SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a
6(e) (2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 14a-12
BALCHEM CORPORATION
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(Name of Registrant as Specified In Its Charter)
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[LOGO BALCHEM CORPORATION]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 2007
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TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
BALCHEM CORPORATION will be held in the NASDAQ MarketSite, Times Square, New
York, New York, on Friday, June 15, 2007 at 11:00 a.m. for the following
purposes:
1. To elect two Class 1 Directors to the Board of Directors to
serve until the Annual Meeting of Stockholders in 2010 and
thereafter until their respective successors are elected and
qualified;
2. To ratify the appointment of McGladrey & Pullen, LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2007; and
3. To transact such other business as may properly come before
the Meeting or any adjournment thereof.
Information with respect to the above matters is set forth in the Proxy
Statement, which accompanies this Notice.
The Board of Directors has set April 24, 2007 as the record date for
the Annual Meeting. This means that only stockholders of record at the close of
business on that date are entitled to notice of and to vote at the Meeting or
any adjournment thereof.
We hope that all stockholders who can conveniently do so will attend
the Meeting. Stockholders who do not expect to be able to attend the Meeting are
requested to fill in, date and sign the enclosed proxy and promptly return the
same in the stamped, self-addressed envelope enclosed for your convenience.
Stockholders who are present at the Meeting may withdraw their proxies and vote
in person, if they so desire.
BY ORDER OF THE BOARD OF DIRECTORS
Dino A. Rossi, President & CEO
Dated: April 27, 2007
P.O. Box 600, New Hampton, New York 10958 Tel: 845-326-5600
Fax: 845-326-5702 www.balchem.com
PROXY STATEMENT
BALCHEM CORPORATION
GENERAL
This Proxy Statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of Balchem Corporation (the "Company") to be
voted at the 2007 Annual Meeting of Stockholders (the "Annual Meeting" or the
"Meeting") to be held at the NASDAQ MarketSite, 4 Times Square, New York, NY, on
Friday, June 15, 2007 at 11:00 AM, local time, and at any adjournments or
postponements thereof. This Proxy Statement and a proxy card are expected to be
sent to stockholders beginning on or about April 27, 2007.
The Board of Directors has fixed the close of business on April 24,
2007 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. At the Annual Meeting, stockholders will
be asked to consider and vote upon the election of two Class 1 Directors to the
Board of Directors to serve until the annual meeting of Stockholders in 2010 and
thereafter until their respective successors are elected and qualified.
Stockholders will also be asked to ratify the Board of Directors' selection of
McGladrey & Pullen, LLP as the Company's independent registered public
accounting firm for the 2007 fiscal year. Stockholders may also consider and act
upon such other matters as may properly come before the Annual Meeting or any
adjournment or adjournments thereof.
You can ensure that your shares are voted at the Annual Meeting by
completing, signing, dating and returning the enclosed proxy card in the
envelope provided. Sending in a signed proxy will not affect your right to
attend the Meeting and vote. A stockholder who gives a proxy may revoke it at
any time before it is exercised by voting in person at the Annual Meeting, by
submitting another proxy bearing a later date or by notifying the Inspectors of
Election or the Secretary of the Company of such revocation in writing prior to
the Annual Meeting. Please note, however, that if your shares are held of record
by a broker, bank or other nominee and you wish to attend and vote in person at
the Annual Meeting, you must obtain from the record holder a proxy issued in
your name.
Proxies may be solicited, without additional compensation, by
directors, officers and other regular employees of the Company by telephone,
email, telefax or in person. All expenses incurred in connection with this
solicitation will be borne by the Company. Brokers, nominees, fiduciaries and
other custodians have been requested to forward soliciting material to the
beneficial owners of Common Stock held of record by them, and such custodians
will be reimbursed for their reasonable expenses.
PROPOSAL NO.1
ELECTION OF DIRECTORS
The Company's By-laws provide for a staggered term Board of Directors
consisting of six (6) members, with the classification of the Board of Directors
into three classes (Class 1, Class 2 and Class 3). The term of the two current
Class 1 Directors who are nominated for election as directors will expire at the
Annual Meeting. The Class 3 and Class 2 Directors will
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remain in office until their terms expire, at the annual meetings of
stockholders to be held in the years 2008 and 2009, respectively.
Accordingly, at the 2007 Annual Meeting, two Class 1 Directors are to
be elected to hold office until the annual meeting of stockholders to be held in
2010 and thereafter until their successors have been elected and qualified. The
nominees listed below with brief biographies are currently directors and have
been nominated for election after due consideration by the Corporate Governance
and Nominating Committee. The Board is not aware of any reason why any such
nominee may be unable to serve as a director. If either or both of such nominees
are unable to serve, the shares represented by all valid proxies will be voted
for the election of such other person or persons, as the case may be, as the
Board may recommend.
Vote Required to Elect Directors
Under the rules of the Securities and Exchange Commission, boxes and a
designated blank space are provided on the form of proxy for stockholders to
mark if they wish to vote in favor of or withhold authority to vote for the
Company's nominees for director.
Assuming a quorum has been reached, a determination must be made as to
the results of the vote on each matter submitted for stockholder approval.
A director nominee must receive a plurality of the votes cast at the
Meeting, which means that a broker non-vote or a vote withheld from a particular
nominee or nominees will not affect the outcome of the election of directors.
All shares represented by duly executed proxies will be voted For the
election of the nominees named in this Proxy Statement as directors unless
authority to vote For any such nominee has been withheld. If for any reason any
===
such named nominee should not be available as a candidate for director, the
proxies will be voted in accordance with the authority conferred in the proxy
for such other candidate as may be nominated by the Company's Board of
Directors.
Nominees for Election as Director
Dino A. Rossi, age 52, has been a Director of the Company since 1997
and Chairman of the Company's Board of Directors since February 22, 2007. Mr.
Rossi has been President and Chief Executive Officer of the Company since
October 1997, Chief Financial Officer of the Company from April 1996 to January
2004 and Treasurer of the Company from June 1996 to June 2003. He was Vice
President, Finance and Administration of Norit Americas Inc., a wholly-owned
subsidiary of Norit N.V., a chemicals company, from January 1994 to February
1996, and Vice President, Finance and Administration of Oakite Products Inc., a
specialty chemicals company, from 1987 to 1993.
Dr. Elaine R. Wedral, age 63, has been a Director since October 2003.
Dr. Wedral is retired. She was President Nestle R&D Center, Inc. New Milford, CT
and Head of Nestle Food Service Systems worldwide 1999-2005. Dr. Wedral was
President, Nestle RD Centers in the U.S. 1988-1999. Prior to that, she held a
variety of technical positions at Nestle. Dr. Wedral holds 34 patents in the R&D
food processing, food nutrition and ingredient areas, and is on the editorial
board of Food Processing Magazine. She received her Ph.D. from
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Cornell University in Food Biochemistry, an M.S. in Food Microbiology and a B.S.
(Honors) from Purdue University in Biochemistry. She is currently also a
director of Sensient Technologies Corporation, and continues to work with
several key industry/university related groups.
Upon recommendation by the Corporate Governance & Nominating Committee,
the Board of Directors of the Company recommends a vote For the election of Dino
===
A. Rossi and Elaine R. Wedral as Class 1 Directors to hold office until the
Annual Meeting of Stockholders for the Year 2010 and until their successors are
elected. Proxies received by the Company will be so voted unless such proxies
withhold authority to vote for such nominees.
Directors Not Standing For Election
In addition to Mr. Rossi and Dr. Wedral, the Company's Board of
Directors includes the following members:
Hoyt Ammidon, Jr., age 69, has been a Director of the Company since
October 2001. Mr. Ammidon is retired. Mr. Ammidon served as a managing director
of Berkshire Capital Corporation, a private company that provides merger and
acquisition related services to the investment management and securities
industries, from November 1994 to January 2004 and has been an advisory director
thereof since January 2004. Prior thereto, he held various executive positions
at Cazenove Incorporated, a brokerage firm, The Chase Manhattan Investment Bank
and E.F. Hutton & Co., Inc. Mr. Ammidon is currently a director of Tetra
Technologies, Inc., a publicly traded company.
Edward L. McMillan, age 61, has been a Director of the Company since
February 2003. Mr. McMillan owns and manages McMillan, LLC, a
transaction-consulting firm that provides strategic consulting services and
facilitates mergers and/or acquisitions predominantly to the food and
agribusiness industry sectors. From 1988 to 1996, he was President and CEO of
Purina Mills, Inc., where he was involved for approximately 25 years in various
senior level positions in marketing, strategic planning, and business segment
management. Since September 2005, he has been a director of Nutracea, a publicly
traded company. In addition, he is also a director of Marical, Inc., a privately
held corporation.
Kenneth P. Mitchell, age 67, has been the Company's Lead Director since
October 1, 2005 and has been a Director of the Company since 1993. Mr. Mitchell
is retired. He was Chief Executive Officer of Oakite Products Inc. from 1986 to
1993. Since February 1997, he has been a director of Tetra Technologies, Inc., a
publicly traded company. Mr. Mitchell is currently a director of Tetra
Technologies, Inc., a publicly traded company.
Dr. John Y. Televantos, age 54, has been a Director since February
2005. Currently, Dr. Televantos is also an Executive Vice President of Arsenal
Capital Partners, Inc., a private equity investment firm. Dr. Televantos was
formerly with Hercules as President of the Aqualon Division and as Vice
President of Hercules, from April 2002 through 2005. He had been President and
Chief Executive Officer, and prior to that Chief Operating Officer, of Foamex
International during the period from June 1999 through December 2001. Prior to
that, he was Vice President, Development Businesses and Research at Lyondell
Chemical Company since 1998. Dr. Televantos holds B.S. and Ph.D. degrees in
Chemical Engineering from the University of London,
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United Kingdom. He also has been on several public and private company Boards
and is affiliated with other key industry-related groups.
