SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
N/A
4) Proposed maximum aggregate value of transaction:
N/A
5) Total fee paid:
N/A
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
BALCHEM CORPORATION
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 18, 2009
----------------------------------------
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
BALCHEM CORPORATION will be held in West Rooms I & II of the Harvard Club of New
York City, 35 West 44th Street, New York, NY 10036-6645, on Thursday, June 18,
2009 at 10:00 a.m. for the following purposes:
1. To elect two Class 2 Directors to the Board of Directors to
serve until the Annual Meeting of Stockholders in 2012 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, 2009; 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 21, 2009 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, Chairman, President & CEO
Dated: May 4, 2009
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 2009 Annual Meeting of Stockholders (the "Annual Meeting" or the
"Meeting") in the West Rooms I & II of the Harvard Club of New York City, 35
West 44th Street, New York, NY 10036-6645, on Thursday, June 18, 2009 at 10:00
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 May 4, 2009.
The Board of Directors has fixed the close of business on April 21,
2009 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 2 Directors to the
Board of Directors to serve until the Annual Meeting of Stockholders in 2012 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 2009 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.
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on June 18, 2009.
The Company's proxy statement and annual report to stockholders for the
year ended December 31, 2008 are available at http://proxymaterials.balchem.com
---------------------------------
2
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 2 Directors will expire at the Annual Meeting. The Class 1 and Class 3
directors will remain in office until their terms expire, at the annual meetings
of stockholders to be held in the years 2010 and 2011, respectively.
Accordingly, at the 2009 Annual Meeting, two Class 2 Directors are to
be elected to hold office until the annual meeting of stockholders to be held in
2012 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 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 director 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
Edward L. McMillan, age 63, 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 OTC company. In addition, he is also a director of Marical, Inc., a
privately held corporation. Mr. McMillan is also a member of the Board of
Trustees for the University of Illinois in Champaign, Illinois.
Kenneth P. Mitchell, age 69, has been the Company's Lead Director since
October 1, 2005 and has been a Director of the Company since 1993. Mr. Mitchell,
who is currently retired, was Chief Executive Officer of Oakite Products Inc., a
specialty chemical company from 1986 to 1993. Since February 1997, he has also
been a director of Tetra Technologies, Inc., an NYSE traded company, where he
also serves as chairman of the Nominating and Corporate Governance Committee.
3
Upon recommendation by the Corporate Governance & Nominating Committee,
the Board of Directors of the Company recommends a vote For the election of
Edward L. McMillan and Kenneth P. Mitchell as Class 2 Directors to hold office
until the annual meeting of stockholders for the Year 2012 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. McMillan and Mr. Mitchell, the Company's Board of
Directors includes the following members:
Perry W. Premdas, age 56, was appointed as a Director of the Company
in January 2008. He is currently retired. From 1999 to 2004, Mr. Premdas was
Chief Financial Officer of Celanese AG, a chemical and plastics business
spun-off by Hoechst AG and listed on the Frankfurt stock exchange and the NYSE.
He was Senior Executive Vice President and Chief Financial Officer of Centeon
LLC from 1997 to 1998. Over his 30 year career, he has led the treasury,
finance, audit and investor relations functions in US and international
companies and had general manager, executive and director roles in various
wholly-owned and joint venture operations. Mr. Premdas holds a BA from Brown
University and an MBA from the Harvard University Graduate School of Business.
He is currently a member of the Board of Directors of Ferro Corporation and
Compass Minerals (both listed on the NYSE), and Fresenius Kabi Pharmaceuticals
Holding, Inc. (NASDAQ).
Dino A. Rossi, age 54, 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 Dutch 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. John Y. Televantos, age 56, has been a Director since February
2005. Dr. Televantos is a Principal of Arsenal Capital Partners, Inc., a private
equity investment firm, where he leads the Chemicals and Materials practice of
the firm. Dr. Televantos was formerly with Hercules, Inc. as President of the
Aqualon Division and as Vice President of Hercules, Inc. from April 2002 through
February 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, United Kingdom. He also has been on several public and
private company Boards and is affiliated with other key industry-related groups.
Dr. Elaine R. Wedral, age 65, has been a Director of the Company since
October 2003. Dr. Wedral is retired. Currently, she serves as the President of
the International Life Sciences Institute in North America, which position she
has held since January 2008. She was President of Nestle R&D Center, Inc. in New
Milford, Connecticut and Head of Nestle Food Service Systems worldwide from 1999
to 2005. Prior to that, she held a variety of technical positions at Nestle. Dr.
Wedral holds 34 patents in food processing, food nutrition and ingredient areas,
and is on the editorial board of Food Processing Magazine. She received her
Ph.D. from Cornell University in Food Biochemistry, an M.S. in Food Microbiology
and a B.S. from Purdue University in Biochemistry. She is currently also a
director of Sensient Technologies Corporation, a public company listed on the
NYSE, and continues to work with several key industry/university related groups
in an advisory capacity.
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.
4
Meeting Attendance
During fiscal 2008, the Board of Directors met five times during
regular meetings and one 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 the meetings of those Committees of the Board on which he or she
served.
The Company has a policy to strongly encourage directors to attend the
annual meeting of stockholders. Historically, attendance has been excellent. All
directors were in attendance at the Company's 2008 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 2008, the Audit Committee held six meetings, the Corporate
Governance and Nominating Committee held two meetings and the Compensation
Committee held three meetings. The Executive Committee did not meet in 2008.
