SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
INTELECT 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):
[x] No fee required.
[ ] 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:
________________________________________________________________
<PAGE>
INTELECT COMMUNICATIONS, INC.
To the Stockholders of Intelect Communications, Inc.:
You are requested to vote on the matters being presented for action at the
1998 Annual Meeting of Stockholders of Intelect Communications, Inc. Our meeting
is called for June 18, 1998 at the Company's CS4 Project Office located at 1240
East Campbell Road, Richardson, Texas 75081.
The attached Notice of Annual Meeting and Proxy Statement describe the
business of the meeting. There will also be a review of the Company's progress
and plans. Directors and officers of the Company will be present to respond to
shareholder inquiries.
We cordially invite you to attend the meeting. Whether or not you plan to
attend the meeting, please sign, date, and return the enclosed proxy promptly in
the envelope provided. If you attend the meeting, you may, at your discretion,
withdraw the proxy and vote in person.
Thank you for your time and consideration to respond to this request.
Sincerely,
/s/Herman M. Frietsch
Herman M. Frietsch
Chairman
Enclosures
April 28, 1998
1
<PAGE>
INTELECT COMMUNICATIONS, INC.
NOTICE OF THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 18, 1998
To the Stockholders of Intelect Communications, Inc.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
Intelect Communications, Inc. (the "Company") will be held on June 18, 1998, at
11:30 a.m. at the Company's CS4 Project Office located at 1240 East Campbell
Road, Richardson, Texas 75081 (the "Meeting") for the purpose of considering and
voting upon the following matters:
1. To elect one (1) director of the Company;
2. To approve an amendment to increase the number of shares reserved
for issuance under the Company's Stock Incentive Plan;
3. To consider and act upon a proposal to approve the appointment of
Arthur Andersen LLP as independent auditor of the Company for 1998;
and
4. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on
April 20, 1998 as the record date for the meeting, and only holders of Common
Stock of record at such time will be entitled to vote at the meeting or any
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
EDWIN J. DUCAYET, JR., ASSISTANT SECRETARY
Richardson, Texas
April 28, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE NEED
BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
JUNE 18, 1998
This Proxy Statement accompanies the Notice (the "Notice") of the Annual
Meeting of Stockholders of Intelect Communications, Inc. (the "Company") and is
furnished in connection with the solicitation by the Board of Directors of the
Company of proxies to be voted at the Annual Meeting of Stockholders of the
Company (the "Meeting") and at any and all adjournments of such Meeting. The
Meeting is to be held on June 18, 1998, at the Company's CS4 Project Office
located at 1240 East Campbell Road, Richardson, Texas 75081 at 11:30 a.m.
The Company's Annual Report for the year ended December 31, 1997 is being
mailed to stockholders with the mailing of the Notice of Meeting and Proxy
Statement. The Notice of Meeting, this Proxy Statement, the Annual Report, and
the enclosed proxy are being first mailed to stockholders on or about April 28,
1998.
EXERCISE OF DISCRETION BY PROXIES
Each properly executed proxy received at or before the Meeting on June 18,
1998 or any adjournments thereof will be voted at the meeting as specified
therein. A proxy may be revoked at any time prior to its exercise by delivering
written notice of its revocation to the Secretary of the Company, by a later
dated proxy, or by attending the Meeting and voting in person. If a stockholder
does not specify otherwise, the shares represented by proxy will be voted as
recommended by the Board of Directors. Thus, IF NO DIRECTIONS ARE GIVEN, THE
PROXY WILL BE VOTED FOR: (1) THE ELECTION OF MANAGEMENT'S NOMINEE AS DIRECTOR;
(2) AN AMENDMENT TO THE COMPANY'S STOCK INCENTIVE PLAN TO INCREASE IN THE NUMBER
OF SHARES RESERVED FOR ISSUANCE UNDER THE PLAN; AND (3) THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS AUDITOR OF THE COMPANY FOR 1998.
The enclosed form of proxy confers discretionary authority upon the
persons named therein with respect to amendments or variations to matters
identified in the Notice and with respect to other matters which are
appropriately brought before the Meeting. Except as disclosed herein, at the
date hereof, the management of the Company knows of no such amendments,
variations or other matters.
The expense of this proxy solicitation, including the cost of preparing
and mailing the Proxy Statement and the proxy, will be paid by the Company. Such
expense may also include the charges and expenses of banks, brokerage firms and
other custodians, nominees or fiduciaries for forwarding proxies and proxy
material to beneficial owners of the Company's Common Stock. The Company expects
to solicit proxies primarily by mail, but directors, officers, employees, and
agents of the Company may also solicit proxies in person or by telephone or by
other electronic means. In addition, the Company has retained American Stock
Transfer and Trust Company to assist in the solicitation of proxies for which
the Company will pay an estimated $10,000 in fees, plus expenses and
disbursements. The Proxy Statement and the accompanying proxy were first mailed
to stockholders on or about April 28, 1998.
VOTING SHARES, QUORUM AND VOTES REQUIRED
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock entitled to vote at the Meeting shall constitute a quorum
for the transaction of business. Proposals to be voted on at the Meeting require
the affirmative vote of a majority of the voting power present and entitled to
vote at the meeting. Votes cast
1
<PAGE>
by proxy or in person at the Meeting will be tabulated by the election
inspectors appointed for the meeting. Abstentions and broker non-votes (as
hereafter defined) will be counted as present by the election inspectors for the
purpose of determining the presence of a quorum. For the purpose of computing
the vote required for approval of matters to be voted on at the Meeting, the
election inspectors will treat shares held by a stockholder who abstains from
voting as being "present" and "entitled to vote"on the matter and, thus, an
abstention has the same legal effect as a vote against the matter. However, in
the case of a broker non-vote or where a stockholder withholds authority from
his proxy to vote the proxy as to a particular matter, such shares will not be
treated as "present" and "entitled to vote" on the matter, and, thus, a broker
non-vote or the withholding of a proxy's authority will have no effect on the
outcome of the vote on the matter. A "broker non-vote" refers to shares of the
Company's Common Stock represented at the Meeting in person or by proxy by a
broker or nominee, where such broker or nominee does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to such proposal and has not received voting instructions on a
particular matter from the beneficial owners or persons entitled to vote. Under
the rules of the National Association of Securities Dealers, generally, brokers
holding stock for the accounts of their clients who have not been given specific
voting instructions as to a matter by their clients may vote their clients'
proxies in their own discretion.
A stockholder may, with respect to the election of directors: (i) vote for
the election of the nominee named herein; or (ii) withhold authority to vote for
such nominee. A stockholder may, with respect to each other matter to be voted
upon: (i) vote for the matter; (ii) vote against the matter; or (iii) abstain
from voting on the matter.
Only holders of the Company's Common Stock of record at the close of
business on April 20, 1998, will be entitled to receive notice of and to vote at
the Meeting. The Company had 24,177,190 shares of Common Stock outstanding on
the record date which are entitled to vote, and each such share is entitled to
one vote.
PROPOSAL 1: ELECTION OF DIRECTOR
The Company currently has five director seats, one of which is currently
vacant. Pursuant to the Company's By-Laws, the Board of Directors intends to
fill that vacancy when a suitable candidate is located. The Board of Directors
is grouped into three classes. In accordance with the Company's Restated By-Laws
and its Amended and Restated Certificate of Incorporation, the directors are
elected for staggered three year terms. One of three classes is elected each
year to succeed the directors whose terms are expiring. At this Meeting, the
term of one of the director seats, that of Robert E. Garrison II, expires. The
director nominated for election at this Meeting would hold office for a three
year term expiring in 2001. Other directors are not up for election this year
and will continue in office for the remainder of their terms.
DIRECTOR NOMINATED THIS YEAR FOR TERM EXPIRING IN 2001.
ROBERT E. GARRISON II, 56, is a partner with Harris, Webb & Garrison, Inc.
a regional investment banking and brokerage firm, since February 1994. Mr.
Garrison is also the Chairman and Chief Executive Officer of Pinnacle Management
& Trust Company, a state chartered independent trust company, since June 1994.
From October 1992 to February 1994, Mr. Garrison served as Chief Executive
Officer of Health Care Capital Group, Inc., a regional investment bank focusing
on the health care industry. From 1991 until October 1992, Mr. Garrison served
as Chairman and Chief Executive Officer of Med Center Bank & Trust Company, an
independent bank located in Houston, Texas. Mr. Garrison serves on the Board of
Directors of Somerset House Publishing, Inc., FFP Partners, Harris Webb &
Garrison, Inc., Pinnacle Management & Trust Co., and BioCyte Therapeutics, Inc.
Mr. Garrison has been a director of the Company and Intelect Communications
Systems Limited ("Intelect (Bermuda)") since July 1997 and serves as a member of
the Audit Committee and the Stock Option Committee.
2
<PAGE>
The Board of Directors recommends a vote FOR this nominee, and unless
otherwise instructed or unless authority to vote is withheld, the enclosed proxy
will be voted FOR the election of the nominee. Proxies may not be voted for a
greater number of persons than the one nominee named. Although the Board of
Directors of the Company does not contemplate that the nominee will be unable to
serve, if such a situation exists prior to the Meeting, the persons named in the
enclosed proxy will vote for the election of such other person as may be
nominated by the Board of Directors.
DIRECTOR UP FOR ELECTION IN 1999.
PRINZ ANTON VON AND ZU LIECHTENSTEIN, 57, is a private investor and has
been so for the past five years; Director of the Company and Intelect (Bermuda)
since 1980; First Managing Director of Intelect (Bermuda); Chairman of the Stock
Option Committee.
DIRECTORS UP FOR ELECTION IN 2000.
HERMAN M. FRIETSCH, 58, Chairman of the Board of the Company and Intelect
(Bermuda) since 1989; Chief Executive Officer since February 1997; Director
since 1988; Executive Chairman from October 1995 to February 1997; Mr. Frietsch
also serves as Chairman of the Compensation Committee.
PHILIP P. SUDAN, JR., 47, is a partner with Ryan & Sudan, L.L.P. and has
been so for the past five years. Mr. Sudan has been a director of the Company
and Intelect (Bermuda) since February 1997. Mr. Sudan is Chairman of the Audit
Committee, and is also a member of the Stock Option Committee and the
Compensation Committee.
For information relating to Common Stock owned by each of the directors,
see "Security Ownership of Certain Beneficial Owners and Management."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 20, 1998,
the record date, with respect to the beneficial ownership of the Company's
Common Stock by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock; (ii) each director and nominee for
director; (iii) each executive officer named in the Summary Compensation Table
under the heading "Executive Compensation" below; and (iv) all directors and
executive officers of the Company as a group. Unless otherwise indicated, the
information included below is based upon the Company's stock transfer records as
maintained by the Company's stock transfer agent.
The number of Common Stock beneficially owned by each director or
executive officer is determined under the rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire within 60 days after April 20, 1998 through the exercise of any stock
option or other right. Unless otherwise indicated, each person has sole
investment and voting power (or shares such power with his or her spouse) with
respect to the shares set forth in the following table. The inclusion herein of
any shares deemed beneficially owned does not constitute admission of beneficial
ownership of those shares.
3
<PAGE>
Name and Address Amount and Nature of Percent of Class
of Beneficial Owner Beneficial Ownership
- -------------------------- ---------------------- -------------------------
Herman M. Frietsch 862,228(1) 3.50%
1100 Executive Drive
Richardson, Texas
Peter E. Ianace 148,095(2) *
1100 Executive Drive
Richardson, Texas
R. Eugene Helms 135,000(3) *
269 W. Renner Parkway
Richardson, Texas
Edwin J. Ducayet, Jr. 75,670(4) *
1100 Executive Drive
Richardson, Texas
Anton Liechtenstein 402,400(5) 1.66%
Administration and Trust Co.
Josef Rheinbergerstrasse 6
Vaduz, Liechtenstein
Philip P. Sudan, Jr. 246,973(6) 1.02%
Two Houston Center, Suite 3900
Houston, Texas
Robert E. Garrison II 125,000(7) *
5599 San Felipe, 3rd Floor
Houston, Texas
The Coastal Corporation Second 6,155,828(8) 20.99%
Pension Trust
Nine Greenway Plaza
Houston, Texas 77046
SJMB, L.P. 2,637,279(9) 9.85%
1980 Post Oak Blvd., Suite 2030
Houston, Texas 77056
All Directors and Executive 1,900,366 (10)
Officers as a group (7 persons) 7.86%
- ------------------------------- -------------------- -------------------------
(1) Includes 439,998 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998. Includes
20,320 shares which assumes the conversion at a price of $5.25 per dollar
of outstanding principal and interest of a loan made by Mr. Frietsch to
the Company. See "Certain Transactions". Includes 6,000 shares owned
beneficially by Mr. Frietsch's spouse as to which he disclaims beneficial
ownership.
(2) Includes 140,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998.
4
<PAGE>
(3) Includes 120,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998.
(4) Includes 53,332 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998.
(5) Includes 125,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998.
(6) Includes 120,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998. Includes
26,973 shares which assumes the conversion at a price of $5.25 per dollar
of outstanding principal and interest of a loan made by Mr. Sudan to the
Company. See "Certain Transactions".
(7) Represents 125,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998.
(8) Based solely upon information supplied to the Company by The Coastal
Corporation Second Pension Trust, includes 4,219,409 shares of Common
Stock issuable upon exercise of the Company's Series A Preferred Stock,
450,00 shares issuable upon conversion of a currently exercisable warrant,
and 485,143 shares which may be issued upon the conversion of certain
preferred stock which may be issued upon the conversion of certain loans
to convertible preferred stock. See "Certain Transactions."
(9) Based solely on information supplied to the Company by SJMB, L.P., as of
April 20, 1998. Includes 880,863 shares issuable upon conversion of
certain indebtedness and 1,200,000 shares issuable in connection with an
immediately exercisable warrant. Includes 36,200 shares held by an
affiliated entity, St. James Capital Corp., and 520,216 shares issuable to
another affiliated entity, St. James Capital Partners, L.P., of which
220,216 shares are issuable upon the conversion of certain indebtedness
and 300,000 shares of which are issuable in connection with an immediately
exercisable warrant.
(10) Includes 1,075,533 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 20, 1998.
* Indicates holdings of less than one percent.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's executive officers is set forth below.
The executive officers of the Company are elected by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE OFFICE AND EMPLOYMENT DURING LAST FIVE YEARS
- ---- --- --------------------------------------------
<S> <C>
Herman M. Frietsch 58 Chairman of the Board since
1989; Chief Executive Officer since February
1997; Director since 1988; Executive
Chairman from October 1995 to February 1997.
Peter E. Ianace 49 Vice President, Sales and Marketing since February 1997; Vice
President, Marketing and Distribution since June 1996;
President of Intelect Network Technologies Company (a
subsidiary of the Company) since November 1993; Chief
Executive Officer of Intelect Network Technologies Company
since July 1995; President of Opcom, Inc., a fiber optic
products manufacturer, from January 1992 to March 1993.
R. Eugene Helms 47 Vice President, Chief Technology Officer since June 1996;
President and Chief Executive Officer of DNA Enterprises,
Inc. (a subsidiary of the Company) since April 1996; President
and Owner of TeleSolutions Inc., a consulting firm, since
January 1990; Vice President, Engineering of Mizar, Inc., a
DSP products manufacturer, from March 1994 to October
1995.
5
<PAGE>
Edwin J. Ducayet, Jr. 58 Vice President and Chief Financial Officer since February
1997; Vice President and Chief Financial Officer of Intelect
Network Technologies Company since December 1991.
</TABLE>
BOARD AND COMMITTEE MEETINGS
The business of the Company is managed under the direction of the Board of
Directors. The current directors were elected by the unanimous written consent
of the sole shareholder of the Company on October 13, 1997. Upon consummation of
the reorganization of Intelect (Bermuda) on December 4, 1997, the Company became
a publicly traded company. Directors will serve for the remainder of their
respective terms or until their successors are elected. The Board meets on a
regularly scheduled basis to review significant developments affecting the
Company and to act on matters requiring Board approval. It also holds special
meetings and acts by written consent when important matters require Board action
between scheduled meetings. The Board of Directors of the Company and Intelect
(Bermuda) held 11 meetings during 1997. Each incumbent director attended at
least 75% of the aggregate of the total number of meetings of the Board of
Directors during the period for which he was a director and the total number of
meetings held by all committees of the Board of Directors on which the director
served during the period he served.
The Company's Board of Directors has three standing committees: the Audit
Committee, the Compensation Committee, and the Stock Option Committee.
The Audit Committee is responsible for approving the scope of the annual
audit and for making recommendations to the Board of Directors concerning the
selection of the Company's independent accountants. The Audit Committee also
reports to the Board of Directors concerning the Company's internal accounting
controls, factors that may affect the integrity of the Company's financial
reports, compliance by the Company's management and employees with Company
policies, and other matters. The members of the Audit Committee are Mr. Garrison
and Mr. Sudan. The Audit Committee met four times during 1997.
The Compensation Committee is responsible for determining the compensation
of the Company's senior management and establishing compensation policies for
the Company's employees generally. The members of the Compensation Committee are
Mr. Frietsch and Mr. Sudan. The Compensation Committee met six times during
1997. See "Compensation Committee Report on Executive Compensation" below.
The Stock Option Committee is responsible for administering the Company's
stock option plans. The members of the committee are Messrs. Garrison,
Liechtenstein and Sudan. Meetings of the Stock Option Committee generally are
adjunct to meetings of the Board. Actions of the Stock Option Committee are
formalized by documentation signed by all members. The Stock Option Committee
met seven times during 1997.
The Company does not have a nominating committee or a committee serving a
similar function. Nominations are made by and through the full Board of
Directors.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Currently, employee directors receive no compensation for their services
as directors, however, each non-employee, outside director is entitled to
receive a cash fee of $1,000 per month for service as a director, and members of
the Audit, Compensation, and the Stock Option Committees each are entitled to
receive a cash fee of up to $1,000 per month for work on each committee. The
outside directors have elected to defer the receipt of fees earned during 1997
in a non-qualified, unfunded, deferred compensation arrangement. Such amounts
are payable in 1998, at the
6
<PAGE>
election of the director, in cash. The Board of Directors is considering
implementing a proposal to allow the directors to receive the payment of
director fees in Common Stock. Non-employee, outside directors also may receive
grants of stock options in the discretion of the Board.
For a discussion of certain transactions between the Company and certain
directors and their affiliates, see "Certain Transactions."
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation paid
to Herman M. Frietsch, Chief Executive Officer of the Company, and the other
executive officers who have earned more than $100,000 in salary and bonus during
the last three completed fiscal years ended December 31, 1997 (the Chief
Executive Officer and such other executive officers are hereinafter referred to
as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------- Compensation
Awards
----------
Other Securities
Annual Underlying
Fiscal Compen- Options /
Name and Principal Positions Year Salary ($)Bonus ($) sation ($) SARS (#)
- ---------------------------- ------ --------- --------- ---------- ---------
Herman M. Frietsch 1997 250,000 - 4,096 250,000
Chairman and Chief 1996 250,000 - - 50,000
Executive Officer of the 1995 120,000 120,000 - 150,000
Company
- ----------------------------
Peter E. Ianace 1997 240,000 17,009 5,122 50,000
Vice President of the 1996 240,000 - 4,750 -
Company; President and 1997 160,000 - 350,000
CEO of Intelect Network
Technologies Company
- ----------------------------
R. Eugene Helms 1997 180,000 66,000 4,000 150,000
Vice President of the 1996 131,538 56,725 8,827 100,000
Company; President and
CEO of DNA Enterprises
- ----------------------------
Edwin J. Ducayet, Jr. 1997 138,740 - 4,381 100,000
Vice President, CFO,
Treasurer and Assistant
Secretary of the Company
The following table sets forth stock options granted in 1997 to each of
the Named Executive Officers. The table also set forth the hypothetical gains
that would exist for the options at the end of their ten-year terms at assumed
compound rates of stock appreciation of 5% and 10%. The actual future value of
the options will depend on the market value of the Company's Common Stock.
7
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
Number of % of Total
Securities Options/ Potential Realizable Value at
Underlying SARS Assumed Annual Rates of
Options Granted to Exercise Stock Price Appreciation for
/SARS Employees Price Expiration Option Terms(1)
Name Granted(#) in 1997 ($/Share) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herman M. Frietsch 200,000 9.06% 4.00 05/02/07 503,120 1,274,960
50,000 2.26% 6.25 08/22/07 196,531 498,031
Peter E. Ianace 50,000 2.26% 6.25 08/22/07 196,531 498,031
R. Eugene Helms 100,000 4.53% 3.00 05/02/07 188,670 478,110
50,000 2.26% 6.25 08/22/07 196,531 498,031
Edwin J. Ducayet, Jr 100,000 4.53% 2.00 05/02/07 125,780 318,740
</TABLE>
- ------------------------
(1) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options, if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
option holders' continued employment through the option period, and the
date on which the options are exercised. These amounts are not intended to
forecast possible future appreciation, if any, of the Company's stock
price.
The following table sets forth the number of shares acquired on exercise
of stock options and the aggregate gains realized on exercise in 1997 by the
Named Executive Officers. The table also sets forth the number of shares covered
by exercisable and unexercisable options held by such executives on December 31,
1997 and the aggregate gains that would have been realized had these options
been exercised on December 31, 1997, even though these options were not
exercised, and the unexercisable options could not have been exercised, on
December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Number of Securities Value of Unexercised In-
Common Underlying Unexercised the-Money Options/
Stock Value Options/SARS at Fiscal SARS at
Name Acquired on Realized Year-End (#) Fiscal Year-End(1) ($)
-------------------- ------------------------
Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------ -------- --------- -------- -------- ------------
<S> <C> <C> <C> <C>
Herman M. Frietsch - - 356,665 333,335 981,498 331,252
Peter E. Ianace - - 140,000 260,000 297,500 446,250
R. Eugene Helms - - 100,000 150,000 - 212,500
Edwin J. Ducayet, Jr. - - 19,999 115,001 34,415 330,210
</TABLE>
- ---------------------
(1) Market value of shares covered by in-the-money options on December 31, 1997,
less the option exercise price. Options are in-the-money if the market value of
the shares covered thereby is greater than the option exercise price.
