Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
Ionatron, Inc.
--------------------------------------------------------------------------------
(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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
IONATRON, INC.
3590 EAST COLUMBIA STREET
TUCSON, ARIZONA 85714
May 27, 2005
Dear Fellow Stockholders:
An Annual Meeting of Stockholders will be held on Tuesday, June 28, 2005
at 10:00 A.M., at the offices of Blank Rome LLP, 405 Lexington Avenue - 24th
Floor, New York, New York 10174.
The Notice of Annual Meeting and Proxy Statement which follow describe the
business to be conducted at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares be represented and voted. After reading the enclosed
Notice of Annual Meeting and Proxy Statement, I urge you to complete, sign, date
and return your proxy card in the envelope provided. If the address on the
accompanying material is incorrect, please advise our Transfer Agent,
Continental Stock Transfer & Trust Company, in writing, at 2 Broadway, New York,
New York 10004.
The Annual Meeting will be held solely to tabulate the votes cast and
report on the results of the voting on those matters listed in the accompanying
proxy statement. No presentations or other business matters are planned for the
meeting.
Your vote is very important, and we will appreciate a prompt return of
your signed proxy card.
Cordially,
Robert Howard
Chairman of the Board
IONATRON, INC.
3590 EAST COLUMBIA STREET
TUCSON, ARIZONA 85714
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 28, 2005
----------------------------------------
To the Stockholders of Ionatron, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of Ionatron,
Inc. (the "Company') will be held on Tuesday, June 28, 2005 at 10:00 A.M. local
time at the offices of Blank Rome LLP, 405 Lexington Avenue - 24th Floor, New
York, New York 10174 for the following purposes:
(i) To elect two Class I directors to hold office until the 2008 Annual
Meeting of Stockholders and until their respective successors have been duly
elected and qualified;
(ii) To amend the Company's 2004 Stock Incentive Plan to, among other
things, increase the number of shares of common stock available for issuance
under the plan from 3,000,000 to 5,000,000 and as more fully described in the
Company's accompanying proxy statement; and
(iii) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record on the books of the Company at the close of
business on May 10, 2005 will be entitled to notice of and to vote at the
meeting or any adjournments thereof.
A copy of the Company's Annual Report for the year ended December 31,
2004, which contains financial statements, accompanies this Notice and the
attached Proxy Statement.
May 27, 2005 By order of the Board of Directors
Robert Howard
Chairman of the Board
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE
PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
PROXY STATEMENT
IONATRON, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 28, 2005
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Ionatron, Inc. (the "Company") for use at
the Annual Meeting of Stockholders to be held on Tuesday, June 28, 2005 (the
"Annual Meeting"), including any adjournment or adjournments thereof, for the
purposes set forth in the accompanying Notice of Meeting.
Management intends to mail this proxy statement, the accompanying form of
proxy and annual report to stockholders on or about May 27, 2005.
Proxies in the accompanying form, duly executed and returned to the
management of the Company and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to such solicitation may be revoked by the stockholder
at any time prior to the voting of the proxy by a subsequently dated proxy, by
written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the meeting and voting in person.
The address and telephone number of the principal executive offices of the
Company are:
3590 East Columbia Street
Tucson, Arizona 85714
Telephone: (520) 628-7415
OUTSTANDING STOCK AND VOTING RIGHTS
Only stockholders of record at the close of business on May 10, 2005 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, there were issued and outstanding 71,202,113 shares of the
Company's Common Stock, $.001 par value per share (the "Common Stock"), the
Company's only class of voting securities. Each share of Common Stock entitles
the holder thereof to cast one vote on each matter submitted to a vote at the
Annual Meeting.
VOTING PROCEDURES
At the Annual Meeting, the two nominees for election as Class I directors
who receive the highest number of affirmative votes of shares of person or by
proxy will be elected, provided a quorum is present. All other matters to come
before the Annual Meeting will be decided by the affirmative vote of a majority
of the shares of Common Stock represented at the Annual Meeting and entitled to
vote on the matter presented in person or by proxy, provided a quorum is
present. A quorum is present if at least a majority of the shares of Common
Stock outstanding as of the Record Date are present in person or represented by
proxy at the Annual Meeting. It is currently anticipated that votes will be
counted and certified by an Inspector of Election who is currently expected to
be either an employee of the Company or its transfer agent. In accordance with
Delaware law, abstentions and "broker non-votes" (i.e. proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares as to a matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will be treated as present for purposes of determining the presence of a
quorum. For purposes of determining approval of a matter presented at the
meeting, abstentions will be deemed present and entitled to vote and will,
therefore, have the same legal effect as a vote "against" a matter presented at
the meeting. Broker non-votes will be deemed not entitled to vote on the subject
matter as to which the non-vote is indicated. Broker non-votes will have no
legal effect on the vote on the election of directors, Proposal I to amend the
Company's 2004 Stock Incentive Plan (the "Plan") as described herein, or on any
other particular matter, which requires the affirmative vote of the holders of a
majority of the shares of Common Stock represented at the Annual Meeting.
The officers of the Company who, in the aggregate own approximately 65.7%
of the outstanding common stock of the Company on the Record Date, have
indicated their intent to vote in favor of the nominees for director nominated
by the Company and to amend the Plan which, if so voted, is sufficient for the
election of the nominees for director and the proposed amendment to the Plan.
The enclosed proxies will be voted in accordance with the instructions
thereon. Unless otherwise stated, all shares represented by such proxy will be
voted as instructed. Proxies may be revoked as noted above.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Proxy Statement, the proxy and any
additional soliciting material furnished to stockholders, will be borne by the
Company. Arrangements will be made with brokerage houses, banks and other
custodians, nominees and fiduciaries to send proxies and proxy materials to the
beneficial owners of stock, and the Company expects to reimburse such persons
for their reasonable out-of-pocket expenses. Proxies may also be solicited by
directors, officers or employees of the Company in person or by telephone,
telegram or other means. No additional compensation will be paid to such
individuals for these services.
ELECTION OF DIRECTORS
The Company's By-Laws provide that the Board of Directors of the Company
is divided into three classes (Class I, Class II and Class III). At each Annual
Meeting of Stockholders, directors constituting one class are elected for a
three-year term. At this year's Annual Meeting of Stockholders, two (2) Class I
directors will be elected to hold office for a term expiring at the Annual
Meeting of Stockholders to be held in 2008. It is the intention of the Board of
Directors to nominate Robert Howard and Rear Admiral Thomas W. Steffens (Ret.)
as Class I directors. Each director will be elected to serve until a successor
is elected and qualified or until the director's earlier resignation or removal.
At this year's Annual Meeting of Stockholders, the proxies granted by
stockholders will be voted individually for the election, as directors of the
Company, of the persons listed below, unless a proxy specifies that it is not to
be voted in favor of a nominee for director. In the event either or both of the
nominees listed below shall be unable to serve, it is intended that the proxy
will be voted for such other nominees as are designated by the Board of
Directors. Each of the persons named below has indicated to the Board of
Directors that he will be available to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF THE NOMINEES SPECIFIED BELOW.
The following information is with respect to the nominees for election at
this Annual Meeting of Stockholders:
CLASS I DIRECTORS
(To be Elected)
(New Term Expires in 2008)
Robert Howard has been the Chairman of the Board of Directors of Ionatron
since its inception in 2002. From 1969 to April 1980, he served as President and
Chairman of the Board of Centronics Data Computer Corp. ("Centronics"), a
manufacturer of a variety of computer printers, including the first impact dot
matrix printer, of which he was the inventor. He resigned from Centronics' Board
of Directors in 1983. Commencing in mid-1982, Mr. Howard, doing business as RH
Research, developed the Color Ink Jet technology upon which iCAD, Inc. ("iCAD")
was initially based. He contributed this technology, without compensation, to
iCAD. Since its establishment in 1984, Mr. Howard has been the founder and
Chairman of the Board of Directors of iCAD, a company now involved, among other
things, in the manufacture and sale of computer aided devices ("CAD") used for
early detection of Breast Cancer. Starting in December of 1993, Mr. Howard was
Chairman of the Board of Presstek, Inc. ("Presstek"), a public company which has
developed proprietary digital imaging and consumables technologies for the
printing and graphic arts industries from June 1988 to September 1998 and then
served as Chairman Emeritus of the Board of Presstek from September 1998 to
December 2000. In 2001 Mr. Howard and Mr. Dearmin started the development work
that became Ionatron.
-2-
Rear Admiral Thomas W. Steffens, US Navy (Ret) was elected to serve as a
member of our Board on March 19, 2004. Admiral Steffens currently serves as the
Principal Technical Director for Homeland Security and Special Operations for
ANTEON Corporation. In 2003, he concluded over 34 years of naval service as a
Navy SEAL. Following the events of September 11th, Admiral Steffens was recalled
by the Chief of Naval Operations to serve as Special Assistant for Homeland
Security to the Commander, Fleet Forces Command. While serving as such, he also
served as the Director of Anti-Terrorism and was responsible for coordination
with the U.S. Northern Command and with the U.S. Coast Guard for Maritime
Homeland Defense and port security. He also regularly coordinated with the Joint
Staff, services and various agencies (CIA, DIA, DISA, NSA) in the areas of
command, control, communications and intelligence. During his 18 months in this
position he established a vision and strategy for Navy Force Protection,
implemented an operational architecture for both the Fleet and Regional
Shore-based Navy, built a force of over 15,000 security personnel, and set
security standards for all CONUS naval installations. Admiral Steffens was
instrumental in establishing the Center for Anti-Terrorism that develops
security doctrine and trains all leaders for the Navy today.
The following information is with respect to incumbent directors in Class
II and Class III of the Board of Directors who are not nominees for election at
this Annual Meeting of Stockholders:
CLASS II DIRECTORS
(Term Expires in 2006)
Thomas C. Dearmin has been the President, Chief Executive Officer and
Chief Financial Officer as well as a Director of Ionatron since its inception in
2002. From 1999 to 2002, Mr. Dearmin also was the President and Chief Executive
Officer of Lasertel Inc., a company Mr. Dearmin started and had operational in 9
months, manufacturing high power semiconductor lasers. From 1992 to 1998, Mr.
Dearmin was one of the co-founders and Vice President of Opto Power Corporation,
one of the first high power semiconductor laser manufacturers to commercialize
high power laser diodes. Opto Power also designed and built semiconductor laser
prototypes for US Military applications. Opto Power became the largest supplier
of high power fiber coupled laser diodes in the world, which created new
applications in the defense, medical, industrial and graphic arts areas. Opto
Power Corporation became a wholly owned division of Spectra Physics Lasers which
went public in 1998. Prior to 1992, Mr. Dearmin was part of the original high
power semiconductor group at Ensign Bickford Aerospace and was head of Business
Development for that group. Mr. Dearmin worked on new novel military
applications of lasers and laser systems, as well as the first successful diode
laser for on press digital imaging in graphic arts. Prior to 1986, Mr. Dearmin
worked in various capacities in the Gallium Arsenide semiconductor area, which
involved metal organic chemical vapor deposition and molecular beam epitaxy
processes of various structures for digital electronic devices, as well as
photonic devices, such as night vision photocathodes for military operations and
high power lasers. Mr. Dearmin holds patents in the area of semiconductor laser
fabrication as well as high power laser diode applications.
-3-
George P. Farley, a certified public accountant, has been providing
financial consulting services for the past five years. Within the last fiscal
year, Mr. Farley has been a Director and a member of the Audit Committee of
iCad, Inc. and Acorn Holdings Corp. He has also served as a Director and member
of the Audit Committee of Preserver Insurance Company, Inc. and a Director for
Olympia Leather Company, Inc. From November 1997 to August 1999, Mr. Farley was
a Chief Financial Officer of Talk.com, Inc., which provides telecommunication
services. Mr. Farley was also a director of Talk.com, Inc. Mr. Farley joined BDO
Seidman, LLP in 1962 and was a partner at BDO Seidman, LLP from 1972 to 1995
with extensive experience in accounting, auditing and SEC matters.
CLASS III DIRECTORS
(Term Expires in 2007)
James K. Harlan is Executive Vice President and Chief Financial Officer of
HNG Storage, LP, a natural gas storage development and operations business that
he helped found in 1992. From 1991 to 1997, Mr. Harlan served as Group
Development Manager for the Pacific Resources Group which was engaged with
various manufacturing and distribution businesses and joint ventures in Asia,
Australia, and North America. He also served as operations research and planning
analyst for the White House Office of Energy Policy and Planning from 1977 to
1978, the Department of Energy from 1978 to 1981, and U.S. Synthetic Fuels
Corporation from 1981 to 1984. He has a PhD in Public Policy with an operations
research dissertation from Harvard University and a BS in Chemical Engineering
from Washington University in St. Louis. Mr. Harlan is a member of the Board of
Directors of iCAD where he Chairs the Audit Committee.