Director Independence
The Board of Directors has made an affirmative determination that each
of the Company's directors, other than Mr. Rossi, is independent, as such term
is defined under Nasdaq Marketplace Rules.
Meeting Attendance
During fiscal 2006, the Board of Directors met 5 times during regular
meetings and 1 time for a telephonic special meeting. Each director attended at
least 75% of the meetings of the Board held when he or she was a director and of
all meetings of those Committees of the Board on which he or she served.
The Company has adopted a policy to strongly encourage directors to
attend each annual meeting of stockholders. Historically, attendance has been
excellent. All directors were in attendance at the Company's 2006 annual meeting
of stockholders.
Committees of the Board of Directors
The Company's Board of Directors has a standing Audit Committee,
Executive Committee, Compensation Committee, and Corporate Governance and
Nominating Committee. The Board of Directors appoints the members of each
Committee. In 2006, the Audit Committee held five meetings and the Corporate
Governance and Nominating and Compensation Committees each held three meetings.
The Executive Committee did not meet in 2006.
Audit Committee. The Audit Committee, in its capacity as a committee of
the Board of Directors, is directly responsible for appointing, compensating and
overseeing the work of the accounting firm retained for the purposes of
preparing or issuing audit reports or related work. The Audit Committee also
assists the Board of Directors in fulfilling its oversight responsibilities with
respect to the Company's financial reporting, internal controls and procedures,
and audit functions. Responsibilities, activities and independence of the Audit
Committee are discussed in greater detail under the section of this Proxy
Statement entitled "Audit Committee Report."
The Board of Directors of the Company has adopted a written charter for
the Audit Committee, which is available on the Corporate Governance page in the
Investor Relations section of the Company's Web site, www.balchem.com. The
---------------
current members of the Audit Committee are Messrs. Ammidon (Chair), McMillan,
and Mitchell. The Board of Directors of the Company has determined that the
Audit Committee Chairman, Mr. Ammidon, qualifies as an "audit committee
financial expert", as defined in Section 407 of the Sarbanes-Oxley Act of 2002,
and that all members of the Audit Committee are "independent" under the Nasdaq
Marketplace Rules applicable to audit committee members.
Compensation Committee. The duties of the Compensation Committee are to
(i) recommend to the Board of Directors a compensation program, including
incentives, for the Chief Executive Officer and other senior officers of the
Company, for approval by the full Board of Directors, (ii) prepare an Annual
6
Report of the Compensation Committee for inclusion in the Company's Proxy
Statement as contemplated by the requirements of Schedule 14A of the Securities
Exchange Act of 1934, as amended, (iii) propose to the full Board of Directors
the compensation of directors, a significant part of which compensation is to be
in the form of stock or stock options, and (iv) to administer the Company's 1999
Stock Plan for officers, directors, directors emeritus and employees of and
consultants to the Company and its subsidiaries (referred to in this Proxy
Statement as the "1999 Stock Plan").
The Board of Directors of the Company has adopted a written charter for
the Compensation Committee, which is available on the Corporate Governance page
in the Investor Relations section of the Company's Web site, www.balchem.com.
---------------
The current members of the Compensation Committee are Messrs. McMillan,
Mitchell, Dr. Televantos (Chair) and Dr. Wedral, each of whom are independent
directors.
See "Compensation Discussion and Analysis - Compensation Committee" and
"Report of the Compensation Committee of the Board of Directors" below.
Executive Committee. The Executive Committee is authorized to exercise
all the powers of the Board of Directors in the interim between meetings of the
Board, subject to the limitations imposed by Maryland law. The Executive
Committee is also responsible for the recruitment, evaluation and selection of
suitable candidates for the position of Chief Executive Officer ("CEO"), for
approval by the full Board, for the preparation, together with the Compensation
Committee, of objective criteria for the evaluation of the performance of the
CEO, and for reviewing the CEO's plan of succession for officers of the Company.
The current members of the Executive Committee are Messrs. McMillan,
Mitchell (Chair), and Dr.
Televantos.
Corporate Governance & Nominating Committee. The duties of the
Corporate Governance & Nominating Committee are, among other things, to consider
and make recommendations to the Board concerning the appropriate size, function
and needs of the Board, to determine the criteria for Board membership, to
evaluate and recommend to the Board the responsibilities of the Board
committees, to annually review and assess the adequacy of the Company's
corporate governance guidelines and recommend any changes to the Board for
adoption, to oversee the annual self-evaluation of the Board and Board
Committees, to consider matters of corporate social responsibility and matters
of significance in areas related to corporate public affairs and the Company's
employees and stockholders, to recruit and evaluate new candidates for
nomination by the full Board for election as director, to prepare and update an
orientation program for new Directors, to evaluate the performance of current
directors in connection with the expiration of their term in office with a view
to providing advice to the full Board as to whether the full Board should
nominate any such director for reelection, and to annually review and recommend
policies on director retirement age.
The Board of Directors of the Company has adopted a written charter for
the Corporate Governance & Nominating Committee, which is available on the
Corporate Governance page in the Investor Relations section of the Company's Web
site, www.balchem.com and was attached as Exhibit A to the Company's 2006 Proxy
---------------
Statement. The current members of the Corporate Governance & Nominating
Committee are Messrs. Ammidon and Mitchell and Drs. Televantos and Wedral
(Chair).
7
Nominations of Directors
Consistent with previous practice, the Corporate Governance &
Nominating Committee continues to re-nominate incumbent directors who continue
to satisfy the Company's criteria for membership on the Board; whom the Board
believes will continue to make contributions to the Board; and who consent to
continue their service on the Board. If the incumbent directors are not
nominated for re-election or if there is otherwise a vacancy on the Board, the
Committee will solicit recommendations for nominees from persons that the
Committee believes are likely to be familiar with qualified candidates,
including from members of the Board and management. The Committee may also
determine to engage a professional search firm to assist in identifying
qualified candidates. The Committee also considers external director candidates
or candidates recommended by one or more substantial, long-term stockholders.
Generally, stockholders who individually or as a group hold 5% or more of the
Company's common stock and have continued to do so for over one year will be
considered substantial, long-term stockholders. Each stockholder recommendation
should include at a minimum the director candidate's name, biographical
information and qualifications, and the director candidate's acknowledgement
that such person is willing to be nominated for directorship and serve as
director if elected. The Committee will consider stockholder recommendations
regarding potential nominees for next year's annual stockholders meeting,
consistent with the policy described above, if the Committee receives such
recommendations prior to the deadline for stockholder proposal submissions, set
forth below in "Stockholder Proposals for 2008 Annual Meeting." Stockholder
nominations that comply with these procedures and that meet the criteria
outlined above will receive the same consideration that other candidates
receive.
The Committee and the Board has adopted guidelines for identifying or
evaluating nominees for director, including incumbent directors and nominees
recommended by stockholders. The Company's current policy is to require that a
majority of the Board of Directors be independent; at least three of the
directors have the financial literacy necessary for service on the audit
committee and at least one of these directors qualifies as an audit committee
financial expert. In addition, directors may not serve on the boards of more
than three other public companies, without the approval of the Board of
Directors; and directors must satisfy the Company's age limit policy for
directors which requires that a director retire at the conclusion of his or her
term in the calendar year during which he or she reaches the age of 70. The
guidelines do not otherwise establish specific minimum qualifications that must
be met for nomination for a position on the Board of Directors, but provide for
the selection of nominees based on the nominees' skills, achievements and
experience, and contemplate that the following will be considered, among other
things, in selecting nominees: knowledge, experience and skills in areas
critical to understanding the Company and its business, personal
characteristics, such as integrity and judgment, and the candidate's commitment
to the boards of other companies.
Lead Director
Mr. Mitchell has been the Lead Director since 2005. The Lead Director
functions, in general, to reinforce the independence of the Board of Directors
of the Company. This person is appointed on a rotating basis from the
independent Directors. The initial term is a two year assignment. The Lead
Director will serve at the election of the Board and, in any event, only so long
as that person shall be an independent Director of the Company. The
8
Corporate Governance and Nominating Committee will review annually the
description of the Lead Director position and recommend to the Board any changes
that it considers appropriate. The Lead Director provides a source of Board
leadership complementary to that of the CEO. Amongst other things, the Lead
Director is responsible for working with the Chairman and other directors to set
agendas for Board meetings; providing leadership in times of crisis together
with the Executive Committee; chairing regular meetings of independent Board
members without management present (executive sessions); acting as liaison
between the independent Directors and the CEO; and chairing Board meetings when
the Chairman is not in attendance.
Communicating With the Board of Directors
Members of the Board and executive officers are accessible by mail in
care of the Company. Any matter intended for the Board, or for any individual
member or members of the Board, should be directed to the General Counsel with a
request to forward the communication to the intended recipient. In the
alternative, stockholders can direct correspondence to the Board via the
Chairman, or to the attention of the Lead Director, in care of the Company at
the Company's principal executive office address, P.O. Box 600, New Hampton, NY
10958. The Company will forward such communications, unless of an obviously
inappropriate nature, to the intended recipient.
Executive Sessions of the Board of Directors
The Company's independent Directors meet regularly in executive
sessions following each regularly scheduled meeting of the Board of Directors.
These executive sessions are presided over by the Lead Director. The independent
Directors presently consist of all current Directors, except Mr. Rossi.
Executive Officers
Set forth below is certain information concerning the executive
officers of the Company (other than Mr. Rossi, whose background is described
above under the caption "Directors"), which officers serve at the discretion of
the Board of Directors:
Francis J. Fitzpatrick, CPA, age 46, has been the Chief Financial
Officer of the Company since January 2004 and Treasurer of the Company since
June 2003, and was Controller of the Company from April 1997 to January 2004. He
has been an executive officer and Assistant Secretary of the Company since June
1998. He was Director of Financial Operations/Controller of Alliance
Pharmaceutical Corp., a pharmaceuticals company, from September 1989 through
March 1997.
