PROXY
STATEMENT
ANNUAL
MEETING OF SHAREHOLDERS
May
19, 2010
This
proxy statement is furnished to the shareholders of Rocky Brands, Inc.
(throughout the proxy statement the terms “Company,” “we” and “our” refer to
Rocky Brands, Inc.) in connection with the solicitation of proxies to be used in
voting at the Annual Meeting of Shareholders to be held on May 19, 2010, and at
any adjournment thereof. The enclosed proxy is solicited by the Board
of Directors of the Company. We began mailing this proxy statement to
the Company’s shareholders on approximately April 23, 2010.
The
Company will bear the cost of the solicitation of proxies, including the charges
and expenses of brokerage firms and others for forwarding solicitation material
to beneficial owners of stock. Representatives of the Company may
solicit proxies by mail, telegram, telephone, or personal
interview.
All
shares represented by a properly submitted proxy will be voted as directed if
the proxy is received by the Company before the meeting or, in the absence of
specific instructions to the contrary, will be voted in accordance with the
unanimous recommendations of the board of directors, which are:
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FOR
the election of J.
Patrick Campbell, Michael L. Finn, G. Courtney Haning, and Curtis A.
Loveland as Class II Directors of the
Company;
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FOR
the ratification of
Schneider Downs & Co., Inc. as the Company’s independent registered
public accounting firm for the fiscal year ending December 31, 2010;
and
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at
the discretion of the persons acting under the proxy, to transact such
other business as may properly come before the meeting or any adjournment
thereof.
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Any shareholder giving a proxy has the
power to revoke it at any time before it is exercised by filing a written notice
with the Secretary of the Company prior to the meeting. Shareholders
of record who attend the meeting may vote in person, and their proxies will not
be used.
Holders
of record of common stock of the Company at the close of business on April 12,
2010, will be entitled to vote at the annual meeting. At that time,
the Company had 5,605,537 shares of common stock outstanding and entitled to
vote. Each share of common stock outstanding on the record date
entitles the holder to one vote on each matter submitted at the annual
meeting.
The
presence, in person or by proxy, of a majority of the outstanding shares of
common stock of the Company is necessary to constitute a quorum for the
transaction of business at the annual meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum. Broker non-votes occur when brokers, who hold their
customers’ shares in street name, sign and submit proxies for such shares and
vote such shares on some matters, but not others. Typically, this
would occur when brokers have not received any instructions from their
customers, in which case the brokers, as the holders of record, are permitted to
vote on “routine” matters.
The
election of each director nominee requires the favorable vote of a plurality of
all votes cast by the holders of common stock at a meeting at which a quorum is
present. Proxies that are marked “Withhold Authority” and broker
non-votes will not be counted toward such nominee’s achievement of a plurality
and thus will have no effect. The ratification of Schneider Downs
& Co., Inc. as the Company’s independent registered public accounting firm
requires the affirmative vote of the holders of a majority of the common stock
present and entitled to vote on the matter. Broker non-votes will not
be counted as being in favor or against the ratification of Schneider Downs
& Co., Inc., while abstentions will be counted and will have the effect of a
vote against the ratification of Schneider Downs & Co., Inc.
Election
of Directors
The
Company’s Code of Regulations provides for a classified board of directors with
two classes. Each class of directors consists, as nearly as
practical, of one-half of the total number of directors. The total
number of authorized directors has been fixed by the Board of Directors at
eight. The Board of Directors proposes the re-election of the four
incumbent Class II Directors to continue their service as Class II Directors at
the 2010 Annual Meeting of Shareholders. The four incumbent Class I
Directors will continue in office until the 2011 Annual Meeting of
Shareholders.
J. Patrick Campbell, Michael L. Finn,
G. Courtney Haning, and Curtis A. Loveland are currently Class II Directors of
the Company and are being nominated by the Board of Directors for re-election as
Class II Directors.
It is
intended that, unless otherwise directed, the shares represented by the enclosed
proxy will be voted FOR the election of Messrs. Campbell, Finn, Haning, and
Loveland as Class II Directors. In the event that any of the nominees
for director should become unavailable, the number of directors of the Company
may be decreased pursuant to the Company’s Code of Regulations, or the Board of
Directors may designate a substitute nominee, in which event the shares
represented by the enclosed proxy will be voted for such substitute
nominee.
The
Board of Directors recommends that the shareholders vote FOR the election of
each of the nominees for Director.
The
following table sets forth for each nominee and each continuing director of the
Company, such person’s name, age, the year in which he became a director of the
Company, and his position with the Company and the Company’s subsidiaries, Five
Star Enterprises Ltd. (“Five Star”); Lifestyle Footwear, Inc. (“Lifestyle”);
Rocky Canada, Inc. (“Rocky Canada”); Rocky Brands Wholesale, LLC (“Wholesale”);
Rocky Brands International, LLC (“International”); and Lehigh Outfitters, LLC,
(“Lehigh”) (collectively, the “Subsidiaries”).
Class
II Directors
(Nominees
- Terms Expire in 2012)
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Name
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Age
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Director
Since
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Position
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J.
Patrick Campbell
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61
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2004
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Director
of the Company
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Michael
L. Finn
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66
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2004
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Director
of the Company
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G.
Courtney Haning
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61
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2004
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Director
of the Company
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Curtis A. Loveland
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63
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1993
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Director of the Company and Secretary of the
Company and
Subsidiaries
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Class
I Directors
(Terms
Expire in 2011)
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Name
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Age
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Director
Since
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Position
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Mike
Brooks
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63
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1992
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Director,
Chairman and Chief Executive Officer of the Company and
Subsidiaries
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Glenn
E. Corlett
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66
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2000
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Director
of the Company
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Harley
E. Rouda, Jr.
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48
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2003
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Director
of the Company
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James L. Stewart
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76
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1996
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Director of the
Company
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The following information is provided
for each director and each person nominated for election as a director, and
includes descriptions of each individual’s specific experience, qualifications,
attributes, and skills that led to the conclusion that he should serve on the
Board of Directors.
J.
Patrick Campbell has served as the Chief Executive Officer of Universal
Companies since January 1, 2009. Universal Companies is a leading
international distributor of products, equipment, and supplies to spas, skincare
professionals, and resort and destination properties. Mr. Campbell
serves on the board of directors of Universal Companies. From 2005 to
2008, Mr. Campbell served as the President and Chief Operating Officer of
Grantham Education Corporation. From 2002 to 2005, Mr. Campbell acted
as a consultant to various financial institutions and a variety of
corporations. Mr. Campbell also serves on the boards of directors of
various privately held corporations. Mr. Campbell retired as the
President of Nasdaq U.S. Markets in December 2001. From January 1997
to December 2001, he held various executive positions at the Nasdaq Stock
Market, including Chief Operating Officer for Nasdaq Inc. and Chairman of Nasdaq
Investment Products. Prior to joining Nasdaq, Mr. Campbell worked as
a Senior Executive Vice President for The Ohio Company from 1971 to 1996 and
served as a member of their board of directors from 1991 to 1996.
Michael
L. Finn has served as President of Central Power Systems, a wholesale
distributor of outdoor power equipment in Columbus, Ohio, since 1985, and
President of Chesapeake Realty Co., a real estate development and management
company in Columbus, Ohio, since 1970. Mr. Finn has also served as
Chairman of the Board of Directors of Power Source Canada, a Canadian
corporation, since 2004, and as Chairman of the Board of Directors of Integrated
Distributors Network, LLC, a Wisconsin corporation, since 2004, both of which
market and distribute outdoor power equipment.
G.
Courtney Haning has served as Chairman, President and Chief Executive Officer of
Peoples National Bank, a community bank in New Lexington, Ohio, since January
1991.
Curtis A.
Loveland has served as Secretary of the Company since October 1992, of Five Star
and Lifestyle since December 1992, of Rocky Canada since July 2003, of Wholesale
and Lehigh since January 2005, and of International since October
2008. Mr. Loveland has been a practicing attorney for 37 years and
has been a partner in the law firm of Porter Wright Morris & Arthur
llp
,
Columbus, Ohio since 1979.
Mike
Brooks has served as Chairman and Chief Executive Officer of the Company and its
Subsidiaries since January 2005 and of International since October
2008. Prior to that he served as Chairman, President, and Chief
Executive Officer of the Company from August 1991 to January
2005. Mr. Brooks also has served Lifestyle as President since
November 1988 and as Chairman and Chief Executive Officer since December 1992,
and Five Star as President since March 1987, as Chairman since August 1991, and
as Chief Executive Officer since December 1992. Mr. Brooks is a
pattern engineering and shoe design graduate of the Ars Sutoria in Milan,
Italy. After employment with U.S. Shoe Corporation and various
tanning companies, Mr. Brooks returned to the family shoe business in
Nelsonville, Ohio, in 1975, serving first as Manager of Product Development and
a national salesman and then, in 1984, becoming President. He has
been a director of American Apparel and Footwear Association (formerly Footwear
Industries of America) since April 1986 and currently serves on the Executive
Board.
Glenn E.
Corlett has been a professor of accounting of the College of Business at Ohio
University, Athens, Ohio, since July 1997 and was Dean of the College from that
date until he retired on June 30, 2007. From 1993 to 1996, Mr.
Corlett was Executive Vice President and Chief Operating Officer of N.W. Ayer
& Partners, an international advertising agency, headquartered in New York,
New York. Mr. Corlett also served as Chief Financial Officer of N.W.
Ayer & Partners from 1990 to 1995. Prior to joining N.W. Ayer
& Partners, Mr. Corlett had a long history with PricewaterhouseCoopers where
he was partner-in-charge for mergers and acquisitions in New York from 1988 to
1990; tax partner-in-charge in Denver from 1984 to 1988 and in Cleveland from
1979 to 1984; and held partner and staff positions from 1971 to
1979. Mr. Corlett also serves on the board of directors of Preformed
Line Products Company, an international designer and manufacturer of products
and systems employed in the construction and maintenance of overhead and
underground networks for energy, communications and broadband network
companies.
Harley E. Rouda, Jr. has served as
Chief Executive Officer of Trident, Inc., an independently-owned real estate
brokerage and related services firm headquartered in Columbus, Ohio, since
February 2002. He also serves as President of Real Living Real
Estate, a national franchisor of real estate services headquartered in Columbus,
Ohio and Chicago, Illinois, since November 2009. He has also served
as Chief Executive Officer and General Counsel of HER Realtors, a Columbus based
real estate firm, since May 1999 and May 1997, respectively. Prior to
serving as Chief Executive Officer, Mr. Rouda served as President of HER
Realtors from May 1996 until May 1999.
James L.
Stewart has served as the proprietor of Rising Wolf Ranch, Inc., East Glacier,
Montana, a summer resort and a winter rehabilitation center for teenage boys
involved with drug abuse. Mr. Stewart also consults for various
retail and catalog companies. Between 1984 and 1991, Mr. Stewart
served as the President and Chief Executive Officer of Dunns Inc. and as the
Vice President and General Manager of Gander Mountain Inc. Before
that time, he served Sears Roebuck & Co. for 28 years in various management
capacities.
Information
Concerning the Board of Directors and Corporate Governance
The Board
of Directors of the Company held a total of six meetings during
2009. During 2009, each of the directors attended 75% or more of the
total number of (i) meetings of the Board, and (ii) meetings of committees of
the Board on which such director served.
Upon
consideration of the criteria and requirements regarding director independence
set forth in the Marketplace Rules of the NASDAQ Stock Market, the Board of
Directors has determined that a majority of its members are
independent. Specifically, the Board has determined that each of
Messrs. Campbell, Corlett, Finn, Haning, Loveland, Rouda, and Stewart, meet the
standards of independence established by Marketplace Rule
5605(a)(2).
The
Company has a standing Audit Committee, Compensation Committee, and Nominating
and Corporate Governance Committee. The members of the Audit
Committee are Messrs. Corlett (Chairman), Campbell, and Haning. The
Board of Directors has determined that each of Messrs. Corlett, Campbell, and
Haning are independent as independence is defined in Marketplace Rule 5605(a)(2)
and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, and
that the Audit Committee meets the composition requirements of Marketplace Rule
5605(c)(2). The Board of Directors has determined that Mr. Corlett
meets the requirements of an “audit committee financial expert” as set forth in
Section 407(d)(5) of Regulation S-K promulgated by the Securities and Exchange
Commission (“SEC”).