David C. Hurley was appointed Vice Chairman of PrivatAir of Geneva,
Switzerland on February 1, 2003, relinquishing the role of Chief Executive
Officer, a position he held following the acquisition of Flight Services Group
("FSG") by PrivatAir in 2000. PrivatAir has major business aviation operations
in over fifteen bases in the U.S. and aircraft service operations at Le Bourget,
Paris, France; Dusseldorf, Munich and Hamburg Germany; and Geneva, Switzerland.
Mr. Hurley founded FSG in 1984. FSG is one of the world's largest providers of
corporate aircraft management, executive charter and aircraft sales and
acquisitions in the U.S. Mr. Hurley has over 30 years experience in marketing
and sales in the aerospace and telecommunications industries. Before founding
FSG, he was Senior Vice President of Domestic and International Sales for
Canadair Challenger (at the time, a Division of General Dynamics). He also
served as Regional Vice President of the Cessna Aircraft Company and as Director
of Marketing, Government and Military Products Division, for the Harris
Intertype Corporation. Mr. Hurley serves on the Boards of the Smithsonian
Institution's National Air and Space Museum, Washington, D.C., BE Aerospace,
Inc., a public company, Wellington, FL; the Corporate Angel Network, White
Plains, N.Y., the Wings Club, New York City, and Aerosat, Inc., Manchester, NH.
He is an alumnus of Hartwick College and served three years in the Special
Services Branch of the US Army, receiving an honorable discharge.
-4-
Executive Officers
The following is information with respect to the Company officers who are
not directors or nominees for director:
Joseph C. Hayden has been the Executive Vice President of Programs for
Ionatron since December 2004. Prior to that, Mr. Hayden was the Executive Vice
President of Business Operations from 2003 to 2004. Mr. Hayden has over 25 years
experience in managing large engineering projects and high technology research
and development. Mr. Hayden will be responsible for program management for
Ionatron. Prior to the founding of Ionatron, Mr. Hayden was the lead Systems
Engineer for the Directed Energy Weapons product line for Raytheon, Inc.
("Raytheon") and worked at two other start-up companies. He has also been a U.S.
Navy surface nuclear engineer.
Stephen W. McCahon has been the Executive Vice President of Engineering
for Ionatron since 2003. Dr. McCahon has an extensive background in optical
physics, solid-state physics, ultra-short pulse lasers and non-linear optics,
and a broad background in Electrical Engineering (BSEE, MSEE, PH.D. EE/Physics).
Dr. McCahon has more than 40 scientific publications and holds 10 issued patents
with 3 pending. Dr. McCahon's most recent position, from 1986 to 2003, had been
Chief Engineer of Raytheon's Directed Energy Weapon Product Line. Previously, he
had been a Member of the Research Staff at Hughes Research Laboratories in
Malibu, CA (Currently known as HRL Laboratories).
Bernard Walik has been Executive Vice President of Operations since March
2005 and was, Vice President Operations from May 2004 until March 2005. Mr.
Walik has over 25 years of laser/optics experience in both established and
start-up companies. Prior to joining Ionatron, from March 2000 through May 2004,
Mr. Walik was COO of Lasertel Inc., a manufacturer of high-power multi mode
diode lasers. He was also Vice President of Manufacturing at Opto Power
Corporation. During his tenure, Opto Power became the industry's first
high-volume low cost production facility for high power diode lasers. Mr. Walik
has held senior management positions on operations and manufacturing with
industry leading companies in the design and manufacture of lasers for
industrial, defense, medical and commercial global markets.
Stephen A. McCommon has been the Vice President Finance and Chief
Accounting Officer at Ionatron from March 2005 and prior thereto was the
Accounting Manager since July 2004. Mr. McCommon has over 26 years experience in
financial reporting and internal auditing for publicly held companies with
additional experience in accounting systems conversions and regulatory
compliance. Prior to his joining Ionatron, from March 2003 to July 2004, Mr.
McCommon was an independent accounting consultant for various companies. He was
the Controller of Molecular Diagnostics, Inc., a multi-national medical
technology products company, from February 2002 to March 2003. He was the
Corporate Controller of Heartland Technology, Inc. a hardware technology company
from November 1999 to November 2001, and the Controller/General Manager of The
Executive Registry, a privately held internet company from October 1998 to
October 1999.
-5-
Committees of the Board of Directors
Audit Committee. The Audit Committee of the Board of Directors is
comprised of Messrs. Farley, Harlan and Hurley. The Board of Directors has
determined that each of the members of the Audit Committee is an independent
director within the meaning of Rule 4200(a)(15) of the Marketplace Rules of the
National Association of Securities Dealers, Inc. ("NASD") applicable to NASDAQ
listed companies and the applicable SEC rules. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the scope and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of our internal accounting controls. Mr. Farley has been designated the
audit committee financial expert under applicable SEC rules and NASD Marketplace
Rules. The Board has adopted a written charter for the Audit Committee, a copy
of which is attached as Appendix A hereto.
Employee Option and Stock Grant Committee. The Employee Option and Stock
Grant Committee of the Board of Directors is comprised of Messrs. Howard and
Harlan. The Employee Option and Stock Grant Committee Stock Option Committee is
responsible for authorizing grants of awards, whether under the 2004 Stock
Incentive Plan or any other stock option plan or stock incentive plan or outside
of any such plan to employees, consultants and third parties, other than persons
subject to Section 16 of the Securities Exchange Act of 1934 with respect to
Ionatron.
Director Independence
The Board has determined that Messrs. Farley, Harlan and Hurley and
Admiral Steffens, meet the director independence requirements of the NASD
Marketplace Rules.
Board Meetings
The Board of Directors held three meetings during the year ended December
31, 2004. The Board also took action by unanimous written consent in lieu of
meetings.
The Audit Committee of the Board of Directors held four meetings during
the year ended December 31, 2004.
The Company reimburses directors for reasonable travel expenses incurred
in connection with their activities on the Company's behalf, but the Company
does not pay directors any fees for Board participation.
Code of Ethics and Business Conduct
The Company has adopted a Code of Ethics and Business Conduct that applies
to its employees, including its senior management, including its Chief Executive
Officer and Chief Financial Officer and persons performing similar functions.
Copies of the Code of Ethics and Business Conduct can be obtained, without
charge, upon written request, addressed to: Corporate Secretary, Ionatron, Inc.,
3590 East Columbia Street, Tucson, Arizona 85714.
-6-
Communications with the Board
The Board of Directors has established a process for stockholders to send
communications to the Board of Directors. Stockholders may communicate with the
Board of Directors individually or as a group by writing to: The Board of
Directors of Ionatron, Inc., c/o Corporate Secretary, 3590 East Columbia Street,
Tucson, Arizona 85714. Stockholders should identify their communication as being
from a stockholder of the Company. The Corporate Secretary may require
reasonable evidence that the communication or other submission is made by a
stockholder of the Company before transmitting the communication to the Board of
Directors.
Consideration of Director Nominees
Stockholders of the Company wishing to recommend director candidates to
the Board of Directors must submit their recommendations in writing to the Board
of Directors, c/o Corporate Secretary, 3590 East Columbia Street, Tucson,
Arizona 85714.
The Board of Directors does not have a standing nominating committee. As
permitted by the NASD Marketplace Rules, the Company's "independent directors"
(as defined in accordance with the NASD Marketplace Rules) recommend to the
Board all director nominees for consideration and follow the process set forth
below. The Company believes that the independent directors, who meet in
executive session, serve the same function as a nominating committee would serve
and, therefore, there is no need to form a separate committee.
Messrs. Farley, Harlan and Hurley and Admiral Steffens participated in the
consideration of director nominations for the 2005 Annual Meeting of
Stockholders.
The independent directors consider nominees recommended by the Company's
stockholders provided that the recommendation contains sufficient information
for the independent directors to assess the suitability of the candidate,
including the candidate's qualifications. Candidates recommended by stockholders
that comply with these procedures will receive the same consideration that
candidates recommended by the Committee receive. The recommendations must also
state the name of the stockholder who is submitting the recommendation. In
addition, it must include information regarding the recommended candidate
relevant to a determination of whether the recommended candidate would be barred
from being considered independent under NASD Marketplace Rule 4200, or,
alternatively, a statement that the recommended candidate would not be so
barred. Each nomination is also required to set forth a representation that the
stockholder making the nomination is a holder of record of capital stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to vote for the person or persons nominated; a description
of all arrangements and understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination was made by the stockholder; such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC had
the nominee been nominated by the Board of Directors; and the consent of each
nominee to serve as a director of the Company if so elected. A nomination which
does not comply with the above requirements or that is not received by the
deadline referred to below will not be considered.
-7-
The qualities and skills sought in prospective members of the board will
be determined by the independent directors. Generally, director candidates must
be qualified individuals who, if added to the Board, would provide the mix of
director characteristics, experience, perspectives and skills appropriate for
the Company. Criteria for selection of candidates will include, but not be
limited to: (i) business and financial acumen, as determined by the Committee in
its discretion, (ii) qualities reflecting a proven record of accomplishment and
ability to work with others, (iii) knowledge of the Company's industry, (iv)
relevant experience and knowledge of corporate governance practices, and (v)
expertise in an area relevant to the Company. Such persons should not have
commitments that would conflict with the time commitments of a Director of the
Company.
Deadline and Procedures for Submitting Board Nominations
A stockholder wishing to nominate a candidate for election to the Board at
the Annual Meeting of Stockholders to be held in 2006 is required to give
written notice containing the required information specified above addressed to
the Nominating Committee, c/o Secretary of the Company, Ionatron, Inc., 3590
East Columbia Street, Tucson, Arizona 85714 of his or her intention to make such
a nomination. The notice of nomination and other required information must be
received by the Company's Secretary no later than January 29, 2006.
With respect to the deadlines discussed above, if the date of the Annual
Meeting of Stockholders to be held in 2006 is advanced by more than thirty days
or delayed (other than as a result of adjournment) by more than thirty days from
the anniversary of the Annual Meeting held in 2005, a stockholder must submit
any such proposal to the Company no later than the close of business on the
sixtieth day prior to the date of the 2006 Annual Meeting.
-8-
Executive Compensation
SUMMARY COMPENSATION TABLE
The following table discloses for the periods presented the compensation
for the person who served as our Chief Executive Officer and for each of our
other executive officers (not including the Chief Executive Officer) whose total
individual compensation exceeded $100,000 for our year ended December 31, 2004
(the "Named Executives").
Annual Compensation
---------------------------------------
Long-Term Compensation
Other Annual Awards Securities
Name and Principal Position Year Salary Bonus Compensation Underlying Options
------------------------------------------------------------------------------------------------------------
Thomas Dearmin 2004 $200,000 -- -- --
Chief Executive Officer, 2003 200,000 -- -- --
President and Chief 2002 23,000 -- -- --
Financial Officer
Robert Howard (1) 2004 68,750 -- -- --
Chairman of the Board 2003 -- -- -- --
2002 -- -- -- --
Joseph Hayden 2004 175,000 -- -- --
Executive Vice President 2003 175,000 -- -- --
Programs 2002 20,000 -- -- --
Stephen William McCahon 2004 175,000 -- -- --
Executive Vice President 2003 175,000 -- -- --
of Engineering 2002 20,000 -- -- --
Bernard Walik 2004 143,000 -- -- 100,000
Executive Vice President of
Operations
(1) Mr. Howard is compensated at the rate of $150,000 per year. Mr. Howard did
not begin receiving any compensation until the third quarter of 2004 and
worked sparingly prior to the third quarter of 2004. (2)
None of the Named Executives received any long-term compensation awards
during 2002, 2003 or 2004 except as noted in the table above.
-9-
OPTION GRANTS IN 2004
The following table discloses the options granted to each of the Named
Executives in 2004.
Individual Grants
Percent of Potential Realizable
Number of Total Value at Assumed Annual
Securities Options Rates of Stock Price
Underlying Granted to Exercise of Appreciation For
Options Employees in Base Price Expiration Options Term
Name Granted (#) 2004 ($/Sh) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
Thomas Dearmin -- -- -- --
Robert Howard -- -- -- --
Joseph Hayden -- -- -- --
Stephen William McCahon -- -- -- --
Bernard Walik 100,000 6% $3.35 03/26/09 $92,554 $204,521
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table discloses the options that were exercised by the Named
Executives in 2004 and the value of the remaining unexercised options at
December 31, 2004.
