<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)
NETWORK ASSURANCE SIMPLIFIED.
TOLLGRADE COMMUNICATIONS, INC.
493 NIXON ROAD, CHESWICK, PENNSYLVANIA 15024
MARCH 26, 1999
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 6, 1999
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 Syria Mosque, 1877
Shriners Way, Cheswick, PA 15024, on Thursday, May 6, 1999 at 3:00 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 three
directors to serve for a three-year term or until their respective
successors shall have been elected and shall have qualified.
(2) An amendment to the Company's 1995 Long-Term Incentive Compensation Plan
(the "Plan") to increase the number of shares authorized under the Plan by
230,000 shares (which is less than 5% of the number of outstanding shares
of the Common Stock of the Company).
(3) Ratification of appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for fiscal year 1999.
(4) Such other matters as may properly be brought before the meeting.
The close of business on March 12, 1999 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 1998 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
Chief Counsel and Corporate Secretary
<PAGE> 3
2
<PAGE> 4
TOLLGRADE COMMUNICATIONS, INC.
CHESWICK, PENNSYLVANIA 15024
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 6, 1999
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 May 6, 1999 at 3:00 p.m. at The Syria Mosque, 1877
Shriners Way, Cheswick PA 15024. It is expected that this proxy statement and
proxies will be mailed to shareholders on or about March 26, 1999.
As of the close of business on March 12, 1999 (the "Record Date"), the Company
had 5,932,543 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, 1999 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 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>
Christian L. Allison 220,928 (2) 3.7%
Daniel P. Barry 20,000 (2) *
Robert L. Cornelia 41,686 (2)(3) *
David S. Egan 7,725 (2) *
Rocco L. Flaminio 51,558 (2)(3) *
Richard H. Heibel 233,202 (2)(3) 3.9%
Robert W. Kampmeinert 28,500 (2)(4) *
Samuel C. Knoch 26,667 (2) *
Mark B. Peterson 18,334 (2) *
All directors and executive
officers as a group (18 persons) 789,314 12.4%
</TABLE>
* Less than 1%.
(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
name.
(2) Includes options which are currently exercisable or exercisable within 60
days of January 31, 1999, issued to the following persons for the following
amounts: Mr. Christian L. Allison, 100,528; Mr. Barnes, 12,000; Mr. Barry,
17,000; Mr. Cornelia, 36,831; Mr. Egan,
3
<PAGE> 5
7,000; Mr. Flaminio, 22,179; Dr. Heibel, 47,050; Mr. Kampmeinert, 17,000;
Mr. Knoch, 26,667; Mr. Peterson, 18,334; and all directors and executive
officers as a group, 419,650.
(3) Includes shares held by the spouses of the following persons in the
following amounts: Mr. Cornelia, 200 shares; Mr. Flaminio, 24,000 shares;
Dr. Heibel, 71,519; and all directors and executive officers as a group,
95,719 shares. Such persons share voting and dispositive power with their
spouses.
(4) Includes 10,500 shares held by Parker/Hunter Incorporated, of which Mr.
Kampmeinert is Chairman and Chief Executive Officer, as to which shares Mr.
Kampmeinert 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, 1999 is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NAME AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas M. and Shirley Dugan 352,803 (1) 5.9%
6694 Knollwood Drive
Erie, PA 16415
FMR Corp. 499,000 (2) 8.4%
82 Devonshire Street
Boston, MA 02109
Investment Advisors, Inc. 373,500 (3) 6.3%
3700 First Bank Place
P.O. Box 357
Minneapolis, MN 55440
</TABLE>
(1) The shares included in the table include 19,900 shares owned solely by Dr.
Dugan, as to which shares Dr. Dugan has sole voting and dispositive power,
326,203 shares held jointly by Dr. and Mrs. Dugan, as to which shares Dr.
and Mrs. Dugan share voting and dispositive power, currently exercisable
options of Dr. Dugan for 5,000 shares, as to which shares Dr. Dugan has
sole voting and dispositive power, 1,000 shares owned solely by Mrs. Dugan,
as to which shares Mrs. Dugan has sole voting and dispositive power, and
700 shares held in a UGMA account for the son of Mrs. Dugan, for which
account Mrs. Dugan is the custodian and has sole voting and dispositive
power.