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 Company's independent registered public accounting
firm. 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. Premdas (Chair), McMillan and
Mitchell. The Board of Directors of the Company has determined that the Audit
Committee Chairman, Mr. Premdas, 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 senior executives of the
Company, for approval by the full Board of Directors, (ii) prepare an Annual
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, and (iv) to administer the Company's Second
Restated and Amended 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" or the "Amended 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 Dr. Televantos (Chair),
Messrs. McMillan and Mitchell, 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.
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 responsibilities of the Board committees, to review
annually and assess the adequacy of the Company's corporate governance
guidelines and recommend any changes to the Board, to oversee an annual
self-evaluation of the Board and Board Committees, to oversee compliance with
the Company's Stock Ownership Policies, to consider matters of
5
corporate social responsibility and corporate public affairs related to the
Company's employees and stockholders, to recruit, evaluate and nominate new
candidates for directorships, 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 providing advice to the full Board
as to nomination for reelection, and to 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. The current members of the Corporate Governance &
---------------
Nominating Committee are Dr. Wedral (Chair), Messrs. Premdas and Mitchell and
Dr. Televantos, all of whom are independent directors.
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 key executives of the
Company.
The current members of the Executive Committee are Messrs. Mitchell
(Chair), McMillan and Dr. Televantos.
Nominations of Directors
The Corporate Governance & Nominating Committee considers re-nominating
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 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. 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
2010 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 require that a director retire at the conclusion of his or her
term in which he or she reaches the age of 70. The guidelines for nomination for
a position on the Board of Directors, 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 ability to commit to the Board of Directors of the Company.
6
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 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 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 Chairman. 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; for reviewing the individual
performance of each of the Directors; chairing regular meetings of independent
Board members without management present (executive sessions); acting as liaison
between the independent Directors and the Chairman; 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 48, 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 45, 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, a Delaware corporation from 1994 to 2001. Mr. Houston received his
Juris Doctorate from Saint Louis University.
David F. Ludwig, age 51, 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 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.
Paul H. Richardson, PhD, CChem, age 39, 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 obtaining
his Bachelor's
7
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.
---------------
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.
Based solely on a review of copies of reports furnished to the Company
or written representations that no other reports were required, the Company
believes that during the fiscal year ended December 31, 2008, 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.
Compensation Committee Interlocks and Insider Participation
Messrs. McMillan and Mitchell and Drs. Televantos and Wedral, each of
whom is a director of the Company, served as the members of the Compensation
Committee during 2008. None of Messrs. McMillan or 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. During 2008, there were no interlocking relationships between the
Company's Board of Directors or Compensation Committee, or the board of
directors or compensation committee of any other company that are required to be
disclosed under Item 407 of Regulation S-K.
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee
During the fiscal year ended December 31, 2008, 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 consultants to determine each facet of the compensation for our
executive officers. The Committee also administers our Second Amended and
Restated 1999 Stock Plan, which was adopted by the Board of Directors and
approved by the shareholders of the Company at the 2008 Annual Meeting of
Shareholders. 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.
8
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,
as a Principal of Arsenal Capital Partners, Inc. Dr. Televantos is exposed to
compensation trends of the various companies in which his firm has invested and
manages. Mr. McMillan is a member of the compensation committee for a private
company board of directors on which he sits that has adopted many of the
compensation philosophies applicable to public companies. 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 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. In 2007, the Deloitte Compensation Consulting
Group continued to provide assistance to the Compensation Committee with respect
to total cash compensation and long term compensation as such relates to both
executives and directors of the Company. In particular, the Deloitte
Compensation Consulting Group delivered a benchmarking analysis of total cash
compensation and long term incentives of companies operating in the food,
pharmaceutical ingredients and specialty chemical industries, which also have:
(1) demonstrated recent three year revenue growth of 15-25%; (2) a market
capitalization of two hundred million dollars to four hundred million dollars;
and (3) two hundred million dollars to five hundred million dollars in revenue.
It is through these efforts that we have instituted the structure of our program
for granting executives and directors certain cash compensation and equity in
the Company, 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 peer entities while considering 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-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
9
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.
In 2008, the Company adopted formal stock ownership requirements for
its directors and executive officers. According to the policy, directors are
required to own shares of the Company's Common Stock at least equal to five
times their annual cash retainer and executive officers must own such shares as
determined by a multiple of their annual base salary as follows: (1) Chief
Executive Officer, three times; (2) Chief Financial Officer, one and one half
times; and (3) Vice President/Officer, one times. Both directors and executive
officers have five years from the date of the adoption of this Policy or from
the date of hire or commencement as a director, as applicable, to attain the
required level of ownership. As is disclosed elsewhere in this Proxy Statement,
our directors and executive officers are stockholders of the Company. It is also
noteworthy that 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 to
maintain salaries at reasonably competitive peer group 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, as well as Salary.com and Deloitte Compensation Consulting Group.
The Committee solicits input from Mr. Rossi with respect to the
performance of our executive officers and their compensation levels. During
2008, the base salaries of our executive officers were increased to the amounts
identified in the Summary Compensation Table.