Matthew D. Houston, age 43, has been General Counsel since January of
2005 and Secretary, since June of 2005. He was General Counsel and Secretary of
Eximias Pharmaceutical Corporation, a privately held corporation from 2001 to
2004. Mr. Houston also held several internal counsel positions at BASF
Corporation from 1994 to 2001. Mr. Houston received his Juris Doctorate from
Saint Louis University.
David F. Ludwig, age 49, has been Vice President and General Manager,
Specialty Products since July 1999 and an executive officer of the Company since
June 2000. He was Vice President and General Manager of Scott
9
Specialty Gases, a manufacturer of high purity gas products and specialty gas
blends, from September 1997 to June 1999. From 1986 to 1997 he held various
international and domestic sales and marketing positions with Engelhard
Corporation's Pigments and Additives Division.
Robert T. Miniger, age 53, has been Vice President, Human Resources
since April 2001 and an executive officer of the Company since June 2003. He was
the Global Director of Human Resources for the Industrial Coatings Strategic
Business Unit of PPG Industries Inc. from 1995 to 2000. From 1980 to 1995, he
held several human resource positions within PPG including glass manufacturing
and corporate office assignments.
Paul H. Richardson, PhD, CChem, age 37, has been Vice President of
Research and Development and an Executive Officer of the Company since July
2005, and was Director of Research and Development, January 2004 to July 2005
and Director of Materials Science, January 2001 to January 2004. Since his
Bachelors degree in chemistry and PhD in polymer science from the University of
Durham, England, Dr. Richardson has held Research Scientist and Project
Management positions at Unilever Plc. (January 1995 to April 1997) and National
Starch and Chemical Company, September 1997 to December 2000.
Code of Business Conduct and Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers
that applies to the Company's Chief Executive Officer, Chief Financial Officer,
Treasurer and Corporate Controller. The Company has also adopted a Business
Ethics Policy applicable to its employees and a further Policy Statement which
confirms that, as and when appropriate, the Business Ethics Policy and the Code
of Ethics for Senior Financial Officers are applicable to the Company's
directors and officers. Any waiver of any provision in the Code of Ethics or
Business Ethics Policy in favor of members of the Board or in favor of executive
officers may be made only by the Board. Any such waiver, and any amendment to
such Code, will be publicly disclosed in a Current Report on Form 8-K. The Code
of Ethics and Business Ethics Policy and further Policy Statement are available
on the Corporate Governance page in the Investor Relations section of the
Company's Web site, www.balchem.com.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and holders of more than
10% of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of any subsequent changes in
ownership of Common Stock and other equity securities of the Company. Specific
due dates for these reports have been established and the Company is required to
disclose any failure to file by these dates.
The Company believes that during the fiscal year ended December 31,
2006, its officers and directors and holders of more than 10% of the Company's
Common Stock complied with Section 16(a) filing date requirements with respect
to transactions during such year.
10
Compensation Committee Interlocks and Insider Participation
Messrs. McMillan, Mitchell, Dr. Televantos, and Dr. Wedral each of whom
is a director of the Company, served as the members of the Compensation
Committee during 2006. None of Messrs. McMillan or Mr. Mitchell or, Drs.
Televantos or Wedral (i) were, during the last completed fiscal year, an officer
or employee of the Company, (ii) was formerly an officer of the Company or (iii)
had any relationship requiring disclosure by the Company under Item 404 of
Regulation S-K under the Securities Act of 1933, as amended, which has not been
disclosed.
11
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board has selected McGladrey & Pullen LLP (M&P) as the Company's
independent registered public accounting firm for the year ending December 31,
2007. The Company is submitting its selection of M&P for ratification by the
stockholders at the Annual Meeting. M&P has audited the Company's financial
statements since 2005. Representatives of M&P will be present at the Annual
Meeting and will have an opportunity to make a statement if they wish and will
be available to respond to appropriate questions.
The Company's Bylaws do not require that the stockholders ratify the
selection of M&P as the Company's independent registered public accounting firm.
However, the Company is submitting the selection of M&P to stockholders for
ratification as a matter of good corporate practice. If stockholders do not
ratify the selection, the Audit Committee will reconsider whether to retain M&P.
Even if the selection is ratified, the Board and the Audit Committee in their
discretion may change the appointment at any time during the year if they
determine that such a change would be in the best interests of the Company and
its stockholders.
Principal Accountant Fees and Services
During 2006, the Company retained M&P to audit the consolidated
financial statements for 2006. In addition, the Company also retained M&P to
provide services relating to Management's Assessment of Internal Controls as
required by Section 404 of the Sarbanes-Oxley Act, as well as with the
preparation of the Company's tax returns and other audit-related and tax-related
services. The following table shows the fees paid or accrued by the Company for
the audit and other professional services provided by M&P for 2005 and 2006:
2006 2005
---- ----
Audit fees (1) 305,175 265,700
Audit-related fees (2) 82,700 39,900
Tax fees (3) 29,852 34,800
-----------------
Total fees 420,727 340,400
=================
(1) Fees relating to audit of the annual consolidated financial statements and
quarterly reviews.
(2) Fees relating to employee benefit plan audit and acquisition due
diligence.
(3) Fees for tax compliance and advisory services.
12
Policy on Pre-Approval of Audit and Non-Audit Services
All auditing and non-audit services provided to the Company by the
independent accountants are pre-approved by the Audit Committee or in certain
instances by one or more of its members pursuant to delegated authority. At the
beginning of each year, the Audit Committee reviews and approves all known audit
and non-audit services and fees to be provided by and paid to the independent
accountants. During the year, specific audit and non-audit services or fees not
previously approved by the Audit Committee are approved in advance by the Audit
Committee or in certain instances by one or more of its members pursuant to
delegated authority. In addition, during the year the Chief Financial Officer
and the Audit Committee monitor actual fees to the independent accountants for
audit and non-audit services.
Audit Committee Review
The Audit Committee has reviewed the services rendered by M&P during
2006 and has determined that the services rendered are compatible with
maintaining the independence of M&P as the Company's independent registered
public accounting firm.
Vote Required; Recommendation of the Board
The affirmative vote of the majority of the votes cast is required for
ratification.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF M&P AS THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2007.
13
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee
During the fiscal year ended December 31, 2006, our Compensation
Committee held primary responsibility for determining executive compensation
levels. The Committee is composed of four independent directors. The Committee
solicits, receives and analyzes compensation recommendations from Company
management and determines each facet of the compensation for our executive
officers. The Committee also administers our 1999 Stock Plan. The Committee
solicits input from our Chief Executive Officer with respect to the performance
of our executive officers and their compensation levels no less than once per
calendar year, usually in the first quarter.
The members of our Compensation Committee have extensive and varied
experience with various public and private corporations - as investors and
stockholders, as senior executives, and as directors charged with the oversight
of management and the setting of executive compensation levels. In particular,
Mr. Mitchell is a member of the Compensation Committee of Tetra Technologies,
Inc., a publicly traded company. In addition to the extensive experience and
expertise of the Committee's members and their familiarity with the Company's
performance and the performance of our executive officers, the Committee is able
to draw on the experience of other Directors and on various legal and accounting
executives employed by the Company, and the Committee has access to readily
available public information regarding executive compensation structure and the
establishment of appropriate compensation levels.
The Compensation Committee has authority to engage attorneys,
accountants and consultants, including executive compensation consultants, to
solicit input from management concerning compensation matters, and to delegate
any of its responsibilities to one or more directors or members of management
where it deems such delegation appropriate and permitted under applicable law.
In 2003, the Compensation Committee retained Mercer Human Resource
Consulting, Inc. to provide an executive compensation study. The results of said
effort provided the Compensation Committee broad data with which the Committee
was able to benchmark and compare our current executive compensation structure
against other similarly situated companies.
In 2006, the Compensation Committee retained Deloitte Compensation
Consulting Group to assist in the development of a revised equity based segment
of our executive compensation. It is through this effort that we have altered
the structure of our program for granting executives equity in the Company as
compensation, as discussed below.
General Compensation Objectives and Guidelines
The Company's overall compensation philosophy has been to offer
competitive salaries, cash incentives, stock options and benefit plans
consistent with the Company's financial performance. Rewarding key employees who
contribute to the continued success of the Company through cash compensation and
equity participation are key elements of the Company's compensation policy. The
Company's executive compensation policy is to attract and retain key executives
necessary for the Company's short and long-
14
term success by establishing a direct link between executive compensation and
the performance of the Company, by rewarding individual initiative and the
achievement of annual corporate goals through salary and cash bonus awards, and
by providing equity awards to allow executives to participate in enhanced
stockholder value.
In awarding salary increases and bonuses, the Compensation Committee
relates various elements of corporate performance to the elements of executive
compensation. The Compensation Committee considers whether the compensation
package as a whole adequately compensates the applicable executive for the
Company's performance during the past year and the executive's contribution to
such performance.
Pursuant to the Company's compensation philosophy, the total annual
compensation of its executive officers is primarily made up of base salary,
cash-based incentives and stock-based incentive compensation. In addition, the
Company provides retirement compensation plans, group welfare benefits and
certain perquisites. In executing our executive compensation policy, we seek to
reward each executive's achievement of designated objectives relating to our
company's annual and long-term performance and individual fulfillment of
responsibilities. While compensation survey data and benchmarking are useful
guides for comparative purposes, we believe that a successful compensation
program also requires the application of judgment and subjective determinations
of individual performance. Accordingly, our Compensation Committee applies its
judgment to adjust and align each individual element of our compensation program
with the broader objectives of the program.