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options at In-The-Money Options at
Fiscal Year-End Fiscal Year-End
Shares (#) ($)
Acquired on Value Exercisable / Exercisable /
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ -------------- ----------------
(a) (b) (c) (d) (e)
Thomas Dearmin - - - -
Robert Howard - - - -
Joseph Hayden - - - -
Stephen William McCahon - - - -
Bernard Walik - - 33,333 /66,667 $265,997 / $532,003
Director Compensation
None of our directors received any cash compensation for serving in such
capacity during 2004.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. During 2004, none of
the executive officers of the Company participated in deliberations with the
Company's Board of Directors concerning executive officer compensation.
-10-
Report on Executive Compensation
Except as set forth below, compensation of the Company's executive
officers for the year ended December 31, 2004 was determined by the Board of
Directors. There is no formal compensation policy for the Company's executive
officers.
Total compensation for executive officers consists of a combination of
salaries, bonuses and stock option awards and is determined by the Board of
Directors, based on the recommendation by the majority of "independent
directors", as defined under Nasdaq Marketplace Rule 4200. None of the Company's
executive officers has entered into an employment agreement with the Company.
Compensation for the Company's executive officers in 2004 was set by the Board
of Directors of the Company's predecessor (which was not a publicly traded
company at that time) prior to its reverse merger with and into the Company.
Base Salary. The independent directors review the salaries of executive
officers for reasonableness based on job responsibilities and a review of
compensation practices for comparable positions at corporations which compete
with the Company in its business or are of comparable size and scope of
operations. The independent directors' recommendations to the Board of Directors
are based primarily on informal judgments reasonably believed to be in the best
interests of the Company. In determining the base salaries of certain of the
Company's executives, the independent directors consider the Company's
performance and growth plans.
Bonuses. The Independent directors recommend bonuses based on the
Company's overall performance, profitability, working capital management and
other qualitative and quantitative measurements, including individual
performance goals based upon the Company's budget and financial objectives. In
determining the amount of bonuses awarded, the independent directors consider
the Company's revenues and profitability for the applicable period and each
executive's contribution to the success of the Company.
Stock Options and Other Stock-based Awards. Stock option awards and other
stock-based awards are intended to attract, retain and motivate personnel by
affording them an opportunity to receive additional compensation based upon the
performance of the Company's Common Stock. The size, grant and type of actual
awards is determined by the Committee on an individual basis, taking into
account the individual's role in the Company and standard principals of reward,
retention and recognition to which option grants are geared. The independent
directors' recommendation as to the size of actual awards to individual
executives is subjective, after taking into account the relative
responsibilities and contributions of the individual employee.
Board of Directors
Robert Howard
Thomas Dearmin
George Farley
James Harlan
David Hurley
Rear Admiral Thomas W. Steffens (Ret.)
-11-
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires certain
officers and directors of Ionatron, Inc., and any persons who own more than 10%
of the common stock outstanding to file forms reporting their initial beneficial
ownership of shares and subsequent changes in that ownership with the Securities
and Exchange Commission and the NASDAQ Stock Market. Officers and directors of
Ionatron, Inc., and greater than 10% beneficial owners are also required to
furnish the Company with copies of all such Section 16(a) forms they file.
Based solely on a review of the copies of the forms furnished to the
Company, the Company believes that during the 2004 year, its officers, directors
and 10% beneficial owners complied with all section 16(a) filing requirements,
except that there was one late filing of Form 4 by Robert Howard, Fred Heiden,
Brad Holsworth, Richard Raleigh and Jon Schulberg.
-12-
Performance Graph
The following line graph compares from December 31, 1999 through December
31, 2004, the cumulative total shareholder return on the Company's Common Stock
with the cumulative total return on the stock comprising the Nasdaq Market Value
Index and an index of issuers classified under the Search, Detection,
Navigation, Guidance, Aeronautical Sys. Standard Industrial Classification
("SIC"). This comparison assumes $100.00 was invested on December 31, 1999 in
the Company's common stock and in each of the foregoing indices and assumes
reinvestment of all cash dividends, if any, paid on such securities.
The Company has not paid any dividends and, therefore, the cumulative
total return calculation for the Company is based solely upon the fluctuations
in the stock price. The Historical stock price is not necessarily indicative of
future stock price performance.
Stock Performance Graph
Comparative Cumulative Total Return Among the Company, Nasdaq Market
Index and the Nasdaq Industrial Index
At December 31,
-----------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Ionatron, Inc.................. 100.00 35.56 17.78 17.07 17.78 402.84
SIC Number Index............... 100.00 131.21 145.25 146.02 176.65 234.02
Nasdaq Market Value Index...... 100.00 62.85 50.10 34.95 52.55 56.97
VOTING SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our Common Stock, based on information provided by the persons
named below in publicly available filings, as of the Record Date:
o each of the our directors and executive officers;
o all directors and executive officers of our as a group; and
o each person who is known by us to beneficially own more than five
percent of the outstanding shares of our Common Stock.
Unless otherwise indicated, the address of each beneficial owner is care
of Ionatron, 3590 East Columbia Street, Tucson, Arizona 85714. Unless otherwise
indicated, the Company believes that all persons named in the following table
have sole voting and investment power with respect to all shares of common stock
that they beneficially own.
For purposes of this table, a person is deemed to be the beneficial owner
of the securities if that person has the right to acquire such securities within
60 days of the Record Date upon the exercise of options or warrants. In
determining the percentage ownership of the persons in the table below, we
assumed in each case that the person exercised all options and warrants which
are currently held by that person and which are exercisable within such 60 day
period, but that options and warrants held by all other persons were not
exercised, and based the percentage ownership on 71,202,113 shares outstanding
on the Record Date.
-13-
Percentage of
Shares
Number of Shares Beneficially Beneficially
Name and Address of Beneficial Owner Owned Owned (1)
------------------------------------ ----- ---------
Robert Howard(2) 24,871,062 (3) 34.9%
Thomas Dearmin 9,322,751 13.1
Joseph C. Hayden 6,308,468 8.9
Stephen McCahon 6,297,468 8.8
Bernard Walik 143,334 (4) *
Stephen A. McCommon 25,000 (4) *
George Farley 187,500 (4) *
James Harlan 125,000 (4) *
David Hurley 125,000 (4) *
Thomas W. Steffens 125,000 (4) *
All directors and executive officers as a group
(10 persons) 47,530,583 66.1%
* Less than 1%
(1) Computed based upon the total number of shares of Common Stock underlying
options held by that person exercisable within 60 days of the Record Date.
(2) The address of Mr. Howard is 303 East 57th Street, New York, New York
10022.
(3) Includes 2,500,000 shares of common stock held by Robert Howard Family LLC
("LLC"). Mr. Howard has shared dispositive power over the shares held by
LLC.
(4) Includes options exercisable within 60 days of the Record Date.
Securities Authorized for issuance under Equity Compensation Plans
The following table details information regarding our existing equity
compensation plans as of the Record Date.
Equity Compensation Plan Information
Number of securities
remaining available for
future issuance under
Number of securities Weighted-average equity compensation
to be issued upon exercise price plans (excluding
exercise of of outstanding securities reflected in
Plan category outstanding options options column (a))
(a) (b) (c)
Equity compensation plans
approved by security holders 3,354,592 $ 3.53 1,615,225
Equity compensation plans not
approved by security holders 659,000 $ 2.56 --
Total 4,013,592 $ 3.37 1,615,225
-14-
Following is a description of our stock option plans and stock incentive
plan. Prior to the Merger, Ionatron did not have any stock option plans.
In September 1991, we adopted a stock option plan (the "1991 Plan")
pursuant to which 700,000 shares of Common Stock have been reserved for issuance
upon the exercise of options designated as either (i) options intended to
constitute incentive stock options ("ISOs") under the Internal Revenue Code of
1986, as amended (the "Code") or (ii) non-qualified options ("NQOs"). ISOs may
be granted under the 1991 Plan to our employees and officers. NQOs may be
granted to consultants, directors (whether or not they are employees), and to
our employees or officers.
The purpose of the 1991 Plan is to encourage stock ownership by certain of
our directors, officers and employees and certain other persons instrumental to
our success and give them a greater personal interest in our success. The 1991
Plan is administered by the Board of Directors. The Board, within the
limitations of the 1991 Plan, determines the persons to whom options will be
granted, the number of shares to be covered by each option, whether the options
granted are intended to be ISOs, the duration and rate of exercise of each
option, the option purchase price per share and the manner of exercise, the
time, manner and form of payment upon exercise of an option, and whether
restrictions such as repurchase rights in Ionatron Inc. are to be imposed on
shares subject to options.
ISOs granted under the 1991 Plan may not be granted at a price less than
the fair market value of the common stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
Ionatron Inc.). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all of our stock option plans and those of any related
corporation) may not exceed $100,000. NQOs granted under the 1991 Plan may not
be granted at a price less than the fair market value of the Common Stock on the
date of grant. Options granted under the 1991 Plan will expire not more than ten
years from the date of grant (five years in the case of ISOs granted to persons
holding 10% or more of our voting stock).
We have adopted a Non-Employee Director Stock Option Plan (the "Director
Plan"). Only non-employee directors of Ionatron Inc. are eligible to receive
grants under the Director Plan. The Director Plan provided that eligible
directors automatically receive a grant of options to purchase 5,000 shares of
common stock at fair market value upon first becoming a director and,
thereafter, an annual grant, in January of each year, of 5,000 options at fair
market value. Options to purchase an aggregate of up to 100,000 shares of Common
Stock are available for automatic grants under the Director Plan. No additional
grants shall be made under the Director Plan.
We have adopted a 1995 Stock Option Plan ("1995 Plan") which provides for
grants of options to purchase up to 1,500,000 shares of common stock. The Board
of Directors or the Stock Option Committee (the "Committee"), as the case may
be, will have discretion to determine the number of shares subject to each NQO
(subject to the number of shares available for grant under the 1995 Plan and
other limitations on grant set forth in the 1995 Plan), the exercise price
thereof (provided such price is not less than the par value of the underlying
shares of Common Stock), the term thereof (but not in excess of 10 years from
the date of grant, subject to earlier termination in certain circumstances), and
the manner in which the option becomes exercisable (amounts, intervals and other
conditions). Directors who are also employed by us will be eligible to be
granted ISOs or NQOs under such plan. The Board or Committee, as the case may
be, also has discretion to determine the number of shares subject to each ISO,
the exercise price and other terms and conditions thereof, but their discretion
as to the exercise price, the term of each ISO and the number of ISOs that may
vest in any calendar year is limited by the same Code provisions applicable to
ISOs granted under the 1995 Plan.
-15-
We have adopted a 1997 Stock Option Plan ("1997 Plan") which provides for
grants of options to purchase up to 1,500,000 shares of Common Stock. The Board
of Directors or the Committee of the 1997 Plan, as the case may be, will have
discretion to determine the number of shares subject to each NQO (subject to the
number of shares available for grant under the 1997 Plan and other limitations
on grant set forth in the 1997 Plan), the exercise price thereof (provided such
price is not less than the par value of the underlying shares of Common Stock),
the term thereof (but not in excess of 10 years from the date of grant, subject
to earlier termination in certain circumstances), and the manner in which the
option becomes exercisable (amounts, intervals and other conditions). Directors
who are also our employees will be eligible to be granted ISOs or NQOs under
such plan. The Board or Committee, as the case may be, also has discretion to
determine the number of shares subject to each ISO, the exercise price and other
terms and conditions thereof, but their discretion as to the exercise price, the
term of each ISO and the number of ISOs that may vest in any calendar year is
limited by the same Code provisions applicable to ISOs granted under the 1997
Plan.
We have also adopted a 1999 Stock Option Plan ("1999 Plan") which provides
for grants of options to purchase up to 900,000 shares of common stock. The
Board of Directors or the Committee of the 1999 Plan, as the case may be, will
have discretion to determine the number of shares subject to each NQO (subject
to the number of shares available for grant under the 1999 Plan and other
limitations on grant set forth in the 1999 Plan), the exercise price thereof
(provided such price is not less than the fair market value of the underlying
shares of Common Stock), the term thereof (but not in excess of 10 years from
the date of grant, subject to earlier termination in certain circumstances), and
the manner in which the option becomes exercisable (amounts, intervals and other
conditions). Directors who are also our employees will be eligible to be granted
ISOs or NQOs under such plan. The Board or Committee, as the case may be, also
has discretion to determine the number of shares subject to each ISO, the
exercise price and other terms and conditions thereof, but their discretion as
to the exercise price, the term of each ISO and the number of ISOs that may vest
in any calendar year is limited by the same Code provisions applicable to ISOs
granted under the 1999 Plan.
On April 29, 2004, our stockholders approved our 2004 Stock Incentive Plan
("2004 Plan"), which provides for the grant of any or all of the following types
of awards: (1) stock options, which may be either incentive stock options or
non-qualified stock options, (2) restricted stock, (3) deferred stock and (4)
other stock-based awards. A total of 3,000,000 shares of common stock have been
reserved for distribution pursuant to the 2004 Plan.