Cash Based Incentives
Bonuses represent the variable, at-risk, component of the executive
compensation program that is tied to both Company performance and individual
achievement. The Company's policy is to base a meaningful portion of its
executive officers' cash compensation on bonus opportunities. 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
objective levels 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 and targets defined therein 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 target minimum consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA") is achieved by the Company. The
Compensation Committee established such minimum target level of EBITDA for the
2009 calendar year as part of the approval of the annual plan, based, amongst
other things, upon the Company's preliminary results of operations for the 2008
calendar year.
In addition to the EBITDA goal, 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
10
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 defined job description responsibility. 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 following table sets forth the individual ICP goals for bonus cash
compensation for the named executive officers, Mr. Rossi, Mr. Fitzpatrick, Dr.
Richardson, Mr. Ludwig and Mr. Houston for the fiscal year ended December 31,
2008, together with the corresponding percentage weight of each goal as such
related to total ICP bonus for each individual. The goals below were designed to
be challenging, yet attainable, but not assured.
2008 ICP GOALS
------------------------------------------------------------------------------------------------------------------
Percentage
Name, Title Individual ICP Goals Weighted
---------------------- --------------------------------------------------------------------------- -------------
Dino Rossi, o Achieve 2008 Annual Target EBITDA 25%
Chairman, o Achieve 2008 Annual Target Return on Company Assets 20%
President and CEO o Execute 2008 Company Corporate Acquisition(s) Strategy 20%
o Achieve 2008 Annual Target Earnings per Share of Common Stock 20%
o Achieve 2008 Annual Target Consolidated Net Sales of Company 10%
o Achieve 2008 Annual Target Equity and Benefits Plan Enhancement 5%
Frank Fitzpatrick, o Achieve 2008 Annual Target EBITDA 25%
CFO, Treasurer o Achieve 2008 Annual Target Return on Company Assets 15%
and Assistant o Execute 2008 Company Corporate Acquisition(s) Strategy 15%
Secretary o Achieve 2008 Annual Target Cash Flow 15%
o Achieve 2008 Annual Target Earnings per Share of Common Stock 15%
o Achieve 2008 Annual Target Equity and Benefits Plan Enhancement 15%
David Ludwig, o Achieve 2008 Annual Target EBITDA 10%
VP/GM, Specialty o Achieve 2008 Annual Target Specialty Product Segment Sales 15%
Products o Achieve 2008 Specialty Products Segment NIBIT 25%
o Achieve 2008 Annual Target Return on Company Assets 10%
o Development of New Products Specific to the Specialty Product Segment 40%
Paul Richardson, o Development of New Products in 2008, with Minimal Sales 65%
VP Research & o Achieve 2008 Annual Target EBITDA 20%
Development o Achieve 2008 Annual Target Encapsulated Products Segment Sales 15%
Matthew Houston, o Achieve 2008 Annual Target EBITDA 25%
General Counsel & o Achieve 2008 Legal Expense Budget 20%
Secretary o Improve Company ISS Corporate Governance Quotient 30%
o Execute 2008 Company Acquisition(s) Strategy 25%
------------------------------------------------------------------------------------------------------------------
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.
Pursuant to the terms of the employment agreement between the Company
and Mr. Rossi, Mr. Rossi is entitled to earn an annual bonus of up to 100% of
his base salary, based upon achieving operating and/or financial
11
targets established by the Board or an authorized committee thereof. Half of
such bonus compensation opportunity is determined pursuant to the ICP and those
specific goals are set forth above. The Compensation Committee has established a
minimum level of consolidated EBITDA for the 2008 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.
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. In March of 2009, the Compensation Committee
determined that the Company failed to meet its 2008 EBITDA goal. Accordingly, no
ICP bonuses were to be paid by the Company, however, the Committee, elected to
make discretionary cash bonus awards to recognize significant contributions to
the Company despite difficult economic conditions in 2008 to certain Named
Executive Officers in the amounts identified under "Non-Equity Incentive Plan
Compensation" in the Summary Compensation Table.
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 for investment in
the Company and the incentive advantages inherent in stock ownership in the
Company. 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 in the future at a specified price. 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, the optionee will only realize
value if the Company's stock price increases. With limited exceptions, grants of
options to employees have provided for incremental vesting over three years and
the individual must be employed by the Company for such options to vest.
Partially in response to changes in how 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 and continuing thereafter, the Company grants a
combination of restricted shares and options to our executives. We also granted
restricted shares to our non-management directors in 2005 and 2006. Restricted
stock encourages ownership and commitment at the director level. Our restricted
stock awards generally vest over a four year period.
In 2008, our shareholders approved the Company's adoption of the
Amended Plan, which adopted certain amendments to our Amended and Restated 1999
Stock Plan. Primarily, the amendments: (1) extend the expiration of the plan to
April 9, 2018; (2) authorize 4,000,000 shares reserved for future grants under
the Amended Plan; (3) authorize grants of stock appreciation rights, restricted
stock and performance awards; (4) provide for accelerated vesting of awards
issued under the Amended Plan in the event of a change in control of the
Company; and (5) address compliance with the Sections 409A and 162(m) of the
Internal Revenue Code of 1986.
Awards under the Amended Plan continue to be based upon individual
contribution and expected contribution going forward, and may or may not be
granted in any given fiscal year. The Committee considers Company performance,
as well. It is our expectation to continue yearly grants of restricted stock
awards and non-qualified options to executive officers. It is 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 typically granted coinciding with the date of our December Board
of Directors Meeting.
