Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
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by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Henry Bros. Electronics, Inc.
..................................................................
(Name of Registrant as Specified In Its Charter)
..................................................................
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HENRY BROS. ELECTRONICS, INC.
280 MIDLAND AVENUE
SADDLE BROOK, NEW JERSEY 07663
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 1, 2006
--------------
To: The Shareholders of
HENRY BROS. ELECTRONICS, INC.:
NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of Shareholders of HENRY
BROS. ELECTRONICS, INC. (the 'Company'), a Delaware corporation, will be held at
the offices of Epstein Becker & Green, P.C., 250 Park Avenue, 14th Floor, New
York, New York 10177, on Wednesday, November 1, 2006, at 10:00 a.m., Eastern
Time, for the following purposes:
1. To elect seven directors to serve, subject to the provisions of the
By-laws, until the next Annual Meeting of Shareholders and until their
respective successors have been duly elected and qualified;
2. To consider and act upon a proposal to approve the Company's 2006 Stock
Option Plan;
3. To consider and act upon a proposal to approve the selection of Demetrius
& Company, L.L.C. as the Company's independent auditors for 2006, and;
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on September 19, 2006
as the record date for the meeting and only holders of shares of record at that
time will be entitled to notice of and to vote at the Annual Meeting of
Shareholders or any adjournment or adjournments thereof.
By Order of the Board of Directors,
/s/ JAMES E. HENRY
______________________________________
JAMES E. HENRY
CHAIRMAN OF THE BOARD
Saddle Brook, New Jersey
September 21, 2006
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IMPORTANT
IF YOU CANNOT PERSONALLY ATTEND THE MEETING, IT IS REQUESTED THAT YOU INDICATE
YOUR VOTE ON THE ISSUES INCLUDED ON THE ENCLOSED PROXY AND DATE, SIGN AND MAIL
IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES.
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HENRY BROS. ELECTRONICS, INC.
280 MIDLAND AVENUE
SADDLE BROOK, NEW JERSEY 07663
--------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 1, 2006
--------------
September 21, 2006
The enclosed proxy is solicited by the Board of Directors (the 'Board') of
Henry Bros. Electronics, Inc., a Delaware corporation (the 'Company'), in
connection with its 2006 Annual Meeting of Shareholders to be held at the
offices of Epstein Becker & Green, P.C., 14th Floor, 250 Park Avenue, New York,
NY 10177 on Wednesday, November 1, 2006, at 10:00 a.m., Eastern Time, and any
adjournments thereof, for the purposes set forth in the accompanying Notice of
Meeting.
SOLICITATIONS
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy is to be borne
by the Company. In addition to the use of mail, employees of the Company may
solicit personally and by telephone. The Company's employees will receive no
compensation for soliciting proxies other than their regular salaries. The
Company may request banks, brokers and other custodians, nominees and
fiduciaries to forward copies of the proxy material to their principals and to
request authority for the execution of proxies. The Company may reimburse such
persons for their expenses in so doing.
VOTING
If a proxy in the accompanying form is duly executed and returned, the
shares represented by the proxy will be voted as directed. If no direction is
given, the shares represented by the Proxy will be voted for the election of the
seven nominees named herein as directors, to consider and act upon a proposal to
approve the Company's 2006 Stock Option Plan and to ratify the appointment of
Demetrius & Company, LLC as the Company's independent auditors for 2006. Any
proxy given may be revoked at any time prior to its exercise by notifying the
Secretary of the Company in writing of such revocation, by duly executing and
delivering another proxy bearing a later date, or by attending and voting in
person at the meeting.
The Board does not know of any other matters that may be brought before the
Annual Meeting nor does it foresee or have reason to believe that proxy holders
will have to vote for substitute or alternate director nominees. In the event
that any other matter should come before the Annual Meeting, the persons named
in the enclosed proxy will have discretionary authority to vote all proxies not
marked to the contrary with respect to such matters in accordance with their
best judgment.
The record date with respect to this solicitation is the close of business
on September 19, 2006 and only shareholders of record at that time will be
entitled to vote at the meeting. The shares represented by all validly executed
proxies received in time to be taken to the meeting and not previously revoked
will be voted at the meeting. This proxy statement and the accompanying proxy
were mailed to you on or about September 25, 2006.
PRINCIPAL OFFICE
The principal executive office of the Company is 280 Midland Avenue, Saddle
Brook, New Jersey 07663, and its telephone number is (201) 794-6500.
QUORUM AND REQUIRED VOTE
The number of outstanding shares entitled to vote at the meeting is
5,896,065 common shares, par value $.01 per share. Each common share is entitled
to one vote. The presence in person or by proxy at the Annual Meeting of the
holders of a majority of the outstanding shares of the Company's common stock
shall constitute a quorum. There is no cumulative voting. Assuming the presence
of a quorum at the Annual Meeting:
Directors shall be elected by a plurality of the votes cast;
The affirmative vote of the holders of a majority of the shares of common
stock outstanding as of September 19, 2006 is necessary to approve the
Company's 2006 Stock Option Plan; and
The affirmative vote of a majority of the common shares present at the
meeting and entitled to vote on each matter is required to ratify the
selection of Demetrius & Company, L.L.C., as the Company's independent
auditors for 2006.
Prior to the Annual meeting, we will select one or more inspectors of
election for the meeting. Such inspector will canvas the shareholders present in
person at the meeting, count their votes and count the votes represented by
proxies presented. Abstentions and broker non-votes are counted as present for
purposes of determining the number of shares represented at the meeting, but are
deemed not to have voted on the proposal. Broker non-votes occur when a broker
holding a customer's securities in street name does not vote on one or more
other matters at the meeting because it has not received voting instructions to
so vote from the beneficial owner and does not have discretionary authority to
so vote.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named in the accompanying proxy will vote for the election of
the following seven persons as directors, all of whom are currently members of
the Board, to hold office until the next annual meeting of shareholders and
until their respective successors have been elected and qualified. Unless
directed otherwise, each proxy will be voted for the nominees named below. If a
nominee becomes unable or declines to serve as a director at the date of the
annual meeting, the persons named in the proxy card have the right to use their
discretion to vote for a substitute. All of the nominees have consented to serve
as directors if elected.
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
---- --- ------------------------- --------------
James E. Henry........................ 52 Chairman, Chief Executive Officer, 1999
Treasurer and Director
Irvin F. Witcosky..................... 68 President and Director 1999
Brian Reach........................... 51 Chief Operating Officer, Vice 2004
Chairman, Secretary and Director
Joseph P. Ritorto..................... 75 Director 2002
Robert L. De Lia Sr................... 58 Director 2004
David Sands........................... 49 Director 2005
James W. Power........................ 76 Director 2005
James E. Henry co-founded the Company's predecessor company in 1989 and
served as President and Chief Executive Officer until December 2001 when he was
elected Chairman of the Board. Mr. Henry continues to serve as Chief Executive
Officer and is also the Company's Treasurer. Mr. Henry graduated from the
University of New Hampshire with a Bachelor of Science degree in electrical
engineering. In addition to his other responsibilities, Mr. Henry has continued
2
to design, install, integrate and market security and communications systems as
well as manage the Company's research and development.
Irvin F. Witcosky co-founded the Company's predecessor company in 1989 and
served as the Company's Executive Vice President until December 2001 when he was
elected the Company's Chief Operating Officer and President. Currently, Mr.
Witcosky serves as the Company's President. Mr. Witcosky served as the Company's
Secretary from 1989 to November 2004 and is a member of the Board of Directors.
Mr. Witcosky graduated from California Polytechnic University with a Bachelor of
Science degree in aeronautical engineering. In addition to his other
responsibilities, Mr. Witcosky has continued to design, integrate and market
security and communication systems as well as manage the Company's operations
and administration.
Brian Reach, in addition to his prior duties, was named Chief Operating
Officer in August 2006. Mr. Reach has been a member of the Company's Board of
Directors since February 2004 and has served as the Company's Vice-Chairman
since June 2004 and as its Secretary since November 2004. From September 1999
until April 2002, Mr. Reach was the Chief Financial Officer of Globix
Corporation, a provider of application, media and infrastructure management
services. Globix's common stock is traded on the OTC Bulletin Board. From May
1997 to August 1999, Mr. Reach was the Chief Financial Officer of IPC
Communications, a provider of integrated telecommunications equipment and
services to the financial industry. During his tenure at IPC, Mr. Reach
successfully guided IPC through its leveraged recapitalization and financially
restructured IPC enabling it to invest in strategic acquisitions and next
generation technologies. Prior to IPC, Mr. Reach was the Chief Financial Officer
of Celadon Group, Inc. and Cantel Industries, Inc. Mr. Reach became a certified
public accountant in 1980 and received his Bachelor of Science degree in
accounting from the University of Scranton in 1977.
Joseph P. Ritorto has been a member of our Board since January 2002. Mr.
Ritorto is the co-founder of First Aviation Services, Inc., which is located in
Teterboro Airport, Teterboro, New Jersey and provides a variety of aviation
support services. Mr. Ritorto has been an officer, in various capacities, of
First Aviation Services since 1986. From 1991, until he retired in May 2001, Mr.
Ritorto served as the Senior Executive Vice President and Chief Operating
Officer of Silverstein Properties, Inc. In this capacity, Mr. Ritorto's
responsibilities included overseeing operations and directing the lease
administration of Silverstein owned and managed properties.
Robert L. De Lia, Sr. has been a member of our Board since May 2004.
Currently, Mr. DeLia is vice president of TJ's Motorsport, a privately held
company dedicated to supplying quality motor sport products. From 2002 to 2003,
Mr. DeLia was the President and Chief Executive Officer of Airorlite
Communications, Inc., a company that specializes in designing, manufacturing and
maintaining wireless communications equipment used to enhance and extend
emergency radio frequency services and cellular communication for both fixed and
mobile applications. In April 2004, a wholly-owned subsidiary of the Company
purchased all of the issued and outstanding shares of stock of Airorlite
Communications, Inc. From 1987 to 1999, Mr. De Lia was the President and Chief
Executive Officer of Fiber Options, Inc. Mr. De Lia graduated from the New York
Institute of Technology in 1969.
David Sands is a certified public accountant and is a partner of Buchbinder
Tunick & Company LLP where he is the head of the tax department. Mr. Sands is a
member of the American Institute of Certified Public Accountants and the New
York State Society of CPAs. Mr. Sands has also lectured at the New York
University Summer Continuing Education and the Foundation for Accounting
Education Programs. Mr. Sands received a Bachelor of Science from SUNY at
Buffalo and a Master of Science in Taxation from Pace University.
James W. Power has served as a director of the Company since December 2005.
Mr. Power is Chairman of AXIUM, Inc., a digital video recording company;
Chairman of MDI, Inc, a Nasdaq listed provider of integrated access control and
physical security products for government and commercial organizations; director
of RAE Systems, Inc., a manufacturer of equipment used to detect weapons of mass
destruction, hazardous materials and toxic chemicals; and the principal partner
in J.W. Power & Associates. Mr. Power previously served as Chairman of the Board
of InfoGraphic Systems Corp.; President and Chief Executive Officer of
Martec\SAIC; President and
3
Chief Executive Officer of Pinkerton Control Systems and has held senior
executive positions with Cardkey Systems, Inc., Nitrol Corporation and TRW Data
Systems. Previously, he has served as a director of National Semiconductor, ICS
Corporation, and Citicorp Custom Credit and Citicorp Credit Services.
THE BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE SEVEN NOMINEES FOR
DIRECTOR LISTED ABOVE.
GOVERNANCE OF THE COMPANY
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 2005, the Board held five meetings and
acted by unanimous consent five times. All of the directors who were members of
the Board at the time of the meeting attended all of these meetings, except Mr.
Ritorto, who did not attend one meeting. The Board has established a
compensation committee, an audit committee and a nominating committee. We
consider Messrs. Ritorto, De Lia, Sands and Power to be independent in
accordance with Section 121A of the American Stock Exchange's listing standards.
Messrs. Ritorto, Sands and Power are the members of the Audit Committee.
Each member of the Audit Committee meets the financial literacy requirements of
the American Stock Exchange. The Audit Committee is responsible for the
appointment, compensation and oversight of the work of any independent auditor
employed by the Company. The Audit Committee also reviews with the Company's
independent auditor the adequacy and effectiveness of the Company's system of
internal financial controls and accounting practices. The Audit Committee has
adopted an Audit Committee Charter. This charter is available to the
shareholders on our website, www.hbe-inc.com, and is also available in print to
any stockholder upon written request to: Henry Bros. Electronics, Inc., 280
Midland Avenue, Saddle Brook, New Jersey 07663, Attention: Secretary. The Audit
Committee reviews and reassesses the adequacy of the Audit Committee Charter on
an annual basis. The Audit Committee met 3 times during 2005. The Board has
determined that Mr. Sands qualifies as an 'audit committee financial expert'
under applicable Securities and Exchange Commission rules and regulations
governing the Audit Committee.
The Compensation Committee recommends to our Board the compensation to be
paid to our officers and directors, administers our stock option plans and
approves the grant of options under these plans. The Compensation Committee met
3 times during 2005. Messrs. De Lia and Ritorto are the members of our
compensation committee.
Our Nominating Committee is comprised of Messrs. DeLia and Sands. The
Nominating Committee did not meet during 2005 but recommended to the Board each
of the nominees who have been nominated for election to the Board at the 2006
Annual Meeting. The principal functions of the nominating committee are to: (i)
develop policies on the size and composition of the Board of Directors; (ii)
identify individuals qualified to become members of the Board of Directors and
review candidates for Board membership; (iii) perform board performance
evaluations on an annual basis and (iv) recommend a slate of nominees to the
Board of Directors annually. The Board has adopted a written charter setting
forth the functions of the Nominating Committee and providing direction as to
nominating policies and procedures. This charter is available to the
shareholders on our website, www.hbe-inc.com. The Nominating Committee's charter
is also available in print to any stockholder upon written request to: Henry
Bros. Electronics, Inc., 280 Midland Avenue, Saddle Brook, New Jersey 07663,
Attention: Secretary.
The Nominating Committee utilizes a variety of methods for identifying and
evaluating nominees for directors. Candidates may come to the attention of the
Nominating Committee through current board members, stockholders or other
persons. The Nominating Committee will consider all recommendations of director
nominees in a like manner. The Company has no formal procedures pursuant to
which stockholders may recommend nominees to our Board of Directors and the
Board of Directors believes that the lack of a formal procedure will not hinder
the consideration of qualified nominees. Any stockholder desiring to suggest a
Board nominee should send the name of such nominee for consideration to the
attention of: Henry Bros. Electronics,
4
Inc., 280 Midland Avenue, Saddle Brook, New Jersey 07663, Attention: Secretary.
Any such nomination must include:
As to each person whom the stockholder proposes to nominate for election
or re-election as a director, all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors, or as otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, or any
successor regulation thereto (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a
director if elected); and
The nominating stockholder's name and address as they appear on our books,
and the class and number of our shares beneficially owned by such
stockholder.
COMMUNICATING WITH OUR DIRECTORS
Shareholders who wish to communicate with the Board or with specified
members of the Board should do so by sending any communication to Henry Bros.
Electronics, Inc., 280 Midland Avenue, Saddle Brook, New Jersey 07663,
Attention: Secretary.
Any such communication should state the number of shares beneficially owned
by the shareholder making the communication. Our Secretary will forward such
communication to the full Board or to any individual member or members of the
Board to whom the communication is directed, unless the communication is unduly
hostile, threatening, illegal or similarly inappropriate, in which case the
Secretary has the authority to discard the communication or take appropriate
legal action regarding the communication.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is appointed by the Board to assist the Board in
monitoring:
the integrity of the financial statements of Henry Bros. Electronics,
Inc.,
the independent auditor's qualifications and independence,
the performance of the independent auditors of Henry Bros. Electronics,
Inc., and
the compliance by Henry Bros. Electronics, Inc. with legal and regulatory
requirements.
We meet with management periodically to consider the adequacy of the
internal controls of Henry Bros. Electronics, Inc. and the objectivity of its
financial reporting. We discuss these matters with the independent auditors of
Henry Bros. Electronics, Inc. and with appropriate company financial personnel.
We regularly meet privately with the independent auditors who have
unrestricted access to the committee.
We select, evaluate and, where appropriate, replace the independent auditor,
and review periodically their performance, fees and independence from
management.
Each of the Directors who serves on the committee is 'independent' for
purposes of the AMEX listing standards. That is, the Board of Directors has
determined that none of Messrs. Sands, Ritorto and Power has a relationship with
Henry Bros. Electronics, Inc. that may interfere with his independence from
Henry Bros. Electronics, Inc. and its management.
The Board has adopted a written charter setting out the audit related
functions the committee is to perform. The Board reviews the charter on an
ongoing basis to assure that the functions and duties of the Audit Committee
will continue to conform to such applicable SEC and stock exchange regulations
as they may be amended or modified in the future. The charter is available to
shareholders on our website, www.hbe-inc.com.
Management has primary responsibility for the Company's financial statements
and the overall reporting process, including the Company's system of internal
controls. The independent auditors audit the annual financial statements
prepared by management, express an opinion as to whether those financial
statements fairly present the financial position, results of operations and cash
flows
5
of the Company in conformity with accounting principles generally accepted in
the United States and discuss with us any issues they believe should be raised
with us. We monitor these processes, relying without independent verification on
the information provided to us and on the representations made by management and
the independent auditors.
This year, we reviewed Henry Bros. Electronics, Inc.'s audited financial
statements as of and for the year ended December 31, 2005, and met with both
management and Demetrius & Company, LLC, Henry Bros. Electronics, Inc.'s
independent auditors, to discuss those financial statements. Management has
represented to us that the financial statements were prepared in accordance with
accounting principles generally accepted in the United States.
We have received from Demetrius & Company, LLC and discussed with them the
written disclosure and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). These items
relate to that firm's independence from the Company. We also discussed with
Demetrius & Company, LLC any matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees).
Based on these reviews and discussions, we recommended to the Board that the
Company's audited financial statements be included in Henry Bros. Electronics,
Inc.'s Annual Report on Form 10-KSB for the year ended December 31, 2005.
Audit Committee:
David Sands
Joseph Ritorto
James W. Power
COMPENSATION OF DIRECTORS
Directors who are also our employees receive no additional compensation for
attendance at board meetings. The Company's non-employee directors receive a
quarterly fee of $1,250 and an annual stock option grant to purchase 2,000
shares of the Company's common stock at the closing share price on the day of
the grant and $1,000 for attendance at each Board or Committee meeting. In
August 2005, Messrs. De Lia, Ritorto, and Sands each received an option to
purchase 2,000 shares of our common stock at $4.90 per share exercisable through
December 2010. All directors are entitled to be reimbursed for their travel,
lodging and other out-of-pocket expenses related to their attendance at board
and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee in 2005 were Messrs. De Lia and
Ritorto. The Board made all decisions concerning executive compensation during
2005. No executive officer of the Corporation served as a member of the Board of
Directors of another entity during 2005. None of the members has ever been an
officer or employee of Henry Bros. Electronics, Inc. or any of its subsidiaries,
and no 'compensation committee interlocks' existed during fiscal 2005.
CODE OF CONDUCT AND CODE OF ETHICS
We have adopted a Code of Conduct which applies to our officers, directors
and employees, and a Code of Ethics which applies to our senior financial
officers. The codes are available in print to any stockholder upon written
request to: Henry Bros. Electronics, Inc., 280 Midland Avenue, Saddle Brook, New
Jersey 07663, Attention: Secretary.
PROPOSAL NO. 2
PROPOSED 2006 STOCK OPTION PLAN
There is being submitted to the shareholders for approval at the Annual
Meeting, the Henry Bros. Electronics, Inc. 2006 Stock Option Plan which
authorizes the issuance of options to purchase up to 250,000 shares of the
Company's common stock. The 2006 Plan was approved by
6
the Company's Board, subject to shareholder approval, at a meeting held on
August 2, 2006. If approved, the 2006 Plan will terminate on August 2, 2016.
Under the 2006 Stock Option Plan, the Company's employees, directors and
consultants are eligible to be granted stock options. All options granted under
the 2006 Plan shall be either 'Incentive Stock Options' ('ISOs'), as such term
is defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options ('NQOs'); provided, however, ISOs shall be granted
only to employees of the Company. An option shall be identified as an ISO or NQO
in writing in the document or documents evidencing the grant of the option. We
believe that stock options play an important role in providing those eligible to
participate with an incentive and inducement to contribute fully to the further
growth and development of the Company because of the opportunity to acquire a
proprietary interest in the Company on an attractive basis.
All stock options granted under the 2006 Plan will be exercisable at such
time or times and in such installments, if any, as our compensation committee or
the Board may determine and expire no more than ten years from the date of
grant. The exercise price of the stock option will be the fair market value of
the Company's common shares on the date immediately preceding the date on which
the option is granted. Options are non-transferable except by will or by the
laws of descent and distribution. Each option granted under the 2006 Plan will
be evidenced by a written agreement.
Options granted under the 2006 Plan terminate three months after the
optionee's relationship with the Company is terminated except if termination is
for cause or by reason of death or disability unless otherwise provided in the
Stock Option Agreement between the optionee and the Company. In the case of
death or disability, the option terminates six months after the optionee's death
or termination of employment by reason of disability unless otherwise provided
in the optionee's Stock Option Agreement. If an employee's employment is
terminated for cause, then any unexercised options held by the employee are
canceled upon termination of employment unless otherwise provided in the
Optionee's Stock Option Agreement. In the case of a non-employee director who
has served his or her full term, all vested options remain exercisable until the
termination date set forth in the stock option agreement to which such options
relate.
The Board has a limited right to modify or amend the 2006 Plan which does
not include the right to increase the number of shares which is available for
the grant of options. The 2006 Plan will be administered by the compensation
committee appointed by the board of directors.
Those eligible to participate in the 2006 Plan, will receive, for no
consideration prior to exercise, the opportunity to profit from any rise in the
market value of the Company's common stock. This will dilute the equity interest
of the Company's other shareholders. The grant and exercise of the options also
may affect the Company's ability to obtain additional capital during the term of
any options.
FEDERAL INCOME TAX CONSEQUENCES OF THE 2006 STOCK OPTION PLAN
The following is a summary of the Federal income tax consequences of
transactions under the 2006 Stock Option Plan, based on Federal income tax laws
in effect on January 1, 2006. This summary is not intended to be comprehensive
and does not describe state or local income tax consequences.
Benefits which may be granted pursuant to the 2006 Stock Option Plan include
incentive stock options and nonqualified stock options.
Incentive Stock Options. No income is realized by an optionee upon the grant
or exercise of an incentive stock option. If shares of common stock are
transferred to an optionee upon the exercise of an incentive stock option, and
if no disqualifying disposition of such shares is made by such optionee within
two years after the date of grant of the option or within one year after the
transfer of such shares to such optionee, then (1) upon the sale or exchange of
such shares, any amount realized in excess of the option exercise price will be
taxed to such optionee as a long-term capital gain and any loss sustained will
be treated as a long-term capital loss, and (2) no
7
deduction will be allowed to the Company for Federal income tax purposes. The
exercise of an incentive stock option will give rise to an item of tax
preference that may result in alternative minimum tax liability for the
optionee.
If common stock acquired upon the exercise of an incentive stock option is
disposed of prior to two years after the grant date or one year after the
exercise date, generally (1) the optionee will realize compensation (i.e.,
ordinary income) in the year of disposition in an amount equal to the excess (if
any) of the fair market value of such shares at exercise (or if less, the amount
realized on the disposition of such shares, if the shares are disposed of by
sale or exchange) over the option exercise price paid for such shares, and (2)
the Company will be entitled to deduct the amount of compensation income, which
was taxed to the optionee for Federal income tax purposes, if it complies with
applicable reporting requirements (the 'reporting requirements') and if the
amount represents an ordinary and necessary business expense of the Company (the
'ordinary and necessary text'). Any further gain (or loss) realized by the
optionee will be taxed as short-term or long-term capital gain (or loss), as the
case may be, and will not result in any deduction by the Company.
Options are eligible for favorable tax treatment as incentive options only
to the extent that not more than $100,000 in fair market value at the date of
grant (generally measured by the exercise price) first becomes exercisable in
any one calendar year. For purposes of this rule, option grants are aggregated
and a series of option grants over several years may in the aggregate result in
more than $100,000 of options that first became exercisable in any one calendar
year. Moreover, options that accelerate in the event of a change in control may
also cause more than $100,000 of options to become exercisable in the year of
acceleration. If more than $100,000 of options first become exercisable in any
one year, the excess options are non-qualified options regardless of the
characterization in the grant agreement.
Non-qualified Stock Options. Except as noted below, in the case of
nonqualified stock options: (1) no income is realized by the optionee at the
time the option is granted; (2) the optionee realizes ordinary income at
exercise in an amount equal to the difference between the option exercise price
paid for the shares and the fair market value of the shares on the date of
exercise; (3) the Company is entitled to a Federal income tax deduction equal to
the amount of income taxed to the optionee as ordinary income, subject to the
Company's satisfaction of the reporting requirements and the ordinary and
necessary text; and (4) upon disposition of the common stock acquired by
exercise of the option, appreciation (or depreciation) occurring after the date
of exercise is treated as either short-term or long-term capital gain (or loss),
depending on the recipient's holding period of the shares.
Change of Control Event. The 2006 Stock Option Plan provides for the early
exercisability of outstanding options in the event of a Change of Control Event
as defined in the 2006 Stock Option Plan. The acceleration of these benefits may
be deemed to constitute a 'parachute payment' under the Code. 'Excess parachute
payments,' as defined in the Code, will subject the recipient thereof to an
additional 20% excise tax and are not deductible by the Company.
The Board is Recommending the Adoption of the 2006 Plan. The description of
the proposed 2006 Plan set forth above is qualified in its entirety by reference
to the text of the 2006 Plan as set forth in Exhibit A.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our board of directors recommends the selection of Demetrius & Company,
L.L.C. as the independent registered public accounting firm to perform the audit
of our financial statements for the fiscal year ending December 31, 2006.
Representatives of Demetrius & Company, L.L.C. are expected to be present at
the annual meeting of shareholders with the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
8
FEES PAID TO OUR INDEPENDENT AUDITORS DURING 2005 AND 2004
AUDIT FEES
The aggregate fees billed by Demetrius & Company, L.L.C. for professional
services rendered for the audits of the Company's annual financial statements on
Form 10-KSB and the reviews of the financial statements on Form 10-QSB for the
fiscal year ended December 31, 2005 were $86,087 and for the year ended December
31, 2004 were approximately $69,905.
AUDIT-RELATED FEES
The aggregate fees billed for audit-related services by the principal
accountant for the year ended December 31, 2005 were approximately $2,200 and
for the year ended December 31, 2004 were $14,900. Audit related services
include due diligence in connection with acquisitions, consultation on
accounting and internal control matters, audits in connection with proposed or
consummated acquisitions and review of registration statements.
TAX FEES
The aggregate fees billed for tax compliance, tax advice and tax planning
rendered by our independent auditors for the fiscal year ended December 31, 2005
was $21,000, and for the year ended December 31, 2004 was $20,000. The services
comprising these fees include tax consulting and submitting tax returns.
ALL OTHER FEES
The aggregate fees billed for all other professional services rendered by
the Company's independent auditors for the year ended December 31, 2005 was $375
and for the year ended December 31, 2004 was $800. These fees related to work
performed on consents on Form S-8 Registrations and procedures on a Form 8-K
filing in 2004.
PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
The Audit Committee approved 100% of the fees paid to the principal
accountant for audit-related, tax and other fees. The Audit Committee
pre-approves all non-audit services to be performed by the auditor. The
percentage of hours expended on the principal accountant's engagement to audit
the Company's financial statements for the most recent year that were attributed
to work performed by persons other than the principal accountant's full-time,
permanent employees was 0%.
9
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to each executive
officer who was serving as an executive officer as of December 31, 2005, whose
compensation was in excess of $100,000 for the last three years ended December
31, 2005, 2004 and 2003.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------- ---------------------------
AWARDS PAYOUTS
------------ ------------
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(S) ($)(1) ($) OPTIONS/SARS ($)
--------------------------- ------- ------ --- ------------ ---
James E. Henry .......................... 2005 130,680 -- -- --
Chairman and Chief Executive 2004 130,680 -- -- --
Officer and Treasurer 2003 163,350 -- -- 3,393(2)
Irvin F. Witcosky ........................ 2005 130,680 -- -- --
President and Chief Operating Officer(3) 2004 130,680 -- -- --
2003 163,350 -- -- 3,393(2)
Philip A. Timpanaro ...................... 2005 104,231 -- -- --
Chief Financial Officer (4)
---------
(1) Effective in December 2003, Messrs. Henry and Witcosky voluntarily reduced
their salaries.
(2) Company matching contribution under its 401-K and profit sharing plan.
(3) Effective August 8, 2006, Mr. Brian Reach assumed the position of Chief
Operating Officer.
(4) Effective August 8, 2006 Mr. Timpanaro ceased being the Chief Financial
Officer and became the Corporate Controller.
The following table sets forth certain information with respect to stock
options and warrants made to the named executive officers during 2005.
OPTION GRANTS IN 2005
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO OPTION TERM ($)
UNDERLYING OPTIONS EMPLOYEES EXERCISED PRICE EXPIRATION ---------------------
GRANTED IN FISCAL YEAR PER SHARE DATE 5% 10%
------- -------------- --------- ---- -- ---
Philip A. Timpanaro... 25,000 12.20% $5.65 5/27/2010 $39,025 $86,235
The following table sets forth information regarding options held by the
named executive officers at December 31, 2005.
AGGREGATED EXERCISES AND YEAR END OPTION VALUES IN 2005
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTION AT YEAR END OPTIONS AT YEAR END
SHARES ACQUIRED VALUES ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
Brian Reach........... -- -- 80,000/20,000 --
Philip A. Timpanaro... -- -- 0/25,000 --
REPORT OF THE COMPENSATION COMMITTEE
Henry Bros. Electronics' Compensation Committee is comprised of two
independent, non-employee directors. The Committee establishes and administers
Henry Bros. Electronics' executive
10
compensation program, assists the Board of Directors with its responsibilities
relating to executive officer and director compensation and oversees incentive
and equity-based compensatory plans in which executive officers and other
employees of Henry Bros. Electronics participate. The Committee seeks to offer
compensation to Henry Bros. Electronics' executive officers to enable Henry
Bros. Electronics to attract, retain and reward highly qualified individuals,
whose contributions are necessary for Henry Bros. Electronics' long-term
success. Compensation generally consists of salary and a cash bonus, which
provide current incentives, and stock options, which provide longer-term
incentives. In determining executive compensation, the Committee evaluates a
variety of factors relating to Henry Bros. Electronics' performance during the
prior fiscal year, including revenue and sales growth and progress towards
long-term goals. In addition, the Committee reviews the individual performance
of Henry Bros. Electronics' executive officers, including their achievement of
managerial objectives.
BASE SALARY AND CASH BONUS
Henry Bros. Electronics does not have employment agreements with any of its
executives. Base salaries for executive officers are determined by evaluating a
variety of factors, including the experience of the individual, the competitive
marketplace for managerial talent (including a comparison of base salaries for
comparable positions at similar companies of comparable size and
capitalization), Henry Bros. Electronics' performance, the executive's
performance, and the responsibilities of the executive. Cash bonus awards are
based on a variety of factors, including the individual performance of the
executive and Henry Bros. Electronics' performance.
EQUITY COMPENSATION
The Compensation Committee believes that stock-based compensation
arrangements are essential in aligning the interests of management and the
stockholders. Henry Bros. Electronics' 2002 Stock Plan provides for the issuance
of stock options to its executive officers and other employees. Stock options to
purchase shares of Henry Bros. Electronics' common stock are issued at an
exercise price equal to the fair market value of such stock on the date
immediately preceding the date on which the stock option is granted. These
options typically vest over a three to five year period from the date of grant
and are granted to Henry Bros. Electronics' executive officers and other
employees as a reward for past individual and corporate performance and as an
incentive for future performance. The size of awards is determined by the
Committee based on factors such as the executive's position, individual
performance and Henry Bros. Electronics' performance.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
During 2005, Mr. Henry received a base pay of $130,680. In December 2003,
Mr. Henry voluntarily waived the receipt of his salary by twenty percent to help
reduce the Company's costs. This salary reduction was not restored in 2005. In
determining Mr. Henry's salary for 2005, the Committee considered competitive
compensation data for chief executive officers of similar companies within the
security systems integration industry, taking into account their past
experience, performance and knowledge. The Committee also considered Henry Bros.
Electronics' performance during the prior fiscal year, Mr. Henry's
qualifications, knowledge and experience, and his leadership to Henry Bros.
Electronics in its achievement of strategic and financial objectives.
THE COMPENSATION COMMITTEE
Robert De Lia, Sr.
Joseph P. Ritorto
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The table that follows sets forth, as of September 19, 2006 certain
information regarding beneficial ownership of our common stock by each person
who is known by us to beneficially own more than 5% of our common stock. The
table also identifies the stock ownership of each of our directors, each of our
officers, and all directors and officers as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
Unless otherwise indicated, the business address for each of the named
individuals is Henry Bros. Electronics, Inc., 280 Midland Avenue, Saddle Brook,
New Jersey 07663.
Shares of common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise or conversion of options, warrants or
other similar convertible or derivative securities are deemed to be outstanding
for the purpose of computing the percentage ownership of such individual or
group, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
The applicable percentage of ownership is based on 5,896,065 shares
outstanding as of September 19, 2006.
PERCENTAGE OF
NAME, ADDRESS AND TITLE NUMBER OF SHARES COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------- ------------------ ------------------
James E. Henry, Chairman, Chief Executive Officer,
Treasurer and Director................................... 1,400,000 23.7%
Irvin F. Witcosky, President, and Director................. 1,400,000 23.7%
Brian Reach, Vice Chairman, Chief Operating Officer,
Secretary and Director (1)............................... 138,000 2.3%
Philip A. Timpanaro, Corporate Controller (2).............. 8,333 *
Robert De Lia, Sr., Director (3)........................... 42,000 *
James W. Power, Director (4)............................... 2,000 *
Joseph Ritorto, Director (5)............................... 44,000 *
David Sands, Director (6).................................. 2,000 *
All executive officers and directors as a group
(8 persons) (7)........................................... 3,036,333 50.5%
---------
* Less than 1%
(1) The amount shown for Mr. Reach includes a currently exercisable option to
purchase 88,000 shares of the Company's Common Stock at a price of $7.10 per
share.
(2) The amount shown for Mr. Timpanaro includes a currently exercisable option
to purchase 8,333 shares of the Company's Common Stock at a price of $5.65
per share.
(3) The amount shown for Mr. De Lia, Sr. includes two currently exercisable
options to purchase 2,000 shares each of the Company's Common Stock at a
price of $7.19 and $4.90 per share, respectively.
(4) The amount shown for Mr. Power includes a currently exercisable option to
purchase 2,000 shares of the Company's Common Stock at a price of $6.08 per
share.
(5) The amount shown for Mr. Ritorto includes currently exercisable options to
purchase 5,000 shares at $7.95 and 2,000 shares each of the Company's common
stock at $7.19 and $4.90 per share, respectively.
(6) The amount shown for Mr. Sands includes a currently exercisable option to
purchase 2,000 shares of the Company's Common Stock at a price of $4.90 per
share.
(7) The amount shown includes currently exercisable options to purchase 113,333
shares of the Company's common stock.
12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 2004, a wholly-owned subsidiary of the Company purchased all of the
issued and outstanding shares of Airorlite Communications, Inc. ('Airorlite').
At the time of this purchase, Mr. De Lia, one of our directors, was the
president and chief executive officer of Airorlite. As part of this transaction,
the Company paid the sum of $100,000 to Mr. De Lia in full payment of the
outstanding balance of a loan made by Mr. De Lia to Airorlite and issued Mr. De
Lia 37,000 shares of the Company's common stock. Under the Airorlite purchase
Agreement, the Company was also obligated to, upon the filing of the Airorlite's
tax return for the period ended March 31, 2004, reimburse Mr. De Lia's for his
pro-rata share of Airorlite's tax liability, if any, in an amount equal to the
amount of such tax liability grossed up by 54%.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our directors and officers, and
persons who own more than 10% of our Common Stock, to file with the Securities
and Exchange Commission initial reports of beneficial ownership and reports of
changes in beneficial ownership of our Common Stock and other equity securities.
Our officers, directors and greater than 10% beneficial owners are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, for the year ended December 31, 2005, based solely on a
review of the copies of such reports furnished to the Company and
representations by these individuals that no other reports were required during
the year ended December 31, 2005, all Section 16(a) filing requirements
applicable to our directors, officers and greater than 10% beneficial owners
have been timely filed except that Messrs. Ritorto and De Lia did not timely
file a Form 4. These forms have since been filed.
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
cumulative total shareholder return on the Common Stock from November 16, 2001
(the date that Henry Bros. Electronics, Inc. began trading as a public company)
through December 31, 2005 with the cumulative total return of the Dow Jones
Wilshire 5000 (our Major Market Index) and the Dow Jones Wilshire Electrical
Components & Equipment Index (our Industry Index). The graph below assumes that
$100 was invested on November 16, 2001 in our Common Stock, the Dow Jones
Wilshire 5000 and the Dow Jones Wilshire Electrical Components & Equipment
Index. Dividend reinvestment has been assumed and, with respect to companies in
the Dow Jones Wilshire 5000 and the Dow Jones Wilshire Electrical Components &
Equipment Index, the returns of such companies have been weighted at each
measurement point to reflect relative stock market capitalization.
13
[PERFORMANCE GRAPH]
-------------
* $100 invested on 11/16/01 in stock or on 10/31/01 in index including
reinvestment of dividends. Fiscal year ending December 31.
CUMULATIVE TOTAL RETURN
---------------------------------------------------
11/01 12/01 12/02 12/03 12/04 12/05
----- ----- ----- ----- ----- -----
HENRY BROS. ELECTRONICS, INC................ 100.00 92.14 83.42 68.80 60.81 55.04
DOW JONES WILSHIRE 5000..................... 100.00 109.58 86.72 114.16 128.58 136.71
DJ WILSHIRE ELECTRICAL COMPONENTS &
EQUIPMENT................................. 100.00 110.77 61.52 99.95 95.12 100.93
SHAREHOLDER PROPOSALS -- 2007 ANNUAL MEETING
Proposals by any shareholder intended to be included in the Proxy Statement
for the Annual Meeting of Shareholders to be held in the year 2007 must be
received at the principal executive offices of the Company on or before February
28, 2007.
UNDERTAKING
The Company is providing without charge to each person solicited by this
proxy statement a copy of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2005 including the financial statements and
financial statement schedules required to be filed with the Securities and
Exchange Commission for the Company's most recent fiscal year.
By Order of the Board of Directors,
/s/ JAMES E. HENRY
______________________________________
JAMES E. HENRY
CHAIRMAN OF THE BOARD
14
EXHIBIT A
-------------------
HENRY BROS. ELECTRONICS, INC.
2006 STOCK OPTION PLAN
-------------------
1. PURPOSE OF PLAN. This 2006 Stock Option Plan (the 'Plan') is designed to
assist Henry Bros. Electronics, Inc. (the 'Company') in attracting and retaining
the services of employees, Non-Employee Directors (as hereinafter defined) and
such consultants as may be designated and to provide them with an incentive and
inducement to contribute fully to the further growth and development of the
business of the Company and its subsidiaries.
2. LEGAL COMPLIANCE. It is the intent of the Plan that all options granted
under it shall be either 'Incentive Stock Options' ('ISOs'), as such term is
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
'Code'), or non-qualified stock options ('NQOs'); provided, however, ISOs shall
be granted only to employees of the Company. An option shall be identified as an
ISO or NQO in writing in the document or documents evidencing the grant of the
option. All options that are not so identified as ISOs are intended to be NQOs.
It is the further intent of the Plan that it conform in all respects with the
requirements of Rule 16b-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended ('Rule 16b-3'). To the extent that
any aspect of the Plan or its administration shall at any time be viewed as
inconsistent with the requirements of Rule 16b-3 or, in connection with ISOs,
the Code, such aspect shall be deemed to be modified, deleted or otherwise
changed as necessary to ensure continued compliance with such provisions.
3. DEFINITIONS. In addition to other definitions contained elsewhere in the
Plan, as used in the Plan the following terms have the following meanings unless
the context requires a different meaning:
'Board' means the Board of Directors of the Company.
'Code' means the Internal Revenue Code of 1986, as the same may from
time to time be amended.
'Committee' means the committee referred to in Section 5 hereof.
'Common Stock' means the Common Stock of the Company, par value $.01 per
share.
'Designated Beneficiary' means the person designated by an optionee to
be entitled on his death to any remaining rights arising out of an option,
such designation to be made in accordance with such regulations as the
Committee or Board may establish.
'Fair Market Value' means the closing price of the Common Stock on the
American Stock Exchange on the date immediately proceeding the date of grant
(the 'Closing Price') or if the Common Stock is no longer traded on the
American Stock Exchange, the Closing Price on Nasdaq or any other automated
quotation system, or if the Common Stock shall not be included in any
automated quotation system, as determined by the Committee or the Board in
good faith based on all relevant factors.
'Non-Employee Directors' means a director who is not currently an
officer of or employed by the Company or any of its majority-owned
subsidiaries.
'Stock Options' means any stock options granted to an optionee under the
Plan.
'Stock Option Agreement' means a stock option agreement entered into
pursuant to the Plan.
A-1
4. STOCK OPTIONS: STOCK SUBJECT TO PLAN.
The stock to be issued upon exercise of Stock Options granted under the Plan
shall consist of authorized but unissued shares, or of treasury shares, of
Common Stock, as determined from time to time by the Board. The maximum number
of shares for which Stock Options may be granted under the Plan is 250,000
shares, subject to adjustment as provided in Section 9 of the Plan. If any Stock
Option granted under the Plan should expire or terminate for any reason
whatsoever without having been exercised in full, the unpurchased shares shall
become available for new option grants.
5. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation Committee or, if such
Committee is not appointed, then it shall be administered by the Board. Options
may be granted by the Board or the Committee. For purposes of the Plan, the
Board or its appointed Committee shall be referred to as the 'Committee.' The
Committee, if any, shall be appointed by the Board and shall consist of not less
than two members. The Board shall establish the number of members to serve on
the Committee, shall fill all vacancies or create new openings on the Committee,
and may remove any member of the Committee at any time with or without cause.
The Committee shall select its own chairman and shall adopt, alter or repeal
such rules and procedures as it may deem proper and shall hold its meetings at
such times and places as it may determine. The Committee shall keep minutes of
its meetings and of actions taken by it without a meeting. A majority of the
Committee present at any meeting at which a quorum is present, or acts approved
in writing by all members of the Committee without a meeting, shall be the acts
of the Committee.
(b) Unless otherwise determined by the Board, the Committee shall have full
and final authority in its discretion, but subject to the express provisions of
the Plan, to:
(i) prescribe, amend and rescind rules and regulations relating to the
Plan;
(ii) interpret the Plan and the respective Stock Options; and
(iii) make all other determinations necessary or advisable for
administering the Plan. All determinations and interpretations by the
Committee or the Board shall be binding and conclusive upon all parties. No
member of the Committee or the Board shall be liable for any action or
determination made in good faith in respect of the Plan or any Stock Option
granted under it.
(c) The provisions of this Section 5 shall survive any termination of the
Plan.
6. GRANTS OF OPTIONS.
(a) Employees, employee directors, Non-Employee Directors, Employees of the
Company or any of its subsidiaries shall be eligible to be selected by the
Committee to receive stock option grants.