-16-
We have, from time to time, also granted non-plan options to certain
officers, directors, employees and consultants.
VOTING SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's Chairman, a significant stockholder, has provided funds from
the inception of the Company under a revolving credit arrangement. The maximum
amount borrowed was $5.3 million. After pay down of $500,000 and contribution of
$2 million of the revolving credit into equity in the first quarter of 2004, the
remainder of $2.8 million was incorporated into a new $3 million revolving
credit arrangement with the same terms as the original revolving credit
agreement. The note payable to stockholder bears interest at a variable annual
rate equal to the prime rate plus 2%, is due upon demand subject to Board
approval, and is collateralized by the assets of our subsidiary, Ionatron
Technologies, Inc. $2.8 million and $4.3 million were outstanding under the
revolving credit arrangements at December 31, 2004 and December 31, 2003,
respectively. Interest paid to stockholder was approximately $211,000 and
$196,000 for the year ended December 31, 2004 and 2003, respectively.
We lease office, manufacturing and storage space at our Tucson facility at
an annual rental of $330,000 under a non-cancelable operating lease agreement
from a company that is majority owned by our Chairman and other principal
stockholders. The lease expires in November 2012, contains renewal options and
an escalation provision at the end of five years that increases our annual rent
by $49,500. We are also responsible for certain property related costs,
including insurance, utilities and property taxes. Our rental payments were
$635,000 for rent expense recognized in both 2003 and 2004.
PROPOSAL I
AMENDMENT OF 2004 STOCK INCENTIVE PLAN
In April 2005, upon the recommendation of the independent directors, the
Board of Directors approved amendments to the 2004 Stock Incentive Plan (the
"2004 Plan"), subject to approval by the stockholders of the Company, to (i)
increase the number of shares of Common Stock authorized for issuance under the
2004 Plan by 2,000,000 Shares from 3,000,000 shares to 5,000,000 shares, (ii)
set the maximum number of shares of Common Stock which may be issued upon the
exercise of Incentive Stock Options (defined below) at 3,000,000 shares.
Reasons for the Proposed Amendment
Under the 2004 Plan, of the 3,000,000 shares of Common Stock authorized
under the Plan, 1,615,225 shares were available for future grant or award as of
the Record Date. The Purpose of the increase is to provide sufficient shares for
future option grants and stock-based awards to officers, employees, directors
and independent consultants and contractors of the Company.
-17-
The Board believes that, to enable the Company to continue to attract and
retain personnel of the highest caliber, provide incentive for officers,
directors, employees and other key persons and to promote the well-being of the
Company, it is in the best interest of the Company and its stockholders to
provide to officers, directors, employees, independent consultants and
contractors who perform services for the Company, through the granting of stock
options, restricted stock, deferred stock or other stock-based awards, the
opportunity to participate in the value and/or appreciation in value of the
Company's Common Stock. The Board has found that the grant of options under the
2004 Plan and its existing stock option plans has proven to be a valuable tool
in attracting, retaining and motivating key employees and consultants.
Accordingly, the Board believes that the 2004 Plan, which provides the Board
greater flexibility with respect to certain terms under which awards that may be
granted, as well as different types of awards, (a) will provide the Company with
significant means to attract and retain talented personnel, (b) will result in
saving cash, which otherwise would be required to maintain current employees and
adequately attract and reward personnel and others who perform services for the
Company, and (c) consequently, will prove beneficial to the Company's ability to
be competitive. The Company believes that there is not a sufficient amount of
options and stock awards available for future grant under the 2004 Plan and its
other existing stock option plans.
There are two reasons for seeking stockholder approval of the proposed
amendment to the 2004 Plan. One is to satisfy a Nasdaq Stock Market requirement
that requires companies whose shares are reported on the Nasdaq National Market
to obtain stockholder approval of amendments to stock plans for directors,
officers or key employees. The second reason is to satisfy requirements of the
Internal Revenue Code of 1986, as amended (the "Code") which require stockholder
approval of the amendment in order for options granted for the additional shares
issuable under the 2004 Plan to qualify as incentive stock options to the extent
so designated and for the 2004 Plan to satisfy one of the conditions of Section
162(m) applicable to performance-based compensation.
If the stockholders do not approve the proposed amendment to the 2004
Plan, then the maximum number of shares issuable under the 2004 Plan will remain
at 3,000,000 shares.
The purpose of the proposed amendment to establish a maximum number of
shares of Common Stock which may be issued upon the exercise of Incentive Stock
Options is to comply with a recent issued Internal Revenue Service regulations
relating to grants of Incentive stock Options.
Awards Under the 2004 Stock Incentive Plan
Information concerning options granted in 2004 to the Named Executives is
set forth under "Executive Compensation - Option Grants in 2004" above. Options
granted in 2004 were based on the number of options available for grant under
the 2004 Plan at the time of grant. As of the Record Date, the Company has not
granted any restricted stock, deferred stock or other stock-based awards. The
following table sets forth information regarding options granted under the 2004
Plan as of the Record Date.
Name and Position Amount of Options
--------------------------------------------------------------------------------
Thomas C. Dearmin 0
Chief Executive Officer, President and Chief
Financial Officer
Robert Howard 0
Chairman of the Board
(Nominee)
-18-
Joseph C. Hayden 0
Executive Vice President Programs
Stephen W. McCahon 0
Executive Vice President Engineering
Bernard Walik 200,000
Executive Vice President Operations
Stephen A. McCommon 62,000
Vice President of Finance and
Chief Accounting Officer
George P. Farley 150,000
Director
James K. Harlan 100,000
Director
David C. Hurley 100,000
Director
Admiral Thomas W. Steffens (Ret.) 100,000
Director (Nominee)
Executive Officers and Directors 712,000
Non-Executive Director Group 450,000
Non-Executive Officer Employee Group 672,775
The Board has not made any other determinations with respect to the grant
of any options covering the additional shares of Common Stock authorized by the
amendment to any director, executive officer or other employee of the Company,
although it may do so in the future.
On the Record Date, the last sale price of the Common Stock was $7.85 per
share as reported on the Nasdaq National Market. As of the Record Date, stock
options for an aggregate of 1,384,775 shares were awarded under the 2004 Plan of
which options to purchase an aggregate of 262,000 shares were awarded to
executive officers at exercise prices ranging from $5.10 to $7.16 per share and
options to purchase an aggregate of 450,000 shares were awarded to directors at
exercise prices ranging from $5.76 to $8.40 per share.
Summary of the 2004 Plan
The following summary of the 2004 Plan, as currently in effect, does not
purport to be complete, and is subject to and qualified in its entirety by
reference to the full text of the 2004 Plan, set forth as Appendix B to this
Proxy Statement.
The 2004 Plan provides for the grant of any or all of the following types
of awards (collectively, "Awards"): (a) stock options, (b) restricted stock, (c)
deferred stock and (d) other stock-based awards. Awards may be granted singly,
in combination, or in tandem, as determined by the Board of Directors (the
"Board") or the Committee (as defined below). Subject to anti-dilution
adjustments as provided in the 2004 Plan, (i) a total of 3,000,000 shares of
Common Stock have been reserved for distribution pursuant to the 2004 Plan, and
(ii) the maximum number of shares of Common Stock that may be issued to any
individual participant under the 2004 Plan may not exceed 2,000,000 shares
during the term of the 2004 Plan.
-19-
The 2004 Plan may be administered by the Board or a Committee (the
"Committee") consisting of two or more members of the Board appointed by the
Board. The Board or the Committee will determine, among other things, the
persons to whom Awards will be granted, the type of Awards to be granted, the
number of shares subject to each Award and the share price. The Board or the
Committee will also determine the term of each Award, the restrictions or
limitations thereon, and the manner in which each such Award may be exercised
or, if applicable, the extent and circumstances under which Common Stock and
other amounts payable with respect to an Award will be deferred. The 2004 Plan
will become effective upon its approval and adoption at the Annual Meeting (the
"Effective Date") and no Award shall be granted pursuant to the 2004 Plan on or
after the tenth anniversary of the Effective Date.
Stock Options. The 2004 Plan provides for the grant of "incentive stock
options" ("Incentive Stock Options"), as defined in Section 422 of the Code, and
for options not qualifying as Incentive Stock Options ("Non-Qualified Stock
Options"). The Board or the Committee, as the case may be, shall determine those
persons to whom stock options may be granted.
Incentive Stock Options granted pursuant to the 2004 Plan are
nontransferable by the optionee during his lifetime. Options granted pursuant to
the 2004 Plan will expire if not exercised within 10 years of the grant (five
years in the case of Incentive Stock Options granted to an eligible employee
owning stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or a parent or subsidiary of the Company
immediately before the grant ("10% Stockholder")), and under certain
circumstances set forth in the 2004 Plan, may be exercised within three (3)
months following termination of employment (one year in the event of death,
retirement or disability of the optionee), unless the term of the option,
pursuant to the stock option agreement, expires earlier. Options may be granted
to optionees in such amounts and at such prices as may be determined, from time
to time, by the Board or the Committee. The exercise price of an Incentive Stock
Option will not be less than the fair market value of the shares underlying the
option on the date the option is granted, provided, however, that the exercise
price of an Incentive Stock Option granted to a 10% Stockholder may not be less
than 110% of such fair market value. The exercise price of a Non-Qualified Stock
Option may be less than such fair market value on the date of grant.
Under the 2004 Plan, the Company may not, in the aggregate, grant
Incentive Stock Options that are first exercisable by any optionee during any
calendar year (under all such plans of the optionee's employer corporation and
its "parent" and "subsidiary" corporations, as those terms are defined in
Section 424 of the Code) to the extent that the aggregate fair market value of
the underlying stock (determined at the time the option is granted) exceeds
$100,000.
The 2004 Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to Awards
which expire without being exercised or which are cancelled as a result of the
cessation of employment are available for further grants. No shares of Common
Stock of the Company may be issued upon the exercise of any option granted under
the 2004 Plan until the full option price has been paid by the optionee. The
Board of Directors or the Committee may grant individual options under the 2004
Plan with more stringent provisions than those specified in the 2004 Plan.
-20-
Options become exercisable in such amounts, at such intervals and upon
such terms and conditions as the Board of Directors or the Committee provides.
Stock options granted under the 2004 Plan are exercisable until the earlier of
(i) a date set by the Board of Directors or Committee at the time of grant or
(ii) the close of business on the day before the tenth anniversary of the stock
option's date of grant (the day before the fifth anniversary in the case of an
Incentive Stock Option granted to a 10% Stockholder). The 2004 Plan will remain
in effect until all stock options are exercised or terminated. Notwithstanding
the foregoing, no options may be granted on or after the tenth anniversary of
the Effective Date.
Restricted and Deferred Stock Awards. Under the 2004 Plan, the Board or the
Committee may grant shares of restricted Common Stock either alone or in tandem
with other Awards. Restricted and Deferred Stock awards give the recipient the
right to receive a specified number of shares of Common Stock, subject to such
terms, conditions and restrictions as the Board or the Committee deems
appropriate. Restrictions may include limitations on the right to transfer the
stock until the expiration of a specified period of time and forfeiture of the
stock upon the occurrence of certain events such as the termination of
employment prior to expiration of a specified period of time. In addition, a
participant in the 2004 Plan who has received a Deferred Stock Award may
request, under certain conditions, the Board or the Committee to defer the
receipt of an Award (or an installment of an Award) for an additional specified
period or until the occurrence of a specified event.
Other Stock Based Awards. Other Stock-Based Awards, which may include
performance shares and shares valued by reference to the performance of the
Company or any parent or subsidiary of the Company, may be granted either alone
or in tandem with other Awards.
Certain Federal Income Tax Consequences of the 2004 Plan
The following is a brief summary of the Federal income tax aspects of
Awards made under the 2004 Plan based upon statutes, regulations and
interpretations in effect on the date hereof. This summary is not intended to be
exhaustive, and does not describe state or local tax consequences.
1. Incentive Stock Options. The optionee will recognize no taxable income
upon the grant or exercise of an Incentive Stock Option. Upon a disposition of
the shares of Common Stock received upon exercise of an Incentive Stock Option
after the later of two years from the date of grant and one year after the
transfer of the shares to the optionee, (a) the optionee will recognize the
difference, if any, between the amount realized and the exercise price as
long-term capital gain or long-term capital loss (as the case may be) if the
shares are capital assets in his or her hands; and (b) the Company will not
qualify for any deduction in connection with the grant or exercise of the
options. The excess, if any, of the fair market value of the shares on the date
of exercise of an Incentive Stock Option over the exercise price will be treated
as an item of adjustment to the optionee for his or her taxable year in which
the exercise occurs and may result in an alternative minimum tax liability for
the optionee. In the case of a disposition of shares in the same taxable year as
the exercise where the amount realized on the disposition is less than the fair
market value of the shares on the date of exercise, there will be no adjustment
since the amount treated as an item of adjustment, for alternative minimum tax
purposes, is limited to the excess of the amount realized on such disposition
over the exercise price which is the same amount included in regular taxable
income.