The Compensation Committee postponed the grant awards of equity in
December of 2007, as is the usual practice and intention of the Committee, to
await the results of an executive compensation study which was performed by
Deloitte Compensation Consulting Group. The final data of this study was
presented to the Compensation Committee in January of 2008. These awards were
then granted in January of 2008, but intended to
12
apply to the individual's performance for 2007. Accordingly, our named executive
officers were granted the following restricted shares in January of 2008: Mr.
Rossi: 13,500 shares; Mr. Fitzpatrick: 4,500 shares; Mr. Ludwig: 2,500 shares;
Mr. Houston: 1,500 shares; and Dr. Richardson: 4,000 shares. Additionally, in
January 2008, we granted Non-Qualified Options to our executive officers as
follows: Mr. Rossi, Mr. Fitzpatrick, Mr. Ludwig, Mr. Richardson and Mr. Houston
were granted options to purchase 45,000; 35,000; 26,500; 20,500; and 10,000
shares, respectively, at an exercise price of $20.41 per share, which was the
common stock price at the end of trading on day of grant.
In December of 2008, the Compensation Committee granted the following
awards of restricted shares to the Named Executive Officers with respect to the
individual's performance for 2008: Mr. Rossi: 10,000 shares; Mr. Fitzpatrick:
4,000 shares; Mr. Ludwig: 2,500 shares; Dr. Richardson: 3,000 shares; and Mr.
Houston: 1,000 shares. Additionally, in December 2008, we granted Non-Qualified
Options to our executive officers as follows: Mr. Rossi, Mr. Fitzpatrick, Mr.
Ludwig, Mr. Richardson and Mr. Houston were granted options to purchase 40,000;
32,000; 25,000; 18,000; and 6,000 shares, respectively, at an exercise price of
$25.92 per share, which was the common stock price at the end of trading on day
of grant.
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. The
Company does not have a written policy regarding employment agreements.
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 has historically
contributed, in cash, 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. The Company
pays to insure and maintain Mr. Rossi's automobile, as well as reimburses Mr.
Rossi for fuel expenses to the extent related to Company business. Messrs.
Fitzpatrick, Ludwig and Houston and Dr. Richardson receive cash allowances
associated with the use of their personal automobiles.
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed the above "Compensation Discussion and
Analysis" with management.
13
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
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
years ended December 31, 2008, 2007 and 2006.
Summary Compensation Table
-----------------------------------------------------------------------------------------------------------
Non-Equity
Stock Option Incentive Plan All Other
Awards Awards Compensation Compensation
Name and Principal Salary (1) (1) (2) (3) Total
Position Year ($) ($) ($) ($) ($) ($)
-----------------------------------------------------------------------------------------------------------
Dino A. Rossi 2008 $431,968 $133,268 $254,877 $ 0 $17,849 (a) $837,963
Chairman, President & 2007 $368,814 $ 56,111 $209,769 $260,000 $13,688 $908,382
CEO 2006 $338,600 $ 3,778 $198,528 $212,445 $17,364 $770,715
Francis J. Fitzpatrick 2008 $197,062 $ 44,677 $195,388 $ 0 $22,770 (b) $459,897
CFO, Treasurer and Asst. 2007 $180,000 $ 18,704 $161,359 $ 59,220 $21,993 $441,275
Secretary 2006 $169,000 $ 1,259 $152,270 $ 62,406 $21,582 $406,517
David F. Ludwig 2008 $209,635 $ 27,259 $152,068 $ 55,000 $18,497 (c) $462,459
VP/GM Specialty Products 2007 $201,385 $ 12,469 $129,226 $ 52,636 $13,689 $409,404
2006 $193,481 $ 839 $123,072 $ 41,894 $18,026 $377,312
Paul H. Richardson 2008 $176,500 $ 41,833 $116,814 $ 12,000 $21,111 (d) $368,258
VP, R&D 2007 $166,000 $ 18,704 $101,854 $ 34,160 $20,773 $341,490
2006 $155,385 $ 1,259 $ 80,852 $ 43,575 $20,357 $301,428
Matthew D. Houston 2008 $176,385 $ 14,765 $ 41,811 $ 5,000 $21,121 (e) $259,082
General Counsel and Secretary 2007 $168,115 $ 6,235 $ 36,807 $ 42,250 $18,327 $271,733
-----------------------------------------------------------------------------------------------------------
(1) The amounts included in the "Stock Awards" and "Option Awards" columns
reflect the dollar amount recognized for financial statement reporting
purposes for each reported fiscal year, in accordance with FAS 123(R)
adjusted to eliminate service-based forfeiture assumptions used for
financial reporting purposes. A
14
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, 2008, as filed with the SEC on March 12,
2009.
(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 for the indicated
year:
(a) Mr. Rossi's other compensation for 2008 consists of $13,590
for contributions under the Company's 401(k)/profit sharing
plan, $3,983 for automobile allowance, and $276 for life,
health and disability insurance benefits.
(b) Mr. Fitzpatrick's other compensation for 2008 consists of
$13,590 for contributions under the Company's 401(k)/profit
sharing plan, $9,000 for automobile allowance, and $180 for
life, health and disability insurance benefits.
(c) Mr. Ludwig's other compensation for 2008 consists of $13,590
for contributions under the Company's 401(k)/profit sharing
plan, $4,631 for automobile allowance, and $276 for life,
health and disability insurance benefits.