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company
consists of Herman M. Frietsch and Philip P. Sudan, Jr. Mr. Frietsch serves as
the Chairman of the Board and Chief Executive Officer of the Company and Mr.
Sudan is a partner of Ryan & Sudan, L.L.P., outside counsel to the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") designs and directs the
compensation policies of the Company. The current members of the Committee are
Herman M. Frietsch and Philip P. Sudan, Jr. Committee members do not participate
in Board actions on compensation relating to themselves.
OVERVIEW AND PHILOSOPHY
The Committee in determining executive compensation follows the general
guideline of pay-for-performance while taking into account the need to provide
total compensation packages that will attract and retain qualified and effective
executives. Individual performance standards and accomplishments are reviewed
and considered in order to relate the compensation of executives to the
financial performance of the Company.
Various elements of compensation fulfill different roles in the
attraction, retention and motivation of qualified officers and employees. For
Named Executive Officers, greater emphasis is given to variable and contingent
forms of compensation and less emphasis is given to perquisites and other
benefits. The Company's executive officer compensation is comprised of base
salary, cash incentive bonuses, long-term incentive compensation in the form of
stock options, and various benefits such as the Company's medical plans.
BASE SALARY
Subject to the provisions of any applicable employment agreements, base
salary levels in fiscal 1997 for the Company's executive officers, including the
Chief Executive Officer, were intended and believed to be competitive and
comparable relative to companies in the telecommunications industry and other
companies in similar or analogous circumstances. In determining base salaries,
the Compensation Committee took into account individual experience and
performance and specific issues particular to the Company and reviewed
independent compensation data to establish levels that were within the ranges of
persons holding positions of comparable responsibilities.
COMPENSATION OF CEO
The compensation arrangements for Mr. Frietsch have been established by
the Company's Board of Directors based in part upon analyses and guidelines
prepared for the Board by the Performance and Compensation Management Group of
KPMG Peat Marwick, New York, N.Y., from an independent review and evaluation of
executive compensation in comparable circumstances and competitive conditions.
The KPMG analysis considered a comparable group of companies based on sales,
size, and line of business and compared pay levels and practices at these
companies with those of the Company. It is the policy of the Board of Directors
to continue such process of review, analysis and determination of compensation
arrangements of the Company's CEO.
ANNUAL CASH BONUS PROGRAM
The Company maintains annual incentive compensation arrangements for its
executive officers. R. Eugene Helms, President and CEO of DNA Enterprises, Inc.,
a subsidiary of the Company ("DNA"), is a party to an employment agreement which
provides for incentive pay based on the performance of DNA. Pursuant to such
agreement, Mr. Helms was awarded a bonus of $66,000 for 1997. Peter Ianace,
President and Chief Executive
9
<PAGE>
Officer of Intelect Network Technologies Company, a subsidiary of the Company,
was awarded a $17,009 discretionary bonus in 1997. Otherwise, no bonuses were
paid to executive officers with respect to 1997.
STOCK OPTIONS
To further link the interests of management with those of the Company's
stockholders, stock options are granted periodically to directors, officers,
managers and qualified employees under the Stock Incentive Plan. To encourage
continued service, the options normally vest and become exercisable over three
years in three equal annual installments from the date of grant and expire after
ten years. Stock options granted to executive officers are considered to be
appropriate in terms of the market value of the shares covered by the options
relative to performance, other forms of compensation and taking into
consideration the possible future value of the options.
BENEFITS
The Company provides medical benefits to its executive officers pursuant
to the Company's medical plans.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M).
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's chief
executive officer and four other most highly compensated executive officers.
Qualifying performance compensation will not be subject to the deduction limit
if certain requirements are met. The Company intends to structure the
performance-based portion of the compensation of its executive officers in a
manner that complies with the statute to mitigate any disallowance of
deductions.
This report of the Compensation Committee on executive compensation is
submitted by the current members of the committee as noted below:
Herman M. Frietsch
Philip P. Sudan, Jr.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers (as defined in Rule 16a-1(f)), directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it and written
representations from persons required to file such reports ("Reporting
Persons"), the Company believes that all filing requirements applicable to such
Reporting Persons were timely complied with during the fiscal year ended
December 31, 1997, except that (i) Willard F. Barnett filed a late Statement of
Changes in Beneficial Ownership on Form 4 due January 1998 reflecting one
transaction; (ii) Mr. Helms filed a late Statement of Changes in Beneficial
Ownership on Form 4 due September 1997 reflecting two transactions; (iii) Mr.
Ianace filed a late Statement of Changes in Beneficial Ownership on Form 4 due
September 1997 reflecting one transaction; (iv) Prinz von an zu Liechtenstein
filed a late Statement of Changes in Beneficial Ownership on Form 4 due June
1997 reflecting one transaction; and (v) Nancy E. H. Miracle filed late
Statements of Changes in Beneficial Ownership on Form 4 due October 1996, May
1997 and September 1997, respectively, reflecting three transactions.
10
<PAGE>
EMPLOYEE AGREEMENTS
Mr. Frietsch is a party to a management contract with the Company, the
terms of which provide for an annual salary of $250,000 plus the possibility of
an annual discretionary bonus. The agreement may be terminated by either party
on the next December 31 following three (3) years notice of termination.
Mr. Ianace is a party to an employment agreement with Intelect Network
Technologies Company ("INT"), the terms of which provide for a minimum salary of
$240,000 for five years ending April 24, 2000 and a discretionary bonus.
Mr. Helms is a party to an employment agreement with DNA Enterprises,
Inc., a wholly owned subsidiary of the Company ("DNA"), the terms of which
provide for a minimum salary of $180,000 for five years ending April 1, 2001 and
incentive pay based on the performance of DNA.
CERTAIN TRANSACTIONS
On October 31, 1995, Intelect Network Technologies Company, a wholly-owned
subsidiary of the Company, loaned $135,000 to Peter Ianace, the Company's Vice
President of Sales and Marketing and President and CEO of Intelect Network
Technologies Company. The loan is secured by the shares of Company stock
issuable upon exercise of any options for the Company's stock issued to Mr.
Ianace. The loan was renewed and extended on October 31, 1997, and the maturity
date of the loan is October 31, 1998. The loan bears interest at the rate of 5%
per annum. As of April 20, 1998, approximately $97,300 (including accrued
interest) remained outstanding on the loan.
In May 1997, the Company executed a loan agreement with The Coastal
Corporation Second Pension Trust (the "Coastal Trust") whereby the Company
borrowed $5,000,000 (the "Coastal Note") and the Coastal Trust purchased
2,482,005 shares of the Company's Series A Preferred Stock. In connection with
the Coastal Note, the Company also issued to the Coastal Trust a warrant to
purchase 750,000 shares of Common Stock at an exercise price of $2.00. The
Coastal Note, together with accrued interest was converted into 2,517,986 shares
of Series A Preferred Stock of the Company and the warrant to purchase 750,000
shares was exercised in full by the Coastal Trust. The Series A Preferred Stock
is convertible on a one for one basis into shares of Common Stock beginning on
August 31, 1997. In August 1997, after having converted the Coastal Note into
preferred stock, the Company and the Coastal Trust amended and restated the loan
agreement to provide for a new borrowing, on a revolving basis, of up to $5
million (the "Revolving Loan"). Borrowings under the Revolving Loan bear
interest at 2% over prime, mature on April 28, 1998 and are secured by all of
the outstanding shares of the Company's subsidiaries. Pursuant to the terms of
the Revolving Loan, the Coastal Trust has advanced to the Company $3 million.
Outstanding advances under the Revolving Loan are convertible by Coastal Trust
at $6.18375 per share into a new series of preferred stock having the same
rights and preferences as the existing series of preferred stock. In connection
with the advance under the Revolving Loan, the Company issued to the Coastal
Trust warrants to purchase 450,000 shares of Common Stock at an exercise price
of $6.00 per share, exercisable at any time until August 26, 2002.
In December 1997, the Company entered into loan transactions with the
following persons in the indicated original principal amounts: Edwin J. Ducayet,
Jr., Chief Financial Officer and Treasurer, $200,000; Herman M. Frietsch,
Chairman and Chief Executive Officer, $100,000; and a partnership of which
Philip P. Sudan, Jr., a director of the Company, is a general partner. The
partnership then transferred $133,000 of the original principal amount to Mr.
Sudan and the remainder to the other partner. The terms of each of the
promissory notes which evidence the transactions provide for the Company to pay
to each payee on demand the aggregate principal amount loaned to the Company,
together with accrued interest. The payee can elect to have the promissory note
paid in cash or shares of Common Stock at the rate of $5.25 per share for each
dollar of principal and interest outstanding. Interest on the promissory notes
accrues at the prime rate (as defined in the promissory note) plus three
percent. As of February 10, 1998, the loan by Mr. Ducayet to the Company was
paid in full. As of April 20, 1998, the loans by Messrs. Frietsch and Sudan
remain outstanding.
11
<PAGE>
Mr. Sudan is a partner of Ryan & Sudan, L.L.P., counsel for the Company.
During 1997, the Company paid approximately $800,000 in legal fees to Ryan &
Sudan, L.L.P.
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total stockholder return over
the past five years on the Company's Common Stock (Nasdaq Stock Market trading
symbol ICOM) through December 31, 1997 with the cumulative total return
(including reinvested dividends) of the Nasdaq Telecommunications Industry
Segment Total Return Index ("Nasdaq-Telecom") and the Nasdaq Stock Market Total
Return Index for United States stocks ("Nasdaq-US"). This graph assumes the
investment of $100 at the market close on December 31, 1992. Amounts have been
rounded to the nearest dollar. The stock price performance on the following
graph is not necessarily indicative of future stock price performance.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1992 1993 1994 1995 1996 1997 CAGR(1)
- --------------- -------- -------- -------- -------- -------- -------- --------
ICOM 100 300 200 531 431 506 38.3%
Nasdaq Telecom 100 154 129 169 172 227 20.6%
Nasdaq-US 100 115 112 159 95 212 19.1%
- --------------- -------- -------- -------- -------- -------- -------- --------
(1) Compound Annual Growth Rate for the five years ending December 31, 1997.
12
<PAGE>
PROPOSAL 2: INCREASE THE NUMBER OF ADDITIONAL SHARES AVAILABLE
FOR ISSUANCE UNDER THE COMPANY'S STOCK INCENTIVE PLAN
The Company's Stock Incentive Plan (the "Plan") is a principal component
of the Company's compensation program for the purpose of tying compensation
results directly to stockholder value, specifically the market price of the
Common Stock. The purposes of the Plan have been and continue to be to attract,
retain, motivate and incentivize directors, executives, and key employees, to
provide them with a strong incentive to advance the interests of the Company,
and to otherwise align the interests of management more closely with that of the
Company and its stockholders. The Company may grant options that are intended to
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code or nonstatutory options not intended to qualify as
incentive options, award restricted stock, restricted stock units, performance
units and bonus stock.
