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
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
ROCKY SHOES & BOOTS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(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:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
ROCKY SHOES & BOOTS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
April 15, 2005
Dear Shareholder:
I am pleased to invite you to the Annual Meeting of Shareholders of Rocky
Shoes & Boots, Inc. to be held on Tuesday, May 17, 2005, at 4:00 p.m., at
Stuarts Opera House, located at 34 Public Square, Nelsonville, Ohio. Parking is
available in Nelsonville at Rocky Shoes & Boots, Inc., at 39 East Canal Street,
and directions and transportation to Stuarts Opera House will be available. We
look forward to meeting all of our shareholders who are able to attend.
At the Annual Meeting, you will be asked to elect Class I Directors. A
copy of the Proxy Statement and the proxy card are enclosed.
It is very important that your shares are represented and voted at the
meeting whether or not you plan to attend. Accordingly, please sign, date, and
return your proxy card in the enclosed envelope at your earliest convenience. If
you attend the meeting, you may vote in person if you wish and your proxy will
not be used.
Your interest and participation in the affairs of the Company are greatly
appreciated. Thank you for your continued support.
Sincerely,
Mike Brooks
Chairman and Chief Executive Officer
ROCKY SHOES & BOOTS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 15, 2005
To Our Shareholders:
The Annual Meeting of Shareholders of Rocky Shoes & Boots, Inc. will be
held at Stuarts Opera House, located at 34 Public Square, Nelsonville, Ohio, on
Tuesday, May 17, 2005, at 4:00 p.m. local time, for the following purposes:
(1) To elect four Class I Directors of the Company, each to serve
for a two-year term expiring at the 2007 Annual Meeting of
Shareholders.
(2) To transact any other business which may properly come before
the meeting or any adjournment thereof.
Owners of record of common stock of the Company at the close of business
on March 28, 2005, will be entitled to vote at the meeting.
You will be most welcome at the meeting, and we hope you can attend.
Directors and officers of the Company and representatives of its independent
public accountants will be present to answer your questions and to discuss its
business.
We urge you to execute and return the enclosed proxy as soon as possible
so that your shares may be voted in accordance with your wishes. If you attend
the meeting, you may vote in person and your proxy will not be used.
By Order of the Board of Directors,
Curtis A. Loveland
Secretary
PLEASE SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
ROCKY SHOES & BOOTS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 2005
This Proxy Statement is furnished to the shareholders of Rocky Shoes &
Boots, Inc. (the "Company") in connection with the solicitation of proxies to be
used in voting at the Annual Meeting of Shareholders to be held on May 17, 2005,
and at any adjournment thereof. The enclosed proxy is solicited by the Board of
Directors of the Company. This Proxy Statement and the enclosed proxy will be
first sent or given to the Company's shareholders on approximately April 15,
2005.
The Company will bear the cost of the solicitation of proxies, including
the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. Representatives of the
Company may solicit proxies by mail, telegram, telephone, or personal interview.
The shares represented by the accompanying proxy will be voted as directed
if the proxy is properly signed and received by the Company before the meeting.
The proxy will be voted FOR the nominees for director named herein and, at the
discretion of the persons acting under the proxy, to transact such other
business as may properly come before the meeting or any adjournment thereof. Any
shareholder giving a proxy has the power to revoke it at any time before it is
exercised by filing a written notice with the Secretary of the Company prior to
the meeting. Shareholders who attend the meeting may vote in person and their
proxies will not be used.
Holders of record of common stock of the Company at the close of business
on March 28, 2005, will be entitled to vote at the Annual Meeting. At that time,
the Company had 5,233,220 shares of common stock outstanding and entitled to
vote. Each share of common stock outstanding on the record date entitles the
holder to one vote on each matter submitted at the Annual Meeting.
The presence, in person or by proxy, of a majority of the outstanding
shares of common stock of the Company is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum. Broker non-votes occur when brokers, who hold their customers' shares in
street name, sign and submit proxies for such shares and vote such shares on
some matters, but not others. Typically, this would occur when brokers have not
received any instructions from their customers, in which case the brokers, as
the holders of record, are permitted
1
to vote on "routine" matters, which typically include the election of directors
and ratification of independent public accountants.
The election of each director nominee requires the favorable vote of a
plurality of all votes cast by the holders of common stock at a meeting at which
a quorum is present. Proxies that are marked "Withhold Authority" and broker
non-votes will not be counted toward such nominee's achievement of a plurality
and thus will have no effect. Each other matter to be submitted to the
shareholders for approval or ratification at the Annual Meeting requires the
affirmative vote of the holders of a majority of the common stock present and
entitled to vote on the matter. For purposes of determining the number of shares
of common stock voting on the matter, abstentions will be counted and will have
the effect of a negative vote; broker non-votes will not be counted and thus
will have no effect.
ELECTION OF DIRECTORS
The Company's Code of Regulations provides for a classified board of
directors with two classes. Each class of directors consists, as nearly as
practical, of one-half of the total number of directors. The total number of
authorized directors has been fixed by the Board of Directors at eight. The
Board of Directors proposes the re-election of the four incumbent Class I
Directors to continue their service as Class I Directors at the 2005 Annual
Meeting of Shareholders. The four incumbent Class II Directors will continue in
office until the 2006 Annual Meeting of Shareholders.
Mike Brooks, Glenn E. Corlett, Harley E. Rouda, Jr., and James L. Stewart
are currently Class I Directors of the Company and are being nominated by the
Board of Directors for re-election as Class I Directors.
It is intended that, unless otherwise directed, the shares represented by
the enclosed proxy will be voted FOR the election of Messrs. Brooks, Corlett,
Rouda, and Stewart as Class I Directors. In the event that any of the nominees
for director should become unavailable, the number of directors of the Company
may be decreased pursuant to the Company's Code of Regulations, or the Board of
Directors may designate a substitute nominee, in which event the shares
represented by the enclosed proxy will be voted for such substitute nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR.
The following table sets forth for each nominee and each continuing
director of the Company, such person's name, age, the year in which he became a
director of the Company, and his position with the Company and the Company's
subsidiaries, Five Star Enterprises Ltd. ("Five Star"), Lifestyle Footwear, Inc.
("Lifestyle"), Rocky Canada, Inc. ("Rocky Canada"); Georgia Boot LLC, EJ
Footwear LLC, HM Lehigh Safety Shoe Co. LLC, Georgia Boot Properties LLC,
Durango Boot Company LLC, Northlake Boot Company LLC, EJ Asia Limited, Lehigh
Safety Shoe Co. LLC, and Lehigh Safety Shoe Properties LLC (collectively, the
"EJ Subsidiaries" and together with Five Star, Lifestyle and Rocky Canada, the
"Subsidiaries").