(d) Mr. Richardson's other compensation for 2008 consists of
$12,903 for contributions under the Company's 401(k)/profit
sharing plan, $8,100 for automobile allowance, and $108 for
life, health and disability insurance benefits.
(e) Mr. Houston's other compensation for 2008 consists of $13,187
for contributions under the Company's 401(k)/profit sharing
plan, $7,754 for automobile allowance, and $180 for life,
health and disability insurance benefits.
Grants of Plan Based Awards
The following table provides information on stock awards and options
granted in 2008 to each of the Named Executive Officers and information on
estimated possible payouts under our non-equity incentive plan for 2008.
Estimated Future Payouts All Other All Other
under Non-Equity Incentive Stock Option
Plan Awards (1) Awards: Awards: Exercise
--------------------------------- Number of Number of Price of
Shares of Securities Option Grant Date
Grant Restricted Underlying Awards Fair Value
Name Date Threshold Target Maximum Stock (#) Options (#) ($/Sh) (2)
----------------------------------------------------------------------------------------------------------------------------
Dino A. Rossi 12/10/2008 -- $212,500 $276,250 10,000 40,000 $ 25.92 $606,699
Francis J. Fitzpatrick 12/10/2008 -- $ 67,760 $ 88,088 4,000 32,000 $ 25.92 $381,679
David F. Ludwig 12/10/2008 -- $ 73,500 $ 95,550 2,500 25,000 $ 25.92 $281,987
Paul H. Richardson 12/10/2008 -- $ 60,200 $ 78,260 3,000 18,000 $ 25.92 $234,135
Matthew D. Houston 12/10/2008 -- $ 44,250 $ 57,525 1,000 6,000 $ 25.92 $ 78,045
----------------------------------------------------------------------------------------------------------------------------
(1) Represents target payout levels under the ICP for 2008 performance. The
actual amount of incentive bonus earned by each Named Executive Officer in
2008 is reported under the Non-Equity Incentive Plan
15
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 FAS 123(R) value of awards granted on 12/10/2008 was $25.92 per share
of restricted stock, and $8.69 per stock option with an exercise price of
$25.92.
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, subject to annual increases if approved by the Board of
Directors. Mr. Rossi's current salary for fiscal 2009 pursuant to the Employment
Agreement is $467,500. Mr. Rossi is eligible to earn a bonus of 50% of base
salary under the ICP. Mr. Rossi is also eligible to receive a performance bonus
(as determined by the Board of Directors) of up to 50% of annual salary, based
on a target figure which exceeds financial targets established by the Board of
Directors in the ICP, 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 a modified payment
schedule 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 Company's 1999 Stock Plan was adopted and approved by our
stockholders in 1999 and was amended in 2003 and again in 2008. Under the
Amended Plan, 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 Amended Plan
may not be less than the fair market value per share of Common Stock on the date
of such grant.
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
16
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 $.06-2/3 per share in the event the
purchaser ceases to be an employee of the Company prior to vesting by reason of:
(1) the purchaser's voluntary retirement from the Company's employ at or after
age 62; (2) the purchaser's death, major disability or significant illness; or
(3) termination of the purchaser's employment by the Company without cause.
Repurchases are subject to the approval of the Compensation Committee of the
Board. Although available under the Amended Plan, the Company has not granted
stock appreciation rights or performance awards.
Our Non-Qualified Options granted vest as follows: 20% on the first
anniversary of the grant date; 40% on the second anniversary of the grant date;
and 40% on the third anniversary of the grant date. Our Non-Qualified Options
expire ten years after grant.
Outstanding Equity Awards at Fiscal Year End
The following table shows outstanding Option awards classified as
exercisable and unexercisable as of December 31, 2008 for each Named Executive
Officer. The table also discloses the number and value of unvested restricted
stock awards as of December 31, 2008.
17
Option Awards Stock Awards
-------------------------------------------------------------- ---------------------------
Number of Securities
Options (#) Number Market
---------------------------- of Shares Value of
of Shares of
Stock Stock that
Un- Option Option that Have Not
Exercisable Exercisable Exercise Expiration Have Not Vested (3)
Name (1) (1) Price ($) Date Vested(2) ($)
------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Dino A. Rossi 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
74,250 -- $ 8.77 09/16/14
90,000 -- $ 13.81 09/16/15
27,000 18,000 $ 17.81 12/08/16
-- 45,000 $ 20.41 01/11/18
-- 40,000 $ 25.92 12/10/18
37,000 $ 921,670
Francis J. Fitzpatrick 40,500 -- $ 6.83 09/12/12
50,625 -- $ 6.77 12/12/13
60,750 -- $ 8.77 09/16/14
67,500 -- $ 13.81 09/16/15
20,700 13,800 $ 17.81 12/08/16
-- 35,000 $ 20.41 01/11/18
-- 32,000 $ 25.92 12/10/18
13,000 $ 323,830
David F. Ludwig 12,150 -- $ 6.83 09/12/12
32,400 -- $ 6.77 12/12/13
50,625 -- $ 8.77 09/16/14
54,000 -- $ 13.81 09/16/15
16,200 10,800 $ 17.81 12/08/16
-- 26,500 $ 20.41 01/11/18
-- 25,000 $ 25.92 12/10/18
8,000 $ 199,280
Paul H. Richardson 5,400 -- $ 6.77 12/12/13
13,500 -- $ 8.77 09/16/14
22,500 -- $ 13.19 06/24/15
22,500 -- $ 13.81 09/16/15
13,500 9,000 $ 17.81 12/08/16
-- 20,500 $ 20.41 01/11/18
-- 18,000 $ 25.92 12/10/18
11,500 $ 286,465
Matthew D. Houston 19,050 -- $ 9.87 01/24/15
11,250 -- $ 13.81 09/16/15
2,700 1,800 $ 17.81 12/08/16
-- 10,000 $ 20.41 01/11/18
-- 6,000 $ 25.92 12/10/18
4,000 $ 99,640
18
(1) Stock option awards have a term of ten years from the grant date and
become exercisable 20% after 1 year, 60% after 2 years and 100% after 3
years beginning on the first anniversary of the grant date.