-21-
If Common Stock acquired upon the exercise of an Incentive Stock Option is
disposed of prior to the expiration of the holding periods described above, (a)
the optionee will recognize ordinary compensation income in the taxable year of
disposition in an amount equal to the excess, if any, of the lesser of the fair
market value of the shares on the date of exercise or the amount realized on the
disposition of the shares, over the exercise price paid for such shares; and (b)
the Company will qualify for a deduction equal to any such amount recognized,
subject to the requirements that the compensation be reasonable and not limited
under Section 162(m) of the Code. The optionee will recognize the excess, if
any, of the amount realized over the fair market value of the shares on the date
of exercise, if the shares are capital assets in his or her hands, as short-term
or long-term capital gain, depending on the length of time that the optionee
held the shares, and the Company will not qualify for a deduction with respect
to such excess.
Subject to certain exceptions for disability or death, if an Incentive
Stock Option is exercised more than three months following the termination of
the optionee's employment, the option will generally be taxed as a Non-Qualified
Stock Option. See "Non-Qualified Stock Options."
2. Non-Qualified Stock Options. With respect to Non-Qualified Stock
Options issued for the performance of services, (a) upon grant of the option,
the optionee will recognize no income; (b) upon exercise of the option (if the
shares are not subject to a substantial risk of forfeiture), the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the shares on the date of exercise over the exercise
price, and the Company will qualify for a deduction in the same amount, subject
to the requirements that the compensation be reasonable and not limited under
Section 162(m) of the Code; (c) the Company will be required to comply with
applicable Federal income tax withholding requirements with respect to the
amount of ordinary compensation income recognized by the optionee; and (d) on a
sale of the shares, the optionee will recognize gain or loss equal to the
difference, if any, between the amount realized and the sum of the exercise
price and the ordinary compensation income recognized. Such gain or loss will be
treated as short-term or long-term capital gain or loss if the shares are
capital assets in the optionee's hands depending upon the length of time that
the optionee held the shares. If the optionee's shares acquired upon exercise
are subject to a substantial risk of forfeiture, the optionee will have an
election to treat the exercise as a taxable event or defer the Federal income
tax consequences according to the rules described below in "Stock Awards."
-22-
3. Stock Awards issued for the performance of services. Unless a
participant otherwise elects to be taxed upon receipt of shares of restricted or
deferred stock under the 2004 Plan, the participant must include in his or her
taxable income the difference between the fair market value of the shares and
the amount paid, if any, for the shares, as of the first date the participant's
interest in the shares is no longer subject to a substantial risk of forfeiture
or such shares become transferable. A participant's rights in stock awarded
under the 2004 Plan are subject to a substantial risk of forfeiture if the
rights to full enjoyment of the shares are conditioned, directly or indirectly,
upon the future performance of substantial services by the participant. Where
shares of stock received under the 2004 Plan are subject to a substantial risk
of forfeiture, the participant can elect to report the difference between the
fair market value of the shares on the date of receipt and the amount paid, if
any, for the stock as ordinary income in the year of receipt. To be effective,
the election must be filed with the Internal Revenue Service within 30 days
after the date the shares are transferred to the participant. The Company is
entitled to a Federal income tax deduction equal in amount to the amount
includable as compensation in the gross income of the participant, subject to
the requirements that the compensation be reasonable and not limited under
Section 162(m) of the Code. The amount of taxable gain arising from a
participant's sale of shares of restricted stock acquired pursuant to the 2004
Plan is equal to the excess of the amount realized on such sale over the sum of
the amount paid, if any, for the stock and the compensation element included by
the participant in taxable income.
4. Other Tax Matters. If unmatured installments of Awards are accelerated
as a result of a Change of Control (as defined in the 2004 Plan), any amounts
received from the exercise by a participant of a stock option, the lapse of
restrictions on restricted stock or the deemed satisfaction of conditions of
performance-based Awards may be included in determining whether or not a
participant has received an "excess parachute payment" under Section 280G of the
Code, which could result in (a) the imposition of a 20% Federal excise tax (in
addition to Federal income tax) payable by the participant on certain payments
of Common Stock or cash resulting from such exercise or deemed satisfaction of
conditions of performance Awards from such exercise or deemed satisfaction of
conditions of performance awards or, in the case of restricted stock, on all or
a portion of the fair market value of the shares on the date the restrictions
lapse and (b) the loss by the Company of a compensation deduction.
Recommendation
The Board of Directors unanimously recommends that shareholders vote "FOR"
this proposal.
INDEPENDENT AUDITORS
BDO Seidman, LLP ("BDO") reported on the financial statements of the
Company for the years ended December 31, 2003 and 2004. The Audit Committee has
retained BDO to perform audit services for the year ending December 31, 2005.
Representatives of BDO are expected to be present at the Annual Meeting. On
March 18, 2004, U.S. Home & Garden ("USHG") merged into Ionatron, Inc. BDO was
the auditor for both USHG and Ionatron.
Fees Paid to Independent Auditors
The following is a summary of the fees billed to the Company by BDO for
professional services rendered for the years ended December 31, 2003 and 2004:
2003 2004
---------- -----------
Audit Fees $29,000 $266,395
Audit-Related Fees -- 77,625
Tax Fees -- 2,450
-23-
The fees billed to USHG were $0 and $235,445 for 2004 and 2003,
respectively. Fees for audit services include fees associated with the annual
audit of the Company and its subsidiaries, the review of the Company's quarterly
reports on Form 10-Q and the internal control evaluation under Section 404 of
the Sarbanes-Oxley Act of 2002. Audit-related fees principally include the audit
of the historical financial statements of North Star Research Corp. and advisory
work related to SEC reporting matters. Tax fees include tax compliance, tax
advice and tax planning related to Federal and State tax matters.
Pre-approval policies and procedures
Consistent with the Securities and Exchange Commission requirements
regarding auditor independence, our Audit Committee has adopted a policy to
pre-approve all audit and permissible non-audit services provided by our
principal accountant. Under the policy, the Audit Committee must approve
non-audit services prior to the commencement of the specified service. Our
principal accountants have verified, and will verify annually, to our Audit
Committee that they have not performed, and will not perform any prohibited
non-audit service.
The Audit Committee had considered whether the provision of services
described above is compatible with maintaining BDO's independence.
Audit Committee Report
In early 2004, the Audit Committee met with management and representatives
of BDO Seidman, LLP to review preparations for the audit and the procedures and
timing of the audit of the Company's financial statements. Throughout 2004, the
committee also had teleconferences with BDO to discuss each of the Company's
Form 10-Q's that were filed. BDO discussed their review and their findings for
each quarterly report. During the fourth quarter of 2004 the Audit Committee met
with representatives of BDO to review and discuss plans for the audit of the
Company's financial statements for the year ended December 31, 2004, the
evaluation of internal controls over the Company's financial statements in under
Section 404 of the Sarbanes-Oxley Act of 2002 and to discuss the accounting
treatment of certain financial items. Following completion of the audit of the
Company's financial statements, the Audit Committee met with representatives of
BDO Seidman, LLP and with the Company's management to review the audit findings.
The Audit Committee also conducted discussions with the Company's independent
auditors, BDO Seidman, LLP, regarding the matters required by the Statement on
Auditing Standards No. 61. As required by Independence Standards Board Standard
No. 1, "Independence Discussion with Audit Committees," the Audit Committee has
discussed with and received the required written disclosures and confirming
letter from BDO Seidman, LLP and with the Company's management regarding its
independence and has discussed with BDO Seidman, LLP its independence. Based
upon the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2004.
Audit Committee of the Board of Directors:
George Farley (Chairman)
James Harlan
David Hurley
-24-
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders who wish to present proposals appropriate for consideration
at the Company's Annual Meeting of Stockholders for its year ending December 31,
2005 to be held in the year 2006 must submit the proposal in proper form to the
Secretary of the Company at its address set forth on the first page of this
Proxy Statement (or such other address as then constitutes its executive
offices) not later than January 28, 2006 in order for the proposition to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to such annual meeting. Such proposals must be presented in a manner
consistent with the Company's By-Laws and applicable laws. Any such proposals,
as well as any questions related thereto, should be directed to the Secretary of
the Company at 3590 East Columbia Street, Tucson, Arizona 85714.
If a stockholder submits a proposal after the April 13, 2006 deadline but
still wishes to present the proposal at the Company's Annual Meeting of
Stockholders (but not in the Company's proxy statement) for the year ending
December 31, 2005, the proposal, which must be presented in a manner consistent
with the Company's By-Laws and applicable law, must be submitted to the
Secretary of the Company in proper form at the address set forth above no later
than April 14, 2006.
The Company did not receive notice of any proposed matter to be submitted
by stockholders for a vote at this Annual Meeting and, therefore, in accordance
with Exchange Act Rule 14a-4(c) any proxies held by persons designated as
proxies by the Company's Board of Directors and received in respect of this
Annual Meeting will be voted in the discretion of the Company's management on
such other matter which may properly come before the Annual Meeting. Moreover,
if the Company does not receive notice by April 14, 2006 of a proposed matter to
be submitted by a stockholder for stockholders vote at the Annual Meeting of
Stockholders for the year ending December 31, 2005, then, in accordance with
Exchange Act Rule 14a-4(c) any proxies held by persons designated as proxies by
the Company's Board of Directors in respect of such Annual Meeting may be voted
at the discretion of such persons on such matter if it shall properly come
before such Annual Meeting.
With respect to the deadlines discussed above, if the date of the Annual
Meeting to be held in 2006 is advanced by more than 30 days or delayed (other
than as a result of adjournment) by more than 30 days from the anniversary of
the Annual Meeting held in 2005, a shareholder must submit any such proposal to
the Company no later than the close of business on the 60th day prior to the
date of the 2006 Annual Meeting.
OTHER INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2004
IS BEING FURNISHED HEREWITH TO EACH STOCKHOLDER OF RECORD AS OF THE CLOSE OF
BUSINESS ON MAY 10, 2005.
-25-
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
stockholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournments thereof, it
is the intention of the persons named in the proxy to vote the proxy in
accordance with their judgment.
By order of the Board
of Directors,
Robert Howard
Chairman
May 27, 2005
-26-
APPENDIX A
AUDIT COMMITTEE CHARTER
Purpose
There shall be a committee of the board of directors (the "Board") to be
known as the audit committee. The audit committee's purpose is to:
(A) oversee the accounting and financial reporting processes of the
Company and the audits of the financial statements of the Company; and
(B) prepare an audit committee report as required by the SEC's rules to be
included in the Company's annual proxy statements, or, if the Company does not
file a proxy statement, in the Company's annual report filed on Form 10-K with
the SEC.
Composition
The audit committee shall have at least three (3) members, each of whom
must meet the following conditions: (i) be independent as defined under Rule
4200(a)(15) of The Nasdaq Stock Market (except as set forth in Rule 4350
(d)(2)(B)); (ii) meet the criteria for independence set forth in Rule
10A-3(b)(1) under the Securities Exchange Act of 1934 (subject to the exemptions
provided in Rule 10A-3(c)); (iii) not have participated in the preparation of
the financial statements of the Company or any current subsidiary of the Company
at any time during the past three years; and (iv) be able to read and understand
fundamental financial statements, including a Company's balance sheet, income
statement, and cash flow statement. Additionally, at least one member of the
audit committee must have past employment experience in finance or accounting,
requisite professional certification in accounting, or any other comparable
experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
The Board shall elect or appoint a chairperson of the audit committee (or,
if it does not do so, the audit committee members shall elect a chairperson by
vote of a majority of the full committee); the chairperson will have authority
to act on behalf of the audit committee between meetings.
Specific Responsibilities and Authority
The specific responsibilities and authority of the audit committee shall
be as follows:
(A) be directly responsible for the appointment, compensation, retention
and oversight of the work of any registered public accounting firm engaged
(including resolution of disagreements between management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company, and
each such registered public accounting firm must report directly to the audit
committee.
