<PAGE> 1
SCHEDULE 14A
(RULE 14A)
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:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
TOLLGRADE COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
----------------------------------------------------
[ X ] No fee required
<PAGE> 2
TOLLGRADE(R)
TOLLGRADE COMMUNICATIONS, INC.
493 NIXON ROAD, CHESWICK, PENNSYLVANIA 15024
MARCH 19, 1997
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1997
To The Shareholders of Tollgrade Communications, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of TOLLGRADE
COMMUNICATIONS, INC. (the "Company") will be held at The Duquesne Club,
325 Sixth Avenue, Pittsburgh, Pennsylvania 15219, on Tuesday, April 22, 1997 at
3:30 p.m., local time, for the purpose of considering and acting upon the
following:
1. The election by the holders of the Common Stock of the Company of two
directors to serve for a three-year term or until their respective
successors shall have been elected and shall have qualified.
2. Amendment of the Company's 1995 Long-Term Incentive Compensation Plan
(the "Plan") to increase the number of shares authorized for issuance
under the Plan and to allow for inclusion of non-employee directors under
the Plan.
3. Such other matters as may properly be brought before the meeting.
The close of business on March 7, 1997 has been fixed by the Board of Directors
as the record date for the determination of shareholders entitled to notice of
and to vote at said meeting.
You will find enclosed a proxy card which should be completed and returned in
order to vote all Common Stock which you hold. The Company's 1996 Annual Report
to Shareholders is also enclosed.
You are cordially invited to attend the Annual Meeting of Shareholders. Whether
or not you plan to attend the meeting, we urge you to please sign, date and
promptly return the enclosed proxy card in the enclosed postage paid envelope
so that your shares may be voted in accordance with your wishes and in order
that the presence of a quorum be assured at the Annual Meeting.
By Order of the Board of Directors,
/s/ SARA M. ANTOL
- ---------------------
Sara M. Antol
Corporate Secretary
1
<PAGE> 3
TOLLGRADE COMMUNICATIONS, INC.
CHESWICK, PENNSYLVANIA 15024
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1997
The solicitation of the proxy or proxies enclosed with this proxy statement is
made on behalf of the Board of Directors of Tollgrade Communications, Inc.
(the "Company"), 493 Nixon Road, Cheswick, Pennsylvania 15024, for the Annual
Meeting of Shareholders to be held on April 22, 1997 at 3:30 p.m. at The
Duquesne Club, 325 Sixth Avenue, Pittsburgh, Pennsylvania 15219. It is expected
that this proxy statement and proxies will be mailed to shareholders on or
about March 19, 1997.
As of the close of business on March 7, 1997 (the "Record Date"), the
Company had 5,662,896 outstanding shares of Common Stock. Holders of Common
Stock of record at the close of business on the Record Date are entitled to
notice of, and to vote on all matters that may properly come before, the Annual
Meeting. Each share of the Company's Common Stock entitles the holder thereof
to one vote on all matters submitted to the shareholders. Under the Company's
Articles, the shareholders do not have cumulative voting rights in the election
of directors. The presence in person or by proxy of shareholders entitled to
cast at least a majority of all votes entitled to be cast at such meeting shall
constitute a quorum.
The proxy solicited hereby may be revoked at any time before its
exercise by giving notice of revocation to the Secretary of the Company or by
executing and delivering a proxy bearing a later date or by attending and
voting at the Annual Meeting of Shareholders or any adjournment thereof.
Unrevoked proxies will be voted at the meeting in accordance with the
specifications made thereon, but in the absence of such specifications will be
voted FOR each proposal. Unsigned and undated proxies will not be voted.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
MANAGEMENT
The following table sets forth certain information as to the beneficial
ownership of the Company's Common Stock as of January 31, 1997 by (i) each
director and nominee, (ii) each of the executive officers named in the Summary
Compensation Table included elsewhere in this Proxy Statement and (iii) all
directors and executive officers as a group. The address of any holder of 5% or
more of the Common Stock is c/o Tollgrade Communications, Inc., 493 Nixon Road,
Cheswick, Pennsylvania 15024. The information in the table concerning
beneficial ownership is based upon information furnished to the Company by or
on behalf of the persons named in the table.
<TABLE>
<CAPTION>
NAME AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP (1) PERCENT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
R. Craig Allison 326,925 (2)(3) 5.7%
Christian L. Allison 174,268 (2)(3) 3.0%
Lawrence A. Arduini 171,442 (3) 3.0%
James J. Barnes -- *
Daniel P. Barry 15,000 (3) *
Rocco L. Flaminio 66,509 (2)(3) 1.2%
Mark C. Frey 7,813 (3)(4) *
Robert W. Kampmeinert 16,500 (3)(5) *
Frederick J. Kiko 140,433 (3)(6) 2.5%
Richard H. Heibel 303,776 (3)(7) 5.3%
All directors and executive officers
as a group (21 persons) 1,305,572 21.8%
</TABLE>
* Less than 1%.
2
<PAGE> 4
(1) Under regulations of the Securities and Exchange Commission (the "SEC"), a
person who has or shares voting or investment power with respect to a
security is considered a beneficial owner of the security. Voting power is
the power to vote or direct the voting of shares, and investment power is
the power to dispose of or direct the disposition of shares. Unless
otherwise indicated in the other footnotes below, each person has sole
voting power and sole investment power as to all shares listed opposite
his or her name.
(2) Includes shares held by the spouses of the following persons in the
following amounts: Mr. R. Craig Allison, 30,000; Mr. Christian L. Allison,
900 shares; Mr. Flaminio, 24,000 shares; and all directors and executive
officers as a group, 55,100 shares. Such persons share voting and
dispositive power with their spouses except for Mr. Christian L. Allison,
as to which shares Mr. Allison has no voting or dispositive power and
disclaims beneficial ownership.
(3) Includes options which are currently exercisable or exercisable within 60
days of January 31, 1997, issued to the following persons for the following
amounts: Mr. R. Craig Allison, 47,800; Mr. Christian L. Allison, 67,018;
Mr. Arduini, 5,000; Mr. Barry, 5,000; Mr. Flaminio, 42,230; Mr. Frey,
3,320; Mr. Kampmeinert, 5,000; Mr. Kiko, 42,261; Dr. Heibel, 65,150; and
all directors and executive officers as a group, 336,332.
(4) Includes 1,636 shares held jointly by Mr. Frey and his wife, as to which
Mr. Frey shares voting and dispositive power.
(5) Includes 10,500 shares held by Parker/Hunter Incorporated, of which
Mr. Kampmeinert is Chairman and Chief Executive Officer, as to which
Mr. Kampmeinert shares voting and dispositive power.
(6) Includes 11,949 shares held by a family partnership, as to which Mr. Kiko
shares voting and dispositive power.
(7) Includes 40,494 shares held in trust for Dr. Heibel's minor son. Also
includes 98,044 shares held in trust for Dr. Heibel's wife, as to which
Dr. Heibel shares voting and dispositive power.
OTHER BENEFICIAL OWNERS
Information with respect to the only other persons known by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock as of the
close of business on January 31, 1997 is as follows:
<TABLE>
<CAPTION>
NAME AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP (1) PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas M. and Shirley Dugan 337,703 6.0%
6694 Knollwood Drive
Erie, PA 16415
</TABLE>
(1) The shares included in the table include 332,703 shares held jointly by
Dr. and Mrs. Dugan and currently exercisable options of Dr. Dugan for 5,000
shares.
ELECTION OF DIRECTORS
Two directors will be elected for a three-year term expiring on the date of the
Annual Meeting of Shareholders to be held in 2000 or until their respective
successors shall have qualified. The Nominating Committee of the Board of
Directors has nominated for election, and the persons named in the enclosed
proxy intend to vote for, the nominees whose names appear below. Although it is
expected that such nominees will be available for election, if any of them
becomes unable or is unwilling to serve at the time the election occurs, it is
intended that shares represented by proxies will be voted for the election of
the other nominees named and such substituted nominees, if any, as shall be
designated by the Company's Board of Directors.
3
<PAGE> 5
The following table sets forth certain information regarding the
nominees and the continuing directors as of the Record Date. Except as
otherwise indicated, each nominee and director has held the principal
occupation listed or another executive position with the same entity for at
least the past five years.
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE PRINCIPAL OCCUPATION; OTHER DIRECTORSHIPS; AGE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nominees for a term expiring in 2000:
James J. Barnes ---- Shareholder and attorney at Buchanan Ingersoll, P.C. (law firm) since
November 1996; prior thereto attorney at Buchanan Ingersoll; Age 35.
Rocco L. Flaminio 1995 Vice Chairman and Chief Technology Officer since October 1993; prior
thereto President; Age 72.
Continuing directors with a term expiring in 1999:
R. Craig Allison 1986 Chairman of the Board since April 1990; also Chief Executive Officer
from April 1990 until September 1995; father of Christian L. Allison,
Chief Executive Officer; Member of the Nominating Committee and the
Investment Committee; Age 56.
Christian L. Allison 1992 Chief Executive Officer since September 1995; also Treasurer since May
1992; also Secretary from May 1992 until April 1996; President from
October 1993 until September 1995; prior thereto Chief Operating Officer;
son of R. Craig Allison, Chairman of the Board; Age 36.
Daniel P. Barry 1995 Private investor; director of AMSCO International, Inc. (manufacturer of
medical equipment) from January 1990 until May 1996 and Vice Chairman
from July 1995 until May 1996; President and Chief Executive Officer of
AMSCO from November 1994 until July 1995; Senior Vice President Finance
and Planning from April 1993 until November 1994; consultant to AMSCO
from March 1993 until April 1993; prior thereto Senior Vice President
Finance & Administration of AMSCO; Director of Respironics, Inc.;
Member of the Audit Committee, the Compensation Committee and the
Investment Committee; Age 49.
Continuing directors with a term expiring in 1998:
Richard M. Heibel, M.D. 1996 Retired in September 1996; prior thereto Cardiologist with Consultants
in Cardiology, Inc.; Member of the Audit Committee and the
Compensation Committee; Age 50.
Robert W. Kampmeinert 1995 Chairman, President and Chief Executive Officer, Parker/Hunter Incorporated
(investment banking firm); Director of Tuscarora Incorporated; Member of
the Audit Committee, the Nominating Committee, the Compensation Committee
and the Investment Committee; Age 53.
</TABLE>
4
<PAGE> 6
VOTE REQUIRED
Only affirmative votes are counted in the election of directors. The two
nominees for election as directors at the Annual Meeting who receive the
highest number of votes cast for the election of directors by the holders of
the Company's Common Stock present in person or voting by proxy, a quorum being
present, will be elected as directors.
BOARD AND COMMITTEE MEETINGS
During 1996 there were eight meetings of the Company's Board of Directors. All
directors attended at least 75% of the total number of meetings of the Board of
Directors and all committees of the Board of which they were members held
during their respective terms as directors. Dr. Heibel was elected to the Board
on October 17, 1996 to fill a vacancy caused by the resignation of Thomas M.
Dugan, M.D. and also joined the Audit Committee and the Compensation Committee
that same date.
The Audit Committee recommends to the Board the engagement of
independent public accountants to audit the financial statements of the
Company, reviews the proposed scope and results of the audit, and reviews the
scope, adequacy and results of the Company's internal audit and control
procedures. The Audit Committee held two meetings in 1996.
The Compensation Committee reviews and makes recommendations to the
Board on salary, incentive compensation practices and benefit programs for the
compensation of the Chief Executive Officer and other key employees, and
recommends to the Board the amount and method of compensation of the Board
members. In order to comply with the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
has a sub-committee of the Compensation Committee called the Stock Compensation
Sub-committee (which does not include Mr. Kampmeinert) which administers the
Company's 1995 Long-Term Incentive Compensation Plan as to employees. The
Compensation Committee held four meetings in 1996.
The Nominating Committee recommends to the Board nominees to fill Board
vacancies and the membership of the committees of the Board when a vacancy
occurs through retirement or otherwise. Section 4.13 of the Company's By-Laws,
a copy of which is available from the Secretary of the Company, sets forth
procedures by which shareholders may nominate candidates for election as
directors. The Nominating Committee held one meeting in 1996.
The Investment Committee is responsible for overseeing the management of
the Company's investments. The Investment Committee held one meeting in 1996.
COMPENSATION OF DIRECTORS
Non-employee directors receive an annual retainer of $10,000, a fee of $750 for
attendance at each Board of Directors meeting and a fee of $500 for attendance
at each committee meeting.
During 1996, the Board made nonstatutory stock option grants in the
amount of 5,000 shares each to non-employee directors Robert W. Kampmeinert,
Daniel P. Barry and Lawrence A. Arduini, and a similar option grant in the
amount of 2,500 shares to non-employee director Dr. Richard H. Heibel. These
option grants were made with an exercise price equal to the fair market value
of the Company's Common Stock at the date of grant, were immediately
exercisable and remain outstanding for a period of ten years. Following his
resignation from the Board, the Board made a nonstatutory stock option grant in
the amount of 5,000 shares to non-employee director Dr. Thomas M. Dugan. This
option grant was made with an exercise price equal to the fair market value of
the Company's Common Stock at the date of grant, was immediately exercisable
and remains outstanding for a period of ten years.
