(Exact Name of Registrant as
Specified in Charter)
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***PRELIMINARY
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***PRELIMINARY
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Q.
|
What
is the purpose of the Annual
Meeting?
|
A.
|
At
our Annual Meeting, stockholders will act upon the matters outlined in the
accompanying Notice of Annual Meeting, including the following
proposals:
|
|
1.
|
To
contract the size of the Board of Directors to seven; to fix the number of
Class II directors at two and to elect two Class II directors for a
three-year term ending in 2011 and continuing until their successors are
duly elected and qualified (beginning on page
2);
|
|
2.
|
To
consider and act upon a proposal to approve and ratify, for purposes of
NASD Marketplace Rule 4350(i)(1)(D)(ii), the issuance of shares of our
common stock in certain events described in this Proxy Statement under the
terms of our subordinated convertible notes issued in August 2008 as
contemplated by the terms of the notes (beginning on page 5);
and
|
|
3.
|
To
act upon all other business that may properly come before the meeting or
any postponements or adjournments
thereof.
|
Q.
|
Why
have I received a Notice of Internet Availability of Proxy
Materials?
|
A.
|
As
we did last year, we are distributing our proxy materials primarily over
the Internet. We believe that this method of distribution encourages more
stockholders to vote their proxies and reduces the environmental impact of
mass distribution of paper proxy materials. You will not receive a printed
copy of our proxy materials unless you specifically request one. If you
wish to receive a paper or e-mail copy of the proxy materials, you may do
so in accordance with the procedures set forth in the Notice of Internet
Availability of Proxy Materials. However, if you do decide that you want a
paper copy of these proxy materials, we urge you to simply print a copy
from off of the Internet rather than having your company incur the
additional costs of printing and
mailing.
|
Q.
|
Why
is Arotech seeking stockholder approval for the first
proposal?
|
A.
|
Our
certificate of incorporation and by-laws provide for a Board of three or
more directors, composed of three classes of similar size. The number of
directors is currently set at nine. The members of each class are elected
in different years, so that only one-third of the Board is elected in any
single year.
|
Q.
|
Why
is Arotech seeking stockholder approval for the second
proposal?
|
A.
|
As
a Nasdaq-listed company, we are subject to the Marketplace Rules of the
National Association of Securities Dealers. NASD Marketplace
Rule 4350(i)(1)(D)(ii) requires stockholder approval for the issuance
or potential issuance of securities representing more than 20% of a listed
company’s outstanding securities at a price below the greater of book
value or market value. We issued subordinated convertible notes and
associated warrants in August of 2008. The terms of the subordinated
convertible notes provide that we may
make
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***PRELIMINARY
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Q.
|
What
shares can I vote?
|
A.
|
All
shares of our common stock owned by you as of the close of business on the
record date, September 8, 2008, may be voted by you. These shares include
(i) shares held directly in your name as the stockholder of record, and
(ii) shares held for you as the beneficial owner through a stockbroker,
bank or other nominee. Each share of common stock owned by you entitles
you to cast one vote on each matter to be voted
upon.
|
Q.
|
What
is the difference between holding shares as a stockholder of record and as
a beneficial owner?
|
A.
|
Most
of our stockholders hold their shares through a stockbroker, bank or other
nominee rather than directly in their own name. As summarized below, there
are some distinctions between shares held of record and those owned
beneficially.
|
Q.
|
How
can I vote my shares in person at the Annual
Meeting?
|
A.
|
Shares
held directly in your name as the stockholder of record may be voted in
person at the Annual Meeting. If you wish to vote your shares at the
Annual Meeting, please bring the Notice of Internet Availability of Proxy
Materials that you received, as well as proof of
identification.
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***PRELIMINARY
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A.
|
Holders
of a majority of the outstanding shares entitled to vote must be present,
in person or by proxy, at the Annual Meeting in order to have the required
quorum for the transaction of
business.
|
Q.
|
What
are “broker non-votes”?
|
A.
|
Broker
non-votes occur when nominees, such as banks and brokers holding shares on
behalf of beneficial owners, do not receive voting instructions from the
beneficial holders at least ten days before the meeting. If that happens,
the nominees may vote those shares only on matters deemed “routine” by the
New York Stock Exchange, such as the election of directors and the
adoption of the increase in authorized shares of common stock. Nominees
cannot vote on non-routine matters unless they receive voting instructions
from beneficial holders, resulting in so-called “broker non-votes.” The
effect of broker non-votes on each of the two proposals that will be
considered at the Annual Meeting is described above and in our proxy
statement.
|
Q.
|
Where
can I find the voting results of the
meeting?
|
A.
|
We
will announce preliminary voting results at the meeting and publish final
results in a Current Report on Form 8-K to be filed by us with the SEC by
Wednesday, October 29, 2008, by 5:30 p.m.
e.d.t.
|
Q.
|
Who
will count the votes?
|
A.
|
An
attorney with Lowenstein Sandler P.C., our outside counsel, will tabulate
the votes and act as the inspector of
elections.
|
Q.
|
Who
will bear the costs of this
solicitation?
|
A.
|
Our
Board of Directors is making this solicitation, and we will pay the entire
cost of preparing, assembling, printing, mailing and distributing these
proxy materials. If you choose to access the proxy materials over the
Internet, however, you are responsible for Internet access charges you may
incur. The
solicitation of proxies or votes may be made in person, by telephone or by
electronic communication by our directors, officers and employees, who
will not receive any additional compensation for such solicitation
activities. We have hired Broadridge Financial Solutions, Inc. to assist
us in providing Internet access and in the distribution of proxy
materials. We will also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses for
forwarding proxy and solicitation materials to
stockholders.
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***PRELIMINARY
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Q.
|
What
should I do now?
|
A.
|
You
should read this proxy statement carefully and promptly submit your proxy
card or vote by telephone or the Internet as provided on the proxy card to
ensure that your vote is counted at the Annual
Meeting.
|
Q.
|
How
do I vote if I hold shares
directly?
|
A.
|
You
may vote your shares by attending the Annual Meeting in person and
completing a ballot or returning your validly executed proxy card at the
meeting. The Annual Meeting will begin promptly at 10:00 a.m. local
time on Monday, October 27, 2008 at the offices of Lowenstein Sandler
P.C., 1251 Avenue of the Americas, 18th Floor, New York, New
York. Attendance at the Annual Meeting will not, by itself, result in the
revocation of a previously submitted proxy. Even if you are planning to
attend the Annual Meeting, we encourage you to submit your proxy in
advance to ensure the representation of your shares at the Annual
Meeting.
|
Q.
|
How
do I vote if I hold shares in street
name?
|
A.
|
If
you do not want to attend the Annual Meeting and hold your shares in a
stock brokerage account or if your shares are held by a bank or nominee
(i.e., in “street
name”), you must provide your broker with directions on how to vote your
shares. Your broker will provide you with instructions regarding how to
direct your broker to vote your shares. It is important to follow these
instructions carefully to ensure your shares are represented at the Annual
Meeting. If you do not provide directions to your broker, your shares will
not be voted at the Annual Meeting.
|
Q.
|
What
does it mean if I receive more than one Notice of Internet Availability of
Proxy Materials?
|
A.
|
It
means your shares are registered differently or are in more than one
account. Please provide voting instructions for all proxy and voting
instruction cards you receive.
|
Q.
|
How
can I change my vote after I have mailed my proxy
card?
|
A.
|
If
you are a holder of record, you may generally change your vote by
delivering a later-dated proxy or written notice of revocation to our
Corporate Secretary before the Annual Meeting, or by attending the Annual
Meeting and voting in person. If your shares are held in “street name” by
your broker, you must follow the instructions received from your broker
regarding how to change your vote.
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***PRELIMINARY
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***PRELIMINARY
COPY***
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***PRELIMINARY
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|
Name
|
Age
|
Position
with Arotech
|
Current
Class
|
New
Class
|
Director
Since
|
|||||
Dr.
Jay M. Eastman(2)(4)
|
60
|
Director
|
I
|
I
|
October
1993
|
|||||
Steven
Esses(3)
|
44
|
President,
Chief Operating Officer and Director
|
I
|
I
|
August
2002
|
|||||
Michael
Marrus
|
45
|
Director
|
I
|
I
|
October
2007
|
|||||
Jack
E. Rosenfeld(1)(2)(4)
|
69
|
Director
(not standing for re-election)
|
II
|
–
|
October
1993
|
|||||
Lawrence
M. Miller(1)(3)(4)
|
62
|
Director
(not standing for re-election)
|
II
|
–
|
November
1996
|
|||||
Prof.
Seymour Jones
|
77
|
Director
|
II
|
II
|
August
2005
|
|||||
Robert
S. Ehrlich
(3)
|
70
|
Chairman
of the Board and Chief Executive Officer
|
III
|
II
|
May
1991
|
|||||
Edward
J. Borey(2)(3)
|
58
|
Director
|
III
|
III
|
December
2003
|
|||||
Elliot
Sloyer
|
44
|
Director
|
III
|
III
|
October
2007
|
(1)
|
Member
of the Audit Committee.
|
|
(2)
|
Member
of the Compensation Committee.
|
|
(3)
|
Member
of the Executive and Finance Committee.
|
|
(4)
|
Member
of the Nominating Committee.
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***PRELIMINARY
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***PRELIMINARY
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***PRELIMINARY
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|
***PRELIMINARY
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|
|
Board
Recommendation
|
Audit
Committee
|
Compensation
Committee
|
Nominating
Committee
|
Executive
and Finance Committee
|
Seymour
Jones
Lawrence
M. Miller
Jack
E. Rosenfeld
|
Jay
M. Eastman
Michael
E. Marrus
Elliot
Sloyer
|
Michael
E. Marrus
Edward
J. Borey
Seymour
Jones
|
Robert
S. Ehrlich
Steven
Esses
Edward
J. Borey
Elliot
Sloyer
|
***PRELIMINARY
COPY***
|
Audit
Committee
|
Compensation
Committee
|
Nominating
Committee
|
Executive
and Finance Committee
|
Seymour
Jones
Michael
Marrus
Elliot
Sloyer
|
Jay
M. Eastman
Edward
J. Borey
Elliot
Sloyer
|
Michael
E. Marrus
Jay
M. Eastman
Seymour
Jones
|
Robert
S. Ehrlich
Steven
Esses
Elliot
Sloyer
Michael
E. Marrus
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|
|
Ø
|
Ability
and willingness to contribute special competencies to the Board in a
collaborative manner. The areas of expertise required at any point in time
may vary, based on the existing composition of the Board. They may
include, but would not be limited to, capabilities honed as a CEO or a
senior functional leader in operations, finance, information technology,
marketing, organizational development, and experience making step change
to transform a business.
|
|
Ø
|
Personal
integrity and highest ethical character. Absence of any conflicts of
interest, either real or perceived.
|
|
Ø
|
Willingness
to apply sound and independent business judgment, enriching management and
Board proposals or challenging them constructively as
appropriate.
|
|
Ø
|
Willing
to exert influence through strong influence skills and constructive
teamwork. This is essential to effective collaboration with other
directors as well as providing constructive counsel to the
CEO.
|
|
Ø
|
Understanding
of and full commitment to our governance principles and the obligation of
each director to contribute to good governance, corporate citizenship, and
corporate image for Arotech.
|
|
Ø
|
Willingness
to devote the time necessary to assume broad fiduciary responsibility and
to participate fully in Arotech governance requirements with
appropriate due diligence and
attention.
|
***PRELIMINARY
COPY***
|
|
Ø
|
The
name of the stockholder and evidence of the person’s ownership of our
stock, including the number of shares owned and the length of time of
ownership; and
|
|
Ø
|
The
name of the candidate, the candidate’s resume or a listing of his or her
qualifications to be a director of Arotech and the person’s consent to be
named as a director if selected by the Nominating Committee and nominated
by the Board of Directors.
|
***PRELIMINARY
COPY***
|
Name
|
Fees
Earned or
Paid in Cash ($)
|
Stock Awards(1)
($)
|
Total
($)
|
|||||
Dr.
Jay M. Eastman
|
$29,250
|
$15,000(2)
|
$44,250
|
|||||
Jack
E. Rosenfeld
|
$30,250
|
$15,000(3)
|
$45,250
|
|||||
Lawrence
M. Miller
|
$27,750
|
$15,000(4)
|
$42,750
|
|||||
Edward
J. Borey
|
$28,250
|
$15,000(5)
|
$43,250
|
|||||
Seymour
Jones
|
$31,250
|
$15,000(6)
|
$46,250
|
|||||
Elliot
Sloyer
|
$ 8,000
|
$25,000(7)
|
$33,000
|
|||||
Michael
E.
Marrus
|
$ 8,000
|
$25,000(8)
|
$33,000
|
|||||
(1)
|
This
column reflects the compensation cost for the year ended December 31,
2007 of each director’s restricted stock, calculated in accordance with
SFAS 123R.
|
|||||||
(2)
|
As
of December 31, 2007, Dr. Eastman held 4,934 restricted
shares of our common stock.
|
|||||||
(3)
|
As
of December 31, 2007, Mr. Rosenfeld held 4,934 restricted
shares of our common stock.
|
|||||||
(4)
|
As
of December 31, 2007, Mr. Miller held 4,934 restricted
shares of our common stock.
|
|||||||
(5)
|
As
of December 31, 2007, Mr. Borey held 4,934 restricted
shares of our common stock.
|
|||||||
(6)
|
As
of December 31, 2007, Prof. Jones held 4,934 restricted shares
of our common stock.
|
|||||||
(7)
|
As
of December 31, 2007, Mr. Sloyer held 8,224 restricted shares of
our common stock.
|
|||||||
(8)
|
As
of December 31, 2007, Mr. Marrus held 8,224 restricted shares of
our common stock.
|
***PRELIMINARY
COPY***
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards(2)
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
Robert
S. Ehrlich
Chairman,
Chief Executive Officer and a director
|
2007
|
$ | 420,110 | $ | 180,000 | $ | 753,783 | $ | – | $ | – | $ | 221,301 | (3) | $ | 1,575,194 | |||||||||||||
2006
|
$ | 312,173 | $ | 105,000 | $ | 11,467 | $ | – | $ | – | $ | 483,331 | (4) | $ | 911,971 | ||||||||||||||
Thomas
J. Paup
Vice
President – Finance and Chief Financial Officer
|
2007
|
$ | 143,100 | $ | 71,550 | $ | 138,067 | $ | – | $ | – | $ | 2,908 | (5) | $ | 355,625 | |||||||||||||
2006
|
$ | 135,000 | $ | 20,000 | $ | – | $ | – | $ | – | $ | 2,596 | (6) | $ | 157,956 | ||||||||||||||
Steven
Esses
President,
Chief Operating Officer and a director
|
2007
|
$ | 81,146 | (7) | $ | 29,612 | (8) | $ | 259,891 | $ | – | $ | – | $ | 99,012 | (9) | $ | 469,661 | |||||||||||
2006
|
$ | 62,211 | (10) | $ | 116,000 | (11) | $ | 5,733 | $ | – | $ | – | $ | 252,929 | (12) | $ | 436,873 |
(1)
|
We
paid the amounts reported for each named executive officer in U.S. dollars
and/or New Israeli Shekels (NIS). We have translated amounts paid in NIS
into U.S. dollars at the exchange rate of NIS into U.S. dollars at the
time of payment or accrual.
|
(2)
|
Reflects
the value of restricted stock awards granted to our executive officers
based on the compensation cost of the award computed in accordance with
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment, which we refer
to as SFAS 123R, but excluding any impact of assumed forfeiture rates. See
Note 2.p. of the Notes to Consolidated Financial Statements. The
number of shares of restricted stock received by our executive officers
pursuant to such awards in 2007, vesting in equal amounts over three years
(one-half based on tenure and performance criteria and one-half based only
on tenure), was as follows: Mr. Ehrlich, 240,000; Mr. Paup,
43,125; Mr. Esses, 120,000. The number of shares of restricted stock
received by our executive officers pursuant to such awards in 2006,
vesting one-quarter immediately and the remaining three-quarters in equal
amounts over three years (one-half based on tenure and performance
criteria and one-half based only on tenure), was as follows:
Mr. Ehrlich, 200,000; Mr. Paup, 53,125; Mr. Esses,
100,000.
|
(3)
|
Of
this amount, $69,137 represents payments to Israeli pension and education
funds; $13,289 represents our accrual for severance pay that will be
payable to Mr. Ehrlich upon his leaving our employ other than if he is
terminated for cause, such as a breach of trust; $44,047 represents the
increase of the accrual for vacation days redeemable by Mr. Ehrlich; and
$29,859 represents the increase of our accrual for severance pay that
would be payable to Mr. Ehrlich under the laws of the State of Israel if
we were to terminate his employment.
|
(4)
|
Of
this amount, $151,760 represents payments to Israeli pension and education
funds; $218,907 represents our accrual for severance pay that will be
payable to Mr. Ehrlich upon his leaving our employ other than if he is
terminated for cause, such as a breach of trust; $26,689 represents the
increase of the accrual for vacation days redeemable by Mr. Ehrlich; and
$21,217 represents the increase of our accrual for severance pay that
would be payable to Mr. Ehrlich under the laws of the State of Israel if
we were to terminate his employment.
|
(5)
|
Represents
the increase in our accrual for Mr. Paup for accrued but unused vacation
days.
|
(6)
|
Represents
the increase in our accrual for Mr. Paup for accrued but unused vacation
days.
|
(7)
|
Does
not include $188,634 that we paid in consulting fees to Sampen
Corporation, a New York corporation owned by members of Steven Esses’s
immediate family, from which Mr. Esses receives a salary. See “Certain
Relationships and Related Transactions – Consulting Agreement with Sampen
Corporation,” below.
|
(8)
|
Does
not include $30,720 that we paid as a bonus to Sampen Corporation, a New
York corporation owned by members of Steven Esses’s immediate family, from
which Mr. Esses receives a salary. See “Certain Relationships and Related
Transactions – Consulting Agreement with Sampen Corporation,”
below.
|
(9)
|
Of
this amount, $15,744 represents payments to Israeli pension and education
funds; and $4,177 represents the increase of our accrual for severance pay
that would be payable to Mr. Esses if we were to terminate his
employment.
|
(10)
|
Does
not include $178,176 that we paid in consulting fees to Sampen
Corporation, a New York corporation owned by members of Steven Esses’s
immediate family, from which Mr. Esses receives a salary. See “Certain
Relationships and Related Transactions – Consulting Agreement with Sampen
Corporation,” below.
|
(11)
|
Does
not include $30,720 that we paid as a bonus to Sampen Corporation, a New
York corporation owned by members of Steven Esses’s immediate family, from
which Mr. Esses receives a salary. See “Certain Relationships and Related
Transactions – Consulting Agreement with Sampen Corporation,”
below.
|
(12)
|
Of
this amount, $112,627 represents payments to Israeli pension and education
funds; and $86,707 represents the increase of our accrual for severance
pay that would be payable to Mr. Esses if we were to terminate his
employment.
|
***PRELIMINARY
COPY***
|
Name
of Borrower
|
Date
of Loan
|
Original
Principal
Amount
of Loan
|
Amount
Outstanding
as
of 12/31/07
|
Terms
of Loan
|
||||
Robert
S. Ehrlich
|
12/28/99
|
$167,975
|
$201,570
|
Ten-year
non-recourse loan to purchase our stock, secured by the shares of stock
purchased.
|
||||
Robert
S. Ehrlich
|
02/09/00
|
$789,991
|
$820,809
|
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of stock
purchased.
|
||||
Robert
S. Ehrlich
|
06/10/02
|
$ 36,500
|
$
45,388
|
Twenty-five-year
non-recourse loan to purchase our stock, secured by the shares of stock
purchased.
|
Name
|
Grant
Date
|
Performance
Period
Determining
Release
of
Restrictions
|
Estimate
Future Payouts Under
Equity Incentive Plan
Awards(1)
|
||||||||||||||
Threshold
(#)
|
Target
1
(#)
|
Target
2
(#)
|
Maximum
(#)
|
||||||||||||||
Robert
S. Ehrlich
|
10/22/07
|
10/22/07
to 12/31/07
|
66,667
|
–
|
–
|
66,667
|
|||||||||||
10/22/07
|
01/01/08
to 12/31/08
|
66,667
|
–
|
–
|
66,667
|
||||||||||||
10/22/07
|
01/01/09
to 12/31/09
|
66,666
|
–
|
–
|
66,666
|
||||||||||||
Thomas
J. Paup
|
12/28/07
|
01/01/08
to 12/31/08
|
10,834
|
(2)
|
(2)
|
21,667
|
|||||||||||
12/28/07
|
01/01/09
to 12/31/09
|
10,833
|
(2)
|
(2)
|
21,667
|
||||||||||||
12/28/07
|
01/01/10
to 12/31/10
|
10,833
|
(2)
|
(2)
|
21,666
|
||||||||||||
Steven
Esses
|
12/28/07
|
01/01/08
to 12/31/08
|
33,334
|
(2)
|
(2)
|
66,667
|
|||||||||||
12/28/07
|
01/01/09
to 12/31/09
|
33,333
|
(2)
|
(2)
|
66,667
|
||||||||||||
12/28/07
|
01/01/10
to 12/31/10
|
33,333
|
(2)
|
(2)
|
66,666
|
||||||||||||
(1)
|
The
threshold number of restricted shares vests based solely based on
continued employment during the performance period. If 90% of the EBITDA
performance goal is met for the applicable performance period, the first
target number of shares of restricted
stock
|
***PRELIMINARY
COPY***
|
will
be freed of their restrictions. If 90% of the revenue performance goal is
met for the applicable performance period, the second target number of
shares of restricted stock will be freed of their restrictions. If 90% of
both the EBITDA and the revenue performance goals are met for the
applicable performance period, the maximum number of shares of restricted
stock will be freed of their restrictions. Performance-based shares that
do not vest in one year roll over to the following year and become part of
the following year’s performance-based pool.
|
||
(2)
|
Performance criteria for these shares have not yet been set; hence, there
are no threshold or target levels
listed.
|
Name
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized
on Vesting(1)
($)
|
||||||
Robert
S.
Ehrlich
|
226,667 | $ | 478,267 | |||||
Thomas
J.
Paup
|
42,500 | $ | 89,675 | |||||
Steven
Esses
|
80,000 | $ | 168,800 |
(1)
|
Reflects
the aggregate market value of the shares of restricted stock determined
based on a per share price of $2.11, the closing price of our common stock
on the Nasdaq Global Market on December 31, 2007, which was the last
trading day of 2007.
|
Name
|
Option
Awards
|
Stock
Awards
|
||||||||||||||
Number
of Securities Underlying
Unexercised
Options(1)
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
that
Have
Not
Vested
(#)
|
Market
Value
of
Shares that
Have
Not
Vested(2)
($)
|
Equity
Incentive
Plan
Awards
|
|||||||||||
Number
of
Unearned
Shares
that
Have
Not
Vested
(#)
|
Market
Value
of
Unearned
Shares
that
Have
Not
Vested(2)
($)
|
|||||||||||||||
Exercisable
|
Unexercisable
|
|||||||||||||||
Robert
S. Ehrlich
|
5,178
|
0
|
$5.46
|
12/31/11
|
213,334
|
$450,135
|
293,334
|
$618,935
|
||||||||
4,687
|
0
|
$5.46
|
04/01/12
|
|||||||||||||
1,116
|
0
|
$5.46
|
07/01/12
|
|||||||||||||
4,687
|
0
|
$5.46
|
10/01/12
|
|||||||||||||
6,294
|
0
|
$5.46
|
01/01/13
|
|||||||||||||
Thomas
J. Paup
|
–
|
–
|
–
|
–
|
53,750
|
$113,413
|
75,000
|
$158,250
|
||||||||
Steven
Esses
|
714
|
0
|
$8.54
|
12/31/12
|
140,000
|
$295,400
|
180,000
|
$379,800
|
||||||||
1,785
|
0
|
$11.62
|
07/22/12
|
(1)
|
All
options in the table are vested.
|
|
(2)
|
Reflects
the aggregate market value of the shares of restricted stock determined
based on a per share price of $2.11, the closing price of our common stock
on the Nasdaq Global Market on December 31, 2007, which was the last
trading day of 2007.
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|
ROBERT
S. EHRLICH
|
||||||||||||||||||||||||
Payments
and Benefits
|
Death
or
Disability(1)
|
Cause(2)
|
Good
Reason(3)
|
Change
of
Control(4)
|
Termination
at Will(5)
|
Other
Employee
Termination(6)
|
||||||||||||||||||
Accrued
but unpaid:
|
||||||||||||||||||||||||
Base
salary
|
$ | 33,333 | $ | 33,333 | $ | 33,333 | $ | 33,333 | $ | 33,333 | $ | 33,333 | ||||||||||||
Bonus
|
6,960 | 6,960 | 6,960 | 6,960 | 6,960 | 6,960 | ||||||||||||||||||
Vacation
|
76,400 | 76,400 | 76,400 | 76,400 | 76,400 | 76,400 | ||||||||||||||||||
Recuperation
pay(7)
|
345 | 345 | 345 | 345 | 345 | 345 | ||||||||||||||||||
Benefits:
|
||||||||||||||||||||||||
Manager’s
insurance(8)
|
5,277 | 5,277 | 5,277 | 5,277 | 5,277 | 5,277 | ||||||||||||||||||
Continuing
education fund(9)
|
2,500 | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 | ||||||||||||||||||
Tax
gross-up on automobile
|
1,952 | – | 1,952 | 1,952 | 1,952 | – | ||||||||||||||||||
Contractual
severance
|
1,625,400 | – | 1,625,400 | 1,625,400 | 1,625,400 | – | ||||||||||||||||||
Statutory
severance(10)
|
643,998 | – | 643,998 | 643,998 | 643,998 | – | ||||||||||||||||||
Accelerated
vesting of restricted stock
|
168,800 | – | 168,800 | 168,800 | – | – | ||||||||||||||||||
TOTAL:
|
$ | 2,564,965 | $ | 124,815 | $ | 2,564,965 | $ | 2,564,965 | $ | 2,396,165 | $ | 124,815 |
(1)
|
“Disability”
is defined in Mr. Ehrlich’s employment agreement as a physical or mental
infirmity which impairs the Mr. Ehrlich’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
(2)
|
“Cause”
is defined in Mr. Ehrlich’s employment agreement as (i) conviction
for fraud, crimes of moral turpitude or other conduct which reflects on us
in a material and adverse manner; (ii) a willful failure to carry out a
material directive of our Board of Directors, provided that such
directive concerned matters within the scope of Mr. Ehrlich’s duties,
would not give Mr. Ehrlich “Good Reason” to terminate his agreement (see
footnote 4 below) and was capable of being reasonably and lawfully
performed; (iii) conviction in a court of competent jurisdiction for
embezzlement of our funds; and (iv) reckless or willful misconduct that is
materially harmful to us.
|
(3)
|
“Good
Reason” is defined in Mr. Ehrlich’s employment agreement as (i) a change
in Mr. Ehrlich’s status, title, position or responsibilities which, in Mr.
Ehrlich’s reasonable judgment, represents a reduction or demotion in his
status, title, position or responsibilities as in effect immediately prior
thereto; (ii) a reduction in Mr. Ehrlich’s base salary; (iii) the failure
by us to continue in effect any material compensation or benefit plan in
which Mr. Ehrlich is participating; (iv) the insolvency or the filing (by
any party, including us) of a petition for the winding-up of us; (v) any
material breach by us of any provision of Mr. Ehrlich’s employment
agreement; (vi) any purported termination of Mr. Ehrlich’s employment for
cause by us which does not comply with the terms of Mr. Ehrlich’s
employment agreement; and (vii) any movement of the location where Mr.
Ehrlich is generally to render his services to us from the Jerusalem/Tel
Aviv area of Israel.
|
(4)
|
“Change
of Control” is defined in Mr. Ehrlich’s employment agreement as (i) the
acquisition (other than from us in any public offering or private
placement of equity securities) by any person or entity of beneficial
ownership of 20% or more of the combined voting power of our
then-outstanding voting securities; or (ii) individuals who, as of January
1, 2000, were members of our Board of Directors (the “Original Board”),
together with individuals approved by a vote of at least 2/3 of the
individuals who were members of the Original Board and are then still
members of our Board, cease for any reason to constitute at least 1/3 of
our Board of us; or (iii) approval by our shareholders of a complete
winding-up or an agreement for the sale or other disposition of all or
substantially all of our assets.
|
(5)
|
“Termination
at Will” is defined in Mr. Ehrlich’s employment agreement as Mr. Ehrlich
terminating his employment with us on written notice of at least 120 days
in advance of the effective date of such termination.
|
(6)
|
“Other
Employee Termination” means a termination by Mr. Ehrlich of his employment
without giving us the advance notice of 120 days needed to make such a
termination qualify as a “Termination at Will.”
|
(7)
|
Pursuant
to Israeli law and our customary practice, we pay Mr. Ehrlich in July of
each year the equivalent of ten days’ “recuperation pay” at the statutory
rate of NIS 318 (approximately $86) per day.
|
(8)
|
Payments
to managers’ insurance, a benefit customarily given to senior executives
in Israel, come to a total of 15.83% of base salary, consisting of 8.33%
for payments to a fund to secure payment of statutory severance
obligations, 5% for pension and 2.5% for disability. The managers’
insurance funds reflected in the table do not include the 8.33% payments
to a fund to secure payment of statutory severance obligations with
respect to amounts paid prior to December 31, 2007, which funds are
reflected in the table under the “Statutory severance”
heading.
|
(9)
|
Pursuant
to Israeli law, we must contribute an amount equal to 7.5% of Mr.
Ehrlich’s base salary to a continuing education fund, up to the
permissible tax-exempt salary ceiling according to the income tax
regulations in effect from time to time. At December 31, 2007, the ceiling
then in effect was NIS 15,712 (approximately $4,250). In Mr. Ehrlich’s
case, we have customarily contributed to his continuing education fund in
excess of the tax-exempt ceiling, and then reimbursed Mr. Ehrlich for the
tax. The sums in the table reflect this additional contribution and the
resultant tax reimbursement.
|
(10)
|
Under
Israeli law, employees terminated other than for cause receive severance
in the amount of one month’s base salary for each year of work, at their
salary rate at the date of
termination.
|
***PRELIMINARY
COPY***
|
STEVEN
ESSES
|
||||||||||||||||||||||||||||||||||||
Payments
and Benefits
|
Non-
Renewal(1)
|
Death
or
Disability(2)
|
Cause(3)
|
Good
Reason(4)
|
Change
of
Control(5)
|
Change
of
Location(6)
|
Retirement(7)
|
Early
Retirement(8)
|
Other
Employee
Termination(9)
|
|||||||||||||||||||||||||||
Accrued
but unpaid(10):
|
||||||||||||||||||||||||||||||||||||
Base
salary
|
$ | 6,068 | $ | 6,068 | $ | 6,068 | $ | 6,068 | $ | 6,068 | $ | 6,068 | $ | 6,068 | $ | 6,068 | $ | 6,068 | ||||||||||||||||||
Vacation
|
45,393 | 45,393 | 45,393 | 45,393 | 45,393 | 45,393 | 45,393 | 45,393 | 45,393 | |||||||||||||||||||||||||||
Sick
leave(11)
|
17,455 | 17,455 | – | 17,455 | 17,455 | 17,455 | 17,455 | 17,455 | – | |||||||||||||||||||||||||||
Recuperation
pay(12)
|
241 | 241 | 241 | 241 | 241 | 241 | 241 | 241 | 241 | |||||||||||||||||||||||||||
Benefits:
|
||||||||||||||||||||||||||||||||||||
Manager’s
insurance(13)
|
961 | 961 | 961 | 961 | 961 | 961 | 961 | 961 | 961 | |||||||||||||||||||||||||||
Continuing
education fund(14)
|
1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | 1,415 | |||||||||||||||||||||||||||
Tax
gross-up on automobile
|
2,317 | 2,317 | – | 2,317 | 2,317 | 2,317 | 2,317 | 2,317 | – | |||||||||||||||||||||||||||
Contractual
severance
|
330,000 | 330,000 | – | 330,000 | 330,000 | 330,000 | 330,000 | 330,000 | – | |||||||||||||||||||||||||||
Statutory
severance(15)
|
28,794 | 28,794 | – | 28,794 | 28,794 | 28,794 | 28,794 | 28,794 | – | |||||||||||||||||||||||||||
Benefits:
|
||||||||||||||||||||||||||||||||||||
Manager’s
insurance(13)
|
11,527 | 11,527 | – | 11,527 | 11,527 | 11,527 | 11,527 | 11,527 | – | |||||||||||||||||||||||||||
Vacation
|
6,545 | 6,545 | – | 6,545 | 6,545 | 6,545 | 6,545 | 6,545 | – | |||||||||||||||||||||||||||
Continuing
education fund(14)
|
29,647 | 29,647 | – | 29,647 | 29,647 | 29,647 | 29,647 | 29,647 | – | |||||||||||||||||||||||||||
Automobile(16)
|
11,126 | 11,126 | – | 11,126 | 11,126 | 11,126 | 11,126 | 11,126 | – | |||||||||||||||||||||||||||
Tax
gross-up(16)
|
13,666 | 13,666 | – | 13,666 | 13,666 | 13,666 | 13,666 | 13,666 | – | |||||||||||||||||||||||||||
TOTAL:
|
$ | 505,155 | $ | 505,155 | $ | 54,078 | $ | 505,155 | $ | 505,155 | $ | 505,155 | $ | 505,155 | $ | 505,155 | $ | 54,078 |
(1)
|
“Non-renewal”
is defined in Mr. Esses’s employment agreement as a decision, made with
written notice of at least 90 days in advance of the effective date of
such decision, by either us or Mr. Esses not to renew Mr. Esses’s
employment for an additional two-year term. Pursuant to the terms of Mr.
Esses’s employment agreement, in the absence of such notice, Mr. Esses’s
employment agreement automatically renews.
|
|
(2)
|
“Disability”
is defined in Mr. Esses’s employment agreement as a physical or mental
infirmity which impairs the Mr. Esses’s ability to substantially perform
his duties and which continues for a period of at least 180 consecutive
days.
|
|
(3)
|
“Cause”
is defined in Mr. Esses’s employment agreement as (i) conviction for
fraud, crimes of moral turpitude or other conduct which reflects on us in
a material and adverse manner; (ii) a willful failure to carry out a
material directive of our Chief Executive Officer, provided that such
directive concerned matters within the scope of Mr. Esses’s duties, would
not give Mr. Esses “Good Reason” to terminate his agreement (see footnote
4 below) and was capable of being reasonably and lawfully performed; (iii)
conviction in a court of competent jurisdiction for embezzlement of our
funds; and (iv) reckless or willful misconduct that is materially harmful
to us.
|
|
(4)
|
“Good
Reason” is defined in Mr. Esses’s employment agreement as (i) a change in
(a) Mr. Esses’s status, title, position or responsibilities which, in Mr.
Esses’s reasonable judgment, represents a reduction or demotion in his
status, title, position or responsibilities as in effect immediately prior
thereto, or (b) in the primary location from which Mr. Esses shall have
conducted his business activities during the 60 days prior to such change;
or (ii) a reduction in Mr. Esses’s base salary; (iii) the failure by us to
continue in effect any material compensation or benefit plan in which Mr.
Esses is participating; (iv) the insolvency or the filing (by any party,
including us) of a petition for the winding-up of us; (v) any material
breach by us of any provision of Mr. Esses’s employment agreement; and
(vi) any purported termination of Mr. Esses’s employment for cause by us
which does not comply with the terms of Mr. Esses’s employment
agreement.
|
|
(5)
|
“Change
of Control” is defined in Mr. Esses’s employment agreement as (i) the
acquisition (other than from us in any public offering or private
placement of equity securities) by any person or entity of beneficial
ownership of 30% or more of the combined voting power of our
then-outstanding voting securities; or (ii) individuals who, as of January
1, 2000, were members of our Board of Directors (the “Original Board”),
together with individuals approved by a vote of at least 2/3 of the
individuals who were members of the Original Board and are then still
members of our Board, cease for any reason to constitute at least 1/3 of
our Board of us; or (iii) approval by our shareholders of a complete
winding-up or an agreement for the sale or other disposition of all or
substantially all of our assets.
|
|
(6)
|
“Change
of location” is defined in Mr. Esses’s employment agreement as a change in
the primary location from which Mr. Esses shall have conducted his
business activities during the 60 days prior to such
change.
|
|
(7)
|
“Retirement”
is defined as Mr. Esses terminating his employment with us at age 65 or
older on at least 150 days’ prior notice.
|
|
(8)
|
“Early
Retirement” is defined as Mr. Esses terminating his employment with us at
age 55 or older (up to age 65) on at least 150 days’ prior
notice.
|
|
(9)
|
Any
termination by Mr. Esses of his employment with us that does not fit into
any of the prior categories, including but not limited to Mr. Esses
terminating his employment with us, with or without notice, other than at
the end of an employment term or renewal thereof, in circumstances that do
not fit into any of the prior categories.
|
|
(10)
|
Does
not include a total of $12,800 in accrued but unpaid consulting fees due
at December 31, 2007 to Sampen Corporation, a New York corporation owned
by members of Steven Esses’s immediate family, from which Mr. Esses
receives a salary. See “Certain Relationships and Related Transactions –
Consulting Agreement with Sampen Corporation,” below.
|
|
(11)
|
Limited
to an aggregate of 30 days.
|
|
(12)
|
Pursuant
to Israeli law and our customary practice, we pay Mr. Esses in July of
each year the equivalent of six days’ “recuperation pay” at the statutory
rate of NIS 318 (approximately $86) per day.
|
|
(13)
|
Payments
to managers’ insurance, a benefit customarily given to senior executives
in Israel, come to a total of 15.83% of base salary, consisting of 8.33%
for payments to a fund to secure payment of statutory severance
obligations, 5% for pension and 2.5% for disability. The managers’
insurance funds reflected in the table do not include the 8.33% payments
to a fund to secure payment of statutory severance obligations with
respect to amounts paid prior to December 31, 2007, which funds are
reflected in the table under the “Statutory severance”
heading.
|
***PRELIMINARY
COPY***
|
(14)
|
Pursuant
to Israeli law, we must contribute an amount equal to 7.5% of Mr. Esses’s
base salary to a continuing education fund, up to the permissible
tax-exempt salary ceiling according to the income tax regulations in
effect from time to time. At December 31, 2007, the ceiling then in effect
was NIS 15,712 (approximately $4,350). In Mr. Esses’s case, we have
customarily contributed to his continuing education fund in excess of the
tax-exempt ceiling, and then reimbursed Mr. Esses for the tax. The sums in
the table reflect this additional contribution and the resultant tax
reimbursement.
|
(15)
|
Under
Israeli law, employees terminated other than for cause receive severance
in the amount of one month’s base salary for each year of work, at their
salary rate at the date of termination.
|
(16)
|
Under
the terms of Mr. Esses’s employment agreement, we must under certain
circumstances provide him with the use of the company car that he was
driving at the time of termination for a period of time after termination
and pay the tax on the benefit thereon. The taxable value of this use is
reflected in the table.
|
***PRELIMINARY
COPY***
|
|
Ø
|
Audit Fees. Audit fees
billed or expected to be billed to us by BDO for the audit of the
financial statements included in our Annual Report on Form 10-K, and
reviews of the financial statements included in our Quarterly Reports on
Form 10-Q, for the years ended December 31, 2007 and 2006 totaled
approximately $408,000 and $456,000,
respectively.
|
|
Ø
|
Audit-Related
Fees. BDO billed us $16,000 and $15,000 for the fiscal
years ended December 31, 2007 and 2006, respectively, for assurance and
related services that are reasonably related to the performance of the
audit or review of our financial
statements.
|
|
Ø
|
Tax
Fees. BDO billed us $0 and $9,000 for the fiscal years
ended December 31, 2007 and 2006, respectively, for tax
services.
|
|
Ø
|
All Other Fees. The
Audit Committee of the Board of Directors has considered whether the
provision of the Audit-Related Fees, Tax Fees and all other fees are
compatible with maintaining the independence of our principal
accountant.
|
|
INFORMATION
REGARDING BENEFICIAL OWNERSHIP OF COMMON
STOCK
|
Name
and Address of Beneficial Owner(1)
|
Shares
Beneficially Owned(2)(3)
|
Percentage of Total
Shares
Outstanding(3)
|
||||||
Robert
S. Ehrlich
|
596,393 | (4) |
[x.x]
|
% | ||||
Steven
Esses
|
374,284 | (5) |
[x.x]
|
% | ||||
Thomas
J. Paup
|
150,000 | (6) |
[x.x]
|
% | ||||
Dr.
Jay M. Eastman
|
10,430 | (7) |
*
|
|||||
Jack
E. Rosenfeld
|
10,572 | (8) |
*
|
|||||
Lawrence
M. Miller
|
34,552 | (9) |
*
|
|||||
Edward
J. Borey
|
11,572 | (10) |
*
|
|||||
Prof.
Seymour Jones
|
10,430 | (11) |
*
|
|||||
Elliot
Sloyer
|
13,720 | (12) |
*
|
|||||
Michael
E. Marrus
|
13,720 | (13) |
*
|
|||||
All
directors and executive officers as a group (10 persons)
|
1,225,673 | (14) |
[x.x]
|
% |
*
|
Less
than one percent.
|
|
(1)
|
The
address of each named beneficial owner is in care of Arotech Corporation,
1229 Oak Valley Drive, Ann Arbor, Michigan
48108.
|
***PRELIMINARY
COPY***
|
(2)
|
Unless
otherwise indicated in these footnotes, each of the persons or entities
named in the table has sole voting and sole investment power with respect
to all shares shown as beneficially owned by that person, subject to
applicable community property laws.
|
(3)
|
Based
on [xx,xxx,xxx]
shares of common stock outstanding as of September 8, 2008. For purposes
of determining beneficial ownership of our common stock, owners of options
exercisable within sixty days are considered to be the beneficial owners
of the shares of common stock for which such securities are exercisable.
The percentage ownership of the outstanding common stock reported herein
is based on the assumption (expressly required by the applicable rules of
the Securities and Exchange Commission) that only the person whose
ownership is being reported has exercised his options for shares of common
stock.
|
(4)
|
Consists
of 266,000 shares held directly by Mr. Ehrlich, 293,333 shares of unvested
restricted stock, 3,571 shares held by Mr. Ehrlich’s wife (in which shares
Mr. Ehrlich disclaims beneficial ownership), 11,527 shares held in Mr.
Ehrlich’s pension plan, and 21,962 shares issuable upon exercise of
options exercisable within 60 days of September 8,
2008.
|
(5)
|
Consists
of 91,785 shares held directly by Mr. Esses, 280,000 shares of unvested
restricted stock, and 2,499 shares issuable upon exercise of options
exercisable within 60 days of September 8, 2008.
|
(6)
|
Consists
of 42,500 shares held directly by Mr. Paup and 107,500 shares of unvested
restricted stock.
|
(7)
|
Consists
of 10,430 shares of unvested restricted stock.
|
(8)
|
Consists
of 142 shares held directly by Mr. Rosenfeld and 10,430 shares of unvested
restricted stock.
|
(9)
|
Consists
of 23,271 shares held by Mr. Miller as trustee of the Rose Gross
Charitable Foundation, in which shares Mr. Miller disclaims beneficial
ownership, 851 shares held directly by Mr. Miller, and 10,430 shares of
unvested restricted stock.
|
(10)
|
Consists
of 1,142 shares owned directly by Mr. Borey and 10,430 shares of unvested
restricted stock.
|
(11)
|
Consists
of 10,430 shares of unvested restricted stock.
|
(12)
|
Consists
of 13,720 shares of unvested restricted stock.
|
(13)
|
Consists
of 13,720 shares of unvested restricted stock.
|
(14)
|
Includes
24,461 shares issuable upon exercise of options exercisable within 60 days
of September 8, 2008 and 760,423 shares of unvested restricted
stock.
|
|
(i)
|
Mr.
Esses was required to file a Form 4 on or prior to January 2, 2008 in
connection with his receipt of 200,000 shares of restricted stock. He
reported these transactions in a Form 5 filed on February 14,
2008.
|
|
(ii)
|
Mr.
Paup was required to file a Form 4 on or prior to January 2, 2008 in
connection with his receipt of 65,000 shares of restricted stock. He
reported these transactions in a Form 5 filed on February 14,
2008.
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|
***PRELIMINARY
COPY***
|