Mr. Rubin's employment agreement provides that the Company must make certain payments to him if his employment is terminated as a result of a change in control (as defined in the employment agreement). Under Mr. Rubin's employment agreement, he will receive the benefits provided under the agreement if, after a change in control, his employment is terminated other than for cause (as defined in the agreement) or if he terminates his employment after certain actions (as specified in the agreement) that adversely affect him are taken. Under the employment agreement, Mr. Rubin must remain employed with the Company for six months following the first potential change in control to be entitled to these benefits. These benefits are more fully described under "Employment Contract for Chairman of the Board, Chief Executive Officer and President."

The change in control provisions of Mr. Rubin's employment agreement are intended to ensure that we will retain the benefit of Mr. Rubin's services without distraction in the face of a potential change in control and that Mr. Rubin will evaluate potential transactions on an objective basis. The Compensation Committee believes the change in control provisions in Mr. Rubin's employment agreement are reasonable and necessary considering the competitive conditions of the Company and its industry.

The employment agreement also provides for the immediate vesting of all options granted to Mr. Rubin if his employment is terminated by the Company without "cause," if he terminates his employment for "good reason" or if his employment is terminated for death or disability. As of the end of fiscal 2007, all of Mr. Rubin's options are fully vested.

Severance

The employment agreement of the Chief Executive Officer provides that, if his employment is terminated by the Company without "cause" or if he terminates his employment for "good reason" (as those terms are defined in his employment agreement), then he will be entitled to, among other things, payment of an amount equal to three years base salary plus three times the highest annual bonus paid to him in the preceding three years. If such termination follows a change in control of the Company, Mr. Rubin will receive these amounts in one lump sum payment. Otherwise he will receive his base salary in equal monthly payments and his bonus annually after the close of each fiscal year for three years. Our Chief Executive Officer would also be entitled to receive certain benefits following a termination of his employment by reason of death or disability. These benefits are more fully described under "Employment Contract for Chairman of the Board, Chief Executive Officer and President." The employment agreement also provides for the immediate vesting of all options granted to Mr. Rubin if his employment is terminated by the Company without "cause," if he terminates his employment for "good reason" or if his employment is terminated for death or disability. As of the end of fiscal 2007, all of Mr. Rubin's options are fully vested.  

 

 

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The Company's Compensation Program for Named Executive Officers Other Than Our Chief Executive Officer:

The Company’s other named executive officers are not party to employment agreements. As a result, their compensation is reviewed and determined by the Compensation Committee on an annual basis. The Compensation Committee may also review a named executive officer's compensation if that executive officer is promoted or experiences a change in responsibilities.

Elements of Our Compensation Program for Our Other Named Executive Officers

The principal components of compensation for named executive officers other than our Chief Executive Officer are:

·	Base salary;

·	Bonuses, including performance-based incentive bonuses;

·	Long-term equity compensation; and

·	Other personal benefits.

The Company has no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Rather, the Compensation Committee reviews the performance of the Company and the individuals and determines the appropriate level and mix of compensation elements.

Base Salary of Our Other Named Executive Officers

The Company provides our named executive officers with a base salary to provide a fixed amount of compensation for regular services rendered during the fiscal year. In setting or increasing base salaries, the Compensation Committee strongly considers the recommendations made by our Chief Executive Officer. In addition, the committee considers each executive's job responsibilities, qualifications, experience, performance history and length of service with the Company and comparable salaries paid by our competitors.

Annual Incentive Bonuses for Our Other Named Executive Officers

Performance-based awards are intended to align executives' interests with our annual corporate goals. Annual incentive bonuses take into account both individual and Company performance, including the Company's earnings. While the amount of funds available for distribution as bonuses varies with Company earnings, the actual amount that may be distributed is subjectively determined each year considering recommendations made by our Chief Executive Officer and reviewed by the Compensation Committee.

Bonuses are calculated as percentages of base salary, historically ranging from 20% to 30% for named executive officers. Although incentive bonuses are primarily based on individual and corporate performance, in some circumstances the Compensation Committee may provide additional discretionary bonus awards. The committee believes that discretionary bonuses, where warranted, can be effective in motivating, rewarding and retaining our executive officers.

Long Term Equity Compensation for Our Other Named Executive Officers

The Company grants equity awards to our named executive officers, other than our Chief Executive Officer, and to key employees under our 1998 Stock Option and Restricted Stock Plan (the "1998 Plan"). Equity-based compensation and ownership give these individuals a continuing stake in the long-term success of the Company, and the delayed vesting of stock options helps to encourage retention. Since August 2005, Mr. Rubin and Mr. Carameros, who served as Executive Vice President of the Company until August 31, 2006, have not been eligible to receive grants under the 1998 Plan.

The purposes of the 1998 Plan are to:

·	offer selected employees of the Company or its subsidiaries an equity ownership interest in the financial success of the Company;

 

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·	provide the Company an opportunity to attract and retain the best available personnel for positions of substantial responsibility; and

·	encourage equity participation in the Company by eligible participants.

The 1998 Plan is administered by the Compensation Committee as a long-term component of the Company’s compensation package. The number of equity awards granted to each eligible named executive officer is made on a discretionary rather than formula basis by the Compensation Committee with the recommendation of the Chief Executive Officer. Historically, the Compensation Committee has only granted stock options under the plan, but the committee may in the future elect to grant restricted stock.

According to the terms of the 1998 Plan, any unvested options immediately vest upon death, disability, or a change in control of the Company. In addition, if an option holder's employment with the Company is terminated, any exercisable options held by that employee may be exercised for a period of:

·	for both incentive stock options (“ISO’s”) and nonstatutory options (“NSO’s”), up to twelve months if the termination of employment was due to the employee's death or disability;

·	for ISO’s, up to ninety days, where the employee is terminated without cause;

·	for NSO’s, up to six months, where the employee is terminated without cause; or

·	up to thirty days, if the termination of employment was for any other reason.

The maximum number of shares the Compensation Committee may issue under the 1998 Plan in each fiscal year is 250,000 shares, but any shares of restricted stock that may be granted under the plan will reduce the number of shares available for grant by three shares for each share of restricted stock granted. In the event that in any fiscal year less than 250,000 shares are granted, then the amount of shares that can be granted in any future fiscal year will increase by the excess of 250,000 over the amount of shares actually granted in such year until the excess number of shares have been granted. In addition, shares available for grant as a result of cancellation or termination of previously granted awards will also be available for grant in any fiscal year until such shares have been granted. As of February 28, 2007, 478,886 shares remained available for issuance under the 1998 Plan. For a more detailed discussion of the material terms of the 1998 Plan, see “Stock Option and Restricted Stock Plan.”

We also maintain our 1998 Employee Stock Purchase Plan, which was approved by the Company's shareholders at our 1998 annual general meeting. All employees are eligible to participate in the plan, including the named executive officers. Under the plan, employees are entitled to purchase shares of the Company's Common Stock at a discount to market value. The purchase price is 85% of the average of the highest and lowest sale prices of the Common Stock on NASDAQ on either the first day or last day of each option period, whichever is less. As of February 28, 2007, 307,386 shares remain available for issuance under the Employee Stock Purchase Plan. For an additional discussion of the material terms of the Employee Stock Purchase Plan, see “Employee Stock Purchase Plan.”

Other Personal Benefits Provided for Our Other Named Executive Officers

We provide other benefits to the named executive officers, such as a 401(k) plan, group medical, group disability, group life and group dental insurance, as well as vacation and paid holidays. These benefits are available to all our employees and we believe they are comparable to those provided at other companies.

Option Grant Practices

Grants of stock options are made without regard to anticipated earnings or other material announcements by the Company. The exercise price of stock options is the average of the highest and lowest sale price of our common shares on NASDAQ on the date of the grant. The vesting period of options for officers has historically been over a five year period at the graduated rate per year of 10%, 15%, 20%, 25%, and 30%. The Compensation Committee believes that these vesting terms encourage retention of our executive officers. The Compensation Committee may, however, adjust the vesting of options as it deems necessary under the circumstances. In January 2007, our Board of Directors determined that we would begin making any annual grants of stock options to current officers and employees on the first business day following the public announcement of the fiscal year-end financial results.

 

 

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Former Executive Vice President

Mr. Carameros served as Executive Vice President until his resignation on August 31, 2006. While he was serving as Executive Vice President, Mr. Carameros received a monthly base salary of $50,000. Mr. Carameros did not receive a bonus for fiscal 2007. Since August 2005, Mr. Carameros has not been eligible to receive grants under the 1998 Plan. In exchange for certain transitional services provided by Mr. Carameros to the Company from the date of his resignation through February 28, 2007, L & M Asset Management Inc., a privately-held company that holds certain of Mr. Carameros' personal investments, was paid $300,000 in consulting fees and $6,740 to cover the cost of his Cobra health insurance.

Tax Implications of Executive Compensation

Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that a company may deduct in any one year with respect to its principal executive officer and each of its other three most highly paid executive officers. There is an exception to the $1,000,000 limitation for performance-based compensation that meets certain requirements. Annual cash incentive compensation and stock option awards are generally performance-based compensation that meets those requirements and, as such, are fully deductible.

Incentive cash bonus payments to our Chief Executive Officer under the Bonus Plan and grants of stock options to our other named executive officers under our 1998 Plan are intended to comply with Section 162(m) for treatment as performance-based compensation. Therefore, we expect to deduct compensation of the Chief Executive Officer and our other named executive officers related to compensation under each of these plans.

The Compensation Committee has considered and will continue to consider tax deductibility in structuring compensation arrangements. However, the Compensation Committee retains discretion to establish executive compensation arrangements that it believes are consistent with the principles described earlier and in the best interests of our Company and its shareholders, even if those arrangements may not be fully deductible under Section 162(m).

 

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EXECUTIVE COMPENSATION

The following table sets forth the summary of compensation earned during fiscal 2005 through 2007 by the Company's Chief Executive Officer and its other named executive officers.

 

Summary Compensation Table for Fiscal Years 2007, 2006 and 2005
Name and principal position		Year			Salary ($)			Bonus ($)(1)			Option Awards ($)(2)			All Other Compensation ($)(3)			Total ($)
Gerald J. Rubin			2007			600,000			4,110,639			-			60,916			4,771,555
Chairman, Chief Executive			2006			600,000			4,140,229			-			57,811			4,798,040
Officer, and President			2005			600,000			9,320,685			-			73,203			9,993,888
Thomas J. Benson			2007			315,000			84,808			20,916			7,192			427,916
Senior Vice President			2006			290,000			105,481			-			6,930			402,411
and Chief Financial Officer			2005			267,500			109,615			-			6,780			383,895
Vincent D. Carson			2007			191,000			3,673			17,306			6,239			218,218
Vice President and			2006			191,000			41,873			-			6,327			239,200
General Counsel			2005			191,000			45,546			-			6,114			242,660
Christopher L. Carameros (4)			2007			300,000			-			4,222			307,079			611,301
Former Executive Vice-President			2006			600,000			500,000			-			7,266			1,107,266
			2005			600,000			750,000			-			7,116			1,357,116

 

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(1)	Mr. Rubin’s bonuses were calculated and awarded pursuant to the Company’s 1997 Cash Bonus Performance Plan, as amended and approved by the shareholders in August 2003.

 

(2)

These amounts reflect the expense of equity awards recognized in our fiscal 2007 financial statement reporting of two share-based compensation plans: a stock option and restricted stock plan adopted in fiscal 1998, as amended, and an employee stock purchase plan adopted in fiscal 1999. The expense recognized for financial statement reporting was determined in accordance with Statement of Financial Accounting Standards No. 123(R), and includes amounts from awards granted prior to fiscal 2007. Assumptions used in the calculation of these amounts are discussed in Note (9) to the Company’s audited financial statements for the fiscal year ended February 28, 2007, included in the Company’s Annual Report on Form 10-K for the year then ended, filed with the SEC on May 14, 2007.

(3)

This column reports all other compensation for the covered fiscal year that the Company could not properly report in any other column of the Summary Compensation Table. Details of amounts in this column are provided in the table entitled “All Other Compensation for Fiscal Year 2007” set forth below.

(4)	Mr. Carameros served as Executive Vice President until August 31, 2006, the effective date of his resignation from the Company.

 

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In fiscal 2007, the following compensation was paid to our named executive officers, which comprises “All Other Compensation:”

 

All Other Compensation for Fiscal Year 2007
Name		Consulting Fee ($)(1)			Cobra Benefit Paid ($)(1)			401(k) Plan ($)			Group Life Insurance ($)			Disability Insurance ($)			Auto Lease ($)			Life Insurance Benefit ($)(2)			Total ($)
Gerald J. Rubin									6,600			2,360			5,798			16,297			29,861			60,916
Thomas J. Benson									6,600			592			-			-			-			7,192
Vincent D. Carson									5,730			509			-			-			-			6,239
Christopher L. Carameros			300,000			6,740			-			339			-			-			-			307,079

 

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(1)

Mr. Carameros served as Executive Vice President until August 31, 2006, the effective date of his resignation from the Company. In exchange for certain transitional services provided to the Company through February 28, 2007, L & M Asset Management Inc., a privately-held company that holds certain of Mr. Carameros' personal investments, was paid $300,000 in consulting fees and $6,740 to cover the cost of his Cobra health insurance benefits.

(2)

Includes amounts attributable to the economic benefit received for executive and survivorship life insurance policies. The economic benefit of such policies totaled $29,861 in fiscal 2007. In fiscal 2007, the Board of Directors elected to make a payment of $25,914 toward the premiums on these policies and directed that the remainder of the premiums be paid out of the accumulated cash surrender value of the policies (which the Company owns). See “Certain Relationships and Related Transactions.”

 

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