Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
x
Definitive
Proxy Statement
¨
Definitive
Additional Materials
¨
Soliciting
Materials under §240.14a-12
GARMIN
LTD.
(Name of
Registrant as Specified in Its Charter)
(Name of
Person(s) Filing Proxy Statement if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x No fee
required
¨
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1)
Title
of each class of securities to which transaction
applies:
2)
Aggregate
number of securities to which transaction
applies:
3)
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11
(set
forth the amount on which the filing fee is calculated and state how it was
determined):
4)
Proposed
maximum aggregate value of
transaction:
5)
Total
fee paid:
¨
Fee
paid previously with preliminary
materials.
¨
Check
box if any part of the fee is offset as provided by Exchange Act Rule
O-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.
We cordially invite you to attend the
Annual General Meeting (the “Annual Meeting”) of Shareholders of Garmin Ltd., a
Cayman Islands company, (“Garmin” or the “Company”) to be held at the Ritz
Charles, located at 9000 West 137th Street,
Overland Park, Kansas, 66221, USA, at 10:00 a.m. Central Time, on Friday, June5, 2009, to consider and vote upon the following matters:
1.
Election
of two directors;
2.
Ratification
of the appointment of Ernst & Young LLP as Garmin’s independent
registered public accounting firm for the 2009 fiscal
year;
3.
Approval
of an Amendment to the Garmin Ltd. 2005 Equity Incentive
Plan;
4.
Approval
of an Amendment to the Garmin Ltd. 2000 Non-Employee Directors’ Option
Plan; and
5.
Consideration
of such other matters as may properly be brought before the Annual Meeting
or any adjournment thereof.
Information
concerning the matters to be acted upon at the Annual Meeting is contained in
the accompanying Proxy Statement.
In
accordance with the Company’s Articles of Association, the Company’s audited
consolidated financial statements for the fiscal year ending December 27, 2008
will be presented at the Annual Meeting. There is no requirement under the
Company’s Articles of Association or Cayman Islands law that such financial
statements be approved by shareholders, and no such approval will be sought at
the Annual Meeting.
Shareholders
of record at the close of business on April 9, 2009 are entitled to notice of,
and to vote at, the Annual Meeting and any adjournments thereof. A shareholder
entitled to attend and to vote at the Annual Meeting is entitled to appoint a
proxy to attend and, on a poll, vote instead of him or her.
We are
pleased to again take advantage of the Securities and Exchange Commission rules
that allow issuers to furnish proxy materials to their shareholders on the
Internet. We are sending a Notice of Internet Availability of Proxy
Materials (the “Notice”) to our beneficial owners of shares held in “street
name” through a broker or other nominee, and we are mailing our proxy materials
to shareholders whose shares are held directly in their names with our transfer
agent, Computershare Trust Company, N.A., and to participants in the Garmin
International, Inc. 401(k) and Pension Plan with a beneficial interest in our
shares. We believe these rules allow us to provide our
shareholders with the information they need, while lowering costs of delivery
and reducing the environmental impact of our Annual Meeting.
If you
received the Notice, you can access the proxy materials on the website referred
to in the Notice or request to receive a printed set of the proxy materials by
mail. Instructions on how to access the proxy materials over the
Internet or to request a printed copy by mail may be found in the
Notice.
Please
vote your shares regardless of whether you plan to attend the Annual Meeting. If
you received these proxy materials through the mail, please use the enclosed
Proxy Card to direct the vote of your shares, regardless of whether you plan to
attend the Annual Meeting. Please date the Proxy Card, sign it and promptly
return it in the enclosed envelope, which requires no postage if mailed in the
United States, or you may vote by Internet or telephone using the instructions
provided on the Proxy Card. If you received the Notice and reviewed the proxy
materials on the Internet, please follow the instructions included in the
Notice.
Any
shareholder who may need special assistance or accommodation to participate in
the Annual Meeting because of a disability should contact Garmin’s Corporate
Secretary at the above address or call (913) 440-1355. To provide
Garmin sufficient time to arrange for reasonable assistance, please submit all
such requests by June 1, 2009.
Householding
of Annual Meeting Materials for Broker Customers
38
Other
Matters
38
Appendix
A – Form of Proxies
A-1
Schedule
1 – Amended and Restated Garmin Ltd. 2005 Equity Incentive
Plan
B-1
Schedule
2 – Amended and Restated Garmin Ltd. 2000 Non-Employee Directors’
Option Plan
C-1
1
PROXY
STATEMENT
The accompanying proxy is solicited by
the Board of Directors (“Board”) of Garmin Ltd., a Cayman Islands company
(“Garmin” or the “Company” ) for use at the Annual General Meeting of
Shareholders (the “Annual Meeting”) to be held at 10:00 a.m., Central Time, on
Friday, June 5, 2009, at the Ritz Charles, 9000 West 137th Street,
Overland Park, Kansas, 66221, and at any adjournment(s) or postponement(s)
thereof for the purposes set forth herein and in the accompanying Notice of
Annual General Meeting of Shareholders. This Proxy Statement and the
accompanying proxy card are first being furnished to shareholders on or about
April 21, 2009.
INFORMATION
CONCERNING SOLICITATION AND VOTING
We
are sending a Notice of Internet Availability of Proxy Materials (the “Notice”)
to our beneficial owners of shares held in “street name” through a broker or
other nominee (“Broker Customers”), and we are mailing our proxy materials to
shareholders whose shares are held directly in their names with our transfer
agent, Computershare Trust Company, N.A. (“Record Holders”), and to participants
in the Garmin International, Inc. 401(k) and Pension Plan with a beneficial
interest in our shares (“Plan Participants”).
Proposals
At the
Annual Meeting, the Garmin Board intends to ask you to vote on:
(1)
the
election of two directors;
(2)
the
ratification of the appointment of Ernst & Young LLP (“Ernst &
Young”) to be the Company’s independent registered public accounting firm
for the 2009 fiscal year;
(3)
the
approval of an amendment to the Garmin Ltd. 2005 Equity Incentive Plan;
and
(4)
the
approval of an amendment to the Garmin Ltd. 2000 Non-Employee Directors’
Option Plan.
In
accordance with the Company’s Articles of Association, the Company’s audited
consolidated financial statements for the fiscal year ending December 27, 2008
will be presented at the Annual Meeting. There is no requirement under the
Company’s Articles of Association or Cayman Islands law that such financial
statements be approved by shareholders, and no such approval will be sought at
the Annual Meeting. The Garmin Board knows of no other matters that will be
presented or voted on at the Annual Meeting.
Record
Date and Shares Outstanding
Shareholders of record at the close of
business on April 9, 2009 (the “Record Date”) are entitled to notice of, and to
vote at, the Annual Meeting. At the Record Date, the Company had issued and
outstanding 200,286,964 common shares, par value $0.005 per share (“Common
Shares”).
Solicitation
of Proxies
The cost of soliciting proxies will be
borne by the Company. In addition to soliciting shareholders by mail and through
its regular employees not specifically engaged or compensated for that purpose,
the Company will request banks and brokers, and other custodians, nominees and
fiduciaries to solicit their customers who have shares of the Company registered
in the names of such persons and, if requested, will reimburse them for their
reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors and others to solicit proxies, personally or by telephone,
facsimile or electronic mail, without additional compensation.
2
Voting
Each shareholder is entitled to one
vote on each proposal presented in this Proxy Statement for each share held as
of the Record Date. There is no cumulative voting in the election of
directors. The required quorum for the transaction of business at the Annual
Meeting is the presence in person or by proxy of shareholders holding not less
than a majority of the Common Shares issued and outstanding on the Record Date.
The affirmative vote of the holders of a majority of the Common Shares
represented and voting at the Annual Meeting in person or by proxy is required
for the election of directors, for the amendment of the Garmin Ltd. 2005 Equity
Incentive Plan, for the amendment of the Garmin Ltd. 2000 Non-Employee
Directors’ Option Plan and for ratification of the appointment of Ernst &
Young. Shareholder ratification of the appointment of Ernst &
Young is not required, but your views are important to the Audit Committee and
the Board. If shareholders do not ratify the appointment of Ernst
& Young, our Audit Committee will reconsider the appointment of Ernst &
Young as Garmin’s independent auditor.
Abstentions
and Broker Non-Votes
Pursuant to Cayman Islands law, (i)
Common Shares represented at the Annual Meeting whose votes are withheld on any
matter, and (ii) Common Shares which are represented by “broker non-votes”
(i.e., shares held by brokers or nominees which are represented at the Annual
Meeting but with respect to which the broker or nominee is not empowered to vote
on a particular proposal) are not included in the determination of the shares
voting on such matter but are counted for quorum purposes.
How
Shareholders Vote
Record
Holders, Plan Participants and Broker Customers holding Common Shares on the
Record Date (directly or through a broker or other nominee) may vote (or in the
case of Plan Participants, may direct the trustee of the Garmin International,
Inc. 401(k) and Pension Plan to vote) such shares as follows:
Common
Shares of Record
Record Holders may only vote their
shares if they or their proxies are present at the Annual Meeting. Record
Holders may appoint as their proxy the Proxy Committee, which consists of
officers of the Company whose names are listed on the Proxy Card. The Proxy
Committee will vote all Common Shares for which it is the proxy as specified by
the shareholders on the Proxy Cards. A Record Holder desiring to name as proxy
someone other than the Proxy Committee may do so by crossing out the names of
the Proxy Committee members on the Proxy Card and inserting the full name of
such other person. In that case, the Record Holder must sign the Proxy Card and
deliver it to the person named, and the person named must be present and vote at
the Annual Meeting.
If a properly executed and unrevoked
Proxy Card does not specify how the Common Shares represented thereby are to be
voted, the Proxy Committee intends to vote such shares (i) for the election as
directors of the persons nominated by the Company’s Board of Directors (“Board
Nominees”), (ii) for the ratification of the appointment of Ernst & Young to
be the Company’s independent registered public accounting firm for the 2009
fiscal year, (iii) for the amendment of the Garmin Ltd. 2005 Equity Incentive
Plan, (iv) for the amendment of the Garmin Ltd. 2000 Non-Employee Directors’
Option Plan; and (v) in accordance with the discretion of the Proxy Committee
upon such other matters as may properly come before the Annual
Meeting.
3
Common
Shares Held Under the 401(k) Plan
On the voting instructions card, Plan
Participants may instruct the trustee of our 401(k) Plan how to vote the Common
Shares allocated to their respective participant accounts. The trustee will vote
all allocated Common Shares accordingly. Common Shares for which inadequate or
no voting instructions are received generally will be voted by the trustee in
the same proportion as those Common Shares for which instructions were actually
received from Plan Participants. The trustee of our 401(k) Plan may vote Common
Shares allocated to the accounts of the 401(k) Plan participants either in
person or through a proxy.
Common
Shares Held Through a Broker or Other Nominee
Each
broker or nominee must solicit from the Broker Customers directions on how to
vote the Common Shares, and the broker or nominee must then vote such shares in
accordance with such directions. Brokers or nominees are to forward the Notice
to the Broker Customers, at the reasonable expense of the Company if the broker
or nominee requests reimbursement. Most broker-dealers are members of the
National Association of Securities Dealers, which generally does not allow them
to vote shares held in street name unless they are permitted to do so under the
rules of a national securities exchange to which they belong. Brokers who are
members of the New York Stock Exchange (“NYSE”) may vote the shares of Broker
Customers on routine matters, including the election of directors and
ratification of the appointment of independent auditors, when they have not
received directions from the Broker Customers.
Revoking
Proxy Authorizations or Instructions
Until the polls close (or in the case
of Plan Participants, until the trustee of the 401(k) Plan votes), votes of
Record Holders and voting instructions of Plan Participants may be recast with a
later-dated, properly executed and delivered Proxy Card or, in the case of Plan
Participants, a voting instruction card. Otherwise, shareholders may not revoke
a vote, unless: (a) in the case of a Record Holder, the Record Holder either (i)
attends the Annual Meeting and casts a ballot at the meeting or (ii) delivers a
written revocation to the Corporate Secretary of the Company at any time before
the Chairman of the Annual Meeting closes the polls; (b) in the case of a Plan
Participant, the revocation procedures of the trustee of the 401(k) Plan are
followed; or (c) in the case of a Broker Customer, the revocation procedures of
the broker or nominee are followed.
Attendance and Voting in Person at the
Annual Meeting
Attendance at the Annual Meeting is
limited to Record Holders or their properly appointed proxies, beneficial owners
of Common Shares having evidence of such ownership, and guests of the Company.
Plan Participants and Broker Customers, absent special direction to the Company
from the respective 401(k) Plan trustee, broker or nominee, may only vote by
instructing the trustee, broker or nominee and may not cast a ballot at the
Annual Meeting. Record Holders may vote by casting a ballot at the Annual
Meeting.
4
STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the
Record Date, the Company had outstanding 200,286,964 Common Shares. The
following table contains information as of the Record Date concerning the
beneficial ownership of Common Shares by: (i) beneficial owners of Common Shares
who have publicly filed a report acknowledging ownership of more than 5% of the
number of outstanding Common Shares; (ii) the directors and the executive
officers who are named in the Summary Compensation Table; and (iii) all of the
directors and the named executive officers as a group. Beneficial ownership
generally means either the sole or shared power to vote or dispose of the
shares. Except as otherwise noted, to the Company’s knowledge the holders listed
below have sole voting and dispositive power. No officer or director of the
Company owns any equity securities of any subsidiary of the
Company.
Percent of
Name and Address
Common Shares(1)
Class(2)
Danny
J. Bartel
Vice
President, Worldwide Sales of Garmin International,
Inc.
123,347
(3)
*
Gary L. Burrell(4)
Shareholder
29,563,570
(5)
14.7
%
Ruey-Jeng Kao(6)
Shareholder
12,944,962
6.4
%
Gene
M. Betts
Director
13,087
(7)
*
Donald
H. Eller, Ph.D.
Director
900,786
(8)
*
Andrew
R. Etkind
Vice
President, General Counsel and Corporate Secretary
135,576
(9)
*
Min
H. Kao, Ph.D.
Director,
Chairman and CEO
44,017,580
(10)
21.9
%
Charles
W. Peffer
Director
13,538
(11)
*
Clifton
A. Pemble
Director,
President and COO
129,176
(12)
*
Kevin
Rauckman
Chief
Financial Officer and Treasurer
108,056
(13)
*
Thomas
A. McDonnell
Director
60,593
(14)
*
Directors
and Named Executive Officers as a Group
(9
persons)
45,501,739
(15)
22.7
%
* Less
than 1% of the outstanding Common Shares
5
(1)
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (“SEC”). In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares subject to options held by that person that are currently
exercisable at the Record Date or within 60 days of such date are deemed
outstanding. The holders may disclaim beneficial ownership of any such
shares that are owned by or with family members, trusts or other entities.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, to the Company’s knowledge, each
shareholder named in the table has sole voting power and dispositive power
with respect to the shares set forth opposite such shareholder’s
name.
(2)
The
percentage is based upon the number of shares outstanding as of the Record
Date and computed as described in footnote (1)
above.
(3)
Mr.
Bartel’s beneficial ownership includes 64,600 shares that may be acquired
through stock options and stock appreciation rights that are currently
exercisable or will become exercisable within 60 days of the Record Date
and 271 shares that were purchased for Mr. Bartel’s account in June 2008
as a participant in the Company’s Employee Stock Purchase
Plan. The number of Common Shares reported includes 1,400
shares held in an account on which Mr. Bartel’s spouse has signing
authority, over which Mr. Bartel does not have any voting or dispositive
power. Mr. Bartel disclaims beneficial ownership of those
shares held in the account on which his spouse has signing
authority.
(4)
Mr. Burrell’s
address is c/o Garmin International, Inc., 1200 East 151st
Street, Olathe, Kansas66062.
(5)
The
number of Common Shares reported includes 863,570 Common Shares held by
Judith M. Burrell, Mr. Burrell’s wife, over which Mr. Burrell
does not have any voting or dispositive power. Mr. Burrell disclaims
beneficial ownership of these shares owned by his
wife.
(6)
Mr. Kao’s
address is c/o Fortune Land Law Offices, 8th
Floor, 132, Hsinyi Road, Section 3, Taipei, Taiwan. Mr. Kao is the
brother of Dr. Min Kao. The information is based on Amendment No. 4
dated January 17, 2006 to a Schedule 13G dated February 9,2001.
(7)
Mr. Betts’
beneficial ownership consists of 7,087 shares that may be acquired through
options that are currently exercisable or will become exercisable within
60 days of the Record Date.
(8)
Dr. Eller’s
beneficial ownership includes 20,786
shares that may be acquired through options that are currently exercisable
or will become exercisable within 60 days of the Record
Date.
(9)
Mr. Etkind’s
beneficial ownership includes 1,106 shares held in the 401(k) Plan,
121,200 shares that may be acquired through stock options and stock
appreciation rights that are currently exercisable or will become
exercisable within 60 days of the Record Date, and 220 shares that were
purchased for Mr. Etkind’s account in June 2008 as a participant in the
Company’s Employee Stock Purchase
Plan.
(10)
Dr.
Kao’s address is c/o Garmin International, Inc., 1200 East 151st
Street, Olathe, Kansas66062. Of the 44,017,580 Common Shares, (i)
10,366,188 Common Shares are held by the Min-Hwan Kao Revocable Trust
9/28/95, over which Dr. Kao has sole voting and dispositive power,
(ii) 28,443,568 Common Shares are held by revocable trusts established by
Dr. Kao’s children over which Dr. Kao has shared voting and
dispositive power, and (iii) 5,207,824 Common Shares are held by a
revocable trust established by Dr. Kao’s wife, over which
Dr. Kao does not have any voting or dispositive power. Dr. Kao
disclaims beneficial ownership of those shares owned by the revocable
trust established by his wife and by the revocable trusts established by
his children.
(11)
Mr.
Peffer’s beneficial ownership includes 9,938
shares that may be acquired through options that are currently exercisable
or will become exercisable within 60 days of the Record
Date.
(12)
Mr. Pemble’s
beneficial ownership includes 120,400 shares that may be acquired through
stock options and stock appreciation rights that are currently exercisable
or will become exercisable within 60 days of the Record Date and 271
shares that were purchased for Mr. Pemble’s account in June 2008 as a
participant in the Company’s Employee Stock Purchase
Plan.
(13)
Mr. Rauckman’s
beneficial ownership includes 98,200 shares that may be acquired through
stock options and stock appreciation rights that are currently exercisable
or will become exercisable within 60 days of the Record Date and 271
shares that were purchased for Mr. Rauckman’s account in June 2008 as a
participant in the Company’s Employee Stock Purchase Plan. The number of
Common Shares reported includes 5,100 Common Shares held by a revocable
trust established by Mr. Rauckman’s wife, over which
Mr. Rauckman does not have any voting or dispositive power, and 300
shares held by revocable trusts established by his children.
Mr. Rauckman disclaims beneficial ownership of these shares owned by
the revocable trusts established by his wife and
children.
(14)
Mr. McDonnell’s
beneficial ownership includes 20,593
shares that may be acquired through options that are currently exercisable
or will become exercisable within 60 days of the Record
Date.
(15)
The
number includes 462,804 shares that may be acquired through stock options
and stock appreciation rights that are currently exercisable or will
become exercisable within 60 days of the Record Date. Individuals in the
group have disclaimed beneficial ownership as to a total of 34,521,762 of
the shares listed.
The Company’s nominees for election at
this Annual Meeting are Min H. Kao and Charles W. Peffer. Dr. Kao and
Mr. Peffer are being nominated as Class III directors to hold office for a
three-year term expiring at the annual general meeting in 2012.
Dr. Kao and Mr. Peffer are
currently directors of the Company, having been elected at the Company’s annual
general meeting in 2006 for a term expiring on the date of this Annual
Meeting. Dr. Kao and Mr. Peffer have each indicated that they are
willing and able to continue serving as directors if elected and have consented
to being named as nominees in this Proxy Statement. If either or both of these
nominees should for any reason become unavailable for election, the Proxy
Committee will vote for such other nominee as may be proposed by the Company’s
Board of Directors.
Min
H. Kao, age 60, has served as Chairman of the Company since August 2004
and was previously Co-Chairman of the Company from August 2000 to August
2004. He has served as Chief Executive Officer of the Company since August
2002 and previously served as Co-Chief Executive Officer from August 2000
to August 2002. Dr. Kao has served as a director and officer of various
subsidiaries of the Company since August 1990. Dr. Kao holds Ph.D. and MS
degrees in Electrical Engineering from the University of Tennessee and a
BS degree in Electrical Engineering from National Taiwan
University.
Charles
W. Peffer, age 61, has been a director of the Company since August 2004.
Mr. Peffer was a partner in KPMG LLP and its predecessor firms from 1979
to 2002 when he retired. He served in KPMG’s Kansas City office as Partner
in Charge of Audit from 1986 to 1993 and as Managing Partner from 1993 to
2000. Mr. Peffer is a director of NPC International, Inc. and of the
Commerce Funds, a family of eight mutual
funds.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THESE
NOMINEES.
THE
BOARD OF DIRECTORS
Information
about present directors
In addition to the Board nominees who
are described under Proposal One – Election of Two Directors, the following
individuals are also on the Company’s Board, for a term ending on the date of
the annual general meeting of shareholders in the year
indicated.
7
Directors
Serving Until the Annual General Meeting in 2010
Gene
M. Betts, age 56, has been a director of the Company since March
2001. Mr. Betts has been the Chief Financial Officer of Embarq
Corporation since May, 2006. He previously served as Senior
Vice President-Finance at Sprint Nextel Corporation’s local
telecommunications division from August 2005 to May 2006 and as Senior
Vice President – Finance and Treasurer of Sprint Corporation from 1998
until August 2005. Mr. Betts is a Certified Public Accountant.
Prior to joining Sprint he was a partner in Arthur Young & Co. (now
Ernst & Young). Mr. Betts is a director of seven registered investment
companies in the Buffalo Funds complex.
Thomas
A. McDonnell, age 63, has been a director of the Company since March 2001.
Mr. McDonnell has been President of DST Systems, Inc. (“DST”) since
January 1973 (except for a 30-month period from October 1984 to April
1987), Chief Executive Officer of DST since 1984 and a director of DST
since 1971. He is also a director of Blue Valley Ban Corp., Commerce
Bancshares, Inc., Euronet Worldwide, Inc. and Kansas City
Southern.
Directors
Serving Until the Annual General Meeting in 2011
Donald
H. Eller, age 66, has been a director of the Company since March 2001. Dr.
Eller has been a private investor since January 1997. From September 1979
to November 1982 he served as the Manager of Navigation System Design for
a division of Magnavox Corporation. From January 1984 to December 1996 he
served as a consultant on Global Positioning Systems and other navigation
technology to various U.S. military agencies and U.S. and foreign
corporations. Dr. Eller holds B.S., M.S. and Ph.D. degrees in Electrical
Engineering from the University of Texas.
Clifton
A. Pemble, age 43, has served as a director of the Company since August
2004 and has been President and Chief Operating Officer of the Company
since October 2007. He has served as a director and officer of various
subsidiaries of the Company since August 2003. He has been President and
Chief Operating Officer of Garmin International, Inc. since October
2007. Previously, he was Vice President, Engineering of Garmin
International, Inc. from 2005 to October 2007, Director of Engineering of
Garmin International, Inc. from 2003 to 2005, Software Engineering Manager
of Garmin International, Inc. from 1995 to 2002, and a Software Engineer
with Garmin International, Inc. from 1989 to 1995. Garmin International,
Inc. is a subsidiary of the Company. Mr. Pemble holds BA degrees in
Mathematics and Computer Science from MidAmerica Nazarene
University.
Director
Independence
The Board of Directors has determined
that Messrs. Betts, Eller, Peffer and McDonnell, who constitute a majority
of the Board, are independent directors as defined in the listing standards for
the Nasdaq Stock Market.
8
Board
of Directors Meetings and Standing Committee Meetings
Meetings
The Board of Directors held six
meetings and took action by unanimous written consent twice during the fiscal
year ended December 27, 2008. Four executive sessions of the
independent directors were held in 2008. The Board of Directors has established
three standing committees: the Audit Committee, the Compensation Committee and
the Nominating and Corporate Governance Committee (the “Nominating Committee”).
During the 2008 fiscal year, the Audit Committee held five meetings and took
action by unanimous written consent once, the Compensation Committee held five
meetings and took action by unanimous written consent once, and the Nominating
Committee held one meeting. Each director attended at least 75% of the aggregate
of: (1) the total number of meetings of the Board of Directors and (2) the total
number of meetings held by all committees on which such director served. It is
the Company’s policy to encourage directors to attend the Company’s Annual
Meeting. All of the directors of the Company attended the 2008 annual general
meeting.
Audit
Committee
Messrs. Peffer (Chairman), Betts
and McDonnell serve as the members of the Audit Committee. The Board
of Directors has adopted a written charter for the Audit Committee, a copy of
which is available on the Company’s website at www.garmin.com. The functions
of the Audit Committee include overseeing the Company’s financial reporting
processes on behalf of the Board, and appointing, and approving the fee
arrangement with, Ernst & Young, the Company’s independent registered public
accounting firm. The Board of Directors has determined that Mr. Betts,
Mr. Peffer and Mr. McDonnell are “audit committee financial experts”
as defined by the SEC regulations implementing Section 407 of the Sarbanes-Oxley
Act of 2002. The Board of Directors has determined that all the members of the
Audit Committee are independent (as defined by the listing standards of the
Nasdaq Stock Market).
Compensation
Committee
Messrs. Betts (Chairman), Eller,
Peffer and McDonnell serve as the members of the Compensation
Committee. The Board of Directors has adopted a written charter for
the Compensation Committee, a copy of which is available on the Company’s
website at www.garmin.com
.. The primary responsibilities of the Compensation Committee are to
(a) review, approve and oversee the Company’s compensation programs, objectives
and policies for senior executives, (b) ensure that the Company’s compensation
programs and practices are effective in attracting, retaining and motivating
highly qualified executives, (c) determine the Chief Executive Officer’s
compensation level and the components and structure of his compensation package,
(d) recommend to the Board the respective compensation levels of the other
principal senior officers and the components and structure of their compensation
packages, (e) review and approve any employment, change of control or severance
agreements with the Chief Executive Officer and other principal senior officers,
(f) review and approve executive compensation disclosures made in the Company’s
proxy statements, (g) recommend to the Board any changes in the amount,
components and structure of compensation paid to non-employee directors, (h)
serve as the Committee administering the Company’s equity-based incentive plans,
and (i) annually review with management succession plans for all principal
senior officers. The Board of Directors has determined that all the
members of the Compensation Committee are independent (as defined by the listing
standards of the Nasdaq Stock Market). The processes and procedures
for considering and determining executive compensation, including the
Compensation Committee’s authority and role in the process, its delegation of
authority to others, and the roles of Garmin executives and third-party
executive compensation consultants in making decisions or recommendations on
executive compensation, are described in “Executive Compensation Matters –
Compensation Discussion and Analysis” below.
9
Nominating
and Corporate Governance Committee
Messrs. Betts, Eller (Chairman),
Peffer and McDonnell serve as the members of the Nominating Committee. The Board
of Directors has adopted a written charter for the Nominating
Committee. A copy of the Nominating Committee Charter is available on
the Company’s website at www.garmin.com. The
primary responsibilities of the Nominating Committee are to (a) evaluate the
composition, size, role and functions of the Board and its committees to oversee
the business of the Company, (b) determine director selection criteria, (c)
recommend and evaluate nominees for election to the Board, (d) advise the Board
on committee appointments and removals, (e) evaluate the financial literacy of
the Audit Committee members, (f) evaluate the independence of director nominees
and Board members under applicable laws, regulations and stock exchange listing
standards, (g) create and implement a process for the Board to annually evaluate
its performance, and (h) recommend to the Board Corporate Governance Guidelines
and review such Guidelines periodically. The Board of Directors has
determined that all the members of the Nominating and Corporate Governance
Committee are independent (as defined by the listing standards of the Nasdaq
Stock Market).
