SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
HEICO CORPORATION
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(Name of Registrant As Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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HEICO CORPORATION
3000 TAFT STREET, HOLLYWOOD, FLORIDA 33021
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 16, 2007
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The Annual Meeting of Shareholders of HEICO Corporation, a Florida
corporation, will be held on March 16, 2007 at 10:00 a.m., Eastern Daylight
Time, at the Conrad Miami Hotel at Espirito Santo Plaza, 1395 Brickell Avenue,
Miami, Florida 33131, for the following purposes:
1. To elect a Board of Directors for the ensuing year;
2. To approve the HEICO Corporation 2007 Incentive Compensation Plan;
3. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent registered public accounting firm for the
fiscal year ending October 31, 2007; and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only holders of record of HEICO Corporation Common Stock and Class A
Common Stock as of the close of business on January 22, 2007 will be entitled to
vote at the Meeting.
You are requested, regardless of the number of shares owned, to sign
and date the enclosed proxy and to mail it promptly, or to use the telephone or
Internet voting systems set forth in the proxy. You may revoke your proxy either
by a written notice to HEICO or in person at the meeting (without affecting any
vote previously taken).
BY ORDER OF THE BOARD OF DIRECTORS
LAURANS A. MENDELSON
Chairman of the Board,
President and Chief Executive
Officer
February 16, 2007
HEICO CORPORATION
3000 TAFT STREET, HOLLYWOOD, FLORIDA 33021
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PROXY STATEMENT
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This Proxy Statement is furnished to the shareholders of HEICO
Corporation ("HEICO" or the "Company") in connection with the solicitation of
proxies by HEICO's Board of Directors for use at the Annual Meeting of
Shareholders of HEICO (the "Annual Meeting") to be held at the Conrad Miami
Hotel at Espirito Santo Plaza, 1395 Brickell Avenue, Miami, Florida 33131 on
Friday, March 16, 2007 at 10:00 a.m., Eastern Daylight Time. This Proxy
Statement is first being mailed to shareholders on or about February 20, 2007.
At the annual meeting, the shareholders will be asked to elect a Board
of Directors ("Board"); to approve the HEICO Corporation 2007 Incentive
Compensation Plan; to ratify the appointment of Deloitte & Touche LLP as the
Company's independent registered public accounting firm for the fiscal year
ending October 31, 2007; and to vote on any other business which properly comes
before the meeting.
The Board of Directors of HEICO urges you to promptly date, sign and
mail your proxy, or to use the telephone or Internet voting systems set forth in
the proxy, in the form enclosed with this Proxy Statement, to make certain that
your shares are voted at the meeting. Proxies in the enclosed or other
acceptable form that are received in time for the meeting will be voted.
However, you may revoke your proxy at any time prior to its use by a revocation
in writing or a later dated proxy that is received in sufficient time by HEICO
prior to the Annual Meeting; and, if you attend the meeting, you may vote your
shares in person.
If your proxy is received in time for the meeting, it will be voted in
the manner specified by you in the proxy. If you do not specify a choice, the
proxy will be voted as indicated in the form of proxy.
HEICO will bear the expense of soliciting proxies in the accompanying
form. Solicitations will be by mail, and directors, officers and regular
employees of HEICO may solicit proxies personally or by telephone, telegram or
special letter. HEICO will also employ D. F. King & Co., 48 Wall Street, New
York, New York 10005, to assist in soliciting proxies for a fee of $6,500 plus
related out-of-pocket expenses.
Only holders of record of HEICO Common Stock, $0.01 par value per share
(the "Common Stock"), and Class A Common Stock, $0.01 par value per share (the
"Class A Common Stock"), as of the close of business on January 22, 2007 will be
entitled to vote at the meeting. On that date, there were outstanding 10,414,778
shares of Common Stock, each entitled to one vote, and 15,134,223 shares of
Class A Common Stock, each entitled to 1/10th vote per share.
VOTING REQUIREMENTS
The presence, in person or by proxy, of the holders of a majority of
the voting power of the shares of all classes of the Company's common stock
entitled to vote shall constitute a quorum at the annual meeting of
shareholders. If a quorum is present, the affirmative vote of a majority of the
voting power of the shares of all classes of the Company's common stock
represented in person or by proxy at the annual meeting and entitled to vote on
the subject matter at the annual meeting shall be required to elect members of
the Board of Directors.
A proxy submitted by a shareholder may indicate that all or a portion
of the shares represented by such proxy are not being voted by such shareholder
with respect to a particular matter ("non-voted shares"). This could occur, for
example, when a broker is not permitted to vote shares held in "street name" on
certain matters in the absence of instructions from the beneficial owner of the
shares. Non-voted shares with respect to a particular matter will be counted for
purposes of determining the presence of a quorum but will not be counted as
shares present and entitled to vote on such matter for purposes of voting, and
therefore, will have no effect on matters brought to a vote
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at the annual meeting. Shares voted to abstain as to a particular matter and
directions to "withhold authority" to vote for directors, will be counted for
purposes of determining the presence of a quorum and will be counted as present
and entitled to vote with respect to such matter for purposes of voting, and
therefore, will have the effect of votes against the matters brought to a vote
at the annual meeting.
Under the terms of the HEICO Savings and Investment Plan (the "Plan"),
all shares allocated to the accounts of participating employees will be voted or
not voted by the trustee of the Plan as directed by written instructions from
the participating employees, and allocated shares for which no instructions are
received and all unallocated shares will be voted by the trustee of the Plan in
the same proportion as the shares for which instructions are received. Voting
instruction cards are being mailed to all participants in the Plan. If a
participant also owns shares outside the Plan, the participant must return both
the proxy card and the voting instruction card as indicated on those cards in
order to cause all of their shares to be voted in accordance with their
instructions. To be assured that the trustee will receive voting instruction
cards on a timely basis, voting instruction cards for shares in the Plan must be
duly signed and received no later than March 13, 2007. The total number of
shares in the Plan as of the record date represents approximately 8.1% of the
voting power of all classes of common stock outstanding as of the record date
and entitled to vote at the annual meeting.
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VOTING SECURITIES OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of HEICO Common Stock and Class A Common Stock as of January 22, 2007
by (i) each person who is known to the Company to be the beneficial owner of
more than 5% of the outstanding Common Stock or Class A Common Stock; (ii) the
Chief Executive Officer and the other four most highly compensated executive
officers; (iii) each of the directors of the Company; and (iv) all directors and
executive officers of the Company as a group. Except as set forth below, the
shareholders named below have sole voting and investment power with respect to
all shares of Common Stock and Class A Common Stock shown as being beneficially
owned by them.
SHARES BENEFICIALLY OWNED (2)
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CLASS A
COMMON STOCK COMMON STOCK
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NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------------------------- ---------- ---------- ---------- ----------
(a) Certain beneficial owners:
Mendelson Reporting Group (3) ........................................ 2,503,527 22.54% 390,191 2.54%
Dr. Herbert A. Wertheim (4) .......................................... 1,136,176 10.91% 1,132,196 7.48%
Royce & Associates, LLC (5) .......................................... -- -- 1,504,937 9.94%
Renaissance Technologies Group (6) ................................... 833,800 8.01% -- --
Susquehanna Investment Group (7) ..................................... -- -- 1,196,029 7.90%
JPMorgan Chase & Co. (8) ............................................. 700,220 6.72% -- --
Investment Counselors of Maryland, LLC (9) ........................... -- -- 976,856 6.45%
Baron Reporting Group (10) ........................................... -- -- 932,900 6.16%
Barclays Global Reporting Group (11) ................................ 552,046 5.30% -- --
Rene Plessner Reporting Group (12) ................................... 540,497 5.19% -- --
T. Rowe Price Associates, Inc. (13) .................................. -- -- 760,720 5.03%
(b) Directors:
Samuel L. Higginbottom ............................................... 5,749 * 200 *
Wolfgang Mayrhuber (14) .............................................. 31,313 * 23,137 *
Eric A. Mendelson (15) ............................................... 731,515 6.81% 172,714 1.13%
Laurans A. Mendelson (16) ............................................ 1,373,521 13.13% 147,682 *
Victor H. Mendelson (17) ............................................. 713,055 6.64% 199,213 1.31%
Albert Morrison, Jr. (18) ............................................ 19,864 * 15,078 *
Joseph W. Pallot ..................................................... 1,316 * * *
Dr. Alan Schriesheim (19) ............................................ 112,180 1.07% 97,995 *
Frank J. Schwitter ................................................... * * * *
(c) Executive officers listed in Summary Compensation Table
who are not directors:
Thomas S. Irwin (20) ................................................. 503,789 4.74% 100,278 *
All directors and executive officers as a group (11 persons) (21) .... 3,188,192 27.82% 637,334 4.11%
All directors, executive officers, the HEICO Savings and
Investment Plan and the Mendelson Reporting Group as a
group (22) ........................................................ 3,973,111 34.67% 1,352,530 8.71%
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* Represents ownership of less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner
identified is c/o HEICO Corporation, 3000 Taft Street, Hollywood, Florida
33021.
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(2) The number of shares of Common Stock and Class A Common Stock deemed
outstanding as of January 22, 2007 includes (i) 10,414,778 shares of Common
Stock; (ii) 15,134,223 shares of Class A Common Stock; and (iii) shares
issuable upon exercise of stock options held by the respective person or
group which are presently exercisable or which may be exercised within 60
days after January 22, 2007 as set forth below. Pursuant to the rules of
the Securities and Exchange Commission, presently exercisable stock options
and stock options that become exercisable within 60 days are deemed to be
outstanding and beneficially owned by the person or group for the purpose
of computing the percentage ownership of such person or group, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person or group.
(3) The Mendelson Reporting Group consists of Laurans A. Mendelson; Eric A.
Mendelson; Victor H. Mendelson; Mendelson International Corporation, a
corporation whose stock is owned solely by Eric and Victor Mendelson and
whose Chairman of the Board is Laurans A. Mendelson; LAM Limited Partners,
a partnership whose sole general partner is a corporation controlled by
Arlene Mendelson, the wife of Laurans A. Mendelson; LAM Alpha Limited
Partners, a partnership whose sole general partner is a corporation
controlled by Laurans A. Mendelson; EAM Management Limited Partners, a
partnership whose sole general partner is a corporation controlled by Eric
A. Mendelson; VHM Management Limited Partners, a partnership whose sole
general partner is a corporation controlled by Victor H. Mendelson; and the
Victor H. Mendelson Revocable Investment Trust, whose grantor, sole
presently vested beneficiary and trustee is Victor H. Mendelson. Includes
691,000 shares of Common Stock and 212,601 shares of Class A Common Stock
subject to stock options that are presently exercisable or exercisable
within 60 days after January 22, 2007. See Notes (15), (16) and (17) below.
The address of the Mendelson Reporting Group is 825 Brickell Bay Drive,
16th Floor, Miami, Florida 33131.
(4) The address of Dr. Wertheim is 191 Leucadendra Drive, Coral Gables, Florida
33156.
(5) Based on information in a Schedule 13G/A filed on January 22, 2007, all
shares are held in portfolios of certain mutual funds and/or institutional
accounts managed by Royce & Associates, LLC, a registered investment
advisor. The address of Royce & Associates, LLC is 1414 Avenue of the
Americas, New York, New York 10019.
(6) Based on information in a Schedule 13G filed on February 12, 2007, all
shares are beneficially owned by Renaissance Technologies Corp., an
investment advisor, and James H. Simons, control person of Renaissance
Technologies Corp. The address of Renaissance Technologies Corp. and James
H. Simons is 800 Third Avenue, New York, New York 10022.
(7) Based on information in a Schedule 13G/A filed on February 7, 2007, all
shares are held by Susquehanna Investment Group, registered brokers or
dealers. The address of Susquehanna Investment Group is 401 City Avenue,
Suite 220, Bala Cynwyd, Pennsylvania 19004.
(8) Based on information in a Schedule 13G filed on February 8, 2007, by
JPMorgan Chase & Co., a parent holding company, and on behalf of its wholly
owned subsidiaries (i) JPMorgan Chase Bank, National Association; (ii) J.P.
Morgan Investment Management Inc.; and (iii) JPMorgan Investment Advisors
Inc. The address of JPMorgan Chase & Co. is 270 Park Avenue, New York, New
York 10017.
(9) Based on information in a Schedule 13G filed on February 6, 2007, all
shares are held in portfolios of advisory clients of Investment Counselors
of Maryland, LLC, a registered investment advisor. The address of
Investment Counselors of Maryland, LLC is 803 Cathedral Street, Baltimore,
Maryland 21201.
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(10) Based on information in a Schedule 13G filed on February 14, 2007, all
shares are beneficially owned by Baron Capital Group, Inc. ("BCG") and
Ronald Baron, parent holding companies; BAMCO, Inc., a registered
investment advisor; and Baron Small Cap Fund, a registered investment
company, (collectively "Baron Reporting Group"). BCG and Ronald Baron
disclaim beneficial ownership of shares held by their controlled entities
(or the investment advisory clients thereof) to the extent such shares are
held by persons other than BCG and Ronald Baron. BAMCO, Inc. disclaims
beneficial ownership of shares held by its investment advisory clients to
the extent such shares are held by persons other than BAMCO, Inc. and its
affiliates. The address of Baron Reporting Group is 767 Fifth Avenue, New
York, New York 10153.
(11) Based on information in a Schedule 13G filed on January 23, 2007, reflects
257,070 shares of Common Stock held by Barclays Global Investors, NA, a
bank, and 294,976 shares of Common Stock held by Barclays Global Fund
Advisors, a registered investment advisor. The address of Barclays Global
Investors, NA and Barclays Global Fund Advisors is 45 Fremont Street, San
Francisco, California 94105.
(12) Based on information in a Schedule 13D dated February 24, 2002 filed by Mr.
Plessner individually and as sole Trustee for the Rene Plessner Associates,
Inc. Profit Sharing Plan. Reflects 107,127 shares of Common Stock held by
Mr. Plessner and 433,370 shares of Common Stock held by the Rene Plessner
Associates, Inc. Profit Sharing Plan, an employee profit sharing plan of
Rene Plessner Associates, Inc., an executive search company. The address of
Rene Plessner Reporting Group is 200 East 74th Street, Penthouse A, New
York, New York 10021.
(13) Based on information in a Schedule 13G filed on February 13, 2007, all
shares are beneficially owned by T. Rowe Price Associates, Inc., a
registered investment advisor. The address of T. Rowe Price Associates,
Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.
(14) Includes 30,000 shares of Common Stock and 20,930 shares of Class A Common
Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007.
(15) Includes 157,282 shares of Common Stock and 64,709 shares of Class A Common
Stock held by Mendelson International Corporation; 82,360 shares of Common
Stock held by EAM Management Limited Partners; 323,000 shares of Common
Stock and 83,879 shares of Class A Common Stock subject to stock options
that are presently exercisable or exercisable within 60 days after January
22, 2007; 20,190 shares of Common Stock and 19,099 shares of Class A Common
Stock held by the HEICO Savings and Investment Plan and allocated to Eric
A. Mendelson's account; and 950 shares of Common Stock and 1,094 shares of
Class A Common Stock owned by Eric A. Mendelson's children. See Note (3)
above.
(16) Laurans A. Mendelson disclaims beneficial ownership with respect to 157,282
shares of Common Stock and 64,709 shares of Class A Common Stock,
respectively, of these shares, which are held in the name of Mendelson
International Corporation and 45,441 shares of Common Stock and 13,175
shares of Class A Common Stock, which were donated to and are presently
held by the Laurans A. and Arlene H. Mendelson Charitable Foundation, Inc.,
of which Mr. Mendelson is President. Includes 1,099,788 shares of Common
Stock and 235 shares of Class A Common Stock held solely by Mr. Mendelson
or LAM Limited Partners or LAM Alpha Limited Partners. Also includes 45,000
shares of Common Stock and 44,843 shares of Class A Common Stock subject to
stock options that are presently exercisable or exercisable within 60 days
after January 22, 2007 and 26,010 shares of Common Stock and 24,720 shares
of Class A Common Stock held by the HEICO Savings and Investment Plan and
allocated to Laurans A. Mendelson's account. See Notes (3), (15) and (17).
5
(17) Includes 157,282 shares of Common Stock and 64,709 shares of Class A Common
Stock held by Mendelson International Corporation; 36,180 shares of Common
Stock held by VHM Management Limited Partners; 323,000 shares of Common
Stock and 83,879 shares of Class A Common Stock subject to stock options
that are presently exercisable or exercisable within 60 days after January
22, 2007 of which 30,000 shares of Common Stock are held by the Victor H.
Mendelson Revocable Investment Trust; 16,532 shares of Common Stock and
15,549 shares of Class A Common Stock held by the HEICO Savings and
Investment Plan and allocated to Victor H. Mendelson's account; and 1,000
shares of Common Stock and 1,110 shares of Class A Common Stock owned by
Victor H. Mendelson's children. See Note (3) above.
(18) Includes 10,000 shares of Common Stock and 1,000 shares of Class A Common
Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007. Albert Morrison, Jr.'s
voting and dispositive power with respect to 6,966 shares of Common Stock
and 8,516 shares of Class A Common Stock is held indirectly through
Sheridan Ventures, Inc., a corporation of which Mr. Morrison is the
President, but not a shareholder.
(19) Includes 111,182 shares of Common Stock and 95,795 shares of Class A Common
Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007 and 2,200 shares of Class
A Common Stock held by the estate of Dr. Schriesheim's wife.
(20) Includes 202,499 shares of Common Stock and 56,855 shares of Class A Common
Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007 and 34,159 shares of
Common Stock and 32,710 shares of Class A Common Stock held by the HEICO
Savings and Investment Plan and allocated to Thomas S. Irwin's account.
(21) Includes 1,044,681 shares of Common Stock and 387,181 shares of Class A
Common Stock subject to stock options that are presently exercisable or
exercisable within 60 days after January 22, 2007. The total for all
directors and executive officers as a group (11 persons) also includes
96,891 shares of Common Stock and 92,078 shares of Class A Common Stock
held by the HEICO Savings and Investment Plan and allocated to accounts of
the executive officers pursuant to the Plan.
(22) Includes 2,503,527 shares of Common Stock and 390,191 shares of Class A
Common Stock owned by the Mendelson Reporting Group and 881,810 shares of
Common Stock and 807,274 shares of Class A Common Stock held by the HEICO
Savings and Investment Plan of which 711,839 shares of Common Stock and
626,128 shares of Class A Common Stock are allocated to participants in the
Plan, including 96,891 shares of Common Stock and 92,078 shares of Class A
Common Stock allocated to the directors and executive officers as a group,
and of which 169,971 shares of Common Stock and 181,146 shares of Class A
Common Stock are unallocated as of January 22, 2007.
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PROPOSAL TO ELECT DIRECTORS
(Proposal No. 1)
Each of the nine individuals named in the table below has been
nominated by the Board of Directors of the Company for election to the Board of
Directors at the Annual Meeting to serve until the next annual meeting or until
his successor is elected and qualified. All of the nominees are currently
serving on the Board of Directors. The Board of Directors has no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve.
NAME AGE CORPORATE OFFICE OR POSITION DIRECTOR SINCE
- ---------------------- ---- ---------------------------------------------------- --------------
Samuel L. Higginbottom 85 Director 1989
Wolfgang Mayrhuber 59 Director 2001
Eric A. Mendelson 41 President - Flight Support Group; 1992
President and Chief Executive Officer of HEICO
Aerospace Holdings Corp; and Director
Laurans A. Mendelson 68 Chairman of the Board; President and Chief Executive 1989
Officer; and Director
Victor H. Mendelson 39 President - Electronic Technologies Group 1996
and General Counsel of the Company; President
and Chief Executive Officer of HEICO Electronic
Technologies Corp.; and Director
Albert Morrison, Jr. 70 Director 1989
Joseph W. Pallot 46 Director 2004
Dr. Alan Schriesheim 76 Director 1984
Frank J. Schwitter 73 Director 2006(1)
(1) Mr. Schwitter was appointed as a member of the Board of Directors on
December 18, 2006.
BUSINESS EXPERIENCE OF NOMINEES
Samuel L. Higginbottom is a retired executive officer of Rolls Royce,
Inc. (an aircraft engine manufacturer), where he served as Chairman, President
and Chief Executive Officer from 1974 to 1986. He was the Chairman of the
Columbia University Board of Trustees from 1982 until September 1989. He was
President, Chief Operating Officer and a director of Eastern Airlines, Inc.,
from 1970 to 1973 and served in various other executive capacities with that
company from 1964 to 1969. Mr. Higginbottom was a director of British Aerospace
Holdings, Inc., an aircraft manufacturer, from 1986 to 1999 and was a director
of AmeriFirst Bank from 1986 to 1991. He is a Trustee Emeritus of St. Thomas
University, Miami, Florida. Mr. Higginbottom is considered an "independent"
Director under New York Stock Exchange rules.
Wolfgang Mayrhuber was elected to the Board of Directors in 2001 after
serving as Advisor to the Board of Directors of the Company since 1997. Mr.
Mayrhuber has served as Chairman of the Executive Board and Chief Executive
Officer of Deutsche Lufthansa AG ("Lufthansa") since June 2003. He has served
with Lufthansa since 1970, and has held various senior management positions for
the maintenance and overhaul of aircraft, components and engines. In 1992, Mr.
Mayrhuber was appointed Executive Vice President and Chief Operating Officer
Technical at Lufthansa. In 1994, he became Chairman of the Executive Board of
Lufthansa Technik AG. In 2001, Mr. Mayrhuber was appointed to the Executive
Board of Deutsche Lufthansa AG. Mr. Mayrhuber is also a member of the
supervisory boards of BMW AG, Eurowings Luftverkehrs AG and a number of
Lufthansa affiliates. Mr. Mayrhuber is considered an "independent" Director
under New York Stock Exchange rules.
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Eric A. Mendelson has been an employee of the Company since 1990,
serving in various capacities. Mr. Mendelson has served as Executive Vice
President of the Company since 2001, President and Chief Executive Officer of
HEICO Aerospace Holdings Corp., a subsidiary of HEICO, since its formation in
1997 and President of HEICO Aerospace Corporation since 1993. Mr. Mendelson is a
co-founder, and, since 1987, has been Managing Director of Mendelson
International Corporation, a private investment company, which is a shareholder
of HEICO. Eric Mendelson is the son of Laurans Mendelson and the brother of
Victor Mendelson. Eric Mendelson is considered an "inside" Director under New
York Stock Exchange rules.
Laurans A. Mendelson has served as Chairman of the Board of the Company
since December 1990. He has also served as Chief Executive Officer of the
Company since February 1990 and President of the Company since September 1991.
HEICO Corporation is a member of the Aerospace Industries Association ("AIA") in
Washington D.C., and Mr. Mendelson frequently serves on the Board of Governors
of AIA. He is also Chairman of the Board of Trustees, Chairman of the Executive
Committee and member of the Society of Mt. Sinai Founders of Mt. Sinai Medical
Center in Miami Beach, Florida. In addition, Mr. Mendelson served as a Trustee
of Columbia University in The City of New York from 1995 to 2001, as well as
Chairman of the Trustees' Audit Committee. Mr. Mendelson currently serves as
Trustee Emeritus of Columbia University. Mr. Mendelson is a Certified Public
Accountant. Laurans A. Mendelson is the father of Eric Mendelson and Victor
Mendelson. Laurans Mendelson is considered an "inside" director under New York
Stock Exchange rules.
Victor H. Mendelson has been associated with the Company since 1990,
serving in various capacities. Mr. Mendelson has served as Executive Vice
President of the Company since 2001, President and Chief Executive Officer of
HEICO Electronic Technologies Corp., a subsidiary of HEICO, since September 1996
and as General Counsel of the Company since 1993. He was the Chief Operating
Officer of the Company's former MediTek Health Corp. subsidiary from 1995 until
its profitable sale in 1996. Mr. Mendelson is a co-founder, and, since 1987, has
been President of Mendelson International Corporation, a private investment
company which is a shareholder of HEICO. He is a Trustee of the Greater Miami
Chamber of Commerce, a Trustee of St. Thomas University in Miami Gardens,
Florida and a Director of the Florida Grand Opera. Victor Mendelson is the son
of Laurans Mendelson and the brother of Eric Mendelson. Victor Mendelson is
considered an "inside" director under New York Stock Exchange rules.
Albert Morrison, Jr. is Chairman Emeritus of Morrison, Brown, Argiz &
Company, a certified public accounting firm located in Miami, Florida, where he
served as Chairman from 1971 to January 2003. He serves as the Chairman of the
Miami-Dade County Industrial Development Authority. Mr. Morrison also serves as
a director of Logic Devices, Inc., a computer electronics company, and as a
member of the Board of Directors of the Florida International University
Foundation. Mr. Morrison is considered an "independent" Director under New York
Stock Exchange rules.
Joseph W. Pallot has been a Shareholder of Devine Goodman Pallot &
Wells, P.A., a Miami, Florida-based transactional and litigation boutique law
firm since 2000. From 1993 to 2000 he was a Partner of the law firm of Steel
Hector & Davis LLP. Mr. Pallot also serves on the board of directors and
executive committee of the Beacon Council (Miami-Dade County, Florida's official
economic development organization). Mr. Pallot is considered an "independent"
Director under New York Stock Exchange rules.
Dr. Alan Schriesheim is retired from the Argonne National Laboratory,
where he served as Director from 1984 to 1996. From 1983 to 1984, he served as
Senior Deputy Director and Chief Operating Officer of Argonne. From 1956 to
1983, Dr. Schriesheim served in a number of capacities with Exxon Corporation in
research and administration, including positions as General Manager of the
Engineering Technology Department for Exxon Research and Engineering Co. and
Director of Exxon's Corporate Research Laboratories. Dr. Schriesheim is also a
member of the Board of the Children's Memorial Hospital of Chicago, Illinois.
Dr. Schriesheim is considered an "independent" Director under New York Stock
Exchange rules.
8
Frank J. Schwitter has been engaged principally as a consultant for law
and accounting firms since 1998. From 1996 to 1998, Mr. Schwitter served as
Senior Business Advisor and Technical Consultant to Prasetio Utomo & Co. in
Indonesia. Prior to 1996, Mr. Schwitter served 38 years with Arthur Andersen
LLP, where he was a partner and the Managing Director of the Firm's
International Business Program from 1982 to 1996. Mr. Schwitter also served as
an officer and director of a number of business organizations including the
Foreign Policy Association, the Business Council for International
Understanding, Council of the Americas, the Long Island Association of Business
and the Huntington Chamber of Commerce. From 1998 to 2003, Mr. Schwitter served
on the Technical Standards Committee of the American Institute of Certified
Public Accountants ("AICPA") and he remains a member of the AICPA. Mr. Schwitter
is a Certified Public Accountant in New York State. Mr. Schwitter is considered
an "independent" Director under New York Stock Exchange rules.
CORPORATE GOVERNANCE, BOARD COMMITTEES AND MEETINGS
During the fiscal year ended October 31, 2006, the Board of Directors
held four meetings. The Board of Directors has determined that Mr. Higginbottom,
Mr. Mayrhuber, Mr. Morrison, Mr. Pallot, Dr. Schriesheim and Mr. Schwitter have
met the standards of independence as set forth in the Company's Corporate
Governance Guidelines, which are consistent with the standards established by
the New York Stock Exchange.
The full Board of Directors discussed and reviewed whether each
Director was "independent" under New York Stock Exchange ("NYSE") rules. The
Company has used these rules to determine whether a Director is independent.
These rules state that a Director who has a "material" relationship with the
Company will be deemed an "inside" or "non-independent" Director. As Messers
Mendelson are all employed in executive positions with the Company, they are
deemed "inside" or "non-independent" Directors. Under NYSE rules, all other
members of the Board are "independent," as they and their employers lack
material relationships with the Company. The Board reviewed and confirmed this
conclusion.
