UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
HYDRON TECHNOLOGIES, INC.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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Notes:
HYDRON TECHNOLOGIES, INC.
2201 West Sample Road
Building 9, Suite 7B
Pompano Beach, Florida 33073
NOTICE OF MEETING OF SHAREHOLDERS
To the Shareholders of Hydron Technologies, Inc.:
Notice is hereby given that the Meeting of Shareholders (together with
adjournments or postponements thereof, the "Meeting") of Hydron Technologies,
Inc., a New York corporation (the "Company"), will be held at 1:30 p.m., local
time, on Monday, November 15, 2004, at the Courtyard by Marriott, 2000 NW
Executive Center Court, Boca Raton, Florida 33431, for the purpose of
considering and voting upon the following matters:
1. to elect a board of four directors to serve until the Company's next
meeting of shareholders and until their successors are elected and
qualified;
2. to approve the company's 2003 Stock Plan;
3. to ratify the appointment of DaszkalBolton LLP as the independent
auditors of the Company for the year ended December 31, 2004; and
4. to transact such other business as may properly come before the
Meeting.
These items are more fully described in the accompanying Proxy Statement, which
is hereby made a part of this Notice of Meeting of Shareholders. The Board of
Directors of the Company has fixed the close of business on September 16, 2004,
as the record date for determination of shareholders entitled to notice of, and
to vote at, the Meeting. Only those shareholders of record as of the close of
business on that date will be entitled to vote at the meeting.
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 2003 (the "Annual Report") is enclosed. The Annual Report is not a part of
the proxy soliciting material enclosed with this notice.
By order of the Board of Directors,
Richard Banakus
Chairman of the Board,
Interim President, and
Chief Executive Officer
Pompano Beach, Florida
October 1, 2004
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN,
AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE
YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (which is postage prepaid
if mailed in the United States) IS ENCLOSED FOR THAT PURPOSE.
TABLE OF CONTENTS
PAGE NO.
PROXY STATEMENT 2004 MEETING OF SHAREHOLDERS OF HYDRON TECHNOLOGIES, INC.
INFORMATION CONCERNING SOLICITATION AND VOTING ........................................... 1
GENERAL INFORMATION ABOUT THE MEETING .................................................... 1
WHO MAY VOTE ............................................................................. 1
VOTING YOUR PROXY ........................................................................ 1
VOTES NEEDED TO HOLD THE MEETING ......................................................... 2
MATTERS TO BE VOTED ON AT THE MEETING .................................................... 2
COST OF PROXY SOLICITATION ............................................................... 2
ATTENDING THE MEETING .................................................................... 3
CHANGING YOUR VOTE ....................................................................... 3
VOTING RECOMMENDATIONS ................................................................... 3
HOW TO OBTAIN A SEPARATE SET OF VOTING MATERIALS ......................................... 3
PROPOSAL 1: ELECTION OF DIRECTORS
INFORMATION REGARDING DIRECTOR NOMINEES .................................................. 4
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES ........................................... 5
DIRECTOR COMPENSATION .................................................................... 6
VOTE REQUIRED ............................................................................ 7
BOARD RECOMMENDATION ..................................................................... 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT ......................................................... 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER ........................................... 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION ..................................................................... 9
OPTION GRANTS IN LAST YEAR ............................................................... 10
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES ................................... 10
COMPENSATION OF CHIEF EXECUTIVE OFFICER .................................................. 11
PERFORMANCE GRAPH ........................................................................ 11
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE .................................. 11
PROPOSAL 2: APPROVAL OF HYDRON TECHNOLOGIES, INC. 2003 STOCK PLAN
PURPOSE OF THE PLAN ...................................................................... 12
SHARES SUBJECT TO THE PLAN ............................................................... 12
ADMINISTRATION OF THE PLAN ............................................................... 12
ELIGIBILITY .............................................................................. 12
STOCK SUBJECT TO THE PLAN ................................................................ 12
TERM AND CONDITIONS OF AWARDS OR SALES ................................................... 13
TERMS AND CONDITIONS OF OPTIONS .......................................................... 14
DURATION AND AMENDMENTS .................................................................. 16
EFFECT OF AMENDMENT OR TERMINATION ....................................................... 17
VOTE REQUIRED ............................................................................ 17
TABLE OF CONTENTS
PAGE NO.
BOARD RECOMMENDATION ..................................................................... 17
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS
GENERAL .................................................................................. 18
VOTE REQUIRED ............................................................................ 18
BOARD RECOMMENDATION ..................................................................... 18
AUDIT AND NON-AUDIT FEES .......................................................................... 19
REPORT OF THE AUDIT COMMITTEE ..................................................................... 20
SHAREHOLDER PROPOSALS ............................................................................. 22
ATTACHMENT A: AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS CHARTER STATEMENT ....................................................................... A-1
ATTACHMENT B: 2003 STOCK PLAN ..................................................................... B-1
PROXY STATEMENT
2004 MEETING OF SHAREHOLDERS
HYDRON TECHNOLOGIES, INC.
TO BE HELD NOVEMBER 15, 2004
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HYDRON TECHNOLOGIES, INC.)
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement and the accompanying form of proxy are being furnished to
the shareholders of Hydron Technologies, Inc., a New York Corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board) from holders of the Company's outstanding
Common Stock, for use at the Meeting of Shareholders of the Company (together
with any adjournments or postponements thereof, the "Meeting) to be held at 1:30
p.m., local time, on Monday, November 15, 2004, at the Courtyard by Marriott,
2000 NW Executive Center Court, Boca Raton, Florida 33431. This Proxy Statement,
the accompanying form of proxy and the Company's Annual Report on Form 10-K for
the year ended December 31, 2003 (the "Annual Report") are expected to be mailed
to the shareholders of record of the Company on or about October 10, 2004.
Your vote is very important. For this reason, our Board of Directors (the
"Board") is requesting that you permit your common shares to be represented at
the 2004 Meeting of the Shareholders (the "Meeting") by the proxies named on the
enclosed proxy card. This proxy statement contains important information for you
to consider when deciding how to vote on the matters set forth in the
accompanying notice and otherwise properly brought before the Meeting or any
adjournments, or postponements thereof. Please read it carefully.
Voting materials, which include the proxy statement, proxy card and the annual
report on Form 10-K for the calendar year ended December 31, 2003, are included
herein. Hydron's principal executive offices are located at 2201 West Sample
Road, Building 9, Suite 7B, Pompano Beach, FL 33073. Hydron's telephone number
is (954) 861-6400. In this proxy statement Hydron Technologies, Inc. is referred
to as "Company" and "Hydron."
GENERAL INFORMATION ABOUT THE MEETING
WHO MAY VOTE
You may vote your Hydron common stock if our records show that you owned your
shares on September 16, 2004. At the close of business on that date, 9,260,136
shares of Hydron common stock were outstanding and eligible to vote. You may
cast one vote for each share of common stock held by you on all matters
presented.
VOTING YOUR PROXY
Whether you hold shares in your name or through a broker, bank, or other
nominee, you may vote without attending the meeting. You may vote by granting a
proxy or, for shares held through a broker, bank, or other nominee, by
submitting voting instructions to that nominee. Instructions for voting by mail
are on your proxy card. For shares held through a broker, bank, or other
nominee, follow the instructions on the voting instruction card included with
your voting materials. If you provide specific voting instructions, your shares
will be voted as you have instructed and as the proxy holders may determine
within their discretion with respect to any other matters that come before the
Meeting.
1
If you hold shares in your name, and you sign and return a proxy card without
giving specific voting instructions, your shares will be voted as recommended by
our Board on all matters and as the proxy holders may determine in their
discretion with respect to any other matters that properly come before the
meeting. If you hold your shares through a broker, bank or other nominee and you
do not provide instructions on how to vote, your broker or other nominee may
have authority to vote your shares on certain matters. The New York Stock
Exchange ("NYSE") issued new regulations prohibiting brokers or other nominees
that are NYSE member organizations from voting in favor of proposals relating to
equity compensation plans unless they receive specific instructions from the
beneficial owner of the shares to vote in that manner. National Association of
Securities Dealers, Inc. ("NASD") member brokers are also prohibited from voting
on such proposals without specific instructions from beneficial holders. The new
NYSE rule became effective on June 30, 2003, and, accordingly, all shares that
you hold through a broker or other nominee who is a NASD or NYSE member
organization will only be voted on Proposal 2 if you have provided specific
instructions to your broker or other nominee to vote your shares on that
proposal. See "Vote Required" following each proposal for further information.
VOTES NEEDED TO HOLD THE MEETING
The Meeting will be held if a majority of Hydron's outstanding shares on the
record date entitled to vote is represented at the meeting. This is called a
quorum. Your shares will be counted for purposes of determining if there is a
quorum, even if you wish to abstain from voting on some or all matters
introduced at the Meeting, if you:
o are present and vote in person at the meeting; or
o have properly submitted a proxy card.
MATTERS TO BE VOTED ON AT THE MEETING
The following proposals will be presented for your consideration at the Meeting:
o election of four members of the Board;
o approval of the Company's 2003 Stock Plan;
o ratification of the appointment of DaszkalBolton LLP as our
independent auditors for the year ending December 31, 2004; and
o any other matters that may properly be brought before the Meeting or
any adjournments or postponements thereof.
COST OF THE PROXY SOLICITATION
Hydron will pay the cost of the solicitation of proxies. The Company may also
reimburse brokerage firms and other persons representing beneficial owners of
shares for expenses incurred in forwarding the voting materials to their
customers who are beneficial owners and obtaining their voting instructions. In
addition to soliciting proxies by mail, our board members, officers, and
employees may solicit proxies on our behalf, without additional compensation,
personally or by phone.
2
ATTENDING THE MEETING
You may vote shares held directly in your name in person at the meeting. If you
want to vote shares that you hold in street name at the Meeting, you must
request a legal proxy from your broker, bank, or other nominee that holds your
shares.
CHANGING YOUR VOTE
You may revoke your proxy and change your vote at any time before the final vote
at the Meeting. You may do this by signing a new proxy card with a later date,
or by attending the Meeting and voting in person. However, your attendance at
the Meeting will not automatically revoke your proxy; you must specifically
revoke your proxy. See also "General Information about the Meeting - Voting Your
Proxy" above for further instructions.
VOTING RECOMMENDATIONS
Our Board recommends that you vote:
o "FOR" each nominee to the Board;
o "FOR" adoption of the Company's 2003 Stock Plan; and
o "FOR" ratification of the appointment of DaszkalBolton LLP as our
independent auditors for the year ending December 31, 2004.
HOW TO OBTAIN AN ADDITIONAL SET OF VOTING MATERIALS
You may receive a copy of the proxy statement, proxy card, and the annual report
on Form 10-K for the year ended December 31, 2003 at no cost to you by calling
(954) 861-6400 or by writing to Hydron Technologies, Inc., 2201 West Sample
Road, Building 9, Suite 7B, Pompano Beach, FL 33073.
3
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Directors are to be elected to serve until the Company's next Meeting of
Shareholders or until their respective successors shall be duly elected and
qualified. The Board has nominated Richard Banakus, Joshua Rochlin, Karen Gray,
and Ronald J. Saul (each of whom is a member of the present Board) to serve as
Directors of the Company until the Company's next Meeting of Shareholders or
until their respective successors shall be duly elected and qualified. Three of
the Director nominees are independent directors, as defined by the listing
standards of the Nasdaq Stock Market ("Nasdaq") for securities designated
national market system securities.
Unless otherwise specified, all proxies will be voted in favor of the four (4)
nominees listed above as Directors of the Company. If any nominee should
subsequently become unavailable for election, the persons voting the
accompanying proxy may in their discretion vote for a substitute. Directors are
elected by a plurality of the votes cast.
All nominees are currently Directors and each nominee has agreed to be named in
this proxy statement and to serve if elected.
INFORMATION REGARDING DIRECTOR NOMINEES
Nominee Age Office Director Since
---------------- ----- ----------------------------------- ----------------
Richard Banakus 58 Chairman, CEO and Interim President June 1995
Joshua Rochlin 38 Director January 2000
Karen Gray 46 Director December 1997
Ronald J. Saul 57 Director January 2003
RICHARD BANAKUS
CHAIRMAN OF THE BOARD OF DIRECTORS, INTERIM PRESIDENT AND CHIEF EXECUTIVE
OFFICER, HYDRON TECHNOLOGIES, INC.
Mr. Banakus has served as a director of the Company since June 1995 and as
Interim President of the Company since September 19, 1997. From April 1991 to
the present, Mr. Banakus has been a private investor with interests in a number
of privately and publicly held companies. From July 1988 through March 1991, he
was managing partner of Banyan Securities, Larkspur, California, a securities
brokerage firm that he founded.
JOSHUA ROCHLIN
VICE PRESIDENT OF STRATEGY AND SPECIAL PROJECTS, MARC ECKO ENTERPRISES
Mr. Rochlin has served as director of the Company since January 2000. Mr.
Rochlin joined Marc Ecko Enterprises, a producer of fashion based streetwear and
accessories, in June 2004 as the Vice President, Strategy and Special Projects.
He was Senior Vice President of Business Development at GoAmerica, a wireless
Internet service provider, from 1999 to 2004. Prior to joining GoAmerica, Mr.
Rochlin was the founder and Chief Executive Officer of MyCalendar.com, LLC from
December 1998 to December 1999. He previously served as an associate for the law
firm of Rubin Baum Levin Constant & Friedman in New York City from February 1995
to December 1998.
4
KAREN GRAY
MARKETING COMMUNICATIONS CONSULTANT
Ms. Gray has served as a director of the Company since December 1997 and was a
consultant to the Company on marketing and communications matters from November
1996 to December 1999. Ms. Gray has over 17 years of management experience in
marketing communications in various capacities with various companies. From 1993
to November 1996, Ms. Gray served as Vice President, Corporate Communications,
of the Company. From June 1992 to November 1993, Ms. Gray served as President of
MarCom Associates, Inc., a marketing communications company that she founded.
RONALD J. SAUL
FINANCIAL CONSULTANT
Mr. Saul has served as a director of the Company since January 2003. From
September 1992 to the present, Mr. Saul has been a financial consultant. Mr.
Saul was Vice President of National Intergroup, Inc. from January 1989 through
August 1992, and Treasurer from October 1985 through December 1988. National
Intergroup was an American holding company established to facilitate the
diversification of National Steel Corporation. Mr. Saul held various accounting
and financial positions with National Intergroup Inc. and National Steel
Corporation from November 1970 to September 1985.
INFORMATION ABOUT THE BOARD AND COMMITTEES
The Board and its committees meet throughout the year and act by written consent
from time to time as appropriate. During 2003, the Board held eleven meetings.
Each Director attended at least seventy-five percent of the aggregate number of
meetings of the Board and committees on which such Directors served during 2003.
The Board has an Audit Committee and its charter, which was amended during 2003
as a result of the Sarbanes-Oxley Act of 2002 and new rules and regulations
issued by the Securities and Exchange Commission ("SEC") and recommended by the
Nasdaq National Market, is attached hereto as Attachment A. All members of the
Committee are independent directors as required by the Nasdaq's listing
standards for national market systems securities.
The members of the Audit Committee are Joshua Rochlin and Ronald J. Saul. The
Committee met four times in 2003 and three times in 2004. The Board has
determined that Mr. Saul is an independent Director and qualifies as the "audit
committee financial expert" as the term is defined in Item 401(h) of Regulation
S-K of the Securities Exchange Act of 1934, as amended (the "34 Act"). Among
other matters, the Committee:
o hires and replaces independent auditors as appropriate;
o evaluates performance of, independence of, and pre-approves the
non-audit services provided by independent auditors;
o discusses with management and the external auditors the quality of
Hydron's accounting principles and financial reporting; and
o oversees the internal auditing functions and controls.
5
DIRECTOR COMPENSATION
Employees of the Company who also serve as Directors are not entitled to any
additional compensation for such service, except for Mr. Richard Banakus,
Chairman of the Board, because of his status as Interim President. The Company
does not have a written employment agreement with Mr. Banakus.
Non-employee Directors and Mr. Banakus receive an annual fee of $5,000, accrued
quarterly. During 2003, each of Messrs. Richard Banakus, Karen Gray, Joshua
Rochlin, and Ronald J. Saul earned $5,000 for their service as a Director. As of
December 31, 2003, unpaid director fees total approximately $65,000.
The 1993 Non-employee Director Stock Option Plan ("1993 Plan") was adopted by
the Board of Directors on December 22, 1993, approved by the shareholders on
July 19, 1994, and approved, as amended, by the shareholders on December 17,
1997. The purpose of the 1993 Plan is to assist the Company in attracting and
retaining key directors who are responsible for continuing the growth and
success of the Company. No options were granted under the 1993 Plan during the
year ended December 31, 2003.
On November 10, 1997, the Board of Directors of the Company adopted the 1997
Non-employee Director Stock Option Plan ("1997 Plan"). This plan was approved by
the shareholders on December 17, 1997. The purpose of the 1997 Plan is to assist
the Company in attracting and retaining experienced and knowledgeable
non-employee directors who will continue to work for the best interests of the
Company.
The 1997 Plan provides nonqualified stock options for non-employee directors to
purchase an aggregate of 100,000 shares of Common Stock, with grants of options
to purchase 2,000 shares to each non-employee director on October 1, 1997,
grants of options to purchase 2,000 shares on each May 1st thereafter (starting
in 1999), and grants of options to purchase 2,000 shares upon election or
appointment of any new non-employee directors. The options are not exercisable
for a one-year period and are to be granted at an exercise price equal to the
average fair market value of the Common Stock during the ten business days
preceding the day of the grant of the option.
The 1997 Plan also provides nonqualified stock options for non-employee
directors who serve on committees of the Board of Directors. The options are not
exercisable for a one-year period and are to be granted at an exercise price
equal to the average fair market value of the Common Stock during the ten
business days preceding the day of the grant of the option. No options were
granted under these provisions of the 1997 Plan during the year ended December
31, 2003.
During August 1999, the Company agreed to grant options to purchase 18,000
shares of the Company's common stock to each of the five individuals comprising
the Board of Directors, subject to shareholders' approval at the next annual
meeting at an exercise price of $.64065 per share. Since there are sufficient
options available for this grant under the 1997 Plan, the options are reflected
as outstanding as of December 31, 2000.
In August 2001, the Company agreed to increase the options granted to Board
members each year. Subject to shareholders' approval, the Company agreed to
grant options to purchase a total of 20,000 shares of the Company's common stock
to each of the four individuals comprising the Board of Directors, beginning
with the calendar year 2000. Subject to shareholders' approval, each Board
member will receive options to purchase 18,000 shares of common stock at an
exercise price of $.20157 for their service in 2000 and options to purchase
20,000 shares of common stock at an exercise price of $.4275 for their service
in 2001, $.3155 for their services in 2002, and $.2430 for their service in
2003. In addition, Directors on the audit committee of the Board of Directors
receive options to purchase 5,000 shares of common stock for each year of
service beginning in 2002. Since there are insufficient option available in the
current plan, the 2002 and 2003 options are subject to the shareholders'
approval of the 2003 Stock Plan.
6
VOTE REQUIRED
Directors must be elected by a plurality of votes cast at the shareholders
meeting. This means that the nominees receiving the highest number of votes will
be elected. Abstentions will have no effect on the election of directors. If you
hold your shares through a broker, banker, or other nominee and you do not
instruct them how to vote on this proposal, your broker may have authority to
vote your shares. You may give each nominee one vote for each share you hold.
BOARD RECOMMENDATION
The Board recommends that you vote "FOR" each of the nominees to the Board set
forth in this Proposal 1.
7
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of common stock beneficially
owned as of August 1, 2004 by:
o each nominee for director;
o the executive officers named in the Summary Compensation Table; and
o all directors and executive officers as a group.
PERCENTAGE OF
TOTAL OUTSTANDING
SECURITIES SECURITIES
NAME AND BENEFICIALLY BENEFICIALLY
PRINCIPLE POSITION OWNED OWNED
------------------ ------------ -------------
Richard Banakus 3,683,000(1) 33%
Chairman of the Board,
Interim President, and
Chief Executive Officer
Joshua Rochlin 115,000(2) 1%
Director
Karen Gray 121,000(3) 1%
Director
Ronald J. Saul 1,304,740(4) 13%
Director
Terrence S. McGrath 425,000(5) 4%
Chief Operating Officer
William A. Lauby 226,000(6) 2%
Chief Financial Officer
All officers, directors, and director
nominees as a group (6 persons) 5,874,740(7) 46%
----------
(1) Consists of 1,790,000 shares held directly, 200,000 shares issuable upon
exercise of warrants 1,494,500 shares issuable upon exercise of
outstanding options and 198,500 shares issuable upon exercise of options
that are subject to the shareholders' approval of the 2003 Stock Plan.
(2) Consists of 40,000 shares issuable upon exercise of outstanding options,
and 75,000 shares issuable upon exercise of options that are subject to
the shareholders' approval of the 2003 Stock Plan.
(3) Consists of 3,000 shares held directly, 58,000 shares issuable upon
exercise of outstanding options, and 60,000 shares issuable upon exercise
of options that are subject to the shareholders' approval of the 2003
Stock Plan.
(4) Consists of 673,500 shares held directly, 31,240 shares held by son,
300,000 shares issuable upon exercise of warrants, 250,000 shares issuable
upon exercise of outstanding options, and 50,000 shares issuable upon
exercise of options that are subject to the shareholders' approval of the
2003 Stock Plan.
(5) Consists of 425,000 shares issuable upon exercise of options that are
subject to the shareholders' approval of the 2003 Stock Plan.
(6) Consists of 1,000 shares held directly, and 225,000 shares issuable upon
exercise of options that are subject to the shareholders' approval of the
2003 Stock Plan.
(7) Includes 1,093,500 shares of Common Stock underlying options that are
subject to the shareholders' approval of the 2003 Stock Plan.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of August 1, 2004, based on a review of filings made with the SEC, the
Company is not aware of any shareholder other than Mr. Banakus and Mr. Saul
listed above beneficially owning five percent or more of Hydron's common stock.
EXECUTIVE COMPENSATION
The following table sets forth information for the years ended December 31,
2003, 2002, and 2001 with respect to all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and to each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the year ended December 31, 2003.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- ------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPLE POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(1)
------------------ ---- -------- ----- ------------ ----------
Richard Banakus 2003 $ 10,530 0 0 120,000
Chairman of the Board, 2002 $ 6,000 0 0 20,000
Interim President and 2001 $ 6,410 0 0 38,500
Chief Executive Officer
Terrence S. McGrath 2003 $125,000 0 0 225,000
Chief Operating Officer 2002 $125,000 0 0 0
2001 $122,000 0 0 200,000
William A. Lauby 2003 $110,000 0 0 175,000
Chief Financial Officer 2002 $110,000 0 0 0
2001 $107,000 0 0 50,000
----------
(1) Options have been approved by the Board of Directors subject to the
shareholders' approval of the 2003 Stock Plan.
9
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options granted under
the Company's 2003 Stock Plan to the Named Executive Officers for the year ended
December 31, 2003. These grants are subject to the shareholders approval of the
2003 Stock Plan.
Potential
Realizable Value
Per Share at
Individual Grants Assumed Annual
------------------------------------------------------------------ Rates of Stock
Number of Percent of Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term(1)
Options Employees Price Expiration -----------------------
Name Granted in 2003 (per share)(2) Date 5% 10%
--------------------------- -------------- ---------------- ------------------ -------------- ----------- -----------
Richard Banakus 100,000 19.2% 0.29 6/25/2008 0.37 0.47
Richard Banakus 20,000 3.9% 0.24 4/30/2008 0.31 0.39
Terrence S. McGrath 125,000 24.1% 0.29 6/25/2008 0.37 0.47
Terrence S. McGrath 100,000 19.2% 0.52 11/18/2008 0.66 0.84
William A. Lauby 75,000 14.4% 0.29 6/25/2008 0.37 0.47
William A. Lauby 100,000 19.2% 0.52 11/18/2008 0.66 0.84
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information relating to option exercises
effected during the year ended December 31, 2003, and the value of options held
as of such date by the Company's Chief Executive Officer and all other persons
who were executive officers of the Company for the year ended December 31, 2003.
The Company does not have any outstanding stock appreciation rights. No Named
Executive Officer exercised any options during the year ended December 31, 2003.
Number of Securities Value(3) of Unexercised
Underlying Unexercised in-the Money Options
Option at Fiscal Year-End at Fiscal Year-End
--------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---------------- ----------- ------------- ----------- -------------
Richard Banakus 1,893,000(4) -- $1,162,890 $ --
----------
1 Amounts represent certain assumed rates of appreciation as set forth by
the rules of the SEC. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock and overall market
conditions. The amounts reflected in this table may not necessarily be
achieved.
2 The Exercise Price of options granted was the average of the high and low
selling price of the Common Stock for the ten trading days preceding the
date of grant.
3 Total value of unexercised options is based upon the closing price ($.73)
of Common Stock as reported by OTC Bulletin Board on December 31, 2003.
4 Includes 1,250,000 unexercised options purchased in the Company's private
placement completed December 10, 2002; 200,000 unexercised warrants
purchased in the Company's private placement completed November 13, 2003;
and 125,000 options received in a bridge loan agreement with the Company
dated August 4, 2003; and 119,500 options received through the Company's
1993 Stock Option Plan, and 198,500 shares issuable upon exercise of
options that are subject to the shareholders' approval of the 2003 Stock
Plan.
10
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation of the Interim President and Chief Executive Officer is a
nominal amount and is an arrangement agreed to by the Board of Directors. It is
not tied to the Company's performance.
PERFORMANCE GRAPH
The following graph compares the total cumulative shareholder return for $100
invested (assumes that all dividends were reinvested) in Common Stock of the
Company against cumulative total return of the Nasdaq Composite Index for the
most recent five-year period.
[PERFORMANCE GRAPH]
[The following table was depicted as a line chart in the printed material]
Total Cumulative Shareholder Return
Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03
Hydron Technologies, Inc. $100.00 $78.57 $21.43 $57.14 $37.50 $130.36
Nasdaq Stock Market $100.00 $185.59 $112.40 $88.95 $60.91 $91.37
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the 34 Act, the Company's directors and certain of its
officers and persons holding more than ten percent of the Common Stock are
required to report their ownership of the Common Stock and any changes in such
ownership to the Securities and Exchange Commission and the Company. Specific
due dates for these reports have been established and the Company is required to
report in this Proxy Statement any failure to file by these dates during the
fiscal year ended December 31, 2003. Based on the Company's review of copies of
such reports, the Company believes that during the fiscal year ended December
31, 2003, all such reporting requirements applicable to its officers, directors
and greater than 10% beneficial owners were complied with.
11
PROPOSAL NO. 2:
APPROVAL OF HYDRON TECHNOLOGIES, INC. 2003 STOCK PLAN
On November 19, 2003, the Board approved, subject to shareholder approval, the
2003 Stock Plan (the "Plan"). The Plan permits the grant of nonqualified and
incentive stock options, as well as restricted stock and awards purchases. The
form of the equity is left up to the discretion of the committee of the Board
(or the Board, if no committee) at the time of each grant. This Plan is designed
to consolidate and replace two Stock Option Plans, which have expired: the 1993
Stock Option Plan, and the 1997 Non-employee Director Stock Option Plan.
The material features of the 2003 Plan are summarized below. Such summary is
qualified in its entirety by reference to the full text of the 2003 Plan, a
complete copy of which is attached hereto as Attachment B. Capitalized terms
used below without definition have the meaning ascribed to them in the 2003
Stock Plan.
PURPOSE OF THE 2003 PLAN
The purpose of the 2003 Plan is to assist the Company in attracting, retaining,
and motivating key employees, officers, directors, and consultants by offering
selected individuals an opportunity to acquire a proprietary interest in the
success of the Company.
SHARES SUBJECT TO THE 2003 PLAN
The Plan provides for the direct award or sales of Common Stock and for the
grant of options to purchase Common Stock. Shares offered under the Plan may be
authorized but unissued shares or treasury shares.
ADMINISTRATION THE 2003 PLAN
The Plan may be administered by one or more committees of the Board of
Directors. If no Committee has been appointed, the entire Board of Directors
shall administer the Plan. All decisions, interpretations, and other actions of
the Board shall be final and binding on all Purchasers, all Optionees, and all
persons deriving their rights from a purchase or option. No Committee has been
formed as of the date of this proxy statement.
ELIGIBILITY
Only employees, outside directors, and consultants shall be eligible for the
grant of Options or the direct award or sale of Shares. Only Employees shall be
eligible for the grant of Incentive Stock Options (ISOs).
STOCK SUBJECT TO PLAN
The aggregate number of Shares that may be issued under the Plan shall not
exceed fifteen percent (15%) of the total outstanding Shares. Currently
1,389,020 shares, representing 15% of the outstanding shares, are reserved.
12
TERMS AND CONDITIONS OF AWARDS OR SALES
Stock Purchase Agreement
Each award or sale of Shares under the Plan (other than upon exercise of an
Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser
and the Company. Such award or sale shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and conditions
which are not inconsistent with the Plan and which the Board of Directors deems
appropriate for inclusion in a Stock Purchase Agreement. The provisions of the
various Stock Purchase Agreements entered into under the Plan need not be
identical.
Duration of Offers
Any right to acquire Shares under the Plan (other than an Option) shall
automatically expire if not exercised by the Purchaser within thirty (30) days
after the grant of such right was communicated to the Purchaser by the Company.
Such right shall not be transferable and shall be exercisable only by the
Purchaser to whom such right was granted.
Purchase Price
The Purchase Price of Shares to be offered under the Plan, if newly issued,
shall not be less than the par value of such Shares. Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors at
its sole discretion.
Withholding Taxes
As a condition to the purchase of Shares, the Purchaser shall make such
arrangements as the Board of Directors may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with such purchase.
Restrictions on Transfer of Shares
Any Shares awarded or sold under the Plan shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and other
transfer restrictions as the Board of Directors may determine. Such restrictions
shall be set forth in the applicable Stock Purchase Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally.
Accelerated Vesting
Unless the applicable Stock Purchase Agreement provides otherwise, any right to
repurchase a Purchaser's Shares at the original Purchase Price (if any) upon
termination of the Purchaser's Service shall lapse and all of such Shares shall
become vested if:
(i) The Company is subject to a Change in Control before the Purchaser's
Service terminates; and
(ii) Either (A) the repurchase right is not assigned to the entity that
employs the Purchaser immediately after the Change in Control or to
its parent or subsidiary or (B) the Purchaser is subject to an
Involuntary Termination within twelve (12) months following such
Change in Control.
13
Involuntary Termination
"Involuntary Termination" shall mean the termination of the Optionee's or
Purchaser's Service by reason of:
(i) The involuntary discharge of the Optionee or Purchaser by the
Company (or the Parent or Subsidiary employing him or her) for
reasons other than Cause; or
(ii) The voluntary resignation of the Optionee or Purchaser following (A)
a change in his or her position with the Company (or the Parent or
Subsidiary employing him or her) that materially reduces his or her
level of authority or responsibility or (B) a reduction in his or
her compensation (including base salary, fringe benefits and
participation in bonus or incentive programs based on corporate
performance) by more than 10%.
Cause
"Cause" shall mean (i) the unauthorized use or disclosure of the confidential
information or trade secrets of the Company, which use or disclosure causes
material harm to the Company, (ii) conviction of, or a plea of "guilty" or "no
contest" to, a felony under the laws of the United States or any state thereof,
(iii) gross negligence or (iv) continued failure to perform assigned duties
after receiving written notification from the Board of Directors. The foregoing,
however, shall not be deemed an exclusive list of all acts or omissions that the
Company (or a Parent or Subsidiary) may consider as grounds for the discharge of
an Optionee or Purchaser.
TERMS AND CONDITIONS OF OPTIONS
Stock Option Agreement
Each grant of an Option under the Plan shall be evidenced by a Stock Option
Agreement between the Optionee and the Company. Such Option shall be subject to
all applicable terms and conditions of the Plan and may be subject to any other
terms and conditions which are not inconsistent with the Plan and which the
Board of Directors deems appropriate for inclusion in a Stock Option Agreement.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical.
Number of Shares
Each Stock Option Agreement shall specify the number of Shares that are subject
to the Option and shall provide for the adjustment of such number in accordance
with Section 8 of the Plan. The Stock Option Agreement shall also specify
whether the Option is an ISO or a Nonstatutory Option.
Exercise Price
Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price
of an ISO shall not be less than one hundred percent (100%) of the Fair Market
Value of a Share on the date of grant, and a higher percentage may be required
by Section 3(b) of the Plan. The Exercise Price of a Nonstatutory Option to
purchase newly issued Shares shall not be less than the par value of such
Shares. Subject to the preceding two sentences, the Exercise Price under an
Option shall be determined by the Board of Directors at its sole discretion.
14
Withholding Taxes
As a condition to the exercise of an Option, the Optionee shall make such
arrangements as the Board of Directors may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with such exercise. The Optionee shall also make such arrangements as
the Board of Directors may require for the satisfaction of any federal, state,
local or foreign withholding tax obligations that may arise in connection with
the disposition of Shares acquired by exercising an Option.
Exercisability
Each Stock Option Agreement shall specify the date when all or any installment
of the Option is to become exercisable. The exercisability provisions of a Stock
Option Agreement shall be determined by the Board of Directors at its sole
discretion.
Accelerated Exercisability
Unless the applicable Stock Option Agreement provides otherwise, all of an
Optionee's Options shall become exercisable in full if:
(i) The Company is subject to a Change in Control before the Optionee's
Service terminates; and
(ii) Either (A) such Options do not remain outstanding, such Options are
not assumed by the surviving corporation or its parent, and the
surviving corporation or its parent does not substitute options with
substantially the same terms for such Options or (B) the Optionee is
subject to an Involuntary Termination within twelve (12) months
following such Change in Control.
Basic Terms
The Stock Option Agreement shall specify the term of the Option. The term shall
not exceed ten (10) years from the date of grant, and in the case of an ISO a
shorter term may be required. Subject to the preceding sentence, the Board of
Directors at its sole discretion shall determine when an Option is to expire. A
Stock Option Agreement may provide for expiration prior to the end of its term
in the event of the termination of the Optionee's Service or death.
Nontransferability
No Option shall be transferable by the Optionee other than by beneficiary
designation, will, or the laws of descent and distribution. An Option may be
exercised during the lifetime of the Optionee only by the Optionee or by the
Optionee's guardian or legal representative. No Option or interest therein may
be transferred, assigned, pledged or hypothecated by the Optionee during the
Optionee's lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
15
No Rights as a Shareholder
An Optionee, or a transferee of an Optionee, shall have no rights as a
shareholder with respect to any Shares covered by the Optionee's Option until
such person becomes entitled to receive such Shares by filing a notice of
exercise and paying the Exercise Price pursuant to the terms of such Option.
Modification, Extension and Assumption of Options
Within the limitations of the Plan, the Board of Directors may modify, extend or
assume outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
Restrictions on Transfer of Shares
Any Shares issued upon exercise of an Option shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and other
transfer restrictions as the Board of Directors may determine. Such restrictions
shall be set forth in the applicable Stock Option Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally.
Accelerated Vesting
Unless the applicable Stock Option Agreement provides otherwise, any right to
repurchase an Optionee's Shares at the original Exercise Price upon termination
of the Optionee's Service shall lapse and all of such Shares shall become vested
if:
(i) The Company is subject to a Change in Control before the Purchaser's
Service terminates; and
(ii) Either (A) the repurchase right is not assigned to the entity that
employs the Optionee immediately after the Change in Control or to
its parent or subsidiary or (B) the Optionee is subject to an
Involuntary Termination within twelve (12) months following such
Change in Control.
DURATION AND AMENDMENTS
Term of the Plan
The Plan, as set forth herein, shall become effective on the date of its
adoption by the Board of Directors, subject to the approval of the Company's
stockholders. In the event that the stockholders fail to approve the Plan within
12 months after its adoption by the Board of Directors, any grants of Options or
sales or awards of Shares that have already occurred shall be rescinded, and no
additional grants, sales, or awards shall be made thereafter under the Plan. The
Plan shall terminate automatically ten (10) years after its adoption by the
Board of Directors and may be terminated on any earlier date pursuant to
Subsection (b) below.
Right to Amend or Terminate the Plan
The Board of Directors may amend, suspend or terminate the Plan at any time and
for any reason; provided, however, that any amendment of the Plan which
increases the number of Shares available for issuance under the Plan (except as
provided in Section 8) hereof, or which materially changes the class of persons
who are eligible for the grant of ISOs, shall be subject to the approval of the
Company's stockholders. Stockholder approval shall not be required for any other
amendment of the Plan.
16
EFFECT OF AMENDMENT OR TERMINATION
No Shares shall be issued or sold under the Plan after the termination thereof,
except upon exercise of an Option granted prior to such termination. The
termination of the Plan, or any amendment thereof, shall not affect any Share
previously issued or any Option previously granted under the Plan.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast affirmatively or negatively
on this proposal at the Meeting is required for its approval. If you hold your
shares in your own name and abstain from voting on this matter, your abstention
will have no effect on the vote. If you hold your shares through a broker, bank,
or other nominee and you do not instruct them on how to vote on this proposal,
your broker will not have the authority to vote your shares if your broker is a
NASD or NYSE member organization. Should such shareholder approval not be
obtained, then the 2003 Stock Plan will not be implemented and the Company will
not have an active stock option plan since the shares underlying the existing
plans have been exhausted.
BOARD RECOMMENDATION
The Board believes that it is in the best interest of the Company to continue to
provide key employees with stock awards or stock options in order to attract and
retain talented executives and more closely align their interests with those of
the shareholders.
The Board unanimously recommends that you vote "FOR" the 2003 Stock Plan.
17
PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
GENERAL
The Audit Committee of the Board of Directors has selected DaszkalBolton LLP,
certified public accountants, to audit the Company's financial statements for
the year ending December 31, 2004. DaszkalBolton LLP has audited the Company's
financial statements for the last three years. The shareholders are asked to
ratify the appointment of DaszkalBolton LLP as the Company's independent
auditors for the year ended December 31, 2004. DaszkalBolton LLP was appointed
by the Audit Committee in accordance with its charter.
In the event shareholders fail to ratify the appointment, the Audit Committee
may reconsider this appointment. Even if the appointment is ratified, the Audit
Committee, in its discretion, may direct the appointment of a different
independent accounting firm at any time during the year if the Audit Committee
determines that such a change would be in the Company's and shareholders' best
interests.
The Audit Committee has approved all services provided by DaszkalBolton LLP. A
representative of DaszkalBolton LLP is expected to be present at the Meeting
with the opportunity to make a statement if he or she desires to do so, and is
expected to be available to respond to appropriate questions.
VOTE REQUIRED
If a quorum is present and voting, the affirmative vote of a majority of the
votes cast affirmatively or negatively on this proposal at the Meeting is
necessary to ratify the appointment of DaszkalBolton LLP as the Company's
independent auditors for the year ending December 31, 2004.
BOARD RECOMMENDATION
The Board recommends that you vote "FOR" the ratification of appointment of
DaszkalBolton LLP as the Company's independent auditors.
18
AUDIT AND NON-AUDIT FEES
The following table sets forth fees for services DaszkalBolton LLP provided
during 2003 and 2002:
2003 2002
------- -------
Audit fees(1) $38,129 $34,999
Tax fees(2) 7,000 5,450
------- -------
Total $45,129 $40,449
======= =======
----------
(1) Represents fees for professional services provided in connection with the
audit of our annual financial statements and review of our quarterly
financial statements, advice on accounting matters that arose during the
audit and audit services provided in connection with other statutory or
regulatory filings.
(2) Represents fees for services provided in connection with tax planning and
the preparation of the Company's tax returns
The Audit Committee has established pre-approved policies and procedures with
respect to audit and permitted non-audit services to be provided by its
independent auditors. The Audit Committee has concluded that DaszkalBolton LLP's
provision of the audit and permitted non-audit services described above is
compatible with maintaining DaszkalBolton LLP's independence and were approved
in advance. The Audit Committee's pre-approval policies do not permit the
delegation of the Audit Committees responsibilities to Management.
19
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee shall not be deemed to be
"soliciting material" or to be "filed" with the SEC nor shall this information
be incorporated by reference into any future filing under the 33 Act or the 34
Act, except to the extent that Hydron specifically incorporates it by reference
into such filing.
The Audit Committee currently consists of Joshua Rochlin and Ronald J. Saul
("Committee"). All members of the Committee meet the independence and experience
requirements of Nasdaq applicable to securities designated as national market
system securities.
The Board of Directors has adopted a written charter for the Committee that is
attached as Attachment A to this proxy statement. This charter was amended
during fiscal year 2003 in response to new regulatory requirements, including
the Sarbanes-Oxley Act of 2002 and related rules and regulations proposed or
issued by the SEC and Nasdaq.
The Committee is responsible for overseeing Hydron's accounting and financial
reporting processes and audits of Hydron's financial statements. As set forth in
its charter, the Committee acts only in an oversight capacity and relies on the
work and assurances of both Management, which has primary responsibilities for
Hydron's financial statements and reports, as well as the independent auditors
who are responsible for expressing an opinion on the conformity of Hydron's
audited financial statements to generally accepted accounting policies.
The Committee met four times either in person or by telephone during fiscal year
2003. In the course of these meetings, the Committee met with Management and
Hydron's independent auditors and reviewed the results of the external audit
examinations, evaluations of Hydron's internal controls and the overall quality
of Hydron's financial reporting.
The Committee believes that a candid, substantive, and focused dialogue with the
independent auditors is fundamental to the Committees oversight
responsibilities. To support this belief, the Committee periodically ensures
that there is an opportunity to meet separately with the independent auditors,
without Management present. In the course of its discussions in these meetings,
the Committee asked a number of questions intended to bring to light any areas
of potential concern related to Hydron's financial reporting and internal
controls. These questions include:
o Are there any significant accounting judgments, estimates or
adjustments made by management in preparing the financial statements
that would have been made differently had the auditors themselves
prepared and been responsible for the financial statements?
o Based on the auditor's experience, and their knowledge of the
Company, do the Company's financial statements fairly present to
investors, with clarity and completeness, the Company's financial
position and performance for the reporting period in accordance with
generally accepted accounting principles and SEC disclosure
requirements?
o Based on the auditor's experience, and their knowledge of the
Company, has the Company implemented internal controls and internal
audit procedures that are appropriate for the Company?
The Committee recommended the engagement of DaszkalBolton LLP as Hydron's
independent auditors for fiscal year 2003 and reviewed with the independent
auditors their respective overall audit scope and plans. In reaching its
recommendation, the Committee considered the qualifications of DaszkalBolton LLP
and discussed with DaszkalBolton LLP their independence, including a review of
the audit and non-audit services provided by them to Hydron. The Committee also
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended by Statement on Auditing
Standards No. 90, and by the Sarbanes-Oxley Act of 2002, and it received and
discussed with the independent auditors their written report required by
Independence Standards Board Standard No. 1.
20
Management has reviewed the audited financial statements for fiscal year 2003
with the Committee, including a discussion of the quality and acceptability of
the financial reporting, the reasonableness of significant accounting judgments
and estimates and the clarity of disclosures in the financial statements. In
connection with this review and discussion, the Committee asked a number of
follow-up questions of management and the independent auditors to help give the
Committee comfort in connection with its review.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the fiscal year ended December 31, 2003 for filing with the SEC.
Submitted by the Audit Committee of the Board
Joshua Rochlin
Ronald J. Saul
21
SHAREHOLDER PROPOSALS FOR 2005 MEETING
Shareholders who wish to present proposals at the 2005 Meeting of Shareholders
must do so in writing. The written proposal must be received in writing by the
Secretary of the Company at the address set forth on the first page of the Proxy
Statement no later than December 1, 2004 in order for such proposals to be
considered for inclusion in the Company's proxy statement relating to that
meeting.
OTHER MATTERS
Management of the Company knows of no business other than that specified in
Items 1 through 3 of the Notice of Shareholders' Meeting, which will be
presented for consideration at the Meeting. If any other matter is properly
presented, it is the intention of the persons named in the enclosed proxy to
vote in accordance with their best judgment.
BY ORDER OF THE BOARD
Karen Gray
SECRETARY
October 1, 2004
Pompano Beach, FL
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR
COOPERATION WILL BE APPRECIATED.
22
ATTACHMENT A
HYDRON TECHNOLOGIES, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER STATEMENT
On behalf of the Board, the Audit Committee's function is to oversee the
Company's accounting and financial reporting processes and audits of the
Company's financial statements. Primary responsibility for the Company's
financial reporting lies with senior management, with oversight by the Board of
Directors. The Audit Committee:
o maintains open lines of communication with the Company's Chief
Financial Officer, and the senior account representative of its
External Auditor;
o is an informed, vigilant, and effective overseer of the Company's
internal controls, disclosure controls, and procedures for financial
reporting purposes;
o has its duties and responsibilities set forth in a written charter;
o reports its activities to the full board on a regular basis; and
o complies with applicable law (including Nasdaq and SEC rules) for
Audit Committees.
COMMITTEE STRUCTURE AND MEMBERSHIP
The Committee shall be comprised of two or more directors each of whom shall be
independent as determined in accordance with applicable law (including SEC and
Nasdaq rules). No member of the Committee may own or control 20% or more of the
Company's voting securities, or such lower measurement as may be established by
the SEC. All members of the Committee must be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement, and cash flow statement. Committee members shall not receive any
compensation from the Company except as allowed under applicable law (including
SEC and Nasdaq rules). The Committee shall generally maintain as a member at
least one "financial expert" as determined in accordance with applicable law
(including SEC and Nasdaq rules). The members of the Committee shall be elected
by the Board.
MEETINGS
The Audit Committee will meet on a regular basis and special meetings will be
called, as circumstances require. The Company's Chief Financial Officer and the
External Auditor will normally be present at each meeting. During most meetings,
the Committee will hold private sessions with the External Auditor. The
Company's legal representative (and when appropriate, outside counsel retained
to advise the Committee) will be available to attend the Committee's meetings to
discuss legal matters, which may impact the Company's financial position.
Minutes of meetings will be taken including notations as to what private
sessions occur.
A-1
REQUIRED PROCESS
External Auditors
The Audit Committee shall be directly responsible for the appointment,
compensation, oversight of the work of any public accounting firm employed for
preparing or issuing an audit report or related work ("External Auditor"). Each
such public accounting firm shall report directly to the Audit Committee. The
Committee shall have the sole authority to hire, determine funding for,
evaluate, and fire the External Auditor.
The Audit Committee:
a. selects, evaluates, and replaces the External Auditor as
appropriate;
b. reviews annual audit plans and assesses the External Auditor's
performance against plan;
c. receives annually from the External Auditor a formal written
statement on its independence: discusses any relationships or issues
that could hinder the External Auditor's independence and
objectivity, and determines if additional steps need to be taken to
ensure such independence;
d. approves in advance all audit and non-audit services to be provided
by the External Auditor, which are permissible under the law. In
considering whether to approve such services, the Audit Committee
will consider the following:
(1) whether the service is being performed principally for the
Audit Committee;
(2) the effects of the service, if any, on audit effectiveness or
on the quality, and timeliness of the Company's financial
reporting process;
(3) whether the service would be performed by specialists (e.g.,
technology specialists) who ordinarily also provide recurring
audit support;
(4) whether the service would be performed by audit personnel and,
if so, whether it will enhance their knowledge of the
Company's business and operations;
(5) whether the role of those performing the service would be
inconsistent with the auditor's role (e.g., a role where
neutrality, impartiality, and auditor skepticism are likely to
be subverted);
(6) whether the audit firm's personnel would be assuming a
management role or creating a mutuality of interest with
management;
(7) whether the auditors, in effect, would be "auditing their own
numbers";
(8) whether the project must be started and completed very
quickly;
(9) whether the audit firm has unique expertise in the service;
and
(10) the size of the fee(s) for the non-audit service(s).
A-2
The Committee may designate this role to one or more designated members of the
Committee, who shall report their activity to the Committee;
e. establishes rules and procedures that reasonably ensure that the
External Auditor does not perform any of the following prohibited
procedures:
(1) bookkeeping or other services related to the accounting
records or financial statements;
(2) financial information systems design and implementation;
(3) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
(4) actuarial services;
(5) internal audit outsourcing services;
(6) management functions or human resources;
(7) broker or dealer, investment adviser, or investment banking
services;
(8) legal services and expert services unrelated to the audit; and
(9) any other service that the Board determines is impermissible.
f. ascertains whether all non-audit services provided by the External
Auditor are disclosed in quarterly and annual financial reports;
g. meets privately with the External Auditor at regular meetings and on
an as needed basis;
h. reviews the External Auditor's report on:
(1) the quality of accounting and disclosure and the accounting
principles applied;
(2) the reasonableness of judgments and estimates used in
preparing the financial statements, including assumptions made
and the completeness of the related disclosures;
(3) all critical accounting policies and practices used;
(4) all alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with Company management, ramifications of the use of
such alternative disclosures and treatments including for any
off-balance sheet transactions, and the treatment preferred by
the External Auditor;
(5) other material written communications between the External
Auditor and the Company's management, including all management
letters or comments;
A-3
(6) the schedule of unadjusted differences; and
(7) the effectiveness of the Company's internal controls in
providing reasonable assurance that the financial statements
and disclosures are fairly presented, comply with the legal
and regulatory requirements, and provide timely detection of
fraud.
i. resolves disagreements between management and the External Auditor
regarding financial reporting.
1. Related-Party Transactions
The Committee shall review and approve all related-party transactions for which
Audit Committee approval is required by applicable law (including Nasdaq rules)
or required to be disclosed in the Company's financial statement or SEC filings.
2. General
The Audit Committee:
a. reviews quarterly (prior to the filing of the Company's periodic
reports):
(1) the Company's process for assessing the risk of fraudulent
financial reporting;
(2) the Company's process for identifying and reporting fraud,
including the details of any fraud, whether or not material,
that involves management or other employees who have a
significant role in internal controls; and
(3) the report of the Chief Executive Officer and Chief Financial
Officer regarding the Company's disclosure controls and
procedures.
b. reviews the Company's codes of ethics and conduct for directors,
officers, and employees, approves all waivers of the code of ethics
for directors and officers, and ensures timely disclosure of any
such waivers by the Audit Committee;
c. reviews the quarterly reporting process, annual financial
statements, management certifications and External Auditor reports
and attestations and ensures that:
(1) the External Auditor performs timely reviews;
(2) certifications, attestations, quarterly, and annual financial
statements as required by law are reviewed with the Audit
Committee before filing with the SEC; and
(3) the members of the Audit Committee have read the Company's
periodic reports that are filed with the SEC.
d. requires management and the External Auditor to advise the Committee
of significant deficiencies, material weaknesses, and significant
changes in internal controls, disclosure controls, and procedures as
well as any illegal acts unless the illegal act is clearly
inconsequential;
A-4
e. discusses with management and the External Auditor the review
process for the Company's Information Technology procedures and
controls, and inquires as to the specific security programs to
protect against computer fraud or misuse from both within and
outside the Company at least annually;
f. instructs the External Auditor that the Committee expects to be
advised if there are any areas known to them that require special
attention of the Audit Committee;
g. maintains a calendar of agenda items which reflects the Audit
Committee responsibilities and processes specified in this Audit
Committee Charter;
h. reviews the Audit Committee Charter at least once every 3 years and
has all proposed revisions approved by the Board of Directors;
i. self-assesses annually whether the Audit Committee has carried out
the responsibilities defined in the Audit Committee Charter and
takes any corrective action;
j. self-assesses annually whether the Audit Committee complies with its
membership requirements and takes corrective action; and
k. discloses in the Company's proxy statement:
(1) whether the Audit Committee satisfied its Audit Committee
Charter responsibilities;
(2) the complete Audit Committee Charter, at least every 3 years,
or when significant amendments occur;
(3) that the External Auditors have discussed judgments used in
developing financial reports;
(4) that the Audit Committee has discussed the judgments in
private session; and
(5) that the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the
Company's Annual Report on Form 10-K for filing with the SEC.
3. Complaints
The Committee shall establish and maintain procedures for:
a. the receipt, retention, and treatment of complaints received by the
Company regarding fraud, accounting, internal accounting controls,
or auditing matters; and
b. the confidential, anonymous submission by employees regarding fraud
or questionable accounting or auditing matters.
A-5
4. Authority to Engage Advisors
The Committee shall have the authority to engage independent counsel and other
advisers, as it determines necessary to carry out its duties.
5. Funding
The Company shall provide for appropriate funding, as determined by the
Committee, for payment of compensation to:
a. the External Auditor for the purpose of rendering or issuing an
audit report; and
b. any advisors employed by the Committee.
A-6
ATTACHMENT B
HYDRON TECHNOLOGIES, INC.
2003 STOCK PLAN
(ADOPTED ON NOVEMBER 19, 2003)
HYDRON TECHNOLOGIES, INC. 2003 STOCK PLAN
(ADOPTED ON NOVEMBER 19, 2003)
TABLE OF CONTENTS
SECTION 1. ESTABLISHMENT AND PURPOSE...................................3
SECTION 2. ADMINISTRATION..............................................3
(a) COMMITTEES OF THE BOARD OF DIRECTORS................................3
(b) AUTHORITY OF THE BOARD OF DIRECTORS.................................3
SECTION 3. ELIGIBILITY.................................................3
(a) GENERAL RULE........................................................3
(b) TEN-PERCENT STOCKHOLDERS............................................3
SECTION 4. STOCK SUBJECT TO PLAN.......................................3
(a) BASIC LIMITATION....................................................3
(b) ADDITIONAL SHARES...................................................4
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.....................4
(a) STOCK PURCHASE AGREEMENT............................................4
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS.................4
(c) PURCHASE PRICE......................................................4
(d) WITHHOLDING TAXES...................................................4
(e) RESTRICTIONS ON TRANSFER OF SHARES..................................4
(f) ACCELERATED VESTING.................................................4
(g) INVOLUNTARY TERMINATION.............................................5
(h) CAUSE...............................................................5
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.............................5
(a) STOCK OPTION AGREEMENT..............................................5
(b) NUMBER OF SHARES....................................................5
(c) EXERCISE PRICE......................................................5
(d) WITHHOLDING TAXES...................................................5
(e) EXERCISABILITY......................................................6
(f) ACCELERATED EXERCISABILITY..........................................6
(g) BASIC TERM..........................................................6
(h) NONTRANSFERABILITY..................................................6
(i) NO RIGHTS AS A SHAREHOLDER..........................................6
(j) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS...................6
(k) RESTRICTIONS ON TRANSFER OF SHARES..................................6
(l) ACCELERATED VESTING.................................................6
SECTION 7. PAYMENT FOR SHARES..........................................7
(a) GENERAL RULE........................................................7
(b) SURRENDER OF STOCK..................................................7
(c) SERVICES RENDERED...................................................7
(e) EXERCISE/SALE.......................................................7
(d) EXERCISE/PLEDGE.....................................................7
SECTION 8. ADJUSTMENT OF SHARES........................................8
(a) GENERAL.............................................................8
(b) MERGERS AND CONSOLIDATIONS..........................................8
(c) RESERVATION OF RIGHTS...............................................8
B-1
SECTION 9. SECURITIES LAW REQUIREMENTS.................................8
SECTION 10. NO RETENTION RIGHTS.......................................8
SECTION 11. DURATION AND AMENDMENTS...................................9
(a) TERM OF THE PLAN....................................................9
(b) RIGHT TO AMEND OR TERMINATE THE PLAN................................9
(c) EFFECT OF AMENDMENT OR TERMINATION..................................9
SECTION 12. DEFINITIONS...............................................9
(a) BOARD OF DIRECTORS..................................................9
(b) CHANGE IN CONTROL...................................................9
(c) CODE................................................................9
(d) COMMITTEE..........................................................10
(e) COMPANY............................................................10
(f) CONSULTANT.........................................................10
(g) EMPLOYEE...........................................................10
(h) EXERCISE PRICE.....................................................10
(i) FAIR MARKET VALUE..................................................10
(j) ISO................................................................10
(k) NONSTATUTORY OPTION................................................10
(l) OPTION.............................................................10
(m) OPTIONEE...........................................................10
(N) OUTSIDE DIRECTOR...................................................10
(n) PARENT.............................................................10
(o) PLAN...............................................................10
(q) PURCHASE PRICE.....................................................10
(r) PURCHASER..........................................................11
(s) SERVICE............................................................11
(t) SHARE..............................................................11
(u) STOCK..............................................................11
(v) STOCK OPTION AGREEMENT.............................................11
(w) STOCK PURCHASE AGREEMENT...........................................11
(x) SUBSIDIARY.........................................................11
SECTION 13. EXECUTION................................................11
HYDRON TECHNOLOGIES, INC. 2003 STOCK PLAN
B-2
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code.
Capitalized terms are defined in Section 12 hereof.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by
one or more Committees. Each Committee shall consist of two or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to which the Board of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations, and other actions of the Board of Directors
shall be final and binding on all Purchasers, all Optionees, and all persons
deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors, and Consultants shall
be eligible for the grant of Options or the direct award or sale of Shares. Only
Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT STOCKHOLDERS. An individual who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company, its Parent or any of its Subsidiaries shall not be eligible for the
grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair
Market Value of a Share on the date of grant and (ii) such ISO by its terms is
not exercisable after the expiration of five years from the date of grant. For
purposes of this Subsection (b), in determining stock ownership, the attribution
rules of Section 424(d) of the Code shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed fifteen percent (15%) of the total outstanding Shares,
subject to adjustment pursuant to Section 8 hereof. The number of Shares that
are subject to Options or other rights outstanding at any time under the Plan
shall not exceed the number of Shares that then remain available for issuance
under the Plan. The Company, during the term of the Plan, shall at all times
reserve and keep available sufficient Shares to satisfy the requirements of the
Plan.
B-3
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
ten percent (10%) of the total outstanding Shares (subject to adjustment
pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within thirty (30) days after the grant of
such right was communicated to the Purchaser by the Company. Such right shall
not be transferable and shall be exercisable only by the Purchaser to whom such
right was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan, if newly issued, shall not be less than the par value of such Shares.
Subject to the preceding sentence, the Purchase Price shall be determined by the
Board of Directors at its sole discretion. The Purchase Price shall be payable
in a form described in Section 7 hereof.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold under
the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, any right to repurchase a Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
and all of such Shares shall become vested if:
(i) The Company is subject to a Change in Control before the
Purchaser's Service terminates; and
(ii) Either (A) the repurchase right is not assigned to the
entity that employs the Purchaser immediately after the Change in Control
or to its parent or subsidiary or (B) the Purchaser is subject to an
Involuntary Termination within twelve (12) months following such Change in
Control.
B-4
(g) "INVOLUNTARY TERMINATION" shall mean the termination of the Optionee's
or Purchaser's Service by reason of:
(i) The involuntary discharge of the Optionee or Purchaser by
the Company (or the Parent or Subsidiary employing him or her) for reasons
other than Cause; or
(ii) The voluntary resignation of the Optionee or Purchaser
following (A) a change in his or her position with the Company (or the
Parent or Subsidiary employing him or her) that materially reduces his or
her level of authority or responsibility or (B) a reduction in his or her
compensation (including base salary, fringe benefits and participation in
bonus or incentive programs based on corporate performance) by more than
10%.
(h) "CAUSE" shall mean (i) the unauthorized use or disclosure of the
confidential information or trade secrets of the Company, which use or
disclosure causes material harm to the Company, (ii) conviction of, or a plea of
"guilty" or "no contest" to, a felony under the laws of the United States or any
state thereof, (iii) gross negligence or (iv) continued failure to perform
assigned duties after receiving written notification from the Board of
Directors. The foregoing, however, shall not be deemed an exclusive list of all
acts or omissions that the Company (or a Parent or Subsidiary) may consider as
grounds for the discharge of an Optionee or Purchaser.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for inclusion
in a Stock Option Agreement. The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8 hereof. The Stock Option Agreement
shall also specify whether the Option is an ISO or a Nonstatutory Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than one hundred percent
(100%) of the Fair Market Value of a Share on the date of grant, and a higher
percentage may be required by Section 3(b) hereof. The Exercise Price of a
Nonstatutory Option to purchase newly issued Shares shall not be less than the
par value of such Shares. Subject to the preceding two sentences, the Exercise
Price under an Option shall be determined by the Board of Directors at its sole
discretion. The Exercise Price shall be payable in a form described in Section 7
hereof.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
B-5
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. The
exercisability provisions of a Stock Option Agreement shall be determined by the
Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if:
(i) The Company is subject to a Change in Control before the
Optionee's Service terminates; and
(ii) Either (A) such Options do not remain outstanding, such
Options are not assumed by the surviving corporation or its parent, and
the surviving corporation or its parent does not substitute options with
substantially the same terms for such Options or (B) the Optionee is
subject to an Involuntary Termination within twelve (12) months following
such Change in Control.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed ten (10) years from the date of grant, and in
the case of an ISO a shorter term may be required by Section 3(b) hereof.
Subject to the preceding sentence, the Board of Directors at its sole discretion
shall determine when an Option is to expire. A Stock Option Agreement may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's Service or death.
(h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will, or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(j) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(k) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise of
an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Option Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.
(l) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse and all of
such Shares shall become vested if:
B-6
(i) The Company is subject to a Change in Control before the
Optionee's Service terminates; and
(ii) Either (A) the repurchase right is not assigned to the
entity that employs the Optionee immediately after the Change in Control
or to its parent or subsidiary or (B) the Optionee is subject to an
Involuntary Termination within twelve (12) months following such Change in
Control.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors, Shares
may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award. At the discretion of the
Board of Directors, Shares may also be awarded under the Plan in consideration
of services to be rendered to the Company, a Parent, or a Subsidiary after the
award, except that the par value of such Shares, if newly issued, shall be paid
in cash or cash equivalents.
(d) RELINQUISHMENT OF PORTION OF OPTION OR STOCK AWARD. All or any part of
the Exercise Price or Purchase Price, as the case may be, may be paid by
relinquishing a portion any unexercised option to purchase Shares or any Shares
included in a Stock Award having a Fair Market Value equal to the aggregate
Exercise Price or Purchase Price, respectively, but only to the extent that such
option is immediately exercisable by the Optionee under the terms of such
option, or such Shares are not subject to a right of repurchase or forfeiture to
the Company. For purposes of this Subsection (d), "Fair Market Value" for such
option to be relinquished means the difference between the Fair Market Value for
a Share on the date of exercise and the Purchase Price for such option to be
relinquished.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
B-7
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4 hereof, (ii) the number of Shares
covered by each outstanding Option, or (iii) the Exercise Price under each
outstanding Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionee's
consent, may provide for:
(i) The continuation of such outstanding Options by the Company (if
the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of each outstanding Option after payment to
the Optionee of an amount in cash or cash equivalents equal to (A) the Fair
Market Value of the Shares subject to such Option at the time of the merger or
consolidation minus (B) the Exercise Price of the Shares subject to such Option.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend,
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares comply with (or are exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange or other securities
market on which the Company's securities may then be traded.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or retaining
the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are
hereby expressly reserved by each, to terminate his or her Service at any time
and for any reason, with or without cause.
B-8
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's stockholders. In the event that the stockholders fail
to approve the Plan within 12 months after its adoption by the Board of
Directors, any grants of Options or sales or awards of Shares that have already
occurred shall be rescinded, and no additional grants, sales or awards shall be
made thereafter under the Plan. The Plan shall terminate automatically ten (10)
years after its adoption by the Board of Directors and may be terminated on any
earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8) hereof,
or which materially changes the class of persons who are eligible for the grant
of ISOs, shall be subject to the approval of the Company's stockholders.
Stockholder approval shall not be required for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate reorganization,
if more than fifty percent (50%) of the combined voting power of the
continuing or surviving entity's securities outstanding immediately after
such merger, consolidation or other reorganization is owned by persons who
were not stockholders of the Company immediately prior to such merger,
consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
B-9
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean Hydron Technologies, Inc., a New York
corporation.
(f) "CONSULTANT" shall mean a person who performs bona fide services for
the Company, a Parent, or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(g) "EMPLOYEE" shall mean any individual who is a common-law employee or
"leased employee" of the Company, a Parent, or a Subsidiary.
(h) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(i) "FAIR MARKET VALUE" shall mean the average of the high and low sales
prices for a Share, on the last immediately preceding 10 days on which the stock
was traded in the principal trading market for the Shares, if the Shares are
listed or admitted for trading on a securities exchange registered under the
Securities Exchange Act of 1934, as amended. If the Shares are not listed or
admitted to trading on any such exchange but are listed with the Nasdaq Stock
Market, Inc. and traded in the over the counter market or listed or traded on
any similar system then in use, "Fair Market Value" of a Share shall be the
average of the high and low sales price on the last immediately preceding 10
days on which the stock was traded. In the event that the Shares are registered
under the Exchange Act and eligible for quotation on the Bulletin Board, in the
Pink Sheets or similar reporting services and traded in the over the counter
market, "Fair Market Value" of a Share shall be the average of the high and low
sales prices for a Share measured over the immediately preceding ten (10) days
on which the stock was traded. If there is no established trading market for the
Shares, "Fair Market Value" of a Share shall be the value ascribed to a Share by
the Board of Directors of the Company in good faith. Such determination shall be
conclusive and binding on all persons.
(j) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(k) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(l) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(m) "OPTIONEE" shall mean an individual who holds an Option.
(n) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who
is not an Employee.
(o) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
(p) "PLAN" shall mean this Hydron Technologies, Inc. 2003 Stock Plan.
(q) "PURCHASE PRICE" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.
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(r) "PURCHASER" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).
(s) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(t) "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 hereof (if applicable).
(u) "STOCK" shall mean the Common Stock of the Company, with a par value
of $.01 per Share.
(v) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(w) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions, and restrictions pertaining to the acquisition of such
Shares.
(x) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION
To record the adoption of the Plan by the Board of Directors, the Company has
caused its authorized officer to execute the same.
HYDRON TECHNOLOGIES, INC.
By:
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Name:
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Title:
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