-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWadsRpnPRjV8UjQfzKHgCa7s/tcDZ+WqSqc1dnoV1huBobrG+VnBKQ8M6AIdFC/ EAJaJd5z28q2PKe4/WwINw== 0000950170-99-000698.txt : 19990503 0000950170-99-000698.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950170-99-000698 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990610 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVCON INTERNATIONAL CORP CENTRAL INDEX KEY: 0000028452 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270] IRS NUMBER: 590671992 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-07152 FILM NUMBER: 99605405 BUSINESS ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: STE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33443 BUSINESS PHONE: 3054291500 MAIL ADDRESS: STREET 1: 1350 E NEWPORT CENTER DR STREET 2: SUITE 201 CITY: DEERFIELD BEACH STATE: FL ZIP: 33442 DEF 14A 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT 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 [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 [ ]Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2) (Name of Registrant as Specified in Its Charter) DEVCON INTERNATIONAL CORP. Payment of filing fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Check box if any part of the fee is offset as provided in 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. (1) Amount previously paid: (2) Form, schedule or registration statement no.: (3) Filing party: (4) Date Filed: DEVCON INTERNATIONAL CORP. 1350 EAST NEWPORT CENTER DRIVE, SUITE 201 DEERFIELD BEACH, FLORIDA 33442 NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 10, 1999 To the shareholders of Devcon International Corp.: NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of Devcon International Corp., a Florida corporation (the "Company"), will be held at the Deerfield Beach Hilton, Hillsboro Executive Center North, 100 Fairway Drive, Deerfield Beach, Florida on Thursday, June 10, 1999 at 3:00 p.m., local time, for the following purposes: 1. To elect five persons to the Company's Board of Directors to hold office until their terms shall expire or until their successors are duly elected and qualified; 2. To approve and ratify the Company's 1999 Stock Option Plan; 3. To ratify the reappointment of KPMG LLP, independent certified public accountants, as the Company's auditor for 1999; and 4. To transact other business as may properly come before the meeting and any and all adjournments or postponements thereof. The Board of Directors has fixed the close of business on April 29, 1999 as the record date for determining those shareholders entitled to notice of and to vote at the 1999 Annual Meeting and any adjournments or postponements thereof. Whether or not you expect to be present at the meeting, please sign, date and return the enclosed proxy card as promptly as possible in the enclosed pre-addressed stamped envelope. By Order of the Board of Directors, Donald L. Smith, Jr., President Deerfield Beach, Florida May 6, 1999 - -------------------------------------------------------------------------------- THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND ARE RESPECTFULLY URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING, REVOKE THEIR PROXY AND VOTE THEIR SHARES IN PERSON. - -------------------------------------------------------------------------------- 1999 ANNUAL MEETING OF SHAREHOLDERS OF DEVCON INTERNATIONAL CORP. PROXY STATEMENT -------------------- DATE, TIME AND PLACE OF ANNUAL MEETING This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Devcon International Corp., a Florida corporation (the "Company"), of proxies from the holders of the Company's Common Stock, par value $0.10 per share (the "Common Stock"), for use at the 1999 Annual Meeting of Shareholders of the Company to be held on June 10, 1999, and any adjournments or postponements thereof (the "Annual Meeting"), pursuant to the enclosed Notice of Annual Meeting. It is expected that this Proxy Statement and the enclosed form of proxy will be first mailed to shareholders of the Company on or about May 6, 1999. The complete mailing address, including zip code, of the Company's principal executive offices is 1350 East Newport Center Drive, Suite 201, Deerfield Beach, Florida 33442. INFORMATION CONCERNING PROXY The enclosed proxy is solicited on behalf of the Company's Board of Directors. The giving of a proxy does not preclude the right to vote in person should any shareholder giving a proxy so desire. Shareholders have an unconditional right to revoke their proxy at any time prior to the exercise thereof, either in person at the Annual Meeting or by filing with the Company's Secretary at the Company's headquarters a written revocation or duly executed proxy bearing a later date. No revocation will be effective, however, until written notice of the revocation is received by the Company at or prior to the Annual Meeting. The cost of preparing, assembling and mailing this Proxy Statement, the Notice of Annual Meeting of Shareholders and the enclosed proxy is to be borne by the Company. In addition to the use of mail, employees of the Company may solicit proxies personally and by telephone and facsimile. They will receive no compensation therefor in addition to their regular salaries. The Company may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of the proxy material to their principals and to request authority for the execution of proxies. The Company may reimburse such persons for their expenses in so doing. PURPOSES OF THE MEETING At the Annual Meeting, the Company's shareholders will consider and vote upon the following matters: 1. The election of five directors to serve until the next annual meeting of shareholders or until their successors are duly elected and qualified; 2. To approve and ratify the Company's 1999 Stock Option Plan; 3. The ratification of the reappointment of KPMG LLP, independent certified public accountants, as the Company's auditor for 1999; and 4. Other business as may properly come before the Annual Meeting, including any adjournments or postponements thereof. 2 Unless contrary instructions are indicated on the enclosed proxy, all shares represented by valid proxies received pursuant to this solicitation (and which have not been revoked in accordance with the procedures set forth above) will be voted (a) for the election of the five nominees for director named below, and (b) in favor of all other proposals described on the Notice of Annual Meeting. In the event a shareholder specifies a different choice by means of the enclosed proxy, his shares will be voted in accordance with the specification so made. OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS The Board of Directors has set the close of business on April 29, 1999, as the record date (the "Record Date") for determining shareholders of the Company entitled to notice of and to vote at the Annual Meeting. As of the Record Date there were 4,498,935 shares of Common Stock issued and outstanding, all of which are entitled to be voted at the Annual Meeting. Holders of Common Stock are entitled to one vote per share on each matter that is submitted to shareholders for approval. The attendance, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum. In order to be elected, nominees for director must receive a plurality of the votes cast by holders of shares of Common Stock voting in person or by proxy at the Annual Meeting. The approval of proposal two will require an affirmative vote of the holders of a majority of the shares of the Common Stock of the Company voting in person or by proxy at the Annual Meeting. The Board will consider the affirmative vote of the holders of a plurality of the shares of the Common Stock of the Company voting in person or by proxy at the Annual Meeting as a recommendation to the Board with respect to proposal three. Abstentions are considered as shares present and entitled to vote for purposes of determining the outcome of any matter submitted to the shareholders for a vote, but are not counted as votes cast "for" or "against" any matter. The inspector of elections will treat shares referred to as "broker or nominee non-votes" (shares held by brokers or nominees as to which instructions have not been received from the beneficial owners or persons entitled to vote and the broker or nominee does not have discretionary voting power on a particular matter) as shares that are present and entitled to vote for purposes of determining the presence of a quorum. For purposes of determining the outcome of any matter as to which the proxies reflect broker or nominee non-votes, shares represented by such proxies will be treated as not present and not entitled to vote on that subject matter. Accordingly, such shares would not be considered by the inspectors as shares entitled to vote on that subject matter and therefor would not be considered by the inspector when counting votes cast on the matter. If less than a majority of the outstanding shares of Common Stock are represented at the meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. SECURITY OWNERSHIP The following table sets forth as of the Record Date the number of shares beneficially owned and the percentage of ownership of the Company's Common Stock by (i) each person known to the Company to own beneficially more than 5 percent of the outstanding Common Stock, (ii) each director of the Company, (iii) each of the five executive officers of the Company who had annual salary and bonus for 1998 in excess of $100,000 (the "Named Executive Officers"), including the President and Chief Executive Officer, and (iv) all directors and executive officers of the Company as a group. 3
COMMON STOCK BENEFICIALLY OWNED (2) ------------------------ NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES PERCENT - ---------------------------------------- ------ ------- Donald L. Smith, Jr.(3)............................................... 1,263,432 27.62% Smithcon Family Investments, Ltd.(4).................................. 981,372 21.81% Robert A. Steele(5)................................................... 244,000 5.39% Robert L. Kester(6)................................................... 25,600 * Richard L. Hornsby(7)................................................. 65,625 1.41% Donald L. Smith, III(8)............................................... 109,814 2.42% W. Douglas Pitts(9)................................................... 20,000 * Henry C. Obenauf...................................................... 44,700 * Jan A. Norelid(10).................................................... 8,500 * Dimensional Fund Advisors, Inc.(11)................................... 301,600 6.70% Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisory Services, Inc.(12)............................ 391,200 8.70% Tweedy, Browne Company L.P. and TBK Partners, L.P.(13)................ 440,589 9.79% All directors and executive officers as a group (9 persons)........... 1,750,170 37.12% - --------------------
* Less than 1%. (1) Unless otherwise indicated, the address of each of the beneficial owners is 1350 East Newport Center Drive, Suite 201, Deerfield Beach, Florida 33442. (2) Unless otherwise indicated each person or group has sole voting and investment power with respect to all such shares. (3) All 981,372 shares held by Smithcon Family Investments, Ltd. are deemed beneficially owned by Donald L. Smith, Jr. and are included in the above table for each of Mr. Smith and Smithcon Family Investments, Ltd. Mr. Smith's holdings include (i) all 981,372 shares held by Smithcon Family Investments, Ltd., an entity controlled by Smithcon Investments, Inc. (the "Corporation"), a corporation that is wholly owned by Mr. Smith, (ii) 17,628 shares held by the Corporation and (iii) 75,000 shares issuable upon exercise of options that are presently exercisable. (4) All 981,372 shares held by Smithcon Family Investments, Ltd. are deemed beneficially owned by Donald L. Smith, Jr. and are included in the above table for each of Mr. Smith and Smithcon Family Investments, Ltd. See footnote (3) for description of relationship between Smithcon Family Investments, Ltd. and Mr. Smith. (5) Includes 24,000 shares issuable upon exercise of options that are presently exercisable. (6) Includes 24,000 shares issuable upon exercise of options that are presently exercisable. (7) Includes 34,125 shares issuable upon exercise of options granted by the Company that are presently exercisable and 30,000 shares issuable upon exercise of an option that is presently exercisable, granted by Mr. Donald L. Smith, Jr., to Mr. Hornsby to purchase shares of Mr. Smith's Common Stock at an exercise price of $2.33 per share. Does not include 23,250 shares subject to options held by Mr. Hornsby that are not presently exercisable. (8) Includes (w) 33,964 shares directly owned by Mr. Smith and his wife (x) 42,400 shares beneficially owned that are held in trust by Donald L. Smith, III for the benefit of his minor children, to which latter shares Mr. Smith disclaims beneficial ownership and (y) 33,450 shares issuable upon exercise of options that are 4 presently exercisable. Does not include 19,500 shares issuable upon exercise of options that are not presently exercisable. (9) Includes 20,000 shares issuable upon exercise of options that are presently exercisable. (10) Includes 6,000 shares issuable upon exercise of options that are presently exercisable. Does not include 64,000 shares issuable upon exercise of options that are not presently exercisable. (11) The address for Dimensional Fund Advisors, Inc. ("Dimensional") is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401. Dimensional, a registered investment advisor, is deemed to have beneficial ownership of 301,600 shares all of which shares are held by advisory clients of Dimensional. Dimensional disclaims beneficial ownership of all such shares. The information with respect to Dimensional is based solely on a Schedule 13G dated February 11, 1999. (12) The address for Franklin Resources, Inc. ("Franklin") is 777 Mariners Island Boulevard, P.O. Box 7777, San Mateo, California 94403-7777. Franklin is deemed to have beneficial ownership of such shares which are beneficially owned by one or more open or closed-end investment companies or other managed accounts which are advised by direct and indirect investment advisory subsidiaries of Franklin. Such securities may also be deemed to be beneficially owned by Charles B. Johnson, and Rupert H. Johnson, Jr., each of whom owns, greater than 10% of the outstanding Common Stock of Franklin and by Franklin Advisory Services, Inc., an investment adviser subsidiary of Franklin ("FAI"). Franklin, its principal shareholders and FAI disclaim beneficial ownership of all such shares. The information with respect to Franklin is based solely on a Schedule 13G dated January 22, 1999. (13) The address for Tweedy, Browne Company L.P. and TBK Partners, L.P. is 52 Vanderbilt Avenue, New York, New York 10017. Includes 400,777 shares with respect to which Tweedy, Browne Company, L.P. has sole voting power, 3,000 shares to which TBK Partners, L.P. has sole voting and dispositive power, and 440,589 shares to which Tweedy, Browne Company, L.P. has shared dispositive power. Certain of the general partners of Tweedy, Browne Company, L.P. and TBK Partners, L.P. may be deemed to have sole power to vote certain shares owned by Tweedy, Browne Company L.P. or TBK Partners, L.P. with respect to which Tweedy, Browne Company, L.P. has investment discretion. Tweedy, Browne Company, L.P. and TBK Partners, L.P. each disclaims beneficial ownership of the shares held in such accounts. TBK Partners, L.P. and Tweedy, Browne Company L.P. have each disclaimed beneficial ownership of shares held by each other. The information with respect to Tweedy, Brown Company L.P. and TBK Partners, L.P. is based solely on a Schedule 13G, dated January 24, 1994, Amendment No. 1 to Schedule 13D, dated February 2, 1994 and Amendment No. 2 to Schedule 13D, dated September 14, 1997. ELECTION OF DIRECTORS NOMINEES The Company's Restated Articles of Incorporation and Bylaws provide that the number of directors to serve on the Board of Directors shall be determined by the Board of Directors of not less than five nor more than seven directors. The Board of Directors has previously determined the number of directors at five. Each director elected at the Annual Meeting will serve as a director for a term expiring at the 2000 Annual Meeting of Shareholders, expected to be held in June 2000, or until his successor has been duly elected and qualified. Messrs. Smith, Hornsby, Kester, Steele and Pitts have been nominated for election as directors and proxies will be voted for such persons absent contrary instructions. 5 The Board of Directors does not believe that any nominee will refuse to act or be unable to accept election. In the event, however, that a nominee for director is unable to accept election or if any other unforeseen contingencies should arise, proxies will be voted for the remaining nominees and for such other person as may be designated by the Board of Directors, unless it is directed by a proxy to do otherwise. Each of the nominees for election as a director of the Company is a current member of the Board of Directors. Mr. Smith has served as a director since 1951, Mr. Kester has served as a director since 1972, Mr. Hornsby has served as a director since 1975, Mr. Steele has served as a director since 1989, and Mr. Pitts has served as a director since 1996. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S) HELD WITH THE COMPANY - ---- --- --------------------------------- Donald L. Smith, Jr. .................. 77 Chairman of the Board, President and Chief Executive Officer Richard L. Hornsby................... 63 Director and Executive Vice President Robert L. Kester..................... 79 Director Robert A. Steele..................... 83 Director W. Douglas Pitts..................... 59 Director Jan A. Norelid ...................... 45 Vice President-Finance and Chief Financial Officer Henry C. Obenauf..................... 69 Vice President-Engineering Donald L. Smith, III................. 46 Vice President-Construction Operations
Donald L. Smith, Jr., a cofounder of the Company, has served as its Chairman of the Board, President and Chief Executive Officer since its formation in 1951. Richard L. Hornsby was appointed the Company's Executive Vice President in March 1989. Mr. Hornsby served as Vice President of the Company from August 1986 to February 1989. From September 1981 until July 1986 he was Financial Manager of R.O.L., Inc. and L.O.R., Inc., companies primarily engaged in various private investment activities. He has been a director of the Company since 1975 and served as Vice President-Finance from 1972 to 1977. Robert L. Kester, a director of the Company since 1972, is a private investor and is Chairman of the Board of Big Sky Western Bank in Big Sky, Montana. Mr. Kester retired from active employment with Florida Coast Bank of Pompano Beach, Florida after its acquisition by Barnett Bank of Florida in 1984. Mr. Kester is additionally a partner of Kester Management Trust, a real estate business in Pompano Beach, Florida. Robert A. Steele, a director of the Company since May 1989, has been Chairman of the Board, Chief Executive Officer and a principal shareholder of SFM Leasing Company, Inc. and RAMS Leasing Company, Inc. since 1972. Both companies were engaged in the heavy truck and equipment leasing business. Currently, these companies are primarily engaged in various investment activities. Mr. Steele has also been managing partner of Steele Associates, Ltd. since 1981 and SFM Realty Associates since 1985, both of which are primarily engaged in various investment activities. W. Douglas Pitts, a director of the Company since 1996, is Chairman of the Board and Chief Executive Officer of The Courtelis Company, which is engaged primarily in various real estate development activities. Prior to his selection as Chairman of the Board and Chief Executive Officer in December 1995, Mr. Pitts served as Executive Vice President and Chief Operating Officer of The Courtelis Company from 1983 to 1995. 6 Jan A. Norelid was appointed Vice President-Finance and Chief Financial Officer in October 1997. From January 1996 until September 1997 he owned and operated a printing company. Prior to that and from January 1991 he served as Chief Financial Officer for Althin Medical, Inc., a medical device manufacturer in Florida. Henry C. Obenauf was appointed Vice President-Engineering of the Company in March 1989, after having served as Vice President of the Company since 1977. Mr. Obenauf has been employed by the Company for more than 31 years. Donald L. Smith, III, was appointed Vice President-Construction Operations for the Company in December 1992. Prior to that and from March 1992, he served as the Company's Assistant Vice President of Construction Operations-South Florida and the Caribbean. Mr. Smith joined the Company in 1976 and has served in various supervisory and managerial positions with the Company since that time. The Company's directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. The Company's officers are elected annually by the Board of Directors and serve at the discretion of the Board. There are no arrangements or understandings with respect to the selection of officers or directors. The Company pays each director other than Mr. Smith an annual retainer of $4,000. Non-employee directors who serve on the Compensation Committee or Audit Committee are paid an annual fee of $1,000 or $500, depending on the level of responsibility they assume. Pursuant to the 1992 Directors' Stock Option Plan (the "Directors' Plan"), the Company's non-employee directors were granted options to purchase 8,000 shares of Common Stock upon the approval of the Directors' Plan by shareholders. A new non-employee director would receive a similar option upon the commencement of service as a director. In addition, each non-employee director is granted options to purchase 1,000 shares of Common Stock after each annual meeting of the Company, pursuant to the Directors' Plan. For purposes of the Directors' Plan, a director is a non-employee director if he does not receive regular compensation from the Company or its subsidiaries other than directors fees and reimbursement for expenses, even if such director is an officer of a subsidiary of the Company. In December 1998 the three non-employee directors each received an option to purchase 10,000 shares at $2.17 per share which was the closing market price on the day preceding the grant. Donald L. Smith, III is the son of Donald L. Smith, Jr., the Company's Chairman, President and Chief Executive Officer. Aside from the foregoing, there are no family relationships between any directors and executive officers of the Company. Certain other children of Donald L. Smith, Jr. are employed by the Company. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS During the year ended December 31, 1998, the Board of Directors took certain actions by unanimous written consent and held six meetings. During 1998, no incumbent director attended fewer than 75 percent of the aggregate of (i) the number of meetings of the Board of Directors held during the period he served on the Board, and (ii) the number of meetings of committees of the Board of Directors held during the period he served on such committees. The Board of Directors has two standing committees, the Audit Committee and the Compensation Committee. Messrs. Kester, Pitts and Steele are members of the Audit Committee, which met two times during 1998. The duties and responsibilities of the Audit Committee include (a) recommending to the full Board the appointment of the Company's auditors and any termination of engagement, (b) reviewing the plan and scope of audits, (c) reviewing the Company's significant accounting policies and internal controls and (d) having general responsibility for all related auditing matters. 7 Messrs. Kester, Pitts and Steele are members of the Company's Compensation Committee, which met three times during 1998. This committee administers the 1992 Stock Option Plan and has the power and authority to (a) determine the persons to be awarded options and the terms thereof and (b) construe and interpret the 1992 Stock Option Plan. This Committee also is responsible for the final review and determination of executive compensation. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth compensation awarded to, earned by or paid to the Company's Chief Executive Officer and each of the other four executive officers of the Company who had an annual salary and bonus in 1998 in excess of $100,000 (collectively, the "Named Executive Officers"). The Company has not granted any restricted stock awards or stock appreciation rights. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------------------------ ------------------------------ OTHER ALL ANNUAL AWARDS PAYOUTS OTHER COMPEN- LTIP COMPEN- NAME AND FISCAL SATION OPTIONS PAYOUTS SATION PRINCIPAL POSITION YEAR SALARY($) BONUS ($) ($)(1) (#) ($) ($)(2) - ------------------ ---- -------- ----------- --------- --------- -------- ------- Donald L. Smith, Jr. 1998 260,000 - - - - 7,867 Chairman of the Board, 1997 260,000 - - - - 7,800 President and 1996 260,000 - - - - 7,200 Chief Executive Officer Richard L. Hornsby 1998 165,000 - 9,000 - - 72,780 Executive Vice President 1997 165,000 - 9,000 - - 72,436 1996 165,000 - 9,000 - - 72,286 Jan A. Norelid 1998 109,039 - 5,000 40,000 - 5,000 Vice President-Finance, 1997 26,923 - - 30,000 - - Chief Financial Officer 1996 - - - - - - Henry C. Obenauf 1998 102,346 3,000 - - - 3,187 Vice President - 1997 101,000 5,414 - - - 3,033 Engineering 1996 91,796 5,074 - - - 2,754 Donald L. Smith, III 1998 99,796 3,000 5,000 - - 10,736 Vice President- 1997 99,465 4,331 5,000 - - 10,598 Construction Operations 1996 98,900 8,000 5,000 - - 10,418 - ----------------
(1) Does not include the dollar value of personal benefits, such as the cost of automobiles and health insurance, the aggregate value of which for each named executive officer was less than 10% of such executive officer's salary and bonus. Includes $4,000 a year for Mr. Hornsby, representing a retainer paid to all directors other than Mr. Smith and $5,000 per year for Messrs. Hornsby, Norelid and Smith, III for service on a management policy committee. 8 (2) Represents (i) the cost of term and non term life insurance coverage paid to the insurance company as premiums for policies on the lives of Messrs. Hornsby and Smith, III in 1998, 1997 and 1996 pursuant to split dollar life insurance policies on the lives of such executive officers and (ii) the Company's match of a 401(k) contribution made by each named executive officer. The Company will be reimbursed for its non-term premium payments at such time as benefits are paid under the policies or the policies are terminated and the cash proceeds distributed. OPTION GRANTS AND LONG-TERM INCENTIVE AWARDS The following table sets forth certain information concerning stock option grants to the Named Executive Officers during the 1998 year. No stock appreciation rights or long-term incentive awards were granted to the Named Executive Officers during 1998. OPTION GRANTS IN LAST FISCAL YEAR
PERCENT OF NUMBER OF TOTAL OPTIONS GRANT SECURITIES GRANTED TO DATE UNDERLYING EMPLOYEES IN EXERCISE OF PRESENT OPTIONS FISCAL YEAR BASE PRICE EXPIRATION VALUE (#)(1) (%) ($/SH) DATE $ (2) ------------- ----------------- ------------ -------------- ------------- Donald L. Smith, Jr. - - - - - Richard L. Hornsby - - - - - Jan A. Norelid 20,000 25.0% 3.63 3/03/08 43,752 20,000 25.0% 2.94 6/24/08 35,316 Henry C. Obenauf - - - - - Donald L. Smith, III - - - - -
(1) Options become exercisable at the rate of 20% on each anniversary of the date of the grants, which was March 3, 1998 and June 24, 1998, respectively. (2) The Black-Scholes option-pricing model was used to determine the grant date present value of the stock options granted in 1998 by the Company to the Named Executive Officers listed above. The following facts and assumptions were used in making such calculation: (i) exercise prices as indicated in the table above; (ii) fair market value equal to the respective exercise price of each option on the date of the grants; (iii) a dividend yield of 0%; (iv) an expected stock option term of 10 years; (v) a stock price volatility of 38.48% based on an analysis of monthly stock closing prices of Common Stock during 1998; and (vi) a risk-free interest rate of 5.6% for the options granted on March 3, 1998 and a risk-free interest rate of 5.5% for the options granted on June 24, 1998 each of which is equivalent to the yield of a ten-year Treasury note on the date of the grants. No other discounts or restrictions related to vesting or the likelihood of vesting of stock options were applied. The grant date present value for each stock option was multiplied by the total number of stock options granted, to determine the total grant date present value of such stock options granted to each of the Named Executive Officers, respectively. AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE The following table sets forth certain information concerning unexercised stock options held by the Named Executive Officers as of December 31, 1998. No stock appreciation rights have been granted or are outstanding. 9 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED ACQUIRED OPTIONS AT IN-THE MONEY OPTIONS ON VALUE FISCAL YEAR-END (#) AT FISCAL-YEAR END($)(1) EXERCISE REALIZED ----------------------------- ------------------------------ NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(3) - ---------------------- --------- ----------- ------------- ------------- -------------- --------------- Donald L. Smith, Jr. - - 75,000 - 22,500 - Richard L. Hornsby - - 34,125 23,250 13,838 3,375 Jan A. Norelid - - 6,000 64,000 - - Henry C. Obenauf - - - - - - Donald L. Smith, III - - 33,450 19,500 4,635 2,250 - -----------------
(1) The closing price for the Company's Common Stock as reported on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") on December 31, 1998 was $2.63. Value is calculated by multiplying (a) the difference between $2.63 and the option exercise price by (b) the number of shares of Common Stock underlying the option. (2) For certain exercisable shares, exercise price exceeded closing price at December 31, 1998. Values shown include only in the money exercisable shares. (3) For certain exercisable shares, exercise price exceeded closing price at December 31, 1998. Values shown include only in the money unexercisable shares. CERTAIN TRANSACTIONS The Company leases a 4.4 acre parcel of real property from Mr. Donald L. Smith, Jr., pursuant to which Mr. Smith received $49,303 in annual rent in 1998. The Company has borrowed approximately $5.6 million from Donald L. Smith, Jr. at December 31, 1998. The note is unsecured, bears interest at 2 percent over the prime interest rate. One hundred sixty-three-thousand dollars is due on demand and $5.4 million is due on January 1, 2000. The officer has the option of making the entire note due on demand should a change of control occur. A change of control has occurred if a person or group acquires 15% or more of the Company's Common Stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the Company's Common Stock. In 1989, an Antiguan subsidiary of the Company obtained a minority interest in a partnership that acquired a manufacturer of acoustical ceiling tiles in Matamoros, Mexico and that is engaged in the sale, distribution and marketing of such tiles. The subsidiary invested approximately $1.2 million in the partnership for a 29 percent interest and two of the Company's officers and directors, Messrs. Smith, Jr. and Hornsby, obtained an 11 percent interest for which they paid $450,000. In January 1994, another Antiguan subsidiary of the Company became the new general partner of the partnership and was assigned all the rights and assumed all the liabilities of the former Antiguan subsidiary with respect to the partnership. In connection with an amendment of the partnership agreement, the Antiguan subsidiary and the Company, as applicable, contributed a note receivable of $505,000 from the partnership into equity and contributed approximately $235,000 of equipment to the partnership. The Antiguan subsidiary's ownership interest in the partnership was increased to 64.47 percent. The ownership interest of Messrs. Smith, Jr. and Hornsby was reduced to 6.47 percent. 10 In November 1995 the Company decided to sell this operation because of its poor operating results and uncertain prospects for improvement. The Company's investment in the partnership was written down to its estimated net realizable value of approximately $749,000, which consists principally of property, equipment and inventory with a net book value of approximately $1.4 million, along with debt of approximately $621,000. The Company sold its interest in the ceiling tile business in September 1996 in exchange for one secured promissory note in the amount of $600,000 and one unsecured promissory note in the amount of $385,000, assumed certain liabilities of the partnership and took an additional loss on disposal of approximately $488,000. At December 31, 1998, $600,000 remained outstanding on the secured promissory note and $128,000 in principal remained outstanding on the unsecured promissory note. At December 31, 1998, the Company had borrowed approximately $987,000 from Robert A. Steele, a Board member of the Company. The notes are secured by various pieces of equipment and bear interest at a rate of 10 percent per annum with monthly payments being made through July 2002. The Company has receivables due from certain officers and employees as a result of payments made by the Company pursuant to a split dollar life insurance plan. The Company's advances to pay premiums are secured by a pledge of the cash value of the issued policies. Amounts due the Company under the split dollar plans aggregated $673,379 at December 31, 1998, including $458,116 from Richard L. Hornsby and $53,895 from Donald L. Smith, III. Commencing in July 1996 and through December 31, 1998, Donald L. Smith, Jr. had invested $2.5 million and committed to invest $1.3 million additionally, to a partnership seeking to develop a resort in the Bahamas. In exchange for his investment and commitment to make additional investments, Mr. Smith had a 14.8% interest in the partnership at December 31, 1998. Commencing in August 1996 and through January 1998, Robert A. Steele had invested $144,000 for a 1.7% interest in the partnership. Commencing in October 1996 and through January 1998, the Company invested $154,000 and provided certain services for a 2.1% interest in the partnership. In September 1997, Donald L. Smith, Jr. guaranteed a supersedeas bond written for the Company in the amount of $3.8 million in connection with a judgment entered against the Company in certain litigation. In March of 1999, the Company partially settled the lawsuit and the supersedeas bond will be reduced to the amount of $629,148. Henry C. Obenauf is indebted to the Company in the principal amount of $221,488 pursuant to several promissory notes. The indebtedness was incurred by Mr. Obenauf to fund the exercise price of his options to purchase Common Stock of the Company and income taxes related to such exercise. The Company believes that, to the extent applicable, the foregoing transactions were on terms no less favorable to the Company than those that could have been obtained from independent third parties. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10 percent of the Company's Common Stock, to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of Common Stock. Officers, directors and greater than 10 percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and representations that no other reports were required, during the fiscal year ended December 31, 1998 all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with. 11 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee members are Robert L. Kester, W. Douglas Pitts and Robert A. Steele. Commencing in July 1996 and through December 31, 1998, Donald L. Smith, Jr. had invested $2.5 million and committed to invest $1.3 million additionally, to a partnership seeking to develop a resort in the Bahamas. In exchange for his investment and commitment to make additional investments, Mr. Smith had a 14.9% interest in the partnership at December 31, 1998. Commencing in August 1996 and through January 1998, Robert A. Steele had invested $144,000 for a 1.7% interest in the partnership. Consequently, in October 1998 and through January 1998, the Company invested $154,000 and provided certain services for a 2.1% interest in the partnership. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee is primarily responsible for determining the compensation of the Company's executive officers, although the Company's Chief Executive Officer and President makes recommendations to the Compensation Committee as to the compensation of the Company's executive officers. The Compensation Committee's general philosophy with respect to the compensation of the Company's executive officers is to offer competitive compensation programs designed to attract and retain qualified executives, to motivate performance to achieve specific goals and to align the interests of senior management with the long-term interests of the Company's shareholders. In determining compensation, job level, individual performance and Company performance are considered. More specifically, factors considered include the Chief Executive Officer and President's recommendations, specific accomplishments of the executive officers, the Company's historical and projected performance, sales, earnings, financial condition and return on equity and economic conditions. These factors and the ultimate determination of compensation are subjective. The Company attempts to provide incentives to retain qualified executive officers, but also believes that the compensation paid to its executives is well within the range of compensation paid to similarly situated executives at other companies in similar industries or at companies having similar market capitalization. Given the level of the Company's executive officers compensation, the Committee does not believe that it is necessary to incur the expense of formal studies or market analysis. Of all the components of compensation, salary is most closely related to individual performance. Strong emphasis is given to the Chief Executive Officer's recommendations, given his experience with the Company since its origin and his day-to-day contact with the other executive officers. Consideration is also given to the amount deemed necessary to retain an executive officer's services. These considerations are subjective and not subject to specific criteria. Company performance is also a factor and given that the Company did not meet internal economic goals, salaries for executive officers remained basically the same in 1998 as compared to 1997. Based on its experience with companies generally and in the Company's industry, and without utilizing any formal market studies, the Committee believes that the salaries paid by the Company to its executive officers are moderate by comparison to external standards. For this reason and since individual performances did not merit a decrease in the view of the Committee, salaries did not decrease. The Committee took special notice of several factors, including the additional time and effort expended by management and difficult economic conditions in certain of the Company's Caribbean operations. This analysis was also subjective and not subject to specific criteria. While bonuses are also related to individual performance, Company performance is emphasized more in determining bonus payments than in determining salary. This is particularly true at the highest level of management. In considering performance, generally earnings are most emphasized, although revenues and financial condition are also considered. The amount of any bonus is not tied to specific performance criteria, but is also subjectively determined 12 based upon an analysis of the aforementioned factors. An executive officer could receive a bonus in a year where the Company is not profitable, based upon his individual performance or areas of responsibility. The Company also attempts to provide incentives to its executive officers to remain with the Company and to improve performance through the grant of stock options. Options allow executive officers to share, to some extent, in shareholders' return on equity. Typically, Company options vest in staggered amounts over a long-term, such as a given percentage every one or three years. The determination of how many options to grant to an executive officer depends, to varying degrees, on the number of outstanding options held by the executive officer, his job level and performance and Company performance. Given that the Company has had significant losses in years prior to 1998, no additional options were granted to executive officers in 1998, except to one new executive officer in connection with his hiring. However, during 1998, the Committee decided to consider methods to act as an incentive to management in subsequent years. As a result of the foregoing factors, primarily the need for more consistent profitability, the President and Chief Executive Officer's salary was not increased in 1998. In addition, he received no bonus or new grants of options in 1998. In determining to maintain the President's compensation at its existing level the Committee took into consideration, in addition to the other factors mentioned above, the time and effort being expended by the President, with respect to bonuses, the Company's performance in 1998, with respect to salary, the Company's results in 1997, the President's experience and expertise in handling the issues facing the Company and the perceived progress toward enabling the Company to meet future goals. The final determination, after reviewing these factors, was subjective. The Company had various obligations under its 401(k) plan and with respect to split dollar insurance premiums, all of which were met. In December 1993, the Internal Revenue Service issued proposed regulations concerning compliance with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Section 162(m) generally disallows a public company's deduction for compensation to any one of certain employees (primarily executive officers) in excess of $1.0 million per year unless the compensation is pursuant to a plan or performance goals approved by the public company's shareholders. None of the Named Executive Officers presently receives, and the Compensation Committee does not anticipate that such persons will receive, annual cash compensation in excess of the $1.0 million cap provided in Section 162(m). The Compensation Committee intends to take any necessary steps to ensure compliance with Section 162(m) of the Code. ROBERT L. KESTER, W. DOUGLAS PITTS, ROBERT A. STEELE 13 PERFORMANCE GRAPH The following graph shows the cumulative total shareholder return on the Company's Common Stock over the last five fiscal years as compared to the total returns of the NASDAQ Stock Market Index and a group of peer companies(the "Peer Group"). Returns are based on the change in year-end to year-end price and assume reinvested dividends. The graph assumes $100 was invested on December 31, 1993 in the Company's Common Stock, the NASDAQ Stock Market Index and the Peer Group. The Peer Group includes the Company; Florida Rock Industries; Granite Construction, Inc.; and Lafarge Corp. The Peer Group consists of companies that are engaged in the concrete and related products business and/or the land development contracting business. Companies included in the Peer Group were weighted by market capitalization from the beginning of each period for which a return is indicated. [Line Graph Plotted From Data In Table Below] 12/93 12/94 12/95 12/96 12/97 12/98 ------ ----- ----- ----- ----- ----- DEVCON INTERNATIONAL CORP. DEVC 100 143 139 107 85 46 PEER GROUP PPEER1 100 81 93 100 143 215 NASDAQ STOCK MARKET-US INAS 100 98 138 170 208 294 14 PROPOSAL TO APPROVE AND RATIFY THE DEVCON INTERNATIONAL CORP. 1999 STOCK OPTION PLAN BACKGROUND AND PURPOSE On April 1, 1999, the Board of Directors (the "Board") adopted the Devcon International Corp. 1999 Stock Option Plan (the "Plan") and recommended that it be submitted to the Company's shareholders for their approval at the Annual Meeting. The purpose of the Plan is to provide an additional incentive to attract and retain qualified competent persons who provide services and upon whose efforts and judgment the success of the Company is largely dependent, through the encouragement of stock ownership in the Company by such persons. In furtherance of this purpose, the Plan authorizes, among other things, (a) the granting of incentive or non-qualified stock options to purchase Common Stock (collectively, "Options") to persons selected by the administrators of the Plan from the class of all regular employees of the Company, including officers who are regular employees and directors, (b) the provision of loans for the purposes of financing the exercise of Options and the amount of taxes payable in connection therewith, and (c) the use of already owned Common Stock as payment of the exercise price for Options granted under the Plan. Shareholder approval of the Plan is required (i) for purposes of compliance with certain exclusions from the limitations of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) in order for the Plan to be eligible under the "plan lender" exemption from the margin requirements of Regulation U promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (iii) by the rules of the National Association of Securities Dealers National Market System. The effective date of the Plan is April 1, 1999 (the "Effective Date"). On April 6, 1999, the Board awarded, subject to and conditioned on approval of the Plan by the Company's shareholders at the Annual Meeting, incentive stock options under the Plan to certain employees as per the table below. No other stock options under the Plan have been granted or are otherwise contemplated at this time.
NUMBER OF GRANT SECURITIES DATE UNDERLYING EXERCISE OF PRESENT OPTIONS BASE PRICE EXPIRATION VALUE (#)(1) ($/SH) DATE $(2) ------------- ------------- -------------- ------------ Donald L. Smith, Jr 50,000 1.65 4/6/04 50,900 Richard L. Hornsby 30,000 1.50 4/6/09 30,540 Jan A. Norelid 57,000 1.50 4/6/09 58,026 Donald L. Smith, III 30,000 1.50 4/6/09 30,540 -------- ---- ------ -------- All executive officers as a group 167,000 1.50 4/6/09 170,006 Other employees receiving more than 5% of options granted: Willem Van Kempen 17,500 1.50 4/6/09 17,815 Janett McMillan 20,000 1.50 4/6/09 20,360 Michael Zastawniak 20,000 1.50 4/6/09 20,360 Kevin M. Smith 50,000 1.50 4/6/09 50,900 All other employees as a group 158,500 1.50 4/6/09 161,353 All directors as a group - - - - Total options issued 325,500 - - 331,359
15 (1) Options vest at the rate of 20% on each anniversary of the date of the grants, April 6, 1998, exercisable only if one of the following events has occurred: (i) The Company will have accumulated earnings of $6 million from January 1, 1999, excluding the net effect of the Antigua note payments; or (ii) The price of the Company's shares is trading on NASDAQ or a stock exchange in excess of $4 per share for a consecutive period of two months; or (iii) At the end of five years. (2) The Black-Scholes option-pricing model was used to determine the grant date present value of the stock options granted. The following facts and assumptions were used in making such calculation: (i) exercise prices as indicated in the table above; (ii) fair market value equal to the respective exercise price of each option on the date of the grants; (iii) a dividend yield of 0%; (iv) an expected stock option term of 10 years; (v) a stock price volatility of 49.99% based on an analysis of monthly stock closing prices of Common Stock during the preceding 12 months; and (vi) a risk-free interest rate of 5.35% for the options granted on April 6, 1999, which is equivalent to the yield of a ten-year Treasury note on the date of the grants. No other discounts or restrictions related to vesting or the likelihood of vesting of stock options were applied. The resulting grant date present value for each stock option was multiplied by the number of stock options granted. The following is a summary of certain principal features of the Plan. This summary is qualified in its entirety by reference to the complete text of the Plan, which is attached to this Proxy Statement as Appendix A. Shareholders are urged to read the actual text of the Plan in its entirety. ADMINISTRATION OF THE PLAN The Plan provides that it shall be administered by the Board or by the Compensation Committee (the "Committee") which shall be composed of two or more directors all of whom shall be "outside directors" (as defined in the Plan) in compliance with Rule 16b-3 of the Exchange Act and Section 162(m) of the Code (although Rule 16b-3 also may be complied with if the option grants are approved by the Board). The Committee or the Board in its sole discretion determines the persons to be awarded the Options, the number of shares subject thereto and the exercise price and other terms thereof. In addition, the Committee or the Board has full power and authority to construe and interpret the Plan, and the acts of the Committee or the Board are final, conclusive and binding on all interested parties, including the Company, its shareholders, its officers and employees, recipients of grants under the Plan, and all persons or entities claiming by or through such persons. An aggregate of 350,000 shares of Common Stock (subject to adjustment described below) are reserved for issuance upon the exercise of Options granted under the Plan. The shares acquired upon exercise of Options granted under the Plan will be authorized and issued shares of Common Stock. The Company's shareholders will not have any preemptive rights to purchase or subscribe for any Common Stock by reason of the reservation and issuance of Common Stock under the Plan. If any Option granted under the Plan should expire or terminate for any reason other than having been exercised in full, the shares not purchased subject to that Option, will again be available for purposes of the Plan. 16 CERTAIN TERMS AND CONDITIONS All Options granted under the Plan must be evidenced by a written agreement between the Company and the grantee. The agreement will contain such terms and conditions as the Committee or the Board shall prescribe, consistent with the Plan, including, without limitation, the exercise price, term and any restrictions on the exercisability of the Options granted. For any Option granted under the Plan, the exercise price per share of Common Stock may be any price determined by the Committee or the Board, however, the exercise price per share of any Incentive Stock Option may not be less than the Fair Market Value of the Common Stock on the date such Incentive Stock Option is granted. For purposes of the Plan, the "Fair Market Value" on any date of reference is deemed to be the closing price of Common Stock on the business day immediately preceding such date, unless the Committee or the Board in its sole discretion determines otherwise in a fair and uniform manner. For this purpose, the closing price of Common Stock on any business day is (i) if Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation; (ii) if Common Stock is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or any similar system of automated dissemination of quotations of securities prices in common use, the mean between the closing high bid and low asked quotations for such day of Common Stock on such system; or (iii) if neither clause (i) nor (ii) is applicable, the mean between the high bid and low asked quotations for Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least 5 of the 10 preceding days. The closing price per share of Common Stock on April 23, 1999 as reported on NASDAQ was $1.88. The Committee or the Board may permit the exercise price of an Option to be paid for in cash, by certified or official bank check or personal check, by money order, with already owned shares of Common Stock that have been held by the Optionee for at least six (6) months (or other shares as the Company determines will not cause the Company to recognize for financial accounting purposes a charge for compensation expense), the withholding of shares of Common Stock issuable upon exercise of the Option, by delivery of a properly executed exercise notice together with such documentation as shall be required by the Committee or the Board (or, if applicable, the broker) to effect a cashless exercise, or a combination of the above. If paid in whole or in part with shares of already owned Common Stock, the value of the shares surrendered is deemed to be their Fair Market Value on the date the Option is exercised. The Plan also authorizes the Company to lend money to an Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to obtain the cash necessary to exercise all or a portion of the Option granted thereunder or to pay any tax liability of the Optionee attributable to such exercise. If the exercise price is paid in whole or part with the Optionee's promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the shares that the Optionee purchases upon exercise of such Option, (iii) bear interest at the prime rate of the Company's principal lender or such rate as the Committee or the Board, as the case may be, shall determine, and (iv) contain such terms as the Committee or the Board in its sole discretion shall reasonably require. The use of already owned shares of Common Stock applies to payment for the exercise of an Option in a single transaction and to the "pyramiding" of already owned shares in successive, simultaneous Option exercises. In general, pyramiding permits an Option holder to start with as little as one share of Common Stock and exercise an entire Option to the extent then exercisable (no matter what the number of shares subject thereto). By utilizing already owned shares of Common Stock, no cash (except for fractional share adjustments) is needed to exercise an Option. Consequently, the Optionee would receive Common Stock equal in value to the spread between the fair market value of the shares subject to the Option and the exercise price of such option. No Incentive Stock Option, and unless the prior written consent of the Committee or the Board is obtained (which consent may be withheld for any reason) and the transaction does not violate the requirements of Rule 16b-3 of the 17 Exchange Act, no non-qualified stock option granted under the Plan is assignable or transferable, other than by will or by the laws of descent and distribution. During the lifetime of an Optionee, an Option is exercisable only by him or her, or in the case of a non-qualified stock option, by his or her permitted assignee. The expiration date of an Option under the Plan will be determined by the Committee or the Board at the time of grant, but in no event may such an Option be exercisable after 10 years from the date of the grant. An Option may be exercised at any time or from time to time or only after a period of time in installments, as the Committee or the Board determines. The Committee or the Board may in its sole discretion accelerate the date on which any Option may be exercised. Each outstanding Option granted under the Plan may become immediately fully exercisable in the event of certain transactions, including certain changes in control of the Company, certain mergers and reorganizations, and certain dispositions of substantially all the Company's assets. Unless otherwise provided in the Option agreement, the unexercised portion of any Option granted under the Plan shall automatically be terminated (a) three months after the date on which the Optionee's employment is terminated for any reason other than (i) Cause (as defined in the Plan), (ii) mental or physical disability, or (iii) death; (b) immediately upon the termination of the Optionee's employment for Cause; (c) one year after the date on which the Optionee's employment is terminated by reason of mental or physical disability; or (d) one year after the date on which the Optionee's employment is terminated by reason of Optionee's death, or if later, three months after the date of Optionee's death if death occurs during the one year period following the termination of the Optionee's employment by reason of mental or physical disability. To prevent dilution of the rights of a holder of an Option, the Plan provides for appropriate adjustment of the number of shares for which Options may be granted, the number of shares subject to outstanding Options and the exercise price of outstanding Options, in the event of any increase or decrease in the number of issued and outstanding shares of the Company's capital stock resulting from a stock dividend, a recapitalization or other capital adjustment of the Company. The Committee or the Board has discretion to make appropriate anti-dilution adjustments to outstanding Options in the event of a merger, consolidation or other reorganization of the Company or a sale or other disposition of substantially all of the Company's assets. The Plan will expire on March 31, 2009, and any Option outstanding on such date will remain outstanding until it expires or is exercised. The Committee or the Board may amend, suspend or terminate the Plan or any Option at any time, provided that such amendment shall be subject to the approval of the Company's Shareholders if such shareholder approval is required by any federal or state law or regulation (including, without limitation, Rule 16b-3 or to comply with Section 162(m) of the Code) or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or granted. In addition, no amendment, suspension or termination shall substantially impair the rights or benefits of any Optionee, pursuant to any Option previously granted, without the consent of the Optionee. FEDERAL INCOME TAX CONSEQUENCES OF AWARDS OF OPTIONS The Plan is not qualified under the provisions of section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended. NON-QUALIFIED STOCK OPTIONS. On exercise of a non-qualified stock option granted under the Plan, an Optionee will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the shares of Common Stock acquired on exercise of the Option over the exercise price. If the Optionee is an employee of the Company that income will be subject to the withholding of Federal income tax. The Optionee's tax basis in those shares will be equal to their fair market value on the date of exercise of the Option, and his holding period for those shares will begin on that date. 18 If an Optionee pays for shares of Common Stock on exercise of an Option by delivering shares of the Company's Common Stock, the Optionee will not recognize gain or loss on the shares delivered, even if their fair market value at the time of exercise differs from the Optionee's tax basis in them. The Optionee, however, otherwise will be taxed on the exercise of the Option in the manner described above as if he had paid the exercise price in cash. If a separate identifiable stock certificate is issued for that number of shares equal to the number of shares delivered on exercise of the Option, the Optionee's tax basis in the shares represented by that certificate will be equal to his tax basis in the shares delivered, and his holding period for those shares will include his holding period for the shares delivered. The Optionee's tax basis and holding period for the additional shares received on exercise of the Option will be the same as if the Optionee had exercised the Option solely in exchange in cash. The Company will be entitled to a deduction for Federal income tax purposes equal to the amount of ordinary income taxable to the Optionee, provided that the amount constitutes an ordinary and necessary business expense for the Company and is reasonable in amount, and either the employee includes that amount in income or the Company timely satisfies its reporting requirements with respect to that amount. INCENTIVE STOCK OPTIONS. The Plan provides for the grant of stock options that qualify as "incentive stock options" as defined in section 422 of the Code. Under the Code an Optionee generally is not subject to tax upon the grant or exercise of an incentive stock option. In addition, if the Optionee holds a share received on exercise of an incentive stock option for at least two years from the date the Option was granted and at least one year from the date the Option was exercised (the "Required Holding Period"), the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder's tax basis in that share will be long-term capital gain or loss. If, however, an Optionee disposes of a share acquired on exercise of an incentive stock option before the end of the Required Holding Period (a "Disqualifying Disposition"), the Optionee generally will recognize ordinary income in the year of the Disqualifying Disposition equal to the excess, if any, of the fair market value of the share on the date the incentive stock option was exercised over the exercise price. If, however, the Disqualifying Disposition is a sale or exchange on which a loss, if realized, would be recognized for Federal income tax purposes, and if the sales proceeds are less than the fair market value of the share on the date of exercise of the Option, the amount of ordinary income recognized by the Optionee will not exceed the gain, if any, realized on the sale. If the amount realized on a Disqualifying Disposition exceeds the fair market value of the share on the date of exercise of the Option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year. An Optionee who exercises an incentive stock option by delivering shares of Common Stock acquired previously pursuant to the exercise of an incentive stock option before the expiration of the Required Holding Period for those shares is treated as making a Disqualifying Disposition of those shares. This rule prevents "pyramiding" the exercise of an incentive stock option (that is, exercising an incentive stock option for one share and using that share, and others so acquired, to exercise successive incentive stock options) without the imposition of current income tax. For purposes of the alternative minimum tax, the amount by which the fair market value of a share of Common Stock acquired on exercise of an incentive stock option exceeds the exercise price of that Option generally will be an adjustment included in the Optionee's alternative minimum taxable income for the year in which the Option is exercised. If, however, there is a Disqualifying Disposition of the share in the year in which the Option is exercised, there will be no adjustment with respect to that share. If there is a Disqualifying Disposition in a late year, no income with respect to the Disqualifying Disposition is included in the Optionee's alternative minimum taxable income for that year. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an incentive stock option is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the Option is exercised. 19 The Company is not allowed an income tax deduction with respect to the grant or exercise of an incentive stock option or the disposition of a share acquired on exercise of an incentive stock option after the Required Holding Period. However if there is a Disqualifying Disposition of a share, the Company is allowed a deduction in an amount equal to the ordinary income included in income by the Optionee, provided that the amount constitutes an ordinary and necessary business expense for the Company and is reasonable in amount, and either the employee includes that amount in income or the Company timely satisfies its reporting requirements with respect to that amount. SECTION 162 LIMITATIONS. The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the Code, which generally disallows a public company's tax deduction for compensation to covered employees in excess of $1 million in any tax year beginning on or after January 1, 1994. Compensation that qualifies as "performance-based compensation" is excluded from the $1 million deductibility cap, and therefore remains fully deductible by the company that pays it. The Company intends that Options granted to employees whom the Committee expects to be covered employees at the time a deduction arises in connection with such Options, will qualify as such "performance-based compensation," so that such Options will not be subject to the Section 162(m) deductibility cap of $1 million. Future changes in Section 162(m) or the regulations thereunder may adversely affect the ability of the Company to ensure that Options under the Plan will qualify as "performance-based compensation" that is fully deducible by the Company under Section 162(m). IMPORTANCE OF CONSULTING TAX ADVISOR. The information set forth above is a summary only and does not purport to be complete. In addition, the information is based upon current Federal income tax rules and therefore is subject to change when those rules change. Moreover, because the tax consequences to any Optionee may depend on his particular situation, each Optionee should consult his tax adviser as to the Federal, state, local and other tax consequences of the grant or exercise of an Option or the disposition of Common Stock acquired on exercise of an Option. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO APPROVE AND RATIFY THE 1999 STOCK OPTION PLAN. RATIFICATION OF THE REAPPOINTMENT OF THE COMPANY'S AUDITOR The firm of KPMG LLP, independent certified public accountants, has been the Company's auditor since 1980 and has advised the Company that the firm does not have any direct financial interest or indirect financial interest in the Company or any of its subsidiaries, nor has such firm had any such interest in connection with the Company or its subsidiaries during the past four years, other than in its capacity as the Company's independent certified public accountant. The Board of Directors, on the recommendation of the Company's Audit Committee, has selected KPMG LLP as the Company's auditor for the year ended December 31, 1999. Although the Board is not required to do so, it is submitting its selection of the Company's auditors for ratification at the Annual Meeting, in order to ascertain the views of its shareholders. The Board will not be bound by the vote of the shareholders, however, if the selection is not ratified, the Board would reconsider its selection. One or more representatives of KPMG LLP are expected to be present at the Annual Meeting, and will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions from shareholders. 20 THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR RATIFICATION OF THE REAPPOINTMENT OF KPMG LLP AS THE COMPANY'S PRINCIPAL INDEPENDENT PUBLIC ACCOUNTANTS. OTHER BUSINESS The Board of Directors knows of no other business to be brought before the Annual Meeting. If, however, any other business should properly come before the Annual Meeting, the persons named in the accompanying proxy will vote proxies as in their discretion they may deem appropriate, unless they are directed by a proxy to do otherwise. INFORMATION CONCERNING SHAREHOLDER PROPOSALS Any shareholder who intends to present a proposal at the Company's 2000 Annual Meeting of Shareholders and who wishes to have their proposal included in the Company's Proxy Statement for that meeting, must deliver the proposal, not exceeding 500 words in length, to the Secretary of the Company in writing not later than January 7, 2000. Under the Company's Amended and Restated Bylaws, nominations for director may be made only by the Board or a Board committee, or by a shareholder entitled to vote who delivers notice to the Company not less than 120 days nor more than 180 days prior to the first anniversary of the date of the notice of the preceding year's annual meeting. For the Company's meeting in the year 2000, the Company must receive this notice on or after November 8, 1999, and on or before January 7, 2000. Nominations, which are timely received, will be considered by the Board. A copy of the full text of the Amended and Restated Bylaws provisions discussed above may be obtained by writing to the Corporate Secretary at 1350 East Newport Center Drive, Suite 201, Deerfield Beach, Florida 33442. By Order of the Board of Directors, Donald L. Smith, Jr., President Deerfield Beach, Florida May 6, 1999 21 APPENDIX A DEVCON INTERNATIONAL CORP. 1999 STOCK OPTION PLAN ----------------------------------- 1. PURPOSE. The purpose of this Plan is to advance the interests of DEVCON INTERNATIONAL CORP., a Florida corporation (the "Company"), and its Subsidiaries by providing an additional incentive to attract and retain qualified and competent persons who provide services to the Company and its Subsidiaries, and upon whose efforts and judgment the success of the Company and its Subsidiaries is largely dependent, through the encouragement of stock ownership in the Company by such persons. 2. DEFINITIONS. As used herein, the following terms shall have the meaning indicated: (a) "Board" shall mean the Board of Directors of the Company. (b) "Committee" shall mean the committee appointed by the Board pursuant to Section 13(a) hereof. (c) "Common Stock" shall mean the Company's Common Stock, par value $0.10 per share. (d) "Director" shall mean a member of the Board. (e) "Fair Market Value" of a Share on any date of reference shall mean the "Closing Price" (as defined below) of the Common Stock on the business day immediately preceding such date, unless the Committee or the Board in its sole discretion shall determine otherwise in a fair and uniform manner. For the purpose of determining Fair Market Value, the "Closing Price" of the Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), or any similar system of automated dissemination of quotations of securities prices in common use, the last reported sale price of Common Stock on such system or, if sales prices are not reported, the mean between the closing high bid and low asked quotations for such day of Common Stock on such system, as reported in any newspaper of general circulation or (iii) if neither clause (i) nor (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least five of the ten preceding days. If neither (i), (ii), nor (iii) above is applicable, then Fair Market Value shall be determined in good faith by the Committee or the Board in a fair and uniform manner. (f) "Incentive Stock Option" shall mean an incentive stock option as defined in Section 422 of the Internal Revenue Code. (g) "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (h) "Non-Qualified Stock Option" shall mean an Option, which is not an Incentive Stock Option. (i) "Officer" shall mean the Company's Chairman of the Board, President, Chief Executive Officer, principal financial officer, principal accounting officer, any vice-president of the Company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policymaking function, or any other person who performs similar policymaking functions for the Company. Officers of Subsidiaries shall be deemed Officers of the Company if they perform such policymaking functions for the Company. As used in this paragraph, the phrase "policymaking function" does not include policymaking functions that are not significant. If pursuant to Item 401(b) of Regulation S-K (17 C.F.R. 229.401 (b)) the Company identifies a person as an "executive officer," the person so identified shall be deemed an "Officer" even though such person may not otherwise be an "Officer" pursuant to the foregoing provisions of this paragraph. (j) "Option" (when capitalized) shall mean any option granted under this Plan. (k) "Optionee" shall mean a person to whom a stock option is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person. (l) "Outside Director" shall mean a member of the Board who qualifies as an "outside director" under Section 162(m) of the Internal Revenue Code and the regulations thereunder and as a "Non-Employee Director" under Rule 16b-3 promulgated under the Securities Exchange Act. (l) (m) "Plan" shall mean this 1999 Stock Option Plan for the Company. (n) "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (o) "Share" shall mean a share of Common Stock. (p) "Subsidiary" shall mean any corporation (other than the Company) in any unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. SHARES AVAILABLE FOR OPTION GRANTS. The Committee or the Board may grant to Optionees from time to time Options to purchase an aggregate of up to Three Hundred Fifty Thousand (350,000) Shares from the Company's authorized and unissued Shares. If any Option granted under the Plan shall terminate, expire, or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares. 4. INCENTIVE AND NON-QUALIFIED OPTIONS. (a) An Option granted hereunder shall be either an Incentive Stock Option or a Non-Qualified Stock Option as determined by the Committee or the Board at the time of grant of such Option and shall clearly state whether it is an Incentive Stock Option or a Non-Qualified Stock Option. All Incentive Stock Options shall be granted within 10 years from the effective date of this Plan. Incentive Stock Options may not be granted to any person who is not an employee of the Company or any Subsidiary. (b) Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options to the extent that the aggregate fair market value (determined at the time the Option is granted) of the Shares, with respect to which Options meeting the requirements of Section 422(b) of the Internal Revenue Code are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its parent and subsidiary corporations as defined in Section 424 of the Internal Revenue Code), exceeds $100,000. 5. CONDITIONS FOR GRANT OF OPTIONS. (a) Each Option shall be evidenced by an option agreement that may contain any term deemed necessary or desirable by the Committee or the Board, provided such terms are consistent with this Plan or applicable law. Optionees shall be (i) those persons selected by the Committee or the Board from the class of all regular employees of, or persons who provide consulting or other services as independent contractors to, the Company or its Subsidiaries, including Directors and Officers who are regular employees, and (ii) Directors who are not employees of the Company or of any Subsidiaries. Any person who files with the Committee or the Board, in a form satisfactory to the Committee or the Board, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver. (b) In granting Options, the Committee or the Board shall take into consideration the contribution the person has made to the success of the Company or its Subsidiaries and other factors as the Committee or the Board shall determine. The Committee or the Board shall also have the authority to consult with and receive recommendations from officers and other personnel of the Company and its Subsidiaries with regard to these matters. The Committee or the Board may from time to time in granting Options under the Plan prescribe other terms and conditions concerning such Options as it deems appropriate, including, without limitation, (i) prescribing the date or dates on which the Option becomes exercisable, (ii) providing that the Option rights accrue or become exercisable in installments over a period of years, or upon the attainment of stated goals or both, or (iii) relating an Option to the continued employment of the Optionee for a specified period of time, provided that such terms and conditions are not more favorable to an Optionee than those expressly permitted herein. (c) The Options granted to employees under this Plan shall be in addition to regular salaries, pension, life insurance or other benefits related to their employment with the Company or its Subsidiaries. Neither the Plan nor any Option granted under the Plan shall confer upon any person any right to employment or continuance of employment by the Company or its Subsidiaries. (d) Notwithstanding any other provision of this Plan, an Incentive Stock Option shall not be granted to any person owning directly or indirectly (through attribution under Section 424(d) of the Internal Revenue Code) at the date of the grant, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or of its parent or subsidiary corporation (as defined in Section 424 of the Internal Revenue Code) at the date of the grant) unless the option price of such Option is at least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is granted, and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted. (e) Notwithstanding any other provision of this Plan, and in addition to any other requirements of this Plan, the aggregate number of Options granted to any one Optionee may not exceed One Hundred Thousand (100,000), subject to adjustment as provided in Section 10 hereof. 6. OPTION PRICE. The option price per Share of any Option shall be any price determined by the Committee or the Board but shall not be less than the par value per Share; provided, however, that in no event shall the option price per Share of any Incentive Stock Option be less than the Fair Market Value of the Shares underlying such Option on the date such Option is granted. 7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate option price of the Shares as to which the Option is exercised has been made, and (iii) arrangements that are satisfactory to the Committee or the Board in its sole discretion have been made for the Optionee's payment to the Company of the amount that is necessary for the Company or Subsidiary employing the Optionee to withhold in accordance with applicable Federal or state tax withholding requirements. The consideration to be paid for the Shares to be issued upon exercise of an Option as well as the method of payment of the exercise price and of any withholding and employment taxes applicable thereto, shall be determined by the Committee or the Board and may in the discretion of the Committee or the Board consist of: (1) cash, (2) certified or official bank check, (3) money order, (4) Shares that have been held by the Optionee for at least six (6) months (or other Shares as the Company determines will not cause the Company to recognize for financial accounting purposes a charge for compensation expense), (5) the withholding of Shares issuable upon exercise of the Option, (6) pursuant to a "cashless exercise" procedure, by delivery of a properly executed exercise notice together with other documentation, and subject to such guidelines, as the Board or the Committee shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the Company of proceeds from the sale of Shares or a margin loan sufficient to pay the exercise price and any applicable income or employment taxes, or (7) in other consideration as the Committee or the Board deems appropriate, or by a combination of the above. In the case of an Incentive Stock Option, the permissible methods of payment shall be specified at the time the Option is granted. The Committee or the Board in its sole discretion may accept a personal check in full or partial payment of any Shares. If the exercise price is paid in whole or in part with Shares, or through the withholding of Shares issuable upon exercise of the Option, the value of the Shares surrendered or withheld shall be their Fair Market Value on the date the Option is exercised. The Company in its sole discretion may, on an individual basis or pursuant to a general program established in connection with this Plan, lend money to an Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to obtain the cash necessary to exercise all or a portion of an Option granted hereunder or to pay any tax liability of the Optionee attributable to such exercise. If the exercise price is paid in whole or part with Optionee's promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon exercise of such Option, (iii) bear interest at the prime rate of the Company's principal lender, and (iv) contain other terms as the Committee or the Board in its sole discretion shall reasonably require. No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 10 hereof. 8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in such amounts, at such intervals and upon such terms as the Committee or the Board shall provide in such Option, except as otherwise provided in this Section 8. (a) The expiration date of an Option shall be determined by the Committee or the Board at the time of grant, but in no event shall an Option be exercisable after the expiration of 10 years from the date on which the Option is granted. (b) Unless otherwise provided in any Option, each outstanding Option shall become immediately fully exercisable in the event of a "Change in Control" or in the event that the Committee or the Board exercises its discretion to provide a cancellation notice with respect to the Option pursuant to Section 9(b) hereof. For this purpose, the term "Change in Control" shall mean: (i) Approval by the shareholders of the Company of a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such reorganization, merger, consolidation or other transaction, or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (ii) Individuals who, as of the date on which the Option is granted, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date on which the Option was granted whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A of Regulation 14A promulgated under the Securities Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 25% of either the then outstanding shares of the Company's Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a ("Controlling Interest") excluding, for this purpose, any acquisitions by (1) the Company or its Subsidiaries, (2) any person, entity or "group" that as of the date on which the Option is granted owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a Controlling Interest or (3) any employee benefit plan of the Company or its Subsidiaries. (c) The Committee or the Board may in its sole discretion, accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option. 9. TERMINATION OF OPTION PERIOD. (a) Unless otherwise provided in any option agreement, the unexercised portion of any Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following: (i) Three months after the date on which the Optionee's employment is terminated other than by reason of (A) Cause, which, solely for purposes of this Plan, shall mean the termination of the Optionee's employment by reason of the Optionee's willful misconduct or gross negligence, (B) a mental or physical disability (within the meaning of Internal Revenue Code Section 22(e)) of the Optionee as determined by a medical doctor satisfactory to the Committee, or (C) death of the Optionee; (ii) Immediately upon the termination of the Optionee's employment for Cause; (iii) Twelve months after the date on which the Optionee's employment is terminated by reason of a mental or physical disability (within the meaning of Internal Revenue Code Section 22(e)) as determined by a medical doctor satisfactory to the Committee or the Board; (iv) (A) Twelve months after the date of termination of the Optionee's employment by reason of death of the Optionee, or, if later, (B) three months after the date on which the Optionee shall die if such death shall occur during the one year period specified in Subsection 9(a)(iii) hereof. All references herein to the termination of the Optionee's employment shall, in the case of an Optionee who is not an employee of the Company or a Subsidiary, refer to the termination of the Optionee's service with the Company. (b) To the extent not previously exercised, (i) each Option shall terminate immediately in the event of (1) the liquidation or dissolution of the Company, or (2) any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive, unless the successor corporation, or a parent or subsidiary of such successor corporation, assumes the Option or substitutes an equivalent option or right pursuant to Section 10(c) hereof, and (ii) the Committee or the Board in its sole discretion may by written notice ("cancellation notice") cancel, effective upon the consummation of any corporate transaction described in Subsection 8(b)(i) hereof in which the Company does survive, any Option that remains unexercised on such date. The Committee or the Board shall give written notice of any proposed transaction referred to in this Section 9(b) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that Optionees may have a reasonable period of time prior to the closing date of such transaction within which to exercise any Options that then are exercisable (including any Options that may become exercisable upon the closing date of such transaction). An Optionee may condition his exercise of any Option upon the consummation of a transaction referred to in this Section 9(b). 10. ADJUSTMENT OF SHARES. (a) If at any time while the Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in such event: (i) Appropriate adjustment shall be made in the maximum number of Shares available for grants under the Plan, or available for grants to any person under the Plan, so that the same percentage of the Company's issued and outstanding Shares shall continue to be subject to being so optioned; and (ii) The Board or the Committee may, in its discretion, make any adjustments it deems appropriate in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company's issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price. (b) Unless otherwise provided in any Option, the Committee or the Board may change the terms of Options outstanding under this Plan, with respect to the option price or the number of Shares subject to the Options, or both, when, in the Committee's or Board's sole discretion, such adjustments become appropriate so as to preserve but not increase benefits under the Plan. (c) In the event of a proposed sale of all or substantially all of the Company's assets or any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive, where the securities of the successor corporation, or its parent company, are issued to the Company's shareholders, then the successor corporation or a parent of the successor corporation may, with the consent of the Committee or the Board, assume each outstanding Option or substitute an equivalent option or right. If the successor corporation, or its parent, does not cause such an assumption or substitution to occur, or the Committee or the Board does not consent to such an assumption or substitution, then each Option shall terminate pursuant to Section 9(b) hereof upon the consummation of sale, merger, consolidation or other corporate transaction. (d) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with a direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made to, the number of or exercise price for Shares then subject to outstanding Options granted under the Plan. (e) Without limiting the generality of the foregoing, the existence of outstanding Options granted under the Plan shall not effect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise. 11. TRANSFERABILITY OF OPTIONS AND SHARES. (a) No Incentive Stock Option, and unless the prior written consent of the Committee or the Board is obtained (which consent may be withheld for any reason) and the transaction does not violate the requirements of Rule 16b-3 promulgated under the Securities Exchange Act no Non-Qualified Stock Option, shall be subject to alienation, assignment, pledge, charge or other transfer other than by the Optionee by will or the laws of descent and distribution, and any attempt to make any such prohibited transfer shall be void. Each Option shall be exercisable during the Optionee's lifetime only by the Optionee, or in the case of a Non-Qualified Stock Option that has been assigned or transferred with the prior written consent of the Committee or the Board, only by the permitted assignee. (b) No Shares acquired by an Officer or Director pursuant to the exercise of an Option may be sold, assigned, pledged or otherwise transferred prior to the expiration of the six-month period following the date on which the Option was granted, unless the transaction does not violate the requirements of Rule 16b-3 promulgated under the Securities Exchange Act. 12. ISSUANCE OF SHARES. (a) Notwithstanding any other provision of this Plan, the Company shall not be obligated to issue any Shares unless it is advised by counsel of its selection that it may do so without violation of the applicable Federal and State laws pertaining to the issuance of securities, and may require any stock so issued to bear a legend, may give its transfer agent instructions, and may take other steps, as in its judgment are reasonably required to prevent any such violation. (b) As a condition to any sale or issuance of Shares upon exercise of any Option, the Committee or the Board may require such agreements or undertakings as the Committee or the Board may deem necessary or advisable to facilitate compliance with any applicable law or regulation including, but not limited to, the following: (i) A representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and (ii) A representation, warranty and/or agreement to be bound by any legends endorsed upon the certificate(s) for such Shares that are, in the opinion of the Committee or the Board, necessary or appropriate to facilitate compliance with the provisions of any securities laws deemed by the Committee or the Board to be applicable to the issuance and transfer of such Shares. 13. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by the Board or by a committee appointed by the Board (the "Committee") which shall be composed of two or more Directors all of whom shall be Outside Directors. The membership of the Committee shall be constituted so as to comply at all times with the applicable requirements of Rule 16b-3 promulgated under the Securities Exchange Act and Section 162(m) of the Internal Revenue Code. The Committee shall serve at the pleasure of the Board and shall have the powers designated herein and such other powers as the Board may from time to time confer upon it. (b) The Board may grant Options pursuant to this Plan to Directors who are not employees of the Company or any Subsidiary and/or other persons to whom Options may be granted under Section 5(a) hereof. (c) The Committee or the Board, from time to time, may adopt rules and regulations for carrying out the purposes of the Plan. The determinations by the Committee or the Board, and the interpretation and construction of any provision of the Plan or any Option by the Committee or the Board, shall be final and conclusive. (d) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting or (ii) without a meeting by the unanimous written approval of the members of the Committee. 14. WITHHOLDING OR DEDUCTION FOR TAXES. If at any time specified herein for the making of any issuance or delivery of any Option or Common Stock to any Optionee or beneficiary, any law or regulation of any governmental authority having jurisdiction in the premises shall require the Company to withhold, or to make any deduction for, any taxes or take any other action in connection with the issuance or delivery then to be made, such issuance or delivery shall be deferred until such withholding or deduction shall have been provided for by the Optionee or beneficiary, or other appropriate action shall have been taken. 15. INTERPRETATION. (a) As it is the intent of the Company that the Plan comply in all respects with Rule 16b-3 promulgated under the Securities Exchange Act ("Rule 16b-3") any ambiguities or inconsistencies in construction of the Plan shall be interpreted to give effect to such intention, and if any provision of the Plan is found not to be in compliance with Rule 16b-3, such provision shall be deemed null and void to the extent required to permit the Plan to comply with Rule 16b-3. The Committee or the Board may from time to time adopt rules and regulations under, and amend, the Plan in furtherance of the intent of the foregoing. (b) The Plan and any Option agreements entered into pursuant to the Plan shall be administered and interpreted so that all Incentive Stock Options granted under the Plan will qualify as Incentive Stock Options under section 422 of the Internal Revenue Code. If any provision of the Plan or any such Option agreement should be held invalid for the granting of Incentive Stock Options or illegal for any reason, such determination shall not affect the remaining provisions hereof, but instead the Plan and the Option agreement shall be construed and enforced as if such provision had never been included in the Plan or the Option agreement. (c) This Plan shall be governed by the laws of the State of Florida. (d) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan. (e) Any reference to the masculine, feminine, or neuter gender shall be a reference to such gender as is appropriate. 16. AMENDMENT AND DISCONTINUATION OF THE PLAN. The Committee or the Board may from time to time amend, suspend or terminate the Plan or any Option; provided, however, that, any amendment to the Plan shall be subject to the approval of the Company's shareholders if such shareholder approval is required by any federal or state law or regulation (including, without limitation, Rule 16b-3 or to comply with Section 162(m) of the Internal Revenue Code) or the rules of any Stock exchange or automated quotation system on which the Common Stock may then be listed or granted. Except to the extent provided in Sections 9 and 10 hereof, no amendment, suspension or termination of the Plan or any Option issued hereunder shall substantially impair the rights or benefits of any Optionee pursuant to any Option previously granted without the consent of the Optionee. 17. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the Plan is April 1, 1999, the date on which the Board adopted this Plan, and the Plan shall terminate on March 31, 2009. The Plan shall be submitted to the shareholders of the Company for their approval and adoption and Options hereunder may be granted prior to such approval and adoption but contingent upon such approval and adoption. DEVCON INTERNATIONAL CORP. THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS COMMON STOCK The undersigned, a holder of Common Stock of Devcon International Corp., a Florida corporation (the "Company"), hereby appoints Donald L. Smith, Jr. and Richard L. Hornsby, and each of them, as proxies for the undersigned, each with full power of substitution, for and in the name of the undersigned to act for the undersigned and to vote, as designated below, all of the shares of stock of the Company that the undersigned is entitled to vote at the 1999 Annual Meeting of Shareholders of the Company, to be held on Thursday, June 10, 1999, at 3:00 p.m., local time, at the Deerfield Beach Hilton, Hillsboro Executive Center North, 100 Fairway Drive, Deerfield Beach, Florida and at any adjournments or postponements thereof. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND THE OTHER PROPOSALS SET FORTH. (1) ELECTION OF DONALD L. SMITH, JR., RICHARD L. HORNSBY, ROBERT L. KESTER, ROBERT A. STEELE, AND W. DOUGLAS PITTS, as directors. [ ] VOTE FOR all nominees listed above, except vote withheld from the following nominees (if any): [ ] VOTE WITHHELD from all nominees listed above. [ ] ABSTAIN (2) PROPOSAL to approve and ratify the Company's 1999 Stock Option Plan [ ] FOR [ ] AGAINST [ ] ABSTAIN (3) PROPOSAL to ratify the reappointment of KPMG LLP, independent certified public accountants, as the Company's auditor for 1999. [ ] FOR [ ] AGAINST [ ] ABSTAIN (4) Upon other matters as may properly come before the Annual Meeting and any adjournments or postponements thereof. In their discretion, the proxies are authorized to vote upon other business as may properly come before the Annual Meeting, and any adjournments or postponements thereof. (see reverse side) THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE PROPOSALS. Dated _________________________ , 1999 ---------------------------------- (Signature) ---------------------------------- (Signature if held jointly) IMPORTANT: Please sign exactly as your name appears and mail it promptly even though you now plan to attend the meeting. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENVELOPE PROVIDED. NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES. -----END PRIVACY-ENHANCED MESSAGE-----