The Audit
Committee met nine times during 2009. The Audit Committee oversees
and monitors management’s and the independent registered public accounting
firm’s participation in the accounting and financial reporting processes and the
audits of the financial statements of the Company. The Audit
Committee has the responsibility to appoint, compensate, retain and oversee the
work of the independent registered public accounting firm and to consult with
the independent registered public accounting firm on matters relating to the
scope of the audit, any non-audit assignments and related fees, the accounting
principles used by the Company in financial reporting, internal financial
auditing procedures, and the adequacy of the Company’s internal control
procedures. The Audit Committee is governed by an Amended and
Restated Audit Committee Charter, which is posted on the Company’s website at
www.rockybrands.com
. The
Audit Committee Report relating to the 2009 fiscal year appears on pages 32 and
33.
The
members of the Compensation Committee are Messrs. Rouda (Chairman), Stewart, and
Finn. The Board of Directors has determined that each of Messrs.
Rouda, Stewart, and Finn are independent as independence is defined in
Marketplace Rule 5605(a)(2). The Compensation Committee is governed
by an Amended and Restated Compensation Committee Charter, which is posted on
the Company’s website at
www.rockybrands.com
. The
Compensation Committee met three times during 2009. This Committee
administers the 2004 Stock Incentive Plan and approves compensation for the
Company’s executive officers. The Compensation Committee report
relating to the 2009 fiscal year appears on page 31. For more
information on the Compensation Committee, please refer to “Executive
Compensation – Compensation Discussion and Analysis – The Compensation
Committee,” beginning on page 10.
The members of the Nominating and
Corporate Governance Committee are Messrs. Loveland (Chairman), Corlett, and
Finn. The Board of Directors has determined that each of Messrs.
Loveland, Corlett, and Finn are independent as independence is defined in
Marketplace Rule 5605(a)(2). The Nominating and Corporate Governance
Committee Charter is posted on the Company’s website at
www.rockybrands.com
. The
Nominating and Corporate Governance Committee met three times during
2009. The Nominating and Corporate Governance Committee oversees the
director nomination process and reviews related party
transactions. The Nominating and Corporate Governance Committee has
the responsibility to identify and recommend individuals qualified to become
directors. When considering potential candidates, the Nominating and
Corporate Governance Committee reviews the candidate’s character, judgment, and
skills, including financial literacy, and experience in the context of the needs
of the Board of Directors. The Company generally does not pay any
third parties to identify or evaluate, or assist in identifying or evaluating,
potential nominees.
The Nominating and Corporate Governance
Committee considers the recommendations of shareholders regarding potential
director candidates. In order for shareholder recommendations
regarding possible director candidates to be considered by the Nominating and
Corporate Governance Committee:
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such
recommendations must be provided to the Nominating and Corporate
Governance Committee c/o Rocky Brands, Inc., 39 East Canal Street,
Nelsonville, Ohio 45764, in writing at least 120 days prior to the date of
the next scheduled annual meeting;
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the
nominating shareholder must meet the eligibility requirements to submit a
valid shareholder proposal under Rule 14a-8 of the Securities Exchange Act
of 1934, as amended; and
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the
nominating shareholder must describe the qualifications, attributes,
skills, or other qualities of the recommended director
candidate.
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The Nominating and Corporate Governance
Committee also has the responsibility to develop and recommend to the Board of
Directors a set of corporate governance principles applicable to the Company and
to administer and oversee the Company’s Code of Business Conduct and
Ethics.
The Company’s Board of Directors
welcomes communications from shareholders. Shareholders may send
communications to the Board of Directors, or to any director in particular, c/o
Rocky Brands, Inc., 39 East Canal Street, Nelsonville, Ohio
45764. Any correspondence addressed to the Board of Directors, or to
any one of the Company’s directors in care of our offices is forwarded to the
addressee without review by management.
It is the Company’s expectation that
all members of the Board of Directors attend the Annual Meeting of
Shareholders. All of the members of the Company’s Board of Directors,
except for Mr. Rouda, were present at the Company’s 2009 Annual Meeting of
Shareholders.
Information
Concerning Executive Officers
Executive
Officers
In
addition to Mike Brooks, the following individuals are executive officers of the
Company:
David
Sharp, 54, has served as President and Chief Operating Officer of the Company
and its Subsidiaries since January 2005 and of International since October
2008. Prior to that, he served as Executive Vice President and Chief
Operating Officer of the Company from March 2002 until January
2005. He served as Senior Vice President – Sales and Operations from
June 2001 until March 2002, as Vice President of Sales and Marketing from
October 2000 until June 2001, and as Vice President of Manufacturing Operations
and Marketing from June 2000 until October 2000. Mr. Sharp served as
Executive Vice President and Chief Operating Officer of Five Star and Lifestyle
from August 2003 until January 2005 and of Rocky Canada from July 2003 until
January 2005. Prior to that time, he served as Senior Vice President
– Sales and Operations of Five Star and Lifestyle from February 2002 until
August 2003. Prior to joining the Company, from September 1994 until
October 1999, Mr. Sharp served in various capacities, including Vice President
and General Manager of an operating division of H.H. Brown, Inc., a wholly owned
subsidiary of Berkshire-Hathaway, Inc., engaged in the footwear
business. Mr. Sharp also held various senior sales and marketing
positions at Acme Boot Co., Inc. and Converse, Inc. from June 1991 until
September 1994.
James E.
McDonald, 49, has served as Executive Vice President, Chief Financial Officer,
and Treasurer of the Company and its Subsidiaries since January 2005 and of
International since October 2008. Prior to that, he served as Vice
President and Chief Financial Officer of the Company from June 2001, and as
Treasurer from August 2003 until January 2005. Mr. McDonald served as
Vice President and Chief Financial Officer of Five Star and Lifestyle from
February 2002 until January 2005 and of Rocky Canada from July 2003 until
January 2005. He served as Treasurer of Five Star and Lifestyle from
August 2003 until January 2005 and Rocky Canada from July 2003 until January
2005. Prior to joining the Company, from July 1996 until June 2001,
Mr. McDonald served as Chief Financial Officer for two operating divisions of
H.H. Brown, Inc., a wholly owned subsidiary of Berkshire-Hathaway, Inc., engaged
in the footwear business. Mr. McDonald also served as Controller of
Wright’s Knitwear Corporation, a privately held manufacturer of
apparel.
Officers
are elected annually by the Board of Directors and serve at its
discretion. There are no family relationships among directors and
executive officers of the Company.
Executive
Compensation
The following information provides
discussion, analysis and data tables regarding the compensation of our named
executive officers (“NEOs”), who are those officers listed in our Summary
Compensation Table on page 16.
