SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14-a6(e)(2))
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
IDT CORPORATION
---------------
(Exact Name of Registrant as specified in its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rule 14a-6(i)(1), and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
IDT CORPORATION
190 Main Street
Hackensack, New Jersey 07601
(201) 928-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 16, 1998
TO THE STOCKHOLDERS OF IDT CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders (the
"Annual Meeting") of IDT CORPORATION, a Delaware corporation (the "Company"),
will be held on Wednesday, December 16, 1998 at 2:30 p.m. The Annual Meeting
will be held at the offices of the Company at 171 Main Street, Hackensack, New
Jersey, to consider and vote upon the following matters:
1. ELECTION OF DIRECTORS. The election of four Class III directors for a
term of three years, which shall expire at the Company's annual meeting of
stockholders in 2001. The Board of Directors (the "Board") intends at this
time to present the following nominees:
Howard S. Jonas
Joyce J. Mason
James R. Mellor
Denis A. Bovin
2. APPROVAL OF THE COMPANY'S 1996 STOCK OPTION AND INCENTIVE PLAN, AS
AMENDED AND RESTATED. The approval of amendments to the Company's 1996 Stock
Option and Incentive Plan, in the form attached hereto as Exhibit A, which,
among other things, increase the number of shares of the Company's Common
Stock reserved for issuance under the Plan by 1,500,000 shares.
3. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS. The ratification
of the appointment of Ernst & Young LLP as the independent auditors for the
Company for the fiscal year ending July 31, 1999.
4. OTHER BUSINESS. Such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
Only stockholders of record at the close of business on November 10, 1998
are entitled to notice of and to vote at the Annual Meeting.
All stockholders are invited to attend the Annual Meeting in person.
However, if you do not expect to be present at the Annual Meeting and wish
your shares to be voted, you should complete, sign and date the attached form
of proxy and return it by mail in the enclosed envelope as promptly as
possible. Any stockholder attending the Annual Meeting may vote in person even
if such stockholder has returned a proxy.
BY ORDER OF THE BOARD OF
DIRECTORS
Howard S. Jonas
Chairman and Chief Executive Officer
Hackensack, New Jersey
November 25, 1998
IDT CORPORATION
190 Main Street
Hackensack, New Jersey 07601
(201) 928-1000
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to the stockholders of IDT Corporation, a
Delaware corporation (the "Company"), in connection with the solicitation by
the Company's Board of Directors (the "Board") of proxies in the form enclosed
herewith for use in voting at the Company's Annual Meeting of Stockholders
(the "Annual Meeting"). The Annual Meeting will be held on Wednesday, December
16, 1998 at 2:30 p.m., local time at the Company's offices at 171 Main Street,
Hackensack, New Jersey 07601. The shares of the Company's common stock, par
value $0.01 per share (the "Common Stock"), represented by the proxies
received, properly marked, dated, executed, and not revoked will be voted at
the Annual Meeting. This Proxy Statement is being mailed to the Company's
stockholders on or about November 25, 1998.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by delivering to the Company (to
the attention of Joyce J. Mason, General Counsel and Secretary) a written
notice of revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
This solicitation of proxies is being made by the Company. The solicitation
is being conducted by mail, and the Company will bear all attendant costs.
These costs will include the expense of preparing and mailing proxy materials
for the Annual Meeting and any reimbursements paid to brokerage firms and
others for their expenses incurred in forwarding the solicitation materials
regarding the Annual Meeting to the beneficial owners of the Company's Common
Stock and the holders of the Company's Class A Common Stock, par value $0.01
per share (the "Class A Common Stock"). The Company may conduct further
solicitation personally, by telephone or by facsimile through its officers,
directors and employees, none of whom will receive additional compensation for
assisting with the solicitation.
The close of business on Tuesday, November 10, 1998 has been fixed as the
record date (the "Record Date") for determining the holders of shares of
Common Stock entitled to notice of and to vote at the Annual Meeting. As of
the close of business on the Record Date, the Company had 33,302,269 shares
outstanding and entitled to vote at the Annual Meeting, consisting of
23,159,414 shares of Common Stock and 10,142,855 shares of Class A Common
Stock. Each holder of Class A Common Stock is entitled to three votes per
share, while each holder of Common Stock is entitled to one vote per share.
Holders of Class A Common Stock and holders of Common Stock will vote as a
single body on all matters presented to the stockholders. The presence at the
Annual Meeting of a majority of the shares of Common Stock and Class A Common
Stock (voting together), either in person or by proxy, will constitute a
quorum for the transaction of business at the Annual Meeting.
A majority of the votes cast at the Annual Meeting will be required for the
election of each candidate to the Board of Directors and for the approval of
all other matters submitted to a vote of the Company's stockholders.
Abstentions and broker non-votes will be included in the determination of
the number of shares present at the Annual Meeting but will not be counted for
or against any of the proposals to be voted upon. A properly executed form of
proxy returned to the Company will confer discretionary authority to vote upon
any matter duly brought before the Annual Meeting.
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (and Class A Common Stock, assuming
conversion of all shares of Class A Common Stock into Common Stock) as of
October 30, 1998 by (i) each person known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock (and Class A
Common Stock, on an as-converted basis), (ii) each of the Company's directors
and the Named Executive Officers (as defined below), and (iii) all directors
and officers of the Company as a group. Unless otherwise noted in the
footnotes to the table, the persons named in the table have sole voting and
investing power with respect to all shares of Common Stock (or Class A Common
Stock) indicated as being beneficially owned by them.
With respect to each matter submitted to the vote of the Company's
stockholders, each share of the Company's Class A Common Stock has three
votes, and each share of the Company's Common Stock has one vote. Howard S.
Jonas, the Company's Chairman and Chief Executive Officer, and entities that
are under his control, are the only beneficial owners of the Company's Class A
Common Stock.
NUMBER OF PERCENTAGE OF
NAMED EXECUTIVE OFFICERS AND DIRECTORS SHARES OWNERSHIP(%)
- -------------------------------------- ---------- -------------
Howard S. Jonas(1)(2)................................. 12,712,782 38.0%
190 Main Street
Hackensack, NJ 07601
Howard S. Balter(2)(3)................................ 677,357 2.0
James A. Courter(2)(4)................................ 478,437 1.4
Stephen R. Brown(5)................................... 32,620 *
Joyce J. Mason(6)..................................... 68,032 *
Marc E. Knoller(7).................................... 187,500 *
Hal Brecher(8)........................................ 90,000 *
Meyer A. Berman(5).................................... 48,600 *
J. Warren Blaker(7)................................... 18,000 *
Denis A. Bovin(9)..................................... 120,500 *
James R. Mellor(7).................................... 20,000 *
Elmo R. Zumwalt, Jr.(7)............................... 20,000 *
All directors and officers as a group (14 persons).... 14,229,454 41.4
- --------
*Less than 1%.
(1) Includes (i) 2,426,490 shares of Common Stock issued in connection with
the Company's acquisition of InterExchange, Inc. over which Mr. Jonas has
been granted a proxy to vote, and (ii) 10,142,855 shares of Class A Common
Stock, consisting of (a) 4,695,544 shares of Class A Common Stock held by
Mr. Jonas directly, (b) 14,242 shares beneficially owned by The Jonas
Family Limited Partnership, (c) 3,695,270 shares beneficially owned by the
Howard S. Jonas 1996 Annuity Trust, (d) 1,559,228 shares beneficially
owned by the Howard S. Jonas 1998 Annuity Trust, and (e) 178,571 shares
beneficially owned by the Jonas Foundation. Mr. Jonas is the General
Partner of The Jonas Family Limited Partnership and the Trustee of each of
the Howard S. Jonas 1996 Annuity Trust, the Howard S. Jonas 1998 Annuity
Trust and The Jonas Foundation.
(2) Includes 143,437 shares of Common Stock owned by The JTBC Foundation. The
JTBC Foundation is a charitable organization of which Messrs. Howard
Jonas, David Turock (the Company's Director of Technology), Howard Balter
and James Courter are trustees.
(3) Includes 232,920 shares of Common Stock issuable upon the exercise of
stock options exercisable within 60 days.
(4) Includes 20,000 shares of Common Stock owned by Mr. Courter's wife and
160,000 shares of Common Stock issuable upon the exercise of stock options
exercisable within 60 days.
(5) Includes 10,000 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days.
(6) Includes an aggregate of 3,999 shares of Common Stock owned by Ms. Mason's
husband, son and daughter and 10,000 shares of Common Stock issuable upon
the exercise of stock options exercisable within 60 days.
(7) Common Stock issuable upon the exercise of stock options exercisable
within 60 days.
(8) Includes 80,000 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days.
(9) Includes 120,000 shares of Common Stock issuable upon the exercise of
stock options exercisable within 60 days.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation, the authorized
number of directors has been set at twelve. There are eleven directors
presently on the Board. In September 1997, the Board of Directors elected Mr.
Denis A. Bovin as a director to fill one of the remaining vacant positions.
Mr. Bovin assumed office prior to the third quarter of the Company's fiscal
year ending July 31, 1998.
Each director holds office until such director's successor has been duly
elected and qualified. The Company's Board is divided into three classes, with
Messrs. Blaker, Courter, Knoller and Zumwalt constituting Class I, Messrs.
Balter, Berman and Brecher constituting Class II and Mr. Jonas, Ms. Mason and
Messrs. Mellor and Bovin constituting Class III. Upon the expiration of the
term of each class, directors comprising such class of directors will be
elected for a three-year term at the next succeeding annual meeting of
stockholders.
A total of four Class III directors will be elected at the Annual Meeting to
serve for a term of three (3) years until the 2001 Annual Meeting of
Stockholders, or until their successors are duly elected and qualified or
until the director's earlier resignation or removal. As provided by the By-
Laws of the Company, a plurality of the votes cast at the Annual Meeting shall
elect each director.
Upon the election of four Class III directors at the Annual Meeting, there
will be one vacancy on the Company's Board. The enclosed proxy may not be
voted for a greater number of persons than four, which is the number of
nominees identified herein.
The nominees are Howard S. Jonas, Joyce J. Mason, James R. Mellor and Denis
A. Bovin. These individuals are all incumbent directors. Certain information
about the nominees is furnished below:
HOWARD S. JONAS founded IDT in August 1990 and has served as Chairman of the
Board and Treasurer since its inception and as Chief Executive Officer since
December 1991. He served as President of the Company from December 1991
through September 1996. Mr. Jonas is also the founder and has been President
of Jonas Publishing Corp. ("Jonas Publishing"), a publisher of trade
directories, since its inception in 1979. Mr. Jonas received a B.A. in
Economics from Harvard University.