The Company does not have any formal stock ownership requirements for
its executive officers but notes that its directors and executive officers are
stockholders of the Company, as is disclosed elsewhere in this Proxy Statement.
The Company is mindful of the stock ownership of our directors and executive
officers but does not believe that it is appropriate to provide a mechanism or
formula to take stock ownership (or gains from prior option or stock awards)
into account when setting compensation levels. The Company provides in its
insider trading policies that directors and executive officers may not sell
Company securities short and may not sell puts, calls or other similar
derivative securities tied to our Common Stock.
Base Salary
Base salary represents the fixed component of the executive
compensation program. The Company's philosophy regarding base salaries is
conservative, maintaining salaries at reasonably competitive industry levels.
Determinations of base salary levels are established based upon the magnitude of
responsibilities and the scope of the position, as well as based upon an annual
review of marketplace competitiveness and on the Company's existing compensation
structure. Periodic increases in base salary relate to individual contributions
to the Company's overall performance and industry competitive pay practices. In
determining appropriate levels of base salary, the Compensation Committee relied
in part on industry compensation surveys, including WorldatWork, a leading
not-for-profit association dedicated to knowledge leadership in compensation and
benefits.
The Committee solicits input from Mr. Rossi with respect to the
performance of our executive officers and their compensation levels. During
2006, the base salaries of our executive officers, with the exception of Mr.
Rossi, were increased to the amounts identified in the Summary Compensation
15
Table. These increases were subjectively based on increased growth in net sales
and recent profit performance of the Company, as well as individual performance.
Cash Based Incentives
Bonuses represent the variable component of the executive compensation
program that is tied to individual achievement and the Company's performance.
The Company's policy is to base a meaningful portion of its executive officers'
cash compensation on bonus. In determining bonuses, the Company considers
factors such as the individual's contribution to the Company's performance and
the relative performance of the Company during the year.
At the end of each calendar year, the Compensation Committee of the
Board of Directors approves an Incentive Compensation Program for the succeeding
calendar year (the "ICP"). The ICP provides for the awarding of bonus
compensation to executive officers and certain other employees, based upon the
level of achievement of specific goals established for the particular officer or
employee, and for the weighting of those goals to determine the amount of the
bonus.
The process of establishing applicable goals requires a well-defined
annual business plan from which most ICP goals are measured. Our annual business
plan evolves from our corporate strategic plan and is approved by the Board of
Directors each December for the following fiscal year. Individual goals under
the ICP are a composite of our corporate goals and key individual objectives. In
addition, no bonuses are required to be paid under the ICP unless a specified
minimum level of consolidated net income before interest and taxes ("NIBIT") is
achieved. The Compensation Committee established such minimum level of NIBIT for
2007 based upon the Company's results of operations for the 2006 calendar year
as part of the approval of the annual plan.
In addition to NIBIT, individual ICP goals involve, amongst other
things, the development of new revenue generating products or services meeting
our profit criteria; the implementation of procedures that will improve
efficiency, effectiveness or safety of our products or services; the development
of a change or changes in procedures or processes that reduce cost without
sacrificing quality; the improvement of methods resulting in increased
productivity without loss of quality; and the development of ideas that will
improve quality without increasing cost.
Under the ICP, each goal is determined objectively and consistently.
The goals require an individual to stretch beyond his or her stated
responsibilities. The value placed on each individual ICP goal depends heavily
upon the degree of which the goal will help us meet our annual plan; the
relative degree of difficulty, creativity or involvement required to achieve the
goal; and the intrinsic value of the goal, i.e., magnitude of income enhancement
or cost savings. Each employee will typically have 4-6 ICP goals.
The Compensation Committee sets target bonuses for each executive
officer participating in the ICP. Target bonuses are based upon a percentage of
each executive officer's base yearly salary. The Compensation Committee
determines actual bonus amounts paid to the executive officers, which may be
higher or lower than the target bonus, based upon each executive officer's
performance relative to the specific established performance goals upon which
the target bonus amounts were based. There is no maximum bonus amount under
16
the ICP. Actual bonuses for a particular fiscal year are generally determined
during the first quarter of the following fiscal year and paid at the discretion
of the Compensation Committee. Discretionary cash bonuses under the ICP were
paid in early 2007 to our executive officers for performance during fiscal year
ended 2006 in the amounts identified in the Summary Compensation Table.
Performance based incentive paid to Mr. Rossi is discussed below.
Pursuant to the terms of the employment agreement between the Company
and Mr. Rossi, Mr. Rossi is entitled to annual bonus of up to 100% of his base
salary, based upon our achieving operating and/or financial targets established
by the Board or an authorized committee thereof. Half of such bonus compensation
is determined pursuant to the ICP. The Compensation Committee has established a
minimum level of consolidated net income for the 2007 fiscal year to be achieved
by the Company in order for Mr. Rossi to be entitled to the portion of such
bonus compensation not covered by the ICP.
Equity Based Compensation
The Compensation Committee believes that one important goal of the
executive compensation program should be to provide executives, key employees --
who have significant responsibility for the management, growth and future
success of the Company, and Directors -- with an opportunity to increase their
ownership and potentially gain financially from Company stock price increases.
The goal of this approach is that the interests of the stockholders, executives,
employees and Directors will be closely aligned.
Prior to 2006, we accomplished this goal generally through the granting
of stock options to executive officers and other key employees of the Company
from time to time, giving them a right to purchase shares of the Company's
Common Stock at a specified price in the future. Grants of options have been
based primarily on an employee's potential contribution to the Company's growth
and financial results. Options have been granted at the prevailing market value
of the Company's Common Stock and accordingly will only have value if the
Company's stock price increases. With limited exceptions, grants of options to
employees have provided for vesting over three years and the individual must be
employed by the Company for such options to vest.
Partially in response to changes in which stock options are accounted
for under generally accepted accounting principles, we have modified the
structure and composition of the long-term equity based component of our
executive compensation. Beginning in 2006, we no longer grant incentive stock
options, but instead grant a combination of restricted shares and non-qualified
options to our executives. (We also granted restricted shares to our
non-management directors in 2005. Restricted stock, which vests over an extended
period, encourages stability and commitment at the director level.)
Awards under the Company's 1999 Stock Plan are purely discretionary,
are not based upon any specific formula and may or may not be granted in any
given fiscal year. It is now the practice of the Compensation Committee to
review and approve awards for officers and certain employees during its December
meeting. To avoid timing of equity-based awards ahead of the release of our
quarterly earnings and other material non-public information, the annual awards
to our senior management, including executive officers, are granted coinciding
with the date of our December Board of Directors Meeting. In addition, the
Compensation Committee may refrain from or delay any regularly scheduled awards
if it or senior management is aware of any
17
material non-public information. Awards of restricted stock for officers and
certain employees will normally occur in December of each calendar year.
Consistent with this direction, we granted restricted stock awards to
our named executive officers in December 2006. The number of shares awarded was
as follows: Mr. Rossi: 13,500 shares; Mr. Fitzpatrick: 4,500 shares; Mr. Ludwig:
3,000 shares; Mr. Miniger: 1,500 shares; and Dr. Richardson: 4,500 shares.
Additionally, in 2006, we granted Non-Qualified Options to our executive
officers as follows: Mr. Rossi, Mr. Fitzpatrick, Mr. Ludwig, Mr. Richardson and
Mr. Miniger were granted options to purchase 45,000, 34,500, 27,000, 22,500, and
10,500 shares, respectively, at an exercise price of $17.81 per share. The
number of shares and options granted on December 8, 2006 and the exercise price
of the option awards have been adjusted to reflect the 3-for-2 split which was
effected on December 29, 2006.
When considering the grant of stock based awards, the Committee gives
consideration to our overall performance and the performance of individual
employees. It is our expectation to continue yearly grants of restricted stock
awards and non-qualified options to executive officers.
Employment Agreement
The Company entered into an employment agreement with Mr. Rossi in
2001. Except for Mr. Rossi, there are no agreements or understandings between
the Company and any executive officer which guarantee continued employment or
guarantee any level of compensation, including incentive or bonus payments, to
the executive officer.
Retirement Plans
401(k)/Profit Sharing Plan
The Company's executive officers, as well as most employees, are
eligible to participate in the 401(k) Retirement Plan/Profit Sharing Plan (the
"401(k) Plan"). The 401(k) Plan provides that participating employees may make
elective contributions of up to 15% of pre-tax salary, subject to ERISA
limitations, and for the Company to make matching contributions on a monthly
basis equal in value to 35% of each participant's elective contributions. Such
matching contributions are made in shares of the Company's Common Stock.
The profit-sharing portion of the 401(k) Plan is discretionary and
non-contributory. Profit sharing contributions are restricted to employees
(including executive officers) who have completed 1,000 hours of service and are
employed on the last day of a plan year. The Company contributes, in cash, a
minimum of 3.55% of an eligible participant's taxable compensation (subject to
certain exclusions).
Perquisites
Perquisites are granted to the executive officers occasionally and are
generally de minimis and not a material component of compensation.
Mr. Rossi is entitled to the use of an automobile leased by the Company
and to be reimbursed for a specified level of premiums for life and disability
insurance. He is also entitled to the use of a financial planner, as well as
participation in a country club membership for corporate business. Mr. Ludwig is
also entitled to the use of an automobile leased by the
18
Company. The Company pays to insure and maintain both Mr. Rossi's and Mr.
Ludwig's automobiles. The Company also pays fuel expenses to the extent related
to Company business. Messrs. Fitzpatrick and Miniger and Dr. Richardson receive
cash allowances associated with the use of their personal automobiles.
The following Compensation Committee Report shall not be incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under the Securities Act or the Exchange Act.