(B) establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and (ii) the confidential, anonymous submissions
by Company employees of concerns regarding questionable accounting or auditing
matters;
(C) have the authority to engage independent counsel and other advisers,
as it determines necessary to carry out its duties;
(D) receive appropriate funding from the Company, as determined by the
audit committee in its capacity as a committee of the Board, for payment of: (i)
compensation to any registered public accounting firm engaged for the purpose of
preparing or issuing an audit report or performing other audit, review or attest
services for the Company; (ii) compensation to any advisers employed by the
audit committee; and (iii) ordinary administrative expenses of the audit
committee that are necessary or appropriate in carrying out its duties;
(E) ensure its receipt from the outside auditors of a formal written
statement delineating all relationships between the auditor and the Company,
consistent with Independence Standards Board Standard 1, and actively engaging
in a dialogue with the auditor with respect to any disclosed relationships or
services that may impact the objectivity and independence of the auditor and for
taking, or recommending that the full Board take, appropriate action to oversee
the independence of the outside auditor;
(F) report regularly to the Board;
(G) make an annual performance evaluation of the audit committee;
(H) review and reassess the adequacy of the audit committee's charter
annually;
(I) comply with all preapproval requirements of Section 10A(i) of the
Securities Exchange Act of 1934 and all SEC rules relating to the administration
by the audit committee of the auditor engagement to the extent necessary to
maintain the independence of the auditor as set forth in 17 CFR Part
210.2-01(c)(7); and
(J) make such other recommendations to the Board on such matters, within
the scope of its function, as may come to its attention and which in its
discretion warrant consideration by the Board.
Meetings
The audit committee shall meet at least four times per year on a quarterly
basis, or more frequently as circumstances require. One or more meetings may be
conducted in whole or in part by telephone conference call or similar means if
it is impracticable to obtain the personal presence of each audit committee
member. The Company shall make available to the audit committee, at its meetings
and otherwise, such individuals and entities as may be designated from time to
time by the audit committee, such as members of management including (but not
limited to) the internal audit and accounting staff, the independent auditors,
inside and outside counsel, and other individuals or entities (whether or not
employed by the Company and including any corporate governance employees and
individuals or entities performing internal audit services as independent
contractors).
-2-
Delegation
Any duties and responsibilities of the audit committee, including, but not
limited to, the authority to preapprove all audit and permitted non-audit
services, may be delegated to one or more members of the audit committee or a
subcommittee of the audit committee.
Limitations
The audit committee is responsible for the duties and responsibilities set
forth in this charter, but its role is oversight and therefore it is not
responsible for either the preparation of the Company's financial statements or
the auditing of the Company's financial statements. The members of the audit
committee are not employees of the Company and may not be accountants or
auditors by profession or experts in accounting or auditing. Management has the
responsibility for preparing the financial statements and implementing internal
controls and the independent auditors have the responsibility for auditing the
financial statements and monitoring the effectiveness of the internal controls,
subject, in each case, to the oversight of the audit committee described in this
charter. The review of the financial statements by the audit committee is not of
the same character or quality as the audit performed by the independent
auditors. The oversight exercised by the audit committee is not a guarantee that
the financial statements will be free from mistake or fraud. In carrying out its
responsibilities, the audit committee believes its policies and procedures
should remain flexible in order to best react to a changing environment.
-3-
APPENDIX B
Ionatron, Inc.
2004 Stock Incentive Plan
Section 1. Purposes; Definitions.
The purpose of the Ionatron, Inc. 2004 Stock Incentive Plan is to enable
Ionatron, Inc. to offer to those of its employees and to the employees of its
Subsidiaries and other persons who are expected to contribute to the success of
the Company, long term performance-based stock and/or other equity interests in
the Company, thereby enhancing their ability to attract, retain and reward such
key employees or other persons, and to increase the mutuality of interests
between those employees or other persons and the shareholders of U.S. Home &
Garden Inc.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Board" means the Board of Directors of Ionatron, Inc.
(b) "Cause" shall have the meaning ascribed thereto in Section 5(b) (ix)
below.
(c) "Change of Control" shall have the meaning ascribed thereto in
Section 9 below.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time and any successor thereto.
(e) "Committee" means any committee of the Board, which the Board may
designate.
(f) "Company" means U.S. Home & Garden Inc., a corporation organized
under the laws of the State of Delaware.
(g) "Deferred Stock" means Stock to be received, under an award made
pursuant to Section 7 below, at the end of a specified deferral
period.
(h) "Disability" means disability as determined under procedures
established by the Board or the Committee for purposes of the Plan.
(i) "Early Retirement" means retirement, with the approval of the Board
or the Committee, for purposes of one or more award(s) hereunder,
from active employment with the Company or any Parent or Subsidiary
prior to age 65.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, as in effect from time to time.
(k) "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means,
as of any given date: (i) if the principal market for the Stock is a
national securities exchange or the National Association of
Securities Dealers Automated Quotations System ("NASDAQ) or the Over
The Counter Bulletin Board, the closing sale price of the Stock on
such day as reported by such exchange or market system, or on a
consolidated tape reflecting transactions on such exchange or market
system or quotation medium, or (b) if the principal market for the
Stock is not a national securities exchange and the Stock is not
quoted on NASDAQ or the Over The Counter Bulletin Board, the mean
between the closing bid sale price for the Stock on such day as
reported by NASDAQ or the National Quotation Bureau, Inc.; provided
that if clauses (a) and (b) of this paragraph are both inapplicable,
or if no trades have been made or no quotes are available for such
day, the Fair Market Value of the Stock shall be determined by the
Board of Directors or the Committee, as the case may be, which
determination shall be conclusive as to the Fair Market Value of the
Stock.
(l) "Incentive Stock Option" means any Stock Option which is intended to
be and is designated as an "incentive stock option" within the
meaning of Section 422 of the Code, or any successor thereto.
(m) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment with the
Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 8 below that
is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
(p) "Parent" means any present or future parent of the Company, as such
term is defined in Section 424(e) of the Code, or any successor
thereto.
(q) "Plan" means this U.S. Home & Garden Inc. 2004 Stock Incentive Plan,
as hereinafter amended from time to time.
(r) "Restricted Stock" means Stock, received under an award made
pursuant to Section 6 below, that is subject to restrictions imposed
pursuant to said Section 6.
(s) "Retirement" means Normal Retirement or Early Retirement.
(t) "Rule 16b-3" means Rule 16b-3 of the General Rules and Regulations
under the Exchange Act, as in effect from time to time, and any
successor thereto.
(u) "Securities Act" means the Securities Act of 1933, as amended, as in
effect from time to time.
(v) "Stock" means the Common Stock of the Company, $.001 par value per
share.
(w) "Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
(x) "Subsidiary" means any present or future (A) subsidiary corporation
of the Company, as such term is defined in Section 424(f) of the
Code, or any successor thereto, or (B) unincorporated business
entity in which the Company owns, directly or indirectly, 50% or
more of the voting rights, capital or profits.
Section 2. Administration.
The Plan shall be administered by the Board, or at its discretion, the
Committee, the membership of which shall consist solely of two or more members
of the Board, each of whom shall serve at the pleasure of the Board and shall be
a "Non-Employee Director," as defined in Rule 16b-3, and an "outside director,"
as defined in Section 162(m) of the Code, and shall be at all times constituted
so as not to adversely affect the compliance of the Plan with the requirements
of Rule 16b-3 or with the requirements of any other applicable law, rule or
regulation.
The Board or the Committee, as the case may be, shall have the authority
to grant, pursuant to the terms of the Plan, to officers and other employees or
other persons eligible under Section 4 below: (i) Stock Options, (ii) Restricted
Stock, (iii) Deferred Stock, and/or (iv) Other Stock-Based Awards.
For purposes of illustration and not of limitation, the Board or the
Committee, as the case may be, shall have the authority (subject to the express
provisions of the Plan):
(i) to select the officers, other employees of the Company or any Parent
or Subsidiary and other persons to whom Stock Options, Restricted Stock,
Deferred Stock and/or Other Stock-Based Awards may be from time to time granted
hereunder;
(ii) to determine the Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock, Deferred Stock and/or Other Stock-Based Awards, or
any combination thereof, if any, to be granted hereunder to one or more eligible
persons;
-2-
(iii) to determine the number of shares of Stock to be covered by each
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not limited
to, share price, any restrictions or limitations, and any vesting acceleration,
exercisability and/or forfeiture provisions);
(v) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or apart
from other awards made by the Company or any Parent or Subsidiary outside of the
Plan;
(vi) to determine the extent and circumstances under which Stock and other
amounts payable with respect to an award hereunder shall be deferred; and
(vii) to substitute (A) new Stock Options for previously granted Stock
Options, including previously granted Stock Options having higher option
exercise prices and/or containing other less favorable terms, and (B) new of any
other type for previously granted awards of the same type, including previously
granted awards which contain less favorable terms.
Subject to Section 10 hereof, The Board or the Committee, as the case may
be, shall have the authority to (i) adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable, (ii) interpret the terms and provisions of the Plan and
any award issued under the Plan (and to determine the form and substance of all
agreements relating thereto), and (iii) to otherwise supervise the
administration of the Plan.
Subject to the express provisions of the Plan, all decisions made by the
Board or the Committee, as the case may be, pursuant to the provisions of the
Plan shall be made in the Board or the Committee's sole and absolute discretion
and shall be final and binding upon all persons, including the Company, its
Parent and Subsidiaries and the Plan participants.
Section 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 3,000,000 shares*. Such shares may consist,
in whole or in part, of authorized and unissued shares or treasury shares.
If any shares of Stock that have been optioned cease to be subject to a
Stock Option for any reason, or if any shares of Stock that are subject to any
Restricted Stock award, Deferred Stock award or Other Stock-Based award are
forfeited or any such award otherwise terminates without the issuance of such
shares, such shares shall again be available for distribution under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
such substitution or adjustments shall be made in the (A) aggregate number of
shares of Stock reserved for issuance under the Plan, (B) number, kind and
exercise price of shares of Stock subject to outstanding Options granted under
the Plan, and (C) number, kind, purchase price and/or appreciation base of
shares of Stock subject to other outstanding awards granted under the Plan, as
may be determined to be appropriate by the Board or the Committee, as the case
may be, in order to prevent dilution or enlargement of rights; provided,
however, that the number of shares of Stock subject to any award shall always be
a whole number. Such adjusted exercise price shall also be used to determine the
amount which is payable to the optionee upon the exercise by the Board or the
Committee, as the case may be, of the alternative settlement right which is set
forth in Section 5(b)(xi) below.
Subject to the provisions of the immediately preceding paragraph, the
maximum numbers of shares subject to Options, Restricted Stock awards, Deferred
Stock awards, and other Stock-Based awards to each of the Company's chief
executive officer and the four other highest compensated executive officers who
are employed by the Company on the last day of any taxable year of the Company,
shall be 2,000,000 shares during the term of the Plan.
--------
* 5,000,000 shares if the proposed amendment to the Plan is adopted by the
Company's stockholders
-3-
Section 4. Eligibility.
Officers and other employees of the Company or any Parent or Subsidiary
(but excluding any person whose eligibility would adversely affect the
compliance of the Plan with the requirements of Rule 16b-3) who are at the time
of the grant of an award under the Plan employed by the Company or any Parent or
Subsidiary and who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company or any Parent or Subsidiary,
are eligible to be granted Options and awards under the Plan. In addition,
Non-Qualified Stock Options and other awards may be granted under the Plan to
any person, including, but not limited to, independent agents, consultants and
attorneys who the Board or the Committee, as the case may be, believes has
contributed or will contribute to the success of the Company. Eligibility under
the Plan shall be determined by the Board or the Committee, as the case may be.
The Board or the Committee, as the case may be, may, in its sole
discretion, include additional conditions and restrictions in the agreement
entered into in connection with such awards under the Plan. The grant of an
Option or other award under the Plan, and any determination made in connection
therewith, shall be made on a case by case basis and can differ among optionees
and grantees. The grant of an Option or other award under the Plan is a
privilege and not a right and the determination of the Board or the Committee,
as the case may be, can be applied on a non-uniform (discretionary) basis.
Section 5. Stock Options.
(a) Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock
Options. Any Stock Option granted under the Plan shall contain such
terms as the Board or the Committee, as the case may be, may from
time to time approve. The Board or the Committee, as the case may
be, shall have the authority to grant to any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock
Options, and they may be granted alone or in addition to other
awards granted under the Plan. To the extent that any Stock Option
is not designated as an Incentive Stock Option or does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified
Stock Option. The grant of an Option shall be deemed to have
occurred on the date on which the Board or the Committee, as the
case may be, by resolution, designates an individual as a grantee
thereof, and determines the number of shares of Stock subject to,
and the terms and conditions of, said Option.**
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options or any agreement providing
for Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code, or, without the consent of the optionee(s) affected, to
disqualify any Incentive Stock Option under said Section 422.