(b) Subject to the provisions of the Plan, the Committee shall determine and
designate the persons to whom grants will be made, the number of Stock Options
to be granted and the terms and conditions of each grant.
7. TERMS AND EXERCISE OF STOCK OPTION.
(a) Unless otherwise determined by the Committee, each Stock Option shall
terminate no later than ten years (or such shorter term as may be fixed by the
Committee) after the date on which it shall have been granted. The date of
termination pursuant to this paragraph is referred to hereinafter as the
'termination date' of the option.
(b) Stock Options shall be exercisable at such time or times and in such
installments, if any, as the Committee or Board may determine. In the event any
Stock Option is exercisable in installments, any shares which may be purchased
during any year or other period which are not purchased during such year or
other period may be purchased at any time or from time to time
A-2
during any subsequent year or period during the term of the Stock Option unless
otherwise provided in the Stock Option Agreement.
(c) A Stock Option shall be exercised by written notice to the Secretary or
Treasurer of the Company at its then principal office. The notice shall specify
the number of shares as to which the Stock Option is being exercised and shall
be accompanied by payment in full of the purchase price for such shares;
provided, however, that an optionee at his or her discretion may, in lieu of
cash payment, to the Company, (i) deliver Common Stock already owed by him or
her, valued at fair market value on the date of delivery, as payment for the
exercise of any Stock Option provided such shares have been owned by the
optionee for at least six months prior to exercise or were not acquired,
directly or indirectly, from the Company, or (ii) instruct a broker to notify
the Company of optionee's exercise and sell stock to cover the exercise price
and tax withholding. In the event a Stock Option is being exercised, in whole or
in part pursuant to Section 8(c) hereof by any person other than the optionee, a
notice of election shall be accompanied by proof satisfactory to the Company of
the rights of such person to exercise said Stock Option. An optionee shall not,
by virtue of the granting of a Stock Option, be entitled to any rights of a
shareholder in the Company and such optionee shall not be considered a record
holder of shares purchased by him or her until the date on which he or she shall
actually be recorded as the holder of such shares upon the stock records of the
Company. The Company shall not be required to issue any fractional shares upon
exercise of any Stock Option and shall not be required to pay to the person
exercising the Stock Option the cash equivalent of any fractional share interest
unless so determined by the Committee.
(d) In the event an optionee elects to deliver Common Stock already owned by
such optionee or to request that Common Stock be withheld in accordance with
subsection (c) above, upon exercise of a Stock Option granted hereunder, the
Company shall be entitled to require as a condition thereto that the optionee
remit an amount which the Company deems sufficient to satisfy all Federal, state
and other governmental withholding tax requirements related thereto. The Company
shall have the right, in lieu of or in addition to the foregoing to withhold
such sums from compensation otherwise due to the optionee.
8. OTHER STOCK OPTION CONDITIONS.
(a) Except as expressly permitted by the Board, no Stock Option shall be
transferred by the optionee otherwise than by will or by the laws of descent and
distribution. During the lifetime of the optionee the Stock Option shall be
exercisable only by such optionee, by his or her legal representative or by a
transferee permitted under the terms of the grant of the Stock Option.
(b) Unless otherwise determined by the Committee, in the event of the
termination of an optionee's employment by the Company at any time for any
reason (excluding disability or death), the portion of his or her Stock Option
which is exercisable at the date of termination of employment and all rights
thereunder shall terminate on the date of termination of the optionee's
relationship with the Company, except that the optionee shall have the right to
exercise his or her Stock Option (to the extent that the optionee was entitled
to exercise it as of the date of termination), within three (3) months of the
date of termination, but in no event later than the termination date of his or
her Stock Option; provided, however, if the optionee is terminated for cause,
the Stock Option shall terminate on the date of termination of employment. The
Committee or the Board, may determine, in their sole discretion, whether the
date of termination will be based on the last day the optionee performed
services for the Company rather than the date of termination. Notwithstanding
the foregoing, unless otherwise determined by the Committee, in the event an
optionee is permanently and totally disabled (within the meaning of section
105(d)(4), or any successor section, of the Code), the portion of his or her
Stock Option which is exercisable at the date of disability and all rights
thereunder shall be exercisable by the optionee (or his or her legal
representative) at any time within six (6) months of termination of
employment -- but in no event later than the termination date of his Stock
Option.
(c) Unless otherwise determined by the Committee, if an optionee shall die
while in the employ of the Company, the portion of his or her Stock Option which
is exercisable at the date of
A-3
death may be exercised by his or her designated beneficiary or beneficiaries (or
if none have been effectively designated, by his or her executor, administrator
or the person to whom his or her rights under his or her Stock Option shall pass
by will or by the laws of descent and distribution) at any time within six (6)
months after the date of death, but not later than the termination date of his
or her Stock Option.
(d) Nothing in the Plan or in any option granted pursuant hereto shall
confer on an employee any right to continue in the employ of the Company or
prevent or interfere in any way with the right of the Company to terminate his
employment at any time, with or without cause.
(e) Notwithstanding anything to the contrary herein, in the event a
Non-Employee Director has served his full term, his Stock Options that are
exercisable shall be exercisable until the termination date of his Stock Option.
If a Non-Employee Director shall die while serving on the Board, the portion of
his Stock Option which is exercisable at the date of death may be exercised by
his designated beneficiary or beneficiaries (or, a person who has been
effectively designated, by his executor, administrator or the person to whom his
rights under his Stock Option shall pass by his will or by the laws of descent
and distribution) at any time within one year after the date of his death, but
not later than the termination date of his Stock Option. Nothing in the Plan or
in any Stock Option granted pursuant hereto shall confer on any Non-Employee
Director any right to continue as a director of the Company.
(f) Each Stock Option granted pursuant to the Plan shall be evidenced by a
written Stock Option Agreement duly executed by the Company and the optionee, in
such form and containing such provisions as the Committee may from time to time
authorize or approve.
9. ADJUSTMENTS. The Stock Option Agreements shall contain such provisions as
the Committee shall determine to be appropriate for the adjustment of the kind
and number of shares subject to each outstanding Stock Option, or the Stock
Option prices, or both, in the event of any changes in the outstanding Common
Stock of the Company by reason of stock dividends, stock splits, liquidation,
recapitalizations, reorganizations, mergers, consolidations, combinations or
exchanges of shares or the like. In the event of any such change or changes in
the outstanding Common Stock, and as often as the same shall occur, the kind and
aggregate number of shares available under the Plan may be appropriately
adjusted by the Committee or the Board, whose determination shall be binding and
conclusive.
10. AMENDMENT AND TERMINATION.
(a) Unless the Plan shall have been otherwise terminated as provided herein,
it shall terminate on, and no option shall be granted thereunder, after. The
Board may at any time prior to that date alter, suspend or terminate the Plan as
it may deem advisable, except that it may not without further shareholder
approval (i) increase the maximum number of shares subject to the Plan (except
for changes pursuant to Section 9); (ii) permit the grant of options to anyone
other than the officers, employee directors, Non-Employee Directors and
consultants; (iii) change the manner of determining the minimum stock exercise
prices (except for changes pursuant to Section 9); or (iv) extend the period
during which Stock Options may be granted or exercised. Except as otherwise
hereinafter provided, no alteration, suspension or termination of the Plan may,
without the consent of the optionee to whom any Stock Option shall have
theretofore been granted (or the person or persons entitled to exercise such
Stock Option under Section 8(c) of the Plan), terminate such optionee's Stock
Option or adversely affect such optionee's rights thereunder.