(2) Restricted stock vests four years from the date of grant. The following
table provides information with respect to the vesting dates of each
outstanding Restricted Stock award held by each Named Executive Officer
as of December 31, 2008:
----------------------------------------------------------------------------
Mr. Mr. Mr. Mr. Mr.
Rossi Fitzpatrick Ludwig Richardson Houston
----------------------------------------------------------------------------
December 8, 2010 13,500 4,500 3,000 4,500 1,500
January 11, 2012 13,500 4,500 2,500 4,000 1,500
December 10, 2012 10,000 4,000 2,500 3,000 1,000
----------------------------------------------------------------------------
37,000 13,000 8,000 11,500 4,000
----------------------------------------------------------------------------
(3) Value is computed based on the closing price of our Common Stock on the
NASDAQ on December 31, 2008, which was $24.91 per share.
Option Exercises and Stock Vested
The following table sets forth certain information regarding Options
and stock awards exercised and vested, respectively, by each of our Named
Executive Officers during the fiscal year ended December 31, 2008.
Option Exercises and Stock Vested Table
Option Awards Stock Awards
------------------------------------- -----------------------------------
Number of Number of
Shares Value Realized Shares
Acquired on on Exercise Acquired on Value Realized
Name Exercise (#) ($)(1) Vesting (#) on Vesting ($)
------------------------------------- ---------------- -------------------- ----------------- -----------------
Dino A. Rossi -- -- -- --
Francis J. Fitzpatrick -- -- -- --
David F. Ludwig -- -- -- --
Paul H. Richardson -- -- -- --
Matthew D. Houston -- -- -- --
(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 Mr. 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 $467,500 in 2009,
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 other than for cause
or in the event Mr. Rossi terminates his employment under certain limited
circumstances effectively amounting to a constructive termination,
19
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 with Mr. Rossi, "Cause" means: habitual
absence or lateness; gross insubordination; failure to devote full time to
Company's business; failure to comply with the obligations of confidentiality;
any action which constitutes a violation of any applicable criminal statute; or
any act which frustrates or violates the undivided duty of loyalty owed by Mr.
Rossi to the Company. In addition, "Change in Control" means:
(a) any person or group is or becomes (including by merger,
consolidation or otherwise) the beneficial owner, directly or
indirectly, of 50% or more of the voting power of the total outstanding
voting stock of Company;
(b) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of the Company (together with any new directors whose election to the
Board of Directors, or whose nomination for election by the
stockholders of the Company, was approved by a vote of 75% of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease to constitute a majority of the Board
of Directors then in office; or
(c) the sale or other disposition (other than by way of merger
or consolidation) of all or substantially all of the capital stock or
assets of Company to any person or group as an entirety or
substantially as an entirety in one transaction or a series of related
transactions, unless the ultimate beneficial owners of the voting stock
of such person immediately after giving effect to such transaction own,
directly or indirectly, more than 80% of the total voting power of the
total outstanding voting stock of Company immediately prior to such
transaction.
The amount of compensation payable to Mr. Rossi in the event of
termination of employment, assuming termination as of December 31, 2008, and a
share price for the Company's common stock equal to the closing market price on
the last trading day prior to that date, is set forth in the table below. We are
not obligated to provide any compensation to Mr. Rossi in the case of a change
in control that does not result in termination of employment.
20
Benefits and Payments upon Termination
---------------------------------------------------------------------------------------------------------
Acceleration
of
Vesting of
Options
and
ICP Restricted
Base Salary Bonus(1) Stock (2) Total
----------------------------------------------------
Voluntary termination by Mr. Rossi or termination
for Cause $ 0 $431,968 $7,249,052 $7,681,020
Termination by Mr. Rossi within 12 months after
demotion by Company or as a result of constructive
termination $647,952 $431,968 $8,200,563 $9,280,483
Termination by Company following a Change in
Control, except for Cause(3) $863,936 $863,936 $8,200,563 $9,928,435
Voluntary termination by Mr. Rossi following a
Change of Control(3) $431,968 $431,968 $8,200,563 $9,064,499
Termination by Company for any reason other than
for Cause or after receipt of notice of termination
from Mr. Rossi $647,952 $431,968 $8,200,563 $9,280,483
Death $ 0 $431,968 $7,249,052 $7,681,020
---------------------------------------------------------------------------------------------------------
1. Represents the target bonus level under the ICP
2. Amounts in this column are calculated by multiplying the number of
shares subject to accelerated vesting by the difference between $24.91,
which is the closing market price per share of our common stock on
December 31, 2008, and the per share exercise price of the applicable
accelerated stock award or option.
3. Assumes the Change of Control occurred within the two year period prior
to December 31, 2008.
The amounts shown in the table above do not include payments for
accrued salary and vacation, or payments made under the life insurance policy in
the case of death.
All of our executive officers other than Mr. Rossi are
employees-at-will and, as such, do not have employment agreements, therefore, we
are not obligated to provide any post-employment compensation or benefits.
However, upon a change of control, as defined in the Amended Plan, all unvested
Option grants immediately vest and become exercisable, and all restrictions,
applicable to outstanding shares of restricted stock, lapse. Assuming such a
change of control as of December 31, 2008, and a share price for the Company's
common stock equal to the closing market price on that date, the amount of
compensation payable to the Named Executive Officers other than Mr Rossi, are as
follows: Mr. Fitzpatrick, $4,073,473; Mr. Ludwig, $2,708,376; Dr. Richardson,
$1,348,866; and Mr. Houston, $581,667.
Director Compensation
The Company pays each of its directors, other than Mr. Rossi, an annual
retainer of $24,000 and $4,000 for each Board meeting attended, plus expenses.
The Lead Director, Chairman of the Audit Committee and Chairman of the
Compensation Committee are paid an additional $8,000 annual retainer fee. The
Chairman of the Corporate
21
Governance & Nominating Committee is paid an additional $6,000 annual retainer
fee. The Company also pays to each of its directors serving on Committees a fee
of $1,000, plus expenses, for each Committee meeting attended.
The following table discloses the cash, equity awards, and other
compensation earned, paid, or awarded, as the case may be, to each of the
Company's directors (other than Mr. Rossi, whose compensation is set forth in
the Summary Compensation Table above) during the fiscal year ended December 31,
2008.
Fees
Earned or Stock All Other
Paid in Awards Compensation
Name Cash ($) (1)(2)($) ($) Total ($)
------------------ --------- --------- -------------- ---------
Edward McMillan $49,500 $109,863 -- $159,363
Kenneth Mitchell $59,000 $109,863 -- $168,863
Perry Premdas $51,000 $109,863 -- $160,863
John Televantos $57,667 $109,863 -- $167,530
Elaine Wedral $54,000 $109,863 -- $163,863
(1) On December 10, 2008, each director, other than Mr. Rossi was awarded
4,250 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 10, 2008 between the Company and each such
director. The amounts included in the "Stock Awards" column reflect the
dollar amount to be recognized for financial statement reporting purposes
in accordance with FAS 123(R) adjusted to eliminate service-based
forfeiture assumptions used for financial reporting purposes. The weighted
average grant date fair value per share of each award was $25.92. 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, 2008, as filed with the SEC on March 12, 2009.
(2) The following table shows the aggregate number of options and stock awards
outstanding for each Outside Director as of December 31, 2008:
Aggregate Aggregate
Stock Options Stock Awards
Outstanding Outstanding
as of as of
Name 12/31/2008 12/31/2008
-------------------------------------------------
Edward McMillan 41,386 22,750
Kenneth Mitchell 38,011 22,750
Perry Premdas -- 11,000
John Televantos 4,500 22,750
Elaine Wedral 29,623 22,750
Directors have entered into Restricted Stock Purchase Agreements with
the Company to purchase the Company's Common Stock pursuant to the Amended Plan.
These Agreements replace the stock option plan in which non-employee directors
participated in prior years.
Under the Agreements, each of the directors purchased 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 either in four years for
certain Agreements or in seven years for the balance 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 the four or seven year vesting schedule
upon: (1) the purchaser's retirement from the Company's
22
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 2008.
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, 2008, with
respect to shares of the Company's Common Stock that may be issued pursuant to
awards under the Amended Plan, described above, as well as under the Company's
prior stock option plans, which plans were replaced by the Amended 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 in the table below.
------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Number of shares
remaining available for
future issuance under
Number of shares to be Weighted-average exercise equity compensation plans
issued upon exercise of price per share of (excluding shares
outstanding options, outstanding options, reflected
Plan Category warrants and rights warrants and rights in column (a))
------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security 2,627,478 $12.60 3,664,350
holders
------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders - - -
------------------------------------------------------------------------------------------------------------
Total 2,627,478 $12.60 3,664,350
------------------------------------------------------------------------------------------------------------
23
Security Ownership of Certain Beneficial Owners and of Management
The table below sets forth as of April 1, 2009, the number of shares of
Common Stock beneficially owned by (i) each director, (ii) each of the Named
Executive Officers, (iii) each 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 current 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)
------------------------------------------------------------------------------------------------------
Barclays Global Investors NA (California) (3) 1,238,723 6.8%
Segall, Bryant & Hamill Investment Counsel (4) 1,037,358 5.7%
Dino A. Rossi (5)* 525,100 2.9%
Frank Fitzpatrick (6)* 276,043 1.5%
David F. Ludwig (7)* 186,310 1.0%
Paul Richardson (8)* 95,379 **
Edward L. McMillan (9)* 65,101 **
Elaine R. Wedral (10)* 53,373 **
Matt Houston (11)* 39,842 **
Kenneth P. Mitchell (12)* 31,018 **
John Televantos(13)* 29,250 **
Perry Premdas (14)* 18,200 **
All current directors and executive officers as a group (12 1,319,617 7.2%
persons) (15)
Shares Outstanding April 1, 2009 18,334,897
* 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 400 Howard Street San Francisco, CA 94105.
(4) Based upon information provided in a Schedule 13F for such entity
filed with the SEC. Such entity's address as reported in its Schedule
13F is 10 S. Wacker Dr. Suite 3500. Chicago, IL 60606.
(5) Consists of 443,250 shares such person has the right to acquire
pursuant to stock options, 37,000 shares of restricted stock, 13,800
shares held in such person's Company 401(k)/profit sharing plan
account, and 31,050 shares held directly.
24
(6) Consists of 247,075 shares such person has the right to acquire
pursuant to stock options, 13,000 shares of restricted stock, 10,905
shares held in such person's Company 401(k)/profit sharing plan
account, and 5,063 shares held directly.
(7) Consists of 170,675 shares such person has the right to acquire
pursuant to stock options, 8,000 shares of restricted stock and 7,635
shares held in such person's Company 401(k)/profit sharing plan
account.
(8) Consists of 81,500 shares such person has the right to acquire
pursuant to stock options, 11,500 shares of restricted stock and 2,379
shares held in such person's Company 401(k)/profit sharing plan
account.
(9) Consists of 41,386 shares such person has the right to acquire
pursuant to stock options, 22,750 shares of restricted stock and 965
shared held directly.
(10) Consists of 29,623 shares such person has the right to acquire
pursuant to stock options, 22,750 shares of restricted stock and 1,000
shared held directly.
(11) Consists of 35,000 shares such person has the right to acquire
pursuant to stock options, 4,000 shares of restricted stock and 842
shares held in such person's Company 401(k)/profit sharing plan
account.
(12) Consists of 22,750 shares of restricted stock and 8,268 shared held
directly.
(13) Consists of 4,500 shares such person has the right to acquire pursuant
to stock options, 22,750 shares of restricted stock and 2,000 shared
held directly.
(14) Consists of 11,000 shares of restricted stock and 7,200 shared held
directly
(15) Consists of options to purchase 1,053,009 shares, 175,500 shares of
restricted stock, 35,562 shares in the accounts of five executive
officers under the Company's 401(k)/profit sharing plan, and 55,546
shares held by individuals directly.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee has selected McGladrey & Pullen LLP ("M&P") as the
Company's independent registered public accounting firm for the year ending
December 31, 2009. 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 governance 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 Audit Committee in its
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.
25
Principal Accountant Fees and Services
During 2008, the Company retained M&P to audit the consolidated
financial statements for 2008. 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, and other audit-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 2007 and 2008:
2008 2007
---- ----
Audit fees (1) 510,925 487,500
Audit-related fees (2) 43,500 40,688
Tax fees (3) -- 53,124
--------------------
554,425 581,312
Total fees
====================
(1) Fees relating to audit of the annual consolidated financial statements
and quarterly reviews.
(2) Fees relating to employee benefit plan audit, S-8 Consent, SEC comment
letter and acquisition due diligence in 2007.
(3) Fees for tax compliance, state tax audits, international tax issues
and advisory services.
Effective 2008, M&P no longer provides services relating to preparation of
the Company's tax returns.
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
2008 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. An abstention will count as a vote against.
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, 2009.
26
Audit Committee Report
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, 2008 with management and discussed the audit with McGladrey & Pullen, LLP
("M&P"), the Company's independent registered public accounting firm. The Audit
Committee also discussed with the Company's independent registered public
accounting firm the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees), as amended, as adopted
by the Public Company Accounting Oversight Board ("PCAOB"). 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
applicable requirements of the PCAOB regarding the independent accountant's
communications with the Audit Committee concerning independence, 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 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 with
respect to the Company.
Based upon the reviews, discussions 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, 2008 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 2009.
Perry W. Premdas (Chair)
Kenneth P. Mitchell
Edward L. McMillan
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.
27
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 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 the broker voting rules to be "non-routine." The
election of directors and the ratification of the independent registered public
accounting firm are both considered to be "routine" matters 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 21, 2009 (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 18,334,897 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 2010 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 January 4, 2010 in order to
be considered for inclusion in the Company's year 2010 proxy materials. With
respect to any stockholder proposal not submitted for inclusion in the Company's
year 2010 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 20, 2010 (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
----------
The Annual Report to Stockholders of the Company for the fiscal year
ended December 31, 2008 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.
28
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 18, 2009
The undersigned hereby appoints Dino A. Rossi, 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 18, 2009, 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 2 Directors [ ] [ ] [ ]
Nominees for Election as Class 2 Directors:
Edward L. McMillan and Kenneth P. Mitchell
---------------------------------------------------------------------------------------------------
Ratification and approval of the appointment of For Against Abstain
McGladrey and Pullen, LLP, as the Company's
independent registered accounting firm for the [ ] [ ] [ ]
year 2009
---------------------------------------------------------------------------------------------------
*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; and
FOR the ratification and approval of the appointment of McGladrey and Pullen,
LLP, as the Company's independent registered accounting firm for the year 2009.
The Board of Directors recommends a vote: FOR each named nominee for election as
a Director; and FOR the ratification and approval of the appointment of
McGladrey and Pullen, LLP, as the Company's independent registered accounting
firm for the year 2009.
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