SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A INFORMATION
PROXY
STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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Filed
by the Registrant
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x
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Filed
by a Party other than the Registrant
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o
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Check
the appropriate box:
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Preliminary
Proxy Statement
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Confidential,
For Use of the Commission Only (As Permitted by Rule
14a-6(e)(2))
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x
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to § 240.14a-12
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DOCUMENT
SECURITY SYSTEMS, INC.
(Name
of
Registrant as Specified In Its Charter)
(Name
of
Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment
of Filing Fee (Check the appropriate
box):
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x
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No
fee required
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction applies:
N/A
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(2)
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Aggregate
number of securities to which transaction applies: N/A
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(3)
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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):
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(4)
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Proposed
maximum aggregate value of transaction: N/A
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(5)
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Total
fee paid: N/A
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Fee
paid previously with preliminary materials.
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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.
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Amount
Previously Paid: N/A
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Schedule or Registration Statement No.: N/A
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Party: N/A
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DOCUMENT
SECURITY SYSTEMS, INC.
28
EAST MAIN STREET, SUITE 1525
ROCHESTER,
NEW YORK 14614
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
Rochester,
New York
April
3,
2008
The
annual meeting of the stockholders of Document Security Systems, Inc., will
be
held on Thursday, May 1, 2008, at 11:00 a.m. at the offices of Document Security
Systems, Inc., 28 East Main Street, First Floor Conference Center, Rochester,
New York, 14614 for the purposes of:
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1.
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Electing
seven directors to hold office until the next annual meeting of
stockholders;
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2.
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To
approve an amendment to the Document Security Systems, Inc. 2004
Employee
Stock Option Plan that will, among other things, increase the number
of
shares of the Company’s Common Stock available for the grant of awards
thereunder by an additional 500,000
shares;
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3.
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To
approve an amendment to the Document Security Systems, Inc. 2004
Non-Executive Director Stock Option Plan that will, among other things,
(i) increase the number of shares of the Company’s Common Stock available
for the grant of awards thereunder by an additional 100,000 shares
and
(ii) increase the number of stock options awarded to non-employee
directors in the annual grant of stock
options;
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4.
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Considering
and voting upon a proposal to ratify Freed Maxick & Battaglia, CPAs PC
as the Company’s independent registered public accountants for the fiscal
year ending December 31, 2008; and
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5.
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Transacting
such other business as may properly come before the
meeting.
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Stockholders
of record at the close of business on March 17, 2008, will be entitled to vote
at the meeting. A list of all stockholders entitled to vote at the annual
meeting, arranged in alphabetical order and showing the address of and number
of
shares held by each stockholder, will be open at the principal office of
Document Security Systems, Inc., 28 East Main Street, Suite 1525, Rochester,
New
York 14614, during usual business hours, to the examination of any stockholder
for any purpose germane to the annual meeting for 10 days prior to the date
thereof.
A
copy of
Document Security System’s Annual Report on Form 10-K for fiscal year ended
December 31, 2007 accompanies this notice.
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By
Order of the Board of Directors
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| Robert Fagenson | ||
| Chairman of the Board | ||
WHETHER
OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY PROMPTLY. A RETURN ADDRESSED ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE.
i
DOCUMENT
SECURITY SYSTEMS, INC.
28
EAST MAIN STREET, SUITE 1525
ROCHESTER,
NEW YORK 14614
PROXY
STATEMENT FOR THE COMPANY’S
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON MAY 1, 2008
QUESTIONS
AND ANSWERS ABOUT THESE PROXY MATERIALS
Why
am I receiving this proxy statement?
This
proxy statement describes the proposal on which our board of directors would
like you, as a stockholder, to vote at the annual meeting of the stockholders
of
the Company, which will take place on Thursday, May 1, 2008 at 11:00 a.m. local
time at 28 East Main Street, First Floor Conference Center, Rochester, New
York
14614. It also gives you information on this proposal so that you can make
an
informed decision. We intend to mail this proxy statement and accompanying
proxy
card on or about April 7, 2008 to all stockholders of record entitled to vote
at
the annual meeting.
In
this
proxy statement, we refer to Document Security Systems, Inc. as the “Company”,
“we”, “us” or “our.”
Who
can vote at the annual meeting of stockholders?
Stockholders
who owned shares of common stock of the Company, par value $.02 per share
(“Common Stock”), on March 17, 2008 may attend and vote at the annual meeting.
Each share is entitled to one vote. There were 13,654,364 shares
of
Common Stock outstanding on March 17, 2008. All shares of Common Stock shall
vote together as a single class. Information about the stockholdings of our
directors and executive officers is contained in the section of this proxy
statement entitled “Security Ownership of Management” on page three (3) of this
proxy statement.
What
is the proxy card?
The
proxy
card enables you to appoint David Wicker, Secretary of the Company, and/or
Patrick White, Chief Executive Officer of the Company, as your representative
at
the annual meeting. By completing and returning the proxy card, you are
authorizing these persons to vote your shares at the annual meeting in
accordance with your instructions on the proxy card. This way, your shares
will
be voted whether or not you attend the annual meeting. Even if you plan to
attend the annual meeting, we suggest that you complete and return your proxy
card before the annual meeting date just in case your plans change. If a
proposal comes up for vote at the annual meeting that is not on the proxy card,
the proxies will vote your shares, under your proxy, according to their best
judgment.
What
am I voting on?
You
are
being asked to vote on the election of board of directors, amendments to the
2004 Non-Executive Director Stock Option Plan, amendments to the 2004 Employee
Stock Option Plan and the ratification of the Company’s independent registered
public accountants for the fiscal year ending December 31, 2008. We will also
transact any other business that properly comes before the annual
meeting.
How
does the board of directors recommend that I vote?
Our
board
of directors unanimously recommends that the stockholders vote “for” the
nominees for director, “for” the amendments to the 2004 Non-Executive Director
Stock Option Plan, “for” the amendments to the 2004 Employee Stock Option Plan
and “for” the ratification of the Company’s independent registered public
accountants for the fiscal year ending December 31, 2008.
ii
What
is the difference between holding shares as a stockholder of record and as
a
beneficial owner?
Most
of
our stockholders hold their shares in an account at a brokerage firm, bank
or
other nominee holder, rather than holding share certificates in their own name.
As summarized below, there are some distinctions between shares held of record
and those owned beneficially.
Stockholder
of Record
If
on
March 17, 2008, your shares were registered directly in your name with our
transfer agent, American Stock Transfer and Trust Company, you are a stockholder
of record who may vote at the annual meeting, and we are sending these proxy
materials directly to you. As the stockholder of record, you have the right
to
direct the voting of your shares by returning the enclosed proxy card to us
or
to vote in person at the annual meeting. Whether or not you plan to attend
the
annual meeting, please complete, date and sign the enclosed proxy card to ensure
that your vote is counted.
Beneficial
Owner
If
on
March 17, 2008, your shares were held in an account at a brokerage firm or
at a
bank or other nominee holder, you are considered the beneficial owner of shares
held “in street name,” and these proxy materials are being forwarded to you by
your broker or nominee who is considered the stockholder of record for purposes
of voting at the annual meeting. As the beneficial owner, you have the right
to
direct your broker on how to vote your shares and to attend the annual meeting.
However, since you are not the stockholder of record, you may not vote these
shares in person at the annual meeting unless you receive a valid proxy from
your brokerage firm, bank or other nominee holder. To obtain a valid proxy,
you
must make a special request of your brokerage firm, bank or other nominee
holder. If you do not make this request, you can still vote by using the voting
instruction card enclosed with this proxy statement; however, you will not
be
able to vote in person at the annual meeting.
How
do I Vote?
(1)
You
may
vote by mail.
You
may
vote by mail by completing, signing and dating your proxy card and returning
it
in the enclosed, postage-paid and addressed envelope. If we receive your proxy
card prior to the annual meeting and if you mark your voting instructions on
the
proxy card, your shares will be voted:
| · |
as
you instruct, and
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·
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according
to the best judgment of the proxies if a proposal comes up for a
vote at
the annual meeting that is not on the proxy
card.
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If
you return a signed card, but do not provide voting instructions,
your
shares will be voted:
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·
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for
the seven (7) nominees to the board, all of whom are presently serving
on
the board;
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·
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to
approve the ratification of the Company’s independent registered public
accountants for the fiscal year ending December 31, 2008;
and
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·
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according
to the best judgment of either Mr. Wicker or Mr. White, if a proposal
comes up for a vote at the annual meeting that is not on the proxy
card.
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(2)
You
may
vote in person at the annual meeting.
We
will
pass out written ballots to anyone who wants to vote at the annual meeting.
However, if you hold your shares in street name, you must bring to the annual
meeting a valid proxy from the broker, bank or other nominee holding your shares
that confirms your beneficial ownership of the shares and gives you the right
to
vote your shares. Holding shares in street name means you hold them through
a
brokerage firm, bank or other nominee, and therefore the shares are not held
in
your individual name. We encourage you to examine your proxy card closely to
make sure you are voting all of your shares in the Company.
iii
What
does it mean if I receive more than one proxy card?
You
may
have multiple accounts at the transfer agent and/or with brokerage firms. Please
sign and return all proxy cards to ensure that all of your shares are
voted.
What
if I change my mind after I return my proxy?
You
may
revoke your proxy and change your vote at any time before the polls close at
the
annual meeting. You may do this by:
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·
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sending
a written notice to the Secretary of the Company stating that you
would
like to revoke your proxy of a particular date;
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·
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signing
another proxy card with a later date and returning it before the
polls
close at the annual meeting; or
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·
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attending
the annual meeting and voting in
person.
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Please
note, however, that if your shares are held of record by a brokerage firm,
bank
or other nominee, you must instruct your broker, bank or other nominee that
you
wish to change your vote by following the procedures on the voting form provided
to you by the broker, bank or other nominee. If your shares are held in street
name, and you wish to attend the annual meeting and vote at the annual meeting,
you must bring to the annual meeting a legal proxy from the broker, bank or
other nominee holding your shares, confirming your beneficial ownership of
the
shares and giving you the right to vote your shares.
Will
my shares be voted if I do not sign and return my proxy
card?
If
your
shares are held in street name or in your name and you do not sign and return
your proxy card, your shares will not be voted unless you vote in person at
the
annual meeting.
How
are votes counted?
You
may
vote “for,” “against,” or “abstain” on each of the election of directors and the
ratification of the Company’s independent registered public
accountants.
How
many votes are required to elect the nominated persons to the Board of
Directors?
The
affirmative vote of a plurality of the votes cast at the meeting of the
stockholders by the holders of shares of common stock entitled to vote in the
election are required to elect each director.
How
many votes are required to amend the Stock Option Plans?
The
affirmative vote of a majority of the votes cast at the meeting of the
shareholders by the holders of shares of Common Stock entitled to vote are
required to amend the Stock Option Plans.
iv
How
many votes are required to ratify the Company’s independent registered public
accountants?
The
affirmative vote of a majority of the votes cast at the meeting of the
stockholders by the holders of shares of common stock entitled to vote are
required to ratify Freed Maxick & Battaglia, CPAs, PC as the Company’s
independent registered public accountants for the year ending December 31,
2008.
How
many votes are required to approve other matters that may come before the
stockholders at the annual meeting?
An
affirmative vote of a majority of the votes cast at the annual meeting is
required for approval of all other items being submitted to the stockholders
for
their consideration.
What
happens if I don’t indicate how to vote my proxy?
If
you
just sign your proxy card without providing further instructions, your shares
will be counted as a “for” vote for the nominees on the proxy card and as a
“for” vote for the ratification of the Company’s independent registered public
accountants for the fiscal year ending December 31, 2008.
Is
my vote kept confidential?
Proxies,
ballots and voting tabulations identifying stockholders are kept confidential
and will not be disclosed except as may be necessary to meet legal
requirements.
Where
do I find the voting results of the annual meeting?
We
will
announce voting results at the annual meeting.
Who
can help answer my questions?
You
can
contact our corporate headquarters, at (585) 325-3610 or by sending a letter
to
Investor Relations, Document Security Systems, Inc., 28 East Main Street, Suite
1525, Rochester, New York, 14614, with any questions about proposals described
in this proxy statement or how to execute your vote.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
v
DOCUMENT
SECURITY SYSTEMS, INC.
28
EAST MAIN STREET, SUITE 1525
ROCHESTER,
NEW YORK 14614
PROXY
STATEMENT
SOLICITATION
OF PROXIES
The
enclosed proxy is solicited by the Board of Directors of Document Security
Systems, Inc. (the “Company”), for use at the annual meeting of the Company’s
stockholders to be held at the office premises of Document Security Systems,
Inc., 28 East Main Street, First Floor Conference Center, Rochester, New York,
14614 on Thursday, May 1, 2008, at 11:00 a.m. and at any adjournments thereof.
Whether or not you expect to attend the meeting in person, please return your
executed proxy in the enclosed envelope and the shares represented thereby
will
be voted in accordance with your wishes. This proxy statement and the enclosed
form of proxy are being first mailed to stockholders on or about April 7,
2008.
REVOCABILITY
OF PROXY
Any
stockholder executing a proxy that is solicited hereby has the power to revoke
it prior to the voting of the proxy. Revocation may be made by attending the
annual meeting and voting the shares of stock in person, or by delivering to
the
Secretary of the Company at the principal office of the Company prior to the
annual meeting a written notice of revocation or a later-dated, properly
executed proxy. This solicitation of proxies is being made by the Company.
The
solicitation is being conducted by mail, and the Company will bear all attendant
costs.
RECORD
DATE
Stockholders
of record at the close of business on March 17, 2008, will be entitled to vote
at the meeting.