In selecting candidates for nomination
at the annual meeting of the Company’s shareholders, the Nominating Committee
begins by determining whether the incumbent directors whose terms expire at the
meeting desire and are qualified to continue their service on the Board. The
Nominating Committee is of the view that the continuing service of qualified
incumbents promotes stability and continuity in the board room, giving the Board
the familiarity and insight into the Company’s affairs that its directors have
accumulated during their tenure, while contributing to their work as a
collective body. Accordingly, it is the policy of the Nominating Committee,
absent special circumstances, to nominate qualified incumbent directors who
continue to satisfy the Nominating Committee’s criteria for membership on the
Board, whom the Nominating Committee believes will continue to make a valuable
contribution to the Board and who consent to stand for reelection and, if
reelected, to continue their service on the Board. If there are Board vacancies
and the Nominating Committee does not re-nominate a qualified incumbent, the
Nominating Committee will consider and evaluate director candidates recommended
by the Board, members of the Nominating Committee, management and any
shareholder owning one percent or more of the Company’s outstanding Common
Shares.
The Nominating Committee will use the
same criteria to evaluate all director candidates, whether recommended by the
Board, members of the Nominating Committee, management or a one percent
shareholder. A shareholder owning one percent or more of the Company’s
outstanding Common Shares may recommend director candidates for consideration by
the Nominating Committee by writing to the Company Secretary, by facsimile at
(345) 640-9051 or by mail at Garmin Ltd., P.O. Box 10670, Grand Cayman KY1-1006,
Suite #3206B, 45 Market Street, Gardenia Court, Camana Bay, Cayman Islands. Any
such recommendation must be delivered to the Company Secretary not less than 180
days prior to the annual general meeting at which the candidate is proposed for
consideration as a nominee. The recommendation must contain the proposed
candidate’s name, address, biographical data, a description of the proposed
candidate’s business experience, a description of the proposed candidate’s
qualifications for consideration as a director, a representation that the
nominating shareholder is a beneficial or record owner of one percent or more of
the Company’s outstanding shares (based on the number of outstanding shares
reported on the cover page of the Company’s most recently filed Annual Report on
Form 10-K) and a statement of the number of the Company’s shares owned by such
shareholder. The recommendation must also be accompanied by the written consent
of the proposed candidate to be named as a nominee and to serve as a director of
the Company if nominated and elected. A shareholder may not recommend him or
herself as a director candidate.
The Nominating Committee requires that
a majority of the Company’s directors be independent and that any independent
director candidate meet the definition of an independent director under the
listing standards of the Nasdaq Stock Market. The Nominating and Corporate
Governance Committee also requires that at least one independent director
qualify as an audit committee financial expert. The Nominating Committee also
requires that an independent director candidate should have either (a) at least
ten years experience at a policy-making level or other level with significant
decision-making responsibility in an organization or institution or (b) a high
level of technical knowledge or business experience relevant to the Company’s
technology or industry. In addition, the Nominating Committee requires that an
independent director candidate have such financial expertise, character,
integrity, ethical standards, interpersonal skills and time to devote to Board
matters as would reasonably be considered to be appropriate in order for the
director to carry out his or her duties as a director.
10
In evaluating a director candidate
(including the nomination of an incumbent director), the Nominating Committee
considers, among other things, whether the candidate meets the Nominating
Committee’s requirements for independent director candidates, if applicable. The
Nominating Committee also considers a director candidate’s skills and experience
in the context of the perceived needs of the Board at the time of consideration.
Additionally, in recommending an incumbent director for re-election, the
Nominating Committee considers the nominee’s prior service to the Company’s
Board and continued commitment to service on the Board.
Shareholder
Communications with Directors
The Board of Directors has established
a process to receive communications from shareholders. Shareholders may
communicate with the Board or with any individual director of the Company by
writing to the Board or such individual director in care of the Company
Secretary, by facsimile at (345) 640-9051 or by mail at Garmin Ltd., P.O. Box
10670, Grand Cayman KY1-1006, Suite #3206B, 45 Market Street, Gardenia Court,
Camana Bay, Cayman Islands. All such communications must identify the author as
a shareholder, state the number of shares owned by the author and state whether
the intended recipients are all members of the Board or just certain specified
directors. The Company Secretary will make copies of all such communications and
send them to the appropriate director or directors.
Compensation
Committee Interlocks and Insider Participation; Certain
Relationships
None of the members of the Compensation
Committee is, or has ever been, an officer or employee of the Company or any of
its subsidiaries. During 2008, the Company had no compensation committee
interlocks of the type required to be disclosed by the rules of the
SEC.
The
Company has adopted a written policy for the review by the Audit Committee of
transactions in which the Company is a participant and any related person will
have a direct or indirect material interest in the transaction. This
policy is generally designed to cover those related party transactions that
would be required to be disclosed in a proxy statement, annual report on Form
10-K or registration statement pursuant to Item 404(a) of Regulation
S-K. However, the policy is more encompassing in that the amount
involved in a transaction covered by the policy must only exceed $60,000 while
disclosure under Item 404(a) is required only if the amount involved exceeds
$120,000. The policy defines the terms "transaction," and "related
person" in the same manner as Item 404(a) of Regulation S-K.
If the
nature of the timing of a related party transaction is such that it is not
practical to obtain advance approval by the Audit Committee, then management may
enter into it, subject to ratification by the Audit Committee. If
ratification is not subsequently obtained, then management must take all
reasonable efforts to cause the related person transaction to be null and
void.
The Audit
Committee will approve or ratify only those related party transactions that it
determines in good faith are in, or are not inconsistent with, the best
interests of the Company and its shareholders. In making that
determination, the Audit Committee shall consider all of the relevant facts and
circumstances available to it, including the benefits to the Company and whether
the related party transaction is on terms and conditions comparable to those
available in arms-length dealing with an unrelated third party that can provide
comparable products or services.
The Audit
Committee will also annually review ongoing related party transactions after
considering all relevant facts and circumstances. The Audit Committee
will then determine if those transactions should be terminated or modified based
on whether it is still in the best interests, or not inconsistent with the best
interests, of the Company and its shareholders.
Non-Management
Director Compensation
Each
director of Garmin, who is not an officer or employee of the Company or of a
subsidiary of the Company, is compensated for service on the Board and its
committees. The annual director compensation package at Garmin is
designed to attract and retain highly-qualified, independent professionals to
represent the Company’s shareholders.
11
Garmin’s
2008 director compensation package was comprised of cash (annual board and
committee chair retainers) and stock option grants.
Each
director, who is not an officer or employee of Garmin or its subsidiaries (a
“Non-Management Director”), was paid an annual retainer of
$50,000. Each Non-Management Director, who chairs a standing
committee of the Board (other than the Audit Committee), also received an annual
retainer of $5,000. The Non-Management Director who chairs the Audit
Committee received an annual retainer of $10,000. In addition, each
Non-Management Director was paid $1,500 for each Board meeting convened in
person and $500 for attending each Board meeting convened by
teleconference. For each Audit Committee meeting convened in person
or by teleconference, each Non-Management Director was paid
$1,000. For each Compensation Committee or Nominating Committee
meeting, convened on a separate day from a Board meeting, each Non-Management
Director was paid $1,500 for each committee meeting convened in person and $500
for attending each meeting convened by teleconference. Directors are
also reimbursed for reasonable travel expenses for attending Board and Committee
meetings.
The
Non-Management Directors may also be granted awards, including among others,
options to buy Common Shares, pursuant to the 2000 Non-Employee Directors’
Option Plan, as determined by the Compensation Committee (as defined in such
plan).
Each year
at the annual general meeting, each Non-Management Director will automatically
be granted an option for a number of Common Shares equal to four times the
annual retainer divided by the fair market value of a share on the grant
date. If a Non-Management Director first joins the Board at a time
other than the annual general meeting, he or she will receive a pro-rata grant
for that year. The option price per share will be 100% of the fair
market value of a share on the date of grant based on the closing stock price on
that day. The options vest in equal installments over three years,
subject to acceleration in the event the Non-Management Director terminates his
or her directorship on the account of death, disability or an involuntary
termination within one year after a change in control of
Garmin. These options have a term of 10 years. As set
forth in Proposal Four, Garmin has proposed to amend the 2000
Non-Employee Directors’ Option Plan so that the Board, if it elects to do so,
may adjust from time to time the automatic option grant formula.
Garmin
does not have formal stock ownership guidelines for its directors.
Under Taiwan banking practice, the
chairman of a company is generally required to personally guarantee the
company’s loans and mortgages. During 2008, Dr. Kao, as chairman of Garmin
Corporation, a Taiwan subsidiary of the Company, received compensation from
Garmin Corporation in the amount of $53,126 for his personal guarantee of Garmin
Corporation’s obligations.
2008
Non-Management Director Compensation
The
following table shows the compensation paid to our Non-Management Directors in
2008:
Name
Fees
Earned or
Paid in
Cash
($)
Stock
Awards
($)
SAR/Option
Awards
($) 1
Non-Equity
Incentive Plan
Compensation
($)
Change in
Pension
Value &
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
Gene
Betts
$
68,500
$
37,151
$
-
$
-
$
-
$
105,651
Donald
Eller
$
68,500
$
37,151
$
-
$
-
$
-
$
105,651
Thomas
McDonnell
$
63,500
$
35,492
$
-
$
-
$
-
$
98,992
Charles
Peffer
$
73,500
$
41,019
$
-
$
-
$
-
$
114,519
1 This
column shows the dollar amount expensed for financial reporting purposes with
respect to the 2008 fiscal year for the fair value of
stock options granted in 2008 as well as prior fiscal years in accordance with
FAS 123R. The grant date fair value of stock options granted in 2008
to Messrs. Betts, Eller, McDonnell and Peffer was $72,437 for each of the
non-management directors. As of December 27, 2008,
Messrs. Betts, Eller, McDonnell and Peffer, respectively, owned 10,156, 23,855,
23,630, and 13,080 outstanding stock option awards.
12
PROPOSAL
TWO: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young has acted as the
Company’s independent registered public accounting firm since 2000 and has been
appointed by the Audit Committee to audit and certify the Company’s financial
statements for the fiscal year ending December 26, 2009.
Representatives of Ernst & Young
will be present at the Annual Meeting. They will have the opportunity
to make a statement if they desire and will be available to respond to
appropriate questions.
The affirmative vote of the holders of
a majority of Common Shares present in person or by proxy and entitled to vote
at the Annual Meeting is required for ratification of this
appointment. If the Company’s shareholders do not ratify the
appointment of Ernst & Young, the Audit Committee will reconsider whether to
appoint Ernst & Young as the Company’s independent auditor.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG AS GARMIN’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE 2009 FISCAL YEAR.
PROPOSAL
THREE: APPROVAL OF AMENDMENT TO GARMIN LTD. 2005 EQUITY INCENTIVE
PLAN
Garmin's
2005 Equity Incentive Plan, which was approved by Garmin's shareholders on June3, 2005, provides for grants of non-qualified stock options; incentive stock
options; restricted shares, bonus shares, deferred shares, stock appreciation
rights, performance units and performance shares. Employees of Garmin
or any majority owned subsidiary are eligible for awards. The
Compensation Committee selects the grantees and determines the types and terms
of the awards granted. Generally, the per share exercise price of an
option and the per share strike price of a stock appreciation right must be at
least the fair market value of a common share as of the grant
date. The plan provides that vesting of outstanding awards will be
accelerated if, within one year after a change in control of Garmin, Garmin
terminates the grantee's employment (other than for death, disability or cause)
or the grantee terminates the employment because of a diminution in compensation
or status or a required move of 50 miles.
Garmin
believes that equity compensation aligns the interests of management and
employees with the interests of other shareholders. Garmin currently
provides for equity incentive compensation through the 2005 Equity Incentive
Plan. As of April 6, 2009, 1,828,668 shares remained available for
issuance under the 2005 Equity Incentive Plan. Awards under the plan
relating to a total of 2,257,850 Garmin shares were granted to employees in
2008. Amendments to the 2005 Equity Incentive Plan are being proposed
for shareholder approval so that Garmin can continue to grant equity
compensation to employees and utilize more performance-based
awards. The Board has approved the proposed amendments, subject to
shareholder approval. The amendments will not be effective unless and
until we obtain shareholder approval. If our shareholders approve the
amendments, the amendments will be effective as of June 5,2009.
13
The
following general description of material features of the 2005 Equity Incentive
Plan, as proposed to be amended, is qualified in its entirety by reference to
the provisions of the 2005 Equity Incentive Plan, as proposed to be amended, set
forth in Schedule 1.
14
Proposed
Changes to the 2005 Equity Incentive Plan
Some of
the material proposed changes to the 2005 Equity Incentive Plan are as
follows:
·
Although
there is no overall increase in the maximum number of shares available for
issuance under the plan, the plan has been amended to increase the limit
of restricted shares, restricted stock units and performance shares that
may be issued under the plan from 2 million to 3
million.
·
We
modified the 2005 Equity Incentive Plan such that all types of awards
eligible to be granted may become exercisable, vested or paid based on the
achievement of performance goals (rather than only the lapse of time) and
such that the awards are intended to qualify as "performance-based
compensation" under Section 162(m) of the Internal Revenue Code of
1986. In addition we have expanded the list of eligible
business criteria upon which such performance-based goals under the 2005
Equity Incentive Plan may be based.
·
Unless
completed as part of a broader corporate transaction or reorganization, we
have limited our ability to substitute or replace stock options or stock
appreciation rights if such an action would constitute a repricing of the
stock option or stock appreciation
right.
·
We
have expanded our ability to modify the terms of outstanding equity awards
in connection with a Change of Control, separation, spin-off, sale of a
material portion of our assets or a "going-private"
transaction.
General
The 2005
Equity Incentive Plan provides for grants of non-qualified stock options;
incentive stock options; restricted shares, restricted stock units, bonus
shares, stock appreciation rights, performance units and performance
shares. The objectives of the plan are to strengthen our employees'
commitment to the success of Garmin, to stimulate our employees' efforts on
behalf of Garmin and to help Garmin attract new employees and retain existing
employees.
Eligibility
and Limits on Awards
Any
employee, including officers, of Garmin or any majority owned subsidiary is
eligible to receive awards under the 2005 Equity Incentive Plan. As
of April 6, 2009, there were 7_executive officers and approximately 2,364
employees other than executive officers who are eligible to receive awards under
the plan. No determination has been made as to which of Garmin's
employees will receive grants under the 2005 Equity Compensation Plan, and,
therefore the benefits to be allocated to any individual or to any group of
employees are not presently determinable.
The 2005
Equity Incentive Plan places limits on the maximum amount of awards that may be
granted to any employee in any five (5) year period. Under the 2005 Equity
Incentive Plan, no employee may receive awards of stock options, stock
appreciation rights, restricted stock, restricted stock units, bonus shares,
performance units or performance shares that cover in the aggregate more than
two million (2,000,000) shares in any five (5) year period.
Administration
The 2005
Equity Incentive Plan will be administered by the Board of Directors or the
Compensation Committee of the Board of Directors (the "Committee"). The Board or
Committee will select the eligible employees to whom awards will be granted and
will set the terms of such awards, including any performance goals applicable to
annual and long-term incentive awards. The Board or Committee may
delegate its authority under the 2005 Equity Incentive Plan to officers of
Garmin, subject to guidelines prescribed by the Board or Committee, but only
with respect to employees who are not subject to Section 16 of the Exchange Act
or whose compensation may not be deductible pursuant to Section 162(m) of the
Internal Revenue Code.
15
Shares
Reserved for Awards
The 2005
Equity Incentive Plan provides for up to 10,000,000 common shares to be used for
awards. This represents approximately 5% of the common shares
outstanding as of the Record Date. The shares may only be newly
issued shares and to the extent that any award under the 2005 Equity Incentive
Plan is exercised, cashed out, terminates, expires or is forfeited without
payment being made in the form of our common shares, the shares subject to such
award that were not so paid will again be available for issuance under the 2005
Equity Incentive Plan. However, any shares withheld for the purpose
of satisfying any tax withholding obligation will be counted against the
authorized limit and not be available for issuance. If a stock
appreciation right award or a similar award based on the spread value of our
common shares is exercised, only the number of our common shares issued, if any,
will be considered delivered for the purpose of determining availability of
shares for delivery under the 2005 Equity Incentive Plan. Unless
otherwise determined by the Committee, stock options may be exercised by payment
in cash, by tendering common shares to us in full or partial payment of the
exercise price, or by a "net exercise" arrangement under which the number of
common shares to be delivered upon exercise will be reduced by the largest
number of whole shares that has a fair market value that does not exceed the
aggregate exercise price.
The
number of our common shares authorized for awards is subject to adjustment for
changes in capitalization, reorganizations, mergers, stock splits, and other
corporate transactions as the Board or the Committee determines to require an
equitable adjustment. The 2005 Equity Incentive Plan will remain in
effect until all the common shares available have been used to pay awards,
subject to the right of the Board to amend or terminate the 2005 Equity
Incentive Plan at any time.
General
Terms of Awards
The Board
or the Committee will select the grantees and set the term of each award, which
may not be more than ten years. The Board or the Committee has the
power to determine the terms of the awards granted, including the number of
shares subject to each award, and, if applicable the form of consideration
payable upon exercise, the period in which the award may be exercised after
termination of employment, and all other matters. The exercise price
of an option and the strike price of a stock appreciation right must be at least
the fair market value of a share as of the grant date, unless the award is
replacing an award granted by an entity that is acquired by Garmin Ltd. or a
subsidiary.
The Board
or the Committee will also set the vesting or payment conditions of the award,
except that vesting or payment will be accelerated if, within one year after a
change of control of Garmin, Garmin terminates the grantee's employment (other
than for death, disability or cause) or the grantee terminates employment for a
"good reason" (i.e. ,
because of a diminution in compensation or status or a required move of over 50
miles).
Awards
granted under the 2005 Equity Incentive Plan are not generally transferable by
the grantee except in the event of the employee's death or unless otherwise
required by law or provided in an award agreement. An award agreement
may provide for the transfer of an award in limited circumstances to certain
members of the grantee's family or a trust or trusts established for the benefit
of such a family member. Any such transfer, if permitted under the
award agreement, cannot be for consideration, other than nominal
consideration. Other terms and conditions of each award will be set
forth in award agreements, which can be amended by the Board or the
Committee.
The
number and type of awards that will be granted under the 2005 Equity Incentive
Plan is not determinable as the Board or the Committee will make these
determinations in its sole discretion.
16
Performance
Awards and Performance Criteria
As
amended, any award under the Plan (including Performance Unit and Performance
Share awards) may be granted under the 2005 Equity Incentive Plan with
performance-based payment, vesting or exercise conditions. Awards that are
intended to constitute "qualified performance-based compensation" (see
discussion below under the heading Federal Income Tax Consequences) will be
based on satisfaction of an expanded list of business criteria set forth
below. The specific performance goals for performance awards will be,
on an absolute or relative basis, established based on one or more of the
following business criteria for Garmin on a segregated or consolidated basis or
for one or more of Garmin's subsidiaries, segments, divisions, or business
units, as selected by the Committee:
(i)
Earnings
(either in the aggregate or on a per-share
basis);
(ii)
Operating
profit (either in the aggregate or on a per-share
basis);
(iii)
Operating
income (either in the aggregate or on a per-share
basis);
(iv)
Net
earnings on either a LIFO or FIFO basis (either in the aggregate or on a
per-share basis);
(v)
Net
income or loss (either in the aggregate or on a per-share
basis);
(vi)
Ratio
of debt to debt plus equity;
(vii)
Net
borrowing;
(viii)
Credit
quality or debt ratings;
(ix)
Inventory
levels, inventory turn or
shrinkage;
(x)
Cash
flow provided by operations (either in the aggregate or on a per-share
basis);
(xi)
Free
cash flow (either in the aggregate or on a per-share
basis);
(xii)
Reductions
in expense levels, determined either on a Company-wide basis or in respect
of any one or more business units;
(xiii)
Operating
and maintenance cost management and employee
productivity;
(xiv)
Gross
margin;
(xv)
Return
measures (including return on assets, equity, or
sales);
(xvi)
Productivity
increases;
(xvii)
Share
price (including attainment of a specified per-share price during the
relevant performance period; growth measures and total shareholder return
or attainment by the shares of a specified price for a specified period of
time);
(xviii)
Where
applicable, growth or rate of growth of any of the above business
criteria;
(xix)
Strategic
business criteria, consisting of one or more objectives based on meeting
specified revenue, market share, market penetration, geographic business
expansion goals, objectively identified project milestones, production
volume levels, cost targets, and goals relating to acquisitions or
divestitures;
(xx)
Achievement
of business or operational goals such as market share and/or business
development; and/or
17
(xxi)
Accomplishment
of mergers, acquisitions, dispositions, public offerings or similar
extraordinary business
transactions.
The
applicable business criteria may be applied on a pre- or post-tax basis; and
provided further that the Committee may, when the applicable performance goals
are established, provide that the formula for such goals may include or exclude
items to measure specific objectives, such as losses from discontinued
operations, extraordinary gains or losses, the cumulative effect of accounting
changes, acquisitions or divestitures, foreign exchange impacts and any unusual,
nonrecurring gain or loss. As established by the Committee, the
business criteria may include, without limitation, GAAP and non-GAAP financial
measures.
Restricted
Shares and Bonus Shares
Restricted
common shares may also be awarded. The restricted shares will vest
and become transferable upon the satisfaction of conditions set forth in the
respective restricted share award agreement. Restricted share awards
may be forfeited if, for example, the recipient's employment terminates before
the award vests. Restricted shares are subject to a minimum two-year
vesting schedule. The Board or Committee may also grant common shares
to participants from time-to-time as a bonus, which will be issued without
restrictions.
Stock
Options
The 2005
Equity Incentive Plan permits the granting to eligible employees of incentive
stock options, which qualify for special tax treatment, and nonqualified stock
options. The exercise price for any stock option will not be less
than the fair market value of a common share on the date of grant. No
incentive stock option may be exercised more than ten years after the date of
grant.
Stock
Appreciation Rights
Stock
Appreciation Rights ("SARs") may be granted either singly (freestanding SARs) or
in combination with underlying stock options ("tandem SARs"). SARs
entitle the holder upon exercise to receive an amount in common shares equal in
value to the excess of the fair market value of the shares covered by such right
over the grant price. The grant price for SARs will not be less than
the fair market value of a common share on the SAR’s date of
grant. The payment upon a SAR exercise shall be solely in whole
shares of equivalent value. Fractional shares will be rounded down to
the nearest whole share with no cash consideration paid.
Restricted
Stock Units
Restricted
Stock Units ("RSUs") may be granted to eligible employees, subject to the terms
and restrictions that the Board or the Committee may impose. The
restrictions may be based on the passage of time, the achievement of specific
performance goals, the passage of time following the achievement of specific
performance goals, the occurrence of a specified event, or may be imposed by the
applicable securities laws. RSUs are subject to a minimum two-year
vesting schedule. RSUs entitle the holder to receive an amount of
common shares equal to the number of shares underlying the RSUs on the date that
any restrictions applicable to an award of RSUs have lapsed.
Change
of Control Provisions
The 2005
Equity Incentive Plan provides that, if, within the one-year period beginning on
the date of a Change of Control (as defined in the 2005 Equity Incentive Plan),
an employee separates from service with Garmin or a majority owned subsidiary
due to Garmin terminating the employee's employment other than for cause or the
employee resigning because of a diminution in compensation or status or a
required move of over 50 miles, then, all stock options and SARs will become
fully vested and immediately exercisable, the restrictions applicable to
outstanding restricted stock, restricted stock units and other stock-based
awards will lapse, and, unless otherwise determined by the Board or Committee,
all deferred shares will be settled, and outstanding performance awards will be
vested and paid out on a prorated basis, based on the maximum award opportunity
of such awards and the number of months elapsed compared with the total number
of months in the performance cycle.
18
In
connection with a Change of Control, separation, spin-off, sale of a material
portion of our assets or a "going-private" transaction, the Board or the
Committee, or the board of directors of any corporation assuming our
obligations, has the power to prescribe and amend the terms and conditions for
the exercise, or modification of any outstanding awards in the manner as agreed
to by the Board in the definitive agreement relating to the
transaction. The Board or Committee may also make certain adjustments
and substitutions in connection with a Change of Control or similar transactions
or events as described under "Shares Reserved for Awards."
Plan
Participation Table
The table
below shows, as to our Named Executive Officers (as defined elsewhere in this
Proxy Statement) and the other individuals and groups indicated, the number of
options, SARs, RSUs and performance shares granted under the 2005 Equity
Incentive Plan since the inception of the plan.
Plan
Benefits
2005
Equity Incentive Plan
2008
Grants
Name and Position
Number of
Options
Number of SARs
Number of RSUs
Number of
Performance Shares
Min
H. Kao, Chairman and Chief Executive Officer
-0-
-0-
-0-
-0-
Clifton
A. Pemble, President and Chief Operating Officer
-0-
137,000
20,000
10,000
Kevin
S. Rauckman, Chief Financial Officer and Treasurer
-0-
97,000
15,000
6,000
Andrew
R. Etkind, Vice President, General Counsel and Secretary
-0-
97,000
15,000
6,000
Danny
J Bartel, Vice President of Worldwide Sales
-0-
73,500
12,000
5,000
All
Executive Officers as a Group
-0-
404,500
62,000
27,000
All
Non-Executive Directors as a Group
-0-
-0-
-0-
-0-
All
Non-Executive Officer Employees as a Group
-0-
7,128,500
981,800
-0-
Federal
Income Tax Consequences
Based on
current provisions of the Internal Revenue Code and the existing regulations
thereunder, the anticipated U.S. federal income tax consequences of stock
options; SARs and RSUs granted under the 2005 Equity Incentive Plan are as
described below. The following discussion is not intended to be a
complete discussion of applicable law and is based on the U.S. federal income
tax laws as in effect on the date hereof:
Non-Qualified
Stock Options
An
employee receiving a non-qualified option does not recognize taxable income on
the date of grant of the non-qualified option, provided that the non-qualified
option does not have a readily ascertainable fair market value at the time it is
granted. In general, the employee must recognize ordinary income at the time of
exercise of the non-qualified option in the amount of the difference between the
fair market value of the common shares on the date of exercise and the option
price. The ordinary income recognized will constitute compensation for which tax
withholding generally will be required. The amount of ordinary income recognized
by an employee will be deductible by Garmin in the year that the employee
recognizes the income if Garmin complies with the applicable withholding
requirement.
19
Common
shares acquired upon the exercise of a non-qualified option will have a tax
basis equal to their fair market value on the exercise date or other relevant
date on which ordinary income is recognized, and the holding period for the
common shares generally will begin on the date of exercise or such other
relevant date. Upon subsequent disposition of the common shares, the employee
will recognize long-term capital gain or loss if the employee has held the
common shares for more than one year prior to disposition, or short-term capital
gain or loss if the employee has held the common shares for one year or
less.
If an
employee pays the exercise price, in whole or in part, with previously acquired
common shares, the employee will recognize ordinary income in the amount by
which the fair market value of the common shares received exceeds the exercise
price. The employee will not recognize gain or loss upon delivering the
previously acquired common shares to Garmin. Common shares received
by an employee, equal in number to the previously acquired common shares
exchanged therefore, will have the same basis and holding period for long-term
capital gain purposes as the previously acquired common shares. Common shares
received by an employee in excess of the number of such previously acquired
common shares will have a basis equal to the fair market value of the additional
common shares as of the date ordinary income is recognized. The holding period
for the additional common shares will commence as of the date of exercise or
such other relevant date.