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed the above "Compensation Discussion and
Analysis" with management.
Based upon this review and discussion, we have recommended to the Board
of Directors that the "Compensation Discussion and Analysis" be included in this
Proxy Statement.
Submitted by the Compensation Committee of the Board of Directors.
John Y. Televantos (Chairman)
Edward L. McMillan
Kenneth P. Mitchell
Elaine R. Wedral
19
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by (i) our Chief
Executive Officer ("Principal Executive Officer"), (ii) our Chief Financial
Officer ("Principal Financial Officer"), and (iii) each of our three most highly
compensated executive officers (each a "Named Executive Officer") for the fiscal
year ended December 31, 2006.
Summary Compensation Table
-------------------------------------------------------------------------------------------------------------------
Non-Equity
Incentive
Stock Option Plan All Other
Awards Awards Compensation Compensation
Name and Principal Salary (1) (1) (2) (3) Total
Position Year ($) ($) ($) ($) ($) ($)
-------------------------------------------------------------------------------------------------------------------
Dino A. Rossi 2006 $338,600 $3,778 $198,528 $212,445 $17,364 $770,715
President & CEO
Francis J. Fitzpatrick 2006 $169,000 $1,259 $152,270 $62,406 $21,582 $406,517
CFO
David F. Ludwig 2006 $193,481 $839 $123,072 $41,894 $18,026 $377,312
VP/GM Specialty Products
Robert T. Miniger 2006 $156,039 $420 $48,382 $51,770 $20,694 $277,305
VP Human Resources
Paul H. Richardson 2006 $155,385 $1,259 $80,852 $43,575 $20,357 $301,3428
VP R&D
-------------------------------------------------------------------------------------------------------------------
(1) The amounts included in the "Stock Awards" and "Option Awards" columns
reflect the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006, in accordance with
FAS 123(R) adjusted to eliminate service-based forfeiture assumptions used
for financial reporting purposes. These amounts include amounts related to
awards granted in 2006 and in prior years. A discussion of the assumptions
used in valuation of stock and option awards may be found in "Note 2 -
Stockholders' Equity" in the Notes to Consolidated Financial Statements of
our Annual Report on Form 10-K for the year ended December 31, 2006, as
filed with the SEC on March 15, 2007.
(2) Reflects the value of cash incentive bonuses earned under our ICP.
(3) The amounts reflected represent employer matching contributions and profit
sharing contributions made under the Company's combined 401(k)/profit
sharing plan, automobile allowance and the Company paid portion of life,
health, and disability insurance benefits, in the following amounts for
each Named Executive Officer:
(a) Mr. Rossi's other compensation consists of $13,060 for
contributions under the Company's 401(k)/profit sharing plan,
$3,506 for automobile allowance, and $798 for life, health and
disability insurance benefits.
(b) Mr. Fitzpatrick's other compensation consists of $13,060 for
contributions under the Company's 401(k)/profit sharing plan,
$8,308_ for automobile allowance, and $214 for life, health
and disability insurance benefits.
20
(c) Mr. Ludwig's other compensation consists of $13,060 for
contributions under the Company's 401(k)/profit sharing plan,
$4,707 for automobile allowance, and $259 for life, health and
disability insurance benefits.
(d) Mr. Miniger's other compensation consists of $12,757 for
contributions under the Company's 401(k)/profit sharing plan,
$7,639 for automobile allowance, and $298 for life, health and
disability insurance benefits.
(e) Mr. Richardson's other compensation consists of $12,738 for
contributions under the Company's 401(k)/profit sharing plan,
$7,500 for automobile allowance, and $119 for life, health and
disability insurance benefits.
Grants of Plan Based Awards
The following table discloses the actual number of stock options and
restricted stock awards granted during the fiscal year ended December 31, 2006
to each Named Executive Officer, including the grant date fair value of these
awards.
Estimated Future Payouts
under Non-Equity Incentive All Other All Other
Plan Awards (1) Stock Option
------------------------------------- Awards: Awards:
Number of Number of Exercise
Shares of Securities Price of
Restricted Underlying Option Grant Date
Grant Stock Options Awards Fair Value
Name Date Threshold Target Maximum (#)(2) (#)(2) ($/Sh) (3)
-------------------------------------------------------------------------------------------------------------------------------
Dino A. Rossi 12/8/2006 -- $169,300 -- 13,500 45,000 $17.81 $460,710
Francis J. Fitzpatrick 12/8/2006 -- $59,150 -- 4,500 34,500 $17.81 $249,315
David F. Ludwig 12/8/2006 -- $67,718 -- 3,000 27,000 $17.81 $185,850
Robert T. Miniger 12/8/2006 -- $54,613 -- 1,500 10,500 $17.81 $78,195
Paul H. Richardson 12/8/2006 -- $54,384 -- 4,500 22,500 $17.81 $190,395
-------------------------------------------------------------------------------------------------------------------------------
(1) Represents target payout levels under the ICP for 2006 performance. The
actual amount of incentive bonus earned by each Named Executive Officer in
2006 is reported under the Non-Equity Incentive Plan Compensation column
in the Summary Compensation Table. Additional information regarding the
design of the ICP is included in the Compensation Discussion and Analysis.
(2) The number of shares of restricted stock and options granted on December
8, 2006 and the exercise price of the option awards have been adjusted to
reflect the 3-for-2 split of the Company's common stock which was effected
on December 29, 2006.
(3) The FAS 123(R) value of awards granted on 12/8/2006 was $17.76 per share
of restricted stock, and $4.91 per stock option with an exercise price of
$17.81.
Employment Agreement
As of January 1, 2001, the Company entered into an Employment Agreement
with Mr. Rossi, which provides for Mr. Rossi to serve as the Company's President
and Chief Executive Officer. Mr. Rossi's Employment Agreement initially provided
for a base salary of $194,700, subject to annual increases if approved by the
Board of Directors. Mr. Rossi's current salary for fiscal 2007 pursuant to the
Employment Agreement is $362,302. Mr. Rossi is also eligible to receive a
discretionary performance bonus (as determined by the
21
Board of Directors) of up to 100% of annual salary, based on a target figure
consistent with operating and/or other financial targets established by the
Board of Directors, for each fiscal year during the term of his employment.
Mr. Rossi's Employment Agreement also provides that if the Company
terminates his employment other than for cause or in the event Mr. Rossi
terminates his employment under certain limited circumstances effectively
amounting to a constructive termination, he will be entitled to severance
payments of 150% of his then current annual salary, and if such termination by
the Company occurs within two years after a change of control event involving
the Company he would be entitled to severance payments equal to 200% of the sum
of his then current annual salary plus the annual bonus earned by him for the
fiscal year immediately preceding the year in which the change of control event
occurred. If Mr. Rossi were to terminate his employment prior to the second
anniversary of such a change of control event, he would be entitled to severance
payments equal to 100% of his then current annual salary. In the event of any
termination by the Company entitling Mr. Rossi to severance payments, his
theretofore granted but unvested options to purchase Common Stock of the Company
would immediately vest and be exercisable in accordance with their terms. Mr.
Rossi's entitlement to severance payments would be subject to reduction to the
extent necessary to avoid such payments being considered an "excess parachute
payment" for purposes of Section 280G of the Internal Revenue Code. During the
period of Mr. Rossi's employment (or, in the case of a voluntary termination by
Mr. Rossi or a termination of his employment by the Company for cause, the
balance of the term of the Employment Agreement before giving effect to such
termination) and for a period of one year thereafter, the Employment Agreement
imposes on Mr. Rossi certain non-competition and non-solicitation obligations
regarding the Company and its customers and its employees.
The Employment Agreement was amended as of December 9, 2005 to conform
certain provisions thereof to Section 409A of the Internal Revenue Code, which
was enacted as part of the American Jobs Creation Act of 2004, and the proposed
regulations issued by the Treasury Department under Section 409A. The amendment
provides that certain payments to Mr. Rossi in connection with the termination
of his employment would not be due and payable before six months after the
applicable termination. The six-month delay relates to Mr. Rossi's status as a
"key employee" (as defined under Section 409A and the accompanying proposed
regulations).
Terms and Conditions of Awards
The 1999 Stock Plan was adopted and approved by our stockholders in
1999 and was amended in 2003. Under the 1999 Stock Plan, the officers and other
employees of the Company may be granted options to purchase Common Stock of the
Company which qualify as "incentive stock options" ("ISO" or "ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
directors, officers and employees may be granted options to purchase Common
Stock which do not qualify as ISOs ("non-Qualified Option" or "Non-Qualified
Options"); and directors, officers and employees may be granted the right to
make direct purchases of Common Stock from the Company ("Purchases"). Both ISOs
and Non-Qualified Options are referred to in this Proxy Statement individually
as an "Option" and collectively as "Options." The exercise price per share
specified to each Option granted under the 1999 Stock Plan may not be less than
the fair market value per share of Common Stock on the date of such grant.
22
All of our restricted stock awards for executive officers have the same
features. Each executive officer may purchase the stock at a purchase price
equal to the par value of the shares ($.06-2/3 per share). The purchased
restricted stock is subject to a repurchase option in favor of the Company and
to restrictions on transfer until it vests. The purchased stock will vest in
full in four years, or upon an earlier change of control of the Company,
provided the executive officer is employed by the Company on that date. In the
event the purchaser's employment with the Company is terminated for cause or
upon the purchaser's voluntary resignation from the Company's employ, prior to
vesting in full, the Company may repurchase all of the purchased shares at a
purchase price of $.06-2/3 per share. The Company may repurchase a pro-rated
amount of the purchased shares, based on the amount of time remaining until the
vesting date, at a purchase price of $.06-2/3 per share in the event the
purchaser ceases to be an employee of the Company prior to vesting by reason of:
(1) the purchaser's voluntary retirement from the Company's employ at or after
age 62; (2) the purchaser's death, major disability or significant illness; or
(3) termination of the purchaser's employment by the Company without cause.