JOYCE J. MASON has served as General Counsel and Secretary and as a director
of the Company since its inception. Ms. Mason has been in private legal
practice since August 1990. Ms. Mason received a B.A. from the City University
of New York and a J.D. from New York Law School.
JAMES R. MELLOR joined the Company as a director in August 1997. Since 1981,
Mr. Mellor had been working for General Dynamics Corporation, a leader in
nuclear submarines, surface combatant ships and combat systems. From 1994
until 1997, Mr. Mellor served as CEO of General Dynamics Corporation. Before
joining General Dynamics, Mr. Mellor served as President and Chief Operating
Officer of AM International, Inc., now Multigraphics, Inc. Prior to that, Mr.
Mellor spent 18 years with Litton Industries in a variety of engineering and
management positions, including Executive Vice President in charge of Litton's
Defense Group from 1973 to 1977.
DENIS A. BOVIN joined the Company as a Director in February 1998. Mr. Bovin
also currently serves as Vice Chairman of Investment Banking and Senior
Managing Director of Bear Stearns & Co. Prior to joining Bear Stearns, Mr.
Bovin spent more than two decades in the Investment Banking Corporate Coverage
and Capital Markets divisions as well as the Communications and Technology
Group of Salomon Brothers, Inc. Mr. Bovin has more than 25 years of experience
in strategic and financial concerns of domestic and foreign companies, and
played significant roles in the growth of several international
telecommunications companies. Mr. Bovin received a B.S. degree from the
Massachusetts Institute of Technology and an M.B.A. degree from Harvard
University.
3
In the event that any nominee of the Company is unable or declines to serve
as a director at the time of the Annual Meeting, the proxies will be voted for
any nominee who shall be designated by the Board at such time to fill the
vacancy. The Board has no reason to believe that any of the persons named
above will be unable or unwilling to serve as a director, if elected.
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES NAMED ABOVE.
4
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Howard S. Jonas(1)...... 42 Chief Executive Officer, Chairman of the Board and Treasurer
Howard S. Balter(1)..... 37 Chief Operating Officer and Vice Chairman of the Board
James A. Courter........ 57 President and Director
Stephen R. Brown........ 42 Chief Financial Officer
Joyce J. Mason.......... 39 General Counsel, Secretary and Director
Marc E. Knoller......... 37 Vice President and Director
Hal Brecher............. 40 Executive Vice President of Operations and Director
Ilan M. Slasky.......... 28 Executive Vice President of Finance
Joshua Winkler.......... 43 Executive Vice President of Sales
Meyer A. Berman......... 64 Director
J. Warren Blaker........ 64 Director
Denis A. Bovin.......... 51 Director
James R. Mellor......... 68 Director
Elmo R. Zumwalt, Jr..... 77 Director
- --------
(1) Member of Executive Committee of the Board of Directors.
Set forth below is biographical information with respect to the Company's
directors and executive officers, other than the Company's Class III
directors:
HOWARD S. BALTER has served as Chief Operating Officer of the Company since
1993 and served as the Company's Chief Financial Officer from 1993 to May
1995. Mr. Balter has been a director of the Company since February 1996 and
became Vice Chairman of the Board in October 1996. From 1985 to 1993, Mr.
Balter operated his own real estate development firm. Mr. Balter holds a B.A.
degree in Mathematics and Computers from Yeshiva University and attended New
York University School of Business.
JAMES A. COURTER joined the Company as President in October 1996 and has
been a director of the Company since March 1996. Mr. Courter has been a senior
partner in the New Jersey law firm of Courter, Kobert, Laufer & Cohen, P.C.
since 1972. He was also a partner in the Washington, D.C. law firm of Verner,
Liipfert, Bernhard, McPherson & Hand from January 1994 to September 1996. Mr.
Courter was a member of the U.S. House of Representatives for 12 years,
retiring in January 1991. From 1991 to 1994, Mr. Courter was Chairman of the
President's Defense Base Closure and Realignment Commission. Mr. Courter also
serves on the Board of Directors of Envirogen, Inc. and The Berkeley School.
He received a B.A. from Colgate University and a J.D. from Duke University Law
School.
STEPHEN R. BROWN joined the Company as its Chief Financial Officer in May
1995. From 1985 to May 1995, Mr. Brown operated his own public accounting
practice servicing medium-sized corporations as well as high net worth
individuals. Mr. Brown received a B.A. in Economics from Yeshiva University
and a B.B.A. in Business and Accounting from Baruch College.
MARC E. KNOLLER has been a director of the Company since March 1996. Mr.
Knoller joined the Company as its Vice President in March 1991. From 1988
until March 1991, Mr. Knoller was director of national sales for Jonas
Publishing. Mr. Knoller has served as Vice President of Jonas Publishing from
1991 until present. Mr. Knoller received a B.B.A. from Baruch College.
HAL BRECHER has served as the Company's Executive Vice President of
Operations since he joined the Company in November 1996. He became a director
of the Company in April 1997. Mr. Brecher also serves as Chief Operating
Officer of Net2Phone. Prior to joining the Company, Mr. Brecher was the
Executive Vice
5
President of DME Marketing, a private direct marketing firm. He holds a B.S.
degree in Computer Science from Brooklyn College, and an M.B.A. degree from
the Wharton School of the University of Pennsylvania.
ILAN M. SLASKY joined the Company in April 1996 and served as Director of
Carrier Services from November 1996 to July 1997. Since December 1997, Mr.
Slasky has served as Executive Vice President of Finance in charge of investor
relations and mergers and acquisitions. From 1991 to 1996, Mr. Slasky worked
for Merrill Lynch in various capacities including risk management, fixed
income trading and equity derivatives. Mr. Slasky holds an M.B.A. degree from
New York University in Finance and Management, and a B.A. degree in Economics
from the University of Pittsburgh.
JOSHUA WINKLER joined the Company in October 1996 as Vice President of
Finance, and was named Executive Vice President of Sales in December 1997.
From 1985 to 1995, Mr. Winkler served as president of Rophe Management, a
private company which owned and operated medical facilities, and served as an
adjunct professor of accounting and business management at Touro College from
1992 to 1996. Mr. Winkler is a certified public accountant, and holds a B.S.
degree in accounting from Brooklyn College.
MEYER A. BERMAN has been a director of the Company since March 1996. Mr.
Berman founded M.A. Berman Co. in 1981, a broker-dealer that services high net
worth individuals and institutions, and has served as its President from its
inception. Prior to such time Mr. Berman held various positions in the stock
brokerage business. Mr. Berman has a B.A. degree from the University of
Connecticut.
J. WARREN BLAKER has been a director of the Company since March 1996. Dr.
Blaker has been Professor of Physics and Director of the Center for Lightwave
Science and Technology at Fairleigh Dickinson University since 1987. From 1982
to 1985, he worked in various capacities in the optics industry, including
serving as Chief Executive Officer of University Optical Products, Inc., a
wholly-owned subsidiary of University Patents, Inc. Dr. Blaker received a B.S.
from Wilkes University and a Ph.D. from the Massachusetts Institute of
Technology.
ELMO R. ZUMWALT, JR. became a director of the Company in February 1997. He
is a retired United States Navy Admiral and served as Chief of Naval Operation
and a member of the Joint Chiefs of Staff from 1970 to 1974. He has been
President of Admiral Zumwalt & Consultants, Inc., a Washington-based
consulting firm, since prior to 1991. Admiral Zumwalt is a director of
Magellan Aerospace Corporation, Dallas Semiconductor Corporation and NL
Industries Inc. He is also a member of the President's Foreign Intelligence
Advisory Board, Chairman of the International Consortium for Research on the
Health Effects of Radiation, Chairman of the Marrow Foundation and Chairman of
the Ethics and Public Policy Center.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
Mr. Howard S. Jonas and Ms. Joyce J. Mason are brother and sister. There are
no other family relationships among any of the directors or executive officers
of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently leases one of its three headquarters facilities in
Hackensack, New Jersey from a corporation which is wholly owned by Howard S.
Jonas. Aggregate lease payments under such lease amounted to $24,000 for
Fiscal 1998. In addition, the Company leases an office building which is owned
by an entity controlled by Mr. Jonas; the aggregate lease payments for Fiscal
1998 under such lease amounted to $102,193.
The Company does not intend to extend or guarantee loans to officers or
directors of the Company, unless such loans are approved by a majority of the
directors and a majority of the independent, disinterested, outside directors
of the Company, are for bona fide business purposes and may be reasonably
expected to benefit the Company. In October 1998, the Company extended a loan
in the principal amount of $175,000 which bears
6
interest at a rate of 6% to Ilan Slasky, the Company's Executive Vice
President of Finance, in connection with Mr. Slasky's relocation to a new
home. Mr. Slasky has repaid $100,000 of the loan.
James Courter, the President and a director of the Company, is a partner of
the law firm Courter, Kobert, Laufer & Cohen, P.C., which has served as
counsel to the Company since July 1996. Fees paid to this firm by the Company
were less than 5% of the firm's gross revenues for each fiscal year in which
the firm represented the Company.
In August 1998, the Company's interest in 1-800-TOWTRUCK, Inc., a start-up
tow truck dispatching service with a limited operating history, was
transferred to Jonas Publishing Corp., an entity controlled by Howard S.
Jonas, the Company's Chairman and Chief Executive Officer, in exchange for
fifty percent of all future profits derived from the operation of such entity.
In addition, in the event of a sale of the trademark 1-800-TOWTRUCK, the
Company will receive twenty percent of the proceeds of the sale. Prior to this
transaction, the Company invested approximately $100,000 in cash and services
in this entity. The Company's management determined that the terms of this
transaction were fair to the Company, in light of 1-800-TOWTRUCK's early stage
of development and the speculative nature of this venture, and the transaction
was approved by the Company's Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee, which
currently consists of Messrs. Berman, Mellor and Blaker, and an Audit
Committee consisting of Messrs. Berman, Blaker and Mellor. The Compensation
Committee is responsible for reviewing and approving all compensation
arrangements for the officers of the Company and is responsible for
administration of the Company's 1996 Stock Option and Incentive Plan. The
Audit Committee is responsible for recommending the independent auditors of
the Company and reviewing with the independent auditors (i) the scope and
results of the audits and the internal accounting controls of the Company,
(ii) the audit practices and professional services furnished by the
independent auditors and (iii) reporting to the Board with respect to any and
all of the above.