(b) Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(i) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Board or the Committee, as the case may
be, at the time of grant but as to Incentive Stock Options shall be not less
than 100% (110% in the case of an Incentive Stock Option granted to an optionee
("10% Shareholder") who, at the time of grant, owns Stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
its Parent, if any, or its Subsidiaries) of the Fair Market Value of the Stock
at the time of grant. The option price for Non-Qualified Stock Options shall be
determined by the Board or the Committee, as the case may be, at the time of
grant, subject to any requirements of the Delaware General Corporation Law.
----------
** The following sentence shall be added if the proposed amendment to the Plan
is adopted by the Company's stockholders: The maximum number of shares of Common
Stock which may be issued upon the exercise of Incentive Stock Options is
3,000,000 shares.
-4-
(ii) Option Term. The term of each Stock Option shall be fixed by the
Board or the Committee, as the case may be, but no Incentive Stock Option shall
be exercisable more than ten years (five years, in the case of an Incentive
Stock Option granted to a 10% Shareholder) after the date on which the Option is
granted.
(iii) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Board or the Committee, as the case may be, at the time of grant. If the Board
or the Committee, as the case may be, provides, in its discretion, that any
Stock Option is exercisable only in installments, the Board or the Committee, as
the case may be, may waive such installment exercise provisions at any time at
or after the time of grant in whole or in part, based upon such factors as the
Board or the Committee, as the case may be, shall determine.
(iv) Method of Exercise. Subject to whatever installment, exercise and
waiting period provisions are applicable in a particular case, Stock Options may
be exercised in whole or in part at any time during the option period by giving
written notice of exercise to the Company specifying the number of shares of
Stock to be purchased. Such notice shall be accompanied by payment in full of
the purchase price, which shall be in cash or, if provided in the Stock Option
agreement referred to in Section 5(b)(xii) below or otherwise provided by the
Board, or Committee, as the case may be, either at or after the date of grant of
the Stock Option, in whole shares of Stock which are already owned by the holder
of the Option or partly in cash and partly in such Stock. Cash payments shall be
made by wire transfer, certified or bank check or personal check, in each case
payable to the order of the Company; provided, however, that the Company shall
not be required to deliver certificates for shares of Stock with respect to
which an Option is exercised until the Company has confirmed the receipt of good
and available funds in payment of the purchase price thereof. If permitted,
payments in the form of Stock (which shall be valued at the Fair Market Value of
a share of Stock on the date of exercise) shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. In addition to
the foregoing, payment of the exercise price may be made by delivery to the
Company by the optionee of an executed exercise form, together with irrevocable
instructions to a broker-dealer to sell or margin a sufficient portion of the
shares covered by the option and deliver the sale or margin loan proceeds
directly to the Company. Except as otherwise expressly provided in the Plan or
in the Stock Option agreement referred to in Section 5(b)(xii) below or
otherwise provided by the Board or Committee, as the case may be, either at or
after the date of grant of the Option, no Option which is granted to a person
who is at the time of grant an employee of the Company or of a Subsidiary or
Parent of the Company may be exercised at any time unless the holder thereof is
then an employee of the Company or of a Parent or a Subsidiary. The holder of an
Option shall have none of the rights of a shareholder with respect to the shares
subject to the Option until the optionee has given written notice of exercise,
has paid in full for those shares of Stock and, if requested by the Board or
Committee, as the case may be, has given the representation described in Section
12(a) below.
(v) Transferability; Exercisability. No Stock Option shall be transferable
by the optionee other than by will or by the laws of descent and distribution,
except as may be otherwise provided with respect to a Non-Qualified Option
pursuant to the specific provisions of the Stock Option agreement pursuant to
which it was issued as referred to in Section 5(b)(xii) below. Except as
otherwise provided in the Stock Option agreement relating to a Non-Qualified
Stock Option, all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or his or her guardian or legal representative.
(vi) Termination by Reason of Death. Subject to Section 5(b)(x) below, if
an optionee's employment by the Company or any Parent or Parent or Subsidiary
terminates by reason of death, any Stock Option held by such optionee may
thereafter be exercised, to the extent then exercisable or on such accelerated
basis as the Board or Committee, as the case may be, may determine at or after
the time of grant, for a period of one year (or such other period as the Board
or the Committee, as the case may be, may specify at or after the time of grant)
from the date of death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(vii) Termination by Reason of Disability. Subject to Section 5(b)(x)
below, if an optionee's employment by the Company or any Parent or Subsidiary
terminates by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination or on such accelerated basis as the Board or the Committee,
as the case may be, may determine at or after the time of grant, for a period of
one year (or such other period as the Board or the Committee, as the case may
be, may specify at or after the time of grant) from the date of such termination
of employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such one year period (or such other period as the Board or the Committee,
as the case may be, shall specify at or after the time of grant), any
unexercised Stock Option held by such optionee shall thereafter be exercisable
to the extent to which it was exercisable at the time of death for a period of
one year from the date of death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
-5-
(viii) Termination by Reason of Retirement. Subject to Section 5(b)(x)
below, if an optionee's employment by the Company or any Parent or Subsidiary
terminates by reason of Normal Retirement, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination or on such accelerated basis as the Board
or the Committee, as the case may be, may determine at or after the time of
grant, for a period of one year (or such other period as the Board or the
Committee, as the case may be, may specify at or after the time of grant) from
the date of such termination of employment or the expiration of the stated term
of such Stock Option, whichever period is the shorter; provided, however, that
if the optionee dies within such one year period (or such other period as the
Board or the Committee, as the case may be, shall specify at or after the date
of grant), any unexercised Stock Option held y such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of death for a
period of one year from the date of death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter. If an optionee's
employment with the Company or any Parent or Subsidiary terminates by reason of
Early Retirement, the Stock Option shall thereupon terminate; provided, however,
that if the Board or the Committee, as the case may be, so approves at the time
of Early Retirement, any Stock Option held by the optionee may thereafter be
exercised by the optionee as provided above in connection with termination of
employment by reason of Normal Retirement.
(ix) Other Termination. Subject to the provisions of Section 12(g) below
and unless otherwise determined by the Committee at or after the time of grant,
if an optionee's employment by the Company or any Parent or Subsidiary
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon automatically terminate, except that if the optionee is
involuntarily terminated by the Company or any Parent or a Subsidiary without
Cause (as hereinafter defined), such Stock Option may be exercised for a period
of three months (or such other period as the Board or the Committee, as the case
may be, shall specify at or after the time of grant) from the date of such
termination or until the expiration of the stated terms of such Stock Option,
whichever period is the shorter. For purposes of the Plan, "Cause" shall mean
(1) the conviction of the optionee of a felony under Federal law or the law of
the state in which such action occurred, (2) dishonesty by the optionee in the
course of fulfilling his or her employment duties, or (3) the failure on the
part of the optionee to perform his or her employment duties in any material
respect. In addition, with respect to an option granted to an employee of the
Company, a Parent or a Subsidiary, for purposes of the Plan, "Cause" shall also
include any definition of "Cause" contained in any employment agreement between
the optionee and the Company, Parent or Subsidiary, as the case may be.
(x) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the aggregate Fair Market Value of Stock (determined at
the time of grant of the Option) with respect to which Incentive Stock Options
are exercisable for the first time by an optionee during any calendar year
(under all such plans of optionee's employer corporation and its Parent and
Subsidiaries) shall not exceed $100,000.
(xi) Alternative Settlement of Option. If provided for, upon the receipt
of written notice of exercise or otherwise provided for by the Board or
Committee, as the case may be, either at or after the time of grant of the Stock
Option, the Board or the Committee, as the case may be, may elect to settle all
or part of any Stock Option by paying to the optionee an amount, in cash or
Stock (valued at Fair Market Value on the date of exercise), equal to the
product of the excess of the Fair Market Value of one share of Stock, on the
date of exercise over the Option exercise price, multiplied by the number of
shares of Stock with respect to which the optionee proposes to exercise the
Option. Any such settlements which relate to Options which are held by optionees
who are subject to Section 16(b) of the Exchange Act shall comply with any
"window period" provisions of Rule 16b-3, to the extent applicable, and with
such other conditions as the Board or Committee, as the case may be, may impose.
(xii) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, an agreement executed by the
Company and the participant.
-6-
Section 6. Restricted Stock.
(a) Grant and Exercise. Shares of Restricted Stock may be issued either
alone or in addition to or in tandem with other awards granted under
the Plan. The Board or the Committee, as the case may be, shall
determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares
to be awarded, the price (if any) to be paid by the recipient, the
time or times within which such awards may be subject to forfeiture
(the "Restriction Period"), the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the
awards. The Board or the Committee, as the case may be, may
condition the grant of Restricted Stock upon the attainment of such
factors as the Board or the Committee, as the case may be, may
determine.
(b) Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:
(i) Restricted Stock, when issued, will be represented by a stock
certificate or certificates registered in the name of the
holder to whom such Restricted Stock shall have been awarded.
During the Restriction Period, certificates representing the
Restricted Stock and any securities constituting Retained
Distributions (as defined below) shall bear a restrictive
legend to the effect that ownership of the Restricted Stock
(and such Retained Distributions), and the enjoyment of all
rights related thereto, are subject to the restrictions, terms
and conditions provided in the Plan and the Restricted Stock
agreement referred to in Section 6(b)(iv) below. Such
certificates shall be deposited by the holder with the
Company, together with stock powers or other instruments of
assignment, endorsed in blank, which will permit transfer to
the Company of all or any portion of the Restricted Stock and
any securities constituting Retained Distributions that shall
be forfeited or that shall not become vested in accordance
with the Plan and the applicable Restricted Stock agreement.
(ii) Restricted Stock shall constitute issued and outstanding
shares of Common Stock for all corporate purposes, and the
issuance thereof shall be made for at least the minimum
consideration (if any) necessary to permit the shares of
Restricted Stock to be deemed to be fully paid and
nonassessable. The holder will have the right to vote such
Restricted Stock, to receive and retain all regular cash
dividends and other cash equivalent distributions as the Board
may in its sole discretion designate, pay or distribute on
such Restricted Stock and to exercise all other rights, powers
and privileges of a holder of Stock with respect to such
Restricted Stock, with the exceptions that (A) the holder will
not be entitled to delivery of the stock certificate or
certificates representing such Restricted Stock until the
Restriction Period shall have expired and unless all other
vesting requirements with respect thereto shall have been
fulfilled; (B) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock
during the Restriction Period; (C) other than regular cash
dividends and other cash equivalent distributions as the Board
may in its sole discretion designate, pay or distribute, the
Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the
Restricted Stock (and such Retained Distributions will be
subject to the same restrictions, terms and conditions as are
applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid or declared shall
have become vested and with respect to which the Restriction
Period shall have expired; (D) the holder may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the
Restricted Stock or any Retained Distributions during the
Restriction Period; and (E) a breach of any of the
restrictions, terms or conditions contained in the Plan or the
Restricted Stock agreement referred to in Section 6(b)(iv)
below, or otherwise established by the Board or Committee, as
the case may be, with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such
Restricted Stock and any Retained Distributions with respect
thereto.
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(iii) Upon the expiration of the Restriction Period with respect to
each award of Restricted Stock and the satisfaction of any
other applicable restrictions, terms and conditions (A) all or
part of such Restricted Stock shall become vested in
accordance with the terms of the Restricted Stock agreement
referred to in Section 6(b)(iv) below, and (B) any Retained
Distributions with respect to such Restricted Stock shall
become vested to the extent that the Restricted Stock related
thereto shall have become vested. Any such Restricted Stock
and Retained Distributions that do not vest shall be forfeited
to the Company and the holder shall not thereafter have any
rights with respect to such Restricted Stock and Retained
Distributions that shall have been so forfeited.
(iv) Each Restricted Stock award shall be confirmed by, and shall
be subject to the terms of, an agreement executed by the
Company and the participant.
Section 7. Deferred Stock.
(a) Grant and Exercise. Deferred Stock may be awarded either alone or in
addition to or in tandem with other awards granted under the Plan.
The Board or the Committee, as the case may be, shall determine the
eligible persons to whom and the time or times at which Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be
awarded to any person, the duration of the period (the "Deferral
Period") during which, and the conditions under which, receipt of
the Deferred Stock will be deferred, and all the other terms and
conditions of the awards. The Board or the Committee, as the case
may be, may condition the grant of the Deferred Stock upon the
attainment of such factors or criteria as the Board or the
Committee, as the case may be, shall determine.
(b) Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(i) Subject to the provisions of the Plan and Deferred Stock
agreement referred to in Section 7(b)(vii) below, Deferred
Stock awards may not be sold, assigned, transferred, pledged
or otherwise encumbered during the Deferral Period. At the
expiration of the Deferral Period (or the Additional Deferral
Period referred to in Section 7(b)(vi) below, where
applicable), share certificates shall be delivered to the
participant, or his legal representative, in a number equal to
the shares of Stock covered by the Deferred Stock award.
