SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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UNIVERSAL DISPLAY CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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UNIVERSAL DISPLAY CORPORATION
375 Phillips Boulevard
Ewing, New Jersey 08618
--------------------
NOTICE OF 2003 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 26, 2003
--------------------
Dear Shareholders:
You are cordially invited to attend our 2003 Annual Meeting of Shareholders
on June 26, 2003, at 4:00 p.m., Eastern Time, at the Holiday Inn - City Line
Avenue, 4100 Presidential Boulevard, Philadelphia, Pennsylvania 19131. We are
holding the meeting to:
(1) Elect seven members of our Board of Directors to hold one-year terms;
(2) Consider and vote on a proposal to amend and restate our Stock Option
Plan to:
o authorize the issuance of stock awards, stock appreciation rights and
performance units, in addition to the incentive and nonqualified stock
options currently authorized for issuance under the plan;
o increase from 3,800,000 to 4,600,000 the number of shares of our common
stock authorized for issuance under the plan;
o revise the provisions of the plan relating to the exercise of options
in response to Section 402 of the Sarbanes-Oxley Act of 2002, which
prohibits loans to directors and executive officers; and
o otherwise update the plan to ensure compliance with existing Federal
laws and regulations; and
(3) Transact any other business that may properly come before the
shareholders at the meeting.
If you owned shares of our common stock at the close of business on April
17, 2003, you may attend and vote at the meeting. If you cannot attend the
meeting, you may vote by mailing the enclosed proxy card in its accompanying
postage-paid envelope. Any shareholder attending the meeting may vote in
person, even if you have already returned a proxy card. A list of shareholders
eligible to vote at the meeting will be available for review at the meeting
and during our regular business hours at our headquarters in Ewing, New Jersey
for the 10 days prior to the meeting for any purpose related to the meeting.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Sidney D. Rosenblatt
--------------------------------------------------
Sidney D. Rosenblatt
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Ewing, New Jersey
April 28, 2003
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As promptly as possible, please complete, sign, date and return the enclosed
proxy card in the postage-paid return envelope provided. Please fill out and
return the proxy card whether or not you expect to attend the annual meeting
in person. If you attend the annual meeting, you may revoke your proxy and
vote your shares in person.
--------------------------------------------------------------------------------
UNIVERSAL DISPLAY CORPORATION
375 Phillips Boulevard
Ewing, New Jersey 08618
________________________
PROXY STATEMENT FOR 2003 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 26, 2003
________________________
INFORMATION CONCERNING THIS SOLICITATION
The Board of Directors of Universal Display Corporation (the "Company") is
soliciting proxies for the 2003 Annual Meeting of Shareholders to be held on
June 26, 2003, at 4:00 p.m., Eastern Time, at the Holiday Inn -- City Line
Avenue, 4100 Presidential Boulevard, Philadelphia, Pennsylvania 19131 (the
"Annual Meeting"). This proxy statement contains important information for
shareholders to consider when deciding how to vote on the matters brought
before the Annual Meeting. Please read it carefully.
At the Annual Meeting, shareholders of the Company will be asked to vote
upon:
(1) the election of seven members of the Company's Board of Directors;
(2) a proposal to amend and restate the Company's Stock Option Plan to
o authorize the issuance of stock awards, stock appreciation rights and
performance units, in addition to the incentive and nonqualified stock
options currently authorized for issuance under the plan;
o increase from 3,800,000 to 4,600,000 the number of shares of Common
Stock authorized for issuance under the plan;
o revise the provisions of the plan relating to the exercise of options
in response to Section 402 of the Sarbanes-Oxley Act of 2002, which
prohibits loans to directors and executive officers; and
o otherwise update the plan to ensure compliance with existing Federal
laws and regulations; and
(3) such other business as may properly come before the shareholders at the
Annual Meeting.
Voting materials, which include the proxy statement, a proxy card and the
Company's Annual Report for 2002, will be mailed to shareholders on or about
April 28, 2003. The Company will pay the expenses of this solicitation. In
addition to solicitation by mail, proxies may be solicited by telephone or in
person by some officers, directors and regular employees of the Company who
will not be specially engaged or compensated for such services. The Company
also will request banks, brokers and other nominees, custodians and
fiduciaries to send proxy materials to beneficial owners and will reimburse
such persons for reasonable expenses incurred in that regard.
The Company's principal executive offices are located at 375 Phillips
Boulevard, Ewing, New Jersey 08618. The Company's general telephone number is
(609) 671-0980.
VOTING AT THE ANNUAL MEETING
The Board of Directors has set April 17, 2003 as the record date for the
Annual Meeting (the "Record Date"). As of the Record Date, there were
outstanding for the Company: 21,864,003 shares of Common Stock; 200,000 shares
of Series A Nonconvertible Preferred Stock; and 150,000 shares of Series B
Convertible Preferred Stock. Each holder of the Company's Common Stock or
Series A Nonconvertible Preferred Stock is entitled to one vote per share on
all matters to be voted on at the Annual Meeting. Holders of the Series B
Convertible Preferred Stock are entitled to a total of 246,809 votes on each
matter to be voted on at the Annual Meeting, this being one vote for each
share of the Company's Common Stock into which the Series B Convertible
Preferred Stock is convertible on the Record Date. Holders of the Company's
Common Stock, Series A Nonconvertible Preferred Stock and Series B Convertible
Preferred Stock vote together as a single class on all matters.
Only shareholders of record as of the close of business on the Record Date
may attend and vote at the Annual Meeting. The presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes that
all shareholders are entitled to cast on a particular matter to be acted upon
at the Annual Meeting will
constitute a quorum for purposes of that matter. Shareholders of record who
are present at the Annual Meeting, in person or by proxy, will be considered
present for quorum purposes, whether or not they abstain from voting or fail
to vote on any particular matter. Thus, shares held by brokers that have not
received instructions from their customers on one or more matters, and that
have so notified the Company on a proxy form in accordance with industry
practice or have otherwise advised the Company that they lack voting authority
with respect to such matters (referred to in this proxy statement as
"uninstructed shares"), will be considered present for quorum purposes with
respect to such matters. Votes that could have been cast on the matter in
question by brokers with respect to uninstructed shares if they had received
their customers' instructions are referred to in this proxy statement as
"broker non-votes."
The persons named in the enclosed proxy will vote the shares represented by
each properly executed proxy as directed therein. In the absence of such
direction on a properly executed proxy card, the persons named in the enclosed
proxy will vote FOR the persons nominated by the Board of Directors for
election as directors and FOR the proposal to amend and restate the Stock
Option Plan for the Company. As to other items of business that may properly
be presented at the Annual Meeting for action, the persons named in the
enclosed proxy will vote the shares represented by the proxy in accordance
with their best judgment.
A shareholder may revoke his or her proxy at any time before its exercise by
giving written notice of such revocation to the Secretary of the Company. In
addition, a shareholder who gives such notice of revocation and attends the
Annual Meeting in person may vote by ballot at the Annual Meeting.
The preliminary voting results will be announced at the Annual Meeting. The
final results will be published in the Company's quarterly report on Form 10-Q
for the quarter ending on June 30, 2003.
Your proxy vote is important. Please complete, sign and return the
accompanying proxy whether or not you plan to attend the Annual Meeting. If
you plan to attend the Annual Meeting to vote in person and your shares are
registered with the Company's transfer agent in the name of a broker, bank or
other custodian, nominee or fiduciary, you must secure a proxy from that
person or entity assigning you the right to vote your shares of Common Stock.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of directors at seven, all of
whom are to be elected at the Annual Meeting. Each director elected will serve
until the Company's 2004 annual meeting of shareholders and such time as a
successor has been selected and qualified, or until the director's earlier
death, resignation or removal. Each nominee has consented to being nominated
and to serve if elected. If any nominee should subsequently decline or be
unable to serve, the persons named in the proxy will vote for the election of
such substitute nominee as shall be determined by them in accordance with
their best judgment.
Pursuant to the Company's Amended and Restated Articles of Incorporation,
the holders of the Company's Series A Nonconvertible Preferred Stock have been
entitled, since the Company's initial public offering in 1996, to nominate and
elect two of the members of the Board of Directors. The holders of the Series
A Nonconvertible Preferred Stock have waived this right with respect to each
past election of directors, and have again waived this right with respect to
the election of directors at the Annual Meeting.
All nominees are presently directors of the Company whose terms expire at
the Annual Meeting. The nominees for election are as follows:
NOMINEES FOR ELECTION AS DIRECTORS
Year First Became Director,
Name of Director Age Principal Occupations and Certain Directorships
----------------
---- -------------------------------------------------------------------------------
Sherwin I. Seligsohn ..................... 67 Mr. Seligsohn has been Chairman of the Board and Chief Executive Officer of the
Company since the Company's inception. He founded and was President of the
Company until May 1996. In addition, Mr. Seligsohn founded and since has served
as sole Director, Chairman, President and Secretary of American Biomimetics
Corporation ("ABC"), International Multi-Media Corporation ("IMMC"), and
Wireless Unified Network Systems Corporation ("WUNS"). He is also Chairman and
Chief Executive Officer of Global Photonic Energy Corporation ("Global"). From
June 1990 to October 1991, Mr. Seligsohn was Chairman Emeritus of InterDigital
Communications, Inc. ("InterDigital"), formerly International Mobile Machines
Corporation. Mr. Seligsohn was the founder of InterDigital and from August 1972
to June 1990 served as its Chairman. Mr. Seligsohn is a member of the Advisory
Board of the Advanced Technology Center for Photonics and Optoelectronic
Materials (POEM) at Princeton University.
Steven V. Abramson ....................... Mr. Abramson joined the Company as President and Chief Operating Officer in May
1996 and has been a member of the Board of Directors since May 1996. He is also
a member of the Board of Directors of Global and a consultant to Global. From
March 1992 to May 1996, he was Vice President, General Counsel, Secretary and
Treasurer of Roy F. Weston, Inc., a worldwide environmental consulting and
engineering firm. From 1982 to 1991 he was employed by InterDigital, where he
held various positions, including General Counsel, Executive Vice President and
General Manager of the Technology Licensing Division. Mr. Abramson is a member
of the Advisory Board of the Advanced Technology Center for Photonics and
Optoelectronic Materials (POEM) at Princeton University and is a member of the
Board of Governors of the United States Display Consortium. Mr. Abramson also
sits on the Boards of Directors of various non-profit organizations.
3
Year First Became Director,
Name of Director Age Principal Occupations and Certain Directorships
----------------
---- -------------------------------------------------------------------------------
Sidney D. Rosenblatt ..................... 55 Mr. Rosenblatt has been Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company since June 1995, and has been a member
of the Board of Directors since May 1996. Mr. Rosenblatt is also Executive Vice
President, Chief Financial Officer, Secretary and Treasurer of Global, and a
member of its Board of Directors. Mr. Rosenblatt is the owner of and served as
the President of S. Zitner Company from August 1990 through December 1998. From
May 1982 to August 1990, Mr. Rosenblatt served as the Senior Vice President,
Chief Financial Officer and Treasurer of InterDigital. Mr. Rosenblatt also sits
on the Boards of Directors of various non-profit organizations.
Leonard Becker ........................... 79 Mr. Becker has been a director of the Company since February 2001. For the last
40 years, Mr. Becker has been a general partner of Becker Associates, which is
engaged in real estate investments and management. He currently serves on the
Board of Directors of American Business Financial Services, Inc. (Nasdaq:
"ABFI"). He previously served as a director of Eagle National Bank and Cabot
Medical Corporation.
Elizabeth H. Gemmill ..................... 57 Ms. Gemmill has been a director of the Company since April 1997. Since March
1999, she has been Managing Trustee and, more recently, President of the
Warwick Foundation. From February 1988 to March 1999, Ms. Gemmill was Vice
President and Secretary of Tasty Baking Company. Ms. Gemmill is Chairman of the
Board of Philadelphia University and serves on the Boards of Directors of
Philadelphia Consolidated Holdings Corporation (Nasdaq: "PHLY"), Philadelphia
College of Osteopathic Medicine and Metropolitan YMCA of Philadelphia and
vicinity. Ms. Gemmill served on the Board of Directors of American Water Works
Company, Inc. (NYSE: "AWK") until it was sold on January 10, 2003.
C. Keith Hartley ......................... 60 Mr. Hartley has been a director of the Company since September 2000. Since June
2000, he has been the President of Hartley Capital Advisors, merchant bankers.
From August 1995 to May 2000, he was the managing partner of Forum Capital
Markets LLC, an investment banking company. In the past, Mr. Hartley held the
position of managing partner for Peers & Co. and Drexel Burnham Lambert, Inc.
He also serves as a director of Hybridon, Inc. ("HYBN.OB") and Swisher
International Group, Inc.
Lawrence Lacerte ......................... 50 Mr. Lacerte has been a director of the Company since October 1999. Since July
1998 he has been Chairman and Chief Executive Officer of Lacerte Technology
Inc., a company specializing in technology and Internet-related ventures. Prior
to that time he was the founder, Chairman and CEO of Lacerte Software Corp.,
which was sold to Intuit Corporation in June 1998. Mr. Lacerte also serves on
various not-for-profit Boards of Directors.
Vote Required and Board Recommendation
Directors are elected by a plurality and the seven nominees who receive the
most votes will be elected. Shareholders may vote for or withhold their vote
from each nominee, such that abstentions are not relevant to this
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proposal. Broker non-votes will not be considered votes "cast" with respect to
this proposal and, therefore, will have no effect on the outcome of the
election of directors. Shareholders do not have cumulative voting rights with
regard to the election of members of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE NOMINEES FOR DIRECTOR.
General Information Concerning the Board of Directors and its Committees
The Board of Directors held six meetings during 2002. In 2002, each
incumbent director attended at least 75% of the aggregate of: (i) the total
number of meetings of the Board of Directors during the period for which he or
she was a director, and (ii) the total number of meetings held by all
committees of the Board of Directors on which he or she served. The Board of
Directors has established an Audit Committee and a Compensation Committee. The
Board of Directors has not established a nominating committee.
Members of the Board of Directors do not receive cash compensation. However,
once a year, they do receive options to purchase shares of the Company's
Common Stock for service on the Board of Directors, exercisable at a price
equal to the fair market value of the Common Stock on the date of the grant.
In 2002, non-employee members of the Board of Directors received options to
purchase 25,000 shares of Common Stock and employee board members received
options to purchase 10,000 shares of Common Stock.
Audit Committee
The Audit Committee's role includes the oversight of the quality of the
Company's financial statements and of its compliance with legal and regulatory
requirements, the appointment, compensation and oversight of the Company's
independent auditors, including conducting a review of their independence,
reviewing and approving the planned scope of the Company's annual audit,
overseeing the independent auditors' audit work, reviewing and pre-approving
any non-audit services that may be performed by them, reviewing with
management and the Company's independent auditors the adequacy of the
Company's internal financial controls, and reviewing the Company's critical
accounting policies and the application of accounting principles.
The Audit Committee is currently composed of four non-employee directors,
all of whom are all independent directors as defined under Rule 4200(a)(15) of
the National Association of Securities Dealers' (NASD) listing standards. The
Audit Committee also contains at least one member who is an "audit committee
financial expert" as defined by the SEC.
The Audit Committee held four meetings during 2002. In addition, the Audit
Committee meets periodically with the Company's principal financial and
accounting officer and independent public accountants to review the scope of
auditing procedures and the Company's policies related to internal auditing
and accounting procedures and controls.
Compensation Committee
The Compensation Committee recommends to the Board of Directors the
compensation of the Company's Chief Executive Officer, Chief Operating Officer
and Chief Financial Officer, reviews and takes action on the recommendations
of the Chief Operating Officer as to the appropriate compensation for other
officers of the Company, reviews other compensation and personnel development
matters generally and oversees administration of the Company's equity
compensation program. The Compensation Committee held one meeting during 2002.
5
PROPOSAL 2
AMENDMENT AND RESTATEMENT OF THE COMPANY'S STOCK OPTION PLAN
The Board of Directors approved amendments to and a restatement of the
Company's 1995 Stock Option Plan (the "Plan") on April 24, 2003, subject to
approval by the Company's shareholders. The amended and restated Plan differs
from the current Plan in the following material respects:
o by authorizing the issuance of stock awards, stock appreciation rights
and performance units, in addition to the incentive and nonqualified
stock options currently authorized for issuance under the Plan;
o by increasing from 3,800,000 to 4,600,000 the number of shares of
Common Stock authorized for issuance under the Plan;
o by revising the provisions of the Plan relating to the exercise of
options in response to Section 402 of the Sarbanes-Oxley Act of 2002,
which prohibits loans to directors and executive officers; and
o by otherwise updating the Plan to ensure compliance with existing
Federal laws and regulations.
The Board of Directors has determined that the amended and restated Plan is
in the best interest of the Company. The Board of Directors believes that the
Company must offer a competitive equity compensation program if it is to
continue to successfully attract and retain the most qualified candidates as
employees, directors and consultants. The Board of Directors expects that the
amended and restated Plan will be an important factor in attracting and
retaining the high caliber personnel essential to the Company's success and in
motivating these individuals to strive to enhance the Company's growth and
profitability. The opportunity to acquire an equity interest in the Company
will align the economic interests of these individuals with those of other
shareholders, thereby benefiting all of the Company's shareholders.
Vote Required and Board Recommendation
This proposal will be approved if a majority of the votes cast by all
shareholders, voting as a single class, are FOR approval. Abstentions on this
proposal will have the effect of a negative vote because they will be
considered votes "cast" other than FOR approval. However, broker non-votes
will not be considered votes "cast" with respect to this proposal and,
therefore, will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
ADOPTION OF THIS PROPOSAL.
Description of the Amended and Restated Plan
The material features of the Plan, as amended and restated, are summarized
below. This summary is qualified in its entirety by the actual text of the
Plan. A copy of the amended and restated Plan was filed with the SEC as an
appendix to this proxy statement and can be obtained from the Company upon
request.
General
The Plan originally became effective on September 1, 1995. The Plan
currently provides that grants may be in the form of only incentive stock
options or nonqualified stock options (incentive stock options and
nonqualified stock options collectively referred to below as "options"). The
amended and restated Plan would additionally permit grants in the form of
stock awards, stock appreciation rights and performance units. To reflect
this, the amended and restated Plan would be renamed the Universal Display
Corporation Equity Compensation Plan.
Administration
The Plan is to be administered and interpreted by the Board of Directors, or
a committee consisting of two or more persons all of whom are "non-employee
directors" as defined under the Securities Exchange Act of 1934, as amended
(the Board or such committee referred to below as the "Committee"). The
Committee has the sole authority to:
o determine the individuals to whom grants will be made,
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o determine the type, size and terms of the grants,
o determine when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
vesting and the acceleration of vesting,
o amend the terms of any previously issued grants, and
o deal with any other matters arising under the Plan.
The Board of Directors retains the ability to ratify or approve any grants as
it deems appropriate, and the Board of Directors shall approve and administer
all grants made to non-employee directors.
Eligibility for Participation
All employees, all non-employee directors, and all consultants whose
services, in the judgment of the Committee, can have a significant effect on
the long-term success of the Company, are eligible to participate in the Plan.
Shares Authorized Under the Plan
The Plan currently authorizes the issuance of up to 3,800,000 shares of the
Company's Common Stock. Under the amended and restated Plan, this amount would
be increased by an additional 800,000 shares, to a total of 4,600,000 shares.
If any options or stock appreciation rights granted under the Plan terminate,
expire or are canceled, forfeited, exchanged or surrendered without having
been exercised, or if any grants of restricted stock or performance units are
forfeited, the shares subject to such grants will again be available for
issuance under the Plan.
Types of Awards
Stock Options
The Committee may grant options intended to qualify as incentive stock
options ("ISOs") within the meaning of section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or nonqualified stock options ("NQSOs")
that are not intended to qualify as such. NQSOs may be granted to anyone
eligible to participate in the Plan, but ISOs may be granted only to employees
of the Company. Furthermore, to the extent that the aggregate fair market
value of the Common Stock on the date of the grant with respect to which ISOs
are exercisable for the first time by an individual grantee during any
calendar year exceeds $100,000, then such option as to the excess shall be
treated as a NQSO.
The terms of any option grant under the Plan are determined by the Committee
and are set forth in a grant letter to the individual. In particular, the
Committee will determine and specify in the grant letter the period during
which the options are exercisable, subject to the limitation that all options
must be exercised within 10 years of the date of grant, and the exercise price
per share of Common Stock subject to the option, though generally the price
will be equal to the fair market value of the Common Stock on the date of
grant. If, however, the grantee of an ISO is a person who holds more than 10%
of the total combined voting power of all classes of stock of the Company or
its subsidiary, the exercise period cannot exceed five years and the exercise
price cannot be less than 110% of the fair market value of the Common Stock on
the date of grant. In addition, the maximum aggregate number of shares of
Common Stock that may be granted as options or stock appreciation rights under
the Plan to any individual during each calendar year is 400,000 shares, which
amount is subject to adjustment under limited circumstances specified in the
Plan.
The exercise price for any option granted under the Plan is payable by one
or a combination of the following methods:
o in cash;
o with the approval of the Committee, by delivering shares of the
Company's Common Stock owned by the grantee (including shares acquired
in connection with the exercise of the option) having a fair market
value on the date of exercise equal to the option exercise price;
7
o if, as directed by the Committee, the shares acquired may not be sold
immediately following exercise of the option, with the proceeds of a
promissory note payable by the grantee to the Company, but only in
accordance with a Company loan program and only to the extent not
precluded by the Sarbanes-Oxley Act of 2002 or other applicable law;
o by payment through a broker in accordance with procedures permitted by
applicable Federal Reserve Board regulations; or
o by such other method as the Committee may approve.
In lieu of exercising an option, the Committee, in its sole discretion, may
permit the grantee to transfer the option to the Company in exchange for a
cash payment equal to the excess over the exercise price of the then-fair
market value of the shares of Common Stock subject to the option.
Stock Awards
The Committee may grant shares of Common Stock to individuals eligible to
participate in the Plan under such restrictions and other conditions as the
Committee determines are appropriate. These restrictions and other conditions
may lapse or be triggered over a period of time or according to such other
criteria as are specified by the Committee. In addition, the Committee may
require that grantees pay consideration for the shares awarded to them. Unless
the Committee determines otherwise, during any restriction period, the grantee
will have the right to vote the restricted shares and to receive any dividends
or other distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
Stock Appreciation Rights
The Committee may grant stock appreciation rights ("SARs") to individuals
eligible to participate in the Plan under such vesting conditions and other
restrictions as the Committee determines are appropriate. SARs may be granted
in tandem with, or separately from, any options granted under the Plan, except
that SARs granted in tandem with ISOs may be granted only at the time of grant
of the ISO. The Committee establishes the base amount of each SAR, which
generally will equal the per share exercise price of any related options or,
if there are no related options, the fair market value of the Common Stock on
the date of grant. Upon exercise of a SAR, the grantee will receive an amount
equal to the excess of the fair market value of the Common Stock on the date
of exercise over the base amount. Such amount will be paid in cash, in shares
of Common Stock or a combination of the two, as determined by the Committee.
Performance Units
The Committee may grant performance units to individuals eligible to
participate in the Plan. Each performance unit provides the grantee with the
right to receive an amount based on the value of the performance unit, which
is determined by the Committee, if performance goals established by the
Committee are met. Performance units are based on the fair market value of the
Company's Common Stock or such other measurement base as the Committee deems
appropriate. The Committee determines the number of performance units that
will be granted, the requirements applicable to these units, the performance
period during which performance will be measured, the performance goals
applicable to the performance units, and such other conditions as the
Committee deems appropriate. The applicable performance goals may relate to
the financial performance of the Company or its operating units, the
performance of the Common Stock, the grantee's performance, or such other
criteria as the Committee deems appropriate. At the end of the performance
period, the Committee determines the extent to which the performance goals and
other conditions of the performance units have been met, the value of the
performance units and the amount, if any, to be paid with respect to such
performance units. Payments with respect to performance units are made in
cash, in shares of Common Stock, or a combination of the two, as determined by
the Committee.
Qualified-Performance Compensation
The Plan permits the Committee to determine that stock awards or performance
units granted to an employee are "qualified performance-based compensation"
under Section 162(m) of the Code. To do this, the Committee will establish in
writing the objective performance goals that must be met, the performance
period during which these goals must be met, the threshold, target and maximum
amounts that may be paid if the
8
performance goals are met, and any other conditions that the Committee deems
appropriate and consistent with the Plan and Section 162(m) of the Code. The
performance goals will be established before the beginning of the performance
period, or shortly thereafter, and will be based on one or more of the
following criteria: stock price, earnings per share, net earnings, operating
earnings, return on assets, shareholder return, return on equity, growth in
assets, unit volume, sales, market share, or strategic business criteria
consisting of one or more objectives based on meeting specified revenue goals,
market penetration goals, geographic business expansion goals, cost targets or
goals relating to acquisitions or divestitures.
If stock awards or performance units measured with respect to the Company's
Common Stock are granted, not more than 400,000 shares may be granted to any
employee for each performance period. If performance units measured with
respect to cash are granted, the maximum amount that may be paid to any
employee with respect to each performance period is $1,000,000. The Committee
will certify and announce the results for each performance period to all
grantees immediately following announcement of the Company's financial results
for the period. If and to the extent the Committee does not certify that the
performance goals have been met, the grant of stock awards or performance
units for the performance period will be forfeited or not made, as applicable.
Change in Control
In the event of any change in control of the Company where the Company (i)
sells or exchanges all or substantially all of its assets, (ii) is dissolved
or liquidated, or (iii) is a party to a merger or consolidation with another
corporation in which the Company will not be the surviving entity, the Company
will give each grantee of any outstanding options or SARs at least 10 days'
prior written notice of such event. Each of these grantees will have the
right, within 10 days after such notice is sent by the Company, to exercise,
in full, the outstanding options, or require that the Company make a cash
payment to the grantee equal to the amount by which the fair market value of
the Company's Common Stock exceeds the applicable exercise price. In addition,
in the event of a change in control as described above all restrictions on
stock awards will lapse, all options and SARs will become fully vested and
exercisable, and all Performance Units will be deemed fully earned.
In the event of any other change in control of the Company, the Committee
may, in its sole discretion, elect to give each grantee of any outstanding
options or SARs written notice of such event. If such notice is given, each of
these grantees will have the right, within 10 days after such notice is sent
by the Company, to exercise some or all of the outstanding options, or require
that the Company make a cash payment to the grantee equal to the amount by
which the fair market value of the Company's Common Stock exceeds the
applicable exercise price. In addition, in the event of such a change in
control the Board of Directors may determine that all restrictions on stock
awards will lapse, all SARs will become fully vested and exercisable, and all
Performance Units will be deemed fully earned.
As used in the Plan, a "change in control" of the Company would include:
o any transaction whereby any person (other than a shareholder of the
Company at the time the Plan became effective) becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing more than 50% of the Common Stock of the Company or the
combined voting power of the Company's then-outstanding securities;
o any liquidation or dissolution of the Company, or any sale of all or
substantially all of the Company's assets;
o any tender offer, stock purchase, other stock acquisition, merger,
consolidation, recapitalization, reverse split, or sale or transfer of
assets (other than through a public offering) whereby any person or
group (other than an existing shareholder) becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing more than 30% of the combined voting power of the
Company's then-outstanding securities; and
o any situation in which the individuals who constitute the Board of
Directors of the Company at the beginning of any two-year period cease
for any reason to constitute at least a majority of the Board of
Directors, unless each of the new directors was approved by a vote of
at least two-thirds of the directors then-still in office who were
directors at the beginning of the period.
9
Amendment and Termination of the Plan
The Board of Directors may amend or terminate the Plan at any time;
provided, however, that, with limited exceptions, any amendment that increases
the aggregate number (or individual limit for any single grantee) of shares of
Common Stock that may be issued or transferred under the Plan is subject to
shareholder approval. Unless terminated earlier by the Board of Directors, or
extended by the Board of Directors with shareholder approval, the Plan will
terminate on September 1, 2005. A termination or amendment of the Plan that
occurs after an award is granted may not materially impair the rights of the
grantee unless the grantee consents or the change is required by applicable
law.
Effect of Termination
If an employee of the Company who has been granted options or SARs ceases to
be employed by the Company for any reason other than death, disability,
retirement approved by the Company or termination for cause, any options or
SARs that are otherwise exercisable by such person shall terminate unless
exercised within three months of the date on which the person ceases to be an
employee, except as may be specified otherwise in the applicable grant letter
or as the Committee may otherwise provide. If the person ceases to be an
employee of the Company on account of his or her disability, this exercise
period is extended to one year. If the person ceases to be an employee of the
Company on account of his or her death, either while an employee of the
Company or within 30 days thereafter, this exercise period is extended to six
months. Should a person cease being an employee of the Company on account of a
termination for cause, any options or SARs held by such person shall terminate
on the date he or she ceases to be an employee, unless the Committee provides
otherwise.
If any non-employee director or consultant of the Company who has been
granted options or SARs ceases to be a non-employee director or consultant for
any reason other than becoming an employee of the Company, or termination for
cause, any options or SARs that are otherwise exercisable by such person shall
not terminate until the date of expiration of the option exercise period
specified in the applicable grant letter, except as the Committee may
otherwise provide. Should a person cease being a non-employee director or
consultant of the Company on account of a termination for cause, any options
or SARs held by such person shall terminate on the date he or she ceases to be
a non-employee director or consultant, unless the Committee provides
otherwise.
Plan Grants and Benefits
As of April 17, 2003, options to purchase 3,066,499 shares of the Company's
Common Stock were outstanding and 553,437 shares remained available for
issuance under the Plan. Assuming approval of this proposal, 1,353,437 shares
will be available for future grant under the Plan. At present, no stock
awards, SARs or performance units have been granted or remain outstanding
under the Plan.
Future awards under the Plan are not determinable because specific awards
will be made at the discretion of the Committee, depending upon a variety of
factors. For information concerning awards made under the Plan to the
Company's Chief Executive Officer and other executive officers, see the
"Summary Compensation Table" below. The following table sets forth additional
information with respect to the Plan for the year ended
December 31, 2002:
Number of Options Granted Number of Persons Eligible
Group under the Plan for Grants under the Plan
----- ------------------------- --------------------------
All executive
officers as a group. 150,500 4
All directors not
executive officers
as a group.......... 100,000 4
All employees, as a
group, excluding
directors
and executive
officers............ 234,480 36
As listed on the Nasdaq National Market, the last sales price of the
Company's Common Stock on April 17, 2003 was $8.93 per share.
10
Summary of Federal Income Tax Consequences of the Plan
The following is a brief description of the U.S. federal income tax
consequences generally arising with respect to grants that may be awarded
under the Plan. This discussion is intended for the information of our
shareholders considering how to vote at the Annual Meeting and not as tax
guidance to individuals who participate in the Plan.
The grant of an ISO or NQSO will create no tax consequences for the
participant or the Company. A participant will not recognize taxable income
upon exercising an ISO (except that the alternative minimum tax may apply),
and the Company will receive no deduction at that time. Upon exercising an
NQSO, the participant generally must recognize ordinary income equal to the
difference between the exercise price and the fair market value of the freely
transferable and non-forfeitable shares received. The Company will be entitled
to a deduction equal to the amount recognized as ordinary income by the
participant.
A participant's disposition of shares acquired upon the exercise of an
option generally will result in capital gain or loss measured by the
difference between the sale price and the participant's tax basis in such
shares. The participant's basis in an NQSO is equal to the aggregate of the
exercise price paid and the amount the participant recognized as ordinary
income upon the exercise of the option. The participant's basis in shares
acquired by exercise of an ISO and held for the applicable holding period (a
period of at least one year from the date the ISO was exercised and two years
from the ISO date of grant) is the exercise price of the ISO. Generally, there
will be no tax consequences to the Company in connection with a disposition of
shares acquired under a stock option, except that the Company will be entitled
to a deduction (and the participant will recognize ordinary income) if shares
acquired upon exercise of an ISO are disposed of before the applicable ISO
holding periods have been satisfied.
With respect to the grant of stock awards that are restricted as to
transferability and subject to a substantial risk of forfeiture, the
participant generally must recognize ordinary income equal to the fair market
value of the shares received at the time that the shares become transferable
or are not subject to a substantial risk of forfeiture, whichever occurs
earlier. 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 such restricted shares rather than
upon the lapse of the restriction on transferability or substantial risk of
forfeiture, but if the participant subsequently forfeits the shares, the
forfeiture will be treated as a sale or exchange upon which is realized a loss
equal to the excess (if any) of the amount paid (if any) for such property
over the amount realized (if any) upon such forfeiture, and if such property
is a capital asset in the hands of the participant, such loss will be a
capital loss. Any such election must be made and filed with the Internal
Revenue Service within 30 days after receipt of the shares. A participant's
disposition of shares after the restrictions lapse will result in capital gain
or loss measured by the difference between the sale price and the
participant's tax basis in such shares.
The grant of an SAR or performance unit will not result in income for the
participant or in a tax deduction to the Company. Upon the exercise of an SAR
or the receipt of payment for a performance unit, the participant will
recognize ordinary income in an amount that equals the fair market value of
any shares and/or cash received, and the Company will be entitled to a tax
deduction in the same amount. A participant's disposition of shares received
upon exercise of an SAR or meeting the performance goals for a performance
unit will result in capital gain or loss measured by the difference between
the sale price and the participant's tax basis in such shares.
Section 162(m) of the Code generally disallows a public corporation's tax
deduction for compensation paid to its chief executive officer or any of its
four other most highly compensated officers in excess of $1,000,000 in any
year. Compensation that qualifies as "performance-based compensation" is
excluded from the $1,000,000 deductibility cap, and therefore remains fully
deductible by the corporation that pays it. The Company intends that options
and SARs having an exercise price or base amount equal to the fair market
value the Company's Common Stock will be qualified performance-based
compensation. Although the Company intends that its grants of stock awards and
performance units, the receipt of which are conditioned upon achievement of
performance goals based upon the criteria set forth above, will be qualified
performance-based compensation, such grants may not always meet these
requirements.
11
Equity Compensation Plans
The following table includes information on the Company's equity
compensation plans, both those approved and not approved by shareholders, as
of December 31, 2002.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
to be issued upon Weighted average
exercise of exercise price of Number of securities
outstanding options outstanding options remaining available for
Plan Category and rights and rights future issuance
------------- -------------------- ------------------- -----------------------
Equity compensation plans
approved by security holders 3,013,999 $7.25 605,937
Equity compensation plans not
approved by security holders(1) 1,727,775 $8.28 --
Total 4,741,774 $7.63 605,937
_______________
(1)
Consists of warrants granted to the Company's directors and officers, other
employees and consultants of the Company, members of the Company's Scientific
Advisory Board, and PPG Industries, Inc. under a Development and License
Agreement between the Company and PPG Industries. These warrants have exercise
prices ranging from $4.125 to $24.28 per share and are exercisable over seven
to 10 year periods ending from 2006 to 2010.
12
PRINCIPAL SHAREHOLDERS
Beneficial Ownership of the Company's Common Stock
The following table sets forth, as of April 17, 2003, certain information
regarding the beneficial ownership of shares of Common Stock by:
o each director of the Company;
o each person who is known by the Company to beneficially own 5% or more
of the outstanding shares of Common Stock;
o each executive officer of the Company named in the Summary
Compensation Table included elsewhere herein; and
o all of the Company's executive officers and directors as a group.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Amount and Nature of Percentage
Name and Address of Beneficial Owner (1) Beneficial Ownership(2) of Common Stock(2)
---------------------------------------- ----------------------- ------------------
Scott Seligsohn(3)(4) 3,542,250 16.01%
Lori S. Rubenstein(3)(4) 3,301,000 15.10
Clifford D. Schlesinger(3) 3,000,000 13.72
Sherwin I. Seligsohn(5) 493,000 2.22
Steven V. Abramson 595,000 2.66
Sidney D. Rosenblatt 561,790 2.52
Julia J. Brown 273,250 1.23
Leonard Becker 105,000 *
Elizabeth H. Gemmill 70,500 *
C. Keith Hartley 82,528 *
Lawrence Lacerte 752,210 3.43
All directors and current
executive officers as a
group (8 persons) 2,933,278 12.37
Cavallo Capital Corp.(6) 1,720,199 7.61
PPG Industries, Inc.(7) 1,131,088 5.06
_______________
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is 375
Phillips Boulevard, Ewing, New Jersey 08618.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. The percentage ownership for
each beneficial owner listed above is based on 21,864,003 shares of Common
Stock outstanding as of April 17, 2003. In accordance with SEC rules,
options to purchase shares of Common Stock that are exercisable as of April
17, 2003, or will become exercisable within 60 days thereafter, are deemed
to be outstanding and beneficially owned by the person holding such options
for the purpose of computing such person's percentage ownership, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. The numbers of shares indicated in the table
includes the following number of shares issuable upon the exercise of
warrants or options: Scott Seligsohn -- 260,250; Sherwin I. Seligsohn --
365,000; Steven V. Abramson -- 490,000; Sidney D. Rosenblatt -- 457,500;
Julia J. Brown -- 271,250; Leonard Becker -- 55,000; Elizabeth H. Gemmill
-- 70,000; C. Keith Hartley -- 70,764; Lawrence Lacerte -- 60,000; Cavallo
Capital Corp. 744,452; and PPG Industries, Inc. 511,035.
13
(3) Includes (i) 1,500,000 shares of Common Stock owned by the Sherwin I.
Seligsohn Irrevocable Indenture of Trust dated 7/29/93 FBO Lori S.
Rubenstein (the "Rubenstein Trust"), of which Lori S. Rubenstein, Scott
Seligsohn and Clifford D. Schlesinger are co-trustees, and (ii) 1,500,000
shares of Common Stock owned by the Sherwin I. Seligsohn Irrevocable
Indenture of Trust dated 7/29/93 FBO Scott Seligsohn (the "Seligsohn
Trust"), of which Lori S. Rubenstein, Scott Seligsohn and Clifford D.
Schlesinger are co-trustees. Mr. Schlesinger's address is 1650 Arch Street,
Philadelphia, Pennsylvania 19102.
(4) Includes 176,000 shares of Common Stock owned by American Biomimetics
Corporation, of which the Rubenstein Trust and Seligsohn Trust are the
principal shareholders.
(5) Does not include (i) 176,000 shares of Common Stock owned by American
Biomimetics Corporation, (ii) 200,000 shares of Series A Nonconvertible
Preferred Stock owned by American Biomimetics Corporation, (iii) 1,500,000
shares of Common Stock owned by the Rubenstein Trust, (iv) 1,500,000 shares
of Common Stock owned by the Seligsohn Trust, (v) 125,000 shares of Common
Stock owned by Lori S. Rubenstein, Mr. Seligsohn's emancipated daughter,
and (vi) 106,000 shares of Common Stock owned by Scott Seligsohn, Mr.
Seligsohn's emancipated son, as to which in each case Mr. Seligsohn
disclaims beneficial ownership.
(6) According to information furnished in a Schedule 13G jointly filed on
December 31, 2002, by Cavallo Capital Corp., Pine Ridge Financial, Inc. and
First Investors Holding Co., Inc. Cavallo Capital Corp.'s address is 660
Madison Avenue, 18th floor, New York, NY 10021. According to this Schedule
13G, Pine Ridge Financial, Inc. and First Investors Holding Co., Inc. own
603,521 shares and 372,226 shares, respectively, of the Company's Common
Stock, and Cavallo Capital Corp. has the power to sell or vote some or all
of these shares on their behalf. The Company believes that the beneficial
ownership information reported on this Schedule 13G does not include
warrants to purchase 744,452 shares of the Company's Common Stock that were
granted to Pine Ridge Financial, Inc. and Strong River Investments, Inc. on
August 22, 2001. These warrants have been added to the figure listed in the
table above.
(7) According to information furnished in a Schedule 13G filed on February 25,
2003 by PPG Industries, Inc., One PPG Place, Pittsburgh, PA 15272.
14
EXECUTIVE MANAGEMENT COMPENSATION
CEO and Executive Officer Compensation
The following table provides information on the compensation of the
Company's Chief Executive Officer and other executive officers for services in
all capacities to the Company and its subsidiary, UDC, Inc., for the last
three fiscal years (2002, 2001 and 2000). This group is referred to in this
proxy statement as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
Other Restricted
Annual Stock Securities
Name and Compen- Award(s) Underlying LTIP All Other
Principal Position Year Salary ($) Bonus ($) sation ($) ($) Options (#)) Payouts ($)) Compensation
------------------ ---- ---------- --------- ---------- ---------- ------------ ------------ ------------
Sherwin I. Seligsohn ... 2002 $220,000 $ -- $-- $ -- 40,000 $-- $31,754(1)
Chairman of the Board 2001 $200,000 $ -- $-- $ -- 60,250 $-- $22,034(2)
and Chief Executive
Officer 2000 $137,500 $ -- $-- $ -- 15,000 $-- $16,975(3)
Steven V. Abramson ..... 2002 $266,200 $ -- $-- $ -- 40,000 $-- $17,495(4)
President and Chief
Operating 2001 $242,000 $ -- $-- $ -- 60,000 $-- $14,622(5)
Officer 2000 $220,000 $ -- $-- $ -- 15,000 $-- $12,688(6)
Sidney D. Rosenblatt ... 2002 $266,200 $ -- $-- $ -- 40,000 $-- $19,985(7)
Executive Vice
President, Chief 2001 $242,000 $ -- $-- $ -- 60,000 $-- $15,381(8)
Financial Officer,
Treasurer and 2000 $220,000 $ -- $-- $ -- 15,000 $-- $13,619(9)
Secretary
Julia J. Brown ......... 2002 $193,600 $9,072(10) $-- $25,222(11) 30,500 $-- $ 6,554(12)
Vice President, and
Chief 2001 $176,000 $ -- $-- $ -- 50,750 $-- $ 5,274(13)
Technical Officer 2000 $160,000 $ -- $-- $ -- 110,000 $-- $ 3,326(14)
---------------
(1) Includes Company contributions to the Company's 401(k) plan of $6,000,
life and disability insurance premium payments of $16,847 and vehicle
expenses of $8,907.
(2) Includes Company contributions to the Company's 401(k) plan of $5,100,
life and disability insurance premium payments of $16,420 and vehicle
expenses of $514.
(3) Includes Company contributions to the Company's 401(k) plan of $2,815 and
life and disability insurance premium payments of $13,980.
(4) Includes Company contributions to the Company's 401(k) plan of $6,000,
life and disability insurance premium payments of $3,999 and vehicle
allowance and expenses of $7,496.
(5) Includes Company contributions to the Company's 401(k) plan of $5,100,
life and disability insurance premium payments of $3,084 and vehicle
allowance and expenses of $6,438.
(6) Includes Company contributions to the Company's 401(k) plan of $4,662,
life and disability insurance premium payments of $2,026 and a vehicle
allowance of $6,000.
(7) Includes Company contributions to the Company's 401(k) plan of $6,000,
life and disability insurance premium payments of $4,824 and vehicle
allowance and expenses of $9,161.
(8) Includes Company contributions to the Company's 401(k) plan of $5,100,
life and disability insurance premium payments of $3,784 and vehicle
allowance and expenses of $6,497.
(9) Includes Company contributions to the Company's 401(k) plan of $4,662,
life and disability insurance premium payments of $2,957 and a vehicle
allowance of $6,000.
(10) Represents the payroll taxes associated with the stock bonus in note
(11), paid by the Company.
(11) On June 17, 2002, Julia J. Brown was granted 2,000 restricted shares of
the Company's Common Stock.
(12) Includes Company contributions to the Company's 401(k) plan of $5,534,
and life insurance premium payments of $1,020.
(13) Includes Company contributions to the Company's 401(k) plan of $5,040,
and life insurance premium payments of $234.
(14) Includes Company contributions to the Company's 401(k) plan of $3,326.
15
Stock Option Grants
The following table summarizes the stock options granted to the Named
Executive Officers during 2002.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------------------------------------------------------------------------
Percentage of
Number of Total Options
Securities Granted to Exercise or
Underlying Options Employees in Base Price Expiration Grant Date
Name Granted (#) Fiscal Year ($/Sh) Date Present Value (1)
---- ------------------ ------------- ----------- ---------- -----------------
Sherwin I. Seligsohn........................ 40,000 10.39% $5.45 9/23/12 $193,266
Steven. V. Abramson......................... 40,000 10.39% $5.45 9/23/12 $193,266
Sidney D. Rosenblatt........................ 40,000 10.39% $5.45 9/23/12 $193,266
Julia J. Brown.............................. 250 0.06% $9.10 4/15/12 $ 2,036
Julia J. Brown.............................. 30,000 7.79% $5.45 9/23/12 $144,950
Julia J. Brown.............................. 250 0.06% $9.94 11/18/12 $ 2,208
_______________
(1)
These amounts represent the estimated present value of the options granted on
the date of grant, calculated using the Black-Scholes option pricing model and
based upon the following assumptions: an expected volatility of approximately
94%; an expected term to exercise of 10 years; risk free interest rates of
3.70%-5.15%; and no dividend yield. The actual value of the options, if any,
realized by the grantee will depend on the extent to which the market value of
the Common Stock exceeds the exercise price of the option on the date the
option is exercised. Consequently, there is no assurance that the value
realized by any grantee will be at or near the value estimated above. These
amounts should not be used to predict stock performance.
Stock Option Exercises and Holdings
The following table summarizes the stock options held by the Named Executive
Officers as of the end of 2002. No stock options were exercised by the Named
Executive Officers during 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at FY-End (#) Options at FY-End ($) (1)
Acquired on Value --------------------------- ---------------------------
Name Exercise ($) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Sherwin I. Seligsohn ................. $-- $-- 364,750 -- $1,014,793 $--
Steven. V. Abramson .................. $-- $-- 490,000 -- $1,261,800 $--
Sidney D. Rosenblatt ................. $-- $-- 482,500 -- $1,382,313 $--
Julia J. Brown ....................... $-- $-- 271,250 -- $ 284,775 $--
______________
(1) The amount is based on positive spread between the exercise price and the
closing price of the last day of trading for fiscal 2002.
The Company currently does not grant any long-term incentives, other than
stock options and warrants, to its executive officers or other employees.
Similarly, the Company does not sponsor any defined benefit or actuarial plans
at this time. Under the amended and restated Stock Option Plan, however, the
Company would be authorized to grant incentives to its executives and other
employees in the form of stock awards, stock appreciation rights and
performance units, in addition to stock options and warrants.
16
Change in Control Agreements
In April 2003, the Company entered into Change in Control Agreements with
the Named Executive Officers (the "CIC Agreements"). The CIC Agreements
provide for certain cash payments and other benefits to the Named Executive
Officers in the event of a termination of these individuals' employment in
connection with a "Change in Control" of the Company, as defined in the CIC
Agreements. These benefits include the following:
o immediate vesting of all stock options, stock appreciation rights,
warrants, stock awards and performance units held by the individual,
whether or not restricted or subject to the satisfaction of any
performance goals or other criteria;
o a lump-sum payment equal to two times the sum of the average annual
base salary and the annual bonus to the individual, including any
authorized deferrals, salary reduction amounts and any car allowance,
and including the fair market dollar value equivalent of any bonus
amounts paid in the form of stock options, stock appreciation rights,
warrants, stock awards or performance units;
o a lump-sum payment equal to the estimated after-tax cost to the
individual of continuing any Company-sponsored life or other
insurance, travel or accident insurance and disability insurance
coverage in effect for the individual, and where applicable, his or
her spouse and dependents, for two years;
o to the extent permitted by law, the benefits to which the individual
would be entitled under the Company's long term incentive, savings and
retirement plans, assuming the individual continued working for the
Company for two years at his or her annual base salary;
o continued group hospitalization, health and dental care coverage, with
coverage equivalent to the coverage to which the individual would be
entitled if he or she continued working for the Company for two years
at his or her annual base salary;
o outplacement assistance services for two years at a total cost not to
exceed $10,000; and
o an additional payment to cover any excise tax imposed on the
individual by reason of the individual receiving the payments and
benefits specified above.
In consideration of receiving these payments and benefits, each Named
Executive Officer has agreed not to compete with the Company for six months
following his or her termination in connection with a change in control of the
Company. Each Named Executive Officer has further agreed that, for two years
following his or her termination he or she will not knowingly (i) solicit or
recruit any of the Company's employees to compete with the Company, or (ii)
divert or unreasonably interfere with the Company's business relationships
with any of its suppliers, customers, partners or joint venturers with whom
the individual had any involvement. In addition, each Named Executive Officer
is required to execute a general release of all employment-related claims he
or she may have against the Company in order to receive the payments and
benefits specified under the CIC Agreement.
As used in the CIC Agreement, a change in control of the Company would occur
if:
o any person first becomes the beneficial owner of securities of the
Company (not including securities previously owned by such persons or
any securities acquired directly from the Company) representing 30% or
more of the then-outstanding voting securities of the Company;
o the individuals who constitute the Board of Directors of the Company
at the beginning of any 24-month period cease, for any reason other
than death, to constitute at least a majority of the Board of
Directors;
o the Company consummates a merger or consolidation with any other
corporation, except where the voting securities of the Company
outstanding immediately prior to the merger or consolidation continue
to represent at least 50% of the voting securities of the Company (or
the surviving entity of the merger or consolidation or its parent), or
where no person first becomes the beneficial owner of securities of
the Company representing 30% or more of the then-outstanding voting
securities of the Company;
o the shareholders of the Company approve a plan of complete liquidation
or dissolution of the Company, or an agreement is consummated for the
sale or disposition by the Company of all or substantially all of its
assets, excluding a sale or disposition by the Company of all or
substantially all of its assets to an
17
entity, at least 50% of the voting securities of which are owned by
persons in substantially the same proportion as their ownership of the
Company immediately prior to the sale; or
o any person consummates a tender offer or exchange for a majority of
the voting securities of the Company.
As used in the CIC Agreement, a termination of a Named Executive Officer in
connection with a change in control of the Company would include a termination
of the individual's employment:
o by the Company within two years after a change in control of the
Company for the individual's death or incapacity, or for cause;
o by the individual within two years after a change in control of the
Company for (i) any significant reduction by the Company of the
individual's authority, duties or responsibilities, (ii) any demotion
or removal of the individual from his or her employment grade,
compensation level or officer positions, (iii) any requirement that
individual undertake business travel to an extent substantially
greater than is reasonable and customary for his or her position, (iv)
a relocation by more than 25 miles of the offices of the Company at
which the individual principally works, (v) the Company's breach of
the CIC Agreement, or (vi) a failure of the Company to obtain an
agreement from any successor to assume the Company's obligations under
the CIC Agreement; and
o by either the Company or the individual during the one year period
prior to a change in control of the Company, unless the Company
establishes by clear and convincing evidence that the termination was
for good faith business reasons not related to the change in control.
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee, all of whom
were members of the Compensation Committee throughout 2002, are Ms. Gemmill
and Messrs. Becker, Hartley and Lacerte. None of the members of the
Compensation Committee were officers or employees of the Company or its
subsidiary during 2002, nor are they former officers of the Company or its
subsidiary.
The Company's Chief Executive Officer and Chief Financial Officer are also
executive officers and members of the Board of Directors of Global Photonic
Energy Corporation ("Global"). In addition, the Company's Chief Operating
Officer is a consultant to Global and a member of Global's Board of Directors.
Global is a development stage basic science research company formed to fund,
design, develop, market and license intellectual property in the field of
photovoltaic and hydrogen energy technology. Global does not have a
compensation committee.
Compensation Committee Reporting
The Compensation Committee submitted the following report to the Board of
Directors on April 24, 2003.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors performs three
principal tasks. These tasks are to:
o recommend to the full Board of Directors the compensation of the
Company's Chief Executive Officer and other executive officers;
o approve the granting of any bonuses to the Company's officers; and
o generally review other compensation and personnel development matters.
In fulfilling these duties, the Compensation Committee's objective is to
enable the Company to attract, retain and reward individuals of outstanding
ability.
Compensation Policy for Executive Officers
The Compensation Committee's compensation policy for the Company's executive
officers is the same policy applicable to all of the Company's employees. Base
salary levels are intended to be generally competitive
18
with those offered by other comparable companies, taking into account such
factors as the level of responsibility involved, the need for special
expertise and the specific individual's experience and prior performance at
the Company. Stock bonuses based on individual and Company performance have
been used to create incentives for and reward outstanding performance. Equity
interests in the Company, in the form of stock options and restricted shares
of Common Stock, are believed to align the interests of these individuals with
those of the Company's shareholders.
The base salaries of the Company's executive officers are reviewed
periodically by the Compensation Committee. During this review, the
Compensation Committee considers the Company's performance during the prior
year, the individual's contribution to that performance and changes in the
roles and responsibilities of the individual.
Compensation of the Chief Executive Officer
The Company's Chief Executive Officer, Mr. Seligsohn, received an annual
base salary of $220,000 for 2002. This reflects an increase of 10% over Mr.
Seligsohn's base salary for 2001. In 2002, Mr. Seligsohn also was granted
options to purchase 40,000 shares of the Company's Common Stock and received
miscellaneous additional compensation totaling $31,754.
The Compensation Committee determined Mr. Seligsohn's base salary and other
compensation for 2002 in accordance with the general criteria outlined above.
In addition, the Compensation Committee took into account that Mr. Seligsohn
also serves as Chairman of the Board of Directors and Chief Executive Officer
of, and performs services for, other companies that he has founded. Most
notable in this regard is Global Photonic Energy Corporation, a privately-held
corporation of which Mr. Seligsohn and his family are the largest
shareholders.
Because of the compensation levels of the Company's officers, the
Compensation Committee did not consider the effect on the Company of Section
162(m) of the Internal Revenue Code of 1986, which limits deductions of
compensation to executive officers in excess of $1 million.
Respectfully submitted by the Compensation Committee
Elizabeth H. Gemmill (Chair)
Leonard Becker
C. Keith Hartley
Lawrence Lacerte
19
Performance Graph
The performance graph below compares the change in the cumulative
shareholder return of the Company's Common Stock from December 31, 1997 to
December 31, 2002, with the percentage change in the cumulative total return
over the same period on (i) the Nasdaq Electronics Components Index, and (ii)
the Russell 2000 Index. This performance graph assumes an initial investment
of $100 on December 31, 1997 in each of the Company's Common Stock, the Nasdaq
Electronics Components Index and the Russell 2000 Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG UNIVERSAL DISPLAY CORP., THE RUSSELL 2000 INDEX
AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
[PERFORMANCE GRAPH GRAPHIC OMITTED]
* $100 invested on 12/31/97 in stock or index-including reinvestment of
dividends.
Fiscal year ending December 31.
Cumulative Total Return
-----------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
UNIVERSAL DISPLAY CORP. 100.00 85.14 362.16 155.42 196.76 170.59
RUSSELL 2000 100.00 97.45 118.17 114.60 117.45 93.39
NASDAQ ELECTRONIC COMPONENTS 100.00 154.49 287.34 236.14 160.91 108.14
20
AUDIT COMMITTEE MATTERS
Charter of the Audit Committee
In April 2003, the Board of Directors revised the Charter of the Audit
Committee, the text of which is set forth below. Further amendments to the
Audit Committee Charter may be necessary or advisable once final rules have
been adopted by the SEC and the NASD based on requirements of the Sarbanes-
Oxley Act of 2002.
AUDIT COMMITTEE CHARTER
Organization
The Audit Committee of the Board of Directors of the Company shall be
comprised of at least three directors. Members of the committee shall be
appointed by the Board of Directors and may be removed by the Board of
Directors in its discretion. All members of the committee shall be
independent directors under the applicable rules of the National
Association of Securities Dealers' (NASD) listing standards, as modified or
supplemented. All members of the committee shall have sufficient financial
experience and ability to enable them to discharge their responsibilities,
and at least one member shall be an audit committee financial expert within
the meaning of SEC regulations issued under the Sarbanes-Oxley Act of 2002.
Statement of Purpose
The Audit Committee shall assist the Board of Directors in overseeing
the integrity of the Company's financial statements, of the Company's
compliance with applicable legal and regulatory requirements, of the
independence and qualifications of the independent auditor, and of the
performance of the Company's internal audit function and independent
auditors. To fulfill this purpose, it is understood that there must be free
and open communication between the directors, the independent public
accountants and financial management of the Company. It is the expectation
of the Board of Directors that the Company's financial management will
fulfill its responsibility of bringing any significant items to the
attention of the committee.
Authority and Responsibilities
In furtherance of its stated purposes, the Audit Committee shall have
the following authority and responsibilities:
1. To review the annual audited financial statements and quarterly
financial statements of the Company, and to discuss with management and
the Company's independent auditor these statements and any other matters
required to be reviewed and discussed with the committee under
applicable legal, regulatory or NASD requirements.
2. To discuss with management and the Company's independent auditor, as
appropriate, all earnings press releases, financial information and
guidance provided to analysts, rating agencies or the public.
3. To select, evaluate and, if necessary, replace the Company's independent
auditor, and to approve all audit engagement fees and terms.
4. To pre-approve, or authorize one of its members to pre-approve, all
audit and non-audit services provided to the Company, including the
scope of such services, the procedures to be utilized and the
compensation to be paid.
5. To discuss with management and the Company's independent auditor, as
appropriate, any problems or difficulties encountered with the audit or
any quarterly reviews, including management's response thereto.
6. To review with management the Company's internal audit staff functions,
including authority and organizational reporting lines, as well as the
Company's annual audit planning, budgeting and staffing decisions.
21
7. To review, with the Chief Financial Officer, the Controller, and
such other persons as the committee deems appropriate, the Company's
internal system of audit and financial controls, together with the
results of any internal audits or reviews of these controls.
8. To review the Company's financial reporting and accounting standards
and principles, significant changes in such standards and
principles, or in their application, and key accounting decisions
affecting the Company's financial statements, including alternatives
to, and the rationale for, these decisions.
9. To discuss with management and the Company's independent auditor, as
appropriate, the Company's risk assessment and risk management
policies, including the Company's major exposures to financial risk
and the steps taken by management to monitor and mitigate such
exposures.
10. To meet with the Company's independent auditors, separately from
management, at least quarterly.
11. To review all relationships between the Company's independent
auditor and the Company, and to obtain and review, at least
annually, a formal written report from the independent auditor
assessing the auditor's independence.
12. To approve the Company's hiring of employees or former employees of
the Company's independent auditor.
13. To review and approve the rotation of partners on the audit team of
the Company's independent auditor.
14. To review and investigate any matters pertaining to the integrity of
management, including any actual or potential conflicts of interest
or allegations of fraud, and the adherence of management to
standards of business conduct required by the Company's Code of
Ethics and other corporate policies.
15. To retain such outside counsel, experts and other advisors as the
committee may deem appropriate in its sole discretion, and to
approve any related fee arrangements and other terms of engagement.
16. To establish procedures for the committee's receipt and handing of
complaints from employees of the Company and others about
accounting, internal accounting control and auditing matters, which
procedures would permit employee complaints to be submitted
anonymously.
17. To report its recommendations to the Board of Directors after each
committee meeting, and to conduct and present to the Board of
Directors an annual performance evaluation of the committee.
18. To prepare and publish an annual committee report in the Company's
proxy statement.
19. To review and reassess, at least annually, the adequacy of this
charter and recommend any proposed changes to the Board of Directors
for approval.
20. To confirm that a copy of this Charter is included as an appendix to
the Company's proxy statement at least once every three years.
22
Audit Committee Reporting
The Audit Committee submitted the following report to the Board of Directors
on April 24, 2003.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with management the audited
financial statements of the Company for the fiscal year ended December 31,
2002. In addition, the Audit Committee has discussed with the Company's
independent auditors, KPMG LLP, the matters required to be discussed by
Statement on Auditing Standards No. 61 (Codification of Statements on Auditing
Standards, AU 1 380). The Audit Committee also has received the written
disclosures and the letter from KPMG LLP required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and has discussed the independence of KPMG LLP with that firm.
Based on the Audit Committee's review of the matters noted above and its
discussions with management and the Company's independent auditors, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
period ended December 31, 2002.
Respectfully submitted by the Audit Committee
Elizabeth H. Gemmill (Chair)
Leonard Becker
C. Keith Hartley
Lawrence Lacerte
23
INFORMATION REGARDING INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected KPMG LLP ("KPMG") as the Company's
independent auditors for 2003. KPMG audited the Company's financial statements
for 2002 after having been engaged by the Company on July 30, 2002. The
Company selected KPMG, upon recommendation of the Audit Committee, to replace
the Company's prior auditors, Arthur Andersen LLP ("Andersen"), who were
dismissed on July 30, 2002.
The Company expects that a representative of KPMG will be present at the
Annual Meeting and will be available to respond to appropriate questions. If
this representative desires to do so, he or she will have the opportunity to
make a statement at the Annual Meeting.
Disagreements with Accountants on Accounting and Financial Disclosure
Andersen's reports on the Company's consolidated financial statements for
the years ended December 31, 2001 and 2000 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
December 31, 2001 and 2000 and through the date of dismissal of Andersen,
there were no disagreements with Andersen on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
Andersen to make reference to the subject matter of the disagreement in
connection with its report on the Company's consolidated financial statements
for such years.
The Company provided Andersen with the foregoing disclosures and requested
Andersen to furnish a letter addressed to the Securities and Exchange
Commission stating whether it agrees with the above statements. While the
Company has received no information from Andersen that Andersen has a basis
for disagreement with such statements, the Company has been unable to obtain
such a letter due to the fact that the personnel primarily responsible for the
Company's account (including the engagement partner and manager) have left
Andersen.
Following its appointment on July 30, 2002, and through the date of this
report, there were no disagreements with KPMG on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure which, if not resolved to KPMG's satisfaction, would have caused
KPMG to make reference to the subject matter of the disagreement in connection
with its report on the Company's consolidated financial statements for such
period.
Fees Billed by the Company's Auditors
The audit fees billed to the Company by Andersen and KPMG for 2001 and 2002
are set forth in the table below:
Fee Category Arthur Andersen LLP KPMG LLP
------------ --------------------- ---------------------
2001 2002 2001 2002
Audit Fees(1) $60,000 $-- $-- $91,000
Audit-Related Fees(2) $ -- $-- $-- $ --
Tax Fees(3) $ -- $-- $-- $ --
All Other Fees(4) $77,000 $-- $-- $40,850
_______________
(1) Audit Fees include the aggregate fees for professional services rendered
for the audit of the Company's annual financial statements and review of
financial statements included in the Company's For 10-K and Form 10-Q,
including services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for the
years in question.
24
(2) Audit-Related Fees include the aggregate fees for assurance and related
services that are reasonably related to the performance of the audit or
review of the Company's financial statements and are not reported as Audit
Fees.
(3) Tax Fees include the aggregate fees for professional services rendered for
tax compliance, tax advice and tax planning.
(4) All Other Fees includes the aggregate fees for all other products and
services provided to the Company. These included fees for the following
services: provisions of consents for the filing of Registration Statements
on Form S-3, review of private placement memoranda and other documents and
review of various other agreements.
The Company has been informed by KPMG that less than 50 percent of the hours
expended on KPMG's engagement to audit the Company's financial statements for
2002 were attributable to work performed by persons other than KPMG's full-
time, permanent employees.
Audit Committee Approvals
The Audit Committee currently approves all engagements of the Company's
accountants to provide both audit and non-audit services and has not
established pre-approval policies or procedures. The Audit Committee did not
approve any non-audit services pursuant to Rule 2-01(c)(7)(i)(C) of Regulation
S-X of the Securities and Exchange Commission during 2002.
CERTAIN TRANSACTIONS
Certain of the Company's employees, including its Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer and Chief Technical Officer,
provided management, finance, accounting and administrative services to Global
Photonic Energy Corporation ("Global") on a part-time basis in 2002. Other
employees and consultants of Global who are not employees of the Company also
shared limited office space and related office supplies and services at the
Company's facility in Ewing, New Jersey during 2002. The Company received no
compensation from Global for these shared items and did not assign any
specific value to them because the Company considers them de minimis.
The Company employs Scott Seligsohn, the emancipated son of Sherwin
Seligsohn, as an administrative assistant to Sherwin Seligsohn in his capacity
as the Company's Chief Executive Officer and Chairman
of the Board of Directors. Scott Seligsohn's compensation as an employee of
the Company in 2002 was $81,820.64.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") requires
directors and executive officers of the Company and persons or entities
beneficially owning more than 10% of a registered class of the Company's
equity securities to file with the Securities and Exchange Commission reports
of beneficial ownership and reports of changes in beneficial ownership of
these equity securities. Officers, directors and shareholders owning more than
10% of the Company's equity securities are required by the regulations of the
Securities and Exchange Commission to furnish the Company with copies of all
forms they file under Section 16(a) of the Act. Based solely upon the
Company's review of these copies and any amendments thereto received by the
Company during the year ended December 31, 2002, all Section 16(a) filing
requirements applicable to its officers, directors and 10% shareholders were
satisfied.
25
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's next annual meeting of shareholders in accordance with
regulations adopted by the Securities and Exchange Commission. If timely
received, these proposals will be included in the Company's proxy statement
and form of proxy for the next annual meeting. The Company must receive such
proposals no later than December 30, 2003 for them to be considered for
inclusion in the proxy statement and form of proxy for the Company's 2004
annual meeting. Shareholders who intend to submit proposals appropriate for
shareholder action at the Company's 2004 annual meeting, but who are not
seeking to have these proposals included in the Company's proxy statement and
form of proxy, must submit such proposals so that the Company receives them no
later than March 14, 2004. All proposals should be directed to the attention
of the Secretary of the Company at the address set forth on the cover of this
proxy statement.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's 2002 Annual Report, containing financial statements
for the year ended December 31, 2002, is being transmitted herewith.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2002, as filed with the Securities and Exchange Commission and
excluding any exhibits thereto, may be obtained, without charge, by contacting
Sidney D. Rosenblatt, Corporate Secretary, Universal Display Corporation, 375
Phillips Boulevard, Ewing, New Jersey 08618.
/s/ Sidney D. Rosenblatt
--------------------------------------------
Sidney D. Rosenblatt
Executive Vice President, Chief Financial
Officer,
Treasurer and Secretary
Ewing, New Jersey
April 28, 2002
26
Appendix A
----------
UNIVERSAL DISPLAY CORPORATION
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS ON JUNE 26, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sherwin I. Seligsohn, Steven V. Abramson and
Sidney D. Rosenblatt, jointly and severally, as proxies, each with power to
appoint a substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all of the shares of Common Stock of Universal
Display Corporation held of record by the undersigned on April 17, 2003, at the
Annual Meeting of Shareholders to be held on June 26, 2003, or any adjournment
thereof.
PLEASE COMPLETE AND SIGN THIS PROXY ON THE REVERSE SIDE AND RETURN YOUR PROXY
PROMPTLY
(Continued and to be signed on the reverse side)
A-1
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
DIRECTORS AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
________________________________________________________________________________
1. Election of the seven directors proposed in the accompanying Proxy
Statement, each to serve for a one-year term and until a successor is
selected and qualified.
NOMINEES
[ ] FOR ALL NOMINEES [ ] Steven V. Abramson
[ ] Leonard Becker
[ ] WITHHOLD AUTHORITY [ ] Elizabeth H. Gemmill
FOR ALL NOMINEES [ ] C. Keith Hartley
[ ] FOR ALL EXCEPT [ ] Lawrence Lacerte
(See Instructions Below) [ ] Sidney D. Rosenblatt
[ ] Sherwin I. Seligsohn
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: [X]
FOR AGAINST ABSTAIN
2. Amendment and Restatement of the Company's Stock Option Plan as [ ] [ ] [ ]
specified in the accompanying Proxy Statement
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder(s). If no direction is made, this proxy will be
voted for Proposals 1 and 2. This proxy also delegates discretionary authority
to vote with respect to any other business that may properly come before the
meeting or any adjournment or postponement thereof.
To change the address on your account, please check the box at right and
indicate your new address in ? the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
Signature of Shareholder:______________ Date _______ Signature of Shareholder:______________ Date _______
Note: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
A-2
Appendix B
----------
UNIVERSAL DISPLAY CORPORATION
EQUITY COMPENSATION PLAN
The purpose of the Universal Display Corporation Equity Compensation
Plan (the "Plan") is to provide designated key employees (including employees
who are also officers and directors) and directors who are not employees
("Non-Employee Directors") of Universal Display Corporation and its "subsidiary
corporations," as that term is defined in section 424(f) of the Internal Revenue
Code of 1986, as amended (the "Code") (hereinafter collectively referred to as
the "Company") and selected consultants ("Consultants") to the Company with the
opportunity to receive grants of incentive stock options, nonqualified stock
options and other forms of equity compensation; provided, however, that
Non-Employee Directors and Consultants shall not be eligible to receive
incentive stock options under the Plan. The Company believes that the Plan will
cause the participants to contribute materially to the growth of the Company,
thereby benefiting the Company's stockholders and will align the economic
interests of the participants with those of the stockholders.
1. ADMINISTRATION
--------------
The Plan shall be administered and interpreted by the Board of
Directors of the Company (the "Board"), or by a committee consisting of members
of the Board, which shall be appointed by the Board. During any period in which
the Company's stock is publicly traded, however, the Plan may be administered by
a committee (the "Committee") consisting of two or more persons, all of whom are
"outside directors" as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and related Treasury regulations, and
"non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Membership on the
Committee shall also be structured so as to comply with applicable exchange
rules. Notwithstanding the foregoing, the Board may retain the ability to ratify
or approve any grants as it deems appropriate, and the Board shall approve and
administer all grants made to non-employee directors. The Board may delegate
this authority to one or more subcommittees, as it deems appropriate. To the
extent that the Board or a subcommittee administers the Plan, references in the
Plan to the "Committee" shall be deemed to refer to such Board or such
subcommittee.
Except as otherwise specifically provided in this Plan, the Committee
shall have the sole authority to (i) determine the individuals to whom grants
shall be made under the Plan, (ii) determine the type, size and terms of grants
to each such individual, (iii) determine the time when the grants will be made
and the duration of the exercise or restriction period, including the criteria
for vesting, the acceleration of vesting, or the lapse of restriction, (iv)
amend the terms of any previously issued grants; (v) select the "Valuation
Expert," as defined below, and (vi) deal with any other matters arising under
the Plan.
The Committee shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interests in the Plan or in any
awards granted hereunder. All powers of the Committee shall be executed in the
best interest of the Company, not as a fiduciary and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
2. GRANTS
------
Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as described in Section 5 ("Nonqualified Stock Options") (Incentive
Stock Options and Nonqualified Stock Options are collectively referred to as
"Options" or "Stock Options"), stock awards as described in Section 8 ("Stock
Awards"), stock appreciation rights as described in Section 9 ("SARs"), and
performance units as described in Section 10 ("Performance Units") (hereinafter
collectively referred to as "Grants"). All Grants shall be subject to the terms
and conditions set forth herein and to such other terms and
B-1
conditions consistent with the Plan as the Committee deems appropriate and as
are specified in writing to the individual in a grant letter or other instrument
or amendment thereto (the "Grant Letter").
3. SHARES SUBJECT TO THE PLAN
--------------------------
Subject to the adjustment specified below, the aggregate number of
shares of the common stock of the Company, par value $.01 (the "Company Stock")
that have been or may be issued or transferred under the Plan is 4,600,000
shares, in the aggregate. The shares may be authorized but unissued shares of
Company Stock or reacquired shares of Company Stock, including shares purchased
by the Company for purposes of the Plan. If and to the extent Options or SARs
granted under the Plan terminate, expire, or are canceled, forfeited, exchanged
or surrendered without having been exercised or if any Stock Awards or
Performance Units (including restricted Stock Awards received upon the exercise
of Options) are forfeited, the shares subject to such Grants shall again be
available for purposes of the Plan.
If there is any change in the number or kind of shares of Company Stock
issuable under the Plan through the declaration of stock dividends or if the
value of outstanding shares of Company Stock is substantially reduced due to the
Company's payment of an extraordinary dividend or distribution, or through a
recapitalization, stock splits, or combinations or exchanges of such shares, or
merger, reorganization or consolidation of the Company, reclassification or
change in par value or by reason of any other extraordinary or unusual events
affecting the outstanding Company Stock as a class without the Company's receipt
of consideration, the maximum number of shares of Company Stock available for
Grants, the maximum number of shares of Company Stock for which any one
individual participating in the Plan may be granted over the term of the Plan,
the number of shares covered by outstanding Grants, and the price per share or
the applicable market value of such Grants, and the other terms and conditions
of the Grants, as the Committee may deem necessary or desirable, may be
proportionately adjusted by the Committee to reflect any increase or decrease in
the number or kind of issued shares of Company Stock to preclude the enlargement
or dilution of rights and benefits under such Grants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated. The
adjustments determined by the Committee shall be final, binding and conclusive.
Notwithstanding the foregoing, no adjustment shall be authorized or made
pursuant to this Section to the extent that such authority or adjustment would
cause any Incentive Stock Option to fail to comply with Section 422 of the Code.
4. ELIGIBILITY FOR PARTICIPATION
-----------------------------
All individuals employed by the Company ("Employees") (including
Employees who are officers or members of the Board), all Non-Employee Directors
and all Consultants whose services, in the judgment of the Committee, can have a
significant effect on the long-term success of the Company shall be eligible to
participate in the Plan. Except as specifically otherwise provided in this Plan,
the Committee shall select the Employees, Non-Employee Directors and Consultants
to receive Grants (each, a "Grantee") and determine the number of shares of
Company Stock subject to a particular Grants in such manner as the Committee
determines.
Nothing contained in this Plan shall be construed to limit the right of
the Company to grant options or warrants or issue stock otherwise in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business or assets of any corporation, firm or association, including
options or warrants granted to employees thereof who become Employees of the
Company, or for other proper corporate purpose.
5. GRANTING OF OPTIONS
-------------------
(a) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Company Stock that will be subject to each
Stock Option grant. The maximum aggregate number of shares of Company Stock that
shall be subject to Grants of Stock Options or SARs made under the Plan to any
individual during any calendar year shall be 400,000 shares, subject to
adjustment as described above.
(b) Type of Option and Price. The Committee may grant Incentive Stock
Options, Nonqualified Stock Options or any combination of Incentive Stock
Options and Nonqualified Stock Options, all in accordance with the terms and
conditions set forth herein; provided, however, that neither Non-Employee
Directors nor Consultants shall be eligible to receive grants of Incentive Stock
Options.
B-2
The purchase price of Company Stock subject to a Stock Option
shall be determined by the Committee and may be equal to, greater than, or less
than the fair market value of a share of such stock on the date such Stock
Option is granted; provided, however, that the purchase price of Company Stock
subject to an Incentive Stock Option shall be equal to, or greater than, the
fair market value of a share of such stock on the date such Stock Option is
granted. During such time that the Company Stock is not listed on an established
stock exchange or traded in the over-the-counter-market, the fair market value
of Company Stock shall be determined by an independent firm, i.e., a firm not
otherwise engaged in consulting work for the Company, unless determined
otherwise by the Committee, with expertise in the valuation of business entities
and the securities thereof, selected by the Committee (the "Valuation Expert")
or as otherwise determined by the Committee in good faith based on the best
available facts and circumstances. Such determination of fair market value shall
be made on a periodic basis, but no less frequently than once a calendar year.
If the Company Stock is listed upon an established stock exchange or other
market source, as determined by the Committee, fair market value on any date of
reference shall be the closing price of a share of Company Stock (on a
consolidated basis) on the principal exchange or other recognized market source,
as determined by the Committee on such date, or if there is no sale on such
date, then the closing price of a share of Company Stock on the last previous
day on which a sale is reported.
(c) Exercise Period. The Committee shall determine the option exercise
period of each Stock Option. The exercise period shall not exceed ten years from
the date of grant.
(d) Exercisability of Options. Stock Options shall become exercisable
in accordance with the terms and conditions determined by the Committee, in its
sole discretion, and specified in the Grant Letter. All outstanding Stock
Options shall become immediately exercisable upon a Change in Control (as
defined herein), unless the Committee, in its sole discretion, determines not to
accelerate such Stock Options upon a Change in Control.
(e) Manner of Exercise. The Grantee of Stock Options (the "Optionee")
may exercise a Stock Option which has become exercisable by delivering a notice
of exercise to the Committee with accompanying payment of the option price in
accordance with (h) below. Such notice may instruct the Company to deliver
shares of Company Stock due upon the exercise of the Stock Option to any
registered broker or dealer designated by the Company ("Designated Broker") in
lieu of delivery to the Optionee. Such instructions must designate the account
into which the shares are to be deposited. The Optionee may tender this notice
of exercise, which has been properly executed by the Optionee, and the
aforementioned delivery instructions to any Designated Broker.
(f) Termination of Employment, Disability or Death.
(1) Employees.
----------
(a) In the event the Optionee during the Optionee's lifetime
ceases to be an employee of the Company for any reason other than death,
disability (as defined herein), retirement approved by the Company, or
termination for cause, as defined below, by the Company, any Stock Option which
is otherwise exercisable by the Optionee shall terminate unless exercised within
three months of the date on which the Optionee ceases to be an employee (or
within such other period of time as may be specified in the Grant Letter), but
in any event no later than the date of expiration of the option exercise period
(except as the Committee may otherwise provide in the Grant Letter). For
purposes of this Section 5, a leave of absence at the request, or with the
approval, of the Company shall not be deemed a termination of employment so long
as the period of such leave does not exceed 90 days, or, if longer, so long as
the Optionee's right to re-employment with the Company is guaranteed by
contract. Any of the Optionee's Stock Options which are not otherwise
exercisable as of the date on which the Optionee ceases to be an employee shall
terminate as of such date (except as the Board may otherwise provide).
(b) In the event the Optionee ceases to be an employee of the
Company on account of a termination for cause by the Company, as determined in
accordance with the personnel policies of the Company in effect before any
Change in Control of the Company, any Stock Option held by the Optionee shall
terminate as of the date the Optionee ceases to be an employee (except as the
Committee may otherwise provide).
B-3
(c) In the event the Optionee ceases to be an employee of the
Company on account of becoming disabled within the meaning of section 22(e) of
the Code, any Stock Option which is otherwise exercisable by the Optionee on the
date on which the Optionee ceases to be an employee shall terminate unless
exercised within one year from the date on which the Optionee ceases to be an
employee (or within such other period of time as may be specified in the Grant
Letter), but in any event no later than the date of the expiration of the option
exercise period (except as the Committee may otherwise provide in the Grant
Letter).
(d) In the event of the death of the Optionee while he is an
employee of the Company or within 30 days of the date on which he ceases to be
an employee for any reason other than a termination for cause by the Company (or
within such other period of time as may be specified in the Grant Letter), any
Stock Option which is otherwise exercisable by the Optionee on the date on which
the Optionee ceases to be an employee shall terminate unless exercised by the
Optionee's personal representative within six months of the date on which the
Optionee ceases to be an employee (or within such other period of time as may be
specified in the Grant Letter), but in any event no later than the date of the
expiration of the option exercise period (except as the Committee may otherwise
provide in the Grant Letter).
(e) Notwithstanding the foregoing provisions, failure to
exercise an Incentive Stock Option within the periods of time prescribed under
sections 421 and 422(a) of the Code shall cause the Incentive Stock Option to
cease to be treated as an "incentive stock option" for purposes of sections 421
and 422 of the Code.
(2) Non-Employee Directors and Consultants.
---------------------------------------
(a) In the event the Optionee during the Optionee's lifetime
ceases to be a Non-Employee Director or Consultant to the Company for any reason
other than becoming an employee of the Company, or termination for cause, as
defined below, by the Company, any Stock Option which is otherwise exercisable
by the Optionee shall not terminate until the date of expiration of the option
exercise period (except as the Committee may otherwise provide in the Grant
Letter). Any of the Optionee's Stock Options which are not otherwise exercisable
as of the date on which the Optionee ceases his relationship with the Company
shall terminate as of such date (except as the Committee may otherwise provide).
(b) In the event the Optionee ceases to be a Non-Employee
Director or Consultant to the Company on account of a termination for cause by
the Company, as determined in accordance with the policies of the Company in
effect before any Change in Control of the Company, any Stock Option held by the
Optionee shall terminate as of the date the Optionee ceases to serve in such
capacity (except as the Committee may otherwise provide).
(g) Satisfaction of Option Price. The Optionee shall pay the option
price specified in the Grant Letter in (i) cash; (ii) with the approval of the
Committee, by delivering shares of Company Stock owned by the Optionee including
Company Stock (including, but not limited to, shares acquired in connection with
the exercise of a particular Stock Option and having a fair market value on the
date of exercise equal to the option price, subject to such restrictions as the
Committee may impose) (a "Stock-for-Stock Exercise"); (iii) if, as directed by
the Committee, shares of Company Stock may not be sold immediately following the
exercise of a Stock Option, with the proceeds of a promissory note payable by
the Optionee to the Company, but only in accordance with the provisions of a
loan program established by the Company, or any successor program as in effect
from time to time, and only to the extent not precluded by the Sarbanes-Oxley
Act of 2002 and other applicable law, (A) in a principal amount of up to 100% of
the payment due upon the exercise of the Stock Option, or such applicable lower
percentage as may be specified by the Board pursuant to the loan program, and
(B) bearing interest at a rate not less than the applicable Federal rate
prescribed by Section 1274 of the Code, or such higher rate as may be specified
by the Committee pursuant to the loan program; (iv) payment through a broker in
accordance with procedures permitted by Regulation T of the Federal Reserve
Board; (v) by such other method as the Committee may approve; or (vi) through
any combination of (i), (ii), (iii), (iv) or (v). Any loan by the Company under
(iii) above shall be with full recourse against the Optionee to whom the loan is
granted, and shall be secured in whole or in part by the shares of Company Stock
so purchased. In addition, any such loan by the Company shall, at the option of
the Company, become immediately due and payable in full upon termination of the
Optionee's employment or position as an officer or director with the Company for
B-4
any reason, or upon a sale of any shares of Company Stock acquired with such
loan to the extent of the cash and fair market value of any property received by
the Optionee in such sale. The Committee may make arrangements for the
application of payroll deductions from compensation payable to the Optionee to
amounts owing to the Company under any such loan. Until any loan by the Company
hereunder is fully paid in cash, the shares of Company Stock purchased with the
loan shall be pledged to the Company as security for the loan, and the Company
shall retain physical possession of the stock certificates evidencing such
shares together with a duly executed stock power for such shares. No loan shall
be made hereunder unless counsel for the Company shall be satisfied that the
loan and the issuance of the shares of Company Stock funded thereby will be in
compliance with all applicable federal, state and local laws. The Optionee shall
pay the option price and the amount of withholding tax due, if any, as specified
by the Committee. Shares of Company Stock shall not be issued or transferred
upon exercise of a Stock Option until the option price is fully paid and any
amount of withholding tax is paid. Shares of Company Stock used in a
Stock-for-Stock Exercise shall have been held by the Optionee for the requisite
period of time to avoid "anti-pyramiding" rules or other adverse accounting
consequences to the Company with respect to the Option.
(h) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that to the extent that the aggregate fair market value of the
Company Stock on the date of the grant with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year under the Plan or any other stock option plan of the Company exceeds
$100,000, then such option as to the excess shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any Employee
who, at the time of grant, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or parent of the
Company, unless the option price per share is not less than 110% of the fair
market value of Company Stock on the date of grant and the option exercise
period is not more than five years from the date of grant.
(i) Optional Purchase by the Company. In the sole discretion of the
Committee, in lieu of the exercise of a Stock Option, the Optionee may be
permitted to transfer the Stock Option to the Company in exchange for a cash
payment equal to the excess over the purchase price of the then fair market
value of the shares of Company Stock subject to the Optionee's outstanding Stock
Options.
6. TRANSFERABILITY OF OPTIONS
--------------------------
Only the Optionee or his or her authorized legal representative may
exercise rights under a Stock Option. Such persons may not transfer those rights
except by will or by the laws of descent and distribution or, if permitted under
Rule 16b-3 of the Exchange Act and if permitted in any specific case by the
Committee in its sole discretion, pursuant to a qualified domestic relations
order as defined under the Code or Title I of ERISA or the regulations
thereunder. When an Optionee dies, the personal representative or other person
entitled to succeed to the rights of the Optionee ("Successor Optionee") may
exercise such rights. A Successor Optionee must furnish proof satisfactory to
the Company of his or her right to receive the Stock Option under the Optionee's
will or under the applicable laws of descent and distribution.
Notwithstanding the foregoing, the Committee may permit an Employee to
transfer rights under a Nonqualified Stock Option to the Employee's spouse or a
lineal descendant or to one or more trusts for the benefit of such family
members or to partnerships in which such family members are the only partners (a
"Family Transfer") provided that the Employee receives no consideration for a
Family Transfer and the Grant Letter relating to the Stock Options transferred
in a Family Transfer continues to be subject to the same terms and conditions
that were applicable to such Stock Options immediately prior to the Family
Transfer.
7. STOCK AWARDS
------------
The Committee may issue or transfer shares of Company Stock to an
Employee, Non-Employee Director or Consultant under a Stock Award, upon such
terms as the Committee deems appropriate. The following provisions are
applicable to Stock Awards:
B-5
(a) General Requirements. Shares of Company Stock issued or transferred
pursuant to Stock Awards may be issued or transferred for consideration or for
no consideration, and subject to restrictions or no restrictions, as determined
by the Committee. The Committee may, but shall not be required to, establish
conditions under which restrictions on Stock Awards shall lapse over a period of
time or according to such other criteria as the Committee deems appropriate,
including, without limitation, restrictions based upon the achievement of
specific performance goals. The period of time during which the Stock Awards
will remain subject to restrictions will be designated in the Grant Letter as
the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Stock Award
and the restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the Grantee ceases to be
employed by, or provide service to, the Employer during a period designated in
the Grant Letter as the Restriction Period, or if other specified conditions are
not met, the Stock Award shall terminate as to all shares covered by the Grant
as to which the restrictions have not lapsed, and those shares of Company Stock
must be immediately returned to the Company. The Committee may, however, provide
for complete or partial exceptions to this requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of a Stock Award except to a successor under
Section 10. Each certificate for a share of a Stock Award shall contain a legend
giving appropriate notice of the restrictions in the Grant. The Grantee shall be
entitled to have the legend removed from the stock certificate covering the
shares subject to restrictions when all restrictions on such shares have lapsed.
The Committee may determine that the Company will not issue certificates for
Stock Awards until all restrictions on such shares have lapsed, or that the
Company will retain possession of certificates for shares of Stock Awards until
all restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Stock Awards and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee, including, without limitation, the achievement of
specific performance goals.
(f) Lapse of Restrictions. All restrictions imposed on Stock Awards
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Stock Awards, that the restrictions shall lapse
without regard to any Restriction Period.
8. STOCK APPRECIATION RIGHTS
-------------------------
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee, Non-Employee Director or Consultant separately
or in tandem with any Option (for all or a portion of the applicable Option).
Tandem SARs may be granted either at the time the Option is granted or at any
time thereafter while the Option remains outstanding; provided, however, that,
in the case of an Incentive Stock Option, SARs may be granted only at the time
of the Grant of the Incentive Stock Option. The Committee shall establish the
base amount of the SAR at the time the SAR is granted. Unless the Committee
determines otherwise, the base amount of each SAR shall be equal to the per
share exercise price of the related Option or, if there is no related Option,
the fair market value of a share of Company Stock as of the date of Grant of the
SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted
to a Grantee that shall be exercisable during a specified period shall not
exceed the number of shares of Company Stock that the Grantee may purchase upon
the exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. SARs shall be exercisable during the period
specified by the Committee in the Grant Letter and shall be subject to such
vesting and other restrictions as may be specified in the Grant Letter. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only be exercised while the Grantee is
employed by, or providing service to, the Employer or during the applicable
period after termination of employment or service comparable to the provisions
of Section 5(f) as related to Stock Options. A tandem SAR shall be exercisable
only during the period when the Option to which it is related is also
exercisable.
B-6
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the fair market value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in subsection (a).
(e) Transferability of SARs. SARs may only be transferred in situations
comparable to those under Section 6 relating to the transfer of Stock Options.
9. PERFORMANCE UNITS
-----------------
(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee, Non-Employee Director or Consultant. Each
Performance Unit shall represent the right of the Grantee to receive an amount
based on the value of the Performance Unit, if performance goals established by
the Committee are met. A Performance Unit shall be based on the fair market
value of a share of Company Stock or on such other measurement base as the
Committee deems appropriate. The Committee shall determine the number of
Performance Units to be granted and the requirements applicable to such units.
(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to such units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met, the value of the
Performance Units (if applicable), and the amount, if any, to be paid with
respect to the Performance Units. Payments with respect to Performance Units
shall be made in cash, in Company Stock, or in a combination of the two, as
determined by the Committee.
(d) Requirement of Employment or Service. If the Grantee ceases to be
employed by, or provide service to, the Employer during a Performance Period, or
if other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
10. QUALIFIED PERFORMANCE-BASED COMPENSATION
----------------------------------------
(a) Designation as Qualified Performance-Based Compensation. The
Committee may determine that Performance Units or Stock Awards granted to an
Employee shall be considered "qualified performance-based compensation" under
section 162(m) of the Code. The provisions of this Section 10 shall apply to
Grants of Performance Units and Stock Awards that are to be considered
"qualified performance-based compensation" under section 162(m) of the Code.
(b) Performance Goals. When Performance Units or Stock Awards that are
to be considered "qualified performance-based compensation" are granted, the
Committee shall establish in writing (i) the objective performance goals that
must be met, (ii) the period during which these performance goals must be met,
(iii) the threshold, target and maximum amounts that may be paid if these goals
are met, and (iv) any other conditions that the Committee deems appropriate and
consistent with the Plan and Section 162(m) of the Code. The performance goals
may relate to the Employee's business unit or the performance of the Company and
its parents and subsidiaries as a whole, or any combination of the foregoing.
The Committee shall use objectively determinable performance goals based on one
or more of the following criteria: stock price, earnings per share, net
earnings, operating earnings, return on assets, shareholder return, return on
equity, growth in assets, unit volume, sales, market share, or strategic
business criteria consisting of one or more objectives based on meeting
specified revenue goals, market penetration goals, geographic business expansion
goals, cost targets or goals relating to acquisitions or divestitures.
B-7
(c) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the relevant
performance period or during a period ending no later than the earlier of (i) 90
days after the beginning of such performance period or (ii) the date on which
25% of the performance period has been completed, or such other date as may be
required or permitted under applicable regulations under section 162(m) of the
Code. The performance goals shall satisfy the requirements for "qualified
performance-based compensation," including the requirement that the achievement
of the goals be substantially uncertain at the time they are established and
that the goals be established in such a way that a third party with knowledge of
the relevant facts could determine whether and to what extent the goals have
been met. The Committee shall not have discretion to increase the amount of
compensation that is payable upon achievement of the designated performance
goals.
(d) Maximum Payment. If Stock Awards or Performance Units measured with
respect to Company Stock are granted, not more than 400,000 shares of Company
Stock may be granted to an Employee as Performance Units or Stock Awards for any
performance period. If Performance Units measured with respect to cash are
granted, the maximum amount that may be paid to an Employee pursuant to
Performance Units with respect to any performance period is $1,000,000.
(e) Announcement of Grants. The Committee shall certify and announce
the results for each performance period to all affected Grantees immediately
following the announcement of the Company's financial results for such period.
If and to the extent that the Committee does not certify that the relevant
performance goals have been met, the grants of Stock Awards or Performance Units
for the performance period shall be forfeited or shall not be made, as
applicable.
(f) Death, Disability or Other Circumstances. The Committee may provide
that Performance Units or Stock Awards shall be payable or restrictions on Stock
Awards shall lapse, in whole or in part, in the event of the Grantee's death or
Disability during the relevant performance period, or under other circumstances,
consistent with the Treasury regulations and rulings under section 162(m) of the
Code.
11. CHANGE IN CONTROL OF THE COMPANY
--------------------------------
As used herein, a "Change in Control" shall be deemed to have occurred
if:
(i) As a result of any transaction, any one stockholder other than
an existing stockholder as of the effective date of the Plan, becomes a
beneficial owner, as defined below, directly or indirectly, of securities of the
Company representing more than 50% of the Common Stock of the Company or the
combined voting power of the Company's then outstanding securities;
(ii) A liquidation or dissolution of or the sale of all or
substantially all of the Company's assets occurs; or
(iii) After the effective date of the Plan:
(a) As a result of a tender offer, stock purchase, other
stock acquisition, merger, consolidation, recapitalization, reverse split, or
sale or transfer of assets (but excluding any sale of the Company's securities
to the public pursuant to a public offering), any person or group (as such terms
are used in and under Section 13(d) of the Exchange Act) other than an existing
stockholder, becomes the beneficial owner (as defined in Rule 13-d under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than 30% of the combined voting power of the Company's then outstanding
securities; or
(b) During any period of two consecutive years, individuals
who at the beginning of such period constitute the board of directors cease for
any reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least 2/3 of the directors then still in office who
were directors at the beginning of the period.
B-8
12. CERTAIN CORPORATE CHANGES
-------------------------
(a) Sale or Exchange of Assets, Dissolution or Liquidation, or Merger
or Consolidation Where the Company Does Not Survive. If all or substantially all
of the assets of the Company are to be sold or exchanged, the Company is to be
dissolved or liquidated, or the Company is a party to a merger or consolidation
with another corporation in which the Company will not be the surviving
corporation, then, at least 10 days prior to the effective date of such event,
the Company shall give each Optionee with any outstanding Stock Options written
notice of such event. Each such Optionee shall thereupon have the right to
exercise in full any installments of such Stock Options not previously exercised
(whether or not the right to exercise such installments has accrued pursuant to
such Stock Options), within 10 days after such written notice is sent by the
Company or, if a cashout of such Stock Options would not result in materially
adverse accounting consequences, to require that the Company purchase such Stock
Options for a cash payment equal to the excess over the purchase price of the
then fair market value of the shares of Company Stock subject to the Optionee's
outstanding Stock Options. In addition, under the above circumstances all
restrictions on Stock Awards shall lapse, all SARs shall become fully vested and
exercisable, and all Performance Units shall be deemed fully earned.
(b) Merger or Consolidation Where the Company Survives. If the Company
is a party to a merger or consolidation in which the Company will be the
surviving corporation, or in the event of the occurrence of any other Change in
Control not described in subsection (a), then the Board may, in its sole
discretion, elect to give each Optionee with any outstanding Stock Options
written notice of such event. If such notice is given, each such Optionee shall
thereupon have the right to exercise some or all of any installments of such
Stock Options not previously exercised (whether or not the right to exercise
such installments has accrued pursuant to such Stock Options), within 10 days
after such written notice is sent by the Company or, if a cashout of such Stock
Options would result in materially adverse accounting consequences, to require
that the Company purchase such Stock Options for a cash payment equal to the
excess over the purchase price of the then fair market value of the shares of
Company Stock subject to the Optionee's outstanding Stock Options. In addition,
under the above circumstances the Board may determine that all restrictions on
Stock Awards shall lapse, all SARs shall become fully vested and exercisable and
all Performance Units shall be deemed fully earned.
13. AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------
(a) Amendment. The Board, by written resolution, may amend or terminate
the Plan at any time; provided, however, that any amendment that increases the
aggregate number (or individual limit for any single Grantee) of shares of
Company Stock that may be issued or transferred under the Plan (other than by
operation of Section 3(b)), or modifies the requirements as to eligibility for
participation in the Plan, shall be subject to approval by the shareholders of
the Company.
(b) Termination of Plan. The Plan shall terminate on the tenth
anniversary of its effective date unless terminated earlier by the Board of
Directors of the Company or unless extended by the Board with the approval of
the stockholders.
(c) Termination and Amendment of Outstanding Grant. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 22(b) hereof. The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Grant. Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 22(b) hereof or may be amended by agreement
of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials, or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company, its successors and assigns and the Grantees and
their assigns.
B-9
14. FUNDING OF THE PLAN
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grant under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grant.
15. RIGHTS OF INDIVIDUALS
---------------------
Nothing in this Plan shall entitle any Employee, Non-Employee Director,
Consultant or other person to any claim or right to be issued a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any Employee, Non-Employee Director, Consultant or other person any
rights to be retained by or in the employ of the Company or any other employment
rights.
16. NO FRACTIONAL SHARES
--------------------
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. 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.
17. WITHHOLDING OF TAXES
--------------------
The Grantee or other person receiving shares of Company Stock or other
consideration under this Plan shall be required to pay to the Company the amount
of any federal, state or local taxes which the Company is required to withhold
with respect to the taxable income associated with such Grant or the Company
shall have the right to deduct from other wages paid to the Employee by the
Company (including through the withholding of Company Stock purchased upon the
exercise of a Stock Option or otherwise deliverable under this Plan, if then
authorized by the Committee and applicable law) the minimum amount of any
withholding due with respect to such Stock Grant.
18. AGREEMENTS WITH GRANTEES
------------------------
Each Grant made under this Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee shall approve.
19. REQUIREMENTS FOR ISSUANCE OF SHARES
-----------------------------------
No Company Stock shall be issued or transferred upon the exercise of
any Stock Option or lapse of restrictions or payment of other Grants under this
Plan hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Optionee hereunder on such Optionee's undertaking in
writing to comply with such restrictions on his subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof, and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may
be applicable under such laws, regulations and other obligations of the Company,
including any requirement that a legend or legends be placed thereon.
20. HEADINGS
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
21. EFFECTIVE DATE
--------------
(a) Effective Date of the Plan. Subject to the approval of the
Company's stockholders, this Plan shall be effective as of September 1, 1995.
B-10
(b) Effectiveness of Section 16 Provisions. The provisions of the Plan
that refer to, or are applicable to persons subject to, Section 16 of the
Exchange Act shall be effective, if at all, upon registration of the Company
Stock under Section 12(g) of the Exchange Act, and shall remain effective
thereafter for so long as such stock is so registered.
22. MISCELLANEOUS
-------------
(a) Substitute Grants. The Committee may make a Grant to an employee of
another corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant granted by such corporation ("Substituted Stock
Incentives"). The terms and conditions of the substitute grant may vary from the
terms and conditions required by the Plan and from those of the Substituted
Stock Incentives. The Committee shall prescribe the provisions of the substitute
grants.
(b) Compliance with Law. The Plan, the exercise of Stock Options,
granting of other forms of equity compensation under the Plan and the
obligations of the Company to issue or transfer shares of Company Stock with
respect to Grants shall be subject to all applicable laws and to approvals by
any governmental or regulatory agency as may be required. With respect to
persons subject to Section 16 of the Exchange Act, it is the intent of the
Company that the Plan and all transactions under the Plan comply with all
applicable provisions of Rule 16b-3 or its successors under the Exchange Act.
The Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.
(c) Ownership of Stock. A Grantee or successor shall have no rights as
a shareholder with respect to any shares of Company Stock covered by a Grant
until the shares are issued or transferred to the Grantee or successor on the
stock transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Letters issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the Commonwealth of
Pennsylvania.
B-11