including information they have furnished concerning their
principal occupations and certain other directorships, and their
ages as of May 1, 2005. (The stock ownership of each of the
nominees is presented above, under "Share Ownership of Directors,
Officers and 5% Owners.")
a. Class A Common Stock Nominees
(No vote or proxy is solicited in respect of the Class A
nominees, since two of them - Messrs. Berman and David Edell -
own all of the Class A Common Stock shares, and they have jointly
proposed themselves, Mr. Polak and Mr. Kreitman, for re-
election.)
David Edell, age 73, is a director, and the Company's Chief
Executive Officer. Prior to his association with the Company he
was a marketing and financial consultant; and, by 1983, he had
extensive experience in the health and beauty aids field as an
executive director and/or officer of Hazel Bishop, Lanolin Plus
and Vitamin Corporation of America. In 1954, David Edell received
a Bachelor of Arts degree from Syracuse University.
Ira W. Berman, age 73, is the Company's Executive Vice
President and Corporate Secretary. He is also Chairman of the
Board of Directors. Mr. Berman is an attorney who has been
engaged in the practice of law since 1955. He received a Bachelor
of Arts Degree (1953) and Bachelor of Laws Degree (1955) from
Cornell University, and is a member of the American Bar
Association.
Jack Polak, age 92, has been a private investment consultant
since April 1982. He was knighted by Queen Beatrix of the
Netherlands for his efforts on behalf of the Anne Frank Center,
USA, for which he still actively works, and is Chairman Emeritus,
and holds a tax certification in The Netherlands. He was a
director and member of the Audit and Compensation Committee of
K.T.I. Industries, Inc., from February 1995 until 1999, when
K.T.I., a waste-to-energy business was `taken over' by Casella
Industries. From 2000 until 2002, he was a director of Oakhurst
Industries, a public company that owns an automotive accessories
distributor, a waste-to-energy tire facility, and a road
construction company.
Stanley Kreitman, age 72, has been Vice Chairman of the Board
of Manhattan Associates, an equity investment firm, since 1994.
He is also a director of Medallion Financial Corp., an SBIC. Mr.
Kreitman has been Chairman of the Board of Trustees of the New
York Institute of Technology since 1989, and of Crime Stoppers
Nassau County (NY), since 1994. Since February 1999 and June
1999, respectively, he has been a member of the Board of
Directors of K.S.W. Corp. and P.M.C.C. Mortgage Corp. He is also
a director and/or executive committee member of the following
organizations: The New York City Board of Corrections, Bank
Hapdalim USA (Signature Bank), The New York College of
Osteopathic Medicine, and the Police Athletic League. From 1975
until 1993, he was President of United States Banknote
Corporation, a securities printer.
13
b. Common Stock Nominees
The board of directors' nominees, to be voted upon as
directors and to be approved by the common stock shareholders,
were presented to and endorsed by the Nominating Committee
consisting of two independent directors for the Company, Jack
Polak and Stanley Kreitman.
Dunnan Edell, age 49, President, is the son of David Edell and
the brother of Drew Edell. He is graduate of George Washington
University. He has been a director since 1994. Appointed to
President in 2003, he joined the Company in 1984 and was
appointed Divisional Vice-President in 1986. He was employed by
Alleghany Pharmacal Corporation from 1982 to 1984, and by Hazel
Bishop from 1977 to 1981.
Dr. Gori, 74, is president of the Health Policy Center,
Bethesda, Maryland, a consulting group in toxicology,
epidemiology, nutrition, and related scientific, industrial, and
regulatory issues. Advisor to major corporations worldwide, his
previous experiences include directing the Franklin Institute
Policy Analysis Center, and executive positions at the National
Cancer Institute as Deputy Director of the Division of Cancer
Causes and Prevention, Director of the Smoking and Health
Program, Director of the Diet, Nutrition and Cancer Program. He
held earlier positions in the pharmaceutical and biologics
industry, and in academia. Recipient of the U.S. Department of
Health Education and Welfare Superior Service Award, he is active
in toxicology, carcinogenesis, nutrition, tobacco, and
environmental issues. He has been a two-term President of the
International Society of Regulatory Toxicology and Pharmacology,
is a member of scientific societies, fellow of the Academy of
Toxicological Sciences, funding and former editor of the journal
Nutrition and Cancer, and editor of the journal Regulatory
Toxicology and Pharmacology.
Robert A. Lage, age 68, a retired CPA, was a partner at
PriceWaterhouseCoopers Management Consulting Service prior to his
retirement in 1997. He has been engaged in the practice of
public accounting and management consulting since 1959. He
received a BBA from Bernard Baruch College of The City University
of New York in 1958.
Audit, Compensation and Nominating Committee Credentials
Stanley Kreitman, former president of a national bank, will
qualify as a "financial expert" as the same is proposed by the
S.E.C. in its Release No. 34 - 46701(October 22, 2002). Mr.
Kreitman is "independent" as defined by Section 121(A) of The
American Stock Exchange's Listing Standards and, thus, S.E.C.
Rules. (In fact, the subject definitions detail relationships
etc. that `define' non-independence. No issue `thereunder' is
`presented' by Mr. Kreitman -or, see below, by Mr. Polak, or Mr.
Lage).
In any event, Mr. Kreitman qualifies `under' existing
AMEX/Audit Committee/financial `sophistication' rules as `having
past employment experience or background which results in
financial sophistication.'- as do Mssrs. Polak and Lage (as next
presented).
Jack Polak is a certified Dutch tax consultant and a member of
the Association of Certified Tax Accountants. As shown above he
is both "independent" and AMEX-qualified as financially
sophisticated.
Robert A. Lage, as shown above, is both "independent" and AMEX-
qualified as financially sophisticated.
Dr. Gio Batta Gori, recommended as a nominee by the nominating
committee is deemed "independent" as that term is defined under
the new regulations.
The Board of Directors unanimously recommends a vote in favor
of each of the Common Stock nominees as proposed in this Proposal
No. 1. A majority of the Common Stock vote is required for
approval.
14
PROPOSAL NO. 2
APPROVAL OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of KGS LLP,
independent certified public accountants (the "Auditors"), to
audit the accounts and certify the financial statements of the
Company for the fiscal year ending November 30, 2005. The
appointment shall continue at the pleasure of the Board of
Directors, subject to approval by the shareholders. The Auditors
have acted as the Company's auditors since 1983.
The Board of Directors expects that one or more representatives
of the Auditors will be present at the meeting. The Auditors
will then be given the opportunity to make a statement, and will
be available to respond to appropriate questions.
The Board of Directors unanimously recommends a vote in favor
of Proposal No. 2. A majority of the aggregated Class A Common
Stock and Common Stock vote is required for approval.
15
PROPOSAL NO. 3
APPROVAL OF CCA INDUSTRIES, INC.
AMENDED AND RESTATED
STOCK OPTION (INCENTIVE) PLAN (See Exhibit "A" annexed hereto)
Under the new regulations the granting of restricted shares and
stock appreciation rights (SARs) do not require the Company to
charge the expense of the granting as required under the new
regulations for incentive stock options and restricted stock
options if the performance standards for the vesting and /or
exercise are not determinable at issuance (under IRS standards).
The granting and/or issuance of SARS substantially reduces
subsequent dilution of the amount of outstanding shares the
Company has to issue upon exercise as compared to incentive stock
options or restricted stock options. For these reason, the board
recommends approval in favor of the proposal.
The Board of Directors unanimously recommends a vote in favor of
Proposal No. 3. A majority of the aggregated Class A Common
Stock and Common Stock vote is required for approval.
II. OTHER MATTERS
The Board of Directors knows of no other matters to be
presented, but if any other matters properly come before the
Annual Meeting, it is intended that the persons holding proxies
will vote thereon in accordance with their best judgments.
When a proxy in the form enclosed with this Proxy Statement is
returned properly executed, the shares represented thereby will
be voted as indicated thereon or, if no direction is indicated,
in accordance with the recommendations of the Board of Directors.
III. CERTAIN REPORTS
Based upon the reports furnished to the Company, all reports
required to be filed during or concerning the Company's 2004
fiscal year, by officers, directors and principal shareholders,
pursuant to Section 16 of the Securities Exchange Act of 1934
(Form 3, Initial Statement of Beneficial Ownership; Form 4,
Statement of Changes of Beneficial Ownership; and Form 5, Annual
Statement of Beneficial Ownership), were timely filed with the
Securities and Exchange Commission.
By Order of the Board of
Directors
/s/ Ira W. Berman
Ira W. Berman,
Chairman of the Board of
Directors
East Rutherford, New Jersey
May 10, 2005
16
Exhibit "A"
CCA INDUSTRIES, INC.
AMENDED AND RESTATED
STOCK OPTION (INCENTIVE) PLAN
ARTICLE I
General
1.1 Purpose
The CCA Industries, Inc.'s Stock (Option) Incentive Plan
(the "Plan") amending the 2003 Stock Option Plan is designed to
provide certain key persons, on whose initiative and efforts the
successful conduct of the business of CCA Industries, Inc. (the
"Company") depends, and who are responsible for the management,
growth and protection of the business of the Company, with
incentives to: (a) enter into and remain in the service of the
Company, a Company subsidiary or a Company joint venture, (b)
acquire a proprietary interest in the success of the Company, (c)
maximize their performance and (d) enhance the long-term
performance of the Company (whether directly or indirectly
through enhancing the long-term performance of a Company
subsidiary or a Company joint venture). The Plan is also
designed to provide certain "performance-based" compensation to
these key persons.
1.2 Administration
(a) Administration by Committee; Constitution of Committee.
The Plan shall be administered by the Compensation Committee of
the board of directors of the Company (the "Board") or such other
committee or subcommittee as the Board may designate or as shall
be formed by the abstention or recusal of a non-Qualified Member
(as defined below) of such committee (the "Committee"). The
members of the Committee shall be appointed by, and serve at the
pleasure of, the Board. While it is intended that at all times
that the Committee acts in connection with the Plan, the
Committee shall consist solely of at least two Qualified Members,
the fact that the Committee is not so comprised will not
invalidate any grant hereunder that otherwise satisfies the terms
of the Plan. A "Qualified Member" is both a "non-employee
director" within the meaning of Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934 (the "1934
Act") and an "outside director" within the meaning of section
162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). If the Committee does not exist, or for any other
reason determined by the Board, the Board may take any action
under the Plan that would otherwise be the responsibility of the
Committee and, in such a case, all references herein to the
Committee shall refer to the Board.
(b) Committee's Authority. The Committee shall have the
authority (i) to exercise all of the powers granted to it under
the Plan, (ii) to construe, interpret and implement the Plan and
any Grant Certificates executed pursuant to Section 2.1, (iii) to
prescribe, amend and rescind rules and regulations relating to
the Plan, including rules governing its own operations, (iv) to
make all determinations necessary or advisable in administering
the Plan, (v) to correct any defect, supply any omission and
reconcile any inconsistency in the Plan, and (vi) to amend the
Plan to reflect changes in applicable law.
(c) Committee Action; Delegation. Actions of the Committee
shall be taken by the vote of a majority of its members. Any
action may be taken by a written instrument signed by a majority
of the Committee members, and action so taken shall be fully as
effective as if it had been taken by a vote at a meeting.
Notwithstanding the foregoing or any other provision of the Plan,
to the fullest extent permitted by 157 of the Delaware General
Corporation Law (or any successor provision thereto) the
Committee may delegate to one or more officers of the Company the
authority to designate the individuals (other than such
officer(s)), among those eligible to receive awards pursuant to
the terms of the Plan, who will receive awards under the Plan and
the size of each such award, provided that the Committee shall
itself grant awards to those individuals who could reasonably be
considered to be subject to the insider trading provisions of
section 16 of the 1934 Act or whose awards could reasonably be
expected to be subject to the deduction limitations of section
162(m) of the Code.
17
(d) Determinations Final. The determination of the
Committee on all matters relating to the Plan or any Grant
Certificate shall be final, binding and conclusive.
(e) Limit on Committee Members' Liability. No member of
the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any award
thereunder.
1.3 Persons Eligible for Awards
The persons eligible to receive awards under the Plan are
those officers, directors (whether or not they are employed by
the Company) and executive, managerial, professional or
administrative employees of the Company, its subsidiaries and its
joint ventures (collectively, "key persons") as the Committee in
its sole discretion shall select, provided, however, that
incentive stock options only may be granted to persons who are
employees of the Company on the date of grant.
1.4 Types of Awards Under Plan
Awards may be made under the Plan in the form of (a)
incentive stock options, (b) non-qualified stock options, (c)
stock appreciation rights, (d) restricted stock, and
(e) performance shares, all as more fully set forth in Article
II. The term "award" means any of the foregoing.
1.5 Shares Available for Awards
(a) Aggregate Number Available; Certificate Legends. The
total number of shares of common stock of the Company ("Common
Stock") with respect to which awards may be granted pursuant to
the Plan shall not exceed 1,000,000 shares. Shares issued
pursuant to the Plan may be authorized but unissued Common Stock,
authorized and issued Common Stock held in the Company's treasury
or Common Stock acquired by the Company for the purposes of the
Plan. The Committee may direct that any stock certificate
evidencing shares issued pursuant to the Plan shall bear a legend
setting forth such restrictions on transferability as may apply
to such shares.
(b) Adjustment Upon Changes in Common Stock. Upon certain
changes in Common Stock, the number of shares of Common Stock
available for issuance with respect to awards that may be granted
under the Plan pursuant to Section 1.5(a), shall be adjusted
pursuant to Section 3.7(a).
(c) Certain Shares to Become Available Again. The
following shares of Common Stock shall again become available for
awards under the Plan: (i) any shares that are subject to an
award under the Plan and that remain unissued, whether due to the
cancellation or termination of such award for any reason
whatsoever, the settlement of such award for cash, or otherwise;
and (ii) any shares of restricted stock forfeited pursuant to
Section 2.7(e), provided that any dividends paid on such shares
are also forfeited pursuant to such Section 2.7(e).
(d) Individual Limit. Except for the limits set forth in
this Section 1.5(d) and in Section 2.2(h) (relating to incentive
stock options), no provision of this Plan shall be deemed to
limit the number or value of shares with respect to which the
Committee may make awards to any eligible person. Subject to
adjustment as provided in Section 3.7(a), the total number of
shares of Common Stock with respect to which awards may be
granted to any one employee of the Company or a subsidiary during
any one calendar year shall not exceed 100,000 shares. Stock
options and stock appreciation rights granted and subsequently
canceled or deemed to be canceled in a calendar year count
against this limit even after their cancellation.
1.6 Definitions of Certain Terms
(a) The "Fair Market Value" of a share of Common Stock on
any day shall be the closing price on the American Stock Exchange
or such other national securities exchange on which the Common
Stock is traded, as reported for such day in The Wall Street
Journal or, if no such price is reported for such day, the
average of the high bid and low asked price of Common Stock as
reported for such day. If no quotation is made for the
applicable day, the Fair Market Value of a share of Common Stock
on such day shall be determined in the manner set forth in the
preceding sentence using quotations for the next preceding day
for which there were quotations, provided that such quotations
18
shall have been made within the ten (10) business days preceding
the applicable day. Notwithstanding the foregoing, if deemed
necessary or appropriate by the Committee, the Fair Market Value
of a share of Common Stock on any day shall be determined by the
Committee. In no event shall the Fair Market Value of any share
of Common Stock be less than its par value.
(b) The term "incentive stock option" means an option that
is intended to qualify for special federal income tax treatment
pursuant to sections 421 and 422 of the Code as now constituted
or subsequently amended, or pursuant to a successor provision of
the Code, and which is so designated in the applicable Grant
Certificate. Any option that is not specifically designated as
an incentive stock option shall under no circumstances be
considered an incentive stock option. Any option that is not an
incentive stock option is referred to herein as a "non-qualified
stock option."
(c) A grantee shall be deemed to have a "termination of
employment" upon (i) the date the grantee ceases to be employed
by, or to provide consulting services for, the Company, any
Company subsidiary or Company joint venture, or any corporation
(or any of its subsidiaries) which assumes the grantee's award in
a transaction to which section 424(a) of the Code applies or (ii)
the date the grantee ceases to be a Board member, provided,
however, that in the case of a grantee (x) who is at the time of
reference both an employee or consultant and a Board member or
(y) who ceases to be engaged as an employee, consultant or Board
member and immediately is engaged in another of such
relationships with the Company, any Company subsidiary or Company
joint venture, the grantee shall be deemed to have a "termination
of employment" upon the later of the dates determined pursuant to
subparagraphs (i) and (ii) above. For purposes of clause (i)
above, a grantee who continues his or her employment or
consulting relationship with: (A) a Company subsidiary subsequent
to its sale by the Company, or (B) a Company joint venture
subsequent to the Company's sale of its interests in such joint
venture, shall have a termination of employment upon the date of
such sale. The Committee may in its discretion determine whether
any leave of absence constitutes a termination of employment for
purposes of the Plan and the impact, if any, of any such leave of
absence on awards theretofore made under the Plan.
(d) The terms "parent corporation" and "subsidiary
corporation" shall have the meanings given them in sections
424(e) and (f) of the Code, respectively.
(e) The term "employment" shall be deemed to mean an
employee's employment with the Company, any Company subsidiary or
any Company joint venture and each Board member's service as a
Board member.
(f) The term "cause" in connection with a termination of
employment by reason of a dismissal for cause shall mean:
(i) to the extent that there is an employment,
severance or other agreement governing the relationship
between the grantee and the Company, a Company subsidiary
or a Company joint venture, which agreement contains a
definition of "cause," cause shall consist of those acts or
omissions that would constitute "cause" under such
agreement; and otherwise,
(ii) the grantee's termination of employment by the
Company or an affiliate on account of any one or more of
the following:
(A) any failure by the grantee substantially to
perform the grantee's employment duties;
(B) any excessive unauthorized absenteeism by the
grantee;
(C) any refusal by the grantee to obey the lawful
orders of the Board or any other person or committee to
whom the grantee reports;
(D) any act or omission by the grantee that is or
may be injurious to the Company, monetarily or
otherwise;
(E) any act by the grantee that is inconsistent with
the best interests of the Company;
19
(F) the grantee's material violation of any of the
Company's policies, including, without limitation, those
policies relating to discrimination or sexual
harassment;
(G) the grantee's unauthorized (a) removal from the
premises of the Company or an affiliate of any document
(in any medium or form) relating to the Company or an
affiliate or the customers or clients of the Company or
an affiliate or (b) disclosure to any person or entity
of any of the Company's, or its affiliates',
confidential or proprietary information;
(H) the grantee's commission of any felony or any
other crime involving moral turpitude; and
(I) the grantee's commission of any act involving
dishonesty or fraud.
Notwithstanding the foregoing, in determining whether a
termination of employment by reason of a dismissal for cause has
occurred pursuant to this Section 1.6(f)(ii) for the purposes of
Section 3.8(b)(iii) (relating to a termination of employment
following a Change in Control), reference shall be made solely to
subsections (B), (C), (F), (G), (H), and (I) of Section
1.6(f)(ii).
Any rights the Company may have hereunder in respect of the
events giving rise to cause shall be in addition to the rights
the Company may have under any other agreement with a grantee or
at law or in equity. Any determination of whether a grantee's
employment is (or is deemed to have been) terminated for cause
for purposes of the Plan or any award hereunder shall be made by
the Committee in its discretion. If, subsequent to a grantee's
voluntary termination of employment or involuntary termination of
employment without cause, it is discovered that the grantee's
employment could have been terminated for cause, the Committee
may deem such grantee's employment to have been terminated for
cause. A grantee's termination of employment for cause shall be
effective as of the date of the occurrence of the event giving
rise to cause, regardless of when the determination of cause is
made.
ARTICLE II
Awards Under The Plan
2.1 Certificates Evidencing Awards
Each award granted under the Plan shall be evidenced by a
written certificate ("Grant Certificate") which shall contain
such provisions as the Committee may in its sole discretion deem
necessary or desirable. By accepting an award pursuant to the
Plan, a grantee thereby agrees that the award shall be subject to
all of the terms and provisions of the Plan and the applicable
Grant Certificate.
2.2 Grant of Stock Options and Stock Appreciation Rights
(a) Stock Option Grants. The Committee may grant incentive
stock options and non-qualified stock options (collectively,
"options") to purchase shares of Common Stock from the Company,
to such key persons, and in such amounts and subject to such
vesting and forfeiture provisions and other terms and conditions,
as the Committee shall determine in its sole discretion, subject
to the provisions of the Plan.
(b) Stock Appreciation Right Grants; Types of Stock
Appreciation Rights. The Committee may grant stock appreciation
rights to such key persons, and in such amounts and subject to
such vesting and forfeiture provisions and other terms and
conditions, as the Committee shall determine in its sole
discretion, subject to the provisions of the Plan. The terms of
a stock appreciation right may provide that it shall be
automatically exercised for a cash payment upon the happening of
a specified event that is outside the control of the grantee, and
that it shall not be otherwise exercisable. Stock appreciation
rights may be granted in connection with all or any part of, or
independently of, any option granted under the Plan. A stock
appreciation right granted in connection with a non-qualified
stock option may be granted at or after the time of grant of such
option. A stock appreciation right granted in connection with an
incentive stock option may be granted only at the time of grant
of such option.
20
(c) Nature of Stock Appreciation Rights. The grantee of a
stock appreciation right shall have the right, subject to the
terms of the Plan and the applicable Grant Certificate, to
receive from the Company an amount equal to (i) the excess of the
Fair Market Value of a share of Common Stock on the date of
exercise of the stock appreciation right over the Fair Market
Value of a share of Common Stock on the date of grant (or over
the option exercise price if the stock appreciation right is
granted in connection with an option), multiplied by (ii) the
number of shares with respect to which the stock appreciation
right is exercised. Payment upon exercise of a stock
appreciation right shall be in cash or in shares of Common Stock
(valued at their Fair Market Value on the date of exercise of the
stock appreciation right) or both, all as the Committee shall
determine in its sole discretion. Upon the exercise of a stock
appreciation right granted in connection with an option, the
number of shares subject to the option shall be reduced by the
number of shares with respect to which the stock appreciation
right is exercised. Upon the exercise of an option in connection
with which a stock appreciation right has been granted, the
number of shares subject to the stock appreciation right shall be
reduced by the number of shares with respect to which the option
is exercised, provided that if the number of shares initially
subject to the stock appreciation right is less than the number
of shares initially subject to the option, the number of shares
initially subject to the stock appreciation right only shall be
reduced to the extent that it causes the same number of shares to
be subject to the option and the stock appreciation right.
(d) Option Exercise Price. Each Grant Certificate with
respect to an option shall set forth the amount (the "option
exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise
price per share shall be determined by the Committee in its sole
discretion; provided, however, that the option exercise price of
a stock option shall be at least 100% of the Fair Market Value of
a share of Common Stock on the date the option is granted, and
provided further that in no event shall the option exercise price
be less than the par value of a share of Common Stock.
(e) Exercise Period. Each Grant Certificate with respect
to an option or stock appreciation right shall set forth the
periods during which the award evidenced thereby shall be
exercisable, whether in whole or in part. Such periods shall be
determined by the Committee in its sole discretion, subject to
Section 2.3 hereof.
(f) Incentive Stock Option Limitation: $100,000
Limitation. To the extent that the aggregate Fair Market Value
(determined as of the time the option is granted) of the stock
with respect to which incentive stock options are first
exercisable by any employee during any calendar year shall exceed
$100,000, or such higher amount as may be permitted from time to
time under section 422 of the Code, such options shall be treated
as non-qualified stock options.
(g) Incentive Stock Option Limitation: 10% Owners.
Notwithstanding the provisions of paragraphs (d) and (e) of this
Section 2.2, an incentive stock option may not be granted under
the Plan to an individual who, at the time the option is granted,
owns stock possessing more than 10% of the total combined voting
power of all classes of stock of his or her employer corporation
or of its parent or subsidiary corporations (as such ownership
may be determined for purposes of section 422(b)(6) of the Code)
unless (i) at the time such incentive stock option is granted the
option exercise price is at least 110% of the Fair Market Value
of the shares subject thereto and (ii) the incentive stock option
by its terms is not exercisable after the expiration of 5 years
from the date it is granted.
2.3 Exercise of Options and Stock Appreciation Rights
Subject to the other provisions of this Article II, each
option or stock appreciation right granted under the Plan shall
be exercisable as follows:
(a) Time and Method of Exercise.
(i) Beginning of Exercise Period for Employees. Unless
the applicable Grant Certificate otherwise provides, an
option or stock appreciation right for employees shall
become exercisable in three substantially equal
installments on each of the first three anniversaries of
the date of grant, provided, however, that in no event
shall an option or stock appreciation right be exercisable
before the first anniversary of the date of grant.
21
(ii) Beginning of Exercise Period for Non-Employee
Directors. An option or stock appreciation right for non-
employee directors shall become fully exercisable on the
first anniversary of the date of grant, except that a grant
made in conjunction with an annual stockholders meeting
shall become fully exercisable on the earlier of the first
anniversary of the date of grant and the next annual
stockholders meeting.
(iii) End of Exercise Period. Unless the applicable
Grant Certificate otherwise provides, once an installment
becomes exercisable, it shall remain exercisable until the
earlier of (i) the tenth anniversary of the date of grant
of the award or (ii) the expiration, cancellation or
termination of the award; provided, however, that no stock
option (or a stock appreciation right granted in connection
with a stock option) shall be exercisable more than 10
years after the date of grant.
(iv) Timing and Extent of Exercise. Unless the
applicable Grant Certificate otherwise provides, (A) an
option or stock appreciation right may be exercised from
time to time as to all or part of the shares as to which
such award is then exercisable and (B) a stock appreciation
right granted in connection with an option may be exercised
at any time when, and to the same extent that, the related
option may be exercised.
(v) Notice of Exercise. An option or stock
appreciation right shall be exercised by the filing of a
written notice with the Company or the Company's designated
exchange agent (the "exchange agent"), on such form and in
such manner as the Committee shall in its sole discretion
prescribe.
(b) Payment of Exercise Price. Any written notice of
exercise of an option shall be accompanied by payment for the
shares being purchased. Such payment shall be made: (i) by
certified or official bank check (or the equivalent thereof
acceptable to the Company or its exchange agent) for the full
option exercise price; or (ii) with the consent of the Committee,
by delivery of shares of Common Stock owned by the grantee
(whether acquired by option exercise or otherwise, provided that
if such shares were acquired pursuant to the exercise of a stock
option, they were acquired at least six months prior to the
option exercise date or such other period as the Committee may
from time to time determine) having a Fair Market Value
(determined as of the exercise date) equal to all or part of the
option exercise price and a certified or official bank check (or
the equivalent thereof acceptable to the Company or its exchange
agent) for any remaining portion of the full option exercise
price; or (iii) at the discretion of the Committee and to the
extent permitted by law, by such other provision, consistent with
the terms of the Plan, as the Committee may from time to time
prescribe (whether directly or indirectly through the exchange
agent).
(c) Delivery of Certificates Upon Exercise. Promptly after
receiving payment of the full option exercise price, or after
receiving notice of the exercise of a stock appreciation right
for which payment will be made partly or entirely in shares, the
Company or its exchange agent shall, subject to the provisions of
Section 3.2, deliver to the grantee or to such other person as
may then have the right to exercise the award, a certificate or
certificates for the shares of Common Stock for which the award
has been exercised. If the method of payment employed upon
option exercise so requires, and if applicable law permits, a
grantee may direct the Company or its exchange agent, as the case
may be, to deliver the stock certificate(s) to the grantee's
stockbroker.
(d) No Stockholder Rights. No grantee of an option or
stock appreciation right (or other person having the right to
exercise such award) shall have any of the rights of a
stockholder of the Company with respect to shares subject to such
award until the issuance of a stock certificate to such person
for such shares. No adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary,
and whether in cash, securities or other property) for which the
record date is prior to the date such stock certificate is
issued.
2.4 Compensation in Lieu of Exercise of an Option
The Committee may in its sole discretion, with respect to a
non-qualified stock option, and with the written consent of the
grantee with respect to an incentive stock option, determine to
substitute for the exercise of such option compensation to the
grantee not in excess of the difference between the option
22
exercise price and the Fair Market Value of the shares covered by
such option on the date designated by the Committee. Such
compensation may be in cash, in shares of Common Stock, or both,
and the payment thereof may be subject to conditions, all as the
Committee shall determine in its sole discretion. In the event
compensation is substituted pursuant to this Section 2.4 for the
exercise, in whole or in part, of an option, the number of shares
subject to the option shall be reduced by the number of shares
for which such compensation is substituted.
2.5 Termination of Employment; Death Subsequent to a
Termination of Employment
(a) General Rule. Except to the extent otherwise provided
in paragraphs (b), (c), (d) or (e) of this Section 2.5 or Section
3.8(b)(iii) (relating to a termination of employment following a
change in control of the Company), a grantee who incurs a
termination of employment may exercise any outstanding option or
stock appreciation right on the following terms and conditions:
(i) exercise may be made only to the extent that the grantee was
entitled to exercise the award on the termination of employment
date; and (ii) exercise must occur within three months after
termination of employment but in no event after the original
expiration date of the award.
(b) Dismissal for Cause; Resignation. If a grantee incurs
a termination of employment as the result of a dismissal for
cause, all options and stock appreciation rights not theretofore
exercised shall terminate upon the commencement of business on
the date of the grantee's termination of employment.
(c) Disability. If a grantee incurs a termination of
employment by reason of a disability (as defined below), then any
outstanding option or stock appreciation right shall be
exercisable on the following terms and conditions: (i) exercise
may be made only to the extent that the grantee was entitled to
exercise the award on the termination of employment date; and
(ii) exercise must occur by the earlier of (A) the first
anniversary of the grantee's termination of employment, or (B)
the original expiration date of the award. For this purpose
"disability" shall mean: (x) except in connection with an
incentive stock option, any physical or mental condition that
would qualify a grantee for a disability benefit under the long-
term disability plan maintained by the Company or, if there is no
such plan, a physical or mental condition that prevents the
grantee from performing the essential functions of the grantee's
position (with or without reasonable accommodation) for a period
of six consecutive months and (y) in connection with an incentive
stock option, a disability described in section 422(c)(6) of the
Code. The existence of a disability shall be determined by the
Committee in its absolute discretion.
(d) Death.
(i) Termination of Employment as a Result of Grantee's
Death. If a grantee incurs a termination of employment as
the result of death, then any outstanding option or stock
appreciation right shall be exercisable on the following
terms and conditions: (A) exercise may be made only to the
extent that the grantee was entitled to exercise the award
on the date of death; and (B) exercise must occur by the
earlier of (1) the first anniversary of the grantee's
termination of employment, or (2) the original expiration
date of the award.
(ii) Death Subsequent to a Termination of Employment.
If a grantee terminates employment after age 65 and dies
within the three-month period following such termination of
employment, then the award shall remain exercisable until
the earlier to occur of (A) the first anniversary of the
grantee's date of death or (B) the original expiration date
of the award.
(iii) Restrictions on Exercise Following Death.
Any such exercise of an award following a grantee's death
shall be made only by the grantee's executor or
administrator or other duly appointed representative
reasonably acceptable to the Committee, unless the grantee's
will specifically disposes of such award, in which case such
exercise shall be made only by the recipient of such
specific disposition. If a grantee's personal
representative or the recipient of a specific disposition
under the grantee's will shall be entitled to exercise any
award pursuant to the preceding sentence, such
representative or recipient shall be bound by all the terms
and conditions of the Plan and the applicable Grant
Certificate which would have applied to the grantee
including, without limitation, the provisions of Sections
3.2 and 3.8 hereof.
23
(e) Special Rules for Incentive Stock Options. No option
that remains exercisable for more than three months following a
grantee's termination of employment for any reason other than
death (including death within three months after the termination
of employment) or disability, or for more than one year following
a grantee's termination of employment as the result of
disability, may be treated as an incentive stock option.
(f) Committee Discretion. The Committee, in the applicable
Grant Certificate, may waive or modify the application of the
foregoing provisions of this Section 2.5.
2.6 Transferability of Options and Stock Appreciation
Rights
Except as otherwise provided in an applicable Grant
Certificate evidencing an option or stock appreciation right,
during the lifetime of a grantee, each option or stock
appreciation right granted to a grantee shall be exercisable only
by the grantee and no option or stock appreciation right shall be
assignable or transferable otherwise than by will or by the laws
of descent and distribution. The Committee may, in any
applicable Grant Certificate evidencing an option (other than an
incentive stock option to the extent inconsistent with the
requirements of section 422 of the Code applicable to incentive
stock options), permit a grantee to transfer all or some of the
options to (A) the grantee's spouse, children or grandchildren
("Immediate Family Members"), (B) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (C) other
parties approved by the Committee in its absolute discretion.
Following any such transfer, any transferred options shall
continue to be subject to the same terms and conditions as were
applicable immediately prior to the transfer.
2.7 Grant of Restricted Stock
(a) Restricted Stock Grants. The Committee may grant
restricted shares of Common Stock to such key persons, in such
amounts, and subject to such transferability provisions and other
terms and conditions as the Committee shall determine in its sole
discretion, subject to the provisions of the Plan.
Notwithstanding the foregoing, unless the applicable Grant
Certificate otherwise provides, a restricted stock award shall
vest in three substantially equal annual installments on each of
the first three anniversaries of the date of grant, provided,
however, that in no event shall a restricted stock award vest
before the first anniversary of the date of grant. Restricted
stock awards may be made independently of or in connection with
any other award under the Plan. A grantee of a restricted stock
award shall have no rights with respect to such award unless such
grantee accepts the award within such period as the Committee
shall specify by accepting delivery of a Grant Certificate in
such form as the Committee shall determine and, in the event the
restricted shares are newly issued by the Company, makes payment
to the Company or its exchange agent by certified or official
bank check (or the equivalent thereof acceptable to the Company)
in an amount at least equal to the par value of the shares
covered by the award.
(b) Issuance of Stock Certificate(s). Promptly after a
grantee accepts a restricted stock award, the Company or its
transfer agent shall issue to the grantee a stock certificate or
stock certificates for the shares of Common Stock covered by the
award or shall establish an account evidencing ownership of the
stock in uncertificated form. Upon the issuance of such stock
certificate(s), or establishment of such account, the grantee
shall have the rights of a stockholder with respect to the
restricted stock, subject to: (i) the nontransferability
restrictions and forfeiture provision described in paragraphs (d)
and (e) of this Section 2.7; (ii) in the Committee's discretion,
a requirement that any dividends paid on such shares shall be
held in escrow until all restrictions on such shares have lapsed;
and (iii) any other restrictions and conditions contained in the
applicable Grant Certificate.
(c) Custody of Stock Certificate(s); Stockholder Rights.
Unless the Committee shall otherwise determine, any stock
certificates issued evidencing shares of restricted stock shall
remain in the possession of the Company until such shares are
free of any restrictions specified in the applicable Grant
Certificate. The Committee may direct that such stock
certificate(s) bear a legend setting forth the applicable
restrictions on transferability.
(d) Nontransferability. Shares of restricted stock may not
be sold, assigned, transferred, pledged or otherwise encumbered
or disposed of except as otherwise specifically provided in this
Plan or the applicable Grant Certificate. The Committee at the
time of grant shall specify the date or dates (which may depend
24
upon or be related to the attainment of performance goals and
other conditions) on which the nontransferability of the
restricted stock shall lapse.
(e) Consequence of Termination of Employment. Except as
otherwise provided in the applicable Grant Certificate, a
grantee's termination of employment for any reason (including
death) shall cause the immediate forfeiture of all shares of
restricted stock that have not yet vested as of the date of such
termination of employment. All dividends paid on such shares also
shall be forfeited, whether by termination of any escrow
arrangement under which such dividends are held, by the grantee's
repayment of dividends received directly, or otherwise.
2.8 Grant of Performance Shares
(a) Performance Share Grants. The Committee may grant
performance share awards to such key persons, and in such amounts
and subject to such vesting and forfeiture provisions and other
terms and conditions, as the Committee shall in its sole
discretion determine, subject to the provisions of the Plan.
Such an award shall entitle the grantee to acquire shares of
Common Stock, or to be paid the value thereof in cash, as the
Committee shall determine, if specified performance goals are
met. Performance shares may be awarded independently of, or in
connection with, any other award under the Plan. A grantee shall
have no rights with respect to a performance share award unless
such grantee accepts the award by accepting delivery of a Grant
Certificate at such time and in such form as the Committee shall
determine.
(b) Stockholder Rights. The grantee of a performance share
award will have the rights of a stockholder only as to shares for
which a stock certificate has been issued pursuant to the award
and not with respect to any other shares subject to the award.
(c) Consequence of Termination of Employment. Except as
may otherwise be provided by the Committee at any time prior to a
grantee's termination of employment, the rights of a grantee of a
performance share award shall automatically terminate upon the
grantee's termination of employment for any reason (including
death).
(d) Exercise Procedures; Automatic Exercise. At the
discretion of the Committee, the applicable Grant Certificate may
set out the procedures to be followed in exercising a performance
share award or it may provide that such exercise shall be made
automatically after satisfaction of the applicable performance
goals.
(e) Tandem Grants; Effect on Exercise. Except as otherwise
specified by the Committee, (i) a performance share award granted
in tandem with an option may be exercised only while the option
is exercisable, (ii) the exercise of a performance share award
granted in tandem with any other award shall reduce the number of
shares subject to such other award in the manner specified in the
applicable Grant Certificate, and (iii) the exercise of any award
granted in tandem with a performance share award shall reduce the
number of shares subject to the performance share award in the
manner specified in the applicable Grant Certificate.
(f) Nontransferability. Performance shares may not be sold,
assigned, transferred, pledged or otherwise encumbered or
disposed of except as otherwise specifically provided in this
Plan or the applicable Grant Certificate.
ARTICLE III
Miscellaneous
3.1 Amendment of the Plan; Modification of Awards
(a) Amendment of the Plan. Subject to Section 3.1(b), the
Board may from time to time suspend, discontinue, revise or amend
the Plan in any respect whatsoever, except that no such amendment
shall materially impair any rights or materially increase any
obligations under any award theretofore made under the Plan
without the consent of the grantee (or, upon the grantee's death,
the person having the right to exercise the award). For purposes
of this Section 3.1, any action of the Board or the Committee
25
that in any way alters or affects the tax treatment of any award
shall not be considered to materially impair any rights of any
grantee.
(b) Stockholder Approval Requirement. Stockholder approval
shall be required with respect to any amendment to the Plan which
is required by applicable law or stock exchange rules.
(c) Modification of Awards. The Committee may cancel any
award under the Plan. The Committee also may amend any
outstanding Grant Certificate, including, without limitation, by
amendment which would: (i) accelerate the time or times at which
the award becomes unrestricted or may be exercised; (ii) waive or
amend any goals, restrictions or conditions set forth in the
Grant Certificate; or (iii) waive or amend the operation of
Section 2.5 with respect to the termination of the award upon
termination of employment, provided however, that no amendment
may lower the exercise price of an option. However, any such
cancellation or amendment (other than an amendment pursuant to
Sections 3.7 or 3.8(b)) that materially impairs the rights or
materially increases the obligations of a grantee under an
outstanding award shall be made only with the consent of the
grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 Consent Requirement
(a) No Plan Action Without Required Consent. If the
Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of,
or in connection with, the granting of any award under the Plan,
the issuance or purchase of shares or other rights thereunder, or
the taking of any other action thereunder (each such action being
hereinafter referred to as a "Plan Action"), then such Plan
Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full
satisfaction of the Committee.
(b) Consent Defined. The term "Consent" as used herein
with respect to any Plan Action means (i) any and all listings,
registrations or qualifications in respect thereof upon any
securities exchange or under any federal, state or local law,
rule or regulation, (ii) any and all written agreements and
representations by the grantee with respect to the disposition of
shares, or with respect to any other matter, which the Committee
shall deem necessary or desirable to comply with the terms of any
such listing, registration or qualification or to obtain an
exemption from the requirement that any such listing,
qualification or registration be made and (iii) any and all
consents, clearances and approvals in respect of a Plan Action by
any governmental or other regulatory bodies.
3.3 Nonassignability
Except as provided in Sections 2.5(e), 2.6, 2.7(d), and
2.8(f): (a) no award or right granted to any person under the
Plan or under any Grant Certificate shall be assignable or
transferable other than by will or by the laws of descent and
distribution; and (b) all rights granted under the Plan or any
Grant Certificate shall be exercisable during the life of the
grantee only by the grantee or the grantee's legal
representative.
3.4 Requirement of Notification of Election Under Section
83(b) of the Code
If any grantee shall, in connection with the acquisition of
shares of Common Stock under the Plan, make the election
permitted under section 83(b) of the Code (i.e., an election to
include in gross income in the year of transfer the amounts
specified in section 83(b)), such grantee shall notify the
Company of such election within 10 days of filing notice of the
election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued
under the authority of Code section 83(b).
3.5 Requirement of Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code
Each grantee of an incentive stock option shall notify the
Company of any disposition of shares of Common Stock issued
pursuant to the exercise of such option under the circumstances
described in section 421(b) of the Code (relating to certain
disqualifying dispositions), within 10 days of such disposition.
26
3.6 Withholding Taxes
(a) With Respect to Cash Payments. Whenever cash is to be
paid pursuant to an award under the Plan, the Company shall be
entitled to deduct therefrom an amount sufficient in its opinion
to satisfy all federal, state and other governmental tax
withholding requirements related to such payment.
(b) With Respect to Delivery of Common Stock. Whenever
shares of Common Stock are to be delivered pursuant to an award
under the Plan, the Company shall be entitled to require as a
condition of delivery that the grantee remit to the Company an
amount sufficient in the opinion of the Company to satisfy all
federal, state and other governmental tax withholding
requirements related thereto. With the approval of the
Committee, which the Committee shall have sole discretion whether
or not to give, the grantee may satisfy the foregoing condition
by electing to have the Company withhold from delivery shares
having a value equal to the amount of tax to be withheld. Such
shares shall be valued at their Fair Market Value as of the date
on which the amount of tax to be withheld is determined.
Fractional share amounts shall be settled in cash. Such a
withholding election may be made with respect to all or any
portion of the shares to be delivered pursuant to an award.
3.7 Adjustment Upon Changes in Common Stock
(a) Shares Available for Grants. In the event of any
change in the number of shares of Common Stock outstanding by
reason of any stock dividend or split, reverse stock split,
recapitalization, merger, consolidation, combination or exchange
of shares or similar corporate change, the maximum number of
shares of Common Stock with respect to which the Committee may
grant awards under Article II hereof, as described in Section
1.5(a), and the individual annual limit described in Section
1.5(d), shall be appropriately adjusted by the Committee. In the
event of any change in the number of shares of Common Stock
outstanding by reason of any other event or transaction, the
Committee may, but need not, make such adjustments in the number
and class of shares of Common Stock with respect to which awards:
(i) may be granted under Article II hereof and (ii) granted to
any one employee of the Company or a subsidiary during any one
calendar year, in each case as the Committee may deem
appropriate, unless such adjustment would cause any award that
would otherwise qualify as performance based compensation with
respect to a "162(m) covered employee" (as defined in Section
3.9(a)(i)), to cease to so qualify.
(b) Outstanding Restricted Stock and Performance Shares.
Unless the Committee in its absolute discretion otherwise
determines, any securities or other property (including dividends
paid in cash) received by a grantee with respect to a share of
restricted stock which has not yet vested, as a result of any
dividend, stock split, reverse stock split, recapitalization,
merger, consolidation, combination, exchange of shares or
otherwise, will not vest until such share of restricted stock
vests, and shall be promptly deposited with the Company or other
custodian designated pursuant to Section 2.7(c) hereof.
The Committee may, in its absolute discretion, adjust any
grant of performance shares to reflect any dividend, stock split,
reverse stock split, recapitalization, merger, consolidation,
combination, exchange of shares or similar corporate change as
the Committee may deem appropriate to prevent the enlargement or
dilution of rights of grantees.
(c) Outstanding Options and Stock Appreciation Rights -
Increase or Decrease in Issued Shares Without Consideration.
Subject to any required action by the stockholders of the
Company, in the event of any increase or decrease in the number
of issued shares of Common Stock resulting from a subdivision or
consolidation of shares of Common Stock or the payment of a stock
dividend (but only on the shares of Common Stock), or any other
increase or decrease in the number of such shares effected
without receipt of consideration by the Company, the Committee
shall proportionally adjust the number of shares of Common Stock
subject to each outstanding option and stock appreciation right,
and the exercise price-per-share of Common Stock of each such
option and stock appreciation right.
(d) Outstanding Options and Stock Appreciation Rights -
Certain Mergers. Subject to any required action by the
stockholders of the Company, in the event that the Company shall
be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the
holders of shares of Common Stock receive securities of another
corporation), each option and stock appreciation right
outstanding on the date of such merger or consolidation shall
27
pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such option or stock
appreciation right would have received in such merger or
consolidation.
(e) Outstanding Options and Stock Appreciation Rights -
Certain Other Transactions. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially
all of the Company's assets, (iii) a merger or consolidation
involving the Company in which the Company is not the surviving
corporation or (iv) a merger or consolidation involving the
Company in which the Company is the surviving corporation but the
holders of shares of Common Stock receive securities of another
corporation and/or other property, including cash, the Committee
shall, in its absolute discretion, have the power to:
(A) cancel, effective immediately prior to the
occurrence of such event, each option and stock appreciation
right outstanding immediately prior to such event (whether
or not then exercisable), and, in full consideration of such
cancellation, pay to the grantee to whom such option or
stock appreciation right was granted an amount in cash, for
each share of Common Stock subject to such option or stock
appreciation right, respectively, equal to the excess of (x)
the value, as determined by the Committee in its absolute
discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event
over (y) the exercise price of such option or stock
appreciation right; or
(B) provide for the exchange of each option and stock
appreciation right outstanding immediately prior to such
event (whether or not then exercisable) for an option on or
stock appreciation right with respect to, as appropriate,
some or all of the property which a holder of the number of
shares of Common Stock subject to such option or stock
appreciation right would have received and, incident
thereto, make an equitable adjustment as determined by the
Committee in its absolute discretion in the exercise price
of the option or stock appreciation right, or the number of
shares or amount of property subject to the option or stock
appreciation right or, if appropriate, provide for a cash
payment to the grantee to whom such option or stock
appreciation right was granted in partial consideration for
the exchange of the option or stock appreciation right.
(f) Outstanding Options and Stock Appreciation Rights -
Other Changes. In the event of any change in the capitalization
of the Company or a corporate change other than those
specifically referred to in Sections 3.7(c), (d) or (e) hereof,
the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to options
and stock appreciation rights outstanding on the date on which
such change occurs and in the per-share exercise price of each
such option and stock appreciation right as the Committee may
consider appropriate to prevent dilution or enlargement of
rights. In addition, if and to the extent the Committee
determines it is appropriate, the Committee may elect to cancel
each option and stock appreciation right outstanding immediately
prior to such event (whether or not then exercisable), and, in
full consideration of such cancellation, pay to the grantee to
whom such option or stock appreciation right was granted an
amount in cash, for each share of Common Stock subject to such
option or stock appreciation right, respectively, equal to the
excess of (i) the Fair Market Value of Common Stock on the date
of such cancellation over (ii) the exercise price of such option
or stock appreciation right.
(g) No Other Rights. Except as expressly provided in the
Plan, no grantee shall have any rights by reason of any
subdivision or consolidation of shares of stock of any class, the
payment of any dividend, any increase or decrease in the number
of shares of stock of any class or any dissolution, liquidation,
merger or consolidation of the Company or any other corporation.
Except as expressly provided in the Plan, 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 of shares of Common Stock subject to an award or the
exercise price of any option or stock appreciation right.
3.8 Change in Control
(a) Change in Control Defined. For purposes of this
Section 3.8, a "Change in Control" shall be deemed to have
occurred upon the happening of any of the following events: (i)
any "person," including a "group," as such terms are defined in
sections 13(d) and 14(d) of the 1934 Act and the rules
promulgated thereunder, becomes the beneficial owner, directly or
28
indirectly, whether by purchase or acquisition or agreement to
act in concert or otherwise, of 20% or more of the outstanding
shares of Common Stock of the Company; (ii) the consummation of
the merger, consolidation, or liquidation of the Company, or the
sale of all or substantially all of the assets of the Company; or
(iii) a majority of directors are elected to the Board without
having previously been nominated and approved by a majority of
the members of the Board incumbent on the day immediately
preceding such election.
(b) Effect of a Change in Control. Upon the occurrence of
a Change in Control:
(i) notwithstanding any other provision of this Plan,
any award then outstanding shall become fully vested and any
award in the form of an option or stock appreciation right
shall be immediately exercisable;
(ii) to the extent permitted by law, the Committee may,
in its sole discretion, amend any Grant Certificate in such
manner as it deems appropriate;
(iii) a grantee who incurs a termination of
employment for any reason, other than a dismissal for cause,
concurrent with or within one year following the Change in
Control may exercise any outstanding option or stock
appreciation right, but only to the extent that the grantee
was entitled to exercise the award on the grantee's
termination of employment date, until the earlier of (A) the
original expiration date of the award and (B) the later of
(x) the date provided for under the terms of Section 2.5
without reference to this Section 3.8(b)(iii) and (y) the
first anniversary of the grantee's termination of
employment.
3.9 Limitations Imposed by Section 162(m)
(a) Qualified Performance-Based Compensation. To the
extent the Committee determines it is desirable to grant an award
to an individual it anticipates might be a "162(m) covered
employee" (as defined below), with respect to which award the
compensation realized by the grantee will or may not otherwise be
deductible by operation of section 162(m) of the Code, the
Committee may, as part of its effort to have such an award
treated as "qualified performance-based compensation" within the
meaning of Code section 162(m), make the vesting of the award
subject to the attainment of one or more preestablished objective
performance goals.
(i) An individual is a "162(m) covered employee"
if, as of the last day of the Company's taxable year for
which the compensation related to an award would otherwise
be deductible (without regard to section 162(m)), he or she
is (A) the chief executive officer of the Company (or is
acting in such capacity) or (B) one of the four highest
compensated officers of the Company other than the chief
executive officer. Whether an individual is described in
either clause (A) or (B) above shall be determined in
accordance with applicable regulations under section 162(m)
of the Code.
(ii) If the Committee has determined to grant an
award to an individual it anticipates might be a 162(m)
covered employee pursuant to this Section 3.9(a), then prior
to the earlier to occur of (A) the first day after 25% of
each period of service to which the performance goal relates
has elapsed and (B) the ninety first (91st) day of such
period and, in either case, while the performance outcome
remains substantially uncertain, the Committee shall set one
or more objective performance goals for each such 162(m)
covered person for such period. Such goals shall be
expressed in terms of (A) one or more corporate or
divisional earnings-based measures (which may be based on
net income, operating income, cash flow, residual income or
any combination thereof) and/or (B) one or more corporate,
divisional or individual scientific or inventive measures.
Each such goal may be expressed on an absolute and/or
relative basis, may employ comparisons with past performance
of the Company (including one or more divisions) and/or the
current or past performance of other companies, and in the
case of earnings-based measures, may employ comparisons to
capital, stockholders' equity and shares outstanding. The
terms of the award shall state an objective formula or
standard for computing the amount of compensation payable,
and shall preclude discretion to increase the amount of
compensation payable, if the goal is attained.
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(iii) Except as otherwise provided herein, the
measures used in performance goals set under the Plan shall
be determined in accordance with generally accepted
accounting principles ("GAAP") and in a manner consistent
with the methods used in the Company's regular reports on
Forms 10-K and 10-Q, without regard to any of the following
unless otherwise determined by the Committee consistent with
the requirements of section 162(m)(4)(C) and the regulations
thereunder: (A) all items of gain, loss or expense for the
period that are related to special, unusual or nonrecurring
items, events or circumstances affecting the Company or the
financial statements of the Company; (B) all items of gain,
loss or expense for the period that are related to (x) the
disposal of a business or discontinued operations or (y) the
operations of any business acquired by the Company during
the period; and (C) all items of gain, loss or expense for
the period that are related to changes in accounting
principles or to changes in applicable law or regulations.
(b) Nonqualified Deferred Compensation. Notwithstanding
any other provision hereunder, prior to a Change in Control, if
and to the extent that the Committee determines the Company's
federal tax deduction in respect of an award may be limited as a
result of section 162(m) of the Code, the Committee may take the
following actions:
(i) With respect to options or stock appreciation
rights, the Committee may delay the exercise or payment, as
the case may be, in respect of such options or stock
appreciation rights until a date that is within 30 days
after the earlier to occur of (A) the date that compensation
paid to the grantee no longer is subject to the deduction
limitation under section 162(m) of the Code and (B) the
occurrence of a Change in Control. In the event that a
grantee exercises an option or stock appreciation right at a
time when the grantee is a 162(m) covered employee, and the
Committee determines to delay the exercise or payment, as
the case may be, in respect of any such award, the Committee
shall credit cash or, in the case of an amount payable in
Common Stock, the Fair Market Value of the Common Stock,
payable to the grantee to a book account. The grantee shall
have no rights in respect of such book account and the
amount credited thereto shall not be transferable by the
grantee other than by will or laws of descent and
distribution. The Committee may credit additional amounts
to such book account as it may determine in its sole
discretion. Any book account created hereunder shall
represent only an unfunded, unsecured promise by the Company
to pay the amount credited thereto to the grantee in the
future.
(ii) With respect to restricted stock or
performance shares, the Committee may require the grantee to
surrender to the Committee any Grant Certificates with
respect to such awards, in order to cancel the awards of
such restricted stock or performance shares. In exchange
for such cancellation, the Committee shall credit to a book
account a cash amount equal to the Fair Market Value of the
shares of Common Stock subject to such awards. The amount
credited to the book account shall be paid to the grantee
within 30 days after the earlier to occur of (A) the date
that compensation paid to the grantee no longer is subject
to the deduction limitation under section 162(m) of the Code
and (B) the occurrence of a Change in Control. The grantee
shall have no rights in respect of such book account and the
amount credited thereto shall not be transferable by the
grantee other than by will or laws of descent and
distribution. The Committee may credit additional amounts
to such book account as it may determine in its sole
discretion. Any book account created hereunder shall
represent only an unfunded, unsecured promise by the Company
to pay the amount credited thereto to the grantee in the
future.
3.10 Right of Discharge Reserved
Nothing in the Plan or in any Grant Certificate shall confer
upon any grantee the right to continue employment with the
Company or affect any right which the Company may have to
terminate such employment.
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3.11 Nature of Payments
(a) Consideration for Services Performed. Any and all
grants of awards and issuances of shares of Common Stock under
the Plan shall be in consideration of services performed for the
Company by the grantee.
(b) Not Taken into Account for Benefits. All such grants
and issuances shall constitute a special incentive payment to the
grantee and shall not be taken into account in computing the
amount of salary or compensation of the grantee for the purpose
of determining any benefits under any pension, retirement, profit-
sharing, bonus, life insurance or other benefit plan of the
Company or under any agreement between the Company and the
grantee, unless such plan or agreement specifically otherwise
provides.
3.12 Non-Uniform Determinations
The Committee's determinations under the Plan need not be
uniform and may be made by it selectively among persons who
receive, or who are eligible to receive, awards under the Plan
(whether or not such persons are similarly situated). Without
limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Grant
Certificates, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan, and
(c) the treatment of leaves of absence pursuant to Section
1.6(c).
3.13 Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to
limit or restrict the Company from making any award or payment to
any person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.
3.14 Headings
Any section, subsection, paragraph or other subdivision
headings contained herein are for the purpose of convenience only
and are not intended to expand, limit or otherwise define the
contents of such subdivisions.
3.15 Effective Date and Term of Plan
(a) Adoption; Stockholder Approval. The Plan was adopted
by the Board on April 11, 2005, subject to approval by the
Company's stockholders. All awards under the Plan prior to such
stockholder approval are subject in their entirety to such
approval. If such approval is not obtained prior to the first
anniversary of the date of adoption of the Plan, the Plan and all
awards thereunder shall terminate on that date.
(b) Termination of Plan. Unless sooner terminated by the
Board or pursuant to paragraph (a) above, the provisions of the
Plan respecting the grant of awards shall terminate on the tenth
anniversary of the adoption of the Plan by the Board, and no
awards shall thereafter be made under the Plan. All such awards
made under the Plan prior to its termination shall remain in
effect until such awards have been satisfied or terminated in
accordance with the terms and provisions of the Plan and the
applicable Grant Certificates.
3.16 Restriction on Issuance of Stock Pursuant to Awards
The Company shall not permit any shares of Common Stock to
be issued pursuant to Awards granted under the Plan unless such
shares of Common Stock are fully paid and non-assessable, within
the meaning of Section 152 of the Delaware General Corporation
Law, except as otherwise permitted by Section 153(c) of the
Delaware General Corporation Law.
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3.17 Governing Law
Except to the extent preempted by any applicable federal
law, the Plan will be construed and administered in accordance
with the laws of the State of Delaware, without giving effect to
principles of conflict of laws.
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