(2) Information relating to FMR Corp.'s ownership is taken solely from the
Schedule 13G filed by FMR Corp. with the Securities and Exchange
Commission, a copy of which was provided to the Company. FMR Corp. is a
parent holding company of Fidelity Management & Research Company, a
wholly-owned subsidiary and beneficial owner of the shares reported above.
Fidelity Management and Research Company is an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940 and
acts as investment advisor to various investment companies registered under
Section 8 of the Investment Company Act of 1940. The ownership of one
investment company, Fidelity Low-Priced Stock Fund, amounted to the number
of shares reported above. Edward C. Johnson 3rd, Chairman of FMR Corp.,
through its control of Fidelity Management and Research Company and the
funds each has sole power to dispose of the shares owned by the funds.
Neither Edward C. Johnson 3rd nor FMR Corp. has the sole power to vote or
direct the voting of the shares owned directly by the Fidelity Funds, which
power resides with the Funds' Board of Trustees.
(3) Information relating to Investment Advisors, Inc. is taken solely from the
Schedule 13G filed by Investment Advisors, Inc. with the Securities and
Exchange Commission, a copy of which was provided to the Company.
Investment Advisors, Inc. is an investment advisor registered under Section
203 of the Investment Advisors Act of 1940. The shares are held by various
custodian banks for various clients of Investment Advisors, Inc. None of
the individual clients or custodian banks holds more than 5% or more of the
shares.
4
<PAGE> 6
ELECTION OF DIRECTORS
Three directors will be elected for a three-year term expiring on the date of
the Annual Meeting of Shareholders to be held in 2002 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.
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
- -------------------------------------------------------------------------------------------------------------------
Nominees for a term expiring in 2002:
<S> <C> <C>
Christian L. Allison 1992 Chairman of the Board since April, 1998; Chief Executive
Officer since September 1995; also Treasurer from May 1992
until April 1997; also Secretary from May 1992 until April
1996; President since October 1993; prior thereto Chief
Operating Officer; Member of the Nominating Committee; Age
38.
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
October 1994 until July 1995; Senior Vice President
Finance and Planning from April 1993 until October 1994;
Director of Respironics, Inc.; Member of the Audit
Committee and the Compensation Committee; Age 51.
David S. Egan 1998 President, Ketchum Advertising; Member of the Investment
Committee; Age 42.
- -------------------------------------------------------------------------------------------------------------------
Continuing directors with a term expiring in 2000:
James J. Barnes 1997 Shareholder and attorney at Buchanan Ingersoll, a
Professional Corporation; Member of the Compensation
Committee and the Nominating Committee; Age 37.
Rocco L. Flaminio 1995 Vice Chairman and Chief Technology Officer since October
1993; prior thereto President; Age 74.
- -------------------------------------------------------------------------------------------------------------------
Continuing directors with a term expiring in 2001:
Richard M. Heibel, M.D. 1996 Retired in September 1996; prior thereto Cardiologist with
Consultants in Cardiology, Inc.; Member of the Audit
Committee, the Compensation Committee and the Investment
Committee; Age 52.
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 55.
</TABLE>
5
<PAGE> 7
VOTE REQUIRED
Only affirmative votes are counted in the election of directors. The three
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 1998 there were nine 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. Davis S. Egan was elected to the Board at
the Annual Meeting of Shareholders on May 5, 1998 and joined the Investment
Committee on 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 control procedures. The Audit Committee held
three meetings in 1998.
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 subcommittee of the Compensation Committee called the Stock Compensation
Subcommittee (which does not include Mr. Kampmeinert or Mr. Barnes) which
administers the Company's 1995 Long-Term Incentive Compensation Plan and 1998
Employee Long-Term Incentive Compensation Plan as to employees. The Compensation
Committee held six meetings in 1998.
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 two meetings in 1998.
The Investment Committee is responsible for overseeing the management of the
Company's investments. The Investment Committee held one meeting in 1998.