(b) Anything herein to the contrary notwithstanding, in the event that the
Board shall at any time declare it advisable to do so in connection with any
proposed sale or conveyance of all or substantially all of the property and
assets of the Company or of any proposed consolidation or merger of the Company
(each of the foregoing a 'Change of Control Event'), the Company may
(i) accelerate the vesting schedule in such manner as the Company may decide in
its sole discretion, or (ii) give written notice to the holder of any Stock
Option that the portion of his or her Stock Option which is exercisable on the
date of the notice may be exercised only within thirty (30) days after the date
of such notice but not thereafter, and all rights under said Stock
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Option which shall not have been so exercised shall terminate at the expiration
of such thirty (30) days, provided that the proposed sale, conveyance,
consolidation or merger to which such notice shall relate shall be consummated
within six (6) months after the date of such notice. If such Change of Control
Event shall not be consummated within said time period, no unexercised rights
under any Stock Option shall be affected by such notice except that such Stock
Option may not be exercised between the date of expiration of such thirty (30)
days and the date of the expiration of such six month period. Alternatively,
outstanding Stock Options under the Plan may be assumed or converted to similar
options in any surviving or acquiring entity, but, if the surviving or acquiring
entity shall refuse to assume, or convert, said Stock Options, they shall be
terminated if not exercised according to the requirements set forth above.
11. OPTION EXERCISE PRICE. The price per share to be paid by the optionee at
the time an ISO is exercised shall not be less than one hundred percent (100%)
of the Fair Market Value of one share of the optioned Common Stock on the date
immediately preceding the date on which the Stock Option is granted. No ISO may
be granted under the Plan to any person who, at the time of such grant, owns
(within the meaning of Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company unless the exercise price of such ISO is at least equal to one
hundred and ten percent (110%) of Fair Market Value. The price per share to be
paid by the optionee at the time an NQO is exercised shall not be less than
eighty-five percent (85%) of the Fair Market Value on the date immediately
preceding the date on which the NQO is granted, as determined by the Committee.
12. CEILING OF ISO GRANTS. The aggregate Fair Market Value (determined at
the time any ISO is granted) of the Common Stock with respect to which an
optionee's ISOs, together with incentive stock options granted under any other
plan of the Company are exercisable for the first time by such optionee during
any calendar year shall not exceed $100,000. If an optionee holds such incentive
stock options that become first exercisable (including as a result of
acceleration of exercisability under the Plan) in any one year for shares having
a fair market value at the date of grant in excess of $100,000, then the most
recently granted of such ISOs, to the extent that they are exercisable for
shares having an aggregate Fair Market Value in excess of such limit, shall be
deemed to be NQOs.
13. INDEMNIFICATION. Any member of the Committee or the Board who is made,
or threatened to be made, a party to any action or proceeding, whether civil or
criminal, by reason of the fact that such person is or was a member of the
Committee or the Board insofar as it relates to the Plan shall be indemnified by
the Company, and the Company may advance such person's related expenses, to the
full extent permitted by law and/or the Certificate of Incorporation or By-laws
of the Company.
14. EFFECTIVE DATE OF THE PLAN; TERMINATION OF THE PLAN AND STOCK OPTIONS.
The Plan shall become effective on the date of adoption by the Board, provided,
however, that the Plan shall be subject to approval by the affirmative vote of
the holders of the majority of Common Stock of the Company on or before
December 31, 2006.
15. EXPENSES. Except as otherwise provided herein for the payment of
Federal, State and other governmental taxes, the Company shall pay all fees and
expenses incurred in connection with the Plan and the issuance of the stock
hereunder.
16. GOVERNMENT REGULATIONS, REGISTRATIONS AND LISTING OF STOCK.
(a) The Plan, and the grant and exercise of Stock Options thereunder, and
the Company's obligation to sell and deliver stock under such Stock Options
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any regulatory or governmental agency as may, in the
opinion of the Company, be necessary or appropriate.
(b) The Company may in its discretion require, whether or not a registration
statement under the Securities Act of 1933 and the applicable rules and
regulations thereunder (collectively the 'Act') is then in effect with respect
to shares issuable upon exercise of any Stock Option or the offer and sale of
such shares is exempt from the registration provisions of such Act, that as a
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condition precedent to the exercise of any Stock Option the person exercising
the Stock Option give to the Company a written representation and undertaking
satisfactory in form and substance to the Company that such person is acquiring
the shares for his or her own account for investment and not with a view to the
distribution or resale thereof and otherwise establish to the Company's
satisfaction that the offer or sale of the shares issuable upon exercise of the
Stock Option will not constitute or result in any breach or violation of the Act
or any similar act or statute or law or regulation in the event that a
Registration statement under the Act is not then effective with respect to the
Common Shares issued upon the exercise of such Stock Option; the Company may
place upon any stock certificate appropriate legends referring to the
restrictions on disposition under the Act.
(c) In the event the class of shares issuable upon the exercise of any Stock
Option is listed on any national securities exchange or Nasdaq, the Company
shall not be required to issue a certificate for such shares upon the exercise
of any Stock Option, or to list the shares so issuable on such national
securities exchange or Nasdaq.
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Appendix 1
HENRY BROS. ELECTRONICS, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS -- WEDNESDAY, NOVEMBER 1, 2006
The undersigned shareholder of Henry Bros. Electronics, Inc.. (the 'Company')
hereby appoints James E. Henry and Brian Reach and each of them, the attorney
and proxy of the undersigned, with full power of substitution, to vote, as
indicated herein, all the common shares of the Company standing in the name of
the undersigned at the close of business on September 19, 2006 at the Annual
Meeting of Shareholders of the Company to be held at the offices of Epstein
Becker & Green, P.C., 250 Park Avenue, 14th Floor, New York, New York 10177 at
10:00 a.m., Eastern Time, on Wednesday, November 1, 2006, and at any and all
adjournments thereof, with all the powers the undersigned would possess if then
and there personally present and especially (but without limiting the general
authorization and power hereby given) to vote as indicated on the proposals, as
more fully described in the Proxy Statement for the meeting.
(Please fill in the reverse side and return promptly in the enclosed envelope.)
Please mark boxes [O] or [X] in blue or black ink.
1. Election of Directors.
[ ] FOR ALL [ ] WITHHOLD AUTHORITY ONLY FOR THOSE NOMINEES [ ] WITHHOLD AUTHORITY
NOMINEES WHOSE NAME(S) I HAVE CROSSED OUT BELOW FOR ALL NOMINEES
Nominees for Directors are:
James E. Henry Brian Reach Robert L. De Lia Sr. David Sands
Irvin F. Witcosky James W. Power Joseph P. Ritorto
2. Proposal to approve the Company's 2006 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(See reverse side)
3. Proposal to approve the selection of Demetrius & Company, L.L.C. as the
Company's independent auditors for the year ending December 31,
2006. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR THE
ELECTION OF THE PROPOSED DIRECTORS AND FOR THE ABOVE PROPOSALS UNLESS OTHERWISE
INDICATED.
[Sign, Date and Return the Proxy Card Promptly Using
the Enclosed Envelope.]
SIGNATURE(S) should be exactly as the name or names
appear on this proxy. If stock is held jointly, each
holder should sign. If signing is by attorney,
executor, administrator, trustee or guardian, please
give full title.
Dated: ........................................ , 2006
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(Signature)
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(Print Name)
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(Signature)
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(Print Name)