During the year ended July 31, 1998, there were nine meetings of the Board
of Directors. All directors attended at least 75% of all Board meetings. The
Audit Committee met once during the same period.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Each non-employee director received as of March 15, 1996 (the date of the
Company's initial public offering) options to purchase 10,000 shares of Common
Stock, and each director appointed to the Board after such date received
options to purchase 10,000 shares of the Company's Common Stock upon his or
her appointment. However, Mr. Zumwalt received options to purchase 16,000
shares of the Company's Common Stock upon his appointment to the Company's
Board in Fiscal 1997, and Mr. Bovin received options to purchase 70,000 shares
of the Company's Common Stock upon his appointment to the Company's Board of
Directors in Fiscal 1998 and subsequently received options to purchase 50,000
shares of the Company's Common Stock. In addition, each continuing non-
employee director of the Company will annually receive grants of options to
purchase 10,000 shares of Common Stock.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's last
three completed fiscal years concerning the compensation of the Company's
Chief Executive Officer and the Company's four most highly compensated
executive officers, other than the Chief Executive Officer, who were serving
as executive officers as of July 31, 1998 (collectively, the "Named Executive
Officers"). Except as described below, the Company does not have any executive
long-term compensation or incentive plans.
7
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
----------------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR(1) SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- -------------- --------- -------- --------------- ---------- ---------------
Howard S. Jonas.......... 1998 146,909 -- -- -- --
Chairman of the Board,
Chief 1997 153,846 -- -- -- --
Executive Officer, and
Treasurer 1996 65,000 -- -- -- --
James A. Courter......... 1998 200,000 -- -- 75,000 --
President 1997 169,230 -- -- 300,000 --
Howard S. Balter......... 1998 186,898 -- -- 75,000 --
Chief Operating Officer 1997 200,251 14,000 -- -- --
and Vice Chairman 1996 175,000 64,000 -- -- --
Hal Brecher.............. 1998 167,938 -- -- 30,000 --
Executive Vice President 1997 129,731 15,000 -- 150,000 --
of Operations
Stephen R. Brown......... 1998 135,784 -- -- 27,500 --
Chief Financial Officer 1997 122,855 15,000 -- 27,500 --
1996 68,125 12,500 -- -- --
- --------
(1) James Courter joined the Company as President in October 1996. Hal Brecher
joined the Company as Vice President of Operations in November 1996.
STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
PERCENT OF RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SHARES GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES IN DATE OF -------------------
NAME OPTIONS(#) FISCAL YEAR(%) EXERCISE PRICE($)(1) EXPIRATION 5%($) 10%($)
- ---- ---------- -------------- -------------------- ---------- --------- ---------
Howard S. Jonas......... -- -- -- -- -- --
James A. Courter........ 75,000 5.9 8.25 8/14/07 389,250 986,250
Howard S. Balter........ 75,000 5.9 8.25 8/14/07 389,250 986,250
Hal Brecher............. 30,000 2.4 8.25 8/14/07 155,700 394,500
Stephen R. Brown........ 27,500 2.2 8.25 8/14/07 142,725 361,625
- --------
(1) Mr. Courter's options will become exercisable on October 1, 2001. Mr.
Balter's options will become exercisable on November 1, 1998. Of Mr.
Brecher's options, 15,000 options will become exercisable on November 1,
1999 and the remaining 15,000 options will become exercisable on November
1, 2000. Of Mr. Brown's options, 13,750 options will become exercisable on
November 1, 1999 and the remaining 13,750 options will become exercisable
on November 1, 2000. Each of such options is subject to accelerated
vesting in the event of a Change in Control or a Corporate Transaction
(each as defined in the Plan).
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table provides certain information concerning the number of
shares of Common Stock underlying unexercised stock options held by each of
the Named Executive Officers, and the value of such stock options at July 31,
1998. The Named Executive Officers exercised a total of 315,300 stock options
during Fiscal 1998.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Howard S. Jonas......... -- -- -- -- -- --
James A. Courter........ -- -- 185,000 200,000 3,643,125 3,684,375
Howard S. Balter........ 188,000 4,125,144 157,920 75,000 3,711,931 1,200,000
Hal Brecher............. 70,000 1,390,800 12,500 97,500 248,437 1,795,312
Stephen R. Brown........ 57,300 1,443,034 22,620 30,000 475,388 487,500
- --------
(1) The closing price of the Common Stock on July 31, 1998, as reported by the
Nasdaq National Market, was $24.25 per share.
8
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Jonas,
Balter, Courter and Brecher. Mr. Jonas's employment agreement, dated as of
January 1, 1996, provides for a minimum base salary of $200,000, which may be
increased, but not decreased, during the term of the agreement. During each of
Fiscal 1997 and Fiscal 1998, Mr. Jonas agreed to waive a portion of his base
salary. The Company may terminate Mr. Jonas's employment only for cause (as
defined in the agreement). If the agreement is terminated without cause, the
Company is obligated to pay to Mr. Jonas an amount equal to twice his base
salary as then in effect. The agreement has a three year term, but is
automatically extendable for additional one year periods unless the Board or
Mr. Jonas notifies the other, within ninety days of the anniversary of such
period, that the agreement will not be extended. Pursuant to the agreement,
Mr. Jonas has agreed not to compete with the Company for a period of one year
following the termination of the agreement.
Mr. Balter's employment agreement, dated as of January 1, 1996, provides for
a minimum base salary of $175,000, which may be increased, but not decreased,
during the term of the agreement. The Company may terminate Mr. Balter's
employment only for cause (as defined in the agreement). If the agreement is
terminated without cause, the Company is obligated to pay to Mr. Balter an
amount equal to twice his base salary as then in effect. The agreement has a
three year term, but is automatically extendable for additional one year
periods unless the Board or Mr. Balter notifies the other, within 90 days of
the anniversary of such period, that the agreement will not be extended.
Pursuant to the agreement, Mr. Balter has agreed not to compete with the
Company for a period of one year following the termination of the agreement.
Mr. Courter is employed as the Company's President pursuant to an employment
agreement, dated as of September 4, 1996, which provides for a minimum base
salary of $200,000, which may be increased, but not decreased, during the term
of the agreement. The Company may terminate Mr. Courter's employment only for
cause (as defined in the agreement). If the agreement is terminated without
cause, the Company is obligated to pay to Mr. Courter an amount equal to twice
his base salary as then in effect. The agreement has a three year term but is
automatically extendable for additional one year periods unless the Board or
Mr. Courter notifies the other, within ninety days of the anniversary of such
period, that the agreement will not be extended. Pursuant to the agreement,
Mr. Courter has agreed not to compete with the Company for a period of one
year following the termination of the agreement.
Mr. Hal Brecher is employed as the Company's Executive Vice President of
Operations pursuant to a three year employment contract that was executed in
October 1996. Mr. Brecher's agreement provides for a minimum base salary of
$160,000, which may be increased, but not decreased, during the term of the
agreement. In the event of termination, Mr. Brecher will receive three months'
salary and benefits. In addition, options to purchase 12,500 shares of the
Company's Common Stock that have been issued to Mr. Brecher, which are
currently non-vested, will vest upon the termination of his employment with
the Company.
EMPLOYEE STOCK OPTION PROGRAM
The Company previously maintained an informal stock option program whereby
selected key employees were granted options to purchase shares of Common
Stock. The primary purpose of this program was to provide long-term incentives
to the Company's key employees and to further align their interests with those
of the Company. Options granted under such program have a term of ten years
and are subject to all other reasonable terms and conditions as the Company
deems necessary and appropriate. The selection of the participants and the
determination of the number of options to be granted to each participant were
made by the Executive Committee of the Company's Board of Directors. Under
such program, options to purchase an aggregate of 2,158,770 shares of Common
Stock have been granted, 612,510 of which were outstanding and unexercised as
of November 10, 1998. The Company does not anticipate that any additional
options will be granted under this program. In addition to this program, the
Company has adopted the 1996 Stock Option and Incentive Plan which is
described further in Proposal No. 2 below.
9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1998, the Compensation Committee was comprised of Messrs.
Berman, Blaker and Mellor, and the Audit Committee was comprised of Messrs.
Berman, Blaker and Mellor. None of the members of the Compensation Committee
and the Audit Committee were employees of the Company during such period.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended (the "Act"), or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
might incorporate future filings, including this Proxy Statement, in whole or
in part, the following report and the Performance Graph set forth below shall
not be incorporated by reference into any such filings, nor shall they be
deemed to be soliciting material or deemed filed with the Securities and
Exchange Commission under the Act or under the Exchange Act.
The Compensation Committee determines the compensation levels of the various
officers of the Company with a view to attract, retain, motivate and reward
key employees who possess exceptional leadership and management skills through
a competitive base salary, bonus payments (when appropriate), long-term
incentives such as awards of stock options, and various other benefits.
The policies of the Compensation Committee are intended to combine
competitive levels of compensation with rewards for commendable performance,
and to align each officer's relative compensation with the Company's
achievement of key business objectives, optimal satisfaction of customers and
maximization of stockholder value. The Compensation Committee believes that
stock ownership by management is beneficial in aligning the interests of the
Company's management with the interests of the Company's stockholders.
Base Salaries. Salaries for the Company's executive officers are determined
primarily on the basis of each executive officer's responsibility, the general
salary practices of companies with which the Company competes and each
officer's individual qualifications and experience. The base salaries are
reviewed by the Compensation Committee in accordance with a variety of
criteria, including individual performance, the functions charged to each
officer, the scope of the officer's duties, trends in the compensation peer
group in which the Company competes for executive talent, and the Company's
financial performance generally. The weight given such factors by the
Compensation Committee may vary with respect to each of the Company's
officers, and from year to year, as the Compensation Committee may deem
necessary.
Stock Option Grants. Stock options are currently granted to executive
officers and other employees under the Company's 1996 Stock Option and
Incentive Plan. In the past, stock options were granted under the Company's
Employee Stock Option Program. The Compensation Committee believes that the
appreciation of stock value underlying stock options provides a strong
incentive for recipients of awards to manage the Company in accordance with
the interests of the Company's stockholders. Stock option grants and awards
are given in order to focus the grantee's attention on the long-term
performance of the Company, as well as to provide an incentive for the grantee
to maintain a long-term relationship with the Company. The number of options
or awards granted and other options terms, such as vesting, are first
determined by the Executive Committee and thereafter approved by the
Compensation Committee, based on recommendations of management in light of the
grantee's level of responsibility, prior performance, and other compensation.
However, stock option grants made to the Company's most senior officers are
made exclusively by the Compensation Committee. Neither the 1996 Stock Option
and Incentive Plan nor the Employee Stock Option Program provides for specific
quantitative criteria for weighing these factors. Rather, a decision to grant
an option or award is primarily based upon an evaluation of the past as well
as the future anticipated performance and responsibilities of the grantee.
401(k) Plan. The Company established a plan in September 1996, pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "401(k)
Plan"), for the benefit of employees. The Company's executive officers are
permitted to participate on the same basis as other employees of the Company.