2
CLASS I DIRECTORS
(NOMINEES - TERMS TO EXPIRE IN 2007)
DIRECTOR
NAME AGE SINCE POSITION
-------------------- --- -------- -------------------------------------------------
Mike Brooks 58 1992 Director of the Company, Five Star, Lifestyle and
the EJ Subsidiaries, Chairman and Chief
Executive Officer of the Company and
Subsidiaries
Glenn E. Corlett 61 2000 Director of the Company
Harley E. Rouda, Jr. 43 2003 Director of the Company
James L. Stewart 72 1996 Director of the Company
-------------------------------------------------------------------------------------------
CLASS II DIRECTORS
(TERMS EXPIRE IN 2006)
DIRECTOR
NAME AGE SINCE POSITION
-------------------- --- -------- --------------------------------------------
J. Patrick Campbell 56 2004 Director of the Company
Michael L. Finn 61 2004 Director of the Company
G. Courtney Haning 56 2004 Director of the Company
Curtis A. Loveland 58 1993 Director of the Company and Secretary of the
Company and Subsidiaries
--------------------------------------------------------------------------------------
Mike Brooks has served as Chairman and Chief Executive Officer of the
Company and its Subsidiaries since January 2005. Prior to that, he served as
Chairman, President, and Chief Executive Officer of the Company from August 1991
until January 2005. Mr. Brooks served as Chairman, President, and Chief
Executive Officer of Rocky Canada from July 2003 until January 2005. Mr. Brooks
also served Lifestyle as President from November 1988 to January 2005 and as
Chairman and Chief Executive Officer from December 1992 to January 2005, and
Five Star as President from March 1987 to January 2005, as Chairman from August
1991 to January 2005, and as Chief Executive Officer from December 1992 to
January 2005. Mr. Brooks is a pattern engineering and shoe design graduate of
the Ars Satoria in Milan, Italy. After employment with U.S. Shoe Corporation and
various tanning companies, Mr. Brooks returned to the family shoe business in
Nelsonville, Ohio, in 1975, serving first as Manager of Product Development and
a national salesman and then, in 1984, becoming President. He has been a
3
director of American Apparel and Footwear Association (f/k/a Footwear Industries
of America) since April 1986 and currently serves on the Executive Board of that
organization.
Glenn E. Corlett has been Dean and Philip J. Gardner, Jr. Leadership
Professor of the College of Business at Ohio University, Athens, Ohio, since
July 1997. From 1993 to 1996, Mr. Corlett was Executive Vice President and Chief
Operating Officer of N.W. Ayer & Partners, an international advertising agency,
headquartered in New York, New York. Mr. Corlett also served as Chief Financial
Officer of N.W. Ayer & Partners from 1990 to 1995. Prior to joining N.W. Ayer &
Partners, Mr. Corlett had a long history with Price Waterhouse where he was
partner-in-charge for mergers and acquisitions in New York from 1988 to 1990;
tax partner-in-charge in Denver from 1984 to 1988 and in Cleveland from 1979 to
1984; and held partner and staff positions from 1971 to 1979. Mr. Corlett also
serves on the Board of Directors of Pubco Corp., a company with a printer
supplies business and a construction products business, and Preformed Line
Products Company, an international designer and manufacturer of products and
systems employed in the construction and maintenance of overhead and underground
networks for energy, communications and broadband network companies.
Harley E. Rouda, Jr. has served as Chief Executive Officer and General
Counsel of Real Living, Inc., an independently-owned residential real estate
firm headquartered in Columbus, Ohio, since February 2002. He has also served as
Chief Executive Officer and General Counsel of HER Realtors, a Columbus based
real estate firm, since May 1999 and May 1997, respectively. Prior to serving as
Chief Executive Officer, Mr. Rouda served as President of HER Realtors from May
1996 until May 1999.
James L. Stewart has served as the proprietor of Rising Wolf Ranch, Inc.,
East Glacier, Montana, a summer resort and a winter rehabilitation center for
teenage boys involved with drug abuse. Mr. Stewart also consults for various
retail and catalog companies. Between 1984 and 1991, Mr. Stewart served as the
President and Chief Executive Officer of Dunns Inc. and as the Vice President
and General Manager of Gander Mountain Inc. Before that time, he served Sears
Roebuck & Co. for 28 years.
J. Patrick Campbell has been self-employed serving as a consultant to
various corporations and the financial services industry since January 2001.
Most recently, from January 2004 until February 2005, Mr. Campbell served as
Chief of Technology and Operations for the American Stock Exchange. From January
1997 until December 2001, Mr. Campbell held various executive positions at The
Nasdaq Stock Market, including President, Nasdaq U.S. Markets, and Chief
Operating Officer and Chairman, Nasdaq Investment Products. Prior to joining
Nasdaq, Mr. Campbell was employed by The Ohio Company, a privately held
investment bank from 1971 to 1996 as Senior Executive Vice President, and he was
a member of the board of directors from 1991 to 1996. Mr. Campbell serves on the
board of Metastorm Inc. and as Chairman of the Board of Digital Focus, Inc.,
both privately held companies.
Michael L. Finn has served as President of Central Power Systems, a
wholesale distributor in Columbus, Ohio, since 1985, and President of Chesapeake
Realty Co., a real estate development and management company in Columbus, Ohio,
since 1970.
G. Courtney Haning has served as Chairman, President and Chief Executive
Officer of Peoples National Bank, a community bank in New Lexington, Ohio, since
January 1991.
Curtis A. Loveland has served as Secretary of the Company since October
1992, of Five Star and Lifestyle since December 1992, of Rocky Canada since July
2003, and of the EJ Subsidiaries since January 2005.
4
Mr. Loveland has been a practicing attorney for 32 years and has been a partner
in the law firm of Porter, Wright, Morris & Arthur LLP, Columbus, Ohio since
1979. Mr. Loveland also serves on the Board of Directors of Applied Innovation
Inc., a telecommunications products manufacturer.
INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS,
AND PRINCIPAL SHAREHOLDERS
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
The Board of Directors of the Company held a total of six meetings during
2004. During 2004, each of the directors attended 75% or more of the total
number of (i) meetings of the Board, and (ii) meetings of committees of the
Board on which such director served.
Upon consideration of the criteria and requirements regarding director
independence set forth in the rules of the National Association of Securities
Dealers, Inc. ("NASD"), the Board of Directors has determined that a majority of
its members are independent. Specifically, the Board has determined that each of
Messrs. Campbell, Corlett, Finn, Haning, Loveland, Rouda, and Stewart, meet the
standards of independence established by NASD Rule 4200(a)(15).
The Company has a standing Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee. From January 2004 until May 2004,
the members of the Audit Committee were Messrs. Corlett (Chairman), Loveland,
and Leonard L. Brown, a former director of the Company. In May 2004, the Board
of Directors appointed Messrs. Corlett (Chairman), Rouda, and Haning as members
of the Audit Committee. In March 2005, Mr. Rouda resigned from the Audit
Committee and Mr. Campbell was appointed to the vacancy created thereby. The
Board of Directors has determined that each of Messrs. Corlett, Campbell, and
Haning are independent as independence is defined in NASD Rule 4200(a)(15) and
Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, and that
the Audit Committee meets the composition requirements of NASD Rule 4350(d)(2).
