SCHEDULE 14A INFORMATION
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Ultralife Batteries, Inc.
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ULTRALIFE BATTERIES, INC.
2000 TECHNOLOGY PARKWAY
NEWARK, NEW YORK 14513
April 29, 2004
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Ultralife Batteries, Inc. on Thursday, June 10, 2004 at 10:30 A.M. at the JP
Morgan Chase Conference Center, 270 Park Avenue, 11th Floor, Room C, New York,
New York 10017.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement describe in detail the matters expected to be acted upon at the
meeting. This package also contains the Company's 2003 Annual Report to
Stockholders, which consists of the Company's annual report and Form 10-K for
the year ended December 31, 2003 that sets forth important business and
financial information concerning the Company.
We hope you will be able to attend this year's Annual Meeting.
Very truly yours,
John D. Kavazanjian
President and Chief Executive Officer
ULTRALIFE BATTERIES, INC.
2000 TECHNOLOGY PARKWAY
NEWARK, NEW YORK 14513
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 10, 2004
Notice is hereby given that the 2004 Annual Meeting of Stockholders (the
"Meeting") of Ultralife Batteries, Inc. (the "Company") will be held on
Thursday, June 10, 2004 at 10:30 A.M. at the JP Morgan Chase Conference Center,
270 Park Avenue, 11th Floor, Room C, New York, New York 10017 for the following
purposes:
1. to elect directors for a term of one year and until their successors
are duly elected and qualified;
2. to approve and ratify the selection of PricewaterhouseCoopers LLP as
the Company's independent auditors for the fiscal year ending December 31, 2004;
3. to approve the adoption of the 2004 Ultralife Long-Term Incentive Plan;
and
4. to transact such other business as may properly come before the Meeting
and any adjournments thereof.
Only stockholders of record of Common Stock, par value $.10 per share, of
the Company at the close of business on April 19, 2004 are entitled to receive
notice of, and to vote at and attend the Meeting. If you do not expect to be
present, you are requested to fill in, date and sign the enclosed Proxy, which
is solicited by the Board of Directors of the Company, and to return it promptly
in the enclosed envelope. In the event you decide to attend the Meeting in
person, you may, if you desire, revoke your proxy and vote your shares in
person.
The Company's Annual Report to Stockholders for the year ending December
31, 2003, which includes the Company's Form 10-K, is enclosed.
By Order of the Board of Directors
Ranjit C. Singh
Chairman of the Board of Directors
Dated: April 29, 2004
Table of Contents
Title Page
----- ----
INFORMATION CONCERNING SOLICITATION AND VOTING.................................1
PROPOSAL 1 - ELECTION OF DIRECTORS.............................................2
CORPORATE GOVERNANCE...........................................................5
General....................................................................5
Committees of the Board....................................................5
Executive Committee........................................................5
Audit and Finance Committee................................................5
Governance Committee.......................................................6
Compensation and Management Committee......................................6
Stockholder Recommendations for Director Nominations.......................6
Annual Meeting Attendance..................................................7
Executive Sessions.........................................................7
Communicating with the Board of Directors..................................7
Code of Ethics.............................................................7
DIRECTORS' COMPENSATION........................................................7
Directors' Cash Compensation...............................................8
Directors' Options.........................................................8
EXECUTIVE OFFICERS.............................................................9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................11
SECTION 16(a) REPORTING.......................................................12
EXECUTIVE COMPENSATION........................................................13
SUMMARY COMPENSATION TABLE....................................................14
OPTION GRANTS IN 2003.........................................................15
AGGREGATED OPTION EXERCISES IN 2003 AND DECEMBER 31, 2003 OPTION VALUES.......16
EMPLOYMENT ARRANGEMENTS.......................................................16
401(k) PLAN...................................................................17
REPORT OF COMPENSATION AND MANAGEMENT COMMITTEE CONCERNING EXECUTIVE
COMPENSATION................................................................18
Overview..................................................................18
Salary and Bonus..........................................................18
Stock Options.............................................................19
Employee Benefit Plans....................................................19
Chief Executive Officer...................................................19
PERFORMANCE GRAPH.............................................................20
REPORT OF THE AUDIT AND FINANCE COMMITTEE.....................................20
PROPOSAL 2 - APPROVE AND RATIFY AUDITORS......................................21
Principal Accountant Fees and Services....................................21
Other Items...............................................................22
PROPOSAL 3 - APPROVE THE ADOPTION OF THE ULTRALIFE 2004 LONG-TERM
INCENTIVE PLAN..............................................................22
Summary of 2004 Incentive Plan............................................23
New Plan Benefits.........................................................27
Securities Act Registration...............................................27
Tax Status of 2004 Incentive Plan Awards..................................27
Stock Price...............................................................29
Required Vote and Board of Directors' Recommendation......................29
OTHER MATTERS.................................................................29
SUBMISSION OF STOCKHOLDER PROPOSALS...........................................29
================================================================================
IMPORTANT
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED
TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
================================================================================
ULTRALIFE BATTERIES, INC.
2000 TECHNOLOGY PARKWAY
NEWARK, NEW YORK 14513
(315) 332-7100
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 10, 2004
INFORMATION CONCERNING SOLICITATION AND VOTING
This proxy statement is furnished to stockholders in connection with the
solicitation of proxies by the Board of Directors of Ultralife Batteries, Inc.
(the "Company") for use at the 2004 Annual Meeting of Stockholders (the
"Meeting") to be held on Thursday, June 10, 2004, at 10:30 A.M. and at any
adjournments thereof. The Meeting will be held at the JP Morgan Conference
Center, 270 Park Avenue, 11th Floor, Room C, New York, New York 10017.
The approximate date on which the enclosed form of proxy and this proxy
statement are first being sent to stockholders of the Company is May 4, 2004.
When a proxy is returned properly signed, the shares represented thereby
will be voted in accordance with the stockholder's directions. If the proxy is
signed and returned without choices having been specified, the shares will be
voted FOR the election of each director-nominee named herein, and FOR each of
the other proposals identified herein. If for any reason any of the nominees for
election as directors shall become unavailable for election, discretionary
authority may be exercised by the proxies to vote for substitute nominees
proposed by the Board of Directors of the Company. A stockholder has the right
to revoke a previously granted proxy at any time before it is voted by filing
with the Secretary of the Company a written notice of revocation, or a duly
executed later-dated proxy, or by requesting return of the proxy at the Meeting
and voting in person.
Only stockholders of record at the close of business on April 19, 2004 are
entitled to notice of, and to vote at, the Meeting. As of April 19, 2004, there
were 14,060,257 shares of the Company's Common Stock, par value $.10 per share
("Common Stock"), issued and outstanding, each entitled to one vote per share at
the Meeting. A majority of the outstanding shares of Common Stock, represented
in person or by proxy at the Meeting, will constitute a quorum for the
transaction of all business.
Pursuant to the provisions of the Delaware General Corporation Law,
directors shall be elected by a plurality of the votes cast by the holders of
shares of Common Stock present in person or represented by proxy at the Meeting
and entitled to vote at the Meeting. Because directors are elected by a
plurality of the votes cast, withholding authority to vote with respect to one
or more nominees will have no effect on the outcome of the election, although
such shares would be counted as present for purposes of determining the
existence of a quorum. Similarly, any broker non-votes (which occur when shares
held by brokers or nominees for beneficial owners are voted on some matters but
not on others in the absence of instructions from the beneficial owner) are not
considered to be votes cast and therefore would have no
1
effect on the outcome of the election of directors, although they would be
counted for quorum purposes. The affirmative vote of holders of a majority of
the shares of Common Stock represented at the Meeting and entitled to vote on
the proposal to ratify the Company's auditors and to approve the adoption of our
Long-Term Incentive Plan is required for approval of each of those proposals.
Accordingly, abstentions and any broker non-votes, since they are considered to
be represented at the Meeting, would have the same effect as votes cast against
those proposals.
The cost of solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by use of the mails, some of the
officers, directors and regular employees of the Company, without extra
remuneration, may solicit proxies personally or by telephone, telefax or similar
transmission. The Company will reimburse record holders for expenses in
forwarding proxies and proxy soliciting material to the beneficial owners of the
shares held by them.
Effective December 31, 2002, the Company changed its fiscal year-end from
June 30 to December 31. The calendar year period ended December 31, 2003 is
referred to as "2003." The six month period ended December 31, 2002 for which
certain information is presented in this proxy statement is referred to as the
"Transition Period". Full 12-month fiscal periods that ended June 30 prior to
the Transition Period are referred to as "Fiscal" years. For instance, the year
ended June 30, 2002 is referred to as Fiscal 2002, and the year ended June 30,
2001 is referred to as Fiscal 2001.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors currently has eight directors, six of whom are
running for reelection for a one year period. Joseph C. Abeles, a founder of our
Company and a director since March 1991, and Joseph N. Barrella, also a founder
of our Company and a director, are not standing for re-election at the Meeting.
In recognition of his many years of service to us, the Board of Directors has
bestowed the honorary title of Director Emeritus on Mr. Abeles. Effective on the
date of the Meeting, Mr. Abeles will no longer sit on our Board of Directors or
on any of its committees. Mr. Barrella will become an ex-officio non-voting
invitee to meetings of our Board of Directors and will be allowed to attend and
participate in Board meetings at the pleasure of the Board. While Mr. Barrella
will no longer be a member of our Board of Directors, he will continue to serve
our Company as our Senior Vice President of New Business Development. Anthony J.
Cavanna, a current director, was appointed by the Board of Directors to fill a
vacancy in December 2003 and accordingly is being nominated for stockholder
approval for the first time. Paula H.J. Cholmondeley is being nominated for the
first time. Directors are elected by a plurality of the votes cast by the
stockholders of the Company at a stockholders meeting at which a quorum of
shares is represented. Each director shall serve until the next annual meeting
of stockholders and until the successors of such directors shall have been
elected and qualified. The names of, and certain information with respect to,
the persons nominated for election as directors are presented on the following
pages.
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Ranjit C. Singh 51 Mr. Singh has been a director of the Company since
August 2000, and has served as Chairman of the
Board since December 2001. Mr. Singh is currently
President and Chief Executive Officer of Tech
Books, a position he has held since February 2003.
Since February 2002, he has served as President and
Chief Executive Officer of Reliacast Inc., a video
streaming software and services company. Prior to
that, he was President and Chief Operating Officer
of
2
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
ContentGuard, a spinoff of Xerox Corporation that
is jointly owned with Microsoft. ContentGuard
develops and markets digital property rights
software. Before joining ContentGuard earlier in
2000, Mr. Singh worked for Xerox as a corporate
Senior Vice President in various assignments
related to software businesses. Mr. Singh joined
Xerox in 1997, having come from Citibank where he
was Vice President of Global Distributed Computing.
Prior to that, he was a principal at two start-up
companies and also held executive positions at Data
General and Digital Equipment Corporation.
Patricia C. Barron 62 Ms. Barron has been a director of the Company since
September 2000. Ms. Barron serves as a director of
Aramark Corporation, Quaker Chemical Corp.,
Teleflex Corporation and United Services Automobile
Association. She also serves on a number of
non-profit organizations, with a focus on education
and health. Ms. Barron had a 28-year career in
business. She was an Associate at McKinsey and
Company and then moved to Xerox Corporation where
she became a Corporate Officer and held the
positions of Chief Information Officer, President,
Office Products Division, and President, Xerox
Engineering Systems. Most recently she has been a
Clinical Associate Professor at Stern Business
School, New York University, where she focused on
issues of corporate governance and leadership.
Anthony J. Cavanna 64 Mr. Cavanna has been a director of the Company
since December 2003. He was Executive Vice
President and Chief Financial Officer of Trex
Company, Inc., the nation's largest manufacturer of
alternative decking products, from April 1999 until
December 2003, and is currently a director of that
company. Before forming Trex in 1996 by leading a
management buyout from Mobil Chemical Company, Mr.
Cavanna spent 33 years in a variety of positions
with Mobil, including Group Vice President, Vice
President-Planning and Finance, Vice President of
Mobil Chemical and General Manager of its Films
Division worldwide, President and General Manager
of Mobil Plastics Europe and Vice
President-Planning and Supply of the Films
Division.
3
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Daniel W. Christman 60 Mr. Christman was appointed to the Board of
Directors in August of 2001. He is currently Senior
Vice President International Affairs for the U.S.
Chamber of Commerce, a position he has held since
June 2003, and was previously the Executive
Director of the Kimsey Foundation in Washington,
D.C. Prior to that, he was Superintendent for the
U.S. Military Academy at West Point, New York from
June 1996 until July 2001. He currently serves as a
director of United Services Automobile Association,
an insurance mutual corporation, Mykrolis
Corporation, a semi conductor equipment
manufacturer, and Metal Storm Limited, a defense
research and development company.
Paula H.J. Cholmondeley 57 Ms. Cholmondeley is being nominated as a director
for the first time at the Meeting. She is
currently an independent consultant with financial
accounting expertise. From 2000 to 2004, she was
Vice President and General Manager, Specialty
Products of Sappi Fine Paper, North America. She
has occupied management positions in Owens Corning,
the Faxon Company and Blue Cross Blue Shield of
Greater Philadelphia. Ms. Cholmondeley is a
certified public accountant and Sarbanes-Oxley
"designated financial expert" and currently serves
on the Board of Directors and as a member of the
Audit Committee of Dentsply International, a NASDAQ
National Market company, and is a member of the
Board of Directors and Audit Committee Chair of
Gartmore Capital, a mutual fund.
John D. Kavazanjian 53 Mr. Kavazanjian was elected as the Company's
President and Chief Executive Officer effective
July 12, 1999 and as a director on August 25, 1999.
Prior to joining the Company, Mr. Kavazanjian
worked for Xerox Corporation from 1994 in several
capacities, most recently as Corporate Vice
President, Chief Technology Officer, Document
Services Group.
Carl H. Rosner 74 Mr. Rosner, a director of the Company since January
1992, is currently President and Chief Executive
Officer of CardioMag Imaging, Inc. and the former
Chairman of Intermagnetics General Corporation
("IGC"). Mr. Rosner, a founder of IGC, was Chairman
of IGC since its formation until his retirement in
2002, and was President and Chief Executive Officer
until May 31, 1999. He is currently
Chairman-Emeritus of IGC.
The Board of Directors has unanimously approved the above-named nominees
for directors. The Board of Directors recommends a vote FOR all of these
nominees.
4
CORPORATE GOVERNANCE
General
Pursuant to the General Corporation Law of the State of Delaware, the
state under which the Company was organized, and the Company's By-laws, the
Company's business, property and affairs are managed by or under the direction
of our Board of Directors. Members of the Board of Directors are kept informed
of Company business through discussions with the Company's Chief Executive
Officer and other corporate officers, by reviewing materials provided to them
and by participating in meetings of the Board and its committees. The Board of
Directors has four standing committees: an Executive Committee, an Audit and
Finance Committee, a Governance Committee and a Compensation and Management
Committee. During 2003, the Board of Directors held six meetings and the
standing committees of the Board of Directors held a total of eleven meetings.
Each director attended at least 75% of the aggregate of: (1) the total
number of meetings of the Board (held during the period for which such person
has been a director); and (2) the total number of meetings held by all
committees of the Board on which such member served.
The Board of Directors has adopted a charter for each of the four standing
committees that addresses the composition and function of each committee and has
also adopted corporate governance principles that address the composition and
function of the Board of Directors. These charters are available on the
Company's website at www.ultralifebatteries.com, and the Audit Committee Charter
is also included as Appendix A to this Proxy Statement.
The Board of Directors has determined that all of the directors who serve
on these committees (other than Mr. Kavazanjian who sits on the Executive
Committee) are "independent" for purposes of the corporate governance listing
standards of The Nasdaq Stock Market, Inc., and that the members of the Audit
Committee are also "independent" for purposes of Section 10A(m)(3) of the
Securities Exchange Act of 1934, as amended. The Board of Directors based these
determinations primarily on a review of the responses of the directors to
questions regarding employment, compensation history, affiliations and family
and other relationships, and on follow-up discussions.
Committees of the Board
Executive Committee
The current members of the Executive Committee are Ranjit C. Singh, Joseph
C. Abeles, Carl H. Rosner and John D. Kavazanjian (Chair). This committee is
responsible for overseeing such matters as the Board of Directors determines
from time to time and takes action in between regularly scheduled meetings of
our Board of Directors when it is infeasible to convene the entire Board. The
Executive Committee did not meet during 2003.
Audit and Finance Committee
The current members of the Audit and Finance Committee are Carl H. Rosner
(Chair), Ranjit C. Singh and Joseph C. Abeles. This committee has oversight
responsibility for reviewing the scope and results of the independent auditor's
annual examination of the Company's financial statements and the quality and
integrity of those financial statements, the qualifications and independence of
the independent auditors, meeting with the Company's financial management and
the independent auditor to review matters relating to internal accounting
controls, the Company's accounting practices and procedures and
5
other matters relating to the financial condition of the Company. The Audit and
Finance Committee met six times during 2003.
The Board of Directors has determined that each of the members of the
Audit Committee is "financially literate" in accordance with Nasdaq Corporate
Governance Listing Standards. In addition, the Board of Directors has determined
that Mr. Rosner qualifies as an "Audit Committee Financial Expert" as defined in
Item 401(h) of Regulation S-K.
Governance Committee
The members of the Governance Committee are currently Patricia C. Barron
(Chair), Ranjit C. Singh and Daniel W. Christman, all of whom are independent
directors. This committee reviews the performance of the Company's directors,
makes recommendations to the Board of Directors for membership and committee
assignments and manages the annual evaluation of the performance of the
Company's Chief Executive Officer. The Governance Committee met two times during
2003.
Compensation and Management Committee
The current members of the Compensation and Management Committee are
Daniel W. Christman (Chair), Patricia C. Barron and Joseph C. Abeles. The
Compensation and Management Committee has general responsibility for
recommending to the Board of Directors remuneration for the Chairman and
determining the remuneration of other officers elected by the Board of
Directors, granting stock options and otherwise administering the Company's
stock option plans, and approving and administering any other compensation plans
or agreements. If approved by our stockholders at the Meeting, our 2004
Long-Term Incentive Plan will be administered by the Compensation and Management
Committee. See "PROPOSAL 3 - APPROVE THE ADOPTION OF THE ULTRALIFE 2004
LONG-TERM INCENTIVE PLAN." The Compensation and Management Committee met three
times during 2003.
Stockholder Recommendations for Director Nominations
As noted above, the Governance Committee considers and establishes
procedures regarding recommendations for nomination to the Board of Directors,
including nominations submitted by stockholders. Such recommendations should be
sent to the Company, to the attention of the Corporate Secretary, Ultralife
Batteries, Inc., 2000 Technology Parkway, Newark, New York 14513. Any
recommendations submitted to the Corporate Secretary should be in writing and
should include any supporting material the stockholder considers appropriate in
support of that recommendation, but must include the information that would be
required under the rules of the SEC in a proxy statement soliciting proxies for
the election of such candidate and a signed consent of the candidate to serve as
a director of the Company, if elected. The Governance Committee evaluates all
potential candidates in the same manner, regardless of the source of the
recommendation.
Based on the information provided to the Governance Committee, it will
make an initial determination whether to conduct a full evaluation of a
candidate. As part of the full evaluation process, the Governance Committee may
conduct interviews, obtain additional background information and conduct
reference checks of candidates. The Governance Committee may also ask the
candidate to meet with management and other members of the Board of Directors.
In evaluating a candidate, the Board, with the assistance of the Governance
Committee, takes into account a variety of factors as described in the Company's
Corporate Governance Principles.
6
Annual Meeting Attendance
The Company's policy is that all of the directors, absent special
circumstances, should attend the Company's Annual Meeting of Stockholders. A
regular meeting of the Board of Directors is typically scheduled in conjunction
with the Annual Meeting of Stockholders. All directors other than Messrs.
Christman and Rosner attended last year's Annual Meeting of Stockholders.
Executive Sessions
Our Corporate Governance Principles require our Board of Directors to meet
in executive session regularly by requiring our independent directors to have at
least four regularly-scheduled meetings per year without any management present.
Communicating with the Board of Directors
Stockholders interested in communicating directly with the Board of
Directors as a group may do so in writing to the Company's Corporate Secretary,
Ultralife Batteries, Inc., 2000 Technology Parkway, Newark, New York 14513. The
Corporate Secretary will review all such correspondence and forward to the Board
of Directors a summary of that correspondence and copies of any correspondence
that, in his opinion, deals with the functions of the Board of Directors or that
he otherwise determines requires their attention. Directors may at any time
review a log of all correspondence received by the Company that is addressed to
members of the Board of Directors and request copies of any such correspondence.
Any concerns relating to accounting, internal controls or auditing matters will
be brought to the attention of the Audit and Finance Committee and handled in
accordance with the procedures established by the Audit and Finance Committee
with respect to such matters.
Code of Ethics
The Company has a Code of Ethics applicable to all employees, including
the Chief Executive Officer and the Chief Financial Officer, and, to the extent
it applies to their activities, all members of the Board of Directors. Our Code
of Ethics incorporates the elements of a code of ethics specified in Item 406 of
Regulation S-K and also complies with Nasdaq requirements for a code of conduct.
Stockholders can find a link to this Code of Ethics on the Company's website at
www.ultralifebatteries.com. The Company intends to post amendments to or waivers
(express or implied) from the Code of Ethics (to the extent applicable to the
Chief Executive Officer or Chief Financial Officer) at the same location on the
Company's website as the Code of Ethics.
DIRECTORS' COMPENSATION
In 2003, the Company retained The Carter Group to perform a comparative
analysis of the compensation of the Company's Board of Directors. The Carter
Group compared total compensation, cash and equity-based, received by the
Company's directors with that received by directors of companies with similar
profiles based on products and markets. That analysis concluded that our
Company's directors were undercompensated on a comparative basis and that an
increase in their cash and equity compensation was warranted. Taking into
account the recommendations of The Carter Group, the Board of Directors
increased cash compensation as more specifically set forth below and chose not
to increase equity compensation.
7
Directors' Cash Compensation
During 2003, each non-employee director received a $2,000 quarterly
retainer, and the Chairman of the Board received a $3,750 quarterly retainer.
Each non-employee director also received $750 for each Board meeting attended;
subject, however, to the provision that the meeting compensation was reduced by
50% if the director participated by conference call. In addition, each committee
member received $500 for each committee meeting attended, whether in person or
by conference call, and each committee chair, other than Mr. Kavazanjian,
received an annual retainer of $2,500. For Board and committee service during
2003, the Company paid its directors an aggregate $86,000.
Effective January 1, 2004, each non-employee director receives a $3,000
quarterly retainer, and the Chairman of the Board receives a $5,000 quarterly
retainer. Each non-employee director also receives $1,000 for each Board meeting
attended; subject, however, to the provision that the meeting compensation is
reduced by 50% if the director participated by conference call. Each
non-employee director also receives $750 for each Board committee meeting
attended, whether in person or by telephone. The Chairman of the Audit Committee
receives a $1,250 quarterly retainer, and the Chairmen of the Governance and
Compensation and Management Committees receive a $625 quarterly retainer.
Directors' Options
In addition, during 2003, each incumbent non-employee director received
options at the end of each calendar quarter to purchase an aggregate 3,000
shares of Common Stock. The Chairman of our Board of Directors received an
additional 2,000 share option at the end of each calendar quarter. Of these
quarterly option grants, options for 1,500 shares vested immediately and options
for the remaining shares vested after six months. All options have a term of
five years from the date of grant and were granted at an exercise price equal to
the closing price of the Common Stock on the date of grant. In accordance with a
policy adopted in December 2003, upon their appointment or election, newly
appointed or elected directors receive an option for twice the number of shares
subject to the normal quarterly option grant and thereafter receive their normal
quarterly option grants. Options for an aggregate 17,000 shares were granted on
March 31, 2003 at an exercise price of $4.19 per share, options for an aggregate
17,000 shares were granted on June 30, 2003 at an exercise price of $10.00 per
share, options for an aggregate 17,000 shares were granted on September 30, 2003
at an exercise price of $14.38 per share, and options for an aggregate 23,000
shares were granted on December 31, 2003 at an exercise price of $12.38 per
share.
8
EXECUTIVE OFFICERS
The names of, and certain information with respect to the Company's
executive officers who are not director nominees are presented on the following
pages.
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Joseph N. Barrella 57 Mr. Barrella, one of the founders of the Company
and currently a director, has held strategic
positions throughout the Company's existence. Mr.
Barrella will not be standing for re-election to
our Board of Directors and will become an
ex-officio non-voting invitee to meetings of our
Board. Mr. Barrella will continue to serves as
Senior Vice President of New Business Development,
a position he has held since December 1998. Mr.
Barrella has been involved in the development and
manufacture of lithium batteries for more than 25
years. He holds a number of patents relating to
lithium battery designs and has authored several
publications relating to battery technology.
Julius M. Cirin 50 Mr. Cirin, a battery industry veteran, has served
as Vice President of Product and Industry Marketing
since March 2002, having served as Vice President
of Corporate Marketing prior to that. Prior to
joining the Company at its founding in March 1991
as Director of Marketing, Mr. Cirin served as
Quality Assurance Manager for Eastman Kodak Company
in the Ultra Technologies Division from 1986 to
1989. From 1979 to 1986, Mr. Cirin worked at
Duracell USA in several product and process
engineering and quality management positions. Mr.
Cirin has a B.S. in Marketing Management from St.
John Fisher College in Rochester, New York.
Peter F. Comerford 46 Mr. Comerford was named Vice President of
Administration and General Counsel on July 1, 1999
and was elected Secretary of the Company in
December 2000. He joined the Company in May of 1997
as Senior Corporate Counsel and was appointed
Director of Administration and General Counsel in
December of that year. Prior to joining the
Company, Mr. Comerford was a practicing attorney
for approximately fourteen years having worked
primarily in municipal law departments including
the City of Niagara Falls, New York where he served
as the Corporation Counsel. Mr. Comerford has a
B.A. from the State University of New York at
Buffalo, an MBA from Canisius College and a J.D.
from the University of San Diego School of Law.
Robert W. Fishback 48 Mr. Fishback joined the Company in December 1998 as
Corporate Controller. He became Vice President of
9
Name Age Present Principal Occupation and Employment History
---- --- ---------------------------------------------------
Finance and Chief Financial Officer in October 1999
and was appointed Treasurer of the Company in
December 2002. Prior to joining the Company, Mr.
Fishback served as Controller-Shared Services for
ITT Industries, a diversified manufacturing
company, from 1997 to 1998. From 1995 to 1997, he
was Director-Corporate Accounting for Goulds Pumps
Inc., a manufacturer of industrial and commercial
pumps. From 1983 to 1995, Mr. Fishback served in
various managerial capacities in finance and
operations with Frontier Corporation, a provider of
local and long-distance telecommunications
services. He is a CPA and has an MBA in Finance
from the State University of New York at Buffalo.
His undergraduate degree in Accounting is from
Grove City College.
Patrick R. Hanna, Jr. 55 Mr. Hanna has served as Vice President of Corporate
Business Strategy since December 2001. He joined
the Company in February 2000 as Director of
Strategic Planning after a 23-year career with
Xerox Corporation. Mr. Hanna served in many
capacities in the areas of strategic and business
planning development, most recently as the
Strategic Planning Manager of the Xerox Internet
and Software Services organization.
Nancy C. Naigle 56 Ms. Naigle, currently Vice President of Sales and
Marketing, joined the Company as Vice President of
Worldwide Sales in January 2001 after a 20 year
career with Xerox Corporation where she held
multiple sales and general management positions,
most recently as Vice President and General Manager
of the Software Solutions Business Group. Ms.
Naigle has an MA in English and Computer Science
and a B.A. in English and Mathematics from the
University of Texas in Arlington, and an MBA from
the University of Dallas.
William A. Schmitz 41 Mr. Schmitz, currently Chief Operating Officer,
joined the Company in December 1999 as Vice
President, Manufacturing, and became Vice President
and General Manager, Primary Batteries in 2000 and
Chief Operating Officer in November 2001. Before
this, Mr. Schmitz worked for Bausch & Lomb from
1985 to 1999 in several positions, most recently as
Director, New Product Development in the Eyewear
Division from 1995 to 1999. Mr. Schmitz has an M.S.
in Operations Management from the University of
Rochester and a B.S. in Mechanical Engineering from
the Rochester Institute of Technology.
10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of March 31, 2004 by (i)
each person known by the Company to beneficially own more than five percent of
the outstanding shares of Common Stock, (ii) each director, director nominee and
Named Executive Officer of the Company, and (iii) all directors, director
nominee and executive officers of the Company as a group.
Name and Address of Number of Shares Percent
Beneficial Owner (1) Beneficially Owned Beneficially Owned (16)
--------------------------- -------------------- ------------------------
Grace Brothers, Ltd. (2) 983,418 6.99%
Wall Street Associates(3) 761,000 5.41%
Joseph C. Abeles (4) 465,931 3.31%
Patricia C. Barron (5) 43,909 *
Anthony J. Cavanna (6) 7,500 *
Paula H.J. Cholmondeley 0 *
Daniel W. Christman (7) 36,777 *
John D. Kavazanjian (8) 312,000 2.17%
Carl H. Rosner (9) 78,311 *
Ranjit C. Singh (10) 63,505 *
Joseph N. Barrella (11) 132,482 *
Robert W. Fishback (12) 36,003 *
Nancy C. Naigle (13) 10,500 *
William A. Schmitz (14) 23,993 *
All directors and executive
officers as a group
(15 persons)(15) 1,242,918 8.51%
----------
*Less than 1%
(1) Except as otherwise indicated, the stockholders named in this table have
sole voting and investment power with respect to the shares of Common
Stock beneficially owned by them. The information provided in this table
is based upon information provided to the Company by such stockholders.
The above table reports beneficial ownership for the Company's directors
and executive officers in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934. This means all Company securities over which
directors and executive officers directly or indirectly have or share
voting or investment power are listed as beneficially owned. The figures
also include shares which may be acquired by exercise of stock options
prior to May 31, 2004. The address of each of the directors and executive
officers of the Company is c/o Ultralife Batteries, Inc., 2000 Technology
Parkway, Newark, New York 14513.
(2) The amount shown is derived from Schedule 13G dated January 19, 2004.
Grace Brothers, Ltd.'s address is 1560 Sherman Avenue, Suite 900,
Evanston, Illinois 60201.
(3) The amount shown and the following information is derived from Schedule
13G dated February 12, 2004. Wall Street Associates is an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940. In its role as investment advisor, Wall Street Associates has sole
power to vote 313,100 shares and sole power to dispose of all 761,600 of
the reported shares. Wall Street Associates' address is 1200 Prospect
Street, Suite 100, La Jolla, California 92037.
(4) Includes 15,000 shares subject to options which may be exercised by Mr.
Abeles.
(5) Includes (i) 15,000 shares held jointly with Ms. Barron's husband, and
(ii) 28,909 shares subject to options which may be exercised by Ms.
Barron.
(6) Includes 7,500 shares subject to options which may be exercised by Mr.
Cavanna.
(7) Includes 34,277 shares subject to options which may be exercised by Mr.
Christman.
(8) Includes (i) 2,000 shares held by Mr. Kavazanjian's wife, and (ii) 228,000
shares subject to options which may be exercised by Mr. Kavazanjian.
(9) Includes 12,000 shares subject to options which may be exercised by Mr.
Rosner.
(10) Includes 61,505 shares subject to options which may be exercised by Mr.
Singh.
(11) Includes 67,982 shares subject to options which may be exercised by Mr.
Barrella.
(12) Includes 34,003 shares subject to options which may be exercised by Mr.
Fishback.
(13) Includes (i) 2,000 shares held jointly with Ms. Naigle's husband, and (ii)
8,500 shares subject to options which may be exercised by Ms. Naigle.
(14) Includes (i) 18,693 shares subject to options which may be exercised by
Mr. Schmitz, and (ii) 300 shares held by Mr. Schmitz' wife.
11
(15) Includes 548,376 shares subject to options which may be exercised by the
named directors and executive officers.
(16) Based on 14,060,257 shares issued and outstanding.
Section 16(a) Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than ten percent of the Company's Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than ten-percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based solely on review of
the copies of such reports furnished to the Company during 2003, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with, except as follows: Mr.
Barrella filed late with the SEC two reports disclosing two transactions, Mr.
Cavanna filed late with the SEC his initial report, Mr. Cirin filed late with
the SEC two reports disclosing two transactions, Mr. Comerford filed late with
the SEC two reports disclosing two transactions, Mr. Fishback filed late with
the SEC two reports disclosing two transactions, Mr. Hanna filed late with the
SEC two reports disclosing two transactions, Ms. Naigle filed late with the SEC
two reports disclosing two transactions and Mr. Schmitz filed late with the SEC
two reports disclosing two transactions. In the case of each individual who is
also an employee of the Company, the late filings resulted from untimely
notification of option grants.
12
EXECUTIVE COMPENSATION
The individuals named in the following tables include, as of December
31, 2003, the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company whose salary and bonus during 2003
exceeded $100,000 ("Named Executive Officers").
The following table sets forth information concerning the annual and
long-term compensation of the Named Executive Officers for all services in all
capacities to the Company and its subsidiary during 2003, the Transition Period
and during Fiscal 2002 and 2001:
13
Summary Compensation Table
All Other
Compensation
Annual Compensation Long Term Compensation (1)
-------------------------- -------- ------------------------------------ ------------------------------------- ----------------
Other Annual Restricted
Name and Principal Compensation($) Stock Underlying LTIP
Position Year Salary($) Bonus($) (2) Awards ($) Options/SARs Payouts($)
-------------------------- -------- --------- ---------- -------------- ------------- ------------ --------- ----------------
John D. Kavazanjian 2003 $279,002 $34,875 $12,002 0 0 $0 $ 0
President and Chief 2002(3) 139,501 0 10,953 0 3,000 0 0
Executive Officer 2002(4) 289,387 5,000 23,347 0 6,000 0 0
2001 299,998 0 27,001 0 6,000 0 0
Joseph N. Barrella 2003 $177,971 $77,945 $ 7,923 0 36,000 $0 $17,547
Senior Vice President 2002(3) 88,986 0 1,828 0 3,000 0 0
of New Business 2002(4) 185,577 0 16,870 0 101,000 0 0
Development 2001 196,725 0 20,544 0 6,000 0 0
William A. Schmitz 2003 $135,538 $26,587 $ 2,578 0 31,000 $0 $84,228
Chief Operating Officer 2002(3) 57,692 1,890 1,685 0 0 0 0
2002(4) 117,308 8,530 7,897 0 50,000 0 0
2001 124,647 0 15,620 0 0 0 0
Robert W. Fishback 2003 $129,461 $26,125 $ 5,411 0 29,000 0 $14,560
Vice President of 2002(3) 58,500 0 1,372 0 0 0 0
Finance and Chief 2002(4) 122,000 2,000 9,145 0 10,000 0 0
Financial Officer 2001 129,423 0 13,616 0 0 0 0
Nancy C. Naigle 2003 $126,000 $34,940 $ 4,901 0 26,000 $0 $ 0
Vice President of 2002(3) 47,923 7,560 1,903 0 0 0 0
Sales And Marketing 2002(4) 119,538 28,240 13,251 0 20,000 0 0
2001 61,923 10,000 1,790 0 25,000 0 0
John D. Joseph N. William A. Robert W. Nancy C.
Kavazanjian Barrella Schmitz Fishback Naigle
----------- -------- ------- -------- ------
Insurance
---------
2003 $12,002 $ 7,923 $ 2,578 $5,411 $ 4,901
2002(3) 10,953 1,828 1,685 1,372 1,903
2002(4) 9,286 12,915 5,790 6,465 11,645
2001 9,993 13,320 12,410 9,871 1,790
Automobile
----------
2003 $ 0 $ 0 $ 0 $ 0 $ 0
2002(3) 0 0 0 0 0
2002(4) 8,500 0 0 0 0
2001 7,500 0 0 0 0
401(k) Plan(5)
--------------
2003 $ 0 $ 0 $ 0 $ 0 $ 0
2002(3) 0 0 0 0 0
2002(4) 5,561 3,955 2,108 2,680 1,606
2001 9,855 7,862 4,364 4,149 0
(1) In each case, the amount reported is the value realized upon the exercise
of stock options.
(2) The amounts reported in this column are categorized in the table that
follows the Summary Compensation Table.
(3) For the Transition Period.
(4) For Fiscal 2002.
(5) Represents the Company's matching grants to the employees' 401(k) Plan
accounts for 2003, the Transition Period and for Fiscal 2002 and 2001.
14
The following table sets forth information concerning options granted to the
Named Executive Officers during 2003:
Option Grants in 2003
Potential Realizable Value at Assumed Annual Rates of
Individual Grants Stock Price Appreciation for Option Term (1)
----------------------------------------------------------------------- -----------------------------------------------------
5% Dollar 10% Dollar
Shares %(2) Price(3) Exp. Date Gain(4) Gain(4)
------ ---- -------- --------- ------- -------
John D. Kavazanjian -- -- -- -- -- --
President and Chief
Executive Officer
Joseph N. Barrella 1,500 .4292 $ 5.18 4/21/10 $ 3,163 $ 7,372
Senior Vice 20,000 5.7225 $ 4.96 4/25/09 $33.737 $76,539
President of 10,000 2.8613 $ 8.87 6/2/09 $30,166 $68,437
New Business 1,500 .4292 $10.00 6/30/10 $ 6,107 $14,231
Development 1,500 .4292 $14.38 9/30/10 $ 8,781 $20,464
1,500 .4292 $12.38 12/31/10 $ 7,560 $17,618
William A. Schmitz 1,500 .4292 $ 5.18 4/21/10 $ 3,163 $ 7,372
Chief Operating 25,000 7.1531 $ 4.96 4/25/09 $42,172 $95,674
Officer 1,500 .4292 $10.00 6/30/10 $ 6,107 $14,231
1,500 .4292 $14.38 9/30/10 8,781 $20,464
1,500 .4292 $12.38 12/301/10 $ 7,560 $17,618
Robert W. Fishback 1,000 .2861 $ 5.18 4/21/10 $ 2,109 $ 4,914
Vice President of 25,000 7.1531 $ 4.96 4/25/09 $42,172 $95,674
Finance and Chief 1,000 .2861 $10.00 6/30/10 $ 4,071 $ 9,487
Financial Officer 1,000 .2861 $14.38 9/30/10 $ 5,854 $13,643
1,000 .2861 $12.38 12/31/10 $ 5,040 $11,745
Nancy C. Naigle 1,500 .4292 $ 5.18 4/21/10 $ 3,163 $ 7,373
Vice President of 20,000 5.7225 $ 4.96 4/25/09 $33,737 $76,539
Sales and Marketing 1,500 .4292 $10.00 6/30/10 $ 6,107 $14,231
1,500 .4292 $14.38 9/30/10 $ 8,781 $20,464
1,500 .4292 $12.38 12/31/10 $ 7,560 $17,618
1. There is no assurance that the value realized by an employee will be at or
near the amount estimated using this model. These amounts rely on assumed
future stock price movements that cannot be predicted accurately.
2. Options for a total of 349,500 shares were granted to employees.
3. Fair market value of common stock at date of grant.
4. Fair market value of common stock at end of actual option term assuming
annual compounding at the stated rate, less the option price.
15
The following table sets forth certain information concerning the number
of shares of Common Stock acquired upon the exercise of stock options during
2003 and the number and value at December 31, 2003 of unexercised stock options
to purchase shares of Common Stock held by the Named Executive Officers.
Aggregated Option Exercises in 2003
and December 31, 2003 Option Values
Shares
Acquired Number of Unexercised Value of Unexercised in the
on Value Options/SARs at Money Options/SARs at
Exercise Realized December 31, 2003 (#) December 31, 2003 ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
-------------------------- ----------- ----------- ------------------------- -----------------------------
John D. Kavazanjian 0 0 431,000/90,000 $3,077,609/$647,280
President and Chief
Executive Officer
Joseph N. Barrella 12,000 $17,547 104,000/120,000 $612,797/$872,360
Senior Vice President
of New Business
Development
William A. Schmitz 9,307 $84,228 43,693/73,000 $267,948/$517,050
Chief Operating
Officer
Robert W. Fishback 2,000 $14,560 33,336/43,664 $224,826/$310,714
Vice President of
Finance and Chief
Financial Officer
Nancy C. Naigle 0 0 18,000/53,000 $106,990/$356,230
Vice President of Sales
and Marketing
(1) Market value of Company's Common Stock at exercise or period-end, minus
the exercise price.
The Compensation and Management Committee has revised its policy for
granting stock options to make it clear that only non-employee directors receive
an option to purchase 3,000 shares of Common Stock at the end of each calendar
quarter at an exercise price equal to the closing price of the Common Stock on
the date of grant, and that executive officers will receive seven-year stock
options at the end of each calendar quarter at an exercise price equal to the
closing price of the Common Stock on the date of grant in the following amounts:
Joseph N. Barrella, William A. Schmitz and Nancy C. Naigle - 1,500 shares;
Robert W. Fishback and Peter F. Comerford - 1,000 shares; and Julius M. Cirin
and Patrick R. Hanna, Jr. - 500 shares.
The Company currently has no long-term incentive plan. Consequently, there
have been no qualifying awards during 2003. However, the Company is submitting
to its stockholders for approval at the Meeting, the 2004 Long-Term Incentive
Plan. See "PROPOSAL 3--APPROVE THE ADOPTION OF THE ULTRALIFE 2004 LONG-TERM
INCENTIVE PLAN." Also, the Company has no employee pension plans to which it
makes contributions, except as described below under "401(k) Plan".
Employment Arrangements
In connection with the hiring of Mr. Kavazanjian as the Company's
President and Chief Executive Officer effective July 12, 1999, the Company
granted Mr. Kavazanjian the option to purchase 500,000 shares of Common Stock
for $5.19 per share, exercisable until July 12, 2005. The option vests 50,000
shares at issue and 90,000 shares on July 12, 2000, 2001, 2002, 2003 and 2004.
In September 2002, the Company entered into a new employment agreement with Mr.
Kavazanjian pursuant to which the Company agrees to pay Mr. Kavazanjian a salary
of $300,000 per annum. In addition, Mr.
16
Kavazanjian shall have one year after the termination of his employment to
exercise any vested but unexercised stock options. On February 1, 2004, both the
Company and Mr. Kavazanjian had the option of terminating Mr. Kavazanjian's
employment agreement effective June 30, 2004. As neither party opted to
terminate the employment agreement, pursuant to its terms, the employment
agreement was renewed automatically for an additional year. The employment
agreement will similarly renew each year, if the parties do not give notice of
intent to terminate by February 1 of the year in which the agreement is intended
to be terminated effective June 30.
In September 2002, the Company entered into an employment agreement with
Mr. Barrella pursuant to which the Company agrees to pay Mr. Barrella a salary
of $197,745 per annum. Pursuant to that agreement, Mr. Barrella shall have one
year after the termination of his employment to exercise any vested but
unexercised stock options. On February 1, 2004, both the Company and Mr.
Barrella had the option of terminating Mr. Barrella's employment agreement
effective June 30, 2004. As neither party opted to terminate the employment
agreement, pursuant to its terms, the employment agreement was renewed
automatically for an additional year. The employment agreement will similarly
renew each year, if the parties do not give notice of intent to terminate by
February 1 of the year in which the agreement is intended to be terminated
effective June 30.
In September 2002, the Company entered into an employment agreement with
Mr. Schmitz pursuant to which the Company agrees to pay Mr. Schmitz a salary of
$125,000 per annum. Pursuant to that agreement, Mr. Schmitz shall have one year
after the termination of his employment to exercise any vested but unexercised
stock options. On February 1, 2004, both the Company and Mr. Schmitz had the
option of terminating Mr. Schmitz's employment agreement effective June 30,
2004. As neither party opted to terminate the employment agreement, pursuant to
its terms, the employment agreement was renewed automatically for an additional
year. The employment agreement will similarly renew each year if the parties do
not give notice of intent to terminate by February 1 of the year in which the
agreement is intended to be terminated effective June 30.
401(k) Plan
The Company established a profit sharing plan under Sections 401(a) and
401(k) of the Code (the "401(k) Plan"), effective as of June 1, 1992. The 401(k)
plan was amended effective as of January 1, 1994. All employees in active
service who have completed 1,000 hours of service or were participating in the
401(k) Plan as of January 1, 1994, not otherwise covered by a collective
bargaining agreement (unless such agreement expressly provides that those
employees are to be included in the 401(k) Plan), are eligible to participate in
the 401(k) Plan. Eligible employees may direct that a portion of their
compensation, up to a maximum of 17% (in accordance with all IRS limitations in
effect on January 1, 1998) be withheld by the Company and contributed to their
account under the 401(k) Plan.
In April 1996, the Board of Directors authorized a Company matching
contribution up to a maximum of 1 1/2% of an employee's annual salary for the
calendar year ended December 31, 1996 and 3% for subsequent calendar years. In
January 2001, the matching contribution was raised to a maximum of 4% (100%
match of up to 3% of annual salary, and 50% match above 3% to a maximum of 5% of
salary). The Company made or accrued contributions of $150,000, $234,000, and
$162,000 for Fiscal 2000, 2001, and 2002, respectively. In January 2002, the
Company match was suspended in an effort to conserve cash, and since that date,
the Company has not made any contributions to the 401(k) Plan.
All 401(k) contributions are placed in a trust fund to be invested at the
trustee's discretion, except that the Company may designate that the funds be
placed and held in specific investment accounts managed by an investment manager
other than the trustee. Amounts contributed to employee accounts by the Company
or as compensation reduction payments, and any earnings or interest accrued on
employee
17
accounts, are not subject to federal income tax until distributed to the
employee, and may not be withdrawn (absent financial hardship) until death,
retirement or termination of employment.
REPORT OF COMPENSATION AND MANAGEMENT COMMITTEE
CONCERNING EXECUTIVE COMPENSATION
Overview
Compensation determinations are made by the Company's Compensation and
Management Committee. The Company seeks to provide executive compensation that
will support the achievement of the Company's financial goals while attracting
and retaining talented executives and rewarding superior performance.
The Company seeks to provide an overall level of compensation to the
Company's executives that is competitive within the Company's industry and with
other companies of comparable size and complexity. Compensation in any
particular case may vary from the industry average on the basis of annual and
long-term Company performance as well as individual performance. The
Compensation and Management Committee will exercise its discretion to set
compensation where, in its judgment, external, internal or individual
circumstances warrant it.
In general, the Company compensates its executive officers through a
combination of salary and stock option awards. Additionally, the Company's
executives are eligible to participate in or receive benefits under an employee
benefit plan made available by the Company to its executives and/or employees.
Salary and Bonus
Of the primary elements of executive compensation set forth above, salary
is generally the least affected by the Company's performance, although it is
very much dependent on individual performance. Executive salaries for Fiscal
2002 were, however, adversely affected by the Company's performance as
executives, at the recommendation of the Compensation and Management Committee
and in a cooperative effort to conserve the Company's cash resources, reduced
their salaries initially by 20%, which reduction was then followed by an
across-the-board increase so that the Company's executives were receiving at the
end of 2003 90% of their former base salaries. The Company believes that
salaries paid to its executives are competitive with industry norms. The salary
levels and annual increases of all executive officers of the Company must be
approved by the Compensation and Management Committee. Salary levels for
executives are determined by progress made in the operational and functional
areas for which they are responsible as well as the overall profitability of the
Company.
Executives' salaries are reviewed annually. The timing and amount of any
increase to executives both depend upon (i) the performance of the individual
and, (ii) to a lesser extent, the financial performance of the Company.
In addition to receiving salary, Company executives are eligible to
receive a quarterly cash bonus based upon the fiscal performance of the Company
measured against budgeted targets. Each year, the Compensation and Management
Committee approves budgeted financial targets for the end of each calendar
quarter and determines the manner in which executive bonus compensation will be
calculated. For 2003, if the Company met the pre-established earnings targets at
the end of each calendar quarter, the executives would receive a bonus at the
end of each quarter in an amount equal to the dollar amount that would have the
effect of reinstating the executive's base salary for that quarter to 100% of
the prior base salary. If the Company exceeded those pre-established earnings
targets, the executives would receive an
18
additional bonus equal to either 5%, 10% or 15% of the executive's prior base
salary for that quarter, depending on the amount by which the actual quarterly
earnings exceeded the target earnings. In addition to bonuses based on
pre-established earnings targets, executives were eligible to receive
discretionary bonuses based on individual performance.
Stock Options
Stock options are designed to provide long-term incentives and rewards,
tied to the price of the Company's Common Stock. Given the vagaries of the stock
market, stock price performance and financial performance are not always
consistent. The Compensation and Management Committee believes that stock
options, which provide value to the participants only when the Company's
stockholders benefit from stock price appreciation, are an appropriate
complement to the Company's overall compensation policies. Executive officers of
the Company are eligible to receive option grants under the Company's stock
option plans.
The decision to award any additional stock options to an executive is
based upon such considerations as the executive's position with the Company and
is designed to be competitive for individuals at that level. The Compensation
and Management Committee administers the Company's stock option plans. Any
options for more than 10,000 shares require approval of the full Board of
Directors.
Employee Benefit Plans
Executives of the Company are each entitled to participate in or receive
benefits under any pension plan, profit-sharing plan, life insurance plan,
health insurance plan or other employee benefit plan made available by the
Company to its executives and employees. The Company also provides Mr.
Kavazanjian with supplemental life insurance ($700,000 coverage in addition to
$300,000 of basic coverage) and supplemental disability insurance. Currently,
the Company provides medical insurance for its executive officers and has
established the 401(k) Plan. All executive officers and employees are eligible
to participate in the 401(k) Plan.
Chief Executive Officer
Mr. Kavazanjian joined the Company in July 1999, and received stock
options as described earlier in this Proxy Statement. Mr. Kavazanjian and the
Company entered into a new employment agreement in September 2002, the principal
terms of which are described earlier in this Proxy Statement. In reviewing the
performance of the Chief Executive Officer, the Compensation and Management
Committee considers the scope and complexity of his job during the past year,
progress made in planning for the future development and growth and return on
assets of the Company. As with other executives of the Company, Mr. Kavazanjian
was entitled to receive bonus compensation during 2003 on the same terms as
other executives, except that in the event the Company exceeded the
pre-established quarterly earnings targets, Mr. Kavazanjian's bonus would be
calculated upon 7 1/2%, 15% or 22 1/2% of his prior base salary. Based on this
bonus approach, Mr. Kavazanjian received an overall bonus of $34,875 for 2003.
Compensation and Management Committee
Daniel W. Christman, Chair
Patricia C. Barron
Joseph C. Abeles
19
PERFORMANCE GRAPH
The following graph compares the cumulative return to holders of the
Company's Common Stock for the period commencing June 30, 1999 through the end
of the Transition Period with the NASDAQ National Market Index and the NASDAQ
Electronic Components Index for the same period. The comparison assumes $100 was
invested on June 30, 1999 in the Company's Common Stock and in each of the
comparison groups, and assumes reinvestment of dividends. The Company paid no
dividends during the comparison period. As stated earlier, in December 2002 the
Company changed its fiscal year end from June 30 to December 31. Accordingly,
the data shown at December 31, 2002 reflects the Transition Period.
[The following tables represent a line graph in the printed report.]
Total Return To Shareholders
(Includes reinvestment of dividends)
ANNUAL RETURN PERCENTAGE
Years Ending
------------------------------------------------------------
Company / Index Jun99 Jun00 Jun01 Jun02 Dec02 Dec03
---------------------------------------------------------------------------------------------
ULTRALIFE BATTERIES INC -35.29 104.55 -42.22 -46.17 5.74 234.59
NASDAQ U.S. INDEX 43.60 47.83 -45.67 -31.88 -8.46 49.51
NASDAQ ELECTRONIC COMPONENTS 77.73 149.38 -63.09 -39.49 -14.24 92.43
INDEXED RETURNS
Years Ending
--------------------------------------------------------------------
Base
Period
Company / Index Jun98 Jun99 Jun00 Jun01 Jun02 Dec02 Dec03
----------------------------------------------------------------------------------------------------
ULTRALIFE BATTERIES INC 100 64.71 132.35 76.47 41.16 43.53 145.65
NASDAQ U.S. INDEX 100 143.60 212.29 115.34 78.57 71.92 107.53
NASDAQ ELECTRONIC COMPONENTS 100 177.73 443.21 163.58 98.97 84.88 163.34
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The duties and responsibilities of the Audit and Finance Committee are set
forth in our Audit and Finance Committee Charter, a copy of which is attached
hereto as Appendix A. Among other things, the Audit and Finance Committee
recommends to our Board of Directors that our audited financial statements be
included in our Annual Report on Form 10-K, approves the Company's quarterly
filings on Form 10-Q and selects the independent auditors to audit our books and
records.
The Audit and Finance Committee has:
o Reviewed and discussed our audited financial statements for 2003 with our
management and with PricewaterhouseCoopers LLP, our independent auditors
for 2003;
o Discussed with our independent auditors the matters required to be
discussed by SAS 61 (Codification for Statements on Auditing Standards)
(as modified by SAS 90); and
o Received from PricewaterhouseCoopers LLP the written disclosures required
by Independence Standards Board Statement No. 1 (Independent Discussions
with Audit Committees) and has discussed with PricewaterhouseCoopers LLP
their independence.
Based on the review and discussions referred to above, the Audit and
Finance Committee recommended to the Board of Directors that the audited
financial statements be included in our Annual Report on Form 10-K for 2003 for
filing with the SEC.
Audit and Finance Committee
Carl H. Rosner, Chair
Ranjit C. Singh
Joseph C. Abeles
20
Proposal 2
Approve and Ratify Auditors
The firm of PricewaterhouseCoopers LLP, certified independent accountants,
served as the independent accountants of the Company in connection with the
audit of the Company's financial statements for 2003 and for the Transition
Period.
On July 24, 2002, our Board of Directors dismissed our independent public
accountants, Arthur Andersen LLP ("Arthur Andersen") and engaged
PricewaterhouseCoopers LLP as our new independent public accountants, effective
immediately for Fiscal 2002. Our Audit and Finance Committee has selected
PricewaterhouseCoopers LLP as our independent auditors for 2004. This selection
will be presented to the stockholders for their approval at the Meeting. The
Board of Directors recommends a vote in favor of the proposal to approve and
ratify this selection, and the persons named in the enclosed proxy (unless
otherwise instructed therein) will vote such proxies FOR this proposal. If the
stockholders do not approve this selection, the Board of Directors will
reconsider its choice.
The Company has been advised by PricewaterhouseCoopers LLP that a
representative will be present at the Meeting and will be available to respond
to appropriate questions. In addition, the Company intends to give such
representative an opportunity to make any statements if he or she should so
desire.
Principal Accountant Fees and Services
Aggregate fees for professional services rendered for us by
PricewaterhouseCoopers LLP for Transition 2002 and for 2003 were:
Transition 2002 2003
--------------- ----
Audit $139,500 $120,000
Audit Related -- --
Tax $ 2,000 $ 36,000
All Other -- --
-------- --------
Total $141,500 $156,000
Audit Fees for Transition 2002 and for 2003, respectively, were for
professional services rendered for the audits of the consolidated financial
statements of the Company, consents, income tax provision procedures and
assistance with review of documents filed with the SEC.
Audit Related Fees for Transition 2002 and for 2003, respectively, were
for assurance and related services related to employee benefit plan audits,
accounting consultations and audits in connection with internal control reviews,
attest services that are not required by statute or regulation and consultations
concerning financial accounting and reporting standards.
Tax Fees for Transition 2002 and for 2003, respectively, for services
related to tax compliance, including the preparation of tax returns and claims
for refund, and tax planning and tax advice.
Our Audit and Finance Committee has not adopted pre-approval policies and
procedures for audit and non-audit services. Accordingly, this Proxy Statement
does not include disclosure regarding pre-approval policies and procedures and
related information. The engagement of PricewaterhouseCoopers
21
LLP for non-audit accounting and tax services is limited to circumstances where
those services are considered integral to the audit services that it provides or
where there is another compelling rationale for using PricewaterhouseCoopers
LLP. All audit, audit-related and permitted non-audit services for which
PricewaterhouseCoopers LLP was engaged were pre-approved by our Audit and
Finance Committee in compliance with applicable SEC requirements.
Other Items
During Fiscal 2001 and Fiscal 2000, and the subsequent interim period
through March 31, 2002, there were no disagreements between us and Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen's satisfaction, would have caused Arthur Andersen to make
reference to the subject matter of any such disagreements in connection with
their reports on the Company's financial statements for such years.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within Fiscal 2001 or Fiscal 2000, and the subsequent
interim period through March 31, 2002 preceding our determination not to renew
the engagement of Arthur Andersen.
During Fiscal 2001 and Fiscal 2002, the Company did not consult with
PricewaterhouseCoopers LLP with respect to any of the matters specified in Item
304(a)(2)(i) or (ii) of Regulation S-K.
PROPOSAL 3
Approve the Adoption of the Ultralife 2004 Long-Term Incentive Plan
On April 27, 2004, the Board of Directors adopted the Ultralife Batteries,
Inc. 2004 Long-Term Incentive Plan (the "2004 Incentive Plan") and recommended
that it be submitted to the stockholders for their approval at the Meeting. If
approved by the stockholders, the 2004 Incentive Plan will be effective as of
the date of the Meeting. The 2004 Incentive Plan is substantially similar to,
and is intended to replace, the Ultralife Batteries, Inc. 2000 Stock Option
Plan, as amended (the "2000 Option Plan"). If the 2004 Incentive Plan becomes
effective, no new awards will be made under the 2000 Option Plan.
The Company believes that long-term incentive awards are invaluable tools
for the recruitment, retention and motivation of employees, directors and
consultants who can contribute materially to the Company's success. The Company
has used stock options for such purposes since 1992, most recently under the
2000 Option Plan. The Board of Directors believes that it is important to have
additional types of long-term incentive awards available to provide adequate
flexibility to meet future needs. The 2004 Incentive Plan will allow the Company
to offer stock options and a variety of other long-term incentive awards.
The description of the 2004 Incentive Plan set forth below is a summary,
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the 2004 Incentive Plan itself. The complete text of the 2004
Incentive Plan is attached as Appendix B to this proxy statement. Unless
otherwise defined in this summary, capitalized terms used in this summary have
the meanings given such terms in the 2004 Incentive Plan.
22
The following table provides certain important information concerning the
existing equity compensation plans of the Company as of April 19, 2004:
-------------------------------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
future issuance under
equity compensation
Number of securities to Weighted-average plans, excluding
be used upon exercise of exercise price of securities reflected in
Plan Category outstanding options outstanding options column (a)
------------- ------------------- ------------------- ----------
(a) (b) (c)
Equity Compensation Plans approved
by security holders 1,160,526 $6.13 19,151
-------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders 300,000 $5.19 0
-------------------------------------------------------------------------------------------------------------------------------
Total 1,460,526 $5.94 19,151
-------------------------------------------------------------------------------------------------------------------------------
Summary of 2004 Incentive Plan
Purpose. Like the 2000 Option Plan, the purpose of the 2004 Incentive Plan
is to provide employees, directors and consultants of the Company and its
subsidiaries, who are in a position to contribute to the long-term success of
the Company, with Common Stock and options to acquire Common Stock, to increase
their interest in the Company's welfare and to aid in attracting and retaining
employees, directors and consultants of outstanding ability.
Term. The 2004 Incentive Plan was adopted by the Board of Directors on
April 27, 2004, and will become effective upon the date of the approval by the
stockholders of the Company at the Meeting. The 2004 Incentive Plan and any
awards granted thereunder shall be null and void if stockholder approval is not
obtained at the Meeting. Awards may not be granted under the 2004 Incentive Plan
after June 9, 2014, but awards theretofore granted may extend beyond that date.
Administration. The 2004 Incentive Plan will be administered by the
Compensation and Management Committee, or such other committee as may be
designated by the Board of Directors to administer the 2004 Incentive Plan (the
"Committee"); provided, however, that the Committee shall consist of not less
than two directors who are "non-employee directors," within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
The Committee may allocate all or any portion of its responsibilities and
powers under the 2004 Incentive Plan to any one or more of its members, the
Company's CEO or other senior members of management as the Committee deems
appropriate, however, only the Committee may select and grant awards to
participants who are subject to Section 16 of the Exchange Act.
The Committee will have broad authority in its administration of the 2004
Incentive Plan, including, but not limited to, the authority to interpret the
plan; to establish rules and regulations for the operation and administration of
the plan; to select the persons to receive awards; to determine the type,
23
size, terms, conditions, limitations, and restrictions of awards, including,
without limitation, terms regarding vesting, exercisability, assignability,
expiration and the effect of certain events, such as a change of control in the
Company or the participant's death, disability, retirement or termination as a
result of breach of agreement; to create additional forms of awards consistent
with the terms of the plan; and to take all other action it deems necessary or
advisable to administer the 2004 Incentive Plan.
Notwithstanding the Committee's broad authority to administer the 2004
Incentive Plan and the awards issued under the 2004 Incentive Plan, the exercise
price of any stock option or stock appreciation right granted pursuant to the
2004 Incentive Plan may not be subsequently "repriced" without stockholder
approval. The term "reprice" means: (i) the reduction, directly or indirectly,
in the per-share exercise price of an outstanding stock option or stock
appreciation right by amendment, cancellation or substitution; (ii) the
cancellation of a stock option or stock appreciation right when its exercise
price exceeds the fair market value of the underlying Common Stock in exchange
for another stock option, stock appreciation right or other equity security
(unless the cancellation and exchange occurs in connection with a merger,
acquisition, or similar transaction); or (iii) the taking of any other action
that is treated as a repricing under United States generally accepted accounting
principles or by the rules or regulations of any stock exchange on which the
securities of the Company are traded. The term "reprice" shall not include
adjustments made to awards by the Committee upon the occurrence of certain
events (as described under "Adjustments Upon Certain Events" below).
To facilitate the granting of awards to participants who are employed or
retained outside of the United States, the Committee will be authorized to
modify and amend the terms and conditions of an award to accommodate differences
in local law, policy or custom.
Eligibility. All employees, directors and consultants of the Company and
its subsidiaries are eligible to participate in the 2004 Incentive Plan;
provided, however, only employees are eligible to receive incentive stock
options. Participants in the 2004 Incentive Plan will be selected by the
Committee from those eligible persons who are in a position to have a material
impact on the results of operations of the Company and its subsidiaries.
Participants may be selected and awards may be made at any time during the
ten-year period following the effective date of the 2004 Incentive Plan. As of
December 31, 2003, eight executive officers and approximately 635 other officers
and other employees would be eligible for participation in the 2004 Incentive
Plan.
The selection of those persons within a particular class who will receive
awards is entirely within the discretion of the Committee. The Committee has not
yet determined how many persons are likely to participate in the 2004 Incentive
Plan. The Committee intends, however, to grant most of the 2004 Incentive Plan's
awards to those persons who are in a position to have a significant direct
impact on the growth, profitability and success of the Company, which would
include the participants in the Company's current equity compensation plans.
Shares Available. A total of 750,000 shares of Common Stock will be
available for grant of awards under the 2004 Incentive Plan. In addition, any
shares remaining available for issuance under the 2000 Option Plan, or shares
which become available upon the lapse, expiration, termination or cancellation
of outstanding stock options under the 2000 Option Plan, will be available for
grant of awards under the 2004 Incentive Plan. However, of the total number of
shares of Common Stock available for awards under the 2004 Incentive Plan, no
more than 200,000 shares of Common Stock may be used for awards other than stock
options and stock appreciation rights. (The 2004 Incentive Plan authorizes the
Committee to make equitable adjustments to the authorized number and class of
securities to be issued under the 2004 Incentive Plan upon the occurrence of
certain events, as described under "Adjustments Upon Certain Events" below.)
24
Types of Awards. Awards under the 2004 Incentive Plan may be in the form
of stock options, stock appreciation rights, restricted stock, unrestricted
stock and other stock-based awards, or any combination thereof. All awards
granted to participants under the 2004 Incentive Plan shall be evidenced by an
award agreement which specifies the type of award granted pursuant to the 2004
Incentive Plan, the number of shares of Common Stock underlying the award and
all of the terms governing the award, including, without limitation, terms
regarding the vesting, exercisability and expiration of the award. The Committee
has exclusive power and authority, consistent with the provisions of the 2004
Incentive Plan, to establish the terms and conditions of any award and to waive
any such terms or conditions.
Award Limits. The maximum number of shares with respect to which awards
may be paid or granted during each calendar year to any given participant may
not exceed 50,000 shares of Common Stock. (The 2004 Incentive Plan authorizes
the Committee to make equitable adjustments to the number of shares with respect
to which awards may be paid or granted during each calendar year to any given
participant under the 2004 Incentive Plan upon the occurrence of certain events,
as described under "Adjustments Upon Certain Events" below.)
Stock Options and Stock Appreciation Rights. The Committee may grant
awards under the 2004 Incentive Plan in the form of stock options to purchase
shares of Common Stock, which stock options may be non-qualified stock options
or incentive stock options for federal income tax purposes. Any stock option
granted in the form of an incentive stock option must satisfy the requirements
of Section 422A of the Internal Revenue Code. Stock options shall be vested and
exercisable at such times and upon such terms and conditions as may be
determined by the Committee, but in no event shall a stock option be exercisable
more than ten years (five years for incentive stock options issued to certain
Control Persons) after the date it is granted. The exercise price per share of
Common Stock for any incentive stock option awarded shall not be less than 100
percent (110 percent for incentive stock options issued to certain Control
Persons) of the fair market value of a share of Common Stock on the day the
stock option is granted, except for stock options granted in assumption or
replacement of outstanding awards in connection with specified corporate
transactions.
A stock option may be exercised by paying the exercise price in cash or
its equivalent, or, to the extent permitted by the Committee, shares of Common
Stock, a combination of cash and shares of Common Stock or through the delivery
of irrevocable instruments to a broker to sell the shares of Common Stock
obtained upon the exercise of the stock option and to deliver to the Company an
amount equal to the exercise price.
The Committee may grant stock appreciation rights independent of
("Freestanding SARs") or in conjunction with ("Tandem SARs") a stock option. The
exercise price of a stock appreciation right shall be an amount determined by
the Committee, but in no event shall such amount be less than the fair market
value of the Common Stock on the date the stock appreciation right is granted
or, in the case of Tandem SARs, the exercise price of the related stock option.
Each Freestanding SAR shall entitle the participant upon exercise to an amount
equal to (i) the excess of (A) the fair market value on the exercise date of one
share of Common Stock over (B) the exercise price, times (ii) the number of
shares of Common Stock as to which the stock appreciation right is exercised.
Each Tandem SAR shall entitle the participant to surrender the related stock
option and to receive an amount equal to (i) the excess of (A) the fair market
value on the exercise date of one share of Common Stock over (B) the exercise
price per share of Common Stock, times (ii) the number of shares of Common Stock
covered by the related stock option which is surrendered. Payment of a stock
appreciation right may be made by the Company in shares of Common Stock or in
cash or partly in shares of Common Stock and partly in cash, as determined by
the Committee.
25
Stock-Based Awards. The Committee, in its sole discretion, may grant stock
awards (shares of restricted stock or unrestricted stock) and other awards that
are valued in whole or in part by reference to, or are otherwise based on the
fair market value of, the Common Stock. Such stock-based awards shall be in such
form, and dependent on such conditions, as the Committee shall determine,
including, without limitation, the right to receive, or vest with respect to,
one or more shares of Common Stock (or the equivalent cash value of such shares
of Common Stock) upon the completion of a specified period of service, the
occurrence of an event and/or the attainment of performance objectives.
Withholding. The Company will be entitled to deduct from any payment to a
participant under the 2004 Incentive Plan the amount of all applicable income
and employment taxes required by law to be withheld with respect to such payment
or may require the participant to pay to the Company such tax prior to and as a
condition of the making of such payment. Subject to certain limitations, the
Committee may allow a participant to pay the amount of taxes required by law to
be withheld from an award by withholding shares of Common Stock to be paid under
such award or by permitting the participant to deliver to the Company shares of
Common Stock having a fair market value equal to the amount of such taxes.
Adjustments Upon Certain Events. In the event of any reclassification,
recapitalization, merger, consolidation, reorganization, issuance of warrants,
rights or debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares, repurchase of
shares or any other change in corporate structure which in the judgment of the
Committee materially affects the value of the Common Stock, the Committee may
determine the substitutions or adjustments to the maximum number of shares
available for the grant or issuance of awards under the 2004 Incentive Plan, the
maximum award payable under the 2004 Incentive Plan, the number and class of
shares and the exercise price per share set forth in any award theretofore
granted, or any other affected terms of an award or the 2004 Incentive Plan as
the Committee deems equitable or appropriate.
Effect of Certain Events. The Committee will have the authority to
promulgate rules and regulations to determine the treatment of a participant's
award in the event of the participant's death, disability or termination. In
addition, the Committee shall have the right to extend the period for exercise
of any stock option or stock appreciation right, provided such extension does
not exceed the term for such stock option or stock appreciation right.
Unless otherwise decided by the Committee and provided in an award
agreement, upon a participant's death or disability prior to the complete
exercise of the stock options or stock appreciation rights granted to him or her
under the 2004 Incentive Plan, any such remaining stock options or stock
appreciation rights may be exercised within one year after the date of the
participant's death or disability and prior to the expiration of the term
thereof, to the extent exercisable on the date of the participant's death or
disability.
Unless otherwise decided by the Committee and provided in an award
agreement, upon a participant's termination for any reason other than death or
disability prior to the complete exercise of the stock options or stock
appreciation rights granted to him or her under the 2004 Incentive Plan, any
such remaining stock options or stock appreciation rights may be exercised
within three months after the date of the participant's termination and prior to
the expiration of the term thereof, to the extent exercisable on the date of the
participant's termination.
Amendment and Termination. The Board of Directors may, at any time, alter,
amend, suspend, discontinue or terminate the 2004 Incentive Plan; provided,
however, that no such action shall adversely affect the rights of participants
to awards previously granted hereunder and, provided further, however, that any
stockholder approval necessary or desirable in order to comply with tax,
securities, or other
26
applicable laws or regulations, including, but not limited to, the listing
requirements of the stock exchanges on which the securities of Company are
listed, shall be obtained in the manner required therein.
New Plan Benefits
Because the benefits conveyed under the 2004 Incentive Plan will be at the
discretion of the Committee, it is not possible to determine what benefits
participants will receive under the 2004 Incentive Plan. If the 2004 Incentive
Plan had been in effect in 2003, the stock options received in 2003 by the named
executive officers, all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees who are
not executive officers, would have been the same as the stock options actually
received by such persons for 2003 under the 2002 Option Plan, as set forth in
the following table:
New Plan Benefits
2004 Incentive Plan
Name and Position Dollar Value ($) Number of Shares
----------------- ---------------- ----------------
John D. Kavazanjian $ 0 0
President and
Chief Executive Officer
Joseph N. Barrella $130,828 36,000
Senior Vice President of
New Business Development
William A. Schmitz $ 95,102 31,000
Chief Operating Officer
Robert W. Fishback $ 86,506 29,000
Vice President of Finance
and Chief Financial Officer
Nancy C. Naigle $ 81,236 26,000
Vice President of Sales and
Marketing
All Executive Officers as a Group $504,424 160,000
All Non-Employee Directors as a
Group $441,687 74,000
All Other Employees as a Group $485,477 189,500
Securities Act Registration
The Company intends to register the shares of Common Stock issuable and
purchasable under the 2004 Incentive Plan pursuant to a Registration Statement
on Form S-8 as soon as practicable, subject to the stockholders' approval and
ratification of the 2004 Incentive Plan at the Meeting.
Tax Status of 2004 Incentive Plan Awards
Introduction. The following discussion of the United States federal income
tax consequences of awards under the 2004 Incentive Plan, as proposed, is based
on present federal tax laws and regulations
27
and does not purport to be a complete description of the federal income tax
laws. Participants may also be subject to certain foreign, state and local taxes
which are not described below.
Incentive Stock Options. Pursuant to the requirements of Section 422A of
the Internal Revenue Code, only employees are eligible to receive incentive
stock options. If a stock option is an incentive stock option, no income is
realized by the employee upon grant or exercise of the incentive stock option,
and no deduction is available to the Company at such times. If the Common Stock
purchased upon the exercise of an incentive stock option is held by the employee
for at least two years from the date of the grant of such incentive stock option
and for at least one year after exercise, any resulting gain is taxed at
long-term capital gains rates. If the Common Stock purchased pursuant to the
incentive stock option is disposed of before the expiration of that period, any
gain on the disposition, up to the difference between the fair market value of
the Common Stock at the time of exercise and the exercise price of the incentive
stock option, is taxed at ordinary rates as compensation paid to the employee,
and the Company is entitled to a deduction for an equivalent amount. Any amount
realized by the employee in excess of the fair market value of the Common Stock
at the time of exercise is taxed at capital gains rates.
Non-Qualified Options. If a stock option is a non-qualified option, no
income is realized by the participant at the time of grant of the non-qualified
stock option, and no deduction is available to the Company at such time. At the
time of exercise (other than by delivery of shares of Common Stock to the
Company), ordinary income is realized by the participant in an amount equal to
the difference between the exercise price and the fair market value of the
shares on the date of exercise, and the Company receives an income tax deduction
for the same amount. If a non-qualified stock option is exercised by delivering
shares of Common Stock to the Company, the number of shares received by the
participant equal to the number of shares so delivered are received tax-free and
have a tax basis and holding period equal to the shares so delivered. The fair
market value of the additional shares received by the participant are taxable to
the participant as ordinary income, and the participant's tax basis in such
shares is their fair market value on the date of exercise. Upon disposition, any
appreciation or depreciation of the Common Stock after the date of exercise may
be treated as capital gain or loss depending on how long the shares have been
held.
Stock Appreciation Rights. No income is realized by a participant at the
time a stock appreciation right is granted, and no deduction is available to the
Company at such time. When the stock appreciation right is exercised, ordinary
income is realized in the amount of the cash or the fair market value at such
time of the shares of Common Stock received by the participant, and the Company
is entitled to a deduction of equivalent value.
Unrestricted Stock and Unrestricted Stock-Based Awards. Upon the grant of
an award of shares of unrestricted stock or another stock-based award which is
not restricted, a participant realizes taxable income equal to the cash and fair
market value at such time of the shares of Common Stock received by the
participant under such award (less the purchase price therefor, if any), and the
Company is entitled to a corresponding tax deduction at that time.
Restricted Stock and Restricted Stock-Based Awards. Upon the grant of an
award of shares of restricted stock or another stock-based award which is
restricted, no income is realized by a participant (unless a participant timely
makes an election under Section 83(b) of the Code to accelerate the recognition
of the income to the date of grant), and the Company is not allowed a deduction
at that time; when the award vests and is no longer subject to a substantial
risk of forfeiture for income tax purposes, the participant realizes taxable
ordinary income in an amount equal to the cash and the fair market value at the
time of vesting of the shares of Common Stock received by the participant under
such award (less the purchase price therefor, if any), and the Company is
entitled to a corresponding deduction at such time. If a participant makes an
election, as permitted under Section 83(b) of the Code, within 30 days
28
after the date of the transfer by the Company to the participant of the shares
of restricted stock or other restricted stock-based award, then the participant
recognizes taxable ordinary income in an amount equal to the cash and the fair
market value at the time of grant of the shares of Common Stock to be received
by the participant under such award (less the purchase price therefor, if any),
and the Company is entitled to a corresponding deduction at such time.
Stock Price
The closing price of the Common Stock reported on The Nasdaq Stock Market
on April 26, 2004, was $22.15 per share.
Required Vote and Board of Directors' Recommendation
The Company believes that its best interests will be served by the
approval of Proposal 3. The 2004 Incentive Plan will enable the Company to be in
a position to grant stock options and other new forms of long-term incentive
awards to employees, directors and consultants who can contribute materially to
the Company's success.
Approval of Proposal 3 requires the affirmative vote of a majority of
shares of the Common Stock represented at the Meeting, provided that a majority
of the outstanding shares of the Common Stock votes on the proposal.
The Board of Directors recommends a vote in favor of the proposal to
approve the 2004 Incentive Plan, and, unless otherwise indicated therein, the
shares represented by the enclosed properly executed proxy will be voted FOR
such proposal.
Other Matters
The Board of Directors does not intend to present, and has not been
informed that any other person intends to present, any matters for action at the
Meeting other than those specifically referred to in this Proxy Statement. If
any other matters properly come before the Meeting, it is intended that the
holders of the proxies will act in respect thereof in accordance with their best
judgment.
Submission of Stockholder Proposals
Under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), stockholder proposals intended for inclusion in the proxy
statement for our 2004 Annual Meeting of Stockholders must be submitted in
writing to the Company to our Corporate Secretary at 2000 Technology Parkway,
Newark, New York 14513, and must be received by the Company by January 4, 2005.
Any stockholder proposal submitted for consideration at the Company's 2004
Annual Meeting of Stockholders but not submitted for inclusion in the Proxy
Statement for that meeting that is received by the Company after March 14, 2005
will not be considered filed on a timely basis with the Company under Rule
14a-4(c)(1) of the Exchange Act. For such proposals that are not timely filed,
the Company retains discretion to vote proxies it receives. For such proposals
that are timely filed, the Company retains discretion to vote proxies it
receives provided that the Company includes in its Proxy Statement advice on the
nature of the proposal and how it intends to exercise its voting discretion and
the proponent of any such proposal does not issue its own proxy statement.
29
The Company's Annual Report on Form 10-K for the year ended December 31,
2003, as filed with the SEC, is included in the Annual Report to Stockholders
which accompanies this Proxy Statement.
April 29, 2004 By Order of the Board of Directors
Ranjit C. Singh
Chairman of the Board of Directors
30
PROXY
ULTRALIFE BATTERIES, INC.
Annual Meeting of Stockholders on June 10, 2004
Proxy solicited on behalf of the Board of Directors
The undersigned hereby appoints each of John D. Kavazanjian and Peter F.
Comerford as the undersigned's proxy, with full power of substitution, to vote
all of the undersigned's shares of Common Stock in Ultralife Batteries, Inc.
(the "Company") at the Annual Meeting of Stockholders of the Company to be held
on June 10, 2004 at 10:30 A.M. local time, at the JP Morgan Chase Conference
Center, 270 Park Avenue, 11th Floor, Room C, New York, New York 10017, or at any
adjournment, on the matters described in the Notice of Annual Meeting and Proxy
Statement and upon such other business as may properly come before such meeting
or any adjournments thereof, hereby revoking any proxies heretofore given.
(Continued and to be signed on the reverse side)
|X| Please mark your votes as in this example using dark ink only.
Each properly executed proxy will be voted in accordance with
specifications made on the reverse side hereof. Unless authority to vote for one
or more of the nominees is specifically withheld according to the instructions,
a signed Proxy will be voted FOR the election of the named nominees for
directors and, unless otherwise specified, FOR the other proposals listed herein
and described in the accompanying proxy statement.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
check the box to vote "FOR" all nominees and strike a line through the nominee's
name in the list below.)
1. Election of Directors.
Withhold Authority to vote
For all nominees for all nominees listed
listed below below
|_| |_|
Nominees: Patricia C. Barron
Anthony J. Cavanna
Paula H.J. Cholmondeley
Daniel W. Christman
John D. Kavazanjian
Carl H. Rosner
Ranjit C. Singh
2. Proposal to ratify PricewaterhouseCoopers LLP as the Company's independent
auditors.
|_| FOR
|_| AGAINST
|_| ABSTAIN
3. Proposal to approve our 2004 Long-Term Incentive Plan.
|_| FOR
|_| AGAINST
|_| ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting and any adjournments
thereof.
The undersigned acknowledges receipt with this Proxy of a copy of the
Notice of Annual Meeting and Proxy Statement dated April 29, 2004, describing
more fully the proposals set forth herein.
Date: , 2004
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Signature
Date: , 2004
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Signature if held jointly
Sign exactly as set forth herein. If signed as executor, administrator,
trustee or guardian, indicate the capacity in which you are acting. Proxies by
corporations should be signed by a duly authorized officer and bare corporate
seal. Please sign and return the proxy card promptly in enclosed envelope.
APPENDIX A
Audit and Finance Committee Charter
Ultralife Batteries, Inc.
Audit and Finance Committee
Charter
I. Purpose
The primary function of the Audit and Finance Committee (the "Committee")
is to assist the Board of Directors (the "Board") in fulfilling its
oversight responsibilities by reviewing: the consolidated financial
information of Ultralife Batteries, Inc. and its subsidiaries (the
"Company") which will be provided to stockholders and others; adequacy of
the systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; and
the Company's auditing, accounting and financial reporting processes.
Consistent with this function, the Committee should encourage management
to engage in continuous improvement of, and should foster adherence to,
the Company's policies, procedures and practices at all levels.
Generally, the Committee's primary duties and responsibilities are to: (a)
serve as an independent and objective party to monitor the Company's
financial reporting processes and internal control systems, (b) review and
appraise the audit efforts of the Company's independent accountants and
its internal accounting staff, (c) review and monitor areas of risk that
could have a material impact on the Company, and (d) provide an open
avenue of communication among the independent accountants, financial and
senior management, and the Board.
II. Membership Requirements
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent (an "Independent
Director"). An Independent Director shall refer to a person other than an
officer or employee of the Company or any other person having a
relationship, which in the opinion of the Company's directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a member of the Committee. The following persons shall
NOT be considered an Independent Director:
a) A director employed by the Company for the current year and
any of the past three years;
b) A director who accepted, or who has a Family Member who
accepted from the Company any compensation during the current
or any of the past three fiscal years, other than (i)
compensation for board and related committee service, (ii)
payments arising solely from investments in the Company's
securities, (iii) compensation paid to a Family Member who is
a non-executive employee of the Company, (iv) benefits under a
tax-qualified retirement plan, (v) benefits under
non-discretionary compensation, or (vi) loans permitted under
Section 13(k) of the Securities Exchange Act of 1934. A Family
Member, as used herein, includes: spouse, parents, siblings,
children, mother and father in-laws, brother and
sister-in-laws, son and daughter-in-laws and anyone who
resides in the home of such individual;
c) A director who is a Family Member of an individual who, over
the last three years, was employed by the Company as an
executive officer;
d) A director who is, or has a Family Member who is, a partner
in, a controlling shareholder of, or an executive officer of
any organization to which the Company made or received as
payments (other than in the form of equity investments in the
Company's securities, or payments made under non-discretionary
charitable contribution matching programs) an amount that
exceeded 5% of the Company's consolidated gross revenues for
that year or $200,000, whichever is more, in any of the past
three years;
e) A director who is, or who has a Family Member who is, employed
as an executive officer of another entity where any of the
Company's executives serve, or served at any time during the
past three years, on that entity's compensation committee, and
f) A director who is, or who has a Family Member who is, a
current partner of the Company's outside auditor, or was a
partner or employee of the Company's outside auditor who
worked on the Company's audit at any time during any of the
past three years.
A member of the Committee may not be affiliated with the Company.
Affiliated, as used herein, means controls, is controlled by, or is under
common control with the Company.
A member of the Committee shall not have participated in the preparation
of the financial statements of the Company at any time during the past
three years.
The Committee may, under exceptional and limited circumstances, act in the
best interests of the Company and its stockholders by appointing a
Committee member who is not an Independent Director, provided however, the
member shall not be a current employee or a Family Member of an employee.
In such an instance, the Board shall disclose in its annual proxy
statement the nature of the relationship and the reason(s) for appointing
such individual as a Committee member. However, a member appointed under
this exception may not serve more than two years and may not chair the
Committee.
All members of the Committee shall be able to read and understand
fundamental financial statements, including the Company's balance sheet,
income statement and cash flow statement. The Committee has, and will
continue to have, at least one member who has accounting or related
financial management expertise, such as that gained from past employment
in finance or accounting, professional certification in accounting, or
other comparable experience or background such as having been a chief
executive officer, chief financial officer or other senior officer with
financial oversight responsibilities. In carrying out their Committee
responsibilities, members of the Committee are not providing any expert or
special assurance as to the Company's financial statements or any
professional certification as to the outside auditor's work. Committee
members may enhance their familiarity with finance and accounting by
participating in educational programs conducted by the Company or an
outside consultant.
The members of the Committee shall be elected by the Board at the
Company's Annual Meeting of the Board or until their successors shall be
duly elected and qualified. The Committee will be chaired by an
Independent Director appointed by the Board.
III. Duties and Responsibilities
The Audit Committee's duties and responsibilities are as follows:
a) Review and reassess the adequacy of the Committee's charter and the
actions of the Committee in fulfilling its charter on an annual
basis.
b) Be directly responsible for the appointment, compensation, retention
and oversight of the work of any public accounting firm engaged for
the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the Company, with the
understanding that each public accounting firm must report direct to
the Committee.
c) Meet with independent auditors and financial management of the
Company to understand the scope and associated fees of the proposed
audit for the current year and the audit procedures to be utilized,
and at the conclusion thereof discuss any comments or
recommendations of the independent auditors.
d) Review the consolidated financial statements contained in the annual
report to shareholders, quarterly financial statements, including
MD&A disclosures, with management to determine that management is
satisfied with the disclosure and content of the financial
statements to be presented to the shareholders. Discuss earnings
press releases and financial information with management, as well as
earnings guidance provided to analysts and rating agencies. Discuss
with the independent auditors the financial statements and the
results of the audit. Any changes in accounting principles should be
reviewed.
e) Review with the Company's financial and accounting personnel, the
adequacy and effectiveness of the accounting and financial controls
of the Company, and elicit any recommendations for the improvement
of such internal control procedures or particular areas where new or
more detailed controls or procedures are desirable. Particular
emphasis should be given to the adequacy of such internal controls
to expose any payments, transactions, or procedures that might be
deemed illegal or otherwise improper. Discuss with independent
auditors any significant matters regarding internal controls over
financial reporting that have come to their attention during the
conduct of their audit. The Committee must establish procedures for
the (i) receipt, retention, and treatment of complaints received by
the Company regarding accounting, internal accounting controls, or
auditing matters, and (ii) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable
accounting or auditing matters. Further, the Committee periodically
should review Company policy statements to determine their adherence
to an appropriate code of conduct.
f) Authorize, when deemed necessary to carry out the duty of the
Committee, the engagement of independent counsel and other advisors.
g) Ensure that appropriate funding is made available for payment of (i)
compensation to any registered public accounting firm engaged for
the purpose of preparing or issuing an audit report, or performing
other audit, review or attest services for the Company, (ii)
compensation to any advisors employed by the Committee under (f)
above, and (iii) ordinary administrative expenses of the Committee
that are necessary or appropriate in carrying out its duties.
h) Review the internal audit function, including its competence and
objectivity, and proposed audit plans for the coming year.
i) Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the Committee without members
of management present. Among the items to be discussed in these
meetings are the independent auditor's evaluation of the Company's
financial, accounting, and auditing personnel, and the cooperation
that the independent auditors received during the course of the
audit. Review with the independent auditors any audit problems or
difficulties and management's response.
j) Ensure that the Committee receives a formal written statement from
the independent auditor delineating all relationships between the
auditor and the Company regarding any relationships or services that
would potentially impact the independence or objectivity of the
auditor. The Committee shall take, or recommend that the full Board
take, any appropriate action to oversee the independence of the
independent auditor.
k) Review and monitor the status of contingent liabilities (including
legal proceedings and tax status), legislative and regulatory
developments, and other areas of risk that could materially impact
the Company.
l) Direct and supervise investigations into matters within the scope of
the Committee's duties.
m) Submit the minutes of all meetings of the Committee to, or discuss
the matters discussed at each Committee meeting with, the Board.
n) Carry out such other duties and responsibilities as may be assigned
to the Committee by the Board.
o) Periodically review a report on the independent auditor's internal
quality control procedures and any issues raised in most recent peer
reviews and internal reviews, and governmental or professional
authorities' investigations within the preceding five years.
p) Discuss policies on risk assessment and risk management.
q) Set clear hiring policies for employees or former employees of the
independent auditors.
r) Report regularly to the Board.
IV. Pre-Approval of Auditor Engagements
The Committee shall:
Approve in advance any audit or non-audit engagement or relationship
between the corporation and the independent auditors, other than
"prohibited non-auditing services", as determined from time to time
by the SEC, the Public Company Accounting Oversight Board or Nasdaq
through regulation or listing requirements.
The Committee may:
(a) pre-approve audit and non-audit services based on policies and
procedures adopted by the Committee, provided that: (i) the policies
and procedures are detailed as to the particular service, (ii) the
Committee is informed of each service on a timely basis, (iii) such
policies and procedures do not include delegation of the Committee's
responsibilities to management, and (iv) such policies and
procedures are disclosed in the corporation's annual reports; and/or
(b) delegate to one or more of its members the authority to approve
in advance all audit or non-audit services to be provided by the
independent auditors so long as decisions made by such member are
presented to the full Committee at the immediately subsequent
scheduled meeting.
Notwithstanding the foregoing, pre-approval is not necessary for de
minimis non-audit services if:
(a) the aggregate amount of all such non-audit services provided to
the corporation constitutes not more than five percent of the total
amount of revenues paid by the corporation to its auditors during
the fiscal year in which the non-audit services are provided;
(b) such services were not recognized by the corporation at the time
of the engagement to be non-audit services; and
(c) such services are promptly brought to the attention of the
Committee and approved prior to the completion of the audit by the
Committee or by one or more members of the Committee who are members
of the Board of Directors to whom authority to grant such approvals
has been delegated by the Committee.
APPENDIX B
Ultralife Batteries, Inc.
2004 Long-Term Incentive Plan
ULTRALIFE BATTERIES, INC.
2004 LONG-TERM INCENTIVE PLAN
Effective June 10, 2004
1. Purpose.
The Plan authorizes the Committee to provide Employees, Directors and
Consultants of the Corporation and its Subsidiaries, who are in a position to
contribute to the long-term success of the Corporation, with Stock and options
to acquire Stock, in accordance with the terms specified herein. The Corporation
believes that this incentive program will cause those persons to increase their
interest in the Corporation's welfare and aid in attracting and retaining
Employees, Directors and Consultants of outstanding ability.
2. Successor Plan.
This Plan shall serve as the successor to the Ultralife Batteries, Inc.
Amended and Restated 2000 Stock Option Plan (the "Predecessor Plan"), and no
further stock options shall be made under the Predecessor Plan from and after
the effective date of the Plan. All outstanding stock options under the
Predecessor Plan immediately prior to the effective date of the Plan are hereby
incorporated into the Plan and shall accordingly be treated as outstanding stock
options under the Plan; provided, however, each such stock option shall continue
to be governed solely by the terms and conditions of the instrument evidencing
such stock option and interpreted under the terms of the Predecessor Plan, and,
except as otherwise expressly provided herein, no provision of the Plan shall
affect or otherwise modify the rights or obligations of holders of such
incorporated stock options with respect to their acquisition of Stock, or
otherwise modify the rights or the obligations of the holders of such stock
options. Any Stock reserved for issuance under the Predecessor Plan in excess of
the number of shares as to which stock options have been granted thereunder,
plus any such shares as to which stock options granted under the Predecessor
Plan may lapse, expire, terminate or be cancelled, shall be deemed available for
issuance or reissuance under Section 4(a) hereof.
3. Definitions.
Unless the context clearly indicates otherwise, the following terms, when
used in the Plan, shall have the meanings set forth in this 3:
(a) "Award" shall mean any Option, SAR, Stock Award or other
incentive award granted under the Plan, whether singly, in combination, or in
tandem, to a Grantee by the Committee pursuant to such terms, conditions,
restrictions and/or limitations, if any, as the Committee may establish by the
Award Agreement or otherwise.
(b) "Award Agreement" shall mean the document establishing the
terms, conditions, restrictions and limitations of an Award in addition to those
established by the Plan and by the Committee's exercise of its administrative
powers.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "CEO" shall mean the Chief Executive Officer of the Corporation.
(e) "Change in Control" shall mean the occurrence of any of the
following: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 30% or more of the voting power of the then outstanding
securities of the Corporation; (ii) during any period of two consecutive
calendar years there is a change of 25% or more in the composition of the Board
in office at the beginning of the period except for changes approved by at least
two-thirds of the Directors then in office who were Directors at the beginning
of the period; (iii) the stockholders of the Corporation approve an agreement
providing for (A) the merger or consolidation of the Corporation with another
corporation where the stockholders of such corporation, immediately after the
merger or consolidation, own shares entitling such stockholders to 50% or more
of all votes (without consideration of the rights of any class of stock to elect
Directors by separate class vote) to which all stockholders of the corporation
issuing cash or securities in the merger or consolidation would be entitled in
the election of directors or where the members of the board of directors of such
corporation, immediately after the merger or consolidation, constitute a
majority of the board of directors of the corporation issuing cash or securities
in the merger or consolidation, or (B) the sale or other disposition of all or
substantially all the assets of the Corporation, or a liquidation, dissolution
or statutory exchange of the Corporation; or (iv) any person has commenced, or
announced an intention to commence, a tender offer or exchange offer for 30% or
more of the voting power of the then-outstanding securities of the Corporation.
(f) "Code" shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
(g) "Committee" shall mean the Compensation and Management Committee
of the Board, or such other Board committee as may be designated by the Board to
administer the Plan; provided that the Committee shall consist of not less than
two Directors who are "Non-Employee Directors," as that term is defined and
interpreted pursuant to Rule 16b-3 under the Exchange Act. The Committee shall
be appointed by and serve at the pleasure of the Board.
(h) "Consultant" shall mean any consultant, advisor or independent
contractor retained by the Corporation or its Subsidiaries.
(i) "Control Person" shall mean any person who, as of the date of
grant of an Option, owns (within the meaning of Section 422A(b)(6) of the Code)
stock possessing more than 10% of the total combined voting power or value of
all classes of stock of the Corporation or of any Parent or Subsidiary.
(j) "Corporation" shall mean Ultralife Batteries, Inc., a Delaware
corporation.
(k) "Director" shall mean any member of the Board.
(l) "Disability" shall mean permanent and total disability as
defined by Section 22(e)(3) of the Code.
(m) "Employee" shall mean any person employed by the Corporation or
its Subsidiaries on a full or part-time basis, including Directors who are
otherwise employed by the Corporation or its Subsidiaries.
2
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934 as
it may be amended from time to time, including the rules thereunder and any
successor provisions and the rules thereto.
(o) "Fair Market Value" shall mean for any day (i) if the
Corporation is a registrant under Section 12 of the Exchange Act, the closing
price of the Stock in the over-the-counter market, as reported through the
National Association of Securities Dealers Automated Quotation System or, if the
stock is listed or admitted to trading on any national securities exchange, the
last reported sale price on such exchange or, (ii) if the Corporation is not a
registrant under Section 12 of the Exchange Act, the price of the Stock will be
determined by the Board on the date of grant but will not be less than the par
value of such Stock.
(p) "Grantee" shall mean an Employee, Director or Consultant granted
an Award under the Plan.
(q) "Immediate Family Member" shall mean the transferor and his or
her spouse, children or grandchildren, whether natural, step or adopted children
or grandchildren.
(r) "ISO" shall mean an Option granted pursuant to the Plan to
purchase shares of Stock and intended to qualify as an incentive stock option
under Section 422 of the Code, as now or hereafter constituted.
(s) "NQSO" shall mean an Option granted pursuant to the Plan to
purchase shares of the Stock that is not an ISO.
(t) "Non-Employee Director" shall mean a "non-employee director"
within the meaning of Rule 16b-3 under the Exchange Act.
(u) "Options" shall refer collectively to NQSOs and ISOs subject to
the Plan.
(v) "Parent" shall mean any parent (as defined in Section 425 of the
Code) of the Corporation.
(w) "Plan" shall mean this 2004 Long-Term Incentive Plan as set
forth herein and as amended from time to time.
(x) "SAR" shall mean a stock appreciation right granted pursuant to
8 hereof; a stock appreciation right shall entitle the Grantee to receive a
payment equal to the appreciation in a stated number of shares of Stock from the
exercise price for that stock appreciation right to the Fair Market Value of the
stated number of shares of Stock on the date of exercise.
(y) "Securities Act" shall mean the Securities Act of 1933 as it may
be amended from time to time, including the rules thereunder and any successor
provisions and the rules thereto.
(z) "Stock" shall mean shares of the Common Stock, par value $.10
per share, of the Corporation.
(aa) "Stock Award" shall mean an award of shares of Stock or
restricted shares of Stock granted pursuant to 9 hereof.
3
(bb) "Subsidiary" shall mean any subsidiary (as defined in Section
425 of the Code) of the Corporation.
4. Shares of Stock Subject to the Plan.
(a) In General. The maximum number of shares of Stock which shall be
available for the grant or issuance of Awards under the Plan (including ISOs)
during its term shall not exceed 750,000 (plus any shares of Stock which are or
become available under 2 hereof, which shares shall also be available for the
grant or issuance of Awards under the Plan); provided, however, that no more
than 200,000 shares of Stock may be used for Awards other than Options or SARs.
Such amounts shall be subject to adjustment as provided in 4(c) hereof. Any
shares of Stock related to Awards which terminate by expiration, forfeiture,
cancellation or otherwise without the issuance of such shares, are settled in
cash in lieu of Stock, or are exchanged with the Committee's permission for
Awards not involving Stock, shall be available again for grant under the Plan.
Moreover, if the exercise price of any Award granted under the Plan or the tax
withholding requirements with respect to any Award granted under the Plan are
satisfied by tendering shares of Stock to the Corporation (by either actual
delivery or by attestation), only the number of shares of Stock issued net of
the shares of Stock tendered will be deemed delivered for purposes of
determining the maximum number of shares of Stock available for delivery under
the Plan. The shares of Stock available for issuance under the Plan may be
authorized and unissued shares or treasury shares, including shares purchased in
open market or private transactions. For the purpose of computing the total
number of shares of Stock granted under the Plan, where one or more types of
Awards, both of which are payable in shares of Stock, are granted in tandem with
each other, such that the exercise of one type of Award with respect to a number
of shares cancels an equal number of shares of the other, the number of shares
granted under both Awards shall be deemed to be equivalent to the number of
shares under one of the Awards.
(b) Maximum Awards Payable. Subject to 4(c) hereof, and
notwithstanding any provision contained in the Plan to the contrary, the maximum
Award payable (or granted, if applicable) to any one Grantee under the Plan for
a calendar year is 50,000 shares of Stock.
(c) Adjustment Upon Changes in Capitalization. In the event of any
reclassification, recapitalization, merger, consolidation, reorganization,
issuance of warrants, rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares or any other change in corporate structure which
in the judgment of the Committee materially affects the value of shares, then
the Committee may determine the substitutions or adjustments to the maximum
number of shares available for the grant or issuance of Awards under the Plan
pursuant to 4(a) hereof, the maximum Award payable under 4(b) hereof, the number
and class of shares and the exercise price per share set forth in any Award
theretofore granted, or any other affected terms of an Award or the Plan as the
Committee, in its sole discretion and without liability to any person, deems
equitable or appropriate; provided, however, that no such adjustments shall be
made to any ISO without the Grantee's consent, if such adjustment would cause
such ISO to fail to qualify as such.
5. Administration of the Plan.
(a) In General. The Committee shall have total and exclusive
responsibility to control, operate, manage and administer the Plan in accordance
with its terms. The Committee may act only by a majority of its members. Any
determination of the Committee may be made, without a meeting, by a writing or
writings signed by all of the members of the Committee. The decisions of the
Committee and its actions with respect to the Plan shall be final, binding and
conclusive upon all persons having or claiming to have any right or interest in
or under the Plan.
4
(b) Authority. The Committee shall have all the authority that may
be necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the preceding sentence,
the Committee shall have the exclusive right to:
(i) determine eligibility for participation in the Plan;
(ii) select the Grantees and determine the type of Awards to
be made to Grantees, the number of shares of Stock subject to Awards and the
terms, conditions, restrictions and limitations of the Awards, including, but
not by way of limitation, restrictions on the transferability of Awards and
conditions with respect to continued employment or performance criteria;
(iii) interpret the Plan or any Award Agreement;
(iv) construe any ambiguous provision, correct any default,
supply any omission, and reconcile any inconsistency of the Plan or an Award
Agreement;
(v) issue administrative guidelines as an aid to administer
the Plan and make changes in such guidelines as it from time to time deems
proper;
(vi) promulgate regulations for carrying out the Plan and make
changes in such regulations as it from time to time deems proper;
(vii) to the extent permitted under the Plan, grant waivers of
Plan terms, conditions, restrictions, and limitations;
(viii) promulgate rules and regulations regarding treatment of
Awards of a Grantee under the Plan in the event of such Grantee's death,
disability, retirement, termination from the Corporation or breach of agreement
by the Grantee, or in the event of a change of control of the Corporation;
(ix) accelerate the vesting, exercise, or payment of an Award
when such action or actions would be in the best interest of the Corporation;
(x) establish such other types of Awards, besides those
specifically enumerated in 6(b) hereof, which the Committee determines are
consistent with the Plan's purpose;
(xi) subject to 5(d) hereof, grant Awards in replacement of
Awards previously granted under the Plan or any other executive compensation
plan of the Corporation;
(xii) determine the terms and provisions of any Award
Agreements entered into hereunder, including, a provision in an Award Agreement
that requires, upon the occurrence of a Change in Control specified in 3(e)(iii)
hereof, the cancellation for cash of outstanding Awards or the issuance of
comparable replacement Awards granted by the successor entity in such event;
(xiii) take any and all other action it deems necessary or
advisable for the proper operation or administration of the Plan; and
5
(xiv) make all other determinations it deems necessary or
advisable for the administration of the Plan, including factual determinations.
(c) Delegation. The Committee may allocate all or any portion of its
responsibilities and powers under the Plan to any one or more of its members,
the CEO or other senior members of management as the Committee deems appropriate
and may delegate all or any part of its responsibilities and powers to any such
person or persons, provided that any such allocation or delegation be in
writing; provided, however, that only the Committee, or other committee
consisting of two or more Non-Employee Directors may select and grant Awards to
Grantees who are subject to Section 16 of the Exchange Act. The Committee may
revoke any such allocation or delegation at any time for any reason with or
without prior notice.
(d) Repricing. Except for adjustments pursuant to 4(c) hereof, the
Committee shall not reprice any Options or SARs unless such action is approved
by the stockholders of the Corporation. For purposes of the Plan, the term
"reprice" shall mean: (i) the reduction, directly or indirectly, in the
per-share exercise price of an outstanding Option or SAR by amendment,
cancellation or substitution; (ii) any action that is treated as a repricing
under United States generally accepted accounting principles; (iii) canceling an
Option or SAR when its exercise price exceeds the fair market value of the
underlying Stock in exchange for another Option, SAR or other equity security
(unless the cancellation and exchange occurs in connection with a merger,
acquisition, or similar transaction); and (iv) any other action that is treated
as a repricing by the rules or regulations of any stock exchange on which the
securities of the Corporation are traded. Any amendment or repeal of this
provision shall require the affirmative vote of a majority of shares of voting
capital stock present at a stockholders meeting in person or by proxy and
entitled to vote thereon.
6. Awards.
(a) Eligibility. Subject to 5 hereof, all Employees, Directors and
Consultants are eligible to participate in the Plan; provided, however, only
Employees are eligible to receive ISOs. The Committee shall determine and
designate from time to time those Employees, Directors and Consultants who are
to be granted Awards, the nature of each Award granted and the number of shares
of Stock subject to each such Award.
(b) In General. Awards may, at the Committee's sole discretion, be
paid in the form of Options pursuant to 7 hereof, SARs pursuant to 8 hereof,
Stock Awards pursuant to 9 hereof, any form established by the Committee
pursuant to 5(b)(x) hereof, or a combination thereof. Each Award shall be
subject to the terms, conditions, restrictions and limitations of the Plan and
the Award Agreement for such Award. Awards under a particular Section of the
Plan need not be uniform and Awards under two or more Sections may be combined
into a single Award Agreement. Any combination of Awards may be granted at one
time and on more than one occasion to the same Grantee.
(c) Foreign Jurisdictions. With respect to Grantees who reside or
work outside of the United States, the Committee may, in its sole and absolute
discretion, amend the terms of the Plan or Awards with respect to such Grantees
in order to conform such terms with the provisions of local law and practice or
otherwise as deemed necessary or desirable by the Committee.
6
7. Stock Options.
(a) In General. Awards may be granted in the form of Options.
Options granted under the Plan may be of two types: ISOs and NQSOs. The
Committee shall have the authority and discretion to grant to an eligible
Employee either ISOs, NQSOs, or both, but shall clearly designate the nature of
each Option at the time of grant. Consultants and Directors shall only receive
NQSOs.
(b) Terms of Options. An Option shall be exercisable in accordance
with such terms and conditions and at such times and during such periods as may
be determined by the Committee. In addition to any such terms and conditions,
the following terms and conditions shall apply to all Options granted under the
Plan:
(i) The exercise price per share of Stock subject to an ISO
shall be not less than 100% of the Fair Market Value of a share of the Stock on
the date such ISO is granted, such exercise price shall not be less than 110% of
such Fair Market Value for any ISO granted to a Control Person, and the exercise
price of each share subject to a NQSO shall be not less than 85% of the Fair
Market Value of a share of the Stock on the date such NQSO is granted.
(ii) The term of each Option shall be determined by the
Committee, provided that no Option shall be exercisable more than ten years from
the date such Option is granted, and provided further that no ISO granted to a
Control Person shall be exercisable more than five years from the date of Option
grant.
(iii) Notwithstanding any other provisions hereof, the
aggregate Fair Market Value (determined at the time the ISO is granted) of the
Stock with respect to which ISOs are exercisable for the first time by any
Employee during any calendar year under all plans of the Corporation and any
Parent or Subsidiary corporation shall not exceed $100,000.
(c) Exercise of Options. Except as provided in 11 hereof, no Option
granted to an Employee or Consultant shall be exercised unless at the time of
such exercise the Grantee is then an Employee or Consultant. Upon exercise, the
exercise price of an Option may be paid in cash, or, to the extent permitted by
the Committee, by tendering, by either actual delivery of shares or by
attestation, shares of Stock, a combination of the foregoing, or such other
consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Stock, whether restricted or
unrestricted, and may impose such conditions as it deems appropriate on the use
of such Stock to exercise an Option. Options awarded under the Plan may also be
exercised by way of a broker-assisted stock option exercise program, if any,
provided such program is available at the time of the Grantee's exercise.