10
Chief Executive Officer Compensation. The Company has entered into an
employment agreement with Mr. Howard S. Jonas, dated as of January 1, 1996,
providing for a minimum annual base salary of $200,000 which may be increased,
but not decreased, during the term of the agreement. Mr. Jonas's compensation
for Fiscal 1998 was $146,909 (a portion of Mr. Jonas' $200,000 base salary was
waived by Mr. Jonas). Mr. Jonas's base salary was established in part by
comparing the base salaries of chief executive officers at other companies of
similar size. Mr. Jonas's compensation is also based on his position and
responsibilities, his past and expected contribution to the Company's future
success and on the financial performance of the Company. Mr. Jonas did not
receive a bonus or any grants or awards of stock options in Fiscal 1998.
THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Meyer A. Berman
James R. Mellor
J. Warren Blaker
11
PERFORMANCE GRAPH OF STOCK
The following chart sets forth the cumulative total stockholder return
(assuming reinvestment of dividends, if any) on the Company's Common Stock from
the date of the Company's initial public offering (March 15, 1996) through July
31, 1998, as well as the cumulative total return on (i) the Nasdaq National
Market Composite Index, (ii) the Nasdaq Composite Telecommunications and
Computer Index and (iii) the Nasdaq Telecommunications Index.
In the Company's two immediately preceding fiscal years, the Company used a
composite industry index derived from the average returns of each of the Nasdaq
Computer and Data Processing Index and the Nasdaq Telecommunications Index,
each weighted according to the approximate percentage of total revenues from
(i) its telecommunications and Internet telephony businesses and (ii) its
Internet business. However, the Company believes that such approach is not
appropriate with respect to the fiscal year ended July 31, 1998 in light of the
substantially smaller percentage of revenues derived from its Internet access
business in such year. Nonetheless, for purposes of comparison, and as required
by the rules and regulations of the Securities and Exchange Commissions, the
chart below also sets forth the cumulative total return on a composite of such
indices, each weighted according to the percentage of total revenues derived
from each of the Company's businesses for the fiscal year ended July 31, 1998
(90.6% telecommunications, 6.0% Internet and 3.4% Internet telephony). The
stock price performance on the graph below is not necessarily indicative of
future price performance.(1)
------------------------------------------------------------------------------
4/96 7/96 10/96 1/97 4/97 7/97 10/97 1/98 4/98 7/98
IDT CORPORATION 87.21 106.98 103.49 79.07 51.16 77.91 167.44 234.88 285.47 225.58
NASDAQ NATIONAL MARKET (U.S.) 108.65 98.84 111.12 126.26 114.97 145.85 146.25 149.16 172.04 172.16
NASDAQ TELECOM/COMPUTER COMPOSITE 104.33 90.52 94.23 101.38 95.68 122.73 136.57 153.37 181.00 202.82
NASDAQ TELECOMMUNICATIONS 103.89 89.97 93.16 99.68 93.92 120.72 135.74 153.26 180.28 202.69
- --------
(1) Of the Company's revenues for the fiscal year ended July 31, 1998, 3.4%
consisted of revenues from its Internet telephony business. There are no
indices applicable directly to Internet telephony. For purposes of the
performance graph, Internet telephony revenues were counted as part of the
Company's revenues from telecommunications services (90.6%
telecommunications and 3.4% Internet telephony). Therefore, the performance
graph assumes that 94.0% of the Company's revenues during the relevant
periods were derived from telecommunications services, and that 6.0% of the
Company's revenues were derived from Internet access services.
12
PROPOSAL NO. 2
APPROVAL OF THE
1996 STOCK OPTION AND INCENTIVE PLAN,
AS AMENDED AND RESTATED
A proposal has been submitted to the Company's stockholders to approve the
actions of the Board in amending the Company's 1996 Stock Option and Incentive
Plan to, among other things, increase the number of shares of the Company's
Common Stock reserved for issuance under the Plan by 1,500,000 shares. The
1996 Stock Option and Incentive Plan, as amended and restated (the "Plan"), is
set forth in Exhibit A.
SUBMISSION TO STOCKHOLDER VOTE
Since the end of the fiscal year ended July 31, 1998, the Company's Board of
Directors approved amendments to the Plan, which, among other things, (i)
reserved an additional 1,500,000 shares of Common Stock for awards under the
Plan, (ii) extended from thirty days to three months the period of time during
which certain grantees, upon the termination of their service with the
Company, may exercise awards granted under the Plan, (iii) added provisions
regarding the acceleration of certain awards in the event of a sale or other
disposition of a subsidiary of the Company under certain circumstances and
(iv) effected certain technical amendments to the Plan.
Under the terms of the Plan, a stockholder vote is not required for
amendment of the Plan. However, the Plan is being submitted for a stockholder
vote in order to enable the Company to grant options which are incentive stock
options ("ISO's") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and because such approval may be
required or advisable in connection with (i) the provisions set forth in
Section 162(m) of the Code relating to the deductibility of certain
compensation, and (ii) the rules and regulations applicable to companies which
are NASDAQ National Market issuers.
1996 STOCK OPTION AND INCENTIVE PLAN, AS AMENDED AND RESTATED
The description in this Proxy Statement of the principal terms of the Plan
is a summary, does not purport to be complete, and is qualified in its
entirety by the full text of the Plan, which is attached hereto as Exhibit A.
Pursuant to the Plan, officers, directors, key employees and consultants of
the Company are eligible to receive awards of stock options, stock
appreciation rights, limited stock appreciation rights and restricted stock.
Options granted under the Plan may be ISOs, or nonqualified stock options
("NQSOs"). Stock appreciation rights ("SARs") and limited stock appreciation
rights ("LSARs") may be granted simultaneously with the grant of an option or
(in the case of NQSOs), at any time during its term. Restricted stock may be
granted in addition to or in lieu of any other award made under the Plan.
A total of 4,800,000 shares of Common Stock have been authorized for
issuance under the Plan (subject to antidilution and similar adjustments),
including the 1,500,000 shares authorized by the Board since July 31, 1998. Of
such 1,500,000 shares, options covering approximately 500,000 shares were
granted through October 1998, all of which options remain outstanding and
unexercised. These options have exercise prices ranging from $14.00 to $24.25,
with an average exercise price of approximately $16.20 per share.
The Plan is administered by the Compensation Committee of the Board. Subject
to the provisions of the Plan, the Compensation Committee will determine the
type of award, when and to whom awards will be granted, the number of shares
covered by each award and the terms, provisions and kind of consideration
payable (if any), with respect to awards. The Compensation Committee may
interpret the Plan and may at any time adopt such rules and regulations for
the Plan as it deems advisable. The Compensation Committee has granted certain
authority under the Plan to the Executive Committee of the Board, including
the authority to select recipients of awards under the Plan. However, grants
of awards to the Company's senior-most personnel are approved
13
exclusively by the Compensation Committee. In determining the persons to whom
awards shall be granted and the number of shares covered by each award, the
Compensation Committee shall take into account the duties of the respective
persons, their present and potential contribution to the success of the
Company and such other factors as the Compensation Committee shall deem
relevant.
STOCK OPTIONS. An option may be granted on such terms and conditions as the
Compensation Committee may approve, and generally may be exercised for a
period of up to ten years from the date of grant. Generally, ISOs will be
granted with an exercise price equal to the "Fair Market Value" (as defined in
the Plan) on the date of grant. In the case of ISOs, certain limitations will
apply with respect to the aggregate value of option shares which can become
exercisable for the first time during any one calendar year, and certain
additional limitations will apply to ISOs granted to "Ten Percent
Stockholders" (as defined in the Plan). The Compensation Committee may provide
for the payment of the option price in cash, by delivery of Common Stock
having a Fair Market Value equal to such option price, by a combination
thereof or by any other method. Options granted under the Plan will become
exercisable at such times and under such conditions as the Compensation
Committee shall determine, subject to acceleration of the exercisability of
options in the event of, among other things, a "Change in Control," a
"Corporate Transaction" or a "Related Entity Disposition" (in each case, as
defined in the Plan).
The Plan provides for automatic formula option grants to eligible non-
employee directors of the Company. Options to purchase 10,000 shares of Common
Stock were granted to each non-employee director upon the consummation of the
Company's initial public offering in March 1996 and options to purchase 10,000
shares of Common Stock will be granted to each new non-employee director upon
such director's initial election and qualification for the Board. In addition,
options to purchase 10,000 shares of Common Stock are granted annually to each
non-employee director on the anniversary date of each such director's election
to the Board. Each of such options will have an exercise price equal to the
Fair Market Value of a share of Common Stock on the date of grant. All such
options granted to non-employee directors will be immediately exercisable. All
options held by non-employee directors, to the extent not exercised, expire on
the earliest of (i) the tenth anniversary of the date of grant, (ii) one year
following the optionee's termination of directorship on account of death or
disability or (iii) three months following the optionee's termination of
directorship with the Company for any other reason.
SARS AND LSARS. The Plan also permits the Compensation Committee to grant
SARs and/or LSARs with respect to all or any portion of the shares of Common
Stock covered by options. Generally, SARs and LSARs may be exercised only at
such time as the related option is exercisable. In addition, LSARs may be
exercised only (i) during the 90 days immediately following a Change in
Control or (ii) immediately prior to the effective date of a Corporate
Transaction. However, in the case of an "Insider" (as defined in the Plan),
(x) an SAR and an LSAR must be held for at least six months before it becomes
exercisable and (y) an LSAR must automatically be paid out in cash. LSARs will
be exercisable only if, and to the extent, that the option to which the LSARs
relate is then exercisable, and if such option is an ISO, only to the extent
the Fair Market Value per share of Common Stock exceeds the option price.
Upon exercise of an SAR, a grantee will receive for each share for which an
SAR is exercised, an amount in cash or Common Stock, as determined by the
Compensation Committee, equal to the excess, if any, of (i) the Fair Market
Value of a share of Common Stock on the date the SAR is exercised over (ii)
the exercise price per share of the option to which the SAR relates.
Upon exercise of an LSAR, a grantee will receive for each share for which an
LSAR is exercised, an amount in cash equal to the excess, if any, of (i) the
greater of (x) the highest Fair Market Value of a share of Common Stock during
the 90-day period ending on the date the LSAR is exercised, and (y) whichever
of the following is applicable: (1) the highest per share price paid in any
tender or exchange offer which is in effect at any time during the 90 days
ending on the date of exercise of the LSAR; (2) the fixed or formula price for
the acquisition of shares of Common Stock in a merger in which the Company
will not continue as the surviving corporation, or upon a consolidation, or a
sale, exchange or disposition of all or substantially all of the Company's
assets,
14
approved by the Company's stockholders (if such price is determinable on the
date of exercise); and (3) the highest price per share of Common Stock shown
on Schedule 13D, or any amendment thereto, filed by the holder of the
specified percentage of Common Stock, the acquisition of which gives rise to
the exercisability of the LSAR over (ii) the exercise price per share of the
option to which the LSAR relates. In no event, however, may the holder of an
LSAR granted in connection with an ISO receive an amount in excess of the
maximum amount which will enable the option to continue to qualify as an ISO.