(ii) As determined by the Board or the Committee, as the case may
be, at the time of award, amounts equal to any dividends
declared during the Deferral Period (or the Additional
Deferral Period referred to in Section 7(b)(vi) below, where
applicable) with respect to the number of shares covered by a
Deferred Stock award may be paid to the participant currently
or deferred and deemed to be reinvested in additional Deferred
Stock.
(iii) Subject to the provisions of the Deferred Stock agreement
referred to in Section 7(b)(vii) below and this Section 7 and
Section 12(g) below, upon termination of a participant's
employment with the Company or any Parent or Subsidiary for
any reason during the Deferral Period (or the Additional
Deferral Period referred to in Section 7(b)(vi) below, where
applicable) for a given award, the Deferred Stock in question
will vest or be forfeited in accordance with the terms and
conditions established by the Board or the Committee, as the
case may be, at the time of grant.
(iv) The Board or the Committee, as the case may be, may, after
grant, accelerate the vesting of all or any part of any
Deferred Stock award and/or waive the deferral limitations for
all or any part of a Deferred Stock award.
(v) In the event of hardship or other special circumstances of a
participant whose employment with the Company or any Parent or
Subsidiary is involuntarily terminated (other than for Cause),
the Board or the Committee, as the case may be, may waive in
whole or in part any or all of the remaining deferral
limitations imposed hereunder or pursuant to the Deferred
Stock agreement referred to in Section 7(b)(vii) below with
respect to any or all of the participant's Deferred Stock.
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(vi) A participant may request to, and the Board or the Committee,
as the case may be, may at any time, defer the receipt of an
award (or an installment of an award) for an additional
specified period or until a specified period or until a
specified event (the "Additional Deferral Period"). Subject to
any exceptions adopted by the Board or the Committee, as the
case may be, such request must be made at least one year prior
to expiration of the Deferral Period for such Deferred Stock
award (or such installment).
(vii) Each Deferred Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company
and the participant.
Section 8. Other Stock-Based Awards.
(a) Grant and Exercise. Other Stock-Based Awards, which may include
performance shares and shares valued by reference to the performance
of the Company or any Parent or Subsidiary, may be granted either
alone or in addition to or in tandem with Stock Options, Restricted
Stock or Deferred Stock. The Board or the Committee, as the case may
be, shall determine the eligible persons to whom, and the time or
times at which, such awards shall be made, the number of shares of
Stock to be awarded pursuant to such awards, and all other terms and
conditions of the awards. The Board or the Committee, as the case
may be, may also provide for the grant of Stock under such awards
upon the completion of a specified performance period.
(b) Terms and Conditions. Each Other Stock-Based Award shall be subject
to the following terms and conditions:
(i) Shares of Stock subject to an Other Stock-Based Award may not
be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued,
or, if later, the date on which any applicable restriction or
period of deferral lapses.
(ii) The recipient of an Other Stock-Based Award shall be entitled
to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of shares
covered by the award, as determined by the Board or the
Committee, as the case may be, at the time of the award. The
Board or the Committee, as the case may be, may provide that
such amounts (if any) shall be deemed to have been reinvested
in additional Stock.
(iii) Any Other Stock-Based Award and any Stock covered by any Other
Stock-Based Award shall vest or be forfeited to the extent so
provided in the award agreement referred to in Section 8(b)(v)
below, as determined by the Board or the Committee, as the
case may be.
(iv) In the event of the participant's Retirement, Disability or
death, or in cases of special circumstances, the Board or the
Committee, as the case may be, may waive in whole or in part
any or all of the limitations imposed hereunder (if any) with
respect to any or all of an Other Stock-Based Award.
(v) Each Other Stock-Based Award shall be confirmed by, and shall
be subject to the terms of, an agreement executed by the
Company and by the participant.
Section 9. Change of Control Provisions.
(a) A "Change of Control" shall be deemed to have occurred on the tenth day
after:
(i) any individual, corporation or other entity or group (as defined in
Section 13(d)(3) of the Exchange Act), becomes, directly or
indirectly, the beneficial owner (as defined in the General Rules
and Regulations of the Securities and Exchange Commission with
respect to Sections 13(d) and 13(g) of the Exchange Act) of more
than 50% of the then outstanding shares of the Company's capital
stock entitled to vote generally in the election of directors of the
Company; or
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(ii) the commencement of, or the first public announcement of the
intention of any individual, firm, corporation or other entity
or of any group (as defined in Section 13(d)(3) of the
Exchange Act) to commence, a tender or exchange offer subject
to Section 14(d)(1) of the Exchange Act for any class of the
Company's capital stock; or
(iii) the shareholders of the Company approve (A) a definitive
agreement for the merger or other business combination of the
Company with or into another corporation pursuant to which the
shareholders of the Company do not own, immediately after the
transaction, more than 50% of the voting power of the
corporation that survives, or (B) a definitive agreement for
the sale, exchange or other disposition of all or
substantially all of the assets of the Company, or (C) any
plan or proposal for the liquidation or dissolution of the
Company;
provided, however, that a "Change of Control" shall not be deemed to
have taken place if beneficial ownership is acquired (A) directly
from the Company, other than an acquisition by virtue of the
exercise or conversion of another security unless the security so
converted or exercised was itself acquired directly from the
Company, or (B) by, or a tender or exchange offer is commenced or
announced by, the Company, any profit-sharing, employee ownership or
other employee benefit plan of the Company; or any trustee of or
fiduciary with respect to any such plan when acting in such
capacity.
(b) In the event of a "Change of Control" as defined in Section 9(a)
above, awards granted under the Plan will be subject to the
following provisions, unless the provisions of this Section 9 are
suspended or terminated by an affirmative vote of a majority of the
Board prior to the occurrence of such a "Change of Control":
(i) all outstanding Stock Options which have been outstanding for
at least one year shall become exercisable in full, whether or
not otherwise exercisable at such time, and any such Stock
Option shall remain exercisable in full thereafter until it
expires pursuant to its terms; and
(ii) all restrictions and deferral limitations contained in
Restricted Stock awards, Deferred Stock awards and Other
Stock-Based Awards granted under the Plan shall lapse.
Section 10. Amendments and Termination.
The Board may at any time, and from time to time, amend any of the
provisions of the Plan, and may at any time suspend or terminate the Plan;
provided, however, that no such amendment shall be effective unless and until it
has been duly approved by the holders of the outstanding shares of Stock if the
failure to obtain such approval would adversely affect the compliance of the
Plan with the requirements of Rule 16b-3 or any other applicable law, rule or
regulation. The Board or the Committee, as the case may be, may amend the terms
of any Stock Option or other award theretofore granted under the Plan; provided,
however, that subject to Section 3 above, no such amendment may be made by the
Board or the Committee, as the case may be, which in any material respect
impairs the rights of the optionee or participant without the optionee's or
participant's consent, except for such amendments which are made to cause the
Plan to qualify for the exemption provided by Rule 16b-3.
Section 11. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a
creditor of the Company.
Section 12. General Provisions.
(a) The Board or the Committee, as the case may be, may require each
person acquiring shares of Stock pursuant to an Option or other
award under the Plan to represent to and agree with the Company in
writing that the optionee or participant is acquiring the shares for
investment without a view to distribution thereof.
All certificates for shares of Stock delivered under the Plan
shall be subject to such stop transfer orders and other
restrictions as the Board or the Committee, as the case may
be, may deem to be advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission,
any stock exchange or association upon which the Stock is then
listed or traded, any applicable Federal or state securities
law, and any applicable corporate law, and the Board or the
Committee, as the case may be, may cause a legend or legends
to be put on any such certificates to make appropriate
reference to such restrictions.
-10-
(b) Nothing contained in the Plan shall prevent the Board from adopting
such other or additional incentive arrangements as it may deem
desirable, including, but not limited to, the granting of stock
options and the awarding of stock and cash otherwise than under the
Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
(c) Nothing contained in the Plan or in any award hereunder shall be
deemed to confer upon any employee of the Company or any Parent or
Subsidiary any right to continued employment with the Company or any
Parent or Subsidiary, nor shall it interfere in any way with the
right of the Company or any Parent or Subsidiary to terminate the
employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includable in the gross income of the participant for Federal income
tax purposes with respect to any Option or other award under the
Plan, the participant shall pay to the Company, or make arrangements
satisfactory to the Board or the Committee, as the case may be,
regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such
amount. If permitted by the Board or the Committee, as the case may
be, tax withholding or payment obligations may be settled with
Stock, including Stock that is part of the award that gives rise to
the withholding requirement. The obligations of the Company under
the Plan shall be conditional upon such payment or arrangements, and
the Company or the participant's employer (if not the Company)
shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the
participant from the Company or any Parent or Subsidiary.
(e) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State
of Delaware (without regard to choice of law provisions).
(f) Any Stock Option granted or other award made under the Plan shall
not be deemed compensation for purposes of computing benefits under
any retirement plan of the Company or any Parent or Subsidiary and
shall not affect any benefits under any other benefit plan now or
subsequently in effect under which the availability or amount of
benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under the Plan).
(g) A leave of absence, unless otherwise determined by the Board or
Committee prior to the commencement thereof, shall not be considered
a termination of employment. Any Stock Option granted or awards made
under the Plan shall not be affected by any change of employment, so
long as the holder continues to be an employee of the Company or any
Parent or Subsidiary.
(h) Except as otherwise expressly provided in the Plan or in any Stock
Option agreement, Restricted Stock agreement, Deferred Stock
agreement or any Other Stock-Based Award agreement, no right or
benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be subject
to the debts, contracts or liabilities of the person entitled to
such benefit.
(i) The obligations of the Company with respect to all Stock Options and
awards under the Plan shall be subject to (A) all applicable laws,
rules and regulations, and such approvals by any governmental
agencies as may be required, including, without limitation, the
effectiveness of a registration statement under the Securities Act,
and (B) the rules and regulations of any securities exchange or
association on which the Stock may be listed or traded.
-11-
(j) If any of the terms or provisions of the Plan conflicts with the
requirements of Rule 16b-3 as in effect from time to time, or with
the requirements of any other applicable law, rule or regulation,
and with respect to Incentive Stock Options, Section 422 of the
Code, then such terms or provisions shall be deemed inoperative to
the extent they so conflict with the requirements of said Rule
16b-3, and with respect to Incentive Stock Options, Section 422 of
the Code. With respect to Incentive Stock Options, if the Plan does
not contain any provision required to be included herein under
Section 422 of the Code, such provision shall be deemed to be
incorporated herein with the same force and effect as if such
provision had been set out at length herein.
(k) The Board or the Committee, as the case may be, may terminate any
Stock Option or other award made under the Plan if a written
agreement relating thereto is not executed and returned to the
Company within 30 days after such agreement has been delivered to
the optionee or participant for his or her execution.
(l) The grant of awards pursuant to the Plan shall not in any way effect
the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business
structure or to merge, consolidate, liquidate, sell or otherwise
dispose of all or any part of its business or assets.
Section 13. Effective Date of Plan.
The Plan shall be effective as of the date of the approval and adoption
thereof at a meeting of the shareholders of the Company.
Section 14. Term of Plan.
No Stock Option, Restricted Stock Award, Deferred Stock award or Other
Stock-Based Award shall be granted pursuant to the Plan after the tenth
anniversary of the effective date of the Plan, but awards granted on or prior to
such tenth anniversary may extend beyond that date.
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PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 28, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(SEE REVERSE SIDE FOR ADDITIONAL INFORMATION)
1. ELECTION OF CLASS I DIRECTORS:
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below). listed below.
Robert Howard and Rear Admiral Thomas W. Steffens (Ret.)
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike through that nominee's name.)
2. PROPOSAL TO AMEND COMPANY'S 2004 STOCK INCENTIVE PLAN AS MORE FULLY
DESCRIBED IN THE COMPANY'S ACCOMPANYING PROXY STATEMENT.
|_| FOR |_| AGAINST |_| ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Signature Signature Date
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ON THE
REVERSE SIDE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS LISTED ON THE REVERSE SIDE.
The undersigned hereby appoints Thomas Dearmin and Stephen McCommon, and each of
them, Proxies, with full power of substitution in each of them, in the name,
place and stead of the undersigned, to vote at the Annual Meeting of
Stockholders of Ionatron, Inc. on Tuesday, June 28, 2005, at the offices of
Blank Rome LLP, 405 Lexington Avenue - 24th Floor, New York, New York 10174, or
at any adjournment or adjournments thereof, according to the number of votes
that the undersigned would be entitled to vote if personally present, upon the
following matters:
(continued and to be marked, dated and signed on reverse side)