Effective in December 1995, the Board of Directors granted options in
the following amounts to the following non-employee directors upon their
resignation from the Board: Gordon P. Anderson, 11,025 shares; Jeffrey I.
Blake, 7,875 shares; John Guelcher, 15,400 shares; Joseph T. Messina, 18,900
shares; and Dr. Richard H. Heibel, 15,750 shares. Such options became
exercisable upon consummation of the Company's initial public offering at the
offering price of $12.00 per share and expire on December 14, 2005.
If shareholders approve the amendments to the Company's 1995 Long Term
Incentive Compensation Plan, the Board
5
<PAGE> 7
will be permitted to make grants and awards under the Plan from time to time to
non-employee directors.
Mr. Kampmeinert is the President of Parker/Hunter Incorporated, which is
paid fees for services rendered. See the disclosure provided under
"Compensation Committee Interlocks and Insider Participation."
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding compensation
received by the Chief Executive Officer and the four remaining most highly
compensated executive officers of the Company as of December 31, 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION RESTRICTED STOCK SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (1) AWARDS($)(2) OPTIONS(#) COMPENSATION ($)(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christian L. Allison 1996 $ 165,000 $ 81,346 -- 25,000 --
Chief Executive Officer 1995 115,800 -- -- 35,527 $ 144
1994 106,000 15,500 -- 35,000 2,016
R. Craig Allison 1996 165,000 56,346 -- 15,000 2,016
Chairman of the Board 1995 154,000 -- -- 55,800 11,334
1994 120,000 33,282 -- 30,100 3,827
Rocco L. Flaminio 1996 100,000 38,846 -- 12,000 --
Vice Chairman and Chief 1995 100,000 -- -- 4,845 --
Technology Officer 1994 100,000 5,000 -- 35,000 --
Mark C. Frey 1996 103,000 5,181 -- -- --
Senior Vice President, 1995 100,000 -- $ 3,500 4,845 144
Engineering 1994 100,000 5,000 2,275 12,000 144
Frederick J. Kiko 1996 106,000 39,079 -- 12,000 --
Senior Vice President, 1995 101,000 -- -- 4,891 144
Design 1994 101,000 5,000 -- 35,000 144
</TABLE>
(1) A portion of the cash bonuses was awarded to the executive officers
following the end of the fiscal year.
(2) Mr. Frey was awarded 350 restricted shares in 1995 which will all vest in
1998 and 455 restricted shares in 1994 which have all vested. Such
restricted shares were valued at $24,955 in the aggregate at December 31,
1996. Mr. Christian L. Allison and Mr. Kiko hold 3,815 and 2,100 restricted
shares, respectively, which all vested in 1995 and which at December 31,
1996 were valued in the aggregate at $118,265 and $65,100, respectively. If
dividends are ever paid with respect to the Common Stock they also would be
paid with respect to the restricted shares awarded by the Company.
(3) Represents payments made by the Company for life insurance premiums on
behalf of the executive officers.
6
<PAGE> 8
OPTION GRANTS
The following table sets forth information concerning stock option grants made
during 1996 to the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTIONS GRANTED IN 1996
- ----------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS (1)
------------------------------------ POTENTIAL REALIZABLE VALUE
% OF TOTAL OF ASSUMED ANNUAL RATES OF
NO. OF PTIONS GRANTED STOCK PRICE FOR OPTION TERM (2)
SECURITIES UNDERLYING TO EMPLOYEES EXERCISE PRICE/ EXPIRATION -------------------------------
NAME OPTIONS GRANTED (#) IN 1996 SHARE ($/SH) DATE 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christian L. Allison 25,000 14.0% $ 25.75 12/13/06 $ 404,851 $ 1,025,972
R. Craig Allison 15,000 8.4% 25.75 12/13/06 242,911 615,583
Rocco L. Flaminio 12,000 6.7% 25.75 12/13/06 194,328 492,466
Mark C. Frey -- -- -- -- -- --
Frederick J. Kiko 12,000 6.7% 25.75 12/13/06 194,328 492,466
</TABLE>
(1) Options were granted pursuant to the 1995 Long-Term Incentive Compensation
Plan and are first exercisable in three equal installments on December 13,
1996, December 13, 1997 and December 13, 1998. The exercise price per
share was equal to the fair market value of the Company's Common Stock on
the date of grant. Fair market value is the mean of the high and low sales
prices of the Company's Common Stock on the date of grant on the NASDAQ
National Market System as reported in The Wall Street Journal. The
exercise price may be paid in cash, in shares of Common Stock or in any
combination of cash and such shares.
(2) The 5% and 10% assumed annual rates of stock price appreciation do not
reflect actual changes in the fair market value of the Company's Common
Stock since the date of grant. The information in the table is provided
in accordance with the rules of the SEC regarding the disclosure of
compensation of executive officers. The information is not intended to
forecast possible future stock price appreciation, if any.
7
<PAGE> 9
OPTION EXERCISES AND VALUES
The following table sets forth information concerning option exercises made
during 1996 and the value of unexercised options as of December 31, 1996 for
the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED AT DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)(2)
NAME AT EXERCISE (#) VALUE REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christian L. Allison -- -- 67,018 28,509 $1,524,214 $301,973
R. Craig Allison 30,100 $716,380 47,800 23,000 811,432 285,499
Rocco L. Flaminio -- -- 42,230 9,615 1,124,785 68,140
Mark C. Frey -- -- 3,230 1,615 52,280 26,140
Frederick J. Kiko -- -- 42,261 9,630 1,125,281 68,380
</TABLE>
(1) The value realized is the difference between the aggregate fair market
value of the shares acquired upon exercise and the aggregate exercise
price.
(2) The value of unexercised in-the-money stock options is the difference
between aggregate fair market value of shares covered by stock options
with an exercise price less than fair market value at December 31, 1996
and the aggregate exercise price of such stock options.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act that might incorporate future filings, including
this Proxy Statement in whole or in part, the following report and the Stock
Performance Graph appearing elsewhere in this Proxy Statement shall not be
incorporated by reference into any such filings.
REPORT ON EXECUTIVE COMPENSATION
The Company's compensation program for its executive officers is administered
by the Compensation Committee, all of the members of which are non-employee
directors. Until the end of May 1996, the members of the Company's Compensation
Committee were Daniel P. Barry, Robert W. Kampmeinert and Dr. Thomas M. Dugan.
On May 30, 1996, Dr. Dugan resigned from the Board and the Compensation
Committee and from then until October 1996 Messrs. Barry and Kampmeinert
constituted the Compensation Committee. From October 1996 through the end of
the year, Messrs. Barry, Kampmeinert and Dr. Richard H. Heibel constituted the
Compensation Committee. The following report, which is being submitted over the
names of the current members of the Compensation Committee, addresses the
Company's compensation policies for 1996 as they affected the Company's
executive officers, including the Chief Executive Officer and the other
individuals named in the Summary Compensation Table.
8
<PAGE> 10
COMPENSATION PHILOSOPHY
The Company's compensation philosophy is designed to attract and retain key
employees, including the executive officers, of outstanding ability, to
motivate employees to perform to the full extent of their abilities, to ensure
compensation is competitive with other leading companies in the Company's
industry and with companies of similar size, to reward employees for corporate,
group and individual performance and to align the compensation of executive
officers with the creation of long term shareholder value.
COMPENSATION OF EXECUTIVE OFFICERS
BASE SALARY. The Company's compensation program for 1996 consisted of base
salary, bonus and stock option awards under the 1995 Long-Term Incentive
Compensation Plan. In 1996, the base salary level for the Chairman of the
Board, R. Craig Allison, was determined in accordance with the terms of his
employment agreement, which is described elsewhere in this Proxy Statement. In
December 1996, based upon a recommendation of the Compensation Committee, the
Board increased the base salary level payable under this employment agreement
based upon his individual performance and Company performance during 1996.
In 1995, the salaries for the Chairman and the other executive officers
were determined based upon an executive compensation report prepared on the
Company's behalf by Hewitt Associates, a compensation consulting firm, which
used data compiled from national public surveys of officer compensation
covering a variety of executive positions at manufacturing and service
companies comparable in size to the Company. In 1996, the Company utilized a
"3/5/7" standard to determine executive officer salary increases from the 1995
base levels, pursuant to which a performance rating of "meets expectations"
merited a 3% salary increase, a rating of "good" or "exceeds expectations"
merited a 5% salary increase and a rating of "outstanding" merited a 7% salary
increase. The 1996 salaries for executive officers, other than the Chairman and
the Chief Executive Officer, were determined by the Chief Executive Officer by
delegation of authority of the Compensation Committee.
BONUSES. Cash bonuses were paid to the executive officers of the Company in
1996, pursuant to a cash bonus program based upon the financial performance of
the Company. With the Compensation Committee's approval, the Chief Executive
Officer determined the bonuses to be paid to executive officers, other than the
Chairman and the Chief Executive Officer, based upon the officers' position and
responsibilities with the Company as well as performance.
For 1997, the Compensation Committee has approved a Management Incentive
Compensation Plan ("MICP"), applicable to the Chief Executive Officer and all
other executive officers. Bonus determinations for 1997 will be made pursuant
to the MICP. The objectives of the MICP are to: (i) increase the growth and
profitability of the Company in a manner which is consistent with the goals of
the Company, its shareholders and its employees; (ii) provide executive
compensation which is competitive with other high-tech companies and provide
the potential for payment of meaningful cash awards; (iii) attract and retain
personnel of outstanding ability and encourage excellence in the performance of
individual responsibilities; and (iv) motivate and reward those members of
management who contribute to the success of the Company. Awards will be made
under the MICP based upon certain Company performance objectives, taking into
account the effect of the aggregate bonus payment. Individual awards will be
based 80% on the achievement of Company financial goals and 20% on the
achievement of personal goals. All eligible employees are provided with a group
designation which will determine the percentage of their base salary to be paid
as a bonus, provided the performance objectives are met. The MICP will be
administered by the Compensation Committee.
1995 LONG-TERM INCENTIVE COMPENSATION PLAN. Long-term incentive compensation is
provided to eligible employees through the Company's 1995 Long-Term Incentive
Compensation Plan. During 1996, long-term incentive awards, dates, amounts and
recipients were determined by executive management and approved by the
Compensation Committee.
9
<PAGE> 11
Pursuant to such Plan, awards are based upon executive management's subjective
judgment concerning the responsibilities of the individual, the nature and value
to the Company of his or her services, his or her present and/or potential
contribution to the success of the Company and any other factors executive
management deems relevant. After review of the Company's expected 1996 financial
performance, in December 1996 the Compensation Committee granted fair market
value nonstatutory stock options to certain individuals, including executive
officers. In addition, options were granted during the year to selected
individuals, including executive officers, who were new employees as incentives
for employment and to certain key employees whose present performance and
potential for future contributions merited such awards.
These stock option grants are intended to tie the interests of the
executive officers and other employees to the long-term performance of the
Company. Such awards provide an effective incentive for the recipients to
increase shareholder value over the long-term.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In 1996, the compensation for the Chief Executive Officer, Christian L.
Allison, consistent with the philosophy of compensation applied to all
executive officers, included components of base salary, cash bonus and
long-term incentives in the form of stock options. Mr. Allison's 1996 base
salary was determined in accordance with the terms of his employment agreement,
which is described elsewhere in this Proxy Statement. In December 1996, based
upon a recommendation of the Compensation Committee, the Board increased the
base salary level payable under this employment agreement, based upon
individual and Company performance in 1996. In determining the level of
increase in base salary payable to the Chief Executive Officer, the Committee
took into account the "3/5/7" standard applicable to all executive officers and
increased Mr. Allison's salary by 9% based upon significant Company
performance and individual performance.
The Committee also recommended, and the Board approved, payment to Mr.
Allison of a cash bonus in the amount of $81,346. In determining the amount of
bonus, the Committee took into account the Company's significant growth in
sales and earnings in 1996. For 1997, any cash bonus to be paid to Mr. Allison
will be made in accordance with the terms of the MICP. In December 1996, when
options were granted under the 1995 Long-Term Incentive Compensation Plan to
all executive officers, the Committee granted to Mr. Allison 25,000 stock
options. The Committee made the award to Mr. Allison larger than awards to
other executive officers based upon his position as Chief Executive Officer.
TAX POLICY
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
disallows the Company's federal income tax deductions for compensation paid to
the Chief Executive Officer and any of the other four highest compensated
executive officers in excess of $1 million each in any taxable year, subject to
certain exceptions. One exception involves compensation paid pursuant to
shareholder-approved compensation plans that are performance-based. The
Company's 1995 Long Term Incentive Compensation Plan is structured to permit
grants of stock options and certain other awards under such Plan to be eligible
for this performance-based exception (so that compensation upon exercise of
such options or receipt of such awards, as the case may be, should be
deductible under the Code). Payments of cash compensation to executives (and
certain other benefits which could be awarded under the Plan, such as
restricted stock) are not at present eligible for this performance-based
exception, although such payments are currently not close to the $1 million
limit. The Committee has taken and intends to continue to take whatever actions
are necessary to minimize, if not eliminate, the Company's non-deductible
compensation expense, while maintaining, to the extent possible, the
flexibility which the Committee believes to be an important element of the
Company's executive compensation program.