ACTION
TO BE TAKEN UNDER PROXY
Unless
otherwise directed by the giver of the proxy, the persons named in the enclosed
form of proxy, to-wit, David Wicker and Patrick White, or either one of them
who
acts, will vote:
| (1) |
FOR
the election of the persons named herein as nominees for directors
of the
Company, for a term expiring at the 2008 annual meeting of stockholders
(or until successors are duly elected and
qualified);
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| (2) |
FOR
amendments to the Document Security Systems, Inc. 2004 Employee Stock
Option Plan that will, among other things, increase the number of
shares
of the Company’s Common Stock available for the grant of awards thereunder
by an additional 500,000 shares;
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| (3) |
FOR
amendments to the Document Security Systems, Inc. 2004 Non-Executive
Director Stock Option Plan that will, among other things, (i) increase
the
number of shares of the Company’s Common Stock available for the grant of
awards thereunder by an additional 100,000 shares and (ii) increase
the
number of stock options awarded to non-employee directors in the
annual
grant of stock options;
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| (4) |
FOR
ratification of Freed Maxick & Battaglia, CPAs, PC as the Company’s
independent registered public accountants for the year ending December
31,
2008; and
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| (5) |
According
to their judgment, on the transaction of such other business as may
properly come before the meeting or any adjournments
thereof.
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Should
any nominee named herein for election as a director become unavailable for
any
reason, it is intended that the persons named in the proxy will vote for the
election of such other person in his stead as may be designated by the Board
of
Directors. The Board of Directors is not aware of any reason that might cause
the nominee to be unavailable.
2
VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF
As
of
March 17, 2008, there were 13,654,364 shares
of
common stock issued and outstanding, which constitute all of the outstanding
capital stock of the Company. Stockholders are entitled to one vote for each
share of common stock held by them.
A
majority of the outstanding shares present in person or represented by proxy
will constitute a quorum at the meeting. Under New York state law and provisions
of the Company’s Certificate of Incorporation and By-Laws, as amended, the vote
required for the election of directors is a plurality of the votes of the issued
and outstanding shares of Common Stock present in person or represented by
proxy
at the annual meeting of stockholders and entitled to vote on the election
of
directors.
Abstentions
from voting and broker non-votes will operate as neither a vote for nor a vote
against the nominee for a director. Votes on all matters will be counted by
duly
appointed inspectors of election, whose responsibilities are to ascertain the
number of shares outstanding and the voting power of each, determine the number
of shares represented at the meeting and the validity of proxies and ballots,
count all votes and report the results to the Company.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As
of
March 17, 2008, the following persons were known to the Company who may,
individually or as a group, be deemed to be the beneficial owners of more than
5% of the outstanding common stock, each having sole voting and dispositive
power over such common stock, except as indicated in the footnotes
hereto:
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Percentage
of Outstanding
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||||||||||
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Name
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Common
Stock Owned
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Common
Stock Owned
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||||||||
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Patrick
White
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826,100
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(1) |
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6.1
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%
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||||
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c/o
Document Security Systems
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||||||||||
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28
Main St. East, Suite 1525
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||||||||||
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Rochester,
NY 14614
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||||||||||
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Vera
Neuman
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1,000,000
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7.3
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%
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|||||||
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c/o
Document Security Systems
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||||||||||
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28
Main St. East, Suite 1525
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||||||||||
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Rochester,
NY 14614
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||||||||||
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Robert
B. Fagenson
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1,017,500
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(2) |
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7.5
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%
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||||
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c/o
Document Security Systems
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||||||||||
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28
Main St. East, Suite 1525
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||||||||||
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Rochester,
NY 14614
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||||||||||
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Martin
Vegh
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1,000,000
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7.3
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%
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|||||||
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c/o
Document Security Systems
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||||||||||
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28
Main St. East, Suite 1525
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||||||||||
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Rochester,
NY 14614
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||||||||||
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Charles
M. LaLoggia
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1,426,610
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10.4
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%
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|||||||
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c/o
Document Security Systems
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||||||||||
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28
Main St. East, Suite 1525
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||||||||||
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Rochester,
NY 14614
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||||||||||
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(1)
|
Includes
30,000 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days.
|
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(2)
|
Includes
17,500 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days, 100,000 shares of common stock held by
Mr.
Fagenson’s wife and an aggregate of 100,000 shares of common stock held in
trusts for Mr. Fagenson’s two adult children. Mr. Fagenson disclaims
beneficial ownership of the 100,000 shares of common stock held by
his
wife and the 100,000 shares of common stock held in trusts for Mr.
Fagenson’s two adult children.
|
3
SECURITY
OWNERSHIP OF MANAGEMENT
The
following table represents beneficial ownership of common stock by each director
and nominee for election as a director, by each of the executive officers named
in the Summary Compensation Table (see “Executive and Management Compensation”
below), and by all current directors, nominees and executive officers as a
group
(each director, nominee and officer having sole voting and dispositive power
over the shares listed opposite his name except as indicated in the footnotes
hereto).
Unless
otherwise noted, the security information is given as of March 17, 2008, and,
in
the case of percentage ownership, is based on 13,654,364 shares
of
common stock issued and outstanding.
|
Percentage
of Outstanding
|
||||||||||
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Name
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Common
Stock Owned
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Common
Stock Owned
|
||||||||
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Patrick
White
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826,100
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(1
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)
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6.0
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%
|
|||||
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Peter
Ettinger
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323,333
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(2
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)
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2.4
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%
|
|||||
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David Wicker
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164,833
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1.2
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%
|
|||||||
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Philip
Jones
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67,500
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(3
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)
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Less
than 1
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%
|
|||||
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Timothy
Ashman
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22,600
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(4
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)
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Less
than 1
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%
|
|||||
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Robert
B. Fagenson
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1,017,500
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(5
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)
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7.4
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%
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|||||
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Ira
A. Greenstein
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17,500
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(6
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)
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Less
than 1
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%
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|||||
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Alan
E. Harrison
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24,750
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(7
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)
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Less
than 1
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%
|
|||||
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All
Executive Officers and Directors
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||||||||||
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(8
persons) as a Group
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2,464,116
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(8
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)
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17.8
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%
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|||||
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(1)
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Includes
30,000 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days.
|
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(2)
|
Includes
40,000 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days, 33,333 shares of restricted stock that
vest in
two equal installments in June 2008 and June 2009, and 250,000 shares
of
restricted stock that vests only upon a change in control of the
Company
or certain other material events to the
Company.
|
|
(3)
|
Includes
42,500 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days and 25,000 shares of restricted stock
that
vests only upon a change in control of the Company or certain other
material events to the Company.
|
|
(4)
|
Includes
20,000 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days.
|
|
(5)
|
Includes
17,500 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days, 100,000 shares of common stock held by
Mr.
Fagenson’s wife and an aggregate of 100,000 shares of common stock held in
trusts for Mr. Fagenson’s two adult children. Mr. Fagenson disclaims
beneficial ownership of the 100,000 shares of common stock held by
his
wife and the 100,000 shares of common stock held in trusts for Mr.
Fagenson’s two adult children.
|
4
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(6)
|
Consists
of 17,500 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days.
|
|
(7)
|
Includes
of 23,750 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days.
|
|
(8)
|
Includes
all shares of common stock and common stock issuable upon the exercise
of
stock options exercisable within 60 days held by the persons listed
in the
table above.
|
5
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
AND
RELATED PERSON TRANSACTIONS
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who beneficially own more than ten percent of our equity securities
to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Based solely on our review of copies of such reports and
representations from our executive officers and directors, we believe that
our
executive officers and directors complied with all Section 16(a) filing
requirements during the year ended December 31, 2007.
Review
of Related Person Transactions
The
Board
of Directors adopted a Statement of Policy with respect to Related Person
Transactions, which is administered by the Audit Committee. This policy applies
to any transaction or series of transactions in which the Company or a
subsidiary is a participant, the amount involved exceeds $120,000 and a Related
Person has a direct or indirect material interest. Under the Policy, Company
counsel will determine whether a transaction meets the requirements of a Related
Person Transaction requiring review by the Committee. Transactions that fall
within this definition will be referred to the Audit Committee for approval,
ratification or other action. Based on its consideration of all of the relevant
facts and circumstances, the Audit Committee will decide whether or not to
approve such transaction and will approve only those transactions that are
in
the best interests of the Company.
Transactions
with Related Persons
On
December 26, 2006, the Company sold 94 units at a price of $50,000 per unit
for
gross cash proceeds of $4,700,000, consisting of 552,720 unregistered shares
of
our common stock and five-year warrants to purchase up to an aggregate of
276,360 shares of our common stock, at an exercise price of $11.75 per share.
A
portion of the proceeds were generated by Fagenson & Co., Inc., acting as
placement agent for the offering. Pursuant to the Company’s placement agent fee
arrangement, in 2007, the Company paid approximately $230,000 to Fagenson and
Co., Inc. Fagenson and Co., Inc. is a related party to Robert Fagenson, the
Company’s Chairman of the Board of Directors and Lead Independent Director.
On
January 4, 2008, the Company entered into a Credit Facility Agreement (the
“Fagenson Credit Agreement”) with Fagenson and Co., Inc., as agent, a related
party to Robert Fagenson, Chairman of the Company's Board of Directors. Under
the Fagenson Credit Agreement, the Company can borrow up to a maximum of
$3,000,000 from time to time up to and until January 4, 2010. The advances
are
generally limited to $400,000 unless otherwise mutually agreed upon by both
parties per fiscal quarter, with the exception of $600,000 that can be advanced
at any time for patent litigation related bills. Any amount borrowed by the
Company pursuant to the Fagenson Credit Agreement will have an annual interest
rate of 2% above LIBOR and will be secured by the Common Stock of Plastic
Printing Professionals, Inc., the Company's wholly owned subsidiary. Interest
is
payable quarterly in arrears and the principal is payable in full at the end
of
the term under the Fagenson Credit Agreement. Under the terms of the agreement,
the Company is required to comply with various covenants. On March 31, 2008,
the
balance of the Fagenson Credit Agreement was $840,000.
In
addition, on January 4, 2008, the Company also entered into a Credit Facility
Agreement (the “White Credit Agreement”) with Patrick White, the Company's Chief
Executive Officer. Under the White Credit Agreement, the Company can borrow
up
to $600,000 from time to time up to and until January 4, 2010. Any amount
borrowed by the Company pursuant to the White Credit Agreement will have an
annual interest rate of 2% above LIBOR and will be secured by the accounts
receivable of Document Security Systems, Inc. Interest is payable quarterly
in
arrears and the principal is payable in full at the End of the Term under the
White Credit Agreement. Mr. White can accept common stock instead of cash upon
default. Under the terms of the agreement, the Company is required to comply
with various covenants. During the year ended December 31, 2007, Patrick White
advanced the Company $300,000 pursuant to the credit facility while the terms
of
the credit facility agreement were being negotiated. On March 31, 2008, the
balance of the White Credit Agreement was $450,000.
6
PROPOSAL
1 — ELECTION OF DIRECTORS
INFORMATION
ABOUT THE NOMINEES
The
Company’s By-laws currently specify that the number of Directors shall be at
least three and no more than six persons, unless otherwise determined by a
vote
of the majority of the Board of Directors. In 2006, the Board voted to increase
the size of the Board to seven, and the Company’s Board of Directors currently
consists of seven persons. The Company’s By-laws provide that any vacancies on
the Board of Directors may be filled by the remaining members of the Board
of
Directors. Proxies solicited by the Company for the election of Directors cannot
be voted for a greater number of persons than the number of nominees named
in
the proxy.
The
following table shows for each nominee and director continuing in office his
age, his principal occupation for at least the last five years, his present
position with the Company, the year in which he was first elected or appointed
as director (each serving continuously since first elected or appointed except
as set forth in the footnotes hereto), and his directorships with other
companies whose securities are registered with the Securities and Exchange
Commission (“SEC”). Each director is elected or nominated to the Board of
Directors until the following annual meeting of stockholders.
NOMINEES
TO BE ELECTED TO SERVE AS DIRECTOR UNTIL
THE
NEXT ANNUAL MEETING
|
Name
|
Age
|
Positions
|
||
|
Robert
B. Fagenson
|
59
|
Chairman
of the Board of Directors
|
||
|
Patrick
White
|
54
|
Chief
Executive Officer and Director
|
||
|
Peter
Ettinger
|
52
|
President
and Director
|
||
|
David
Wicker
|
48
|
Vice
President of Operations and Director
|
||
|
Timothy
Ashman
|
65
|
Director
|
||
|
Ira
A. Greenstein
|
47
|
Director
|
||
|
Alan
E. Harrison
|
58
|
Director
|
The
principal occupation and business experience for each executive officer and
director, for at least the past five years, is as follows:
Patrick
White
has been
Chief Executive Officer and Interim Chief Financial Officer of the Company
since
August 2002, was President of the Company from August 2002 until June 2006
and
was Chairman of the Board of Directors of the Company from August 2002 until
January 2008. A former financial services and printing industry executive,
he
had previously spent 23 years at Rochester Community Savings Bank, which was
later acquired by Charter One Bank. During his tenure, the bank grew from an
$800 million private thrift to a $4 billion publicly held institution. Since
1989, Mr. White acquired and operated four printing companies, updating his
original traditional offset printing companies to a state-of-the-art digital
imaging operation. Since 1990, he worked in the research and development of
various optical deterrent document security technologies and began marketing
security print products in 1994. He holds both a B.S. in Accounting and an
MBA
from Rochester Institute of Technology.
Peter
Ettinger
was
named President of the Company in June 2006 and a Director in August 2006.