Notwithstanding the foregoing or the provision of any Award Agreement, a Grantee
may not pay the exercise price of an Option using shares of Stock if, in the
opinion of counsel to the Corporation, (i) the Grantee is, or within the six
months preceding such exercise was, subject to reporting under Section 16(a) of
the Exchange Act, (ii) there is a substantial likelihood that the use of such
form of payment or the timing of such form of payment would subject the Grantee
to a substantial risk of liability under Section 16 of the Exchange Act, or
(iii) there is a substantial likelihood that the use of such form of payment
would result in accounting treatment to the Corporation under generally accepted
accounting principles that the Committee reasonably determines is adverse to the
Corporation.
8. Stock Appreciation Rights.
(a) In General. Awards may be granted in the form of SARs. SARs
granted under the Plan may be of two types: an SAR granted in tandem with all or
a portion of a related Option under the Plan ("Tandem SARs") or granted
separately ("Freestanding SARs"). A Tandem SAR may be granted either at the time
of the grant of the related Option or at any time thereafter during the term of
the Option.
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(b) Tandem SARs. A Tandem SAR shall be exercisable to the extent,
and only to the extent, that the related Option is exercisable, and the
"exercise price" of such a SAR (the base from which the value of the SAR is
measured at its exercise) shall be the exercise price under the related Option.
However, at no time shall a Tandem SAR be issued if the exercise price of its
related Option is less than the Fair Market Value of the Stock, as determined by
the Committee, on the date that the Tandem SAR is granted. If a related Option
is exercised as to some or all of the shares covered by the Award, the related
Tandem SAR, if any, shall be canceled automatically to the extent of the number
of shares covered by the Option exercise. Upon exercise of a Tandem SAR as to
some or all of the shares covered by the Award, the related Option shall be
canceled automatically to the extent of the number of shares covered by such
exercise. All Tandem SARs shall expire not later than ten years from the date of
the grant of the SAR.
(c) Freestanding SARs. Freestanding SARs shall be exercisable or
automatically mature in accordance with such terms and conditions and at such
times and during such periods as may be determined by the Committee. The
exercise price of a Freestanding SAR shall be defined in the Award Agreement for
that SAR and shall be not less than 100% of the Fair Market Value of a share of
Stock on the date of the grant of the Freestanding SAR. All Freestanding SARs
shall expire not later than ten years from the date of grant of the SAR.
(d) Exercise of SARs. Except as provided in 11 hereof, no SAR
granted to an Employee or Consultant shall be exercised unless at the time of
such exercise the Grantee is then an Employee or Consultant. The Committee may
provide that an SAR shall be deemed to be exercised at the close of business on
the scheduled expiration date of such SAR if at such time the SAR by its terms
remains exercisable and, if so exercised, would result in a payment to the
holder of such SAR. Unless otherwise provided in an Award Agreement, an SAR may
be paid in cash, shares of Stock or any combination thereof, as determined by
the Committee, in its sole and absolute discretion, at the time that the SAR is
exercised.
9. Stock Awards.
(a) In General. Awards may be granted in the form of Stock Awards.
Stock Awards shall be awarded in such numbers and at such times during the term
of the Plan as the Committee shall determine.
(b) Restrictions. The Committee may condition, restrict or limited
the grant of a Stock Award on the achievement of enumerated performance
objectives or, with respect to Stock Awards issued to an Employee or a
Consultant, on such Employee's or Consultant's continued employment or service
to the Corporation through a specified period of time. The Committee may, at
such times as it deems appropriate, revise the performance goals for an
outstanding Stock Award, if any, in order to take into consideration any
unforeseen events or changes in circumstances.
(c) Rights as Stockholders. During the period in which any shares of
Stock received pursuant to a Stock Award are subject to any restrictions, the
Committee may, in its sole and absolute discretion, deny the Grantee to whom
such shares have been awarded all or any of the rights of a stockholder with
respect to such shares, including, but not by way of limitation, limiting the
right to vote such shares or the right to receive dividends on such shares.
10. Payment of Awards.
(a) In General. Absent a Plan or Award Agreement provision to the
contrary, payment of Awards may, at the discretion of the Committee, be made in
cash, Stock, a combination of cash and Stock, or any other form of property as
the Committee shall determine. In addition, payment of Awards may include such
terms, conditions, restrictions and/or limitations, if any, as the Committee
deems
8
appropriate, including, in the case of Awards paid in the form of Stock,
restrictions on transfer and forfeiture provisions; provided, however, such
terms, conditions, restrictions and/or limitations are not inconsistent with the
Plan.
(b) Withholding. The Corporation shall be entitled to deduct from
any payment under the Plan, regardless of the form of such payment, the amount
of all applicable income and employment taxes required by law to be withheld
with respect to such payment or may require the Grantee to pay to the
Corporation such tax prior to and as a condition of the making of such payment.
In accordance with any applicable administrative guidelines it establishes, the
Committee may allow a Grantee to pay the amount of taxes required by law to be
withheld from an Award by withholding from any payment of shares of Stock due as
a result of such Award, or by permitting the Grantee to deliver to the
Corporation, shares of Stock having a Fair Market Value equal to the minimum
amount of such required withholding taxes. Notwithstanding the foregoing or the
provision of any Award Agreement, a Grantee may not pay the amount of taxes
required by law to be withheld using shares of Stock if, in the opinion of
counsel to the Corporation, (i) the Grantee is, or within the six months
preceding such exercise was, subject to reporting under Section 16(a) of the
Exchange Act, (ii) there is a substantial likelihood that the use of such form
of payment or the timing of such form of payment would subject the Grantee to a
substantial risk of liability under Section 16 of the Exchange Act, or (iii)
there is a substantial likelihood that the use of such form of payment would
result in accounting treatment to the Corporation under generally accepted
accounting principles that the Committee reasonably determines is adverse to the
Corporation.
11. Effect of Termination of Relationship with the Corporation.
(a) Committee Rules. The Committee shall have the authority to
promulgate rules and regulations to determine the treatment of a Grantee's
Awards under the Plan in the event of such Grantee's death, disability and
termination. In addition, notwithstanding the provisions of this Section 11, the
terms of an Award Agreement or the rules and regulations promulgated by the
Committee and in effect from time to time, the Committee shall have the right to
extend the period for exercise of any Option or SAR, provided such extension
does not exceed the term of such Option or SAR.
(b) Death. Unless otherwise decided by the Committee and provided in
an Award Agreement, upon a Grantee's death prior to the complete exercise of the
Options or SARs granted to him or her under the Plan, any remaining Options or
SARs may be exercised in whole or in part within one year after the date of the
Grantee's death and then only:
(i) by the beneficiary designated by the Grantee in a writing
submitted to the Corporation prior to the Grantee's death, or in the absence of
same, by the Grantee's estate or by or on behalf of such person or persons to
whom the Grantee's rights pass under his or her Will or the laws of descent and
distribution,
(ii) to the extent that the Grantee would have been entitled
to exercise the Option or SAR at the date of his or her death and subject to all
of the conditions on exercise imposed by the Plan and Award Agreement, and
(iii) prior to the expiration of the term of the Option or
SAR.
(c) Disability. Unless otherwise decided by the Committee and
provided in an Award Agreement, upon a Grantee's disability prior to the
complete exercise of the Options or SARs granted to him or her under the Plan,
any remaining Options or SARs may be exercised in whole or in part within one
year after the date of the Grantee's disability and then only:
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(i) by the Grantee or his or her legal representative,
(ii) to the extent that Grantee would have been entitled to
exercise the Option or SAR on the date of his or her disability, subject to all
of the conditions on exercise imposed by the Plan and Award Agreement, and
(iii) prior to the expiration of the Option or SAR.
(d) Other Termination. Unless otherwise decided by the Committee and
provided in an Award Agreement, the termination of a Grantee's employment,
consulting relationship or term of directorship with the Corporation for a
reason other than the Grantee's death or disability and prior to the complete
exercise of the Options or SARs granted to him or her under the Plan, any
remaining Options or SARs may be exercised in whole or in part within three
months after the date of the Grantee's termination and then only:
(i) by the Grantee or his or her legal representative,
(ii) to the extent that the Grantee would have been entitled
to exercise the Option or SAR on the date of his or her termination, subject to
all of the conditions on exercise imposed by the Plan and the Award Agreement,
and
(iii) prior to the expiration of the term of the Option or
SAR.
(e) Treatment of Intra-Corporation Transfers. In the case of an
Employee or Consultant, the transfer between the Corporation and any Subsidiary
shall not be deemed to be a termination of employment or consulting
relationship, and a change from the status of an Employee to a Consultant or
from a Consultant to an Employee shall not be deemed to be a termination of
employment or consulting relationship.
12. General Provisions.
(a) Award Agreement. Each Award grant shall be evidenced by a
written Award Agreement containing such terms and conditions, not inconsistent
with the Plan, as the Committee shall approve. The terms and provisions of Award
Agreements may vary among Grantees and among different Awards granted to the
same Grantee. Any Stock Award granted under the Plan may be evidenced in such
manner as the Committee deems appropriate, including, without limitation,
book-entry registration or issuance of a stock certificate or certificates, with
such restrictive legends and/or stop transfer instructions as the Committee
deems appropriate.
(b) No Right to Further Awards or Continued Service. The grant of an
Award in any year shall not give the Grantee any right to similar grants in
future years or any right to continue such Grantee's employment or consultant
relationship with the Corporation or its Subsidiaries. All Grantees shall remain
subject to discharge to the same extent as if the Plan were not in effect.
(c) No Right, Title, or Interest in Corporation Assets. No Grantee
shall have any rights as a stockholder as a result of participation in the Plan
until the date of issuance of a stock certificate in his or her name, and, in
the case of restricted shares of Stock, such rights are granted to the Grantee
under the Plan. To the extent any person acquires a right to receive payments
from the Corporation under the Plan, such rights shall be no greater than the
rights of an unsecured creditor of the Corporation and the Grantee shall not
have any rights in or against any specific assets of the Corporation. All of the
Awards
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granted under the Plan shall be unfunded and the Corporation shall not be
required to establish any fund or make any other segregation of assets to assure
the payment of any Award.
(d) Nonassignability.
(i) Except as otherwise determined by the Committee or as
otherwise provided in 12(d)(ii) hereof, no Award or other right under the Plan
shall be subject to anticipation, sale, assignment, pledge, encumbrance, or
charge except by will or the laws of descent and distribution, and an Award
shall be exercisable during the Grantee's lifetime only by the Grantee.
(ii) The Committee shall have the discretionary authority to
grant NQSOs or amend outstanding NQSOs to provide that they be transferable,
subject to such terms and conditions as the Committee shall establish. In
addition to any such terms and conditions, the following terms and conditions
shall apply to all transfers of NQSOs:
(A) Except as otherwise permitted by the Committee, in its
sole and absolute discretion, only Directors and corporate officers of the
Corporation shall be permitted to transfer their NQSOs, and such individuals
must be a Director or a corporate officer on the date of transfer.
(B) Transfers shall only be permitted to: (1) the transferor's
Immediate Family Members; (2) a trust or trusts for the exclusive benefit of the
transferor's Immediate Family Members; or (3) a family partnership or family
limited partnership in which each partner is, at the time of transfer and all
time subsequent thereto, either an Immediate Family Member or a trust for the
exclusive benefit of one or more Immediate Family Members.
(C) All transfers shall be made for no consideration.
(D) Once a NQSO is transferred, any subsequent transfer of
such transferred NQSO shall, notwithstanding 12(d)(i) hereof to the contrary, be
permitted; provided, however, such subsequent transfer complies with all of the
terms and conditions of this 12(d)(ii), with the exception of 12(d)(ii)(A)
hereof.
(E) In order for a transfer to be effective, the Committee's
designated transfer agent must be used to effectuate the transfer. The costs of
such transfer agent shall be borne solely by the transferor.
(F) In order for a transfer in accordance with 12(d)(ii) to be
effective, the transferor must agree in writing prior to the transfer on a form
provided by the Corporation to pay any and all payroll and withholding taxes due
upon exercise of the transferred NQSO. In addition, prior to the exercise of the
transferred NQSO by the transferee, arrangements must be made by the Grantee
with the Corporation for the payment of any and all payroll and withholding
taxes.
(G) Upon transfer, a NQSO continues to be governed by and
subject to the terms and conditions of the Plan. A transferee of a NQSO is
entitled to the same rights as the Grantee to whom such NQSO was originally
granted, as if no transfer had taken place. Accordingly, the rights of the
transferee are subject to the terms and conditions of the original grant of the
NQSO, including provisions relating to expiration date, exercisability, exercise
price and forfeiture.
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(H) The Corporation shall be under no obligation to provide a
transferee with any notice regarding the transferred NQSO held by the transferee
upon forfeiture or any other circumstance.
(e) Regulatory Approvals and Listings. Notwithstanding any other
provision of the Plan or Award Agreements made pursuant thereto, the Corporation
shall not be required to issue or deliver any certificate or certificates for
shares of Stock under the Plan prior to fulfillment of all of the following
conditions:
(i) The listing, or approval for listing upon notice of
issuance, of such shares on any securities exchange on which the Stock may then
be traded;
(ii) Any registration or other qualification of such shares
under any state or federal law or regulation, or other qualification which the
Board shall, in its absolute discretion and upon the advice of counsel, deem
necessary or advisable;
(iii) The obtaining of any other consent approval or permit
from any state or federal government agency which the Board shall, in its
absolute discretion and upon the advice of counsel, determine to be necessary or
advisable; and
(iv) The execution by the Grantee (or the Grantee's legal
representative) of such written representation that the Committee may in its
sole discretion deem necessary or advisable to the effect that the shares then
being purchased are being purchased for investment with no present intention of
reselling or otherwise disposing of such shares in any manner which may result
in a violation of the Securities Act and the placement upon certificates for
such shares of an appropriate legend in connection therewith.
(f) In the case of a grant of an Option to any Employee or
Consultant of a Subsidiary, the Corporation may, if the Committee so directs,
issue or transfer the shares covered by the Option to the Subsidiary, for such
lawful consideration as the Committee may specify, upon the condition or
understanding that the Subsidiary will transfer the shares to the Employee or
Consultant in accordance with the terms of the Plan and the stock option
agreement relating to such Option.
(g) Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of New York, except as superseded by
applicable federal law, without giving effect to its conflicts of law
provisions.
(h) No Guarantee of Tax Consequences. No person connected with the
Plan in any capacity, including, but not limited to, the Corporation and its
directors, officers, agents and employees, makes any representation, commitment,
or guarantee that any tax treatment, including, but not limited to, federal,
state and local income, estate and gift tax treatment, will be applicable with
respect to the tax treatment of any Award, or that such tax treatment will apply
to or be available to a Grantee on account of participation in the Plan.
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(i) Amendment or Termination. Subject to the provisions of 5(d)
hereof, the Board may, at any time, alter, amend, suspend, discontinue or
terminate the Plan; provided, however, that no such action shall adversely
affect the rights of Grantees to Awards previously granted hereunder and,
provided further, however, that any stockholder approval necessary or desirable
in order to comply with tax, securities, or other applicable laws or
regulations, including, but not limited to, the listing requirements of the
stock exchanges on which the securities of Corporation are listed, shall be
obtained in the manner required therein.
(j) Duration of Plan. The Plan was approved by the Board on April
27, 2004, and will become effective upon the date of the approval by the
stockholders of the Corporation at the 2004 Annual Meeting of the Stockholders.
The Plan and any Awards granted thereunder shall be null and void if stockholder
approval is not obtained at the 2004 Annual Meeting of the Stockholders. Awards
may not be granted under the Plan after June 9, 2014, but Awards theretofore
granted may extend beyond that date.
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