When an SAR or LSAR is exercised, the option to which it relates will cease
to be exercisable to the extent of the number of shares with respect to which
the SAR or LSAR is exercised, but will be deemed to have been exercised for
purposes of determining the number of shares available for the future grant of
awards under the Plan.
RESTRICTED STOCK. The Plan further provides for the granting of restricted
stock awards, which are awards of Common Stock which may not be disposed of,
except by will or the laws of descent and distribution, for such period as the
Compensation Committee determines (the "restricted period"). The Compensation
Committee may also impose such other conditions and restrictions, if any, on
the shares as it deems appropriate, including the satisfaction of performance
criteria. All restrictions affecting the awarded shares lapse in the event of
a Change in Control, a Corporate Transaction or a Related Entity Disposition.
During the restricted period, the grantee will be entitled to receive
dividends with respect to, and to vote the shares awarded to him or her. If,
during the restricted period, the grantee's service with the Company
terminates for any reason, any shares remaining subject to restrictions will
be forfeited. The Compensation Committee has the authority to cancel any or
all outstanding restrictions prior to the end of the restricted period,
including cancellation of restrictions in connection with certain types of
termination of service.
During any one calendar year, no grantee may be granted options to acquire
more than 1,000,000 shares of common stock or be awarded more than 1,000,000
shares of restricted stock (in each case subject to adjustment as provided in
the Plan).
The Board may at any time and from time to time suspend, amend, modify or
terminate the Plan; provided however, that, to the extent required by any law,
regulation or stock exchange rule, no such change shall be effective without
the requisite approval of the Company's stockholders. In addition, no such
change may adversely affect an award previously granted, except with the
written consent of the grantee.
No awards may be granted under the Plan after the tenth anniversary of its
initial adoption.
OPTIONS AND AWARDS UNDER THE PLAN.
The Company cannot now determine the number of options or awards to be
granted in the future under the Plan to officers, directors, and employees.
THE BOARD RECOMMENDS A VOTE FOR
THE PROPOSAL APPROVING THE PLAN,
AS AMENDED AND RESTATED IN EXHIBIT A.
15
PROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS
The stockholders will be asked to approve the reappointment of Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending July 31,
1999.
Ernst & Young LLP has served as the Company's independent auditors since
1993 and has been appointed by the Board to continue as the Company's
independent auditors. In the event that the ratification of this selection of
auditors is not approved by a majority of the shares of Common Stock voting at
the Annual Meeting in person or by proxy, management will review its future
selection of auditors. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting. The representative will have an opportunity to
make a statement and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JULY 31, 1999.
16
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than 10 percent of the Common
Stock are required to report their ownership of Common Stock and any changes
in that ownership, on a timely basis, to the Securities and Exchange
Commission. Based on material provided to the Company, all such required
reports were filed on a timely basis in Fiscal 1998, subject to the following
exceptions: Mr. Howard S. Balter, the Company's Chief Operating Officer and
Vice Chairman of the Board, inadvertently failed to file reports with respect
to transactions that occurred in December 1997, and in March, May and June of
1998, Mr. Steve Brown, the Company's Chief Financial Officer inadvertently
failed to file a report with respect to a transaction that occurred in June
1998; and Mr. Hal Brecher, the Company's Executive Vice President of
Operations inadvertently failed to file a report with respect to a transaction
that occurred in April 1998.
SUBMISSION OF PROPOSALS FOR THE 1999 MEETING OF STOCKHOLDERS
Stockholders who wish to present proposals for inclusion in the Company's
proxy materials in connection with the 1999 Annual Meeting of Stockholders
must submit such proposals in writing to the General Counsel and Secretary of
the Company at 190 Main Street, Hackensack, New Jersey 07601 not later than
August 17, 1999. If such proposal is in compliance with all of the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), it will be included in the proxy statement and
set forth on the form of proxy issued for such annual meeting of stockholders.
With respect to any proposal that a stockholder of the Company presents at
the annual meeting of stockholders to be held in 1999 that is not submitted
for inclusion in the Company's proxy materials pursuant to Rule 14a-8 under
the Exchange Act, the proxy for such annual meeting of stockholders will
confer discretionary voting authority to vote on such stockholder proposal
unless (i) the Company is notified of such proposal not later than October 11,
1999, and (ii) the proponent complies with the other requirements set forth in
Rule 14a-4 under the Exchange Act.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented at
the Annual Meeting. If any other business is properly brought before the
Annual Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgments of the persons voting the
proxies.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to fill in, sign and promptly return
the accompanying form in the enclosed envelope.
BY ORDER OF THE BOARD OF
DIRECTORS
November 25, 1998
Joyce J. Mason General Counsel and
Secretary
17
EXHIBIT A
IDT CORPORATION
1996 STOCK OPTION AND INCENTIVE PLAN
(AS AMENDED AND RESTATED)
1. Purpose; Types of Awards; Construction.
The purpose of the IDT Corporation 1996 Stock Option and Incentive Plan (the
"Plan") is to provide incentives to executive officers, other key employees,
directors and consultants of IDT Corporation (the "Company"), or any
subsidiary of the Company which now exists or hereafter is organized or
acquired by the Company, to acquire a proprietary interest in the Company, to
continue as officers, employees, directors or consultants, to increase their
efforts on behalf of the Company and to promote the success of the Company's
business. The provisions of the Plan are intended to satisfy the requirements
of Section 16(b) of the Securities Exchange Act of 1934, as amended, and of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and shall be
interpreted in a manner consistent with the requirements thereof.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Agreement" shall mean a written agreement entered into between the
Company and a Grantee in connection with an award under the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Change in Control" means a change in ownership or control of the
Company effected through either of the following:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than (A) the Company, (B) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company,
(C) any corporation or other entity owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of Common Stock, or (D) any person who, immediately prior to the
Initial Public Offering, owned more than 25% of the combined voting power
of the Company's then outstanding voting securities), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities acquired
directly from the Company or any of its affiliates other than in connection
with the acquisition by the Company or its affiliates of a business)
representing 25% or more of the combined voting power of the Company's then
outstanding voting securities; or
(ii) during any period of not more than two consecutive years, not
including any period prior to the initial adoption of this Plan by the
Board, individuals who at the beginning of such period constitute the
Board, and any new director (other than a director whose initial assumption
of office is in connection with an actual or threatened election contest,
including, but not limited to a consent solicitation, relating to the
election of directors of the Company) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds ( 2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any reason
to constitute at least a majority thereof.
(d) "Class A Common Stock" shall mean shares of Class A common stock, par
value $.01 per share, of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" shall mean the Compensation Committee of the Board or such
other committee as the Board may designate from time to time to administer the
Plan.
A-1
(g) "Common Stock" shall mean shares of common stock, par value $.01 per
share, of the Company.
(h) "Company" shall mean IDT Corporation, a corporation organized under the
laws of the State of Delaware, or any successor corporation.
(i) "Continuous Service" means that the provision of services to the Company
or a Related Entity in any capacity of officer, employee, director or
consultant is not interrupted or terminated. Continuous Service shall not be
considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers between locations of the Company or among the Company, any Related
Entity or any successor in any capacity of officer, employee, director or
consultant, or (iii) any change in status as long as the individual remains in
the service of the Company or a Related Entity in any capacity of officer,
employee, director or consultant (except as otherwise provided in the
applicable Agreement). An approved leave of absence shall include sick leave,
maternity leave, military leave or any other authorized personal leave. For
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.
(j) "Corporate Transaction" means any of the following transactions:
(i) a merger or consolidation of the Company with any other corporation
or other entity, other than (A) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving or parent
entity) 80% or more of the combined voting power of the voting securities
of the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined in the Exchange Act) acquired
25% or more of the combined voting power of the Company's then outstanding
securities; or
(ii) a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all of its
assets (or any transaction having a similar effect).
(k) "Disability" shall mean a Grantee's inability to perform his or her
duties with the Company or any of its affiliates by reason of any medically
determinable physical or mental impairment, as determined by a physician
selected by the Grantee and acceptable to the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(m) "Fair Market Value" per share as of a particular date shall mean (i) the
closing sale price per share of Common Stock on the national securities
exchange on which the Common Stock is principally traded for the last
preceding date on which there was a sale of such Common Stock on such
exchange, or (ii) if the shares of Common Stock are then traded in an over-
the-counter market, the average of the closing bid and asked prices for the
shares of Common Stock in such over-the-counter market for the last preceding
date on which there was a sale of such Common Stock in such market, or (iii)
if the shares of Common Stock are not then listed on a national securities
exchange or traded in an over-the-counter market, such value as the Committee,
in its sole discretion, shall determine; provided, however, that the Fair
Market Value per share on the date of the Initial Public Offering will equal
the Initial Public Offering price per share or such other price that the
Committee determines in its sole discretion.
(n) "Grantee" shall mean a person who receives a grant of Options, Stock
Appreciation Rights, Limited Rights or Restricted Stock under the Plan.
(o) "Incentive Stock Option" shall mean any option intended to be, and
designated as, an incentive stock option within the meaning of Section 422 of
the Code.
(p) "Initial Public Offering" shall mean the underwritten initial public
offering of shares of Common Stock, which occurred in March 1996.
A-2
(q) "Insider" shall mean a Grantee who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
(r) "Limited Right" shall mean a limited stock appreciation right granted
pursuant to Section 10.
(s) "Non-Employee Director" means a member of the Board who is not an
employee of the Company or any Subsidiary.
(t) "Nonqualified Stock Option" shall mean any option not designated as an
Incentive Stock Option.
(u) "Option" or "Options" shall mean a grant to a Grantee of an option or
options to purchase shares of Common Stock.
(v) "Option Agreement" shall have the meaning set forth in Section 6.
(w) "Option Price" shall mean the exercise price of the shares of Common
Stock covered by an Option.
(x) "Parent" shall mean any company (other than the Company) in an unbroken
chain of companies ending with the Company if, at the time of granting an
Option, each of the companies other than the Company owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other companies in such chain.
(y) "Plan" means this IDT Corporation 1996 Stock Option and Incentive Plan,
as amended from time to time.
(z) "Related Entity" means any Parent, Subsidiary or any business,
corporation, partnership, limited liability company or other entity in which
the Company, a Parent or a Subsidiary holds a substantial ownership interest,
directly or indirectly.
(aa) "Related Entity Disposition" means the sale, distribution or other
disposition by the Company of all or substantially all of the Company's
interest in any Related Entity effected by a sale, merger or consolidation or
other transaction involving such Related Entity or the sale of all or
substantially all of the assets of such Related Entity.