Daniel P. Barry
Dr. Richard H. Heibel
Robert W. Kampmeinert
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EMPLOYMENT AGREEMENTS
R. Craig Allison and Christian L. Allison are employed pursuant to employment
agreements with the Company dated December 13, 1995. Each agreement provides
for a base annual salary of $165,000, with such increases as the Compensation
Committee may determine. The employee is entitled to receive annual bonuses
based upon the achievement of performance objectives established by the
Compensation Committee. Each agreement is for an initial term of two years and
is automatically extended for successive additional terms of one year each,
unless terminated by either the Company or the employee. On the first annual
anniversary of the employment agreements, the Board of Directors increased the
base salaries to $180,000 under each agreement, which were amended effective
December 13, 1996 to reflect these increases.
Each agreement provides for certain severance payments upon termination
of employment. Such payments vary depending upon whether a "change in control"
of the Company (as defined below) has occurred. If, within six months prior to
a change in control or three years after a change in control, the employee's
employment is terminated by the Company for any reason other than "for cause"
(as defined in the agreements), or is terminated by the employee after a change
in control "for good reason" (as defined in the agreements), the employee is
entitled to a severance payment of a maximum of three times the sum of (i) the
employee's annual base salary at the time of termination or change in control
plus (ii) the average annual cash award received by the employee as incentive
compensation or bonus for the two calendar years preceding the time of
termination or change in control.
If, absent a change in control, the employee's employment is terminated
by the Company for any reason other than for cause, the employee is entitled to
a severance payment of a maximum of two times the sum of (i) the employee's
annual base salary at the time of termination plus (ii) the average annual cash
award received by the employee as incentive compensation or bonus for the two
calendar years preceding the time of termination.
If the employee's employment is terminated at the end of any term of the
agreement by the Company upon giving notice at least six months prior to the
end of the then term of the agreement, the Company is required to pay to the
employee a severance amount of two times base salary plus bonus (if no change
in control has occurred) or three times base salary plus bonus (if a change in
control has occurred).
If the employee's employment is terminated by the Company for cause, by
the employee other than for good reason after a change in control, or as a
result of the employee's death, disability or retirement, no severance payment
is due.
As used in the employment agreements, "change in control" means the
determination (which may be made effective as of a particular date specified by
the Board) by the Board that a change in control has occurred, or is about to
occur. Such a change does not include, however, a restructuring,
reorganization, merger, or other change in capitalization in which the persons
who own an interest in the Company as of the date of the employment agreements
maintain more than a 65% interest in the resultant entity. Regardless of the
Board's vote or whether or not the Board votes, a change in control will be
deemed to have occurred as of the first day any one or more of the following
subparagraphs is satisfied:
(i) Any person (other than the person in control of the Company as of
the date of the employment agreement, or other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or a corporation owned directly or indirectly by the
shareholders of the Company in substantially the same proportions as
their ownership of the stock of the Company) becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing more than 35% of the combined voting power of the
Company's then outstanding securities; or
(ii) The shareholders of the Company approve:
(a) A plan of complete liquidation of the Company; or
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<PAGE> 13
(b) An agreement for the sale or disposition of all or substantially
all of the Company's assets; or
(c) A merger, consolidation, or reorganization of the Company with or
involving any other corporation, other than a merger, consolidation,
or reorganization that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 65% of the combined
voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger,
consolidation or reorganization.
However, in no event will a change in control be deemed to have occurred with
respect to the executive if the executive is part of a purchasing group which
consummates the change in control transaction.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into change in control agreements with each of its
executive officers. These agreements are not employment agreements and do not
guarantee the continuation of employment for any particular period of time.
Each agreement provides for certain severance payments to the executive
officers upon termination of employment as a result of a change in control of
the Company. If within six months prior to a change in control or three years
after a change in control, the executive officer's employment is terminated by
the Company after a change in control "for good reason" (as defined in the
agreements), the executive officer is entitled to a severance payment of a
maximum of two times the sum of (i) the executive officer's annual base salary
at the time of the change in control, plus (ii) the average annual cash award
received by the executive officer as incentive compensation or bonus for the
two calendar years preceding the time of termination or change in control. As
used in these agreements, "change in control" is defined the same way as such
term is used in the employment agreements with Messrs. Allison, as described
above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert W. Kampmeinert, a director of the Company and a member of the
Compensation Committee, is Chairman and Chief Executive Officer of
Parker/Hunter Incorporated, an investment banking firm. Parker/Hunter has
performed investment banking services on behalf of the Company during 1996 and
it is expected that the Company will continue to utilize Parker/Hunter's
services during 1997.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following line graph compares percentage changes in the cumulative total
return on the Company's Common Stock against the cumulative total return of the
Standard & Poor's Composite 500 Stock Index and the Nasdaq Telecommunications
Index (measured in accordance with the rules of the SEC for the period
commencing December 14, 1995 (the day of the Company's initial public offering)
and ending December 31, 1996). This graph assumes a $100 investment on December
14, 1995 and assumes the reinvestment of dividends.
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[GRAPH]
TOLLGRADE NASDAQ S&P
--------- ------ ---
12/14/95 100 100 100
12/29/95 125 102.23 99.84
12/31/96 258.33 104.51 122.76
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Such persons are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms which
they file. In connection with his initial report of ownership filed in December
1995, Joseph P. Giannetti, Vice President of Human Resources, Safety and
Security, failed to include 140 shares in the total number of shares
beneficially owned by Mr. Giannetti. In 1996, R. Craig Allison, Chairman of
the Board, failed to timely report one sale of stock and Renee L. Sanders,
former Controller of the Company, failed to timely report two sales of stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James J. Barnes is a shareholder of Buchanan Ingersoll, P.C. which performs
certain legal services for the Company. Also see the disclosure provided under
"Compensation Committee Interlocks and Insider Participation."
AMENDMENT OF 1995 LONG-TERM INCENTIVE COMPENSATION PLAN
The Company's 1995 Long-Term Incentive Compensation Plan (the "Plan") was
adopted by the Board of Directors on October 16, 1995, approved by the
shareholders on November 12, 1995, became effective on November 15, 1995 and
was amended by the Board of Directors on March 6, 1996 in certain respects
which did not materially increase the benefits afforded to participants.
Certain other amendments (the "Amendments") to the Plan were adopted by the
Company's Board of Directors on February 17, 1997, as described below. The
affirmative vote of a majority of the votes cast in person or by proxy at a
meeting in which the holders of at least a majority of the outstanding shares
of the Company's Common Stock are present and voting is required for approval
of adoption of the Amendments to the Plan (such Plan, including the Amendments,
is referred to herein as the "Amended Plan"). If the shareholders of the
Company do not approve the Amendments as proposed in this Proxy Statement, the
Plan shall remain in effect without including the Amendments. The principal
features of the Amended Plan are summarized below. Such summary, however, is
qualified in its entirety by the
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full text of the Amended Plan, which is set forth as Exhibit A to this Proxy
Statement.
DESCRIPTION OF THE AMENDED PLAN
AMENDMENTS. The description of the Amended Plan provided below includes the
Plan as amended by the Amendments. In general, the Amendments were adopted to
(i) increase the number of shares available under the Plan from 500,000 shares
to 875,000 shares; (ii) add the ability for non-employee directors of the
Company to be provided grants and awards under the Plan; (iii) make certain
changes permitted as a result of the amendments made to Rule 16b-3 under the
Exchange Act; and (iv) make other minor technical and conforming changes.
GENERAL. The objectives of the Amended Plan are to optimize the profitability
and growth of the Company through incentives which are consistent with the
Company's goals and which link the personal interests of participants in the
Plan to those of the Company's shareholders; to provide participants with an
incentive for excellence in individual performance; and to promote teamwork
among participants. The Amended Plan is further intended to provide flexibility
to the Company in its ability to motivate, attract, and retain the services of
employees and non-employee directors who make significant contributions to the
Company's success and to allow participants to share in the success of the
Company. All employees of the Company (including, but not limited to, covered
employees as defined in Section 162(m)(3) of the Code (hereinafter, a "Named
Executive Officer")) and all directors who are not also employees of the
Company are eligible to be granted stock options and other awards under the
Amended Plan.
The aggregate number of shares of the Company's Common Stock which may
be issued under the Amended Plan is 875,000 shares (no more than 150,000 of
which may be restricted shares), subject to proportionate adjustment in the
event of stock splits and similar events. The maximum number of shares which
may be awarded under the Amended Plan to any one Named Executive Officer during
the life of the Amended Plan is 100,000 shares, subject to adjustment and
substitution as set forth in Section 4 of the Plan. The maximum aggregate cash
payout received in any fiscal year by a Named Executive Officer with respect to
awards granted is $1,000,000. No awards may be granted under the Amended Plan
on or after October 15, 2005.
If any award granted under the Amended Plan is canceled or terminates,
expires or lapses for any reason, the number of shares subject to the award
will again be available for purposes of the Amended Plan, except that to the
extent tandem stock appreciation rights are granted in conjunction with a stock
option under the Amended Plan and either the stock option or the tandem stock
appreciation rights are exercised and the related tandem stock appreciation
rights or stock option is surrendered, the number of shares available for
purposes of the Amended Plan will be reduced by the number of shares of Common
Stock issued upon exercise of the stock option or tandem stock appreciation
rights, as the case may be.
ADMINISTRATION. Except as set forth in the second succeeding sentence, the
Amended Plan is required to be administered by a committee appointed by the
Board of Directors and consisting of not less than two members of the Board who
are "non-employee" directors as such term is used under the Rule 16b-3 under
Exchange Act. The Board has appointed the Stock Compensation Sub-committee (the
"Committee") of the Compensation Committee of the Board as the Committee to
administer the Amended Plan. Unless otherwise determined by the Board, the
Board and not the Committee will make awards under and administer the Plan with
respect to non-employee directors. As used herein, the term "Appropriate
Administrator" means the Committee as it relates to administration with respect
to awards to employees, and the Board as it relates to administration with
respect to awards of non-employee directors.
The Appropriate Administrator has the power to construe and interpret
the Amended Plan and to prescribe rules, regulations and procedures in
connection with the operation of the Amended Plan. All questions of
interpretation and application of the Amended Plan, or as to grants or awards
under the Amended Plan, are subject to the determination of the Appropriate
Administrator, which will be final and binding.
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<PAGE> 16
The Appropriate Administrator has full authority, in its discretion, to
grant awards under the Amended Plan and to determine the participants to whom
awards will be granted and the number of shares to be covered by each award. In
determining the eligibility of any participant, as well as in determining the
number of shares to be covered by an award and the type or types of awards to
be made, the Appropriate Administrator may, in its discretion, consider the
position and the responsibilities of the participants being considered, the
nature and value to the Company of the participant's services, the
participant's present and/or potential contribution to the success of the
Company and such other factors as the Appropriate Administrator may deem
relevant.
STOCK OPTIONS. The Committee has authority, in its discretion, to grant
incentive stock options (stock options qualifying under Section 422 of the
Code), nonstatutory stock options (stock options not qualifying under Section
422 of the Code) or both types of stock options (but not in tandem) to
employees. The Board has authority, in its discretion, to grant nonstatutory
stock options to non-employee directors. The Appropriate Administrator may
grant tandem stock appreciation rights in conjunction with incentive stock
options or nonstatutory stock options and may grant freestanding stock
appreciation rights, as set forth below.
The option price for each stock option will be such price as the
Appropriate Administrator, in its discretion, determines but will not be less
than 100% of the fair market value of the Common Stock on the date of grant of
the stock option, except that in the case of an incentive stock option granted
to an employee who owns more than 10% of the outstanding shares of the
Company's Common Stock (a "Ten Percent Employee"), the option price will not be
less than 110% of such fair market value. Fair market value for all purposes
under the Amended Plan shall be the mean between the highest and lowest sales
price per share of the Company's Common Stock as quoted in the Nasdaq National
Market Issues listing in The Wall Street Journal for the date as of which fair
market value is determined. On March 7, 1997, the fair market value of a share
of the Company's Common Stock, as so computed, was $22.625.
Each stock option will be exercisable at such time or times as the
Appropriate Administrator, in its discretion, determines, except that no stock
option will be exercisable after the expiration of ten years (five years in the
case of an incentive stock option granted to a Ten Percent Employee) from the
date of grant. A stock option to the extent exercisable at any time may be
exercised in whole or in part.
Unless the Committee, in its discretion, otherwise determines, the
following provisions in this paragraph will apply in the event of the
termination of employment of the optionee. If the employment of the optionee is
voluntarily terminated with the consent of the Company, or the optionee retires
under any retirement plan of the Company, all outstanding stock options held by
the optionee will be exercisable by the optionee (but only to the extent
exercisable immediately prior to the termination of employment) at any time (i)
prior to the expiration date of the stock option or within three months after
the date of termination of employment, whichever is the shorter period, in the
case of an incentive stock option, or (ii) prior to the expiration date of the
stock option or within one year after the date of termination of employment,
whichever is the shorter period, in the case of a nonstatutory stock option,
and to the extent not exercisable will terminate. If the employment of the
optionee is voluntarily terminated because the optionee is a "disabled grantee"
within the meaning of Section 422(c)(6) of the Code, all outstanding stock
options held by the optionee will be exercisable by the optionee (whether or
not so exercisable immediately prior to the termination of employment) at any
time prior to the expiration date of the stock option or within one year after
the date of termination of employment, whichever is the shorter period.
Following the death of the optionee during employment, all outstanding stock
options held by the optionee at the time of death will be exercisable in full
(whether or not so exercisable immediately prior to the death of the optionee)
by the person entitled to do so under the Will of the optionee, or, if the
optionee shall fail to make testamentary disposition of the stock option or
shall die intestate, by the legal representative of the optionee, at any time
prior to the expiration date of the stock option or within one year after the
date of death of the optionee, whichever is the shorter period. Following the
death of the optionee after termination of employment, all outstanding stock
options held by the optionee at the time of death
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<PAGE> 17
will be exercisable in full (but only to the extent exercisable immediately
prior to the death of the optionee) by the person entitled to do so under the
Will of the optionee, or, if the optionee shall fail to make testamentary
disposition of the stock option or shall die intestate, by the legal
representative of the optionee, at any time prior to the expiration date of the
stock option or within one year after the date of death of the optionee,
whichever is the shorter period. If the employment of an optionee terminates for
any reason other than voluntary termination with the Company's consent,
retirement under a retirement plan, or death, all outstanding stock options of
such terminated optionee shall automatically expire.
Unless the Board, in its discretion, otherwise determines, the following
provisions of this paragraph will apply in the event of termination of Board
service of a non-employee director. If a non-employee director ceases to be a
Director of the Company for any reason other than resignation, removal for
cause or death, any then outstanding stock option held by such non-employee
director will be exercisable by the non-employee director (but only to the
extent exercisable by the non-employee director immediately prior to ceasing to
be a Director) at any time prior to the expiration date of such stock option or
within one year after the date the non-employee director ceases to be a
Director, whichever is the shorter period. If during his or her term of office
as a Director a non-employee director resigns from the Board (which does not
include not standing for reelection at the end of his or her then current term)
or is removed from office for cause, any then outstanding stock option held by
such non-employee director will be exercisable by the non-employee director
(but only to the extent exercisable by the non-employee director immediately
prior to ceasing to be a Director) at any time prior to the expiration date of
such stock option or within 90 days after the date of resignation or removal,
whichever is the shorter period. Following the death of a non-employee director
during service as a Director of the Company, any outstanding stock option held
by the non-employee director at the time of death (whether or not exercisable
by the non-employee director immediately prior to death) will be exercisable by
the person entitled to do so under the Will of the non-employee director, or,
if the non-employee director shall fail to make testamentary disposition of the
stock option or dies intestate, by the legal representative of the non-employee
director, at any time prior to the expiration date of such stock option or
within one year after the date of death, whichever is the shorter period.
Following the death of a non-employee director after ceasing to be a Director,
any outstanding stock option held by such non-employee director at the time of
death shall be exercisable (but only to the extent exercisable by the
non-employee director immediately prior to death) by such person entitled to do
so under the Will of the non-employee director or by such legal representative
at any time prior to the expiration date of such stock option or within one
year after the date of death, whichever is the shorter period.
The option price for each stock option will be payable in full in cash
at the time of exercise; however, in lieu of cash the person exercising the
stock option may pay the option price in whole or in part by delivering to the
Company previously owned shares of the Company's Common Stock having a fair
market value on the date of exercise of the stock option equal to the option
price for the shares being purchased. The Appropriate Administrator will also
cooperate with any optionee who participates in a cashless exercise program
through a broker or other agent.
For incentive stock options, the aggregate fair market value (determined
on the date of grant) of the shares with respect to which incentive stock
options are exercisable for the first time by an employee during any calendar
year under all plans of the corporation employing such employee, any parent or
subsidiary corporation of such corporation and any predecessor corporation of
any such corporation shall not exceed $100,000. If the exercise date of
incentive stock options is accelerated pursuant to any provision of the Amended
Plan or any agreement (see "Change in Control" below) and the acceleration
would result in a violation of this limitation, then, subject to the provisions
of the next sentence, the exercise dates of such incentive stock options will
be accelerated only to the extent, if any, that does not result in a violation
of such limitation and, in any such event, the exercise dates of the incentive
stock options with the lowest option prices will be accelerated first. The
Committee may, in its discretion, authorize the acceleration of the exercise
date of one or more incentive stock options even if such acceleration would
violate the $100,000 limitation and even if such incentive stock options would
as a result be converted in whole or in part into nonstatutory stock options.
Subject to the foregoing and the other provisions of the Amended Plan,
stock options granted under the Amended
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Plan may be exercised at such times and in such amounts and be subject to such
restrictions and other terms and conditions, if any, as are determined, in its
discretion, by the Appropriate Administrator.
FREESTANDING STOCK APPRECIATION RIGHTS AND TANDEM STOCK APPRECIATION RIGHTS.
The Appropriate Administrator may grant stock appreciation rights either
separately ("Freestanding stock appreciation rights") or in tandem with a stock
option ("Tandem stock appreciation rights"). Tandem stock appreciation rights
granted in conjunction with an incentive stock option may only be granted at
the time of the stock option grant. Tandem stock appreciation rights granted in
conjunction with a nonstatutory stock option may be granted either at the time
the stock option is granted or at any time during the term of the stock option.
Freestanding stock appreciation rights entitle the person exercising
them to receive from the Company a payment with an aggregate fair market value
on the date of exercise equal to the excess of the fair market value of one
share on such date over the grant price per share, multiplied by the number of
shares covered by the stock appreciation rights, or portion thereof, which are
exercised. For Freestanding stock appreciation rights, the grant price per
share may not be less than the fair market value of a share of Common Stock on
the date the Freestanding stock appreciation rights are granted.
Tandem stock appreciation rights entitle the person exercising them to
surrender the related stock option or any portion thereof without exercising
the stock option and to receive from the Company payment in an amount equal to
the excess of the fair market value of one share on such date over the grant
price per share, multiplied by the number of shares covered by the stock
option, or portion thereof, which is surrendered. For Tandem stock appreciation
rights, the grant price per share will be the same as the option price of the
related stock option.
The Appropriate Administrator will have the authority, in its
discretion, to determine whether the obligation of the Company on exercise of
stock appreciation rights will be paid in shares of Common Stock, in cash, or
partly in cash and partly in shares of Common Stock.
Freestanding stock appreciation rights may be exercised during the term
specified by the Appropriate Administrator, provided that no Freestanding stock
appreciation right may be exercised after the expiration of ten years from the
date of grant. Tandem stock appreciation rights are exercisable to the extent
that the related stock option is exercisable and only by the same person who is
entitled to exercise the related stock option.
RESTRICTED SHARES. Restricted shares of the Company's Common Stock may be
awarded by the Appropriate Administrator which will be subject to such
restrictions (which may include restrictions on the right to transfer or
encumber the shares while subject to restriction) as the Appropriate
Administrator may impose thereon and be subject to forfeiture if certain events
(which may, in the discretion of the Appropriate Administrator, include
termination of employment or service on the Board) specified by the Appropriate
Administrator occur prior to the lapse of the restrictions. The number of
restricted shares awarded to the grantee, the restrictions imposed thereon, the
duration of the restrictions, the events the occurrence of which would cause a
forfeiture of the restricted shares and such other terms and conditions as the
Appropriate Administrator, in its discretion, deems appropriate will be set
forth in a restricted share agreement between the Company and the grantee.
Following a restricted share award and prior to the lapse or termination
of the applicable restrictions, share certificates for the restricted shares
will be held by the Company in escrow. The Appropriate Administrator, in its
discretion, may determine that dividends and other distributions on the shares
held in escrow will not be paid to the grantee or will not be paid to the
grantee until the lapse or termination of the applicable restrictions. Upon the
lapse or termination of the restrictions (and not before), the share
certificates will be delivered to the grantee. From the date a restricted share
award is effective, however, the grantee will be a shareholder with respect to
the restricted shares and will have all the rights of a shareholder with
respect to the shares, including the right to vote the shares and to receive
all dividends and other distributions paid with respect to the shares, subject
only to the preceding provisions of this paragraph and the other restrictions
imposed by the Appropriate Administrator.
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PERFORMANCE UNITS AND PERFORMANCE SHARES. The Appropriate Administrator may
award performance units and/or performance shares which will entitle the grantee
to receive a payment (in any combination of cash or shares of Common Stock)
equal to the fair market value of shares of the Company's Common Stock covered
by the award at the end of a specified award period contingent upon the extent
to which one or more predetermined performance targets are satisfied during the
award period. Subject to the next succeeding section, the performance target or
targets may be expressed in terms of goals or other such measures of
accomplishment by the grantee, the Company, or any branch, department or other
portion thereof, as may be established, in its discretion, by the Appropriate
Administrator. The performance target or targets and such other terms and
conditions of the award of the performance shares as the Appropriate
Administrator, in its discretion, deems appropriate will be set forth in a
performance share agreement between the Company and the grantee.
At any time prior to the end of an award period, the Appropriate
Administrator may adjust the determination of the degree of attainment of the
preestablished performance goals, except that the Committee cannot adjust
awards to Named Executive Officers in a manner contrary to Section 162(m) of
the Code. The Appropriate Administrator, in its discretion, may determine that
grantees are entitled to any dividends or other distributions that would have
been paid on earned performance shares had the shares been outstanding during
the period from the award to the payment of the performance shares, provided
that such dividends or other distribution will be subject to reductions prior
to the satisfaction of the performance targets.
If prior to the close of an award period the employment or service on
the Board of a grantee of performance units or performance shares is terminated
due to disability, retirement or death, the grantee shall receive a prorated
portion of the performance units or performance shares based upon the extent to
which the Appropriate Administrator determines the performance target or
targets have been achieved and such other factors the Appropriate Administrator
may deem relevant. In the case of any Named Executive Officer who retires
during a performance period, however, payment will be made at the same time as
payments are made to those employees who did not terminate employment during
the performance period. Unless otherwise specified in the performance unit or
performance share agreement, if the employment or service on the Board of a
grantee of an award of performance units or performance shares terminates prior
to the time the performance units or performance shares have been earned for
any other reason, the unearned performance units or performance shares will be
deemed not to have been earned.
PERFORMANCE MEASURE. Unless and until the Committee proposes for a shareholder
vote and shareholders approve a change in the general performance measures set
forth in the Plan, the attainment of which may determine the degree of payout
or vesting with respect to awards to Named Executive Officers which are
designed to qualify for the performance based exception to the $1 million
compensation deduction limitation provided for in Section 162(m) of the Code,
the performance measures to be used for purposes of such grants shall be chosen
from among the following alternatives:
(a) revenues of the Company or any specified division;
(b) percentage increase over a specified period in revenues of the
Company or any specified division;
(c) expenses or any designated category of expenses of the Company or
any specified division;
(d) percentage decrease over a specified period in expenses or any
designated category of expenses of the Company or any specified
division;
(e) pretax or after-tax income of the Company or any specified
division; and
(f) percentage increase over a specified period in pretax or
after-tax income of the Company or any specified division.
The Committee has the discretion to adjust the determinations of the degree of
attainment of the preestablished performance goals, but awards which are
designed to qualify for the performance based exception (and which are held by
Named Executive Officers) may not be adjusted upward (the Committee shall
retain the discretion to adjust such awards downward).
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In the event that applicable tax or securities laws change to permit the
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee will have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant awards which shall not qualify for the performance based exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
CHANGE IN CONTROL. The Amended Plan provides for certain additional rights upon
the occurrence of a "Change in Control," as summarized below and more
particularly defined in Section 2.6 of the Amended Plan. Upon the occurrence of
a Change in Control:
(a) Any and all stock options and stock appreciation rights granted
under the Amended Plan shall become immediately exercisable,
and shall remain exercisable throughout their entire term;
(b) Any restriction periods and restrictions imposed on restricted
shares shall lapse;
(c) The target payout opportunities attainable under all
outstanding awards of restricted shares, performance units and
performance shares shall be deemed to have been fully earned
for the entire performance periods as of the effective date of
the Change in Control. The vesting of all awards denominated in
shares of Common Stock shall be accelerated as of the effective
date of the Change in Control, with certain exceptions; and
(d) The Appropriate Administrator shall have the authority to make
any modifications to the awards as determined by the Appropriate
Administrator to be appropriate before the effective date of the
Change in Control.
A "Change in Control" of the Company shall be deemed to have occurred (as of a
particular day, as specified by the Board) if the Board by a majority vote
agrees that a Change in Control has occurred, or is about to occur. Such a
change shall not include, however, a restructuring, reorganization, merger, or
other change in capitalization in which the persons who own an interest in the
Company on October 16, 1995 (the "Current Owners") (or any individual or entity
which receives from a Current Owner an interest in the Company through Will or
the laws of descent and distribution) maintain more than a fifty percent (50%)
interest in the resultant entity.
Regardless of the Board's vote, a Change in Control will be deemed to
have occurred as of the first day any one or more of the following paragraphs
are satisfied:
(a) Any person or group (other than the Current Owners, or other than
a trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or a corporation owned directly or
indirectly by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company)
becomes the beneficial owner, directly or indirectly, of securities
of the Company representing more than fifty percent (50%)
of the combined voting power of the Company's then outstanding
securities; or
(b) The shareholders of the Company approve: (i) a plan of
complete liquidation of the Company; (ii) an agreement for the
sale or disposition of all or substantially all of the Company's
assets (other than one in which in the shareholders of the Company,
as determined immediately prior to such transaction, hold, directly
or indirectly, as determined immediately following such
transaction, a majority of the voting power of each surviving,
resulting or acquiring corporation which, immediately following
such transaction, holds more than 10% of the
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consolidated assets of the Company immediately prior to the
transaction); or (iii) a merger, consolidation, or reorganization
of the Company with or involving any other corporation, other than
a merger, consolidation, or reorganization that would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity)
at least fifty percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation, or
reorganization.
WITHHOLDING. Income or employment taxes may be required to be withheld by the
Company in connection with the exercise of a nonstatutory stock options or
stock appreciation rights, at the time restricted shares are awarded or vest or
performance units or performance shares are earned or upon the receipt by the
optionee or grantee of cash in payment of dividends on restricted shares which
have not vested or dividends on performance units or performance shares at the
time of vesting. The optionee or grantee will be required to pay the Company
the amount required to be withheld in cash, except that the optionee or grantee
may elect to have shares of the Company's Common Stock which would otherwise be
received withheld, or may elect to deliver previously owned shares of the
Company's Common Stock to the Company to satisfy the withholding obligation.
MISCELLANEOUS. The Board of Directors may amend or terminate the Amended Plan
at any time, provided that without shareholder approval no amendment of the
Amended Plan which requires shareholder approval in order for the Amended Plan
to continue to comply with Rule 16b-3 under the Exchange Act, including any
successor rule, shall be made without such required approval. No amendment or
termination of the Amended Plan may, without the written consent of the holder
of an outstanding grant or award under the Amended Plan, adversely affect the
rights of such holder with respect thereto.
No stock option, stock appreciation right or performance unit or share
award granted under the Amended Plan will be transferable other than by Will or
by the laws of descent and distribution and the same may be exercised during an
participant's lifetime only by the participant.
The terms and conditions of each grant and award under the Plan will be
set forth in an agreement between the Company and the participant.
The Appropriate Administrator may permit or require a participant to
defer such participant's receipt of the payment of cash or the delivery of
shares that would otherwise be due to such participant by virtue of the
exercise of an option or stock appreciation right, the lapse or waiver of
restrictions with respect to restricted stock, or the satisfaction of any
requirements or goals with respect to performance unit shares. If any such
deferral election is required or permitted, the Appropriate Administrator will,
in its sole discretion, establish rules and procedures for such payment
deferrals.
If an optionee or grantee of restricted shares, performance units, or
performance shares (i) engages in the operation or management of a business
which is in competition with the Company, (ii) induces or attempts to induce
any person having a business relationship with the Company to cease doing
business with the Company or in any way interferes with any such business
relationship or (iii) solicits any employee of the Company to leave the
employment thereof or in any way interferes with such employment relationship,
the Appropriate Administrator, in its discretion, may terminate all outstanding
options held by the optionee, immediately declare forfeited all restricted
shares held by the grantee as to which the restrictions have not yet lapsed or
cancel the performance unit or performance share award made to the grantee.
This paragraph does not apply, however, if the restrictions on the restricted
shares have lapsed or the performance shares are deemed to have been fully
earned as a result of the occurrence of a Change in Control.
Each person who is or was a member of the Committee or of the Board will
be indemnified and held harmless by the Company against certain liabilities for
acting as such.
The antidilution provisions of the Amended Plan also provide in certain
events for proportionate adjustments to awards and prices (i.e., option
exercise price).
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POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the Amended Plan providing for the acceleration of the
exercise date of stock options, the lapse of restrictions applicable to
restricted shares and the deemed earnout of performance units and performance
shares upon the occurrence of a Change in Control may be considered as having an
anti-takeover effect.
SECTION 16(b) UNDER THE EXCHANGE ACT
Under Section 16(b) of the Exchange Act, Directors and officers of the Company
are liable to the Company for any profits realized by them on the purchase and
sale (or sale and purchase) of any shares of Common Stock within any period of
less than six months. Under certain circumstances, a transaction after a person
ceases to be a Director or officer may be matched with a transaction prior to
the time the person ceases being a Director.
Under Rule 16b-3 adopted by the SEC under the Exchange Act, under most
circumstances neither the grant to a Director or officer of a stock option,
stock appreciation right, restricted share award or performance unit or
performance share award under the Plan nor the acquisition of shares of Common
Stock by a Director or officer upon the exercise of a stock option, stock
appreciation right or performance unit award is considered a purchase for
Section 16(b) purposes. Also, under most circumstances under Rule 16b-3, the
delivery to the Company by a Director or officer of shares of already-owned
Common Stock in payment of the option price upon exercise of a stock option
granted under the Plan is not considered a sale for Section 16(b) purposes. The
sale of shares of Common Stock acquired by a Director or officer of the Company
under the Plan may, however, be matched for Section 16(b) purposes with a
purchase of Common Stock (other than under the Plan) by the Director or officer
within six months before or six months after the sale.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of awards under present law.
INCENTIVE STOCK OPTIONS
An optionee will not recognize any taxable income for Federal income tax
purposes upon receipt of an incentive stock option or, generally, at the time
of exercise of an incentive stock option. The exercise of an incentive stock
option generally will result in an increase in an optionee's taxable income for
alternative minimum tax purposes.
If an optionee exercises an incentive stock option and does not dispose
of the shares received in a subsequent "disqualifying disposition" (generally,
a sale, gift or other transfer within two years after the date of grant of the
incentive stock option or within one year after the shares are transferred to
the optionee), upon disposition of the shares any amount realized in excess of
the optionee's tax basis in the shares disposed of will be treated as a
long-term capital gain, and any loss will be treated as a long-term capital
loss. In the event of a "disqualifying disposition," the difference between the
fair market value of the shares received on the date of exercise and the option
price (limited, in the case of a taxable sale or exchange, to the excess of the
amount realized upon disposition over the optionee's tax basis in the shares)
will be treated as compensation received by the optionee in the year of
disposition. Any additional gain will be taxable as a capital gain and any loss
as a capital loss, which will be long-term or short-term depending on whether
the shares were held for more than one year. Under proposed regulations,
special rules apply in determining the compensation income recognized upon a
disqualifying disposition if the option price of the incentive stock option is
paid with shares of Common Stock. If shares of Common Stock received upon the
prior exercise of an incentive stock option are transferred to the Corporation
in payment of the option price of an incentive stock option within either of
the periods referred to above, the transfer will be considered a "disqualifying
disposition" of the shares transferred, but, under proposed regulations, only
compensation income determined as stated above, and no capital gain or loss,
will be recognized.
The Company will not be entitled to a deduction with respect to shares
received by an optionee upon exercise of an
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incentive stock option and not disposed of in a "disqualifying disposition." If
an amount is treated as compensation received by an optionee because of a
"disqualifying disposition," the Company generally will be entitled to a
corresponding deduction in the same amount for compensation paid.
NONSTATUTORY STOCK OPTIONS
An optionee will not recognize any taxable income for Federal income tax
purposes upon receipt of a nonstatutory stock option. Upon the exercise of a
nonstatutory stock option the amount by which the fair market value of the
shares received, determined as of the date of exercise, exceeds the option
price will be treated as compensation received by the optionee in the year of
exercise. If the option price of a nonstatutory stock option is paid in whole
or in part with shares of Common Stock, no income, gain or loss will be
recognized by the optionee on the receipt of shares equal in value on the date
of exercise to the shares delivered in payment of the option price. The fair
market value of the remainder of the shares received upon exercise of the
nonstatutory stock option, determined as of the date of exercise, less the
amount of cash, if any, paid upon exercise will be treated as compensation
income received by the optionee on the date of exercise of the stock option.
The Company generally will be entitled to a deduction for compensation
paid in the same amount treated as compensation received by the optionee.
STOCK APPRECIATION RIGHTS
An optionee does not recognize any taxable income for Federal income tax
purposes upon receipt of stock appreciation rights. Upon the exercise of stock
appreciation rights, the fair market value of the shares received, determined
as of the date of exercise, and any cash received, is treated as compensation
received by the optionee in the year of exercise. The Company generally will be
entitled to a deduction for compensation paid in the same amount treated as
compensation received by the optionee.
RESTRICTED STOCK
A grantee of restricted stock will not recognize any taxable income for Federal
income tax purposes in the year of the award, provided the stock is subject to
restrictions (that is, it is nontransferable and subject to a substantial risk
of forfeiture). However, a grantee may elect under Section 83(b) of the Code to
recognize compensation income in the year of the award in an amount equal to
the fair market value of the shares on the date of the award, determined
without regard to the restrictions. If the grantee does not make a Section
83(b) election, the fair market value of the shares on the date the
restrictions lapse will be treated as compensation income to the grantee and
will be taxable in the year the restrictions lapse. The Company generally will
be entitled to a deduction for compensation paid in the same amount treated as
compensation income to the grantee.
PERFORMANCE UNITS AND PERFORMANCE SHARES
An awardee of performance units or performance shares will not recognize any
taxable income for Federal income tax purposes upon receipt of the award. Any
cash or shares of Common Stock received pursuant to the award will be treated
as compensation income received by the awardee generally in the year in which
the awardee receives such cash or shares of Common Stock. The Company generally
will be entitled to a deduction for compensation paid in the same amount
treated as compensation income to the awardee.
OTHER TAX MATTERS
The exercise by an awardee of a stock option, the lapse of restrictions on
restricted shares or the deemed earnout of performance units or performance
shares following a Change in Control event as defined in the Plan, in certain
circumstances,
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<PAGE> 24
may result in (i) a 20% Federal excise tax (in addition to Federal income tax)
to the awardee on certain payments of Common Stock or cash resulting from such
exercise or deemed earnout of performance units or performance shares or, in the
case of restricted shares, on all or a portion of the fair market value of the
shares on the date the restrictions lapse and (ii) the loss of a compensation
deduction which would otherwise be allowable to the Company as explained above.
The Company may lose a compensation deduction, which would otherwise be
allowable, for all or a part of compensation paid in the form of (i) restricted
shares, performance units or performance shares if an award of such shares or
units is based in whole or in part on any goal or measure other than a
Performance Measure set forth in Section 10 of the Plan, or if the Committee
fails to certify attainment of the Performance Measure prior to paying such
award, or (ii) tandem stock appreciation rights granted after the grant of the
related option, to any employee if, as of the close of the tax year, the
employee is the Chief Executive Officer of the Corporation (or acts in that
capacity) or is among the four highest compensated officers for that tax year
(other than the Chief Executive Officer) for whom total compensation is required
to be reported to shareholders under the Exchange Act, if the total compensation
paid to such employee exceeds $1,000,000.
AMENDED PLAN BENEFITS
In 1996, a total of 179,000 nonstatutory stock options were granted to
employees under the Plan and 22,500 nonstatutory stock options were granted
outside the Plan to non-employee directors. The following table sets forth
information regarding options granted in 1996 for (i) the named executive
officers in the Summary Compensation Table; (ii) any additional persons who
received over 5% of the options granted; (iii) all current executive officers
of the Company as a group;(iv) all current non-employee directors as a group;
and (v) all non-executive officer employees of the Company as a group.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION NO. OF SHARES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Christian L. Allison, Chief Executive Officer 25,000 (1)
R. Craig Allison, Chairman of the Board 15,000 (1)
Rocco L. Flaminio, Vice Chairman and Chief Technology Officer 12,000 (1)
Mark C. Frey, Senior Vice President, Engineering --
Frederick J. Kiko, Senior Vice President, Design 12,000 (1)
Robert Cornelia, Executive Vice President, Operations 22,000 (1)(2)
Samuel Knoch, Chief Financial Officer 15,000 (1)(3)
Herman Flaminio, Senior Vice President, Marketing 12,000 (1)
G. Wayne Lloyd, Vice President, Sales 12,000 (1)
All executive officers as a group (17 persons) 126,250
All current non-employee directors as a group (4 persons) 17,500 (4)
All non-executive officer employees as a group (24 persons) 52,750
</TABLE>
(1) Options were granted December 13, 1996 with an exercise price of $25.75 per
share and vest in three equal installments on December 13, 1996,
December 13, 1997 and December 13, 1998.
(2) Of such amount, 10,000 were granted on July 23, 1996 with an exercise
price of $23.125 per share and vest in three equal installments on
July 23, 1996, July 23, 1997 and July 23, 1998.
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(3) Of such amount, 10,000 were granted on July 23, 1996 with an exercise
price of $23.125 per share and vest in three equal installments on
January 23, 1997, July 23, 1997 and July 23, 1998.
(4) Options were granted on December 13, 1996 with an exercise price of $25.75
per share and vest immediately.
AUDITORS
The Board of Directors of the Company has selected the independent auditing
firm of Coopers & Lybrand L.L.P. to examine the financial statements of the
Company for the 1997 fiscal year. Coopers & Lybrand L.L.P. audited the
financial statements of the Company for the 1996 fiscal year. The Board of
Directors expects that representatives of Coopers & Lybrand L.L.P. will be
present at the Annual Meeting of Shareholders and, while such representatives
do not currently plan to make a statement at the meeting, they will be
available to respond to appropriate questions.
OTHER BUSINESS
The Board of Directors does not know at this time of any other or further
business that may come before the Annual Meeting, but, if any such matters
should hereafter become known or determined and be properly brought before such
meeting for action, the proxy holders will vote upon the same according to
their discretion and best judgment.
EXPENSES OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, in a limited number of instances, officers, directors and
regular employees of the Company may, for no additional compensation, solicit
proxies in person or by telephone.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's Proxy Statement for the
1998 Annual Meeting of Shareholders, a proposal submitted by a shareholder for
such meeting must be received by the Secretary, Tollgrade Communications, Inc.,
493 Nixon Road, Cheswick, Pennsylvania 15024 on or before November 20, 1997.
By Order of the Board of Directors,
/s/ SARA M. ANTOL
- -------------------------
Sara M. Antol
Corporate Secretary
March 19, 1997
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EXHIBIT A
TOLLGRADE COMMUNICATIONS, INC.
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
(AS AMENDED THROUGH FEBRUARY 17, 1997)
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Tollgrade Communications, Inc., a
Pennsylvania corporation (hereinafter referred to as the "Company"),
hereby establishes an incentive compensation plan to be known as the
"Tollgrade Communications, Inc. Long-Term Incentive Compensation Plan"
(hereinafter referred to as the "Plan"), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Restricted Stock, Performance Shares
and Performance Units.
Subject to approval by the Company's stockholders, the Plan shall
become effective as of November 15, 1995 (the "Effective Date") and
shall remain in effect as provided in Section 1.3 hereof.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through incentives which are
consistent with the Company's goals and which link the personal interests
of Participants to those of the Company's stockholders; to provide
Participants with an incentive for excellence in individual performance;
and to promote teamwork among Participants.
The Plan is further intended to provide flexibility to the
Company in its ability to motivate, attract, and retain the services of
Participants who make significant contributions to the Company's success
and to allow Participants to share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan was adopted by the Board of Directors on
October 16, 1995, subject to approval by the Company's stockholders, and
shall commence on the Effective Date, as described in Section 1.1 hereof,
and shall remain in effect, subject to the right of the Board of
Directors to amend or terminate the Plan at any time pursuant to Article
15 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an
Award be granted under the Plan on or after October 15, 2005.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "APPROPRIATE ADMINISTRATOR" means, in the case of any Awards to
Employees, the Committee, and in the case of any Awards to Nonemployee
Directors, the Board.
2.2 "AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares or Performance Units.
2.3 "AWARD AGREEMENT" means an agreement entered into by the Company and each
Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.4 "BENEFICIAL OWNER" OR "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.
2.5 "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
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2.6 "CHANGE IN CONTROL" of the Company shall be deemed to have occurred (as
of a particular day, as specified by the Board) if the Board, by a
majority vote, agrees that a Change in Control has occurred, or is about
to occur. Such a change shall not include, however, a restructuring,
reorganization, merger, or other change in capitalization in which the
Persons who own an interest in the Company on the Effective Date (the
"Current Owners") (or any individual or entity which receives from a
Current Owner an interest in the Company through will or the laws of
descent and distribution) maintain more than a fifty percent (50%)
interest in the resultant entity.
Regardless of the Board's vote, a Change in Control will be
deemed to have occurred as of the first day any one (1) or more of the
following paragraphs shall have been satisfied:
(a) Any Person (other than the Person in control of the Company as of
the Effective Date of the Plan, or other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities; or
(b) The stockholders of the Company approve:
(i) A plan of complete liquidation of the Company; or
(ii) An agreement for the sale or disposition of all or
substantially all of the Company's assets (other than one in
which in the stockholders of the Company, as determined
immediately prior to such transaction, hold, directly or
indirectly, as determined immediately following such transaction,
a majority of the voting power of each surviving, resulting or
acquiring corporation which, immediately following such
transaction, holds more than 10% of the consolidated assets of
the Company immediately prior to the transaction); or
(iii) A merger, consolidation, or reorganization of the Company
with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least fifty percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation, or
reorganization.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if that Participant is part of
a purchasing group which consummates the Change in Control transaction.
The Participant shall be deemed "part of a purchasing group" for
purposes of the preceding sentence if the Participant is an equity
participant or has agreed to become an equity participant in the
purchasing company or group (except for (i) passive ownership of less
than five percent (5%) of the voting equity securities of the purchasing
company; or (ii) ownership of equity participation in the purchasing
company or group which is otherwise deemed not to be significant, as
determined prior to the Change in Control by a majority of the
nonemployee continuing Directors).
2.7 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
2.8 "COMMITTEE" means the Compensation Committee of the Board, as specified
in Article 3 herein, or such other Committee appointed by the Board to
administer the Plan with respect to grants of Awards.
2.9 "COMPANY" means Tollgrade Communications, Inc., a Pennsylvania
corporation, and any successor thereto as provided in Article 18 herein.
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2.10 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.11 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.12 "EMPLOYEE" means any full-time, active employee of the Company. Directors
who are not employed by the Company shall not be considered Employees
under this Plan.
2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
2.14 "FAIR MARKET VALUE" shall be the mean between the following prices, as
applicable, for the date as of which fair market value is to be
determined as quoted in The Wall Street Journal (or in such other
reliable publication as the Committee, in its discretion, may determine
to rely upon): (i) if the Common Stock is listed on the New York Stock
Exchange, the highest and lowest sales prices per share of the Common
Stock as quoted in the NYSE Composite Transactions listing for such date,
(ii) if the Common Stock is not listed on such exchange, the highest and
lowest sales prices per share of Common Stock for such date on (or on any
composite index including) the principal United States securities
exchange registered under the 1934 Act on which the Common Stock is
listed or (iii) if the Common Stock is not listed on any such exchange,
the highest and lowest sales prices per share of the Common Stock for
such date on the National Association of Securities Dealers Automated
Quotations System or any successor system then in use ("NASDAQ"). If
there are no such sale price quotations for the date as of which fair
market value is to be determined but there are such sale price quotations
within a reasonable period both before and after such date, then fair
market value shall be determined by taking a weighted average of the
means between the highest and lowest sales prices per share of the Common
Stock as so quoted on the nearest date before and the nearest date after
the date as of which fair market value is to be determined. The average
should be weighted inversely by the respective numbers of trading days
between the selling dates and the date as of which fair market value is
to be determined. If there are no such sale price quotations on or within
a reasonable period both before and after the date as of which fair
market value is to be determined, then fair market value of the Common
Stock shall be the mean between the bona fide bid and asked prices per
share of Common Stock as so quoted for such date on NASDAQ, or if none,
the weighted average of the means between such bona fide bid and asked
prices on the nearest trading date before and the nearest trading date
after the date as of which fair market value is to be determined, if both
such dates are within a reasonable period. The average is to be
determined in the manner described above in this Section 2.14. If the
fair market value of the Common Stock cannot be determined on any basis
previously set forth in this Section 2.14 for the date as of which fair
market value is to be determined, the Committee shall in good faith
determine the fair market value of the Common Stock on such date. Fair
market value shall be determined without regard to any restriction other
than a restriction which, by its terms, will never lapse.
2.15 "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
2.16 "INCENTIVE STOCK OPTION" OR "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive
Stock Option and which is intended to meet the requirements of Code
Section 422.
2.17 "INSIDER" shall mean an individual who, immediately prior to the grant of
any Award, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company. For
purposes of this Section 2.17, an individual (i) shall be considered as
owning not only Shares of stock owned individually but also all Shares of
stock that are at the time owned, directly or indirectly, by or for the
spouse, ancestors, lineal descendants and brothers and sisters (whether
by whole or half blood) of such individual and (ii) shall be considered
as owning proportionately any Shares owned, directly or indirectly, by or
for any corporation, partnership, estate or trust in which such
individual is a stockholder, partner or beneficiary.
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2.18 "NAMED EXECUTIVE OFFICER" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.19 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the Board
of Directors of the Company but who is not an Employee of the Company.
2.20 "NONQUALIFIED STOCK OPTION" OR "NQSO" means an option to purchase Shares
granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.21 "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option,
as described in Article 6 herein.
2.22 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.23 "PARTICIPANT" means an Employee or a Nonemployee Director who has
outstanding an Award granted under the Plan.
2.24 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.25 "PERFORMANCE SHARE" means an Award granted to a Participant, as described
in Article 9 herein.
2.26 "PERFORMANCE UNIT" means an Award granted to a Participant, as described
in Article 9 herein.
2.27 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage
of time, the achievement of performance goals, or upon the occurrence of
other events as determined by the Appropriate Administrator, at its
discretion), and the Shares are subject to a substantial risk of
forfeiture, as provided in Article 8 herein.
2.28 "PERSON" shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.29 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 8 herein.
2.30 "RETIREMENT" shall mean any voluntary termination of employment by an
Employee following the attainment of age 65.
2.31 "SHARES" means the shares of Common Stock of the Company.
2.32 "STOCK APPRECIATION RIGHT" OR "SAR" means an Award, granted alone or in
connection with a related Option, designated as an SAR, pursuant to the
terms of Article 7 herein.
2.33 "TANDEM SAR" means an SAR that is granted in connection with a related
Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and
when a Share is purchased under the Option, the Tandem SAR shall
similarly be canceled).
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. Except as set forth in Section 3.5 below, the Plan shall
be administered by the Compensation Committee of the Board, or by any
other Committee appointed by the Board consisting of not less than two
(2) Directors who (i) are "non-employee" directors and otherwise meet
the "disinterested administration" rules of Rule 16b-3 under the
Exchange Act and (ii) are "outside directors" under Section 162(m)(4)(C)
of the Code, or any
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successor provision. The members of the Committee shall be appointed from
time to time by, and shall serve at the discretion of, the Board of
Directors.
3.2 AUTHORITY OF THE COMMITTEE. Except as set forth in Section 3.4
below, except as limited by law or by the Articles of
Incorporation or Bylaws of the Company, and subject to the provisions
herein, the Committee shall have full power to grant Options (with or
without SARs) and to award Restricted Stock, Performance Shares and
Performance Units as described herein and to determine the Employees to
whom any such Award shall be made and the number of Shares to be covered
thereby; determine the sizes and types of Awards; determine the terms
and conditions of Awards in a manner consistent with the Plan; construe
and interpret the Plan and any agreement or instrument entered into
under the Plan as they apply to Employees; and establish, amend, or
waive rules and regulations for the Plan's administration as they apply
to Employees; and (subject to the provisions of Article 15 herein) amend
the terms and conditions of any outstanding Award except for Incentive
Stock Options to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the
Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan, as the Plan applies to
Employees. As permitted by law the Committee may delegate its authority
as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders
and resolutions of the Board shall be final, conclusive and binding on
all persons, including the Company, its stockholders, Employees,
Participants, and their estates and beneficiaries.
3.4 NON-COMPETITION. If a grantee of an Option, Restricted Stock,
Performance Units or Performance Shares (i) engages in the operation or
management of a business (whether as owner, partner, officer, director,
employee or otherwise and whether during or after termination of
employment) which is in competition with the Company, (ii) induces or
attempts to induce any customer, supplier, licensee or other individual,
corporation or other business organization having a business relationship
with the Company to cease doing business with the Company or in any way
interferes with the relationship between any such customer, supplier,
licensee or other person and the Company or (iii) solicits any employee
of the Company to leave the employment thereof or in any way interferes
with the relationship of such employee with the Company, the Appropriate
Administrator, in its discretion, may immediately terminate all
outstanding Options held by the grantee, declare forfeited all Restricted
Stock held by the grantee as to which the restrictions have not yet
lapsed and/or immediately cancel any award of Performance Units or
Performance Shares. Whether a grantee has engaged in any of the
activities referred to in the preceding sentence which would cause the
outstanding Options to be terminated, and/or the Restricted Stock to be
forfeited and/or any award of Performance Units or Performance Shares to
be cancelled shall be determined, in its discretion, by the Appropriate
Administrator, and any such determination by the Appropriate
Administrator shall be final and binding.
3.5 GRANTS TO NONEMPLOYEE DIRECTORS. Notwithstanding the foregoing, unless
otherwise determined by the Board, the Board shall grant Nonqualified
Stock Options (with or without SARs) and award Restricted Stock,
Performance Shares and Performance Units, and otherwise exercise the same
authority as the Committee as described in Section 3.2 above, with
respect to Nonemployee Directors
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.3 herein, the number of Shares hereby
reserved for issuance to Participants under the Plan shall be 875,000;
provided however, that, of that total, the maximum number of Shares of
Restricted Stock granted pursuant to Article 8 herein, shall be 150,000.
The following rules shall apply to grants of such Awards under the Plan:
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(a) The maximum aggregate number of Shares that may be granted or that
may vest, as applicable, pursuant to any Award held by any one Named
Executive Officer shall be 100,000 during the term of the Plan;
(b) The maximum aggregate cash payout received during any fiscal year
by any one Named Executive Officer with respect to Awards granted
shall be $1 million.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem
SAR), any Shares subject to such Award again shall be available for the
grant of an Award under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate
transaction, such as any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the
definition of such term in Code Section 368) or any partial or complete
liquidation of the Company, such adjustment shall be made in the number
and class of Shares which may be delivered under Section 4.1 and as to
the number of Shares which may be awarded under the Plan to any Named
Executive Officer during the term of the Plan, and in the number and
class of and/or price of Shares subject to outstanding Awards granted
under the Plan, as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement
of rights; provided, however, that the number of Shares subject to any
Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees of the Company (including, but not limited to, Employees who
are members of the Board, covered employees as defined in Section
162(m)(3) of the Code, or any successor provision) and all Nonemployee
Directors of the Company.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees
those to whom Awards shall be granted and shall determine the nature and
amount of each Award and the Board may, from time to time, select from
all eligible Nonemployee Directors those to whom Awards shall be granted
and shall determine the nature and amount of each Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, the
Committee may grant Incentive Stock Options or Nonqualified Stock Options
or both types of Options (but not in tandem) to Employees and the Board
may grant Nonqualified Stock Options to Nonemployee Directors in such
number, and upon such terms, and at any time and from time to time as
shall be determined by the Appropriate Administrator.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the Option pertains, and such other
provisions as the Appropriate Administrator shall determine. The Award
Agreement also shall specify whether the Option is intended to be an ISO
within the meaning of Code Section 422, or an NQSO whose grant is
intended not to fall under the provisions of Code Section 422.
6.3 OPTION PRICE. The Option Price at which each Option may be exercised
shall be no less than one hundred percent (100%) of the fair market value
per share of the Common Stock covered by the Option on the date of grant,
except that in the case of an Incentive Stock Option granted to an
Insider, the option price shall not be less than one hundred ten percent
(110%) of such fair market value on the date of grant. For purposes of
this Section 6.3, the fair market
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value of the Common Stock shall be as determined in Section 2.14.
6.4 DURATION OF OPTIONS. Each Option granted to a Participant shall shall
expire at such time as the Appropriate Administrator shall determine at
the time of grant; provided, however, that no Option shall be exercisable
after the expiration of ten years (five years in the case of an Incentive
Stock Option granted to an Insider) from the date of grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and
conditions as the Appropriate Administrator shall in each instance
approve, which need not be the same for each grant or for each
Participant. Notwithstanding any other provision contained in the Plan or
in any Award Agreement referred to in Section 2.3, but subject to the
possible exercise of the Committee's discretion contemplated in the last
sentence of this paragraph, the aggregate fair market value, determined
as provided in Section 2.14 on the date of grant, of the Shares with
respect to which Incentive Stock Options are exercisable for the first
time by an Employee during any calendar year under all plans of the
corporation employing such Employee, any parent or subsidiary corporation
of such corporation and any predecessor corporation of any such
corporation shall not exceed $100,000. If the date on which one or more
of such Incentive Stock Options could first be exercised would be
accelerated pursuant to any provision of the Plan or any Award Agreement,
and the acceleration of such exercise date would result in a violation of
the limitation set forth in the preceding sentence, then, notwithstanding
any such provision, but subject to the provisions of the next succeeding
sentence, the exercise dates of such Incentive Stock Options shall be
accelerated only to the date or dates, if any, that do not result in a
violation of such limitation and, in such event, the exercise dates of
the Incentive Stock Options with the lowest Option Prices shall be
accelerated to the earliest such dates. The Committee may, in its
discretion, authorize the acceleration of the exercise date of one or
more Incentive Stock Options even if such acceleration would violate the
$100,000 limitation set forth in the first sentence of this paragraph and
even if such Incentive Stock Options are thereby converted in whole or in
part to Nonqualified Stock Options.
6.6 PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting
forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to
the Company in full either: (a) in cash in United States dollars
(including check, bank draft or money order), or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price, or (c) by a
combination of (a) and (b).
The Company will also cooperate with any person exercising an
Option who participates in a cashless exercise program of a broker or
other agent under which all or part of the Shares received upon exercise
of the Option are sold through the broker or other agent or under which
the broker or other agent makes a loan to such person. Notwithstanding
the foregoing, unless the Appropriate Administrator, in its discretion,
shall otherwise determine at the time of grant in the case of an
Incentive Stock Option, or at any time in the case of a Nonqualified
Stock Option, the exercise of the Option shall not be deemed to occur
and no Shares of Common Stock will be issued by the Company upon
exercise of the Option until the Company has received payment of the
Option Price in full.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Appropriate Administrator may
impose such restrictions on any Shares acquired pursuant to the exercise
of an Option granted under this Article 6 as it may deem advisable,
including, without limitation, restrictions under applicable Federal
securities laws, under the requirements of any stock exchange or market
upon which such Shares are then listed and/or traded, and under any blue
sky or state securities laws applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Subject to the provisions of Section 6.5 in
the case of Incentive Stock Options, unless the Committee, in its
discretion, shall otherwise determine:
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(i) If the employment of an Employee who is not disabled within the
meaning of Section 422(c)(6) of the Code (a "Disabled Grantee") is
voluntarily terminated with the consent of the Company or an Employee
retires under any retirement plan of the Company, any outstanding
Incentive Stock Option held by such Employee shall be exercisable by
the Employee (but only to the extent exercisable by the Employee
immediately prior to the termination of employment) at any time prior
to the expiration date of such Incentive Stock Option or within three
months after the date of termination of employment, whichever is the
shorter period;
(ii) If the employment of an Employee who is not a Disabled Grantee is
voluntarily terminated with the consent of the Company or an Employee
retires under any retirement plan of the Company, any outstanding
Nonqualified Stock Option held by such Employee shall be exercisable
by the Employee (but only to the extent exercisable by the Employee
immediately prior to the termination of employment) at any time prior
to the expiration date of such Nonqualified Stock Option or within one
year after the date of termination of employment, whichever is the
shorter period;
(iii) If the employment of an Employee who is a Disabled Grantee is
voluntarily terminated with the consent of the Company, any
outstanding Option held by such Employee shall be exercisable by the
Employee in full (whether or not so exercisable by the Employee
immediately prior to the termination of employment) at any time prior
to the expiration date of such Option or within one year after the
date of termination of employment, whichever is the shorter period;
(iv) Following the death of an Employee during employment, any
outstanding Option held by the Employee at the time of death shall be
exercisable in full (whether or not so exercisable by the Employee
immediately prior to the death of the Employee) by the person entitled
to do so under the Will of the Employee, or, if the Employee shall
fail to make testamentary disposition of the stock option or shall die
intestate, by the legal representative of the Employee at any time
prior to the expiration date of such stock option or within one year
after the date of death of the Employee, whichever is the shorter
period;
(v) Following the death of an Employee after termination of employment
during a period when an Option is exercisable, the Option shall be
exercisable by such person entitled to do so under the Will of the
Employee by such legal representative (but only to the extent
exercisable by the Employee immediately prior to the termination of
employment) at any time prior to the expiration date of such Option or
within one year after the date of death, whichever is the shorter
period;
(vi) Unless the exercise period of a stock option following
termination of employment has been extended as provided in Section
14.1, if the employment of an Employee terminates for any reason other
than voluntary termination with the consent of the Company, retirement
under any retirement plan of the Company or death, all outstanding
Options held by the Employee at the time of such termination of
employment shall automatically terminate.
Whether termination of employment is a voluntary termination
with the consent of the Company shall be determined, in its
discretion, by the Committee and any such determination by the
Committee shall be final and binding.
6.9 TERMINATION OF BOARD SERVICE. Unless the Board, in its discretion,
shall otherwise determine:
(i) If a Nonemployee Director ceases to be a Director of the Company
for any reason other than resignation, removal for cause or death, any
then outstanding stock option held by such Nonemployee Director shall
be exercisable by the Nonemployee Director (but only to the extent
exercisable by the Nonemployee Director immediately prior to ceasing
to be a Director) at any time prior to the expiration date of such
stock option or within one year after the date the Nonemployee
Director ceases to be a Director, whichever is the shorter period;
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(ii) If during his or her term of office as a Director a Nonemployee
Director resigns from the Board (which shall not include not standing
for reelection at the end of his or her then current term) or is
removed from office for cause, any then outstanding stock option held
by such Nonemployee Director shall be exercisable by the Nonemployee
Director (but only to the extent exercisable by the Nonemployee
Director immediately prior to ceasing to be a Director) at any time
prior to the expiration date of such stock option or within 90 days
after the date of resignation or removal, whichever is the shorter
period;
(iii) Following the death of a Nonemployee Director during service as
a Director of the Company, any outstanding stock option held by the
Nonemployee Director at the time of death (whether or not exercisable
by the Nonemployee Director immediately prior to death) shall be
exercisable by the person entitled to do so under the Will of the
Nonemployee Director, or, if the Nonemployee Director shall fail to
make testamentary disposition of the stock option or shall die
intestate, by the legal representative of the Nonemployee Director, at
any time prior to the expiration date of such stock option or within
one year after the date of death, whichever is the shorter period;
(iv) Following the death of a Nonemployee Director after ceasing to be
a Director, any outstanding stock option held by such Nonemployee
Director at the time of death shall be exercisable (but only to the
extent exercisable by the Nonemployee Director immediately prior to
death) by such person entitled to do so under the Will of the
Nonemployee Director or by such legal representative at any time prior
to the expiration date of such stock option or within one year after
the date of death, whichever is the shorter period.
Interpretation of the foregoing shall be done by the Board and any
determination by the Board shall be final and binding.
6.10 NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by Will or if the Participant dies intestate
by the laws of descent and distribution of the state of domicile of the
Participant at the time of death. Further, all Options granted to a
Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as
shall be determined by the Appropriate Administrator, provided however
that any SAR granted in conjunction with an Incentive Stock Option may
only be granted at the time the related Incentive Stock Option is
granted. The Appropriate Administrator may grant Freestanding SARs,
Tandem SARs, or any combination of these forms of SARs.
The Appropriate Administrator shall have complete discretion in
determining the number of SARs granted to each Participant (subject to
Article 4 herein) and, consistent with the provisions of the Plan, in
determining the terms and conditions pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market
Value of a Share on the date of grant of the SAR. The grant price of
Tandem SARs shall equal the Option Price of the related Option, as
provided in Section 6.3.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part of
the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related
Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary,
with respect to a Tandem SAR granted in connection with an ISO: (i) the
Tandem SAR will expire no later than the expiration of the underlying
ISO; (ii) the value of the payout with respect to the Tandem SAR may be
for no more than one hundred percent (100%) of the difference
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between the Option Price of the underlying ISO and the Fair Market Value
of the Shares subject to the underlying ISO at the time the Tandem SAR is
exercised; and (iii) the Tandem SAR may be exercised only when the Fair
Market Value of the Shares subject to the ISO exceeds the Option Price of
the ISO.
7.3 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised upon
whatever terms and conditions the Appropriate Administrator, in its sole
discretion, imposes upon them.
7.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Appropriate Administrator shall determine.
7.5 TERM OF SARS. Except as otherwise provided in Section 7.2 in the case of
a Tandem SAR granted in conjunction with an ISO, the term of an SAR
granted under the Plan shall be determined by the Appropriate
Administrator, in its sole discretion; provided, however, that such term
shall not exceed ten (10) years.
7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Appropriate Administrator, the payment upon SAR
exercise may be in cash, in Shares of equivalent value, or in some
combination thereof.
7.7 RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Appropriate Administrator may impose such conditions on
exercise of an SAR as may be required to satisfy the requirements of
Section 16 of the Exchange Act (or any successor rule).
7.8 TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth the
extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company
and/or its Subsidiaries or the Participant's termination of Board
Service, as the case may be. Such provisions shall be determined in the
sole discretion of the Appropriate Administrator, shall be included in
the Award Agreement entered into with Participants, need not be uniform
among all SARs issued pursuant to the Plan, and may reflect distinctions
based on the reasons for termination of such employment or service.
7.9 NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or, if the grantee dies intestate, by the laws of
descent and distribution of the state of domicile of the grantee at the
time of death. Further, all SARs granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such Participant.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Appropriate Administrator, at any time and from time to time,
may grant Shares of Restricted Stock to Participants in such amounts as
the Appropriate Administrator shall determine.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock
granted, and such other provisions as the Appropriate Administrator shall
determine.
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8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Appropriate
Administrator and specified in the Restricted Stock Award Agreement, or
upon earlier satisfaction of any other conditions, as specified by the
Appropriate Administrator in its sole discretion and set forth in the
Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be
available during his or her lifetime only to such Participant.
8.4 OTHER RESTRICTIONS. Subject to Article 11 herein, the Appropriate
Administrator shall impose such other conditions and/or restrictions on
any Shares of Restricted Stock granted pursuant to the Plan as it may
deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted
Stock, restrictions based upon the achievement of specific performance
goals (Company-wide, divisional, and/or individual), time-based
restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable Federal or state securities
laws.
The Company shall retain the certificates representing Shares of
Restricted Stock In the Company's possession until such time as all
conditions and/or restrictions applicable to such Shares have been
satisfied.
Except as otherwise provided in this Article 8, Shares of
Restricted Stock covered by each Restricted Stock grant made under the
Plan shall become freely transferable by the Participant after the last
day of the applicable Period of Restriction.
8.5 VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full
voting rights with respect to those Shares.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying
Shares while they are so held. The Appropriate Administrator may apply
any restrictions to the dividends that the Appropriate Administrator
deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Restricted Shares granted to a Named
Executive Officer is designed to comply with the requirements of the
Performance-Based Exception, the Committee may apply any restrictions it
deems appropriate to the payment of dividends declared with respect to
such Restricted Shares, such that the dividends and/or the Restricted
Shares maintain eligibility for the Performance-Based Exception.
In the event that any dividend constitutes a "derivative
security" or an "equity security" pursuant to Rule 16(a) under the
Exchange Act, such dividend shall be subject to a vesting period equal
to the remaining vesting period of the Shares of Restricted Stock with
respect to which the dividend is paid.
8.7 TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement shall
set forth the extent to which the Participant shall have the right to
receive unvested Restricted Shares following termination of the
Participant's employment with the Company or service on the Board, as the
case may be. Such provisions shall be determined in the sole discretion
of the Appropriate Administrator, shall be included in the Award
Agreement entered into with each Participant, need not be uniform among
all Shares of Restricted Stock issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination of such
employment or service; provided, however that, except in the cases of
terminations connected with a Change in Control and terminations by
reason of death or disability the vesting of Shares of Restricted Stock
which qualify for the Performance-Based Exception and which are held by
Named Executive Officers shall occur at the time they otherwise would
have, but for the employment termination.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be
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granted to Participants in such amounts and upon such terms, and at any
time and from time to time, as shall be determined by the Appropriate
Administrator.
9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have an
initial value that is established by the Appropriate Administrator at
the time of grant. Each Performance Share shall have an initial value
equal to the Fair Market Value of a Share on the date of grant. The
Appropriate Administrator shall set performance goals in its discretion
which, depending on the extent to which they are met, will determine the
number and/or value of Performance Units/Shares that will be paid out to
the Participant. For purposes of this Article 9, the time period during
which the performance goals must be met shall be called a "Performance
Period."
9.3 EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this Plan,
after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the
number and value of Performance Units/Shares earned by the Participant
over the Performance Period, to be determined as a function of the extent
to which the corresponding performance goals have been achieved.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned Performance Units/Shares shall be made in a single lump sum within
seventy-five (75) calendar days following the close of the applicable
Performance Period. Subject to the terms of this Plan, the Appropriate
Administrator, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash or in Shares (or in a combination
thereof) which have an aggregate Fair Market Value equal to the value of
the earned Performance Units/Shares at the close of the applicable
Performance Period. Such Shares may be granted subject to any
restrictions deemed appropriate by the Appropriate Administrator.
At the discretion of the Appropriate Administrator, Participants
may be entitled to receive any dividends declared with respect to Shares
which have been earned in connection with grants of Performance Units
and/or Performance Shares which have been earned, but not yet
distributed to Participants (such dividends shall be subject to the same
accrual, forfeiture, and payout restrictions as apply to dividends
earned with respect to Shares of Restricted Stock, as set forth in
Section 8.6 herein). In addition, Participants may, at the discretion of
the Appropriate Administrator, be entitled to exercise their voting
rights with respect to such Shares.
9.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. Unless
determined otherwise by the Appropriate Administrator and set forth in
the Participant's Award Agreement, in the event the employment or the
Board service of a Participant is terminated by reason of death,
disability, or Retirement during a Performance Period, the Participant
shall receive a payout of the Performance Units/Shares which is prorated,
as specified by the Appropriate Administrator in its discretion.
Payment of earned Performance Units/Shares shall be made at a
time specified by the Appropriate Administrator in its sole discretion
and set forth in the Participant's Award Agreement. Notwithstanding the
foregoing, with respect to Named Executive Officers who retire during a
Performance Period, payments shall be made at the same time as payments
are made to Participants who did not terminate employment during the
applicable Performance Period.
9.6 TERMINATION OF EMPLOYMENT OR BOARD SERVICE FOR OTHER REASONS. In the
event that a Participant's employment or Board service terminates for any
reason other than those reasons set forth in Section 9.5 herein, all
Performance Units/Shares shall be forfeited by the Participant to the
Company unless determined otherwise by the Appropriate Administrator, as
set forth in the Participant's Award Agreement.
9.7 NONTRANSFERABILITY. Performance Units/Shares may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or if the grantee dies intestate by the laws of
descent and distribution of the state of domicile of the grantee at the
time of death. Further, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or
the Participant's legal representative.
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ARTICLE 10. PERFORMANCE MEASURES
Unless and until the Appropriate Administrator proposes for shareholder vote
and shareholders approve a change in the general performance measures set forth
in this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Named Executive Officers which are
designed to qualify for the Performance Based Exception, the performance
measure(s) to be used for purposes of such grants shall be chosen from among
the following alternatives:
(a) Revenues of the Company or any specified division;
(b) Percentage increase over a specified period in revenues of the
Company or any specified division;
(c) Expenses or any designated category of expenses of the Company or
any specified division;
(d) Percentage decrease over a specified period in expenses or any
designated category of expenses of the Company or any
specified division;
(e) Pretax or after-tax income of the Company or any specified
division;
(f) Percentage increase over a specified period in pretax or after-tax
income of the Company or any specified division.
The Appropriate Administrator shall have the discretion to adjust the
determinations of the degree of attainment of the preestablished performance
goals; provided, however, that Awards which are designed to qualify for the
Performance Based Exception, and which are held by Named Executive Officers,
may not be adjusted upward (the Committee shall retain the discretion to adjust
such Awards downward).
In the event that applicable tax and/or securities laws change to permit
the Appropriate Administrator discretion to alter the governing performance
measures without obtaining shareholder approval of such changes, the
Appropriate Administrator shall have sole discretion to make such changes
without obtaining shareholder approval. In addition in the event that the
Appropriate Administrator determines that it is advisable to grant Awards which
shall not qualify for the Performance-Based Exception, the Appropriate
Administrator may make such grants without satisfying the requirements of Code
Section 162(m).
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by
the Company, and will be effective only when filed by the Participant in
writing with the Company during the Participant's lifetime. In the absence of
any such designation, benefits remaining unpaid at the Participant's death
shall be paid to the Participant's estate.
ARTICLE 12. DEFERRALS
The Committee may permit or require a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise
be due to such Participant by virtue of the exercise of an Option or SAR, the
lapse or waiver of restrictions with respect to Restricted Stock, or the
satisfaction of any requirements or goals with respect to Performance
Units/Shares. If any such deferral election is required or permitted, the
Appropriate Administrator shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
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ARTICLE 13. RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS
13.1 EMPLOYMENT AND BOARD SERVICE. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any
Participant's employment at any time, nor confer upon any Participant any
right to continue in the employ of the Company, nor shall it confer any
right to a person to continue as a Director of the Company or interfere
in any way with the rights of shareholders of the Company or the Board to
elect and remove Directors.
13.2 PARTICIPATION. No Employee or Nonemployee Director shall have the right
to be selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
ARTICLE 14. CHANGE IN CONTROL
14.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws,
or by the rules and regulations of any governing governmental agencies or
national securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable, and shall remain exercisable throughout their
entire term;
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse;
(c) The target payout opportunities attainable under all outstanding
Awards of Restricted Stock, Performance Units and Performance Shares
shall be deemed to have been fully earned for the entire Performance
Period(s) as of the effective date of the Change in Control. The
vesting of all Awards denominated in Shares shall be accelerated as of
the effective date of the Change in Control, and there shall be paid
out in cash to Participants within thirty (30) days following the
effective date of the Change in Control an amount equal to one hundred
percent (100%) of all targeted cash payout opportunities associated
with outstanding cash-based Awards; and
(d) Subject to Article 15 herein, the Appropriate Administrator shall
have the authority to make any modifications to the Awards as
determined by the Appropriate Administrator to be appropriate before
the effective date of the Change in Control.
14.2 ACCELERATION OF AWARD VESTING. Notwithstanding any provision of this
Plan or any Award Agreement provision to the contrary, the Appropriate
Administrator, in its sole and exclusive discretion, shall have the power
at any time to accelerate the vesting of any Award granted under the Plan
to a Participant, including without limitation acceleration to such a
date that would result in said Awards becoming immediately vested, except
that the Appropriate Administrator shall not have the authority to
accelerate any Award that would otherwise qualify for the
Performance-Based Exception in any manner that would cause the Award to
fail to qualify as such.
14.3 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any
Award Agreement provision, the provisions of this Article 14 may not be
terminated, amended, or modified on or after the date of a Change in
Control to affect adversely any Award theretofore granted under the Plan
without the prior written consent of the Participant with respect to said
Participant's outstanding Awards; provided, however, the Board of
Directors, upon recommendation of the Committee, may terminate, amend, or
modify this Article 14 at any time and from time to time prior to the
date of a Change in Control.
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ARTICLE 15. AMENDMENT, MODIFICATION, AND TERMINATION
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time and
from time to time, alter, amend, suspend or terminate the Plan in whole
or in part; provided, however, that no amendment which requires
shareholder approval in order for the Plan to continue to comply with
Rule 16b-3 under the Exchange Act, including any successor to such Rule,
shall be effective unless such amendment shall be approved by the
requisite vote of shareholders of the Company entitled to vote thereon.
15.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, the events
described in Section 4.3 hereof) affecting the Company or the financial
statements of the Company or of changes in applicable laws, regulations,
or accounting principles, whenever the Committee determines that such
adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under
the Plan; provided that no such adjustment shall be authorized to the
extent that such authority would be inconsistent with the Plan's meeting
the requirements of Section 162(m) of the Code, as from time to time
amended.
15.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of
the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant
holding such Award.
15.4 COMPLIANCE WITH CODE SECTION 162(m). Compliance with Code Section
162(m). At all times when Code Section 162(m) is applicable, all Awards
granted under this Plan shall comply with the requirements of Code
Section 162(m); provided, however, that in the event the Committee
determines that such compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that
changes are made to Code Section 162(m) to permit greater flexibility
with respect to any Award or Awards available under the Plan, the
Committee may, subject to this Article 15, make any adjustments it deems
appropriate.
ARTICLE 16. WITHHOLDING
16.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require an Employee to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes, domestic
or foreign, required by law or regulation to be withheld with respect to
any taxable event arising as a result of this Plan.
16.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on
Restricted Stock, or upon any other taxable event arising as a result of
Awards granted hereunder, Employees may elect, subject to the approval
of the Committee, to satisfy the withholding requirement, in whole or in
part, by having the Company withhold Shares having a Fair Market Value
on the date the tax is to be determined equal to the minimum statutory
total tax which could be imposed on the action. All such elections shall
be irrevocable, made in writing, signed by the Employee, and shall be
subject to any restrictions or limitations that the Committee, in its
sole discretion, deems appropriate.
ARTICLE 17. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by
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<PAGE> 41
him or her in connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party or in which he or she may be
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
ARTICLE 18. SUCCESSOR
All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 19. LEGAL CONSTRUCTION
19.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
19.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been
included.
19.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
19.4 SECURITIES LAW COMPLIANCE. With respect to (i) a Director of the
Company, (ii) an executive officer of the Company or other person who is
required to file reports pursuant to the rules promulgated under Section
16 of the Exchange Act and (iii) Insiders, transactions under this Plan
are intended to comply with all applicable conditions or Rule 16b-3 or
its successors under the Exchange Act. To the extent any provision of the
Plan or action by the Appropriate Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Appropriate Administrator.
19.5 GOVERNING LAW. To the extent not preempted by Federal law, the Plan and
all agreements hereunder, shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
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<PAGE> 42
TOLLGRADE COMMUNICATIONS, INC.
1997 Annual Meeting of Shareholders
The undersigned does hereby appoint Christian L. Allison and Sara M.
Antol, or any one of them, Proxies for the undersigned with full power of
substitution to vote at the Annual Meeting of the Shareholders of Tollgrade
Communications, Inc. (the "Company") to be held April 22, 1997 and at any and
all adjournments of said meeting, all the shares of Common Stock of the Company
which the undersigned may be entitled to vote.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL
BE VOTED FOR EACH PROPOSAL.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
(over)
FOLD AND DETACH HERE
[LOGO]
------------------------------
TOLLGRADE COMMUNICATIONS, INC.
------------------------------
Please mark your votes as indicated in this example [ X ]
1. ELECTION OF DIRECTORS FOR A TERM EXPIRING IN 2000:
JAMES J. BARNES, ROCCO L. FLAMINIO
FOR WITHHOLD
all nominees AUTHORITY
(except as to vote for
indicated) all nominees
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write the names of such nominee(s) in the space provided:
- -------------------------------------------------------------------------
2. Amendments to the Tollgrade Communications, Inc. 1995
Long-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In his discretion, the Proxy is authorized to vote upon such other
business as may be properly brought before the meeting.
Check box if you plan to attend meeting [ ]
Please date and sign exactly as name appears hereon. When signing as Attorney,
Executor, Administrator, Trustee, Guardian, Corporate Official, etc., full
title as such should be shown. For joint accounts, each joint owner should sign.
Signature(s)_____________________________________________ Date___________ , 1997
Signature(s)_____________________________________________ Date___________ , 1997
Please sign, date and return your proxy in the enclosed envelope.