Compensation
Discussion and Analysis
We have prepared this Compensation
Discussion and Analysis (“CD&A”) to provide you with our perspective on
executive compensation so that you may understand our compensation policies and
our decisions regarding compensation for our NEOs. We recommend that
you review the various executive compensation tables below in conjunction with
this CD&A. Unless otherwise noted, the policies, plans and other
information in this CD&A apply to all of our NEOs. Our CD&A
covers the following topics:
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the
role of the Compensation Committee in setting executive
compensation;
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our
compensation philosophy and its underlying principles – including the
objectives of our executive compensation program and what it is designed
to reward;
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our
process for setting executive compensation;
and
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the
elements of our executive compensation program – including a discussion of
why we choose to pay each element of compensation, how we determine the
amount of such element, and how each element fits into our overall
compensation objectives and “total compensation” for our
NEOs.
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The Compensation Committee
The
Compensation Committee (referred to in this CD&A as the “Committee”) was
appointed by our Board of Directors and is governed by a written charter that is
available in the corporate governance section of our website,
www.rockybrands.com
. The
Committee members are Harley E. Rouda, Jr., Chairman, Michael L. Finn, and James
L. Stewart. Our Board of Directors has determined that each of the
Committee members is independent under the standards of independence established
by Marketplace Rule 5605(a)(2). In addition, each of the Committee
members is a “non-employee” director as defined by Rule 16b-3 under the
Securities Exchange of 1934 and an “outside director” as defined by the Internal
Revenue Code.
Pursuant
to its charter, the Committee has the authority and responsibility
to:
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discharge
the Board’s responsibilities relating to executive compensation, including
the review and approval of our executive compensation
philosophy and policies and the application of such policies to the
compensation of our executive
officers;
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review
and approve on an annual basis the corporate goals and objectives with
respect to the chief executive officer, evaluate the chief executive
officer’s performance in light of such goals and objectives at least once
a year, and, based on such evaluation, set the chief executive officer’s
annual compensation, including salary, bonus, incentive and equity
compensation;
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review
and approve on an annual basis the evaluation process and compensation
structure for our other executive officers and to evaluate and
approve the annual compensation for such executive officers, including
salary, bonus, incentive and equity
compensation;
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administer
and review our compensation programs and plans, including, but not limited
to, our incentive compensation, equity, and qualified and non-qualified
benefit plans;
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establish
and periodically review policies for the administration of our executive
compensation program;
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approve
employment arrangements with new
executives;
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review
recommendations to create, amend or terminate certain compensation and
benefit plans and to make a decision whether or not to approve of such
recommendations; and
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recommend
to the Board the compensation arrangements with non-employee
directors.
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The Committee has the sole authority,
to the extent it deems necessary or appropriate, to retain any compensation
consultant to assist in the evaluation of executive compensation and has the
sole authority to approve any such firm’s fees. The Committee also
has the authority to obtain the advice of and assistance from internal or
external legal, accounting or other advisors, and may request any officer or
employee of our Company, our outside counsel or independent registered public
accounting firm to attend a meeting of the Committee or meet with any member of,
or consultants to, the Committee.
The Committee meets as often as its
members deem necessary to charge its duties and responsibilities and held three
meetings during fiscal 2009. Mr. Rouda works in conjunction with our
Chief Executive Officer and Chief Financial Officer to establish the meeting
agenda. The Committee typically meets with the Chief Executive
Officer, Chief Financial Officer and outside advisors and, where appropriate,
other executive officers of our Company. In addition, the Committee
regularly meets in executive session without management. Generally, the
Committee receives and reviews materials in advance of each
meeting. These materials include information that management believes
will be helpful to the Committee as well as materials that the Committee has
specifically requested.
Compensation Philosophy
The philosophy of the Committee is to
make compensation decisions based on an executive compensation program that is
designed to meet the following objectives:
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to
attract and retain qualified
executives;
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to
reward current and past individual
performance;
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to
provide short-term and long-term incentives for superior future
performance;
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to
align compensation policies to further shareholder value;
and
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to
relate total compensation to individual performance and performance of our
Company.
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The
Committee believes that an executive compensation program designed with these
objectives in mind has a direct impact on the success of the business by helping
to ensure we have qualified executive talent in the right positions at the right
time. Our executive compensation program helps ensure that our
leadership group is focused on performing effectively to deliver results and
build long-term shareholder value.
Compensation Tax
Philosophy
Internal Revenue Code Section 162(m)
bars a deduction to any publicly held corporation for compensation paid to a
“covered employee” in excess of $1 million per year unless objective performance
criteria are set by the Committee prior to or within 90 days after the beginning
of a performance period but in no event after 25% of the performance period has
elapsed (or such earlier or later date as is permitted by Section 162(m)).
Generally, we intend that compensation paid to NEOs shall be deductible to the
fullest extent permitted by law. We may make payments that are not fully
deductible if, in our judgment, such payments are necessary to achieve our
compensation objectives and to protect shareholder interests. None of
the compensation for fiscal 2009 was non-deductible because none of the NEOs had
compensation in excess of $1 million.
Compensation Committee Process for
Determining Executive Compensation
A substantial amount of the Committee’s
annual cycle of work relates to the determination of compensation for our
executive officers, including our Chief Executive Officer. Generally,
during or prior to the first quarter of our fiscal year, the Committee makes
determinations of base cash compensation, incentive compensation percentages for
the year, and equity grants for executive officers, including our Chief
Executive Officer. For a discussion of each individual element of
compensation and how it is specifically determined, refer to “Compensation
Program Elements” below.
Although many compensation decisions
are made near the beginning of the first quarter of the fiscal year, our
compensation planning process is not a rigid yearly process with fixed beginning
and end points. Rather, compensation decisions are designed to
promote our compensation philosophy and principles throughout the
year. The Committee believes that evaluation of executive
performance, business and succession planning, and consideration of our business
environment are year-round processes, and the Committee members monitor these as
such.
Our Chief Executive Officer is not
permitted to be present during deliberations or voting on his
compensation. During this process, the Committee reviews and approves
any new corporate goals and objectives with respect to compensation for our
Chief Executive Officer. In light of the established goals and
objectives, the Committee evaluates the performance of the Chief Executive
Officer and, based upon these evaluations, sets the Chief Executive Officer’s
compensation. The Compensation Committee also reviews and approves on
an annual basis the evaluation and compensation structure for the Company’s
other executive officers, including approval of salary, bonus, incentive, and
equity compensation. Our Chief Executive Officer is present and
provides input at the meetings and deliberations on the compensation of the
Company’s other executive officers but is not permitted to be present at the
vote.