(bb) "Restricted Period" shall have the meaning set forth in Section 11.
(cc) "Restricted Stock" means shares of Common Stock issued under the Plan
to a Grantee for such consideration, if any, and subject to such restrictions
on transfer, rights of refusal, repurchase provisions, forfeiture provisions
and other terms and conditions as shall be determined by the Committee.
(dd) "Retirement" shall mean a Grantee's retirement in accordance with the
terms of any tax-qualified retirement plan maintained by the Company or any of
its affiliates in which the Grantee participates.
(ee) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect,
promulgated under the Exchange Act, including any successor to such Rule.
(ff) "Stock Appreciation Right" shall mean the right, granted to a Grantee
under Section 9, to be paid an amount measured by the appreciation in the Fair
Market Value of a share of Common Stock from the date of grant to the date of
exercise of the right, with payment to be made in cash or Common Stock as
specified in the award or determined by the Committee.
(gg) "Subsidiary" shall mean any company (other than the Company) in an
unbroken chain of companies beginning with the Company if, at the time of
granting an Option, each of the companies other than the last company in the
unbroken chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other companies in
such chain.
(hh) "Tax Event" shall have the meaning set forth in Section 17.
A-3
(ii) "Ten Percent Stockholder" shall mean a Grantee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Administration.
(a) The Plan shall be administered by the Committee, the members of which
shall, except as may otherwise be determined by the Board, be "non-employee
directors" under Rule 16b-3 and "outside directors" under Section 162(m) of
the Code.
(b) The Committee shall have the authority in its discretion, subject to and
not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the administration
of the Plan, including, without limitation, the authority to grant Options,
Stock Appreciation Rights, Limited Rights and Restricted Stock; to determine
which options shall constitute Incentive Stock Options and which Options shall
constitute Nonqualified Stock Options; to determine which Options (if any)
shall be accompanied by Limited Rights; to determine the purchase price of the
shares of Common Stock covered by each option; to determine the persons to
whom, and the time or times at which awards shall be granted; to determine the
number of shares to be covered by each award; to interpret the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the Agreements (which need not be
identical) and to cancel or suspend awards, as necessary; and to make all
other determinations deemed necessary or advisable for the administration of
the Plan.
(c) All decisions, determination and interpretations of the Committee shall
be final and binding on all Grantees of any awards under this Plan. No member
of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any award granted
hereunder.
4. Eligibility.
Awards may be granted to executive officers, other key employees, directors
and consultants of the Company. In addition to any other awards granted to
Non-Employee Directors hereunder, awards shall be granted to Non-Employee
Directors pursuant to Section 14 hereof. In determining the persons to whom
awards shall be granted and the number of shares to be covered by each award,
the Committee shall take into account the duties of the respective persons,
their present and potential contributions to the success of the Company and
such other factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan.
5. Stock.
(a) The maximum number of shares of Common Stock reserved for the grant of
awards under the Plan shall be 4,800,000, subject to adjustment as provided in
Section 12 hereof. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company.
(b) If any outstanding award under the Plan should, for any reason expire,
be canceled or be forfeited (other than in connection with the exercise of a
Stock Appreciation Right or a Limited Right), without having been exercised in
full, the shares of Common Stock allocable to the unexercised, canceled or
terminated portion of such award shall (unless the Plan shall have been
terminated) become available for subsequent grants of awards under the Plan.
(c) In no event may a Grantee be granted during any calendar year Options to
acquire more than 1,000,000 shares of Common Stock or more than 1,000,000
shares of Restricted Stock, in each case subject to adjustment as provided in
Section 12 hereof.
6. Terms and Conditions of Options.
(a) OPTION AGREEMENT. Each Option granted pursuant to the Plan shall be
evidenced by a written agreement between the Company and the Grantee (the
"Option Agreement"), in such form and containing such
A-4
terms and conditions as the Committee shall from time to time approve, which
Option Agreement shall comply with and be subject to the following terms and
conditions, unless otherwise specifically provided in such Option Agreement.
For purposes of interpreting this Section 6, a director's service as a member
of the Board shall be deemed to be employment with the Company.
(b) NUMBER OF SHARES. Each Option Agreement shall state the number of shares
of Common Stock to which the Option relates.
(c) TYPE OF OPTION. Each Option Agreement shall specifically state that the
Option constitutes an Incentive Stock Option or a Nonqualified Stock Option.
In the absence of such designation, the Option will be deemed to be a
Nonqualified Stock Option.
(d) OPTION PRICE. Each Option Agreement shall state the Option Price, which,
in the case of an Incentive Stock Option, shall not be less than one hundred
percent (100%) of the Fair Market Value of the shares of Common Stock covered
by the Option on the date of grant. The Option Price shall be subject to
adjustment as provided in Section 12 hereof.
(e) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in full, at
the time of exercise, in cash or in shares of Common Stock (whether then owned
by the Grantee or issuable upon exercise of the Option) having a Fair Market
Value equal to such Option Price or in a combination of cash and Common Stock,
including a cashless exercise procedure through a broker-dealer; provided,
however, that in the case of an Incentive Stock Option, the medium of payment
shall be determined at the time of grant and set forth in the applicable
Option Agreement.
(f) TERM AND EXERCISABILITY OF OPTIONS. Each Option Agreement shall provide
the exercise schedule for the Option as determined by the Committee, provided,
that, the Committee shall have the authority to accelerate the exercisability
of any outstanding option at such time and under such circumstances as it, in
its sole discretion, deems appropriate. The exercise period will be ten (10)
years from the date of the grant of the option unless otherwise determined by
the Committee; provided, however, that in the case of an Incentive Stock
Option, such exercise period shall not exceed ten (10) years from the date of
grant of such Option. The exercise period shall be subject to earlier
termination as provided in Sections 6(g) and 6(h) hereof. An Option may be
exercised, as to any or all full shares of Common Stock as to which the Option
has become exercisable, by written notice delivered in person or by mail to
the Company's transfer agent or other administrator designated by the Company,
specifying the number of shares of Common Stock with respect to which the
Option is being exercised.
(g) TERMINATION. Except as provided in this Section 6(g) and in Section 6(h)
hereof, an Option may not be exercised unless the Grantee is then in the
employ of or maintaining a director or consultant relationship with the
Company or a Subsidiary thereof (or a company or a Parent or Subsidiary of
such company issuing or assuming the Option in a transaction to which Section
424(a) of the Code applies), and unless the Grantee has remained continuously
so employed or in the director or consultant relationship since the date of
grant of the Option. In the event that the employment or consultant
relationship of a Grantee shall terminate (other than by reason of death,
Disability or Retirement), all Options of such Grantee that are exercisable at
the time of Grantee's termination may, unless earlier terminated in accordance
with their terms, be exercised within thirty (30) days after the date of such
termination (or such different period as the Committee shall prescribe);
provided, however, that Options granted after November 17, 1998 may be
exercised within three (3) months after the date of termination (or such
different period as the Committee shall prescribe).
(h) DEATH, DISABILITY OR RETIREMENT OF GRANTEE. If a Grantee shall die while
employed by, or maintaining a director or consultant relationship with, the
Company or a Subsidiary thereof, or within thirty (30) days after the date of
termination of such Grantee's employment, director or consultant relationship
(or within such different period as the Committee may have provided pursuant
to Section 6(g) hereof), or if the Grantee's employment, director or
consultant relationship shall terminate by reason of Disability, all Options
theretofore granted to such Grantee (to the extent otherwise exercisable) may,
unless earlier terminated in accordance with their terms, be exercised by the
Grantee or by the Grantee's estate or by a person who acquired
A-5
the right to exercise such Options by bequest or inheritance or otherwise by
result of death or Disability of the Grantee, at any time within 180 days
after the death or Disability of the Grantee (or such different period as the
Committee shall prescribe). In the event that an Option granted hereunder
shall be exercised by the legal representatives of a deceased or former
Grantee, written notice of such exercise shall be accompanied by a certified
copy of letters testamentary or equivalent proof of the right of such legal
representative to exercise such Option. In the event that the employment or
consultant relationship of a Grantee shall terminate on account of such
Grantee's Retirement, all Options of such Grantee that are exercisable at the
time of such Retirement may, unless earlier terminated in accordance with
their terms, be exercised at any time within one hundred eighty (180) days
after the date of such Retirement (or such different period as the Committee
shall prescribe).
(i) OTHER PROVISIONS. The Option Agreements evidencing awards under the Plan
shall contain such other terms and conditions not inconsistent with the Plan
as the Committee may determine.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.
8. Incentive Stock Options.
Options granted pursuant to this Section 8 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms
and conditions, in addition to the general terms and conditions specified in
Section 6 hereof:
(a) LIMITATION ON VALUE OF SHARES. To the extent that the aggregate Fair
Market Value of shares of Common Stock subject to Options designated as
Incentive Stock Options which become exercisable for the first time by a
Grantee during any calendar year (under all plans of the Company or any
Subsidiary) exceeds $100,000, such excess Options, to the extent of the shares
covered thereby in excess of the foregoing limitation, shall be treated as
Nonqualified Stock Options. For this purpose, Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the shares of Common Stock shall be determined as of the date
that the Option with respect to such shares was granted.
(b) TEN PERCENT STOCKHOLDER. In the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, (i) the Option Price shall not be less
than one hundred ten percent (110%) of the Fair Market Value of the shares of
Common Stock on the date of grant of such Incentive Stock Option, and (ii) the
exercise period shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
9. Stock Appreciation Rights.
The Committee shall have authority to grant a Stock Appreciation Right to
the Grantee of any Option under the Plan with respect to all or some of the
shares of Common Stock covered by such related Option. A Stock Appreciation
Right shall, except as provided in this Section 9 or as may be determined by
the Committee, be subject to the same terms and conditions as the related
Option. Each Stock Appreciation Right granted pursuant to the Plan shall be
evidenced by a written Agreement between the Company and the Grantee in such
form as the Committee shall from time to time approve, which Agreement shall
comply with and be subject to the following terms and conditions, unless
otherwise specifically provided in such Agreement:
(a) TIME OF GRANT. A Stock Appreciation Right may be granted either at the
time of grant of the related option, or at any time thereafter during the term
of the Option; provided, however that Stock Appreciation Rights related to
Incentive Stock Options may only be granted at the time of grant of the
related Option.
(b) PAYMENT. A Stock Appreciation Right shall entitle the holder thereof,
upon exercise of the Stock Appreciation Right or any portion thereof, to
receive payment of an amount computed pursuant to Section 9(d).
