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
2000 Annual Meeting of Stockholders of Intelect Communications, Inc. Our meeting
is called for Friday, June 2, 2000, at the Omni Richardson Hotel, 701 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, and a display of the Company's products. Directors and officers of
the Company will be participating and available to respond to shareholder
inquiries.
Enclosed is the Company's Annual Report for the year ended December 31,
1999. "Part I, Item 1 -- Business" on page 2 describes the Company's
capabilities and activities. "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 11 reviews the Company's
operations, and the subsection, "Liquidity and Capital Resources" on page 15
presents improvements in the Company's financial position as the result of
transactions subsequent to December 31, 1999. We believe these sections contain
information relevant to an understanding of the Company's principal business
focus, operational changes that have been under way and its current financial
capability to support growth programs and opportunities.
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 AND CHIEF EXECUTIVE OFFICER
Enclosures
May 2, 2000
<PAGE>
INTELECT COMMUNICATIONS, INC.
NOTICE OF THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 2, 2000
To the Stockholders of Intelect Communications, Inc.
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Intelect Communications, Inc. (the "Company") will be held on June 2, 2000, at
11:30 a.m. at the Omni Richardson Hotel, 701 East Campbell Road, Richardson,
Texas 75081 (the "Meeting") for the purpose of considering and voting upon the
following matters:
1. To elect two (2) directors of the Company;
2. To consider and vote upon a proposal to approve the Company's Amended
and Restated Stock Incentive Plan;
3. To consider and vote upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation, as amended, to increase the
number of shares of the Company's common stock, par value $0.01 (the
"Common Stock") authorized for issuance from 100,000,000 to
200,000,000;
4. To consider and vote upon a proposal to ratify the appointment of Grant
Thornton LLP as independent auditor of the Company for 2000; and
5. 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 10, 2000, 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
ROBERT P. CAPPS,
SECRETARY
Richardson, Texas
May 2, 2000
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 2, 2000
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 for
the purposes set forth in the accompanying Notice of the meeting. The Meeting is
to be held on June 2, 2000, at the Omni Richardson Hotel, 701 East Campbell
Road, Richardson, Texas 75081.
The Company's Annual Report for the year ended December 31, 1999, 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 May 2,
2000.
EXERCISE OF DISCRETION BY PROXIES
Each properly executed proxy received at or before the Meeting on June 2,
2000, 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 nominees as directors;
(2) the Company's Amended and Restated Stock Incentive Plan; (3) an amendment to
the Company's Amended and Restated Certificate of Incorporation to increase the
number of shares of the Company's Common Stock authorized for issuance from
100,000,000 to 200,000,000 shares (the "Charter Amendment Proposal"); and (4)
to ratify the appointment of Grant Thornton, LLP as independent auditors for the
Company for 2000.
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 Regan & Associates
to assist in the solicitation of proxies for which the Company will pay an
estimated $12,000 in fees, plus expenses and disbursements.
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 by proxy or in person at the Meeting will be
tabulated by the election inspectors
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<PAGE>
appointed for the meeting. Abstentions and broker nonvotes (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 nonvote 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 nonvote
or the withholding of a proxy's authority will have no effect on the outcome of
the vote on the matter. A "broker nonvote" 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 10, 2000, will be entitled to receive notice of and to vote at
the Meeting. The Company had 84,821,622 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 DIRECTORS
The Company currently has five director seats, one of which is currently
vacant. Pursuant to an agreement with The Coastal Corporation Second Pension
Trust ("Coastal"), the Company has agreed to cause a person nominated by
Coastal to be appointed to fill the vacancy upon prior notice by Coastal. 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 two of the director seats, those of
Herman M. Frietsch and Philip P. Sudan, Jr., expire. The directors nominated for
election at this Meeting would hold office for a three year term expiring in
2003. Other directors are not up for election this year and will continue in
office for the remainder of their terms.
The Company, and its predecessor, Intelect Communications Systems Limited,
a company organized under the laws of Bermuda ("Intelect (Bermuda)") engaged
in a restructuring transaction, the principal effect of which was to make the
Company, a Delaware corporation, the publicly traded surviving corporation. As a
result of this transaction, there is some continuity in the Board of Directors
of the Company and Intelect (Bermuda). Accordingly, for the periods prior to
December 1997, references herein to service to the "Company" refer to service
with Intelect (Bermuda).
DIRECTORS NOMINATED THIS YEAR FOR TERMS TO EXPIRE IN 2003.
HERMAN M. FRIETSCH, 60, is Chairman of the Board of the Company and has
been so since 1989, Chief Executive Officer since February 1997 and Director
since 1988. Mr. Frietsch served as Executive Chairman from October 1995 to
February 1997. Mr. Frietsch also serves as Chairman of the Compensation
Committee.
PHILIP P. SUDAN, JR., 48, 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
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.
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The Board of Directors recommends a vote FOR these nominees, and unless
otherwise instructed or unless authority to vote is withheld, the enclosed proxy
will be voted FOR the election of these nominees. Proxies may not be voted for a
greater number of persons than the two nominees named. Although the Board of
Directors of the Company does not contemplate that the nominees 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 persons as may be
nominated by the Board of Directors.
DIRECTOR UP FOR ELECTION IN 2001.
ROBERT E. GARRISON II, 58, is President and Chief Executive Officer of
Pinnacle Global Group, Inc., a publicly traded financial services company, since
January 1999. Mr. Garrison served as Executive Vice President of Investment
Banking with Harris, Webb & Garrison, Inc. a regional investment banking and
brokerage firm, from February 1994 to January 1999, at which time Harris, Webb &
Garrison became part of Pinnacle Global Group, Inc. Mr. Garrison also served as
the Chairman and Chief Executive Officer of Pinnacle Management & Trust Company,
a state chartered independent trust company, from June 1994 to January 1999, at
which time Pinnacle Management & Trust Company became part of Pinnacle Global
Group, Inc. 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 Pinnacle Global Group, Inc. Mr. Garrison has been a
director of the Company since July 1997 and serves as a member of the Audit
Committee and the Stock Option Committee.
DIRECTOR UP FOR ELECTION IN 2002.
PRINZ ANTON VON ZU LIECHTENSTEIN, 59, is a private investor and has been so
for the past five years. Mr. von Liechtenstein has been a director of the
Company since 1980 and was its first Managing Director. He is Chairman of the
Stock Option 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 10, 2000,
unless otherwise noted, 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 shares 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 10, 2000, 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.
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<PAGE>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------- -------------------- ----------------
Herman M. Frietsch..................... 1,120,006(1) 1.31%
Robert P. Capps........................ 0 *
R. Eugene Helms........................ 25,000 *
Edwin J. Ducayet, Jr. ................. 0 *
Willard F. Barnett(2).................. 41,666(3) *
John C. Radford(4)..................... 50,650(5) *
Anton Liechtenstein.................... 513,382(6) *
Philip P. Sudan, Jr. .................. 599,713(7) *
Robert E. Garrison II.................. 320,870(8) *
The Coastal Corporation Second
Pension Trust(9)..................... 10,544,099(10) 11.54%
SJMB, L.P. (11)........................ 6,960,079(12) 7.86%
All Directors and Executive Officers
as a group (9 persons)................. 2,471,287(13) 2.86%
- ------------
* Indicates holdings of less than one percent.
(1) Includes 390,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 9, 2000. Includes
128,006 shares which assumes the conversion at a price of $1.00 per dollar
of outstanding principal and interest of a loan made by Mr. Frietsch to the
Company in December of 1997. See "Certain Transactions." Includes 6,000
shares owned beneficially by Mr. Frietsch's spouse as to which he disclaims
beneficial ownership.
(2) Mr. Barnett was elected an executive officer of the Company effective April
2000.
(3) Represents shares issuable upon exercise of immediately exercisable
options.
(4) Mr. Radford was elected as an executive officer of the Company effective
April 2000.
(5) Includes 50,000 shares issuable upon exercise of immediately exercisable
options.
(6) Includes 225,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 9, 2000. Includes
10,882 shares of stock issuable in payment of accrued director's fees
pursuant to the Directors' Stock Plan.
(7) Includes 220,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 9, 2000. Includes
170,674 shares which assumes the conversion at a price of $1.00 per dollar
of outstanding principal and interest of a loan made by Mr. Sudan to the
Company in December of 1997. See "Certain Transactions." Includes 21,766
shares of stock issuable in payment of accrued director's fees pursuant to
the Directors' Stock Plan.
(8) Represents 250,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by June 9, 2000. Includes
16,324 shares of stock issuable in payment of accrued director's fees
pursuant to the Directors' Stock Plan.
(9) The principal address of The Coastal Corporation Second Pension Trust
("Coastal") is Nine Greenway Plaza, Houston, Texas 77046.
(10) Based solely on information supplied to the Company as of February 2, 2000,
by Coastal, but excludes 3,719,409 shares issuable upon conversion of the
Company's Series A Preferred Stock which have been redeemed. Also excludes
5,000,000 shares of common stock issuable upon exercise of a warrant which
is not presently exercisable pursuant to the terms of such warrant.
Includes 1,517,308 shares of common stock issuable upon exercise of
currently exercisable warrants.
(11) The general partner of SJMB, L.P., is SJMB, L.L.C. The directors of SJMB,
L.L.C. are Charles E. Underbrink and John L. Thompson. The principal
address of SJMB, L.P. is 777 Post Oak Blvd., Suite 950, Houston, Texas
77056.
(12) Based solely on information contained in Schedule 13D of SJMB, L.P.,
("SJMB") filed on February 29, 2000. Based solely on such Schedule 13D,
includes 594,900 shares of Common Stock issuable upon conversion of
convertible debt as of February 9, 2000, 1,080,000 shares of Common Stock
issuable upon the exercise of warrants issued April 2, 1998, 382,500 shares
of Common Stock issuable upon the exercise of warrants issued on January
13, 1999, and an additional 1,621,801 shares pursuant to anti-dilution
provisions in such warrants as of November 10, 1998. SJMB claims that it
may be entitled to additional shares pursuant to the anti-dilution
provisions in such Warrants. The
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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Company disputes the enforceability of the anti-dilution provisions as
claimed by SJMB and the number of shares to which SJMB may be entitled
thereby.
(13) Includes 851,666 shares issuable upon exercise of options which are
currently exercisable or become exercisable by May 30, 2000. Includes
50,515 shares of stock issuable in payment of accrued director's fees
pursuant to the Directors' Stock Plan. Also includes 298,680 shares
issuable upon conversion of convertible debt.
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<PAGE>
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.
OFFICE AND EMPLOYMENT DURING LAST
NAME AGE FIVE YEARS
- ------------------------- --- --------------------------------------
Herman M. Frietsch....... 60 Chairman of the Board since 1989;
Chief Executive Officer since
February 1997; Director since 1988;
Executive Chairman from October 1995
to February 1997.
Robert P. Capps.......... 46 Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary of the Company since August
1999. Prior to joining the Company,
Mr. Capps was Executive Vice
President and Chief Financial Officer
of Dynamex, Inc. since 1996 and
Executive Vice President and Chief
Financial Officer of Hadson
Corporation from 1986 until 1996.
R. Eugene Helms.......... 49 Executive Vice President, Chief
Technology Officer since June 1996;
President and Chief Executive Officer
of DNA Enterprises, Inc. (a
subsidiary of the Company) from April
1996 to September 1999; President and
Owner of TeleSolutions Inc., a
consulting firm, from January 1990 to
1996; Vice President, Engineering of
Mizar, Inc., a DSP products
manufacturer, from March 1994 to
October 1995.
Edwin J. Ducayet, Jr..... 60 Resigned from all positions held with
the Company and its subsidiaries in
August, 1999; previously served as
Vice President and Chief Financial
Officer of the Company since February
1997 and of Intelect Network
Technologies Company (a subsidiary of
the Company) since December 1991.
Willard F. Barnett....... 51 Vice President of the Company since
April 2000; President of Intelect
Network Technologies Company (a
subsidiary of the Company) since
March 1999; Vice President Sales and
Marketing of Intelect Network
Technologies Company since 1995.
John C. Radford.......... 42 Vice President of the Company since
April 2000; President of DNA
Enterprises, Inc. since September
1999; Senior Vice President of DNA
Enterprises, Inc. since 1993.
BOARD AND COMMITTEE MEETINGS
The business of the Company is managed under the direction of the Board of
Directors which is comprised of three classes which are elected for staggered
three year terms. Directors serve for the remainder of their respective terms or
until their successors are elected. The Board meets regularly to review Company
related activities, transactions, developments, and to act on matters requiring
Board approval. It also holds special meetings and acts by written consent as
may be necessary. The Board of Directors of the Company held 14 meetings during
1999. 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 approves the scope of the annual audit and makes
recommendations to the Board of Directors concerning the selection of the
Company's independent accountants. The Audit Committee also advises 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 1999.
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The Compensation Committee determines policy and reviews activity
concerning the compensation of the Company's executive management and the
Company's employees generally. The members of the Compensation Committee are Mr.
Frietsch and Mr. Sudan. The Compensation Committee met 12 times during 1999. See
"Compensation Committee Report on Executive Compensation" below.
The Stock Option Committee determines policies and procedure for
implementing and 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. The Stock
Option Committee met four times during 1999.
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 cash 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 service on each committee. At
the election of each director at the beginning of each year, all fees are
payable, in cash or in Common Stock pursuant to the Directors Stock Plan adopted
by the shareholders at the 1999 Annual Meeting of Stockholders. Directors can
elect to defer receipt of the stock issued in payment of such fees to a future
fiscal year. With respect to the initial plan year (1999), by approval of the
shareholders at the 1999 Annual Meeting of Shareholders, the directors made a
one-time election to receive all accrued and unpaid fees in stock, and elected
to receive all remaining 1999 fees in stock. 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."
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COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes annual and long-term compensation to Herman
M. Frietsch, Chief Executive Officer of the Company, and the other executive
officers of the Company who have received more than $100,000 in salary and bonus
during the last three completed fiscal years ended December 31, 1999 (the Chief
Executive Officer and such other executive officers are hereinafter referred to
as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION OTHER ------------
--------------------------------- ANNUAL SECURITIES ALL OTHER
FISCAL COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($) SATION ($) OPTIONS (#) SATION ($)
- ------------------------------------- ------ ---------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Herman M. Frietsch................... 1999 275,000 -- -- 850,000(1) 7,550(4)
Chairman and Chief 1998 250,000 -- -- 660,000(2) 3,742(5)
Executive Officer of the 1997 250,000 -- -- 250,000(3) 3,736
Company
Robert P. Capps...................... 1999 63,210 20,000 -- 270,000 687(6)
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary of the Company
R. Eugene Helms...................... 1999 210,000 (7) -- 410,000(8) 12,440(10)
Executive Vice President and 1998 210,000 (7) -- 350,000(2) 4,000(11)
Chief Technology Officer of 1997 180,000 66,000 -- 150,000(9) 4,000
the Company
Edwin J. Ducayet, Jr................. 1999 103,448 -- -- -- 53,036(13)
Former Vice President, CFO, 1998 150,000 -- 55,000(12) 4,483(14)
Treasurer and Assistant 1997 138,740 -- 100,000 3,851
Secretary of the Company
Willard F. Barnett................... 1999 186,983 2,328 -- 190,000(15) 8,671(16)
President of Intelect Network
Technologies Company (a subsidiary
of the Company)
John C. Radford...................... 1999 164,923 40,000 -- 150,000 11,554(17)
President of DNA Enterprises, Inc.
(a subsidiary of the Company)
</TABLE>
- ------------
(1) Includes 500,000 shares underlying options granted in replacement of, and
upon surrender of, an equal number of options previously granted, due to
option exchange and repricing transactions in January and October of 1999.
See "Option Grants in Last Fiscal Year" table and notes thereto and
"Option Repricing" table.
(2) These options were surrendered and replaced in repricing transactions in
1998 and 1999. See "Option Grants in Last Fiscal Year" table and notes
thereto and "Option Repricing" table.
(3) These options were surrendered and replaced in a repricing transaction in
1998. See "Option Repricing" table.
(4) Consists of matching contributions to 401(k) defined contribution plan in
amount of $3,419.58 and insurance premiums for life, health and dental
insurance in the amount of $4,130.03.
(5) Consists of matching contributions to 401(k) defined contribution plan in
the amount of $3,161, and insurance premiums for term life insurance in the
amount of $581.
(6) Consists of premiums paid for health and dental insurance.
(FOOTNOTES ON FOLLOWING PAGE)
8
<PAGE>
(7) Mr. Helms is due to receive bonus payments for performance and events
during 1998 and 1999 the amount of which has yet to be determined.
(8) Includes 325,000 shares underlying options granted in replacement of, and
upon surrender of, an equal number of options previously granted, due to
option exchange and repricing transactions in October of 1999. See
"Options Grants in Last Fiscal Year" table and notes thereto and "Option
Repricing" table.
(9) 50,000 of these options were surrendered and replaced in a repricing
transaction in 1998. See "Option Repricing" table.
(10) Consists of matching contributions to 401(k) defined contribution plan in
the amount of $5,008.64 and insurance premiums for life, health and dental
insurance in the amount of $7,431.54.
(11) Consists of matching contributions to 401(k) defined contribution plan in
the amount of $4,000.
(12) Includes options which were surrendered and replaced in a repricing
transaction in 1998. See "Option Repricing" table.
(13) Consists of severance pay in the amount of $45,977, matching contributions
to 401(k) defined contribution plan in the amount of $2,965.45 and
insurance premiums for life, health insurance and dental insurance in the
amount of $4,094.21.
(14) Consists of matching contributions to 401(k) defined contribution plan in
the amount of $4,483.
(15) Includes 90,000 repriced options.
(16) Consists of matching contributions to 401(k) defined contribution plan of
$4,931 and insurance premiums for life, health and dental insurance in the
amount of $3,740.
(17) Consists of matching contributions to 401(k) defined contribution plan of
$4,123 and insurance premiums for life, health and dental insurance in the
amount of $7,431.51.
The following table sets forth stock options granted in 1999 to each of the
Named Executive Officers. The table also sets forth the hypothetical gains that
would exist for the options at the end of their ten-year terms at assumed
compound annual rates of stock price appreciation of 5% and 10%. The actual
future value of the options will depend on the market value of the Company's
common stock as the options are vested and exercisable.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/ APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS(1)
NAME AND PRINCIPAL OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
POSITIONS GRANTED(#) IN 1999 ($/SHARE) DATE 5%($) 10%($)
- ------------------------------------- ---------- ----------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Herman M. Frietsch................... 150,000(2) 4.4% N/A(2) N/A(1) N/A(2) N/A(2)
500,000(3) 14.5% 1.00 10/20/09 814,500 1,297,000
100,000(4) 2.9% 1.00 10/20/09 162,900 259,400
100,000(5) 2.9% 1.00 10/20/09 162,900 259,400
Robert P. Capps...................... 170,000(6) 4.9% 1.00 10/20/09 276,930 440,980
100,000(5) 2.9% 1.00 10/20/09 162,900 259,400
R. Eugene Helms...................... 285,000(7) 8.3% 1.00 10/20/09 464,265 739,290
125,000(8) 3.6% 1.00 10/20/09 203,625 324,250
Edwin J. Ducayet, Jr................. -- -- -- -- -- --
Willard F. Barnett................... 100,000(9) 2.9% 1.00 10/20/09 162,900 259,400
40,000(10) 1.2% 1.00 10/20/09 65,060 103,760
50,000(11) 1.5% 1.00 10/20/09 81,450 129,700
John C. Radford...................... 150,000(12) 4.4% 1.00 10/20/09 244,350 389,100
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
9
<PAGE>
- ------------
(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 price 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.
(2) Options granted on January 1999 and subsequently surrendered in exchange
for new options pursuant to the October, 1999 option repricing.
Accordingly, these options are no longer outstanding. See "Option
Repricing."
(3) Includes five repriced options granted on October 20, 1999, replacing four
surrendered options that had been granted pursuant to the September 1998
option repricing transaction and one surrendered option that had been
originally granted on January 22, 1999. Each repriced option has a three
year vesting schedule, vesting at the rate of one-third per year, until
fully vested on the third anniversary of the grant.
(4) Option granted on October 20, 1999. Option fully vested upon grant.
(5) Option granted on October 20, 1999. Option vests as of the earlier of: (i)
the first three consecutive annual anniversaries of the date of a
determination by the Stock Option Committee of the accomplishment of
certain performance based criteria relating to the OMNILYNX product,
vesting one-third of such option shares at each such anniversary, (ii) the
sale of the Company's wholly owned subsidiary Intelect Network Technologies
Company ("INT") or the sale of all or substantially all of the assets of
INT, or the sale of all or substantially all of the assets of the OMNILYNX
product line, or (iii) October 20, 2009.
(6) Options granted on October 20, 1999. Options have a three year vesting
schedule, vesting at the rate of one-third per year, until fully vested on
the third anniversary of the grant.
(7) Includes four repriced options granted on October 20, 1999, replacing four
surrendered options that had been granted pursuant to the September 1998
option repricing transaction. Each repriced option has a three year vesting
schedule, vesting at the rate of one-third per year, until fully vested on
the third anniversary of the grant.
(8) Option granted on October 20, 1999, upon surrender and cancellation of
previously granted option covering 40,000 shares. Option vests as of the
earlier of: (i) the first three consecutive annual anniversaries of the
date of a determination by the Stock Option Committee of the accomplishment
of certain performance based criteria relating to the OMNILYNX product,
vesting one-third of such option shares at each such anniversary, (ii) the
sale of INT or the sale of all or substantially all of the assets of INT,
or the sale of all or substantially all of the assets of the OMNILYNX
product line, or (iii) October 20, 2009.
(9) Option granted on October 20, 1999. Option vests as of the earlier of: (i)
the first three consecutive annual anniversaries of the date of a
determination by the Stock Option Committee of the accomplishment of
certain performance based criteria relating to the OMNILYNX product,
vesting one-third of such option shares at each such anniversary, (ii) the
sale of INT or the sale of all or substantially all of the assets of INT,
or the sale of all or substantially all of the assets of the OMNILYNX
product line, or (iii) October 20, 2009. This option was issued upon
surrender and cancellation of options covering 40,000 shares previously
granted on September 3, 1998 with an exercise price of $2.00 per share.
(10) Option granted originally in February 1996 with an exercise price of $4.375
and subsequently surrendered in exchange for new options pursuant to the
October 1999 option repricing. Options have a three year vesting schedule,
vesting at the rate of one-third per year until fully vested on the third
anniversary of grant.
(11) Options granted on October 20, 1999. Options have a three year vesting
schedule, vesting at the rate of one-third per year, until fully vested on
the third anniversary of the grant.
(FOOTNOTES ON FOLLOWING PAGE)
10
<PAGE>
(12) Option granted on October 20, 1999. Option vests as of the earlier of: (i)
the first three consecutive annual anniversaries of the date of a
determination by the Stock Option Committee of the accomplishment of
certain performance based criteria relating to the OMNILYNX product,
vesting one-third of such option shares at each such anniversary, (ii) the
sale of the Company's wholly owned subsidiary Intelect Network Technologies
Company ("INT") or the sale of all or substantially all of the assets of
INT, or the sale of all or substantially all of the assets of the OMNILYNX
product line, or (iii) October 20, 2009.
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized on exercise in 1999 by the Named
Executive Officers. The table also sets forth the number of shares covered by
exercisable and unexercisable options held by such executives on December 31,
1999 and the aggregate gains that would have been realized had these options
been exercised on December 31, 1999, even though these options were not
exercised, and the unexercisable options could not have been exercised, on
December 31, 1999.
AGGREGATED OPTION/ EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
NUMBER OF OPTIONS AT FISCAL FISCAL
COMMON STOCK VALUE YEAR-END (#) YEAR-END(1)($)
ACQUIRED ON REALIZED ------------------------------ ----------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------- --------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Herman M. Frietsch..... -- -- 150,000 700,000 -- 262,500
Robert P. Capps........ -- -- -- 270,000 -- 101,250
R. Eugene Helms........ -- -- -- 410,000 -- 153,750
Edwin J. Ducayet, Jr... -- -- 136,666 -- -- --
Willard F. Barnett..... -- -- 33,332 231,668 -- 71,250
John C. Radford........ -- -- 36,665 183,335 -- 56,250
</TABLE>
- ------------
(1) Market value of shares covered by in-the-money options on December 31, 1999,
less the option exercise price. Options are in-the-money if the market value
of the shares covered thereby is greater than the option exercise price.
11
<PAGE>
OPTION REPRICING
The following table sets forth information concerning all repricing of
options held by executive officers of the Company since the Company became
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All such repricings were effected by the grant
of replacement options in exchange for the surrender of existing options for the
same number of underlying shares. In addition, vesting schedules were re-stated
so that replacement options begin vesting from date of grant on the same basis
as option surrendered.
<TABLE>
<CAPTION>
EXERCISE LENGTH OF
NUMBER OF PRICE AT ORIGINAL
SECURITIES MARKET PRICE TIME OF OPTION TERM
UNDERLYING OF STOCK AT REPRICING REMAINING AT
OPTIONS TIME OF OR NEW DATE OF
REPRICED OR REPRICING AMENDMENT EXERCISE REPRICING OR
NAME DATE AMENDMENT ($) ($) PRICE AMENDMENT
- ------------------------------------- --------- ----------- ------------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Herman M. Frietsch................... 10/20/99 200,000 0.75 2.00 1.00 9 years
10/20/99 50,000 0.75 2.00 1.00 9 years
10/20/99 50,000 0.75 2.00 1.00 9 years
10/20/99 50,000 0.75 2.00 1.00 9 years
10/20/99 150,000 0.75 2.00 1.00 9.7 years
9/3/98 50,000 1.97 6.50 2.00 7.6 years
9/3/98 200,000 1.97 4.00 2.00 8.7 years
9/3/98 50,000 1.97 6.25 2.00 9 years
9/3/98 50,000 1.97 5.50 2.00 9.4 years
9/3/98 40,000 1.97 5.50 2.00 9.4 years
9/3/98 40,000 1.97 5.50 2.00 9.4 years
Robert P. Capps...................... -- -- -- -- -- --
R. Eugene Helms...................... 10/20/99 100,000 0.75 3.00 1.00 7.5 years
10/20/99 35,000 0.75 2.00 1.00 7.5 years
10/20/99 100,000 0.75 2.00 1.00 9 years
10/20/99 50,000 0.75 2.00 1.00 9 years
10/20/99 40,000 0.75 2.00 1.00 9 years
9/3/98 100,000 1.97 5.31 2.00 7.6 years
9/3/98 50,000 1.97 6.25 2.00 9 years
9/3/98 35,000 1.97 5.00 2.00 9.4 years
9/3/98 40,000 1.97 5.00 2.00 9.4 years
Edwin J. Ducayet, Jr................. 9/3/98 10,000 1.97 7.50 2.00 8 years
9/3/98 25,000 1.97 5.00 2.00 9 years
9/3/98 10,000 1.97 5.00 2.00 9.4 years
9/3/98 10,000 1.97 5.00 2.00 9.4 years
Willard F. Barnett................... 10/20/99 40,000 0.75 2.00 1.00 8.8 years
10/20/99 50,000 0.75 4.38 1.00 6.3 years
9/3/98 40,000 1.97 5.00 2.00 9.4 years
9/3/98 50,000 1.97 6.50 2.00 7.6 years
John C. Radford...................... 9/3/98 10,000 1.97 6.00 2.00 9.3 years
9/3/98 20,000 1.97 6.00 2.00 9.8 years
</TABLE>
STOCK OPTION COMMITTEE REPORT ON OPTION REPRICING
Effective October 20, 1999, the Board of Directors approved the repricing
of certain outstanding options (the "Designated Options"), pursuant to which
the holders of the Designated Options were entitled to surrender such
outstanding options in exchange for the grant of new options (the "Repriced
Options") with an exercise price of $1.00 per share of Common Stock. In view of
successive declines in the market price of the Company's common stock while the
Company was undergoing refocusing and restructuring to achieve renewed growth
and in keeping with the Company's philosophy of utilizing equity incentives to
motivate and retain qualified employees, the Board of Directors and the Stock
Option Committee determined that it was important to reinforce and regain the
incentive and retention objectives intended to
12
<PAGE>
be provided by options to purchase shares of the Company's stock. The repricing
was effected on October 20, 1999, by canceling any Designated Options
surrendered for cancellation by the holders and granting such persons Repriced
Options exercisable at $1.00 per share. The closing bid price for the Company's
common stock on October 20, 1999 was $0.75 per share. Each Repriced Option
covers the same number of shares of common stock as the Designated Option it
replaces and has the identical vesting schedule as the Designated Option,
provided, however, that vesting for each Repriced Option shall be determined
from October 20, 1999.
Philip P. Sudan, Jr.
Anton von Liechtenstein
Robert E. Garrison II
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 oversees
compensation policies and practices 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, motivate, 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,
motivation and retention 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 or 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 1999 for the Company's executive officers, including the
Chief Executive Officer, were intended and believed to be comparable and
competitive 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
Compensation arrangements for the Chief Executive Officer are determined by
the Company's Board of Directors based in part upon analyses and guidelines from
non-affiliated sources including the Performance and Compensation Management
Group of KPMG Peat Marwick, New York, N.Y., and the
13
<PAGE>
Compensation Group of Arthur Andersen, LLP from an independent review and
evaluation of executive compensation in comparable circumstances and competitive
conditions. 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 Chief Executive Officer.
ANNUAL CASH BONUS PROGRAM
The Company maintains annual incentive compensation arrangements for its
executive officers. John C. Radford was awarded a bonus of $40,000 for 1999.
Robert P. Capps received a $20,000 bonus and Willard F. Barnett received a
$2,328 bonus for 1999. R. Eugene Helms is due to receive bonus payments for
performance and events during 1999, the amount of which has yet to be
determined. No other executive officer received a bonus for 1999.
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. Occasionally,
rather than granting new options under the plan, the Company reprices previous
options and redefines performance-based conditions to vesting of the options. To
encourage continued service, the options normally vest upon the fulfillment by
the employee of certain performance-based criteria, and become exercisable over
three years in three equal annual installments, and expire after ten years. When
the performance criteria are not achieved, the options normally vest one month
prior to their expiration date which will be ten years after the date of the
grant. 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, 1999, except that Herman M. Frietsch filed a late Statement of
Changes in Beneficial Ownership on Form 5 due February 2000 reflecting 11
transactions.
14
<PAGE>
EMPLOYEE AGREEMENTS
HERMAN M. FRIETSCH
The Company has had a contractual employment relationship with Mr. Frietsch
since 1995 which was revised and replaced by an Employment Agreement as of July
1, 1998, providing that Mr. Frietsch will serve as Chairman and Chief Executive
Officer for three (3) years, until June 30, 2001, unless further extended or
sooner terminated as set forth in the agreement. Mr. Frietsch receives a base
salary of $275,000 per year and may receive a discretionary bonus subject to
determination by the Board of Directors. Mr. Frietsch shall receive options to
purchase common stock of the Company pursuant to the Company's Stock Incentive
Plan.
Mr. Frietsch will be entitled to all benefits and perquisites currently
made available to senior executives of the Company as designated by the
compensation committee. In addition, any expenses that he incurs as a result of
transacting business on behalf of the Company shall be reimbursed.
The agreement also provides that during the term of employment, Mr.
Frietsch will not compete in any manner, whether direct or indirect, in any form
with the Company or any affiliate thereof.
The Company may terminate the agreement for "Cause" (as defined in
section 9(a)(i)-(iii)). Mr. Frietsch may terminate the agreement upon prior
written notice for the reasons set forth in sections 10(a)(i)-(iii) of the
agreement (i.e., he is no longer re-elected as Chairman and CEO, his duties are
materially inconsistent with his position, his salary is reduced, bonus
eligibility is denied or required compensation payments are not made).
In the event of termination of the agreement by the Company, other than for
termination by the Company for a "good" cause (as defined in the agreement to
include certain criminal acts, gross negligence and willful misconduct,
sustained refusal by Mr. Frietsch to perform his normal duties, or conducting
non-competitive activities), Mr. Frietsch or his estate is entitled to receive a
lump sum payment equal to the present value of three years' compensation at 100%
of Mr. Frietsch's highest salary or $1,000,000 whichever is greater. In the
event the agreement is terminated by Mr. Frietsch pursuant to section 10(a)(i)-
(iii) or if Mr. Frietsch is terminated upon or following a "change in
control," the Company shall pay Mr. Frietsch a cash contract termination
payment of three years' compensation at 100% of Mr. Frietsch's highest salary or
$1,000,000 whichever is greater. In addition, pursuant to an amendment to the
employment agreement in December 1999, in the event of termination of Mr.
Frietsch's employment pursuant to the terms of his agreement, all unvested stock
options issued and outstanding shall vest upon effective notice of termination.
ROBERT P. CAPPS
Mr. Capps has entered into an arrangement with the Company dated July 16,
1999, in which he is to serve as Executive Vice President and Chief Financial
Officer. Pursuant to the arrangement, Mr. Capps is to receive a base salary of
$150,000 per year and a bonus of 20% of his base salary which is to be
predicated on the Company's quarterly stock price. In the event of termination
(other than for cause) or change in control, Mr. Capps is to receive 6 months
salary and bonus.
EDWIN DUCAYET
The Company had an Employment Agreement with Edwin Ducayet and that
agreement has terminated pursuant to a Confidential Separation Agreement and
General Release executed on December 21, 1999. Under the termination agreement,
Mr. Ducayet was entitled to receive a gross amount of $100,000 in payable
installments as set forth in the agreement. Mr. Ducayet agreed to abide by the
confidentiality agreement and non-compete agreement that was executed between
himself and the Company on April 8, 1996.
EUGENE HELMS
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
15
<PAGE>
five years ending April 1, 2001, and incentive pay based on the performance of
DNA. This agreement has been assumed by the Company.
CERTAIN TRANSACTIONS
In connection with the October 20, 1999, general repricing and granting of
stock purchase options under the Company's Stock Incentive Plan, see Option
Repricing page 12, all outstanding options held by directors and issued prior to
October 20, 1999, (representing the right to purchase an aggregate of 445,000
shares) were surrendered in exchange for new options at an exercise price of
$1.00 with vesting terms identical to those surrendered for cancellation. Except
for options held by Mr. Garrison to purchase 75,000 shares of common stock which
vested one third on issuance and one third for the remaining years, all other
options surrendered for cancellation were exercisable when granted. Each
director was also granted an option dated October 20, 1999, to purchase 100,000
shares of common stock, exercisable from date of grant and expiring on October
20, 2009.
In August 1999, the Company entered into an Amended and Restated Loan
Agreement for Receivables and Inventory Backed Borrowing (the "Loan
Agreement") with Coastal. The Loan Agreement consolidated the Company's
existing receivables backed credit line and inventory backed credit line into
one facility. The maximum balance under the Loan Agreement is $12 million and
the maturity date for the loan is July 2000. The Loan Agreement is secured by
the Company's receivables, inventory and the capital stock of its material
subsidiaries. In connection with the establishment of the Loan Agreement, the
Company agreed to allow Coastal to convert $3,000,000 of indebtedness into an
aggregate of 2,777,778 shares of common stock. In connection with this
transaction, the Company issued warrants to purchase a total of 1,067,308 shares
of common stock at $1.30 per share expiring on August 12, 2001, (the "August
warrants"). In addition, the Company also repriced warrants previously issued
in August 26, 1997, to purchase 450,000 shares at $6.00 to $1.30 expiring on
August 26, 2002.
In December 1999, the Company agreed to allow Coastal to convert $5,000,000
of indebtedness under the Loan Agreement into 5,000,000 shares of common stock
and issued to Coastal warrants for the purchase of 5,000,000 shares of common
stock at an exercise price of $0.75 expiring on December 16, 2002. As a part of
the December 1999 transaction the August warrants and warrants for the purchase
of 450,000 shares of common stock previously issued to Coastal were amended to
adjust the exercise price to $0.75.
In January 1999, in connection with the extension of debt obligations to
St. James, the Company issued warrants for the purchase of 535,000 shares of
common stock. Borrowings under the St. James facility are secured by a second
lien on the Company's accounts receivable, inventory and related assets and by a
pledge of the stock of the Company's subsidiaries, subject to an intercreditor
agreement with Coastal. In August 1999, this facility was amended and $3,000,000
of the then outstanding balance was repaid by the issuance of 3,864,271 shares
of common stock. In addition, St. James was granted the right to exchange any or
all remaining balance for common stock at a rate per share equal to the greater
of $1.08 and 66 2/3% of the market price of the Company's common stock at the
time of the exchange. In January 2000, St. James converted $6,000,000
outstanding under the facility into 3,645,182 shares of common stock, pursuant
to the terms of the amended agreement.
In October 1999, as an inducement for the holders to refrain from demanding
repayment of the loans, the Company repriced the conversion rate on certain
notes payable, originally issued in October 1997, by the Company and held by Mr.
Frietsch and Mr. Sudan from $2.00 to $1.00 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. The notes
are payable upon demand. The principal and interest due and owing to Messrs.
Frietsch and Sudan as of April 10, 2000, is approximately $117,200 and $156,300,
respectively.
Mr. Sudan is a partner of Ryan & Sudan, L.L.P., counsel for the Company.
During 1999, the Company paid approximately $1,503,000 in legal fees to Ryan &
Sudan, L.L.P.
16
<PAGE>
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, 1999, 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, 1994. 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.
[GRAPH TO COME -- GOES HERE]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 CAGR(1)
---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ICOM................................. 100 262 212 241 71 65 -8.3 %
Nasdaq Telecom....................... 100 131 134 196 322 561 41.2 %
Nasdaq-US............................ 100 141 174 213 300 542 40.2 %
</TABLE>
- ------------
(1) Compound Annual Growth Rate for the five years ending December 31, 1999.
17
<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, as amended (the "Plan") is a
principal component of the Company's compensation program for the purpose of
tying individual compensation 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 (the
"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 6,000,000 shares, which quantity was
approved at the 1998 Annual Meeting of Stockholders of the Company. In order to
continue and to enhance the effectiveness of the Plan, the Board of Directors
adopted on April 18, 2000, in accordance with the recommendation of its Stock
Option Committee (the "Committee"), subject to stockholder approval, an
amendment to the Plan which would increase the number of shares of Common Stock
available for issuance under the Plan from 6,000,000 to 8,000,000 shares, to
allow the grant of securities under the Plan to consultants, and to increase the
maximum number of shares which may be granted in any one year to 400,000 per
individual.
The Board believes this amendment is necessary in order to make shares
available for future awards under the Plan, to allow the Company added
flexibility to compensate consultants of the Company, and to allow the grant of
additional shares to attract, motivate, and retain employees and directors of
the Company and its subsidiaries. With respect to the number of shares presently
authorized 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 2001 Annual Meeting of Stockholders. Further, since the
prior share authorization, the Company has continued to expand, increasing the
number of employees, and its capitalization has increased significantly. As the
Company expands, the need to attract, motivate, and retain 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
retain 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 6,000,000 to 8,000,000 shares,
to allow the grant of securities to consultants and to increase the maximum
number of shares which may be granted in any one year to 400,000 per individual.
BOARD RECOMMENDATION
The Board of Directors unanimously recommends a vote FOR the proposal to
amend the Plan. 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 has attached as Exhibit
A to the Proxy Statement the full text of the Plan, as amended and restated,
reflecting the proposed amendments. 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. Robert P. Capps,
Secretary, Intelect Communications, Inc., 1100 Executive Drive, Richardson,
Texas 75081.
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<PAGE>
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 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 2,000,000, to 8,000,000. Of the 8,000,000 shares, no more than
1,000,000 shares will be available for the grant of restricted stock or
restricted stock units. As of April 10, 2000, options to purchase a total of
4,623,504 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) and is proposed to be increased
to 400,000 per calendar year. 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. These awards
can be granted to officers, directors and key employees of the Company and is
proposed to be amended to include consultants. 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 proposed amendment
would extend the class of persons entitled to receive stock options to
consultants. The Committee (or, in the alternative, the full Board of
Directors), with respect to stock options, 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) 75% 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 33 1/3% 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.
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<PAGE>
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 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 33 1/3% 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,
20
<PAGE>
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.
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.
21
<PAGE>
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 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.
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<PAGE>
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 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.
23
<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: TO APPROVE THE AMENDMENT TO THE AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
PROPOSED AMENDMENT
The Company presently has authorized for issuance 100,000,000 shares of
Common Stock. The Company's Board has unanimously adopted a resolution declaring
advisable the Charter Amendment Proposal which would increase the authorized
number of shares of Common Stock from 100,000,000 shares to 200,000,000 shares.
The increased shares will be designated for general corporate purposes. The
number of authorized shares of the Company's Preferred Stock would remain
unchanged. The proposed increase in the authorized shares of Common Stock would
be accomplished by amending Section 4.1 of Article IV of the Company's Amended
and Restated Certificate of Incorporation (the "Certificate") to read as
follows:
Section 4.1. TOTAL NUMBER OF SHARES OF CAPITAL STOCK. The total number of
shares of capital stock of all classes which the Company shall have authority to
issue is 250,000,000 shares, consisting of 200,000,000 shares of Common Stock,
par value $0.01 per share (the "Common Stock"), and 50,000,000 shares of
Preferred Stock, par value $0.01 per share (the "Preferred Stock").
BACKGROUND
The following table sets forth certain information and forward assumptions
relating to the number of shares of Common Stock outstanding, as well as the
number of shares reserved for issuance as of April 10, 2000.
COMMON STOCK
COMMON STOCK COMMON STOCK RESERVED FOR OTHER
AUTHORIZED OUTSTANDING SECURITIES TOTAL
- ------------- ------------- ------------------- ------------
100,000,000 84,821,622 14,483,739 99,305,361
In connection with a recapitalization transaction with Coastal in December
1999, the Company issued to Coastal a warrant to purchase 5,000,000 shares of
common stock of the Company at an exercise price of $0.75 expiring on December
16, 2002 (the "Coastal Warrant"). Pursuant to the terms of the Coastal
Warrant, the Company has no obligation to reserve any shares underlying the
warrant until the Company increases the number of authorized shares by at least
5,000,000 shares. If the Company is unable to increase its authorized shares by
at least such amount on or before December 16, 2001, then the Company will have
to reserve the full amount of shares underlying the Coastal Warrant beginning on
such date. If the Company is unable to effect such a reservation of shares and
Coastal exercises the Coastal warrant but is unable to do so, the Company could
be liable for significant liquidated damages to Coastal.
CONSEQUENCES IF APPROVED
The Charter Amendment will allow the Company to reserve and issue such
shares of Common Stock as may be required under the terms of its securities and
will provide the Company with the capability and flexibility in its capital
structure for investments and acquisitions, stock splits or stock dividends,
stock plans, financings, for shares issuable upon exercise of the Coastal
Warrants, and other securities convertible or exercisable into Common Stock, and
for other general corporate purposes.
Authorized but unissued shares of the Common Stock may be issued at such
times, for such purposes and for such consideration as the Board may determine
to be appropriate. Such action can be taken without
24
<PAGE>
further authorization from the stockholders unless otherwise required by
applicable laws or rules of the Nasdaq Stock Market ("Nasdaq") or on such
other stock exchange on which the Common Stock may be listed. Nasdaq requires
stockholder approval in certain instances, including (i) the issuance of Common
Stock in acquisitions where the potential issuance of stock could result in an
increase in the number of shares of Common Stock outstanding by 20% or more,
(ii) a transaction of series of related transactions that would result in the
original issuance of additional shares of Commons Stock, other than in a public
offering for cash, if the Common Stock (including securities convertible into or
exercisable for Common Stock) has, or will have upon issuance, voting power
equal to or in excess of 20% of the voting power outstanding before the issuance
of the Common Stock, or if the number of shares of Common Stock to be issued is
or will be equal to or in excess of 20% of the number of shares outstanding
before the issuance of the Common Stock; or (iii) a transaction or series of
transactions whereby the issuance would result in a change in control of the
Company. The additional shares of Common Stock to be authorized will have the
same status as presently authorized Common Stock. Holders of the Common Stock do
not have preemptive purchase rights with respect to any newly issued shares. To
the extent that the additional authorized shares are issued in the future, this
could decrease the existing stockholders' relative percentage ownership in the
Company.
The proposed increase in authorized shares is not intended to impede a
change in control of the Company, and the Company is not aware of any current
efforts to acquire control of the Company. However, it is possible that the
additional shares could be issued as a means of preventing or discouraging an
unsolicited change in control of the Company. The issuance of additional shares
could be used to dilute the ownership of anyone seeking to gain control of the
Company or could be placed with an entity opposed to change in control.
Management has no present intention to propose any anti-takeover measures in
future proxy solicitations.
CONSEQUENCES IF APPROVAL NOT OBTAINED
If stockholder approval of the Charter Amendment Proposal is not obtained,
the Company could be in breach of certain of its existing agreements (including
with the Coastal Warrant), unless otherwise waived, and would be prohibited from
issuing any additional shares of Common Stock.
Assuming that all of the securities which might be exercised or converted
into Common Stock are in fact exercised or converted, the Company could be in a
position of not being able to issue the full number of shares of Common Stock,
as required under the terms of the applicable warrants, options or convertible
securities.
The Company is prohibited from issuing shares of Common Stock or new
securities exercisable or convertible into Common Stock in excess of the number
of share which are presently authorized. Accordingly, the Company's
capitalization and financial flexibility are severely limited. Due to the
Company's cash flow position and results of operations, the Company expects to
issue shares of Common Stock or securities excisable or convertible into Common
Stock to persons in connection with financial transactions or financial
obligations. In addition, in order to attract and retain qualified employees,
the Company is frequently required to issue stock options or Common Stock to
such persons. Until stockholder approval is obtained, the Company could be in
the position of not being able to issue any additional shares of Common Stock or
securities (including options) exercisable or convertible into Common Stock to
such person and employees. This could have a material adverse effect on the
Company. Accordingly, the Board believes that approval of the amendment to the
Certificate to increase the number of authorized shares should be approved.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock is required to approve the Charter Amendment
Proposal. THE COMPANY'S BOARD RECOMMENDS A VOTE FOR THE CHARTER AMENDMENT
PROPOSAL.
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PROPOSAL 4: 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 ratification of the appointment by the
Board of Grant Thornton LLP ("Grant Thornton") to act as independent auditors
of the Company until the next annual meeting of stockholders. Proxies will be so
voted unless stockholders specify otherwise in their proxies.
Representatives of Grant Thornton 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.
The Company's Board of Directors, in accordance with the recommendation of
its Audit Committee, which is composed of non-employees of the Company, has
requested Grant Thornton LLP ("Grant Thornton") to act as independent auditors
of the Company for the 2000 fiscal year, subject to shareholder approval.
As disclosed in the Form 10-Q of the Company filed on November 16, 1998,
the Company's previous independent auditors, Arthur Andersen LLP ("Arthur
Andersen"), resigned on November 13, 1998. The report by Arthur Andersen for
the year ended December 31, 1997 contained no adverse opinion or disclaimer of
opinion, nor was it qualified or modified as to audit scope or accounting
principles. There have been no disagreements by the Company with Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope and procedure, which disagreement(s), if not
resolved to the satisfaction of Arthur Andersen would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its
report. There are no "reportable events" as set forth in Regulation S-K, Item
304(a)(1)(v)(A)-(D) except as follows: (1) Arthur Andersen LLP informed the
Company that it appears likely its auditor's report for 1998 would have
contained a qualification as to the Company's ability to continue as a going
concern, (2) Arthur Andersen informed the Audit Committee Chairman, the Chairman
of the Board and the Chief Financial Officer that with respect to Capitalized
Software Development Costs, compliance with SFAS #86 had not been evaluated
particularly as it relates to current year additions and realizability of such
asset and (3) Arthur Andersen informed the Audit Committee Chairman, the
Chairman of the Board and the Chief Financial Officer that as a result of the
revenue restatement for the quarter ended June 30, 1998, they would have had to
expand the scope of the 1998 audit if they had not resigned. Arthur Andersen
encouraged the Audit Committee Chairman, the Chairman of the Board and the Chief
Financial Officer to closely monitor these matters. Substantive audit tests and
further investigation into these matters would have been a necessary part of
Arthur Andersen's audit procedures for the year-end December 31, 1998, financial
statements had the client/auditor relationship not terminated. Arthur Andersen
has been authorized by the Company to respond to any and all inquiries by the
successor auditors, without limitation. The Company has indicated that it will
cooperate fully with the new auditors to address these matters. Arthur Andersen
has provided to the Company a letter to the Securities and Exchange Commission
stating that it has reviewed the disclosure provided in this Form 10-Q and has
no disagreement with relevant portions of this disclosure, pursuant to the
requirements of Item 304(a)(3) of Regulation S-K. A copy of such letter, dated
November 16, 1998, is filed as an exhibit to the Form 10-Q filed on November 16,
1998.
ANNUAL REPORT
The 1999 Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1999, 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
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persons named in the accompanying form of proxy will vote thereon in accordance
with the recommendation of the Board of Directors.
STOCKHOLDER PROPOSALS AND SUBMISSIONS FOR 2001 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 December 15, 2000,
pursuant to Regulation 14a-8 under the Securities Exchange Act of 1934. Such
proposals should be directed to the Company, 1100 Executive Drive, Richardson,
Texas 75081, Attention: Secretary.
With respect to Stockholder proposals not included in the Company's proxy
statement and form of proxy, the Company may utilize discretionary authority
conferred by proxy in voting on any such proposals if, among other situations,
the Stockholder does not give timely notice of the matter to the Company by the
date determined under the Company's By-Laws for the submission of business by
Stockholders. The Company's By-Laws state that to be timely, notice and certain
related information must be received at the principal executive offices not less
than 60 and no more than 90 days prior to the anniversary date of previous
year's annual meeting of Stockholders; provided, however, that in the event that
the annual meeting is called for a date that is not within 30 days before or
after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting is
mailed or such public disclosure of the date of the annual meeting is made,
whichever first occurs. It is currently expected that the 2001 Annual Meeting of
Stockholders will be held on or about June 2, 2001.
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 ANY TIME PRIOR TO THE VOTE.
By Order of the Board of Directors
HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dated: May , 2000
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS
AND SCHEDULES THERETO. REQUESTS FOR COPIES OF SUCH REPORT SHOULD BE DIRECTED TO
ROBERT P. CAPPS, EXECUTIVE VICE PRESIDENT AND SECRETARY, INTELECT
COMMUNICATIONS, INC., 1100 EXECUTIVE DRIVE, RICHARDSON, TEXAS 75081.
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APPENDIX A
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, consultants, and key employees of the Company or any
Subsidiary shall be eligible to be granted non-qualified stock options and
officers and key employees shall be eligible to receive incentive stock options
(collectively "stock options"). Officers, consultants, and key employees of the
Company or any Subsidiary shall be eligible also 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 8,000,000 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.
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5. GRANTS AND AWARDS.
(a) With respect to consultants, 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
nonqualified 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 400,000 (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 owned, directly or indirectly, by or for any company, partnership, estate
or trust in which such individual is a stockholder, partner or beneficiary.
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(b) The option price for each non-qualified stock option shall be
determined by the Committee but may not be less than 75% (seventy-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 nonqualified 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 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
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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;
(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.
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(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 nonforfeitable,) as follows: 33 1/3% on
the date of the first anniversary of the date of issuance of the restricted
stock or restricted stock 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
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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.
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
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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.
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 splitup, 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
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<PAGE>
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:
(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
A-8
<PAGE>
(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.
(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 Section 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 or
consultant 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,
A-9
<PAGE>
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, 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 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.
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<PAGE>
FRONT SIDE OF PROXY
________________________________________________________________________________
PROXY INTELECT COMMUNICATIONS, INC. PROXY
PROXY SOLICITED BY DIRECTORS FOR ANNUAL MEETING
JUNE 2, 2000
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, 1999, hereby
appoints Herman M. Frietsch and Robert P. Capps, 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 2, 2000, and at any adjournments
thereof.
[X] Please mark your votes as in this example.
<TABLE>
<S> <C> <C> <C>
WITHHOLD
FOR ELECTION TO AUTHORITY
TERM EXPIRING 2003 (to vote for nominee
(except as marked to the contrary below) listed to right NOMINEE:
1. Election of Director: [ ] [ ] Herman Frietsch
[ ] [ ] Phillip P. Sudan, Jr.
2. Amendment of the Company's Stock Incentive Plan (the "Plan").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of Amendment to Amended and Restated Certificate of Incorporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
(PLEASE SIGN ON OTHER SIDE)
________________________________________________________________________________
<PAGE>
BACK SIDE OF PROXY
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
4. Approval of Grant Thornton, LLP as independent auditors for the year ending
December 31, 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
In their discretion, the proxies are authorized to vote upon matters not
known to the board of directors as of the date of the accompanying proxy
statement, mattes 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 nominoees to serve. UNLESS OTHERWISE SPECIFIED IN THE SQUARES
PROVIDED, THE PROXIES SHALL VOTE FOR PROPOSALS 1, 2, 3, AND 4 ABOVE.
________________________________________
Signature
________________________________________
Signature if held jointly
Dated: ___________________________, 2000
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 your
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.
________________________________________________________________________________