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 $500 for attendance
at each committee meeting.
Pursuant to amendments to the Company's 1995 Long Term Incentive Compensation
Plan, approved by the shareholders on April 22, 1997, the Board is permitted to
make grants and awards under the Plan from time to time to non-employee
directors.
During 1998, the Board made nonstatutory stock option grants pursuant to the
Company's 1995 Long-Term Incentive Compensation Plan in the amount of 7,000
shares each to non-employee directors Robert W. Kampmeinert, James J. Barnes,
Daniel P. Barry, David S. Egan and Dr. Richard H. Heibel. These option grants
were made with an exercise price equal to the fair market value of the Company's
Common Stock at the date of grant, were immediately exercisable and remain
outstanding for a period of ten years.
Mr. Kampmeinert is the President of Parker/Hunter Incorporated, which has been
paid fees for services rendered. Mr. Barnes is a partner in the law firm
Buchanan Ingersoll, a Professional Corporation, which has been paid fees for
services rendered. See the disclosure provided under "Compensation Committee
Interlocks and Insider Participation."
6
<PAGE> 8
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding compensation
received by the Chief Executive Officer and the four remaining most highly
compensated executive officers of the Company as of December 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION AWARDS
SECURITIES
ANNUAL COMPENSATION RESTRICTED STOCK UNDERLYING ALL OTHER
NAME/PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) AWARDS ($) OPTIONS(#) COMPENSATION($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christian L. Allison 1998 $193,000 $ 45,495 ----- 50,000 -----
Chief Executive Officer 1997 180,300 96,500 ----- 35,000 -----
1996 165,000 81,346 ----- 25,000 -----
Robert L. Cornelia 1998 112,350 19,661 ----- 25,000 -----
Executive V.P., 1997 105,600 36,750 ----- ----- -----
Operations 1996 73,800 17,968 ----- 22,000 -----
Rocco L. Flaminio 1998 105,000 18,375 ----- 11,000 -----
Vice Chairman, 1997 100,000 35,000 ----- ----- -----
Chief Technology Officer 1996 100,000 38,846 ----- 12,000 -----
Samuel C. Knoch 1998 114,490 20,036 ----- 25,000 -----
Chief Financial Officer 1997 106,800 37,450 ----- ----- -----
and Treasurer 1996 38,500(2) 25,000(3) ----- 15,000 -----
Mark B. Peterson 1998 178,116(4) ----- ----- 25,000 -----
Executive V.P., 1997 31,730(5) 20,000(6) ----- 10,000 -----
Sales 1996 ----- ----- ----- ----- -----
</TABLE>
(1) The 1998 and 1997 cash bonuses, which were awarded in accordance with the
Company's Management Incentive Compensation Plan, were paid to the
executive officers following the end of each such fiscal year. In addition,
a portion of the 1996 cash bonuses were paid to the executive officers
following the end of that fiscal year.
(2) Mr. Knoch became an employee of the Company on August 5, 1996, and this
figure represents salary for the period from such date through the end of
the fiscal year.
(3) The cash bonus paid to Mr. Knoch for 1996 represents payments made in
connection with special incentive awards paid after performance of
specified activities during Mr. Knoch's first year of employment, as well
as a cash bonus paid to executive officers following the end of 1996,
applicable to 1996 performance.
(4) Includes $26,002 in commissions paid to Mr. Peterson under the Company's
sales commission programs in 1998.
(5) Mr. Peterson became an employee of the Company on October 6, 1997 and this
figure represents salary for the period from such date through the end of
the fiscal year.
(6) Represents a signing bonus paid to Mr. Peterson upon start of employment.