The Board of Directors has determined that Mr. Corlett meets the requirements of
a "financial expert" as set forth in Section 401(h) of Regulation S-K
promulgated by the Securities and Exchange Commission ("SEC").
The Audit Committee met eight times during 2004. The Audit Committee
oversees and monitors management's and the independent auditors' participation
in the accounting and financial reporting processes and the audits of the
financial statements of the Company. The Audit Committee has the responsibility
to appoint, compensate, retain and oversee the work of the independent auditors
and to consult with the independent auditors on matters relating to the scope of
the audit, any non-audit assignments and related fees, the accounting principles
used by the Company in financial reporting, internal financial auditing
procedures, and the adequacy of the Company's internal control procedures. The
Audit Committee is governed by an Amended and Restated Audit Committee Charter,
which was adopted on March 4, 2004, and effective as of May 11, 2004. The Audit
Committee Report relating to the 2004 fiscal year appears on pages 21 and 22.
From January 2004 until May 2004, the members of the Compensation
Committee were Messrs. Stewart (Chairman), Brown, and Robert D. Rockey, a former
director of the Company. In May 2004, the Board of Directors appointed Messrs.
Rouda (Chairman), Stewart, and Finn as members of the Compensation Committee.
5
The Board of Directors has determined that each of Messrs. Rouda, Stewart, and
Finn are independent as independence is defined in NASD Rule 4200(a)(15).
The Compensation Committee met three times during 2004. This Committee
administers the 1995 Stock Option Plan, the 2004 Stock Incentive Plan and
approves compensation for the Company's executive officers. The Compensation
Committee report relating to the 2004 fiscal year appears on pages 18 and 19.
During fiscal 2004, the members of the Nominating and Corporate Governance
Committee were Messrs. Loveland (Chairman), Corlett, and Finn. The Board of
Directors has determined that each of Messrs. Loveland, Corlett, and Finn are
independent as independence is defined in NASD Rule 4200(a)(15). The Nominating
and Corporate Governance Committee Charter was adopted by the Company's Board of
Directors in March 2004, and effective as of May 11, 2004, and is posted on the
Company's website at www.rockyboots.com.
The Nominating and Corporate Governance Committee met once during fiscal
2004. The Nominating and Corporate Governance Committee oversees the director
nomination process. The Nominating and Corporate Governance Committee has the
responsibility to identify and recommend individuals qualified to become
directors. When considering potential candidates, the Nominating and Corporate
Governance Committee reviews the candidate's character, judgment, skills,
including financial literacy, and experience in the context of the needs of the
Board of Directors. The Company generally does not pay any third parties to
identify or evaluate, or assist in identifying or evaluating, potential
nominees.
The Nominating and Corporate Governance Committee considers the
recommendations of shareholders regarding potential director candidates. In
order for shareholder recommendations regarding possible director candidates to
be considered by the Nominating and Corporate Governance Committee:
- such recommendations must be provided to the Nominating and
Corporate Governance Committee c/o Rocky Shoes & Boots, Inc., 39
East Canal Street, Nelsonville, Ohio 45764, in writing at least 120
days prior to the date of the next scheduled annual meeting;
- the nominating shareholder must meet the eligibility requirements to
submit a valid shareholder proposal under Rule 14a-8 of the
Securities Exchange Act of 1934, as amended; and
- the nominating shareholder must describe the qualifications,
attributes, skills, or other qualities of the recommended director
candidate.
The Nominating and Corporate Governance Committee also has the
responsibility to develop and recommend to the Board of Directors a set of
corporate governance principles applicable to the Company and to administer and
oversee the Company's Code of Business Conduct and Ethics.
The Company's Board of Directors welcomes communications from
shareholders. Shareholders may send communications to the Board of Directors, or
to any Director in particular, c/o Rocky Shoes & Boots, Inc., 39 East Canal
Street, Nelsonville, Ohio 45764. Any correspondence addressed to the Board of
Directors, or to any one of the Company's Directors in care of our offices is
forwarded to the addressee without review by management.
It is the Company's expectation that all members of the Board of Directors
attend the Annual Meeting of Shareholders. All members of the Company's Board of
Directors were present at the Company's 2004 Annual Meeting of Shareholders.
6
COMPENSATION OF DIRECTORS
During 2004, the Company compensated each director who is not an officer
or employee of the Company in cash at a rate of $1,500 per Board meeting, plus
$750 for each committee meeting which did not occur on the same day as a Board
meeting.
Beginning in 2005, compensation for non-employee directors includes the
following:
- an annual retainer of $10,000 for service on the Board of Directors,
payable in shares of the Company's common stock;
- an annual retainer of $5,000 for service as Chairman of the Audit
Committee;
- an annual retainer of $2,000 for service as Chairman of the
Compensation Committee;
- an annual retainer of $2,000 for service as Chairman of the
Nominating and Corporate Governance Committee;
- $1,500 for each Board meeting attended;
- $750 for each committee meeting attended; and
- $500 for each telephonic Board or committee meeting attended.
All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with Board or committee meetings.
On January 2, 2004, 446 shares of restricted stock were issued to each of
Messrs. Stewart, Loveland, Corlett, and Rouda based on a stock price of $22.39
per share. Each of Messrs. Finn and Haning were granted 397 shares of restricted
stock based on a stock price of $18.85 on May 12, 2004, the date of their
election to the Board of Directors. Mr. Campbell was granted 120 shares of
restricted stock based on a stock price of $20.80 on November 30, 2004, the date
of his election to the Board of Directors. All such shares are fully vested, but
not saleable in the public markets until one year from the date of grant.
In addition, each of the non-employee directors is granted an option to
purchase 5,000 shares of the Company's common stock each year. The exercise
price of such options equals 100% of the fair market value of the shares on the
date of grant. The options are vested at the date of grant but not exercisable
until a period of one year from the date of grant and terminate on the sixth
anniversary of the date of grant. On January 2, 2004, nonqualified options to
purchase 2,500 shares of common stock were granted to each of Messrs. Stewart,
Loveland, Corlett, and Rouda, at an exercise price of $22.39 per share pursuant
to the Company's 1995 Stock Option Plan. In addition, on May 12, 2004,
nonqualified options to purchase 2,500 shares of common stock were granted to
each of Messrs. Stewart, Loveland, Corlett and Rouda, at an exercise price of
$18.85 per share pursuant to the Company's 2004 Stock Incentive Plan. All of
these nonqualified options became exercisable on January 2, 2005 and expire on
January 2, 2010.
7
EXECUTIVE OFFICERS
In addition to Mike Brooks, the following individuals are executive
officers of the Company:
David Sharp, 49, serves as President and Chief Operating Officer of the
Company and its Subsidiaries. Prior to that, he served as Executive Vice
President and Chief Operating Officer of the Company from March 2002 until
January 2005. He served as Senior Vice President - Sales and Operations from
June 2001 until March 2002, as Vice President of Sales and Marketing from
October 2000 until June 2001, and as Vice President of Manufacturing Operations
and Marketing from June 2000 until October 2000. Mr. Sharp has served as
Executive Vice President and Chief Operating Officer of Five Star and Lifestyle
from August 2003 until January 2005 and of Rocky Canada from July 2003 until
January 2005. Prior to that time, he served as Senior Vice President - Sales and
Operations of Five Star and Lifestyle from February 2002 until August 2003.
Prior to joining the Company, from September 1994 until October 1999, Mr. Sharp
served in various capacities, including Vice President and General Manager, of
an operating division of H.H. Brown, Inc., a wholly owned subsidiary of
Berkshire-Hathaway, Inc., engaged in the footwear business. Mr. Sharp also has
held various senior sales and marketing positions at Acme Boot Co., Inc. and
Converse, Inc. from June 1991 until September 1994.
James E. McDonald, 44, serves as Executive Vice President, Chief Financial
Officer, and Treasurer of the Company and its Subsidiaries. Prior to that, he
served as Vice President and Chief Financial Officer from June 2001 until
January 2005. Mr. McDonald served as Vice President and Chief Financial Officer
of Five Star and Lifestyle from February 2002 until January 2005 and of Rocky
Canada from July 2003 until January 2005. He served as Treasurer of Five Star
and Lifestyle from August 2003 until January 2005 and Rocky Canada from July
2003 until January 2005. Prior to joining the Company, from July 1996 until June
2001, Mr. McDonald served as Chief Financial Officer for two operating divisions
of H.H. Brown, Inc., a wholly owned subsidiary of Berkshire-Hathaway, Inc.,
engaged in the footwear business. Mr. McDonald also served as Controller of
Wright's Knitwear Corporation, a privately held manufacturer of apparel.
Officers are elected annually by the Board of Directors and serve at its
discretion. There are no family relationships among directors and executive
officers of the Company.
8
OWNERSHIP OF COMMON STOCK BY MANAGEMENT
The following table sets forth information regarding beneficial ownership
of the Company's common stock by each nominee for director, each director, each
of the Company's executive officers named in the Summary Compensation Table, and
the directors and executive officers of the Company as a group as of February
28, 2005:
NUMBER OF SHARES BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS(1)
---------------------------------- ----------------------------- ----------
Mike Brooks 408,240 (2) 7.77%
Glenn E. Corlett 21,587 (2) *
Michael L. Finn 732 (2) *
G. Courtney Haning 732 (2) *
Curtis A. Loveland 66,922 (2) 1.29%
James E. McDonald 45,000 (2) *
Harley E. Rouda, Jr. 6,011 (2) *
J. Patrick Campbell 3,455 (2) *
David Sharp 70,500 (2) 1.35%
James L. Stewart 20,781 (2) *
All Directors and Executive
Officers as a Group (10 persons) 643,960 (2) 12.1%
----------
* indicates less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities. Except as
otherwise noted, none of the named individuals shares with another person
either voting or investment power as to the shares reported. "Percentage
of Class" is calculated by dividing the number of shares beneficially
owned by the total number of outstanding shares of the Company on February
28, 2005, plus the number of shares such person has the right to acquire
within 60 days of February 28, 2005.
(2) Includes 67,250 shares of common stock for Mr. Brooks, 15,000 shares of
common stock for Mr. Corlett, 15,000 shares of common stock for Mr.
Loveland, 17,500 shares of common stock for Mr. McDonald, 5,000 shares of
common stock for Mr. Rouda, 19,000 shares of common stock for Mr. Sharp,
5,000 shares of common stock for Mr. Stewart, and 143,750 shares of common
stock for all directors and executive officers as a group, which could be
acquired under stock options exercisable within 60 days of February 28,
2005.
9
OWNERSHIP OF COMMON STOCK BY PRINCIPAL SHAREHOLDERS
The following table sets forth information relating to the beneficial
ownership of common stock by each person known by the Company to own
beneficially more than 5% of the outstanding shares of common stock:
NUMBER OF SHARES
NAME OF OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(2)
------------------------------------------ --------------------- ---------
Mike Brooks 408,240 (3) 7.77%
c/o Rocky Shoes & Boots, Inc.
39 East Canal Street
Nelsonville, Ohio 45764
Systematic Financial Management, L.P. 382,050 (4) 7.36%
300 Frank W. Burr Blvd.
Glenpointe East, 7th Floor
Teaneck, New Jersey 07666
SILLC Holdings, LLC 484,261 (5) 9.33%
Raritan Plaza I, Raritan Center, 2nd Floor
Edison, New Jersey 08818
----------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities.
(2) "Percentage of Class" is calculated by dividing the number of shares
beneficially owned by the total number of outstanding shares of the
Company on February 28, 2005, plus the number of shares such person has
the right to acquire within 60 days of February 28, 2005.
(3) Includes 67,250 shares of common stock for Mike Brooks which could be
acquired under stock options exercisable within 60 days of February 28,
2005.
(4) Based on information filed on Schedule 13G with the Securities and
Exchange Commission on February 14, 2005.
(5) Based on information filed on Schedule 13G with the Securities and
Exchange Commission on January 18, 2005 by SILLC Holdings, LLC ("SILLC"),
Strategic Industries, LLC ("Strategic") Citigroup Venture Capital Equity
Partners, L.P. ("CVCEP"), CVC Partners, LLC ("CVC Partners"), Citigroup
Venture Capital GP Holdings, Ltd. ("CVC GP Holdings"), Court Square
Capital Limited ("Court Square"), Citigroup Banking Corporation ("CBC"),
Citicorp, Citigroup Holdings Company ("Citigroup Holdings") and Citigroup
Inc. ("Citigroup"). Strategic is the sole member of SILLC. CVCEP holds a
membership interest in Strategic. CVC Partners holds a general partnership
interest in CVCEP. CVC GP Holdings has a membership interest in CVC
Partners. Court Square is the sole shareholder of CVC GP Holdings. CBC
10
is the sole shareholder of Court Square. Citicorp is the sole shareholder
of CBC. Citigroup Holdings is the sole shareholder of Citicorp. Citigroup
is the sole shareholder of Citigroup Holdings. The address of the
principal business office of SILLC and Strategic is Raritan Plaza I,
Raritan Center 2nd Floor, Edison, NJ 08818. The address of the principal
business office of each of CVCEP, CVC Partners, CVC GP Holdings, Court
Square, Citicorp and Citigroup is 399 Park Avenue, New York, NY 10043. The
address of the principal business office of CBC is One Penn's Way, New
Castle, DE 19720. The address of the principal business office of
Citigroup Holdings is One Rodney Square, Wilmington, DE 19899.
11
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during each of the Company's last three complete fiscal years to the
Company's Chief Executive Officer and the only other executive officers of the
Company whose combined salary and bonus exceeded $100,000 for 2004:
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND FISCAL YEAR ------------------- ------------ ALL OTHER
PRINCIPAL POSITION ENDED SALARY BONUS OPTIONS (#) COMPENSATION
----------------------------- ----------- -------- -------- ------------ ------------------
Mike Brooks(1) 12/31/04 $300,000 $183,000 15,000 $ 72,000 (2)(4)
Chairman, and Chief 12/31/03 $250,000 $231,000 15,000 $105,270 (2)(4)
Executive Officer of the 12/31/02 $250,000 $ 52,500 20,000 $ 33,012 (2)(3)(4)
Company and Subsidiaries
David Sharp 12/31/04 $250,000 $125,000 13,000 $ 34,175 (4)
President and Chief Operating 12/31/03 $210,000 $131,000 13,000 $ 15,123 (4)
Officer of the Company and 12/31/02 $200,000 $ 36,000 10,000 $ 16,500 (4)
Subsidiaries
James E. McDonald 12/31/04 $188,000 $ 67,680 10,000 $ 0
Executive Vice President, 12/31/03 $173,500 $ 96,000 10,000 $ 0
Chief Financial Officer, and 12/31/02 $165,000 $ 18,000 10,000 $ 23,400 (5)
Treasurer of the Company and
Subsidiaries
----------
(1) The Company has entered into an employment agreement with Mr. Brooks (See
"Employment Agreements" below).
(2) The Company has also entered into a deferred compensation agreement with
Mr. Brooks ("Employee"). The agreement provides that certain benefits will
be paid to the Employee or a designated beneficiary upon retirement,
death, or termination of employment with the Company (or an affiliate).
Under the agreement, the Employee qualifies for the benefits after 15
years of service with the Company or a predecessor corporation. If the
Employee retires after age 65, the Employee or his beneficiary will
receive monthly payments ranging from $1,250 to $2,500 for a ten-year
period commencing 90 days after retirement. If the Employee dies before
age 65, the beneficiary will receive the greater of $17,250 annually or
the amount the Employee would have received had he terminated his
employment after age 65, reduced by an amount equal to 5/9ths of one
percent times the number of months remaining before the Employee would
have reached age 65. If the Employee terminates his employment with the
Company for any reason prior to age 65, the Employee will be entitled to
receive the greater of the cash surrender value of a policy of insurance
purchased by the Company on the life of the Employee or the amount the
Employee would have received had he terminated his employment after age
65, reduced by an amount equal to 5/9ths of one percent times the
12
number of months remaining before the Employee would have reached age 65.
Finally, the agreement provides that the Employee will not, during or
after his employment with the Company, directly or indirectly, compete
with the Company or disclose any confidential information relative to the
business of the Company. If the Employee breaches this or any other
covenant under the agreement, no further payments are due or payable by
the Company to the Employee or his beneficiary and the Company has no
further liability under the agreement. The benefits under the agreement
have vested for Mr. Brooks. The amounts shown under "All Other
Compensation" for Mr. Brooks include $6,269 for 2002, $33,870 for 2003,
and $0 for 2004, reflecting the present value of the benefits earned
during the year indicated.
(3) The amounts shown under "All Other Compensation" for Mr. Brooks include
$15,356 for 2002, representing the dollar value of the benefit of premiums
paid for a split-dollar life insurance policy reflecting the present value
of the economic benefit of the premiums paid by the Company during the
2002 fiscal year. The Company has since ceased these premium payments on
behalf of Mr. Brooks.
(4) The amounts shown under "All Other Compensation" for Messrs. Brooks and
Sharp include $72,000 and $34,175, respectively for 2004, $72,000 and
$15,123, respectively for 2003, and $11,388 and $16,500, respectively for
2002, reflecting life insurance premiums paid by the Company.
(5) The amount shown under "All Other Compensation" for Mr. McDonald reflects
relocation costs paid by the Company to Mr. McDonald in 2002.
13
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding stock options
granted during 2004 to each of the executive officers:
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME (#) FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
----------------- -------- ----------------- --------- ---------- ----- ------- --------
Mike Brooks 7,500(2) 4.57% $22.39 1/2/2012 $0 $80,177 $192,037
7,500(3) 4.57% $18.85 1/2/2012 $0 $67,500 $161,675
David Sharp 6,500(2) 3.96% $22.39 1/2/2012 $0 $69,486 $166,432
6,500(3) 3.96% $18.85 1/2/2012 $0 $58,500 $140,118
James E. McDonald 5,000(2) 3.04% $22.39 1/2/2012 $0 $53,451 $128,025
5,000(3) 3.04% $18.85 1/2/2012 $0 $45,000 $107,783
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included by
the Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the Company's common stock. Such amounts are based
on the assumption that the option holders hold the options granted for
their full term. The actual value of the options will vary in accordance
with the market price of the Company's common stock. The column headed
"0%($)" is included to illustrate that the options were granted at fair
market value and option holders will not recognize any gain without an
increase in the stock price, which increase benefits all shareholders
commensurately.
(2) On January 2, 2004, options to purchase 7,500, 6,500, and 5,000 shares,
respectively, of common stock were granted to Messrs. Brooks, Sharp, and
McDonald. All options were granted at an exercise price equal to the
closing price of the Company's common stock on December 31, 2003. These
options vest and become exercisable at a rate of 25% per year employed
after the date of grant, and expire on the eighth anniversary of the date
of grant.
(3) On May 12, 2004, options to purchase 7,500, 6,500, and 5,000 shares,
respectively, of common stock were granted to Messrs. Brooks, Sharp, and
McDonald. All options were granted at an exercise price equal to the
closing price of the Company's common stock on May 11, 2004. These options
vest and become exercisable on January 2, 2005 at a rate of 25% per year
employed, and expire on January 2, 2012.
14
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the exercise of
stock options during 2004, and the number and value of stock options held by the
executive officers named in the Summary Compensation Table as of December 31,
2004:
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END ($)(1)
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- -------- -------- ----------- ------------- ----------- -------------
Mike Brooks 11,000 173,530 51,750 39,250 1,238,610 732,060
David Sharp 28,250 240,375 5,000 32,750 124,000 608,550
James E. McDonald 15,000 478,070 10,000 32,500 251,500 647,650
----------
(1) Represents the total gain which would have been realized if all
in-the-money options held at fiscal year-end had been exercised,
determined by multiplying the number of shares underlying the options by
the difference between the per share option exercise price and per share
fair market value at year-end. An option is in-the-money if the fair
market value of the underlying shares exceeds the exercise price of the
option.
15
RETIREMENT PLAN
The Company's Restated Retirement Plan for Non-Union Employees (the
"Retirement Plan") is a defined benefit pension plan which is intended to
qualify under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). Employees, excluding leased employees and those
employees covered by a collective bargaining agreement, are eligible to
participate in the Retirement Plan if they are at least 21 years old and have
worked at least 1,000 hours for the Company over a period of one year.
The Retirement Plan provides for the payment of a monthly retirement
benefit commencing at age 65, subject to certain early and late retirement
options. The amount of the monthly benefit is determined pursuant to a formula
contained in the Retirement Plan which takes the greater of 1.5% of the
employee's average monthly compensation, or $12.00, and multiplies it by the
employee's number of years of credited service up to a maximum of 35 years. The
average monthly compensation is determined for the three consecutive years which
gives the participant the highest average. Compensation for this purpose means
wages which are subject to federal income tax withholding.
The following table illustrates the operation of the Retirement Plan by
showing various annual retirement benefits payable to participating employees in
the compensation and years of service classifications indicated, assuming that
participants retire at age 65 and that each participant elects a joint and
survivor annuity for the lives of the participant and his or her spouse. There
is no reduction of benefits for Social Security retirement income.
YEARS OF SERVICES
----------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ ------- ------- ------- ------- --------
$80,000 $18,000 $24,000 $30,000 $36,000 $42,000
100,000 22,500 30,000 37,500 45,000 52,500
125,000 28,125 37,500 46,875 56,250 65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 39,375 52,500 65,625 78,750 91,875
205,000* 46,125 61,500 76,875 92,250 107,625
*The maximum pay level recognized at this time is $205,000. This maximum
is indexed with the COLA % each year, with $5,000 incremental increases.
For each of the executive officers named in the Summary Compensation
Table, the compensation covered by the Retirement Plan for 2004, was $205,000
for each of Messrs. Brooks, Sharp and McDonald. The Code imposes limitations on
the amount of annual benefits payable to an individual under the Retirement
Plan. This limit for the 2004 Plan Year is $165,000. The estimated years of
service for each of the executive officers as of December 31, 2004, was 29.7
years for Mr. Brooks, 4.5 years for Mr. Sharp, and 3.5 years for Mr. McDonald.
16
EMPLOYMENT AGREEMENTS
On July 1, 1995, Mr. Brooks entered into an employment agreement with the
Company. The employment agreement provides for a minimum base salary and a
covenant not-to-compete. Mr. Brooks' employment agreement is "at will" and,
therefore, does not have a stated term.
The covenant not-to-compete contained in Mr. Brooks' employment agreement
is for the time of employment, plus a one-year period following termination of
employment; provided, that if his employment is terminated following a change in
control (as defined in the employment agreement), the covenant not-to-compete
will terminate immediately. If the agreement is terminated as a result of a
change in control, or if he resigns after a change in control, he is entitled to
receive 2.99 times his average annual compensation, including bonuses and
taxable fringe benefits, over the last five taxable years immediately preceding
the date of a change in control, but in no event will such payments constitute
excess parachute payments within the meaning of the Code. Under the employment
agreement, a change in control is deemed to have occurred if (i) the Company or
50% or more of its assets or earning power is acquired and less than a majority
of the outstanding voting shares of the survivor of such acquisition is owned,
immediately after such acquisition, by the owners of the voting shares of the
Company outstanding immediately prior to such acquisition, or (ii) there is a
change in a majority of the Board of Directors of the Company over any two-year
period, which has not been approved in advance by at least two-thirds of the
directors of the Company in office at the beginning of the period.
17
The following Compensation Committee Report, Performance Graph, and Audit
Committee Report shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any of the
Company's filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee has the authority and responsibility to
determine and administer the Company's officer compensation policies and to
approve the salaries of executive officers, the formula for bonus awards to
executive officers, and the grant of stock options to executive officers and
other key employees under the Company's 1995 Stock Option Plan and 2004 Stock
Incentive Plan. The Compensation Committee consists solely of independent
directors of the Company. In general, the philosophy of the Compensation
Committee is to attract and retain qualified executives, reward current and past
individual performance, provide short-term and long-term incentives for superior
future performance, and relate total compensation to individual performance and
performance of the Company.
On July 1, 1995, the Company entered into an employment contract, approved
by the Company's Board of Directors, with Mr. Brooks. The base salary under the
employment contract is subject to review by the Compensation Committee and may
be increased periodically.
The determination of executive officer base salaries for the fiscal year
ended December 31, 2004, including increases to the minimum base salary fixed by
the employment contract of Mr. Brooks (see EMPLOYMENT AGREEMENTS above), was
based primarily on subjective factors, such as the Compensation Committee's
perception of individual performance and the executive officer's contribution to
the overall performance of the Company, and not on specific criteria. No
specific weight was given to any of these factors because each of these factors
was considered significant and the relevance of each varies depending upon an
officer's responsibilities. These factors were also taken into account when the
Compensation Committee established Mr. Brooks' salary at $300,000 for the fiscal
year ended December 31, 2004.
The Company established an executive bonus program for 2004. The bonuses
payable under the executive bonus program were based on percentages of a
participant's salary. The amount of the percentage bonus depended on the
Company's pre-tax and pre-bonus profits. The percentages payable to executive
officers ranged from 17% to 77%, depending on the officer and the amount of
pre-tax profit. Three of the Company's executive officers, including Mr. Brooks,
were eligible to participate in the executive bonus pool for 2004. The
percentages issued under the program were allocated at the beginning of 2004
among these three executive officers based upon the Compensation Committee's
subjective perception of each executive officer's contribution to the overall
profitability of the Company. Under the formula established by the program, Mr.
Brooks was allocated 61% of his salary as his bonus for 2004. Under the
executive bonus program, $375,680 in bonuses were awarded to executive officers
for 2004.
The purpose of the Company's 1995 Stock Option Plan and 2004 Stock
Incentive Plan is to provide long-term incentives to key employees and motivate
key employees to improve the Company's performance, and in turn, the performance
of the Company's common stock. Stock option awards are considered annually by
the Compensation Committee. The value of the stock options awarded is entirely
dependent upon the Company's stock performance over a period of time.
18
The number of shares of common stock subject to the options granted during
2004 was determined based on a subjective evaluation of the past performance of
the individual, the total compensation being paid to the individual, the
individual's scope of responsibility, and the anticipated value of the
individual's contribution to the Company's future performance. No specific
weight was given to any of these factors. Although information as to the options
awarded to each executive officer during previous years was reviewed by the
Compensation Committee, the Compensation Committee did not consider the total
amount of options held by an officer in determining the size of an option
awarded for 2004.
Options were granted under the 1995 Stock Option Plan and the 2004 Stock
Incentive Plan by the Company during 2004 to three executive officers, including
Mr. Brooks, and 36 other key employees. Each stock option awarded during 2004
had an exercise price equal to the fair market value of the underlying common
stock of the Company on the date of the grant. The options granted during 2004
vest and become exercisable at the rate of 25% per year if the option holder
remains employed at the time of vesting and terminate eight years from the date
of grant. All options granted during 2004 to employees are subject to certain
forfeiture restrictions in the 1995 Stock Option Plan or the 2004 Stock
Incentive Plan. Mr. Brooks received 15,000 option shares, 9.1% of all option
shares granted to employees during 2004.
The Budget Reconciliation Act of 1993 amended the Code to add Section
162(m) which bars a deduction to any publicly held corporation for compensation
paid to a "covered employee" in excess of $1,000,000 per year. The Compensation
Committee does not believe that this law will impact the Company because the
current level of compensation for each of the Company's executive officers is
well below the $1,000,000 salary limitation.
COMPENSATION COMMITTEE
Harley E. Rouda, Jr., Chairman
James L. Stewart
Michael L. Finn
19
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company
with the NASDAQ Stock Market Composite Index and the Standard & Poor's Footwear
Index, which is a published industry index. The comparison of the cumulative
total return to shareholders for each of the periods assumes that $100 was
invested on December 31, 2000, in the common stock of the Company, and in the
NASDAQ Stock Market Composite Index and the Standard & Poor's Footwear Index and
that all dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ROCKY SHOES & BOOTS, INC., THE NASDAQ STOCK MARKET COMPOSITE INDEX
AND THE S&P FOOTWEAR INDEX
[PERFORMANCE GRAPH]
NASDAQ S&P
Composite Footwear RCKY
-----------------------------------------------------------------------------
December 31, 1999 100.0 100.0 100.0
December 31, 2000 60.7 119.8 50.8
December 31, 2001 47.9 120.2 75.7
December 31, 2002 32.8 98.7 68.7
December 31, 2003 49.2 149.3 293.6
December 31, 2004 53.5 194.3 390.8
*$100 invested on December 31, 1999 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
20
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
GENERAL. In accordance with the Audit Committee Charter adopted by the
Board of Directors, the Audit Committee assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing, and financial reporting practices of the Company. During the 2004
fiscal year, the Audit Committee met eight times.
REVIEW AND DISCUSSION WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. In
fulfilling its oversight responsibility as to the audit process, the Audit
Committee obtained from Deloitte & Touche LLP a formal written statement
describing all relationships between Deloitte & Touche LLP and the Company that
might bear on Deloitte & Touche LLP's independence consistent with Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees,
discussed with Deloitte & Touche LLP any relationships that may impact Deloitte
& Touche LLP's objectivity and independence, and satisfied itself as to Deloitte
& Touche LLP's independence. The Audit Committee also discussed with management
and Deloitte & Touche LLP the quality and adequacy of the Company's internal
controls. In addition, the Audit Committee reviewed and discussed with Deloitte
& Touche LLP all communications required by generally accepted auditing
standards, including those described in Statement on Auditing Standards No. 61,
Communication with Audit Committees, and, with and without management present,
discussed and reviewed the results of Deloitte & Touche LLP's examination of the
consolidated financial statements.
REVIEW WITH MANAGEMENT. The Audit Committee reviewed and discussed the
audited consolidated financial statements of the Company as of and for the
fiscal year ended December 31, 2004 with management. Management has the
responsibility for the preparation of the Company's consolidated financial
statements, and Deloitte & Touche LLP has the responsibility for the examination
of those statements.
AUDIT FEES. The aggregate fees billed for professional services rendered
by Deloitte & Touche LLP, the member firm of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, "Deloitte & Touche LLP," which includes
Deloitte Consulting), for the audits of the Company's annual consolidated
financial statements, including those for its subsidiary, Lifestyle Footwear,
Inc., for the 2004 fiscal year and the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q for the fiscal year
were $767,000 (including direct engagement expenses). For the 2004 fiscal year,
audit fees also include fees for professional services rendered for audits
related to the effectiveness of internal control over financial reporting. The
aggregate fees billed for professional services rendered by Deloitte & Touche
LLP for the audits of the Company's annual consolidated financial statements,
including those for its subsidiary, Lifestyle Footwear, Inc., for the 2003
fiscal year and the reviews of the financial statements included in the
Company's Quarterly Reports on Form 10-Q for the fiscal year were $326,000
(including direct engagement expenses).
AUDIT-RELATED FEES. The aggregate fees billed by Deloitte & Touche LLP for
audit-related services rendered for the Company for the 2004 fiscal year were
$220,457. The aggregate fees billed by Deloitte & Touche LLP for audit-related
services rendered for the Company and its subsidiaries for the 2003 fiscal year
were $36,245. Audit-related fees in 2004 included fees for financial due
diligence relating to the acquisition of EJ Footwear Group. Audit-related fees
in 2003 generally included fees related primarily to the accounting treatment
and the review of the pro forma financial statements included in a Form 8-K for
the acquisition of certain assets of Gates-Mills, Inc. in April 2003 and other
related matters.
21
TAX FEES. The aggregate fees billed by Deloitte & Touche LLP for
tax-related services rendered for the Company for the 2004 fiscal year were
$86,616. The aggregate fees billed by Deloitte & Touche LLP for tax-related
services rendered for the Company and its subsidiaries for the 2003 fiscal year
were $110,640. The tax-related services were all in the nature of tax compliance
and tax planning.
ALL OTHER FEES. There were no fees billed for services rendered to the
Company by Deloitte & Touche LLP, other than the audit services, audit-related
services, and tax services, for either the 2004 or 2003 fiscal year.
PRE-APPROVAL POLICY. The Audit Committee is required to pre-approve all
auditing services and permitted non-audit services (including the fees and terms
thereof) to be performed for the Company by its independent auditor or other
registered public accounting firm, subject to the de minimus exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange
Act of 1934, as amended, that are approved by the Audit Committee prior to
completion of the audit.
CONCLUSION. Based on the reviews and discussions with management and
Deloitte & Touche LLP noted above, the Audit Committee recommended to the Board
that the Company's audited consolidated financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004
to be filed with the Securities and Exchange Commission. The Audit Committee
also determined that the provision of services other than services described
under "Audit Fees" was compatible with maintaining Deloitte & Touche LLP's
independence.
AUDIT COMMITTEE
Glenn E. Corlett, Chairman
J. Patrick Campbell
G. Courtney Haning
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION / RELATED PARTY
TRANSACTIONS
During 2004, the members of the Compensation Committee were Messrs. Rouda
(Chairman), Stewart, and Finn. None of these members was an executive officer or
employee of the Company or its subsidiaries during or prior to his service as a
member of the Compensation Committee. Certain other directors, executive
officers, and principal shareholders of the Company, or members of their
immediate families, have participated in transactions with, or have had certain
business relationships with, the Company during 2004.
