DGSE Companies, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held June 27, 2006
Notice is hereby given that the Annual Meeting of Shareholders of DGSE
Companies, Inc. will be held on Monday, June 27, 2006, at 6:00 P.M. at the
Company's executive offices at 2817 Forest Lane, Dallas, Texas 75234, for the
purpose of considering and voting upon:
1. The election of Directors.
2. The proposal to approve the 2006 Equity Incentive Plan.
3. Transacting such other business as may properly come before the
meeting.
The close of business on May 1, 2006, has been fixed as the record date for
determining the shareholders entitled to notice of and to vote at this meeting
and any adjournment thereof, and only shareholders of record on such date shall
be entitled to notice of and to vote at the meeting.
Please promptly date, sign and mail the enclosed proxy using the enclosed return
envelope which needs no postage if mailed within the United States.
By order of the Board of Directors
Dr. L.S. Smith, Ph.D Chairman of the Board
and Secretary
Dated: May 10 2006
PROXY STATEMENT
----------------
DGSE Companies, Inc.
2817 Forest Lane
Dallas, Texas 75234
---------------
ANNUAL MEETING OF SHAREHOLDERS
This statement is furnished to shareholders in connection with the solicitation
by the Board of Directors of DGSE Companies, Inc. (the "Company") of proxies to
be voted at the Annual Meeting of Shareholders of the Company to be held on June
27, 2006, at 6:00 P.M. at the Company's executive offices at 2817 Forest Lane,
Dallas, Texas 75234, and any adjournment thereof. This proxy statement and the
proxies solicited hereby are first being sent or delivered to shareholders on or
about May 10, 2006. Certain employees of the Company may solicit proxies by
telephone or in person. The expense of preparing, printing and mailing the
proxies will be borne by the Company. A copy of the Company's Annual Report on
Form 10-K (including the financial statements) ("Form 10-K") is enclosed
herewith.
VOTING
The proxy may be revoked by the shareholder at any time prior to its use. If it
is signed properly by the shareholder and is not revoked, it will be voted at
the meeting. If a shareholder specifies how the proxy is to be voted with
respect to the election of Directors and approval of the Company's Equity
Incentive Plan, it will be voted in the manner specified on the enclosed proxy.
If no instructions are received, the proxy will be voted for the proposals as
set forth in the proxy.
At the close of business on May 1, 2006, 4,913,290 shares of the Company's
Common Stock, par value $.01 per share, were outstanding and eligible for voting
at the meeting. Each shareholder of record is entitled to one vote for each
share held in all matters to come before the meeting. Only shareholders of
record at the close of business on May 1, 2006, are entitled to notice of and to
vote at the meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Board of Directors at a meeting held on April 14, 2006, nominated
five persons to be elected at the Annual Meeting to serve as Directors of the
Company for a term of one year and until their respective successors shall have
been elected and shall have qualified.
It is the intention of the persons named in the proxy to vote for the election
of the persons named below. If any nominee is unable or unwilling to serve,
which the Board of Directors does not anticipate, the persons named in the proxy
will vote for another person in accordance with their judgment.
The following table and notes thereto set forth the age, principal occupation,
period of time served as a Director of the Company, business experience, and
other directorships held by each of the five nominees for election as Directors:
Year First
Elected
Director or
Appointed
Officer of
Name Age Position Company
---- --- -------- -----------
Dr. L.S. Smith
Ph.D (1) 59 Chairman of the 1980
Board of Direc-
tors, Chief
Executive Officer
and Secretary
W.H. Oyster (2) 53 Director, Presi- 1990
dent and Chief
Operating Officer
William P. Cordeiro (3) 62 Director 1999
Paul Hagen (4) 57 Director 2004
Craig Alan-Lee (5) 49 Director 2004
Business Experience During Last Five Years
------------------------------------------
(1) Chairman of Board of Directors, and Chief Executive Officer and Secretary
of the Company since 1980.
(2) Director, President and Chief Operating of the Company since January 1990.
(3) Director and independent member and financial expert of the Audit Committee
of the Company since June 1999. Management Professor, School of Business
and Economics, California State University since June 1990. Partner,
Bartik, Cordeiro & Associates, Inc., a management consulting firm since
January 1990.
(4) Director and member of the Audit Committee of the Company since December
2004. President of Premier Marketing, Inc., a retail consulting firm.
President of Silverman Consultants, Inc., a wholly-owned subsidiary of the
Company from April 2002 through November 2004. From October 1996 through
April 2002, Vice President of Bobby Wilkerson, Inc. a retail consulting
company.
(5) Director and independent member of the Audit Committee of the Company since
December 2004. Senior loan consultant with Castle Funding, Inc., a mortgage
loan company since November 1994.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table and notes thereto set forth certain information as of April
28, 2006, pertaining to securities ownership by persons known to the Company to
own 5% or more of the Company's Common Stock.
The information contained herein has been obtained from the Company's records,
from various filings made by the named individuals with the Securities and
Exchange Commission, or from information furnished direct ly by the individual
or entity to the Company:
Name and address Amount and nature Percent
of beneficial owner of beneficial owner(1) of class(1)
--------------------- ---------------------- -----------
Dr. L. S. Smith, Ph.D 2,666,233 (2)(5) 46.3%
2817 Forest Lane
Dallas, Texas 75234
Craig Alan-Lee 325,000 (5)(6) 6.6%
11230 Dilling Street
North Hollywood,
California 91602
John Michael Paulson 275,000 (3) 5.6%
2250 East Tropicana
# 19-121, Las Vegas,
Nevada 89119
Edward White 275,000 (3) 5.6%
21700 Oxnard Street
Woodland Hills,
California 91367
W. H. Oyster 288,615 (4) 5.6%
2817 Forest Lane
Dallas, TX 75234
(1) To the best knowledge of the Company, all shares are held of record with
sole voting and investment power except as otherwise stated in footnote (3)
and (5) below. All calculations are based on 4,913,290 shares outstanding
as of the above referenced date, adjusted for exercisable stock options.
(2) Includes 577,777 and 267,857 shares currently exercisable under stock
options with exercise prices of $2.25 and $1.12 per share, respectively.
(3) Includes 275,000 shares held in the Allen E. Paulson Living Trust of which
John Michael Paulson is a co-trustee with Edward White.
(4) Includes 250,000 shares currently exercisable under a stock option with an
average exercise price of $2.23 per share.
(5) Craig Alan-Lee has given Dr. L.S. Smith a proxy to vote his 320,000 shares.
(6) Includes 5,000 shares currently exercisable under a stock option with an
average exercise price of $2.82 per share.
SECURITY OWNERSHIP OF MANAGEMENT
The following sets forth information as of April 28, 2006, with respect to the
Company's Common Stock owned beneficially by persons named therein who are
officers or nominees for election as directors of the Company and by directors
and officers as a group.
The information contained herein has been obtained from the Company's records,
from various filings made by the named individuals with the Securities and
Exchange Commission, or from information furnished directly by the individual to
the Company:
Name and address Amount and nature Percent
of beneficial owner of beneficial owner(1) of class(1)
--------------------- ---------------------- -----------
Dr. L. S. Smith, Ph.D. 2,666,233 (2)(6) 46.3%
Chairman and Chief
Executive Officer
2817 Forest Lane
Dallas, Texas 75234
W. H. Oyster 288,615 (3) 5.6%
President
2817 Forest Lane
Dallas, TX 75234
John Benson 160,500 (4) 3.2%
Chief Financial Officer
2817 Forest Lane
Dallas, TX 75234
William P. Cordeiro 22,500 (5) .5%
Director
1340 E. Alosta # 200
Glendora, CA 91740
Craig Alan-Lee 325,000 (6)(7) 6.6%
Director
11230 Dilling Street
North Hollywood,
California 91602
Paul Hagen 5,000 (7) -
Director
5719 Lorinwoods Dr.
Houston, Texas 77066
All directors and officers 3,467,848 (8) 55.8%
as a group (6 individuals)
----------------------------
(1) To the best knowledge of the Company, all shares are held of record with
sole voting and investment power except as otherwise stated in footnote (6)
below. All calculations are based on 4,913,290 shares outstanding as of the
above referenced date, adjusted for exercisable stock options.
(2) Includes 577,777 and 267,857 shares currently exercisable under stock
options with exercise prices of $2.25 and $1.12 per share, respectively.
(3) Includes 250,000 shares currently exercisable under stock options with an
average exercise price of $2.23 per share.
(4) Includes 150,000 shares currently exercisable under stock options with an
average exercise price of $2.02 per share.
(5) Includes 22,500 shares currently exercisable under stock options with an
exercise price of $ 2.47 per share.
(6) Craig Alan-Lee has given Dr. L.S. Smith a proxy to vote his 320,000 shares
(7) Includes 5,000 shares currently exercisable under a stock option with an
average exercise price of $2.82 per share.
(8) Includes 577,777, 267,857, 250,000, 150,000, 45.000 and 10,000 shares
currently exercisable under stock options with an exercise price or average
price, as the case may be, of $2.25, $ 1.12, $2.23, $ 2.02, $2.47 and
$2.82, respectively.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and certain officers to send reports of their ownership and of changes
in ownership of the Company's Common Stock to the Securities and Exchange
Commission. Based on the Company's review of the reports it has received, the
Company believes all of its directors and officers complied with all reporting
requirements applicable to them with respect to transactions in 2005.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The business affairs of the Company are managed by or under the direction of the
Board of Directors. During 2005, the Company's Board of Directors met six (6)
times. All members of the Board of Directors were present at each of the
meetings.
The Company does not have a nominating or compensation committee of the Board of
Directors, or any committee performing similar functions.
An audit committee of the Board of Directors was formed during June 1999, and
met six times during the year 2005. The audit committee oversees the operation
of a comprehensive system of internal controls to ensure the integrity of the
Company's financial statements and compliance with laws, regulations and
corporate policies. The audit committee has reviewed and discussed the audited
financial statements of the Company for the year ended December 31, 2005 with
senior management. The audit committee has discussed with BKR Cornwell Jackson,
the independent auditors of the Company, the matters required to be discussed by
the Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The audit committee has also received the written disclosures and
the letter from BKR Cornwell Jackson required by Independent Standards Board
Standard No. 1 (Independence Discussion with Audit Committees) and the audit
committee has discussed with BKR Cornwell Jackson the independence of BKR
Cornwell Jackson as auditor of the Company. Based on the foregoing, the audit
committee of the Company recommended to the Board of Directors that the audited
financial statements of the Company be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2005 for filing with the United
States Securities Exchange Commission. Specific functions and responsibilities
of the audit committee are set forth in the charter adopted by the Board of
Directors which is attached as Appendix B to this proxy statement. Its members
are William P. Cordeiro, Paul Hagen and Craig Alan-Lee.
