SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to '240.14a-11(c) or '240.14a-12
BALCHEM CORPORATION
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on
which the filing fee is calculated and state how it was
determined): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
<PAGE>
BALCHEM CORPORATION
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1999
----------------------------------------
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
BALCHEM CORPORATION will be held in the Board of Governors Room, 13th floor, the
American Stock Exchange, 86 Trinity Place, New York, New York, on Friday, June
25, 1999 at 11:00 a.m. for the following purposes:
1. To elect three Class 3 directors to the Board of Directors to
serve until the annual meeting of Stockholders in 2002 and until
their respective successors are elected and qualify.
2. To consider and take action upon the approval of the 1999 Stock
Plan as described in the Proxy Statement which accompanies this
notice.
3. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Information with respect to the above matters is set forth in the
Proxy Statement which accompanies this Notice.
Only stockholders of record at 5:00 p.m., New York City time, on April
23, 1999 are entitled to notice of and to vote at the Meeting or any adjournment
thereof.
We hope that all stockholders who can conveniently do so will attend
the Meeting. Stockholders who do not expect to be able to attend the Meeting are
requested to fill in, date and sign the enclosed proxy and promptly return the
same in the stamped, self-addressed envelope enclosed for your convenience.
Stockholders who are present at the Meeting may withdraw their proxies and vote
in person, if they so desire.
BY ORDER OF THE BOARD OF DIRECTORS
Dino A. Rossi, President
Dated: April 23, 1999
P.O. Box 175, Slate Hill, New York 10973 Tel: 914.355.5300 Fax: 914.355.6528
www.balchem.com
<PAGE>
PROXY STATEMENT
BALCHEM CORPORATION
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Balchem Corporation (the
"Company") for the 1999 Annual Meeting of Stockholders (sometimes referred to
herein as the "Annual Meeting" or as the "Meeting"). This Proxy Statement and a
proxy card are expected to be mailed to stockholders beginning on or about April
30, 1999.
You can ensure that your shares are voted at the Meeting by
completing, signing, dating and returning the enclosed proxy form in the
envelope provided. Sending in a signed proxy will not affect your right to
attend the Meeting and vote. A stockholder who gives a proxy may revoke it at
any time before it is exercised by voting in person at the Annual Meeting, by
submitting another proxy bearing a later date or by notifying the Inspectors of
Election or the Secretary of the Company in writing prior to the Annual Meeting
of such revocation. Proxies may be solicited, without additional compensation,
by directors, officers and other regular employees of the Company by telephone,
telecopy or in person. All expenses incurred in connection with this
solicitation will be borne by the Company.
On May 2, 1998, the Company's Board of Directors approved a 3-for-2
stock split effected in the form of a stock dividend paid on June 3, 1998 to the
stockholders of record at the close of business on May 15, 1998. All share and
option amounts and share and option exercise prices in this Proxy Statement have
been adjusted to reflect this 3-for-2 stock split.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's By-laws provide for a staggered term Board of Directors
by the classification of the Board of Directors into three classes (Class 1,
Class 2 and Class 3). The term of the three Class 3 directors will expire at the
Annual Meeting. The Class 1 and 2 directors will remain in office until their
terms expire, at the annual meetings of stockholders to be held in the years
2000 and 2001, respectively.
At the 1999 Annual Meeting, three Class 3 directors are to be elected
to hold office until the annual meeting of stockholders to be held in 2002 and
until their successors have been elected and qualify . The nominees, listed
below with brief biographies, are all currently directors of the Company. The
Board is not aware of any reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such other person as the Board may
recommend.
Recommendation of the Board of Directors Concerning the Election of Directors
The Board of Directors of the Company recommends a vote For the
election of John E. Beebe, Francis X. McDermott and Leonard J. Zweifler as Class
3 directors to hold office until the Annual Meeting of Stockholders for the Year
2
<PAGE>
2002 and until their successors are elected and qualify. Proxies received by
the Company will be so voted unless such proxies withhold authority to vote for
one or more of such nominees.
DIRECTORS AND EXECUTIVE OFFICERS
Information Relating to Nominees for Election as Directors
John E. Beebe, age 76, has been a director of the Company since 1986.
Mr. Beebe is retired. Mr. Beebe was Chairman Emeritus of Scott Macon, Ltd. from
August 1990 to June 1991 and was Chairman of Scott Macon Ltd. from September 1,
1985 to August 1990.
Francis X. McDermott, age 65, has been a director of the Company since
1992. Mr. McDermott is retired. He was President of the Specialty Chemicals
Group of Merck & Co., Inc. from 1985 through 1992.
Dr. Leonard J. Zweifler, age 70, has been a director of the Company
since 1969. Dr. Zweifler is a dentist and Senior Partner of Kings Dental Group,
New York, New York.
Directors
In addition to Messrs. Beebe, McDermott, and Zweifler, the Company's
Board of Directors includes the following members:
Donald E. Alguire, age 71, has been a director of the Company since
1988. Mr. Alguire is retired. Mr. Alguire was a management, financial and
technical consultant from 1987 through 1998. He was formerly President of
Griffith Microsciences, Inc., a privately-owned company.
Kenneth P. Mitchell, age 59, has been a director of the Company since
1993. Mr. Mitchell is retired. He was Chief Executive Officer of Oakite Products
Inc. from 1986 to 1993. Since February 1997, he has been a director of Tetra
Technologies, Inc., a publicly-traded company.
Carl R. Pacifico, age 77, has been a director of the Company since
1966. Mr. Pacifico has been an independent management consultant for more than
the past five years.
Dino A. Rossi, age 44, has been a director of the Company since 1997.
Mr. Rossi has been President and Chief Executive Officer of the Company since
October 1997, Chief Financial Officer of the Company since April 1996 and
Treasurer of the Company since June 1996. He was Vice President, Finance and
Administration of Norit Americas Inc., a wholly-owned subsidiary of Norit N.V.,
a chemicals company, from January 1994 to February 1996, and Vice President,
Finance and Administration of Oakite Products Inc., a specialty chemicals
company, from 1987 to 1993.
Israel Sheinberg, age 66, has been a director of the Company since
1991. Since 1991, Mr. Sheinberg has been the principal of Sheinberg Associates,
an independent technical and management consultant.
Messrs. Beebe, McDermott and Zweifler are Class 3 Directors whose
current terms expire in connection with the 1999 Annual Meeting and who are
nominees for election for a term expiring in connection with the year 2002
annual meeting.
3
<PAGE>
Messrs. Alguire, Sheinberg and Mitchell are Class 2 Directors whose terms expire
in connection with the year 2000 annual meeting and Messrs. Pacifico and Rossi
are Class 1 directors whose terms expire in connection with the year 2001 annual
meeting. There are no family relationships between any of the directors or
executive officers of the Company.
Executive Officers
Set forth below is certain information concerning the executive
officers of the Company (other than Mr. Rossi, whose background is described
above under the caption "Directors"), which officers serve at the discretion of
the Board of Directors:
Anthony J. Nocera, age 47, has been Vice President-Operations of the
Company since April 1998 and an executive officer of the Company since June
1998. He was Manager of Process Technology of Great Lakes Chemical Corp., a
diversified chemicals company, from January 1993 through March 1998 and
Technical Manager of that company from April 1990 through December 1992.
Francis J. Fitzpatrick, CPA, age 38, has been Controller of the Company
since April 1997, and an executive officer and Assistant Secretary of the
Company since June 1998. He was Director of Financial Operations/Controller of
Alliance Pharmaceutical Corp., a pharmaceuticals company, from September 1989
through March 1997.
Meetings and Compensation of Directors
During fiscal 1998, the Board of Directors met eight times. Each
director attended at least 75% of the meetings of the Board held when he was a
director and of all Committees of the Board on which he served. The Company pays
each of its directors, other than Mr. Rossi, an annual fee of $4,000, and $1,000
for each Board Meeting and $500 for each Committee meeting attended,
respectively, plus expenses. Each director also received non-qualified stock
options to purchase 2,436 shares of the Company's Common Stock (at an exercise
price of $5.38 per share), which number of shares was determined in accordance
with an earnings-based formula pursuant to the Company's 1994 Stock Option Plan
for Directors. See "Stock Option Plans" below. The Company does not pay any
other direct or indirect compensation to directors in their capacity as such.
Committees of the Board of Directors
The Company's Board of Directors has a standing Audit Committee and a
standing Compensation Committee, as well as an Executive Committee, Finance and
Stockholder Relations Committee and Directors Planning Committee. The members of
each Committee are appointed by the Board of Directors. In 1998, the
Compensation and Audit Committees each had three meetings. Mr. Rossi is an
ex-officio, nonvoting, member of all Committees.
Audit Committee. The duties of the Audit Committee are to (i)
recommend to the full Board the auditing firm to be selected each year as the
Company's independent auditors, (ii) consult with the firm so chosen to be the
independent auditors with regard to the plan of audit, (iii) review, in
consultation with the independent auditors, their report of audit, or proposed
report of audit, and the accompanying management letter, if any, and such
auditors' recommendations, (iv) consult with the independent auditors (at least
annually, as appropriate) with regard to the adequacy of the Company's internal
accounting and control procedures, (v) review any non-audit services and special
engagements to be
4
<PAGE>
performed by the independent auditors and consider the effect of such
performance on the auditors' independence. The Audit Committee reports to the
full Board regarding the foregoing matters.
The current members of the Audit Committee are Donald E. Alguire, John
E. Beebe and Leonard J. Zweifler.
Compensation Committee. The duties of the Compensation Committee are
to (i) recommend to the Board of Directors a compensation program, including
incentives, for the Chief Executive Officer and other senior officers of the
Company, for approval by the full Board of Directors, (ii) prepare an Annual
Report of the Compensation Committee for inclusion in the Company's Proxy
Statement as contemplated by the requirements of Schedule 14A of the Securities
Exchange Act of 1934, as amended, (iii) propose to the full Board of Directors
the compensation of directors, a significant part of which compensation is to be
in the form of stock or stock options, and (iv) to administer the Company's 1999
Stock Plan proposed for stockholder approval pursuant to this Proxy Statement.
The current members of the Compensation Committee are Messrs.
McDermott, Mitchell and Sheinberg. See "Report of the Compensation Committee of
the Board of Directors" below.
Executive Committee. This Committee is authorized to exercise all the
powers of the Board of Directors in the interim between meetings of the Board,
subject to the limitations imposed by Maryland law. The Executive Committee is
also responsible for the recruitment, evaluation and selection of suitable
candidates for the position of Chief Executive Officer ("CEO"), for approval by
the full Board, for the preparation, together with the Compensation Committee,
of objective criteria for the evaluation of the performance of the CEO, and for
reviewing the CEO's plan of succession for officers of the Company. Messrs.
McDermott, Mitchell, Pacifico and Sheinberg are currently members of this
Committee.
Finance and Stockholder Relations Committee. The duties of this
Committee are long-term planning and review of the implementation of the
Company's financial requirements, and review of broad-based contact with the
Company's stockholders, including the preparation of annual and any quarterly
reports and special announcements. Messrs. Alguire, Beebe and Dr. Zweifler are
currently members of this Committee.
Directors Planning Committee. The duties of this Committee include to
(i) recruit and evaluate new candidates for possible nomination by the full
Board for election as directors, (ii) prepare and update an orientation program
for new directors, (iii) evaluate the performance of current directors in
connection with the expiration of their term in office, to provide advice to the
full Board in its determination of whether to nominate any such director for
reelection, and (v) review and recommend policies on director retirement age.
This Committee does not act as a nominating committee with respect to the Board
of Directors or the Committees thereof. Messrs. McDermott, Pacifico and
Sheinberg are currently members of this Committee.
5
<PAGE>
Compensation of Executive Officers
The following table sets forth information concerning the compensation
for services to the Company during each of the fiscal years ended December 31,
1998, 1997 and 1996 for Dino A. Rossi, the Company's President and Chief
Executive Officer, and each other executive officer of the Company whose annual
salary and bonus compensation with respect to the 1998 calendar year exceeded
$100,000 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------ -------------
Other Annual No. of All Other
Name Year Salary Bonus Compensation Options Compensation
- ---- ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dino A. Rossi 1998 $150,000 $32,250 $ 1,821 (1) 4,000 $ 9,970 (4)
CEO* 1997 $123,235 $31,500 $ 3,297 (2) 75,000 $ 8,993 (5)
1996 $110,500 $26,000 $27,570 (3) 6,000 $ 8,346 (6)
Anthony Nocera** 1998 $130,000 $12,829 $50,085 (7) 46,500 $ 7,695 (8)
Vice President 1997 $ -- $ -- $ -- -- $ --
-Operations 1996 $ -- $ -- $ -- -- $ --
</TABLE>
- ------------
* Mr. Rossi became the Company's President and Chief Executive Officer in
October 1997.
** Mr. Nocera commenced employment with the Company as its Vice President-
Operations in April 1998. Salary indicated is Mr. Nocera's annual salary
rate for 1998.
(1) Includes $1,821 in automobile lease payments by the Company.
(2) Includes $3,297 in automobile lease payments by the Company.
(3) Includes $2,077 in automobile lease payments by the Company and $25,493 in
moving expenses.
(4) Includes $3,500 in 401(k) and $6,470 in profit sharing contributions made
by the Company to Mr. Rossi's account under the Company's combined
401(k)/profit sharing plan.
(5) Includes $3,500 in 401(k) and $5,493 in profit sharing contributions made
by the Company to Mr. Rossi's account under the Company's 401(k) and profit
sharing plans.
(6) Includes $3,500 in 401(k) and $4,846 in profit sharing contributions made
by the Company to Mr. Rossi's account under the Company's 401(k) and profit
sharing plans.
(7) Includes $50,085 in moving expenses.
(8) Includes $2,625 in 401(k) and $5,070 in profit sharing contributions made
by the Company to Mr. Nocera's account under the Company's combined
401(k)/profit sharing plan.
6
<PAGE>
Stock Option Plans
The Company has an Incentive Stock Option Plan (the "ISO Plan"), which was
adopted in 1994 and amended in 1996 and 1998. The ISO Plan provides for the
grant of incentive stock options (as defined under Section 422(b) of the
Internal Revenue Code of 1986, as amended) to officers and other key employees.
Such options are exercisable at a price equal to the fair market value of the
Company's Common Stock (the "Common Stock") on the date of grant. An aggregate
of 581,250 shares of Common Stock (adjusted to give effect to the 1998 stock
split effected by means of a stock dividend as described above) have been
reserved for issuance upon exercise of options granted under the ISO Plan. In
1998, options to purchase an aggregate of 100,121 shares at a weighted average
exercise price of $9.48 per share were granted under the ISO Plan. At December
31, 1998, options to purchase an aggregate of 245,805 shares were outstanding
pursuant to the ISO Plan, of which options for an aggregate of 70,580 shares
were then exercisable. Options granted under the ISO Plan may be exercised, upon
and subject to the vesting thereof, in whole or part, at any time and from time
to time, between the first and tenth anniversary of the date of grant.
The ISO Plan also provides that if options granted to an employee permit
the employee to purchase shares having an aggregate market value (determined at
the time of grant) in excess of $100,000 in any year in which the option as it
applies to such shares first becomes exercisable, then the portion of such
options in excess of such $100,000 limitation will not be incentive stock
options and will not be entitled to the favorable income tax treatment afforded
to grantees of incentive stock options.
The Board of Directors has amended the ISO Plan to extend the termination
date thereof from June 24, 1999 until June 24, 2001, with the additional
limitation that the aggregate number of shares of Common Stock issuable upon the
exercise of options granted under the ISO Plan in any one year commencing with
June 24, 1999 will not exceed more than 5% of the outstanding Common Stock and
the aggregate number of shares of Common Stock issuable under all options
granted after June 24, 1999 will not exceed 10% of the outstanding Common Stock
(as determined in accordance with the applicable requirements of the American
Stock Exchange). If the 1999 Stock Plan is approved at the Annual Meeting, the
ISO Plan will be terminated. Unexercised options granted under the ISO Plan
prior to such termination will remain outstanding and exercisable in accordance
with their respective terms until their respective expiration dates.
The Company also has a stock option plan, which was adopted in 1994 as the
Stock Option Plan for Directors, and was amended in 1996 and 1998 (the
"Non-Qualified Plan"). The Non-Qualified Plan provides for the grant of stock
options to directors, directors emeritus and other employees and consultants of
the Company, which options do not qualify as incentive stock options. The
Non-Qualified Plan provides that, on each December 31, each director and
director emeritus shall, subject to the limitations set forth therein, be
granted options thereunder to purchase that number of shares of Common Stock
which is equal to the maximum number of shares for which options were granted in
1996 (i.e., 1,059) multiplied by the quotient obtained by dividing (i) the net
earnings after taxes of the Company for the year then ended by (ii) the net
earnings after taxes of the Company for 1996, rounded to the nearest whole
number of shares. The option exercise price is the reported closing price per
share of the Common Stock on the last trading date of the year in which such
December 31 falls. Such options are exercisable for a ten-year period from the
date of grant. Employees and consultants of the Company may also be granted
non-qualified stock options under the Non-Qualified Plan in an amount and on
such other terms and conditions as the Board of Directors may determine,
provided that the exercise price of such options must equal the reported closing
price of the Common Stock on the date of grant of the options. Any such options
must expire no later than ten years from
7
<PAGE>
the date of grant. An aggregate of 678,000 shares of Common Stock (adjusted to
give effect to the 1998 stock split effected by means of a stock dividend as
described above) has been reserved for issuance upon exercise of options granted
under the Non-Qualified Plan. In 1998, options to purchase an aggregate of
19,506 shares at a weighted average exercise price of $5.38 per share were
granted under the Non-Qualified Plan. At December 31, 1998, options to purchase
an aggregate of 118,167 shares were outstanding under the Non-Qualified Plan, of
which options to purchase an aggregate of 110,667 shares were then exercisable.
The Non-Qualified Plan will terminate on June 24, 1999. Unexercised options
granted thereunder prior to that date will remain outstanding and exercisable in
accordance with their terms until the respective expiration dates thereof.
8
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted to the Named Executive Officers during 1998:
<TABLE>
<CAPTION>
Number
of
Shares % of Total
Under- Options
lying Granted To Exercise Market
Options Employees Price Price On Expiration Grant Date
Name Granted In 1998 ($/Share) Grant Date Date Value(1)
- ---- ------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Dino A. 4,000(2) 4.0% $ 6.25 $ 6.25 10/23/08 $ 12,336
Rossi
Anthony J. 45,000(3) 44.9% $11.59 $11.59 4/1/08 $257,362
Nocera 1,500(4) 1.5% $ 6.25 $ 6.25 10/23/08 $ 4,626
</TABLE>
- ---------
(1) The value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants: dividend yield of 0.4%; expected volatility of
46%; risk-free rate of return of 4.8% and expected life of six years.
(2) Of such options, options for 800 shares (20%), 1,600 shares (40%), and
1,600 shares (40%) vest on October 23, 1999, 2000 and 2001, respectively.
(3) Of such options, options for 9,000 shares (20%), 18,000 shares (40%), and
18,000 shares (40%) vest on April 1, 1999, 2000 and 2001, respectively.
(4) Of such options, options for 300 shares (20%), 600 shares (40%), and 600
shares (40%) vest on October 23, 1999, 2000 and 2001, respectively.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth information with respect to option exercises
during the year ended December 31, 1998 and the number and value of options
outstanding at December 31, 1998 held by the Named Executive Officers:
<TABLE>
<CAPTION>
Number of Shares
Underlying
Unexercised
Shares Options at
Acquired December 31, 1998 Value of Unexercised
On Value Exercisable("E")/ In the Money Options at
Name Exercise Realized Unexcercisable("U") December 31, 1998 (1)
- ---- -------- -------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Dino A. 0 0 63,000(E)/21,400(U) $0(E)/$0(U)
Rossi
Anthony J.
Nocera 0 0 0(E)/46,500(U) $0(E)/$0(U)
- --------------
</TABLE>
(1) Value as of December 31, 1998 is based upon the closing price on that
date as reported on the American Stock Exchange minus the exercise
price, multiplied by the number of shares underlying the option.
9
<PAGE>
401(k)/Profit Sharing Plan
Effective January 1, 1998, the Company terminated its defined contribution
pension plan and amended its 401(k) savings plan. Assets of the terminated
defined contribution pension plan were merged into an enhanced 401(k)/profit
sharing plan (the "New Plan"), intended to be a qualified plan under Section
401(a) of the Internal Revenue Code of 1986, as amended, and subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Employees
of the Company are eligible to participate in the New Plan once they attain age
18 and complete 60 days of continuous service with the Company. The New Plan
provides that participating employees may make elective contributions of up to
15% of pre-tax salary, subject to ERISA limitations, and for the Company to make
matching contributions on a monthly basis equal in value to 35% of each
participant's elective contributions. Such matching contributions are made in
shares of the Company's Common Stock. The profit-sharing portion of the New Plan
is discretionary and non-contributory. Profit sharing contributions are
restricted to employees who have completed 1,000 hours of service and are
employed on the last day of a plan year. The Company contributes a minimum of
3.55% of an eligible participant's taxable compensation (subject to certain
exclusions) unless the Company announces a different rate. Amounts in each
participant's matching contribution and profit sharing accounts are not vested
until such participant has two years of service, at which time 100% of such
amounts vest. All amounts contributed to the New Plan are deposited into a trust
fund administered by the plan trustee. Participants have the right to direct how
their accounts are invested among a selection of mutual funds and/or selected
trustee portfolios, and may transfer any portion of the matching contribution to
other available investment choices. Up to 10% of participant elective
contributions and Company profit sharing contributions may be invested at the
participant's election in the Company's Common Stock. On retirement or
termination of employment, participants are entitled to a distribution of all
vested amounts and accrued income in their accounts.
For 1998, the Company's profit sharing and matching 401(k) savings plan
contributions to the New Plan were $178,000 and $172,000, respectively. Prior to
1998, the Company had separate defined contribution pension and 401(k) savings
plans that covered substantially all employees. Pension plan contributions for
1997 and 1996 were $149,000 and $283,000, respectively, and 401(k) savings plan
contributions for 1997 and 1996 were $95,000 and $83,000, respectively.
Employment Agreement
As of October 1, 1997, the Company entered into an Employment Agreement
with Dino A. Rossi, which provides for Mr. Rossi to serve as the Company's
President and Chief Executive Officer. The Agreement expires on September 30,
2000. The Agreement provides for a base salary of $150,000, which is subject to
annual increase if approved by the Board of Directors. Mr. Rossi is also
eligible to receive a discretionary performance bonus (as determined by the
Board of Directors) based on a target of 50% of annual salary for each year
during the term of the Agreement. Mr. Rossi is entitled to the use of a car
leased by the Company. During the term of his employment with the Company and
for a period of one year thereafter, the Agreement provides that Mr. Rossi will
be subject to certain restrictive covenants relating to non-competition and
non-solicitation of the Company's customers and employees. The Agreement
provides that, if, under certain circumstances, the Company elects not to
continue to employ Mr. Rossi at his then applicable salary at least one year
following expiration of the initial term thereof, Mr. Rossi will be entitled to
receive an amount equal to his previous year's annual salary, and all options to
purchase Common Stock of the Company previously granted to him will immediately
vest and become exercisable.
10
<PAGE>
Security Ownership of Certain Beneficial Owners and of Management
The table below sets forth as of March 1, 1999 the number of shares of
Common Stock beneficially owned by each director, each of the Named Executive
Officers, each beneficial owner of, or institutional investment manager
exercising investment discretion with respect to, 5% or more of the outstanding
shares of Common Stock, and all directors and officers of the Company as a
group, and the percentage ownership of the outstanding Common Stock as of such
date held by each such holder and group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership (1) Class (2)
- ------------------- --------------------------- ---------
<S> <C> <C>
Laifer Capital Management, Inc.(3) 318,800 6.5%
Leonard J. Zweifler (4)* 316,870 6.5%
A. Harry Wallenstein (5) 274,999 5.6%
Carl R. Pacifico (6)* 103,742 2.1%
Dino A Rossi (7)* 41,766 **
John E. Beebe (8)* 35,344 **
Donald E. Alguire (9)* 25,642 **
Kenneth P. Mitchell (10)* 22,075 **
Francis X. McDermott (11)* 19,692 **
Israel Sheinberg (12)* 18,460 **
Anthony J. Nocera (13)* 9,334 **
All directors and officers
as a group (11 persons) (14) 593,396 11.9%
</TABLE>
<PAGE>
- --------------------
* Such person's address is c/o the Company, P.O. Box 175, Slate Hill, N.Y.
10973.
** Indicates less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares which may be acquired upon exercise of stock options which are
currently exercisable or which become exercisable within 60 days after the
date of the information in the table are deemed to be beneficially owned by
the optionee. Except as indicated by footnote, and subject to community
property laws where applicable, to the Company's knowledge, the persons or
entities named in the table above are believed to have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) For purposes of calculating the percentage of outstanding shares held by
each person named above, any shares which such person has the right to
acquire within 60 days after the date of the information in the table are
deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
(3) Number of shares based on such entity's Report on Form 13G for December 31,
1998. The address of such entity is 45 West 45th Street, New York, New York
10036. Such entity has the sole voting and dispositive power as to 208,125
of such shares and shared dispositive power as to 110,675 of such shares.
(4) Includes options to purchase 12,668 shares, and 8,000 shares owned by such
person's spouse as to which such person disclaims beneficial ownership.
(5) Number of shares based on such person's advice to the Company. The address
of such person is 85 Bay 40th Street, Brooklyn, New York 11214.
(6) Includes options to purchase 12,668 shares.
(7) Includes options to purchase 34,200 shares, and 466 shares held in such
person's Company 401(k)/profit sharing plan account.
(8) Includes options to purchase 12,668 shares, and 3,748 shares owned by such
person's spouse, as to which such person disclaims beneficial ownership.
(9) Includes options to purchase 12,464 shares.
(10) Includes options to purchase 9,575 shares.
(11) Includes options to purchase 2,436 shares. Such person beneficially owns
the remaining reported shares jointly with his spouse.
(12) Includes options to purchase 12,170 shares. 4,000 and 2,290 of the
remaining shares are held by such person's IRA and Keogh Plan,
respectively.
(13) Includes options to purchase 9,000 shares, and 334 shares held in such
person's Company 401(k)/profit sharing plan account.
(14) Includes options to purchase 118,599 shares and 1,121 shares in the
accounts of three officers under the Company's 401(k)/profit sharing plan.
11
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and holders of more than
10% of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of any subsequent changes in
ownership of Common Stock and other equity securities of the Company. Specific
due dates for these reports have been established and the Company is required to
disclose any failure to file by these dates. Based upon a review of such reports
furnished to the Company, or written representations that no reports were
required, the Company believes that during the fiscal year ended December 31,
1998, its officers and directors and holders of more than 10% of the Company's
Common Stock complied with Section 16(a) filing date requirements with respect
to transactions during such year, except that: (i) Messrs. Beebe, Pacifico,
Sheinberg and Zweifler filed Forms 5 in February or March 1998, after the due
date therefor, to report the number of options granted in respect of the 1997
year pursuant to a non-discretionary formula under the Company's Non-Qualified
Plan, (ii) Messrs. Alguire, McDermott and Mitchell did not report options
granted to them pursuant to a non-discretionary formula under the Company's
Non-Qualified Plan in respect of the 1997 year until they filed Forms 5 in
February 1999, (iii) Messrs. Fitzpatrick and Nocera inadvertently failed to
report on their initial reports on Form 3 options granted to them under the
Company's ISO Plan, which grants were reported on their Forms 5 in February
1999, and (iv) Mr. Rossi did not report grants to him under the ISO Plan for
1997 and 1998 until he filed a Form 5 in February 1999.
Report of the Compensation Committee of the Board of Directors
This Report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
The Compensation Committee is currently comprised of three directors,
Francis X. McDermott, Kenneth P. Mitchell and Israel Sheinberg. It is the
responsibility of the Compensation Committee to recommend an effective total
compensation program for the Company's Chief Executive Officer and other senior
officers based on the Company's business and consistent with stockholders'
interests. The Committee's duties entail reviewing the Company's compensation
practices and recommending compensation for such executives.
Compensation Philosophy
The Company's overall compensation philosophy is to offer competitive
salaries, cash incentives, stock options and benefit plans consistent with the
Company's financial position. Rewarding capable employees who contribute to the
continued success of the Company plus equity participation are key elements of
the Company's compensation policy. The Company's executive compensation policy
is to attract and retain key executives necessary for the Company's short and
long-term success by establishing a direct link between executive compensation
and the performance of the Company, by rewarding individual initiative and the
achievement of annual corporate goals through salary and cash bonus awards, and
by providing equity awards to allow executives to participate in enhanced
stockholder value.
In awarding salary increases and bonuses, the Compensation Committee
relates various elements of corporate performance to the elements of executive
compensation. The Compensation Committee considered whether the compensation
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<PAGE>
package as a whole adequately compensated the applicable executive for the
Company's performance during the past year and the executive's contribution to
such performance.
Base Salary
Base salary represents the fixed component of the executive
compensation program. The Company's philosophy regarding base salaries is
conservative, maintaining salaries at approximately competitive industry levels.
Determinations of base salary levels are established on an annual review of
marketplace competitiveness and on the Company's existing compensation
structure. Periodic increases in base salary relate to individual contributions
to the Company's overall performance, length of service and industry competitive
pay practice movement. Performance targets were established for fiscal year
1997, which was the base year for determining the salaries awarded during 1998.
In determining appropriate levels of base salary, the Compensation Committee
relied in part on industry compensation survey.
Bonus
Bonuses represent the variable component of the executive compensation
program that is tied to individual achievement and the Company's performance.
The Company's policy is to base a meaningful portion of its senior executives'
cash compensation on bonus. In determining bonuses, the Company considers
factors such as the individual's contribution to the Company's performance and
the relative performance of the Company during the year.
<PAGE>
Stock Options
The Compensation Committee believes that one important goal of the
executive compensation program should be to provide executives and key employees
who have significant responsibility for the management, growth and future
success of the Company with an opportunity to increase their ownership and
potentially gain financially from the Company's stock price increases. The goal
of this approach is that the interests of the stockholders, executives and
employees will be closely aligned. Therefore, executive officers and other key
employees of the Company are granted stock options from time to time, giving
them a right to purchase shares of the Company's Common Stock at a specified
price in the future. The grant of options is based primarily on an employee's
potential contribution to the Company's growth and financial results. Options
generally have been granted at the prevailing market value of the Company's
Common Stock and accordingly will only have value if the Company's stock price
increases. Generally, grants of options to employees have provided for vesting
over three years and the individual must be employed by the Company for such
options to vest.
1998 Compensation to Chief Executive Officer
In reviewing and recommending Mr. Rossi's salary and bonus and in
awarding him stock options for fiscal year 1998 and for his future services, the
Compensation Committee followed its compensation philosophy. Mr. Rossi's annual
salary was increased to $165,000 in October 1998. For the 1998 fiscal year, Mr.
Rossi was paid a cash bonus of $32,250. In 1998, Mr. Rossi was granted options
under the Company's Incentive Stock Option Plan to purchase 4,000 shares of the
Company's Common Stock at an exercise price of $6.25, the fair market value per
share on the date of grant. The options will be exercisable in installments of
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<PAGE>
20%, 40% and 40% over three years on the first three anniversaries of the date
of grant. The Compensation Committee recommended this option grant to secure the
long-term services of the Company's Chief Executive Officer and to further align
the Chief Executive Officer's compensation with stockholder interests.
Francis X. McDermott
Kenneth P. Mitchell
Israel Sheinberg
Compensation Committee Interlocks and Insider Participation
Messrs. McDermott, Mitchell and Sheinberg, each of whom is a director
of the Company, served as the members of the Compensation Committee during 1998.
None of Mr. McDermott, Mr. Mitchell or Mr. Sheinberg (i) was, during the last
completed fiscal year, an officer or employee of the Company, (ii) was formerly
an officer of the Company or (iii) had any relationship requiring disclosure by
the Company under Item 404 of Regulation S-K under the Securities Act of 1933,
as amended, which has not been disclosed.
Certain Relationships and Related Transactions
Carl J. Pacifico is employed by the Company as New Ventures
Development Leader. His annual salary and bonus for 1998 was $86,000. Carl J.
Pacifico is the son of Carl R. Pacifico, a director of the Company.
14
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below sets forth the cumulative total stockholder return on
the Company's Common Stock (referred to in the table as "BCP") for the five
years ended December 31, 1998, the overall stock market return during such
period for shares comprising the Russell 2000(R) Index (which the Company
believes includes companies with market capitalization similar to that of the
Company), and the overall stock market return during such period for shares
comprising the Standard & Poor's 500 Food Group Index, in each case assuming a
comparable initial investment of $100 on December 31, 1993 and the subsequent
reinvestment of dividends. The Russell 2000(R) Index measures the performance of
the shares of the 2000 smallest companies included in the Russell 3000(R) Index.
In light of the Company's industry segments, the Company does not believe that
published industry-specific indices are necessarily representative of stocks
comparable to the Company. Nevertheless, the Company considers the Standard &
Poor's 500 Food Group Index to be potentially useful as a peer group index with
respect to the Company in light of the Company's encapsulated products segment.
The performance of the Company's Common Stock shown on the graph below is
historical only and not indicative of future performance.
The graph below shall not be deemed incorporated by reference in any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
[The following table is represented by a line graph in the printed material.]
<TABLE>
<CAPTION>
BCP Russell 2000(R) S&P 500 Food Group
--- ------------ ------------------
<S> <C> <C> <C>
12/31/93 $100.00 $100.00 $100.00
12/31/94 $163.36 $ 98.18 $ 98.07
12/31/95 $244.87 $126.11 $142.59
12/31/96 $231.60 $146.91 $168.94
12/31/97 $479.05 $179.76 $242.13
12/31/98 $219.87 $175.19 $262.02
</TABLE>
15
<PAGE>
PROPOSAL NO. 2
APPROVAL OF 1999 STOCK PLAN
In April 1999, the Board of Directors of the Company adopted, subject
to stockholder approval, the Balchem Corporation 1999 Stock Plan (the "1999
Stock Plan")for officers, directors, directors emeritus and employees of and
consultants to the Company and its subsidiaries. The Board of Directors believes
that approval of the 1999 Plan will serve the best interests of the Company and
its stockholders by permitting the Company to continue to utilize stock options
and other stock-related purchase rights as a means to attract and retain
directors, key employees and consultants who are in a position to contribute
materially to the successful conduct of the business and affairs of the Company,
and, in addition, to stimulate in such individuals an increased desire to render
greater service to the Company. In addition, the availability of shares for
issuance under the 1999 Stock Plan is important in that it provides the Company
an alternative or additional means of compensating eligible persons.
The 1999 Stock Plan reserves an aggregate of 600,000 shares of Common
Stock for issuance under the Plan, which shares represent approximately 12.3% of
the Companys outstanding shares of Common Stock as of March 1, 1999. The 1999
Stock Plan is intended to replace and consolidate into one plan the Company's
existing ISO Plan and its Non-Qualified Plan, both of which were scheduled to
expire on June 24, 1999. The Board of Directors has amended the ISO Plan, with
certain limitations, to extend the termination date thereof until June 24, 2001.
The ISO Plan will be terminated in the event that the stockholders approve the
1999 Stock Plan at the Annual Meeting.
As of March 1, 1999, under the ISO Plan, an aggregate of 581,250
shares of Common Stock was reserved for issuance upon the exercise of options
granted thereunder, options for an aggregate of 245,805 shares were outstanding
and an aggregate of 270,916 shares remained available for the grant of
additional options. As of March 1, 1999, under the Non-Qualified Plan, an
aggregate of 678,000 shares of Common Stock was reserved for issuance upon the
exercise of options granted thereunder, options for an aggregate of 118,167
shares were outstanding and an aggregate of 544,679 shares remained available
for the grant of additional options.
<PAGE>
The Non-Qualified Plan is scheduled to terminate on June 24, 1999 and
the ISO Plan will also terminate on that date if the 1999 Stock Plan is
approved. Such termination will not affect options outstanding under such
terminated plans on the date of plan termination. Accordingly, the 600,000
shares available for issuance upon the exercise of options granted under the
1999 Stock Plan would in effect replace the aggregate of 715,595 shares
available for issuance as of March 1, 1999 under the ISO Plan and the
Non-Qualified Plan and would be in addition to the options for an aggregate of
363,972 shares previously granted and outstanding as of March 1, 1999.
Pursuant to the Non-Qualified Plan, directors and directors emeritus
of the Company were automatically granted options each year pursuant to a
non-discretionary formula. The 1999 Stock Plan permits the Board of Directors to
determine from time to time the number, and terms of options and rights to be
granted to directors and others, and whether to continue to base any grants to
directors on a non-discretionary formula.
Description of the 1999 Stock Plan.
If the 1999 Stock Plan is approved, a total of 600,000 shares of
Common Stock will be reserved for issuance or sale upon the exercise of options
or in connection with the grant of rights to purchase shares of Common Stock
under the 1999 Stock Plan. Shares subject to options which for any reason expire
or are
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<PAGE>
terminated unexercised may again be available for grant under the 1999 Stock
Plan. Unless sooner terminated, the 1999 Stock Plan will terminate on April 8,
2009. The complete text of the 1999 Stock Plan is attached as Exhibit A hereto
and the following description is qualified in its entirety by the full text of
the 1999 Stock Plan.
The purpose of the 1999 Stock Plan is to provide equity-based
incentives to officers, directors, directors emeritus and employees of and
consultants to the Company and its subsidiaries and/or any parents of the
Company. Under the 1999 Stock Plan: the officers and other employees of the
Company and any present or future parent or subsidiaries of the Company
(collectively, "Related Companies") may be granted options to purchase Common
Stock of the Company which qualify as "incentive stock options" ("ISO" or
"ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"); directors, officers, employees, and directors emeritus of and
consultants to the Company and Related Companies may be granted options to
purchase Common Stock which do not qualify as ISOs ("Non-Qualified Option" or
"Non-Qualified Options"); and directors, officers, employees, and directors
emeritus of and consultants to the Company and Related Companies may be granted
the right to make direct purchases of Common Stock from the Company
("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter
individually as an "Option" and collectively as "Options." Options and Purchases
are referred to hereinafter collectively as "Stock Rights."
At April 1, 1999, the Company had a total of approximately 116
employees, officers, directors and a director emeritus who could be eligible to
be granted Stock Rights under the 1999 Stock Plan.
The 1999 Stock Plan is administered by the Board of Directors of the
Company or, if the Board of Directors so determines, the Compensation Committee
thereof. Subject to the terms of the 1999 Stock Plan, the Board (or the
Committee, as the case may be), has the authority to determine to whom Stock
Rights shall be granted (subject to certain eligibility requirements for grants
of ISOs), the number of shares covered by each such grant, the exercise or
purchase price per share, the time or times at which Stock Rights shall be
granted, and other terms and provisions governing the Stock Rights, as well as
the restrictions, if any, applicable to shares of Common Stock issuable upon
exercise of Stock Rights. The exercise price per share specified in the
agreement relating to each ISO granted under the 1999 Stock Plan may not be less
than the fair market value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any Related Company, the price per share specified in the agreement
relating to such ISO may not be less than 110% of the fair market value per
share of Common Stock on the date of grant. In addition, each eligible employee
may be granted ISOs only to the extent that, in the aggregate under the 1999
Stock Plan and all incentive stock option plans of the Company and any Related
Company, such ISOs do not become exercisable for the first time by such employee
during any calendar year in a manner which would entitle the employee to
purchase, pursuant to the exercise of ISOs (whether under the 1999 Stock Plan or
any other plan), more than $100,000 in fair market value (determined at the time
the ISOs were granted) of Common Stock in that year.
<PAGE>
The Board of Directors may, from time to time, adopt amendments,
certain of which are subject to stockholder approval, and may terminate the 1999
Stock Plan at any time (although such action will not affect Stock Rights
previously granted, except to the extent that such Stock Rights may be
accelerated).
The number and class of shares of Common Stock reserved for issuance or
sale under the 1999 Stock Plan, and the number and exercise price of outstanding
Stock Rights, are subject to adjustment in the event of a stock dividend, stock
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<PAGE>
split, consolidation, merger, recapitalization, reorganization or similar
transaction.
The 1999 Stock Plan requires that each Option shall expire on the date
specified by the Compensation Committee or the Board, but not more than ten
years from its date of grant. However, in the case of any ISO granted to an
employee or officer owning more than 10% of the total combined voting power of
all classes of stock of the Company or any Related Company, the ISO will expire
no more than five years from its date of grant. The 1999 Stock Plan also
requires that ISOs be exercised no later than 60 days following termination of
the grantee's employment (six months in the case of death or permanent
disability (subject to certain exceptions outlined in the 1999 Stock Plan). ISOs
not exercised within this period will automatically terminate. However, the
Board (or the Compensation Committee) may, upon written request of any optionee,
in its discretion convert all or any portion of any unexercised ISO into a
non-qualified option at any time prior to the expiration of the ISO.
Exercise of any Stock Right, in whole or in part, under the 1999 Stock
Plan is effected by a written notice of exercise delivered to the Company at its
principal office together with payment for the Common Stock in full, or, at the
discretion of the Compensation Committee or the Board, by the delivery of shares
of Common Stock of the Company, valued at fair market value, a promissory note,
or any combination thereof, or through an exercise notice payment procedure. The
1999 Stock Plan contains terms providing for the exercise of Stock Rights by or
on behalf of former and deceased employees.
ISOs granted pursuant to the 1999 Stock Plan are not assignable or
transferable other than by will or by the laws of descent and distribution and
are exercisable during the optionee's lifetime only by the optionee. The Board
or the Compensation Committee does, however, have the discretion to permit
Non-Qualified Options and other Stock Rights to be transferable, consistent with
the provisions of the 1999 Stock Plan.
Federal Income Tax Consequences.
Incentive Stock Options. The following general rules are applicable
for Federal income tax purposes under existing law to employees who receive and
exercise ISOs granted under the 1999 Stock Plan:
Generally, no taxable income results to the optionee upon the grant of
an ISO or upon the issuance of shares to the optionee upon exercise of the ISO.
(But see the discussion of possible taxation under "Minimum Tax" below.) If
shares acquired upon exercise of an ISO are disposed of after the later of (i)
two years following the date the Option was granted, and (ii) one year following
the date the shares are transferred to the optionee pursuant to the exercise of
the Option, the difference between the amount realized on such disposition of
the shares and the exercise price will be treated as long-term capital gain or
loss to the optionee.
If shares acquired upon exercise of an ISO are disposed of before the
expiration of one or both of the requisite holding periods (a "disqualifying
disposition"), then in most cases any excess of the fair market value of the
shares at the time of exercise of the Option over the exercise price, or, if
less, the actual gain on disposition, will be treated as compensation to the
optionee and will be taxed as ordinary income in the year of such disqualifying
disposition. Any excess of the amount realized by the optionee as the result of
a disqualifying disposition over the sum of (i) the exercise price and (ii) the
amount of ordinary income recognized under the above rules will be treated as
either long-term or short-term capital gain, depending upon the time elapsed
between receipt and disposition of such shares. In addition, ISOs granted under
18
<PAGE>
the 1999 Stock Plan will be terminated if the optionee is not employed by the
Company at all times during the period from the date the Option is granted
through the date 60 days before the date the Option is exercised (six months in
the case of death or permanent disability or death (subject to certain
limitations outlined in the Plan)). In this regard, the terms of the 1999 Stock
Plan are more restrictive than those that would otherwise be permitted by the
Code.
In general, no tax deduction is allowed to the Company upon either
grant or exercise of an ISO under the 1999 Stock Plan. However, in any year that
an optionee recognizes compensation income on a disqualifying disposition of
shares acquired by exercising an ISO, the Company will generally be entitled to
a corresponding deduction for income tax purposes.
An optionee may be entitled to exercise an ISO by delivering shares of
the Company's Common Stock ("old stock") to the Company in exchange for the
Common Stock received upon exercise of the ISO ("option stock"), if the
optionee's ISO grant so provides. In general, if an optionee exchanges old stock
for option stock instead of, or in addition to, paying part or all of the
exercise price in cash, no gain or loss will be recognized with respect to the
exchange of the old stock, and shares acquired upon exercise of the ISO will not
be subject to tax as explained above until the shares are sold. However, an
exception exists to this rule when the old stock is "statutory option stock" (as
defined below) that has been held for a period less than the applicable holding
periods under the Code. In that event, the optionee will realize ordinary
compensation income with respect to the old stock in an amount equal to the
lesser of (i) the excess of the fair market value of the option stock on the
date of exercise of the ISO over the basis of the old stock, or (ii) the fair
market value of the old stock on the date it was originally exercised over the
original option exercise price. "Statutory option stock" consists of stock
acquired through the exercise of a "qualified stock option," an "incentive stock
option," an option acquired under an "employee stock purchase plan" or a
"restricted stock option," as these terms are defined in the Code. Further, if
the old stock used to exercise an ISO is Restricted Stock (as defined below),
exercise of the ISO with such Restricted Stock may be treated as the lapse of
the restrictions imposed on such Restricted Stock under the rules discussed
below, and the optionee may recognize income as a result.
Non-Qualified Options. The following general rules are applicable for
Federal income tax purposes under existing law to holders of Non-Qualified
Options and to the Company.
The optionee generally does not realize any taxable income upon the
grant of a Non-Qualified Option, and the Company is not allowed a deduction by
reason of such grant. The optionee will recognize ordinary compensation income
at the time of exercise of a Non-Qualified Option in an amount equal to the
excess, if any, of the fair market value of the shares on the date of exercise
over the exercise price. In accordance with the regulations under the Code and
applicable state law, the Company will require the optionee to pay to the
Company an amount sufficient to satisfy withholding taxes in respect of such
compensation income at the time of the exercise of the Option. If the Company
withholds shares instead of cash to satisfy this withholding tax obligation, the
optionee nonetheless will be required to include in income the compensation
income attributable to the shares withheld. When the optionee sells the shares,
such optionee will recognize a capital gain or loss in an amount equal to the
difference between the amount realized upon the sale of the shares and such
optionee's basis in the shares (i.e., the exercise price plus the amount taxed
to the optionee as compensation income). If the optionee holds the shares for
longer than the statutory holding period, this gain or loss will be a long-term
capital gain or loss. The present statutory holding period is one year. In
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<PAGE>
general, the Company will be entitled to a tax deduction in the year in which
compensation income attributed to the Non-Qualified Options is recognized by the
optionee. The foregoing rules are based upon the assumptions that (i) the
Options do not have a readily ascertainable fair market value at the date of
grant and (ii) the Common Stock acquired by exercising the Non-Qualified Option
is either transferable or not subject to a "substantial risk of forfeiture" (as
such terms are defined in regulations under Section 83 of the Code).
An optionee may be entitled to exercise a Non-Qualified Option by
delivering shares of old stock to the Company in exchange for the Common Stock
received upon exercise of the option ("Non-Qualified Option stock"), if the
optionee's Non-Qualified Option grant so provides. In general, if an optionee
exchanges old stock for Non-Qualified Option stock instead of, or in addition
to, paying part or all of the exercise price in cash, no gain or loss will be
recognized with respect to the exchange of the old stock. However, if the fair
market value of the Non-Qualified Option stock received exceeds the fair market
value of the old stock (at the time of exercise) delivered to acquire the
Non-Qualified Option stock, the transaction will be separated into two parts for
tax purposes. In the first part, the number of shares of old stock delivered
will be deemed exchanged, tax-free, for a like number of shares of the
Non-Qualified Option stock received, and the basis of the shares so received
will be the same as the basis of the shares of old stock delivered. In the
second part of the transaction, the balance of the shares of Non-Qualified
Option stock received will be treated as ordinary compensation income, and the
fair market value of these shares will constitute both the amount of
compensation income with respect to, and the basis for, such shares. Further, if
the old stock used to exercise a Non-Qualified Option is Restricted Stock (as
defined below), and the Common Stock acquired on exercise of the Non-Qualified
Option is not subject to restrictions substantially similar to those imposed on
such Restricted Stock, exercise of the Non-Qualified Option with such Restricted
Stock will be treated as the lapse of the restrictions imposed on such
Restricted Stock under the rules discussed below, and the optionee may recognize
income as a result.
Special Rules for Restricted Stock. Common Stock that is subject to
restrictions on transfer and also to a substantial risk of forfeiture (as
defined in regulations under Section 83 of the Code), referred to herein as
"Restricted Stock," is subject to special tax rules. If the Common Stock
acquired on the exercise of a Non-Qualified Option or pursuant to a Purchase is
Restricted Stock, the amount of income recognized by the optionee generally will
be determined as of the time the restrictions lapse, and will be equal to the
difference between the amount paid for the Restricted Stock and the fair market
value of the Restricted Stock at that time. In that case, the payment to the
Company of withholding taxes will be required as the income arises, i.e., at the
time the transfer restrictions on the stock lapse or the substantial risk of
forfeiture no longer exists.
Due to certain securities law restrictions, the Common Stock acquired
by officers and directors of the Company who exercise Non-Qualified Options may
be treated for tax purposes as Restricted Stock. Similarly, the Common Stock
acquired by officers and directors of the Company who exercise ISOs will be
treated for alternative minimum tax purposes (but not regular tax purposes) as
Restricted Stock.
If an optionee transfers Restricted Stock to the Company to
exercise an ISO, the restrictions on such Restricted Stock will be deemed to
have lapsed on the date of transfer, and the optionee may recognize income at
that time. Similarly, if the optionee transfers Restricted Stock to the Company
to exercise a Non-Qualified Option, and the stock received by the optionee on
exercise is not subject to restrictions substantially similar to those imposed
on such Restricted
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<PAGE>
Stock, the restrictions on that Restricted Stock will be deemed to have lapsed
on the date of transfer, and the optionee may recognize income at that time.
Under Section 83(b) of the Code, an election is available to the
optionee to include in gross income, in the taxable year that Restricted Stock
is first transferred to the optionee, the amount of any excess of the fair
market value (as determined under Section 83) of the Restricted Stock over the
amount (if any) paid for such stock. If this election is made and the optionee
pays the tax in the year such election is made, no further tax liability will
arise at the time the transfer restrictions on the Restricted Stock lapse or the
substantial risk of forfeiture no longer exists. However, if shares of
Restricted Stock for which a Section 83(b) election is in effect are forfeited
while such shares are both nontransferable and subject to a substantial risk of
forfeiture, the loss realized by the optionee on the forfeiture, for federal
income tax purposes, is limited to the amount paid for such shares (not
including any compensation income recognized by the optionee at the time of
transfer) less any amount realized by the optionee on such forfeiture.
Restricted Stock acquired by exercising an ISO generally is not subject to the
rules of Section 83, but rather the rules discussed above under Incentive Stock
Options.
Minimum Tax. The exercise of ISOs granted under the 1999 Stock Plan
may result in a further "minimum tax" under the Code. The Code provides that an
"alternative minimum tax" will be applied against a taxable base which is equal
to regular taxable income, adjusted for certain limited deductions and losses,
increased by items of tax preference, and reduced by a statutory exemption. The
statutory exemption is phased out for certain higher income taxpayers. The
bargain element at the time of exercise of an ISO, i.e., the amount by which the
value of the Common Stock received upon exercise of the ISO exceeds the exercise
price, is included in the optionee's alternative minimum taxable income for
purposes of the minimum tax, subject to the rules applicable to Restricted
Stock.
Thus, if upon exercise of an ISO an optionee receives stock which is
not Restricted Stock, the bargain element is included in the optionee's
alternative minimum taxable income in the year of exercise. If the optionee
receives Restricted Stock on exercise of an ISO, the bargain element is measured
and included in alternative minimum taxable income in the year(s) that the
restrictions on the stock lapse(s), unless the optionee files a Section 83(b)
election under the Code with the Internal Revenue Service within 30 days of the
date of exercise of the ISO and thereby elects to include the bargain element in
alternative minimum taxable income in the year of exercise. For purposes of
determining alternative minimum taxable income (but not regular taxable income)
for any subsequent year in which the taxpayer sells the stock acquired by
exercise of the ISO, the basis of such stock will be its fair market value at
the time the ISO was exercised. A taxpayer is required to pay the higher of his
regular tax liability or the alternative minimum tax. A taxpayer who pays
alternative minimum tax attributable to the exercise of an ISO may be entitled
to a tax credit against regular tax liability in later years.
ERISA. The 1999 Stock Plan is not an employee benefit plan which is
subject to the provisions of the Employee Retirement Income Security Act of
1974, and the provisions of Section 401(a) of the Code are not applicable to the
1999 Stock Plan.
The Board of Directors recommends a vote For Proposal No. 2; that is,
FOR approval of the 1999 Stock Plan.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of KPMG LLP to serve as
the independent auditors of the Company for the year ending December 31, 1999.
Representatives of KPMG LLP are expected to be present at the 1999 Annual
Meeting. They will have an opportunity to make a statement to the stockholders
if they desire to do so and are expected to be available to respond to
stockholder questions raised orally at the Meeting.
On December 30, 1996, the Company advised the accounting firm of
Judelson, Giordano, Siegel, CPA, PC, the principal accountant previously engaged
to audit the Company's financial statements, that it was dismissing such
principal accountant for audits of years after December 31, 1996. During the
Company's two most recent fiscal years the reports issued by the former
accountants on the Company's financial statements did not contain an adverse
opinion or a disclaimer of opinion, nor was any such opinion qualified or
modified as to uncertainty, audit scope, or accounting principles. The decision
to change accountants was recommended by the Audit Committee and approved by the
Board of Directors. There were no disagreements with the former accountant on
any matter of accounting principles or practices, financial statement
disclosures or auditing scope or procedures. The Company engaged KPMG LLP as its
independent accountants for periods after December 31, 1996. The selection was
the result of a competitive search process initiated by the Company.
OTHER MATTERS
Vote Required for Approval
Under the rules of the Securities and Exchange Commission, boxes and a
designated blank space are provided on the form of proxy for stockholders to
mark if they wish to vote in favor of or withhold authority to vote for one or
more of the Company's nominees for director or to vote "for," "against" or
"abstain" with respect to Proposal No. 2 (approval of the 1999 Stock Plan).
Maryland law and the Company's By-laws require the presence of a quorum for the
Meeting, defined as the presence of stockholders entitled to cast at least a
majority of the votes that all stockholders are entitled to cast at the Meeting.
Votes withheld from director nominees and abstentions will be counted in
determining whether a quorum has been reached.
Assuming a quorum has been reached, a determination must be made as to
the results of the vote on each matter submitted for stockholder approval.
Director nominees must receive a plurality of the votes cast at the Meeting,
which means that a broker non-vote or a vote withheld from a particular nominee
or nominees will not affect the outcome of the election of directors. Proposal
No. 2 must be approved by a majority of the voting power of the shares whose
holders are present and entitled to vote thereon. Abstentions and broker
non-votes are not counted in determining the number of votes cast in connection
with Proposal No. 2. A broker non-vote is the failure of a broker to vote shares
which are held of record by the broker on behalf of a client on a particular
matter due to lack of instructions from the client when such instructions are
required by applicable rules and regulations.
All shares represented by duly executed proxies will be voted For the
election of the nominees named above as directors unless authority to vote For
the proposed slate of directors or any individual nominee(s) has been withheld.
If for any reason any of such nominees should not be available as a candidate
for director, the proxies will be voted in accordance with the authority
conferred in the proxy for such other candidate or candidates as may be
nominated by the Company's Board of Directors.
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With respect to Proposal No. 2 (approval of the 1999 Stock Plan), all
shares represented by duly executed proxies will be voted for or against, or not
voted, as specified on each proxy. If no choice is indicated, a proxy will be
voted For Proposal No. 2.
Voting Securities
Stockholders of record at 5:00 p.m., New York City time, on April 23,
1999 (the "Record Date"), will be eligible to vote at the Meeting. The voting
securities of the Company consist of its Common Stock, $.06-2/3 par value, of
which 4,885,479 shares were outstanding on the Record Date. Each share of Common
Stock outstanding on the Record Date will be entitled to one vote.
Stockholder Proposals for 2000 Annual Meeting
From time to time the stockholders of the Company may wish to submit
proposals which they believe should be voted upon by the stockholders. The
Securities and Exchange Commission has adopted regulations which govern the
inclusion of such proposals in the Company's annual meeting proxy materials. All
such proposals must be submitted to the Secretary of the Company no later than
December 31, 1999 in order to be considered for inclusion in the Company's year
2000 proxy materials.
Matters Not Determined at the Time of Solicitation
The Board of Directors is not aware of any matters to come before the
Meeting other than Proposal No. 1 and Proposal No. 2 described above. If any
matter other than Proposal No. 1 and Proposal No. 2 described above should come
before the Meeting, then the persons named in the enclosed form of proxy will
have discretionary authority to vote all proxies with respect thereto in
accordance with their judgment.
Slate Hill, New York
April 23, 1999
The Annual Report to Stockholders of the Company for the fiscal year
ended December 31, 1998 is being mailed to stockholders. The Annual Report does
not form part of these proxy materials for the solicitation of proxies.
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Exhibit A
BALCHEM CORPORATION
1999 STOCK PLAN
1. Purpose. The Balchem Corporation 1999 Stock Plan (the
"Plan") is intended to provide Balchem Corporation, a Maryland corporation (the
"Company"), with a means of attracting and retaining the services of key persons
and to advance the interests of the Company and its stockholders by affording to
certain persons, upon whose judgment, initiative and efforts the Company is
largely dependent for the successful conduct of its business, an opportunity for
investment in the Company and the incentive advantages inherent in stock
ownership in the Company, by providing (a) to the officers and other employees
of the Company and any present or future parent or subsidiaries of the Company
(collectively, "Related Companies") opportunities to purchase stock in the
Company pursuant to options granted hereunder which qualify as "incentive stock
options" ("ISO" or "ISOs") under Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"); (b) to directors, officers, employees and
directors emeritus of and consultants to the Company and Related Companies
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "NonQualified
Options"); and (c) to directors, officers, employees and directors emeritus of
and consultants to the Company and Related Companies opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereinafter individually as an "Option"
and collectively as "Options". Options and authorizations to make Purchases are
referred to hereafter collectively as "Stock Rights". As used herein, the terms
"parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation", respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
(a) Board or Committee Administration. The Plan shall
be administered by the Board of Directors of the Company (the "Board"). The
Board may appoint a Compensation Committee (the "Committee") to administer the
Plan consisting of two or more persons. The Board, if it deems it advisable, may
cause such Committee to consist solely of persons who qualify as both (i)
"non-employee directors", within the meaning of Rule 16b-3 or any successor
provision ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended, and (ii) "outside directors", within the meaning of Section
162(m)(4)(C)(i) of the Code. To the extent required by Rule 16b-3, with respect
to specific grants of Stock Rights, the Plan shall be administered in accordance
with Rule 16b-3. Subject to ratification of the grant or authorization of each
Stock Right by the Board (if so required by applicable state law), and subject
to the terms of the Plan, the Committee shall have the authority to (i)
determine the employees of the Company and Related Companies (from among the
class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may
be granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified
<PAGE>
Options and to make Purchases) to whom Non-Qualified Options and authorizations
to make Purchases may be granted; (ii) determine the time or times at which
Options may be granted or Purchases made; (iii) determine the option price of
shares subject to each Option, which price, in the case of ISOs, shall not be
less than the minimum price specified in paragraph 6, and the purchase price of
shares subject to each Purchase; (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph
7) the time or times when each option shall become exercisable and the duration
of the exercise period; (vi) determine whether restrictions such as rights of
first refusal and repurchase options are to be imposed on shares subject to
Stock Rights and the nature of such restrictions, if any, and (vii) interpret
the Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. Nothing contained
herein shall limit the right or authority of the Board to act on all matters as
to which authority is or may be granted to the Committee. No member of the Board
or the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Stock Right granted under it.
(b) Committee Action. The Committee may select one of
its members as its chairman, and shall hold meetings at such times and places as
it may determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. All references in the Plan to the Committee shall
mean the Board if no Committee has been appointed or if the Board determines to
act in lieu of the Committee. From time to time the Board may increase the size
of the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(c) Grant of Stock Rights to Board Members. Stock
Rights may be granted to members of the Board consistent with the provisions of
paragraph 2(a) above, if applicable. All grants of Stock Rights to members of
the Board shall in all other respects be made in accordance with the provisions
of the Plan applicable to other eligible persons. Consistent with the provisions
of paragraph 2(a) above, members of the Board who are either (i) eligible for
Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may
vote on any matters affecting the administration of the Plan or the grant of any
Stock Rights pursuant to the Plan, except that no such member shall act solely
in his capacity as a member of the Committee and not as a member of the Board,
upon the granting to him of Stock Rights, it being understood that, except as
otherwise required by applicable law, such member may take part in a vote or
action by the Board itself (rather than by the Committee if then constituted and
acting), and that any such member who does not so act may nevertheless be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken, with respect to the granting to him of Stock
Rights.
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3. Eligible Employees and Others. ISOs may be granted to any
employee of the Company or any Related Company. Those officers and directors of
the Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options and authorizations to make Purchases may be granted to any
director (whether or not an employee), officer, employee, or director emeritus
of or consultant to the Company or any Related Company. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option or an authorization to make a Purchase.
Granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify him from, participation in any
other grant of Stock Rights.
4. Stock. The stock subject to Options and Purchases shall be
authorized but unissued shares of Common Stock of the Company, par value six and
two-thirds cents ($0.06 2/3) per share ("Common Stock"), or shares of Common
Stock re-acquired by the Company in any manner. The aggregate number of shares
which may be issued pursuant to the Plan is 600,000 shares, subject to
adjustment as provided in paragraph 13. Any such shares may be issued as ISOs or
Non-Qualified Options, or to persons or entities making Purchases, so long as
the number of shares so issued does not exceed such number, as adjusted or
amended from time to time by a vote of stockholders or otherwise pursuant to
paragraph 13. If any Option granted under the Plan shall expire or terminate for
any reason without having been exercised in full or shall cease for any reason
to be exercisable in whole or in part, the unpurchased shares subject to such
Option shall again be available for grants of Stock Rights under the Plan. The
maximum number of shares as to which Options may be granted to any particular
individual in any calendar year shall be 150,000, subject to adjustment as
provided in paragraph 13.
5. Granting of Stock Rights. (a) Stock Rights may be granted
under the Plan at any time on or after April 9, 1999 and prior to April 8, 2009.
The date of grant of a Stock Right under the Plan will be the date specified by
the Committee at the time it grants the Stock Right; provided, however, that
such date shall not be prior to the date on which the Committee acts to approve
the grant. The Committee shall have the right, with the consent of the optionee,
to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
(b) Anything in the Plan to the contrary notwithstanding, the
effectiveness of the Plan and of the grant of all Stock Rights pursuant to the
Plan are in all respects subject to approval of the Plan, and the Plan and such
Stock Rights granted under it shall be of no force or effect unless and until,
and no Stock Rights granted hereunder shall in any way vest or become
exercisable in any respect unless and until, approval of the Plan is obtained,
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company present in person or by proxy and entitled to
vote at a meeting of stockholders at which the Plan is presented for approval,
in form and substance satisfactory to counsel for the Company. In the event that
such stockholder approval as aforesaid has not been received by the first
anniversary of the date of adoption of the Plan by the Board, then in such event
the Plan and any Stock Rights granted under the Plan shall become
3
<PAGE>
null and void, and, upon the occurrence of such stockholder approval, the Plan
and such Stock Rights shall become effective as of the date of the adoption by
the Board of the Plan or the grant of such Stock Rights, as the case may be.
6. Minimum ISO Price; ISO Limitations.
(a) Price for ISOs. The exercise price per share
specified in the agreement relating to each ISO granted under the Plan shall not
be less than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Company, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock on
the date of grant.
(b) $100,000 Annual Limitation on ISOs. Each eligible
employee may be granted ISOs only to the extent that, in the aggregate under the
Plan and all incentive stock option plans of the Company and any Related
Company, such ISOs do not become exercisable for the first time by such employee
during any calendar year in a manner which would entitle the employee to
purchase, pursuant to the exercise of incentive stock options (that is, ISOs),
more than $100,000 in fair market value (determined at the time the ISOs were
granted) of Common Stock in that year. This provision is intended to impose the
annual vesting limitation contained in Section 422(b)(7) of the Code and shall
be interpreted consistently therewith. Any Options granted to an employee in
excess of such amount will be treated as Non-Qualified Options.
(c) Determination of Fair Market Value. If, at the time
an Option is granted under the Plan, the Company's Common Stock is publicly
traded, "fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this sentence are available prior to the
date such Option is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then traded
on a national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange and is reported on
the NASDAQ National Market List; or (iii) the average of the closing bid and
asked prices last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not then traded on a
national securities exchange and is not then reported on the NASDAQ National
Market List. However, if the Common Stock is not publicly traded at the time an
option is granted under the Plan, "fair market value" shall be deemed to be the
fair value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
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7. Option Duration. Subject to earlier termination as
provided in paragraphs 9 and 10, each Option shall expire on the date specified
by the Committee, but not more than (i) ten years from the date of grant, and
(ii) five years from the date of grant in the case of ISOs granted to an
employee owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Related
Company. Subject to earlier termination as provided in paragraphs 9 and 10, the
term of each ISO shall be the term set forth in the original instrument granting
such ISO, except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of
paragraphs 9 through 12, each option granted under the Plan shall be exercisable
as follows:
(a) Full Vesting or Partial Vesting. The Option shall
either be fully exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify.
(b) Full Vesting of Installments. Once an installment
becomes exercisable it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.
(c) Partial Exercise. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. The Committee shall have
the right to accelerate the date of exercise of any installment of any Option;
provided that the Committee shall not accelerate the exercise date of any
installment of any Option granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph 16) if such
acceleration would violate the annual vesting limitation contained in Section
422(b)(7) of the Code, as described in paragraph 6(b).
9. Termination of Employment. If an ISO optionee ceases to be
employed by the Company and all Related Companies other than by reason of death
or disability as defined in paragraph 10, no further installments of his ISOs
shall become exercisable, and his ISOs shall terminate after the passage of
sixty (60) days from the date of termination of his employment, but in no event
later than on their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16. Employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service), provided
that the period of such leave does not exceed ninety (90) days or, if longer,
any period during which such optionee's right to reemployment is guaranteed by
statute. A bona fide leave of
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<PAGE>
absence with the written approval of the Committee shall not be considered an
interruption of employment under the Plan, provided that such written approval
contractually obligates the Company or any Related Company to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Companies, so long as the optionee continues to be an
employee of the Company or any Related Company. No grant shall constitute an
employment contract. Nothing in the Plan shall be deemed to give any grantee of
any Stock Right the right to be retained in employment or other service by the
Company or any Related Company for the length of any vesting schedule or for any
portion thereof or for any other period of time.
10. Death; Disability.
(a) Death. If an ISO optionee ceases to be employed by
the Company and all Related Companies by reason of his death, any ISO of his may
be exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the optionee's death.
(b) Disability. If an ISO optionee ceases to be
employed by the Company and all Related Companies by reason of his disability,
he shall have the right to exercise any ISO held by him on the date of
termination of employment, to the extent of the number of shares with respect to
which he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in Section
22(e)(3) of the Code or successor statute.
11. Transferability. The Committee may, in its discretion,
authorize all or a portion of the Options to be granted to an optionee (other
than any intended to qualify as ISOs) to be on terms which permit transfer by
such optionee to Family Members of the optionee, provided that (i) any such
transfer is not a transfer for value, (ii) the stock option agreement pursuant
to which such Options are granted must be approved by the Committee, and must
expressly provide for transferability in a manner consistent with this paragraph
11, (iii) the specific transfer must be approved by the Committee, and (iv)
subsequent transfers of the transferred Options shall be prohibited (except for
a transfer to a Family Member of the optionee from another Family Member of the
optionee which otherwise complies with the foregoing requirements). For purposes
hereof, a "Family Member" of an optionee includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, brother-in-law, or sister-in-law,
of the optionee, including adoptive relationships, any person sharing the
optionee's household (other than a tenant or employee of the optionee), a trust
in which above-described Family Members have more than fifty percent of the
beneficial interest, a foundation in
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which such above-described Family Members (or the optionee) control the
management of assets, and any other entity in which such above-described Family
Members (or the optionee) own more than fifty percent of the voting interests.
The following transactions shall not be deemed transfers for value: (A) a
transfer under a domestic relations order in settlement of marital property
rights; and (B)a transfer to an entity in which more than fifty percent of the
voting interests are owned by Family Members (or the optionee) in exchange for
an interest in that entity. Except with respect to Options that shall be
transferred in accordance with this paragraph 11, all Options shall be
exercisable during the lifetime of the grantee only by him. Following a
transfer, any such Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that, for
purposes of paragraph 16, the term "optionee" or "grantee" shall be deemed to
refer to the transferee. The events of termination of employment under paragraph
9 shall continue to be applied with respect to the original optionee, following
which the Options shall be exercisable by the transferee only to the extent, and
for the periods, specified in paragraph 9, and the Company shall have no
obligation to provide notice to a transferee of any early termination of an
Option on account of termination of the employment of the original optionee or
otherwise. The original optionee shall remain subject to withholding taxes upon
exercise.
12. Terms and Conditions of Options. Options shall be
evidenced by instruments (which need not be identical) in such forms as the
Committee may from time to time approve. Such instruments shall conform to the
terms and conditions set forth in paragraphs 5 through 11 hereof and may contain
such other provisions as the Committee deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of
Common Stock issuable upon exercise of Options. Without limiting the foregoing,
the Committee may provide in connection with the grant of a Stock Right for the
termination and/or cancellation of such Stock Right if the grantee's employment
shall be terminated for cause, and/or for the acceleration of vesting and/or
termination of a Stock Right upon the occurrence of a "Change of Control" (as
the same may be defined in any such grant instrument) . In granting any
Non-Qualified Option, the Committee may specify that such Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs,
and/or to such termination and cancellation provisions as the Committee may
determine. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the Company to execute and deliver such instruments. The proper officers of the
Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following
events, an optionee's rights with respect to options granted to him under the
Plan shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
(a) Stock Dividends and Stock Splits. If the shares of
Common Stock shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue
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any shares of Common Stock as a stock dividend on its outstanding Common Stock,
the number of shares of Common Stock deliverable upon the exercise of Options
shall be appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
(b) Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company under the Plan (the "Successor Board"), shall, as to outstanding
Options, take one or more of the following actions: (i) make appropriate
provision for the continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options, or make provision for the
exchange of such Options for, the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition (less the
exercise price thereof not paid); or (ii) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options any equity securities of the successor
corporation; or (iii) upon written notice to the optionees, provide that all
Options must be exercised, to the extent then exercisable, within a specified
number of days from the date of such notice, at the end of which period the
Options shall terminate; or (iv) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value (determined as of the date
in question in a manner consistent with paragraph 6(c)) of the shares subject to
such Options (to the extent then exercisable) over the exercise price thereof;
or (v) accelerate the date of exercise of such Options or of any installment of
any such Options; or (vi) terminate all Options in exchange on an equitable
basis for the grant of similar stock options for the purchase of shares of
capital stock of any successor corporation; or (vii) any combination of any of
the foregoing referred to in clauses (i) through (vi) above.
(c) Recapitalization or Reorganization. In the event of
a recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pur suant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, an optionee upon exercising an Option shall be entitled
to receive for the purchase price paid upon such exercise the securities he
would have received if he had exercised his Option prior to such
recapitalization or reorganization.
(d) Modification of ISOs. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs (a), (b) or (c) with
respect to ISOs shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the Code)
or would cause any adverse tax consequences for the holders of such ISOs. If the
Committee determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments.
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(e) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
(f) Issuances of Securities. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(g) Fractional Shares. No fractional shares shall be
issued under the Plan and the optionee shall receive from the Company cash in
lieu of such fractional shares.
(h) Adjustments. Upon the happening of any of the
foregoing events described in subparagraphs (a), (b) or (c) above, the class and
aggregate number of shares set forth in paragraph 4 that are subject to Stock
Rights which previously have been or subsequently may be granted under the Plan,
and the maximum number of shares as to which Options may be granted to any one
individual, as provided in paragraph 4, shall also be appropriately adjusted to
reflect the events described in such subparagraphs. The Committee or the
Successor Board shall determine the specific adjustments to be made under this
paragraph 13 and, subject to paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made under the Plan receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs (a), (b) or
(c) above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. Means of Exercising Stock Rights. A Stock Right (or any
part or installment thereof) shall be exercised by giving written notice to the
Company at its principal office address. Such notice shall identify the Stock
Right being exercised and specify the number of shares as to which such Stock
Right is being exercised, accompanied by full payment of the purchase price
therefor either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise (determined as of the
date in question in a manner consistent with paragraph 6(c)) to the cash
exercise price of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest Applicable Federal Rate,
as defined in Section 1274(d) of the Code, or (d) in the discretion of the
Committee, by delivery (including by telecopier) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable
9
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instructions to a broker-dealer to sell (or margin) a sufficient portion of the
shares and deliver the sale (or margin loan) proceeds directly to the Company to
pay for the exercise price, or (e) at the discretion of the Committee, by any
combination of (a), (b), (c) or (d) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c) or (d) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of a Stock Right shall not have the rights of a stockholder
with respect to the shares covered by his Stock Right until the date of issuance
of a stock certificate to him for such shares. Except as expressly provided
above in paragraph 13 with respect to changes in capitalization and stock
dividends, no adjustment shall be made for dividends or similar rights for which
the record date is before the date such stock certificate is issued.
15. Term and Amendment of Plan. The Plan shall expire on
April 8, 2009 (except as to Options outstanding on that date). The Board may
terminate or amend the Plan in any respect at any time, except that, without the
approval of the stockholders obtained within 12 months before or after the Board
adopts a resolution authorizing any of the following actions: (a) the total
number of shares that may be issued under the Plan may not be increased (except
by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(a) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders amending the Plan alter or impair the rights of a grantee, without
his consent, under any Stock Right previously granted to him.
16. Conversion of ISOs into Non-Qualified Options;
Termination of ISOs. The Committee, at the written request of any optionee, may
in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Company at the time of such
conversion. Such actions may include, but not be limited to, extending the
exercise period or reducing the exercise price of the appropriate installments
of such Options. At the time of such conversion, the Committee (with the consent
of the optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with the Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action. The Committee, with the
consent of the optionee, may also terminate any portion of any ISO that has not
been exercised at the time of such termination.
10
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17. Application of Funds. The proceeds received by the
Company from the sale of shares pursuant to Options granted and Purchases
authorized under the Plan shall be used for general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell
and deliver shares of the Common Stock under this Plan is subject to the
approval of any governmental authority required in connection with the
authorization, issuance or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise
of a Non-Qualified Option, the making of a Purchase of Common Stock for less
than its fair market value, the making of a Disqualifying Disposition (as
defined in paragraph 20), the exercise of an Option transferred by the original
optionee in accordance with paragraph 11, or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right under the Plan, the Company, may
require the optionee, purchaser or original optionee to pay to the Company in
cash an amount equal to all applicable withholding taxes in respect of the
amount that is considered compensation includable in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the making of a Purchase of Common Stock for less than its fair market
value, (iii) the vesting of restricted Common Stock acquired by exercising a
Stock Right, or (iv) the exercise of a transferred Option, on the grantee's
payment of such amount.
20. Notice to Company of Disqualifying Disposition. Each
employee who receives an ISO must agree to notify the Company in writing
immediately after the employee makes a Disqualifying Disposition of any Common
Stock acquired pursuant to the exercise of an ISO. A "Disqualifying Disposition"
is any disposition (including any sale) of such Common Stock before the later of
(a) two years after the date the employee was granted the ISO, or (b) one year
after the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. Governing Law; Construction. The validity and
construction of the Plan and the instruments evidencing Stock Rights shall be
governed by the laws of the State of Maryland or the laws of any jurisdiction in
which the Company or its successors in interest may be organized. In construing
this Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
11
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PROXY
BALCHEM CORPORATION
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING SCHEDULED FOR JUNE 25, 1999
The undersigned hereby appoints Dino A. Rossi, Francis J. Fitzpatrick and
Anthony J. Nocera, and each of them, individually, as attorneys and proxies of
the undersigned, with full power of substitution, at the Annual Meeting of
Stockholders of Balchem Corporation scheduled to be held on June 25, 1999, and
at any adjournments therof, and to vote all shares of Common Stock of the
Company which the undersigned is entitled to vote on all matters coming before
said meeting.
The undersigned hereby revokes all proxies heretofore given by the undersigned
to vote at said meeting or any adjournment thereof.
________________________________________
Date
_________________________________________
Stockholder sign above
_________________________________________
Co-holder (if any) sign above
Proposal No. 1:
Election of three (3) Class
3 Directors [ ] For [ ] Withhold [ ] For All
Except
Nominees for Election as Class 3 Directors:
John E. Beebe, Francis X. McDermott, Leonard J. Zweifler
INSTRUCTION: To withold authority to vote for any one or more
individual nominee(s), mark "For All Except" and write the name(s)
of such nominee(s) in the space provided below.
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Proposal No. 2:
Approval of 1999 Stock Plan [ ] For [ ] Against [ ] Abstain
The proxies are directed to vote as specified and in their discretion on all
other matters coming before the Annual Meeting. If no direction is made, the
proxies will vote FOR the nominees for election as Directors listed above and
FOR Proposal No. 2. The Board of Directors recommends a vote FOR all listed
nominees for election as Directors and FOR Proposal No. 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE.
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Please sign exactly as your name appears on this card. When signing as an
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign. If the signer is a
corporation, please sign full corporate name by duly authorized officer. If a
partnership, please sign in partnership name by authorized persons.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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