In 1995, the Board of Directors of Intelect (Bermuda) adopted the Plan and
it was approved by its stockholders in December 1995. The Plan was adopted by
the Company in connection with the reorganization in December 1997 and all
previously outstanding options to acquire common stock of Intelect (Bermuda)
became options to acquire Common Stock of the Company. No stock option may be
granted, and no restricted stock, restricted stock units, bonus stock or
performance units payable in shares of Common Stock may be awarded under the
Plan after December 13, 2005.
The aggregate number of shares of Common Stock which may be issued under
the Plan, before the amendment, is set at 4,000,000 shares, which quantity was
approved at the 1997 Annual Meeting of Stockholders of Intelect (Bermuda). In
order to continue and to enhance the effectiveness of the Plan, the Board of
Directors adopted on April 17, 1998, in accordance with the recommendation of
its Stock Option Committee (the "Committee"), subject to stockholder approval,
an amendment to increase the number of shares of Common Stock available for
issuance under the Plan from 4,000,000 to 5,000,000.
The Board believes this amendment is necessary in order to make shares
available for future awards under the Plan. It is anticipated that, at the
current rate of usage, all of the shares presently available for awards under
the Plan will be exhausted prior to the 1999 Annual Meeting of Stockholders.
Further, since the prior share authorization, the Company has continued to
expand and its capitalization has increased significantly. As the Company
expands, the need to attract and maintain additional key employees increases
correspondingly. In view of the limited number of shares remaining for grants
under the Plan and the continuing need to attract and maintain individuals of
the highest caliber to positions on the Board, management and employment, the
Board of Directors and the Committee have concluded that the maximum number of
shares of Common Stock that may be issued under the Plan should be increased
from the current maximum of 4,000,000 to an aggregate of 5,000,000 shares.
BOARD RECOMMENDATION
The Board of Directors unanimously recommends a vote FOR the proposal to
amend the Plan to increase the number of shares of Common Stock issuable under
the Plan to 5,000,000. Unless otherwise instructed, the enclosed proxy will be
voted FOR such proposal.
The following is a summary of the material provisions of the Plan. The
summary is subject to the terms of the Plan. The Company will provide, upon
request, a copy of the full text of the Plan to each person to whom a copy of
this proxy statement is delivered. Requests should be directed to Mr. Edwin J.
Ducayet, Jr., Assistant Secretary, Intelect Communications, Inc., 1100 Executive
Drive, Richardson, Texas 75081.
ADMINISTRATION AND ELIGIBILITY
The Plan is administered by the Board of Directors and by the Committee.
Subject to the provisions of the Plan, the Committee has authority to construe
the respective option agreements, award restricted stock, restricted stock
units, performance units and bonus stock, to prescribe, amend and rescind rules
and regulations relating to the
13
<PAGE>
Plan and to make all other determinations in the judgment of the Committee
necessary or desirable for the administration and purposes of the Plan.
Options may be granted to persons who are, at the time of grant,
employees, officers or directors of, or consultants or advisors to, the Company;
provided that incentive stock options may be granted only to persons who are
eligible to receive such options under Section 422 of the Code. The granting of
options to directors and officers shall be determined either (a) by the full
Board of Directors, or (b) by a committee consisting solely of two or more
directors.
NUMBER OF SHARES
Subject to adjustment as provided in the Plan, the proposed amendment
would increase the aggregate number of shares of Common Stock authorized for
issuance under the Plan by 1,000,000, to 5,000,000. Of the 5,000,000 shares, no
more than 1,000,000 shares will be available for the grant of restricted stock
or restricted stock units. As of April 20, 1998, options to purchase a total of
3,647,500 shares of Common Stock were outstanding under the Plan. The maximum
number of shares of Common Stock with respect to all grants or awards which may
be granted to any participant under the Plan is 350,000 per calendar year
(subject to adjustment as provided in the Plan). The types of awards which the
Committee has authority to grant consists of (1) stock options, (2) restricted
stock, (3) restricted stock units, (4) performance units, and (5) bonus stock.
Each of these are described herein.
EXERCISE PRICE AND TERMS OF STOCK OPTIONS
The Committee has the authority to grant incentive stock options and
non-qualified stock options to officers and key employees of the Company, and
non-qualified stock options to non-employee directors. The Committee (or, in the
alternative, the full Board of Directors) selects the exercise price per share
of stock, provided the exercise price cannot be less than (a) 110% of fair
market value per share for incentive stock options granted to a holder of more
than 10% of the Company's capital stock, (b) 100% of fair market value for
incentive stock options generally, and (c) 25% of fair market value for
non-qualified options. The option price may be paid in cash or Common Stock
owned by the optionee as provided in the Plan. The Committee shall also
determine the expiration of the option period, provided that no stock options
shall be exercisable later than 10 years after the date on which the option is
granted, provided, however, in the case of incentive stock options granted to a
holder of more than 10% of the Company's capital stock, such date shall not be
later than five years after the date on which the option is granted. In all
cases, options shall be subject to earlier termination as provided in the Plan.
All options are nontransferable other than by will or the laws of descent
and distribution. The Committee has the authority under the Plan to set the
times within which the options vest. Unless the stock option agreement with
respect to any options otherwise provides, the options become exercisable on a
cumulative basis of 331/3% of the total number of shares covered thereby on each
of the first, second, and third anniversary dates of the grant of the option.
Holders of incentive stock options may generally exercise such options up to
three months after voluntary termination of employment (which termination has
been made with the consent of the Company), unless termination results from
death or disability in which case such options may be exercised at any time
prior to the expiration date of such stock option or within one year after the
date of termination of employment, whichever period is shorter. Holders of
non-qualified options may exercise such options at any time prior to the
expiration date of such non-qualified stock option or within one year after the
date of voluntary termination of employment (which termination has been made
with the consent of the Company), whichever period is shorter.
Notwithstanding the foregoing, if the employment terminates for any reason
other than voluntary termination with the consent of the Company, retirement
under a retirement plan of the Company, or death, all outstanding stock options
shall automatically terminate.
The Committee determines when options granted under the Plan become
exercisable. The Committee may accelerate the date on which any option granted
may be exercised, provided that no such extension shall be permitted
14
<PAGE>
if it would cause the Plan to fail to comply with Section 422 of the Code or
with Rule 16b-3 promulgated under the Exchange Act.
The Committee has authority, with the consent of the effected optionee, to
cancel or amend any outstanding options under the Plan and to grant in
substitution therefor new options covering the same or a different number of
shares of Common Stock and having an exercise price per share which may be lower
or higher than the exercise price per share of the outstanding options.
RESTRICTED STOCK OR RESTRICTED STOCK UNITS
Restricted Common Stock or restricted stock units awarded by the Committee
will be subject to such restrictions as the Committee may impose thereon and
will be subject to forfeiture if certain events (which may, in the discretion of
the Committee, include termination of employment or directorship and/or
performance-based events) specified by the Committee occur prior to the lapse of
the restrictions. The agreement between the Company and the grantee will set
forth the number of shares of restricted stock or restricted stock units awarded
to the grantee, the restrictions imposed thereon, the duration of such
restrictions, the events the occurrence of which would cause a forfeiture and
such other terms and conditions as the Committee in its discretion deems
appropriate. Unless otherwise provided in the agreement, shares of restricted
stock or restricted stock units will vest at the rate of 331/3% on each of the
first three anniversaries of the date of grant of the award.
Following a restricted stock award and prior to the lapse or termination
of the applicable restrictions, stock certificates for the shares of restricted
stock will be held in escrow. Upon the lapse or termination of the restrictions,
the stock certificates will be delivered to the grantee. From the date a
restricted stock award is effective, however, the grantee will be a stockholder
with respect to the shares of restricted stock and will have all the rights of a
stockholder with respect to such 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 restrictions imposed by the Committee.
Restricted stock or restricted stock units may be issued for no
consideration or for such consideration as shall be determined at the time of
the award by the Committee.
PERFORMANCE UNITS
The Committee may award performance units (expressed in dollars or shares)
to be earned by an awardee based on the level of performance of the Company, a
subsidiary or subsidiaries, a branch, department or other unit thereof or the
awardee individually over a specified period of not less than one year
("Performance Period"). For each Performance Period the Committee will establish
a Performance Target, and a Minimum Target which may be the same or less than
the Performance Target. Targets may be expressed in terms of earnings per share,
return on assets, return on equity, asset growth, ratio of capital to assets or
such other level or levels of performance by the Company, a subsidiary or
subsidiaries, a branch, department or other unit thereof or the awardee
individually as the Committee may establish.
An awardee shall earn the performance unit in full by meeting the
Performance Target for the Performance Period. If the Minimum Target has not
been attained at the end of the Performance Period, no part of the performance
unit shall have been earned by the awardee. If the Minimum Target is attained
but the Performance Target is not attained, the portion of the performance unit
earned by the awardee shall be determined on the basis of a formula established
by the Committee.
Payment in respect of earned performance units, whether expressed in
dollars or shares, may be made in cash, in Common Stock, or partly in cash and
partly in Common Stock as determined by the Committee at the time of payment.
For this purpose, performance units expressed in dollars will be converted to
shares, and performance units expressed in shares will be converted to dollars,
based on the fair market value of the Common Stock as of the date the amount
payable is determined by the Committee.
15
<PAGE>
Except as otherwise provided below under "Additional Rights in Certain
Events", if the employment of an awardee terminates prior to the close of a
Performance Period for any reason other than voluntary termination with the
consent of the Company or a subsidiary, retirement under any retirement plan of
the Company or a subsidiary of death, the performance units of the awardee will
be deemed not to have been earned, and no portion of such performance units may
be paid. If prior to the close of the Performance Period the employment of an
awardee is voluntarily terminated with the consent of the Company or a
subsidiary or the awardee retires under any retirement plan of the Company or a
subsidiary or the awardee dies during employment, the Committee may in its
discretion determine to pay all or any part of the performance unit based upon
the extent to which the Committee determines the Performance Target or Minimum
Target has been achieved as of the date of termination of employment, retirement
or death, the period of time remaining until the close of the Performance Period
and/or such other factors as the Committee may deem relevant.
Performance unit awards may have such other terms and conditions as the
Committee in its discretion deems appropriate.
BONUS STOCK
The Committee will have the authority in its discretion to award bonus
shares of Common Stock to eligible individuals in recognition of the
contribution of the awardee to the performance of the Company, a subsidiary or
subsidiaries, or a branch, department or other unit, in recognition of the
awardee's individual performance or on the basis of such other factors as the
Committee may deem relevant. Any bonus stock awarded would not be subject to any
restrictions or possibilities of forfeiture.
ADDITIONAL RIGHTS IN CERTAIN EVENTS
The Plan provides for certain additional rights upon the occurrence of one
or more events described in Section 9 of the Plan ("Section 9 Events"). Such an
event is deemed to have occurred when (1) the Company acquires actual knowledge
that any person (other than the Company, a subsidiary or any employee benefit
plan sponsored by the Company or a person approved under certain circumstances
by the Board of Directors) has acquired beneficial ownership, directly or
indirectly, of securities of the Company representing 20% or more of the voting
power of the Company, (2) a tender offer is made to acquire securities of the
Company representing 20% or more of the voting power of the Company, (3) a
person other than the Company solicits proxies relating to the election or
removal of 50% or more of any class of the Board of Directors, or (4) the
stockholders of the Company approve a merger, consolidation, share exchange,
division or sale or other disposition of assets of the Company as a result of
which the stockholders of the Company immediately prior to the transaction will
not own a majority of the voting power of the surviving or resulting company or
any company which acquires the stock of the Company or more than 20% of its
consolidated assets.
Unless the agreement between the Company and the awardee otherwise
provides, if any Section 9 Event occurs (1) all outstanding stock options will
become immediately and fully exercisable, (2) all stock options held by an
awardee whose employment with the Company or a subsidiary terminates within one
year of any Section 9 Event for any reason (other than voluntary termination
with the consent of the Company or a subsidiary, retirement under any retirement
plan of the Company or subsidiary, or death) will be exercisable for a period of
three months from the date of such termination of employment, but in no event
after the expiration date of the stock option, (3) all restrictions applicable
to restricted stock awarded under the Plan will lapse, and (4) all performance
units for which the Performance Period has not yet expired will be deemed to
have been fully earned as of the date of the Section 9 Event, regardless of the
attainment or non-attainment of the Performance Target or any Minimum Target.
AMENDMENT AND TERMINATION
The Board of Directors may at any time modify or amend the Plan in any
respect, provided that no such alteration or amendment of the Plan shall,
without stockholder approval (i) increase by more than 10% the total number of
shares which may be issued under the Plan to persons subject to Section 16 under
the Securities Exchange
16
<PAGE>
Act of 1934 ("Section 16 Persons"), (ii) materially increase the benefits
accruing under the Plan to Section 16 Persons, (iii) materially modify the
requirements as to eligibility for participation in the Plan by Section 16
Persons, (iv) make any changes in the class of employees eligible to receive
incentive stock options under the Plan, or (v) increase the number of shares
with respect to which incentive stock options may be granted under the Plan.
Termination or any amendment of the Plan shall not, without the consent of an
optionee, adversely effect his or her rights under an option previously granted.
If an awardee engages in a business which is in competition with the
Company or any of its subsidiaries, the Company may immediately terminate all
outstanding stock options held by the awardee, declare forfeited all restricted
stock held by the awardee as to which the restrictions have not yet lapsed and
terminate all outstanding performance unit awards held by the awardee for which
the applicable Performance Period has not been completed. The preceding sentence
shall not apply if the exercise period of the stock option upon termination of
employment or a directorship has been extended, the lapse of the restrictions
applicable to the restricted stock has been accelerated or the performance unit
has been deemed to have been earned as a result of the occurrence of a Section 9
Event.
The Plan shall terminate with respect to incentive stock options upon the
earlier of December 13, 2005, or the date on which all shares available for
issuance under the Plan shall have been issued pursuant to the exercise or
cancellation of options granted thereunder. The Plan shall terminate with
respect to non-qualified options on December 13, 2005.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
Plan and with respect to the sale of shares of Common Stock acquired under the
Plan.
INCENTIVE STOCK OPTIONS
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Shares"). The
exercise of an incentive stock option may, however, subject the participant to
the alternative minimum tax.
Generally, the tax consequences of selling ISO Shares will vary with the
length of time that the participant has owned the ISO Shares at the time it is
sold. If the participant sells ISO Shares after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Shares over the exercise price.
If the participant sells ISO Shares for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Shares for more than
one year prior to the date of sale.
If a participant sells ISO Shares for less than the exercise price, then
the participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Shares. This capital loss will be a
long-term capital loss if the participant has held the ISO Shares for more than
one year prior to the date of sale.
NON-QUALIFIED STOCK OPTIONS
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-qualified stock option. Unlike
the case of an incentive stock option, however, a participant who exercises
17
<PAGE>
a non-qualified stock option generally will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the Common
Stock acquired through the exercise of the option ("NSO Shares") on the Exercise
Date over the exercise price.
With respect to any NSO Shares, a participant will have a tax basis equal
to the exercise price plus any income recognized upon the exercise of the
option. Upon selling NSO Shares, a participant generally will recognize capital
gain or loss in an amount equal to the excess of the sale price of the NSO
Shares over the participant's tax basis in the NSO Shares. This capital gain or
loss will be a long-term gain or loss if the participant has held the NSO Shares
for more than one year prior to the date of the sale.
RESTRICTED STOCK. A participant granted shares of restricted stock will
not recognize any taxable income for Federal income tax purposes until the first
time such participant's rights in the shares are transferable or are not subject
to a substantial risk of forfeiture, whichever occurs earlier, unless such
participant timely files an election under Section 83(b) of the Code to be taxed
on receipt of the shares. In either case, the amount of such income will be
equal to the excess of the fair market value of the stock the time the income is
recognized over the amount (if any) paid for the stock. The Company or one of
its subsidiaries generally will be entitled to a deduction for compensation paid
in the same amount treated as compensation income to the grantee.
PERFORMANCE UNITS. A participant granted performance units recognizes
income in the amount of the award of those units when they vest and are no
longer subject to substantial risk of forfeiture and such person is entitled to
receive the value of the award. Any cash or 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. In each case, the amount of compensation income will equal the
amount of cash and the fair market value of the Common Stock on the date
compensation income is recognized. The Company or one of its subsidiaries
generally will be entitled to a deduction for compensation paid in the same
amount treated as compensation income to the awardee.
BONUS STOCK. Any Common Stock received pursuant to an award of shares of
bonus stock will generally be treated as compensation income received by the
awardee in the year in which the awardee receives such shares. In such case, the
amount of compensation income will equal the fair market value of the Common
Stock on the date compensation income is recognized. The Company or one of its
subsidiaries generally will be entitled to a corresponding deduction in the same
amount for compensation paid.
OTHER TAX MATTERS. The exercise of a stock option by an awardee, the lapse
of restrictions on restricted stock, or the deemed earnout of performance units
following the occurrence of a Section 9 Event, 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, in the case of shares of
restricted stock, on all or a portion of the fair market value of the Common
Stock on the date the restrictions lapse, and (ii) the loss of a compensation
deduction which would otherwise be allowable to the Company or one of its
subsidiaries as explained above.
TAX CONSEQUENCES TO THE COMPANY. The grant of an option under the Plan
will have no tax consequences to the Company. Moreover, in general, neither the
exercise of an incentive stock option nor the sale of any Common Stock acquired
under the Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the Plan. Any deduction will be subject to the limitations of Section 162(m) of
the Code, which provides for certain limitations on the deductibility of
non-performance based compensation. The Company will have a withholding
obligation with respect to ordinary compensation income recognized by
participants.
18
<PAGE>
AMENDED AND RESTATED PLAN: NEW PLAN BENEFITS
Grants and awards under the Plan which may be made to Company executive
officers, directors and other employees are not presently determinable. If the
stockholders approve the Plan, such grants and awards will be made at the
discretion of the Committee or the Board of Directors in accordance with the
compensation policies of the Compensation Committee, which are discussed in the
"Compensation Committee Report on Executive Compensation" above.
PROPOSAL 3: APPROVAL OF AUDITORS
The Board of Directors, in accordance with the recommendation of its Audit
Committee, which is composed of non-employees of the Company, has unanimously
approved and requests you to vote FOR the appointment of Arthur Andersen LLP
("Arthur Andersen") to act as independent auditors of the Company until the next
annual meeting of stockholders, subject to terms of engagement acceptable to the
Audit Committee. Proxies will be so voted unless stockholders specify otherwise
in their proxies.
At the 1997 Annual Meeting, the stockholders of Intelect (Bermuda)
approved the appointment of Arthur Andersen as its independent accountants.
Arthur Andersen replaced the firm of KPMG Peat Marwick, Chartered Accountants,
Hamilton, Bermuda ("KPMG"), whose term as independent auditors for Intelect
(Bermuda) expired at the 1997 Annual Meeting.
The KPMG report dated April 9, 1997 on the consolidated financial
statements of Intelect (Bermuda) for the year ended December 31, 1996 (the "KPMG
Report") noted that the consolidated financial statements and financial
statement schedule accompanying the report were prepared assuming that Intelect
(Bermuda) would continue as a going concern. The KPMG Report further noted that
as discussed in Note 1 to the consolidated financial statements, Intelect
(Bermuda) has suffered recurring losses from continuing operations and is
dependent upon the successful development and commercialization of its products
and its ability to secure adequate sources of capital until Intelect (Bermuda)
is operating profitably. The KPMG Report noted that these matters raise
substantial doubt about Intelect (Bermuda)'s ability to continue as a going
concern, and that management's plans with regard to these matters were described
in Note 1 to the consolidated financial statements.
During the two years ended December 31, 1997 and December 31, 1996, there
were no "disagreements" between the Company and Arthur Andersen or KPMG as
described in Item 304(a)(1)(iv) of Regulation S-K.
Representatives of Arthur Andersen are expected to be present at the
Meeting and will have the opportunity to make a statement if they so desire and
will be available to respond to appropriate questions from stockholders.
Representatives of KPMG are not expected to be present.
ANNUAL REPORT
The 1997 Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1997, is being mailed to each stockholder receiving this Proxy
Statement, but does not form any part of the proxy solicitation material.
OTHER MATTERS
The Board of Directors does not intend to bring any other matters before
the Meeting nor does the Board of Directors know of any matters which other
persons intend to bring before the Meeting. If, however, other matters not
mentioned in this Proxy Statement properly come before the Meeting, the persons
named in the accompanying form of proxy will vote thereon in accordance with the
recommendation of the Board of Directors.
19
<PAGE>
STOCKHOLDER PROPOSALS AND SUBMISSIONS FOR 1999 ANNUAL MEETING
If any Stockholder wishes to present a proposal to be considered for
inclusion in the proxy materials to be solicited by the Company's Board of
Directors with respect to the next Annual Meeting of Stockholders, such proposal
shall have been presented to the Company's management by February 18, 1999. Such
proposals should be directed to the Company, 1100 Executive Drive, Richardson,
Texas 75081, Attention: Chief Financial Officer and Assistant Secretary.
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE,
SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. YOUR VOTE IS IMPORTANT.
IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE MEETING AND WISH TO VOTE IN
PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANYTIME PRIOR TO THE VOTE.
By Order of the Board of Directors
Dated: April 28, 1998 HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
20
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders INTELECT
COMMUNICATIONS, INC.
June 18, 1998
Please Detach and Mail in the Envelope Provided
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
[X] Please mark your votes as in this example.
FOR ELECTION TO WITHHOLD
TERM EXPIRING 2001 AUTHORITY
(except as marked (to vote for
contrary below) listed to right)
1. Election [__] [__]
of Director
PLEASE SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
FOR AGAINST ABSTAIN
NOMINEE: 2. Amendment of the Company's [_] [_] [_]
Robert H. Garrison Stock Incentive Plan (the "Plan")
to increase the number of shares
reserved for issuance under the
Plan from 4,000,000 to 5,000,000
FOR AGAINST ABSTAIN
3. Approval of appointment of [_] [_] [_]
Arthur Andersen, LLP as
independent auditors for the
year ending December 31, 1998.
In their discretion, the proxies are authorized to vote upon
matters not known to the Board of Directors as of the date
of the accompany ing proxy statement, matters incident to
the conduct of the meeting and to vote for any nominee of
the Board whose nomination results from the inability of any
of the above named nominees to serve. UNLESS OTHERWISE
SPECIFIED IN THE SQUARES PROVIDED, THE PROXIES SHALL VOTE
FOR PROPOSALS 1, 2 AND 3 ABOVE.
Signature _____________________________________
Signature if held jointly____________________________________
Dated:____________________ 1998
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INTELECT COMMUNICATIONS, INC.
PROXY SOLICITED BY DIRECTORS FOR ANNUAL MEETING
June 18, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the notice of annual meeting, proxy
statement, and annual report for the year ended December 31, 1997,hereby
appoints Herman M. Frietsch and Edwin J. Ducayet, Jr., and each of them, with
full power of substitution, are hereby authorized as attorneys and proxies of
the undersigned to represent and to vote all shares of the undersigned in
Intelect Communications, Inc. at the annual meeting of stockholders of Intelect
Communications, Inc. to be held on June 18, 1998 and at any adjournments
thereof.
<PAGE>
Appendix to Proxy Statement of Intelect Communications, Inc. filed with the
Securities and Exchange Commission on April 28, 1998, as required by Schedule
14A, Item 10, Instruction 3:
Intelect Communications, Inc. Stock Incentive Plan
<PAGE>
INTELECT COMMUNICATIONS, INC.
AMENDED AND RESTATED STOCK INCENTIVE PLAN
1. PURPOSE.
The purposes of the Stock Incentive Plan (the "Plan") are to enable
Intelect Communications, Inc. (the "Company") and its Subsidiaries, if any, to
attract and retain directors and key employees and to provide them with
additional incentive to advance the interests of the Company. For the purposes
of the Plan, the term "Subsidiary" means any corporation or other entity in
which the Company has, directly or indirectly, an equity interest representing
50% or more of the capital stock thereof or equity interests therein.
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") and
consisting of not less than two members of the Board.
(b) The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the Plan as it shall deem to
be necessary and advisable for the administration of the Plan.
(c) Notwithstanding any provision contained in this Plan, the Board
of Directors shall have the authority, in addition to the authority that
the Board may delegate to the Committee, to issue stock options, and to
award restricted stock, restricted stock units, performance units and
bonus stock, in compliance with the terms of this Plan as the Board of
Directors shall in its discretion determine to be necessary or
appropriate.
3. ELIGIBILITY.
(a) Officers and other key employees of the Company or any
Subsidiary shall be eligible to be granted incentive stock options and
non-qualified stock options (collectively "stock options") and to receive
restricted stock, restricted stock units, performance units or bonus stock
awards as described herein.
(b) Non-employee directors of the Company shall be eligible to be
granted non-qualified stock options and to receive restricted stock,
restricted stock units, performance units or bonus stock awards as
described herein.
4. SHARES AVAILABLE.
The aggregate number of shares of the Company's Common Stock, $.01 par
value ("Common Stock"), which may be issued and as to which grants or awards of
stock options, restricted stock, restricted stock units, performance units or
bonus stock may be made under the Plan is 5,000,000 shares (of which no more
than 1,000,000 shares shall be available for the grant of restricted stock or
restricted stock units), subject to adjustment and substitution as set forth in
Section 8. If any stock option granted under the Plan is canceled by mutual
consent or terminates or expires for any reason without having been exercised in
full, the number of shares subject thereto shall again be available for purposes
of the Plan. If shares of Common Stock or the right to receive shares of Common
Stock are forfeited to the Company pursuant to the restrictions applicable to
restricted stock or restricted stock units awarded under the Plan, the shares so
forfeited or covered by such right shall not again be available for the purposes
of the Plan. To the extent any award of performance units is not earned or is
paid in cash rather than shares, the number of shares covered thereby shall
again be available for purposes of the Plan. The shares which may be issued
under the Plan may be either authorized but unissued shares or treasury shares
or partly each, as shall be determined from time to time by the Board.
A-1
<PAGE>
5. GRANTS AND AWARDS.
(a) With respect to officers and other key employees, the Committee
shall have authority, in its discretion, to grant incentive stock options
pursuant to Section 422 of the Internal Revenue Code (the "Code") and
non-qualified stock options, and to award restricted stock, restricted
stock units, performance units and bonus stock, provided such grants or
awards are otherwise made in compliance with the provisions of this Plan.
Notwithstanding any other provision contained in the Plan or in any
stock option agreement, 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; provided, however, that
all or any portion of a stock option which cannot be exercised because of
such limitation shall be treated as a non-qualified option.
(b) With respect to non-employee directors, the Board or the
Committee shall be authorized to grant non-qualified stock options and to
award restricted stock, restricted stock units, performance units, and
bonus stock in such amounts and on such terms as the Board or the
Committee may in its discretion determine, provided such grants or awards
are otherwise made in compliance with the provisions of this Plan.
(c) The maximum number of shares covered by all grants or awards in
any fiscal year of the Company to any participant shall not exceed 350,000
(subject to adjustment and substitution as set forth in Section 8).
(d) If a grantee of a stock option, restricted stock or performance
unit 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 or directorship) which is in
competition with the Company or any of its Subsidiaries, the Committee may
immediately terminate all outstanding stock options held by the grantee,
declare forfeited all restricted stock or restricted stock units held by
the grantee as to which the restrictions have not yet lapsed and terminate
all outstanding performance unit awards held by the grantee for which the
applicable Performance Period has not been completed; provided, however,
that this sentence shall not apply if the exercise period of a stock
option following termination of employment or directorship has been
extended as provided in Section 9(c), if the lapse of the restrictions
applicable to restricted shares or restricted share units has been
accelerated as provided in Section 9(d), or if a performance unit has been
deemed to have been earned as provided in Section 9 (e). Whether a grantee
has engaged in the operation or management of a business which is in
competition with the Company or any of its Subsidiaries shall be
determined by the Committee in its discretion, and any such determination
shall be final and binding.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
Stock options granted under the Plan shall be subject to the following
terms and conditions:
(a) The purchase price at which each incentive stock option may be
exercised (the "option price") shall not be less than one hundred percent
(100%) of the fair market value per share of Common Stock covered by the
incentive stock option on the date of grant; provided, however, that in
the case of an incentive stock option granted to an employee who,
immediately prior to such grant, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock
of the Company or a Subsidiary (a "Ten Percent Employee"), 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(a), 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 the whole or half blood)
of such individual and (ii) shall be considered as owning proportionately
any shares
A-2
<PAGE>
owned, directly or indirectly, by or for any company, partnership, estate
or trust in which such individual is a stockholder, partner or
beneficiary.
(b) The option price for each non-qualified stock option shall be
determined by the Committee but may not be less than 25% (twenty-five
percent) of the fair market value of the Common Stock on the date the
non-qualified stock option is granted.
(c) The option price for each stock option shall be paid in full
upon exercise and shall be payable in cash in United States dollars
(including check, bank draft or money order), which may include cash
forwarded through a broker or other agent-sponsored exercise or financing
program; provided, however, that in lieu of such cash the person
exercising the stock option may pay the option price in whole or in part
by delivering to the Company 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 any portion of the option price
representing a fraction of a share shall in any event be paid in cash.
Notwithstanding any procedure of a broker or other agent-sponsored
exercise or financing program, if the option price is paid in cash, the
exercise of the stock option shall not be deemed to occur and no Common
Stock will be issued until the Company has received full payment in cash
(including check, bank draft or money order) for the option price from the
broker or other agent. The date of exercise of a stock option shall be
determined under procedures established by the Committee, and as of the
date of exercise the person exercising the stock option shall be
considered for all purposes to be the owner of the shares with respect to
which the stock option has been exercised. Payment of the option price
with shares shall not increase the number of shares of Common Stock
available for issuance under the Plan.
(d) No stock option shall be exercisable during the first six months
of its term, except that this limitation on exercise shall not apply if
Section 9(b) becomes applicable or if the issuance or grant of the stock
option has been approved by the Board. No stock option shall 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. To the extent it is exercisable, a stock option may be exercised
at any time in whole or in part.
(e) The Committee shall have the power to set the time or times
within which each option shall be exercisable, and to accelerate the time
or times of exercise. Unless the stock option agreement otherwise
provides, the option shall become exercisable on a cumulative basis as to
33-1/3% of the total number of shares covered thereby on each of the
first, second, and third anniversary dates of the date of grant of the
option.
(f) No stock option shall be transferable by the grantee otherwise
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.
All stock options shall be exercisable during the lifetime of the grantee
only by the grantee.
(g) Unless the Committee, in its discretion, shall otherwise
determine:
(i) If the employment or directorship of a grantee 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 a Subsidiary or a grantee retires under any
retirement plan of the Company or a Subsidiary, any then outstanding
incentive stock option held by such grantee shall be exercisable by
the grantee (but only to the extent exercisable by the grantee
immediately prior to such termination) at any time prior to the
expiration date of such incentive stock option or within three
months after the date of such termination, whichever is the shorter
period;
(ii) If the employment or directorship of a grantee who is not
a Disabled Grantee is voluntarily terminated with the consent of the
Company or a Subsidiary or a grantee retires under any retirement
plan of the Company or a Subsidiary, any then outstanding
non-qualified stock option held by such grantee shall be exercisable
by the grantee (but only to the extent exercisable by the
A-3
<PAGE>
grantee immediately prior to such termination) at any time prior to
the expiration date of such non-qualified stock option or within one
year after the date of such termination, whichever is the shorter
period;
(iii) If the employment or directorship of a grantee who is a
Disabled Grantee is voluntarily terminated with the consent of the
Company or a Subsidiary, any then outstanding stock option held by
such grantee shall be exercisable by the grantee in full (whether or
not so exercisable by the grantee immediately prior to such
termination) by the grantee at any time prior to the expiration date
of such stock option or within one year after the date of such
termination, whichever is the shorter period;
(iv) Following the death of a grantee during employment or
while serving as a director, any outstanding stock option held by
the grantee at the time of death shall be exercisable in full
(whether or not so exercisable by the grantee immediately prior to
the death of the grantee) by the person entitled to do so under the
will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate,
by the legal representative of the grantee 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;
(v) Following the death of a grantee after termination of
employment or directorship during a period within which a stock
option is exercisable, any outstanding stock option held by the
grantee at the time of death shall be exercisable by such person
entitled to do so under the will of the grantee or by such legal
representative (but only to the extent the stock option was
exercisable by the grantee immediately prior to the death of the
grantee) 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; and
(vi) Unless the exercise period of a stock option following
termination of employment or directorship has been extended as
provided in Section 9(c), if the employment or directorship of a
grantee terminates for any reason other than voluntary termination
with the consent of the Company or a Subsidiary, retirement under
any retirement plan of the Company or a Subsidiary or death, all
outstanding stock options held by the grantee at the time of such
termination shall automatically terminate.
(h) In each subparagraph of Section 6(g), whether termination of
employment or directorship is a voluntary termination with the consent of
the Company or a Subsidiary and whether a grantee is a Disabled Grantee
shall be determined in each case by the Committee in its discretion and
any such determination by the Committee shall be final and binding.
(i) All stock options shall be confirmed by an agreement, which
shall be executed on behalf of the Company by an executive officer
authorized by the Committee and by the grantee, and shall contain such
provisions, restrictions and conditions as are not inconsistent with this
Plan but need not be identical. The provisions of this Plan shall be
deemed to be set forth in full or incorporated by reference in each such
agreement.
(j) The term "fair market value" for all purposes of the Plan shall
mean the market price of the Common Stock, determined by the Committee as
follows:
(i) If the Common Stock is traded on a stock exchange, then
the Fair Market Value shall be equal to the closing price reported
by the applicable composite-transactions report for such date;
A-4
<PAGE>
(ii) If the Common Stock is traded in the Nasdaq Stock Market
and is classified as a national market issue, then the Fair Market
Value shall be equal to the last-transaction price quoted by the
Nasdaq National Market system for such date;
(iii) If the Common Stock is traded in the Nasdaq Stock
Market, but is not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted by the Nasdaq
system for such date; and
(iv) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
(k) The obligation of the Company to issue shares of Common Stock
under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to
such shares, if deemed necessary or appropriate by counsel for the
Company, (ii) the condition that the shares shall have been listed (or
authorized for listing upon official notice of issuance) upon each stock
exchange, if any, on which the Common Stock may then be listed and (iii)
all other applicable laws, regulations, rules and orders which may then be
in effect.
(l) Subject to the foregoing provisions of this Section and the
other provisions of the Plan, any stock option granted under the 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 shall be
determined, in its discretion, by the Committee and set forth in the
agreement referred to in Section 6(i), or an amendment thereto.
(m) The Company may, at the time any distribution is made under the
Plan, whether in cash or in Common Stock, or at the time any stock option
is exercised, withhold from such distribution or Common Stock issuable
upon the exercise of a stock option, any amount necessary to satisfy
federal, state or local tax withholding requirements with respect to such
distribution or exercise of such stock option. Such withholding may be
satisfied, at the Company's option, either by cash or the Company's
withholding of shares of Common Stock. Agreements may contain withholding
provisions applicable only to participants who are subject to the
Securities and Exchange Act of 1934, as amended (the "1934 Act"), Section
16 ("Section 16 Persons").
7. TERMS AND CONDITIONS OF RESTRICTED STOCK, RESTRICTED STOCK UNIT,
PERFORMANCE UNIT AND BONUS STOCK AWARDS.
(a) RESTRICTED STOCK AND UNITS. Restricted stock or restricted stock
unit awards shall be evidenced by a written agreement in the form
prescribed by the Committee in its discretion, which shall set forth the
number of shares of restricted Common Stock or restricted stock units
entitling the holder to receive Common Stock awarded, the restrictions
imposed thereon (including, without limitation, restrictions on the right
of the grantee to sell, assign, transfer or encumber such shares or units
while such shares or units are subject to other restrictions imposed under
this Section 7), the duration of such restrictions, events (which may, in
the discretion of the Committee, include performance-based events) the
occurrence of which would cause a forfeiture of restricted Stock or
restricted share units and such other terms and conditions as the
Committee in its discretion deems appropriate. Restricted stock or
restricted stock unit awards shall be effective only upon execution of the
applicable restricted stock or restricted stock unit agreement on behalf
of the Company by the Chief Executive Officer (if other than the
President), the President or any Vice President, and by the grantee.
Restricted stock or restricted stock units may be issued for no
consideration other than for services to be rendered or for such
consideration as shall be determined at the time of award by the
Committee.
Except as otherwise specified by the Committee at the time of award
of restricted stock or restricted stock units, restricted stock or
restricted stock units issued shall vest (i.e., become non-forfeitable,)
as follows: 33 1/3% on the date of the first anniversary of the date of
issuance of the restricted stock or restricted stock
A-5
<PAGE>
units and an additional 33 1/3% on each anniversary date thereafter. If
prior to full vesting of the restricted stock or restricted stock units
the employment or directorship of the holder thereof is voluntarily
terminated with the consent of the Company or Subsidiary or the holder
retires under any retirement plan of the Company or a Subsidiary or dies
during employment or directorship, the Committee may in its absolute
discretion determine to vest all or any part of the restricted stock or
restricted stock units except as otherwise provided in Section 9(e). If
the employment or directorship of the holder of restricted stock or
restricted stock units terminates for any reason other than voluntary
termination with the consent of the Company or a Subsidiary, retirement
under any retirement plan of the Company or a Subsidiary or death, all
unvested restricted stock or restricted stock units shall be forfeited.
Whether the termination of employment or directorship is a voluntary
termination with the consent of the Company or a Subsidiary shall be
determined by the Committee in its discretion, and a determination by the
Committee on any matter with respect to restricted stock or restricted
stock units shall be final and binding on both the Company and the holder
of restricted stock or restricted stock units.
Following a restricted stock award and prior to the lapse or
termination of the applicable restrictions, the Committee shall deposit
share certificates for such restricted stock in escrow (which may be an
escrow in the custody of an officer of the Company). Upon the lapse or
termination of the applicable restrictions (and not before such time), the
grantee shall be issued or transferred share certificates for such
restricted stock. From the date a restricted share award is effective, the
grantee shall be a stockholder with respect to all the shares represented
by such certificates and shall have all the rights of a stockholder with
respect to all such shares, including the right to vote such shares and to
receive all dividends and other distributions paid with respect to such
shares, subject only to the restrictions imposed by the Committee. The
grantee of restricted share units shall not have any rights as a
stockholder until the delivery to the grantee of shares on lapse of the
restrictions imposed.
(b) PERFORMANCE UNITS. The Committee may award performance units
which shall be earned by an awardee based on the level of performance over
a specified period of time by the Company, a Subsidiary or Subsidiaries,
any branch, department or other portion thereof or the awardee
individually, as determined by the Committee. For the purposes of the
grant of performance units, the following definitions shall apply:
(i) "Performance unit" shall mean an award, expressed in
dollars or shares of Common Stock of, granted to an awardee with
respect to a Performance Period. Awards expressed in dollars may be
established as fixed dollar amounts, as a percentage of salary, as a
percentage of a pool based on earnings of the Company, a Subsidiary
or Subsidiaries or any branch, department or other portion thereof
or in any other manner determined by the Committee in its
discretion, provided that the amount thereof shall be capable of
being determined as a fixed dollar amount as of the close of the
Performance Period.
(ii) "Performance Period" shall mean an accounting period of
the Company or a Subsidiary of not less than one year, as determined
by the Committee in its discretion.
(iii) "Performance Target" shall mean that level of
performance established by the Committee which must be met in order
for the performance unit to be fully earned. The Performance Target
may be expressed in terms of earnings per share, return on assets,
asset growth, ratio of capital to assets or such other level or
levels of accomplishment by the Company, a Subsidiary or
Subsidiaries, any branch, department or other portion thereof or the
awardee individually as may be established or revised from time to
time by the Committee.
(iv) "Minimum Target" shall mean a minimal level of
performance established by the Committee which must be met before
any part of the performance unit is earned. The Minimum Target may
be the same as or less than the Performance Target in the discretion
of the Committee.
A-6
<PAGE>
An awardee shall earn the performance unit in full by meeting the
Performance Target for the Performance Period. If the Minimum Target has
not been attained at the end of the Performance Period, no part of the
performance unit shall have been earned by the awardee. If the Minimum
Target is attained but the Performance Target is not attained, the portion
of the performance unit earned by the awardee shall be determined on the
basis of a formula established by the Committee.
Payment of earned performance units shall be made to awardees
following the close of the Performance Period as soon as practicable after
the time the amount payable is determined by the Committee. Payment in
respect of earned performance units, whether expressed in dollars or
shares, may be made in cash, in Common Stock, or partly in cash and partly
in Common Stock, as determined by the Committee at the time of payment.
For this purpose, performance units expressed in dollars shall be
converted to shares, and performance units expressed in shares shall be
converted to dollars, based on the fair market value of the Common Stock,
as of the date the amount payable is determined by the Committee.
If prior to the close of the Performance Period the awardee of
performance units is voluntarily terminated with the consent of the
Company or a Subsidiary or the awardee retires under any retirement plan
of the Company or a Subsidiary or the awardee dies during employment or
directorship, the Committee may in its absolute discretion determine to
pay all or any part of the performance unit based upon the extent to which
the Committee determines the Performance Target or Minimum Target has been
achieved as of the date of termination of employment, or directorship,
retirement or death, the period of time remaining until the close of the
Performance Period and/or such other factors as the Committee may deem
relevant. If the Committee in its discretion determines that all or any
part of the performance unit shall be paid, payment shall be made to the
awardee or his or her estate as promptly as practicable following such
determination and may be made in cash, in Common Stock, or partly in cash
and partly in Common Stock, as determined by the Committee at the time of
payment. For this purpose, performance units expressed in dollars shall be
converted to shares, and performance units expressed in shares shall be
converted to dollars, based on the fair market value of the Common Stock
as of the date the amount payable is determined by the Committee.
Except as otherwise provided in Section 9(e), if the employment or
directorship of an awardee of performance units terminates prior to the
close of a Performance Period for any reason other than voluntary
termination with the consent of the Company or a Subsidiary or retirement
under any retirement plan of the Company or a Subsidiary or death, the
performance units of the awardee shall be deemed not to have been earned,
and no portion of such performance units may be paid. Whether termination
of employment or directorship is a voluntary termination with the consent
of the Company or a Subsidiary shall be determined, in its discretion, by
the Committee. Any determination by the Committee on any matter with
respect to performance units shall be final and binding on both the
Company and the awardee.
Performance unit awards shall be evidenced by a written agreement in
the form prescribed by the Committee which shall set forth the amount or
manner of determining the amount of the performance unit, the Performance
Period, the Performance Target and any Minimum Target and such other terms
and conditions as the Committee in its discretion deems appropriate.
Performance unit awards shall be effective only upon execution of the
applicable performance unit agreement on behalf of the Company by the
Chief Executive Officer (if other than the President), the President or
any Vice President, and by the awardee.
(C) BONUS STOCK. The Committee shall have the authority in its
discretion to award shares of bonus Common Stock to eligible individuals
from time to time in recognition of the contribution of the awardee to the
performance of the Company, a Subsidiary or Subsidiaries, or any branch,
department or other portion thereof, in recognition of the awardee's
individual performance or on the basis of such other factors as the
Committee may deem relevant.
A-7
<PAGE>
8. ADJUSTMENT AND SUBSTITUTION OF SHARES.
If a dividend or other distribution shall be declared upon the Common
Stock payable in Common Stock, the number of shares of Common Stock then subject
to any outstanding stock options, restricted stock units or performance unit
awards and the number of shares of Common Stock which may be issued under the
Plan but are not then subject to outstanding stock options or awards shall be
adjusted by adding thereto the number of shares of Common Stock which would have
been distributable thereon if such shares had been outstanding on the date fixed
for determining the stockholders entitled to receive such stock dividend or
distribution. Common Stock so distributed with respect to any restricted stock
held in escrow shall be held by the Company in escrow and shall be subject to
the same restrictions as are applicable to the restricted stock on which they
were distributed.
If the outstanding Common Stock shall be changed into or exchangeable for
a different number or kind of shares of stock or other securities of the Company
or another company, whether through reorganization, reclassification,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each share of the Common
Stock subject to any then outstanding stock option, restricted stock unit or
performance unit award, and for each share of the Common Stock which may be
issued under the Plan but which is not then subject to any outstanding stock
option or award, the number and kind of shares of stock or other securities into
which each outstanding share of the Common Stock shall be so changed or for
which each such share shall be exchangeable. Unless otherwise determined by the
Committee in its discretion, any such stock or securities, as well as any cash
or other property, into or for which any shares of restricted stock held in
escrow shall be changed or exchangeable in any such transaction shall also be
held by the Company in escrow and shall be subject to the same restrictions as
are applicable to the shares of restricted stock in respect of which such stock,
securities, cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in this Section
8, the aggregate option price for all shares subject to each then outstanding
stock option prior to such adjustment or substitution shall be the aggregate
option price for all shares of stock or other securities (including any
fraction) to which such shares shall have been adjusted or which shall have been
substituted for such shares. Any new option price per share shall be carried to
at least three decimal places with the last decimal place rounded upwards to the
nearest whole number.
No adjustment or substitution provided for in this Section 8 shall require
the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution. Owners of shares of restricted stock
held in escrow shall be treated in the same manner as owners of Common Stock not
held in escrow with respect to fractional shares created by an adjustment or
substitution of shares, except that, unless otherwise determined by the
Committee in its discretion, any cash or other property paid in lieu of a
fractional share shall be subject to restrictions similar to those applicable to
the restricted stock exchanged therefor.
If any such adjustment or substitution provided for in this Section 8
requires the approval of stockholders in order to enable the Company to grant
incentive stock options, then no such adjustment or substitution shall be made
without the required stockholder approval. Notwithstanding the foregoing, in the
case of incentive stock options, if the effect of any such adjustment or
substitution would be to cause the stock option to fail to continue to qualify
as an incentive stock option or to cause a modification, extension or renewal of
such stock option within the meaning of Section 424 of the Code, the Committee
may elect that such adjustment or substitution not be made but rather shall use
reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Committee, in its discretion, shall deem equitable and which
will not result in any disqualification, modification, extension or renewal
(within the meaning of Section 424 of the Code) of such incentive stock option.
9. ADDITIONAL RIGHTS IN CERTAIN EVENTS.
(a) DEFINITIONS. For purposes of this Section 9, the following terms
shall have the following meanings:
A-8
<PAGE>
(i) The term "Person" shall be used as that term is used in
Sections 13(d) and 14(d) of the 1934 Act.
(ii) Beneficial ownership shall be determined as provided in
Rule 13d-3 under the 1934 Act as in effect on the effective date of
the Plan.
(iii) "Voting Stock" shall mean all securities of a
corporation entitling the holders thereof to vote in an annual
election of directors (without consideration of the rights of any
class of stock other than the Common Stock to elect directors by a
separate class vote); and a specified percentage of "Voting Power"
of a company shall mean such number of shares of Voting Stock as
shall enable the holders thereof to cast such percentage of all the
votes which could be cast in an annual election of directors
(without consideration of the rights of any class of stock other
than the Common Stock to elect directors by a separate class vote).
(iv) "Tender Offer" shall mean a tender offer or exchange
offer to acquire securities of the Company (other than such an offer
made by the Company or any Subsidiary), whether or not such offer is
approved or opposed by the Board.
(v) "Section 9 Event" shall mean the date upon which any of
the following events occurs:
(A) The Company acquires actual knowledge that any
Person has acquired the Beneficial Ownership, directly or
indirectly, of securities of the Company entitling such Person
to 20% or more of the Voting Power of the Company, other than
the Company, a Subsidiary or any employee benefit plan(s)
sponsored by the Company, or a Person approved by the Board
that has acquired 20% or more but less than 50% of the Voting
Power of the Company; or
(B) A Tender Offer is made to acquire securities of the
Company entitling the holders thereof to 20% or more of the
Voting Power of the Company; or
(C) A solicitation subject to Rule 14a-11 under the 1934
Act (or any successor Rule) relating to the election or
removal of 50% or more of the members of any class of the
Board shall be made by any person other than the Company; or
(D) The stockholders of the Company shall approve a
merger, consolidation, share exchange, division or sale or
other disposition of assets of the Company as a result of
which the stockholders of the Company immediately prior to
such transaction shall not hold, directly or indirectly,
immediately following such transaction a majority of the
Voting Power of (i) in the case of a merger or consolidation,
the surviving or resulting corporation, (ii) in the case of a
share exchange, the acquiring corporation or (iii) in the case
of a division or a sale or other disposition of assets, each
surviving, resulting or acquiring corporation which,
immediately following the transaction, holds more than 20% of
the consolidated assets of the Company immediately prior to
the transaction;
provided, however, that (i) if securities beneficially owned by a
grantee are included in determining the Beneficial Ownership of a
Person referred to in Section 9(a)(v)(A), (ii) a grantee is required
to be named pursuant to Item 2 of the Schedule 14D-I (or any similar
successor filing requirement) required to be filed by the bidder
making a Tender Offer referred to in Section 9(a)(v)(B), or (iii) if
a grantee is a "participant" as defined in Rule 14a-11 under the
1934 Act (or any successor Rule) in a solicitation (other than a
solicitation by the Company) referred to in Section 9(a)(v)(C), then
no Section 9 Event with respect to such grantee shall be deemed to
have occurred by reason of such event.
A-9
<PAGE>
(b) ACCELERATION OF THE EXERCISE DATE OF STOCK OPTIONS. Unless the
agreement referred to in Section 6(i), or an amendment thereto, shall
otherwise provide, notwithstanding any other provision contained in the
Plan, in case any Section 9 Event occurs all outstanding stock options
(other than those held by a person referred to in the proviso to Section
9(a) (v) ) shall become immediately and fully exercisable whether or not
otherwise exercisable by their terms.
(C) EXTENSION OF THE EXPIRATION DATE OF STOCK OPTIONS. Unless the
agreement referred to in Sec tion 6(i), or an amendment thereto, shall
otherwise provide, notwithstanding any other provision contained in the
Plan, all stock options held by a grantee (other than a grantee referred
to in the proviso to Section 9(a)(v)) whose employment or directorship
with the Company or a Subsidiary terminates within one year of any Section
9 Event for any reason other than voluntary termination with the consent
of the Company or a Subsidiary, retirement under any retirement plan of
the Company or a Subsidiary or death shall be exercisable for a period of
three months from the date of such termination of employment or
directorship, but in no event after the expiration date of the stock
option.
(d) LAPSE OF RESTRICTIONS ON RESTRICTED STOCK OR RESTRICTED STOCK
UNIT AWARDS. If any Section 9 Event occurs prior to the scheduled lapse of
all restrictions applicable to restricted stock or restricted stock unit
awards under the Plan (other than those held by a person referred to in
the proviso to Section 9(a) (v)), all such restrictions shall lapse upon
the occurrence of any such Section 9 Event regardless of the scheduled
lapse of such restrictions.
(e) PAYMENT OF PERFORMANCE UNITS. If any Section 9 Event occurs
prior to the end of any Performance Period, all performance units awarded
with respect to such Performance Period (other than those held by a person
referred to in the proviso to Section 9(a)(v)) shall be deemed to have
been fully earned as of the date of such Section 9 Event, regardless of
the attainment or non-attainment of the Performance Target or any Minimum
Target, and shall be paid to the awardees thereof as promptly as
practicable thereafter. If the performance unit is not expressed as a
fixed amount in dollars or shares, the Committee may provide in the
performance unit agreement for the amount to be paid in the case of a
Section 9 Event.
10. EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER.
Neither the adoption of the Plan nor any action of the Board or the
Committee pursuant to the Plan shall be deemed to give any employee any right to
be granted a stock option or to be awarded restricted stock, restricted stock
units, performance units or bonus stock under the Plan. Nothing in the Plan, in
any stock option, in any restricted stock, restricted stock unit, performance
unit or bonus share award under the Plan or in any agreement providing for any
of the foregoing shall confer any right to any employee to continue in the
employ of the Company or any Subsidiary or interfere in any way with the rights
of the Company or any Subsidiary to terminate the employment of any employee at
any time.
11. AMENDMENT.
(a) The right to alter and amend the Plan at any time and from time
to time and the right to revoke or terminate the Plan are hereby
specifically reserved to the Board; provided that no such alteration or
amendment of the Plan shall, without stockholder approval (i) increase by
more than 10% the total number of shares which may be issued under the
Plan to Section 16 Persons, (ii) materially increase the benefits accruing
under the Plan to Section 16 Persons, (iii) materially modify the
requirements as to eligibility for participation in the Plan by Section 16
Persons, (iv) make any changes in the class of employees eligible to
receive incentive stock options under the Plan, or (v) increase the number
of shares with respect to which incentive stock options may be granted
under the Plan. Approval of the Plan by the stockholders of the Company
pursuant to Section 12 shall also be deemed to constitute approval of any
amendments to Section 6(f) that are designed to take advantage of changes
in income tax or securities laws or regulations adopted for the purpose of
reducing or eliminating restrictions on transferability of options. No
alteration, amendment, revocation or termination of the Plan shall,
without the written consent of the holder of a stock option,
A-10
<PAGE>
restricted stock, restricted stock units, performance units or bonus stock
theretofore awarded under the Plan, adversely affect the rights of such
holder with respect thereto.
(b) It is the Company's intent that the Plan comply in all respects
with Rule 16b-3 of the 1934 Act, and any regulations promulgated
thereunder. If any provision of the Plan is later found not to be in
compliance with the Rule, the provision shall be deemed null and void. All
grants and exercises of stock options under the Plan shall be executed in
accordance with the requirements of Section 16 of the 1934 Act, as amended
and any regulations promulgated thereunder. To the extent that any of the
provisions contained herein do not conform with Rule 16b-3 of the 1934 Act
or any amendments thereto or any successor regulation, then the Committee
may make such modifications so as to conform the Plan and any stock
options granted thereunder or the Rule's requirements.
12. EFFECTIVE DATE AND DURATION OF PLAN.
The effective date and date of adoption of the Plan shall be December 4,
1997, the date of approval of the Plan by the Stockholders. No stock option may
be granted, and no restricted stock, restricted stock units, bonus stock or
performance units payable in Common Stock may be awarded under the Plan
subsequent to December 13, 2005.
13. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
directors, the members of the Committee administering the Plan shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any rights granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding that
such member is liable for negligence or misconduct in the performance of such
member's duties; provided that within 60 days after institution of any such
action, suit or proceeding, the member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
A-11