As noted above, Mr. Mayrhuber is Chairman of the Executive Board and
Chief Executive Officer of Lufthansa. A Lufthansa subsidiary is a customer of
the Company's Flight Support Group and owns 20% of the Flight Support Group. As
HEICO's sales to Lufthansa and all of its subsidiaries constituted less than 2%
of Lufthansa's consolidated annual revenues, Mr. Mayrhuber is an "independent"
Director under NYSE rules and the Company's Board came to the same conclusion,
as, in addition to the foregoing and among other reasons, neither Lufthansa nor
Mr. Mayhuber receive any remuneration from HEICO, other than Mr. Mayhuber's
standard Directors fees paid to him for service as a Director of the Company.
The Board of Directors has an Executive Committee, a Nominating and
Corporate Governance Committee, a Compensation Committee, a Finance/Audit
Committee, an Environmental, Safety and Health Committee and a Stock Option Plan
Committee. Committee member appointments are re-evaluated annually and approved
by the Board of Directors at its next regularly scheduled meeting that follows
the annual meeting of shareholders. Information regarding each of the current
committees is as follows:
The Executive Committee has such powers as are delegated by the Board
of Directors, which may be exercised while the Board of Directors is not in
session, provided such powers are not in conflict with specific powers conferred
to other committees or are otherwise contrary to law. The Executive Committee
did not meet in fiscal 2006 and its members consist of Mr. Laurans Mendelson
(Committee Chairman), Mr. Mayrhuber, Mr. Higginbottom and Dr. Schriesheim.
The Nominating and Corporate Governance Committee assists the Board of
Directors in identifying and recommending to the Board qualified individuals to
be nominated as director; makes recommendations concerning committee membership,
appointments and director compensation; periodically reviews and recommends to
the Board of Directors updates to the Company's Corporate Governance Guidelines;
assists the Board and the Company in interpreting and applying the Company's
Corporate Governance Guidelines and Code of Business Conduct; and oversees the
annual evaluation of management and of the Board of Directors. The Nominating
and Corporate Governance Committee met two times in fiscal 2006 and its members
consist of Mr. Higginbottom (Committee Chairman), Mr. Morrison and Dr.
Schriesheim.
9
Prior to nominating an existing director for re-election to the Board
of Directors, the Nominating and Corporate Governance Committee will consider
the existing director's independence, if required, skills, performance and
meeting attendance. The Nominating and Corporate Governance Committee will
consider candidates recommended by shareholders (see the caption "Shareholder
Proposals and Nominations" contained herein). In evaluating candidates for
potential director nomination, the Nominating and Corporate Governance Committee
will consider, among other things, candidates that are independent, if required;
who possess personal and professional integrity; have good business judgment,
relevant experience and skills; and who would be effective as a director in
conjunction with the full Board of Directors in collectively serving the
long-term interests of the Company's shareholders. All candidates will be
reviewed in the same manner, regardless of the source of recommendation.
The Compensation Committee reviews and approves compensation of the
Company's officers, key employees and directors. The Compensation Committee met
four times in fiscal 2006 and its members consist of Mr. Higginbottom (Committee
Chairman), Mr. Morrison and Dr. Schriesheim. The Board of Directors has
determined that each member of the Compensation Committee is independent in
accordance with the New York Stock Exchange's listing standards. The annual
report of the Compensation Committee is contained herein.
The Finance/Audit Committee oversees the quality and integrity of the
accounting, auditing, internal control and financial reporting practices of the
Company, including the appointment, compensation, retention and oversight of the
work of the Company's independent auditor. The Finance/Audit Committee met five
times in fiscal 2006 and its members consist of Mr. Morrison (Committee
Chairman), Mr. Higginbottom, Mr. Pallot, Dr. Schriesheim and Mr. Schwitter. Mr.
Schwitter joined the Finance/Audit Committee in December 2006. The Board of
Directors has determined that each member of the Finance/Audit Committee is
"financially literate" and "independent" in accordance with the New York Stock
Exchange's listing standards and that Mr. Morrison is an "audit committee
financial expert", as defined by the Securities and Exchange Commission. The
annual report of the Finance/Audit Committee is contained herein.
The Environmental, Safety and Health Committee meets with the Company's
senior management and oversees compliance in all matters relating to federal and
state environmental, safety and health regulations. The Environmental, Safety
and Health Committee met three times in fiscal 2006 and its members consist of
Dr. Schriesheim (Committee Chairman), Mr. Mayrhuber, Mr. Eric Mendelson and Mr.
Victor Mendelson. The Environmental, Safety and Health Committee also visits
Company operating locations on a periodic basis.
The Stock Option Plan Committee administers the Company's stock option
plans and has authority to grant options, to determine the persons to whom and
the times at which options are granted, and to determine the terms and
provisions of each grant. The Stock Option Plan Committee did not meet in fiscal
2006 and its members consist of Mr. Morrison (Committee Chairman) and Mr.
Higginbottom.
All Board of Directors Committee Charters, Corporate Governance
Guidelines, as well as HEICO's Code of Ethics and Business Conduct are located
on HEICO's web site at www.heico.com or in print upon written request to the
Corporate Secretary at the Company's headquarters.
Each of the directors attended 75% or more of the meetings of the Board
of Directors and committees on which he served in fiscal 2006. The Company does
not have a formal policy regarding attendance by members of the Board of
Directors at the annual meeting of shareholders, but it encourages directors to
attend and historically, most have done so. All of the then eight members of the
Board of Directors attended the 2006 annual shareholder meeting.
The non-management directors meet at least once per year in an
executive session. The non-management directors elect a presiding director for
each executive session among the chairs of Board committees on a rotating basis.
10
COMPENSATION OF DIRECTORS
Directors of the Company receive an annual retainer of $75,000 and are
required to purchase shares of HEICO common stock equivalent to one-half of the
annual retainer ($37,500). The Company accrues one-half of each directors'
annual retainer and periodically purchases HEICO common stock on behalf of
directors.
Directors are paid a fee of $2,000 for each regular Board of Directors
meeting attended and members of committees of the Board of Directors are paid a
$6,500 annual retainer for each committee served and $1,200 for attendance at
each committee meeting or site visit. In addition, committee chairmen are paid
an annual retainer of $2,500 for each committee chaired. During fiscal 2006, an
aggregate of $508,100 was paid or accrued to directors under the compensation
arrangements described above (including $115,000 to Samuel Higginbottom, $82,100
to Wolfgang Mayrhuber, $109,700 to Albert Morrison, Jr., $78,000 to Joseph
Pallot and $123,300 to Dr. Alan Schriesheim), excluding amounts to Laurans A.
Mendelson, Eric A. Mendelson and Victor H. Mendelson, which are reported in the
Summary Compensation Table.
The Directors' Retirement Plan, which was adopted in 1991 in order to
facilitate Director retirements and covered the then current directors of the
Company, was amended as of November 2003 to effectively freeze vested benefits.
Four of the current nine Directors are covered under the Directors' Retirement
Plan. Under the Directors' Retirement Plan, as amended, the four current
Directors who are participants will receive annually the average retainer
($19,000) such Director was paid during his service as a member of the Board of
Directors payable in quarterly installments. At the election of such Director,
these quarterly payments begin either at age 70 or upon retirement from the
Board of Directors and continue for the same period of time that the participant
served on the Board of Directors, not to exceed ten years. During fiscal 2006,
$64,184 was accrued pursuant to the Directors' Retirement Plan, while amounts
totaling $69,500 were paid, including $19,000 to Samuel Higginbottom and $19,000
to Dr. Alan Schriesheim.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE
NOMINEES.
11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides the compensation earned by the Company's
Chief Executive Officer and each of the other most highly compensated executive
officers of the Company or its subsidiaries (collectively, the "Named Executive
Officers") whose total annual salary and bonus exceeded $100,000 in the last
fiscal year:
LONG-TERM
COMPENSATION
NUMBER OF
SECURITIES
ANNUAL COMPENSATION(1) UNDERLYING
FISCAL ------------------------------------------ OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(2) GRANTED COMPENSATION
- ------------------------------------- ------ ------------ ------------ ------------ ------------ ------------
Laurans A. Mendelson 2006 $ 775,460 $ 796,000 $ 74,500 -- $ 549,590(3)
Chairman of the Board, 2005 720,836 721,000 60,144 -- 45,190(3)
President and Chief Executive Officer 2004 651,557 585,000 44,551 -- 42,940(3)
Thomas S. Irwin 2006 402,918 415,000 -- -- 423,600(4)
Executive Vice President 2005 368,890 369,000 -- -- 54,200(4)
and Chief Financial Officer 2004 327,907 325,000 -- -- 41,650(4)
Eric A. Mendelson 2006 402,918 415,000 75,600 -- 90,450(5)
President - Flight Support Group; 2005 368,890 369,000 57,644 -- 21,050(5)
President and Chief Executive Officer 2004 327,907 325,000 42,525 -- 18,800(5)
of HEICO Aerospace Holdings Corp.
Victor H. Mendelson 2006 402,918 415,000 75,600 -- 81,050(6)
President - Electronic Technologies 2005 368,890 369,000 60,044 -- 19,650(6)
Group and General Counsel of the 2004 327,907 325,000 48,111 -- 17,400(6)
Company; President and Chief
Executive Officer of HEICO
Electronic Technologies Corp.
- ----------
(1) Salary and bonus amounts include amounts deferred by executive officers
pursuant to a non-qualified deferred compensation plan available to
selected employees. Under such deferred compensation plan, selected
employees elected to defer a portion of their compensation through December
31, 2004. Amounts deferred are immediately vested and invested in
individually directed investment accounts. Earnings on such investment
accounts, which are maintained by a trustee, accrue to the benefit of the
individual.
(2) Represents Directors' fees.
(3) Includes annual life insurance premiums paid by the Company of $34,790 in
fiscal 2006, 2005 and 2004. Amounts also include Company contributions to
Mr. Laurans A. Mendelson's HEICO Savings and Investment Plan account of
$10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150 in fiscal 2004.
Participation in the HEICO Savings and Investment Plan is available to
substantially all employees of the Company. The fiscal 2006 amount also
includes a discretionary Company contribution to Mr. Laurans A. Mendelson's
HEICO Corporation Leadership Compensation Plan account of $504,000. See
Note (7) below.
12
(4) Includes annual insurance premiums paid by the Company of $61,800 in fiscal
2006, $43,800 in fiscal 2005, and $33,500 in fiscal 2004. Amounts also
include Company contributions to Mr. Irwin's HEICO Savings and Investment
Plan account of $10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150
in fiscal 2004. Participation in the HEICO Savings and Investment Plan is
available to substantially all employees of the Company. The fiscal 2006
amount also includes a discretionary Company contribution to Mr. Irwin's
HEICO Corporation Leadership Compensation Plan account of $351,000. See
Note (7) below.
(5) Includes annual life insurance premiums paid by the Company of $10,650 in
fiscal 2006, 2005 and 2004. Amounts also include Company contributions to
Mr. Eric A. Mendelson's HEICO Savings and Investment Plan account of
$10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150 in fiscal 2004.
Participation in the HEICO Savings and Investment Plan is available to
substantially all employees of the Company. The fiscal 2006 amount also
includes a discretionary Company contribution to Mr. Eric A. Mendelson's
HEICO Corporation Leadership Compensation Plan account of $69,000. See Note
(7) below.
(6) Includes annual life insurance premiums paid by the Company of $9,250 in
fiscal 2006, 2005 and 2004. Amounts also include Company contributions to
Mr. Victor H. Mendelson's HEICO Savings and Investment Plan account of
$10,800 in fiscal 2006, $10,400 in fiscal 2005, and $8,150 in fiscal 2004.
Participation in the HEICO Savings and Investment Plan is available to
substantially all employees of the Company. The fiscal 2006 amount also
includes a discretionary Company contribution to Mr. Victor H. Mendelson's
HEICO Corporation Leadership Compensation Plan account of $61,000. See Note
(7) below.
(7) The HEICO Corporation Leadership Compensation Plan (the "LCP") was
established in 2006 after the Compensation Committee concluded that the
Company was not offering certain benefits (mainly retirement benefits) that
were widely offered by other companies. This conclusion was based on an
independent, third-party compensation consulting firm study conducted for
the Committee. The LCP enables the Company to offer executives compensation
programs competitive with those offered by other companies and provides,
among other things, the opportunity to make discretionary contributions to
a participant's account. The discretionary contributions included in the
above Summary Compensation Table vest over a four year period and are
generally paid at retirement. The amounts of such payments are based on
actuarial estimates designed to pay targeted benefits at the projected
retirement of each participant.
13
STOCK OPTION GRANTS IN LAST FISCAL YEAR
There were no individual grants of stock options pursuant to the
Company's stock option plan made during the fiscal year ended October 31, 2006
to the Named Executive Officers.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning stock option
exercises during fiscal 2006 and stock option holdings as of the fiscal year
ended October 31, 2006 for each of the Named Executive Officers.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-END (1)
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ------------- ------------- ------------- ------------- ------------- -------------
Laurans A. Mendelson 122,302(2) $ 2,106,874 89,843 -- $ 2,306,153 --
Thomas S. Irwin 51,849(3) 1,196,818 273,104 22,002 6,581,097 $ 605,729
Eric A. Mendelson 111,838(4) 2,633,405 428,879 55,000 10,402,043 1,520,440
Victor H. Mendelson 149,818(5) 3,289,928 456,679 55,000 11,058,663 1,520,440
- ----------
(1) Represents the closing price per share of the underlying common stock as
reported on the New York Stock Exchange on October 31, 2006 less the option
exercise price (if a positive spread) multiplied by the number of
unexercised stock option grants.
(2) Represents 61,257 shares of Common Stock and 61,045 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996.
(3) Represents 13,613 shares of Common Stock and 38,236 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996
and 1997.
(4) Represents 31,310 shares of Common Stock and 80,528 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996
and 1997.
(5) Represents 64,255 shares of Common Stock and 85,563 shares of Class A
Common Stock acquired upon the exercise of options granted in fiscal 1996
and 1997.
14
COMPENSATION COMMITTEE REPORT
COMMITTEE STRUCTURE
Our Compensation Committee (the "Committee") consists exclusively of
members of the Board of Directors (the "Board") who are independent as defined
in New York Stock Exchange ("NYSE") regulations. Accordingly, no member of the
Committee is a current or former employee of the Company and no member of the
Committee receives any remuneration from the Company, other than remuneration
received for service as a Director. The Committee generally makes the
compensation decisions for the Company's executive officers and reviews
compensation implementation for other executives or managers within the Company.
However, decisions about stock options issued or to be issued under the 1993 or
2002 Stock Option Plans are made by the Stock Option Plan Committee (the "SOC"),
which then presents its actions to the full Board for ratification. The SOC also
consists of only "independent" directors. As a rule of thumb, the Committee
reports its actions and findings to the Board which, when appropriate, further
approves or ratifies those actions or findings.
HOW THE COMMITTEE APPROACHES EXECUTIVE COMPENSATION AND ITS GENERAL VIEWS ABOUT
EXECUTIVE COMPENSATION
For many years, the Committee has held to the principle that it is
necessary to reward executives with meaningful compensation for two reasons.
Based upon the Company's performance over a long period of time (please see Page
22 for the long-term HEICO stock price graph), as noted below, the Committee is
convinced that its approach has been successful and should continue.
First, the Committee feels that it is crucial to retain superior
managers, while incentivizing them to reach increasingly difficult goals.
Secondarily, the Committee believes that it is fair to share the Company's
success with its executive officers. Both of these philosophies are consistent
with the philosophies employed by the Company's management in dealing with all
of its Team Members.
These principles have not varied in at least the past 10 years because
the Company has been very successful during that time and, since 1990, both net
income from continuing operations and net sales have increased at approximately
19% per annum, compounded. In addition, as of December 31, 2006, the Company's
stock price has increased approximately 23% per annum, compounded, during the
same period of time.
In determining proper compensation, the Committee fully understands
that there are numerous opportunities available to its executives in private
equity transactions, real estate transactions, other public company transactions
and business opportunities, generally. In fact, during the past year, the head
of the General Electric division which competes with the Company elected to run
a much smaller business than he had been running in order to participate in a
private equity opportunity. The Committee does not want its executive officers
to be attracted to these kinds of opportunities that are well documented in the
press.
Accordingly, the Committee firmly believes it must offer sufficient
compensation and recognition to its executives in order to highly motivate them
and retain their services. Additionally, there are numerous other, larger
aerospace and defense companies which offer substantial benefit packages not
offered by HEICO. As discussed below, as a result of a compensation study
conducted by an unrelated, third party consulting firm, the Committee realized
that HEICO was not awarding certain benefits to its executives that other
companies were, in fact, awarding. The Committee has begun to take steps to
address the apparent disparity in overall compensation packages between HEICO
and other aerospace companies.
Long ago, the Board accepted management's approach to driving the
business based upon profits, not revenues. Therefore, it does not believe in
compensating executives solely based upon the Company's revenue base, but rather
more on the Company's profitability, including, among other things, the
Company's profit margins, profit growth and cash flow.
15
In doing this, the Committee looks for an appropriate balance between
short-term and long-term Company goals. The Company's executive officers have
shown a history of successfully balancing these goals and have even sacrificed
their short-term results and compensation in order to ensure HEICO's growth in
later years. For example, following the September 11, 2001 attacks, many
companies reduced their research and development spending in order to preserve
short-term profits. HEICO's executive officers, with the Board's consent,
actually increased its product development spending in order to reap greater
results when its industry recovered. This had the effect of reducing short-term
results and the executives' compensation. The Company started witnessing the
major benefits from these actions in 2003 and the momentum from this decision
has continued to increase. Therefore, the Committee believes that it is
important to pay both cash compensation and issue stock options (although it has
refrained from issuing stock options to the executive management for more than 3
years) to help strike the desired short/long-term balance.
The Committee primarily relies on four methods of compensating its
executive officers and other managers. This has been the case for many years
and, based on the Company's performance the Committee has concluded these
methods are still appropriate:
1. Base Cash Compensation. The Committee relies on a variety of
factors, including the following items, in determining appropriate
base compensation levels:
a. External consultants;
b. Independent compensation research reports and studies;
c. Historical compensation data;
d. Knowledge of local markets; and
e. Personal knowledge of the executives.
The Committee also believes it is proper to adjust compensation on
an annual basis in the manner consistent with general corporate
employment practices. In doing so, it looks at the merits of each
executive officer's efforts, results, loyalty to the Company and
the factors listed above. The Committee notes, however, that in
years when the Company's financial results did not meet internal
expectations, usually as a result of completely external factors
unrelated to management or its efforts, such as the September 11,
2001 attacks or the SARS epidemic, the executive officers have
asked, and the Committee has agreed, that no increase would be
made to their base compensation. Conversely, in years of exemplary
performance, the Committee has rewarded executives with more
significant increases.
2. Cash Incentive/Performance Bonus Compensation. As is the case with
Base Cash Compensation, the Committee believes that bonus awards
are crucial during years when the Company realizes financial
success. The Committee utilizes the same factors mentioned above
in the section concerning Base Cash Compensation. The Committee
believes it must, in addition, maintain a discretionary approach
to bonuses to avoid the sometimes harsh results to both the
Company and an executive from a purely formulaic approach.
In difficult years, both the Committee and management have agreed
that bonuses were not in order. Examples include 2001, 2002 and
2003, when the Company's financial results suffered as a result of
completely external events unrelated to management, the Committee,
as suggested and requested by management itself, did not declare
regular bonuses. In the past, when the Company realized special
gains from unique asset sales, it has rewarded its executive
officers appropriately.
The Committee believes that Cash Incentive/Performance Bonus
Compensation is an important element in short-term incentive
compensation and, again, the Committee evaluates the Company's
earnings performance much more than it evaluates overall sales
levels. The Committee is pleased to note that HEICO's overall
profitability is often greater than the levels of companies with
much larger sales than HEICO's. The Committee believes it would be
unwise to compensate management mostly based on revenues, as
opposed to profitability, as this might incentivize managers to
generate low margin revenues which can create greater cash needs
for the Company.
16
The top four highest paid executive officers received bonus
compensation equal to approximately 50% of their total cash
compensation. In setting the executive officers' bonuses for
fiscal 2006, the Committee considered numerous factors, including,
but not limited to, the Company's financial performance in excess
of its budget, the 40% increase in net income and 45% increase in
sales over the prior fiscal year, management's efforts on the
Company's behalf and external compensation reports which clearly
stated that their bonuses should approximate 50% of the their
total cash compensation.
In January 2007, the Committee and the Board approved, subject to
shareholder approval as set forth herein, an incentive
compensation plan whereby the executive officers' bonuses will
principally be tied to specific performance objectives. The
Committee will also retain the flexibility and ability to award
bonuses based on other factors which it later determines in its
discretion. The Company is expected to receive significant tax
benefits from this plan's adoption.
3. Stock-Based Compensation. The Company has not awarded stock
options to any of the executive officers since fiscal 2003.
However, the Committee believes that stock options are an
important incentivization in compensation methods that benefits
employees only when all shareholders benefit. The Company's
practice has been to grant options at no less than the closing
price of the stock on the date of grant. A $1.00 investment in
HEICO shares in 1990 became worth $28.04 on December 31, 2006
(adjusted for stock splits and stock dividends, but excluding all
cash dividends). The Committee believes this increase in share
price results from the Company's enormous earnings and sales
growth, as well as the Company's increased product range, customer
base and structure. Options granted in the past only benefited
employees if all other shareholders benefited from share price
increases and the Company incurred no further cash compensation
expense. This helped the Company preserve cash for growth and
working capital purposes. The Company also receives a tax
deduction in the amount of the gain which is reported by the
option holder, which results in additional cash flow to the
Company. It should be noted that, in the case of the Company's
executive officers, the option holder must pay taxes approximately
equal to the cash benefit which the Company receives. Accordingly,
in those cases, the option holder receives only approximately 65%
of his reported benefit, net of federal income taxes.
The Company did not grant Restricted Stock or Performance Shares
to any employees in fiscal 2006 and it has not been the Company's
practice to issue them.
With respect to stock options, the Committee notes that the
Company's senior executives have historically exercised their
stock options and retained most of the shares issued, except what
they believed was required to cover taxes and exercise costs. The
Committee believes this demonstrated a commitment to the Company
and confidence in its future.
4. 401K, Other Miscellaneous. The Company did not award "Gross-ups"
(which are additional payments made to pay income taxes) to any of
the executive officers in fiscal 2006. However, virtually all
Company employees, including the executives, are eligible to
participate in the HEICO Savings and Investment Plan, which is the
Company's 401K plan, in the same manner as any similarly situated
HEICO employee. Further, each executive contributes to the Plan a
portion of his compensation. However, under federal regulations,
none of our top executive officers receive the full benefit of the
Plan, as they are limited in their participation in the Plan and
may not receive the same level of benefits as other employees.
In October 2006, after having received the report of an
independent, third-party compensation consulting firm and
considering its findings over a period of several months, the
Committee concluded that the Company was not offering certain
benefits that were widely offered by other companies.
To remedy this, the Committee and Board adopted the HEICO
Corporation Leadership Compensation Plan (the "LCP"), which is a
plan qualified under Section 409(a) of the Internal Revenue Code.
Under the LCP, a large number of Company Team Members, including,
among others, engineers, controllers, production employees, sales
employees, mid-level managers, higher-level managers and executive
17
officers, are eligible to elect not to immediately receive a
portion of their compensation, but instead to defer payment until
a later date the amount they elect not to receive. The Company
will match a certain portion (currently up to 3% of their base
salary) of the amount which the Team Member defers for later
payment. While the Company has no obligation, the LCP also
provides the Company the opportunity to make discretionary
contributions to a participant's account. Discretionary LCP
contributions, if awarded, are reported for the Named Executive
Officers under "All Other Compensation" in the Summary
Compensation Table of the Proxy Statement. As part of the same
study, the Committee concluded that it should seek to have the
Company benefit from Section 162(m) of the Internal Revenue Code
and, in fiscal 2007, adopted the HEICO Corporation 2007 Incentive
Compensation Plan (the "Incentive Plan"), which is being submitted
to shareholders for approval. Under the Incentive Plan, the
Company will receive significant tax benefits if the executive
officers achieve certain goals set in advance by the Compensation
Committee.
With respect to perquisites, the Company pays certain limited
benefits, such as life insurance premiums, for the executive
officers, offers health benefits, automobiles and other benefits
common to executives and some employees at HEICO. Any non-HEICO
business, purely personal travel (air or otherwise) is not paid
for by the Company, but is paid for by the executive.
The Committee also notes that, with the exception of a change of
control agreement entered into with Thomas S. Irwin in 1989 (which agreement
entitles him to cash compensation if his employment is terminated within 3 years
of a change of control of the Company), none of the executive officers have
employment agreements or other agreements entitling them to special cash
payments upon termination of their employment.
Based upon the factors discussed above in computing compensation and
the Committee's opportunity to observe the Company's management and other
executives for more than 16 years, it believes that its practices are
appropriate and have yielded excellent results, which speak for themselves.
These results include the enormous growth in the Company's sales, earnings and
stock price while the Committee followed these policies.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's ("CEO") Compensation is set by the
Committee based upon the factors mentioned above with respect to the Committee's
Compensation Policies. The Committee evaluates the CEO's compensation formally
every 6 months and considers, among other things, the example he sets for
employees, stockholders, customers, and others and it evaluates the image that
he projects on the Company's behalf. The Committee also considers the CEO's high
level of candor with the Board, his overall efforts, his overall success in
accomplishing the Company's goals (both long-term and short-term goals). During
difficult periods, the CEO has requested that he not be awarded any bonuses and
that his and other executive officers' salaries be frozen until such time as the
Company's financial results rose substantially. Under the CEO's leadership, the
Committee has observed the Company's net sales increase from $26,239,000 in
fiscal 1990 to $392,190,000 in fiscal 2006, while net income from continuing
operations improved from $1,961,000 in fiscal 1990 to $31,888,000 in fiscal
2006.
As noted above, during this CEO's tenure, the Company's share value has
dramatically appreciated - a $1,000 investment in HEICO shares in 1990 became
worth approximately $28,000 on December 31, 2006 (adjusted for stock splits and
stock dividends), but excluding all cash dividends.
The Committee must also consider the fact that the CEO had a very
successful business career prior to joining HEICO and receives many offers to
join other endeavors on a regular basis whereby he might receive greater
remuneration. The Committee believes the CEO's continuing commitment to the
Company is of great importance.
Further, the Company's banking line of credit requires that the CEO and
his family maintain their involvement and position with the Company as a
condition to HEICO's credit facility.
18
Finally, as we always note, the CEO has invested significant personal
sums in the Company and continues to hold a major investment in it. The Company
believes that his financial commitment to the Company as a shareholder
demonstrates his loyalty to HEICO and is indicative of the alignment of his
personal interests with those of the rest of HEICO's shareholders.
Submitted by the Compensation Committee of the Board of Directors: Samuel L.
Higginbottom (Chairman), Albert Morrison, Jr. and Dr. Alan Schriesheim.
EMPLOYMENT AGREEMENT
Thomas S. Irwin and the Company are parties to a key employment
termination agreement which provides lump sum, severance pay equal to 2 years
compensation if this employee is terminated within 3 years after a change of
control of the Company (as defined in the key employment termination agreement).
19
The following Report of the Finance/Audit Committee of the Board of Directors of
HEICO does not constitute soliciting material and should not be deemed filed or
incorporated by reference into any other HEICO filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent HEICO
specifically incorporates this Report by reference therein.
FINANCE/AUDIT COMMITTEE REPORT
The Finance/Audit Committee (the "Audit Committee") of the Board of
Directors is composed entirely of five non-employee directors. The Board of
Directors has determined that each member of the Audit Committee is "financially
literate" and "independent" in accordance with the New York Stock Exchange's
listing standards and that Mr. Morrison is an "audit committee financial
expert," as defined by the Securities and Exchange Commission.
The purpose of the Audit Committee is to assist the Board of Directors
in fulfilling its responsibility for the oversight of the quality and integrity
of the accounting, auditing, internal control and financial reporting practices
of the Company and such other duties as directed by the Board of Directors. The
full responsibilities of the Audit Committee are set forth in its formal written
charter, which is available on HEICO's website at www.heico.com and is included
herein as Appendix B.
Management is responsible for the Company's financial reporting
process, including establishing and maintaining its internal control over
financial reporting, and for the preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America. The Company's independent auditor, Deloitte & Touche
LLP, is responsible for auditing those financial statements and for expressing
an opinion as to whether those financial statements are, in all material
respects, presented fairly in conformity with accounting principles generally
accepted in the United States of America. Deloitte & Touche LLP is also
responsible for expressing an opinion on management's assessment and an opinion
on the effectiveness of the Company's internal control over financial reporting
based on its audit. The Audit Committee is responsible for monitoring and
reviewing these processes, acting in an oversight capacity relying on the
information provided to it and on the representations made by management and the
independent auditor.
As part of fulfilling its responsibilities, the Audit Committee
reviewed and discussed with management the Company's audited financial
statements as of and for the year ended October 31, 2006 and discussed with
Deloitte & Touche LLP the matters required to be discussed by PCAOB Interim
Auditing Standard AU Section 380, "Communication with Audit Committees". The
Audit Committee received the written disclosures and the letter from Deloitte &
Touche LLP required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees". The Audit Committee discussed
and considered the independence of Deloitte & Touche LLP with representatives of
Deloitte & Touche LLP, reviewing as necessary all relationships and services
which might bear on the objectivity of Deloitte & Touche LLP. All non-audit
services performed by Deloitte & Touche LLP for the year ended October 31, 2006
were pre-approved by the Audit Committee in accordance with its policy and
procedures, and the Audit Committee concluded that the provision of such
services by Deloitte & Touche LLP is compatible with maintaining its
independence. Deloitte & Touche LLP was provided with full access to the Audit
Committee to meet privately and was encouraged to discuss any matter it desired
with the Audit Committee or the full Board of Directors.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in its Annual Report on Form 10-K for the year
ended October 31, 2006, for filing with the Securities and Exchange Commission.
Respectfully Submitted by the Finance/Audit Committee of the Company's Board of
Directors: Albert Morrison, Jr. (Chairman), Samuel L. Higginbottom, Joseph W.
Pallot, Dr. Alan Schriesheim, and Frank J. Schwitter.
20
PERFORMANCE GRAPHS
The following graph and table compare the total return on $100 invested
in HEICO Common Stock and HEICO Class A Common Stock with the total return of
$100 invested in the New York Stock Exchange (NYSE) Composite Index and the Dow
Jones U.S. Aerospace Index for the five-year period from October 31, 2001
through October 31, 2006. The NYSE Composite Index measures all common stock
listed on the NYSE. The Dow Jones U.S. Aerospace Index is comprised of large
companies which make aircraft, major weapons, radar and other defense equipment
and systems as well as providers of satellites used for defense purposes. The
total returns include the reinvestment of cash dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[CHART APPEARS HERE]
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
---------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
---------- ---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 100.00 $ 64.29 $ 102.48 $ 130.93 $ 160.68 $ 265.26
HEICO Class A Common Stock (1) $ 100.00 $ 63.81 $ 101.42 $ 130.26 $ 159.20 $ 282.87
NYSE Composite Index $ 100.00 $ 86.56 $ 103.15 $ 115.85 $ 128.67 $ 151.90
Dow Jones U.S. Aerospace Index $ 100.00 $ 103.17 $ 117.96 $ 143.55 $ 173.94 $ 227.40
- ----------
(1) Information has been adjusted retroactively to give effect to a 10% stock
dividend paid in shares of Class A Common Stock in January 2004.
21
The following graph and table compare the total return on $100 invested
in HEICO Common Stock since October 31, 1990 with the same indices shown on the
five-year performance graph on the previous page. October 31, 1990 was the end
of the first fiscal year following the date the current executive management
team assumed leadership of the Company. No Class A Common Stock was outstanding
as of October 31, 1990. As with the five-year performance graph, the total
returns include the reinvestment of cash dividends.
COMPARISON OF SIXTEEN-YEAR CUMULATIVE TOTAL RETURN
[CHART APPEARS HERE]
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
---------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 100.00 $ 141.49 $ 158.35 $ 173.88 $ 123.41 $ 263.25
NYSE Composite Index $ 100.00 $ 130.31 $ 138.76 $ 156.09 $ 155.68 $ 186.32
Dow Jones U.S. Aerospace Index $ 100.00 $ 130.67 $ 122.00 $ 158.36 $ 176.11 $ 252.00
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
---------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 430.02 $ 1,008.31 $ 1,448.99 $ 1,051.61 $ 809.50 $ 1,045.86
NYSE Composite Index $ 225.37 $ 289.55 $ 326.98 $ 376.40 $ 400.81 $ 328.78
Dow Jones U.S. Aerospace Index $ 341.65 $ 376.36 $ 378.66 $ 295.99 $ 418.32 $ 333.32
CUMULATIVE TOTAL RETURN AS OF OCTOBER 31,
--------------------------------------------------------------
2002 2003 2004 2005 2006
---------- ---------- ---------- ---------- ----------
HEICO Common Stock (1) $ 670.39 $ 1,067.42 $ 1,366.57 $ 1,674.40 $ 2,846.48
NYSE Composite Index $ 284.59 $ 339.15 $ 380.91 $ 423.05 $ 499.42
Dow Jones U.S. Aerospace Index $ 343.88 $ 393.19 $ 478.49 $ 579.77 $ 757.97
- ----------
(1) Information has been adjusted retroactively to give effect to all stock
dividends paid during the sixteen-year period.
22
PROPOSAL TO APPROVE THE HEICO CORPORATION
2007 INCENTIVE COMPENSATION PLAN
(Proposal No. 2)
The Board of Directors recommends that you vote to approve the HEICO
Corporation 2007 Incentive Compensation Plan (the "Incentive Plan"). Such
shareholder approval will benefit the Company by enabling it to claim tax
deductions for incentive awards earned and paid under the Incentive Plan without
limitation under Section 162(m) of the Internal Revenue Code.
The Incentive Plan will provide to senior members of the Company's
management team who are executive officers the opportunity to earn cash annual
and long-term incentive awards. The Board of Directors regards the Incentive
Plan as an important means by which we can link executive pay to performance. By
providing for competitive levels of incentive compensation in a program that is
fully tax deductible by the Company, the Incentive Plan will serve as a useful
tool for attracting and retaining members of our senior management team.
Employees who are or may be promoted to executive officers are eligible for
selection for participation in the Incentive Plan. Currently we have five
executive officers.
SECTION 162(m)
Under Section 162(m), our ability to claim a tax deduction for
compensation paid or accrued with respect to the executive officers named in the
Summary Compensation Table and serving as such on the final day of the fiscal
year, defined as "covered employees," is limited to $1 million per year. Certain
types of compensation are exempted from this deductibility limitation, including
performance-based compensation. "Performance-based compensation" is compensation
paid (1) upon the attainment of an objective performance goal or goals, (2) upon
approval by the Compensation Committee or its equivalent, which committee must
be composed of outside Directors, and (3) pursuant to a plan as to which
shareholders have approved certain material terms, specifically the eligibility,
per-person limits, and the business criteria upon which the performance goals
are based. The Company intends that awards to persons who are potentially
"covered employees" under the Incentive Plan qualify as "performance-based
compensation" so that these awards will not be subject to the $1 million
deductibility limitation. Accordingly, shareholder approval of the Incentive
Plan will be deemed to include approval of the Incentive Plan's terms relating
to eligibility, annual limitations on incentive awards, and the business
criteria upon which performance goals may be based.
DESCRIPTION OF THE INCENTIVE PLAN
The following description of the Incentive Plan is qualified in its
entirety by the provisions of the Incentive Plan, a copy of which is attached as
Appendix A to this Proxy Statement.
The Incentive Plan authorizes the Compensation Committee of the Board
to select participants, designate performance periods, authorize performance
awards that may be earned by achievement of performance goals during the
performance periods, and set the other terms of performance awards.
Particular restrictions will apply to any authorization of an award
intended to qualify as "performance-based compensation" under Section 162(m).
Performance goals and related terms of such an award must be established during
the first 90 days of the performance period, and during the first 25% of any
performance period shorter than one year. The Compensation Committee must
specify the amounts that may be earned corresponding to particular levels of
performance. The Incentive Plan permits the Compensation Committee to measure
performance using a variety of business criteria, including the following:
o Net sales;
o Gross profit or pre-tax profit;
o Operating income, earnings before or after taxes, earnings before or
after minority interests, earnings before or after interest,
depreciation, amortization, or extraordinary or special items;
o Net income or net income per common share (basic or diluted);
23
o Return measures, including return on assets (gross or net), return on
investment, return on capital, or return on equity;
o Cash flow, free cash flow, cash flow return on investment (discounted
or otherwise), net cash provided by operating activities, or cash flow
in excess of cost of capital;
o Interest expense after taxes;
o Economic value created or economic profit;
o Operating margin or profit margin;
o Shareholder value creation measures, including but not limited to stock
price or total shareholder return;
o Revenues from specific assets, projects or lines of business;
o Expense targets, working capital targets, or operating efficiency; and
o Strategic business criteria, consisting of one or more objectives based
on meeting specified goals relating to market penetration, geographic
business expansion, operating goals, cost targets, customer
satisfaction, employee satisfaction, human resource management,
supervision of litigation and information technology, and acquisitions
or divestitures of assets, subsidiaries, affiliates or joint ventures.
The Compensation Committee retains discretion to set the level of
performance with respect to any business criteria that will result in the
earning of a specified amount under a performance award. Performance may be
measured in absolute terms, as a goal relative to performance in prior periods,
or as a goal compared to the performance of one or more comparable companies or
an index covering multiple companies, or in other ways specified by the
Compensation Committee.
A participant may potentially earn incentive awards up to his or her
"annual limit" in any calendar year. The annual limit for each individual is $5
million plus the amount of the participant's unused annual limit as of the close
of the previous fiscal year. A participant uses up his or her annual limit in a
given year based on the maximum potential amount of the incentive award
authorized by the Compensation Committee, even if the actual amount earned is
less than the maximum.
Upon completion of a performance period, the Compensation Committee
must determine the level of attainment of the pre-set performance goals and that
other material requirements have been met before any incentive award may be paid
out. For participants whose awards are intended to qualify for full tax
deductibility under Section 162(m), the Compensation Committee retains
discretion to adjust incentive awards downward, but not upward, in determining
the final award amount. For other participants, both upward and downward
adjustments are permitted.
The Compensation Committee generally can specify the circumstances in
which awards will be paid or forfeited in the event of a termination of
employment. However, the Incentive Plan provides that, in the event of death,
disability, retirement or termination of employment by the Company not for
cause, the participant will receive a pro rated incentive award, proportionate
to the part of the performance period worked by the participant, based on actual
performance, unless otherwise determined by the Compensation Committee.
The Compensation Committee has authority to amend, alter, suspend, or
terminate the Incentive Plan, but significant changes must be approved by the
Board. In addition, an amendment or modification must be approved by
shareholders if such approval is required to preserve the qualification of the
Incentive Plan under Section 162(m). Under this standard, however, amendments
that might broaden eligibility or increase the cost of the Incentive Plan to the
Company would not necessarily require shareholder approval.
24
NEW PLAN BENEFITS UNDER THE INCENTIVE PLAN
Awards under the Incentive Plan will be granted in the discretion of
the Compensation Committee. Except as described below, the recipients and other
terms of such awards cannot be determined at this time. Information regarding
our recent practices with respect to annual incentive awards under the current
programs is presented in the "Summary Compensation Table" and the "Compensation
Committee Report" included in this Proxy Statement.
The Compensation Committee has authorized certain incentive awards to
executive officers under the Incentive Plan, subject to shareholder approval of
the Incentive Plan, in order that those awards can qualify for full
deductibility if they are subsequently earned and paid out. These include annual
incentive awards for the fiscal year ending October 31, 2007. The annual
incentive awards will become payable for fiscal 2007 performance if a corporate
performance goal relating to net income excluding extraordinary items (if any)
is achieved. No amount will be payable unless a specified "threshold"
performance level is reached, and the award is payable at a designated maximum
rate if performance substantially in excess of the target performance level is
achieved. The table below shows the amounts payable under this award upon
achievement of specified levels of performance for fiscal 2007:
NEW PLAN BENEFITS
PAYOUT FOR PERFORMANCE AT SPECIFIED LEVEL
-----------------------------------------
NAME THRESHOLD TARGET MAXIMUM
- ----------------------------------------------- ----------- ----------- -----------
Laurans A. Mendelson $ 437,500 $ 875,000 $ 1,312,000
Thomas S. Irwin 227,500 455,000 682,500
Eric A. Mendelson 227,500 455,000 682,500
Victor H. Mendelson 227,500 455,000 682,500
All executive officers as a group (4 persons) 1,120,000 2,240,000 3,359,500
In the event shareholders disapprove the proposed Incentive Plan,
incentive awards will not be granted or paid out under the Incentive Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE HEICO CORPORATION 2007 INCENTIVE COMPENSATION PLAN.
25
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal No. 3)
The Finance/Audit Committee has selected the firm of Deloitte & Touche
LLP as the Company's independent registered public accounting firm for the
fiscal year ending October 31, 2007. Deloitte & Touche LLP has served as the
Company's independent registered public accounting firm since 1990.
Shareholder ratification of this selection is not required by the
Company's By-laws or otherwise. However, the Finance/Audit Committee and full
Board of Directors are requesting that shareholders ratify this appointment as a
means of soliciting shareholders' opinions and as a matter of good corporate
governance. If the shareholders do not ratify the selection, the Finance/Audit
Committee will reconsider whether or not to retain Deloitte & Touche LLP. Even
if the selection is ratified, the Finance/Audit Committee, in its discretion,
may direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines such change would
be in the best interests of the Company and its shareholders.
One or more representatives of Deloitte & Touche LLP are expected to be
present at the annual meeting on March 16, 2007. The representatives will have
the opportunity to make a statement, if they desire to do so, and will be
available to respond to appropriate questions from shareholders.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING
OCTOBER 31, 2007.
PRINCIPAL ACCOUNTING FIRM FEES
The following table presents the aggregate fees billed to the Company
by Deloitte & Touche LLP during the fiscal years ended October 31, 2006 and
2005:
2006 2005
----------- -----------
Audit Fees (1) $ 1,650,000 $ 1,368,000
Audit-Related Fees (2) 20,000 17,000
Tax Fees (3) 241,000 214,000
All Other Fees -- --
----------- -----------
Total Fees $ 1,911,000 $ 1,599,000
=========== ===========
- ----------
(1) Audit Fees consist of fees billed for services rendered for the annual
audit of the Company's consolidated financial statements, the audit of
management's assessment of its internal control over financial reporting,
the audit of the effectiveness of the Company's internal control over
financial reporting, the review of condensed consolidated financial
statements included in the Company's quarterly reports on Form 10-Q and
services that are normally provided in connection with statutory and
regulatory filings or engagements.
(2) Audit-Related Fees consist of fees billed for assurance and related
services that are reasonably related to the performance of the audit or
review of the Company's consolidated financial statements that are not
reported under the caption "Audit Fees". The category includes fees related
to audit of the HEICO Savings and Investment Plan.
(3) Tax Fees consist of fees billed for services rendered for tax compliance.
26
PRE-APPROVAL OF SERVICES PROVIDED BY THE INDEPENDENT AUDITOR
The Finance/Audit Committee (the "Committee") has adopted a policy to
pre-approve all audit and permissible non-audit services provided by the
independent auditor. The Committee will consider annually and, if appropriate,
approve the scope of the audit services to be performed during the fiscal year
as outlined in an engagement letter proposed by the independent auditor. For
permissible non-audit services, the Company will submit to the Committee, at
least annually, a list of services and a corresponding budget estimate that it
recommends the Committee engage the independent auditor to provide. To
facilitate the prompt handling of certain unexpected matters, the Committee
delegates to its Chairman the authority to approve in advance all audit and
non-audit services below $10,000 to be provided by the independent auditor if
presented to the full Committee at the next regularly scheduled meeting. The
independent auditor and Company will routinely inform the Committee as to the
extent of services provided by the independent auditor in accordance with this
pre-approval policy and the fees incurred for the services performed to date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain subsidiaries of Lufthansa, for which Mr. Mayrhuber serves as
Chairman of the Executive Board and Chief Executive Officer, are customers of
certain subsidiaries of the Company. Purchases made by such subsidiaries of
Lufthansa represented in excess of five percent, but less than 10%, of the
Company's consolidated gross revenues for the fiscal year ended October 31,
2006. The Company expects this customer relationship to continue in the current
fiscal year. The Company believes that the terms of its transactions with
Lufthansa are no less favorable to the Company than would have been obtained
from an unrelated party, and that Mr. Mayrhuber is not afforded any special
benefits as a result of the Company's transactions with Lufthansa. See page 9
for additional information.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of reports of ownership, reports of changes
of ownership and written representations under Section 16(a) of the Securities
Exchange Act of 1934, which were furnished to the Company during or with respect
to fiscal 2006 by persons who were, at any time during fiscal 2006, directors or
officers of the Company or beneficial owners of more than 10% of the outstanding
shares of Common Stock or Class A Common Stock, no such person failed to file on
a timely basis any report required by such section during fiscal 2006.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any shareholder of the Company who wishes to present a proposal for
action at the Company's next annual meeting of shareholders presently scheduled
for March 14, 2008, or to nominate a director candidate for the Company's Board
of Directors, must submit such proposal or nomination in writing to the
Corporate Secretary at HEICO Corporation, 3000 Taft Street, Hollywood, Florida
33021. The proposal or nomination should comply with the time period and
information requirements as set forth in the Company's By-laws relating to
shareholder business or shareholder nominations, respectively. Shareholders
interested in submitting a proposal for inclusion in the Proxy Statement for the
2008 annual meeting of shareholders may do so by following the procedures
prescribed in SEC Rule 14a-8. To be eligible for inclusion, shareholder
proposals must be received by the Company's Corporate Secretary at the herein
above address no later than October 23, 2007.
27
COMMUNICATION WITH THE BOARD OF DIRECTORS
Any shareholder or other interested party of the Company who wishes to
communicate with the Board of Directors, a committee of the Board, the
non-management directors as a group or any individual member of the Board, may
send correspondence to the Corporate Secretary at HEICO Corporation, 3000 Taft
Street, Hollywood, Florida 33021. The Corporate Secretary will compile and
submit on a periodic basis all shareholder and other interested parties'
correspondence to the entire Board of Directors, or, if and as designated in the
communication, to a committee of the Board, the non-management directors as a
group or an individual Board member.
SHAREHOLDERS SHARING THE SAME ADDRESS
The Company has adopted a procedure called "householding", which has
been approved by the Securities and Exchange Commission. Under this procedure, a
single copy of the annual report and proxy statement will be sent to any
household at which two or more shareholders reside if they appear to be members
of the same family, unless one of the shareholders at that address notifies us
that they wish to receive individual copies. Shareholders who participate in
householding will continue to receive separate proxy cards. Householding will
not affect dividend mailings in any way. This procedure reduces the Company's
printing costs and mailing fees.
If a single copy of the annual report and proxy statement was delivered
to an address that you share with another shareholder and you wish to receive a
separate copy of the 2006 annual report or this proxy statement, or if you do
not wish to participate in householding and prefer to receive separate copies of
future materials, or if you are sharing an address with another shareholder and
are receiving multiple copies of annual reports or proxy statements and would
like to request delivery of a single copy of annual reports or proxy statements,
please call the Company at (954)-987-4000 or write to the Corporate Secretary at
HEICO Corporation, 3000 Taft Street, Hollywood, Florida 33021.
GENERAL AND OTHER MATTERS
Neither HEICO nor the members of its Board of Directors intend to bring
before the Annual Meeting any matters other than those referred to in the
accompanying Notice of Annual Meeting of Shareholders. They have no present
knowledge that any other matters will be presented to be acted on pursuant to
your proxy. However, if any other matters properly come before the Annual
Meeting, the persons whose names appear in the enclosed form of proxy will have
the discretionary authority to vote the proxy in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
Laurans A. Mendelson
Chairman of the Board, President
and Chief Executive Officer
28
APPENDIX A
HEICO CORPORATION
2007 INCENTIVE COMPENSATION PLAN
1. GENERAL
This 2007 Incentive Compensation Plan (the "Plan") of HEICO Corporation
(the "Company") authorizes the grant of annual incentive and long-term incentive
awards to executive officers and sets forth certain terms and conditions of such
Awards. The purpose of the Plan is to help the Company attract and retain
executive officers of outstanding ability and to motivate such persons to exert
their greatest efforts on behalf of the Company and its subsidiaries by
providing incentives directly linked to the measures of the financial success
and performance of the Company and its businesses. The Plan is intended to
permit the Committee to qualify certain Awards as "performance-based"
compensation under Code Section 162(m).
2. DEFINITIONS
In addition to the terms defined in Section 1 and elsewhere in the
Plan, the following are defined terms under this Plan:
(a) "Annual Incentive Award" means an Award earned based on
performance in a Performance Period of one fiscal year or a portion thereof.
(b) "Award" means the amount of a Participant's Award Opportunity
in respect of a Performance Period determined by the Committee to have been
earned, and the Participant's rights to current or future payments in settlement
thereof.
(c) "Award Opportunity" means the Participant's opportunity to
earn specified amounts based on performance during a Performance Period. An
Award Opportunity constitutes a conditional right to receive settlement of an
Award.
(d) "Cause" means "cause" as defined in an employment agreement
between the Company and the Participant in effect at the time of Termination of
Employment. If, however, there is no such employment agreement, Cause means an
individual's (i) intentional failure to perform reasonably assigned duties, (ii)
willful misconduct in the performance of duties, (iii) knowing misconduct which
results in the Company being required to prepare an accounting restatement due
to the material noncompliance of the Company with any financial reporting
requirement under the securities laws, (iv) willful violation of any law, rule
or regulation in connection with the performance of duties (other than traffic
violations or similar offenses), or (v) the commission of an act of fraud or
intentional misappropriation or conversion of assets or opportunities of the
Company or any subsidiary; provided, however, that the Committee may vary the
definition of "Cause" in any agreement or document relating to an Award to be
earned, but not yet earned.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time. References to any provision of the Code include and successor
provisions thereto and regulations thereunder.
(f) "Committee" means the Compensation Committee of the Board of
Directors, or such other Board committee as the Board may designate to
administer the Plan.
(g) "Covered Employee" means a person designated by the Committee
as likely, with respect to a given fiscal year of the Company, to be the Chief
Executive Officer or one of the other persons who will be named executive
officers whose compensation potentially will be subject to the limitations on
tax deductibility under Code Section 162(m) for that year (or a later year in
which an Award may be settled). This designation generally is required at the
time an Award Opportunity is granted. This designation generally is required at
the time an Award Opportunity is authorized. The Committee may designate more
than five persons as Covered Employees with respect to a given year.
A - 1
(h) "Participant" means an employee participating in this Plan.
(i) "Performance Goal" means the Company, business unit or
individual performance objectives or accomplishments required as a condition to
the earning of an Award Opportunity.
(j) "Performance Period" means the period, specified by the
Committee, over which an Award Opportunity may be earned.
(k) "Retirement" means Termination of Employment of the
Participant at or after the Participant has reached age 65, at or after the
Participant has reached age 55 with 10 years of service or upon any other
Termination deemed a retirement by the Committee; provided, however, that in the
case of any retirement before age 65, the Participant shall have executed a
general release and has agreed to be subject to covenants relating to
noncompetition, nonsolicitation and other commitments through the end of the
Performance Period in which the Retirement occurs as then may be required by the
Committee for the protection of the Company's business.
(l) "Termination of Employment" means the termination of a
Participant's employment with the Company or a subsidiary immediately after
which the Participant is not employed by the Company or any subsidiary.
3. ADMINISTRATION
(a) Administration by the Committee. The Plan will be administered
by the Committee, provided that the Committee may condition any of its actions
on approval or ratification by the Board of Directors or the independent
directors of the Board. The Committee shall have full and final authority to
take all actions hereunder, subject to and consistent with the provisions of the
Plan. This authority includes authority to correct any defect or supply any
omission or reconcile any inconsistency in the Plan and to construe and
interpret the Plan and any plan rules and regulations, authorization of an Award
Opportunity, Award, Award agreement, or other document hereunder; and to make
all other decisions and determinations as may be required under the terms of the
Plan or as the Committee may deem necessary or advisable for the administration
of the Plan.
(b) Manner of Exercise of Authority. Any action by the Committee
or the Board with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries or affiliates, Participants,
any person claiming any rights under the Plan from or through any Participant,
and shareholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. A memorandum signed by all members of
the Committee shall constitute the act of the Committee without the necessity,
in such event, to hold a meeting. At any time that a member of the Committee is
not an "outside director" as defined under Code Section 162(m), any action of
the Committee relating to an Award intended by the Committee to qualify as
"performance-based compensation" within the meaning of Section 162(m) may be
taken by a subcommittee, designated by the Committee or the Board, composed
solely of two or more "outside directors." Such action shall be the action of
the Committee for purposes of the Plan. The foregoing notwithstanding, no action
of the Committee shall be void or deemed beyond the authority of the Committee
solely because, at the time such action was taken, one or more members of the
Committee failed to qualify as an "outside director." The Committee may delegate
to specified officers or employees of the Company authority to perform
administrative functions under the Plan, to the extent permitted by law,
provided that no such delegation shall be permitted if it (i) would cause Awards
intended to qualify as performance-based compensation under Code Section 162(m)
to fail to so qualify, and (ii) would result in a related-party transaction with
an executive officer required to be disclosed under Item 404(a) of Regulation
S-K (in accordance with Instruction 5.a.ii thereunder) under the Securities
Exchange Act of 1934.
(c) Limitation of Liability. Each member of the Committee and the
Board of Directors, and any person to whom authority or duties are delegated
hereunder, shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any officer or other employee of
the Company or any
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subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Board or Committee, nor any person to whom authority or duties are delegated
hereunder, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and any
such person shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
4. ELIGIBILITY
Employees of the Company or any subsidiary who are or may become
executive officers of the Company may be selected by the Committee as eligible
to participate in this Plan.
5. PER-PERSON AWARD LIMITATION
Award Opportunities granted to any one eligible employee shall be
limited such that the amount that may be potentially earned for performance in
any one calendar year shall not exceed the Participant's Annual Limit. For this
purpose, the Annual Limit shall equal $5 million plus the amount of the
Participant's unused Annual Limit as of the close of the previous fiscal year.
For this purpose, (i) "potentially earned" means that if the performance
conditions are satisfied in that year, the Award Opportunity is no longer
subject to further risk related to performance, without regard to whether it is
to be paid currently or on a deferred basis or continues to be subject to any
service requirement or other non-performance condition, and (ii) a Participant's
Annual Limit is used to the extent an amount may be potentially earned or paid
under an Award, regardless of whether such amount is in fact earned or paid.
6. DESIGNATION AND EARNING OF AWARD OPPORTUNITIES
(a) Designation of Award Opportunities and Performance Goals. The
Committee shall select employees to participate in the Plan and shall designate
the Performance Period and, for each such Participant, the Award Opportunity
such Participant may earn for such Performance Period, the nature of the
Performance Goal the achievement of which will result in the earning of the
Award Opportunity, and the levels of earning of the Award Opportunity
corresponding to the levels of achievement of the Performance Goal. The
following terms will apply to Award Opportunities:
(i) Specification of Amount Potentially Earnable. Unless
otherwise determined by the Committee, the Award Opportunity earnable
by each Participant shall range from 0% to a specified maximum
percentage of a specified target Award Opportunity. The Committee shall
specify a table, grid, formula, or other information that sets forth
the amount of a Participant's Award Opportunity that will be earned
corresponding to the level of achievement of a specified Performance
Goal.
(ii) Denomination of Award Opportunity; Payment of Award.
Award Opportunities will be denominated in cash and Awards will be
payable in cash, except that the Committee may denominate an Award
Opportunity in shares of any class of the Company's stock and/or to
settle an Award Opportunity in shares of Common Stock if and to the
extent that shares of the Company's stock are authorized for use in
incentive awards and available under an equity compensation plan of the
Company.
(b) Limitations on Award Opportunities and Awards for Covered
Employees. If the Committee determines that an Award Opportunity to be granted
to an eligible person who is designated a Covered Employee by the Committee
should qualify as "performance-based compensation" for purposes of Code Section
162(m), the following provisions will apply:
(i) Performance Goal. The Performance Goal for such Award
Opportunities shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section
6(b). The Performance Goal shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations thereunder
(including
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Treasury Regulation Section 1.162-27(e) and successor regulations
thereto), including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of
performance goals being "substantially uncertain." The Committee may
determine that the Award Opportunity will be earned, or tentatively
earned, based upon achievement of any one measure of performance or
that two or more measures of performance must be achieved. The
Committee may establish a "gate-keeper" Performance Goal that conforms
to this Section 6(b) while specifying or considering other types of
performance (which need not meet the requirements of this Section 6(b))
as a basis for reducing the amount of the Award deemed earned upon
achievement of the gate-keeper Performance Goal. Performance Goals may
differ for Award Opportunities granted to any one Participant or to
different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis, and/or for
specified subsidiaries or affiliates or other business units of the
Company shall be used by the Committee in establishing the Performance
Goal for such Award Opportunities: (1) net sales; (2) gross profit or
pre-tax profit; (3) operating income, earnings before or after taxes,
earnings before or after minority interests, earnings before or after
interest, depreciation, amortization, or extraordinary or special
items; (4) net income or net income per common share (basic or fully
diluted); (5) return measures, including, but not limited to, return on
assets (gross or net), return on investment, return on capital, or
return on equity; (6) cash flow, free cash flow, cash flow return on
investment (discounted or otherwise), net cash provided by operating
activities, or cash flow in excess of cost of capital; (7) interest
expense after taxes; (8) economic value created or economic profit; (9)
operating margin or profit margin; (10) shareholder value creation
measures, including but not limited to stock price or total shareholder
return; (11) revenues from specific assets, projects or lines of
business; (12) targets relating to expense or operating expense,
working capital targets, or operating efficiency; and (13) strategic
business criteria, consisting of one or more objectives based on
meeting specified goals relating to market penetration, geographic
business expansion, operating goals, cost targets, customer
satisfaction, employee satisfaction, human resources management,
supervision of litigation and information technology, and acquisitions
or divestitures of assets, subsidiaries, affiliates or joint ventures.
The targeted level or levels of performance with respect to such
business criteria may be established at such levels and in such terms
as the Committee may determine, in its discretion, including in
absolute terms, as a goal relative to performance in prior periods, or
as a goal compared to the performance of one or more comparable
companies or an index covering multiple companies or an industry.
(iii) Performance Period and Timing for Establishing
Performance Goals. The Committee will specify the Performance Period
over which achievement of the Performance Goal in respect of such Award
Opportunities shall be measured. A Performance Goal shall be
established by the date which is the earlier of (A) 90 days after the
beginning of the applicable Performance Period or (B) the time 25% of
such Performance Period has elapsed.
(iv) Annual Incentive Awards Granted to Covered Employees.
The Committee may grant an Annual Incentive Award, intended to qualify
as "performance-based compensation" for purposes of Code Section
162(m), to an eligible person who is designated a Covered Employee for
a given fiscal year.
(v) Changes to Amounts Payable Under Awards During
Deferral Periods. Any settlement or other event that would change the
form of payment from that originally specified shall be implemented in
a manner such that the Award does not, solely for that reason, fail to
qualify as "performance-based compensation" for purposes of Code
Section 162(m).
(c) Additional Participants and Award Opportunity Designations
During a Performance Period. At any time during a Performance Period the
Committee may select a new employee or a newly promoted employee to participate
in the Plan for that Performance Period and/or designate, for any such
Participant, an Award Opportunity (or additional Award Opportunity) amount for
such Performance Period. In determining the amount of the Award Opportunity for
such Participant under this Section 6(c), the Committee may take into account
the portion of the Performance Period already elapsed, the performance achieved
during such elapsed portion of the Performance Period, and such other
considerations as the Committee may deem relevant.
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(d) Determination of Award. Within a reasonable time after the end
of each Performance Period, the Committee shall determine the extent to which
the Performance Goal for the earning of Award Opportunities was achieved during
such Performance Period and the resulting Award to the Participant for such
Performance Period. The Committee may adjust upward or downward the amount of an
Award, in its sole discretion, in light of such considerations as the Committee
may deem relevant, except that (i) no such discretionary upward adjustment of a
Performance Goal subject Section 6(b) is permitted, and (ii) any discretionary
adjustment is subject to Section 5, Section 8 and other applicable limitations
of the Plan. Unless otherwise determined by the Committee or as provided under
Section 8(a), the Award shall be deemed earned and vested at the time the
Committee makes the determination pursuant to this Section 6(d) and no
Participant shall have a legal right to receive an Award until such
determination has been made.
(e) Written Determinations. Determinations by the Committee as to
the establishment of Performance Goals, the amount potentially payable in
respect of Award Opportunities, the level of actual achievement of the
Performance Goals and the amount of any final Award earned shall be recorded in
writing in the case of Performance Awards intended to qualify under Section
162(m). Specifically, the Committee shall certify in writing, in a manner
conforming to applicable regulations under Section 162(m), with respect to any
Covered Employee prior to any settlement of each such Award, that the
Performance Goal relating to the Award and other material terms of the Award
upon which settlement was conditioned have been satisfied.
(f) Other Terms of Award Opportunities and Awards. Subject to the
terms of this Plan, the Committee may specify the circumstances in which Award
Opportunities and Awards shall be paid or forfeited in the event of a change in
control, termination of employment in circumstances other than those specified
in Section 8, or other event prior to the end of a Performance Period or
settlement of an Award, provided that such change occurs before an Award is
earned, provided that, without the consent of an affected Participant, changes
to previously specified terms are authorized only to the extent the Committee
preserved its discretion to make such changes and in any event such changes may
be made no later than the time an award is earned. With respect to Award
Opportunities and Awards under Section 6(b), any payments resulting from a
change in control or termination of employment need not qualify as
performance-based compensation under Section 162(m) if the authorization of such
non-qualifying payments would not otherwise disqualify the Award Opportunity or
Award from Section 162(m) qualification in cases in which no change in control
or termination of employment occurred.
(g) Adjustments. The Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Award
Opportunities and related Performance Goals in recognition of unusual or
nonrecurring events, including stock splits, stock dividends, reorganizations,
mergers, consolidations, large, special and non-recurring dividends, and
acquisitions and dispositions of businesses and assets, affecting the Company
and its subsidiaries or other business unit, or the financial statements of the
Company or any subsidiary, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business strategy of
the Company, any subsidiary or affiliate or business unit thereof, performance
of comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant;
provided, however, that no such adjustment shall be authorized or made if and to
the extent that the existence or exercise of such authority (i) would cause an
Award Opportunity or Award granted under Section 6(b) and intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to so qualify, or (ii) would cause the Committee to
be deemed to have authority to change the targets, within the meaning of
Treasury Regulation 1.162-27(e)(4)(vi), under the Performance Goals relating to
an Award Opportunity under Section 6(b) intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder. In the event of an equity restructuring, as defined in Statement of
Financial Accounting Standards 123R, which affects the Common Stock, a
Participant shall have a legal right to an adjustment to the Participant's Award
Opportunity and/or Award (including any performance goal based on market price
per share and any Award Opportunity or Award denominated in Common Stock) which
shall preserve without enlarging the value of the Award Opportunity or Award,
with the manner of such adjustment to be determined by the Committee in its
discretion, and subject to any limitation on this right set forth at the time of
initial authorization of the Award Opportunity in any document or controlling
pronouncement of the Committee limiting this right.
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7. SETTLEMENT OF AWARDS.
(a) Deferrals. The Committee may specify, at the time the Award
Opportunity is authorized, that an Award will be deferred as to settlement after
it is earned. In addition, a Participant will be permitted to elect to defer
settlement of an Award if and to the extent such Participant is selected to
participate in a Company deferral program covering such Awards and the
Participant has made a valid deferral election in accordance with that plan.
Deferrals must comply with applicable requirements of Section 409A of the Code.
(b) Settlement of Award. Any non-deferred Award shall be paid and
settled by the Company within 60 days after the date of determination by the
Committee under Section 6(d) hereof. With respect to any deferred amount of a
Participant's Award, such amount will be credited to the Participant's deferral
account under the governing deferral plan of the Company as promptly as
practicable at or after the date of determination by the Committee under Section
6(d) hereof.
(c) Tax Withholding. The Company shall deduct from any payment in
settlement of a Participant's Award or other payment to the Participant any
Federal, state, or local withholding or other tax or charge which the Company is
then required to deduct under applicable law with respect to the Award. The
Committee may specify other withholding terms relating to an Award that will be
settled by delivery of shares of Common Stock or other property.
(d) Non-Transferability. An Award Opportunity, any resulting
Award, including any deferred cash amount resulting from an Award, and any other
right hereunder shall be non-assignable and non-transferable, and shall not be
pledged, encumbered, or hypothecated to or in favor of any party or subject to
any lien, obligation, or liability of the Participant to any party of than the
Company or a subsidiary or affiliate.
8. EFFECT OF TERMINATION OF EMPLOYMENT.
Except to the extent set forth in subsections (a) and (b) of this
Section 8, upon a Participant's Termination of Employment prior to completion of
a Performance Period or, after completion of a Performance Period but prior to
the Committee's determination of the extent to which an Award has been earned
for such Performance Period, the Participant's Award Opportunity relating to
such Performance Period shall cease to be earnable and shall be canceled, and
the Participant shall have no further rights or opportunities hereunder:
(a) Disability, Death, Retirement or Termination by the Company
not for Cause. If Termination of Employment of the Participant is due to the
permanent disability, death, Retirement or Termination by the Company not for
Cause, the Participant or his or her beneficiary shall be deemed to have earned
and shall be entitled to receive an Award for any Performance Period for which
termination occurs prior to the date of determination under Section 6(d) hereof
equal to the Award which would have been earned had Participant's employment not
terminated multiplied by a fraction the numerator of which is the number of
calendar days from the beginning of the Performance Period to the date of
Participant's Termination of Employment and the denominator of which is the
number of calendar days in the Performance Period (but such fraction shall in no
event be greater than one). Such pro rata Award will be determined at the same
time as Awards for continuing Participants are determined (i.e., normally
following the end of the Performance Period in accordance with Section 6(d)
hereof); provided, however, that the Committee may not exercise negative
discretion with respect to such a Participant's Award except in a manner
consistent with its exercise of negative discretion for all Awards of
Participants who then remain employed by the Company. Upon its determination,
such pro rata Award shall be paid and settled promptly in cash, except to the
extent the settlement has been validly deferred in accordance with Section 7(a).
The portion of the Participant's Award Opportunity not earned will cease to be
earnable and will be canceled. For purposes of the Plan, the existence of a
"permanent disability" shall be determined by, or in accordance with criteria
and standards adopted by, the Committee. The foregoing notwithstanding, the
Committee may limit or expand the Participant's rights upon disability, death or
Retirement with respect to a given Award Opportunity.
(b) Other Terminations. In connection with any Termination of
Employment other than due to death, disability, Retirement, or Termination by
the Company not for Cause, the Committee may determine that the Participant
shall be deemed to have earned none, a portion, or all of an Award Opportunity
for a Performance
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Period for which the Committee has not yet determined the extent to which an
Award has been earned, in the Committee's sole discretion. This determination
may be specified at the time the Award Opportunity is established or made at any
time thereafter, except, without the consent of an affected Participant, changes
to previously specified terms are authorized only to the extent the Committee
preserved its discretion to make such changes .
9. ADDITIONAL FORFEITURE PROVISIONS APPLICABLE TO AWARDS
The Committee may impose as a condition of Award Opportunities and
Awards, and as a condition of a Participant's right to receive or retain cash,
Stock, or other property in connection with an Award, (i) requirements that the
Participant comply with specified conditions relating to non-competition,
confidentiality of information relating to or possessed by the Company,
non-solicitation of customers, suppliers, and employees of the Company,
cooperation in litigation, non-disparagement of the Company and its subsidiaries
and affiliates and the officers, directors and affiliates of the Company and it
subsidiaries and affiliates, and other restrictions upon or covenants of the
Participant, including during specified periods following termination of
employment or service to the Company, and (ii) requirements that, if any such
amounts were earned based on performance that is thereafter adversely affected
by a restatement of financial statements or financial information, that such
amounts shall be subject to forfeiture as specified by the Committee. Any
forfeiture or related provisions authorized under this Section 9 shall be
specified as a term of the Award by the Committee not later than the expiration
of 25% of the relevant Performance Period.
10. GENERAL PROVISIONS.
(a) Changes to this Plan. The Committee may at any time amend,
alter, suspend, discontinue, or terminate this Plan without the consent of
shareholders or Participants; provided, however, that any such action beyond the
scope of the Committee's authority shall be subject to the approval of the Board
of Directors; provided further, that any such action shall be submitted to the
Company's shareholders for approval not later than the earliest annual meeting
for which the record date is at or after the date of such Committee or Board
action if such shareholder approval is required by any federal or state law or
regulation or the rules of the New York Stock Exchange or any other stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other amendments to the Plan to shareholders for approval; and provided further,
that, without the consent of an affected Participant, no such Committee or Board
action may materially and adversely affect the rights of such Participant under
any outstanding Award (this restriction does not apply to an Award Opportunity,
however, which remains subject to the discretion of the Committee).
(b) Long-Term Incentives Not Annual Bonus for Purposes of Other
Plans. Amounts earned or payable under the Plan in connection with Awards not
designated by the Committee as "Annual Incentive Awards" shall not be deemed to
be annual incentive or annual bonus compensation (regardless of whether an Award
is earned in respect of a period of one year or less or disclosed as annual
bonus compensation under Securities and Exchange Commission disclosure rules)
for purposes of any retirement or supplemental pension plan of the Company or
any employment agreement or change in control agreement between the Company and
any Participant, or for purposes of any other plan, unless the Company shall in
writing specifically identify this Plan by name and specify that amounts earned
or payable hereunder shall be considered to be annual incentive or annual bonus
compensation.
(c) Unfunded Status of Participant Rights. Awards, accounts,
deferred amounts, and related rights of a Participant represent unfunded
deferred compensation obligations of the Company for ERISA and federal income
tax purposes and, with respect thereto, the Participant shall have rights no
greater than those of an unsecured creditor of the Company.
(d) Nonexclusivity of the Plan. The adoption of this Plan shall
not be construed as creating any limitations on the power of the Board or
Committee to adopt such other compensation arrangements as it may deem desirable
for any Participant.
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(e) No Right to Continued Employment. Neither the Plan, the
authorization of an Award Opportunity, the grant of an Award nor any other
action taken hereunder shall be construed as giving any employee the right to be
retained in the employ of the Company or any of its subsidiaries or affiliates,
nor shall it interfere in any way with the right of the Company or any of its
subsidiaries or affiliates to terminate any employee's employment at any time.
(f) Severability. The invalidity of any provision of the Plan or
a document hereunder shall not deemed to render the remainder of this Plan or
such document invalid.
(g) Successors. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise, and whether
or not the corporate existence of the Company continues) to all or substantially
all of the business and/or assets of the Company to expressly assume and agree
to perform the Company's obligations under the Plan in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place; provided, however, that such successor may replace
the Plan with a plan substantially equivalent in opportunity and achievability,
as determined by a nationally recognized compensation consulting firm, and
covering the participants at the time of such succession. Any successor and the
ultimate parent company of such successor shall in any event be subject to the
requirements of this Section 10(g) to the same extent as the Company. Subject to
the foregoing, the Company may transfer and assign its rights and obligations
hereunder.
(h) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations or document hereunder shall be determined in
accordance with the laws of the State of Florida, without giving effect to
principles of conflicts of laws, and applicable provisions of federal law.
(i) Effective Date of Plan; Shareholder Approval; Termination of
Plan. This Plan shall be effective as of November 1, 2006. The Company shall
submit the Plan, including the material terms of the Plan specified in Treasury
Regulation Section 1.162-27(e)(4), to shareholders for approval at the Company's
2007 Annual Meeting of Shareholders, and the Plan shall be terminated without
any Award being deemed earned in the event shareholders decline to approve it at
that Annual Meeting. If approved by shareholders, the Plan will terminate at
such time as may be determined by the Board of Directors or the Committee
(provided that reapproval of the business criteria specified in Section 6(b)(ii)
may be required under Code Section 162(m) every five years in order for
compensation to Covered Employees to be fully deductible).
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APPENDIX B
HEICO CORPORATION
FINANCE/AUDIT COMMITTEE CHARTER
COMMITTEE'S PURPOSE
The Finance/Audit Committee (Committee) is appointed by the Board of
Directors (Board) to assist the Board in monitoring (1) the quality and
integrity of the financial statements of the Company, (2) compliance by the
Company with legal and regulatory requirements, (3) the independent auditor's
qualifications and independence, (4) performance of the Company's internal and
independent auditors, (5) the business practices and ethical standards of the
Company and (6) the financial affairs of the Company. The Committee shall also
serve as the Qualified Legal Compliance Committee (see separate Charter). The
Committee is also directly responsible for (a) the appointment, compensation,
retention and oversight of the work of the Company's independent auditors, and
(b) the preparation of the report that the Securities and Exchange Commission
(Commission) requires to be included in the Company's annual proxy statement.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are presented
fairly in all material respects in accordance with generally accepted accounting
principles. These are the responsibility of management and the independent
auditor.
COMMITTEE MEMBERSHIP
Independence. The Committee shall consist of three or more members of
the Board of Directors, each of whom shall be independent. Independence shall be
determined as to each member by the full Board. To be considered independent,
each Committee member must meet the independence requirements of the New York
Stock Exchange (NYSE), the Sarbanes-Oxley Act of 2002 (SOX) and the rules and
regulations of the Commission. Committee members shall not simultaneously serve
on the audit committees of more than two other public companies.
Financial Literacy. All members of the Committee shall be financially
literate, as defined by the Commission, or must become financially literate
within a reasonable period of time after their appointment to the Committee, and
at least one member of the Committee shall be an audit committee financial
expert, as determined in the judgment of the Board with reference to applicable
law and NYSE rules.
COMMITTEE COMPOSITION
The members of the Committee shall be nominated by the Nominating and
Corporate Governance Committee and elected by the Board at the annual
organizational meeting of the Board and shall serve until their successors shall
be duly elected and qualified.
Chairman. Unless a Chairman is elected by the full Board, the members
of the Committee shall designate a Chair by majority vote of all the Committee
members.
MEETINGS
The Committee shall meet at least four times annually or more
frequently as circumstances dictate. Meetings may be in person or by telephone
as needed to conduct the business of the Committee. The Committee may take
action by the unanimous written consent of the members in the absence of a
meeting. The Committee shall meet periodically with management, the internal
auditors and the independent auditor in separate executive sessions.
B - 1
AUTHORITY AND RESPONSIBILTY OF THE COMMITTEE
The Committee shall have the authority (1) to exercise all powers with
respect to the appointment, compensation, retention and oversight of the work of
the independent auditor for the Company and its subsidiaries, (2) to retain
special legal, accounting or other consultants to advise the Committee and to
pay the fees of such advisors and (3) to determine the amount of funds it needs
to operate and direct the CFO make such funds available. As part of its
oversight role, the Committee may investigate any matter brought to its
attention, with the full power to retain outside counsel or other experts for
this purpose. The Committee may request any officer or employee of the Company
or the Company's outside counsel or independent auditor to attend a meeting of
the Committee or to meet with any member of, or consultant to, the Committee.
Without limiting the generality of the foregoing, the Committee shall:
Financial Statement And Disclosure Matters
1. Review and discuss prior to public dissemination the annual
audited and quarterly unaudited financial statements with
management and the independent auditor, including major issues
regarding accounting, disclosure and auditing procedures and
practices as well as the adequacy of internal controls that could
materially affect the Company's financial statements. In addition,
the review shall include the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." Based on the annual review, the Committee
shall recommend inclusion of the audited financial statements in
the Company's Annual Report on Form 10-K to the Board.
2. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with
the preparation of the Company's financial statements, including
any significant changes in the Company's selection or application
of accounting principles, any major issues as to the adequacy of
the Company's internal controls and any special steps adopted in
light of material control deficiencies.
3. Review and discuss reports from the independent auditors on:
A. All critical accounting policies and practices to be used.
B. All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, ramification of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditor.
C. Other material written communications between the independent
auditor and management, such as any management letter.
4. Discuss with management the Company's earnings press releases as
well as financial information and earnings guidance provided to
analysts and rating agencies. Such discussion may be done
generally consisting of discussing the types of information to be
disclosed and the types of presentations to be made.
5. Discuss with management and the independent auditor the effect on
the Company's financial statements of significant regulatory and
accounting initiatives as well as off-balance sheet structures.
6. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Company's risk assessment
and risk management policies.
7. Review with the independent auditors any audit problems or
difficulties and management's response, including, but not limited
to (1) any restrictions on the scope of the auditor's activities,
(2) any restriction on the access of the independent auditors to
requested materials, (3) any significant disagreements with
management and (4) any audit differences that were noted or
proposed by the auditor but for which the Company's financial
statements were not adjusted (as immaterial or otherwise). The
Committee will resolve any disagreements between the auditors and
management regarding financial reporting.
B - 2
8. Review disclosures made to the Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form
10-Q about any significant deficiencies in the design or operation
of disclosure controls and procedures and any fraud involving
management or other employees who have a significant role in the
Company's internal controls.
9. Discuss at least annually with the independent auditors the
matters required to be discussed by Statement of Auditing
Standards No. 61--Communication with Audit Committees.
10. Prepare the Committee report that the Commission requires to be
included in the Company's annual proxy statement and review the
matters described in such report.
11. Obtain quarterly assurances from the senior internal auditing
executive and management that the system of internal controls is
adequate and effective. Obtain annually a report from the
independent auditor, with attestation, regarding management's
assessment of the effectiveness of the internal control structure
and procedures for financial reporting.
Responsibility For The Company's Relationship With The Independent Auditors
12. Be solely responsible for the appointment, compensation, retention
and oversight of the work of the independent auditors employed by
the Company. The independent auditor shall report directly to the
Committee. If the appointment of the independent auditors is
submitted for any ratification by stockholders, the Committee
shall be responsible for making the recommendation of the
independent auditors.
13. Review, at least annually, the qualifications, performance and
independence of the independent auditor. In conducting such
review, the Committee shall obtain and review a report by the
independent auditor describing (1) the firm's internal
quality-control procedures, (2) any material issues raised by the
most recent internal quality-control review, or peer review, of
the firm or by any inquiry or investigation by governmental or
professional authorities regarding services provided by the
independent auditing firm which could affect the financial
statements of the Company, and any steps taken to deal with any
such issues, and (3) all relationships between the independent
auditor and the Company that could be considered to bear on the
auditor's independence. This evaluation shall include the review
and evaluation of the lead partner of the independent auditor and
shall ensure the rotation of partners in accordance with
Commission rules and the securities laws.
14. Approve in advance any audit or permissible non-audit engagement
or relationship between the Company and the independent auditors.
The Committee shall establish guidelines for the retention of the
independent auditor for any permissible non-audit services. The
Committee hereby delegates to the Chairman of the Committee the
authority to approve in advance (below specified limits) all audit
or non-audit services to be provided by the independent auditor if
presented to the full Committee at the next regularly scheduled
meeting.
15. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit including the responsibilities
and staffing of the Company's personnel who will assist in the
audit.
16. Recommend to the Board policies for the Company's hiring of
employees or former employees of the independent auditor who
participated in any capacity in the audit of the Company.
Oversight Of The Company's Internal Audit Function
17. Review the appointment, evaluation, and where appropriate, the
termination of the Company's senior internal auditing executive.
18. Review the activities and organizational structure of the internal
auditing department and the significant reports to management
prepared by the internal auditing department and management's
responses.
19. Discuss with the independent auditor and management the internal
audit department's responsibilities, budget, staffing, audit plan
and any recommended changes in the planned scope of the internal
audit department.
B - 3
Compliance Oversight Responsibility
20. Obtain from the independent auditor assurance that Section 10A(b)
of the Securities Exchange Act of 1934, as amended, has not been
implicated.
21. Obtain reports from management and the Company's senior internal
auditing executive that the Company is in conformity with
applicable legal requirements and the Company's Code of Business
Conduct. Review disclosures required to be made under the
securities laws of insider and affiliated party transactions.
Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and
regulations and with the Company's Code of Business Conduct.
22. Establish and maintain procedures for the receipt, retention and
treatment of complaints received by the Company regarding
accounting, internal controls or auditing matters. Also, the
Committee shall maintain a reporting hotline for the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting, internal controls or auditing
matters.
23. Discuss with management and the independent auditor any
correspondence with regulators or governmental agencies and any
published reports that raise material issues regarding the
Company's financial statements or accounting policies.
24. Review at least annually legal matters with the Company's General
Counsel that may have a material impact on the financial
statements, the Company's compliance policies, including but not
limited to the Foreign Corrupt Practices Act, and any material
reports or inquiries received from regulators or governmental
agencies.
OTHER
25. Report regularly to the Board with respect to any issues that
arise with respect to the quality or integrity of the Company's
financial statements, the Company's compliance with legal or
regulatory requirements, the performance and independence of the
Company's independent auditors or the performance of the internal
audit function.
26. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval. Revised
charters should be disclosed periodically in accordance with
applicable rules and regulations.
27. Perform an annual performance self-evaluation of the Committee and
report findings to the Board.
B - 4
HEICO CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, MARCH 16, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of HEICO CORPORATION hereby appoints Laurans A.
Mendelson and Thomas S. Irwin, or either of them, the true and lawful attorney
or attorneys and proxy or proxies of the undersigned with full power of
substitution and revocation to each of them, to vote all the shares of stock
which the undersigned would be entitled to vote, if there personally present, at
the Annual Meeting of Shareholders of HEICO CORPORATION called to be held at the
Conrad Miami Hotel at Espirito Santo Plaza, 1395 Brickell Avenue, Miami, Florida
33131, at 10:00 a.m. Eastern Standard Time on March 16, 2007 (notice of such
meeting has been received), and at any adjournments thereof, with all powers
which the undersigned would possess if personally present. Without limiting the
generality of the foregoing, said attorneys and proxies are authorized to vote
as indicated below.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary) nominees listed below
NOMINEES: 01 Samuel L. Higginbottom, 02 Wolfgang Mayrhuber,
03 Eric A. Mendelson, 04 Laurans A. Mendelson,
05 Victor H. Mendelson, 06 Albert Morrison, Jr., 07 Joseph W. Pallot,
08 Dr. Alan Schriesheim, 09 Frank J. Schwitter
INSTRUCTION: To withhold authority to vote for an individual nominee, write
that nominee's name in the space provided below.
----------------------------------------------------------------------
(Continued, and to be dated and signed on the reverse side)
2. APPROVAL OF THE 2007 INCENTIVE COMPENSATION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, upon such other matters which may properly come before
the meeting or any adjournments.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT WHERE NO DIRECTION IS GIVEN, IT WILL
BE VOTED FOR THE ELECTION OF ALL DIRECTORS AND FOR PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENVELOPE PROVIDED, SO THAT
YOUR SHARES CAN BE VOTED AT THE MEETING.
Dated : _________________________, 2007
Signature
---------------------------------
Signature if held jointly
-----------------
(Please sign exactly as name appears hereon. If
Executor, Trustee, etc., give full title. If
stock is held in the name of more than one
person, each should sign.)