7
<PAGE> 9
OPTION GRANTS
The following table sets forth information concerning stock option grants made
during 1998 to the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTIONS GRANTED IN 1998
- ----------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE OF
------------------------------------------ ASSUMED ANNUAL RATES OF STOCK
NO. OF SECURITIES % OF TOTAL OPTIONS PRICE FOR OPTION TERM (2)
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE/ EXPIRATION -----------------------------
NAME GRANTED(#)(1) IN 1998 SHARE($/SH) DATE 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christian L. Allison 50,000(3) 9.3% $14.563 12/17/08 $457,914 $1,160,444
Robert L. Cornelia 10,000(4) 1.9% $19.625 1/29/08 123,421 312,772
15,000(5) 2.8% $15.125 12/23/08 142,680 361,580
Rocco L. Flaminio 5,000(4) .9% $19.625 1/29/08 61,710 156,386
6,000(5) 1.1% $15.125 12/23/08 57,072 144,632
Samuel C. Knoch 10,000(4) 1.9% $19.625 1/29/08 123,421 312,772
15,000(5) 2.8% $15.125 12/23/08 142,680 361,580
Mark B. Peterson 10,000(4) 1.9% $19.625 1/29/08 123,421 312,772
15,000(5) 2.8% $15.125 12/23/08 142,680 361,580
</TABLE>
(1) Options were granted pursuant to the 1995 Long-Term Incentive Compensation
Plan. The exercise price per share was equal to the fair market value of
the Company's Common Stock on the date of grant, as calculated in
accordance with the Plan. Fair market value is the mean of the high and low
sales prices of the Company's Common Stock on the date of grant on the
NASDAQ National Market System as reported in The Wall Street Journal. The
exercise price may be paid in cash, in shares of Common Stock or in any
combination of cash and such shares.
(2) The 5% and 10% assumed annual rates of stock price appreciation do not
reflect actual changes in the fair market value of the Company's Common
Stock since the date of grant. The information in the table is provided in
accordance with the rules of the SEC regarding the disclosure of
compensation of executive officers. The information is not intended to
forecast possible future stock price appreciation, if any.
(3) Options are first exercisable in three equal installments on December 17,
1998, December 17, 1999 and December 17, 2000.
(4) Options are first exercisable in three equal installments on January 29,
1998, January 29, 1999 and January 29, 2000.
(5) Options are first exercisable in three equal installments on December 23,
1998, December 23, 1999 and December 23, 2000.
OPTION EXERCISES AND VALUES
The following table sets forth information concerning option exercises made
during 1998 and the value of unexercised options as of December 31, 1998 for the
persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE UNEXERCISED OPTIONS AT 12/31/98(#) AT DECEMBER 31, 1998($)(2)
NAME AT EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christian L. Allison 24,000 $489,960 100,528 44,999 $304,116 $156,248
Robert L. Cornelia ----- ------ 33,498 16,666 34,972 41,250
Rocco L. Flaminio 30,000 629,325 20,512 7,333 29,741 16,500
Samuel C. Knoch ----- ------ 23,334 16,666 20,625 41,250
Mark B. Peterson ----- ------ 15,001 19,999 20,625 41,250
</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.
8
<PAGE> 10
(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, 1998 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. In 1998, the members of the Company's Compensation Committee were
James J. Barnes, Daniel P. Barry, Dr. Richard H. Heibel and Robert W.
Kampmeinert. 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 1998 as they affected the Company's executive
officers, including the Chief Executive Officer and the other individuals named
in the Summary Compensation Table.
COMPENSATION PHILOSOPHY
The Company's compensation philosophy is designed to (i) attract and retain key
employees, including the executive officers, of outstanding ability, (ii)
motivate employees to perform to the full extent of their abilities, (iii)
ensure compensation is competitive with other leading companies in the Company's
industry and with companies of similar size, (iv) reward employees for
corporate, group and individual performance and (v) 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 1998 consisted of base
salary, bonus and stock option awards under the 1995 Long-Term Incentive
Compensation Plan. The Company utilized a "3/5/7" standard to determine 1998
executive officer salary increases from the 1997 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 1998 salaries for
executive officers, other than the Chief Executive Officer, were determined by
the Chief Executive Officer by delegation of authority of, and approval by, the
Compensation Committee.