Repurchases are subject to the approval of the Compensation Committee of the
Board.
Our Non-Qualified Options granted vest as follows: 20% on the first
anniversary of the grant date; 40% on the second anniversary of the grant date;
and 40% on the third anniversary of the grant date. Our Non-Qualified Options
expire ten years after grant.
Outstanding Equity Awards at Fiscal Year End
The following table shows outstanding stock option awards classified as
exercisable and unexercisable as of December 31, 2006 for each Named Executive
Officer. The table also discloses the number and value of unvested restricted
stock awards as of December 31, 2006.
Option Awards Stock Awards
--------------------------------------------------------------- -----------------------
Number of Securities Market
Underlying Unexercised Value
Options (#) Of
-------------------------------- Shares
Of
Number of Stock
Shares of That
Option Stock Have
Un- Exercise Option that Have Not
Exercisable Exercisable Price Expiration Not Vested
Name (1) (1) ($) Date Vested(2) (3) ($)
----------------------- ----------- ----------- ------- -------- ---------- --------
Dino A. Rossi 83,025 - $ 3.19 10/17/07
13,500 - $ 1.85 10/23/08
16,875 - $ 1.88 10/21/09
23,625 - $ 3.30 09/15/10
67,500 - $ 6.27 10/25/11
67,500 - $ 6.83 09/12/12
67,500 - $ 6.77 12/12/13
44,550 (4) 29,700 (4) $ 8.77 09/16/14
18,000 (5) 72,000 (5) $ 13.81 09/16/15
- 45,000 (6) $ 17.81 12/08/16
13,500 (7) 231,120
Frank J. Fitzpatrick 40,500 - $ 6.83 09/12/12
50,625 - $ 6.77 12/12/13
36,450 (8) 24,300 (8) $ 8.77 09/16/14
13,500 (9) 54,000 (9) $ 13.81 09/16/15
- 34,500 (10) $ 17.81 12/08/16
4,500 (11) $77,040
23
David F. Ludwig 12,150 - $ 6.83 09/12/12
32,400 - $ 6.77 12/12/13
30,375 (12) 20,250 (12) $ 8.77 09/16/14
10,800 (13) 43,200 (13) $ 13.81 09/16/15
- 27,000 (14) $ 17.81 12/08/16
3,000 (15) $51,360
Robert T. Miniger 9,666 - $ 6.83 09/12/12
16,875 - $ 6.77 12/12/13
12,150 (16) 8,100 (16) $ 8.77 09/16/14
4,050 (17) 16,200 (17) $ 13.81 09/16/15
- 10,500 (18) $ 17.81 12/08/16
1,500 (19) $25,680
Paul H. Richardson 5,400 - $ 6.83 12/12/13
- 13,500 $ 6.77 09/16/14
4,500 (20) 18,000 (20) $ 8.77 06/24/15
4,500 (21) 18,000 (21) $ 13.81 09/16/15
- 22,500 (22) $ 17.81 12/08/16
4,500 (23) $77,040
(1) Stock option awards are exercisable 20% after 1 year, 60% after 2 years
and 100% after 3 years from the date of grant.
(2) Restricted stock vests 20% on the first anniversary of the grant date; 40%
on the second anniversary of the grant date; and 40% on the third
anniversary of the grant date.
(3) Value is computed based on the closing price of our Common Stock on the
NASDAQ on December 29, 2006, which was $17.12 per share.
(4) Mr. Rossi's 74,250 options granted on September 16, 2004 at $8.77 per
share became exercisable starting September 16, 2005 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on September 16, 2006 and 2007, respectively.
(5) Mr. Rossi's 90,000 options granted on September 16, 2005 at $13.81 per
share became exercisable starting September 16, 2006 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on September 16, 2007 and 2008, respectively.
(6) Mr. Rossi's 45,000 options granted on December 8, 2006 at $17.81 per share
becomes exercisable starting December 8, 2007 with twenty percent being
exercisable on this date and an additional forty percent being exercisable
on December 8, 2008 and 2009, respectively.
(7) Mr. Rossi's 13,500 share restricted stock award granted on December 8,
2006 for $.06 2/3 per share will vest in full on December 8, 2010.
(8) Mr. Fitzpatrick's 60,750 options granted on September 16, 2004 at $8.77
per share became exercisable starting September 16, 2005 with twenty
percent being exercisable on this date and an additional forty percent
being exercisable on September 16, 2006 and 2007, respectively.
(9) Mr. Fitzpatrick's 67,500 options granted on September 16, 2005 at $13.81
per share became exercisable starting September 16, 2006 with twenty
percent being exercisable on this date and an additional forty percent
being exercisable on September 16, 2007 and 2008, respectively.
(10) Mr. Fitzpatrick's 34,500 options granted on December 8, 2006 at $17.81 per
share becomes exercisable starting December 8, 2007 with twenty percent
being
24
exercisable on this date and an additional forty percent being exercisable
on December 8, 2008 and 2009, respectively.
(11) Mr. Fitzpatrick's 4,500 share restricted stock award granted on December
8, 2006 for $.06 2/3 per share will vest in full on December 8, 2010.
(12) Mr. Ludwig's 50,625 options granted on September 16, 2004 at $8.77 per
share became exercisable starting September 16, 2005 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on September 16, 2006 and 2007, respectively.
(13) Mr. Ludwig's 54,000 options granted on September 16, 2005 at $13.81 per
share became exercisable starting September 16, 2006 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on September 16, 2007 and 2008, respectively.
(14) Mr. Ludwig's 27,000 options granted on December 8, 2006 at $17.81 per
share becomes exercisable starting December 8, 2007 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on December 8, 2008 and 2009, respectively.
(15) Mr. Ludwig's 3,000 share restricted stock award granted on December 8,
2006 for $.06 2/3 per share will vest in full on December 8, 2010.
(16) Mr. Miniger's 20,250 options granted on September 16, 2004 at $8.77 per
share became exercisable starting September 16, 2005 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on September 16, 2006 and 2007, respectively.
(17) Mr. Miniger's 20,250 options granted on September 16, 2005 at $13.81 per
share became exercisable starting September 16, 2006 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on September 16, 2007 and 2008, respectively.
(18) Mr. Miniger's 10,500 options granted on December 8, 2006 at $17.81 per
share becomes exercisable starting December 8, 2007 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on December 8, 2008 and 2009, respectively.
(19) Mr. Miniger's 1,500 share restricted stock award granted on December 8,
2006 for $.06 2/3 per share will vest in full on December 8, 2010.
(20) Mr. Richardson's 33,750 options granted on September 16, 2004 at $8.77 per
share became exercisable starting September 16, 2005 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on September 16, 2006 and 2007, respectively.
(21) Mr. Richardson's 22,500 options granted on June 24, 2005 at $13.81 per
share became exercisable starting June 24, 2006 with twenty percent being
exercisable on this date and an additional forty percent being exercisable
on June 24, 2007 and 2008, respectively.
(21) Mr. Richardson's 22,500 options granted on September 16, 2005 at $13.81
per share became exercisable starting September 16, 2006 with twenty
percent being exercisable on this date and an additional forty percent
being exercisable on September 16, 2007 and 2008, respectively.
(22) Mr. Richardson's 22,500 options granted on December 8, 2006 at $17.81 per
share becomes exercisable starting December 8, 2007 with twenty percent
being exercisable on this date and an additional forty percent being
exercisable on December 8, 2008 and 2009, respectively.
(23) Mr. Richardson's 4,500 share restricted stock award granted on December 8,
2006 for $.06 2/3 per share will vest in full on December 8, 2010.
25
Option Exercises and Stock Vested
The following table sets forth certain information regarding options
and stock awards exercised and vested, respectively, by each of our Named
Executive Officers during the fiscal year ended December 31, 2006.
Option Exercises and Stock Vested Table
Option Awards Stock Awards
---------------------------------- -----------------------------
Number of Number of
Shares Value Realized on Shares Value
Acquired on Exercise Acquired on Realized on
Name Exercise (#) ($)(1) Vesting (#) Vesting ($)
-------------------------------------------------------------- -----------------------------
Dino A. Rossi 95,850 $1,178,936 - -
Francis J. Fitzpatrick 55,688 $632,119 - -
David F. Ludwig - - - -
Robert T. Miniger - - - -
Paul H. Richardson 36,113 $335,055 - -
(1) Value realized represents the excess of the fair market value of
the shares at the time of exercise over the exercise price of the options.
Termination of Employment and Change of Control Arrangements
Agreement with Dino A. Rossi. We entered into an employment agreement
with Dino A. Rossi on January 1, 2001, which provides for automatic one-year
extensions of the employment term unless either party provides written notice of
its intention not to extend the agreement within 60 days of the end of the
then-current term. Mr. Rossi receives an annual base salary of $362,302 in 2007,
an annual incentive bonus and medical and other benefits. Mr. Rossi's bonus is
targeted to be 50% of his base salary for the appropriate year, although he may
be entitled to up to 100% of his base salary as bonus.
If we terminate Mr. Rossi's Employment Agreement for other than for
cause or in the event Mr. Rossi terminates his employment under certain limited
circumstances effectively amounting to a constructive termination, he will be
entitled to severance payments of 150% of his then current annual salary, plus
the pro rata portion of the annual bonus he would have received had he been
employed by us through the end of the full fiscal year in which the termination
occurred. If such termination by the Company occurs within two years after a
change of control event, he would be entitled to severance payments equal to
200% of the sum of his then current annual salary plus the annual bonus earned
by him for the fiscal year immediately preceding the year in which the change of
control event occurred. If Mr. Rossi were to terminate his employment prior to
the second anniversary of such a change of control event, he would be entitled
to severance payments equal to 100% of his then current annual salary. In the
event of any termination by the Company entitling Mr. Rossi to severance
payments, his granted but unvested options and restricted stock would
immediately vest and be exercisable in accordance with their terms.