A-6
(c) EXERCISE. A Stock Appreciation Right shall be exercisable at such time
or times and only to the extent that the related Option is exercisable, and
will not be transferable except to the extent the related option may be
transferable. A Stock Appreciation Right granted in connection with an
Incentive Stock Option shall be exercisable only if the Fair Market Value of a
share of Common Stock on the date of exercise exceeds the purchase price
specified in the related Incentive Stock Option. Unless otherwise approved by
the Committee, no Grantee shall be permitted to exercise any Stock
Appreciation Right (i) until six (6) months have elapsed from the date of
grant or (ii) during the period beginning two weeks prior to the end of each
of the Company's fiscal quarters and ending on the second business day
following the day on which the Company releases to the public a summary of its
fiscal results for such period.
(d) AMOUNT PAYABLE. Upon the exercise of a Stock Appreciation Right, the
Optionee shall be entitled to receive an amount determined by multiplying (i)
the excess of the Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right over the Option Price of the related
Option, by (ii) the number of shares of Common Stock as to which such Stock
Appreciation Right is being exercised.
(e) TREATMENT OF RELATED OPTIONS AND STOCK APPRECIATION RIGHTS UPON
EXERCISE. Upon the exercise of a Stock Appreciation Right, the related Option
shall be canceled to the extent of the number of shares of Common Stock as to
which the Stock Appreciation Right is exercised. Upon the exercise or
surrender of an option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of
shares of Common Stock as to which the Option is exercised or surrendered.
(f) METHOD OF EXERCISE. Stock Appreciation Rights shall be exercised by a
Grantee only by a written notice delivered to the Company in accordance with
procedures specified by the Company from time to time. Such notice shall state
the number of shares of Common Stock with respect to which the Stock
Appreciation Right is being exercised. A Grantee may also be required to
deliver to the Company the underlying Agreement evidencing the Stock
Appreciation Right being exercised and any related Option Agreement so that a
notation of such exercise may be made thereon, and such Agreements shall then
be returned to the Grantee.
(g) FORM OF PAYMENT. Payment of the amount determined under Section 9(d) may
be made solely in whole shares of Common Stock in a number based upon their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the sole discretion of the Committee, solely in cash, or in
a combination of cash and shares of Common Stock as the Committee deems
advisable. If the Committee decides to make full payment in shares of Common
Stock, and the amount payable results in a fractional share, payment for the
fractional share will be made in cash.
10. Limited Stock Appreciation Rights.
The Committee shall have authority to grant a Limited Right to the Grantee
of any Option under the Plan with respect to all or some of the shares of
Common Stock covered by such related Option. Each Limited Right granted
pursuant to the Plan shall be evidenced by a written Agreement between the
Company and the Grantee, in such form as the Committee shall from time to time
approve, which Agreement shall comply with and be subject to the following
terms and conditions, unless otherwise specifically provided in such
Agreement:
(a) TIME OF GRANT. A Limited Right granted in tandem with a Nonqualified
Stock Option may be granted either at the time of grant of the related Option
or any time thereafter during its term. A Limited Right granted in tandem with
an Incentive Stock Option may only be granted at the time of grant of the
related Option.
(b) EXERCISE. A Limited Right may be exercised only (i) during the ninety-
day period following the occurrence of a Change in Control or (ii) immediately
prior to the effective date of a Corporate Transaction. Each Limited Right
shall be exercisable only if, and to the extent that, the related Option is
exercisable and, in the case of a Limited Right granted in tandem with an
Incentive Stock Option, only when the Fair Market Value per share of Common
Stock exceeds the Option Price per share. Notwithstanding the provisions of
the two immediately preceding sentences (or unless otherwise approved by the
Committee), a Limited Right granted to a Grantee who is an Insider must be (x)
held by the Insider for at least six (6) months from the date of grant of the
Limited Right before it becomes exercisable and (y) automatically paid out in
cash to the Insider upon the occurrence of a Change in Control or a Corporate
Transaction (provided such six (6) month holding period requirement has been
met).
A-7
(c) AMOUNT PAYABLE. Upon the exercise of a Limited Right, the Grantee
thereof shall receive in cash whichever of the following amounts is
applicable:
(i) in the case of the realization of Limited Rights by reason of an
acquisition of Common Stock described in clause (i) of the definition of
"Change in Control" (Section 2(c) above), an amount equal to the
Acquisition Spread as defined in Section 10(d)(ii) below; or
(ii) in the case of the realization of Limited Rights by reason of
stockholder approval of an agreement or plan described in clause (i) of the
definition of "Corporate Transaction" (Section 2(j) above), an amount equal
to the Merger Spread as defined in Section 10(d)(iv) below; or
(iii) in the case of the realization of Limited Rights by reason of the
change in composition of the Board described in clause (ii) of the
definition of "Change in Control" or stockholder approval of a plan or
agreement described in clause (ii) of the definition of Corporate
Transaction, an amount equal to the Spread as defined in Section 10(d)(v)
below.
Notwithstanding the foregoing provisions of this Section 10(c) (or unless
otherwise approved by the Committee), in the case of a Limited Right granted
in respect of an Incentive Stock Option, the Grantee may not receive an amount
in excess of the maximum amount that will enable such option to continue to
qualify under the Code as an Incentive Stock Option.
(d) DETERMINATION OF AMOUNTS PAYABLE. The amounts to be paid to a Grantee
pursuant to Section 10(c) shall be determined as follows:
(i) The term "Acquisition Price per Share" as used herein shall mean,
with respect to the exercise of any Limited Right by reason of an
acquisition of Common Stock described in clause (i) of the definition of
Change in Control, the greatest of (A) the highest price per share shown on
the Statement on Schedule 13D or amendment thereto filed by the holder of
25% or more of the voting power of the Company that gives rise to the
exercise of such Limited Right, (B) the highest price paid in any tender or
exchange offer which is in effect at any time during the ninety-day period
ending on the date of exercise of the Limited Right, or (C) the highest
Fair Market Value per share of Common Stock during the ninety day period
ending on the date the Limited Right is exercised.
(ii) The term "Acquisition Spread" as used herein shall mean an amount
equal to the product computed by multiplying (A) the excess of (1) the
Acquisition Price per Share over (2) the Option Price per share of Common
Stock at which the related option is exercisable, by (B) the number of
shares of Common Stock with respect to which such Limited Right is being
exercised.
(iii) The term "Merger Price per Share" as used herein shall mean, with
respect to the exercise of any Limited Right by reason of stockholder
approval of an agreement described in clause (i) of the definition of
Corporate Transaction, the greatest of (A) the fixed or formula price for
the acquisition of shares of Common Stock specified in such agreement, if
such fixed or formula price is determinable on the date on which such
Limited Right is exercised, (B) the highest price paid in any tender or
exchange offer which is in effect at any time during the ninety-day period
ending on the date of exercise of the Limited Right, (C) the highest Fair
Market Value per share of Common Stock during the ninety-day period ending
on the date on which such Limited Right is exercised.
(iv) The term "Merger Spread" as used herein shall mean an amount equal
to the product. computed by multiplying (A) the excess of (1) the Merger
Price per Share over (2) the Option Price per share of Common Stock at
which the related Option is exercisable, by (B) the number of shares of
Common Stock with respect to which such Limited Right is being exercised.
(v) The term "Spread" as used herein shall mean, with respect to the
exercise of any Limited Right by reason of a change in the composition of
the Board described in clause (ii) of the definition of Change in Control
or stockholder approval of a plan or agreement described in clause (ii) of
the definition of Corporate
A-8
Transaction, an amount equal to the product computed by multiplying (i) the
excess of (A) the greater of (1) the highest price paid in any tender or
exchange offer which is in effect at any time during the ninety-day period
ending on the date of exercise of the Limited Right or (2) the highest Fair
Market Value per share of Common Stock during the ninety day period ending
on the date the Limited Right is exercised over (B) the Option Price per
share of Common Stock at which the related Option is exercisable, by (ii)
the number of shares of Common Stock with respect to which the Limited
Right is being exercised.
(e) TREATMENT OF RELATED OPTIONS AND LIMITED RIGHTS UPON EXERCISE. Upon the
exercise of a Limited Right, the related Option shall cease to be exercisable
to the extent of the shares of Common Stock with respect to which such Limited
Right is exercised but shall be considered to have been exercised to that
extent for purposes of determining the number of shares of Common Stock
available for the grant of further awards pursuant to this Plan. Upon the
exercise or termination of a related Option, the Limited Right with respect to
such related Option shall terminate to the extent of the shares of Common
Stock with respect to which the related Option was exercised or terminated.
(f) METHOD OF EXERCISE. To exercise a Limited Right, the Grantee shall (i)
deliver written notice to the Company specifying the number of shares of
Common Stock with respect to which the Limited Right is being exercised, and
(ii) if requested by the Committee, deliver to the Company the Agreement
evidencing the Limited Rights being exercised and, if applicable, the Option
Agreement evidencing the related Option; the Company shall endorse thereon a
notation of such exercise and return such Agreements to the Grantee. The date
of exercise of a Limited Right that is validly exercised shall be deemed to be
the date on which there shall have been delivered the instruments referred to
in the first sentence of this paragraph (f).
11. Restricted Stock.
The Committee may award shares of Restricted Stock to any eligible employee
or consultant. Each award of Restricted Stock under the Plan shall be
evidenced by a written Agreement between the Company and the Grantee, in such
form as the Committee shall from time to time approve, which Agreement shall
comply with and be subject to the following terms and conditions, unless
otherwise specifically provided in such Agreement:
(a) NUMBER OF SHARES. Each Agreement shall state the number of shares of
Restricted Stock to be subject to an award.
(b) RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, for such period as the Committee shall
determine from the date on which the award is granted (the "Restricted
Period"). The Committee may also impose such additional or alternative
restrictions and conditions on the shares as it deems appropriate including
the satisfaction of performance criteria. Such performance criteria may
include sales, earnings before interest and taxes, return on investment,
earnings per share, any combination of the foregoing or rate of growth of any
of the foregoing, as determined by the Committee. Certificates for shares of
stock issued pursuant to Restricted Stock awards shall bear an appropriate
legend referring to such restrictions, and any attempt to dispose of any such
shares of stock in contravention of such restrictions shall be null and void
and without effect. During the Restricted Period, such certificates shall be
held in escrow by an escrow agent appointed by the Committee. In determining
the Restricted Period of an award, the Committee may provide that the
foregoing restrictions shall lapse with respect to specified percentages of
the awarded shares on successive anniversaries of the date of such award.
(c) FORFEITURE. Subject to such exceptions as may be determined by the
Committee, if the Grantee's continuous employment or consultant relationship
with the Company or any Subsidiary shall terminate for any reason prior to the
expiration of the Restricted Period of an award, any shares remaining subject
to restrictions (after taking into account the provisions of Subsection (e) of
this Section 11) shall thereupon be forfeited by the Grantee and transferred
to, and retired by, the Company without cost to the Company or such
Subsidiary.
A-9
(d) OWNERSHIP. During the Restricted Period the Grantee shall possess all
incidents of ownership of such shares, subject to Subsection (b) of this
Section 11, including the right to receive dividends with respect to such
shares and to vote such shares.
(e) ACCELERATED LAPSE OF RESTRICTIONS. Upon the occurrence of any of the
events specified in Section 13 (and subject to the conditions set forth
therein), all restrictions then outstanding on any shares of Restricted Stock
awarded under the Plan shall lapse as of the applicable date set forth in
Section 13. The Committee shall have the authority (and the Agreement may so
provide) to cancel all or any portion of any outstanding restrictions prior to
the expiration of the Restricted Period with respect to any or all of the
shares of Restricted Stock awarded on such terms and conditions as the
Committee shall deem appropriate.
12. Effect of Certain Changes.
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
extraordinary dividend, stock dividend, recapitalization, merger,
consolidation, stock split, warrant or rights issuance, or combination or
exchange of such shares, or other similar transactions, the Committee shall
equitably adjust (i) the maximum number of Options or shares of Restricted
Stock that may be awarded to a Grantee in any calendar year (as provided in
Section 5 hereof), (ii) the number of shares of Common Stock available for
awards under the Plan, (iii) the number of such shares covered by outstanding
awards and (iv) the price per share of Options or the applicable market value
of Stock Appreciation Rights or Limited Rights, in each such case so as to
reflect such event and preserve the value of such awards; provided, however,
that any fractional shares resulting from such adjustment shall be eliminated.
(b) CHANGE IN COMMON STOCK. In the event of a change in the Common Stock of
the Company as presently constituted that is limited to a change of all of its
authorized shares of Common Stock into the same number of shares with a
different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the Plan.
13. Corporate Transaction; Change in Control; Related Entity Disposition.
(a) CORPORATE TRANSACTION. In the event of a Corporate Transaction, each
award which is at the time outstanding under the Plan shall automatically
become fully vested and exercisable and, in the case of an award of Restricted
Stock, shall be released from any restrictions on transfer and repurchase or
forfeiture rights, immediately prior to the specified effective date of such
Corporate Transaction. Effective upon the consummation of the Corporate
Transaction, all outstanding awards of Options, Stock Appreciation Rights and
Limited Rights under the Plan shall terminate. However, all such awards shall
not terminate if the awards are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof.
(b) CHANGE IN CONTROL. In the event of a Change in Control (other than a
Change in Control which is also a Corporate Transaction), each award which is
at the time outstanding under the Plan automatically shall become fully vested
and exercisable and, in the case of an award of Restricted Stock, shall be
released from any restrictions on transfer and repurchase or forfeiture
rights, immediately prior to the specified effective date of such Change in
Control.
(c) RELATED ENTITY DISPOSITION. With respect only to awards granted under
the Plan after November 17, 1998, the Continuous Service of each Grantee (who
is primarily engaged in service to a Related Entity at the time it is involved
in a Related Entity Disposition) shall terminate effective upon the
consummation of such Related Entity Disposition, and each outstanding award of
such Grantee under the Plan shall become fully vested and exercisable and, in
the case of an award of Restricted Stock, shall be released from any
restrictions on transfer; provided, however, that no such award shall vest
pursuant to this Section 13(c) in connection with a Related Entity Disposition
consummated prior to November 17, 2000 if such vesting would defeat the
ability to account for such transaction as a "pooling" under generally
accepted accounting principles.
A-10
The Continuous Service of a Grantee shall not be deemed to terminate if an
outstanding award is assumed by the surviving corporation or its parent entity
in connection with a Related Entity Disposition.
14. Non-Employee Director Options.
The provisions of this Section 14 shall apply only to certain grants of
Options to Non-Employee Directors, as provided below. Except as set forth in
this Section 14, the other provisions of the Plan shall apply to grants of
Options to Non-Employee Directors to the extent not inconsistent with this
Section. For purposes of interpreting Section 6 of the Plan, a Non-Employee
Director's service as a member of the Board shall be deemed to be employment
with the Company.
(a) GENERAL. Non-Employee Directors shall receive Nonqualified Stock Options
in accordance with this Section 14. The Option Price per share of Common Stock
purchasable under Options granted to Non-Employee Directors shall be the Fair
Market Value of a share on the date of grant. Options granted pursuant to this
Section 14 shall be subject to the terms of such section and shall not be
subject to discretionary acceleration of exercisability by the Committee.
(b) INITIAL GRANTS. On the date of the Initial Public Offering, each Non-
Employee Director will be granted automatically, without action by the
Committee, an Option to purchase 10,000 shares of Common Stock. The Option
Price shall equal the offering price of the Common Stock in connection with
the Initial Public Offering.
(c) SUBSEQUENT GRANTS. Each person who, after the Initial Public Offering,
becomes a Non-Employee Director for the first time, will, at the time such
director is elected and duly qualified, be granted automatically, without
action by the Committee, an Option to purchase 10,000 shares of Common Stock.
The Option Price shall equal the Fair Market Value of the Common Stock as of
the date of grant.
(d) ANNUAL GRANTS. On each anniversary date of a Non-Employee Director's
initial election to the Board, such Non-Employee Director will be granted
automatically, without action by the Committee, an Option to purchase 10,000
shares of Common Stock. The Option Price shall equal the Fair Market Value of
the Common Stock as of the date of grant.
(e) VESTING. Each option granted under this Section 14 shall be fully
exercisable on the date of grant. Sections 6(f), 6(g) and 6(h) hereof shall
not apply to Options granted to Non-Employee Directors.
(f) DURATION. Each Option granted to a Non-Employee Director shall expire on
the first to occur of (i) the tenth anniversary of the date of grant of the
Option, (ii) the first anniversary of the Non-Employee Director's termination
of service as a member of the Board other than for Cause or (iii) three months
following the Non-Employee Director's removal from the Board for Cause. The
Committee may not provide for an extended exercise period beyond the periods
set forth in this Section 14.
(g) DEFINITION OF "CAUSE." For purposes of this Section 14, "cause" shall
mean the termination of service as a member of the Board by a Non-Employee
Director due to any act of (i) fraud or intentional misrepresentation, or (ii)
embezzlement, misappropriation or conversion of assets or opportunities of the
Company or any Subsidiary.
15. Period During which Awards May Be Granted.
Awards may be granted pursuant to the Plan from time to time within a period
of ten (10) years from February 7, 1996, the date the Plan was initially
adopted by the Board.
16. Transferability of Awards.
(a) Incentive Stock Options (and any Stock Appreciation Rights related
thereto) may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by the laws of descent and
A-11
distribution and may be exercised, during the lifetime of the Grantee, only by
the Grantee or his or her guardian or legal representative.
(b) Nonqualified Stock Options (together with any Stock Appreciation Rights
or Limited Rights related thereto) shall be transferable in the manner and to
the extent acceptable to the Committee, as evidenced by a writing signed by
the Company and the Grantee. Notwithstanding the transfer by a Grantee of a
Nonqualified Stock Option, the Grantee will continue to remain subject to the
withholding tax requirements set forth in Section 17 hereof.
(c) The terms of any award granted under the Plan, including the
transferability of any such award, shall be binding upon the executors,
administrators, heirs and successors of the Grantee.
17. Agreement by Grantee regarding Withholding Taxes.
If the Committee shall so require, as a condition of exercise of an Option,
Stock Appreciation Right or Limited Right or the expiration of a Restricted
Period (each, a "Tax Event"), each Grantee shall agree that no later than the
date of the Tax Event, the Grantee will pay to the Company or make
arrangements satisfactory to the Committee regarding payment of any federal,
state or local taxes of any kind required by law to be withheld upon the Tax
Event. Alternatively, the Committee may provide that a Grantee may elect, to
the extent permitted or required by law, to have the Company deduct federal,
state and local taxes of any kind required by law to be withheld upon the Tax
Event from any payment of any kind due to the Grantee. The withholding
obligation may be satisfied by the withholding or delivery of Common Stock.
18. Rights as a Stockholder.
Except as provided in Section 11(d) hereof, a Grantee or a transferee of an
award shall have no rights as a stockholder with respect to any shares covered
by the award until the date of the issuance of a stock certificate to him or
her for such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution
of other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 12(a) hereof.
19. No Rights to Employment.
Nothing in the Plan or in any award granted or Agreement entered into
pursuant hereto shall confer upon any Grantee the right to continue in the
employ of, or in a consultant relationship with, the Company or any Subsidiary
or to be entitled to any remuneration or benefits not set forth in the Plan or
such Agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary to terminate such Grantee's employment. Awards
granted under the Plan shall not be affected by any change in duties or
position of a Grantee as long as such Grantee continues to be employed by, or
in a consultant relationship with, the Company or any Subsidiary.
20. Beneficiary.
A Grantee may file with the Committee a written designation of a beneficiary
on such form as may be prescribed by the Committee and may, from time to time,
amend or revoke such designation. If no designated beneficiary survives the
Grantee, the executor or administrator of the Grantee's estate shall be deemed
to be the Grantee's beneficiary.
21. Stockholder Approval; Amendment and Termination of the Plan.
(a) STOCKHOLDER APPROVAL. The Plan initially became effective when adopted
by the Board on February 7, 1996 and shall terminate on the tenth anniversary
of such date. The Plan was ratified by the Company's stockholders on February
27, 1997. In December 1997, the Board submitted to the Company's stockholders
for approval an amendment authorizing an additional 1,000,000 shares for
awards under the Plan,
A-12
making a total of 3,300,000 shares authorized for awards. On September 28,
1998, the Board authorized an additional 1,000,000 shares for awards under the
Plan, on November 20, 1998, the Board approved the Plan, as amended and
restated herein, and on November 23, 1998 the Executive Committee approved the
further increase of 500,000 shares, bringing the total number of shares
authorized for issuance under the Plan to 4,800,000 shares. The Plan, as
amended and restated herein, will be submitted to the stockholders of the
Company for ratification at the next general meeting of stockholders to be
held after such date.
(b) AMENDMENT AND TERMINATION OF THE PLAN. The Board at any time and from
time to time may suspend, terminate, modify or amend the Plan; however, unless
otherwise determined by the Board, an amendment that requires stockholder
approval in order for the Plan to continue to comply with Rule 16b-3 or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of stockholders. Except as provided in
Section 12(a) hereof, no suspension, termination, modification or amendment of
the Plan may adversely affect any award previously granted, unless the written
consent of the Grantee is obtained. The amendment of Section 6(g) (extending
the post-termination exercise period of Options from thirty (30) days to three
(3) months) and the addition of Section 13(c) in respect of Related Entity
Dispositions shall apply prospectively only to Options granted after November
17, 1998, the date that the Plan, as amended and restated herein, was adopted
by the Board.
22. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the State of Delaware.
A-13