BONUSES. Cash bonuses were paid to the executive officers of the Company for
1998 performance pursuant to certain discretionary provisions of the Company's
Management Incentive Compensation Plan ("MICP"). The MICP is applicable to the
Chief Executive Officer and all other executive officers. 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 made under the MICP are based upon certain Company
performance objectives, taking into account the effect of the aggregate bonus
payment. Individual awards are 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 determines the percentage of their base
salary to be paid as a bonus, provided the performance objectives are met. The
MICP is administered by the Compensation Committee. In January, 1999, the
Compensation Committee recommended to the Board and the Board approved, payment
of a discretionary bonus under the MICP of 50% of the amount that would have
been paid had the Company met 100% of its financial goals. That payment,
applicable to the 1998 performance, was paid to the Chief Executive Officer, the
executive officers and other employees following the end of the 1998 fiscal year
to recognize the strong performance of employees in the face of adverse market
conditions.
LONG-TERM INCENTIVE COMPENSATION. Long-term incentive compensation is provided
to eligible employees through the Company's 1995 Long-Term Incentive
Compensation Plan and 1998 Employee Long-Term Incentive Compensation Plan. The
1995 Long-Term Incentive Compensation Plan is intended to provide long-term
incentive compensation to officers and non-employee directors of the Company,
while the 1998 Employee Long-Term Incentive Plan, adopted by the Board of
Directors of the Company in January 1998, provides long-term incentive
compensation to the non-officer employees of the Company. During 1998, long-term
incentive awards, dates, amounts and recipients were suggested by executive
management and approved by the Compensation Committee. Pursuant to the 1995
Long-Term Incentive Compensation 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
1997 financial performance, in January, 1998 the Compensation Committee granted
fair market value nonstatutory stock options to certain individuals, including
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executive officers. In addition, in December, 1998, fair market value
nonstatutory stock options were granted to management, including executive
officers, based upon the Company's and such individual's 1998 performance.
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. The
Compensation Committee believes that such awards provide an effective incentive
for the recipients to increase shareholder value over the long-term.
OTHER COMPENSATION MATTERS. Following the death of the Company's founder and
former Chairman, R. Craig Allison, the Committee approved payment to Mr.
Allison's estate equal to one year's base salary, plus payment to Mr. Allison's
widow of the cost of health benefits extended under COBRA for a period of
eighteen months. These payments were made in recognition of the contributions
made by Mr. Allison in his many years of past service with the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In 1998, 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 1998 base salary was
determined in accordance with the terms of his employment agreement, which is
described elsewhere in this Proxy Statement. In December 1998, the Compensation
Committee increased the base salary level payable under this employment
agreement, based upon individual and Company performance in 1998. In determining
the level of increase in base salary payable to the Chief Executive Officer, the
Committee took into account the salary increase for the executive officer group
and increased Mr. Allison's salary by 3.5% based upon significant Company
performance and individual performance. This percentage was less than the
increase for the executive officer group, at Mr. Allison's request.
The Committee also approved, in January, 1999, based upon 1998 performance,
payment to Mr. Allison of a cash bonus under the discretionary provisions of the
MICP in the amount of $45,495, to reward Mr. Allison for significant individual
and Company performance. In December 1998, the Stock Compensation Subcommittee
granted to Mr. Allison 50,000 stock options based upon his significant
contribution to Company performance in 1998 and his contributions as both Chief
Executive Officer and Chairman of the Board for a majority of the year.
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 the value
of such payments and awards, when combined with other includable compensation,
is well below the $1 million limit. The Committee has taken and intends to
continue to take whatever actions are reasonably 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.
James J. Barnes
Daniel P. Barry
Dr. Richard H. Heibel
Robert W. Kampmeinert
EMPLOYMENT AGREEMENT
Christian L. Allison is employed pursuant to an employment agreement, as
amended, with the Company originally dated December 13, 1995. Such agreement, as
amended, provides for a base annual salary of $193,000, 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. The agreement is for an initial term of two years
and is automatically extended for successive additional terms of one year,
unless terminated by either the Company or the employee. In December, 1998, the
Board of Directors increased the base salary under the agreement to $200,000.
The agreement was amended effective December 30, 1998 to reflect this increase.
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The 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 agreement, "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
(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 employee 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 agreement with Mr. Allison, as described above.
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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 1998 and it is expected that
the Company will continue to utilize Parker/Hunter's services during 1999. James
Barnes, a director of the Company and a member of the Compensation Committee, is
a shareholder with the law firm of Buchanan Ingersoll, a Professional
Corporation, which has performed legal services on behalf of the Company in the
past. The Company may utilize the services of Buchanan Ingersoll in 1999.
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, 1998. This graph assumes a $100 investment on December
14, 1995 and assumes the reinvestment of dividends.
[GRAPH]
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,and became effective on November 15, 1995. The
Plan was amended by the Board of Directors on March 6, 1996 in certain respects
which did not materially increase the benefits afforded to participants, and was
further amended by the Company's Board of Directors on February 17, 1997, which
amendments were approved by the shareholders on April 22, 1997.
An amendment (the "Amendment") to the Plan was adopted by the Company's Board of
Directors on February 18, 1999, 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
Amendment to the Plan (such Plan, including the Amendment, is referred to herein
as the "Amended Plan"). If the shareholders of the Company do not approve the
Amendment as proposed in this Proxy Statement, the Plan shall remain in effect
without including the Amendment. The principal features of the Amended Plan are
summarized below. Such summary, however, is qualified in its entirety by the
full text of the Plan, which is set forth as Exhibit A to this proxy statement.
DESCRIPTION OF THE AMENDED PLAN
AMENDMENT. The description of the Amended Plan provided below describes the Plan
as amended by the Amendment. In general, the Amendment was adopted to increase
the number of shares available under the Plan by 230,000 shares, from 875,000
shares to 1,105,000 shares. The Board also added language to clarify its
interpretation of Section 4.1(a) of the Plan that the number of shares that may
be granted to any Named Executive Officer (as defined in the Plan) is 100,000 in
any calendar year during the term of the Plan.
In approving the increase to the authorized shares under the Amended
Plan, the Board of Directors also approved, contingent upon approval of the
Amendments by the shareholders, a cancellation of 230,000 shares under the
Company's 1998 Employee Incentive Compensation Plan. This action was taken so
that the increase in shares proposed in the Amendments would not result in a
dilution of outstanding shares in the event all shares available for issuance
under both plans were awarded and exercised. The cancellation of shares under
the 1998 Employee Incentive Compensation Plan will only become effective if the
shareholders approve the increase in
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authorized shares under the Amended Plan. If the shareholders do not approve the
Amendments, the 230,000 shares will remain available for grant under the 1998
Employee Incentive Compensation Plan. The effect of the transfer of shares from
the employee plan to the Amended Plan is to provide additional flexibility for
the Committee, which can make grants to either officers or employees under the
Amended Plan, and to provide a further benefit by obtaining Section 162(m)
protection (as described below) for the additional 230,000 shares which would be
granted under the Amended Plan. In addition, the Company has attempted to avoid
further dilution of shareholders pursuant to the Amended Plan by its institution
in 1997 of a share repurchase program. As of December 31, 1998, the Company had
purchased 106,900 shares of Common Stock under this program.
DISCRETIONARY VOTING. The number of shares authorized to be added to the Amended
Plan does not exceed five percent of the Company's current number of outstanding
shares. As a result, pursuant to Rule 402.08 of the NYSE rules, applicable under
Rule 2260 of the NASD rules, the action is a routine matter as to which a member
organization can exercise discretionary voting in favor of the proposal, unless
it receives voting instructions to the contrary from the beneficial owner of the
shares.
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 1,105,000 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 any
calendar year of the life of the Plan is 100,000 shares, subject to adjustment
and substitution as set forth in Section 4. The maximum aggregate cash payout
received in any fiscal year by a Named Executive Officer with respect to awards
granted shall be $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
that 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 Rule 16b-3 under the
Exchange Act. The Board has appointed the Stock Compensation Subcommittee (the
"Committee") of the Compensation Committee 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 Amended Plan respect to
non-employee directors. As used herein, the term "Appropriate Administrator"
means the Committee as it relates to administration with respect to awards by
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.
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
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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 12, 1999, the fair market value of a share of the
Company's Common Stock, as so computed, was $15.8125.
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 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 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 of the date the non-employee director ceases to be a Director,
whichever is the shorter period. If during the term of his or her office as a
Director the 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, then any 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 day s 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.
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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, except that no shares of Common Stock
which have been held less than six months may be delivered in payment of the
option price of a stock option. 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 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
(determined as above under "Stock Options") 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
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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.
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. 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 the shareholders approve a change in the general performance measures
set forth in the Amended 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 quality 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).
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
162(m).
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<PAGE> 18
CHANGE IN CONTROL. The Amended Plan provides for certain additional rights upon
the occurrence of a "Change in Control" as defined in Section 2.6 of the Amended
Plan. Upon the occurrence of a Change in Control (as defined below):
(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 period(s) 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 exemptions; 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
shall have been 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; 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
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 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 option or
performance 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 or 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.
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<PAGE> 19
The terms and conditions of each grant and award under the Amended 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,
and/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
and/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).
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 already-owned Common
Stock in payment of the option price upon exercise of a stock option granted
under the Amended 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 Amended Plan may, however, by matched for Section 16(b) purposes with
a purchase of Common Stock (other than under the Amended 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
18
<PAGE> 20
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 Company 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 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. An awardee may, however, make an election under Section 83(b)
of the Code to recognize compensation income on the date of receipt. In each
case, the amount of compensation income will equal the amount of cash and the
fair market value of the shares of Common Stock on the date compensation income
is recognized. 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 of control event as defined in the Amended
Plan, in certain circumstances, 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, (ii) performance units or performance
shares or (iii) 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
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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 1998, a total of 315,000 nonstatutory stock options were granted under the
Amended Plan. The following table sets forth information regarding options
granted under the Plan in 1998 for (i) the named executive officers in the
Summary Compensation Table, (ii) all executive officers of the Company as a
group, (iii) all current non-employee directors as a group, (iv) all
non-executive officer employees of the Company as a group and (v) any additional
persons who received over 5% of the options granted in each instance.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION NO. OF SHARES
<S> <C>
Christian L. Allison, Chief Executive Officer.............................................50,000 (1)
Robert L. Cornelia, Executive Vice President, Operations..................................25,000 (2)
Rocco L. Flaminio, Vice Chairman and Chief Technology Officer.............................11,000 (3)
Samuel C. Knoch, Chief Financial Officer..................................................25,000 (2)
Mark B. Peterson, Executive Vice President, Sales.........................................25,000 (2)
Mark C. Frey, Senior Vice President, Engineering .........................................20,000 (4)
Joseph G. O'Brien, Senior Vice President, Organizational Development......................25,000 (2)
Matthew J. Rosgone, Senior Vice President, Purchasing/Manufacturing.......................20,000 (4)
All executive officers as a group (13 persons)...........................................264,000
All current non-employee Directors as a group (5 persons).................................35,000 (5)
All non-executive officer employees as a group (4 persons)................................16,000
</TABLE>
(1) Options were granted December 17, 1998, with an exercise price of $14.5625
per share. Options vest in three equal installments on December 17, 1998,
December 17, 1999 and December 17, 2000.
(2) Options for 10,000 shares were granted on January 29, 1998 with an exercise
price of $19.625, and vest in three equal installments on January 29, 1998,
January 29, 1999 and January 29, 2000. The remaining 15,000 options were
granted on December 23, 1998 with an exercise price of $15.125 and vest in
three equal installments on December 23, 1998, December 23, 1999 and
December 23, 2000.
(3) Options for 5,000 shares were granted on January 29, 1998 with an exercise
price of $19.625, and vest in three equal installments on January 29, 1998,
January 29, 1999 and January 29, 2000. The remaining 6,000 options were
granted on December 23, 1998 with an exercise price of $15.125 and vest in
three equal installments on December 23, 1998, December 23, 1999 and
December 23, 2000.
(4) Options for 5,000 shares were granted on January 29, 1998 with an exercise
price of $19.625, and vest in three equal installments on January 29, 1998,
January 29, 1999 and January 29, 2000. The remaining 15,000 options were
granted on December 23, 1998 with an exercise price of $15.125 and vest in
three equal installments on December 23, 1998, December 23, 1999 and
December 23, 2000.