Compensation of Directors
Directors who are also employees of the Company do not receive any compensation
for serving as a director or as a member of a committee of the Board of
Directors. Directors who are not employees of the Company receive a fee in the
amount of $ 500 for each meeting of the Board of Directors and each committee
meeting of the Board of Directors attended. In addition, William P. Cordeiro has
been granted options for the purchased of 22,500 shares of the Company's Common
Stock at an exercise price equal to the then fair market value of the Company's
Common Stock. Both Craig Alan-Lee and Paul Hagen have been granted an option to
purchase 5,000 shares of the Company's Common Stock at an exercise price equal
to the then fair market value of the Company's Common Stock.
EXECUTIVE COMPENSATION
The following information is furnished with respect to each of the most highly
compensated executive officers of the Company whose cash compensation from the
Company and its subsidiaries during the Company's last fiscal year exceeded $
100,000.
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
------------------- Long-Term
Compensation
------------
Awards
------
Name Securities
and Under-
Principal lying
Position Year Salary Bonus Options
-------------------------------------------------- ----------
Dr. L.S. Smith 2005 $178,739 $ 67,500 -
Chief Executive 2004 $157,197 $ 73,200 -
Officer 2003 $149,625 $ 57,288 -
W.H. Oyster 2005 $163,735 $45,000 -
President and 2004 $143,730 $49,400 -
Chief Operating 2003 $136,806 $35,099 -
Officer
John Benson 2005 $ 98,443 $25,000 -
Chief Financial 2004 $ 87,581 $28,200 -
Officer 2003 $ 83,363 $22,566 -
Securities Authorized for Issuance Under Equity Compensation Plans.
The Company has a stock option (the "Plan") adopted effective January 1, 2004.
The Plan was approved by shareholders on June 21, 2004.
The purpose of the Plan is to provide additional incentive to officers,
directors and key employees of the Company by encouraging them to acquire new or
additional share ownership in the Company, thus increasing their proprietary
interest in the Company's business and providing them with an increased personal
interest in the Company's continued success and progress. These objectives will
be promoted through the grant of options to acquire the Company's Common Stock,
$ .01 par value per share (" Shares"), pursuant to the terms of the Plan.
The aggregate number of Shares for which options may be granted under the Plan
is One Million Seven Hundred Thousand (1,700,000) including One Million Four
Hundred Twenty Thousand Six Hundred Thirty Four (1,420,634) Shares reserved
under options previously granted and currently outstanding. The following table
sets forth shares reserved under options currently outstanding and additional
Shares reserved for future grants under the Plan:
AVERAGE
PER SHARE
NUMBER OF OPTION
SHARES PRICE
--------- ------
Shares reserved for current
Outstanding options:
Officers and Directors 1,290,634 $ 2.00
All others 145,000 $ 3.04
--------- ------
Total outstanding 1,435,634 $ 2.10
Shares reserved for future grants 264,366 ======
---------
Plan Total 1,700,000
=========
The Board of Directors of the Company in its sole discretion may grant options
to purchase Shares under the Plan. The price at which shares may be purchased
pursuant to an option under the Plan shall be the closing market value as of the
date the option is granted.
Each option granted under the Plan shall expire and all rights there under shall
cease on the date which shall be the six month anniversary of the date of
termination of employment or service as a director with the Company of the
option holder.
Options granted under the plan may be exercised, in whole or in part, at any
time on or after the date of grant.
Unless amended by the Board of Directors of the Company and approved by
Shareholders of the Company, the Plan and all options granted there-under will
automatically terminate on December 31, 2113.
PERFORMANCE PRESENTATION
The following graph compares the five-year cumulative return to Stockholders for
DGSE Companies, Inc. Common Stock against the NASDAQ Composite Index, the S&P
600 Small cap Index and the S&P Retail Index for the period from January 1, 2001
to December 31, 2005. The comparison assumes $ 100 was invested in January 1,
2000 in the common stock and in each of the three indices and assumes
reinvestment of dividends. The Company has not paid any dividends.
COMPARISON OF FIVEYEAR CUMLATIVE RETURN
DGSE NASDAQ S&P S&P
COMMON COMPOSITE RETAIL 600
DATE STOCK INDEX INDEX SMALL CAP
---- ------ --------- ------ ---------
2000 100 100 100 100
2001 39 79 116 106
2002 12 54 89 89
2003 27 81 126 123
2004 33 88 153 150
2005 23 89 151 160
PROPOSAL NO. 2
2006 EQUITY INCENTIVE PLAN
The stockholders are being asked to approve the adoption of the 2006 Equity
Incentive Plan (the "2006 Plan"). The 2006 Plan is intended to replace the DGSE
Stock Option Plan (the "2004 Plan"). The Company's board of directors (the
"Board") adopted the 2006 Plan on April 28, 2006, subject to the approval of the
stockholders at the annual meeting. Stockholder approval of the 2006 Plan is
being sought to (1) satisfy the requirements of the Department of Corporations
of the State of California, (2) qualify certain compensation under the 2006 Plan
as "performance-based compensation" not subject to the tax deduction limitation
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), and (3) qualify certain stock options that may be granted under the
2006 Plan as Incentive stock options under Section 422 of the Code.
Description of the Proposal
The Board approved the 2006 Plan because it believes that the best means
for aligning the interests of employees and stockholders is through equity
incentives, and the Company needs additional shares available for issuance as
equity-based compensation. As of the record date for the Company annual meeting,
the Company had 1,700,000 shares available for future issuance under its 2004
Plan. Additionally, the 2006 Plan includes provisions that are not part of the
2004 Plan and which are necessary for the Company to offer a competitive equity
incentive program. Recent changes in the accounting treatment for stock options
should make the use of these alternative types of awards more attractive in the
future.
Description of the 2006 Equity Incentive Plan
A copy of the 2006 Plan is attached to this proxy statement as Annex B. The
following description of the 2006 Plan is a summary and is qualified by
reference to the complete text of the 2006 Plan.
Background and Purpose. The primary purpose of the 2006 Plan is to
encourage ownership in our company by key personnel whose long-term service we
consider essential to our continued progress, thereby linking these employees
directly to stockholder interests through increased stock ownership. We
currently have one stock option plan from which awards can be made, which we
refer to as the 2004 Plan. The 2004 Plan authorizes up to 1.7 million shares for
issuance pursuant to stock options. The 2006 Plan will provide for added
flexibility over the 2004 Plan in light of recent changes in the rules affecting
such plans.
As of May 1,2006, options with respect to 1,435,634 shares were outstanding
under the 2004 Plan at exercise prices ranging from $1.120 to $4.875 and 264,366
shares remain available for future grants. The Board has determined that the
2004 Plan may continue to be available for further option grants upon the
effective date of the approval of our stockholders of the 2006 Plan.
Eligible Participants. Awards may be granted under the 2006 Plan to any of
our employees, directors, or consultants or those of our affiliates. As of May
1, 2006, there were approximately 49 full-time employees and three non-employee
directors who would be eligible to participate. An incentive stock option may be
granted under the 2006 Plan only to a person who, at the time of the grant, is
an employee of the Company or an affiliated corporation.
Number of Shares of Common Stock Available. If approved by the
stockholders, a total of 750,000 new shares of our common stock will be reserved
for issuance under the 2006 Plan. The maximum aggregate number of shares that
may be issued under the 2006 Plan through the exercise of incentive stock
options is 750,000. If an award is cancelled, terminates, expires, or lapses for
any reason without having been fully exercised or vested, or is settled for less
than the full number of shares of common stock represented by such award
actually being issued, the unvested, cancelled, or unissued shares of common
stock generally will be returned to the available pool of shares reserved for
issuance under the 2006 Plan. In addition, if we experience a stock dividend,
stock split, reorganization, or other change in our capital structure, the
administrator may, in its discretion, adjust the number of shares available for
issuance under the 2006 Plan and any outstanding awards as appropriate to
reflect the stock dividend, stock split or other change. The share number
limitations included in the 2006 Plan will also adjust appropriately upon such
event.
Administration of the 2006 Plan. The 2006 Plan will be administered by the
Board or one or more committees of the Board, which we refer to as the
Administrator. Our Board has appointed our Chairman of the Board as the
Administrator referred to in the 2006 Plan. In the case of awards intended to
qualify as "performance-based-compensation" excludable from the deduction
limitation under Section 162(m) of the Code, the Administrator will consist of
two or more "outside directors" within the meaning of Section 162(m).
The Administrator has the authority to, among other things, select the
individuals to whom awards will be granted and to determine the type of award to
grant; determine the terms of the awards, including the exercise price, the
number of shares subject to each award, the exercisability of the awards, and
the form of consideration payable upon exercise; to provide for a right to
dividends or dividend equivalents; and to interpret the 2006 Plan and adopt
rules and procedures relating to administration of the 2006 Plan. Except to the
extent prohibited by any applicable law, the administrator may delegate to one
or more individuals the day-to-day administration of the 2006 Plan.
Award Types
Options. A stock option is the right to purchase shares of our common stock
at a fixed exercise price for a fixed period. An option under the 2006 Plan may
be an incentive stock option or a nonstatutory stock option. The exercise price
of an option granted under the 2006 Plan must be at least equal to the fair
market value of our common stock on the date of grant. In addition, the exercise
price for any incentive stock option granted to any employee owning more than
10% of our common stock may not be less than 110% of the fair market value of
our common stock on the date of grant.
Unless the administrator determines to use another method, the fair market
value of our common stock on the date of grant will be determined as the average
of the highest and lowest quoted sales price for our common stock on the date
the option is granted (or if no sales are reported that day, the average on the
last preceding day on which a sale occurred), using a reporting source selected
by the administrator. As of April 25, 2006, the average quoted sales price on
the Nasdaq Stock Exchange for our common stock was $2.400 per share. The
administrator determines the acceptable form of consideration for exercising an
option, including the method of payment, either through the terms of the option
agreement or at the time of exercise of an option, provided that consideration
must have a value of not less than the exercise price of the options to be
issued and must be actually received before issuing any shares. The 2006 Plan
permits payment in the form of cash, check or wire transfer, other shares of
common stock of the Company, cashless exercises, any other form of consideration
and method of payment permitted by applicable laws, or any combination thereof.
An option granted under the 2006 Plan generally cannot be exercised until
it becomes vested. The administrator establishes the vesting schedule of each
option at the time of grant and the option will expire at the times established
by the administrator. After termination of the optionee's service, he or she may
exercise his or her option for the period stated in the option agreement, to the
extent the option is vested on the date of termination. If termination is due to
death or disability, the option generally will remain exercisable for twelve
months following such termination. In all other cases, the option generally will
remain exercisable for three months. Nevertheless, an option may never be
exercised later than the expiration of its term. The term of any stock option
may not exceed ten years, except that with respect to any participant who owns
10% or more of the voting power of all classes of our outstanding capital stock,
the term for incentive stock options must not exceed five years.
Stock Awards. Stock awards are awards or issuances of shares of our common
stock that vest in accordance with terms and conditions established by the
administrator. Stock awards include stock units, which are bookkeeping entries
representing an amount equivalent to the fair market value of a share of common
stock, payable in cash, property, or other shares of stock. The administrator
may determine the number of shares to be granted, and impose whatever conditions
to vesting it determines to be appropriate, including performance criteria and
level of achievement versus the criteria that the administrator determines. The
criteria may be based on financial performance, personal performance
evaluations, and completion of service by the participant. Unless the
administrator determines otherwise, shares that are not vested typically will be
subject to forfeiture or to our right of repurchase of the unvested portion of
such shares at the original price paid by the participant, which we may exercise
upon the voluntary or involuntary termination of the awardee's service with us
for any reason, including death or disability. For stock awards intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the measures established by the administrator must be qualifying
performance criteria. Qualifying performance criteria under the 2006 Plan
include any of the following performance criteria, individually or in
combination:
o cash flow
o earnings (including gross margin, earnings before interest and taxes,
earnings before taxes,and net earnings)
o earnings per share
o growth in earnings or earnings per share
o stock price
o return on equity or average stockholders' equity
o total stockholder return
o return on capital
o return on assets or net assets
o return on investment
o revenue
o income or net income
o operating income or net operating income
o operating profit or net operating profit
o operating margin
o return on operating revenue
o market share
o contract awards or backlog
o overhead or other expense reduction
o growth in stockholder value relative to the moving average of the S&P
500 Index or a peer group index
o credit rating
o strategic plan development and implementation
o improvement in workforce diversity
o EBITDA
o any other similar criteria
Qualifying performance criteria may be applied either to the Company as a
whole or to a business unit, affiliate, or business segment, individually or in
any combination. Qualifying performance criteria may be measured either annually
or cumulatively over a period of years, and may be measured on an absolute basis
or relative to a pre-established target, to previous years' results, or to a
designated comparison group, in each case as specified by the administrator in
writing in the award.
Stock Appreciation Rights. A stock appreciation right is the right to
receive the appreciation in the fair market value of our common stock in an
amount equal to the difference between (a) the fair market value of a share of
our common stock on the date of exercise, and (b) the exercise price. This
amount will be paid, as determined by the administrator, in shares of our common
stock with equivalent value, cash, or a combination of both. The exercise price
must be at least equal to the fair market value of our common stock on the date
of grant. Subject to these limitations, the administrator determines the
exercise price, term, vesting schedule, and other terms and conditions of stock
appreciation rights, except that stock appreciation rights terminate under the
same rules that apply to stock options.
Cash Awards. Cash awards confer upon the participant the opportunity to
earn future cash payments tied to the level of achievement with respect to one
or more performance criteria established by the administrator for a performance
period. The administrator will establish the performance criteria and level of
achievement versus these criteria, which will determine the target and the
minimum and maximum amount payable under a cash award. The criteria may be based
on financial performance or personal performance evaluations, or both. For cash
awards intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the measures established by the
administrator must be specified in writing and the amount payable as cash under
such cash award is limited to $500,000.
Other Provisions of the 2006 Plan
Transferability of Awards. Unless the administrator determines otherwise,
the 2006 Plan does not permit the transfer of awards other than by beneficiary
designation, will, or by the laws of descent or distribution, and only the
participant may exercise an award during his or her lifetime.
Preemptive Rights. The 2006 Plan provides that no shares will be issued
thereunder in violation of any preemptive rights held by any stockholder of the
Company.
Adjustments upon Merger or Change in Control. The 2006 Plan provides that
in the event of a merger with or into another corporation or our "change in
control," including the sale of all or substantially all of our assets, and
certain other events, our Board or the Administrator may, in its discretion,
provide for the assumption or substitution of, or adjustment to, each
outstanding award; accelerate the vesting of options and stock appreciation
rights, and terminate any restrictions on stock awards or cash awards; provide
for the cancellation of awards in exchange for a cash payment to the
participant; or provide for the cancellation of awards that have not been
exercised or redeemed as of the relevant event.
Amendment and Termination of the 2006 Plan. The administrator has the
authority to amend, alter, or discontinue the 2006 Plan, subject to the approval
of the stockholders to the extent required by applicable laws. No amendment may
impair the rights of any outstanding award without the agreement of the
participant.
Certain Federal Income Tax Information
The following is a general summary as of this date of the federal income
tax consequences to us and to U.S. participants for awards granted under the
2006 Plan. The federal tax laws may change and the federal, state, and local tax
consequences for any participant will depend upon his or her individual
circumstances. Tax consequences for any particular individual may be different.
Tax Effects for Participants
Incentive Stock Options. For federal income tax purposes, an optionee does
not recognize taxable income when an incentive stock option is granted or upon
its exercise. When an incentive stock option is exercised, however, the
difference between the option exercise price and the fair market value of the
shares on the exercise date is an adjustment in computing the holder's
alternative minimum taxable income and may be subject to an alternative minimum
tax, which is paid if such tax exceeds the optionee's regular tax for the year.
An optionee who disposes of shares acquired by exercise of an incentive
stock option more than two years after the option is granted and one year after
its exercise recognizes a long-term capital gain or loss equal to the difference
between the sale price and the exercise price. If the holding periods are not
met and the sale price exceeds the exercise price, the optionee generally will
recognize ordinary income as of the exercise date equal to the difference
between the exercise price and the lower of the sale price of the shares or
their fair market value on the exercise date. Any gain or loss recognized on
such premature sale of the shares in excess of the amount of ordinary income is
characterized as capital gain or loss. If the holding periods are not met and
the sale price is less than the exercise price, the option will recognize a
capital loss equal to the difference between the exercise price and the sale
price.
Nonstatutory Stock Options. A participant who receives a nonstatutory stock
option with an exercise price equal to or greater than the fair market value of
the stock on the grant date generally will not realize taxable income on the
grant of such option, but will realize ordinary income when he or she exercises
the option, equal to the excess of the fair market value of the shares on the
date of exercise over the option exercise price. Any additional gain or loss
recognized upon any later disposition of shares would be capital gain or loss.
Any taxable income recognized in connection with an option exercise by an
employee or former employee of the Company is subject to tax withholding by us.
Stock Awards. A participant who receives a stock award that is not subject
to a "substantial risk of forfeiture" will recognize ordinary income at the time
of grant equal to the difference between the fair market value of the stock on
the date of grant less the amount paid for the stock, if any. A restricted stock
award is subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code to the extent the award will be forfeited if the
participant ceases to provide services to us. A participant who receives a stock
award that is subject to a "substantial risk of forfeiture" will not recognize
ordinary income at the time of grant, but will recognize ordinary income on the
date or dates when the stock is no longer subject to a substantial risk of
forfeiture, or when the stock becomes transferable, if earlier. The
participant's ordinary income is measured as the difference between the fair
market value of the stock on the date the stock is no longer subject to a
substantial risk of forfeiture less the amount paid for the stock, if any.
The participant may accelerate his or her recognition of ordinary income,
if any, and begin his or her capital gains holding period by timely filing
(i.e., within thirty days of the award) an election pursuant to Section 83(b) of
the Code. In such event, the ordinary income recognized, if any, is measured as
the difference between the fair market value of the stock on the date of award
less the amount paid for the stock, if any, and the capital gain holding period
commences on such date. The ordinary income recognized by an employee or former
employee will be subject to tax withholding by us. If the stock award consists
of stock units, no taxable income is reportable when stock units are granted to
a participant or upon vesting. Upon settlement, the participant will recognize
ordinary income in an amount equal to the value of the payment received pursuant
to the stock units.
Stock Appreciation Rights. No taxable income is reportable when a stock
appreciation right with an exercise price equal to or greater than the fair
market value of the stock on the date of grant is granted to a participant or
upon vesting. Upon exercise, the participant will recognize ordinary income in
an amount equal to the fair market value of any shares or cash received. If the
participant receives shares upon exercise, any additional gain or loss
recognized upon any later disposition of the shares would be capital gain or
loss.
Cash Awards. Upon receipt of cash, the recipient will have taxable ordinary
income, in the year of receipt, equal to the cash received. Any cash received by
an employee or former employee will be subject to tax withholding by us.
Tax Effect for Us. Unless limited by Section 162(m) or Section 280G of the
Code, we generally will be entitled to a tax deduction in connection with an
award under the 2006 Plan in an amount equal to the ordinary income realized by
a participant at the time the participant recognizes such income (for example,
upon the exercise of a nonstatutory stock option).
Section 162(m) Limits. Section 162(m) of the Code places a limit of $1
million on the amount of compensation that we may deduct in any one year with
respect to the chief executive officer and each of the four other most highly
paid executive officers. Certain performance-based compensation is not subject
to the deduction limit. The 2006 Plan is qualified such that awards under the
Plan may constitute performance-based compensation not subject to Section 162(m)
of the Code. One of the requirements for equity compensation plans is that there
must be a limit to the number of shares granted to any one individual under the
plan. Accordingly, the 2006 Plan provides that the maximum number of shares for
which awards may be made to any employee, in any calendar year, is 100,000,
except that in connection with his or her initial service, an awardee may be
granted awards covering up to an additional 50,000 shares. The maximum amount
payable pursuant to that portion of a cash award granted under the 2006 Plan for
any fiscal year to any employee that is intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code may not exceed
$500,000.
Section 409A. Section 409A of the Code makes compensation that is deferred
under a nonqualified deferred compensation arrangement taxable generally on the
date of grant (or when vested, if later) and subject to additional taxes and
interest, unless certain requirements are met. These requirements may apply to
some types of awards available under the 2006 Plan. In addition, certain actions
may subject an award to which these requirements do not otherwise apply to Code
Section 409A. The 2006 Plan provides that it and awards granted thereunder are
intended to comply with the requirements of Section 409A of the Code, and are to
be interpreted in a manner consistent with that intention.
Section 280G Limits. Section 280G of the Code limits the amount of certain
compensation payable upon a change in control of the Company, so-called
"parachute payments." If stock options or other awards vest upon a change in
control, or if other payments contingent upon such a change in control are made,
the vesting or payment may in whole or in part result in a nondeductible
parachute payment. In addition, the recipient of the parachute payment would be
subject to a 20% excise tax that we would be required to withhold in addition to
federal income tax. The 2006 Plan provides discretion to the Board to provide
for the vesting of awards upon a change in control.
New Plan Benefits
We have no current plans, proposals, or arrangements to grant any awards
under the 2006 Plan.
Amendment and Termination
The administrator may amend the 2006 Plan at any time or from time to time
or may terminate it, but any such amendment shall be subject to the approval of
the stockholders in the manner and to the extent required by applicable law,
rules, or regulations. Nevertheless, no action by the administrator or the
stockholders may alter or impair any option or other type of award under the
2006 Plan, unless mutually agreed otherwise between the holder of the award and
the administrator. The 2006 Plan will continue in effect for a term of ten
years, unless terminated earlier in accordance with the provisions of the 2006
Plan.
The Company's board of directors unanimously recommends a vote FOR Proposal No.
2 to approve the 2006 Equity Incentive Plan.
AUDITORS
The Company has selected BKR Cornwell Jackson to be its principal accountants
for the current fiscal year.
Their fees for the fiscal year ended December 31, 2005, were as follows:
Description of Service Amount of Fee
---------------------- -------------
Audit Fees $59,420
Financial Information System
Design and Implementation Fees -0-
Other Fees $12,000 (1)
--------------------------------------------------------------------------------
(1) Fees billed for the review of quarterly report on Form 10-Q for the
periods ended September 30, 2005, June 30,2005 and March 31, 2005.
A representative of BKR Cornwell Jackson will be present at the shareholders'
meeting and will have the opportunity to make a statement if he desires to do
so. Further, the representative of BKR Cornwell Jackson will be available to
respond to appropriate questions.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR THE
2007 ANNUAL SHAREHOLDERS MEETING
Shareholders who wish to submit proposals for inclusion in the proxy statement
and for consideration at the annual meeting must do so on a timely basis. In
order to be included in the proxy statement for the 2006 annual meeting,
proposals must relate to proper subjects and must be received by the Corporate
Secretary, DGSE Companies, Inc., 2817 Forest Lane, Dallas, Texas 75234, before
January 20, 2007.
OTHER MATTERS
The Board of Directors does not know of any other matters that will be presented
for action at the meeting. However, if any matters properly come before the
meeting or any adjournments, it is intended that the holders of the proxies
named in the accompanying proxy will have discretionary authority to vote the
shares represented by the proxies in accordance with their best judgment.
By Order of the Board of Directors
Dr. L. S. SMITH, Ph.D
Chairman of the Board
and Secretary
Appendix A
DGSE COMPANIES, INC.
Audit Committee Charter
Organization
This charter governs the operations of the Audit Committee of Dallas Gold &
Silver Exchange, Inc. The Audit Committee shall review and reassess this charter
on at least an annual basis and obtain the approval of the Board of Directors.
The Audit Committee shall be appointed by the Board of Directors and shall
consist of at least three directors, two of whom are independent of management
and the Company. Members of the Audit Committee shall be considered independent
if they have no relationship that may interfere with the exercise of their
independence from management and the Company and meet the standards of
independence required by the NASDAQ or any other exchange on which the common
stock of Dallas Gold & Silver Exchange, Inc. is traded. The members shall be
financially literate, or shall become financially literate within a reasonable
period of time after appointment to the audit committee, and at least one member
shall have accounting or related financial management expertise as required by
the rules of the NASDAQ or any other exchange on which the common stock of
Dallas Gold & Silver Exchange, Inc. is traded.
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and financial reporting process, the systems of internal
accounting and financial controls, the internal audit function, the annual
independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board of
Directors. In so doing, it is the responsibility of the Audit Committee to
maintain free and open communication between the Audit Committee, independent
auditors, the internal auditors and management of the Company. In discharging
its oversight role, the audit committee is empowered to investigate any matter
brought to its attention with full access to all books, records, facilities, and
personnel of the Company and the power to retain outside counsel at the
Company's expense, or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the Audit Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The Audit Committee, in carrying out its
responsibilities, believes its policies and procedures should remain flexible to
best react to changing conditions and circumstances. The audit committee should
take the appropriate actions to set the overall corporate "tone' for quality
financial reporting, sound business risk practices, and ethical behavior.
The following shall be the principal recurring processes of the Audit Committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Audit Committee may supplement them as
appropriate.
o The Audit Committee shall have a clear understanding with management
and the independent auditors that the independent auditors are
ultimately accountable to the Board and the Audit Committee, as
representatives of the Company's shareholders. The Audit Committee and
the Board shall have the ultimate authority and responsibility to
evaluate and, where appropriate, replace the independent auditors. The
Audit Committee shall discuss with the auditors their independence
from management and the Company and the matters included in the
written disclosures required by the Independence Standards Board.
Annually, the Audit Committee shall review and recommend to the Board
the selection of the Company's independent auditors.
o The Audit Committee shall review the interim financial statements with
management0 prior to the filing of the Company's Quarterly Reports on
Form 1O-Q. Also, the Audit Committee shall discuss the results of the
quarterly review and any other matters required to. be communicated to
the audit committee by the independent auditors under generally
accepted auditing standards. The chair of the Audit Committee may
represent the entire committee for the purposes of this review.
o The Audit Committee shall review with management and the independent
auditors the financial statements to be included in the Company's
Annual Reports on Form 1O-K (or the annual reports to shareholders if
distributed prior to the filing of Form 1O-K), including their
judgment about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the
Audit Committee shall discuss the results of the annual audit and any
other matters required to be communicated to the audit committee by
the independent auditors under generally accepted auditing standards.
Appendix B
DGSE COMPANIES, INC.
2006 EQUITY INCENTIVE PLAN
Purpose of the Plan. The purpose of this Plan is to encourage ownership in
the Company by key personnel whose long-term service the Company considers
essential to its continued progress and, thereby, encourage recipients to act in
the stockholders' interest and share in the Company's success.
Definitions. As used herein, the following definitions shall apply:
"Administrator" shall mean the Board, any Committees, or such delegates
as shall be administering the Plan in accordance with Section 4 of the Plan.
"Affiliate" shall mean any entity that is directly or indirectly in
control of or controlled by the Company, or any entity in which the Company has
a significant ownership interest as determined by the Administrator.
"Applicable Laws" shall mean the requirements relating to the
administration of stock plans under federal and state laws; any stock exchange
or quotation system on which the Company has listed or submitted for quotation
the Common Stock to the extent provided under the terms of the Company's
agreement with such exchange or quotation system; and, with respect to Awards
subject to the laws of any foreign jurisdiction where Awards are, or will be,
granted under the Plan, to the laws of such jurisdiction.
"Award" shall mean, individually or collectively, a grant under the
Plan of an Option, Stock Award, SAR, or Cash Award.
"Awardee" shall mean a Service Provider who has been granted an Award
under the Plan.
"Award Agreement" shall mean an Option Agreement, Stock Award
Agreement, SAR Agreement, or Cash Award Agreement, which may be in written or
electronic format, in such form and with such terms as may be specified by the
Administrator, evidencing the terms and conditions of an individual Award. Each
Award Agreement is subject to the terms and conditions of the Plan.
"Board" shall mean the Board of Directors of the Company.
"California Qualification Period" shall mean any period during which
the issuance and sale of securities under this Plan require qualification under
the California Corporate Securities Law of 1968.
"Cash Award" shall mean a bonus opportunity awarded under Section 13
pursuant to which a Participant may become entitled to receive an amount based
on the satisfaction of such performance criteria as are specified in the
agreement or other documents evidencing the Award (the "Cash Award Agreement").
"Change in Control" shall mean any of the following, unless the
Administrator provides otherwise: any merger or consolidation in which the
Company shall not be the surviving entity (or survives only as a subsidiary of
another entity whose stockholders did not own all or substantially all of the
Common Stock in substantially the same proportions as immediately before such
transaction); the sale of all or substantially all of the Company's assets to
any other person or entity (other than a wholly-owned subsidiary of the
Company); the acquisition of beneficial ownership of a controlling interest
(including power to vote) in the outstanding shares of Common Stock by any
person or entity (including a "group" as defined by or under Section 13(d)(3) of
the Exchange Act); the dissolution or liquidation of the Company; a contested
election of Directors, as a result of which or in connection with which the
persons who were Directors before such election or their nominees cease to
constitute a majority of the Board; or any other event specified, at the time an
Award is granted or thereafter, by the Board or a Committee. Notwithstanding the
foregoing, the term "Change in Control" shall not include any underwritten
public offering of Shares registered under the Securities Act of 1933, as
amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean DGSE Companies, Inc., a Nevada corporation, or its
successor.
"Consultant" shall mean any natural person, other than an Employee or
Director, who performs bona fide services for the Company or an Affiliate as a
consultant or advisor.
"Conversion Award" has the meaning set forth in Section 4(b)(xii) of
the Plan.
"Director" shall mean a member of the Board.
"Disability" shall mean permanent and total disability as defined in
Section 22(e)(3) of the Code, or, if required by applicable law, the inability
in the opinion of a qualified physician acceptable to the Company, to perform
the major duties of the Participant's position with the Company or an Affiliate
because of the sickness or injury of the Participant.
"Employee" shall mean an employee of the Company or any Affiliate, and
may include an Officer or Director. Within the limitations of Applicable Law,
the Administrator shall have the discretion to determine the effect upon an
Award and upon an individual's status as an Employee in the case of (i) any
individual who is classified by the Company or its Affiliate as leased from or
otherwise employed by a third party or as intermittent or temporary, even if any
such classification is changed retroactively as a result of an audit, litigation
or otherwise; (ii) any leave of absence approved by the Company or an Affiliate;
(iii) any transfer between locations of employment with the Company or an
Affiliate or between the Company and any Affiliate or between any Affiliates;
(iv) any change in the Awardee's status from an employee to a Consultant or
Director; and (v) an employee who, at the request of the Company or an
Affiliate, becomes employed by any partnership, joint venture, or corporation
not meeting the requirements of an Affiliate in which the Company or an
Affiliate is a party.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, unless the Administrator determines
otherwise, as of any date, the closing price for such Common Stock as of such
date (or if no sales were reported on such date, the closing price on the last
preceding day for which a sale was reported), as reported in such source as the
Administrator shall determine.
"Grant Date" shall mean the date upon which an Award is granted to an
Awardee pursuant to this Plan.
"Incentive Stock Option" shall mean an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
"Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
"Officer" shall mean a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act.
"Option" shall mean a right granted under Section 8 of the Plan to
purchase a certain number of Shares at such exercise price, at such times, and
on such other terms and conditions as are specified in the agreement or other
documents evidencing the Award (the "Option Agreement"). Both Options intended
to qualify as Incentive Stock Options and Nonstatutory Stock Options may be
granted under the Plan.
"Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of grant,
each of the corporations other than the Company owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
"Participant" shall mean the Awardee or any person (including any
estate) to whom an Award has been assigned or transferred as permitted
hereunder.
"Plan" shall mean this DGSE Companies, Inc. 2006 Equity Incentive Plan.
"Qualifying Performance Criteria" shall have the meaning set forth in
Section 14(b) of the Plan.
"Related Corporation" shall mean any Parent or Subsidiary.
"Service Provider" shall mean an Employee, Officer, Director, or
Consultant.
"Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 15 of the Plan.
"Stock Award" shall mean an award or issuance of Shares or Stock Units
made under Section 11 of the Plan, the grant, issuance, retention, vesting, and
transferability of which is subject during specified periods to such conditions
(including continued service or performance conditions) and terms as are
expressed in the agreement or other documents evidencing the Award (the "Stock
Award Agreement").
"Stock Appreciation Right" or "SAR" shall mean an Award, granted alone
or in connection with an Option, that pursuant to Section 12 of the Plan is
designated as a SAR. The terms of the SAR are expressed in the agreement or
other documents evidencing the Award (the "SAR Agreement").
"Stock Unit" shall mean a bookkeeping entry representing an amount
equivalent to the fair market value of one Share, payable in cash, property or
Shares. Stock Units represent an unfunded and unsecured obligation of the
Company, except as otherwise provided for by the Administrator.
"Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
grant, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
"Ten-Percent Stockholder" shall mean the owner of stock (as determined
under Section 424(d) of the Code) possessing more than 10% of the total combined
voting power of all classes of stock of the Company (or any Related
Corporation).
"Termination Date" shall mean the date of a Participant's Termination
of Service, as determined by the Administrator in its sole discretion.
"Termination of Service" shall mean ceasing to be a Service Provider.
However, for Incentive Stock Option purposes, Termination of Service will occur
when the Awardee ceases to be an employee (as determined in accordance with
Section 3401(c) of the Code and the regulations promulgated thereunder) of the
Company or one of its Related Corporations. The Administrator shall determine
whether any corporate transaction, such as a sale or spin-off of a division or
business unit, or a joint venture, shall be deemed to result in a Termination of
Service.
Stock Subject to the Plan.
--------------------------
Aggregate Limits.
-----------------
The maximum aggregate number of Shares that may be issued under the
Plan through Awards is 750,000 Shares. Notwithstanding the foregoing, the
maximum aggregate number of Shares that may be issued under the Plan
through Incentive Stock Options is 750,000 Shares. The limitations of this
Section 3(a)(i) shall be subject to the adjustments provided for in Section
15 of the Plan.
Upon payment in Shares pursuant to the exercise of an Award, the
number of Shares available for issuance under the Plan shall be reduced
only by the number of Shares actually issued in such payment. If any
outstanding Award expires or is terminated or canceled without having been
exercised or settled in full, or if Shares acquired pursuant to an Award
subject to forfeiture or repurchase are forfeited or repurchased by the
Company, the Shares allocable to the terminated portion of such Award or
such forfeited or repurchased Shares shall again be available to grant
under the Plan. Notwithstanding the foregoing, the aggregate number of
shares of Common Stock that may be issued under the Plan upon the exercise
of Incentive Stock Options shall not be increased for restricted Shares
that are forfeited or repurchased. Notwithstanding anything in the Plan, or
any Award Agreement to the contrary, Shares attributable to Awards
transferred under any Award transfer program shall not be again available
for grant under the Plan. The Shares subject to the Plan may be either
Shares reacquired by the Company, including Shares purchased in the open
market, or authorized but unissued Shares.
Code Section 162(m) Limit. Subject to the provisions of Section 15 of
the Plan, the aggregate number of Shares subject to Awards granted under
this Plan during any calendar year to any one Awardee shall not exceed
100,000, except that in connection with his or her initial service, an
Awardee may be granted Awards covering up to an additional 50,000 Shares.
Notwithstanding anything to the contrary in the Plan, the limitations set
forth in this Section 3(b) shall be subject to adjustment under Section 15
of the Plan only to the extent that such adjustment will not affect the
status of any Award intended to qualify as "performance-based compensation"
under Code Section 162(m).
Administration of the Plan.
---------------------------
Procedure.
----------
Multiple Administrative Bodies. The Plan shall be administered by the
Board or one or more Committees, including such delegates as may be
appointed under paragraph (a)(iv) of this Section 4.
Section 162(m). To the extent that the Administrator determines it to
be desirable to qualify Awards granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, Awards to
"covered employees" within the meaning of Section 162(m) of the Code or
Employees that the Committee determines may be "covered employees" in the
future shall be made by a Committee of two or more "outside directors"
within the meaning of Section 162(m) of the Code.
Rule 16b-3. To the extent desirable to qualify transactions hereunder
as exempt under Rule 16b-3 promulgated under the Exchange Act ("Rule
16b-3"), Awards to Officers and Directors shall be made in such a manner to
satisfy the requirement for exemption under Rule 16b-3.
Other Administration. The Board or a Committee may delegate to an
authorized Officer or Officers of the Company the power to approve Awards
to persons eligible to receive Awards under the Plan who are not (A)
subject to Section 16 of the Exchange Act; or (B) at the time of such
approval, "covered employees" under Section 162(m) of the Code.
Delegation of Authority for the Day-to-Day Administration of the Plan.
Except to the extent prohibited by Applicable Law, the Administrator may
delegate to one or more individuals the day-to-day administration of the
Plan and any of the functions assigned to it in this Plan. Such delegation
may be revoked at any time.
Powers of the Administrator. Subject to the provisions of the Plan and, in
the case of a Committee or delegates acting as the Administrator, subject to the
specific duties delegated to such Committee or delegates, the Administrator
shall have the authority, in its sole discretion:
to select the Service Providers of the Company or its Affiliates to
whom Awards are to be granted hereunder;
to determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
to determine the type of Award to be granted to the selected Service
Provider;
to approve the forms of Award Agreements for use under the Plan;
to determine the terms and conditions, consistent with the terms of
the Plan, of any Award granted hereunder. Such terms and conditions include
the exercise or purchase price, the time or times when an Award may be
exercised (which may or may not be based on performance criteria), the
vesting schedule, any vesting or exercisability acceleration or waiver of
forfeiture restrictions, the acceptable forms of consideration, the term,
and any restriction or limitation regarding any Award or the Shares
relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine and may be established at the time
an Award is granted or thereafter;
to correct administrative errors;
to construe and interpret the terms of the Plan (including sub-plans
and Plan addenda) and Awards granted pursuant to the Plan;
to adopt rules and procedures relating to the operation and
administration of the Plan to accommodate the specific requirements of
local laws and procedures. Without limiting the generality of the
foregoing, the Administrator is specifically authorized (A) to adopt the
rules and procedures regarding the conversion of local currency,
withholding procedures, and handling of stock certificates that vary with
local requirements; and (B) to adopt sub-plans and Plan addenda as the
Administrator deems desirable, to accommodate foreign laws, regulations and
practice;
to prescribe, amend and rescind rules and regulations relating to the
Plan, including rules and regulations relating to sub-plans and Plan
addenda;
to modify or amend each Award, including the acceleration of vesting,
exercisability, or both; provided, however, that any modification or
amendment of an Award is subject to Section 16 of the Plan and may not
materially impair any outstanding Award unless agreed to by the
Participant;
to allow Participants to satisfy withholding tax amounts by electing
to have the Company withhold from the Shares to be issued pursuant to an
Award that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined in such manner and on such date that the Administrator
shall determine or, in the absence of provision otherwise, on the date that
the amount of tax to be withheld is to be determined. All elections by a
Participant to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may provide;
to authorize conversion or substitution under the Plan of any or all
stock options, stock appreciation rights, or other stock awards held by
service providers of an entity acquired by the Company (the "Conversion
Awards"). Any conversion or substitution shall be effective as of the close
of the merger or acquisition. The Conversion Awards may be Nonstatutory
Stock Options or Incentive Stock Options, as determined by the
Administrator, with respect to options granted by the acquired entity.
Unless otherwise determined by the Administrator at the time of conversion
or substitution, all Conversion Awards shall have the same terms and
conditions as Awards generally granted by the Company under the Plan;
to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Award previously granted by
the Administrator;
to determine whether Awards will be settled in Shares, cash, or in any
combination thereof;
to determine whether to provide for the right to receive dividends or
dividend equivalents;
to establish a program whereby Service Providers designated by the
Administrator can reduce compensation otherwise payable in cash in exchange
for Awards under the Plan;
to impose such restrictions, conditions, or limitations as it
determines appropriate as to the timing and manner of any resales by a
Participant or other subsequent transfers by the Participant of any Shares
issued as a result of or under an Award, including (A) restrictions under
an insider trading policy, and (B) restrictions as to the use of a
specified brokerage firm for such resales or other transfers;
to provide, either at the time an Award is granted or by subsequent
action, that an Award shall contain as a term thereof, a right, either
in tandem with the other rights under the Award or as an alternative
thereto, of the Participant to receive, without payment to the
Company, a number of Shares, cash, or a combination of both, the
amount of which is determined by reference to the value of the Award;
and
to make all other determinations deemed necessary or advisable for
administering the Plan and any Award granted hereunder.
Effect of Administrator's Decision. All decisions, determinations and
interpretations by the Administrator regarding the Plan, any rules and
regulations under the Plan and the terms and conditions of any Award granted
hereunder, shall be final and binding on all Participants. The Administrator
shall consider such factors as it deems relevant, in its sole and absolute
discretion, to making such decisions, determinations and interpretations,
including the recommendations or advice of any officer or other employee of the
Company and such attorneys, consultants and accountants as it may select.
Eligibility. Awards may be granted to Service Providers of the Company or
any of its Affiliates.
Effective Date and Term of the Plan. Subject to stockholder approval, the
Plan shall become effective upon its adoption by the Board. Options, SARs, and
Cash Awards may be granted immediately thereafter; provided, that no Option or
SAR may be exercised and no Stock Award may be granted under the Plan until it
is approved by the stockholders of the Company, in the manner and to the extent
required by Applicable Law, within 12 months after the date of adoption by the
Board. The Plan shall continue in effect for a term of ten years from the date
of the Plan's adoption by the Board unless terminated earlier under Section 16
herein.
Term of Award. The term of each Award shall be determined by the
Administrator and stated in the Award Agreement. In the case of an Option, the
term shall be ten years from the Grant Date or such shorter term as may be
provided in the Award Agreement.
Options. The Administrator may grant an Option or provide for the grant of
an Option, from time to time in the discretion of the Administrator or
automatically upon the occurrence of specified events, including the achievement
of performance goals, and for the satisfaction of an event or condition within
the control of the Awardee or within the control of others.
Option Agreement. Each Option Agreement shall contain provisions
regarding (i) the number of Shares that may be issued upon exercise of the
Option; (ii) the type of Option; (iii) the exercise price of the Shares and the
means of payment for the Shares; (iv) the term of the Option; (v) such terms and
conditions on the vesting or exercisability of an Option, or both, as may be
determined from time to time by the Administrator; (vi) restrictions on the
transfer of the Option and forfeiture provisions; and (vii) such further terms
and conditions, in each case not inconsistent with this Plan, as may be
determined from time to time by the Administrator.
Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
In the case of an Incentive Stock Option, the per Share
exercise price shall be no less than 100% of the Fair Market Value per
Share on the Grant Date. Notwithstanding the foregoing, if any
Incentive Stock Option is granted to a Ten-Percent Stockholder, then
the exercise price shall not be less than 110% of the Fair Market Value
of a share of Common Stock on the Grant Date.
In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be no less than 100% of the Fair Market Value per
Share on the Grant Date. The per Share exercise price may also vary
according to a predetermined formula; provided, that the exercise price
never falls below 100% of the Fair Market Value per Share on the Grant
Date.
Notwithstanding the foregoing, during any California
Qualification Period, the per Share exercise price of an Option shall
be determined by the Administrator but shall not be less than 100% (or
110% in the case of a person who is a Ten-Percent Stockholder on the
date of grant of such Option) of the Fair Market Value of a share of
Common Stock on the Grant Date.
Notwithstanding the foregoing, at the Administrator's
discretion, Conversion Awards may be granted in substitution or
conversion of options of an acquired entity, with a per Share exercise
price of less than 100% of the Fair Market Value per Share on the date
of such substitution or conversion.
Vesting Period and Exercise Dates. Options granted under this Plan
shall vest, be exercisable, or both, at such times and in such installments
during the Option's term as determined by the Administrator. The Administrator
shall have the right to make the timing of the ability to exercise any Option
granted under this Plan subject to continued service, the passage of time, or
such performance requirements as deemed appropriate by the Administrator. At any
time after the grant of an Option, the Administrator may reduce or eliminate any
restrictions surrounding any Participant's right to exercise all or part of the
Option. Notwithstanding the foregoing, during any California Qualification
Period, an Option awarded to anyone other than an Officer, Director, or
Consultant of the Company shall vest at a rate of at least 20% per year.
Form of Consideration. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of payment,
either through the terms of the Option Agreement or at the time of exercise of
an Option. The consideration, determined by the Administrator (or pursuant to
authority expressly delegated by the Board, a Committee, or other person), and
in the form and amount required by applicable law, shall be actually received
before issuing any Shares pursuant to the Plan; which consideration shall have a
value, as determined by the Board, not less than the par value of such Shares.
Acceptable forms of consideration may include:
cash;
check or wire transfer;
subject to any conditions or limitations established by the
Administrator, other Shares that have a Fair Market Value on the date
of surrender or attestation that does not exceed the aggregate exercise
price of the Shares as to which said Option shall be exercised;
consideration received by the Company under a broker-assisted
sale and remittance program acceptable to the Administrator to the
extent that this procedure would not violate Section 402 of the
Sarbanes-Oxley Act of 2002, as amended;
cashless exercise, subject to any conditions or limitations
established by the Administrator;
such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
any combination of the foregoing methods of payment.
Incentive Stock Option Limitations.
-----------------------------------
Eligibility. Only employees (as determined in accordance with Section
3401(c) of the Code and the regulations promulgated thereunder) of the Company
or any of its Related Corporations may be granted Incentive Stock Options.
$100,000 Limitation. Notwithstanding the designation "Incentive Stock
Option" in an Option Agreement, if the aggregate Fair Market Value of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by the Awardee during any calendar year (under all plans of the Company and any
of its Related Corporations) exceeds $100,000, then the portion of such Options
that exceeds $100,000 shall be treated as Nonstatutory Stock Options. An
Incentive Stock Option is considered to be first exercisable during a calendar
year if the Incentive Stock Option will become exercisable at any time during
the year, assuming that any condition on the Awardee's ability to exercise the
Incentive Stock Option related to the performance of services is satisfied. If
the Awardee's ability to exercise the Incentive Stock Option in the year is
subject to an acceleration provision, then the Incentive Stock Option is
considered first exercisable in the calendar year in which the acceleration
provision is triggered. For purposes of this Section 9(b), Incentive Stock
Options shall be taken into account in the order in which they were granted.
However, because an acceleration provision is not taken into account before its
triggering, an Incentive Stock Option that becomes exercisable for the first
time during a calendar year by operation of such provision does not affect the
application of the $100,000 limitation with respect to any Incentive Stock
Option (or portion thereof) exercised before such acceleration. The Fair Market
Value of the Shares shall be determined as of the Grant Date.
Leave of Absence. For purposes of Incentive Stock Options, no leave of
absence may exceed three months, unless the right to reemployment upon
expiration of such leave is provided by statute or contract. If the period of
leave exceeds three months and the Awardee's right to reemployment is not
provided by statute or contract, the Awardee's employment with the Company shall
be deemed to terminate on the first day immediately following such three-month
period, and any Incentive Stock Option granted to the Awardee shall cease to be
treated as an Incentive Stock Option and shall terminate upon the expiration of
the three-month period starting on the date the employment relationship is
deemed terminated.
Transferability. The Option Agreement must provide that an Incentive
Stock Option cannot be transferable by the Awardee otherwise than by will or the
laws of descent and distribution, and, during the lifetime of such Awardee, must
not be exercisable by any other person. Notwithstanding the foregoing, the
Administrator, in its sole discretion, may allow the Awardee to transfer his or
her Incentive Stock Option to a trust where under Section 671 of the Code and
other Applicable Law, the Awardee is considered the sole beneficial owner of the
Option while it is held in the trust. If the terms of an Incentive Stock Option
are amended to permit transferability, the Option will be treated for tax
purposes as a Nonstatutory Stock Option.
Exercise Price. The per Share exercise price of an Incentive Stock
Option shall be determined by the Administrator in accordance with Section
8(b)(i) of the Plan.
Ten-Percent Stockholder. If any Incentive Stock Option is granted to a
Ten-Percent Stockholder, then the Option term shall not exceed five years
measured from the date of grant of such Option.
Other Terms. Option Agreements evidencing Incentive Stock Options shall
contain such other terms and conditions as may be necessary to qualify as
Incentive Stock Options, to the extent determined desirable by the
Administrator, under the applicable provisions of Section 422 of the Code.
Exercise of Option.
-------------------
Procedure for Exercise; Rights as a Stockholder.
------------------------------------------------
Any Option granted hereunder shall be exercisable according to the
terms of the Plan and at such times and under such conditions as determined
by the Administrator and set forth in the respective Award Agreement.
An Option shall be deemed exercised when the Company receives (A)
written or electronic notice of exercise (in accordance with the Award
Agreement) from the person entitled to exercise the Option; (B) full
payment for the Shares with respect to which the related Option is
exercised; and (C) with respect to Nonstatutory Stock Options, payment of
all applicable withholding taxes.
Shares issued upon exercise of an Option shall be issued in the name
of the Participant or, if requested by the Participant, in the name of the
Participant and his or her spouse. Unless provided otherwise by the
Administrator or pursuant to this Plan, until the Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
the Shares subject to an Option, notwithstanding the exercise of the
Option.
The Company shall issue (or cause to be issued) such Shares as soon as
administratively practicable after the Option is exercised. An Option may
not be exercised for a fraction of a Share.
Effect of Termination of Service on Options.
--------------------------------------------
Generally. Unless otherwise provided for by the Administrator, if a
Participant ceases to be a Service Provider, other than upon the
Participant's death or Disability, the Participant may exercise his or her
Option within such period as is specified in the Award Agreement to the
extent that the Option is vested on the Termination Date (but in no event
later than the expiration of the term of such Option as set forth in the
Award Agreement). Notwithstanding the foregoing, upon a Participant's
Termination of Service during any California Qualification Period, other
than due to death, Disability, or cause, the Participant may exercise his
or her Option (A) at any time on or before the date determined by the
Administrator, which date shall be at least 30 days after the Participant's
Termination Date (but in no event later than the expiration of the term of
such Option); and (B) only to the extent that the Participant was entitled
to exercise such Option on the Termination Date. In the absence of a
specified time in the Award Agreement, the vested portion of the Option
will remain exercisable for three months following the Participant's
Termination Date. Unless otherwise provided by the Administrator, if on the
Termination Date the Participant is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option will
automatically revert to the Plan. If after the Termination of Service the
Participant does not exercise his or her Option within the time specified
by the Administrator, the Option will automatically terminate, and the
Shares covered by such Option will revert to the Plan.
Disability of Awardee. Unless otherwise provided for by the
Administrator, if a Participant ceases to be a Service Provider as a result
of the Participant's Disability, the Participant may exercise his or her
Option within such period as is specified in the Award Agreement to the
extent the Option is vested on the Termination Date (but in no event later
than the expiration of the term of such Option as set forth in the Award
Agreement). Notwithstanding the foregoing, during any California
Qualification Period, upon a Participant's Termination of Service due to
his or her Disability the Participant may exercise his or her Option (A) at
any time on or before the date determined by the Administrator, which date
shall be at least six months after the Termination Date (but in no event
later than the expiration date of the term of his or her Option); and (B)
only to the extent that the Participant was entitled to exercise such
Option on the Termination Date. In the absence of a specified time in the
Award Agreement, the Option will remain exercisable for twelve months
following the Participant's Termination Date. Unless otherwise provided by
the Administrator, if at the time of Disability the Participant is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option will automatically revert to the Plan. If the Option
is not so exercised within the time specified herein, the Option will
terminate, and the Shares covered by such Option will automatically revert
to the Plan.
Death of Awardee. Unless otherwise provided for by the Administrator,
if a Participant dies while a Service Provider, the Option may be exercised
following the Participant's death within such period as is specified in the
Award Agreement to the extent that the Option is vested on the date of
death (but in no event may the Option be exercised later than the
expiration of the term of such Option as set forth in the Award Agreement),
by the Participant's designated beneficiary, provided such beneficiary has
been designated before the Participant's death in a form acceptable to the
Administrator. Notwithstanding the foregoing, during any California
Qualification Period, if the Participant dies before his or her Termination
of Service, the Participant's Option may be exercised by the Participant's
designated beneficiary (A) at any time on or before the date determined by
the Administrator, which date shall be at least six months after the date
of death (but in no event later than the expiration date of the term of his
or her Option); and (B) only to the extent that the Participant was
entitled to exercise the Option at the date of death. If no such
beneficiary has been designated by the Participant, then such Option may be
exercised by the personal representative of the Participant's estate or by
the person or persons to whom the Option is transferred pursuant to the
Participant's will or in accordance with the laws of descent and
distribution. In the absence of a specified time in the Award Agreement,
the Option will remain exercisable for twelve months following
Participant's death. Unless otherwise provided by the Administrator, if at
the time of death Participant is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option will revert to the
Plan. If the Option is not so exercised within the time specified herein,
the Option will terminate, and the Shares covered by such Option will
revert to the Plan.
Stock Awards.
-------------
Stock Award Agreement. Each Stock Award Agreement shall contain
provisions regarding (i) the number of Shares subject to such Stock Award or a
formula for determining such number; (ii) the purchase price, if any, of the
Shares, and the means of payment for the Shares; (iii) the performance criteria,
if any, and level of achievement versus these criteria that shall determine the
number of Shares granted, issued, retained, or vested, as applicable; (iv) such
terms and conditions on the grant, issuance, vesting, or forfeiture of the
Shares, as applicable, as may be determined from time to time by the
Administrator; (v) restrictions on the transferability of the Stock Award; and
(vi) such further terms and conditions in each case not inconsistent with this
Plan as may be determined from time to time by the Administrator.
Notwithstanding the foregoing, during any California Qualification
Period, the purchase price for restricted Shares shall be determined by the
Administrator, but shall not be less than 85% (or 100% in the case of a person
who is a Ten-Percent Stockholder on the date of grant of such restricted stock)
of the Fair Market Value of a share of Common Stock on the date of grant of such
restricted stock.
Restrictions and Performance Criteria. The grant, issuance,
retention, and vesting of each Stock Award may be subject to such performance
criteria and level of achievement versus these criteria as the Administrator
shall determine, which criteria may be based on financial performance, personal
performance evaluations, or completion of service by the Awardee.
Notwithstanding the foregoing, during any California Qualification Period,
restricted stock awarded to anyone other than an Officer, Director, or
Consultant of the Company shall vest at a rate of at least 20% per year.
Notwithstanding anything to the contrary herein, the performance
criteria for any Stock Award that is intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code shall be
established by the Administrator based on one or more Qualifying Performance
Criteria selected by the Administrator and specified in writing.
Forfeiture. Unless otherwise provided for by the Administrator,
upon the Awardee's Termination of Service, the unvested Stock Award and the
Shares subject thereto shall be forfeited, provided that to the extent that the
Participant purchased any Shares pursuant to such Stock Award, the Company shall
have a right to repurchase the unvested portion of such Shares at the original
price paid by the Participant, provided that during any California Qualification
Period, the Company must exercise such right to repurchase (i) for either cash
or cancellation of purchase money indebtedness for such unvested Shares; and
(ii) within 90 days of such Termination of Service.
Rights as a Stockholder. Unless otherwise provided by the
Administrator, the Participant shall have the rights equivalent to those of a
stockholder and shall be a stockholder only after Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) to the Participant. Unless otherwise
provided by the Administrator, a Participant holding Stock Units shall be
entitled to receive dividend payments as if he or she were an actual
stockholder.
Stock Appreciation Rights. Subject to the terms and conditions of the
Plan, a SAR may be granted to a Service Provider at any time and from time to
time as determined by the Administrator in its sole discretion.
Number of SARs. The Administrator shall have complete discretion
to determine the number of SARs granted to any Service Provider.
Exercise Price and Other Terms. The per SAR exercise price shall
be no less than 100% of the Fair Market Value per Share on the Grant Date. The
Administrator, subject to the provisions of the Plan, shall have complete
discretion to determine the other terms and conditions of SARs granted under the
Plan.
Exercise of SARs. SARs shall be exercisable on such terms and
conditions as the Administrator, in its sole discretion, shall determine.
SAR Agreement. Each SAR grant shall be evidenced by a SAR
Agreement that will specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, shall determine.
Expiration of SARs. A SAR granted under the Plan shall expire upon
the date determined by the Administrator, in its sole discretion, and set forth
in the SAR Agreement. Notwithstanding the foregoing, the rules of Section 10(b)
will also apply to SARs.
Payment of SAR Amount. Upon exercise of a SAR, the Participant
shall be entitled to receive a payment from the Company in an amount equal to
the difference between the Fair Market Value of a Share on the date of exercise
over the exercise price of the SAR. This amount shall be paid in cash, Shares of
equivalent value, or a combination of both, as the Administrator shall
determine.
Cash Awards. Each Cash Award will confer upon the Participant the
opportunity to earn a future payment tied to the level of achievement with
respect to one or more performance criteria established by the Administrator for
a performance period.
Cash Award. Each Cash Award shall contain provisions regarding (i)
the performance goal or goals and maximum amount payable to the Participant as a
Cash Award; (ii) the performance criteria and level of achievement versus these
criteria that shall determine the amount of such payment; (iii) the period as to
which performance shall be measured for establishing the amount of any payment;
(iv) the timing of any payment earned by virtue of performance; (v) restrictions
on the alienation or transfer of the Cash Award before actual payment; (vi)
forfeiture provisions; and (vii) such further terms and conditions, in each case
not inconsistent with the Plan, as may be determined from time to time by the
Administrator. The maximum amount payable as a Cash Award that is settled for
cash may be a multiple of the target amount payable, but the maximum amount
payable pursuant to that portion of a Cash Award granted under this Plan for any
fiscal year to any Awardee that is intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code shall not
exceed $500,000.
Performance Criteria. The Administrator shall establish the
performance criteria and level of achievement versus these criteria that shall
determine the target and the minimum and maximum amount payable under a Cash
Award, which criteria may be based on financial performance or personal
performance evaluations or both. The Administrator may specify the percentage of
the target Cash Award that is intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code.
Notwithstanding anything to the contrary herein, the performance criteria for
any portion of a Cash Award that is intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code shall be a
measure established by the Administrator based on one or more Qualifying
Performance Criteria selected by the Administrator and specified in writing.
Timing and Form of Payment. The Administrator shall determine the
timing of payment of any Cash Award. The Administrator may specify the form of
payment of Cash Awards, which may be cash or other property, or may provide for
an Awardee to have the option for his or her Cash Award, or such portion thereof
as the Administrator may specify, to be paid in whole or in part in cash or
other property.
Termination of Service. The Administrator shall have the
discretion to determine the effect of a Termination of Service on any Cash Award
due to (i) disability, (ii) retirement, (iii) death, (iv) participation in a
voluntary severance program, or (v) participation in a work force restructuring.
Other Provisions Applicable to Awards.
--------------------------------------
Non-Transferability of Awards. Unless determined otherwise by the
Administrator, an Award may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent and distribution, and may be exercised, during the lifetime of the
Participant, only by the Participant. If the Administrator makes an Award
transferable, either at the time of grant or thereafter, such Award shall
contain such additional terms and conditions as the Administrator deems
appropriate, and any transferee shall be bound by such terms upon acceptance of
such transfer. Notwithstanding the foregoing, during any California
Qualification Period, an Award may not be transferred in any manner other than
by will, by the laws of descent and distribution, or as permitted by Rule 701 of
the Securities Act of 1933, as amended, as the Administrator may determine.
Qualifying Performance Criteria. For purposes of this Plan, the
term "Qualifying Performance Criteria" shall mean any one or more of the
following performance criteria, applied to either the Company as a whole or to a
business unit, Affiliate, Related Corporations, or business segment, either
individually, alternatively, or in any combination, and measured either annually
or cumulatively over a period of years, on an absolute basis or relative to a
pre-established target, to previous years' results or to a designated comparison
group, in each case as specified in the Award by the Committee: (i) cash flow,
(ii) earnings (including gross margin, earnings before interest and taxes,
earnings before taxes, and net earnings), (iii) earnings per share, (iv) growth
in earnings or earnings per share, (v) stock price, (vi) return on equity or
average stockholders' equity, (vii) total stockholder return, (viii) return on
capital, (ix) return on assets or net assets, (x) return on investment, (xi)
revenue, (xii) income or net income, (xiii) operating income or net operating
income, (xiv) operating profit or net operating profit, (xv) operating margin,
(xvi) return on operating revenue, (xvii) market share, (xviii) contract awards
or backlog, (xix) overhead or other expense reduction, (xx) growth in
stockholder value relative to the moving average of the S&P 500 Index or a peer
group index, (xxi) credit rating, (xxii) strategic plan development and
implementation, (xxiii) improvement in workforce diversity, (xxiv) EBITDA, and
(xxv) any other similar criteria. The Committee, in its discretion, may modify
these criteria to exclude any of the following events that may occur during a
performance period: (A) asset write-downs; (B) litigation or claim judgments or
settlements; (C) the effect of changes in tax law, accounting principles, or
other such laws or provisions affecting reported results; (D) accruals for
reorganization and restructuring programs; and (E) any extraordinary
non-recurring items as described in Accounting Principles Board Opinion No. 30
or in management's discussion and analysis of financial condition and results of
operations appearing in the Company's annual report to stockholders for the
applicable year. At all times, however, the criterion must be a valid Qualified
Performance Criterion for purposes of Section 162(m) of the Code. The Committee
may not change the performance goals or criteria for any Award that is intended
to satisfy the requirements for "performance-based compensation" under Section
162(m) for any period that has already been approved by the Committee.
Certification. Before payment of any compensation under an Award
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code, the Committee shall certify the extent to which any Qualifying
Performance Criteria and any other material terms under such Award have been
satisfied (other than in cases where such relate solely to the increase in the
value of the Common Stock).
Discretionary Adjustments Pursuant to Section 162(m).
Notwithstanding satisfaction or completion of any Qualifying Performance
Criteria, to the extent specified at the time of grant of an Award to "covered
employees" within the meaning of Section 162(m) of the Code, the number of
Shares, Options or other benefits granted, issued, retained, or vested under an
Award on account of satisfaction of such Qualifying Performance Criteria may be
reduced by the Committee on the basis of such further considerations as the
Committee in its sole discretion shall determine.
Section 409A. Notwithstanding anything in the Plan to the
contrary, it is the Company's intent that all Awards granted under this Plan
comply with Section 409A of the Code, and each Award shall be interpreted in a
manner consistent with that intention.
Financial Information. During any California Qualification Period,
the Company shall at least annually provide financial statements to Participants
as required by Section 260.140.46 of the California Code of Regulations.
Adjustments upon Changes in Capitalization, Dissolution, Merger or
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Asset Sale.
-----------
Changes in Capitalization. Subject to any required action by the
stockholders of the Company, (i) the number and kind of Shares covered by each
outstanding Award, and the number and kind of shares of Common Stock that have
been authorized for issuance under the Plan but as to which no Awards have yet
been granted or that have been returned to the Plan upon cancellation or
expiration of an Award; (ii) the price per Share subject to each such
outstanding Award; and (iii) the Share limitations set forth in Section 3 of the
Plan, may be appropriately adjusted if any change is made in the Common Stock
subject to the Plan, or subject to any Award, without the receipt of
consideration by the Company through a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, merger,
consolidation, reorganization, recapitalization, reincorporation, spin-off,
dividend in property other than cash, liquidating dividend, extraordinary
dividends or distributions, combination of shares, exchange of shares, change in
corporate structure or other transaction effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." The Administrator shall make such adjustment
in its sole discretion, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Award.
Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Participant as soon as practicable before the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Option to be
fully vested and exercisable until ten days before such proposed transaction. In
addition, the Administrator may provide that any restrictions on any Award shall
lapse before the proposed transaction, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Award will terminate immediately
before the consummation of such proposed transaction.
Change in Control. If there is a Change in Control of the Company,
as determined by the Board or a Committee, the Board or Committee, or board of
directors of any surviving entity or acquiring entity may, in its discretion,
(i) provide for the assumption, continuation or substitution (including an award
to acquire substantially the same type of consideration paid to the stockholders
in the transaction in which the Change in Control occurs) of, or adjustment to,
all or any part of the Awards; (ii) accelerate the vesting of all or any part of
the Options and SARs and terminate any restrictions on all or any part of the
Stock Awards or Cash Awards; (iii) provide for the cancellation of all or any
part of the Awards for a cash payment to the Participants; and (iv) provide for
the cancellation of all or any part of the Awards as of the closing of the
Change in Control; provided, that the Participants are notified that they must
exercise or redeem their Awards (including, at the discretion of the Board or
Committee, any unvested portion of such Award) at or before the closing of the
Change in Control.
Amendment and Termination of the Plan.
--------------------------------------
Amendment and Termination. The Administrator may amend, alter, or
discontinue the Plan or any Award Agreement, but any such amendment shall be
subject to approval of the stockholders of the Company in the manner and to the
extent required by Applicable Law.
Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially impair the rights of any Award, unless
agreed otherwise between the Participant and the Administrator. Termination of
the Plan shall not affect the Administrator's ability to exercise the powers
granted to it hereunder with respect to Awards granted under the Plan before the
date of such termination.
Effect of the Plan on Other Arrangements. Neither the adoption of
the Plan by the Board or a Committee nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations on the power of the Board or any Committee to adopt such other
incentive arrangements as it or they may deem desirable, including the granting
of restricted stock or stock options otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
Designation of Beneficiary.
---------------------------
An Awardee may file a written designation of a beneficiary who is
to receive the Awardee's rights pursuant to Awardee's Award or the Awardee may
include his or her Awards in an omnibus beneficiary designation for all benefits
under the Plan. To the extent that Awardee has completed a designation of
beneficiary such beneficiary designation shall remain in effect with respect to
any Award hereunder until changed by the Awardee to the extent enforceable under
Applicable Law.
The Awardee may change such designation of beneficiary at any time
by written notice. If an Awardee dies and no beneficiary is validly designated
under the Plan who is living at the time of such Awardee's death, the Company
shall allow the executor or administrator of the estate of the Awardee to
exercise the Award, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may allow the
spouse or one or more dependents or relatives of the Awardee to exercise the
Award to the extent permissible under Applicable Law.
No Right to Awards or to Service. No person shall have any claim or
right to be granted an Award and the grant of any Award shall not be construed
as giving an Awardee the right to continue in the service of the Company or its
Affiliates. Further, the Company and its Affiliates expressly reserve the right,
at any time, to dismiss any Service Provider or Awardee at any time without
liability or any claim under the Plan, except as provided herein or in any Award
Agreement entered into hereunder.
Preemptive Rights. No Shares will be issued under the Plan in violation
of any preemptive rights held by any stockholder of the Company.
Legal Compliance. No Share will be issued pursuant to an Award under
the Plan unless the issuance and delivery of such Share, as well as the exercise
of such Award, if applicable, will comply with Applicable Laws. Issuance of
Shares under the Plan shall be subject to the approval of counsel for the
Company with respect to such compliance. Notwithstanding anything in the Plan to
the contrary, the Plan is intended to comply with the requirements of Section
409A of the Code and shall be interpreted in a manner consistent with that
intention.
Inability to Obtain Authority. To the extent the Company is unable to
or the Administrator deems that it is not feasible to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
the Company shall be relieved of any liability with respect to the failure to
issue or sell such Shares as to which such requisite authority shall not have
been obtained.
Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Notice. Any written notice to the Company required by any provisions of
this Plan shall be addressed to the Secretary of the Company and shall be
effective when received.
Governing Law; Interpretation of Plan and Awards.
-------------------------------------------------
This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the substantive laws, but not the choice of law
rules, of the state of Nevada.
If any provision of the Plan or any Award granted under the Plan
is declared to be illegal, invalid, or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the
extent necessary to render it legal, valid, and enforceable, or otherwise
deleted, and the remainder of the terms of the Plan and Award shall not be
affected except to the extent necessary to reform or delete such illegal,
invalid, or unenforceable provision.
The headings preceding the text of the sections hereof are
inserted solely for convenience of reference, and shall not constitute a part of
the Plan, nor shall they affect its meaning, construction or effect.
The terms of the Plan and any Award shall inure to the benefit of
and be binding upon the parties hereto and their respective permitted heirs,
beneficiaries, successors, and assigns.
All questions arising under the Plan or under any Award shall be
decided by the Administrator in its total and absolute discretion. If the
Participant believes that a decision by the Administrator with respect to such
person was arbitrary or capricious, the Participant may request arbitration with
respect to such decision. The review by the arbitrator shall be limited to
determining whether the Administrator's decision was arbitrary or capricious.
This arbitration shall be the sole and exclusive review permitted of the
Administrator's decision, and the Awardee shall as a condition to the receipt of
an Award be deemed to waive explicitly any right to judicial review.
Limitation on Liability. The Company and any Affiliate or Related
Corporation that is in existence or hereafter comes into existence shall not be
liable to a Participant, an Employee, an Awardee, or any other persons as to:
The Non-Issuance of Shares. The non-issuance or sale of Shares as
to which the Company has been unable to obtain from any regulatory body having
jurisdiction the authority deemed by the Company's counsel to be necessary to
the lawful issuance and sale of any shares hereunder; and
Tax Consequences. Any tax consequence expected, but not realized,
by any Participant, Employee, Awardee or other person due to the receipt,
exercise or settlement of any Option or other Award granted hereunder.
Unfunded Plan. Insofar as it provides for Awards, the Plan shall be
unfunded. Although bookkeeping accounts may be established with respect to
Awardees who are granted Stock Awards under this Plan, any such accounts will be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by Awards, nor shall
this Plan be construed as providing for such segregation, nor shall the Company
or the Administrator be deemed a trustee of stock or cash to be awarded under
the Plan. Any liability of the Company to any Participant with respect to an
Award shall be based solely upon any contractual obligations that may be created
by the Plan; no such obligation of the Company shall be deemed secured by any
pledge or other encumbrance on any property of the Company. Neither the Company
nor the Administrator shall be required to give any security or bond for the
performance of any obligation that may be created by this Plan.
IN WITNESS WHEREOF, the Company, by its duly authorized officer,
has executed this Plan, effective as of _____________, 2006.
DGSE COMPANIES, INC.
By:
---------------------------
Its:
---------------------------
PROXY DGSE Companies, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dr. L. S. Smith and John Benson as Proxies,
each with the power to appoint his substitute and hereby authorizes them to
represent and to vote as designed below, all the shares of Common Stock of DGSE
Companies, Inc. held of record by the undersigned on May 1, 2006, at the Annual
Meeting of Shareholders to be held June 27, 2006, or any adjournment thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below(except WITHHOLD AUTHORITY to vote for
as marked to the contrary below) ____ all nominees listed ____
INSTRUCTION: To withhold authority to vote for any individual, cross out
the nominee's name in the List below.
Dr. L. S. Smith - W. H. Oyster - William P. Cordeiro Craig Alan-Lee -
Paul Hagen
2. APPROVAL OF the 2006 Equity Incentive Plan
FOR _____ AGAINST ______ ABSTAIN FROM VOTING _______
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 AND FOR PROPOSAL 2.
Please sign exactly as name below.
When shares are held by joint tenants,
both should sign. When signing as
attorney, as executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.
Dated:__________________________, 2006
Signature_____________________________
Signature if held jointly_____________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.