Before joining Document Security Systems, Mr. Ettinger was partner of the Long
Branch Group, LLC, a company focused on the development and implementation
of
corporate sales and marketing strategies for start-up companies. Prior to Long
Branch, LLC, Mr. Ettinger was Senior Vice President of marketing for CityNet,
a
telecommunications company
7
David
Wicker
joined
our company as Vice President of Operations in August 2002 and was named a
Director in December 2007. Mr. Wicker serves as a Vice President of Operations
of the Company, directing the technical operations behind our patented document
security properties. Mr. Wicker is an active member of the Document Security
Alliance, NASPO and an associate member of the National Association of Fraud
Examiners. Prior to joining the Company, Mr. Wicker consulted for banknote
and
security printers and developed several security technologies in use worldwide
today.
Timothy
Ashman
was
appointed to our Board of Directors in January 2004. Mr. Ashman was employed
by
HSBC Bank USA, formerly Marine Midland Bank, from 1964 until his retirement
as
Vice President in 2001. During his career in banking, he concentrated in branch
banking administration, commercial lending, and municipal finance and government
banking. Mr. Ashman is a graduate of the University of Rochester, with a B.A.
in
Business Administration, and is also a graduate of the Stonier School of Banking
at Rutgers University. Since his retirement in 2001, he has been a consultant
to
Raymond Wager, CPA, P.C., a Rochester, New York firm that specializes in
auditing school districts, municipalities, and foundations.
Robert
B. Fagenson
is the
Chairman and President of Fagenson & Co., Inc., a New York Stock Exchange
member brokerage firm. Mr. Fagenson has been a Member of the New York Stock
Exchange since 1973, and formerly served as a Director and Vice Chairman of
the
New York Stock Exchange. Mr. Fagenson also serves as a member of the Board
of
Directors of Cash Technologies Inc (AMEX: TQ). Mr. Fagenson was appointed to
our
Board of Directors in September 2004, and was named the Chairman of the Board
in
January 2008.
Ira
A. Greenstein
is
President of IDT Corporation (NYSE: IDT), a provider of wholesale and retail
telecommunications services. Prior to joining IDT in January 2000, Mr.
Greenstein was a partner in the law firm of Morrison & Foerster LLP from
February 1997 to November 1999, where he served as the chairman of the firm’s
New York Office’s Business Department. Concurrent to his tenure at Morrison
& Foerster, Mr. Greenstein served as General Counsel and Secretary of
Net2Phone, Inc. from January 1999 to November 1999. Prior to 1997, Mr.
Greenstein was an associate in the New York and Toronto offices of Skadden,
Arps, Meagher & Flom LLP. Mr. Greenstein also served on the Securities
Advisory Committee to the Ontario Securities Commission from 1992 through 1996.
From 1991 to 1992, Mr. Greenstein served as counsel to the Ontario Securities
Commission. Mr. Greenstein currently serves on the Board of Advisors of the
Columbia Law School Center on Corporate Governance. Mr. Greenstein received
a
B.S. from Cornell University and a J.D. from Columbia University Law School.
Mr.
Greenstein was appointed to our Board of Directors in September
2004.
Alan
E. Harrison
was
appointed to our Board of Directors in May 2003. For more than thirty years,
Mr.
Harrison has held a variety of positions with IKON Office Solutions, Inc.,
in
Rochester, New York, focusing on color digital printing equipment.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NAMED
NOMINEES.
8
INFORMATION
CONCERNING BOARD OF DIRECTORS
Compensation
of Directors
Through
December 31, 2006, each independent director (as defined under Part 1, Section
121 of the American Stock Exchange Company Guide) received $6,000 per year
in
compensation soon after the end of each fiscal year, so long as the Director
attended at least 75% of the Board of Director meetings during such fiscal
year,
as well as reimbursement for travel expenses. Non-independent members of the
Board of Directors do not receive cash compensation in any form, except for
reimbursement of travel expenses. In order to attract and retain qualified
persons to our board, in January 2004, we established a stock option plan for
our non-executive board members. The plan provides for the granting of five-year
options to purchase our stock at 100% of fair market value at the date of grant.
Under the plan, each non-executive director receives options to acquire 5,000
shares upon becoming a board member and 5,000 shares at the beginning of each
year thereafter while serving as a director. For joining the Board at a point
partially within a year, the stock option award is pro rated.
In
March
2007, the Board of Directors of the Company increased the annual cash
compensation, effective for 2007, for each independent director from $6,000
per
year to $12,000 per year, and increased the annual stock option grant, effective
for 2008, for each independent director from 5,000 shares per year to 5,000
shares plus an additional 1,000 shares for each year of service on the Board,
up
to a maximum of 10,000 shares per year.
The
following table shows 2007 compensation of our independent directors. Employee
directors do not receive compensation for their service on the Board of
Directors:
|
|
|
Fees
Earned or
|
|
Stock
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
|
|
|
|
|||||
|
Name
|
|
Paid
in Cash ($)
|
|
Awards
|
|
(1)
|
|
Compensation
|
|
Total
($)
|
||||||
|
Timothy
Ashman
|
|
12,000
|
|
-
|
|
22,600
|
|
-
|
|
34,600
|
||||||
|
Robert
B. Fagenson
|
12,000
|
-
|
22,600
|
-
|
|
34,600
|
||||||||||
|
Ira
A. Greenstein
|
12,000
|
-
|
22,600
|
-
|
|
34,600
|
||||||||||
|
Alan
E. Harrison
|
12,000
|
-
|
22,600
|
-
|
|
34,600
|
||||||||||
|
(1)
|
Represents the
accounting expense recognized by the Company in fiscal year 2007
related
to stock option awards. Because
the options fully vested during the year of grant, this column also
represents the aggregate grant date fair value for each
director. The assumptions used to calculate the accounting
expense recognized in fiscal year 2007 for these stock options is
set
forth in Note 7 to the Company’s consolidated audited financial statements
included in the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2007. The aggregate number of option awards
outstanding at fiscal year-end appears below in the “Outstanding Director
Equity Awards at Fiscal Year-End” table.
|
9
OUTSTANDING
DIRECTOR EQUITY AWARDS AT FISCAL YEAR-END
The
following table shows the outstanding equity awards of our independent directors
as of December 31, 2007:
|
Name
|
Number
of Securities Underlying Unexercised Options
|
Number
of Securities Underlying Unexercised Options
|
Option
Exercise Price
|
Option
Expiration Date
|
Number
of Shares of Stock That Have Not Vested
|
Market
Value of Shares or Units of Stock That Have Not
Vested
|
|||||||||||||
|
|
(#)
|
(#)
|
($)
|
|
(#)
|
($)
|
|||||||||||||
|
Exercisable
|
Un-exercisable
|
|
|
|
|||||||||||||||
|
|
|
|
|||||||||||||||||
|
Timothy
Ashman
|
5,000
|
-
|
$
|
4.35
|
01/04/2009
|
-
|
-
|
||||||||||||
|
5,000
|
-
|
7.14
|
01/02/2010
|
-
|
-
|
||||||||||||||
|
5,000
|
-
|
12.65
|
01/02/2011
|
-
|
-
|
||||||||||||||
|
5,000
|
5,000
|
11.10
|
01/02/2012
|
-
|
-
|
||||||||||||||
|
Robert
B. Fagenson
|
5,000
|
-
|
6.00
|
09/24/2009
|
-
|
-
|
|||||||||||||
|
2,500
|
-
|
7.14
|
01/02/2010
|
-
|
-
|
||||||||||||||
|
5,000
|
-
|
12.65
|
01/02/2011
|
-
|
-
|
||||||||||||||
|
5,000
|
5,000
|
11.10
|
01/02/2012
|
-
|
-
|
||||||||||||||
|
Ira
A. Greenstein
|
5,000
|
-
|
6.00
|
09/24/2009
|
-
|
-
|
|||||||||||||
|
2,500
|
-
|
7.14
|
01/02/2010
|
-
|
-
|
||||||||||||||
|
5,000
|
-
|
12.65
|
01/02/2011
|
-
|
-
|
||||||||||||||
|
5,000
|
5,000
|
11.10
|
01/02/2012
|
-
|
-
|
||||||||||||||
|
Alan
E. Harrison
|
5,000
|
-
|
2.20
|
05/01/2009
|
-
|
-
|
|||||||||||||
|
|
3,750
|
-
|
4.35
|
01/04/2009
|
-
|
-
|
|||||||||||||
|
|
5,000
|
-
|
7.14
|
01/02/2010
|
-
|
-
|
|||||||||||||
|
|
5,000
|
-
|
12.65
|
01/02/2011
|
-
|
-
|
|||||||||||||
|
5,000
|
5,000
|
11.10
|
01/02/2012
|
-
|
|||||||||||||||
Board
of Directors and Committees
The
Board
of Directors has determined that each of Messrs. Ashman, Fagenson, Greenstein
and Harrison is an independent director (as defined under Part 1, Section 121
of
the American Stock Exchange Company Guide).
The
Board
of Directors held eight meetings in fiscal 2007. In fiscal 2007, each of the
Company’s directors attended or participated in 75% or more of the aggregate of
(i) the total number of meetings of the Board of Directors held during the
period in which each such director served as a director and (ii) the total
number of meetings held by all committees of the Board of Directors during
the
period in which each such director served on such committee.
Directors
are encouraged to attend the Company’s annual meetings of stockholders, and the
Company generally schedules a meeting of the Board of Directors on the same
date
and at the same place as the annual meeting of stockholders to encourage
director attendance. All of the directors constituting the Board of Directors
at
the time of the 2006 annual meeting of stockholders attended the 2007 annual
meeting of stockholders, except Mr. Greenstein.
10
Audit
Committee
The
Audit
Committee is comprised of Mr. Ashman, Mr. Harrison and Mr. Greenstein, and
is
responsible for, among other things, the appointment, compensation, removal
and
oversight of the work of the Company’s independent registered public accounting
firm, overseeing the accounting and financial reporting process of the Company,
and reviewing related person transactions. Each of the members of this Committee
is an independent director (as defined under Part 1, Section 121 of the American
Stock Exchange Company Guide). The Audit Committee operates under a written
charter adopted by the Board of Directors, which can be found in the Corporate
Governance section of our web site, www.documentsecurity.com, and is also
available in print to any stockholder upon request to the Corporate Secretary.
Mr. Ashman serves as Chairman of the Audit Committee and, as determined by
our
Board of Directors, qualifies as a “financial expert” as defined in Item 407
under Regulation S-K of the Securities Act of 1933. The Audit Committee held
nine meetings during fiscal 2006.
Compensation
and Management Resources Committee
The
Compensation and Management Resources Committee consists of Mr. Fagenson, Mr.
Greenstein and Mr. Harrison, and is responsible for, among other things, (a)
reviewing all compensation arrangements for the executive officers of the
Company and (b) administering the Company’s stock option plans. Each of the
members of the Compensation and Management Resources Committee is an independent
director (as defined under Part 1, Section 121 of the American Stock Exchange
Company Guide). The Compensation and Management Resource Committee operates
under a written charter adopted by the Board of Directors, which can be found
in
the Corporate Governance section of our web site, www.documentsecurity.com,
and
is also available in print to any stockholder upon request to the Corporate
Secretary. Mr. Harrison serves as Chairman of the Compensation and Management
Resources Committee. The Compensation and Management Resources Committee held
four meetings during fiscal 2007.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee consists of Mr. Greenstein and
Mr.
Harrison, both of whom are independent directors (as defined under Part 1,
Section 121 of the American Stock Exchange Company Guide). he Nominating and
Corporate Governance Committee is responsible for overseeing the appropriate
and
effective governance of the Company, including, among other things, (a)
nominations to the Board of Directors and making recommendations regarding
the
size and composition of the Board of Directors and (b) the development and
recommendation of appropriate corporate governance principles. The Nominating
and Corporate Governance Committee operates under a written charter adopted
by
the Board of Directors, which can be found in the Corporate Governance section
of our web site, www.documentsecurity.com, and is also available in print to
any
stockholder upon request to the Corporate Secretary. Mr. Harrison serves as
Chairman of the Nominating and Corporate Governance Committee. The Nominating
and Corporate Governance Committee held four meetings during fiscal
2007.
Code
of Ethics
A
copy of
the Code of Ethics for our employees and management, including our Chief
Financial Officer and Chief Executive Officer, is available on the
Investors/Corporate Governance section of our web site,
www.documentsecurity.com.
11
DIRECTOR
NOMINATIONS
The
Nominating and Corporate Governance Committee of the Board of Directors is
responsible for identifying and selecting qualified candidates for election
to
the Board of Directors prior to each annual meeting of the stockholders. A
copy
of the Nominating and Corporate Governance Committee Charter is available on
the
Investors/Charters section of our web site, www.documentsecurity.com. In
addition, stockholders who wish to recommend a candidate for election to the
Board of Directors may submit such recommendation to the Chairman of the
Committee. Any recommendation must include name, contact information,
background, experience and other pertinent information on the proposed
candidate. The standards for considering nominees to the Board are included
in
the Corporate Governance Committee Charter. The Committee is willing to consider
candidates recommended by stockholders pursuant to its policies. In identifying
and evaluating nominees for director, the Committee considers each candidate’s
qualities, experience, background and skills, as well as other factors, such
as
the individual’s ethics, integrity and values which the candidate may bring to
the Board of Directors. Any stockholder who desires the Committee to consider
one or more candidates for nomination as a director should either by personal
delivery or by United States mail, postage prepaid, deliver a written
recommendation addressed to the Chairman, Document Security Systems, Inc.,
Nominating and Corporate Governance Committee, 28 East Main Street, Suite 1525
Rochester, New York 14614, not later than (i) with respect to an election to
be
held at the 2008 annual meeting of stockholders, February 3, 2008; and (ii)
with
respect to an election to be held at a special meeting of stockholders for
the
election of directors, the close of business on the tenth day following the
date
on which notice of such meeting is first given to stockholders. Each written
recommendation should set forth: (a) the name and address of the stockholder
making the recommendation and of the person or persons recommended; (b) the
consent of such person(s) to serve as a director(s) of the Company if nominated
and elected; and (c) description of how the person(s) satisfy the criteria
for
consideration as a candidate referred to above.
COMMUNICATION
WITH DIRECTORS
The
Company has established procedures for stockholders or other interested parties
to communicate directly with the Board of Directors. Such parties can contact
the Board of Directors by mail at: Document Security Systems Board of Directors,
Attention: Robert Fagenson, Chairman of the Board, Document Security Systems,
Inc, 28 East Main Street, Suite 1525 Rochester, New York 14614. All
communications made by this means will be received by the Chairman of the
Board.
COMPENSATION
AND MANAGEMENT RESOURCES COMMITTEE INTERLOCKS
AND
INSIDER PARTICIPATION
Other
than as otherwise disclosed herein, no current member of the Compensation and
Management Resources Committee is now an officer or an employee of the Company
or any of its subsidiaries or has any other relationship required to be
disclosed pursuant to Item 407(e)(4) under Regulation S-K. See Transactions
with
Related Persons.
Notwithstanding
anything to the contrary set forth in any of the Company’s previous filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of
1934, as amended, that might incorporate by reference future filings, including
this Proxy Statement, in whole or in part, the following Audit Committee Report
and Accounting Fees shall not be incorporated by reference into any such
filings.
AUDIT
COMMITTEE REPORT
The
Audit
Committee is comprised of three independent directors (as defined under Part
1,
Section 121 of the American Stock Exchange Company Guide). The Audit Committee
operates under a written charter adopted by the Board of Directors on January
5,
2004, which can be found in the Corporate Governance section of our web site,
www.documentsecurity.com, and is also available in print to any stockholder
upon
request to the Corporate Secretary.
12
We
have
reviewed and discussed with management the Company’s audited consolidated
financial statements as of and for the fiscal year ended December 31, 2007,
as
well as the quarterly unaudited financial statements.
We
have
reviewed and discussed with management and the independent registered public
accounting firm the quality and the acceptability of the Company’s financial
reporting and internal controls.
We
have
discussed with the independent registered public accounting firm the overall
scope and plans for their audit as well as the results of their examinations,
their evaluations of the Company’s internal controls, and the overall quality of
the Company’s financial reporting.
We
have
discussed with management and the independent registered public accounting
firm
such other matters as required to be discussed with the Audit Committee under
Professional Standards, the corporate governance standards of the American
Stock
Exchange and the Audit Committee’s Charter.
We
have
received and reviewed the written disclosures and the letter from the
independent registered public accounting firm required by Independence Standard
No. 1 of the Independence Standards Board, and have discussed with the
independent registered public accounting firm their independence from management
and the Company, including the impact of permitted non-audit related services
approved by the Committee to be performed by the independent registered public
accounting firm.
Based
on
the reviews and discussions referred to above, we recommended to the Board
of
Directors that the financial statements referred to above be included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2007, be filed with the Securities and Exchange Commission.
Timothy
Ashman, Audit Committee Chairman
Alan
E.
Harrison
Ira
A.
Greenstein
EXECUTIVE
OFFICERS
The
persons who are serving as executive officers of the Company as of March 17,
2008 are Patrick White, Chief Executive Officer, and Peter Ettinger, President.
Philip Jones, Vice President of Finance and Treasurer, acts as the Company’s
principal financial officer and is, therefore, a “Named Executive
Officer.”
EXECUTIVE
COMPENSATION
COMPENSATION
AND MANAGEMENT RESOURCES COMMITTEE REPORT
The
Compensation and Management Resources Committee has reviewed and discussed
the
following Compensation Discussion and Analysis with management and, based on
such review and discussion, the Compensation and Management Resources Committee
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
13
The
Compensation and Management Resources Committee:
Alan
E.
Harrison, Chairman
Robert
B.
Fagenson
Ira
A.
Greenstein
COMPENSATION
DISCUSSION & ANALYSIS
This
compensation discussion and analysis describes the material elements of
compensation paid to our executive officers identified in the Summary
Compensation Table below as our named executive officers for the fiscal year
ending December 31, 2007.
The
Compensation and Management Resources Committee of our board of directors
oversees our executive compensation program. Thus, the Compensation and
Management Resources Committee annually reviews and approves, or recommends
for
approval, all compensation decisions relating to our executive officers.
Compensation
Philosophy and Objectives
We
seek
to offer competitive compensation opportunities for all employees based on
employee’s contribution and personal performance. We are committed to providing
a fair executive compensation program to help us attract, motivate and retain
highly qualified executives. Our compensation policy is designed to provide
total compensation that is competitive with comparable work and comparable
corporate performance. In addition to providing competitive compensation
packages, we also seek to achieve a balance of the compensation paid to a
particular individual and the compensation paid to our other executives and
employees. Moreover, our executive officers are rewarded based upon an
assessment of corporate, business group and individual performance. Corporate
performance and business group performance are evaluated by reviewing the extent
to which business goals are met, including such factors as achievement of
operating budgets and timely accomplishment of strategic objectives. Individual
performance is evaluated by reviewing the individual’s contributions to the
Company’s success and the accomplishment of specified individual
objectives.
Elements
of 2007 Compensation
The
primary element of executive compensation is base salary. The annual salary
is
determined on the basis of each executive officer’s responsibility, the general
salary practices of companies with which the Company competes and each officer’s
individual qualification and experience. The Company provides named executive
officers, like its other employees, a base salary in order to compensate them
for the services that they provide to the Company over the course of the year.
The Company attempts to meet competitive salary norms for a company of its
size
and to reward exceptional performance and increased levels of responsibility
through annual salary increases.
Base
salaries are typically evaluated annually and, subject to Employment Agreements,
adjusted from their base level from year to year based upon the executives’
performance, level of responsibility and other factors relating to individual
performance. In determining whether the executive goals have been achieved,
the
Compensation and Management Resources Committee considers numerous factors,
including the following: the Company’s performance as measured by earnings;
Adjusted EBITDA, revenues; market share; technologies developed, and total
assets. Although the Compensation and Management Resources Committee measures
the performance and increases in compensation in light of these factors, no
direct correlation exists between any specific criteria and an employee’s
compensation, nor in its analysis, does the Compensation and Management
Resources Committee attribute a particular weight to any specific criteria.
A
subjective determination is made after review of all relevant information,
including the above.
14
When
appropriate, bonuses generally are based on actual corporate and individual
performance compared to and various subjective performance criteria. Subjective
performance criteria include the Company’s near-term and long-term financial
results and outlook, an executive’s ability to motivate others, develop the
skills necessary to grow as we mature as a company, recognize and pursue new
business opportunities and initiate programs to enhance our growth and success.
The Compensation and Management Resources Committee does not rely on a formula
that assigns a pre-determined value to each of the criteria, but instead
evaluates an executive officer’s contribution in light of all criteria. Our
named executive officers did not earn any bonus in 2007.
Compensation
for executive officers may also include the long-term incentives afforded by
stock options and restricted stock awards. The purpose of stock options and
restricted stock awards is designed to align the long-term interests of our
employees and our stockholders and assist in the retention of executives. The
size of stock-based awards is generally intended to reflect the executive’s
position with us and his or her contributions to us, including his or her
success in achieving the individual performance criteria described above and
his
or her contributions to our corporate goals.
Because
of the direct relationship between the value of an option and the market price
of our common stock, the Compensation and Management Resources Committee
believes that granting stock options is an effective method of motivating
executive officers to manage the Company in a manner that is consistent with
the
interests of our Company and our stockholders. However, because of the evolution
of regulatory, tax and accounting treatment of equity incentive programs, and
because it is important to us to retain our executive officers and key
employees, the Compensation and Management Resources Committee realizes that
it
is important that the company utilize other forms of equity awards as and when
we may deem it necessary.
Finally,
while we believe it is important for our executives to have an equity stake
in
our company in order to help align their interests with those of our
stockholders, we do not currently have any equity ownership guidelines for
our
executive officers.
15
EXECUTIVE
COMPENSATION TABLES
Summary
Compensation Table
The
following table sets forth the compensation earned by our named executive
officers, or NEOs, for services rendered to us for the years ended
December 31, 2006 and 2007.
|
Name
and Principal Position
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
All
Other Compen-sation |
|
Total
|
|
||||||||
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|||||||||||
|
(3)
|
|
(3)
|
|
(1)
|
||||||||||||||||||
|
Patrick
White,
|
||||||||||||||||||||||
|
Chief
Executive Officer
|
2007
|
|
199,650
|
-
|
|
-
|
|
17,664
|
|
217,314
|
||||||||||||
|
2006
|
181,500
|
-
|
-
|
23,391
|
204,891
|
|||||||||||||||||
|
Peter
Ettinger (2)
|
||||||||||||||||||||||
|
President
|
2007
|
176,538
|
-
|
179,500
|
81,280
|
8,082
|
445,400
|
|||||||||||||||
|
2006
|
85,000
|
25,500
|
89,748
|
81,280
|
1,700
|
283,228
|
||||||||||||||||
|
Philip
Jones
|
||||||||||||||||||||||
|
Vice
President of Finance
|
||||||||||||||||||||||
|
and
Treasurer
|
2007
|
112,461
|
-
|
-
|
45,750
|
4,488
|
162,699
|
|||||||||||||||
|
2006
|
97,923
|
-
|
-
|
3,917
|
101,840
|
|||||||||||||||||
|
(1)
|
The
All Other Compensation column represents the value perquisites for
401(k)
matching contributions, automobile expense and club
dues.
|
|
(2)
|
Peter
Ettinger was hired by the Company and named President on June 26,
2006.
|
|
(3)
|
The
Stock Awards and Option Awards columns include the dollar amount
of
compensation expense we recognized for the years ended December 31,
2006 and 2007 in accordance with FAS 123R. These amounts reflect our
accounting expense for these awards and do not correspond to the
actual
value that will be recognized by the NEOs. Assumptions used in the
calculation of these amounts are included in Note 7 to our audited
financial statements included in our annual report on
Form 10-K.
|
Employment
Agreements
Effective
June 10, 2004, we entered into an employment agreement with Patrick White,
who
serves as our Chief Executive Officer. The agreement was negotiated and approved
by the Compensation and Management Resources Committee of the Board of
Directors. The agreement is for a term of five years, with an annual base salary
of $150,000, with automatic increases at the rate of not less than 10% per
year.
Under the agreement, Mr. White also was granted 30,000 stock options, which
are
now fully vested. In the event that Mr. White is terminated without cause or
his
duties are materially changed without his consent or there is a change of
control of the Company, he will be entitled to 18 months salary. The agreement
also provides for non-competition and non-disclosure by Mr. White in favor
of
the Company.
On
June
26, 2006, we entered into an Employment Agreement with Peter Ettinger, who
serves as our President. The agreement was negotiated and approved by the
Compensation and Management Resources Committee of the Board of Directors.
The
agreement is for a term of three years, with an annual base salary of $170,000,
with increases at the discretion of the Company’s Chief Executive Officer or
Board of Directors. Under the agreement, Mr. Ettinger also was granted 50,000
shares of restricted common stock that was scheduled to vest equally in three
annual installments. The agreement also provides for non-competition and
non-disclosure by Mr. Ettinger in favor of the Company.
16
2007
Grants of Plan-Based Awards
The
following grants of plan-based awards table provides information about stock
and
option awards and equity incentive plan awards granted to our NEO’s during the
year ended December 31, 2007.
|
|
|
Estimated
Future Payouts Under Non-Equity Incentive Plan
Awards
|
All
Other Stock Awards:
|
|
All
Other Option Awards:
|
Exercise
or Base
|
Grant
Date
Fair Value of Stock and |
||||||||||||||||||
|
Name
|
Grant
Date
|
|
Threshold
($)
|
|
Target
($) |
|
Maximum($)
|
|
Number
of Shares of Stock
|
|
Number
of Shares
Underlying Options |
|
Price
of Option Awards ($/Sh)
|
|
Option
Awards ($) |
||||||||||
|
(#)
|
|
(#)
|
|
|
|
|
|||||||||||||||||||
|
Patrick
White
|
-
|
|
-
|
|
-
|
|
-
|
-
|
-
|
|
-
|
|
-
|
||||||||||||
|
Peter
Ettinger
|
-
|
|
-
|
|
-
|
|
-
|
-
|
-
|
|
-
|
|
-
|
||||||||||||
|
Philip
Jones
|
5/3/2007
|
|
-
|
|
-
|
|
-
|
-
|
25,000
|
|
12.50
|
|
137,250
|
||||||||||||
|
5/3/2007
|
|
-
|
|
-
|
|
-
|
25,000
|
|
312,500
|
||||||||||||||||
Outstanding
Equity Awards at Fiscal Year-End
The
following table summarizes the equity awards we have made to our Named
Executive Officers,
which
are outstanding as of December 31, 2007:
|
Number
of
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number
of
|
|
Market
Value of
|
|
||||||
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
Option
|
|
Shares
of Stock
|
|
Shares
or Units of
|
|
||||||
|
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Expiration
|
|
That
Have Not
|
|
Stock
That Have
|
|
||||||
|
Name
|
|
Options
|
|
Options
|
|
Price
|
|
Date
|
|
Vested
|
|
Not
Vested
|
|
||||||
|
|
|
(#)
|
|
(#)
|
|
($)
|
|
|
|
(#)
|
|
($)
|
|||||||
|
Exercisable
|
|
Un-exercisable
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|||||||||||||||||
|
Patrick
White
|
30,000
|
-
|
|
7.25
|
6/10/2009
|
-
|
|
-
|
|||||||||||
|
Peter
Ettinger
|
40,000
|
-
|
|
10.19
|
12/9/2011
|
-
|
|
-
|
|||||||||||
|
|
33,334 |
(1)
|
|
216,338
|
|||||||||||||||
|
|
250,000 |
(3)
|
|
1,622,500
|
|||||||||||||||
|
Philip
Jones
|
30,000
|
-
|
|
8.38
|
7/14/2010
|
-
|
|
-
|
|||||||||||
|
|
-
|
25,000(2
|
)
|
|
12.50
|
5/2/2012
|
-
|
|
-
|
||||||||||
| 25,000 |
(3)
|
|
162,250
|
||||||||||||||||
|
(1)
|
Vests
ratably on 06/26/2008 and 6/26/2009.
|
|
|
(2)
|
Vests
ratably on 05/3/2008 and 05/3/2009.
|
|
|
(3)
|
Vests
only upon
a change in control of the Company or certain other material events
to the
Company.
|
17
2007
Option Exercises and Stock Vested Table
|
Option
Awards (1)
|
|
Stock
Awards (1)
|
|
||||||||||
|
|
|
Number
of
Shares
Acquired
on
Exercise
|
|
Value
Realized On
Exercise
|
|
Number
of
Shares
Acquired
on
Vesting
|
|
Value
Realized on
Vesting
|
|||||
|
Name
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
||||||
|
Patrick
White
|
—
|
|
—
|
—
|
|
—
|
|||||||
|
Peter
Ettinger
|
—
|
—
|
16,667
|
179,500
|
|||||||||
|
Philip
Jones
|
—
|
—
|
—
|
—
|
|||||||||
|
(1)
|
The
Option Awards and Stock Awards columns include the dollar amount
of
compensation expense the Company recognized for the year ended
December 31, 2007 in accordance with FAS 123R. These amounts
reflect our accounting expense for these awards and do not correspond
to
the actual value that will be recognized by the NEOs. Assumptions
used in
the calculation of these amounts are included in Note 7 to our
audited financial statements included in our annual report on
Form 10-K.
|
Pension
Benefits and Deferred Compensation Plans
The
Company does not provide pension benefits or deferred compensation plans.
Potential
Payments upon Termination or Change-in-Control
The
table
below reflects the amount of compensation payable to each of the Named
Executives in the event of a change in control or possible change in control
under the Employment Agreements, as further described in the Compensation
Discussion and Analysis section of this Proxy Statement.
|
Change
in Control
|
|
Severance
|
|
||||
|
Name
|
|
($)
|
|
($)
|
|||
|
Patrick
White
|
|
299,475
|
|
299,475
|
|||
|
Peter
Ettinger
|
3,125,000
|
359,007
|
|||||
|
Philip
Jones
|
312,500
|
-
|
|||||
18
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides certain information as of December 31, 2007 with
respect to our equity compensation plans.
|
Plan
Category
|
Restricted
stock to be issued upon vesting
|
Number
of securities
to
be issued upon
exercise
of outstanding
options,
warrants
and
rights
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights ($)
|
Number
of securities
remaining
available
for
future issuance (under equity compensation Plans (excluding securities
reflected in column
(a & b))
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Equity
compensation plans approved by security holders
|
|
|
|
||||||||||
|
2004 Employee Stock Option Plan
|
513,323
|
617,500
|
|
9.83
|
54,177
|
||||||||
|
2004 Non-Executive Director Plan
|
78,750
|
8.78
|
21,250
|
||||||||||
|
Equity
compensation plans not approved by security holders
|
|||||||||||||
|
Contractual warrant grants for services
|
211,760
|
10.12
|
-
|
||||||||||
|
|
|||||||||||||
|
Total
|
513,323
|
908,010
|
|
9.80
|
75,427
|
||||||||
19
PROPOSAL
2-- AMENDMENTS TO THE DOCUMENT SECURITY SYSTEMS 2004 EMPLOYEE STOCK OPTION
PLAN
We
are asking for your approval of amendments to the Document Security Systems
2004
Employee Stock Option Plan, (as amended and restated, the “Amended 2004 Employee
Plan”), that will increase the shares available for award under the Amended 2004
Employee Plan by 500,000. The Company’s Board of Directors adopted the Amended
2004 Employee Plan on June 20, 2007, subject to stockholder approval, and
directed that it be submitted to stockholders for approval at the 2008 annual
stockholders meeting.
The
Board
of Directors believes the proposed amendment is necessary to provide the Company
with sufficient reserve of shares of Common Stock for future awards needed
to
attract and retain the services of key employees, directors and consultants
to
the Company essential to the Company’s long-term success. Approval of the
Amended 2004 Employee Plan will also ensure that one of the conditions necessary
to securing tax deduction for compensation paid under the Amended 2004 Employee
Plan is met. Section 162(m) of the Code imposes a limit on the tax deductibility
by a company of compensation in excess of $1,000,000 in any year paid to a
person whose compensation is required to be disclosed in the Summary
Compensation Table. The limit does not apply to performance-based compensation,
such as compensation received from the exercise of stock options, if certain
conditions, including stockholder approval, are met.
A
full
copy of the Amended 2004 Employee Plan is attached hereto as Exhibit A and
has
been filed with the Securities and Exchange Commission with this Proxy
Statement.
New
Plan Benefits
The
Company cannot now determine the number of stock options and restricted stock
awards to be granted in the future under the Amended 2004 Employee Plan.
Vote
Required to Approve the Amended 2004 Employee Plan
The
affirmative vote of the majority of the shares present in person or represented
by proxy at the annual meeting is required for approval of the Amended 2004
Employee Plan. If stockholders do not approve the Amended 2004 Employee Plan,
grants will not be made under that plan.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE
AMENDED
2004 EMPLOYEE PLAN AS DESCRIBED ABOVE.
20
PROPOSAL
3-AMENDMENTS TO DOCUMENT SECURITY SYSTEMS 2004 NON-EXECUTIVE DIRECTOR STOCK
OPTION PLAN
We
are
asking for your approval of amendment to the Document Security Systems 2004
Non-Executive Director Stock Option Plan, (as amended and restated, the “Amended
2004 Non-Executive Director Plan”), that will (i) increase the shares available
for award under the Amended 2004 Non-Executive Director Plan by 100,000 and
(ii)
increase the number of stock options awarded to non-employee directors each
year. The Company’s Board of Directors adopted the Amended 2004 Employee Plan on
March 18, 2008, subject to stockholder approval, and directed that it be
submitted to stockholders for approval at the 2008 annual stockholders meeting.
The
Board
of Directors believes the proposed amendment is necessary to provide the
Company
with sufficient resources needed to attract and retain the services of
non-executive directors essential to the Company’s long-term success. Approval
will also ensure that one of the conditions necessary to securing tax deduction
for compensation paid under the Amended 2004 Non-Executive Director Plan
is met.
Section 162(m) of the Code imposes a limit on the tax deductibility by a
company
of certain compensation in excess of $1,000,000 in any year paid to a person
whose compensation is required to be disclosed in the Summary Compensation
Table.
A
full
copy of the Amended 2004 Non-Executive Director Plan is attached hereto as
Exhibit B and has been filed with the Securities and Exchange Commission
with
this Proxy Statement.
New
Plan Benefits
The
Company cannot now determine the number of stock options and restricted stock
awards to be granted in the future under the Amended 2004 Non-Executive Director
Plan.
Vote
Required to Approve the Amended 2004 Non-Executive Director
Plan
The
affirmative vote of the majority of the shares present in person or represented
by proxy at the annual meeting is required for approval of the Amended 2004
Non-Executive Director Plan. If stockholders do not approve the Amended 2004
Non-Executive Director Plan, grants will not be made under that
plan.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE
AMENDED
2004 NON-EXECUTIVE DIRECTOR PLAN AS DESCRIBED ABOVE.
21
PROPOSAL
NO. 4 —
RATIFICATION
OF THE APPOINTMENT OF FREED MAXICK & BATTAGLIA, CPAs,
PC
AS
THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2008
The
Company’s stockholders are being asked to ratify the Board of Directors’
appointment of Freed Maxick & Battaglia, CPAs, PC as the Company’s
independent registered public accounting firm for fiscal 2008.
In
the
event that the ratification of this selection is not approved by a majority
of
the votes cast by holders of shares of Common Stock voting at the 2008 annual
stockholders meeting in person or by proxy, management will review its future
selection of the Company’s independent registered public accounting
firm.
A
representative of Freed Maxick & Battaglia, CPAs, PC is expected to be
present at the 2008 annual stockholders meeting and will have an opportunity
to
make a statement if he or she desires to do so. It is also expected that
such
representative will be available to respond to appropriate
questions.
Audit
Fees
Audit
fees consist of fees for professional services rendered for the audit of
the
Company’s consolidated financial statements included in the Company’s Annual
Report on Form 10-K, including the audit of internal controls required by
Section 404 of the Sarbanes-Oxley Act of 2002, and the review of financial
statements included in the Company’s Quarterly Reports on Form 10-Q, and
for services that are normally provided by the auditor in connection with
statutory and regulatory filings or engagements. The
aggregate fees billed for professional services rendered by our principal
accountant, Freed Maxick & Battaglia, CPAs, PC, for audit services for the
fiscal years ended December 31, 2007 and 2006 were $260,000 and $125,000,
respectively (2007 includes fees for the audit of internal controls over
financial reporting).
Audit
Related Fees
The
aggregate fees billed for other related services (registration statement
consents) by our principal accountant, Freed Maxick & Battaglia, CPAs, PC,
that are reasonably related to the performance of the audit or review of
our
financial statements for the years ended December 31, 2007 and 2006 were
$5,100
and $21,285, respectively.
Tax
Fees
The
aggregate fees billed for professional services rendered by our principal
accountant, Freed Maxick & Battaglia, CPAs, PC, for tax compliance, tax
advice and tax planning during the years ended December 31, 2007 and 2006
were
$17,650 and $9,350, respectively.
All
Other Fees
The
aggregate fees billed for professional services rendered by our principal
accountant, Freed Maxick & Battaglia, CPAs, PC, for due diligence related
services during the years ended December 31, 2007 and 2006 were $0 and $0,
respectively.
Audit
Committee
Our
Audit
Committee, approved, in advance, all work performed by our principal accountant,
Freed Maxick & Battaglia, CPAs, PC.
22
The
affirmative vote of the majority of the shares present in person or represented
by proxy at the annual meeting is required for ratification of the appointment
of Freed Maxick & Battaglia, CPAs, PC as the Company’s independent
registered public accounting firm for the fiscal year ending December 31,
2008.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF
FREED MAXICK & BATTAGLIA, CPAs, PC AS THE COMPANY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31,
2008.
ANNUAL
REPORT
A
copy of
the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2007
accompanies this notice.
FUTURE
PROPOSALS OF SECURITY HOLDERS
All
proposals of security holders intended to be presented at the 2009 annual
meeting of stockholders must be received by the Company not later than December
11, 2008. Under SEC rules, you must have held for one year at least 2,000
shares
or 1% of our outstanding stock in order to submit a proposal. Stockholders
must
submit such proposals in writing to Document Security Systems, Inc., Attention:
Robert Fagenson, Chairman of the Board, at 28 East Main Street, Rochester,
New
York, 14614.
HOUSE
HOLDING OF MATERIALS
In
some
instances, only one copy of this proxy is being delivered to multiple
stockholders sharing an address, unless the Company has received instructions
from one or more of the stockholders to continue to deliver multiple copies.
We
will deliver promptly upon oral or written request a separate copy of the
proxy
statement to any stockholder at your address. If you wish to receive a separate
copy of the proxy statement, you may call us at (585) 325-3610, or send a
written request to Investor Relations, Document Security Systems, Inc., 28
East
Main Street, Suite 1525, Rochester, New York 14614. If you have received
only
one copy of the proxy statement and wish to receive a separate copy for each
stockholder in the future, you may call us at the telephone number or write
us
at the address listed above. Alternatively, stockholders sharing an address
who
now receive multiple copies of the proxy statement may request delivery of
a
single copy, also by calling us at the number or writing to us at the address
listed above.
MISCELLANEOUS
The
Company will pay the cost of soliciting proxies in the accompanying form.
In
addition to solicitation by mail, certain officers and regular employees
of the
Company may solicit the return of proxies by telephone, telegram or personal
interview and may request brokerage houses, custodians, nominees and fiduciaries
to forward soliciting material to their principals and will agree to reimburse
them for their reasonable out-of-pocket expenses.
OTHER
BUSINESS
The
Board
of Directors knows of no business to be brought before the annual meeting
other
than as set forth above. If other matters properly come before the meeting,
it
is the intention of the persons named in the solicited proxy to vote the
proxy
on such matters in accordance with their judgment.
Stockholders
are urged to mark, sign and send in their proxies without delay.
A
COPY OF
THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR FISCAL 2007 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (INCLUDING RELATED FINANCIAL STATEMENTS
AND
SCHEDULES) IS AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE, UPON WRITTEN REQUEST
TO
INVESTOR RELATIONS, DOCUMENT SECURITY SYSTEMS, INC., 28 EAST MAIN STREET,
SUITE
1525, ROCHESTER, NEW YORK 14614.
|
By
Order of the Board of Directors
|
||
|
|
||
| Robert Fagenson | ||
|
Chairman
of the Board
|
||
|
Rochester,
New York
|
||
| April 3, 2008 | ||
23
DOCUMENT
SECURITY SYSTEMS, INC.
ANNUAL
MEETING OF STOCKHOLDERS
May
1, 2008
PROXY
The
undersigned hereby appoints Patrick White and David Wicker and each of them,
proxies, with full powers of substitution to each to vote all shares of Common
Stock of DOCUMENT SECURITY SYSTEMS, INC. owned by the undersigned at the
Annual
Meeting of Stockholders to be held on May 1, 2008 and at any adjournments
thereof, hereby revoking any proxy heretofore given. The undersigned instructs
such proxies to vote as follows:
I Election
of Directors
Set
forth
below are the names of nominees who will be elected to serve until the next
annual meeting of shareholders.
|
FOR
all
Nominees listed below (except as marked to the contrary below)
|
WITHHOLD
AUTHORITY to
vote for
all nominees listed below
|
||
(Instruction:
Please check appropriate box. To
withhold authority for any individual nominee, strike a line through the
nominee’s name in the list below.)
|
¨
|
Patrick
White
|
¨ |
Peter
Ettinger
|
¨ |
David
Wicker
|
|||
|
|
|
|
|
|||||
|
¨
|
Timothy
Ashman
|
¨ |
Robert
B. Fagenson
|
¨ |
Ira
A. Greenstein
|
¨ |
Alan
E. Harrison
|
|
II. Proposal
to Adopt an Amendment to the 2004 Employee Stock Option Plan that will, among
other things, increase the shares available for award under 2004 Employee
Stock
Option Plan by 500,000.
¨
For ¨
Against ¨
Abstain
III. Proposal
to Adopt an Amendment to the 2004 Non-Executive Director Stock Option Plan
that
will, among other things, (i) increase the shares available for award under
2004
Non-Executive Director Stock Option Plan by 100,000 and (ii) increase the
number
of stock options awarded to non-employee directors each
year.
¨
For ¨
Against ¨
Abstain
IV Proposal
to Ratify the appointment of Freed Maxick & Battaglia, CPAs, PC, as the
Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2008.
¨
For ¨
Against ¨
Abstain
AND TO
VOTE UPON ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN AND RETURN
THE PROXY IN THE ENCLOSED ENVELOPE.
Either
of
the proxies, who shall be present and acting, shall have and may exercise
all
the powers hereby granted.
24
IF
NO
OTHER ELECTION IS MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
FOR:
(i) THE ELECTION OF SEVEN DIRECTORS and (ii) THE RATIFICATION OF THE APPOINTMENT
OF FREED MAXICK & BATTAGLIA, CPAs, PC, AS THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31,
2008.
Said
proxies will use their discretion with respect to any other matters which
properly come before the meeting.
|
Dated:
______________________, 2008
|
|||
| _______________________________ | |||
|
Signature
|
|||
| _______________________________ | |||
| Print Name |
(Please
date and sign exactly as accounts.
Each
joint owner should sign. Executors,
administrators,
trustees, etc. should also
so
indicate when signing.)
The
proxy is solicited on behalf of the Board of Directors. Please sign and return
in the enclosed envelope.
25
EXHIBIT
A
DOCUMENT
SECURITY SYSTEMS, INC.
2004
EMPLOYEE STOCK OPTION PLAN
Amended
and Restated as of June 20, 2007
1.
Purpose.
The
purpose of the 2004 Employee Stock Option Plan (the “2004 Plan”) is to advance
the interests of DOCUMENTS SECURITY SYSTEMS, INC., a New York corporation
(the
“Company”), by strengthening the Company’s ability to attract and retain in its
employ or as consultants people of training, experience and ability, and
to
furnish additional incentives to Employees (as such term is hereinafter defined)
of the Company and its subsidiaries upon whose judgment, initiative and efforts
the successful conduct and development of its business largely depends, by
encouraging them to become owners of the capital stock of the
Company.
Accordingly,
the Company may, from time to time, grant to such Employees as may be selected
in the manner hereinafter provided, options to purchase the shares of the
Company’s common stock, $.02 par value (“Common Stock”) and / or restricted
shares of Common Stock upon the terms and conditions hereinafter established.
The options to be granted may, at the discretion of the Company, be designated
to be options which will qualify for incentive stock option treatment under
the
Internal Revenue Code as amended from time to time and the rules and regulations
of the Internal Revenue Service (“ISOs”) or options which will not so qualify
(“Non-ISOs”). Except as otherwise indicated, the terms and conditions
hereinafter established will apply to ISOs and Non-ISOs.
2.
Amount
and Source of Stock.
The
aggregate number and class of shares which may be the subject of options
granted
pursuant to the Plan is 1,700,000 shares of Common Stock (the “Shares”), subject
to adjustment as provided in Paragraph 11. The Shares may be reserved or
made
available from the Company’s authorized and unissued Common Stock or from Common
Stock reacquired and held in the Company’s treasury. In the event that any
option or award of restricted stock granted hereunder shall terminate prior
to
its exercise in full, for any reason, including, without limitation, an option
exchange pursuant to Paragraph 13 hereof, or in the event any Shares issued
upon
the exercise of an option granted hereunder shall be reacquired by the Company
as provided in Paragraph 14 hereof, then the Shares subject to the option
so
exercised or the Shares so reacquired or Shares of restricted stock shall
be
added to the Shares otherwise available for issuance under the Plan.
3.
Administration
of the Plan.
The
Plan shall be administered by the Board of Directors of the Company (the
“Board”), or if so designated by resolution of the Board, by a committee
selected by the Board (the “Committee”), and to be composed of not less than two
members to be appointed from time to time by such Board. References to the
Board
shall include the Committee, if so delegated, with respect to administration
of
the Plan.
The
Board
shall have full authority to interpret the Plan, to establish and amend rules
and regulations relating to it, to determine the Employees to whom options
may
be granted under the Plan, to determine whether each option will be an ISO
or
Non-ISO, to determine the terms and provisions of the respective option
agreements (which need not be identical) and to make all other determinations
necessary or advisable for the administration of the Plan. The Board shall
have
full authority to amend the Plan; provided, however, that any amendment that
(i)
increases the number of Shares that may be the subject of stock options or
restricted stock granted under the Plan, (ii) expands the class of individuals
eligible to receive options or restricted stock under the Plan, (iii) increases
the period during which options or restricted stock may be granted or the
permissible term of options under the Plan, or (iv) decreases the minimum
exercise price of such options, shall only be adopted by the Board, subject
to
shareholder approval. No amendment to the Plan shall, without the consent
of the
holder of an existing option or shares of restricted stock, materially and
adversely affect his rights under any option. The date of which the Board
adopts
resolutions granting an option or shares of restricted stock to a specified
individual shall constitute the date of grant of such option or shares of
restricted stock (the “Date of Grant”); provided, however, that if the grant of
an option or shares of restricted stock is made subject to the occurrence
of a
subsequent event (such as, for example, the commencement of employment),
the
date on which such subsequent event occurs shall be the Date of Grant. The
adoption of any such resolution by the majority of the members of the Board
shall complete the necessary corporate action constituting the grant of said
option and / or shares of restricted stock.
4.
(a)
Eligibility.
Officers, employees and consultants of the Company or subsidiaries of the
Company (collectively, “Employees”) shall be eligible to receive options and
restricted stock hereunder; provided, however, that no option, designated
as an
ISO, shall be granted hereunder to: (i) any person who, together with his
spouse, children and trusts and custodial accounts for their benefit,
immediately at the time of the grant of such option and assuming its immediate
exercise, would beneficially own, within the meaning of Section 425(d) of
the
Internal Revenue Code of 1954, as amended (the “Code”), securities of the
Company possessing more than ten percent (10%) of the total combined voting
power of all of the outstanding stock of the Company (a “Ten Percent
Shareholder”), unless such an option granted to the Ten Percent Shareholder
satisfies the additional conditions for options, designated as an ISO, granted
to Ten Percent Shareholders set forth in subparagraphs 5(a) and 6(a) or (ii)
consultants. For purposes of the Plan, a subsidiary shall mean any corporation
of which the Company owns or controls, directly or indirectly, fifty percent
(50%) or more of the outstanding shares of capital stock normally entitled
to
vote for the election of directors and any partnership of which the Company
or a
corporate subsidiary is a general partner.
(b)
Notwithstanding anything to the contrary herein, the Board shall only grant
an
option designated as an ISO to such persons who are eligible to receive an
ISO
pursuant to Section 422A of the Code.
5.
(a)
Option
Price; Maximum Grant; Vesting.
The
exercise price for the Shares purchasable under options, designated as an
ISO,
granted pursuant to the Plan shall not be less than 100%, or, in the case
of an
option designated as an ISO granted to a Ten Percent Shareholder, 110%, of
the
fair market value per share of the Shares subject to option under the Plan
at
the Date of Grant, as determined by the Board in good faith. The Board shall
consider the fair market value to be closing price of the Common Stock on
the
date the option is granted (if listed on a national securities exchange),
the
representative closing bid price as reported by NASDAQ or the National Quotation
Bureau, Inc. or such other reasonable method based on market quotations.
The
exercise price for the Shares purchasable under options, designated as Non-ISOs,
granted hereunder shall be determined by the Board, which determination shall
be
made in the Board’s sole discretion, acting in good faith. The exercise price
for options granted pursuant to the Plan shall be subject to adjustment as
provided in Paragraph 11.
(b)
With
respect to those options designated as an ISO granted pursuant to the Plan,
the
aggregate fair market value, determined as of the Date of Grant, of the Shares
subject to such options which may be granted to an individual and which are
initially exercisable in any one calendar year, under this Plan and all other
stock option plans of the Company and of any parent or subsidiary of the
Company
pursuant to which incentive stock options may be granted, shall not exceed
$100,000.
(c) The
Board
may adopt a vesting schedule as it may determine in connection with any option
or shares of restricted stock granted under the Plan; provided, however,
in no
event shall an option designated an ISO vest more than $l00,000 in any one
year,
determined at the time of grant.
6.
(a)
Term
of Option; Granting of Options and Restricted Stock.
Subject
to the provisions of the Plan, the Board shall have absolute discretion in
determining the period during which, the rate at which, and the terms and
conditions upon which any option granted hereunder may be exercised, and
whether
any option exercisable in installments is to be exercisable on a cumulative
or
non-cumulative basis; provided, however, that no option granted hereunder
shall
be exercisable for a period exceeding ten (10) years or, in the case of an
option granted to a Ten Percent Shareholder five (5) years, from the Date
of
Grant. Unless the resolution granting an option provides otherwise, each
option
granted hereunder shall, subject to the provisions of Paragraph 8 hereof,
be
exercisable for a period of ten (10) years or, in the case of an option granted
to a Ten Percent Shareholder, five (5) years from the Date of Grant.
(b)
The
grant of options and / or restricted stock by the Board shall be effective
as of
the date on which the Board shall authorize the granting of such option and
/ or
restricted stock; provided, however, that no option or restricted stock granted
hereunder shall be exercisable unless and until the holder shall enter into
an
individual option agreement or restricted stock agreement, as applicable,
with
the Company which shall set forth the terms and conditions of such granting
of
option or restricted stock. Each such agreement shall expressly incorporate
by
reference the provisions of this Plan.
7.
Exercise
of Options.
An
option shall be exercised when written notice of such exercise, signed by
the
person entitled to exercise the option, has been delivered or transmitted
by
registered or certified mail, by overnight delivery or by hand, or by any
other
delivery method acceptable to the Secretary, to the Secretary of the Company
at
its then principal office. Said notice shall specify the number of Shares
for
which the option is being exercised and shall be accompanied by (i) such
documentation, if any, as may be required by the Company as provided in
subparagraph 12(b), and (ii) payment in full of the aggregate option price.
Such
payment shall be in the form of (i) cash or a certified check (unless such
certification is waived by the Company) payable to the order of the Company
in
the amount of the aggregate option price; (ii) shares of Common Stock having
a
fair market value equal to the aggregate option price; or (iv) a combination
of
these methods of payment, including a cashless exercise procedure as approved
by
the Company; provided, however, that in the case of an Incentive Stock Option,
the medium of payment shall be determined at the time of grant and set forth
in
the applicable option agreement. Delivery of said notice shall constitute
an
irrevocable election to purchase the Shares specified in said notice, and
the
date on which the Company receives the last of said notice, documentation
and
the aggregate option exercise price for all of the Shares covered by the
notice
shall, subject to the provisions of Paragraph 11 hereof, be the date as of
which
the Shares so purchased shall be deemed to have been issued. The person entitled
to exercise the option shall not have the right or status as a holder of
the
Shares to which such exercise relates prior to receipt by the Company of
the
payment, notice and documentation expressly referred to in this Paragraph
7.
8.
Stock
Appreciation Rights and Other Option Provisions.
The
form of option agreement and the form of restricted stock agreement authorized
by the Plan may contain such other provisions as the Board may, from time
to
time, determine. Without limiting the foregoing, at the discretion of the
Board,
each option agreement may provide for a stock appreciation right under which
the
optionee may elect to have the Company cancel all or any portion of any option
then subject to exercise, in which event the Company’s obligation in respect of
such option then subject to exercise, may be discharged either by (i) payment
to
the optionee of an amount in cash equal to the excess, if any, of the fair
market value at the time of cancellation of the shares subject to the option
or
portion thereof so canceled over the aggregate purchase price of such shares
as
set forth in the option agreement, (ii) the issuance or transfer to the optionee
of shares of Common Stock of the Company with a fair market value at such
time
equal to any such excess, or (iii) a combination of cash and shares with
a
combined value equal to any such excess, all as determined by the Board in
its
discretion. Stock appreciation rights may, in the discretion of the Board,
also
be granted independent of any grant of options hereunder. In the event of
a
cancellation of all or a portion of an option pursuant to this subsection,
the
number of shares as to which such option was canceled shall not again become
available for use under the Plan.
9.
Exercise
and Cancellation of Options and Restricted Stock Upon Termination of Employment
or Death.
Except
as set forth below, if a holder shall voluntarily or involuntarily terminate
his
service as an Employee, the option of such holder shall terminate upon the
date
which is the earlier of (i) three months after such termination of employment
or
consultancy or (ii) the expiration date of such option. If the termination
of
employment is due to retirement (as defined by the Board in its sole
discretion), the holder shall have the privilege of exercising any option
which
the holder could have exercised on the day upon which he ceased to be an
employee of the Company or any subsidiary of the Company; provided, however,
that such exercise must be accomplished within the term of such option and
within three (3) months of the holder’s retirement. If the termination of
employment or consultancy is due to disability (to an extent and in a manner
as
shall be determined by the Board or, if so designated, the Committee, in
its
sole discretion), he (or his duly appointed guardian or conservator) shall
have
the privilege of exercising any option that he could have exercised on the
day
upon which he ceased to be an Employee; provided, however, that such exercise
must be accomplished within the term of such option and within one (1) year
of
the termination of his employment or consultancy with the Company or any
subsidiary of the Company. If the termination of employment or consultancy
is
due to the death of the holder, the duly appointed executor or administrator
of
his estate shall have the privilege at any time of exercising any option
that
the holder could have exercised on the date of his death; provided, however,
that such exercise must be accomplished within the term of such option and
within one (1) year of the holder’s death. For all purposes of the Plan, an
approved leave of absence as determined by the Board (for an ISO as defined
under the Code or Regulations) shall not constitute interruption or termination
of employment or consultancy. Notwithstanding anything to the contrary herein,
if the employment or consultancy of an Employee is for “cause” as determined in
good faith by the Board, then all options held by such terminated Employee
shall
be deemed cancelled and terminated in full on the date of termination. For
purposes hereof, the term “cause” shall mean any of the following: (i) a
violation of an Company policy regarding insider trading or other violations
related to the state or federal securities laws or regulations; (ii) any
act of
fraud or dishonesty related to the Employee’s employment or consultancy; (iii) a
violation of any Company policy or federal or state law or regulation related
to
sexual or racial or age discrimination or sexual or racial harassment; or
(iv)
conviction by the court of law of a felony, whether or not related to the
Employee’s employment.
Nothing
contained herein or in any option agreement or restricted stock agreement
shall
be construed to confer on any option holder any right to be continued in
the
employ of the Company or any subsidiary of the Company or derogate from any
right of the Company or any subsidiary of the Company to retire, request
the
resignation of or discharge such option holder, or to lay off or require
a leave
of absence of such option holder (with or without pay), at any time, with
or
without cause.
10.
Non-transferability
of Options and Restricted Stock.
No
option or shares of restricted stock granted under the Plan shall be sold,
pledged, assigned or transferred in any manner except by the grantee thereof
and
to the extent that options may be exercised by an executor or administrator
as
provided in Paragraph 9 hereof. An option may be exercised, during the lifetime
of the holder thereof, only by such holder or his duly appointed guardian
or
conservator in the event of his disability.
11.
(a)
Adjustments
Upon Changes in Capitalization.
If the
outstanding Common Stock are subdivided, consolidated, increased, decreased,
changed into, or exchanged for a different number or kind of shares or other
securities of the Company through reorganization, merger, recapitalization,
reclassification, capital adjustment or otherwise, or if the Company shall
issue
additional Common Stock as a dividend or pursuant to a stock split, then
the
number and kind of Shares available for issuance under this Plan and all
Shares
subject to the unexercised portion of any option theretofore granted and
the
option price of such options shall be adjusted to prevent the inequitable
enlargement or dilution of any rights hereunder; provided, however, that
any
such adjustment in outstanding options under the Plan shall be made without
change in the aggregate exercise price applicable to the unexercised portion
of
any such outstanding option. Distributions to the Company’s stockholders
consisting of property other than Common Stock and distributions to shareholders
of rights to subscribe for Common Stock shall not result in the adjustment
of
the Shares purchasable under outstanding options or the exercise price of
outstanding options. Adjustments under this paragraph shall be made by the
Board, with the determination thereof being conclusive and binding. Any
fractional Share resulting from adjustments pursuant to this paragraph shall
be
eliminated from any then outstanding option. Nothing contained herein or
in any
option agreement or restricted stock agreement shall be construed to affect
in
any way the right or power of the Company to make or become a party to any
adjustments, reclassifications, reorganizations or changes in its capital
or
business structure or to merge, consolidate, dissolve, liquidate or otherwise
transfer all or any part of its business or assets.
(b)
If,
in the event of a merger or consolidation, the Company is not the surviving
corporation, and in the event that the agreements governing such merger or
consolidation do not provide for the substitution of new options or other
rights
in lieu of the options granted hereunder or for the express assumption of
such
outstanding options by the surviving corporation, or in the event of the
dissolution or liquidation of the Company, the holder of any option theretofore
granted under this Plan shall have the right not less than five (5) days
prior
to the record date for the determination of shareholders entitled to participate
in such merger, consolidation, dissolution or liquidation, to exercise his
option, in whole or in part, without regard to any installment provision
that
may have been made part of the terms and conditions of such option; provided
that any conditions precedent to such exercise set forth in any option agreement
granted under this Plan, other than the passage of time, have been satisfied.
In
any such event, the Company will mail or cause to be mailed to each holder
of an
option hereunder a notice specifying the date that is to be fixed as of which
all holders of record of the Shares shall be entitled to exchange their Shares
for securities, cash or other property issuable or deliverable pursuant to
such
merger, consolidation, dissolution or liquidation. Such notice shall be mailed
at least ten (10) days prior to the date therein specified. In the event
any
then outstanding option is not exercised in its entirety on or prior to the
date
specified therein, all remaining outstanding options granted hereunder and
any
and all rights thereunder shall terminate as of said date.
(c) In
the event of a Change in Control (as defined below), each award which is
at the
time outstanding under the 2004 Plan automatically shall become fully vested
and
exercisable and, in the case of an award of Restricted Stock, shall be released
from any restrictions on transfer and repurchase or forfeiture rights,
immediately prior to the specified effective date of such Change in Control.
For
purposes of this Section 11(c), “Change in Control” means a change in ownership
or control of the Company effected through either of the following: any
“person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act
(other than (A) the Company, (B) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or (C) any corporation
or other entity owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of common
stock), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or any of its affiliates other than in
connection with the acquisition by the Company or its affiliates of a business)
representing 25% or more of the combined voting power of the Company’s then
outstanding voting securities.
12.
(a)
General
Restrictions.
No
option granted hereunder shall be exercisable if the Board shall, at any
time
and in its sole discretion, determine that (i) the listing upon any securities
exchange, registration or qualification under any state or federal law of
any
Shares otherwise deliverable upon such exercise, or (ii) consent or approval
of
any regulatory body or the satisfaction of withholding tax or other withholding
liabilities, is necessary or appropriate in connection with such exercise.
In
any of such events, the exercisability of such options shall be suspended
and
shall not be effective unless and until the grantee of such option has paid
such
withholding tax or listing, registration, qualification or approval shall
have
been effected or obtained free of any conditions not acceptable to the Board
in
its sole discretion, notwithstanding any termination of any option or any
portion of any option during the period when exercisability has been suspended.
(b)
The
Board may require, as a condition to the right to exercise an option, that
the
Company receive from the option holder, at the time of any such exercise,
representations, warranties and agreements to the effect that the Shares
are
being purchased by the holder only for investment and without any present
intention to sell or otherwise distribute such Shares and that the option
holder
will not dispose of such Shares in transactions which, in the opinion of
counsel
to the Company, would violate the registration provisions of the Securities
Act
of 1933, as then amended, and the rules and regulations thereunder. The
certificates issued to evidence such Shares shall bear appropriate legends
summarizing such restrictions on the disposition thereof.
13.
(a)
Restrictions
on Transfers of Shares; Repurchase by the Company.
Without
the prior written consent of the Company, the individual exercising an option
hereunder shall not sell, transfer, pledge, hypothecate or otherwise dispose
of
any Shares acquired upon the exercise of options hereunder or any interest
in
any such Shares, other than pursuant to a cashless exercise, prior to seven
(7)
months following the date of such exercise. In the event that during the
first
six (6) months of such period the option holder shall, for any reason (other
than death), cease to be an Employee , then forthwith upon the occurrence
of
such event, the Company shall have the right for the duration of such seven
month period to repurchase from the option holder, and upon the exercise
of such
right, the option holder shall be required to sell to the Company, all such
Shares owned by him which are then subject to restriction under this
subparagraph 13(a) for a price equal to the aggregate exercise price paid
for
such Shares. The Company may exercise its right to repurchase Shares by mailing
a notice of exercise to the option holder prior to the expiration of the
Company’s repurchase right. In the event the Company repurchases such Shares,
the certificate or certificates evidencing such Shares shall forthwith be
delivered to the Company against receipt from the Company of full payment
of the
foregoing exercise price therefor.
(b)
The
certificate or certificates delivered to individuals who exercise options
hereunder to evidence shares acquired upon any exercise of an option (as
provided in Paragraph 7 hereof) shall bear, in addition to any restrictive
legend required by subparagraph 12(b) hereof, a legend summarizing the
restrictions set forth in subparagraph (a) of this Paragraph 13.
(c)
In
the event of the death of an option holder, all restrictions set forth in
subparagraph (a) and provided for in subparagraph (b) of this paragraph shall
terminate forthwith with respect to any and all Shares owned by such holder
at
the date of his death, but neither the termination of such restrictions upon
the
death of the holder nor any lapse of restrictions upon the expiration of
any
period specified in subparagraph 13(a) hereof shall affect the obligations
of
the holder (or his executor or administrator) to comply with the requirements
of
subparagraph 12(b) in connection with any sale or other disposition of any
such
shares.
(d)
Anything in the Plan to the contrary notwithstanding, the Board shall have
the
power, in its discretion, to lessen or eliminate the period of time during
which
the transfer of a holder’s Shares is restricted under, and/or to eliminate or
modify in the holder’s favor the Company’s right to repurchase shares pursuant
to, this Paragraph 13, whether before or after any option is granted or
exercised hereunder.
14.
Exchange
of Options.
The
Board shall have the right to grant options or restricted stock hereunder
that
are granted subject to the condition that the grantee shall agree with the
Company to terminate or forfeit all or a portion of another option or options
or
shares of restricted stock previously granted under the Plan. The Shares
of
restricted stock and the Shares that had been issuable pursuant to the exercise
of the option terminated in such an exchange shall, upon such termination,
again
become available for issuance under the Plan.
15.
Termination.
Unless
the Plan shall theretofore have been terminated as hereinafter provided,
the
Plan shall terminate on a date which is ten (10) years from the date of the
original adoption hereof by the Board, and no options under the Plan shall
thereafter be granted, provided, however, the Board at any time may, in its
sole
discretion, terminate the Plan prior to the foregoing date. No termination
of
the Plan shall, without the consent of the holder of an existing option or
shares of restricted stock, materially and adversely affect his rights under
such option or restricted stock.
16.
Submission
for Shareholder Approval.
The
Plan was submitted to the shareholders of the Company for approval in accordance
with the applicable provisions of the New York Business Corporation Law as
promptly as practicable and in any event within one year after the date of
the
original adoption hereof by the Board. Any options granted hereunder prior
to
such shareholder approval were not be exercisable until such approval was
obtained.
17.
Governing
Law.
The
terms and conditions of this Plan and all options and restricted stock granted
hereunder shall be governed by the laws of the State of New York.
EXHIBIT
B
DOCUMENT
SECURITY SYSTEMS, INC.
2004
NON-EXECUTIVE DIRECTOR STOCK OPTION PLAN
Amended
and Restated as of March 18, 2008
1.
PURPOSE
The
purpose of the 2004 Non-Executive Director Stock Option Plan (the “2004
Non-Executive Director Plan”) is to provide a means by which (i) each member of
the Board of Directors of DOCUMENT SECURITY SYSTEMS, INC., a New York
corporation (the “Company”), who is not otherwise a full-time employee of the
Company or any subsidiary of the Company (each such person being hereafter
referred to as a “Non-Executive Director”) and (ii) each person appointed as a
member of any Advisory Board established or maintained by the Company or
the
Board of Directors of the Company who is not otherwise an employee of the
Company or any subsidiary of the Company or an Outside Director (each such
person being hereinafter referred to as an “Advisor”) will be provided a means
by which such person can be awarded options to purchase Common Stock, $.02
par
value per share, of the Company (“Common Stock”) or restricted shares of Common
Stock. The Company, by means of the 2004 Non-Executive Director Plan, seeks
to
attract and retain the services of qualified independent persons to serve
as
Non-Executive Directors and as Advisors, and to provide incentives for such
persons to exert maximum efforts for the long-term success of the
Company.
2.
ADMINISTRATION
(a)
The 2004 Non-Executive Director Plan shall be administered by a committee
of the
Board of Directors of the Company (the “Committee”) which shall at all times
consist of not less than two (2) officers of the Company who are not entitled
to
participate in the 2004 Non-Executive Director Plan, to be appointed by the
Board of Directors and to serve at the pleasure of the Board of
Directors.
(b)
Grant of options under the 2004 Non-Executive Director Plan and the amount
and
nature of the awards to be granted shall be automatic as described in Section
5
hereof. However, all questions of interpretation of the 2004 Non-Executive
Director Plan or of any options issued under it shall be determined by the
Committee and such determination shall be final and binding upon all persons
having an interest in the 2004 Non-Executive Director Plan. A majority of
the
Committee’s members shall constitute a quorum, and all determinations shall be
made by a majority of such quorum. Any determination reduced to writing and
signed by all of the members of the Committee shall be fully effective as
if it
had been made by a majority vote at a meeting duly called and held.
3.
SHARES SUBJECT TO THE PLAN
There
shall be reserved for issuance under the 2004 Non-Executive Director Plan
an
aggregate of 200,000 shares of Common Stock that may be acquired pursuant
to
options granted under the 2004 Non-Executive Director Plan or that may be
issued
as restricted shares of Common Stock under the Plan.
The
Common Stock subject to the 2004 Non-Executive Director Plan may be in whole
or
in part authorized and unissued shares of Common Stock or issued shares of
Common Stock which shall have been reacquired by the Company. If any option
or
shares of restricted stock shall expire, terminate or be forfeited for any
reason without having been exercised in full, the unissued shares subject
thereto shall again be available for granting under the 2004 Non-Executive
Director Plan.
4.
ELIGIBILITY
Options
and restricted stock shall be granted pursuant to the 2004 Non-Executive
Director Plan only to (a) Non-Executive Directors and (b) Advisors.
Non-Executive Directors shall not be entitled to receive additional Options
or
additional shares of restricted stock under this Plan for concurrently serving
as Advisors.
5.
NON-DISCRETIONARY
GRANTS
(a)
Grants to Outside Directors
(i)
Commencing on January 2, 2004, an Option to purchase 5,000 shares of Common
Stock on the terms and conditions set forth herein shall be granted to each
Non-Executive Director upon joining the Board of Directors (or if the director
joined within one year prior to January 5, 2004, the initial grant shall
be
retroactive to the date of joining the Board)
(ii)
Between January 2, 2004 and December 31, 2007, an Option to purchase 5,000
shares of Common Stock shall be granted to each Non-Executive Director on
January 2nd
of each
year; provided that any Non-Executive Director who has not served as a director
for an entire year prior to January 2nd
of such
year shall receive an option to purchase a pro rata number of shares of Common
Stock determined as follows:
|
Date
of Membership
|
Options
Granted
|
|||
|
|
|
|||
|
October
1 through January 2
|
1,250
|
|||
|
July
1 through September 30
|
2,500
|
|||
|
April
1 through June 30
|
3,750
|
|||
|
January
3 through March 31
|
5,000
|
|||
(iii)
On
and after January 31, 2008, an Option to purchase such number of shares of
Common Stock equal to (x) 5,000 plus (y) 1,000 times such number of full
years
the applicable director has served as a Non-Executive Director, but in no
event
shall such aggregate number of shares of Common Stock exceed 10,000, shall
be
granted to each Non-Executive Director on January 2nd
of each
year; provided that any Non-Executive Director who has not served as a director
for an entire year prior to January 2nd
of such
year shall receive an option to purchase a pro rata number of shares of Common
Stock determined as follows:
|
Date
of Membership
|
Options
Granted
|
|||
|
|
|
|||
|
October
1 through January 2
|
1,250
|
|||
|
July
1 through September 30
|
2,500
|
|||
|
April
1 through June 30
|
3,750
|
|||
|
January
3 through March 31
|
5,000
|
|||
Notwithstanding
the foregoing, the grant of options to Non-Executive Directors serving on
the
Board of directors prior to January 5, 2004 is hereby approved in accordance
with the foregoing.
(b)
Grants to Advisors
Commencing
on January 5, 2004, an option to purchase 5,000 shares of Common Stock on
the
terms and conditions set forth herein shall be granted to each Advisor on
January 2nd
of each
year thereafter provided such individual has continually served as an Advisor
for the 12-month period immediately preceding the date of the
grant.
6.
OPTION
PROVISIONS
Each
option shall be evidenced by a written agreement (“Stock Option Agreement”) and
shall contain the following terms and conditions:
(a)
The term of each option commences on the date it is granted and, unless sooner
terminated as set forth herein, expires on the date (“Expiration Date”) five
years from the date of grant. The term of each option may terminate sooner
than
such Expiration Date if the optionee’s service as a Non-Executive Director or
Advisor terminates for any reason or for no reason. In the event of such
termination of service the option shall terminate (i) for Non-Executive
Directors, on the earlier of the Expiration Date or the date seven (7) months
following the date of termination of service as a director and (ii) for Advisors
on the earlier of the Expiration Date or the date three (3) months following
the
date of termination of service. If termination of service is due to optionee’s
death, the option shall terminate on the earlier of the Expiration Date or
twelve (12) months following the date of the optionee’s death. In any and all
circumstances, an option may be exercised following termination of the
optionee’s service as a Non-Executive Director or Advisor only as to that number
of shares as to which it was exercisable on the date of termination of such
services in accordance with the provisions of Subsection 7(e) of the 2004
Non-Executive Director Plan.
(b)
The exercise price of each option shall be one hundred percent (100%) of
the
Fair Market Value of the shares subject to such option on the date such option
is granted. “Fair Market Value” of a share of Common Stock shall mean (i) if the
Common Stock is traded on a national securities exchange or on the Nasdaq
National Market System ("NMS”), the per share closing price of the Common Stock
on the principal securities exchange on which they are listed or on NMS,
as the
case may be, on the date of grant (or if there is no closing price for such
date
of grant, then the last preceding business day on which there was a closing
price); or (ii) if the Common Stock is traded in the over-the-counter market
and
listed on the small cap market of the Nasdaq Stock Market ("Nasdaq”), the per
share closing bid price of the Common Stock on the date of grant as reported
by
Nasdaq (or if there is no closing bid price for such date of grant, then
the
last preceding business day on which there was a closing bid price); or (iii)
if
the Common Stock is traded in the over-the-counter market but bid quotations
are
not published on Nasdaq quotation system, the closing bid price per share
for
the Common Stock as furnished by a broker-dealer which regularly furnishes
price
quotations for the Common Stock.
(c)
The optionee may elect to make payment of the exercise price under one of
the
following alternatives:
(i)
Payment of the exercise price per share in cash at the time of exercise;
or
(ii)
Payment by delivery of shares of Common Stock of the Company already owned
by
the optionee prior to the date of exercise, which Common Stock shall be valued
at Fair Market Value on the date of exercise; or
(iii)
Payment by a combination of the methods of payment specified in Subsections
7(c)(i) and 7(c)(ii) above, including a cashless exercise.
(d)
An option shall not be transferable except by will or by the laws of descent
and
distribution and shall be exercisable during the lifetime of the person to
whom
the option is granted only by such person or by his guardian or legal
representative.
(e)
Each option granted hereunder shall become exercisable commencing on a date
which is one year from the date of grant; provided, however, in the event
that
the Director’s services are terminated for any reason except cause or death,
including, without limitation, failure to be re-elected by the Company’s
shareholders or resignation by the Director as part of a plan of merger or
acquisition which has been approved by the Board of Directors, then all options
held by such Director shall become immediately exercisable and shall terminate
on a date which is three months from the date of termination.
(f)
All options granted under the 2004 Non-Executive Director Plan shall be
non-qualified stock options, and do not qualify as incentive stock options
within the meaning of Section 422A(b), or any successor section, of the Internal
Revenue Code of 1986, as amended.
7.
ACCELERATION
OF OPTIONS
Notwithstanding
any contrary installment period with respect to any option and unless the
Board
of Directors determine otherwise, each outstanding option granted under the
2004
Non-Executive Director Plan shall become exercisable in full for the aggregate
number of shares covered thereby in the event: (i) the Board of Directors
(or,
if approval of the stockholders is required as a matter of law, the stockholders
of the Company) shall approve (a) any consolidation or merger of the Company
in
which the Company is not the continuing or surviving corporation or pursuant
to
which shares of shares of Common Stock would be converted into cash, securities
or other property, other than a merger of the Company in which the holders
of
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately after
the
merger, or (b) any sale, lease, exchange, or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the
assets
of the Company, or (c) the adoption of any plan or Proposal for the liquidation
or dissolution of the Company; or (ii) any person (as such term is defined
in
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)), corporation or other entity (other than the
Company or any employee benefit plan sponsored by the Company or any Subsidiary)
(a) shall purchase any Common Stock (or securities convertible into the
Company’s Common Stock) for cash, securities or any other consideration pursuant
to a tender offer or exchange offer, without the prior consent of the Board
of
Directors, or (b) shall become the “beneficial owner” (as such term is defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of
the Company representing twenty-five percent (25%) or more of the combined
voting power of the then outstanding securities of the Company ordinarily
(and
apart from rights accruing under special circumstances) having the right
to vote
in the election of Directors (calculated as provided in paragraph (d) of
such
Rule 13(d)(3) in the case of rights to acquire the Company’s Securities); or
(iii) during any period of two consecutive years or less, individuals who
at the
beginning of such period constitute the entire Board of Directors shall cease
for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company’s stockholders, of each new director was
approved by a vote of at least a majority of the directors then still in
office.
The Stock Option Agreement evidencing options granted under the 2004
Non-Executive Director Plan may contain such provisions limiting the
acceleration of the exercise of Options as provided in this Section 7 as
the
Board of Directors deems appropriate to ensure that the penalty provisions
of
Section 4999 of the Code, or any successor thereto in effect at the time
of such
acceleration, will not apply to any stock received by a Non-Executive Director
or Advisor from the Company.
8.
RIGHT
OF
COMPANY TO TERMINATE SERVICES AS A NON-EXECUTIVE DIRECTOR OR
ADVISOR
Nothing
contained in the 2004 Non-Executive Director Plan or in any instrument executed
pursuant hereto shall confer upon any Non-Executive Director or Advisor any
right to continue in the service of the Company or any of its subsidiaries
or
interfere in any way with the right of the Company or a subsidiary to terminate
the service of any Non-Executive Director or Advisor at any time, with or
without cause. Nothing contained in the 2004 Non-Executive Director Plan
shall
be construed as an agreement to employ any Director as an employee of the
Company.
9.
NONALIENATION
OF BENEFITS
No
right
or benefit under the 2004 Non-Executive Director Plan shall be subject to
alienation, sale, assignment, hypothecation, pledge, exchange, transfer,
encumbrance or charge, 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 liable for or subject to the
debts,
contracts, liabilities or torts of the person entitled to such
benefit.
10.
ADJUSTMENTS
UPON CHANGES IN CAPITALIZATION
The
Stock
Option Agreements evidencing options may contain such provisions as the
Committee shall determine to be appropriate for the adjustment of the number
and
class of shares subject to all outstanding options and the option prices
thereof
in the event of changes in the outstanding Common Stock by reason of any
stock
dividend, distribution, split-up, recapitalization, combination or exchange
of
shares, merger, consolidation or liquidation, change in par value and the
like,
and, in the event of any such change in the outstanding Common Stock, the
aggregate number and class of shares available under the 2004 Non-Executive
Director Plan and the number of shares subject to nondiscretionary grants
pursuant to Section 5 hereof shall be appropriately adjusted by the Committee,
whose determination shall be conclusive.
11.
TERMINATION AND AMENDMENT
Unless
the 2004 Non-Executive Director Plan shall theretofore have been terminated
as
hereinafter provided, no grant of options or restricted stock may be made
under
the 2004 Non-Executive Director Plan after a date which is ten years from
the
date of adoption of the 2004 Non-Executive Director Plan by the Board of
Directors. The Board may at any time amend, alter, suspend or terminate the
2004
Non-Executive Director Plan; provided, however, that the Board may not, without
the requisite vote of the stockholders of the Company approving such action
(i)
materially increase (except as provided in Section 10 hereof) the maximum
number
of shares which may be issued under the 2004 Non-Executive Director Plan;
(ii)
extend the term of the 2004 Non-Executive Director Plan; (iii) materially
increase the requirements as to eligibility for participation in the 2004
Non-Executive Director Plan; or (iv) materially increase the benefits accruing
to participants under the 2004 Non-Executive Director Plan. No termination,
modification or amendment of the 2004 Non-Executive Director Plan or any
outstanding Stock Option Agreement or Restricted Stock Agreement may without
the
consent of the Non-Executive Director or Advisor to whom any option shall
theretofore have been granted, adversely affect the rights of such Director
with
respect to such option.
12.
EFFECTIVENESS OF THE 2004 NON-EXECUTIVE DIRECTOR PLAN
The
2004 Non-Executive Director Plan became effective upon the requisite vote
of the
stockholders of the Company approving such action, and upon the approvals,
if
required, of any other public authorities. Any grant of options under the
2004
Non-Executive Director Plan prior to such approval were expressly subject
to the
condition that the 2004 Non-Executive Director Plan shall have been so approved.
13.
GOVERNMENT
AND OTHER REGULATIONS
The
obligation of the Company with respect to options shall be subject to (i)
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 of 1933, and (ii) the rules
and regulations of any securities exchange on which the Common Stock may
be
listed.
It
is the
Company’s intent that the 2004 Non-Executive Director Plan comply in all
respects with Rule 16b-3 of the Securities and Exchange Act (as amended from
time to time), Section 422 of the Internal Revenue Code and any regulations
promulgated thereunder. If any provision of the 2004 Non-Executive Director
Plan
is later found not to be in compliance with said laws and regulations, the
provisions shall be deemed null and void. In addition, the Board of Directors
is
hereby granted the explicit authority to amend or modify the 2004 Non-Executive
Director Plan to comply with changes or modifications to any relevant rule
or
regulation of the Internal Revenue Service or Securities and Exchange Commission
which may or has an effect upon the provisions of the 2004 Non-Executive
Director Plan.
14.
GOVERNING
LAW
The
2004
Non-Executive Director Plan shall be governed by, and construed in accordance
with, the laws of the State of New York.