(5) Options were granted on December 17, 1998 with an exercise price of
$14.5625 per share and vest immediately.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company, following recommendation of the Audit
Committee, has appointed the independent auditing firm of PricewaterhouseCoopers
LLP (formerly Coopers & Lybrand LLP) to examine the consolidated financial
statements of the Company for the 1999 fiscal year. PricewaterhouseCoopers LLP
audited the financial statements of the Company for the 1998 fiscal year.
Although appointment of independent auditors is not required to be submitted to
a vote of the shareholders, the Board believes that the shareholders should
participate in the selection of independent auditors through the ratification
process. The proxies solicited on behalf of the Board of Directors will be voted
for that firm unless otherwise specified.
In the event that the shareholders fail to ratify the appointment, the
Board will consider such vote as a recommendation to appoint other independent
auditors for the 2000 fiscal year. The Board of Directors expects that
representatives of
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<PAGE> 22
PricewaterhouseCoopers LLP 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. The Company may also hire a proxy
solicitation firm, the costs of which are not determined at this time but which
would be paid by the Company.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's Proxy Statement for the
2000 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 26, 1999.
In connection with the 2000 Annual Meeting of Shareholders, if the
Company does not receive notice of a matter or proposal to be considered
(whether or not the proponent thereof intends to include such matter or proposal
in the proxy statement of the Company) on or before February 10, 2000, then the
persons appointed by the Board to act as the proxies for such Annual Meeting
will be allowed to use their discretionary voting authority with respect to any
such matter or proposal at such Annual Meeting, if such matter or proposal is
raised at such Annual Meeting.
By Order of the Board of Directors,
/s/ SARA M. ANTOL
Sara M. Antol
Chief Counsel and Corporate Secretary
March 26, 1999
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<PAGE> 23
EXHIBIT A
TOLLGRADE COMMUNICATIONS, INC.
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
(AS AMENDED THROUGH FEBRUARY 18, 1999)
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.
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.
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<PAGE> 24
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.
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
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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.
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
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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 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.
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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 1,105,000;
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:
(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 any calendar year of 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
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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 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 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:
(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
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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 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 shall 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;
(ii) If during his or her term of office as a Director a
Non-employee 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
Non-employee Director shall 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;
(iii) 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) shall 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
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shall die 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;
(iv) 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.
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 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.
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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.
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
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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 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.
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<PAGE> 33
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.
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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<PAGE> 34
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.
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
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<PAGE> 35
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). 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 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.
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<PAGE> 36
ARTICLE 20. 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.
ARTICLE 21. 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.
ARTICLE 22. 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> 37
<TABLE>
<CAPTION>
<S> <C> <C>
Please mark
your vote as
indicated in [X]
this example
1. ELECTION OF DIRECTORS FOR A TERM EXPIRING IN 2002:
CHRISTIAN L. ALLISON, DANIEL P. BARRY, DAVID S. EGAN
FOR WITHHOLD INSTRUCTION: To withhold authority to vote for any individual 3. Ratification of the appointment
all nominees AUTHORITY nominee(s), write the names of such nominee(s) in the space of PricewaterhouseCoopers LLP
(except as to vote for provided: as auditors for fiscal year
indicated) all nominees. ending December 31, 1999.
[ ] [ ] ------------------------------------------------------------- FOR AGAINST ABSTAIN
2. Amendments to the Tollgrade Communications, Inc. 1995 [ ] [ ] [ ]
Long-Term Incentive Compensation Plan.
4. In his discretion, the Proxy is
FOR AGAINST ABSTAIN 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) SIGNATURE(S) DATE , 1999
------------------------------------------ -------------------------------- ---------------------
FOLD AND DETACH HERE
Please sign, date and return your proxy in the enclosed envelope.
</TABLE>
<PAGE> 38
TOLLGRADE COMMUNICATIONS, INC.
1999 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 May 6, 1999 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
TOLLGRADE(R)
NETWORK ASSURANCE SIMPLIFIED.