Compensation Program
Elements
In fiscal 2009, our NEOs received the
following elements of compensation:
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non-equity
incentive compensation;
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retirement
benefits; and
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health
and welfare benefits.
|
The Committee carefully considered and
chose each compensation program element as a critical component in a
comprehensive “total compensation” package. Each element is intended
to reward and motivate executives in different ways consistent with our overall
compensation principles and philosophy. Each of the elements has a
critical relationship with one another with each focusing on and rewarding
different areas. These elements are necessary for us to achieve our
compensation program objectives.
(1)
Salary
:
Salary is utilized to compensate our
executive officers for services rendered during the fiscal year. The
Committee annually reviews and approves the compensation package of each NEO,
including salary. The Committee considers an individual’s
qualifications and experience in setting an executive’s salary. In
determining salary increases, the Committee considers the size and
responsibility of the individual’s position and the individual’s overall
performance and future potential. The Committee considers these
factors subjectively in the aggregate. Because the Committee believes
that each of the factors is significant, the Committee does not assign a formula
weight to any single factor in determining a salary increase.
Please refer to the “Salary” column in
the Summary Compensation Table on page 16 for more information on each NEO’s
salary for fiscal 2009.
(2)
Non-Equity Incentive
Compensation
:
Non-equity incentive compensation
(“IC”) for our NEOs is determined under an annual incentive compensation plan
(the “IC Plan”) that is designed and approved by the Committee. Our
IC Plan is designed to provide a competitive cash compensation program for
recruiting and retaining executive talent and a short-term incentive and reward
program that aligns pay with performance and motivates our executives to achieve
results. The IC Plan pays cash awards based upon the achievement of
key corporate objectives. In December 2008, the Committee designed
and approved an IC Plan for the fiscal year ending December 31, 2009 (the “2009
Plan”).
When setting IC, the Committee
considers individual and corporate performance, levels of responsibility, prior
experience, breadth of knowledge and competitive pay practices. The
Committee considers these factors subjectively in the aggregate. IC
is based on a percentage of base salary if Company performance goals are
met. Payment of IC is prorated based on the percentage of the
performance level achieved, and the bonus amounts are interpolated between the
performance levels. The Committee establishes the financial
performance goals under the IC Plan for the fiscal year. These goals
are generally determined near the beginning of the year and are based on an
analysis of historical performance and growth expectations for our business,
expectations of the public markets, and progress toward achieving our long-range
strategic plan for the business. The Committee determined that the
performance criterion under the 2009 Plan was operating income, excluding (i)
earnings from military sales, (ii) IC payable under the 2009 Plan, and (iii)
gains or losses or charges or adjustments resulting from unusual, one-time
events, such as intangible assets or goodwill impairment charges and charges or
gains resulting from changes in accounting policies, as determined by the
Committee (“Operating Income”). The Committee approved the following
threshold, target, and maximum payout opportunities based on specified levels of
Operating Income:
|
|
|
Payout Opportunities as a Percentage of Base Salary
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike
Brooks
|
|
|
0
|
%
|
|
|
75
|
%
|
|
|
175
|
%
|
|
David
Sharp
|
|
|
0
|
%
|
|
|
60
|
%
|
|
|
140
|
%
|
|
James
E. McDonald
|
|
|
0
|
%
|
|
|
50
|
%
|
|
|
115
|
%
|
If Mr. Brooks became eligible to
receive IC exceeding $10,000, he was permitted to choose to receive any portion
of his IC in the form of restricted stock, which would vest immediately but
would not be tradable in the public markets for one year (“Restricted
Stock”). If Messrs. Sharp and McDonald became eligible to receive IC
exceeding $10,000 each, a minimum of 35% of such IC was to be paid in shares of
Restricted Stock, and each of Messrs. Sharp and McDonald could choose to receive
any additional portion of such IC in the form of Restricted Stock.
No payment was to be made for
performance below the threshold level of Operating Income, and no payment was
required for performance above the maximum amount.
However, in addition to the foregoing,
assuming that the threshold amount of Operating Income was attained, 10% of any
Operating Income attributable to military sales during fiscal 2009 was to go
into a pool to be distributed to plan participants, including the NEOs, at the
discretion of the Compensation Committee. Also, to the extent that
the amount of Operating Income associated with the maximum IC payout
opportunities was exceeded for fiscal 2009, 10% of such excess Operating Income
was to go into a pool to be distributed to plan participants, including the
NEOs, at the discretion of the Compensation Committee.
None of the NEOs earned any IC for the
2009 fiscal year.
(3)
All Other
Compensation
:
The “All Other Compensation” column in
our Summary Compensation Table on page 16 primarily consists of these
items:
|
|
·
|
annual
employer contributions into the retirement/401(k) plan;
and
|
|
|
·
|
employer-paid
premiums for life insurance.
|
(a)
Retirement and 401(k)
Plan
:
We sponsor a qualified retirement and
401(k) plan for eligible employees (the “Retirement Plan”). The
Retirement Plan allows NEOs to defer a portion of their total cash compensation
(up to IRS limits) into this retirement account on a pre-tax
basis. Our NEOs do not receive a Company match on any money they
defer into the Retirement Plan. We make an annual contribution into
the Retirement Plan for eligible employees, including NEOs, of three percent of
applicable salary.
These annual employer contribution
amounts to NEOs are included in the Summary Compensation Table’s “All Other
Compensation” column on page 16 below.
(b)
Employer-Paid Premiums for Life
Insurance
:
We provide each of our NEOs with basic
group term life insurance with a death benefit of $150,000. This is a relatively
inexpensive benefit that we offer to our executives. This element of
compensation, though relatively small, provides one additional item to the
overall compensation package which strengthens our ability to recruit and retain
talented executives.
We also provide Messrs. Brooks, Sharp,
and McDonald with individual term life insurance policies that have death
benefits of $1,000,000, $500,000 and $500,000, respectively, to be paid to each
individual’s beneficiary in the event of his death.
For specific premium amounts paid,
please refer to the Summary Compensation Table’s “All Other Compensation” column
and footnotes below on page 16.