Under the Employment Agreement, if Mr. Rossi had been terminated
effective December 31, 2006, he would have been paid $905,755 representing his
2007 base salary and his expected 2007 bonus and all of Mr. Rossi's
26
granted but unvested options and restricted stock would immediately vest and be
exercisable in accordance with their terms. The approximate value of such
acceleration would be equal to the number of shares vested (562,275), multiplied
by average of the excess of the then current stock price on the last business
day of 2006 ($17.12) over the average exercise price of the options ($5.12). The
total approximate gain relating to the accelerated options and restricted stock
would be $6,297,848.
All of our executive officers other than Mr. Rossi are
employees-at-will and, as such, do not have employment agreements with us.
Therefore, we are not obligated to provide any post-employment compensation or
benefits. However, upon a change of control, as defined in the 1999 Stock Plan,
and at the sole discretion of the Compensation Committee, all unvested stock
option grants may become exercisable and all outstanding restricted share grants
may fully vest.
Director Compensation
For 2006, the Company paid each of its directors, other than Mr. Rossi,
an annual fee of $18,000 and $4,000 for each Board meeting attended. For fiscal
2006, the Company also paid to each of its directors serving on Committees the
following fees, plus expenses, for each Committee meeting attended: Chairman of
the Audit Committee, $2,500; Chairman of the Compensation Committee, $2,000;
chairman of all other Committees, $1,500; all other Committee members, $1,000.
The Lead Director is paid an additional $5,000 per year. In 2006, the Board of
Director approved the aforementioned compensation to be effective through
December 2008.
The following table discloses the cash, equity awards, and other
compensation earned, paid, or awarded, as the case may be, to each of the
Company's directors (other than Mr. Rossi, whose compensation is set forth in
the Summary Compensation Table above) during the fiscal year ended December 31,
2006.
Fees Stock
Earned or Awards All Other
Paid in (1)(2) Compensation Total
Name Cash ($) ($) ($) ($)
----------------------------------- -------- ------------ ----------
Hoyt Ammidon, Jr. $44,000 $115,560 - $159,560
Edward McMillan $44,000 $115,560 - $159,560
Kenneth Mitchell $49,000 $115,560 - $164,560
John Televantos $45,000 $115,560 - $160,560
Elaine Wedral $42,500 $115,560 - $158,060
(1) On December 8, 2006, each director, other than Mr. Rossi, was awarded
6,750 shares of restricted stock. The shares are subject to a repurchase
option in favor of the Company and to restrictions on transfer until they
vest in accordance with the provisions of the Restricted Stock Purchase
Agreement dated December 8, 2006 between the Company and each such
director. The amounts included in the "Stock Awards" column reflect the
dollar amount recognized for financial statement reporting purposes for
the fiscal year ended December 31, 2006, in accordance with FAS 123(R)
adjusted to eliminate service-based forfeiture assumptions used for
financial reporting purposes. These amounts include amounts related to
awards granted in 2006 and in prior years. The weighted average grant date
fair value per share of each award was $17.76. A discussion of the
assumptions used in valuation of stock and option awards may be found in
"Note 2 - Stockholders' Equity" in the
27
Notes to Consolidated Financial Statements of our Annual Report on Form
10-K for the year ended December 31, 2006, as filed with the SEC on March
15, 2007.
(2) The following table shows the aggregate number of options and stock awards
outstanding for each Outside Director as of December 31, 2006:
Aggregate Aggregate
Stock Stock
Option Awards
Outstanding Outstanding
as of as of
Name 12/31/2006 12/31/2006
--------------------------------------------------------------
Hoyt Ammidon, Jr. 38,011 13,500
Edward McMillan 41,386 13,500
Kenneth Mitchell 38,011 13,500
John Televantos 4,500 13,500
Elaine Wedral 29,623 13,500
In December, 2006, each director entered into Restricted Stock Purchase
Agreements with the Company to purchase the Company's Common Stock pursuant to
the Company's 1999 Stock Plan. These Agreements replace the stock option plan
that non-employee directors participated in prior years.
Under the Agreements, each of Mr. Ammidon, Jr., Dr. Televantos, Mr.
McMillan, Mr. Mitchell and Dr. Wedral purchased 4,500 shares of the Company's
Common Stock at the purchase price of $.06-2/3 per share. The purchased stock is
subject to a repurchase option in favor of the Company and to restrictions on
transfer until it vests in accordance with the provisions of the Agreements. The
purchased stock will vest in full seven years from the date of the Agreements,
provided the purchaser is still a director of the Company on that date. The
purchased stock will also vest in full prior to seven years upon: (1) the
purchaser's retirement from the Company's Board of Directors at or after age 70;
(2) the purchaser's death or major disability, (3) the purchaser's resignation
from the Company's Board of Directors due to a conflict of interest or serious
illness, and (4) a change of control of the Company (as defined in the
Agreements). The purchased shares will not vest and the Company may repurchase
all of the purchased shares at a purchase price of $.06-2/3 per share in the
event of gross misconduct on the part of the purchaser in the performance of his
or her duties as a director of the Company prior to vesting, as determined by
majority vote of the Board of Directors. A pro rated amount of the purchased
shares may be repurchased by the Company at a purchase price of $.06-2/3 per
share in the event the purchaser ceases to be a director of the Company prior to
vesting of the purchased shares for any reason other than gross misconduct.
The Company does not pay any other direct or indirect compensation to
directors in their capacity as such.
Related Party Transactions
Other than the compensation and employment arrangements described above, we
have not entered into any transactions with any of our directors or executive
officers or their immediate family members in 2006.
28
In accordance with our Audit Committee charter, our Audit Committee is
responsible for reviewing and approving the terms and conditions of all related
party transactions, including any transaction in which any of our directors,
director nominees, executive officers or holders of more than 5% of our capital
stock have or will have a direct or indirect material interest. If we were to do
so, any such transaction would need to be approved by our Audit Committee prior
to us entering into such transaction. A report is made to our Audit Committee
annually disclosing all related parties that are employed by us and related
parties that are employed by other companies that we had a material relationship
with during that year, if any. The Audit Committee, as well as the full Board of
Directors, reviews any potential transactions which may involve related parties
at least once per calendar year.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information, as of December 31, 2006, with
respect to shares of the Company's Common Stock that may be issued pursuant to
awards under the 1999 Stock Plan, described above, as well as under the
Company's prior stock option plans, which plans were replaced by the 1999 Stock
Plan. These plans are the Company's only equity compensation plans approved by
security holders, and there are no equity compensation plans that have not been
approved by security holders. It should be noted that shares of the Company's
Common Stock may be allocated to, or purchased on behalf of, participants in the
Company's 401(k)/Profit Sharing Plan (described above). Consistent with
Securities and Exchange Commission regulations governing equity compensation
plans, information relating to shares issuable or purchased under the Company's
401(k)/Profit Sharing Plan is not included from the table below.
----------------------------------------------------------------------------------------
(a) (b) (c)
Number of shares
remaining
available for
Number of shares Weighted-average future issuance
to be issued upon exercise price per under equity
exercise of share of compensation plans
outstanding outstanding (excluding shares
options, warrants options, warrants reflected in
Plan Category and rights and rights column (a))
----------------------------------------------------------------------------------------
Equity
compensation plans 2,282,418 $9.64 721,953
approved by
security holders
----------------------------------------------------------------------------------------
Equity
compensation plans
not approved by
security holders - - -
----------------------------------------------------------------------------------------
Total 2,282,418 $9.64 721,953
----------------------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners and of Management
The table below sets forth as of April 7, 2007, the number of shares of
Common Stock beneficially owned by (i) each director, (ii) each of the Named
Executive Officers who is currently an officer of the Company, (iii) each
29
beneficial owner of, or institutional investment manager exercising investment
discretion with respect to, 5% or more of the outstanding shares of Common Stock
known to the Company based upon filings with the Securities and Exchange
Commission, and (iv) all directors and executive officers of the Company as a
group, and the percentage ownership of the outstanding Common Stock as of such
date held by each such holder and group:
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership (1) Class (2)
-------------------------------------------------------------------------------------------
Ashford Capital Management, Inc.(3) 1,732,245 9.7%
Kayne Anderson Rudnick Investment Management, LLC (4) 1,412,253 7.9%
Royce & Associates (5) 894,413 5.0%
Segall, Bryand & Hamill (6) 876,905 4.9%
Dino A. Rossi (7)* 362,455 2.0%
Frank Fitzpatrick (8)* 160,377 **
David F. Ludwig (9)* 106,509 **
Kenneth P. Mitchell (10)* 59,779 **
Edward L. McMillan (11)* 55,831 **
Hoyt Ammidon, Jr. (12)* 51,511 **
Robert T. Miniger (13)* 47,247 **
Elaine R. Wedral (14)* 43,123 **
Paul Richardson (15)* 20,647 **
John Televantos(16)* 18,000 **
All directors and executive officers
as a group (11 persons) (17) 934,444 5.2%
--------------------------------------
Shares Outstanding April 7, 2007 17,832,980
* Such person's address is c/o the Company, P.O. Box 600, New Hampton, New
York 10958.
** Indicates less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting
or investment power with respect to securities. In accordance with SEC
rules, shares which may be acquired upon exercise of stock options which
are currently exercisable or which become exercisable within 60 days after
the date of the information in the table are deemed to be beneficially
owned by the optionee. Except as indicated by footnote, and subject to
community property laws where applicable, to the Company's knowledge, the
persons or entities named in the table above are believed to have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) For purposes of calculating the percentage of outstanding shares held by
each person named above, any shares which such person has the right to
acquire within 60 days after the date of the information in the table are
deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
(3) Based upon information provided in a Schedule 13G for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13G is
P.O. Box 4172, Wilmington, DE 19807.