Incentive
Stock Options
Incentive
Stock Options ("ISOs") are defined by Section 422 of the Internal Revenue
Code. An employee who is granted an ISO does not recognize taxable
income either on the date of grant or on the date of exercise. Upon the exercise
of an ISO, the difference between the fair market value of the common shares
received and the option price is, however, a tax preference item potentially
subject to the alternative minimum tax.
Upon
disposition of common shares acquired from the exercise of an ISO, long-term
capital gain or loss is generally recognized in an amount equal to the
difference between the amount realized on the sale or disposition and the
exercise price. However, if the employee disposes of the common shares within
two years of the date of grant or within one year of the date of the transfer of
the common shares to the employee (a "Disqualifying Disposition"), then the
employee will recognize ordinary income, as opposed to capital gain, at the time
of disposition. In general, the amount of ordinary income recognized will be
equal to the lesser of (a) the amount of gain realized on the disposition, or
(b) the difference between the fair market value of the common shares received
on the date of exercise and the exercise price. Any remaining gain or loss is
treated as a short-term or long-term capital gain or loss, depending on the
period of time the common shares have been held. Garmin is not entitled to a tax
deduction upon either the exercise of an ISO or the disposition of common shares
acquired pursuant to the exercise of an ISO, except to the extent that the
employee recognizes ordinary income in a Disqualifying Disposition. For
alternative minimum taxable income purposes, on the later sale or other
disposition of the common shares, generally only the difference between the fair
market value of the common shares on the exercise date and the amount realized
on the sale or disposition is includable in alternative minimum taxable
income.
If an
employee pays the exercise price, in whole or in part, with previously acquired
common shares, the exchange should not affect the ISO tax treatment of the
exercise. Upon the exchange, and except as otherwise described herein, no gain
or loss is recognized by the employee upon delivering previously acquired common
shares to Garmin as payment of the exercise price. The common shares received by
the employee, equal in number to the previously acquired common shares exchanged
therefore, will have the same basis and holding period for long-term capital
gain purposes as the previously acquired common shares. The employee, however,
will not be able to utilize the prior holding period for the purpose of
satisfying the ISO statutory holding period requirements. common shares received
by the employee in excess of the number of previously acquired common shares
will have a basis of zero and a holding period which commences as of the date
the common shares are transferred to the employee upon exercise of the ISO. If
the exercise of any ISO is effected using common shares previously acquired
through the exercise of an ISO, the exchange of the previously acquired common
shares will be considered a disposition of the common shares for the purpose of
determining whether a Disqualifying Disposition has occurred.
20
Stock
Appreciation Rights
To the
extent that the requirements of the Internal Revenue Code are met, there are no
immediate tax consequences to an employee when a SAR is granted. When an
employee exercises the right to the appreciation in fair market value of shares
represented by a SAR, payments made in common shares are normally includable in
the employee's gross income for regular income tax purposes. Garmin will be
entitled to deduct the same amount as a business expense in the same year. The
includable amount and corresponding deduction each equal the fair market value
of the common shares payable on the date of exercise.
Restricted
Shares, Restricted Stock Units and Performance Shares
Generally,
no taxes are due when an award of restricted shares is made, but the award
becomes taxable when it vests or becomes transferable, unless the recipient
elects, under Section 83(b) of the Internal Revenue Code within 30 days of
receiving the grant, to be taxed in the year the restricted stock is granted.
Income tax is paid on the value of the stock at ordinary rates when the award
vests or becomes transferable (or, if a Section 83(b) election is made, at the
time of grant), and then at long- or short-term capital gains rates when the
shares are sold. Garmin is entitled to a deduction (subject to the
limitations of Section 162(m) of the Internal Revenue Code unless the restricted
stock qualifies as "performance based compensation") at the time and in the
amount the recipient recognizes as income.
Generally,
no taxes are due when an award of restricted stock units or performance shares
is made, but the award becomes taxable when it vests and the underlying shares
are transferred. In addition, Garmin is entitled to a deduction at the time and
in the amount the recipient recognizes income. In the case of an award of
restricted stock units or performance shares, a recipient may not make a Section
83(b) election. Rules relating to the timing of payment of deferred compensation
under Section 409A of the Internal Revenue Code are applicable to restricted
stock units or performance shares and any violation of Section 409A could
trigger interest and penalties applicable to the recipient.
Deductibility
of Awards
Section
162(m) of the Internal Revenue Code places a $1,000,000 annual limit on the
compensation deductible by Garmin or a majority owned subsidiary paid to certain
of its executives. The limit, however, does not apply to "qualified
performance-based compensation." The 2005 Equity Incentive Plan
contains provisions authorizing the grant of stock options, SARs, restricted
stock and RSUs that may constitute "performance-based compensation" awards
within the meaning of Section 162(m). To the extent that awards under
the 2005 Equity Incentive Plan constitute performance-based awards, the awards
should qualify as "performance-based compensation" for purposes of Section
162(m).
Deferred
Compensation
Any
deferrals made under the 2005 Equity Incentive Plan, including awards granted
under the plan that are considered to be deferred compensation, must satisfy the
requirements of Section 409A of the Internal Revenue Code to avoid adverse tax
consequences to participating employees. These requirements include limitations
on election timing, acceleration of payments, and distributions. Garmin intends
to structure any deferrals and awards under the 2005 Equity Incentive Plan to
either be exempt from or meet the applicable tax law
requirements.
21
Other
Tax Consequences
State tax
consequences may in some cases differ from those described above. Awards under
the 2005 Equity Incentive Plan will in some instances be made to employees who
are subject to tax in jurisdictions other than the United States and may result
in tax consequences differing from those described above.
Other
Information
If the
amendments are approved by shareholders, the Amended and Restated 2005 Equity
Incentive Plan will be effective June 5, 2009, and will remain in effect,
subject to the right of the Board to amend or terminate the Plan (subject to
certain limitations set forth in the Plan), at any time until all shares subject
to it shall have been issued according to the Plan's provisions. Any
awards granted before the Plan is terminated may extend beyond the expiration
date.
The Board
may amend the 2005 Equity Incentive Plan at any time, provided that no such
amendment will be made without shareholder approval if such approval is required
under applicable law, regulation, or stock exchange rule, or if such amendment
would: (i) decrease the grant or exercise price of any stock option, SAR or
other stock-based award to less than fair market value on the date of grant
(except as discussed above under "Shares Reserved for Awards"), or (ii)
adversely affect in any material way any Award previously granted under the
Plan, without the written consent of the grantee of such Award.
Vote
Required for Approval of Amendment
The
affirmative vote of the holders of a majority of the Common Shares represented
and voting at the Annual Meeting in person or by proxy is required for the
approval of the amendments to the 2005 Equity Incentive Plan.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE AMENDMENT TO
THE GARMIN LTD. 2005 EQUITY INCENTIVE PLAN.
PROPOSAL
FOUR: APPROVAL OF AMENDMENT TO THE GARMIN LTD. 2000 NON-EMPLOYEE
DIRECTORS’ OPTION PLAN
We have
adopted, and on October 24, 2000 our shareholders approved, the 2000
Non-Employee Directors' Option Plan ("Directors' Plan"), effective November 1,2000. The objectives of the Directors' Plan are to strengthen
non-employee directors' commitment to the success of Garmin Ltd., to align their
interests with the interests of shareholders and to help us attract and retain
experienced and knowledgeable individuals to serve as directors. Only
directors who are not officers and not otherwise employed by Garmin Ltd. or a
subsidiary are eligible to participate in the Directors' Plan. The
Directors' Plan is administered by our board of directors or a committee of the
board.
Amendments
to the Directors' Plan are being proposed for shareholder approval so that
Garmin can continue to grant equity options to its non-employee
directors. The Board has approved the proposed amendments, subject to
stockholder approval. The amendments will not be effective unless and
until we obtain stockholder approval. If our stockholders approve the
amendments, the amendments will be effective as of June 5, 2009.
The
following general description of material features of the Amended and Restated
2000 Non-Employee Directors' Option Plan ("Amended and Restated Directors'
Plan") is qualified in its entirety by reference to the provisions of the
Amended and Restated 2000 Non-Employee Directors' Option Plan set forth in
Schedule 2.
22
Proposed
Changes to the 2000 Non-Employee Directors' Option Plan
Some of
the material proposed changes to the Directors' Plan are as
follows:
·
We
have increased the number of shares reserved for delivery under the
Amended and Restated Directors' Plan from 100,000 to
250,000.
·
We
changed the definition of "Change of Control" such that the shareholder
approval alone of any merger, reorganization, consolidation or similar
transaction will not be sufficient to constitute a Change of
Control. The new definition requires the consummation of such a
transaction for there to be a Change of Control. As discussed
below, the occurrence of a Change of Control can accelerate the vesting
and payout of awards granted under the Amended and Restated Directors'
Plan.
·
Unless
completed as part of a broader corporate transaction or reorganization, we
have limited our ability to substitute or replace stock options if such an
action would constitute a repricing of the stock
option.
·
We
have expanded our ability to modify the terms of outstanding option awards
in connection with a Change of Control, separation, spin-off, sale of a
material portion of our assets or a "going-private"
transaction.
·
We
have amended the plan to allow the Board, from time-to-time, to modify the
annual grant formula pursuant to which annual grants of options to
directors will be made.
·
We
have extended the term of the plan such that it will expire on the earlier
of June 5, 2019 or the date all of the plan’s shares have been
delivered.
General
The
Amended and Restated Directors' Plan will be administered by the Board of
Directors or the Compensation Committee of the Board of Directors (the
"Committee"). The Amended and Restated Directors' Plan makes 250,000
common shares available for issuance to non-employee directors. The
shares may only be newly issued shares, and any awards that lapse or are
forfeited may be used again. The number is subject to adjustment for
changes in capitalization, reorganizations, mergers, stock splits, and other
corporate transactions as the Board or the Committee determines to require an
equitable adjustment. The Amended and Restated Directors' Plan will
automatically terminate on June 5, 2019, unless sooner terminated by the board
of directors, or because all the available shares have been paid under the
Amended and Restated Directors' Plan. As of the Record Date, there
were four non-employee directors who are eligible to receive option awards under
the Amended and Restated Directors' Plan.
Unless
otherwise determined by the Committee, stock options may be exercised by payment
in cash, by tendering common shares to us in full or partial payment of the
exercise price, or by a "net exercise" arrangement under which the number of
common shares to be delivered upon exercise will be reduced by the largest
number of whole shares that has a fair market value that does not exceed the
aggregate exercise price.
General
Terms of Awards
The
Amended and Restated Directors' Plan provides for an automatic annual option
grant. Unless our Board elects to change the annual grant formula,
each year at the annual meeting, each eligible director will automatically be
granted an option for a number of shares equal to four times the annual retainer
(currently $50,000) divided by the fair market value of a share on the grant
date. If an eligible director first joins the board at a time other
than the annual meeting, he or she will receive a pro-rata grant for that
year. The per-share option price will be 100% of the fair market
value of a share on the grant date. The option will vest in equal
installments over three years, subject to acceleration in the event the
director’s term as director ends on account of death, disability or an
involuntary termination within one year after a change of control of
Garmin. These options will have a term of 10 years, subject to
earlier termination on certain terminations of the director's service on the
Board of Directors.
23
In
connection with a Change of Control, separation, spin-off, sale of a material
portion of our assets or a "going-private" transaction, the Board, or the board
of directors of any corporation assuming our obligations, has the power to
prescribe and amend the terms and conditions for the exercise of any outstanding
option awards in the manner as agreed to by the Board in the definitive
agreement relating to the transaction.
Option
awards granted under the Amended and Restated Directors' Plan are not generally
transferable by the grantee except in the event of the director's death or
unless otherwise required by law or provided in an award
agreement. An award agreement may provide for the transfer of an
award in limited circumstances to certain members of the grantee's family or a
trust or trusts established for the benefit of such a family
member. Any such transfer, if permitted under the award agreement,
cannot be for consideration, other than nominal consideration. Other
terms and conditions of each award will be set forth in the award
agreement.
Plan
Participation Table
The
number of options to be granted to our non-employee directors under the Amended
and Restated Directors' Plan cannot be determined. The table below
shows the number of options granted to non-employee directors under the 2000
Non-Employee Directors' Option Plan since the inception of the
plan.
Name
Options
Granted
(Number
Of
Shares)
All
current outside directors (4 persons)
84,420
Federal
Income Tax Consequences
Based on
current provisions of the Internal Revenue Code and the existing regulations
thereunder, the anticipated U.S. federal income tax consequences of stock
options granted under the Amended and Restated Directors' Option Plan are as
described below. The following discussion is not intended to be a
complete discussion of applicable law and is based on the U.S. federal income
tax laws as in effect on the date hereof.
A
non-employee director receiving an option does not recognize taxable income on
the date of grant of the option. In general, the non-employee
director must recognize ordinary income at the time of exercise of the option in
the amount of the difference between the fair market value of the common shares
on the date of exercise and the option price. The ordinary income recognized
will be reported as self-employment income to the non-employee director and will
be deductible by Garmin in the year that the non-employee director recognizes
the income.
Common
shares acquired upon the exercise of an option will have a tax basis equal to
their fair market value on the exercise date, and the holding period for the
common shares generally will begin on the date of exercise. Upon subsequent
disposition of the common shares, the non-employee director will recognize
long-term capital gain or loss if the non-employee director has held the common
shares for more than one year prior to disposition, or short-term capital gain
or loss if the non-employee director has held the common shares for one year or
less.
24
If a
non-employee director pays the exercise price, in whole or in part, with
previously acquired common shares, the non-employee director will recognize
ordinary income in the amount by which the fair market value of the common
shares received exceeds the exercise price. The non-employee director will not
recognize gain or loss upon delivering the previously acquired common shares to
Garmin. Common shares received by a non-employee director, equal in
number to the previously acquired common shares exchanged therefore, will have
the same basis and holding period for long-term capital gain purposes as the
previously acquired common shares. Common shares received by a non-employee
director in excess of the number of such previously acquired common shares will
have a basis equal to the fair market value of the additional common shares as
of the date ordinary income is recognized. The holding period for the additional
common shares will commence as of the date of exercise or such other relevant
date.
Vote
Required for Approval of Amendment
The
affirmative vote of the holders of a majority of the common shares represented
and voting at the Annual Meeting in person or by proxy is required for the
approval of the amendments to the 2000 Non-Employee Directors' Option
Plan.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE AMENDMENT TO
THE GARMIN LTD. 2000 NON-EMPLOYEE DIRECTORS’ OPTION PLAN.
AUDIT
MATTERS
Report
of Audit Committee
The Audit Committee reviewed and
discussed the Company’s audited consolidated financial statements for the fiscal
year ended December 27, 2008 with management and with Ernst & Young LLP, the
independent registered public accounting firm retained by the Company to audit
its financial statements. The Audit Committee received and reviewed management’s
representation and the opinion of the independent registered public accounting
firm that the Company’s audited financial statements were prepared in accordance
with United States generally accepted accounting principles. The Audit Committee
also discussed with the independent registered public accounting firm during the
2008 fiscal year the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees), as amended, and other
standards of the Public Company Accounting Oversight Board, rules of the SEC and
other applicable regulations.
The Audit Committee received from Ernst
& Young LLP the written disclosures and the letter required by applicable
requirements of the Public Company Accounting Oversight Board regarding Ernst
& Young LLP’s communications with the Audit Committee concerning
independence and discussed with Ernst & Young LLP the independence of their
firm.
Based upon the review and discussions
referenced above, the Audit Committee recommended to the Company’s Board of
Directors, and the Board of Directors approved, that the audited consolidated
financial statements be included in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 27, 2008, for filing with the SEC.
Audit
Committee
Charles
W. Peffer, Chairman
Gene M.
Betts
Thomas A.
McDonnell
25
Independent Registered Public
Accounting Firm
Fees
The following table sets forth the
aggregate fees billed to Garmin for the fiscal year ended December 27, 2008 and
the fiscal year ended December 29, 2007 by Garmin’s independent registered
public accounting firm, Ernst & Young LLP (dollars listed in
thousands):
2008
2007
Audit
Fees
$
2,355
$
1,705
Audit
Related Fees
$
356
$
230
(a)(b)
Tax
Fees
$
119
$
108
(b)(c)
All
Other Fees
$
2
$
2
(d)
Total:
$
2,832
$
2,045
(a) Audit
related fees for 2008 and 2007 comprise primarily fees for financial statement
audits of employee benefit plans and acquisition due diligence.
(b) The
Audit Committee has concluded that the provision of these services is compatible
with maintaining the independence of Ernst & Young.
(c) Tax
fees for 2007 comprise $48 for tax compliance/preparation and $60 for tax
planning and tax advice. Tax fees for 2008 comprise $60 for tax
compliance/preparation and $59 for tax planning and tax advice.
(d) All
other fees for 2007 and 2008 comprise $2 for on-line subscription
fees.
Pre-Approval
of Services Provided by the Independent Auditor
The Audit Committee has adopted a
policy that requires advance approval by the Committee of all audit,
audit-related, tax services and other services performed by Ernst & Young.
The policy provides for pre-approval by the Audit Committee annually of
specifically defined services up to specifically defined fee levels. Unless the
specific service has been previously pre-approved with respect to that year, the
Audit Committee must approve the permitted service before Ernst & Young is
engaged to perform it. The Audit Committee has delegated to the Audit Committee
Chairman authority to approve permitted services provided that the Chairman
reports any such approval decisions to the Audit Committee at its next meeting.
The Audit Committee pre-approved all services that Ernst & Young rendered to
the Company and its subsidiaries in 2008.
EXECUTIVE
COMPENSATION MATTERS
Compensation
Committee Report
The Compensation Committee reviewed and
discussed with management the “Compensation Discussion and Analysis” section of
this Proxy Statement. Based upon such review and discussion, the
Compensation Committee recommended to the Board that the “Compensation
Discussion and Analysis” section be included in this Proxy
Statement.
Compensation
Committee
Gene M.
Betts (Chairman)
Donald H.
Eller
Thomas A.
McDonnell
Charles
W. Peffer
26
Compensation
Discussion and Analysis
Objectives
of the Compensation Program
The
objectives of Garmin’s executive compensation program are to:
§
Provide
fair, reasonable and competitive compensation to executives in order to
attract, motivate and retain a highly qualified executive
team.
§
Reward
executives for individual performance and
contribution.
§
Provide
incentives to executives to enhance shareholder
value.
§
Reward
executives for long-term, sustained individual and Company
performance.
§
Provide
executive compensation that is internally equitable among the executives
and equitable in relation to the broader Garmin employee
population.
§
For
non-management directors, provide fair, reasonable and competitive
compensation to attract and retain highly qualified, independent
professionals to represent Garmin
shareholders.
Role
of Executive Officers
Dr. Kao discussed with the Compensation
Committee compensation recommendations for each of the executives, other than
himself. In making compensation recommendations, Dr. Kao considered
each executive’s performance and other relevant factors, including the scope of
each executive’s position and responsibilities, the achievement of Company
goals, the current business environment and anticipated changes, executive
retention and recruitment considerations, the mix of fixed compensation (e.g.
base salary) versus variable compensation (e.g. performance-based cash bonus and
longer-term incentive), and the level of risk associated with the executives’
total direct compensation package. Dr. Kao and Mr. Pemble regularly
attended meetings of the Compensation Committee in 2007 and 2008, but are not
members of the Compensation Committee and do not vote on Compensation Committee
matters. Dr. Kao and Mr. Pemble, however, were not present for
certain portions of Compensation Committee meetings, such as when the
Compensation Committee discussed their respective performance or individual
compensation.
Role
of Compensation Consultant
The
Compensation Committee engaged Towers Perrin, an independent compensation
consulting firm, in 2007 and 2008 to (i) assess the competitiveness of the pay
levels of the executive officers listed in the Summary Compensation Table of
this proxy statement (the “Named Executive Officers”); (ii) summarize executive
pay trends; and (iii) assist the Compensation Committee with proxy
compliance.
Towers
Perrin performed a competitive review and analysis of base salary and other
components of Garmin’s compensation program, relative to two identified
comparator groups and survey market data. Towers Perrin recommended
to the Compensation Committee the comparator groups to be used and provided the
market data used as a basis for comparison. Towers Perrin’s review
contained detailed information on base salaries, annual incentive bonuses and
equity incentives for each named executive officer, as well as Towers Perrin’s
overall findings and recommendations. The Compensation Committee
considered the information, findings and recommendations of Towers Perrin, but
all decisions on executive compensation matters were made solely by the
Compensation Committee.
Towers
Perrin was engaged by and reported directly to the Compensation
Committee. Towers Perrin worked with the Compensation Committee
through management to develop recommendations related to Garmin’s executive
compensation program.
27
Benchmarking
Pay
The
Compensation Committee and Towers Perrin developed two compensation comparator
groups – a high performing peer group and a related industry peer
group. To provide for ready access to compensation data, the
comparator groups consist of only those companies that participate in Towers
Perrin’s executive compensation database.
When
setting Garmin’s targeted pay positioning, the Compensation Committee considered
Garmin’s size relative to the peers, measured in both revenues and market
capitalization, as well as current and future growth and performance
potential.
The
Compensation Committee targeted total direct compensation for Garmin’s
executives at the 25th
percentile of the comparator groups, rather than targeting each element
individually. The Committee believes that total direct compensation
is the most relevant comparison for Garmin because of the Committee’s continued
focus on longer-term performance-based pay.
While the
Compensation Committee did not target each element of pay at the 25th
percentile individually, the Compensation Committee did consider the competitive
data from each peer group equally when assessing the competitiveness of Garmin’s
base salary, target incentive levels and total cash. However, the
Committee gives more weight to the High-Performing Comparator Group when
assessing long-term incentive and total direct compensation levels because this
group contains more high growth companies with a similar profile and stage in
the business life cycle as Garmin.
High-Performing
Comparator Group
The
High-Performing Comparator Group used for the purpose of benchmarking 2008
compensation for Garmin’s Named Executive Officers consists of 19
high-performing companies that were in the NASDAQ 100 or were local Kansas City
employers (e.g. Sprint Nextel) with which Garmin competes for talent and which
participated in the Towers Perrin 2007 Executive Compensation
Database. When appropriate, regression analysis was used to adjust
the compensation data for differences in company revenues. This
competitive data, together with relevant market practices and trends, was then
considered by the Compensation Committee, along with the other factors described
above, when designing Garmin’s executive compensation program.
The
comparator group was originally designed in 2007. At that time, to
meet the “high performance” financial criteria, comparator group companies had
to be at the median or higher of the NASDAQ 100 for at least one of the
following performance metrics:
·
Three-year
total shareholder returns
·
Three-year
net income growth
·
Three-year
revenue growth
The 2007
High-Performing Comparator Group contained the following companies with 25th
percentile revenues of approximately $3.8 billion:
Amgen
eBay
QUALCOMM
Yahoo!
Apple
Computer
Genzyme
Sprint
Nextel
Applied
Materials
Gilead
Sciences
Sirius
Satellite Radio
Celgene
Honeywell
Staples
CheckFree
Intel
Starbucks
Cisco
Systems
Medimmune
Sun
Microsystems
28
Related
Industry Comparator Group
The
Compensation Committee also considered a second peer group, the Related Industry
Comparator Group, which was comprised of 42 companies that were in related
industries or were local Kansas City employers (e.g. Sprint Nextel) with which
Garmin competes for talent and which participated in the 2007 Towers Perrin
Executive Compensation Database. The Related Industry Comparator
Group includes the following companies with 25th
percentile revenues of approximately $3.3 billion:
Advanced
Medical Optics
Crown
Castle International
Millipore
Sprint
Nextel
Advanced
Micro Devices
Cubic
Corp
Motorola
Sun
Microsystems
Agilent
Technologies
Dell
National
Semiconductor
Texas
Instruments
American
Standard Cos
Eastman
Kodak
NCR
US
Cellular
Apple
Embarq
Nike
Verizon
Wireless
Applied
Materials
EMC
Nortel
Networks
Xerox
Avaya
Emerson
Electric
Perkin
Elmer
Avery
Dennison
GTECH
Plexus
Beckman
Coulter
Harman
International
QUALCOMM
Black
& Decker
Intel
Qwest
Communications
Cincinnati
Bell
Lexmark
International
Seagate
Technology
Cisco
Systems
Microsoft
Sony
Ericsson Mobile
Elements
of Compensation
Garmin’s
executive compensation program consists of the following elements:
Current
Year’s Performance: Salary and Annual Incentives
Base
Salary
Executives
are paid a base salary as compensation for the performance of their primary
duties and responsibilities. The base salary for Garmin’s chief executive
officer is determined annually by the Compensation Committee. The
Compensation Committee’s deliberations regarding the base salary of the chief
executive officer are made without the chief executive officer being
present. The base salary is based on the Compensation Committee’s
assessment of the chief executive officer’s individual performance and the
financial and operating performance of Garmin, as well as on an analysis of the
base salaries of chief executive officers of other companies similar in size and
industry to Garmin. However, when setting Dr. Kao’s base salary, the
Compensation Committee also considers Dr. Kao’s significant ownership of Garmin
stock.
The base
salary for each of the other executives is reviewed annually and is based upon
the recommendation of the chief executive officer and the executive’s individual
duties and responsibilities, experience and overall performance, as well as on
an analysis of the market and competitive data.
When
setting base salary levels in late 2007 for 2008, the Compensation Committee
considered the below market level of Garmin’s current salaries due to Garmin’s
rapid growth, the strong individual performance by each executive, concerns
relating to executive retention and recruitment, and that the non-CEO
executives’ direct compensation is considered riskier than the comparator groups
because only 18% of the actual total direct compensation of the non-CEO
executives was in the form of base salary in 2007, with over 75% of actual
total direct compensation being in the form of appreciation only equity vehicles
(SARs). The Compensation Committee increased base salaries for 2008
for Dr. Kao and Messrs. Pemble, Rauckman, Etkind and Bartel by approximately
56%, 61%, 33%, 33% and 52%, respectively. With these increases, the
executives’ base salaries have been increased to more competitive
levels.
29
The
following table shows the base salary of each of the Named Executive Officers in
2006, 2007 and 2008:
Name:
2006
2007
2008
Dr.
Kao
$
270,001
$
320,201
$
500,011
Mr.
Pemble
$
260,001
$
310,002
$
500,503
Mr.
Rauckman
$
225,001
$
300,001
$
400,001
Mr.
Etkind
$
250,001
$
300,002
$
400,002
Mr.
Bartel
$
180,012
$
230,001
$
350,002
Annual
Incentive Awards
In 2008, Garmin’s Named Executive
Officers, including the chief executive officer, each received a $203 cash
bonus. This is the same bonus that was paid to all employees of
Garmin’s principal U.S. subsidiary. The executives did not receive
any other cash incentive awards or cash bonuses in 2008, in part because for
2008 Garmin did not have a formalized annual incentive program for the
executives. Current macro- and micro-economic conditions and the fact
that Garmin’s performance in 2008 did not exceed its performance in 2007 by as
much as was expected at the beginning of 2008 also factored into the executives
not receiving a cash incentive award or larger cash bonus in 2008.
In order to reduce the overall risk in
the total direct compensation package (since more than 75% of total direct
compensation had been historically delivered in the form of SARs) and to better
balance the overall compensation mix (between cash and equity), Towers Perrin
recommended during 2008 that Garmin consider implementing a formalized annual
incentive program for Named Executive Officers for 2009. At its
December 2008 meeting, the Compensation Committee adopted the Garmin Ltd. 2009
Cash Incentive Bonus Plan. Under this plan a target bonus is set for
each individual executive. If Garmin’s operating income for the 2009
fiscal year equals or exceeds the operating income for the 2008 fiscal year,
then each executive will receive a cash bonus equal to between 50% and 150% of
his individual target bonus (if the executive also meets the other eligibility
requirements under the plan). Garmin’s chief executive officer will
not participate in the plan given his large ownership of Garmin
stock. For the other Named Executive Officers, the target bonuses
range from 19% to 25% of their 2009 base salaries. For purposes
of this plan, “operating income” means Garmin’s consolidated operating income as
represented in its audited consolidated financial statements included in its
annual report on Form 10-K for the 2009 fiscal year. The cash bonus
amount for each executive will be calculated as follows:
Operating Income Growth
Amount of Bonus
Less
than 0%
No
Bonus Eligible to be Paid
Between
0% and 0.499%
50%
of Individual Bonus Target
Between
0.500% and 1.499%
60%
of Individual Bonus Target
Between
1.500% and 2.499%
70%
of Individual Bonus Target
Between
2.500% and 3.499%
80%
of Individual Bonus Target
Between
3.500% and 4.499%
90%
of Individual Bonus Target
Between
4.500% and 5.499%
100%
of Individual Bonus Target
Between
5.500% and 6.499%
110%
of Individual Bonus Target
Between
6.500% and 7.499%
120%
of Individual Bonus Target
Between
7.500% and 8.499%
130%
of Individual Bonus Target
Between
8.500% and 9.499%
140%
of Individual Bonus Target
9.500%
or above
150%
of Individual Bonus
Target
30
Longer-Term
Performance: Stock-Settled Appreciation Rights, Restricted Stock Units and
Performance Shares
Prior to 2008, the executives’
longer-term incentive compensation consisted only of stock-settled stock
appreciation rights (SARs). The Compensation Committee decided to
move toward longer-term incentive compensation that provides more balanced risk
and opportunity by shifting from SARs to a combination of restricted stock units
(RSUs) and performance shares, as discussed below.
Because the chief executive officer
owns a significant amount of Garmin shares, and, therefore, already has
significant incentive to create shareholder value, he is not awarded SARs, RSUs,
performance shares or any other form of equity compensation. The
number of SARs, RSUs and performance shares awarded to each executive is
determined by the Compensation Committee after considering the recommendation of
the chief executive officer and the executive’s individual duties and
responsibilities, experience and overall performance. Factors
considered by the Compensation Committee in evaluating individual performance
include the executive’s performance relative to his peers, the nature and scope
of the executive’s position and responsibilities, retention considerations and
the current business environment.
Stock-Settled
Stock Appreciation Rights
As is
required under the terms of our equity compensation plans, the grant value of
each of the SARs is the fair market value of Garmin stock on the date of
grant. The Compensation Committee believes that stock-settled SARs
effectively manage equity dilution and share usage, while strongly linking the
earnings of executives with the interests of shareholders.
The
following table shows the grant date fair value of the SARs awarded to each of
the Named Executive Officers (other than the chief executive officer) in 2006,
2007 and 2008:
Name:
2006 SARs
2007 SARs
2008 SARs
Mr.
Pemble
$
803,800
$
1,559,600
$
461,500
Mr.
Rauckman
$
602,850
$
1,222,550
$
369,200
Mr.
Etkind
$
602,850
$
1,222,550
$
369,200
Mr.
Bartel
$
451,575
$
1,011,150
$
276,900
The
reason for the decrease in the SARs awarded in 2008 as compared to 2007 is that,
following the SAR awards granted to the executives in June 2008, the
Compensation Committee decided to shift the form of longer-term incentive
compensation from SARs only to a more balanced combination of RSUs and
performance shares, as discussed above.
Restricted
Stock Units
This
element of longer-term incentive compensation is designed to both assist in
balancing risk in the longer-term incentive compensation program and to enhance
executive retention. RSUs are full value awards with time-based vesting.
While RSUs are dependent upon share price appreciation for increased
value, they also offer downside risk protection because they continue to have
value even if the share price declines from the price on the date of
grant. Furthermore, the time-based vesting feature requires that an
executive remain with the company for a period of time before the awards are
vested, enhancing retention.
31
The
following table shows the grant date fair value of the RSUs awarded to each of
the Named Executive Officers (other than the chief executive officer) in 2008
(no RSUs were awarded prior to 2008):
Name:
2008 RSUs
Mr.
Pemble
$
391,800
Mr.
Rauckman
$
293,850
Mr.
Etkind
$
293,850
Mr.
Bartel
$
235,080
Performance
Shares
This
element of the longer-term incentive compensation is designed to focus the
executives on delivering business performance and shareholder value over the
next three years. The Compensation Committee believes that these
awards further align the interests of the executives with those of Garmin’s
shareholders. Under the award agreements, if Garmin’s pro forma net
income for the 2011 fiscal year is 30% or more higher than Garmin’s pro forma
net income for its 2008 fiscal year, then each of the executives is eligible to
earn a number of Garmin shares specified in his award agreement at the end of
fiscal year 2011. As defined in the award agreements, “pro forma net
income” means net income calculated using U.S. generally accepted accounting
principles as represented in Garmin’s annual audited consolidated financial
statements included in its annual reports on Form 10-K plus annual income tax
provision, plus interest expense, minus interest income, plus foreign currency
loss, minus foreign currency gain, plus loss on the sale of equity securities,
minus gain on the sale of equity securities, plus other expense, minus other
income.
The
following table shows the grant date fair value of the performance shares
awarded to each of the Named Executive Officers (other than the chief executive
officer) in 2008 (no performance shares were awarded prior to
2008):
Name:
2008 Performance Shares
Mr.
Pemble
$
195,900
Mr.
Rauckman
$
117,540
Mr.
Etkind
$
117,540
Mr.
Bartel
$
97,950
Benefits;
Retirement Contributions
Garmin’s
executives participate in the same benefits and are covered by the same plans on
the same terms as provided to all the salaried employees of Garmin’s principal
U.S. subsidiary. As is the case with all such salaried employees,
Garmin matches the executives’ contributions to Garmin’s 401(k) plan and makes
an additional employer contribution to this plan. In 2008, for all
employees, including the executives, (a) for every dollar the employee
contributed to the plan up to 10% of the employee's salary, Garmin contributed
75 cents, and (b) Garmin made an additional contribution equal to 5% of the
employee's salary, whether or not the employee contributed to the
plan. No salary in excess of $230,000 was taken into account for
either of the foregoing contributions.
Other
Considerations
Perquisites
Consistent
with Garmin’s belief that executive compensation should be internally equitable
among the executives and in relation to the broader Garmin employee population,
Garmin does not provide any perquisites to any of its executives.
Executive
Ownership; Policies Regarding Hedging
Garmin
does not have formal executive ownership guidelines. However, Garmin
executives receive a large portion of their total direct compensation in Garmin
stock appreciation rights, time-based restricted stock units and
performance-based performance shares. Garmin does not have any
policies regarding the hedging of the economic risk of stock
ownership.
32
Adjustment
or Recovery of Awards or Payments
In the
event that the performance measures upon which compensation awards are based are
restated or otherwise adjusted in a manner that would reduce the size of an
award or payment, the Compensation Committee would consider on a case-by-case
basis whether to adjust such award or recover such award from the executive who
received the award. Garmin does not have a formal policy that would
require such an adjustment to or recovery of such an award.
Tax
and Accounting Considerations
The
Compensation Committee reviews projections of the estimated accounting and tax
impact of all material elements of the executive compensation
program. Generally, an accounting expense is accrued over the
requisite service period of the particular pay element (generally equal to the
performance period) and Garmin realizes a tax deduction upon the payment
to/realization by the executive.
Section
162(m) of the Internal Revenue Code (the “Code”) generally provides that
publicly-held corporations may not deduct in any one taxable year compensation
in excess of $1 million paid to the chief executive officer and certain other
highly compensated executive officers unless such compensation qualifies as
“performance-based compensation” as defined in the Code and related tax
regulations. The Compensation Committee believes it has taken the
steps required to exclude from the calculation of the $1 million compensation
expense limitation any performance-based awards granted under the 2000 Equity
Incentive Plan and the 2005 Equity Incentive Plan to the Named Executive
Officers.
Severance
Benefits
Garmin
does not have executive employment agreements or executive severance agreements
with any of its executives.
Change-in-Control
Benefits
In the
event that an executive’s employment is terminated without cause, or the
executive resigns with good reason, within twelve months following a change in
control of Garmin, all of the executive’s unvested stock options and SARs would
immediately become exercisable and all of the executive’s unvested RSUs and
performance shares would immediately become payable. Such accelerated vesting is
the only benefit that would be received by the executives upon a change in
control, and such benefit would also be received by all other Garmin employees
who own unvested stock options, SARs, RSUs or performance
shares. This change-in-control protection is designed to provide
adequate protection for executives so that they may focus their efforts on
effective leadership, rather than significant compensation loss, during a time
that Garmin is considering or undertaking a change in control.
33
EXECUTIVE
COMPENSATION TABLES
Summary
Compensation Table
The following table shows 2008
compensation for the Chief Executive Officer, the Chief Financial Officer and
the three highest paid executive officers other than the Chief Executive Officer
and the Chief Financial Officer (collectively, the “Named Executive
Officers”):
Name & Principal Position
Year
Salary ($)
Bonus ($)
1
Stock
Awards
($)
2
SARs/Option
Awards
($) 3
Non-Equity
Incentive
Plan
Compensation
($)
All Other
Compensation
($) 4
Total
($)
Min
H. Kao
Chairman
& Chief Executive Officer
2006
$
270,001
$
-
$
-
$
-
$
22,500
$
79,335
$
371,836
2007
$
320,201
$
25,000
$
-
$
-
$
-
$
77,698
$
422,899
2008
$
500,011
$
203
$
-
$
-
$
-
$
80,001
$
580,215
Clifton
A. Pemble
President
& Chief Operation Officer
2006
$
260,001
$
50,000
$
-
$
222,128
$
21,667
$
27,510
$
581,306
2007
$
310,002
$
100,000
$
-
$
784,149
$
-
$
22,992
$
1,217,143
2008
$
500,503
$
203
$
3,219
$
1,335,549
$
-
$
23,569
$
1,863,043
Kevin
S. Rauckman
Chief
Financial Officer & Treasurer
2006
$
225,001
$
40,000
$
-
$
170,947
$
18,750
$
24,010
$
478,708
2007
$
300,001
$
80,000
$
-
$
604,498
$
-
$
22,992
$
1,007,491
2008
$
400,001
$
203
$
2,414
$
1,037,895
$
-
$
23,549
$
1,464,062
Andrew
R. Etkind
Vice
President, General Counsel & Secretary
2006
$
250,001
$
50,000
$
-
$
181,473
$
20,833
$
27,760
$
530,067
2007
$
300,002
$
90,000
$
-
$
633,701
$
-
$
30,742
$
1,054,445
2008
$
400,002
$
203
$
2,414
$
1,059,942
$
-
$
28,903
$
1,491,464
Danny
J. Bartel
Vice
President, Worldwide Sales
2006
$
180,012
$
30,000
$
-
$
103,417
$
15,001
$
24,010
$
352,440
2007
$
230,001
$
72,188
$
-
$
405,447
$
-
$
26,742
$
734,378
2008
$
350,002
$
203
$
1,931
$
727,361
$
-
$
27,251
$
1,106,748
1 Annual
discretionary cash incentive awards based on financial and non-financial factors
considered by the Compensation Committee, as discussed in the Compensation
Discussion and Analysis section.
2 This
column shows the dollar amount expensed for financial reporting purposes with
respect to the 2006, 2007 and 2008 fiscal years for the fair value of RSUs and
performance shares granted in 2006, 2007 and 2008, as well as prior fiscal years
in accordance with FAS 123R. See the Grants of Plan-Based Awards
table for information on awards made in 2008. These amounts reflect
our accounting expense for these awards, and do not correspond to the actual
value that may be recognized by the Named Executive Officers.
3 This
column shows the dollar amount expensed for financial reporting purposes with
respect to the 2006, 2007 and 2008 fiscal years for the fair value of SARs and
stock options granted in 2006, 2007 and 2008, as well as prior fiscal years in
accordance with FAS 123R. See the Grants of Plan-Based Awards table
for information on awards made in 2008. These amounts reflect our
accounting expense for these awards, and do not correspond to the actual value
that may be recognized by the Named Executive Officers.
4 All
Other Compensation for each of the Named Executives for 2006, 2007 and 2008
includes amounts payable under the cash profit sharing plan and company matching
contributions related to the qualified 401(k) plan. With respect to
2008, for each Named Executive Officer $11,500 was payable under the cash profit
sharing plan; Dr. Kao, Mr. Etkind and Mr. Bartel received $15,375 in company
matching contributions related to the qualified 401(k) plan; Mr. Pemble received
$11,550 in company matching contributions related to the qualified 401 (k) plan;
and Mr. Rauckman received $11,625 in company matching contributions related to
the qualified 401(k) plan. Dr. Kao’s All Other Compensation
includes payments in each of 2006, 2007 and 2008 for personal guarantees of
Garmin Corporation, in accordance with Taiwan banking practice. In
2008, the amount of such payment to Dr. Kao was $53,126. All Other
Compensation for 2006, 2007 and 2008 includes for all Named Executives premiums
on life insurance. With respect to 2006, Mr. Pemble’s All Other
Compensation includes an incentive payment in the amount of $3,500 for
inventions by Mr. Pemble for which patent applications were
filed. With respect to Mr. Etkind, his 2007 All Other Compensation
includes a a referral bonus in the amount of $4,000 paid to him under a plan
applicable to all employees which pays a cash bonus for referring candidates for
engineering positions who are hired by Garmin, and his 2008 All Other
Compensation includes a 10-year anniversary award in the amount of $1,604 paid
to him in accordance with Garmin's service award program.
34
Grants
of Plan-Based Awards
The following table provides
information for each of the Named Executive Officers regarding 2008 grants of
SARs, RSUs and Performance Shares:
All
Other
All
Other
Grant Date
Stock
Option
Exercise
Fair
Estimated
Future
Payouts
Estimated
Future
Payouts
Awards:
Awards:
or
Base
Closing
Value
of
Under
Non-Equity Incentive
Plan
Under
Equity Incentive
Plan
Number
of
Number
of
Price
of
Market
Stock
Awards1
Awards2
Shares
of
Securities
Option
Price
on
and
Threshold
Target
Max-
Threshold
Target
Maximum
Stock
or
Underlying
Awards
Grant
Option
Name
Grant Date
($)
($)
imum
($)
(#)
(#)
(#)
Units (#)3
Options (#) 4
($/Sh) 5
Date 6
Awards 7
Min
H. Kao
Clifton
A. Pemble
6/6/2008
25,000
$
50.97
$
51.34
$
461,500
12/12/2008
20,000
—
$
19.59
$
391,800
12/12/2008
10,000
10,000
10,000
$
19.59
$
195,900
12/12/2008
$
62,500
$
125,000
$
187,500
Kevin
S. Rauckman
6/6/2008
20,000
$
50.97
$
51.34
$
369,200
12/12/2008
15,000
—
$
19.59
$
293,850
12/12/2008
6,000
6,000
6,000
$
19.59
$
117,540
12/12/2008
$
40,000
$
80,000
$
120,000
Andrew
R. Etkind
6/6/2008
20,000
$
50.97
$
51.34
$
369,200
12/12/2008
15,000
—
$
19.59
$
293,850
12/12/2008
6,000
6,000
6,000
$
19.59
$
117,540
12/12/2008
$
40,000
$
80,000
$
120,000
Danny
J. Bartel
6/6/2008
15,000
$
50.97
$
51.34
$
276,900
12/12/2008
12,000
—
$
19.59
$
235,080
12/12/2008
5,000
5,000
5,000
$
19.59
$
97,950
12/12/2008
$
35,000
$
70,000
$
105,000
1
Represents the threshhold, target, and maximum estimated potential
payouts under our Garmin Ltd. 2009 Cash Incentive Bonus Plan. Each
performance objective under the plan has a threshold achievement level, below
which there would be no payout, a target achievement level, at which the target
opportunity would be paid, and a maximum achievement level, at which 150% of the
target would be
paid.
2
Awards made in the form of performance share units on December 12,2008.
4
Awards made in the form of SARs on June 6, 2008.
5
Pursuant to the terms of Garmin's 2005 Equity Incentive Plan, each SAR's base
price is determined based on the average of the high and low price of Garmin
stock on the date of grant.
6
Under our current 2005 Equity Incentive Plan, the exercise or base price of an
option or SAR is determined based on the average of the high and low prices of
Garmin stock on the date of grant. Pursuant to Instruction 3 to Item
402(d), this column reflects what the base or exercise price would have been had
such price been determined based on the closing market price of Garmin stock on
the date of grant. As proposed to be amended, the 2005 Equity
Incentive Plan provides that the exercise or base price of future awards of
options and SARs will be determied based on the closing market price on the date
of grant rather than the average of the high and low prices of Garmin stock on
the date of grant.
7 This
column represents the grant date fair value of SARs, RSUs and performance
shares. For SARs, that amount is calculated using a Black-Scholes
option pricing model with weighted-average assumptions. For
additional information on the valuation assumptions with respect to the 2008
grants, refer to Note 9 of Garmin’s financial statements in the Form 10-K for
the fiscal year ended December 27, 2008, as filed with the SEC. For
RSUs and performance shares, that amount is calculated by multiplying the
closing price of Garmin shares on the NASDAQ stock market on the date of grant
by the number of shares awarded.
35
Outstanding
Equity Awards at Fiscal Year-End
The following table provides
information for each of the Named Executive Officers regarding outstanding
equity awards held by them as of December 27, 2008:
Option
Awards
Stock
Awards
Name
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of
Shares
or
Units of
Stock
That
Have
Not
Vested
(#)
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
Equity
Incentive
Plan Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights Not
Vested
(#)
Equity
Incentive Plan
Awards:
Market or
Payout
Value of
Unearned Shares,
Units
or Other
Rights
That Have
Not
Vested
($)
5
Min
H. Kao
-
-
-
-
-
-
-
-
-
Clifton
A. Pemble
12,000
(1)
-
-
$
10.38
12/21/2011
-
-
20,000
(3)
$
387,800
20,000
(1)
-
-
$
14.90
12/26/2012
-
-
10,000
(4)
$
193,900
20,000
(1)
-
-
$
27.27
12/23/2013
-
-
-
-
19,200
(1)
4,800
-
$
19.94
9/23/2014
-
-
-
-
7,200
(2)
4,800
-
$
21.59
6/23/2015
-
-
-
-
9,000
(2)
6,000
-
$
30.66
12/16/2015
-
-
-
-
8,000
(2)
12,000
-
$
46.15
6/9/2016
-
-
-
-
8,000
(2)
12,000
-
$
51.07
12/5/2016
-
-
-
-
4,000
(2)
16,000
-
$
63.31
6/8/2017
-
-
-
-
5,000
(2)
20,000
-
$
105.33
12/4/2017
-
-
-
-
-
(2)
25,000
-
$
50.97
6/6/2018
-
-
-
-
Kevin
S. Rauckman
10,000
(1)
-
-
$
10.38
12/21/2011
-
-
15,000
(3)
$
290,850
15,000
(1)
-
-
$
14.90
12/26/2012
-
-
6,000
(4)
$
116,340
15,000
(1)
-
-
$
27.27
12/23/2013
-
-
-
-
16,000
(1)
4,000
-
$
19.94
9/23/2014
-
-
-
-
6,000
(2)
4,000
-
$
21.59
6/23/2015
-
-
-
-
7,200
(2)
4,800
-
$
30.66
12/16/2015
-
-
-
-
6,000
(2)
9,000
-
$
46.15
6/9/2016
-
-
-
-
6,000
(2)
9,000
-
$
51.07
12/5/2016
-
-
-
-
3,000
(2)
12,000
-
$
63.31
6/8/2017
-
-
-
-
4,000
(2)
16,000
-
$
105.33
12/4/2017
-
-
-
-
-
(2)
20,000
-
$
50.97
6/6/2018
-
-
-
-
Andrew
R. Etkind
20,000
(1)
-
-
$
7.00
12/7/2010
-
-
15,000
(3)
$
290,850
9,000
(1)
-
-
$
10.38
12/21/2011
-
-
6,000
(4)
$
116,340
17,000
(1)
-
-
$
14.90
12/26/2012
-
-
-
-
17,000
(1)
-
-
$
27.27
12/23/2013
-
-
-
-
16,000
(1)
4,000
-
$
19.94
9/23/2014
-
-
-
-
6,000
(2)
4,000
-
$
21.59
6/23/2015
-
-
-
-
7,200
(2)
4,800
-
$
30.66
12/16/2015
-
-
-
-
6,000
(2)
9,000
-
$
46.15
6/9/2016
-
-
-
-
6,000
(2)
9,000
-
$
51.07
12/5/2016
-
-
-
-
3,000
(2)
12,000
-
$
63.31
6/8/2017
-
-
-
-
4,000
(2)
16,000
-
$
105.33
12/4/2017
-
-
-
-
-
(2)
20,000
-
$
50.97
6/6/2018
-
-
-
-
-
-
Danny
J. Bartel
7,000
(1)
-
-
$
10.38
12/21/2011
-
-
12,000
(3)
$
232,680
10,000
(1)
-
-
$
14.90
12/26/2012
-
-
5,000
(4)
96,950
10,000
(1)
-
-
$
27.27
12/23/2013
-
-
-
-
8,000
(1)
2,000
-
$
19.94
9/23/2014
-
-
-
-
3,000
(2)
2,000
-
$
21.59
6/23/2015
-
-
-
-
3,600
(2)
2,400
-
$
30.66
12/16/2015
-
-
-
-
4,000
(2)
6,000
-
$
46.15
6/9/2016
-
-
-
-
5,000
(2)
7,500
-
$
51.07
12/5/2016
-
-
-
-
3,000
(2)
12,000
-
$
63.31
6/8/2017
-
-
-
-
3,000
(2)
12,000
-
$
105.33
12/4/2017
-
-
-
-
-
(2)
15,000
-
$
50.97
6/6/2018
-
-
-
-
1
Represents non-qualified stock options
2
Represents stock appreciation rights
3
Represents restricted stock units
4
Represents performance shares
5
Determined by multiplying the number of unearned shares by $19.39, which was the
closing price of Garmin shares on the Nasdaq stock market on December 26,2008. The amounts included in this column with respect to performance
shares assume that the performance goals will be achieved and that all of the
perfornamce shares will be paid out when they become payable. The
actual determination as to whether the performance goals were achieved will not
be made until after the end of the performance period on December 31,2011.
36
Option
Exercises and Stock Vested
None of
the Named Executive Officers exercised any stock options or SARs in 2008, and no
stock awards for any of the Named Executive Officers vested in
2008.
Potential
Post-Employment Payments
None of the Named Executive Officers
has an employment agreement or severance agreement with the
Company. In the event that (a) a Named Executive Officer dies or
becomes disabled, or (b) a Named Executive Officer’s employment is terminated
without cause, or a Named Executive Officer resigns with good reason, within
twelve months following a change of control of Garmin, all of the Named
Executive Officer’s unvested stock options and stock appreciation rights would
immediately become exercisable and all of the Named Executive Officer’s unvested
RSUs and performance shares would immediately become payable. Such
accelerated vesting is the only benefit that would be received by a Named
Executive Officer upon a change in control and such benefit would also be
received by all other Garmin employees who own unvested stock options, stock
appreciation rights, restricted stock units or performance
shares. The following table lists the estimated current value of such
acceleration of vesting.
Estimated
Current Value of Potential Post-Employment Benefits1
Name
Voluntary
For Cause
Death
Disability
Without
Cause
Change in
Control
Min H. Kao
$
-
$
-
$
-
$
-
$
-
$
-
Clifton
A. Pemble
$
-
$
-
$
575,100
$
575,100
$
-
$
575,100
Kevin
S. Rauckman
$
-
$
-
$
402,570
$
402,570
$
-
$
402,570
Andrew
R. Etkind
$
-
$
-
$
402,570
$
402,570
$
-
$
402,570
Danny
J. Bartel
$
-
$
-
$
325,890
$
325,890
$
-
$
325,890
1
Value of unexerciseable stock options/SARs, based on of $19.17 per share, the
closing price of the Company’s shares on the Nasdaq Stock Market on December 31,2008.
SHAREHOLDER
PROPOSALS
To be
properly brought before the Annual Meeting, a proposal must be either (i)
specified in the notice of the meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (iii)
otherwise properly brought before the meeting by a shareholder.
If a holder of Garmin Common Shares
wishes to present a proposal for inclusion in Garmin’s Proxy Statement for next
year’s annual general meeting of shareholders, such proposal must be received by
Garmin on or before December 22, 2009. Such proposal must be made in
accordance with Rule 14a-8 promulgated by the SEC and the interpretations
thereof. Any such proposal should be sent to the Secretary of Garmin, P.O. Box
10670, Grand Cayman KY1-1006, Suite #3206B, 45 Market Street, Gardenia Court,
Camana Bay, Cayman Islands.
In order for a shareholder proposal
that is not included in Garmin’s Proxy Statement for next year’s annual meeting
of shareholders to be properly brought before the meeting, such proposal must be
delivered to the Secretary and received at Garmin’s executive offices no later
than March 12, 2010 and such proposal must also comply with the procedures
outlined in this Proxy Statement under the heading “Nominating and Corporate
Governance Committee.” The determination that any such proposal has been
properly brought before such meeting is made by the officer presiding over such
meeting. If Garmin does not receive advance notice of a shareholder proposal in
accordance with the above requirements, Garmin will have discretionary authority to
vote shares for which it holds proxies on such shareholder proposal presented at
the annual meeting.
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires Garmin’s directors, executive
officers and certain other officers, and persons, legal or natural, who own more
than 10 percent of Garmin’s Common Shares (collectively “Reporting Persons”), to
file reports of their ownership of such shares, and the changes therein, with
the SEC and Garmin (the “Section 16 Reports”). Based solely on a review of the
Section 16 reports for 2008 and any amendments thereto furnished to Garmin, all
Section 16 Reports for fiscal year 2008 were timely filed by the Reporting
Persons.
HOUSEHOLDING
OF ANNUAL MEETING MATERIALS FOR BROKER CUSTOMERS
Pursuant
to the rules of the SEC, services that deliver Garmin’s communications to
shareholders that hold their shares through a bank, broker or other nominee
holder of record may deliver to multiple shareholders sharing the same address a
single copy of Garmin’s Annual Report and Proxy Statement. Garmin will promptly
deliver upon written or oral request a separate copy of the Annual Report and/or
Proxy Statement to any shareholder at a shared address to which a single copy of
the documents was delivered. Written requests should be made to Garmin Ltd., c/o
Garmin International, Inc., 1200 East 151st Street,
Olathe, Kansas66062, Attention: Investor Relations Manager, and oral
requests may be made by calling Debbie Garbeff at (913) 397-8200. Any
shareholder who wants to receive separate copies of the Proxy Statement or
Annual Report in the future, or any shareholder who is receiving multiple copies
and would like to receive only one copy per household, should contact the
shareholder’s bank, broker or other nominee holder of record.
OTHER
MATTERS
The Board of Directors knows of no
matters that are expected to be presented for consideration at the Annual
Meeting other than the election of directors. However, if other matters properly
come before the meeting, it is intended that persons named in the accompanying
proxy will vote on them in accordance with their best judgment.
Garmin will furnish without charge
upon written request a copy of Garmin’s Annual Report on Form 10-K . The
Annual Report on Form 10-K includes a list of all exhibits thereto. Garmin will
furnish copies of such exhibits upon written request therefor and payment of
Garmin’s reasonable expenses in furnishing such exhibits. Each such request must
set forth a good faith representation that, as of the Record Date, the person
making such request was a beneficial owner of Common Shares entitled to vote at
the Annual Meeting. Such written request should be directed to the Secretary of
Garmin, c/o Garmin International, Inc., 1200 East 151st Street,
Olathe, Kansas66062. The Annual Report on Form 10-K is available at www.garmin.com and is also available
through the SEC’s Internet site at www.sec.gov.
Using a
black ink
pen, mark your votes with an X as shown in
this
example. Please do not write outside the designated areas. x
Annual
Meeting Proxy Card
‚ PLEASE FOLD ALONG
THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.‚
Proposals -
The Board of Directors recommends a vote FOR the
nominees listed in Proposal 1, a vote FOR Proposal 2,
a vote FOR Proposal 3
and a vote FOR Proposal
4.
1.
Election
of Directors:
For
Withhold
For
Withhold
01 –
Min H. Kao
¨
¨
02 –
Charles W. Peffer
¨
¨
Term
expiring in 2012
term
expiring in 2012
2.
Ratification
of the appointment of Ernst & Young
For
Against
Abstain
LLP
as Garmin’s independent registered public accounting firm for the 2009
fiscal year.
¨
¨
¨
3.
Approval
of Amendment to the Garmin Ltd. 2005
For
Against
Abstain
Equity
Incentive Plan.
¨
¨
¨
5.
In
their discretion, the Proxies are authorized
4.
Approval
of Amendment to the Garmin Ltd. 2000
For
Against
Abstain
to
vote with respect to any other matters that
Non-Employee
Directors’ Option Plan.
¨
¨
¨
may
properly come before the Annual General Meeting or any adjournment
thereof, including matters incident to its
conduct.
Authorized
Signatures – This section must be completed for your vote to be counted. –
Date and Sign Below
Please
sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, corporate
officer, trustee, guardian, or custodian, please give full title.
Date
(mm/dd/yyyy) – Please print date below. Signature 1 – Please
keep signature within the box. Signature 2 - Please keep
signature within the box.
/ /
A-1
‚ PLEASE FOLD ALONG
THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.‚
Proxy – GARMIN LTD.
PROXY
SOLICITATED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned shareholder of Garmin Ltd., a Cayman Islands company, hereby
appoints Clifton A. Pemble and Kevin Rauckman and each of them, with full power
of substitution, as true and lawful agents and proxies to represent the
undersigned and vote all common shares of Garmin Ltd. owned by the undersigned
in all matters coming before the 2009 Annual General Meeting of Shareholders (or
any adjournment thereof) to be held at the Ritz Charles, 9000 West 137th Street,
Overland Park, Kansas66221, on Friday, June 5, 2009 at 10:00 a.m. local
time.
This
proxy will be voted as specified. If no specification is made, this
proxy will be voted FOR the nominees listed in Proposal 1, FOR Proposal 2, FOR
Proposal 3 and FOR Proposal 4.
Proxy
card must be signed and dated.
CONTINUED
ON THE REVERSE SIDE.
A-2
Electronic
Voting Instructions
You
can vote by Internet or telephone!
Available
24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two
voting
methods outlined below to vote your proxy.
VALIDATION
DETAILS ARE LOCATED BELOW IN THE
TITLE
BAR
Proxies
submitted by the Internet or telephone must be
received
by 1:00 a.m., Central Time, on June 4, 2009.
Call
toll free 1-800-652-VOTE (8683) within the United States, Canada &
Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the
call.
Ÿ
Follow
the instructions provided by the recorded
message.
Using a
black ink
pen, mark your votes with an X as shown in
this
example. Please do not write outside the designated areas. x
Annual
Meeting Proxy Card
‚ IF YOU HAVE
NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE. ‚
Proposals -
The Board of Directors recommends a vote FOR the
nominees listed in Proposal 1, a vote FOR Proposal 2,
a vote FOR Proposal 3
and a vote FOR Proposal
4.
1.
Election
of Directors:
For
Withhold
For
Withhold
01 –
Min H. Kao
¨
¨
02 –
Charles W. Peffer
¨
¨
Term
expiring in 2012
term
expiring in 2012
2.
Ratification
of the appointment of Ernst & Young
For
Against
Abstain
LLP
as Garmin’s independent registered public accounting firm for the 2009
fiscal year.
¨
¨
¨
3.
Approval
of Amendment to the Garmin Ltd. 2005
For
Against
Abstain
Equity
Incentive Plan.
¨
¨
¨
5.
In
their discretion, the Proxies are authorized
4.
Approval
of Amendment to the Garmin Ltd. 2000
For
Against
Abstain
to
vote with respect to any other matters that
Non-Employee
Directors’ Option Plan.
¨
¨
¨
may
properly come before the Annual General Meeting or any adjournment
thereof, including matters incident to its
conduct.
Non-Voting
Items
Change of Address – Please
print new address below.
Authorized Signatures – This section must be completed for your vote to
be counted. – Date and Sign Below
Please
sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, corporate
officer, trustee, guardian, or custodian, please give full title.
Date
(mm/dd/yyyy) – Please print date below. Signature 1 – Please
keep signature within the box. Signature 2 - Please keep
signature within the box.
/ /
A-3
‚ IF YOU HAVE NOT
VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.‚
Proxy – GARMIN LTD.
PROXY
SOLICITATED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned shareholder of Garmin Ltd., a Cayman Islands company, hereby
appoints Clifton A. Pemble and Kevin Rauckman and each of them, with full power
of substitution, as true and lawful agents and proxies to represent the
undersigned and vote all common shares of Garmin Ltd. owned by the undersigned
in all matters coming before the 2008 Annual General Meeting of Shareholders (or
any adjournment thereof) to be held at the Ritz Charles, 9000 West 137th Street,
Overland Park, Kansas66221, on Friday, June 5, 2009 at 10:00 a.m. local
time.
This
proxy will be voted as specified. If no specification is made, this
proxy will be voted FOR the nominees listed in Proposal 1, FOR Proposal 2, FOR
Proposal 3 and FOR Proposal 4.
Proxy
card must be signed and dated.
CONTINUED
ON THE REVERSE SIDE.
A-4
Electronic
Voting Instructions
You
can vote by Internet or telephone!
Available
24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two
voting
methods outlined below to vote your voting
instructions.
VALIDATION
DETAILS ARE LOCATED BELOW IN THE
TITLE
BAR
Proxies
submitted by the Internet or telephone must be
received
by 1:00 a.m., Central Time, on June 4, 2009.
Call
toll free 1-800-652-VOTE (8683) within the United States, Canada &
Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the
call.
Ÿ
Follow
the instructions provided by the recorded
message.
Using a
black ink
pen, mark your votes with an X as shown in
this
example. Please do not write outside the designated areas. x
Annual
Meeting Voting Instruction Card
‚ IF YOU HAVE
NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE. ‚
Proposals -
The Board of Directors recommends a vote FOR the
nominees listed in Proposal 1, a vote FOR Proposal 2,
a vote FOR Proposal 3
and a vote FOR Proposal
4.
1.
Election
of Directors:
For
Withhold
For
Withhold
01 –
Min H. Kao
¨
¨
02 –
Charles W. Peffer
¨
¨
Term
expiring in 2012
term
expiring in 2012
2.
Ratification
of the appointment of Ernst & Young
For
Against
Abstain
LLP
as Garmin’s independent registered public accounting firm for the 2009
fiscal year.
¨
¨
¨
3.
Approval
of Amendment to the Garmin Ltd. 2005
For
Against
Abstain
Equity
Incentive Plan.
¨
¨
¨
5.
In
their discretion, the Proxies are authorized
4.
Approval
of Amendment to the Garmin Ltd. 2000
For
Against
Abstain
to
vote with respect to any other matters that
Non-Employee
Directors’ Option Plan.
¨
¨
¨
may
properly come before the Annual General Meeting or any adjournment
thereof, including matters incident to its
conduct.
Non-Voting
Items
Change of Address – Please
print new address below.
Authorized
Signatures – This section must be completed for your vote to be counted. – Date
and Sign Below
Please
sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, corporate
officer, trustee, guardian, or custodian, please give full title.
Date
(mm/dd/yyyy) – Please print date below. Signature 1 – Please
keep signature within the box. Signature 2 - Please keep
signature within the box.
/ /
A-5
‚ IF YOU HAVE NOT
VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.‚
VOTING INSTRUCTIONS – GARMIN LTD.
CONFIDENTIAL
VOTING INSTRUCTIONS TO
T.
ROWE PRICE TRUST COMPANY AS TRUSTEE
UNDER
THE GARMIN INTERNATIONAL, INC.
401(k)
AND PENSION PLAN
This voting instruction card is
solicited by the Trustee . I hereby direct that the voting
rights pertaining to Common Shares of Garmin Ltd. held by the Trustee are
allocated to my account shall be exercised at the Annual General Meeting of
Shareholders to be held on June 5, 2009, or any adjournment thereof, as
specified hereon and in its discretion on all other matters that are properly
brought before the Annual General Meeting of Shareholders and matters incidental
to such meeting.
If
the voting instruction card is not returned, the Trustee must vote such shares
in the same proportions as the shares for which voting instruction cards were
received from the plan participants.
IMPORTANT: PLEASE
SIGN, DATE AND RETURN THIS VOTING INSTRUCTION CARD BEFORE THE DATE OF THE ANNUAL
MEETING IN THE ENCLOSED ENVELOPE. DO NOT RETURN THIS CARD TO GARMIN
LTD. AS YOUR VOTE IS CONFIDENTIAL.
Establishment and
Amendment of the Plan . The Board of Directors (the
"Board") of Garmin Ltd., a Cayman Islands company (the "Company"),
established the Garmin Ltd. 2005 Equity Incentive Plan (the "Plan") on
March 1, 2005. The Company's shareholders approved the Plan on
June 3, 2005, effective as of June 3, 2005 (the "Effective
Date"). In 2006, the Company effected a two-for-one stock split
of the Company's common Shares (the "Stock Split"). Subject to
approval of the shareholders of the Company, the Board adopted this
amended and restated plan effective June 5, 2009 with certain amendments
reflecting the Stock Split, updated changes in the law and an expanded
type of performance-based awards eligible to be granted under the
Plan.
1.2
Objectives of the
Plan . The Plan is intended to allow employees of the
Company and its Subsidiaries to acquire or increase equity ownership in
the Company, or to be compensated under the Plan based on growth in the
Company's equity value, thereby strengthening their commitment to the
success of the Company and stimulating their efforts on behalf of the
Company, and to assist the Company and its Subsidiaries in attracting new
employees and retaining existing employees. The Plan is also
intended to optimize the profitability and growth of the Company through
incentives which are consistent with the Company's goals; to provide
incentives for excellence in individual performance; and to promote
teamwork.
1.3
Duration of the
Plan . The Plan shall commence on the Effective Date and
shall remain in effect, subject to the right of the Board to amend or
terminate the Plan at any time pursuant to Article 13 hereof, until all
Shares subject to it shall have been purchased or acquired according to
the Plan's provisions.
Article
2. Definitions
Whenever
used in the Plan, the following terms shall have the meanings set forth
below:
2.1
"Article " means
an Article of the Plan.
2.2
"Award " means
Options, Restricted Shares, Bonus Shares, SARs, Restricted Stock Units,
Performance Units or Performance Shares granted under the
Plan.
2.3
" Award
Agreement " means a written agreement by which an Award is
evidenced.
2.4
" Beneficial
Owner " has the meaning specified in Rule 13d-3 of the SEC under
the Exchange Act.
B-4
2.5
"Board " has the
meaning set forth in Section 1.1.
2.6
"Bonus Shares "
means Shares that are awarded to a Grantee without cost and without
restrictions in recognition of past performance (whether determined by
reference to another employee benefit plan of the Company or otherwise) or
as an incentive to become an employee of the Company or a
Subsidiary.
2.7
" Business
Criteria " has the meaning set forth in Section
5.8(c).
2.8
"Cause " means,
unless otherwise defined in an Award
Agreement,
(a)
a
Grantee's conviction of, plea of guilty to, or plea of nolo contendere to
a felony or other crime that involves fraud, dishonesty or moral
turpitude,
(b)
any
willful action or omission by a Grantee which would constitute grounds for
immediate dismissal under the employment policies of the Company or the
Subsidiary by which Grantee is employed, including but not limited to
intoxication with alcohol or illegal drugs while on the premises of the
Company or any Subsidiary, or violation of sexual harassment laws or the
internal sexual harassment policy of the Company or the Subsidiary by
which Grantee is employed,
(c)
a
Grantee's habitual neglect of duties, including but not limited to
repeated absences from work without reasonable excuse,
or
(d)
a
Grantee's willful and intentional material misconduct in the performance
of his duties that results in financial detriment to the Company or any
Subsidiary;
provided, however , that for
purposes of clauses (b), (c) and (d), Cause shall not include any one or more of
the following: bad judgment, negligence or any act or omission believed by the
Grantee in good faith to have been in or not opposed to the interest of the
Company (without intent of the Grantee to gain, directly or indirectly, a profit
to which the Grantee was not legally entitled). A Grantee who agrees
to resign from his affiliation with the Company or a Subsidiary in lieu of being
terminated for Cause may be deemed to have been terminated for Cause for
purposes of this Plan.
2.9
" Change of
Control " means, unless otherwise defined in an Award Agreement,
any one or more of the following:
(a)
any
Person other than (i) a Subsidiary, (ii) any employee benefit plan (or any
related trust) of the Company or any of its Subsidiaries or (iii) any
Excluded Person, becomes the Beneficial Owner of 35% or more of the common
shares of the Company or of Voting Securities representing 35% or more of
the combined voting power of the Company (such a person or group, a "35% Owner "),
except that (i) no Change of Control shall be deemed to have occurred
solely by reason of such beneficial ownership by a corporation with
respect to which both more than 60% of the common shares of such
corporation and Voting Securities representing more than 60% of the
aggregate voting power of such corporation are then owned, directly or
indirectly, by the persons who were the direct or indirect owners of the
common shares and Voting Securities of the Company immediately before such
acquisition in substantially the same proportions as their ownership,
immediately before such acquisition, of the common shares and Voting
Securities of the Company, as the case may be and (ii) such corporation
shall not be deemed a 35% Owner; or
B-5
(b)
the
Incumbent Directors (determined using the Effective Date as the baseline
date) cease for any reason to constitute at least a majority of the
directors of the Company then serving;
or
(c)
the
consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of a
merger, reorganization, consolidation, or similar transaction, or the sale
or other disposition of all or substantially all (at least 40%) of the
consolidated assets of the Company or a plan of liquidation of the Company
(any of the foregoing transactions, a " Reorganization
Transaction ") which is not an Exempt Reorganization
Transaction.
The
definition of "Change of Control" may be amended at any time prior to the
occurrence of a Change of Control, and such amended definition shall be applied
to all Awards granted under the Plan whether or not outstanding at the time such
definition is amended, without requiring the consent of any
Grantee. Notwithstanding the occurrence of any of the foregoing
events, (a) a Change of Control shall be deemed not to have occurred with
respect to any Section 16 Person if such Section 16 Person is, by agreement
(written or otherwise), a participant on such Section 16 Person's own behalf in
a transaction which causes the Change of Control to occur and (b) a Change of
Control shall not occur with respect to a Grantee if, in advance of such event,
the Grantee agrees in writing that such event shall not constitute a Change of
Control.
2.10
" Change of Control
Period " has the meaning set forth in Section
5.6(c).
2.11
" Change of Control
Value " means the Fair Market Value of a Share on the date of a
Change of Control.
2.12
"Code " means
the Internal Revenue Code of 1986, as amended from time to time, and
regulations and rulings thereunder. References to a particular
section of the Code include references to successor provisions of the Code
or any successor statute.
2.13
"Company " has
the meaning set forth in Section
1.1.
B-6
2.14
"Disabled " or
"Disability "
means an individual (i) is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months or (ii)
is, by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than 3 months under a
Company-sponsored accident and health plan. Notwithstanding the
foregoing, with respect to an Incentive Stock Option, "Disability" means a
permanent and total disability, within the meaning of Code Section
22(e)(3), as determined by the Board in good faith, upon receipt of
medical advice from one or more individuals, selected by the Board, who
are qualified to give professional medical
advice.
2.15
"Effective Date
" has the meaning set forth in Section
1.1.
2.16
" Eligible
Person " means any employee (including any officer) of the Company
or any Subsidiary, including any such employee who is on an approved leave
of absence or has been subject to a disability which does not qualify as a
Disability.
2.17
"Exchange Act "
means the Securities Exchange Act of 1934, as amended. References to a
particular section of the Exchange Act include references to successor
provisions.
2.18
" Excluded
Person " means any Person who, along with such Person's Affiliates
and Associates (as such terms are defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act) is the Beneficial Owner of
15% or more of the Shares outstanding as of the Effective
Date.
2.19
" Exempt Reorganization
Transaction " means a Reorganization Transaction which (i) results
in the Persons who were the direct or indirect owners of the outstanding
common shares and Voting Securities of the Company immediately before such
Reorganization Transaction becoming, immediately after the consummation of
such Reorganization Transaction, the direct or indirect owners of both
more than 60% of the then-outstanding common shares of the Surviving
Corporation and Voting Securities representing more than 60% of the
aggregate voting power of the Surviving Corporation, in substantially the
same respective proportions as such Persons' ownership of the common
shares and Voting Securities of the Company immediately before such
Reorganization Transaction, or (ii) after such transaction, more than 50%
of the members of the board of directors of the Surviving Corporation were
Incumbent Directors at the time of the Board's approval of the agreement
providing for the Reorganization Transaction or other action of the Board
approving the transaction (or whose election or nomination was approved by
a vote of at least two-thirds of the members who were members of the Board
at that time).
B-7
2.20
" Fair Market
Value " means, unless otherwise determined or provided by the Board
in the circumstances, (A) with respect to any property other than Shares,
the fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Board, and (B)
with respect to Shares, (i) the last sale price (also referred to as the
closing price) of a Share on such U.S. securities exchange as the Shares
are then traded, for the applicable date, (ii) if such U.S. securities
exchange is closed for trading on such date, or if the Shares do not trade
on such date, then the last sales price used shall be the one on the date
the Shares last traded on such U.S. securities exchange, or (iii) in the
event that there shall be no public market for the Shares, the fair market
value of the Shares as determined in good faith by the Board using a
method consistently applied. Notwithstanding the above, for all
Options, SARs and Deferred Shares (RSUs) granted before June 5, 2009, Fair
Market Value for purposes of establishing Option Prices, Exercise Prices
or values of Shares, respectively, was established based on the average of
the high and low trading prices on the Nasdaq Global Select Market (or, if
no sale of Shares was reported for such date, on the next preceding date
on which a sale of Shares was
reported).
2.21
" Freestanding
SAR " means any SAR that is granted independently of any
Option.
2.22
"Good Reason "
means any action by the Company or the Subsidiary employing a Grantee
which results in any of the following without the Grantee's
consent: (a) a material diminution or other material adverse
change in the Grantee's position, authority or duties, (b) requiring the
Grantee to be based at any office or location more than 50 miles from the
location where he or she was previously based, (c) a material diminution
in the Grantee's compensation in the aggregate, other than a diminution
applicable to all similarly situated employees. A Grantee shall
not have Good Reason to terminate his or her position unless, (1) within
60 days following the event or circumstance set forth above in (a), (b) or
(c), the Grantee notifies the Company of such event or circumstance, (2)
the Grantee gives the Company 30 days to correct the event or
circumstance, and (3) the Company does not correct, in all material
respects, such event or
circumstance.
2.23
"Grant Date "
has the meaning set forth in Section
5.2.
2.24
"Grantee " means
an individual who has been granted an
Award.
2.25
"Including " or
"includes
" mean "including, without limitation," or "includes, without limitation",
respectively.
2.26
" Incumbent
Directors " means, as of any specified baseline date, individuals
then serving as members of the Board who were members of the Board as of
the date immediately preceding such baseline date; provided that any
subsequently-appointed or elected member of the Board whose election, or
nomination for election by shareholders of the Company or the Surviving
Corporation, as applicable, was approved by a vote or written consent of a
majority of the directors then comprising the Incumbent Directors shall
also thereafter be considered an Incumbent Director, unless the initial
assumption of office of such subsequently-elected or appointed director
was in connection with (i) an actual or threatened election contest,
including a consent solicitation, relating to the election or removal of
one or more members of the Board, (ii) a "tender offer" (as such term is
used in Section 14(d) of the Exchange Act), or (iii) a proposed
Reorganization Transaction.
B-8
2.27
"Option " means
an option granted under Article 6 of the Plan, including an incentive
stock option.
2.28
"Option Price "
means the price at which a Share may be purchased by a Grantee pursuant to
an Option.
2.29
"Option Term "
means the period beginning on the Grant Date of an Option and ending on
the expiration date of such Option, as specified in the Award Agreement
for such Option and as may, consistent with the provisions of the Plan, be
extended from time to time by the Board prior to the expiration date of
such Option then in effect.
2.30
" Performance
Award " means any Award that will be issued, granted, vested,
exercisable or payable, as the case may be, upon the achievement of one or
more Business Criteria, as set forth in Section
5.8.
2.31
" Performance
Period " has the meaning set forth in Section
10.2.
2.32
" Performance
Share" or " Performance
Unit " has the meaning set forth in
Article 10.
2.33
" Period of
Restriction " means the period during which the transfer of
Restricted Shares is limited in some way (based on the passage of time,
the achievement of performance goals, or upon the occurrence of other
events as determined by the Board) or the Shares are subject to a
substantial risk of forfeiture, as provided in Article
8.
2.34
"Person " shall
have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) thereof.
2.35
"Plan " has the
meaning set forth in Section 1.1.
2.36
"Plan Committee
" has the meaning set forth in Section
3.1.
2.37
" Reorganization
Transaction " has the meaning set forth in Section
2.8(c).
2.38
" Restricted
Shares " means Shares that are issued as an Award under the Plan
that is subject to Restrictions.
2.39
" Restricted Stock
Units" (f/k/a " Deferred
Shares ") means units awarded to Grantees pursuant to Article 9
hereof, which are convertible into Shares at such time as such units are
no longer subject to Restrictions as established by the
Board. Restricted Stock Units are the same as "Deferred Shares"
previously referred to and granted under the Plan prior to this Amended
and Restated Plan becoming
effective.
B-9
2.40
"Restriction "
means any restriction on a Grantee's free enjoyment of the Shares or other
rights underlying Awards, including (a) that the Grantee or other holder
may not sell, transfer, pledge, or assign a Share or right, and (b) such
other restrictions as the Board may impose in the Award Agreement
(including, without limitation, any restriction on the right to vote such
Share, and the right to receive any dividends). Restrictions may be based
on the passage of time or the satisfaction of performance criteria or the
occurrence of one or more events or conditions, and shall lapse separately
or in combination upon such conditions and at such time or times, in
installments or otherwise, as the Board shall specify. Awards subject to a
Restriction shall be forfeited if the Restriction does not lapse prior to
such date or the occurrence of such event or the satisfaction of such
other criteria as the Board shall
determine.
2.41
"Rule 16b-3 "
means Rule 16b-3 promulgated by the SEC under the Exchange Act, together
with any successor rule, as in effect from time to
time.
2.42
"SAR " means a
stock appreciation right and includes both Tandem SARs and Freestanding
SARs.
2.43
"SAR Term "
means the period beginning on the Grant Date of a SAR and ending on the
expiration date of such SAR, as specified in the Award Agreement for such
SAR and as may, consistent with the provisions of the Plan, be extended
from time to time by the Board prior to the expiration date of such SAR
then in effect.
2.44
"SEC " means the
United States Securities and Exchange Commission, or any successor
thereto.
2.45
"Section "
means, unless the context otherwise requires, a Section of the
Plan.
2.46
" Section 16
Person " means a person who is subject to obligations under Section
16 of the Exchange Act with respect to transactions involving equity
securities of the Company.
2.47
"Share " means a
common share, $0.005 par value, of the
Company.
2.48
"Subsidiary "
means with respect to any Person, (a) any corporation of which more than
50% of the Voting Securities are at the time, directly or indirectly,
owned by such Person, and (b) any partnership or limited liability company
in which such Person has a direct or indirect interest (whether in the
form of voting power or participation in profits or capital contribution)
of more than 50%. Solely with respect to a grant of an
incentive stock option under the requirements of Section 422 of the Code,
"Subsidiary" means a "subsidiary corporation" as defined in Section 424(f)
of the Code.
2.49
" Substitute
Option " has the meaning set forth in Section
6.3.
B-10
2.50
" Surviving
Corporation " means the corporation resulting from a Reorganization
Transaction or, if Voting Securities representing at least 50% of the
aggregate voting power of such resulting corporation are directly or
indirectly owned by another corporation, such other
corporation.
2.51
"Tandem SAR "
means a SAR that is granted in connection with, or related to, an Option,
and which requires forfeiture of the right to purchase an equal number of
Shares under the related Option upon the exercise of such SAR; or
alternatively, which requires the cancellation of an equal amount of SARs
upon the purchase of the Shares subject to the
Option.
2.52
" Tax
Withholding " has the meaning set forth in Section
14.1(a).
2.53
" Termination of
Affiliation " occurs on the first day on which an individual is for
any reason no longer providing services to the Company or any Subsidiary
in the capacity of an employee, or with respect to an individual who is an
employee of a Subsidiary, the first day on which such Subsidiary ceases to
be a Subsidiary. A Termination of Affiliation shall have the
same meaning as a "separation from service" under Code Section
409A(2)(A)(i).
2.54
" Voting
Securities " of a corporation means securities of such corporation
that are entitled to vote generally in the election of directors, but not
including any other class of securities of such corporation that may have
voting power by reason of the occurrence of a
contingency.
Article
3. Administration
3.1
Board and Plan
Committee . Subject to Article 13, and to Section 3.2,
the Plan shall be administered by the Board, or a committee of the Board
appointed by the Board to administer the Plan (" Plan Committee
"). To the extent the Board considers it desirable for
transactions relating to Awards to be eligible to qualify for an exemption
under Rule 16b-3, the Plan Committee shall consist of two or more
directors of the Company, all of whom qualify as "non-employee directors"
within the meaning of Rule 16b-3. To the extent the Board
considers it desirable for compensation delivered pursuant to Awards to be
eligible to qualify for an exemption from the limit on tax deductibility
of compensation under Section 162(m) of the Code, the Plan Committee shall
consist of two or more directors of the Company, all of whom shall qualify
as "outside directors" within the meaning of Code Section
162(m). The number of members of the Plan Committee shall from
time to time be increased or decreased, and shall be subject to such
conditions, including, but not limited to having exclusive authority to
make certain grants of Awards or to perform such other acts, in each case
as the Board deems appropriate to permit transactions in Shares pursuant
to the Plan to satisfy such conditions of Rule 16b-3 or Code Section
162(m) as then in effect.
Any
references herein to "Board" are, except as the context requires otherwise,
references to the Board or the Plan Committee, as applicable.
B-11
3.2
Powers of the
Board . Subject to the express provisions of the Plan,
the Board has full and final authority and sole discretion as
follows:
(a)
taking
into consideration the reasonable recommendations of management, to
determine when, to whom and in what types and amounts Awards should be
granted and the terms and conditions applicable to each Award, including
the Option Price, the Option Term, the Restrictions, the benefit payable
under any SAR, Performance Unit or Performance Share and whether or not
specific Awards shall be granted in connection with other specific Awards,
and if so whether they shall be exercisable cumulatively with, or
alternatively to, such other specific
Awards;
(b)
to
determine the amount, if any, that a Grantee shall pay for Restricted
Shares, whether and on what terms to permit or require the payment of cash
dividends thereon to be deferred, when Restrictions on Restricted Shares
(including Restricted Shares acquired upon the exercise of an Option)
shall lapse and whether such shares shall be held in
escrow;
(c)
to
construe and interpret the Plan and to make all determinations necessary
or advisable for the administration of the
Plan;
(d)
to
make, amend, and rescind rules relating to the Plan, including rules with
respect to the exercisability and nonforfeitability of Awards and lapse of
Restrictions upon the Termination of Affiliation of a
Grantee;
(e)
to
determine the terms and conditions of all Award Agreements (which need not
be identical) and, with the consent of the Grantee, to amend any such
Award Agreement at any time, among other things, to permit transfers of
such Awards to the extent permitted by the Plan; provided that the consent
of the Grantee shall not be required for any amendment which (A) does not
adversely affect the rights of the Grantee, or (B) is necessary or
advisable (as determined by the Board) to carry out the purpose of the
Award as a result of any new or change in existing applicable
law;
(f)
to
cancel, with the consent of the Grantee, outstanding Awards and to grant
new Awards in substitution therefore; provided that any replacement grant
that would be considered a repricing shall be subject to shareholder
approval;
(g)
to
accelerate the exercisability (including exercisability within a period of
less than six months after the Grant Date) of, and to accelerate or waive
any or all of the terms, conditions or Restrictions applicable to, any
Award or any group of Awards for any reason and at any time, including in
connection with a Termination of
Affiliation;
(h)
subject
to Section 5.3, to extend the time during which any Award or group of
Awards may be exercised;
B-12
(i)
to
make such adjustments or modifications to Awards to Grantees who are
working outside the United States as are advisable to fulfill the purposes
of the Plan or to comply with applicable local law, and to authorize
foreign Subsidiaries to adopt plans as provided in Article
15;
(j)
to
delegate to any member of the Board or committee of Board members such of
its powers as it deems appropriate, including the power to subdelegate,
except that only a member of the Board of Directors of the Company (or a
committee thereof) may grant Awards from time to time to specified
categories of Eligible Persons in amounts and on terms to be specified by
the Board; provided that no such grants shall be made other than by the
Board or the Plan Committee to individuals who are then Section 16 Persons
or other than by the Plan Committee to individuals who are then or are
deemed likely to become a "covered employee" within the meaning of Code
Section 162(m);
(k)
to
delegate to officers, employees or independent contractors of the Company
matters involving the routine administration of the Plan and which are not
specifically required by any provision of this Plan to be performed by the
Board of Directors of the Company;
(l)
to
delegate its duties and responsibilities under the Plan with respect to
foreign Subsidiary plans, except its duties and responsibilities with
respect to Section 16 Persons, and (A) the acts of such delegates shall be
treated hereunder as acts of the Board and (B) such delegates shall report
to the Board regarding the delegated duties and
responsibilities;
(m)
to
correct any defect or supply any omission or reconcile any inconsistency,
and construe and interpret the Plan, the rules and regulations, any Award
Agreement or any other instrument entered into or relating to an Award
under the Plan, and to make all determinations, including factual
determinations, necessary or advisable for the administration of the
Plan;
(n)
to
impose such additional terms and conditions upon the grant, exercise or
retention of Awards as the Board may, before or concurrently with the
grant thereof, deem appropriate, including limiting the percentage of
Awards which may from time to time be exercised by a Grantee;
and
(o)
to
take any other action with respect to any matters relating to the Plan for
which it is responsible.
All
determinations on any matter relating to the Plan or any Award Agreement may be
made in the sole and absolute discretion of the Board, and all such
determinations of the Board shall be final, conclusive and binding on all
Persons. No member of the Board shall be liable for any action or
determination made with respect to the Plan or any Award.
B-13
Article
4. Shares Subject to the Plan
4.1
Number of Shares
Available.
(a)
Plan Limit.
Subject to adjustment as provided in Section 4.2, the number of Shares
hereby reserved for delivery under the Plan is ten million (10,000,000)
Shares. The maximum number of Shares that may be delivered
pursuant to the exercise of Options (including incentive stock options
under Code Section 422) or SARs is ten million (10,000,000 Shares. The
maximum number of Shares that may be delivered as Restricted Shares or
pursuant to Performance Units or Restricted Stock Units is three million
(3,000,000) Shares. The maximum number of Bonus Shares that may
be awarded is one million (1,000,000) Shares. If any Shares
subject to an Award granted hereunder are forfeited or an Award or any
portion thereof otherwise terminates or is settled without the issuance of
Shares, the Shares subject to such Award, to the extent of any such
forfeiture, termination or settlement, shall again be available for grant
under the Plan. The Board may from time to time determine the
appropriate methodology for calculating the number of Shares issued
pursuant to the Plan.
(b)
Individual Limit. No
individual Grantee may be granted Options, SARs, Restricted Shares,
Restricted Stock Units, Bonus Shares, Performance Units or Performance
Shares in Shares, or in any combination thereof, relating to an aggregate
number of Shares under the Plan that exceeds two million (2,000,000)
Shares in any 5-year period. If a previously granted Option,
SAR, Restricted Stock Unit, Performance Unit, or Performance Share is
forfeited, canceled or repriced, such forfeited, canceled or repriced
Award as the case may be, shall continue to be counted against the maximum
number of Shares subject to Awards that may be delivered to any Grantee
under this Section 4.1(b).
B-14
4.2
Adjustments in
Authorized Shares.
(a)
Adjustment
Principle. In the event that the Board determines that
any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, share split,
reverse share split, subdivision, consolidation or reduction of capital,
reorganization, merger, scheme of arrangement, split-up, spin-off or
combination involving the Company or repurchase or exchange of Shares or
other rights to purchase Shares or other securities of the Company, or
other similar corporate transaction or event affects the Shares such that
any adjustment is determined by the Board to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Board shall, in
such manner as it may deem equitable, adjust any or all of (i) the number
and type of Shares (or other securities or property of the Company or any
Person that is a party to a Reorganization Transaction with the Company)
with respect to which Awards may be granted, (ii) the number and type of
Shares (or other securities or property of the Company or any Person that
is a party to a Reorganization Transaction with the Company) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to
any Award or, if deemed appropriate, make provision for a cash payment to
the holder of an outstanding Award or the substitution of other property
for Shares subject to an outstanding Award; provided, that the number of
Shares subject to any Award denominated in Shares shall always be a whole
number.
(b)
Example. By
way of illustration, and not by way of limitation, the following
illustrates how the foregoing adjustment principles would apply in the
context of a stock split: Assume a Grantee holds an Option to
purchase 1,000 shares of Company stock at an Option Price of $50 per
share. Assume further that the Company completes a two-for-one
stock split such that every stockholder on the requisite record date
receives two shares of Company stock for every one share held on the
record date. Pursuant to the adjustment principles set forth
above in Section 4.2(a), the Grantee's Option would be adjusted such that,
after such adjustment, the Grantee would hold an Option to purchase 2,000
shares of Company stock at an Option Price of $25 per
share. All other terms and conditions of the Option would
remain the same. Similar adjustment principles would apply to
SARs, Performance Shares, Performance Units, Bonus Shares and Deferred
Shares. This Section 4.2(b) is for illustrative purposes only,
assumes hypothetical facts, and shall not, under any event or
circumstance, be interpreted as the adjustment outcome with respect to
specific factual situations.
4.3
Newly Issued
Shares . Shares delivered in connection with Awards may
only be newly issued Shares.
Article
5. Eligibility and General Conditions of Awards
5.1
Eligibility
. The Board may grant Awards to any Eligible Person, whether or
not he or she has previously received an
Award.
5.2
Grant Date
. The Grant Date of an Award shall be the date on which the
Board grants the Award or such later date as specified by the Board (i) in
the Board's resolutions or minutes addressing the Award grants or (ii) in
the Award Agreement.
5.3
Maximum Term
. Subject to the following proviso, the Option Term or other
period during which an Award may be outstanding shall not extend more than
10 years after the Grant Date, and shall be subject to earlier termination
as herein specified.
B-15
5.4
Award Agreement
. To the extent not set forth in the Plan, the terms and
conditions of each Award (which need not be the same for each grant or for
each Grantee) shall be set forth in an Award
Agreement.
5.5
Restrictions on Share
Transferability . The Board may include in the Award
Agreement such restrictions on any Shares acquired pursuant to the
exercise or vesting of an Award as it may deem advisable, including
restrictions under applicable federal securities
laws.
5.6
Termination of
Affiliation . Except as otherwise provided in an Award
Agreement (including an Award Agreement as amended by the Board pursuant
to Section 3.2), and subject to the provisions of Section 13.1, the extent
to which the Grantee shall have the right to exercise, vest in, or receive
payment in respect of an Award following Termination of Affiliation shall
be determined in accordance with the following provisions of this Section
5.6.
(a)
For Cause
. If a Grantee has a Termination of Affiliation for
Cause:
(i) the
Grantee's Restricted Shares that are forfeitable immediately before such
Termination of Affiliation shall automatically be forfeited on such date,
subject in the case of Restricted Shares to the provisions of Section 8.5
regarding repayment of certain amounts to the Grantee;
(ii) the
Grantee's Restricted Stock Units shall automatically be forfeited;
and
(iii) any
unexercised Option or SAR, and any Performance Share or Performance Unit with
respect to which the Performance Period has not ended immediately before such
Termination of Affiliation, shall terminate effective immediately upon such
Termination of Affiliation.
(b)
On Account of Death or
Disability . If a Grantee has a Termination of
Affiliation on account of death or
Disability:
(i) the
Grantee's Restricted Shares that were forfeitable immediately before such
Termination of Affiliation shall thereupon become nonforfeitable;
(ii) the
Grantee’s Restricted Stock Units shall immediately be settled in accordance with
Section 9.4;
(iii) any
unexercised Option or SAR, whether or not exercisable immediately before such
Termination of Affiliation, shall be fully exercisable and may be exercised, in
whole or in part, at any time up to one year after such Termination of
Affiliation (but only during the Option Term or SAR Term, respectively) by the
Grantee or, after his or her death, by (A) his or her personal representative or
the person to whom the Option or SAR, as applicable, is transferred by will or
the applicable laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Article 11; and
B-16
(iv) the
benefit payable with respect to any Performance Share or Performance Unit with
respect to which the Performance Period has not ended immediately before such
Termination of Affiliation on account of death or Disability shall be equal to
the product of the Fair Market Value of a Share as of the date of such
Termination of Affiliation or the value of the Performance Unit specified in the
Award Agreement (determined as of the date of such Termination of Affiliation),
as applicable, multiplied successively by each of the following:
(A) a
fraction, the numerator of which is the number of months (including as a whole
month any partial month) that have elapsed since the beginning of such
Performance Period until the date of such Termination of Affiliation and the
denominator of which is the number of months (including as a whole month any
partial month) in the Performance Period; and
(B) a
percentage determined by the Plan Committee that would be earned under the terms
of the applicable Award Agreement assuming that the rate at which the
performance goals have been achieved as of the date of such Termination of
Affiliation would continue until the end of the Performance Period, or, if the
Board elects to compute the benefit after the end of the Performance Period, the
Performance percentage, as determined by the Board, attained during the
Performance Period.
(c)
Change of Control
Period . If a Grantee has a Termination of Affiliation
during the period (" Change of Control
Period ") commencing on a Change of Control and ending on the first
anniversary of the Change of Control, which Termination of Affiliation is
initiated by the Company or a Subsidiary other than for Cause, or
initiated by the Grantee for Good Reason,
then
(i) the
Grantee’s Restricted Shares that were forfeitable shall thereupon become
nonforfeitable;
(ii) the
Grantee’s Restricted Stock Units shall immediately be settled in accordance with
Section 9.4;
(iii) any
unexercised Option or SAR, whether or not exercisable on the date of such
Termination of Affiliation, shall thereupon be fully exercisable and may be
exercised, in whole or in part for ninety (90) days following such Termination
of Affiliation (but only during the Option Term or SAR Term, respectively);
and
B-17
(iv) t he Company shall
immediately pay to the Grantee, with respect to any Performance Share or
Performance Unit with respect to which the Performance Period has not ended as
of the date of such Termination of Affiliation, a cash payment equal to the
product of (A) in the case of a Performance Share, the Change of Control Value
or (B) in the case of a Performance Unit, the value of the Performance Unit
specified in the Award Agreement, as applicable, multiplied successively by each
of the following:
(A) a
fraction, the numerator of which is the number of whole and partial months that
have elapsed between the beginning of such Performance Period and the date of
such Termination of Affiliation and the denominator of which is the number of
whole and partial months in the Performance Period; and
(B) a
percentage equal to a greater of (x) the target percentage, if any, specified in
the applicable Award Agreement or (y) the maximum percentage, if any, that would
be earned under the terms of the applicable Award Agreement assuming that the
rate at which the performance goals have been achieved as of the date of such
Termination of Affiliation would continue until the end of the Performance
Period.
(d)
Any Other
Reason . If a Grantee has a Termination of Affiliation
for any reason other than for Cause, death or Disability, and other than
under the circumstances described in Section 5.6(c),
then:
(i) the
Grantee's Restricted Shares, to the extent forfeitable immediately before such
Termination of Affiliation, shall thereupon automatically be forfeited, subject
in the case of Restricted Shares to the provisions of Section 8.5 regarding
repayment of certain amounts to the Grantee;
(ii) the
Grantee's Restricted Stock Units shall automatically be forfeited;
(iii) any
unexercised Option or SAR, to the extent exercisable immediately before such
Termination of Affiliation, shall remain exercisable in whole or in part for
ninety (90) days after such Termination of Affiliation (but only during the
Option Term or SAR Term, respectively) by the Grantee or, after his or her
death, by (A) his or her personal representative or the person to whom the
Option or SAR, as applicable, is transferred by will or the applicable laws of
descent and distribution, or (B) the Grantee's beneficiary designated in
accordance with Article 11; and
(iv) any
Performance Shares or Performance Units with respect to which the Performance
Period has not ended as of the date of such Termination of Affiliation shall
terminate immediately upon such Termination of Affiliation.
5.7
Nontransferability of
Awards.
(a)
Except
as provided in Section 5.7(c) below, each Award, and each right under any
Award, shall be exercisable only by the Grantee during the Grantee's
lifetime, or, if permissible under applicable law, by the Grantee's
guardian or legal representative.
B-18
(b)
Except
as provided in Section 5.7(c) below, no Award (prior to the time, if
applicable, Shares are issued in respect of such Award), and no right
under any Award, may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Grantee otherwise than by will or
by the laws of descent and distribution and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Subsidiary; provided,
that the designation of a beneficiary shall not constitute an assignment,
alienation, pledge, attachment, sale, transfer or
encumbrance.
(c)
To
the extent and in the manner permitted by the Board, and subject to such
terms and conditions as may be prescribed by the Board, a Grantee may
transfer an Award to (a) a child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law of the Grantee, (including adoptive relationships), (b)
any person sharing the Grantee's household (other than a tenant or
employee), (c) a trust in which persons described in (a) or (b) have more
than 50% of the beneficial interest, (d) a foundation in which persons
described in (a) or (b) or the Grantee own more than 50% of the voting
interests; provided such transfer is not for value. The
following shall not be considered transfers for value: (i) a
transfer under a domestic relations order in settlement of marital
property rights; and (ii) a transfer to an entity in which more than 50%
of the voting interests are owned by persons described in (a) or (b) above
or the Grantee, in exchange for an interest in that
entity.
5.8
Section 162(m)
Performance Awards.
(a)
General . Any
type of Award that is eligible to be granted under the Plan may be granted
to officers and employees as awards intended to satisfy the requirements
of "performance-based compensation" within the meaning of Section 162(m)
of the Code ("
Performance Awards "). The grant, vesting,
exercisability or payment of Performance Awards may depend on the degree
of achievement of one or more performance goals relative to a
preestablished target level or levels using one or more of the Business
Criteria set forth below.
(b)
Class . The
eligible class of persons to receive Performance Awards shall be any
hourly or salaried officer or employee of the Company or one of its
subsidiaries. The Plan Committee approving Performance Awards
or making any certification required pursuant to Section 5.8(c) must be
constituted as provided for in Section 3.1 for awards that are intended as
performance-based compensation under Section 162(m) of the
Code.
B-19
(c)
Performance
Goals . The specific performance goals for Performance
Awards shall be, on an absolute or relative basis, established based on
one or more of the following business criteria (" Business
Criteria ") for the Company on a segregated or consolidated basis
or for one or more of the Company's subsidiaries, segments, divisions, or
business units, as selected by the Plan
Committee:
(i)
Earnings
(either in the aggregate or on a per-Share
basis);
(ii) Operating
profit (either in the aggregate or on a per-Share basis);
(iii) Operating
income (either in the aggregate or on a per-Share basis);
(iv) Net
earnings on either a LIFO or FIFO basis (either in the aggregate or on a
per-Share basis);
(v)
Net income or loss (either in the aggregate or on a per-Share
basis);
(vi) Ratio
of debt to debt plus equity;
(vii) Net
borrowing;
(viii)
Credit quality or debt ratings;
(ix)
Inventory levels, inventory turn or shrinkage;
(x)
Cash flow provided by operations (either in the aggregate or on a per-Share
basis);
(xi)
Free cash flow (either in the aggregate or on a per-Share basis);
(xii) Reductions
in expense levels, determined either on a Company-wide basis or in respect of
any one or more business units;
(xiii) Operating
and maintenance cost management and employee productivity;
(xiv)
Gross margin;
(xv) Return
measures (including return on assets, equity, or sales);
(xvi) Productivity
increases;
(xvii) Share
price (including attainment of a specified per-Share price during the relevant
performance period; growth measures and total shareholder return or attainment
by the Shares of a specified price for a specified period of time);
B-20
(xviii) Where
applicable, growth or rate of growth of any of the above Business Criteria set
forth in this Section 5.8(c);
(xix) Strategic
business criteria, consisting of one or more objectives based on meeting
specified revenue, market share, market penetration, geographic business
expansion goals, objectively identified project milestones, production volume
levels, cost targets, and goals relating to acquisitions or
divestitures;
(xx) Achievement
of business or operational goals such as market share and/or business
development; and/or
(xxi) Accomplishment
of mergers, acquisitions, dispositions, public offerings or similar
extraordinary business transactions;
provided
that applicable Business Criteria may be applied on a pre- or post-tax basis;
and provided further that the Plan Committee may, when the applicable
performance goals are established, provide that the formula for such goals may
include or exclude items to measure specific objectives, such as losses from
discontinued operations, extraordinary gains or losses, the cumulative effect of
accounting changes, acquisitions or divestitures, foreign exchange impacts and
any unusual, nonrecurring gain or loss. As established by the Plan
Committee, the Business Criteria may include, without limitation, GAAP and
non-GAAP financial measures. In addition to the foregoing performance goals, the
performance goals shall also include any performance goals which are set forth
in a Company bonus or incentive plan, if any, which has been approved by the
Company's shareholders, which are incorporated herein by reference. Such
performance goals shall be set by the Plan Committee within the time period
prescribed by, and shall otherwise comply with the requirements of, Code Section
162(m).
(d)
Flexibility as to
Timing, Weighting, Applicable Business Unit . For Awards
intended to comply with the performance-based exception to Code Section
162(m), the Plan Committee shall set the Business Criteria within the time
period prescribed by Section 162(m) of the Code. The levels of performance
required with respect to Business Criteria may be expressed in absolute or
relative levels and may be based upon a set increase, set positive result,
maintenance of the status quo, set decrease or set negative result.
Business Criteria may differ for Awards to different Grantees. The Plan
Committee shall specify the weighting (which may be the same or different
for multiple objectives) to be given to each performance objective for
purposes of determining the final amount payable with respect to any such
Award. Any one or more of the Business Criteria may apply to a Grantee, to
the Company as a whole, to one or more Subsidiaries or to a department,
unit, division or function within the Company, within any one or more
Subsidiaries or any one or more joint ventures of which the Company is a
party, and may apply either alone or relative to the performance of other
businesses or individuals (including industry or general market
indices).
B-21
(e)
Discretion to
Adjust . The Plan Committee shall have the discretion to
adjust the determinations of the degree of attainment of the
pre-established performance goals; provided, however, that Awards which
are designed to qualify for the performance-based exception under Code
Section 162(m) may not (unless the Plan Committee determines to amend the
Award so that it no longer qualifies for such performance-based exception)
be adjusted upward. The Plan Committee shall retain the discretion to
adjust such Awards downward. The Plan Committee may not, unless the Plan
Committee determines to amend the Award so that it no longer qualifies for
the performance-based exception, delegate any responsibility with respect
to Awards intended to qualify for such performance-based exception. All
determinations by the Plan Committee as to the achievement of the Business
Criteria shall be certified in writing prior to payment of the
Award.
(f)
Alteration of
Performance Measures . In the event that applicable laws
allow an Award to qualify for the performance-based exception to Code
Section 162(m) even if the Plan Committee alters the governing Business
Criteria without obtaining shareholder approval, the Plan Committee shall
have sole discretion to make such changes without obtaining shareholder
approval.
Article
6. Stock Options
6.1
Grant of
Options . Subject to the terms and provisions of the
Plan, Options may be granted to any Eligible Person in such number, and
upon such terms, and at any time and from time to time as shall be
determined by the Board. Without limiting the generality of the
foregoing, the Board may grant to any Eligible Person, or permit any
Eligible Person to elect to receive, an Option in lieu of or in
substitution for any other compensation (whether payable currently or on a
deferred basis, and whether payable under this Plan or otherwise) which
such Eligible Person may be eligible to receive from the Company or a
Subsidiary, which Option may have a value (as determined by the Board
under Black-Scholes or any other option valuation method) that is equal to
or greater than the amount of such other
compensation.
6.2
Award Agreement
. Each Option grant shall be evidenced by an Award Agreement
that shall specify the Option Price, the Option Term, the number of shares
to which the Option pertains, the time or times at which such Option shall
be exercisable and such other provisions as the Board shall
determine.
6.3
Option Price
. The Option Price of an Option under this Plan shall be
determined by the Board, and shall be no less than 100% of the Fair Market
Value of a Share on the Grant Date; provided, however ,
that any Option (" Substitute
Option ") that is (x) granted to a Grantee in connection with the
acquisition ("Acquisition "),
however effected, by the Company of another corporation or entity (" Acquired
Entity ") or the assets thereof, (y) associated with an option to
purchase shares of stock or other equity interest of the Acquired Entity
or an affiliate thereof (" Acquired Entity
Option ") held by such Grantee immediately prior to such
Acquisition, and (z) intended to preserve for the Grantee the economic
value of all or a portion of such Acquired Entity Option, shall be granted
such that such option substitution is completed in conformity with the
rules set forth in Section 424(a) of the
Code.
B-22
6.4
Grant of Incentive
Stock Options . At the time of the grant of any Option
to an Eligible Person who is an employee of the Company or a Subsidiary,
the Board may designate that such option shall be made subject to
additional restrictions to permit it to qualify as an "incentive stock
option" under the requirements of Section 422 of the Code. Any
option designated as an incentive stock
option:
(a)
shall
not be granted to a person who owns shares (including shares treated as
owned under Section 424(d) of the Code) possessing more than 10% of the
total combined voting power of all classes of shares of the
Company;
(b)
shall
be for a term of not more than 10 years from the Grant Date, and shall be
subject to earlier termination as provided herein or in the applicable
Award Agreement;
(c)
shall
not have an aggregate Fair Market Value (determined for each incentive
stock option at its Grant Date) of Shares with respect to which incentive
stock options are exercisable for the first time by such Grantee during
any calendar year (under the Plan and any other employee stock option plan
of the Grantee's employer or any parent or Subsidiary thereof ("Other Plans
")), determined in accordance with the provisions of Section 422 of the
Code, which exceeds $100,000 (the " $100,000
Limit");
(d)
shall,
if the aggregate Fair Market Value of a Share (determined on the Grant
Date) with respect to the portion of such grant which is exercisable for
the first time during any calendar year ("Current Grant
") and all incentive stock options previously granted under the Plan and
any Other Plans which are exercisable for the first time during a calendar
year (" Prior
Grants ") would exceed the $100,000 Limit, be exercisable as
follows:
(i) the
portion of the Current Grant which would, when added to any Prior Grants, be
exercisable with respect to Shares which would have an aggregate Fair Market
Value (determined as of the respective Grant Date for such options) in excess of
the $100,000 Limit shall, notwithstanding the terms of the Current Grant, be
exercisable for the first time by the Grantee in the first subsequent calendar
year or years in which it could be exercisable for the first time by the Grantee
when added to all Prior Grants without exceeding the $100,000 Limit;
and
B-23
(ii) if,
viewed as of the date of the Current Grant, any portion of a Current Grant could
not be exercised under the preceding provisions of this Subsection (iv) during
any calendar year commencing with the calendar year in which it is first
exercisable through and including the last calendar year in which it may by its
terms be exercised, such portion of the Current Grant shall not be an incentive
stock option, but shall be exercisable as a separate Option at such date or
dates as are provided in the Current Grant;
(e)
shall
be granted within 10 years from the earlier of the date the Plan is
adopted or the date the Plan is approved by the shareholders of the
Company;
(f)
shall
require the Grantee to notify the Board of any disposition of any Shares
issued pursuant to the exercise of the incentive stock option under the
circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions), within 10 days of such disposition;
and
(g)
shall
by its terms not be assignable or transferable other than by will or the
laws of descent and distribution and may be exercised, during the
Grantee's lifetime, only by the Grantee; provided, however, that the
Grantee may, to the extent provided in the Plan in any manner specified by
the Board, designate in writing a beneficiary to exercise such incentive
stock option after the Grantee's
death.
Notwithstanding
the foregoing, the Board may, without the consent of the Grantee, at any time
before the exercise of an option (whether or not an incentive stock option),
take any action necessary to prevent such option from being treated as an
incentive stock option.
6.5
Exercise of
Options . Options shall be exercised by the delivery of
a written notice of exercise to the Company or its designee, setting forth
the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares made by cash, personal check or
wire transfer or, subject to the approval of the Board pursuant to
procedures approved by the Board,
(a)
through
the sale of the Shares acquired on exercise of the Option through a
broker-dealer to whom the Grantee has submitted an irrevocable notice of
exercise and irrevocable instructions to deliver promptly to the Company
the amount of sale or loan proceeds sufficient to pay for such Shares,
together with, if requested by the Company, the amount of federal, state,
local or foreign withholding taxes payable by Grantee by reason of such
exercise,
(b)
through
simultaneous sale through a broker of Shares acquired on exercise, as
permitted under Regulation T of the Federal Reserve
Board,
B-24
(c)
by
delivery to the Company of certificates representing the number of Shares
then owned by the Grantee, the Fair Market Value of which equals the
purchase price of the Shares purchased in connection with the Option
exercise, properly endorsed for transfer to the Company; provided however,
that Shares used for this purpose must have been held by the Grantee for
such minimum period of time as may be established from time to time by the
Board; and provided further that the Fair Market Value of any Shares
delivered in payment of the purchase price upon exercise of the Options
shall be the Fair Market Value as of the exercise date, which shall be the
date of delivery of the certificates for the Stock used as payment of the
exercise price. For purposes of this Section 6.5(c), in lieu of
actually surrendering to the Company the stock certificates representing
the number of Shares then owned by the Grantee, the Board may, in its
discretion permit the Grantee to submit to the Company a statement
affirming ownership by the Grantee of such number of Shares and request
that such Shares, although not actually surrendered, be deemed to have
been surrendered by the Grantee as payment of the exercise price,
or
(d)
by
a "net exercise" arrangement pursuant to which the Company will not
require a payment of the Option Price but will reduce the number of Shares
upon the exercise by the largest number of whole shares that has a Fair
Market Value on the date of exercise that does not exceed the aggregate
Option Price. With respect to any remaining balance of the
aggregate option price, the Company will accept a cash payment from the
Grantee. Notwithstanding the foregoing, a "net exercise" arrangement will
not be an eligible exercise method for incentive stock options unless and
until the Company and its advisors conclude that such method of exercise
may be utilized without resulting in a disqualification of the incentive
stock option.
Article
7. Stock Appreciation Rights
7.1
Grant of SARs
. Subject to the terms and conditions of this Plan, SARs may be
granted to any Eligible Person at any time and from time to time as shall
be determined by the Board in its sole discretion. The Board
may grant Freestanding SARs or Tandem SARs, or any combination
thereof.
(a)
Number of
Shares. The Board shall
have complete discretion to determine the number of SARs granted to any
Grantee, subject to the limitations imposed in this Plan and by applicable
law.
(b)
Exercise Price and
Other Terms . All SARs shall be granted with an exercise
price no less than the Fair Market Value of the underlying Shares of Stock
on the SARs' Grant Date. The Board, subject to the provisions
of this Plan, shall have complete discretion to determine the terms and
conditions of SARs granted under this Plan. The exercise price
per Share of Tandem SARs shall equal the exercise price per Share of the
related Option.
B-25
7.2
SAR Award
Agreement . Each SAR granted under the Plan shall be
evidenced by a written SAR Award Agreement which shall be entered into by
the Company and the Grantee to whom the SAR is granted and which shall
specify the exercise price per share, the SAR Term, the conditions of
exercise, and such other terms and conditions as the Board in its sole
discretion shall determine.
7.3
Exercise of
SARs . SARs shall be exercised by the delivery of a
written notice of exercise to the Company or its designee, setting forth
the number of Shares over which the SAR is to be
exercised. Tandem SARs (a) may be exercised with respect to all
or part of the Shares subject to the related Option upon the surrender of
the right to exercise the equivalent portion of the related Option; (b)
may be exercised only with respect to the Shares for which its related
Option is then exercisable; and (c) may be exercised only when the Fair
Market Value of the Shares subject to the Option exceeds the Option Price
of the Option. The value of the payment with respect to the
Tandem SAR may be no more than 100% of the difference between the Option
Price of the underlying Option and the Fair Market Value of the Shares
subject to the underlying Option at the time the Tandem SAR is
exercised.
7.4
Expiration of
SARs . A SAR granted under this Plan shall expire on the
date set forth in the SAR Award Agreement, which date shall be determined
by the Board in its sole discretion. Unless otherwise
specifically provided for in the SAR Award agreement, a Tandem SAR granted
under this Plan shall be exercisable at such time or times and only to the
extent that the related Option is exercisable. The Tandem SAR
shall terminate and no longer be exercisable upon the termination or
exercise of the related Options, except that Tandem SARs granted with
respect to less than the full number of shares covered by a related Option
shall not be reduced until the exercise or termination of the related
Option exceeds the number of Shares not covered by the
SARs.
7.5
Payment of SAR
Amount . Upon exercise of a SAR, a Grantee shall be
entitled to receive payment from the Company in an amount determined by
multiplying (i) the positive difference between the Fair Market Value of a
Share on the date of exercise over the exercise price per Share by (ii)
the number of Shares with respect to which the SAR is
exercised. The payment upon a SAR exercise shall be solely in
whole Shares of equivalent value. Fractional Shares shall be
rounded down to the nearest whole Share with no cash consideration being
paid upon exercise.
Article
8. Restricted Shares and Bonus Shares
8.1
Grant of Restricted
Shares . Subject to the terms and provisions of the
Plan, the Board, at any time and from time to time, may grant Restricted
Shares to any Eligible Person in such amounts as the Board shall
determine.
B-26
8.2
Bonus Shares
. Subject to the terms of the Plan, the Board may grant Bonus
Shares to any Eligible Person, in such amount and upon such terms and at
any time and from time to time as shall be determined by the
Board. Bonus Shares shall be Shares issued without any
Restriction.
8.3
Award Agreement
. Each grant of Restricted Shares shall be evidenced by an
Award Agreement, which shall specify the Restrictions and the Period(s) of
Restriction, the number of Restricted Shares granted, and such other
provisions as the Board shall determine. The Board may impose
such Restrictions on any Restricted Shares as it may deem advisable,
including Restrictions based upon the achievement of specific performance
goals (Company-wide, divisional, Subsidiary or individual), time-based
Restrictions on vesting or Restrictions under applicable securities laws;
provided that in all cases, the Restricted Shares shall be subject to a
minimum two-year graduated vesting schedule (50% each year), except, if as
provided in the Award Agreement, in the event of death, disability, Change
of Control, Termination of Affiliation with Good Reason, or Termination of
Affiliation by the Employer other than for
Cause.
8.4
Consideration
. The Board shall determine the amount, if any, that a Grantee
shall pay for Restricted Shares or Bonus Shares. Such payment
shall be made in full by the Grantee before the delivery of the shares and
in any event no later than 10 business days after the Grant Date for such
shares.
8.5
Effect of
Forfeiture . If Restricted Shares are forfeited, and if
the Grantee was required to pay for such shares or acquired such
Restricted Shares upon the exercise of an Option, the Grantee shall be
deemed to have resold such Restricted Shares to the Company at a price
equal to the lesser of (x) the amount paid by the Grantee for such
Restricted Shares, or (y) the Fair Market Value of a Share on the date of
such forfeiture. The Company shall pay to the Grantee the
required amount as soon as is administratively practical. Such
Restricted Shares shall cease to be outstanding, and shall no longer
confer on the Grantee thereof any rights as a shareholder of the Company,
from and after the date of the event causing the forfeiture, whether or
not the Grantee accepts the Company’s tender of payment for such
Restricted Shares.
8.6
Escrow; Legends
. The Board may provide that the certificates for any
Restricted Shares or Bonus Shares shall be represented by, at the option
of the Board, either book entry registration or by a stock certificate or
certificates. If the shares of Restricted Shares are
represented by a certificate or certificates, such shares (x) shall be
held (together with a stock power executed in blank by the Grantee) in
escrow by the Secretary of the Company until such Restricted Shares become
nonforfeitable or are forfeited or (y) shall bear an appropriate legend
restricting the transfer of such Restricted Shares. If any
Restricted Shares become nonforfeitable and are represented by
certificates, the Company shall cause certificates for such Shares to be
issued without such legend.
B-27
Article
9. Restricted Stock Units (f/k/a "Deferred Shares")
9.1
Grant of Restricted
Stock Units . Subject to and consistent with the
provisions of the Plan and Code Sections 409A(a)(2), (3) and (4), the
Board, at any time and from time to time, may grant Restricted Stock Units
to any Eligible Person, in such amount and upon such terms as the Board
shall determine. A Grantee shall have no voting rights in Restricted Stock
Units.
9.2
Award Agreement
. Each grant of Restricted Stock Units shall be evidenced by an
Award Agreement that shall specify the Restrictions, the number of Shares
subject to the Restricted Stock Units granted, and such other provisions
as the Plan Committee shall determine in accordance with the Plan and Code
Section 409A. The Plan Committee may impose such Restrictions
on Restricted Stock Units, including time-based Restrictions, Restrictions
based on the achievement of specific performance goals, time-based
Restrictions following the achievement of specific performance goals,
Restrictions based on the occurrence of a specified event, and/or
restrictions under applicable securities laws; provided that in all cases
the Restricted Stock Units shall be subject to a minimum two-year
graduated vesting schedule (50% each year), except, if as provided in the
Award Agreement, in the event of death, Disability, Change of Control,
Termination of Affiliation with Good Reason, or Termination of Affiliation
by the Employer other than for
Cause.
9.3
Crediting Restricted
Stock Units . The Company shall establish an account
(" RSU
Account ") on its books for each Eligible Person who receives a
grant of Restricted Stock Units. Restricted Stock Units shall be credited
to the Grantee's RSU Account as of the Grant Date of such Restricted Stock
Units. RSU Accounts shall be maintained for recordkeeping purposes only
and the Company shall not be obligated to segregate or set aside assets
representing securities or other amounts credited to RSU Accounts. The
obligation to make distributions of securities or other amounts credited
to RSU Accounts shall be an unfunded, unsecured obligation of the
Company.
9.4
Settlement of RSU
Accounts . The Company shall settle an RSU Account by
delivering to the holder thereof (which may be the Grantee or his or her
Beneficiary, as applicable) a number of Shares equal to the whole number
of Shares underlying the Restricted Stock Units then credited to the
Grantee's RSU Account (or a specified portion in the event of any partial
settlement); provided that any fractional Shares underlying Restricted
Stock Units remaining in the RSU Account on the Settlement Date shall be
distributed in cash in an amount equal to the Fair Market Value of a Share
as of the Settlement Date multiplied by the remaining fractional
Restricted Share Unit. The "Settlement Date" for all Restricted
Stock Units credited to a Grantee's RSU Account shall be the date when
Restrictions applicable to an Award of Restricted Stock Units have
lapsed.
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Article
10. Performance Units and Performance Shares
10.1
Grant of Performance
Units and Performance Shares . Subject to the terms of
the Plan, Performance Units or Performance Shares may be granted to any
Eligible Person in such amounts and upon such terms, and at any time and
from time to time, as the Board shall determine. Each grant of
Performance Units or Performance Shares shall be evidenced by an Award
Agreement which shall specify the terms and conditions applicable to the
Performance Units or Performance Shares, as the Board
determines.
10.2
Value/Performance
Goals . Each Performance Unit shall have an initial
value that is established by the Board at the time of grant, that is equal
to the Fair Market Value of a Share on the Grant Date. The
Board shall set the Business Criteria which, depending on the extent to
which they are met, will determine the number or value of Performance
Units or Performance Shares that will be paid to the
Grantee. For purposes of this Article 10, the time period
during which the performance goals must be met shall be called a " Performance
Period ." The Board shall have complete discretion to
establish the performance goals.
10.3
Payment of Performance
Units and Performance Shares . Subject to the terms of
this Plan, after the applicable Performance Period has ended, the holder
of Performance Units or Performance Shares shall be entitled to receive a
payment based on the number and value of Performance Units or Performance
Shares earned by the Grantee over the Performance Period, determined as a
function of the extent to which the corresponding performance goals have
been achieved.
If a
Grantee is promoted, demoted or transferred to a different business unit of the
Company during a Performance Period, then, to the extent the Board determines
appropriate, the Board may adjust, change or eliminate the performance goals or
the applicable Performance Period as it deems appropriate in order to make them
appropriate and comparable to the initial performance goals or Performance
Period.
10.4
Form and Timing of
Payment of Performance Units and Performance Shares
. Payment of earned Performance Units or Performance Shares
shall be made in a lump sum following the close of the applicable
Performance Period. The Board may cause earned Performance
Units or Performance Shares to be paid in cash or in Shares (or in a
combination thereof) which have an aggregate Fair Market Value equal to
the value of the earned Performance Units or Performance Shares at the
close of the applicable Performance Period. Such Shares may be
granted subject to any restrictions deemed appropriate by the
Board. The form of payout of such Awards shall be set forth in
the Award Agreement pertaining to the grant of the
Award.
As
determined by the Board, a Grantee may be entitled to receive any dividends
declared with respect to Shares which have been earned in connection with grants
of Performance Units or Performance Shares but not yet distributed to the
Grantee. In addition, a Grantee may, as determined by the Board, be
entitled to exercise his or her voting rights with respect to such
Shares.
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Article
11. Beneficiary Designation
Each
Grantee under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of the Grantee's death before he or
she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Grantee, shall be in a form prescribed
by the Company, and will be effective only when filed by the Grantee in writing
with the Company during the Grantee's lifetime. In the absence of any
such designation, benefits remaining unpaid at the Grantee's death shall be paid
to the Grantee's estate.
Article
12. Rights of Employees
12.1
Employment
. Nothing in the Plan shall interfere with or limit in any way
the right of the Company to terminate any Grantee's employment at any
time, nor confer upon any Grantee the right to continue in the employ of
the Company.
12.2
Participation
. No employee shall have the right to be selected to receive an
Award, or, having been so selected, to be selected to receive a future
Award.
Article
13. Amendment, Modification, and Termination
13.1
Amendment,
Modification, and Termination . Subject to the terms of
the Plan, the Board of Directors of the Company may at any time and from
time to time, alter, amend, suspend or terminate the Plan in whole or in
part without the approval of the Company's shareholders, except to the
extent the Board of Directors of the Company determines it is desirable to
obtain approval of the Company's shareholders, to retain eligibility for
exemption from the limitations of Code Section 162(m), to have available
the ability for Options to qualify as ISOs, to comply with the
requirements for listing on any exchange where the Company's Shares are
listed, or for any other purpose the Board of Directors of the Company
deems appropriate.
13.2
Adjustments Upon
Certain Unusual or Nonrecurring Events . The Board may
make adjustments in the terms and conditions of Awards in recognition of
unusual or nonrecurring events (including the events described in Section
4.2) affecting the Company or the financial statements of the Company or
of changes in applicable laws, regulations, or accounting principles,
whenever the Board determines that such adjustments are appropriate in
order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the
Plan.
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13.3
Awards Previously
Granted . Notwithstanding any other provision of the
Plan to the contrary (but subject to Section 2.8 and Section 13.2), no
termination, amendment or modification of the Plan shall adversely affect
in any material way any Award previously granted under the Plan, without
the written consent of the Grantee of such Award. Any
adjustment, modification, extension or renewal of an Option shall be
effected such that the Option is either exempt from, or is compliant with,
Code section 409A.
13.4
Adjustments in
Connection with Change of Control . In the event the
Company undergoes a Change of Control or in the event of a separation,
spin-off, sale of a material portion of the Company's assets or any "going
private" transaction under Rule 13e-3 promulgated pursuant to the Exchange
Act and in which a Change of Control does not occur, the Board, or the
board of directors of any corporation assuming the obligations of the
Company, shall have the full power and discretion to prescribe and amend
the terms and conditions for the exercise, or modification, of any
outstanding Awards granted hereunder in the manner as agreed to by the
Board as set forth in the definitive agreement relating to the
transaction. Without limitation, the Board or Plan Committee
may:
(a)
remove
restrictions on Restricted Shares and Restricted Stock
Units;
(b)
modify
the performance requirements for any other
Awards;
(c)
provide
that Options or other Awards granted hereunder must be exercised in
connection with the closing of such transactions, and that if not so
exercised such Awards will expire;
(d)
provide
for the purchase by the Company of any such Award, upon the Grantee's
request, for an amount of cash equal to the amount that could have been
attained upon the exercise of such Award or realization of the Grantee's
rights had such Award been currently exercisable or
payable;
(e)
make
such adjustment to any such Award then outstanding as the Board deems
appropriate to reflect such Change of
Control;
(f)
cause
any such Award then outstanding to be assumed, or new rights substituted
therefore, by the acquiring or surviving corporation after such Change of
Control. Any such determinations by the Board may be made
generally with respect to all Participants, or may be made on a
case-by-case basis with respect to particular
Participants.
Notwithstanding
the foregoing, any transaction undertaken for the purpose of reincorporating the
Company under the laws of another jurisdiction, if such transaction does not
materially affect the beneficial ownership of the Company's Shares, such
transaction shall not constitute a merger, consolidation, major acquisition of
property for stock, separation, reorganization, liquidation, or Change of
Control.
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13.5
Prohibition on
Repricings . Except in connection with a corporate
transaction involving the Company (including, without limitation, any
stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, or exchange of shares), the terms of outstanding
Awards may not be amended to reduce the exercise price of outstanding
Options or SARs or cancel outstanding Options or SARs in exchange for
cash, other Awards or Options or SARs with an exercise price that is less
than the exercise price of the original Options or SARs without
stockholder approval.
Article
14. Withholding
14.1
Mandatory Tax
Withholding.
(a)
Whenever
under the Plan, Shares are to be delivered upon exercise or payment of an
Award, or upon the lapse of Restrictions on an Award, or any other event
with respect to rights and benefits hereunder (the exercise date, date
such Restrictions lapse or such payment of any other benefit or right
occurs hereinafter referred to as the "Tax Date "),
the Company shall be entitled to require and may accommodate the Grantee's
request if so requested, to satisfy all federal, state, local and foreign
tax withholding requirements, including Social Security and Medicare
("FICA ")
taxes related thereto (" Tax
Withholding "), by one or a combination of the following
methods:
(i)
Payment
of an amount in cash equal to the amount to be
withheld;
(ii) Requesting
the Company to withhold from those Shares that would otherwise be received upon
exercise of the Option or the SAR payable in Shares, upon the lapse of
Restrictions on an Award, a number of Shares having a Fair Market Value on the
Tax Date equal to the amount to be withheld; or
(iii) withholding
from compensation otherwise due to the Grantee.
The Board in its sole discretion may
provide that the maximum amount of tax withholding to be satisfied by
withholding Shares pursuant to clause (ii) above shall not exceed the minimum
amount of taxes, including FICA taxes, required to be withheld under federal,
state and local law. An election by Grantee under this subsection is
irrevocable. Any fractional share amount and any additional withholding not paid
by the withholding or surrender of Shares must be paid in cash. If no
timely election is made, the Grantee must deliver cash to satisfy all tax
withholding requirements.
(b)
Any
Grantee who makes a disqualifying disposition of an incentive stock option
granted under the Plan or who makes an election under Section 83(b) of the
Code shall remit to the Company an amount sufficient to satisfy all
resulting Tax Withholding; provided that, in lieu of or in addition to the
foregoing, the Company shall have the right to withhold such Tax
Withholding from compensation otherwise due to the Grantee or from any
Shares or other payment due to the Grantee under the
Plan.
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14.2
Notification under
Code Section 83(b) . If the Grantee, in connection with
the exercise of any Option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such
Grantee's gross income in the year of transfer the amounts specified in
Section 83(b) of the Code, then such Grantee shall notify the Company of
such election within 10 days of filing the notice of the election with the
Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under Section 83(b) of the
Code. The Board may, in connection with the grant of an Award
or at any time thereafter prior to such an election being made, prohibit a
Grantee from making the election described
above.
Article
15. Equity Incentive Plans of Foreign Subsidiaries
The Board
may authorize any foreign Subsidiary to adopt a plan for granting Awards (" Foreign Equity Incentive
Plan "). All awards granted under such Foreign Equity
Incentive Plans shall be treated as grants under the Plan. Such
Foreign Equity Incentive Plans shall have such terms and provisions as the Board
permits not inconsistent with the provisions of the Plan and which may be more
restrictive than those contained in the Plan. Awards granted under
such Foreign Equity Incentive Plans shall be governed by the terms of the Plan
except to the extent that the provisions of the Foreign Equity Incentive Plans
are more restrictive than the terms of the Plan, in which case such terms of the
Foreign Equity Incentive Plans shall control.
Article
16. Additional Provisions
16.1
Successors
. All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise of all or
substantially all of the business or assets of the
Company.
16.2
Gender and
Number . Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine;
the plural shall include the singular and the singular shall include the
plural.
16.3
Severability
. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any
Section or part of a Section so declared to be unlawful or invalid shall,
if possible, be construed in a manner which will give effect to the terms
of such Section or part of a Section to the fullest extent possible while
remaining lawful and valid.
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16.4
Requirements of
Law . The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or stock
exchanges as may be required. Notwithstanding any provision of
the Plan or any Award, Grantees shall not be entitled to exercise, or
receive benefits under, any Award, and the Company shall not be obligated
to deliver any Shares or other benefits to a Grantee, if such exercise or
delivery would constitute a violation by the Grantee or the Company of any
applicable law or regulation.
16.5
Securities Law
Compliance.
(a)
If
the Board deems it necessary to comply with any applicable securities law,
or the requirements of any stock exchange upon which Shares may be listed,
the Board may impose any restriction on Shares acquired pursuant to Awards
under the Plan as it may deem advisable. All certificates for
Shares delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Board may deem advisable under the rules, regulations
and other requirements of the SEC, any stock exchange upon which Shares
are then listed, any applicable securities law, and the Board may cause a
legend or legends to be placed on any such certificates to refer to such
restrictions. If so requested by the Company, the Grantee shall
represent to the Company in writing that he or she will not sell or offer
to sell any Shares unless a registration statement shall be in effect with
respect to such Shares under the Securities Act of 1933 or unless he or
she shall have furnished to the Company evidence satisfactory to the
Company that such registration is not
required.
(b)
If
the Board determines that the exercise of, or delivery of benefits
pursuant to, any Award would violate any applicable provision of
securities laws or the listing requirements of any stock exchange upon
which any of the Company's equity securities are then listed, then the
Board may postpone any such exercise or delivery, as applicable, but the
Company shall use all reasonable efforts to cause such exercise or
delivery to comply with all such provisions at the earliest practicable
date.
16.6
No Rights as a
Shareholder . A Grantee shall not have any rights as a
shareholder with respect to the Shares (other than Restricted Shares)
which may be deliverable upon exercise or payment of such Award until such
shares have been delivered to him or her. Restricted Shares, whether held
by a Grantee or in escrow by the Secretary of the Company, shall confer on
the Grantee all rights of a shareholder of the Company, except as
otherwise provided in the Plan or Award Agreement. Unless otherwise
determined by the Board at the time of a grant of Restricted Shares, any
cash dividends that become payable on Restricted Shares shall be deferred
and, if the Board so determines, reinvested in additional Restricted
Shares. Except as otherwise provided in an Award Agreement, any share
dividends and deferred cash dividends issued with respect to Restricted
Shares shall be subject to the same restrictions and other terms as apply
to the Restricted Shares with respect to which such dividends are issued.
The Board may provide for payment of interest on deferred cash
dividends.
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16.7
Nature of
Payments . Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any
pension, retirement, death or other benefit under (a) any pension,
retirement, profit-sharing, bonus, insurance or other employee benefit
plan of the Company or any Subsidiary or (b) any agreement between (i) the
Company or any Subsidiary and (ii) the Grantee, except as such plan or
agreement shall otherwise expressly
provide.
16.8
Military
Service . Awards shall be administered in accordance
with Section 414(u) of the Code and the Uniformed Services Employment and
Reemployment Rights Act of 1994.
16.9
Governing Law
. The Plan and the rights of any Grantee receiving an Award
thereunder shall be construed and interpreted in accordance with and
governed by the laws of the State of Kansas without giving effect to the
principles of the conflict of laws to the
contrary.
1.1 Establishment and Amendment
of the Plan . Garmin Ltd., a Cayman Islands company (the
“Company”) established the Garmin Ltd. 2000 Non-Employee Directors’ Option Plan
(the “Plan”), effective November 1, 2000 (the “Original Effective Date”) which
was duly approved by the Board of Directors of the Company (the “Board”) on
October 20, 2000 and approved by the Company’s shareholders on October 24,2000. In 2006, the Company effected a two-for-one stock split of the
Company’s Shares (the “Stock Split”). Subject to the approval of the
shareholders of the Company, the Board adopted this amended and restated plan
effective June 5, 2009, (the “New Effective Date”) to increase the authorized
number of common shares that may be issued under the Plan and to make certain
amendments reflecting the Stock Split and changes in the law.
1.2 Objectives of the
Plan . The Plan is intended to allow Eligible Directors of the
Company to acquire or increase equity ownership in the Company, thereby
strengthening their commitment to the success of the Company, aligning their
interests with those of the shareholders of the Company, and to assist the
Company in attracting and retaining experienced and knowledgeable individuals to
serve as directors.
1.3 Duration of the Plan
.. The Plan commenced on the Original Effective Date and shall remain
in effect, subject to the right of the Board to amend or terminate the Plan at
any time pursuant to Article 8 hereof, until the earlier of (a) the 10 year
anniversary of the New Effective Date and (b) the date all Shares subject
to the Plan shall have been delivered according to the Plan’s provisions;
provided that the Plan shall remain in effect with respect to and shall govern
any grants made hereunder including any amounts deferred in connection with such
grants.
Article
2. Definitions
Whenever
used in the Plan, the following terms shall have the meanings set forth
below:
2.1 “ Annual Meeting of
Shareholders” means the regularly scheduled annual meeting of the
Company’s shareholders.
2.2 “Annual Option Grant”
shall mean that portion of the Retainer payable to an Eligible Director in
Options.
2.3 “Article” means an
Article of the Plan.
2.4 “Beneficial Owner” has
the meaning specified in Rule 13d-3 of the SEC under the Exchange
Act.
2.5 “Board” has the
meaning set forth in Section 1.1.
C-2
2.6 “Cause” means,
(i) an Eligible Director’s conviction of a felony or other crime
involving fraud, dishonesty or moral turpitude; (ii) willful or
reckless material misconduct in an Eligible Director’s performance of his or her
duties as a Director; or (iii) an Eligible Director’s habitual neglect of
duties; provided, that
an Eligible Director who agrees to resign his position on the Board in lieu of
being removed for Cause, may be deemed to have been removed for Cause for
purposes of this Plan.
2.7 “Change of Control”
means, unless otherwise defined in an Option Agreement, any one or more of the
following:
(a)
any
Person other than (i) a Subsidiary, (ii) any employee benefit plan (or any
related trust) of the Company or any of its Subsidiaries or (iii) any
Excluded Person, becomes the Beneficial Owner of 35% or more of the common
shares of the Company or of Voting Securities representing 35% or more of
the combined voting power of the Company (such a person or group, a “35% Owner”),
except that (i) no Change of Control shall be deemed to have occurred
solely by reason of such beneficial ownership by a corporation with
respect to which both more than 60% of the common shares of such
corporation and Voting Securities representing more than 60% of the
aggregate voting power of such corporation are then owned, directly or
indirectly, by the persons who were the direct or indirect owners of the
common shares and Voting Securities of the Company immediately before such
acquisition in substantially the same proportions as their ownership,
immediately before such acquisition, of the common shares and Voting
Securities of the Company, as the case may be and (ii) such corporation
shall not be deemed a 35% Owner; or
(b)
the
Incumbent Directors (determined using the Original Effective Date as the
baseline date) cease for any reason to constitute at least a majority of
the directors of the Company then serving;
or
(c)
the
consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of a
merger, reorganization, consolidation, or similar transaction, or the sale
or other disposition of all or substantially all (at least 40%) of the
consolidated assets of the Company or a plan of liquidation of the Company
(any of the foregoing transactions, a “ Reorganization
Transaction”) which is not an Exempt Reorganization
Transaction.
The
definition of “Change of Control” may be amended at any time prior to the
occurrence of a Change of Control, and such amended definition shall be applied
to all Options granted under the Plan whether or not outstanding at the time
such definition is amended, without requiring the consent of any Eligible
Director. Notwithstanding the occurrence of any of the foregoing
events, (a) a Change of Control shall be deemed not to have occurred with
respect to any Section 16 Person if such Section 16 Person is, by agreement
(written or otherwise), a participant on such Section 16 Person’s own behalf in
a transaction which causes the Change of Control to occur and (b) a Change of
Control shall not occur with respect to a Eligible Director if, in advance of
such event, the Eligible Director agrees in writing that such event shall not
constitute a Change of Control.
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2.8 “Code” means the
Internal Revenue Code of 1986, as amended from time to time, and regulations and
rulings thereunder. References to a particular section of the Code include
references to successor provisions of the Code or any successor
statute.
2.9 “Committee” has the
meaning set forth in Article 3.1.
2.10 “Company” has the
meaning set forth in Section 1.1.
2.11 “Disabled” or “Disability” means an
individual (i) is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period
of not less than twelve (12) months or (ii) is, by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months, receiving income replacement benefits for a period of not less than
3 months under a Company-sponsored accident and health plan.
2.12 “Effective Date” has
the meaning set forth in Section 1.1.
2.13 “Eligible Director”
means (i) any individual serving as a director on the Board immediately
following the Annual Meeting of Shareholders of the Company and (ii) any
individual elected or appointed to serve as a director on the Board at some time
other than the Annual Meeting of Shareholders; provided, that a director who
is an officer of the Company or a Subsidiary or otherwise employed by the
Company or a Subsidiary shall not be an Eligible Director.
2.14 “Exchange Act” means
the Securities Exchange Act of 1934, as amended. References to a particular
section of the Exchange Act include references to successor
provisions.
2.15 “Excluded Person”
means any Person who, along with such Person’s Affiliates and Associates (as
such terms are defined in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act) is the Beneficial Owner of 15% or more of the Shares
outstanding as of the Effective Date.
2.16 “ Exempt Reorganization
Transaction” means a Reorganization Transaction which (i) results in the
Persons who were the direct or indirect owners of the outstanding common shares
and Voting Securities of the Company immediately before such Reorganization
Transaction becoming, immediately after the consummation of such Reorganization
Transaction, the direct or indirect owners of both more than 60% of the
then-outstanding common shares of the Surviving Corporation and Voting
Securities representing more than 60% of the aggregate voting power of the
Surviving Corporation, in substantially the same respective proportions as such
Persons’ ownership of the common shares and Voting Securities of the Company
immediately before such Reorganization Transaction, or (ii) after such
transaction, more than 50% of the members of the board of directors of the
Surviving Corporation were Incumbent Directors at the time of the Board’s
approval of the agreement providing for the Reorganization Transaction or other
action of the Board approving the transaction (or whose election or nomination
was approved by a vote of at least two-thirds of the members who were members of
the Board at that time).
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2.17 “Fair Market Value”
means, unless otherwise determined or provided by the Plan Committee in the
circumstances, (A) with respect to any property other than Shares, the fair
market value of such property determined by such methods or procedures as shall
be established from time to time by the Plan Committee, and (B) with respect to
Shares, (i) the last sale price (also referred to as the closing price) of a
Share on such U.S. securities exchange as the Shares are then traded, for the
applicable date, (ii) if such U.S. securities exchange is closed for trading on
such date, or if the Shares do not trade on such date, then the last sales price
used shall be the one on the date the Shares last traded on such U.S. securities
exchange, or (iii) in the event that there shall be no public market for the
Shares, the fair market value of the Shares as determined in good faith by the
Plan Committee using a method consistently applied. Notwithstanding
the above, for all Options granted before June 5, 2009, Fair Market Value for
purposes of establishing the Option Price was established based on the average
of the high and low trading prices on the Nasdaq Global Select Market (or, if no
sale of Shares was reported for such date, on the next preceding date on which a
sale of Shares was reported).
2.18 “Grant Date” has the
meaning set forth in Section 5.1.
2.19 “Including” or “includes” mean
“including, without limitation,” or “includes, without limitation,”
respectively.
2.20 “Incumbent Directors”
means, as of any specified baseline date, individuals then serving as members of
the Board who were members of the Board as of the date immediately preceding
such baseline date; provided that any
subsequently-appointed or elected member of the Board whose election, or
nomination for election by shareholders of the Company or the Surviving
Corporation, as applicable, was approved by a vote or written consent of a
majority of the directors then comprising the Incumbent Directors shall also
thereafter be considered an Incumbent Director, unless the initial assumption of
office of such subsequently-elected or appointed director was in connection with
(i) an actual or threatened election contest, including a consent solicitation,
relating to the election or removal of one or more members of the Board, (ii) a
“tender offer” (as such term is used in Section 14(d) of the Exchange Act), or
(iii) a proposed Reorganization Transaction.
2.21
“ Mandatory Retirement
Age” means the age for mandatory retirement according to the policy of
the Board, if any, in place from time to time.
2.22. “New Effective Date”
has the meaning set forth in Section 1.1.
2.23. “Option” means an
option to purchase Shares.
2.24. “Option Agreement”
means a written agreement by which an Option is evidenced.
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2.25. “Option Price” means
the price at which a Share may be purchased by an Eligible Director pursuant to
an Option.
2.26. “Option Term” means
the period beginning on the Grant Date of an Option and ending on the expiration
date of such Option, as specified in the Option Agreement for such
Option.
2.27. “ Original Effective
Date” has the meaning set forth in Section 1.1.
2.28. “Person” shall have
the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including a “group” as defined in
Section 13(d) thereof.
2.29. “Plan” has the meaning
set forth in Section 1.1.
2.30. "Plan Committee " has
the meaning set forth in Section 3.1.
2.31. “ Reorganization
Transaction” has the meaning set forth in Section 2.8(c).
2.32 “Rule 16b-3” means
Rule 16b-3 promulgated by the SEC under the Exchange
Act, together with any successor rule, as in effect from time
to time.
2.33 “SEC” means the United
States Securities and Exchange Commission, or any successor
thereto.
2.34 “Section” means,
unless the context otherwise requires, a Section of the Plan.
2.35 “Share” means a common
share, $0.005 par value, of the Company.
2.36 “Subsidiary” means
(a) any corporation of which more than 50% of the Voting Securities are at
the time, directly or indirectly, owned by the Company, and (b) any partnership
or limited liability company in which the Company has a direct or indirect
interest (whether in the form of voting power or participation in profits or
capital contribution) of more than 50%.
2.37 “Substitute Options”
has the meaning set forth in Section 8.2.
2.38 “ Surviving
Corporation” means the corporation resulting from a Reorganization
Transaction or, if Voting Securities representing at least 50% of the aggregate
voting power of such resulting corporation are directly or indirectly owned by
another corporation, such other corporation.
2.39 “ Termination of
Affiliation” occurs on the first day on which an individual is for any
reason no longer serving as a Director of the Company.
2.40 “Voting Securities” of
a corporation means securities of such corporation that are entitled to vote
generally in the election of directors, but not including any other class of
securities of such corporation that may have voting power by reason of the
occurrence of a contingency.
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Article
3. Administration
3.1 Committee
.. Subject to Article 9, and to Section 3.2, the Plan shall be
administered by the Board, or a committee of the Board appointed by the Board to
administer the Plan (“Plan Committee”). To the extent the Board
considers it desirable for transactions relating to Options to be eligible to
qualify for an exemption under Rule 16b-3, unless such qualification will be
obtained by another means, the Board may require that the Plan Committee consist
of two or more directors of the Company, all of whom qualify as “non-employee
directors” within the meaning of Rule 16b-3. The number of members of
the Plan Committee shall from time to time be increased or decreased, and shall
be subject to such conditions, including, but not limited to having exclusive
authority to make certain grants of Options or to perform such other acts, in
each case as the Board deems appropriate to permit transactions in Shares
pursuant to the Plan to satisfy such conditions of applicable securities or
other laws then in effect. Any references herein to “Committee” are
references to the Board or the Plan Committee, as applicable.
3.2 Powers of Committee
.. Subject to the express provisions of the Plan, the Committee has
full and final authority and sole discretion as follows:
(a)
to determine the terms and conditions applicable to each
Option, including, but not limited to, the Option Price and the Option
Term;
(b)
to construe and interpret the Plan and to make all determinations necessary or
advisable for the administration of the Plan;
(c)
to make, amend, and rescind rules relating to the Plan, including rules with
respect to the exercisability and nonforfeitability of Options upon the
Termination of Affiliation of an Eligible Director;
(d)
to determine the terms and conditions of all Option Agreements and, with the
consent of the Eligible Director, to amend any such Option Agreement at any
time, among other things, to permit transfers of Options to the extent permitted
by the Plan; provided that the consent of the Eligible Director shall not be
required for any amendment which (i) does not materially adversely affect
the rights of the Eligible Director, or (ii) is necessary or advisable (as
determined by the Committee) to carry out the purpose of the grant of Options as
a result of any new or change in existing applicable law;
(e)
to cancel, with the consent of the Eligible Director, outstanding Options
and to grant new Options in substitution therefore; provided that any
replacement grant that would be considered a repricing shall be subject to
shareholder approval;
(f)
to accelerate the exercisability (including exercisability within a period of
less than six months after the Grant Date) of, and to accelerate or waive any or
all of the terms and conditions applicable to, any Option or any group of other
benefit hereunder for any reason and at any time, including in connection with a
Termination of Affiliation;
(g)
subject to Sections 1.3 and 5.2, to extend the time during which any Option or
other benefit may be exercised;
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(h)
to correct any defect or supply any omission
or reconcile any inconsistency, and construe and interpret the Plan, the rules
and regulations, any Option Agreement or any other instrument entered into or
relating to an Option awarded under the Plan, and to make all determinations,
including factual determinations, necessary or advisable for the administration
of the Plan;
(i)
to delegate to officers, employees or independent
contractors of the Company matters involving the routine administration of the
Plan and which are not specifically required by any provision of this Plan to be
performed by the Committee;
(j)
to impose such additional terms and conditions upon the
grant, exercise or retention of Options and other grants as the Committee may,
before or concurrently with the grant thereof, deem appropriate;
and
(k)
to take any other action with respect to any matters relating to the Plan for
which it is responsible.
All
determinations on any matter relating to the Plan, any Option Agreement or other
agreement under the Plan may be made in the sole and absolute discretion of the
Committee, and all such determinations of the Committee shall be final,
conclusive and binding on all Persons. No member of the Committee shall be
liable for any action or determination made with respect to the Plan or any
Annual Option Grant.
3.3 Majority Rule
.. A majority of the members of the Committee shall constitute a
quorum, and any action taken by a majority present at a meeting at which a
quorum is present or any action taken without a meeting evidenced by a writing
executed by a majority of the whole Committee shall constitute the action of the
Committee.
3.4 Company Assistance
.. The Company shall supply full and timely information to the
Committee on all matters relating to Eligible Directors and such pertinent facts
related thereto as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
3.5 Plan Operation in
Compliance with Rule 16b-3 of the 1934 Act. The
Plan shall be interpreted and administered to comply with Rule 16b-3 promulgated
under the 1934 Act, as then applicable to the Company’s employee benefit
plans.
Article
4. Shares Subject to the Plan
4.1 Number of Shares
Available.
Subject to adjustment as provided in Section 4.2, the number of Shares hereby
reserved for delivery under the Plan is 250,000 Shares. If any Shares
subject to an option granted hereunder are forfeited or an option or any portion
thereof otherwise terminates or is settled without the issuance of Shares, the
Shares subject to such option, to the extent of any such forfeiture, termination
or settlement, shall again be available for grant under the Plan. The
Committee may from time to time determine the appropriate methodology for
calculating the number of Shares issued pursuant to the Plan.
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4.2 Adjustments in Authorized
Shares . In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, subdivision, consolidation or reduction of capital, reorganization,
merger, scheme of arrangement, split-up, spin-off or combination involving the
Company or repurchase or exchange of Shares or other rights to purchase Shares
or other securities of the Company, or other similar corporate transaction or
event affects the Shares such that any adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or property of the
Company or any Person that is a party to a Reorganization Transaction with the
Company) with respect to which Options or Shares may be granted, (ii) the
number and type of Shares (or other securities or property of the Company or any
Person that is a party to a Reorganization Transaction with the Company) subject
to outstanding Options, and (iii) the grant or exercise price with respect to
any Option or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Option or the substitution of other property for Shares
subject to an outstanding Option; provided, that the number of
Shares subject to any Option denominated in Shares shall always be a whole
number.
4.3 Newly Issued Shares
.. Shares delivered in connection with Options may only be newly
issued Shares.
Article
5. General Conditions of Options
5.1 Grant Date
.. The Grant Date of Options received pursuant to an Annual Option
Grant shall be the date of the Annual Meeting of Shareholders in the calendar
year to which such grant relates or such later date as specified by the
Committee (i) in the Committee’s resolutions or minutes addressing the Option
grant or (ii) in the Option Agreement. In the case of an Eligible
Director who is initially appointed or elected on a date other than the date of
an Annual Meeting of Shareholders, the Grant Date of such initial (prorata)
Annual Option Grant shall be the first day such Eligible Director becomes an
Eligible Director.
5.2 Term . The
Option Term shall be 10 years from the Grant Date, and shall be subject to
earlier termination as herein specified; provided, that any deferral
of the delivery of Shares with respect to an Option that is exercised within 10
years of the Grant Date may, if so permitted, extend more than 10 years after
the Grant Date of the Annual Option Grant to which the deferral
relates.
5.3 Option Agreement
.. The terms and conditions of each Option shall be set forth in an
Option Agreement.
5.4 Option Price
.. The Option Price of an Option under this Plan shall be 100% of the
Fair Market Value of a Share on the Grant Date; provided, however, that any
Option granted as a Substitute Option that is (x) granted to an Eligible
Director in connection with the acquisition (“Acquisition”), however effected,
by the Company of another corporation or entity (“Acquired Entity”) or the
assets thereof, (y) associated with an option to purchase shares of stock or
other equity interest of the Acquired Entity or an affiliate thereof (“Acquired
Entity Option”) held by such Eligible Director immediately prior to such
Acquisition, and (z) intended to preserve for the Eligible Director the economic
value of all or a portion of such Acquired Entity Option, shall be granted such
that such option substitution is completed in conformity with the rules set
forth in Section 424(a) of the Code.
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5.5 Restrictions on Share
Transferability . The Committee may include in the Option
Agreement such restrictions on any Shares acquired pursuant to the exercise or
vesting of an Option as it may deem advisable, including restrictions under
applicable federal securities laws.
5.6 Exercise of Options
.. Unless otherwise specified in the Option Agreement, Options shall
become exercisable in accordance with the following table, or if sooner, shall
become fully exercisable on the earliest of the first to occur of the Eligible
Director’s (a) death, (b) Termination of Affiliation on account of
Disability, (c) mandatory retirement upon attaining Mandatory Retirement
Age, (d) Termination of Affiliation after a Change of Control under the
conditions described in Section 8.1, and (e) involuntary Termination of
Affiliation as described in Section 5.8(c).
5.7 Payment
.. Options shall be exercised by the delivery of a written notice of
exercise to the Company or its designee, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares made by cash, personal check or wire transfer or, subject to the
approval of the Committee, pursuant to procedures approved by the
Committee,
(a) through
the sale of the Shares acquired on exercise of the Option through a
broker-dealer to whom the Eligible Director has submitted an irrevocable notice
of exercise and irrevocable instructions to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay for such Shares;
(b) through
simultaneous sale through a broker of Shares acquired on exercise, as permitted
under Regulation T of the Federal Reserve Board;
(c) by
delivery to the Company of number of Shares then owned by the Eligible Director,
the Fair Market Value of which equals the purchase price of the Shares purchased
in connection with the Option exercise, properly authorized or endorsed for
transfer to the Company; provided however, that Shares used for this purpose
must have been held by the Eligible Director for such minimum period of time as
may be established from time to time by the Board; and provided further that the
Fair Market Value of any Shares delivered in payment of the purchase price upon
exercise of the Options shall be the Fair Market Value as of the exercise date,
which shall be the date of delivery of the Shares used as payment of the
exercise price. For purposes of this Section 5.7(c), in lieu of
actually surrendering to the Company the number of Shares then owned by the
Eligible Director, the Board may, in its discretion permit the Eligible Director
to submit to the Company a statement affirming ownership by the Eligible
Director of such number of Shares and request that such Shares, although not
actually surrendered, be deemed to have been surrendered by the Eligible
Director as payment of the exercise price, or
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(d) by
a “net exercise” arrangement pursuant to which the Company will not require a
payment of the Option Price but will reduce the number of Shares upon the
exercise by the largest number of whole shares that has a Fair Market Value on
the date of exercise that does not exceed the aggregate Option
Price. With respect to any remaining balance of the aggregate option
price, the Company will accept a cash payment from the Eligible
Director.
5.8 Termination of
Affiliation . Except as otherwise provided in an Option
Agreement (including an Option Agreement as amended by the Committee), and
subject to the provisions of Section 8.1, the extent to which the
Eligible Director shall have the right to exercise, an Option following
Termination of Affiliation shall be determined in accordance with this Section
5.8.
(a)
For Cause
.. If an Eligible Director has a Termination of Affiliation for Cause
any unexercised Option shall terminate effective immediately upon such
Termination of Affiliation for Cause.
(b)
On Account of Death,
Disability, Retirement or Mandatory Retirement . If an
Eligible Director has a Termination of Affiliation on account of death,
Disability, or retirement upon attaining Mandatory Retirement Age, any
unexercised Option, whether or not exercisable immediately before such
Termination of Affiliation, may be exercised, in whole or in part, for a period
of one year after such Termination of Affiliation (but only during the Option
Term) by the Eligible Director or, after his or her death, by (i) his or her
personal representative or the person to whom the Option is transferred by will
or the applicable laws of descent and distribution, or (ii) the Eligible
Director’s beneficiary designated in accordance with Article 7.
(c)
Involuntary
Removal . If an Eligible Director is removed by the Company
other than for Cause including, but not limited to, the Company’s decision not
to slate such Eligible Director for reelection, any unexercised Option whether
or not exercisable
immediately before such Termination of Affiliation, may be exercised in whole or
in part, at any time within the first twelve (12) months following such
Termination of Affiliation (but only during the Option Term) by the Eligible
Director or, after his death or her death, by (i) his or her personal
representative or the person to whom the Option is transferred by will or the
applicable laws of descent or distribution, or (ii) the Eligible Director’s
beneficiary designated in accordance with Article 7.
(d)
Any Other
Reason . If an Eligible Director has a Termination of
Affiliation for any other reason including, but not limited to, failure to be
reelected to the Board or voluntary resignation including failure to run for
reelection, any unexercised Option to the extent exercisable immediately before
such Termination of Affiliation, shall remain exercisable in whole or in part
for six (6) months
after such Termination of Affiliation (but only during the Option Term) by the
Eligible Director or, after his or her death, by (i) his or her personal
representative or the person to whom the Option is transferred by will or the
applicable laws of descent and distribution, or (ii) the Eligible Director’s
beneficiary designated in accordance with Article 7.
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5.9 Nontransferability of
Option Grants.
(a)
Except as provided in Section 5.9(c) below, each Option shall be exercisable
only by the Eligible Director during the Eligible Director’s lifetime, or, if
permissible under applicable law, by the Eligible Director’s guardian or legal
representative.
(b)
Except as provided in Section 5.9(c) below, no Option (prior to the time Shares
are issued) may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Eligible Director otherwise than by will or by
the laws of descent and distribution, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Subsidiary; provided, that the
designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
(c)
To the extent and in the manner permitted by the Committee, and subject to such
terms and conditions as may be prescribed by the Committee, an Eligible Director
may transfer an Option to (a) a child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Eligible Director, (including adoptive relationships), (b)
any person sharing the Eligible Director’s household (other than a tenant or
employee), (c) a trust in which persons described in (a) or (b) have more than
50% of the beneficial interest, (d) a foundation in which persons described in
(a) or (b) or the Eligible Director own more than 50% of the voting interests;
provided such transfer is not for value. The following shall not be
considered transfers for value: (i) a transfer under a domestic
relations order in settlement of marital property rights; and (ii) a transfer to
an entity in which more than 50% of the voting interests are owned by persons
described in (a) or (b) above or the Eligible Director, in exchange for an
interest in that entity.
Article
6. Annual Option Grant Program
6.1 Subject
to the terms and provisions of this Plan, commencing on the Effective Date and thereafter
immediately following the Annual Meeting of Shareholders in each subsequent
year, each Eligible Director shall automatically receive an Option to purchase a
number of Shares equal to (a) divided by (b) where: (a) equals four
(4) times the dollar amount of the Eligible Director’s annual retainer for
service on the Board and (b) equals the Fair Market Value of Shares as of the
date of the Annual Meeting of Shareholders; provided , that fractional
Shares shall be rounded up to the next larger whole number of
Shares. An Eligible Director who is not initially elected at the
Annual Meeting of Shareholders shall, within ten (10) days of becoming an
Eligible Director, receive a pro rata Annual Option Grant for the year of such
initial election or appointment. Such pro rata Annual Option Grant
shall be for a number of Shares equal to four (4) times the dollar amount of the
full annual retainer for an Eligible Director, divided by the Fair Market Value
of a Share as of the Grant Date multiplied by a fraction, the numerator of which
is 365 minus the number of days elapsed after the most recent prior Annual
Meeting of Shareholders and before the Eligible Director’s election or
appointment and the denominator of which is 365, provided that fractional
Shares shall be rounded up to the next larger whole number of
Shares.
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6.2 The
Annual Option Grant Program set forth above in section 6.1 will be reviewed
annually but will remain in effect until changed by the Company’s Board of
Directors.
Article
7. Beneficiary Designation
7.1 Each
Eligible Director under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Eligible Director, shall be in a form prescribed
by the Company, and will be effective only when filed by the Eligible Director
in writing with the Company during the Eligible Director’s lifetime. In the
absence of any such designation, benefits remaining unpaid at the Eligible
Director’s death shall be paid to the Eligible Director’s estate.
Article
8. Change of Control and Certain Corporate Transactions
8.1 Change of Control
.. If an Eligible Director, upon a Change of Control or within
one year thereafter, (a) is removed by the Company other than for
Cause, or (b) fails to be reelected to the Board after being slated for
reelection, or (c) is not slated for reelection, having expressed a
willingness to be so slated, and if such Eligible Director has not reached
Mandatory Retirement Age as of the date of such termination, and would not have
reached Mandatory Retirement Age during his or her ensuing term as a Director if
he or she were to be elected, then any unexercised Option, whether or not
exercisable on the date of such termination, shall become fully exercisable and
may be exercised, in whole or in part for the balance of its original
term.
8.2 Substituting Options in
Certain Corporate Transactions . In connection with the
Company’s acquisition, however effected, of another corporation or entity (the
“Acquired Entity”) or the assets thereof, the Committee may, at its discretion,
grant Options (“Substitute Options”) to a person who becomes an Eligible
Director in connection with such acquisition and who held options or other
equity interests in such Acquired Entity (“Acquired Entity Option”) immediately
prior to such Acquisition in order to preserve for such Eligible Director the
economic value of all or a portion of such Acquired Entity Option at such price
as the Committee determines necessary to achieve preservation of economic
value. Any Shares delivered pursuant to substitute options under this
section shall be in addition to the Shares under Section 4.1
hereof. Any grant of a Substitute Option shall be made in conformity
with the rules set forth in Section 424(a) of the Code.
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Article
9. Amendment, Modification, and Termination
9.1 Amendment, Modification,
and Termination . Subject to the terms of the Plan, the Board
may at any time and from time to time, alter, amend, suspend or terminate the
Plan in whole or in part without the approval of the Company’s
shareholders.
9.2 Adjustments Upon Certain
Unusual or Nonrecurring Events . The Committee may make
adjustments in the terms and conditions of Options in recognition of unusual or
nonrecurring events (including the events described in Section 4.2) affecting
the Company or the financial statements of the Company or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
9.3 Options Previously
Granted . Notwithstanding any other provision of the Plan to
the contrary, no termination, amendment or modification of the Plan shall
adversely affect in any material way any Option previously granted under the
Plan, without the written consent of the Eligible Director who holds such
Option, provided that to the extent any Option shall be adversely affected by
any amendment or restatement to the Plan, the provisions of the Plan in effect
as of the Grant Date of such Option shall prevail.
9.4 Adjustments in Connection
with Change of Control . In the event the Company undergoes a
Change of Control or in the event of a separation, spin-off, sale of a material
portion of the Company’s assets or any “going private” transaction under Rule
13e-3 promulgated pursuant to the Exchange Act and in which a Change of Control
does not occur, the Board, or the board of directors of any corporation assuming
the obligations of the Company, shall have the full power and discretion to
prescribe and amend the terms and conditions for the exercise, or modification,
of any outstanding Options granted hereunder in the manner as agreed to by the
Board as set forth in the definitive agreement relating to the
transaction. Without limitation, the Board may:
(a) provide
that Options granted hereunder must be exercised in connection with the closing
of such transactions, and that if not so exercised such Options will
expire;
(b) provide
for the purchase by the Company of any such Option, upon the Eligible Director’s
request, for an amount of cash equal to the amount that could have been attained
upon the exercise of such Option had such Option been currently exercisable or
payable;
(c) make
such adjustment to any such Option then outstanding as the Board deems
appropriate to reflect such Change of Control;
(d) cause
any such Option then outstanding to be assumed, or new rights substituted
therefore, by the acquiring or surviving corporation after such Change of
Control. Any such determinations by the Board may be made generally
with respect to all Eligible Directors, or may be made on a case-by-case basis
with respect to particular Eligible Director.
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Notwithstanding
the foregoing, any transaction undertaken for the purpose of reincorporating the
Company under the laws of another jurisdiction, if such transaction does not
materially affect the beneficial ownership of the Company’s Shares, such
transaction shall not constitute a merger, consolidation, major acquisition of
property for stock, separation, reorganization, liquidation, or Change of
Control.
9.5 Prohibition on
Repricings . Except in connection with a corporate transaction
involving the Company (including, without limitation, any stock dividend, stock
split, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, or exchange of shares), the
terms of outstanding Options may not be amended to reduce the exercise price of
outstanding Options or cancel outstanding Options in exchange for cash, or other
Options with an exercise price that is less than the exercise price of the
original Options without stockholder approval.
Article
10. Additional Provisions
10.1 Successors
.. All obligations of the Company under the Plan with respect to
benefits granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise of all or substantially all of the
business or assets of the Company.
10.2 Gender and Number
.. Except where otherwise indicated by the context, any masculine term
used herein also shall include the feminine; the plural shall include the
singular and the singular shall include the plural.
10.3 Severability
.. If any part of the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
invalidate any other part of the Plan. Any Section or part of a Section so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such Section or part of a Section to the
fullest extent possible while remaining lawful and valid.
10.4 Requirements of Law
.. The granting of Options and the issuance of Shares under the Plan
shall be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or stock exchanges as may be required.
Notwithstanding any provision of the Plan or any Option Agreement, Eligible
Directors shall not be entitled to exercise and the Company shall not be
obligated to deliver any Shares or other benefits to an Eligible Director, if
such exercise or delivery would constitute a violation by the Eligible Director
or the Company of any applicable law or regulation.
10.5 Securities Law
Compliance.
(a) If the
Committee deems it necessary to comply with any applicable securities law, or
the requirements of any stock exchange upon which Shares may be listed, the
Committee may impose any restriction on Shares acquired pursuant to grants
hereunder as it may deem advisable. All certificates for Shares
delivered under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the SEC, any stock exchange upon which Shares are then
listed, any applicable securities law, and the Committee may cause a legend or
legends to be placed on any such certificates to refer to such restrictions. If
so requested by the Company, the Eligible Director shall represent to the
Company in writing that he or she will not sell or offer to sell any Shares
unless a registration statement shall be in effect with respect to such Shares
under the Securities Act of 1933 or unless he or she shall have furnished to the
Company evidence satisfactory to the Company that such registration is not
required.
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(b) If the
Committee determines that the exercise of, or delivery of Shares would violate
any applicable provision of securities laws or the listing requirements of any
stock exchange upon which any of the Company’s equity securities are then
listed, then the Committee may postpone any such exercise or delivery, as
applicable, but the Company shall use all reasonable efforts to cause such
exercise or delivery to comply with all such provisions at the earliest
practicable date.
10.6 No Rights as a
Shareholder . An Eligible Director shall not have any rights
as a shareholder with respect to the Shares which may be deliverable until such
shares have been delivered to him or her.
10.7 Military Service
.. Options shall be administered in accordance with Section 414(u) of
the Code and the Uniformed Services Employment and Reemployment Rights Act of
1994.
10.8 Governing Law
.. The Plan and the rights of any Eligible Director receiving an
Option award thereunder shall be construed and interpreted in accordance with
and governed by the laws of the State of Kansas without giving effect to the
principles of the conflict of laws to the contrary.
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Dates Referenced Herein and Documents Incorporated by Reference