(c)
Employment
Agreements
:
We have entered into employment
agreements with each of Messrs. Brooks, Sharp, and McDonald. For a
discussion of these agreements, please refer to “Agreements with NEOs and
Potential Payments upon Termination or Change in Control” beginning on page 20
below.
(4)
Health and Welfare
Benefits
:
In addition to the compensation and
benefits programs discussed in this proxy statement, we offer our employees,
including our NEOs, a comprehensive benefits program. This program is
designed to provide the employees and their families with competitive coverage
at competitive rates. We strive to provide the employees with
appropriate health benefits (medical, pharmacy, dental, and vision) to help
protect the physical, mental, and financial health of our employees and their
immediate families.
Summary
Compensation Table
The
following table sets forth certain information regarding compensation paid
during the Company’s last complete fiscal year to the Company’s named executive
officers (“NEOs”) for the 2009 fiscal year. For a discussion of the
various elements of compensation provided in the table below, please refer to
the discussion of our various compensation elements in our Compensation
Discussion & Analysis under the heading “Compensation Program Elements”
beginning on page 13 above.
SUMMARY
COMPENSATION TABLE FOR FISCAL YEAR 2009
|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(1)
|
|
|
All Other
Compensation
($)
(2)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike
Brooks
|
|
2009
|
|
|
475,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
198,188
|
|
|
|
86,339
|
|
|
|
759,527
|
|
|
Chairman
and
|
|
2008
|
|
|
475,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,642
|
|
|
|
87,098
|
|
|
|
597,740
|
|
|
Chief
Executive
|
|
2007
|
|
|
475,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53,767
|
|
|
|
117,525
|
|
|
|
646,292
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Sharp
|
|
2009
|
|
|
398,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,693
|
|
|
|
34,225
|
|
|
|
458,018
|
|
|
President
and Chief
|
|
2008
|
|
|
385,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,651
|
|
|
|
34,602
|
|
|
|
429,253
|
|
|
Operating
Officer
|
|
2007
|
|
|
385,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,974
|
|
|
|
34,502
|
|
|
|
424,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
E. McDonald
|
|
2009
|
|
|
289,900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,047
|
|
|
|
35,769
|
|
|
|
344,716
|
|
|
Executive
Vice
|
|
2008
|
|
|
280,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,976
|
|
|
|
34,846
|
|
|
|
320,822
|
|
|
President,
Chief
|
|
2007
|
|
|
280,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,429
|
|
|
|
35,147
|
|
|
|
318,576
|
|
|
Financial
Officer,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts
shown reflect change in present value of the accrual for the Company’s
Restated Retirement Plan for Non-Union Employees from 2006 to 2007, 2007
to 2008, and 2008 to 2009.
|
|
(2)
|
The
amounts shown under “All Other Compensation” for Messrs. Brooks, Sharp and
McDonald include the following
payments:
|
|
|
2007:
$109,015, $26,000, and $26,280, respectively, reflecting life insurance
premiums paid by the Company and $8,510, $8,502 and $8,867, respectively,
reflecting employer contributions to the 401(k) retirement
plan.
|
|
|
2008:
$78,587, $26,100, and $26,096, respectively, reflecting life insurance
premiums paid by the Company and $8,510, $8,502, and $8,750, respectively,
reflecting employer contributions to the 401(k) retirement
plan.
|
|
|
2009:
$76,839, $26,233, and $26,096, respectively, reflecting life insurance
premiums paid by the Company and $9,500, $7,992, and $9,673, respectively,
reflecting employer contributions to the 401(k) retirement
plan.
|
Grants
of Plan-Based Awards for Fiscal Year 2009
The following table provides certain
information concerning each grant of an award made to the listed officers in the
last completed fiscal year under any plan:
GRANTS
OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards
|
|
|
Name
|
|
Grant Date
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike
Brooks
|
|
n/a
|
|
|
|
0
|
|
|
|
356,250
|
|
|
|
831,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Sharp
|
|
n/a
|
|
|
|
0
|
|
|
|
238,860
|
|
|
|
557,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
E. McDonald
|
|
n/a
|
|
|
|
0
|
|
|
|
144,950
|
|
|
|
333,385
|
|
Outstanding
Equity Awards at Fiscal 2009 Year-End
The following table provides
information concerning unexercised options, stock that has not vested, and
equity incentive plan awards outstanding as of the end of the fiscal
year:
OUTSTANDING
EQUITY AWARDS AT FISCAL 2009 YEAR-END TABLE
|
|
|
Option Awards
(1)
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike
Brooks
|
|
|
20,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.77
|
|
01/02/2010
|
|
|
|
|
15,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.24
|
|
01/02/2011
|
|
|
|
|
7,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22.39
|
|
01/02/2012
|
|
|
|
|
7,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.85
|
|
01/02/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Sharp
|
|
|
2,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.77
|
|
01/02/2010
|
|
|
|
|
9,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.24
|
|
01/02/2011
|
|
|
|
|
6,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22.39
|
|
01/02/2012
|
|
|
|
|
6,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.85
|
|
01/02/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
E. McDonald
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.77
|
|
01/02/2010
|
|
|
|
|
7,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.24
|
|
01/02/2011
|
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22.39
|
|
01/02/2012
|
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.85
|
|
01/02/2012
|
|
|
(1)
|
Options
become exercisable in four equal annual installments beginning on the
first anniversary of the date of
grant.
|
Option
Exercises and Stock Vested for Fiscal Year 2009
The following table provides certain
information concerning each exercise of stock options, and each vesting of
stock, including restricted stock, during the last completed fiscal
year:
OPTION
EXERCISES AND STOCK VESTED TABLE FOR FISCAL YEAR 2009
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
Name
|
|
Number of Shares
Acquired on Exercise
(#)
|
|
|
Value Realized
on Exercise
($)
|
|
|
Number of Shares
Acquired on Vesting
(#)
|
|
|
Value Realized on
Vesting
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike
Brooks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Sharp
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
E. McDonald
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Retirement
Plan
The
Company’s Restated Retirement Plan for Non-Union Employees (the “Retirement
Plan”) is a defined benefit pension plan which is intended to qualify under
Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended (the
“Code”). Until December 31, 2005, all Rocky Brands, Inc. employees, including
U.S. territorial employees, excluding leased employees and those employees
covered by a collective bargaining agreement, were eligible to participate in
the Retirement Plan if they were at least 21 years old and had worked at least
1,000 hours for the Company over a period of one year. As of December 31, 2005,
the Company froze the Retirement Plan for all non-U.S. territorial
employees.
The
Retirement Plan provides for the payment of a monthly retirement benefit
commencing at age 65, subject to certain early and late retirement options. The
amount of the monthly benefit is determined pursuant to a formula contained in
the Retirement Plan which takes the greater of 1.5% of the employee’s average
monthly compensation, or $12.00, and multiplies it by the employee’s number of
years of credited service up to a maximum of 35 years. The average monthly
compensation is determined for the three consecutive years which gives the
participant the highest average. Compensation for this purpose means wages that
are subject to federal income tax withholding.
The
following table provides certain information concerning the estimated value of
retirement benefits under the Retirement Plan:
PENSION
BENEFITS TABLE FOR FISCAL YEAR 2009
|
Name
|
|
Number of Years of Credited
Service
(#)
|
|
|
Present Value of
Accumulated Benefit
($)
(1)
|
|
|
Payments During Last Fiscal
Year
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike
Brooks
|
|
34.7
|
|
|
|
1,043,973
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Sharp
|
|
9.5
|
|
|
|
115,062
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
E. McDonald
|
|
8.5
|
|
|
|
72,552
|
|
|
|
—
|
|
|
(1)
|
Amounts
listed in this column were calculated as of December 31, 2009, using the
1994 Group Annuity Mortality Table.
|
Agreements
with NEOs and Potential Payments Upon Termination or Change in
Control
On June 12, 2009, we entered into an
employment agreement with each of Mike Brooks, Chief Executive Officer, David
Sharp, President and Chief Operating Officer, and James E. McDonald, Executive
Vice President, Chief Financial Officer, and Treasurer (collectively, the
“Executives”).
Mr. Brooks’ employment agreement
replaced a prior amended and restated employment agreement, effective December
22, 2008.
Each Executive’s employment is at will,
which means that subject to the terms of his employment agreement, either the
Company or the Executive may terminate the Executive’s employment at any time
for any reason or for no reason.
In exchange for performing the duties
and responsibilities customarily performed by persons employed in a similar
executive capacity, Messrs. Brooks, Sharp, and McDonald are entitled to a
minimum annual base salary, which may be decreased up to 20%, or increased,
subject to the approval of the Board of Directors. Each Executive is also
entitled to participate in additional compensation and employee benefit plans as
are made available to similarly situated executives.
The Executives agree to maintain the
confidential information of the Company and to assign all inventions to the
Company, and the Executives will not compete with the Company or solicit the
employees of the Company for 12 months following termination of employment for
any reason.
In the event of termination of an
Executive by the Company for cause or due to the Executive’s death or disability
(as defined in each employment agreement), or by the Executive for any reason,
the Company will pay the Executive only the earned but unpaid portion of his
base salary through the termination date.
Cause is defined in each employment
agreement to include:
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|
·
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commission
of an act of dishonesty involving the Company, its business or property,
including, but not limited to, misappropriation of funds or any property
of the Company;
|
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·
|
engagement
in activities or conduct clearly injurious to the best interests or
reputation of the Company;
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·
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willful
and continued failure substantially to perform duties (other than as a
result of physical or mental illness or injury), after the Board of
Directors delivers a written demand for substantial performance that
specifically identifies the manner in which the Board believes the
Executive has substantially not performed his
duties;
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·
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illegal
conduct or gross misconduct that is willful and results in material and
demonstrable damage to the business or reputation of the
Company;
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·
|
the
clear violation of any of the material terms and conditions of the
employment agreement or any other written agreement or agreements the
Executive has with the Company (following 30 days’ written notice from the
Company specifying the violation and the Executive’s failure to cure such
violation within such 30-day
period);
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·
|
the
clear violation of the Company’s code of business conduct or the clear
violation of any other rules of behavior as may be provided in any
employee handbook which would be grounds for dismissal of any employee of
the Company; or
|
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·
|
commission
of a crime which is a felony, a misdemeanor involving an act of moral
turpitude, or a misdemeanor committed in connection with employment by the
Company.
|
In the event an Executive is terminated
by the Company without cause, the Company will pay the Executive the earned but
unpaid portion of his base salary through the termination date, and will
continue to pay his base salary for an additional 12 months; provided, however,
any such payments will immediately end if the Executive is in violation of his
obligations under his employment agreement or if the Company learns of any facts
that would have been grounds for termination for cause. Such payments will be
reduced by 50% if the Executive becomes employed or self-employed. Additionally,
the Company will pay the Executive any unearned bonus for a completed bonus
period and a pro-rated bonus, if any, for such bonus that would have been
payable had the Executive remained employed throughout the bonus period, based
on the actual performance of the Company.
If Mr.
Sharp terminates his employment with the Company within 60 days of the election
of an individual other than Mr. Sharp or Mr. Brooks as Chief Executive Officer
of the Company, then such termination will be treated as a termination by the
Company without cause. Also, if Mr. McDonald
terminates his employment with
the Company within 90 days of election of an individual other than Mr. Brooks or
Mr. Sharp as Chief Executive Officer of the Company, he must provide the Company
with 90 days’ advance written notice and agree to continue working for the
Company during the 90-day notice period; provided, however, that upon receipt of
such notice of termination the Company may restrict his access to the Company’s
offices, employees, customers, suppliers, properties, and confidential
information during the 90-day notice period or may agree with him that his
termination date will be prior to the end of the 90-day notice period. In the
event of a termination under these circumstances, Mr. McDonald’s termination
will be treated as a termination by the Company without cause. The Company may,
in its sole discretion, choose to waive the noncompetition provisions of the
employment agreement, in which case the Company’s sole obligation will be to pay
Mr. McDonald the earned but unpaid portion of his base salary through the
termination date, including the 90-day notice period.
Finally, in the event the Executive is
terminated within 13 months following a Change in Control other than for
disability or cause, or the Executive terminates for good reason (or for any
reason in the thirteenth month following a Change in Control for Mr. Brooks)
within such period, then the Company will pay the Executive any earned but
unpaid portion of his base salary and any bonus, incentive compensation or any
other benefit to which he is entitled under the employment agreement, plus 3
times for Mr. Brooks, 2 times for Mr. Sharp, and 1.5 times for Mr. McDonald, an
amount equal to 20% of the Executive’s base salary and any incentive bonus
compensation during the most recent five taxable years, excluding the value of
certain stock options, restricted stock awards, contributions to qualified
plans, and other fringe benefits or perquisites, and subject to additional
restrictions provided in each employment agreement. Specifically, the total
amount paid to the Executive as a result of termination following a Change in
Control may not exceed 1% for Mr. Brooks, 0.67% for Mr. Sharp, or 0.5% for Mr.
McDonald, of the aggregate valuation (as defined in each employment agreement)
at the time of a Change in Control. In addition, all of the Executive’s
outstanding stock options and restricted stock awards will become 100% vested
and exercisable, and the Company will maintain for 12 months (or until the
Executive begins new employment, if earlier) all life insurance, medical, health
and accident, and disability plans or programs to which the Executive is
entitled.
Good Reason is defined in each
employment agreement to include:
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·
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a
material change in status, position or responsibilities which does not
represent a promotion from existing status, position or responsibilities
as in effect immediately prior to the Change in Control; the assignment of
any duties or responsibilities or the removal or termination of duties or
responsibilities (except in connection with the termination of employment
for total and permanent disability, death, or cause, or by the Executive
other than for good reason), which are materially inconsistent with such
status, position or
responsibilities;
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·
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a
reduction in base salary or the Company’s failure to increase (within
twelve months of the last increase in base salary) base salary after a
Change in Control in an amount which at least equals, on a percentage
basis, the average percentage increase in base salary for all executive
and senior officers of the Company, in like positions, which were effected
in the preceding twelve months;
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·
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the
relocation of the Company’s principal executive offices to a location more
than 75 miles from Nelsonville, Ohio or the relocation of the Executive’s
regular office assignment by the Company to any place outside of a 15 mile
radius of Nelsonville, Ohio, except for required travel on the Company’s
business to an extent consistent with business travel obligations at the
time of a Change in Control;
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·
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the
failure of the Company to continue in effect, or continue or reduce the
Executive’s participation in, on a percentage basis, by more than the
average percentage decrease for all executive and senior officers of the
Company, in like positions, which were effected in the preceding twelve
months, any incentive, bonus or other compensation plan in which the
Executive participates, including but not limited to the Company’s stock
option plans, unless an equitable arrangement has been made or offered
with respect to such plan in connection with the Change in
Control;
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·
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the
failure by the Company to continue to provide benefits substantially
similar to those enjoyed under any of the Company’s pension, profit
sharing, life insurance, medical, dental, health and accident, or
disability plans at the time of a Change in Control, the taking of any
action by the Company which would directly or indirectly materially reduce
any of such benefits at the time of the Change in Control, or the failure
by the Company to provide the number of paid vacation and sick leave days
in accordance with the Company's normal vacation policy in
effect;
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·
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the
failure of the Company to obtain a satisfactory agreement from any
successor or assign of the Company to assume and agree to perform the
employment agreement;
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·
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any
request by the Company that the Executive participate in an unlawful act
or take any action constituting a breach of a professional standard of
conduct; or
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·
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any
breach of the employment agreement by the
Company.
|
Good Reason for Mr. Sharp also includes
the election of an individual other than him or Mr. Brooks as Chief Executive
Officer of the Company, so long as Mr. Sharp gives the Company notice of his
termination of employment between 60 days and 120 days after such
election.
Aggregate Valuation is defined in each
employment agreement to mean the total amount of all cash, securities,
contractual arrangements and other properties paid in connection with a Change
in Control, or the fair market value of the Company’s equity securities at the
time of a Change in Control, depending on how the Change in Control is effected.
Aggregate valuation could also include (depending on how the Change in Control
is effected):
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·
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the
amount of any short-term debt and long-term liabilities of the
Company;
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·
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the
value of any current assets not purchased, minus the value of any current
liabilities not assumed;
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·
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the
fair market value of the equity securities of the Company retained by the
Company’s security holders following a Change in Control;
and
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|
·
|
any
securities received by the Company’s security holders in exchange for or
in respect of securities of the Company following a Change in
Control.
|
Change in Control is defined in each
employment agreement to include the following:
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|
·
|
any
person or group shall acquire beneficial ownership of shares of the
outstanding stock of any class or classes of the Company which results in
such person or group possessing more than 50% of the total voting power of
the Company’s outstanding voting securities ordinarily having the right to
vote for the election of directors of the
Company;
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·
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as
the result of, or in connection with, any tender or exchange offer, merger
or other business combination, the owners of the voting shares of the
Company outstanding immediately prior to such transaction own less than a
majority of the voting shares of the Company after the
transaction;
|
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·
|
during
any period of two consecutive years during the term of the employment
agreement, individuals who at the beginning of such period constitute the
Board of Directors of the Company (or who take office following the
approval of a majority of the directors then in office who were directors
at the beginning of the period) cease for any reason to constitute a
majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors of the Company representing at least one-half of the directors
then in office who were directors at the beginning of the period;
or
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·
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the
sale, exchange, transfer, or other disposition of all or substantially all
of the assets of the Company shall have
occurred.
|
Potential
Payments upon Termination or Change in Control Table
Potential
payments upon termination or Change in Control under the agreements with our
NEOs are shown in the tables below. We have used estimates where it is not
possible to give a precise dollar amount for the potential payments. The
estimates assume that the triggering event took place on December 31, 2009, the
last day of the Company’s prior fiscal year. In the tables below, we have
assumed that all accrued base salary has been paid as of the termination
date.
POTENTIAL
PAYMENTS TO MR. BROOKS UNDER EMPLOYMENT AGREEMENT
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Executive Benefits and Payments Upon Termination
|
|
Termination by
Company with
Cause or by
Executive for any
Reason
($)
|
|
|
Termination by
Company
without Cause
($)
|
|
|
Termination upon
Death
or Disability
($)
|
|
|
Termination by
Company without
Cause by
Executive with
Good Reason
Following
Change in
Control
($)
|
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|
|
|
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|
Compensation:
|
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
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|
Base
Salary
|
|
|
—
|
|
|
|
475,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
Incentive
Compensation Plan (accrued but unpaid)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Change
in Control Payment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,350,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Benefits:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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|
13,512
|
|
|
Life
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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|
77,496
|
|
|
Disability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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|
1,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
value:
|
|
|
—
|
|
|
|
475,000
|
|
|
|
—
|
|
|