(4) Based upon information provided in Schedule 13G for such entity filed with
the SEC. Such entity's address as reported in its Schedule 13G is 1800
Avenue of the Stars, 2nd Floor, Los Angeles, CA 90067.
(5) Based upon information provided in a Schedule 13G for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13G is
1414 Avenue of the Americas New York, NY 10019
30
(6) Based upon information provided in a Schedule 13G for such entity filed
with the SEC. Such entity's address as reported in its Schedule 13G is 10
S.Wacker Dr., Chicago, IL 60606.
(7) Consists of 316,350 shares such person has the right to acquire pursuant
to stock options, 13,500 shares of restricted stock, 12,355 shares held in
such person's Company 401(k)/profit sharing plan account, and 20,250
shares held directly.
(8) Consists of 141,075 shares such person has the right to acquire pursuant
to stock options, 4,500 shares of restricted stock, 9,739 shares held in
such person's Company 401(k)/profit sharing plan account, and 5,063 shares
held directly.
(9) Consists of 85,725 shares such person has the right to acquire pursuant to
stock options, 3,000 shares of restricted stock, 6,534 shares held in such
person's Company 401(k)/profit sharing plan account, and 11,250 shares
held directly.
(10) Consists of 38,011 shares such person has the right to acquire pursuant to
stock options, 13,500 shares of restricted stock, and 8,268 shared held
directly.
(11) Consists of 41,386 shares such person has the right to acquire pursuant to
stock options, 13,500 shares of restricted stock, and 945 shared held
directly.
(12) Consists of 38,011 shares such person has the right to acquire pursuant to
stock options and 13,500 shares of restricted stock.
(13) Consists of 47,247 shares such person has the right to acquire pursuant to
stock options, 1,500 shares of restricted stock and 3,006 shares held in
such person's Company 401(k)/profit sharing plan account.
(14) Consists of 29,623 shares such person has the right to acquire pursuant to
stock options and 13,500 shares of restricted stock.
(15) Consists of 14,400 shares such person has the right to acquire pursuant to
stock options, 4,500 shares of restricted stock and 1,747 shares held in
such person's Company 401(k)/profit sharing plan account.
(16) Consists of 4,500 shares such person has the right to acquire pursuant to
stock options, and 13,500 shares of restricted stock.
(17) Consists of options to purchase 751,822 shares, 94,500 shares of
restricted stock, 33,381 shares in the accounts of five executive officers
under the Company's 401(k)/profit sharing plan, and 45,776 shares held by
individuals directly.
Audit Committee Report
The following report of the Audit Committee shall not be deemed to be
soliciting material or to be filed with the Securities and Exchange Commission
or incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically requests that the information be treated as
soliciting material or that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The Board of Directors has appointed an Audit Committee consisting of
three directors. Each member of the Audit Committee is independent as defined
under the Nasdaq Marketplace Rules applicable to audit committee members. The
Board of Directors has adopted a written charter with respect to the Audit
Committee's responsibilities. The Audit Committee oversees the Company's
internal and independent auditors and assists the Board of Directors in
overseeing matters relating to the Company's financial reporting process.
In fulfilling its responsibilities, the Audit Committee reviewed and
discussed the audited financial statements for the fiscal year ended December
31, 2006 with management and discussed the audit with McGladrey & Pullen, LLP
31
("M&P"), the Company's independent auditors. The Audit Committee also discussed
with the Company's independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communications with Audit Committees),
as amended. This included a discussion of the independent auditors' judgment as
to the quality, not just the acceptability, of the Company's accounting
principles as applied to the Company's financial reporting, and such other
matters that generally accepted auditing standards require to be discussed with
the Audit Committee. The Audit Committee also received from M&P the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) and the Audit Committee
discussed with M&P and management M&P's independence.
Management is responsible for maintaining internal controls over
financial reporting and assessing the effectiveness of internal control over
financial reporting. The independent registered public accounting firm's
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on their audit. In fulfilling its oversight responsibilities,
the Audit Committee reviewed the Company's assessment process of internal
controls over financial reporting. The Audit Committee reviewed with the
independent registered public accounting firm any deficiencies that had been
identified during their engagement.
The Audit Committee also considered whether the provision of non-audit
services by M&P to the Company is compatible with M&P's independence. M&P
advised the Audit Committee that M&P was and continues to be independent
accountants with respect to the Company.
Based upon the reviews and considerations referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2006 for filing with the Securities and
Exchange Commission.
The Audit Committee has also recommended the Board of Directors approve
the selection of M&P as the Company's independent auditors for 2007.
Hoyt Ammidon, Jr.
Edward L. McMillan
Kenneth P. Mitchell
being the members of the Audit
Committee of the Board of Directors
Quorum Required
Maryland law and the Company's By-laws require the presence of a quorum
for the Meeting, defined as the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at the Meeting.
Abstentions and broker non-votes will be treated as "present" for purposes of
determining whether a quorum has been reached.
Broker non-votes are shares held by brokers or nominees that are
present in person or represented by proxy, but are not voted on a particular
matter because instructions have not been received from the beneficial owner
32
and the broker or nominee does not have discretion to vote without such
instructions. Brokers and nominees generally do not have such discretion when
the matter is deemed by Nasdaq to be "non-routine." However, Nasdaq generally
considers the election of directors to be a "routine" matter with respect to
which brokers and nominees could vote shares held by them in street-name in
their discretion absent any instructions received from the beneficial owners of
such shares.
Voting Securities
Stockholders of record on April 24, 2007 (the "Record Date") will be
eligible to vote at the Meeting. The voting securities of the Company consist of
its Common Stock, $.06-2/3 par value, of which 17,833,430 shares were
outstanding on the Record Date. Each share of Common Stock outstanding on the
Record Date will be entitled to one vote.
Stockholder Proposals for 2008 Annual Meeting
From time to time, the stockholders of the Company may wish to submit
proposals which they believe should be voted upon by the stockholders. The
Securities and Exchange Commission has adopted regulations which govern the
inclusion of such proposals in the Company's annual meeting proxy materials. All
such proposals must be submitted to the Secretary of the Company at the
Company's principal executive offices no later than December 27, 2007 in order
to be considered for inclusion in the Company's year 2008 proxy materials. With
respect to any stockholder proposal not submitted for inclusion in the Company's
year 2008 proxy materials, the proxy for such meeting will confer discretionary
authority to vote on such proposal unless the Company is notified of such
proposal not later than March 19, 2008 (45 days prior to the anniversary of the
date this Proxy Statement is first being sent to stockholders).
Matters Not Determined at the Time of Solicitation
The Board of Directors is not aware of any matters to come before the
Meeting other than as described above. If any matter other than as described
above should come before the Meeting, then the persons named in the enclosed
form of proxy will have discretionary authority to vote all proxies with respect
thereto in accordance with their judgment.
Approval of any other matter that may come before the Annual Meeting
will be determined by the vote of a majority of the shares of Common Stock
present in person or by proxy at the Annual Meeting and voting on such matters.
With respect to an abstention, the shares will be considered present and
entitled to vote at the Annual Meeting and they will have the same effect as
votes against the matter. With respect to broker non-votes, the shares will not
be considered entitled to vote at the Annual Meeting for such matter and the
broker non-votes will have the practical effect of reducing the number of
affirmative votes required to achieve a majority vote for such matter by
reducing the total number of shares from which the majority is calculated.
New Hampton, New York
----------
33
The Annual Report to Stockholders of the Company for the fiscal year
ended December 31, 2006 is being mailed to stockholders with these proxy
materials. The Annual Report does not form part of these proxy materials for the
solicitation of proxies.
34
REVOCABLE PROXY
BALCHEM CORPORATION
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD JUNE 15, 2007
The undersigned hereby appoints Francis J. Fitzpatrick and David Ludwig, and
each of them individually, as attorneys and proxies of the undersigned, with
full power of substitution, at the Annual Meeting of Stockholders of Balchem
Corporation scheduled to be held on June 15, 2007, and at any adjournments
thereof, and to vote all shares of Common Stock of the Company which the
undersigned is entitled to vote on all matters coming before said meeting.
The undersigned hereby revokes all proxies heretofore given by the undersigned
to vote at said meeting or any adjournment thereof.
Please be sure to sign and date
this Proxy in the box below.
---------------------------------
Date
---------------------------------
Stockholder sign above
---------------------------------
Co-holder (if any) sign above
--------------------------------------------------------------------------------
Election of Directors: For All Withhold All For All Except*
Election of two (2) [_]
Class 1 Directors [_] [_]
Nominees for Election as Class
1 Directors: Dino A. Rossi
and Elaine R. Wedral
--------------------------------------------------------------------------------
Ratification and approval For Withhold Abstain
of the appointment of
McGladrey and Pullen, LLP, [_] [_] [_]
as the Company's
independent registered
accounting firm for the
year 2007
--------------------------------------------------------------------------------
*INSTRUCTION: To withhold authority to vote for any one or more individual
nominee(s) for election to the Board of Directors, mark "For All Except" and
write the name of such nominee in the space provided below:
----------------------------------------------------------------
The proxies are directed to vote as specified and in their discretion on all
other matters coming before the Annual Meeting. If no direction is made, the
proxies will vote FOR the nominees for election as Directors named above.
The Board of Directors recommends a vote FOR each named nominee for election as
a Director.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE MEETING. [_]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign. If the signer is a
corporation, please sign full corporate name by duly authorized officer. If a
partnership or a limited liability company, please sign in partnership or
limited liability company name by authorized persons.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY