Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2003, the members of the
Compensation Committee were J. Christopher Lewis, Wade R. Olson and John R.
Woodhull, two of whom were independent directors of the Company. Mr. Olson
received professional services income from the Company. (See "Information
Regarding Director Not Standing for Re-Election and Certain Relationships and
Related Transactions".) None of the members of the Compensation Committee was,
at any time during fiscal year 2003 or at any other time, an officer or employee
of the Company. There are no Compensation Committee interlocks between the
Company and other entities involving the Company's executive officers and Board
members who serve as executive officers or Board members of such other entities.
The Compensation Committee:
Wade R. Olson, Chairman
J. Christopher Lewis
John R. Woodhull
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Named Executive Officers of the Company
Set forth below is certain information with respect to the Company's
current Named Executive Officers.
Steven S. Myers, age 57, has served as the Company's Chief Executive
Officer and Chairman of the Board for most of the Company's existence. Before
taking the Company public in January 1998, Mr. Myers managed some of the largest
proposals created by the aerospace industry supporting the nations most crucial
space and defense programs of the time. Under his leadership the Company has
become the world's leading provider of competition management services. Prior to
forming the Company, Mr. Myers was Vice President of Marketing for Loral Data
Systems and held several other key management and technical positions with Ball
Aerospace Systems Division, Fairchild Space and Electronics Company, and
Watkins-Johnson Company. Mr. Myers holds a Bachelor of Science degree in
Mathematics from Stanford University in California.
Cathy L. Wood, age 56, currently serves as Executive Vice President, Chief
Financial Officer and Corporate Secretary. Ms. Wood became an officer of the
Company in November 2001. Ms. Wood is also the President of Financial Management
Partners, a consulting firm that specializes in financial consulting. Prior to
entering into her Employment Agreement with the Company in 2001, Ms. Wood
provided services to the Company in her capacity as the President of Financial
Management Partners. From August, 1997 to December, 1999, Ms. Wood served as
Executive Vice President, Chief Financial Officer and Secretary for PIA
Merchandising, Inc. Ms. Wood served as Vice President and Chief Financial
Officer of Giant Group, Ltd., a NYSE listed company specializing in
acquisitions, from 1995 to 1997. Ms. Wood has also served in various capacities
at Wherehouse Entertainment, Inc., and served as a Vice President at Mellon
Bank, N.A. Ms. Wood currently serves on the Board of Directors of Goodwill
Industries, the Orange County Advisory Board of City National Bank, and the
Advisory Board of the National Women's Health Organization.
Bennett C. Beaudry, age 47, has served as the Company's President since
June 2003 and as Chief Operating Officer since October 2002. Mr. Beaudry became
a full-time employee of the Company in July 2000 as Vice President, Corporate
Strategy and Business Development. Prior to joining the Company, Mr. Beaudry was
a director with Motorola, leading a business unit. Mr. Beaudry was with Motorola
for 15 years. Mr. Beaudry was on active duty with the U.S. Army until 1985. Mr.
Beaudry is also Founder, President and Chief Executive Officer of B & C Beaudry,
Inc., a privately-held Arizona company providing engineering consulting
services. Mr. Beaudry holds a Master of Business Administration from Arizona
State University. Mr. Beaudry also maintains a Bachelor of Sciences
(concentration in Mechanical Engineering), from the United States Military
Academy at West Point.
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Steve D. Handy, age 36, currently serves as Vice President, Corporate
Controller. Mr. Handy became a full-time employee of the Company in December
2001 as Assistant Corporate Controller. Prior to joining the Company, Mr. Handy
was Director of Finance for Transnational Computer Technology, Inc., where,
among other functions, he implemented worldwide controls, policies and
procedures. From 2000 to 2001, Mr. Handy was Corporate Controller of Futurelink
Corporation where he directed all facets of the monthly internal financial
reporting, including quarterly and annual SEC reporting. Previous to this
Mr. Handy served as Senior Auditor, Business Advisory and Audit Services for
Deloitte & Touche LLP. Mr. Handy planned and executed financial statement audits
and reviews with emphasis on the high technology and healthcare markets.
Mr. Handy is licensed through the State of California as a Certified Public
Accountant. Mr. Handy holds a Bachelor of Science degree in Administration with
an emphasis in accounting, from California State University, San Marcos in
California.
Robert E. Bunnett, age 44, currently serves as Senior Vice President,
Operations and Recruiting. Mr. Bunnett became a full-time employee of the
Company in February 1995 as an Associate responsible for delivering high value
consulting, proposal, and program services to the Company's clients, including
introducing SM&A QuickStartSM. Mr. Bunnett was subsequently promoted to vice
president where he was responsible for key client accounts, including elements
of Lockheed Martin, Northrop Grumman, Raytheon, General Dynamics, CSC, Motorola,
and ITT. Prior to joining the Company, Mr. Bunnett was employed by McDonnell
Douglas (now part of Boeing) from 1983 to 1995. He held such positions as Senior
Manager of Advanced Product Development, Manager of Avionics Systems, and
Manager of Advanced C3I Systems. Mr. Bunnett holds a Bachelor of Science degree
in Electrical Engineering from Valparaiso University.
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Table 1: Summary Named Executive Officer Compensation Table
The following table sets forth information concerning compensation paid to
the Company's Chief Executive Officer and each of the four other executive
officers of the Company who earned, or would have earned, salary and bonus in
excess of $100,000 for services rendered to the Company for each of the fiscal
years in the three-year period ended December 31, 2003 (the "Named Executive
Officers"). Annual Compensation excludes perquisites and other personal benefits
that, in the aggregate, do not exceed the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for the Named Executive Officer.
Long Term
Compensation
Annual Compensation Awards
---------------------------------------------------- ----------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Stock Options Compensation
---------------------- -------- ----------------- ------------------- ---------------- ----------------
Steven S. Myers(1) 2003 $ 600,000 $ 400,000 - $ -
2002 $ 600,000 $ 398,535 (2) - $ -
2001 $ 398,058 $ 472,500 (3) - $ -
Cathy L. Wood(4) 2003 $ 365,000 $ 300,068 (5) 50,000 $ -
2002 $ 405,711 (6) $ 151,350 (7) 50,000 $ -
2001 $ 311,715 (8) $ 412,500 (9) - $ -
Bennett C. Beaudry(10) 2003 $ 256,730 $ 300,067 (11) 50,000 $ 18,300 (12)
2002 $ 274,117 $ 138,450 (13) 130,000 $ -
2001 $ 234,803 $ 36,000 (14) 30,000 $ -
Steve D. Handy(15) 2003 $ 104,230 $ 42,000 (16) 25,000 $ -
2002 $ 91,191 $ 28,700 (17) 25,000 $ -
2001 $ 3,269 (18) $ 3,000 (19) - $ -
Robert E. Bunnett(20) 2003 $ 201,461 $ 41,000 (21) - $ -
2002 $ 201,000 $ 42,191 (22) - $ -
2001 $ 201,000 $ 58,140 (23) 50,000 $ -
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Footnotes to Table 1:
(1) Chairman of the Board and Chief Executive Officer.
(2) This includes a $97,435 bonus earned by Mr. Myers in fourth
quarter ending December 31, 2002 and paid in 2003. In
addition, this includes a 50,000 bonus earned by Mr. Myers
in fourth quarter ending December 31, 2001 and paid in 2002.
(3) This includes a $375,000 bonus earned by Mr. Myers in 2001
in connection with the sale of a subsidiary and paid in
2002.
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Footnotes to Table 1: (continued)
(4) Executive Vice President, Chief Financial Officer and
Corporate Secretary.
(5) This includes an $80,384 bonus earned in 2003 and paid in
2004.
(6) This includes $49,134 in salary payments earned by
Ms. Wood in 2001 and paid in 2002. Ms. Wood became a
full-time employee of the Company on November 1, 2001 when
she entered into a two-year Employment Agreement with the
Company.
(7) This includes a $32,900 bonus earned by Ms. Wood in fourth
quarter ending December 31, 2001 and paid in 2002. In
addition, this includes a $83,450 bonus earned in 2002 and
paid in 2003.
(8) This amount represents payments made to Ms. Wood pursuant
to her consulting agreement with the Company for fiscal
year 2001.
(9) This includes a $365,000 bonus earned by Ms. Wood in 2001
in connection with the sale of a subsidiary and paid in
2002.
(10) President and Chief Operating Officer. Mr. Beaudry was
promoted to the position of President in June 2003.
(11) This includes an $80,384 bonus earned in 2003 and paid in
2004.
(12) Pursuant to the terms of Mr. Beaudry's employment
agreement, this represents monthly lease payments made
directly to the landlord of the residence in Orange
County, California occupied by Mr. Beaudry.
(13) This includes a $45,000 bonus earned by Mr. Beaudry in
fourth quarter ending December 31, 2002 and paid in 2003.
(14) This includes a $19,000 bonus earned by Mr. Beaudry in
fourth quarter ending December 31, 2001 and paid in 2002.
(15) Vice President and Corporate Controller. Mr. Handy was
promoted to Vice President in June 2003.
(16) This includes a $10,000 bonus earned in 2003 and paid in
2004.
(17) This includes a $3,000 bonus earned by Mr. Handy in the
fourth quarter ending December 31, 2002 and paid in 2003.
(18) Mr. Handy was hired as Assistant Controller in
December 2001.
(19) This amount represents a bonus earned by Mr. Handy in 2001
in connection with the sale of a subsidiary and paid in
2002.
(20) Senior Vice President, Operations and Recruiting.
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Footnotes to Table 1: (continued)
(21) Includes a $10,000 bonus earned in 2003 and paid in 2004.
(22) Includes a $10,000 bonus earned in 2002 and paid in 2003.
(23) Includes a $27,294 bonus earned in 2001 and paid in 2002.
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Table 2: Options Granted in Last Fiscal Year to Named Executive Officers
The following table provides certain information concerning stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 2003. This information includes hypothetical potential gains from stock
options granted in the 2003 fiscal year. These hypothetical gains are based
solely on assumed annual growth rates of 5% and 10% in the value of the
Company's Common Stock price over the five-year life of the stock options
granted in 2003. These assumed rates of growth were selected by the Securities
and Exchange Commission for illustration purposes only, and are not intended to
predict future stock prices, which will depend upon market conditions and the
Company's future performance and prospects.
Potential Realizable Value At
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(2)
------------------------------------------------------------------------------------------------------------ ------------------------------------------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees Exercise or
Options In Fiscal Base Price(1) Expiration 5% 10%
Name Granted Year 2003 ($/Sh) Date ($) ($)
-------------------------- ------------- ---------------- ---------------- --------------------- ------------------- -------------------
Bennett C. Beaudry 36,636 (3) 13.21 3.65 01/15/2013 84,097 213,117
13,364 (3) 4.82 3.65 01/15/2013 30,677 77,741
Steve D. Handy 25,000 9.02 3.73 01/21/2013 58,644 148,616
Steven S. Myers - - - - - -
Cathy L. Wood 28,753 (3) 10.37 11.53 09/30/2013 208,492 528,361
21,247 (3) 7.66 11.53 09/30/2013 154,065 390,432
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Footnotes to Table 2:
(1) The options were granted at an exercise price equal to the
fair market value of the Company's Common Stock on the date
of grant. The exercise price may be paid by delivery of cash
or with shares of SM&A Common Stock already owned, subject
to certain conditions. As of April 22, 2004, the last sale
price of the Company's Common Stock as quoted on the Nasdaq
National Stock Market was $8.73.
(2) Pursuant to applicable regulations, these amounts represent
certain assumed rates of appreciation only. Actual gain, if
any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market
conditions. The amounts reflected in this table may not
necessarily be achieved.
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(3) The indicated options shall become exercisable in sixteen
equal quarterly installments, commencing on the three-month
anniversary of the date of grant. Such stock options are in
the form generally approved for grants to officers of the
Company, provided, however, that such stock options shall
vest in full upon the occurrence of a Change of Control as
described in the respective employment agreements of
Mr. Beaudry and Ms. Wood.
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Table 3: Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values by Named Executive Officers
The following table provides certain information regarding stock options
exercised by the Named Executive Officers during the fiscal year ended December
31, 2003, as well as the number of exercisable and unexercisable in-the-money
stock options and their values at fiscal year-end. An option is in-the-money if
the fair market value for the underlying securities exceeds the exercise price
of the option.
Value of Unexercised
Shares Number of Unexercised In-the-Money
Acquired Options at Options at
on Value December 31, 2003 December 31, 2003(1)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
--------------------- ------------ ---------------- ----------------------------------- -----------------------------------------
Bennett C. Beaudry 0 $ 0 75,000 140,000 $ 665,175 $ 1,196,650
Robert E. Bunnett 33,875 $ 274,518 27,250 21,875 $ 149,263 $ 230,562
Steve D. Handy 6,250 $ 32,625 0 43,750 $ 0 $ 370,812
Steven S. Myers 0 $ 0 0 0 $ 0 $ 0
Cathy L. Wood 60,000 $ 640,140 98,425 109,375 $ 946,059 $ 591,659
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Footnotes to Table 3:
(1) Calculated on the basis of $11.70, the closing price of the
Company's Common Stock on December 31, 2003, minus the
exercise price of the option, multiplied by the number of
shares subject to the option
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Equity Compensation Plan Information
The following table provides information about the Company's Common Stock
that may be issued upon the exercise of options, warrants and rights under all
of the Company's existing equity compensation plans and arrangements as of
December 31, 2003. The material terms of these plans are described in the notes
to consolidated financial statements on Form 10-K for period ending December 31,
2003.
Number of
securities remaining
Number of securities available for future
to be issued upon Weighted-average issuance under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
Equity Compensation Plans
Approved by Shareholders
Amended & Restated
Stock Option Plan 1,891,142 $ 3.0961 1,205,744
Amended & Restated ESPP 1,096,222 (1) N/A (2) 203,778
Equity Compensation Plans
Not Approved by
Shareholders
None N/A N/A N/A
Footnotes to Equity Compensation Plan Information:
(1) Includes 25,636 shares of the Company's Common Stock
distributed to plan participants on or about January 14,
2004, in connection with the December 31, 2003 Purchase Date
under the Amended and Restated ESPP.
(2) Under the Amended and Restated ESPP, the purchase price per
share of Common Stock is 85% of the fair market value as
determined in accordance with the plan and Section 423 of
the Internal Revenue Code and applicable regulations
thereunder. The Company proposes to decrease the purchase
price per share to 95% of the fair market value.
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Employment Agreements
Steven S. Myers, Chief Executive Officer and Chairman of the Board.
The Company and Mr. Myers have entered into an Employment Agreement,
effective February 1, 2000, pursuant to which Mr. Myers is to serve as the
Company's Chief Executive Officer and Chairman of the Board. This agreement has
been amended by an Amendment No. 1, dated December 29, 2000, an Amendment No. 2,
dated April 12, 2002, an Amendment No. 3, dated January 30, 2003, and an
Amendment No. 4, dated January 20, 2004. As amended, the agreement provides for
a term ending June 30, 2006, an annual base salary of $600,000 and an annual
incentive bonus in an amount equal to 3.25% of the Company's earnings before
interest, taxes, depreciation and amortization charges ("EBITDA"), calculated
and paid quarterly, not to exceed $400,000 in any fiscal year. Mr. Myers and his
dependents are entitled to receive reimbursement for documented medical expenses
not otherwise covered by the Company's medical plan and long-term care and
disability insurance coverage. Mr. Myers may not compete with the Company during
the term of the agreement, and may not solicit any employees to leave their
employment with the Company for a period of two years following the expiration
of the term of the agreement. Mr. Myers has an obligation to keep confidential
and protect the trade secrets and other confidential information of the Company
and its customers.
The Company may terminate the agreement at any time for "Cause" (as defined
therein), or without "Cause" on 30 days' prior notice. Mr. Myers may resign at
any time on 30 days' prior notice. If Mr. Myers is terminated without "Cause,"
or if he resigns for "Good Reason" (as defined in the agreement), he will
receive his base salary, health and welfare benefits and a car allowance for the
shorter of twelve months or until the expiration of the term of the agreement,
and he will receive the pro rata portion of any incentive bonus which has been
earned through the date of his termination. Upon the occurrence of a change of
control of the Company, all of Mr. Myers' outstanding stock options will, to the
extent unvested, vest in full and be immediately exercisable, and shall remain
exercisable for the shorter of two years or their expiration according to their
terms.
Cathy L. Wood, Executive Vice President, Chief Financial Officer and
Corporate Secretary.
The Company and Ms. Wood have entered into an Employment Agreement,
effective November 1, 2001, pursuant to which Ms. Wood is to serve as the
Company's Executive Vice President, Chief Financial Officer and Corporate
Secretary. This agreement has been amended by an Amendment No. 1, dated
October 4, 2002, an Amendment No. 2, dated January 30, 2003, and an Amendment
No. 3, dated January 20, 2004. As amended, the agreement provides for a term
ending December 31, 2005, an annual base salary of $400,000 and an annual
incentive bonus in an amount equal to 1.5% of the Company's EBITDA, calculated
and paid quarterly. Ms. Wood is entitled to a $150,000 bonus if the Company's
revenues for the fiscal year ended December 31, 2004 exceed $100 million. Ms.
Wood also receives an annual stock option grant for the purchase of 100,000
shares of the Company's common stock at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. These options
vest and become exercisable in 16 quarterly installments. Ms. Wood and her
dependents are entitled to reimbursement for documented medical expenses not
otherwise covered by the Company's medical plan and long-term care and
disability insurance coverage. Ms. Wood may not compete with the Company during
the term of the agreement, and may not solicit any employees to leave their
employment with the Company for a period of two years following the expiration
of the term of the agreement. Ms. Wood has an obligation to keep confidential
and protect the trade secrets and other confidential information of the Company
and its customers.
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The Company may terminate the agreement at any time for "Cause" (as defined
therein), or without "Cause" on 30 days' prior notice. Ms Wood may resign at any
time on 30 days' prior notice. If Ms Wood is terminated without "Cause," or if
she resigns for "Good Reason" (as defined in the agreement), she will receive
her base salary, and health and welfare benefits, for the shorter of twelve
months or until the expiration of the term of the agreement, and she will
receive the pro rata portion of any incentive bonus which has been earned
through the date of her termination. If Ms. Wood is terminated without "Cause"
or resigns for "Good Reason" within twelve months following a change of control
of the Company, Ms. Wood will receive (i) a lump sum payment equal to her annual
base salary for the shorter of the remainder of the term of the agreement or
twelve months, and (ii) health and welfare benefits for the shorter of the
remainder of the term of the agreement, the date which is 18 months from the
date of the change of control, or the date which is 12 months from the date of
termination. Upon the occurrence of a change of control, Ms. Wood will be
entitled to a lump sum payment in an amount equal to her annual base salary, and
all of her outstanding stock options will, to the extent unvested, vest in full
and be immediately exercisable.
Bennett C. Beaudry, President and Chief Operating Officer.
The Company and Mr. Beaudry have entered into an Employment Agreement,
effective June 1, 2002, pursuant to which Mr. Beaudry is to serve as the
Company's President and Chief Operating Officer. This agreement has been amended
by an Amendment No. 1, dated January 30, 2003, and an Amendment No. 2, dated
January 20, 2004. As amended, the agreement provides for a term ending
December 31, 2006, an annual base salary of $300,000 for 2004, $330,000 for 2005
and $360,000 for 2006, and an annual incentive bonus in an amount equal to 1.5%
of the Company's EBITDA, calculated and paid quarterly. Mr. Beaudry is entitled
to a $150,000 bonus if the Company's revenues for the fiscal year ended
December 31, 2004 exceed $100 million. Mr. Beaudry also receives an annual stock
option grant for the purchase of 100,000 shares of the Company's common stock at
an exercise price equal to the fair market value of the Company's common stock
on the date of grant. These options vest and become exercisable in 16 quarterly
installments. Mr. Beaudry and his dependents are entitled to reimbursement for
documented medical expenses not otherwise covered by the Company's medical plan
and long term care and disability insurance coverage, and Mr. Beaudry receives a
housing allowance of $1,850 per month. Mr. Beaudry may not compete with the
Company during the term of the agreement, and may not solicit any employees to
leave their employment with the Company for a period of two years following the
expiration of the term of the agreement. Mr. Beaudry has an obligation to keep
confidential and protect the trade secrets and other confidential information of
the Company and its customers.
The Company may terminate the agreement at any time for "Cause" (as defined
therein), or without "Cause" on 30 days' prior notice. Mr. Beaudry may resign at
any time on 30 days' prior notice. If Mr. Beaudry is terminated without "Cause,"
or if he resigns for "Good Reason" (as defined in the agreement), he will
receive his base salary, and health and welfare benefits, for the shorter of
twelve months or until the expiration of the term of the agreement, and he will
receive the pro rata portion of any incentive bonus which has been earned
through the date of his termination. If Mr. Beaudry is terminated without
"Cause" or resigns for "Good Reason" within twelve months following a change of
control of the Company, Mr. Beaudry will receive (i) a lump sum payment equal to
his annual base salary for the shorter of the remainder of the term of the
agreement or twelve months, and (ii) health and welfare benefits for the shorter
of the remainder of the term of the agreement, the date which is 18 months from
the date of the change of control, or the date which is 12 months from the date
of termination. Upon the occurrence of a change of control, Mr. Beaudry will be
entitled to a lump sum payment in an amount equal to his annual base salary, and
all of his outstanding stock options will, to the extent unvested, vest in full
and be immediately exercisable.
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