During 2004, the Company leased its 41,000 square foot manufacturing
facility in Nelsonville, Ohio, from the William Brooks Real Estate Company, an
Ohio corporation, 25% of which is owned by Mike Brooks. The Company purchased
the manufacturing facility from William Brooks Real Estate Company in January
2005 for $505,000. The Company believes, based on its knowledge of comparable
properties, that this purchase was made on terms no less favorable to the
Company or its affiliates than it could have obtained from unrelated parties.
Mr. Loveland, a director of the Company, is a partner in the law firm of
Porter, Wright, Morris & Arthur LLP, which provides legal services to the
Company.
22
During 2004, the Company employed certain members of Mr. Brooks' immediate
family. Jason Brooks, Mr. Brooks' son, served as the Company's Vice President of
Sales, Field Accounts, Stuart Brooks, Mr. Brooks' brother, served as the
Company's Vice President of Sales, Work and Duty, and Mark Pitts, Mr. Brooks'
son-in-law, served as the Company's Vice President of Sales, Key Accounts and
each received base salaries and bonuses of $153,600, $156,800, and $175,360,
respectively, in 2004. Additionally, Jay Brooks, Mr. Brooks' brother, served as
an independent contractor to the Company and was paid a total of $88,637 in
2004.
The Company believes that all terms of the transactions and existing
arrangements set forth above are no less favorable to the Company than similar
transactions and arrangements which might have been entered into with unrelated
parties.
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth additional information as of December 31, 2004,
concerning shares of our common stock that may be issued upon the exercise of
options and other rights under our existing equity compensation plans and
arrangements, divided between plans approved by our shareholders and plans or
arrangements not submitted to our shareholders for approval. The information
includes the number of shares covered by, and the weighted average exercise
price of, outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
OF OUTSTANDING OPTIONS, PRICE OF OUTSTANDING (EXCLUDING SECURITIES
WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
(a) (b) (c)
----------------------- ---------------------------- ------------------------
Equity compensation plans
approved by security holders (1) 679,550 $10.03 663,935
Equity compensation plans not
approved by security holders -- -- --
------- ------ -------
Total 679,550 $10.03 663,935
======= ====== =======
----------
(1) Equity compensation plans approved by shareholders include the 1992 Stock
Option Plan, the Second Amended and Restated 1995 Stock Option Plan, and
the 2004 Stock Incentive Plan.
23
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP served as the independent registered public
accountants for the Company for the 2004 fiscal year and throughout the periods
covered by the consolidated financial statements. Representatives of Deloitte &
Touche LLP are expected to attend the Annual Meeting in order to respond to
questions from shareholders, and they will have the opportunity to make a
statement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and greater than 10% shareholders, to file
reports of ownership and changes in ownership of the Company's securities with
the Securities and Exchange Commission. Copies of the reports are required by
SEC regulation to be furnished to the Company. Based on its review of such
reports and written representations from reporting persons, the Company believes
that all filing requirements were complied with during fiscal 2004.
PROPOSALS BY SHAREHOLDERS FOR 2006 ANNUAL MEETING
Each year the Board of Directors submits its nominations for election of
directors at the Annual Meeting of Shareholders. Other proposals may be
submitted by the Board of Directors or the shareholders for inclusion in the
Proxy Statement for action at the Annual Meeting. Any proposal submitted by a
shareholder for inclusion in the Proxy Statement for the Annual Meeting of
Shareholders to be held in 2006 must be received by the Company (addressed to
the attention of the Secretary) on or before December 15, 2005. Any shareholder
proposal submitted outside the processes of Rule 14a-8 under the Securities
Exchange Act of 1934 for presentation at our 2006 annual meeting will be
considered untimely for purposes of Rule 14a-4 and 14a-5 if notice thereof is
received by the Company after March 1, 2006. To be submitted at the meeting, any
such proposal must be a proper subject for shareholder action under the laws of
the State of Ohio.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no other
business that will come before the meeting. Should any other matter requiring a
vote of the shareholders arise, the proxy in the enclosed form confers upon the
persons designated to vote the shares discretionary authority to vote with
respect to such matter in accordance with their best judgment.
The Company's Annual Report to Shareholders for the fiscal year ending
December 31, 2004, including financial statements, was furnished to shareholders
concurrently with the mailing of this proxy material.
By order of the Board of Directors,
Curtis A. Loveland
Secretary
24
ROCKY SHOES & BOOTS, INC.
39 EAST CANAL STREET, NELSONVILLE, OHIO 45764
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 17, 2005
The undersigned hereby appoints MIKE BROOKS, DAVID SHARP, and CURTIS A.
LOVELAND, or any one of them acting alone, my attorneys and proxies, with full
power of substitution to each, to vote all shares of Common Stock which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of said
corporation to be held on May 17, 2005, 4:00 p.m., local time, at Stuarts Opera
House, 34 Public Square, Nelsonville, Ohio 45764, and at any adjournment
thereof, with all of the powers I would have if personally present, for the
following purposes:
1. ELECTION OF CLASS I DIRECTORS
[ ] FOR all nominees listed below (except as marked to the contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees below.
Mike Brooks Glenn E. Corlett Harley E. Rouda, Jr. James L. Stewart
(INSTRUCTIONS: Do not check "WITHHOLD AUTHORITY" to vote for only a
certain individual nominee. To withhold authority to vote for any
individual nominee, strike a line through the nominee's name and check
"FOR").
2. TO TRANSACT such other business as may properly come before the meeting and
any adjournment thereof.
The undersigned gives unto said attorneys and proxies, or substitutes, full
power and authority to do whatsoever in their opinion may be necessary or proper
to be done in the exercise of the power hereby conferred, including the right to
vote for any adjournment, hereby ratifying all that said attorneys and proxies,
or substitutes, may lawfully do or cause to be done by virtue hereof. Any of the
said attorneys and proxies, or substitutes, who shall be present and shall act
at the meeting shall have and may exercise all the powers of said attorneys and
proxies hereunder.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSAL.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Shareholders, dated April 8, 2005, the Proxy Statement and the Annual
Report of the company furnished therewith. Any proxy heretofore given to vote
said shares is hereby revoked.
Please sign and date this Proxy below and return it in the enclosed envelope.
Dated ________________________________, 2005
____________________________________________
(Signature)
____________________________________________
(Signature)
SIGNATURE(s) SHALL AGREE WITH THE NAME(s)
PRINTED ON THIS PROXY. IF SHARES ARE
REGISTERED IN TWO NAMES, BOTH SHAREHOLDERS
SHOULD SIGN THIS PROXY. IF SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE YOUR FULL TITLE
AS SUCH. THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS.