SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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INTERDIGITAL COMMUNICATIONS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION
781 Third Avenue
King of Prussia, Pennsylvania 19406-1409
Notice of Annual Meeting of Shareholders
to be held June 1, 2000
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of InterDigital Communications
Corporation (the "Company") will be held at the Radisson Hotel, King of Prussia,
Pennsylvania, on June 1, 2000, at 1:30 p.m. local time, for the following
purposes:
1. To elect two directors of the Company;
2. To approve the adoption of the Company's 2000 Stock Award and
Incentive Plan.
3. To ratify the appointment of Arthur Andersen LLP as independent
accountants to examine the financial statements of the Company for the
year ending December 31, 2000;
4. To transact such other business as may properly come before the
meeting or any adjournment thereof
Only holders of record of Common Stock at the close of business on April
17, 2000 are entitled to notice of and to vote at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. YOU ARE
CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO
ATTEND IN PERSON, YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY
CARD IN THE SELF-ADDRESSED ENVELOPE, ENCLOSED FOR YOUR CONVENIENCE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DECIDE TO ATTEND THE
MEETING AND WISH TO VOTE IN PERSON, YOU MAY REVOKE YOUR PROXY BY WRITTEN NOTICE
AT THAT TIME.
By Order of the Board of Directors
William J. Merritt, Secretary
April 27, 2000
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INTERDIGITAL COMMUNICATIONS CORPORATION
PROXY STATEMENT
The Board of Directors of InterDigital Communications Corporation, a
Pennsylvania corporation (the "Company"), is furnishing you this proxy statement
to solicit proxies on its behalf to be voted at the Annual Meeting of
Shareholders. The Meeting will be held at the Radisson Hotel, King of Prussia,
Pennsylvania on June 1, 2000. The proxies may also be voted at any adjournments
or postponements of the Meeting. This Proxy Statement and the accompanying proxy
will be first sent or given to shareholders on approximately April 27, 2000. The
principal executive offices of the Company are located at 781 Third Avenue, King
of Prussia, Pennsylvania 19406-1409.
Only holders of record of shares of Common Stock at the close of business
on April 17, 2000 are entitled to vote at the Meeting or any adjournments or
postponements of the Meeting. On that date there were 53,284,447 shares of the
Company's Common Stock outstanding and entitled to vote. Each share of Common
Stock entitles the holder to one vote, and votes may not be cumulated in the
election of directors. Holders of the Company's $2.50 Cumulative Convertible
Preferred Stock are not entitled to vote at the Meeting. Under Pennsylvania law
and the By-Laws of the Company, the presence of a quorum is required for each
matter to be acted upon at the Meeting. The presence, in person or by proxy, of
holders of the Common Stock entitled to cast at least a majority of the votes
which all holders of the Common Stock are entitled to cast will constitute a
quorum for purposes of the Meeting. Directors are elected by a plurality vote
and approval of all other matters presented at the Meeting requires the
affirmative vote of a majority of the votes cast by shareholders present, in
person or by proxy, at the Meeting. Votes withheld and abstentions will be
counted in determining the presence of a quorum, but will not be voted and will
have no effect on matters to be voted at the Meeting. Broker non-votes will not
be counted as votes cast on a proposal and will have no effect on matters to be
voted upon.
A form of proxy is enclosed for use at the Meeting. Proxies will be voted
in accordance with shareholders' instructions. If no instructions are indicated
on the proxy, all shares represented by valid proxies received pursuant to the
solicitation (and not revoked before they are voted) will be
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voted FOR the election of the nominees named below as directors, FOR the
approval of the Company's 2000 Stock Option Award and Incentive Plan and FOR the
ratification of the appointment of Arthur Andersen LLP as independent
accountants to examine the financial statements of the Company for the year
ending December 31, 2000, and by the proxies in their discretion on any other
matters to come before the Meeting. Any proxy given may, however, be revoked by
the shareholder executing it at any time before it is voted by a later dated
proxy, written revocation sent to the Secretary of the Company or attendance at
the Meeting and voting in person.
The cost of solicitation of proxies by the Board of Directors of the
Company (the "Board") will be borne by the Company. Proxies may be solicited by
mail, personal interview, telephone or telegraph and, in addition, directors,
officers and regular employees of the Company may solicit proxies by such
methods without additional remuneration. In addition, the Company has retained
W.F. Doring & Co. to aid in the solicitation of proxies for which a fee of
approximately $7,000, plus expenses, will be paid. Banks, brokerage houses and
other institutions, nominees or fiduciaries will be requested to forward the
proxy materials to beneficial owners in order to solicit authorizations for the
execution of proxies. The Company will, upon request, reimburse such banks,
brokerage houses and other institutions, nominees and fiduciaries for their
expenses in forwarding such proxy materials to the beneficial owners of the
Company's Common Stock.
ELECTION OF DIRECTORS
(Proposal 1)
The Board presently consists of six members, divided into three classes
each having a term of three years. The Board has nominated two current directors
for election at the Meeting for a term expiring at the year 2003 Annual Meeting
of Shareholders and until their successors are elected and qualified. Unless
authority to vote for the nominees is withheld in the proxy, the persons named
in the accompanying proxy intend to vote the shares represented by the proxy FOR
the election as director of the nominees named below. We have no reason to
believe that the named nominees will be unavailable to serve if elected.
However, if either of the nominees is unavailable to serve for any reason, the
proxies may be voted for another person nominated as a substitute by the Board.
Four incumbent directors will continue to serve as directors following the
Meeting as set forth below,
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with two directors having a term expiring at the year 2001 Annual Meeting of
Shareholders and two directors having a term expiring at the 2002 Annual Meeting
of Shareholders.
The following biographical information is furnished as to the nominees for
election as a director and each of the current directors:
Nominees for Election to the Board of Directors
Three Year Term Expiring at 2003 Annual Meeting
D. RIDGELY BOLGIANO, 67, has been a director of the Company since 1981. He
has been a Vice President and Chief Scientist of the Company since April 1984,
and has served as Chairman of the Board of InterDigital Technology Corporation,
a wholly-owned subsidiary of the Company, since May 1996. He has been affiliated
with the Company in various capacities since 1974.
MARK GERCENSTEIN, 48, became a director of the Company in April 2000, when
he also became Chief Executive Officer of InterDigital. He served as a Vice
President of Motorola's Fixed Wireless Broadband Systems Group from August 1999
to April 2000, directing business development activities. Prior thereto he was
Senior Vice President of Iridium LLC, heading global business operations of the
global satellite telecommunications system from July 1993 to June 1999.
Members of the Board of Directors Continuing in Office
Three Year Term Expiring at 2002 Annual Meeting
HARRY G. CAMPAGNA, 61, Chairman of the Board, has been a director of the
Company since April 1994. Mr. Campagna has been the President, Chief Executive
Officer and Chairman of the Board of Qualitex Co. for more than the past five
years. Qualitex is a manufacturer of press pads and related items for the
garment, apparel and textile industries.
STEVEN T. CLONTZ, 49, became a director of the Company in April 1998. In
January 1999 Mr. Clontz became President and Chief Executive Officer of StarHub
Pte., Ltd., a full telecommunications wireline and wireless carrier located in
Singapore. He has also served as a director of StarHub since 1999. He was
President and Chief Executive Officer of IPC Information Systems, Inc., an AMEX
listed company headquartered
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in New York which develops, manufactures and sells specialized
telecommunications products and services to the financial trading industry, and
served on the Board of Directors of IPC Information Systems from December 1995
to December 1998. Mr. Clontz was employed at BellSouth International, Inc. from
September 1987 to December 1995 where from July 1992 he served as President,
Asia Pacific Region, directing business development and investments in that
region.
Members of the Board of Directors Continuing in Office
Three Year Term Expiring at 2001 Annual Meeting
ROBERT S. ROATH, 57, has been a director of the Company since May 1997. Mr.
Roath was Chief Financial Officer and Senior Vice President of RJR Nabisco Inc.
from April 1995 to April 1997 and Corporate Controller and Senior Vice President
at RJR Nabisco from September 1990 to April 1995. Mr. Roath has been a part-time
consultant and Chairman of the Advisory Board to L.E.K. Consulting, a
shareholder value consulting firm, since May 1997. Mr. Roath is also a member of
the Advisory Board to the Roundabout Theatre, a New York City not-for-profit
classic theater and is a member of the advisory board of the Robert H. Smith
School of Business at University of Maryland.
JOSEPH S. COLSON, JR., 52, became a director of the Company in April 1998.
Mr. Colson has been President of Colson Consulting, Inc., a private consulting
firm located in Cary, North Carolina since July 1998. He retired as President of
International Regions & Professional Services at Lucent Technologies, Inc. in
April 1998, where he was responsible for sales of network systems products and
services to global service providers since June 1997. He served as President of
the AT&T Customer Business Unit at Lucent from January 1996 to June 1997 and as
President of the AT&T Affiliates unit (renamed Communications Services
Applications) of Network Systems from April 1993 to January 1996. Mr. Colson has
been a director of Crescent State Bank since December 1998. He is also on the
Board of Trustees of North Carolina State Engineering Foundation, which supports
the School of Engineering at North Carolina State University, his alma mater.
Committees and Meetings of
the Board of Directors
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The Company's Board of Directors has an Audit Committee, a Compensation and
Stock Option Committee, a Finance and Investment Committee and a Nomination and
Search Committee.
The Audit Committee's principal functions are to recommend the selection of
the independent accountants, approve the scope of the audit and specification of
non-audit services provided by such accountants and the associated fees for such
services and review audit results. Additionally the Committee reviews internal
accounting procedures and related controls and programs to comply with
applicable laws and regulations relating to financial accountability. The
current members of the Audit Committee are Mr. Roath, Chairman, Mr. Colson and
Mr. Clontz. During 1999, the Audit Committee held two meetings.
The Company's Compensation and Stock Option Committee (the "Compensation
Committee") currently consists of Mr. Campagna, Chairman and Mr. Roath. The
Compensation Committee held five meetings in 1999. Its responsibilities include
fixing compensation, bonus awards and similar matters and granting awards under
the restricted stock and stock option plans of the Company.
The Company's Nomination and Search Committee consists of Mr. Campagna,
Chairman, Mr. Clontz, and Mr. Roath. The Nomination and Search Committee held
two meetings in 1999. Its functions include reviewing and making recommendations
to the full Board concerning nominees for directors. Although the Nomination and
Search Committee will consider nominees recommended by shareholders, there are
no formal procedures for such recommendations.
The Board met eleven times during 1999. During 1999, each of the above
incumbent directors attended at least 75% of the meetings of the Board and the
committees on which they serve.
Compensation of Directors
Each member of the Board who is not an officer or employee of the Company
(an "Outside Director") is entitled, upon his election at the Annual Meeting of
Shareholders, to receive an annual grant of non-qualified stock options to
purchase shares of Common Stock under the Company's 1997 Stock Option Plan for
Outside Directors. These options are granted automatically in an amount equal to
16,000 multiplied by the number of years remaining in the Director's term in
office at an exercise price equal to the fair market value of the Common Stock
on the date of
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grant. The options vest annually on the date of each year's Annual Meeting of
Shareholders at the rate of 16,000 shares per year commencing on the date of the
Annual Meeting following the Annual Meeting of Shareholders at which the options
were granted. Prorated option grants are made to persons who served for a
partial year. The Board has recently reduced the amount of the annual automatic
grant from 16,000 to 10,000 shares per year and currently intends to authorize
the automatic grants under the 2000 Plan if the plan is approved by shareholders
at this year's Annual Meeting.
Outside Directors are also entitled to an annual monetary director fee of
$15,000 for a full calendar year of service. A pro rata portion of the $15,000
fee is paid for service of less than a full year. Payment of fees may be made,
at the election of each Director, on January 15 of each year, quarterly or
deferred. The Company also reimburses Outside Directors for certain expenses
incurred in attending Board and committee meetings and travel on behalf of the
Company.
In connection with his service as Chairman of the Board, Mr. Campagna was
also awarded 40,000 shares of restricted stock in 1999 under the Company's 1999
Restricted Stock Plan. These shares vest at the 2002 Annual Meeting of
Shareholders. As part of a program to attract and retain Board members, the
remaining Board members also received grants of restricted stock in 1999 as
follows: Mr. Bolgiano -9,583 shares; Mr. Colson -12,000 shares, Mr. Clontz
- -12,000 shares, Mr. Roath -12,000 shares. All of Mr. Bolgiano's restricted stock
vest three years from the date of grant. Messrs. Colson's and Roath's shares
vest as follows: 6,000 at the 2001 Annual Meeting and 6,000 at the 2004 Annual
Meeting provided in each case such person is re-elected as a director. Mr.
Clontz's options vest: 6,000 at the 2002 Annual Meeting and 6,000 at the 2005
Annual Meeting. All such shares of restricted stock granted to directors have a
tax gross-up feature to encourage retention of the shares.
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Compliance with Section 16(a)
of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission and the American Stock Exchange initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Executive officers, directors and greater than ten
percent shareholders (collectively, "Reporting Persons") are additionally
required to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations of Reporting
Persons that no other reports were required with respect to fiscal 1999, the
Reporting Persons complied with Section 16(a) filing requirements.
Under the rules of the Securities and Exchange Commission (the
"Commission"), the Compensation Committee Report on Executive Compensation below
and the Shareholder Return Performance Graph appearing on page __ of this Proxy
Statement are not to be deemed to be "soliciting material" or to be "filed" with
the Commission, or to be subject to certain of the proxy rules or to the
liabilities of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act"), except to the extent that the Company specifically requests that such
information be treated as "soliciting material" or specifically incorporates it
by reference into a filing under the Securities Act of 1933 (the "Securities
Act") or the Exchange Act. Notwithstanding anything to the contrary set forth in
any of the Company's previous filings under the Securities Act or the Exchange
Act that might incorporate future filings, including this proxy statement, in
whole or in part, the Compensation Committee Report and the Shareholder Return
Performance Graph shall not be incorporated by reference in such filings.
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<PAGE>
Executive Compensation
Compensation Committee Report on Executive Compensation
General
General
The Company's Stock Option and Compensation Committee (the "Committee") has
overall responsibility for the implementation of executive compensation and
benefit programs of the Company. The Committee's primary responsibilities
include: adopting compensation plans, setting annual salary, bonus and other
direct or indirect benefits of executive officers and other members of
management, and administering Company stock option, restricted stock and bonus
plans including the grant of awards under such plans to all eligible employees.
Compensation Philosophy
One of the most important duties of this Committee is to determine the
compensation of the Company's executive officers with the goal of ensuring that
shareholder value serves as a primary driver and motivator of executives.
Accordingly, the Committee's philosophy is to ensure that the Company's
executive compensation is shareholder focused, appropriate and competitive.
In determining the amount and composition of executive compensation for the
Named Officers, and in compliance with its independent oversight
responsibilities, the Committee is guided by the following objectives: to assist
the Company to attract and retain qualified executives in a highly competitive
industry; to reward executives consistent with the Company's performance; to
recognize individual performance and responsibility; to strengthen the mutuality
of interest between executives and the Company's shareholders; and to drive
long-term performance. The principal elements of executive compensation are:
base salaries, annual incentive compensation and long-term stock-based
compensation. Executive benefits and perquisites have not historically been a
significant component of InterDigital's executive compensation, although as part
of its overall strategy the Committee is focused on providing competitive
benefits to meet the health, welfare and retirement needs of all employees.
The Company did not have a Chief Executive Officer during 1999. Therefore, this
report is limited to compensation of the Company's other executive officers.
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Base Salary
The Company's policy is to set base salaries for each executive officer
positioned in the upper middle range of scales for equivalent jobs with other
similarly situated industrial employers. Annual base salaries are reviewed from
time to time with the assistance of outside compensation consultants and
available marketplace competitive data.
Annual Performance-Based Compensation
In 1999, the Committee adopted a bonus plan which provides for the payment of
annual incentives to employees, including the Named Officers, based on two
factors: the Company's results measured against its pre-set business goals and
individual performance ratings. Each executive officer was assigned a target
percentage of salary (targets at 50% of salary in the case of the President and
40% of salary in the case of the other Named Officers.) Under the plan up to 30%
of the executive's bonus may be paid in restricted stock. Achievement of all
goals results in payment of the target bonus. If actual results vary from the
goals set, the bonus paid will be adjusted up or down based on a pre-set formula
to reflect the variation from goals. The adoption of this plan was part of an
overall strategy to create an environment of collective effort towards common
goals, to give employees a stake in the performance of the Company and to
appropriately reward employees when Company performance meets its desired
objectives.
Based on the Company's performance, actual bonuses paid to executives in 1999
relative to 1999 performance exceeded 100% of the executives' target bonuses. In
keeping with the Committee's philosophy to give executives more of a stake in
the performance of the Company, while adding an equity retention feature, the
full 30% of each executive's awards were made in the form of restricted stock.
These shares are restricted as to transferability generally for a two-year
period, but are not forfeitable. The Committee increased the amount of cash
bonus payable by an amount sufficient to cover the income taxes on the
restricted stock plus income tax payable on the Company's tax payment.
During 1999, the Committee engaged Pearl Meyer & Partners, Inc. to re-assess the
competitiveness of InterDigital's executive compensation program for select
senior level positions (including the Named Officers) and to provide
recommendations for modifying the program to ensure the Company could attract,
motivate and
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retain appropriate personnel to key positions in the Company while
ensuring that the compensation method would drive shareholder value. This
comprehensive review of the Company's compensation program is continuing.
Equity Incentives
Stock options and restricted stock have been utilized as long-term incentives.
Both derive value from increases in the Company's stock value. In the case of
options granted at 100% of fair market value, the optionee will realize no value
from exercising the option unless the Company's stock price has increased since
the date of grant. All incentive stock options and non-qualified stock options,
except those issued in lieu of other forms of compensation to conserve cash,
have been granted at 100% of the fair market value at the date of grant. Stock
options generally vest over three years and expire ten years from the date of
grant. Those Named Officers who received stock options in 1999 were granted them
in conjunction with promotions and with the filing or the granting of patent
applications pursuant to the Company's stock option award policy for inventors.
While the Company has used a number of stock option plans, the Board is
currently proposing the shareholders approve the adoption of a consolidated
plan.
In 1999, the Committee used restricted stock as a component of executive
incentive compensation. Restricted stock grants were made to all executives
(including the Named Officers). Such grants were intended to further align
executive interests with those of the shareholders and to encourage retention.
The restricted stock awards made to executives in 1999 vest three years from the
date of grant and are forfeitable if the executive leaves the Company. The
awards also have a tax gross-up feature (which the Company intends to convert to
an award of restricted stock units.) The gross-up is designed to provide cash to
pay the taxes due when the restrictions lapse so the stock does not have to be
sold to generate cash for such purposes. (As discussed above, shares restricted
as to transferability were also granted as part of executives' bonuses for
performance in 1999.) The Committee may elect, from time to time, to grant
restricted stock to executives under the 2000 Stock Awards and Incentive Plan
and the 1999 Restricted Stock Plan.
In implementing compensation policies, plans, and programs, the Committee will
consider the effects of Section 162(m) of the Internal Revenue Code. Section
162(m) generally disallows a public company's tax deduction for compensation to
its Chief Executive Officer and four other most highly compensated
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executive officers in excess of $1 million in any tax year. Under Section
162(m), compensation that qualifies as "performance-based compensation" is
excluded from the $1 million deductibility cap, and therefore remains fully
deductible even though such compensation may (together with other compensation)
exceed $1 million in a given year. The Committee intends to seek to preserve the
tax deductibility of compensation to executive officers, to the extent that this
objective does not impair the operation and effectiveness of the Company's
compensation policies and programs. To this end, the 2000 Stock Award and
Incentive Plan is being submitted to shareholders in order that annual incentive
awards, stock options, and certain other awards under the plan can qualify as
"performance-based compensation" that will remain fully deductible by the
Company. The Committee retains the flexibility, however, to enter into
arrangements that may result in non-deductible compensation to executive
officers.
COMPENSATION AND STOCK OPTION COMMITTEE:
Harry G. Campagna
Robert S. Roath
April 10, 2000
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Summary Compensation Table
The following table sets forth certain information concerning the annual
and long-term compensation paid to or for (i) the Company's former President and
current Interim President, each of whom acted in a capacity similar to that of a
Chief Executive Officer during the fiscal year ended December 31, 1999, and (ii)
the Company's four most highly compensated other executive officers whose total
annual salary and bonus exceeded $100,000 in 1999 (collectively, the "Named
Officers"), for services rendered to the Company and its subsidiaries during
fiscal years 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------------------- ------------------------
All
Other Restricted Securities Other
Annual Stock Underlying Compen-
Name and Fiscal Compensation Awards Options sation
Principal Position Year Salary ($) Bonus (1) ($)(2) ($)(3) (#) (4)
- ------------------ ------ ---------- --------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard E. Goldberg 1999 $249,167 $171,526 $ 0 $120,000 0 $ 3,579
Interim 1998 $206,667 $180,000 $ 0 $ 0 0 $ 3,419
President(5) 1997 $190,000 $ 0 $ 0 $ 0 75,000 $ 3,905
Mark Lemmo 1999 $210,000 $105,441 $ 0 $105,000 1,500 $ 2,905
Executive Vice 1998 $183,333 $ 73,333 $ 0 $ 0 0 $ 1,983
President 1997 $170,000 $ 0 $222,522 (6) $ 0 136,500 $ 2,175
Charles R. Tilden 1999 $190,000 $ 96,330 $ 0 $ 94,998 0 $ 3,121
Executive Vice 1998 $180,000 $ 72,000 $ 0 $ 0 0 $ 3,292
President 1997 $155,000 $ 0 $ 0 $ 0 75,000 $ 1,534
William J. Merritt 1999 $164,167 $ 91,921 $ 0 $ 90,000 100,000 $ 2,469
Executive VP, 1998 $136,667 $102,500 $ 0 $ 0 0 $ 2,402
General Counsel 1997 $125,000 $ 0 $ 0 $ 0 45,000 $ 2,056
and Secretary
Richard J. Fagan 1999 $164,167 $ 91,260 $ 0 $ 90,000 50,000 $ 2,729
Executive VP, 1998 $ 20,000 $ 5,000 $ 0 $ 0 50,000 $ 48
Chief Financial
Officer (7)
William A. Doyle 1999 $201,040 $136,895 $ 0 $ 0 0 $101,709
President 1998 $238,333 $119,167 $ 0 $ 0 0 $ 2,510
(until Sept. 1999) 1997 $220,000 $0 $ 0 $ 0 200,000 $ 2,432
</TABLE>
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(1) Amounts listed as bonuses for fiscal 1999 were accrued but not paid until
2000 for each Named Officer.
(2) As permitted by rules established by the Commission, no amounts are shown
with respect to certain "perquisites" where such amounts do not exceed
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the lesser of 10% of bonus plus salary or $50,000.
(3) At December 31, 1999, each of the following Named Officers owned the
following number of shares of restricted stock with the following values:
Mr. Goldberg, 20,000 shares, $1,500,000; Mr. Lemmo, 17,500 shares,
$1,312,500; Mr. Tilden, 15,833 shares, $1,187,475; Mr. Merritt, 15,000
shares, $1,125,000; Mr. Fagan, 15,000 shares, $1,125,000. The grantees of
the restricted stock have the right to receive dividends.
(4) Amounts listed under "All Other Compensation" for 1999 represent the dollar
value of insurance premiums with respect to term life insurance (Doyle
$921; Goldberg $1,125; Lemmo $405; Tilden $621; Merritt $325; Fagan $325)
and 401(k) matching (Doyle $1,959; Goldberg $2,454; Lemmo $2,500; Tilden
$2,500; Merritt $2,144; Fagan $2,404); except that the amount listed for
Mr. Doyle also represents a salary continuation payment of $73,959 and a
vacation pay-out of $24,870.
(5) Mr. Goldberg served as Executive Vice President of the Company until
September 1999 when he was named Interim President.
(6) Amount listed represents commissions related to various transactions
completed in 1996 but not paid until 1997 and a transaction completed in
1997.
(7) Mr. Fagan joined the Company as CFO in November 1998.
Each of the current Named Officers has entered into an employment agreement
with the Company (the "Employment Agreements") that provides severance pay
benefits, among other things, in certain events of termination of employment.
The Employment Agreements generally provide that the Company may enforce up to a
one year covenant not to compete by paying severance of up to one year's salary
and one year's continuation of medical and dental benefits during which time the
individual is subject to non-compete provisions. The Employment Agreements also
provide a one year covenant-not-to-compete without payment of severance
following termination by the Company for "cause", as defined in the Agreements.
In addition, in the event of a termination within one year after a change of
control, which is defined as the acquisition, including by merger or
consolidation, or by the issuance by the Company of its securities, by one or
more persons in one transaction or a series of related transactions, of more
than fifty percent of the voting power represented by the outstanding stock of
the Company or a sale of substantially all the assets of the Company, the
employee would generally receive two years salary and the immediate vesting of
all stock options and restricted stock. The Agreements also provide that if any
amount payable to the officers is subject to a federal exise tax imposed on
"excess parachute payments", the officer shall be entitled to a cash payment
sufficient to indemnify him for such tax. If the proposed 2000 Stock Award and
Incentive Plan is approved by shareholders, the Company intends to amend the
Employment Agreements to conform the definition of
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change of control to that contained in the 2000 Plan.
In connection with his resignation from the Company in September 1999,
Mr. Doyle executed a Separation and Confidentiality Agreement. The Agreement
provides, in part, for salary continuation ($275,000 per annum) for thirteen
months, a bonus payment which was paid in February 2000 and the continuation of
medical and dental benefits which ceased when he became eligible to participate
in a new employer's plan. In addition, the termination dates of certain of Mr.
Doyle's stock options were extended.
The Employment Agreements (originally executed between October 1996 and
November 1998) provide for the payment of annual salaries to said Executive
Officers which may be increased from time to time. Current salaries paid
pursuant to the Employment Agreements are: Goldberg $286,200; Lemmo $222,600;
Merritt $190,800; Fagan $190,800 and Tilden, $201,600.
Stock Options Grants, Exercises and Holdings
The following tables set forth certain information concerning stock options
granted to and exercised by the Named Officers during fiscal 1999 and
unexercised stock options held by them at the end of fiscal 1999.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------------- Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise or For Option Term (1)
Option Employees Base Price Expiration ---------------------
Name Granted In Fiscal Year ($/Sh) Date 5% 10%
---- ---------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Goldberg 0 -- -- -- -- --
Mark Lemmo 1,500 0.003% $5.0625 03/11/09 $ 4,776 $ 12,102
Charles R. Tilden 0 -- -- -- -- --
William J. Merritt 75,000 0.135% $5.0625 03/11/09 $238,784 $605,124
25,000 0.045% $6.000 10/13/09 $ 94,334 $239,061
Richard J. Fagan 50,000 0.090% $6.000 10/13/09 $188,669 $478,123
William A. Doyle 0 -- -- -- -- --
</TABLE>
- ----------
(1) Potential Realizable Value is reported net of the option exercise price,
but before taxes associated with the exercise. These amounts represent
certain assumed rates of appreciation only and are not necessarily
reflective of gains actually achievable. Actual gains, if any, on stock
option exercises are dependent upon the future performance of the Company's
Common Stock.
-15-
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised Options In-the-Money Options
Exercise Realized At Fiscal Year-End (#) At Fiscal Year End ($)(1)
----------- ---------- ------------------------------ --------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Goldberg 0 $ 0 257,500 12,500 $17,768,281 $ 869,531
Mark Lemmo 45,000 $2,707,669 158,500 12,500 $10,937,250 $ 869,531
Charles R. Tilden 0 $ 0 152,500 12,500 $10,591,406 $ 869,531
William J. Merritt 0 $ 0 81,666 78,334 $ 5,659,798 $5,456,140
Richard J. Fagan 0 $ 0 33,332 66,668 $ 2,309,282 $4,609,467
William Doyle 215,000 $4,783,636 200,000 0 $13,912,500 $ 0
</TABLE>
- ----------
(1) The values in this column are based on the closing sale price of the Common
Stock ($75.00) on December 31, 1999, the last day of the Company's 1999
fiscal year. On March 29, 2000, the closing sale price of the Common Stock
was $26.1875, and the values of unexercised in-the-money options held at
December 31, 1999 using the closing sale price on March 29, 2000 are as
follows:
Value of Unexercised
In the-Money Options
At Fiscal Year End ($)(1)
--------------------------------
Name Exercisable Unexercisable
---- ----------- -------------
Howard E. Goldberg $5,199,063 $ 259,375
Mark Lemmo $3,200,469 $ 259,375
Charles R. Tilden $3,147,500 $ 259,375
William J. Merritt $1,673,476 $1,632,461
Richard J. Fagan $ 682,264 $1,355,236
William A. Doyle $4,150,000 $ 0
-16-
<PAGE>
Shareholder Return Performance Graph
The following graphs compare for years 1995 through 1999 the yearly change
in the cumulative total return to holders of the Company's Common Stock with the
cumulative total return of the CRSP Index for AMEX Stock Market - United States
Companies (the "AMEX Index") and the industry group consisting of twenty-six
AMEX listed, United States companies classified under the same first three
digits as the Company's Standard Industry Classification, as compiled by the
Center for Research in Security Prices, The University of Chicago, Graduate
School of Business (the "Published Industry Group Index") and the cumulative
total return of the CRSP Index for Nasdaq Market U.S. Companies and the Nasdaq
industry group consisting of telecommunications companies.
The Company has changed its graph showing cumulative total return from AMEX
to a comparison with Nasdaq listed companies in conjunction with its recent move
from the AMEX to listing on Nasdaq.
-17-
<PAGE>
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points:
<TABLE>
<CAPTION>
NASDAQ AMEX
--------------------------- ---------------------------
Date Comnpany Index Market Index Peer Index Market Index Peer Index
---- -------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
12/30/1994 100.000 100.000 100.000 100.000 100.000
01/31/1995 144.068 100.527 99.830 102.689 128.363
02/28/1995 145.763 105.809 104.340 106.023 127.676
03/31/1995 162.712 108.953 104.383 107.505 143.510
04/28/1995 179.315 112.385 104.203 110.107 154.167
05/31/1995 174.334 115.289 105.608 113.214 156.384
06/30/1995 185.956 124.622 114.418 115.894 166.282
07/31/1995 182.636 133.774 124.419 121.937 161.831
08/31/1995 234.106 136.490 127.740 125.089 192.654
09/29/1995 219.163 139.634 128.937 127.631 189.635
10/31/1995 194.258 138.829 122.180 122.733 169.213
11/30/1995 225.804 142.086 129.374 126.348 182.826
12/29/1995 195.918 141.335 130.913 128.680 178.846
01/31/1996 244.068 142.042 134.110 128.797 194.384
02/29/1996 265.652 147.457 137.553 130.914 214.873
03/29/1996 232.446 147.952 137.670 132.123 200.542
04/30/1996 215.842 160.210 142.911 136.708 190.367
05/31/1996 252.370 167.557 146.358 141.245 201.731
06/28/1996 225.804 160.004 142.024 133.384 181.081
07/31/1996 182.636 145.764 123.763 123.001 150.575
08/30/1996 220.823 153.954 129.727 126.603 166.013
09/30/1996 205.881 165.725 133.684 130.069 162.335
10/31/1996 172.674 163.882 128.139 127.478 141.779
11/29/1996 192.598 174.044 130.226 132.734 139.808
12/31/1996 157.731 173.898 133.860 130.729 136.794
01/31/1997 179.315 186.240 137.104 133.783 139.940
02/28/1997 159.391 175.937 132.943 136.239 131.229
03/31/1997 142.788 164.466 124.110 129.568 129.838
04/30/1997 122.864 169.591 128.828 125.748 118.117
05/30/1997 175,995 188.793 144.655 138.387 133.925
06/30/1997 146.109 194.600 155.546 143.181 141.974
07/31/1997 149.429 215.102 165.118 149.259 151.733
08/29/1997 156.071 214.784 159.477 150.962 153.276
09/30/1997 142.788 227.516 180.141 163.144 157.072
10/31/1997 131.166 215.662 185.285 157.464 152.233
11/28/1997 114.563 216.799 186.903 157.325 131.992
12/31/1997 81.356 213.068 195.400 163.521 117.390
01/30/1998 79.696 219.812 208.414 160.655 125.577
02/27/1998 104.601 240.480 226.955 170.561 133.287
03/31/1998 152.750 249.367 248.713 180.635 152.304
04/30/1998 182.636 253.569 245.223 182.836 166.668
05/29/1998 146.109 239.480 240.302 174.999 154.373
06/30/1998 142.788 256.207 263.036 179.605 159.939
07/31/1998 142.788 253.220 273.522 177.032 145.238
08/31/1998 87.997 203.026 205.905 142.024 118.318
09/30/1998 111.242 231.195 232.315 152.749 111.750
10/30/1998 132.826 241.359 254.589 159.981 127.997
11/30/1998 126.185 265.895 270.876 165.719 121.627
12/31/1998 121.204 300.440 323.514 175.437 115.125
01/29/1999 157.731 344.027 373.736 183.256 106.013
02/26/1999 129.506 313.222 369.978 179.232 115.285
03/31/1999 114.563 336.872 406.857 179.251 100.538
04/30/1999 121.204 347.549 432.883 194.936 98.614
05/28/1999 122.864 338.151 434.313 197.881 114.099
06/30/1999 119.544 368.620 431.499 202.445 123.864
07/30/1999 139.468 362.005 420.640 199.072 108.603
08/31/1999 161.052 377.257 397.102 193.406 90.749
09/30/1999 146.109 377.473 393.827 196.398 83.237
10/29/1999 147.769 407.442 466.810 196.828 71.560
11/30/1999 268.973 456.758 496.898 209.949 99.818
12/31/1999 1992.393 556.913 573.517 224.583 113.596
</TABLE>
The index level for all series was set to 100.0 on 12/30/1994.
The above graph assumes that the value of the investment in InterDigital
Communications Corporation, the AMEX Index companies, the Published Industry
Group Index companies and the Nasdaq Telecomm Index companies was $100 at the
market close on December 31, 1994 (the last trading day in 1994), and that all
dividends paid by companies included in the AMEX Index and the Published
Industry Group Index were reinvested. During this period the Company has not
declared or paid any dividends on its Common Stock.
Security Ownership of Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of April 4, 2000, by each of the
Company's directors, by each of the Named Officers, and by all executive
officers and directors of the Company as a group. Unless otherwise indicated,
the shareholders listed possess sole voting and investment power with respect to
the shares listed.
Percent of Common
Amount and Stock Outstanding
Nature of (if greater
Name of Beneficial Owner Ownership (1) than 1%) (2)
- ------------------------ ------------- -----------------
D. Ridgely Bolgiano.................. 360,660 --
Harry G. Campagna.................... 753,058 (3) 1.4%
Joseph S. Colson, Jr................. 48,448 --
Steven T. Clontz..................... 49,448 --
William A. Doyle..................... 168,901 --
Richard Fagan ....................... 49,259 --
Mark Gercenstein..................... 0 --
Howard E. Goldberg................... 283,144 (3) --
Mark Lemmo........................... 178,039 --
Robert S. Roath...................... 102,616 --
Charles R. Tilden.................... 138,201 --
William J. Merritt................... 172,278 --
All directors and officers
as a group (13 persons)........... 2,460,769 (3) 4.4%
-18-
<PAGE>
- ----------
(1) Includes the following number of shares of Common Stock which may be
acquired by the persons and group identified in the table (or members of
the immediate family or other persons or entities affiliated with such
persons or members of such group), through the exercise of options or
warrants which were exercisable as of April 4, 2000 or will become
exercisable within 60 days of such date: Mr. Bolgiano, 251,050; Mr.
Campagna, 683,050; Mr. Colson, 34,448; Mr. Clontz, 34,448; Mr. Doyle,
165,000; Mr. Fagan 33,332; Mr. Goldberg, 257,500; Mr. Lemmo, 158,500; Mr.
Roath, 86,616; Mr. Tilden, 119,500; Mr. Merritt, 71,666; all directors and
executive officers as a group, 2,037,610.
(2) Based upon 53,235,157 shares of Common Stock issued and outstanding at
April 4, 2000.
(3) Investment and voting power with respect to certain of such securities may
be shared with members of the immediate family or other persons or entities
affiliated with the listed person or members of the listed group.
Compensation Committee Interlocks
and Insider Participation
During 1999 the following directors served on the Compensation and Stock
Option Committee of the Board: Mr. Campagna and Mr. Roath. None of the
aforementioned Committee members was an officer or employee of the Company or
any of its subsidiaries during 1999, or was formerly an officer of the Company
or any of its subsidiaries.
APPROVAL OF 2000 STOCK AWARD AND INCENTIVE PLAN
(Proposal 2)
General
The Board of Directors has determined that it is in the best interests of
the Company to adopt the 2000 Stock Award and Incentive Plan (the "2000 Plan"),
with the approval of shareholders, to enhance the ability of the Company to link
pay to performance. The Board of Directors and the Compensation and Stock Option
Committee (the "Committee") believe that attracting and retaining executives and
other key employees of high quality has been and will continue to be essential
to the Company's growth and success. To this end, a comprehensive compensation
-19-
<PAGE>
program which includes different types of incentives for motivating employees
and rewards for outstanding service can contribute to the Company's future
success. In particular, the Company intends to use stock options and
stock-related awards as an important element of compensation for executives and
other employees, because such awards enable them to acquire or increase their
proprietary interest in the Company, thereby promoting a closer identity of
interests between them and the Company's shareholders. In addition,
performance-based awards can provide incentives for achieving specific
performance objectives on a tax-efficient basis. The Board and the Committee
therefore view the 2000 Plan as a key part of the Company's compensation
program.
The 2000 Plan would replace a number of Company plans, including the
Non-Qualified Stock Option Plan, 1992 Non-Qualified Stock Option Plan, 1992
Employee Stock Option Plan, 1995 Employee Stock Option Plan, and 1997 Stock
Option Plan for Non-Employee Directors but excluding the 1999 Restricted Stock
Plan and the Company's bonus plan (the "Preexisting Plans"). The 2000 Plan would
allow the Company to continue to grant options, as under the Preexisting Plans,
but would also authorize a broad range of other awards, including restricted and
deferred stock, performance awards, stock appreciation rights ("SARs"), other
types of awards based on the Company's Common Stock (collectively, "Awards"),
and cash-based performance awards. If the 2000 Plan is approved by shareholders
at the Annual Meeting, no further awards will be granted under any of the
Preexisting Plans.
Reasons for Shareholder Approval
The Board and Committee seek shareholder approval of the 2000 Plan in order
to satisfy certain legal requirements and to provide tax advantages to the
Company and participants. Approval of the 2000 Plan will meet a requirement of
the Nasdaq. In addition, the Board and the Committee seek to preserve the
Company's ability to claim tax deductions for compensation, to the greatest
extent practicable. Therefore, the Company is seeking shareholder approval of
the material terms of performance awards to named executives under the 2000
Plan, in order to meet a key requirement for such Awards to qualify as
"performance-based" compensation under Section 162(m) of the Internal Revenue
Code (the "Code"). Section 162(m) limits the deductions a publicly held company
can claim for compensation in excess of $1,000,000 paid to certain executive
officers (generally, the officers who are "named executive officers" in the
summary compensation table in the company's proxy statement).
-20-
<PAGE>
"Performance-based" compensation is not counted against the $1 million
deductibility cap. If the 2000 Plan is approved by shareholders, performance
awards intended by the Committee to qualify under Section 162(m) as
"performance-based" will be payable only upon achievement of pre-established
performance goals, subject to any additional requirements and terms as the
Committee may establish. Such performance awards can be used to place strong
emphasis on the building of value for all shareholders.
Therefore, for purposes of Code Section 162(m), approval of the 2000 Plan
will be deemed also to include approval of the eligibility of executive officers
and other eligible persons to participate, the per-person limitations described
below under the caption "Shares Available and Award Limitations," and the
general business criteria upon which performance objectives for performance
awards are based, described below under the caption "Performance-Based Awards."
Because shareholder approval of general business criteria, without specific
targeted levels of performance, qualifies performance awards for a period of
approximately five years, shareholder approval of such business criteria will
meet the requirements under Section 162(m) until 2005. Shareholder approval of
the performance goals inherent in stock options and SARs (increases in the
market price of shares) is not subject to a time limit under Section 162(m).
Shareholder approval will also allow the Committee to designate options as
"incentive stock options," if it chooses, to provide tax advantages to
participants. These advantages are explained below.
Description of the 2000 Plan
The following is a brief description of the material features of the 2000
Plan.
Shares Available and Award Limitations. Under the 2000 Plan, the number of
shares of Common Stock reserved and available for Awards will be 2.2 million
plus the number of shares that remain available for issuance under the
Preexisting Plans (these "carry-over" shares must be used within the time they
could have been used under the Preexisting Plan). As discussed below, the number
of shares reserved are subject to adjustment in the event
-21-
<PAGE>
of stock splits, stock dividends, and other extraordinary events. If the 2000
Plan is approved by shareholders, the total number of shares reserved for
outstanding awards and available for future awards under all compensatory plans
of the Company will be approximately 13,923,258 or 26% of the shares outstanding
on April 4, 2000.
The 2000 Plan limits the number of shares which may be issued as Awards
other than options and SARs (for example, as restricted stock) to a maximum of
40% of the number of shares reserved under the Plan.
Shares subject to forfeited or expired Awards or to Awards settled in cash
or otherwise terminated without issuance of shares to the participant, and
shares withheld by or surrendered to the Company to satisfy withholding tax
obligations or in payment of the exercise price of an Award, will be deemed to
be available for new Awards under the 2000 Plan. These same share counting rules
will apply to outstanding awards under the Preexisting Plans, for purposes of
determining which shares will become available under the 2000 Plan. Under the
2000 Plan, shares subject to an Award granted in substitution for an award of a
company or business acquired by the Company or a subsidiary will not count
against the number of shares reserved and available. Shares delivered under the
2000 Plan may be either newly issued or treasury shares. On April 13, 2000, the
last reported sale price of the Company's Common Stock on the composite tape for
American Stock Exchange-listed securities was $17 per share.
In addition, the 2000 Plan includes a limitation on the amount of Awards
that may be granted to any one participant in a given year in order to qualify
Awards as "performance-based" compensation not subject to the limitation on
deductibility under Section 162(m) of the Code. Under this annual per-person
limitation, no participant may in any year be granted share-denominated Awards
under the 2000 Plan relating to more than his or her "Annual Limit" for each
type of Award. The Annual Limit equals 300,000 shares plus the amount of the
participant's unused Annual Limit relating to the same type of Award as of the
close of the previous year, subject to adjustment for splits and other
extraordinary corporate events. For purposes of this limitation, options, SARs,
restricted stock, deferred stock, and other stock-based awards are separate
types
-22-
<PAGE>
of Awards subject to a separate limitation. In the case of cash-denominated
Awards, the 2000 Plan limits performance awards that may be earned by a
participant in any year to the participant's defined Annual Limit, which for
this purpose equals $1.5 million plus the amount of the participant's unused
cash Annual Limit as of the close of the previous year.
Adjustments to the number and kind of shares subject to the share
limitations and specified in the Annual Limits are authorized in the event of a
large, special or non-recurring dividend or distribution, recapitalization,
stock split, stock dividend, reorganization, business combination, or other
similar corporate transaction or event affecting the Common Stock. The Committee
is also authorized to adjust performance conditions and other terms of Awards in
response to these kinds of events or to changes in applicable laws, regulations,
or accounting principles, except that adjustments to Awards intended to qualify
as "performance-based" generally must conform to requirements under
Section 162(m).
Eligibility. Employees of the Company and its subsidiaries, including
executive officers, and non-employee directors, consultants and others who
provide substantial services to the Company and its subsidiaries are eligible to
be granted Awards under the 2000 Plan. In addition, any person who has been
offered employment by the Company or a subsidiary may be granted Awards, but
such prospective employee may not receive any payment or exercise any right
relating to the Award until he or she has commenced employment. Approximately
210 persons would currently be eligible for Awards under the 2000 Plan.
Administration. The 2000 Plan is administered by the Committee, except that
the Board may appoint any other committee to administer the Plan and may itself
act to administer the Plan. The Board must perform the functions of the
Committee for purposes of granting Awards to non-employee directors. (References
to the "Committee" in this description of the Plan mean the committee or the
full Board exercising authority with respect to a given Award.) Subject to the
terms and conditions of the 2000 Plan, the Committee is authorized to select
participants, determine the type and number of Awards to be granted and the
number of shares to which Awards will relate or the amount of a performance
award, specify times at which Awards will be exercisable or settled, including
performance conditions
-23-
<PAGE>
that may be required as a condition thereof, set other terms and conditions of
such Awards, prescribe standardized terms of Awards and forms of Award
agreements, interpret and specify rules and regulations relating to the Plan,
and make all other determinations which may be necessary or advisable for the
administration of the Plan. Nothing in the 2000 Plan precludes the Committee
from authorizing payment of other compensation, including bonuses based upon
performance, to officers and employees, including the executive officers. The
2000 Plan provides that Committee members shall not be personally liable, and
shall be fully indemnified, in connection with any action, determination, or
interpretation taken or made in good faith under the Plan.
Stock Options and SARs. The Committee is authorized to grant stock options,
including both incentive stock options ("ISOs"), which can result in potentially
favorable tax treatment to the participant, and non-qualified stock options, and
SARs entitling the participant to receive the excess of the fair market value of
a share on the date of exercise or other specified date over the grant price of
the SAR. The exercise price of an option and the grant price of an SAR is
determined by the Committee, but generally may not be less than the fair market
value of the shares on the date of grant, except the exercise price of a
non-qualified option may be set at less than such fair market value if the
Committee determines such price to be appropriate in light of extraordinary
circumstances, and in other cases if the participant gives up a right to
compensation equal to any discount in the exercise price. The maximum term of
each option or SAR, the times at which each option or SAR will be exercisable,
and provisions requiring forfeiture of unexercised options at or following
termination of employment or upon the occurrence of other events, generally are
fixed by the Committee, subject to a restriction that no ISO, or SAR in tandem
therewith, may have a term longer than ten years. Options may be exercised by
payment of the exercise price in cash, shares or other property (possibly
including notes or obligations to make payment on a deferred basis, or through
broker-assisted cashless exercise procedures) or by surrender of other
outstanding awards having a fair market value equal to the exercise price.
Methods of exercise and settlement and other terms of SARs will be determined by
the Committee. SARs granted under the 2000 Plan may include "limited SARs"
exercisable for a stated period of
-24-
<PAGE>
time following a "change in control" of the Company, as discussed below.
Restricted and Deferred Stock. The Committee is authorized to make Awards
of restricted stock and deferred stock. Prior to the end of the restricted
period, shares received as restricted stock may not be sold or disposed of by
participants, and may be forfeited in the event of termination of employment in
certain circumstances. The restricted period generally is established by the
Committee. An Award of restricted stock entitles the participant to all of the
rights of a shareholder of the Company, including the right to vote the shares
and the right to receive any dividends thereon, unless otherwise determined by
the Committee. Deferred stock gives participants the right to receive shares at
the end of a specified deferral period, subject to forfeiture of the Award in
the event of termination of employment under certain circumstances prior to the
end of a specified restricted period (which need not be the same as the deferral
period). Prior to settlement, deferred stock awards carry no voting or dividend
rights or other rights associated with stock ownership, but dividend equivalents
may be paid on such deferred stock. Restricted stock units represent a type of
deferred stock.
Other Stock-Based Awards, Bonus Shares, and Awards in lieu of Cash
Obligations. The 2000 Plan authorizes the Committee to grant Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares or factors that may influence the value
of shares. The Committee will determine the terms and conditions of such Awards,
including the consideration to be paid to exercise Awards in the nature of
purchase rights, the periods during which Awards will be outstanding, and any
forfeiture conditions and restrictions on Awards. In addition, the Committee is
authorized to grant shares as a bonus free of restrictions, or to grant shares
or other Awards in lieu of the Company's obligations under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
Performance Awards. The Committee may grant Performance Awards, which may
be cash-denominated Awards or share-based Awards. Generally, performance-based
Awards require satisfaction of pre-established performance goals, consisting of
one or more business criteria and a targeted performance level with respect
-25-
<PAGE>
to such criteria, as a condition of Awards being granted or becoming exercisable
or settleable under the 2000 Plan, or as a condition to accelerating the timing
of such events. Performance may be measured over a period of up to one year or a
longer period specified by the Committee.
The 2000 Plan authorizes the Committee to grant performance-based Awards
that qualify under Code Section 162(m) and therefore are fully tax deductible by
the Company. The business criteria to be used by the Committee in establishing
performance goals applicable to these performance Awards to named executives
will be selected from among the following: (1) net sales; (2) earnings from
operations, earnings before or after taxes, earnings before or after interest,
depreciation, amortization, or extraordinary or special items; (3) net income or
net income per common share (basic or diluted); (4) return on assets (gross or
net), return on investment, return on capital, or return on equity; (5) cash
flow, free cash flow, cash flow return on investment (discounted or otherwise),
net cash provided by operations, or cash flow in excess of cost of capital; (6)
interest expense after taxes; (7) economic value created; (8) operating margin
or profit margin; (9) stock price or total shareholder return; (10) average cash
balance or cash position; and (11) strategic business criteria, consisting of
one or more objectives based on meeting specified product development, strategic
partnering, research and development, market penetration, geographic business
expansion goals, cost targets, customer satisfaction, employee satisfaction,
management of employment practices and employee benefits, supervision of
litigation and information technology, and goals relating to acquisitions or
divestitures of subsidiaries, affiliates or joint ventures. The Committee may
specify that any such criteria will be measured before or after extraordinary or
non-recurring items, before or after service fees, or before or after payments
of Awards under the 2000 Plan. The Committee may set the levels of performance
required in connection with performance awards as fixed amounts, goals relative
to performance in prior periods, as goals compared to the performance of one or
more comparable companies or an index covering multiple companies, or in any
other way the Committee may determine. Thus, for example, the Committee could
qualify annual bonuses as "performance-based" awards under Code Section 162(m).
-26-
<PAGE>
Other Terms of Awards. Awards may be settled in cash, shares, or other
Awards or property, in the discretion of the Committee. The Committee may grant
dividend equivalents, entitling the participant to receive amounts in cash,
shares, or other Awards or property equal to dividends paid on shares, with such
rights either attached to other Awards or free-standing. The Committee may
require or permit participants to defer the settlement of all or part of an
Award in accordance with such terms and conditions as the Committee may
establish, including payment or crediting of interest or dividend equivalents on
any deferred amounts. The Committee is authorized to place cash, shares or other
property in trusts or make other arrangements to provide for payment of the
Company's obligations under the 2000 Plan. The Committee may condition Awards on
the payment of taxes such as by withholding a portion of the shares or other
property to be distributed (or receiving previously acquired shares or other
property surrendered by the participant) in order to satisfy tax obligations.
Awards granted under the 2000 Plan generally may not be pledged or otherwise
encumbered and are not transferable except by will or by the laws of descent and
distribution, or to a designated beneficiary upon the participant's death,
except that the Committee may permit transfers to beneficiaries during the
participant's lifetime, such as for estate planning purposes.
Awards under the 2000 Plan are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Committee may, however, grant Awards in substitution for, exchange for or as a
buyout of other Awards under the 2000 Plan, awards under other Company plans, or
other rights to payment from the Company, and may exchange or buyout outstanding
Awards for cash or other property. The Committee also may grant Awards in
addition to and in tandem with other Awards, awards, or rights as well. In
granting a new Award, the Committee may determine that the in-the-money value of
any surrendered Award or award may be applied to reduce the exercise price of
any option, grant price of any SAR, or purchase price of any other Award.
The Committee is authorized to impose forfeiture of Awards if, among other
things, it finds the participant engaged in disloyalty to the Company, has
violated a non-compete or
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confidentiality agreement with the Company. These conditions would apply
following termination of employment.
Vesting, Forfeitures, and Acceleration Thereof. The Committee may, in its
discretion determine the vesting schedule of options and other Awards, the
circumstances that will result in forfeiture of the Awards, the post-termination
exercise periods of options and similar Awards, and the events that will result
in acceleration of the ability to exercise an Award and the lapse of
restrictions, or the expiration of any deferral period, on any Award. In
addition, the 2000 Plan provides that, in the event of a Change in Control of
the Company, outstanding Awards will immediately vest and be fully exercisable,
any restrictions, deferral of settlement and forfeiture conditions of such
Awards will lapse, and goals relating to performance-based awards will be deemed
met or exceeded to the extent specified in the performance award documents. A
Change in Control means generally (i) any person or group acquires voting
securities and as a result is a beneficial owner of 50% or more of the voting
power of the Company's voting securities (excluding certain existing
shareholders), (ii) a change in the Board's membership such that the current
members, or those elected or nominated by vote of two-thirds of the current
members and successors elected or nominated by them (the "Continuing
Directors"), cease to represent a majority of the Board in any period of less
than two years, (iii) certain mergers, consolidations or share exchanges
substantially reducing the percentage of voting power held by shareholders prior
to such transactions, (iv) shareholder approval of a sale or liquidation of all
or substantially all of the assets of the Company, or (v) any other event which
the Board determines shall constitute a Change in Control for purposes of the
2000 Plan.
Amendment and Termination of the 2000 Plan. The Board of Directors may
amend, alter, suspend, discontinue, or terminate the 2000 Plan or the
Committee's authority to grant awards thereunder without shareholder approval
unless shareholder approval is required by law, regulation, or rule of a stock
exchange or automated quotation system on which the shares are then trading. The
Board may, in its discretion, submit other amendments to shareholders for
approval. Under these provisions, shareholder approval will not necessarily be
required for amendments which might increase the cost of the 2000 Plan or
broaden eligibility. Unless earlier terminated, the 2000 Plan
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will terminate at such time that no shares reserved under the Plan remain
available and the Company has no further rights or obligations with respect to
any outstanding Award.
Because future Awards under the 2000 Plan will be granted in the discretion
of the Committee, the type, number, recipients, and other terms of such Awards
cannot be determined at this time. Information regarding the Company's recent
practices with respect to annual, long-term, and stock-based compensation under
other plans is presented in the "Summary Compensation Table" above, and in
footnotes to the Corporation's financial statements for the year ended December
31, 1999, in the Annual Report which precedes or accompanies this proxy
statement.
Federal Income Tax Implications of the 2000 Plan
The following is a brief description of the federal income tax consequences
generally arising with respect to Awards that may be granted under the 2000
Plan. The grant of an option (including a stock-based award in the nature of a
purchase right) or an SAR will create no federal income tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an option which is an ISO (except that the alternative minimum tax
may apply). Upon exercising an option which is not an ISO, the participant must
generally recognize ordinary income equal to the "spread," meaning the
difference between the exercise price and the fair market value of the freely
transferable and nonforfeitable shares acquired on the date of exercise. Upon
exercising an SAR, the participant must generally recognize ordinary income
equal to the cash or the fair market value of the shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (whether or not an ISO) generally will result in
short-term or long-term capital gain or loss measured by the difference between
the sale price and the participant's tax "basis" in such shares (generally, the
tax "basis" is the exercise price plus any amount previously
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recognized as ordinary income, if any, in connection with the exercise of the
option).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
options and SARs. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant. Accordingly,
the Company will not be entitled to any tax deduction with respect to an ISO if
the participant holds the shares for the applicable ISO holding periods prior to
disposition of the shares.
With respect to other Awards granted under the 2000 Plan that result in a
transfer to the participant of cash or shares or other property that is either
not restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property actually received.
Except as discussed below, the Company generally will be entitled to a deduction
for the same amount. With respect to Awards involving shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the earliest
time the shares or other property become transferable or not subject to a
substantial risk of forfeiture. Except as discussed below, the Company generally
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the participant. A participant may elect to be taxed at the time
of receipt of shares (e.g., restricted stock) or other property rather than upon
lapse of restrictions on transferability or the substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property he or she
would not be entitled to any tax deduction, including as a capital loss, for the
value of the shares or property on which he or she previously paid tax.
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1 million deductibility cap of Code Section
162(m), and therefore remains fully deductible by the company that pays it.
Under the 2000 Plan, options or SARs granted with an exercise price or grant
price at least equal to 100% of fair market value of the underlying shares at
the date of grant will be, and Awards which
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are conditioned upon achievement of performance goals may be, intended to
qualify as such "performance-based" compensation. A number of requirements must
be met, however, in order for particular compensation to so qualify.
Accordingly, there can be no assurance that such compensation under the 2000
Plan will be fully deductible under all circumstances. In addition, other Awards
under the 2000 Plan generally will not so qualify, so that compensation paid to
certain executives in connection with such Awards may, to the extent it and
other compensation subject to Section 162(m)'s deductibility cap exceed $1
million in a given year, be subject to the limitation of Section 162(m).
The foregoing provides only a general description of the application of
federal income tax laws to certain types of Awards under the 2000 Plan. This
discussion is intended for the information of shareholders considering how to
vote at the Annual Meeting and not as tax guidance to participants in the 2000
Plan, as the consequences may vary with the types of awards made, the identity
of the recipients and the method of payment or settlement. Different tax rules
may apply, including in the case of variations in transactions that are
permitted under the 2000 Plan (such as payment of the exercise price of an
option by surrender of previously acquired shares). The summary does not address
the effects of other federal taxes (including possible "golden parachute" excise
taxes) or taxes imposed under state, local, or foreign tax laws.
Vote Required for Approval
Approval of the 2000 Plan will require the affirmative vote of a majority
of the votes cast by the holders of shares entitled to vote thereon at the
Annual Meeting.
The Board of Directors considers the 2000 Plan to be in the best interests
of the Company and its shareholders and recommends that the shareholders vote
FOR approval.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(Proposal 3)
The Board of Directors of the Company has appointed Arthur Andersen LLP as
independent public accountants to examine the financial statements of the
Company for the year ending
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December 31, 2000. Arthur Andersen LLP has served as accountants for the Company
since 1982. Representatives of Arthur Andersen LLP will be present at the
meeting to make a statement if they desire to do so and to respond to
appropriate questions.
To be ratified, the appointment must be approved by a majority of the votes
cast by all holders of the Common Stock present, in person or by proxy, and
entitled to vote at the meeting.
Although the submission of the appointment of Arthur Andersen LLP is not
required by law or the By-Laws of the Company, the Board is submitting it to the
shareholders to ascertain their views. If the shareholders do not ratify the
appointment, the Board will not be bound to seek other independent accountants
for 2000, but the selection of other independent accountants will be considered
in future years.
The Board recommends a vote FOR Proposal 3 to ratify the appointment of Arthur
Andersen LLP.
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy materials for the 2001
Annual Meeting of Shareholders, a proposal intended to be presented by a
stockholder for action at that meeting must, in addition to meeting the
stockholder eligibility requirements of the Securities and Exchange Commission's
rules governing such proposals, be received not later than December 28, 2000 by
the Secretary of the Company at the Company's principal executive offices, 781
Third Avenue, King of Prussia, PA 19406-1409. The execution of a proxy solicited
by the Company in connection with its 2001 Annual Meeting of Stockholders shall
confer on the designated proxyholders discretionary voting authority to vote on
any matter for which the Company has not received notice on or prior to March
19, 2001.
OTHER MATTERS
As of the date of this Proxy Statement, we do not know of any items, other than
those identified in the Notice of Annual Meeting of Shareholders, which may
properly come before the Meeting. However, if other matters should properly come
before the Meeting or any adjournment thereof, it is the intention of the
persons named in the proxy to vote the proxy in accordance with their judgment
in such matters.
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THE COMPANY HAS PROVIDED TO EACH PERSON SOLICITED, A COPY OF ITS ANNUAL
REPORT ON FORM 10-K INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, BUT EXCLUDING EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999. REQUESTS FOR EXHIBITS,
FOR WHICH THE COMPANY WILL IMPOSE A CHARGE, SHOULD BE DIRECTED IN WRITING TO
WILLIAM J. MERRITT, SECRETARY, INTERDIGITAL COMMUNICATIONS CORPORATION, 781
THIRD AVENUE, KING OF PRUSSIA, PENNSYLVANIA 19406-1409.
By Order of the Board of Directors
William J. Merritt, Secretary
King of Prussia, Pennsylvania
April 27, 2000
<PAGE>
EXHIBIT A
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INTERDIGITAL COMMUNICATIONS CORPORATION
2000 Stock Award and Incentive Plan
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION
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2000 Stock Award and Incentive Plan
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Page
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1. Purpose............................................................ 1
2. Definitions........................................................ 1
3. Administration..................................................... 3
4. Stock Subject to Plan.............................................. 4
5. Eligibility; Per-Person Award Limitations ......................... 4
6. Specific Terms of Awards........................................... 5
7. Performance Awards................................................ 8
8. Certain Provisions Applicable to Awards............................ 9
9. Change in Control.................................................. 10
10. Additional Award Forfeiture Provisions............................. 12
11. General Provisions................................................. 13
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION
2000 Stock Award and Incentive Plan
1. Purpose. The purpose of this 2000 Stock Award and Incentive Plan (the
"Plan") is to aid InterDigital Communications Corporation, a Pennsylvania
corporation (the "Company"), in attracting, retaining, motivating and rewarding
employees, non-employee directors, and other persons who provide substantial
services to the Company or its subsidiaries or affiliates, to provide for
equitable and competitive compensation opportunities, to encourage long-term
service, to recognize individual contributions and reward achievement of Company
goals, and promote the creation of long-term value for shareholders by closely
aligning the interests of Participants with those of shareholders. The Plan
authorizes stock-based and cash-based incentives for Participants.
2. Definitions. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Dividend Equivalent,
Other Stock-Based Award, or Performance Award, together with any related
right or interest, granted to a Participant under the Plan.
(b) "Beneficiary" means the legal representatives of the Participant's
estate entitled by will or the laws of descent and distribution to receive
the benefits under a Participant's Award upon a Participant's death,
provided that, if and to the extent authorized by the Committee, a
Participant may be permitted to designate a Beneficiary, in which case the
"Beneficiary" instead shall be the person(s) (if any are then surviving),
trust(s) or entity(ies) which have been designated by the Participant in
his or her most recent written beneficiary designation filed with the
Committee to receive the benefits specified under the Participant's Award
upon such Participant's death.
(c) "Board" means the Company's Board of Directors.
(d) "Change in Control" and related terms have the meanings specified
in Section 9.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a committee of two or more directors designated
by the Board to administer the Plan; provided, however, that, directors
appointed or serving as members of a Board committee designated as the
Committee shall not be employees of the Company or any subsidiary or
affiliate. In appointing members of the Committee, the Board will consider
whether a member is or will be a Qualified Member, but such members are not
required to be Qualified Members at the time of appointment or during their
term of service on the Committee. The full Board may perform any function
of the Committee hereunder, in which case the term "Committee" shall refer
to the Board. Initially, the Compensation and Stock Option Committee of the
Board of Directors will be designated as the "Committee" under the Plan.
(g) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 11(j).
(h) "Deferred Stock" means a right, granted to a Participant under
Section 6(e), to receive Stock or other Awards or a combination thereof at
the end of a specified deferral period.
<PAGE>
(i) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g), to receive cash, Stock, other Awards or other property
equal in value to all or a specified portion of the dividends paid with
respect to a specified number of shares of Stock.
(j) "Effective Date" means the effective date specified in Section
11(r).
(k) "Eligible Person" has the meaning specified in Section 5.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means the fair market value of Stock, Awards
or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock shall be the closing sale price reported on
the composite tape of the principal stock exchange on which the Stock is
listed on the day as of which such value is being determined or, if there
is no sale on that day, then on the last previous day on which a sale was
reported.
(n) "Incentive Stock Option" or "ISO" means any Option designated as
an incentive stock option within the meaning of Code Section 422 and
qualifying thereunder.
(o) "Non-qualified Stock Option" means any Option designated as a
non-qualified stock option and not an Incentive Stock Option within the
meaning of Code Section 422.
(p) "Option" means a right, granted to a Participant under Section
6(b), to purchase Stock or other Awards at a specified price during
specified time periods.
(q) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h).
(r) "Participant" means a person who has been granted an Award under
the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(s) "Performance Award" means a conditional right, granted to a
Participant under Sections 6(i) and 7, to receive cash, Stock or other
Awards or payments, as determined by the Committee, based upon performance
criteria specified by the Committee.
(t) "Preexisting Plans" mean the Company's Non-Qualified Stock Option
Plan, 1992 Non-Qualified Stock Option Plan, 1992 Employee Stock Option
Plan, 1995 Employee Stock Option Plan, 1997 Stock Option Plan for
Non-Employee Directors, and any other Company stock option plan under which
options are outstanding at the Effective Date.
(u) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1.162-27 under Code
Section 162(m).
(v) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) which is subject to certain restrictions and to a risk of
forfeiture.
(w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act.
(x) "Stock" means the Company's Common Stock, and any other equity
securities of the Company that may be substituted or resubstituted for
Stock pursuant to Section 11(c).
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(y) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case subject to
and consistent with the provisions of the Plan, to select Eligible Persons to
become Participants; to grant Awards; to determine the type and number of
Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate, the
acceleration of any such dates, the expiration date of any Award, whether, to
what extent, and under what circumstances an Award may be settled, or the
exercise price of an Award may be paid, in cash, Stock, other Awards, or other
property, and other terms and conditions of, and all other matters relating to,
Awards; to prescribe documents evidencing or setting terms of Awards (such Award
documents need not be identical for each Participant), amendments thereto, rules
and regulations for the administration of the Plan and amendments thereto, and
standardized terms and conditions of awards and amendments thereto (which, if so
specified by the Committee, shall be deemed to be incorporated into and a part
of this Plan); to construe and interpret the Plan and Award documents and
correct defects, supply omissions or reconcile inconsistencies therein; and to
make all other decisions and determinations as the Committee may deem necessary
or advisable for the administration of the Plan. Decisions of the Committee with
respect to the administration and interpretation of the Plan shall be final,
conclusive, and binding upon all persons interested in the Plan, including
Participants, Beneficiaries, transferees under Section 11(b) and other persons
claiming rights from or through a Participant, and shareholders. The foregoing
notwithstanding, the Board shall perform the functions of the Committee for
purposes of granting Awards under the Plan to non-employee directors (authority
with respect to other aspects of non-employee director awards is not exclusive
to the Board, however).
(b) Manner of Exercise of Committee Authority. At any time that a member of
the Committee is not a Qualified Member, (i) any action of the Committee
relating to an Award intended by the Committee to qualify as "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder may be taken by a subcommittee, designated by the Committee or the
Board, composed solely of two or more Qualified Members, and (ii) any action
relating to an Award granted or to be granted to a Participant who is then
subject to Section 16 of the Exchange Act in respect of the Company may be taken
either by such a subcommittee or by the Committee but with each such member who
is not a Qualified Member abstaining or recusing himself or herself from such
action, provided that, upon such abstention or recusal, the Committee remains
composed of two or more Qualified Members. Such action, authorized by such a
subcommittee or by the Committee upon the abstention or recusal of such
non-Qualified Member(s), shall be the action of the Committee for purposes of
the Plan. The express grant of any specific power to the Committee, and the
taking of any action by the Committee, shall not be construed as limiting any
power or authority of the Committee. The Committee may delegate to officers or
managers of the Company or any subsidiary or affiliate, or committees thereof,
the authority, subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as the Committee may
determine, to the extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d) for Awards granted to Participants subject to
Section 16 of the Exchange Act in respect of the Company and will not cause
Awards intended to qualify as "performance-based compensation" under Code
Section 162(m) to fail to so qualify.
(c) Limitation of Liability. The Committee and each member thereof, and any
person acting pursuant to authority delegated by the Committee, shall be
entitled, in good faith, to rely or act upon any report or other information
furnished by any executive officer, other officer or employee of the Company or
a subsidiary or affiliate, the Company's independent auditors, consultants or
any other agents assisting in the administration of the Plan. Members of the
Committee, any person acting pursuant to authority delegated by the Committee,
and any officer or employee of the Company or a subsidiary or affiliate acting
at the direction or on behalf of the Committee or a delegee shall not be
personally liable for any action or determination taken or made in good faith
with respect to the Plan,
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and shall, to the extent permitted by law, be fully indemnified and protected by
the Company with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to adjustment
as provided in Section 11(c), the total number of shares of Stock reserved and
available for delivery in connection with Awards under the Plan shall be (i) 2.2
million plus (ii) the number of shares that, immediately prior to the Effective
Date, remain available for issuance under the Preexisting Plans plus and (iii)
the number of shares subject to awards under the Preexisting Plans which become
available in accordance with Section 4(b) after the Effective Date; provided,
however, that shares carried forward from a Preexisting Plan pursuant to clause
(ii) shall be available for initial grant only before the time such Preexisting
Plan would have expired in accordance with its terms; and provided further, that
the total number of shares which may be issued and delivered in connection with
Awards other than Options and SARs shall not exceed 40% of the total number of
shares reserved under the Plan. Any shares of Stock delivered under the Plan
shall consist of authorized and unissued shares or treasury shares.
(b) Share Counting Rules. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments if the
number of shares of Stock actually delivered differs from the number of shares
previously counted in connection with an Award. Shares subject to an Award or an
award under a Preexisting Plan that is canceled, expired, forfeited, settled in
cash or otherwise terminated without a delivery of shares to the Participant
will again be available for Awards, and shares withheld in payment of the
exercise price or taxes relating to an Award or Preexisting Plan award and
shares equal to the number surrendered in payment of any exercise price or taxes
relating to an Award or Preexisting Plan award shall be deemed to constitute
shares not delivered to the Participant and shall be deemed again to be
available for Awards under the Plan. In addition, in the case of any Award
granted in substitution for an award of a company or business acquired by the
Company or a subsidiary or affiliate, shares issued or issuable in connection
with such substitute Award shall not be counted against the number of shares
reserved under the Plan, but shall be available under the Plan by virtue of the
Company's assumption of the plan or arrangement of the acquired company or
business. This Section 4(b) shall apply to the number of shares reserved and
available for ISOs only to the extent consistent with applicable regulations
relating to ISOs under the Code. The order in which Shares will be deemed to be
made subject to Awards under the Plan shall first be Shares resulting from
Preexisting Plans (in the order of the expiration date of such Preexisting
Plans) and then the Shares reserved under clause (i) of Section 4(a).
5. Eligibility; Per-Person Award Limitations. Awards may be granted under
the Plan only to Eligible Persons. For purposes of the Plan, an "Eligible
Person" means an employee of the Company or any subsidiary or affiliate,
including any executive officer, a non-employee director of the Company, a
consultant or other person who provides substantial services to the Company or a
subsidiary or affiliate, and any person who has been offered employment by the
Company or a subsidiary or affiliate, provided that such prospective employee
may not receive any payment or exercise any right relating to an Award until
such person has commenced employment with the Company or a subsidiary or
affiliate. An employee on leave of absence may be considered as still in the
employ of the Company or a subsidiary or affiliate for purposes of eligibility
for participation in the Plan, if so determined by the Committee. A joint
venture in which the Company or a subsidiary has a substantial direct or
indirect equity investment may be deemed an affiliate, if so determined by the
Committee, but such determination shall be solely for purposes of this Plan. In
each calendar year during any part of which the Plan is in effect, an Eligible
Person may be granted Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) under each of Section 6(b), 6(c), 6(d),
6(e), 6(f), 6(g) or 6(h) relating to up to his or her Annual Limit (such Annual
Limit to apply separately to the type of Award authorized under each specified
subsection, except that the limitation applies to Dividend Equivalents under
Section 6(g) only if such Dividend Equivalents are granted separately from and
not as a feature of another Award). A Participant's Annual Limit, in any year
during any part of which the Participant is then eligible under the Plan, shall
equal 300,000 shares plus the amount of the Participant's unused Annual Limit
relating to the same type of Award as of the close of the previous year, subject
to adjustment as provided in Section 11(c). In the case of an Award which is not
valued in a way in which the limitation set forth in the preceding sentence
would operate as an effective limitation satisfying
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Treasury Regulation 1.162-27(e)(4) (including a Performance Award under Section
7 not related to an Award specified in Section 6), an Eligible Person may not be
granted Awards authorizing the earning during any calendar year of an amount
that exceeds the Participant's Annual Limit, which for this purpose shall equal
$1.5 million plus the amount of the Participant's unused cash Annual Limit as of
the close of the previous year (this limitation is separate and not affected by
the number of Awards granted during such calendar year subject to the limitation
in the preceding sentence). For this purpose, (i) "earning" means satisfying
performance conditions so that an amount becomes payable, without regard to
whether it is to be paid currently or on a deferred basis or continues to be
subject to any service requirement or other non-performance condition, and (ii)
a Participant's Annual Limit is used to the extent an amount or number of shares
may be potentially earned or paid under an Award, regardless of whether such
amount or shares are in fact earned or paid.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth in
this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 11(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment or service by the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion with respect
to any term or condition of an Award that is not mandatory under the Plan. The
Committee may require payment of consideration for an Award, except as otherwise
limited by the Plan.
(b) Options. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option (including both ISOs and Non-qualified Stock Options) shall
be determined by the Committee, but such exercise price shall be not less
than the Fair Market Value of a share of Stock on the date of grant of such
Option, subject to Sections 6(f) and 8(a), unless the Committee finds there
to exist extraordinary circumstances such that the grant of a Non-Qualified
Stock Option with an exercise price less than such Fair Market Value is
appropriate.
(ii) Option Term; Time and Method of Exercise. The Committee shall
determine the term of each Option, provided that in no event shall the term
of any ISO or SAR in tandem therewith exceed a period of ten years from the
date of grant. The Committee shall determine the time or times at which or
the circumstances under which an Option may be exercised in whole or in
part (including based on achievement of performance goals and/or future
service requirements), the methods by which such exercise price may be paid
or deemed to be paid and the form of such payment (subject to Section
11(k)), including, without limitation, cash, Stock, other Awards or awards
granted under other plans of the Company or any subsidiary or affiliate, or
other property (including notes and other contractual obligations of
Participants to make payment on a deferred basis, such as through "cashless
exercise" arrangements, to the extent permitted by applicable law), and the
methods by or forms in which Stock will be delivered or deemed to be
delivered in satisfaction of Options to Participants (including deferred
delivery of shares representing the Option "profit," at the election of the
Participant or as mandated by the Committee, with such deferred shares
subject to any vesting, forfeiture or other terms as the Committee may
specify).
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Code Section 422, including but not
limited to the requirement that no ISO shall be granted more than ten years
after the Effective Date.
(c) Stock Appreciation Rights. The Committee is authorized to grant SAR's
to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or, in
the case of a "Limited SAR," the Fair Market Value determined by reference
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to the Change in Control Price, as defined under Section 9(d) hereof) over
(B) the grant price of the SAR as determined by the Committee.
(ii) Other Terms. The Committee shall determine at the date of grant
or thereafter, the time or times at which and the circumstances under which
a SAR may be exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the method of
exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Stock will be delivered or deemed
to be delivered to Participants, and whether or not a SAR shall be
free-standing or in tandem or combination with any other Award. Limited
SARs that may only be exercised in connection with a Change in Control or
other event as specified by the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
(d) Restricted Stock. The Committee is authorized to grant Restricted Stock
to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise and under such other
circumstances as the Committee may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of the Plan and
any Award document relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a shareholder, including
the right to vote the Restricted Stock and the right to receive dividends
thereon (subject to any mandatory reinvestment or other requirement imposed
by the Committee).
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions shall
be forfeited and reacquired by the Company; provided that the Committee may
provide, by rule or regulation or in any Award document, or may determine
in any individual case, that restrictions or forfeiture conditions relating
to Restricted Stock will lapse in whole or in part, including in the event
of terminations resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical
possession of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require that any dividends paid on a
share of Restricted Stock shall be either (A) paid with respect to such
Restricted Stock at the dividend payment date in cash, in kind, or in a
number of shares of unrestricted Stock having a Fair Market Value equal to
the amount of such dividends, or (B) automatically reinvested in additional
Restricted Stock or held in kind, which shall be subject to the same terms
as applied to the original Restricted Stock to which it relates, or (C)
deferred as to payment, either as a cash deferral or with the amount or
value thereof automatically deemed reinvested in shares of Deferred Stock,
other Awards or other investment vehicles, subject to such terms as the
Committee shall determine or permit a Participant to elect. Unless
otherwise determined by the Committee, Stock distributed in connection with
a Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock or
other property has been distributed.
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(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to
Participants, which are rights to receive Stock, other Awards, or a combination
thereof at the end of a specified deferral period, subject to the following
terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock
by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times (including
based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise,
and under such other circumstances as the Committee may determine at the
date of grant or thereafter. Deferred Stock may be satisfied by delivery of
Stock, other Awards, or a combination thereof (subject to Section 11(k)),
as determined by the Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable deferral period
or portion thereof to which forfeiture conditions apply (as provided in the
Award document evidencing the Deferred Stock), all Deferred Stock that is
at that time subject to such forfeiture conditions shall be forfeited;
provided that the Committee may provide, by rule or regulation or in any
Award document, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Deferred Stock will lapse in whole or
in part, including in the event of terminations resulting from specified
causes.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee, Dividend Equivalents on the specified number of shares of Stock
covered by an Award of Deferred Stock shall be either (A) paid with respect
to such Deferred Stock at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Deferred Stock, either as a
cash deferral or with the amount or value thereof automatically deemed
reinvested in additional Deferred Stock, other Awards or other investment
vehicles having a Fair Market Value equal to the amount of such dividends,
as the Committee shall determine or permit a Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of obligations of the Company or a subsidiary or affiliate to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, subject to such terms as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equivalent to all or a portion of the dividends
paid with respect to a specified number of shares of Stock. Dividend Equivalents
may be awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards, or other investment vehicles, and subject to restrictions on
transferability, risks of forfeiture and such other terms as the Committee may
specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock or factors that may influence
the value of Stock, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or business units thereof or any other factors designated by the
Committee, and Awards valued by reference to the book value of Stock or the
value of securities of or the performance of specified subsidiaries or
affiliates or other business units. The Committee shall determine the terms and
conditions of such Awards. Stock delivered pursuant to an Award in the nature of
a purchase right granted under this Section 6(h) shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, notes,
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or other property, as the Committee shall determine. Cash awards, as an element
of or supplement to any other Award under the Plan, may also be granted pursuant
to this Section 6(h).
(i) Performance Awards. Performance Awards, denominated in cash or in Stock or
other Awards, may be granted by the Committee in accordance with Section 7.
7. Performance Awards
(a) Performance Awards Generally. The Committee is authorized to grant
Performance Awards on the terms and conditions specified in this Section 7.
Performance Awards may be denominated as a cash amount, number of shares of
Stock, or specified number of other Awards (or a combination) which may be
earned upon achievement or satisfaction of performance conditions specified by
the Committee. In addition, the Committee may specify that any other Award shall
constitute a Performance Award by conditioning the right of a Participant to
exercise the Award or have it settled, and the timing thereof, upon achievement
or satisfaction of such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 7(b) in the case of a Performance Award intended to qualify as
"performance-based compensation" under Code Section 162(m).
(b) Performance Awards Granted to Covered Employees. If the Committee
determines that a Performance Award to be granted to an Eligible Person who is
designated by the Committee as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance Award shall be contingent upon
achievement of a preestablished performance goal and other terms set forth in
this Section 7(b).
(i) Performance Goal Generally. The performance goal for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section 7(b).
The performance goal shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise and/or
settlement of such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Participant or to different
Participants.
(ii) Business Criteria. One or more of the following business criteria
for the Company, on a consolidated basis, and/or for specified subsidiaries
or affiliates or other business units of the Company shall be used by the
Committee in establishing performance goals for such Performance Awards:
(1) net sales; (2) earnings from operations, earnings before or after
taxes, earnings before or after interest, depreciation, amortization, or
extraordinary or special items; (3) net income or net income per common
share (basic or diluted); (4) return on assets (gross or net), return on
investment, return on capital, or return on equity; (5) cash flow, free
cash flow, cash flow return on investment (discounted or otherwise), net
cash provided by operations, or cash flow in excess of cost of capital; (6)
interest expense after taxes; (7) economic value created; (8) operating
margin or profit margin; (9) stock price or total shareholder return; (10)
average cash balance or cash position; and (11) strategic business
criteria, consisting of one or more objectives based on meeting specified
product development, strategic partnering, licensing, research and
development, market penetration, geographic business expansion goals, cost
targets, customer satisfaction, employee satisfaction, management of
employment practices and employee benefits, supervision of litigation and
information technology, and goals relating to acquisitions or divestitures
of subsidiaries, affiliates or joint ventures. The targeted level or levels
of performance with respect to such business criteria may be established at
such levels and in such terms as the Committee may determine, in its
discretion,
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including in absolute terms, as a goal relative to performance in
prior periods, or as a goal compared to the performance of one or more
comparable companies or an index covering multiple companies.
(iii) Performance Period; Timing for Establishing Performance Goals;
Per-Person Limit. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period of up to one
year or more than one year, as specified by the Committee. A performance
goal shall be established not later than the earlier of (A) 90 days after
the beginning of any performance period applicable to such Performance
Award or (B) the time 25% of such performance period has elapsed. In all
cases, the maximum Performance Award of any Participant shall be subject to
the limitation set forth in Section 5.
(iv) Performance Award Pool. The Committee may establish a Performance
Award pool, which shall be an unfunded pool, for purposes of measuring
performance of the Company in connection with Performance Awards. The
amount of such Performance Award pool shall be based upon the achievement
of a performance goal or goals based on one or more of the business
criteria set forth in Section 7(b)(ii) during the given performance period,
as specified by the Committee in accordance with Section 7(b)(iv). The
Committee may specify the amount of the Performance Award pool as a
percentage of any of such business criteria, a percentage thereof in excess
of a threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria.
(v) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Stock, other Awards or other property,
in the discretion of the Committee. The Committee may not exercise
discretion to increase any such amount payable to a Covered Employee in
respect of a Performance Award subject to this Section 7(b). Any settlement
which changes the form of payment from that originally specified shall be
implemented in a manner such that the Performance Award and other related
Awards do not, solely for that reason, fail to qualify as
"performance-based compensation" for purposes of Code Section 162(m). The
Committee shall specify the circumstances in which such Performance Awards
shall be paid or forfeited in the event of termination of employment by the
Participant or other event (including a Change in Control) prior to the end
of a performance period or settlement of such Performance Awards.
(c) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in respect of
Performance Awards, the level of actual achievement of the specified performance
goals relating to Performance Awards and the amount of any final Performance
Award shall be recorded in writing in the case of Performance Awards intended to
qualify under Section 162(m). Specifically, the Committee shall certify in
writing, in a manner conforming to applicable regulations under Section 162(m),
prior to settlement of each such Award granted to a Covered Employee, that the
performance objective relating to the Performance Award and other material terms
of the Award upon which settlement of the Award was conditioned have been
satisfied.
8. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or exchange for, any other
Award or any award granted under another plan of the Company, any subsidiary or
affiliate, or any business entity to be acquired by the Company or a subsidiary
or affiliate, or any other right of a Participant to receive payment from the
Company or any subsidiary or affiliate. Awards granted in addition to or in
tandem with other Awards or awards may be granted either as of the same time as
or a different time from the grant of such other Awards or awards. Subject to
Section 11(k), the Committee may determine that, in granting a new Award, the
in-the-money value of any surrendered Award or award may be applied to reduce
the exercise price of any Option, grant price of any SAR, or purchase price of
any other Award.
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee, subject to the express limitations set forth in
Section 6(b)(ii).
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(c) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan (including Section 11(k)) and any applicable Award document,
payments to be made by the Company or a subsidiary or affiliate upon the
exercise of an Option or other Award or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments, or on a deferred basis. The settlement of any
Award may be accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or more
specified events (subject to Section 11(k)). Installment or deferred payments
may be required by the Committee (subject to Section 11(e)) or permitted at the
election of the Participant on terms and conditions established by the
Committee. Payments may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. With respect to a Participant
who is then subject to the reporting requirements of Section 16(a) of the
Exchange Act in respect of the Company, the Committee shall use its best efforts
to implement transactions under the Plan and administer the Plan in a manner
that will ensure that each transaction with respect to such a Participant is
exempt from liability under Rule 16b-3 or otherwise not subject to liability
under Section 16(b)), except that this provision shall not limit sales by such a
Participant, and such a Participant may engage in other non-exempt transactions
under the Plan. The Committee may authorize the Company to repurchase any Award
or shares of Stock deliverable or delivered in connection with any Award
(subject to Section 11(k)) to enable a Participant who is subject to Section 16
of the Exchange Act to avoid incurring liability under Section 16(b). Unless
otherwise specified by the Participant, equity securities or derivative
securities acquired under the Plan which are disposed of by a Participant shall
be deemed to be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall have
full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans, including
the interest rate, if any, to be charged in respect of any such loan or loans,
whether the loan or loans are to be with or without recourse against the
borrower, the terms on which the loan is to be repaid and conditions, if any,
under which the loan or loans may be forgiven.
9. Change in Control.
(a) Effect of "Change in Control" on Non-Performance Based Awards. In the
event of a "Change in Control," the following provisions shall apply to
non-performance based Awards, including Awards as to which performance
conditions previously have been satisfied or are deemed satisfied under Section
9(b), unless otherwise provided by the Committee in the Award document:
(i) All deferral of settlement, forfeiture conditions and other
restrictions applicable to Awards granted under the Plan shall lapse and
such Awards shall be fully payable as of the time of the Change in Control
without regard to deferral and vesting conditions, except to the extent of
any waiver by the Participant or other express election to defer beyond a
Change in Control and subject to applicable restrictions set forth in
Section 11(a);
(ii) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of the
time of the Change in Control and shall remain exercisable and vested for
the balance of the stated term of such Award without regard to any
termination of employment or service by the Participant other than a
termination for "cause" (as defined in any employment or severance
agreement between the Company or a subsidiary or affiliate and the
Participant then in effect or, if none, as defined by the Committee and in
effect at the time of the Change in Control), subject only to applicable
restrictions set forth in Section 11(a); and
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(iii) The Committee may, in its discretion, determine to extend to any
Participant who holds an Option the right to elect, during the 60-day
period immediately following the Change in Control, in lieu of acquiring
the shares of Stock covered by such Option, to receive in cash the excess
of the Change in Control Price over the exercise price of such Option,
multiplied by the number of shares of Stock covered by such Option, and to
extend to any Participant who holds other types of Awards denominated in
shares the right to elect, during the 60-day period immediately following
the Change in Control, in lieu of receiving the shares of Stock covered by
such Award, to receive in cash the Change in Control Price multiplied by
the number of shares of Stock covered by such Award.
(b) Effect of "Change in Control" on Performance-Based Awards. In the event
of a "Change in Control," with respect to an outstanding Award subject to
achievement of performance goals and conditions, such performance goals and
conditions shall be deemed to be met or exceeded if and to the extent so
provided by the Committee in the Award document governing such Award or other
agreement with the Participant.
(c) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred if, after the Effective Date, there shall have occurred
any of the following:
(i) Any "person," as such term is used in Section 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), acquires voting securities of the Company and immediately
thereafter is a "50% Beneficial Owner." For purposes of this provision, a
"50% Beneficial Owner" shall mean a person who is the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 50% or more of the combined
voting power of the Company's then-outstanding voting securities;
(ii) During any period of two consecutive years commencing on or after
the Effective Date, individuals who at the beginning of such period
constitute the Board, and any new director (other than a director
designated by a person (as defined above) who has entered into an agreement
with the Company to effect a transaction described in subsections (i),
(iii), (iv) or (v) of this definition) whose election by the Board or
nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (the "Continuing
Directors") cease for any reason to constitute at least a majority thereof;
(iii) The shareholders of the Company have approved a merger,
consolidation, recapitalization, or reorganization of the Company, or a
reverse stock split of any class of voting securities of the Company, or
the consummation of any such transaction if shareholder approval is not
obtained, other than any such transaction which would result in at least
50% of the combined voting power of the voting securities of the Company or
the surviving entity outstanding immediately after such transaction being
beneficially owned by the persons who were shareholders of the Company
immediately prior to the transaction in substantially the same proportion
as their ownership of the voting power immediately prior to the
transaction; provided that, for purposes of this Section 9(c)(iii), such
continuity of ownership (and preservation of relative voting power) shall
be deemed to be satisfied if the failure to meet such 50% threshold (or to
substantially preserve such relative ownership of the voting securities) is
due solely to the acquisition of voting securities by an employee benefit
plan of the Company, such surviving entity or a subsidiary thereof; and
provided further, that, if consummation of the corporate transaction
referred to in this Section 9(c)(iii) is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency or approval of the shareholders of another entity or other material
contingency, no Change in Control shall occur until such time as such
consent and approval has been obtained and any other material contingency
has been satisfied;
(iv) The shareholders of the Company accept shares in a share exchange
in which the shareholders of the Company immediately before such share
exchange do not or will not own directly
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or indirectly immediately following such share exchange more than 50%
of the combined voting power of the outstanding voting securities of the
corporation resulting from or surviving such share exchange in
substantially the same proportion as the ownership of the Voting Securities
outstanding immediately before such share exchange;
(v) The shareholders of the Company have approved a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets (or any
transaction having a similar effect); provided that, if consummation of the
transaction referred to in this Section 9(c)(v) is subject, at the time of
such approval by shareholders, to the consent of any government or
governmental agency or approval of the shareholders of another entity or
other material contingency, no Change in Control shall occur until such
time as such consent and approval has been obtained and any other material
contingency has been satisfied; and
(vi) any other event which the Board of Directors of the Company
determines shall constitute a Change in Control for purposes of this Plan.
(d) Definition of "Change in Control Price." The "Change in Control Price"
means an amount in cash equal to the higher of (i) the amount of cash and fair
market value of property that is the highest price per share paid (including
extraordinary dividends) in any transaction triggering the Change in Control or
any liquidation of shares following a sale of substantially all assets of the
Company, or (ii) the highest Fair Market Value per share at any time during the
60-day period preceding and 60-day period following the Change in Control.
10. Additional Award Forfeiture Provisions.
(a) Events Triggering Forfeiture. Notwithstanding any other provision of
this Plan, the forfeitures specified in Section 10(a) will be triggered if the
Participant's employment or engagement is terminated by the Company and the
Board makes a determination that the Participant (i) has engaged in any type of
disloyalty to the Company, including without limitation, insubordination, fraud,
embezzlement, theft or dishonesty in the course of his employment or engagement,
or (ii) has been convicted of a felony, or (iii) has disclosed any confidential
or proprietary information without the consent of the Company or (iv) has
breached the terms of any written confidentiality agreement or any
non-competition agreement with the Company in any material respect, all
unexercised options and awards not yet settled held by such the Participant
shall terminate upon the earlier of the date of termination of employment or
engagement for "cause" of the date of such a finding at any time during the
Participant's employment by the Company or a subsidiary or affiliate or during
the one-year period following termination of such employment.
(b) Committee Discretion. The Committee may, in its discretion, waive in
whole or in part the Company's right to forfeiture under this Section, but no
such waiver shall be effective unless evidenced by a writing signed by a duly
authorized officer of the Company. In addition, the Committee may impose
additional conditions on Awards, by inclusion of appropriate provisions in the
document evidencing or governing any such Award.
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11. General Provisions.
(a) Compliance with Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the issuance or
delivery of Stock or payment of other benefits under any Award until completion
of such registration or qualification of such Stock or other required action
under any federal or state law, rule or regulation, listing or other required
action with respect to any stock exchange or automated quotation system upon
which the Stock or other securities of the Company are listed or quoted, or
compliance with any other obligation of the Company, as the Committee may
consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change in Control, the Company
shall take or cause to be taken no action, and shall undertake or permit to
arise no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery
or payment, to the extent that such postponement or other condition would
represent a greater burden on a Participant than existed on the 90th day
preceding the Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Company or a subsidiary or affiliate
thereof), or assigned or transferred by such Participant otherwise than by will
or the laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her guardian or legal representative, except that Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant, and may be exercised by such
transferees in accordance with the terms of such Award, but only if and to the
extent such transfers are permitted by the Committee, subject to any terms and
conditions which the Committee may impose thereon (including limitations the
Committee may deem appropriate in order that offers and sales under the Plan
will meet applicable requirements of registration forms under the Securities Act
of 1933 specified by the Securities and Exchange Commission). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or through
any Participant shall be subject to all terms and conditions of the Plan and any
Award document applicable to such Participant, except as otherwise determined by
the Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
(c) Adjustments. In the event that any large, special and non-recurring
dividend or other distribution (whether in the form of cash or property other
than Stock), recapitalization, forward or reverse split, Stock dividend,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange, liquidation, dissolution or other similar corporate transaction or
event affects the Stock such that an adjustment is determined by the Committee
to be appropriate under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and kind of shares of
Stock which may be delivered in connection with Awards granted thereafter, (ii)
the number and kind of shares of Stock by which annual per-person Award
limitations are measured under Section 5, (iii) the number and kind of shares of
Stock subject to or deliverable in respect of outstanding Awards and (iv) the
exercise price, grant price or purchase price relating to any Award or, if
deemed appropriate, the Committee may make provision for a payment of cash or
property to the holder of an outstanding Option (subject to Section 11(k)). In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance
Awards and performance goals and any hypothetical funding pool relating thereto)
in recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence, as well as acquisitions and
dispositions of businesses and assets) affecting the Company, any subsidiary or
affiliate or other business unit, or the financial statements of the Company or
any subsidiary or affiliate, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business strategy of
the Company, any subsidiary or affiliate or business unit thereof, performance
of comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant;
provided that no such adjustment shall be authorized or made if and to the
extent that the existence of such authority (i) would cause Options, SARs, or
Performance Awards granted under Section 8 to Participants designated by the
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Committee as Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder to otherwise
fail to qualify as "performance-based compensation" under Code Section 162(m)
and regulations thereunder, or (ii) would cause the Committee to be deemed to
have authority to change the targets, within the meaning of Treasury Regulation
1.162-27(e)(4)(vi), under the performance goals relating to Options or SARs
granted to Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder.
(d) Tax Provisions.
(i) Withholding. The Company and any subsidiary or affiliate is
authorized to withhold from any Award granted, any payment relating to an
Award under the Plan, including from a distribution of Stock, or any
payroll or other payment to a Participant, amounts of withholding and other
taxes due or potentially payable in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy obligations for
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock
or other property and to make cash payments in respect thereof in
satisfaction of a Participant's withholding obligations, either on a
mandatory or elective basis in the discretion of the Committee. Other
provisions of the Plan notwithstanding, only the minimum amount of Stock
deliverable in connection with an Award necessary to satisfy statutory
withholding requirements will be withheld.
(ii) Required Consent to and Notification of Code Section 83(b)
Election. No election under Section 83(b) of the Code (to include in gross
income in the year of transfer the amounts specified in Code Section 83(b))
or under a similar provision of the laws of a jurisdiction outside the
United States may be made unless expressly permitted by the terms of the
Award document or by action of the Committee in writing prior to the making
of such election. In any case in which a Participant is permitted to make
such an election in connection with an Award, the Participant shall notify
the Company of such election within ten days of filing notice of the
election with the Internal Revenue Service or other governmental authority,
in addition to any filing and notification required pursuant to regulations
issued under Code Section 83(b) or other applicable provision.
(iii) Requirement of Notification Upon Disqualifying Disposition Under
Code Section 421(b). If any Participant shall make any disposition of
shares of Stock delivered pursuant to the exercise of an Incentive Stock
Option under the circumstances described in Code Section 421(b) (relating
to certain disqualifying dispositions), such Participant shall notify the
Company of such disposition within ten days thereof.
(e) Changes to the Plan. The Board may amend, suspend or terminate the Plan
or the Committee's authority to grant Awards under the Plan without the consent
of shareholders or Participants; provided, however, that any amendment to the
Plan shall be submitted to the Company's shareholders for approval not later
than the earliest annual meeting for which the record date is after the date of
such Board action if such shareholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system on which the Stock may then be listed or quoted, and the Board
may otherwise, in its discretion, determine to submit other amendments to the
Plan to shareholders for approval; and provided further, that, without the
consent of an affected Participant, no such Board action may materially and
adversely affect the rights of such Participant under any outstanding Award.
Without the approval of shareholders, the Committee will not amend or replace
previously granted Options in a transaction that constitutes a "repricing," as
such term is used in Instruction 3 to Item 402(b)(2)(iv) of Regulation S-K, as
promulgated by the Securities and Exchange Commission. With regard to other
terms of Awards, the Committee shall have no authority to waive or modify any
such Award term after the Award has been granted to the extent the waived or
modified term would be mandatory under the Plan for any Award newly granted at
the date of the waiver or modification.
(f) Right of Setoff. The Company or any subsidiary or affiliate may, to the
extent permitted by applicable law, deduct from and set off against any amounts
the Company or a subsidiary or affiliate may owe to the Participant from time to
time, including amounts payable in connection with any Award, owed as wages,
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fringe benefits, or other compensation owed to the Participant, such amounts as
may be owed by the Participant to the Company, including but not limited to
amounts owed under Section 10(a), although the Participant shall remain liable
for any part of the Participant's payment obligation not satisfied through such
deduction and setoff. By accepting any Award granted hereunder, the Participant
agrees to any deduction or setoff under this Section 11(f).
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation
of trusts and deposit therein cash, Stock, other Awards or other property, or
make other arrangements to meet the Company's obligations under the Plan. Such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements, apart from the
Plan, as it may deem desirable, including incentive arrangements and awards
which do not qualify under Code Section 162(m), and such other arrangements may
be either applicable generally or only in specific cases.
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash consideration, the Participant
shall be repaid the amount of such cash consideration. No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards or other property shall be
issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options and SARs granted to Covered Employees and other Awards designated
as Awards to Covered Employees subject to Section 7 shall constitute qualified
"performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder, unless otherwise determined by the Committee at the time
of allocation of an Award. Accordingly, the terms of Sections 7(b), and (c),
including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee as likely to be a Covered Employee with respect to a specified fiscal
year. If any provision of the Plan or any Award document relating to a
Performance Award that is designated as intended to comply with Code Section
162(m) does not comply or is inconsistent with the requirements of Code Section
162(m) or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements, and no
provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the applicable performance
objectives.
(k) Certain Limitations Relating to Accounting Treatment of Awards. Other
provisions of the Plan notwithstanding, the Committee's authority under the Plan
(including under Sections 8(c), 8(d), 11(c) and 11(d)) is limited to the extent
necessary to ensure that any Option or other Award of a type that the Committee
has intended to be subject to fixed accounting with a measurement date at the
date of grant or the date performance conditions are satisfied under APB 25
shall not become subject to "variable" accounting solely due to the existence of
such authority, unless the Committee specifically determines that the Award
shall remain outstanding despite such "variable" accounting. In addition, other
provisions of the Plan notwithstanding, (i) if any right under this Plan would
cause a transaction to be ineligible for pooling-of-interests accounting that
would, but for the right hereunder, be eligible for such accounting treatment,
such right shall be automatically adjusted so that pooling-of-interests
accounting shall be available, including by substituting Stock or cash having a
Fair Market Value equal to any cash or Stock otherwise payable in
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respect of any right to cash which would cause the transaction to be ineligible
for pooling-of-interests accounting, and (ii) if the authority of the Board or
the Continuing Directors under Section 9(c) would cause a transaction to be
ineligible for pooling-of-interests accounting that would, but for such
authority, be eligible for such accounting treatment, such authority shall be
limited to the extent necessary so that such transaction would be eligible for
pooling-of-interests accounting.
(l) Governing Law. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan and any Award document shall be
determined in accordance with the laws of the Commonwealth of Pennsylvania,
without giving effect to principles of conflicts of laws, and applicable
provisions of federal law.
(m) Awards to Participants Outside the United States. The Committee may
modify the terms of any Award under the Plan made to or held by a Participant
who is then resident or primarily employed outside of the United States in any
manner deemed by the Committee to be necessary or appropriate in order that such
Award shall conform to laws, regulations, and customs of the country in which
the Participant is then resident or primarily employed, or so that the value and
other benefits of the Award to the Participant, as affected by foreign tax laws
and other restrictions applicable as a result of the Participant's residence or
employment abroad shall be comparable to the value of such an Award to a
Participant who is resident or primarily employed in the United States. An Award
may be modified under this Section 11(m) in a manner that is inconsistent with
the express terms of the Plan, so long as such modifications will not contravene
any applicable law or regulation or result in actual liability under Section
16(b) for the Participant whose Award is modified.
(n) Limitation on Rights Conferred under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ or service of the Company or a subsidiary or affiliate, (ii) interfering
in any way with the right of the Company or a subsidiary or affiliate to
terminate any Eligible Person's or Participant's employment or service at any
time, (iii) giving an Eligible Person or Participant any claim to be granted any
Award under the Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company unless and until the Participant is duly issued or
transferred shares of Stock in accordance with the terms of an Award or an
Option is duly exercised. Except as expressly provided in the Plan and an Award
document, neither the Plan nor any Award document shall confer on any person
other than the Company and the Participant any rights or remedies thereunder.
(o) Severability; Entire Agreement. If any of the provisions of this Plan
or any Award document is finally held to be invalid, illegal or unenforceable
(whether in whole or in part), such provision shall be deemed modified to the
extent, but only to the extent, of such invalidity, illegality or
unenforceability, and the remaining provisions shall not be affected thereby;
provided, that, if any of such provisions is finally held to be invalid,
illegal, or unenforceable because it exceeds the maximum scope determined to be
acceptable to permit such provision to be enforceable, such provision shall be
deemed to be modified to the minimum extent necessary to modify such scope in
order to make such provision enforceable hereunder. The Plan and any Award
documents contain the entire agreement of the parties with respect to the
subject matter thereof and supersede all prior agreements, promises, covenants,
arrangements, communications, representations and warranties between them,
whether written or oral with respect to the subject matter thereof.
(p) Awards under Preexisting Plans. Upon approval of the Plan by
shareholders of the Company as required under Section 11(r), no further awards
shall be granted under the Preexisting Plans. Outstanding awards under such
Preexisting Plans shall remain subject to the terms thereof.
(q) References to Legal and Regulatory Provisions. References in this Plan
to any provision of law, including the Code and the Exchange Act, or rule or
regulation (including accounting principles and interpretations) shall include
subsequently adopted amendments and any successor provisions, rules or
regulations.
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(r) Plan Effective Date and Termination. The Plan shall become effective
if, and at such time as, the shareholders of the Company have approved it by the
affirmative votes of the holders of a majority of the voting securities of the
Company present, or represented, and entitled to vote on the subject matter at a
duly held meeting of shareholders. Unless earlier terminated by action of the
Board of Directors, the Plan will remain in effect until such time as no Stock
remains available for delivery under the Plan and the Company has no further
rights or obligations under the Plan with respect to outstanding Awards under
the Plan.
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